DMS Posts, Other

Changes at Companies House: corporate transparency and companies register reform

The Government is planning the most significant changes to the role and powers of Companies House since the register was first created in 1844. 

The proposed changes are part of a package of reforms to increase corporate transparency, improve business transactions and tackle economic crime which the Government has been consulting on since 2019.

What’s been proposed?

Over the last couple of years, there have been several Government consultations (see Further information below) on the proposed changes. Key proposals include:

  • Identity verification: introducing compulsory identity verification for all directors, People with Significant Control and those filing information on behalf of a company. The Government has proposed that once identity verification has been introduced, all company directors will have to verify their identity with Companies House before they can incorporate and a director’s appointment will not have legal effect until their identity has been verified.
  • Reforms to Companies House powers: Companies House will have stronger powers to query, seek evidence for, amend or remove information and to share it with law enforcement partners when certain conditions are met. Currently, Companies House is required to accept documents which are filed in good faith and place them on the register. One of the most important changes is to give Companies House the power to query information being filed and ask for evidence to support this, where appropriate. The Government issued a further consultation about how this power would work in practice which closed in February.
  • Register of Directors: it is proposed to remove the requirement for companies to keep their own Register of Directors so that the register held by Companies House will become the single, verified source of information for this. The Government is also considering the position on some of the other registers, such as the Register of Secretaries and the Register of People with Significant Control (although it has said it is unlikely to remove the requirement to keep a Register of Members).
  • Protecting personal information: this includes improving the processes for removing personal information from the register, including people’s signatures, the day of date of birth and residential addresses.
  • Company accounts: the Government has consulted on how to improve the way financial information is filed with Companies House. This includes requiring accounts to be delivered digitally and to be fully tagged. It is also proposed that the timescales for filing accounts will be shortened.
  • Ban on corporate directors: the Government legislated in 2015 to ban the use of corporate directors but these provisions were never brought into force. The Government now proposes to implement the ban, but with a ‘principles’ based exemption. This would mean that a company will only be able to appoint a corporate director if all the corporate director’s directors are natural persons whose identities have been verified by Companies House.

Who will the proposals apply to?

It is intended that any entities that are subject to the transparency provisions of the Companies Act 2006 will be caught (including registered companies, LLPs and limited partnerships).

Next steps

As these proposals are so wide-ranging and many will require legislation to implement, the Government has said it intends to publish a comprehensive set of proposals and will proceed to legislate ‘when Parliamentary time allows’. Funding will be required, particularly to implement the major changes to Companies House. However, the Government has indicated that it is committed to reform and we are likely to see at least some of the changes in the next few years.

Further information

The Government’s response to the consultation on corporate transparency and register reform can be found here.

You can also see the links below for the relevant Government consultations (which are now closed):

Current Companies House filing deadlines

The automatic extensions granted by the Corporate Insolvency and Governance Act have now come to an end for filing deadlines that fall after 5 April 2021. The Government had previously extended some deadlines to relieve the burden on businesses during the coronavirus outbreak.

As a reminder, some of the key Companies House filing deadlines are below:

  • First Annual Accounts: 21 months after the date the company is registered with Companies House;
  • Annual Accounts: 9 months after the company’s financial year ends;
  • Confirmation Statement: dated a year after either the date the company was incorporated or the date you filed your last confirmation statement. You have 14 days from the date of the confirmation statement to file it with Companies House;
  • Charges: within 21 days from when the charge is created;
  • Resolutions: all special resolutions and certain ordinary resolutions must be filed at Companies House within 15 days of being passed;
  • Changes to directors and company secretaries, for example new appointments, resignations or changes to their personal details: within 14 days of the change;
  • Changes to the ‘people with significant control’ (PSC) register, or a PSC’s personal details like a new address: within 14 days of the change; and
  • Allotment of shares: within 30 days of issuance.
Budget, PAYE, Tax

NIC Changes

Employers’ class 1 NIC

The secondary class 1 NIC rates and thresholds (paid by employers) were not altered in the Spring Statement, and the rate is increasing from 13.8% to 15.05% on 6 April 2022. 

For 2022/23 the various secondary class 1 NIC thresholds are:

  Secondary class 1 NIC Thresholds
For most employees the employer pays at 15.05% on wages:
Per week:£175
Per month:£758
Per year:£9,100
If the employee is an apprentice or aged under 21 employer pays class 1 NIC at 15.05% on wages above:
Per week:£967
Per month:£4,189
Per year:£50,270
For new employees working at least 60% of their time in a Freeport site the employer can claim relief from class 1 NIC on wages up to: 
Per week:£481
Per month:£2,083
Per year:£25,000

Employees’ class 1 NIC 

The rates of primary class 1 NIC paid by employees are increasing on 6 April 2022 from 12% to 13.25% and from 2% to 3.25% for the upper rate.

