Its official, we are going to be worse off due to inflation at over 10%, energy costs capped at £2500 going up to £3000, interest rates going up. To find out more about the tax changes in the Autumn Statement download our free report.
Share for Share exchange is often used when you are re-organising or creating a group and benefits from tax relief.
Basically if you don’t do a share exchange you would need to sell the shares at market value creating both Capital Gains and Stamp Duty costs.
In order to do a Share exchange you must have bona fide commercial reasons for doing it and it can’t be just to avoid tax. So for example you might want to create a group in order to separate trading and investment activities and enable an investment company to obtain mortgage finance (most lenders probably would not lend to a single company doing both trading and investment in the same company as it puts the investment at risk).
Here is a common scenario, a developer buys a commercial property to develop into residential and sell, but when the project completes the market conditions have changed they want to keep the residential properties and rent them out.
During the development they will have reclaimed VAT and the first grant of residential is Zero Rated, so they get full recovery. An investor would not get this.
So to avoid partial exemption for VAT its best to move to a new company and there are bona fide Commercial Reasons too as previously noted.
Although the reclassification to investment will create a profit and tax charge a group structure will provide Group SDLT relief. See these blogs for details.
The process basically has 4 stages.
Stage 1 – Form the new companies
Assuming you are now creating a new Holding Company with a New Investment Company, these need to be formed first.
Stage 2 – HMRC Clearance
Its not mandatory but it is best practice How to apply for clearance or approval of a transaction from HMRC – GOV.UK (www.gov.uk)
To get clearance you need to write a letter to HMRC setting out all the facts, the group structure and the commercial reasons, typically the letter is 6 to 10 pages long.
You can request advance clearances by sending an email to firstname.lastname@example.org. You do not need to send a paper copy.
Attachments should be no larger than 2MB. Do not send self-extracting zip files as HMRC software will block them.
If possible we would like to reply by email, but we need your permission to do so by including the following statement:
‘I confirm that our client understands and accepts the risks associated with email and that they are happy for you to send information concerning their business or personal details to us by email. I also confirm that HMRC can send emails to the following address (or addresses)….’
If you’re making the application on behalf of yourself or your company adapt this wording as necessary.
Stage 3 – The Contract
This is normally done by a solicitor.
The contract deals with the acquiring company and the shareholders of the target company under which the shares are to be acquired with the consideration being shares in the acquiring company.
Stage 4 – Stamp Duty Relief
As the acquiring company is paying consideration for the shares (the issue of its own shares), then the transaction is subject to Stamp Duty. However, relief can be claimed under s77 FA 1986 if the conditions are met and the anti-avoidance rule of s77A FA 1986 does not apply. HMRC guidance is at STSM042000 starting at STSM042410. After the conditions have been checked and a claim prepared, see “How to Claim Relief” on GOV.UK. The claim needs to be made within 30 days of the contract date and, as HMRC outline, various information will need to be attached to the e-mail claim including the stock transfer form.
A summary of the Spring Statement 2022 is now available – click here
We have produced this newsletter to cover the main issues that are most likely to be of interest to you. You will also find useful commentaries to help you understand how the proposed changes may affect you personally. In addition, we have included a detailed calendar of the most important dates for 2022/23 that will help you with tax planning ahead of time. If you have any questions concerning the issues covered in this summary, or would like advice on the best possible course of action in a particular area, please contact us – click here
Post transactions checks are used in relation to capital gains, they can be used by individuals or companies.
Its a free service offered by HMRC.
If we agree your valuations we’ll not question your use of those valuations in your return, unless there are any important facts affecting the valuations that you’ve not told us about.
But HMRC say it could take at least 3 months to check the valuation.
You can only request a Post Transaction Valuation Check:
- after disposals relevant to Capital Gains Tax
- before the date you must file your Self Assessment tax return
Here is a link to the form
Why are they needed?
There are situation where transactions are not ‘arms length’ in other words they are between connected parties.
For example if you have a development company and sell property to related company.
You can use the CG34 for
- Other Assets
The CG34 is not mandatory, you don’t have to get a post valuation check, but if you do, you will gain protection against HMRC questioning your valuation (assuming they agree with you CG34 submission).
You will need to submit supporting documents for example a independent valuation report to justify the value.
For Land valuations you will also need
- Copy leases
- Tenancy Agreements
- Plans of undeveloped land
Where do you send the form?
Taxpayers dealt with by HMRC’s High Net Worth Units, or Public Department 1 should send the completed CG34 to those offices.
Those dealt with by Specialist Trust Offices should send their forms to:
Specialist PT Trusts and Estates Trusts
Other individuals, partnerships and personal representatives should send the completed form direct to:
PAYE and Self Assessment
HM Revenue and Customs
Companies should send to the office dealing with the company corporation tax affairs or if they do not have one, to:
Corporation Tax Services
HM Revenue and Customs
When you form a new limited company HMRC will send you a letter, the letter will tell you the company UTR and it also says ‘you must tell HMRC within 3 months of starting or restarting any business activity’.
