ENTERPRISE
WELCOME
Welcome to the summer edition of our Enterprise newsletter.
Now we are in the new tax year, the implications of the government’s budget last October will start to take effect on business of all sizes and sectors and in this newsletter we will explain some possible impacts the changes may have for your business with suggestions to help guide you through.
The government also had their first spring statement in March and while there were no headline tax changes, there were multiple announcements that will change how tax payers and us as advisors will interact with HMRC.
The government outlined proposals to tackle tax evasion and non payment of tax, including large increases in penalties and interest for late payment of taxes (see page 14) and more details were announced on Making Tax Digital (MTD). From April next year, it will mean mandatory quarterly reporting to HMRC, starting with sole traders and let property owners with annual income over £50,000.
Our team have been busy in recent months understanding the upcoming tax and legislative changes but also supporting the wider Business Community. Along with other local business we joined a Round Table meeting with the Department of Business & Trade to contribute to the Government’s Industrial strategy and feedback issues which regularly come up in our conversations with clients, and we were delighted to support the Somerset Business Awards again this year which celebrated their 20th anniversary at the Awards Ceremony in March.
A few of our colleagues also completed the London Marathon this year. Business can feel more like a steeplechase, having to jump various obstacles as you run, but we are here to help get you over the line!
I hope you enjoy this latest edition of the Enterprise newsletter.
Mike Cahill Partner
UPCOMING TAX DEADLINES
June 2025
1st Payment of corporation tax liabilities for periods ending 31 August 2024 for small and medium sized companies not liable to pay in instalments.
7th VAT return and payment for April quarter (online).
19th PAYE/CIS liabilities for month ended 5th June 2025 if paying by cheque. File monthly CIS return.
22nd PAYE/CIS liabilities for month ended 5th June 2025 if paying electronically.
July 2025
1st Payment of corporation tax liabilities for periods ending 30 September 2024 for small and medium sized companies not liable to pay in instalments.
6th P11d benefit in kind reporting forms to be filed.
7th VAT return and payment for May quarter (online).
19th PAYE/CIS and liabilities for month ended 5th July 2025 if paying by cheque. File monthly CIS return. Class 1A National Insurance on Benefits in Kind.
22nd PAYE/CIS and class 1A National Insurance liabilities for month ended 5th July 2025 and Class 1A on Benefits in Kind if paying electronically.
31st – 2nd Personal tax payments on account.
August 2025
1st Payment of corporation tax liabilities for periods ending 31 October 2024 for small and medium sized companies not liable to pay in instalments.
7th VAT return and payment for June quarter (online).
19th PAYE/CIS liabilities for month ended 5th August 2025 if paying by cheque. File monthly CIS return.
22nd PAYE/CIS liabilities for month ended 5th August 2025 if paying electronically.
CHANGES TO EMPLOYERS NATIONAL INSURANCE
The Budget last October brought multiple tax rises with the government advising it will raise £40 billion in tax.
The increase to the amount employers pays in National Insurance on their staff salaries is predicted to raise a significant proportion of this. HMRC expect the changes to raise between £23.8-25.7 Billion a year for the 5 years 2025/26 – 2029/30, although this will be reduced by up to £5.1 Billion after taking into consideration the compensation for public sector employers.
From 6 April 2025 the following changes have been implemented.
The rate of employers National Insurance has increased from 13.8% to 15%
The secondary threshold when employers start to pay National Insurance on an employee’s salary has decreased from £9,100 to £5,000
The maximum Employment Allowance has increased from £5,000 to £10,500
The £100,000 eligibility threshold to claim the Employment Allowance has been removed.
The reduced £5,000 threshold will be held until 5 April 2028 and then it will increase in line with the Consumer Price Index (CPI) thereafter.
The changes to the employers National Insurance have been accompanied by increases to the National Minimum Wage (NMW) and National Living Wage (NLW) rates. NMW for anyone 21 and over increased by £0.77 to £12.21 (6.7% increase),
The additional cost of the National Minimum Wage and Employers National Insurance will mean a full-time employee (35 hours a week) on minimum wage will cost the employer an additional £2,367 a year.
