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In associaon with BUSINESS TAX VOICE Issue 1 – May 2016
In association with
BUSINESS TAX VOICE
Issue 1 – May 2016
2 Business Tax Voice | Issue 1 | May 2016
ContentsBusiness Tax VoiceIssue 1 – May 2016
Welcome – The large business......................................................................................3
The owner managed business......................................................................................6
Choice of vehicle..........................................................................................................7Pete Miller looks at the choices to be made
Mind the GAAP...........................................................................................................10Paul Martin looks at the path ahead
EIS and SEIS recent developments..............................................................................12Paul Twydell brings us up to date
IP developments and issues.......................................................................................16David O’Keeffe provides an overview of some significant changes
Transations in securities – where are we now?...........................................................19Ray McCann answers the the question so many are asking
An adviser’s perspective.............................................................................................23Jeremy Coker details the range of issues of presently of concern to the business adviser
Your new Business Tax Voice......................................................................................26
Consultations and submissions...................................................................................27
Events........................................................................................................................31Report on the London Branch Conference 19 April 2016
Contact us..................................................................................................................33
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WELCOME – THE LARGE BUSINESS
Jennie Rimmer Chair, Commerce & Industry branch, CIOT Council member
Jennie is Group Head of Tax for Global Insurance and Reinsurance Group covering all aspects of Corporate, International, Employment, Indirect and Insurance Premium taxes across an international network. Managing the Tax Risks and Opportunities for the group and managing a cross border team brought into Aspen to build the Tax function and increase value added. Jennie can be contacted at [email protected]
“In this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin
Over the last 5 years or so, tax has become the buzzword on the street. Who would have thought there would be so much interest in it from the media, or that it would be the topic of conversation at many a dinner party. One thing is for sure, being in tax will mean you are never short of a job!
We are only five months into the year and the pace of change has already been astonishing. For most businesses in the UK, whether large or small, the challenge as always is keeping up with the changes required, but also managing the messaging around them, both internally and externally.
As has been anticipated, the changes introduced as a result of BEPS (Base Erosion and Profit Shifting) are causing increased focus on all taxes. Falling corporate tax rates, which are intended to attract investment into a particular jurisdiction, means that many are taking the opportunity to increase tax rates in other areas, and the impact of this is already being seen in indirect taxes such as VAT, customs duties, stamp duty and employment taxes. In the UK, we have a frozen VAT rate for now, but there is a definite shift in HMRC’s focus on avoidance for VAT, and for employer compliance, in particular in relation to STBVs (short term business visitors – where we are seeing similar initiatives within Europe and the US), and salary sacrifice arrangements. There is also a creeping introduction of ‘new’ taxes such as the Apprenticeship Levy (effective April 2017) and Diverted Profits Tax (DPT – already in force). Australia has recently announced in its May Budget that it will be introducing a ‘Diverted Profits Tax’, and we should not be surprised if others follow suit.
The UK’s Business Tax Roadmap issued at the March 2016 Budget brought a number of surprises, not least of which was the reduction in the Corporation Tax rate to 17% from 1 April 2020. Whilst this may be positive for some, and was intended in particular to benefit UK centric businesses, it can be unhelpful in that it could require CFC reporting on UK activities for non-UK parented groups, and also may reduce the value of some deferred tax assets. Whilst the latter won’t impact the corporate tax return, it will impact a company’s financial statements, giving rise to wider implications.
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Other items in the Business Tax Roadmap were the restrictions on interest deductions (which will replace the Worldwide Debt Cap) and the restrictions of the use of corporate losses. The Banking sector is already subject to restriction – this has now been tightened and the scope broadened to include all large businesses. For many regulated businesses, this can be problematic, and whilst the relaxation of the group relief rules are intended to ease the pain, this may not be sufficient balance for some groups.
Companies subject to the Senior Accounting Officer regime will soon be required to have a published Tax Strategy in relation to their UK Tax activities. As this will need Board approval, groups will need to prepare a relevant strategy, and also leave sufficient time in the corporate timetable to be obtain the Board’s approval.
The publication of tax information is becoming a common theme. In April, the EU published draft proposals for publication of transfer pricing information. The information required is similar to but not quite the same as that required under the OECD’s Action
13, Country by Country Reporting (CBCR). The EU’s proposals (which are supported by the UK) go beyond the requirements of BEPS which anticipates information being shared between tax authorities only, but essentially kept out of the public space. Closer to home the recent outcry over the Panama investigation has led to calls for MPs to publish their personal tax returns. Where does it end?
Despite continuing concerns of volatility in the UK’s tax rules, we should remain positive. HMRC and HMT are willing to engage, consult, and listen to concerns and this can only be helpful. They have also worked very hard on behalf of the UK by energetically engaging with the OECD on BEPS.
The CRM role is changing as HMRC themselves face constant change and a broadening scope of the areas of their responsibility, but I believe having a CRM is a positive thing and businesses should remain mindful of the need to engage positively in order to get the benefit of the relationship.
©shutterstock/ polygraphus
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The increased scrutiny in the tax affairs of multinationals means that in-house tax functions need to ensure they remain fit for purpose. Many large corporates are looking afresh at their in-house capabilities to see if their tax professionals have the necessary skill sets. With the demand for ever-increasing reporting and compliance, there is an increasing need for strong tax accounting skills in parallel with the tax technical knowledge. Those starting out in their careers need to ensure they gain a good understanding of how and where tax fits into the financial statements and the ability to perform detailed calculations and reconciliations of current and deferred tax. A good technical understanding of UK and international tax of course remains essential and will form the base of any tax career, whichever path is taken.
Those further on in their careers should be mindful of the need to develop their skills outside of the core tax technical areas, for example presentation skills, team management, report writing, ability to manage advisers and auditors, and to develop a network of colleagues and professional contacts. The ability to communicate tax matters succinctly and clearly to non-tax professionals is now essential rather than a ‘nice to have’. The CIOT has been considering ways in which to support tax professionals in these ‘non-tax’ development areas, and this should be a positive addition to the benefit of membership in future.
The Commerce & Industry branch of CIOT is aimed at those working in-house, and provides practical and real life insight into the tax issues faced by multinationals. All who work in house are welcome to attend the meetings, which are held in central London in the evenings. There is also an annual conference, this year to be held on Wednesday 5th October, and this takes the opportunity to hear from many in-house speakers and also representatives from HMRC and HMT. Look out for more details in Tax Adviser magazine!
So, in summary, we face challenging times, but we should continue to be positive in our approach to change. Remember – you are not alone in the issues you face – and whilst there may not always be an obvious right answer, having the ability to support your decisions with clarity of information and suitable levels of communication will go a long way to convincing internal and external stakeholders that the direction of travel continues to be appropriate.
Jennie Rimmer
Commerce & Industry branch and Corporate Taxes sub-committee member
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THE OWNER-MANAGED BUSINESS
The current environment for owner-managed businesses is getting more and more uncertain. Old certainties, such as a company is more tax efficient than a partnership, are being eroded. Worse than this, things that we used to consider as sensible tax planning and completely inoffensive are now being referred to by HMRC and the public at large as being aggressive tax avoidance, incorporation of a business to take advantage of a favourable tax regime, being the simplest example.
So what are the drivers behind this? Fundamentally, of course, the answer is money. The root of the problem is that we have been through one of the worst recessions in living memory and the government needs money. At a time when we are supposed to be “all in it together”, the press has been assiduous in pointing out examples of people not paying the right amount of tax, whatever that may be. This then makes it politically expedient, or possibly politically essential for the government to be seen to be doing something about tax avoidance.
