Beam Accountancy

Where an employee is promised a discretionary bonus as an incentive, an employer may be held liable for the full figure if the preconditions have been met and the chain of authorisation is fully satisfied. Indeed, a recent ruling by a tribunal has made it clear that employers cannot unilaterally alter the preconditions or quantum of a bonus once the agreed terms have been met and approved.

The contention arose after a global cloud hosting platform introduced a bonus incentive scheme, which, according to the presentation slide deck, offered sales staff a discretionary bonus of "up to 1%" of revenues derived from invoicing any new client over the first twelve months of the contract, subject to the approval of the Sector Lead Head (SLH). Soon after this offer was made, the claimant secured a major contract with a prominent retailer, whereupon the line manager formally emailed the SLH to recommend the full 1% commission. The SLH duly authorised the bonus in a recorded ‘memo’. However, the senior management baulked at the prospective payout of £516,082 and sought to retroactively apply a £150,000 bonus cap. While the initial claim for the unlawful deduction of wages was dismissed on the ground that no legal entitlement had crystallised, this was overturned on appeal, as the objective terms of the bonus scheme had been clearly outlined, met, and approved by the designated authority.

Crucially, once the SLH had authorised the bonus, the claimant's entitlement to 1% of the first year’s revenues had legally materialised, and the employer had no legal right to cap the bonus or insist upon additional management sign-offs. Thus, discretionary bonus schemes do not automatically grant employers unrestricted authority to alter payment terms at their whim, as, once an employer has established a discretionary bonus framework, communicates its specific terms to an employee, and subsequently exercises its discretion to approve the award, a binding legal obligation has been formed. As a consequence of this landmark ruling, employers should review all bonus incentive schemes to ensure that they do not inadvertently create any unanticipated obligations.

An important change is coming to the way companies file their annual accounts.

From 1 April 2028, all UK-registered companies will be required to file their annual accounts with Companies House using commercial software. The existing web and paper filing routes for company accounts will close.

The change will affect companies that prepare and file their own accounts as well as accountants filing on behalf of clients.

There are other changes on the way too.

Small companies and micro-entities will be required to file a profit and loss account with Companies House. However, they will have the option of preventing this information from being published on the public register. Details of how this opt-out will operate are still to be confirmed.

The option to file abridged accounts will also disappear, and companies claiming exemption from audit will face strengthened eligibility statement requirements.

Although April 2028 may seem some distance away, businesses that currently prepare their own accounts using the Companies House online service should be particularly aware of the change.

They will eventually need suitable commercial software or will need to arrange for an accountant or other professional to file the accounts for them.

Companies already using accounting software should also check whether their existing package will support the new filing requirements.

There is no need for businesses to make immediate changes, but this is one of those developments worth knowing about well in advance.

The latest figures from the Office for National Statistics suggest that conditions remain challenging for many UK businesses.

In July 2026, 15% of trading businesses reported an increase in turnover compared with the previous month. However, 22% reported that turnover had fallen.

Economic uncertainty remains an important concern, while businesses employing ten or more people were particularly likely to identify labour costs as a challenge. Energy costs are also moving back up the agenda, with 61% of businesses expressing some degree of concern about energy prices in early August.

These national figures are interesting, but the more useful question is how your own business compares.

Has turnover increased during the past year? More importantly, has profit kept pace?

Are higher wages, energy bills and other costs gradually reducing your margins?

And if costs are increasing, have your selling prices been reviewed recently?

It is easy to become accustomed to gradual changes in business performance. A small reduction in margin or steady increase in overheads may not appear significant from month to month, but the cumulative effect can be considerable.

Which makes this a good time to review your latest management figures and compare them with the same period last year.

Look particularly at turnover, gross profit margin, payroll costs and overheads.

If something has changed significantly, understanding why it has changed is the first step towards deciding what to do about it.

Self-employed individuals can deduct allowable business expenses from their income when calculating taxable profits. However, businesses must keep accurate records and evidence to support the costs being claimed.