NMW for anyone under 21 has increased at a higher rate, with the government outlining their intention to close the gap between age ranges.
The minimum wage based on age is below.
In this article we will examine the possible impact of the changes for different business sizes and industries, while also providing recommendations on how to mitigate the impact for you and your business.
Impact on a Small Businesses
Businesses with fewer than 5 employees may see a reduction in their employers National Insurance bill with the increase in Employment Allowance from £5,000 to £10,500.
5 employees on average salary of £30,000.
This business will save £1,171 Employers NI as a result of the increase in Employers Allowance.
Impact on a Business with High Staff Levels on National Minimum Wage
Businesses with high volume of staff on lower salaries are likely to see a big impact with the increase in National Insurance rates, in addition to the rise in NMW. This is likely to impact sectors such as hospitality and care.
Business with High Numbers of Staff on NMW
15 staff on NMW (35 hrs a week)
Increase in NI and NMW has resulted in a 9.1% increase in wage costs.
Impact on a Business with National Insurance costs over £100,000 now Eligible to Claim the Employment Allowance
Larger businesses with employer National Insurance costs over £100,000 will see an increase in employers National Insurance, but they will have some mitigation from now being eligible for Employment Allowance where they haven’t previously.
Large Company, Now Eligible for EA. 40 staff average salary £30,000.
Sole Director companies will still not be eligible to claim the Employment Allowance. If a spouse or other family member carry out genuine work to assist the Director in the business, a market rate salary over £5,000 for them would mean the
company is eligible for the Employment Allowance. It does need to be a salary for genuine work, HMRC have advised where a second salary is processed for the sole purpose of getting the Employment Allowance, it will need to be repaid.
The minimum level of salary required for a National Insurance credit has increased to £6,500. The credit counts towards the number of years required to obtain a full state pension and other benefits. Continuing to receive a National Insurance credit will mean business owners will need to pay National Insurance where they may not have previously. This creates an additional cost and admin burden that owners need to be aware of if they haven’t previously paid National Insurance on their salary.
For sole Directors, it will also mean Employers National Insurance will need to be paid with no Employment Allowance available.
Recommendations
Establish how the changes will affect your business. As we have seen in this article, some businesses will see a significant increase in cost, while others may see a National Insurance savings. If there are increased costs, knowing the extent of the increase for your business will help make key decisions on budgeting and pricing.
Review other costings to highlight any possible inefficiencies or needless expense. Deciding if other costs can reasonably be cut will mitigate the overall impact. For business owners, there is no longer a one size fits all nominal salary and each personal circumstance will determine the optimum level of salary.
Explore flexible salary packages for your employees. This includes salary sacrifice which will save both the employee and employer National Insurance. In the next article, my colleague Michael Boateng will provide further information on workplace benefits and how they may help.
If you would like to discuss the impact of these changes for your business and your personal income, please contact me or your usual contact here at Albert Goodman.
Luke Warren Manager
EMPLOYEE BENEFITS: THE COST-EFFECTIVE
ALTERNATIVE TO A PAY RISE
BUDGETARY CONSTRAINTS
It’s not uncommon for employees to expect or request pay rises, particularly when times are hard. The cost-of-living crisis has affected businesses and individuals alike, and a challenge that many employers are facing is the inability to provide pay increases – or sufficient pay increases – due to budgetary constraints. This is therefore making it harder for many employers to attract and retain talent, as money is a key consideration for most. With that being said, attitudes to remuneration are changing, and the traditional ‘pay package’ where salary is the sole focus is gradually being phased out in favour of the more holistic ‘benefits package’.
THE EMPLOYEE BENEFITS PACKAGE
Over the past decade, there has been a gradual shift in employee expectations, and this shift was accelerated following the pandemic. The WTW 2023 Benefits Trends Survey found that between 2021 and 2023, a growing number of employers across the UK are utilising employee benefits to drive attraction and retention. This shift has been fuelled by the increasing emphasis on physical health and wellbeing, mental health and growing NHS waiting lists. And of course – people talk, so as employee benefits grow in prevalence, they become part of the remuneration conversation.