Personally I think it would much better if this was covered within the formation process, most people form a companies because they want to start business activity immediately so it would make sense that business are automatically registered or at least able to choose a date on which they will start activity, for example the start of a month, this would avoid HMRC creating multiple returns for the same year, as Corporation Tax returns can only be for 12 month period and companies are rarely formed on the 1st day of a month.
I have seen may situations where businesses forget to tell HMRC that they have started, but do submit accounts and the corporation tax return and HMRC so far HMRC have been ok with this, but that’s no guarantee that they will always be sympathetic.
What does ‘Active’ mean
Generally your company or organisation is considered to be active for Corporation Tax purposes when it is, for example:
- carrying on a business activity such as a trade or professional activity
- buying and selling goods with a view to making a profit or surplus
- providing services
- earning interest
- managing investments
- receiving any other income
What’s interesting is that the definition is slightly different for
- Other Taxes
- Company Law
- Accounting Standards
What does ‘Dormant’ mean
Your company is called dormant by Companies House if it’s had no ‘significant’ transactions in the financial year.
Significant transactions don’t include:
- filing fees paid to Companies House
- penalties for late filing of accounts
- money paid for shares when the company was incorporated
You do not need to tell Companies House if you restart trading. The next set of non-dormant accounts that you file will show that your company is no longer dormant.
Your company will be considered dormant for corporation tax purposes in any of the following circumstances:
- It is not trading and does not receive any other income. This includes investment income.
- It is a new limited company that hasn’t started trading yet.
- It is a flat management company.
- It is an unincorporated association or charity that owes less than £100 corporation tax.
A dormant company can be, for example:
- a new company that’s not yet trading
- an ‘off-the-shelf’ or ‘shell’ company held by a company formation agent intending to sell it on
- a company that will never be trading because it has been formed to own an asset such as land or intellectual property
- an existing company that has been – but is not currently – trading
- a company that’s no longer trading and destined to be removed from the Companies Register
To remain dormant – don’t make payments
- If the company pays an invoice for example from the accountant that would make the business active
- If the company pays its formation cost then it won’t be dormant
- If you have employees you will be active
- If you pay dividends you will be active
To stay dormant pay any costs personally and not via the company.
What are the Rules for Clubs
HMRC may treat your club or unincorporated organisation as dormant for Corporation Tax purposes if it’s active but both the following conditions apply:
- your organisation’s annual Corporation Tax liability must not be expected to exceed £100
- you run your club or organisation exclusively for the benefit of its members
For each year of dormancy your organisation must not have any:
- allowable trading losses for which it may want to claim relief
- assets it’s likely to dispose of, which would give rise to a chargeable gain
- interest or annual payments to pay out from which tax is deductible and payable to HMRC
When you think your company is dormant
If your company has stopped trading and has no other income, you can tell HMRC that it’s dormant for Corporation Tax.
If you’ve never had a ‘notice to deliver a Company Tax Return’
You can tell HMRC your company’s dormant over the phone or by post.
If you’ve filed a Company Tax Return or had a ‘notice to deliver a Company Tax Return’
You’ll still need to file a Company Tax Return online – this will show HMRC that your company is dormant for this period.
Dormant companies still need to file the annual confirmation statement and the dormant accounts.
How do tell HMRC you are active?
Within 3 months of becoming active you need to tell HMRC, you can do this via the Government Gateway but I think its easier to write to HMRC.
Your letter must include:
- the company’s name and registration number
- the date the company’s accounting period started
- the date to which the company intends to prepare accounts
- the company’s principal place of business
- the nature of the business being carried out by the company
- the name and home address of each director of the company
- if the company has taken over another business, the name and address of the former business and also the name and address of the person from whom the business was acquired
- if the company is a member of a group of companies, the name and registered office address of the parent company
- if the company has been obliged to comply with the Income Tax (Pay as You Earn) Regulations 2003, the date on which that obligation first arose
The letter must be:
- signed by a company director or company secretary
- include a declaration that the information is correct and complete to the best of their knowledge
Send your letter to:
Corporation Tax Services
HM Revenue and Customs
What about the self employed and Landlords?
If you earn over £1,000, then you will need to register.
For the self employed use form LC Forms (hmrc.gov.uk)
For Landlords use this form LC Forms (hmrc.gov.uk)
There are other forms for Partnerships
From April 2023 the Self Employed and Landlords earning over £10,000 a year will need file quarterly under Making Tax Digital rules.
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.
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.
There are a lot of companies that can’t file using the HMRC online 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?
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!
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
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.
Pensions are now more flexible than ever.
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.
Low Emission Cars attract 100% Capital Allowances and they are cheaper to run and tax!
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.
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.
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?
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.
Have a home office and charge your company rent
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.
Do you need help?