Tag: business tax

Labour Government tax policies

Posted on by Alicia Sprott

We focus here on the pledges made by the Labour Party in its manifesto.

For the details behind some of the headlines, we’ll have to wait for a Budget and publication of draft legislation, likely to be September at the earliest.

So, what do we know so far?

Personal taxes

Income Tax

  • No increases to the rates of Income Tax or National Insurance for the life of the next Parliament but the freezing of thresholds until 2028 has also been confirmed.

The non-UK domicile regime

  • Abolition of remittance basis of taxation for ‘non-doms’.
  • New residence-based regime: no UK tax on Foreign Income and Gains (FIG) for first four years of UK residence, provided taxpayer has been non-tax resident for the last 10 years.
  • Inheritance Tax (IHT): move to a residence-based regime from April 2025.
  • Non-UK situs assets will be subject to IHT if the owner has been UK tax resident for 10 years or more. This will remain the case for 10 years after ceasing to be UK tax resident (the 10-year tail).
  • Offshore trusts: new trusts and additions to existing trusts made by a non-UK domiciled settlor on, or after, 6 April 2025 will be subject to new residence-based rules. The protection from tax on non-UK source income and all capital gains arising within settlor-interested trust structures will no longer be available for non-UK domiciled individuals unless they qualify for the new four-year FIG regime.
  • Trusts: all assets held within a trust to be subject to IHT (subject to settlor being UK resident for 10 years).
  • Investment incentive during the four-year arrival window so that UK investment income is free of UK tax.
  • Further details:

Private equity

  • Increase rate of Capital Gains Tax (CGT) on carried interest to equal income tax rates or tax as income.

Inheritance Tax

  • No announcements, except for the non-UK domicile regime as above.

Capital Gains Tax

  • No announcements but no pledge not to increase rates.

Corporation Tax

  • Cap the main rate at 25%.

VAT

  • No increase to the rate of VAT.
  • Add VAT to school fees. You can read more here.

Manifesto

For full details, as published by the Labour Party, please see here.

Contact Katharine Arthur, Partner and Head of Private Client, if you wish to discuss how these proposed tax policies will affect you.

 

Spring Budget 2024 – updates for businesses

Posted on by Alicia Sprott

Corporation Tax rates

The Government has confirmed that the rates of Corporation Tax will remain unchanged, which means that from April 2024, the rate will stay at 25% for companies with profits over £250,000. The 19% small profits rate will be payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.

Capital allowances

The full expensing rules for companies allow a 100% write off on qualifying expenditure on most plant and machinery (excluding cars) as long as it is unused and not second hand. The rules were originally designed to be effective for expenditure incurred on or after 1 April 2023 but before 1 April 2026. Similar rules apply to integral features and long life assets at a rate of 50%. The Government announced in the Autumn Statement 2023 that both allowances will be made permanent. The Government is to publish draft legislation for consultation to help consider any potential extension to include plant and machinery for leasing. The Annual Investment Allowance (AIA) is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit remains at £1 million.

Research and Development (R&D) relief

As announced in the Autumn Statement 2023, the existing Research and Development Expenditure Credit (RDEC) and SME schemes will be merged, with expenditure incurred in accounting periods beginning on or after 1 April 2024 being claimed in the merged scheme. The rate under the merged scheme will be set at the current RDEC rate of 20%.

The changes also provide additional relief for loss-making R&D intensive SMEs through a higher rate of payable tax credit from April 2023, as a feature of the existing SME scheme. Those entitled to this higher rate would, from April 2024, continue to claim under rules similar to the current SME scheme rather than under the new RDEC scheme.

A number of other changes will apply to the new regime from April 2024, including that R&D claimants will no longer be able to nominate a third-party payee for R&D tax credit payments, subject to limited exceptions. Further action may be needed to reduce the unacceptably high levels of non-compliance with the R&D rules and HMRC will be publishing a compliance action plan.

For more on how the Spring Budget announcements could affect your business, get in touch with Mark Baycroft, Partner, or a member of the Business Tax team.

Vermilion Holdings Ltd v HMRC – When are options employment related?

