Leicester Festival of Postgraduate Research

The Miller Partnership sponsored and provided a judge for the Leicester University Festival of Postgraduate Research held on 29 June 2017.

During the Festival the University showcased its best research student talent and this year the standard of entries was very high. Expert judges were extremely impressed by the breadth and quality of work on display and the knowledge and passion for research demonstrated by our presenters.

Find out more at http://www2.le.ac.uk/staff/announcements/graduate-school-announces-winners-of-the-13th-festival-of-postgraduate-research.

Newsletter May 2017

TAAR:   Why you should stop worrying about the new anti-phoenixing measures

When the details of the Finance Act 2016 were first published, new measures such as changes to the Targeted Anti Avoidance Rule (TAAR), were met with a fair degree of interest by company owners.

However, as the months have gone by and these changes have started to bed in, what was initially just a talking point has become a cause for concern for many of the businesses I talk to.

The TAAR was introduced by the Government to prevent what is known as “phoenixing” – the process whereby shareholders receive capital distributions on the winding up of company then go on to run a similar business in another form, such as carrying on the same business as a sole trader after winding up the company, or continuing the same trade through another company.

If you are caught by the TAAR then you could see your capital distributions being taxed as dividends at an income tax rate of up to 38.1 per cent – and not as capital gains tax which may attract entrepreneurs’ relief at the much more favourable rate of 10 per cent. The rules make quite a difference.

The crux of the matter lies in whether or not you are trying to avoid paying income tax by phoenixing the company, which is something only you, or the clients you are advising, can decide.

Many people I have spoken with worry that the anti-phoenixing rules will catch them.  In many cases, the TAAR is not a problem; clients just need reassurance that they are 100 per cent commercial.  But there are cases where we need to look more closely at the rules and their application to the particular situation.

Crucially, businesses should note that the TAAR can only apply if you are liquidating and not selling your business.  We may be able to help you with opportunities to sell the company as a money-box, instead, so if this might be helpful, please call or email us at once.

Although the anti-phoenixing rules are still fairly new, The Miller Partnership has many years’ experience in advising on such motive-based tests in taxation law.  The chances are, the rules won’t apply to you, but if you think that they might, please talk to us. We can help.

Even in wholly commercial cases, HMRC might decide to enquire into the situation, because they think that the TAAR might apply.  Those cases will also need careful handling, to ensure that we are able to convince them of the commerciality of the winding up.  The evidence will be a major factor in HMRC’s decision, so call us if you are thinking of winding up your company, and we’ll help you make sure that you have all the proof you will need.

The changes to the transactions in securities rules mean that, apart from considering the TAAR, if you are planning to wind up or liquidate your business, you must get tax clearances from HMRC first. It’s vital you do so and I cannot stress this course of action strongly enough.

Food Glorious Food – a scrumptious and hilarious night at Soft Touch Arts

The Food Glorious Food Jukebox Jokeslam at Soft Touch Arts sponsored by Miller Partnership and Jukebox was truly an evening of Foodie fabulousness.

Guests enjoyed great food and drink, a fabulous buffet, whilst anticipating the comical entertainment for the night, which included a spot from Pete.

The event raised the stunning amount of £2,800 – full details on the Soft Touch Arts blog.

Spring 2017 Budget: sowing the seeds

Thompson Reuters Practical Law asked leading tax practitioners for their views on the Spring 2017 Budget.

Pete Miller pointed out the contrariness in the Chancellor’s approach:

“The real difference is that the self-employed people and small business owners bear the commercial risks of their businesses failing, risks that simply do not apply to employees; they put their own money into starting businesses, employing workers and driving the economy forward.”

Read Pete’s full contribution.

Budget 2017 comment from corporate tax expert Pete Miller

Budget 2017 comment from corporate tax expert Pete Miller of The Miller Partnership, based in Leicester.

“Probably the biggest issue in the Budget is the increase in class 4 National Insurance contributions for self-employed people to 10 per cent from April 2018 and 11 per cent from April 2019.

Additionally, director shareholders are also penalised by the reduction of the tax-free dividend allowance from £5,000 to £2,000 a year from April 2018.

This means that most self-employed and owner-managed companies will be worse off.

The Government talks a lot about supporting working families but its actions belie its words, with big tax hikes for self-employed people and small business owners.

The Chancellor’s rationale was that differences in National Insurance were justified by differences in pension and benefit entitlement for employees.

But the real difference is that self-employed people and small business owners bear the commercial risks of their businesses failing; risks that simply do not apply to employees.

Business owners and the self-employed put their own money into starting businesses, employing workers and driving the economy forward, and increasing their tax burdens will reduce the attractiveness of business ownership.”

New publication available ‘Tolley’s Tax Digest 173 – Transactions in Securities’

Tolleys Tax Digest - Transactions in Securities Issue 173 March 2017Tolley’s Tax Digest – Transactions in Securities, issue 173 March 2017 is now available.