THE BENEFITS EMPLOYEES VALUE THE MOST
The employee benefit offering is broad and varied, and it can be a challenge for employers to know which benefits their employees may value the most. The results of the WTW 2022 Global Benefits Attitude Survey outlined that in order of importance to employees, the most valued employee benefits in the UK include:
1. Long term finances, specifically workplace pensions
2. Flexible working e.g. hybrid working
3. Training & development
4. Health benefits e.g. Group Life Insurance & Private Medical Insurance
5. Mental health benefits e.g. An Employee Assistance Programme
Whilst priorities can of course differ across different demographics and industries, this list reveals a significant opportunity for employers.
EMPLOYEE BENEFITS: AN INDIRECT PAY RISE?
In the vast majority of cases, an increase in gross pay will result in an increase in Income Tax and National Insurance. Those repaying a student loan will also likely see an increase in their monthly repayments. Despite these factors, a pay rise is still generally seen as a positive – if the increase is significant enough to offset the additional tax.
Many employee benefits on the other hand, such as an employer pension contribution increase, or Group Life Assurance, are provided at no cost to the employee. A benefit in kind such as Private Medical Insurance can be fully or partially funded by the employer, but even if the employee incurs a cost, they can still financially benefit in the long run if various health costs are covered. Pension salary exchange (also known as salary sacrifice), is a benefit that can increase employee take home pay. Workplace funded discounts on various expenses such as dental care and gym memberships can result in an indirect increase in disposable income.
EMPLOYEE BENEFITS: THE COST-EFFECTIVE ALTERNATIVE TO A PAY RISE
Generally speaking, it will most likely cost an employer less to provide an employee benefit to staff than it would be to increase their pay. Some employers may launch or improve an employee benefit to supplement a smaller pay rise. And because some employee benefits such as pension salary exchange and Group Life Assurance will reduce tax for employers, this reduced tax can be used to offset the cost of an employee benefit.
If you’d like to know more about using employee benefits to enhance your remuneration package, I’d be happy to help!
Michael Boateng Workplace Benefits Consultant michael.boateng@albertgoodman.co.uk
COMPANIES HOUSE CHANGESVERIFICATION OF IDENTITY
As part of ongoing reforms which are being introduced as part of the Economic Crime and Corporate Transparency Act 2023, mandatory identity verification is being introduced for anyone being appointed as a director or a person with significant control.
WHY IS THIS BEING INTRODUCED?
Identity verification is a new legal requirement. It will help to deter people intending to use companies for illegal purposes.
By law, you will need to verify your identity to confirm you are who you claim to be.
This will:
reduce the risk of fraud
improve transparency, trust and accuracy of information on the Companies House register
WHO NEEDS TO VERIFY AND WHEN ARE THESE NEW RULES BEING BROUGHT IN?
You’ll need to verify your identity if you are:
a director
the equivalent of a director – this includes members, general partners and managing officers
a person with significant control (PSC)
an Authorised Corporate Service Provider (ACSP) - also known as a Companies House authorised agent
someone who files for a company - for example, a company secretary
The new rules come into effect on a voluntary basis from 8 April 2025 and are expected to become mandatory from Autum 2025.
HOW WILL YOU BE ABLE TO VERIFY YOUR IDENTITY?
Online
You can verify online if you have the identity documents or information required. This route uses GOV.UK One Login to verify your identity and is free of charge.
You’ll need one of the following types of photo ID:
biometric passport from any country
UK photo driving licence (full or provisional)
UK biometric residence permit (BRP)
UK biometric residence card (BRC)
UK Frontier Worker permit (FWP)
If you do not have any of these types of ID but live in the UK, you may be able to verify with bank or building society details instead. You’ll need to use the ‘Verify your identity for Companies House’ service to find out if you can verify this way.
This service will be available from 8 April 2025.
IN PERSON AT A POST OFFICE
If you cannot verify online and you live in the UK, you may be able to verify your identity in person at a Post Office. You’ll need to use the ’Verify your identity for Companies House’ service first to find out if you can verify this way. This route uses GOV.UK One Login to verify your identity and is free of charge.
Find out more about verifying at a Post Office, including what you’ll need.
