Liquidate the company, Renewals allowance, Payrolling of benefits

The Government issued another 645 pages of draft tax legislation and notes last week. We have picked out two issues from the draft Finance Bill 2016 which may be relevant to your clients: whether to liquidate their dormant companies and the new renewals basis for items used in let residential properties. HMRC has also set a ridiculous deadline of 21 December 2015 to inform them about payrolling of benefits.

This is an extract from our topical tax tips newsletter dated 17 December 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Liquidate the company
Where a company is liquidated the proceeds received by the shareholders are treated as capital, after the costs of the liquidation are deducted. The shareholders pay CGT on those proceeds at: 18%, 28%, or 10% where entrepreneurs' relief applies. This is a huge tax saving compared to the dividend tax rates of: 7.5%, 32.5% and 38.1% which will apply to distributions from a company in 2016/17.
 
The Government wants to prevent business owners from achieving a “tax advantage” (tax saving), by liquidating their company and starting up the same or similar business in another vehicle. There are already anti-avoidance rules which can be used against such phoenixing, which are explained in HMRC's Company Tax Manual at CT36850.
 
The draft Finance Bill 2016 includes a new targeted anti-avoidance rule (TAAR) that goes further than the current rules. If the TAAR comes into effect as drafted it will tax the proceeds from the liquidation as income rather than as capital, where all these conditions are met:
a)     a close company is wound-up and an individual (S) receives proceeds from the shares;
b)     within two years of that distribution S continues to be, or becomes, involved in a similar trade or activity; and
c)     one of the main purposes of the winding-up is to obtain a tax advantage.
 
Condition b) will apply where the same or similar business is continued as a company, or as a sole-trader or as partnership, even on a much diminished scale.
 
The TAAR is due to apply to distributions made on or after 6 April 2016. Thus to be sure of falling outside of the TAAR, the liquidation must be completed before that date. Liquidations can take many months. If your client has a company which he intends to liquidate to pay CGT on the funds it has accumulated, he needs to act fast to avoid being caught by this new TAAR.
 
Our tax experts can advise you on whether a proposed transaction involving a company's shares will be affected by the draft anti-avoidance rules in Finance Bill 2016.


This is an extract from our topical tax tips newsletter dated 17 December 2015 (5 days before we publish an extract on this blog). it was the last one of 2015. You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Company cars and fuel, Tax free meals, Income verification

Last week we turned our attention to employee benefits, in particular company cars and meals taken while away from the normal workplace. The rules and rates for taxation of both these benefits are changing from 6 April 2016, so you need to inform your clients. We also shared news on the provision of tax calculation statements by HMRC for mortgage purposes.

This is an extract from our topical tax tips newsletter dated 10 December 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Company cars and fuel
As we predicted in our newsletter on 12 November 2015 the 3% supplement for diesel powered company cars is to be retained after 5 April 2016. As a result the taxable benefit for using a diesel company car will increase in 2016/17 rather than decrease as had been expected.
 
This announcement was made in the Autumn Statement on 25 November 2015, which will have been too late for many tax rates and tables books published this year. HMRC's online calculator for car and fuel benefit currently doesn't cover 2016/17, but that may updated in January 2016.   
The percentage of list price used to calculate the taxable benefit for all company cars will increase by two percentage points from 2015/16 to 2016/17. This includes cars with CO2 emissions under 51g/km, which will be taxed at 7% of the list price, or 10% for a diesel car.
 
The maximum percentage of list price used for the benefit calculation is now set at 37%. That level will be achieved by diesel cars with CO2 emissions of 185g/km or more in 2016/17. Petrol cars will achieve the maximum at CO2 emissions of 200g/km or more.
 
As around 81% of company cars are diesel powered, you need to inform your clients of this change so they are prepared for higher tax and class 1A NIC liabilities in 2016/17. Look out for notices of coding for 2016/17 and check that the correct taxable benefit for the company car has been included.
 
If a taxpayer has a company car in most cases it is not economical to take free fuel for private use, as the fuel used will cost less than the tax payable on the fuel benefit. Instead of free fuel the taxpayer should claim the cost of fuel used on business journeys, from his employer, using the advisory fuel rates. Those advisory rates have been revised with effect from 1 December 2015, mostly downwards, but the old rates can be used for journeys taken before 1 January 2016.

