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Another tax break for investors

Investors’ Relief (‘IR’) is a relatively new tax relief available to investors who sell shares in unlisted trading companies.

This tax relief shares many similarities with Entrepreneurs’ Relief (‘ER’) – under both reliefs there is a 10% capital gains tax rate available (as opposed to 20% for higher rate taxpayers) & both have a lifetime limit of up to £10 million.

On the basis of the above then there doesn’t appear to be a need for IR!

However, we have recently advised on a number of transactions where the shareholder group included a number of investors who held less than 5% of the company  – making them ineligible for ER. This is where IR comes in.

Investors’ relief doesn’t require a minimum shareholding, & therefore a 10% capital gains tax relief is still possible, with the appropriate planning & advice.

IR applies to new ordinary shares issued on or after 17 March 2016. The relief requires that shares are held continuously for three years – in other words the first IR claim will be made in the 2019/20 tax year…..so now is the time to plan for this, given that it’s only a few months away.

There are a few other simple rules to follow on IR – the most notable one being that the investor should not be a paid employee of the investing company, although they can act as a director of the company.

IR may also provide a ‘next best alternative’ to the other excellent tax reliefs available: Enterprise Investment Scheme (‘EIS’) and Seed Enterprise Investment Scheme (‘SEIS’).

Whilst EIS/SEIS may offer more tax benefits, there are several conditions which must be met in order to qualify, & as a result these options may be too cumbersome for some investors.

IR can also be treated as a top-up to ER i.e. having 2 x £10 million of gains by utilising both tax reliefs.

The team at Alexander Knight & Co is hugely experienced in advising on capital gains tax cases.

If you’d like a second opinion, or just some idea of which options could work for you then contact Murray Patt.

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Time for a treat?

Want to be nominated for loveliest employer of the year? With the Trivial Benefits in Kind Exemption (we know…hardly a smooth trip off the tongue phrase) that emerged from the Finance Bill 2016, you can now treat your employees without them facing any tax hassles. So what kind of treats apply?

  • Gift vouchers (up to the value per head – see “small print” below)
  • Taking a group of employees out for a celebratory birthday meal
  • Flowers on the birth of a new baby
  • A summer garden party for employees

And it gets better……you can also treat yourself!

If you are the director of a Limited Company, then you, too can receive up to £300 per tax year -which will not be subject to tax or NI – in the form of gift vouchers from your favourite retail or on-line store. A director of multiple companies can take advantage of this opportunity for each company! But be quick, as great tax breaks like this often disappear just as quickly as they appear!

You can get £300 of gift cards (in £50 tranches) on or before the 5th April – and then another £300 (in £50 tranches) on or after the 6th April 2019 – giving you £600. 

There are obviously a number of conditions that a trivial benefit for an employee has to satisfy in order for it to qualify for the new exemption & these are outlined below in some detail. However, the basic lowdown is that it has to be a freely given gift related to employee welfare & goodwill, not employment service or performance.

The small print…

  • No more than £50 per benefit (or average of £50 if the benefit is provided to a group of employees, & it is not possible to work out the exact cost for each individual). The £50 limit (fortunately) does not apply to company directors.
  • If the employee exceeds this amount then the whole lot becomes a benefit in kind & therefore the normal tax rules apply.
  • Cash or a cash voucher are not eligible but gift vouchers eg for a shop, are acceptable
  • There must be no entitlement to the benefit as part of the employee’s contract (including salary sacrifice schemes).
  • The benefit is not provided in recognition of a work related service or employment duty.

For additional information, tailored to your company, please contact a member of the Alexander Knight & Co team.

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Don’t be an easy target for HMRC in 2019

We are seeing more and more professional services firms – and their clients being investigated by HMRC for tax evasion. HMRC issued 1,414 production orders to accountancy, law and other professional services firms in relation to investigations into tax evasion according to this report by economia.

At least two Manchester United stars were reported to have been investigated by HMRC over alleged image rights tax evasion as the authorities opened new cases against top footballers in the Premier League.

As enquiries escalate amongst top flight footballers, tax investigations into the affairs of small business are also on the increase and we say it is because both groups are easy targets for HMRC.

Are you under investigation by HMRC?

Murray Patt, founder of Manchester-based accountants Alexander Knight & Co, said:

“It increasingly feels as if small and medium-sized businesses and Premier League footballers are two of the most targeted groups for tax investigations by HMRC.

“In the case of footballers, forming an image rights company to receive payments of up to one fifth of a player’s salary is actually a legitimate tax strategy approved by the authorities if set up appropriately.

“However, it’s logical for the authorities to launch investigations into high profile players who earn their wealth via multiple sources because it can be a rich source of extra income, particularly for players who are new to the Premier League from other countries where tax rules are different.

Get insurance for HMRC investigations 

“Let’s not forget that small and medium sized businesses are an even easier target. If you don’t take care as a small business owner you’re at risk of being pulled up over minor mistakes or small disparities, which could incur disproportionately heavy fines and penalties imposed by HMRC.

“It’s important to have insurance in place to cover the cost of an investigation if you are a small or medium sized business, since in most cases you won’t have the funds of a top-flight footballer. Don’t get caught offside by HMRC.”

Alexander Knight & Co will arrange insurance for you and your business against the costs of an expensive HMRC investigation. Don’t get caught offside by HMRC. Speak to our specialist tax team now on (0161) 980 8788.

