Asset Protection examples…

Asset Protection

Company Assets – Ring Fencing

Client A wished to remove a commercial property from his business as part of an asset protection planning exercise. The property was demerged away from the trading business and effectively ring fenced; this transaction was commercially driven. There was limited stamp duty exposure of 0.5% on this transaction and no other taxes.

Comment: Asset protection is fundamental consideration when entering or embarking on new ventures, it is key that the transactions to protect assets are commercial/investment driven.

Private Assets – Trusts

Client B wished to gift assets to his family members whilst retaining an element of control. The client was concerned about potential claims against the beneficiaries in the future by spouses, trustees in bankruptcy etc, therefore the gifts were made into a relevant trust which provided the desired protection.

Comment: In order to provide real protection the trust has to be properly constituted, the correct type of trust must be used and not be a sole beneficiary trust as the courts have looked through such trusts in recent cases.

Offshore and Domicile

X individual had a sizeable portfolio of residential investment properties. We restructured the tax affairs to transfer the properties into an offshore company without triggering any taxes, all with HMRC clearances (which in our mind are essential for comfort).

As the individual was non UK domiciled for inheritance tax purposes, the strategy avoid IHT on the portfolio immediately, hence saving £2.1M, whilst operationally not affecting how the business was operated.

Latest news & blogs…

Received an automated message from HMRC saying you are under investigation? Why you should NOT reply

Asset Protection Shipleys Tax Advisors

ITS APPROACHING that time of year when taxpayers start thinking about their self assessment returns and tax refunds. This is also the perfect time for fraudsters to target unsuspecting taxpayers and try to con them out of their hard earned money.

In today’s Shipleys Tax brief we look at the most common tactic which you should be aware of and will hopefully protect you from fraudsters.

Telephone scam

This involves receiving an automated text or voice message or call purporting to be from HMRC saying you are under a criminal investigation. We recommend you do NOT reply – this is most likely to be a scam. HMRC will never contact you by phone without giving you an official notice in writing.

This is not a new scam but rears its ugly head every year. Often a recorded message is left, allegedly from HMRC, that starts: “This is Her Majesty’s Revenue & Customs. We have been trying to reach you to let you know that we are filing a law suit against you/you have a tax refund due.”

The recipient is then asked to phone 0XXXX XXXXXXX and press “1” to speak to the officer dealing with the case. Do not to reply to this message as they will then try to extract money from you or more likely the call will be an extortionate rate number.

Basic Tips

Some basic things you can do to protect yourself.

Tip 1 – If the caller can’t verify their identity, you should never disclose any personal details.

Tip 2 – If they have given you “contact” details (and they should have no hesitation in doing so), call HMRC on their contact number to check if it is a genuine officer or a scam. You should never proceed without verifying this.

Tip 3 – If you receive either of these scam calls, report it on the Action Fraud website or you can call 0300 123 2040. You can forward suspicious emails claiming to be from HMRC to phishing@hmrc.gov.uk and texts to 60599.

For more on this visit: Link

If you are under a Tax or VAT Investigation and would like a specialist to review your case for free, please call 0114 275 6292 and book an appointment with our Tax Investigations Team or email info@shipleystax.com.

Please note that Shipleys Tax do not give free advice by email or telephone.

Millions paid in avoidable Inheritance Tax

Asset Protection Shipleys Tax Advisors

SHIPLEYS TAX – Tax Bites

A RECENT study on Inheritance Tax paid suggests that many hundreds of taxpayers are being caught out by avoidable Inheritance Tax (IHT). The reports states that millions in unnecessary IHT have been paid through gifts gone wrong.

The study found that the most common issue involves parents giving the family home to their children but continuing to live there thereby making the property a gift with reservation. Such assets are caught by the Gift With Reservation Of Benefit rules and are treated as remaining part of the donor’s estate for IHT purposes.

For Inheritance tax purposes, a gift that is not fully given away because the person making the gift (the donor) keeps retains some benefit for himself will attract an anti avoidance tax charge.

However, it is quite possible to easily avoid this tax trap through some careful planning. Many people are unaware of this and are being unnecessarily caught out each year when passing assets along to the next generation. Unfortunately, this can lead to beneficiaries of the donor facing hefty tax bills.

If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email info@shipleystax.com.

Please note that Shipleys Tax do not give free advice by email or telephone.

Incorporating your GP Practice – is it right for you?

Asset Protection Shipleys Tax Advisors

GP PRACTICES in England are able to incorporate and trade as limited companies holding a GMS, PMS or APMS contracts and such GP incorporations have become increasingly popular over the past few years. Those that do are stepping into a largely untested minefield of tax, legal and accounting issues. Should GPs abandon their traditional partnership model in favour of the perceived benefits offered by a limited company? Should you believe the hype?

In today’s tax brief, Shipleys Tax looks at the some of the tax and accounting pitfalls facing GPs considering this route. It looks at why the current trend of the limited company model as being right for general practice is one that should be properly examined and tested, the perceived tax benefits having numerous side effects which many fail to consider when looking for an alternative trading model for NHS practices.

The attraction

Many advisers are increasingly advocating a limited company structure for traditionally partnership run GP surgeries. There are quite a few attractions that are bandied about:

  • You will pay less tax – the company tax rate is 19%, the partnership is paying 40% and above
  • You can get your spouse involved and use their tax bands too
  • You don’t have to worry about VAT as medical services are exempt

Should GPs abandon their traditional partnership model in favour of the limited liability status offered by a limited company? Should you believe the hype?

