Transfer Of Tax Losses

Where a company makes a trading loss that cannot be relieved against other profits that year, or the previous year, the unrelieved loss can be carried forward against future profits from the same trade that incurred the losses. This carry forward also applies where the trade is transferred to another company under common control (basically 75% common ownership before and after the transfer).

A recent case before the First Tier Tribunal has held that where the trade is transferred to another company under common control carrying on the same trade, the brought forward losses may be set against the future profits of the merged trade as it was successfully argued that the loss making trade was subsumed into the profitable trade. The two companies concerned were both trading as department stores and the similarity of the two trades and rebranding of the stores into the same trading name was seen to be critical.  In the particular case (Leekes Ltd v HMRC) the loss making trade was hived up following the acquisition of a competitor and merged with a profitable trade.

HMRC may yet appeal the court’s decision but it may be something to take into consideration if you are considering an acquisition or reorganising your group structure.

PJ
Feel free to contact us for further advice.
☎ 020 89310165 | 📱 07900537459 | ✉ info@apjaccountancy.com

Downsize (or Upsize) to Save Inheritance Tax?

From 6 April 2017 an additional Inheritance Tax (IHT) Residence Nil Rate Band (RNRB) starts being phased in to enable individuals to pass on their family home to direct descendants. The additional nil rate band starts at £100,000 and rises to £175,000 for deaths after 6 April 2010. When fully phased in the additional nil band will enable a married couple to pass on a family home valued up to £1 million free of IHT, although the additional relief is restricted if they have assets worth more than £2 million.  The proposed new legislation, if enacted, will provide relief even if the individual downsizes to a smaller property where the downsizing takes place after 8 July 2015. Like the £325,000 IHT nil rate band, the unused residence nil band can be transferred to the surviving spouse and used on the second death.


Example:

A widow sells a home worth £400,000 in August 2020 for cash and moves to a home worth £210,000. At the time of the sale the available RNRB is £350,000 as, had she died at that time, her executors would be able to make a claim to transfer all the unused RNRB from her late husband. The new downsizing relief will entitle her to an additional £140,000 (£350,000 - £210,000) nil rate band. This would be added to her nil rate band (up to £650,000 (2 x £325,000) and can be set against any of her assets including cash and investments.

If the replacement property was worth £225,000 on her death then the additional nil band would be reduced to £125,000 if the allowance remains at £350,000.  The new inheritance rules are complicated so please get in touch if the changes impact on your family’s tax position. It may even be worth considering upsizing before you downsize to maximise this new relief!

HMRC Credit Card Sales Campaign

HMRC's latest disclosure campaign is aimed at traders who accept payments by debit and credit cards but who haven’t declared all transactions. The Credit Card Sales campaign provides an opportunity for individuals and companies accepting debit and credit cards (but have not reflected all transactions in their tax return) to bring their affairs up to date in a simple, straightforward way and take advantage of the best possible terms.



You can use this if:

• you accept card payments for goods or service
• you haven’t declared all your UK tax liabilities

Traders wishing to use the scheme must first notify HMRC. They will then have 4 months from the date they receive HMRC's acknowledgement of notification to make a disclosure and pay any tax due. If, however, you do not come forward and HMRC finds later that you are behind with your tax, it may be harder to convince them that it was not a deliberate act. The law allows HMRC to go back up to 20 years and in serious cases HMRC may carry out a criminal investigation.

HMRC is targeting tax evasion through Debit and Credit Card Sales and will use information it holds on its digital intelligence systems to identify taxpayers who might not have declared all their income. Where additional taxes are due, HMRC will usually charge higher penalties than those available under the Credit Card Sales campaign.

For more information and source https://www.gov.uk/creditcardsales

Please contact us if you have more questions or need expert Tax assistance!

APJ Accountancy - A team of Chartered Certified Accountant regulated and monitored by The Association of Chartered Certified Accountants (ACCA).
Tel: 020 89310165  
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New Tax Relief For Investment In Social Enterprise!

HMRC's Social Investment Tax Relief scheme (SITR) introduced this year helps individuals support social enterprises, giving these enterprises access to new sources of finance.

SITR helps social enterprises raise finance by offering tax relief to individual investors.

The new relief provides the investor with a deduction from their tax liability, equal to 30% of the amount invested. A £10,000 loan to a qualifying social enterprise would therefore allow an individual to reduce his income tax liability by £3,000.

The relief is available for qualifying investments made on or after 6 April 2014. A social enterprise is a commercial business that helps people or communities. It may be a charity or community interest company.

The social enterprise can make sure they (and the proposed investments) qualify by sending an advance assurance application to HMRC.

Resources about SITR from HMRC:

Guidance for social enterprises
Eligibility and the conditions social enterprises must meet so investors can claim SITR

Guidance for investors
Conditions investors must meet before claiming SITR

Get approval if you're a social enterprise
What social enterprises need to do to get approval from HMRC

How to claim tax relief if you're an investor
What investors need to do and when to claim SITR

Form: SITR Compliance Statement
Social enterprises must use this form to request authority to issue Compliance Certificates to investors

Policy on Social Investment Tax Relief (Opens new window)
How SITR will help grow the social investment market

Post your questions on SITR or other Tax Relief options and we'll help you.

