Host 

Philippa Lamb 

Guests 

• Stephen Relf, Technical Manager, Tax, ICAEW
• Sally Baker, Head of Corporate Reporting Strategy, ICAEW 

Transcript

Philippa Lamb: Hello, and welcome back to the insights Podcast. I’m Philippa Lamb with our monthly roundup of accountancy news. This time, we’re covering the main changes taking effect with the new tax year and progress on the provisions of the economic crime and corporate Transparency Act. To shed light on those two topics we’re joined by Stephen Relf, Technical Manager, Tax and Sally Baker, Head of Corporate Reporting Strategy.

As we know, the beginning of the tax year is always a busy time for accountants, but this April in particular is unusual in the sheer number of changes coming into force. Stephen, why is this year busier than most other years?

Stephen Relf: I think that’s possibly because we’ve got a combination of some measures that we’ve known about for a while, which are just beginning to take effect now, but also some new measures coming out of the Spring Budget.

In terms of the old measures, I think a good example is the abolition of basis periods for sole traders. This was announced a few years back, it was consulted on and we had an implementation period, including a transitional year. But this year, 2024/2025, it’s now just taking full effect. In the Spring Budget, we’ve had a few announcements from that which take effect now. A good example, again, would be the national insurance cuts. For employees, the rates went down from 10% to 8%, and for the self-employed from 9% to 6%. And that was widely trailed ahead of the Budget. But what we didn’t expect is that it would apply from 6 April.

PL: There is a lot, as you say, so I think we’re going to limit ourselves to the main changes for accountants to be alert to. Should we look at measures affecting individuals first?

SR: I think if I had to pick out one measure for individuals, I would go with the high income child benefit charge, or HICBIC. This claws back child benefit for high earners; it does that in full where income is above the upper threshold, and it does it in part where income is between the lower and upper thresholds. And it’s got a number of problems with it. But some of them relate to the fact that those thresholds were unchanged since HICBIC was introduced in 2013.

PL: Just remind us what they were?

SR: The lower threshold currently is £50,000, the upper threshold is £60,000. At the Budget, the Chancellor did announce that those thresholds will be increased, so that lower threshold will now go from £50,000 to £60,000, and the upper threshold from £60,000 to £80,000. Now, that’s really good news for an awful lot of families – I think roughly 485,000 families are expected to benefit from this. But there is one important point to note: of that figure, there are around 180,000 families that will actually have to take some action in order to benefit from these changes. That’s because they haven’t claimed child benefit in the past – maybe because they didn’t want to get embroiled in HICBIC. So to benefit from these changes, they will now need to reconsider that decision and look at claiming child benefit.

PL: And if you’re a couple, who is responsible for paying the tax charge?

SR: It’s the highest earner in that couple.

PL: And if your income is over the threshold, you can choose to get the payments and pay the tax charge at the end, or you can just opt out – is that right?

SR: It’s even more complicated than that actually – there’s a third option where you can claim child benefit, but opt to receive no money. The reason you would do that is that it gives you some protection when it comes to contributory benefits. Unfortunately, HICBIC has really complicated things over the last few years, so this is a welcome simplification.

PL: There was talk of making this about household income rather than individual income, but that hasn’t happened, has it?

SR: The Chancellor did mention that, and he did say they were looking to do that on or before April 2026. But the problem is, that is quite a significant change for HMRC. So although it would be a great simplification – it makes HICBIC fairer – it would mean a lot of changes to HMRC processes and systems.

PL: Shall we move on to sole traders? What’s new for them?

SR: One of the big things for sole traders is significant changes to the cash basis. So traditionally, businesses have prepared their accounts and calculated their profits and losses on the accruals basis. But a few years back, the government introduced the option of using the cash basis instead. So essentially, you can elect to be taxed by reference to cash in and cash out for the year, which is a lot simpler and easier to understand. The uptake of that was good, but perhaps not as good as the government wanted. So what it’s done now is turned the system on its head, and essentially the cash basis will become the default. If you want to use the accruals basis, you need to elect to do that. But importantly, as well, they have removed some of the barriers to using the cash basis – there was a cap on the amount of interest you could deduct in calculating your profit and loss, but that’s now gone. And there were also restrictions on what you could do with the loss in terms of relief and they have now gone as well.

PL: Am I right in thinking there’s been a bit of nervousness from accountants about this, who perhaps have been, as you say, more used to the accruals basis in the past?

SR: And that’s perfectly understandable, because I think the accruals basis probably gives a much more accurate position of where the business is. And also, obviously, accountants are much more comfortable with the accruals basis and the cash basis. So that, combined with those barriers I mentioned, I think did really put people off using it.

