If your share value falls, so could your tax bill
Did you know that in the case of Mr Brown v HMRC Mr Brown was able to claim a tax deduction for the loss in his share value without having to sell his shares? Its true, its known as a NegligibleValue Claim and HMRC have Help Sheet on it (286).
A negligible value claim enables you to set a capital loss against your income (or against other capital gains if you have them) for earlier years and claim a tax refund.
Many negligible value claims are made by shareholder directors whose company has failed. Their claim is to offset the loss on the shares in their company against their directors’ wages for earlier tax years.
When a taxpayer owns shares which become of negligible value the taxpayer may make a claim under s24 TCGA 1992, resulting in a deemed disposal and reacquisition, which crystallises a capital loss.
steve@bicknells.net
The most tax efficient way for a contractor to close their business
Consultants who work as contractors often build up funds their limited companies, they do this as a safe guard because being a contractor, there can be gaps between contracts and they will need cash to carry themselves through to the next contract.
But what if they decide to retire or they get offered their dream job as an employee, they may have lots of assets and cash in their company, perhaps more that £25,000.
They might even find that their main client insists they become employees for example
Some of the BBC’s biggest freelance stars could be asked to join the payroll or leave the corporation, as a new test aims to clear up tax issues.
It is part of a clampdown on the use of personal service companies (PSCs) and a move to tax more freelancers at source.
How could they close the company and use Entrepreneurs Tax Relief to pay 10% tax?
- The Insolvency Practitioner will ask the Contractor’s Accountant to confirm that the clients tax affairs are inorder and that appropriate advice has been given
- Final Accounts will need to be prepared and creditors paid
- A Declaration of Insolvency will be signed – The declaration of insolvency demonstrates that the company will be able to settle or secure liabilities and the costs of liquidation within 12 months
- A meeting of Shareholders will appoint the Insolvency Practitioner
- Notices will be posted at Companies House and in the London Gazzette
- Then the MVL can be a carried out and funds distributed
- Arrangements can be put in place to allow the directors access to funds during the process
Ovivo – Dead as a dodo
I guess the moral of this story might be – if it looks too good to be true, it probably is…
Is it a dodo?
The ovivo logo looks like bird resisting the weight of a great rhinoceros. If you have recently signed up for a free subscription to the mobile phone company ovivo, you may be surprised to learn that the company has ceased trading. Their home page now contains a form to get your PAC code but who knows if they will be able to deal with all the requests?
Glimmer of hope
You may be able to get a refund from your debit or credit card if you signed up in the last few days under the Chargeback scheme. There is an article on the Money Saving Expert site including a template for a letter to send your bank. Giffgaff is offering £5 of credit to anyone transferring their number from ovivo, but the deadline for transferring your number is the end of April – and there is no guarantee that ovivo will release the PAC code in time.
For business support and advice contact Alterledger or visit the website alterledger.com.
Related articles
4 business models where customers fund your business
Finding ways to fund your business can be a challenge so hear are some business models where your customers provide the funding.
Subscribers
This can apply to many situations ranging from Networking and Memberships to Sky TV or Microsoft Office 365, get your clients hooked on paying a monthly or periodic payments and it should work wonders for your cash flow.
High Demand
Any product in short supply creates a situation where clients are prepared to pay now in order not to miss out, here is an example:
Microsoft unveils its new Xbox One console Friday, one week after the release of the rival PlayStation 4.
Microsoft says the supply of the new $499 consoles is its biggest ever. But with record pre-orders — more than double those of the Xbox 360 back in November 2005 — the consoles may be hard to find.
November 2013
Pay In Advance
Often used in the home improvement market for example conservatories, kitchens, bathrooms, getting customers to pay a deposit or in some cases all the money upfront (or on finance) puts you in the best possible position especially if you can set up accounts to pay your suppliers on 30 or 60 days.
Market Place
Getting paid to bring people together is a great business model think of ebay, dating sites, or any on line market place where the owner gets paid when a deal is done.
How do you fund your business?
steve@bicknells.net
2014 Budget : Summary Points and Comments
I am pleased to present you with the main points from yesterday’s budget.
1). Employer’s will be given a refund on the first £2,000 of national insurance they pay.
Comment: This is a real help because it will take £2k off the payroll bill for existing small employers with less than 250 employees, and removes the most common reason that why hear as to why clients are reluctant to take on their first employee.
