Autumn Budget 2024

On Wednesday 30^th October, Chancellor Rachel Reeves delivered the UK’s Autumn Budget, marking an historical occasion as the first budget to be delivered by a female Chancellor. The Budget outlined Labour’s plans to address the UK’s economy.

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The Budget set out £40 billion in tax raises, the largest in a generation, with the majority of those rises being borne by employers through the increasing of the rate of employer’s national insurance from 13.8% and the reduction of the thresholds at which contributions apply. This means that the cost of employing an employee on average wages increases by approximately £1,000.

As expected, non-doms were also targeted with the previously announced measures largely being introduced as part of the abolition of domicile as a concept in the UK’s tax system.

Capital Gains Tax increases and reforms to Inheritance Tax (IHT), including reforms to Business and Agricultural Property Reliefs, were announced, as were increases to the ‘national living wage’. Inherited Pensions will also move into the scope of IHT meaning that most unused pension funds and death benefits will be included in the value of a person’s estate for IHT purposes.

There were no changes to the main rates of income tax, VAT or employee’s national insurance, and Ms Reeves announced that from 2028 to 2029 the income tax thresholds will be updated in line with inflation. Interesting, just ahead of the next scheduled election.

There was little in the way of incentives for businesses apart from a previous commitment to maintain full expensing and the £1 million annual investment allowance, and a commitment to not raise the corporation tax rate above the current 25%.

More details of the specific measures can be found in our Budget Summary.

To find out how we can help your business, or if you have any questions regarding the 2024 Autumn Budget, please contact us.

With Chancellor Rachel Reeves’s first Budget scheduled for Wednesday 30th October 2024, we have set out below, our thoughts on some of the rumoured tax rises required to address the nation’s £20 billion deficit.

While Reeves has pledged not to raise income tax, national insurance or VAT, other tax increases and spending cuts may still be on the horizon, especially in light of a £22 billion shortfall, public sector pay rises, and other recent financial commitments. Though details will not be confirmed until the Budget is officially released, Labour’s manifesto has hinted at potential changes in key areas. We have summarised the most relevant updates for you below:

Furnished Holiday Lets (FHL)

The Government has already confirmed that the rule changes for FHL, proposed in the Spring Budget, will come into effect from April 2025.

Key changes include the removal of pension relief, further restrictions on Business Asset Disposal Relief (BADR), and the reduction of full interest relief claims. These adjustments could significantly impact your profits, so it is important to be prepared.

Please see our article regarding Furnished Holiday Lets for more information.

Capital Gains Tax (CGT)

There have been discussions about aligning Capital Gains Tax rates with Income Tax rates, which could result in significant changes. With recent reductions in the CGT allowance, further adjustments may be on the table.

If you are planning any major sales or considering the closure of your business, it may be beneficial to act quickly, as any changes could take effect after the Budget. In many cases, contracts exchanged before the announcement may still follow the current rules.

Please see our article concerning Capital Gains Tax for more information.

Gift Holdover Relief

This relief allows for the deferral of Capital Gains Tax when business assets are gifted. If the Government seeks immediate revenue, this relief could be a target. If you are considering gifting business assets or shares to family members, it might be worth completing this before the Budget to ensure you benefit from the current rules.

Inheritance Tax (IHT)

There have been a lot of rumours regarding the reform of Inheritance Tax and while some of the speculation involves complex changes to the system, several areas of Inheritance Tax could easily be targeted including:

• The removal of Agricultural Property Relief (APR) and Business Property Relief (BPR): APR can help reduce IHT on agricultural assets, which has been a key tool for farmers to allow the passing down of land and buildings. BPR provides relief from IHT on certain assets such as shares in unquoted companies.
• Reform or Removal of Potentially Exempt Transfers (PETs): PETs allow gifts (over the normal exempt limits) to be made without triggering immediate IHT and can exempt these gifts entirely if the donor survives seven years. There is speculation that the Government may remove this exemption and so thought should be paid to making any intended significant gifts before the 30th October.

Our new private client team can assist on these matters as well as any other IHT or Will related advice.

Pensions

It is possible that the Government may remove or amend pension tax relief for individuals who make higher and/or additional pension contributions and instead introduce a flat rate regardless of the saver’s income. If you are a higher rate taxpayer making personal pension contributions it may be wise to seek financial advice and consider making your contributions before the 30th October.

The standard lifetime allowance was abolished in April 2024, and while it is unlikely this will be reversed, it is always worth being aware of any potential changes.

For expert advice and support in relation to this matter, please enquire or contact us at hello@dixcartuk.com.

The Government have announced the removal of tax reliefs for Furnished Holiday Lets (FHL), set to take effect from the 6th April 2025. This change marks a departure from the tax regime that has been in place since 1982, which was designed to offer favourable tax treatment to owners of FHL properties.

Background of Furnished Holiday Lettings Tax Regime

The FHL tax regime was introduced over four decades ago, and provided significant tax benefits, including:

• No restrictions on the deduction of interest and finance costs,
• Eligibility for plant and machinery capital allowances,
• Access to business asset reliefs for Capital Gains Tax (CGT).

