Author Archives: Mark Cupitt

What impact does the Bribery Act have on your business?

What impact does the Bribery Act have on your business?

bribery act

It will come as no surprise to many that a UK company or Partnership can be criminally liable if it pays a bribe to gain business. It may be a surprise to know that a business commits a criminal offence if a person ‘associated with it’ bribes another person for the benefit of the business. The Bribery Act 2010 introduced such an offence under the heading of ‘failure of commercial organisations to prevent bribery’. There is, however, a defence against the offence if the business has put in place ‘adequate procedures’ designed to prevent persons associated with them from bribing others on their behalf.

‘Persons associated with a business’ is a broad term – it includes employees and agents of the business but may also include distributors, contractors and suppliers.

Recently, the government published a document looking at the awareness and impact of the Bribery Act among small and medium sized businesses. A survey of businesses which are currently exporting or planning to export was undertaken. Just over half of the businesses had heard of the Bribery Act. Most of those aware of the Act knew of the offence of corporate failure to prevent bribery and that the provisions apply to business conducted abroad as well as in the UK.

The results do mean that a lot of businesses are not aware of the Bribery Act. The survey also revealed that many of the businesses that were aware of the Bribery Act were not aware of the Ministry of Justice guidance published to help commercial organisations understand the procedures they can put in place to prevent persons associated with them from bribing.

The government wants businesses to consider the impact of the Bribery Act but also wants businesses to take a proportionate, pragmatic and low-cost approach to winning business without bribery. You do not need to put bribery prevention procedures in place if there is no risk of bribery on your behalf but it is worth looking at a ‘quick start guide’ issued by the Ministry of Justice to get an initial perspective of procedures you may need to put into place.

We can also help you assess the risk of bribery in your business, please do contact us if this is an area of interest.

If you want to read more about the various topics and services we provide, then please go through our FAQs.

Entrepreneurs relief for trustees

Entrepreneurs’ Relief is a Capital Gains Tax (‘CGT’) provision designed to reduce the burden of taxation otherwise payable on capital gains realised by individuals (and some trustees) in respect of certain business assets disposed of in circumstances falling within the conditions laid down.

Broadly speaking, entrepreneurs’ relief applies primarily to gains realised by individuals on the disposal of certain qualifying business assets where it can be shown that the assets in question have been realised in the course of disposing of all or part of a business (or where the asset is disposed shortly after the cessation of the business in which it was used). Although entrepreneurs’ relief is conceptually quite simple, the structure of the provisions gives rise to many anomalies.

Trustees do not have an entitlement to entrepreneurs’ relief in respect of trust gains. Trusts can be entitled to  entrepreneurs’ relief if the beneficiaries are entitled in their own right.

Lifetime Allowance (Overriding Entrepreneurs’ Relief Limit)

Finance (No 2) Act 2010 remodelled both the extent and nature of the relief in respect of disposals made after 22 June 2010. For disposal made on or after 23 June 2010, gains of up to £5 million during an individual’s lifetime can be benefit from the remodelled relief. The nature and extent of the relief – including the major impact of the Finance (No 2) Act 2010. Suffice to say in this introduction:

  • For the period from 6 April 2008 to 22 June 2010 inclusive, entrepreneurs’ relief was given effect by reducing the otherwise chargeable capital gain by 4/9ths (so as to give an effective rate of 10% on gains attracting relief), whereas
  • Gains attracting relief in respect of disposals on or after 23 June 2010 are not so reduced. Instead, post 22 June 2010 eligible gains are to be taxed a special lower rate of capital gains tax, i.e. the 10% CGT rate (see revised Section 169N(3) TCGA 1992).

Which Gains Can Potentially Attract Entrepreneurs’ Relief?

Entrepreneurs’ Relief is due only in respect of a capital gain arising on what is referred to as a ‘material disposal of business assets’ (Section 169I). In relation to an individual, such disposals can, broadly speaking, be summarised as set out below. In each instance, reference to a business carried on is a reference to a business carried on for not less than one year:

