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Tax Insider

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Here are just some of the strategies our tax experts are sharing with you this month:                                
  • Tax Relief For Employment Expenses: But Don’t Get Too Excited!  
    Many employees need to use and maintain special clothing for work purposes. They may incur costs of (for example) having their protective work clothing cleaned regularly. It would, therefore, seem fair and reasonable that such costs should be deductible from their employment income. However, the tax system is not necessarily known for its fairness. Mark McLaughlin points out that tax relief for certain employment expenses is potentially miserly but can be higher in some cases.
  • Making The Most Of Your Spare Time 
    HMRC introduced two new allowances with effect from 2017-18 onwards; the trading allowance and the property allowance. The allowances are currently worth £1,000 each, for each tax year, and in broad terms mean that those with income from these sources below the annual threshold may not need to report it to HMRC. Sarah Laing looks at how the trading tax allowance can be used to give ‘hobby-style’ traders some tax-free income.                                    
  • VAT And Making Tax Digital 
    As part of the introduction of making tax digital (MTD), businesses registered for VAT with a taxable turnover above the VAT registration threshold of £85,000 will need to keep VAT records digitally and file their VAT returns using MTD compatible software. This will start from their first VAT period commencing on or after 1 April 2019.  Andrew Needham looks at the introduction of making tax digital from a VAT perspective.                                     
  • A New Penalty Regime For Businesses
    The government is proposing to introduce a new penalty regime for businesses, covering VAT, income tax and corporation tax: a reform of the way in which penalties are charged for late filing of returns. This is based on a points system similar to that which applies for driving offences; and a reform of the way penalties are charged for late payment. The system will be geared towards encouraging taxpayers to pay early rather than late. Satwaki Chanda discusses the proposed new penalty regime for businesses following July’s draft Finance Bill.                                      
  • Directors’ Loan Accounts And Partner Capital Accounts – Are They Inheritance Taxable? 
    Both directors’ loan accounts and partners’ capital accounts represent money put into the business by the director or partner. Yet their tax treatment for inheritance tax (IHT) purposes is completely different. Tony Granger examines what happens on death if an individual has a director’s loan account or a partner/LLP member’s capital account where inheritance tax is concerned.  
  • Not Very Assuring! New Advance Assurance Procedures For Venture Capital Investments 
    Changes to the procedures for applying for advance assurance (AA) for proposed enterprise investment scheme (EIS) and seed EIS (SEIS) investors are intended to deter ‘speculative’ applications but, along with the ‘risk to capital’ condition introduced by FA 2018, may also create a ‘Catch 22’ situation for some start-ups. Ken Moody points out some recent unhelpful changes affecting certain investors.                         
  • Residence Nil Rate Band: When Is A ‘Residence’ Inherited And What Constitutes ‘Closely Inherited’? 
    For deaths occurring on or after 6 April 2017, an extra nil rate band is available to reduce the inheritance tax (IHT) charge on the deceased’s estate. This extra nil rate band is referred to as the residence nil rate band (RNRB). The RNRB is in addition to the ordinary nil rate band (NRB). Malcolm Finney takes a look at two important terms in the inheritance tax residence nil rate band rules.     
  • Writing Off Directors’ Loans: Taxing Times!
    Director’s loan accounts (DLAs) are a common feature in the financial statements of family and owner-managed companies in particular. HM Revenue and Customs (HMRC) are keen to ensure that DLAs are treated correctly for tax and National Insurance contributions (NICs) purposes, and regard DLAs as a ‘risk’ in terms of potential errors. Mark McLaughlin notes that the tax treatment of family and owner-managed companies writing off loans to directors is not necessarily as straightforward as might first seem.                      
  • Speculate To Accumulate? Consider Topping Up Your Pension Pot! 
    There continues to be plenty of speculation concerning the availability of tax relief on pension contributions – not least because an unnamed senior government source recently quoted Chancellor Philip Hammond as saying that the £38 billion paid out every year in the form of pension tax relief is ‘one of the last remaining pots of gold we can raid. Sarah Laing looks at how tax relief on pension contributions may be optimised and highlights why it might be beneficial to top up pension plans sooner rather than later.                 
  • VAT: Buying And Selling A Second-hand Commercial Vehicle 
    When a business buys a new commercial vehicle, it will be charged VAT on the full selling price. Unlike motor cars, when the recovery of input tax is blocked unless there no private use of it at all, the VAT on a commercial vehicle can be reclaimed. Andrew Needham looks at the VAT consequences of buying and selling a second-hand commercial vehicle.     
  • EIS Reliefs – Traps That Can Catch The Unwary! 
