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Category Archives: Limited Company
What if I give my shares away?
There is a common mis-conception that if you give something away it doesn’t have any tax implications, unfortunately, that isn’t the case.
When you give away shares you usually work out your gain or loss as if you’ve sold the shares at market value. The market value is the price you would expect to receive if you sold them on the open market. This also applies if you sell them for less than their full value.
There are some exceptions:
- if you can claim Gift Hold-Over Relief
- if you give the shares to your husband, wife or civil partner
- if you give shares to a registered charity
To qualify for Gift Hold-Over Relief, the shares must be in a trading company, or the holding company of a trading group, and one of the following must apply:
- the shares aren’t listed on a recognised stock exchange
- you’ve at least 5 per cent of the voting rights in the company
You don’t pay Capital Gains Tax when you give (or otherwise dispose of) shares, to your husband, wife or civil partner, providing both of the following apply:
- you’ve lived together for any part of the tax year in which you made the gift
- the gift isn’t ‘trading stock’ (trading goods bought for resale)
You won’t have to pay Capital Gains Tax on a gift of shares to a registered UK charity.
HMRC have further details and a Help Sheet 295 containing further details.
You can ask HMRC to check your market valuation by submitting Form CG34 it will take at least 2 months.
Settlements Legislation S624/S660
If you think moving shares in your company between yourself and your spouse sounds like a great way to save tax, think again!
Since the 1930’s we have had Settlements Legislation which prevents you from giving income or assets to someone else in your family in order to pay less tax.
Where the anti-avoidance Settlements legislation applies, all income transferred by a settlement is treated as that of the settlor.
steve@bicknells.net
Company Filing Requirements Consultation
Red Tape Challenge.
As part of the UK Government’s intention to make regulations more relevant to the world we live in there is a consultation on the filing requirements for UK companies. The pdf document can be downloaded from the gov.uk website. Included in the consultation are suggestions to reduce the burden of form-filling for small businesses including scrapping the annual return and reducing the need to hold duplicate information at your registered office and Companies House.
The consultation document goes into great detail on the costs and benefits of each change being proposed. The cost saving to companies in not having to complete the annual return is assessed at £1.60, but this ignores any fines incurred by people who have missed their deadlines for filing.
Have your say.
The last consultation from Companies House only received a few hundred responses (according to my source) so if you have strong feelings on bureaucracy imposed on you, your response will have some impact. If you are uncertain of your filing requirements you can ask an accountant who will be able to advise on anything you need to do.
Checking the record.
If you are company you can check your details on the Companies House website, or at the following link replacing the last eight characters with your own company registration:
http://data.companieshouse.gov.uk/doc/company/SC433814
If your company registration has fewer than eight characters add leading zeros to make it the correct length. Of course you don’t have to limit yourself to checking your own details – whenever you are considering a new customer or supplier who is a limited company / limited liability partnership etc. it is a good idea to check their entry on the companies house register to get more information on them including names of directors.
Useful links
| Companies House WebCHeck | http://wck2.companieshouse.gov.uk//wcframe?name=accessCompanyInfo |
| Red Tape Challenge | http://www.redtapechallenge.cabinetoffice.gov.uk/home/index/ |
| GOV.UK public consultations | https://www.gov.uk/government/publications?publication_filter_option=consultations |
Employer v’s Employee Pension Payments (Net Relevant Earnings)
Currently the maximum pension payments allowed per year are £50,000 this for Employee and Employer payments, however, if your net relevant earnings (NRE) are below £50,000 your personal payments will be capped at the higher of your employment income or £3,600. (Carry Forward may be available)
NRE excludes Dividends and if your personal pension payments exceed the NRE then you will need to declare the over payment on your self assessment return and pay tax on it.
This can be a big issue for company directors-shareholders who often take a large part of their income in dividends.
The solution to this is for the company to make employer contributions. Employer contributions count towards the £50,000 limit but are ignored for the NRE cap.
The attached link is useful article on this subject
steve@bicknells.net
Tax Advantages of a Classic Car
A classic car is one where:
- the age of the car at the end of the year of assessment is 15 years or more and
- the market value of the car for the year is £15,000
I found a 1968 Jaguar MkII for sale for £15,000 on
http://www.classiccarsforsale.co.uk/classic-car-page/165880/1968-jaguar-mkii/
The Mark 2 gained a reputation as a capable car among criminals and law enforcement alike; the 3.8 Litre model being particularly fast with its 220 bhp (164 kW) engine driving the car from 0-60 mph (97 km/h) in 8.5 seconds and to a top speed of 125 mph (201 km/h) with enough room for five adults. Popular as getaway cars, they were also employed by the Police to patrol British motorways.
