Monthly Tax Webinar Martyn Ingles 20 April 2015 Agenda New - - PowerPoint PPT Presentation

2020 Innovations Monthly Tax Webinar

Martyn Ingles 20 April 2015

• New legislation – Finance Act enacted
• Recent tax cases
• Other recent tax developments
• Tax policies in the election manifestos

Agenda

New Legislation

• 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

• New “Diverted Profits Tax”
• 25% UK corporation tax on profits artificially shifted

from the UK to an entity in a low tax country

• Does not apply if UK sales < £10 million
• UK has introduced country by country reporting of

transfer pricing data and share with other countries

Tax Avoidance by Multinationals

• £8,500 “higher paid” limit removed – benefit in kind rules

to apply to all employees => P11d

• P11d dispensations abolished from 2016/17 – no need

to report expenses wholly exclusively and necessarily incurred

• “Payrolling” of Benefits in Kind rather than on P11d
• Exemption for “trivial” benefits in kind (cost < £50)

did not go ahead

Benefits in Kind Simplification

• Community Amateur Sports Clubs
• Treated like Charities for some tax purposes
• Income and gains exempt (up to limits)
• Donors get tax relief – Gift Aid
• Small donations scheme also applies

New CASC Guidance

• Exemption from Corporation Tax on UK trading profits if

the turnover from that trade is less than £50,000 a year (£30,000 a year before 1 April 2015)

• Exemption from Corporation Tax on UK property

income if the total income from property is less than £30,000 a year (£20,000 a year before 1 April 2015)

• Exemption from Corporation Tax on interest received
• Exemption from Corporation Tax on chargeable gains
• NB - Doesn’t get Charity VAT exemptions

CASC Tax Exemptions

• be open to the whole community
• be organised on an amateur basis
• have as its main purpose the provision of facilities for

participation in, one or more eligible sports

• not exceed the income limit
• meet the management condition
• meet the location condition

New CASC Guidance – Must:

Recent tax cases and

• ther developments

• Hartland v HMRC (2014) UKFTT
• HMRC will give the transaction more scrutiny where the

taxpayer is in the building trade

• Mr Hartland ran a plant hire business
• Renovated and sold several properties
• Lived in 2 whilst work carried out – PPR?
• Excluded from his tax returns
• “Badges of Trade” need to be considered

Disposal of House - Trading or PPR?

• Motive/ intention when acquired
• Type of goods normally traded
• Frequency of transactions
• Length of ownership
• Financing – short or long term loan?
• Supplementary work
• Reason for sale

Trading? – Badges of trade – key factors:

• Badges of Trade relevant?
• “The correct approach was to stand back from the facts,

relating not only to the two years of assessment but also to the periods before and after, and ask

• whether the picture they painted was of a man making

improvements to his home before selling it and moving

• n to repeat the exercise; or
• of a person setting out to earn a living by buying houses

with development potential, then improving, extending

• r rebuilding them, in order to make a profit to be

utilised in the next venture…..”

• Property P was PPR, Property G was trading

Disposal of House - Trading or PPR?

• Terrace Hill (Berkeley) Ltd v HMRC (2015) UKFTT
• Property developers normally hold property on trading

account

• But here was it an investment?
• That’s how shown in the accounts and capital

allowances claimed

• “Finely balanced” but Tribunal allowed appeal – capital

gain

• Why important?
• Company had capital losses!

Another Developer – Not Trading Asset

• Jones and anor v HMRC (2014) UKFTT
• Mr and Mrs Jones were directors and shareholders of a

recruitment consultancy company

• The company paid them interim dividends, together with

modest monthly payments of directors' fees.

• The accounts for y/e 31 March 2007 showed directors'

salaries of £10,800 and dividends of £139,000

• Similar figures in draft accounts for y/e 31 March 2008
• Financial difficulties so accounts redrafted
• Second set of draft accounts showed dividends of

£45,000 and directors' salaries and national insurance contributions of £213,178

Dividend or salary – was PAYE and NIC due?

• Jones and anor v HMRC (2014) UKFTT
• The company went into insolvent liquidation in February

2009.

• HMRC: wilful failure to deduct tax and NICs from the

appellants' emoluments in the tax years 2007/08 and 2008/09 and appellants knew of that failure.

• HMRC issued a direction notice to the appellants on the

under Income Tax (Pay As You Earn) Regulations 2003

• HMRC also sought to recover NICs from the appellants

under Social Security (Contributions) Regulations 2001

Dividend or salary – was PAYE and NIC due?

