We are back this time with our usual mixture of news, updates and tax cases, and this time we have an Anti-Avoidance Update for our paid subscribers. So scroll on down.
Tax has been so much in the press recently that I won't harp on about Pasties and simplifying tax for pensioners. I was interested to hear that the ICAEW's report to MPs & ministers, condemning as unworkable the Government's plans to means test child benefit was leaked to the press. Perhaps we might expect some changes to the proposal, otherwise the previously insignificant date of 7th January 2013 is set to become a new date in our tax calendar. The only other 7th I can think of is 7th July - that is when Form 42 and share scheme reports are due.
Back next week with updates on the proposal for a new Simplified tax system for small business and IR35 proposals.
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
Essential reading - Freeview
Homeworking rates and allowances
Slight confusion over the rates that an employer may pay an employee to reimburse them for the extra costs of homeworking. HMRC have added a new monthly rate from 2012/13, so you may pay £18 - that's £216 per year. Or, if you pay weekly, £4 per week but that is only £208 per year.
Investigation update
Online auction sites served with disclosure notices
Sites are requested to supply lists of registered users under s18A TMA 1970. The significance is that there is no right of appeal to this type of notice. HMRC got in there just two weeks before the law changed.
E-marketplaces campaign
HMRC's latest campaign targets online traders: notify by 14 June 2012.
Case round-up
CGT PRR relief denied for a second home flip
There is no place like home: an election to flip properties and treat an inherited property as a main residence fails. The second "home" must qualify as a residence even if the election only lasts for a week.
Employee benefits : once a car always a car?
It is that age old question; can a Land Rover stop being a car given that it was constructed as a car? Here we have a modified recovery vehicle. It was argued that it was a goods vehicle and the taxpayer lost. Maybe it should have been argued that it had become a vehicle that was unsuitable for private use?
PAYE regs' avoidance scheme fails
A tax plan depended on the operation of the PAYE regulations to prevent double taxation but the starting point was that the employer was advised not to deduct PAYE on a bonus. Bad move: failure to operate PAYE will lead to penalties for negligence.
Actor allowed deduction for 9 months of accommodation
Renting lodgings near a theatre was wholly and exclusively incurred.
Property letting not a business for CGT
No business asset relief available for ordinary letting confirmed.
Eclipse Film Partners No 35 LLP
A business, but no trade? A film partnership is blocked from claiming loss relief: its activities did not amount to trading.
FREEVIEW tax updates
Travel and tax
Add this link to your Favourites: the index to all our guides and tax tables for employers, directors and the self-employed.
Subscribers latest CPD updates
CGT: Main Residence Relief
UPDATE: all the recent PRR cases with a table of quality of occupation factors
Selling the business: deferred consideration and earn outs
UPDATE: a concise summary of the different combinations and their tax treatment.
Subscribers: anti-avoidance CPD update
Anti-avoidance legislation tends to be both complicated and broadly targeted; it can be very difficult for an SME adviser to gauge what applies to a set of transactions and why. The most notorious example of this occurred in the late 1990s when HMRC started aiming provisions that most people had thought were designed for trusts against family companies paying dividends. That matter was eventually decided in favour of the taxpayer by the House of Lords. I of course refer to the case of Jones v Garnett ("Arctic Systems") this is outlined in the the Settlement Provisions note below).
The Government is intent on introducing a General Anti-Abuse Rule (GAAR) next year, subject to consultation. However, this does not leave a SME adviser any the wiser as to the current position. The following summary is designed to pull together the key "elephant traps" for advisers and their clients. Click on links for more information (paid subscribers only).
The Settlement provisions
Rules are designed to prevent individuals from avoiding tax by artificially diverting their income to other family members in order to take advantage of their unused tax allowances.
Danger signs: the gift of a right to income to a spouse without the transfer of the asset producing that income, or the gift of income to a minor child...More
Transactions in securities
There are different provisions for income tax and corporation tax. For the SME owner/adviser it is the income tax rules that potentially cause the greatest problem. They apply if a transaction involving securities (e.g. shares) results in a tax advantage for the shareholder. Elephant trap: you own two companies and one then purchases your shares in the other one...More
Employment Related Securities
These rules will affect any share award made to an employee, unless part of an approved scheme or EMI option plan so advisers and their clients cannot ignore them. Part 7 of ITEPA 2003 contains rules designed to prevent employers avoiding PAYE by making awards of shares instead of cash to their employees. Elephant trap: starting a company and asking different directors or investors to contribute different amounts for different shares, or simply on just giving away shares to a new director or employee...More
Disguised remuneration rules
Part 7A of ITEPA 2003 is new; it sets out rules designed to tackle situations where remuneration is disguised as loans. Typically where an employer has created an employee benefit trust, passed cash or assets to the trust which then lends them back to an employee or his family via sub-trusts or whatever other type of arrangement. Elephant trap: a loan or benefit to an employee made available via an EBT...More
Sale of occupational income
These anti-avoidance measures apply to the sale of an individual's income from a profession or vocation but not of a trade. They are "trumped" by the Settlement provisions, but will affect situations where the individual's earnings capacity is exploited in return for a capital sum, derivative property or a right of some description. Danger signs: playing around with partnership interests: schemes that divert partners income into forms of capital/tax-free income...More
Transfer of income streams
These measures affect the transfer of an income stream, without the transfer of an underlying asset. They affect trading and other income, but a transfer of an interest in a partnership will not be affected unless there is a tax avoidance motive. Danger signs: as above,; playing around with partnership assets and diverting partners income elsewhere...More
More Tax Guides
Tax-efficient extraction of profits
REWRITE: 2012/13 update of this toolkit for company owners
Capital reduction: distributing capital reserves
UPDATE: how to guide
Capital reduction: tax treatment
UPDATE: whether transactions fall to be taxed as income or capital
Directors' loan accounts: toolkit
HM Revenue & Customs (HMRC) do a toolkit for advisers but this is our version that includes planning points
Especially for subscribers (pay to view)
Directors: tax planning toolkit 2012/13
NEW: key guidance with essential planning points and pitfalls
Will I pay less tax if I trade via an LLP?
