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Recent Government estimates suggest that as much as £1.8 billion is lost every year due to tax avoidance schemes.

That money, designated to fund schools, hospitals and other essential services, is in part, leading the Government to borrow more than expected.

As a result, HM Revenue & Customs (HMRC) is being given additional powers to crack down on tax avoidance and protect the public purse.

What new powers will HMRC have?

The focus of the reforms centres on an expansion of the Disclosure of Tax Avoidance Scheme (DOTAS).

A new hallmark – a specific feature or condition used by HMRC to identify tax avoidance schemes that must be disclosed – will be introduced to explicitly catch the schemes that are slipping under the radar of existing hallmarks.

This will be combined with a stricter liability offence if someone fails to notify arrangements under DOTAS.

Whether the avoidance scheme is effective or not will have no bearing on the illegality of engaging with it, and being caught will result in an unlimited fine and up to two years in prison.

HMRC will also be given the power to determine the penalty directly, leaving promoters the option to appeal to a tribunal should they feel unjustly served by the decision.

Both a Universal Stop Notice (USN) and a Promoter Action Notice (PAN) will be enacted, ensuring that those promoting and enabling schemes, or those working with promoters, stop immediately upon receiving the notice.

These stop notices form part of the targeted action that is being taken against legal professionals who provide advice and support promoters.

Time to act

HMRC want to make it clear that any involvement with tax avoidance schemes will no longer be tolerated.

As such, the onus is on you to ensure that you report any suspected attempts at tax avoidance immediately, lest you feel the consequences of collusion.

If you believe that you may have been involved in a tax avoidance scheme and need guidance, speak to our team today.

Business owners who pay themselves through a combination of salary and dividends should revisit their remuneration strategy this tax year.

With Income Tax thresholds frozen until 2028 and a lower dividend allowance rate of £500, a strategy that once worked may now cost more than it saves.

How should you be paid as a director?

A salary of £12,570 uses the full Personal Allowance and qualifies you for National Insurance (NI) credits without triggering personal Income Tax or employee NICs.

This regular salary combined with dividends, where payable, and a generous pensions scheme, could help you to reduce the amount of Income Tax that you are liable to pay.

If your company qualifies for Employment Allowance, which has now increased to £10,500, even employer NICs can be mitigated.

Lower salaries of around £6,500 may suit directors with other sources of NIC credits or pension plans, while avoiding employee contributions altogether.

Dividends

You need to remember that any dividend income above £500 will be taxed at the dividend tax rate of 8.75 per cent, 33.75 per cent or 39.35 per cent, depending on your marginal rate of Income Tax – basic, higher and additional, respectively.

While dividend tax rates remain lower than Income Tax rates, the reduced allowance – introduced in the last few years – means higher effective rates for many than they have previously experienced in the past.

However, a carefully planned director’s remuneration strategy, which incorporates dividends, can still help to minimise an individual’s annual tax bill.

When dividends cannot be paid to directors

Your company’s profitability and your shareholding will determine how much dividends you can pay yourself, as dividends can only be paid from retained profits after Corporation Tax.   

As long as you have made profits in the past, and those accumulated profits exceed any accumulated losses, then distributable reserves exist to pay dividends. 

If these conditions are not met, then you may be limited to drawing a normal salary. 

Setting your remuneration strategy

A blend of salary and dividends remains one of the most popular ways for directors to pay themselves, but achieving the most tax-efficient approach now involves carefully adjusting your income to reduce the amount of earnings that fall within higher tax bands.

You should speak to an experienced tax adviser to ensure your strategy aligns with the latest thresholds, minimises your tax liabilities, and allows you to keep more of your income.

Could you be paying less tax with a smarter remuneration strategy? Contact us today for tailored advice.

Capital allowances allow businesses to claim tax relief on money invested in assets like machinery, equipment, or certain vehicles used commercially.

There are a variety of capital allowances available, including:

• Full Expensing
• Annual Investment Allowance (AIA)
• Writing-Down Allowances (WDA)

The allowance that your business is eligible for depends on what you buy, how much you invest, and how your business is structured.

Full Expensing

Full Expensing allows companies to deduct 100 per cent of the cost of qualifying plant and machinery assets from taxable profits in the year of purchase.

This applies to new assets only and is available to limited companies subject to Corporation Tax.

It is an ideal option if you are looking for immediate relief or using the investment to improve cash flow.

Annual Investment Allowance

The AIA offers a similar benefit but is more widely available to sole traders, partnerships, and limited companies.

This allowance allows for 100 per cent relief on qualifying expenditure up to £1 million per year.

Unlike Full Expensing, AIA can apply to both new and used assets, though exclusions can apply to assets such as leased items.

Writing-Down Allowances

WDAs apply to any expenditure that exceeds the AIA threshold or when assets are not eligible for Full Expensing or the AIA.

These allowances offer tax relief spread over several years, typically at a rate of relief against profits of 18 per cent for main pool items and six per cent for special rate pool items, like integral features or solar panels.

How to claim capital allowances

Capital allowances must be claimed within your tax return and can be set against your business’s taxable profits. Eligible items must be used in your business, not for personal use.

There are additional schemes, such as Enhanced Capital Allowances, which can be used for “eco” investments, which may also be useful to certain businesses.

For a full list of qualifying items and further guidance on how to claim, please visit gov.uk/capital-allowances or speak to your tax adviser.

If you would like to know more about the capital allowances available to your business, please get in touch.

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