the autumn statement & draft finance bill 2014 - provisions affecting businesses

The Autumn Statement & Draft Finance Bill 2014

Provisions affecting Business

9 January 2014

CBW Tax

Share Schemes

• SIPPs: limits increased to £3,600 for free shares and £1,800 for partnership shares

• HMRC approval replaced by self certification for all approved schemes

• Simplification?• For HMRC• For businesses

Employee PAYE payments wheretax deduction is not possible

• From 2014/15 an employee can reimburse the employer up to 90 days after the end of the tax year

Companies owned by Employee-Ownership trusts (EOT)

• An EOT is a new tax privileged vehicle to hold shares in trading companies – for those who want to pass the company on to employees (all employees that is)

• Must be solely for benefit of employees• All employees must participate ‘equally’

(= in the same manner)• Must exclude 5% shareholders• Must not make loans to beneficiaries


• Several members can sell to the EOT• But all sales must take place in the same tax year

to avoid MV• And a vendor must not have previously sold shares

to the EOT (so is not suitable if shareholder wishes to withdraw gradually)


• There is a deemed disposal by the EOT if it later loses control or the company ceases to be a trading company

• The EOT can pay each employee up to £3,600 pa tax free out of dividends from the company

• Can claim income tax relief for the investmentup to 1 Million pa- but at basic rate only

• Applies to a:- community interest company- community benefit society- charity

Investments in Social Enterprises

Investments in Social Enterprises

• Applies only for 2014/15 to 2018/19• Investment can be loan or equity• But it must be made wholly in cash; fully paid at

the time of the investment• But must be a risk investment

Investment in Social Enterprises

• No pre-arranged exit route allowed• No arrangements (incl insurance) to provide

protection against risk allowed• No linked loans allowed• Investment must be made for genuine commercial

reasons

Loan

• Must not be secured• Must not be entitled to a return greater than a reasonable

commercial rate• Must be subordinated to rank with lowest class of equity on a

winding up

Shares

• Any dividend must be contingent on successful financial performance by the social enterprise

• Must not have a right to a dividend in excess of a reasonable commercial rate

• Must not have any preferential right in a winding up• The shares must be fully paid

• The investor and his associates must not own over 30% of the enterprise or of a related company

• And must not be (or ever have been) an employee, partner, trustee or paid director of the social enterprise or a related company

Further conditions

• The social enterprise must not be a quoted company• The value of its assets must not exceed £15 million before the

investment or £16 million after it• The social enterprise must not raise more than 200,000

euros?• The social enterprise must not have more than 500

employees

Further conditions

• The social enterprise must not be a quoted company• It must carry on a qualifying trade• The money must be wholly invested within 28 months• The social enterprise must not be in financial difficulty

- so that seems to rules out buying the village shop or pub!!

Further conditions

• The scheme adopts many of the EIS rules that need to be met for the first three years

• The investment must be held for at least three years• There is also a CGT hold-over relief• But only to the extent that the money reinvested qualifies for

the income tax relief

Further conditions

Other employee benefits

• Recommended medical treatment- but only to get staff back to work quicker

• Interest free employee loan limit• Pensions: standard lifetime allowance• Interest on loans to buy an interest in a close company• Company car benefit scale

Corporation Tax

• Small companies rate to be abolished in 2015/16• Film tax relief

- minimum UK spend reduces to 10%- relief will be extended to cover first £20 million of all

qualifying films

Corporation Tax

• Worldwide debt cap• Change in company ownership anti-avoidance rules• CFCs: qualifying loan relationships

Business Premises Renovation Allowance

• Definition of qualifying expenditure restricted from 6 April 2014

• Expenditure will not qualify to the extent that it exceeds what would have been normal and reasonable to incur in the market conditions prevailing

Business Premises Renovation Allowance

• No relief if building used (for anything) at any time in prior 12 months

• If the work is not completed within two years of the expenditure, the expenditure is deemed not to be incurred until the work is completed

• No balancing adjustments after 5 years

Other miscellaneous changes

• Mineral extraction allowance• Abolition of SDRT and stamp duty on securities

admitted to trading on a ‘recognised growth market’- No such markets currently exist

• SDLT charities relief- cuts down the Pollen Estates relief

Other miscellaneous changes

• Corporate gift aid relief for donations to Community Amateur Sports Clubs

• Transfer pricing where disadvantaged person is liable to income tax

VAT

• The Union Scheme: Mini one stop shop for electronic services- Simplification?

• Place of belonging• Supplies of electronically supplied services through an agent

PAYE: Agency workers

• Will apply where• a) an individual personally provides (or is personally

involved in the provision of) services (other than excluded services) to another person (the client),

• b) there is a contract between the client and the agency under (or in consequence of) which the services are provided and the client pays (or otherwise provides consideration for) the services, and

• c) remuneration receivable by the worker does not otherwise constitute employment income

UNLESS…

PAYE: Agency workers

… it is shown that the manner in which the worker provides the services (or the manner of the worker’s involvement in the provision of the services) is not subject to (or to the right of) supervision, direction or control by any person

• What does that mean?

