Certain taxpayer expenditure can qualify for tax relief, and these amounts are known as deductible payments. The payments are deducted from income when calculating taxable income, effectively saving tax at a taxpayer’s marginal rate. For example, if a taxpayer pays tax at a marginal rate of 40%, they will  have saved 40p for every £1 of the payment they pay in the tax year. Interest paid on qualifying loans is a deductible payment, however there is a cap on the amount that may be relieved each tax year.  The total amount which can be deducted is the greater of £50,000 or 25% of adjusted total income (being total income less payroll giving and gross pension contributions paid). Qualifying Interest Where a loan is a qualify...

Capital Allowances are a form of tax relief that can be claimed by traders when they incur expenditure on “plant and machinery”. They can be deducted from the tax adjusted profit for the accounting period, thereby reducing the taxable trading profit. However, the definition of what constitutes “plant and machinery” is a contentious issue and one that is discussed in a significant amount of case law. The case law, along with the Capital Allowances Act 2001 and HMRC practice, suggests that an asset qualifies as “plant” if it has an expected life of two years or more and has a clear function in enabling the activities of the business to take place. Buildings and a number of other structures are specifically excluded from t...

Changes introduced by the Finance Act 2019 (FA-2019) address inconsistencies between the tax treatment of tangible fixed assets (e.g. cars, vans, machinery, buildings) and intangible fixed assets (e.g. goodwill, intellectual property). The new provisions bring the intangible fixed assets rules more in line with those applying to tangible fixed assets. Degrouping Charge A degrouping charge may apply where a company (Co A) acquires assets from another group company (Co B) on a no gain/no loss basis, and Co A leaves the group within 6 years of acquiring the asset. The effect of a degrouping change is that Co A is deemed to have disposed of and reacquired the asset at market value immediately after the asset was acquired, thereby crea...

The provision of company shares can be a valuable tool in incentivising key members of staff to remain with the company long term and actively grow the company’s business and increase profits. HMRC has several approved employee share schemes, each with their own tax advantages for the employee and employer/shareholders. However, certain conditions must be met by the employer/employee in order for these schemes to qualify and therefore they are not always commercially viable. Growth shares are a practical option, especially where the company shares already have significant intrinsic value. What are Growth Shares? Suppose that a company wishes to incentivise one of its managers to stay with the business and continue to contribut...

If your business imports and/or exports goods with the EU, you may be struggling with the uncertainty around the UK's withdrawal from the EU. In December 2018, HMRC published a letter for businesses that trade with the EU and steps that should be taken to prepare for no deal. This blog will help you to understand these steps and the actions that you should take. Firstly, in the event of no deal, you will be responsible for making customs declarations for your UK-EU trade. In order to ensure that you are ready for this, you should: Register for a UK Economic Operator Registration and Identification (EORI) number. You can do this at gov.uk/hmrc/get-eori. Register with HMRC’s new Transitional Simplified Procedures (TSP) for cus...

Entrepreneur’s relief  ("ER") is a valuable relief from Capital Gains Tax ("CGT") which, when available, restricts the tax rate to a flat 10% on up to £10 million worth of lifetime gains. The 2018 Budget announced changes to the conditions for obtaining ER, and in light of the new rules it may be worthwhile for taxpayers to dispose of relevant assets before 6 April 2019. Minimum Qualifying Period ER applies to disposals of: shares in a trading company; (the whole or part of) a business; assets in association with the sale of a business; assets from a solvent company that has ceased trading. For disposals involving shares, the shareholder would need to work for the company and hold at least 5% of the ordinary s...

In our two part series, we'll be looking at the tax advantages of company share option schemes for directors looking to reward, retain, and incentivise their staff. In brief, a share option gives a recipient the right (but not the obligation) to acquire shares in a company in the future. This can give employees the chance to share in the growth of the company, providing strong incentives, whilst being very cost-efficient from the company’s perspective as well. In this part, we'll focus on two of the more common schemes used by SMEs: Company Share Option Plans (“CSOPs”) and Enterprise Management Incentive schemes (“EMIs”). The second part will examine Share Incentive Plans ("SIPs") and Save As You Earn schemes ("SAYEs"). ...

Whether a property is residential or non-residential for Stamp Duty Land Tax ("SDLT") purposes is not always clear cut, and this will affect the tax payable and also the reliefs/exemptions that might apply. Residential rates can be as high as 15% (where the 3% surcharge applies), whilst non-residential rates top out at 5%. Mixed use properties (used for both residential and non-residential purposes) are subject to non-residential rates. In light of the different rates and reliefs that can apply, it is crucial that the nature of the property is correctly identified at the time of purchase. HMRC has recently clarified their views and guidance on what constitutes residential property for SDLT purposes - some of the points discussed ar...

The latest battle before the Court of Appeal (CoA) between a South African diver and HMRC has thrown up interesting questions about how far UK law can affect the interpretation of its double tax treaties with other countries. The CoA’s 2-1 judgement in favour of the diver overturned a previous decision in favour of HMRC by the Upper Turbinal and restores the decision of the First-Trier Tribunal (FTT). In light of the split decision, HMRC may try to appeal to the Supreme Court so taxpayers relying on the UK’s various “deeming” provisions for tax may wish to keep abreast of this case. Background Fowler was a South African diver working in the North Sea. Under a specific relief in the UK’s domestic tax law, income fr...

In Dieno George v HMRC, the First-Tier Tribunal (FTT) denied a claim for entrepreneurs’ relief (ER) by a chief executive on a 6.9% shareholding in the limited company. The case highlights the importance of meeting the exact conditions of the legislation, even where circumstances might suggest that such conditions are met and that the relief may be obtained. Background Mr George (the taxpayer) was recruited by Thornton & Ross Limited (the company) in October 2001, successfully working to expand the company’s business and obtaining the position of chief executive in Mach 2002. The taxpayer subscribed £999,996 for 600 C Ordinary shares in the company in 2005, and a further £10,000 for 1547 D Ordinary shares in 2008. These ...