Small companies rate
Any company with augmented profits greater than £1.5m (before any reduction in threshold) are required to pay their corporation tax instalments. Augmented profits of a company are:
Profits chargeable to corporation plus exempt dividend receipts excluding any group dividends.
For these purposes, a “group dividend” is classed as dividend from any company that is 51% controlled.
In addition to this, any associated companies (i.e., companies under common control) reduce the applicable thresholds which can have a significant impact if the company has a large non-group dividend.
As an example, if a company has 3 associates – the limits are impacted as follows:
Full threshold | Revised due to associates | |
Very large profits | £20m | £5m |
Large profits | £1.5m | £375,000 |
Main rate | £250,000 | £62,500 |
Small profits rate | £50,000 | £12,500 |
With the corporation tax rates currently ranging between 19% and 25%, the impact of any tax liability could result in a significant cashflow issue, particularly if the company is required to pay instalments in advance (or suffer an interest charge for late payment).
We recommend that companies regularly review their structures and look into any available reliefs (e.g., creative sector reliefs, research and development, capital allowances) that may be available to the company, and also review how the shareholder / directors are remunerated with cash extraction tax planning.
HMRC enquiries
HMRC is strengthening its compliance resources dedicated to targeted campaigns and cross-tax enquiries so that it maximises the tax it recovers.
In the financial year 2022/23, HMRC generated total tax revenue of £814 billion – a figure that rises steadily each year and will continue to rise after HMRC recruited 4,000 new compliance staff in 2021/22 and transferred 2,500 staff back to compliance activities in September 2023.
The UK gap is estimated to be 4.8% and there has been a long-term reduction in the overall tax gap, falling from 7.5%is 2005/6. This means HMRC successfully secured 95.2% of all taxes.
Compliance yield jumped from £30.8bn in 2020/21 to £34bn, of this £4.7bn was related to individuals and small businesses, £5.9bn from wealthy individuals and mid-sized businesses, £8.6bn from large businesses and £14.8bn from other groups.
With HMRC’s continuing investment in compliance, ensure you are protected with our comprehensive tax investigations insurance. Whether it’s a cross-tax enquiry, a technical challenge or a detailed books and records review, our tax investigations insurance is designed to achieve the best possible result for you and is why we strongly recommend that all our clients subscribe. For an annual charge, you can rest assured that you are protected against the professional costs associated with an HMRC enquiry. Please contact us for more information.
VAT on independent school fees
Following the outcome of the general election, with the Labour Party gaining a significant majority, we are eagerly awaiting the next Budget for full details of any tax changes to be announced.
One of the key manifesto pledges from the Labour Party was to implement 20% VAT on independent school fees and it was confirmed in the King’s Speech on 17 July that these measures will go ahead. Currently, these are exempt from VAT which means no VAT is charged on the fees, and schools cannot therefore recover input VAT on any of their purchases. Once implemented, the change proposed will mean independent schools need to charge 20% VAT on their fees, however, they will be able to claim input VAT on their related purchases where applicable. While you might assume independent school fees would need to increase by 20% to accommodate this change, given the ability to reclaim input VAT on related expenditure, it is likely that fee increases are likely to be below the 20% ‘headline’ VAT rate, but detailed modelling will help schools budget for the change. As VAT has historically never applied to the sector, these independent schools will need to get to grips with VAT accounting when the change is introduced. The timing of the introduction is unclear with initial indications that it would apply from the start of the 2025/26 academic year but more recently there have been suggestions of a 1 January 2025 start date.
Our VAT team have advised several independent schools on how the Labour Party’s proposal may affect them and can assist with the financial & budgeting modelling to inform potential fee rate changes, along with VAT compliance training going forward.
There are many grandparents who currently assist with school fees or are considering their financial position and in particular inheritance tax. Often, where grandparents have capacity to assist with school fees, this can lead to both income tax and inheritance tax savings for them and help make school fees more affordable for the family. Where grandparents are considering their inheritance tax position, passing on assets to the future generations is a key planning tool and can often be structured to include a tax efficient way of assisting with school fees. The tax savings for many can be significant and it is important that any planning considers both the tax and non-tax implications. At Henderson Loggie we have a number of experts in the private client team who would be happy to discuss with you.
Please get in touch if you would like to discuss the proposed changes and how they may affect you.
Creative industries
Currently there are 8 Corporation Tax reliefs and 2 Corporation Tax expenditure credits available to companies in the creative industries. The reliefs and expenditure credits available are summarised below:
- Film Tax Relief
- Animation Tax Relief
- High-end Television Tax Relief
- Children’s Television Tax Relief
- Video Games Tax Relief
- Theatre Tax Relief
- Orchestra Tax Relief
- Museums and Galleries Exhibition Tax Relief
- Audio-Visual Expenditure Credit
- Video Games Expenditure Credit
If your company currently makes a claim for any of the above reliefs, then you will now be required to submit an additional information form (AIF) otherwise the tax relief claim will be rejected by HMRC.
From 1 April 2024, creative industry companies claiming tax reliefs must submit an online AIF to provide evidence supporting their claims. This form is mandatory and must be filed before or alongside the tax return. Failure to submit the AIF, or submitting it after the tax return, will result in the claim being invalid. This means companies could lose out on valuable tax reliefs, potentially increasing their tax liabilities and impacting their financial planning. It’s crucial for companies to ensure timely and accurate submission to benefit from the available reliefs.
The AIF must be completed online and will require the following information listed below:
- Unique Taxpayer Reference (UTR), this must match the one shown in your Company Tax Return
- Employer PAYE reference number
- VAT registration number
- Foreign Entertainer’s Unit (FEU) reference number
- Type of creative industry tax relief or credit, as listed above.
- Details of the film, television, video game, theatre, orchestra or museum projects worked on.
If you require any assistance with your company’s creative industry tax reliefs or AIF, please get in touch with our creative industries team.
“Sugar tax”
A study published recently found that children’s daily sugar consumption halved just a year after the so-called “Sugar tax” was introduced.
The Soft Drinks Industry Levy (often referred to as the “Sugar Tax”) is payable by manufacturers at a rate of:
- 18p per litre on drinks that have a total sugar content of 5g or more and less than 8g per 100ml
- 24p per litre on drinks that have a total sugar content of 8g or more per 100ml
As a result of the new tax, which was announced in March 2016 and introduced in April 2018, many soft drinks manufacturers reformulated their products to include less sugar which shows that sometimes new taxes can have the desired results.