Unfortunately, however much some people might dislike it, while the wealthy are often perceived as avoiding taxes, the amount of tax that a relatively small number of wealthy people could possibly be required to pay is trivial compared to the amounts that the government actually needs. To raise material amounts of money for the Exchequer requires a greater tax burden on the greater portion of the working population, which means tax rises of some sort, whether this is by way of increasing rates, which is unpopular (and now unlawful), or otherwise widening the tax base. And that is what is happening, particularly to the self-employed and small companies. As noted, since Parliament has passed a law saying that there will be no rate increases in the
major taxes, the Exchequer has been imaginative in extending the scope of tax in a number of areas. For example, we have the increased rate of tax on dividends, and a matching increase in the rate of tax on loans to participators. Further attacks on corporate businesses include strengthening the transactions in securities rule and on reductions of capital, making it more difficult for people to take out of a company the funds they originally put in when the company was set up, something that I feel is particularly unfair.
I could go on forever on this theme, and perhaps I will in future articles. For the moment, however, I think it is fair to say that the owner-managed businesses face a number of tax related challenges over the next few years and I suspect it will be a long time before the economy is sufficiently robust for some of this tightening of the tax rules to be loosened.
Pete Miller Owner Managed Business sub-committee member
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CHOICE OF VEHICLE
Pete Miller looks at the choices to be made
Choice of Business Vehicle
One of the most important decisions that many of us make when we start a business is the choice of vehicle through which the business should be carried on. Should we form a company? Will a partnership do instead? Or should we go for some kind of halfway house with a limited liability partnership? Those are the simple answers to the question, of course, and in the past even more complex ideas, such as a limited liability partnership with corporate partners, have been quite common, because of the actual or perceived tax advantages. For the purposes of this however, we will stick to the simple structures.
As I am a tax advisor and this article is on the CIOT website it will not be a surprise that I am going to start off by considering the tax position. A company prima facie has the advantage of a lower tax rate, with corporation tax rates currently at an historic low of 20%, reducing to 19% from 1 April 2017 and 17% from 1 April 2020. This compares very favourably with income tax rates which can be up to 45%, although we do have to take into account the rates of tax on dividends extracted from the company. These have been increased, with effect from 1 April 2016, specifically to discourage tax driven incorporation. This does not mean that HMRC disapproves of companies as a vehicle for carrying on a business. It simply means that as a matter of policy HMRC do not consider that the tax payable should be a main driver of that decision.
Let us have a look at the rates of tax on corporate profits, taking into account the new dividend rates. Let us start off by assuming a company that makes £100 of profit and pays £20 of corporation tax has £80 available to distribute. If the shareholder is a basic rate taxpayer, they will pay 7.5% tax on their dividends which would be a
further £6 on a distribution of £80, so that the total tax burden is £26 on £100 profits, an effective tax rate of 26%. Conversely, an individual earning similar profits as a self-employed person would be 20% Income Tax and 9% Class 4 National Insurance contributions (NIC), giving a total of 29%. So the company looks slightly more tax efficient (even though we have not taken into account personal allowances and the £5,000 dividend allowance, to keep the examples simple).
If the shareholder is a higher rate taxpayer, they will pay 32.5% on their dividends, which is a further £26 on the £80 dividend on top of the corporation tax, giving an effective overall rate of 46%. In contrast, a higher rate taxpayer who is self-employed will pay 40% income tax and Class 4 NIC (at 2% over £43,000). Again, this is a very simplistic example and suggests that, in this case, the company is slightly less tax efficient, albeit without taking into account personal allowances, etc. For additional rate taxpayers, where the rate of tax on dividends is 38.1%, the tax on an £80 dividend will be £30.40, which gives an effective tax rate of just over 50% for corporate profits whereas an income tax payer would pay 45% income tax and 2% National Insurance, so the company is, once again, prima facie slightly less efficient. If all the personal allowances and dividend nil rate were taken into account, it appears that the differences between a company and being self-employed, from a tax perspective, are only slight.
Of course, this does not take into account the fact that corporate profits that are not distributed are not taxed. So the ability to defer the income tax on dividends until the dividends are taken is a clear advantage, from a cash flow perspective, over being a sole trader or partner, where the profits are taxed as they arise, whether or not they are extracted from the business. Of course, this does not take into account the implicit threat, in HMRC’s consultation document Company Distributions from last December, of a return to close company apportionment. (For younger readers, this was a tax that effectively taxed part of a company’s undistributed profits as if they had been distributed, in order to encourage companies to
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distribute their profits, not retain them.)
From a commercial perspective, the main advantage of a company was always the ability to limit your liability as a shareholder. This difference was pretty much swept away in 2000 when it became possible to operate through a limited liability partnership, which has all the advantages and flexibility of partnership with the additional benefit of limited liability. The trade off, of course, is that operating through a limited liability vehicle, whether an LLP or a company, requires a higher degree of regulation, such as annual returns to Company House, and the like. Speaking personally, I have not found this degree of regulation to be particularly onerous and the reassurance of limited liability certainly makes that worthwhile.
The other feature as to the choice of vehicle is flexibility of membership. If you are a sole trader or a partnership, it is relatively easy to bring in new partners to the business, or for partners to leave. That is, a person can become a partner in a partnership, together with full access to partnership assets, etc., if that is what is required, without any obvious tax consequences at the
point of joining. Conversely, to bring a new shareholder in to a company can be very difficult, particularly if they are to be given a material stake in a successful business. If they do not pay full market value for the shares, then prima facie there is a potentially very large charge to income tax and NIC, under the employment-related securities rules, effectively treating the difference between market value of the shares and what was paid for them as if it were further income. And this burden falls largely upon the company, which is responsible for operating Pay As You Earn and NIC systems. The problem is that a new person joining a company is unlikely to have sufficient cash resources to pay for the shares that they are offered. There are, of course, various statutory schemes whereby people can become shareholders more tax efficiently, but these are often inappropriate to the company’s particular position, do not allow the person to obtain sufficient interests in the company, or are simply too expensive for the business to implement. So companies are relatively inflexible when bringing in new members.
©shutterstock/ Bacho
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Similarly, if a person leaves a company, they are likely to want to sell their shares, and pay capital gains tax. But, of course, there also needs to be a market for those shares, so either other shareholders or new external investors would have to buy them, or the company has to buy its own shares back, all of which have financial, commercial and tax consequences for the shareholders that remain behind. Obviously, when a person leaves a partnership, they will want to be able to access their undrawn profits and possibly their original capital contributions, but these matters can be dealt with far more easily by way of a partnership agreement, regulating the rate at which cash can be extracted from the business, without any further tax consequences. So, one of the major advantages of a partnership over a company is the flexibility of membership.
There are, no doubt, almost as many reasons for the decisions as to what form of entity should carry on a business, as there are different businesses. You, or your clients, may have based the decision on any number of other factors and not taken any of the above issues into account. So this article has tried to give just a small flavour of what I see are the major issues that I have come across in this context, it certainly does not purport to be exhaustive.
PROFILE
Pete Miller, CTA (Fellow), The Miller Partnership
Pete formed The Miller Partnership in April 2011 to offer expert advice to other advisers on all business and corporate tax issues. Pete’s specialist areas include distributions, partnerships, the transactions in securities rules, reorganisations, reconstructions, Patent Box, HMRC clearances, disguised remuneration and the taxation of intangible assets.
Pete speaks and writes regularly on tax issues. He is a member of the Editorial Boards of Taxation, The Tax Journal and Simon’s Taxes and a Consulting Editor to TolleyGuidance, and has recently been appointed as General Editor of Whiteman and Sherry on Capital Gains Tax. Pete can be contacted on 0116 208 1020 or by email: [email protected]
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MIND THE GAAP
Paul Martin looks at the path ahead
It has long been established that a business must pay tax on the profits of its trade and that the starting point for quantifying the taxable profits of that trade is the accounts. However, it is only as recently as 1998 (s42 Finance Act 1998) that this basic principle became enshrined in statute. To most of us, an approach of taxing the profit per the accounts would make sense; after all, these accounts generally have to show a ‘true and fair’ view of the business performance for the period.
Tax, however, is rarely that simple – how often have you been told that I wonder? Both companies (under s8 Corporation Tax Act 2009 (CTA 2009)) and unincorporated businesses (under s7 Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005)) are required to charge tax on the full amount of profits (including trading profits) arising in the relevant period.
