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Tag: Tax Avoidance

Tax Avoidance

  • Are You A #Tax Avoider?

     1. Did you pay £50,000 or more to an accountant/adviser/bank to set up a scheme or provide funds?

    2. Have you set up an additional company or are you carrying out an additional transaction that you wouldn’t otherwise have done?

    3. Are you really a second-hand car dealer? Or do you have another very full time job such as a Radio 1 DJ?

    4. Does a large amount of money move around in a circle and come back to you, minus fees paid to the accountant/adviser/bank?

    5. Are you spending a lot of time changing how you run your business or personal life just because you’ve been told to?

    6. Do your advisers talk about Tax Counsel’s opinion?

    Probably out of these, 2. is the most problematic.

    If you’re a shareholder and a director in your own company, and you pay yourself dividends out of taxed profits, but could have taken a salary instead, is this included? No. You really are a shareholder. Your company really made profits. And you really decided to take a dividend. Paying a dividend is one of several normal choices available to a shareholder-director.

    Different to all of the above is tax evasion which is simply not telling HMRC about income you’ve earned or pretending you’ve spent more money. This has and always will be illegal and often confuses the debate!

     

     

     

     

  • Autumn Statement – AKA The Pre-Budget Budget

    Today’s Autumn Statement was more of a mini Budget than usual. Presumably due to the recent pressure being applied by the opposition.

    The good news for businesses is that taking on an under 21 year old won’t cost you any national insurance, but only from April 2015. In the meantime, if you can’t wait, you can employ anyone on up about £22k (or more than one person on lower salaries) from April 2014, and, under a previously announced measure, this won’t cost you any national insurance either. Both rules will continue into April 2015, so you could arrange your workforce to cost you no national insurance at all.

    It has at last been recognised that small retailers need help in competing against the Internet. Potentially, the most valuable relief is a 50% reduction in rates when re-occupying an empty property. Being able to pay rates in monthly instalments may also be helpful for some.

    Despite the stated aim to simplify tax, we now have another class of national insurance: Class 3A. This is nothing to do with employment or business, but it’s worth knowing that there’s another route to topping up your additional state pension, if necessary.

    A surprise change to the capital gains rules on homes means that the 3 year rule helping to exempt many homes from some/all of its capital gains tax, is being reduced to 18 months. This means that if you no longer live in your residence and you let it out before selling it, you can only have the last 18 months of the letting period tax free, together with the actual period of your residence. This indicates a certain amount of impatience with second home owners and the reduced tax they pay.

    It’s also worth noting there are now plans to make inheritance tax returns online. This will save executors a lot of time and hopefully speed up the whole process with HMRC.

    HMRC might need this help too, seeing as they are under a lot of pressure to continually find more tax from new anti avoidance measures. Identifying, challenging, and retrieving this tax due isn’t easy, particularly within these time frames. Expect a more aggressive attitude in certain areas.

  • #Tax Myth 3 – Tax Avoidance Is Illegal

    When there was a window tax paid according to the number of windows in a building, property owners blocked out some windows with the sole purpose of paying less tax.

    Was this tax avoidance? Yes

    Was this illegal? No

    Some property owners may have lied about the numbers of windows on their property with the sole purpose of paying less tax.

    Was this tax evasion? Yes

    Was this illegal? Yes

    If you apply this analogy to today’s discussions on tax avoidance you can see why it is perfectly legal to organise your business and personal life in a way that means you pay no more tax than you should do.

    When windows were blocked out there was a real event and a real consequence to that action; less light, more wall, rooms reconfigured. There was a practical limit as to how far you could go. A property with no windows wouldn’t have been attractive for any tenant to rent or for resale.

    What is not legal is to lie. This includes not declaring income in your accounts or on your tax return and hiding income in overseas territories.

    Under declaration of income has been the subject of numerous HMRC cases over the years some of them deliberately concerned high profile people.

    We may not like Google, Amazon, Vodafone et al paying low rates of corporation tax, but they are simply following the rules.

    Are we suggesting they aren’t allowed to ‘block up some windows’?

    Of course there are grey areas, such as, for Google et al, what is the amount of profit applicable to each part of the supply chain and therefore which part is the UK’s taxable profit or, say, Ireland’s?

    These figures are documented and reviewed at great length by HMRC and there are probably about 100 correct answers. Perhaps this still needs more scrutiny. But let’s be clear what we are talking about.

  • Budget 2013

    Necessarily a muted Budget, as the Chancellor had little room for manoeuvre, but there were a couple of surprises to keep us interested!

    National Insurance £2,000 Credit – from April 2014

    Giving a £2,000 credit from April 2014 against employer’s national insurance is a welcome initiative which may encourage small businesses to take on some staff.

    Using the 2013/14 national insurance thresholds, one employee could be taken on next year earning a salary of £22,000 and the employer’s national insurance bill will remain at £Nil.

