Showing posts with label tax relief. Show all posts
Showing posts with label tax relief. Show all posts

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.

Friday, December 5, 2014

Surprise changes on incorporation relief

Earlier this week, George Osborne announced during the Autumn Statement some major changes to the tax reliefs available when an unincorporated business transfers into a related company (e.g. a sole trader transferring their business into a Limited company that they also own).

It has been common practice in the past to start a new business as a sole trader business and then incorporate at a later date. The benefits were multiple. First, because a sole trader business can carry back losses, if one creates a business with high startup costs, tax relief can be carried back and offset against tax paid in previous years, including tax payed on employment earnings. For someone leaving the corporate world that's a nice incentive and this has not changed.

What has changed however is the relief available when changing the status from sole trader to limited company. Indeed once the losses have been offset against past earnings, using a limited company is much more tax efficient especially because it's possible to avoid national insurance to a large extent. In the past the incorporation process would have generated 2 significant reliefs. They are now gone.

Monday, October 6, 2014

When tax treaties don't really help...

Many countries have double taxation tax treaties with one another to allow taxpayers not to pay tax in both countries.

There are more than 3,000 double taxation treaties world-wide and the UK has the largest network of treaties, covering around 120 countries. Some treaties are more exhaustive than others but even when tax treaties cover all aspects of taxation, there can be situations where can still pay tax twice. Here are a few examples of situations that arise in practice, that we come across on a regular basis and for which unfortunately there is no easy answer.

Friday, May 16, 2014

Use of home deduction when using a Ltd

While sole traders and partners can claim an amount for using their own homes for business use, companies cannot as they do not have ‘homes’ so if a Director works from home and wants to make a claim for the cost incurred it is necessary for the Company to rent the proportion of the property that the Director uses. To ensure that the Company is able to get a corporation tax deduction for the rent it is best practice to have a rental agreement in place between the Director and the Company.

The rent charged should be worked out as being a proportion of the expenses incurred time apportioned to the time that property is available. Expenses that can be claimed include council tax, mortgage interest, heating and lighting costs, water, insurance, broadband connection, maintenance and repair, (this is not an exhaustive list) HMRC business manual BIM47820 deals with allowable expenses and suggested methods of apportionment are dealt with in BIM47815 with some examples at BIM47825.

Friday, November 1, 2013

Director's Loan Accounts: beware if overdrawn

A director's loan is a loan made by a company to a director (or related party). HMRC has been trying to prevent directors to borrow money from their business because this is money they would have to draw either as salary or dividends otherwise and pay tax and NI on those amounts.

In 2010 HMRC published the Corporation Tax Act 2010 and section 455 put in place some rules to prevent the practice: if a close company makes a loan to a relevant person who is a participator in the company or an associate of such a participator and if this loan is outstanding at year end, then 25% of that loan will have to be paid under Corporation Tax to HMRC -- unless the loan is reimbursed before tax is due (usually 9 months after the year end). Moreover, if at any point in time, the loan balance is above £5,000 the whole loan becomes a benefit in kind for the director.

Saturday, September 29, 2012

Automatic pension enrollment starts

With life expectancy increasing, millions of people are not saving enough to have the income they are likely to need in retirement. Pension saving has fallen across all age groups, with less than one in three adults contributing to a pension, although its steepest fall is among those aged 22-29, falling from 43% in 1997 to 24% today.

To force people to start saving now, the Government has come up with a scheme that automatically enrolls those working in both the private and public sectors into a workplace pension. The scheme starts next week and you'll be automatically enrolled into a workplace pension if you:
  • Are not already in a pension at work.
  • Are aged 22 or over.
  • Are under the state pension age, which is currently 65 for men and 61 and two months for women, although this is gradually rising to 65 by 2018.
  • Earn more than £8,105 a year.

Thursday, April 19, 2012

EIS and SEIS: a comparison

A number of changes were introduced in the new budget. In particular with respect to private equity investment tax reliefs. Now is the time to invest in startups, with two options both very generous when it comes to providing tax relief both for income tax but also for capital gains tax (and especially for high rate tax payers who are the natural target for those schemes).

Enterprise Investment Scheme (EIS)

Here is a summary of the changes some subject to EU State aid approval being granted:
  • The maximum annual amount that an individual can invest under the EIS will be doubled to £1m for 2012/13 onwards. There will no longer be any minimum investment; it was previously £500 in any one company.

