5 Key Updates for Accountants & SMEs
At Lugo, we make it a priority to stay up to date with legislative changes that impact our clients. Lugo is not a VAT advisory firm, and this article does not constitute tax advice, but as technology and cyber security specialists working closely with accountants, we recognise the importance of understanding the evolving tax landscape. Both Ron Weatherup and Liz Smith are part of the editorial team for the ICAS Technical Bulletin, meaning we actively track these developments to support our clients.
The latest ICAS VAT webinar, featuring expert insights from Tony Cochrane from VITA hosted by Chris Campbell from ICAS, provided crucial updates affecting accountants in practice, finance directors, and business leaders from across Scotland. Tony’s deep knowledge of VAT policy and compliance shone through as he covered a wide range of topics, from private school fees to the digitalisation of VAT compliance. Here are the key takeaways.
1. The VAT Landscape is Shifting
VAT remains a significant revenue stream for the UK government, generating £170 billion annually. Despite speculation about major changes to VAT thresholds, the government has opted for incremental increases rather than a drastic overhaul. The VAT registration threshold now sits at £90,000, while the deregistration threshold is £88,000. Although Labour has indicated they will not alter thresholds in the short term, businesses should remain vigilant for future changes.
2. Private Schools: VAT on Fees from January 2025
One of the most contentious VAT changes relates to private education. From 1st January 2025, private school fees became subject to 20% VAT, removing the previous exemption. Schools already required to be VAT-registered will now need to account for VAT on their fees, creating significant financial and operational challenges.
Schools must now make critical decisions: absorb some of the cost, pass it entirely to parents, or take a blended approach. The technology angle here is crucial—schools must ensure they have the right financial systems in place to handle VAT compliance. Given that VAT errors can be costly, accurate accounting and digital tools for VAT management will be essential.
3. Charities and Partial VAT Recovery: A Compliance Challenge
HMRC is focusing on how charities calculate VAT recovery, particularly in cases where they engage in both business and non-business activities. Many charities claim too much VAT recovery or apply incorrect calculations, putting them at risk of compliance breaches.
From a technology perspective, charities must have systems that can accurately track VAT recovery across different income streams. This is where cyber security also plays a role: with HMRC taking a closer look at financial records, ensuring data integrity and protection is more critical than ever.
4. HMRC Crackdown on VAT Compliance
The webinar highlighted HMRC’s increasing use of ‘one-to-many’ campaigns to educate and enforce VAT compliance across sectors. Private equity firms and other businesses dealing with exempt supplies are under scrutiny, with HMRC urging firms to check their VAT recovery calculations proactively.
For accountants, this means advising clients on the risks of non-compliance. From a cyber security standpoint, businesses must ensure their VAT-related records are stored securely, as HMRC investigations often involve detailed scrutiny of financial records.
5. The Future of VAT: Digitalisation and E-Invoicing
HMRC is pushing towards greater digital compliance, with a consultation on e-invoicing now open. This follows the broader Making Tax Digital (MTD) initiative, which is already in place for VAT and set to expand to income tax. We’ll be attending HMRC’s Making Tax Digital for Income Tax event in Edinburgh on 27th March – why not join us! The move towards automated VAT reporting aims to reduce errors and improve efficiency, but it also introduces cyber security risks. Businesses must ensure that their accounting software is both compliant and secure, protecting sensitive financial data from cyber threats.
5 Key Takeaways for Accountants and Finance Directors
-
Private schools must now account for VAT on fees from January 2025, requiring financial system updates.
-
Charities must ensure their VAT recovery calculations are robust and justifiable.
-
HMRC is intensifying VAT enforcement, particularly in sectors with partial exemption.
-
The digitalisation of VAT compliance continues, with e-invoicing and MTD expansion on the horizon.
-
Cyber security should be a priority as more financial data is stored and processed digitally.
Lugo may not be VAT advisers, but we work closely with accountants to ensure their technology and cyber security frameworks support compliance. As legislative changes continue to unfold, staying ahead of both financial and technological developments will be crucial.
For VAT-specific advice, we strongly recommend consulting a qualified VAT professional.
Is Your Business Ready for the Future of Compliance?
VAT compliance is becoming increasingly digital, and HMRC’s focus on enforcement is only growing. As an accountant, finance director, or business leader, ensuring your financial systems are secure, efficient, and compliant is critical.
At Lugo, we specialise in technology and cyber security solutions that support organisations across Scotland. Whether it’s secure financial data management, cloud-based accounting software, or cyber security protections for sensitive client information, we ensure your IT infrastructure is built for compliance and resilience.
🔹 Are your systems ready for HMRC’s digital compliance shift?
🔹 Could your financial data security withstand an audit or cyber threat?
🔹 Do you have the right technology in place to support seamless VAT reporting?
If you’re unsure, let’s talk. Get in touch with Lugo today to discuss how we can strengthen your technology, enhance your cyber security, and give you the confidence to focus on what you do best—serving your clients and growing your business.
📩 Email us at info@LugoIT.co.uk
📞 Call us on 03300 242 242
🌍 Level Up with Lugo at Lugo Technology Alignment Service