Using an Authorised Corporate Service Provider (ACSP)
You can ask an Authorised Corporate Service Provider (ACSP) to verify your identity on your behalf. For example, an accountant or solicitor. This is also known as a Companies House authorised agent. When an agent has agreed to verify your identity, you will need to provide documents from an approved list as evidence of your identity. They may charge a fee for their services.
WHAT HAPPENS WHEN YOU VERIFY?
When you have successfully verified, you’ll get a unique identifier known as a Companies House personal code. The code is personal to you, not your company or a company you work for.
From autumn 2025, you’ll need it for various reasons. For example:
when you file your confirmation statement
if you are appointed as a director
if you become a person with significant control (PSC)
If you are currently a director or a PSC, you’ll need to use your Companies House personal code to connect your verified identity to any existing appointments. This is a legal requirement and will ensure that we know the correct identity is linked to any roles you hold.
You may need to share this code with people you trust to file on your behalf, or for your company. Keep this information secure, as you would with other unique codes such as your Unique Taxpayer Reference (UTR) for HMRC.
Identity verification makes it much more difficult for criminals to impersonate someone, but not impossible.
WHAT HAPPENS IF YOU DO NOT VERIFY?
You will not be able to:
make any filings
start a new company or entity
If you do not comply with identity verification requirements on time, you will be committing an offence and may have to pay a financial penalty or fine.
This is potentially going to be one of the most challenging changes being brought in as part of the Economic Crime and Corporate Transparency Act 2023 and we will be endeavouring to help clients with this over the coming months. If you would like any more information about this topic, do please contact me or your usual Albert Goodman contact.
Sharron Quick
Business Services Senior Manager sharron.quick@albertgoodman.co.uk
COULD YOU BE A HIGH VALUE DEALER?
A high value dealer, under money laundering regulations, is any business or sole trader that accepts or makes high value cash payments of €10,000 or more (or equivalent in any currency) in exchange for goods. At today’s rate that would be approximately £8,250.
The onus is on businesses to be aware and if necessary, register for this scheme. There is no flexibility for registration and registration is a complex process. HMRC states “You must not accept or make a high value cash payment until you have registered as a high value dealer.” For further information please use this link: Money laundering supervision for high value dealers - GOV.UK
Whilst it’s quite unusual for cash to be used in business these days we do still see some instances where higher value cash amounts are being received and paid out. In part, this is being fuelled by a reduction of high street banks and increasing bank charges for paying cash into an account.
If you accept or make cash payments of €10,000 - currently around £8,250 or more (or equivalent in any currency) in exchange for goods, registration will be necessary.
Sharron Quick
Business Services Senior Manager
sharron.quick@albertgoodman.co.uk
FURNISHED HOLIDAY LETS
The abolishment of the Furnished Holiday Let (FHL) regime ended on 5 April 2025 and in this article we will provide an overview of the changes and how they may impact your property business.
The changes align FHL with the tax rules for other residential property investment, such as standard buy to lets or Homes of Multiple Occupancy (HMO) and the changes impact multiple taxes which need to be considered.
INCOME TAX
Finance Charges
Previously, all finance charges were a deductible expense when calculating the FHL business profits. This meant the owner received tax relief in their marginal tax band, which could have been up to 45%.
From 5 April 2025, finance charges are no longer deducted against profits, instead a 20% tax reducer is offset against the tax due on the FHL profits. Below is an example of how the tax is calculated.
Impact of tax relief on Finance Charges.
Tax payer is a 40% taxpayer.
The impact here is the finance charges only attract 20% tax relief whereas previously it was at 40%
Other factors to consider
In the above example, the deemed profits from 5 April 2025 are deemed to be much higher now the finance charges are
no longer deducted. This could impact the following
Tax rate paid – if previously you have been just below the next tax bracket, the inflated profit figure may push you into the higher tax bracket. This can also affect your personal allowance if your income has previously been just below £100,000. The inflated profits may push your income above £100,000 where you will start to lose the tax-free personal allowance.
Child Benefit – if you or your partner receive child benefit, the increased profit may push your income above £60,000 and the child benefit may need to be repaid in some proportion.
