This time we have more on partnerships, we look at the remittance basis and also consider the new CGT measures and case law.
Follow the links below for summaries and briefings.
Nichola Ross Martin FCA
Your online Virtual Tax Partner: practical support for accountants, tax advisers and their clients
NEW: a whole new area on the site covering the Statutory Residence Test and your FAQs
Employment Allowance: NICs £2,000 relief
From April 2014 all employers will receive a £2,000 Employment Allowance that may be offset against employer’s NICs (ER’s NICs) and so reduce the cost of being an employer.
- Available to all sizes of business
- Claimed via the payroll (RTI reporting)
A small employer with part-time workers (your typical village pub or small cafe) may be able to avoid paying NICs altogether.
Negligence by tax advisers
in Peter Stratton v HMRCthe First Tier Tax Tribunal upheld penalties and agreed with HMRC that the taxpayer was negligent. His advisers was using the wrong legislation and had ignored the employment related securities rules however the taxpayer had seen earlier (correct) advice from his company which he chose to ignore.
Penalty defence: negligence by an adviser
In E Mariner v HMRC  TC03039 the taxpayer made an error in the calculation of property losses and she had relied on advice from her adviser. HMRC imposed a penalty for careless or negligent error. The tribunal found for the taxpayer, it relied on the decision in AB v HMRC  STC (SCD) 99;
"a taxpayer who takes proper and appropriate professional advice with a view to ensuring that his tax return is correct, and acts according to that advice (if not obviously wrong) would not have engaged in negligent conduct."
Focus on partnerships
Partnerships: new rules for salaried members and profit allocations
Two big changes to flag up from April 2014, noting that the new rules apply from April 2014, not from December 2013 as previously announced.
- LLPs and "salaried members": a LLP member will be treated as an employee for tax if 80% of their pay is disguised salary and they have no significant influence in the business and their capital contribution is not at least 25% of their disguised salary. Many junior members of LLPs may find that from April 2014 they are treated as employees for tax purposes. This will not affect most salaried partners in conventional partnership who are generally taxable as employees in any case.
- Mixed member partnerships: new rules affect the profit allocations to non-individual members by LLPs and Limited partnerships. Where profits are allocated and any individual partners have the power to enjoy those profits they will be taxed as if allocated to the individual.
New rules from April 2013 affecting partnerships:
Loans to participators
A loan to a LLP whose members are participators in a close company will be subject to the corporation tax loan to participator rules, see Close Company Loans Toolkit.
Partnership case law
Enterprise Investment Scheme (EIS): relief
Disqualifying activities: investment in a partnership. In Harvey's Jersey Cream Ltd v HMRC  TC03045 a company raised funds under EIS which it used to increase its interest in a trading partnership. Even though the trade of a partnership is treated under the 1890 Partnership Act as being carried on by each partner, and so the company as a partner was carrying on a trade the tribunal ruled that buying a bigger share of a trade is not an activity of the trade for the purposes of EIS relief.
Eclipse Film Partners 35 tax scheme
Film Partnership Loss Scheme fails: the Upper Tier Tax tribunal has upheld the First-tier Tribunal’s decision that Eclipse Film Partners No 35 LLP (Eclipse 35) was not carrying on a trade and so a tax scheme to provide tax relief for investors failed.
Our Subscriber Toolbox: recent updates
CGT tax planning: main residence relief
A useful case to note: in A Dickinson v HMRC the taxpayer sold part of her garden to her own development company. HMRC tried to deny PRR on the basis that as the development work had started by the time that contracts were exchanged the land was not available as a garden or grounds. The FTT found that entering onto the land and starting the works did not constitute a disposal of the land. The land therefore retained its character as “garden or grounds” within the meaning of s 222(1)(b) until the time of its disposal when contracts were exchanged.
CGT private residence relief
The exemption for the last 36 months of ownership reduces to a 18 month period from 6 April 2014: time to review elections?
Remittances: examples of remittances
What constitutes a remittance? HMRC sent out a list of examples to remittance basis last July. We have summarised it as it serves as a good adviser/client briefing. May contain some nuts; one commentator describes a couple of the examples as "dodgy"!
Surplus cash: CGT & IHT relief
When and if too much cash is too much to obtain business reliefs.
Shares and employees
Employee Shareholder Status - tax & planning
The new type of employee and a new type of employee share scheme.
Employment Related Securities
This explains what happens when you give an employee or director shares outside of an approved share scheme or EMI option scheme.
ABC or alphabet shares: directors & employees
This links you to guides for directors, family companies and employers.
Directors' service contracts - top tips
Company law requires that a director has a service contract with his company.
Director's Service Contract template
All directors are required under the Companies Act to have a service contract which must be available for general inspection at the Company's registered office. The question is whether a service contract will be treated as an employment contract for tax.
