Welcome to our latest accounting newsletter. Our events and seminars have had great feedback this year, and we are currently putting together the schedule for 2014, please let us know if you have any specific requests.
Our next events are:
- Employment Law & H.S. Seminar – 4th Dec
- Business Networking Evening – 10th Dec
- VAT Seminar – 22nd Jan
To book: email [email protected]
This month we welcome a new Account Manager – Jacqui Waring, who joins us from Deloittes. She will look after a portfolio of our clients and have specific responsibility for our clients who require audits as she is an audit specilalist. Last month our new Office Administrator Lauren Gardner joined us, and she has settled in fabulously. Please make Jacqui and Lauren welcome.
Our top priority before Christmas is to finalise as many of our clients personal tax returns as possible. If you haven’t given us your information as yet, please dig it out asap!
Please contact us for advice in your own specific circumstances. We’re here to help!
Table Of Contents
Using the SEIS
If the investor has made a capital gain in the same tax year as he makes the SEIS investment, up to 50% of the amount invested in SEIS shares can be set against that capital gain to reduce the CGT payable. This CGT reduction was 100% for gains in 2012/13, but is only 50% for gains arising in 2013/14.
That sounds wonderful, but there are a lot of conditions for the investor and the company to comply with before the SEIS tax relief can be given.
The first hurdle is to check if the company’s trade will qualify for SEIS relief. Many ‘safe’ financial trades such as banking, money lending, accountancy or legal services are excluded. Also any trade where the company is likely to hold valuable property doesn’t qualify such as; running hotels or nursing homes, farming, woodland management, property development or property dealing.
Businesses which are related to any of the excluded trades need to be looked at very carefully. For example running a public house can qualify, but if it lets residential rooms it could be classified as a hotel which would mean it doesn’t qualify. An estate agent business may qualify, but a large part of an estate agent’s business can be arranging mortgages, which is a financial activity that doesn’t qualify. HMRC are prepared to provide assurance in advance of issuing shares as to whether a particular trade will qualify.
The second major hurdle is that the SEIS investor must not hold more than 30% of the company either alone, or together with relatives or other associates. Other shareholders can hold 30% or more of the company, but those shareholders will not be eligible for the SEIS tax relief.
An SEIS investor can invest up to £100,000 in a single tax year on which tax relief can be claimed, which can be spread over a number of companies.
Earn-out Payments on Business Sales
How this earn-out is taxed can be tricky to work out, as it depends on a number of factors. For example: is the earn-out to be paid in cash or as shares or bonds, or is there a cash alternative to the offer of shares/bonds? Can the value of the earn-out be determined at the time the business was sold, or not until some later event has occurred?
Determining or ‘ascertaining’ the value of the earn-out is crucial for your capital gains tax computation.
If the earn-out can be ascertained (even within a broad range of values) at the time the business is sold, both the up-front and earn-out payments must be taxed as if they were both received together at the business sale date.
This can work in your favour. If the business sale qualifies for entrepreneurs’ relief, the up-front payment and earn-out which is taxed with it will also qualify for entrepreneurs’ relief. This reduces the tax payable on the earn-out to 10%. However, if the earn-out can’t be ascertained until it is received, it won’t qualify for entrepreneurs’ relief, so will be taxed at 28% (or your highest rate for CGT).
We should discuss all this before you finalise the sale of your business. There are numerous ways of structuring the payment for a business and they all have different tax implications.
VAT and Indirect Exports Change
If your customer does the physical exporting, in that they take possession of the goods in the UK and handle the shipping, this is called an ‘indirect export’. HMRC has previously only allowed you to zero rate the goods in this situation if your customer was an ‘overseas person’ – they had no VAT registration in the UK and no business establishment here. Also the goods must leave the UK within three months of the handover date.
From 1 October 2013 the rules for indirect exports have been relaxed slightly. Now you can zero rate the goods for export to a country outside the EU even if your customer is VAT registered in the UK. However, the customer must still not have a business established in the UK.
This change in the rules has been brought about due to pressure on the UK to comply with EU rules. It is thus effectively back-dated for four years. If you believe you have applied VAT in the last four years when under this change of rule it would not apply, you can reclaim that VAT. However, HMRC will expect you to pay back any reclaimed VAT to your customers who original bore the VAT on the goods.
We can help you check that you have the VAT position on any exports 100% correct.
New RTI Messages
That is starting to change. HMRC is now sending electronic messages to employers to inform them that not all is well with their RTI reports. The first messages concern late submitted FPS reports, but in future there will be messages about late paid PAYE and missing RTI reports.
It is important to get the FPS in on time as then HMRC know that the amount of PAYE paid for the month agrees with the deductions you have reported on the FPS. HMRC will not impose penalties for any late FPS submitted within 2013/14, although the final FPS for 2013/14 (which closes the tax year), can carry a penalty if that is significantly late. The messages about late FPS reports are thus just a warning from HMRC in this tax year, but may indicate there is something wrong with your systems.
From 6 April 2014 there will be automatic penalties for filing a FPS late within the tax year. ‘Late’ means it arrives with HMRC after the date on which the employees were paid. There will also be penalties for paying PAYE late.
In order to pick up these electronic messages from HMRC you need to use your payroll software, or log on to HMRC’s PAYE online services, then look for notifications. The messages are also available using the HMRC’s PAYE desktop viewer (PDV) software package. However, the PDV has just been updated so you may need to download the latest version first.
These electronic messages about FPS will be the first of many important messages concerning RTI, so you need to get used to looking for them.
November Question and Answer Section
A. It depends on whether the property was capable of being let before you carried out those refurbishments. If it was legally safe to let it – then the expenditure was probably ‘repairs’ and is allowable. If the property was in such a bad state that it could not be let to anyone, even on a tiny rent, the costs are likely to count as improvements and will not be allowable. We need to look at the detail of what work was done, and the context of your entire lettings business before we give you a final answer.
Q. The Taxman has written to me saying I missed a small pension worth about £800 a year from my last tax return. He hasn’t noticed that I also missed it off the last four tax returns. What should I do?
A. Best advice is to come clean immediately and tell the Taxman about all the missing amounts of pension income for all tax years. There may not be more tax to pay if the pension provider has already deducted tax at your marginal tax rate. However, if there is higher rate tax to pay there will also be interest due at 3% and possibly a penalty. By confessing all without delay you can qualify for a reduced penalty, down to say 15% of the tax due. We can help you with those penalty negotiations and may be able to get it suspended for up to two years.
Q. I’ve just won a sports car! The snag is the prize is only available from the company’s headquarters in Seattle, USA, although there is a cash alternative. Are there any tax implications of accepting the prize in the form of the car or as cash?
A. Most states in the USA impose a tax on competition prizes, but the awarding company may allow for that. There is no similar tax in the UK. If you take the car and ship it back to the UK there will be import duties and VAT to pay, so the cash alternative may be more tax efficient.
November Key Tax Dates
- 2 – Last day for car change notifications in the quarter to 5 October – Use P46 Car
- 19/22 – PAYE/NIC, and CIS deductions due for month to 5/11/2013