Compensation Payment held to be Taxable!

Posted on November 12th, 2012

Compensation Payment held to be Taxable!

The First-tier Tribunal has held, in the case of John Lints (TC2168), that a compensation payment received by a taxpayer was to be treated as taxable business income.

The taxpayer practiced as a solicitor and had an office on the projected route of the new Edinburgh tramway system.

Pursuant to Edinburgh’s small business additional support scheme, the taxpayer received a payment of £4,000 in order to compensate him for disruption caused from the tramway’s construction.

HM Revenue and Customs (HMRC) took the position that the payment should be treated as a revenue receipt of the taxpayer’s practice. Although the payment was unsolicited and voluntarily in nature this was, in the view of HMRC, completely irrelevant.

The City’s explanatory leaflet (which accompanied the payment) did specifically refer to “business interests” and was made in order to compensate a party for potential business disruption. HMRC claimed that it was linked to the turnover of the business and should, therefore, be taxed as such.

The taxpayer argued that the sum was simply a voluntary gift and recompense for inconvenience and losses and was not in the nature of income. The taxpayer further argued that no publication concerning the proposed scheme referred to compensation for loss of business and nor was there was any requirement for the taxpayer to show trading difficulties (and, therefore, an adverse business impact from the construction) in order to qualify for the payment.

The First-tier Tribunal considered the scheme and concluded that the payment was a surrogatum for business turnover. The judge made specific reference to the scheme being aimed at businesses, not private individuals, and the expense of cleaning up after the tramway works would be revenue in nature.

Accordingly, the First-tier Tribunal held that the payment should be treated as income of the business and, therefore, taxable.

The taxpayer’s appeal was dismissed.

Posted in News | Tagged , , | Leave a comment

First-tier Tribunal Decision – No Class 1A National Insurance where Benefits in Kind Made Good!

Posted on October 24th, 2012

The First-tier Tribunal has ruled that Class 1A National Insurance Contributions (NICs) are not due on benefits in kind which are made good by an employee.

The income tax provisions (section 203 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)) broadly provide that income tax is chargeable on the cost of an employment-related benefit, but after deducting any amounts made good by the employee.

In Marcia Willett Ltd v HMRC [2012] UKFTT 625 (TC), the employer provided benefits to its directors, who made these good through company loan account adjustments. Accordingly, no income tax charge arose on such benefits under section 203 ITEPA.

However, HM Revenue and Customs (HMRC) asserted that Class 1A NICs were due on the basis that such NICs charge was referable to the amount chargeable to income tax (section 10, Social Security Contributions and Benefits Act 1992) and were determined at the due date (regulation 71, Social Security (Contributions) Regulations 2001 (SI 2001/1004)). The argument put forward by HMRC was effectively that since the directors made good the benefits after the due date, this was too late to negate the Class 1A NICs charge.

Whilst the Tribunal agreed with HMRC that there is no specific wording in section 203 ITEPA which makes it clear that a “making good” payment has retrospective effect for the purposes of section 10, the Tribunal considered that, on a plain reading of section 203(2), a “making good” payment extinguishes an income tax charge ab initio and, therefore, there are no general earnings or income tax charge to which section 10 can apply.

Furthermore, the NIC rules aim to charge benefits actually received and allow chargeability to vary through subsequent legal or factual changes. The Tribunal viewed HMRC’s approach as imposing a charge under the regulations (by crystallising the charge at a particular time) that was not imposed under, and contrary to the purpose of, the primary legislation.

Accordingly, the Tribunal did not agree with the reasoning put forward by HMRC and held that, whilst a section 10 charge relies on a charge existing under section 203, any making good of that employment benefit extinguishes this charge retrospectively.

The Tribunal’s reasoning could extend to earnings charges arising if a director fails to make good tax paid on his behalf (section 223, ITEPA 2003), but not to “section 222” notional earnings charges. For the latter, the charge is crystallised on expiry of the statutory 90-day period and cannot be removed retrospectively.

