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Safeguarding Your Legacy and Securing the Future

Wed, 15 Apr 2026 16:24:05 GMT

In an increasingly complex financial landscape, individuals and family-run businesses face growing challenges when it comes to managing, protecting, and transferring wealth. Recognising these challenges, Friend Partnership developed the Friend Family Wealth Forum - a specialist initiative designed to help families preserve their wealth, structure their affairs effectively, and plan for future generations.

The Friend Family Wealth Forum is built on a simple yet critical principle: wealth is not just about accumulation, but about sustainability. Many successful individuals and family businesses reach a point where financial complexity increases - tax considerations, ownership structures, and succession planning all become more demanding.

The Forum addresses these issues by offering tailored advice on:

Structuring family businesses efficiently
Protecting accumulated wealth
Ensuring smooth succession across generations
Managing estate planning with clarity and foresight

By focusing on these areas, the initiative helps families maintain control over their assets while minimising risks associated with poor planning or unforeseen circumstances.

Supporting Family Businesses Through Transition

One of the most significant challenges for family enterprises is succession. Transitioning leadership or ownership - whether through retirement, sale, or inheritance - requires careful planning to avoid disruption or conflict.

The Forum provides guidance on creating structured succession strategies that align with both business goals and family values. This ensures continuity, stability, and long-term growth, rather than reactive decision-making during times of change.

Protecting Wealth Across Generations

Wealth preservation is equally critical. Without proper planning, family wealth can be eroded through inefficient tax structures, legal complications, or fragmented decision-making among heirs.

Through expert advice on estate planning, trusts , and tax-efficient structures, the Friend Family Wealth Forum helps clients:

Reduce exposure to unnecessary taxation
Maintain control over how assets are distributed
Protect wealth from external risks

This proactive approach ensures that wealth is not only retained but also aligned with long-term family objectives.

Tailored Advice for Individuals and Private Clients

The Forum is particularly valuable for private clients, entrepreneurs, and owner-managed businesses - groups that often face unique financial pressures as success grows.

Rather than offering generic solutions, the Forum provides personalised, strategic guidance based on each client’s circumstances. This includes addressing both business and personal financial matters, recognising that the two are often closely intertwined.

Knowledge, Expertise, and Long-Term Value

At its core, the Friend Family Wealth Forum reflects Friend Partnership’s broader philosophy: delivering value through deep expertise, attention to detail, and a thorough understanding of client needs.

By combining technical knowledge with a long-term perspective, the Forum empowers families to make informed decisions about their wealth - decisions that will impact not only their present but also future generations.

The Friend Family Wealth Forum represents a forward-thinking approach to wealth management. In a world where financial complexity continues to grow, structured guidance is no longer a luxury - it is a necessity.

Through expert advice on succession, wealth protection, and estate planning, the Forum provides families with the tools they need to safeguard their legacy and ensure continuity for years to come.

Get In Touch

We provide a complimentary initial consultation to all new clients for a discussion tailored to their individual needs.

You can get in touch with David Gillies – Head of Tax at Friend Partnership on 0121 633 2000, email him at david.gillies@friendllp.com or alternatively complete the form below with your query.

Theatre Tax Relief and the Global Stage: A Guide to International Touring

Wed, 18 Mar 2026 16:49:07 GMT

The UK is an undisputed global powerhouse in the performing arts. While hubs like London’s West End serve as creative engines, the true reach of British theatre is found in its mobility. At the heart of this success is Theatre Tax Relief (TTR) a vital government incentive that transforms international touring into a sustainable financial and cultural catalyst.

What is Theatre Tax Relief?

Introduced in 2014, TTR is one of the UK’s most powerful financial incentives for theatrical producers. It allows eligible theatre production companies to claim a payable tax credit on qualifying production costs.

The relief is split into two distinct tiers:

Non-Touring Productions: Relief Rate of 40%

Touring Productions: Relief Rate of 45%

A "touring production" is defined by the intent to perform at multiple sites, whether those venues are domestic or scattered across the globe. A higher rate of relief for touring helps producers overcome the financial risk of touring and significant logistical and financial hurdles involved in moving a show.

By incentivising these risks, the government encourages producers to bring high-quality art to broader audiences, stimulating economic activity far beyond a single city.

Who is Theatre Tax Relief available to?

TTR is available to UK companies producing qualifying plays, musicals, and other qualifying live performances where actors take on roles in front of paying public audiences or for educational purposes.

Crucially, productions do not have to be performed in the UK to be eligible. They simply must ensure that at least 10% of core expenditure is used or consumed in the UK.

What can be claimed?

Relief is available on the lower of:

80% of total core expenditure, or
100% of UK core expenditure.

Core expenditure includes producing and closing the production. Running costs are excluded unless they are exceptional (e.g., a substantial recast or a major redesign).

If the UK entity is loss-making (common during the heavy spend of pre-production and rehearsals), the government pays out the relief as a cash credit , providing vital liquidity.

Why overseas producers are coming to the UK

Overseas producers can also benefit from TTR when putting on a production in the UK. The most compelling reason to develop a show in the UK is the ability for foreign theatrical production companies to claim TTR while developing their intellectual property reducing the financial risk to develop a new show. As long as the eligibility conditions for the production are met and a UK company is set up then the production will be eligible for TTR.

Operating through a UK company also streamlines the "friction" for international producers when putting on shows in the UK:

No Withholding Tax Issues: Directly employing UK-based cast and crew through a local entity avoids complex " Foreign Entertainer " tax withholding requirements that often plague overseas companies.

Easier Domestic Contracting: A UK entity can negotiate directly with local venues, suppliers, and unions (like Equity or BECTU ) using standard UK contracts, which often results in better rates and fewer legal hurdles.

Currency Hedging: Managing a UK bank account for UK-based expenses helps mitigate the risk of exchange rate fluctuations between the show’s home currency and the Pound.

An overseas producer does not need to set up a whole production company. Typically, a special purpose vehicle (SPV) company is set up to run the production out of, which can be owned by a foreign company or producers directly.

International Touring for UK Producers

If a UK producer wants to take a show abroad a large share of core costs will be incurred outside of the UK meaning it is likely relief will be available on 100% of UK core expenditure, provided the 10% of the usage condition is met.

Care and planning must be undertaken to ensure that goods and services used in the development and rehearsals for a show touring outside of the UK are used or consumed in the UK to ensure the expenditure qualifies for relief.

Key benefits:

Improved cash flow: TTR provides a cash credit even if the production is not profitable.

Lower break-even point: Relief on UK expenditure reduces overall financial pressure.

Brand amplification: Touring strengthens the global impact of the UK’s world-renowned theatre ecosystem. Success abroad opens doors to long-term licensing, film/TV adaptations, and international co-productions.

Soft power and cultural exchange: UK productions contribute to international relationships and artistic collaboration.

A Borderless Creative Economy

Theatre Tax Relief is more than a subsidy; it is a strategic tool for financial optimisation, risk management, and global brand growth. In an interconnected world, TTR ensures that British theatre isn't confined by geography, but is instead fuelled by collaboration through global ambition.

Our Creative Industry team has many years’ experience advising international productions and can provide tailored support to help you remain compliant, manage cash flow effectively, and minimise unnecessary tax exposure.

If you require guidance on establishing a theatre production company in the UK or navigating the complexities of Theatre Tax Relief, get in touch with Friend Partnership on 0121 633 2000 , email enquiries@friendpartnership.com , or complete the enquiry form below.

Inheritance Tax Reform: Why Residence Is Now the Deciding Factor

Wed, 18 Feb 2026 09:52:57 GMT

Inheritance tax (IHT) has entered a new era for internationally mobile individuals.

The UK has moved decisively away from the long-established concept of domicile and instead anchored inheritance tax exposure to residence. This shift has wide-ranging consequences, particularly for internationally mobile individuals and families with assets held across multiple jurisdictions.

The move from domicile to residence

Historically, an individual’s domicile status played a pivotal role in determining whether their worldwide estate fell within the scope of UK inheritance tax. That approach has now been replaced by a residence-based framework designed to provide clearer, more objective criteria, but one that has significantly broadened the reach of IHT.

Under the new rules, the treatment of assets will depend on both their location and the individual’s UK residence history.

How the new rules work

UK assets will remain subject to UK inheritance tax regardless of the individual’s residence status. This represents continuity rather than change.

Non-UK assets will fall within the scope of UK inheritance tax once an individual has been UK resident for 10 out of the previous 20 tax years .

The new rules introduced the concept of a “long-term resident” , which replaced domicile as the key test. Once an individual meets this threshold, their overseas assets can become exposed to UK inheritance tax.

Crucially, this exposure does not necessarily end when UK residence ends. An individual may potentially remain within the inheritance tax net on non-UK assets for up to ten years after leaving the UK, extending IHT risk well beyond the period of active UK residence.

Why this matters for international families

For individuals with international lifestyles, the implications are significant. Those who might previously have assumed that non-UK assets were sheltered from UK inheritance tax- based on non-domiciled status - may now find that IHT exposure arises much earlier than expected.

Families with cross-border wealth, overseas property portfolios, family businesses, or investment structures will need to reassess long-term succession plans . The timing of UK residence, departures from the UK, and inter-generational transfers all become more critical under the new regime.

Trusts and excluded property

The reforms also have major consequences for trust planning. Under the previous system, certain Excluded Property Trusts had historically been used to hold non-UK assets outside the scope of UK inheritance tax.

Since April 2025, where the settlor qualifies as a long-term resident, these trusts will no longer benefit from excluded property status. This means assets that were previously protected will be brought within the inheritance tax net, altering the effectiveness of established trust structures.

The case for proactive planning

Taken together, these changes reinforce the importance of forward-looking estate and succession planning. Residence patterns, asset location, and the structure of ownership will all need careful review. For internationally connected families, early advice and strategic planning will be essential to manage exposure and avoid unintended inheritance tax consequences.

Since 1986 Friend Partnership has provided advice to internationally successful individuals. We pride ourselves on the close and long-lasting relationships we have built with our clients. Our in-depth knowledge of Tax and Inheritance matters means that we can provide you with reliable advice.

If you would like to know more about our services or discuss any matter relating to the new rules, please get in touch with our Head of Tax, David Gillies on 0121 633 2007, by e-mail at david.gillies@friendllp.com or alternatively complete the enquiry form below.

Payrolling Benefits in Kind: What is Changing?

Mon, 09 Feb 2026 17:15:35 GMT

The government has confirmed that all employers will be required to payroll benefits in kind from April 2027, having delayed its implementation by a year. This delay offers welcome breathing space for employers, payroll providers and advisers, who now have additional time to adapt systems, review processes and prepare employees for the shift to mandatory payrolling. HMRC has also outlined a phased programme of activity leading up to 2027, giving organisations a clearer path to follow.

What Does This Mean for Employers?

From April 2027, HMRC ’s current guidance indicates that P11Ds will only be permitted for benefits relating to employment-related loans and accommodation. These two areas will continue under a voluntary payrolling arrangement for the time being, and businesses will need HMRC approval to payroll them by 5 April 2027. HMRC is still considering whether P11Ds will remain necessary for a small number of specialist cases, such as internationally mobile employees using modified payroll arrangements.

For all other benefits, employers will be required to report the benefit value directly through payroll, with associated income tax and Class 1A NIC collected in real time. As a result, payroll systems will need to handle more detailed and more frequent reporting. The transition could introduce additional complexity and increase the likelihood of errors if data flows or processes are not carefully managed.

The first year of payrolling may also create cash-flow pressures for both employers and employees. Some employees - particularly those subject to deduction limits or who may experience hardship - could see timing mismatches or higher initial deductions as the new system beds in.

The Current Benefit Reporting Framework

Under the existing rules, employers must report taxable benefits and expenses using forms P11D and P11D(b) by 6 July following the end of each tax year. The figures are calculated after year-end and submitted to HMRC.

Even if an employer has already chosen to payroll benefits in 2025/26, they must still file a P11D(b) to declare the Class 1A NIC due, and they must pay the NIC by 19 July (or 22 July when paying electronically).

Key Points:

Reporting will move to the Full Payment Submission (FPS), the same real-time route currently used for salary information.
Employers will need to supply additional data to ensure each benefit type is itemised clearly for HMRC, including details relevant to Class 1A NIC.
If the value of a benefit cannot be determined until later - common with certain third-party benefits - an end-of-year adjustment will be required.
All benefit-related entries will be removed from employee tax codes before the start of the 2027/28 tax year (except any outstanding underpayments from earlier years).
HMRC have stated they will take a lenient approach in the first year, unless errors are deliberate. From 2028/29, penalties and interest will align with the existing voluntary payrolling regime, with further details expected in 2026.

If you're unsure how the new rules will affect your organisation, you can contact Friend Partnership to seek specialist advice.

What Actions Should Employers Take Now?

Even with the extended timeline, preparation should begin as soon as possible.

Businesses should consider:

Reviewing and updating internal processes, ensuring that benefit data is accurate, complete and available in real time.
Assessing payroll system readiness and liaising with software providers about upcoming technical changes.
Communicating early with employees, so they understand how payrolling will affect their take-home pay and tax deductions.
Planning for an annual reconciliation check, as small real-time variances are common and can lead to under- or over-deductions if not monitored.

Employee FAQ: Payrolling Benefits in Kind

What does “payrolling benefits in kind” mean for me?
It means that the tax you owe on certain benefits your employer provides, such as company cars, medical insurance or other taxable perks will be collected directly through your monthly pay instead of being adjusted through your tax code or reported at year-end.

Will my take-home pay change?
Yes, potentially. Because the tax is deducted in real time, you may notice slightly lower take-home pay each month. However, this avoids the build-up of underpayments that sometimes happens under the current system.

Will I still get a P11D?
In most cases, no. From April 2027, P11Ds will only be issued for certain benefits that aren’t included in mandatory payrolling, such as employment-related loans or accommodation. If these apply to you, you may still receive a P11D.

What happens to my tax code?
HMRC will remove benefit-related adjustments from your tax code before April 2027. This helps make sure that the correct tax is collected through payrolling instead. Any underpayments from previous years will remain in your code until cleared.

Will this change how much tax I pay overall?
No. You won’t pay more or less tax - only the timing changes. Tax will simply be collected more evenly throughout the year.

What if the value of a benefit isn’t known straight away?
Some benefits (for example, those provided by external suppliers) may not have a confirmed value until later in the year. In these cases, your employer will make an adjustment after year-end once the final value is known.

Could this affect staff who have deduction limits or financial difficulties?
Possibly. Employees who are close to deduction limits or who might struggle with increased monthly deductions should speak to their employer. Employers are encouraged to plan for these situations to avoid hardship.

Do I need to do anything to prepare?
No. Your employer and HMRC will handle the changes. However, it’s a good idea to:

check your payslips regularly,
make sure your tax code looks correct, and
ask payroll if you’re unsure how a benefit is being taxed.

Who should I contact if I have questions?
Your first stop should be your employer’s HR or payrol l team, who can explain how your benefits are being processed. For tax-specific questions, you may also contact HMRC directly.

Autumn Budget 2025 - Detailed Summary

Thu, 27 Nov 2025 10:22:46 GMT

The leaky Red Box

The most surprising thing about the latest Budget was that someone at the Office for Budget Responsibility appears to have pressed the wrong button and published its report about 40 minutes before the Chancellor stood up, rather than just after she sat down. This meant that the pundits were discussing the contents of the Budget before it had been delivered, which was unprecedented.

In this document we have summarised the main tax proposals and their impact, and also included reminders of some matters announced in previous Budgets but only now coming into force. If you would like to discuss what it all means for you, we will be happy to help.

The year’s best staged production? Critical Acclaim for Melting Pot Productions’ Paranormal Activity

Fri, 21 Nov 2025 10:38:38 GMT

Paranormal Activity , one of the latest productions to come out of Melting Pot Productions, has earned rave reviews after recent performances at the Ahmanson Theatre, Los Angeles. This recognition not only celebrates artistic excellence but also validates the strategic financial planning, accounting and advisory services that made such ambition possible, a partnership we’re proud to support. Based on the Paranormal Activity films, the show was developed in the UK and opens in the West End early December.

One of the reviews by Charles McNulty of The Los Angeles Times describes the production as “brilliantly pulled off,” and highlights the show’s masterful use of scenic design, lighting, sound, video design, and illusion to create a deeply immersive and terrifying experience. The review applauds how these elements synchronise in a way that elicits strong emotional reactions, calling the staging a “technical tour de force”.

Patrick Heusinger (James) and Cher Álvarez (Lou) were as highly commended for their roles, noting their “unerringly authentic” portrayals and the real emotional stakes they bring to the supernatural narrative. Meanwhile, Levi Holloway’s writing is praised for its naturalistic dialogue, which grounds the horror in psychological complexity.

The review underscores the production’s thematic depth, highlighting explorations of mental health, belief, scepticism, and the fragile bonds between people. The piece suggests that Paranormal Activity could be one of the “year’s best staged productions”.

Building a Track Record

These reviews affirm Melting Pot Productions’ technical ambition and creative risk, demonstrating that complex staging and illusion design can deliver both artistic and commercial rewards. Over the long term, with the enhanced reputation that these strong reviews help build, it provides a track record of success that supports sustainable financial planning and enables even more ambitious future projects.

The Role of Theatre Tax Relief

George Bradley of Friend Partnership comments that the continued success of companies like Melting Pot Productions highlights the impact of the UK’s Theatre Tax Relief (TTR), which has been pivotal in enabling bold productions like Paranormal Activity. By reducing financial risk, TTR empowers producers to innovate and allows them to compete globally, strengthening the UK’s cultural soft power globally. As advisers to Melting Pot Productions, we’ve seen first-hand how TTR supports sustainable growth and fuels the level of artistic ambition recognised in reviews like this one.

About Friend Partnership

Friend Partnership specialises in financial management, accounting, and strategic advisory across multiple sectors including the creative arts. With a deep understanding of the theatre sector, discover how Friend Partnership can support your next production by contacting us today.

New Companies House Identity Verification Requirements – Effective 18 November 2025

Fri, 03 Oct 2025 10:33:14 GMT

Important changes are being introduced by Companies House which will affect all Company Directors and Persons with Significant Control (“PSCs”).

From 18 November 2025, Companies House will require all directors and persons with significant control of both newly incorporated and existing companies to complete identity verification as part of reforms designed to improve transparency and reduce economic crime.

What this means for you

New Companies: Directors and PSCs must have verified their identity before a company can be incorporated.
Existing Companies: From 18 November 2025, confirmation statements can only be filed for a company where the Directors and PSCs identity has been verified. The company’s confirmation statement date is the deadline for all individuals to complete this process.

Failure to comply with these new requirements could result in penalties and restrictions at Companies House.

What information is required for verification

Individuals will need to provide:

How to complete verification

There are two options available to you:

Self-verification through Companies House

You will be able to complete the process directly via the Companies House online portal .
Each director and PSC will need to follow the steps provided by Companies House.

Verification via an Authorised Corporate Service Provider

An Authorised Corporate Service Provider ( in most cases, your accountant ) can complete the verification process on your behalf.
This service will most likely be chargeable per individual.

What else may be asked depending on situation

In addition, depending on which route you take, or whether all required documents are in order, you may have to:

Go to a Post Office in person for part of the verification (if you lack some of the required photo IDs).
Provide extra documents (e.g. utility bills, council tax bill, bank statements)
Answer security questions or provide your National Insurance Number

What the individual gets / what they must do afterwards

Once successful, you will get a Companies House personal code. This is unique to you (not the company) , and you must use it when required (e.g. when filing confirmation statements, when being appointed as director or PSC) from 18 November 2025. You must link their verified identity (via that personal code) to their existing roles (director / PSC) when prompted or required.

HMRC Tax Receipts 2024-25 – A quick summary

Fri, 19 Sep 2025 11:58:26 GMT

HMRC’s latest figures reveal a steady but slowing growth in UK tax receipts. Overall revenue reached £858.9 billion in 2024-25 , a 3.7% increase compared to the £827.7 billion collected in 2023-24 . While the rise reflects continued economic activity and fiscal drag, several areas raise concerns about longer-term sustainability.

Breakdown of HMRC Tax Receipts – 2024-25

Income Tax and NICs: Growth Despite Rate Cuts

Receipts from Income Tax (£302.8 billion) and National Insurance contributions (£172.5 billion ) rose to £475.3 billion from £454.4 billion the year prior. This growth came even as employee NICs were cut from 10% to 8%, showing the strength of wage growth and the impact of frozen thresholds pushing more taxpayers into higher bands. But with take-home pay squeezed, questions remain about how long this momentum can last.

Capital Gains Tax: Declining Despite Sharp Reduction in Annual Exempt Amount

Receipts from Capital Gains Tax has been declining since the high of 2022-23 when £16.9 billion was collected by HMRC through 2023-24 when £14.5 billion was raised, to the current 2024-25 tax year when only £13.7 billion was raised. Whilst many investors and individuals realised gains before the sharp reductions were announced on 2022-23, a cooling property and investment market – driven by higher interest rates, lower housing transaction volumes and more cautious equity markets most likely contributed to a weaker realisation of gains.

Corporation Tax: Record Highs, But Clouds on the Horizon

Corporation Tax receipts increased to £91.2billion from £85.6 billion in 2023-24, cementing the impact of the rate hike to 25%. The Treasury will welcome this boost, but there are growing concerns about whether higher rates could deter investment or drive profits overseas in the medium term.

VAT: Consumer Spending Under Pressure

VAT receipts rose modestly to £171.0 billion from £168.4 billion in the previous year. While this reflects stable consumer spending, the growth rate is slowing compared to previous years as households adjust to inflation and higher interest rates.

Stamp Taxes: A Surprise Rebound

After sharp falls in 2023/24, Stamp Duty receipts (Stamp Duty Land Tax, Stamp Duty on Shares and Annual Tax on Enveloped Dwellings) increased to £18.3 billion . This recovery reflects both higher transaction volumes and the impact of the October 2024 increase in additional property rates. Whether this is a one-off bounce or a sign of stabilisation in the property market remains to be seen.

Fuel Duty: The Long Decline Continues

Fuel Duty receipts fell again to £24.4 billion , down from £24.9 billion last year. Diesel use in particular continues to fall, and the transition to electric vehicles accelerates this long-term decline. Replacing this revenue stream will be a key challenge for future governments.

Inheritance Tax: Quietly Climbing

Inheritance Tax receipts rose again to £8.2 billion , up from £7.5 billion in 2023/24. With thresholds frozen and asset values elevated, more estates are being pulled into scope - raising questions about fairness and the long-term future of IHT policy.

Other Duties: Mixed Signals

Alcohol Duty receipts were stable at £12.6 billion , reflecting flat consumption patterns.
Tobacco Duty fell further to £7.9 billion from £8.8 billion, continuing its structural decline. A notable reason for the future introduction of Vape Liquid Tax which is to set to stand at 22p +VAT per ml when it takes effect.
Air Passenger Duty increased to £4.1 billion from £3.8 billion, reflecting strong post-pandemic travel recovery.
Environmental taxes remained steady at around £2.9 billion , with only marginal changes across individual levies.

Conclusion

The 2024/25 data paints a picture of resilience, but also fragility. Total tax collections at £858.9 billion confirm that the UK continues to operate under one of the highest tax burdens in decades. Yet underlying trends - slowing VAT growth, falling fuel duty, and reliance on frozen thresholds - signal challenges ahead.

Unless addressed, questions of sustainability, fairness, and competitiveness will continue to loom large over the UK’s tax system.

Angela Rayner’s Stamp Duty Land Tax problem

Thu, 04 Sep 2025 11:36:37 GMT

The Deputy Prime Minister has landed herself in a bit of hot water over the Stamp Duty Land Tax (SDLT) paid in respect of the purchase of a home in Hove. It is claimed that she underpaid SDLT to the tune of £40,000. How could this have happened? The answer lies in the rules which apply when a person purchases an additional home.

A higher rate of Stamp Duty Land Tax is payable when an individual purchases an additional home.

The rules relating to the purchase of an additional home are set out in schedule 4ZA of Finance Act 2003 . They state that if a person purchases a home for more than £40,000 and, at the end of the same day as the effective date of that purchase:

that person also has a “major interest” in a dwelling other than the purchased home, and
the market value of the interest in that other dwelling is more than £40,000,

that purchase is a “higher rates transaction”.

In Angela Rayner’s case, SDLT was originally paid on the basis that she did not have a major interest in any other dwelling on the date she purchased her property in Hove. This was a mistake.

An anti-avoidance rule in paragraph 12 of Schedule 4ZA says that where a minor child has an interest in a dwelling by virtue of being the beneficiary of a trust, the interest in that property is deemed to be held by the parent of that child.

Because of paragraph 12, Angela Rayner was deemed to hold a major interest in her Ashton-under-Lyne property with a market value in excess of £40,000 at the time she purchased a home in Hove. The Hove purchase was therefore a higher rates transaction. SDLT due in respect of that transaction (assuming the purchase price to have been £800,000) was £70,000. Angela Rayner only paid £30,000 hence the shortfall of £40,000.

Lessons from the Case

If it were the case that Angela Rayner had not attempted to “dodge” the full amount of SDLT, it certainly underlines the risks of relying solely on conveyancing solicitors for matters involving complex tax legislation. Conveyancers are primarily trained and insured to deal with the mechanics of property transfers, title issues, and registration at HM Land Registry. While they routinely handle the submission of SDLT returns, their role does not extend to providing detailed analysis of intricate anti-avoidance rules or the nuanced interaction between property ownership and tax law, and certainly not where trusts are involved.

Where significant sums of tax are at stake, purchasers are far better advised to obtain input from a specialist tax adviser. A tax specialist would have identified the impact of paragraph 12 of Schedule 4ZA and advised that the higher rates of SDLT applied. The oversight in this case illustrates the real financial consequences of not seeking tailored tax advice at the outset of a transaction.

Image: Angela Rayner MP, Deputy Prime Minister (Ashton-under-Lyne, Labour) © House of Commons

Don't Let Tax On Your Personal Savings Surprise You

Wed, 23 Jul 2025 09:21:32 GMT

For diligent savers, an unexpected tax bill on their hard-earned interest can be a rude awakening. Recent data from HMRC reveals that more individuals, particularly higher-rate taxpayers, are falling into this trap. Understand what you might owe, and utilising strategies to keep more of your money is becoming crucial.

Understanding Your Personal Savings Allowance (PSA)

The Personal Savings Allowance dictates how much interest you can earn on your savings before it becomes taxable. Your allowance varies based on your income tax band:

Crucially, higher-rate taxpayers see their PSA halved to just £500, making it significantly easier to exceed.

When Does Your Savings Interest Become Taxable

With the average savings rate currently around 3.5% AER (Moneyfacts), interest can accumulate faster than you might think. Here's how much you can save before potentially hitting your PSA:

Basic Rate Taxpayers: Savings exceeding £28,571 could trigger a tax liability, managed via Self-Assessment or PAYE tax codes.
Higher Rate Taxpayers: A balance over £14,286 might result in a tax bill, handled through Self-Assessment or PAYE tax codes.
Additional Rate Taxpayers: All savings interest is taxable.

Remember, some attractive introductory or fixed-term accounts are offering rates as high as 5% AER, which means you'll reach your tax-free limit with even less capital.

The Unexpected Tax Bill

Consider a higher-rate taxpayer with £20,000 in a savings account earning 4% AER:

This £120 surprise bill could be deducted from your tax code or submitted through a Self-Assessment return.

Smart Strategies to Avoid Savings Tax

Don't let your hard-earned interest dwindle due to tax. Here's how to shield your savings:

Maximise Your ISA Allowance: Cash ISAs allow you to earn interest entirely tax-free. For the 2025-2026 tax year, you can deposit up to £20,000. For instance, £20,000 in a 5% AER cash ISA would generate £1,000 in tax-free interest.
Diversify Your Savings:
Joint Accounts: Spreading funds across joint accounts means each account holder benefits from their own PSA.
Premium Bonds: Instead of interest, Premium Bonds offer tax-free prize draws.
NS&I Products: Explore other tax-free savings options offered by National Savings & Investments.

Stay Informed

While rising interest rates are welcome news for savers, they also create a hidden tax trap for those unaware of the Personal Savings Allowance. Higher-rate taxpayers, in particular, could find themselves exceeding their allowance with a relatively modest amount like £10,000 in a high-interest account.

Make it a habit to utilise your ISA allowances, diligently monitor your interest income, and avoid the unwelcome surprise of an unexpected tax bill.

A Stand-Out Collaboration: Friend Partnership & Melting Pot Productions

Wed, 09 Jul 2025 11:41:10 GMT

Since Melting Pot rebranded in 2025, they have continued to flourish, delivering award-winning theatre internationally. Friend Partnership has been instrumental in bolstering their creative ambitions through specialist tax advisory, particularly driving their Theatre Tax Relief (TTR) claims.

With expert guidance from the Creative Industry team at Friend Partnership, Melting Pot Productions has leveraged efficient submission of repayable tax credits on qualifying UK-based productions, maximising financial efficiency, repaying backers and reinvesting savings into further artistic development.

Coming Soon: The Battle – A Britpop Comedy Biopic

Melting Pot Production’s, The Battle is set to tour early next year, a musical-comedy biopic that revisits the legendary rivalry between Oasis and Blur during the chart-dominating summer of 1995. Written by John Niven and directed by Matthew Dunster, performances will begin at Birmingham Repertory Theatre from 11 February to 7 March 2026 .

Notably, Mathew Horne, familiar to UK audiences as Gavin from Gavin & Stacey will portray Britpop music exec Andy Ross. Producers envision a lively, razor-sharp comedy that captures the raw rivalry and cultural mania that defined an era.

The Battle tours other major cities and towns including Manchester, Edinburgh, Glasgow, Brighton, and Newcastle.

Full dates and venues available at https://thebattleplay.com/#tour .

Current and Touring Productions

Melting Pot continues to produce compelling works both on the West End stage, across the UK and internationally:

Life of Pi : A visually stunning adaptation of Yann Martel’s global bestseller, adapted by the playwright Lolita Chakrabarti has been enchanting audiences since 2022 with its storytelling and innovation.
Inspector Morse : A theatrical reimagining of the iconic detective series, merging nostalgia with fresh theatrical energy.
One Day : An adaptation of the novel written by David Nichols that touched millions and whose drama series adaptation was one of the most watched series on Netflix in 2024
The Girl on the Train : A gripping stage adaptation that translates thrilling suspense from page to performance.
Paranormal Activity : An original story set in the world of the Paranormal Activity film series; this play will haunt you long after the lights go out. The play will be touring North America from October 2025 and in London’s West End from 5 ^th December 2025.

Friend Partnership’s strategic support ensures productions meet TTR criteria, helping offset core production costs and offering crucial funding flexibility.

How Friend Partnership Makes It Possible

Theatre Tax Relief (TTR) claims

Expert application of the enhanced 80% deduction on qualifying core expenditure and navigating touring rates up to 50% repayable credit
Precise compliance with evolving legislation, from pre‑ and post‑April 2024 rules on UK spending thresholds.
Timely submission to prevent processing delays and better help cashflow

Holistic tax planning - Beyond TTR, Friend Partnership offers integrated advice across VAT, corporation tax and payroll, tailored specifically for Melting Pot’s growing slate of creative productions

Full lifecycle support - From pre-production negotiation and contract structuring to post-production tax credit claims, Friend ensures Melting Pot meets all HMRC criteria and deadlines.

Melting Pot Productions continues to deliver high‑quality, award‑worthy theatre. Through strategic application of theatre tax relief and robust financial planning, Melting Pot’s creative reach has expanded, enabling thrilling productions like The Battle to enter production with confidence and fiscal resilience.

As audiences anticipate the chart-battle dramatisation next year, Friend Partnership remains at their side, driving production excellence and ensuring financial sustainability, show after show.

Why Businesses Are Choosing Birmingham

Mon, 07 Jul 2025 12:48:46 GMT

Birmingham, once defined by heavy industry and manufacturing, is fast emerging as one of England’s most dynamic cities for business. With major investments spanning media, transport, health and sport, the city is undergoing a transformation that promises not just economic revival but a complete reimagination of its identity.

The city has the momentum—and the vision—to support businesses old and new. Here’s why:

Innovation, Science and Health: Building the Knowledge Economy

Parallel to the cultural revival is Birmingham’s rise as a tech and life sciences hub. Adjacent to Aston University , the Birmingham Innovation Precinct (BIP) spans 20 hectares and includes 1.35 million sq ft of commercial space. The mixed-use district, complete with homes, hotels, and cultural venues, is expected to contribute £1.3 billion in annual Gross Value Added (GVA) and create approximately 10,000 high-value jobs. This is already on top of what is currently existing in an area known as the Knowledge Quarter.

Core new facilities include the Green Energy Centre and the Aston Integrated Healthcare Hub, both aimed at fusing academic research with enterprise. The Aston Business Hub, designed to support 100 tech startups, positions the BIP as one of the UK’s most ambitious innovation ecosystems.

The precinct forms a vital part of the West Midlands Investment Zone, a government-backed initiative targeting 30,000 jobs and £5.5 billion in private investment.

Healthcare innovation is also surging in Selly Oak, with the development of the Birmingham Health Innovation Campus. The campus is being delivered through a collaboration between the University of Birmingham and investor-developers, Bruntwood Sci Tech , who coincidentally are also investor-developers in the Knowledge Quarter. This brand new facility blends community care with pharmaceutical services and digital health research, placing Birmingham at the forefront of public health innovation. The collaborative partnership is further driving life sciences and health-tech R&D in the region.

Meanwhile, Birmingham Science Park Aston (BSPA)—one of the UK’s oldest science parks—continues to support over 100 tech companies across digital, biotech, and low-carbon sectors. Its 250,000 sq ft of workspace and proximity to the Innovation Birmingham campus make it a fertile ground for startups and spinouts in clean tech and advanced computing.

HS2: Redefining Birmingham’s Place on the Map

One of the city’s most transformative projects lies away from the streets and on the tracks. Birmingham stands at the heart of High Speed 2 (HS2), the UK’s most ambitious infrastructure programme in decades. While the northern leg has been curtailed, the link between Birmingham and London remains central, and game-changing.

Curzon Street Station, now under construction, will be the first new intercity terminus built in Britain in more than 100 years. When complete, it will reduce travel times to London to just 49 minutes. The development is expected to generate £1.4 billion in annual GVA, create 36,000 jobs, and unlock 141 hectares of land for regeneration.

This infrastructure is tightly integrated with city-centre developments. In Digbeth and Eastside, new cycling, walking, and business routes will connect HS2 directly to creative hubs such as the Custard Factory and the BBC’s new headquarters.

For local businesses, this means faster recruitment pipelines, improved logistics, and greater exposure to national and international investors. For the broader economy, it translates into rising demand for commercial property, hospitality, and retail—particularly in areas surrounding the station.

Sporting Ambition: A Stadium to Match the Vision

East Birmingham is also the focus of another ambitious scheme—this time led by Birmingham City Football Club . Backed by US investment firm Knighthead Capital and minority investor Tom Brady, the club is driving forward a £2–3 billion Sports Quarter development in Bordesley Green.

The centrepiece will be a new 60,000+-seater stadium, replacing St Andrew’s as the largest ground in the Midlands. Dubbed the “spaceship” for its conceptual design. Whilst no timelines have been give for the new stadium, we can expect that Knighthead Capital will deliver on this.

But this isn’t just about football. The 48-acre site, formerly home to Wheels Park and a go-kart track, will also feature elite training facilities, youth academies, hotels, retail, and entertainment venues. The campus draws inspiration from Manchester City’s Etihad complex and the development is expected to deliver between £370 million and £450 million in annual economic impact, and create around 8,000 jobs.

To ensure accessibility, plans include a new metro extension - part of a wider £2.4 billion West Midlands transport investment - that will connect the new stadium site with Birmingham city centre, HS2’s Arden Cross, the NEC, and the airport.

Crucially, the project is being developed in an area of East Birmingham that has struggled with high unemployment - around 14 percent - and limited investment. Proponents see it as a catalyst for wider community regeneration, not just through job creation but by providing youth facilities, public spaces, and year-round economic activity driven by concerts, sports events, and even international fixtures.

Digbeth: A Creative Powerhouse Reborn

Nowhere is Birmingham’s renaissance more visible than in Digbeth. Once an industrial backwater, the district has morphed into the city’s creative epicentre, home to several hundreds of organisations across design, media, and technology. Its Victorian warehouses and railway arches have become the backdrop to a modern creative quarter drawing comparisons to East London’s Shoreditch and North London’s Camden.

The Custard Factory remains a key landmark in this shift, housing more than 400 tech and media SMEs. Nearby, redeveloped spaces such as Fazeley Studios, The Bond, and Tubeworks form part of a wider multi-million-pound masterplan to regenerate the area into a walkable, high-energy creative campus.

The area’s transformation has drawn in high-profile backers. The BBC is relocating its Midlands headquarters to the historic Typhoo Tea Factory, converting the iconic site into a cutting-edge broadcast hub. Flagship programmes including MasterChef, Silent Witness, Asian Network, and Newsbeat will be produced from Digbeth. The relocation is expected to generate £282 million in GVA and create around 900 full-time jobs by 2031, reinforcing the area’s status as a national media cluster.

Just around the corner, Peaky Blinders creator Steven Knight is spearheading the launch of Digbeth Loc Studios. The complex is expected to attract high-end film, television, and music productions. It’s not only a nod to Birmingham’s cinematic roots but a signal of the city’s creative future. One that nurtures and exports its own cultural capital.

A City Redefined

Across media, health, transport and sport, Birmingham is redefining its role in the UK economy. Once a symbol of post-industrial decline, it is now a showcase for how targeted investment and strategic partnerships can revitalise a city.

The BBC’s presence in Digbeth signals confidence in its creative future. The Birmingham Innovation Precinct anchors cutting-edge science and technology. HS2 is stitching the city into the national network, while the Sports Quarter promises to lift a historically neglected part of the city.

Together, these developments offer more than a facelift—they position Birmingham as a launchpad for growth, innovation and national influence.

For businesses, creatives, and investors alike, Birmingham is not just rising, it’s leading.

Spring Statement 2025

Thu, 27 Mar 2025 10:16:14 GMT

In mid-March 2024, the then Shadow Chancellor, Rachel Reeves gave the Mais lecture to the good and the great of the City. In it she set out her broad fiscal framework, including goals to:

• Balance the current budget, i.e. match day-to-day government expenditure with revenues; and

• Have a single fiscal event (i.e. Budget) each year, in the autumn.

The speech was designed to give its audience confidence that a Labour government – then looking close to a certainty – would bring financial stability.

Just over a year later Rachel Reeves is both where she hoped she would be – 11 Downing Street – and where she hoped not to be – trying to avoid a parliamentary set piece less than five months after her Autumn Budget morphing into a Spring Budget. As the Institute for Government, pointed out, among others, the objective of one Budget a year does not sit comfortably with two forecasts in the same period from the Office for Budget Responsibility (OBR). Add in the small fiscal headroom that Reeves left herself after her tax-raising Budget last October and discomfort looked a distinct possibility come spring 2025.

Despite various media labels of mini-Budget or even emergency Budget in the run up to 26 March, the Chancellor avoided any fresh tax measures. Instead, her focus was on tightening public spending, an action which means the Treasury’s spotlight now turns to 11 June, when the deferred three-year spending review is due to be published. In the interim, underlining the swirl of economic uncertainty surrounding any forecast, 2 April is scheduled as “Liberation Day” in the US, when Donald Trump reveals his “reciprocal” tariffs.

Pre-Owned Asset Tax: Understanding Its Role in Inheritance Tax Planning

Fri, 07 Feb 2025 13:05:13 GMT

The pre-owned asset tax (POAT) is a UK tax measure designed to close a loophole that allowed individuals to reduce or avoid inheritance tax (IHT) liability through complex asset transfers.

Introduced in 2005, POAT applies to assets previously owned by an individual but now used or enjoyed by them under certain conditions. Its primary goal is to prevent people from giving away assets to reduce their estate's value while still benefiting from them in ways that allow tax avoidance.

What is the Pre-Owned Asset Tax?

POAT is an annual income tax levied on individuals who have given away certain assets but retain the benefit or use of them. The tax is meant to target assets such as property, cash, or other valuable items that may have been transferred to reduce the estate's value for IHT purposes, but where the original owner continues to benefit from these assets.

A common scenario involves parents transferring ownership of their home to their children (or to a trust for their children) but continuing to live in it. This arrangement reduces the property's value in the parents' estate, potentially lowering IHT liabilities. However, because the parents retain the benefit of living in the home, POAT may apply, imposing an annual tax charge.

How Does the Pre-Owned Asset Tax Relate to Inheritance Tax?

Inheritance tax is charged on the value of an individual’s estate upon death if the estate exceeds a certain threshold (usually the nil-rate band). To minimise IHT, some individuals transfer ownership of high-value assets to family members or trusts during their lifetime. However, under the "gift with reservation of benefit" rule, if a donor gives away an asset but continues to enjoy its benefits, the asset is still considered part of their estate for IHT purposes.

Before POAT, people often structured asset transfers in complex ways to bypass the gift with reservation of benefit rules. POAT serves as an anti-avoidance measure to prevent such strategies, closing off a potential loophole in IHT legislation.

Pre-Owned Asset Tax applies where the gift with reservation of benefit rules do not apply. Therefore, if the gift with reservation of benefit rule captures an asset, POAT will not. This way, the two taxes are mutually exclusive, ensuring there is no double taxation on the same asset for the same purpose.

When is Pre-Owned Asset Tax Applicable?

POAT applies under certain conditions, particularly if an individual:

Previously owned an asset (like property or cash),
Gave it away but continues to benefit from it directly or indirectly, and
Does not fall under the gift with reservation of benefit rule, which would already account for the asset in the estate.

Assets typically subject to POAT include:

Residential Property: If a person transfers ownership of their home to a family member or trust but continues to live in it without paying market rent.
Chattels: These are valuable personal items like jewellery, art, and antiques. If these are transferred but still used or accessed by the original owner, POAT might apply.
Cash and Investments: If cash is transferred to a trust or family member, but the original owner continues to benefit from any interest or dividends generated, POAT could be triggered.

How is the Pre-Owned Asset Tax Calculated?

The annual tax under POAT is generally based on the market rental value of the asset in question. The calculation differs slightly depending on the asset type:

Residential Property: The tax is assessed based on the open market rental value of the property. For instance, if a home would rent for £15,000 a year, the individual must pay tax on that amount. This annual benefit is taxed at the person’s income tax rate.
Chattels: The annual benefit is calculated as an interest charge (currently 5%) on the asset’s market value as of 6 April 2005 or the date it was first enjoyed by the owner if later.

For instance, if an individual transferred valuable artwork worth £50,000 to a relative but continued to display it in their home, POAT would impose a charge equivalent to 5% of the artwork’s value, which in this case would be £2,500.

Pre-Owned Asset Tax Exceptions and Exemptions

Not all situations where an individual benefits from a previously owned asset trigger POAT. Some key exemptions and exceptions include:

Spousal Transfers: Transfers to a spouse or civil partner are generally exempt from POAT.
Market Rent Payments: If the original owner pays a market rent for the asset (for example, paying rent to live in a previously owned home), POAT does not apply.
Small Benefits: Minor benefits are disregarded, generally where the annual value does not exceed £5,000.
Certain Trust Arrangements: Assets placed in trusts created before 6 April 2005 may be exempt from POAT, though this depends on specific trust rules and uses.
Charitable Use: If the asset is used for charitable purposes, it may not trigger POAT.

