National Insurance Contributions’ Relief for Employees with Car Allowances
Paul Webb,
13th October 2023
Accountancy
Car allowances come with tax and national insurance contributions (NIC) implications. A recent Upper Tribunal decision has introduced mandatory NIC relief for qualifying car allowances, altering the landscape of tax and NIC calculations. In this article, we explore this important development, its implications, and how employers and employees can navigate the new tax and NIC relief landscape for car allowances.
Standard Practice
Car Allowances
Car allowances are often provided to employees, where they use their personal car for business purposes. These are subject to both income tax and national insurance contributions through the normal payroll.
Approved Mileage Allowance Payment
HMRC has set an approved mileage allowance of 45p per mile up to 10,000 miles and 25p per mile above 10,000 miles. This can be claimed by an employee and reimbursed by the employer for business mileage in their personal car.
Income Tax relief for a lower rate
Where an employer reimburses an amount less than the above approved rate then a claim can be made by the employee for income tax relief for this value. This is optional and is considered to be claimed by only 40% of tax payers
Latest Development for NIC relief
There has been an Upper Tribunal decision Laing O’Rourke Services Ltd v HMRC[2023]UKUT 155T, which confirmed that there is a similar relief for national insurance contributions.
It further confirmed that this ‘NIC disregard’ is mandatory.
This means employers MUST give relief for the Qualifying Amount (QA) =value of miles x 45p against a car allowance before calculating the primary and secondary NIC due.
There are differences between the values for Income tax and NIC:
Income Tax
NIC
Rate
45p for the first 10,000 business miles 45p even above and 25p thereafter
45p even above 10,000 business miles
What can relief be set against
The entire salary
The car allowance (as held to be relevant motoring expenditure (RME) by the courts)
How to make a claim for historic business mileage
Employees
Make their own claim with HMRC
Ask employer to claim on their behalf and for colleagues.
Employers
Advise staff if they intend to put in a protective claim , under error or mistake provisions, for a refund of NIC paid in error, which would cover current and six full tax years
If immaterial from the company view, advise staff they can make their own claims
Advisers
Alert clients that claims are possible. It may not be beneficial if there are few cases and low mileage.
Going Forward
Advisers
Review for payroll calculations and advise that the Qualifying Allowance (QA) – (business miles x45p) must reduce the value of the relevant motoring expenditure (RME) for NI including at 45p for mileage above the 10,000 miles
Ensure employers keep monthly records to enable the adjustments to be made.
Review with software provider to ensure correct relief made.
Additional Information
If you require additional information regarding NIC Relief for employees with Car Allowances, please contact Paul Webb: advice.uk@dixcart.com or speak to your usual Dixcart contact.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
Background UK tax resident, non-domiciled, individuals who are claiming the remittance basis of taxation, do not pay UK tax on foreign income and gains, as long as these are not remitted to […]
News & Views
A Simple Guide to UK Inheritance Tax and Tax Efficient Gifting
Paul Webb,
7th September 2023
Tax
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.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
From April 2025, significant changes to payroll changes will take effect...
News & Views
Increase in Fines for Employers and Landlords Hiring Illegal Migrants
Paul Webb,
15th August 2023
Immigration
What are the New Measures?
In a landmark development heralding the most significant alteration in civil penalties since 2014, a substantial increase in fines awaits employers and landlords found guilty of employing unauthorised migrants or renting out properties to them.
Suella Braverman, the Home Secretary, has officially announced a comprehensive escalation in penalties imposed on employers. The fine for first-time offences, involving illegal workers, will surge to a maximum of £45,000, marking a threefold increase from the prior £15,000. Similarly, repeat breaches will now incur penalties of up to £60,000, a significant escalation from the previous £20,000 fine.
Recent Penalties
From 2018 until July 2023, nearly 5,000 civil penalties have been administered to employers, resulting in a cumulative level of fines of £88.4 million. Simultaneously, landlords have faced over 320 civil penalties, totalling £215,500 in fines, during the same timeframe.
Additional Potential Measures
In the upcoming months, the Home Office intends to embark on a consultation process to explore strategies for enforcing measures against licensed businesses that engage in the employment of unauthorised workers.
The Minister for Immigration, Robert Jenrick, emphasised, “There exists no justifiable excuse for neglecting proper verifications, and those found in contravention will now encounter substantially more severe penalties.”
Authentication Process
Employers are already obligated to meticulously validate the eligibility of their workforce. The methodologies for such verifications remain unchanged, encompassing manual scrutiny of original documentation and utilisation of the Home Office’s online authentication system, which takes a mere five minutes and is accessible through the official GOV.UK website.
The Negatives of Undocumented Employment in the UK
Undocumented employment and residency have emerged as prominent attractions for migrants undertaking perilous crossings over the Channel. Robert Jenrick emphasised that traffickers frequently exploit the prospect of employment and housing to lure individuals into embarking on these journeys.
Engaging in the employment of unauthorised migrants not only undermines ethical employers but also exposes vulnerable individuals to exploitation, deprives legitimate job seekers of opportunities, and defrauds the public coffers due to evasion of tax obligations, Mr. Jenrick concluded.
Advice and Additional Information
If you would like to discuss this topic in more detail or need any assistance with your obligations as an employee or a landlord, please contact PaulWebb, at the Dixcart office in the UK: hello@dixcartuk.com
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
The UK is currently experiencing an unusual economic climate. On one hand, we are facing a possible recession but on the other hand, the reduced qualified/skilled available workforce is leading […]
We live in an unique economic climate. On one hand, we are facing a possible recession but on the other hand, the reduced qualified/skilled available workforce is leading employers to […]
The High Potential Individual (HPI) visa is designed to attract top global graduates from prestigious universities around the work, who want to work, or look for work in the UK, […]
News & Views
Basis Period Reform – A Change to the Way that Profit is Allocated
Paul Webb,
15th August 2023
Tax
What is Being Put in Place?
The objective is to tax profits based on the tax year instead of the profits for the 12 months to the accounting date in the tax year. The changes will take effect from the 2024/25 tax year, with transitional rules applying in 2023/24.
