FCTC London Conference - June 2016

FCTC - London Conference

21 June 2016

www.fctc.co.uk

Chairman's Welcome

Dave Williams

www.fctc.co.uk

Housekeeping

www.fctc.co.uk

Tax efficient equity incentives for SMEsStuart Rogers

www.fctc.co.uk

Agenda

• Basic share awards

• EMI

• ESS

• Growth shares

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Basic share award

• Are the shares valuable? How do you value the shares?

• Income tax is due on the receipt of the shares

• A ‘dry tax charge’ is created

• Can you agree the value with HMRC?

• Who pays the tax on the award? Employee or employer?

• Base cost for CGT purposes is value taxed to income tax

• Shareholder’s agreement required?

www.fctc.co.uk

Basic share award

• s.431 election

• General earnings charge on date of acquisition, preclude any further charge to Income Tax

• 14 days of acquisition

• Not filed with HMRC

• Reporting obligation – Form 42

• What to report

• Restrictions on shares

• Amount paid

• To be filed by 6 July following tax year

www.fctc.co.uk

What is a form 42?

• Reporting transactions in employment-related securities

• Example: directors recently ‘granted’ an interest in shares by founders

• Many exceptions to reporting• Approved schemes (EMI limits apply)

• Initial & further allotment on incorporation

• Normal course of ‘domestic, family or personal relationship’

• Share for share exchanges

• Shares acquired independently

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Alternatives to share award?

• Enterprise Management Incentive Scheme

• Employee Shareholder Status

• Growth shares

What is the objective behind the award? Incentive for future performance, or reward for past service?

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Enterprise Management Incentive

• Size criteria (headcount - 250, gross assets - £30m)

• Excluded activities – e.g. leasing, legal services

• Issues with companies with ‘investments’

• Qualifying subsidiaries – issues with some JVs and foreign entities

• Company issuing options must be ‘independent’

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• Unapproved options are taxable to income tax at exercise on difference between MV at exercise and price paid

• EMI options are taxable to income tax at exercise on difference between MV at grant and price paid

• If price paid is same as MV at date of grant there is no income tax – only CGT when shares sold

• Value can be agreed in advance of options being granted

• Entrepreneurs relief available provided options held for 12 months

• CT deduction available on difference between price paid and MV at the date of exercise (commonly used to increase price on a sale)

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Value

TimeGrant

No IT

Exercise

IT using MV at grant

Sale

CGT using MV at grant

as base cost

EMI - basic operation

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Using EMI to provide an award on exit:

• Options granted which can only be issued on a sale or change of control

• Design is very straight forward and simple to understand

• Obtain clearance, agree value with HMRC and grant options

• Employee is insulated from growth in value until exit and pays income tax based on MV at date of grant (unless he pays for the shares)

• Any exercise price or income tax arising is paid for from sale proceeds

www.fctc.co.uk


Using EMI to provide an annual share award:

• Agree structure of share awards – e.g. 1% per annum over 5 years dependent upon performance criteria to be met each year

• Designing performance criteria often more challenging

• Agree value with HMRC and grant options over the entire 5%

• Employee is insulated from growth in value over 5 years and pays income tax based on MV at date of grant (unless he pays for the shares)

• If employer wants to pay the tax then a grossed up bonus is required

www.fctc.co.uk

Employee Shareholder Status

• Introduced in September 2013

• Was increasingly used in tandem with growth shares

• Maximum exempt gain rules of £100,000 introduced FA 2016

• Now largely seen as defunct

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Growth shares

• Ordinary share capital divided up based on rights to first £x on a winding up.

• New class of shares issued with rights above the current value of the company

• In theory not worth anything and so no income tax due

• Often used where EMI not appropriate

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Summary

• What is your objective behind involving staff in equity?

• Is outright ownership required? Or are options better suited?

• Are there alternatives other than a basic share award?

• If tax will become due how can it be mitigated and who will bear the cost?

• Once you have decided which route to take, what compliance requirements are there?

Common Company Law mistakes made by Accountants

ASHFORDS LLP. COMMON COMPANY LAW MISTAKES MADE BY ACCOUNTANTS. 21 JUNE 2016.

Speaker

James LyonsCorporate Partner

Ashfords LLP

[email protected]

James is a corporate lawyer with 18 years of experience advising on all types of corporate transactions including mergers and acquisitions, equity fundraising and joint ventures. He also has particular experience advising public companies on their corporate affairs; including IPOs, public takeovers and secondary fundraisings as well as governance issues. He has advised companies ranging from start-ups and larger private companies to companies listed on AIM, ISDX and the Main Market.

James has also been ranked in Chambers and Partners 2015 as a recognised practitioner for Corporate M&A (Mid-Market).


Topics

• Execution of contracts

• Company incorporation

• Legal housekeeping

• Certain Companies Act provisions to be aware of


Execution of contracts

• Deed vs ‘simple contract’

• Simple contract – one signature suffices

• Deed – signing by individual (in presence of a witness)

• Deed – signing by company (2 directors, or one director with witness)

• Dating of documents

• Signatures on final versions of documents (“Mercury” case)


Company incorporation

• Use of Model Articles not always appropriate (wholly-owned subsidiary vs multiple shareholders)

• Need for different classes of share?

