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.

Latest news & blogs…

RESTART – New grants for small businesses

Tax Investigation Shipleys Tax Advisors

IN THE BUDGET 2021 the Chancellor will unveil £5bn support package to help small businesses stay afloat until restrictions are lifted.

Under the scheme it is thought that non-essential retail businesses will be able to apply for grants of up to £6,000; while pubs, restaurants, hotels and leisure businesses will be able to apply for grants up to the full amount of £18,000.

Where can you get your Restart Grant?

The Restart Grant scheme, administered by local councils, will help most small business owners including those running shops, pubs, clubs, hotels restaurants, gyms and hair salons.

Non-essential retail businesses will get up to £6,000 per premises through the Restart Grant scheme to help them reopen. Shops will reopen no earlier than April 12, according to the Government’s Covid-19 roadmap.

More Restart Grant money will be available for any small business in hospitality, accommodation, leisure, personal care and gyms, which will reopen later and will be more affected by restrictions. They can receive up to £18,000, depending on their rateable value.

The Restart Grant scheme will replace the monthly Local Restrictions Support Grant (Closed) and Local Restrictions Support Grant (Open), which will both close at the end of March.

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.

Electric cars – still tax efficient from April 2021?

Tax Investigation Shipleys Tax Advisors

For 2020/21, it was possible to enjoy an electric company car as a tax-free benefit. While this will no longer be the case for 2021/22, electric and low emission cars can remain a tax-efficient benefit.

In today’s Shipleys Tax note we get up to speed on the changes afoot and whether this can affect your buying choices.

How are electric cars taxed?

Under the company car tax rules, a taxable benefit arises in respect of the private use of that car. The taxable amount (the cash equivalent value) is the ‘appropriate percentage’ of the list price of the car and optional accessories, after deducting any capital contribution made by the employee up to a maximum of £5,000. The amount is proportionately reduced where the car is not available throughout the tax year, and is further reduced to reflect any contributions required for private use.

The appropriate percentage

The appropriate percentage depends on the level of the car’s CO2 emissions. For zero emission cars, regardless of whether the car was first registered on or after 6 April 2020 or before that date, the appropriate percentage for electric cars is 1% for 2021/22. For 2020/21 it was set at 0%.

This means that the tax cost of an electric company car, as illustrated by the following example, remains low in 2021/22.

Example

Jaz has an electric company car with a list price of £30,000. The car was first registered on 1 April 2020.

For 2020/21, the appropriate percentage for an electric car was 0%, meaning that Jaz was able to enjoy the benefit of the private use of the car tax-free.

For 2021/22, the appropriate percentage is 1%. Consequently, the taxable amount is £300 (1% of £30,000).

If Jaz is a higher rate taxpayer, he will only pay tax of £120 on the benefit of his company car. If he is a basic rate taxpayer, he will pay £60 in tax. This is a very good deal.

His employer will also pay Class 1A National Insurance of £41.40 (£300 @ 13.8%).

For 2022/23 the appropriate percentage will increase to 2%.

Low emission cars

If an electric car is not for you, it is still possible to have a tax efficient company car by choosing a low emission model.

The way in which CO2 emissions are measured changed from 6 April 2020. For 2020/21 and 2021/22, the appropriate percentage also depends on the date on which the car was first registered as well as its CO2 emissions. For low emission cars within the 1—50g/km band, there is a further factor to take into account – the car’s electric range (or zero emission mileage). This is the distance that the car can travel on a single charge.

The following table shows the appropriate percentages applying for low emission cars for 2021/22.

Appropriate percentage for 2021/22 for cars with CO2 emissions of 1—50g/km
Electric rangeCars first registered before 6 April 2020Cars first registered on or after 6 April 2020
More than 130 miles2%1%
70—129 miles5%4%
40—69 miles8%7%
30 – 39 miles12%11%
Less than 30 miles14%13%

As seen from the table, choosing a car with a good electric range can dramatically reduce the tax charge. Assuming a list price of £30,000, the taxable amount for a car first registered on or after 6 April 2020 with an electric range of at least 130 miles is £300 (£30,000 @ 1%); by contrast, the taxable amount for a car with the same list price first registered before 6 April 2020 with an electric range of less than 30 miles is £4,200 (£30,000 @ 14%).

The moral here is to choose a new greener model and you will be rewarded with a lower tax bill.

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.

Gifting interest in property – tax free, right?

Tax Investigation Shipleys Tax Advisors

IN DIFFICULT FINANCIAL times, many naturally look to put their affairs in order in case the worst happens. In such testing times many fall into tax traps without realising. One of most common misconceptions we come across here at Shipleys Tax is individuals transferring interest in properties to a spouse, child or relative in the belief that so long as no money has changed hands it must be tax free, right?

Wrong. As with most things in life, it’s not that simple, unfortunately. Although it is possible in certain circumstances to transfer assets between spouses tax free, giving a property to children or other family members may trigger an unwelcome tax bill, even if nothing was received it return.

In today’s Shipleys Tax note we briefly look at what tax traps could lay in wait for the unsuspecting person looking to organise their property affairs.

Family connections and market value 

The problem is that the legislation does not respect family connections. So, where an asset is transferred (or disposed) to a “connected person”, the transfer is deemed to take place at market value, regardless of whether any consideration is actually received and the amount of that consideration.

Although it is possible to transfer assets between spouses tax free, giving a property to children or other family members may trigger an unwelcome tax bill, even if nothing was received it return.

So, who are connected people? The list of connected persons includes:

  • spouses and civil partners;
  • relatives (siblings, ancestors or lineal descendants);
  • spouse or civil partners of relatives; 
  • relatives or spouses or of civil partners; and
  • spouses or civil partners of those relatives.

However, as noted above, the tax-free transfer rule applies to transfer between spouses and civil partner rather than the market value rules. 

The following case study illustrates the potential cost of being caught out by the market value rule.

Case study

Adam has a buy to let property. To help his daughter to get on the property ladder, he decides to make a gift of the property to her. He receives nothing in exchange for the property.

At the time that he gifted the property to his daughter, the house was valued at £300,000. 

Adam purchased the property ten years earlier for £200,000. Costs of acquisition and disposal are £5,000.

However the tax-free transfer rule applies to transfer between spouses and civil partner rather than the market value rules. 

As his daughter is a connected person, Adam is deemed to have disposed of the property for £300,000, giving rise to a chargeable gain of £95,000 (£300,000 – (£200,000 + £5,000)).

Assuming Adam is a higher rate taxpayer and has used his annual exempt amount already, this will give rise to a capital gains tax bill of £26,600 (£95,000 @ 28%). This must be reported to HMRC within 30 days and capital gains tax paid within the same time frame.

Despite not receiving a penny for the property, Adam must find £26,600 to pay in capital gains tax!

Family Tax Planning?

However, with careful planning Adam may have been able to transfer the property to his daughter potentially tax free. There are planning options available in the right circumstances using a trust arrangement or an LLP/company structure to mitigate or at the very least defer some of the tax payable.

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.

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