Planning Considerations for Estate Planning

POAT adds a layer of complexity to estate and inheritance tax planning, and those wishing to avoid it should consider the following:

Regularly Reviewing Asset Transfers: Periodic reviews of asset ownership and benefit usage can help identify potential POAT risks.
Considering Alternative Structures: Trusts, life insurance, and lifetime gifts can help mitigate POAT, but careful planning is essential to avoid triggering either POAT or the gift with reservation of benefit rules.
Paying Market Rent: Where possible, paying market rent for continued use of transferred assets (such as a family home) can prevent POAT charges.
Utilising Financial Advice: POAT is complex, and professional financial or tax advice is recommended to create tax-efficient structures that align with long-term estate plans.

The pre-owned asset tax is a targeted measure that prevents people from transferring assets to family members or trusts solely to reduce their estate’s value for inheritance tax purposes, while still enjoying those assets. Understanding the intricacies of POAT, particularly its exemptions and the conditions under which it applies, is essential for those involved in estate planning and wealth preservation.

With expert advice and careful planning, it’s possible to structure asset transfers to minimise both POAT and IHT liabilities, preserving more wealth for future generations while staying compliant with tax regulations.

Reducing Employer National Insurance Costs - Offering Benefits-in-Kind and Salary Sacrifice

Mon, 27 Jan 2025 15:57:51 GMT

With the recent changes to National Insurance Contributions announced in the 2024 Autumn Budget, UK employers are facing an increased financial burden.

The increase in Employer National Insurance contributions to 15% means that companies will now pay a higher percentage on each employee’s salary above the National Insurance threshold. This increase affects all businesses, making NICs one of the most significant payroll costs for employers.

Additionally, the reduced allowance—from £9,100 to £5,000—means that many employers will have less room to offset these NIC costs. This change is particularly impactful for small businesses, as it leaves them with a larger NIC burden despite relatively smaller payroll budgets. To avoid these increased costs cutting into profitability, companies may need to consider alternative strategies.

One effective way to offset these rising costs is by offering benefits-in-kind (BIK) and salary sacrifice schemes as part of employee compensation packages. BIKs and salary sacrifice schemes can provide savings on NICs, create a more attractive workplace, and improve employee satisfaction.

Benefits-in-Kind: A Cost-Effective Alternative

Benefits-in-kind, or non-cash benefits, are perks offered to employees that fall outside of standard salary payments. Examples include health insurance, gym memberships, company cars, and retraining courses. When structured effectively, certain BIKs are exempt from National Insurance contributions, or subject to lower NIC rates compared to regular salary payments.

BIKs are taxed differently from standard wages. While they are still subject to tax in many cases, certain types are either exempt from tax and NICs or are taxed at a lower rate, which can significantly reduce the employer’s overall National Insurance costs.

Salary Sacrifice: An Increase in Pensions Contributions

Implementing a salary sacrifice scheme can provide employers with substantial advantages, both financially and in terms of employee satisfaction. Through this arrangement, employees agree to "sacrifice" a portion of their pre-tax salary in exchange for non-cash benefits, such as pension contributions.

One key benefit of salary sacrifice schemes for employers is the reduction in National Insurance contributions. Since a portion of employees' income is redirected towards benefits, the company's liability for National Insurance is correspondingly reduced, leading to overall savings on payroll costs.

Furthermore, salary sacrifice schemes can improve an employer’s reputation and attractiveness to new talent. As employees increasingly look for companies that offer holistic benefits packages, providing personalised salary sacrifice options can make a workplace more appealing. This approach helps businesses not only retain skilled employees but also attract top candidates who value organisations that consider their financial and personal well-being.

Implementing Benefits-in-Kind and Salary Sacrifice Schemes to Optimise Savings

Identify Suitable Schemes

The first step in effectively using these schemes to reduce NICs is identifying the right perks. Health insurance, gym memberships, and professional development are popular and often NIC-exempt. Working with tax specialists to understand which schemes best suit the workforce while providing NIC efficiency can maximise savings.

Structure for Maximum Impact

Once the right benefits are selected, employers should structure these offerings to ensure maximum tax efficiency. For instance, these schemes allow employees to exchange part of their salary for benefits like pension contributions or electric vehicle leases. This structure can reduce both employee and employer NIC liabilities, as the salary sacrificed is may not subject to NICs.

Communicate the Value to Employees

Effective communication is key to ensuring employees understand and appreciate the value. Educating employees about the tax savings and advantages of these benefits can increase uptake and employee satisfaction. For example, explaining how a health insurance plan offers access to private medical care and reduced waiting times compared to the NHS whilst also providing a tax-efficient benefit.

Not all employees may want or can afford increased pension contributions, but targeted guidance can help employees understand the long-term value of pension contributions and other benefits, potentially increasing participation and satisfaction.

Navigating Potential Pitfalls

While benefits-in-kind (BIKs) and salary sacrifice schemes offer clear advantages, employers and employees should be mindful of potential downsides, including the risk of reducing an employee's entitlements under life insurance policies. In some cases, opting for salary sacrifice schemes may lower an employee's notional pay, which can decrease the amount of life insurance coverage they're entitled to. Additionally, these schemes bring administrative complexity: BIKs must be correctly reported on P11D forms, and misclassification can lead to unexpected tax liabilities. Partnering with payroll and tax specialists can help ensure BIKs are managed accurately and comply with HMRC requirements.

Strategic Response to Rising NIC Costs

Amid rising National Insurance contributions, adopting salary sacrifice schemes and a benefits-in-kind approach allows employers to manage costs while offering meaningful perks to employees. Through careful structuring, companies can reduce NIC liabilities, improve employee satisfaction, and align with corporate goals. In an environment where profitability is increasingly impacted by tax policies these schemes represent a practical and sustainable strategy for employers to navigate the evolving fiscal landscape.

At Friend Partnership we specialise in designing and managing benefits-in-kind and salary sacrifice schemes tailored to meet the needs of bother employers and employees. Our expert team ensures these programs are compliant, cost effective, and seamlessly integrated into your payroll systems, allowing you to focus on what matters most – growing your business. Get in touch with is today by calling us on 0121 633 2000 or alternatively e-mail us at enquiries@friendpartnership.com .

Non-domcile Status - Detailed Summary of Upcoming Changes

Tue, 03 Dec 2024 15:29:34 GMT

It has been the Labour Party’s long-standing intention to abolish non-domicile (‘non-dom’) status for tax purposes. Conservative Chancellor Jeremy Hunt, in the March 2024 Budget, took up this idea and announced that the rules would undergo fundamental reform from 6 April 2025. Unsurprisingly, Rachel Reeves has confirmed that this will still go ahead, albeit with a few tweaks to what the Conservative government had announced and a tougher set of provisions to deal with offshore trust structures (a topic that we will not discuss further here).

It is essential that anyone who may be affected by the proposals gets specialist advice, as the taxation of non-doms is a notoriously complex area.

We will not attempt to cover all the detail here, but in this guide, we will explain:

the current rules for non-doms;
how the rules are changing (including differences from what the Conservatives proposed); and
various transitional rules that will apply

What is “domicile”?

Domicile status is a difficult legal issue that is very important for tax. Very broadly, it is one’s country of natural or permanent home, which of course may be different to where someone is resident at any given time. To establish domicile status, the courts will look at where a taxpayer’s parents (and sometimes grandparents) were domiciled, as well as the taxpayer’s future intentions. There is a lot of case law in this area, partly because of the importance of domicile status for Inheritance Tax (IHT) purposes, as explained below.

Remittance basis

Currently, if someone is UK-resident but domiciled outside the UK, they can claim ‘remittance basis’ on their tax return. This means that their foreign income and capital gains will not be taxable in the UK unless brought here.

Once someone has been resident here for 7 of the previous 9 years, they have to pay an annual fee (the ‘remittance basis charge’) of £30,000 to use remittance basis; this increases to £60,000 when someone has been here for 12 of the previous 14 years. However, once someone has been resident for 15 of the last 20 years, they become ‘deemed domiciled’ in the UK, at which point remittance basis is no longer available. This means that their worldwide income and gains are taxable in the UK, even if the funds are left overseas. This is referred to as being taxable on an ‘arising’ basis and is also the basis of taxation for non-doms that do not claim remittance basis.

Inheritance Tax

The other advantage of non-dom status is that for IHT, only UK assets come within the scope of the tax; foreign assets are ‘excluded property’. In contrast, those who are UK-domiciled are subject to IHT on their worldwide assets. For example, if a non-dom dies owning shares in an Indian company and a holiday home in France, neither asset will be subject to UK IHT. If they are owned by a UK-domiciled or deemed domiciled taxpayer, they will be subject to UK IHT.

From 6 April 2025, whether your foreign assets are subject to UK IHT or not will be determined by how long you have been UK resident (as we will discuss below), irrespective of your domicile status.

(Note that the idea of domicile itself will still exist and will be relevant for certain other legal matters, such as probate law, even though it will be irrelevant for UK tax purposes. It also appears that where double tax treaties with other jurisdictions use the legal concept of domicile, the domicile status of an individual will continue to be important.)

The new residence-based regime

The key changes that are in the Autumn Finance Bill are set out below. Note that, until the Finance Bill is enacted (probably early in 2025), it is possible that some of the provisions will be amended.

The new FIG regime

From 6 April 2025, the current remittance basis of taxation will be abolished for UK resident non-doms. This will be replaced with a new 4-year foreign income and gains (FIG) regime, for individuals who become UK tax resident after a period of 10 tax years of non-UK residence. Note that, unlike remittance basis, this regime will be available to a UK domiciled individual who has been non-resident for 10 years but has now returned to the UK.

Qualifying individuals:

will be able to claim relief from UK tax for any foreign income and gains arising in the first 4 years of their UK tax residence (a separate claim being needed for each year); and
will be able to bring these funds to the UK free from any additional charges (i.e. the funds do not have to be left overseas to benefit from this FIG exemption).
Those benefitting from the FIG regime will still pay tax on UK income and gains, as is the case for non-domiciled individuals currently.

An individual can claim only for income, only for gains or for both. They will need to:

make a claim for each source of income and/or gain on which relief is being sought; and
include this income and gains on their tax return.

Individuals who claim relief under the four-year FIG regime will lose entitlement to the personal allowance for income tax and the annual exempt amount for CGT (as happens with most remittance basis claimants currently). For 2025/26, these allowances remain at £12,570 and £3,000 respectively. The loss of these allowances may affect an individual’s tax liability on their UK income, so taxpayers with only small amounts of foreign income or gains may choose not to use the FIG regime.

There is a long list of the income and gains that will qualify (or otherwise) for the FIG regime. Note that gains on offshore life insurance bonds (a relatively commonly held investment by non-doms) will not qualify.

UK residents who have arrived recently

Individuals who, on 6 April 2025, have been tax resident in the UK for less than 4 years (following 10 years of non-UK tax residence) will be able to use this new regime for any tax year of UK residence in the remainder of those 4 years. For example, if someone has become UK resident in the current tax year (2024/25), they will be able to use the FIG regime for the following 3 tax years.

There are certain circumstances in which a tax year is split into periods of non-residence and residence (e.g. when returning part-way through a year after working full-time abroad). These will count as one of the four qualifying years, as will a year where someone is resident under our statutory residence tests but treated as non-resident under a tax treaty that the UK has with another jurisdiction.

Other existing UK residents

Non-doms who, from 6 April 2025, are not eligible for the new 4-year FIG regime (i.e. they have been here for more than four years) will be fully taxable on income and gains on an arising basis for 2025/26 and subsequent years. The Conservatives had proposed that, as a transitional rule, only 50% of these individuals’ foreign income would be taxable in 2025/26, but Labour is not taking up this proposal.

Those who have previously claimed remittance basis

Where a non-dom has claimed remittance basis for a particular tax year, the foreign income or gains of that year become taxable whenever remitted to the UK. This will remain the case, even after the ability to claim remittance basis ends on 5 April 2025. The extremely detailed record keeping that remittance basis requires (to enable HMRC to determine what is being remitted at any given time) will, therefore, still be relevant for many years (and in some cases decades) to come.

Temporary Repatriation Facility (TRF)

To encourage non-doms to remit foreign income and gains that have previously been the subject of a remittance basis claim (and therefore produce extra tax revenue for the Exchequer), the new Government has taken up the Conservatives’ idea of a TRF but have extended it from two years to three. From 6 April 2025, individuals who have been taxed on the remittance basis will be able to elect to pay tax at a reduced rate of 12% on pre-6 April 2025 foreign income and gains in tax years 2025/26 and 2026/27; for 2027/28, the rate will be 15%.

Individuals will be able to designate amounts that either are, or derive from, foreign income and gains arising prior to 6 April 2025. Amounts designated will need to be included on tax returns and any tax will be payable in that year. These amounts can then be remitted to the UK at any time without further tax and without any report made to HMRC.

Capital Gains Tax Rebasing

For disposals after 6 April 2025, there will be rebasing available for personally held foreign assets of current and past remittance users.

To qualify, individuals:

cannot have been either UK domiciled or deemed domiciled at any time before tax year 2025/26; and
must have claimed the remittance basis in one of the tax years 2017/18 to 2024/25.

Assets will be rebased to their market value on 5 April 2017 (not April 2019, as proposed by the Conservatives). This will reduce CGT charges on eventual disposal, where the 5 April 2017 value is higher than original cost. If rebasing is not beneficial, original cost can still be used.

Note that non-doms who have not previously claimed remittance basis, probably due to having low foreign income and gains, may wish to claim it for 2023/24 or 2024/25, in order to enable rebasing of their foreign assets and thus reduce subsequent CGT charges.

A new residence-based IHT regime

From 6 April 2025, the test for whether foreign assets owned by individuals are within the scope of IHT will be whether or not the individual is a ‘long-term resident’. The changes will not affect the taxation of UK assets (including indirectly owned UK residential property), which will remain within the scope of IHT, regardless of the individual’s residence status.

Long-term resident (LTR)

The conservatives had proposed that a LTR would be someone who has been resident in the UK for 10 consecutive tax years. Labour has broadened this, such that a long-term resident is defined as an individual:

older than 20; and
who has been resident in the UK for 10 out of the20 tax years before the one in which any transfer (e.g. on death) takes place.

Split years and years of treaty non-residence will count as full years of UK residence.

For individuals who are 20 years old or younger, the test will be whether they have been resident in the UK for 50% of the tax years since their birth.

It is worth noting that our statutory residence rules were only introduced for tax year 2013/14, so to determine whether someone is within the scope of IHT on their foreign assets (where the look-back period for residence is 20 years), you may have to consider the old, non-statutory rules.

LTRs becoming non-resident

Under current rules, UK doms remain subject to IHT on their worldwide assets for three years after becoming non-domiciled in the UK. This is to stop someone who is terminally ill or in very poor health taking steps to:

switch all their assets to foreign assets; and
become non-UK domiciled (broadly, by severing their ties with the UK and creating a new permanent home overseas), then dying shortly afterwards with no UK assets.

Under the new IHT regime, LTRs will be governed by the so-called ‘tail’ provisions (i.e. the amount of time a previous LTR will remain within the scope of UK IHT on foreign assets once they become non-UK resident).

This will remain at 10 years (as proposed by the Conservatives) for those who have been resident in the UK for 20 years or more, but for those who have only been UK resident for between 10 and 13 years, the tail will be much shorter (three years). This then increases by one year for every year of residence, until it hits the maximum of ten at 20 years.

The effect of these rules is that, after 10 years of UK residence, the longer an individual has been UK resident, the longer the ‘tail’.

Note that these rules apply equally to UK domiciled individuals living abroad, who will now have certainty that their non-UK assets will fall outside the scope of UK IHT once they have been non-UK resident for 10 tax years.

Transitional rules

Transitional rules are in place for individuals who have previously been UK resident but are non-UK resident in 2025/26

Deemed domiciled individuals will essentially be subject to the current three-year IHT tail.
Non-doms who would not have been deemed domiciled under the old rules (i.e. not UK resident in 15 of the previous 20 years) will not be subject to the 3-year tail rule.

In both cases, this applies provided they remain outside the UK; if they return to UK residence, then the new rules will apply.

Overall IHT impact on individuals

For an individual, becoming a LTR will mean becoming subject to IHT on their worldwide assets owned outright. However, a lifetime transfer of excluded property (non-UK assets of a non-LTR) will remain outside the scope of IHT, even if the individual becomes a LTR by the time of their death within the seven-year period for which lifetime gifts before death become chargeable to IHT.

In contrast, a lifetime gift of non-excluded property will remain chargeable at death, if the transferor dies within seven years, even if they have ceased to be a LTR at the time of their death.

Conclusion

These fundamental reforms will have a big impact on:

anyone from overseas;
UK domiciled individuals thinking of returning to the UK; and
UK residents who are thinking of emigrating.

All such individuals should consider how these changes will affect their tax liability in the UK and take specialist advice, if necessary, particularly if they have offshore trust structures in place.

You can get in touch with our tax specialists here at Friend Partnership on 0121 233 2000, e-mail at enquiries@friendllp.com, or complete the enquiry form below.

*This article was originally published by Monitor Information Limited and reproduced with their permission.

Devastating Financial Impact of the Reclassification of Double-Cab Pick-Ups

Mon, 18 Nov 2024 14:44:14 GMT

Double-Cab Pick-Up Trucks No Longer Classed As Light Commercial Vehicles

The Autumn Budget has confirmed a seismic shift in tax policy: from April 2025, double-cab pick-up trucks with a payload of one tonne or more will no longer be taxed as light commercial vehicles but as company cars. This change will impose a massive financial burden on businesses that rely on these vehicles, with costs set to skyrocket for companies across the UK.

The decision marks a dramatic reversal following the previous government’s indecision. After fierce backlash from the commercial and fleet sectors, a prior budget proposal to treat double-cab pick-ups as cars was scrapped. However, the current government has now doubled down, with the Treasury confirming that businesses will face these higher taxes from April 2025.

The True Cost to Businesses

The new classification is expected to have a devastating financial impact, especially on small and medium-sized enterprises (SMEs) and self-employed tradespeople who rely heavily on double-cab pick-ups.

Fivefold Tax Increase: The change means most double-cab pick-ups, typically equipped with large diesel engines, will fall under the top Benefit-in-Kind (BiK) tax rate of 37%. In practical terms, this will mean that a £45,000 vehicle will have a BiK of £16,650, which leads to a tax payer who is on the 40% tax bracket to pay £6,660 in additional tax every year.
Increased Operating Costs: Companies that lease these vehicles will also bear significantly higher expenses. For businesses with fleets of double-cab pick-ups, the cumulative tax burden could cripple budgets, forcing them to re-evaluate their vehicle strategies.
Limited Relief Options: Transitional arrangements offer limited respite. Businesses that purchase, lease, or order a double-cab pick-up before April 2025 can maintain current BiK rates until April 5, 2029, or until the vehicle is sold or the lease expires. However, this only delays the inevitable and applies solely to vehicles already in use.

Historically, double-cab pick-ups have been an attractive option for businesses due to their lower VAT and BiK tax rates. They allowed companies to benefit from the practicality of a utility vehicle without the prohibitive costs of a passenger car.

Now, that advantage is gone. The full weight of passenger car taxation will be felt, making these vehicles far less viable for many businesses.

What Are the Alternatives?

As businesses grapple with the impending tax hike, they’ll need to explore alternatives:

Single-Cab Pick-Ups: These may retain their light commercial vehicle classification, offering a more cost-effective solution for certain tasks.
Electric Vans and Trucks: Companies may be forced to shift to electric or hybrid options, although the impracticability of range and charging leaves this option for the few and not the many.
Leasing Adjustments: Businesses may opt to downsize fleets to mitigate rising costs.

However, none of these solutions fully replicate the versatility and utility of double-cab pick-ups, leaving businesses to shoulder increased inefficiency and expense.

The reclassification of double-cab pick-ups as company cars represents a punitive shift for businesses. By targeting vehicles essential to tradespeople, small businesses, and fleet operators, the government risks alienating a critical segment of the economy.

For many companies, this isn’t just a policy adjustment—it’s a financial crisis. The question now is whether businesses can adapt in time.

Abolition of the Non-domicile Tax Regime from April 6, 2025

Tue, 05 Nov 2024 16:41:01 GMT

In the 2024 Autumn Budget , Chancellor Rachel Reeves confirmed changes to the current system for the taxation of non-UK domiciled individuals. Most notable among those changes was the abolition of the concept of domicile and its replacement with a “residence-based regime”.

Foreign Income and Gains (FIG) Regime:

Under this new regime, individuals coming to the UK can elect for their foreign income and gains (FIGs) to be free of UK tax for their first four years of UK residence provided they have not been UK tax resident for any of the previous 10 consecutive years prior to their arrival.

The FIG regime applies by reference to residence status only as the concept of domicile for tax purposes will no longer exist.

Electing to apply the FIG regime requires forgoing specific UK tax allowances, such as the personal income tax allowance and capital gains tax exemptions. There are also restrictions as to the availability of foreign income or capital lose. Those not eligible to elect for FIG treatment will be liable to UK tax on their worldwide income and gains even if they are kept offshore. However, tax credits may apply in line with existing double tax treaties. Additionally, foreign income and gains accrued under the previous remittance basis remain taxable if brought into the UK, and taxpayers will need to track any “mixed” accounts for funding UK expenses.

Transitional Measures for those currently Non-Domiciled in the UK:

Transitional arrangements are available for individuals currently using the remittance basis.

Temporary Repatriation Facility (TRF): For those who previously used the remittance basis, foreign income and gains earned before 6 April 2025, can qualify for a reduced tax rate under TRF. This rate starts at 12% for sums brought back into the UK until April 6, 2027, rising to 15% thereafter.

Trusts: Settlor and beneficiary remittances from non-UK trusts may qualify for TRF if income and gains were accrued before April 2025. There is also an option to rebase non-UK assets for capital gains tax purposes using values from April 5, 2017, available to those who used the remittance basis from 2017/18 onward.

Overseas Workday Relief (OWR):

Currently, non-UK domiciled employees receive tax relief on foreign-sourced income for the first three years if funds are kept offshore. From April 6, 2025, foreign employment income can be transferred to the UK tax-free within the four-year FIG window, capped at the lower of 30% of qualifying income or £300,000. OWR claimants are not eligible for UK income tax allowances or capital gains tax exemptions in the claim year.

Inheritance Tax (IHT) Revisions:

From 6 April 2025, IHT will be based on residency:

10-Year Exemption for New Residents: Newly arrived residents will be exempt from IHT on non-UK assets for the first 10 years of UK tax residence., After that IHT will apply to their worldwide assets.

Post-Residency IHT Liability: Departing residents with extended UK residency will remain liable for IHT on worldwide assets based on their residency duration. For example, individuals with 10–13 years of residency will face a three-year IHT liability after departure, with an additional year added for each subsequent residency year. The extension to the IHT liability on departure is subject to a maximum of 10 years.

Long-Term Resident Definition: The IHT framework will include specific rules for those meeting the long-term residency threshold, with transitional arrangements for those non-resident in 2025/26.

For trusts, IHT liabilities align with the settlor's residency status. Non-UK assets in excluded property trusts created before April 2025 remain exempt if the settlor was not UK domiciled at the time. Trusts from which the settlor can benefit face IHT upon the settlor’s death if they meet residency requirements. An exemption applies to assets added to excluded property trusts before October 30, 2024, allowing these assets to remain under existing IHT rules.

Preparing for Impact

For those impacted by the recent tax changes, now is a critical time to assess your tax situation and plan for how the new rules may affect you moving forward.

If you’d like to explore these changes further, you can contact David Gillies – Head of Tax at Friend Partnership - on 0121 633 2007, or alternatively email at david.gillies@friendllp.com

Autumn Budget 2024: A Detailed Summary

Thu, 31 Oct 2024 10:52:40 GMT

For months before the delivery of yesterday’s budget, speculation had been rife about what terrors it would contain.

In the event, some of the fears proved unfounded – no changes to the tax-free lump sum from pension funds, no extension of the freeze on income tax bands beyond the already distant horizon of April 2028. But there were immediate rises in the rates of Capital Gains Tax, confirmation of the VAT charge on private school fees, and abolition of most of the tax advantages of being a ‘non-dom’.

The biggest tax increase by far was a substantial increase in Employers’ National Insurance Contributions: it was a relief that this will only apply from the beginning of the next tax year, after the complications of in-year changes that previous Budgets have imposed. It prompted a furious debate about whether this was, in fact, a ‘tax on working people’, contrary to Labour’s manifesto pledges.

There was, as always, a huge amount of information in the documents that are released on the internet the moment the Chancellor sits down. It is possible to miss the impact of changes that were announced earlier and which are only now coming into effect. In this document we have summarised the latest proposals and their impact. We have also included reminders of some of those earlier announcements. If you would like to discuss please contact us

Significant points

Personal tax rates and allowances on income continue to be frozen at current levels – no increases until 2028/29
No changes to income tax reliefs on pension schemes
Substantial increases in Employers’ National Insurance Contributions from 6 April 2025
Increase in Capital Gains Tax rates from 30 October 2024
Stamp Duty Land Tax surcharge for buying additional dwellings increased from 31 October 2024
Confirmation that VAT will apply to private school fees from January 2025
Major changes to taxation of ‘non-doms’ from April 2025
IHT agricultural and business property reliefs restricted from April 2026

Download the full 2024 Autumn Budget Summary.

Your contribution to Labour’s fiscal "black hole"?

Tue, 13 Aug 2024 11:14:16 GMT

Everybody has their own future income and wealth to protect. You may need to act very soon before the first Labour Budget, now less than 3 months away, limits your options. Friend Partnership is a long-established accountancy practice with a significant track record of successful specialist tax advice, both corporate and personal.

Kier Starmer pledged not to increase income tax, National Insurance or VAT for “working people” but has repeatedly refused to rule out changes which will increase the tax take from Capital Gains Tax and Inheritance Tax. These taxes will directly impact business owners and anyone who is a shareholder in a privately-owned company or a member of a partnership, needs to consider their individual tax position.

There is increasing concern that the Chancellor will seek to realign Capital Gains Tax rates with Income Tax rates, meaning a Capital Gains Tax rate of up to a maximum of 45%. Potentially, any increase in Capital Gains Tax could take effect from the date of the Budget.

Changes to the Inheritance Tax regime have been recommended by the left of centre Institute for Fiscal Studies. The amount of Inheritance Tax levied has doubled in the last 10 years and so IHT is likely to be viewed by the Chancellor as potentially rich pickings.

Whilst it is unlikely that the rate of Inheritance Tax will increase from the current 40%, it is very possible that the existing nil rate bands and residence nil rate bands could be cut. Further, the Institute for Fiscal Studies has recommended that the current reliefs for business property and agricultural property should be abolished or severely restricted so that only the first £500,000 of business or agricultural property would qualify for relief from Inheritance Tax.

Advice for those Potentially Affected

Such increases in capital taxes pose a significant threat to the wealth of entrepreneurs and owners of family businesses. Friend Partnership are specialist tax advisers, and we are receiving an escalating number of requests for advice from those who are potentially affected - accelerating succession plans , use of family trusts and will planning, lifetime gifts, employee ownership and even solvent liquidations are among the tax planning options we are putting in place.

If you have any questions, please contact David Gillies at david.gillies@friendllp.com or phone him on 0121 633 2007.

Funding Options for Businesses

Wed, 24 Jul 2024 14:33:44 GMT

Every entrepreneur dreams of turning their vision into a reality. But that dream often collides with the harsh truth: businesses need money to function and grow. While using the cash reserves built up in the past offers complete control and avoids debt, this limits growth potential due to restricted capital access. This is where the world of business funding comes in, offering a diverse landscape of options to fuel your venture.

The three main funding mechanisms a business can use are debt financing , equity financing or grant funding .

Debt Financing:

This is the process of borrowing money from a bank or other lending institution. Businesses repay the debt with interest over a set period. Debt financing offers several advantages, including access to significant capital and the ability to retain ownership of the business. However, it also comes with the burden of debt and the risk of defaulting on repayments.

Common types of debt financing include:

Bank Loans: These come in many forms such as;

Working Capital Loans – A short term cash advance to bridge a temporary gap between a company’s incoming and outgoing funds.
Mortgages – Utilising existing property as collateral to secure much needed funds or obtaining funds for the purchase of new property for expansion/eliminating the higher costs of renting.
Asset Finance – Borrowing to purchase new assets such as machinery and vehicles or using existing assets as collateral to borrow funds for other needs.

Loan terms can range depending on the business’s requirements. This can provide predictability for budgeting and repayment planning, as your monthly payment tend to remain constant. Typically, the loans will be secured against business assets.

Personal and family loans: Borrowing from loved ones can be a great way to get your business off the ground. They may be more willing to offer you favourable terms, such as lower or no interest rates, compared to a traditional bank loan. However, there's also a significant downside. If your business struggles, it can strain your personal relationships if your friends or family lose money on their investment.

Lines of Credit: An example of a line of credit would be a bank overdraft. The lender approves you for a maximum borrowing limit. This is the total amount of credit you can access at any given time. You only borrow what you need, up to the approved limit. This provides greater operational flexibility, allowing you to access funds as needed to cover unexpected expenses and seasonal fluctuations in working. You only pay interest on the amount you borrow, not the entire credit limit.

Revolving credit: This is a line of credit that remains open after making payments. An example of this would be a credit card. Credit cards offer a simpler and quicker way to access funds for your business needs. Approval is often faster than securing a bank loan, and you have the flexibility to use the money as needed without having to justify every expense. This can be helpful for covering unexpected costs or managing cash flow. However, the convenience of credit cards comes at a price. Interest rates on business credit cards can be very high, making borrowing expensive in the long run if they are not paid off in full every month. Additionally, credit card limits are typically lower than what you could get with a bank loan, which may limit how much you can access for larger expenses.

Invoice financing: Invoice financing allows a line of credit to be accessed which is secured against your accounts receivables balances. This allows you to access funds as soon as a sale has been made, but before a customer has made a payment. There are two common products offered;

Invoice discounting is effectively a loan against your accounts receivables balance whilst still having the responsibility of colleting payment for the invoice. This has the advantage of customers not knowing you have this facility.
Invoice factoring is where outstanding invoices are sold to a third party at a discount who will then collect the payment from the customer. Unlike invoice discounting, your customers will be aware of this facility as they will make payments directly to the third party.

Both of these products are particularly useful for businesses facing slow-paying customers or those who do not wish to wait the invoice period term can leverage invoice factoring to unlock immediate cash.

Equity Financing:

In this approach, businesses sell shares (equity) in the company to investors in exchange for capital. Equity financing provides access to larger sums of money compared to debt, but it also dilutes ownership and gives the entering investors a say in the company's direction. Common forms of equity financing include:

Angel Investors: These are wealthy individuals who provide capital to early-stage businesses. Angel investors often come with valuable industry experience and can offer mentorship and guidance in addition to funding. They typically invest in start-ups with high growth potential and are willing to take on significant risk for the possibility of substantial returns. This type of financing is crucial for start-ups that may not yet qualify for bank loans or venture capital. Investors in early-stage businesses and start-ups may be eligible for the lucrative Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). These offer attractive tax reliefs for investors in exchange for investing in early-stage businesses. Exploring these options alongside the above can provide a valuable funding mix for a start-up journey.

Venture Capitalists: Venture capital firms or funds invest in high-risk, high-reward start-ups with the potential for substantial returns. They provide not only capital but also strategic support, resources, and industry connections. Venture capitalists usually look for innovative companies in technology, healthcare, and other rapidly growing sectors. Their investment often comes in stages, known as rounds, allowing them to support the company through various growth phases. In return, they seek significant equity stakes and often a seat on the company's board of directors.

Private equity: More mature companies can look to private equity firms for funding. Typically, private equity firms make an equity investment providing additional working capital for the development of the business. Private equity firms typically wish to exit from their investment after four years.

Public Offering (IPO): An Initial Public Offering (IPO) involves selling shares of the company to the public on a stock exchange. This process allows a company to raise significant capital from a wide range of investors, including institutional and retail investors. Going public can enhance the company’s visibility and credibility but also requires compliance with strict regulatory requirements and ongoing disclosure obligations. The company becomes subject to market pressures and investor scrutiny, which can influence its strategic decisions and long-term goals.

Grant funding:

Awarded by government agencies or other publicly funded bodies , they are used to fuel business growth across a wide range of industries. Whether you are a budding entrepreneur or a seasoned business owner, there might be a grant out there to fit your needs. However, it is important to remember that each grant comes with its own set of rules. Eligibility criteria, funding amounts, and the types of activities supported can differ significantly. Be prepared to do your research and tailor your application to meet the specific requirements of each grant program.

Innovative Funding Options

The financial landscape is constantly evolving, offering new mechanisms for businesses to secure funding. Some noteworthy options include:

Crowdfunding: Businesses raise capital by collecting small investments from a large pool of individuals through online platforms.

Revenue-Based Financing: Investors provide capital in exchange for a percentage of the company's future revenue.

Sale and leaseback: An asset is sold to a third party then leased back by the company. Ownership is transferred to the third party who then receive rental payments. This allows the company to receive cash from the sale of the asset while still retaining the benefit of using the asset.

Choosing the Right Funding Mechanism

The best funding mechanism for your business depends on several factors, including:

Stage of Development: Start-ups typically rely on equity financing or personal loans, while established businesses may utilise debt or revenue-based financing.
Funding Needs: The amount of capital required will influence the choice of mechanism. Bank loans may be suitable for smaller needs, while debt or venture capital cater to larger requirements.
Risk Tolerance: Debt financing involves repayment obligations, while equity financing dilutes ownership. Consider your risk appetite when making a decision.
Industry and Business Model: Certain industries have preferred financing methods. For example, tech start-ups often rely on venture capital, while established businesses may utilise debt financing.
Control: Equity investments reduce the control you have over your business. If this is something you do not want to relinquish then debt financing or grant funding might be better options.

Securing funding is a critical step in any business journey. By understanding the various mechanisms available and carefully considering your specific needs, you can make an informed decision that fuels your venture's growth and propels it towards success. Remember, there is no one-size-fits-all approach. Explore the options, weigh the pros and cons, and choose the path that best aligns with your vision and financial goals.

Have a need to discuss your business’s vision and goals? At Friend Partnership we believe that knowledge fuels success. Contact us today to find out how we can help your business thrive.

Inheritance Tax Threat to Family Business Owners

Tue, 28 May 2024 14:34:11 GMT

Current Inheritance Tax rules give a 100% relief for “Business Property". What this means is that shares in unquoted trading companies such as yours can, at the moment, be passed on to the next generation during lifetime or on death with no Inheritance Tax being charged on their value.

Potential Inheritance Tax Rule Change . Recent reports in the mainstream media suggest that a future Labour government is considering restricting the amount of Business Relief available. The suggestion is that Business Relief will only be available on the first £500,000 in value of business assets. Any value over that amount could face an Inheritance Tax charge at 40%.

Here's how you can benefit from the current 100% relief:

We can help you remove the value of your unquoted trading company shares from your estate, while you retain complete control and voting rights.
We can ensure this planning doesn't affect your current income stream.

By taking action now, you can:

Protect a significant portion of your estate from a potential 40% Inheritance Tax.
Be prepared for the highly likely, event that a Labour government is elected in July and presses ahead with these plans.

If this is something you would like to discuss, you can call David Gillies – Head of Tax at Friend Partnership– on 0121 633 2007 or e-mail him at david.gillies@friendllp.c om .

HMRC Tax Receipts 2023-24 – A quick summary

Mon, 20 May 2024 16:23:53 GMT

Strong Performance with Underlying Concerns

HMRC's latest tax receipts reveals some interesting trends. Overall tax revenue reached an estimated £827.74 billion in the 2023-24 fiscal year, a significant 5% increase compared to the £788.59 billion collected in the previous year. However, some sectors saw unexpected changes, raising questions for future planning.

Income Tax Boom: A Sign of Growth, Inflation or Frozen Thresholds?

The substantial 10% rise in Income Tax receipts, reaching £273.3 billion, is a double-edged sword. While it indicates the possibility of economic activity and potentially higher wages, it is certainly fuelled by fiscal drag forcing people into higher tax brackets, as thresholds were frozen again.

National Insurance Reduction: What if it had not been reduced?

The slight increase in National Insurance receipts to £177.7 billion, despite the rate reduction from 12% to 10%, suggests that the treasury was expecting a significant boost in its revenue for all the reasons noted above. However, the further decrease to 8% in the current tax year might lead to stagnant or even declining revenue in this area.

Corporation Tax Hike: Filling the Gap, But for How Long?

The significant rise of 11.7% in Corporation Tax receipts, driven by the egregious rate increase to 25%, reaching £86.9 billion, suggests this change may have achieved its aim of boosting government coffers. However, the long-term impact on business investment and competitiveness needs to be monitored.

VAT: Steady Growth, Reflecting Consumer Spending

The moderate growth of 6% in VAT receipts, climbing to £169.2 billion, aligns with expected trends in consumer spending. However, with inflationary pressures impacting household budgets, it remains to be seen if this growth can be sustained.

Beyond the Headlines: Concerns and Opportunities

The continued rise in tax penalties to £826 million, a significant increase of 8.3% compared to last year, highlights the need for improved tax compliance measures, whilst also supporting small businesses and individuals struggling to keep up with their tax bills.

The increasing trend in Inheritance Tax revenue, despite frozen thresholds, with receipts growing by 5.6% to £7.5 billion, suggests a need to review the system as many more estates are falling outside of the nil band rate due to increases in property value.

Decreases and the Road Ahead

The unexpected decline of 8.9% in Capital Gains Tax receipts, despite reductions in the Annual Exempt Amount, from £16.9 billion to £15.4 billion, warrants further investigation. Did investors adjust their strategies? Was there a shift in asset classes? Understanding these factors is crucial.

The significant drop of 24.4% in Stamp Duty Land Tax receipts, to £11.6 billion from £15.4 billion, reflects the cooling property market due to rising mortgage rates. This trend may continue, requiring the government to explore alternative revenue sources in the long run.

The decline in Fuel Duty revenue, down marginally by 1.2% to £24.8 billion from last year's £25.1 billion, while expected due to the shift towards electric vehicles and remote work, presents a challenge. The government needs to develop strategies to replace this lost revenue stream and support the transition to a greener economy.

Conclusion

While HMRC's data shows an increase in tax receipts fuelled by the highest burden on taxpayers for 75 years, with total collections reaching £827.74 billion, there are concerns about future sustainability. There must be a concerted effort to address public finances as the current level of spending and taxation is untenable.

Questions Directors Should Be Asking When Evaluating Tax Planning Strategies

Wed, 01 May 2024 14:42:06 GMT

Tax planning is a crucial aspect of any successful business. While Directors aren't expected to be tax gurus, they do have a responsibility to ensure the company is managing its tax affairs effectively. This means asking the right questions and understanding the potential implications of different strategies.

Understanding Your Risk Tolerance

Not all tax-saving opportunities are created equal. Some involve complex structures or aggressive interpretations of tax laws. While these might offer significant savings, they also carry a higher risk of failure and penalties if challenged by the tax authorities in the courts.

A key question for directors is: How confident are we in the legality and supportability of this tax planning strategy? Don't be afraid to ask for a "reasonable arguable position" assessment from your tax advisors. This clarifies the strength of the strategy's legal foundation.

Balancing Short-Term Gains with Long-Term Goals

Tax planning shouldn't come at the expense of the company's long-term vision. Consider the following:

Impact on future transactions: Will a complex tax structure make acquisitions, mergers, or Initial Public Offerings (IPOs) more difficult down the line? Will it affect the balance sheet and the company’s creditworthiness?

Reputational risk: Are there ethical considerations surrounding the proposed tax strategy? Could it damage the company's reputation if made public?

Engaging with Your Advisors

An experienced and sensible tax specialist is an invaluable resource for Directors. Here are some additional questions to consider:

Tax implications of upcoming business decisions: What are the potential effects should we expand into new markets or make major investments?

Recent changes in tax legislation, case law or regulations: Is there anything current or upcoming that you should be aware of before taking concrete steps?

Handling day-to-day tax compliance: Is the business’s internal team well equipped to handle compliance?

Industry Benchmarks: Are there similar companies successfully utilising this strategy?

Full Disclosure: Does the tax plan involve any aggressive accounting practices or loopholes? Will there be full disclosure on the company’s Corporation Tax return?

Communication with Stakeholders: How will the tax strategy be communicated to shareholders, investors, and, if appropriate, the public?

By taking a proactive and sensible approach to tax planning and asking the right questions, Directors can ensure their company is optimising its tax position while minimising risks and maintaining a strong reputation. Remember, responsible tax planning is about finding a sustainable balance between minimising tax burden and adhering to legal and ethical principles.

Indian Domicile and UK Inheritance Tax – A Little Known Advantage

Tue, 30 Apr 2024 10:12:49 GMT

UK Inheritance Tax is levied on the value of a deceased person’s estate at the date of death. If the deceased was non-UK domiciled at the date of death, the Inheritance Tax value of the estate is restricted to the value of assets situated in the UK.

Even if a person is not UK domiciled, there is a rule that can deem them to be UK domiciled if they have been resident in the United Kingdom for at least 15 out of the preceding 20 tax years and at least 1 of the 4 preceding tax years.

Domicile

Many people confuse “Domicile” with “Residence”. They are not the same. Put simply, a person’s Residence status is determined by where they are physically present during a tax year whereas, a person’s Domicile is determined by where they are from and the country they regard as home.

A person acquires a “Domicile of Origin” at birth, usually from his or her father. The Domicile of Origin can be replaced with a “Domicile of Choice” if that person moves to another country with a view to settling there permanently or indefinitely.

A person with a non-UK Domicile of Origin can also be deemed to be domiciled in the UK in the circumstances described above.

People with Indian Domicile - the advantage

The 1956 Estate Duty Treaty between the UK and India confers a significant inheritance tax benefit on individuals with Indian domicile.

Under the 1956 Treaty, if an Indian domiciled individual dies, UK Inheritance Tax will only be levied on UK situated assets and non-UK assets which pass under a UK Will. Any assets situated outside the UK and which pass under a non-UK Will do not suffer Inheritance Tax. This is the case even if that person is deemed to be domiciled in the UK at the date of death . However, if the person has acquired a UK Domicile of Choice the benefit of the 1956 Treaty does not apply.

Clearly, therefore, it is very important for individuals with Indian Domicile to ensure that they do not acquire a UK Domicile of Choice and that they arrange their affairs to ensure that non-UK assets pass under a non-UK Will.

Undisclosed foreign income

Understanding the UK tax implications of overseas income can be complex and costly to overlook. Potential reliefs and exemptions may apply, but navigating these rules requires specialist advice. Failure to comply could result in intrusive tax investigations by HMRC and substantial penalties.

UK residents with Indian or other foreign bank accounts should seek professional tax guidance. If you've previously underpaid UK tax it is imperative that you seek advice at the earliest opportunity

Changes to non-domiciled status to come in 2025

The proposed abolition of non-domiciled status in April 2025 could significantly alter UK tax implications for individuals with overseas income, including those with ties to India. While the exact impact on the UK-India Double Tax Treaty and Inheritance Tax remains unclear, it's essential to make plans ahead of time.