This is an extract from our topical tax tips newsletter dated 10 December 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tax relief for travel and subsistence, R&D advanced assurance, Payment of SA tax

The Autumn Statement contained little to concern small businesses in the near future. The proposed change to tax relief for travel and subsistence costs will be relatively limited, as we explain below. There is a new R&D advanced assurance procedure which small companies should know about, and we revisit the issue of paying SA tax in January, because it is so important.

This is an extract from our topical tax tips newsletter dated 3 December 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Tax relief for travel and subsistence
In our newsletter on 15 September 2015 we outlined the proposed changes to tax relief for travel and subsistence costs. The Government says a restriction on this relief is needed to block abuse of the rules by a minority of employment agencies and umbrella companies, and personal service companies were set to be caught in the cross fire.
 
The good news is the Government listened to responses to the consultation paper, and has decided to restrict tax relief for travel and subsistence expenses only for workers engaged through employment agencies, such as an umbrella companies. This means those temporary workers won't be able to claim expenses for travelling to work, and won't be due a lunch allowance either. This change will take effect from 6 April 2016.
 
Individuals who contract through their own personal service companies may be caught by this change in the tax rules, but only where the contract they perform falls under the IR35 rules. Thus if IR35 doesn't apply, the contractor can carry on as before, claiming a reimbursement of travel and lunch costs from his own company.
 
This will be a big relief to many contractors, as the IR35 rules rarely apply to genuine contractors who are in business on their own account, and who can provide substitutes to complete their contracts. There is a lot more to IR35 that those two conditions. Our employment tax experts can help you advise clients on that complex piece of legislation.
 
You should also advise clients that the IR35 rules are under review and may be tightened up from April 2016 or from a later date.

This is an extract from our topical tax tips newsletter dated 3 December 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

PAYE debts, Tax payments or repayments, Non-resident landlords

Next week, once the dust has settled, we will analyse some of the most urgent tax changes announced in the Autumn Statement. In the meantime we have tips on how to deal with phantom PAYE debts, and a practical issue concerning the SA tax payments and repayments due in January. There are also new forms and new guidance for non-resident landlords.


This is an extract from our topical tax tips newsletter dated 26 November 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Tax payments or repayments 
Helping clients with their tax affairs involves more than just computing the numbers. Many individuals need support with budgeting to pay their tax liabilities, and reminders about when and how to pay. 
  
January is probably the worst month in which to find the funds to pay tax bills. Many small businesses see a reduction in trade after Christmas, and the weather can discourage customers. New businesses may have to find 150% of their annual tax liability, if the individual was previously taxed under PAYE. These problems can lead to taxpayers reaching for their credit cards to pay the tax due.       
  
If they do pay by credit card, there is a non-refundable fee of 1.5% of the amount paid. Payments by debit card don't attract a fee. But a debit card can't be used if the funds or overdraft facility don't already exist in the taxpayer's bank account.   
  
A taxpayer facing a significant tax bill on 31 January 2016 may want to spread the bill over several credit cards. However, from 1 January 2016 HMRC will restrict the number times debit or credit cards can be used to pay the same tax bill. HMRC hasn't indicated the maximum number of card transactions which will be permitted against each tax bill. 
  
If the taxpayer needs to spread their self-assessment tax bill over several months, the HMRC budget payment plan should be considered. But this requires forward planning as all self-assessment debts must be paid before starting on a budget payment plan. 
  
When your client is really stuck for funds, they can to ask HMRC for a time to pay arrangement before the due date for the tax arrives (or you can do this for them), by calling the business payment service: 0300 200 3825. 
  
Where your client is due a repayment of tax from their SA tax return, HMRC want to make that repayment electronically directly to the taxpayer's bank account. This is only possible if the bank account number and sort code have been accurately recorded on the SA tax form. 
  
A new feature in the HMRC software for completing SA tax returns now checks that the bank sort code entered is a valid sort code, and that the format of the account number entered is correct. An error message will ask the preparer to check and amend the entries if a fault is detected. 
 