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General election: a calm and considered reaction

Well it wasn’t supposed to be like this. We were supposed to see a “Conservative landslide” and a clear mandate for a so-called ‘hard Brexit’.

Now the shock of the result is over, it’s worth taking stock and having a look at what the result means for you and your business.

We’ve spoken with many business owners within our own client base since the general election and it’s worth highlighting that they are all, without exception, taking a very stoic and pragmatic approach to it all.

Most say it wasn’t the result they were looking for (or expected) because they wanted to get clarity and stability during the Brexit negotiations.

Some people may be tempted to adopt a more cautious approach to completing deals (buying, selling or merging with other companies) over the next few weeks and months. It is important that entrepreneurs don’t miss out on deals if they are too good to miss.

There’s naturally a concern that the market stagnates in the short-term because confidence is such an important factor for people buying or selling a business. Things will settle down if the Government can secure some quick wins in the Brexit negotiation process.

Business owners wanted stability, certainty and confidence going into the Brexit negotiations and that has clearly not happened here.

The more cautious business owners will be delaying decisions, deals and expansion plans until the path of the Government becomes clear.

It’s important that the voice of business is heard during the Brexit process and the results of this election means that entrepreneurs will have to keep a closer eye on proceedings during the next two years than they had originally planned.

For our clients, we’re paying close attention to developments and we’ll be sharing our insights so you can make informed decisions for you and your business.

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If you are a landlord (no, not the pub type) …you need to read this

It was almost two years ago in the Summer Budget 2015 that the then Chancellor, George Osborne, announced restrictions to income tax relief for interest costs incurred by landlords of residential properties. The proposals became law in November 2015 but it is only from the 6 April 2017 that these provisions came into effect.

In the 2017/18 tax year, the restriction of interest relief to basic rate of tax will apply to 25% of the interest with 75% of the interest getting relief against rental income in the normal way. Landlords will therefore first see the effect in the calculation of their tax liabilities for 2017/18 – the balancing payment for which is due 31 January 2019. A higher rate taxpayer will, in principle, get 5% less relief for finance costs (i.e. one quarter of 40% higher rate less 20% basic rate).

5% doesn’t sound much but it can be worse than this due to 25% of the interest not being deductible from income. So, total income may cross a threshold such as:

  • £50,000 – in which case Child Benefit may be clawed back
  • £100,000 – in which case personal allowances may be reduced.

The restrictions are only going to get worse, so please talk to us if you want clarification on any aspect of these rules.

HMRC’s Making Tax Digital project also has an impact on many property businesses from 6 April 2017. The government considers that all unincorporated businesses except for the larger property business will benefit from using the cash basis rather than the usual accruals basis and so is proposing to make this the default basis.

The cash basis means the business accounts for income and expenses when the income is received and expenses are paid. The accruals basis means accounting for income over the period to which it relates and accounting for expenses in the period in which the liability is incurred.

Property businesses will remain on the accruals basis if their cash basis receipts are more than £150,000. The cash basis also does not apply to property businesses carried out by a company, an LLP, a corporate firm (i.e. a partner in the firm is not an individual), the trustees of a trust or the personal representatives of a person.

The government proposals are that the cash basis will first apply for the 2017/18 tax year which means that your tax return for 2017/18, which has to be submitted by 31 January 2019, will be the first one submitted on the new basis.

There will be an option to elect out of the cash basis and stay with the accruals basis and we are here to help you make a decision on this later in the year.

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New car tax rates

If you have recently purchased or are in the process of buying a new car, you will know that new rates of Vehicle Excise Duty (VED) apply for purchases of cars first registered on or after 1 April 2017.

Most of the rest of the population may be surprised how significant the changes are. The big changes are the charges that apply in the year of purchase of the car. As with the system that applied to cars registered before 1 April 2017, the charges are based on CO2 emissions but the new charges are typically much higher than under the old system. For example, a car with CO2 emissions of 175 jumps from £220 to £800.

But in year two, the new system swings in favour of such a car owner as the charges are not based on CO2 emissions. If the car runs on petrol or diesel there is a fixed charge of £140 and an additional rate of £310 if the car has a list price of more than £40,000.

In percentage terms the purchasers who are most affected are people who buy low emission cars. For a petrol or diesel with 120 CO2 emissions, you would have paid only £30 a year.

For new cars, the charge is £160 in year one and £140 in subsequent years. Note that a purchase of second hand car such as an ‘ex demo’ continues with the VED system in operation when the car was first registered.

So, such purchasers are tied into the old VED rates. You can get details of the new (and old) VED rates at www.gov.uk/vehicle-tax-rate-tables

 Speak to our team if you want to make an informed decision on your next company car (or personal) purchase.

 

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Fancy £600 tax free?

One of the most underused perks of being a company director is the ability to award directors with an annual £300 ‘trivial benefit’.

To get £600 – you draw £300 before April 5th – and £300 after April 5th and purchase a retail gift card with the funds. John Lewis, Selfridges or Tesco – whatever takes your fancy. That makes a total of £600 tax free over two days.

If your wife or husband is a company director, they can also have the perk. Meaning that, as a family, you can collect £1200 tax free!

This tax perk is because HMRC considers it acceptable to reward directors with a ‘trivial gift’ up to the value of £300 each, per tax year.

For more details on how to do this correctly and in accordance with current HMRC rules speak to one of our tax team.

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