These benefits made FHLs an attractive option for property owners, especially with the rise of platforms like Airbnb, which facilitated short-term holiday rentals.

What is Considered a Furnished Holiday Let?

According to HMRC, a furnished holiday let is defined as a furnished commercial property in the UK that meets specific criteria:

• Available for letting for at least 210 days per year,
• Commercially let as holiday accommodation for at least 105 days per year,
• Not occupied by guests for more than 31 days at a time.

Implications of the New Rules from April 6th, 2025

Starting from April 2025, these changes will have several implications for FHL owners:

• Business Asset Disposal Relief (BADR): Currently available on qualifying FHL properties, BADR allows gains to be taxed at a reduced CGT rate of 10%. Under the new rules, FHL owners will be subject to standard residential CGT rates—18% for gains within the basic rate band, and 24% thereafter.
• Capital Allowances: These will no longer be available for fixtures and furnishings. Instead, relief may only be claimed for the replacement of domestic items, in line with rules for long-term lets.
• Mortgage Interest: Mortgage interest will no longer be deductible from profits. Instead, it will be claimed as a tax reducer at 20% of the interest costs, eliminating the potential for higher rate tax relief on these expenses.
• Pension Contributions: FHL income will no longer count as relevant earnings for pension contributions, limiting the tax relief available.

Transitional Relief Measures

Despite the removal of many benefits, the Government has introduced the following to ease the transition:

• 100% annual investment allowances can still be claimed in the current year.
• Losses from FHL businesses can be carried forward beyond April 2025.
• Existing pools of allowances, as of April 2025, can continue to be claimed after the changes take effect.

These upcoming changes represent a significant shift for FHL owners. Proper planning and timely actions can help mitigate the impact and take advantage of any remaining benefits before they are phased out.

For more information from us, or if you wish to discuss tax reliefs, enquire or contact us at hello@dixcartuk.com.

With the Budget now set for Wednesday 30th October 2024, it is apparent that there may well be a change to Business Asset Disposal Relief and/or Capital Gains rates. This may affect business owners looking to sell or close their companies, and one strategy may be to bring forward a Members’ Voluntary Liquidation (MVL) for those clients who maybe considering using this in the near future.

What is a Members’ Voluntary Liquidation (MVL)?

A MVL is a process used to wind up a solvent company, typically when the directors and shareholders decide the business has reached the end of its useful life, or the owners wish to retire or pursue other interests.

MVL’s are beneficial for shareholders as they allow for a structured and tax-efficient way of distributing the company’s assets. For instance, shareholders might benefit from tax reliefs like Business Asset Disposal Relief (BADR), which can significantly reduce the amount of Capital Gains Tax payable.

Optimising Business Asset Disposal Relief During a Members’ Voluntary Liquidation

When business owners decide to close their company through a MVL, maximising tax efficiency is often a priority. Business Asset Disposal Relief (BADR) provides a significant opportunity to reduce Capital Gains Tax (CGT) liabilities during this process, offering a lower tax rate of 10% on qualifying business disposals.

What is Business Asset Disposal Relief (BADR)?

BADR is a tax benefit available to business owners, allowing them to pay a reduced CGT rate when disposing of qualifying business assets up to a value of £1m. To benefit from this relief, it is essential to meet specific conditions:

1. Ownership Duration: You must have owned the shares or assets for at least two years before the liquidation date.
2. Trading Status: The company should be a trading company or the holding company of a trading group.
3. Significant Shareholding and Role: You need to hold at least 5% of the company’s shares and voting rights and be an officer or employee of the company for a minimum of two years leading up to the liquidation.

Next Steps

If you are considering closing your business, given the complexities involved in qualifying for BADR and navigating the MVL process, it is essential to seek professional guidance.

For expert advice and support in relation to this matter or any other aspect of company or personal taxation, please enquire or contact us at hello@dixcartuk.com.

In today’s globalised world, the movement of individuals and families across borders has become increasingly common. For non-domiciled individuals in the UK considering a move abroad, navigating the complexities of tax, legal, and professional planning can be daunting. At Dixcart, we specialise in providing seamless, comprehensive support to ensure a smooth transition from the UK to your new destination, leveraging the extensive resources of the Dixcart Group.

Understanding the Non-Dom Status

Currently, non-domiciled individuals living in the UK currently enjoy tax advantages under the remittance basis of taxation. This allows non-doms to pay UK tax only on the income and gains they remit to the UK, while their offshore income and gains remain outside the UK tax net until they are remitted into the UK. However, the landscape is shifting and it is widely expected that many of these benefits will be reduced or removed in the coming years.

Seamless Transition: From Exit to Arrival

At Dixcart, we pride ourselves on offering personalised, expert advice tailored to the unique needs of non-dom clients. Our approach ensures that every aspect of your move is managed efficiently and effectively, providing peace of mind from the moment you decide to relocate until you are fully settled in your new country.

