Capital Gains Tax for Companies 1

Capital Gains can occur in many circumstances, for example, when the company:

  • sells, gives away, exchanges or otherwise disposes of (cease to own) an asset or part of an asset
  • receives money from an asset – for example compensation for a damaged asset

Sometimes it can be hard to establish the value of the gain and HMRC can carry out a post valuation check which is requested using http://www.hmrc.gov.uk/forms/cg34.pdf

Example – calculating the chargeable gain on the sale of a shop
Calculation step Result
Step 1: amount received for the asset in May 2011 £200,000
Step 2: deduct £120,000 (the cost of the asset in November 1997) £200,000 − £120,000 = £80,000
Step 3: deduct expenses on improving the asset (£10,000 spent on building an extension in June 2006) £80,000 − £10,000 = £70,000
Find the inflation factor for November 1997 0.474
Calculate the Indexation Allowance £120,000 × 0.474 = £56,880
Deduct the Indexation Allowance £70,000 − £56,880 = £13,120
Step 4: look up the appropriate inflation factor and calculate the Indexation Allowance for the extension 0.185
£10,000 × 0.185 = £1,850
Deduct the Indexation Allowance for the extension to arrive at the chargeable gain £13,120 − £1,850 = £11,270

http://www.hmrc.gov.uk/ct/managing/company-tax-return/returns/chargeable-gain.htm

You can get a full list of indexation allowances at http://www.hmrc.gov.uk/rates/cg-indexation-allowance/apr12-ct-cgains.pdf

If the losses don’t exceed the gains, put the total gains in Box 16 on your Company Tax Return and the total losses, if any, in Box 17. Deduct Box 17 from Box 16 and put the result in Box 18 – this is your ‘net chargeable gain’.

If the losses do exceed the gains, leave Box 16, Box 17 and Box 18 blank but put the amount of the net loss in Box 131. You can then ‘carry forward’ those capital losses to offset against any capital gains you make in a future Corporation Tax accounting period(s). You would include those losses in Box 17 of a future Company Tax Return. You can carry forward capital losses indefinitely.

If you intend to replace the asset you may be able to apply Business Asset Rollover Relief, this is most commonly use for Land and Buildings.

steve@bicknells.net

 

 

 

 

 

HMRC launched six new task forces in May – here are some tips on handling enquiries Reply

The taskforces will target traders who do not pay the right amount of tax in:

 

  • Indoor and outdoor markets in London
  • Taxi firms in Yorkshire and East Midlands
  • Property rentals in East Anglia, London, Yorkshire and the North East
  • Restaurants in the Midlands

 

Taskforces are specialist teams that undertake intensive bursts of activity in specific high risk trade sectors and locations in the UK. The teams will visit traders to examine their records and carry out other investigations.

http://hmrc.presscentre.com/Press-Releases/Six-taskforces-to-tackle-tax-dodgers-launched-67ac1.aspx

HMRC anticipate recovering more than £23m from these new task forces launched on 31st May 2012.

12 taskforces were launched in 2011/12 looking at restaurants (London, North West, Scotland) fast food outlets (London, Scotland), scrap metal dealers (Scotland), fraudulent repayments (London), landlords (North West, Scotland), construction (North West), property transactions (London) and overdue returns (South East).

Here are 10 top enquiry tips from PFP:

1. Establish Enquiry Type

It is important that the type of enquiry is established. If it is an Aspect Enquiry make sure it is fully dealt with. Remember HMRC needs a reason to extend an enquiry from aspect to full – challenge any extension where necessary.

2. Best Adviser

The best person to deal with an enquiry is not necessarily the most technically brilliant. Technical knowledge is vital, but equally important is knowledge of how the system works and the ability to negotiate effectively.

3. Taxpayers Rights

This is a fundamental point. Anyone dealing with the Revenue should be aware of the taxpayer’s rights, e.g. when personal bank statements need to be provided, if meetings are necessary etc.

The client should be informed of their rights and the way the enquiry can be expected to run so that they do not say or do anything rash or unhelpful.

4. Take Out Insurance

At a Chartered Institute of Taxation Conference a presenter said that he had found the Revenue were dealing more efficiently with cases where they knew the clients had cover. This insurance can save money and strengthen a client relationship.

5. Revenue Manuals

These manuals are a good source of information – particularly if the HMRC asks for something and you are wondering whether this should be allowed. We have seen the enquiry manual being quoted successfully to HMRC a number of times.

6. Prevention v Cure

We know that various events such as late returns or a poor compliance record can increase the likelihood of an investigation. A number of accountants are now informing their clients of this fact when chasing up tax return information.

Once the investigation has started the standard of record keeping becomes important. Many accountants are telling clients to improve record keeping where necessary, some are even asking clients to annotate personal bank statements to avoid difficulties with remembering what deposits relate to some 2-3 years later. One accountant said that he knew full well not all of his clients were doing this but as least they had been told.

