Manufactured Overseas Dividends

Posted on September 21st, 2011

The Government has taken immediate steps to clarify the tax treatment of Manufactured Overseas Dividends (MOD) by publishing draft legislation to be incorporated within the 2012 Finance Bill. The legislation will take effect for MOD paid on or after the date of the announcement, 15 September 2011, and is estimated to increase tax receipts by some £40million per year.

Manufactured Overseas Dividends are payments made by a temporary holder of securities to their original owner to reflect the fact that the original owner does not receive the real dividend. Transactions where securities are lent or temporarily transferred are routine within the financial markets. Where a MOD is paid, the payer has to withhold a sum representing income tax and the company receiving the MOD therefore treats the payment as an overseas dividend.

Normally the recipient can claim double taxation relief (DTR) in respect of the tax withheld, but there are some circumstances where full DTR is not available. In those circumstances, organisations had been claiming the difference between the withheld tax and the DTR as income tax payments which were then set off against tax due or used to claim tax refunds. The legislation has been designed to stop organisations claiming for this difference between tax withheld and allowed DTR.

In many instances full DTR will take effect and therefore this legislation is only designed to affect those special circumstances where DTR is not available. The announcement is careful to point out that “It is considered that the new legislation will not adversely affect any normal commercial transactions.”

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

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

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21st September 2011

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UK double taxation treaties and Delaware LLCs

Posted on September 14th, 2011

The upper tax tribunal has released its decision in respect of HMRC v George Anson, a case which involved the interpretation of the UK/US double taxation agreement in respect of Delaware LLCs.

By way of background it is helpful to understand the following:
• A transparent entity is one in which the member is entitled to a share in the underlying income of the entity as it arises and is therefore charged to tax on their share of the profits on that basis. Examples include a partnership or limited liability partnership.
• An Opaque entity is one in which the member is taxed only on the distributions made by the entity. For example a limited liability company.
• With a Delaware LLC the holders are the owners of units in the LLC and unless the LLC elects to be treated as a corporation it is treated as transparent for US tax purposes. This means that the holders of units pay tax on their share of the LLC’s profits in the same way that a partner in a partnership would pay tax on their share of partnership profits in the UK.
• In the eyes of the UK tax authorities, as a Delaware LLC unit holder has no right to the assets of the Delaware LLC they therefore have no right to “a share in the profits as they arose” merely to “a share in the profits”. HMRC therefore treats income from a Delaware LLC as opaque for UK tax purposes.
• Double taxation relief allows a UK taxpayer to offset tax paid in another country against tax due in the UK provided the tax is for the same transaction.
• Delaware is a US corporate haven with over 50% of US companies registered there.

In this instance, Mr Anson, a UK non-domiciled citizen received a payment from a Delaware LLC which was accordingly taxed in the USA as a transparent payment. He then remitted the funds to the UK. HMRC sought to tax him in respect of this income as an opaque payment with no allowance given against the tax paid in the USA.

An earlier tax tribunal found in Mr Anson’s favour but the second tier tax tribunal has now found in favour of HMRC, effectively restoring the commonly understood interpretation in respect of double taxation agreements as applied to Delaware LLCs.

The case has highlighted the complex nature of international double taxation arrangements and the care which is required in arranging international tax affairs. As tax mitigation specialists Newshams are able to give advice on how double taxation tax may affect any private or business transaction and how to put in place an effective international taxation strategy.

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

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14 September 2011

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Defined Benefit Schemes

Posted on September 8th, 2011

Defined Benefit schemes have taken a hefty knock in recent years. These schemes, otherwise known as Final Salary Schemes, promise an employee a set percentage of their salary on retirement. Usually calculated in 60ths or 80ths the percentage is often based on the number of years in which the employee worked for the company.

Once offered freely by larger organisations, Defined Benefit schemes have fallen out of favour due to a combination of changes in tax treatment and the fall in stock market values leading to shortfalls in fund valuations. Now, a case being referred to the European Court may offer a ray of hope to scheme trustees. The case revolves around the question of whether Defined Benefit schemes should pay VAT on investment management services. The case was originally heard by the UK tax tribunal which in February of this year agreed to refer it on to the European Court.