In our view, the Tribunal has given the right decision in that a Class 1A NICs charge should not arise on amounts which have been made good by an employee.

Posted in News | Leave a comment

Entrepreneurs’ Relief

Posted on February 23rd, 2012

Entrepreneurs’ Relief is available to individuals and some trustees in respect of capital gains made on the disposal of all or part of a business, business assets if the business has stopped trading and in certain cases shares owned in respect of a business. This relief is aimed at the individual and therefore whilst most partnerships can take advantage, the relief is not available for companies.

At inception, in the tax year 2008/9, Entrepreneur’s Relief applied to disposals not exceeding £1million. This sum has gradually been increased up to the present limit of £10million which came into force in April 2011. Subject to phasing, the limit is available throughout an individual’s lifetime, allowing them to set up, run and dispose of a number of businesses, provided those disposals do not exceed the lifetime allowance cap.

The calculation of the rate of Entrepreneur’s Relief also varies dependant on the date of disposal. Currently, the relief allows qualifying capital gains to be calculated at 10%. This relief applies to disposals made on or after 23 June 2010. All claims for Entrepreneur’s Relief must be made by the first anniversary of the 31 January following the end of the tax year in which the disposal took place. So, for example, for disposals made in the tax year 2010/11, claims have to be made by 31 January 2013.

The ability to claim Entrepreneur’s Relief is subject to meeting certain conditions throughout a preceding qualifying period. For this reason it is important that the implications of Entrepreneur’s Relief are carefully considered when setting up a business as well as in any discussions surrounding business restructuring, partnership agreements and so on. For example, a partner stepping down from and disposing of their share in a partnership may qualify for Entrepreneur’s Relief as may a director stepping down from and disposing of his shares within a company, provided he held more than 5% of the shares.

For the purposes of calculating Entrepreneur’s Relief, spouses or partners are counted as separate individuals and are therefore both entitled to claim relief, subject to meeting the qualifying criteria.

As tax mitigation specialists Newshams are able to give advice on tax matters, including Entrepreneur’s Relief, how tax may affect any private or business transaction and how to put in place an effective mitigation strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about the implications of Entrepreneur’s Relief or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

http://newshams.com
23 February 2012

Posted in News, Tax Savings | Tagged , , , , , , , , , | Leave a comment

Business Premises Renovation Allowance – the basics

Posted on February 10th, 2012

Business Premises Renovation Allowance (BPRA) was introduced by the Finance Act 2005 as an incentive to bring derelict or unused properties back into life. The BPRA was designed to run for a period of 5 years from 11 April 2007 and therefore only has a few short months left to run.

As with many incentive allowances, there are strict regulations governing which properties qualify for the BPRA. Firstly, the property has to be situated within a designated disadvantaged area and have been unused for a period of a year before conversion or renovation work begins. Secondly, the premises cannot have been used as a dwelling prior to becoming disused and in addition there is a list of relevant trades such as shipbuilding or primary production of certain agricultural products which will not qualify for BPRA.

Provided the building satisfies the other criteria, BPRA is available for capital expenditure incurred in:
• converting a qualifying building into qualifying business premises,
• the renovation of a qualifying building that is, or is to be, qualifying business premises, and
• repairs to a qualifying building.

One example of a qualifying conversion provided by HMRC is the conversion of warehouse premises into an hotel. In certain circumstances where only a part of a building has been disused, BPRA may be applied for that part of the building. However, the allowance is not available for extending buildings or for the capital expenditure on purchasing land. So, whilst conversion may qualify, adding a basement or additional upper floor would not.

There are a number of schemes available for investors to provide funding for business premises renovation, thereby enabling investors to benefit from the allowances available. For example, one current scheme anticipates investor deposits to be in the region of 33% with tax relief for 50% tax payers anticipated to be in the region of 43% of the gross investment, leaving investors in a cash positive position.

