2020 Innovation Monthly Tax Webinar Martyn Ingles 18 May 2015 Agenda • New legislation – ISA transfers • Recent tax cases • Other recent tax developments • Share schemes to attract and retain staff 1
New Legislation Finance Act 2015 enacted ISA Regulations 2015, SI 2015/869 Finance Act 2015 • Enacted 26 March 2015 • 127 sections and 20 Schedules! • New “diverted profits tax” started 1 April 2015 • Some measures not included – exemption for “trivial benefits” – next Finance Act? 2
New ISA Regulations – Transfer on Death • Deaths on/after 3 December 2014 • Transfer of ISA to surviving spouse/CP • One-off contribution up to amount of the value of deceased spouse/CP ISA in their estate • In addition to transferee’s own ISA allowance for that year • Retain tax free benefit of ISA New ISA Regulations – Transfer on Death • Permitted period for ISA transfer: • In case of non-cash assets – up to 180 days from the distribution from deceased’s estate • Any other subscription – the later of 3 years from the date of death or 180 days after admin. Of estate complete 3
Recent tax cases and other developments 100% Business Premises Renovation Allowance • Commercial property in designated disadvantaged areas • Out of commercial usage > 12 months • 100% relief for cost of renovation/refurbishment • Where then used in trade or leased to trader • No claw-back if retained for 5 years • Still no £50,000 set off restriction 4
BPRA for a Church! • Senex Investments Ltd v HMRC (2015) FTT • Wesleyan chapel converted to restaurant • Used for purposes of a trade, profession or vocation • Vestry was used for purposes of an office • The body did not have to have a profit making motive • It was a qualifying building => BPRA allowed Hive – down of trade and losses (s343) • 75% common ownership at some time • In 1 year before • And 2 years after transfer of trade • Trade not discontinued • Therefore losses c/fwd, no balancing charge on CA. • Loss transfer restricted if liabilities not taken over 5
Hive down of trade OLDCO LTD Trade and 75% assets(NG/NL) +Losses NEWCO Transfer of losses together with trade • Leekes Ltd v HMRC (2015) FTT 93 • L Ltd owned 4 department stores • Acquired C Ltd - 3 stores and £950,000 losses • C’s trade combined – 3 stores rebranded to L • Should C’s losses be streamed against future profits of C trade? • Tribunal accepted that C’s trade subsumed into L’s trade and loss offset was available 6
VAT – single or multiple supply? • Colaingrove Ltd v HMRC (2014) UTT 80 • Application of Card Protection Plan (CPP) rule • Supply comprising a single service economicaly • All component services share same VAT rate as principal service provided • Where services are ancillary to the principal service supplied • Single service from economic point of view must not be artificially split VAT – single or multiple supply? • Colaingrove Ltd v HMRC (2014) UTT 80 • C provided serviced chalets and static caravans at holiday parks – 20% rate (accommodation) • Should 5% reduced rate apply to supply of electricity? • Was this a separate supply or a single service? • Held – separate supply at 5% rate 7
VAT – Yoga Tuition – Exempt supply? • Tranter (t/as Dynamic Yoga) v HMRC (2014) FTT • Mr T ran Yoga Studio – was tuition exempt as a supply of tuition “in a subject ordinarily taught in a school or university” ? • Taxpayer argue that he was transferring skills and knowledge • Tribunal held that the yoga classes were recreational activity not educational = standard rate New pension rules from 6 April 2015 8
PAYE and the Flexible Pension Rules • Normal PAYE rules apply to payments from pension funds • Where fund is not extinguished with first payment it will be treated as an ongoing PAYE source • If there is P45 from previous source then operate the code on a Month 1 basis • HMRC will then issue a tax code for future payments • If not – Emergency Code on Month 1 basis PAYE and Pensions – In year repayments • Emergency Code on Month 1 basis likely to result pensioner being over taxed • No existing PAYE/pension income • If all of fund withdrawn: • Contact HMRC to obtain repayment form P50 • If part of fund withdrawn: • Apply emergency code Month 1 until HMRC issue a tax code 9