PL: But the government prefers cash, presumably, in part at least because it makes digitisation easier?

SR: I would think so; I think that’s probably quite a key reason for this. Making tax digital – MTD – is expected to be phased in for the self-employed from April 2026. And to make that possible, you need to get rid of some of the complexities in the system. This is a candidate for that.

PL: Companies, finally –what would you say is the most significant change there?

SR: For companies, it’s quite hard to look past R&D, really. And that’s been the case for the last few years. So for accounting periods beginning on or after the first of April this year, we now have a new merged regime for R and D tax relief that’s going to replace the legacy SME scheme, and the legacy large company or RDEC (Research and Development Expenditure Credit) scheme. I think the main impact of that is probably going to be for SMEs, largely because the new regime is more similar perhaps to RDEC than to the SME scheme, so they’re going to have a more significant learning curve. Just to point out, as well, that it does come in addition to lots of other changes in the last few years, particularly around information requirements. You do have to provide a lot more information to HMRC now, when you make a claim.

PL: So more onerous for SMEs, but the thinking here is that there have been errors, there has been fraud, and this presumably is an attempt to try and iron some of that out?

SR: That’s right. I think there are a few reasons why the government is doing it, and that’s probably the main one. But I think also the concern is that they don’t get enough value back from their investment in R&D when it comes to SMEs compared to large companies. And also the scale of R&D tax relief, and the cost of R&D tax relief has increased significantly over the last few years.

PL: So Steven, I know you’re a regular on the new Tax Track podcast. You go into all this, I think, in more detail in the latest episode? And the one before that?

SR: It’s in the latest one, yes. We’ve actually only just recorded it – myself, my colleagues Lindsey and, in particular, Richard are quite close to this. We do give a really good overview of the new regime, but also pick out some other, more challenging areas, especially around contractor relationships. That’s definitely worth a listen, if you’re interested in R&D tax relief.

PL: So yes, if anyone really wants to dig into the detail, that will be the place to go. It’s The Tax Track and you can listen to it on any podcast app. Where else would you point listeners, Stephen, if they want more information on what’s changing this year?

SR: In Taxline, we have a really useful table which sets out the key changes applied from April. On the face of it, it gives you a quick overview of the changes so you can get the key details very quickly and easily. But you’ll find that if you hover over it, it brings up more detail. And also, if that still isn’t enough and you want to do more detailed research, there are also links provided to other content. So ideally, that table will give you or direct you to everything you need to know.

PL: We’ll put a link to that in the show notes so people can go straight there from the podcast. Thanks very much for that.

Now, you might remember that we summarised the provisions of the Economic Crime Corporate Transparency Act back in episode 63. The Act promised sweeping changes to Companies House reporting requirements for SMEs and where accountability lies for economic crime. Sally, it’s been six months since the legislation received Royal Assent and the first set of changes came into effect on 4 March, didn’t they?

Sally Baker: It was the end of October when we had Royal Assent, and the first set of changes have just come into effect from 4 March. So there’s been a bit of a time delay in between, but that’s been necessary just because of the volume of work going on behind the scenes.

PL: Thinking about the points that you reckon are most important to be aware of right now, what would be your first thought?

SB: The first one is about the new powers to query and remove information from the register that Companies House has. That’s all aimed at making the register more reliable. So there are going to be stronger checks on company names – there are going to be some data-matching exercises to remove data that is inaccurate or that they know is inaccurate. I think the priority at the moment for Companies House is to look at peoples whose names and addresses have been used unlawfully or inappropriately. I believe they’re currently processing about 7,000 applications already to have names and addresses that have been used without consent removed from the register.

PL: And then presumably we’re expecting a lot more?

SB: I expect so. Over time, as people come to know that, if they become aware of their details being used fraudulently, Companies House now has greater powers to act more quickly on that, then I’m sure they will be getting more applications in due course.

PL: There’s a new definition about what companies can use as an appropriate registered office address. How does that work?

SB: Every company has to have a registered office address, and they’ve changed the definition of what an appropriate registered office address is. Now, that definition means that anything delivered to the address has to come to the attention of a person acting on behalf of that company; and it also needs to be an address where it’s possible to obtain proof of delivery, acknowledgement of delivery. So what that means is that it can no longer be a PO Box address. – and there are nearly 4,000 companies at the moment on the register, that have PO boxes as their registered office address. So Companies House has been writing to all of those companies, and asking them to change that to an appropriate address.

PL: But you can still use an agent?