The reform affects individuals who are self-employed, including partners in trading partnerships, if their accounting periods are not aligned to the tax year (dates from 31 March to 5 April inclusive are treated as aligned to the tax year for this purpose).
Potential for Added Complexity
Although the changes have been positioned as a simplification, they can create complexity for the individuals and partnerships affected.
In principle the complexity can be avoided by aligning the business’s accounting period to the tax year, but in practice there are often commercial or international tax considerations that make this impractical.
HMRC have acknowledged that the changes will create additional administrative burdens for these taxpayers. HMRC consulted on ways to ease these burdens but confirmed that they would only implement very limited easement, which in practice is unlikely to provide much benefit to the taxpayers affected.
The Changes in More Detail
The current rules are known as the ‘current year basis’, where for income tax purposes, trading profits of a tax year are generally based on the profits for the 12 month accounting period ending in the tax year (subject to adjustments for disallowed expenditure, depreciation etc).
For example, if an individual compiles their accounts to 31 December every year, the 2022/23 taxable profits would be based on the accounts for the year ended 31 December 2022.
Special rules apply in the opening and closing years of a trading business under the current year basis but they are outside the scope of this note.
‘Tax Year Basis’ – the New Basis from 2024/25
From 2024/25, taxable profits for traders who’s accounting period is not aligned with the tax year, will be based on time-apportioned profits of the accounting periods that fall within the tax year. For example, if a trader draws their accounts to 31 December every year, their 2024/25 taxable profits would be based on 270/366ths of the 2024 calendar year profits and 95/365ths of the 2025 calendar year profits.
Whilst this is relatively simple on paper, it will cause difficulty in practice. The 2024/25 tax return is due by 31 January 2026. Unless the business is very simple, it is unlikely that the trader will be able to finalise the accounts and tax adjustments for the 2025 calendar year accounts in time. It is therefore necessary to file based on provisional figures and then revise the return later once the true figures for the later accounting period are known. This exercise would be repeated every year thereafter.
Transitional Rules in 2023/24
For traders whose accounting periods are not aligned to the tax year, and who do not cease trading in the year, the profits in 2023/24 will be based on the period from the end of the 2022/23 basis period to 5 April 2024, with a deduction for any unrelieved overlap profits.
For example, if the trader draws their accounts to 31 December every year, the 2023/24 profits would be based on the whole of the 2023 calendar year accounts together with 96/366ths of the 2024 calendar year accounts, with a deduction for any unused overlap profits that arose in the opening years of trading. To the extent that this profit figure exceeds the profits for the first 12 months of the extended basis period, spreading provisions apply. These are called ’transition profits’. Transition profits are spread equally over five tax years, including 2023/24, but the trader can elect to be taxed on them sooner. Any untaxed transition profits are taxed automatically on cessation of the trade.
Anomalies that May be Created
During the consultation process, many respondents noted that the acceleration of profits for five years would create anomalies for various allowances and tax charges that hinge on the individual’s level of income. The legislation included provisions that were intended to mitigate the impact by removing the transitional profits from the main tax computation and creating a standalone income tax charge. The provisions are effective in preventing some anomalies but not all.
Losses may arise in the transitional year, if the unrelieved overlap profits exceed the profits for the extended basis period. To the extent that the loss has been generated by the overlap relief, extended loss reliefs may be available. The loss can be treated as a ’terminal loss’, which can be carried back and set against profits of the same trade in the previous three tax years. Other loss reliefs may also be available.
Interaction with Making Tax Digital for Income Tax
HMRC state that this reform is needed in order to implement Making Tax Digital for Income Tax (MTD). Under MTD, businesses will be required to send quarterly digital updates to HMRC, based on transactions in tax year quarters, and provide a digital ‘End of Period Statement’ to finalise the taxable profit for the tax year. For partnerships, this would include the allocation of the profits of the tax year to the relevant partners.
For most sole traders with turnover exceeding £50,000, MTD is mandated from 6 April 2026. This will be extended to sole traders with turnover exceeding £30,000 from 6 April 2027. The government is consulting on how the regime should apply to smaller businesses. Partnerships will be brought into MTD at a later undefined date.
Assistance and Additional Information
For assistance regarding the taxing of profits time-apportioned to the tax year or if you require any additional information, please contact Paul Webb at Dixcart UK: hello@dixcartuk.com
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
From April 2025, significant changes to payroll changes will take effect...
News & Views
Report Designed to Increase the Diversity of Investment in the UK Through Possible Changes to Tax Reliefs
Paul Webb,
15th August 2023
Tax
Background
The UK House of Commons Treasury Committee, has announced the release of a report on venture capital as well as recommendations to address issues with venture capital tax relief. Such reliefs include; the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS), and Venture Capital Trusts (VCTs).
What Needs to be Addressed?
Issues which are reported as needing to be addressed include a lack of diversity in venture capital, and regional variations in the amount of venture capital investment. The majority of investments have been undertaken in London, Oxford, and Cambridge, the so-called ‘Golden Triangle’.
What are the Available Types of UK Venture Capital Relief?
Tax relief is available in the UK in the form of targeted reductions in tax liability.
Three forms of tax relief are available; the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS), and Venture Capital Trusts (VCTs). This sector also receives support via British Business Bank (BBB) funding schemes.
The reliefs are regarded as making a positive contribution to the venture capital market and investment in small, high-potential businesses in the UK. UK venture capital tax reliefs are considered to be globally competitive and are a key attraction for investors.
What are the Concerns?
The EIS and VCTs have statutory ‘sunset’ clauses that mean that they come to an end in April 2025. The Government has signalled an intention to extend the schemes but has not said when or for how long. This uncertainty could be a risk to investment.
However, the necessary renewal of the EIS and VCT schemes presents an opportunity for them to be improved, to address current shortcomings. These chiefly comprise; diversity, regional inequality and scale-up capital.
Diversity
According to the report, diversity in the sector is unsatisfactory, both in terms of the characteristics of business founders that receive venture capital funding and the individuals who make venture capital funding decisions.
Further, the report highlights that women and individuals from ethnic minorities are highly underrepresented in both groups.
This is a limitation in this sector.
How Could Improvements be Made?
