Demergers: The three main reasons why businesses break up

By Pete Miller, tax expert at The Miller Partnership

The Miller Partnership is often asked to advise on company demergers, but what exactly is a demerger and why would you want to do one?

Put simply, a demerger is the breaking up of a company into two or more smaller ones. In principle, it’s a straightforward process, but the tax aspects can be complex.  There are special exemptions and reliefs from tax which will allow you to demerge pretty much tax free, subject to certain conditions, so you will need expert professional tax advice.  The reason for the demerger is pretty vital, as HMRC will only allow a demerger if there are commercial reasons for it.

In my experience – I also used to be the Inland Revenue’s demergers expert – people demerge their companies for three main reasons.  Let’s look at the different scenarios in more detail:

  1. Selling your trade while retaining your premises

One of the most common reasons for wanting to demerge a business is so that the owners can keep control of the property – often the premises they work from – when they sell their business.

Let’s imagine you’re selling a carpentry business run through your company.  A potential buyer comes along who is interested in purchasing your trade, but not the workshop it operates from. It may well be that your purchaser already has premises so doesn’t want or require yours.

By demerging, you can sell your carpentry business without having to sell your premises. And, it’s an option many buyers choose if they want to actively keep the bricks and mortar assets as an investment property.

In this scenario I will set up a demerger arrangement which leaves you with a property company and a separate trading company, which you can sell. This allows you, the seller, to retain the property, and enjoy the rental revenue it provides, into retirement.

  1. Falling out with your business partner

The second demerger scenario I see very often is where business owners have fallen out and want to go their separate ways. This might sound rather dramatic, but often it’s nothing personal – it’s just that they have different, incompatible ideas about their business’s direction.

Let’s take, for example, a rental property company which is looking to diversify.

One owner might be keen to go into luxury apartments, investing heavily in designer kitchens and high-spec fittings. Meanwhile, the business partner is focused on volume rather than value and would prefer to go into the student flats market.  Clearly, these are incompatible, so a sensible response might be to separate the two interests, so that each shareholder can go their own way.

Another example might be where a professional services firm decides to divide its client base between the two owners.  Perhaps one runs the Leicester branch while the other partner is responsible for the Loughborough office, and they would both prefer to operate completely independently. Again, this decision won’t necessarily have been reached because the two partners can’t abide each other but it’s a perfectly sensible reason to demerge.

  1. Retirement planning

The third most common reason for demerging, falls somewhere between scenarios one and two. It might involve successful business owners who have got on fine for many years but are now planning for retirement and want to pass their wealth onto their children.

But, although the two have a good relationship, it might be that their kids don’t know each other well, and there is no guarantee they will get on or even want to be in business together. In such cases, it makes sense for owners to split the company and take their shares separately.  That way, they can each provide for their own children in the manner that they think most appropriate, avoiding any problems further down the line.

If you’re considering marketing your business, it’s important to start getting it ready for sale, which might include a demerger, at least two or three years before you plan to sell it. By doing so, you’ll be able to show that the demerger is for commercial reasons and it should be easier to get the appropriate advance clearance from HRMC.

We are experts in demergers so contact us today. Email pete.miller@themillerpartnership.com or call us on 0116 208 1020.

Entrepreneurs’ Relief – Cutting through the continuing confusion

Judging by the number of calls I’m receiving on this issue, changes to entrepreneurs’ relief are continuing to cause much confusion, with many shareholders unsure as to whether their transaction still qualifies.

Before former Chancellor Philip Hammond moved the goal posts last year, the situation was quite straightforward. Most people with shares in a trading company could expect to pay capital gains tax at the much more palatable rate of 10% rather than 20% when they sold their shares.

To be eligible they simply had to show that their shares were in a company that traded (i.e. not in an investment business), they were an officer or employee of that company and they held at least 5% of the shares (giving them at least 5% of the voting rights), all for at least a  year before the sale.

