From expensing to benefits in kind, the ICAS tax team highlight some common topical problem areas

Annual investment allowance

When claiming capital allowances on qualifying capital expenditure, it’s important to bear in mind that the annual investment allowance (AIA) can only be claimed by an individual, a partnership of which all the members are individuals, or a company. In the case of a partnership where either a trust or a company are members, AIA is not available.

AIA is only available on qualifying expenditure up to the annual limit (currently £1m per year). In some cases, this must be shared between companies under common control. Companies in a group must always share the annual limit with each other. Unincorporated businesses under common control may need to share the annual limit with each other, and companies (or groups of companies) may need to share the annual limit with each other if they are carrying out similar activities or trade from the same premises. HMRC has recently made us aware that it is targeting companies where it believes that more than £1m has been claimed in a year.

Learn more about AIA with Corporation Tax: Refresher and update.

Full expensing

Where companies are claiming full expensing (or super-deduction before 1 April 2023), it is important to ensure that the asset is new and unused. While full expensing is not available on used plant and machinery, AIA should still be available on qualifying expenditure up to the £1m limit (as above). 

Learn more about full expensing with Corporation Tax: Refresher and update.

Director’s personal expenditure

If a company pays a director’s personal expenditure, it is necessary to consider whether this should be treated as a benefit in kind (BIK) or whether the director’s loan account would be a more appropriate route. If the latter is considered, it is important not to claim VAT on expenditure reclassified as the director’s loan account, even if the VAT would otherwise be recoverable.

Learn more about director's personal expenditure with Income Tax: Refresher and update.

Overdrawn director’s loan account

The company must pay tax under Section 455 CTA 2010 on a loan balance to a participator unless the loan balance is repaid within nine months of the year-end. There are special rules on what is classed as a repayment, so if there is a repayment and subsequent advance, Section 455 tax may still be payable under the “bed and breakfasting” or “arrangements” rules.

A beneficial loan interest BIK may arise if the overdrawn loan account exceeds £10,000 at any point in the tax year (not the company’s accounting year). This could be mitigated if interest is paid to the company.

Learn more about overdrawn director's loan account with Income Tax: Refresher and update.

Dividend payments

While tax planning may often be considered when declaring dividends, this does not change the Companies Act 2006 requirements for a dividend to be lawfully declared. Section 830 of the Companies Act 2006 requires dividends to be paid from distributable reserves. If there are insufficient distributable reserves to cover a dividend, it is treated as unlawful (or ultra vires) and may need to be repaid per Section 847 Companies Act 2006.

Dividends need to be properly declared at a board meeting and minutes taken in real time. In no circumstances should an accountant be party to backdating of dividend paperwork, as this would go against the requirements of Professional Conduct in Relation to Taxation (PCRT).

Learn more about dividend payments with Income Tax: Refresher and update.

Benefits in kind

HMRC announced recently that mandatory BIKs payrolling will commence from 6 April 2026. This will mean that forms P11D (and the information entered on them) will be moved on to real-time information systems and software compulsorily from that date. Many BIKs can be payrolled now, of course, but this is a voluntary measure. There are two BIKs which cannot currently be payrolled: these are beneficial loans and living accommodation. The legislation governing these will need to be amended before 6 April 2026 to enable payrolling.

Members should consider with their clients what needs to happen in terms of everything from letters of engagement, to fees for the work, to training, administration burdens and CPD to PCRT. P11D work was covered by PCRT and yet payroll processing is not – however the advice and calculations which are carried out prior to payrolling is still classified as tax advisory work. The inclusion of BIKs in payroll returns constitutes a tax return, so the same requirements for due care and accuracy apply. Bear in mind also the impact of BIKs and salary sacrifice/exchange on National Minimum Wage (NMW) (see below).

Learn more about BIKs with Income Tax: Refresher and update.

Scottish income tax

Be mindful of the fact that there are now six Scottish income tax rates and bands which must be operated when anyone qualifies as a Scottish taxpayer. It is important to ensure that clients are correctly categorised so that they pay the correct income tax, particularly where they may have moved and become, or ceased to be, a Scottish taxpayer for the first time.

Learn more about Scottish income tax with Income Tax: Refresher and update.

Common employment tax errors

Termination payments still cause many employers headaches and are complex in nature. The relevant legislation is difficult to negotiate for the unwary and, frequently, HMRC comes across errors in the taxation treatment. Be aware that your clients could often do with a refresher course in how to navigate these choppy waters. In addition, Construction Industry Scheme and off-payroll working (formerly known as IR35) require detailed working knowledge and are not subjects to be dabbled in – the consequences can be severe if they are incorrectly returned to HMRC.

Learn more about common employment tax errors with Income Tax: Refresher and update.

Minimum and Living Wage

The most common issue with National Minimum or National Living Wage (NLW) is to underpay staff by pennies or pounds, rather than deliberately try to exploit them. The latest HMRC “naming and shaming” list has just come out and reveals that more than 500 employers have been named – but the majority of these employers have made underpayments of £1.50 or less to their employees. There are of course genuinely bad employers who are deliberately not paying the correct pay – and these are dealt with in a harsher way. However, if you do not want your clients to appear on the naming and shaming list, it is vital that the complexities of NMW legislation are well understood by those operating payroll, and that the nuances of that legislation and guidance are understood. Remember that there is a 200% penalty for getting it wrong, in addition to the reputational damage.

Learn more about NMW and MLW with Income Tax: Refresher and update.

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