Agenda this Month • Recent tax cases • Other HMRC announcements and other tax developments • What’s in the Budget?
Recent tax cases
Director’s Loan Write -Off Scheme • Section 415 ITTOIA 2005 – taxed as dividend? • Espirit Logistics Mgmnt Ltd and ors v HMRC (2018) FTT • Board minute – release sums due by way of a bonus • HMRC argued that employment income • Tribunal held that in reality the transaction was a repayment not a release • Taxable as employment income
Property Off-Plan – When does ownership start for CGT? • HMRC v Higgins(2018) UKUTT • Exchange contracts 2 October 2006 • Purchase contract completed 5 January 2010 £575,000 • Sold 5 January 2012 £1,215,000 • FTT – Ownership from 5 Jan 2010 = PPR, No CGT • UTT – ownership starts 2 October 2006 • Thus large portion of gain chargeable = £61,383 CGT
Property Off-Plan – When does ownership start for CGT? • HMRC v Higgins(2018) UKUTT • ESC D49? • Delay in taking up residence may be treated as period of deemed occupation – up to 2 years • UTT decided that the concession did not apply here • What if purchase not completed? • Forfeit of deposit = capital loss? • NO – Hardy v HMRC (2015) – no asset acquired so no loss
Self- Employed Referees? Who’s in control?
Football referees are self-employed • Professional Game Match Officials Ltd v HMRC (2018) • Annual contract for football season • Stated: “you are not an employee of PGMOL” • Had to adhere to Code of Practice, fitness test, match day procedures, safety and security • No (mutual) obligation to provide or accept work • Referees were not controlled by PGMOL • Held – not contract of service = self employed
Other HMRC Announcements and Tax Developments
New HMRC Guidance on EIS • Companies can raise up to £5m a year • Overall maximum £12m, includes SEIS, VCT investment • (Higher limits for Knowledge Intensive Companies) • Investments within 7 years of first commercial sale • Company must comply with EIS rules and Investors must retain shares 3 years to retain tax reliefs • 30% income tax relief up front • CGT exemption on sale
New “Risk to Capital” condition • Investments under EIS, Seed EIS, VCT • Relief OK if “would be reasonable to conclude”… 1. The issuing company intends to grow and develop its trade in the long term. 2. There is a 'significant risk' of a capital loss exceeding the “net investment return”.
HMRC Guidance on “Risk to Capital” • Company’s intent to increase number of employees, turnover or customer base • Nature of the sources of income, including risk of not receiving it • Extent to which the company has assets that could be used to secure financing
HMRC Guidance on “Risk to Capital” • Extent to which activities are subcontracted • The ownership structure • How the investment is marketed • The extent to which the investment is marketed with or linked to other investments
“Risk to Capital” Example • A company is set up by postgraduate students to exploit their research • They expect will have wide commercial value • Using the university facilities but now need their own laboratory • Directors prepare a business plan but, as their plans are high risk, long term and no track record, the company is unable to attract investment from market
EIS Procedure • Company may obtain advance assurance that trade qualifies (HMRC Small Company Enterprise Centre) • Once shares have been issued the company applies to HMRC SCEC on Form EIS 1 (after trading 4 months) • HMRC issue EIS 2 to company + EIS 3 forms for investors • Investors can only claim EIS relief once EIS 3 received
Advance Assurance and EIS1 Application Send following to Small Company Enterprise Centre: 1. business plan 2. memorandum and articles of association 3. last annual accounts (if available) and cash flow forecast 4. shareholder agreements or drafts (if you have them) 5. prospectuses and other documents for attracting investment (if you have them)
VAT on Service Charges • VAT Brief 6/2018 • New rules from1 November 2018 • All property management companies required to charge standard rate VAT on services provided to residents of residential properties • No longer exempt supplies
Transfer of Rental Business to a company • CGT – properties transferred at MV + SDLT • Hold over gain using s162 TCGA 1992 • Transfer of business in exchange for shares • Gain held over into base cost of shares • Is it a business? • Mrs E M Ramsay v HMRC (UTT)