    Director-Shareholder Loan Accounts

    Any temptations to take a director-shareholder loan, repay it before corporation tax is charged on it, and then borrow another amount soon afterwards, so that not too much has in reality changed, will no longer be tolerated under a new anti avoidance rule effective from today. This is very important for forthcoming March 2013 year ends.

    On the other hand, loans can be made from April 2014 to employees and directors up to £10,000 (was £5,000) without an income tax cost. Even if the loan is under £10,000 it will still need to be repaid by director-shareholders before 9 months after the year end and not repeated to save a corporation tax charge.

    If you have staff who would benefit from a loan (and you have the cash and are willing to lend it to them!) this might be worth looking at as a way of giving some tax free value to your employees.

    Personal Tax Allowance – £10,000 – from April 2014

    As £10,000 is one of the Chancellor’s favourite numbers, the tax free income tax allowance has been increased one year earlier than predicted from April 2014.

    With the likelihood that employer’s national insurance will start at a much lower threshold and with the new £2,000 credit, there is a widening gap where the tax cost of a higher salary might start to be lower than the tax cost of dividends.  Perhaps this is the intention!

    Alternatively, where profits are made on rented profits, the £10,000 allowance will be a useful way to keep the tax on that property as low as possible.

    Seed Enterprise Investment Scheme

    The capital gains tax refund for the investor originally planned to last until March 2013, continues to be available into the next tax year, although at half the amount. This is a welcome extension which should help SMEs raise the finance they need.

    More information will come out in due course, so it’s always checking the detail before taking any action.

  • Budget 2012 – Wealth Creators 1, Wealthy Grannies 0. Simplification 2, Complication 1.

    Today’s Budget certainly had a strong business emphasis to encourage and incentivise business growth. On the other hand, artificial transactions set up simply to avoid tax would not be tolerated.

    Administrative Simplifications For Business

    A very important message for business is the introduction of more simplification. HMRC are merging parts of their online screens so it’s easier to check your tax due and paid. PAYE and NIC administration is being merged possibly followed by a merger of the rates. If your turnover is less than £77,000 you can opt to prepare your accounts on a cash basis. Helpfully, this is the same as the VAT threshold so you needn’t worry about VAT either.
    Therefore you may find the navigation of the tax system that bit easier. I also suspect this means small businesses won’t be subject to the new business records checks so often as the risk of an error must be much lower and it can’t be worth an Inspector’s time.
    Any of your staff earning less than £8,105 this tax year and £9,205 next tax year, often part time employees, will pay no income tax and little national insurance. However, this seems to mean the PAYE system must still be operated and this will allow your staff to achieve their state pension credits. Importantly, it may help in the recruitment and retention of part time staff, as they will have a higher take home pay. Always something useful to know when hiring staff.

    Corporation Tax Rate Simplification

    Profits up to £300,000 are taxed at 20% and profits over £1.5m are taxed at 24% from April 2012. Profits in between £300,000 to £1,500,000 suffer a higher marginal rate than the 24%. With the continual reductions to the main corporation tax rate, it looks as though the Chancellor wants all companies to eventually pay the lowest 20%. This is very welcome as it means companies don’t have to worry about crossing the £300,000 threshold which does cause successful companies some issues.

    Tax Free Personal Allowances and Higher Rate Tax Band Complication

    The higher rate tax kicks in at £42,475 for 2011/12 and 2012/13, however, it reduces by £1,025 to £41,450 for 2013/14 bringing in many more taxpayers to the tax return system. Along with the tapered loss of child benefit, there is a certain lack of simplification about this area.

    Wealth Creators Encouraged – Share Options – (EMIs)

    The threshold per employee has increased from £120,000 to £250,000. This increase may encourage more companies to offer these share options. It is also very useful where the market value of a private company is difficult to determine as it gives some ‘wriggle room’ should HMRC dispute the value given. EMIs are probably under-utilised as there is a certain amount of paperwork required. However, they are an important way of providing a share-based incentive without having to give any of your shares away. And they can apply to just one employee. Plus there’s no income tax or national insurance to worry about at the beginning and in many cases none due later on if the employee pays the original market value of their shares. Your new employee feels incentivised but you still own your company and there’s no up front tax to pay.

    Wealthy Individuals Anti-Avoidance

    Generally there is a strong message that this will no longer be tolerated. What is it? It’s not seen to be things like allocating your salary and dividends to an optimum level. But it does include putting in high value residences into a company for no other reason than to save stamp duty. Many regard this is as an artificial transaction. The Chancellor has come down very hard on the stamp duty avoidance – something HMRC itself did not so long ago! – and applied very stringent tax rates much higher than the stamp duty which has been avoided. This sort of anti-avoidance has popular public opinion behind it and looks set to continue.

    Wealthy Grannies

    They are likely to be living off large pensions, interest and dividend income, but they aren’t new wealth creators. Under the guise of simplification, these higher allowances for pensioners are being reduced. With the increase in the standard tax free personal allowance applying for all of us, perhaps this was inevitable.

    Conclusion

    The Budget is sending out a message that the Government is behind business. However, more than that, it needs business to succeed.