Major UK Corporation Tax Changes in April

Corporation tax is a tax that companies pay on their UK profits. The current rate of corporation tax for all companies in the UK is 19%, regardless of how much profit they make. 

However, this was not always the case. Corporation tax was introduced in 1965 as part of the Finance Act 1965. 

The rate has changed over time, from 28% in 2010 to 19% in 2017 and it will change again from 1 April 2023, when new rules will come into effect. Here are the details.

The New UK Corporation Tax Rates

From 1 April 2023, there will be two different rates of corporation tax, depending on the level of profits:

• A small profits rate (SPR) of 19% for companies with profits up to £50,000
• A main rate of 25% for companies with profits over £250,000

There will also be a marginal relief for companies with profits between £50,000 and £250,000, which will reduce their effective tax rate gradually from 25% to 19%.

The new rates will apply to financial years starting on or after 1 April 2023. For example, if your company's accounting year ends on 31 December, you will pay corporation tax at the new rates for the year ending 31 December 2023.

How to Calculate Your Corporation Tax

To calculate your corporation tax liability, you need to work out your taxable profits. This is done by deducting your allowable expenses from your income. Some examples of allowable expenses are:

• Staff salaries and wages
• Rent and utility bills
• Business travel and subsistence
• Advertising and marketing costs
• Interest on business loans
• Research and development costs

60-day Capital Gains Tax Reporting

As a property owner, it is important to be aware of the tax implications of disposing of your residential property.

The 60-day capital gains tax reporting requirement for residential property disposals is a crucial aspect of the tax system that all property owners should understand. It was implemented in 2020 (initially as a 30-day rule later relaxed to 60-day) and most people are not aware of this requirement.

In this article, we will provide a comprehensive overview of the 60-day capital gains tax reporting requirement and how it applies to residential property disposals. 

What is the 60-day Capital Gains Tax Reporting Requirement? 

The 60-day capital gains tax reporting requirement is a regulation that requires property owners to report the sale of their residential property to the HMRC within 60 days of the sale. They also need to pay the tax (or an estimate of that tax since in many instances the exact calculation can only be done after the tax is finished in April) at the end of this 60-Day period. This requirement applies to all individuals or trustees who sell UK residential property for a gain, regardless of the amount of the gain. If the sellers are non-UK residents they have the obligation to report even if they haven't made a gain which is not the case for UK residents. They also need to report any sale of UK land not just residential sales like UK residents. 

Brexit VAT changes: a practical step by step guide

The Brexit transition period ended at 11pm on 31st December 2020, and there are changes that you need to be aware of when preparing your VAT return. 

Some of the key changes relating to businesses in Great Britain and their implications on the running of their business are outlined below. Please note however that businesses in Northern Ireland are subject to a new NI protocol and that the rules below don't apply to them. 

VAT Returns 

Boxes 8 and 9 were used for reporting sales of goods to, and purchases from the EU, so those will no longer be required for transactions from 1st January 2021 onwards. You will however need to report any transactions which took place prior to 1st January. These boxes will eventually be removed from the VAT return format. 

Box 2 was used for reporting ‘acquisition tax’ on goods bought from EU VAT registered businesses. From 1st January this box will only be used by businesses in Northern Ireland who buy goods from the EU. 

Service supplies

Business to Business (B2B) supplies of services

The general rule is that the place of supply is where customer belongs  and that does not change. So treatment of these sales will remain the same.

• EU customers will continue to account for local VAT in their own countries via the Reverse Charge.
• EU suppliers will continue to supply their services to UK businesses free of any VAT.  UK businesses must continue to account for reverse charge VAT on receipt of these services.
   

Business to Consumer (B2C) supplies of services

The general rule is that the place of supply is where the supplier belongs  and that does not change either. So UK VAT will continue to apply (note there are some exceptions to the general rule).

 

There is an another exception for businesses making B2C supplies of digital services as the current threshold of £8,818 no longer applies from 1st January (see below for more details).

Goods sold to the EU 

Goods sold to a EU customer will now be reported as zero rated sales - regardless of whether the customer has an EU VAT registration number or not. 

UK businesses who sell to non-VAT registered EU individuals will need to consider whether they or their customer will be responsible for paying EU VAT when the goods arrive in the EU. This must be made clear to the purchaser in the terms and conditions of sale. If the UK business is responsible then it will need to register in the relevant EU countries. 

How to put Bitcoin in your ISA or in your SIPP

With the recent run-up in Bitcoin price, a number a people in the UK have been wondering how to get some Bitcoin exposure inside their pension or their ISA. 