• Pre-Move Planning: We provide guidance on the UK’s statutory residence test (SRT) and help you understand the implications of your tax residency status. We also assist in preparing for departure by advising on the timing of disposal of assets.
• Exit Strategy: Our team works closely with you to develop a detailed exit strategy, ensuring all legal, and tax considerations are addressed. This includes understanding split-year treatment, managing ongoing UK obligations, and planning for any other tax implications.
• Arrival Coordination: Upon arrival in your new country, Dixcart continues to provide support through our local offices. We assist with settling into the new tax regime, and ensuring compliance with local laws.

One Group, One Team

Dixcart UK is part of the larger Dixcart Group, a global network of offices providing specialized services to individuals, families, and businesses for over fifty years. Our international presence includes offices in Cyprus, Guernsey, Isle of Man, Malta, Portugal, Switzerland, and the UK. This extensive network allows us to offer a wide range of services and local expertise to support your move and ongoing needs in your new country of residence.

With Dixcart, no matter where you are, you will receive consistent, high-quality service from a dedicated team of experts. This integrated approach ensures that all aspects of your relocation are handled smoothly and efficiently, without the need to coordinate between multiple service providers.

Our International Services

The Dixcart Group offers comprehensive support across various jurisdictions, including:

• Residence and Citizenship: Assistance in obtaining residence and citizenship in various countries, ensuring compliance with local regulations and optimizing tax benefits.
• Corporate Services: Business formation and management, including accounting, corporate secretarial services, legal, and immigration support.
• Private Client Services: Family office support, trust and foundation administration, and registration of aircraft, ships, and yachts.

Linking to Expert Guidance

For more detailed information on the implications of the UK non-dom status and how we can assist you, visit our dedicated page on Guidance for UK Non-Doms Considering a Move Abroad. This resource provides valuable insights and practical advice to help you navigate the complexities of relocating from the UK.

Contact Us

At Dixcart UK, we are committed to providing expert, personalized support to ensure a smooth and efficient transition from the UK to your new home. For more information on our services and how we can assist you, please contact us or reach out to one of our offices within the Dixcart Group.

By choosing Dixcart, you gain access to a wealth of expertise and a global network dedicated to supporting your needs every step of the way.

Tax residence is a fundamental aspect of international taxation, and understanding it is essential for individuals and businesses to effectively manage their tax obligations. One crucial document in this context is the Tax Residence Certificate (TRC). A TRC serves as official proof from a relevant tax authority of an individual’s or entity’s tax residency status in that jurisdiction, enabling them to benefit from tax treaties, claim tax refunds, and avoid double taxation. By establishing tax residency, individuals and businesses can navigate the complexities of international tax laws more efficiently, ensuring compliance and optimizing their financial positions.

In this article, we will delve into the concept of the Tax Residence Certificate, discussing its definition, significance, and common uses. Additionally, we will provide guidance on the application process, supported by a practical case study to illustrate the real-world application and benefits of obtaining a TRC.

What is a Tax Residence Certificate?

A Tax Residence Certificate (TRC) is an official document issued by the tax authorities of a country to confirm that an individual or entity is a tax resident of that country. This certificate is crucial for individuals and businesses involved in cross-border transactions as it helps in establishing the tax residency status for the purposes of Double Taxation Avoidance Agreements (DTAAs).

Key Uses of a Tax Residence Certificate

1. Avoidance of Double Taxation The primary use of a TRC is to avail benefits under DTAAs. These agreements are made between two countries to avoid double taxation on the same income. With a TRC, a taxpayer may claim tax relief or exemption on income earned in a foreign country.

2. Proof of Residency For individuals and businesses operating internationally, a TRC serves as proof of tax residency. This is particularly important when dealing with foreign tax authorities or financial institutions who need to hold such proof to comply with the Common Reporting Standards.

3. Reduced Withholding Taxes In many cases, the withholding tax on income such as dividends, interest, or royalties can be reduced if a valid TRC is provided. This ensures that the taxpayer does not pay more tax than necessary.

How to Apply for a Tax Residence Certificate

The process of applying for a TRC can vary depending on the country, but typically involves the following steps:

1. Determine Eligibility Ensure that you meet the residency criteria of the country in question. This often involves physical presence, permanent home, or significant economic ties.

2. Prepare Documentation Gather necessary documents such as proof of residency, tax returns, and any other required forms. The specific requirements will vary by country.

3. Submit Application Complete the application form and submit it along with the supporting documents to the relevant tax authority.

4. Await Approval The tax authority will review the application and, if satisfied, issue the TRC. The processing time can vary.

Case Study: John’s Journey to Obtaining a Tax Residence Certificate

To illustrate the importance and application process of a TRC, let’s consider the case of John, a UK-based entrepreneur who has expanded his business operations to France.

