With our asset protection & succession planning solutions you can rest easy

Wealth Management & Protection

Asset Protection is essential for protecting and preserving company and family assets from third party claims, divorce, bankruptcy, spendthrift spouses, and youthful improvidence.

Taking the most appropriate action for the protection of your own personal assets is a very complex undertaking, requiring specialist taxation and legal assistance. Asset protection must be commercially driven and cannot be used to avoid paying creditors.

Whilst asset protection is fundamental in considering estate planning, the principle can be extended to other circumstances as well. Two common areas in brief:

PROTECTING AN INDIVIDUAL’S ASSETS

Generally, one of the most efficient ways you can protect assets is by transferring them into a relevant and properly constituted trust. The asset should then be protected against the bankruptcy or divorce of the beneficiaries.

Pitfalls

Firstly, setting up a trust for asset protection will in itself not afford any protection under insolvency or matrimonial laws for beneficiaries if the wrong type of trust is used. We have seen many trusts set up for this purpose that have failed. If one tries to rely on an improperly constituted trust for asset protection the courts may look through it and seek to set it aside.

Secondly, a point which regularly tends to be overlooked (particularly regarding property) on transfer is the mortgage against the property. If the mortgage is more than the original “base” cost of the property (perhaps due to remortgaging) then Capital Gains Tax may be liable if the mortgage is transferred into the trust. Furthermore, such transfer may potentially trigger a Stamp Duty Land Tax charge.

Many think that an outright gift of assets directly to children, siblings, etc will automatically afford protection against divorce or bankruptcy. This may not be the case and is a potentially dangerous presumption to rely on, specialist professional advice should be sought to achieve the desired results. Also such transfers tend to trigger a Capital Gains Tax charge under the deemed disposal rules and again this is often overlooked with significant tax consequences.

Company Property

Businesses may wish to protect vulnerable property and assets against commercial and business risks. Broadly speaking, one way this could be achieved would be by creating a group of companies and transferring the property into this group. The effect of this would be to “ring-fence” the vulnerable asset against any claims of the individual trade in the group.

Pitfalls
It is essential that any asset transfers is done correctly to avoid the property being “linked” to the original business, as this will afford no protection. Of equal importance is that any debts between the group companies would need to be dealt with correctly to provide any real protection.

In all cases there needs to be a legitimate business, commercial or investment driver for the transaction. Furthermore, it is crucial that any such restructuring does not fall foul of insolvency legislation, namely the defrauding of creditors.

Asset protection is an invaluable planning tool which can be used to protect, preserve and devolve family wealth in the right circumstances.

For further information on how you can effectively safeguard you assets and wealth please contact us.

Latest news & blogs…

Loans to company directors – is it tax free?

Wealth Management & Protection Shipleys Tax Advisors

IN THESE tough times company profits maybe severely affected but what if your family company is lucky to have cash in the bank? Is there a tax-efficient way to make a short term loan to directors to meet personal bills with a view to clearing the loan with a dividend payment when the business picks up? This can be a tax-efficient strategy, but there are tax pitfalls – in today’s Shipleys Tax note we briefly look at the options.

Tax implications of making loans to directors

Where a family company has cash in the bank but profits have been adversely affected by the pandemic, directors of a family company may wish to take a short term loan to enable them to meet personal bills, with a view to clearing the loan with a dividend payment when business picks up. This can be a tax-efficient strategy, although there are tax implications to be aware of if the loan balance exceeds £10,000, or if the loan is not repaid by the corporation tax due date.

A tax-free loan?

It is possible to enjoy a loan of up to £10,000 tax-free for up to 21 months. To enjoy the maximum tax –free period, the loan must be taken out on the first day of the accounting period. Where the loan is taken out during the accounting period, as long as it is does not exceed £10,000, it can be enjoyed tax-free until nine months and one day after the end of the accounting period.

Provided the loan is for £10,000 or less, there is no benefit in kind tax to pay. But if the outstanding loan balance exceeds £10,000 at any point, the director is taxed on the benefit of the loan.

The dreaded tax charge

To avoid a tax charge, the loan must be repaid within nine months and one day of the end of the accounting period. This is the day by which corporation tax for the period must be due. A section 455 tax charge (named after the legislative provision imposing it) is a charge on the company set at 32.5% of the outstanding loan balance. The charge is aligned with the higher dividend tax rate.

If the loan is cleared by the corporation tax date, there is no section 455 tax to pay. There are various ways in which the loan could be cleared, for example, by declaring a dividend (assuming that the company has sufficient retained profits) or by paying a bonus. However, there will be tax implications of these too. Unless the director can use funds from outside the company to clear the loan or will pay tax on the dividend or bonus being used to clear it at a rate which is less than 32.5%, it may be better to pay the section 455 charge instead.

The section 455 charge is a temporary charge which is repaid if the loan is repaid. The repayment is made nine months and one day from the end of the accounting period in which the loan was repaid, usually be setting it against the corporation tax liability for that period.

However, it should be noted that anti-avoidance provisions apply to prevent a director from trying to clear the loan shortly before the corporation tax due date and re-borrowing the funds shortly afterwards. What mechanisms would work to circumnavigate these provisions are beyond the scope of this tax brief.