This publication by Pete Miller contains detailed, expert guidance:

  • fully updated for the FA 2016 changes;
  • relevant case law, including Cleary, Greenberg, Joiner and Wiggins;
  • impact on reductions of capital;
  • effect of winding up close companies;
  • new fundamental change of ownership test;
  • changes to the motive tests;
  • extended definition of income tax advantage;
  • clearances;
  • counteraction;
  • appeals;
  • and much more.

February 2017 Newsletter

Pete Miller of The Miller Partnership looks forward to another eventful 12 months for the business tax world

There is no doubt that 2016 was an eventful 12 months for the UK’s  corporate tax sector, with 2017 set to bring its own set of challenges for businesses and individual taxpayers.

In the year that brought us Brexit – not to mention new incumbents at Number 10 and Number 11 – we also witnessed the implementation of a number of far-reaching tax changes in the Finance Act 2016.

Although some of these rule changes could be accurately described as onerous, and in some instances a little too ‘one size fits all’, there have been some welcome developments.

One notable positive development for the tax sector – and, indeed, for common sense – has been HMRC’s s decision to roll back some of the worst excesses of the Finance Act 2015.

You may recall that HMRC made a number of amendments to Entrepreneurs’ relief in the 2015 Act, which, although intended to combat avoidance, were so poorly aimed that many commercial structures were unfairly affected.

Fortunately, tax professionals, myself included, sat down with HMRC to thrash out our concerns, resulting in amendments so that the rules were properly and accurately targeted – replacing the original blunderbuss approach with a sniper’s rifle – and also backdating the changes to the time when they were originally introduced.

This clearly demonstrates what can be achieved when the tax industry and HMRC come together in a spirt of co-operation and I’m proud to have played my part in achieving such a satisfactory outcome.

Looking forward to the year ahead, one  key change emerging from the Finance Act 2017 concerns the way in which ‘enablers’, such as tax advisers and accountants, are treated from a taxation perspective.  Until now tax avoidance penalties have only ever been targeted at tax-payers themselves – not the professionals who advise people on their tax affairs, so this is quite a significant step.  Once again, we are pleased to see that HMRC’s original and draconian proposals have been better targeted.  Under the new, revised proposals, enablers who assist their clients in gaining tax advantages that HMRC believes were never intended by Parliament, could be fined up to 100 per cent of their fees.  The new rules only apply to tax-saving arrangements that would be subject to the general anti-abuse rule. This is in contrast to HMRC’s original suggestion that these penalties might apply to tax advice on normal commercial transactions, such as the transactions in securities rules – an area in which we specialise.

In a related development, taxpayers will find it harder to avoid penalties if they have failed to take proper care when submitting their tax returns.  Until now businesses have only had to prove to HMRC that they sought general professional tax advice, but that is about to change.  Under the new rules business owners must be able to demonstrate that they took “appropriate” advice which is pertinent to their own business’s needs and circumstances.  So relying on generic advice, taken, for example from a scheme promoter, will no longer be adequate to prove that the taxpayer was not careless if the scheme fails and that they have therefore submitted an incorrect tax return.

Other measures which come into force courtesy of the Finance Act 2017 include the way business losses are treated for tax.  These welcome changes mean that companies will be able to use losses more flexibly, with carried forward losses being available to set against all future sources of income and also being available for group relief.   At the moment, carried forward losses can usually only be set against the same kind of income in future years and cannot be used for group relief.

Of course 2016 was not only a busy year for the UK tax sector – it was a memorable one for The Miller Partnership too.

It is now five and a half years since our tax consultancy was established in Leicester city centre, and in September we moved to more spacious premises in New Walk House, 108 New Walk; just a few hundred yards from our old office.

During 2016 I also had two technical tax books published – the Taxation of Partnerships published by CCH and Taxation of Company Reorganisations published by Bloomsbury – as well as continuing to lecture extensively on tax issues.

It was also gratifying to receive national recognition from the Chartered Institute of Taxation, (CIOT) the UK’s leading professional tax body.

In October the Institute presented me with the CIOT Award of Certificate of Merit for my contribution to education and conference lecturing.  It was a great honour – especially as this recognition came from my fellow tax professionals.

Nearer to home, The Miller Partnership is proud to play its part in Leicestershire’s thriving business community.

We continue to work closely with De Montfort University in offering mentoring to its business and finance students and graduates and in promoting the benefits of mentoring training to others.

Similarly we have forged a lasting relationship with our New Walk neighbours, Soft Touch Arts.

This award-winning local charity uses arts, media and music activities to engage with and change the lives of disadvantaged young people.

We have helped Soft Touch Arts to fund its ongoing mentoring programme as well as assisting financially by paying for table cloths and place mats at its pop-up café.  And we are linking together with the Leicester Comedy Festival to present Food, Glorious Food! At Soft Touch Arts, an evening of comedy and food, with amateur and professional comedians, a joke slam and a comedy quiz, and other excitements and surprises, all in aid of Soft Touch, on 21st February.