• Need for provisions governing/restricting transfers of share e.g. pre-emption rights (NB Statutory pre-emption rights only apply on a new issue of shares)

• Employee owned business: consider need for leaver provisions in respect of shares (including options)

• Consider shareholders agreement (NB use precedents with caution)


Legal “housekeeping” (Value protection)

• NDAs: protection of confidential information

• Commercial contracts/T’s & C’s, e.g. limit liability

• Registration/vesting of IP in company, not individuals – TMs, domain names etc.

• Employment contracts, e.g. non-complete obligations

• Maintaining statutory registers


Certain Companies Act provisions to be aware of

• Definition of “member” (s112), register of members (s113)

• Duties of directors; conflicts of interest (s175,177 etc)

• Reduction of capital via solvency statement : need to register at Companies House in order to make capital reduction effective (s644)

• Pre-emption rights on new issue of shares (including options); can be disapplied by special resolution (s561, 567)

• Certain transactions with directors requiring shareholder approval (e.g. substantial property transactions, s190)

• Register of People with Significant Control (s790A onwards)

www.fctc.co.uk

Topical HR issuesAmanda Chadwick

www.fctc.co.uk

BREAK

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Current trends in tax investigationsChris Watts

www.fctc.co.uk

HMRC Activities

• Increased number of investigators

• Expansion of specialist units i.e. Affluent Compliance Team

• Targets for tax collected

• Increased COP9 powers

• Amnesties, taskforces, disclosure opportunities

- Credit card sales

- Let Property

- NMW

- Second Income

- General disclosure

www.fctc.co.uk

Compliance Checks

• Careful what is provided to HMRC. They can only ask for 12 months of info and for relevant information.

• Do not normally supply personal bank statements unless business transactions have gone through

• Have to suspect errors in earlier years to go back further. Resist fishing expedition or claims that s.29TMA 1970 is valid.

• S.36 FA2008 information requests can be appealed

• Advise HMRC of delays

• Response can affect penalty loading. Keep HMRC on side where possible

• Dig heels in if HMRC are being belligerent or ignorant!

• Don’t be bullied by HMRC to accept large settlements!

www.fctc.co.uk

Discovery Assessments

When can HMRC use one?

• Not after 12 months from filing if disclosure has been made on Tax Return, even if error is clear.

• Up to 4 years for innocent errors or reasonable excuse

• Up to 6 years for careless behaviour or negligence

• Up to 20 years for deliberate or fraudulent conduct

www.fctc.co.uk

Penalties & behaviour

• Why is it so important now?

• Affects assessable periods, HMRC will seek at least careless to open up to 6 years

• Reasonable care 0%

• Careless 0-30%

• Deliberate 20-70%

• Concealed 30–100%

• Cooperation during enquiries more important to keep penalties reduced.

• For deliberate, burden of proof rests with HMRC to show intent

www.fctc.co.uk

Suspended Penalties

• Suspended penalties for careless behaviour

• Up to 2 years to avoid penalty crystalising

• E.g. error on private use adj in accounts where estimated % used. Agree to keep detailed logs for 2 years to accurately calculate private use.

• If agent at fault on technical point can argue nil penalties.

• HMRC should offer automatically if ‘SMART’ conditions met

• Some officers not so keen!

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Alternative Dispute Resolution

• Mediation to settle cases at stalemate without need to go to Tribunal.

• In addition to current HMRC Interval Review procedures

• HMRC claim successful trial with two-thirds of disputes fully or partially resolved.

• Does not affect usual review or appeal rights.

• Mediator is ‘independent’ HMRC officer.

• How much benefit does it really offer?

• If on purely technical point of law, better off going to Tribunal to settle.

• Stops cases being published for future precedents!

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Deliberate behaviour

• Avoid agreeing where possible

• HMRC can assess up to 20 years

• High penalty loadings

• Company directors now potentially liable to company liabilities if they have acted deliberately on company affairs and HMRC cannot recover from company

• HMRC pushing more cases up to Code of Practice 9 where deliberate behaviour is suspected

www.fctc.co.uk

Code of Practice (COP) 8 & 9

• Specialist Investigation Units of HMRC

• Senior and knowledgeable HMRC officers

• Suspected fraudulent or deliberate behaviour

• Ensure you know what you are doing or seek advice

• HMRC COP9 notes constantly updated

• HMRC not always right!

www.fctc.co.uk

What is tax fraud?