Costs included – This includes all finance charges and not just mortgage interest. It will also include costs such as arrangement fees and costs to obtain finance.
Making a loss – There are unfortunately scenarios where you can make a cash loss, but still have tax to pay, particularly where you have high interest rates and charges and maybe carry out a large refurbishment in the year.
FHL in a Limited Company – If you hold FHL in a limited company, these changes do not apply, and the finance charges are still deducted in full when calculating total profits.
CAPITAL ALLOWANCES
Initial Purchase
When purchasing a FHL, it was possible to make a capital allowance claim for the integral features of the property. This enabled a proportion of the property purchase price to be offset against the rental income in year one. In most cases, this created a large loss which could be carried forward to be offset against future profits.
From 5 April 2025, this claim is no longer possible.
It is worth noting if you have made a claim before 5 April 2025 and still have losses to carry forward, these losses will continue to be carried forward and can be offset against your property portfolio.
Other Capital Allowances
When purchasing domestic items such as furniture, equipment and appliances for the property, you were able to claim a full tax deduction under the capital allowance regime.
From 5 April 2025, domestic items for the property come under the replacement rules. Where items in the property are replaced, the cost of the replacement can be offset in full.
This is particularly relevant when you are looking to purchase a new FHL and intend on purchase significant amounts of new domestic items. If the initial items are not replacing another item, there is no tax relief.
Losses
Because they are now under the same regime, buy to let and FHL losses can be offset against each other as required. Previously a FHL loss could only be offset against FHL profits and the same with other residential rental income. This could accelerate the use of losses and therefore the tax relief obtained.
Jointly Owned Property
FHL profits have been considered business income, so individuals could decide how to split the income on a commercial basis. If spouses owned a FHL and only one of them managed the property, it could be decided between them this individual would receive the property profits.
From 5 April 2025, the income is in line with ownership, regardless of each spouse’s involvement.
The underlining property ownership would need to be changed in order to vary the profit split, which involves a declaration of trust and form 17 filed with HMRC.
A change in ownership between spouses is exempt for Capital Gains, but it may have Stamp Duty Land Tax, Legal and mortgage implications so careful planning should be undertaken before proceeding with any changes.
CAPITAL GAINS TAX
The calculation of capital gains remains the same and doesn’t differ from other residential property investment properties when sold. There were previously some reliefs available to FHL sales which are no longer available.
Business Asset Disposal Relief (BADR)
When selling a FHL business prior to 5 April 2025, the Capital Gains Tax Rate would be 10% up to £1m lifetime gains, where certain conditions were met.
Any future gains from sales are likely to result in a tax rate of either 18% or 24%, depending on other income in the year. If you sell a property that was previously in a FHL business that ceased prior to 5 April 2025, you may still get the 10% BADR rate. If you are unsure, please check with us.
Gift Relief
When gifting a qualifying FHL, it was possible to defer your gain to the new owner, resulting in no Capital Gains Tax paid
when the property was gifted.
From 5 April 2025 all gifts will be a deemed disposal at full market value and any tax due on gains due within 60 days of the gift.
Rollover Relief
Gains on the sale of a FHL could be rolled over where the proceed were reinvested in a qualifying purchase, such as a new FHL.
This is no longer possible, so the tax on any gain is due within 60 days, regardless of what the proceed are used for.
OTHER CONSIDERATIONS
Pension Contributions
FHL profits were considered relevant income for pension purposes and contributed to the calculations of maximum pension contributions in a tax year.
This is no longer the case so the maximum annual pension contributions possible may have been reduced.
VAT
While the FHL regime has been abolished, the supply for VAT purposes remains unchanged, so the supply of shortterm letting is still a vatable supply.
If gross income from short term let income is above £90,000 in a 12-month period, you will still need to register for VAT.
Recommendations
It is likely the biggest initial impact from these changes is the restriction of tax relief for finance changes if you have mortgages on your FHL properties. It is important to assess the impact this will have on the tax you will need to pay and budget accordingly.
When buying domestic items, keep detailed records of replacement items to ensure that you maximise the amount that can be claimed, particularly when purchasing a new property that may have domestic items left in the property.