As tax mitigation specialists Newshams are able to give advice on tax matters, including BPRA, how tax may affect any private or business transaction and how to put in place an effective mitigation strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about the benefits of investing in a BPRA scheme or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

http://newshams.com
10 February 2012

Posted in News, Tax Savings | Tagged , , , , , , , , | Leave a comment

What will the budget have in store for SDLT?

Posted on February 2nd, 2012

Stamp Duty Land Tax (SDLT) concessions granted to first time buyers in the 2010 budget come to an end on 24 March this year. The concession, which meant that first time buyers wouldn’t have to pay the 1% SDLT on properties costing between £125,000 and £250,000 has had a fairly limited impact on the housing market. Employment uncertainties coupled with high mortgage deposit requirements have conspired to keep many first time buyers out of the marketplace.

Ironically, just as the SDLT concession is ending, mortgage lenders have started to move back into offering 95% mortgages. Perhaps spurred on by the Government’s FirstBuy scheme which starts in April, within the last week lenders such as the Ipswich, Newcastle and Leeds building societies have all come out with a 95% mortgage offering. The Government scheme gives first time buyers access to 95% mortgages on new build properties bought from certain developers.

Those within the higher house or commercial building price bracket are awaiting the forthcoming budget with interest. The top rate of SDLT is currently 5% for properties in excess of £1million. Last year’s Budget brought us a change in the SDLT calculation applicable to bulk-buy purchases, effectively putting bulk purchasers on the same footing as individual purchasers. This single change highlighted the importance of carefully planning property transactions not only to avoid paying excess SDLT but also to maximise tax advantages on transfer or disposal.

The pre-Budget rumour mill has already started. Earlier in January Exchequer Secretary, David Gauke, told the London Evening Standard that “people buying high-value properties must also pay their fair share. We’re looking at this area to see what more can be done.” This has led to various speculations about what changes, if any, the Government may bring in as part of the 2012 Budget. In the meantime first time buyers looking to take advantage of the current reliefs have until the 24 March to complete their purchase.

As tax mitigation specialists Newshams are able to give advice on tax matters, how tax may affect any private or business transaction and how to put in place an effective mitigation strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can mitigate your tax costs or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

http://newshams.com
02 February 2012

Posted in News, Stamp Duty Land Tax | Tagged , , , , , , , , , , , , , , | Leave a comment

Post Cessation Trade Relief – a consultation

Posted on January 25th, 2012

On 12 January the Government via HMRC announced that it was to take immediate steps to counter tax avoidance resulting from post cessation trade relief. This relief arises when costs or bad debts are incurred which directly relate to a trade, profession or vocation which has ceased. Such costs or bad debts may be allowed against income or capital gains for tax purposes. Examples given include the cost of collecting trade debts, the cost of insuring against claims for defective work and legal and professional fees.

The announcement on 12 January by The Exchequer Secretary to the Treasury, David Gauke, effectively put a stop to the relief being available purely in respect of specific arrangements the main purpose of which was to obtain post cessation trade relief. It is understood that the action was taken in response to the Government becoming aware of the existence of a tax avoidance scheme which created overseas “expenses” thereby allowing post cessation relief to be claimed within the UK.

Whilst exact details of the scheme are unavailable, the Treasury statement describes the scheme as “contrived and aggressive” and which could have resulted in putting “at risk substantial amounts of tax.” As with any tax legislation change, there is a need to ensure that the proposed legislation does not impact on the more mainstream post cessation trade reliefs which remain in place. The draft legislation is therefore subject to a consultation period which closes on 12 March 2012. This consultation period does not affect the intention of the legislation which became effective on 12 January.