“The profits of a trade must be calculated in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law in calculating profits for corporation tax purposes.”
The statement above has been lifted straight from s46 CTA 2009, and s25 ITTOIA 2005 (where the reference is to income tax rather than corporation tax). It means that the starting point for the quantification of taxable trading profits for a particular period for both companies and unincorporated businesses, such as partnerships and sole traders, is the profit for that period calculated under generally accepted accounting practice (GAAP). However, one must also have regard to those rules in the relevant tax legislation and case law where departure from the accounts is required or permitted.
The publication of FRS 101 and 102 (new UK GAAP) and the mandatory adoption of this for accounting periods commencing on or after 1st January 2015 (1st January
2016 for companies using the FRSSE) has certainly focused many people’s attention on the relationship between accounting treatment and tax treatment. A business needs to consider many things when evaluating the impact of the new accounting rules contained in new UK GAAP: the impact on balance sheet values (and any possible knock on effect for loan covenants), the impact on distributable profits and given what is said above, the possible impact on tax cash flows.
In light of the statutory starting point outlined above, when GAAP changes there may be a potential impact for tax purposes. To the extent that the change in GAAP is presentational or in disclosures required, there will be no impact on the calculation of taxable profit. However, if the recognition or measurement rules change for a particular item or transaction and that item is one where the tax treatment follows the accounting treatment (rather than replaces it with a separate treatment for tax purposes) the calculation of the tax effect of that item or transaction will also change. Possible relevant items include:
• financial instruments (loan relationships and derivative contracts);
• intangible fixed assets;
• lease incentives; and
• holiday pay accruals.
Any potential tax impact will be especially relevant in the first period for which the new accounting rules are adopted. This is because, not only will the taxable profits for that period need to be based on new UK GAAP, but the difference between the tax positions based on old and new UK GAAP for historic periods will also need to be reflected as a transitional adjustment. In most cases, such transitional adjustments will be taxable or relievable in full in the first period for which the new GAAP applies. In other cases, transitional adjustments can be spread over a longer period. There will only be spreading of these adjustments where the tax rules for a specific item specify that spreading is available. The
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main example of such specific legislation (and possibly the most likely to be relevant) is to be found in the “The Loan Relationships and Derivative Contracts (Change of Accounting Practice) Regulations 2004” SI 2004/3271 (COAP Regs) which mandatorily require a company to spread certain adjustments arising on the change to new GAAP on loan relationships or derivative contracts (both debits and credits) over 10 years. In some cases, debits and credits are specifically carved out from these spreading rules (such as debits or credits in relation to a loan relationship that falls to be fully discharged within the same accounting period as that in which the new accounting policy is to be first applied). In other cases, the adjustment may be exempt from tax altogether.
The increased focus on the relationship between accounting and tax resulting from the implementation of new UK GAAP is unlikely to dim in the future, particularly for ‘smaller companies’. In March 2016 the Office of Tax Simplification (OTS) published its review of small company taxation. The report contained 13 main recommendations, 6 of which the Government have indicated they will accept, 6 of which they have said they will consider further and only 1 of which they have rejected (the recommendation for a long-term study of a consolidated tax system). These include a recommendation to closer align taxable profits with accounting profits (focussing on exploring whether many of the sundry tax adjustments could be eliminated) and a recommendation to explore the possibility and practicality of a cash basis of accounting for the smallest companies.
Even after the issues arising on the transition to a new GAAP have been carefully navigated, and whatever the outcome of the OTS review, understanding the relationship between accounting profits and taxable profits will remain an important issue for all businesses in the foreseeable future. ‘Mind the GAAP’ remains the key message.
PROFILE
Paul Martin
Paul qualified as a chartered accountant in 1988 and then moved into a career in tax, becoming a member of the CIOT in the 1990s. He joined the Financial Training Company (now Kaplan) in 1989 where he spent 16 years training students for various tax exams including the ATT and CTA. For the last 11 years he has been a national tax training manager with RSM presenting on both internal and external tax technical courses as well as writing articles for various publications. Paul can be contacted +44 (0)7788 747404 or at [email protected]
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EIS AND SEIS RECENT DEVELOPMENTS
Paul Twydell brings us up to date
Introduction and recent statistics
The Enterprise Investment Scheme (EIS) is one of the most widely-known reliefs for private investors seeking to make a tax-efficient investment in a company seeking to raise equity for the purposes of a qualifying trade. The scheme has been around for several years and gives benefits to the investor such as income tax relief of up to 30% of the cost of the investment and exemption from capital gains tax on the eventual disposal of the shares where the company continues to qualify for the required period of time post investment.
It is noted from the most recent statistics, published by HMRC on the take-up of the EIS scheme, that there has been a marked increase in the number of investors and funds raised. In the tax year to 5 April 2014 £1.56 billion of EIS funds were raised from 26,000 investors in 2,800 companies; nearly half of such companies were raising EIS monies for the first time. This was a 51% increase on the funds raised in 2012-13. Whilst HMRC are yet to report on the years 2014 onwards to the present day it is reasonable to assume that this trend of increased investment under the scheme has continued.
For investments in companies which have been carrying on their business for less than two years, the similar but separate Seed Enterprise Investment Scheme (SEIS) is available on the first £150,000 of investment, allowing income tax relief of up to 50% of the funds invested. HMRC statistics again show an increased level of investment under this scheme, where in the year to 5 April 2014 over 2,000 companies raised £168 million
(see https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/494624/January_2016_Commentary_EIS_SEIS_Official_Statistics.pdf) of equity investment under the SEIS which is almost double that raised in 2013.
Where the rules affecting the schemes are broadly similar the shorthand (S)EIS has been used to identify that the issue applies to both schemes.
Recent changes in the EIS legislation – for share issues after 18 November 2015
As the EIS reliefs are a form of state aid they are subject to the EU rules on how this state aid must be administered in relation to risk capital. The European Commission adopted new rules on risk finance in January 2014 which impacted on the rules introduced by Finance (No.2) Act 2015, the majority of which took effect from 18 November 2015. A brief overview of these rules and how they affect most companies are outlined below. It should be noted that companies which can be categorised as “knowledge intensive” are subject to relaxed rules - they are covered in the following section and the specific provisions, noted with * , vary:
• The company can only raise monies under the EIS within seven years* of the first commercial sale of the business carried on. This is not only limited to the trade carried on by the company itself but will also be relevant where the company has subsidiaries which have been trading for more than seven years, or even where a trade has been acquired from a third party. If a company has already raised money under the EIS at a time which was less than seven years from the first commercial sale then this requirement is said to have been met.
• There is a relaxation of this rule where a company or group is looking to raise funds from EIS and other risk capital sources in excess of 50% of its average turnover for the past five years, and will use those funds only to expand into a new product or geographical market.
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• The company must use the funds raised under EIS not only in a qualifying activity but also for the “growth and development” of that business. HMRC have recently published guidance on what this means (see https://www.gov.uk/hmrc-internal-manuals/venture-capital-schemes-manual/8130) which includes the statement that ‘money raised by issuing shares to an EIS investor to replace an existing loan is unlikely to meet this condition’.
• It is now no longer possible to use EIS funds to acquire the trade and assets of another business, or the goodwill and intangible assets of a trade with EIS funds nor raise EIS funds at a time when other funds are being raised to make such an acquisition and the EIS funds are to be used for the working capital of the new trade.
• The company and its subsidiaries cannot raise, in total, more than £12 million* from EIS and other risk capital sources. This will include both monies raised by a company in any previous incarnations (e.g. a shell company on AIM used for a reverse IPO) and also any companies which become subsidiaries after the fundraising but within the EIS qualifying period.
• Where the investors hold other shares in the company it must be the case that all of those shares were shares which either were a risk capital investment or the original subscriber shares. This can affect investors who acquired shares in the company previously by way of a share for share exchange or by having a loan made to the company capitalised.