If you are unsure or want to assess the impact the changes may have for your Furnished Holiday Let business, please contact me or your usual contact here at Albert Goodman.
Mark Thompson Business Services Director mark.thompson@albertgoodman.co.uk
BLUECREST LLP –DEFEAT IN COURT OF APPEAL
A recent decision in the court of appeal may have consequences for LLP’s and HMRC when deciding whether any members of an LLP should be considered a salaried member.
Background
Legislation introduced in 2014 provided 3 tests to determine whether a member should be considered a salaried member, resulting in their distributions from the partnership being taxed as PAYE and not self-employment income. Whilst there are other tax considerations, the main impact is employers NI would be payable on PAYE but not members distributions.
All three conditions all need to be met in order for the member to be a deemed employee for tax purposes, briefly they are as follows:-
Condition A
At least 80% of the amount payable to the member is deemed; ’disguised salary’, which is an amount that is fixed or without reference to the whole profits made by the LLP.
Condition B
The rights and duties of the member do not give the member significant influence over the affairs of the LLP.
Condition C
The member’s capital contribution to the LLP is less than 25% of the ‘disguised salary’ expected to be paid to the member in the year.
Bluecrest
Bluecrest managed investment portfolios and hedge funds. Members were categorised as follows:
Portfolio Managers- Managed their own investment portfolio
Non-Portfolio Manager – this included 4 committee members as well as department heads and researchers.
HMRC issued a determination advising all but 4 members met all three conditions and assessed that distributions should be treated as employment income. The years assessed were 2014/2015 – 2018/19.
In relation to the above conditions, Bluecrest and HMRC agreed conditions C had been met and was not in dispute.
Reasons for Dispute and Initial Tribunal Decisions
Condition A
In relation to conditions A, the members received distributions as priority distributions (which were not in dispute as both parties agreed they were disguised) and discretionary payments.
The dispute with Condition A centred around part of the discretionary allocations. For portfolio managers, these were based on their own portfolio’s profit and loss and not the performance of the LLP as a whole.
The non portfolio managers’ discretionary allocations were decided at the discretion of the board and there was again no evidence that they had been decided based on the overall profits of the LLP.
The first tier and upper tribunal both agreed that part of the the discretionary allocations were not directly linked to the overall profits of the LLP and therefore considered disguised salary which meant all members met condition A.
This was upheld by the court of appeal.
Condition B
HMRC originally argued that all but 4 members (who were the executive committee) were caught by condition B because all other members did not have significant influence over the overall decision making of the partnership.
Both the first Tier and upper tribunal agreed that members could have significant influence over certain aspects of the partnership rather than requiring to have influence over the whole partnership.
It was therefore found portfolio holders with capital allocations of more than £100m did have significant influence. Other than the 4 executive committee, non-portfolio member were not found to have significant influence.
This went against HMRC previous guidance who always maintained there needed to be influence over the partnership as a whole to meet this condition, It opened the opportunities for members with influence over specific aspects of the partnership.
Court of Appeal Surprise Decision
The court of appeal have in part sided with HMRC but not as HMRC had expected or originally argued. The court of appeal have referred the case back to the First Tier Tribunal on the basis only the facts of the partnership legally enforceable rights and written agreement can be used to decide whether a member has influence or control and condition B must be the partnership viewed as a whole.
This ignores any consideration for the actual influence a member has on a day to day basis.
This certainly goes against HMRC previous advice, where their manual stated wider consideration should be taken on a member’s level of influence in practice, and not just the written agreement.
It now narrows the criteria of meeting Condition B to solely taking the legal written agreement of the LLP into consideration and not the actual circumstances a members’ influence on the running of the LLP.
HMRC view on Condition C
In addition to the impact to LLP’s the above case may have, there has also been developments in HMRC’s view of Conditions C.
While this condition was never in dispute in the Bluecrest
case, in February 2024 HMRC updated their stance on condition C where members topped up their capital account which then resulted in the condition not being met. It was their view that if a member provided any recent capital input, under Targeted Anti Avoidance Rules (TAAR) the input would be ignored if it meant the member no longer met condition C.
