It would seem that HMRC are making progress in their efforts to make larger concerns more responsible when paying tax.

Google have been criticised in the past for using complex arrangements to reduce their UK tax liabilities. Google have responded that they have only taken advantage of tax strategies that are legal – in effect Google are saying that if the law has created scenarios that were not intended by Parliament, then the law should be changed.

Recent press commentary has speculated that Google is about to be hit by a £24m tax demand. Apparently, Google’s UK staff in London are given shares by the US parent company as part of their remuneration package. In the past these share issues have been used to reduce Google’s UK tax bill.

HMRC, it would appear, are on the case. They seem to be clamping down on aggressive share schemes. Google have released the following comment:

“This is a matter the company is discussing with HMRC in an ongoing review initiated in 2010. The company has made a provision of £24 million for potential corporation tax for the years under review (2005-11).” 

Planning to sell your business is not a process for the faint hearted. You have likely spent many years building your business and the last thing you want to face is losing a large proportion of the sales proceeds to tax or worse, being unable to enforce payment of what is due to you because of contractual difficulties.

 This is a complex subject. There are many ways to structure a sale and this article outlines a few of the issues you will need to deal with:

• Are you selling all your business or just part of it?
• Are you selling the shares in the company or the underlying business?
• Are you retaining ownership of property that forms part of the business assets?
• Is your company considered to be a “trading” company for tax purposes?
• Should key staff benefit from the sale?

 The forth item on this list is particularly important if shareholders want to benefit from Entrepreneurs’ Relief for Capital Gains Tax (CGT) purposes. A successful claim would limit any CGT to 10% of the taxable gain up to a lifetime allowance of £10m.

 To be considered a trading concern, a company needs to comply with HMRC’s 80:20 rule. This looks at three criteria:

1. Are at least 80% of the assets used for the purposes of a trade?
2. Is more than 80% of turnover derived from trading activities?
3. Do officers and employees of the company spend 80% or more of their time on trading activities?

Assets can include cash reserves so it may be prudent to extract surplus cash from the company at least a year before a sale is anticipated. However, HMRC tend to take a more relaxed view if the cash arises from accumulated trading profits and it is not actively managed.

 Another issue you should consider at an early date is due diligence. Your purchaser will no doubt send in their advisors to check over certain aspects of the business tax affairs prior to the completion of the sale. You should conduct your own review into PAYE, VAT and Corporation Tax compliance matters before any due diligence takes place to ensure there are no skeletons in the cupboard.

Also, it is important to consider shareholdings etc, and whether the shareholders themselves meet the requirements for Entrepreneurs’ Relief.

The key to maximising the value locked up in your business is to take planning seriously, and start the process at least a year before you intend to sell.

 1 November 2013 – Due date for Corporation Tax due for the year ended 31 January 2013.

 19 November 2013 – PAYE and NIC deductions due for month ended 5 November 2013. (If you pay your tax electronically the due date is 22 November 2013.)

 19 November 2013 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2013.

 19 November 2013 – CIS tax deducted for the month ended 5 November 2013 is payable by today.

 1 December 2013 – Due date for Corporation Tax due for the year ended 28 February 2013.

 19 December 2013 – PAYE and NIC deductions due for month ended 5 December 2013. (If you pay your tax electronically the due date is 22 December 2013.)

 19 December 2013 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2013.

 19 December 2013 – CIS tax deducted for the month ended 5 December 2013 is payable by today.

 30 December 2013 – Deadline for filing 2012-13 Self Assessment online to include a claim for under payments (under £3,000) be collected via tax code in 2014-15.

UK residents, whose Swiss banking arrangements have been disclosed to HMRC under the UK/Swiss tax agreement, have started to receive follow up letters from HMRC.

 Earlier this year account holders were given a choice:

• To pay over a fixed percentage of their account balance to compensate for tax previously unpaid.
• Or, to authorise their Swiss Bank to disclose their account details to HMRC. This did not apply to non-UK domiciled individuals.