• The above issues do not affect SEIS investment.
Different requirements under the EIS for ‘knowledge-intensive’ companies
The new rules introduced by the Finance Act have been relaxed for a new class of companies defined as ‘knowledge-intensive’; broadly companies which have spent in the three years prior to investment, 15% of their operating costs on R&D or innovation or at least 10% of their operating costs on R&D in each of the three years.
Furthermore the company must meet one of two further conditions: Either the ‘innovation condition’ where the company expects to derive the greater part of its business from the exploitation of the intellectual property or by the creation of new products; or the ‘skilled employee condition’ where at least 20% of the company’s full-time equivalent employees have attained a qualification at or above a master’s degree or comparable qualification.
A knowledge-intensive company is able to raise £20 million in its lifetime as opposed to £12 million and can raise funds under the EIS up to ten years from the date of its first commercial sale. In addition, a knowledge-intensive company can employ up to 499 employees at the date of grant.
How can a company seeking (S)EIS investment confirm that it qualifies under the schemes?
Because of the uncertainties the investor faces when making an investment under (S)EIS HMRC allow the company to seek Advance Assurance that, based on the intended trade and use of funds, the company will qualify under the schemes. As HMRC are currently taking up to two months to process an application for Advance Assurance it is recommended that assurance is sought as soon as the company has made plans to receive an investment, even before approaching investors.
Assurance can be obtained for both EIS and SEIS investment and it is recommended that, where applicable, a company seeks both assurances at the same time. Following the removal of S173B ITA 2007 which previously required 70% of funds raised under the SEIS to have been spent before EIS funds could be raised, it is now possible to raise funds under the SEIS and EIS almost simultaneously (e.g. a day apart). This can allow investors a blended rate of relief under both schemes but careful structuring should be implemented as to when cash is received and when shares are issued. There is a risk that the SEIS limit in respect of the company’s gross assets could be breached if money intended to be for
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shares raised under the EIS is received in advance of all shares being issued and therefore causes the gross assets of the company at the time of the SEIS raise to exceed £200,000.
Advance Assurance does not guarantee that the investments to be made in the company will definitely qualify for (S)EIS relief, only that on the basis of the facts provided to HMRC at the time of the application the company is likely to meet the requirements. Accordingly it is in the company’s best interests to provide as much information as possible as to what it intends to do and how the money will be spent, especially where it is uncertain that the company’s trade or use of funds qualifies in relation to the areas above.
Whilst an assurance form is provided on the HMRC website, in many cases it is unlikely that this can give the full circumstances of the Company (or its wider group) and the intended uses of funds in order to provide HMRC with the full facts and a covering letter should be prepared by the company or its accountants as to how the company intends to operate.
Financial models can be useful to accompany an advance assurance application and recently these have been requested by Inspectors dealing with assurance applications for certain large capital raises in order to satisfy HMRC that the requirement for funds to be raised for the business’s growth and development is met.
Once a company has received assurance – is that it?
Assurance is not a concrete ruling on the company’s qualifying investment status as further factors must be considered at the time of the share issue and in relation to what the company does post investment.
It is imperative that, on subscription, the cash has been received by the company before the shares are issued. HMRC have advised that this is the most common reason that investments fail to qualify. This normally happens where shares are issued on the promise of the cash coming in or shares are subscribed for at the time of
the company’s incorporation, before it has its own bank account and the directors are holding the money.
Assurance is only given in relation to the company’s intentions in advance of the issue of shares. The company must continue to meet the requirements of the scheme for three years following the issue of the shares or, if later, three years from the date the trade commenced. Certain circumstances may follow post investment which mean the company ceases to qualify and, should this happen, the directors must tell HMRC as such and there will be a claw-back of income tax relief from the investors.
For example, the simplest situation would be where the investors exit before the three year period is up, i.e. the company is acquired by another company or there are arrangements for this to occur. Further examples could be if the company’s trade pivots such as a company operating in the Fintech sector changing its product from being a straightforward service company to instead bearing the financial risk of the transactions, therefore carrying on a non-qualifying trade and ceasing to qualify. A company could also no longer qualify by changing its market, such as where the whole team of a company moves to Los Angeles after the EIS funds are raised and the company can no longer satisfy the UK permanent establishment requirement.
The directors of the company (please note that this point is never covered by advice on the EIS and it should be, it is always included in the risks of investment in an AIM admission document) cannot be compelled to take all steps necessary to maintain investors’ EIS relief as they are required to act in the company’s best interests at all times. Accordingly it may be possible that a decision in the company’s best interests, such as selling before the three year time limit is up, is detrimental to the EIS status of investments made by one group of its investors.
Summary
If equity investment under the SEIS and EIS fits in with the directors’ intentions for how the company is going to
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trade over the next few years then the company should seek assurance as soon as possible and give as much information as possible to cover all intended paths in which the trade may go. However, if it is likely that the restrictions of the EIS legislation will impinge on the way that the directors see the business operating then they may wish to seek alternative forms of finance from day one so as to manage the expectations of their investor base.
Whilst the new rules will have an impact on the types of companies which can seek EIS investment, and deny EIS relief on new investments in companies which have previously been able to raise funds under the scheme, the change in rules may potentially be of benefit to other companies which continue to meet the requirements of the scheme by ensuring that the reliefs are targeted towards their investment needs, rather than investment and its associated tax relief being instead being taken by lower-risk, more established companies or those undertaking management buy-outs, who may otherwise be able to obtain funding from other sources.
PROFILE
Paul Twydell
Paul is a Senior Tax Manager at haysmacintyre in London. He is a Chartered Accountant and Chartered Tax Advisor who specialises in advising companies in the in the Creative Media and Technology sectors. Paul can be contacted on 020 7969 5500 or at [email protected]
16 Business Tax Voice | Issue 1 | May 2016
IP DEVELOPMENTS AND ISSUES
David O’Keeffe provides an overview of some significant changes
There have been quite a few changes in the last few years to the R&D tax relief regimes and also to the relatively new Patent Box regime.
R&D Relief
Rates
The headline rate of relief for SMEs was increased to 230% (i.e. a 130% additional deduction) for expenditure incurred on or after 1 April 2015. The rate of payable credit, for those SMEs with insufficient taxable profits to utilise the deduction relief, increased to 14.5% for expenditure incurred on or after 1 April 2014.
At a CT rate of 20%, the effective benefit of the additional deduction (i.e. the amount of tax saved) is equal to 26% of the qualifying R&D expenditure. The payable credit, however, is now particularly valuable; for the 2015/16 year the cash payment is equal to 33.35% of the qualifying R&D expenditure.
State Aid
The SME R&D regime is subject to EU State Aid rules and there are, accordingly, some specific restrictions in the legislation as a result. One of these is a cap on total R&D relief that can be given per project. With the change of large company relief to RDEC (see below), the way this cap is applied is being changed to ensure SMEs will still receive the maximum benefit.
There are also some important administrative changes coming in this year’s Finance Act. These changes are part of efforts by the EC to improve state aid transparency and will require HMRC to collect and publish certain
information in respect of R&D claims (actually, these changes will also affect other reliefs). Very broadly, for awards of “aid” (i.e. the effective benefit of an R&D claim) of €500,000 or more, HMRC will have to collect and publicise details of the claimant’s name, sector, region, whether it is an SME, the awarding body and the purpose of the aid. In practice, this is mostly information that HMRC will already have as part of the claim process so this is unlikely to impose any extra burden on the claimant. The important point, however, is that HMRC will be required to publish this information on an EU “portal” site and it will be publicly available.
HMRC’s current intention is to publish the information in as broad a manner as possible. Amounts of R&D relief will only be given by reference to broad bandings and the ‘purpose of the aid’ will be something generic like “to promote R&D”.