A number of suggestions have been made regarding improvements to counteract the current deficiencies regarding diversity.
These include:
Venture capital firms be required to comply with the industry standard ‘Investing in Women Code’.
The Government and BBB to consult on the creation of venture capital funds targeted towards women and ethnic minority founders, in the same way as the BBB’s regional fund programmes.
The provision of statistics relating to diversity in staffing and funding decisions, to be a condition of receiving support in the form of the EIS and VCT tax reliefs.
Further Information
If you have any questions regarding the above, or require any assistance with the existing enterprise relief’s, please do not hesitate to contact Paul Webb: hello@dixcartuk.com.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
This article is designed to set out some of the main tax considerations for overseas investors in UK real estate but, as always, you should seek detailed tax and legal advice before entering into any transaction.
The UK tax position for non-residents (the position for UK residents is different) owning UK residential property is complex and will, to a certain extent, depend on how the property is purchased i.e. as an individual, through a company or trust.
Income tax
If a property is purchased by an individual or trust and rental income is received, then the income less any allowable expenses will be subject to UK income tax.
The rate of taxation payable will depend on the availability of any allowances, the level of rental profit and any other UK income earned by the investor, with tax rates starting at 20% and rising to up to 45%.
A UK income tax return will need to be filed by 31 January following the year of assessment i.e. UK tax year ended 5 April 2024, filing deadline 31 January 2025, and any tax payable will also be due on this date. In certain situations, payment on account of tax may be due on 31 July and 31 January.
Corporation tax
If a property is purchased by a company (either UK or overseas) and rental income is received, then the income less any allowable expenses will be subject to UK corporation tax.
The rate of taxation payable will depend on the level of rental profit, with the UK’s corporation tax rate currently being 19% for profits under £50,000 rising to 25% for profits over £250,000.
A UK corporation tax return will need to be filed within 12 months of the year end to which the company makes up its accounts, and any corporation tax will be payable within 9 months and 1 day of the year end.
Please note that if it is intended that the owner of the company will live in the property there may be personal tax consequences for those individuals and advice should be sought in this respect.
Non-Resident Landlord Scheme
Where a UK property is owned and rented out by a non-resident then then there is a requirement for a 20% withholding tax to be deducted from the gross rent payable, with the withholding tax being paid to HMRC. When the letting agent collects money from the tenant, this process should be completed by them but where it is a direct payment from the tenant it can become the tenant’s responsibility to deal with this payment to HMRC.
To avoid paying this withholding tax, the landlord must register with HMRC under the Non-UK Resident Landlord Scheme and apply to receive the rental income on a gross basis.
Annual Tax on Enveloped Dwellings (ATED)
As the name suggests, ATED is a yearly tax and is payable by companies that own residential property in the United Kingdom having a value of more than £500,000. An annual return is required to be made by 30 April each year to HMRC and the current ATED charges are:
Property value
Annual charge
More than £500,000 up to £1 million
£4,150
More than £1 million up to £2 million
£8,450
More than £2 million up to £5 million
£28,650
More than £5 million up to £10 million
£67,050
More than £10 million up to £20 million
£134,550
More than £20 million
£269,450
There are a number of exemptions from the ATED charge including:
Letting to a third party on a commercial basis (so long as the occupant is not related to the owner.
Where the property is used as part of the business of a property trading or developing.
Where the property is being redeveloped or held as stock for resale by a property developer.
Property held by trading companies for the use of employees in the trade.
Capital Gains Tax
Capital gains tax will be payable on any profits realised in relation to UK residential property.
For individuals and trusts, gains on the disposal of UK residential property will be taxable at up to 28%.
It may be possible to exempt the gain from tax if it was the owner’s, or a beneficiary of the trust’s, Principal Private Residence (PPR).
For non-residents:
You must have spent at least 90 midnights in the UK property in a relevant tax year, or
You must have spent at least 90 days in any other UK property that you own.
In order for the property to qualify as a PPR.
For companies, there is a corporation tax charge on gains on disposals of interests in UK land (including commercial and residential property), and on indirect disposals of UK land. In relation to property disposals since 6th April 2019, companies need to register for corporation tax and may need to submit a corporation tax return to declare the disposal, and pay any tax due at the normal corporation tax rates of between 19% and 25%. There is no PPR relief available for companies.
Stamp duty land tax
Subject to limited exemptions all non-residents now pay an additional 2% stamp duty land tax (SDLT) on residential property acquisitions compared to the standard SDLT rates.
The current standard residential rates are:
Property or lease premium or transfer value
SDLT rate
Up to £250,000
Zero
The next £675,000 (the portion from £250,001 to £925,000)
5%
The next £575,000 (the portion from £925,001 to £1.5 million)
10%
The remaining amount (the portion above £1.5 million)
12%
Higher Rates for Additional Properties
If the purchaser already owns another residential property, which can be located anywhere in the world, an additional 3% surcharge is added to the standard SDLT rates.
The purchaser can be exempted from this additional surcharge if the property being purchased is a replacement for their existing main residence. It may, in certain circumstances, be possible to reclaim any surcharge paid, if the purchaser sells his/her previous main residence, within 3 years of the purchase of the UK property.
Rates for Company Purchasers
SDLT is charged at 15% on residential properties costing more than £500,000 bought by corporate bodies or ‘non-natural persons’. These include:
companies
partnerships, where one or more of the partners is a company
collective investment schemes
The 15% rate does not apply to residential property bought by a company that is acting as a trustee of a settlement.
There are certain exemptions from this e.g. when the acquisition is made for letting purposes as part of a rental business or property trading or development business, but these should be considered carefully.
Purchase of shares in a Company
Interestingly, SDLT is not payable if an individual purchases shares in a company owning UK property. Instead 0.5% stamp duty would be payable on the purchase price.
This can represent a significant saving, however, there are some possible drawbacks of investing in a company which holds UK property including; the ATED charge, possible inherent capital gains and certain other issues which may arise by purchasing a historical company. Detailed legal and taxation advice should be sought in this respect: hello@dixcartuk.com.
Inheritance Tax (IHT)
All residential property in the UK is potentially subject to UK IHT at 40%, irrespective of how it is owned.