Property & letting: CGT and IHT issues
Three contrasting cases involving business asset CGT relief and residential properties.
Tax planning for income at marginal tax rates
Strategies for avoiding higher rates of tax, in general, for the self employed and for employees and directors.
Directors: tax planning toolkit 2013/14
Our a rolling ESSENTIAL tax planner, so we continue to update this all year as tax law evolves. The 2013 Finance Act made some significant changes to the tax rules affecting directors, our toolkit provides you and your adviser with a heads up on "what's hot and what's not" in 2013/14.
Directors' loan accounts: toolkit (freeview)
A checklist that details the main tax issues surrounding directors' loans.
Close company loans toolkit
Essential reading with a focus on new rules for "bed and breakfasting" loans to participators and measures affecting loans to LLPs. Review of latest consultation for reforming the loans to participator rules.
Property profits and losses
Covering all key angles of property taxation
Research & Development Relief
SME guide to R & D reports.
A special relief applies under s3A TMA 1970 in cases where it would be unconscionable for HMRC to seek to recover an amount of tax or refuse repayment (if already paid). This is the statutory version of the old equitable liability concession.
Capital reduction: index
Capital reduction is the process by which share capital or other capital reserves, including the share premium account of a company are repaid to shareholders. We now have a full range of guides on this topic for shareholders and directors.
Still coming to terms with the 2013 Finance Act and other recent changes?
Limit (cap) on income tax reliefs
UPDATE: yet more examples of situations which are affected by this cap (from our Virtual Tax Partner helpline), surely this measure needs to be amended?
The new relief applies from 1 April 2013. It may be useful for small companies which decide that it is administratively easier to scale down and become sole trades or partnerships.
When an inspector calls
Let Property Campaign Aimed at property landlords who have failed to disclose rental income. Unlike other fixed term opportunities this one has apparently no deadlines for registration: it will be open for at least 18 months.
Disclosure Opportunities: Top Tips
Advisers make sure that you understand how the different rules all interact.
IHT: non-domiciled spouses
From 6 April 2013 a non-dom spouse may elect to be treated as UK domiciled, this might be a dangerous election to make without some careful consideration.
IHT: restrictions on liabilities against the estate
Provisions were introduced by the Finance Act 2013 that restrict to what extent certain liabilities may be deducted against an estate on death. HMRC has now updated its manuals to reflect the changes which may catch out advisers and taxpayers alike.
'Simpler' Accounting for tax
Accounting: Simpler Income tax (cash basis) / fixed expenses Start here (self-employed taxpayers) to decide which of (or both) the new measures to adopt.
Board and lodging adjustments All change from 5 April 2013.
Cash or accruals accounting toolkit At a glance summaries with planning points and examples for all advisers in this new guide.
Flat rate expenses or actual cost toolkit Essential briefing for advisers and clients.
Land and Property
Furnished Holiday Letting
UPDATE: our detailed guide contains a summary of all the recent changes which is useful for talking over with clients.
Wear and tear allowance and the renewals basis
The rules changed on 6 April 2011 and then again on 6 April 2013: this updated guide explains the different tax treatments year by year.
Annual Tax on Enveloped Dwellings (ATED)
The first self-assessment return for ARPT will be due in 2013/14 and made by 1 October 2013.
Joint property: legal v beneficial ownership This guide provides you with a concise summary of the differences between legal title and beneficial ownership and explains what elections or actions are necessary to ensure that tax treatment matches your intentions.
Travel and tax UPDATE: this is our sign-post to our guides in this area. If you are ever short of something to say to a client start here - the new rules for simplification of accounts make this whole topic quite fun.
Tax-free benefits and perks UPDATE: can you spot the changes? (scroll to the bottom to find the answers).
Staff parties and annual functions UPDATE for 2013.
Directors' loan accounts: toolkit An essential guide for directors and companies on the income tax and NICs treatment of overdrawn loan accounts.
Top Tips for directors
Schedule 36 information notices
Mini guide to HMRC's power's with topical tips and case law
Purchase (repurchase) of own shares Step by step guide to ensure Companies Act and tax compliance is met to allow a repayment to be treated as capital in the hands of the outgoing shareholder.
Converting part of a home into an office
How to create a tax-efficient home office.
- Recharging the company, on the same basis as a conventional home working employee for a proportion of your bills and running costs. This is explained in Working from home (directors) or
- Formalising a licence agreement with your company in order to allow it to occupy part of your property. It then pays you rent and service charges and you then claim all your expenses under self-assessment...More
Working from home (directors)
UPDATE: the same rules apply to home working directors as other employees. However, a director is more likely to be able to charge rent and there may be some additional issues and complications by virtue of their office.
Tax masterclass: running an LLP & Co structure
A guide is for trading companies and professional practices: we see many different structures and so we are constantly updating this guidance.
Annual Investment Allowance
Update: a handy summary with planning points.
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