Consumables
There have also been some new restrictions introduced in respect of eligible expenditure. In particular, there is now a restriction on the amount of expenditure on consumable items that can qualify for inclusion in a claim for R&D relief. The restriction will apply in situations where a “relevant person” transfers ownership of any items produced in the course of the R&D. The restrictions will only apply to expenditure on consumable items where the products are transferred for money or money’s worth in the ordinary course of the trade.
These new restrictions apply to expenditure incurred by an SME or a large company on or after 1 April 2015.
Reimbursed Expenses
HMRC will shortly publish guidance on the treatment of reimbursed expenses in the CIRD manual. CIOT still does not fully agree with HMRC’s position but the final guidance is a vast improvement on HMRC’s starting point.
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HMRC Templates
HMRC is currently working to develop templates to help collect relevant information in respect of R&D claims in a format that will make it easier for them to review those claims. This project also involves developing a public version of an “RDEC Stencil” that HMRC already uses internally to check that RDEC is utilised correctly. I have been assured that “at present” the use of these templates and stencils will not be compulsory, although it is easy to imagine how their use could become de facto compulsory.
Large Company Relief
Important changes were also made in respect of Large Company R&D relief. With effect from 1 April 2013 the 30% additional deduction relief was phased out and replaced with the new R&D Expenditure Credit (RDEC). During the three-year transitional period, companies could choose to remain with the additional deduction or move straight into RDEC. For expenditure incurred on or after 1 April 2016 RDEC is the only form of large company
R&D relief available.
RDEC is an above-the-line taxable credit – the rate is 11% for expenditure incurred on or after 1 April 2015 – that can then be used to discharge the company’s CT liability. There is a seven step process that must be gone through in order to determine how the RDEC is utilised, including considering whether it can be surrendered to other group companies. Significantly, the RDEC is payable where it cannot be utilised to discharge tax liabilities.
Vaccine Research Relief
Vaccine Research Relief (VRR) is to be abolished for expenditure incurred on or after 1 April 2017.
Patent Box
The UK’s Patent Box regime is undergoing significant change, only three years after it first came into effect on 1 April 2013. The changes are a direct consequence of the recent OECD BEPS Action 5 report.
That report proposed a more restrictive structure for
©shutterstock/ pedrosala
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acceptable Patent Box regimes, with schemes required to comply with the “nexus approach”. This is intended to ensure that relief is only given for patent profits where there is a direct link with the R&D expenditure incurred on developing the patented invention. Following a brief consultation, initial draft legislation was published on 9 December 2015 and that was further updated with the publication of Finance Bill 2016. It is likely that there will be some more changes before Royal Assent.
The basic approach of the draft changes is to insert two new chapters into the existing Patent Box legislation in CTA2010 Part 8A. These chapters incorporate the new nexus-compliant rules that require the computation of a ‘nexus fraction’ to be used in computing the relevant patent box profits.
Chapter 2A will become the default position for new entrants after 30 June 2016 and for all companies after 30 June 2021. Companies already elected into the patent box will stay with the existing rules in respect of patents applied for before 1 July 2016 (or 2 January 2016 in certain situations where patents were transferred from overseas connected parties).
Chapter 2B covers situations where – until 1 July 2021 – a company has both existing and new patents.
PROFILE
David O’Keeffe, FCA CTA
David is an independent specialist adviser on the taxation of innovation, advising companies and other advisers on R&D tax relief, Patent Box and Intangible Asset taxation. He has been involved with the UK’s R&D tax relief regimes since the initial consultations on the introduction of the SME relief. In that time, he has developed an enviable level of knowledge of R&D tax relief both from a technical and a practical perspective.
Formerly a Tax Partner with KPMG LLP (UK), he retired in 2011 to establish Aiglon Consulting.
David can be contacted by e-mail at [email protected]
19 Business Tax Voice | Issue 1 | May 2016
TRANSACTIONS IN SECURITIES – WHERE ARE WE NOW?
Ray McCann answers the question so many are asking
Even by today’s standards when anti-avoidance legislation seems to be more and more radical, the Transactions in Securities rules (TIS) were widely seen as condemning tax avoidance transactions to history with some early judicial comment describing them as making tax avoidance no longer possible. As is now clear, this was true only so far as the tax avoidance was within their scope and over the intervening years the Revenue found that the scope of these provisions was very limited indeed. So much so that in the cases of Kleinwort Benson, Sema Group Pension fund and Laird Group, arrangements that the Revenue could reasonably believe were fairly within the cross hairs of the TIS rules escaped. Thus it is clear that where they did apply their impact was severe, so much so that even fifty years on no other provision operates quite like them, but they did not apply very often.
A brief history
The TIS rules were introduced by the Finance Act 1960. They became S460 ICTA 1970 then S703 ICTA 1988 and are now found in S682 ITA 2007. From the outset they were intended to tackle two main types of tax avoidance:
1. the receipt in a “non-taxable” way of an amount that could otherwise have been received as income (most typically as a dividend);
2. the recovery by way of repayment of tax that had previously been deducted at source or had been paid
on other income against which a loss (created by the TIS) could be offset.
Understanding how the rules were supposed to work was much easier if those two broad categories were understood since the statutory provisions were largely structured along these lines.
The unprecedented nature of the TIS provisions lay in the fact that where the Revenue was able to successfully counteract any tax advantage they could levy income tax not on the actual transaction but instead upon a fictional transaction that in the view of the Revenue the taxpayer could have done. All of the business, company law and tax consequences that otherwise arose as a result of the transaction, as carried out, were left undisturbed. In the majority of such cases this fiction meant that the Revenue would compute the additional tax typically on the basis that the taxpayer had received a dividend and the majority of counteractions taken over the years by the Revenue have been of this sort. Counteraction of a repayment has been less common although the pension fund share buy-back schemes of the late 1990s were a notable exception (see for example the Sema Group Pension Fund case).
To further understand the origin of these rules it is also necessary to recognise that from the viewpoint of the Exchequer transactions in securities exploited the very different tax position of capital receipts when compared with income. Today HMRC would assert fairness as the key driver and whilst this is perhaps always a consideration, at the time of Finance Act 1960 there was no capital gains tax as we understand it today and banks and other financial concerns enjoyed a very privileged tax position whereby interest and other returns from corporate bonds held by the bank were not taxable at all despite losses on such holdings being allowed against profits. This meant that converting income to capital could be hugely advantageous since depending upon your mix of income the rates of tax on that income could be close to 100%! The very significant structural changes in the years following the introduction of the TIS rules
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including the introduction of CGT and Corporation Tax, the reform of banking taxation rules and the introduction of the imputation system in relation to dividend in 1973 meant that the TIS rules were reduced to eking out a continued existence as the main statutory safeguard against what was generally referred to as a “Cleary transaction” (basically selling shares in a company you own to another company you own for cash) and even today a transaction of this sort is the most common situation in which it would be expected that the TIS rules would be invoked by HMRC. It is also the basis upon which HMRC refuses to give clearance in the majority of such cases as are refused each year.
Advance Clearance
Indeed in view of the narrow scope of the TIS rules it is advance clearance requests that have typically kept HMRC busy and not counteractions as each year thousands of clearance requests are made with the numbers seemingly on the increase. This has been despite the introduction of CGT, the later alignment of CGT and income tax rates, the reduction in the very high
top rates of income tax and reductions in corporation tax. Of course as we know the rate of tax is one thing, what tax will actually be paid is another and no doubt the attraction of initially Taper Relief and more recently Entrepreneurs Relief has meant that the differential between the top rates of income tax (45%) and CGT (now 20% reduced to 10% where Entrepreneurs Relief is available) has kept the HMRC clearance team busy.
The Tax Law re-write
More recently, as part of the Tax Law rewrite programme S703 ICTA 1988 became a redrafted S682 ITA 2007 with separate, now redundant provisions applying to companies. The main objective of the redrafted provisions was a desire on the part of HMRC to replicate as closely as possible in statutory form the way HMRC understood the TIS rules had in broad terms being applied over the years by the Courts but also in part to enact some of the practices HMRC itself applied but which were often hidden from public view. The most obvious area where this approach could be seen was the introduction of a “fundamental change in ownership”
©shutterstock/ Maury75
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test that would apply where the taxpayer disposed of shares (even in a Cleary situation) in circumstances where an unconnected party acquired at least 75% of the ordinary share capital going forward.