  1. A disposal of the whole of a business carried on by a sole trader,
  2. A disposal of part of a business carried on by a sole trader,
  3. A disposal of the whole of a business carried on by a trading partnership
  4. A disposal of part of a business carried on by a trading partnership
  5. A disposal by a partner of the whole of his interest in a trading partnership,
  6. A disposal by a partner of part of his interest in a trading partnership,
  7. A disposal of one or more assets previously used in a business carried on by a sole trader where the asset disposal takes place not more than 3 years after the cessation,
  8. A disposal by a former partner of one or more assets previously used in a business carried on by a partnership of which he was a member where the asset disposal takes place not more than 3 years after the cessation of the partnership business in question,
  9. A disposal of shares in (or securities of) a company which, throughout the relevant one-year period, was either a trading company or a holding company of a trading group, made by an individual who throughout that same one-year period can show that:
  •   he was either an officer or employee of the company (or of one or more companies in the group), and

  •   can demonstrate that the company is his personal company (as defined),

10. A disposal by an individual (usually referred to as an ‘associated disposal’) of one or more assets owned by him which is made in association with a disposal falling within (3), (5) & (9) above, as part of the taxpayer’s withdrawal from the business in question. (Note: the relief available in respect of such associated disposals may well be subject to restrictions).

Earn-Outs

When agreeing a sale of shares it is possible to receive the consideration in two parts:

  1. A fixed payment on completion
  2. A future payment(s) based on the future results of the business – an “Earn-Out”.

In order to claim Entrepreneurs’ Relief on the earn-out proceeds, you must include the expected amount to be received in the original calculation of the gain and pay capital gains tax at that time.

If you chose not to put it in the original gain but instead pay capital gains tax when you receive the earn-out payment then you wouldn’t get Entrepreneur’s Relief on those payments, so each £125k would suffer capital gains tax at 28% or £35k.

Earn outs are complex and specific advice should be taken if they are being contemplated.

Definition of a Trading Company

This is a company carrying on trading activities which does not include ‘to a substantial extent activities other than trading activities.’

Non-trading activities include investment in property, share portfolios, bonds etc.

HMRC also say that excess cash deposits may constitute a non-trading activity. They will accept that if the cash is being accumulated for future use in the trade then it is classed as trading. Also, if cash is simply held on deposit, it may not in fact involve much ‘activity’ in managing it.

HMRC says ‘substantial extent’ means more than 20%. Whilst this can cover many things, it is generally accepted that the 20% test should be applied to:

  • Turnover
  • Asset base or balance sheet
  • Expenses
  • Directors’ time

Each company should consider which of the above measures are appropriate for the company’s activities – some, all, or a combination could be used to determine whether the company is a trading company.

Conclusion

If you have concerns on how these changes will impact on you or require further information please contact us.

If you want to read more about the various topics and services we provide, then please go through our FAQs.

Are you aware of the changes in property repairs and replacements?

Are you aware of the changes in property repairs and replacements?

 Property landlord

There have been some recent changes to the amounts that can be claimed as repairs or replacements for landlords of residential properties.  Are you aware of the changes? There are also more changes are on the way. The government is proposing further legislation in this area to be introduced from April 2016.

The current treatment of repairs and replacements for residential property lettings is a bit of a mess. The tax relief can depend on whether the property is let furnished, unfurnished or partly furnished. In addition there are different rules for furnished holiday lets.

The proposals therefore attempt to provide consistent treatment. However, no changes are proposed for furnished holiday lets.

Partly furnished or unfurnished properties

Tax relief is currently given for the repair of a property, such as repainting the inside or the outside of the property. If an ‘integral fixture’ is replaced, tax relief is also given as this normally constitutes a ‘repair’ of the property. There is currently no relief for the replacement of furnishings. From April 2016 it is proposed that tax relief will be given for all these items. Examples of integral fixtures and furnishings are shown below.

Fully furnished properties

Tax relief is currently given for the repair of a property and this also includes the replacement of integral fixtures. In addition a wear and tear allowance of 10% of the net rent is given to cover the cost of replacement furnishings. From April 2016 the wear and tear allowance will disappear to be replaced with the same replacement relief as described above for partly furnished properties.

Examples of:

Furnishings

  • movable furniture such as beds or suites
  • televisions
  • fridges and freezers
  • carpets and floor-coverings
  • curtains
  • linen
  • crockery or cutlery
  • beds and other

Integral fixtures

  • baths
  • washbasins
  • toilets
  • boilers
  • fitted kitchen

How much relief will be given?

The new replacement relief will give relief for the cost of the replacement asset, less any proceeds received from the old asset that is being replaced. No relief will be given for any furnishings that have not been in the property before. Also, any element of the replacement asset that represents an improvement would be excluded from the replacement relief. The replacement will include an improvement if the new asset can do more or if it can be used to do something that it could not do before. For example, replacing a washing machine with a washer-dryer is an improvement.