While in many jurisdictions such as the US or Canada, it's possible to get exposure to Bitcoin in tax wrappers such as pension funds, the UK financial conduct authority, in its great wisdom, decided that it was way too risky for the average Joe. 

The way most people get Bitcoin exposure in tax wrappers is by buying exchange listed trackers such as the Grayscale Bitcoin Trust (GBTC) in the US, the Bitcoin Fund (QBTC.U) in Canada or XBT Provider and BTCetc in Europe. While it was possible to buy such trackers into SIPPs in the past, the FCA made it illegal in early 2020. And the situation will actually get even worse next year since sale of such trackers will be altogether forbidden to all private investors in the UK. 

While it's still possible to get Bitcoin exposure directly by buying the cryptocurrency on exchanges such as Coinbase, Kraken or Gemini (and soon Paypal), some people would rather do that into a tax friendly container such as an ISA or a SIPP. And in such containers you cannot buy cryptocurrencies nor any of the available listed trackers. 

But a recent development that we talked about in our previous post is providing an alternative way to achieve that goal in a stealth way. Indeed, as more and more listed companies put Bitcoin on their balance sheet, and as the price of Bitcoin increases, those companies in effect are becoming virtual Bitcoin ETFs, allowing shareholders to get indirect exposure to Bitcoin if they buy the stock. 

How to put Bitcoin on your Balance Sheet

The COVID-19 pandemic and the resulting economic crisis has pushed all governments around the world to print money like never before resulting in a global devaluation of cash assets. People and companies sitting on large piles of cash have struggled to invest that cash into harder assets such as gold, real estate or equities (in particular big techs that have been perceived as less immune to the COVID-19 dislocation event). 

But more and more people have been turning to Bitcoin as well. Indeed the cryptocurrency has all the characteristics of a hard currency (the supply is limited by a hard cap of 21 million coins) without the downside of existing options (lack of convenience, low liquidity, elastic inflation -- as prices increase, inflation rate increases as well along with economic incentives). As fears that government might outlaw the cryptocurrency fade away, more and more corporates are taking the plunge. This is a virtuous circle: as more and more companies hold the cryptocurrency on their balance sheet, and as governments acknowledge and regulate that behaviour, the legal risk evaporates. 

Microstrategy was the first public company to announce that they converted the majority of their Treasury into Bitcoin, a total of $425 million. Since then a number of businesses have disclosed that they had done or intended to do that as well. Coldcard creator, Rodolfo Novak, has even put up a web page listing those businesses. 

Converting part of your Treasury into Bitcoin is more complex than converting it into another currency, especially if you don't have the resources of a large public company. But if you're ready to protect your funds with a swarm of cyber hornets, here are some of the issues and how to deal with them:

Security

As most people know, holding Bitcoin is hard. Everyone has heard of hacks or mistakes that have cost Bitcoin owners their savings. As a company putting a significant amount of your Treasury in Bitcoin, you have a fiduciary responsibility to ensure that those funds are secured properly. You have basically 3 options. 

Remitting money from mixed funds: the ordering rules

Most people who are UK resident, non domiciled and who use (or have used) the remittance basis of taxation know that they should only remit funds from a capital account if they don't want to pay taxes on the funds remitted. And most people who intend to benefit from this advantageous tax system will have created a capital account prior to coming to the UK that allows them to live in the UK without having to pay any tax on the funds they bring over. 

But sometimes, people will only have been made aware of those rules once they are in the UK. Or they might have created a capital account without enough funds to maintain their lifestyle. In those instances, they will have to bring revenue from what the HMRC calls mixed funds. A mixed fund account is an account that has capital and revenue mixed together. If they need to remit funds from such an account, they will have to pay some tax. But the calculation of that tax can very complex because of what the HMRC calls the ordering rules, and which have been in place since 2008.

Each mixed fund account is actually a series of virtual buckets which are increased or decreased every time there is money coming in or out of the account. There are 8 buckets per tax year:

1. UK employment income 
2. Foreign employment income not subject to a foreign tax 
3. Other foreign income (ie. trade profits, rental income or investment income) not subject to a foreign tax 
4. Foreign capital gains not subject to a foreign tax 
5. Foreign employment income subject to a foreign tax 
6. Other foreign income (ie. trade profits, rental income or investment income) subject to a foreign tax 
7. Foreign capital gains subject to a foreign tax 
8. Any funds not covered above (i.e. capital)

Investing directly vs. through a holding company

It's quite common in continental Europe for private equity investors or entrepreneurs to invest in projects through a holding company, either onshore of offshore. 

