The New Enterprise Allowance can provide money and support to help people start their own business if they get certain benefits and have a business idea that could work.
The scheme has resulted in:
around 460 new businesses being set up each week – around 53,000 in total
12,360 businesses being started by people aged 50 or over
people over 18 who are claiming Jobseeker’s Allowance
lone parents on Income Support
people on Employment and Support Allowance in the work-related activity group
People on the scheme get expert help and advice from a business mentor who will help them to develop their business idea and write a business plan. If the business plan is approved, they are eligible for financial support payable through a weekly allowance over 26 weeks up to a total of £1,274.
If they weren’t on cruise ships HMRC would probably argue that they were employees but in the case of cruise ships they argue the opposite.
Pete Matthews (1) Keith Sidwick (2) v Revenue & Customs [2011] UKFTT 24 (TC)
Mr Sidwick was a musician and played piano on a series of cruise ships. Mr Matthews was a juggler, similarly entertaining passengers on cruise ships. Both were subject to a close degree of control by the ships officers but the First-tier Tribunal found that this degree of control was required by the context of a cruise ship.
The First-tier Tribunal concluded that the entertainers were not employees ‘…but earn their living by entering into a series of separate engagements with a number of different cruise lines in a similar way to actors…’
work on a ship. Oil rigs and other offshore installations aren’t ships for the purposes of Seafarers’ Earnings Deduction – but cargo vessels, tankers, cruise liners and passenger vessels are
work all or part of the time outside the UK. This means that for each employment you must carry out duties on at least one voyage per year that begins or ends at a foreign port
be resident in the UK or resident for tax purposes in a European Economic Area (EEA) State (other than the UK) – find out more by following the link ‘Check your residence status’ in the section below
You get the deduction from your earnings as a seafarer if you have an ‘eligible period’ of at least 365 days that consists mainly of days when you are absent from the UK.
From 6 April 2013 the rules that determine if someone is resident in the UK for tax purposes have been put on a statutory basis. These rules are known as the Statutory Residence Test (SRT).
Doctors often agree to pay for their own continuing training personally because of a shortage of NHS funds but when they do pay for courses its unlikely they will be able to claim tax relief.
EIM32530 states that it is well established that employees are not entitled to an expenses deduction under Section 336 ITEPA 2003 for the expenses continuing professional education (CPE). The Commissioners and the Courts have traditionally held that the duties of trainee doctors, for the purpose of the expenses rule, are limited to the clinical work that they do for the NHS Trust by whom they are employed. Their training activities are not undertaken “in the performance of” those duties for the purpose of Section 336 . That is so even though the training activities may be compulsory, and failure to complete them may lead to the employee losing his or her professional qualifications, and/or their job.
The Commissioners and the Courts upheld that view in a number of cases, as follows:
Parikh v Sleeman (63TC75) – a hospital doctor was refused relief for the expenses of attending training courses during periods of study leave.
Snowdon v Charnock (SpC282) – a specialist registrar was refused relief for the expenses of undergoing mandatory personal psychotherapy.
Consultant Psychiatrist v CIR (SpC557) – an NHS consultant was refused relief for the expenses of CPE necessary to maintain her professional qualification.
Decadt v CRC (TL3792) – a specialist registrar was refused relief for the expenses of taking professional examinations, even though it was a condition of his employment that he should do so.
In the recent case of Revenue & Customs Commissioners v Dr Piu Banerjee ([2010] EWCA Civ. 843), the Court of Appeal accepted that a deduction for training costs incurred by an employee should be allowed if the employee was employed on a training contract where training was an intrinsic contractual duty of the employment (see also EIM32535 & EIM32546) and where any personal benefit, unlike most CPE courses, would be incidental and not therefore give rise to a dual purpose of the expenditure.
Salary Sacrifice solves this problem.
Salary sacrifice works particularly well for training because except in the most extreme cases, employees cannot claim a tax deduction for training costs that they pay personally but if the employer pays for training that is work-related:
Unlike Income Tax which is cumulative and assessed across all earnings, National Insurance starts from zero on each individual employment and you also pay National Insurance on Self Employed earnings.
So if you are a Director of multiple businesses paid as an employee its easy to see how you could over pay and you might not even realise because National Insurance is not shown on your Self Assessment Return.
You can also over pay National Insurance if you are a part time employee with multiple employers and irratic earnings, this because National Insurance is calculated on a weekly/monthly basis, not a cumulative basis and its by employer.
What you need to do
Write to HM Revenue and Customs confirming:
your National Insurance number
why you’ve overpaid
the tax year(s) you’ve overpaid
You should include your P60 or a statement from your employer showing the tax and National Insurance for each year you’re claiming for.
You should apply within 6 years of the tax year you’re claiming for.
