2020 Innovation Training Ltd. Monthly Tax Update Webinar. Autumn Statement 3 December Martyn Ingles

Transcription

1 2020 Innovation Training Ltd Monthly Tax Update Webinar Martyn Ingles Autumn Statement 3 December 2014 Draft Finance Bill Clauses published 10 December

2 Relief from employers NIC No employers NIC on employees under Extended to apprentices under 25 from ,000 employment allowance continues deducted cumulatively during tax year Consider salary/dividend split for husband and wife companies Employment tax changes 8,500 higher paid limit to be removed benefit in kind rules to apply to all employees => P11d P11d dispensations to be abolished from 2016/17 no need to report expenses wholly exclusively and necessarily incurred Exemption for trivial benefits in kind (cost < 50) Payrolling of Benefits in Kind rather than on P11d 2

3 IHT relevant property trusts Several consultations on simplifying the 10 year charge 6% on value of relevant property in excess of 325,000 nil rate band Proposal to limit all trusts created by same settlor to a single nil rate band ( 325,000) and require him to nominate what proportion to each has been dropped Replaced by anti-avoidance to prevent the use of multiple trusts on different days IHT Interest in Possession trusts Changes to OLD (Pre March 2006) IIPs: Where Spouse (CP) 1 has OLD IIP Transfers to IIP for spouse (CP) 2 during lifetime Settled property will now be relevant property once spouse (CP) 2 takes their life interest 3

4 IHT Will Trusts dissolved shortly after death Discretionary Will Trusts (No IIP) Appoint property to spouse within 3 months of death Read back into Will as if direct to spouse under Will Spouse exemption thus applies Applies to deaths on or after 10 December 2014 Changes to Late Paid Interest Rules Relief for interest generally follows accounts (accruals) Under certain circumstances no deduction unless interest paid within 12m of end of AP: where the parties are connected; where the creditor is a participator in a close company; where one of the parties has a major interest in the other; and where the loan is made by trustees of an occupational pension scheme. 4

5 Late Paid Interest shareholder loan Bloggs Trading Ltd makes up accounts to Main shareholder/director loans company 100,000 at 5% interest rate Interest expense 5,000 = allowable deduction Provided interest paid by If paid after 6 April 2016 then taxed 2016/17 tax due Increased Penalties for Offshore Avoidance Penalties increased to up to 125% in relation to offshore matters Penalties extended to IHT Greater international tax transparency through the introduction of the Common Reporting Standard (CRS) UK Govt. concerned that assets/funds will be moved to territories that haven t entered into CRS to hide past failures to pay tax 5

6 RECENT TAX CASES AND OTHER DEVELOPMENTS Solicitors Disclosure Campaign Latest voluntary disclosure campaign Follows on from doctors, plumbers, tutors, coaches, electricians, E bay traders, landlords etc 1 billion additional tax raised so far Notify intention disclose by 9 March Disclose and pay tax by 9 June As usual 100% penalty reduced, possibly to 0% or 20% 6

7 Mrs Patel was partner not an employee HS Patel v HMRC UKFTT (2014) Mr Patel ran Sub Post Office within his retail shop Post Office paid him 76,008 compensation when post office closed 37,122 paid to his wife as redundancy deductible? First 30,000 exempt under s403 ITEPA? No - she was a partner not an employee No partnership agreement required for a partnership to exist OTS Simplification of partnership tax Key issues: Education small partnerships like Mr and Mrs Patel Partners Expenses claim outside partnership return International partnerships inconsistencies LLP Group Structures CT reliefs? IHT BPR? CGT SP D12 to be updated Gift Aid donations to be simplified 7

8 OTS Simplification of partnership tax Partners expenses travel, capital allowances etc. used to be claimed in personal tax returns Since introduction of SA (1996/97) these must be included in partnership return Delays completion of partnership accounts and return? HMRC not happy with this! (Vaines v HMRC) OTS view partners should be able to claim against their share of partnership profits if agreement permits OTS Simplification of partnership tax LLP Group Structures using LLP as a holding company not consistent with Ltd company HMRC guidance or new legislation is required Corporation tax group relief (s188) company means any body corporate For IHT Business Property Relief an LLP Holding company unlikely to qualify 8

9 IHT Business Property relief? Holding Co Trade Co Staff Co R&D Co IHT Business Property relief? Holding Co YES Trade Co Staff Co R&D Co 9

10 IHT Business Property relief? LLP Trade Co Staff Co R&D Co IHT Business Property relief? LLP NO Trade Co Staff Co R&D Co 10

11 OTS Simplification of partnership tax Gift Aid complicated for partnerships making charitable payments Currently list all partners names and addresses then allocate to partners and claim via their personal returns Two options suggested: 1. Declaration made by representative member then allocate as now 2. Allow deduction from partnership profits as for corporation tax Corporate Member No AIA A B C CORPORATE member A B C ABC & Co 11

12 QCB or not QCB? That is the Question QCB = non convertible sterling bond A security representing a normal commercial loan Issued in sterling, redeemed in sterling No right to convert into shares or another currency QCBs like Gilts are exempt from CGT N Trigg v HMRC (2014) UKFTT Mr T was member of partnership that bought undervalued bonds sold and claimed exempt CGT QCB or not QCB? That is the Question The Tribunal considered the conversion rights: Sch A stated that if the UK changed its currency all amounts payable would convert into the new UK currency at Bank of England exchange rate Sch B referred to the consequences of UK adopting the Euro and allowed the bond issuer to redenominate the bonds in Euros Taxpayer argued that sterling in effect means the lawful currency of the UK The Judge disagreed not QCBs CGT applies 12