The 2016 changes
As is well known, significant changes to the taxation of dividends were announced in 2015 and came into effect from 6 April 2016 – see comments from Pete Miller in his article above. Also from April 2016 the rate of CGT was reduced to 20% for disposals other than residential property. The dividend changes reduce what was clearly a significant incentive to owner managed businesses to pay dividends rather than salaries and no doubt the Government anticipated that some taxpayers would be increasingly tempted to extract income profits from a company in a capital form perhaps by winding up a company and other transactions. Thus in what was clearly a defensive move by the Government, following a separate consultation, significant changes are included in the Finance Bill 2016 that amend the TIS rules and introduce somewhat oddly a TAAR designed to target transactions that result in companies being wound up but the trade or business previously carried on being continued or recommenced within a two year period. Given that the TIS rules can apply in many such situations (only HMRC seem to think they do not most likely due to confusion as to when a liquidation may be caught) having a separate provision from the main TIS rules will inevitably increase uncertainty and confusion and inevitably make lfe more difficult for HMRC itself. And having a separate provision that is outside of the existing clearance arrangements is very short sighted since here and elsewhere the challenges facing HMRC are not simply with individuals who carry out abusive transactions per se but with individual who carry out abusive transactions and do not disclose them to HMRC!
Largely for that reason over the years HMRC counteraction activities have been confined almost exclusively to those transactions that have come to its notice due to the clearance arrangements in place and
the ongoing complexity of these rules means that the majority of front line HMRC Inspectors stand little chance of identifying transactions potentially within their scope.
The introduction of the TAAR has been described as targeted at “Pheonixism” but plainly goes much wider since in future the TAAR will potentially apply regardless of whether the trade or business is carried on in corporate form. HMRC’s fundamental difficulty with such transactions from the TIS perspective is that where the business was wound up, shareholders were generally regarded by HMRC as protected from TIS by a combination of long standing HMRC practice and the motive test, which again emphasised the extent to which HMRC relied upon Cleary.
Some of the changes tidy up aspects of the TIS provisions that over the years have caused some uncertainty but will most likely mean that there is no significant practical change. In particular the TIS rules will now apply where a tax advantage arises as a result of a TIS even where that advantage is enjoyed by a person who is not party to the transaction. This restores the position that the Revenue generally considered was the way S703 worked albeit HMRC hardly ever took the point!
Perhaps the most significant changes are the amendment of the counteraction procedures. These appear to, in part, attempt to align the counteraction process more closely with what would be expected with a self assessment enquiry but it still leave TIS outside of the self assessment framework. More wide reaching change was required here since there is now no specific reason why TIS should remain outside of self assessment. As proposed HMRC can open an enquiry in relation to a TIS up to six years after the year of assessment in which the TIS took place and once that enquiry is open it can go on forever unless HMRC give up or are told to give up by the Tribunal. It is not obvious why HMRC should be given this very generous leeway or in particular what policy justification allows taxpayers potentially impacted by them the same protections as are afforded by the discovery provisions and behaviour related time limits
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available in almost every other situation.
Similarly and for reasons that have been explained and which verge on bizarre, the existing clearance arrangements that apply to TIS will not apply to the TAAR. Given that the TAAR is for all practical purposes an extension of the TIS provisions and some of the transactions expected to be engaged by the TAAR are arguably also caught by the TIS rules, the reasons given in the consultation response make little sense if for no other reason than currently it is likely that many such transactions are already subject to advance clearance requests and the members of the clearance team will be the most skilled in identifying possible transactions within the scope of the TAAR. It also misses quite an important tactical point; in the past the fact that the taxpayer was able to apply for advance clearance usually worked against him in any situation where the Revenue sought to counteract a tax advantage and he had not done so!
As part of rebalancing the tax system much “tried and tested planning” is coming under scrutiny as the Government looks to increase tax revenues. At the same time expanding the significant differential between the taxation of capital and income will no doubt mean that the TIS rules will be a concern for some time yet!
PROFILE
Ray McCann, CTA (Fellow)
Ray McCann is a CTA (Fellow), a member of CIOT Council and from May 2016 Vice-President. He is also a member of the ATT. On 1st June 2016 Ray joined the law firm Joseph Hage Aaronson LLP as a partner. Until 2006 Ray was an HMRC Inspector and had responsibility for the introduction in 2004 of DOTAS. Ray also set up the Business Tax Clearance Team and introduced the “one stop shop” arrangements for Revenue Clearances.
Ray can be contacted by e-mail at [email protected]
23 Business Tax Voice | Issue 1 | May 2016
AN ADVISER’S PERSPECTIVE
Jeremy Coker details the range of issues of presently of concern to the business adviser
If, like me, you deal with entrepreneurial clients and OMB’s the tax year end is usually one where you review their affairs and have a discussion to decide on those things that they needed to have done, those they could have done and those that they should have done as well as those they may wish to consider going forward. This time around the raft of matters to be discussed reminded me of the old Chinese proverb “One cannot manage too many affairs: like pumpkins in the water, one pops up while you try to hold down the other”.
Dividends
The matter that caught the eye most often was the changes to dividend taxation on 6 April 2016. The 10% tax credit, which even my better clients never understood, was abolished. A new dividend allowance (may we call it a nil rate band?) of £5,000 was introduced and the rates of tax were changed to:
• 7.5% (previously 0%) on dividend income within the basic rate band
• 32.5% (previously 25%) on dividend income within the higher rate band
• 38.1% (previously 30.56%) on dividend income within the additional rate band.
This apparent 7.5% increase across the bands meant that many whose main source of income is dividend income sought to make payments before the 5th April deadline where it was tax beneficial to them. The low salary and dividend model remains popular but the tax benefits have been reduced and, even more than ever before, the numbers need to be crunched.
Savings
Interestingly, the starting rate of savings tax of £5,000 offers additional planning opportunities for some of those directors who have loaned funds to their companies. This is different from the Personal Savings Allowance which from 6 April 2016 is £1,000 for a basic rate taxpayer and £500 for a higher rate taxpayer. Additional rate taxpayers do not get this.
Payroll
A number of changes happened to payroll on 6 April 2016. Benefits can now be included in payroll, although this is voluntary at the moment. Dispensations have been abolished and replaced by a statutory exemption for reimbursed expenses. Trivial benefits of amounts of £50 each, capped at £300 for employees and directors are now exempt (this seemed to be well received) and the £8,500 higher paid employee rule has now gone for most. The relaxed reporting regime for late submissions of the Full Payment Summary also changed.
The Employment Allowance, which reduces employers’ Class 1 National Insurance, was increased to £3,000 but care needs to be taken to ensure that the business qualifies for it. In addition to the known restrictions (one allowance per group, most domestic schemes, service company with only deemed payments, etc) a new restriction is that single director companies with no other employees will not qualify for it.
Understandably, with the changes to dividend taxation, the rate of tax on loans to participators made after 6 April 2016 changes to 32.5%.
For those individuals working through personal service companies where the intermediaries legislation applies, relief for travel and subsistence expenses will be restricted from 6 April 2016.
Pensions
Those who had still not made use of their pension
24 Business Tax Voice | Issue 1 | May 2016
annual allowance of £40,000, as well as any unused allowance of the last three years, were encouraged to do so where possible. Transitional provisions to align pension input periods with the tax year as at 6 April 2016 meant communication with IFA’s was really important. The tapered Annual Allowance for individuals with “adjusted income” of over £150,000 (which reduces the annual allowance by £1 for every £2 that the adjusted income exceeds £150,000, up to a maximum reduction of £30,000) came in on 6 April 2016. There are some anti avoidance rules but individuals with net income of no more than £110,000 will not normally be subject to this.