s162 incorporation relief – is it a business? • EM Ramsey v HMRC UKUTT • S162 TCGA holdover applies on transfer of a business • Does not have to be a trade • Gains held over into base cost of new shares issued • Property rental business transferred – 10 flats • FTT agreed with HMRC that not a business • 20 hours a week personally arranging maintenance, collecting rent, cleaning between lets • Overturned at UTT – now in CG65715
HMRC Guidance on Winding up TAAR • Sections 35 in Finance Act 2016 - introduced Targeted Anti- Avoidance Rule • ITTOIA 2005 section S396B and s404A • Certain distributions on a winding up taxed as income not CGT = up to 38.1% rather than 10% • Applies to transactions from 6 April 2016 • New HMRC Manual Guidance - CTM36300 +
Liquidations taxed as income if: • A close company is wound up and an individual (S) • with a material interest (5%) receives proceeds from the shares • Within two years of that distribution S (or a connected person) continues to be, or becomes, involved in a similar trade or activity ; and • One of the main purposes of the winding up is to obtain a tax advantage • Note – successor could be unincorporated business
Company Winding Up TAAR • D - One of the main purposes of the winding up is to obtain a tax advantage • It is for taxpayers to decide that ‘it is reasonable to assume’ having regard to all the circumstances’ that tax avoidance is not the main purpose (or one of the main purposes) of the winding up and self-assess on that basis • it is for HMRC to demonstrate that the conclusion reached by the taxpayer was not reasonable
Company Winding Up TAAR • The test in Condition D is applied by reference to facts and intentions known at the time the decision was made to wind the company up, • HMRC will want to look at all the evidence including that relating to what happens after the winding up has taken place • (for example if the intention is that the taxpayer retires completely when the winding up occurs but is within two years offered, and accepts, a position in the same trade, HMRC will want to look at the evidence that the offer was unsolicited).
Company Winding Up TAAR • ‘Subject to the facts of the case, where Condition C is met due to an individual remaining ‘involved with the carrying on of’ a trade as an employee, rather than as an owner, shareholder or partner, and has no involvement in or influence over the direction or decision-making of the entity carrying on the activities, it is less likely that Condition D will be met’.
Updated HMRC Guidance on High Income Child Benefit Charge • Charge is 1% of Family’s Child Benefit • for every £100 adjusted net income in excess of £50,000 • Thus full clawback if adjusted income > £60,000 • Based on spouse/CP who has higher income • Adjusted net income = Total income less trading losses, Gift Aid, pension contributions grossed up • If income > £60,000 then can request that Child Benefit payments stopped
Possible New “Digital Services” Tax • EU has published its draft report on the proposal for a digital services tax (DST), recommending 5% rate on • advertising sales, • intermediary activities • user-generated content • content supplied via digital interfaces • goods and services sold via e-commerce platforms • UK may go it alone if EU cant reach agreement…..
What can we expect in the Budget?
Autumn Budget – 29 October 2018 • £20 billion extra spending on the NHS • “An end to austerity” • Where’s the tax going to come from? • Employment status change? – “Gig” economy • IR35 – Off payroll working rules => private sector?
What’s in the Budget ? • No changes in the basic rate (20%), higher rate (40%) or additional rate (45%) • An increase in the dividend rates in a further attempt to counteract “tax - driven incorporation”? • An increase to 3% for individuals’ NI contributions above the upper earnings and upper profits limits? (currently 2% above £46,350) • Another attempt to increase Class 4 NICs to 10% and 11%
Income tax and NIC 2018/19 45%, 38.1% (div) N I C b a n d s (SE, E’ee , E’er ) £150,000 2%, 2%, 13.8% I n c o m e t a x b a n d s 40%, 32.5% (div) UEL £46,350 £46,350 20%, 7.5% (div) 9%, 12%, 13.8% Personal £11,850 Earnings £8,424 allowance threshold
What’s in the Budget ? • “Simplification” of pension tax relief to further restrict relief for higher rate taxpayers, 30% relief has been suggested • Reconfirmation of 17% corporation tax rate for Financial Year 2020 • Possible higher corporation tax rate for Close Investment Companies? • 28% CGT rate for all property disposals to facilitate the new payment on account system (from 6 April 2020)
Recommend
More recommend