But, in the  2018 Autumn Budget, a new “test” of what defines “personal company” was announced, with shareholders now needing to have the right to 5% or more of the dividends as well as to 5% or more of the proceeds if the company is wound up or, alternatively, to 5% of the proceeds if it is sold.  And all the qualifying tests must now be satisfied for two years, not one.

Some worried business owners are unsure whether their transaction qualifies for capital gains tax at all. Their concerns relate to the anti-Phoenix rules which affect people who wind up their company but then carry on the same or similar business either in another company or in some other form.   In such cases the proceeds of the winding up might be treated as income from dividends, not as a capital gain, so the business owner pays tax at up to 38.1%, the highest rate of income tax on dividends.

This scenario is most likely to apply where somebody has sold the trade from the company, or simply run the trade down, and is now winding up the company to get the proceeds out.  Because of the uncertainty introduced by the new rules, I am frequently asked to write reports on whether those rules will apply.

To guarantee receiving entrepreneurs’ relief, some people have started selling their company when it is no longer trading.  In response to this practice, HMRC has recently published its Spotlight 47 guidance (https://www.gov.uk/guidance/attempts-to-avoid-an-income-tax-charge-when-a-company-is-wound-up-spotlight-47), which suggests that some of these arrangements might be sufficiently artificial or contrived for HMRC to apply the wide ranging general anti-abuse rule (GAAR).

To be frank, my personal view is that HMRC is being ridiculous here.  While there may be some extreme cases that might be caught, I would not expect a sale of a money-box company that has ceased to trade to be caught by the anti-Phoenix rule, far less by the GAAR.  This is just scare-mongering and I do not consider it acceptable behaviour from a public authority!

This issue – and my thoughts on it – are covered in my recent article in Taxation magazine: https://www.taxation.co.uk/Articles/why-selling-a-company-is-not-tax-avoidance

Another common issue on which I’m increasingly being asked to advise relates to whether a company is a trading company.  Defining a company’s status can be a problem for businesses that have accumulated large amounts of cash which they haven’t distributed to shareholders, or where profits have been used to buy investment properties, as investment activities are not trading activities. I do not generally believe that large cash holdings should cause a problem, although I have had to argue the point with HMRC a couple of times (successfully, of course!)  And a large and active investment portfolio certainly could taint the status of the company so that it no longer qualifies as a trading company and its shareholders would not, therefore, be entitled to entrepreneurs’ relief.

If you are concerned about how the rule changes affect you, please get in touch.

We are experts in entrepreneurs’ relief and can guide you through the complexities.

Email pete.miller@themillerpartnership.com or call us on 0116 208 1020.

The Big Chill🌶 – Soft Touch Arts Fundraiser Winner at the 2019 Leicester Comedy Festival Community Award

2019’s Leicester Comedy Festival Awards were announced at St Martins House recently and Winner in the Community Awards category was The Big Chill🌶 a Charity fundraiser for Soft Touch Arts organised by Tracey & Pete Miller of The Miller Partnership – Taxation Specialists.

Hosts for The Big Chill🌶 were the award winning Chutney Ivy, situated in the heart of the Cultural Quarter, and Shaf and his team, who have been nominated again for Restaurant of the Year at the Leicester Curry Awards were magnificent.

Glynis Wright & Co Family Solicitors & Mediators were sole sponsors and Shazia Mirza from TV’s Jonathan Ross Show, HIGNFY and Celebrity The Island with Bear Grylls, was the star of the show.

This year the £4,000 profit takes the total amount to over £10,000 raised by The Miller Partnership in their 4 years of Leicester Comedy Festival events for Soft Touch Arts. Geoff Rowe and Katherine West from Big Difference Company have supported these shows each year enabling them to grow and develop.