Expert guidance on interpreting the provisions of the 1956 Treaty, domicile status determination, and IHT planning is crucial.

At Friend Partnership we have a wealth of experience in advising on UK Estate planning matters and the interaction of UK Inheritance Tax, Estate Duty Treaties and Domicile. For expert planning and advice please contact David Gillies on 0121 633 2007 , e-mail him at david.gillies@friendllp.com , or alternatively, complete the enquiry form below.

Disclaimer: This article serves as a general overview and should not be treated as tax advice. Any person taking any action based wholly or partly on the contents of this article does so entirely at his or her own risk. Tax laws and treaties can be complex and subject to change. Always seek professional guidance for your specific circumstances.

Changes to Holiday Pay Calculations: New Calculation Approach

Mon, 15 Apr 2024 15:55:03 GMT

Important updates to how holiday pay is calculated for some workers came into effect in January 2024.

Normal Rate for Initial 4 Weeks

Previously, there was ambiguity regarding what constituted "normal" pay for holiday periods. The latest clarification stipulates that of the 5.6 weeks holiday entitlement, the first 4 weeks of statutory holiday for all employees (and all holiday entitlement for irregular and part-year workers) must encompass regular payments such as commissions , bonuses, and overtime (provided they have been consistently paid over the past year). The remaining 1.6 weeks can continue to be compensated at the basic rate.

Identification of Irregular and Part-Year Workers

The government has offered explicit definitions:

Irregular Hours Worker: Individuals whose paid hours fluctuate throughout the year, as outlined in their contracts. This includes zero-hours contracts but does not include those whose hours are fixed but whose working pattern is irregular, such as rotating shift workers.

Part-Year Worker: Employees who work only for a portion of the year, experiencing periods of at least a week where they are neither required to work and are not paid. (this does not include term-time workers who are paid an annual flat rate.

Accrue-as-you-go System - (Holiday periods that started after 1 April 2024)

Holiday Calculated in Hours, Not Weeks: Holiday entitlement for these employees will be computed in hours rather than weeks. They accrue leave at a rate of 12.07% of the hours worked during a pay period (based on 5.6-weeks) to a maximum of 28 days.

Calculation During Absence: For employees on sick leave or statutory leave, a 52-week reference period is employed to ascertain their average hours worked. This aids in determining the amount of leave they accrue during their absence.

Optional Rolled-Up Holiday Pay: (Holiday periods that started after 1 April 2024)

Employers now have the option to adopt "rolled-up" holiday pay for irregular and part-year workers. Rolled-up holiday pay must be shown separately as an additional amount in each payslip to cover their holiday entitlement, instead of disbursing payment when they take leave.

However, specific guidelines apply:

The rolled-up pay is determined at 12.07% of their normal pay.
It is remitted in the same pay period in which the holiday accrues.
It is based on their total earnings during that pay period.

Note: If your company’s holiday period is January 2024 to December 2024, this will not apply to you until January 2025.

Crucial Notes:

While this method may dissuade workers from taking leave, it remains imperative to encourage them to utilise their entire holiday allowance.

If you do not wish to use rolled-up holiday pay method, you can continue to use the existing 52 week reference period method for calculating holiday pay.

You must check the contracts of the employees at the beginning as starting holiday pay this way may be considered a variation of contract, which may require the consent of the employees.

What Employers Should Do:

Review Worker Statuses: Carefully assess the work arrangements of all your employees. Use the new definitions to identify those who fall under the new calculation method.
Communication is Key: Ensure your employees understand their holiday rights and encourage them to take leave throughout the year.
Beyond Minimums: The government guidelines focus on the minimum 5.6 weeks. If you offer more holiday, the new methods can be adjusted to reflect that.

By understanding these changes, you can ensure you're calculating holiday pay correctly and complying with the latest regulations.

Should you or your company have any queries, you can contact Friend Partnership on 0121 633 2000, email us at enquiries@friendllp.com, or alternatively complete the form below.

Theatre Tax Relief – a Q&A with Friend Partnership

Thu, 28 Mar 2024 17:27:52 GMT

Theatre Tax Relief is a valuable, and often under-used, tool for theatre production companies. David Gillies, Head of Tax at Friend Partnership , provides an insight into how theatre tax relief works, the new changes from April 2024 and what production companies need to bear in mind to maximise the tax relief.

Theatre production companies can benefit from several tax reliefs offered by HMRC and significantly reduce their corporation tax bill or even result in a cash payment from the government.

What tax reliefs available to companies engaged in the creative industries?

There are a several reliefs available to those involved in the creative sector. HMRC has a separate department that is dedicated to creative industries, covering things like films, theatre productions, animation, video games and so forth.

Because so much is covered by this department, it is well worth businesses involved in the sector looking very carefully at the rules to see what benefits there may be for them.

What are the tax benefits that are available to theatre production companies?

There are two main benefits for theatre companies.

Enhanced deduction for corporation tax: Production costs are eligible for a higher tax deduction than usual.
Tax credit for loss-making companies: Companies can surrender their tax losses for a repayable credit from HMRC.

What tests does a theatre production company need to meet in order to be able to make a claim for Theatre Tax Relief?

As you might imagine, there are a host of tests that a company needs to meet, and it’s always imperative to look at the fine detail.

The production must be an artistic work, like a play or opera.
It should be a commercial venture aiming to make a profit.
The production must be live and have a paying audience.
It cannot be used for advertising, competitions, or involve wild animals.
From 1 April 2024 at least 10% of core costs must relate to expenditure in the UK
Prior to 1 April 2024 at least 25% of the expenditure must have been on goods and services from within the European Economic Area. For accounting periods that overlap these dates, separate computations will be needed.
The production cannot be staged solely to gain tax relief.
The company must be responsible for the entire production process.

What costs can a theatre production company include in its claim for theatre tax relief?

The relief is designed to deal with pre-production costs. Pre-production costs like auditions, set design, writer fees, and royalty payments. Recasting costs after the first performance are also included.

The running costs of the production are excluded from the Theatre Tax Relief rules and cannot feature as part of a claim.

These running costs include legal costs, accountancy costs, storage costs, or anything to do with the ongoing running of the production.

It’s very important for companies to look at their accounting systems to make sure that they can capture the costs in the right pots; HMRC will look very closely to make sure that everything is dealt with correctly.

Occasionally a production company will need to recast after the first performance, can those costs be included?

Yes, they can. If a production needs amending after its first viewing or staging and the company incurs costs for recasting then those costs can be included.

Can you tell me how the Theatre Tax Relief claims are calculated?

The calculations are complex but involve estimating the production's total income and apportioning costs and income to different accounting periods.
This results in an 80% uplift in qualifying costs as an additional deduction in the corporation tax computation.

It’s very important that the production company can identify costs and also come up with a sensible forecast for the outturn for the production.

With the calculations, the company will have an uplifted corporation tax deduction of 80% of the spend. This means if they spend £100 on preproduction costs, another £80 will be deductible in their corporation tax computation, giving that company a saving of 25% of the 80% as an additional deduction – a sizeable tax benefit for them by going down this route with the Theatre Tax Relief rules.

Is there an upper limit in terms of Theatre Tax Relief?

It’s all about how much the company is spending on the qualifying costs. There is no upper limit, so it can lead to some very material tax savings for the company involved.

Can a production company get cashback from HMRC?

Yes it can, and this is one of the big attractions of the Theatre Tax Relief rules. If a production company has tax losses, it is able to surrender those losses for a payment from HMRC. The amount of the payment will depend on whether or not the production is touring or non-touring. For non-touring productions, 45% of the losses can be claimed back from HMRC, and that percentage rises to 50% for touring productions. From April 2025, these will reduce to 40% and 45% respectively.

Touring productions are, essentially, those that are either staged in six or more different locations or at least 14 performances staged in two locations. The loss that the production company is able to surrender is the lower of the tax loss for the period or the enhanced deduction. The company will need to look at those two figures to see which is the lower figure, and that is the figure that can be used for the purposes of the tax credit claim.

How long does it take to receive the tax credit from HMRC?

We have had claims for theatre productions that we deal with coming back within three or four weeks, which is pretty good in anyone’s book. At the moment, I believe the timing has gone out a bit to six to eight weeks – even so that is still pretty quick. It’s very important for the production companies as cash may be tight, and any amount they can get back from HMRC would be very welcome.

If I’m thinking about making a claim for theatre tax relief, what do I need to do?

What a company needs to do is to be able to identify the qualifying costs. It’s accounting systems need to be able to split the cost between those that qualify and those that don’t, because they are running costs. In addition, the company needs to be able to forecast. It must prepare a forecast for the production’s total outturn. It also needs to ensure that it is working with professional advisors who fully understand the rules and can make the appropriate claims on the company’s behalf.

As a Theatre Tax Relief specialist, how do you go about making a claim?

The claim is made as part of the company's corporation tax computation. It cannot be made in isolation as it is not possible to just submit a theatre tax relief claim to it
Companies should ensure their accounting systems can separate qualifying and non-qualifying costs and prepare a production forecast.
Using professional advisors familiar with the Theatre Tax Relief rules is recommended.

Can a company go back to earlier productions if they haven’t made a claim for Theatre Tax Relief?

Yes, they can. This is something we have been advising on with a number of theatre production companies, where they suddenly realise that they haven’t made a claim and are wondering if they can now do so. There are strict rules with regard to how far back a company can go. They can only amend a return if it’s within a certain deadline. Typically, that will be 12 months from the date that the last return was filed. For accounting periods beginning on or after 1 April 2024, they can amend a claim up to 2 years after the end of period the claim relates to.

Who should a theatre company use to help them with their claim?

Typically, a company will go to their professional advisors, but I have been approached in a number of situations where the company’s advisors or the company itself are not familiar with the rules, and they need someone with the experience to enable them to get a claim across the line. We are more than happy to work with businesses if they want us to deal with their Theatre Tax Relief claim even where we have no previous connection. We have plenty of experience and can bring that with us to any number of different situations.

What planning would you recommend a company does before a production starts?

The most important aspect for any theatre production company is that it can identify the costs that are relevant for a claim and prepare the necessary forecast. It sounds simple, but it’s a very important first step.

Secondly, companies need to look at their accounting periods. If there is a short production run, for instance if it’s only running for two or three months, it’s very important to think about the company’s year-end for that production.

It is always advisable, and if possible, to have an accounting reference date shortly after a production ends so that the accounts can be prepared and the computation submitted in very short order to reduce the time between the end of the production and the tax being paid, or the tax credit coming back to the company.

In addition, if the production company has a production that’s going over a number of months, or even a number of years, they also need to look at the accounting reference periods, to see whether there is anything to be gained by changing the accounting reference periods in the first few months of the production.

Are there any other changes to Theatre Tax Relief that come into effect from 1 April 2024?

Yes, from 1 April 2024, all claims will need to be submitted with an additional information form. The additional form requires you to provide the necessary evidence to support your claim.

Are Theatre Tax Relief claims worth the effort?

We certainly think that they are, and all the companies that I have dealt with in recent years and months have said exactly the same. There is a little bit of effort in making sure that the information is captured but, in cashflow terms, for a lot of those businesses, having material sums of money coming back into the company from HMRC has helped them tremendously. And even if the company is not in tax credit territory the reduction in the corporation tax bill as a result of the enhanced deduction is equally attractive. So, I personally think it is a win-win situation.

Who can I contact if I have a Theatre Tax Relief claim?

You can get in touch with our Creative Industry team here at Friend Partnership. We provide a complimentary initial consultation to all new clients for a discussion tailored to their individual needs. You can call us on 0121 633 2000, email us at enquiries@friendllp.com or alternatively complete the form below with your query.

Definition of Company Size: Monetary Thresholds to Rise

Tue, 26 Mar 2024 11:15:49 GMT

The UK government intends on making significant changes to simplify company reporting, particularly for non-financial reporting. To reduce complexity, monetary thresholds determining company reporting requirements are expected to increase by 50% for financial periods starting on or after October 1st, 2024.

A company is “micro-entity” if it has any 2 of the following:

Turnover:

Not more that £1 million (currently £632,000)

Balance Sheet:

Not more than £500,000 (currently £316,000)

Employees:

Not more than 10

A company is “small” if it has any 2 of the following:

Turnover:

Not more that £15 million (currently £10.2 million)

Balance Sheet:

Not more than £7.5 million (currently £5.1 million)

Employees:

Not more than 50

A company is “medium-sized” if it has any 2 of the following:

Turnover:

Not more that £54 million (currently £36 million)

Balance Sheet:

Not more than £27 million (currently £18 million)

Employees:

Not more than 250

Potential changes for medium-sized companies:

Further consultations are planned for later in 2024 to:

∞ Increase the employee threshold for medium-sized companies (from 250 to 500)

∞ Possibly exempt medium-sized companies from strategic reports

The above changes will mean an estimated 132,000 businesses will be exempt from non-financial reporting requirements.

Other key points:

Streamlined annual reports: The government plans to remove unnecessary content requirements for annual reports.
Easier digital filing: Measures will be introduced to simplify digital reporting processes.

These changes aim to streamline reporting processes, saving businesses time and resources and aligns with the government's goal of easing the regulatory burden on UK businesses.

Spring Budget 2024 – Foreign Domiciled Individuals

Thu, 14 Mar 2024 15:31:55 GMT

The UK's tax system for individuals classed as "not UK domiciled" (often called "non-doms") is undergoing a significant overhaul. This system has traditionally offered tax advantages for foreign income and gains, but those benefits are coming to an end.

Non-domiciled individuals are generally those who haven't established strong ties to the UK in terms of residence or family connections. Previously, they enjoyed a tax perk known as the "remittance basis of taxation." This allowed them to avoid paying UK income tax on foreign income and capital gains, as long as the money remained outside the UK.

However, these advantages have been gradually restricted in recent years. The new reforms, announced by the Chancellor of the Exchequer – Jeremy Hunt, represent a change to the existing non-dom tax system.

The New System - What Does it Mean Non-Doms in the Future?

Starting April 6th, 2025, a new system will be in effect. Here's what it entails for non-domiciled individuals who become UK resident after that date:

Temporary Tax Exemption: If you haven't been a UK resident in the past 10 years and become one after the reform, you'll benefit from a temporary tax exemption. This means your foreign income and gains will be exempt from UK income tax for the first four years of your UK residency.
Standard Taxation After Four Years: After the initial four-year grace period, your foreign income and gains will be taxed on the same basis as other UK residents. To avoid double taxation, relief will be available against UK tax under Double Tax treaties or the Unilateral system for any foreign tax already paid.

What about Existing Non-Doms?

The government acknowledges the complexities of transition for current non-dom who are UK residents. Transitional rules are being considered to ease the shift. These may include:

Reduced Tax Rate for Bringing Foreign Income to UK: Existing non-doms might be offered an opportunity to bring previously untaxed foreign income and gains back to the UK at a reduced tax rate.
Rebasing Foreign Assets for Capital Gains: There's also a possibility of "rebasing" the value of non-domiciled individuals' foreign assets for capital gains tax purposes. This could mean using the asset value in 2019 as a baseline, potentially reducing their future capital gains tax liability.

Uncertainties and Taking Action

The details of the new system and the transitional rules are still under development. The full picture will become clearer when the government publishes further consultations later in the year.

Given the complexities involved, it's crucial for individuals who might be affected by these reforms to seek professional tax advice. Understanding the opportunities and potential pitfalls of the new system can help you make informed decisions about your financial future.

While the non-dom tax reform simplifies matters to a certain extent, it introduces new considerations for individuals with international finances. Staying informed and seeking professional guidance will be key to navigating these changes effectively.

Spring Budget 2024: National Insurance Changes

Thu, 14 Mar 2024 08:30:00 GMT

Tax Cuts for Workers:

For employees and the self-employed, NIC thresholds are frozen until 2028, while contribution rates are seeing significant reductions.
The main rate for employee NIC has been cut from 10% to 8%, (down from 12% in November 2023) saving workers up to £1,508 per year.
The main rate for self-employed NIC has been slashed from 8% to 6%, (down from 9% in November 2023) offering savings of up to £1,131 annually.
These cuts effectively counterbalance income tax increases due to frozen personal allowances, specifically targeting working individuals.

Contribution Limits and Scotland:

The upper earnings limit for both employee and self-employed contributions remains unchanged, aligning with the 40% income tax threshold (£50,270/year) and frozen until 2028.
Scottish taxpayers face a unique situation. Due to the lower threshold for their higher income tax rate, they could be liable for both full NIC (8%) and higher income tax (42%) on the same income band.

Class 2 NIC Update:

Flat-rate Class 2 NIC, which previously secured state pension entitlement for the self-employed, is undergoing changes.
As of April 6th, 2024, those earning above £6,725 will no longer need Class 2 to qualify for benefits, saving them £179.40 annually.
Individuals earning below this threshold can still pay Class 2 voluntarily to maintain a full contribution record.
The government plans to consult later this year on abolishing Class 2 for low earners altogether.

Spring Budget 2024: Capital Gains Tax Changes

Tue, 12 Mar 2024 16:22:35 GMT

Reduced Tax-Free Allowance:

The bad news? There is already a significant reduction in the annual Capital Gains Tax (CGT) allowance planned. This allowance lets you sell assets for a profit up to a certain level without paying any CGT. In the current tax year (2023/24), this allowance is £6,000. However, it will be cut in half to just £3,000 for the upcoming tax year (2024/25). It is a sound reflection of our current times to note that in previous years, this allowance was £12,300.

Unchanged Rates for Most Assets:

On a more encouraging note, the actual tax rates for Capital Gains Tax on all assets other than residential property remain unchanged. This means that gains falling within a person’s available basic rate a will suffer 10% rate of tax on most capital gains, while gains exceeding the available basic rate of tax will be taxed at 20%.

Residential Property Sales Get a Break:

The good news? There's a specific change for those selling residential properties such as second homes or rental properties. Previously, these sales faced a higher capital gains tax rate of 28% for profits exceeding the basic tax band. This top rate will be reduced to a more favourable 24% for sales happening on or after April 6, 2024. There is no corresponding reduction for residential property gains which fall within the basic rate of tax, those will still suffer an 18% rate.

Potential Tax Increase and Reporting:

The huge reduction in the tax-free allowance might mean you end up paying more CGT. Additionally, with a lower threshold, more people may need to file a self-assessment tax return to report any gains exceeding the allowance. This emphasises the importance of good record-keeping, especially for tracking down the purchase costs of assets you've owned for a long time. This can be particularly tricky for smaller shareholdings.

Reporting Requirements:

Remember, anyone with gains exceeding the annual exempt amount (£3,000 for 2024/25) must report them to HMRC . However, if your gains are below this amount, you only need to provide details in your tax return if the total proceeds from selling assets in a year exceed £50,000.

Spring Budget 2024: An In-depth Summary

Thu, 07 Mar 2024 11:45:00 GMT

Surprise – no surprises!

In past years, the annual Budget was shrouded in secrecy. No one was supposed to know what was in the Red Box that the Chancellor held up outside 11 Downing Street on his way to Parliament. There was an element of suspense. Now it seems that most of the proposals were predicted in the morning papers – the television pundits were reduced to speculating whether Jeremy Hunt would produce ‘a rabbit from his hat’, but it turned out that the hat only contained what was expected.

The further reduction in National Insurance Contributions, over and above cuts already announced in the Autumn Statement, is certainly a significant measure, reducing the Government’s projected income by £10 billion a year. A reduction in the rate of income tax would be more expensive to achieve, because it would affect all taxpayers, not just those in work – but maybe that is a rabbit for another day, closer to the General Election that must happen within a year.

Raising the threshold for the High Income Child Benefit Charge is welcome – a tax relief worth over half a billion pounds a year. The changes to the tax regime for foreign domiciled people will, by contrast, raise a little less than £3 billion a year from 2026/27. The Labour Party has been arguing for such a change for some time, and may have mixed feelings over being denied the opportunity to introduce it themselves.

Even though the Chancellor failed to spring any major surprises, there is as always a great deal of information in the documents that are released on the internet the moment he sits down. It is also possible to miss the impact of changes that were announced in previous statements and which are only now coming into effect. In this document we have summarised the latest proposals and their impact, and also included reminders of some of those earlier announcements. If you would like to discuss what it all means for you, we will be happy to help.

Significant points

Personal tax rates and allowances on income continue to be frozen at current levels
Further cuts to National Insurance Contributions in addition to those announced in the Autumn Statement, to take effect in April 2024
Increase in threshold for High Income Child Benefit Charge from £50,000 to £60,000 for 2024/25
Maximum rate of CGT on residential property cut from 28% to 24% from 6 April 2024
Advantageous tax treatment of furnished holiday lets abolished from 6 April 2025
Advantageous tax treatment of ‘non-doms’ abolished from April 2025 and replaced with a ‘residence-based’ system
Increase in turnover threshold for VAT registration to £90,000 from 1 April 2024

Download the full Spring Budget Summary

HMRC’s VIP Line - A Two Tiered Approach

Tue, 05 Mar 2024 14:29:20 GMT

HM Revenue and Customs (HMRC) is tasked with collecting taxes fairly and efficiently. However, the existence of a "VIP line" (Public Department 1, or PD1) for certain individuals raises concerns about potential discrepancies in how taxpayers are treated.

The PD1 Paradox:

The general public faces long wait times and is forced to navigate complex automated menus when using the HMRC helpline. By contrast, the PD1 line offers high-profile and high net worth individuals including Members of Parliament direct access to specialised tax staff. This disparity in access raises questions about:

Fairness: Should some taxpayers be granted preferential treatment based on their profession or status? Shouldn't all taxpayers have equal access to timely and accurate tax information and assistance?
Transparency: The lack of clear information about the PD1 line and its criteria for access fosters a perception of a two-tiered system, eroding public trust in HMRC's impartiality.
Efficiency: While PD1 may offer faster service for specific individuals, does it create an imbalance within HMRC, potentially diverting resources away from the general helpline, which serves the vast majority of taxpayers so poorly?

There is no question that the risk of private information being stolen or leaked to the public is much greater for MPs and high-profile individuals. There is definitely a case in favour of minimising access to these files within HMRC, however there is great disparity between the average waiting times on the PD1 line compared with the helpline available to other taxpayers.

According to latest figures members of the public waited an average of 22 minutes and 47 seconds on hold before their call was answered, whereas those on the VIP number had their calls answered in 2 minutes and 27 seconds.

We do not know the criteria for access to the VIP line. However, even if it was limited to 2,000 taxpayers, with 9 dedicated staff, that would equate to just 200 taxpayers per HMRC staff member.

For the general HMRC line - 31m taxpayers - the ratio is over 1,500 taxpayers per HMRC employee.

It is no surprise that there is such a disparity in wait times.

Alternative Solutions:

Instead of a VIP line, HMRC could explore alternative solutions that promote fairness and efficiency:

Investing in the general helpline: By increasing staffing, improving technology, and streamlining processes, HMRC can significantly reduce wait times and offer a more efficient service for all taxpayers.
Providing online resources: Expanding and improving online resources can enable taxpayers to access information and complete tasks independently, reducing reliance on the helpline.
Offering tiered support based on complexity: A system that prioritizes complex tax inquiries, regardless of the individual's status, could ensure efficient use of resources while addressing the needs of all taxpayers fairly.

The existence of a VIP line within HMRC undermines the spirit of fairness and transparency that should underpin any tax system, and which is enshrined in the Taxpayers Charter. By creating a more equitable and efficient approach to taxpayer service, HMRC can rebuild public trust and ensure that everyone, regardless of status, receives the support they deserve.

HMRC’s R&D Tax Reliefs: A Costly Miscalculation

Fri, 23 Feb 2024 13:44:36 GMT

The UK government's Research & Development (R&D) tax relief scheme, particularly the relief for small and medium-sized enterprises (SMEs), has been a cornerstone of the incentivisation of innovation in SMEs. However, in recent years there has been a growing concern that HM Revenue & Customs may have significantly underestimated both the level of risk of abuse and the costs of the scheme. This raises questions about the effectiveness of the program and its potential impact on both taxpayers and the UK's innovation ecosystem.

The Underestimation:

Rising Costs: The National Audit Office (NAO) reported in 2023 that HMRC underestimated the cost of the R&D SME relief scheme. Initial estimates placed the cost at £336 million, but a later revised estimate revealed a staggering £1.13 billion – a threefold increase.

Non-compliance Concerns: A deeper dive into the claims revealed a higher-than-expected level of abuse. The estimated error and fraud rate for the SME scheme jumped from 5.5% to 24.4%, indicating widespread abuse or genuine mistakes in claiming relief.

Resource Gaps: The NAO report highlighted concerns about HMRC's resources dedicated to managing the scheme. The complexity of R&D activities and the rise in claims outpaced the department's capacity, leading to potential gaps in compliance checks.

Consequences and Concerns:

Wasted Resources: The underestimated cost and abuse raise questions about the effectiveness of the scheme. If a significant portion of the relief goes to ineligible claims, it represents a missed opportunity to support genuine innovation.

Erosion of Trust: The perception of widespread abuse could erode public trust in the scheme and discourage legitimate businesses from participating, potentially hindering its intended purpose of boosting innovation.

Increased Scrutiny: HMRC's response has been to tighten compliance measures, leading to stricter scrutiny for all claims. This, while necessary to address non-compliance, could create unnecessary burdens for legitimate businesses.

Looking Ahead:

Policy Review: The government has proposed merging the SME and Research and Development Expenditure Credit (RDEC), which currently mainly applies only to large businesses, into a single scheme. The intention is to streamline administration and potentially improve efficiency. However, concerns remain about addressing the root causes of underestimation and non-compliance.

Collaboration: Industry experts emphasise the need for collaboration between HMRC, businesses, and accountants to develop clearer guidelines, improve communication, and foster a culture of compliance.

Targeted Support: Focusing resources on high-risk claims and providing tailored guidance to SMEs could help ensure the scheme supports genuine innovation while minimising misuse.

HMRC's underestimation of the R&D SME relief scheme's complexities has created challenges. While addressing abuse is important, finding a balance between robust checks and avoiding unnecessary burdens for legitimate businesses is essential. Open communication, collaboration, and targeted support are key to ensuring the scheme remains an effective tool for fostering innovation in the UK.

Britain’s Businesses at Risk: Inadequate Succession Planning

Fri, 16 Feb 2024 14:01:22 GMT

Countless UK family-run businesses, small and medium enterprises (SMEs), and even large corporations face a looming menace, the inadequacy of their succession planning.

The question of who will take the reins when current leaders step down is critical. Failure to address this issue will have significant consequences, not just for individual businesses but for the wider economy. SME’s have a combined turnover of £2 trillion, so a sizeable chunk of economic value could be lost due to inadequate succession planning.

The Scope of the Challenge

Demographics: One in five UK businesses have an owner over 60, and by 2030, nearly a million businesses are expected to change hands due to retirement.
Unpreparedness: A recent report revealed that almost half of UK businesses lack a formal succession plan, leaving their future hanging in the balance.
Impact: The potential fallout is substantial. Unplanned transitions can lead to disruptions in operations, loss of jobs, and even business closure, impacting employees, customers, and communities.
Family Conflict: Unclear succession plans can sow discord within families, potentially damaging personal relationships and business stability.

Consequences of Inaction

The consequences of neglecting succession planning are wide-ranging:

Loss of continuity and knowledge: Unplanned transitions can lead to critical knowledge and expertise being lost, impacting innovation and competitiveness.
Employee uncertainty and morale: A lack of clarity about the future can create anxiety and instability among employees, potentially leading to a decline in productivity and engagement.
Financial losses: Without a smooth handover, businesses can face financial difficulties, including disruption to operations and reduced profitability.
Missed opportunities: Failure to plan for the future can limit a business's ability to adapt and capitalise on new opportunities.

Why is succession planning often delayed

Difficult Conversations: Addressing succession can be challenging, often involving sensitive discussions about retirement, family dynamics, and power shifts.
Lack of Clarity: Confusion about who deserves the mantle, lack of suitable internal candidates, or unclear ownership structures can further complicate the process.
Financial Constraints: Smaller businesses may struggle to afford professional advisors or training programs necessary for smooth succession.

Steps to Effective Succession Planning

Start Early: Don't wait for a crisis. Initiate conversations and planning years in advance, allowing ample time for deliberation and preparation.
Seek Professional Guidance: Experts can help assess needs, create a framework, and navigate sensitive discussions.
Develop Internal Talent: Invest in training and development programs to equip potential successors with the necessary skills and knowledge.
Consider External Options: If suitable internal candidates are lacking, explore external possibilities like mergers, acquisitions, or bringing in new talent.
Consider Selling the Business: Make preparations for a potential sale through a Management Buy-out, an Employee Ownership Trust or to a third party.

By taking early steps towards effective succession planning, business owners can ensure a tax efficient exit, smooth transition, safeguard their legacy, and contribute to a flourishing economy.

How we can assist

We understand that navigating these matters are complex. We have a long and successful track record in preparing effective and tax efficient succession planning. We offer support at every stage of the process. Whether you are a small business owner, or have several hundred employees counting on you, we tailor our services to meet your unique needs.

You can contact David Gillies – Head of Tax at Friend Partnership - for a no-obligation consultation and discover how we can help you and your business implement an effective succession plan.

Record Numbers File Self-assessment Tax Returns, But 1.1 Million Miss Deadline

Mon, 05 Feb 2024 12:45:29 GMT

While a record-breaking 11.5 million taxpayers submitted their self-assessment tax returns by the January 31st deadline, an estimated 1.1 million individuals missed the mark, potentially facing penalties. This highlights the ongoing complexities of tax filing for self-employed individuals and those with complex financial situations.

Record High, Yet Room for Improvement:

This year's 11.5 million filings represent a significant increase compared to previous years, reflecting growing numbers of self-employed individuals and individuals with taxable income outside of traditional employment. HMRC estimates that over 500,000 people entered the self-assessment system for the first time.

However, the 1.1 million who missed the deadline indicate that challenges persist. Procrastination, lack of awareness, and the complexity of the system itself are often cited as contributing factors.

Consequences of Missing the Deadline:

Missing the self-assessment deadline can lead to a series of financial penalties. An initial £100 penalty is automatically applied, followed by daily fines of £10 for up to 90 days. Up to six months penalties can increase to 5% of the outstanding tax owed, with a maximum of £300. Beyond 6 months it is 5% of all tax outstanding at that date.

HMRC encourages those who missed the deadline to file their returns as soon as possible to minimise penalties. They offer various support options, including online guidance, and webinars. Although the traditional phone helpline is no longer available.

Looking Ahead:

The increasing number of self-assessment taxpayers highlights the need for ongoing efforts to simplify the system and provide clearer guidance. HMRC has introducing digital tools and simplifying processes, but further improvements are likely necessary to reduce the number of missed deadlines and ensure everyone can meet their tax obligations.

What HMRC can certainly do to assist taxpayers, (especially those brought into system for the first time, partly by the freezing and reductions of tax brackets) is bring back it’s helplines for those who are new to the system. The decline of HMRC services for taxpayers are certainly a contributory factor.

The Demise of HMRC Services for Agents: The Dismantling

Fri, 02 Feb 2024 11:27:30 GMT

A substantial part of accountants’ daily work involves navigating the Behemoth that is HM Revenue and Customs on behalf of their clients. However, in recent times, a dark cloud has settled over the relationship between accountants and HMRC, emanating from a seemingly deliberate dismantling of services crucial to their work.

It was not that long ago that we were told HMRC required 1,000 extra staff to cope with their workload. It now emerges that there has been a workforce reduction of 4,000 staff in 2023 instead of an increase.

For accountants and agents, the most visible casualty of the workforce reduction is the Agent Dedicated Line (ADL), once a lifeline for swift and efficient communication. Its demise, signalled by the removal of the 10-minute service level target, has left agents adrift in a sea of endless waiting times and automated menus. This not only disrupts their workflow but also creates a domino effect, delaying work on behalf of clients and causing unnecessary additional time costs and stress for all involved.

Beyond the ADL, the digitisation of HMRC services has been heralded as a step towards efficiency. Rather predictably, the reality is far less rosy. The Agents Services Account (ASA), the supposed replacement for the old online system, is plagued by technical glitches, confusing interfaces, and a lack of basic functionality. Filing returns, checking balances, and even managing client permissions becomes an exercise in frustration, pushing agents to the brink of technological despair.

The human touch

This digital revolution seems to have ignored a crucial element: the human touch. The removal of local tax offices and the erosion of face-to-face communication further isolates agents, leaving them feeling abandoned and unheard. The once-collaborative relationship between HMRC and its agents has morphed into a frustrating game of cat and mouse, with agents left chasing answers and struggling to fulfil their duties effectively.

The consequences of this decline are far-reaching. Delays in tax returns, errors in assessments, and a general sense of uncertainty are just part of the ripple effect caused by the dysfunctional state of HMRC services. This not only impacts agents' livelihoods and those of their clients but also undermines the very foundation of the tax system, placing undue burden on taxpayers and businesses alike.

The demise of HMRC’s services for agents is not simply a matter of technical hiccups and bureaucratic bungling. It reflects a deeper disregard for the crucial role agents play in the tax system. Agents are not just service providers; they are trusted advisors, experts who navigate the complexities of tax law and ensure compliance for their clients. Their frustration is not just a matter of personal inconvenience; it is a symptom of a system failing to serve its purpose effectively.

The time for complacency is over

HMRC must urgently address the concerns of its agent community. Investment in robust, user-friendly technology is essential, as is the reinstatement of open communication channels and a commitment to collaboration. Only then can trust be restored and the efficiency of the tax system be truly optimised.

The future of the UK's tax system hinges on a healthy and productive relationship between HMRC and taxpayers’ agents. Ignoring their pleas for improvement is not just a recipe for disaster; it is a gamble with the very foundations of tax administration.

Companies House Reforms Coming In March 2024: Are You Ready?

Fri, 26 Jan 2024 13:24:08 GMT

Get ready for some important changes to company registrations in the UK, as Companies House intends to implement the first set of updates on March 4th, 2024. While the exact date depends on parliamentary schedules, it's guaranteed to be no earlier than March 4th. Here's what you need to know:

Registered Office Address

PO Boxes no longer allowed: From March 4th, PO Boxes cannot be used as registered office addresses.
"Appropriate address" requirement: Your registered office address must be one where documents are likely to reach a company representative and can be acknowledged upon delivery.
Third-party agents allowed: You can still use a third-party agent's address if it meets the "appropriate address" criteria.
Update your address by March 4th: If you currently use a PO Box, change your registered office address online by March 4th. Failure to do so could result in your company being struck off the register.

Registered Email Address

Mandatory for all companies: Starting March 4th, all companies must provide a registered email address. This address will not be publicly visible.
New companies: Include your registered email address during incorporation from March 4th onwards.
Existing companies: Update your registered email address in your next confirmation statement with a statement date of March 5th, 2024 or later.
Communication: Companies House will use this email address to communicate important information about your company.
Easy updates: Change your registered email address through the "update a registered email address" service online.
Maintaining accuracy: Companies are responsible for keeping their registered email address up-to-date, similar to their registered office address.

Statement of Lawful Purpose

Confirmation upon incorporation: Starting March 4 ^th 2024, company founders (shareholders) must confirm their intention to operate lawfully when incorporating a company.
Future lawful activities: Existing companies must confirm their intended future activities are lawful in their upcoming confirmation statements.
Combating illegal activity: These statements aim to ensure all companies operate lawfully. Companies House may take action if evidence suggests unlawful activities.
Document submission requirement: Your incorporation documents and confirmation statements will not be accepted without these confirmations.

Enhanced Scrutiny and Transparency

Stronger verification: Companies House will have greater power to request information and supporting evidence to ensure accuracy.
Clearer company names: Expect stricter checks on company names to prevent misleading or inappropriate choices.
Lawful purpose declarations: New companies must confirm their lawful purpose upon incorporation, and existing companies must confirm lawful future activities in their confirmation statements.
Data-driven cleanup: Companies House will use data matching to identify and remove inaccurate information from the register.
Improved communication: A dedicated registered email address will be required for all companies, allowing for better communication between Companies House and businesses.
Enhanced clarity: Confusing or misleading information on the register will be flagged with annotations for better user understanding.
Collaboration with authorities: Data sharing with government departments and law enforcement agencies will be enhanced to combat illegal activities.

Stay Informed and Prepared

These changes signify Companies House's commitment to improving transparency and combating illegal activity. By familiarising yourself with these updates, you can ensure a smooth transition for your company and avoid potential complications. Visit the Companies House website for more detailed information and resources or contact us on 0121 633 2000. You can also email us at enquiries@friendllp.com

Self-Assessment Deadline Looms: 3.8 million Individuals Yet To File Tax Returns

Thu, 25 Jan 2024 14:46:06 GMT

With only a week to go until the January 31st deadline, a sizeable 3.8 million individuals in the UK are yet to submit their self-assessment tax returns, leaving themselves open to potential fines and a last-minute scramble.

HM Revenue & Customs (HMRC) expects over 12.1 million tax returns for the 2022-23 tax year, but as of this week, only 8.3 million have been filed. This leaves a significant chunk of taxpayers facing a potential £100 penalty for late submission, and further penalties if returns remain unfiled beyond February 28 ^th , as well as interest due on any late payment on taxes owed.

"It's now crunch time for self-assessment taxpayers," warns Myrtle Lloyd, HMRC's Director General for Customer Services. "We urge everyone who hasn't yet filed their return to act now to avoid penalties and ensure they're meeting their legal obligations."

Reasons why so many people are lagging vary, but common culprits include:

Procrastination: The dreaded "I'll do it later" syndrome, often fuelled by the complexities of the tax system and the tedious nature of gathering paperwork.
Uncertainty: Confusion about who needs to file, what income needs to be reported, and how to claim deductions can lead to paralysis.
Lack of Resources: Some people may struggle to find the time or expertise to navigate the self-assessment process, especially if they have complex financial affairs.

Actions you can take to avoid penalties and interest:

Gather your documents: Start by collecting all your income and expense records, including P60s, bank statements, and receipts.
Use online resources: HMRC's website offers a wealth of guidance and tools to help you complete your return, including calculators and step-by-step instructions.
Seek professional help: If you're feeling lost, consider seeking advice from an accountant or advisor. Remember, the cost of professional help can often be offset by the penalties you might avoid.

With the clock ticking, the message is clear: don't delay, file today. HMRC offers extended payment plans for those facing financial difficulties. By taking action now, you can avoid the stress of penalties and ensure you're fulfilling your tax obligations

Preserving Family Wealth: A Legacy of Planning and Care

Wed, 20 Dec 2023 13:54:20 GMT

The creation and accumulation of wealth represents a significant achievement, often the result of hard work, wise investments, and prudent financial management. However, the true measure of success goes beyond the accumulation of assets; it lies in the ability to preserve and pass on that wealth to future generations. Preserving family wealth is a multifaceted endeavour that requires careful planning, strategic decision-making, and a commitment to fostering a legacy of financial stability and responsibility.

The Importance of Legacy Planning

Legacy planning is the cornerstone of preserving family wealth. It involves creating a roadmap that outlines how assets will be managed, distributed, and protected for future generations. While many individuals focus on the financial aspects of legacy planning, it is equally important to consider the values, beliefs, and principles that underpin the family's success.

Clear Communication and Shared Values

Preserving family wealth begins with open and transparent communication. Family members must engage in honest conversations about financial goals, expectations, and the values that guide the family. Establishing shared values provides a strong foundation for decision-making and fosters a sense of unity among family members.

Estate Planning and Asset Protection

The creation of wills, trusts , and other legal documents ensures a smooth and efficient transfer of assets to the next generation. Asset protection strategies, such as the use of trusts and insurance, can safeguard family wealth from unforeseen challenges and potential threats.

Education and Financial Literacy

Empowering future generations with financial literacy is an investment in the family's long-term success. Providing education about responsible financial management, investment strategies, and the potential pitfalls of wealth equips heirs with the skills needed to navigate the complexities of managing substantial assets.

Strategic Philanthropy

A family's legacy is not only measured by the wealth it accumulates but also by its impact on the community and the world. Strategic philanthropy allows families to contribute to causes they are passionate about, leaving a lasting imprint on society. Incorporating philanthropy into legacy planning fosters a sense of purpose and shared responsibility.

Succession Planning for Family Businesses

For families with business enterprises, succession planning is paramount. A well-thought-out succession plan ensures a seamless transition of leadership and ownership, preserving the business as a valuable component of the family legacy.

In Conclusion

Preserving family wealth is not just about safeguarding assets; it is about creating a legacy that endures through generations. A comprehensive approach to legacy planning involves clear communication, shared values, estate planning, financial education, strategic philanthropy, and succession planning for family businesses. By prioritising these elements, families can build a lasting legacy that transcends financial wealth, leaving behind a heritage of wisdom, values, and prosperity. In doing so, they contribute not only to the well-being of their descendants but also to the betterment of the broader community and society as a whole.

If you are wanting to ensure that your family's financial future is structured to ensure that its legacy is secure, Friend Partnership can provide guidance and assistance according to your personal needs.

You can contact us on 0121 633 2000, by emailing enquiries@friendllp.com or alternatively complete the form below.

Giving Gifts To Employees

Thu, 07 Dec 2023 16:11:25 GMT

Understanding the tax implications of giving a gift to an employee will avoid problems if HMRC make a PAYE control visit. There are a number of factors to consider, such as the type of gift, the recipient and the value of the gift in order to avoid unexpected tax liabilities.

Are gifts given by businesses to employees tax-deductible?

For businesses, gifts given are generally tax-deductible for Corporation Tax purposes and incur employer’s National Insurance. For employees, gifts received are generally liable to Income Tax and National Insurance.

There is an exception. If the gift qualifies as a trivial benefit, it is free from Income Tax and National Insurance.

Under the trivial benefits rule, businesses may deduct the cost of gifts given to employees provided the maximum value of any gift is limited to £50 (inclusive of VAT). Employees may receive multiple gifts throughout a tax year provided each gift is below this value. For example, a company may wish to give a gift to an employee for their birthday, for Christmas and another for the birth of their child. Provided the cost of each gift is less than £50, the trivial benefits rule will apply.

Where the recipient is a Director of a “close company” there is a limit on the total value of all gifts given. If the cost of each gift is less than £50 and the total of all the gifts for the tax year is less than £300, the trivial benefits rule will apply.

In addition to the restrictions on cost, other conditions must be satisfied for a gift to be regarded as a “trivial benefit”:

Cannot be cash, a cash voucher, or something that is redeemable for cash.
Cannot be linked to the employee's performance.
Cannot be provided or seen to be provided as a contractual obligation under the employee’s contract of employment or as part of a salary sacrifice scheme.

It is worth bearing in mind that any gift over the value of £50 will be classed as a benefit-in-kind, and tax and National Insurance will be due on the full value and not just the excess over £50.

Gifts and Awards for Long Service

In addition to the above, an employer may wish to give in the same year a non-cash gift for long service. For the gift to meet the tax-free exemption all the following must apply:

the employee must have worked for the employer for at least 20 years
the award is worth less than £50 per year of service
the employee has not received a long-service award in the previous 10 years

For example, an employer could give a non-cash award with a value of up to £1,000 to an employee who has completed 20 years’ service.