13 QCB or non QCB received on company sale Sale of company shares for loan notes QCB loan note: Gain deferred and taxed at CGT rate on redemption or disposal (28%) Elect to disapply claim ER but pay 10% tax at time Non QCB loan note: Taxed on amount received at redemption Only get ER if qualify at that time (5% votes etc) Trading losses no relief for hobbies D Patel v HMRC (2014) UKFTT: Full time social worker ran two businesses in his spare time Losses incurred, claimed sideways relief ELJ McMorris v HMRC(2014) UKFTT: Bought half share in racehorse, met half the training, livery and racing costs Initially successful, turned down offer for 50,000 then eventually sold for 1,000 and claimed loss No loss relief - Not carried on on a commercial basis with a view to the realisation of a profit 13

14 Trading loss no carry forward under s83 HL Amah v HMRC (2014) UKFTT: Operated Dolland and Aitchison opticians franchise until 3 April 2009 accumulated trading losses Two months later became self-employed locum dispensing optician Offset losses as continuation of trade? HMRC refused the claim FTT agreed - No loss relief Why? Gap, plus different customer base indicated that this was a new business. Employment Intermediaries Travel expenses Temporary workers engaged via umbrella companies and other intermediaries Argument under current rules is that each third party client is a temporary workplace = relief for travel and subsistence (from home) HMRC proposal is that there is an over-arching contract (OAC) between the worker and the intermediary 1. No relief for travel as the workplace of the end client will be deemed to be a Permanent workplace OR 2. Deny relief by treating a series of temporary employments as a permanent contract 14

15 Transferrable Allowance New PAYE Codes Up to 1,060 (10% of PA) unused allowance transferred to spouse (or CP) from 6 April 2015 How will it work? Notify HMRC that wish to transfer the allowance PAYE codes amended: N for transferor PA reduced by amount transferred M for recipient PA increased by amount transferred Pensions Auto-Enrolment By 2017 all workers between 16 and SPA earning 10,000 or more to be enrolled in workplace pension Unless they opt out Gradually being rolled out The Pensions Regulator will notify of staging date check online Can check if existing scheme qualifies Does not apply to one man companies as directors excluded, just workers May apply to certain contractors classed as workers 15

16 VAT Prompt Payment Discounts New rules from 1 April 2015 Old rule VAT charged on value of supply net of any prompt payment discount (PPD): Goods 100 less 2.5% for payment within 30 days VAT charged on New rule VAT charged on consideration received HMRC issued Brief 49/2014: Show VAT on full price 100 and show rate of PPD on the invoice If customer pays early issue credit note or adjust output tax on VAT return NEW THINKING AND FORWARD PLANNING CGT on incorporation What Now? 16

17 Goodwill on Incorporation Mr Smith Mr Smith Smith Ltd TRADE AND GOODWILL SOLD TO SMITH LTD DR G/WILL 1million CR LOAN A/C 1 million Goodwill What we used top be able to do Incorporate business 30 November 2014 Sell goodwill to Smith Ltd leaving balance outstanding on loan account Gain on goodwill 1,000,000 With entrepreneurs relief just 10% CGT = 100,000 Can then withdraw loan account tax free If post goodwill could even claim a CT deduction say 10 years = 100,000 17

18 Goodwill CT deduction? Sole trader/ Partnership to Ltd company Related parties Thus no write off of OLD goodwill Could write off if NEW (Post ) Goodwill Autumn Statement Mr Smith Mr Smith Smith Ltd TRADE AND GOODWILL SOLD TO SMITH LTD DR G/WILL 1,000,000 CR LOAN A/C 1,000,000 ****CGT Entrepreneurs Relief no longer available from 3 December 2014 **** 18

19 Goodwill CT deduction also blocked Sole trader/ Partnership to Ltd company Related parties Thus no write off of OLD goodwill *** Can no longer write off if transferred from 3 December 2014 onwards *** Goodwill Additional tax Before Mr Smith 1,000,000 gain = 100,000 CGT Smith Ltd : 100,000 a year profit - 100,000 amortisation = NIL taxable profits, CT NIL Now: Mr Smith 1,000,000 gain = 280,000 CGT Smith Ltd: Accounting profit NIL= no dividends Taxable profits 100,000 p.a. = 20,000 CT p.a. x years = 480,000 tax ( 280, ,000) 19

20 Incorporation CGT reliefs still available Small goodwill gains covered by 11,000 annual exemption but 18%/28% thereafter S165 gift of business assets Hold gain over into cost of assets Assets have low base cost Use if property to be retained personally S162 transfer of a business in exchange for shares Hold gains into base cost of shares Assets at market value No gain if asset sold shortly after Incorporation other strategies Use brought forward capital losses If recently acquired on death uplift to probate value If arriving in UK from overseas trigger gain while non UK resident Allocate more of the value of the business to other assets e.g. properties rather than goodwill watch SDLT Note that ER still available against gains on other chargeable assets transferred 20

21 THE END Any Questions? 21