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May Questions and Answers

Newsletter issue – May 2025

Q: My business has always used P11D forms for reporting benefits-in-kind. We don't payroll benefits currently. But I've heard the rules are changing. What does this mean for my business and what do I need to do to prepare?

A:You're absolutely right, HMRC has confirmed that from April 2026, the requirement to submit P11D forms will be withdrawn. Instead, all reporting of benefits and expenses provided to employees will need to be done via payrolling in real time.

So, what does this mean for your business?  In short, it marks the end of the annual P11D ritual. Rather than waiting until the end of the tax year to report benefits, employers will need to process these through payroll on a monthly basis, ensuring tax is collected as the benefits are provided.

For those already payrolling benefits, there's not much change - just a simplification ahead. However, in your case, as you're still using P11Ds, it's time to begin preparing for a shift in your internal processes. Here's what you should be thinking about now:

• Review your current benefits: make a list of all benefits you currently report via P11D (e.g. company cars, private medical insurance).
• Consider payrolling early: you don't have to wait until 2026. HMRC already allows voluntary payrolling, and many employers are making the switch ahead of the deadline to smooth the transition.
• Check your payroll software: make sure it can handle benefit processing correctly and provide the necessary employee breakdowns.
• Communicate with your employees: when you move to payrolling, employees need to understand that the tax on their benefits will now be collected in real time via PAYE, rather than showing up in a later tax code adjustment.
• Speak to us: this is a key change, and professional advice from our team can ensure a compliant and hassle-free implementation.

In many ways, this change should simplify year-end reporting, but like all transitions, a bit of early planning will go a long way.

If you'd like to discuss how your business can get ahead of the curve, we're here to help.

Q: We run a business with a turnover of around £12.5 million for the last couple of years. Under the current rules, we've been classed as a medium-sized company. With the changes to the size thresholds from April 2025, will we be able to requalify as a small company again? And do the new rules apply to our 30 June 2025 accounts? We have a 30 June year-end.

A: On 6 April 2025, new company size thresholds came into effect for UK companies.

This is something that will affect many companies hovering around the various threshold limits. It's important to note that these thresholds don't' pertain to Corporation tax or tax filing or VAT rates etc.

But they relate to financial reporting requirements, director reports and disclosure and, significantly, whether your company is exempt or not from statutory auditing.

Under the reforms, the small company turnover threshold has increased from £10.2 million to £15 million, meaning some companies that previously fell into the medium category may now be able to reclassify as small.

However, the timing of when these apply is key. The new thresholds apply to accounting periods beginning on or after 6 April 2025. Since your year-end is 30 June, your 2025 accounts (covering 1 July 2024 to 30 June 2025) began before the change, so you'll still need to use the old thresholds for that year. The new thresholds will apply from your 30 June 2026 year-end onwards.

There is, however, a transitional provision within the new rules that you could potentially take advantage of. This means that when preparing your 2026 accounts, you can choose to apply the new thresholds retrospectively to both the 2026 and 2025 financial years—for the purpose of determining your company size.

So, if you take up that option, and your turnover stays at £12.5 million, you'd fall within the new small company limits. This could allow you to requalify as a small company for both 2025 and 2026, even though under the old thresholds, you were classed as medium.

That reclassification could reduce your reporting obligations, possibly remove the audit requirement, and simplify your filings.

If you'd like to understand more or discuss your case in greater detail, please get in touch with our team.

Q: I am thinking that I may incorporate by business by transferring it for shares. I am trying to understand how it works, the relief and also what I need to pay in Capital Gains Tax. Can you help?

A: Incorporation means legally setting up your business as a limited company, making it a separate legal entity from you as an individual. This means the company can own assets, enter into contracts, and be held responsible for its own debts.

The steps towards incorporation include choosing a company name, appointing at least one director, deciding on shareholders and how many shares they'll own, and preparing basic documents like the Articles of Association. And you need to register with Companies House.

Incorporating your business can allow you to claim Incorporation Relief, which lets you defer paying Capital Gains Tax when you transfer your business to a company in exchange for shares. This means you won't have to pay tax on any gain until you sell those shares in the future.

Let's imagine you go ahead and incorporate your business and you receive 1,000 £1 ordinary shares. That means your company has a value of £100,000 on incorporation, and the shares had a market value of £100 each.

If you didn't get Incorporation Relief, it would mean the 'chargeable gain', as it's called, would be £60,000.

Normally, the cost of shares in a future disposal/ sale would be £100,000. But with the relief available, this gets reduced by the amount of the deferred gain (£60,000), leaving a base cost of £40,000, or £40 per share.

This is a complex area of tax and we'd need to know all the key details of your business to be able to determine the impact for you and how much Capital Gains Tax you might be liable for. If you'd like to discuss your circumstances in full with our team, please do get in touch.