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 tax expertise was 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.
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Residential property in a company – beware the ATED tax rules
MANY PROPERTY INVESTORS are increasingly using a limited company to hold properties for the perceived tax advantages. However, there are certain tax traps which the investor needs to be wary of in these situations.
One of these is the Annual Tax on Enveloped Dwellings (“ATED”) charge. The ATED is an annual tax on certain high-value residential properties that are held within an “envelope”, such as company or a partnership with at least one corporate partner.
The annual tax on enveloped dwellings (ATED) was introduced as part of a package of measures aimed at making it less attractive to hold high-value UK residential property indirectly, i.e. through a company etc, in order to avoid or minimise taxes such as stamp duty land tax (SDLT) on a subsequent disposal of the property.
In today’s Shipleys Tax brief we look into the rates and exemptions you need to know if the ATED tax applies to you and how you can avoid the charge.
The annual tax on enveloped dwellings (ATED) was introduced (to) make it less attractive to hold high-value UK residential property indirectly, i.e. through a company etc, in order to avoid or minimise taxes such as stamp duty land tax (SDLT) on a subsequent disposal of the property.
The Charge
The charge may potentially apply where a property in the UK which is valued at more than £500,000 is owned completely or partly by a company, a partnership with at least one corporate partner or a collective investment scheme (such as a unit trust or an open-ended investment company).
The charge is payable annually in advance. Where a property is within the scope of the ATED on 1 April, an ATED return must be made online by 30 April and the tax for the period from 1 April to the following 31 March must be paid by the same date. The table below shows the rates of ATED that applies for the period from 1 April 2022 to 31 March 2023.
| Value of property | ATED (2022/23) |
| More than £500,000 to up to £1 million | £3,800 |
| More than £1 million up to £2 million | £7,700 |
| More than £2 million up to £5 million | £26,050 |
| More than £5 million up to £10 million | £60,900 |
| More than £10 million up to £20 million | £122,250 |
| More than £20 million | £244,750 |
Letting exemption
You can avoid the tax charge by claiming an exemption.There are a number of exemptions from the ATED charge. One of these is the letting exemption.
The ATED charge does not apply if the property is let on a commercial basis and is not, at any time, occupied (or available for occupation) by anyone connected with the owner.
You can avoid the tax charge by claiming an exemption.There are a number of exemptions from the ATED charge.
Provided that this test is met, relief will be available. The relief must be claimed through HMRC’s ATED online forms service. If the claim reduces the ATED charge to nil (which will be the case if all high-value residential properties owned by the company are let on a commercial basis), a Relief Declaration Return needs to be completed.
Once this form is correctly completed and submitted, the property is exempt from paying the ATED charge.
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.
Giving Gifts – is there a tax penalty?
THE NATURE OF a gift is that it is something that is given to some without receiving a payment in return. Consequently, as nothing is received in return it would seem unlikely that making a gift could trigger a tax liability.
However, as we will see in today’s Shipleys Tax brief, in some cases making a gift could land you with tax to pay.
Gift issues
Many make the mistake of thinking that gifting isn’t taxable. Whilst gifts are usually given without receiving a payment, strangely that doesn’t exempt gifts from triggering tax liabilities. There are tax rules that apply to gifting in various circumstances which, unfortunately, can give rise to a capital gains tax liabilities.
Market value
The making of a gift is a “disposal” for capital gains tax purposes. As the disposal is not by way of an arm’s length bargain (i.e., the price in a free market), the disposal proceeds are the market value at the time the gift was made, rather than the amount received by the person making the gift (i.e. nothing). From a capital gains tax perspective, unless the gift is to a spouse and the no gain/no loss rules apply or is exempt from capital gains tax, rather than the donor making a loss equal to the cost of the gift, a gain may be realised instead.
There are tax rules that apply to gifting in various circumstances which, unfortunately, can give rise to a capital gains tax liabilities.
Example
Bella has a painting which her niece has always loved. She purchased the painting many years ago for £100. The artist is currently very popular and the painting is now worth £20,000.
On giving the gift to her niece, Bella is treated as if she had disposed of the painting for its market value of £20,000. Consequently, she makes a capital gain of £19,900. Assuming her annual allowance of £12,300 remains available, she must pay capital gains tax on a gain of £6,800!
Gifts to spouses/civil partners
Transfers between spouses are deemed to be at a value that gives rise to neither a gain nor a loss. If instead of giving the painting to her niece, Bella had given it to her husband Akbar, the deemed consideration would be £100 (the value that creates neither a gain nor a loss) and Akbar would be treated as having acquired the painting for £100. In this situation there is no capital gains tax liability on the gift.