• “A person commits an offence if they are knowingly concerned in the fraudulent evasion of tax or duty, by themselves or another person …….. It is not relevant that you might not have actually gained from your deliberate conduct”

• Concealing or withholding relevant facts

• Failing to disclose a liability or duty to tax (now includes failure to submit Tax Returns)

• Misrepresenting tax affairs

www.fctc.co.uk

Code of Practice 9

• Contractual Disclosure Facility offered

• Strict 60 day reply limit

• HMRC will not give information before deadline

• Immunity from prosecution if full disclosure and response within 60 days

• Will refer to Criminal Investigations if terms not met or disclosure materially incomplete

• HMRC expect taxpayer to know if he has done wrong without detailed review of affairs required.

www.fctc.co.uk

Code of Practice 8

• Specialist Investigations Unit

• Often offshore and large transactional issues

• No immunity from prosecution, characteristics suggest intended evasion/deceit to hide wrongdoing

• Full disclosure and cooperation reduces chances of prosecution and mitigates potential penalties

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Other consequences

• Publishing details of deliberate defaulters

• Managing serious defaulters program

• Further routine checks and higher requirements for disclosure in Tax Returns and accounts.

• Can be avoided with full disclosure and cooperation

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FCTC and Tax Investigations

• Ex HMRC Inspectors

• COP 8 & 9 specialists

• Assist with Criminal Investigations and arrange suitable legal representation

• Advise on voluntary disclosures for taxpayers

• Taxwise will cover costs of FCTC assistance into eligible insured cases at your covered rate

www.fctc.co.uk

FCTC Investigation Team

• Dave Williams, Chris Watts and Mark Davies for Tax Compliance enquiries, COP8/9 and Criminal cases

• Non-res, non-dom and offshore investigations – Karen Bowen

• PAYE, NMW & CIS – Richard & Julia Clutterbuck

• VAT and MTIC – Richard Staunton

www.fctc.co.uk

Coping with NRCGT, ATED and additional rate SDLT

Karen Bowen

www.fctc.co.uk

Agenda

Annual Tax on Enveloped Dwellings (“ATED”)

• Occupation by non-qualifying individual - bear traps

• Tax filings and deadlines

• ATED-related capital gains

• Action points

SDLT – the 3% surcharge

• What it is and when it applies

• Example of a common scenario

• Reliefs

Non-residents capital gains tax (“NRCGT”)

• Compliance

• Transfers between connected persons

• Bear Traps

www.fctc.co.uk

Relevant for all ATED reliefs except ‘Farmhouses’ and ‘Dwellings open to the public’.

Any day on which a ‘non-qualifying individual’ is permitted to occupy is chargeable to ATED (if property valued at over £500,000).

Who is a non-qualifying individual?

An individual entitled to the interest or is connected with such a person.

Includes:

• Settlors of trusts, and

• Controlling shareholders (when taking into account interests of all associates/connected individuals), and

• The lineal ancestors/descendants of the above.

Non-qualifying individuals permitted to occupy

www.fctc.co.uk

Non-qualifying occupationLook forward and back

The non-qualifying period will look forward and back as follows:

• Forward: from the day of the non-qualifying use for the next 3 chargeable periods or, if earlier, until there is a qualifying day (i.e. a day on which the property is let out to a qualifying individual).

• Back: from the start of the previous chargeable period day after the last day on which a qualifying tenant occupied the property to the date on which a non-qualifying individual is permitted to occupy the property.

• Occupation of part of the building is regarded as occupation of all of it.

Days when a non-qualifying individual is ‘permitted to occupy’ means a person does not necessarily have to physically be in occupation.

Check who has ready access to the property –

• Who has a key?

• Do they have to seek permission to use the property in advance?

www.fctc.co.uk

Bear traps - occupation

• A non-qualifying individual always triggers an ATED charge even if they pay a full market rent (unless the property qualifies for ATED relief by virtue of the relief for Farmhouses or Dwellings open to the public).

• To qualify for the property rental relief, the property must be let commercially. Occupation by friends or family at below market rent is not commercial and will cause an ATED chargeable period to apply even though they are not non-qualifying individuals.

• It can be easy for a non-qualifying individual to use an empty property if they are in the vicinity on a trip. Tell them this will cause an ATED charge. Use hotel accommodation instead – could be the cheaper option!

• Ensure companies have minuted agreement that all non-qualifying persons are not permitted to use the property without prior written consent. Also, think about who will have a key!

www.fctc.co.uk

ATED reporting/payment

ATED annual return or ATED relief declaration.

• Return must be filed by 30 April in the relevant tax year eg 2016/17 return was due by 30 April 2016.

• A relief declaration form is needed for each type of relief relevant for the company.

• Late filing penalties apply - £1,600 if 12 months late even if no ATED payable!

• ATED payment also due by 30 April – 2016/17 payable by 30 April 2016.

• Adjustments must be made within 30 days of the end of the chargeable year.

• New acquisitions must be reported within 30 days (or 90 days for newly built dwellings) unless relevant ATED relief declaration form already submitted.

Incorporations/company transfers – remember to complete an ATED return within 30 days of transfer unless transferee company already filing the appropriate ATED relief declaration form. If ATED payable, must pay within 30 days of completion.

www.fctc.co.uk

ATED – related capital gains

Applicable for any disposal of a UK residential property which has at any time during the period of ownership been liable to an ATED charge.

Ownership period may include mix of ATED and non-ATED-CGT gains – can be a very complicated calculation!

Valuation of property needed at date property came within scope of ATED:

• More than £2m: April 2013

• More than £1m to £2m: April 2015

• More than £500k to £1m April 2016

Gain applicable to ATED chargeable period taxed at 28% without indexation relief.

