Newsletter November 2013
It has been
announced that the Autumn Statement 2013 will be made by the Chancellor of the
Exchequer, George Osborne, on Wednesday 4 December at 12.30pm.
The
Statement provides an update on the Government's plans for the economy based on
the latest forecasts from the Office for Budget Responsibility. These forecasts
are published alongside the Autumn Statement on 4 December. It is
regarded as the most significant economic event of the parliamentary year after
the Budget.
Our newsletter this
month covers: some tax issues when you sell your home, planning considerations
if you are thinking of selling your business, an update for Swiss Bank account
holders, and notification of a new campaign by HMRC targeting health professionals.
Our next newsletter will
be published Thursday 5th December 2013.
When is your home not a home?
Cast your mind back when
Members of Parliament were accused of "flipping" properties to avoid Capital Gains
Tax on the sale of a second property?
Theoretically, it should
be possible to buy a second home, live in it for a short period, and as long as
certain procedures are followed, have the last three years of ownership ignored
for CGT purposes. By implication, if you buy and sell the property within a
three year period you will pay no tax on the sale. This process is described in
some circles as "flipping".
Recent court cases seem
to be challenging this type of arrangement and making it more difficult for
property owners to avail themselves of the CGT, Principal Private Residence
Relief (PPR). The decisions may also have an effect where there is only one
home which is occupied on a temporary basis.
It a nut shell the
Courts are using the issue of "permanence" to deny relief.
P
Moore v HMRC
In this case Mr Moore
decided he wanted to live apart from his wife of many years and he moved into a
house that he had previously rented out. He lived in this house from November
2006 to July 2007. Although he was careful to have his Council Tax bills sent
to his new house, all of his other bills were forwarded to his lady friend, who
he subsequently married.
The Court decided that
Mr Moore had never intended that his residence in the second home be more than
a temporary arrangement, and that his true intention was to purchase a larger
property with his future wife that would accommodate her children.
The arrangement lacked
permanence.
Dr
Eghbal-Omidi v HMRC
In this case a doctor
agreed to purchase a house in December 2006 and the sale was completed in March
2007. In May 2007 the doctor sold the house making a profit of £550,000.
Again the doctor
contended that he had occupied the house and therefore no tax should be
payable.
The Court disagreed. His
occupation lacked any permanence and relief was denied.
Decided cases on this
issue now conflict as earlier judgements did not place such significance on the
matter of permanence. Readers who find themselves in a similar situation should
take stock. Until the Courts provide a definitive ruling, or HMRC clear guidelines,
we are placed in an awkward position when deciding on an appropriate approach
to tax planning.
Selling your business
Planning
to sell your business is not a process for the faint hearted. You have likely
spent many years building your business and the last thing you want to face is
losing a large proportion of the sales proceeds to tax or worse, being unable
to enforce payment of what is due to you because of contractual difficulties.
This is a
complex subject. There are many ways to structure a sale and this article
outlines a few of the issues you will need to deal with:
*
Are you selling all your business or just part of
it?
*
Are you selling the shares in the company or the
underlying business?
*
Are you retaining ownership of property that forms
part of the business assets?
*
Is your company considered to be a "trading"
company for tax purposes?
*
Should key staff benefit from the sale?
The forth item on this list is particularly
important if shareholders want to benefit from Entrepreneurs' Relief for Capital
Gains Tax (CGT) purposes. A successful claim would limit any CGT to 10% of the
taxable gain up to a lifetime allowance of £10m.
To be considered a trading concern, a company needs
to comply with HMRC's 80:20 rule. This looks at three criteria:
1.
Are at least 80% of the assets used for the
purposes of a trade?
2.
Is more than 80% of turnover derived from trading
activities?
3.
Do officers and employees of the company spend 80%
or more of their time on trading activities?
Assets can include cash reserves so it may be
prudent to extract surplus cash from the company at least a year before a sale
is anticipated. However, HMRC tend to take a more relaxed view if the cash
arises from accumulated trading profits and it is not actively managed.
Another issue you should consider at an early date
is due diligence. Your purchaser will no doubt send in their advisors to check
over certain aspects of the business tax affairs prior to the completion of the
sale. You should conduct your own review into PAYE, VAT and Corporation Tax
compliance matters before any due diligence takes place to ensure there are no
skeletons in the cupboard.
Also, it is important to consider shareholdings
etc, and whether the shareholders themselves meet the requirements for
Entrepreneurs' Relief.
The key to maximising the value locked up in your
business is to take planning seriously, and start the process at least a year
before you intend to sell.
Swiss bank account holders face new deadline
UK residents, whose
Swiss banking arrangements have been disclosed to HMRC under the UK/Swiss tax
agreement, have started to receive follow up letters from HMRC.
Earlier this year
account holders were given a choice:
*
To
pay over a fixed percentage of their account balance to compensate for tax
previously unpaid.
*
Or,
to authorise their Swiss Bank to disclose their account details to HMRC. This
did not apply to non-UK domiciled individuals.
HMRC have been writing
to this second group. Recipients of these letters were required to act quickly.
HMRC set a deadline of 1 November 2013 to complete and return one of three
certificates. If you have received such a letter, and have not responded, you
should take advice quickly. The certificate you should have submitted is one of
the following three options:
1.
Certificate
A: a declaration that they have no outstanding UK tax liabilities (either in
relation to the Swiss accounts or other sources).
2. Certificate B: a declaration that they
will be disclosing any outstanding liabilities using the Liechtenstein
Disclosure Facility (LDF), or
3.
Certificate
C: a declaration that they will be disclosing their outstanding liabilities
outside the LDF.
Failure to respond to
the HMRC letter may result in a formal investigation being mounted by HMRC and
the risk that criminal proceeding may be taken. Account holders should consider
their options carefully and respond without further delay. Completing
Certificate B would avail you of certain concessions regarding penalties
chargeable, and in particular, immunity from prosecution.
Readers affected would
be wise to take professional advice before responding to HMRC.
HMRC targets certain health professionals
A
new tax campaign was launched by HMRC on 7 October 2013. The campaign targets:
physiotherapists, occupational therapists, chiropractors, osteopaths,
chiropodists and podiatrists; homeopaths, dieticians, nutritional therapists,
reflexologists, acupuncturists, psychologists, speech, language and art
therapists, and other health professionals are also covered.
Health
professionals have until 31 December 2013 to advise HMRC that they would like
to take part in the campaign, and until 6 April 2014 to disclose and pay any
tax owed.
As
usual with these campaigns HMRC offer favourable settlement terms. Health
professionals affected who do not meet the 31 December deadline run the risk
that their affairs may be subject to an investigation.
Tax
Diary November/December 2013
1 November 2013 - Due date for Corporation
Tax due for the year ended 31 January 2013.
19 November 2013 - PAYE and NIC
deductions due for month ended 5 November 2013. (If you pay your tax
electronically the due date is 22 November 2013.)
19 November 2013 - Filing deadline for
the CIS300 monthly return for the month ended 5 November 2013.
19 November 2013 - CIS tax deducted
for the month ended 5 November 2013 is payable by today.
1 December 2013 -
Due date for Corporation Tax due for the year ended 28 February 2013.
19 December 2013 - PAYE and NIC
deductions due for month ended 5 December 2013. (If you pay your tax
electronically the due date is 22 December 2013.)
19 December 2013 - Filing deadline for
the CIS300 monthly return for the month ended 5 December 2013.
19 December 2013 - CIS tax deducted
for the month ended 5 December 2013 is payable by today.
30 December 2013 - Deadline for filing
2012-13 Self Assessment online to include a claim for under payments (under £3,000)
be collected via tax code in 2014-15.