    The enterprise investment scheme (EIS) and its sister scheme, seed EIS (SEIS), provide very generous tax breaks, which significantly reduce the effective cost of investing in high-risk, unquoted trading companies. Kevin Read discusses some recent cases that show how the valuable tax reliefs available under the enterprise investment scheme can be lost in seemingly innocuous situations. 
  • Ways To Reduce Inheritance Tax Legally 
    Inheritance tax (IHT) is seen by many as iniquitous, as it is a death tax payable on assets that have mostly been purchased from after-tax income. No matter what your income tax status is or was, IHT is normally 40% on taxable death estates. IHT is a tax on assets after exemptions and allowances. You may have been a basic rate taxpayer all your life, only to become a 40% one on death. Tony Granger outlines some strategies to reduce inheritance tax bills now and in the future – quite legally.
  • The ‘Indirect’ Close Company Loan Charge 
    We will probably be familiar with the close company loan to participator tax charge in CTA 2010, s 455. Broadly, where a loan is made to a shareholder – typically where an overdrawn director’s loan account arises – that has not been cleared or repaid within nine months of the company’s year-end, the company must pay a 32.5% tax charge on the amount that remains outstanding. Peter Rayney looks at the potential 32.5% tax charge that can arise on management buy-out deal structures.
  • ‘Gift And Loan’ Trusts 
    Despite the availability of an inheritance tax (IHT) nil rate band (currently worth £325,000) and the recently introduced residence nil rate band (worth £125,000 for the tax year 2018/19), IHT arising on death at 40% is somewhat penal; in particular, when it is appreciated that much of a person’s death estate has itself been subject to tax in one form or another, be it income tax and/or capital gains tax. Malcolm Finney takes a look at how the loan trust may mitigate inheritance tax on death.
  • Not Clear! ‘Business’ And Incorporation Relief 
    Unsurprisingly, HMRC will not ‘approve’ tax planning arrangements or give advice on the tax treatment of transactions which HMRC considers are for tax avoidance purposes. However, the non-statutory clearance service can be helpful in terms of obtaining certainty about HMRC’s view on proposed transactions. It is therefore unhelpful that HMRC announced in April 2018 further circumstances in which it will not give assistance. Mark McLaughlin points out a change of HMRC practice that may cause uncertainty for some taxpayers and many landlords in particular.
  • Offsetting Rules Governing Capital Gains Losses
    The disposal of assets may precipitate both capital gains and capital losses. In principle, the rule is that capital losses can be offset against capital gains. However, capital losses are not transferable and therefore cannot, for example, be transferred from one spouse or civil partner to the other (and thus the capital gains of one spouse cannot be offset against the capital losses of the other). Sarah Laing looks at how the offsetting rules governing capital gains losses can be efficiently utilised to minimise capital gains tax.
  • Buying A Commercial Property At Auction 
    If a commercial property owner has opted to tax a property they will normally have to charge VAT on any supplies they make of it, including its sale at auction. When selling an opted property in (say) London, the stamp duty land tax (SDLT) is added on top of the VAT inclusive price. Andrew Needham looks at the VAT consequences of buying a commercial property at auction.
  • Entrepreneurs’ Relief And Fundraising – The New ‘Dilution’ Rules
    Entrepreneurs' relief is a capital gains tax relief designed to encourage individuals to set up and grow their own businesses. If the relevant conditions are satisfied, any capital gains arising on the sale of the business are taxed at a rate of 10%. Satwaki Chanda discusses the proposed ‘dilution’ rules, which are intended to preserve entrepreneurs’ relief for business owners seeking to raise new capital.
  • Key Person And Shareholder Combination Arrangements
    The scenario envisaged in this takes into account ‘key person’ insurance for a company or limited liability partnership where premiums are payable by the business, and then shareholder protection where the shareholders take out life assurance on each other’s lives to provide cash for the sale of their shares on death (or certain disabilities). Tony Granger examines possible savings that can be made from having combined insurance policies for businesses and shareholders.
  • A Change Of Emphasis For Venture Capital Schemes?
    The tax reliefs available for enterprise investment scheme (EIS), seed EIS (SEIS) and venture capital trust (VCT) investments are generous and are obviously not intended to be used for tax avoidance purposes. Ken Moody looks at recent changes which potentially affect the availability of tax relief for certain categories of investment.
  • The Transferable Residence Nil Rate Band: Extra IHT Savings?
    Two major allowances for inheritance tax purposes (IHT) are the nil rate band (NRB) and the residence nil rate band (RNRB). Malcolm Finney outlines the requirements for transferability of the inheritance tax residence nil rate band.   
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