Archive for November, 2013

Pension liberation

Thursday, November 7th, 2013

HMRC have made the following comments on their website to counter so-called “pension liberation” activity. Here’s what they have to say on the subject:

“HM Revenue & Customs (HMRC) is committed to combating pension liberation activity. HMRC has been working closely with other government departments/agencies and the pension industry to take action to prevent pension liberation and preserve pension savings.

Increasing numbers of pension savers are being targeted by unscrupulous companies encouraging them to access their pension savings early. This is commonly known as 'pension liberation' and has significant tax consequences.

HMRC has made a number of changes to strengthen existing processes to deter pension liberation and safeguard pension savings. These changes will take effect from 21 October 2013.”

As you can imagine the tax consequences of attempts to move funds out of pension savings can be significant. If you are tempted by such an arrangement you may be advised to seek tax advice.

HMRC’s last word?

“HMRC is continuing to take firm action to detect and pursue those who deliberately bend or break the rules by offering schemes to liberate pension savings. These changes are part of a continuing strategy to combat pension liberation, as is the ongoing review of the pension tax legislation and HMRC will not hesitate to make further changes if necessary.”

UK pushing for transparency

Tuesday, November 5th, 2013

David Cameron made the following statement to the members of the Open Government Partnership annual summit last week.

“We need to know who really owns and controls our companies. Not just who owns them legally, but who really benefits financially from their existence.

This summer at the G8 we committed to do just that – to establish a central register of company beneficial ownership. And today I’m delighted to announce that not only is that register going to go ahead – but that it’s also going to be open to the public.

As well as securing stretching new commitments from participating countries, the UK is using the summit to help drive forward the transparency agenda at home, especially on open data and corporate accountability.”

Other announcements include commitments to:

• implement and champion internationally a global standard of financial transparency and accountability in the extractive industries (oil, gas and mining) on the part of governments and companies, in line with the principles in the G8 Open Data Charter

• publish information on official development assistance (ODA) in line with the International Aid Transparency Standard (IATI), so that UK assistance can be tracked through the delivery chain

• ensure a strong legislative framework to encourage workers to speak up about wrongdoing, risk or malpractice without fear of reprisal

• demonstrate the potential of open policymaking by running at least 5 “test and demonstrate projects” across different policy areas

• a pilot study giving parents access to their own children’s data on the National Pupil Database, with a view to developing tools that give them a better understanding of their child’s educational performance

• for NHS England to improve the quality and breadth of information available to citizens, helping them participate more fully in both their own healthcare and in determining the design and quality of health services

Minister for the Cabinet Office Francis Maude said:

“Transparency is an idea whose time has come – and the clock cannot be turned back. The unstoppable momentum building behind open government at home and abroad is accelerating the pace of change, and we are using it to drive innovation and growth, improvements in public services and greater accountability in public and corporate organisations.

The best way to demonstrate the power of transparency is by making it real for everyone. That is why we are announcing a range of open data and transparency commitments at the OGP summit and opening up data in areas from business to education, health and aid that will have a direct and beneficial impact on the way we live and work, on the quality of the public services we use, and on the choices we make as citizens.”
 

Tax Diary November/December 2013

Monday, November 4th, 2013

 1 November 2013 – Due date for Corporation Tax due for the year ended 31 January 2013.

 19 November 2013 – PAYE and NIC deductions due for month ended 5 November 2013. (If you pay your tax electronically the due date is 22 November 2013.)

 19 November 2013 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2013.

 19 November 2013 – CIS tax deducted for the month ended 5 November 2013 is payable by today.

 1 December 2013 – Due date for Corporation Tax due for the year ended 28 February 2013.

 19 December 2013 – PAYE and NIC deductions due for month ended 5 December 2013. (If you pay your tax electronically the due date is 22 December 2013.)

 19 December 2013 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2013.

 19 December 2013 – CIS tax deducted for the month ended 5 December 2013 is payable by today.

 30 December 2013 – Deadline for filing 2012-13 Self Assessment online to include a claim for under payments (under £3,000) be collected via tax code in 2014-15.

HMRC targets certain health professionals

Monday, November 4th, 2013

A new tax campaign was launched by HMRC on 7 October 2013. The campaign targets: physiotherapists, occupational therapists, chiropractors, osteopaths, chiropodists and podiatrists; homeopaths, dieticians, nutritional therapists, reflexologists, acupuncturists, psychologists, speech, language and art therapists, and other health professionals are also covered.

Health professionals have until 31 December 2013 to advise HMRC that they would like to take part in the campaign, and until 6 April 2014 to disclose and pay any tax owed.

As usual with these campaigns HMRC offer favourable settlement terms. Health professionals affected who do not meet the 31 December deadline run the risk that their affairs may be subject to an investigation.

Swiss bank account holders face new deadline

Monday, November 4th, 2013

UK residents, whose Swiss banking arrangements have been disclosed to HMRC under the UK/Swiss tax agreement, have started to receive follow up letters from HMRC.

