Nichola Ross Martin's Tax Consultancy

Advisers’ update: Christmas 2010

This is a short news round-up of topical issues with a summary of the measures proposed for the 2011 Finance Bill.

What's new?

We have recently added these new notes for subscribers:

Updates: these are detailed in Nichola's SME Tax Web Updates

HMRC’s new small company accounts software: tax note

HMRC’s online company accounts software has a strange design feature, it automatically creates a tax note at the main rate for corporation tax and you cannot overwrite this. If you are taxed at the small company’s rate you will need to create a free form note to disclose the actual tax charge in the accounts.

HMRC says "The tax rate applied to the CT600 is either full rate or small companies’ rate depending on certain circumstances and this is what will be charged by HMRC etc. There is an additional tax rate element in the accounts section in the Accounts Notes - Taxation (AC327 - AC328) where the MAIN tax rate will be applied to the profit for CT accounts and you should enter a note below in the following free-format box to explain why the tax and rate values are different: Please enter any additional information, such as the standard rate of tax for the current period and the previous period in the field below."
 

Companies House: ongoing e-fling problems with the abbreviated accounts template.

Since we started creating a weblog of Companies House webfiling problems we have found that they are many and varied, but above all time consuming to put right. It is very common for the template to lock up or fail to transmit. If this happens you might fare better by typing up accounts and filing by post (make sure you have  proof of posting).

One key piece of advice is that Companies House own staff say “its risky” to file online close to a deadline. You have now been warned! If you do incur problems they can take a long time to resolve (in fact they may not always be resolvable so you will have to file on paper).

Joint property

We have a new quick guide to Joint Property Elections, a key planning point which has apparently been causing some excitement in the trusts forum is that you do not need consider beneficial interests to automatically obtain 50:50 treatment on joint property.

Why this matters
If you are advising clients who are considering putting property into joint names for tax purposes then their legal advisers will need to know what paperwork to draw up. The beneficial owner of a property enjoys all the rights of ownership, whereas the holder of the legal title may just be the holder of the legal title. A trustee is common example of someone who has legal title but no beneficial interest. In many cases there will be no distinction because in the absense of anyone else holding a beneficial interest then holder of the legal title will also enjoy full rights. 

Main private residences

Extract from our new CGT: Private Residence Relief quick guide and FAQs
Have you got the sufficient evidence to make a claim?
This is something to discuss with anyone who had two houses and is making a claim PRR on the gain on the disposal of one of them. You may be asked to prove that you have actually occupied it as your main residence.

The courts will consider:

• The physical evidence to confirm that it was your main residence such as bills, council tax, DVLA records, postal address etc
• The quality of your occupation there – this means looking at the circumstances and your intention and the reality of the situation, light, heat and telephone bills will provide evidence of your stay.
• The length of occupation – the longer you stay the better, sporadic and occasional visits and council tax exemptions do not indicate that a residence is a home.

Buy-to-let, developers and speculators: cases where main residence not proved 

In Jason Moore v HMRC [2010] TC 710 the taxpayer purchased a house himself and his girlfriend. Although she never lived there, as she disliked the neighbourhood, he stayed at the property overnight from time to time over a two month period whilst renovating it. Finally the property was let and then sold. The First Tier Tribunal rejected his claim for PRR on disposal because it decided that he lived there to renovate property rather than occupying it as his main residence. He was unable to provide bills or other evidence to establish quality of occupation.

We understand that this is going to appeal, but Mr Moore has to persuade the Tribunal that he intended to live in the property, it clearly thought that his intentions were to do it up and let it. 

This follows the thinking established in Goodwin v CA 1998, [1998] STC 475 where the taxpayer purchased a farmhouse from his company. Completion was delayed for nearly two years. During that time he divorced and purchased another property. He eventually occupied a farmhouse for just 32 days before selling it. The court found that it was never his intention to occupy the farmhouse as a main residence.

Working with tax agents: new penalties

HMRC is still working to establish a new penalty system for dishonest and incompetent tax agents and after considering responses to its February 2010 consultation has gone back to the drawing board to redraft some workable legislation. 

It is interesting to note that the proposals for the 2011 Finance Act are silent on this matter.

Tax measures what's new and proposed

Our Finance Acts Planner is a rolling update to show you what legislation is new today and expected in 2010/11 and 2011/12.

We have updated it to include measures proposed in the 2011 Finance Act. These are all effective from 2011/12 (unless otherwise stated). 

