Saturday, October 18, 2014

Why overtaxing non-doms is not a good idea

Wealthy foreigners living in the UK are paying less income tax, but it is unclear whether this is due to relocation or rearrangement of their tax affairs. According to HM Revenue & Customs figures released under a Freedom of Information request, the amount of income tax paid by non-domiciled residents fell from £11.4bn in 2011-12 to £10.8bn in 2012-13, the most recent year for which estimates are available.

This was largely due to a £500m fall in the income tax yield from non-doms who elect to be taxed on a so-called “remittance basis” to £4.6bn. While this represents a 10 per cent year-on year decline in revenues in 2012-13, the number of individuals claiming the remittance basis that year fell by only 6 per cent to 46,700. Under the remittance basis, income and gains from UK sources are taxable along with any foreign income and gains brought to the UK. Income generated overseas that is not repatriated to the UK is not liable for tax. To benefit from this, an annual charge of £30,000 is payable after seven years as a UK resident, rising to £50,000 after 12 years. Non-doms who do not choose to be taxed on the remittance basis are liable to pay UK tax on their global income and gains.

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, August 15, 2014

Using goodwill to save tax on incorporation

Incorporating a sole trader may happen for a number of reasons. For example you started a business on the side not sure whether it would work out and you wanted to reduce overhead costs initially. After a while the success is here and you want to make use of the lower taxes enjoyed by limited companies. Another reason could be that you had paid significant taxes prior to starting your business and because, as a sole trader you can offset trading losses against salaries in previous years, it makes sense to not incorporate right away if you know that your business will incur losses initially. Once the business starts to make a profit however, it makes sense to incorporate.

Incorporating means creating a company and having this new company of which you are the shareholder buy the existing unincorporated business from yourself. If the value of your business is say £100,000 you will make a capital gain of £100,000 and your company will have a goodwill of £100,000 on its balance sheet (assuming there are no fixed assets). Either the company pays you right away or most probably it credits the director's loan account allowing you to draw funds as they become available in the business. But why is it a good thing?

Friday, August 8, 2014

Back to Back loans and Remittance

The Government has announced that it is withdrawing its current treatment for commercial loan arrangements secured using unremitted foreign income or gains as collateral for a loan enjoyed in the UK. Money brought to or used in the UK under a loan facility secured by foreign income or gains will be treated as a taxable remittance of that amount of foreign income or gains. If the loan is serviced or repaid from different foreign income or gains, the repayments of capital and interest will constitute remittances in the normal way. HMRC have updated their guidance at RDRM33170.

HMRC consider that a large numbers of arrangements are not commercial and are not within the intended scope of the guidance. There was no consultation prior to the announcement and was effective immediately following HMRC’s announcement on 4 August 2014. Further details from HMRC can be found here.

Tuesday, May 20, 2014

When doctors need to charge VAT

Medical services are VAT exempt in the UK. Which means that a locum doctor providing medical services either as a sole trader or a limited company typically will not charge VAT. However, if an agency is involved, i.e. the doctor provides services to the agency which in turns bills the hospital, then both services (between the doctor and the agency and between the agency and the hospital) will attract standard rated VAT.

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.

Saturday, April 12, 2014

Let the UK government help you grow

The GrowthAccelerator is unique service led by some of the country's most successful growth specialists.

It exclusively targets high growth businesses who want to enter their next phase of growth and have the potential and determination to get there.

But best of all, its cost is highly subsidised by the government if you qualify.

To be eligible for GrowthAccelerator, the business needs to:
  • Be determined to grow ( 20% year on year)
  • Be willing to learn
  • Be registered in the UK & based in England
  • Have fewer than 250 employees
  • Have a turnover of less than £40 million

Sunday, March 16, 2014

Optimum salary for directors: changes this year

This is one of the questions we hear most often: what is the optimum salary I should take as a director?

There are many salary calculators on the web that you can use but the easiest way in the past has been to take the maximum salary that does not attract taxes nor national insurance, neither for the employee nor for the employee (see our previous article). In 2013/2014 that amount was £7,696 pa. But in 2014/2015, due to the new £2,000 Employment Allowance, there is now a new option for directors' salaries:
  1. If the company is able to use all the £2,000 Employment Allowance in the year, then the best route for the Director’s salary will be to pay over the LEL but below the secondary level in 2014/15 i.e. £7,956 pa (£663 per month). The rest will have to topped up by dividends as per in the previous years.

Friday, February 14, 2014

What is a reasonable excuse?

The deadline for filing your 2012/2013 tax return has come and gone and now 710,000 taxpayers will receive an initial fine of £100 (assuming they actually fine before the end of the month still).

That is unless they have a "reasonable excuse". But what is a reasonable excuse?

HMRC gave the following as examples of what they would consider to be a reasonable excuse:

  • A failure in the HMRC computer system
  • Your computer breaks down just before or during the preparation of your online return
  • An extended period of exceptional weather very close to the filing deadline (which may be very relevant this year)
  • Delay caused by HMRC reviewing the need to complete a return
  • Loss of tax records through fire, flood or theft
  • Serious illness
  • Disability
  • Bereavement
  • HMRC Online Service does not accept the return (where it can be proved a genuine attempt to file was made)
  • Delayed receipt of online activation codes after having registered to file online (new for 2012/13 returns)

Thursday, January 9, 2014

Nominating income when paying the RBC

For non-domiciled residents (RND) who have been in the UK for more than 7 out of the 9 previous tax years, using the remittance basis (i.e. choosing to be taxed on UK income only as long as it's not remitted into the UK) has a cost beyond the loss of personal allowances. It's called the remittance basis charge (RBC) and it's currently £30,000 if you have been in the UK for 7 out of the previous 9 tax years or £50,000 if you have been in the UK for 12 out of the previous 14 tax years.

What is less known is that the RBC is actually a tax and therefore if you decide to pay that charge, you also need to nominate the corresponding income. You would think that doing so allows you to bring that taxed income back to the UK without further cost. Unfortunately, HMRC designed the rules so that it becomes impossible to take a credit for the remittance basis charge until and unless all other non-UK income and gains are remitted to the UK. As this is rather unlikely, the RBC is essentially an additional cost of electing to be taxed on the remittance basis.