If the washer-dryer cost £600, and the cost of buying a new washing machine like the old one would have been £400 then the replacement furniture relief will be £400 (£600 less the £200 that represents the difference in cost between a washing machine and the washer-dryer).

Winners and  losers

Owners of properties which are not fully furnished are clear winners from the change. No relief for furnishings is given at the moment. It therefore makes sense, if possible, to defer replacement expenditure  until 6 April 2016 as relief will be available.

Owners of fully furnished properties may be winners or losers depending upon how often, and at what cost, furnishings are replaced. The 10% wear and tear is given whether or not any actual costs are incurred. For this group too it therefore makes sense to defer replacement expenditure until 6 April 2016.

Please do contact us if this is an area of interest. We can help to guide you through changes and help you maximise the benefit.

If you want to read more about the various topics and services we provide, then please go through our FAQs.

Trust Tax

Deceased Estates

As specialist deceased estates tax advisers and accountants Lancaster Clements Limited have considerable and hands-on experience in dealing with the tax issues that arise on a death.

Working closely with the Personal Representatives of the deceased, the solicitor and the valuer, we:-

  • Advice on the detailed completion of the Inheritance Tax Return, particularly where the claims for relief and exemptions (Agricultural Property Relief, Business Property Relief, Normal Expenditure out of Income and Commercial Woodlands) would be contentious and substantial amounts of tax are at stake. It is often the case that the claims for these reliefs and exemptions are won (or lost!) on the initial contact with HMRC via the presentation on the Inheritance Tax Return.
  • Advice if there is a tax effective way in which any Inheritance Tax due can be paid, particularly re-payment by instalments, which can be interest-free.
  • Advice on the tax effect of the re-arrangement of family assets, particularly if there is a family business to protect.
  • Advice on skipping a generation; varying the Will (if it is possible to do so) and the tax effect thereof.
  • Advice on the distribution of monies from the Estate, particularly the impact this could have on the income tax payable by the Residuary Beneficiaries.
  • Advice on the tax implications of settling a Claim against the Will.

Trusts

As specialist Trust advisers we are well versed in the use of Trusts for protecting wealth and assets for business or personal reasons, in particular, we advise on setting up and looking after Discretionary Trusts, Interest in Possession trusts.

Our work with clients includes:

  • Trust Formation, including advising the settler of implications of creating the trust and working closely with solicitors to ensure it meets the needs of the settlor and beneficiaries
  • Trust management and administration including maintenance of bank accounts, annual accounts preparation, investment administration, payment of trust distributions,  tax returns, tax advice and planning
  • Trust closure and breaking up
  • Acting as a Trustee
  • Providing advice to Trustees

Conclusion

If you have concerns on how it may impact on you or require further information please contact us.

If you want to read more about the various topics and services we provide, then please go through our FAQs.

Pension top up window open

Pension top up window open

The short 18 month window to make Class 3A voluntary contributions has commenced and will run to 5 April 2017.

Class 3A allows existing pensioners and those reaching State Pension age before 6 April 2016 to improve their retirement income by purchasing extra State Pension. Pensioners can purchase additional State Pension of up to a maximum of £25 per week.

From 6 April 2016 a single tier flat-rate pension will be introduced for people who reach State Pension age from that date. Class 3A is designed to help people who have not been able to build much State Pension before the single tier pensionis introduced.

Illustrations of the cost for different ages can be found at www.gov.uk/state-pension-topup.

As an example, the cost for a person aged 65 to receive an additional £5 pension a week would be £4,450. Prices are lower for older pensioners because they are more likely to have a shorter life at retirement when they start paying Class 3A.

Class 3A is not a replacement for Class 3 Voluntary National Insurance contributions whereby workers can fill certain gaps in their contribution records. The government advises pensioners to ensure that they have full entitlement to the basic payment before purchasing the new top up.

If you would like any help to steer you through these changes potentially complex  and how they impact on you, please contact us.

If you want to read more about the various topics and services we provide, then please go through our FAQs.

 

A new register for all companies – persons with significant control

A new register for all companies – persons with significant control

UK company law already requires certain information on company directors and the registered legal owners of company shares to be made publicly available. One of the aims of the Small Business, Enterprise and Employment Act which passed into law earlier in the year is to ensure that it is clear to anyone doing business with a private company who really controls that business – its ‘beneficial owners’.