Non ATED-CGT gain (after allowing indexation relief) is liable at corporation tax rate (if UK company or NRCGT gain)

ATED-CGT gains do not qualify for CGT group relief, NRCGT group relief, fixed asset to trading stock relief. ATED-CGT gains applicable to such transfers are chargeable to tax

www.fctc.co.uk

Action points

• Identify relevant clients and inform them of ATED

• Check if you have up to date property values/addresses

• Educate clients who may be impacted in the future about ATED – in particular the time limit for filing an ATED return after acquiring a new residential property valued over £500,000.

• Check if ATED services are covered in the client’s engagement letter

• Check if client has completed authorisation form ATED1 (ATED version of 64-8)

• Check if an ATED-CGT gain is applicable for any inter-company transfer as relief is not due on that gain.

• Check if there is an ATED-CGT gain applicable for any property transferred from fixed asset to trading stock – no relief on that gain.

www.fctc.co.uk

SDLT bands and rates for dwellings

Remember – companies acquiring residential property over £500,000 pay 15% on the full purchase price if it has a non-qualifying use.

(LBTT applies at the same rates for residences in Scotland)

SDLT rate

+3% surcharge from 1 April 2016

From 4 December 2014 (proportionate)

SDLT band max (without 3%)

Cumulative total (without 3%)

SDLT band max (with 3%)

Cumulative total (with 3%)

Difference of 3%

0%

0% on properties less than £40,000

£0 £0 £0 £0 £0 £0

0% 3% First £125,000 0 0 £3,750 £3,750 £3,750

2% 5% Then £125,000 to £250,000 £2,500 £2,500 £6,250 £10,000 £7,500

5% 8% Then £250,000 to £925,000 £33,750 £36,250 £54,000 £64,000 £27,750

10% 13% Then £925,000 to £1.5m £57,500 £93,750 £74,750 £138,750 £45,000

12% 15% Over £1.5mExcess over

£1.5m x 12%

+ 12% on excess

Excess over £1.5m

x 15%

+ 15% on excess

+3% on excess

www.fctc.co.uk

SDLT 3% surcharge

• Applies to all residential property purchases over £40,000 by companies (unless acting as nominee for individual) and discretionary trusts.

• Generally applies to individuals acquiring an additional property (worldwide):

• Relevant for all co-owners purchasing a dwelling if at least one co-owner has an additional residential property at date of completion which is not excepted from the 3% charge.

• Spouses and civil partners treated as ‘one’

• Parents and minor children treated as ‘one’

• Residential property owned by a trust is an additional property for the life interest beneficiaries acquiring residential property.

• Likewise, residential property owned by a life interest beneficiary is ‘additional property’ for trustees of a life interest trust acquiring residential property.

www.fctc.co.uk

3% SDLT reliefs - individuals

• 3% is not charged on the purchase of additional property by an individual if:

• It replaces their former main residence (worldwide) sold within the last 36 months, or

• The only other property owned by the individual was inherited within the previous 36 months and the individual does not own more than 50% in the inherited property at date of completion.

• The property is acquired for consideration of less than £40,000.

• Caravans, mobile homes and houseboats are not subject to the 3% surcharge and are not regarded as ‘additional properties’.

• 3% is chargeable on purchase of additional property if former main residence is still owned – but refund of 3% may be reclaimed if the main residence is sold within 36 months

• Watch co-owner’s position – may invalidate 3% relief!

www.fctc.co.uk

ExampleCommon scenario

Sarah owns her own home. She meets Peter who also owns his home. In addition, Peter owns an investment property. After a while they decide to buy a new home together.

Sarah and Peter both market their homes but Peter finds a buyer before Sarah. They see a new home they would like to buy jointly and their offer of £2m is accepted. They complete on that purchase on the same day that Peter completes on his sale.

Peter still owns his investment property on the day of completion but the new home is replacing his former main residence so he would normally qualify for relief from the 3% surcharge.

However, Sarah has not been able to sell her home. She is a co-owner and because she owns an additional property at completion, the 3% surcharge is applicable for both of them. They need to find an additional £60,000 (i.e. £2m x 3%).

www.fctc.co.uk

Example – common scenario (continued)

Peter could acquire the new home in his sole name but

• he may not be able to get a mortgage in his sole name,

• Sarah may want to have an interest too – any future purchase of the property interest by her (perhaps when she has sold her property) would be another SDLT event,

• Peter could gift her a share in the property later. But watch SDLT on transfer of a mortgage to Sarah. Also, any future gift must not be pre-agreed.

Option of Peter being sole owner is only possible if they are not married on the date of completion!

Sarah could gift her former home to a discretionary trust before completing on the new purchase. But its value may be higher than the IHT nil-rate band and there are other tax implications to consider.

Or they could pay the 3% SDLT in the hope that Sarah will sell her home within 36 months at which time they can reclaim the £60,000.Relevance of GAAR and SDLT anti-avoidance legislation must be considered for all planning

www.fctc.co.uk

SDLT reliefs

Always consider whether a residential property acquisition qualifies for SDLT relief:

• Acquisitions of more than 6 residential properties may be treated as non-residential property so the lower commercial rates apply with no 3% surcharge.

