Spring 2013 Budget Summary

Budget Highlights:

Personal allowance increased to £10,000 in 2014/15 and the higher rate threshold increased by £415 to £41,865.

A new tax-free childcare scheme, phased in from autumn 2015, to provide 20% of childcare costs up to £6,000 per child per year, for children under age 12.

The new single-tier state pension to be introduced from April 2016.

A £2,000 Employment Allowance for businesses and charities to set against their employer national insurance contributions from April 2014

A single rate of corporation tax of 20% for companies from April 2015.

Stamp duty to be abolished for shares listed on exchanges such as AIM from April 2014.

A limited one year extension of capital gains tax reinvestment relief for Seed Enterprise Investment Schemes.

A package of measures to increase the supply of low-deposit mortgages for credit-worthy households including a government-backed mortgage guarantee scheme from January 2014.

A raft of specific anti-avoidance measures alongside the new General Anti-Abuse Rule (GAAR)....

Click here for the full summary

The UK - Tax haven for group holding companies?

A few years ago it was normal for UK-based groups to hold their overseas subsidiaries through a holding company located in a territory (for example the Netherlands) which operates a participation exemption for foreign dividends and capital gains whilst also having a good network of double tax treaties that reduces or eliminates withholding taxes.  However, recent reforms of UK taxation, brought about partly by the Government’s desire to make the UK more competitive as well as a result of EU tax rules, now mean that the UK is in a competitive position as the choice of location for a group holding company.

• The first of the reforms was the introduction of a corporate tax exemption for most types of incoming foreign dividends effective from 1 July 2009 (with differing rules and conditions applying to small and non-small enterprises) regardless of the size of the shareholding.

• For UK companies doing business abroad through foreign branches rather than foreign subsidiaries, an election can now be made for the company’s overseas permanent establishments (PEs) to be exempted from corporation tax.  Such an election, once made, is irrevocable and must apply to all the company’s foreign PEs wherever located.  (The quid pro quo of such an election is that it disallows foreign PE tax losses, so this and other factors need to be carefully considered before any election is made.)

• The reforms also include substantial changes to the controlled foreign company (CFC) rules, which generally apply to company accounting periods beginning on or after 1 January 2013.  Whilst the thrust of the new rules remains to counteract corporate tax avoidance through diverting profits to low-tax territories, the way in which this is achieved is more prescriptive under the new rules.  For example the new rules do not include a formal clearance procedure or motive test, the principle being that all non-resident companies with a 25% relevant interest held by a UK-resident company are CFCs.  However there are various “entity-level” exemptions (such as for companies in excluded territories or with low profits and companies not taxed at less than 75% of the equivalent UK tax) and “gateway tests”, which in many cases will avoid a CFC apportionment.  (i.e. foreign profits becoming subject to UK tax) There are also favourable provisions that can apply to reduce the effective UK tax rate on the non-trading finance profits of a CFC to 6.5% or less subject to various conditions being satisfied.

• A less recent reform (from March 2002) was the introduction of a capital gains exemption, such that where UK holding companies which trade or are part of a trading group make a gain on sale of a substantial shareholding in another company, (which can be as small as a 10% shareholding), the gain is exempt from tax provided certain other conditions are met.

• Financing arrangements for groups may need to be considered separately from the shareholding structure.  The UK tax rules for loan relationships are generous compared with many other countries and can provide advantages for UK group finance companies.  (However, worldwide debt cap rules were introduced for large groups for accounting periods beginning on or after 1 January 2011, which can restrict the deductibility of finance costs in UK companies where the net UK debt is excessive compared with worldwide group debt.)

Summary

When you consider the above points, combined with the benefits of the UK’s ever-expanding network of double tax treaties, and the absence of any UK withholding tax on outbound dividend payments; the UK scores well as a holding company location compared with many other counties, from the perspective of both UK and overseas investors.

For further information or advice on this subject please contact Sarah Brock – Corporate Tax Manager at Ward Williams on 01932 830664 or email: sarah.brock@wardwilliams.co.uk

Private Fuel

Where a company operates a fuel card scheme to allow its employees to purchase fuel on the company’s account there is a potential ‘benefit in kind’ for private usage.

This benefit is significant and unless an employee has a large amount of private mileage (and the company is happy to pay for the associated fuel and Class 1A National Insurance) both parties would be better off if the private element of fuel usage were reimbursed.