Leicester’s business community comes together every year for this Comedy and Curry extravaganza, and fabulous prizes were donated by Winstanley House, Hanlon Hospitality, Curve, Queen Victoria Arts Club, Burleighs Gin, Owlhouse Day Spa, Eileen Richards Recruitment and Howes Percival, who also donated Carl Mifflin dressed as a Hot Chilli to encourage guests in their generosity.

Soft Touch Arts will fund their Creative Enterprise Programme which supports more than 50 young people each year who struggle to reach their potential because of difficult life circumstances and challenges with mental health & wellbeing.

The Creative Enterprise Programme supports the development of their individual creative talents, giving them both newly built confidence plus the invaluable building blocks of enterprise skills, so that they can learn to make, sell and market their own creative works.

Community collaboration is definitely at work here in Leicester.

Changes to Entrepreneurs’ Relief: Do you still qualify?

Until recently, most people with shares in a trading company could be confident of qualifying for entrepreneurs’ relief when they came to sell those shares.

Their shareholder status meant that they would only have to pay capital gains tax at 10% instead of the higher rate of 20%.

And, qualifying for this tax relief was quite simple. To be eligible, all you had to do was satisfy each of the following conditions for at least a full year up to the date of selling your shares:

•          The company had to be a trading company, which, simply put, means it must be carrying on a trade, rather than operating as an investment business.

•          The shareholder had to be an officer or an employee of the company for the same period. Once again, this was usually straightforward and, indeed, in most of the cases I’ve looked at, the individuals concerned were directors of the company.

•          The family had to be the shareholder’s “personal company”, which broadly meant that the shareholder had to hold at least 5% of the shares of the company and those shares had to give that person at least 5% of the company’s voting power.

So far, so uncomplicated, until, completely out of the blue, the Chancellor moved the goalposts by announcing two major changes to entrepreneurs’ relief in his Autumn Budget speech.

With immediate effect of his announcement, the definition of a “personal company” became more onerous, with shareholders now also having to have the rights to 5% or more of the dividends and 5% or more of the proceeds if the company were wound up. 

What the Chancellor had effectively done was introduce a new test relating to the level of economic interest the individual has in the company.

As a direct result of these changes, some people instantly lost their right to entrepreneurs’ relief, in some cases because they held 5% or more of the shares and votes of the company but did not have rights to 5% or more of the dividends that would be paid.

And, as if this wasn’t bad enough, the Chancellor’s announcement appeared to deny entrepreneurs’ relief to shareholders with what are known as “alphabet shares.

”Called “A shares”, “B shares”, and so on, alphabet shares are designed so that a different rate of dividend could be voted on for each class of share. 

But – under the new rule – even if two individuals between them held all the shares of a company, if they were alphabet shares, it is arguable that neither person had a right to any dividends until dividends were declared in respect of their class of share.  This meant that neither of the two shareholders would be entitled to 5% of the dividends!  My personal view was that this was not a problem, but the new test clearly made matters very uncertain.  Even HMRC were not sure of the correct analysis!

Fortunately, following pressure from various sources, the Government amended this rule to provide an alternative test of whether the shareholder would receive at least 5% of the proceeds if the shares were sold.  In most cases involving alphabet shares, this revised test should allow the shareholders to claim entrepreneurs’ relief, even if they are not entitled to 5% of dividends or the proceeds of a winding up.

The other change to entrepreneurs’ relief has extended the qualifying period from one year to two years, although this only comes into effect for disposals on or after 6 April 2019. 

So, if, for example, you hold qualifying shares which you acquired in November 2017, if you sell them between December 2018 and the end of March 2019 you will be eligible for entrepreneurs’ relief based on having held the shares for over a year.  But, if the sale is delayed until after 5 April, the new two-year qualifying period applies and you will need to defer your disposal until, say, December 2019.

If you are affected by these changes or would like more advice and information on entrepreneurs’ relief, please get in touch.

The Miller Partnership has wide experience and expertise in this area and can guide you through the complexities.

Transactions in Securitise rules and challenges from HMRC over share capital reductions: Why you must seek expert tax advice.