The lower earnings limit (LEL) has not been changed from the proposed level for 2022/23, which will be: £123 per week, £533 per month, £6,396 per year. On earnings between the LEL and the primary threshold, the employee pays class NIC at 0%, thus receives NIC credit for those wages.

The upper earnings limit (UEL) has also not been changed by the Spring Statement, and will stay at the proposed thresholds for 2022/23 of £967 per week, £4,189 per month, £50,270 per year. On earnings above the UEL, the employee will pay class 1 NIC at 3.35% for 2022/23.

The complication introduced by the Spring Statement is that the primary threshold (PT) for class 1 NIC will change part way through the tax year on 6 July 2022. The employee will pay class 1 NIC at 13.25% on earnings between the LEL and the PT for 2022/23.  

Class 1 NIC primary thresholds 6 April to 5 July 2022 6 July 2022 to 5 April 2023 
Per week£190£242
Per month£823£1048
Per year£9,880£12,570

As NIC is paid according to the pay period, and is not cumulative, only nine months of earnings (from July 2022 to March 2023) will benefit from the higher PT.

Company directors tend to use an annual or quarterly earnings period. Those on quarterly pay will use the lower threshold for the first quarter to 5 July 2022, and the higher PT for the remainder of the year. Those on annual earnings period will use a PT of £11,908 for 2022/23 as specified in clause 4(2) of the National Insurance Contributions (Increase of Thresholds) Bill 2022.

Self-employed class 4 

The lower profits limit (LPL), from which class 4 NIC becomes payable, is also increased to align with the personal allowance of £12,570, but over two years. The upper profits limit is frozen at £50,270.

Tax Year Main rate Additional rateLPLUpper profits limit
2022/2310.25%3.25%£11,908£50,270
2023/2410.25%*3.25%*£12,570£50,270

* Including Health and Social Care levy

For 2022/23 the LPL will be £11,908, that is nine months of the increased level, to make it equivalent to the same NIC allowance enjoyed by employees. Although the self-employed individual will pay class 4 NIC at the main rate of 10.25%, which is three percentage points lower than the class 1 NIC paid on the same income band by an employee.  

Self-employed class 2 NIC

The class 2 NIC paid by the self-employed creates a contribution record for the individual, unlike the class 4 NIC, which is a pure tax. 

The class 2 small profits threshold (SPT) will remain in place from April 2022, but the individual will not be liable to pay class 2 NIC until their profits exceed the lower profits threshold for the tax year, which is aligned with the lower profits threshold for class 4 NIC.

Tax year Flat rate per week   Small profits threshold  Lower profits limit 
2022/23£3.15£6,725£11,908 
2023/24TBATBA £12,570

New class 2 NI credit 

Where the individual has annual profits between the SPT and the LPL, they will effectively build up a NI credit for that year, while paying zero class 2 NIC. Note that the taxpayer has to make profits at least equal to the SPT for the year in order to benefit from this class 2 NI credit. 

In order to receive the class 2 NI credit the taxpayer will have to submit a tax return, although if they have no other income in the year they will have no tax to pay. 

The introduction of the class 2 NI credit does not eliminate the need for voluntary class 2 NIC payments. Where the trading profits are less than the SPT the individual may still wish to pay voluntary class 2 NIC in order to maintain their contribution record and qualify for the state pension, as well as for other contributory benefits.

DMS Posts, PAYE, Tax

Sunak aligns NIC and income tax in Spring Statement

The Chancellor is

aligning the class 1 national insurance contributions primary threshold with the personal allowance of £12,570. 

As I predicted it is impossible to implement this change in payrolls run for April 2022, as it takes time to rewrite payroll software, but it will come into force from 6 July 2022. 

Note that the secondary class 1 NIC threshold, where employers start paying class 1 NIC, will not be raised to align with the primary threshold. Employers will pay class 1 NIC at 15.05% on most employees’ salaries above £9,100 from 6 April 2022. Different secondary class 1 NIC thresholds apply for apprentices and freelance employees. 

Self-employed NICs

The Chancellor has gone further than I expected, with plans to align the thresholds where the self-employed start paying class 2 NIC and class 4 NIC, with the personal allowance, but not immediately. 

The class 4 NIC lower profits limit will rise to £11,908 for 2022/23 and then be aligned with the personal allowance of £12,570 from 6 April 2023. This two-step increase is presumably implemented to shadow the delayed rise in class 1 NIC from 6 July 2022.

Class 2 NIC is currently payable once the individual’s profits for the year exceed the small profits threshold of £6,515. This relatively low payment threshold exists to allow self-employed individuals with small profits to build up a contribution record for the state pension and other benefits. 

From 2022/23 the threshold for paying class 2 NIC will be aligned with that for paying Class 4 NIC: £11,908 for 2022/23, then £12,570 for 2023/24. However, this large step up could leave many low-profit traders with no national insurance contributions for many tax years. 