John has been living in the UK for the past several years and has established significant ties to the country. However, his business activities in France have grown, and he is now receiving substantial income from French sources. To avoid or mitigate double taxation on his French source income, John needs to obtain a TRC from the UK tax authorities.

Steps John Took:

1. Eligibility Check John confirmed his eligibility by reviewing the UK’s statutory residency test and ensuring that he meets the conditions for being considered a UK tax resident.

2. Documentation He collected his proof of residency, including his UK tax returns for the past few years, and details of his business operations in France.

3. Application Submission John’s accountant completed the necessary application form (available from HM Revenue & Customs) and submitted it along with the supporting documents.

4. Approval After a few weeks, John received his TRC, which he then submitted to the French tax authorities to claim relief under the UK-France DTAA.

Conclusion

A Tax Residence Certificate is a vital document for anyone engaged in cross-border financial activities. It helps in avoiding double taxation, proving tax residency, and reducing withholding taxes on income earned abroad. At Dixcart UK, we assist our clients in navigating the complexities of international tax laws, including obtaining TRCs. If you need help with your tax residency matters, feel free to contact us for expert guidance and support.

For more detailed information and assistance, please contact us

This article is intended to provide a general overview and does not constitute legal or tax advice. For specific circumstances, it is advisable to seek professional guidance.

From a UK perspective, the determination of corporate tax residency is crucial for understanding a company’s tax obligations. A company is considered a UK tax resident if it is either incorporated in the UK or if its central management and control (CMC) actually resides in the UK. This residency status dictates the scope of the UK’s taxing rights over the company.

Criteria for UK Tax Residency

• Incorporation in the UK: Any company incorporated in the UK is automatically deemed a UK tax resident.
• Central Management and Control: A company not incorporated in the UK can still be considered a UK tax resident if its central management and control abides in the UK. This criterion involves determining where the company’s ‘paramount authority’ is exercised, which typically involves the board of directors.

Tax Implications for UK Tax Resident Companies

UK tax resident companies are subject to UK corporation tax on their worldwide income and gains. This means that all profits, regardless of where they are generated, are taxable under UK law. In contrast, non-UK tax resident companies are generally only subject to UK corporation tax on profits attributable to a UK permanent establishment. Additionally, they are liable for UK income tax on certain UK-source income.

Determining Central Management and Control

The question of where a company’s central management and control resides is a factual one. Key points to consider include:

• Exercise of Paramount Authority: The central management and control is where the company’s paramount authority is exercised, usually by the board.
• Influence vs. Control: Influencing the board does not equate to controlling it. The distinction is crucial in determining the true locus of control.
• Rubber Stamping: Courts are vigilant against scenarios where the board merely rubber-stamps decisions made by others, which would indicate that the real management and control lie elsewhere.

Dual Tax Residency

A company can be dual tax resident, meaning it is considered a tax resident in two countries. In such cases, the corporate residency rules of both countries must be examined. If a dual residency situation arises, a tax treaty (if one exists) between the two countries will typically determine which country has the primary taxing rights. These treaties often provide mechanisms to resolve dual residency conflicts to prevent double taxation.

Conclusion

Understanding where a company’s central management and control resides is essential for determining its tax residency and, consequently, its tax obligations in the UK. Companies must carefully assess their management structures and operations to ensure compliance with UK tax laws and to navigate the complexities of dual tax residency effectively. This explanation is a simplified overview, and there are many additional factors that can come into play. Therefore, it is always advisable to contact a tax professional to obtain tailored advice and ensure all specific circumstances and nuances are properly addressed.

For more information from us, or if you wish to discuss corporate tax residency, enquire or contact us at hello@dixcartuk.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Introduction:

Recent statements from the Prime Minister announced forthcoming changes to company size classifications, promising to streamline reporting obligations for businesses nationwide. These adjustments, stated to take effect later this year, aim to simplify both non-financial and financial reporting processes for Small and Medium Enterprises (SMEs), aligning with evolving post-Brexit regulatory freedoms.

Key Developments:

As of March 18, 2024, the government revealed plans for significant deregulatory measures, including a noteworthy 50% increase in the thresholds dictating company sizes. This adjustment is poised to redefine the classification of a substantial number of businesses, potentially granting relief to around 132,000 entities by alleviating certain non-financial reporting burdens.

Proposed Changes:

The proposed modifications to company size thresholds, stated for implementation for financial years starting October 1, 2024, are summarised in the table below:

Additionally, governmental initiatives will:

• Streamline reporting obligations by eliminating redundant or outdated requirements from the Directors’ Report and the Directors’ Remuneration Report and Policy.
• Facilitate the transition to digital annual reports for companies.
• Address technical intricacies in the audit regulatory framework stemming from the integration of EU law into UK legislation.

Future Considerations:

Looking forward, the government plans to further engage in consultations regarding additional measures, with a particular focus on medium-sized companies. These discussions may encompass exemptions from producing strategic reports and potential adjustments to the employee size threshold, possibly raising it from 250 to 500 employees.

