Keeping up with tax and regulatory changes can sometimes feel like a full-time job in itself. While we can’t promise to make HMRC updates exciting, we can help make them easier to understand.

In this edition, we look at the latest developments affecting businesses, from Making Tax Digital and choosing the right software, to what LLPs need to know and how proposed reporting changes could impact close companies.

MTD But Make It Free?

With Making Tax Digital (MTD) now underway, many sole traders are exploring accounting software to help manage their records and meet their reporting obligations. Free or low-cost options can be appealing, particularly if you’re looking for a simple way to get started.

However, it’s important to remember that accounting software is only one part of the process. While many platforms can help you record transactions, they don’t replace tailored advice or ensure you’re making the most tax-efficient decisions. Understanding deadlines, avoiding penalties and keeping accurate records all require ongoing attention.

That’s where we can help. We work with leading cloud accounting software, including QuickBooks and Xero, to make sure you have the right solution for your business and budget. As well as helping you choose and set up the most suitable software, we’re on hand to provide advice, answer questions and support you throughout your MTD journey.

If you choose QuickBooks through Quove, you can also benefit from a discounted price, making professional accounting software even more accessible while giving you the confidence that you have expert support whenever you need it.

LLPs: Is Your Parnership Agreement Still Fit for Purpose?

A recent Supreme Court ruling has provided greater clarity on how the salaried member rules apply to Limited Liability Partnerships (LLPs), making it a good time for LLPs to review their structure and member agreements.

Under LLP legislation, members are generally treated as self-employed for Income Tax and National Insurance purposes. However, the salaried member rules, introduced in 2014, mean that members who meet all three of the following conditions may instead be treated as employees for tax purposes:

Condition A: At least 80% of a member’s remuneration is considered ‘disguised salary’ rather than a genuine share of the LLP’s overall profits.

Condition B: The member does not have significant influence over the affairs of the LLP.

Condition C: The member’s capital contribution is less than 25% of their disguised salary.

The recent Supreme Court decision has clarified how Condition B should be interpreted. It confirmed that a member’s influence must arise from legally enforceable rights and responsibilities set out within the LLP agreement. Informal influence, such as seniority, technical expertise, strong performance or involvement in day-to-day operations, is not sufficient on its own.

For many LLPs, this provides welcome clarity but may also prompt a review of existing arrangements. Businesses should ensure that partnership agreements accurately reflect the roles, responsibilities and decision-making authority of each member, rather than relying on informal working practices that have developed over time.

While the ruling does not change the legislation itself, it does reinforce the importance of having robust governance documents in place and understanding how members’ tax status is determined.

If your business operates as an LLP, it may be worth reviewing your current structure to ensure it remains aligned with both your commercial arrangements and the latest interpretation of the rules. We can help you assess your partnership agreement, explain how the salaried member rules apply to your business and provide practical advice to help you remain compliant.

Proposed Reporting Changes for Close Companies

HMRC has launched a consultation on proposals that could require close companies to report more detailed information about transactions between the company and its shareholders or directors.

The proposals form part of HMRC’s wider plans to reduce the UK tax gap and improve visibility of how money moves between companies and their owners.

A close company is broadly a company controlled by five or fewer shareholders, or by directors who also hold shares in the business. This means the proposals would affect many owner-managed and family-run companies.

If introduced, businesses may need to report additional information on transactions such as:

• Director’s loans and repayments
• Dividends
• Cash withdrawals
• Transfers of company assets
• Loan write-offs or releases

The aim is to help HMRC identify situations where company funds may not have been reported correctly for tax purposes. However, many of these transactions are a normal part of running a business and require appropriate records to demonstrate their purpose and treatment.

While the proposals are still under consultation, they highlight the growing importance of maintaining accurate and up-to-date accounting records throughout the year. Businesses that regularly make payments between the company and its directors or shareholders may benefit from reviewing how these transactions are recorded and ensuring the correct documentation is in place.

Good record keeping, clear separation between personal and business finances, and documenting items such as dividends and director’s loans can help reduce the risk of errors and make future reporting much simpler if the proposals are introduced.

Although no changes have been confirmed, now is a good opportunity for owner-managed businesses to review their processes and ensure they are well prepared for any future reporting requirements.

If you would like advice on director’s loans, dividends or keeping your company records compliant, our team is here to help.

Categories: Positive Accountant