Clearly HMRC is taking – and will continue to take – a keen interest in the ways in which people are extracting money from their companies.

As my clients’ recent experiences reveal, the tax man is particularly intent on checking that company owners are paying income tax, either on earnings at rates of up to 45% (plus 2% national insurance) or on dividends, which attract tax at a rate of 38.1%.

In some cases, HMRC is seeking to apply the “Transactions in Securities” anti-avoidance rules which can allow it to tax capital payments to shareholders at dividend tax rates rather than at the capital gains tax rates (which may be as low as 10%). I’m currently assisting many clients who have been challenged by HMRC on this matter, and I’ve noticed a fact pattern emerging in which HMRC is enquiring into companies’ decisions to reduce their share capital.

Under new rules introduced by the recent Companies Act, it is now relatively easy for a company to reduce its capital and return cash to its shareholders.  Where this is done, the amount concerned is treated as a capital gain and taxed at 10% for a trading company or 20% in other cases.

Let’s imagine I set up a company using 100 £1 shares.   My company is very successful and five years later it is worth £1 million. At this point I put in place a holding company on top of the original company for commercial reasons. This allows me to issue 1 million shares in my holding company, increasing my share capital and making my balance sheet look stronger.

I later decide I don’t need such a large amount of share capital, so I reduce it to £100,000 and pay back the £900,000 to myself, leaving 100,000 shares in my company.

HMRC informs me that I should be taking any extra benefits from my company as dividends and paying income tax on them, but my defence is that I chose to reduce my share capital for commercial reasons.  In many cases, HMRC refuses to concede, leaving the Tribunals or Courts to decide who wins the case.  A lot of the cases on which I am currently advising involve companies which, like my imaginary example, had substantial share capital, often as a result of previous restructuring.

HMRC seems to be concentrating, for the moment, on transactions that occurred in the tax year 2015-16. For many of my clients, HMRC’s challenge will be unfounded, either because there was a genuine commercial reason for reducing the company’s share capital or because the Transactions in Securities rules do not apply for technical reasons.

Currently HMRC is on a fact-finding mission and is simply asking companies for information. Even if no formal challenge follows, fulfilling HMRC’s requests for information can be expensive and time-consuming.  Also, HMRC is not going to go away – this legislation isn’t used lightly, so all enquiries must be taken seriously from the outset.

Shareholders are understandably concerned at what HMRC’s challenge might mean for themselves or their businesses – and whether these draconian anti-avoidance rules apply to them.

The Transactions in Securities regime, introduced in 1960, is one of the most abstruse elements of the UK tax code, and because of the extent of its complexity, it is essential that companies seek professional tax help.

Accountants should also advise companies who might be considering a share capital reduction that HMRC might require an explanation of their reasons for doing so.

As an expert on this legislation, I have written extensively about the subject and have more than 20 years’ experience.  I can help with any challenges from HMRC, so please get in touch if you feel your reduction in share capital is being wrongly queried. Similarly talk to me if you would like further advice and information on the Transactions in Securities rules.

Tracey Miller’s three month dry spell raising thousands for Hope Against Cancer

Source: www.leicestermercury.co.uk/news/business/tracey-millers-three-month-dry-1978064

Corporate tax expert calls for end to “misleading” news reporting on companies’ tax bills

Ignorance about the UK’s taxation system, fuelled by inaccurate and often sensational media reporting on companies’ tax liability, is preventing sensible debate, claims a leading UK corporate tax expert.

Responding to the latest tax furore over online retail giant Amazon’s recent accounts for its UK-based businesses, tax consultant Pete Miller of The Miller Partnership said many news headlines were either accidentally or deliberately misleading.

Amazon UK Services tax liability fell to £4.6m from £7.4m 12 months ago.  The company also saw its tax liability reduced due to a £17.5 million adjustment relating to share-based compensation for its full-time employees.

