2020 Innovation Monthly Tax Webinar Martyn Ingles 18 May 2015 - - PDF document

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2020 Innovation Monthly Tax Webinar

Martyn Ingles 18 May 2015

• New legislation – ISA transfers
• Recent tax cases
• Other recent tax developments
• Share schemes to attract and retain staff

Agenda

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New Legislation

Finance Act 2015 enacted ISA Regulations 2015, SI 2015/869

• 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?

Finance Act 2015

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• Deaths on/after 3 December 2014
• Transfer of ISA to surviving spouse/CP
• One-off contribution up to amount of the value
• f 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

New ISA Regulations – Transfer on Death

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Recent tax cases and

• ther developments
• 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

100% Business Premises Renovation Allowance

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• 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

BPRA for a Church!

• 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
• ver

Hive – down of trade and losses (s343)

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Hive down of trade

Trade and 75% assets(NG/NL) +Losses OLDCO LTD NEWCO

• 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

Transfer of losses together with trade

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• 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

VAT – single or multiple supply?

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• 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

VAT – Yoga Tuition – Exempt supply? New pension rules from 6 April 2015

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• 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 the Flexible Pension Rules

• 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

PAYE and Pensions – In year repayments

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• 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

PAYE and Pensions – In year repayments

• 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.

Non-Resident Landlord Scheme

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• 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

Non-Resident Landlord Scheme

• 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

Changes to Share Scheme Reporting

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Attracting and retaining key staff with share schemes

• 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!

Why Have A Share Scheme?

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• 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!

Dilution Of Owners Equity

• 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

Why have an approved scheme?

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• All employees:
• SAYE share options
• Share Incentive Plan
• Discretionary:
• CSOP
• EMI is the best!

Alternative Share Incentives

• 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

CT relief for employee shares

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• 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

CT deduction for employee shares

• 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

EMI Options – Key conditions

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• 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

Example – Rubble Ltd

• 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!

EMI shares – company sale

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THE END

Any Questions?