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Tax Insider

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  • FREE 3 Issues - The current July issue #163 and the previous two issues of June #162 and May #161.
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Here are just some of the strategies our tax experts are sharing with you this month: 
  • Overdrawn director’s loan accounts: A penalty problem
    There are statutory time limits for notifying chargeability to various taxes, including the tax charge that can arise when a company director shareholder’s loan account becomes overdrawn. Mark McLaughlin highlights a potential trap concerning the late notification of overdrawn director shareholders’ loan accounts to HMRC where the overdrawn balance was repaid.
  • A tax-free summer perk for employees?
    Although there is no specific allowance for a ‘Christmas party’ or ‘summer barbecue’ HMRC does allow limited tax relief against the cost of holding an ‘annual event’ for employees, providing certain conditions are met (ITEPA 2003, s 264). Sarah Laing reminds employers that a statutory exemption should allow them to meet the cost of certain staff social events without triggering a liability to tax or NICs.
  • Businesses: Claiming back VAT without an invoice
    The normal VAT recovery rules are that HMRC expects a business to obtain a purchase invoice from a supplier in order to recover the input tax it is charged.  If the purchase is for over £250 excluding VAT you will need a full tax invoice, but for purchases under £250 a less detailed invoice only is required – till receipts for fuel purchases, for example. Andrew Needham looks at circumstances in which input tax can be reclaimed without a VAT invoice.
  • What tax-saving business deductions are available to personal taxpayers?
    HMRC receipts from personal tax grew by nearly £29 billion last year, to £622 billion. This is just short of a 5% increase, when inflation in the UK in 2018 was only 2.48%. Meg Saksida highlights tax deductibles that are potentially available to businesses. 
  • Reducing inheritance tax for business owners
    It is common for shares in a family company to be passed down the Inheritance tax is paid on net taxable assets at the rate of 40%. Individuals have a standard nil rate band of £325,000 (for 2019/20), which can rise by another £150,000 if leaving the main residence to lineal descendants such as the children. Assets left to a spouse or civil partner are normally exempt from inheritance tax. Tony Granger seeks to tackle some of the challenges faced by business owners who are worried about inheritance tax on their business asset.
  • Company shareholders: Dealing with in specie distributions (Part 1)
    For companies incorporated in England and Wales, a distribution in specie (or in kind) generally entails a company distributing an asset to its shareholders. It may also arise where a company declares a dividend of a specified cash sum, which is then satisfied by the transfer of the relevant asset to its shareholders. Peter Rayney offers some practical guidance on dealing with in-specie distributions.
  • Unmarried couples and inheritance tax
    Inheritance tax is levied on gifts at rates of 20% or 40%; the former rate applying to lifetime gifts and the latter to gifts made on death. An individual is entitled to various reliefs and exemptions including a nil rate band (NRB) worth £325,000 and a residence nil rate band (RNRB) worth £150,000 (for the tax year 2019/20, rising to £175,000 for the tax year 2020/21. Malcolm Finney examines whether unmarried couples are at risk of increased exposure to inheritance tax compared to their married counterparts.
  • Family wages: Getting it right
    In a family business situation, it is generally desirable to spread income around family members where possible, to maximise the use of annual personal tax allowances, and to potentially take full advantage of nil and lower rate tax thresholds. Sarah Laing highlights a potentially costly mistake to be avoided when paying family members.
  • Gifting shares – Don’t make a ‘reservation’!
    It is common for shares in a family company to be passed down the generations. However, anti-avoidance rules dealing with ‘gifts with reservation’ (GWR) are a potentially nasty inheritance tax (IHT) trap. Mark McLaughlin points out a potential inheritance tax trap when owner-managed company shares are gifted between family members.
  • Out of time? VAT assessment time limits
    The basic rule is that HMRC has a maximum of four years from the end of the VAT period an error occurred to issue a valid assessment, or 20 years in the case of fraud.  However, there are some other time limits that businesses should be aware of, as they could get you out of trouble with HMRC. Andrew Needham looks at how long HMRC has to issue a VAT assessment. 