• Jones and anor v HMRC (2014) UKFTT
• Mr and Mrs Jones appealed – argued that the employee

had to know at the time payment was made that the employer had wilfully failed to deduct tax; and the conditions in both pieces of legislation did not fall to be considered retrospectively.

• The reclassification which occurred did not truly reflect

the nature of the payments at the time they were made.

• The payments were clearly made as interim

dividends and taxable as such rather than as salary.

• The directors could not retrospectively alter the nature
• f the payments by deciding to treat them differently.

Dividend or salary – was PAYE and NIC due?

• French and anor v HMRC (2014) UKFTT
• Mr F ran a dairy farm in partnership with his wife
• They decided to abandon dairy farming due to falling

milk prices.

• Sold his herd in 2000 and let/licenced some of his land

to a neighbouring farmer (“C”) who farmed the land between 2001 and 2004

• The appellants simply received a rental return.
• In 2004 the licence to C was terminated and C farmed

the land on a contract basis and the appellants re- commenced their (arable) farming trade

Farming losses – sideways loss relief

• French and anor v HMRC (2014) UKFTT
• The farm continued to make a loss until the tax year

2011/12 when it made a profit.

• The appellants sought to set farming losses against
• ther income in the 2010/11 tax year.
• HMRC challenged the sideways offset of losses under

s67 ITA 2007, which provides that, subject to various exemptions, the additional reliefs for losses were denied for a loss if there had been losses, calculated without regard to capital allowances, in the previous 5 years

• How long would a notional competent farmer have

taken to anticipate profit?

Farming losses – sideways loss relief

• French and anor v HMRC (2014) UKFTT
• It was clear that there had been a break in the

appellants' farming trade between 2001 and 2004.

• It was concluded that the farming losses in 2010/11

spanned back for only 7 years and not 13, it followed that s68 did not preclude the sideways relief of losses.

• HMRC had calculated the time that the notional

competent farmer, commencing the arable farming trade in 2004, would have taken to anticipate profit was 7 years

• The appeals would be allowed.

Farming losses – sideways loss relief

• Many lenders now require SA302 HMRC calculation
• Need to request from HMRC – takes up to 2 weeks
• Can now download copies of Tax Calculation and
• Tax Year Overview from the HMRC online service
• Still a conflict between minimising income for tax

purposes and showing sufficient income to support mortgage application

Confirmation of income for mortgage

• Engagement of “self employed” workers via

intermediaries (= agencies)

• Responsibility for the intermediary to account for

PAYE/NIC on payments made if worker is in an ‘employed’ position (from April 2014 )

• Responsibility of the intermediary (from April 2015) to

provide a return of payments made gross to workers

• (Like CIS)

Agency workers and PAYE – FA 2014 s16

'W orker' 'Interm ediary'

Service com pany/partnership

'C lient' IR35 – Personal service companies

Client Agency/ Intermediary Worker

Agency workers

• Quarterly reports required if you:
• are an agency
• have a contract with a client
• provide more than one worker's services to a client

because of your contract with that client

• provide the worker's services in the UK - or if the

services are provided overseas, that the person is resident in the UK

• make one or more payments for the services

(including payments to third parties)

New Quarterly Reporting by Employment Intermediaries

• One-person limited companies, or personal service

companies, that only supply a client with 1 worker don't have to send reports to HMRC.

• If the worker is supplied through an intermediary they

will be included in the return of the intermediary that has the contract with the end client.

• If a personal service company supplies more than 1

worker, including any subcontracted workers, it will be acting as an intermediary and will have to send reports for each reporting period.

Interaction with IR35

• Name, address and postcode of intermediary
• Engagement and payment details
• Worker's personal details:
• Full name, address and postcode
• NINO - if they have one and you don't know their

date of birth and gender

• Date of birth and gender - if they don't have a

National Insurance number

• UTR

What to report

• A: Self-employed
• B: Partnership
• C: Limited liability partnership
• D: Limited company including personal service

companies

• E: Non-UK engagement
• F: Another party operated PAYE on the worker's

payments

State why you didn’t operate PAYE

Partnership Capital Gains Revised SP D12

• Revised 2015 following OTS review
• Each partner owns a fractional share of capital assets
• Main Chargeable occasions:
• Actual disposals
• To 3rd Parties
• To Partner – disposal by others
• Changes in Capital PSR
• No revaluation/goodwill in books – NG/NL
• Revaluation/goodwill in books - Chargeable

