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>>>