This will be achieved by requiring UK companies to:

  • Maintain and keep open for public inspection a register of persons with significant control (PSC)
  • File PSC information at Companies House (together with an annual ‘check and confirm’ process which will replace the annual return).

The expected implementation dates are for companies to keep a PSC register from April 2016 and to file with Companies House from June 2016.

Apart from companies already subject to similar requirements (such as listed companies), every UK company will be required to take reasonable steps to identify every individual who has, directly or indirectly, significant control over the company. It is envisaged that the PSC regime will be extended to LLPs through secondary legislation. If the company does not take reasonable steps to identify PSCs the company and its directors could be guilty of a criminal offence.

A PSC will be any individual who has an interest in more than 25% of the shares or voting rights, or who otherwise exercises control over the management. This includes where the 25% interest is held individually or jointly, for example as one of a number of members of a firm that is not a legal person. There are provisions for establishing if an individual has control via a trust or fund.

A PSC will be required to notify the company of their interest (or to confirm their interest to the company). In addition, a company may require any person who it believes knows the identity of a significant controller (or knows the identity of someone likely to have that knowledge) to provide relevant information.

Although this legislation imposes further burdens on companies and some individuals, there is an advantage for all businesses dealing with companies in that it will be possible to check who really controls the company.

If you would like any help to steer you through this potentially complex legislation, please contact us.

If you want to read more about the various topics and services we provide, then please go through our FAQs.

Has HMRC gone phishing?

Has HMRC gone phishing?

Phishing is the fraudulent act of emailing a person in order to obtain personal or financial information. HMRC has issued guidance to help recognise fraudulent emails.

HMRC are increasingly providing online services for taxpayers and their agents but this means a higher risk of phishing and bogus emails. These emails often ask for personal information such as date of birth, bank details or passwords. With a Self Assessment tax payment date coming soon on 31 January 2016, this may be the time to be wary of online fraudsters.

HMRC have confirmed that they will never send notifications of a tax rebate by email and will also never ask people to disclose personal or payment information by email. In addition HMRC have responded to these attacks by issuing guidance on how to tell if an email is fraudulent.

How to tell if an email is fraudulent

Often the fraudster will create an email address which looks similar   to HMRC’s email address for example [email protected]’. More examples of false email addresses can be found in a list provided by HMRC – https://goo.gl/3QLfie 

Another risk area is a link to a bogus website in an email or text. The page may look genuine but it often contains links, display fields or boxes which ask for bank or credit card details and passwords. HMRC have warned that some phishers also add links to genuine HMRC websites to try and make the emails appear genuine.

Fraudsters often send high volumes of phishing emails in one go and they may therefore start the email with generic greetings for example ‘Dear Customer’ rather than a name. Lastly caution should be taken with any attachments on the email as these may contain viruses which are designed to steal personal information from the recipient’s computer.

Reporting phishing emails

HMRC have advised that any suspicious emails should be sent to p[email protected]. Where personal information has mistakenly been supplied in a reply to an email or text the details of what has been disclosed eg name, address, but not the actual details, should be sent to [email protected].

If you want to read more about the various topics and services we provide, then please go through our FAQs.

 

Are you aware of the changes due on Fit for Work?

Are you aware of the changes due on Fit for Work?

 

Fit

Businesses, particularly small business, can have significant problems coping when an employee is off work for a long time.

There is a very strong evidence base for sickness absence that shows that the sooner the causes of absence are identified, and acted upon, the better. Intervention at four weeks, compared to six months, has a greater impact as an employee is more likely to still have an attachment to work. The longer an employee is off work, the lower their chances of ever returning to work.

The government recognised this was an issue and started a new range of services to help employers and employees in this situation towards the end of 2014. These services are still being developed but should be fully in place by the end of this year. The key element of ‘Fit for Work’ is an independent assessment of an employee which provides a plan helping the employee to get back to work.

The service is delivered by the NHS in Scotland and by a private sector partner in England and Wales. There are no equivalent plans for Northern Ireland.

Go to http://fitforwork.org/ or http://fitforworkscotland.scot/ for more information.

If you want to read more about the various topics and services we provide, then please go through our FAQs.  If you require further information please contact us.

Potential impact on restriction on buy to let mortgage interest

UK House Prices

UK House Prices

Would it be beneficial to move buy-to-let into a company to keep mortgage interest relief?

  • Mortgage interest relief is being cut for individual landlords from 2017
  • Companies continue to benefit from the full relief
  • But running a company has its own costs and administrative issues

How much tax would one pay?