• Alternatively, claim multiple dwellings relief – average of property values x number of properties at residential rates (possible for acquisitions of more than 1 property).

• If the property acquired is a mix of residential and non-residential property, the non-residential rates may apply.

• A transfer of residential property from a partnership to a company qualifies for full SDLT relief.

• A transfer of property between companies in the same group qualifies for full SDLT relief.

Always check the conditions that must be met to qualify for the relevant relief and the events that can cause a claw-back of relief.

www.fctc.co.uk

Non-residents capital gains tax

Applicable for:

• Non-resident owners disposing of UK residential property after 5 April 2015 (regardless of value of property or its use – so different to ATED)

• Disposals must be reported to HMRC using online NRCGT form including:

• Owners not liable to NRCGT because they are liable only to ATED-related CGT

• Owners qualifying for main residence reliefs that would reduce chargeable gain to nil.

• Owners that are selling at a loss.

• NRCGT deadline is 30 days following completion of conveyance.

• Late filing penalties apply - £1,600 if 12 months late even if no NRCGT payable!

• Payment also within 30 days unless tax reference held (SA700, SA900 or ATED references) – if live tax reference, must also declare in the tax return for the year of disposal and pay on normal due dates.

www.fctc.co.uk

Transfers between connected persons

Nil gain/loss transfers falling within section 288(3A) TCGA 1992 are not reportable, including:

• between spouses/civil partners,

• between companies in same “NRCGT group”.

• Take care with intergroup transfers:

Transfer to UK company by non-UK company does not qualify for group relief – NRCGT gain realised is taxable (also check Section 13 CGTA 1992 for any gain accrued before 6 April 2015).

• Transfers between non-resident companies may qualify for relief from NRCGT but pooling election must be made (deadline applies).

• Always consider ATED-CGT – this takes priority over NRCGT (but a NRCGT return is still necessary)

www.fctc.co.uk

Bear traps!• Date of exchange is the CGT date of disposal whereas completion date denotes the

deadline for NRCGT filing – check whether client is non-resident at exchange date.

• If individual is leaving/coming back to the UK and is relying on split-year treatment, check he meets at least one of the split-year Cases if he is to benefit from the April 2015 rebasing.

• Check where foreign incorporated companies are managed and controlled. Shifting management and control to the UK will cause the company to become UK tax resident resulting in the loss of April 2015 rebasing. Watch out for directors/shadow directors moving to the UK.

• Is your client aware of the temporary non-resident rules? If he resumes UK sole residence within five years, the benefit of April 2015 rebasing is lost.

• Check if elective options are more beneficial to calculate NRCGT gain/loss – don’t assume April 2015 rebasing default position is always the best.

• Gifts by non-residents are disposals at market value and NRCGT applicable/filing deadline 30 days from date of completing conveyance. Watch declarations of trust if not between spouses and company liquidations/transfer of property to shareholders.

• Consider planning options – non resident individuals can transfer/sell shares in companies without NRCGT (better than holding UK property personally?) - but may have a local tax exposure! From 6 April 2017 watch out for IHT changes.

www.fctc.co.uk

Employment taxes round upScott Campbell

www.fctc.co.uk

Overview

• Paying expenses post-dispensation

• Payrolling Benefits In Kind

• Supervision, Direction or Control – HMRC’s new tool

• HMRC Consultation on Public Sector Personal Service Companies

www.fctc.co.uk

Expenses

• HMRC removed the need for a Dispensation, and employers now self-assess expenses instead.

• Shift in onus from HMRC to employers to ensure compliance processes are correct

• Up to employer rather than HMRC to determine if an expense can be paid tax-free

• Advisors need to reiterate importance in maintaining a robust expense procedure

• Advisors need to ensure clients know what can be paid tax-free

• Bespoke rates need to be agreed separately, or renewed if dispensation more than 5 years old – advisors to review bespoke rates agreed for clients in dispensation applications

Changes that came into force from April 2016

www.fctc.co.uk

Payrolling benefits

• Drive to expand electronic submissions and real time reporting

• Removes the need to report benefit on P11D and P46 (car), and report on FPS instead

• Mandatory electronic registration to opt to payroll the benefit, must continue to do so for current tax year

• Register by 5th April 2016 for 2016/17 – too late to start now

• To register must use: Payrolling Benefits in Kind (PBIK) service

• Tax on benefit collected in real time for the employee


www.fctc.co.uk

Payrolling benefits

• For the 2016/17 tax year it’s not possible to payroll vouchers, credit cards, living accommodation and employee loan benefits

• These benefits still reportable via P11D

• Non-cash vouchers and credit tokens payrolled from April 2017

• Advice to clients should be not to register if all benefits can’t be payrolled, as doubles up on compliance

• Autumn Statement announced review of tax treatment for living accommodation in an attempt to allow for payrolling

• Class 1A due on benefits still reported and collected on P11D(b)

• P9D removed from 2016/17• National Insurance liability increase as P9Ds do not attract Class 1A, but reporting on a

