When you sell your company your buyer may wish to pay part in cash and part in loan notes to be paid off from future profits. The Loan Notes are known as Qualifying Corporate Bonds (QCB’s), the dilemma is whether to claim Entrepreneurs Tax at 10% now or pay full Capital Gains Tax later.
To obtain Entrepreneurs’ Relief on a disposal of the shares (the “old asset”) at the time of the exchange, the individual may make an election for the gain not to be deferred by TCGA92/S116 (10). The effect of an election is that the gain is brought into charge at the time of the exchange so that Entrepreneurs’ Relief can be claimed in order to benefit from the 10% rate – TCGA92/S169R (2).
In the absence of an election the gain is deferred and will be charged to CGT when it accrues under TCGA92/S116 (10) (b). It would be unusual for the qualifying conditions for Entrepreneurs’ Relief to be met at the later date when the gain comes into charge.
An election under this section, like the claim for Entrepreneurs’ Relief, must be made on or before the first anniversary of the 31 January following the tax year in which the relevant transaction takes place – TCGA92/S169R (4).
So would you claim the Entrepreneurs Tax Relief and pay 10% now or possibly pay 28% later?
You could try selling your shares in stages but that might not suit either you or your buyer?
Entrepreneurs Tax Relief is not available to companies, so if your company sold the part of its business then that won’t qualify, it’s common for a buyer to want to buy the assets into a New Co but ask that the old company remains alive in case of future claim.
Significant Non Trading Activity could be a problem too, some business contain investments and if these were more than 20% in terms of turnover, net assets, time spent by directors or profit it could mean that your business is not counted as a trading business
Less than 5% share ownership this can be an issue where share options are granted and exercised before a sale
Voting rights of classes of shares or when at an AGM votes are based on a show of hands
Shares transferred to a non working spouse prior to sale to save tax – to qualify you have to be an employee/officer and hold the shares for a year
Following 18 months of extensive engagement with representatives from all fields of the entertainment industry, HMRC published on 15 May 2013 a public consultation document: ‘National Insurance and Self-Employed Entertainers’, which discussed the precise difficulties being caused by the current application of the Regulations. The consultation presented four possible options for simplifying the NICs treatment of entertainers going forwards.
The consultation ran for 12 weeks receiving 11,814 individual responses of which 99.1% supported the option of repealing the Social Security (Categorisation of Earners) Regulations in relation to the entertainers. On 23 October 2013 HMRC published a summary of the consultation responses which included the announcement of the Government’s decision to repeal these Regulations insofar as they relate to entertainers from 6 April 2014 and a first draft of the legislation implementing this.
From 6 April 2014, producers engaging entertainment performance services will not be required to deduct Class 1 NICs contributions from any payments they make to you. This includes additional use payments such as royalties. The engager will make payments to the entertainer gross of tax and NICs and the entertainer must declare these earnings as part of their normal self-employed Self-Assessment return.
Please note that this guidance does not apply if you are an entertainer on an employment contract, and receive a regular salary from your engager with tax and NICs deducted at source under the Pay As You Earn (PAYE) system.
If you engage the services of entertainers
From 6 April 2014, you will not be required to operate Class 1 NICs for the entertainers you engage. If you are currently deducting employees’ Class 1 NICs from the payments you make to your entertainers (including additional use payments such as royalties), and paying the respective employers’ Class 1 NICs on these payments, you should continue to do so up until 5 April 2014. From 6 April 2014 however you should cease to do this.
The changes will be of interest to all national broadcasters, film companies, theatre managers, independent production companies, their representative bodies and agents in the Film & TV Production Industries, Equity, individual entertainers, companies engaging entertainers, and any other interested parties.
It currently takes around a month for HM Revenue & Customs (HMRC) to process applications for VAT registration, although it can take longer if they need to carry out additional checks.
GOV.UK say it could take as little as 14 working days.
HMRC aims to process 70 per cent of applications within 10 working days and most are processed within a month.
But there are cases where it can take a lot longer, possibly even 6 months.
Between applying for VAT registration and receiving your VAT registration number, you must still account for and pay any VAT due. You become liable for VAT from the date you must be registered or asked for your voluntary registration to start, not the date that you actually apply for registration or the date you receive your VAT registration number.
You may also reclaim any VAT you pay on your purchases from the date you must be registered, so you must also keep records of any invoices where your suppliers have charged you VAT.
Until you receive your VAT registration number you must not charge VAT, or show VAT on your invoices. To make sure that you do not lose income in the period after you applied for VAT registration but before you receive your VAT registration number, you should increase your prices by an amount equivalent to the VAT rate relevant for your goods or services, and explain to your customers why you are doing so.
Once you receive your VAT registration number you can then reissue those invoices, amended to show your VAT registration number and the VAT charged. This will make sure that your VAT-registered customers may reclaim the VAT that they have paid.
From a business perspective this is messy, you have to ask you customers to pay 20% extra on the promise that you will later give them a credit and a vat invoice so that they can reclaim the VAT!
I think HMRC should give this some thought, perhaps VAT registration could be fast tracked or done instantly by phone or online?
The Government wants to help working families and currently if you are an employee your employer can help with childcare and could for example buy childcare vouchers of up to £55 per week, the vouchers would be a tax free benefit to the employee. However, if you’re self employed you aren’t an employee so the rules don’t apply.