Once again this action highlights the differences between legitimate tax planning methods and tax avoidance and the importance of taking robust tax advice when considering transactions. As tax mitigation specialists Newshams are able to give advice on tax matters, how tax may affect any private or business transaction and how to put in place an effective mitigation strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can mitigate your tax costs or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

http://newshams.com
25 January 2012

Posted in News, Tax Savings | Tagged , , , , , , , | Leave a comment

Beware the one year window

Posted on January 19th, 2012

With the deadline for submitting self assessment tax returns rapidly approaching, we have had a timely reminder of the importance of submitting returns on time. Those wanting to submit a paper return had until last October to do so, leaving on line filing as the only option now open. HMRC will issue a £100 fine to all those who have not submitted their self assessment return by the 31 January deadline and this includes those who are expected to file online even if they have no tax to pay.

In particular HMRC are warning those who have not previously filed on line that they will need to pre-register and then wait for an activation code to be posted to them and this can take up to seven working days. The 31 January is also the deadline for paying tax due in respect of the last financial year.

Once the self-assessment return has been filed, HMRC usually have a period of one year to challenge and investigate it. This leads many into the belief that if there has been no challenge within one year, the return cannot be altered. In fact Section 29 of the Taxes Management Act 1970 allows HMRC to challenge tax returns outside the one year window subject to one of two conditions. These are:
• That due to fraud or negligence on the part of the taxpayer or their agents the full facts were not available to HMRC
• That any HMRC officer conducting an investigation could not have reasonably been expected to have be aware of the true position

This power to review tax after the one year period was recently challenged in the Court of Appeal.* The challenge related to an assessment of tax six years after the tax period had closed, once HMRC had discovered that Mr Hankinson had in fact been resident in the UK in the period in question. The court of Appeal upheld the right of HMRC to issue the discovery assessment letter in this case.

Whilst the judgement was no surprise to those dealing with tax on a daily basis it came as a timely reminder to ensure that full facts are included on tax returns. This was backed up by another recent ruling which went against HMRC in that the Court of Appeal ruled that HMRC did have sufficient information at the time to conclude that insufficient tax had been paid and could not therefore rely on Section 29 to make subsequent enquiries.**

As tax mitigation specialists Newshams are able to give advice on tax matters, how tax may affect any private or business transaction and how to put in place an effective mitigation strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can mitigate your tax costs or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

http://newshams.com
19 January 2012

*Derek William Hankinson v HM Revenue and Customs
**The Commissioners for Her Majesty’s Revenue and Customs v Lansdowne Partners

Posted in News | Tagged , , , , , , , , , | Leave a comment

A fresh look at property

Posted on January 13th, 2012

Mention devolution and thoughts inevitably turn to Scotland and the question of a possible referendum. Against this background and almost slipping under the radar, Wales is quietly increasing its own devolved powers. For example, from 31 December 2011, Wales took full responsibility for its own building regulations.

One of the first steps announced by the Welsh Government is the intention to raise energy performance standards for new homes with the aim of delivering an improvement of 55% on 2006 standards. It will be fascinating to watch the development of Welsh v English building regulations over the next few years and analyse the influences which are brought to bear on developing regulations within the two countries.

One aspect of property policy which the Welsh Government has no control over at present is the rate of Stamp Duty Land Tax (SDLT). Whilst reports on SDLT have been quiet of late, this is likely to change soon due to the impending cessation of SDLT relief for first time buyers. With no transitional relief, transactions with an effective completion date of 25 March or later will be affected. This could lead to a short term flurry of purchases completing in early March.

Across the UK property prices continue to give a mixed picture with Nationwide reporting rises in 2011 for nine out of thirteen regions. Despite this, a report by Lloyds TSB commercial reveals that businesses which deal in property are generally planning to invest in their portfolios in 2012. As with any property transaction, these businesses are well advised to take strong tax advice at the outset to maximise any tax potential. With the top rate of SDLT alone standing at 5%, not to mention the tax implications of corporate structure, those who invest in property without considering the tax implications do so at their cost.