Benefit in kind charge

Note that a tax charge will also arise on the director under the benefit in kind legislation if the loan balance exceeds £10,000 at any point in the tax year. The amount charged to tax is the difference between interest due on the loan at the official rate (currently set at 2.25% since 6 April 2020) and the interest, if any, paid by the director. The company must also pay Class 1A National Insurance (at 13.8%) on the taxable amount.

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.

R&D Tax Credit Boost for SMEs

Wealth Management & Protection Shipleys Tax Advisors

LEGISLATION introduced to tackle the abuse of Research and Development (R&D) tax relief claims, which inadvertently affected genuine claims from small businesses, is being amended.

In today’s tax brief, Shipleys Tax looks at the new proposed changes to R&D rules and suggests why it’s good news for SME’s looking to get tax relief on research expenditure.

For a general overview of R&D and its abuse see: https://www.shipleystax.com/2020/09/beware-of-unscrupulous-rd-tax-relief-claim-companies/

Under the UK R&D tax credit relief rules, R&D costs incurred for work done anywhere in the world can potentially qualify for R&D tax relief. This is a very generous aspect of the tax relief but one that was open to widespread abuse.

For example, companies outside the UK with no real business interests in the UK, would set up UK companies and run foreign R&D costs through the company only to obtain the refundable/payable R&D tax credit from HMRC. HMRC state they have identified approximately £300M in fraudulent claims.

In order to prevent this abuse, draft legislation was introduced whereby any payable R&D tax credit would be capped at three times the PAYE costs incurred (thereby limiting the claim).

Under the UK R&D tax credit relief rules, R&D costs incurred for work done anywhere in the world can potentially qualify for R&D tax relief.

One of the major problems with this cap was an unintended result to deny or substantially reduce the R&D tax credit payable for certain SMEs; in particular start-ups. In many cases, start-ups tend to engage staff on a contract basis as opposed to employee/PAYE basis for various reasons. This would mean a low PAYE base cost.

As such, you could have the situation where a start-up has one employee on a reduced salary (because the company is “bootstrapping”) and hiring R&D staff on a contract basis. For example, if the PAYE were £5,000, the payroll cap would be £15,000 and hence any payable tax credit over this amount would be denied even if the qualifying expenditure was much higher. With the average SME receiving over £55K in tax credits, this could result in a substantial reduction, or denial, of R&D tax credit relief.

Under new draft legislation however, these restrictions have been lifted and there are now two exceptions to the rule above.

Firstly, any payable R&D tax credit below £20K is not affected by the cap. Secondly, and more importantly, any SME will not be subject to the cap if:

  • its employees created the intellectual property behind the R&D work and
  • its expenditure on externally provided workers (and work subcontracted to a related party) is less than 15% of its overall R&D spend.

Currently the legislation is draft and, if passed, is welcome news to SMEs in the UK. In particular it would benefit those startups with very low PAYE costs and hand them a cash boost when it’s needed most.

The new legislation is expected to apply to accounting periods on or after 1 April 2021.

To talk through your potential R&D claim and how our team of experts might be able to help, please call 0114 272 4984 or email info@shipleystax.com.

Tis the season to be scammed

Wealth Management & Protection Shipleys Tax Advisors

Tips on avoiding tax scams

AS THE FESTIVE SEASON draws nearer, HMRC is warning millions of Self Assessment customers to be aware of fraudsters in the run up to the 31 January tax deadline. Cyber criminals are taking advantage of “reminder” SMS messages and bogus emails during the festive season to trick taxpayers out of their money.

Just in the last year, HMRC received nearly 900,000 reports from the public about suspicious HMRC contact – phone calls, texts or emails. More than 100,000 of these were phone scams, while over 620,000 reports from the public were about bogus tax rebates.

Cyber criminals are taking advantage of “reminder” SMS messages and bogus emails during the festive season to trick taxpayers out of their money.

At Shipleys Tax we look at some of the most common techniques fraudsters use to entrap taxpayers and what you should do if you suspect foul play.

Faking it

Probably the most common methods we come across that fraudsters use includes:

  • Phoning taxpayers offering them a fake tax refund
  • Leaving a voicemail message threatening enforcement action or imprisonment if a bogus tax bill is not paid immediately
  • Pretending to be HMRC by texting
  • Emailing a link which will take customers to a false page, where their bank details and money will be stolen.

…taxpayers should never give out private information, reply to text messages, download attachments or click on links in texts or emails, even if it looks like a message from HMRC…

Taxpayers need to recognise the signs to avoid becoming victims themselves. HMRC, like other genuine organisations and banks, will never contact customers asking for their PIN, password or bank details. HMRC also do not email taxpayers direct.

Needless to say, but taxpayers should never give out private information, reply to text messages, download attachments or click on links in texts or emails which they are not expecting, even if it looks like a message from HMRC complete with logo and branding.

What should you do if you suspect a scam?

  • Number one rule: do not respond. Always check with your professional adviser (or HMRC direct) regarding the status of your tax affairs.
  • HMRC operates an inbox for people to report suspicious emails to, at phishing@hmrc.gov, while SMS messages should be forwarded to 60599.
  • If you have suffered financial contact your bank immediately and report it to Action Fraud online at actionfraud.police.uk or by calling 0300 123 2040.

As always, if in doubt check and check again before taking any action.

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.

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