The Government has announced a package of measures that will impact businesses and individuals across the UK. The policy paper states that these measures “will collectively reduce administrative burdens to save taxpayers and traders time, and will increase certainty, allowing businesses to focus on adding value to the economy”.
The various changes will apply to different sized businesses and their operations and it is important to understand the impact they will have.
Mandatory payrolling of Benefits in Kind
Perhaps the most welcome change for employers is a one-year delay to the mandatory payrolling of Benefits in Kind (BIK), which will now come into effect from 6 April 2027. However, we do recommend that businesses use this additional year to review their benefits package and consider the impact and whether early adoption could still be beneficial.
Review of Corporate Interest Restriction
HMRC has provided clarity on some of the compliance requirements relating to the Corporate Interest Restriction (CIR) rules, which can apply to UK groups / companies of any size that (broadly) have interest and financing cost of £2m or more.
The good news is that HMRC has relaxed its approach to certain CIR compliance requirements – and will no longer pursue the point that a previous failure to appoint a reporting company for CIR purposes would invalidate interest restriction returns for periods ended prior to 31 March 2024. However, for periods ending on or after 31 March 2024, HMRC has confirmed that a valid reporting company must be submitted before an interest restriction return is submitted. As a result, it is likely that this position will be monitored by HMRC going forward.
Although this relaxation is welcome, the CIR rules remain a complex area and, for UK groups / companies with interest and finance costs approaching or in excess of £2m, we recommend advice is sought. And, where applicable, evidence of a valid reporting company nomination should be retained and tax risk frameworks should be updated to ensure compliance.
International tax reforms
The Government is continuing to consult on international tax reforms via multiple consultations. Proposed changes include:
Simplification of transfer pricing rules, with particular reference to potentially exempting domestic transactions between UK companies where there is no risk of tax loss.
Removal of the medium sized enterprise exemption from transfer pricing.
Additional transfer pricing filing obligations in respect of cross border related party transactions.
Alignment of the UK’s permanent establishment rules with the Organisation for Economic Cooperation and Development’s (OECD) Model Tax Convention
Repeal of diverted profits tax (DPT) with new charging provisions otherwise being introduced.
Whilst some of these proposed changes may have limited impact on many clients, the potential changes to transfer pricing could be more significant. The suggested exemption for UK-UK transactions would simplify the compliance burden for a lot of clients, but the extension of the transfer pricing rules to medium-sized enterprises (broadly those with no more than 250 staff and either turnover less than €50m or a balance sheet total of less than €43m) would bring a large number of previously exempt businesses within the scope of transfer pricing.
It remains to be seen as to how HMRC would police this sector (noting that HMRC has been actively recruiting tax specialists), and in practice it may be the case that additional Due Diligence work during transactions effectively drives compliance in this area.
Capital Good Scheme changes
The Government is proposing changes to the Capital Goods Scheme to simplify and reduce administration burden on businesses. The threshold for land, buildings, and civil engineering work will more than double from £250,000 to £600,000 (exclusive of VAT). The increased threshold reflects inflation since the scheme's introduction and will mean many smaller property transactions fall out of the scope of these complex adjustment rules. Meanwhile, computers will also be removed from assets covered by the scheme, recognising their shorter useful life and rapidly changing values. While the proposed changes are still under consideration and yet to be finalised, timing may be key for those planning capital projects.
Temporary Admission procedures
A package of changes to Temporary Admission procedures aimed to extend and simplify timing requirements, improve user experience, and remove certain restrictions.
These changes, which will be legislated for and implemented in 2025, will benefit businesses importing goods temporarily into the UK, particularly in sectors like exhibitions, demonstrations and specialised equipment rentals.
Self-assessment threshold alignment
The Government plans to increase the reporting thresholds for self-assessment to £3,000 gross income across trading income, property income and other taxable income.
This change aims reduce the administrative burden for individuals with multiple small income sources. However, it is important to note the actual tax liability will not change. The update only affects reporting requirements and those with taxable income below the £3,000 threshold will move to report their income through a new online service, rather than completing a self-assessment. For example, individuals with a secondary income who earn more than £1,000 Trading Allowance (which will remain) will still be taxed, those earning less that the Trading Allowance will not be required to report this additional income to HMRC.
This change is set to take place within this parliament and further details are due to be announced later this year.
If you would like advice about any of the changes above and support to implement appropriate planning, please get in touch. Call 0808 144 5575 or email help@armstrongwatson.co.uk.