In certain cases, an individual’s debts, such as borrowings secured against the property, may reduce the amount subject to inheritance, tax but care must be taken in this respect.
One relief available, is that transfers between spouses are normally free from UK IHT (subject to certain limitations when you pass the property to the surviving spouse, who is a non-UK domiciled individual).
Given that there is little planning available for UK IHT we often see clients taking insurance to cover any IHT liability associated with the property.
Additional Information
The taxation of overseas investors holding UK property is a complex topic. It is vital that advice is taken from a suitably qualified and experienced firm of professionals.
For additional information, please contact Paul Webb at Dixcart UK: hello@dixcartuk.com.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
From April 2025, significant changes to payroll changes will take effect...
News & Views
Why Consider Setting Up a Family Investment Company?
Paul Webb,
5th June 2023
Tax
Definition of a Family Investment Company (FIC)
FICs are companies limited by shares (an “Ltd” or “Limited”) and often established by parents and/or grandparents (“Founders”) to benefit themselves and their family, as shareholders. The popularity of FICs has increased over recent years, and they are viewed as a corporate alternative to the more common discretionary trust.
An FIC owns assets such as property, which generate income and capital gains, which can be distributed to the family shareholders over time.
Assets generally come from the Founders themselves, either through a loan or a direct transfer into the FIC. Each shareholder owns a different class of shares (often referred to as “alphabet shares”), gifted to them by the Founders.
Generally, the Founders’ shares will have the usual rights to vote and receive dividends but not capital, whereas the gifted shares will only have the rights to receive dividends and capital but not to vote.
This ensures that the Founders have the sole right to make decisions, regarding the FIC, at both shareholder and board level, including decisions relating to dividend payments.
What are the Benefits of Establishing an FIC?
FICs can be used to move assets from individuals’ personal estates into a corporate vehicle, which can then be used, to control those assets by those individuals (Founders), being the only shareholders with the power to vote and to decide the composition of the board. This allows them to provide a controlled source of income for both themselves and their family over a period of time.
If the Founders loan funds to the FIC, the loan can be repaid over time from the FIC’s post tax profits in addition to any profit paid out by way of dividends. This can provide the Founders with an ongoing source of income.
Alternatively, if the capital value of the loan is no longer needed, the Founders could gift the value of the loan to other family members. This would move the value of that loan out of their taxable estate, for Inheritance Tax purposes, subject to them surviving the date of the ‘gift’ by seven years.
There are a number potential tax advantages when using FICs, including Inheritance Tax, but these will vary depending on; the size of the investments/loans, the assets held by the FIC and the personal circumstances of the Founders.
It is therefore very important to speak with a tax specialist at the very start, who can help advise on the tax merits of an FIC, taking into account each potential Founder’s circumstances and objectives.
Limited companies also offer the great advantage of flexibility. This is ideal for FICs where family structures, objectives and other considerations, are changing regularly. Examples of such flexibility, include: shares being transferred, new shares being issued with different rights, and changes to the composition of the board of directors. All of which can be decided by the Founders.
How are FICs Set Up and Managed?
FICs need bespoke articles of association and a shareholders’ agreement, before any assets are put into the FIC and before any “alphabet shares” are transferred to family members.
These documents will detail; how the FIC will be run, how dividends will be declared, when meetings are to be held, the rights of the shareholders, including voting rights, and rights on the issue and transfer of shares.
The operation of the FIC extending from its day to day activities to amending its constitution, will remain at the absolute discretion and control of the Founders.
Additional Information
To find out how an FIC might be of benefit to you, and for assistance in establishing an IFC appropriate to meet your needs, please contact Paul Webb at: hello@dixcartuk.com.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
From April 2025, significant changes to payroll changes will take effect...
News & Views
Family Office Management: Location, Organisation, and Liaison
Paul Webb,
23rd May 2023
Tax
Changes in terms of global tax regulations and increasing international tax transparency are vital to consider when implementing strategies to preserve family wealth and family business ownership structures.
To help address tax avoidance, the Organisation for Economic Co-operation and Development’s (OECD)/G20 Base Erosion and Profit Shifting (BEPS) project has built on the original measures applying to large multinational businesses, by implementing a two-pillar approach. Pillar Two relates to new global minimum tax rules and aims to ensure income is taxed and paid at an appropriate rate. These new rules are in addition to the familiar regulations such as the Common Reporting Standard (‘CRS’), the US Foreign Accounting Tax Compliance Act (‘FATCA’), Substance Requirements, and ultimate beneficial ownership registers.
Dixcart Expertise in Relation to Wealth Structures
Dixcart are familiar with the issues facing families in an ever-changing international world.
We provide advice in terms of the location of family offices, their members, and businesses, as well as offering management and coordination for family offices, and liaison across the family members. We also provide trustee services in a number of jurisdictions.
Location
It is very important to consider where each of the relevant family members are resident and also where they are tax resident.
Structuring options also need to be considered and/or reviewed. The use and location of holding companies and/or family wealth protection vehicles such as; family investment companies, foundations, trusts needs to be planned carefully.
International investment structures need to be evaluated, including the holding of real estate, from a tax and asset protection perspective, in particular in relation to ‘BEPS.’
Organisation
Key areas that need to be organised to ensure that a Family Office runs as efficiently as possible and achieves its objectives include:
Confidentiality Management
A procedure needs to be developed to deal with relevant confidential information requests from financial institutions and third parties.
Contingency Planning
Rules and procedures should be in place to protect the family business in the case of unexpected events:
Policies and procedures to underwrite business continuity.
Use of appropriate legal structures to provide as much asset and wealth protection as possible.
Consideration of ‘citizenship by investment’ programmes in reputable jurisdictions, to provide options for the tax residence of family members to be diversified.
Family Governance
Successors need to be identified and their role discussed with them.
The development of open communication amongst family members regarding decision making strategies and processes.
A ‘Family Constitution’ is a useful way to formalise family governance and to prevent potential future conflict.
Creation or identification of education and training programmes, to groom the next generation.
Family Office Advisory Services
The segregation of the family’s wealth from the family business(es), should be considered.