And, while Amazon argues that it has paid all the tax it is required to by UK law, critics believe the company should be paying much more tax, given that its pre-tax profits have trebled from £24.3m to £72.3m.

Pete said that headlines which equated tax bills of companies with their turnover, “when companies the world over pay tax on their profits, not on their turnover,” were among the chief examples of media misreporting.

He added: “The other point which is constantly missed is that corporation tax is usually a very small proportion of a company’s actual tax burden.

“For example, Amazon will pay income tax and national insurance contributions to HMRC on the salaries of all its staff.  It will also be liable for VAT on the services it provides in many case, as well as paying local business taxes. The irony is that payroll taxes are at rates up to 47% on income, plus the 13.8% employer ‘s contribution, while the corporation tax deduction stands at 19%.”

Pete also takes issue with the word “claim” in news stories about compulsory tax deductions when writing about share-based compensation.

He added: “The reality is that these deductions are mandatory, both under the accounting standards and for tax purposes. There is no mechanism for a company to decide not to claim the deductions in its accounts or tax computations for its legitimate business expenses, so it would be unlawful for a company not to take the deduction.

“However, in various reports about Amazon, journalists talked about the company “claiming” tax deductions as though it were a matter of choice.  This amounts to very subtle misinformation, in my view, and is designed to suggest that companies should not claim the tax deductions needed to arrive at the correct figure for profits on which they should be taxed.”

Pete, who lectures to accountants and lawyers nationwide in his capacity as a corporate tax adviser and as a Fellow of the Chartered Institute of Taxation (CIOT), said the public’s general lack of understanding about tax was “depressing.”

He added: “It has been suggested that taxation should become part of our national curriculum for high schools, so that people not only understand why they need to pay tax but also understand, to a limited extent, how the system works.  But the national curriculum is already very full and there certainly does not appear to be any political will in this area.

“Overall, the current situation is somewhat depressing. Those of us who have the ability to make public statements continue to do so, but inaccurate reporting of the issues still seems to be controlling the public debate, despite our best efforts.”

Breaking up is harder to do – so make sure you take corporate tax advice before demerging.

I have written before about demergers; the act of dividing a company’s business into two or more companies so that shareholders can take different parts of the business and go their separate ways.

And, until recently, I would have advised clients considering demerger that “breaking up isn’t that hard to do” – as long as they seek professional taxation guidance before doing so.

However, changes to stamp duty rules introduced in Summer 2016 have made some demerger transactions a lot more difficult, and potentially much more costly.

Let’s imagine that John and Jane, who each own 50 per cent of a company, want to carry on their businesses separately. By demerging, we can effectively split up the company so that John and Jane each have separate companies carrying on ‘their’ part of their business.

Over the past few years we have developed a number of mechanisms for demergers like John and Jane’s, all of which start with getting a formal approval from HMRC. This advance clearance allows us to ensure that the demerger is pretty much free of all tax consequences, including income tax, capital gains tax, corporation tax, stamp duty and stamp duty land tax.

However, thanks to the new stamp duty measures introduced in 2016, gaining exemption from stamp duty has become more complicated in many cases. The stamp duty element of the transaction may only amount to 0.5 percent, but that equates to £5,000 for every £1 million that a business is worth, so the costs can soon mount up.

Because of the stamp duty traps sprung by the rule changes, many advisers are suggesting that John and Jane might now need to use a liquidation to achieve the demerger. But while liquidation might get around the stamp duty problem, it will also make John and Jane’s demerger more complex and expensive. More advisers will be needed, adding to the cost, and it will be riskier as the extra steps mean that there is more that could potentially go wrong.

Rather than going down the liquidation route, we have developed less risky mechanisms to achieve demergers without triggering the new stamp duty charges. And, as we are still able to obtain advance clearance from HMRC for the income tax, capital gains tax and corporation tax elements, our clients have the same degree of certainty about tax treatment as they had before the rule changes came in.