Conclusion:

The forthcoming adjustments to company size classifications underscore the UK government’s proactive stance in fostering a regulatory environment conducive to business growth post-Brexit. By simplifying reporting requirements and alleviating administrative burdens, these measures aim to bolster the resilience and prosperity of SMEs while ensuring regulatory compliance. As businesses brace for these impending changes, staying informed about updates and guidance will be paramount for navigating the evolving regulatory landscape effectively.

To find out how we can help your business, or if you have any questions regarding the changes in Company size classifications, please contact us.

The Government has responded to the views of farmers and the motor industry who were potentially going to be negatively affected by the proposed change to the benefit in kind tax treatment of Double Cab Pick Ups (DCPUs).

What Was the Previous Guidance?

Following a 2020 Court of Appeal judgment, the guidance had previously confirmed that, from 1 July 2024, DCPUs with a weight load capacity of one tonne or more would be treated as cars, rather than goods vehicles for both capital allowances and benefit-in-kind purposes.

New Guidance

The government has recognised that the 2020 court decision and resultant guidance could have had an impact on businesses and individuals in a way that would be detrimental to the government’s wider aim to support businesses, including essential motoring, such as van drivers, and the farming industry. 

• On 19 February 2024, HMRC announced that its previous guidance would be withdrawn, meaning that DCPUs will continue to be treated as goods vehicles rather than cars, and businesses and individuals can continue to benefit from its historic tax treatment.

The government has made it clear that it will be legislating to ensure that DCPU vehicles continue to be treated as goods vehicles for tax purposes and will consult on the draft legislation to ensure that this is achieved, before introducing it in the next available Finance Bill.

Tax Implications

The tax on the benefit-in-kind will now not increase, when employers provide such vehicles to their employees.

In addition, the capital allowances available in the first year of use will now not be reduced when a business purchases this vehicle for use in their trade.

The Exception

This update is only with reference to DCPUs with a payload of one tonne or more. DCPUs with a payload of less than one tonne will continue to be treated as cars.

Additional Information

If you would like to discuss any matters in relation to Double Cab Pick Ups, raised in this article, please contact Paul Webb: hello@dixcartuk.com

As of 1 January 2024, Pillar 2 (BEPS 2.0) came into effect, as recommended by the OECD, where multinational companies are subject to a global minimum tax of 15% which will apply for the first time for certain large economies – agreed by more than 140 countries under the OECD Inclusive Framework.

In the digital age and face of globalisation, the global economy has transformed – with countries facing pressure to lower their corporate income tax rates to offer incentives to compete for capital and investment. Building on BEPS actions and placing a floor under tax competition, the OECD, together with member countries, have addressed the collective action problem for the so-called race to the bottom.

A series of interlocking rules apply to companies taxed below the 15% rate in one country (with the possibility of other countries being able to apply a top-up tax), which is summarised below in six steps:

Step 1: Determination of Multinational Groups in Scope

The following steps apply in determining which multinational groups are in scope:

1. Internationally active groups – determination as to whether the group has entities or permanent establishments in more than one jurisdiction, is required;
2. Groups with annual revenue of €750 million or more, in at least two out of the four prior years immediately preceding the fiscal year being tested; and
3. Identify excluded entities from the application of the Pillar II rules (but note that these are not excluded from the revenue threshold calculation above).
   • Public interest entities, such as governmental and non-profit organisations, tax-neutral entities (such as pension and investment funds), and certain asset-holding companies are excluded.

Step 2: Allocation of Income to Constituent Entities on a Jurisdictional Basis

The multinational group needs to determine the income (abbreviated as FANIL for Financial Accounting Net Income or Loss – determined by accounting standards for financial reporting) and the location of each constituent entity, to identify the respective local tax treatment.

Step 3: Calculation of GloBE Income

Global Anti-Base Erosion (GloBE) income is calculated by making adjustments to FANIL to align the tax base for the global minimum tax with those that are typically applied for local tax purposes. Types of adjustments include:

1. Adjustments to financial accounting income to better align with taxable income – net taxes, dividends (avoid double counting profits within a group), equity gains and losses (unrealized – no impact for GloBE; realized – may need adjustments for timing differences between accounting and tax), asymmetric forex gains and losses (differences in treatment between accounting and tax require reconciliation to align with taxable income), pension expenses (use of tax accounting principles), stock-based compensation (portion deductible for tax added to GloBE income);
2. Correct allocation of income between jurisdictions is adjusted for – such as transfer pricing adjustments and intra-group financing;
3. Policy-based adjustments – such as the disallowance of illegal payments such as bribes, or payments of fines and penalties (only allowed to a maximum of €50,000).