To solve this problem from 6 April 2022 self-employed traders with profits below the lower profits limit will be treated as if they had paid class 2 NIC, but in fact they will make no actual NICs payment.  

The Government has already published a draft National Insurance (Increase of Thresholds) Bill 2022, which will bring these changes into effect. This Bill will be fast-tracked through Parliament.    

Employment allowance 

In a sop to small businesses the employment allowance will rise from £4,000 to £5,000 from 6 April 2022. This allowance can only be claimed by employers that had a class 1 NIC liability of no more than £100,000 in the previous tax year. The increase will allow an eligible employer to pay one extra person on the national minimum wage without having to pay employer’s class 1 NIC.

The detail in the Spring Statement also confirmed that the employment allowance will cover the employers’ liability for the Health and Social Care levy.   

Basic rate cut 

The promised cut in the basic rate of income tax from 20% to 19%, is slated to apply from 6 April 2024, but that is a long way off. As the past month has shown, the world can change significantly in a few weeks, and I wouldn’t like to predict where we will be in the spring of 2024.

In his Mais lecture last month Chancellor Rishi Sunak set out the principles that underpin his tax policy. At the core is a desire to cut taxes, but only where those cuts can be funded, and he restated that belief in his Spring Statement. 

To find out how much the tax cuts are all going to cost you need to dig into the Spring Statement 2022 policy costings document. For example, the increases in NIC thresholds to align with the personal allowance will cost £26.345bn over five years to 2026/27. 

The costings document sets out three additional sources of income for the Treasury:

  • HMRC compliance (tax enquiries): £3.156bn
  • DWP compliance (benefit fraud and error): £2.24bn
  • Student loans (frozen thresholds increased interest): £35.215bn

The conclusion must be that the next generation will be funding today’s tax cuts by paying handsomely in increased student loan repayments.   

Autumn plans 

Perhaps further detail on how the tax and NIC cuts will be funded will be revealed in the Autumn Budget. In Sunak’s 12-page Tax Plan was a vague reference to reforming tax reliefs and allowances and an aspiration to make the tax system “simpler, fairer and more efficient”.

Tax

MTD for VAT rules will apply to all VAT-registered clients from 1st April

On 1st April 2022, Making Tax Digital (MTD), the government’s initiative to implement a fully digital tax system within the UK, will reach a new milestone: all VAT-registered clients will be required to follow MTD for VAT rules. 

What are the rules?

MTD for VAT requires affected clients to keep digital records and file their VAT returns through MTD-compatible software like FreeAgent. Currently, only VAT-registered clients with a turnover above the VAT registration threshold of £85,000 a year are required to follow MTD for VAT rules.

What’s changing?

From 1st April 2022, all VAT-registered clients, regardless of turnover, will be required to follow MTD for VAT rules, and the option to file VAT returns through HMRC’s website will no longer be available. 

The estimated 1.1 million business owners who will be affected by this change, they will need to start using MTD-compatible software to: 

  • store their business records digitally
  • send their VAT returns to HMRC
DMS Posts, Tax

Treasury to simplify Capital Gains Tax 

Chancellor Rishi Sunak has confirmed that the government will implement some of the recommendations for simplifying Capital Gains Tax (CGT) put forward by the Office of Tax Simplification (OTS)

However, the OTS’ more radical proposals, such as aligning capital gains and income tax rates, will not be pursued.

As well as directing HMRC to improve its CGT guidance to taxpayers, the Chancellor has tasked HMRC with implementing reforms to:

  • Increase the filing deadline for the standalone CGT return on residential property gains from 30 days to 60 days (announced in the Autumn Budget 2021).
  • Extend the time window for no gain/no loss transfers of assets between separating/divorcing individuals by a year (there will be a consultation on this).
  • Expand CGT Rollover Relief to cover reinvestment in the form of enhancing land already owned (there will be a consultation on this).
  • Consider integrating the different ways of reporting and paying CGT into the ‘Single Customer Account’ that HMRC is developing.

In addition to accepting these recommendations from the OTS, HM Treasury is still considering:

  • The idea of a standalone CGT return system online (rather than the current combined income tax and CGT Self-Assessment return).
  • Treating individuals holding the same share or unit trust unit in more than one portfolio as holding them in separate share pools for CGT purposes (which would make calculations simpler and potentially facilitate automated online filing).
  • A review of the practical operation of Private Residence Relief nominations by taxpayers, and raising awareness of how the rules operate.
  • The way CGT exemptions for corporate bonds work.
  • The rules for Enterprise Investment Schemes to remove procedural or administrative issues that prevent their practical operation (the Treasury may carry out a much wider review of these reliefs).

However, there is to be no change to the CGT treatment of a disposal where proceeds are deferred, nor any change to the complex way that gains on foreign assets are calculated (converting values to sterling at each relevant date will continue).

The treatment of housing developments in a taxpayer’s garden will not change, nor will the treatment of a freeholder extending a lease.