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.

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.

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.

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

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.

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)

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.

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.