The easiest way to facilitate this is simply to multiply the private mileage for a given period by the “Advisory Fuel Rate” for the vehicle in question (based on fuel type and engine size) which results in an amount due to company.   This amount is then recovered from the employee in the most appropriate manner.

The only issue here is the calculation of private mileage.  HMRC requires that employers keep records that are sufficient to demonstrate that all private fuel has been reimbursed by the employees.  In some cases where HMRC believe that records are not sufficient they may try to argue that all fuel (even the business element) should be subject to a benefit in kind charge.  It is therefore essential that suitable measures are in place to record business journeys and to administer the reimbursement and connected calculation. The manner of administration is not clear, so to help with this here are some tips:

·         Use the start and end odometer readings for a given period as a starting point;

·         Log  business mileage daily detailing start and end points with all stops along the way;

·         Record the date and purpose of business journeys;

·         Consider logging individual journeys for greater transparency;

·         The difference between odometer readings and business mileage = private mileage, no need to record individual private journeys (it is private after all!);

·         Consider logging any reasons for private mileage variation from month to month to serve as a reminder should there be any queries in the future;

·         Compare private usage  of all employees to identify potential inflation of business mileage;

·         Have stated fuel card procedures.  Put these in writing and ensure that all employees are aware;

·         Carry out regular checks on the accuracy of mileage claims.

As with anything tax related this is a complex and somewhat subjective area.  HMRC are taking increased interest in this subject so if you think you are affected by this please get in touch: brandon.theron@wardwilliams.co.uk

Professional Fee Protection Cover

HMRC have the power to investigate whoever and whenever they see fit.  Our blog article “When the taxman calls” details the types of taxes HMRC will investigate and what you should expect from a visit.

As your accountant we can reduce the risk of an enquiry when we prepare your accounts by looking at unusual costs, considering margins and looking at the income you take for reasonableness. HMRC have confirmed that they do a risk score on accounts and that a variety of other factors come together to increase the likelihood of an enquiry. One such item is the late submission of accounts and tax returns, and the later the submission the higher the risk.

Types of enquiry:

Aspect enquiry – is about a limited number of issues, sometimes one item. This could be because HMRC think that a particular expense category is high and they wish to request a breakdown.

Full enquiry - an in-depth examination into all aspects of your tax return. It can be on your return, your company’s return or both. All supporting accounts and records will be required for the enquiry, which can take between 6 months and 4 years, although enquiries lasting over 18 months are rare. A full enquiry can be random but may be triggered by some external information received by HMRC. Disgruntled ex-spouses or employees are sometimes a cause although HMRC will never disclose why the full enquiry was started. Full enquiries can also be very costly in terms of accountancy fees.

An enquiry into your business can cause huge disturbance and possibly lead to loss of   income as well as being extremely time consuming and costly.  If an inspector believes he has any evidence at all that demonstrates that you have underpaid your tax bill, then it is possible that you will be required to pay the additional tax unless you have the evidence to demonstrate otherwise, as well as the costs incurred by your accountant dealing with the enquiry.

We offer a tax protection scheme that covers accountancy fees up to £100,000 for work that arises in the event of a full enquiry and many types of aspect enquiries. The coverage can include aspect enquiry cover, VAT and PAYE compliance visit cover, pre-dispute cover, cover for business inspection notices and Director/Partner/Spouse and company secretary cover. By joining the scheme you will have peace of mind in the event of a HMRC enquiry and will be able to draw on the experience of specialists in the event of the enquiry covering unusual issues.

If you are a Limited company, partnership or sole trader then the subscription includes your business, you personally and fellow Directors and Partners as long as Ward Williams prepare the tax returns. The subscription is a one off annual payment, running from 1 April 2013. It is possible to join the scheme later in the year and the cost will be pro-rata.

You will shortly receive an invitation in the post to sign up for professional fee cover; we recommend this coverage for all our clients. The importance of having Fee Protection is only truly appreciated once a HMRC enquiry or investigation has taken place. The features and benefits of the scheme are set out in the details you will receive.

If you do not receive full details of the scheme, require a tailored quote, have any questions or wish to discuss in greater detail then please contact us:

enquiries@wardwilliams.co.uk  ·  01932 830664