Tax considerations of providing staff parties and events

Annual office events like Christmas parties are generally allowable for Corporation Tax . The so-called "annual event" allowance permits an employer to spend up to £150 per head on an event or series of events with no income tax or national insurance implications. However, this is subject to the following conditions:

The event must recur annually.
The event must be available to all employees.
The £150 per head 'exemption' is inclusive of VAT and includes the cost of any transport to and from the event, or accommodation for attendees.

Should the value of any event exceed the £150 per head limit, tax and national insurance would be liable on the full value and not just the excess over £150.

Tax implications where two or more annual staff parties and events are held

If the total aggregate cost per person exceeds £150, then the employer should identify the functions that best utilise the £150 exemption and exempt those functions from tax. The other functions will be taxable to the employer and the employee.

Incidences where employers exceed the exemption limits

Where limits for gifting or staff parties and events exceeds their respective exemptions, Income tax and National Insurance contributions charges will apply to the employee and employer.

For businesses that do not wish to burden their employees with additional employment taxes, a PAYE Settlement Agreement (PSA) may be put in place. A PSA allows an employer to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable expenses or benefits for you employees.

Keeping accurate records

It is important for businesses to keep accurate records of all business gifts, including the name of the recipient, the date of the gift, the value of the gift, and the reason for the gift. This documentation can be helpful in case of an audit by HMRC.

Seeking professional guidance

By understanding the tax implications of business gifts, employers can avoid potential penalties and ensure they are making informed decisions about their gift-giving practices.

Employers can consult Friend Partnership to ensure they are compliant with the complex rules surrounding tax implications of business gifting. We can help you determine which gifts are tax-deductible and can also provide guidance on record-keeping and reporting requirements.

Autumn Statement 2023 - An In-depth Look

Thu, 23 Nov 2023 12:15:00 GMT

Mind your headroom

In the weeks leading up to the Autumn Statement, the press was full of speculation about tax cuts. This was a surprise, just over a year after the tax cuts announced by Kwasi Kwarteng were judged imprudent by the international markets, contributing to a fall in the value of sterling and increases in interest rates. Nevertheless, it seemed that a side effect of inflation was that higher incomes and prices had fed through into higher tax receipts; the Chancellor had more in his coffers – more ‘fiscal headroom’ – than had been predicted in the Spring, and commentators were suggesting what he might do with it.

Mr Hunt started his speech by claiming he was bringing forward 110 growth measures to back British business. He did not list them all in the speech, but there is no doubt that the documents released on the internet when he sat down contained a mass of detail – some specific rule changes coming in on particular dates, and some outlines of plans that are being considered for later.

The documents include a table showing the financial effects of the proposals, which highlights what is really significant and what is more marginal. Reductions in National Insurance amount to £9.3 billion in 2023/24 and similar amounts each year after that; changes to tax relief for capital expenditure come to similar amounts in the longer term. On the other hand, HMRC hope to collect £1 billion a year extra from the sinister sounding ‘investment in debt management capability’

The attached brochure summarises the main tax changes that were announced by Mr Hunt, with an explanation of what they are likely to mean for your business or your family. If you would like to discuss what these measures mean for your individual circumstances, we will be pleased to help.

Significant points

Cuts to employee NICs take effect from 6 January 2024 and self employed NICs from 6 April 2024

100% first year allowances (‘full expensing’) for companies made ‘ permanent ’ (originally due to expire 31 March 2026)

Extension of the ‘cash basis’ of computing taxable profits for unincorporated businesses

Reforms to tax reliefs for research and development and creative industries

Affirmation of support for the state pension ‘triple lock’ with an 8.5% increase from April 2024, based on average earnings

No changes announced to Income Tax, Inheritance Tax or Stamp Duty Land Tax – all remain fixed at levels previously announced

Simplifications announced to the Making Tax Digital regime to be introduced for income tax self-assessment in April 2026

Download the full 2023 Autumn Statement brochure

MTD for Income Tax Self-Assessment: A Call for Collaborative Reconsideration

Mon, 20 Nov 2023 11:16:52 GMT

The current implementation plan for Making Tax Digital (MTD) for Income Tax Self-Assessment fails to address the concerns of taxpayers, agents, and HMRC. Its rigid adherence to outdated decisions, escalating costs, and potential administrative burdens necessitate a comprehensive review and collaborative effort to formulate a more realistic and effective approach.

The proposed MTD framework, with its annual returns and 4 quarterly statements, places an undue burden on self-employed individuals and landlords with income exceeding £50,000.

While HMRC touts the benefits of digitisation in reducing errors and narrowing the tax gap, the increased reporting frequency and potential software limitations are likely to lead to the opposite effect.

We echo the National Audit Office's concerns regarding the inadequate consideration of compliance costs for businesses and agents. The current proposals, if implemented without careful scrutiny, could further strain HMRC's service levels and compound existing challenges.

A recent CIOT/ATT survey revealed widespread apprehension within the business community, with 70% of respondents deeming the April 2026 start date unrealistic and 95% lacking confidence in HMRC's oversight capabilities. These findings underscore the need for a collaborative approach to reshape MTD into a truly beneficial and workable system.

Similar to many other organisations, we urge the government to use the Autumn Statement as an opportunity to initiate a thorough review of MTD, followed by in-depth consultations with affected individuals and businesses. This review should encompass a comprehensive assessment of MTD's impacts and advantages, ensuring that any implementation aligns with the needs and realities of taxpayers, agents, and HMRC.

Level of disruption does not outweigh benefit

Friend Partnership understands that any changes whether digital or not, will always cause some disruption and additional costs at the outset. We also recognise that the level of disruption without proper implementation will prove more disruptive than the benefits.

Should the government wish to pursue the April 2026 implementation date, could it not, for example, initially require only those with self-employed income exceeding £150,000 to be registered, followed annually by those on income above £100,000 and £50,000. Implementing in such a staggered manner would potentially minimise kinks in the system for those that can least afford errors.

Unravelling the Flaws in the OECD's Pillar 2: The Global Minimum Tax Proposal

Fri, 10 Nov 2023 12:11:31 GMT

The Organisation for Economic Co-operation and Development (OECD) has long been at the forefront of shaping international tax policies, aiming to create a fair and efficient global tax system. However, its recent proposal under Pillar 2, which outlines a global minimum tax on multinational firms, has sparked considerable debate and criticism. A closer examination reveals several flaws that demand careful scrutiny.

The Undertaxed Profits Rule, a key component of the Organization for Economic Co-operation and Development's (OECD) Pillar 2 proposal, is designed to address the issue of multinational corporations shifting profits to low-tax jurisdictions. While its intention is to ensure that profits are adequately taxed, there are significant concerns about its potential impact on countries like the UK. Concerns that have been raised include:-

Impact on Financial Services Sector

The UK's financial services sector, a vital contributor to the economy, often operates on a global scale. The Undertaxed Profits Rule may affect how profits are allocated and taxed within this sector. Given the international nature of financial transactions, there will be complexities in determining the appropriate tax treatment, potentially impacting the competitiveness of UK-based financial institutions.

Complexity, Tax Liability and Compliance Burden

The Undertaxed Profits Rule aims to ensure that profits are not inappropriately shifted to jurisdictions with low tax rates. For multinational corporations headquartered in the UK, if their subsidiaries or operations in low-tax jurisdictions are subject to additional taxation it will mean a potential increase in tax liability. The impact would depend on the extent to which these corporations have structured their operations to benefit from lower tax rates.

The implementation of the Undertaxed Profits Rule introduces a level of complexity in determining whether profits are undertaxed. This complexity may result in increased compliance burdens for businesses operating in the UK. Navigating the rules and calculations to ensure compliance with the new framework could pose challenges for businesses of varying sizes.

Global Competitiveness Considerations

The Undertaxed Profits Rule seeks to create a more level playing field in international taxation. However, there is a risk that the rule, if not implemented carefully, could impact the global competitiveness of countries like the UK. Striking a balance between preventing profit shifting and maintaining an attractive business environment is crucial to ensure that the UK remains an appealing destination for multinational corporations.

Ambiguity in Profit Allocation

The OECD's plan relies on the allocation of profits among jurisdictions, introducing a subjective element that opens the door to disputes and legal challenges. Determining the appropriate distribution of profits is inherently challenging, and the lack of clear guidelines may result in prolonged legal battles between multinational corporations and tax authorities, further straining global economic relations.

In Summary

While the OECD's Pillar 2 initiative seeks to address the challenges posed by multinational corporations exploiting tax loopholes, its flaws cannot be overlooked. A more flexible and nuanced approach is necessary to ensure that the global minimum tax does not inadvertently harm developing economies, burden businesses with excessive compliance costs, or lead to unintended consequences such as double taxation. As international discussions on tax reform continue, it is essential for policymakers to consider the diverse economic landscapes and potential implications for individual countries to achieve a balanced and effective global tax framework.

Multinational Top-up Tax

Mon, 23 Oct 2023 15:15:47 GMT

The multinational top-up tax (MTT) was introduced in the UK in 2023. The MTT is part of the UK's implementation of Pillar 2 of the OECD's Global Anti-Base Erosion (GloBE) rules. These rules are designed to ensure that multinational companies pay a minimum tax rate of 15% on their profits, regardless of where their profits are made. The MTT is a backstop rule that ensures that any top-up taxes that are not paid under another jurisdiction's Pillar 2 rules are paid in the UK.

Who is affected by the Multinational Top-up Tax?

The MTT applies to businesses with annual global revenues exceeding €750 million that have business activities in the UK.

How does the Multinational Top-up Tax work?

The MTT calculates the top-up tax that a business owes by comparing the business's effective tax rate to the 15% minimum tax rate. If the business's effective tax rate is below this, the MTT will calculate the top-up tax that is needed to bring the effective tax rate up to 15%.

The MTT will be applied to a business's global profits and will have effect in respect of accounting periods beginning on or after 31 December 2023. Businesses will however be able to offset any top-up taxes that it has already paid under another jurisdiction's Pillar 2 rules.

What are the objectives of the Multinational Top-up Tax?

The MTT has a number of objectives, which include:

ensuring that multinational companies pay a certain amount of tax in the UK.
helping to discourage multinational companies from shifting their profits to low-tax jurisdictions.

What problems does the Multinational Top-up Tax cause for businesses?

It is complex.
It is certain to increase the administrative burden on affected businesses.
It will lead to disputes between businesses and tax authorities.

Multinational Top-up Tax example

A multinational company with annual global profits of €1 billion has a UK subsidiary. The UK subsidiary has profits of £100 million in an accounting period. The effective tax rate on the UK subsidiary's profits is 12%.

The multinational top-up tax (MTT) will calculate the top-up tax that the multinational company owes by comparing the UK subsidiary's effective tax rate to the 15% minimum tax rate.

Multinational Top-up Tax calculation:

MTT = (15% - 12%) x £100 million = £3 million

The multinational company will owe £3 million in MTT on the UK subsidiary's profits.

Offsetting top-up taxes paid under another jurisdiction's Pillar 2 rules

In the above example, the multinational company may be able to offset the £3 million in MTT against any top-up taxes that it has already paid under another jurisdiction's Pillar 2 rules.

For example, if the multinational company has already paid £2 million in top-up tax on the UK subsidiary's profits under another jurisdiction's Pillar 2 rules, the multinational company will only owe £1 million in MTT in the UK.

Changes to HMRC’s Agent Dedicated Line

onslo.rahman@friendpartnership.com (Onslo Rahman) — Fri, 22 Sep 2023 09:34:33 GMT

HMRC's decision to drop the 10-minute call answering target from the agent dedicated line (ADL) raises concerns for accountants and other professionals who require the service.

First and foremost, removing the 10-minute target will increase waiting times for accountants and tax professionals who rely on the ADL. While HMRC encourages the use of digital services, not all queries or situations can be resolved online. Accountants deal with complex and unique cases that require one-to-one communication.

Furthermore, a significant portion of calls to the ADL are progress chasing queries. HMRC suggests that these queries can be answered online, but experience tells us that this is not the case. Speaking to an advisor directly is more efficient.

Additionally, HMRC is re-routing PAYE queries to dedicated PAYE advisers. This may be efficient, but it will frustrate accountants who have multi-faceted enquiries that span multiple tax areas. Accountants will have to switch between lines to address different issues. To then be put on hold again will be a deterrent for those seeking a streamlined and efficient service.

Finally, HMRC is considering introducing a webchat facility to the ADL. While this is a step in the right direction, it is in the early stages and does not have a concrete timeline for full implementation. HMRC is also working on "iterative changes," but this does not offer a clear roadmap for improving service efficiency and reducing wait times.

Maintaining a balance

HMRC's move to shift toward digital services is understandable, but it is crucial that the agency maintains a balance between promoting digital adoption and ensuring that the support provided to accountants remains efficient and accessible. Removing the 10-minute call answering target without concrete assurances of improved service quality or comprehensive digital training for users will leave accountants in the lurch, especially during peak times when timely assistance is paramount. HMRC should consider a more holistic approach to its service transformation, one that prioritises both digital innovation and the needs of its professional user base.

In other words, HMRC should be more careful about how it moves towards digital services, and make sure that accountants and tax professionals are not left behind.

Pandora Papers: What to do if you receive a nudge letter from HMRC

onslo.rahman@friendpartnership.com (Onslo Rahman) — Tue, 08 Aug 2023 13:26:32 GMT

The Pandora Papers were a major leak of financial documents that revealed the offshore assets of many wealthy individuals and companies. In the wake of the leak, HMRC began sending “nudge letters” to UK residents who may have been identified as having offshore assets. These letters were designed to encourage disclosure of offshore assets and the income and gains arising from them.

The first tranche of 660 “nudge letters” to UK taxpayers were sent out in June 2023. HMRC opted to initially send out these letters as opposed to opening formal investigations into companies and individuals.

Sending out these “nudge letters” has proven to be a successful strategy for HMRC, given the minimal work that has been required. However, for some of the more complex structures, the 30 day limit given by HMRC makes it impossible for all who may owe tax to comply. This could be for a number of reasons including the inability to obtain and provide supporting statements and documents.

It is believed that HMRC is preparing to send out more “nudge letters” to those named in the Pandora Papers.

If you have received a nudge letter from HMRC previously, or feel that one may soon be forthcoming, it is important to take action. The letter will give you a deadline to review your tax affairs and disclose any offshore income or gains that you have not previously reported to HMRC.

There are two options for responding to a nudge letter:

You can confirm that you have no offshore assets or income. If you are sure that you have no offshore assets or income, you can simply reply to the letter stating this. You will not need to take any further action unless HMRC approach you again.
You can disclose offshore income or gains that you have not previously reported to HMRC. If you have offshore income or gains that you have not previously reported to HMRC, you can disclose them under the HMRC Disclosure Facility. This will allow you to pay any outstanding tax and penalties without facing criminal prosecution.

If you are unsure about whether or not you should disclose your offshore assets or income, you should seek professional advice. A tax advisor can help you to understand your options and make the best decision for your circumstances.

Here are some tips for responding to a nudge letter from HMRC:

Read the letter carefully. Make sure that you understand what HMRC is asking you to do.
Gather all of the relevant paperwork that you are able to possess. This may include bank statements, tax returns, and documents relating to your offshore assets or income.
Decide whether or not you want to disclose your offshore assets or income. If you do decide to disclose, you will need to complete the HMRC Disclosure Facility form.
Get professional advice. If you are unsure about what to do, you should seek professional advice from a tax advisor.

Remember, the deadline for responding to a nudge letter is usually 30 days. If you do not respond to the letter within the deadline, HMRC may take further action, such as opening an investigation.

By taking action promptly, you can minimise the risk of penalties and prosecution.

Contact a tax adviser today to discuss your options.

At Friend Partnership , we have many years of experience dealing with tax planning and tax investigations. We can assist you with any HMRC enquiries or nudge letters. You can contact David Gillies on a no obligation basis by call 0121 633 2000 or alternatively e-mailing david.gillies@friendllp.com

Inheritance Tax Planning: Tax Efficient Gifting to Grandchildren

onslo.rahman@friendpartnership.com (Onslo Rahman) — Tue, 08 Aug 2023 12:59:50 GMT

As a grandparent, you may be considering giving money to your grandchildren as a way of helping them financially or simply passing on some of your wealth to future generations. However, it is important to understand the tax implications of gifting in the UK as Inheritance Tax can be due on gifts if the donor does not survive for 7 years from the date of the gift.

Getting professional advice about how you can give away some of your wealth tax efficiently during your lifetime should be given due consideration. This is because how you gift your wealth can affect how much your grandchildren actually receive.

For the purposes of Inheritance Tax, a grandchild or a great grandchild is a remoter lineal descendant. It is also interesting to note that the definition of “child” for these purposes includes stepchildren, step-grandchildren and children of fostered children.

Examples of tax efficient ways to gift to grandchildren

Use your annual gift allowance

One of the simplest ways to gift money to your grandchildren is to use your annual gift allowance. In the UK, each donor can give away up to £3,000 each tax year without it being subject to inheritance tax. The £3,000 can be given to one grandchild or split between multiple recipients.

If you don’t use your full allowance in one tax year, you can carry any unused annual exemption forward to the next tax year – but only for one tax year.

With each living grandparent able to gift an annual total of £3,000, gifts totalling £12,000 could be made if the previous year’s allowance has not been used at all.

Give small gifts

In addition to your annual gift allowance, you can also give small gifts of up to £250 per person per tax year without it being subject to IHT. This can be a great way to give your grandchildren small, regular gifts without having to worry about the tax implications. Great care should be taken about the interaction between the annual exemption and the small gifts exemption. The two cannot be used in conjunction with each other. In other words, you cannot give a grandchild a total of £3,250 and claim that the first £3,000 is subject to the annual exemption and the small gifts exemption applies to the remaining £250.

For the small gifts exemption to apply the gift must be an absolute small gift of £250 or less.

Set up a trust

Setting up a trust can be a more complex way of gifting money to grandchildren, but it can offer significant tax benefits. By placing assets into a trust, you can potentially reduce the amount of IHT that will be due on your estate. You can also set conditions on the distribution of the assets, ensuring that they are used for specific purposes, such as education or property purchase.

There are several types of trusts that can be set up, such as Bare Trusts, Life Interest Trusts and Discretionary Trusts. It’s essential to seek advice from qualified professionals, as they can help you assess your specific situation and determine which type of trust aligns with your goals and objectives. With the right advice, trusts will prove to be an extremely flexible and effective means of passing wealth onto future generations. They have the potential to be, not only, inheritance tax and capital gains tax efficient but also income tax efficient for the beneficiaries as well.

Set up a Junior ISA

A Junior ISA is a tax-free savings account that can be opened for children under the age of 18. You can contribute up to £9,000 per tax year into a Junior ISA, and any growth or income earned within the account is tax-free. When the child reaches 18, the account will convert to a regular adult ISA.

It is worthwhile noting that the £9,000 allowance is per Junior ISA account and not the amount given by each person. As an example, if a parent puts in £3,000, the maximum contribution the grandparents could make would be £6,000. Grandparents could use their £3,000 annual exemption for this purpose.

Pay for education or medical expenses

If you are looking to gift money to your grandchildren for specific purposes, such as education or medical expenses, you may be able to do so without incurring any tax. In the UK, there is no limit on how much you can gift for these purposes, as long as the payments are made directly to the educational or medical institution.

Gifts for weddings or civil partnerships

You are able to gift £2,500 to each grandchild or great-grandchild on top of any other allowance (excluding the small gift allowance) in the same tax year. As an example, you could provide £3,000 under the annual gift allowance, along with a wedding gift of £2,500, totalling £5,500.

Gifting from surplus income

Commonly known as “gifts out of normal expenditure”, gifts from a grandparent’s surplus income can be given to grandchildren without incurring any inheritance tax liability.

To be exempt from Inheritance Tax liability, the gifts must meet several conditions:

they must be made as part of the donor’s normal expenditure. This means that the gifts must be made regularly and the donor needs to establish a pattern of gifts. They must leave the grandparent with enough income to pay any income and liabilities and also to maintain their usual standard of living.
They must be made from the grandparent’s income, rather than capital. This means that the gifts must be made from income that is surplus to the grandparent’s needs.

The definition of income plays a critical role in determining how this regulation applies. As the rule’s title implies, gifts must originate from income and cannot come from capital sources such as liquidating investments. Earned income received through employment, rental income, income from a pension, and dividends earned from investments are all eligible sources of income.

It is important to note that the burden of proof is on the executor of the donor’s estate to prove that the gifts meet these conditions, so it is important to keep good records of the gifts made.

In conclusion

Tax-efficient methods of gifting money to grandchildren abound, by creating a careful plan of lifetime gifts which take full advantage of available exemptions and Trust vehicles, considerable inheritance tax savings can be made. Obtaining expert advice is essential in order to avoid possible inheritance tax bear traps and pitfalls.

It is always important to seek specialist advice before making any significant financial decisions. For detailed advice and guidance on reducing Inheritance Tax liabilities, please contact David Gillies at Friend Partnership. You can call David on 0121 633 2007 or contact him by email at david.gillies@friendllp.com

Mergers and Acquisitions (M&A) – A Quick Overview

onslo.rahman@friendpartnership.com (Onslo Rahman) — Tue, 08 Aug 2023 11:54:23 GMT

Mergers and acquisitions (M&A) are business transactions in which one company acquires another company or part of a company. M&A activity can take many forms, including mergers, acquisitions, consolidations, tender offers, and management buy-ins/buy-outs.

Types Of M&A Transactions

Mergers: Two companies combine to form a new company.

Acquisitions: One company purchases another company and takes control of its operations.

Consolidations: Two or more companies merge to form a larger company.

Tender Offers: One company makes an offer to buy the shares of another company directly from its shareholders.

Hostile Takeovers: A company attempts to acquire another company without the target company’s consent.

Acquisition of Assets: One company acquires the assets of another company, typically during bankruptcy proceedings.

Management Acquisitions: Company executives purchase a controlling stake in another company, taking it private. This is often financed with debt and requires shareholder approval.

The Motives For Mergers & Acquisitions

There are many reasons why companies engage in M&A activity. Some of the most common motives include:

To grow: M&A can be a quick and efficient way to grow a company’s size and reach new markets.

To gain new capabilities: M&A can help a company acquire new technologies, products, or services that it would not be able to develop on its own.

To reduce costs: M&A can help a company achieve economies of scale by combining operations or eliminating duplicate jobs.

To improve shareholder value: M&A can be used to create value for shareholders by increasing the target company’s profitability or by unlocking hidden value.

How Mergers Are Structured

Mergers can be structured in different ways based on the relationship between the companies involved:

Horizontal merger: Two companies in direct competition with similar product lines and markets.

Vertical merger: A customer or supplier merging with a company.

Congeneric mergers: Two companies serving the same consumer base in different ways.

Market-extension merger: Two companies selling the same products in different markets.

Product-extension merger: Two companies selling different but related products in the same market.

Conglomeration: Two companies with no common business areas.

Methods Of Valuing A Business

The value of a target is typically determined by a variety of factors, including the target company’s financial performance, its growth prospects, and its competitive position. Some of the most common valuation methods used in M&A transactions include:

Price-to-earnings (P/E) ratio: The P/E ratio is calculated by dividing the target company’s stock price by its earnings per share.

Enterprise value-to-sales (EV/Sales) ratio: The EV/Sales ratio is calculated by dividing the target company’s enterprise value by its sales.

Discounted cash flow (DCF) analysis: DCF analysis is a more complex valuation method that calculates the present value of the target company’s future cash flows.

Comparable Company Analysis: Compares the target company to similar publicly traded companies to derive a valuation multiple.

Precedent Transaction Analysis: Examines the valuation multiples from past transactions involving similar companies.

Capitalization of Earnings Method: Calculates the value of a company based on its expected future earnings and a capitalisation rate.

Asset-based Valuation: Determines the value of a company by summing up the value of its tangible and intangible assets, minus its liabilities.

Book Value: Uses the company’s historical accounting values of its assets and liabilities.

Adjusted Net Asset Value: Adjusts the book value of assets and liabilities to reflect fair market value.

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) Multiple: Uses the EBITDA as a multiple of earnings to determine company value.

Each company involved in an M&A deal may have different valuations, with sellers aiming for higher prices and buyers seeking to pay less. Comparative analysis of similar companies in the industry and the use of valuation metrics can help determine the appropriate value for the target company.

Merger & Acquisition Risk Factors

M&A transactions can be risky for both the acquiring and target companies. Some of the most common risks associated with M&A include:

Integration risk: Integrating two companies can be a complex and time-consuming process that can lead to unexpected problems.

Cultural clashes: Differences in corporate culture can lead to conflict and resentment between employees of the two companies.

Regulatory risk: M&A transactions can be subject to government scrutiny and regulation, which can delay or even derail the deal.

Financial risk: M&A transactions can be expensive, and the acquiring company may be taking on too much debt or risk.

What Are The Effects Of Mergers & Acquisitions On Shareholders and Employees?

Mergers and acquisitions (M&A) can have a significant impact on employees and shareholders.

Employees

For employees, M&A can mean a number of things, including:

Job loss: In some cases, M&A can lead to job losses, as the acquiring company may consolidate operations or eliminate duplicate positions.
Changes in work conditions: M&A can also lead to changes in work conditions, such as new reporting relationships, new benefits, or new performance expectations.
Uncertainty: M&A can be a time of uncertainty for employees, as they may not know what the future holds for their jobs or their company.

Shareholders

For shareholders, M&A can mean a number of things, including:

Increased value: If the M&A is successful, it can lead to increased value for shareholders, as the combined company may be more profitable or have a larger market share.
Dividends: The acquiring company may also choose to pay dividends to shareholders, which can provide a return on investment.
Risk: However, M&A can also be risky for shareholders, as the deal may not be successful, or the combined company may not be as profitable as expected.

It is important to note that the impact of M&A on employees and shareholders can vary depending on the specific circumstances of the transaction. In some cases, M&A can be a positive event for both employees and shareholders.

Advice for Shareholders

Do your research: Before the M&A transaction is finalised, it is important to do your research and to understand the potential risks and benefits of the deal.
Talk to your financial advisor: If you have any questions about the M&A transaction, it is important to talk to your financial advisor or accountant.
Stay patient: M&A can be a complex process, so it is important to stay patient and to wait for the deal to be finalised.

Ensuring A Successful Outcome

M&A transactions can be successful if they are carefully planned and executed. Some of the key success factors include:

Clear strategic rationale: The acquiring company should have a clear strategic rationale for the M&A transaction. The transaction should be aligned with the company’s overall business goals and objectives.
Thorough due diligence: The acquiring company should conduct thorough due diligence on the target company. This includes financial, legal, and operational due diligence.
Agreed upon integration plan: The acquiring company and the target company should agree upon an integration plan. This plan should address issues such as culture, operations, and human resources.
Effective communication: The acquiring company and the target company should communicate effectively throughout the M&A process. This includes communicating with employees, customers, and suppliers.

Despite the risks, M&A can be a successful strategy for companies that are looking to grow, gain new capabilities, or improve shareholder value. However, it is important to carefully consider all of the factors involved before making an M&A decision.

How We Can Assist

Understanding Mergers or Acquisitions can be complicated and time-consuming. Our team of experienced business accountants specialise in all matters relating to business acquisition, business structuring and succession planning, and can assist you in creating a smooth transition whilst ensuring compliance. For detailed guidance on any matters, get in touch with us on 0121 633 2000 or alternatively email us at enquiries@friendllp.com

Awarding Shares To Employees – The Restricted Securities Bear Traps

onslo.rahman@friendpartnership.com (Onslo Rahman) — Tue, 08 Aug 2023 10:54:08 GMT

Over recent years it has become increasingly common for employers to give shares to key employees as part of their remuneration package. This makes a great deal of sense. Share awards are recognised as being an effective means of incentivising and retaining key members of staff and management and are also seen as an effective method of attracting new talent.

By far the most attractive arrangement is the Enterprise Management Incentive option scheme (EMI). It has a number of tax advantages. However, for some employees this does not go far enough because it only gives them the option to acquire shares at a point in the future whereas they may want a stake in the business straightaway.

An employer awarding actual shares to an employee instead of options will want to build in some protection either by way of a Shareholders Agreement or in the Articles of Association. Typically, there will be a restriction on the ability of the employee shareholder to sell the shares and it is also highly likely that there will be the risk of forfeiting the shares if the employee leaves the employment.

Tax implications of awarding shares to employees

From a tax point of view, such shares are known as “restricted securities” and they come with some nasty tax traps for the unwary. These revolve around the difference between the value of the shares including any restrictions (“actual market value” or AMV) and the value of the shares if all the restrictions are ignored (“unrestricted market value” or UMV).

When restricted securities are awarded to an employee, there will be an income tax charge under the “general earnings” provisions. Under those provisions any shortfall between the AMV of the shares at the time they are awarded, and the amount actually paid for the shares by the employee is treated as taxable income. Obviously, if the employee pays AMV or more than AMV, no tax charge arises.

The bear traps lie in wait for employee shareholders who have been awarded restricted shares when there is a future “chargeable event”. For these purposes, a “chargeable event” generally arises when there is a lifting of any restrictions which results in the value of the shares increasing or, more commonly, when the shares are disposed of.

On the disposal of restricted employee shares, the repercussions can be very nasty. Essentially, a proportion of the sale proceeds the employee shareholder receives will be treated and taxed as income rather than capital gain. This proportion is calculated as a percentage of the sale proceeds by reference to the difference between the AMV and the UMV of the restricted shares.

Example of chargeable event liable for Income Tax

It is easiest to illustrate this problem by way of an example. Let us assume that an employee shareholder is awarded restricted securities. At the time of the award the restricted value of the shares (AMV) is £15 per share and the unrestricted market value (UMV) is £20 per share. For the purposes of the illustration let us assume that the employee pays £15 per share. No tax charge under the general earnings principle arises at the time of the award. The employee has therefore paid 75% of the UMV.

When the shares are sold, however, the proportion of the sale proceeds which is subject to income tax rather than capital gains tax is 25% (the difference between AMV and UMV at the time the shares required). It is important to be aware that this percentage is applied to the sale proceeds, not the gain. When you consider that the top rate of income tax is currently 45% compared to the top rate of capital gains tax which is 20%, this could represent a significant tax disadvantage.

National Insurance and Employer’s Liability

As the tax charge arises on the disposal of the shares it is highly likely that HMRC will treat them as “readily convertible assets” which will mean that the deemed income is also liable to a National Insurance charge for both the employer and the employee. Under those circumstances the tax and National Insurance has to be paid over through the usual payroll. There can be further tax repercussions if the employee shareholder does not make good the tax and National Insurance paid over on his or her behalf by the employer within 90 days.

Utilising Section 431 Election to avoid the bear traps

Fortunately, all is not lost. Employees acquiring restricted shares do have a means of avoiding later income tax charges arising on chargeable events. They can make an election under Section 431 of the Income Tax (Earnings and Pensions) Act 2003.

What this election says is that the employee chooses to be treated as having received the restricted securities at their unrestricted market value at the date of acquisition. The employee will then pay tax at that point based on that UMV but, more importantly, any future growth in value of the shares will not give rise to an income tax charge on a subsequent disposal or other chargeable event.

This vital election has to be made by both the employer and the employee within 14 days of acquisition of the shares. Unusually, there is no requirement to submit the election to HM Revenue and Customs at that stage. It should merely be retained by the employer and the employee in order to be produced at a later stage.

Advice on Employment Related Securities

For detailed advice and guidance on Employment Related Securities or other company share plans including Enterprise Management Initiatives and other share option award arrangements, please David Gillies on 0121 633 2007 or contact him by email at david.gillies@friendllp.com

Employers: Deadline for submitting P11D & P11D(b) forms is July 6 2026

onslo.rahman@friendpartnership.com (Onslo Rahman) — Tue, 08 Aug 2023 10:27:34 GMT

The deadline for submitting forms P11D and P11D(b), for the year 2025-26 is July 6, 2026. These forms must be submitted electronically, whether by yourself or your payroll services provider, either through commercial software or using HMRC’s PAYE online service.

It is also essential to provide employees with a copy of the information related to them on these forms by the same date.

What are P11D and P11D(b) forms?

P11D: This form is used to report all Benefits in Kind (BiKs) to HMRC, including those covered under the Optional Remuneration Arrangements (OpRAs). BiKs are non-cash payments or benefits that an employer provides to an employee, such as a company car, private health insurance, or a company loan. Read more about Benefits-in-Kind.

P11D(b): This form is used to report Class 1A National Insurance payments that are due on BiKs. Class 1A NICs are a type of National Insurance that is paid by employers on the value of BiKs that they provide to their employees. Payment of Class 1A NICs is due on 22nd July (online) or 19th July (cheque)

How to submit P11D, P11D(b), forms

Commercial software: There are a number of commercial software packages that can be used to submit P11D and P11D(b) forms. These packages typically include features such as automatic calculation of BiKs and National Insurance contributions, as well as the ability to generate reports and letters for employees.
HMRC’s PAYE online service : HMRC also offers an online service for submitting P11D and P11D(b) forms. This service can be easy to use for straightforward matters and can be accessed from any computer with an internet connection.
Paper: Forms P11D and P11D(b), can no longer be submitted on paper format.

What if I have no BiKs or expenses to report?

If you have previously reported Benefits-in-Kind and have no BiKs or expenses to report, you can either:

Submit a ‘nil’ return.
Inform HMRC online that no return is necessary.

Penalties for late submission of Form P11D

Late submission of a P11D incurs a penalty of £100 per 50 employees for each full month it is late.
Late payments on any NICs amount due, will attract a 5% penalty charge after 30 days, rising to 10% after 6 months and 15% after 12 months as well as interest due.

PAYE Settlement Agreements (PSAs)

If you have a PAYE Settlement Agreement (PSA) with HMRC, you must pay any tax or Class 1B National Insurance amount due for the year 2025-26 by October 22, 2026. Reporting this amount on a P11D is not required.

What if I have any questions?

If you have any questions about submitting P11D and P11D(b) forms, you can contact us on 0121 633 2000, or alternatively, complete the contact form below and one of our team will be in touch.

Our team of knowledgeable professionals are available to assist you throughout the entire process of submitting forms P11D and P11D(b). We can provide guidance in identifying taxable benefits and expenses that should be reported on your P11D form, and we will ensure that all calculations comply with HMRC regulations and are accurate.

Understanding Benefits in Kind: Rewards Beyond Wages

onslo.rahman@friendpartnership.com (Onslo Rahman) — Tue, 08 Aug 2023 09:52:50 GMT

In addition to regular wages or salaries, there are many other ways to reward and appreciate your employees. For employers to attract and retain top talent, benefits in kind, that is to say remuneration in non-cash form, can be an excellent option.

Benefits in Kind (BIKs) can be offered alongside a basic salary payment, or they can be an integral part of a personalised package tailored to meet the individual needs and preferences of employees.

It is important to note that the majority of BIKs are taxable in the same way as salary. The value of any taxable BIKs will be added to the employee’s taxable income, and they may also be subject to National Insurance contributions.

Understanding Benefits in Kind

Benefits in kind (BIKs) are goods or services that an employer provides to an employee for free or at a reduced cost. the majority of BIKs are taxable, and where taxable, the benefit is added to the employee’s taxable income.

The value of a BIK is calculated by reference to the market value of the goods or services provided. For example, the value of a company car is calculated by reference to the list price of the car and its emissions.

Tax-free Benefits-in-Kind

tax-free benefits in kind for employees. include:

Trivial benefits: Benefits costing less than £50 are not subject to tax provided certain conditions are met.
Mobile phones: One mobile phone provided by your employer and any line rental and calls with that phone paid directly by your employer tax free. However, money your employer pays you to use your own mobile phone is taxable.
Meals and refreshments: If an employer provides meals and refreshments to employees on the employer’s premises, this is tax-free. However, there are some restrictions on this, such as the meals and refreshments must be provided for the convenience of the employer, and they must not be lavish or extravagant.
Travel and subsistence: If an employer pays for travel and subsistence expenses for employees, this is tax-free. However, there are some restrictions on this, such as the travel and subsistence expenses must be incurred for the purposes of the employee’s employment, and they must be reasonable.
Cycle to work schemes: Cycle to work schemes are a tax-free way for employers to help their employees get to work by bike. Employees can choose to buy a bike through their employer and pay for it through salary sacrifice. This means that the cost of the bike is taken out of the employee’s salary before tax is deducted, so the employee saves money on tax and National Insurance.

Taxable Benefits-in-Kind

taxable benefits in kind for employees, include:

Company cars: Employees who are provided with a car by their employer for their personal use are liable to pay tax on the benefit. The amount of tax that is payable is based on the list price of the car, and the CO2 emissions of the car.
Private medical insurance: Employees who are provided with private medical insurance by their employer are liable to pay tax on the benefit. The amount of tax that is payable is based on the cost to the employer of the insurance policy.
Childcare vouchers: Childcare vouchers are no longer available as a tax-free benefit. However, employees who were using childcare vouchers before they were withdrawn can continue to use them until they run out.
Gym memberships: Employees who are provided with a gym membership by their employer are liable to pay tax on the benefit. The amount of tax that is payable is based on the cost of the gym membership to the employer.

For a more exhaustive list, please read the following HMRC guidance .

Employees Liability for Taxable Benefits in Kind

If you provide an employee with a taxable benefit in kind, they will be liable to pay income tax on the value of the benefit. The value of the benefit is called the “cash equivalent”. The amount of tax that the employee pays will depend on their income tax band, which currently could be 20%, 40%, or 45%.

In some cases, employees may also have to pay an additional National Insurance contribution (NIC) on taxable BIKs, such as vouchers or cash benefits.

Employer’s Liability for Taxable Benefits in Kind

In addition to the employee’s liability for income tax and National Insurance contributions, employers are also liable to pay Employer’s National Insurance contributions (NIC) on the value of taxable benefits in kind (BIKs) provided to their employees. The rate of Employer’s NIC is 13.8%.

The taxable value of a BIK is generally calculated by reference to the cost to the employer of providing the benefit, less any amount that the employee pays for it.

Employers are required to report the value of BIKs to employees on their annual P11D form and to HMRC on form P11D(b). The forms P11D and P 11D(b) must be submitted annually by 6th July, following the end of the tax year.

How We Can Assist

Friend Partnership is a forward-thinking firm of Chartered Accountants, Business Advisers, Corporate Finance and Tax Specialists, based In The UK

Understanding all the requirements for BIK planning and administration can be complicated and time-consuming. Our team of experienced business accountants specialise in handling employment-related issues and can assist you in creating beneficial packages while ensuring compliance with HMRC rules. For guidance on any Benefit in Kind matters, get in touch with us on 0121 633 2000 or alternatively email us at enquiries@friendllp.com

HMRC Tax Receipts 2022-23 – A quick breakdown and summary

onslo.rahman@friendpartnership.com (Onslo Rahman) — Tue, 08 Aug 2023 09:02:18 GMT

Latest HMRC tax receipts show that the UK Government has collected £786.6bn in the 2022-23 fiscal year . An increase of 9.9% compared to the £715.5bn collected in tax receipts in 2021-22.

£247bn was raised through Income Tax receipts, an increase of 11.9% from £220bn in 2021/22. Income Tax generates the highest proportion of tax revenue for the Treasury.

National Insurance receipts saw an increase of 11.3% compared with 2021/22. HMRC collected £176bn compared to £158bn the previous year.

There was a marked increase of 22.1% in Corporation Tax receipts, increasing from £64bn in 2021/22 to almost £78bn in 2022/23. The recent rise in Corporation Tax from 19% to 25% will have had no impact on the figures for 2022/23 as the changes only came into effect in April 2023. Corporation Tax receipts will undoubtedly be higher next year.

Compared to significant increases in previous years, Value Added Tax receipts only increased moderately by 1.5% in 2022/23 rising from £157.5bn to £159.7bn.

Other Notable increases in HMRC tax receipts

A 213% rise in Air Passenger Duty tax receipts was the biggest riser in 2022/23, having gone from £1.0bn in 2021/22 to £3.2bn in 2023/23. However, this is still below the levels of tax raised pre-pandemic in 2019/20 when £3.6bn was raised.

Tax Penalties saw a 30% rise from £580m in 2021/22 to £757m in 2023/23.

Inheritance Tax receipts increased by 17.1% from £6.1bn to £7.1bn, an increase of 38% since 2019. The increase can be largely attributed to the fact that many more people are falling outside the Inheritance Tax and Residence Nil Rate Band thresholds. These thresholds have remained the same since 2020 at £500,000 combined, and due to remain at the current levels until 2028. Inheritance tax receipts is expected to significantly increase in the coming years.

2022/23 saw an 18.3% increase in Capital Gains Tax receipt to £18.1bn. A trend that has seen Capital Gains Tax receipts increase by over 95% over the last 5 years. This has been largely attributed to significant increases in property values along with the sale of significant property portfolios by buy-to-let investors over the last few years. This may have been further compounded by other economic factors such as the rush to sell before the reduction in Capital Gains Tax Exemption allowance.

Notable decreases in HMRC tax receipts

Diverted Profits Tax – or the “Google Tax” as it was often colloquially referred to – saw an 81% decrease in revenues for HMRC at £42m for 2022/23. Over the past 7 years, it has generated HMRC an average revenue amount of £110m compared to the expected revenue of £350m per year.

Beers, Wines and Spirit Duties saw a decrease of 2.1%, 6.1% and 6.4% respectively.

A surprising, but not so surprising decrease sees Fuel Duty receipts down 3.2%. Whilst Fuel Duty was expected to provide more in tax receipts than pre-pandemic levels, the rise in cost of living has seemingly had a huge impact in the second half of the financial year.

New tax receipts

The Energy Profits Levy , introduced in May 2022 to respond to the exceptional profits that oil and gas companies were making, raised almost £2.8bn for the Treasury. It is notable to state that this tax levy includes a sunset clause and will expire December 2025.

Given the significant costs associated with the removal of unsafe cladding following the Grenfell Tower disaster, the government brought in a tax on profits arising from largest residential property developments that came into effect for the first time in April 2022. The Residential Property Developer Tax – a 4% tax on profits above an allowance of £25m – raised £150m in tax revenue.

*The figures above and in the tables on this page are provisional and subject to minor adjustments by HMRC .

The figures for the 2021/22 tax year can be found here HMRC Tax Receipts 2021/22 – A quick breakdown and summary

Historical figures for HMRC tax receipts between 2000 and 2023

Succession Planning: The Virgin Way - Richard Branson

onslo.rahman@friendpartnership.com (Onslo Rahman) — Tue, 27 Jun 2023 16:20:13 GMT

Despite being 72 years old, Richard Branson still leads the Virgin Group, but he has acknowledged that he has considered the issue of succession planning.

Branson is a legendary entrepreneur who has built a global empire from scratch. The Virgin Group of businesses is now worth over $50 billion and includes over 40 companies in a variety of industries. But what happens when Branson steps down? How will the Virgin Group continue to grow and succeed without its founder?

In a recent interview on the BBC , Branson said that he has a "succession plan in place" and that he is confident that the Virgin Group will be "in good hands" when he's no longer at the helm. However, he declined to share any details about his plans.