Although The Miller Partnership operates at a national as well as local level, it is great to be actively involved in the local business scene. We have a busy schedule planned for 2017 and look forward to taking a role in the Leicester Comedy Festival as one of its Platinum Business Partners.

 

L Factor: singers get set to raise the roof!

From the Leicester Mercury

 

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Members of the business community are exercising their vocal chords in preparation for a big fund-raising celebration.

Accountants, lawyers and even plumbing merchants are getting ready to join the X Factor-style charity singing event – called the L-Factor – on March 31.

Up to 1,000 people are expected at the big night out which could raise up to £50,000 for charity. Tickets are £20 each.

Organisers have confirmed the event will be held at the Leicester Arena, home of the Riders basketball team, and a short walk from the city centre.

The night will see singing acts – made up of local business people – battle it out on stage in aid of the Lord’s Taverners.

The charity raises money for young people from disadvantaged backgrounds and those with disabilities to help them enjoy sport.

Some of the money will support the Leicester team at the Special Olympics in Sheffield this summer.

County business consultant Ian Guyler, who is chairman of the Lord’s Taverners for the East Midlands, said: “We’ve got £20,000 from our five main sponsors and from a band sponsor, and are hoping for a further £30,000 from ticket sales and contestant sponsorship.

“We have 12 contestants from the business community already signed up and we are looking for between 750 and 1,000 to attend on the night.

“We had 1,000 people the last time we did this in 2014 and tickets are on sale now and are already selling well.”

Main sponsors are Total Motion, Interserve Learning and Apprenticeships, Hastings Direct, Gateley and SME Capital.

The house band on the night – called the Y Fronts Band – is being sponsored by plumbing merchants Pochins.

The backing band is made up of well-known business faces – Gateley senior partner Gareth John, Mattioli Woods consultant John Kelly, Soft Touch Arts business development director Christina Wigmore, BDO audit manager Simon Cotton, and Maytree Group manager director Nigel Upton. This will be the third L-Factor Mr Guyler has arranged which – combined with an It’s a Knockout-style Gauntlet event at Leicester Tigers last summer and a light-hearted debate at Leicester Cathedral – have raised a total of £200,000.

The organisers have even recorded a pop video which sees business leaders singing their version of Dancing in the Street. It can be viewed on the business section of the Leicester Mercury website

Peter Bailey is local business development manager for Total Motion, a UK-wide leasing and fleet management business based in Meridian Business Park.

Mr Bailey, one of the stars of the video, said: “We supported it before and are delighted to be a headline sponsor.”

Leicester Riders chairman and arena director Kevin Routledge said: “We are absolutely delighted to be hosting the L Factor for the first time, and supporting the charitable work of the organizers from the Lords Tavenors.

“It is a great event and provides us with a superb opportunity to showcase the arena.”

To buy tickets, call 0116 326 9700 or visit:

www.leicestercommunity sportsarena.com/events/l-factor

Read more at the Leicester Mercury.

Tax and The Great British Bake Off: What’s the connection?

Millions of us have been watching The Great British Bake Off over the last few weeks, alternately laughing and crying with the contestants as they bake fabulous show-stoppers or produce undercooked, soggy-bottomed disasters.  But this time there is also a sense of loss as the much-loved BAFTA-winning show moves from the BBC to Channel 4, leaving most of the original cast behind.

Such sad partings are actually very common in the commercial world: people who have gone into business together frequently reach a point where they want to move in different directions, and need to separate their interests.  It may be that the business’s owners no longer see eye to eye and have fallen out, or it could be that their opinions differ about what direction their business should take. Alternatively, it may simply be that some areas of the business are more exposed to risk than others, so a spilt will help to address these different risk profiles.

And that’s where tax comes in, because without expert help, a division of a business in this way can lead to unexpected tax bills for both the shareholders and the companies themselves.  We call these transactions “demergers”, although “division” is a better description.  Demerging a business might sound complicated and daunting, but with the right tax advice, breaking up can be as easy as pie.

More recently, demergers have been made more difficult with some hardening of attitudes within HM Revenue & Customs and also because of recent changes to stamp duty.  We have managed to develop mechanisms to ensure that these changes should not impact on commercial transactions, and we continue to engage with HMRC to try and reverse the worst effects of recent legislation.

The Miller Partnership has wide experience of dividing companies and groups into two or more parts, taking advantage of all the relevant tax reliefs and obtaining clearance in advance from HMRC.  We can use our expertise to carry out these demergers by any of the known mechanisms – distribution in specie, liquidation or reduction of capital – and we can advise you on which one best meets your commercial needs.

We are currently helping a large UK engineering group restructure ready for a major investment by a European multi-national group.  At the other end of the scale, we are working with a family-owned nursing home group to separate the valuable properties from the high-risk care business to protect its assets.  Another of our recent successes was in separating a multi-million pound property portfolio between its shareholder families, so that one family could focus on the rental side of the business and the other could move into property development.