Capital Gains Tax
A surprise announcement was the reduction in the rates of Capital Gains Tax from 6 April 2016 from 18% to 10% within the basic rate band and 28% to 20% at higher rates. Although the rates of CGT on a residence that has not ever been your main residence has become even more complicated, up to 28%, this change was quite welcomed by clients.
Annual Tax on Enveloped Dwellings (ATED)
Not a new tax but one that impacted significantly on companies that have dwellings within their business was the reduction in the value of properties (£500,000 as at 1 April 2012 or on acquisition if later) that were subject to the Annual Tax on Enveloped Dwellings (ATED) or needed to complete ATED Relief Declaration forms for the year ending 31 March 2017. The tight deadline of 30 April was in stark contrast to the extended filing period of 31 October given when the value was reduced to £1m. Whilst HMRC’s ATED online filing resource is helpful, the inability to save these HMRC forms comes with its own special frustrations. An interesting observation was that this ATED charge identified some clients who provide accommodation benefits in kind to employees of properties acquired pre 30 March 1983 and which cost less than £75,000, something the OTS have commented on in the past.
Company Distributions
The consultation on distributions in December 2015 and subsequent proposals included in the current Finance Bill, purportedly to stop phoenixism, has put the tax treatment of certain transactions in doubt. Whilst old clearances obtained prior to the introduction of the changes may need to be revisited, it appears that other commercial transactions may inadvertently be caught. As an illustration, a business owner who operates pubs all over the country, some through a company and others as a partner in a partnership has recently sold those pubs in the company and the plan is to liquidate the company. As he will be connected with a similar trade by virtue of his partnership interest, it would be good to know if he is caught by the TAAR or whether it will only apply to “new” trades.
Entrepreneurs’ Relief (ER)
The restriction of ER on goodwill on incorporation affected many OMBs. This meant that, even though it did not apply to most of them, I had to explain the recent amendments. One of these enable ER to be claimed, subject to certain conditions, on gains on the goodwill of a business when that business is transferred to a company controlled by five or fewer persons or by its directors. The principal condition is that the claimant must hold less than 5% of the acquiring company’s shares. There are special rules to allow relief where the acquiring company is then sold to a third party. These changes are backdated to 3 December 2014.
Investors’ Relief
Of particular interest however was the new Investors’ Relief introduced from 6 April 2016. This allows investors to make gains up to £10m on qualifying shares (newly subscribed shares in an unlisted trading company held for 3 years and no connection to officers/employees) and is additional to the ER £10m limit.
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Property matters
The changes to property transactions for individuals and OMBs could form an article on its own and this has caused a ripple or two. The wear and tear allowance of 10% of net rents is abolished. Instead a deduction for the cost of replacement of certain capital items is allowed as a deduction from 6 April 2016. The measure to restrict relief for finance costs on residential properties to the basic rate of Income Tax, which will be introduced gradually from 6 April 2017, provided many a discussion. Considerations on incorporation of property businesses, selling up or just increasing the rent were among the options discussed. The imposition of higher rates of Stamp Duty Land Tax (SDLT) on purchases of additional residential properties (above £40,000), such as buy to let properties and second homes, to 3 percentage points above the current SDLT rates from 1 April 2016 accelerated quite a few purchases.
The future is Orange?
Despite my insistence on discussing “Making Tax Digital” and how it would affect them, most of my clients seem inclined to think their “accountant will deal with it” without any additional costs and so, whilst hoping HMRC can get the message out a lot clearer, we shall just have to watch this space.
Many things are afoot that I have not covered but with so much change going on at the moment, even more in the pipeline and with the prospect of increased penalties for non-compliance, I ask for forgiveness (something HMRC should perhaps consider more often) for ending with an even more dubious pumpkin quote: “It is not the strongest pumpkin grower that survives, not the most intelligent, but the grower most responsive to change.”
May our pumpkins continue to remain as carriages.
PROFILE
Jeremy Coker
Jeremy works for Arram Berlyn Gardner and is a Council member of the ATT.
He deals with all aspects of tax relating to private clients, high net worth individuals, owner managed businesses and small and medium sized enterprises. He can be contacted at [email protected] and on 020 7330 0109
26 Business Tax Voice | Issue 1 | May 2016
YOUR NEW BUSINESSTAX VOICE Business Tax Voice is also published on the Tax Adviser website
Members will be able to access Business Tax Voice, together with its related articles at taxadvisermagazine.com. Initially the site will not require a password but in due course you will need login details to access it.
Publishing on the web will allow us to provide more information to members as well as reaching a wider audience but we would really like to hear your feedback. What do you find useful? What do you want more (or less) of? – please email us at [email protected]
The taxadvisermagazine website has undergone a revamp recently and now has an easy to search function for Personal Tax content under the ‘Feature’ and ‘Technical’ tabs. You can also access Tax Adviser magazine via the NewsStand app on a variety of smart devices. The app can be found on the Apple Store (under Tax Adviser (CIOT)) and the App Store via Google Play.
27 Business Tax Voice | Issue 1 | May 2016
CONSULTATIONS AND SUBMISSIONS
CIOTProhibition of Corporate members of LLPs
http://www.tax.org.uk/policy-technical/submissions/prohibition-corporate-members-llps-ciot-comments
07/01/2015
Reform of close company loans to participators
http://www.tax.org.uk/policy-technical/submissions/reform-close-company-loans-participators-ciot-comments
12/01/2015
Tax Enquiries: Closure Rules
http://www.tax.org.uk/policy-technical/submissions/tax-enquiries-closure-rules-ciot-comments
10/03/2015
DFB15 Clauses on Fixed Rate deductions for use of home for business purposes
http://www.tax.org.uk/policy-technical/submissions/draft-fb15-clauses-fixed-rate-deductions-use-home-business-purposes
16/01/2015
DFB15 Clauses on Disguised investment management fees
http://www.tax.org.uk/policy-technical/submissions/draft-fb15-clauses-disguised-investment-management-fees-ciot-comments
16/01/2015
Diverted Profits Tax
http://www.tax.org.uk/policy-technical/submissions/diverted-profits-tax-ciot-comments-0
04/02/2015
Hybrid mismatch arrangements
http://www.tax.org.uk/policy-technical/submissions/hybrid-mismatch-arrangements-ciot-comments
11/02/2015
Improving access to R&D tax credits for small business
http://www.tax.org.uk/policy-technical/submissions/improving-access-rd-tax-credits-small-business-ciot-comments
27/02/2016
Business Tax (CT and OMB) submissions January 2015 – present
28 Business Tax Voice | Issue 1 | May 2016
FB15 Capital Gains tax: Entrepreneurs’ relief
http://www.tax.org.uk/policy-technical/submissions/fb15-clauses-er-associated-disposals-and-joint-ventures-ciot-comments
25/03/2015
BEPS Action 12: Mandatory disclosure rules
http://www.tax.org.uk/policy-technical/submissions/oecd-beps-action-12-mandatory-disclosure-rules-ciot-comments
30/04/2015
BEPS Action 3: Strengthening CFC rules
http://www.tax.org.uk/policy-technical/submissions/beps-action-3-strengthening-cfc-rules-ciot-comments
01/05/2015
Amendments to Tax-advantaged venture capital schemes
http://www.tax.org.uk/policy-technical/submissions/amendments-tax-advantaged-venture-capital-schemes-ciot-comments
13/05/2015
Income Tax: Extension of averaging period for farmers
http://www.tax.org.uk/policy-technical/submissions/income-tax-extension-averaging-period-farmers-ciot-comments
07/09/2015
Employment Intermediaries and Tax Relief for Travel and Subsistence
http://www.tax.org.uk/policy-technical/submissions/employment-intermediaries-travel-and-subsistence-ciot-comments
09/10/2015
Intermediaries Legislation (IR35): discussion document
http://www.tax.org.uk/policy-technical/submissions/intermediaries-legislation-ir35-discussion-document-ciot-comments
