Changing company size thresholds raises reporting challenges for OMBs

The recent changes to company size thresholds have created a number of financial reporting challenges for owner-managed businesses (OMBs). Practitioners at Mercia’s Acting for OMBs Conference were warned about these issues as well as other hot topics impacting the sector including VAT, employment law and Inheritance Tax (IHT). In this blog, we take look at these issues.

Demand for audits

Changes to company size thresholds might impact OMBs and raise issues in their financial reporting, Freelance Consultant James Charlton told the conference.

The implications include a possible decrease in the demand for audits; a decrease in consolidations; increased use of FRS 105; and a potential requirement to adjust year ends to secure earlier application.

Additionally, Charlton highlights the removal of ‘superfluous’ disclosures that were required in directors’ reports. Anything that would be otherwise addressed by the strategic report has been removed, says Charlton.

Changes to the Economic Crime and Corporate Transparency Act were also addressed, including ensuring information in the Companies Register is accurate and complete; making sure records are not false or misleading; and preventing companies from conducting or facilitating unlawful activities.

Taking the turnover test

James Hurst, Technical Lecturer and Consultant at Mercia, highlighted a handful of common VAT challenges faced by OMBs.

Registration is one such issue: if anticipated turnover is expected to exceed the threshold in the next 30 days alone, businesses should register for VAT with immediate effect, says Hurst. Businesses are advised to carry out the historic turnover test, which is compulsory when supplies exceeded the threshold in the previous 12 months.

Businesses can only register if they are making taxable supplies, including those that are zero-rated. Hurst urged those acting for OMBs to monitor turnover; register early if possible; consider the liability of income sources; and consider mitigation for being late.

Regarding VAT compliance, Hurst highlighted interest on late payment and late payment interest charges as being problematic for OMBs. He advises owners to act promptly; request Time to Pay; consider if there is a ‘reasonable excuse’ or unforeseen events; and carefully document all contact with HMRC.

Employment law update

A detailed update on various key aspects of employment law and changes that businesses must be aware of was provided by lawyer Louise Dunford.

She highlighted changes to employment rights, including regarding service charges, tips and gratuities; changes regarding sexual harassment (Worker Protection Act 2023); the introduction of the Neonatal Care (Leave and Pay) Act 2023 from 6 April 2025; and changes to Statutory Sick Pay (SSP).

Changes to IHT

Changes to IHT for OMBs, including changes to business relief were outlined by Robert Jamieson, MA FCA CTA.

From 6 April 2026, 100% relief for business and agricultural assets will continue to be available, but only for first £1,000,000 of combined business and agricultural property. Value deduction thereafter will be 50%.

This will apply to every taxable person and every pre-30 October 2024 trust. If the value is more than £1 million, the allowance is split proportionately across qualifying property. The rate of business relief on AIM shares will reduce from 100% to 50%. Assets attracting 50% relief never use up any part of £1 million allowance – including AIM-listed shares.

IHT and pensions

Jamieson also discussed changes to IHT and pensions. Chancellor Rachel Reeves’ IHT announcements at the 2024 Autumn Budget included a measure to bring most unused pension funds and death benefits within a person’s estate with effect from 6 April 2027. Pension scheme administrators will then become liable for reporting and paying any IHT due on assets. A consultation is in progress on the processes required to implement these changes.