Monday, April 16, 2012

Top tax saving tips for the self-employed

The most frequent question I get when I meet clients starting their new business is how to reduce their taxes. Obviously this is a loaded question and most of the work we do is geared towards insuring that our clients pay their fair share but not more! There are hundreds of ways you can reduce your tax liability but if you can do just 5 things, here they are:

1. Incorporate

When you start your own business, you have basically 2 options: run your business as a sole trader (or a partnership) or setup a limited company. The sole trader option can seem quite attractive since it's quite simple to administer. However, using a limited company can bring significant tax savings since companies are not subject to National Insurance. As a matter of fact, for a company with annual profits of £80,000 the overall tax savings can be as much as £5,000 per year.

Thursday, December 15, 2011

The Seed Enterprise Investment Scheme

This new tax advantaged form of venture capital scheme was announced at the Autumn Statement 2011; it will be focused on smaller, start up companies and will provide a form of relief similar to the EIS Scheme. This scheme will make tax relief available to investors who subscribe for shares and have less than a 30% stake in the company.

The main points to note are as follows:
  • The type of company this applies to is one that has less than 25 employees with assets of up to £200,000 who are preparing to carry on new business

Wednesday, November 16, 2011

Furnished Holiday Let Changes

Furnished holiday lets (FHL) have a special tax treatment in the UK. The rules have changed in recent years and will continue to change going forward. It was thought at some point that the scheme would disappear altogether following the extension to EEA properties in 2009 but it now seems that it's not going to be the case.

The benefit of the scheme is that it allows the business to be considered as a trade (with some restrictions) and in particular benefit from capital allowances on fittings, furnishings and also tools (such as vans) but also have access to capital gain reliefs such as rollover relief and business taper relief. While in the past it was also possible to offset losses against total income (not just rental income), this is not possible anymore since April 2011 and losses can only be offset against the same FHL business (UK and EEA FHLs are considered separate businesses).

Friday, October 14, 2011

Class 4 NI refunds for sleeping partners

A “sleeping partner” is a partner who does not take any part in the running of the partnership’s business. HMRC now accepts that such a partner is not liable to Class 4 NIC, because they do not fall within the definition above. Class 4 National Insurance contributions are paid as a percentage of your annual taxable profits - 9 per cent on profits between £7,225 and £42,475, and a further 2 per cent on profits over that amount.

In the past, there has been a reluctance to classify a partner as a “sleeping partner”, particularly in the case of the standard husband and wife partnership. This was because there was a fear that HMRC would argue that the sleeping partner was not really entitled to their profit share, and that as a result the active partner had made a “settlement” on the sleeping partner by consenting to their having a share of profits they had not “earned”. The fear was that HMRC would therefore seek to tax the active partner on the profits diverted to the sleeping partner – often with the result that those profits would be liable to income tax at 40% instead of the 20% they suffered in the hands of the sleeping partner.

Sunday, October 9, 2011

EIS Changes approved by the EU

The European Commission has approved for State aid purposes the increase in the Enterprise Investment Scheme (EIS) income tax relief rate to 30 per cent in respect of investments made in EIS qualifying companies on or after 6 April 2011. It has also approved the individual investment limit from £500,000 to £1 million in respect of investments made on or after 6 April 2012. Both changes were announced in Budget 2011 and the rate increase was included in Finance Act 2011. The intention is to include the increase in the individual investment limit in Finance Bill 2012.

Thursday, January 27, 2011

Getting grants in the UK

The UK government has set aside more than two billion pounds in funding programmes (grants and loans) for financing small businesses. Free government grants are available to help you start-up, expand or improve your business, if you are eligible. Unfortunately finding the right grant can be extremely tedious as there is no official repository of all available grants and reliefs available. They are many kinds of financial aids available:
Grants and Subsidies
When you receive this money, you don't have to pay it back. It's yours to use under the terms of the grant. The national and regional governments know that it's tough for small businesses to bring new products to market, make your company more efficient, or hire employees. So they provide billions of pounds a year to aid UK product innovation and grow small businesses.
The national and regional governments also recognise that some regions and business sectors need more economic development support than others. Businesses across the country are eligible for some of the billions of pounds in funding allotted for this development. Small businesses accessing grant programmes enjoy a bonus benefit: once you've successfully received funding, you're more likely to get additional grants from the same agency because you meet their program requirements.

Thursday, December 16, 2010

What tax relief for use of home?

This is a common question and unfortunately, it's a bit more complex than most people think.

Depending on your legal setup, the steps to take to recover some of your personal expenses on use of home are different. For a sole trader, the process is quite straightforward but for a limited company there is a bit more work and paperwork required:

You are a sole trader


You can just deduct a portion of the home cost. The calculation is done as a two step process. First you calculate the total running cost of your home:
  • Utilities (Water, Gas, Electricity)
  • Insurance
  • Rent or Mortgage Interest
  • Council Tax
  • Maintenance
  • Internet and Phone