ACCA Harrow Tax planning and tips

Transcription

1 ACCA Harrow Tax planning and tips Mark Lee FCA CTA (Fellow) MMC Chairman of the TaxAdviceNetwork

2 What s coming up Introduction Tax credits Topical tax planning ideas Private clients, self employed, partnerships, corporates, small business and non doms Pro-active positive ideas Disincorporation Redundancies Structured tax avoidance schemes Software tools

3 CLIENTS WILL PAY GOOD FEES FOR GOOD ADVICE

4 Tax credits questions (1) Advise on clients entitlement to claim? Help clients with claim forms?

5 Tax credits questions (2) Advise clients on best approach Offset and utilise losses? CA disclaimers? Tax impact of pension contributions? Annual Investment Allowance (upto 50k) Incorporation and timing thereof? Consequential low taxable income? Subsequent increases in taxable income That reduce entitlement to tax credits

6 Tax credits Examples Mr and Mrs Khan both work full-time. Between them, they earn about 25,000 a year. They have three children. They get about 55 a week in tax credits. ( 2,860 pa) If their income was higher, and they earned about 50,000 a year, they d get about 10 a week instead. ( 520) Tax credits available even on income up to 58k Losses = nil taxable income Income disregard for year two = 25k Tax credits that could be missed > 12k What would you do if you were client?

7 Tax issues (1) Losses Forecasts, impact on payments on account Earliest possible relief Extending accounting period Cessation of business Restarting later? Forecasting effect of AIA First 50k of qualifying cap expenditure Share incentives rather than cash

8 Tax issues (2) Companies facing insolvency End of accounting period Prospective gains on disposal of property Continue trading post appointment of IP? Do not delay realisation of capital losses Terminal loss relief 3 year carry back from final period of trading Impact on group relief claims Year ends ceasing to be co-terminus? Inter-company debts

9 Tax issues (3) VAT Flat rate scheme bad debt relief Dividends Distributable reserves lower than expected 100% relief for green cars CO2 emissions below 110g/km

10 Green cars include TOYOTA Prius 1.5 VVT-i Hybrid 104g/km HONDA Civic Hybrid 1.4 IMA ES 109 g/km

11 Good news for tax advice Depressed values property/shares Transfers between connected parties Extraction from family companies Crystallise capital losses For offset against capital gains current/future Revisit probate valuations Loss on sale relief within 4 years of death Secure backdated tax credits award For year in which loss arises/is relieved And following year if income < 25k

12 Disincorporation No concessions No reliefs Not straightforward Company law issues Stated intention: Consultation document reduce the tax and other 1987 cost penalties which currently attach to disincorporation and effectively rule it out as a practical option. Limited

13 Tax pitfalls to avoid Capital gains The company The shareholders BIK directors No loss carry forwards Closing stock and WIP Current value vs value on incorporation Higher? Lower? The same? Beware the Goodwill trap!

14 Other tax consequences End of CT accounting period Loss of IHT BPR Until two years have passed VAT As for incorporation Company deemed to make a taxable supply VAT form 68 transfer VAT number Same if business becomes LLP Tax relief for business use of car

15 Chargeable gains in company On disposal / disincorporation Deemed market value (s17 TCGA 1992) Connected persons (s18 TCGA 1992) All tangible and intangible assets Other than wasting assets etc No facility to rollover or holdover gains

16 Example Incorp n Disincorp n Share Capital Goodwill 30,000 30,000

17 Tax on the shareholders Income or Capital? Don t assume! Beware anti-avoidance legislation Transactions in securities Base cost for CGT? Base cost of the shares Was gain rolled-over on incorporation? Was gain held-over on incorporation?

18 Dissolution Company law Simpler than formal liquidation Often a members voluntary liquidation (Insolvency Act 1986) When Directors satisfied company is solvent Dissolution relies on s652 Companies Act 1985 Company has to apply to be struck off Only feasible 3 months after cessation of trade ie: 3 months after trade and assets transferred to shareholder(s)

19 Dissolution - tax Strictly = income distribution (s209 TA 1988) ESC C16 = CONCESSION (ie: not automatic) Standard assurances required in ESC C16 Two more as of 2007

20 ESC C16 Company No future trading Will collect debts, pay creditors, distribute surplus to shareholders Company and shareholders agree that: They will supply all related info and pay CT CGT will be paid on distributions

21 Additional assurances Company will not transfer or sell its assets or business to another company having some or all of the same shareholders This is not a company reconstruction in which some or all of the shareholders in the original company retain an interest in the second company