This is an extract from our topical tax tips newsletter dated 26 November 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Topical tax tips: Company cars, EBTs and football, VAT and golf

In last week’s newsletter we disguised the practical tax points as articles concerning; fast cars, football and golf. More seriously, we looked at how the tax charge for using a company car for private journeys will change in the future, the implications of the HMRC win against Murray Group Holdings Ltd, and VAT repayments for golf clubs.


This is an extract from our topical tax tips newsletter dated 12 November 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

EBTs and football 
Even if you have no interest in employee benefit trusts (EBTs) or football, you will have seen the coverage of HMRC’s win against Murray Group Holdings Ltd (owners of the former Rangers FC) in the Scottish Court of Session. But what does that mean for other taxpayers? 
  
An EBT is a structure which in recent years has been used as a means to avoid PAYE and NIC on employees’ earnings. In simple terms the employer places funds in the EBT, the EBT moves those funds to sub-trusts which are ear-marked for particular employees and their families. The sub-trust makes a loan to the employee, which it has little or no expectation of ever being repaid. Thus the employee receives the funds, and if the planning worked, the employee would be taxed only on the benefit in kind of receiving an employment-related loan. 
  
HMRC always argued that the payment by the employer to the EBT was consideration for the services of the employee, and hence should be taxed as the employee’s pay. HMRC lost this argument at the First-tier and Upper Tribunals, but it succeeded with a slightly different argument at the Court of Session. If you are interested in how this happened read the blogs: EBT and Rangers FC parts 1 and 2. 
  
Lots of companies, even quite small ones, used EBT schemes in the past. HMRC will interpret the Murray Group Holdings case as evidence that none of those EBT schemes worked, even if the facts were slightly different. HMRC offered companies who had used an EBT before April 2011, an opportunity to settle the tax and NIC due with minimal penalties. That opportunity is still there, but the penalties will not be minimal as the deal will have to be negotiated individually between the company and HMRC. 
  
Where the company does not voluntarily settle with HMRC it should expect to receive a follower notice which invites the company to alter its tax returns, in this case PAYE returns. If the issue is already the subject of a tax enquiry the company should expect to receive an accelerated payment notice, which demands that the tax is paid within 90 days. 
  
For any of those outcomes the company will need expert tax investigations advice. Our experts are happy to help with that.


This is an extract from our topical tax tips newsletter dated 12 November 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>


The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Pension contributions, Scottish taxpayers, R&D assurance

There is a major restriction to tax relief for pension contributions coming into effect on 6 April 2016, which your clients may need to prepare for. Employers and individuals also need beware of the introduction of the Scottish rate of income tax, which will have repercussions far south of the Scottish border. Finally we have some good news for small innovative companies as claiming R&D tax relief should become easier very soon.

This is an extract from our topical tax tips newsletter dated 5 November 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>


Pension contributions 
From 6 April 2016 the annual allowance (AA) for pension contributions will be cut from £40,000 to a minimum of £10,000. The Government says this change will only affect “top earners”, but that is misleading. 
  
Individuals with “adjusted income” in excess of £150,000 will have their AA tapered down by £1 for every £2 over that income threshold, until a minimum AA of £10,000 is achieved. If pension contributions are made which exceed the tapered AA for the year, an annual allowance charge will apply on the excess contributions at the taxpayer's highest rate of income tax.    
  
To avoid an unwelcome AA charge the taxpayer needs to calculate his adjusted income before making large pension contributions in the tax year, but that may prove to be impossible. 
  
Adjusted income comprises: all of the taxpayer's taxable income, including income from property, interest, and dividends, plus any pension contributions made by the individual's employer on his behalf, (F(no.2)A 2015, Sch 4, Pt 4). Anyone with a variable income will find it very difficult to calculate their adjusted income before the end of the tax year. For example professional partnerships, even those with a year end of 30 April 2016, will take eight or nine months to approve and finalise the partners' profit shares for 2016/17. 
  
High earning employees should to talk to their employers to ensure that where their pension contributions are matched by an employer's contribution, the total does not exceed their tapered AA. The individual may need to opt out of the company pension scheme and negotiate compensation for that opt-out.   
  
