South West Finance Forum

Transcription

1 South West Finance Forum Tax a risky business? Subtitle Date December 2013

2 South West Finance Forum Hot Topics The current tax environment Diversifying activities: ECO funding Market rent Repairs and maintenance how to have your cake and eat it! (with HMRC approval of course) The Cost Sharing Exemption slow burner but potential to ignite. Some early Christmas Crackers to think about 1

3 Tax transparency

4 The tax environment Tax transparency a very hot topic: Starbucks first to cave-in over tax row Telegraph December

5 The court of public opinion' We are not accusing you of being illegal, we are accusing of you being immoral This is outrageous and an insult to British businesses and individuals who pay their fair share Margaret Hodge, PAC, Nov/Dec 2012 NHS VAT Avoidance Agency Staff It is completely unacceptable for a publicly funded body to deliberately set about avoiding a fair tax due it is simply wrong. ITN June 2013 Starbucks first to cave-in over tax row Telegraph December 2012 The Board Reassure Non-Execs Can you explain your effective tax rate? Users Would your tax position affect their perception of your organisation? Government The PAC Procurement Process MP letter to FTSE CEOs 77m to tackle avoidance GAAR Can you explain your tax position to stakeholders? Lobbying & NGOs Tax Justice Network REC Country by Country reporting Pension funds Stakeholders Reputational damage Stakeholder perception/trust Media Tax avoidance rhetoric Fairness debate, naming & shaming e.g. Google, Starbucks, Amazon, TUI, NHS If you want to work for us, you should play by our rules Danny Alexander, Chief Secretary to the Treasury, September 2012 The public sector must maintain the highest standards of propriety in its employment practices if it is to show leadership in the fight against tax avoidance. Margaret Hodge, PAC, October 2012 ITN June 2013 ebay pays 1.2 million in UK tax on sales of 800 million BBC News Website 21 October

6 Tax transparency what does it mean for the sector? Focussed on private sector at the moment Tax reliefs & exemptions and the interaction of gift aid Enhanced duty of care? Reputational risk? What should social housing providers be doing Ensure compliance, e.g. systems & processes Make sure commercial activities are arm s length (own bank account, etc) Consider getting Charity Commission approval for new commercial projects Consider supporting tax position with a written tax strategy Need to consider potential requirements in relation to Government contracts Include on internal audit agenda Undertake a focussed risk assessment reviews 5

7 Diversifying activities ECO funding Market rent

8 Diversifying activities - ECO funding Background Possible structure Technical issues Energy companies have been funding costs in a variety of ways to help meet their obligations to reduce CO2 emissions CESP - Community Energy Saving Programme CERT Carbon Emissions Reduction Target ECO Energy Companies Obligation RP receives funding from energy companies EnergyCo pays RP Funds used to undertake works on its own properties - payment based on CO2 savings EnergyCo undertakes works on the RP s properties EnergyCo may have right to claim the CO2 savings achieved Accounting now and in the future CT treatment: Trade - PP/NPP? Capital contribution? Miscellaneous income? Sale of intangible? Is the sale of the carbon credits by the RP to the EnergyCo a VATable transaction? 7

9 Diversifying activities - Market rent Why should we? Charity (IPS) Where to do it how about a charity?? SubCo Limited by shares Non-charitable RP (IPS) Pros Income & gains exempt from tax in charity SDLT reliefs? Historically where properties & bulk of funding retained. Cons Restrictions on amount of noncharitable activities the charity can undertake? Risk of trading income on disposal of properties? Lack of commercial transparency? 8

10 Diversifying activities - Market rent What about a subsidiary company limited by shares? Charity (IPS) SubCo Limited by shares Non-charitable RP (IPS) Pros Gift aid & 9 month extension. Potential for group relief & NGNL transfers. Cons Taxable income & gains. SDLT charge? Impact on reserves? Approved charitable investment for the charity? Funding? How to get properties into SubCo? 9

11 Diversifying activities - Market rent or a non-charitable RP? Charity (IPS) SubCo Limited by shares Non-charitable RP (IPS) Pros RP relief? NG / NL transfers from other RPs? Cons Taxable income & gains. Gift aid payable by end of the period?. Difficult to build reserves without paying CT & potential gift aid mismatch? Approved charitable investment for the charity? How to fund the development? How to get properties into the IPS? 10

12 Repairs and Maintenance A fair and reasonable recovery of VAT costs

13 Repairs and maintenance - example 1 VAT group HA 51% owned R & M Services No VAT 49% owned Contractor SPV Services + VAT Materials + VAT 12

14 Repairs and maintenance - example 2 VAT group HA 100% owned R & M Services No VAT No ownership Contractor SPV Services + VAT Materials + VAT 13

15 The Cost Sharing Exemption

16 What s going on? A time of change Welfare reform will affect revenue and operational costs Future capital funding uncertainty Managing change Assessing business change Making supply chain more reliable Improving efficiency 15

17 Cost Sharing Exemption Conditions Independent group of persons HMRC require a CSG to be a separate entity from, but owned by, its members but the CSG may be under majority ownership of one of its members and could be VAT grouped Members must make exempt/non-business supplies 5% of the members activities must be VAT exempt or non-business Directly necessary services HMRC will accept that all services received by a member from a CSG may be treated as directly necessary and, therefore, VAT exempt if more than 85% of the member s activities by value are exempt or non-business (or if the member restricts more than 85% of VAT incurred) Services supplied at cost A CSG must not make a profit but may carry cash surpluses/deficits Distortion of Competition HMRC consider that the provision of services by a CSG on a cost and VAT free basis does not in itself result in a distortion of competition Must receive qualifying supplies The guidance included a further condition that all members must receive supplies that qualify for the CSE that qualify for the exemption 16

18 Cost Sharing Exemption Current position without CSG HA 1 Plus VAT (20%) Plus VAT (20%) HA 2 HA 3 17

19 CSG Simple Model All members own some of CSG Member A Member B Member C Exempt supply Exempt supply Exempt supply CSG Workforce sit in CSG 18

20 CSG VAT Grouped Model Member A VAT group >50% ownership & control Minimal Minimal Member B ownership CSG Member C ownership VAT exempt VAT exempt 19

21 Cost Sharing Exemption Possible applications CSE where might it be beneficial? Any service that involves a significant staff cost, for example: Repairs & Maintenance Housing management Finance and HR IT 20

22 Some early Christmas Crackers!!

23 And finally IFRS Help to Buy Potential VAT savings on temporary staff prospective and retrospective VAT refunds on Choice Based letting arrangements White Goods VAT recovery is someone s Christmas wish Cash release programmes 22

24 Questions

25 Presenters Simon Robinson Corporate Tax Andrew Norris VAT Tania Dimitrovich-Archer Corporate Tax

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