Agenda HMRC guidance on company losses Other HMRC announcements - - PowerPoint PPT Presentation

• HMRC guidance on company losses
• Other HMRC announcements
• R&D tax credits
• Non-statutory clearances
• 2016/17 SA filing exclusions
• Recent tax cases

Agenda

• 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• HMRC have issued draft guidance on new CT losses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

Another Finance Bill next week

• 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

Changes to company loss relief 2017

• 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

Company losses available to carry forward

• 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 relaxation in company loss relief rules – Smallco Ltd

Old trade New trade Carry forward Trading profits 500,000 2,000,000 Old losses (500,000) 200,000 New losses (1,200,000) Profits chargeable 800,000

New company loss relief rules – Smallco Ltd 2018

• 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

£5 million profit 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.

Trading loss restriction

Section 674

Change in ownership 3 years 3 years ‘MCINCOT’ LOSSES =>

• 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
• wnership and MCINOCOT occur after 1 April 2017

Purchase of company with trading loss

• 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
• n 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

Meaning of “Major Change”

HMRC Announcements and other developments

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PATENT INVENTION 230% relief for costs 10% corp tax (if SME) (Patent box)

Tax breaks for innovative company

R&D PHASE “Super” profits

• 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

HMRC Guidance on R&D Tax Credits

• SME
• 230% deduction
• Repayable credit if loss
• Claim for sub contacted

R&D (65%)

• Restricted by grants

SME / Large Co reliefs

• Large companies
• 130% deduction
• Repayable credit from

2013

• Claim for own research
• nly
• Not reduced by grants

• < 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 SME limits

• Staff costs (excluding benefits)
• Materials consumed or transformed
• Water and fuel consumed
• Software used directly and actively

R&D – Qualifying costs

• 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
• ffshore disclosure

HMRC Guidance on Non-Statutory clearances

'Worker' 'Intermediary'

Service company/partnership

'Client'

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

Public sector workers “Off Payroll”

• 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.

HMRC Guidance on “Image rights”

• 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

Reporting disposals of UK property by non- residents to HMRC

• 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

CGT payable by non-residents

• 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….

Self- Assessment 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)

New Tax Allowances and Online Filing “Exclusions”

• Salary/ pension £8,000
• Interest

£6,000

• Dividends

£6,000

• Total

£20,000

• How much tax?
• How to allocate personal allowance?

Simplification?

• HMRC

Net

• Salary/ pension £8,000

£8,000

• Interest

£6,000 £3,500 £2,500

• Dividends

£6,000 £6,000

• Total

£20,000

• £1,000 of dividends taxed at 7.5% = £75

Simplification?

• Better

? Net

• Salary/ pension £8,000

£8,000

• Interest

£6,000 £6,000

• Dividends

£6,000 £3,500 £2,500

• Total

£20,000

• No tax payable

Simplification?

• 100% FYA threshold reduces from 95g/km to 75g/km
• General pool threshold reduces from 130g/kmto 110g/km
• 18% WDA if CO2 76g/km to 110g/km
• 8% WDA if CO2 > 110g/km
• 15% leasing restriction threshold will also reduce to 110g/km

April 2018

CO2 thresholds changing April 2018

Advisory Fuel Rates - 1 September 2017

Engine Petrol Diesel LPG < 1400 cc < 1600cc 11p 9p 7p 1400–2000 1601 - 2000 13p (14p) 11p 8p (9p) > 2000 cc 21p 12p (13p) 13p (14p)

Recent tax cases

36

• Lease “carve out” scheme
• Grant of sub-lease to three sons
• To diminish value of property retained by donor
• Sub-lease subject to the same terms, covenants,

provisos and conditions as had been contained in the head-lease.

• Held - Possession and enjoyment not bona fide enjoyed

by done = GWROB

Hood Case - IHT Gifts with reservation

• Possession and enjoyment not bona fide enjoyed by

donee

• Not enjoyed (virtually) to the entire exclusion of the

donor

• Treat as PET and in donor’s estate
• Double charges relief
• Revenue chose which gives most tax

IHT Gifts with reservation of benefit

• HMRC v Languard New Homes Ltd; MacPherson v

HMRC (2017) UKUT 307

• First grant of a major interest in a converted property is

zero rated

• Where converting a non-residential building into a

building designed as a dwelling or number of dwellings

• FTT came to conflicting decisions on pub and village

shop with owners accommodation converted to flats

• 2 cases considered by UTT – both properties partly

used as dwellings thus no zero rating

Zero rate VAT on conversion to dwelling