In summary you could take on:
• one £22k employee, save the £2k NI and reduce your corporation tax bill by £4,400
• four trainees on minimum wage, save the £2k NI and reduce your corporation tax bill by £9,700
2). Single rate of 20% corporation tax for the first time since 1973.
Comment: Clients who trade as a limited company with the owners on the payroll continue to pay significantly less corporation tax than the income tax that would otherwise be due by the same business operating as a sole trader.
The difference for a business with an income of £30k is a £1,961 reduction to their 2014-15 tax bill.
3). The rate at which people start paying income tax rises to £10,500 from April 2015 (the allowance was already increased to £10,000 from next month in last year’s budget)
Comment: When the government came to power the starting rate for tax in 2010-11 was £6,475. This move has done much to not only take a whole bracket of people out of tax completely, and also reduces the amount those who do pay tax by £805 per year.
4). The point at which higher rate (40%) tax applies is increased to £41,865 from next month and £42,285 from April next year.
Comment Clients who are high rate earners will see a modest £83 reduction to their tax bill this year and £167 next year. For those clients who operate as a limited company the extra tax free dividend they can take will result in an additional tax saving or £188 per year.
5). The Help to Buy scheme where the government offers a 20% deposit to a first time buyer purchasing a new house costing less than £600k, will continue until 2020.
The purchaser is asked to raise a 5% deposit with the government providing a 20% loan which is interest free for the first 5 years, with the option to defer repaying it until the owner sells.
Comment: We have more clients in the construction industry than all the other sectors combined so this is clearly welcome news for them as well as the bigger firms where shares in Persimmon rose by 6% following the announcement, and those in Bovis and Taylor Wimpey by 4% and 3.4% respectively.
6). Inheritance tax will be scrapped for members of the emergency services
Comment: Useful if your estate is worth more than £325,000
7). Cash and Stock / Shares ISA’s to be merged from July with a new tax free allowance of £15,000 per year (currently £5,760 for a cash ISA).
Comment: While this is welcome news for savers the interest rates on ISA’s remain so low (1.5% for instant access / 2.5% for fixed three year deals) that it is only worth putting significant money into them if you have already paid off your mortgage where the equivalent interest savings are considerably greater.
8). A new saving scheme exclusively for those over 65 (The Pensioners Bond) will be introduced with interest rates of 2.8% for instant access & 4% if fixing for three years.
9). Tax breaks on businesses investing in capital items will be increased from £250k to £500k.
Comment: This costs the government £2bn so it is right that it is a significant measure in encouraging our clients to invest in their business for the future. Capital items can include new plant, machinery, equipment, premises renovations, commercial vehicles and cars with a CO2 rating of under 95g/km.
10). The current 10% income tax band on savings income up to £2,790 will be replaced with a new tax free limit of £5,000.
Comment: We fail to see how this provides any help to savers because if you have any other income then you lose the entitlement to claim reduced income tax on your savings income. The only positive is that in the rare instance where the saver has no other income (?) they can now apply to their bank to receive the interest without the usual 20% deduction of tax, therefore saving them the need to file a tax return.
11). Small Business Rate Relief has been extended to April 2018; under the scheme small businesses with a rateable value of £6,000 or less can get 100% relief, the relief is scaled down to zero on rateable values of £12,000 and there is a lower multiplier on rates between £12,001 and £17,999.
Comment: this is a welcome help for clients with their own business premises and those thinking of taking the step up.
12). Pensions Reform
At the moment, anyone who saves a decent sum into a defined contribution pension (one where your pension depends on how much your savings are worth) can cash in 25% of the fund value from the age of 55 but then usually has to buy an annuity with the remaining 75% lump sum when they come to actually retire. An annuity is effectively a bond which provides a retirement income for the rest of your life.
Mr Osborne announced a plan for a new law that will get rid of the requirement to buy an annuity entirely. Instead, people will be able to take the lump sum as cash and organise their own spending.
It is important to note that anyone who already receives an annuity will not be able to change that existing arrangement under these planned new rules. Also people who are in defined benefit or final salary pension schemes will not see any change.
Comment: For individuals with modest pension funds these new rules create a new way of accessing their money in full when they retire. But since the proposal is to levy income tax on the value of any lump sum you take this would mean anything you receive during a single year that is in excess of £41,865 would be subject to 40% tax…. For this reason some spreading out of the draw down to utilise your annual basic rate allowances will still be required, and it may well be that this is best achieved through the use of an annuity still.