UPDATE: does flexibility outweigh tax savings, now that corporation tax rates are down?
ABC or alphabet shares: family companies
UPDATE: this guide examines the tax consequences of creating new share classes in a family company in order to split income with a spouse or close family members
Accommodation costs (self-employed)
NEW: a mini-guide with a case comparison of when tax relief can be obtained on a flat rental
Subsistence (self-employed)
UPDATE: forget all you learned about "duality of purpose" s57A ITTOIA 2005 provides tax relief for the cost of food. The difficult part is working out just who qualifies.
Living expenses (self-employed)
UPDATE: mini-guide with essential case law.
Recent updates
PAYE late payment penalties buster
UPDATE: essential tips and planning points.
Tax penalties: grounds for appeal
UPDATE: new cases added
Property letting: CGT and IHT issues
NEW: a refresher illustrating the limitations of business asset reliefs and let property.
Surplus cash CGT & IHT relief and Striking Off
UPDATE: companies: check that changes in trading activities do not compromise business asset tax relief.
Do I pay a salary or dividend?
UPDATE: falling marginal rates of corporation tax will tip the balance for many more companies from 2012/13.
Salary 2012/13 (avoiding NICs)
UPDATE: these tables show the salary levels to pay to secure basic benefits and avoid National Insurance charges.
Tax planning for income at marginal tax rates
Changes to Child Benefit and the claw back of personal allowances have created extra tax cliff-edges.
Editor's choice
Finance Bill 2012: tax tracker
UPDATE: our unique tracker provides essential CPD for all subscribers. We keep a rolling summary of all the key tax measures introduced and also track key HMRC changes affecting SMEs and their owners from 2010/11 to 2012/13.
Dividends: index
Worried about formalities or the consequences of an unlawful dividend, start here.
How to check your 2012/13 PAYE Code
New guidance from the Low Income Tax Reform Group.
ABC or Alphabet shares: employees
What are the tax and NICs consequences of issuing different classes of shares?
Travel (self-employed)
A complete rewrite comparing and contrasting recent FTT decisions.
Enterprise Management Incentives (EMIs)
Get planning now. New limits for 2012/13 and from 2013/14 options may qualify for Entrepreneurs' Relief.
Company cars
UPDATE: changes to fuel benefit charges from April 2012 and lowering of emissions rates for capital allowances.
CGT Capital Gains Tax rates & allowances
UPDATE: following Budget announcements
Technical support
Stuck on a technical query?
Want a second opinion, or assistance in drafting a response. Have you tried our Virtual Tax Partner support service?...More
Don't forget
Directors' NICs and payrolls
Check your payroll is calculating correctly before you year-end.
Advisory fuel rates (company car drivers)
New rates for diesel drivers from 1 March 2012.
Tax Credits: urgent action required
HMRC is removing families from tax credits before 2011/12 figures are in. As the backdating rules are changing this could lead to a loss of benefits.
Subsistence (self-employed)
A rewrite and update.
Capital allowances case: plant or buildings?
If you missed this last time, look again: have your clients claimed capital allowances on all they should?
New year tax planning
Property profits & losses: toolkit
Property - (PAID subscribers)
Associated companies checklist (new rules)
Companies - (PAID subscribers)
AIA: rules where there is a change of rate
If a business has a year-end other than 31 March 2013.
All about employees
Employee homeworking allowance rises in 2012/13
Those generous folk at HMRC have increased the rate.
Tax-free benefits in kind and perks
UPDATE: a quick guide.
Pensions: carry forward of unused allowances
The mechanics of the carry-forward of deemed allowances from 2008/09.
Collecting Tax Debts through PAYE
From April 2012 debts of up to £2,999 will be added to tax codes.
When a dividend is subject to NICs (Part 3)
A contrived bonus scheme is taxed as employment earnings (taxpayer has appealed to Supreme Court).
Use of home for business purposes
Tax treat mini guide for your staff.
Plug in car and van grants
NEW: the fleet vehicle of the future?
More Subscribers' Guides
Don't miss:
Capital expenditure allowances - signpost
Quick guide to alternative allowances to plant and machinery capital allowances.
Fixtures: overview
Confused about late claims for Fixtures and changes in 2012? Start here.
Disappearing tax reliefs
UPDATE: tax reliefs and changes that will affect your clients in the next 12 months.
Legal or unlawful dividends: Companies Act 2006
A mini-guide.
More FREEVIEW
Tax planning for directors
Index to guides and updates
Retirement: a purchase of own shares
A menu and summary
VAT
Toolkits, practical guides, current reclaim opportunities and updates
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