Gifts to a charity
Capital gains tax is not payable on a gift to a charity.
Relief for gifts of business assets
The relief for gifts of business assets allows the capital gains tax that might arise on the gift of a business asset to be deferred by ‘rolling over’ the gain so that the recipients base cost is reduced by the deferred gain. However, while this means that there will be no capital gains tax to pay at the time of the gift, the recipient will realise a larger gain when they dispose of the asset. The relief effectively shifts the liability from the donor to the recipient.
Capital gains tax is not payable on a gift to a charity.
Don’t make the mistake of thinking that gifting isn’t taxable. In some cases, Capital Gains tax can still apply as we have seen above.
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.
Spring Statement 2022 – Sunak’s Tax Plan
The UK Chancellor today delivered his much heralded Spring Statement. At Shipleys Tax we look at some of the brief highlights.
Basic rate of income tax to be cut to 19p by 2024
- Basic rate of income tax to be cut from 20% to 19% for the tax year ended 5 April 2024 (to be confirmed)
- The first cut of income tax rates in 16 years
National Insurance threshold to be raised by £3k
- National Insurance threshold raised by £3,000 for both Primary Class 1 and Class 4 NI
- This will further align with income tax thresholds, removing an historic anomaly
- The threshold at which employees and the self-employed will start to pay national insurance contributions will rise from £9,880 to £12,570 a year.
- The increase will be implemented from July this year (2022)
- Employers will benefit too, as the Employment Allowance that offsets Secondary Class 1 NI will increase from £4,000 to £5,000. This will also come into effect from April 2022.
- Most likely to dampen effects of the incoming Health and Social care levy of 1.25%
VAT on energy saving devices to be cut to zero
- VAT will be cut to zero on energy saving devices
- This includes thermal insulation and solar panels, and similar items.
- Fuel duty was also cut by 5p per litre, effective from 6pm on 23 March 2022.
- This cut will last for one year, subject to any extension.
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.
IR35 watch – HMRC suffers another knock out
IR35 has been the bane of many self employed workers and their advisers since its controversial inception many years ago.
Recently, several high profile TV presenters have been under the spotlight in respect of whether IR35 applies to their working arrangements. The latest of these resulted in a loss for HMRC.
In today’s Shipleys Tax note we briefly look at the recent IR35 case making headlines and what it means for taxpayers.
The first half…
HMRC’s assertions that IR35 applies to certain working arrangements has been something of a mixed bag, especially for the TV industry. Alongside its successes, HMRC has suffered several high-profile defeats, including against the television presenters Kaye Adams, Helen Fospero, and Lorraine Kelly; whilst Gary Lineker’s case still seems to be languishing in extra time. The latest case to be heard was that of Adrian Chiles, most recognisable as a TV football presenter and Radio 5 host.
What is IR35?
The much maligned rule is another name for the “off-payroll working” legislation. The term ‘IR35’ actually refers to the press release that originally announced the legislation in 1999.
Simply put, the IR35 rules are designed to work out whether someone is genuinely self-employed or employed rather than a “disguised employee” and should be treated as such for the purposes of paying tax. There are multiple factors that the courts use to help determine this, e.g. control, substitution and supervision being among them.
This is because that those who set up and work through a limited company are perceived to be more tax efficient as opposed to those who are employed. HMRC attempt to argue that some taxpayers try to take advantage of this tax efficiency by appearing to be self-employed on the surface, when actually they would be an employee were they not providing their services through a limited company. Despite the fact this is patently not always the case, the off-payroll working rules are designed to tackle this, but the rules have been forever attacked for being overly complicated, causing unjust outcomes and, at times, being unworkable.
The second half comeback…
In Adrian Chiles’ (“A”) case the Tribunal disagreed with HMRC’s assertions that A was an employee (in all but name) of both the BBC and ITV. The Tribunal held that A was in business on his own account via his limited company, based on the number of clients he worked for. He had also embarked on a number of unsuccessful commercial ventures, indicating that he bore considerable financial risk. The Tribunal also downplayed the importance of a lack of substitution clause, i.e. that A did not have the right to provide a substitute if he were unable to undertake his duties.
The Tribunal took a “big picture” approach and decided that on the face of things the arrangements with both the BBC and ITV were part of A’s business, and not part of an arrangement to which IR35 would apply.
Extra time…?
Tribunal decisions are not binding, and thus it is likely that HMRC will appeal. However, it does show that these high-profile cases should not be taken at face value and the complexity of the off-payroll legislation makes it paramount that specialist advice is sought to avoid the pitfalls in this area.
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.