In all cases, we design the demerger in the most tax-efficient way, we explain the transactions to HMRC so that they can formally approve the tax treatment before we start, and we work with the client’s lawyers and accountants to make sure the tax outcome is what our clients expect.  In every case, our timely intervention has allowed clients to fully exploit their businesses’ full potential.

Whether you are The Great British Bake Off or a family-owned business, please contact The Miller Partnership by phone or by email for more information. We can help you break up your business painlessly and effectively; in fact with our help it should be a piece of cake!

Direct Line: 0116 208 1020

Mobile: 07802 197269

Email: pete.miller@themillerpartnership.com

De Montfort University Employability Mentor Training

We are very proud to work closely with De Montfort University and in particular with their Employability Mentoring Officer – Andy Morris. Pete has spoken at the University before as well as mentored one of their business students so he was delighted to be included in their recently run Mentor Training. This video was put together after Pete attended the session and the film will be used to communicate the importance of skills development to those mentors who are based further afield and couldn’t make the training. If any businesses are interested in mentoring then we would wholeheartedly recommend talking to DMU and getting involved in helping students prepare for the world of work.

Leicester Tax Expert Pete Miller Receives National Award

Corporate tax expert Pete Miller has received national recognition from the Chartered Institute of Taxation, (CIOT) the leading professional body for tax in the UK.

The co-owner of tax consultancy The Miller Partnership in New Walk, Leicester, he is to receive the CIOT’s Award of Certificate of Merit for his contribution to education and conference lecturing.

Pete lectures nationally to accountants and lawyers all over the country, and locally as guest lecturer at De Montfort University. He is passionate about education and sits on the Institute’s Education Committee and on a number of technical sub-committees.

Professionally he is also instrumental in helping reshape UK taxation policy though CIOT’s consultations with HM Revenue & Customs.

Most notably Pete was among tax advisers who succeeded in getting changes to Entrepreneurs’ Relief introduced in 2015 revised and backdated so that its anti-avoidance measures were targeted more accurately and fairly.

The Award of Certificate of Merit was introduced by the CIOT’s council in 2010 for both members and non-members who have played a significant role in the workings of the institute.

Pete said: “It was a wonderful surprise to learn that I am to receive this award.

“It’s a great honour – especially as this recognition has come from my fellow tax professionals.

“I am a great supporter of the CIOT and the role the institute plays in educating and informing people about how the UK tax system works.”

Pete will be presented with the award at an evening reception at the Darwin Centre of the Natural History Museum in London on Tuesday October 11.

August 2016 Newsletter

The Finance Act 2016: What does it mean for your business?

Brexit and the introduction of complex new rules courtesy of the Finance Act 2016 have given UK businesses much to contend with in recent weeks.

Fortunately, Brexit’s tax implications can be “parked” for a few months as Teresa May has made it clear that she has no plans to invoke Article 50 until early next year. The PM’s decision means that there are unlikely to be any immediate changes, tax wise, for British businesses as a direct consequence of us leaving the European Union.

This is just as well given that UK companies must first of all get to grips with hard hitting new anti-avoidance measures contained in the Finance Bill as well as a raft of other changes, such as the revision of rules pertaining to Patent Box.

Transactions in Securities – be afraid!

As highlighted in our recent newsflash, anti-avoidance rules in force from  April 1 2016 mean that the proceeds of a liquidation might be charged to income tax at up to 38.1%, instead of to capital gains tax at only 10%.

Given this situation, we strongly recommend that all insolvency practitioners ask HMRC for a clearance before distributing any of the assets of a company in liquidation.

To learn more about how TIS might affect you, please click here.

Targeted Anti Avoidance Rule – be very afraid!

If TIS wasn’t scary enough, the Finance Act 2016 has also brought us TAAR, the Targeted Anti Avoidance Rule.

TAAR has been introduced by the Government to stop ‘phoenixing’ – the practice where shareholders receive capital distributions on the winding up a company, then run a similar business in some other form. Examples of this would include starting to carry on the same business after winding up your previous one or if you continued to trade through another company.

To learn more about TAAR and its implications, please click here.

Stamp duty – just when you thought it was safe…

And, in another move that many people haven’t spotted yet, a new rule came into being on June 29 2016 which makes stamp duty chargeable in many situations where you put a holding company on top of an existing company in a share exchange transaction.

For reasons explained here, this is another rule we’d like HMRC to rethink as it has the potential of catching unintended targets and imposing a double tax charge. To learn more, please click here.

Patent Box – the opposite of simplification!

If the changes already highlighted weren’t confusing enough, then let’s turn to the innovator’s tax relief, Patent Box, which has just become a whole lot more complicated.

Originally Introduced in April 2013, Patent Box was lauded as a welcome boost to UK technology and innovation – effectively offering Britain’s entrepreneurs a 10 per cent cut in corporation tax on the income they received from their patents. However, for a number of reasons, calculating the relief has become much less straightforward as our more in-depth article explains:  For more information please click here.

Entrepreneurs’ relief – What a relief!