Posted on by Alicia Sprott

In summary, an option over 2.5% of the company was originally granted for consultancy work performed, where no employment/directorship existed. Had no further changes occurred, this presumably would have been outside the scope of Pay As You Earn (PAYE)/National Insurance Contributions (NICs).

However, a refinancing round resulted in the original option being replaced, with the new option now being over 1.5% of the equity issued. Additionally (and crucially), the consultant in question was also appointed as executive chairman.

On eventual exercise of the option, Vermilion sought non-statutory clearance from HMRC that the exercise was outside of the scope of PAYE/NIC. This was on the basis that the original option was granted pre-employment and that the directorship taken up on grant of the new option was not relevant. Whilst this was not an unreasonable argument (and Vermilion won their case on this up to the Court of Session, the highest court in Scotland), the Supreme Court ruled that the ‘deeming provision’ below applies and the option exercise is subject to PAYE/NIC. This appears to apply a more literal interpretation of the deeming provision, even in the case where the new option replaces a non-employment related option as part of a refinancing round.

The law and interpretation of the deeming provision

In addition to factually assessing whether an option is granted by reason of employment (or holding an office such as a directorship), provisions also exist to deem the option to be employment related. Specifically, the law states ‘a right or opportunity to acquire a securities option made available by a person’s employer, is to be regarded as available by reason of an employment of that person unless:

  1. The person by whom the right or opportunity is made available is an individual; and
  2. The right or opportunity is made available in the normal course of the domestic, family or personal relationships of that person’.

In summary, where an employment or directorship exists at the time of grant, the deeming provision makes it very difficult to argue that an option exercise is outside the scope of employment taxes.

Why is this case important?

It is sometimes unclear if an option has been granted by reason of an individual’s employment. Where an option is granted by reason of employment, the exercise of the option will result in Income Tax, and in many cases NICs. It is therefore tempting to argue that options may have been granted for non-employment reasons, such as pursuant to a consultancy contract or acquired in an individual’s capacity as an investor. The recent ruling in Vermilion v HMRC confirms just how difficult it is to make this argument.

Wider ramifications

The deeming provision for employment related options has an equivalent for employment related securities, which deems shares, loan notes and other securities as within the scope of employment taxes. Advice should be sought where shares, options, convertible loans or other instruments are issued as part of a financing round, especially where the recipient holds employment/directorship as it appears they will be within the scope of PAYE/NIC, even if they finance on the same terms as pure investors.

This case also demonstrates the importance of having robust tax indemnities drafted into the legal documents. Where PAYE/NICs are due, it is primarily the responsibility of the employer to withhold these amounts and pay them to HMRC. Having appropriate indemnities should ensure that the company can recover such amounts from the employee.

To discuss your existing options schemes and how this case may affect you, contact David Bareham, Share Schemes Director, or Mark Allwood, Partner.

Understanding the changes to Corporation Tax Rates and quarterly payments for companies

Posted on by Alicia Sprott

How much Corporation Tax do companies pay?

As of 1 April 2023, the main rate of Corporation Tax has increased to 25% for companies with profits exceeding £250,000. However, companies with annual profits below £50,000 will still enjoy the previous rate of 19%, also known as the ‘small profits rate’, with a marginal rate applying between those profit limits.

Associated companies and Corporation Tax

One noteworthy change to highlight, again, is the reintroduction of associated companies, as the above profit limits are divided by the number of associated companies. This affects businesses with common control, substantial trading interdependence, or shared premises. For example, if a husband and wife each own separate companies that engage in significant commercial activities with each other, they will be considered associated. Consequently, the profit limits mentioned earlier will need to be divided by two for tax calculation purposes.

Quarterly instalments for large companies

For large companies, quarterly instalment payments come into play. Large companies are considered as those with profits exceeding £1.5 million, factoring in the number of associated companies. Fortunately, there is a one-year grace period for newly large companies, provided their profits remain under £10 million. Quarterly instalments must be paid on specific dates throughout the current and following year, even though the exact annual profits may not be known at the time of payment.

Quarterly instalments for very large companies

Very large companies, with profits exceeding £20 million, do not receive a grace period. They are required to make quarterly instalment payments immediately. This means paying all Corporation Tax before the end of their fiscal year, with interest adjustments almost inevitable. Precision in profit forecasting becomes crucial for these entities to minimise interest.

