Does a Company pay tax if it receives a Dividend? Reply

We generally recommend creating a holding company to hold property investing companies as it helps to centralise management and can give guarantees to lenders.

Many business owners have a concern that if the holding company receives dividends from subsidiaries that they will be double taxed, once in the subsidiary (before paying dividends) and then on the profit in the holding company when in receives the investment income (dividends). This would be madness!

Dividends paid to UK Holding Companies are normally exempt from Corporation Tax.

https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15150

A distribution made by a UK resident company and received by a UK resident company is generally not included in the recipient company’s CT profits. Similarly, such a distribution received by a non-UK resident company trading through a UK permanent establishment is not generally included in the CT profits of that permanent establishment. However, the way in which distributions received by companies are treated for tax purposes changed from 1 July 2009:

  • Until 1 July 2009, ICTA88/S208 (and for a brief period CTA09/S1285) provided that corporation tax was not chargeable on distributions from UK resident companies.
  • From 1 July 2009, the way in which distributions from UK resident companies are taxed was aligned with the treatment of distributions from non-UK companies in CTA09/S931A. (Previously, distributions from non-UK resident companies were charged to corporation tax as income from foreign possessions under ICTA88/S18, that is, under Case V of Schedule D). CTA09/S931A charges distributions from UK and non-UK resident companies to corporation tax, but then exempts these from charge in most cases. In practice, this means that most distributions – UK and non-UK sourced – are not chargeable to corporation tax unless these form part of avoidance arrangements.

steve@bicknells.net

DIY Corporation Tax Filing – are you excluded? Reply

There are a lot of companies that can’t file using the HMRC online service…

Who can’t use the service

You won’t be able to use the HMRC free service if any of the following apply:

  • your accounts require an audit or have been audited
  • your company turnover is above £632,000 per year
  • your charity turnover is above £6.5 million per year
  • your company must pay its Corporation Tax in instalments
  • your company is part of a group
  • your company is not registered in the UK
  • your company is in liquidation or receivership
  • your company is an insurance company – not including independent insurance brokers
  • your company is an investment company
  • your company is a credit union
  • your company is a commercial property management company
  • the Corporation Tax accounting period for the return is covered by more than one set of statutory accounts
  • you need to claim a repayment of a loan to a participator (for example, a director’s loan), more than 9 months after the end of the accounting period

If you can’t use HMRC’s free online service, you can use commercial software to submit your online return.

As we are moving towards Making Tax Digital, how is this going to enable businesses to file online?

Clearly they could buy third party software, such as BTC https://www.btcsoftware.co.uk/

I use BTC and this its brilliant, there are of course many other products available.

But as Tax is complicated, despite a constant effort to simplify it (which so far hasn’t really worked), surely HMRC are encouraging companies to turn to tax agents for help?

I thought the strategy was to reduce taxpayer reliance on Tax Agents?

steve@bicknells.net

 

Grass Roots Sports Tax Break Reply

sportler macht eine pause beim training auf dem sportplatz

Finance Bill 2017 introduces a new corporation tax deduction for contributions to grassroots sports.

From 1 April 2017  Companies will be able to make deductions for all contributions to grassroots sports through recognised sport governing bodies, and deductions of up to £2,500 in total annually for direct contributions to grassroots sports. Sport governing bodies will be able to make deductions for all their contributions to grassroots sports.

Qualifying expenditure will be drawn quite widely and will, for example, include payments to coaches and officials. However, no payments to participators will be eligible, other than to cover the cost of travelling to competitions.

The legislation will contain similar protections to the charity and CASC legislation to ensure that payments are made for the intended purposes and to prevent payments being made for personal benefit. gov.uk

Currently, the following provisions provide a relief for CT on payments to sports clubs or in connection with sporting events:

Under section 189 of the Corporation Tax Act 2010, sporting bodies registered as charities can receive payments that can be deducted against the donating company’s CT liability.

Under section 202 of the Corporation Tax Act 2010, payments made to Community Amateur Sports Clubs (CASC) can be deducted for CT in the same way as payments to a charitable body.

Otherwise, section 54 (1) (a) of the Corporation Tax Act 2009 is likely to prevent payments being deductible for CT because they do not meet the test of being ‘wholly and exclusively for the purposes of the trade’.

Good news for UK Sport!

steve@bicknells.net

10 ways to pay less Corporation Tax Reply

Businessman With Gold Bar

Corporation is currently 20%, by 2017 it will 19% and by 2020 it will be 18%, which is excellent news but you could do more to pay even less.

