Some tax enquiry cases…

Tax Investigation

Tax Enquiry Investigation

Client A had been in a 4 year running battle with HMRC.The client was keen to finalise matters but at a reasonable compromise based on the facts and circumstances. HMRC were asking for approximately £200,000 and the previous accountant and insurers were not able to reduce this figure.

Shipleys were then appointed at this late stage and discovered flaws in HMRC’s argument. We supplied irrefutable evidence and successfully negotiated tax down to £30,000.

Comment: This is unfortunately a typical case where HMRC officers tend to hastily take a defensive position and refuse to move. Our legal backgrounds are invaluable in dealing with these type of enquiries.

Serious Tax Fraud

Client B had a 15 year back duty case, the tax assessed was approximately £300,000. Shipleys managed this stressful process from start to finish and achieved a good result both on time and reduced overall duty payable and secured a sensible time to pay plan.

Comment: HMRC are much more aggressive now with collecting tax with these kind of formal tax cases on the increase; it is thus essential that the client has proper representation by experienced advisers in order to achieve the desired outcome.

Latest news & blogs…

Should you buy a rental property through a limited company?

Tax Investigation Shipleys Tax Advisors

Landlords are being hit from all sides by recent and forthcoming tax changes. So is it better to buy a property personally or through a company? We look at the pros and cons below.

Holding it personally

Where a property is held by an individual, the property income tax rules apply. The profits of the property rental business are charged to income tax at the individual’s marginal rate of tax. If a loss is made, this can only be carried forward and set against future profits of the same property rental business. The personal allowance is available if not used elsewhere.

The widely reported interest relief restrictions have been phased in progressively from 6 April 2017. For 2019/20, only 25% of interest can be deducted in computing taxable profits, with relief for the remaining 75% given as a tax reduction at the basic rate. From 6 April 2020, relief for all interest and finance costs will be given in this way.

Where a property is held by an individual, the property income tax rules apply. The profits of the property rental business are charged to income tax at the individual’s marginal rate of tax.

When purchasing the investment property, if it is a residential property and the landlord already owns at least one other residential property, the 3% Stamp Duty Land Tax (SDLT) supplement will apply.

On sale of the rental property, capital gains tax will be charged on any gain. The higher residential rates apply – 18% where your total income and gains do not exceed the basic rate band and 28% thereafter. Bear in mind you can set your annual exempt amount – set at £12,000 for 2019/20 – against any chargeable gain where available.

Owning it through a company

Where a property is owned through a company, any profits are charged to corporation tax rather than income tax. There is no equivalent of the personal allowance – so profits are taxed from the first pound. However, at 19%, corporation tax rates are lower than income tax rates. More pertinently, the interest rate restrictions do not apply to companies, and interest is deductible in accordance with the corporation tax rules meaning full interest relief is available.

Companies pay corporation tax on chargeable gains and any gain on disposal of the property is subject to corporation tax. There is no annual exempt amount, and basic rate taxpayers pay capital gains tax at a lower rate than the corporation tax rate payable by companies; however, at 28%, the rate payable by higher rate personal taxpayers is more.

Where a property is owned through a company, any profits are charged to corporation tax rather than income tax. There is no equivalent of the personal allowance – so profits are taxed from the first pound.

If the value of the property is more than £500,000, the company will also have to pay the annual tax on enveloped dwellings. The amount depends on the value of the property – ranging from £3,650 for a property in the £500,000 to £1 million band to £232,350 for properties valued at £20 million or more (2019/20 rates).

Where the property is brought by the company, SDLT will be payable, with the 3% supplement applying to the purchase of residential properties.

Buying through a company will also raise the issue of how best to extract the profits, and once personal and dividend allowances have been used, this will trigger personal tax liabilities in the hands of the recipient.

Do the numbers

The best option will depend on personal circumstances, and there is no substitute for doing the sums. Remember to take account of the non-tax considerations, such as the additional costs associated with running a company and higher borrowing costs.

If you are considering a property acquisition and would like to know how to structure this is in the most tax efficient manner, call us on 0114 275 6292 or email info@shipleystax.com.

Budget 2020: A quick business overview

Tax Investigation Shipleys Tax Advisors

The man from Del Monte said yes… spend spend and spend again.

The UK Budget was delivered by the Chancellor Rishi Sunak on 11 March 2020 and he didn’t hold back. But was it all style and no substance?

Mr Sunak took over somewhat fortuitously from the former Chancellor Sajid Javid who resigned in controversial circumstances. Given the multifaceted threats faced by the UK, from Coronavirus to Brexit, it was fascinating to see how the rookie Chancellor would measure up.

Would he gravitate to greatness or fumble his fiscal forecasts? Here’s our Budget 2020 overview.

