Agenda • HMRC guidance on company losses • Other HMRC announcements • R&D tax credits • Non-statutory clearances • 2016/17 SA filing exclusions • Recent tax cases
Another Finance Bill next week • Legislation deferred because of Election • New Finance Bill early September • Start dates confirmed • Corporate tax changes – 1 April 2017 • Non-Dom changes – 6 April • HMRC have issued draft guidance on new CT losses rules
Changes to company loss relief 2017 • New corporation tax loss set-off rules from 2017 • For new losses incurred on or after 1 April 2017 , companies will be able to use carried forward losses against profits from other income streams or other group companies • “Old” losses will still be streamed • Limited to 50% of future profits where company profits exceed £5m (1% of companies) • 25% set off restriction in the case of bank losses
Company losses available to carry forward • Non trading loan relationship deficits (NTLRDs) carried forward • Trade losses carried forward • Non trading losses on intangible fixed assets carried forward • Management expenses carried forward • UK property business losses carried forward • Not capital losses
New relaxation in company loss relief rules – Smallco Ltd • Trading losses b/fwd at 1 January 2017 £300,000 • Year ended 31 December 2017 the company incurred further trading losses of £1,600,000 • Divide into two notional accounting periods pre and post 1 April 2017 • Year ended 31 December 2018 - trading profit of £500,000 and profits from a new trade of £2,000,000
New company loss relief rules – Smallco Ltd 2018 Old trade New trade Carry forward Trading profits 500,000 2,000,000 (500,000) 200,000 Old losses New losses (1,200,000) Profits chargeable 0 800,000
£5 million profit restriction • Applies to groups and companies under common control • First £5 million – full relief, subject to “streaming” rules • Then only 50% relief • “Old” losses relieved before “new” post 1.4.2017 losses • E.g. Bigco plc has profits y/e 31 March 2019 £12 million • Losses brought forward £10 million • Set-off restricted to £8.5 million (£5m + £3.5m) • £3.5 million still chargeable
Trading loss restriction • Anti-avoidance: S 674 CTA 2010 • If, within a three year period, there is both • a change in ownership of company and • a major change in the nature or conduct of the trade • then carry forward of trading losses is denied.
Section 674 ‘MCINCOT’ 3 years 3 years LOSSES => Change in ownership
Purchase of company with trading loss • SP 10/91 reissued by HMRC – still relevant • What changes are acceptable • And those that are not • Proposal to extend this to 5 years where both change of ownership and MCINOCOT occur after 1 April 2017
Meaning of “Major Change” • A major change in: • the type of property dealt in, or services or facilities provided in the trade or business concerned, • customers, outlets or markets of the trade or business concerned, • the nature of the investments held by the company for the purposes of an investment business, • the nature or conduct of any trade or business carried on by the company, • the scale of any trade or business carried on by the company,
Meaning of “Major Change” • Beginning or ceasing to carry on a particular trade or business. • A major change in the business includes a change that was the result of a gradual process which began before the required period • Where two companies were related immediately before the change in ownership, HMRC will take this into account. Any transfers of a trade, business, or any property between the two companies, at a time when they are still related, will be disregarded for the purposes of determining whether there has been a major change in the business of either
HMRC Announcements and other developments 14
Tax breaks for innovative company PATENT INVENTION “Super” profits R&D PHASE 230% relief for costs 10% corp tax (if SME) (Patent box)
HMRC Guidance on R&D Tax Credits • 2 separate schemes – SMEs – 230%, otherwise 130% • Project must seek to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty • • SMEs can apply for advance assurance
SME / Large Co reliefs • SME • Large companies • 230% deduction • 130% deduction • Repayable credit if loss • Repayable credit from 2013 • Claim for own research • Claim for sub contacted only R&D (65%) • Not reduced by grants • Restricted by grants
R&D SME limits • < 500 employees, and either • Turnover < 100 million Euros (£90 m), OR • Bal.Sheet Total < 86 million Euros (£80m) • Independent enterprises • < 25% owned by non-SME • Not same as Companies Act definition.
R&D – Qualifying costs • Staff costs (excluding benefits) • Materials consumed or transformed • Water and fuel consumed • Software used directly and actively
HMRC Guidance on Non-Statutory clearances • Can apply for clearance for certain transactions if not covered by statutory clearance • E.g. demerger, purchase of own shares • Annexes A to E set out information required • HMRC will normally respond within 28 days • Taxpayer able to rely on HMRC decision if disclose all relevant facts and transaction proceeds as outlined
HMRC Guidance on Non-Statutory clearances • Annex A for all transactions other than Business Investment Relief, Business Property Relief and VAT • Annex B for advance assurance on Business Investment Relief for non-doms taxed on the remittance basis • Annex C for IHT Business Property Relief clearances • Annex D for VAT clearances • Annex E for post transaction clearances connected to an offshore disclosure
Public sector workers “Off payroll” 'Client' 'Intermediary' Service company/partnership 'Worker'
Public sector workers “Off Payroll” • Government departments, legislative bodies, armed forces • Local government • NHS – watch locums • Schools and further and higher education institutions • Police forces • Other public bodies (such as BBC, Channel 4)
Public sector workers “Off Payroll” • From April 2017 , individuals working through a personal service company (“PSC”) in the public sector will no longer be responsible for deciding whether the intermediaries legislation applies • The public sector employer/agency will have to decide if the rules apply to a contract and, if so, account for and pay the liabilities through RTI and deduct the relevant tax and NICs.
Public sector workers “Off Payroll” • HMRC updated guidance August 2017 • Example: • PSC invoices £6,000 + £1,200 VAT = £7,200 • Public sector employer/ agency deducts £1,613 tax, NIC • PSC gets £4,387 + £1,200 VAT • £4,387 can be drawn tax-free from PSC • £6,000 deductible for corporation tax • Employment status tool - on HMRC website
HMRC Guidance on “Image rights” • Self-employed - Payments are taxable as professional income and should be shown on the individual’s SA tax return. • Employees - Payments made for the duties of an individual’s employment must be taxed as earnings and subject to PAYE - not treated as payments for the use of image rights. HMRC checks to ensure these payments are treated correctly. • Image rights companies - license the use of an individual’s image to commercial partners, including the individual’s employer (if they have one), in return for image rights payments. • Where payments are made to an image rights company resident in the UK, the company will pay UK Corporation Tax on its profits.
Reporting disposals of UK property by non- residents to HMRC • You must tell HMRC within 30 days of conveyance • You must report the disposal online using the non-resident CGT return, even if: • you’ve no tax to pay • you’ve made a loss • you’re registered for Self Assessment • you’re registered with HMRC for Corporation Tax • you send HMRC Annual Tax on Enveloped Dwellings (ATED) or ATED-related Capital Gains Tax returns
CGT payable by non-residents • New charge from 6 April 2015 on disposal of UK residential properties (dwellings) • Applies to NR individuals, trustees and close companies • Rebase at 6 April 2015 • Elect for time apportioned gain based on cost • PPR relief available if previously occupied as main residence • Report and Pay CGT within 30 days - HMRC online calculator
Self- Assessment Filing “Exclusions” • Now 60 situations where HMRC computer does not calculate tax correctly for 2016/17! • Interaction between new dividend allowance, savings allowance and personal allowance • Cannot currently file online but submit paper return with covering letter • HMRC are planning to implement a “fix” in October 2017 • Wait and see….
New Tax Allowances and Online Filing “Exclusions” • £1,000 savings allowance if basic rate taxpayer • £5,000 dividend allowance • £11,500 personal allowance – allocate in most favourable way • And £5,000 savings taxed at nil (if below £16,500)
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