Personal tax

• New income tax rates and thresholds
• New National Insurance rates and thresholds

Employer supported childcare

• Measures to remove the obligation on employers to make Employer Supported Childcare schemes delivered through salary sacrifice or flexible remuneration arrangements available to all employees.
• Measures to ensure that the level of tax relief on childcare vouchers and directly-contracted childcare provided through employer-supported childcare schemes will be the same for all taxpayers.

Furnished holiday lettings

• To extend the qualifying lettings and availability periods
• To restrict loss relief
• See Furnished holiday letting: update

Gift aid

• Changes to the substantial donors rules to counter known abuse of charity tax reliefs.

Pensions

• Restriction on the amount of tax relief that is available by reducing the annual allowance from 2011 and the lifetime allowance from 2012.
• Pensions annuitisation: to remove rules from April 2011 that currently create an obligation for members of registered pensions schemes to secure an income by age 75.
• Ses Pensions: tax rules and planning

Corporate tax 

• The small profits rate to reduce the small profits rate of corporation tax to 20 per cent from 1 April 2011
• The main rate of corporation tax continues to reduce by 1% per year to 27% in 2011/12 and 26% from 1 April 2012

Associated companies

Legislation to ensure that companies are only held to be associated where the substantial commercial interdependence exists between them.

Capital allowances

From 2012:

• The writing-down allowances reduced to 18 per cent
• The special rate pool to 8 per cent
• The annual investment allowance to £25,000

Larger companies and foreign

• Interim controlled foreign companies (CFCs) reform to make the current rules easier to operate ahead of the full reform planned for Finance Bill 2012
• Taxation of foreign branches: an opt-in exemption from corporation tax for the profits of foreign branches of UK companies.
• Bank Levy: draft legislation published ahead of the permanent Bank Levy from 1 January 2011.

Corporate capital gains simplification

Legislation is published to:

• remove some existing restrictions on the use of capital losses within a group of companies after acquisition of a business;
• replace a complex set of anti-avoidance rules with a clearer purpose-based rule; and
• modernise the degrouping charge rules, in particular how they interact with the substantial shareholdings exemption, which will make it easier for companies to plan acquisitions and disposals of group companies.

VAT

Academies VAT refund

Legislation will be introduced to allow academies to recover VAT on a similar basis to local authority maintained schools.

Business samples
Legislation will be introduced to ensure that where businesses provide samples of their products free of charge to individuals for marketing purposes, none of the samples are liable to VAT.

Avoidance

Group mismatches

Legislation will be introduced to ensure that groups of companies cannot use loan relationships or derivative contracts to generate profits or losses purely as a result of accounting asymmetries. An interim measure has been introduced with immediate effect to prevent tax losses from new schemes.

Loan relationships avoidance: derecognition
Legislation will be introduced to prevent the avoidance of corporation tax in respect of loan relationships and derivative contracts where amounts are not fully recognised for accounting purposes.

Disguised remuneration
New rules to ensure that remuneration is not avoided or deferred through the use of trusts or other intermediaries, including Employee Benefit Trusts and Employer Financed Retirement Benefit Schemes (EFRBS).

Legislation will be introduced in Finance Bill 2011 to ensure that where a third party makes provision for what is in substance a reward or recognition or loan in connection with the employee’s employment, an income tax charge arises. This will be based on:

• a sum of money made available; or
• on the higher of the cost or market value where an asset is used to deliver the reward or recognition.

For example, where the asset in question is transferred or otherwise made available for an employee’s use and benefit as if the employee owned the asset. The amount concerned will count as a payment of employment income and the employer will be required to account for PAYE accordingly. 

Functional currency switch schemes

Legislation will be introduced to counter avoidance involving changes in the functional currency of an investment company. At the same time, the legislation will also introduce the option for investment companies to be able to elect for a functional currency for tax purposes other than that in the accounts.

VAT supply splitting

Legislation will be introduced to cancel the tax advantage currently enjoyed by businesses that supply services and arrange for different suppliers to supply printed matter which is connected to those services. 

Powers consultations:

• Financial securities for PAYE: proposals to allow HMRC to require a security from employers for PAYE and NICs that is seriously at risk.
• Data-gathering powers proposals to modernise and simplify HMRC’s information gathering powers.

Other proposed Finance Bill 2011 measures

• Junior ISA: for a new tax-free children’s saving accounts.
• Climate change levy reform
• Taxation of gaming machines a new duty on the profits from the playing of prize games on machines. The current Amusement Machine Licence Duty (AMLD) will be brought to an end and the exemption from VAT for betting and gaming will be extended.