Although many of the changes implemented by the Finance Act 2016 are indeed onerous and, in our view, are in some instances too broad brush, we’re relieved to report that it’s not all bad news.

We are delighted to be able to tell you that some of the worst excesses of last year’s Finance Act have been rolled back.  You will recall from last year’s newsletters that HMRC made a number of changes to Entrepreneurs’ relief in the Finance Act 2015, which, although intended to combat avoidance, were so poorly targeted that many commercial structures were affected.

Thanks to the tax community and HMRC coming together to thrash out these concerns, revisions have since been made which not only remove the changes but backdate them to the time when they were originally introduced. For further information on what this timely intervention means for Entrepreneurs’ Relief, please click here.

Changes resulting from the Finance Act 2016 are a lot to take in but don’t struggle with their complexities on your own.

We have the in-depth knowledge, expertise  and experience e to help you make more  sense of the new rules, so if you have any concerns at all, please contact  Pete Miller on 0116 208 1020

Finance Act 2016: The Devil is in the Detail

The Finance Act 2016 has resulted in a whole raft of taxation changes for British businesses and their professional advisors.

Pete Miller, tax expert with The Miller Partnership, looks at the wider implications of the Act’s new anti-avoidance measures and explains what the new legislation might mean for your business.

He also takes a more in-depth look at how the new tax rules will affect stamp duty, Patent Box and Entrepreneurs’ Relief.

Changes to Transactions in Securities:

HMRC has extended the reach of the transactions in securities rules to counter what it regards as an income tax advantage when you take money out of a company in such a way that you pay capital gains tax at 10% or 20%, instead of income tax on dividends, at up to 38.1%.

This change to TIS – and what it means for insolvency practitioners as well as businesses – was highlighted in our recent newsflash.

From April 6 2016, TIS rules potentially apply if you liquidate a company – which you might do if you have sold the business and don’t need the company any more.  If these rules do apply to you, it means HMRC can charge income tax as if on a dividend, instead of on capital gains tax.

HMRC keeps telling us that it does not intend to use these rules in a ‘normal’ liquidation, whatever that is.  But we cannot rely on these statements, so we strongly recommend that you ask HMRC for a clearance before your company is liquidated. If you are an adviser, it may well be that your professional indemnity insurers would expect you to apply for these clearances as a matter of course.

Tax law says that HMRC must answer these clearance applications within 30 days and we are very experienced at preparing them, so please give us a call.

Of course, this change means that HMRC is going to have to cope with tens of thousands more new applications. This bureaucratic headache for our already over-stretched Revenue is among the concerns the professional tax community shares in respect of changes implemented by the Finance Act 2016.

TAAR

The Government’s new Targeted Anti Avoidance Rule (TAAR) is designed to prevent ‘phoenixing’ – the practice where shareholders receive capital distributions on the winding up a company, then run a similar business in some other form. Examples of this would include starting to carry on the same business after winding up your previous one or if you continued to trade through another company.

If you are caught by TAAR, then you may well find that your capital distributions are taxed as dividends at a tax rate of up to 38.1 per cent, rather than as capital gains which may attract entrepreneurs’ relief at much more palatable 10 per cent.

The crux of the new rule is whether you are trying to avoid income tax by phoenixing the business, which only you or your clients can decide.

Crucially, there is no clearance for these new rules, so under self-assessment you and your clients will have to decide whether the new rules apply. This carries the threat of having to pay extra tax and penalties if you get it wrong.

While this is new legislation, we have many years’ experience dealing with these motive-based tests in the tax legislation, so if you’re worried, please call!

Changes to stamp duty

Another new rule came into force on June 29 2016 which makes stamp duty chargeable in many situations where you put a holding company on top of an existing company in a share exchange transaction.

However these regulations relating to stamp duty should only be applicable in certain circumstances.

If the new holding company issues shares of the same class and in the same proportions, as it usually will, there should not be a stamp duty charge.

This is because the new rule is intended only to impose a charge where a takeover is intended and stamp duty is otherwise avoided.

But the way the new rule is worded means that it also catches a number of normal commercial transactions, such as certain demergers and sales where stamp duty is payable in the normal way. These are clearly not the intended targets.  As a result, there is now a real possibility of double taxation in completely inoffensive transactions.

We have suggested to HMRC that this new rule needs revisiting, so that it targets only the intended transactions and does not impose a double tax charge.  Unfortunately, any changes must wait until Parliament returns from its summer recess in September.

If you are relying on this relief, however, please ring or email to see if we can help.

Patent Box

Another tax regime which has been somewhat revised by Finance Act 2016 is Patent Box, the initiative aimed at rewarding and encouraging innovation among UK businesses.

First introduced in April 2013, Patent Box effectively offers Britain’s entrepreneurs a 10 per cent cut in corporation tax on the income they received from their patents. However, for a number of reasons, calculating the relief has become much less straightforward.