The Mark 2 is also well known as the car driven by fictional TV detective Inspector Morse played by John Thaw
http://en.wikipedia.org/wiki/Jaguar_Mark_2
Assuming the list price was £2,000 (I can’t find the actual list price), the taxable benefit in kind would be £2,000 x 35% (maximum)x 40% (higher rate tax) = £280
As long as the Market Value is below £15,000 these rules apply above £15,000 the market value is used for the calculation, you can pay for your private fuel to avoid the tax on that.
steve@bicknells.net
Associates don’t have to be taxing
The small companies rate of Corporation Tax is 20% compared to main rate of 23% (2013/14). The small company rate is applied if your profits are below £300k, however, if you have associate companies, the £300k is spread between them equally.
For the purposes of CTA10/S25 (4), formerly ICTA88/S13 (4), a company is an associated company of another at a given time if at that time:
- one of the companies has control of the other, or
- both of the companies are under the control of the same person or persons
http://www.hmrc.gov.uk/manuals/ctmanual/CTM03710.htm
But what some businesses forget is that if you have a subsidiary that has become dormant it stops being associated
an associated company which has not carried on any trade or business at any time during the accounting period is disregarded – if it is an associated company for part only of the accounting period, the rule applies to any time during that part.
http://www.hmrc.gov.uk/manuals/ctmanual/ctm03580.htm
steve@bicknells.net
Related Parties and Conflicts of Interest – Directors Responsibilities
The disclosure requirements for Related Party Transactions in published accounts are a common cause of confusion, on the face of it, its sounds easy but getting it right is often a balance between compliance and relevance. The rules are set out in the Companies Act 2006, FRS8 and for smaller companies FRSSE (April 2008). The rules apply to both Full and Abbreviated Accounts.
- FRS 8 defines a related party to include an entity’s subsidiaries, associates, joint venture interests, directors and close family members of directors.
- The standard requires an entity’s transactions with related parties, regardless of whether a price is charged, to be disclosed in that entity’s financial statements.
FRS 8 section 3 and FRSSE section 15.7 states that disclosure of the following is not required:
- Pension contributions paid to a pension fund
- Emoluments in respect of services as an employee or the reporting entity
- Transactions with parties simply because of their role as:
- Providers of Finance
- Utility Companies
- Government Departments
- Customer, Supplier, Franchiser, Distributor or Agent
The disclosure under FRS8 and FRSSE should include:
(a) the names of the transacting related parties
(b) a description of the relationship between the parties
(c) a description of the transactions
(d) the amounts involved
(e) any other elements of the transactions necessary for an understanding of the financial statements
(f) the amounts due to or from related parties at the balance sheet date and provisions for doubtful debts due from such parties at that date
(g) amounts written off in the period in respect of debts due to or from related parties.
Dividends to directors do meet the definition of related party transactions and are disclosable as such.
Trival items don’t require disclosure and the principle of materiality should be applied.
An item of information is material to the financial statements if its misstatement or omission might reasonably be expected to
influence the economic decisions of users of those financial statements, including their assessments of management’s stewardship.
The Companies Act 2006 places a statutory duty on directors in relation to potential conflicts of interest:
A director must “avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company”.
Related Party Transactions will often create a potential conflict of interest.
Authorisation may be given by the directors—
(a)where the company is a private company and nothing in the company’s constitution invalidates such authorisation, by the matter being proposed to and authorised by the directors; or
(b)where the company is a public company and its constitution includes provision enabling the directors to authorise the matter, by the matter being proposed to and authorised by them in accordance with the constitution.
The authorisation is effective only if—
(a)any requirement as to the quorum at the meeting at which the matter is considered is met without counting the director in question or any other interested director, and
(b)the matter was agreed to without their voting or would have been agreed to if their votes had not been counted.
So it is vital that Directors disclose any potential conflict of interest and seek authorisation from the Board of Directors.
steve@bicknells.net
Salary Sacrifice was “clarified” in April, does your scheme comply?
Salary Sacrifice is a very tax efficient way to give your employees benefits and the most popular benefits are Pensions and Childcare. I wrote a blog back in 2011 which explained how it can save 45.8% in tax and NI
HMRC decided on 9th April 2013 that it was time to “clarify” in their Manuals what are successful and unsuccessful salary sacrifice schemes and have added some further guidance. Their Staff are instructed not to approve schemes (Employment Income Manual EIM42772)….