7. Establish Facts

This is an obvious point. Many of our accountants at the outset of an enquiry will ask the client in a positive and polite way if he/she is aware of any areas with which HMRC may have a problem e.g. undeclared sales. This gives out a clear message – if you tell us now we will do our best to help you; if not then there may be little we can do.

8. Seek Advice

If you don’t know or are unsure, just ask! We can always be asked for a second opinion – sometimes accountants know the answer but telephone just to bounce ideas off of someone. We are here to help, so if you are in doubt, just ask!

9. Be Accurate

Or “tell the truth”. Be sensible in what the Inspector is told. Do not be tempted to say the first thing that comes to mind just to satisfy HMRC.

For example, on one occasion HMRC asked why the accountancy fees were so high compared to previous years. The answer came back “because the records are very complicated and extensive”. HMRC replied he had all the records and they fitted in a shoe-box! In the eyes of the Revenue, the accountant’s credibility had been undermined and as a result, written proof of everything was requested.

10. Negotiate

This speaks for itself and must be remembered at all times. Self Assessment enquiries feature necessary negotiation in many cases. With targets of over 83%, HMRC may not be particularly interested in assessing the right amount of tax – just more tax.

http://www.pfponline.com/top10taxtips/692

steve@bicknells.net

 

 

HMRC – The odd case of Coffey Builders – Employment Status Reply

I was reading Tips & Advice Tax – Issue 17 and they highlight an unusual piece of new case law T Coffey/Dr Selvarajan and HMRC.

TC was a retired builder who was asked by S to manage and supervise the refurbishment of his medical clinic, the project lasted over 2 years. No substitutes were allowed, S guaranteed payment, there was no contract, TC worked regular hours and he was paid a rate of £500 per week. Sounds a lot like employment doesn’t it?

But HMRC decided to argue that he was self employed and undermined the importance of the factors that would make him employed.

Very interesting.

Steve@bicknells.net

 

 

Do I have to pay tax on my part time job? 3

Whether or not you pay tax on your part-time job depends on how much you earn, not on the number of hours you work. Everyone receives a certain amount of income in each tax year on which no tax has to be paid. This is called the Personal Allowance (£8,105 in 2012-2013). If your earnings from your part-time job are below this, then you do not have to pay tax on them. If your earnings are more than this, you will pay tax on the difference.

One advantage to having multiple part time jobs is National Insurance, each job has its own allowance which means you end up not paying any NI (and so could your employer). However, there is a risk of aggregation (treated as from one source) if the jobs are related.

Students often work during the holidays and then return to full time education and use form P50 to reclaim their tax withour waiting till the end of the tax year, here is a link to P50

http://www.hmrc.gov.uk/pdfs/p50.pdf

You don’t have to be a student to use P50 it can be used by anyone stopping work or retiring.

steve@bicknells.net

Controlling Persons more IR35 rules planned for 2013 Reply

HMRC has issued a consultation paper setting out proposals to tighten IR35 compliance by requiring organisations engaging “controlling persons” through personal services companies to deduct income tax and national insurance from fees paid to their companies.

A controlling person will be defined as someone from the contracting organisation who is able to shape the direction of the engaging organisation during the year. “This would be someone who has managerial control over a significant proportion of the organisation’s employees and/or control over a significant proportion of the budget of the organisation,”

http://www.accountingweb.co.uk/article/deductions-source-planned-controlling-persons/527907

This is a response to the 2000 senior civil servants employed through Personal Services Companies and the consultation period ends on 16th August.

It will interesting to see what tests will be applied and whether all income must be paid in this way or if it only applies to part of the income of the consultant? as its planned for 2013 the government may even change their mind as they did with Pastie Tax and Mobile Homes.

steve@bicknells.net

Is Gold good for your Pension? Reply

Gold has always been about wealth preservation – it does well in a time of crisis.

There are lots of ways to invest in Gold:

  • Gold Bars
  • Gold Funds
  • Gold Shares

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/8635523/How-to-invest-in-gold.html

The chart below shows how Gold Prices have increased over the last 10 years

Gold has been one of the best performing asset classes over the last few years, with annual returns averaging around 17% each year for the last 11 years.

http://www.goldmadesimple.com/

Have you got any in Gold in your pension?

steve@bicknells.net

£30,000 Tax Exempt Ex Gratia Payments Reply

Ex Gratia payments are normally linked to Compromise Agreements, see example

http://www.compromiseagreementslimited.co.uk/templates/template

The use of Ex Gratia payments in relation to terminating employment need to be handled carefully as highlight in this article

http://www.payandbenefitsmagazine.co.uk/pab/article/legal-comment-employers-warned-about-ex-gratia-payments-12322121

Getting the terminology right is critical, Earnings, Wages, Holiday Pay, Bonuses, Payment in Lieu of Notice are likely to be taxable. Ex Gratia payments won’t be, if the following apply:

The first £30,000 of a payment which is paid in connection with the termination of employment is tax free, as long as it is not otherwise taxable as earnings. Any excess over £30,000 is subject to income tax as normal, but is not subject to any NICs. Two or more payments made in respect of the same employment, or different employments with the same employer, are aggregated for the purpose of the £30,000 limit.