Changes in VAT place of Supply rules!

VAT place of supply rules changes from 1 January 2015

Andrew Webb, Senior VAT Policy Manager at HM Revenue & Customs (HMRC), explained on the changes to the EU VAT place of supply rules for B2C digital service suppliers.

The changes will be implemented from 1 January 2015 to the European Union (EU) VAT place of supply of services rules involving business to consumer (B2C) supplies of broadcasting, telecommunications and e-services i.e., digital services.

VAT Moss Business to consumer supplies of digital services

What are the changes being made to the VAT place of supply of services rules?

On the 1st of January 2015, the EU Vat place of supply, and therefore taxation rules are changing, so that from that date the place of taxation will be where the customer lives, rather than where the supplier of the service is established. It's the final change in a series of changes to embed the idea that, with consumption taxes such as VAT, the place where the tax is paid should be where the service or goods are enjoyed, consumed or used.

What does it mean for the businesses affected?

It imposes on them an obligation to register for VAT where their customer is located. It also means that they have to collect information to define where their customer is actually living and the VAT rate in that Member State.

What can a business do if it doesn't want to register for VAT in every Member State where it supplies a service?

It can make use of a new service introduced on the 1st January called the VAT Mini One Stop Shop, or MOSS. With the MOSS, the business will only need to register in one jurisdiction and make one MOSS VAT return, one MOSS Payment to cover all of its obligations across the whole of the EU.

How can a digital service supplier register for VAT in the UK?

First of all register with HMRC through the gov.uk website.

Then, once registered, the business will collect the information about the supplies it's making to the customers. At the end of each calendar quarter it will submit its single return to us and its single payment, and then it can leave it to HMRC to do the rest.

HMRC will split the payment and the return and send it to the appropriate Member States where the consumers live.

Check the website for more information - http://www.hmrc.gov.uk/posmoss/

Are you still not clear on the changes? We are always happy to help you.
APJ Accountancy - A team of Chartered Certified Accountant regulated and monitored by The Association of Chartered Certified Accountants (ACCA).
Tel: 020 89310165  
Mobile: 07900537459 
E-mail: info@apjaccountancy.com

Contractor tax: Limited Company and Personal Taxes Explained

If you are contracting via own Limited Company the amount of tax you will pay as a contractor will arise in two different ways.

1)     Which you pay through your company and

2)     That which you pay personally.

The total amount of tax which you will pay will be determined by the IR35 status of your contract.

If your contract falls within IR 35 you will inevitably suffer higher tax. This can be significantly detrimental and so you should try to remain outside this if you can.

Let us explain each of the two categories of tax in more detail.

1)    Taxes Paid Through Your Limited company

There are 3 different kinds of tax which you will pay through Limited company

The first one is Corporation Tax  

This is effectively paid on net profit of your company affairs.

All limited companies are subject to Corporation Tax at rates varying between 0% and 30%.

Most contracting companies will pay at the small company’s rate of 20%.

If your contract is not caught by IR35, then you will most likely take the traditional route of low salary combined with high dividends.

Since dividends can only be paid from company profits, you will need to pay corporation tax at 20% of your net company profit. Corporation Tax is payable 9 months after your year end.

 

Second is the employer's National Insurance Contributions

This is a company cost based on the amount of your gross salary charged at the rate of 13.8%.

If your contract is caught by IR35, then your salary will be substantially higher as result and consequently the amount of Employer’s National Insurance will be based on the IR35 salary.

If your contract is not caught by IR35, then best advice would be to take a very low salary, potentially avoiding Employer’s National Insurance contributions altogether. No National Insurance contributions are chargeable on company dividends. Employer's National Insurance is paid monthly.

Third one is VAT (Value Added Tax)

If your company is registered for VAT (which the vast majority of contracting companies are), then you will need to charge VAT on your invoices to agencies/clients at the standard rate of 20%.

This money is collected by the company on behalf of HMRC and must be accounted to them on a quarterly basis. You will be able to make claims for input VAT (on your company purchases) by deduction when you make the payment to HMRC. Most contractors register for the VAT Flat Rate Scheme which is a means of obtaining a VAT rebate without the need to account for the input VAT on all purchases. It often means an overall VAT saving to the business which is even higher in the first year when HMRC allow a 1% greater saving. VAT does not affect the profits of a company except where there is a VAT ‘profit’ from the flat rate scheme.

 

2)    Taxes Paid Personally

There are 3 different kinds of tax which you will pay personally to HMRC

First one is the Income Tax

If you are working in an IR35 caught contract, then you will pay tax on deemed salary.

Our post on what should I do if my contract is caught within IR 35 explains further.

