Disincorporation relief

Disincorporation Relief

When the draft clauses for the Finance Bill were published, a week after the Autumn Statement, it became known that the Government had decided to remove one of the tax charges which may arise when a small company ceases trading and its business is taken over by one or more of the shareholders.  The draft clauses show that the relief, which will apply from 1 April 2013, will take the form of ‘rolling over’ the notional but taxable gain that would otherwise on the transfer of the company’s goodwill and premises to the shareholders, so that no tax is payable by the company immediately, but more tax may be payable by the shareholder when they eventually dispose of the business (or the business premises).

To pause there for a moment, in reality the trading premises are often held outside the company, by the shareholders personally, by a family trust, or by the directors’ pension scheme.  In such a case, no transfer of the premises will be required and so the new relief will apply only to the goodwill.

To continue, the relief will not be available unless the combined value of the goodwill and the premises (if currently owned by the company) does not exceed £100,000.  Not only does this limit the relief to very small companies, it also means that the shareholder will have to value the goodwill (always a difficult task) before they know whether they are eligible for the relief.

Another problem is that, if the company has claimed Annual Investment Allowances on its machinery and vehicles, a substantial part of that tax relief may be clawed back at the time those assets are transferred to the shareholders.  Other tax problems may arise and, all in all, the whole process is likely to be very complicated and the new relief will by no means be a magic bullet for solving the problems of disincorporating a business.

The shareholders themselves are also likely to suffer a tax charge, because if they do not pay full value for all the assets they take over (premises, goodwill, stock, equipment, vehicles etc), they will be deemed to have received a benefit from the company which in most circumstances will be taxable either as income or as a capital gain.

We can only conclude by saying that whether a disincorporation can be achieved at an acceptable tax cost will depend on all the circumstances of the individual case.  If you have a company that you wish to wind up, we would be pleased to advise on the best method of disincorporation and on the likely tax and other costs of doing so.

 

Capital Allowances for Machinery and Vehicles

Capital Allowances for Machinery and Vehicles

 The Chancellor announced that, for two years from 1 January 2013, the annual ceiling on Annual Investment Allowances (AIAs) will be increased from £25,000 to £250,000.  Broadly speaking, AIAs allow the whole cost of machinery and vehicles (other than cars) to be written off, for tax purposes, in the year of purchase.

However, this does not necessarily mean that a company (or an unincorporated business) will be able to go out in January and buy even £100,000 of machinery that will qualify for the increased allowance.  This is because special transitional rules apply where the company’s (or the trader’s) accounting date is other than 31 December.  For example, if the accounting date is 31 March, the maximum qualifying expenditure for the whole of the year to 31 March 2013 will be:-

 

9/12 (months) x £25,000                         £18,750

3/12 (months) x £250,000                                   £62,500

                                                                                    ———–

Maximum qualifying expenditure                                    £81,250

                                                                                    ======

Of that £81,250, only £25,000 may be spent before 1 January 2013

 The full £250,000 allowance will then be due for qualifying expenditure in the next accounting year (to 31 March 2014).

 That was a very simple example, and in practice the calculation can be much more complex.  Furthermore, there are some complicated rules for determining when the purchase is treated, for Annual Investment Allowance purposes, as being made – it is not usually either the day you sign the order of the day you sign the cheque.  Accordingly, if you are contemplating a major purchase, or a programme of capital expenditure, we would strongly recommend you to contact us for individual advice.

 

Excessive CIS penalties

Tribunal Rules CIS Penalties Excessive

 

The First-Tier Tribunal has held that the statutory penalties charged for late filed Construction Industry Scheme Returns may be struck out as being (in human rights terms) disproportionate to the State’s legitimate objective of securing the payment of taxes, or may be reduced as being excessive.

 

Shortly put, under the statutory CIS scheme, a contractor is required to submit monthly Returns of payments to subcontractors.  The Case, Anthony Bosher v HMRC (2012) UKFTT 631 (TC), concerned penalties charged for Return periods before October 2011.  In outline, if a Return for such a period was not submitted on time, a fixed penalty of £100 was charged, with further £100 penalties if the Return was more than a month late, more than two months late, and so on up to twelve months.

 

If the CIS Return was more than 12 months late, an additional ’month 13’ penalty was charged.  The statutory maximum was £3,000, but in practice HMRC charged between £300 and £3,000 depending on how many times, in a rolling twelve-month period, a Return was submitted more than twelve months late.

 

Such penalties can of course quickly add up, and in Mr Bosher’s case, a total of £54,100 was charged for eighteen late monthly Returns – £19,300 of this was made up of fixed £100 monthly penalties and £34,800 of ‘month 13’ penalties.  The Revenue had offered to reduce this total to £14,600, the amount which would have been chargeable under the new system of late filing penalties which came into force in October 2011 (see page 148 of our June 2010 edition and page 67 of our December 2010 edition).

 

However, the Tribunal (Judge Aleksander and Ms Hewett) held that the monthly penalties were disproportionate, and so should be reduced to nil, and that the ‘month 13’ penalties were excessive and should each be reduced to an amount equal to the CIS tax shown on the Return or, if greater, £100 (making a total penalty charge of £6,287).

 

An interesting feature of the case is that Mr Bosher represented himself at the Tribunal and, in essence, simply claimed that ‘the fines are unjust’.  The Tribunal then based their decision on their own analysis of the law, though HMRC were represented by Counsel.

 

Finally, it seems to us that if the fixed penalties were disproportionate under the pre-October 2011 regime, they must still be disproportionate now.  The tax-geared penalties (charged on Returns more than six months late) probably are proportionate, though the statutory minimum penalty should probably be capped at an amount equal to the tax shown on the Return.

 

HMRC’s response to the decision is awaited.

 

Problems Calling HM Revenue and Customs ?

Lately there has been an increase in delays getting through to HMRC by telephone. Some comments put the average waiting time to around 30 minutes. This may have been caused by a high volume of calls during the Easter period when their systems were shut down for essential software upgrades.

What can you do if you have problems getting through ?

  • If you are contacting HMRC to fulfill a deadline or provide information, keep a log of the times you tried to contact them and how long you were kept waiting on the phone. It may help your case.
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  •  If it is very urgent we may be able to help using a dedicated agent only telephone line.  However, HMRC will only talk to us if we are already registered to act on a clients behalf, in respect of the service the call is about.
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  • Unreasonable long waits which incur high call costs, may be reimbursed if you make a complaint and request compensation.
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HM Revenue and Customs Target Internet

This summer HMRC have announced their intention to target and track down potential tax evaders by locating their businesses on the internet.

Web traders using online market places such as Ebay may soon find themselves within HMRC sights.   They intend to use Web Bots to assist them in their scrutiny.

However, there will be some criteria as to what amounts to taxable trading.  People selling their own possessions will not be counted as trading, but anyone buying in goods for the purpose of resale will be examined.  This is even in the instance of traders purchasing reduced sale items to resell.

If you think you are potentially likely to be affected please give us a call to discuss this issue.  Tel: 01225 751302.

HM Revenue and Customs Delay in Issuing SA Statements

These statements are usually issued from HMRC in July, for the payment deadline of 31st July 2011.

However, as the number of statements to be issued has increased, and (rumour that HMRC ran out of headed paper) this has caused a delay, with some of our clients have not receiving theirs until August. 

Late payments normally incur interest charges on the outstanding amount after the July deadline.  However, for clients receiving their statements in August, HMRC have arranged not to charge interest as long as tax owed is paid before 27th September.

For further information please see: http://www.hmrc.gov.uk/news/delay-sa-statements.htm