HMRC have been writing to this second group. Recipients of these letters were required to act quickly. HMRC set a deadline of 1 November 2013 to complete and return one of three certificates. If you have received such a letter, and have not responded, you should take advice quickly. The certificate you should have submitted is one of the following three options:

1. Certificate A: a declaration that they have no outstanding UK tax liabilities (either in relation to the Swiss accounts or other sources).
2. Certificate B: a declaration that they will be disclosing any outstanding liabilities using the Liechtenstein Disclosure Facility (LDF), or
3. Certificate C: a declaration that they will be disclosing their outstanding liabilities outside the LDF.

Failure to respond to the HMRC letter may result in a formal investigation being mounted by HMRC and the risk that criminal proceeding may be taken. Account holders should consider their options carefully and respond without further delay. Completing Certificate B would avail you of certain concessions regarding penalties chargeable, and in particular, immunity from prosecution.

 Readers affected would be wise to take professional advice before responding to HMRC.

Cast your mind back when Members of Parliament were accused of “flipping” properties to avoid Capital Gains Tax on the sale of a second property?

Theoretically, it should be possible to buy a second home, live in it for a short period, and as long as certain procedures are followed, have the last three years of ownership ignored for CGT purposes. By implication, if you buy and sell the property within a three year period you will pay no tax on the sale. This process is described in some circles as “flipping”.

Recent court cases seem to be challenging this type of arrangement and making it more difficult for property owners to avail themselves of the CGT, Principal Private Residence Relief (PPR). The decisions may also have an effect where there is only one home which is occupied on a temporary basis.

 It a nut shell the Courts are using the issue of “permanence” to deny relief.

 P Moore v HMRC

In this case Mr Moore decided he wanted to live apart from his wife of many years and he moved into a house that he had previously rented out. He lived in this house from November 2006 to July 2007. Although he was careful to have his Council Tax bills sent to his new house, all of his other bills were forwarded to his lady friend, who he subsequently married.

The Court decided that Mr Moore had never intended that his residence in the second home be more than a temporary arrangement, and that his true intention was to purchase a larger property with his future wife that would accommodate her children.

 The arrangement lacked permanence.

 Dr Eghbal-Omidi v HMRC

In this case a doctor agreed to purchase a house in December 2006 and the sale was completed in March 2007. In May 2007 the doctor sold the house making a profit of £550,000.

 Again the doctor contended that he had occupied the house and therefore no tax should be payable.

 The Court disagreed. His occupation lacked any permanence and relief was denied.

Decided cases on this issue now conflict as earlier judgements did not place such significance on the matter of permanence. Readers who find themselves in a similar situation should take stock. Until the Courts provide a definitive ruling, or HMRC clear guidelines, we are placed in an awkward position when deciding on an appropriate approach to tax planning.

A new tax campaign was launched by HMRC on 7 October 2013. The campaign targets: physiotherapists, occupational therapists, chiropractors, osteopaths, chiropodists and podiatrists; homeopaths, dieticians, nutritional therapists, reflexologists, acupuncturists, psychologists, speech, language and art therapists, and other health professionals are also covered.

Health professionals have until 31 December 2013 to advise HMRC that they would like to take part in the campaign, and until 6 April 2014 to disclose and pay any tax owed.

As usual with these campaigns HMRC offer favourable settlement terms. Health professionals affected who do not meet the 31 December deadline run the risk that their affairs may be subject to an investigation.

Wednesday 4th December 2013: Autumn Statement

It has been announced that George Osborne will be presenting his Autumn Statement to Parliament at 12.30pm, Wednesday 4th December. The Statement usually sets the tone of future changes to our tax legislation, particularly, those to be included in the Finance Bill 2014.

 Tuesday 10^th December 2013: Draft clauses published

Six days later the Treasury have committed to publishing draft clauses to be included in the Finance Bill 2014. This “putting meat on the bones” approach will give tax professionals an opportunity to comment on proposed changes to the tax code.

