Tax tips for Family Businesses

Are you up-to-date on the new #Tax bands for low emission #CompanyCars? We’ve laid it all out here. 

From 6 April 2020, new appropriate percentage bands – and new lower charges for low emissions cars – will apply for company car tax purposes. 

From the same date, the way in which carbon dioxide emissions are measured is also changing. This means that in order to find the correct appropriate percentage for working out the taxable benefit of a company car, you will need to know whether the car was registered on or after 6 April 2020 or before that date, as well as the level of the car’s CO2 emissions. 

As a transitional measure, with the exception of zero emission cars, the appropriate percentage for cars registered on or after 6 April 2020 is 2 percentage points lower than cars registered prior to that date for 2020/21 and one percentage point lower for 2021/22. The figures are aligned from 2022/23. 

For zero emission cars, the charge is 0% for 2020/21, 1% for 2021/22 and 2% from 2022/23, regardless of the date on which the car is registered. The maximum charge is capped at 37%, and the diesel supplement applies as now.

More information will be needed to work out the appropriate percentage where the car’s CO2 emissions (however measured) fall in the 1—50g/km band. From 6 April 2020, this band is sub-divided into five further bands, each with their own appropriate percentage. The band into which the car falls depends on its electric range (also known as its zero emission mileage). This is the maximum distance that the car can be driven in electric mode without having to recharge the battery. The relevant bands are as follows:

• more than 150 miles
• 70 to 129 miles
• 40 to 69 miles
• 30 to 39 miles
• less than 30 miles

The greater the car’s zero emission mileage, the lower the appropriate percentage.

Splitting the 1—50g/km band introduces additional reporting requirements. The precise nature of those changes depends on whether car and fuel benefits are payrolled.

Payrolled benefits

Where car and fuel benefits are payrolled, information on cars provided to employees is submitted to HMRC on the Full Payment Submission (FPS), rather than on form P46(Car). From 6 April 2020, where an employee has a car with carbon dioxide emissions that fall within the 1—50g/km band, the car’s zero emission mileage must be reported to HMRC in the new field that will be available from that date.

P46(Car) changes

If car and fuel benefits are not payrolled, form P46(Car) provides the mechanism for letting HMRC know when an employee has been given a car for the first time or given an additional car. The form can be submitted in various ways – on paper, using the online service or PAYE online. 

From 6 April 2020, the form will have an additional field for zero emission mileage which must be completed when providing an employee with a car with CO2 emissions in the 1—50g/km band. The deadlines for submitting the form are unchanged and are as shown in the table below.

Confused about how to report low emission cars to HMRC after the changes in April? Not sure what how the benefit in kind tax works for you? Call us on 0114 275 6292 or email info@shipleystax.com.

IN MOST small family trading companies it is not unusual for the husband and wife to own all the shares. Where a family member works in the business they may wish to give them shares in the company as recognition for their input and hard work. At Shipleys Tax we look at the pros and cons.

Transferring shares isn’t as easy as it sounds. There are various taxes that need to be considered on a gift of shares to a family member, including income tax, capital gains tax, inheritance tax and stamp duty.

If an employee of a company receives “free” shares, for example, or if you make a gift of shares to a family member who works in the business, an income tax charge could arise on the market value of the shares gifted. If, however, it can be demonstrated that the transfer of shares is for reasons of family or personal relations, the income tax charge may be avoided.

A gift of shares to a family member is also a deemed to be a disposal of shares for capital gains tax purposes.   As the gift is being made to a connected party, it is a deemed disposal at market value. In the case of a gifts it is typical that the person making the disposal receives no monies out of which to pay any capital gains tax which may arise (the gift is treated as a sale at market value). This could discourage family members from making gifts as part of any family tax planning mitigation exercise.

Therefore, capital gains tax is potentially payable on any gain arising even though no consideration is paid. However, providing certain conditions are met, it may be possible to reduce the capital gain on the shares gifted to Nil by way of gift relief. This allows the capital gain (and thus any tax liability) which is deemed to arise on gift of the shares at market value to be postponed. It does this by effectively transferring the capital gain to the recipient of the gift. To claim this relief appropriate submissions must be made to HMRC at the right time.

Stamp duty is also normally payable on the issue or sale of shares and is payable by the person receiving or acquiring the shares.   However, if the shares are gifted and no consideration is paid, a stamp duty gift exemption relief can be claimed which is likely to reduce the stamp duty costs to nil.

For inheritance tax (IHT) purposes, a gift of shares to a family member would constitute what is known as a lifetime transfer. Based on current legislation, if you survive 7 years from the date of the gift, there should be no inheritance tax consequences on the transfer of shares to the family member. In the event of your death within 7 years of the gift, IHT relief may be available on the transfer providing certain conditions are met. This could also reduce any potential exposure to inheritance tax to Nil.

Before any transfer of shares takes place, we would recommend that you seek professional advice to ensure that the available reliefs are applicable to your particular circumstances and also to ensure that the various conditions for each tax relief are fulfilled.

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 we do not give free advice by email or telephone.

A group of MPs are calling for inheritance tax (“IHT”) to be abolished in its current form and replaced with a flat 10 per cent rate.

In a report last month by the All Party Parliamentary Group (“APPG”) on Inheritance Tax and Intergenerational Fairness, MPs recommended the government change the current system which was “complex, ineffective, riddled with anomalies, distortionary and unfair”. 

The report suggests that most IHT reliefs should be abolished in favour of a flat rate system of 10 per cent rising to a maximum of 20 per cent on estates at death. The MP’s cite evidence which seem to suggest that keeping the tax rate around 20 per cent disincentivizes tax planning and would result in less administration and tax avoidance.

However it is crucial to note that the APPG is an informal group of cross party MPs and House of Lord’s members with a common interest, as such it is certainly likely that nothing much will come of them. Even so, radical recommendations such as these can have an impact on government policy; especially where they have gained public traction. So it is certainly worth being aware of the proposals.

What Is Being Proposed?

• The APPG has proposed that inheritance tax, which is currently charged at 40% on estates worth more than £325,000 (£650,000 for married couples), should be replaced by a flat of tax of 10%, rising to 20% where the estate is valued at more than £2m.
  
• The majority of IHT reliefs, such as Business Property Relief (BPR) and Agricultural Property Relief (APR) would be abolished, in an attempt to simplify the tax.
  
• The spousal and charity exemptions would remain however.
  
• The uplift for Capital Gains Tax (CGT), whereby assets are rebased on death, would also be abolished.

• A gift tax would be brought in, with a 10% charge to tax on gifts over £30,000.

• The spousal and charity reliefs would remain however.

• The current 7 year rule system, where gifts made within seven years of death are brought back into tax for IHT purposes when someone dies, would be abolished.

Is Reform Needed?

The Office for Tax Simplification (the OTS) called for simplification of IHT in its report in July 2019.

At present, it is estimated that fewer than 5% of estates pay inheritance tax and there is widespread dislike of the tax among the public. There is a perception that the very rich are able to avoid this tax through the use of tax planning, whilst families whose wealth is mainly tied up in their home cannot.

The Residence Nil Rate Band, the additional allowance that was introduced in 2017, allows individuals to have a higher tax free allowance when they pass on wealth in their home to their descendants. However,  it is argued that this system is unnecessarily complicated and discriminates against those who do not have children or who do not own residential property.

So What’s Next?

It is likely that there will be a full consultation process before any reforms are implemented, so any changes probably won’t take effect for some time. It will however be interesting to see whether any changes are announced in the Budget on March 11 2020.

If you have any questions on how to changes could affect you, please contact us on 0114 275 6292 or email info@shipleystax.com..