PAYE and Pensions – In year repayments • Member has one or more existing PAYE employments/ pension income • If all of fund withdrawn: • Contact HMRC to obtain repayment form P53 • If part of fund withdrawn: • Apply emergency code Month 1 until HMRC issue a tax code Non-Resident Landlord Scheme • Strictly agent/tenant must deduct 20% at source from rent • Apply - Form NRL1 to receive rent gross • UK tax affairs are up to date, or • they have not had any UK tax obligations before they applied, or • they do not expect to be liable to UK income tax for the year in which they apply, or • they are not liable to pay UK tax because they are Sovereign Immunes. 10
Non-Resident Landlord Scheme • Agent/tenant required to pay over tax deducted and make annual return to HMRC by 5 July after end of tax year • 5 July 2015 for 2014/15 • And give annual certificate to landlord • From April 2015 HMRC will no longer send out annual return forms • Forms online at gov.uk/personal-tax/non- resident-landlord-scheme Changes to Share Scheme Reporting • From 6 April 2014 no more “approval” of share schemes – employers must now self-cert that tax advantaged scheme rules met • SAYE • SIP • CSOP • EMI • Employers must register all new and existing schemes by 6 July 2015 • Annual returns for share schemes for 2014/15 to be filed online by 6 July 2015 11
Attracting and retaining key staff with share schemes Why Have A Share Scheme? • Attract and retain key staff • Motivate staff • Reward without reducing profit, cash • Link between success and “pay” • Tax efficient for employEE and ER • BUT – Dilutes owners stake! 12
Dilution Of Owners Equity • Mr and Mrs Bloggs own 100% of Bloggs Ltd, worth £1,000,000 • Looking to sell in 2 years • Award options over 10% of shares to lock in management team • Company worth £2,000,000 in 2 years? • 90% of £2,000,000 better than 100% of £1m! Why have an approved scheme? • Unapproved scheme • Income tax (and NIC) if shares received at undervalue • MV at acquisition, less price paid • CGT on sale • Tax Advantaged (Approved) scheme • No IT or NIC if correctly priced • Just CGT on sale • 10% if use EMI share option scheme 13
Alternative Share Incentives • All employees: • SAYE share options • Share Incentive Plan • Discretionary: • CSOP • EMI is the best! CT relief for employee shares • APs beginning on/after 1.1.03 • CT deduction when employee acquires shares • MV less price paid by employee • Affects direct awards, share options and shares subject to forfeiture 14
CT deduction for employee shares • Relief = MV less price paid • Shares must be fully paid ord. shares. Not redeemable and • Listed on recognised exchange, or • Shares in top company (not controlled), or • Shares in a company controlled by a listed company EMI Options – Key conditions • Purpose – to attract, retain, motivate key staff • Set performance criteria – profit target, sale of business • Must be capable of being exercised within 10 years • Gross assets of company <£30 million • Carrying on a qualifying trade (as EIS) • Options in company not controlled by another company • Employee must work > 25 hours a week • Notify HMRC – EMI1 15
Example – Rubble Ltd • Rubble Ltd worth £1 million • New MD Fred Flintstone recruited • Option granted to Fred over 10% of shares • Market value of 10% = £20,000 (say 80% discount) • Option price set at £20,000 • Exercisable on a sale only • Option lapses if Fred leaves the company EMI shares – company sale • Rubble Ltd sold for £5 million a few years later • Fred exercises option - pays £20,000 • Fred sells shares - proceeds £500,000 (10%) • Taxable gain - £480,000 • Capital gains tax - £48,000 (ie 10% rather then IT + NIC!) • (if unapproved £480,000 employment income) • Company has corporation tax deduction of £480,000! 16
THE END Any Questions? 17
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