Step 4: Determination of Adjusted Covered Taxes

For each constituent entity, the GloBE income or loss is calculated. The tax associated with the income must then be calculated using the following steps:

1. Determination of covered taxes – the current tax expense as shown in the financial accounts (includes incomes taxes, but does not include non-income-based taxes such as indirect taxes, payroll and property taxes);
2. Adjustment to covered taxes – to consider taxes that are not recorded in the tax line of the profit or loss statement and exclude taxes not related to GloBE Income or Loss, addressing of temporary differences as well as tax credits;
3. Cross-border allocation – adjustment to allocate certain cross-border taxes to the proper constituent entity (like taxes imposed under a CFC regime, distribution taxes, withholding tax on dividends paid, or other taxes paid);
4. Post-filing adjustments – in the case of post-filing adjustments, generally an ETR recalculation is required for the relevant fiscal year (examples include audit or transfer pricing adjustments).

Step 5: Computation of ETR and Calculation of Top-Up Tax

GloBE income or loss and covered taxes (steps 3 and 4 above) from the same jurisdictions must be added together to determine the jurisdictional effective tax rate (ETR).

Note an exemption applies for multinationals that have limited operations, namely, below the de minimis thresholds of €10m for revenue and €1m for income.

From GloBE, a substance-based income exclusion is deducted to reduce the potential burden on multinationals with genuine operations and investments in a jurisdiction. A percentage of tangible assets and payroll expenses is applied for the purpose of the substance-based income exclusion.

The top-up tax percentage is due on the difference between the 15% minimum rate and the ETR in the jurisdiction – the delta which is applied to the GloBE income or loss in the jurisdiction, after deducting a substance-based income exclusion.

Each constituent entity, with GloBE income, is subsequently allocated top-up tax.

Step 6: Charge the Top Up Tax under QDMTT, IRR, or UTPR

A member jurisdiction has a liability towards a top-up tax for a multinational group under three types of provisions, in the following agreed rule of order:

1. If your domestic tax already hits the global minimum, you won’t be hit with extra “top-up” taxes from other countries – referred to as the Qualified Domestic Minimum Top-Up (QDMTT);
2. If the jurisdiction where the low-taxed constituent entity is located does not have a domestic minimum top-up tax, the ultimate parent entity, in proportion to its ownership interest, might collect the top-up tax under IRR (Income Inclusion Rule);
3. If the ultimate parent entity is in a jurisdiction that has not implemented a domestic minimum top-up tax, then the top-up tax will be levied on the next entity in the ownership chain that is located in a jurisdiction with an IRR following a top-down approach;
4. Where IRR does not apply, the Under-Taxed Payment Rule (UTPR) becomes applicable. UTPR acts as a back-up to the IRR, ensuring a top-up tax payment within jurisdictions applying this rule.

Specific Rules for Each Jurisdiction

Members will need to implement the GloBE rules in a way that is consistent with the outcomes provided in the agreed rule order, to ensure transparent and predictable outcomes across jurisdictions. Note that the legislative draft GloBE rules accommodate a wide range of multinational groups and tax systems. The OECD have recommended Pillar 2 rules to become effective in 2024.

Conclusion

The implementation of Pillar 2 marks a significant step towards creating a more level playing field and addressing tax challenges arising from the digital economy. Ultimately, Pillar 2 represents a critical step towards a more equitable and sustainable global tax system. Its impact will depend on effective implementation, addressing potential concerns, and continuous evaluation to ensure it meets its intended goals.

Additional Information

If you would like to discuss any of the matters raised in this article, please contact Paul Webb hello@dixcartuk.com

In a move to tighten the tax net, HMRC has announced new measures affecting individuals engaged in online “side hustle” activities, such as selling clothes on Vinted, letting out spare rooms on Airbnb, or trading goods on eBay.

As of January 1, 2024, digital platforms like these are now obligated to collect and share transaction details with tax authorities, signalling a global effort to curb tax evasion. This article aims to provide insights into the implications of these changes and offer guidance on what online sellers need to do to ensure compliance with the new rules.

The Impact of New Rules

The new regulations require platforms to routinely report sellers’ income, covering various transactions such as; sales of handcrafted goods, second-hand clothes, taxi services, food delivery, freelance work, short-term accommodation lets, and more. This information will be shared among countries that have adopted the OECD tax rules, facilitating a concerted effort to clamp down on tax dodgers.

What are the Key Obligations for Online Sellers?

1. Tax-Free Allowances: Individuals already paying tax do not need to alter their current practices. There is a £1,000 tax-free allowance for income generated through property and a similar allowance for “trading” income, applicable to activities like tutoring, gardening, or selling new or second-hand items online.

2. Record-Keeping: While those earning below the specified thresholds may not be required to fill in a tax return, it is advisable to maintain detailed records in case they are requested by tax authorities.

3. Thresholds for Reporting: Platforms will report information to HMRC at the end of January 2025 for sellers whose activity is of significant size. The reporting obligation applies to sellers making more than 30 transactions or £1,735 a year. Sellers below these thresholds are not subject to reporting requirements.

Advice for Online Sellers

It is likely that only a small proportion of casual users of sites like Vinted and eBay will trigger the reporting thresholds, but individuals are required to assess their own tax situation.