Not quite so in the UK, mostly because a number of tax benefits are not available in such a situation. And yet it might be a good idea nonetheless.  Let's look at the pros and cons of each approach.

Benefits of investing directly

If you are investing in a company that has the EIS or SEIS status, you need to do the investment directly in order to benefit from the generous tax breaks. 

If you sell investments you will be taxed only once vs having the holding company pay tax on the gain first and pay tax again when you extract the profits from the holding company. 

And also, investing directly is cheaper because you don't need to maintain another structure. 

Benefits of investing through a holding company

If your investment distributes surplus profits regularly to the holding company, no dividend tax is due since dividends are only taxed when they are distributed to the final shareholders. That allows you to ring-fence those profits as if the underlying investment were to go bankrupt, those profits are now protected one level up. 

Another benefit is that when you have multiple investors, they will probably have different time preference when it comes to profit extraction. Having a holding company allows you to be neutral to the timing of those distributions since the tax point is now decided by the extraction at the holding level.

One of the benefit of direct investing is the avoidance of double taxation. However there are situations where those can be avoided. Such a case is the Substantial Shareholding Exemption where the holding company owns more than 10% of an investment for the last 2 years. 

And finally, if you keep the profits in the holding company to be reinvested, you can delay the dividends tax forever. 

Business as usual at TaxAssist Accountants

During the Covid19 outbreak we are following the government's advice to minimise face-to-face contact as part of our commitment to the health and well-being of our clients and employees. So while our shop is closed our team continues to operate as normal. We have access to secure remote IT systems which enable us to work from home and to continue to deliver our services to you.

If you need to meet with us, we can still communicate through video conferencing or over the phone. Our technology stack even allows us to share documents during our calls and therefore do remote training if need be. 

If you wish to deliver your records, we can give you access to Receipt Bank, our document scanning facility already used by a great deal of our clients or we can make specific alternative arrangements. Just contact us at 020 3397 1520, our phone number remains unchanged!

Major change: CGT on residential property sales

There were many changes with capital gains tax in the past few years but most changes only applied to non-resident landlords.

From 6 April 2020, when CGT is due on the disposal of residential property a return must be filed and "notional CGT" paid within 30 days of completion. This is a major change!

The changes

A number of fundamental changes in relation to capital gains tax are anticipated with effect from 6 April 2020 including:

• Reduction in final period exemption from 18 to 9 months
• Restriction of letting relief to periods of co-occupation between tenant and landlord
• Extension of PPR relief for certain inter-spouse transfers
• Reduced deadline for reporting capital gains and paying capital gains tax on sales of residential property

This article concerns the last of these changes.

What is the current position ?

Property owners will be used to having a minimum of 10 months and a maximum of 22 months between incurring a capital gain on the sale of a residential property and reporting the disposal to HMRC and paying the tax. This has been the case since self-assessment was introduced in 1997.

With effect from 6 April 2020, the deadline is shortened to just 30 days, which brings the regime into line with the deadlines which were introduced for non-residents selling residential property after 6 April 2015, and both residential and commercial property after 6 April 2019.

Who does this affect ?

The new rules affect UK resident individuals, trustees and personal representatives who sell or otherwise dispose of residential property. This article concentrates on disposals by individuals. The rules do not extend to disposals by limited companies.

Brexit done! Now what happens to VAT?

Today is the last day the UK is in the EU. Or is it? As the UK has agreed to leave the EU with a deal, there is now a transition period until 31 December 2020 (or later if both parties agree to extend that transition). What it means in terms of VAT, the most visible EU linked tax, is that nothing changes immediately. During the transition period, the UK will remain part of the single market and customs union meaning that we will continue to follow the rules regarding Intra-EU movement of goods set out in VAT Notice 725. In other words, that means one can continue to zero-rate their sale of goods, as long as they have their customers EU VAT number and the goods are sent or transported to another EU member state and that they keep valid commercial evidence that the goods have been removed from the UK within the relevant time limits. And it also means that one must continue to submit EC sales lists monthly or quarterly as appropriate.

Now some people might have been advised by HMRC to obtain an EORI number ahead of the EU exit, in case the UK left the EU with no deal. This reference while of no use for now should be kept as we are still likely to need this at the end of the transition period. Equally if one has registered for Transitional Simplified Procedures (TSP) for imports, one should keep this paperwork ready for the end of the transition period.

Lastly, during the transition period, businesses will still be able to submit valid EU refund claims via HMRC, and those businesses that are registered for VAT MOSS because they supply B2C supplies of digital services to EU consumers, may continue to submit VAT MOSS returns for the time being in the UK, rather than needing to register in an alternative EU member state.

In other words, no change for now!