What are the current Corporation Tax interest rates?

There has been a significant increase in interest rates for underpaid quarterly instalments, rising from 1.1% in March 2020 to 6.25% as of August 2023. Companies not subject to quarterly instalments, or those who delay payment for more than nine months after their year-end, also face higher interest rates, now at 7.75% as of August 2023, up from 2.75% in March 2020. On the positive side, HMRC interest rates are 5% for overpaid quarterly instalments and 4.25% for repayments of Corporation Tax. The interest payable for late payment of Corporation Tax has significantly increased over the years, emphasising the importance of timely payments.

What does these Corporation Tax changes mean for businesses?

In conclusion, the evolving landscape of Corporation Tax rates and payment schedules are important to keep track of. It underlines the need for businesses to stay informed and adapt their financial strategies accordingly. These changes can have a substantial impact on a company’s cash flow and overall financial health.

To discuss the impact of Corporation Tax on your business, please contact Mark Baycroft, Business Tax Partner, or a member of our Business Tax team.

Changes to creative sector tax reliefs

Posted on by Alicia Sprott

These changes are summarised below:

  • Extension of the sunset clause for Museums and Galleries Exhibition tax relief from 31 March 2024 to 31 March 2026
  • Extension of the temporary increases in tax credit rates from 2023 to 2025
  • Removal of European Economic Area (EEA) expenditure from core expenditure definition
  • Restriction in the level of relief available for connected party expenditure

The first two changes are a positive move for the sector as they boost the value of claims and give more certainty for the coming periods. As the creative sector tax reliefs were introduced pre-Brexit, UK legislation allowed both UK and EEA expenditure to qualify as core expenditure. However, given that the UK is now no longer part of the EU, new legislation is being introduced to address this. In order to qualify for the relief, at least 10% of total core expenditure needs to be UK expenditure (previously 25% EEA) and EEA expenditure will no longer qualifying for the additional deduction. This will have the most impact on touring theatre and exhibitions companies using EEA goods and services.

In addition to the above technical changes to the reliefs, HMRC has also announced a procedural change to the process for making a claim. More details will follow on this point, but it is clear that the change will result in additional information being required by HMRC.

If you would like to know more about these changes, or about making creative sector tax relief claims, please contact Alice Palmer, Senior Manager, or Sally Gatward, Assistant Manager, or your usual haysmacintyre contact for more information.

Avoiding common pitfalls of Gift Aid

Posted on by Alicia Sprott

Follow up with donors where you believe there to be missing or unclear information from their Gift Aid declarations. If you think there is an opportunity to claim Gift Aid, then take the initiative.

Are you using inexperienced or poorly trained staff/volunteers to process your Gift Aid claims?

Gift Aid is complex and it is worth investing time and resources in correct training and awareness for your staff/volunteers. Give it the attention it deserves!

Can you produce a complete audit trail from donor to donation?

HMRC is increasingly interrogating claims and expects a charity to be able to document the path of a donation, including linking the donor to a valid Gift Aid declaration.

Gift Aid and tax legislation is always changing. Are you up to date with the latest changes?

Latest changes include:

  • Clarification of the availability to claim Gift Aid on waived refunds and loan repayments by individuals in certain circumstances
  • Reduced administration for end-of-year letters for Retail Gift Aid, where the sales proceeds raised are less than £20 p.a.
  • Increases in value thresholds for benefits received as a consequence of the donation
  • Simplification of the Gift Aid Small Donations Scheme (GASDS), making it easier for charities to access
  • HMRC guidance now suggests that the Gift Aid declaration should include the donor’s full name, rather than just initials

