All tax planning needs careful attention to avoid contravening "anti avoidance" regulations and case law interpretations.
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Tax penalty & appeals regime -
We feel the new rules have more clarity on the penalties charged and more relief for innocent error as the new rules include distinctions between innocent error, "careless" and "deliberate" conduct.
Note also the design and procedures for Commissioners' appeal hearings is changed as is their name. They are now referred to as Tax Chambers (NOT to be confused with lawyers who work in legal chambers).
HMRC has received heavy adverse criticism in recent times for failing to counter aggresive tax avoidance schemes and arrangements. The department has pledged to attack such tax avoidance and has introduced a new "General Anti Avoidance Rule" (GAAR) which seeks to define what is unaccepatble tax planning. HMRC has stated that it won't apply this law to "ordinary" tax planning but the wording of the GAAR itself is very far reaching. The government is broke. Who knows what they will do with this tool in the future?
Furthermore, BE AWARE that tax law contains some fines and penalties which HMRC can impose but against which you have NO RIGHT OF APPEAL. In these cases HMRC is judge, jury and executioner. BE CAREFUL
Income tax & married persons/partners - if one spouse is taxable at higher rate(s) than the other consider transferring income generating asset(s) to other spouse. Objective is to put taxable income in the hands of the spouse paying tax at the lower rate(s) and keep overall household tax bill lower.
Civil Partnerships - the Civil Partnership Act 2004 (CPA) created an entirely new legal status of civil partner giving same-sex couples in the United Kingdom the opportunity of acquiring a legal status for their relationship. For tax purposes the Government announced that civil partners would be treated the same as married couples. The tax changes took effect from 5th December 2005. The most significant are as follows:
1. Transfers between civil partners in lifetime or on death are generally exempt from inheritance tax without limit.
2. Only one property owned by a couple who are civil partners, whether that property is owned solely or jointly, may be treated as the principal private residence of either of them at any time for the purposes of capital gains tax "private residence" relief.
3. Transfers of assets between persons who are civil partners and living together will be on a "no-gain, no-loss" basis for capital gains tax purposes.
4. Pension tax legislation is amended so that references to husband, wife, ex-husband, ex-wife, spouse, ex-spouse, surviving spouse, widow, widower will now include civil partner, former civil partner and surviving civil partner under the terms of the Act.
5. There is an exemption from stamp duty and stamp duty land tax for transactions carried out in connection with the dissolution of a civil partnership so that transfers of shares or the transfer of the partners' home from joint ownership into the sole ownership of one of the ex-partners is exempt.
6. Where one of the partners was born before 6 April 1935 the partners will be entitled to an allowance equivalent to the married couple's allowance (see next topic below).
7. Anti-avoidance legislation is extended to include civil partners in the same way as spouses. This includes the legislation relating to settlements, company control and the transfer of assets abroad.
Income tax & older married people - those aged 65 or over may be entitled to higher personal tax allowances (see Income Tax section) although some special allowances have been phased out. To avoid the infamous "tax trap", keep taxable income below the limit and qualify for these allowances perhaps by placing cash in alternative investments (e.g. Individual Savings Account plans and "With Profits" bonds). However, this does require financial advice to be taken from a suitably qualifed and authorised source.
Rented out property - if property is let furnished remember to claim all available expenses BUT REMEMBER that the old 10% "wear and tear" deduction has gone. Claims should now be made for replacement costs.
Watch out, too, for changes in attitude as well as legislation. For example, the rules on claiming for the costs of replacement double glazing have been relaxed but the replacement of freestanding "white goods" in an unfurnished property may not be tax deductible. We recommend you discuss this issue with us as the rules and attitudes are constantly changing.
Gift Aid donations, carry back - Gift Aid donations can be carried back from the current year to the previous year providing an election is made on the Tax Return. For example, when filing your 2016/17 Tax Return, you can elect for any Gift Aid donations made during the period from 6th April 2017 to the statutiry date of filing to be carried back to 2016/17.
NOTE: Once a Tax Return is filed you cannot go back and make the "carry back" claim later.
Dividends or salary? - small/family companies may be tempted to pay out profits via dividends rather than salary as costs are reduced and cash flow greatly improved. However, the following points must be remembered:
1. Impact of abolishing the tax credit system (see Corporation Tax) coupled with the introduction of the new personal "dividend tax".
2. Dividends could artificially inflate the value of the paying company for inheritance tax purposes and could cause artificially high tax bills on shareholder's death.