Your client may also consider transferring income-generating assets such as property or shares to a lower-earning spouse/civil partner before 6 April 2016. Remember a transfer to an unmarried partner will trigger a disposal subject to capital gains tax. 

A third option is to maximise pension contributions in 2015/16 by making use of any unused AA brought forward from the previous three tax years.
 
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>
 

CGT horror, VAT on overseas expenses, Contracts for difference

To coincide with Halloween, when frightening and spooky things abound, we have three tales of tax horror to shock you. First: bad advice given by a solicitor on the gift of a house. Second: the lack of advice given by a large firm of accountants on reclaiming VAT on overseas expenses. Finally a warning about letters from HMRC concerning schemes involving contracts for difference. There is something to learn from each of these situations.

This is an extract from our topical tax tips newsletter dated 29 October 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

CGT horror 
Imagine this: your client tells you he has given his daughter a let property to reduce the value of his estate for IHT purposes, and to provide his daughter with a source of income. The solicitor who handled the conveyance said as no money changed hands there was no capital gains tax to pay. 
  
The solicitor's advice is wrong on two fundamental points. The gift between the father and daughter is taxable, as it doesn't fall into one of specific exemptions provided by the legislation - such as a transfer between spouses/civil partners (TCGA 1992, s 58). 
  
Where a transaction - including a gift - occurs between connected parties, the transaction is deemed to occur at the open market value of the asset transferred (TCGA 1992, s 17). The father and daughter are connected persons as they are relatives (TCGA 1992, s 286(2)). It makes no difference that the daughter is an adult, she remains connected to her father for the whole of her life. The fact that no money changed hands doesn't change the deemed consideration for the transaction. 
  
If the property has increased in value while your client has owned it there may well be CGT to pay. The taxable gain is calculated as if he had sold the property to his daughter at its market value. 
  
There are two possible ways to mitigate this gain:.....

The full newsletter contained the remainder of this piece plus links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week.

Repairs or improvement, Pensions annual allowance, Learning from BRC

The allocation of costs between repairs and improvements always involves an element of judgment, but if HMRC disagree with the taxpayer's decision additional tax and penalties can be due, as we explain below. We also have a warning about pension annual allowances and the declaration required on the taxpayer's SA tax return. Finally we celebrate an outbreak of common sense at HMRC concerning Business Record Checks.


This is an extract from our topical tax tips newsletter dated 22 October 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Repairs or improvement 
If a client spends a substantial sum on repairing or altering their let property you will probably learn about the project after the event, when you complete the tax return. What you do next could have a huge bearing on the level of any penalty payable should HMRC question the apportionment between repairs and capital. 
  
Only the landlord can know whether the work undertaken has installed a fixture, fitting, or part of the structure which did not previously exist, or has improved such an item so its nature has been transformed. Any of those outcomes means the cost should be classified as an improvement (capital expenditure); everything else is a repair. A diligent taxpayer will record all the expenditure when the work is done and categorise the costs at that time. 
  
However, without back-up to support the landlord's records, his analysis is worthless. If HMRC open an enquiry the tax inspector will ask for sight of various documents to support the cost apportionment. Those will include: architects drawings, builders' estimates, receipts and building inspector's report. Ideally the documents should tell a clear story to link the before and after state of the property. In reality this is unlikely to be the case, but HMRC will demand evidence of why and how each section of work was done. 
  
When the tax inspector's view of the repair/capital cost split differs from the landlord's, HMRC may seek to impose a penalty for a careless inaccuracy - up to 30% of the underpaid tax. You can counter this with the argument that the taxpayer took reasonable care establish the correct deduction claimed on the tax return. 
  
The HMRC compliance manual (para CH81130) says if an inaccuracy in a document exists despite the person having taken reasonable care, no penalty will be due. The HMRC manual goes on to say the standard of care is: “that of a prudent and reasonable taxpayer in the position of the taxpayer in question.” 
  
The alternative approach is to encourage clients to keep adequate back-up to support all repair/ capital apportionments, and advise them not to claim costs as repairs which could be shown to be improvements. 


The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week.