If successful, Defined Benefits schemes would be able to save some £100 million per year in VAT as well as being able to claim back VAT paid over an agreed backdated period. On the other side of the coin, an HMRC consultation period into Employer Asset Backed Pension Contributions has just closed. This consultation was aimed at limiting the way that unintended tax relief can arise from the way in which contributions are structured. HMRC wished to “ensure that the amount of tax relief given to employers accurately reflects the value of the contributions received by pension schemes, while preserving flexibility for both employers and pension schemes to use these arrangements to manage pension deficits.”

Essentially using asset backed contributions means that businesses can use non-cash assets as a guarantor of future regular payments into a scheme. This enables shortfalls in a scheme to be made good over a longer period than otherwise, helping the business to manage its cash flow. Subject to the results of the consultation some businesses may need to look anew at their funding arrangements.

As tax mitigation specialists Newshams are able to give advice on how tax may affect any private or business transaction including pension funding 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 your tax costs or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

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08 September 2011

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The future for property

Posted on September 6th, 2011

Anyone reading the financial papers over the past few weeks will be thoroughly confused by what is actually happening to property. For a start, are prices rising or falling? The Centre for Economics and Business Research says that by 2015 prices will have risen by 14% to a new all time high. Contrast this with the Fitch credit agency which says prices are still 25% too high with falls of 5-10% per year likely over the next two years. Meanwhile prices have either risen slightly or fallen over the summer depending on whether you believe the Land Registry, Nationwide or a number of other indicators.

The other question to be asked is just who is buying homes at present. According to the National Housing Federation, by 2021 overall home ownership will have fallen by 4% to 63.8% with only the rich being able to afford to get on to the housing ladder. The Federation blames a combination of low housing stock, high house prices and high rents making it harder for the first time buyer to raise the average £26,346 now needed as a deposit. Certainly the National Landlords Association is optimistic about the future with 65% of landlords reporting prospects as good or very good.

All this uncertainty means that those who are moving home need to be as careful as they can about paying the right price, finding the best mortgage package and keeping costs down. The mortgage market is tougher than ever with higher deposits being demanded; not to mention lenders now being able to check declared income against HMRC tax return records. One method of saving costs could be to look at ways of mitigating Stamp Duty Land Tax. With top rates at 5% for properties costing in excess of £1 million, there is a considerable incentive to keep at least one transaction cost as low as possible.

As tax mitigation and Stamp Duty Land Tax specialists Newshams are able to give advice on 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 your tax costs or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

http://newshams.com

6th September 2011

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Tax Treaties Anti-Avoidance legislation

Posted on September 2nd, 2011

N.B. On 9 September 2011 the Government announced that in view of concerns raised it has “decided not to proceed further with the consultation on the proposed legislation and will not include it in Finance Bill 2012.”

The recent announcement of the agreement between Swiss and UK authorities in respect of taxation on investments held within Switzerland has added a fresh dimension to international taxation advice. By coincidence, the UK is currently half way through a consultation period in respect of anti-avoidance legislation in respect of tax treaties. This consultation was issued by HMRC on 1 August 2011 and is due to close on 22 September 2011*.

The aim of the consultation is twofold. Firstly, to ensure that UK citizens and businesses can trade overseas without encountering the obstacle of double taxation and secondly to ensure that taxpayers do not avoid tax by exploiting differing international regulations. This includes both avoidance by UK residents and “treaty-shopping” by non UK citizens.

At present the UK has some 120 bilateral tax agreements. This fresh legislation has been deemed to be necessary in view of the perceived continued exploitation by British tax payers of these agreements. The legislation was announced in the March 2011 budget and is intended to apply to all income arising or chargeable gains made on or after the date of royal Assent to the Finance Bill 2012. This could effectively make the legislation retrospective in respect of existing schemes.

The consultation asks for comments in respect of the draft legislation together with the proposed tests to be applied in respect of the legislation. In particular, HMRC would welcome comments on any unintended consequences in respect of the legislation. This is therefore the ideal time to review any current international taxation arrangements in the light of the proposed legislation.

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

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

http://newshams.com

02 September 2011

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Historic Swiss-UK tax treaty

Posted on August 30th, 2011

After a short delay earlier this year the UK and Swiss authorities have announced an agreement on the treatment of monies held by British Citizens in secret Swiss bank accounts. Still to be signed by both governments and ratified in Parliament, the agreement is expected to come into force in 2013.