The draft clauses will be augmented by the addition of the following information:

• Responses to policy consultations
• Explanatory notes, and
• Tax information and impact notes

This process, of publishing draft clauses, is to be welcomed as it provides a useful window of opportunity for meaningful consultation prior to the publication of the more formal Finance Bill next year.

Consultations on the draft legislation will remain open until 4th February 2014.
 

Dare we hope?

In the third quarter of 2013 the UK’s Gross Domestic Product (GDP) grew by 0.8%. Don’t be dismayed by the small percentage. The key is it’s a positive number and the best growth indicator published since 2010.

Hidden within this increase are some pleasant surprises:

• A 2.5% surge in construction activity, bolstered in part by the Governments Help to Buy initiative.
• Production grew by 0.5%
• Manufacturing by 0.9%
• The UK’s manufacturing activity was the highest in the G7 group in September

Overall, in the last year Britain’s economy has grown by 1.9%.

Politicians will no doubt interpret these results in different ways. The Government will likely consider these results a vindication of their economic policy. A Treasury spokesperson said has already commented:

“Today’s GDP figures show that Britain’s hard work is paying off and the country is on the path to prosperity.

Many risks remain, but thanks to our economic plan the recovery now has real momentum.

All parts of the economy are growing, the deficit is falling and jobs are being created – and that’s the only sustainable way to raise living standards for hardworking families.”

No doubt the opposition parties would stress that whilst “All parts of the economy [may be] growing” wealth and living standards are rising fastest in London and the South-East.

Never-the-less the news has to be welcome. It is time to talk-up economic activity and start to see that we may indeed be over the worst.

Dare we hope? Yes, why not…

If you managed to acquire Post Office shares at 330p per share you will have been presently surprised by the opening price on the London Stock Exchange. At 8am on the first day of trading the shares stood at 430p rising to 450p in the first few minutes. At the end of the first days’ trade the price stood at 455p. A rise of nearly 38%.

And the price continued to increase giving rise to press speculation that the floatation was “under-sold”. No doubt the professional advisors will have to face a few difficult questions in the coming weeks?

In the meantime there continues to be strong demand for the shares in the face of confirmed industrial action. CWU General Secretary, David Ward said, before the ballot result was known, that:

"We will not accept people maximising individual profit on the back of minimising the value, terms and conditions of postal workers. We're determined this privatisation will not lead to the kind of job losses and downward pressure on pay and conditions we've seen in other industries and we're seeking a legally-binding agreement to protect jobs."

Be interesting to see how the intended interruption in services affects the share price?
 

The Chancellor announced the creation of a NICs Employment Allowance in the 2013 Budget. This is planned to start on 6 April 2014 and moved a step closer to becoming law with the First Reading of the Bill on 14 October 2013.

HMRC have published the following background information about the scheme:

“In the March 2013 Budget, as part of its strategy to encourage business growth, the Government announced that it will introduce an employment allowance of £2,000 a year for all businesses, charities and CASCs to offset against their liability for Class 1 secondary NICs.

To keep the process as simple as possible for employers, the employment allowance will be delivered through standard payroll software and HMRC’s Real Time Information (RTI) system. HMRC will add a facility to the RTI Employer Payment Summary (EPS) referring to the employment allowance in the form of a “yes/no” indicator and payroll software providers will do the same. HMRC will amend its basic PAYE tools to have an EPS facility to help those employers who do not have such a facility on their software.

To claim the allowance, the employer will have to signify his intention to claim by completing the yes/no indicator just once. The employer will then offset the allowance against each monthly Class 1 secondary NICs payment that is due to be made to HMRC until the allowance is fully claimed or the tax year ends. The following tax year, the allowance will be available as an offset against a Class 1 secondary NICs liability as it arises during the tax year.

The employment allowance will apply per employer, regardless of how many PAYE schemes that employer chooses to operate, so each employer can only claim for one allowance. It will be up to the employer which PAYE scheme to claim it against.”