22 The ESC C16 share capital trap Bona Vacantia Share capital Concession Upto 4,000 Forewarned is forearmed! Guidance note BVC 17

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24 Advance clearance? Material sums Certainty Seek clearance under s701 ITA 2007 Show that disincorporation satisfies genuine purpose test Not simply to extract accumulated cash Especially post 5 April 2008

25 How confident can we be? HMRC CT manual (para 36850) Only unconnected transfers are ok Liquidation = transaction in securities? Addy v IRC (1975) IRC v Joiner (1975) CIR v Laird Group plc (2003) X

26 Alternative approaches Ignore the goodwill left in the company? Risky!

27 Indicators of Company goodwill Business name Reputation Trading premises Adverts Ongoing contracts Outstanding tenders Client/customer lists Know how, systems Software programs Websites, blogs

28 Alternative approaches Ignore the goodwill left in the company? Risky! Claim that goodwill has low/nil value Be prepared to support contention Include company in partnership Conventional partnership or LLP Leave the assets in the company And retain company

29 Leave the assets in the company Assume material chargeable gains projected Company licences their use / access to sole trader or partnership successor Identify commercial licence fee Too high and tax relief will be restricted Too low and company will be taxable on commercial figure anyway Company will become close investment holding company (s13a TA 1988) Full rate of CT on taxable income

30 Extraction of surplus cash Misconceptions Simply transfer current account Tax free 30k payment to each director Termination of their employment Dividend (sometimes) Capital distribution generally preferred

31 Capital loss relief Insufficient assets to cover amounts due To shareholders (re loan account) Offset loss against other capital gains Or claim to offset against income Only if shares subscribed in trading company

32 Redundancies advice required Statutory redundancy pay tax free Further 30,000 no auto exemption Taxable if: Contractually due Typically paid/expected Tied to work done/to be done No auto tax relief in year of closure Evidence Eg: To secure the orderly winding down or transfer of the business.

33 Client co going into liquidation New fee notes for related advice Avoid creating a preference Pay my old fees before I ll help further Preferred debts can be set aside Would mean you d have to repay company Your debt would then rank alongside others

34 TAX AVOIDANCE SCHEMES

35 Handling tax schemes Everything you ever wanted to know about tax schemes but were too professional to ask... too confused to ask... too brow beaten to ask... too greedy to ask... too busy to ask

36 The Spectrum of Schemes Pure - unobjectionable Unacceptable Spectrum runs from unobjectionable to unacceptable Intended by the legislation Encouraged by the law (eg: ISAs), Planning and mitigation Artificial Contrived Abusive Fraudulent

37 Opinions and behaviours Fraud Eg: Non-disclosure, distorting facts Opinion 100% provable fact Abusive Passive Behaviour

38 Seven promotional lines The risk of failure is very low We have Counsel s opinion Clients have been getting their tax refunds It s approved by HMRC HMRC haven t challenged our clients It comes with a guarantee Success fees are not payable until later

39 Related issues to check Are the promoters salesmen or taxmen? What is their track record? What are the commercial risks? Have disclosure obligations been satisfied? Who checks all the paperwork The minutes, the notes to accounts, TRs? Will promoters d/w all HRMC corres timely? Do promoters stress or skate over tax risks? Cashflow payment of fees vs tax back/saved What does it cost to give up the fight?

40 Commissions and referral fees Obligations imposed by professional body Remain objective Commission should not affect judgement Full disclosure to client Whether rebated or retained in full or in part Ethics Commission = commission

41 Tax tips and tools 2008/09 The complete Tax Tips and Tools Should I incorporate? - calculator Disincorporation - calculator Both calculators

42 Today Introduction Tax credits Topical tax planning ideas Private clients, self employed, partnerships, corporates, small business and non doms Pro-active positive ideas Disincorporation Redundancies Structured tax avoidance schemes Software tools

43 Tomorrow Focus on three tax planning ideas Decide how you will communicate these to clients Copy slides by Let me have your business card... Tax Advice Network Start receiving your free practical tax tips this week

44 ACCA Harrow Tax planning and tips Mark Lee FCA CTA (Fellow) MMC Chairman of the TaxAdviceNetwork

45 Register today for your FREE weekly tax update written specifically for accountants in general practice And when you need specialist tax support use our simple search facility to find a cost effective independent expert tax adviser

46 Contact details Mark Lee FCA, CTA (Fellow), MMC Accountants Business Coach M: T: E: Download free resources Sign-up for newsletter Further info re Mark s services Mark s blog for ambitious professionals