13). Parents paying 80% of childcare costs of up to £10,000 per child, aged up to 12, to a registered provider will get the remaining 20% from the government tax-free from September 2015.
Comment: The government is hoping that this will go some way to appeasing those earning more than £50k per year who lost their entitlement to state child benefit last year.
Jonathan Brothers
Managing Partner
Switch Accounting Ltd
Charity or Charitable Incorporated Organisation?
The Charitable Incorporated Organisation was created by the Charities Act 2006. It is similar to a company limited by guarantee (the form of organisation frequently used by charities) in that it affords the protection of limited liability and is a legal entity in its own right, but is differentiated from them in requiring only to be registered with the Charity Commission and not also with Companies House. This avoids dual filing.
The Charities Commission is working to an implementation timetable with the Cabinet Office and applications are being accepted depending on the turnover of the organisation. However, currently a charitable company cannot convert to a CIO. However, it is hoped that legislation will enable this in the near future.
So what are the pros & cons?
Pros
The most obvious advantages are:
- Limited liability, so that normally the trustees and members will be protected from personal liability.
- Separate legal personality, so that the CIO becomes the other party to any contract.
- The CIO can have vested in it any permanent endowment held by an unincorporated charity. This can be done by a simple vesting declaration.
- The CIO’s annual return and accounts need only be filed with the Charities Commission
- Two simple model constitutions have been developed for CIOs: (1)the foundation model, where the only voting members will also be the trustees; (2) the association model, where the charity will have a wider membership of voting members other than the trustees.The former will be akin to an incorporated charitable trust; the latter akin to a company limited by guarantee.
- The CIO must be incorporated using one of the simple forms of constitution published by the CC (or as near to those forms as circumstances allow). It should therefore be relatively inexpensive and easy to register a CIO electronically using the CC’s website. Provided there is no conflict with the constitution, it can also make its own Rules and Bye-Laws.
Cons
However, there are some important disadvantages to be borne in mind before deciding whether to opt for this structure.
- An exempt charity cannot be or become a CIO, because all CIOs must register with the CC.
- A charity with an annual income of less that £5,000 does not have to register with the CC at all, but every CIO, irrespective of its income must register (subject to the implementation plan referred to above).
- Unlike Companies House, the CC is not operating a searchable register of charges. Although a CIO can register a mortgage on land at the Land Registry, there will be no register of any debentures issued by CIOs. Banks often require such forms of security for lending to limited liability organisations, and in the absence of a register of such charges for CIOs, it remains to be seen whether they will be willing to make advances to a CIO.
- Correspondingly it is unlikely, when the conversion becomes possible, that a company limited by guarantee which is considering converting to a CIO would be allowed to do so by any bank or other lending institution to which it had issued a debenture by way of security.
Conclusions
- If an existing charity is essentially a grant making charity, making grants from the income derived from its endowments, there is unlikely to be any major advantage in becoming a CIO.
- If any existing unincorporated charity is, however, providing services to the community – such as a school, or care home – then the CIO would be an advantageous way of securing limited liability for the charity trustees, and for the members, particularly since the form of incorporation documents is simple, and returns and accounts need be filed only with the CC.
- However, if the service providing charity is likely to need to issue debentures over its fixed and floating assets as a condition of receiving bank finance to fund its operations, the lack of any register for such instruments is likely to make the proposition unattractive to such a lender.
- The only advantage to a charitable company limited by guarantee (which has not borrowed monies against such security) in converting to a CIO (when the implementation plan permits) would be the marginal accounting and filing costs of filing returns and accounts only with the CC.
Acknowledgment: Charles Russell LLP
Tax free mobile phones
You are allowed to provide your employees with one tax free mobile phone each. But you have to do it the right way otherwise it could cost you and your employee tax and national insurance.
The tax free mobile phone
- The contract must be between the employer and the mobile phone company.
- There are no reporting requirements
- There is no tax or NI to pay
- Tablets are not included but smartphones are.