You (HMRC) may get requests for advice:
- on how to set up a salary sacrifice arrangement, or
- on whether draft documentation will achieve a successful salary sacrifice.
You (HMRC) should not comment on either of these areas. Salary sacrifice is a matter of employment law, not tax law. The nature of an employee’s contract of employment is a matter for the employer and employee.
The specific updates are:
EIM42750 – Salary Sacrifice – updated – this contains the examples of schemes
EIM42777 – Contractual arrangements – this has interesting comments on childcare and pensions
- If the scheme involves childcare or childcare vouchers then the conditions for exemption must be met. (See EIM21905 and EIM16057). Is the agreement to provide childcare between the employee and the childminder or nursery. If so the employer by paying the cost directly is meeting the employee’s personal liability. (See EIM00580).
- For a registered pension scheme the amount which can be contributed to the scheme is normally linked to the employee’s chargeable earnings. In consequence if the salary sacrifice results in some of the employee’s income no longer being taxable, then the amount of contribution, which can be made to the scheme, will also drop.
EIM42778 – Exemption from Tax/NIC – basically stating that exemption may require that the sacrifice may be available to all employees but that the sacrifice must not reduce the employees wages below National Minimum Wages
The following is an example of an unsuccessful Childcare Salary Sacrifice:
The pay slip for the month ended 31 July 2006 gives monthly pay as £2000 plus overtime of £100, deductions for tax of £355 and NIC. The pay slip for the following month shows monthly pay of £2000 plus overtime of £100, deductions for NIC, childcare vouchers of £200 and tax of £310. The code number operated on the salary has not changed.
The situation is not clear from the payslip. When asked, the employer explains that for August, because childcare vouchers of £55 a week are exempt, £220 of vouchers has been deducted from the gross pay of £2100 and tax charged on the net figure of £1880. Further information is needed, for example a copy of the employment contract and any variations agreed by the employer and employee to that contract.
It is established that in July the employee bought childcare vouchers. The employer was not involved. The employer accepts that as the childcare in July was not provided by him, no tax exemption is available. In August the employee asked the employer to buy the childcare vouchers to take advantage of the exemption. The employer did this and deducted the cost from the monthly salary. The contract of employment shows that the employee is entitled to a base salary of £24000 to be paid monthly. This contract has not been varied. As the employee’s entitlement has remained the same, this is not a successful sacrifice. (See EIM42766).
If you operate salary sacrifice schemes its worth checking that your schemes comply, the tax consequences of failure to comply could be substantial.
steve@bicknells.net
Why have multiple classes of shares?
Businesses tend to start off just having ordinary shares with full voting and dividend rights, however, there are lots of good reasons why you might create multiple share classes:
1. To reward the owners based on their contribution – for example say one owner worked full time and the other only part time – they may want dividends to be based on their efforts whilst still retaining their original voting rights
2. To offer non voting shares to employees
3. Convertable or Redeemable shares might be offered to an investor
4. Preference Shares might have a fixed dividend
Dividends are very tax efficient so its great way to reward the owners for the risk of running a business.
Always seek professional advice before making changes to check for capital gains, settlement and other tax and legal issues, better safe than sorry.
Then before creating additional share classes check your articles of association and change them if necessary, then you will need a resolution to create new share classes, fill the appropriate forms at Companies House and then you are ready to go.
steve@bicknells.net
What steps do you need to follow to form a company?
Years ago you would go to a formation agent and buy an off the shelf company and re-name it but now its much easy to create a company from scratch using a formation agent. There are many agents out there, but you could use http://www.company-wizard.co.uk where you can form a company from £16.99 or you can do it direct with Companies House.
You will need to know:
- The company name (that hasn’t already been used and isn’t restricted)
- The names, addresses and dates of birth for directors and shareholders
- Registered office address
- You will also need to security information for the directors and shareholders (eye colour, mothers maiden name, place of birth)
The company will often be formed within a day, once you know the company registration number you can open a bank account. To do this you will normally need to visit your bank and show them two forms of ID.
HMRC will send form CT41G to the registered company address.
The CT41G form is issued to newly registered companies. This form includes your company’s Unique Taxpayer Reference .You will need it to contact HMRC. It also tells you what you need to do if your company has become ‘active’ and suggests other tax implications your company may need to consider.
HMRC will also ask if you want to appoint an agent (accountant) and this is done with form 64-8.