In theory this may well be true, but in very limited circumstances and, as the saying goes, there is more to it than meets the eye. So, let’s look at some key headline issues.

You will pay less tax

This is the number one determining factor. It certainly is correct that it is easier to save tax and manage income by using a limited company, but this only works under certain circumstances and is more difficult than people realise. Under a company, the partners become employees and shareholders, and would typically extract profits either as salaries or through dividends. Dividends are taxed at lower rates than partnership profits (at certain income bands), however, once you factor in corporation tax of 19% (which is set to rise to 25%), the amount of income distributable to the shareholders tax efficiently becomes a much more complicated scenario. Whilst tax savings might be achievable, the problem is that partners in a practice may not have equal ambitions, so where one partner might wish to minimise tax and another might want to maximise take home income. Even then, at some point the profits earned in the limited company will need to be distributed, so you may end up creating a tax time bomb for the future where tax will be payable possibly at a higher rate.

It certainly is correct that it is easier to save tax and manage income by using a limited company, but this only works under certain circumstances

This is potentially compounded by putting any owned property (i.e. surgery) into a less favourable tax environment and triggering Stamp Duty and/or Capital Gains Tax, crystallising tax at an earlier point in time giving rise to major cashflow problems.

Profit sharing

Most GP practices have their own profit-sharing arrangement based on essentially the time spent and seniority of the partner.

The kind of complex profit-sharing arrangements in partnerships is not easily replicable in a limited company structure. Convoluted shareholder agreements and various alphabet share classes are employed to overcome this. The result tends to be an unwieldy instrument which neither does justice to the partnership agreement it replaces nor is it an improvement to it. Further complications arise where partners regularly change their sessions, or when a partner joins or leaves, the document is not always sufficiently flexible to accommodate this.

Disputes

Under the partnership model it is generally possible to exclude a partner from the practice and withhold their entitlement to share of the practice’s profits.  With a limited company, this is not as easy; a shareholder is entitled to a share of all dividends paid while they hold their shares. This includes if they are for any reason excluded from the surgery.  It is possible to put in place a legal agreement for such a scenario, but this would need to be agreed by all parties beforehand and not easily implemented.

NHS Pensions

Although using a limited company can help solve annual and lifetime allowance limit problems (by moderating income), it is likely that the final NHS pension will be lower. This is because when taking income from a limited company the reported superannuable income would be based on the dividend policy. If the aim of using a company is to optimise your tax bill then it is obvious that there will be a reduction in reported income for superannuation purposes and as a result the final pension may be lower than it would have otherwise been.

..using a limited company can help solve annual and lifetime allowance limit problems (by moderating income), it is likely that the final NHS pension will be lower.

Contractual position & VAT

Currently, GP practices wishing to incorporate need follow a set process which includes making a formal request to their CCG (Clinical Commissioning Group) to novate the primary care contract into a company vehicle. The process is lengthy and drawn out, requiring the applicant to provide a huge amount of personal and business information to mitigate perceived risks. Even then, the CCG has discretionary powers and is not obliged to grant the request. Historically, the process involved effectively handing over the contract and then having it granted again to the new entity, leaving the risk that the NHS contract could be put out to tender rather than automatically being granted to the limited company. In some cases, the CCG may want the contract to be an APMS one, or they ask for personal guarantees or bank bonds from the shareholders to cover certain income that is being received.

Additionally, in some cases, badly drawn contractual positions and skewed trading structures mean VAT will potentially be chargeable on the supply of “medical services”. This is a common mistake made by practitioners but is beyond the scope of this article.

These are only some of the issues, not to mention the many legal and accounting hurdles that will need to be surmounted before a trading model akin to a partnership can be achieved.

…in some cases some badly drawn contractual positions and skewed trading structures mean VAT will potentially be chargeable on the supply of “medical services”.

However, in the right circumstances, a company can be a very useful tool for GPs. In the wrong circumstances, it can mean walking straight into a tax and contract nightmare. Questions about incorporation usually arise because of a desire to limit liability or to save tax. Both are attractive aims, but it is important to understand that there are many other considerations and there are many fatal pitfalls to navigate. Depending on what you want to do with the limited company, it may require a significant amount of due diligence, or it may not be the right fit at all.

At Shipleys Tax, we have a dedicated team of specialists who have developed GP practice incorporation options which gives you the best of both worlds. Talk to us about the following:

  1. GP incorporations
  2. Partnership with 20% tax rates

Using the right setup, the move to an incorporated trading model can bring benefits both from a taxation and succession planning point of view. There is no substitute for specialist advice as getting it wrong can be expensive and extremely stressful.

If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email info@shipleystax.com.

Please note that Shipleys Tax do not give free advice by email or telephone.

Load More Posts

Testimonials

Contact us

  • info@shipleystax.com
  • 0114 272 4984
  • Wharf House, Victoria Quays,
    Wharf Street Sheffield,
    S2 5SY

Contact Shipleys today

Want to know how Shipleys can help you with practical tax planning through innovative ideas? Let’s talk. Call or email us directly and a member of our team will be in touch within 48 hours.

Contact us