Agenda this Month Recent tax cases Other HMRC announcements and - - PowerPoint PPT Presentation

• Recent tax cases
• Other HMRC announcements and other tax developments
• What’s in the Budget?

Agenda this Month

Recent tax cases

• Section 415 ITTOIA 2005 – taxed as dividend?
• Espirit Logistics Mgmnt Ltd and ors v HMRC (2018) FTT
• Board minute – release sums due by way of a bonus
• HMRC argued that employment income
• Tribunal held that in reality the transaction was a repayment

not a release

• Taxable as employment income

Director’s Loan Write-Off Scheme

• HMRC v Higgins(2018) UKUTT
• Exchange contracts 2 October 2006
• Purchase contract completed 5 January 2010 £575,000
• Sold 5 January 2012 £1,215,000
• FTT – Ownership from 5 Jan 2010 = PPR, No CGT
• UTT – ownership starts 2 October 2006
• Thus large portion of gain chargeable = £61,383 CGT

Property Off-Plan – When does

• wnership start for CGT?

• HMRC v Higgins(2018) UKUTT
• ESC D49?
• Delay in taking up residence may be treated as period of

deemed occupation – up to 2 years

• UTT decided that the concession did not apply here
• What if purchase not completed?
• Forfeit of deposit = capital loss?
• NO – Hardy v HMRC (2015) – no asset acquired so no loss

Property Off-Plan – When does

• wnership start for CGT?

Self-Employed Referees? Who’s in control?

• Professional Game Match Officials Ltd v HMRC (2018)
• Annual contract for football season
• Stated: “you are not an employee of PGMOL”
• Had to adhere to Code of Practice, fitness test, match day

procedures, safety and security

• No (mutual) obligation to provide or accept work
• Referees were not controlled by PGMOL
• Held – not contract of service = self employed

Football referees are self-employed

Other HMRC Announcements and Tax Developments

• Companies can raise up to £5m a year
• Overall maximum £12m, includes SEIS, VCT investment
• (Higher limits for Knowledge Intensive Companies)
• Investments within 7 years of first commercial sale
• Company must comply with EIS rules and Investors must

retain shares 3 years to retain tax reliefs

• 30% income tax relief up front
• CGT exemption on sale

New HMRC Guidance on EIS

• Investments under EIS, Seed EIS, VCT
• Relief OK if “would be reasonable to conclude”…

1. The issuing company intends to grow and develop its trade in the long term. 2. There is a 'significant risk' of a capital loss exceeding the “net investment return”.

New “Risk to Capital” condition

• Company’s intent to increase number of employees,

turnover or customer base

• Nature of the sources of income, including risk of not

receiving it

• Extent to which the company has assets that could be

used to secure financing

HMRC Guidance on “Risk to Capital”

• Extent to which activities are subcontracted
• The ownership structure
• How the investment is marketed
• The extent to which the investment is marketed with or

linked to other investments

HMRC Guidance on “Risk to Capital”

• A company is set up by postgraduate students to exploit

their research

• They expect will have wide commercial value
• Using the university facilities but now need their own

laboratory

• Directors prepare a business plan but, as their plans are

high risk, long term and no track record, the company is unable to attract investment from market

“Risk to Capital” Example

• Company may obtain advance assurance that trade

qualifies (HMRC Small Company Enterprise Centre)

• Once shares have been issued the company applies to

HMRC SCEC on Form EIS 1 (after trading 4 months)

• HMRC issue EIS 2 to company + EIS 3 forms for

investors

• Investors can only claim EIS relief once EIS 3 received

EIS Procedure

Send following to Small Company Enterprise Centre:

• 1. business plan

2. memorandum and articles of association

• 3. last annual accounts (if available) and cash flow

forecast

• 4. shareholder agreements or drafts (if you have them)

5. prospectuses and other documents for attracting investment (if you have them)

Advance Assurance and EIS1 Application

• VAT Brief 6/2018
• New rules from1 November 2018
• All property management companies required to charge

standard rate VAT on services provided to residents of residential properties

• No longer exempt supplies

VAT on Service Charges

• CGT – properties transferred at MV + SDLT
• Hold over gain using s162 TCGA 1992
• Transfer of business in exchange for shares
• Gain held over into base cost of shares
• Is it a business?
• Mrs E M Ramsay v HMRC (UTT)

Transfer of Rental Business to a company

• EM Ramsey v HMRC UKUTT
• S162 TCGA holdover applies on transfer of a business
• Does not have to be a trade
• Gains held over into base cost of new shares issued
• Property rental business transferred – 10 flats
• FTT agreed with HMRC that not a business
• 20 hours a week personally arranging maintenance,

collecting rent, cleaning between lets

• Overturned at UTT – now in CG65715

s162 incorporation relief – is it a business?

