Monday, March 27, 2017

Non doms: BIR rules relaxed

Business Investment Relief (BIR) is a very attractive relief for non domiciled persons who have untaxed earnings or mixed funds abroad and who wanted to invest in the UK.

It is used a lot in conjunction with EIS or SEIS investments allowing people to bring in untaxed earnings without being taxed under the remittance basis and at the same time benefit from the tax relief provided by such schemes. New legislation included in Finance Bill 2017 now makes the BIR scheme even more flexible for any investment made on or after 6 April 2017. Here are the changes:
  1. The definition of a qualifying investment will be extended to the acquisition of existing shares and not just newly issued shares in a target company.
  2. Where the target company is preparing to trade or hold trading investments, the period during which it must actually do so will be extended from 2 to 5 years.

Wednesday, February 22, 2017

Non doms: rebasing opportunity in April

We mentioned a fund un-mixing opportunity for non-doms in a previous article. There is another opportunity for non-doms this year, albeit only available to non-doms who become deemed domiciled in April 2017 and that have actually paid the Remittance Basis Charge (RBC) in a previous tax year. In order to become deemed domiciled in the UK in  April, one needs to have been resident for at least 15 of the last 20 tax years. If the RBC has been paid in a previous tax year past, it will be possible to rebase any assets which hold unrealised capital gains as at 5th April 2017. If those assets are then sold and remitted into the UK, only gains that accrue after April 2017 will be taxable in the UK.

Rebasing applies on an asset by asset basis and there will is no requirement that any part of the sales proceeds relating to the part of the gain which arose before April 2017 should be left outside the UK. Where the asset was originally purchased with clean capital, the entire proceeds from the disposal can be brought to the UK without triggering a remittance. However, where it was purchased wholly or partly with foreign income and gains, an element of the disposal proceeds will still relate to those income and gains and so will be subject to the remittance basis in the normal way when the proceeds are brought to the UK.

Friday, February 17, 2017

Non-doms: New Mixed Fund Cleansing Opportunity

Individuals who have been taxed on the remittance basis will have a window of two tax years from April 2017 to rearrange their mixed funds held in overseas bank accounts. Where adequate records have been kept, some amounts can then be remitted to the UK from such accounts free of tax.

The opportunity will be available to all non-UK domiciled individuals who have paid tax on the remittance basis at some point prior to 6 April 2017, even if they have not paid the remittance basis charge. This includes those where the remittance basis applied without being claimed (for example when an individual's foreign income or gains were less than £2,000). It is not available however to individuals born in the UK with a UK domicile of origin who would have become non domiciled at a later date.

This will provide a valuable opportunity for many non-UK domiciled individuals to "top-up" clean capital accounts to finance UK expenditure. The individual will need to analyse the sources of funds in the account such that an amount equal to or at least less than the clean capital can be identified. This could prove to be a time-consuming and potentially expensive process for accounts which have been in existence for some time and / or where there has been plenty of activity, particularly in terms of additions, acquisitions, disposals and withdrawals.

Thursday, February 9, 2017

Pension contributions: time is running out...

It's now the time of the year to start thinking about funding savings and pensions. And all the more this year as starting next year, high earners will see their tax benefits on pensions seriously curtailed.

There are no changes this year in VCTs, EIS and SEIS funds so there is no need to talk about those. Please refer to our previous articles on the subject. So what changes to expect this year?

1. As every year, make sure to fully fund your ISA

Each of us is entitled to pay up to £15,240 prior to 5th April 2016 into our ISA. And for the 17/18 tax year the limit will increase to £20,000. Before July 1, 2014, you could only invest half your annual ISA allowance into cash. However, following changes to ISA rules, you can invest the full £15,240 allowance into a cash ISA. This is an interest-bearing account that carries no risk, although as interest rates are so low, your returns may be eroded by inflation. Also note that you can invest some of your allowance in Innovative Finance ISA, such as P2P funds.

Don't forget that your kids have an allowance as well. The Junior ISA allowance for 16/17 is £4,080.

Thursday, December 15, 2016

What is a European VAT number?

In July 2013, VAT rules for digital services sold to individuals and non VAT registered businesses were changed. From that date, these services, when supplied to EU consumers, are to be subject to VAT in the Member State where the customer belongs, even if the supplier has no EU presence. This means that non-EU businesses would have been required, under the normal rules, to register separately and account for VAT in each and every Member State in which they make those supplies. For example, a Canadian business with customers in the UK, France, Germany and Holland would have to register in, and submit declarations to each of those Member States.

In order to simplify the process, a special scheme was created that offers eligible non-EU businesses the option of registering electronically in a single Member State of their choice and account for VAT on their sales of electronically supplied services to all EU consumers on a single quarterly electronic VAT declaration which provides details of VAT due in each Member State. It's called the Mini One Stop Shop (MOSS). The return is submitted with payment to the tax administration in the Member State of registration which then distributes the VAT to the Member States where the services are consumed. Those businesses are issued a VAT number that starts with EU rather than the 2 letter code of the European country where they are registered.

Thursday, December 1, 2016

Saving tax with Deferral of Capital Gains

While Capital Gain Taxes have been slashed in the recent budget to 10% and 20% (from the 18% and 28% that it used to be), CGT has remained unchanged for residential property gains. While the tax rate for gains is lower than the one for income, amounts tend to be much bigger and far appart, making it harder to use allowances and low rate bands.

