Welcome to our first web-update of the month. This time we are looking at the proposals for taxing partnerships, we have also been reviewing case law and updating and maintaining our subscriber guides. Read on.
According to a recent report published by the Office of Tax Simplification (OTS) on partnership taxation, 10% of UK businesses are now run as partnerships, of which 55% have a turnover of less than £75,000. Partnership taxation is something of a muddle. The OTS notes that it has evolved as a series of add-ons to existing rules, and has become ever more complicated since the introduction of the Limited Liability Partnership (LLP) in 2001. HMRC has a tendancy to regard LLPs as tax avoidance vehicles, and this has spawned several sets of new rules for tackling perceived tax avoidance. Those that impact heavily on small and medium partnerships are:
- changes to the close company loan to participator rules introduced last year
- new measures that include subjecting some LLP members to PAYE
- rules that restrict certain profit and loss sharing arrangements between partners in mixed partnerships and LLPs.
For sure one man's flexible trading vehicle is another man's evil tax avoidance machine, but we need to achieve a balance. The OTS makes a lot of recommendations in its report – one of the most notable is that is unfair to tar all partnerships with the same brush. A simplified tax code for smaller partnerships would be extremely welcome.
Follow the links below for summaries and briefings.
Best wishes
Nichola
Nichola Ross Martin FCA
Tax Director
www.rossmartin.co.uk
Your online Virtual Tax Partner: practical support for accountants, tax advisers and their clients
Freeview: SME tax news round-up
Tax scheme users found negligent
In Bernard Litman Ann Newall v HMRC, two taxpayers incurred penalties for negligence after claiming tax relief on a tax avoidance scheme which lacked commercial reality.
IHT: tax scheme avoids GWR rules
In Buzzoni and others v HMRC the Court of Appeal has held that the gift of an under-lease to a trust, with covenants mirroring those of the head-lease, does not create a “gift with reservation” for Inheritance Tax.
Penalties: reasonable excuse & special circumstances
In Derren Urwin v HMRC the circumstances were that it was impossible for the taxpayer to make a payment without incurring a penalty, this was unfair and so it mitigated the penalty to nil.
Employer Bulletin: Phishing alert
You will have heard about the sites which pretend that they are HMRC and YouGOV, but here we have a phishing alert: the February edition of HMRC's Employer Bulletin has been copied by criminals. If a Bulletin is emailed to you then clicking its links may allow a Trojan virus onto your hard drive.
"De-enveloping" property
A company may wish to de-envelop its property in order to avoid the Annual Tax on Enveloped Dwellings (or for some other reason). It may de-envelop by distributing the property as a capital distribution by a liquidator or by dividend in specie.
Focus on partnerships
Proposed new rules from April 2014:
Partnerships: profit allocations with mixed membership
These are designed to counteract tax advantages where individual partners use the flexible profit or loss sharing arrangements in order to allocate profits to corporate members.
When is a LLP member taxed as an employee?
A new three step test is being introduced to determine whether a LLP member is "salaried member" for tax purposes.
OTS: review of partnerships: interim report
Good background reading; contains first recommendations for the future of partnership taxation.
Rules from April 2013:
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
Can a LLP receive a deduction under the corporate intangibles regime?
In Armajaro Holding Limited v HMRC [2013] TC02960 the company (AHL) acquired the interests of three members of a LLP (AAM). It then tried to claim tax relief under the corporate intangibles regime and HMRC then denied relief.
Our Subscriber Toolbox: recent updates
Overseas
NEW: a whole new area on the site covering the Statutory Residence Test and your FAQs.
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.
Editor's choice
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.
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.
Property profits and losses
Covering all key angles of property taxation
Research & Development Relief
SME guide to R & D reports.
Special relief
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?
Disincorporation Relief
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.
IR35: changes from 2013
From April 2013 under measures introduced in the 2013 Finance Act office holders become within the scope of IR35.
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
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.
Free-view guides
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.
Can I charge my company rent for use of my home?
- 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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