PAYE Intermediaries

• If a person works in the UK but is employed by a non-resident and placed in the UK by an intermediary, and the employer does not deduct PAYE the intermediary is liable for the PAYE (HMRC Have to go down a chain of intermediaries)

• Lets the end user off the S689 hook!

LLPs: Salaried Members

• Treated as an employee if:- will perform services as a member AND it is reasonable to expect that the amount payable by the LLP will be ‘disguised salary’- the member does not have significant influence over the affairs of the LLP- the individuals partnership capital is less than 25% of his disguised salary

Disguised Salary

• An amount is disguised salary if it is fixed or it is varied other than by reference to the LLP’s overall profit/loss

• In determining whether the provision applies no regard is to be had to any arrangements designed to secure that they do not apply

LLPs: Salaried Members

• The provision also applies if the salary is routed through a corporate member to try to secure that S863A does not apply

• The deemed salary is of course deductible by the LLP

Partnership with mixed members

• The individual member is taxable on the profit share of the corporate member if either

- it is reasonable to suppose such profits represents the individual’s deferred share of profit, or- the individual has power to enjoy the corporate member’s share

Partnership with mixed members

• BUT the corporate member’s ‘appropriate notional profit’ (ANP) remains taxable on it, not the individual

• Do not rush to get rid of corporate members- provided that you are up for a fight!

• Can you maximise the ANP?

ANP is the sum of:

• The provision also applies if the salary is routed through a corporate member to try to secure that s 863A does not apply

• The deemed salary is of course deductible by the LLP

Commercial Rate of Interest

• What is a commercial rate of interest?• It must be higher than a bank would charge as a bank will

normally want security or guarantees• What if the bank wouldn’t lend at all?• If the company has been in existence for several years it

might have built up a significant amount of capital

Tax Planning

• Can you recycle the individual’s capital account?• Can you require the company to introduce substantial capital

into the LLP within a short period?• What if it borrows (on a full recourse basis) to introduce the

capital into the LLP?

Tax Planning

• Can you put a profitable function into the corporate member and let it sell the service to the LLP?

• Or take a share of profit in consideration of providing the service?

Tax Planning

• There is nothing to lose (other than aggravation)• If the company’s share is taxed on the individual the company

can hand it over to the individual without further tax• The provision also applies if the individual is not a member

but his personal services company is

Excess Loss Allocation to Partners who are individuals

• If an individual makes a loss in a trade as a partner in a firm, and that loss arises wholly or partly, in connection with arrangements the main purpose of which is to secure that losses of a trade are allocated to individuals (rather than to companies) with a view to the individual obtaining loss relief, no loss relief is to be given to the individual for his loss

• This seems to be an in terrorem provision as it denies relief for the entire loss, not merely the part transferred

Alternative Investment Fund Managers: Deferred Remuneration

• Can elect to apportion the deferred remuneration (or part of it) to the firm

• The firm will be taxed on it at 45%• When it is paid over to the individual he will be

taxable on it if he is still carrying on the trade, but can claim credit for the tax paid by the company

• And presumably a refund if his then tax rate is below 45%

Disposals of income streams through partnerships

• A new anti-avoidance provision to stop an individual selling a right to income to a partnership

• It taxes the sale proceeds as income• There is already an anti-avoidance provision to

thwart such sales to a company

Other Corporation Tax changes

• Derivative contracts between group members• Limit on DTR against corporation tax

Other goodies

• Business rates- 2014/15 increase capped at 2%- Continuing relief for small businesses

• National Insurance- Abolition of employer’s contributions for workers under 21- £2,000 deduction from contns

Robert Maas

Tax Consultant & Tax expert

Robert is a giant in the tax world. He is widely regarded as one of the leading tax practitioners in the UK and is a long-standing tax commentator. He has authored extensively on tax and is always a draw card speaker.

The announcement that Robert had won the 2013 Lifetime Achievement Award was met with a standing ovation. Robert is well-loved and much respected – with good reason.

Amongst other roles, Robert is a member of the Technical Committee of the ICAEW Tax Faculty.

t: +44 (0)20 7309 [email protected]

Thomas Adcock

Tax Partner

Thomas is a specialist in helping businesses to understand the tax implications of their actions. He works closely with entrepreneurs to manage their tax liability when engaging in property deals, M&A, re-organisations, growth, international deals or when simply looking to improve their tax efficiency.

He also works with ambitious and successful individuals who wish to build, spend or share their personal wealth tax efficiently.


Andy White

Tax Partner

Advising clients on their strategic tax affairs is Andy’s specialist area. He combines his deep technical knowledge and creativity to deliver real taxation solutions that advance clients’ commercial and personal interests.

With 30 years’ general practice experience, including advising on flotation's, MBOs and secondary buyouts, Andy makes an excellent advisor to most businesses experiencing rapid growth or considering strategic changes.


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