A basic rate taxpayer pays 20 percent while a higher rate taxpayer pays 40 per cent and tax is 45 percent for additional rate taxpayers. Income from rent is added to personal income from other sources to decide the tax rate.

Buy-to-let Lending

Buy-to-let Lending

According to rules being introduced in April 2017 will see the tax relief reduced up to 2020 when it will be set at a maximum of 20 percent.

What should you consider?

A company pays tax on its profits whereas an individual pays based on their income. Companies pay a lower tax rate than individuals. Corporation tax is currently 20 percent and is due to drop to 18 percent by 2020.

Decreasing Numbers of Younger Homeowners

Decreasing Numbers of Younger Homeowners

Are you ready to run a business?

The HMRC has very few requirements for individual landlords. They just have to complete a self-assessment tax return each year that takes account rental income and any expenses and reliefs. But companies have a range of responsibilities such as completing annual returns and accounts, all of which could mean paying for an accountant. It could also get more complicated if you start involving shareholders and different directors.

Conclusion

UK Landlords' Assets

UK Landlords’ Assets

If you have concerns on how these changes will impact on you or require further information please contact us.

If you want to read more about the various topics and services we provide, then please go through our FAQs.

Don’t ignore the Enterprise Investment Scheme

The Enterprise Investment Scheme (EIS) is now over 20 years old. This is quite a remarkable achievement for a tax break. A change in government often results in the demise of one tax break and the invention of a ‘new and better’ tax relief. There have been amendments to EIS over the years but it still attempts to help smaller trading companies raise finance by offering a range of tax reliefs to investors who purchase new full-risk ordinary shares in those companies.

EIS Graph

Source: HMRC – EIS and SEIS Statistics July 2015

The chart shows the number of companies raising funds in the first 20 years of the scheme. The peak in 2000 reflects the dot- com boom. In 2013/14, 2,710 companies raised a total of £1,457 million of funds under the EIS.

What are the tax breaks?

Two of the key tax breaks are:

  • Income tax relief – investors may be given income tax relief at 30% on their investments of up to £1,000,000 a year
  • CGT exemption – gains on the disposal of EIS shares are exempt.

For many investors who are new to a company, these reliefs may be the key additional incentives to invest. The income tax relief enhances the effective dividend yield that is anticipated from the investment. The CGT exemption removes gains from a charge to tax, without limit, on shares that have qualified for income tax relief. Therefore companies wanting to raise finance for a new venture should consider whether the EIS scheme could apply to them. New companies can also consider the junior sister of EIS, the Seed Enterprise Investment Scheme (SEIS).

Neither of these tax breaks will be available if the person is ‘connected’ to the company. For example an individual will be connected with the company if he controls more than 30% of the ordinary share capital of the company.

If, however, a number of individuals are setting up a new venture, an EIS or SEIS scheme could provide the tax breaks for any of the individuals who hold less than 30% of the shares. Where funds needed to establish the new venture are relatively small, the business owners may consider it is not worth while incurring time and costs to set up an EIS or SEIS scheme. 

The income tax relief on a small investment may not be considered to be worth the effort.

But they should not forget the power of the CGT exemption. Consider the recent tax case of the unfortunate Mr Ames.

The skydiver

Mr Ames was a skydiver. He realised that the risks and costs of the sport, together with the British weather, limited the growth of his sport in the UK. He had the idea of teaming up with a small number of other individuals to provide the first UK indoor skydiving simulator.

The company applied for share subscriptions to fall within EIS, HMRC agreed and the company issued  Mr Ames with the relevant form for him to submit to HMRC. He did not complete the form because, although he had paid £50,000 for his shares in 2005, his income was below the personal allowance for that year and the preceding year.

The company prospered and Mr Ames was able to sell his shares for £333,200 in 2011. When he submitted his tax return for the disposal he submitted the EIS form.

HMRC accepted that all relevant EIS conditions had been met and said that, had Mr Ames made a claim for EIS income tax relief, no CGT would have been payable on the disposal of the shares.

However Mr Ames had not made a claim and was no longer within the time limit. So the capital gain of £283,200 was taxable rather than tax free. The tax tribunal agreed with HMRC.

Please do contact us if this is an area of interest. We can help to guide you through the implementation of a scheme which is suitable for your circumstances.

If you want to read more about the various topics and services we provide, then please go through our FAQs.