If you believe that you may have surpassed the minimum £1,000 trading allowance, then the team at Dixcart can help.  We can also help you make contact with the tax authorities as it is advisable to contact them pre-emptively, if there is any income to declare. If you would like any further information on the changes and how this affects you, please don’t hesitate to contact your usual Dixcart UK contact or enquire at hello@dixcartuk.com

With the festive TV adverts appearing on our screens, thoughts inevitably turn to staff Christmas parties and gifts.   In this this article we look at the often misunderstood tax and VAT consequences of functions and staff gifts.

Entertainment

In general, the cost of business entertainment, e.g. treating a client to lunch or tickets to a football match, is not deductible for tax purposes. However, there is an exception for staff entertainment.

The cost of entertaining staff will be fully deductible for corporation tax purposes, as long as it is not merely a small part of the cost of entertaining non-staff. For example, if a company holds a lavish ball for 100 clients, and invites a few key staff along, the staff entertainment is merely incidental to the excluded business entertainment and the cost won’t generally be allowable. The crux is to ask ‘What is the main motive for incurring the expenditure?’. As long as the (honest) answer is to entertain staff, there is no problem.

There is no upper limit to what a company can claim for staff entertainment. This sometimes raises eyebrows, as some people will swear that they ‘know’ there is a £150 per head limit. But, this applies for income tax purposes from the perspective of each individual employees.

The £150 limit

Where people, including business owners, sometimes mix things up is the £150 exemption for benefit-in-kind purposes. It would slightly defeat the objective for employees to be invited out for a Christmas party with their employer, only to be told that they owe tax on it later on. To avoid this, there is an exemption as long as the cost per head does not exceed £150 (including VAT) each year. But again, there can be confusion as to how this operates.

Firstly, it is important to note that it is not an allowance. A company cannot spend £160 per head and deduct £150 from the employees’ taxable benefit in kind. If the per-head cost exceeds £150, it is all subject to income tax and Class 1A NIC.

Secondly, many owners are aware that the exemption can be spread across more than one event during the year. However, it is crucial to understand that these have to be annual events, e.g. Christmas parties, a summer ball, etc. It can’t be used for things like occasional drinks, or lunches. It is also sometimes incorrectly believed that the expenditure toward the limit is added on a cumulative basis. It is not, and the exemption can be used against whichever qualifying event suits best. For example, if a summer ball is held at a cost of £80ph, and a Christmas party is held at £125ph, the exemption can be claimed against the later event.

Thirdly, the event(s) in question must be open to all staff. It cannot just be for directors, managers, etc. However, it is permissible to restrict attendees by location, for example where there are multiple branches of a business, it is fine to hold separate branch-specific functions.

There can be a problem where a company is required to pay upfront. The £150ph limit applies to attendees, not invitees. So, if a number of staff are taken ill or do not attend for any reason, the average cost can increase.

Note that employees can bring guests and they will be included in the head count when checking if the £150ph has been exceeded.

If the limit is exceeded the employer has the ability to enter into a PAYE Settlement Agreement (PSA), whereby they agree to pick up the tax and NIC costs, but these do have specific compliance requirements and can in practice prove costly. 

VAT on entertainment

The position for reclaiming input tax is slightly different.

Generally, no input tax can be claimed on business entertainment costs, but there is an exclusion from this block, for employee entertainment. Recovery will be allowed in full, in respect of the cost of entertaining staff, including the directors, as long as all staff are entitled to attend. Unlike for income tax, there is no upper limit.

However, there is a different catch to consider with VAT. If there are non-staff guests attending, the company has to apportion the input tax between staff and non-staff attendees. So, if there are 30 staff and they each bring a partner, etc. that is not an employee, only half of the input tax will be recoverable.

This problem can be alleviated by making a token charge to the non-staff attendees. For example, if the true cost is £60ph, then making a charge of £10 for non-staff attendees means recovery will no longer be blocked, as the company is no longer providing the entertainment free, it is making a supply. It would account for output tax of £2ph but then claim £10ph as input tax (i.e. £60 × 1/6). It is important that this is a genuine charge, it cannot be a suggested amount or a donation – it has to be compulsory and collected and accounted for.

Gifts

Many companies will also make gifts to employees at Christmas time. In practice, there is no issue claiming a deduction for corporation tax purposes, but the income tax and VAT consequences must be considered.

If the value of the gift is no more than £50 (or £50ph on average, if it is provided to a group of employees), and it is not money or money’s worth (e.g. a cash voucher), it will probably qualify as a trivial benefit, so the company won’t need to report it, as long as it is not provided for in the employment contract and is not performance related. In short, it has to be a genuine non-cash gift. 

For VAT purposes, the problem is that the company has made a taxable supply to the employee, and so will need to account for output tax. It can also claim the input tax. However, if the value of all gifts to the same employee, in the twelve-month period ending with the date of the Christmas gift, does not exceed £50, there is no need to account for the output tax, while the input tax can still be recovered in full.