HMRC requires taxpayers to keep proof of business expenses, although evidence does not usually need to be submitted with a self-assessment tax return. Records should be retained and made available if HMRC requests them as part of a compliance check.

Evidence should show the nature of the expense, the amount paid and that the cost relates to the business. This may include receipts, invoices, bank statements, contracts or other supporting documents. Where an expense has both business and private use, records should also demonstrate how the business proportion has been calculated.

Allowable expenses can include costs such as office expenses, travel, insurance, marketing, professional fees, staff costs and business premises costs. However, personal expenses cannot be claimed, and only the business element of mixed-use costs can be deducted.

Businesses should also ensure they use the correct treatment for larger purchases. Under traditional accounting, equipment, machinery and vehicles may need to be claimed through capital allowances rather than as day-to-day expenses. Under the cash basis, most equipment and machinery can be deducted as an expense, although cars are generally dealt with through capital allowances.

Businesses should regularly review whether individuals working for them are correctly classified as employees, workers or self-employed. Getting employment status wrong can result in unexpected tax liabilities, penalties and loss of employment rights.

Employment status affects both the rights of the individual and the responsibilities of the business. However, a person’s employment status for employment law purposes may differ from their status for tax purposes, so employers need to consider both.

An employee usually works under an employment contract and has greater employment rights, including protection against unfair dismissal, subject to qualifying conditions, and entitlement to statutory payments.

A self-employed person generally runs their own business, takes responsibility for its success or failure and is responsible for their own tax and National Insurance obligations. However, the label used in a contract is not enough on its own. HMRC and employment tribunals will consider the actual working relationship.

Factors that may indicate employment include regular working hours, supervision and control by the business, the provision of equipment and the inability to send someone else to carry out the work.

Businesses should use HMRC’s employment status checking tool, Check employment status for tax (CEST), where appropriate. The CEST tool gives HMRC’s view of a worker’s employment status, based on the information provided.

Businesses investing in qualifying assets may be able to claim the Annual Investment Allowance (AIA) and deduct the full cost of eligible purchases from their profits before tax. This can help by reducing the amount of taxable profit in the period the investment is made.

The AIA can generally be claimed by sole traders, companies and partnerships where all the partners are individuals, on most plant and machinery up to the available allowance. The current AIA limit is £1 million, meaning many businesses can claim immediate relief on significant investments rather than spreading the tax relief over several years.

Qualifying purchases may include items such as machinery, equipment and certain business assets. However, the AIA cannot be claimed on business cars, assets previously owned for another reason before being used in the business or items given to the business.

The allowance is claimed in the accounting period when the asset is bought. Businesses should ensure they use the correct purchase date, which may depend on when contracts are signed or payments become due.

If a business does not want to claim the full amount of AIA, for example because it has low profits, it may choose to claim writing down allowances instead or split the claim between AIA and other capital allowances.

Employers providing uniforms or protective clothing to employees need to understand the tax and National Insurance rules that apply. The treatment depends on whether the clothing is required for the employee’s job, is a uniform worn only at work, or is simply additional clothing provided by the employer.

Most uniforms and protective clothing are exempt from tax and National Insurance, provided they meet the relevant conditions. This can include the cost of buying, cleaning, repairing or replacing a recognisable uniform or protective clothing required for the employee’s job. Where an exemption applies, the benefit does not need to be reported to HMRC.

However, employers may need to report clothing provided to employees on form P11D where the exemption does not apply. This can include the cost of buying clothing, lending it to employees, or paying for cleaning and repairs.

Other clothing provided by an employer is generally treated differently. If clothing is not a uniform or protective clothing, the cost is normally a taxable benefit. The employer may need to report the benefit, pay Class 1A National Insurance and the employee may have tax to pay.

Employers should review the tax treatment whenever clothing is provided to employees, particularly where the clothing is not clearly a uniform or protective item. Keeping clear records of the clothing provided, its purpose and how it is used will help employers determine whether an exemption applies and support the treatment adopted if HMRC asks for evidence. 