HM Revenue and Customs
Payment Reconciliation
National Insurance Contributions Office
Benton Park View
Newcastle upon Tyne
NE98 1ZZ
Basically HMRC disallow Input VAT relating to Investments.
The most well known example of this was when BAA purchased Airport Development Investments Limited in June 2006, the decision was upheld by the Court of Appeal in February 2013.
The BAA VAT group sought to recover the VAT (£6.7m) incurred on the acquisition costs but recovery was refused by HMRC on the basis that they considered ADIL had not made onward taxable supplies, had not demonstrated any intention to make taxable supplies and was not a member of the VAT group at the time costs were incurred.
BAA used an SPV (Ferrovial) to purchase ADIL but did not bring the SPV into the BAA VAT Group until September 2006, 3 months after the acquisition.
The lessons to learn from this are:
Once you have successfully made the acquisition join a VAT Group immediately and make it clear in correspondence that the SPV intends to join the VAT Group at the earliest opportunity
Consider not using an SPV
Buy the Assets instead of the Shares
Show that the SPV will make taxable management charges
Consider the scope of the advisors work, HMRC may disallow advice focussed on passively holding shares
Historically some of the key cases related to Pilots.
Shepherd v Revenue and Customs Commissioners [2007] BTC 426, [2006] EWHC 1512 (Ch)
A BA pilot had a home in Cyprus and spent 80 days in the UK (well below the 183 day test) in 1999/2000. However, he had ties to his former matrimonial home in Berkshire and the UK was his base for international flights, HMRC won the case on the basis that he had not ‘left the UK’.
Grace v Revenue & Customs [2008] Spc 663
Mr Grace was also a BA pilot, he claimed to have relocated to South Africa. Mr Grace won his case because he was set out the facts in a way that convincingly showed his links to his new country of residence. Although subsequently the outcome was reversed.
Robert Gaines-Cooper was a Multi Millionaire, based in the Seychelles but subject to the UK tax because of family ties
These cases demonstrate the problems of deciding residency, so on the 6th April 2013 a new Statutory Residence Test was introduced.
This test is relevent not only to Aircrew but also to:
Ships Crew
Lorry Drivers
Coach Drivers
Sales People
Travel Industry
UK ties are likely to be a key issue:
Family Tie – Relevent relationships include Spouse, Child under 18, Common Law partner resident in the UK. However, Children in Full Time education are ok provided they don’t spend more than 21 days in the UK outside of term time.
Accomodation Tie – A property in the UK where they can live for 91 days a year or 16 days if its owned by a close relative.
Work Tie – Work in the UK for at least 3 hours a day for 40 days a year
90 Day Tie – Spend more that 90 days in the UK in this tax year or the previous tax year or the year before that
Country Tie – the midnight test for the greatest number of days
On the positive side at least HMRC have been very specific in their guidance, these are are very specific tests!
For example, a publican who had owned a pub in Leeds for many years sold it and bought another in York. Although in the everyday sense the trader remains a publican throughout, the York pub is not the same trade as the Leeds pub.
Tax law requires any losses (including Corporation Tax Losses) carried forward to be offset against future trading profits from the same trade.
One solution to this may be Group Relief, companies which are part of the same Group can surrender losses within the Group.
The rules about which trading losses and other amounts may be surrendered are described at CTM80110. The company that transfers the losses, etc, is called the ‘surrendering company’. The company that claims the losses, etc, is called the ‘claimant company’.
Trading losses, excess capital allowances and non-trading deficits on loan relationships may be surrendered in full. This is irrespective of whether the surrendering company has other profits against which the loss etc might have been, but has not been, set off.
Alternatively it may be possible for the loss making business to sell services to the new business and in doing so reduce its loss.
Most residential properties (dwellings) are owned directly by individuals. But in some cases a dwelling may be owned by a company, a partnership with a corporate member or other collective investment vehicle. In these circumstances the dwelling is said to be ‘enveloped’ because the ownership sits within a corporate ‘wrapper’ or ‘envelope’.
ATED is a tax payable by companies on high value residential property (a dwelling). It came into effect from 1 April 2013 and is payable each year.
Budget 2014 announced a reduction in the threshold from £2 million to £500,000 to be introduced over 2 years. From 1 April 2015 a new band will come into effect for properties with a value greater than £1 million but not more than £2 million with an annual charge of £7,000. From 1 April 2016 a further new band will come into effect for properties with a value greater than £500,000 but not more than £1 million with an annual charge of £3,500.
Chargeable amounts for chargeable period 1 April 2014 to 31 March 2015
Property value
Annual chargeable amount 2014 to 15
More than £2 million but not more than £5 million
£15,400
More than £5 million but not more than £10 million
£35,900
More than £10 million but not more than £20 million
£71,850
More than £20 million
£143,750
There are reliefs that might lead to you not having to pay any ATED. You can only claim these by completing and sending an ATED return.