Get in Touch

If you have any questions regarding the tax implications of Christmas entertainment and/or Christmas gifts, please get in touch at: hello@dixcartuk.com

The UK is often perceived to have one of the most punitive inheritance tax regimes in the world. Generally, individuals pay a 40% rate on the value of their taxable estate above a tax-free allowance of £325,000. In the case of a married couple this tax-free allowance can be passed onto a surviving spouse, which means that, following their death, the estate will enjoy a £650,000 tax free allowance.

Additional Nil Rate Allowance

Individuals, with an estate value greater than their tax-free allowance of £325,000, due to the value of their home, may be able to take advantage of an additional tax-free allowance known as the residence nil rate band (RNRB).  This additional tax allowance is worth up to £175,000 (2023/24) and is available when an individual’s main residence is passed to their children or grandchildren.

People with large estates may not see any benefit from the residence nil rate band, as it will be reduced by £1 for every £2 that the deceased’s net estate exceeds £2M.

This means that there is no RNRB available if the deceased holds assets of more than £2.35M.

Reliefs such as Business Property Relief and Agricultural Property Relief are ignored when calculating the value of the estate.

Lifetime Gifts

If money is given away during an individual’s life it does not necessarily mean that the asset is, then outside his/her estate for inheritance tax purposes. This is the case when an asset is gifted away but the donor continues to benefit from the asset. An example would be – continuing to live in a property, even if the legal title has been gifted away (this is known as retaining a benefit).

Gifts, however, made more than seven years prior to death, without the retention of a benefit, will not be included in the deceased’s estate. Any gifts made within seven years will, in most circumstances, form part of the estate.

Business Property Relief APR (BPR) and Agricultural Property Relief (APR)

Business property relief (BPR) and agricultural property relief (APR) are IHT reliefs that may be available on the transfer of certain types of assets.  These two reliefs can often reduce the chargeable value of an asset by 50% or 100% and are extremely valuable tools for minimising the amount chargeable to IHT.

The rules are complex, and a detailed analysis is outside the scope of this article, however the main classes of assets that qualify are as follows: Business Property Relief

Assets eligible for 100% relief:

• A sole-trading business
• Partnership shares
• Shares in an unquoted trading company.

Assets eligible for 50% relief:

• Shares in a quoted trading company if the individual has voting control i.e. more than 50% ordinary (voting) shares
• Land, buildings and machinery that is owned by the individual and used in a business where the individual is a partner or a controlling shareholder.

Agricultural Property Relief

Assets that qualify for APR include:

• Agricultural land
• Woodland
• Farm buildings
• Farmhouses/cottages (if occupied for the purpose of agriculture).

Activities that are specifically exempt from qualifying for APR include:

• Land that is used for grazing horses
• Land used by livestock that is not farmed for human consumption
• Land that is used for sporting activities such as fishing and shooting

Gift Allowances

There are certain gift allowances that can be used year on year, where the seven-year rule is NOT applicable.

The six key gift options are detailed below. These options, if planned for properly across a number of years, can reduce the inheritance tax liability considerably.

Dixcart recommends that a record of all gifts made is kept with the Will.

Give away money each year

Each year an individual can give away up to £3,000. This gift can be to anybody or split across any number of people.

If this allowance is not used one year, it can be carried forward to give £6,000 the next year (it can only be carried forward one year).

Wedding presents

In addition to the annual allowance, parents can each give a wedding gift of up to £5,000 to their children. This gift allowance must be made before the ceremony.

If grandchildren marry, an individual can give up to £2,500 to each grandchild, and for friends or other relatives the wedding gift is up to £1,000 each.

Small gifts

Gifts of up to £250 per person each tax year are excluded from inheritance tax. Care needs to be taken, as anything over this sum could be classed as part of the £3,000 annual allowance. Individuals need to ensure that they have not used any other exemption for the recipient, or the allowance might not apply.

Charitable donations

Helping good causes with monthly donations can reduce the inheritance tax bill.

Charitable gifts are free from inheritance tax, if at least one-tenth of net wealth (calculated as a percentage of the death estate) is donated. The Government subsequently has the discretion to cut an individual’s inheritance tax rate from 40% to 36%.

Contributing to living costs

Money used to support an elderly person, an ex-spouse, and/or a child under the age of 18 or in full-time education, is not considered to be within the deceased’s estate on death, whatever amounts have been paid.

Payments from surplus income

An individual with surplus income should not ignore the opportunities provided by this provision. If the criteria, detailed below are met, the seven year period is not relevant. Such transfers are not deemed to be part of the taxable estate (except on death) and can therefore be exempt from inheritance tax.

The key criteria for a transfer of income to be exempt are:

• it was made as part of the usual expenditure of the transferor; and
• the transferor retains sufficient income to maintain his usual standard of living, having taken account of all the income transfers that form part of his usual expenditure.

Additional Information

If you require additional information regarding UK inheritance tax, gift allowances and/or the importance of having a UK Will, which reflects current wishes, please contact Paul Webb: advice.uk@dixcart.com or speak to your usual Dixcart contact.