The Virgin Leadership Programme

The Virgin Leadership Programme is a two-year program that is designed to develop the next generation of Virgin leaders. The program covers a wide range of topics, including business strategy, marketing, and finance. It also includes a number of experiential learning opportunities, such as working on a live Virgin project.

The Virgin Leadership Programme is just one example of how Branson is preparing for the future of the Virgin Group. By investing in succession planning, he is ensuring that the Virgin Group will continue to thrive long after he is gone.

Passing the business on to a family member

It's possible that Branson is grooming one of his children to take over the company. Holly Branson, his eldest daughter, is currently Chief Purpose and Vision Officer at Virgin and has been involved in the company's operations for many years. Sam Branson, his youngest son, is also a member of the Virgin family and has worked in a variety of roles within the company.

If not family, then who

It is also possible that Branson will choose an outsider to succeed him. He has a long history of hiring talented people from outside the company, and he may be looking for someone with a fresh perspective to lead the Virgin Group into the future. It reasonable to assume that Virgin Produced CEO and co-founder Jason Felts will also be included in discussions regarding succession planning, given that entertainment plays a significant role in all of Virgin's businesses.

Whatever Branson's plans are, it's clear that he is taking succession planning seriously. He knows that the Virgin Group is more than just his own personal brand, and he wants to make sure that it continues to thrive long after he's gone.

Here are some key takeaways from the Virgin Group's succession planning process:

Start early. The earlier you start planning for succession, the more time you will have to identify and develop potential successors.
Identify a diverse pool of candidates. Don't just look for people who look like you or have the same background as you. Look for people with a variety of skills and experiences who can bring different perspectives to the table.
Provide development opportunities. Give potential successors the chance to learn and grow. This could involve sending them on training courses, giving them challenging assignments, or mentoring them by more experienced leaders.
Create a succession plan. Once you have identified potential successors, put in place a plan for how they will be developed and promoted. This plan should be flexible enough to accommodate changes in the business environment.
Communicate your succession plan. Make sure that everyone in the organization knows about your succession plan and understands their role in it. This will help to ensure a smooth transition when the time comes for you to step down.

Succession planning is an important part of any business, but it is especially important for businesses like Virgin that are built around the personality of their founder. By following the lessons of the Virgin Group, you can ensure that your business will continue to thrive long after you are gone.

Expert advice will lead to a tax efficient transaction

Friend Partnership have many years’ experience in planning all types of business succession. We will advise you on:

Timing and taxation
Passing the business on to family
Aspects of control
Management buy-outs
Inheritance and Estate planning
Employee ownership and incentivisation
Preparation for sale

For guidance on any Succession Planning matters, get in touch with us on 0121 633 2000 or alternatively email us at enquiries@friendllp.com

Beware HMRC's New Approach to R&D Tax Credits Enquiries

onslo.rahman@friendpartnership.com (Onslo Rahman) — Tue, 06 Jun 2023 15:52:23 GMT

HMRC's new approach to R&D Tax Credits enquiries has had a significant impact causing anxiety amongst businesses and advisors alike.

Targeted Enquiries

HMRC has started to implement their stated intention to target businesses based on their SIC code and claim size. Advisors report receiving multiple enquiries into R&D claims using templated letters that largely ignore any supporting narrative which has already been submitted along with the original claim. Even more worryingly, HMRC's attitude during enquiries has become much more aggressive Their starting position seems to be that none of the R&D originally claimed for actually qualified for relief.

Standardised Arguments

Moreover, HMRC's reasons for rejecting claims have become standardised. This is a significant change to their usual approach, which was more case-specific. Many R&D advisors have been shaken by HMRC challenging claims that were previously considered solid. HMRC is clearly looking for reasons to deny relief as quickly as possible.

Common justifications for HMRC's denial of relief include:

The project was commercial, rather than technological.
There was no evidence of project occurrence.
Little or no use of Competent Professionals.
The advance had been achieved before by other companies.
The advance was for the company and not the industry as a whole.
Claimed uncertainties could have been resolved in a readily deducible way.

Reasons for the New Approach

One reason for HMRC's new approach will certainly be the negative press it has received lately highlighting abuses of the R&D scheme. In particular, there have been a number of high-profile cases where R&D tax credits have been claimed fraudulently. This has put HMRC under pressure to take action to crack down on abuse of the scheme.

Additional information form required to be submitted in advance of a claim

From 1 August 2023, businesses must submit an additional information form to HMRC (in essence pre-approval that the claim meets the definition of R&D) outlining in detail the following:

Qualifying Expenditure details
Indirect qualifying activities
Project details and descriptions
What is the main field of science or technology
What was the baseline level of science or technology that the company planned to advance
What advance scientific or technological knowledge did the business aim to achieve
How did your project seek to overcome these uncertainties

What Companies Can Do

There are a number of actions that businesses can take to protect themselves from HMRC's new approach to R&D Tax Credits enquiries. These include:

Making sure that their R&D claims are well-founded and supported by evidence
Using a reputable R&D tax credit advisor, preferably a firm of Chartered Accountants
Keeping good records of all R&D activity
Being prepared to defend claims if they are challenged by HMRC.

Conclusion

HMRC's new robust and aggressive approach to R&D Tax Credits enquiries is a significant development that will have a major impact. Businesses need to be aware of the new approach and take steps to protect themselves from a potential HMRC enquiry.

What to do if you receive a letter from HMRC querying your R&D claim

If you have received a “nudge letter” from HMRC regarding your R&D claim, do not choose to ignore it. It does not necessarily mean that you have done anything wrong with your claim. Take it as an opportunity to check that you are fully compliant.

If you prepared and submitted the R&D claim yourself , do not hesitate to reach out to us here at Friend Partnership.

If your claim was prepared and submitted by a R&D tax advisor , discuss the letter and the claim with your current advisor, who may be able to assist, provide reassurance or amend the claim. If you are not satisfied with their answers, again, please do not hesitate to reach out to us.

The Importance Of A Company Audit

onslo.rahman@friendpartnership.com (Onslo Rahman) — Sat, 27 May 2023 15:47:54 GMT

In today’s fast-paced and complex business environment, audits have become an integral part of ensuring the stability, sustainability, and growth of a business. Audits play a critical role in providing stakeholders with assurance that a company’s financial statements are accurate, reliable, and comply with applicable accounting and regulatory standards.

The purpose of an audit is to provide an independent and objective assessment of a company’s financial position, performance, and regulatory compliance. It involves an in-depth review of a company’s financial records, systems, and processes to identify material errors, omissions, or discrepancies that may exist.

Audits are particularly important for businesses operating in the United Kingdom because of the stringent financial reporting regulations. The Companies Act 2006, for example, requires all UK companies to prepare annual financial statements that must be audited if the company meets certain size criteria. The Financial Reporting Council (FRC) is responsible for setting auditing and accounting standards in the UK and oversees the work of auditors.

What are the benefits of an Audit?

Audits provide several benefits for businesses. First and foremost, they provide assurance to stakeholders that a company’s financial statements are accurate and reliable. This includes shareholders, creditors, lenders, employees and potential investors who rely on the financial statements to make investment decisions. An audit report can enhance a company’s reputation and increase stakeholder confidence in the business.

Audits can also help identify areas where a business can improve its financial reporting processes and internal controls. By identifying weaknesses or deficiencies, businesses can take corrective action to address them and strengthen their financial reporting practices. This can help prevent errors or fraud in the future, something which can be costly to the business and its reputation.

The FRC requires all auditors to follow a strict code of ethics and adhere to auditing standards. This ensures that audits are conducted in a consistent and objective manner, which helps maintain the integrity of the financial reporting process.

Overall, audits are a vital tool for businesses operating in the United Kingdom. They provide assurance to stakeholders, help identify areas for improvement, and ensure compliance with legal and regulatory requirements. By investing in an audit, businesses can improve their financial reporting practices, enhance their reputation, and ultimately drive long-term success.

Criteria for businesses Audits

The criteria for businesses that require an audit is determined by the Companies Act 2006, which sets out the thresholds for determining whether a company is exempt from audit.

A company that meets at least two of the following criteria is required to be audited:

Turnover of more than £10.2 million
Assets worth more than £5.1 million
More than 50 employees on average

Certain types of businesses are not exempt from audit, regardless of their size or turnover. These include:

Public limited companies (PLCs)
Companies that are subsidiaries of a public limited company
Financial services companies, such as banks and insurance companies
Charities and other non-profit organizations that meet certain size thresholds

Voluntary Audits

It is important to note that even if a business is exempt from an audit, it may still choose to have an audit voluntarily. There are various reasons why audits are undertaken, such as enhancing the company’s reputation, providing additional comfort to customers and suppliers regarding its financial standing or to to become a preferred supplier, whilst also leading to greater confidence by investors and financial institutions.

FRC to be replaced by ARGA

Following accounting irregularities at companies such as Carillion, Patisserie Valerie and BHS, the UK government set out plans for a new regulatory body to replace the FRC. The Audit Reporting and Governance Authority (ARGA) was expected to be fully implemented by April 2023, but is currently delayed without a clear timetable of when it will be operational.

It’s always advisable to seek professional advice from a qualified accountant or auditor to determine whether a business is exempt from audit or other reviews, as the rules and regulations can be complex and subject to change.

For detailed advice and guidance on any Audit & Assurance matters, please get in touch with our Audit team on 0121 633 2000.

Behind every successful business, there's a great accountant

onslo.rahman@friendpartnership.com (Onslo Rahman) — Sat, 06 May 2023 10:16:15 GMT

A great firm of accountants will play a crucial role in the company's financial success. In today's dynamic business environment, every business needs a skilled and experienced firm of accountants to manage their finances, analyse financial data, and provide sound financial advice.

The importance of having a great accountancy firm cannot be overstated. Your accountants are not just number crunchers but an essential part of the management team that helps make strategic decisions. They are there to help your business navigate complex financial regulations, minimise tax liabilities, and manage cash flow.

Accountants are responsible for recording and maintaining accurate financial records that provide insight into your company's financial health. They are also responsible for preparing financial statements, including balance sheets, income statements, and cash flow statements. These documents are essential for understanding your company's profitability, liquidity, and solvency.

More than financial reporting

Your accountant's role goes beyond financial reporting. They help your business analyse financial data to identify areas for improvement, make informed decisions, and manage risks. They understand your business plan and manage budgets, forecast financial performance, and identify potential cost savings.

In addition to financial analysis and reporting, accountants also play a critical role in tax planning and compliance. They help your business understand the tax implications of financial decisions and ensure compliance with complex tax laws and regulations. They also help your business identify opportunities to minimise its tax liabilities and advise on tax incentives and reliefs which are available.

A great accountant is also an invaluable asset when it comes to raising capital. They can prepare financial reports and projections that are essential to your business for securing loans or attracting investors. They can also help your business navigate the complex world of finance and investment to identify the best opportunities for growth.

A quality accountant is essential for the success of any business. Whether you're a small startup or a large corporation, having a skilled and experienced firm of accountants can help you make informed decisions, manage risks, and achieve your financial goals.

So, if you are considering starting a business or taking your existing business to the next level, make sure you have a great accountant on your team.

For detailed advice and guidance on any accounting or business matters, do not hesitate to get in touch.

Premier League Clubs & Players Avoid Tax By Not Declaring Benefits-in-kind On Agent Fees

onslo.rahman@friendpartnership.com (Onslo Rahman) — Thu, 27 Apr 2023 10:08:04 GMT

When footballers move from one club to another or choose to renegotiate a contract with their current club they will often be represented by their agent. More often than not these days, the players’ agents will also represent the club in these negotiations through the use of so-called “dual representation contracts”.

In the UK, the Football Association (FA) has regulations in place to govern the conduct of agents, including a requirement for agents to act in the best interests of their clients and to avoid conflicts of interest. However, somewhat counterintuitively, dual representation contracts are still permitted under these regulations, providing the agent discloses the conflict of interest and obtains the informed consent of both parties.

Under most “dual representation” contracts, clubs and players split the cost of the agents’ fees equally (50:50). This may be the case even if the agent has done 90% of the work on behalf of the player and 10% on behalf of the club. HMRC is now targeting these dual representation contracts because it believes that they are being used to avoid tax and National Insurance.

How can this be? The agents are paying tax on their income. The club is paying all its taxes according to its profit and loss. The player is paying all their taxes on their salaries paid by their club; or are they?

HMRC believes that in many cases the player is actually avoiding a benefit in kind charge and the club is avoiding class 1a National Insurance.

What is Benefit-in-kind and how does dual representation result in a loss of tax to HMRC?

A Benefit In Kind (BIK) is a term used to describe a benefit an employee or director receives as a result of their employment which is not included in their normal salary or wages. BIKs can be in the form of cash or non-cash benefits. Most familiar will be the provision of a company car or private medical insurance.

A BIK is considered as income and is therefore subject to Income Tax and National Insurance contributions (NICs). The value of the BIK is calculated based on the cost to the employer of providing the benefit which then forms part of the employee’s taxable income.

Employers are required to report the value of any BIK provided to their employees annually on form P11D.

As an example of where Footballers and Clubs may be avoiding tax:

Let us say that a player has enlisted an agent to secure a £10m contract with a Premier League team, and the agent is paid £1m for those services. In many dual representation contracts, the agents fee will be split 50:50 between the player and the club even if the agent performed 90% of the work on behalf of the player.

The tax and National Insurance paid in the above example have actually been underpaid for the following reason.

If the agent has done 90% of the work on behalf of the player and the agent is paid a total of £1m, the players’ contribution should have been £900k as opposed to £500k. There is certainly nothing wrong in the club paying the agent £400k on the players’ behalf on top of their own contribution, however this £400k now becomes a taxable benefit because it is a liability of the player which has been borne by his employer.

In this scenario, the correct treatment would be for the club to provide the player with a form P11D showing a benefit in kind of £400,000 which the player would include on his self-assessment tax return. That benefit in kind would be liable to income tax at 45% (bearing in mind the level of remuneration for most footballers). The club would have a class 1a National Insurance liability at 13.8%

What has HMRC done to ensure the correct tax and National Insurance is paid?

Football clubs are expected to retain records of fees paid to agents and how they were split with players. They are also required to keep detailed records of the services the agents render to the club and player.

If the fees are split 50:50, clubs must determine what proportion of the payment they have made to the agent should be treated as a benefit in kind.

Advice and guidance on Benefit-in-kind

For detailed advice and guidance on benefit-in-kind and other employer & employee tax liabilities, please contact David Gillies at Friend Partnership .

You can call David on 0121 633 2007 or contact him by email at david.gillies@friendllp.com

Changes to the Research & Development tax relief schemes (Spring 2023 Budget)

onslo.rahman@friendpartnership.com (Onslo Rahman) — Thu, 20 Apr 2023 10:04:45 GMT

The government encourages R&D via two different schemes:

What are the changes to the R&D schemes?

Research and Development Expenditure Credit , a taxable expenditure credit previously paid at 13% will increase to 20% of expenditure from 1 April 2023.

Small and Medium Enterprise “enhanced expenditure” scheme , the additional deduction for qualifying revenue expenditure decreases from 130% to 86%. Meaning that each £100 spent is treated as £186 for tax purposes, rather than £230 from 1 April 2023.

The SME scheme which allows loss-making companies to surrender their loss relating to R&D in exchange for a payable tax credit will see this credit reduced from 14.5% to 10%. For example, a loss-making company with, say, £20,000 of qualifying R&D expenditure, will see its payable tax credit reduce from £6,670 to £3,720 as a result of these changes.

It was also announced that a new credit rate of 14.5% will also be available to SME loss-making companies whose R&D expenditure constitutes at least 40% of total expenditure . Qualifying companies will be able to claim a payable credit at the higher rate for qualifying R&D expenditure, instead of the new 10% credit rate under the existing SME scheme.

Legislation of new reforms

The government will legislate in the Finance Act 2023 to reform the R&D reliefs. The legislation will apply generally to accounting periods starting on or after 1 April 2023. The reforms include a requirement to provide additional information. This will apply to all claims made on or after 1 August 2023.

The changes include:

The creation of two new categories of qualifying expenditure for R&D tax relief: data licences and cloud computing services .
Mandating companies to inform HMRC of their intention to make a claim for R&D tax relief using a new digital form within 6 months of the end of the accounting period in which the expenditure is incurred. Allowing HMRC to perform more upfront compliance checks on new claimants. (Companies that have claimed R&D tax reliefs in any of the previous three years will be exempted from this requirement)

Other changes

The previously announced restriction on some overseas expenditure will now come into effect from 1 April 2024 instead of 1 April 2023.

For detailed advice and guidance on either Research & Development scheme, please contact David Gillies at Friend Partnership.

You can call David on 0121 633 2007 or contact him by email at david.gillies@friendllp.com

What are the different types of Capital Allowances and how can they benefit my business?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Thu, 06 Apr 2023 15:52:07 GMT

Capital allowances are tax deductions that can be claimed on certain types of capital expenditure. Capital allowances reduce taxable profits, reducing the amount of tax a business needs to pay.

In the United Kingdom capital allowances can take the form of an annual “writing down allowance” which writes off the capital expenditure over the life of the asset. However, of more value to companies and businesses are the Annual Investment Allowance and other first year allowances. These allow the cost of qualifying capital expenditure to be deducted from taxable profits in the year that it is incurred.

First Year Allowances include:

Annual Investment Allowance (AIA) ; permits businesses to deduct the full purchase value of qualifying assets from their profits before tax. The AIA limit is currently set at £1 million per year.
The Annual Investment Allowance is available for limited companies, Limited Liability Partnerships, ordinary Partnerships and Sole Traders.

Super-deduction ; permits companies to deduct 130% of the costs of assets from their profits before tax. Assets must be from the “Main Rate Pool”, such as equipment, machinery It cannot be claimed on second-hand assets or leased assets
The Super-deduction is only available for expenditure up to 31 March 2023.
The Super-deduction can only be claimed by companies subject to Corporation Tax. It cannot be claimed by partnerships and other unincorporated businesses.

Special Rate Allowance ; permits companies to deduct 50% of the costs of assets from their profits before tax. Assets must be from the “Special Rate Pool” such as items deemed to have a longer useful life or a low residual value.
The Special Rate Allowance which was due to expire on 31March 2023, will continue for a further 3 years to 31 March 2026.
This Special Rate allowance can only be claimed by companies subject to Corporation Tax.

Full Expensing ; a First Year Allowance that replaces the “Super-deduction” as of 1 April 2023. Permitting companies to deduct 100% of the costs of assets from their profits before tax. Assets that qualify for Full Expensing must be from the “Main Rate Pool”.
Full Expensing can only be claimed by companies subject to Corporation Tax.

Enhanced Capital Allowances (ECA ); are available for energy-saving and environmentally friendly technologies that are on the government’s Energy Technology List. They provide a 100% deduction for the cost of qualifying assets in the first year of purchase.
Enhanced Capital Allowances can only be claimed by companies subject to Corporation Tax.

Other types of Capital Allowances:

Writing Down Allowance (WDA) ; provides a tax deduction for the depreciation of capital assets over time. The percentage of the WDA depends on the type of asset and ranges from 6% to 18%.
Where other capital allowances do not apply, or where limits have already been reached, businesses are able to write down the costs or remaining costs of assets at the applied rate of 6% or 18% depending on whether the asset is in the special or main rate pool.
WDAs apply to all types of businesses such as, Limited Companies, Limited Liability Partnerships, ordinary Partnerships and Sole Traders.
Research and Development Allowances (RDA) ; provides a tax deduction for capital expenditure on certain types of R&D projects, such as scientific research or the development of new products.
There are separate schemes available depending on the size of the company.
RDAs are only applicable to companies subject to Corporation Tax.
Flat Rate Pooling ; is a simplified method of calculating capital allowances for small businesses. Instead of calculating the allowances for each asset, businesses can group their assets into a single pool and claim a fixed percentage allowance each year.
Flat Rate Pooling applies to all types of businesses such as, Limited Companies, Limited Liability Partnerships, ordinary Partnerships and Sole Traders.
Structures and Buildings Allowance ; may be available if you build, buy or lease a property that was signed off on or after 29 October 2018 and is used for a qualifying activity. Allowing the businesses to write down 3% (2% between October 2018 and April 2020) of the costs for a period of up to 33 and one third years
Structures and Buildings allowance applies to all types of businesses such as, Limited Companies, Limited Liability Partnerships, ordinary Partnerships and Sole Traders.

Why are capital allowances beneficial to businesses?

Overall, capital allowances, and particularly first year allowances, provide an important tax incentive for companies and other businesses to invest, which can help to drive there economic growth and competitiveness.

It is worth noting that the availability and amount of capital allowances often change so it is advisable to consult a specialist.

For detailed advice and guidance on Capital Allowances, please contact David Gillies at Friend Partnership.

You can call David on 0121 633 2007 or contact him by email at david.gillies@friendllp.com

What is “Full Expensing”?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Mon, 27 Mar 2023 15:45:58 GMT

The March 2021 Budget introduced the “Super Deduction” which was an enhanced capital allowance for qualifying expenditure on plant and machinery incurred by companies from 1 April 2021 to 31 March 2023.

Companies are still able to claim the super deduction on expenditure incurred up until 31st March 2023. It provides the following:

an enhanced allowance of 130% on investment in new plant and machinery which would ordinarily qualify for an 18% writing down allowance;
an allowance of 50% on new plant and machinery expenditure which would ordinarily qualify for only a 6% writing down allowance in the special rate pool (e.g. expenditure on integral plant in buildings).

At the 2023 Spring Budget , the Chancellor replaced the super-deduction with an unlimited 100% first-year allowance for qualifying new plant and machinery investment by companies, for the three years from 1 April 2023 to 31 March 2026. He called this “full expensing.” The chancellor also stated his intention to make this relief permanent as soon as it is prudent to do so.

For “special rate” plant and machinery there will be a 50% first-year allowance between 1 April 2023 to 31 March 2026.

Mitigating the rise of Corporation Tax

Full expensing has been brought in to help mitigate the rise of corporation tax from 19% to 25% from April 2023, with no upper limit on how much can be claimed. Because full expensing allows businesses to claim 100% of their investment for the year in which it takes place, the hope is that it will promote investment and stimulate economic growth.

Under full expensing, companies are able to immediately deduct the full cost of investment in new machinery, equipment, or other assets from their taxable profits, instead of having to depreciate the expenditure over a number of years. This will allow companies to reduce their tax liability in the short term, making investment more attractive and, potentially, increasing the amount of capital available for investment.

For “special rate” expenditure, which does not qualify for full expensing, a 50% first-year allowance can be claimed instead, subject to the same conditions that apply for full expensing. Meaning that a company can claim a deduction from taxable profits that is equal to 50% of their qualifying expenditure in the year that expenditure is incurred.

The balance of the special rate expenditure remaining after the 50% FYA allowance can be written down at the 6% special rate expenditure in subsequent accounting periods.

Full expensing is only available for limited companies. Unincorporated businesses investing in plant and machinery do not qualify. However, unincorporated businesses can still claim the Annual Investment Allowance which gives them a 100% deduction on qualifying expenditure up to £1 million.

What are the benefits of “Full Expensing”?

Full expensing is intended to incentivise companies to invest in new equipment and technology by reducing the upfront cost of investment. Such an incentive is designed to lead to increased investment and promote economic growth.
Investing in new equipment and technology will enable companies to increase their productivity and efficiency, leading to higher output and increased competitiveness.
Full expensing is designed to encourage innovation by providing companies with the financial resources to invest in new ideas and technologies; Leading to the development of new products and services and potentially creating new markets and economic opportunities.

Full expensing is designed to reduce the tax burden on companies, by freeing up financial resources for reinvestment.

Whilst full expensing will be attractive to larger companies, the jury is out as to what benefit it will provide for small and medium-sized companies

For detailed advice and guidance on Full Expensing, please contact David Gillies at Friend Partnership.

You can call David on 0121 633 2007 or contact him by email at david.gillies@friendllp.com

Spring Budget 2023 – An In-depth Look

onslo.rahman@friendpartnership.com (Onslo Rahman) — Mon, 06 Mar 2023 16:40:36 GMT

Hunt for growth

Jeremy Hunt opened his first full Budget speech by declaring that it was a ‘budget for growth’. He emphasised that this would be ‘long term, sustainable, healthy growth’; after all, Kwasi Kwarteng’s ill-fated September speech at the same despatch box was titled ‘the Growth Plan’. The Office for Budget Responsibility reported that there is unlikely to be any growth in 2023, but the UK is likely at least to avoid a recession.

After the turmoil of four Chancellors of the Exchequer and three fiscal statements in 2022, it was to be expected that Mr Hunt would try to avoid too many surprises. As usual, there was plenty of speculation about what he might do – some people hoped that better than expected tax revenues would encourage him to be generous.

Even so, there were some striking headlines on tax: the abolition of the limit on tax favoured pension savings and the introduction of unlimited 100% deductions against profits for company investment in new plant were more generous than most predictions. There were measures to encourage ‘economically inactive’ people back into the workforce, ranging from increasing the provision of free childcare to the introduction of ‘returnerships’ – apprenticeships for people over 50.

The announcement of significant tax changes several times a year, to apply from different dates, makes it hard to keep track of what is changing, when the changes will apply, and how they affect your finances. In this document we have set out the latest proposals and their impact, but also included some significant measures from other earlier announcements as a reminder of their importance. If you would like to discuss what it all means for you, we will be happy to help.

Significant points

Personal tax rates and allowances on income and capital gains, and National Insurance Contributions, confirmed for 2023/24 as announced in the Autumn Statement
Pension savings thresholds significantly increased: from 6 April 2023, Annual Allowance rises from £40,000 to £60,000 and Lifetime Allowance Charge is abolished; maximum tax-free lump sum remains 25% of Lifetime Allowance, i.e. £268,275
Confirmation of corporation tax rate increase from 19% to 25% from 1 April 2023 on profits over £250,000 and marginal rate of 26.5% on profits between £50,000 and £250,000
‘Super-deduction’ for plant and machinery bought by companies up to 31 March 2023 replaced by 100% first-year allowance for qualifying capital expenditure, without upper limit, for three years from 1 April 2023
Energy Price Guarantee retained at £2,500 for the average household for another 3 months to 30 June 2023
Significant expansion of free childcare provision to be phased in from April 2024

Download the full Spring Budget Summary report

Business Asset Disposal Relief

onslo.rahman@friendpartnership.com (Onslo Rahman) — Mon, 27 Feb 2023 16:30:57 GMT

Business Asset Disposal Relief (formerly Entrepreneurs Relief) allows individuals disposing of qualifying business or business assets to pay a rate of only 10% Capital Gains Tax on sales. This 10% rate of Capital Gains Tax compares favourably with the current main rate of 20%.

Who can claim Business Asset Disposal Relief?

If you are selling all or part of your business, and both of the following apply the date of sale, you will qualify for the relief:

you are a sole trader or a partner in a trading partnership
you have owned the business for at least 2 years

If you are selling shares or securities both of the following must apply for at least 2 years up to the date of sale in order for you to qualify for the relief:

you are an employee or office holder of the company (or one in the same group)
the company’s main activities are trading (rather than investment) – or it’s the holding company of a trading group
you hold at least 5% of the share capital and voting rights

Holders of shares acquired through an Enterprise Management Incentive scheme will qualify for the relief without the need to meet the 5% test, providing they held the original options and the shares for a combined period of 2 years.

Frequently Asked Questions

When can Business Asset Disposal Relief be claimed?

Business Asset Disposal Relief can be claimed when the business, or part of it,

is sold to another party
is placed into a solvent liquidation process
is part of a restructuring of a company’s shareholding (through a formal liquidation process)

When should you claim for Business Asset Disposal Relief?

A claim for relief can only be applied following the disposal of the business and/or your shareholding and must be submitted through your self-assessment tax return to HMRC by 31st January following the end of the tax year that the sale occurred.

For example,

if the business was sold in December 2022, the claim of relief must be submitted by 31st January 2024
If the business was sold in March 2023, the claim must be submitted by 31st January 2024.

As a contractor, am I eligible for Business Asset Disposal Relief?

If you are a contractor, who is NOT operating under an umbrella company, you can qualify for relief if:

you work through your own limited company as the company’s sole director and employee
If you work as a sole trader or a partner in a business

Am I eligible for Business Asset Disposal relief if I am closing down the business as opposed to selling it on?

If you dispose of all your assets within 3 years of closing down the business, then you may claim the relief.

Are there limits to how much relief I can claim under Business Asset Disposal Relief?

There is a lifetime limit which means that the relief can only be claimed on gains of up to £1m There is no limit to how many times you can claim before you reach this limit.

What should my next steps be if I am ready to sell my business in order to be as tax efficient as possible?

Claiming Business Asset Disposal Relief may not be the only tax efficient option available to you when selling/disposing of a business and its assets. This is particularly true when the disposal is to the next generation of a family business as part of succession planning. The disposal of a business always requires careful tax planning.

For detailed advice and guidance on business disposal or succession planning, please contact David Gillies at Friend Partnership.

You can call David on 0121 633 2007 or contact him by email at david.gillies@friendllp.com

Using Business Relief To Reduce Inheritance Tax

onslo.rahman@friendpartnership.com (Onslo Rahman) — Mon, 06 Feb 2023 16:26:15 GMT

Inheritance Tax is a tax charged on the value of a person’s estate at the date of his or her death. The rate of inheritance tax on a deceased estate is currently 40%. There can sometimes be Inheritance Tax payable on lifetime gifts, such as gifts into trusts. The rate at which inheritance tax is levied on lifetime gifts is 20%.

Although there are valuable Inheritance Tax exemptions, ( most notably the exemption for assets transferred to a spouse or civil partner either during lifetime or death ) and there are also nil rate bands which can remove significant value from exposure to Inheritance Tax, these can easily be used up by the value of the family home leaving other assets at the mercy of the taxman.

With this in mind, it is important to be aware of other reliefs which are available to reduce Inheritance Tax liabilities. The two which will be most familiar are Business Relief and Agricultural Relief. This article will examine the main features of Business Relief.

What is Business Relief for Inheritance Tax?

The value of a business, share of a business, or shares in an unquoted trading company, is included in an estate for Inheritance Tax purposes., However Business Relief (often also referred to as Business Property Relief for Inheritance Tax) can apply to business assets. The effect of the relief will be to remove either 50% or 100% of the value of the business asset from the charge to Inheritance Tax. It is important to be aware that the relief applies to gifts made during lifetime as well as deceased estates.

Proper planning can help to maximise the benefit of Business Relief.

What qualifies for Business Relief?

100% Business Relief can be claimed on a trading business or interest in a trading business or on shares held in an unquoted trading company
50% Business Relief can be claimed on:
shares controlling more than 50% of the voting rights in a listed trading company
land, buildings, or machinery owned by the deceased and used in a pleading business he or she controlled or was a partner in

What doesn’t qualify for Business Relief for Inheritance Tax

You can’t claim Business Relief if the –

Business or asset was not owned by the deceased for at least at least 2 years prior to the date of death or the date on which the lifetime gift is made.

Business Relief it is not available if the –

Business:

mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments
is a not-for-profit organisation
is subject to a binding contract for sale, unless the sale is to a company that will carry on the business and the estate will be paid mainly in shares of that company
is being wound up, unless this is part of a process to allow the business of the company to carry on

Business Relief is also not available if the –

Asset:

also qualifies for Agricultural Relief or wasn’t used mainly for business in the 2 years before it was either passed on as a lifetime gift or as a transfer on death
is an “excepted asset”

What is an excepted asset?

HMRC examine whether an asset – whether it be excess cash, “private” property or other such “personal” assets – is being held within the trading company or trading business solely to shelter it from liability of Inheritance Tax as a business asset. The holding of such assets not used wholly or mainly for business purposes will be excepted from Business Relief.

Quite often businesses choose to retain heavy cash balances for what appear to be legitimate business purposes such as a buffer for when times may get bad, however the courts have determined that unless there is a specific future purpose for which the excess cash is earmarked, Business Relief will not apply to it. Proper planning is particularly important in this area.

Business Relief planning?

For detailed advice and guidance on all Inheritance Tax matters, please contact David Gillies at Friend Partnership.

You can call David on 0121 633 2007 or contact him by email at david.gillies@friendllp.com

Existing Energy Support for Businesses To End

onslo.rahman@friendpartnership.com (Onslo Rahman) — Fri, 27 Jan 2023 16:18:16 GMT

With the current Energy Bills Discount for businesses expiring, what support is being offered beyond March 31st 2023

Having previously said that the unprecedented support was “time-limited”, HM Treasury announced that the £18.4bn, six-month energy support scheme was to end for businesses, to be replaced by a less generous £5.5bn energy bills support scheme running until 31st March 2024.

The energy support scheme was mainly used by businesses, charities, schools and other public sector organisations after it was first launched in September 2022, after gas prices were driven up by the war in Ukraine.

Although wholesale prices are now back to below the level it was before Russia’s invasion, it still remains higher than what it was in the months prior.

What will the new Energy Bill Discount Scheme look like

For eligible non-domestic customers who have a contract with a licensed energy supplier, the government has announced the following support from 1st April 2023 to 31st March 2024:

All eligible non-domestic customers who have a contract with a licensed energy supplier will see a unit discount for gas automatically applied of up to £6.97/MWh (0.697p/KWh)
All eligible non-domestic customers who have a contract with a licensed energy supplier will see a unit discount for electricity automatically applied of up to £19.61/MWh (1.961p/KWh)

This is subject to a wholesale price threshold, set with reference to the support provided for domestic consumers, of £107/MWh (10.7p/KWh for gas and £302/MWh (30.2p/KWh) for electricity, meaning that businesses experiencing energy costs below this level will not receive any support

For energy and trade intensive industries (ETII), the government has announced:

These businesses will receive a discount reflecting the difference between a price threshold and the relevant wholesale price.
The price threshold for the scheme will be £99/MWh (9.9p/KWh) for gas and £185/MWh (18.5p/KWh) for electricity.
This discount will only apply to 70% of energy volumes and will be subject to a ‘maximum discount’ of £40.0/MWh for gas and £89.1/MWh for electricity.

Businesses may need to register for the higher level of ETII support and details on how to apply will be released in due course. Energy and Trade Intensive Industries in scope of the additional support are listed here List of sectors eligible for the Energy and Trade Intensive Industries (“ETII”) scheme

What has HM Treasury said about the lower levels of support

HM Treasury has said that the lower level of support “strikes a balance between supporting businesses over the next 12 months and limiting taxpayer’s exposure to volatile energy markets”. Whilst also helping those “locked into contracts signed before recent substantial falls in the wholesale price manage their costs and provide others with reassurance against the risk of prices rises again”.

Another deferral to the mandatory implementation of Making Tax Digital for Income Tax Self Assessment (MTD ITSA)

onslo.rahman@friendpartnership.com (Onslo Rahman) — Fri, 06 Jan 2023 16:10:01 GMT

Understanding that self-employed individuals and landlords are currently facing a challenging economic environment, and the transition to Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) represents a significant change to taxpayers and HMRC for how self-employment and property income is reported, the government is giving a longer period to prepare for MTD.

The mandatory use of software is therefore being phased in from April 2026, rather than April 2024.

Self employed individuals and landlords with an income of more than £50,000 will be required to submit their filings through compatible MTD for ITSA software from April 2026
Self employed individuals and landlords with an income between £30,000 and £50,000 will be required to submit their filings through compatible MTD for ITSA software from April 2027
Self employed individuals and landlords with an income of less than £30,000 can join voluntarily before these dates.
Partnerships who were also due to be mandated for MTD for ITSA have now had the start date deferred with no new start date confirmed as of yet.

What about smaller businesses and Partnerships?

The government has also announced a review into the needs of smaller businesses, and particularly those under the £30,000 income threshold. The review will consider how MTD for ITSA can be shaped to meet the needs of these smaller businesses and the best way for them to fulfil their Income Tax obligations. It will also inform the approach for any further roll out of MTD for ITSA after April 2027.

Mandation of MTD for ITSA will not be extended to general partnerships in 2025 as previously announced. The government remains committed to introducing MTD for ITSA to partnerships in line with its vision set out in the government’s tax administration strategy .

Victoria Atkins , Financial Secretary to the Treasury, said:

It is right to take the time to work together to maximise the benefits of Making Tax Digital for small businesses by implementing the change gradually. It is important to ensure this works for everyone: taxpayers, tax agents, software developers, as well as HMRC.

Smaller businesses in particular should be able to experience the benefits of increased digitalisation of Income Tax in a way which meets their needs. That is why we are also today announcing a review to establish the best way to achieve this.

Jim Harra , Chief Executive and First Permanent Secretary, HM Revenue and Customs, said:

HMRC remains committed to the delivery of Making Tax Digital as a critical part of our strategy for digitalising and modernising the tax system, but we want to make sure we get this right and deliver it effectively.

A phased approach to mandating MTD for Income Tax will allow us to work together with our partners to make sure that our self-employed and landlord customers can make the most of the opportunities this will bring.

ICAEW has also stated:

Over the last several months it had become clear that a deferral was inevitable, given the very small numbers of taxpayers in the restricted pilot and a long list of problems with digitalising tax reporting of trading and property income. These problems include the following.

A lack of awareness of the MTD ITSA requirements among taxpayers – particularly those with a single source of property income.
The lack of functionality to allow taxpayers to appoint more than one agent (eg, a bookkeeper to handle quarterly updates and an agent that completes the year-end processes).
The lack of adequate solutions for the complexity associated with jointly-held property.
The lack of a design solution for non-tax year accounting periods.
The design around amendments and corrections and how they are made. A practical design for fitting together the various reporting elements is required. This includes quarterly updates, business source adjustable summary (BSAS)/end of period statement (EOPS), and final declarations. A design where quarterly submissions are of cumulative year-to-date figures could help to resolve this.
Taxpayers being resistant to using commercial software. This is partly due to its cost, but also because many taxpayers use their mobile phone for their simple record keeping. ICAEW is currently unaware of any product being designed to address this. It is not yet clear whether the software market will deliver free (as opposed to freemium) products.
The capacity of HMRC, software developers, agents and taxpayers to deliver the change. ICAEW is particularly concerned about the customer support that HMRC and the software industry will be able to deliver and the impact on its member firms.

The announcement relates to MTD for ITSA only. Making Tax Digital for VAT has already been implemented.

Source: HMRC

For further information and guidance of MTD for ITSA you can contact us on a no obligation basis.

Changes to Dividend income – Autumn Statement 2022

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 14 Dec 2022 15:54:57 GMT

In March 2022 when the Chancellor at the time, Rishi Sunak delivered his Spring Budget, the tax rates on dividend income over £2,000 were increased to correspond to increases in National Insurance Contributions (NICs) taking effect from 6th April 2022 and the Health and Social Care Levy (HSCL)

that was to have applied to earned income from 6th April 2023.

The ordinary dividend rate, paid by basic rate taxpayers, rose from 7.5% to 8.75%
The upper rate (for higher rate taxpayers) rose from 32.5% to 33.75%
The additional rate (for those with income above £150,000 a year) rose from 38.1% to 39.35%

These rates apply across the UK for the 2022/23 tax year.

In September 2022, the then Chancellor Kwasi Kwarteng proposed to reverse these increases in dividend taxation with effect from April 2023, as well as cancelling the HSCL altogether and reversing the increases in NICs from 6th November 2022.

In November 2022, the current chancellor Jeremy Hunt delivered his Autumn Statement.

The cancellation of HSCL and the reductions in NICs were the most significant parts of Mr Kwarteng’s mini-Budget to survive; however, the dividend rates will remain at their current higher levels in 2023/24 and for the foreseeable future, albeit a minor change in the fact that the additional rate of 39.35% will apply to those with total income above £125,140 (as opposed to £150,000) in 2023/24 reducing the threshold to that of the Income Tax additional rate threshold reduction also announced.

In addition to this, the chancellor announced that the dividend allowance will be reduced.

What is the dividend allowance going forward?

At its introduction in April 2016 it was set at £5,000. In April 2018 and up until this year £2,000. It will now fall further:

£1,000 on 6th April 2023
£500 on 6th April 2024

The change in the allowance will raise about £0.5 billion to the Treasury in the first year and nearly £1 billion a year after that, roughly the same as the reduction in the 45% rate threshold.

A company owner who takes profits mainly in the form of dividends, and has total income between £50,000 and £125,140, will pay £337 more tax in 2023/24 as a result of this change. However, the reduction in the allowance not only means that a company owner will pay more tax, but the reduction in the allowance will also require many more people to file self-assessment tax returns to settle what will often be a relatively small tax liability.

Download the full Autumn Statement 2022 report

R&D Tax Credit Fraud Is On The Rise

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 07 Dec 2022 15:50:41 GMT

Lord Turnbull, former Cabinet Secretary under PM Tony Blair and current crossbench peer in the House of Lords says of the recent spike in claims of tax credits “This is a major financial scandal…What we have is a system which is basically a help-yourself”.

“There is no way that R&D has grown 50% compound for 6 years, that is completely implausible”

The Research and Development Tax Credit system was introduced in 2000 and is a means of encouraging innovation in the UK by offering companies a tax incentive to do so.

In the financial year 2019-2020, £7.5 billion was claimed through nearly 90,000 claims This represents an increase of approximately 15% increase on the previous year.

This increase can be partly attributed to more SMEs being aware of the scheme and whose accountant/advisors had previously no knowledge or expertise in. However, it is also certainly down to fraudulent claims, either intentional or through poor advice from by R&D tax claims companies.

The Chartered Institute of Taxation highlights the ineffective oversight in the past, leading to too many claims getting through that shouldn’t have.

HMRC is pushing through reforms intended to cut down on the abuse, whilst also preventing significant organised criminal attacks and fraudulent abuse of the tax relief.

Where can you get advice on a claim?

Friend Partnership has been dealing with R&D tax credits since their introduction over 20 years ago. We have gained a detailed understanding of the R&D tax credit system. This depth of knowledge and experience, coupled with our successful track record defending clients from HMRC enquiries in all areas of tax and accounting.

If your organisation has recently received communication from HMRC about a claim previously made, or you would simply like to explore whether your company qualifies, you can contact us on a no obligation basis.

Changes to the Research and Development Schemes – Autumn Statement 2022

onslo.rahman@friendpartnership.com (Onslo Rahman) — Thu, 24 Nov 2022 15:38:36 GMT

The Corporation Tax system encourages R&D via two different schemes.

The enhanced expenditure scheme for small and medium-sized enterprises (SMEs)
The RDEC (Research & Development Expenditure Credit) for large companies

At present the enhanced expenditure scheme for small and medium-sized enterprises increases qualifying expenditure by 130%, so that for every £100 spent, the company enjoys a deduction of £230 from taxable profits. When applied, this may create a loss or further increase a loss for the business. Where there are no other profits against which a loss generated by R&D expenditure can be set, the loss may be surrendered to HMRC in exchange for a payable tax credit at 14.5%.

This scheme has been particularly useful to start-up companies and those struggling to make profits in their early years.

From April 2023 the additional deduction will decrease from 130% to 86% and the payable credit rate will decrease from 14.5% to 10%. For a loss-making company with, say, £20,000 of qualifying R&D expenditure, the payable tax credit will reduce from £6,670 to £3,720.

At present the RDEC scheme for large companies allow a taxable expenditure credit for qualifying R&D at 13%. This will be boosted to 20% from April 2023.

These changes appear to be the start of a process of moving all companies to an RDEC-like scheme, something on which the government intends to consult.

