Taxing Bitcoins

Because of Bitcoin skyrocket increase this past year from $17 to over $1,200, you cannot escape hearing about those cryptocurrencies and how they will change world commerce for ever. While the Federal Reserve gave tacit approval, stating “virtual currencies like bitcoin have legitimate uses and should not be banned,” and while it's been acknowledged by the Chinese authorities as a valid currency (even though Banks have yet to gain authorisation to use it) there is still a lack of guidance from the tax authorities as to how those new currencies should be treated. There are basically 2 possibilities on how Bitcoins should be treated for tax purposes: either as an intangible asset or as a foreign currency. If a Bitcoin is considered an asset, profits will be taxed as capital gains, i.e at either 18% or 28% depending on your tax band. However if it's considered a foreign currency, then profits will be taxed as income, and therefore as high as 45%.

The problem with saying that it’s a currency is that it is not issued by a government, and traditionally currencies are legal tender issued by governments. In California Bankers Assn v. Shultz, the Supreme Court stated (in a non-tax context): “‘Currency’ is defined in the Secretary’s regulations as the coin and currency of the United States or of any other country, which circulate in and are customarily used and accepted as money in the country in which issued.”

Non-Residents to be subject to Capital Gains Tax

One of the announcements made today in the Autumn Statement is that capital gains tax will be extended to non-residents who own residential property. This extends the previous measure to bring non-resident companies within the scope of capital gains tax on 'high value' residential property, measure that was introduced alongside the infamous ATED (Annual Tax on Enveloped Dwellings). 

So now both high value and low value residential property gains will be taxed, regardless of whether the property is owned by a company or not. The change is to take effect in April 2015.

This move was expected but still, it could reduce confidence going forward. Non residents were strongly encouraged by the Government to take their properties out of companies so that a future sale of bricks and mortar (rather than shares) is subject to stamp duty. In exchange they would not be subject to the annual charge (ATED) nor to the capital gains tax. Having de-enveloped as they were asked to do, they will in fact be subject to capital gains tax after all.

UK moves up 2 notches in tax competitiveness

The UK is climbing the ranks of the most business-friendly tax regimes in the world, behind only three other countries in the western world. Only Ireland, Canada and Denmark beat the UK in Europe and North America, and the UK comes 14th overall, in a table of 189 tax jurisdictions worldwide. According to the newest report from PwC and the World Bank called "Paying Taxes 2014 – The global picture", the British tax system has climbed two places in the last year, surpassing Luxembourg.

On average, UK firms pay 34 per cent of their commercial profit in tax, taking 110 hours per year, and balanced across eight payments. The world average in each case is higher: internationally, companies pay 43.1 per cent of their tax in profits, spread over 26.7 payments, taking 268 hours. In the nine years that the report has been conducted, the amount of tax that firms pay is down nine percentage points on average, the number of hours taken down by 55, and the number of payments lower by seven.

Split Year Treatment under new SRT

Normally, if you are resident in the UK for any part of a tax year you will be taxed as a UK resident for the whole of the tax year. However, there are special rules which may apply to you if you either leave the UK to live or work abroad, or come from abroad to live or work in the UK. These special rules split the tax year into a UK part, when you are taxed as a UK resident, and an overseas part, when you are taxes as a non-UK resident.

Before 6 April 2013, HMRC operated these special rules as a concession known as Extra Statutory Concession A11. After 5 April 2013, these special rules are contained in law, under the Statutory Residence Test ('SRT'). Once you have determined using the new SRT test that you are non resident for part of the year you still need to find out what is the exact date where the status changes. As with the residence test, treatment is different whether you are a leaver or an arriver. Here are the rules for finding out that date:

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.

A Simplification in Change of Use... or is it?

Earlier this year the Government revised its development rights guidelines and the new, flexible Change of Use guidelines could benefit you if you are looking for a shop for your business. Buildings with A1, A2, A3, A4, A5, B1, D1 and D2 uses are now permitted to change use for a single period of up two years to A1, A2, A3 and B1 uses.

This added flexibility seems like great news for small businesses since it allows them to move into a new property much faster as there’s no lengthy planning application process to battle through first. Your new landlord / current property owner will not need to wait for you to obtain planning permission and will be less tempted to speak with other prospective tenants / buyers. Obtaining permission for Change of Use is one of the biggest causes of delays for small businesses (second only to slow solicitors!) and in some cases can lead to a landlord deciding not to consider you as a potential tenant.

France discovering the Laffer curve

Although the latest figures published by the French Finance Ministry show a slight year-on-year increase in revenue levels compared to 2012, they also reveal that the record tax rises implemented this year are weighing heavily on overall revenue growth. This is in spite of surprisingly positive figures for August 2013.

Revenues derived from individual income tax amounted to EUR41bn (USD55bn) as at the end of August this year, compared to EUR34bn the same time the year before. Income from corporation tax stood at EUR23bn as at the end of August 2013, compared to EUR17bn in August 2012. However, close scrutiny of expected revenues for the entire year paints an altogether different picture. The Finance Ministry has revised downwards its forecast for 2013, currently anticipating total net revenues of EUR287.8bn, compared to the EUR298.6bn provided for in the initial finance law for 2013. The revision marks a shortfall of EUR10bn, added to which a further EUR5bn shortfall is expected due to lower income from social security contributions. This will push the total revenue shortfall figure to EUR15bn, despite the fact that the 2013 Budget provided for tax rises totaling EUR30bn.

How about the CSG and the CRDS?

If you have some French property investments, you might have noticed in 2012 the apparition of new taxes called CSG, CRDS, Financement du RSA or Solidarité Autonomie. All those are actually social charges and even though they been in existence for a while, in the past non-residents were exempt (since they don't use any of the French social infrastructure).

With the arrival of François Hollande and his socialist team, those deductions have been extended to all types of income (rental income, capital gains and dividends) and for residents and non-residents alike. What it means is if you sell a house in France you will have to pay the 19% capital gain plus the 15.5% social charges on the gain. And in some cases (if your capital gain is above €50,000) yet another exceptional tax that can reach 6% of the capital gain (if your gain is above €260,000). That's a total of more than 50%.

But unfortunately as far as the HMRC is concerned the 15.5% social charges are not considered a tax and therefore cannot be offset against UK tax. You will therefore have to top up the French tax by at least an additional 9% UK tax (assuming you are in the 28% CGT tax bracket).

Annual Tax on Enveloped Dwellings due soon

Announced in the March 2012 Budget, the Annual Tax on Enveloped Dwellings (ATED) return -- called at the time the Annual Residential Property Tax (ARPT) -- is due by October 1st 2013. The corresponding tax liability has to be paid by October 31st 2013.

If all of the following criteria are met, an ATED return is required by 1 October 2013:

• a company (other than a company acting as trustee of a settlement or as nominee), a partnership with corporate partners or a collective investment scheme which holds UK residential property, and
• at least one single-dwelling interest was worth more than £2m on 1 April 2012 or at the date of acquisition if later, and
• the single-dwelling interest was still owned on 1 April 2013

Minimum wage increase

It's this time of the year where the minimum wage usually increases. This year is no exception.

The National Minimum Wages (NMW) rates are due to increase on 1st October 2013 to the following:

• £6.31 – the main rate for workers aged 21 and over
• £5.03 – 18-20 year old rate
• £3.72 – the 16-17 year old rate for workers above school leaving age but under 18
• £2.68 – the apprentice rate, for apprentices under 19 or 19 or over and in the first year of their apprenticeship

Last year, only the over 21s and Apprentices saw an increase in the NMW. But this year, all of the rates have increased.