Within the agreement, the authorities have tried to balance the privacy needs of individuals whilst maintaining the viability of the Swiss banking system. Key clauses within the treaty include:
• A one off payment by Swiss Banks of SFr500 million, to be repaid only if sufficient tax revenues are subsequently collected
• A one-off up front tax of between 19% and 34% based on balances held by British resident account holders on 31 December 2010. The actual tax rate is to be calculated after taking into account variables such the age of the account and the deposits made since 2003.
• A withholding tax of 27-48%, with the rate being dependent on the type of investment vehicle and income source. These rates will be set at a slightly lower rate than top tax rates within the UK

Perhaps the most interesting feature of the agreement is the preservation of anonymity for bank account holders. The Swiss government are to collect the taxes and forward them to HMRC without revealing identities. However, in recognition of the need to crack down on tax evasion, HMRC will have the right to request information on up to 500 individuals each year. UK tax payers also have the right to voluntarily disclose their Swiss accounts which will then become subject to standard UK tax rates.

The UK tax authorities hope that this new treaty will remove one tax evasion route. There are no definitive figures available on the expected tax gain once the agreement comes into force. However, current estimates are that the initial up front tax will raise in the region of £5billion. How much the withholding tax raises will partly depend on the future investment decisions of those with money currently invested in Switzerland.

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

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

http://newshams.com

30th August 2011

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Entrepreneurs Relief for Limited Liability Partnerships

Posted on August 26th, 2011

Once thought to be the preserve of businesses such as Solicitors and Accountants, Limited Liability Partnerships (LLP) are slowing growing in popularity in the wider business sphere. Companies House statistics report that 10,145 new LLP were formed in the UK in the period 2010/11. Being a half way house between partnership and full company status, LLP carry some of the advantages and disadvantages of both. For example, as the name implies the partners do carry limited liability but the LLP has to be registered at Companies House.

One of the concerns when considering LLP is the position in respect of a Capital Gains tax saving available for those selling a business. Known as entrepreneurs’ relief, the lifetime limit was increased in the 2011 Budget to £10m and allows an effective Capital Gains Rate of 10% on gains within the limit. Those hoping to qualify for entrepreneurs’ relief need to plan carefully as assets and shares need to be held for a period of at least one year prior to disposal.

This one year limit raises questions such as the advisability of transferring shares to other parties, for example family members, and the position in respect of the sale of shares in a wholly owned UK trading company. For example, what would be the position if the LLP owned shares in a trading company and the LLP was subsequently wound up with the shares distributed to individual members?

In general, the answer appears to be that the period of share ownership by the LLP would count towards the individual’s own one year holding period; but only under certain circumstances such as the LLP wind up being informal, not for tax avoidance purposes and not unreasonably prolonged. Satisfying the conditions does require careful tax planning to avoid having to start the one year asset holding period anew.

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

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

http://newshams.com

25th August 2011

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Relief as additional Enterprise zones announced

Posted on August 23rd, 2011

The recent Government announcement on the creation of a further eleven Enterprise Zones has been seen as welcome news for businesses, councils and investors alike. At the time of the announcement in the March 2011 Budget that eleven zones were to be created, the Chancellor invited bids for a further ten zones. In all thirty Local Enterprise Partnerships submitted bids and such was the strength of those bids that agreement has been reached for eleven zones in:
• Humber Estuary Renewable Energy Super Cluster;
• Daresbury Science Campus, near Warrington and Runcorn;
• Newquay AeroHub in Cornwall;
• The Solent Enterprise Zone at Daedalus Airfield in Gosport;
• MIRA Technology Park in Hinckley Leicestershire;
• Rotherwas Enterprise Zone in Hereford;
• Discovery Park in Sandwich, Kent and Enterprise West Essex in Harlow;
• Science Vale UK in Oxfordshire;
• Northampton Waterside;
• Alconbury Airfield, near Huntingdon in Cambridgeshire;
• Great Yarmouth in Norfolk, and Lowestoft in Suffolk.

The aim of enterprise zones is to stimulate jobs and the economy through the employment of various measures including:
• 100% business rates discount for a period of 5 years
• Faster broadband
• Simplified planning
• Business rate growth to be shared among local authorities for twenty-five years

In addition, businesses in some zones will benefit from enhanced capital allowances.