Business taxes

The Chancellor stressed his commitment to businesses. but refused to do anything about the off-payroll working (IR35) rules coming into effect in April. He also decided to ignore previous Tory promises and kept the corporation tax rate at 19%. And for small businesses, entrepreneurs’ relief limit being cut back from £10m to £1m for disposals on or after Budget Day was a welcome modification despite fears it would be abolished altogether.

He further announced an increase in the structures and building allowance from 2% to 3% with effect from 1 April 2020.

VAT

One of the surprises of the Budget was the announcement that the current zero-rating of books and printed matter will be extended to their e-equivalents. This change will apply from 1 December 2020, a slightly surprising date although this rate has been permissible under EU law since late 2018.

Many were pleased to see that VAT postponed accounting will be adopted from 1 January 2021 although, ironically, that is permissible under EU law in any case.

Personal tax

There was not much in the way of announcements on the personal tax and national insurance front. The current NIC threshold will be increased from £8,632 to £9,500 from 6 April 2020.

Crucially however, the pensions annual allowance thresholds will be increased by £90,000 each. Thus, the threshold income will now be £200,000 rather than £110,000 and the adjusted income from £150,000 to £240,000. This is a welcome announcement primarily for GPs caught by the pension tax trap, although it remains to be seen how it affects things in practice.  

Making Tax Digital

Many industry commentators suggested that the Government should review the rollout and costs to business of MTD for VAT before it decides to extend it to other taxes. It was therefore welcome that the government decided to publish an evaluation of the introduction of MTD for VAT. Many believe that there should be a cost/benefit review as to whether it is fit for purposes for UK businesses.

In conclusion

After delivering his maiden speech amidst considerable uncertainty with some bravura and gusto – including one piercing jibe at the Shadow Chancellor – one can’t help but wonder that the jury is still very much out. As the Red Book is pored over in the coming weeks and months, we will know more for sure.

Winding up your IT/personal service company? Do it the stress-free way

Tax Investigation Shipleys Tax Advisors

****UPDATE 18 MARCH 20****: New Off-payroll working rules announced see – https://www.shipleystax.com/coronavirus-off-payroll-ir35-reforms-to-be-postponed-until-april-2021/

Do the off-payroll working rules apply to you? Are you considering winding up your personal service company in April? We explain generally the best way to wind up your company from a tax perspective.

Come April 2020, the much maligned off-payroll working rules come in effect and many workers who have been providing their services through an intermediary, such as a personal service company, may find that their company is no longer needed. This may be because that tax and National Insurance is deducted from payments made to the intermediary, the tax advantages associated with operating through a personal service company are lost. Alternatively, it may be because their end client does not want the hassle of operating the off-payroll working rules and has decided only to use ‘on-payroll’ workers, putting workers previously using personal service companies with no choice but to go on the payroll or an umbrella company.

Where the personal service company is not needed, what is the best way to wind it up and extract any remaining cash?

Come April 2020, the much maligned off-payroll working rules come in effect and many workers who have been providing their services through an intermediary, such as a personal service company, may find that their company is no longer needed

Striking off

Striking off can be an attractive option where the personal service company can pay its debts and has less than £25,000 left in the company to extract.

The advantage of this route is that sums paid out in anticipation of the striking off are treated as capital rather than as a dividend, with the result that the capital gains tax annual exempt amount, if available, can be used to reduce the taxable amount. Where entrepreneurs’ relief is available, any taxable gain is taxed at only 10%. To qualify for this treatment, the company must be struck off within two years of making the last distribution.

If the amount left to extract is less than £25,000, but it would be preferable for it to be taxed as a dividend, for example, because the dividend allowance and/or the personal allowance are available or the distribution would be taxed at the lower dividend rate of 7.5%, striking off can still be used. However, to prevent the capital treatment applying, it would be necessary to breach one of the conditions so that the dividend treatment applies instead. This can be achieved by waiting more than two years from the date of the last distribution before striking off.

The advantage of this route is that sums paid out in anticipation of the striking off are treated as capital rather than as a dividend…

Members’ voluntary liquidation (MVL)

Where the funds left to extract are more than £25,000 and it would be beneficial for them to be taxed as capital – for example, to benefit from entrepreneurs’ relief or to utilise an unused annual exempt amount, the members’ voluntary liquidation (MVL) procedure can be used.

An MVL is a formal procedure; the director(s) must provide a sworn affidavit that creditors will be paid in full and a liquidator must be appointed.

Entrepreneurs’ relief

One important pitfall which many fail to appreciate is that the availability of entrepreneurs’ relief is not automatic and must be claimed based on facts. Using a liquidator to wind up a company does not automatically mean the company shares will qualify for entrepreneurs’ relief, the shareholder needs to ensure that the shares will qualify for the relief as the company may fail one or more the tests.

If you are thinking of liquidation and would like to check whether you qualify for entrepreneurs’ relief, please call us on 0114 275 62 92 or email us at info@shipleystax.com.

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