Some of the changes to Patent Box have been implemented because of objections from other EU member States (actually, just Germany) and also stem from the international anti-avoidance initiative, the Base Erosion and Profit Shifting (BEPS) project.

Hypothetically businesses paying £100,000 of corporation tax, can, through Patent Box, make savings of around £50,000.

However, as part of the Finance Act 2016, the rules have now been modified to incorporate new ‘nexus’  calculations which link research and development spend directly to patents.

Under the old regime, it was irrelevant who undertook the original research resulting in the patents. But, in order to satisfy the revised rules, Patent Box claimants must now prove that they did the work themselves or paid for it to be done by somebody else.

Patent Box relief under the new regime will often need separate calculations of the profits made by each individual patent or product, which will hugely increase the complexity of the calculations.

These tough new regulations have caused UK entrepreneurial companies to re-evaluate their corporate structures – and I’m sure that all the red tape will have put off some smaller businesses from pursuing Patent Box.

It’s not been made any simpler by the 71 amendments to the draft legislation that were passed by Parliament in June!  So we are all still trying to make sense of the detail of the new regime.

In the meantime, businesses who lodged their patent application before  July  1 2016, or who already hold a patent, have two years (until June  30 2018) to opt into the old, much less complex, regime, so it is worth making the most of Patent Box’s potential tax benefits.

If you or your clients are exploiting patents that they own or license, call us to see if they can claim the patent box relief.

Entrepreneurs’ relief

Although many of the changes implemented by the Finance Act 2016 are indeed onerous, it is not all bad news.

Thanks to the collaborative approach taken by the tax community and HMRC – and following lengthy negotiations – some of the worst excesses of last year’s Finance Act have now been rolled back.

Last year HMRC made a number of changes to Entrepreneurs’ relief in the Finance Act 2015, which, although intended to combat avoidance, were so poorly targeted that many commercial structures were affected.

Under those changes made in the Finance Act 2015, entrepreneurs’ relief was not available for a sale of a business by a sole trader or a partnership to a company owned by a relative.

Thankfully this has now been amended, so that you can sell your business to a relative through a company and still claim entrepreneurs’ relief.

Additionally entrepreneurs’ relief was not available where the trade was carried on as a joint venture or a corporate partnership.

This has since been amended so that the shareholders of the parent or partner company can now claim relief, as long as their interest in the underlying trade is at least 5%.

And, under last year’s rules, the relief for associated disposals was often not available when shares or partnership interests were sold to family members – a particular problem within the farming community.  This aspect too has been revised to prevent an inadvertent barrier to family successions.

All of the changes relating to this relief have been backdated to the dates that the original changes were effective.  This is an excellent example of HMRC and the tax profession working together to understand each other’s positions and coming up with workable solutions to these problems.  It’s a pity that the initial changes were not drawn up in this way, which would have saved a lot of time and trouble on all sides, but all’s well that ends well.

Having been closely involved with the new amendments, we are extremely well placed to help you with your entrepreneurs’ relief questions.

For more information and advice on the Finance Act 2016 and how it affects you, please contact Pete Miller on 0116 208 1020

Insolvency and Anti avoidance: What YOU Need to Know

Anti-avoidance rules in force from 1 April 2016 mean that the proceeds of a liquidation might be charged to income tax at up to 38.1%, instead of to capital gains tax at only 10%. We strongly recommend that all insolvency practitioners ask HMRC for a clearance before distributing any of the assets of a company in liquidation.

If you are an insolvency practitioner, or if you work with insolvency practitioners, you will need to get to grips with these new rules as soon as possible.

We have studied the regulations in depth and had meetings with HMRC about them. Most importantly, we are experts in obtaining clearances so contact us now on 0116 208 1020 for more help and advice.

A phone call to talk about the new rules will cost you nothing and could save your clients a fortune!

Ideas to improve the substantial shareholdings exemption

Pete was recently interviewed for an article on Accounting Web about the Substantial shareholding exemption (SSE) which provides a tax exemption for the gain made when a trading company (the investor) disposes of shares in a trading subsidiary (the investee).

Pete believes the SSE relief is defective in parts and the current consultation doesn’t address those failings.

See Ideas to improve the substantial shareholdings exemption for the full article

Tax evasion or tax avoidance: Did Prime Minister David Cameron conduct his taxation affairs improperly and just how much past tax should Google have paid in the UK?

The recent media furore resulting from the revelations in the leaked Panama Papers has again thrown up the big question of what constitutes tax evasion and, indeed, tax avoidance.

Firstly, it’s vital to make the proper distinction between evasion and avoidance: If you are hiding untaxed profits in an offshore account, deliberately concealing your profits from the tax authorities, then that constitutes tax evasion, which is a criminal act for which the perpetrators can be prosecuted. Avoidance is perfectly legal, regardless of what people think about it ethically.

Banking secrecy is not a crime, despite what the media might be suggesting.  Just because people choose to keep their money in offshore accounts does not mean they are doing anything unlawful or dodgy – in respect of their tax liability or anything else for that matter.

