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NEWSLETTER NOVEMBER 2013

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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.

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:

  • Are at least 80% of the assets used for the purposes of a trade?
  • Is more than 80% of turnover derived from trading activities?
  • 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:

  • Certificate A: a declaration that they have no outstanding UK tax liabilities (either in relation to the Swiss accounts or other sources).
  • Certificate B: a declaration that they will be disclosing any outstanding liabilities using the Liechtenstein Disclosure Facility (LDF), or
  • 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.