To register for PAYE you will need to know:
- name, business name, partner’s name, company name (as appropriate)
- business or home address, including postcode (as appropriate)
- business or home telephone number
- a contact email address
- a contact telephone number
- a name and address to send correspondence to
- the date of your first payday or, if earlier, the first date you made payments of expenses and/or provided benefits to your employees
http://www.hmrc.gov.uk/payerti/getting-started/register.htm
Follow this link if you need to register for the Construction Industry Scheme http://search2.hmrc.gov.uk/kb5/hmrc/contactus/view.page?record=039zI-xtZZw
VAT registration is done on line http://www.hmrc.gov.uk/
steve@bicknells.net
What is a Pool Car? can you reclaim VAT? will it be tax free to drive?
Pool cars must meet the following conditions:
- used by more than one employee
- not ordinarily used by one employee to the exclusion of others
- not normally kept at or near employees’ homes
- used only for business journeys – private use is only permitted if it is merely incidental to a business journey (for example, commuting home with the car to allow an early start to a business journey the next morning)
Provided all these conditions are met, you have:
- no reporting requirements
- no tax or NICs to pay
To back this up it would be worth having:
- A written ‘no private use policy’
- Business Only insurance
- A mileage log to show that there’s no private mileage
When you buy a car you generally can’t reclaim the VAT. There are some exceptions – for example, when the car is used mainly as one of the following:
- a taxi
- for driving instruction
- for self-drive hire
If you lease a car for business purposes you’ll normally be able to reclaim 50 per cent of the VAT you pay. But you can reclaim 100 per cent of the VAT if the car is used as one of the following:
- exclusively for a business purpose
- a taxi, for driving instruction or self-drive hire
http://www.hmrc.gov.uk/vat/managing/reclaiming/motoring.htm
The following are VAT cases relating to Pool Cars and support the reclaiming of VAT Input Tax:
Masterguard Security Services Ltd VTD 18631
A business provided cars to the security guards that it employed. It was allowed to recover input tax on the cars because it banned the employees from using the cars for private use. It was able to show that all the employees had their own cars which they used privately.
Peter Jackson Jewellers Ltd VTD 19474
A company that had four shops bought a car. The tribunal allowed input tax to be recovered on the car. The company had evidence to show that the car was used to transport stock and that private use of the car was prohibited.
http://www.hmrc.gov.uk/manuals/vitmanual/VIT64690.htm
What counts as private use?
Private use that is not merely incidental to business use should in practice be ignored in deciding whether the vehicle comes under the protection of either Section 167 ITEPA 2003 (cars) or Section 168 ITEPA 2003 (vans) where such private use is:
- small in extent and infrequent and
- consists of either or both of:
-
- use limited to meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds
- use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit.
Small in extent and infrequent will generally be not more than 5% of the vehicle’s annual mileage on occasions that are neither regular nor protracted.
Use meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds covers the kind of case where an employee is taken ill at work, or learns at work that a member of his or her family has been involved in an accident. It does not apply where an employee’s normal vehicle breaks down and the pool vehicle is used as a substitute.
Use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit might apply in a number of different situations. One example would be the use of a pool vehicle to take employee-provided equipment, such as a table tennis table, to an employer-provided sports facility. (Subject to various conditions, employer provided recreational facilities do not give rise to a tax charge.)
http://www.hmrc.gov.uk/manuals/eimanual/eim23460.htm
Type of Car
You could have any car as a Pool Car and some businesses might decide to have a luxury car as the Pool Car befitting of the company image, but makesure you can prove that it hasn’t had more the a small (5%) amount of private use (as noted above).
So you could have a personally owned car to get to and from the office and then use the Company Pool Car during business hours.
Change of Use
If the car stops being a Pool Car and gets allocated to an employee you will need to do a self-supply charge for VAT at the time of change. Basically this means you account for the VAT on the ‘current value’ of the car at the time of change.
VAT Act 1994 Section 56 (9) – Fuel rules
(9)In any prescribed accounting period a vehicle shall not be regarded as allocated to an individual by reason of his employment if—
(a)in that period it was made available to, and actually used by, more than one of the employees of one or more employers and, in the case of each of them, it was made available to him by reason of his employment but was not in that period ordinarily used by any one of them to the exclusion of the others; and
(b)in the case of each of the employees, any private use of the vehicle made by him in that period was merely incidental to his other use of it in that period; and
(c)it was in that period not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the vehicle available to them.
steve@bicknells.net
Business Accountant 