In these uncertain times, surplus cash not required for working capital and other prized assets held by a company are potentially being left at risk. Therefore, a company may wish to implement an asset protection strategy to help limit liability risks arising from the coronavirus crisis. Holding Companies & Shielding Company Assets A holding company (“HoldCo”) is a limited liability company that acts as the parent of a trading company (“TradeCo”). HoldCo does not carry out any trade activities itself and will instead own the shares in TradeCo along with any other assets that the owners would like to protect. The basic steps to implement the planning are as follows: The shareholders of TradeCo incorporate a new c...

In this ‘pause from normality’ it is important to keep your tax compliance guard up. The period we are going through is not a ‘tax holiday.’ If the quality of your tax compliance drops, then the existence of Covid-19 will be no excuse for inaccuracies or negligence later down the line when faced with an HMRC enquiry, nor is it likely to be an excuse for late returns unless you become seriously ill. Our advice: Understand the specific tax payment holidays and reliefs that exist through Covid-19 and apply them to the best of your ability. Prepare cash-flows to ensure your Time-to-Pay arrangements agreed with HMRC are realistic and give you and your business time to breathe. Speak with your accountant and tax adviso...

The IR35 anti avoidance provisions are contained in ITEPA 2003. The provisions impose employment taxes on those using a Personal Service Company (PSC) to enter into a contract for services (and thus pay corporation tax on profits) who in practice are engaged under a contract of service (and therefore should pay income tax and NICs on income). Recently, there has been a string of cases involving HMRC challenging well known TV presenters on the basis that they are caught by IR35. The most recent judgement of which was Eamonn Holmes v HMRC (2020). The Facts TV personality Eamonn Holmes set up a PSC in 2001 called Red, White and Green Ltd (RWG). From 2006 onward he has been presenting This Morning on ITV. During this time, RWG has been...

If a sole trader makes a loss from their business, it may be possible for them to offset this loss against their other income in the same year. This would lead to a reduction in their taxable income and therefore less tax payable. A reduced tax bill is obviously a very appealing prospect. However, as David Cliff (“DC”) (in the case of D Cliff v HMRC [2019]) recently found out in his appeal to the First Tier Tribunal, there are strict rules in place that dictate when a sole trader is allowed to offset their losses against other income; failure to adhere to these rules may result in a discovery assessment by HMRC and hefty penalties. Loss Relief Rules The legislation states that in order for loss relief to be claimed against the...

The case of Reneaux and Another v HMRC (2019) provides guidance on the level of business activity required to be treated as “trading” for Entrepreneurs’ Relief (“ER”) purposes. In this case, the First-Tier Tribunal (“FTT”) held that the occasional use of business premises and the letting of those premises were not sufficient to amount to a trade. Entrepreneurs' Relief  ER is a valuable relief which can reduce the rate of Capital Gains Tax (“CGT”) on the sale of business assets to 10%. In brief, in order for sole traders or partners of partnerships to qualify for relief they must have sold whole or part of their business, or disposed of an asset used in a business at the time the business ceases to be carried on ....

Liquidation Liquidation or the winding up of a company is a process whereby the assets of a company are realised and distributed to creditors in satisfaction of any debt owned in the order of priority set out in the Insolvency Act 1986. Following this, the company is dissolved. In the case of a members’ voluntary liquidation (“MVL”), a company is likely to have surplus assets to be distributed to its shareholders. Tax Treatment Generally, when undergoing an MVL, distributions to shareholders (who have last priority in liquidation) will be treated as capital distributions and therefore will attract the more generous capital gains tax rates (10% for gains falling within your basic rate band, and 20% on the excess). Furthermo...

Determining a company’s residence status is crucial when considering its liability to UK tax. There are two important tests to consider when deciding a company’s residence: the Incorporation Test, and the Central Management and Control ("CMC") Test. Incorporation Test The incorporation test set out in 2009 CTA s.14 is simple; a company incorporated in the UK is regarded as resident in the UK for tax purposes. If a company does not fall into this test, the second test must be considered. “Central Management and Control” Test The CMC test is derived from case law.  As the name suggests, this test seeks to determine where the central management and control of the company vests. This involves looking at where the orde...

On a sale of shares, proceeds of the sale may be paid in full on completion. Alternatively, part of the proceeds may be paid on completion, with the balance becoming payable at one or more future dates. In the latter case, there may be certain performance conditions attached to the future proceeds (typically related to the financial performance of the company) that must be met in order for the vendor to receive further payment. The latter case is commonly called an “earn out”, and there are several tax points to consider when negotiating a sale of shares to ensure that the earn out is practical and tax effective for the parties involved. Why Consider an Earn Out? There are numerous reasons to have an earn out as part of a share...

Domestic Reverse Charge Implementation Delayed In a move described as a ‘victory for common sense’ by the Federation of Master Builders (FMB) chief executive, the implementation of the domestic reverse charge which was due to take effect on the 1st October 2019 will now come into effect on the 1st October 2020. The domestic reverse charge means that customers receiving a service in the constructing and building sector may have to pay the VAT to HMRC instead of paying the supplier. Some 150,000 businesses will be affected by the change. Reasons for the delay HMRC announced the delay on the 6th September 2019 citing concerns from industry representatives and the desire to avoid the changes coinciding with Brexit as the reasons...

When businesses/companies employ capital assets (e.g. machinery, motor vehicles) for use in their business, such costs are not deductible from trading profits because the expenditure will have an enduring benefit for the trade. Instead, relief is available through capital allowances which essentially allows relief for the fall in value of capital assets, providing a deduction when arriving at taxable profit. Furthermore, the annual investment allowance (AIA) is available to businesses to encourage greater levels of investment. The AIA reduces the costs of capital by providing 100% capital allowances for the first £1,000,000 (between 1 January 2019 and 31 December 2020) of plant an machinery (excluding cars) acquired by the business for...