Partnership Capital Gains – SP D12

• Valuations of partnership assets
• Value of entire partnership holding
• Take fractional share of asset
• Eg. Partnership owns 100% of company
• Partner has 10% share
• 10% of 100% valuation not 10% value

Partnership Capital Gains - valuation

• Distribution in specie to partner – Example A
• No disposal by recipient Mr B
• Other partners (Mr A) make gains
• A and B share capital profits equally
• Asset worth £640K transferred to Mr B, cost £400K
• Capital gain on 50% share £120,000 charged on A
• B’s base cost £520,000 (£640,000 - £120,000)

Partnership Capital Gains

• Change in PSR, no revaluation – example C
• A and B share capital profits equally
• Freehold property shown on B/Sheet at cost £500K
• Change to 40%:60%
• No capital gain – NG/NL
• Base costs become A £200,000, B £300,000

Partnership CGT – change in PSR

• Revaluation followed by change in PSR – example D
• A and B share capital profits equally
• Freehold property shown on B/Sheet at cost £400K,

revalued to £600K, credited to capital a/cs

• Goodwill not shown in books
• Change to 40%:60%
• Disposal by A to B of 10% interest = £20,000 gain
• Goodwill – no gain/no loss

Partnership CGT - Revaluations

• Transfers between partners – examples E, F and G
• Normal connected party rule – use MV
• TCGA s286(4) – not regarded as transactions between

connected persons if genuine commercial arrangements and transfer of partnership assets

• Does not apply to personal assets - example F
• Does not apply if otherwise connected – father/son

CGT – Transfers between partners

• Example G:
• M and N share capital profits equally
• Cost of assets – Freehold £320K, goodwill £100K
• Admit M’s son P (connected person)
• No payment made by P
• Profit share M 25%, N 50%, P 25%
• MV assets - Freehold £400K, goodwill £120K

CGT – Transfers between partners

• Example G:
• Disposals by M to P at market value:
• Freehold

Goodwill

• Proceeds 25% £100,000

£30,000

• Cost

25% (80,000) (25,000)

• Gains by M

£20,000 £5,000

• Entrepreneurs’ relief
• S165 TCGA holdover

CGT – Transfers between partners

• Disposal of business assets:
• Disposal of all or part of a business
• Disposal of shares in or securities of a company, or
• Disposal of assets following cessation of a business (3

years)

• SP D12 – paragraph 14

CGT Entrepreneurs’ relief

General Election on 7 May 2015 What are the main parties tax policies?

• Increase Personal allowance to £12,500
• And higher rate threshold to £50,000
• AIA to be set at significant level and made permanent
• Transferable main residence IHT allowance of £175,000

per person, in addition to £325,000 nil rate band

• = £1 million for married couple
• Reduce tax relief on pension contributions for people

earning more than £150,000

• No increase in VAT?

Conservative Party Tax Policies

• Pledge not to increase the basic or higher rates of

Income Tax, National Insurance or VAT

• Promise not to extend VAT to food, children’s clothes,

books, newspapers or public transport

• Reinstate 10% starting band for income tax
• And 50% rate for income over £150,000
• Abolish transferrable Married Tax Allowance.
• Restrict tax relief on pension contributions for high

earners

• Mansion tax?

Labour Party Tax Policies

• As Tories - Increase Personal allowance to £12,500
• And higher rate threshold to £50,000
• No increase in the headline rates of Income Tax,

National Insurance, VAT or Corporation Tax

• A new Mansion Tax on residential properties worth
• ver £2 million.
• Reforms to Capital Gains Tax and Dividend Tax relief,

refocusing Entrepreneurs’ Relief and additional taxes on the banking sector

• New single rate of pension tax relief – 33%?

Lib Dem Tax Policies

• Increase Personal allowance to £13,000
• And higher rate threshold to £55,000
• A 30% rate on incomes between £43,500 and £55,000
• Abolish IHT completely
• Remove VAT completely from repairs to listed buildings

and the sale of sanitary products

UKIP Tax Policies

• Increase the main rate of corporation tax to 30% and the

top income tax to 60%

• Abolish the CGT annual exemption
• Introduce a Wealth Tax at 2% a year on those with more

than £2 million capital

• Reduce employers NIC to 8%.
• Reduce VAT of restaurant food and hotel accom. to 5%
• Restrict salary of highest paid employees to no more

than 10 times that paid to the lowest paid worker

• Abolish interest relief for Buy to Let Mortgages

Green Party Tax Policies

THE END

Any Questions?