The new anti-avoidance rule changes have resulted in considerable collateral damage, with commercial transactions like John and Jane’s demerger now so much more difficult. And, despite the process becoming more onerous, their transaction still results in no actual loss or gain to the exchequer in terms of stamp duty.

In my view, HMRC’s changes go far too far, with commercial transactions that should not have been targeted now caught in the legislation. To navigate a way though the complexity and steer clear of stamp duty charges, it is even more crucial that businesses take professional corporate advice before embarking on a break-up.

Autumn 2017 Budget: period drama or zombie apocalypse?

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

Pete Miller’s contribution:

“There doesn’t seem to have been much action on the corporate tax side in this Budget, which given the massive changes over the last few years is something of a relief. If anything, the picture from a corporate perspective is of tinkering around the edges and fixing things, rather than making any major changes. For example, the complicated regime for hybrids brought in by Finance Act 2016 and the even more complex regime for restricting the interest deductions for companies, which only gained Royal Assent a week ago, are both being technically amended in order to make sure that they work properly. This is not a suggestion of incompetence on the part of the original drafters, but rather a reflection of the complexity both of the U.K.’s tax code and of the commercial world in which it operates, in that however hard all the stakeholders work, the fact is that complicated regimes like this will impact commercial transactions in a way that was not intended in some cases. It is, therefore, only common sense that those bits of the regimes that don’t work should be fixed as soon as possible.

Probably the most noticeable amendment was the removal of indexation allowance from companies. Indexation allowance was originally introduced at a time of relatively high inflation, to allow you to index link the price of assets between the date of purchase and the date of sale, so that capital gains tax or corporation tax on chargeable gains would, in effect, only tax the genuine increase in value of an asset, not simply the inflationary increase. The indexation allowance for individuals and others who do not pay corporation tax was repealed in 2008, from 31st March that year, so that, for all future gains, no indexation allowance could be given. It is interesting that in removing the indexation allowance from companies, they will still be able to claim the accumulated indexation up to 31 December 2017, but no further indexation will be given from 1 January 2018. This is in marked contrast to the treatment of individuals in 2008, where the immediate abolition of the relief effectively doubled or trebled the latent gains in certain cases!

The other point of particular interest is that, hidden away in the Red Book is a promise to consult on the regime for intangible fixed assets. The regime for companies owning intangible assets is that, in many cases, the cost of an asset can be amortised or impaired for tax purposes. There are also a series of reliefs and exemptions from taxation which largely mirror the rules applicable to tangible assets within the capital gains regime for companies. One of the areas that has been a problem for some years, however, is that some of the new reliefs from corporation tax on gains, such as the amended degrouping charge and the substantial shareholding exemption, are not mirrored in the intangible assets regime. This means that the reliefs, which were intended to apply across the board, only apply to companies with older trades, and not with new trading companies with substantial goodwill. We have made many representations to HMRC on this point, and we can only hope that the proposed consultation will address some of these concerns, albeit many years later than we would have hoped.”

Read the complete article here.

 

Nelsons Solicitors Networking Drinks at Revolution Bar, New Walk, Leicester

Robert Radford (Nelsons), Pete Miller (The Miller Partnership) and Ziaur Rahman (Nelsons)

Robert Radford (Nelsons), Pete Miller (The Miller Partnership) and Ziaur Rahman (Nelsons)

Nelsons Solicitors recently held its quarterly business drinks reception and light buffet networking event at Revolution Bar just up from their offices on New Walk in Leicester.  Pete was in the area and attended along with around 40 other guests including staff members, contacts and clients of the firm who travelled from across Leicestershire.  Commenting on the event Pete said, “It was a really good event and a great opportunity to catch up with friends new and old informally over a beer and some nibbles.  I’m looking forward to their next event which, I believe, will be held in November.”

More photos from the event can be found here:

http://www.leicestermercury.co.uk/news/business/gallery/nelsons-solicitors-networking-drinks-revolution-478448

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.