P11D does


www.fctc.co.uk

Supervision, Direction or ControlAgency and Travel and Subsistence Legislation

• New Section 44 agency legislation from April 2014: • Anyone in contractual chain had ‘right to supervise, direct or control’ (SDC) the self-

employed worker

• legislation presumption is that SDC exists

• If SDC exists, closest intermediary (usually the Agency) to end user must operate PAYE and NIC

• Resulted in agency’s moving to umbrella company workers, as to high a risk to engage self-employed worker

• Shift in self-employed becoming employees of umbrella companies • Utilise tax free travel and subsistence expenses to obtain higher net income than

standard PAYE employees

Self-employed subcontractor

ContractingCompany Agency End User

www.fctc.co.uk

• HMRC didn’t like the rise in the use of umbrella companies exploiting travel and expense legislation

• HMRC satisfied with the significant market shift to PAYE for previously self-employed as a result of change to agency regulations

• April 2016 changes to travel and subsistence legislation• Adopts similar SDC test when intermediary in contract chain

• When SDC exists previously temporary workplaces treated as a permanent workplace, meaning no tax free relief on travel and subsistence expenses

• HMRC hope that this make it no longer advantageous to work via umbrella company


www.fctc.co.uk

• No clear definition of the meaning of the SDC• HMRC guidance unclear, and contains errors

• HMRC acknowledge that the meaning of the SDC has not been considered before the tribunals or the courts, and is unlikely common ground is found until tested.

• Talking with clients, our experience tells us that the contracting market is in limbo

• Companies are adopting a range of strategy's to manage their workforce

• using personal service companies

• move back to self-employment

• continue to use umbrella companies

• only employing workers directly


www.fctc.co.uk

Where next for HMRC

• A move to restrict the use of Personal Service Companies in the Public Sector

• Broad definition of Public Sector:• National and Local Government

• NHS, Transport for London, Tate Gallery – extensive list within Annex B of consultation

• Obligation on ‘engager’ of PSC to deduct PAYE and NIC if within rules

• Consultation closes 18 August 2016, but rules to come into force from April 2017

• Two Part test to determine if within the new rules• Online tool being developed to help engager confirm if within the rules

Consultation on Off-Payroll working in the Public Sector

www.fctc.co.uk

Where next for HMRC

• Part 1 of the test:• Work in Public Sector

• Less than 20% of Contract Value is for materials

• Worker owns the PSC

• Part 2 of the test:• Personal Service – worker required to do work themselves

• Control – Does the engager control or have right to control the worker

• Test simplifies IR35, and PSC could still be outside of IR35• What then happens to the PAYE and Class 1 NIC suffered?

• How would the engager get a refund of Employers Class 1 NIC?

• How would the engager know the PSC is outside of IR35, if dealt with at PSC’s year end by own accountant?

Consultation on Off-Payroll working in the Public Sector

www.fctc.co.uk

Spotting clients in trouble and what to doSteve Henson

www.fctc.co.uk

A little bit of history…

• Definition

• First recorded insolvency process - Hammurabi Code (2250 BC)

• Twelve Tables of the Roman Republic (450 BC)

• Methods for repayment usually from a debtors own body, including imprisonment, enslavement, death!

• Bankruptcy Act 1542 introduced ‘pari passu’ or proportionate distribution, but still recognised a debtor as a criminal

• Present day, no longer distinguished as a criminal automatically, but Internationally…

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Dubai – 2012

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Debt Options

• Negotiating with creditors

• Time to Pay Arrangements (HMRC)

• Recovery & Turnaround

• Voluntary Arrangements

• Administration

• Receivership

• Pre Packs

• Terminal Insolvency

• Liquidation

• Bankruptcy

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Directors Duties – In Summary

• to act within powers in accordance with the company’s constitution and to use those powers only for the purposes for which they were conferred

• to promote the success of the company for the benefit of its members

• to exercise independent judgement

• to exercise reasonable care, skill and diligence

• to avoid conflicts of interest

• not to accept benefits from third parties

• to declare an interest in a proposed transaction or arrangement

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Overdrawn Directors Loan Account

• Very normal for low income to be supplemented by dividends

• Tax Advice provided by accountant

• No liability arising on accountant for good advice!

• On insolvency O/D DLAs are repayable

• Illegal if in breach of the Companies Act

• As an illegal transaction, cannot be offset against monies owed i.e. from a personal guarantee paid by a director.

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Illegal Dividends

• Deemed illegal for procedural irregularities as well as lack of shareholder funds

• Liquidator is unlikely to be successful for procedural irregularities

• Dividends can be shown as illegal if the assumptions on the balance sheet are later shown to be ‘frivolous’

• In this instance cannot offset monies owed

www.fctc.co.uk

Wrongful Trading

• Sometimes referred to at ‘Trading whilst Insolvent’

• Definition:

‘At some time before the commencement of winding up of the company, if a director knew or ought to have concluded that there was no reasonable prospect that the company could avoid insolvent liquidation, that director can be liable to compensate the company’.