Employee’s own phone – employer pays supplier direct
- The contract is between the employee and the phone company
- You have to report on a P11D
- Add the value of the benefit to earnings through the payroll
- Employer pays class 1 NI
- Employee pays NI, but no tax
- No NI is payable if it was acquired for business use only but still have to report
Employee’s own phone – employer reimburses monthly contract
- The contract is between the employee and the phone company
- You reimburse the monthly tariff so this is just earnings.
- Employer pays NI
- Employee pays NI and tax.
Employee’s own phone – pay as you go
- You only reimburse identified business calls
- You must report on a P11D unless you have a dispensation or the employee earns less than £8,500
- There is no tax or NI to pay.
Less restrictions on company names – would you like a new name?
Choosing a company name got a little easier as a result of changes in October 2013….
Measures to cut the list of ‘sensitive’ names that startup businesses must get approval for, prior to setting up, were announced by Business Minister Jo Swinson back in October.
Businesses that want to use words such as ‘Authority’, ‘Board’, ‘European’, ‘Group’, ‘International’ and ‘National’ will no longer have to get prior approval from Companies House, or a specified body. The same also applies to their Welsh and Gaelic equivalents. This red tape cutting exercise will result in a quicker process for companies wishing to use a ‘sensitive’ word or expression in their registered name.
The words and expressions to be retained are those which, when misused, are likely to cause confusion as to what the business actually does or has the legal authority to do. These words, amongst others, include ‘Accredited’, ‘Bank’, ‘Chamber of’, ‘Charity’, ‘Institute’, ‘Government’, and ‘University.’ The word ‘Sheffield’ is to be retained on the list after responses to the consultation showed support to keep it. The same applies to national words such as ‘English’, ‘Scottish, ‘Northern Irish’, ‘Welsh’ and ‘Cymru.’
Would you like to use a previously restricted name?
steve@bicknells.net
Do you need more than 24 hours in the day? Well here’s how….
Do you frequently feel like there are just not enough hours in the day to get everything done? Do you get overwhelmed, can’t see the “wood for the trees” and end up not achieving anything, then read on you are not alone.
Here are some tips If you need to free up more time
Plan –decide what is most important task and then do that first.
Review each task and ask yourself “will this move me closer towards achieving my goals?” If the answer is no, do that later, after the tasks that will.
Remember the 80:20 rule…i.e. that 20% of your efforts usually generates 80% of the results. Make sure you concentrate on the 20%.
Draw up a “To Do” list every day, preferably the night before so you are productive from the word go.
Delegate if possible or outsource, be honest, how much of your time is spent doing work you are over skilled for? Multiply the time by how much you are worth per hour, this will tell you how much you are wasting by being ineffective at delegating, if you can get if done for less delegate or outsource.
Lead by example, encourage your team to delegate
Make meetings more effective, use techniques like standing up (where appropriate), holding them at close of business, circulating an agenda before hand and agreeing actions before leaving.
Work out your “prime time” reserve this time for your most important income generating tasks and don’t allow people to disturb you.
Don’t procrastinate – just do it!
Have a note pad with you at all times, for when you need to capture great ideas or things “not to forget to do” as these things crop up at the least convenient times.
Kim
Will Trading Standards be able to end Government “Copycat” websites
HMRC had a number of copycats trying to offer self assessment returns, here is an extract from the Tax Agents Blog in January…
With the 31 January deadline for filing SA returns fast approaching, the media has been asking us for our view on ‘copycat websites’, where companies offer to file returns for customers in return for large fees – sometimes up to £400. These companies pay to advertise their link at the top of search engines, so customers find them first when searching for ‘HMRC’, ‘tax return’ and so on.
I thought I’d let you know that our view on this hasn’t changed. It costs nothing to file a tax return. It’s important that anyone thinking of using a tax return agent is clear in advance about fees payable – and can satisfy themselves that they will receive the service they are signing up for.
Misleading websites that try and palm themselves off as legitimate government services are to come under the spotlight from Trading Standards (4 March 2014) as Consumer Minister Jenny Willott confirmed extra funding for them to help tackle these rogue traders.
The Minister has committed an additional £120,000 this financial year to National Trading Standards Board (NTSB) so they can investigate these websites. This money will help NTSB also tackle websites that exaggerate the nature of the services they provide or deliberately underplay that people can get them for free or at a lower cost from official sources.
Further details from TSI http://www.tradingstandards.gov.uk/extra/news-item.cfm/newsid/1429
Will this end copycats?
steve@bicknells.net
Business Accountant 