Development of a strategy regarding use of the profits arising from the family business and investments, that are not going to be re-invested.
Creation of a team to manage the wealth.
Succession and Inheritance Planning
Establishment and/or review of policies and procedures to ensure the adequate preservation and transfer of wealth to the next generation.
A review of the ownership structure of each family business and other relevant assets.
Understand how relevant local laws would apply, in relation to inheritance (for example; Civil Law, Sharia Rules etc.).
Putting in place the most appropriate legal structures such as wills or other legal vehicles to pass wealth to the next generation.
Liaison
Time must be taken, by those managing the Family Office, to establish and develop close relationships with the relevant family and with other professionals advising them. Dixcart believe this relationship is critical.
As well as providing technical expertise in terms of structuring, professionals at Dixcart also understand family dynamics and frequently assist in offering advice as to how to improve communication and how to avoid potential conflict.
Additional Information
If you would like further information regarding a well-considered and comprehensive approach towards succession planning, please speak to your usual Dixcart contact or to a member of the professional team at the Dixcart office in the UK: hello@dixcartuk.com.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
From April 2025, significant changes to payroll changes will take effect...
News & Views
The Benefits of an Employee Ownership Trust (EOT)
Paul Webb,
18th May 2023
Tax
We are frequently asked by our clients about the often-difficult topic of exit and succession planning.
This gives rise to several practical issues, especially where a trade sale is not likely, or the existing management team are perhaps not in a position to be able to raise sufficient funds to affect a traditional “Management Buy Out”.
One Solution that is often overlooked is an Employee Ownership Trust (EOT)
An EOT can be used to acquire between 51% and 100% of a trading company’s shares which are then held on trust for the benefit of all the company’s employees, on the same terms.
Unlike traditional employee share schemes, which give rise to direct employee ownership, the EOT allows for indirect employee ownership overseen by selected employee Trustees.
EOT’s have been shown to promote better business performance, greater commitment, and productivity from employees with increased staff loyalty, lower staff turnover and absenteeism. They also allow staff members to benefit from being involved in the management and future direction of the business.
Benefits to the Shareholder
The sale by the existing business owner of over 51% of his/her shares in the company to a qualifying EOT, would be Capital Gains Tax (CGT) and Inheritance Tax (IHT) free. This can prove to be a valuable relief given that the Business Asset Disposal relief limit for the reduced 10% rate of CGT is only £1 million;
A market is created for the shares that might not otherwise exist;
Unlike in a liquidation situation (which is often the only choice for small business owners to realise the value of the business), the company can continue to operate, and the shareholders and employees can still be part of that business;
Typically, the sale of shares in a company to an EOT is funded by a mixture of existing cash, from within the company, and external loan instruments;
It avoids the need for often complex and expensive negotiations when selling to a third party.
Benefits to the Company and Employees
A trading company owned by an EOT is able to pay cash bonuses of up to £3,600 per annum to all employees (on a ‘same terms’ basis);
These bonuses will be tax-free but will be subject to National Insurance Contributions (NIC’s);
The company gets corporation tax relief on these tax-free bonuses;
There are benefits in terms of increased staff motivation and job retention, as set out above.
Summary and Additional Information
An EOT can provide a tax-beneficial way for shareholders to realise value and to involve employees in the company that they work for, although the structuring and funding of an EOT requires careful consideration.
If you would like to find out more about how an EOT may benefit you and your business, please contact us: hello@dixcartuk.com.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
From April 2025, significant changes to payroll changes will take effect...
News & Views
HMRC ‘Nudge’ Letters
Paul Webb,
9th May 2023
Tax
Over the past eighteen months HMRC (the UK tax authority) have been revising their approach to encourage compliance. HMRC have at their disposal vast pools of information from overseas jurisdictions, from Companies House and from the Land Registry. They are using this data to subtly push people towards compliance, which is why they are called ‘nudge’ letters. The letter is designed to prompt or nudge the taxpayer into reviewing their tax returns and finances to determine whether further income or gains need to be notified to HMRC.
HMRC has recently issued ‘nudge’ letters to taxpayers who it believes hold crypto assets. The letter advises them that Capital Gains Tax issues can arise on any gains realised from the sale, or deemed disposal, of crypto assets. This can include the outright sale of crypto assets for cash, exchanging one crypto asset for another or using crypto assets to acquire goods or services.
What should you do if you get a ‘nudge’ letter?
It is important to undertake a thorough review of your sources of income and gains to consider if your filings are correct and complete. If you are sure that everything is in order, you can respond to HMRC to this effect.
The HMRC ‘nudge’ letter asks the individual to sign and complete a ‘certificate of tax position’ declaration. This includes a confirmation of understanding that a false declaration is a criminal offence and can result in an investigation or even criminal prosecution. There is no legal obligation on the taxpayer to sign the declaration and if your affairs are in order it may be best to respond to HMRC by letter rather than with the ‘certificate of tax position’ provided.
If you have overlooked a source of income or gain, then this will need to be corrected as soon as possible. Different disclosure routes are available depending on the individual’s circumstances and one such route is via the Digital Disclosure Service (DDS).
How We Can Help
It is advisable for the individual to seek specialist tax advise on receipt of a HMRC ‘nudge’ letter.
Our tax team can help you review your tax position and can respond to HMRC and confirm what action, if any, will be taken to resolve the matter. In our experience, getting the strategy right to resolve the enquiry, in the most cost-effective way, is the key to minimising any potential damage.
For more information, please contact Paul Webb or Karen Dyerson in the Dixcart office in the UK: hello@dixcartuk.com as soon as possible to discuss the position.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
From April 2025, significant changes to payroll changes will take effect...
News & Views
Dixcart UK Tax Card 2023-2024
Paul Webb,
28th March 2023
Tax
The tax card outlines the business and individual tax rates for the tax year of 2023/24. All the essential tax facts, rates and figures are provided in one handy PDF, offering an easy point of reference all year round.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
From April 2025, significant changes to payroll changes will take effect...
News & Views
UK Taxation: Last-Chance Opportunities to Keep More Money in Your Pocket before April 2023
Paul Webb,
23rd February 2023
Tax
With several tax changes due to come into force from April 2023, we look at a few last-chance opportunities available now to both individuals and companies, to save money in the coming months.
Last-chance Opportunities – Income Tax
Where income is expected to be between £125,140 and £150,000 in 2023/24, bringing income into 2022/23 could mean the difference between being taxed at 40% in 2022/23, rather than being taxed at 45% in 2023/24; or between 41% and 47% in Scotland. There are a variety of ways that this may be done, and we can help you review the possibilities in your circumstances.
CGT Exemptions
A phased reduction in the capital gains tax (CGT) annual exemption is on the horizon.
Currently £12,300, the exemption falls to £6,000 from 6 April 2023. A further reduction takes effect from 6 April 2024, when it drops to £3,000. A key component of any such planning is to make use of the annual exemption. It is possible to transfer assets between you and your spouse on a no gain/no loss basis in order to make best use of the exemption. It is essential to get the detail of any transfer correct. Do please discuss any disposal with us first to make sure that it is effective for tax purposes.
ISA Accounts
ISAs are sometimes referred to as a tax ‘wrapper’ for investments: they allow you to make a tax-efficient investment, rather than dealing directly in the investment market and facing the associated tax consequences. The tax benefits are considerable.
ISAs are free of income tax and capital gains tax and do not impact the availability of the savings or Dividend Allowance. ISA limits cannot be carried into future years. Use it before 5 April 2023, or lose it.
ISA Subscription Limits
Type of ISA
2022/23 Limit
Cash ISA
£20,000
Stocks and shares ISA
£20,000
Innovative finance ISA
£20,000
Lifetime ISA
£4,000
Junior ISA
£9,000
Looking forwards, once the capital gains tax annual exemption falls from 6 April 2023, ISAs become an even more important tool for tax planning.
HMRC’s Corporation Tax Super-Deduction Comes to an End 31/3/2023. Should my Company Take Advantage?
HMRC’s Corporation Tax super-deduction scheme finishes on 31 March 2023. The super-deduction allowed companies to cut their taxes by up to 25p for each pound invested.
Simultaneously, the rate of corporation tax will increase from 19% to 25% for many companies from 1 April 2023. To benefit from an accelerated tax saving with a capital purchase, action should be taken now to determine if action should be taken before that date.
For companies in the following situations, the consequences of purchasing an asset in March 2023 as opposed to April 2023 could be of even greater benefit to the company:
Where profits are being made below the £250,000 limit (adjusted for associated companies)
Where a company is in a taxable loss position
Additional Information
If you have any questions regarding the forthcoming changes to UK corporation tax, please get in touch with your usual contact at the Dixcart office in the UK or e-mail: advice.uk@dixcart.com.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
From April 2025, significant changes to payroll changes will take effect...
News & Views
SEIS and EIS – The Opportunities Available to Investors and Fund Raisers Alike
Paul Webb,
22nd February 2023
Tax
Dixcart UK can help your business raise funding through the use of the Enterprise Investment Scheme (EIS) or the Seed Enterprise Investment Scheme (SEIS).
EIS fund raising is designed to help your company raise money to grow your business. It does this by offering tax reliefs to individual investors who buy new shares in your company.
Up to £5 million each year, and a maximum of £12 million in your company’s lifetime, can be raised through the use of EIS. This includes amounts received from other venture capital schemes.
Comprehensive advice regarding the scheme rules will ensure that your investors claim and retain EIS tax reliefs relating to their shares and we can also manage the whole process, from pre-approval to the issue of the EIS certificate.
The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) are very similar schemes which offer substantial tax incentives to investors in qualifying companies.
The tax incentives for SEIS and EIS investments are intended to encourage investment in high-risk, small, unquoted companies that may find it difficult to raise finance without the tax incentives being offered. Dixcart UK is a tech sector specialist and also offer expertise on the different rules that are available for knowledge-intensive companies that carry out a significant amount of research, development or innovation.
Details are complex, but we can offer advice for you to progress through the process as smoothly as possible.
SEIS focuses investment in the very early stage, for new businesses that may face particular difficulties in raising finance as they are seen as being very high risk. EIS is also intended for small companies but they can be a little larger and a little older than those for which SEIS is intended. The schemes are very similar and are designed to facilitate seamless growth through financing being raised first through SEIS and then further, follow on financing, being raised through EIS.
The company must first meet the conditions required by the SEIS / EIS legislation to become a qualifying company and it must then issues shares which need to meet stringent requirements to be qualifying shares. Advance assurance can be sought from HMRC, before the share issue, to gain comfort that the conditions will be met. The investor subscribes for the shares either directly, or in some cases through an approved investment fund, and then the investor applies to HMRC for the tax reliefs available.
From the investor’s point of view, the process for claiming the tax relief is quite straightforward, as it simply involves following a few steps which are detailed on the scheme certificates. The more difficult aspect rests with the company and its ability to meet all of the prescribed conditions.
The Reliefs available to Investors
Before an investor can make a decision to invest and/or before the company can consider if raising funds though EIS would be appropriate, an understanding of the tax reliefs available to the investor is needed.
Type of relief for investor
Tax relief available for the investor under EIS and SEIS
Income tax relief
Relief is given as a tax reduction against the overall liability for the tax year of the investment (or the preceding year). For EIS, the tax reduction is 30% of the amount invested, whilst under SEIS it is at 50%. Both schemes have different maximum annual investment limits imposed on the investor.
Capital Gains Tax exemption
Disposals of qualifying shares that have been held for at least three years may be free from CGT, provided that income tax relief has not been withdrawn.
Capital Gains Tax loss relief
Any losses arising on a disposal of EIS shares may either be offset against capital gains in the same tax year as the investment (or carried forward against future gains).
Share loss relief
Losses on the disposal of qualifying shares may be offset against general income in the year of disposal or the preceding year.
Capital Gains Tax deferral or reinvestment relief
Under EIS, CGT deferral relief allows investors disposing of any asset to defer gains against subscriptions in EIS shares. The gain is deferred until the EIS shares are disposed of or a chargeable event takes place in relation to those shares. Under SEIS, CGT reinvestment relief is offered on the disposal of any assets where the gains realised are reinvested under SEIS. 50% of the gain reinvested attracts exemption from CGT.
Worked examples to compare EIS and SEIS Tax Relief
Three scenarios are demonstrated below to illustrate possible outcomes for an investor investing in a qualifying company under the EIS and SEIS. In the first scenario, the company fails and is wound up; in the second, the company breaks even with no change in the value of its shares; and in the third scenario, the company is successful and the shares double in value.
It is assumed that the investor invests £10,000, the investor’s marginal rate of income tax is 45%, capital gains tax is charged at 20%, the annual investment limits have not been breached, and income tax relief is not withdrawn or reduced.
Type of scheme
Income tax relief as a tax reducer
Scenario 1:The company fails and is wound up
Scenario 2:The company breaks even
Scenario 3:The company succeeds and the shares double in value
EIS
Upon investment, the available income tax relief is £3,000 (30% x £10,000).
Value of shares = zero. The capital loss is £7,000. Using CGT loss relief: the loss can be offset against other gains generating CGT relief of £1,400 (£7,000 x 20%). Net outflow = initial investment – initial relief – CGT relief = £5,600. Using share loss relief: the loss can generate further income tax relief of £3,150 (£7,000 x 45%). Net outflow = initial investment – initial relief – share loss relief = £3,850.
Value of shares = £10,000. The investor has not made a capital loss and keeps the initial £3,000 income tax relief. Net inflow on sale of shares = proceeds – initial investment + initial relief = £3,000.
Value of shares = £20,000. The capital gain of £10,000 is exempt from CGT. Net inflow on sale of shares = proceeds – initial investment + initial relief = £13,000.
SEIS
Upon investment, the available income tax relief is £5,000 (50% x £10,000).
Value of shares = zero. The capital loss is £5,000. Using CGT loss relief: the loss can be offset against other gains generating CGT relief of £1,000 (£5,000 x 20%). Net outflow = initial investment – initial relief – CGT relief = £4,000. Using share loss relief: the loss can generate a further income tax relief of £2,250 (£5,000 x 45%). Net outflow = initial investment – initial relief – share loss relief = £2,750.
Value of shares = £10,000. The investor has not made a capital loss and keeps the initial £5,000 income tax relief. Net inflow on sale of shares = proceeds – initial investment + initial relief = £5,000.
Value of shares = £20,000. The capital gain of £10,000 is exempt from CGT. Net inflow on sale of shares = proceeds – initial investment + initial relief = £15,000.
Further Information
If you would like more information on either of the EIS or SEIS schemes and how they may be beneficial to you as an investor or a company seeking to raise funds, please get in touch.
Our specialist team will take all the hassle away from you and you can be confident that your claim will be handled quickly and efficiently to maximise the relief available. Please contact Paul Webb on 0333 122 0000 or email hello@dixcartuk.com to arrange a free no obligation consultation.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
From April 2025, significant changes to payroll changes will take effect...
News & Views
UK Corporate Tax – Substantial Changes
Paul Webb,
6th December 2022
Tax
During the Autumn of 2022, changes to UK corporate tax and personal tax regimes were subject to a number of amendments.
In addition, it is now confirmed that two significant changes are taking place in the near future:
From 1 April 2023, non-UK resident property companies will be subject to an increased corporate tax rate of 25%, a 6% increase compared to the current rate of 19%, tax year 2021/2022.
An existing set of rules which, have not been directly relevant for some time, will now definitely need to be taken into account and will see many companies under common control, now being viewed as ‘associated’ with each other. This can have a significant impact on the amount and dates on which UK corporate tax is payable.
The Increase in the UK Corporate Tax Rate
From 1 April 2023, corporate tax rates in the UK will vary between 19% and 25%. The previous single rate having been 19%.
Where a UK resident company has taxable profits of less than £50,000, the 19% small profits rate will apply. UK resident companies with profits of between £50,000 and £250,000 will pay a tapered rate of between 19% and 25%. Above the higher limit of £250,000, the 25% rate will apply to all taxable profits.
These bandings are reduced if there are associated companies, please see further details below.
Where an accounting period spans across the date of 1 April 2023, taxable profit will be split to the period before and after 1 April 2023, with differing rates applied.
Companies Incorporated or Tax Resident Overseas
Companies which are incorporated and/or tax resident overseas and which are subject to UK corporation tax, will pay a flat rate of 25% corporation tax on taxable profits arising after 1 April 2023.
This 25% rate will apply to all UK based property and trading income and to capital gains on all sales of UK investment property.
Action could be taken ahead of 1 April 2023, to mitigate some of the implications of these changes. Any proposed action would, however, need to be assessed to ensure it makes commercial sense and take into account any prevailing case law and HMRC practice. Professional advice from a company such as Dixcart should be taken.
The Option of De-enveloping UK Property Held in a Non-UK Resident Company
If the de-enveloping of UK properties being held by non-UK resident companies is being considered, this should take place as far ahead of 1 April 2023, as possible.
Each situation needs to be considered based on its merits and an evaluation needs to take place as to whether this is the most appropriate action, from both a tax and a wider perspective. Any decision also needs to take into account that it might take some time to put changes in place to achieve the desired end result.
Associated Companies – Changes to the Rules
The current rule of a ‘related 51% group company’; where companies have generally been deemed to be related 51% companies, where there is common corporate ownership greater than 50%, is also due to change on 1 April 2023. As a consequence, companies that previously did not fall within the quarterly instalment payment regime (QIPs), may now do so.
The new definition of associated companies will be significantly broadened to include companies controlled by the same person/s. A ‘person’ includes not only individuals but also trustees of a trust and partners of a partnership.
A simple example is detailed below: a trust holds all the shares (100%), in 8 separate companies. The companies undertake similar activities, and the shares were settled into the trust by the same settlor. Under the pre-1 April 2023 rules there are no 51% group companies, under the new rules there could be up to 8 associated companies.
QIPs: Definition
Most companies pay UK corporation tax within 9 months and 1 day, after their year-end. This is unless they fall under QIPs. As detailed above, whether a company is deemed to be an associated company and the number of associated companies will determine whether a company must pay its UK corporation tax via the QIPs regime.
Generally, QIPs applies, where:
Taxable profit exceeds £1.5million in two consecutive accounting periods,
OR
Taxable profit exceeds £10million on any accounting period.
It is very important to note that the taxable limits are divided by the number of associated companies.
QIPs does not increase the tax payable, but it does have a considerable impact on cash flow and missing or underpaying QIPs can result in penalties and/or interest being applied.
Additional Information
If you have any questions regarding the forthcoming changes to UK corporate tax, please contact Paul Webb at: hello@dixcartuk.com.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
From April 2025, significant changes to payroll changes will take effect...
News & Views
HMRC Focus on Offshore Corporates Owning UK Property
Paul Webb,
20th September 2022
Tax
A New Campaign
A new campaign was launched by HMRC, in September 2022, aimed at overseas entities that may not have met UK tax obligations in relation to the UK property that they own.
HMRC have stated that it has reviewed data, from HM Land Registry in England and Wales and other sources, to identify companies who may need to make disclosures for; non-resident corporate rental income, annual tax on enveloped dwellings (ATED), the transfer of assets abroad (ToAA) legislation, non-resident capital gains tax (NRCGT), and, finally, income tax under the transactions in land rules.
What is Taking Place?
Depending on the circumstances, companies will receive letters, accompanied by a ‘certificate of tax position’, recommending that they ask connected UK-resident individuals to re-examine their personal tax affairs, in the light of relevant anti-avoidance provisions.
Since 2019, ‘certificates of tax position’ have been issued to UK residents who receive offshore income.
The certificates typically require a declaration of the recipients’ offshore tax compliance position within 30 days. HMRC has previously noted that taxpayers are not legally obliged to return the certificate, which could expose them to criminal prosecution, if they make an incorrect declaration.
Standard advice to taxpayers is that they should consider very carefully whether they return the certificate or not, regardless of whether they have irregularities to disclose or not.
The Letters
One of the letters concerns undisclosed income received by non-resident corporate landlords and liability to ATED, where applicable.
This will also prompt UK-resident individuals who have any interest in the income or capital of a non-resident landlord, whether directly or indirectly, to consider their position as they may fall within the scope of the UK’s ToAA anti-avoidance legislation meaning that the income of the non-resident company can be attributed to them.
The letter recommends that any such individuals should seek professional advice to ensure their affairs are up-to-date.
An alternative letter is being sent to non-resident companies that have made a disposal of UK residential property between 6 April 2015 and 5 April 2019, without filing a non-resident capital gains tax (NRCGT) return.
Disposals of UK residential property by non-resident companies were subject to NRCGT between 6 April 2015 and 5 April 2019. Where the company purchased a property before April 2015 and the whole gain has not been charged to NRCGT, that part of any gain not charged, may be attributable to the participants in the company.
Such corporates may also be liable to pay UK tax on rental profits, as well as income tax under the transactions in land rules and ATED.
The Need for Professional Advice
We strongly recommend that UK-resident individual participants in these companies should seek professional advice, from a firm such as Dixcart UK, to ensure that their matters are up to date.
The Register of Overseas Entities
This new focus coincides with introduction of the new Register of Overseas Entities (ROE), that came into force on 01 August 2022.
As criminal offences may be committed for non-compliance, with the requirement for overseas entities to register certain details (including those of the beneficial owners) to Companies House.
If you have any questions and/or would like advice regarding non-resident status and the obligations in relation to tax on UK property, please speak to Paul Webb: at: hello@dixcartuk.com.
Alternatively, if you have any queries regarding the UK public register of beneficial ownership of overseas entities, please contact us at: hello@dixcartuk.com.
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.
From April 2025, significant changes to payroll changes will take effect...
News & Views
Key Points: Draft Legislation Finance Bill 2022-23
Paul Webb,
25th July 2022
Tax
The government published draft legislation week commencing 18 July, for the Finance Bill 2022-23. This includes consultations on changes to; capital gains tax, pensions and R&D tax relief.
Key Points
Capital gains
The divorce of a married couple requires assets to be distributed between the two individuals, often including a share in the value of the family home. Currently such transfers are only free of CGT if they occur within the same tax year of separation. Between that date and the decree nisi the couple are connected persons but not living together, so the CGT no gain/no loss treatment for transfers between married couple/civil partners does not apply.
The proposals will stretch this CGT exempt period to three years for separating couples, and allow any assets which are the subject of a divorce agreement to be transferred on a no gain/no loss basis without time limit.
This will apply for all disposals that occur on and after 6 April 2023, and has been brought about following a recommendation by the Office of Tax Simplification (OTS).
Pensions
Having pension contributions deducted from net pay is not a problem, if the individual is a taxpayer, because he/she gets the same tax relief as if the employer operates a relief at a source scheme. But under auto-enrolment, many low paid employees pay pension contributions although they do not earn enough to pay income tax, so they miss out on the tax relief.
For the tax year 2024/25 onwards, those employees on net-pay schemes will be able to claim a rebate from the government on the tax relief they are due. Why this has not been sorted out earlier is a mystery.
The treatment of regular income paid out of collective money purchase pension schemes, which are being wound, up will also be clarified. This will ensure that those payments are taxed as pensions and not as unauthorised payments. This change will take effect from 6 April 2023.
R&D tax relief
There have been several consultations on strengthening the R&D tax relief scheme to make it less vulnerable to fraud. The Finance Bill proposals go further and suggests that small companies who want to claim R&D tax relief, will have to inform HMRC in advance of their intention to claim within six months of the end of the first period the claim will relate to. A senior officer of the company and the tax adviser will also both have to be named on the claim. These are currently only proposals and we will keep you informed of any developments.
Clarifications
Companies who allow their residential properties to be used for the Homes for Ukraine scheme are to be exempt from ATED and the 15% rate of SDLT on those properties.
Consultations
Two new consultations were announced concerning new powers for HMRC to collect data from businesses, and to digitalise business rates, including linking that data to the wider tax system. We will provide further details once any measures are finalised.
Need Any Help?
If you have any questions regarding the proposed changes detailed above, please get in touch today: hello@dixcartuk.com
The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.