Ex gratia payments, made where the employer is under no legal obligation to do so, and awards from the Employment Tribunal in respect of wrongful or unfair dismissal, can fall within the £30,000 exemption as can payments made on redundancy whether statutory, non-contractual or even contractual.

http://www.out-law.com/en/topics/tax/employment-tax/taxation-of-termination-payments/

Compromise Agreements can sometimes be a good alternative to formal Disciplinary or Redundancy processes.

steve@bicknells.net

HMRC Tax Targets and Campaigns Reply

HM Revenue & Customs’ (HMRC’s) campaigns provide opportunities for people to voluntarily put their tax affairs in order. They do this by identifying a group to target and gathering information and intelligence that can be used to encourage and influence that group to come forward. Once a campaign closes, HMRC then uses that same information and intelligence to follow up with action that can include criminal investigations, aimed at those who choose not to pay what they owe.

http://www.hmrc.gov.uk/campaigns/news.htm

As a result of a recent campaign a Plumber in Ringwood, Hampshire was sentenced to 4 years in prison, follow this link to read the full story

http://www.accountingweb.co.uk/article/hmrc-secures-plumber-conviction/527556

Accountingweb have been tracking the campaigns, so far 77,616 checks have been carried out and £36.3m tax recovered

http://www.accountingweb.co.uk/article/hmrc-task-force-tracker/521073

So which campaigns are coming up in the next few months:

  1. Direct Selling – aimed at those selling products to customers away from retail premises, this includes selling door to door, at parties or to friends and relatives. Sellers are sometimes called ‘Agents’.
  2. Missing Tax Returns – aimed at Individuals who have been requested to provide or should be submitting Self Assessment Returns but haven’t http://www.hmrc.gov.uk/sa/need-tax-return.htm (Company Directors are required to submit returns)
  3. Trade Campaigns – aimed at those working in the Home Improvement, Maintenance and Repair sectors
  4. e Marketplaces – aimed at those who sell on line (such as online auctions) and don’t disclose their income http://www.hmrc.gov.uk/campaigns/emarket.htm

If you are in one of these target groups, now is time to makesure your tax affairs are in order.

steve@bicknells.net

 

Things you should know about Asset Revaluations Reply

It’s a fundamental concept of accounting that the accounts must give a ‘True and Fair’ view of the state of affairs of the company at its year end.

In order to achieve this a company may need to revalue its fixed assets, it could be Plant or Property, larger companies will refer to International Accounting Standards and Financial Reporting Standards but most SME’s use FRSSE http://www.frc.org.uk/documents/pagemanager/asb/FRSSE/FRSSE%20Web%20optimized%20FINAL.pdf

Accounting Explained gives a good summary of the entries related to revaluations http://accountingexplained.com/financial/non-current-assets/revaluation-of-fixed-assets

Here are some things you need to know:

  1. Revaluing Assets does not create a tax liability
  2. Revaluing Assets does not create a profit (it creates a revaluation reserve)
  3. Depreciation Rates may need to be reviewed (as they could be too high if you need to revalue regularly)
  4. Revaluation will increased the Net Worth of your business
  5. The Directors can revalue the assets but the value needs to be carefully worked out as an arms length market value

steve@bicknells.net

Can your business pass the HMRC IR35 Business Entity Tests 3

The Term “IR35” became established following a Budget press release issued by the Inland Revenue on 23rd September 1999. That press release was called “IR35”. At its simplest, IR35 is the way in which the taxman closed a loophole that was allowing many contractors and freelance professionals to avoid paying large amounts of Tax and National Insurance.

All Freelancers, Consultants and Consultancy Companies need to carefully consider the new HMRC tests released on the 9th May 2012.

Here are the 12 tests, scores shown in()

  1. Business premises (10)
  2. PII (2)
  3. Efficiency (10)
  4. Assistance (35)
  5. Advertising (2)
  6. Previous PAYE (minus 15)
  7. Business plan (1)
  8. Repair at own expense (4)
  9. Client risk (10)
  10. Billing (2)
  11. Right of substitution (2)
  12. Actual substitution (20)

A score less than 10 is high risk and a score more than 20 is low risk. Fail the test and it could cost you a great deal in tax.

http://www.hmrc.gov.uk/ir35/guidance.pdf

steve@bicknells.net