09/10/2015
Improving Large Business Tax Compliance
http://www.tax.org.uk/policy-technical/submissions/improving-large-business-tax-compliance-ciot-comments
14/10/2015
Clause 8 Finance Bill 2015 - Annual Investment Allowance (AIA)
http://www.tax.org.uk/policy-technical/submissions/clause-8-fb15-annual-investment-allowance-ciot-comments
26/08/2015
29 Business Tax Voice | Issue 1 | May 2016
Patent Box: substantial activities
http://www.tax.org.uk/policy-technical/submissions/patent-box-substantial-activities-ciot-comments
04/12/2015
Tax deductibility of corporate interest expense
http://www.tax.org.uk/policy-technical/submissions/tax-deductibility-corporate-interest-expense-ciot-comments
14/01/2016
Draft Finance Bill 2016 Clauses 2-3 Dividend nil rate and dividend tax credits
http://www.tax.org.uk/policy-technical/submissions/draft-finance-bill-2016-clauses-2-3-dividend-nil-rate-and-dividend-tax
29/01/2016
Draft Finance Bill 2016 Clause 33 Hybrid and other mismatches
http://www.tax.org.uk/policy-technical/draft-finance-bill-2016-clause-33-hybrid-and-other-mismatches-ciot-comments
03/02/2016
Company distributions
http://www.tax.org.uk/policy-technical/submissions/company-distributions-ciot-comments
03/02/2016
Shifting sands of UK tax policy and the tax base
http://www.tax.org.uk/policy-technical/submissions/shifting-sands-uk-tax-policy-and-tax-base-ciot-comments
31/03/2016
Mixed Partnerships and TCGA 1992 section 162
http://www.tax.org.uk/policy-technical/submissions/mixed-partnerships-and-tcga-1992-section-162-ciot-comments
01/04/2016
ATTWithdrawal of extra-statutory concessions
http://www.att.org.uk/technical/submissions/withdrawal-extra-statutory-concessions-att-comments
08/01/2015
Draft FB15 Clauses: Deductions at a fixed rate
http://www.att.org.uk/technical/submissions/draft-fb15-clauses-fixed-rate-deductions-use-home-business-purposes-att
26/01/2015
30 Business Tax Voice | Issue 1 | May 2016
Draft FB15 Clauses: Flood defence relief
http://www.att.org.uk/technical/submissions/draft-fb15-clauses-flood-defence-relief-att-comments
30/01/2015
Improving Access to R&D tax credits for small business
http://www.att.org.uk/technical/submissions/improving-access-rd-tax-credits-small-business-att-comments
27/01/2015
Tax-advantaged venture capital schemes: draft legislation
http://www.att.org.uk/technical/submissions/tax-advantaged-venture-capital-schemes-att-comments
14/05/2016
Extension of averaging period for farmers - HMRC consultation
http://www.att.org.uk/technical/submissions/extension-averaging-period-farmers-att-comments
08/09/2015
Company distributions
http://www.att.org.uk/technical/submissions/company-distributions-att-comments
02/02/2016
To contact the Technical officers:
Corporation Tax, Sacha Dalton, please email: [email protected]
OMB, please e-mail Matthew Brown, [email protected], or Margaret Curran, [email protected]
To contact Will Silsby, the ATT technical officer dealing with these matters, please email: [email protected]
31 Business Tax Voice | Issue 1 | May 2016
EVENTS
Report on the London Branch Conference 19 April 2016
The taxation of owner-managed businesses is never straightforward. Advisers have to have a deep understand not only of business taxes but of personal taxes, including income tax, capital gains tax and inheritance tax. Changes to any one of these taxes can have knock on effects elsewhere and change seems never ending. So the conference speakers had plenty to get their teeth into.
Paula’s top picks – tax cases affecting OMBs – Paula Tallon
Paula was spoilt for choice – she could easily have taken up the entire conference with a review of tax cases affecting OMBs. So she had to be selective. Of particular interest was her discussion of a group of cases relating to EIS. She very clearly explained the point at issue in each of her selected cases and pointed out the traps for the unwary adviser. If there was any doubt before, Paula’s talk demonstrated beyond doubt that advising on EIS is not for the faint hearted!
The VAT MOSS/VAT mess – Wendy Bradley
The provocative title of Wendy’s talk was deliberate. Her talk was not about the operation of VAT MOSS as such, but the way in which it was introduced and in particular the fact that nobody at all appears to have thought about how it would impact micro businesses. Wendy herself is a writer of science fiction which she sells through e-books, and therefore she has seen at first hand the hoops that micro businesses have to go through to account for tiny amounts of non-UK VAT.
Entrepreneurs Relief: Where are we now? – Craig Simpson
Craig took us though the twists and turns of the Entrepreneurs relief changes over the last couple of years. Although the headline rate and amount has not changed there has been lots of tinkering round the edges. Craig explained that some of that tinkering last year had gone too far and that the FA 2016 changes were largely designed to correct some of the problems which FA 2015 had created. But as he explained, there were still lots of traps for the unwary. Despite what the man in the pub says, not every disposal qualifies for Entrepreneurs relief
Share Scheme Tips – David Ogden
David gave a masterly presentation, taking us through the way that share incentives work for private companies. Many of the share scheme rules seem to have been written with public companies in mind and don’t always transfer easily to the private company environment. In particular David looked at the difference between options and outright awards of shares and has some particularly interesting perspectives on the way that the Employer Shareholder Status rules could be used in private companies. Those rules seem to have been designed for large public companies but in fact it is in the private company sphere that most of the share plans have been implemented.
Extraction of Profit from an OMB – Melanie Orriss
Profit extraction is always an important topic and Melanie guided us expertly through the implications of the changes to corporation tax rates and dividend rates.
32 Business Tax Voice | Issue 1 | May 2016
She also talked about the new rules on liquidations and the restriction of the capital gains tax treatment for certain dividends. This led to an extensive and fascinating discussion among delegates about where the boundaries now lie, and when it is still safe to rely on capital treatment applying. If the range of views expressed by delegates is anything to go by this is going to be a highly controversial area for years to come.
Digital Strategy – Andrew Hubbard
I’m not going to comment on my own presentation. Suffice it to say that the discussion afterwards demonstrated three things. The first is that in principle most delegates could see the advantage of moving tax more into a digital environment. The second is that there is grave concern about whether the very ambitious timetable is achievable. The third was scepticism over whether some micro businesses would ever be able to keep records digitally.
So plenty to think about for the delegates. Judging by the reaction during the event and conversations afterwards people enjoyed the day and got a lot out of it. One thing is certain. In a year’s time there will be a need for another OMB tax conference. We don’t yet know what it would contain, but it is a sure bet that there will be plenty of changes to talk about.
PROFILE
Andrew Hubbard
Andrew is a Tax Partner at RSM UK Tax and Accounting Limited. He has over 25 years’ experience working in private practice advising entrepreneurs and SMEs. Andrew is well known as a writer and lecturer on taxation matters and he was awarded the Tax Writer of year award at the LexisNexis Taxation Awards 2006. Andrew is a former President of the Chartered Institute of Taxation and the Association of Taxation Technicians. He remains an active Institute member. Andrew has particular expertise in investigations into complex tax planning arrangements and in the application of HMRC’s powers. He was the author of the CIOT’s report on the operation of the new powers in practice and was a member of The Powers Implementation Oversight Forum. In April 2015 Andrew became editor in chief of Taxation Magazine.
33 Business Tax Voice | Issue 1 | May 2016
CONTACT US
Suggestions?
If you have any suggestions for further articles, please let us know: [email protected]
Editorial Team
Editor-in-chief Chris Mattos CTA ATT [email protected]
Editor Lakshmi Narain CTA [email protected]
Designer Sophia Bell [email protected]
© 2016 Chartered Institute of Taxation
This publication is intended to be a general guide and cannot be a substitute for professional advice. Neither the authors nor the publisher accept any responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this publication.