SB: You can still use an agent, yes, that’s fine. But what it’s worth being aware of is that if your address is deemed to be inappropriate, then Companies House will change your address to a default address, which will be at Companies House, and the company then has 28 days to provide an appropriate address. And if they don’t provide the appropriate address within that timeframe, then Companies House can start the process to strike the company off the register.

The other new requirement to be aware of is that companies will have to provide an email address as well to Companies House. So when completing the annual confirmation statement, you’ll need to provide an email address that Companies House can use to communicate with the company. It’s worth noting that this address won’t be on the Public Register, though.

You also have to confirm that the activities of the companies will be lawful. So again, as part of the annual confirmation statement – or if you’re setting up a company, you do it at the incorporation stage – you’ll need to confirm that the future activities, or the intended future activities, of the company will be lawful.

PL: More onerously, fees have gone up, haven’t they?

SB: Fees are increasing from 1 May. The fees that Companies House work out are on a cost recovery basis, so it’s perhaps not surprising – with all of the additional work that they will be doing – that the fees are going to be increasing to cover all of that. So a new fee structure comes in from 1 May: it’s now going to cost £50 to incorporate a company, register a company – and that’s assuming you’re doing it online; it will be more expensive to do it by paper. And the cost of the annual confirmation statement is also going up: that will now cost about £34 – again, if you’re doing it online; it will be a higher cost if you do it by paper.

PL: These are quite significant increases aren’t they?

SB: They are quite significant, yes. At the moment, you could register a company for £10 or £12, depending on how you do it, and the annual confirmation statement is about £13 at the moment. So they’re not necessarily large sums of money, but percentage wise they are big increases.

PL: We’re going to see more changes in the autumn, aren’t we? And the one I think that is perhaps most significant is ID verification?

SB: We’re anticipating that they will start the process on that in autumn 2024. There’ll be various stages to this. First of all, if you’re going to be a corporate service provider, so offering verification services, you will be able to apply from autumn/winter of this year. Individuals who want to verify their identity directly with Companies House will be able to start doing that in late winter/early spring. Then this will all start to roll out in terms of directors and persons with significant control needing to have their identity verified with Companies House from spring 2025 onwards. All these timelines are very much subject to change, but that is the plan at the moment.

PL: What about the changes we know are coming to the way accounts are prepared and filed?

SB: I think they will be the last stage in the process, so I don’t think we would expect much until perhaps the later end of 2025 and possibly even into early 2026. But as I said, the timelines are subject to change, so it’s a little bit too early to say, other than that we’re expecting the accounts changes to be after the ID verification – and we’re anticipating those to start in the autumn of this year.

PL: As you say, it’s a hugely complex and costly reinvention of Companies House and its role. We’ve flagged resourcing with you before as a significant issue in this whole process. Has there been any progress on that?

SB: Yes, there definitely has. There’s a YouTube video that shows the extent of the work Companies House has already undertaken, and across government as well – the extent of the work that’s been undertaken since the bill was introduced, and then the Act was passed. That includes recruiting new staff, training new staff, building resources to raise awareness, informing stakeholders – and the secondary legislation, as well, that’s needed to actually bring these things into effect. They’ve implemented about 11 pieces of secondary legislation already, but I believe there’s about 40 or so more to go. So that just gives you an indication of what a significant amount of work is involved to bring in all of the measures that are in the Act.

PL: I watched that video on YouTube, it’s on the Companies House feed. It’s fascinating, isn’t it, with the sheer number of numbers in it about the work they’ve already done, as you say – the training hours, the volume of work, the number of things still to be done? It’s fascinating.

SB: You know, it is just a short video full of numbers, but it does get the message across of just how much work and effort is going on in terms of getting all this into place.

PL: It’s a surprisingly compelling watch. We are expecting a general election this year, of course. Do you feel that is invariably going to mean delays in secondary legislation and additional guidance?

SB: I think it will be inevitable that things will slow down as a result of that. Obviously, during the election period, there will be limits on how much can be going on behind the scenes in terms of work on secondary legislation, etc. That’s why we say, in terms of the timelines that we know about at the moment, that they are all very much subject to change.

PL: We’ll get you back when we know more, Sally.

That’s it for this month. Head to the show notes for more information on the two stories we covered today, and join us later in the month for April’s In Focus podcast.

In the meantime, please do rate review and share this episode and subscribe to the series on whichever podcast app you like best. Daily, weekly or monthly newsletters from ICAEW Insights with all the latest accountancy news are all available to you on the website too, if you’d like to sign up for them as well. Thanks for being with us.