  • Another hurdle for CIS contractors?
    Under the construction industry scheme (CIS) payments made for work carried out in respect of construction services are subject to withholding tax. The amount of the deduction varies from 20%-30%. In certain circumstances, the parties can apply for payments to be made gross. Satwaki Chanda discusses the new security deposit legislation which applies from 6 April 2019 and its potential implications for contractors in the construction industry scheme.
  • How safe are my shares? The new probate regime
    At the time of writing, a new probate regime is expected to be introduced shortly. The original timetable date was 1 April 2019. The proposed legislation is in The Draft Non-Contentious Probate (Fees) Order 2018. Tony Granger examines the new probate regime expected to become law in 2019 following much debate and criticism.
  • Connected party debt: Some ‘dos’ and ‘don’ts’
    Company loan relationships is a complex subject, especially between connected companies. While accounting adjustments in respect of impairment of inter-company debt are broadly neutral overall for corporation tax purposes, as always the devil is in the detail. Ken Moody highlights a tricky aspect of the loan relationship rules for companies.
  • Settlor-interested’ trusts and their income tax consequences
    The tax treatment of trusts is, and always has been, extremely complex. HMRC seems to take the view that taxpayers who utilise trusts are probably ‘up to something’; of course, sometimes they are, but by no means always. Malcolm Finney looks at the income tax anti-avoidance rules where a settlor has an interest in the trust they create..
  • Waive goodbye to dividends, say ‘hello’ to potential tax problems!
    If used correctly by a director/shareholder, dividend waivers can be a very effective planning tool; but there are several points that need careful consideration. Kevin Read outlines some of the problems and practicalities associated with dividend waivers.
  • Tax-free cash from renting out a spare room
    HMRC’s rent-a-room scheme is an optional exemption scheme, which allows individuals to receive up to £7,500 of tax-free gross income (income before expenses) from renting out spare rooms in their only or main home. The exemption is halved where the income is shared with a partner or someone else.  Sarah Laing reminds readers how the rent-a-room scheme can be used to obtain tax-free income. 
  • VAT: When can HMRC impose market value? 
    Many businesses offer discounts on goods or services that they provide to the customer. It is common for supermarkets to offer price reductions and ‘buy-one-get-one-free’ type deals which reduce the price paid and, therefore, the amount of VAT payable to HMRC. Andrew Needham looks at when HMRC can impose an open market value on a transaction for VAT purposes.
  • Income protection for working directors
    For the business, an incapacitated working director will still have salary and employee benefit costs, whilst not contributing to revenues. The question then arises – for how long can the business support the director financially? Tony Granger examines the impact on a business and on working directors themselves if they become seriously ill or injured so that they cannot work.
  • Entrepreneurs’ relief update (Part 4)
    The following is a fully-worked example explaining the mechanics of the new entrepreneurs’ relief (ER) ‘shareholder dilution’ election. Peter Rayney concludes his series on the latest entrepreneurs’ relief changes.
  • What constitutes a dwelling for stamp duty land tax higher rate purposes?
    The recent case of P N Bewley Ltd v HMRC [2019] UKFTT 65 (TC) before the First-tier Tribunal (FTT) examined what is meant by the term ‘dwelling’ in ascertaining whether the higher rates of stamp duty land tax (SDLT) applied on the purchase of a residential property by a company. The property was a bungalow in Weston-super-Mare and the purchase was made by P N Bewley Ltd, a company. Malcolm Finney looks at a recent case on the meaning of the term ‘dwelling’ for the purpose of the higher rates of stamp duly land tax. 
  • Is HMRC too late? 
    HM Revenue and Customs (HMRC) may make a ‘discovery’ assessment outside the normal ‘window’ for opening an enquiry into an individual’s self-assessment return if certain conditions are satisfied (TMA 1970, s 29; similar rules apply to companies). Mark McLaughlin highlights a case on whether a ‘discovery’ by HMRC may become ‘stale’ if it delays taking action.
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