So recently there has been a consultation on what should be be done in the future.
The key proposals are:
New Scheme to go live in Autumn 2015
Working Families will open Voucher Accounts (self employed or employed)
As parents pay in the government tops up the account with 20p for every 80p paid in
Top up capped at £1,200
To be eligible all parent must work and not receive tax credits or be an additional rate tax payer
What do you use your IPad for? if you’re like me its for checking e mails and doing research related to business
So if its work related here are some great reasons why your business should buy it for you:
Increased Productivity – If an IPad enables you and your team to work more effectively then why not start using them – Office 365 and Google Docs allow you to access your E Mails and Information easily any where any time
Morale Boost – Getting a new IPad should improve morale
Business Only – VAT – IPad’s and Tablets of all types are popular business tools and they are basically no different to a computer or laptop, if you can show that the IPad is necessary for work and there is only insignificant minimal private use then your business can reclaim the VAT, your business may set up a written policy to say that you can only use the the IPad for personal purposes in exceptional circumstances.
Some Private Use – in this case the business could still reclaim all the VAT if it charged you a hire charge for your private use of the IPad
Capital Allowances – If its a business asset your business can claim capital allowances and reduce your tax bill
A retainer fee is a fixed amount of money that a client agrees to pay, in advance, to secure the services of a consultant or freelancer. The fee is typically not associated with the success of a project or based on achieving particular results. A retainer is often paid in a single, lump sum, or on an ongoing basis (typically monthly or quarterly). [About.com – Consulting/Freelance]
The problem is that retainers create mutuality of obligation (MOO).
The significance of mutuality of obligation is that it determines whether there is a contract in existence at all. Without mutuality of obligation there can be no contract of any kind.
Only when the basic requirements for mutuality of obligation have been identified is it possible to then consider whether the contract is a contract of employment or a contract for Services (self-employment).
The basic requirements as to the mutual obligations necessary to determine whether there is a contract in existence at all are:
that the engager must be obliged to pay a wage or other remuneration, and
that the worker must be obliged to provide his or her own work or skill.
These basic requirements could be present in either a contract of service or a contract for services and, on their own, will not determine the nature of a contract.
According to HMRC, the irreducible minimum requirements for a contract of employment are:
the requisite mutuality of obligation present;
a sufficient degree of control being exercised on the part of the engager;
other provisions of the contract being consistent with a contract of employment
The very nature of a retainer fee arrangement attaches to it obligations, i.e. for the client to pay the freelancer an ongoing fee in return for the expectation by the client for the contractor to make themselves available, normally at short notice.
It’s almost impossible to argue that retainer fees would not fall within IR35 and be treated as Deemed Payments.
In order to stay outside of IR35 you will need to carefully consider the contract and identify employed status factors that will put you outside of IR35.
·HMRC have an Exemption (not an allowance) of £150.
available to employees generally or
available to employees generally at one location, where the employer has more than one location.
·If the employer provides two or more annual parties or functions, no charge arises in respect of the party, or parties, for which cost(s) per head do not exceed £150 in aggregate.
The figure of £150 is not an allowance. For functions that are outside the scope of the exemption (see example at EIM21691) directors and employees, except those in an excluded employment, are chargeable on the full cost per head, not just the excess over £150, in respect of:
any members of their family and household who attend as guests.
The cost of the function includes VAT and the cost of transport and/or overnight accommodation if these are provided to enable employees to attend. Divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head.
Christmas Gifts from suppliers to employees
Certain gifts from third parties are tax free if all these conditions are satisfied:
• the gift consists of goods or a voucher or token only capable of being used to obtain goods, and
• the person making the gift is not your employer or a person connected with your employer, and
• the gift is not made either in recognition of the performance of particular services in the course of your employment or in anticipation of particular
services which are to be performed, and
• the gift has not been directly or indirectly procured by your employer or by a person connected with your employer, and
• the gift cost the donor £250 or less, and
• the total cost of all gifts made by the same donor to you, or to members of your family or household, during the tax year is £250 or less.
Some other gifts are not taxable. If you earn at a rate of less than £8,500 a year and you are not a director, a gift to mark a personal occasion, such as
a wedding present, which is not a reward of your employment, is not taxable. If you earn at a rate of £8,500 a year or more, or you are a director,
any gift from your employer is taxable unless your employer is an individual and makes the gift in the course of family, domestic or personal relationships.
Seasonal gifts from Employer to Employee
An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts can be treated as trivial benefits. . For an employer with a large number of employees the total cost of providing a gift to each employee may be considerable, but where the gift to each employee is a trivial benefit, this principle applies regardless of the total cost to the employer and the number of employees concerned. If a benefit is trivial it should not be included in a PSA (EIM21861).
If the gift extends beyond one of the items mentioned above, for example from a bottle or two to a case of wine, or from a turkey to a Christmas hamper, you will need to consider the contents and cost before being able to determine whether the benefit is trivial.
PAYE Settlement Agreement (PSA)
For practical purposes it may be that small cash and money’s worth benefits can be included in a PSA.
PAYE Settlement Agreements (PSA’s) are requested by Employers and subject to agreement with HMRC. Under this agreement the employer will be responsible for accounting for any tax and national insurance liabilities arising. Any items covered by a PSA will not need to be shown on forms P35 and P11D at the end of the tax year.