Missing a tax deadline can result in penalties from HMRC, but a taxpayer may be able to appeal if they have a genuine reasonable excuse. Whether an excuse is accepted depends on the individual facts and whether the taxpayer took action to put things right without unnecessary delay.

HMRC does not provide a complete list of acceptable excuses, as each case is considered on its own facts. However, examples that may qualify include serious illness, bereavement, unexpected events outside the taxpayer’s control, or problems with HMRC’s systems that prevented a return or payment being made on time.

Other situations may also be accepted where the taxpayer can demonstrate that circumstances prevented them from meeting the deadline and that they took action to put matters right without unreasonable delay once those circumstances ended. For example, a taxpayer may have experienced an unexpected failure of computer equipment or lost essential records due to circumstances beyond their control.

A reasonable excuse will generally not include situations such as forgetting a deadline, relying on another person who failed to complete the task, or not having enough money to pay a tax bill unless the financial difficulty was caused by an exceptional circumstance.

If HMRC accepts that there was a reasonable excuse, the penalty may be cancelled. Taxpayers should appeal promptly, normally within 30 days of the date on the penalty notice, and explain what happened, when it occurred and why it prevented them from meeting their obligation.

Keeping good records and contacting HMRC as soon as a problem arises can help demonstrate that reasonable steps were taken to meet tax responsibilities.

Businesses that register for VAT may be able to reclaim VAT paid on certain goods and services purchased before VAT registration. 

There are specific time limits for claiming pre-registration VAT. VAT on goods can generally be reclaimed where the goods are still held by the business or have been used to produce other goods that are still held by the business. The claim must relate to goods purchased within 4 years before the date of registration.

VAT on services can usually be reclaimed where the services were purchased within 6 months before registration. In both cases, the costs must relate to the business that is now registered for VAT and be attributable to its taxable activities.

Pre-registration VAT should be included on the business’s first VAT return. Businesses should ensure they hold valid VAT invoices and records to support the claim, including details of how any business and private use has been calculated.

There are special rules for certain situations, including partially exempt businesses, businesses with non-business income and significant capital assets covered by the Capital Goods Scheme. These rules can affect the amount of VAT that can be recovered.

It is therefore important for businesses to check the pre-registration rules carefully to ensure that all eligible VAT is identified and claimed correctly. 

Employment law continues to evolve, and businesses should keep a close eye on forthcoming changes that may affect the way they recruit, manage and retain staff. Although many of the proposed reforms are still being developed, employers should not wait until new legislation comes into force before reviewing their existing arrangements.

For many businesses, employment contracts and staff handbooks may not have been updated for several years. As employment rights develop, older documents may no longer reflect current legal requirements or best practice. Reviewing them now can reduce the risk of future disputes and ensure that employees clearly understand their rights and responsibilities.

Businesses that employ part-time, temporary or casual workers should pay particular attention to any changes affecting working patterns and contractual arrangements. Even relatively small changes in employment law can have an impact on staffing costs, administration and workforce planning.

Good communication with employees is also essential. Explaining workplace policies clearly, maintaining accurate records and dealing with concerns promptly can often prevent misunderstandings from developing into formal grievances or legal claims.

Managers should receive appropriate training, so they understand the organisation's policies and apply them consistently. Inconsistent treatment of employees is one of the most common causes of workplace disputes and can expose a business to unnecessary risk.

This is also a good opportunity to review wider employment practices. Recruitment procedures, performance reviews, flexible working arrangements and absence management policies should all support the needs of both the business and its employees.

Professional advice can be invaluable where changes are expected. Employment specialists can help ensure that contracts and policies remain compliant, while we can assist in assessing the financial implications of changes to staffing structures and employment costs.

Preparing early is usually far easier and less expensive than reacting after new rules have taken effect. Businesses that regularly review their employment practices are generally better placed to adapt to legislative change while maintaining a positive and productive working environment.