This is where deferral comes in handy. The Enterprise Investment Scheme (EIS) provides one of the mechanisms that allows such a deferral. Most people misunderstand that the general EIS conditions for income tax relief are much more restrictive than the conditions for CGT deferral. In particular the requirement that one owns less than 30% of the company or that one is connected to the business only applies to the income tax relief component of the EIS, not the CGT deferral. Same thing for the requirement that the investment be held 3 years or more: if you sell earlier the deferral just ends then (see HMRC note).

Monday, November 21, 2016

Dividend strategies for post April 2016

Prior to 6 April 2016, there was generally a tax advantage to extracting profits by way of dividends, often once a salary had been taken to utilise the personal allowance and ensure entitlement to certain state benefits. With the new dividend taxation regime from 6 April 2016, the tax advantage of dividends as opposed to salary / bonuses is reduced or in certain cases eliminated entirely. However, dividend planning is still important and is not as straightforward as it appears on the surface. Dividend planning strategies include cashflow and administrative ease as well as tax savings.

Many companies distribute dividends on a monthly basis as a means of providing themselves with a 'salary-like' income. In many cases it is only through habit and there is no reason that these frequent distributions shouldn't be replaced by a less frequent dividend followed by drawings against their current account with the company.

Tuesday, August 23, 2016

Feared non-dom reform is a go!

Following the Brexit vote, some people were wondering if the non-dom reform announced in the previous budget would indeed go forward or be shelved for the time being. There were concerns that many high net worth individuals would then decide to leave the UK putting further pressure on the premium property market. It seems that these concerns were not enough to stop the changes and now the government has released a further consultation document in which they confirm that they will press ahead with the proposed changes to the taxation of non-domiciled individuals. Here are the key changes:


IHT on Residential Property

The government has confirmed that, from 6 April 2017, all UK residential property will fall within the scope of UK inheritance tax. This means that shares in overseas companies holding UK residential property will no longer be considered as excluded property for IHT purposes, and will therefore be chargeable to UK IHT on the death of the owner, regardless of their domicile status. This treatment will also extend to overseas partnerships owning UK residential property. The definition of residential property is likely to follow the existing definition of a dwelling under the Non-Resident Capital Gains Tax rules.

Many non-UK domiciled have traditionally held UK residential property through an offshore structure in order to avoid exposure to IHT. Even following the introduction of the ATED (Annual Tax on Enveloped Dwellings) charge that now applies to properties worth over £500,000 held by an overseas company or other structure, many non-doms chose to retain their structures, accepting the ATED charge on the basis that the property would not be subject to UK IHT on their death.

Thursday, May 19, 2016

10 Reasons why it's still worth going Limited

With the recent increase in dividend taxation, many of our clients are asking whether it still makes sense to incorporate when you are a Sole Trader. It's a tough question to answer as indeed, the tax benefits of running a business as a Limited Company have now been seriously curtailed. If you extract all of the profits from your company as they arise, the total tax and national insurance (NI) paid is now almost identical whether your are operating as a Limited Company or a Sole Trader.

There are still a number of benefits however to operate as a Limited Company. Here they are:

1. Better legal protection

As the name suggests, if you run a Limited Company, you are protected in case things go wrong. Assuming no fraud has taken place, you will not be personally liable for any financial losses made by your Limited Company. Those running a business as self employed do not enjoy such protection from financial claims if things go wrong with their business. While it's possible (and recommended) to subscribe to a professional liability insurance, there is always a risk of running foul of the fine print...

2. More professional image or status

In some industries, having a Limited Company can provide a more professional image. If you are doing business with larger companies, you may find that they prefer to deal only with Limited Companies rather than Sole Traders or even partnerships. Indeed by being transparent, adhering to regulatory requirements and opening up company accounts to public scrutiny, you are demonstrating that the business is being correctly managed and this inspires confidence.

3. Wider availability of some contracts

The reason bigger corporations do not hire Sole Traders is not just image or professionalism but IR35 risk. The IR35 regulation was put in place to prevent employees to set up shop as free-lancers just to save tax. In other words if HMRC decides that a free-lancer behaves as an employee, then he is required to pay the same amount of tax and NI as an employee would. He he does not, whoever hired him is responsible for the back tax and NI, unless he operates as limited company (and in which case that limited company is responsible). It's easy to understand then why some organisations will only deal with limited companies!

4. Name protection

Once you register your company with Companies House, your company name is protected by law. No-one else can use the same name as you, or anything deemed to be too similar. As a Sole Trader, you can use a trading name but it's not protected and there is nothing to prevent a competitor to start using the same trading name as you. While it's possible to protect a trading name with a trademark, it will be in practice a lot more expensive than just creating a company with that name.

Wednesday, May 18, 2016

New HMRC SA302 procedures slow to take effect

HMRC has decided to tighten security and is now refusing to fax copies of SA302 (tax calculation summary) to mortgage providers when self employed people apply for a mortgage when acquiring a property. As a potential solution, HMRC has persuaded the Council of Mortgage lenders to propose acceptance of alternative documents printed from accountants’ software, meaning that for self employed people with an accountant, the change should be seamless.

In other words, most mortgage providers should now accept instead of the HMRC SA302, the tax year overview confirming the tax due on the return submitted. It is also possible for the mortgage providers to cross check the tax due as per the accountant's calculation against the tax paid as displayed on the HMRC web site.

The institutions that have agreed at this time on the new process are the following: