Issue 42

We googled the Top 10 Summer Holiday Reads 2013, just to see if the Square Circular was included.  It wasn’t; from which we deduce it must have been number eleven. Still, not bad!

We hope the drama, the thrill and the humour of topics like Inheritance tax, VAT penalties, share options and the like isn’t too much for you.  Enjoy, if you dare!

If you want more details about any of the matters we’ve mentioned in this Issue, or indeed, about any of the matters we haven’t mentioned please do contact us on 0161 832 4841.

SHARES FOR EVERYONE

As the long summer evenings start to get shorter, here’s something to exercise your mind.  See how many words of four letters or more you can make from the letters in the grid below using the letter in the middle of the grid in each word.

 

E

 

M

 

I

 

S

 

 

O

 

P

 S

 

 I

P

We’ve not been able to form that many words because we’re so dumbstruck to see the initials for Enterprise Management Incentives, Share Option Plans and Share Incentive Plans in one grid.

If you don’t run an owner managed company business with employees whom you’d like to see owning company shares get on with making words out of the letters.  Otherwise, your time might be better spent thinking about options under a scheme like the EMI. When times are tough and cash is tight, it’s a good time to “pay” bonuses in shares rather than cash.

MY TAX RETURN CATCH UP

This is another of those never-ending HMRC initiatives. It was initiated in July and runs until 15 October 2013.  It is designed for moderately naughty taxpayers that just haven’t got round to filing tax returns for last year – and maybe a few years before.  It is not for the very naughty taxpayers, who are so naughty that HMRC haven’t traced them or sent them tax returns to complete.

If you want to stop being moderately naughty you have to join the campaign, submit outstanding tax returns and pay up.  The reward for this good behaviour is a reduction in penalties. The fixed and daily late filing penalties will still stand but the tax geared penalties should be substantially reduced.

Obviously, you’re not a naughty taxpayer; not even moderately so. But if you know someone who needs to catch up, tell them to give us a call.

CANCELLED PENALTIES

Talking about penalties, our VAT consultant has pointed out that according to HMRC’s Tax Assurance Commissioner’s report, over 60% of VAT penalties were cancelled on review.  Of course each case depends on its own peculiar circumstances but it does demonstrate that HMRC doesn’t always get it right, at least as far as VAT is concerned.

If your business has recently been issued with a tax penalty and you’d like to discuss this further, please contact us on 0161 832 4841.

AND ON THE SUBJECT OF VAT

One problem which crops up from time to time is when a business gives away goods.  If the recipient pays absolutely nothing for the item, then does VAT at 20% of absolutely nothing equal absolutely no VAT?

Actually, no.  These are still supplies for VAT purposes.  If your business is in the habit of regularly giving away gifts such as free samples you probably know this already.  if you weren’t aware of this check it out with us.

JUST LIKE THAT!

When was the last time you had an Inheritance Tax review? If it’s more than a few years ago it’s an issue which should be re-visited.  Not only do your circumstances change but the rules also change.  And quite often significant changes sneak through without a big song and dance.  Let’s have an example.

You’ll probably recall from your last Ih.T review that we asked you for a list not only of your assets but also of your liabilities.  Let’s say Mr X (now, there’s an original name!) owns a house worth £500,000 and wants to start a business.  Having no liquid assets he borrows £300,000 from a bank (yes, borrows from a bank – like the old days) secured on his home and sticks it into shares in a trading company.  The company is quite successful but after a few years X inconveniently dies.  At the time of his death the house is worth £550,000, the loan is down to £250,000 and the shares in the trading company are worth £1 million.

Before this  year’s Finance Act, here’s how we’d do an Ih.T calculation.  His assets total £1,550,000 but for Ih.T purposes they actually total £550,000 because 100% Business Property Relief on the £1 million worth of shares effectively discounts that asset.  Knock off liabilities of £250,000 and the net estate comes down to £300,000.  Bingo, no tax to pay, it’s below the £325,000 Ih.T nil rate band.

If he borrowed now, the calculation would be a bit different.  Knock the £250,000 loan off the £1 million value of the company because that was the original purpose of the loan.  That gives you a net £750,000 which is all due 100% Business Property Relief so that comes down to nil.  Meanwhile the house is worth £550,000 and the Ih.T bill on an estate of £550,000 would be £90,000.

A £90,000 bill as a result of a technical change which you may not even have  noticed.  Magic.  As Tommy Cooper might have said, “just like that!”.  If you’re concerned that there might be hiding in the hat a few Ih.T rabbits that you weren’t aware of please free to get in touch.

MORE ABOUT INHERITANCE TAX

There can be other implications of netting off liabilities apart from the example we’ve just given.  For example, what if you’re not domiciled in the UK and pay Inheritance Tax only on your UK assets. What’s the position if you’ve got UK borrowings and assets which cancel each other out plus foreign assets.  What do the UK liabilities get netted off against (forget the atrocious grammar!)?

It’s definitely worth giving Inheritance Tax a further thought.

LLPs

Our Spring 2013 Issue promised you more news on LLPs.  Limited Liability Partnerships have become an increasingly popular business vehicle especially LLPs with corporate members but proposed measures which may be introduced next year could make a dent in LLP popularity.  It’s easier to do justice to the subject in a book than in a Square Circular but let’s try to summarise.

Problem 1 is to do with the status of what are called partners in traditional partnerships; they’re called members in LLPs.  In traditional partnerships, a partner may be a salaried partner paid under PAYE or may be a self-employed salaried partner, often referred to as a fixed share partner.  Whether the partner is employed or self-employed depends upon the particular circumstances of the partnership arrangements.  In an LLP if you’re a member you’re self-employed, no questions asked.  From next April the “no questions asked” bit could be a thing of the past.

Problem 2 is where you have a corporate member of the LLP.  With individual tax rates being higher than corporate tax rates in the first instance, it seems like a good idea to allocate profits disproportionately to the corporate member.  The proposal is for HMRC to be able to tax the share of the corporate on the individual.

No doubt, if and when the draft legislation is produced for introduction from April 2014 it will be more involved but it seems quite likely that some new rules will be introduced along the lines outlined above.

We suspect there may be a certain amount of re-structuring going on in LLPs in the not too distant future.

WEAR AND TEAR

This will be of interest to landlords of furnished let properties.

Since the abolition of the Renewals Basis for claiming a deduction for the replacement of items in residential properties, you have to fall back on the Wear and Tear allowance of 10% of rents received which was probably already the more popular method of claiming.  But what is meant by furnished?

According to HMRC’s manual it’s not just the beds, wardrobes, chairs, tables, carpets, curtains, fridges and freezers which you might expect.  It also mentions things like linen, crockery and cutlery.  It’s beginning to sound like a property is not let furnished unless the tenant can move in and start living there with nothing more than the shirt on his back.

AND FINALLY

“Rich bachelors should be heavily taxed.  It is not fair that some men should be happier than others”.

Oscar Wilde