The use of Enterprise Zones as a means of boosting the economy is not a new one. Originally conceived in the 1980s, the first wave of Enterprise Zones, part financed by tax efficient investments, proved a great success. Probably the best known Enterprise Zone to date is Canary Wharf, conceived as a means of regenerating a large derelict area on the outskirts of London. This original raft of Enterprise Zone schemes concluded at the end of the 2010/11 tax year having successfully developed sizeable tracts of land across the country, partly financed via tax efficient Enterprise Zone Syndicate investments.

As tax mitigation specialists Newshams are able to give advice on 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 your tax costs or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

http://newshams.com

23rd August 2011

Further details in respect of the new Zones can be found on:
http://www.hm-treasury.gov.uk/press_96_11.htm

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What price the 50% tax rate?

Posted on August 18th, 2011

When the previous Government introduced the idea of a 50% top tax tier many predicted that all this would achieve would be a mass exodus of the wealthy from UK shores. Indeed in an article of 13 December 2009, the Sunday Times reported that Britain’s financiers and entrepreneurs were quitting the UK at the rate of 10 per week.

It was therefore pleasing to note a recent report in Accountancy Age with the headline “Top tax rate ‘exodus’ fails to materialise”. In various publications over the past few weeks reasons for this lack of exodus have been given as:
• The 50% tax rate was branded as temporary so many decided to ride out its effects
• The tax band actually caught comparatively few taxpayers in its net
• The higher tax rate acted as an incentive to seek ways of mitigating tax

Whatever the reason, the Chancellor, George Osborne, has asked HMRC to analyse the effects of the 50% tax band. Branding it uncompetitive, Mr Osborne went on to say that “There’s not much point in having taxes that are very economically inefficient.”

Certainly, Newshams can see little point in moving abroad to escape the top tax rate when one can implement non-aggressive and yet highly effective tax strategies which mitigate tax at the 50% and even 40% tax rates. Although George Osborne is ”taking very tough action on tax avoidance,” legitimate tax planning strategies can and do reduce tax for higher rate taxpayers; enabling them to stay within the UK and contribute to the economy via their businesses and personal expenditure.

The HMRC review will not be finalised until after the self assessment deadline on 31 January 2012. In the meantime those caught by the higher tax rate may decide to continue to explore tax mitigation techniques in preference to migration.

As tax mitigation specialists Newshams are able to give advice on 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 your tax costs or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

http://newshams.com

18th August 2011

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Tax help for riot-affected businesses

Posted on August 15th, 2011

For those businesses affected by last week’s riots, the last thing that they need is to have to deal with questions of tax. Well done then to HMRC who have opened a dedicated help line for all those individuals and businesses affected by the riots. The helpline (0845 366 1207) is to be staffed by those able to “provide comprehensive advice and deal sympathetically with problems currently faced by businesses and individuals”.

Some of the measures available to HMRC are:
• The discussion of practical solutions in cases where records have been lost due to the riots
• The provision of time to pay arrangements
• The waiving of penalties imposed due to late returns or payments.

The HMRC helpline is just one of the measures available to help affected businesses following a speech by the Prime Minister, David Cameron, last Thursday. Other measures include:
• The ability to claim compensation via the Riot Damages Act with the deadline for claiming having been extended from 14 to 42 days. Information on claiming is available from local police authorities.
• Help from local councils via a £20m high street support scheme alongside a £10m council recovery scheme announced by the Government. This includes the possibility of a 75% business rates rebate and fast tracking of planning permissions. Contact your local council for further information.
• Sympathetic help available from the banks including the provision of additional finance and the waiving of penalty charges or interest. A summary is available on the British Bankers Association website.

Those businesses affected by the riots at least have the slight consolation that the events occurred in the quieter summer months rather than in the crowded tax reporting period at the end of the year. Companies generally have to pay tax within nine months of the end of their financial year, with the tax return being completed within twelve months. Whilst sole traders and partnerships can also tie in tax returns with their accounting year, the majority choose to link this with the tax year to avoid complications. This gives the option of paper filing by the end of October or filing on line by the end of January.

Whilst in theory the filing deadlines give individuals and businesses some leeway to sort themselves out before worrying about tax payments and returns, it may still be worth contacting the HMRC helpline at an early stage. If there is any chance that records may have been lost or that time may be required to pay the earlier a discussion is initiated with HMRC the better the chance of practical help.

As tax mitigation specialists Newshams are able to give advice on 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 your tax costs or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

http://newshams.com

15th August 2011

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