4. As mentioned elsewhere in this site GREAT CARE must now be taken where a company wishes to pay dividends and/or salary to connected people (e.g. husband & wife or other family members).
New businesses - Care must be taken on start up in choosing the date at which the first accounts will end. This is particularly so when initial profits are erratic. Tax can be saved and cash flow improved if time is taken to examine which date to choose.
Inheritance tax - Make careful use of Trusts to assist in reducing the potential bill and ensure death benefits from pension plans are written in Trust.
Company cars - drivers of "gas guzzling" vehicles have seen a large increase in their tax bills. Advice is to review cars and plan to change to more fuel efficient transport.
Advice may be to simplify arrangements and consider using the Authorised Mileage Rates. These authorise tax free payments to employees for the use of their own car on company business. The rates are 45p per mile for the first 10,000 business miles and 25p per mile thereafter.
If the employer pays less than the full rate the employee can claim the difference as a deduction on his/her personal Tax Return.
Company vans - a van provided by an employee for an employee's use results in a flat rate tax benefit charge of £3230 to the employee. This is reduced to NIL but only IF the van in not used for any private purposes whatsoever. It is therefore vital that all employers in this position review the basis on which employees are provided with company vans to ensure that, so far as is practical, no tax benefit charge arises.
Unpaid tax - under EC agreemens regulations are being put in place to allow the tax authorities of EC countries to pursue people across all member countries for unpaid tax debts, wherever arising originally.
Planning Gain Supplement ("PGS") - Make no mistake … IF EVER INTRODUCED IN ITS PROPOSED FORM (which is now unlikely) this will be yet another new tax if not in name. The last attempt to tax these types of development gains was Development Land Tax (DLT) but that was eventually decided to be unworkable and DLT was abolished in the Finance Act of 1985. It is belived that the PGS proposals may have been shelved permanently but brief notes on what the proposals looked like are as follows:
As proposed the Planning Gain Supplement looks likely to apply to all forms of development with the exception of home improvements.
Consideration is to be given to the treatment of small-scale improvements on non-residential property.
A lower rate of PGS may be applied to brownfield sites.
Unlikely that there will be a general de minimis limit.
The Barker report recommended special consideration be given other circumstances. For example areas with particular housing growth strategies or other social/environmental costs. The consultative document makes no mention of this.
Instead the consultative document promotes a unified single rate to minimise the risk of distortion and mitigate the problem of apportionment where the site in question is for "mixed use" purposes.
The tax rate to be applied is unknown although speculation is that the rate will be in the region of 20%.
It is reported the rate will be 'modest' so as not to discourage development.
Basis of calculation
PGS would be charged on the planning gain. This is the difference between the "planning value" (PV), the value of the land with full planning permission, and "current use value" (CUV), the value of the land in its current state without any development permissions.
PV and CUV would be assessed on the assumption the whole site is unencumbered freehold with vacant possession.
When assessing the PV all contributions made under a reformed planning system would be taken into account.
PV will be determined largely by the ultimate development value which, in turn, looks to be determined by the development nature and other related factors (density, location etc.).
CUV would depend on the value of any development already permitted and the nature of the site (developed sites being subject to more variation than undeveloped ones).
The calculation would appear to result in ….
(PV – CUV) x PGS rate = PGS liability
It is likely that PGS would be treated as an allowable business expense.
We cannot see any proposed legislation allowing PGS to be offset against other taxes such as VAT and SDLT.
Planning Gain Supplement calculations look likely to be applied at the point when full planning permission is granted but the tax would not be due until development actually starts.
The developer is required to declare his intention to commence development.
To proceed he will need a statutory Development Start Notice which will identify him as the chargeable person for the purposes of the tax.
Legally no development can start without a validated Development Start Notice.
The chargeable person will then be required to make a return of the tax (and payment) to H. M. Revenue & Customs within a specified time.
The Report suggested that the tax be paid over instalments but the Revenue document makes no mention of this. It is assumed, therefore, that the tax will due in one sum.
HMRC and the Valuation Office Agency will carry out risk-based assessment of the return and valuations.
Should a developer fail to comply with these regulations he is likely to suffer the usual consequences of interest, penalties, the issue of a "Development Stop Notice" and possible Court action as necessary.
Legally development cannot then recommence without a new Development Start Notice. To get this the developer will have to resubmit paperwork together with full payment of PGS, interest and any penalty charges.
Overseas bribes - even if payment of an overseas bribe is not a crime in the UK it is, from 1st April 2002, no longer a tax deductible expense in the UK.