• Sections 35 in Finance Act 2016 - introduced Targeted Anti-

Avoidance Rule

• ITTOIA 2005 section S396B and s404A
• Certain distributions on a winding up taxed as income not

CGT = up to 38.1% rather than 10%

• Applies to transactions from 6 April 2016
• New HMRC Manual Guidance - CTM36300 +

HMRC Guidance on Winding up TAAR

• A close company is wound up and an individual (S)
• with a material interest (5%) receives proceeds from the

shares

• Within two years of that distribution S (or a connected

person) continues to be, or becomes, involved in a similar trade or activity; and

• One of the main purposes of the winding up is to obtain a

tax advantage

• Note – successor could be unincorporated business

Liquidations taxed as income if:

• D - One of the main purposes of the winding up is to obtain

a tax advantage

• It is for taxpayers to decide that ‘it is reasonable to assume’

having regard to all the circumstances’ that tax avoidance is not the main purpose (or one of the main purposes) of the winding up and self-assess on that basis

• it is for HMRC to demonstrate that the conclusion reached

by the taxpayer was not reasonable

Company Winding Up TAAR

• The test in Condition D is applied by reference to facts and

intentions known at the time the decision was made to wind the company up,

• HMRC will want to look at all the evidence including that

relating to what happens after the winding up has taken place

• (for example if the intention is that the taxpayer retires

completely when the winding up occurs but is within two years offered, and accepts, a position in the same trade, HMRC will want to look at the evidence that the offer was unsolicited).

Company Winding Up TAAR

• ‘Subject to the facts of the case, where Condition C is met

due to an individual remaining ‘involved with the carrying on

• f’ a trade as an employee, rather than as an owner,

shareholder or partner, and has no involvement in or influence over the direction or decision-making of the entity carrying on the activities, it is less likely that Condition D will be met’.

Company Winding Up TAAR

• Charge is 1% of Family’s Child Benefit
• for every £100 adjusted net income in excess of £50,000
• Thus full clawback if adjusted income > £60,000
• Based on spouse/CP who has higher income
• Adjusted net income = Total income less trading losses, Gift

Aid, pension contributions grossed up

• If income > £60,000 then can request that Child Benefit

payments stopped

Updated HMRC Guidance on High Income Child Benefit Charge

• EU has published its draft report on the proposal for a digital

services tax (DST), recommending 5% rate on

• advertising sales,
• intermediary activities
• user-generated content
• content supplied via digital interfaces
• goods and services sold via e-commerce platforms
• UK may go it alone if EU cant reach agreement…..

Possible New “Digital Services” Tax

What can we expect in the Budget?

• £20 billion extra spending on the NHS
• “An end to austerity”
• Where’s the tax going to come from?
• Employment status change? – “Gig” economy
• IR35 – Off payroll working rules => private sector?

Autumn Budget – 29 October 2018

• No changes in the basic rate (20%), higher rate (40%) or

additional rate (45%)

• An increase in the dividend rates in a further attempt to

counteract “tax-driven incorporation”?

• An increase to 3% for individuals’ NI contributions above

the upper earnings and upper profits limits? (currently 2% above £46,350)

• Another attempt to increase Class 4 NICs to 10% and 11%

What’s in the Budget ?

Income tax and NIC 2018/19

£150,000 £46,350 £11,850

45%, 38.1%(div) 20%, 7.5%(div)

I n c o m e t a x b a n d s £46,350 £8,424 UEL Earnings threshold 9%, 12%, 13.8% 2%, 2%, 13.8% N I C b a n d s (SE, E’ee, E’er) Personal allowance

40%, 32.5%(div)

• “Simplification” of pension tax relief to further restrict relief

for higher rate taxpayers, 30% relief has been suggested

• Reconfirmation of 17% corporation tax rate for Financial

Year 2020

• Possible higher corporation tax rate for Close Investment

Companies?

• 28% CGT rate for all property disposals to facilitate the

new payment on account system (from 6 April 2020)

What’s in the Budget ?

Falling corporation tax rates:

FY2016

• 20%

FY2017

• 19%

FY2018

• 19%

FY2019

• 19%

FY2020

• 17%

• Cost of pension tax relief approaching £40 billion p.a.
• Employers and individual contributions
• Higher rate relief – costs £6,000 net to save £10,000
• £5,500 if 45% taxpayer
• Restrict to 30%?
• Save £700 = £1,000

“Simplification” of Pension Tax Relief

• “Simplification” of inheritance tax with possible increase in

annual exemption to £10,000

• Restriction of 100% inheritance tax business property

relief to unquoted company shareholdings in excess of 25% with 50% relief for smaller shareholdings

• A new business rates system to help traditional high street

retailers, in conjunction with a new “sales” tax on internet retailers

• Booze and fags up to pay for the freeze on fuel duty

What’s in the Budget ?

• Meeting between OTS and CIOT:
• Increase annual exemption - £10,000 suggested,

abolish carry forward and marriage exemption

• Increase small gifts to £500
• Keep normal expenditure out of income
• Remove/simplify RNRB – “close inheritor” rules
• BPR before APR
• 50% BPR on assets owned personally – remove control

test – 20% significant holding

OTS Simplification of Inheritance tax