For the moment all we have is information about people using Panama for their banking affairs, not that they are avoiding or evading tax.

It is also inaccurate and wrong to suggest that David Cameron’s £200,000 gift from his mother is tax avoidance.  The Prime Minister has not broken any taxation rules by accepting the money, as there is no tax on gifts of cash, regardless of what certain newspapers have suggested, clearly in total ignorance of the capital gains tax laws.  And under the UK’s inheritance tax laws, tax-free gifts are permitted if the donor survives for seven years after making the gift.  Parliament says that this should be the case, so it is hardly tax avoidance to take advantage of those rules.

Despite the hard-hitting front page editorials following the Panama fall-out, every newspaper’s financial pages tell readers to make the most of the seven-year gift rules as part of sensible inheritance tax planning.

Perhaps the editorials should concentrate on the need for informed specialist tax planning to enable people to make some sense of an over-complicated tax system, rather than berating people who have done nothing wrong?

The media’s ill-informed take on the Panama situation, and indeed commentators’ reactions to the corporate taxation positions of major international businesses such as Google, have come as no huge surprise to me.

As a business tax adviser I have often found that journalists and politicians have a poor grasp of the way tax works.

When  Google  recently announced it was settling its past tax liability of £130 million, some raged that this sum was nowhere near enough, while  others tried to ‘guestimate’ the internet giant’s  UK taxable profits over the period.  This is a pointless exercise, as my understanding is that the settlement was a technical issue relating to employee shares and options, so it had nothing to do with Google’s international structure.

The issue with the international group structure, which is not in dispute for previous years, hinges on whether or not it forms a ‘permanent establishment’, the concept which determines what  proportion of company profits, if any, should be chargeable  to tax in other countries.  Under this rule, aspects such as sales and marketing through agents may be tax-exempt in certain circumstances.

Specifically, a dependent agent, i.e. one employed, in this case, by Google, does not create a taxable presence in the UK if those agents are only able to negotiate sales but are not allowed to conclude the contracts.

Google has always argued that its contracts are concluded in Ireland, which is where the taxable profits arise, however much of the negotiating is done in the UK by its agents.

While it has been suggested that Google’s contracts are actually concluded in the UK, we must assume that HMRC is satisfied that this is not the case.

Some people find this offensive, but, to use a football analogy, nobody suggests that a player is cheating by getting as close to being offside as he can, without actually being offside.

Let’s not forget that for every Google investing in the UK but able to take advantage of the permanent establishment rules, there are UK corporations investing into other countries and doing the same – paying UK corporation tax rates at 20%, rather than at those countries’ higher rates.

So, as far as we are aware, Google is complying absolutely with its UK tax obligations. Anyone who thinks that it should be paying more tax should remember that the same argument could be levied at the many UK multinationals investing outwards into other countries with higher corporation tax rates.

We should also bear in mind that Google has 2,300 employees in Britain earning on average £160,000 a year and all paying tax under the PAYE system.   With income tax rates of up to 45% and National Insurance contributions (employer’s and employees’) up to another 25%, Google is paying a substantial amount of tax in respect of those people.  So it’s not as though the company is not making a fairly major contribution to the UK economy.

As Google consumes services in this country, it also pays VAT at 20%.  VAT, National Insurance contributions and income tax are by far the three largest components of the UK’s tax take, so, while corporation tax is not insubstantial, it only makes up around 7 per cent of the total.

And despite comments to the contrary, companies are not morally obliged to pay tax. They are simply under a legal obligation to pay the tax levied under the law of each state in which they operate.

As Google and others have pointed out, if the rules on permanent establishments are not fit for purpose it is up to national governments, not the companies doing business here, to change them.

Both professionally and on a personal level I have had substantial input in feeding back to HMRC the tax sector’s reaction to recent anti-avoidance provisions.

As a member of the CIOT, and of the ICAEW Tax Faculty, and as an independent corporate tax consultant, I have asked HMRC to consider whether such measures are practical to operate, whether they will have the required impact and whether they are in fact fair.

In last year’s Budget,  for example, the Chancellor made  several changes  to entrepreneurs’ relief ‘to counter avoidance’  but  his  revised rules went  far beyond  their intended  targets and prevented  business owners  from passing businesses on to their families.  I was very involved in discussions with HMRC about this apparent attack on family businesses and it was gratifying to see that, thanks to our hard work, the rules were subsequently changed to hit only the intended targets.

All of this proves that we are more likely to have a coherent and sensible tax system if we put aside the hysteria about so-called avoidance – which often isn’t – and engage professionally with HMRC to get our tax legislation right.

Revised changes to Entrepreneurs’ Relief are welcome while Budget’s latest anti-avoidance measures remain questionable

One of the most welcome business taxation measures in the March 2016 Budget is without doubt the Chancellor’s revised changes to Entrepreneurs’ Relief

As you will recall, corporate tax experts were concerned by the original ER changes in last year’s Budget which, although designed to ‘prevent avoidance’, also adversely impacted upon business owners’ exit strategies when selling to family members.