Here are my top 10 ways to pay less

R&D Tax Credits

Many businesses are still missing out on claiming for Research and Development Tax Credits.

Since 1 April 2015, the tax relief on allowable R&D costs for SME’s is 230% – that is, for each £100 of qualifying costs, your company or organisation could have the income on which Corporation Tax is paid reduced by an additional £130 on top of the £100 spent. It also includes a payable credit in some circumstances.

R&D

Pensions

Pensions are now more flexible than ever.

Net Relevant Earnings rules don’t restrict employers from paying in the maximum per year of £40,000 and you can use Carry Forward to pay in even more.

You could use a SSAS or SIPP to help you buy Business Premises

Pension payments are an allowable business expense.

Annual Investment Allowance

Buying equipment, even if its on finance is a great way to reduce your corporation tax bill, the 100% AIA can be used on the date you buy the asset.

Currently the Annual Investment Allowance is £500,000 and this will reduce to £200,000 in January 2016.

Green cars

Low Emission Cars attract 100% Capital Allowances and they are cheaper to run and tax!

Low Emmission

Repay your Directors Loan Account

If you have an overdrawn Directors Loan Account at the end of your year and it isn’t repaid with 9 months that you will get an extra tax charge of 25% on the balance, you can only reclaim this when the Directors Loan has been repaid.

Change your Year End

If you expect the next trading period to be a loss, why not extend your current period to 18 months and offset the 6 month loss against the 12 month profit?

You will have to pay the Corporation Tax on the first 12 months but sending in a 6 month return will enable you reclaim some of the tax back.

Claim Tax Free Benefits in Kind

There are many benefits which are tax free such as Childcare, Mobile Phones, Cycling, Business Mileage and many more, are you claiming as many as you can?

Inter Company Charges and Groups

Small businesses are exempt from Transfer Pricing Rules so they can charge each other fees.

A business is a ‘small’ enterprise if it has no more than 50 staff and either an annual turnover or balance sheet total of less than €10 million.

You might find it easier just to create a Group and claim Group Tax Relief

Accrue a Bonus

If you accrue a bonus you will have to pay it within 9 months of the end of the year, but it can help to reduce your corportion tax bill.

Home Office

Have a home office and charge your company rent

steve@bicknells.net

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Do you need help with HMRC? Reply

Unhappy office worker on the phone, isolated on white

HMRC aren’t easy to speak to and unless you know the tax rules its easy to make mistakes, that’s why HMRC allow you to appoint agents to help you with your tax affairs.

To appoint an agent you use form 64-8

Form 64-8 covers authorisation for individual tax affairs (partnerships, trusts, tax credits and individuals under PAYE) and business taxes (VAT, PAYE for employers and Corporation Tax). If you’re a personal representative you can use form 64-8 in certain circumstances to ask HMRC to deal directly with an agent.

There are times when you might want extra help for example with an HMRC Compliance Visit and you can appoint a temporary agent using form COMP1.

The Comp1 relates only to the appointment of an adviser to deal with a compliance check. It does not authorise us to deal with that adviser for anything outside that check. Form Comp1 does not replace or amend any existing authorisation made using form 64-8 or the online authorisation facility, or in CITEX cases a letter giving authority for the agent to act.

The temporary authorisation can be used to:

  • extend an existing authorisation, for example where there is an adviser acting for one tax under a form 64-8, and the customer wants that adviser to act for more taxes just for the purpose of the compliance check
  • appoint an adviser to deal solely with the compliance check where there is no existing adviser authorisation
  • appoint a ‘specialist’ tax adviser, for example in Specialist Investigation cases, just to deal with a compliance check. In such cases this will allow the existing adviser to continue to act for the customer in their day to day tax matters.

[HMRC CH201550]

Do you need help?

steve@bicknells.net

Goodwill is not so good for tax Reply

Identity Theft

Until the Summer Budget 2015 when you purchased a business (not its shares) into a limited company from an unrelated party you could write off the goodwill (Intangibles) against your corporation tax but that has now changed and you can’t, another tax relief bites the dust!

