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
other 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 on to repeat the exercise; or
• of a person setting out to earn a living by buying houses with development potential, then improving, extending or 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 of 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 other 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'
'In term ediary 'S ervice 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
over £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?