• A director is deemed to have have the knowledge, skill and experience that may reasonably be expected of a person in his position

• A more qualified individual, such as an accountant, will have a higher bar

• Ignorance is no defence

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Preferences

‘The company does anything, or suffers anything to be done, which has the effect of putting a person in to a better position , which in the event of insolvency, will be better than the position he would have been in, had it not been done’.

• Must be insolvent or rendered insolvent by the transaction

• Must prove ‘desire to prefer’

• If connected desire is presumed

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Transactions at Undervalue

‘The company makes a gift, or enters in to a transaction on terms that provide for the company to receive no consideration, or significantly less than the value in monies or monies worth, of the consideration’.

• Must be insolvent or rendered insolvent by the transaction

• If connected, insolvency is presumed

• Defence of ‘good faith’

www.fctc.co.uk

Impact on Directors – Failure to Comply

• Financial

• Personal Liability / Fine

• Bankruptcy

• Loss of Matrimonial Home

• Matrimonial Proceeding / Divorce!!

• Commercial

• Disqualification (2-15 years)

• Imprisonment

www.fctc.co.uk

Trigger Points

When reviewing client records or meeting with clients, there are a few things to watch out for:

• Old creditors

• Bad debts - cash flow problems - loss of contracts - loss of subsidies

• Director disagreements/ Marital breakdown

• Increase in wage costs – needing to make redundancies.

• Bounced cheques

• HMRC TTP default/request

• High staff turnover

• Bank reduction in facilities

• Further credit

www.fctc.co.uk

Accountants Duties(to the client)

• Recognise (and advise) potential pitfalls

• Illegal dividends

• Illegal loans / loan accounts generally

• S455 Tax / benefit in kind

• Insolvency?

• Connected Transactions and quantum

• Method of advice

• Part of board meeting

• Letter from Accountant

www.fctc.co.uk

Current Trends

Administration

Bankruptcy

Company Voluntary Arrangement

Compulsory Liquidation

Creditors Voluntary Liquidation

Individual Voluntary Arrangement

Members Voluntary Liquidation

www.fctc.co.uk

Solvent Liquidations (MVL’s)

• Generally tax driven

• 2011 Budget added £25,000 max

• 5 April 2016 – Updated legislation for TiS Rules

• Risk if continuing in a similar trade or activity

• Significant Tax benefit on Capital Distribution

www.fctc.co.uk

VAT updateRichard Staunton

www.fctc.co.uk

• Land and property horrors

• Regulation 111

• Brexit – what could it mean for VAT?

Agenda

www.fctc.co.uk

• Property purchased 5 years ago in limited fully taxable business, new, VAT claimed of £365,000

• Pension scheme will now rent to co, will become separately VAT registered and will opt to tax before rent

• Company will transfer property across.

• Issues?

Land and Property horrors 1

www.fctc.co.uk

• Transfer to pensions scheme will be an exempt supply because no OTT and property not new

• Will result in a Capital Goods Scheme clawback of c. £182,000

• Pension scheme will still have to charge VAT on rent and its OTT will have an effect for 20 years

• Looking on the bright side – a stamp duty saving


www.fctc.co.uk

• Business bought land in 1993

• Constructed commercial properties shortly after

• 2014, about to sell a unit. Wrote to HMRC requesting confirmation of whether they had opted

• HMRC replied could not find any record

• Sold property for £1.7m


www.fctc.co.uk

• HMRC inspection 2015

• HMRC ‘found’ the option to tax letter

• Assessment for £283,000

• Penalty £42,500, no suspension

• Pre 2007 rules option relates to land only, awaiting response


www.fctc.co.uk

• Interesting case because;

• We won it!

• HMRC introduced new ‘change’ without any fanfare

• Argued had always done it that way!

• Current HMRC Policy unaware of decisions less than 10 years ago

• Some interaction with EC law, although that was not argued by HMRC in my case

Regulation 111

www.fctc.co.uk

Regulation 111

111 Exceptional claims for VAT relief(1) Subject to paragraphs (2) and (4) below, on a claim made in accordance with paragraph (3) below, the Commissioners may authorise a taxable person to treat as if it were input tax—(a) VAT on the supply of goods or services to the taxable person before the date with effect from which he was, or was required to be, registered, or paid by him on the importation or acquisition of goods before that date, for the purpose of a business which either was carried on or was to be carried on by him at the time of such supply or payment, and [(2) No VAT may be treated as if it were input tax under paragraph (1) above—(a) in respect of—(i) goods or services which had been supplied, or(ii) save as the Commissioners may otherwise allow, goods which had been consumed,by the relevant person before the date with effect from which the taxable person was, or was required to be, registered;

www.fctc.co.uk

• Historically treated as allow full deduction of VAT on goods held less than 4 years, services 6 months

• Around 2 years ago started apportioning claims based on use; coincided with updated manuals

• Most traders/advisors accepted because amounts so low

• Took on case because HMRC wrong in law, and unreasonable. Also exercise in 2006 where HMRC accepted law did not allow apportionment!