It is also worthwhile noting that the Research and Development Expenditure Credit can also be claimed by SME’s and large companies alike who have been subcontracted to do R&D work by a large company.

Expansion of qualifying expenditure

As previously announced, the R&D tax reliefs will also be reformed by expanding qualifying expenditure to include data and cloud costs, refocusing support towards innovation in the UK, targeting abuse and improving compliance.

Download the full Autumn Statement 2022 report

Autumn Statement 2022 – Full In Depth Look

onslo.rahman@friendpartnership.com (Onslo Rahman) — Thu, 17 Nov 2022 15:25:26 GMT

When the Chancellor of the Exchequer makes a fiscal statement to Parliament – whether it is called a Budget, a mini-Budget or an Autumn Statement – the headlines are in the speech and the details are in the Treasury Red Book that is published on the internet when he sits down. In normal times, it is hard enough to keep track of changes that come in immediately, changes that are coming soon, and proposals that are on the horizon.

This year is not normal. There have been four Chancellors and three fiscal statements. The challenge following Jeremy Hunt’s first Autumn Statement has been to identify what, if anything, of Kwasi Kwarteng’s proposals survived, as well as understanding the steps he has taken to fill the holes in the government coffers that the ill-fated September ‘Plan for Growth’ helped to create.

Sometimes an awareness of what has not been said can be important too.

This document summarises the main changes that were announced by Mr Hunt, as well as setting out what has survived and what has been cancelled from the September plan, and points out some of the rumoured possibilities that have come to nothing.

One of Mr Hunt’s tax-raising measures is a promise to freeze the main thresholds for income tax and inheritance tax for the next five years. That may be something of a relief after a year in which three different sets of National Insurance rates have applied, but the effects of inflation will draw more people into paying these taxes and more of them into liability for higher rates. There are also more obvious tax rises through reductions in reliefs and exemptions and a lowering of the point at which the top rate of income tax applies.

Significant points

basic rate of income tax to remain at 20% and additional rate at 45% for 2023/24
most tax rate bands frozen at current levels until 5 April 2028
45% rate will apply to income above £125,140 in 2023/24
dividend income and capital gains to be more heavily taxed from 2023/24
no changes announced to pension tax reliefs
inheritance tax thresholds now frozen until 5 April 2028
corporation tax rate increase to 25% from 1 April 2023 restored
VAT registration threshold frozen at £85,000 for two more years, to 31 March 2026
affirmation of support for the state pension ‘triple lock’ with an inflation-linked increase from April 2023

Download the full Autumn Statement 2022 report

Stamp Duty Land Tax: Corporate Bodies

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 19 Oct 2022 15:46:35 GMT

Stamp Duty Land Tax (SDLT) is charged at 15% on residential properties costing more than £500,000 bought by certain corporate bodies or ‘non-natural persons’. These include:

companies
partnerships where one or more of the partners is a company
collective investment schemes

The 15% rate does not apply to residential property bought by a company that is acting as a trustee of a settlement.

These bodies may also need to pay Annual Tax on Enveloped Dwellings .

Relief from the 15% higher rate charge

Relief may be available if the property is:

used in a property rental business
bought by a property developer or trader
used in a trade involving making the property available to the public
bought by a financial institution in the course of lending
occupied by employees of the purchaser
a farmhouse
bought by a qualifying housing co-operative

You must meet the conditions that apply for each relief.

The ‘Homes for Ukraine’ Sponsorship Scheme and relief from the 15% higher rate charge

If you already have relief from the 15% higher rate charge at the time you buy the property, you can continue to get this if the property is used under the ‘Homes for Ukraine’ Sponsorship Scheme.

Relief will not be withdrawn if either:

the property is occupied by refugees under the scheme

you’re taking steps, without delay, to use the property as part of the scheme

Additional surcharges

There is a 3% surcharge on residential properties bought by companies. Find more information about higher rates of Stamp Duty Land Tax .

There is also a 2% surcharge on residential properties in England and Northern Ireland bought by non-UK residents on or after 1 April 2021. The 2% surcharge applies on top of all other residential rates of SDLT including the 3% higher rate surcharge.

More information is available on the rates for non-UK residents.

Source: HMRC

A Brief summary of “Fiscal Event” delivered by the Chancellor

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 05 Oct 2022 13:51:21 GMT

Business Support and Growth

The Chancellor has stated that growth is not as high as it should be and “This has made it harder to pay for public services requiring taxes to rise, in turn higher taxes on capital and higher taxes on labour, have lowered returns on investment and work, reducing economic incentives and hampering growth still further,”

Investment Zones

There will be up to 40 new investment zones created in areas such as Somerset, Tees Valley and the West Midlands. These zones will benefit from relaxed planning rules, reduced business taxes (no business rates to pay), An employers National Insurance contribution reduction on any new employees paid up to £50,000 as well as accelerated tax reliefs for buildings and structures and 100% tax relief on investments in plant and machinery and no Stamp Duty Land Tax on purchases of land and buildings for commercial or new residential developments.

Income Tax

The basic rate of income tax will be cut to 19% in April 2023.. This brings forward Rishi Sunak’s pledge to reduce it to 19% in 2024 –

Corporation Tax

The planned corporation tax rise to 25% in April 2023 has been scrapped . Corporation Tax will remain at the current 19% indefinitely. The Chancellor stated that low business taxes encourage investment

Stamp Duty Land Tax

No stamp duty will be paid on the first £250,000 of a residential property; raising the threshold from £125,000.

For first-time buyers the nil rate threshold will be £425,00, up from £300,000 and the level at which the 5% rate for those purchases rises from £500,000 to £625,000

IR35

The IR35 reforms brought in 2017 and 2020 which place the burden of liability on businesses instead of off-payroll contractors will be repealed from April 6, 2023

Annual Investment Allowance

The Annual Investment Allowance which was raised temporarily from £200,000 to £1,000,000 and which was due to go back down next year, will now stay at £1,000,000 indefinitely, bringing more certainty to businesses and encouraging them to invest further in plant and machinery.

Seed Enterprise & Investment Scheme/Enterprise Investment Scheme

With no specific detail today, the chancellor announced that the investment level figure will rise to allow investors to provide seed capital to new and recently formed businesses meeting its criteria. The 2025 “sunset” for EIS and SEIS has been delayed.

Cap on Bankers’ Bonuses

As expected the Chancellor has scrapped the cap on bankers’ bonuses as “higher base pay pushing up banks’ fixed costs makes the UK less attractive than the US or Asia.”

It is worth noting that the cap in the EU is twice the bankers’ annual salary

Duty rates for beer, cider, wine, and spirits

The planned increases in the duty rates for beer, for cider, for wine, and for spirits will all be cancelled.

The Rabbit Out Of The Hat

A notable decision to scrap the additional rate of income tax has come out of the blue. The highest rate of income tax is currently 45% and paid by those with income over £150,000. From April 2023 there will only be a single higher rate of 40% paid on income over £50,271 and 32.5% for dividends over that threshold.

Other notable statements in today’s mini-Budget

VAT-Free Shopping

The government will introduce VAT free shopping for tourists. This brings back the policy of tax free shopping for international visitors that was scrapped in January 2021.

Office Of Tax Simplification

In what was another surprise statement by the Chancellor today, the Office of Tax Simplification will be abolished in order to “boost economic growth and simplify the tax system

Capital Investment in Solar Energy Finally Makes Financial Sense

onslo.rahman@friendpartnership.com (Onslo Rahman) — Mon, 19 Sep 2022 13:45:12 GMT

The increase in energy prices has prompted more and more businesses to consider whether it makes sense to invest in solar panels. The practicalities are simple enough. All that is required is to determine whether there is sufficient roof space on the commercial premises to start generating solar energy.

Owing to advancements in solar technology over the past decade, not only are solar panels much more efficient than they used to be, the costs have also fallen significantly, leading to an increase in the number of businesses installing them.

Although costs have fallen, they are still a significant barrier for a lot more businesses who might otherwise have considered solar panels as an option. Costs notwithstanding it would previously have taken many years to recoup the initial outlay and see the true benefits of free energy.

This is no longer the case.

Given the recent energy price rises, it is time to consider seriously investing in solar. It now makes much more financial sense. Obviously, cost is not the only factor in deciding to move to renewable energy. By generating their own solar energy, businesses are demonstrating their green credentials.

Does installing solar panels for businesses make financial sense?

By way of an example, let’s take a medium sized business that uses 40,000 KWh of electricity per year.

Prior to the recent energy price rises a typical business would have paid approximately £0.17 per KWh (plus daily standing charge). As a result, it would pay approximately £7,000 per year for electricity.

Under the current increased rates, the same business would be paying approximately £0.45 per KWh (which is still rising), meaning that it would pay in excess of £18,000 per year for electricity.

A business using about 40,000 KWh per year would potentially require a solar panel system costing approximately £60,000.

Prior to the energy price rises, that would have meant a return on investment in 8.6 years (a timeframe that could be off-putting). With the current costs of electricity, an investment of £60,000 would give a return in approximately 3.3 years. After this, in essence electricity usage is free, saving the business £18,000 annually (depending on the electricity costs at the time)

Are there any tax benefits for businesses installing solar panels?

Currently, the cost of installation of Solar Panels qualifies for the Annual Investment Allowance (AIA), meaning that a business can claim 100% of the costs of equipment and installation, up to the amount of £1 million against it’s taxable profits for the year.

Should the business have already reached it’s £1 million limit in the financial year, it could claim a 50% special rate First Year Allowance instead.

(As of the Chancellor’s 2023 Spring Budget the AIA amount has now been permanently set at £1 million)

Deciding to install solar power needs to be carefully thought out and costed. Given the current energy costs and the tax breaks available the benefits of solar are attractive.

One thing to certainly get advice on is whether you require planning permission to install solar panels.

In general, installing solar on the roof of a building doesn’t require planning permission providing it does not increase the height of the top line of your roof. However if the premises fall within an area of conservation, you will most likely require planning permission.

If you are planning on installing solar panels in the grounds of your property as opposed to the building itself, it is reasonably certain that you will require planning permission. It is always advisable to seek specialist advice on whether you require planning permission or not.

Engage with an Accountant

You should always speak to an accountant prior to any capital investment in your businesses. Accounting procedures surrounding Annual Investment Allowance can be complex. You should engage with a reputable firm of accountants who have detailed knowledge of legislation, and the experience in dealing with it. Find out more about the benefits of using a Chartered Accountant .

For further information and guidance on Capital Allowances such as Annual Investment Allowance and Super-deductions contact us here at Friend Partnership.

R&D Tax Relief reforms. What do they mean for your company?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Mon, 05 Sep 2022 15:45:02 GMT

Coming on the heels of the introduction of HMRC’s R&D taskforce, It comes as no surprise that the recently published draft R&D legislation includes many provisions to tackle abuse of the system.

HMRC is all too aware that some unscrupulous individuals have set themselves up as R&D specialists without any actual knowledge of the rules and the legislation that underpins them and without any expertise in that area. HMRC knows that there have been what they refer to as “abusive R&D claims” either as a result of negligence or dishonesty. Indeed, our clients tell us that they are regularly called by firms purporting to be R&D specialists who claim to be able to secure huge tax refunds for them. HMRC’s estimate of the loss due to incorrect or fraudulent claims tops £600 million.

What are the changes to R&D Tax Reliefs?

The legislation, which is due to come into effect on 1st April 2023, sets out a number of safeguards to prevent fraudulent activity.

All companies claiming R&D tax credit will be required to make submissions online (except for those companies that are exempt from filing a Company Tax Return online).
This will mean that HMRC are able to process claims faster.
All companies that have not previously made an R&D claim will need to inform HMRC in advance of making a claim.
This will allow HMRC to assess claimant companies’ business practices and whether the business genuinely undertakes R&D within the definition set out in the Department of Business, Innovation and Skills (“BIS”) guidelines.
All companies who make claims will need to declare and include the details of any agent/company that has or is advising them
Over the past few years, many firms have popped up claiming to be specialists and encouraging companies to make R&D claims. Some of these “specialist firms” have minimal knowledge of the BIS guidelines, or accounting procedures. They operate a fee structure that is based on a percentage of the claim amount. They will sometimes encourage businesses to make erroneous or overinflated claims. Collecting data on agents & firms operating in the R&D field has the potential to allow HMRC to identify the repeat offenders and reduce fraud.

Other key measures in the R&D Tax Relief white paper

The draft legislation also includes detailed changes to the rules governing subcontracted R&D work. In future, only subcontracted work carried out through a UK payroll will qualify for the relief. There will be some obvious exceptions to this rule.

Overseas “externally provided workers” (“EPWs”) can still qualify where there are material factors such as geography, environment, population or other conditions not present in the UK which are required for the research. Resulting in expenditure having to take place outside of the UK. There may also be regulatory or other legal requirements meaning that activities must take place overseas.

An amendment to the time limit for making a claim means that the deadline will change from the end of the current accounting period, to two years from the end of the current accounting period.

This will benefit more companies by giving them more time to make a claim and will assist HMRC’s new requirement to be informed in advance of a claim being made.

Engage with a proper Accountant

Accounting procedures surrounding R&D can be complex. It is always advisable to engage with a reputable firm of accountants with the knowledge of legislation, and the experience in dealing with R&D claims. Find out more about the benefits of using a Chartered Accountant .

For further information and guidance of either the Research & Development Expenditure Credit (RDEC) or the small or medium enterprises (SME) R&D relief contact us here at Friend Partnership.

Friend Partnership is a forward-thinking firm of accountants, business advisers, corporate finance and tax specialists. We act for entrepreneurial businesses and successful individuals on a national & international basis.

Research and Development Tax Relief Reform

onslo.rahman@friendpartnership.com (Onslo Rahman) — Fri, 19 Aug 2022 15:35:39 GMT

General description of the measure

Following the review of R&D tax reliefs launched at Budget 2021, the government announced the following measures, which will apply for accounting periods beginning on or after 1 April 2023.

Policy objective

The government has an ambitious target to raise total investment in research and development to 2.4% of UK GDP by 2027. R&D tax reliefs have a key role in incentivising this investment by reducing the costs of innovation. It is therefore important to ensure that the reliefs remain up-to-date, competitive and well-targeted. A brief, high-level statement of the policy rationale for this measure.

Extending qualifying expenditure

To incentivise R&D using modern computational approaches, the government is extending the scope of qualifying expenditures to include the costs of datasets and of cloud computing.

To further support cutting edge R&D, the government will make changes to the definition of R&D for the tax reliefs, to remove the exclusion of pure mathematics.

Refocusing the reliefs towards innovation in the UK

To ensure the maximum benefit to the UK from the spillovers of R&D activity incentivised by the reliefs, relief for subcontracted work and the cost of externally provided workers will be limited to focus it on UK activity. There will be some narrow exemptions where factors such as geography, environment, population or other conditions that are not present in the UK are required for research (for example, deep ocean research) and where there are regulatory or other legal requirements for certain activities to take place in specific territories (for example, clinical trials). The exemptions will not include cost, or workforce availability.

Tackling abuse and improving compliance

To tackle abuse of the reliefs, all claims to the R&D reliefs — either for a deduction or a tax credit — will in future have to be made digitally (except from those companies exempt from the requirement to deliver a Company Tax Return online)

These digital claims will have to break the costs down across qualifying categories and provide a brief description of the R&D. Each claim will need to be endorsed by a named senior officer of the company.

Companies will need to inform HMRC, in advance, that they plan to make a claim. They will need to do this, using a digital service, within 6 months of the end of the period to which the claim relates. Companies that have claimed in one of the preceding three periods will not need to pre-notify.

Claims will need to include details of any agent who has advised the company on compiling the claim.

Previously announced measures to address anomalies and unforeseen consequences

A number of changes will be made to correct anomalies and ensure the reliefs operate as intended. These include:

allowing companies to make or increase a claim for RDEC where HMRC makes certain types of assessment, as allowed by paragraphs 61 to 65 of Schedule 18 Finance Act 1998
allowing companies to claim RDEC instead where they had previously erroneously claimed SME relief and the time limit for amending claims has expired
clarifying that expenditure generally qualifies where a payment is made within two years of the end of the accounting period in which the expenditure was incurred
amending the time limit for making a claim to two years from the end of the period of account to which they relate. This will prevent companies which do not receive a notice to file, either because they fail to register or notify HMRC that they are dormant, from benefiting by having more time to make a claim
supporting businesses growing and transitioning from the SME scheme to RDEC, by providing that where an SME within a group exceeds the size thresholds for an SME, all companies in the group will retain SME status for one year afterwards — under current legislation, while the company itself retains its status, other companies in the same group lose their SME status straight away
amending the rule preventing relief for a company which is not a “going concern” so that where a company ceases to be going concern solely because of the transfer of a trade, and is otherwise viable, it may still claim
expanding the scope of rules in the Self Assessment legislation so that they can be used to recover overpaid SME payable tax credit and RDEC to allow HMRC to recover such amounts where the taxpayer made a mistake despite taking reasonable care

Further consequential measures

The following further changes are being made to ensure the reliefs operate as intended:

the level of National Insurance contributions made by a company on its employees’ and its own behalf feeds into the calculation of a company’s staffing costs, and potentially its payable credit cap, and so affects the amount of any R&D reliefs that it can claim. As the Health and Social Care Levy represents a new cost, sections of the R&D rules that currently refer only to ‘National Insurance contributions’ will be amended to also refer to the Health and Social Care Levy
the Patent Box regime uses R&D definitions of qualifying expenditure as part of its calculations — as this package of R&D changes expands the categories of qualifying expenditure to include data and cloud computing costs, the relevant sections of the Patent Box rules require consequential amendment

Background to the measure

Following the consultation, at Autumn Budget 2021, the government announced reforms to R&D tax reliefs and published a report in November 2021 setting out detail on a series of initial measures to reform the R&D tax relief system . These measures included the expansion of qualifying expenditures to cover data and some cloud computing costs, refocusing R&D relief on activity carried out in the UK and a package of measures to target abuse and improve compliance.

Following stakeholder feedback, Spring Statement 2022 announced further detail on these measures.

Recognising that there are cases where it is necessary to undertake R&D outside of the UK, the government announced that overseas subcontracted expenditure and the costs of overseas externally provided workers can still qualify where there are:

material factors such as geography, environment, population or other conditions that are not present in the UK and are required for the research, meaning expenditure must take place outside of the UK — for example, deep ocean research
regulatory or other legal requirements that activities must take place outside of the UK — for example, clinical trials

The government intends to include all cloud costs incurred directly for R&D in the scope of qualifying expenditure.

The government recognises the growing volume of R&D being undertaken which is underpinned by mathematics. To support this work, the definition of R&D for tax reliefs will be expanded to include all mathematics — clarifying in particular that ‘pure maths’ can qualify.

Source – HMRC

More information

For further information and guidance on Research & Development Tax Relief, through either the Research & Development Expenditure Credit (RDEC) or the small or medium enterprises (SME) R&D relief contact us here at Friend Partnership.

The Case For Keeping Corporation Tax Low

onslo.rahman@friendpartnership.com (Onslo Rahman) — Fri, 05 Aug 2022 15:26:51 GMT

We have so far seen the majority of candidates for the leadership of the Conservative Party and the next Prime Minister of the UK offering to cut taxes. Talk about tax cuts is inevitable when there is a leadership contest or a General Election.

High on the list of taxes talked about currently by candidates is the impending rise of the rate of Corporation Tax – currently 19% – which is due to rise to 25%. Several candidates have talked about cancelling the increase and keeping the current 19% rate or even reducing it to 15% in April 2023.

Historical rates of Corporation Tax in the UK

In 1980 under the premiership of Margaret Thatcher the rate of Corporation Tax was at 52%, reduced to 35% before John Major became Prime Minister.

By the time Tony Blair had become PM the rate had been reduced to 33% and then taken down further to 31% and 30%. When Gordon Brown became PM, the rate was again reduced to 28%.

Since the Conservative Party came into government in 2010 the Corporation Tax rate was reduced year on year from 28% down to 19% in 2017.

An economists point of view

Most economists agree that lower rates of business taxes lead to economic growth through further investment in capital expenditure and higher job creation.

In theory, although lower rates of corporation tax allow businesses to make more profit, which means its shareholders gain more through increased dividends, it does allow businesses to increase their spending in investment.

As any business owner/manager would tell you, they know what they need to do to grow their business. However, in order to make those investments they need to be able to raise those funds, and larger profits allow them to do this.

The more disposable income a company has or is expected to have the greater the chance of them investing in plant machinery, plant equipment, business vehicles, labour etc.

What many economists will also tell you is that if a cut in taxes for business is temporary, it is less effective in encouraging business owners/managers to make those investments. Instead they are much more likely to simply enjoy the profits from the tax breaks and this has little or no effect in growing the economy.

Capital Allowance Super-Deduction – Incentive For Investment

onslo.rahman@friendpartnership.com (Onslo Rahman) — Tue, 19 Jul 2022 14:59:33 GMT

The article below is partially outdated as on 15th March 2023, the Chancellor announced in his Spring Budget that the Super-deduction capital allowance would now be replaced with “Full Expensing” for the 3 years period from 1st April 2023 to 31st March 2026. However the special rate capital allowance will be extended for the same three year period

In March 2021 Chancellor, Rishi Sunak, announced a new Super-deduction and a First Year Allowance as a way of encouraging businesses to invest in new plant and machinery as well as long life and integral features, helping to further grow investment in the UK.

What are the Super Deduction and First Year Allowances?

The Super-deduction is a 130% first-year capital allowance that allows businesses to deduct 130% of the cost of qualifying expenditure against their taxable profits.

The First Year Allowance for qualifying special rate assets allows businesses to deduct 50% of the cost of qualifying long-life assets and integral features against their taxable profits.

What type of expenditure can be claimed?

The expenditure on plant and machinery that would qualify for the 130% deduction is exhaustive.

Examples of qualifying plant and machinery include:

Vehicles used for trading purposes i.e. trucks/lorries/vans
Construction vehicles and machinery
Agricultural machinery
Office furniture
Electric vehicle charging points
Foundry equipment
Refrigeration and kitchen equipment
Computer equipment and servers

The First Year Allowance for qualifying special rate assets includes machinery and equipment that is an integral feature to a building or structure, such as:

Solar panels
Lifts and escalators
Electrical systems
Heating systems

In order to qualify as capital investment, the plant and machinery must be new and is only applicable on expenditure between 1st April 2021 and 31st March 2023.

Who can claim the Super-deduction or Special Rate deduction?

The new super-deduction and special rate deductions are only applicable to companies who are liable to corporation tax. Unincorporated business such as sole traders, partnerships or LLPs cannot claim, however the Annual Investment Allowance (AIA) is still available to them.

What level of allowance can be claimed?

There is no limit on the amount of capital investment that can qualify for the super deduction or special rate deduction, unlike the Annual Investment Allowance which has a cap of £1m on qualifying expenditure.

What is the financial benefit of claiming the super-deduction tax allowance?

The allowance can be valuable to a great number of sectors such as agriculture, construction, restaurants and hotels, industries where plant and machinery comprising large value items is purchased.

For example, if a company chose to install several new electric vehicle charging points on their site at a cost of £150,000 and decided to claim the super-deduction, it would mean that the company could deduct £195,000 (130% of £150,000) from its taxable profits.

With a corporation tax rate of 19% this financial year (2022/23) it would result in a tax saving of £37,050.

Is it time your business considered bringing forward investment in new plant and machinery?

When deciding on the most tax-efficient way to deal with capital allowances, businesses will need to balance their needs and wishes against their current cash flow. This requires careful forecasting to ensure that your business makes the right decisions.

For help and advice on all capital allowance claims and tax implications on major capital expenditure contact us at Friend Partnership.

HMRC Tax Receipts 2021/22 – A quick breakdown and summary

onslo.rahman@friendpartnership.com (Onslo Rahman) — Tue, 05 Jul 2022 14:52:56 GMT

Latest HMRC tax receipts show that the UK Government has collected £718.2bn in the fiscal year 2021-22.

This is an increase of 23% compared to 2020-21 where tax receipts collected was £584.5bn and an increase of 13% compared to 2019-20 (pre-pandemic) levels where tax receipts were £633.4bn.

These are staggering figures, so soon after lockdown restrictions were lifted. Where exactly have the increases come from?

Income Tax receipts have seen an increase of 16% compared with 20/21 and a similar increase of 16% since 19/20. HMRC collecting £223bn compared with £193bn in 19/20.

National Insurance receipts have seen an increase of 9% compared with 20/21 and 10% compared with 19/20. HMRC collected £157bn compared with £143bn in 19/20.

Corporation Tax receipts have seen an increase of 27% compared to 20/21 and 5% compared with 19/20. HMRC collected £65bn compared with £62bn in 19/20.

VAT receipts have seen an increase of 55% compared with 20/21 and 21% compared with 19/20. HMRC collected £157bn compared with £130bn in 19/20

Corporation Tax is due to increase next year (25% from the current 19%). National Insurance contributions have gone up already (1.25 percentage points – increasing employee contributions from 12% to 13.25% and employer contributions from 13.8% to 15.05%). The freezing of the Income Tax allowance (£12,570) and VAT reliefs put in place during the covid pandemic for specific sectors of the economy were restored (20%). HMRC can undoubtedly be sure of collecting even larger amounts in the next fiscal year (April 2022 to March 2023).

Other notable areas of highlight in HMRC tax receipts

Tobacco, Beer, Cider, Wine & Spirits receipts are up 6% compared with 20/21 and 13% compared with 19/20. HMRC collected £23.4bn compared with £20.6bn in 19/20.

Areas that have seen decreases in revenues for HMRC are almost fully explained by the effects of covid restrictions.

Fuel Duty receipts are down 6% since 19/20, £25.9bn in 21/22 compared with £27.6 bn in 19/20.

Air Passenger Duty receipts down by 72% since 19/20, £1.0bn in 21/22 compared with £3.6bn in 19/20.

Whilst some tax receipts have gone down due to covid restrictions, others were already seeing a downward trend over the last 6/7 years.

Tax receipts from the Bank Levy are down to £1.5bn in 20/21, having slowly decreased year by year from £3.4bn in 2015/16.

Annual Tax on Enveloped Dwellings (an annual charge on UK dwellings held by a Non-Natural Person) receipts for 20/21 were £119m, which again have been declining year on year since 2015/16 when HMRC collected £178m.

Friend Partnership are a forward-thinking firm of accountants, business advisers, and corporate finance and tax specialists. Based in Birmingham.

We have detailed knowledge on the subject tax and have been advising clients for decades. It is our aim to ensure that our clients correctly understand the nature of their transaction, control the timing of any tax liability and claim all the available reliefs.

Business Valuations: How to value your business

onslo.rahman@friendpartnership.com (Onslo Rahman) — Sun, 05 Jun 2022 14:22:32 GMT

Article written by George Bradley – Friend Partnership Limited

Picture the scene. It is a Thursday evening. Peter Jones has just shot down an entrepreneur’s “ridiculous” valuation of their business. Whether you are going on Dragons Den, or are planning to sell your business, calculating a valuation can be a difficult and technical process.

Firstly, the business and its environment must be evaluated so that appropriate assumptions flow through into the valuation methods. This is done to help understand the business model, the type of assets held and the market the company operates in. For instance, a technology company which holds intellectual property will be much more difficult to value, especially if the technology is used in a niche market, when compared to a property investment company.

Before valuing a business, the underlying earnings will need to be calculated. This adjusts the profit made by the business to get a more accurate representation of the performance by eliminating exceptional items and non-recurring costs. Adjustments include adding in directors’ salaries if they are remunerated with dividends, as well as stripping out excessive overheads and other one-off costs that would skew the performance of the business. This exercise is also relevant if you were looking at purchasing a competitor, as the costs that could be saved can be stripped out.

Valuation methods

Net Assets

The simplest method of valuing a company is by valuing the assets which are held by the company. This method is appropriate for simple businesses which hold most of their value in assets, for instance a company which solely owns investment properties or hold patents which could easily be sold on the open market. Here the individual assets are valued separately.

Comparable Company Analysis

When looking at larger, more complex companies a value can be estimated using comparable company analysis. This applies the average Price-to-Earnings ratio (P/E) of quoted competitors or the industry average to the underlying profit of a business to find the market value. A discount should be applied to the enterprise value to take account of public companies’ shares being more liquid than private companies, due to being traded in the open market.

Precedent Transactions

A similar method can be used by making comparisons with the recent sales of similar companies. An average multiple ratio is calculated by comparing the business value of a recently sold company to the earnings they generated in the year of the sale. An average ratio is then calculated which is multiplied by the performance of the business being valued.

However, this method can be difficult if there is little merger and acquisition activity in the market, or the business operates in a niche market where there are no similar comparisons.

Discounted Cashflow Analysis

Discounted cashflow analysis is a technique that can be used to value a company of any size. Cashflows are prepared based on the underlying earnings forecast several years into the future. The cashflows are then discounted using an appropriate cost of capital to take account of the time value of money. The residual value is also calculated with an assumed growth rate. The growth rate should encompass the past performance of the business as well as the broader economic environment and average growth rates in the market the business operates in.

Which valuation method should a business owner choose when valuing their business?

As opposed to simply choosing one of the above methods of valuation, a combination of the methods should be used to get a more accurate estimate of the business value. Excess reserves of cash may be added to the valuation as these would be readily distributable to the owners of the business.

Valuing a business accurately in order to attract the right investors and obtaining favourable financing can be quite difficult. Here at Friend Partnership we have many years’ experience in valuing businesses and if you would like more information, help and advice, please contact us on 0121 633 2000 or by email to enquiries@friendllp.com .

Opportunity for all: You would be somewhat disappointed.

onslo.rahman@friendpartnership.com (Onslo Rahman) — Thu, 19 May 2022 14:19:09 GMT

A long-awaited government White Paper on education ‘Opportunity for All’ , has finally appeared. An opportunity for all to have a radical re-think you might expect, or indeed hope, in the midst of the current political, social, financial and medical turbulence.

You would be somewhat disappointed.

For parents, there is a possible upside in that some children who are currently at school less than 32.5 hours a week, are going to be there a bit longer. However, when there, children are going to be chasing higher and higher narrow exam targets – a 30% increase in national grades in English and Maths for 11 year olds, in the next 8 years is the aspiration. Yet more pressure on teachers to teach to the exam and lose any joy and creativity left in the system. Any child who falls behind, is to be offered yet more English and Maths to catch up. Another change is the organisation of schools, with an aim of making all of them academies. Does that mean a great deal to a parent or indeed any member of the general public? Certainly not in an obviously direct way.

What about the world outside education? Will the aspirations of the White Paper bring sweetness and light for employers, who have complained for ever about the dismal quality of those spewed out of the education system into their arms? Apart from a mantra that standards in education are going up because of this White Paper, again, I wouldn’t hold your breath. Children put through years of teaching to the exam are unlikely to be your most exciting, creative thinkers or even be that good at what are euphemistically called the soft skills.

Of course, we want children who can read and write (well perhaps, type might be more relevant) and have some sort of mathematical grasp (but how much really for most children?) More interesting is to think what education system might have made the pandemic any less ghastly, might prepare society for a recession, might stop the escalation of violence and the belief that violence can provide long term solutions, might make poor mental health decrease rather than increase.

And then there are schools themselves. We now know we don’t actually need to bring thousands of children together in small spaces to transmit knowledge. We can do it in other ways. We do however need parents to work in the economic world, not tied up at home supervising their offspring, as was the case during lockdown. We are no longer preparing children for a factory style work place with hours marked by starting sirens and factory floors with hundreds of passive ‘hands’ performing repetitive manual functions. As well as the curriculum, then, we need to be thinking about the physical world for learning. Not much about that in the White Paper either.

One part of the purpose of a White Paper is to stimulate debate. Let’s hope that at least happens.

Sarah Evans is a guest author for Friend Partnership and writes on their behalf about issues of topical interest and general business commentary. Sarah is a former Principal of King Edward VI High School for Girls.

Sarah has in the past worked with Friend Partnership on a unique piece of research into the challenges faced by women in the workplace.

Friend Partnership is a forward-thinking firm of accountants, business advisers, and corporate finance and tax specialists. Based in Birmingham, we act for entrepreneurial businesses and successful individuals on a national and international basis.

Spring Statement 2022 – Full In Depth Look

onslo.rahman@friendpartnership.com (Onslo Rahman) — Thu, 05 May 2022 14:15:11 GMT

The Chancellor presented two Budgets in 2021 in which he set out a great many details of the tax rates and rules that will apply until April 2026. The 2022 Spring Statement was expected to review the economic situation and adjust forecasts. It was not supposed to include anything significant about tax. Of course, things have changed dramatically since October: there is a war in Ukraine, energy prices are rising at a frightening pace and inflation has returned to levels last seen in the early 1990s. An announcement had already been made in February of measures to help people with fuel bills later in the year, and commentators were speculating how much more Mr Sunak might do now, with tax receipts running higher than forecast and the effect of inflation set to increase those receipts in the future. Most predicted he would do something, but many believed he would be cautious and leave significant changes for the next Budget.

In the event, his speech contained more on tax than was expected. He started with a temporary cut in fuel duty, expected to save the average motorist about £100 in the next year. Given the rate of increase in fuel prices, however, this will not even touch the sides. He went on to remove VAT from the installation of energy-saving materials in houses, which will save money for a very small number of people. Then he declared that he intended to implement a ‘tax plan’ going forward, with the overall aim of bringing taxes down year on year over the life of the Parliament, and started with a surprise: a rise in the National Insurance Contribution thresholds to apply in July 2022 which will mean that 70% of people will pay less NIC in spite of the introduction of the 1.25% increase that will apply from April. He went on to increase Employment Allowance, which is a relief from Employers’ NIC for small businesses, and to promise a cut in the basic rate of income tax from 20% to 19% in April 2024.

Press reaction to the statement which seems to reflect the mood of the majority is that the measures announced do not go far enough to help with the current and anticipated increase in the cost of living. A promised income tax cut of 1% to apply from 2024 does absolutely nothing to alleviate problems that many people are currently suffering. It is political posturing which goes down very badly at a time when serious action is needed immediately.

Download the full Spring Statement 2022 report

Spring Statement 2022: What it means for the cost of living crisis

onslo.rahman@friendpartnership.com (Onslo Rahman) — Tue, 19 Apr 2022 14:10:30 GMT

Having previously announced financial assistance to help with the growing cost of living crisis by way of, £150 reduction in council tax (for eligible households) and £200 towards energy bills (albeit repayable over 4 years), totalling £350 for households up and down the country. The Chancellor of the Exchequer announced further measures in his spring statement to help households which are already struggling.

Is what he has set out enough?

Firstly, we have to take out the announced reduction in the Basic Rate of Income Tax, from 20% to 19%, as this is to take effect from 2024, and who knows what the situation will be by then. It may be taken off the table or some other rise takes effect to compensate.

Rishi Sunak has increased the threshold of National Insurance from £9,568 to £12,570 from July. This according to the government will save a typical employee over £330 a year and will effect almost 30 million working people.

The 1.25 percentage point rise in National Insurance contributions to take effect from April 2022 means that the average worker will pay an extra £255 per year.

Fuel Duty has also been reduced by 5p per litre, a saving of £100 for the average car driver over the next 12 months.

So from July, the Exchequer has given the average worker a tax cut of only £75 per year and a Fuel Duty reduction of £100 in addition to the £350 towards the cost of living through Council Tax and Energy Bills.

With energy prices rising sharply and the cost of fuel having gone up exponentially, one has to ask whether the Chancellor has done enough.

The rise in the cost of living is much steeper;

Average household energy bills are due to go up by about at least £600 per year
Filling a tank with fuel for the average car going up by £520 (£20 x 26 occasions per year)
Inflation set to rise to at least 7.4% (with food cost inflation being much higher)

The average UK household spends just over £5,000 per year on food, even a rise of 7.4% would mean an increase of nearly £400 per year

Just taking those basic factors alone would mean a rise in living costs, of over £1,500 per year. Which somewhat dwarfs todays tax and duty cuts.

Making Tax Digital for VAT comes to effect on 1st April 2022

onslo.rahman@friendpartnership.com (Onslo Rahman) — Tue, 05 Apr 2022 14:02:07 GMT

From 1st April 2019 most VAT registered businesses with a taxable turnover above the threshold of £85,000 were required to sign up to “Making Tax Digital” (MTD).

This requirement to sign up to MTD is extended from 1st April 2022, to cover all VAT registered businesses whether or not their taxable turnover is over £85,000.

All records must be kept digitally on compatible software packages (a list of which can be found on https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-vat ).

If you have already been using accounting software for your business needs, it is imperative to check the list to ensure that your software is compatible or seek advice from your current provider as they may have a “Bridging Feature” that let’s your software link to HMRC’s systems.

Once you are registered and compliant, you will be able to see your quarterly VAT submission dates.

You must submit a VAT Return even if you do not have any VAT to pay or VAT to reclaim.

Some exemptions do apply for MTD, however these are limited to those who are “digitally excluded”. Usually because of religion, disability, age or the remoteness of their location and little to no access to the internet.

At Friend Partnership , we offer a range of services and can assist you dependent on your business needs.

Get in touch with our Tax Team on 0121 633 2000 or e-mail us via enquiries@friendllp.com

The Inheritance Tax residence nil rate band – are you sure you qualify?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Sat, 19 Mar 2022 14:59:32 GMT

From 6 April 2017, the standard inheritance tax nil rate band, which is currently £325,000, was enhanced by an additional “residence nil rate band” (RNRB). This was designed to be fulfilment of the Conservative party’s promise to increase the inheritance tax nil rate band to £500,000 per individual or £1 million per couple.

The RNRB is available where residential property is left to direct descendants. For these purposes a direct descendant means a child, or a remoter lineal descendant such as a grandchild or a great grandchild. It is also interesting to note that the definition of “child” for the purposes of the RNRB includes stepchildren and foster children.

The RNRB has some interesting wrinkles. Here are just a few of them:

The home does not have to have been the deceased’s main residence or to have been lived in for a minimum period. It can be any property which the deceased occupied at some stage prior to death so long as it included in the death estate.
If the deceased person owned two or more homes, the personal representatives can nominate which one should qualify for the RNRB.
The home does not have to be situated in the UK although it must be within the scope of UK inheritance tax and included in the deceased’s estate.
The home does not have to actually end up in the hands of the direct descendants. The RNRB will still be available if the personal representatives sell the property as part of the administration of the estate and only pass the sale proceeds onto the direct descendants.

So far so good. Unfortunately, the RNRB legislation has a very nasty sting in the tail.

It has a “taper threshold” of £2 million.

If the value of a person’s estate at the date of death exceeds £2 million, the available RNRB is reduced by £1 for every £2 of the excess. So, if the value of an estate exceeds £2,350,000 there is no RNRB available at all.

The nasty sting applies to the calculation of the taper threshold. The £2 million is calculated before taking into account any exemptions or reliefs whatsoever. This includes Business Relief and Agricultural Relief .

What this means is that an individual who owns a business, whether it’s a company, partnership or a sole tradership, or who owns agricultural property may believe that they will qualify for the RNRB and may have factored it into their estate planning when in fact no relief is available at all.

At Friend Partnership we recommend that you re-examine the availability of the RNRB. This may prompt you to revisit or accelerate succession planning and lifetime giving for maximum inheritance tax efficiency.

Friend Partnership are inheritance tax and estate planning specialists. If you have any concerns or if you need professional advice, contact David Gillies by email at david.gillies@friendllp.com or by phone on 0121 633 2000.

Business Succession should be a forethought not an afterthought

onslo.rahman@friendpartnership.com (Onslo Rahman) — Sat, 05 Mar 2022 14:53:45 GMT

"The future belongs to those who believe in the beauty of their dreams"

Elanor Roosevelt

Having spent many years creating and developing a successful business, there may come a time when you want to think about taking a step back and handing the baton on to others. For some this may mean reducing their hours and perhaps passing on or selling some shares. For others a full retirement will be preferable.

Many learned articles have been written about the tax implications of succession planning . At Friend Partnership we know that Strategy for passing on a business or part of a business should never be driven purely by tax considerations. These decisions are about the future of something valuable that you have created; something that you have invested much time and effort into. They are about your own future and the future of your family.

Business Succession should be a forethought not an afterthought

The most critical decision will be who to pass the business on to. If the next generation is willing and able to take the company forward that decision should be straightforward, although careful thought and consideration ahead of time will make the transition of control a smooth one. On the other hand, if passing the business on to family members is not an option you could consider passing it on to existing management or employees and there are several alternatives that can be highly advantageous to you in this scenario. For some, an outright sale of the company may be the best option, in this scenario careful planning and preparation beforehand can reap rewards when the time comes.

If you are transferring or selling shares to the next generation or selling them to employees, you have the option to retain an income stream and a continued say in the running of the company by continuing as a director and/or by retaining some shares. You will need to give thought to how much to retain and whether you will want to pass on more shares and control gradually depending on the continued success of the company.

The key message we are trying to make are forethought and careful planning now, will allow you to put in place the building blocks to make this happen in the most efficient way. This preparation in the hands of an organisation that will strive to understand your business, who will advise and walk with you every step of the way, will result in a smooth and tax efficient transition for you and your family.

Engage with the right people

Friend Partnership has many years’ experience in planning all types of business succession. We will advise you on:

Timing and taxation
Inheritance and Estate planning
Aspects of control
Employee ownership and incentivisation
Management buy-out
Preparation for sale

What HMRC giveth, HMRC taketh away…

onslo.rahman@friendpartnership.com (Onslo Rahman) — Sat, 19 Feb 2022 14:44:57 GMT

HMRC enquiries into R&D claims are on the increase.

In March this year, HMRC proudly announced the creation of their R&D task force. Its job is to undertake enquiries into R&D claims that companies have made to ensure that they are not fraudulent or incorrect. Sure enough, in recent months we have noticed a marked increase in the number of enquiries HMRC are opening into historic claims for Research & Development tax credits. They are enjoying considerable success with their investigations into fraudulent claims

My claim has been accepted, so I’m in the clear, right?

The fact that a claim for R & D tax relief has been processed without any question by HMRC and the tax credits have been allowed, does not mean that you are out of the woods. HMRC operates a “process now, check later” approach to claims. Unfortunately, we are now very much in the checking phase and due to increases in their R&D investigation manpower the number of investigations will continue to increase.

If your claim was large or complex and possibly submitted without a detailed technical narrative and without reference to the Department of Business Innovation and Skills definition of what constitutes R&D, you may have cause for concern.

What’s the worst that can happen?

If an HMRC enquiry shows that your claim was excessive or incorrect they will disallow the claim in full and require repayment of any tax refunds they may have already made. It is quite likely they will seek to charge a penalty and in extreme cases that penalty could be equivalent to 100% of the tax at stake.

What are the warning signs?

If you receive a “nudge letter” from HMRC with regard to R&D claims that you have made this could be a prelude to a full-blown enquiry. You should look carefully at what HMRC is suggesting or asking for and you should immediately take professional advice.

Friend Partnership Limited have been dealing with R&D tax credits for over 20 years, since their introduction back in 2000. We have gained a detailed understanding of the R&D tax credit system. This depth of knowledge and experience, coupled with our successful track record defending clients from HMRC enquiries in all areas of tax and accounting, makes us worthy of an hour or so of your time for a no obligation chat about your current situation.