 Earlier this year account holders were given a choice:

  • To pay over a fixed percentage of their account balance to compensate for tax previously unpaid.
  • Or, to authorise their Swiss Bank to disclose their account details to HMRC. This did not apply to non-UK domiciled individuals.

HMRC have been writing to this second group. Recipients of these letters were required to act quickly. HMRC set a deadline of 1 November 2013 to complete and return one of three certificates. If you have received such a letter, and have not responded, you should take advice quickly. The certificate you should have submitted is one of the following three options:

  1. Certificate A: a declaration that they have no outstanding UK tax liabilities (either in relation to the Swiss accounts or other sources).
  2. Certificate B: a declaration that they will be disclosing any outstanding liabilities using the Liechtenstein Disclosure Facility (LDF), or
  3. Certificate C: a declaration that they will be disclosing their outstanding liabilities outside the LDF.

Failure to respond to the HMRC letter may result in a formal investigation being mounted by HMRC and the risk that criminal proceeding may be taken. Account holders should consider their options carefully and respond without further delay. Completing Certificate B would avail you of certain concessions regarding penalties chargeable, and in particular, immunity from prosecution.

 Readers affected would be wise to take professional advice before responding to HMRC.

Selling your business

Monday, November 4th, 2013

Planning to sell your business is not a process for the faint hearted. You have likely spent many years building your business and the last thing you want to face is losing a large proportion of the sales proceeds to tax or worse, being unable to enforce payment of what is due to you because of contractual difficulties.

 This is a complex subject. There are many ways to structure a sale and this article outlines a few of the issues you will need to deal with:

  • Are you selling all your business or just part of it?
  • Are you selling the shares in the company or the underlying business?
  • Are you retaining ownership of property that forms part of the business assets?
  • Is your company considered to be a “trading” company for tax purposes?
  • Should key staff benefit from the sale?

 The forth item on this list is particularly important if shareholders want to benefit from Entrepreneurs’ Relief for Capital Gains Tax (CGT) purposes. A successful claim would limit any CGT to 10% of the taxable gain up to a lifetime allowance of £10m.

 To be considered a trading concern, a company needs to comply with HMRC’s 80:20 rule. This looks at three criteria:

  1. Are at least 80% of the assets used for the purposes of a trade?
  2. Is more than 80% of turnover derived from trading activities?
  3. Do officers and employees of the company spend 80% or more of their time on trading activities?

Assets can include cash reserves so it may be prudent to extract surplus cash from the company at least a year before a sale is anticipated. However, HMRC tend to take a more relaxed view if the cash arises from accumulated trading profits and it is not actively managed.

 Another issue you should consider at an early date is due diligence. Your purchaser will no doubt send in their advisors to check over certain aspects of the business tax affairs prior to the completion of the sale. You should conduct your own review into PAYE, VAT and Corporation Tax compliance matters before any due diligence takes place to ensure there are no skeletons in the cupboard.

Also, it is important to consider shareholdings etc, and whether the shareholders themselves meet the requirements for Entrepreneurs’ Relief.

The key to maximising the value locked up in your business is to take planning seriously, and start the process at least a year before you intend to sell.

When is your home not a home?

Monday, November 4th, 2013

Cast your mind back when Members of Parliament were accused of “flipping” properties to avoid Capital Gains Tax on the sale of a second property?

Theoretically, it should be possible to buy a second home, live in it for a short period, and as long as certain procedures are followed, have the last three years of ownership ignored for CGT purposes. By implication, if you buy and sell the property within a three year period you will pay no tax on the sale. This process is described in some circles as “flipping”.

Recent court cases seem to be challenging this type of arrangement and making it more difficult for property owners to avail themselves of the CGT, Principal Private Residence Relief (PPR). The decisions may also have an effect where there is only one home which is occupied on a temporary basis.

 It a nut shell the Courts are using the issue of “permanence” to deny relief.

 P Moore v HMRC

In this case Mr Moore decided he wanted to live apart from his wife of many years and he moved into a house that he had previously rented out. He lived in this house from November 2006 to July 2007. Although he was careful to have his Council Tax bills sent to his new house, all of his other bills were forwarded to his lady friend, who he subsequently married.

The Court decided that Mr Moore had never intended that his residence in the second home be more than a temporary arrangement, and that his true intention was to purchase a larger property with his future wife that would accommodate her children.

 The arrangement lacked permanence.

 Dr Eghbal-Omidi v HMRC

In this case a doctor agreed to purchase a house in December 2006 and the sale was completed in March 2007. In May 2007 the doctor sold the house making a profit of £550,000.

 Again the doctor contended that he had occupied the house and therefore no tax should be payable.

 The Court disagreed. His occupation lacked any permanence and relief was denied.

Decided cases on this issue now conflict as earlier judgements did not place such significance on the matter of permanence. Readers who find themselves in a similar situation should take stock. Until the Courts provide a definitive ruling, or HMRC clear guidelines, we are placed in an awkward position when deciding on an appropriate approach to tax planning.