2020 Innovations Monthly Tax Webinar Martyn Ingles 20 April 2015
Agenda • New legislation – Finance Act enacted • Recent tax cases • Other recent tax developments • Tax policies in the election manifestos
New Legislation
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?
Tax Avoidance by Multinationals • New “Diverted Profits Tax” • 25% UK corporation tax on profits artificially shifted from the UK to an entity in a low tax country • Does not apply if UK sales < £10 million • UK has introduced country by country reporting of transfer pricing data and share with other countries
Benefits in Kind Simplification • £8,500 “higher paid” limit removed – benefit in kind rules to apply to all employees => P11d • P11d dispensations abolished from 2016/17 – no need to report expenses wholly exclusively and necessarily incurred • “ Payrolling ” of Benefits in Kind rather than on P11d • Exemption for “trivial” benefits in kind (cost < £50 ) did not go ahead
New CASC Guidance • Community Amateur Sports Clubs • Treated like Charities for some tax purposes • Income and gains exempt (up to limits) • Donors get tax relief – Gift Aid • Small donations scheme also applies
CASC Tax Exemptions • Exemption from Corporation Tax on UK trading profits if the turnover from that trade is less than £50,000 a year (£30,000 a year before 1 April 2015) • Exemption from Corporation Tax on UK property income if the total income from property is less than £30,000 a year (£20,000 a year before 1 April 2015) • Exemption from Corporation Tax on interest received • Exemption from Corporation Tax on chargeable gains • NB - Doesn’t get Charity VAT exemptions
New CASC Guidance – Must: • be open to the whole community • be organised on an amateur basis • have as its main purpose the provision of facilities for participation in, one or more eligible sports • not exceed the income limit • meet the management condition • meet the location condition
Recent tax cases and other developments
Disposal of House - Trading or PPR? • Hartland v HMRC (2014) UKFTT • HMRC will give the transaction more scrutiny where the taxpayer is in the building trade • Mr Hartland ran a plant hire business • Renovated and sold several properties • Lived in 2 whilst work carried out – PPR? • Excluded from his tax returns • “Badges of Trade” need to be considered
Trading? – Badges of trade – key factors: • Motive/ intention when acquired • Type of goods normally traded • Frequency of transactions • Length of ownership • Financing – short or long term loan? • Supplementary work • Reason for sale
Disposal of House - Trading or PPR? • Badges of Trade relevant? • “The correct approach was to stand back from the facts, relating not only to the two years of assessment but also to the periods before and after, and ask • whether the picture they painted was of a man making improvements to his home before selling it and moving on to repeat the exercise; or • of a person setting out to earn a living by buying houses with development potential, then improving, extending or rebuilding them, in order to make a profit to be utilised in the next venture…..” • Property P was PPR, Property G was trading
Another Developer – Not Trading Asset • Terrace Hill (Berkeley) Ltd v HMRC (2015) UKFTT • Property developers normally hold property on trading account • But here was it an investment? • That’s how shown in the accounts and capital allowances claimed • “Finely balanced” but Tribunal allowed appeal – capital gain • Why important? • Company had capital losses!
Dividend or salary – was PAYE and NIC due? • Jones and anor v HMRC (2014) UKFTT • Mr and Mrs Jones were directors and shareholders of a recruitment consultancy company • The company paid them interim dividends, together with modest monthly payments of directors' fees. • The accounts for y/e 31 March 2007 showed directors' salaries of £10,800 and dividends of £139,000 • Similar figures in draft accounts for y/e 31 March 2008 • Financial difficulties so accounts redrafted • Second set of draft accounts showed dividends of £45,000 and directors' salaries and national insurance contributions of £213,178
Dividend or salary – was PAYE and NIC due? • Jones and anor v HMRC (2014) UKFTT • The company went into insolvent liquidation in February 2009. • HMRC: wilful failure to deduct tax and NICs from the appellants' emoluments in the tax years 2007/08 and 2008/09 and appellants knew of that failure. • HMRC issued a direction notice to the appellants on the under Income Tax (Pay As You Earn) Regulations 2003 • HMRC also sought to recover NICs from the appellants under Social Security (Contributions) Regulations 2001
Dividend or salary – was PAYE and NIC due? • Jones and anor v HMRC (2014) UKFTT • Mr and Mrs Jones appealed – argued that the employee had to know at the time payment was made that the employer had wilfully failed to deduct tax; and the conditions in both pieces of legislation did not fall to be considered retrospectively. • The reclassification which occurred did not truly reflect the nature of the payments at the time they were made. • The payments were clearly made as interim dividends and taxable as such rather than as salary. • The directors could not retrospectively alter the nature of the payments by deciding to treat them differently.
Farming losses – sideways loss relief • French and anor v HMRC (2014) UKFTT • Mr F ran a dairy farm in partnership with his wife • They decided to abandon dairy farming due to falling milk prices. • Sold his herd in 2000 and let/licenced some of his land to a neighbouring farmer (“C”) who farmed the land between 2001 and 2004 • The appellants simply received a rental return. • In 2004 the licence to C was terminated and C farmed the land on a contract basis and the appellants re- commenced their (arable) farming trade
Farming losses – sideways loss relief • French and anor v HMRC (2014) UKFTT • The farm continued to make a loss until the tax year 2011/12 when it made a profit. • The appellants sought to set farming losses against other income in the 2010/11 tax year. • HMRC challenged the sideways offset of losses under s67 ITA 2007, which provides that, subject to various exemptions, the additional reliefs for losses were denied for a loss if there had been losses, calculated without regard to capital allowances, in the previous 5 years • How long would a notional competent farmer have taken to anticipate profit?
Farming losses – sideways loss relief • French and anor v HMRC (2014) UKFTT • It was clear that there had been a break in the appellants' farming trade between 2001 and 2004. • It was concluded that the farming losses in 2010/11 spanned back for only 7 years and not 13, it followed that s68 did not preclude the sideways relief of losses. • HMRC had calculated the time that the notional competent farmer, commencing the arable farming trade in 2004, would have taken to anticipate profit was 7 years • The appeals would be allowed.
Confirmation of income for mortgage • Many lenders now require SA302 HMRC calculation • Need to request from HMRC – takes up to 2 weeks • Can now download copies of Tax Calculation and • Tax Year Overview from the HMRC online service • Still a conflict between minimising income for tax purposes and showing sufficient income to support mortgage application
Agency workers and PAYE – FA 2014 s16 • Engagement of “ self employed” workers via intermediaries (= agencies) • Responsibility for the intermediary to account for PAYE/NIC on payments made if worker is in an ‘employed’ position (from April 2014 ) • Responsibility of the intermediary (from April 2015) to provide a return of payments made gross to workers • (Like CIS)
IR35 – Personal service companies 'C lient' 'Interm ediary' Service com pany/partnership 'W orker'
Agency workers Client Agency/ Intermediary Worker
New Quarterly Reporting by Employment Intermediaries • Quarterly reports required if you: • are an agency • have a contract with a client • provide more than one worker's services to a client because of your contract with that client • provide the worker's services in the UK - or if the services are provided overseas, that the person is resident in the UK • make one or more payments for the services (including payments to third parties)
Interaction with IR35 • One-person limited companies, or personal service companies, that only supply a client with 1 worker don't have to send reports to HMRC. • If the worker is supplied through an intermediary they will be included in the return of the intermediary that has the contract with the end client. • If a personal service company supplies more than 1 worker, including any subcontracted workers, it will be acting as an intermediary and will have to send reports for each reporting period.
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