The 2015 changes went far beyond their intended targets and were widely seen as an attack on owners’ rights to pass on their trades to their families.

I was part of the team, representing both the Chartered Institute of Taxation (CIOT) and the Institute of Chartered Accountants in England and Wales (ICAEW), that met to discuss the new rules with HMRC.

Happily, HMRC listened to our concerns and has, in this Budget, amended the new rules to hit only the intended targets. Additionally, the revised rules will be backdated to the time when they were first introduced.

This development is a victory for collaborative working and shows what can be achieved when tax advisers and their counterparts at HMRC come together to discuss difficult business taxation issues. Tax practitioners put in a lot of hard work to present their case, effectively working voluntarily, but the outcome was well worth the effort.

Another positive step for small business owners is the extension of Entrepreneurs’ Relief to external investors – i.e. non-employees of unlisted companies – as long as the investors subscribe for new shares and hold them for at least three years.  Making the use of company losses more flexible – probably as from 2017 – and cutting both corporation tax (from 2017) and business rates are also among the welcome measures for small businesses.

A reduction in Capital Gains Tax to 20 per cent is good news for everyone, although unfortunately it will not apply to residential property as the Government wants to encourage investment in trading companies. These CGT cuts may not have the desired effect though, as I’m sure people would rather invest in bricks and mortar if they can, than in unlisted companies which are far riskier.

Less happily, the Budget contains an increase in the tax charge on loans to shareholders and a raft of new anti-avoidance measures which will introduce instability and make life more confusing for the average business owner.  They will also result in greater complexity and higher compliance costs for everyone.

Whether HMRC will be able to bring in an additional £12bn through George Osborne’s anti-avoidance plan remains to be seen.  His estimates are usually way out and any extra tax collected is often relatively low so the merit of these latest measures is questionable.

Entrepreneurial businesses advised to apply for Patent Box before rule changes introduced

Entrepreneurial UK businesses who want to make the most of the Government’s Patent Box tax savings initiative should consider applying now before stringent new rules take effect this summer.

By joining the scheme before the end of June, they could avoid onerous red tape and still enjoy the benefit of paying less tax on the money earned from their patents.

As you will be aware, Patent Box, which was introduced in April 2013 to encourage UK technology innovation and entrepreneurship, effectively offers a 10 per cent reduction in corporation tax on income received from patents.

Hypothetically, this means that businesses paying £100,000 of corporation tax, could, through Patent Box, save themselves as much as £50,000.

The scheme has, however, recently been reassessed making the rules much tighter, so new entrants wanting to benefit from the existing regime need to apply before June 30 2016.

Under the current regime, it does not matter who carried out the original research leading to the patent.  From July 2016, however, new Patent Box claimants will need to prove that they did the research themselves, or paid for it to be done by someone else.

And claims will become more complicated to make, as companies will have to track their Patent Box profits on a patent-by-patent or product-by-product basis. Some historic R&D projects may also be subject to this bureaucratic new requirement.

Larger companies with a complex corporate structure and whose R&D is undertaken by more than one of their businesses, will also find it harder to satisfy the terms of the modified scheme.   Under the new arrangement the advantages of Patent Box will be lessened because of something called the R&D fraction.

If, for instance, a  British company subcontracts  some of its R&D work to  another  business within its group, the  R&D fraction will be reduced whether or not  the company undertaking the R&D is based  in the UK or overseas. On the other hand if a UK company subcontracts its R&D to a third party outside its organisation, the R&D fraction will not be cut.

These stringent changes are causing larger British companies to re-evaluate their corporate structure in order to fulfil the terms of the revised scheme and to ensure they continue to gain from it, tax-wise.

Smaller businesses will, I fear, find it too much of a challenge to meet the scheme’s onerous new administrative requirements and could well be put off the Patent Box despite its obvious benefits.

However there is still time to take advantage of the potential tax savings offered in the existing scheme so it is well worth seeking professional corporate tax advice.

Fine & Funny Dining

lcf_logoYou may have heard of the ‘Fine & Funny Dining’ evening which The Miller Partnership are hosting at Soft Touch Arts as part of Dave’s Leicester Comedy Festival line up (see page 68 of the festival brochure for details).

Celebrating 30 years of Soft Touch Arts and their fabulous, business friendly, ‘Cooking Up Business’ initiative, new for 2016, the evening is being generously sponsored by K Kong Events and The White Peacock whose chef patron Philip Sharpe will be cooking up a storm in the Soft Touch kitchen to take care of the Fine Dining part of the evening.

The Funny comes courtesy of K Kong who proudly present award winning comic Jarred Christmas – Fine & Funny Dining’s headline act. He’ll be joined by some of the stars of Leicester’s Stand Up Challenge, including our very own Pete Miller and an exclusive local comedy talent, all corralled by Coalville’s stalwart comedy compère Alan Seaman.

Food, giggles, great company and most importantly, all for a good cause … what’s not to love?!