This guidance has now been updated (reversed) by HMRC who now accept that genuine capital contributions by members will be considered when deciding whether a member meets Condition C. If there it is a genuine commercial reason like a top-up arrangement, regardless of the timing, Condition C may not be met.
They will continue ignore any contributions where the sole purpose is to avoid meeting Condition C.
Conclusion
The Bluecrest case has been referred back to the FTT and Bluecrest can appeal to the supreme court, so this case may have some more twists to come.
The decisions made so far in this case do highlight the need for LLP’s to ensure they have detailed written agreements in place that clearly identify the factual roles and influence of each member.
It also highlights that a member’s distributions should be clearly linked to the profits of the LLP as a whole and not merely individual members performance.
HMRC have gone back on their stance for Condition C, there needs to be clear commercial reasons for any capital top up that results in the member not meeting condition C.
It is clear with all three conditions that all decisions made by the LLP should be clearly evidenced to show the reasons why a decision have been made. The onus is on the taxpayer to prove the conditions were not met, so a lack of evidenced decision making may be the difference in any a tribunal.
If you would like to discuss how this may impact your LLP, please contact myself or your usual contact here at Albert Goodman.
Mark Thompson Business Services Director
HMRC INTEREST RATESNO LONGER A CHEAP LENDER?
Historically, HMRC have been viewed as ‘cheap debt’ with tax payers occasionally delaying payment since interest rates on the open market were much higher. However, from 6 April 2025, the gap begins to close and it’s important you are aware of the upcoming changes.
Increased payment penalties
The spring budget on 26 March announced that the government will be increasing late payment penalties for VAT and income tax from 5 April 2025.
Further details can be found on the GOV UK website here: HMRC interest rates for late and early payments - GOV.UK
Whilst this rate might still be lower than an average company credit card rate and perhaps overdraft interest, it does demonstrate the government’s desire to deter late payments and to generate more income from late payers.
Illustration:
A Ltd owes £50,000 corporation tax to HMRC. The due date for this payment was 31 December 2024. Due to cash flow issues, A Ltd settled their tax late with HMRC on 5 April 2025. If the late payment rate was consistently 7%, the total interest payable was:
£50,000 x ((95/365) x 7%) = £911.
If the interest rate were instead at 8.25%, this would’ve cost A Ltd £1,074.
This large increase could substantially impact a small business who pays late. It’s import you set reminders so you and your business do not fall foul of the higher rates. Not only have the penalties increased, but HMRC are also going to be restarting “direct recovery” from taxpayers who are able to pay, but choose not to. This gives them the power to directly recover the tax owed from banks and buildings societies of the taxpayer. This should only occur where the debtor repeatedly ignores correspondence from HMRC.
HMRC’s official rate of interest
From 6 April 2025, HMRC’s official rate of interest will increase from 2.25% to 3.75%. This is the rate used to calculate things such as benefits in kind for living accommodation and tax payable on overdrawn director loan accounts.
Historically, the official rate has only been reviewed on an annual basis. The October budget informed us that in future, the rates would be reviewed on a quarterly basis, meaning rates could increase further throughout 2025/26.
Late payment interest
Currently, the interest you pay to HMRC on late payments is set at 2.5% above base rate. After 6 April 2025, this rate will increase to 4% above base which, based on the rates at the time of writing, would be an actual rate of 8.25%.
Whilst the increase might seem small in the grand scheme of things, consider whether the additional interest is affordable in line with the other implications facing businesses in 2025/26.
Can your business afford this with increased minimum wages thresholds, employer national insurance contributions, business rates and general cost of living rises? Do you think the interest rates will go up or down in future?
We recommend that you speak to HMRC and get payment plans in place as soon as possible if you are struggling to pay. This will keep them on side and will show co-operation, resulting in less long-term stress for you.
You can find out about payment plans here: If you cannot pay your tax bill on time: Setting up a payment plan - GOV.UK
If you would like to discuss the impact of the interest rate increases on you or your business, feel free to get in touch with your usual Albert Goodman contact.
Ellis Hillman Business Services Assistant Manager ellis.hillman@albertgoodman.co.uk