As tax mitigation specialists Newshams are able to give advice on SDLT and other taxes, how tax may affect any private or business transaction and how to put in place an effective mitigation strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can reduce the tax costs on your corporate transaction or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

http://newshams.com
13 January 2012

Posted in News, Stamp Duty Land Tax, Tax Savings | Tagged , , , , , , , , , , , | Leave a comment

Taxing the perks

Posted on January 6th, 2012

According to the Mail on Sunday, HMRC’s high net worth unit has a new target in their sights, the perks enjoyed by some footballers and their families. Whilst the provision of benefits to employees is a practice which has been around since time immemorial, the regulations on taxable and non-taxable benefits can be complex and the HMRC guidance runs into multiple pages.

Of course, there are some simple regulations which may be sufficient for the majority of smaller businesses. For example, providing an annual employee party is not taxable as long as the cost does not exceed £150 per individual and the event is open to all employees. Similarly the provision of tea and coffee for employees counts as a trivial benefit which is not subject to tax or NI, as does the provision of seasonal flu jabs.

The difficulty arises when the benefit steps outside the “trivial” list. Spend more than £150 per head on a Christmas party, add snacks to the tea & coffee or offer other forms of immunisation and the entire cost suddenly becomes liable to tax and NI. Step up to the perks enjoyed by some footballers and items such as holidays, first class travel, medical care, free meals and gifts can add up to a substantial tax and NI bill. Whilst there is no imputation that footballers and clubs have failed to declare all their benefits within their tax returns, according to the Mail on Sunday an HMRC spokesperson said “We wouldn’t be doing this if we didn’t think it was going to bring in a lot of money.”

As with all benefits, it is worth checking with your accountant or tax specialist before embarking on the expenditure to avoid costly mistakes later. This is particularly important when providing ongoing benefits or exceptional and substantial items such as relocation costs. Where the benefits cross countries it is particularly vital that full advice is taken up front.

As tax mitigation specialists Newshams are able to give advice on how the provision of benefits to employees can impact on a tax planning strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about the potential tax implications of the provision of employee benefits or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

http://newshams.com
06 January 2012

Posted in News, Tax Savings | Tagged , , , , , , , , , | Leave a comment

2011, a taxing time

Posted on December 20th, 2011

As we say goodbye to 2011 and start digesting the many hundreds of pages which make up the draft legislation for the 2012 finance bill; it is perhaps worth taking stock of the year just past and reflecting on what this might mean for the future of taxation.

For many, 2011 was the year of the task forces. HMRC launched wave after wave of special reviews tackling everyone from plumbers to piano teachers and from non-VAT payers to small businesses. In every case the aim was to catch those who were evading taxes but in the process many legitimate businesses had to prove themselves.

For others, 2011 highlighted the extent to which the EU has become embroiled in our tax lives. We have reported on a few of the cases which resulted in appeals to the EU, including a ruling on VAT and compound interest and the EU review of the UK-Swiss tax treaty. Those who say that because we are not in the single currency the EU has no say in our finance and tax decisions are sadly mistaken.

With manufactured overseas dividends, anti-avoidance schemes in respect of tax treaties, stamp duty land tax schemes and other tax planning measures coming under the spotlight in 2011, the Government has signalled its intention to close as many tax loopholes as possible. Whilst the reviews have had the effect of eliminating many tax avoidance schemes the good news is that there is still plenty of scope for legitimate tax planning.

Whether 2012 will be known as the year of the Financial Transaction tax or not is still up for debate with the Government resisting EU pressure in this area. However, we can predict that those planning tax measures in 2012 will need to take extra care to ensure that their plans take account of UK, EU and international law as the rules become more complex in an attempt to catch those who attempt to evade rather than to plan.

As tax mitigation specialists Newshams are able to give advice on how legislation can impact on a tax planning strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about the potential tax implications of private, business, property or international transactions or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

http://newshams.com
20 December 2011

Posted in News, Stamp Duty Land Tax | Tagged , , , , , , , , , | Leave a comment