A dwelling might get relief from ATED if it is:
let to a third party on a commercial basis and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
open to the public for at least 28 days per annum, if part of a property is occupied as a dwelling in connection with running the property as a commercial business open to the public, the whole property is treated as one dwelling and any relief will apply to the whole property
part of a property trading business and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
part of a property developers trade where the dwelling is acquired as part of a property development business the property was purchased with the intention to re-develop and sell it on and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner
for the use of employees of the company, for the company’s commercial business and where the employee does not have an interest (directly or indirectly) in the company of more than 10%, the employee’s duties must not include services for any present or future occupation of the property by someone connected with the company, the relief is also available where a partner in a partnership does not have an interest of more than 10% in the partnership
a farmhouse, if it is occupied by a qualifying farm worker who farms the associated farmland, a former long-serving farm worker or their surviving spouse or civil partner
a dwelling acquired by a financial institution in the course of lending
owned by a provider of social housing
Alternatively in some cases it might be better to own the property as an individual or jointly with other individuals.
Joint tenants
As joint tenants (sometimes called ‘beneficial joint tenants’):
you have equal rights to the whole property
the property automatically goes to the other owners if you die
you can’t pass on your ownership of the property in your will
you can only sell or remortgage the property with the other owners’ agreement
Tenants in common
As tenants in common:
you can own different shares of the property
you can pass on your share of the property in your will
you can stop one owner from selling or remortgaging the property without the other owners’ agreement
The criteria used to assess if an activity is a hobby or a business are:
The size and commerciality of the activity.
The frequency of the activity and transactions
The application of business principles.
Whether there is a genuine profit motive.
The amount of time devoted to the activities.
The existence of arm’s-length customers (as opposed to just selling your wares to family and friends).
HMRC have some great examples to help you decided, for example
Gail is a full-time employee working for a stationery company. She pays her PAYE tax on this employment every month.
In her free time Gail makes cushions and uses most of them in her home. Occasionally she sells them to friends and work colleagues for an amount that just covers the cost of materials of £15. Sometimes she makes a loss. Any money she does make goes towards her holiday fund.
She decides to make extra cash by selling cushions on an Internet auction site and starts auctioning three or four to see how they go. They all sell for more than £50, a profit of at least £35 each.
She uses this money to buy more materials and within a month she is selling around ten cushions a week, always at a profit, and is considering setting up her own website.
Gail’s initial sales of cushions to friends are not classed as trading. It lacks commerciality and she does not set out to make a profit. The occasional sales are a by-product of her hobby. Once she begins to auction her cushions, she has moved into the realms of commerciality.
She is systematically selling her goods to make a profit. She will need to inform HMRC about her trade, and keep records of all her transactions. On the level of sales shown in the example the potential turnover of around £26,000 is well below the VAT annual threshold so Gail does not need to register for VAT.
Many traders start off in a small way and don’t realise that they need to register with HMRC, they assume their activity will be treated as a hobby, but things can grow quickly.
You should register as Self Employed as soon as your hobby becomes a commercial venture, even if you are losing money!
If you don’t register, HMRC will be looking for you and if you have an online business it won’t be hard for them to find you.
Ebay say they work ‘hard to ensure that businesses that trade on the platform are aware of their tax obligations’.
It added: ‘We do not hesitate to share information with government agencies should there be evidence of wrongdoing. We require all sellers trading as a business on eBay to register for a business account.’
In the Autumn Statement 2013 it was announced that a CGT charge will be introduced from April 2015 on ‘future’ capital gains made by non-UK residents disposing of UK residential property. George Osborne said…
“Britain is an open country that welcomes investment from all over the world, including investment in our residential property”
“But it’s not right that those who live in this country pay capital gains tax when they sell a home that is not their primary residence – while those who don’t live here do not. That is unfair.”
UK Residents typically pay capital gains tax at 28% on any profit from selling property that is not considered their primary residence.
Property lawyers and estate agents said foreign owners would be relieved the tax will not apply to historic gains before 2015. But they cautioned that the overall impact could be marginal as many foreign investors see London property as a safe and profitable place to park capital.
“Tax is not the primary driver for the majority of international buyers of residential property in London,” Knight Frank’s head of global research, Liam Bailey, said.
“It is important to note that the change to CGT rules brings the UK in line with other key investor markets, such as New York and Paris, where equivalent taxes can approach 35-50 percent depending on the owner’s residency status.”
It was not immediately clear how the tax would be collected and how it would apply if foreign owners used a domestic company to purchase property.
When a company disposes of an asset and makes a capital gain, as the main rate of corporation tax in 2014 is 21% (20% small profits rate) there could be a future tax saving opportunity for overseas investors to transfer property to limited companies.
There are other tax implications for example ATED (Annual Tax on Enveloped Dwellings) and SDLT (Stamp Duty Land Tax) but now could be a good time to consider your options.