Patent Box – how the tax relief is delivered

onslo.rahman@friendpartnership.com (Onslo Rahman) — Sat, 05 Feb 2022 14:40:23 GMT

In our first two articles about the UK Patent Box regime, we provided a high-level overview of the tax relief and took a more detailed look at which companies are eligible for it. In this third article in the series we will look at how the relief itself is calculated.

The calculation

Patent Box relief does not simply apply a 10% rate of tax to income from relevant intellectual property. That would be too easy! Instead, it works by calculating an allowable deduction from a company’s corporation tax profits. When that deduction is applied, it has the effect of reducing the tax liability on profits from Intellectual Property to just 10%.

The calculation of that deduction is potentially rather complicated. Because some accountants are nervous of that complexity, they try to discourage their clients from claiming relief under the Patent Box scheme. Friend Partnership can see the considerable benefits of the relief and are not put off by the complexity.

The scope of the relief is much wider than many realise. It includes profits from the sale of products which may only have one patented component. It also covers worldwide sales income from the patent or the patented product. The wide scope of this relief and its huge potential benefits far outweigh its complexity.

The first stage

Step one in the calculation process is to split the company’s trading income between income from relevant intellectual property for each patented product (“the IP income”) and income which is not related to intellectual property (“the standard income”).

The company’s expenses are then allocated against IP income and standard income on a just and reasonable basis.

The next stages

The next stages of the calculation are designed to fine tune the deduction and remove from it items that relate to routine activities and items that relate to marketing activities. The idea is that we are then left with a deduction that has been pared down to reflect only those profits relating to the underlying patented technology.

Under the current Patent Box relief regime an “R & D fraction” is then calculated and applied to the calculation. The idea behind this is to ensure that companies who undertake their R & D in-house or subcontract it to an unconnected third party will benefit more from the patent box relief.

Having jumped through all the necessary calculation hoops we are then left with the Patent Box deduction which can be applied to the company’s profits to ensure that an effective 10% rate of Corporation tax is achieved.

Friend Partnership has considerable experience in calculating and claiming Patent Box relief for our clients. We are in a position to advise companies on how best to maximise their eligibility to the relief and optimise their Corporation tax position.

Patent Box – does my company qualify

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 19 Jan 2022 14:37:40 GMT

This is the second in our series of articles covering the UK Patent Box regime. Patent Box aims to encourage companies to retain and exploit existing patents and to develop new innovative products in the UK by providing a tax incentive. That incentive takes the form of an effective Corporation Tax rate of 10% on profits derived from qualifying patents.

Companies wishing to take advantage of the Patent Box incentive have to elect into the regime. That election has to be made within two years of the end of the accounting period that the regime is to apply to.

The Patent Box regime doesn’t just include Patents, it covers everything that HMRC defines as ‘qualifying Intellectual Property rights’

What is a Qualifying Intellectual Property Right?

Qualifying IP rights are not just patents. The definition is broader than that and comprises:

a UK patent granted under the 1977 Patents Act
a patent granted under the European Patent Convention
an IP Right granted under specified EEA states
a supplementary protection certificate
Plant breeders rights granted under the Plant Varieties Act 1997
Community Plant variety rights granted under Council Regulation (EEC) No 2100/94

What is a Qualifying Company?

In order to access the 10% tax incentive, a company must be “qualifying”. Broadly speaking, this means that it must hold qualifying Intellectual Property rights or an exclusive licence in respect of qualifying Intellectual Property rights.

As well as holding qualifying IP rights, a company must have carried out “qualifying development” of the IP. That means that it must have created the IP or significantly contributed towards its creation or undertaken significant work to develop the patented item or any product which incorporates it. By way of examples, qualifying development could be coming up with the original idea; it could be work to test the viability of the idea; it could be coming up and developing a new application for the patented item.

The Patent Box regime can apply to stand-alone companies and to group companies. For group companies there is an additional condition which requires it to meet an “active ownership” condition in respect of the relevant IP. In essence the company must have either carried out the development of the IP itself or be actively involved in the ongoing active management of the IP rights. The idea behind this is to make sure that the company is not merely passively holding IP in order to benefit from the tax relief.

What about Patents pending?

Where a patent has been applied for but not yet granted, your company can still elect into the regime and would calculate the relevant Patent Box deduction in the usual way. The actual tax benefit relating to all the years for which the election is in force can then be accessed once the patent is granted. At the date the patent is granted Patent Box relief can be claimed in respect of profits made up to 6 years previously providing an election has been made for those years.

What profits qualify?

The calculation of the Patent Box deduction is complicated, but it is interesting to note that profits relating to the sales of items which include just one component derived from qualifying IP can be included. In other words, if you make aeroplanes and they comprise a single component that is subject to a qualifying patent, the whole of the profit arising from the aeroplane sale can be included as part of the Patent Box claim.

We are going to look into this area of Patent Box in a separate article, as due its complexity I want to take extra time to explain all of the areas that need to be considered.

How could my company benefit?

The best way to illustrate this is by way of an example. If we assume that your company makes profits of £1 million in an accounting year and, of that amount, your profit from qualifying IP items is £500,000.

In the absence of a patent box claim the corporation tax due at today’s rates would be £190,000. However, if a Patent Box election is made, the corporation tax bill is reduced to £145,000.

When the main rate of Corporation tax increases to 25% in 2023, using the same figures and without a Patent Box election the corporation tax due would be £250,000. By making a Patent Box election that tax liability would be reduced to £175,000.

Next steps

If you believe that your company qualifies for the Patent Box and you would like information, help and advice on how best to exploit it, please contact David Gillies on 0121 633 2000 or by email to david.gillies@friendllp.com

Boxing Clever

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 05 Jan 2022 14:32:58 GMT

Companies exploiting patented products, processes and innovations can slash their Corporation Tax bill

What is the benefit of the Patent Box for my company?

By electing to apply the Patent Box regime, your company can benefit from a 10% rate of Corporation Tax on its income from patented products, or processes. That is a generous tax break even with the current standard rate of Corporation Tax at 19%. It will become considerably more generous in the financial year 2023 when the main rate of Corporation tax jumps up to 25%.

The Patent Box has been with us since 2013.

It was introduced to encourage companies which make a profit from exploiting patented inventions to retain their intellectual property in the UK. The Patent Box achieves this by allowing companies to benefit from a significantly reduced rate of Corporation Tax on profits derived from its patented inventions. Companies which meet certain conditions could even benefit from a six-year look back ability.

Is my company eligible for the Patent Box?

Under the current regime a company can elect into the Patent Box if:

it pays UK Corporation Tax;
it makes a profit from selling patented products or processes;
it makes a profit from producing products using patented techniques;
it owns the patents or has an exclusive licence to exploit them;
the patents have been granted by the UK Intellectual Property Office, the European Patent Office or other stipulated Patent Offices in countries within the European Economic Area;
it has been significantly involved in the creation of the patented invention or a product which incorporates it

What is “income from exploiting patented inventions”

Broadly speaking, you can apply Patent Box treatment to income from the following:

selling the patented product or products which incorporate the patented invention
licensing patent rights
selling patented rights
damages or other compensation related to patent rights
manufacture using a patented process
providing a service using a patented tool or process

This is not an exhaustive list.

Are the Patent Box rules complex?

In a word, yes. The calculation of relevant patent income is complicated and for that reason many professional firms prefer not to advise on it themselves. At Friend Partnership, we have been providing a Patent Box service to our clients since the regime was first introduced in 2013 and have a detailed working knowledge of the process and the complex legislation which underpins it.

Next steps

Chancellor Sunak’s Budget for Recovery

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 21 Apr 2021 16:15:48 GMT

There will have been many different expectations from yesterday’s much anticipated budget.

Business owners will have been hoping for continued support to help them rebuild their businesses and help them grow post Covid.

Employees will have hoped for measures to protect their jobs and incomes.

Those hoping to buy a home will have looked to measures to help them with a mortgage and to mitigate Stamp Duty Land Tax costs.

As ever, opinion is divided over the effectiveness of the measures outlined by the Chancellor. The packages of support for businesses, the restart grants, the loss relief carry back extension, the recovery loans and rates relief will certainly have been welcomed by business owners.

The 130% super deduction for companies investing in new plant and machinery should do much to encourage investment for those companies with access to funding. However, will it be enough to offset the announced 2023 rises in Corporation Tax rates?

It may come as a surprise that there were no increases to the rates of Capital Gains Tax in the budget – but watch this space in the next couple of years.

Freezing the level of the personal allowance will mean that more individuals will become taxpayers and freezing the level of the basic rate band will draw more into the higher rates of income tax. The delay in those freezes will be welcome and many will understand the need to repair the public finances after the massive Covid spending spree.

Overall, as a budget for recovery in the short term it fulfils the brief. The proposed tax increases for individuals and companies appear relatively modest, but what lies ahead? What does the future hold for capital taxes, in particular?

The Friend Partnership digest of the main budget provisions below will allow you to judge for yourself whether the Chancellor succeeded in producing a genuine plan for recovery in his second formal budget.

Coronavirus measures

The Coronavirus Job Retention Scheme (CJRS)

The CJRS has been extended and will now come to an end at the end of September 2021.

Until the end of June 2021 employees will continue to receive 80% of their pay for any hours not worked, subject to the existing caps. The employer will continue to only be required to pay National Insurance contributions and pension contributions.

From July onwards employers will also be required to make a contribution towards the 80% payment for unworked hours. For July, the government contribution will drop to 70% and the employer will be expected to pay 10%. For August and September, the government contribution will be 60% with the employer required to pay 20%.

The Self Employment Income Support Scheme (SEISS)

The Chancellor announced that the fourth grant covering February to April will be set at 80% of the three months average trading profits, subject to a cap of £7,500.

There will now be a fifth and final grant covering the period from May to September. This grant will be based on how much turnover has been reduced during between April 2020 and April 2021.

Where turnover has fallen by 30% or more the grant will be 80% of three months average trading profits, subject to the £7,500.

Where turnover has fallen by less than 30% the grant will be 30% of three months average trading profits, subject to a cap of £2,850.

Reduced VAT for the tourism and hospitality sector

The reduced rate of 5% relating to hospitality, hotel and holiday accommodation has been extended until 30 September 2021. From October 2021 until March 2022 a new reduced rate of 12.5% will apply. Thereafter the rate will revert to the standard rate of 20%.

Business Rates Relief

Businesses in the retail, leisure and hospitality sectors which are eligible will continue to receive 100% relief from business rates until 30 June 2021. After that, they will qualify for relief of 66% until March 2022 subject to an overall cap of £2 million for businesses which were forced to close on 5 January 2021. Businesses which were not forced to close on 5 January 2021 will have their relief capped at £105,000.

Restart Grants

Non-essential retail businesses which were forced to close due to the current lockdown will qualify for grants of up to £6,000 per premises. The actual level of grant will depend on the rateable value of the business premises.

Businesses in the hospitality, accommodation, leisure, personal care and gym sectors will receive grants of up to £18,000.

Recovery Loans

From 6 April 2021 the new recovery loan scheme will apply to businesses to help fund recovery and resumption of business after the end of lockdown. Businesses can borrow between £25,000 and £10 million and the government will underwrite those loans with an 80% guarantee.

Stamp Duty Land Tax (SDLT)

The temporary increase in the nil rate band for residential property in England and Northern Ireland to £500,000 has been extended to cover property acquisitions up to 30 June 2021. From 1 July to 30 September the nil rate band will reduce to £250,000. Thereafter it will revert to its normal level of £125,000.

Corporate Tax and Business Tax

Increased Corporation Tax rate

The rate of Corporation Tax will rise from the current 19% to 25% from 1 April 2023.

The full 25% rate will apply to business profits over £250,000.

Businesses with profits up to £50,000 will continue to pay Corporation Tax at 19%. Businesses whose profits are between £50,000 and £250,000 will be eligible for a tapering relief.

Extended loss carry back

Businesses which incurred trading losses during the tax years 2020/2021 and 2021/2022 will be able to carry those losses back for three years (as opposed to the one year currently allowed).

Unincorporated businesses and companies which are not part of a group will be able to obtain relief for up to £2 million worth of losses in each of 2020/2021 and 2021/2022.

Companies that are members of the group will be able to obtain relief for up to £200,000 of losses in each of 2020/2021 and 2021/2022 without any group limitations.

Companies that are members of a group will be able to obtain relief for up to £2 million worth of losses in each of 2020/2021 and 2021/2022 subject to a £2 million cap across the group as a whole.

Capital Allowance “super deduction”

Companies investing in qualifying plant and machinery during the period from 1 April 2021 until 31 March 2023 will be able to claim a 130% first-year allowance. This will apply to expenditure on plant and machinery that would ordinarily qualify for the 18% main pool rate of capital allowances.

Special rate assets will qualify for first-year allowances of 50%.

Personal tax

Personal allowances and rate bands

The increase in the personal allowance to £12,570 for the year to 5 April 2022 will go ahead. Thereafter the personal allowance will be frozen at £12,570 for all years up to and including 2025/2026.

The basic rate band will be increased to £37,700 for the year to 5 April 2022 and thereafter will be frozen at that level for years up to and including 2025/2026.

Capital Gains Tax

The £12,300 annual exempt amount for individuals has been frozen at that level for years up to and including 2025/2026.

No changes to the rates of Capital Gains Tax have been announced.

Inheritance Tax

The Inheritance Tax nil rate band has been frozen at its current level of £325,000 and the residence nil rate band of £175,000 have been frozen at their current levels for years up to and including 2025/2026.

Stamp Duty Land Tax – is it residential, non-residential or mixed use?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 07 Apr 2021 15:29:33 GMT

There are no two ways about it. Stamp duty land tax (SDLT) is complex. The legislation is, at best, Labyrinthine, and HMRC’s interpretation of it even more so.

For property developers, given the differences in tax rates for residential property compared to non-residential or mixed use property, it’s important to understand what the phrase “residential property” actually means for SDLT purposes.

HMRC define residential property as:

a building used or suitable for use as a dwelling or in the process of being constructed or adapted for use as a dwelling.
The garden or grounds of such a building including structures in the garden or grounds.
An interest or right in or over land that benefits a dwelling. This would tend to mean a right of way to access the dwelling.

Any property which does not fall into any of those three categories will be non-residential. Where a purchase consists partly of residential property and partly non-residential property it is classed as “mixed use” and the non-residential rates of SDLT apply.

Whether a property is classed as residential or non-residential is important, particularly for property developers because a developer who buys or who is in the process of constructing residential property which consists of more than one dwelling can claim “multiple dwellings relief”. This can significantly reduce the SDLT payable.

Where a developer buys mixed use property, multiple dwellings relief will still be available providing the mixed use property includes two or more dwellings. Incidentally, there is an extremely good argument for saying that, in the case of mixed-use land, the 3% surcharge should never be applied to the dwellings element.

In most cases where a developer is buying an existing building it will be relatively easy to decide whether or not at the point of purchase it is a dwelling. But what about where the developer buys land with the intention to build houses on it? On the face of it this is non-residential because at the time of purchase there are no dwellings on the land. But what is the position if construction of houses has already started? At what point does land become “dwellings”.

The position has always been unclear but, in order to provide more clarity, HMRC last year expanded their guidance on the subject. It is their view that land becomes “dwellings” if the foundations have been dug and poured and bricks have started to be laid on top of the foundations even if they haven’t reached ground level. This could provide developers with an opportunity to mitigate SDLT by carrying out some construction work. Although this could provide benefits in terms of SDLT, geat care will need to be taken to ensure that, if the purchaser is undertaking any of this work, SDLT is not triggered early because he or she has unfettered access to the land in question.

SDLT can represent a significant expense for property developers so it is vital that proper advice is sought.

Friend Partnership is able to provide specialist SDLT advice for developers and others considering a property purchase. Please contact David Gillies on 0121 633 2007, send an email to david.gillies@friendllp.com or alternatively, complete the form below.

Has the pandemic proved a game changer for working women?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 31 Mar 2021 15:26:38 GMT

Women in Business: can we truly have it all?’, a discussion paper presenting research from 2018-19 carried out by Friend Partnership, was optimistic. The great majority of women surveyed in senior or middle leadership roles or who owned their own business, felt the working environment had improved during their career, with 75% of working mothers in agreement.

Opportunities for women seemed to be opening up. The number of working mothers with dependent children has been going up, the gender pay gap is moving in the right direction, even if too slowly for many of us. Yes there were still hurdles. According to research from University College London, women were doing more housework than men in 93% of households, the number of women in politics was still small, but those with a visible media presence was increasing. The Friend Partnership research showed a mixed picture which indicated problems with flexible working in small and medium size businesses, but few would argue that it was stagnating or that things were worse than fifty years ago.

Then Covid-19 hit…

Figures starting to come out are alarming. It appears that women are losing their jobs at a greater rate than men. A report from the Institute of Fiscal Studies suggests that British mothers are 23% more likely than fathers to have temporarily or permanently become unemployed because of the pandemic. Other surveys are showing similar figures. A recent United Nations study warned that the pandemic could dilute decades of advancement on gender equality.

In terms of child care there is further apparent regression. Research from the universities of Oxford, Cambridge and Zurich during last Spring showed that working women in the UK, Germany and the US did more childcare and home-schooling across all wage brackets, compared to men with similar earnings. The difference was amplified in couples where the man worked outside the household during the pandemic. As schools closed, summer holiday camps cancelled and childminders could no longer take in children, the ability of many dual earning couples to both work has dissolved. It appears to be mothers who are bearing the brunt of this. A Deloitte survey shows that prior to the pandemic, 16% of respondents with caregiving duties said 75% or more of childcare or care for other family members fell on them. That figure has grown to a staggering 48% during the pandemic. There are shades here of what happened to women’s employment after the First and Second World Wars.

But perhaps it is not all bleak. Some Canadian research has found that, although most families reported little change in how housework is divided, a substantial number said that things had become more equally split. More than 40% of fathers said they were cooking more, while 30% reported that they had increased the amount of time they spent on household chores. Their partners agreed, although on average they gave lower estimates of how much things had improved! More that two-thirds of men are wanting to keep working from home, with increased family time cited as their top reason.

Pre-pandemic, as the Friend Partnership research highlighted, flexibility and remote working opportunities were not universally endorsed by business owners. The pandemic has forced the issue and it may be that businesses are seeing that it can have benefits to them. If so, it could be a game changer for women.

But not while the pandemic is still raging and schools are closed! Home schooling and broader educational responsibilities are hitting women hard, whatever the age of the children. Schools have done what they can, but with all the best will in the world, children need motivating, guiding, supervising to complete much of the work schools are so diligently setting. This is simply not compatible with remote working. I have lost count of the number of Zoom meetings in which I have participated where a little person has burst through the door demanding a mother’s attention.

Where will it all go? It is still far too early to tell. Some of the indicators do not look good for women in the workplace but it may be that businesses can harness lessons from Covid-19 to improve working environments in ways that will boost gender equality.

Sarah Evans

Sarah has in the past worked with Friend Partnership on a unique piece of research into the challenges faced by women in the workplace. Click here to view the report. They also worked together on an initiative about teachers returning to the profession.

(Photo: Sarah Evans with Denise Friend of Friend Partnership at the launch of the Women in Business report).

We are able to innovate without putting our clients at risk

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 24 Mar 2021 16:18:01 GMT

In an ‘InProfile’ interview with Business Desk, tax expert David Gillies talks about how, as a firm, we at Friend Partnership are able to innovate without putting our clients at risk.

I relish the technical and intellectual challenges that I come up against on a daily basis. I especially enjoy a client coming to me with a problem and being able to come up with a solution for them, usually saving them tax in the process. Getting to know clients well is also something I particularly enjoy and this inevitably means that my advice is all the more relevant and tailored.

We’re keen to grow. Me joining the firm (in July 2020) has meant we now have an expanded offering so we can provide clients with a broader skillset and wider range of services. Examples include being able to now advise on cultural tax credits, business succession and business structuring, together with exit planning and employee trusts. We can truly say we are a full service accountancy firm offering all of the skills of the “Big 4”, including business, tax, audit and corporate finance advice.

It’s our job to keep an eye on any future tax rises. Accountancy, as with all professions globally, is being affected by Coronavirus, and will continue to be for the foreseeable future unfortunately. As a firm we have remained busy, but we have seen work from one of our key sectors, theatres, diminish. We very much hope that theatres and indeed the economy as a whole will recover very soon. Inevitably there are going to be tax rises as a result of the state of the economy and that is something we are keeping a very close eye on.

We’ve always been ahead of the curve. I’d say the change in attitude that we have seen towards what we call “structured tax planning”, and by that I mean accountants providing tax planning devised by a third party sold as a “package”, or “product”. The trend now seems to have gone very much towards bespoke, tailored tax planning advice, which suits me as it is exactly what I have always done, and is what we do here at Friend Partnership.

Our firm’s motto is: Integrity, Ideas, Innovation. I think it sums the firm up perfectly. We were founded in the mid-1980s and have always taken pride in the quality of our work and our problem-solving ability. We are able to innovate without putting our clients at risk.

I learnt many years ago that communication is key. It is always best to get your message across in a clear, concise and easy to understand manner. I don’t use technical jargon and clients always really appreciate that.

Every day is a school day. My school Spanish teacher, Mrs Eveling, has been the biggest influence on my life so far. She taught me some great life lessons, as well as Spanish! The main thing that has always stuck with me is to have confidence in myself and that’s served me very well over the years.

Take time to take it all in. I live in rural Herefordshire and spend a lot of my spare time walking through the surrounding countryside for health and enjoyment. The views are spectacular and always changing with the seaso ns.

Click here to see the article in full on www.businessdesk.com .

Employee Ownership Trusts – are they coming into their own?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 17 Mar 2021 16:11:35 GMT

The beginning of 2020 saw a tightening of the rules for Entrepreneurs Relief (which we must now call Business Asset Disposal Relief) and a slashing of the lifetime limit from £10 million per person to £1 million.

There is also now a distinct possibility that the rates of Capital Gains Tax will be aligned with Income Tax rates in 2021, or possibly 2022. The timing of the increase may depend on the level of pressure that jittery Conservative MPs, worried about the effect of tax rises at the ballot box, are able to exert on the Chancellor.

The restrictions on Business Asset Disposal Relief and the likely increase in tax rates mean that the tax cost of exiting for business owners is going to be higher than we have been accustomed to. As a result, we have seen a distinct increase in enquiries about Employee Ownership Trusts (EOTs).

Why do we think we are seeing this increased level of interest? Put simply, it is because using an EOT provides a tax-free exit for corporate business owners and provides an incentive for employees, together with the ability for them to receive a tax-free bonus of up to £3,600 per tax year.

As you would expect, where there are such generous tax breaks, there is a raft of qualifying conditions that must be met. These are some of the key requirements:

The existing shareholder must sell a controlling interest in the company to the EOT Trustees.
All employees must be able to benefit from the EOT on the same terms. Obviously, there can be differentials between the level of benefit different employees receive, but that differential can only be by reference to the level of their remuneration, their length of service or their hours worked.

There are a number of other conditions but if they are all met the sale of the shares gives rise to no tax liability for the vendor whatsoever.

As you would expect, the shares need to be independently valued and that value needs to be agreed by the EOT Trustees.

Business owners who are considering using an EOT also need to give some thought to how the EOT is going to fund the purchase of the shares. The usual options available are a transfer of funds from the company to the EOT, loan notes, external funding, or a combination of these.

Serious consideration should also be given to the question of who the Trustees should be. There is no reason why a vendor cannot remain on the board of the company and/or hold the position of Trustee as well. Obviously, there would need to be careful consideration in addressing the question of conflict of interest. In many cases, the Trustee is a company limited by guarantee and the directors of that company will include employees, the vendor, and an independent person. The use of the company limited by guarantee affords protection from personal liability for those individuals.

EOTs have been with us since 2014 but there has been limited interest in them up to now. The level of interest is certainly increasing, and it seems that the EOT is about to enjoy its day in the sun.

Friend Partnership offer a comprehensive service for business owners who chose to go down the EOT route. If this is something that you feel may be appropriate to you, we will be happy to have a no obligation discussion with you to explore the subject and to look at whether it will suit you and your business. Contact David Gillies on 44(0) 121 633 2007 or via david.gillies@friendllp.com

Managing your staff’s soapbox

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 10 Mar 2021 16:09:08 GMT

What businesses should learn from the Eton teacher and his YouTube lesson

As an employer or a manager, do you want to be surrounded by staff who have only ever been exposed to ideas exactly like yours? Or do you want colleagues who have heard lots of different life views, can robustly defend their own position as well as listen respectfully to the views of others, then from time to time modify their ideas in the light of experience? One of the many responsibilities of education, in my view, is to deliver you the latter.

In the early years of my teaching career, the mid 70s, I remember very clearly the day when the headmistress took me aside and said there had been a complaint that I was overenthusiastic in my embracing of the feminist agenda. I was somewhat taken aback. It was a school that prided itself on producing feisty young women and I considered myself quite mild in my views compared with a number of my friends. We agreed that the father who had complained probably had problems with women, and I accepted that I needed to be more aware of how I was coming across and no more was ever said.

How things change. The riot of publicity over the disciplining of an Eton master who posted an on-line lesson, ‘The Patriarchy Paradox’, and then refused to take it down when told to by his headmaster, is in part a result of the social media explosion, but also plays to a number of unresolved issues around at the moment that were less front stage all those years ago.

Freedom of speech must be protected, shouts one corner. Teachers’ responsibility to give a balanced perspective, shouts another. Professional standards, say others. As a former principal, I say, just do what your headmaster says, and get on with it.

We have accepted in this country that you can’t just say what you want. There is such a thing as hate crime. What does and doesn’t come into that category is a very grey area – but unpleasant, misogynistic and embarrassingly silly though the video is, it is more irritating than hate inspiring.

Do teachers have to give a balanced view on controversial or indeed any matters? Teachers are very influential in the lives of children, though by no means are they the only influence. It is that desire to influence that draws many into teaching. They want to make the world a better place by offering children perspectives beyond that of their family and local community. Indeed, society itself wants teachers to influence children which is why schools have to deliver lessons on such emotive topics as British values and radicalisation. My own experience is that when I touched on issues that I felt passionately about, making it clear they were my opinions, children’s reactions were rather like the way they react to parental views – to argue vehemently the opposite position. The idea that Eton boys, or any other school children, would listen to ‘The Patriarchy Paradox’ and say ‘Yes that is The Truth. How wise Mr Knowland is’, is simply farcical. In any case, ‘The Patriarchy Paradox’ is written on the premise that there are a number of alternative views already well known to the boys.

Can teachers expect their behaviour and opinions expressed outside of the school environment (Mr Knowland’s lesson is now on YouTube), to be ignored by the school?

No, of course not, and the DfE Teaching Standards against which all teachers, including Mr Knowland, are judged (if the matter goes to the regulatory authority), make that quite clear. In this, teachers are no different from anyone else. You don’t bring your profession into disrepute by your personal behaviour. Does Mr Knowland do this? I find it silly beyond belief but clearly others feel they have to call it out to make a statement not so much about the issues but about how correct they are.

The exploration of what it means to be a good man in the 2020s is absolutely the duty of schools, and boys’ schools have a particular and exciting responsibility to take this forward. Does ‘The Patriarchy Paradox’ have a bit part in this unfolding drama? Perhaps it does – but it depends on the other actors.

Is it all attention seeking on various people’s part and am I just adding to it by writing this?

So Mr Knowland, my advice to you is to is listen to your Head, who probably has a more holistic overview than you, and unless he tells you to act illegally or immorally, accept his authority. Aren’t you lucky he is not able to send you to prison and have you beaten for expressing your rather unenlightened views?

(Photo: Sarah Evans with Denise Friend of Friend Partnership at the launch of the Women in Business report).

Office Christmas Parties & Covid

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 03 Mar 2021 16:05:00 GMT

How to ensure 2020’s parties are as tax efficient as possible!

Christmas parties can’t take place as normal this year, and so companies are looking at alternatives so they can still hold some form of social function for their staff, with many opting for virtual gatherings via Zoom or Teams. Whilst we’re not saying that tax should be your first thought when it comes to rewarding staff at the end of a testing year for most, it would still be prudent to ensure your plans, whatever they might be, are as tax efficient as possible.

The main conditions of ensuring you stay on the right side of HMRC are:

making sure all staff are invited;
keeping the cost per head less than £150 (it should be somewhat easier to remain under budget this year!).

HMRC allows £150 per head per year on social events for staff, and this year is no different. If the £150 budget is exceeded, this can be charged as a benefit and the company should then consider making a PAYE Settlement Agreement with HMRC to cover the additional liability arising. You can spend the £150 per head as you wish, and this year many companies are choosing to send food and drink out to staff for them to enjoy during an online party, which seems a good option.

If a virtual party isn’t viable, or you are not keen on the idea, you may give staff a gift instead, but there are some rules to bear in mind if this is what you decide to do, which are:

the cost of such a gift cannot exceed £50;
the benefit can’t be cash or a cash voucher;
the employee isn’t entitled to the benefit anyway as part of any contractual obligation; and
the benefit isn’t provided in recognition of any particular work carried out.

If the individual benefit exceeds £50 (or an average of £50 per head, inclusive of VAT), the whole amount is taxable as a benefit in kind, not just the excess over £50.

We hope this gives some clarity around how to best organise your 2020 Christmas social, and we hope your party goes well, whatever you might choose to do.

Finally, may we wish you a Merry Christmas and a Happy and Healthier 2021.

If you need any specific advice about this subject, or any other tax or accountancy issue, please don’t hesitate to get in touch with us via enquiries@friendllp.com .

Lockdown 2 – support announced for jobs and businesses on 5 November 2020

onslo.rahman@friendpartnership.com (Onslo Rahman) — Sun, 28 Feb 2021 15:13:37 GMT

It’s another day and another version of the Chancellor’s Winter Economy Plan has been announced. This is the fourth iteration of the plan so far.

The packages announced coincide with the start of the second national lockdown and are designed to address some of the problems that the new restrictions will place on individuals and businesses. Changes have been made to the Coronavirus Jobs Retention Scheme (CJRS) the Job Retention Bonus (JRB) the Self Employment Income Support Scheme (SEISS) and some assistance has been given to businesses in England that are forced to close due to the new tighter restrictions.

Coronavirus Jobs Retention Scheme

The CJRS has been extended. Originally it was due to cease at the end of October 2020. It was then extended until 2 December 2020 but now it has been further extended until 31 March 2021.

The extended scheme will enable employers to furlough employees full-time or to use the scheme for any amount of time or shift pattern. Importantly, there will be no requirement for employers to contribute to wages paid for hours not worked (unlike the Job Support Scheme). The employer will, however, have to pay the national insurance and employer pension contributions for unworked hours.

In terms of its operation, the extended scheme will work in the same way as the “old” CJRS and claims can be made from Wednesday, 11 November 2020. Any claims for November must be submitted no later than 14 December 2020 and subsequent claims have to be submitted within 14 days from the end of the month which is the subject of the claim.

For an employee to be eligible, he or she must have been on the payroll at 30 October 2020 and the employer must have made a PAYE submission to HMRC between 20 March 2020 and 30 October 2020 showing earnings paid to the employee.

Some employees who had been furloughed up to 31 October 2020 were made redundant when the scheme originally came to an end. Under the extended scheme those employees can be re-employed and claimed for under the CJRS. To qualify the employee must have been on the payroll on 23 September 2020 and the employer must also have made PAYE submissions from 20 March 2020 to 23 September 2020 notifying payment of earnings to those employees.

Job Retention Bonus

Because the CJRS is being extended to the end of March, the JRB which would have been paid in February has now been scrapped. There is a commitment from the Chancellor to provide another job retention incentive “at the appropriate time”.

Self Employed Income Support Scheme

The third grant under the SEISS, covering the period from November 2022 January 2021 has now been increased to 80% of trading profits. This is the third time the percentage has been increased. Many will recall that originally the grant covered only 20% of trading profits.

It is very important to be aware that to be eligible for the third grant the claimant must declare that the self-employed business has been impacted by reduced demand due to coronavirus restrictions. For the previous two grants the business had to have been adversely affected by restrictions in any way. For the third grant there must actually have been reduced demand, so self-employed individuals will not be able to claim the third grant on the basis that they were not able to work because they were forced to self-isolate.

The opportunity to claim the grant has been brought forward by two weeks and claims can be made from 30 November 2020.

A fourth grant covering February to April 2021 will be made but further details are yet to be published and at this stage the percentage of profits for the fourth grant is not yet known.

Financial assistance for businesses in England

English businesses which are forced to close because of either the new national or local restrictions will be eligible for a payment capped at £3,000 a month. The government’s press release indicates that the intention is to enable closed businesses in the retail, hospitality and leisure industries to be able to pay their rent.

Friend Partnership will update you with more detailed information as and when it becomes available but if you have any questions or require any further information in the meantime please contact David Gillies, our Tax Partner on 0121 633 2000 or by email to david.gillies@friendllp.com

The EU Settlement Scheme – what employers need to know

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 24 Feb 2021 14:55:54 GMT

With the end of free movement looming, individuals who are citizens of the EU, the EEA or Switzerland will have to apply to the UK Home Office’s EU Settlement Scheme if they wish to retain their residence rights after 31 December 2020.

Here are some key facts for employers compiled by our Tax Partner, David Gillies:

If you are an employer and you have employees who are citizens of countries in the EU, the EEA or Switzerland, those employees need to apply to the EU Settlement Scheme for either “settled” or “pre-settled” status if they wish to retain their residence rights after the end of December 2020. Applications under the scheme must be made by 30 June 2021 at the latest.
It is important for employees to be aware that, even if they were born in the UK they will still need to apply under the scheme if they are not a British citizen.
Employees who already have indefinite leave to enter the UK, indefinite leave to remain in the UK or who have British or Irish citizenship still need to use the scheme, but the application process is different.
Settled Status
In order to qualify for “settled” status, the employee must be living in the UK by 31 December 2020 and must have a continuous 5 year period of UK residence. For these purposes a year of UK residence means at least 6 months in any 12 month period spent in the UK. Achieving “settled” status will give the employee indefinite leave to remain in the UK and the right to apply for UK citizenship.
Pre-Settled Status
An employee who does not qualify for “settled” status should qualify for “pre-settled” status. In order to achieve “pre-settled” status the employee must be living in the UK by 31 December 2020 but does not have to have 5 years continuous residence. “Pre-settled” status grants the individual limited leave to remain. “Pre-settled” status is granted for 5 years but the individual can reapply to change their status to “settled” status once they have accrued five years of continuous residence.
If the employee does not qualify for either “settled” status or “pre-settled” status because he or she was not living in the UK at 31 December 2020 , the new points-based immigration system will apply from 1 January 2021 .
The points-based immigration system will also apply to any employees who could have qualified for “settled” or “pre-settled” status but failed to do so before 30 June 2021 .

Employers need to be aware of the EU Settlement scheme and will need to ensure that key staff who are citizens of the EU, the EEA or Switzerland will qualify for “settled” or “pre-settled status” and have applied by 30 June 2021 . There is no requirement for them to wait, they can apply now. In fact, it may be a good idea for them to do so as the Home Office admits that the scheme is currently prone to delays due to Coronavirus measures.

Coronavirus Job Retention Scheme – Furlough Extended

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 17 Feb 2021 14:49:26 GMT

On 31st October 2020, the Government announced that following a second period of UK lockdown which is to commence on 5th November 2020, the CJRS scheme will be extended, with the JSS scheme temporarily put on hold.

The CJRS scheme will be extended for a month with the employee receiving 80% of their current salary for hours not worked, up to a maximum of £2,500 which will be funded by the Government. The extension will mirror August’s furlough scheme where employers will still need to pay employer

National Insurance Contributions and pension contributions.

Flexible furloughing will also be allowed in addition to full furlough.

Claims for the extended scheme will be made through an updated service which is to be provided shortly by HMRC.

To be eligible, employees must have been on a PAYE payroll and on an RTI submission to HMRC on or before 30th October 2020. There is no requirement for an employer to have used the previous CJRS scheme to be eligible to claim under the extension.

We will issue further updates on this scheme once additional information has been published by the Government.

If you have any questions about CJRS please feel free to contact Amy Cowling, Employment and Rewards Manager at Friend Partnership Limited on 0121 633 2000 or by email at amy.cowling@friendllp.com

The Coronavirus Job Support Scheme – 22nd October Update

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 10 Feb 2021 14:46:45 GMT

Today Rishi Sunak has announced an amendment to the Winter Economy Plan and the Job Support Scheme (JSS) due to the rising outcry over the requirement for additional employee job support for those affected by the tier 2 lockdown measures.

Amendments:

The minimum hours employees must work has reduced from 33% to 20% to qualify for support.
The Government will now pay 62% of the hours an employee does not work, increasing from the previously agreed 33%. The employer contribution for hours not worked will reduce to just 5% instead of 33% as per the original plan.
This will mean employees will now take home 73% of their normal wages for working a minimum of 20% of their normal hours (where the contribution has not been capped). This will cover all eligible businesses in all alert levels.
Where businesses are legally required to close, and employees can’t work for a week or more, employers will pay employees two thirds of their normal salary, and the Government will now cover 100% of these costs.

We will issue further updates on this scheme once additional information has been published by the Government.

If you have any questions about the Job Support Scheme please feel free to contact Amy Cowling, Employment and Rewards Manager at Friend Partnership Limited on 0121 633 2000 or by email at amy.cowling@friendllp.com

Corporate Criminal Offences

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 03 Feb 2021 14:32:36 GMT

The Criminal Finances Act 2017, which came into force on 30 September 2017, introduces criminal liability where companies fail to adopt appropriate systems and procedures designed to prevent an individual (defined in the legislation as an “associated person”) who acts for or on behalf of the business from criminally facilitating tax evasion. This applies to all taxes.

It is important to note that the above Act does not change what tax fraud is, just who may be liable.

Most importantly, however, there is a statutory defence for companies where Directors can show that they have taken appropriate steps to put in place a system of reasonable prevention measures.

Overview

There are three elements to UK tax evasion facilitation offences:

the criminal evasion of any UK tax under existing laws;
the criminal facilitation of tax evasion by an “associated person” where an “associated person” includes any employee of the Company as well as an agent or any third party who performs services for the Company (such as a consultant or subcontractor);
a failure by the Company to put in place appropriate procedures designed to prevent an “associated person” from committing these criminal offences.

Elements 1 and 2 do not create any new offences. Importantly, only a company can commit the new offences created by element 3. This is a “strict liability offence”, which means that if elements of 1 and 2 are committed, depending upon the circumstances, the Company has prima facie committed the new offence. The ultimate outcome of any prosecution by HM Revenue and Customs is subject to the Company being able to legitimately claim the statutory defence.

The nature of the offence

A tax evasion facilitation offence means an offence under UK law consisting of:

being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of tax by another person;
Aiding, abetting, counselling or procuring the commission of the UK tax evasion offence; or
Being involved “art and part” in the commission of an offence consisting of being knowingly concerned in, or taking steps with a view to, the fraudulent evasion of tax.

The illegal act created by the Criminal Finances Act is the failure to prevent the facilitation of UK tax evasion offences. In simple terms, a company is guilty of an offence (subject to its statutory defence) if a person commits a UK tax evasion facilitation offence when acting as a person “associated” with that company.

A company found guilty of an offence under these rules is liable to a financial penalty, stated as being potentially unlimited. But, at least as important as the reputational damage from the publicity of being adjudged guilty of such an offence.

The Company’s defence?

It is a defence if the company can demonstrate with evidence that when the UK tax evasion facilitation offence occurred it had already put such prevention measures in place as were reasonable in all the circumstances or, alternatively, it was unreasonable in all the circumstances to expect it to have certain prevention procedures in place.

HMRC guidance

HMRC has published illustrative guidance, designed to be of general application, on the procedures that company should put in place. This guidance cannot, of course, cover every form of risk so it does not pretend to be “one size fits all”. So, companies must establish their own bespoke prevention procedures designed to address their particular business circumstances and commercial pressures, having given due consideration to the risks that are involved.

HMRC’s six guiding principles (headlines only) are:

risk assessment
proportionality of risk-based prevention procedures
“top level” commitment
due diligence
communication and training
monitoring and review

HMRC’s detailed guidance provides some helpful pointers towards what is expected.

Our procedures

Friend Partnership has produced a detailed step-by-step set of work programmes which assesses a company’s existing systems and procedures against each of HMRC’s six guiding principles. These programmes, which in some ways bear a resemblance to an audit internal control questionnaire, will always need to be tailored to the requirements of the particular business being reviewed.

If you would like more information about our Risk Management Service in general or our Corporate Criminal Offences work programmes please contact Malcolm Friend at malcolm.friend@friendllp.com or David Gillies at David.gillies@friendllp.com . You can contact either Malcom or David by ‘phone on 0121 633 2000.

The Coronavirus Job Support Scheme – October Update

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 27 Jan 2021 14:27:24 GMT

The Job Support Scheme (JSS) was announced as one of the measures in the Chancellor’s Winter Economy Plan in September and comes into effect from 1st November 2020. More information has been released about the scope and operation of the scheme. Although there is still more information to be released by the Government, here is what we know so far:

Overview:

The Job Support Scheme (JSS) is designed to support businesses who are facing lower demand over the winter months due to COVID-19.
Businesses using the JSS will continue to pay employees for time worked, but the cost of the hours not worked will be borne by both the employer and the Government, enabling the employee to keep their job.
The Government will pay a third of the hours not worked up to a cap, with the employer also contributing a third. This will enable employees to earn a minimum of 77% of their normal wages, (where the contribution has not been capped).

Eligibility:

All employers with a UK bank account and UK PAYE scheme registered before 23rd September 2020 will be eligible to claim the grant.
Employee’s must therefore have been reported on a RTI submission to HMRC on or before 23rd September 2020.
The scheme will begin on 1st November for 6 months, with the scheme to be reviewed in January 2021 by the Government.
Payments will be made in arrears with a claims service being made available from early December 2020 via HMRC.
It is expected that larger employers will not make capital distributions (such as dividends or share buybacks) whilst accessing the grant (further details to follow on this from the Government)
A business can claim the JSS even if they have not previously claimed via the Coronavirus Job Retention Scheme (CJRS).

Grant Criteria:

For the first 3 months, employees must work at least 33% of their usual hours and be paid their normal contractual wage for the hours worked. After three months, the Government will review this to potentially increase the minimum number of hours worked.
Employees can work a shift cycle, but each short-term working arrangement must cover a minimum period of seven days.
For every hour the employee does not work, the Government will pay a third of the employee’s ‘usual’ hourly wage. The employer will also pay a third of the usual wage.
The Government contribution will be capped at £697.92 a month.
The grant does not cover the cost of the employer Class 1A NICs or employer pension contributions and these will still need to be paid by the employer.
Further details on the calculation of ‘usual wages’ is still to be issued; however, it is expected to follow similar guidelines to the CJRS.
Employees cannot be made redundant or put on notice of redundancy during the period the employer is claiming the grant. If an Employer is forced to make an employee redundant they must stop using the JSS before giving notice of redundancy.

