Tuesday 17 November 2015

Topical tax tips: Company cars, EBTs and football, VAT and golf

In last week’s newsletter we disguised the practical tax points as articles concerning; fast cars, football and golf. More seriously, we looked at how the tax charge for using a company car for private journeys will change in the future, the implications of the HMRC win against Murray Group Holdings Ltd, and VAT repayments for golf clubs.


This is an extract from our topical tax tips newsletter dated 12 November 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

EBTs and football 
Even if you have no interest in employee benefit trusts (EBTs) or football, you will have seen the coverage of HMRC’s win against Murray Group Holdings Ltd (owners of the former Rangers FC) in the Scottish Court of Session. But what does that mean for other taxpayers? 
  
An EBT is a structure which in recent years has been used as a means to avoid PAYE and NIC on employees’ earnings. In simple terms the employer places funds in the EBT, the EBT moves those funds to sub-trusts which are ear-marked for particular employees and their families. The sub-trust makes a loan to the employee, which it has little or no expectation of ever being repaid. Thus the employee receives the funds, and if the planning worked, the employee would be taxed only on the benefit in kind of receiving an employment-related loan. 
  
HMRC always argued that the payment by the employer to the EBT was consideration for the services of the employee, and hence should be taxed as the employee’s pay. HMRC lost this argument at the First-tier and Upper Tribunals, but it succeeded with a slightly different argument at the Court of Session. If you are interested in how this happened read the blogs: EBT and Rangers FC parts 1 and 2. 
  
Lots of companies, even quite small ones, used EBT schemes in the past. HMRC will interpret the Murray Group Holdings case as evidence that none of those EBT schemes worked, even if the facts were slightly different. HMRC offered companies who had used an EBT before April 2011, an opportunity to settle the tax and NIC due with minimal penalties. That opportunity is still there, but the penalties will not be minimal as the deal will have to be negotiated individually between the company and HMRC. 
  
Where the company does not voluntarily settle with HMRC it should expect to receive a follower notice which invites the company to alter its tax returns, in this case PAYE returns. If the issue is already the subject of a tax enquiry the company should expect to receive an accelerated payment notice, which demands that the tax is paid within 90 days. 
  
For any of those outcomes the company will need expert tax investigations advice. Our experts are happy to help with that.


This is an extract from our topical tax tips newsletter dated 12 November 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>


The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>

Tuesday 10 November 2015

Pension contributions, Scottish taxpayers, R&D assurance

There is a major restriction to tax relief for pension contributions coming into effect on 6 April 2016, which your clients may need to prepare for. Employers and individuals also need beware of the introduction of the Scottish rate of income tax, which will have repercussions far south of the Scottish border. Finally we have some good news for small innovative companies as claiming R&D tax relief should become easier very soon.

This is an extract from our topical tax tips newsletter dated 5 November 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>


Pension contributions 
From 6 April 2016 the annual allowance (AA) for pension contributions will be cut from £40,000 to a minimum of £10,000. The Government says this change will only affect “top earners”, but that is misleading. 
  
Individuals with “adjusted income” in excess of £150,000 will have their AA tapered down by £1 for every £2 over that income threshold, until a minimum AA of £10,000 is achieved. If pension contributions are made which exceed the tapered AA for the year, an annual allowance charge will apply on the excess contributions at the taxpayer's highest rate of income tax.    
  
To avoid an unwelcome AA charge the taxpayer needs to calculate his adjusted income before making large pension contributions in the tax year, but that may prove to be impossible. 
  
Adjusted income comprises: all of the taxpayer's taxable income, including income from property, interest, and dividends, plus any pension contributions made by the individual's employer on his behalf, (F(no.2)A 2015, Sch 4, Pt 4). Anyone with a variable income will find it very difficult to calculate their adjusted income before the end of the tax year. For example professional partnerships, even those with a year end of 30 April 2016, will take eight or nine months to approve and finalise the partners' profit shares for 2016/17. 
  
High earning employees should to talk to their employers to ensure that where their pension contributions are matched by an employer's contribution, the total does not exceed their tapered AA. The individual may need to opt out of the company pension scheme and negotiate compensation for that opt-out.   
  
Your client may also consider transferring income-generating assets such as property or shares to a lower-earning spouse/civil partner before 6 April 2016. Remember a transfer to an unmarried partner will trigger a disposal subject to capital gains tax. 

A third option is to maximise pension contributions in 2015/16 by making use of any unused AA brought forward from the previous three tax years.
 
The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>
 

Tuesday 3 November 2015

CGT horror, VAT on overseas expenses, Contracts for difference

To coincide with Halloween, when frightening and spooky things abound, we have three tales of tax horror to shock you. First: bad advice given by a solicitor on the gift of a house. Second: the lack of advice given by a large firm of accountants on reclaiming VAT on overseas expenses. Finally a warning about letters from HMRC concerning schemes involving contracts for difference. There is something to learn from each of these situations.

This is an extract from our topical tax tips newsletter dated 29 October 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

CGT horror 
Imagine this: your client tells you he has given his daughter a let property to reduce the value of his estate for IHT purposes, and to provide his daughter with a source of income. The solicitor who handled the conveyance said as no money changed hands there was no capital gains tax to pay. 
  
The solicitor's advice is wrong on two fundamental points. The gift between the father and daughter is taxable, as it doesn't fall into one of specific exemptions provided by the legislation - such as a transfer between spouses/civil partners (TCGA 1992, s 58). 
  
Where a transaction - including a gift - occurs between connected parties, the transaction is deemed to occur at the open market value of the asset transferred (TCGA 1992, s 17). The father and daughter are connected persons as they are relatives (TCGA 1992, s 286(2)). It makes no difference that the daughter is an adult, she remains connected to her father for the whole of her life. The fact that no money changed hands doesn't change the deemed consideration for the transaction. 
  
If the property has increased in value while your client has owned it there may well be CGT to pay. The taxable gain is calculated as if he had sold the property to his daughter at its market value. 
  
There are two possible ways to mitigate this gain:.....

The full newsletter contained the remainder of this piece plus links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week.