Click here to read this post

If you are not caught by IR35, then only a very small amount of your Income Tax liability will be deducted through PAYE (on the low salary). On IR35 exempt contracts, you will receive dividends, on which there will be tax credits covering your basic rate tax liability. If your taxable income is less than the higher rate threshold, then you will not have any further income tax liability.

Income Tax is paid monthly under PAYE or twice a year in January and July if there is additional Income Tax to pay under self-assessment.

Second is the employee's National Insurance Contribution

If your contract is caught by IR35, then you will suffer Employee’s National Insurance contributions on your salary. These are currently 12% up to £797 per week and 2% thereafter on all earning above this limit.

If your contract is not caught by IR35, then you will pay very little, if any, Employee’s National Insurance contributions, since the bulk of your income will be taken by dividends, which do not attract National Insurance contributions of any kind.

Employee's National Insurance Contributions are paid monthly.

And finally the Capital Gains Tax

You may be subject to Capital Gains Tax when you close your company and make a capital distribution to yourself as shareholder. This can be advantageous and is worth asking your accountant about in advance of the business ceasing to trade. In addition, Entrepreneurs Relief can reduce the amount of any final tax liability on cessation of trade.

I hope this helps. All the best

APJ Accountancy

www.apjaccountancy.com

Tax avoidance versus Tax evasion….

A lot of people confuse tax avoidance and tax evasion. It can be a dangerous mistake to make!

As the former British Chancellor of the Exchequer Denis Healey said once:

“The difference between tax avoidance and tax evasion is the thickness of a prison wall”.

What can’t be stressed enough is that the two terms – and the actions each entails – are definitely not the same thing.

• Tax avoidance involves using whatever legal means you choose to reduce your current or future tax liabilities.

• Tax evasion means doing illegal things to avoid paying taxes. It’s the Al Capone path to financial freedom.

I’ve never evaded taxes, I don’t condone it, and I couldn’t tell you how it’s done.

Tax avoidance is another matter.  As the tax  have risen in the Western countries to pay down public debt, it makes sense for business to do what they can to reduce their tax burden without overly compromising other aspects of their lives.

The United Kingdom and jurisdictions following the UK approach (such as New Zealand) have recently adopted the evasion/avoidance terminology as used in the United States: evasion is a criminal attempt to avoid paying tax owed while avoidance is an attempt to use the law to reduce taxes owed

There is, however, a further distinction drawn between tax avoidance and tax mitigation. Tax avoidance is a course of action designed to conflict with or defeat the evident intention of Parliament.

Tax mitigation is conduct which reduces tax liabilities without “tax avoidance” (not contrary to the intention of Parliament), for instance, by gifts to charity or investments in certain assets which qualify for tax relief. This is important for tax provisions which apply in cases of “avoidance”: they are held not to apply in cases of mitigation.

I suspect this is largely a courtroom debate, caused by the Revenue looking to close down schemes of dubious legality created by planners for wealthy individuals.

So if I have to pull back my thoughts on where we started from, in very simple terms, tax avoidance is legal, but tax evasion is illegal and you risk prosecution for breaking the law.     

However, in some sophisticated cases the Taxman has been trying to blur the boundaries and claim some forms of tax avoidance are illegal.

A few examples will show the difference…

• The most common example of Tax Evasion amongst small businesses is making cash sales and not putting this money into your bank account or recording it in your accounting records, so the tax man will never know about it, or so you think!

• A slightly more thought out example, may be making up some forged purchase invoices. You write out the cheques to pay them with the name of the fictitious supplier on the cheque stub but it’s actually made payable to you and goes into a secret offshore account. Again, this is tax evasion and is illegal.

• Choosing to run your business as a Limited Company rather than as a sole trader in order to benefit from lower rates of tax paid by Limited Companies is an example of tax avoidance and is legal.

But it’s not always black and white, there are grey areas…

This may be because the law itself is in question or the facts of your particular case are in question. It often arises that HMRC may interpret something in one way, surprisingly to their advantage, but the accountant and the taxpayer may interpret it differently.

Please remember that HMRC do not make the law of the land and they often can get it wrong. Be prepared to stand up for your rights if necessary and don’t be bullied by them.

You should fight HMRC on technical grounds, but you need to be very sure of your facts and the law. If you can’t come to an agreement with HMRC, the matter normally ends up before the first tier Tax Tribunals who are an informal independent Tax Court to decide the matter. Many accountants don’t like going to the tribunal but they shouldn’t be afraid to go if they have a reasonable argument.

HMRC know it costs you money in accountants’ fees to argue with them and you may back down as the tax saved is not worth it after paying your accountant. In these situations look at getting your accountant to work on a no win, no fee basis for you if you aren’t already covered for Tax investigation issues.

The good news is that this is something we offer as standard within our accounting package which means you never have to worry about HMRC investigations. 

So if you are looking for accountants who aren’t afraid to challenge HMRC and fight your corner when you are right plus offers complete peace of mind for any HMRC investigation then get in touch with us. Please visit www.apjaccoutnancy.com or call 020 8931 0165.