The Policy Statement  reads as follows…

In accounting terms, purchased goodwill is the balancing figure between the purchase price of a business and the net value of the assets acquired. Goodwill can therefore be thought of as representing the value of a business’s reputation and customer relationships.
This measure removes the tax relief that is available when structuring a business acquisition as a business and asset purchase so that goodwill can be recognised. This advantage is not generally available to companies who purchase the shares of the target company. The current rules allow corporation tax profits to be reduced following a merger or acquisition of business assets and can distort commercial practices and lead to manipulation and avoidance. Removing the relief brings the UK regime in line with other major economies,reduces distortion and levels the playing field for merger and acquisition transactions.
Intangibles acquired before 8 July 2015 will continue to be treated under the old rules, so a corporation tax deduction will continue to be available for amortisation, and any loss on disposal will be treated as part of the company’s trading profit or loss for the year of disposal.
steve@bicknells.net

Can you save tax by transferring your self employed losses to a company? 1

business man in a crisis

If you are self employed and your business makes losses you have the following options to use the losses:

  1. You can reduce your current year tax bill
  2. You can offset it against earlier years (up to 3 years)
  3. You can carry your loss forward

You can’t claim:

  • if you use cash basis
  • where you don’t run your business commercially for profit
  • for part of a loss (you must claim the loss in full) – so it could wipe out your personal allowance
  • if you are part of a limited liability partnership
  • where your losses are tax-generated

If you transfer your business in exchange for shares to another company, you can use any unused losses against your income from the new company.

Further details in HS227

What this might mean is that as a sole trader you waste your personal allowance because your profits are offset to zero by losses, however, if you had a company that paid you £10,600 you would keep your personal tax free allowance and be able to use the losses against the remaining profit.

The rules for company losses are noted below.

Trading losses that you’ve not used in any other way will be offset against profits from the same trade in future accounting periods. You don’t have to make any claim for this to happen. It’s done automatically if you fill in your Company Tax Return.

Corporation Tax Act 2010, Section 45

Carry forward of trade loss against subsequent trade profits

(1)This section applies if, in an accounting period, a company carrying on a trade makes a loss in the trade.

(2)Relief for the loss is given to the company under this section.

(3)The relief is given for that part of the loss for which no relief is given under section 37 or 42 (“the unrelieved loss”).

(4)For this purpose—

(a)the unrelieved loss is carried forward to subsequent accounting periods (so long as the company continues to carry on the trade), and

(b)the profits of the trade of any such period are reduced by the unrelieved loss so far as that loss cannot be used under this paragraph to reduce the profits of an earlier period.

(5)In this section and section 46 references to profits of the trade are references to profits of the trade chargeable to corporation tax.

(6)Relief under this section is subject to restriction or modification in accordance with provisions of the Corporation Tax Acts.

 

steve@bicknells.net

How does s455 tax apply to Directors Loans? what if you ‘bed and breakfast’ the loan? Reply

Scaring amounts

Directors (participators in a closed company) often borrow money from their companies with the intention of paying a dividend to repay the loan.

If the loan is outstanding more than 9 months after the company year end, then an extra 25% corporation tax charge is due, this is the s455 tax which is refunded when the loan is repaid as explained in this blog

https://stevejbicknell.com/2015/02/04/new-tax-procedure-for-directors-loans-s-455/

HMRC were concerned that some participators were avoiding this tax by raising funds short term to repay an outstanding loan.  They would then draw a new loan very shortly afterwards – HMRC refer to this as “bed and breakfasting”. New anti-avoidance rules were therefore  introduced in 2013.

These new rules incorporate two provisions – the “30-day rule” and the “intentions and arrangements” rule.

30-day rule

This applies where within a 30-day period:

  • a shareholder makes repayments of their s455 loan; and
  • in a subsequent accounting period, new loans or advances are made to the same shareholder or their associate.

So basically prevents the use of ‘Bed & Breakfasting’

‘intentions and arrangements’ Rule

Relief is denied regardless of the 30 day rule, if prior to repayment there is an outstanding amount of at least £15,000 and at the time the amount is repaid to the company, any person intended to redraw any of that amount or had made arrangements to make a new withdrawal; and a new withdrawal is made.
The relief denied is the lower of the amount repaid and the amount redrawn.

 

steve@bicknells.net

How will FRS102 affect your tax position? 1

junge frau lernt für eine prüfung

FRS102 will affect us all, even small companies will be subject to a version of FRS102.

Its not just a reporting standard it will affect your tax position too, for example

Intangible Assets and Goodwill

Under FRS102 these assets will have a maximum life of 5 years where as UK GAAP allowed them to have an infinite useful life.

Distributable Reserves

There are various FRS102 changes that can effect these but one specific one is deferred tax which will be calculated on investment properties.

Operating Leases

Leases incentives will be spread over the entire life of the lease rather than to first break clause.

Asset Reclassification

Some assets such as Websites and software development could be reclassified as Intangible

Have you assessed the changes for your business?

FRS 102 is effective for periods beginning on or after 1 January 2015.

steve@bicknells.net