Regulation 111

www.fctc.co.uk

• HMRC pulled out 3 days before tribunal

• Been awarded costs

• Applied for Repayment Supplement (RS)

• HMRC now allowing claims, deciding on what to do in the future (may change the law)

• Advise anyone to go back and recover if claim partly paid, and request RS

Regulation 111

www.fctc.co.uk

YES

Brexit: Will VAT be affected?

www.fctc.co.uk

• Fortunately (for me) we are likely to keep it – VAT accounted for 20% of receipts (ironically)

• Third highest tax after income tax and NICs

• Dwarfs income from corporation tax receipts

• In most circumstances UK VAT law is derived from EC Directives

• Already had an effect – womens’ sanitary products for instance and mention of allowing states more freedom


www.fctc.co.uk

• Immediate impact would be that the UK would not be bound by CJEU decisions

• Could expand zero rate

• Could have extra rates

• Standard rate higher than 25%

• Super high rate for things we don’t like, tobacco, sugary drinks

• VAT ‘holidays’ for certain supplies, say reduce for restaurant for a few months


www.fctc.co.uk

• Could narrow exemptions

• Likely to impact on cross border sales in EC

• Distance selling, MOSS, duty all likely to be affected

• Place of supply of services – no need for business test?

• How about recovery of VAT re specified supplies?


www.fctc.co.uk

Tax issues affecting HNWIsPaul Collings

www.fctc.co.uk

1. Get Married!

• Inter-spouse transfers are exempt

• S12 IHTA84

• Make sure clients are married

www.fctc.co.uk

1. Get Married!

Example

• Tony and Barbie are not married

• Lived together for 30 years

• Own property (including) their own home worth £2,000,000

• Purchased in joint names

• Tony dies unexpectedly

www.fctc.co.uk

1. Get Married!

£

½ share of Estate attributable to Tony 1,000,000

Tony’s Nil Rate Band (325,000)

675,000

Tax @ 40%270,000

Tax if married NIL

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2. Make a Will

• Martin and Mary are married

• Two sons: Patrick and Paul

• Paul is an alcoholic

• Martin holds assets in his own name

• Martin has been married before

• Martin doesn’t have a Will

• Martin dies unexpectedly

www.fctc.co.uk

2. Make a Will

Distribution of Estate £

Martin has assets totalling 5,000,000

Mary gets first 250,000

Balance split Mary – 50% 2,375,000

Patrick 1,187,500

Paul 1,187,500

5,000,000

www.fctc.co.uk

2. Make a Will

• Do the family want Paul to Inherit?

• Inheritance tax due on value due to Paul and Patrick.

• Costs etc

• Deed of Variation??

www.fctc.co.uk

3. Give away property/Create a Family Trust

• Lee and Sheila are ‘asset rich, cash poor’

• Modest incomes

• Home is sat in 13 acres

• Offer received £6,500,000 plus four houses each worth £500,000

• Four children

www.fctc.co.uk

3. Give away property/Create a Family Trust

• Estate worth £8,500,000

• Joint IHT liability £3,140,000

• Give houses away

• Gifts or PETS for the purposes of IHT

• Survive 7 years

• Life assurance

• Do you have enough income?

www.fctc.co.uk

4. Use of Trust

• Help protect (at least in part)

• Divorce

• Bankruptcy

• Potential creditors

• Houses into Trust? What about the value?

• Lifetime charge to IHT

• < £325,000

• Planning possible?

www.fctc.co.uk

5. Pensions Funds

• Arsene operates a dredging company

• Large amounts of cash on balance sheet

• Prejudicing ‘trading’ status

• Pension contributions

• Help clean up company

• Corporation Tax Relief

• Cash in ‘IHT’ friendly environment

www.fctc.co.uk

6. Agricultural Property Relief

• 100% relief if buy Agricultural Property Relief

• Agricultural property risen in value

• Don’t have to own Wellies!

• Outside of your estate once owned for 7 years

www.fctc.co.uk

7. Business Property Relief

• Invest in businesses

• Use of Rights Issues

• Shelter funds

• Retain control

• Business Property Relief

• Retain control

• 2 years vs 7 years

• Use in conjunctions with Trusts

www.fctc.co.uk

8. Tax Efficient Investments

• Able to obtain tax reliefs

• Need to speak with Independent Financial Advisor

• Must understand risks – involve “family”?

www.fctc.co.uk

9. Tax Efficient Wills

Beneficiaries = £13,800 better off

Charity = £17,500 better off

www.fctc.co.uk


• Mr A is married to Mrs A

• Mr A is aged 86

• Mrs A is aged 75

• Joint estate worth £4,000,000

• IHT liability £1,340,000

www.fctc.co.uk


• Mr A’s Will drafted such that:

• Gifts of £300,000 made to various individuals

Better approach

• Everything to wife on life interest with letter of wishes to trustees

• Power to appoint

• “Wife” makes gifts in her lifetime

• Saves £120,000 of IHT

• Many years before Mr A been married and widowed! Another NRB to claim!! Saving £130,000!!

www.fctc.co.uk

Final Option

• SKI - ing – Spend Kids Inheritance!

www.fctc.co.uk

Chairman's Close

Dave Williams

www.fctc.co.uk

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