Gift Aid opportunities

  • Where your charity has cancelled ticketed events or other fee paying activities and the donor has indicated that they would like to donate the refund to your charity, you should now be able to claim Gift Aid on these amounts. You will need to hold a valid Gift Aid declaration for the individual and meet the other usual requirements for Gift Aid in order to make the claim. Individual donors waiving the right to a repayment of a loan made to your charity may also now attract Gift Aid, subject to certain conditions.
  • Remember that some items ‘given’ by your charity to your donors do not count as a benefit for the purpose of calculating the benefits limits. These relate to items given as a consequence of a donation, i.e. a thank you. One such item is naming rights, which can be very useful for your more generous donors as a way of saying thank you without jeopardising the availability of Gift Aid.
  • If your charity has not yet claimed for Gift Aid or is behind with claims, do not delay, get your claim in as soon as possible. Time limits for claims are:
      • Trusts: four years from 5 April in which the donation was received
      • Corporates: four years from end of accounting period in which the donation was received
      • GASDS: two years
  • Follow up with donors where you believe there to be missing or unclear information from their Gift Aid declaration. If you think there is an opportunity to claim Gift Aid, then take the initiative and make contact with your donors.
  • Take care not to exclude donations where the donor has an unusual address. Claims can still be made for donors living in care homes, houseboats and pubs. For example, HMRC does not expect you to investigate every donor’s address details; if it looks reasonable, make a claim.

For more on maximising your Gift Aid opportunities, please get in touch with Louise Veragoo, Not for Profit Tax Director.

Key business tax updates from the 2023 Spring Budget

Posted on by Alicia Sprott

Corporation Tax rates

The expected increase in the rate of Corporation Tax to 25% for many companies from April 2023 will go ahead. This means that, from April 2023, the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a ‘small profits’ rate, payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.

In addition:

  • Bank Corporation Tax surcharge changes will proceed, meaning that from April 2023, banks will be charged an additional 3% rate on their profits above £100 million.
  • Also from April 2023, the rate of diverted profits tax will increase from 25% to 31%.

Capital allowances

The super-deduction regime, which gives a 130% enhanced first year allowance (FYA) to companies on the purchase of qualifying plant and machinery, came to an end on 31 March 2023. Instead, the Government has announced Full Expensing, a 100% FYA, which allows companies to deduct the cost of qualifying plant and machinery from their profits straight away with no expenditure limit. Qualifying expenditure will include most plant and machinery, as long as it is unused and not second-hand, but will not include cars. Full Expensing will be effective for acquisitions on or after 1 April 2023 but before 1 April 2026.

A 50% FYA for other plant and machinery including long life assets and integral features (known as special rate assets) will operate along similar lines. Full Expensing and the 50% FYA are only available for companies and not for unincorporated businesses.

The Annual Investment Allowance (AIA) is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023. The Government has announced that the temporary £1 million level of the AIA will become permanent and the proposed reduction will not occur. The AIA amounts to full expensing for 99% of businesses. The long-term ambition is to make Full Expensing and the 50% FYA permanent.

The Government will also extend the 100% FYA for electric vehicle charge points to 31 March 2025 for Corporation Tax purposes and 5 April 2025 for Income Tax purposes.

Research and Development (R&D) relief

For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%, but the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%. A higher rate of SME payable credit of 14.5% has been announced and will apply to lossmaking SMEs which are R&D intensive. To be R&D intensive, the ratio of the company’s qualifying R&D expenditure must be 40% or above the company’s ‘total expenditure’ for the period. This equates to a receipt of £27 for every £100 of R&D expenditure.

The increase in the RDEC rate means the UK now has the joint highest uncapped headline rate of tax relief in the G7 for large companies. The Government is currently considering responses to a consultation on merging the RDEC and SME schemes and expects to publish draft legislation for technical consultation in the summer.

Other announced changes to the R&D regime include expanding qualifying expenditure to include the costs of datasets and of cloud computing. All claims for R&D reliefs will have to be made digitally and be accompanied by a compulsory additional information form. Companies will also need to notify HMRC that they intend to make a claim within six months of the end of the period of account to which the claim relates, generally if they have not made an R&D claim in the previous three years. These changes apply to claims in respect of accounting periods which begin on or after 1 April 2023 apart from the additional information form, which will be required for claims made on or after 1 August 2023.

The restriction to relief on overseas expenditure, designed to refocus support towards UK innovation, will now come into effect from 1 April 2024 instead of 1 April 2023.

For further advice on what these changes mean for you and your business, contact Mark Baycroft, Business Tax Partner, or your usual haysmacintyre contact.

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