JSS Expansion for Closed Businesses:

The scheme has recently been expanded to include businesses which have been legally required to close due to COVID restrictions.
The employer will receive the grant based on the number of eligible employees who have been instructed to cease work at their relevant premises due to local or national restrictions.
Businesses are only eligible to claim the grant whilst they are subject to restrictions and employees must be off work for a minimum of 7 consecutive days.
Businesses that are required to close by local health authorities due to the result of a specific workplace outbreak are not able to claim.

Grant Expansion Criteria:

The grant will provide support for employees to receive two thirds of their ‘usual’ wages for time not worked, up to a maximum of £2,100 a month (guidance is still to follow on the wages calculation from HMRC)
Employers can claim if their premises close, and when they reopen they can claim the JSS under the rules for firms facing reduced demand over the winter period.

Job Retention Bonus Scheme:

Employers can still claim the Job Retention Bonus (JRB) for eligible employees as part of the JRS and use the JSS grants to help pay employee’s wages to meet the JRB minimum income threshold of £520.00 per month (for the 3 months between November 2020 and January 2021)

HMRC Checks:

Employers must agree once again the contractual changes with employees in writing and, as with the CJRS, they must receive written consent from the affected employees.
HMRC will publish the names of all employers who have used the JSS scheme allowing employees to find out if their employer has fraudulently claimed under the scheme with a hotline set up to investigate such cases.

We will issue further updates on this scheme once additional information has been published by the Government in the late Autumn.

Cross Border VAT after Brexit- are you prepared?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 20 Jan 2021 14:23:19 GMT

The UK will leave the EU VAT and Customs regime on the 31 December 2020 and this will involve some fundamental changes to the way UK businesses conduct trade within the EU.

Movements of goods to the EU

Currently, if a UK business supplies goods to another VAT registered business within the EU, then it can normally treat the supply as outside the scope of UK VAT under what is known as the “reverse charge” or “tax shift mechanism”. This means that the customer becomes responsible for accounting for any VAT due.

As from the 1st January 2021 these transactions will now become normal exports which means that, unless some form of dispensation is announced, goods moving into the EU will become subject to VAT at the point of entry into the EU Member State. This may have cash flow implications for both supplier and customer.

UK suppliers must also make sure that they have full official and commercial evidence of the removal of the goods from the UK, as set out in VAT Public Notice 703 on Exports.

Also, as supplies of goods into the EU from the UK will now become liable to import duty it is vital that UK suppliers correctly classify their goods under the Customs Tariffs to ensure that the correct rate of Duty is applied.

All UK suppliers supplying goods into the EU should have an EORI number and if not, they should apply to HMRC for one. UK suppliers will also need to make sure that all of their EU business customers have their own EORI number.

In addition, if you are currently supplying and delivering goods to private EU consumers, under the current “Distance Selling” rules you can charge UK VAT up until a certain threshold for each EU country, after which VAT registration in that EU country is normally required. As from the 1st January 2021 this threshold is being withdrawn.

To compensate for this the EU is introducing a “One Stop Shop” (“OSS”) VAT return system, which mirrors and extends the current “MOSS” VAT return for supplies of digital services in a number of ways. It will mean that suppliers of delivered goods to EU private consumers can account for VAT on a single EU VAT return, charging and accounting for VAT at the rate applicable in each EU country.

However, the use of the OSS scheme for supplies of delivered goods will require a UK supplier to register for VAT in a nominated EU Member State and all EU transactions can then be recorded through an OSS return in that EU Country. Supplies to UK consumers will continue to be accounted for on a UK VAT return.

UK suppliers who make supplies to EU consumers in these circumstances need to consider setting up an EU VAT registration well in advance.

In certain cases, where an on-line platform, marketplace or portal etc facilitates a supply of goods (or potentially) services to an EU consumer, then as from the 1st January 2021 a supply may be deemed to be made by a supplier to that facilitator and by the facilitator to the consumer. The supplier will treat their supply as B2B and not subject to UK VAT, and the facilitator will be the body liable to charge and account for VAT. Further information on this proposed change is awaited.

Where goods are held in stock in another EU country for supply to consumers VAT registration in that country is still likely to be required. Where a supply involves both the supply and installation of goods then VAT registration may also be required in that country.

Where a VAT registration is already in place in another EU country there may, from the 1st January 2021, be a requirement to appoint a Fiscal Representative in that country who will have joint and several liability for any VAT due in that EU country. The agent may require a cash deposit or bank guarantee which will obviously impact upon the cash flow of a UK supplier.

As from the 1st January the “low value consignment stock relief” is also being scrapped. This currently applies to supplies of goods at a value of 22 Euros or below and allows suppliers to supply low value goods to EU consumers without having to pay import VAT. The new rules will require a supplier to charge the VAT rate applicable in the country of destination. A new VAT declaration, an Import One Stop Shop (“IOSS”) will be required and an IOSS number will need to be obtained in one EU state. Alternatively, a supplier may elect to have any VAT payable upon import collected by the postal service, courier or agent and paid by the supplier to the VAT authorities on a monthly basis.

Supplies of services to EU customers

In most respects it is anticipated that the current rules will remain much as they are currently, whereby where a supply is B2B no UK VAT will be chargeable and where it is B2C UK VAT will be charged.

Services relating to land will continue to be taxed where that land is physically situated and admission to events will be taxed where the event takes place, and EU VAT registration will still be required in these cases.

In the case of “digital services” these are currently dealt with under the “MOSS” scheme. Under this scheme, a supply of digital services not exceeding 10,000 Euros in any calendar year can be made applying the standard rate of UK VAT. Where supplies exceed 10,000 Euros, then a UK supplier must either register for the MOSS scheme, and submit a MOSS return to the UK VAT authorities charging and accounting for VAT at the rate applicable in the customers country of residence, or must register for VAT in that EU country.

It is understood that whilst the MOSS scheme was due to be withdrawn with effect from the 1st January, the scheme will now continue until the 1st July 2021 and will then be substituted by the OSS referred to above.

Imports of goods from the EU

Mirroring the rules above, UK businesses acquiring goods from a supplier in the EU can no longer rely on using the “reverse charge” mechanism to pay VAT on the purchase of goods from the EU.

As from the 1st January 2021 the transactions become normal imports for VAT purposes. However, to avoid the potential cash flow impact this will have for UK businesses the UK Government is to introduce a Postponed Accounting Scheme for import VAT so that VAT does not have to be paid at the point of entry into the UK. VAT will be paid and claimed via a business’s UK VAT return.

There will also be no “low value consignment stock relief” as outlined above for imports of goods into the UK. Instead, if the value of the goods is 150 Euros or less, the seller will have to charge VAT according to the customer’s EU country of residence and complete an IOSS statement as outlined above.

All UK importers will require an EORI number.

Customs Duty may become payable on goods imported from the EU. It is again, therefore, important that goods are correctly classified for Customs Duty purposes and that you are familiar with Customs Duty declarations or have an agent who will complete these on your behalf.

Importers can currently register with HMRC for Simplified Import procedures and may now also wish to register with HMRC for Customs Freight Simplified Procedures and a Duty Deferment Account, details of which are on the HMRC website.

Imports of services from the EU

It is not envisaged that there will be any major changes in VAT treatment. Services must be accounted for under the “reverse charge” procedure.

Summary

Importers and Exporters need to be thinking now about how these changes will impact their business.

Some of the changes will involve cash flow issues and in some cases the cost of goods is likely to increase due to the imposition of Duty charges.

Some of the changes will fundamentally change the way businesses operate within the EU and potential changes to accounting and software systems.

We are inviting our key clients to engage us to conduct a VAT and Customs Duty review in readiness for the changes.

For further information please contact David Pegg at david.pegg@friendllp.com or call us on 0121 633 2000

Job Retention Bonus

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 13 Jan 2021 13:42:12 GMT

Friend Partnership’s Payroll Manager Amy Cowling summarises the Government Job Retention Bonus which was initially discussed back in July 2020:

The Government have now advised (regardless of employer size and sector) that all UK employers will be eligible for the Job Retention Bonus who previously made a claim under the Coronavirus Job Retention Scheme. The bonus is intended to provide additional support to employers who keep on their furloughed employees in meaningful employment after the Coronavirus Job Retention Scheme ends on 31st October 2020.

The bonus is a one-off payment to employers of £1,000 for every employee they previously claimed for under the Coronavirus Job Retention scheme, and who remain continuously employed through to 31st January 2021.

Eligible employees must earn at least on average £520 a month between 1st November 2020 and 31st January 2021. The employee does not have to be paid £520 every month, but their average earnings across the 3 months must be at least £1,560. They must also have received some earnings in each of the three calendar months. Further details on this is to yet to be published by HMRC.

Eligible employees must not be serving a contractual or statutory period of notice starting before 1st February 2021.

The claim for the bonus can be made after the January 2021 PAYE submission to HMRC and payment will be made by HMRC from February 2021. Further details on how to make the claim have not yet been confirmed.

HMRC have advised that the bonus will be taxable, therefore businesses must include the whole amount as income when calculating their taxable profits for Corporation Tax or Self-Assessment.

We will issue further guidance on this scheme once additional information has been published by the Government. I expect this to be in the late Autumn.

If you have any questions about the Job Retention Bonus please contact Amy Cowling, Payroll Manager at Friend Partnership Limited on 0121 633 2012 or at amy.cowling@friendllp.com

Chancellor Sunak’s Winter Economy Plan: the main points

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 13 Jan 2021 13:37:52 GMT

The Chancellor has shelved the idea of an Autumn Budget and today (24 September 2020) gave details of further support to help preserve viable jobs and provide help for businesses and individuals affected by the measures taken by the government to try to fight coronavirus.

David Gillies, tax partner at Friend Partnership explains the main points from the Chancellor’s announcement.

The Covid Job Retention Scheme (CJRS)

The Chancellor confirmed that there will be no further extension of the CJRS (furlough) scheme. Furlough will end on 31 October 2020.

The new Job Support Scheme

From 1 November 2020 a new “Job Support Scheme” will be introduced. This is designed to run for six months and is aimed at supporting only viable jobs.

Employees who are forced to work fewer than normal hours because of coronavirus will be paid two thirds of their normal salary for the hours they do not work. The employer will pay one third and the taxpayer will pay the other third.

The employer will be required to pay the employee their full salary for hours actually worked.

In order to qualify, the employee must be working at least 33% of their usual hours.

The amount of taxpayer grant will be calculated based on the employee’s usual salary but capped at £697.92 per month.

The Self Employment Income Support Scheme Grant (SEISS)

The SEISS is being extended. The government will provide an initial taxable grant to those who currently qualify for SEISS and who continue to actively trade at a reduced level due to coronavirus.

The grant will cover three months’ worth of profits for the period from November 2020 to the end of January 2021.

The grant will be the equivalent of 20% of average monthly profits and is capped at £1,875.

A second grant will be available to those that qualify to cover the period from February 2021 to the end of April 2021. The level of the second grant may be adjusted depending on the circumstances at the time.

VAT cut extended and new payment scheme

The 15% VAT cut available to the tourism and hospitality industries has been extended to the end of March 2021.

A new payment scheme is also introduced for businesses who deferred their VAT bills. Rather than having to pay in full at the end of March 2021, businesses will be able to make payment in 11 instalments during the 2021/2022 financial year. These payments will be interest free.

Self assessment

Additional time to pay will also be available to taxpayers under self-assessment. Those who deferred their July 2020 payment and those who are due to make a payment in January 2021 will not now need to pay these in full until January 2022 under HMRC’s “Time to Pay” facility.

Bounce Back Loans

A new “Pay as You Grow” repayment system has been introduced.

This will allow extension of the period of the loan from six years to 10 years.

In addition, interest-only periods of up to 6 months and repayment holidays will be available.

Other Loan Schemes

The Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLBILS), the Future Fund and the Bounce Back Loan Scheme will be extended until the end of November.

Property Developers – are you paying too much Stamp Duty Land Tax?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 06 Jan 2021 13:19:56 GMT

Friend Partnership’s tax specialist, David Gillies, explains why property developers regularly end up paying more Stamp Duty Land Tax (SDLT) than they should and how to avoid overpaying.

Behind every decision to either purchase bare land for development, or existing land and buildings for redevelopment looms the spectre of the Stamp Duty Land Tax (SDLT) liability. The sums involved can often be significant and it is a cost which should be carefully managed.

The plain fact is that, too often, developers overpay SDLT due to lack of proper advice. Those calculating the SDLT liability will commonly rely on HMRC’s SDLT calculator, but that is too blunt an instrument to deal with the calculation of a tax which can be so intricate. Put simply, the SDLT calculator is probably one of the biggest money spinners that HMRC possesses.

Common errors which occur when calculating SDLT:

getting the “effective date” wrong
not recognising “linked transactions”
not recognising “mixed use” property
failing to claim appropriate reliefs

The effective date

SDLT legislation instructs us that a tax liability arises on the “effective date”. Many consider that the effective date is the date of completion and for most transactions that could well be the case. What the rules actually say is that the effective date is the date of completion or the date on which the contract is “substantially performed” if that is earlier.

The substantial performance of a contract can take place when most of the purchase price is paid or when the purchaser has unfettered access to the land. In some cases, substantial performance could take place well before the actual date of completion of the contract, triggering a liability that the developer is not prepared for.

It is important for developers to manage their SDLT liability by being in control of the effective date.

Linked transactions

For SDLT purposes transactions are linked if they are part of an arrangement comprising a series of transactions between the same vendor and purchaser or people connected with them.

All transactions which are linked with each other in this way are treated as part of a single transaction and subjected to SDLT accordingly. Common sense would lead suggest that this results in a much higher SDLT liability but this is not always the case. Sometimes the linked transaction rule can change the subject matter of the purchase from residential to non-residential or it can enable access to reliefs (such as multiple dwellings relief) which will substantially reduce the overall liability.

Mixed use property

It is important for developers to know whether what they are buying constitutes purely residential property or property which has a mixed use. The subject matter of a transaction is very important because it dictates the rate of duty payable and can also mean that the 3% additional rate for

residential property is not due.

SDLT reliefs

There are a number of SDLT reliefs available. Sadly, it is often the case that the appropriate reliefs are not claimed because the purchaser is not aware of their existence or has not planned carefully enough to ensure that they qualify for any relief.

Three areas which are particularly problematic are:

The purchase of more than one dwelling and recognising at which point bare land or commercial property becomes a dwelling for the purposes of SDLT.
Group relief, available for the transfer of properties between companies within the same group.
Relief for LLP’s and partnerships. There are extremely complicated rules surrounding partnerships but a good understanding of them can sometimes result in SDLT not being payable at all.

Accessing the correct SDLT advice

Friend Partnership can provide specialist SDLT advice for developers. We have a detailed knowledge of the subject and the ability to guide developers through the maze of rules. It is our aim to ensure that our clients correctly understand the nature of their transaction, control the timing of any tax liability and claim all the available reliefs.

If you would like to find out more about our SDLT advice service or if you wish to discuss a particular transaction, please contact David Gillies by telephone on 0121 633 2007 or by email at david.gillies@friendllp.com

Exciting career opportunity for talented self-starter

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 30 Dec 2020 12:53:54 GMT

Friend Partnership has an exciting opportunity for a talented and ambitious chartered accountant and business adviser to join its growing practice in Birmingham’s Brindleyplace.

Established in 1983, Friend Partnership is a boutique accountancy, business advisory and tax practice, with a strong specialism in acting for entrepreneurial growing businesses.

Our sector specialisms span high-tech through to theatre. We also act for a broad range of overseas businesses with operations in the UK. We have many high net worth entrepreneurs as clients.

We are now entering the next phase of our growth and are looking for a talented individual to join our senior team.

You will be ambitious, with excellent client service skills and an established portfolio of clients. You may be looking for a more dynamic environment in which to grow your practice and develop your career.

You are likely to be a senior individual working within a large accountancy practice where your aims and ambitions are perhaps being thwarted by the strictures of the organisation.

Alternatively, we would be keen to talk you if you are a partner in a smaller practice and wishing to expand your horizons. Joining Friend Partnership would enable you to provide more in-depth advice and support to your existing and future clients, from within a larger organisation with a wide range of specialist services.

Above all we would be keen to talk to you if you believe that you could generate work and additional clients from your existing and future business and personal contacts.

In return we offer a highly incentivised remuneration package, leading-edge technology and a fantastic working environment.

To arrange a confidential conversation please contact David Gillies on 0121 633 2000 or at david.gillies@friendllp.com .

New head of tax for Friend Partnership

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 23 Dec 2020 12:32:18 GMT

Friend Partnership Limited has appointed tax specialist David Gillies as Partner and Head of Tax, to support clients and drive forward the firm’s continuing growth plans.

Head of Tax

David joins Friend Partnership to lead its tax practice and provide specialist and comprehensive tax planning advice and expertise to the firm’s clients that operate in sectors including IT and technology, manufacturing, renewable energy, distribution, retail, construction, and theatre and television production companies.

Having spent many years working for ‘Big 4’ accountancy practices, David was most recently Tax Partner for a Worcestershire-based firm, where he focused on family businesses, property businesses and estate planning.

Under his lead, Friend will provide a comprehensive portfolio of corporate and personal tax advice and services. This includes inheritance and estate planning, residence and domicile matters, capital gains tax, stamp duty land tax, property tax and property business structuring, family business structuring and creative industry tax relief.

“David has extensive and proven experience of providing specialist tax advice to businesses and individuals,” comments Denise Friend , Founder of and Corporate Finance Partner at Friend Partnership. “He possesses a genuine and palpable desire to understand and realise clients’ ambitions, and this combined with his financial skills, business acumen, and professional drive, make him the ideal individual to lead the growth of our dedicated tax offering and team.”

Of joining the firm, David says: “Friend Partnership is a well-respected firm with an established tax practice. Its principal aims align with my own – to ensure maximum tax efficiency for clients, as well as providing excellent client service at all times. I am looking forward to working closely with clients to fully understand their personal and business aspirations, assist them in identifying their key commercial and practical issues, and devise tax solutions to address these. In addition, we are already planning new service and product offerings that will further benefit clients both established and new.”

Denise adds: “David’s expertise and technical capabilities complement and enhance our tax service offering, and ensure the provision of proactive tax support and planning that is bespoke, practical and robust. David’s appointment represents a significant addition to the firm and strongly positions us to drive forward with our plans to grow the practice and strengthen our tax services with the launch of new service lines that will add value to the client experience.”

Friend Partnership acts for privately owned and private equity backed businesses on a national and international basis and across a variety of sectors. It also provides personal tax and private client advice for wealthy individuals.

For more information about Friend Partnership’s tax services, click here.

Friend Partnership 2020 Budget Analysis

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 23 Dec 2020 12:27:38 GMT

This was Mr Sunak’s first Budget speech having been Chancellor for only a matter of weeks following Mr Javid’s surprise resignation.

The Chancellor faced a tough proposition with this year’s Budget speech. As a new administration, with a healthy majority and five-year term, some mildly ‘unpleasant’ measures might have been expected. On the plus side, there were election manifesto pledges to honour. However, the above was knocked off course by the economic upheaval created by the Covid-19 outbreak and the dramatic effect that this is having on business supply chains and financial markets.

In the lead up to the Budget there were the usual predictions from politicians, business leaders and financial pundits. A potential reduction in the rate of income tax, the withdrawal of Entrepreneurs’ Relief and a restriction on tax relief for pension contributions for top rate taxpayers, were perhaps the three most prominent predictions.

We expected the Budget to major on support for the economy and those directly affected by the upheaval. Indeed, there were many positive announcements on that front in addition to other measures which are detailed below.

The overarching message was that the Covid-19 problems are temporary and that they will be overcome with the Government supporting all those affected by it at every turn. In addition, measures were announced which honour the Election manifesto pledges and lay the foundation for the Country to move forward with spending on infrastructure, education and green policies.

Below we outline the ‘highlights’ and identify those areas where care is needed, or planning may need to be undertaken. For help or advice, please do get in touch .

David Gillies, Head of Tax, Friend Partnership Ltd

Budget 2020: key points for businesses

Covid-19 – a range of measures were announced to provide extra financial support for the NHS and support businesses and individuals affected by the outbreak. The main measures are: loan funding, time to pay arrangements for tax liabilities with a dedicated helpline to deal with cases, SSP repayments for businesses with fewer than 250 employees.

Corporation Tax – as previously announced the rate of corporation tax is to remain at 19%.

Entrepreneurs’ Relief – is to remain but with the Lifetime Allowance restricted to £1 million (it was £10 million) with effect for disposals on or after Budget day. There are forestalling rules which may thwart any pre-Budget planning which some taxpayers may have undertaken. This measure is a ‘cliff edge’ that had been feared by many.

IR35 – the rules which have been extended to large and medium sized businesses in the private sector will be effective from April 2020 albeit with HMRC agreeing a ‘lighter touch’ for engagers struggling with the expected compliance pressures.

VAT – no specific measures were announced.

Anti-avoidance – as with previous Chancellors, Mr Sunak announced measures which he hopes will generate £4.4 billion of extra tax over the next five years. As part of this initiative HMRC will be given extra funding to staff the specialist teams countering what HMRC believe are abusive tax arrangements.

R & D – the RDEC percentage has been increased from 12% to 13%. This is relevant for larger businesses undertaking qualifying R & D activity or those smaller businesses which use sub-contractors as part of their R & D activity.

Business rates – to tackle the economic downturn as a result of the Covid-19 outbreak Mr Sunak announced a raft of measures to lift the business rates burden. For the coming tax year, the retail discount will be extended to 100% for those businesses with a rateable value less than £51,000. The relief will also be extended to cover a wide range of businesses not in the retail sector in recognition of the wide impact of the outbreak.

Plastic pollution – in recognition of the increased awareness in this area Mr Sunak announced a new ‘plastic packaging tax’ for April 2022 onwards which will affect those businesses with plastic packaging as part of their manufacturing process.

Red diesel – there will be a reform of the tax relief for red diesel albeit that the tax relief will remain for agriculture, fishing and trains.

Employment allowance – for those businesses which are eligible to claim the allowance this has been increased from £3,000 to £4,000 for 2020/21.

Main Budget points for individuals – personal tax, property and pensions

Mr Sunak did not finish his Budget speech with a flourish as has been the case for several Chancellors in recent years. There were no income tax cuts or increases in allowances or thresholds other than the ones we already know about.

The main measures announced are detailed below.

Covid-19 – immediate access to SSP for those declared sick or having to self-isolate. For the self-employed faster access to appropriate benefits.

National insurance – there will be an increase in the threshold to £9,500 with effect from 6 April 2020.

Stamp Duty Land Tax (SDLT) – a surcharge of 2% will be applied to purchases of residential property by non-residents. This will be applied to purchases on or after 6 April 2021.

Pensions – with effect from 6 April 2020 the threshold at which pension contribution relief will be tapered will be increased to £200,000 with the restricted allowance reducing from £10,000 to £4,000. These measures are primarily designed to deal with the issue faced by consultants and doctors who have been facing tax problems with the additional work they have been asked to undertake.

VAT on digital publications – this will be abolished to bring digital publications into line with printed publications.

Capital gains – the annul exemption is increased to £12,300 for 2020/21.

Alcohol and fuel – no increase in the rate of duty

Conclusion

There is clearly a lot for businesses to think about. The main issue may well be the potential impact of the change to Entrepreneur’s Relief.

The Covid-19 outbreak was centre stage of this Budget with some very important measures announced to address the host of issues which have arisen and are likely to arise in the coming months.

In addition to this were some very material spending announcements.

Mr Sunak’s rallying cry was that the Government is ‘getting things done’.

The Government’s performance in dealing with the Covid-19 outbreak in the short term, and the ambitious spending plans in the medium and longer term, will be keenly monitored in the coming months and years.

Friend Partnership hosts launch for Women in Business report

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 16 Dec 2020 12:20:11 GMT

Birmingham business and financial advisors, Friend Partnership hosted an event at its Brindleyplace offices to mark the launch of a new report into the challenges facing women in business today.

The event unveiled the findings of a new research study entitled ‘Women in Business – can we truly have it all?’ commissioned by Friend to uncover and understand the difficulties faced by women in the workplace and the businesses looking to employ skilled female colleagues.

Hosting the event was founder of Friend Partnership by Denise Friend, and brought together a group of inspirational, successful women in business from a range of professions and organisations.

This included representatives from the businesses which supported the research, including King Edwards High School Birmingham, Michael Page, NatWest and the All-Party Parliamentary Group for Women in Work.

Chairing the discussions about the research findings was Sarah Evans OBE, an educational commentator and former Principal of King Edward VI High School for Girls, who led the research study alongside Denise.

Guest speaker was Sarah Cooper Jones, Regional Director for RBS Corporate & Commercial Banking, who shared her journey to finding the right work / life balance for her, and cited flexible and agile working as a key factor in her success.

To view or download the report in full, click here .

Friend donates to Birmingham Children’s Hospital

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 09 Dec 2020 12:12:15 GMT

The neurology department of Birmingham Children’s Hospital has been given a financial boost thanks to the generosity of local business and financial advisers Friend Partnership Limited.

The firm has made a four-figure financial donation in memory of the work of Dr Stuart Green, the former head of Birmingham Children’s Hospital’s neurology department . The neurology team at Birmingham Children’s Hospital provides a specialist service for the diagnosis and treatment of children from new-borns up to age 16 who have neurological disorders, including epilepsy, neurometabolic and neurogenetic disorders and multiple sclerosis (MS).

Friend pledged the donation when it launched its ground-breaking study into the challenges facing women in business last year.

Denise Friend, founder and partner at Brindleyplace-based Friend, explains:

“When we launched the research, we committed to make a donation for each completed survey response.

“Interest and participation in the research quickly grew, and when the survey closed, almost 800 women had taken part.

“I am delighted that the research has not only stuck a chord with so many women of different ages and professions, but also that the firm has been able to make a donation to our city’s wonderful, internationally renowned Children’s Hospital.”

Saranne Moreno, Corporate Strategic Partnerships Manager at Birmingham Children’s Hospital Charity added:

“We’re so grateful to Denise and Friend Partnership for using the Women in Business survey and report as a way to fundraise for us. Charitable donations from our local community and organisations like Friend Partnership are truly invaluable, as they allow us to make a huge difference to the lives of our brave children and their families by improving their hospital experience.”

Friend Partnership commissioned the research, entitled ‘Women in Business – can we truly have it all?’ to investigate how the landscape for working women has changed over recent generations and understand the difficulties faced by both women in the workplace and the businesses looking to hire skilled female employees.

Denise Friend led the research study with support from Sarah Evans OBE, an educational commentator and former Principal of Birmingham’s King Edward VI High School for Girls. Additional support was given by a number of national and Midlands organisations including Page Group, NatWest and the Women and Work All Party Parliamentary Group.

Commenting on the donation, Denise Friend said:

“The work carried out by the devoted staff at Birmingham Children’s Hospital is invaluable, and it is a cause very close to our hearts at Friend. I am delighted that, through the Women in Business research, we donated funds that will help to support the children and families under the care of the Hospital and in our local community.”

Amongst its findings, the Women in Business research revealed that paid leave for new parents is a financial and operational challenge for 90 percent of UK SMEs, and that working women still battle a number of personal issues such as self-doubt, imposter syndrome and pressure to be ‘perfect,’ and struggle to feel they truly achieve the balance of career and family.

Click here to view or download the report in full.

R&D Tax Relief – a Q&A with Friend Partnership

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 02 Dec 2020 12:08:56 GMT

Innovative SMEs can secure valuable tax relief through the R&D Tax Relief scheme. David Gillies, Head of Tax at Birmingham accountants Friend Partnership, offers expert R&D tax advice to help you understand how your business can benefit.

Can you tell us more about R&D tax relief and how it works?

The R&D relief rules are in two parts, there is one set of rules that apply to large businesses and groups, and another set that applies to SMEs. It is the latter that I’m going to talk about today as that has most relevance for the corporate clients we deal with.

Does R&D tax relief just apply to companies?

Yes, it is only applicable to companies. There is no relief available to individuals or partnerships that may be undertaking R&D type work.

What are the tax benefits available through the R&D tax relief scheme?

There is an enhanced deduction which is valuable to those businesses that are in profit. The enhanced deduction is currently 130%, so if a business spends £100 it will get a further tax deduction from its profits of £130. If a company happens to be loss-making then that company can access a tax credit payable by HMRC.

How can a company get cash back from HMRC for its R&D?

This is essentially available where a company has tax losses in a particular period. This can be the case for businesses which are starting out or are spending heavily on R&D activity. What they can do is, in effect, surrender some of those losses for a payable credit from HMRC. The rate of the payable credit is currently 14.5%, which is cashback from HMRC.

However, the company needs to pay attention to this, as the prevailing rate of corporation tax is currently 19%. So, if instead of surrendering the losses they were to carry them forward against future profits, the tax saving would be at 19% – clearly a bigger tax saving. But, with the payable credit, there is a cashflow benefit. The company would be getting money now, albeit at 14.5% rather than 19%, and that is very attractive for businesses that are spending material amounts on R&D work.

How quickly does HMRC make tax credit payments?

HMRC is usually pretty quick at making the tax credit payments.

We have had claims paid as quickly as three to four weeks. Generally speaking, it takes six to eight weeks, so a quick turnaround.

Are there any particular tests that a company needs to meet to be eligible for R&D tax relief?

Yes there are. The legislation is quite prescriptive in terms of what HMRC expects to see. Just because a business believes it is doing R&D, it is not necessarily the case that that will meet the conditions imposed by HMRC.

When assessing claims, HMRC looks at four main questions, and wants to see sensible answers to each of them.

The four questions are:

What is the advance in science and technology that has resulted from the R&D activity?
What were the technological and scientific problems that the company experienced in dealing with the R&D issue?
How were those problems resolved?
Why wasn’t the knowledge available to a competent professional working in the field?

If a business can answer these questions in the appropriate way, that demonstrates that they have achieved something completely new and completely innovative.

What I would say to companies looking at R&D is: don’t just think that because you’ve not invented the latest mobile communication device, you’re not ‘doing R&D’.

We have submitted and agreed claims for insurance brokers, for food processing businesses, for IT businesses, and for construction businesses; there are a lot of businesses out there doing innovative things that should be looking at the R&D rules, because there are some tremendous reliefs for them to access.

What costs can be included in an R&D tax relief claim?

As you might imagine, the rules for costs are, again, very prescriptive. There are only certain costs that can be included. The main cost is the salary for those individuals involved in the R&D activity. The salary cost will be their gross salary, employer’s national insurance, plus any pension contributions.

Benefits in kind cannot be included because they are discretionary in nature and will differ from company to company. In addition to that, if the company subcontracts some of the R&D work, those costs can be included. But, the important point with subcontractors’ costs is that they are restricted to 65% of the actual cost.

Consumable costs can be included. If a business is using materials as part of the R&D activity, because they are making prototypes for instance, or if they’re expending energy on their R&D activity, these consumable costs can be included as well.

The difficulty one has with the quantification of the costs is things like salary, where an individual may be working for only part of their time on an R&D project, and the rest of their time is spent on non-R&D activities. The company will need to sit down and critically review the payroll, see who is doing what, and come up with percentages. HMRC will accept percentages, as long as there is supporting evidence for the percentage that has been used. For example, individual A is spending 20% of their time on R&D, so 20% of their gross cost can be included.

Management time can also be included as part of the claim, but typically there will be a restriction there, because management are not necessarily spending a good chunk of their time on R&D activities. But, an engineering manager, for instance, may need to sign off on an R&D project, so it may mean that a small percentage of his time needs to be included as part of the claim.

It’s very important for companies to thoroughly test the payroll and make sure that they capture each and every person that is involved, and all the associated costs.

What about fixed assets purchased for R&D work?

If a company is buying fixed assets that are solely dedicated to R&D, then 100% capital allowances will be available in connection with that spend. That relief stands aside from any other reliefs for capital expenditure such as the Annual Investment Allowance.

How does a company go about actually making a claim?

How a company approaches an R&D claim will depend on whether it is their first claim, or the second or maybe third claim that they may have made.

In the case of a company submitting an R&D claim for the first time, our advice would always be to prepare a short report to go with the computation. This should explain what their R&D activities are all about and also demonstrate that they can appropriately answer the four questions discussed earlier.

For companies that are submitting their second and subsequent R&D claims, I don’t necessarily think that there is a need to produce a report. It is simply a case of including all the information in the corporation tax computation which is ultimately submitted to HMRC.

Where a company is submitting its first return, HMRC will see its accompanying report with the calculations that have been made, and so are perhaps less likely to ask questions as any they might have will have already been answered in what has been filed.

A company would be well advised to give as much detail as possible in their corporation tax computations, because that will hopefully stop HMRC raising any questions, and it should be easy enough for the company to do so. The company may need to talk to their technical team to produce the report and then the finance team to get the figures together for the claim itself.

Does an R&D claim have to be made at the end of a company’s accounting year?

Yes. It’s part of the corporation tax computation, and that can and is only prepared when the financial statements for the period concerned are prepared.

Can a company make a claim for previous years’ R&D?

Yes they can. If companies have missed an R&D claim for whatever reason, there is a limited opportunity for them to go back to a previous year. They can’t go back for years and years; it is generally only the previous year. But, if they are in time, it’s well worth them thinking about making a claim, talking to their professional advisors to make sure that they get the timing right, and getting a revised computation in to HMRC within the allocated timelines.

How does HMRC assess claims for R&D tax relief?

HMRC will check to make sure that there are answers to the four main questions mentioned previously.

We’ve come across situations where there are advisers claiming that an R&D claim is possible for a particular company, when in reality it isn’t; they are, perhaps, relying on HMRC being unable to check all claims, and trying to encourage the client to make a claim that, in my view, may be spurious. The concern for tax practitioners like me, is that the company may, inadvertently, pick up a black mark if HMRC decide that an R&D claim was spurious. The professional advisors themselves may also pick up a black mark for submitting something that patently wasn’t appropriate in the circumstances.

I would always urge companies to think long and hard about an R&D claim, and to talk to the right people.

Is there anything companies need to consider with regard to their planning or their accounting period?

Yes, especially for companies that are loss-making. When working with a lot of clients, we’ve looked at the accounting reference period. They may, as an example, have an accounting reference period as 31st December, and they may be loss-making throughout that period. But if they are able to shorten that accounting reference period to, say, 30th June, and prepare a six-month set of accounts and associated corporation tax computation, then you can see what’s happening; they are advancing the tax credit claim that they are able to make with HMRC. So, in terms of their cash flow, it’s a much better result.

Clearly, they must have advisors that are able and willing to work quickly to enable them to do those sorts of things, but it is well worth looking at. We have had great success with a number of clients doing precisely this – and it doesn’t half improve the company’s cash flow.

Are R&D tax claims worth the effort?

Very much so. With all the businesses that we have dealt with, the ability to get money back from HMRC is seen as a very attractive element of the rules, and over the years I have been able to claim millions of pounds of credits on behalf of clients in that situation. It’s well worth it for those clients in a loss-making position.

But even for companies who are paying tax, the enhanced deduction is very welcome when it comes to reducing their corporate tax liabilities.

As far as I’m concerned, I see R&D tax relief as a win-win situation for all the clients I’m dealing with. It’s given them a tremendous fillip and enabled them to do far more of what the legislation was designed to encourage, and that’s R&D, which is precisely what we need to be doing here in this country.

How do you work with businesses that already have accountants?

We can either work directly with you as a business, or we can work alongside your existing professional advisors, whichever suits the circumstances.

How do you charge for R&D tax claims?

On fees, we are totally transparent with clients. We will work on whatever basis suits them. There are plenty in the industry that work on a percentage of a tax relief claim that is finally agreed with HMRC. We personally prefer to work on a time spent basis, and I think a lot of our clients are happy with that approach. But, as I say, we are totally transparent, and will always do whatever is appropriate for the client concerned.

Friend Partnership releases 2019 Women in Business research findings

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 18 Nov 2020 15:53:04 GMT

Paid leave for new parents is a financial and operational challenge for 90 percent of UK SMEs, according to the findings of new research into the challenges faced by working women and their employers.

The first ever ‘Women in Business’ survey also reveals that covering the cost and resource of maternity and paternity leave is an even bigger concern for SMEs, with 96 percent of board level executives saying it’s a significant challenge for their business.

Led by independent business advisory and accountancy practice Friend Partnership, which works with SMEs, entrepreneurs and medium sized and owner managed businesses, the research also finds that the current generation of business owners are at least three times more likely than self–employed, employed or retired women to say maternity leave is too long.

Click here to read the full Women in Business Report

The government should be doing more, according to 90 percent of business owners, who say more government support is needed to help smaller businesses with the financial burden of maternity / paternity leave provision.

The research also identifies the growing importance and need for UK firms to provide flexible working, which is a growing requirement if ambitious businesses are to attract the highest performing business women. In the research, 85 percent of business owners say they recognise that flexible working conditions are needed if they are to recruit and retain skilled female workers to their organisation.

At least 83 percent of women in each age bracket believe businesses must offer flexible working conditions to attract high-performing females, but 73 percent of business owners say it is difficult to work part time in a senior role.

Almost 800 women aged between 21 and 95 took part in the survey, which has delivered unique insights into the changing face of the workplace for women over multi–generations. Participants included business owners, the self-employed, senior executives, middle management employees and retirees, who shared their experiences and views.

The survey was led by Denise Friend, founder of Friend Partnership, with support from Sarah Evans OBE, an educational commentator and former Principal of King Edward VI High School for Girls, Birmingham, with additional support from a number of national and Midlands organisations including Page Group and NatWest.

Commenting on the findings, Denise Friend said:

“The research set out to establish whether working women truly can have it all, by uncovering the challenges women in business face and what sacrifices they have made along their career journeys. It also explored how the landscape for working women has changed over multi-generations, in a quest to discover if working women realistically can have it all and achieve the work, career, family, and life balance.

Commenting on the findings, Denise Friend said:

“Based on the survey’s findings, businesses recognise that flexible working is a growing requirement for their employees, especially if they are to attract certain talented women, but flexible working represents a real challenge for most SMEs, and this is a difficult problem.

“Flexible working means different things to different people, but in today’s world, it can be accommodated in some jobs, but not in others.

“At the end of the day, the needs of the business have to come first.”

She adds:

“Our survey also shows that businesses are almost unanimous in believing that government policy for private sector firms isn’t fit for purpose, and that more financial support is essential when it comes to maternity / paternity leave.  

“Large businesses and the public sector now offer parental leave packages that the SME sector simply cannot compete with. This is becoming a real problem.

“It is totally different for large private sector businesses compared to SMEs – private sector firms can provide what they want; their customers and shareholders are paying. As far as I am aware, the question has not been raised as to why the public sector can offer competing packages - often with 26 weeks fully paid leave or even more – when that money is coming to quite a significant extent from taxes from the very organisations that cannot provide the same benefits for their own employees.

“I urge government to consider supporting the SME sector in a way that provides enhanced parental leave packages by way of tax credits or reduced rates of corporation tax.”

Sarah Evans added:

“The survey reveals that women’s career choices have widened hugely over recent generations, and that some of this is down to schools that have introduced career education much earlier and in a more structured way.

“The impact of schools on the career potential and progression of women in business is clear, especially the critical role of teachers for many female students, with 20 per cent citing a teacher as their main role model when they were aged 18.

“Many of the women taking part in the research speak of the lack of careers counselling in the early years of work,” she says. 

“Early mentoring and advice in a woman’s career are also important and the research suggests this is sometimes a key omission.”

Despite a shift in gender equality in the workplace, working women still battle a number of personal issues such as self–doubt, imposter syndrome and pressure to be ‘perfect’. They also struggle to feel they truly achieve the balance of career and family, and identify a noticeable lack of positive female role models.

The survey also set out to understand how the sacrifices for working women across the generations has changed – the findings indicate that for today’s mature generations who wanted to start a family, their biggest sacrifice was career progression, whereas today’s generation of working women under 30 years are more likely to feel they are sacrificing social life, sports, arts and culture, in order to fulfil their career ambitions.

Click here to read the full Women in Business Report

The impact of education on women’s career progression

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 11 Nov 2020 15:45:49 GMT

Education, together with role models and the golden years at school, significantly influence the career progression for the majority of women in business, according to new research by Birmingham firm Friend Partnership. Sarah Evans, former Principal at King Edward VI High Schools for Girls, considers why.

Last year, Denise Friend, founder of accountancy firm Friend Partnership, embarked on a major piece of research, that set out to uncover the challenges, opportunities and major influences for today’s working women.

The research was run in partnership with King Edward VI High School , and as former Principal, I was invited to play a part in shaping the research and to analyse its findings.

I was delighted to be involved, and unsurprisingly, especially keen to ensure this important piece of research aimed to uncover the impact of education, teachers, and role models on the lives and career progression of women in business today.

When I was Head of King Edward VI High School for Girls, the career advice I gave to girls was to continue their academic studies as far as they possibly could. Whatever the job market throws at you, no one can take away your educational qualifications. Though education is by no means the only factor influencing career progression, it certainly plays an important role in enabling women to reach senior positions, and our research certainly supports this, finding that more than two-thirds (67%) of female business owners have an undergraduate degree.

Teachers have a significant role to play in guiding the career choices of female students – with approx 13% of survey respondents naming a teacher as a role model at age 18.

However, by far the biggest influence on career choices is parents. A child whose parents are doctors is 24 times more likely to become a doctor than a child whose parents aren’t. Along with teachers, parents are the stable presence for most children. It is perhaps not surprising that 20% of survey respondents cited their mother as a role model at age 18. A parent is bound to have more influence than the hour spent with a chemist, an engineer or a banker in the school’s careers programme, or even a week of work experience at a local firm. However, it is not just the jobs of a child’s parents that have an influence, it is also the work/life balance the child sees at home. A mother who stays at home can influence their children’s choices as much as those doing a paid job.

How can schools expand young women’s horizons?

Career education now starts at an early stage, through school visits to workplaces such as fire stations, theatres and factories, which serve to introduce young women to job roles other than those of their parents. As young women get older, the focus is on helping them to understand their own strengths and the pathways that lead to their chosen career, if they have one.

Most young people start to make significant choices which may influence their career paths at 13 and 14 years old, when they make their GCSE subject choices. Schools will be the influencers here, and this often equates to what produces the best results for OFSTED and in turn, pressures young people to get the highest grades possible, particularly if they are aspiring to competitive areas. But this ignores the idea that our young women should follow their interests and passions, and not simply pursue subjects that will get the schools, as well as the universities, the grades they require.

Losing talent

Interestingly, at the latest Women and Work All Party Parliamentary Group , Gillian Keegan MP, explained that there are four main points at which we lose talented females from the world of work, the first being subject choices at school. By limiting their subject choices too early, young women no longer benefit from the core principle upon which our national curriculum was built, which was for it to be broad and balanced, and lose out on opportunities to be creative and acquire the cultural capital needed to navigate this complex world.

My experience of talking to bright young women about the sort of life choices they may have to make in their early- to mid-careers is that it usually draws a blank. In good schools, and particularly single-sex streamed schools, girls don’t face much discrimination, have the freedom to develop their learning and interests, and have their voices heard in the classroom. This leads them to believe that they can have it all. It is only when they reach the workplace that these issues start to hit home. It is then I believe that the careful mentoring by older people needs to start, to guide young women successfully through the options.

Many women taking part in our research speak of the lack of careers counselling in the early years of a career. If they do receive support, the discussions they have may still vary considerably to those young men may be having. The choices men and women make about their adult life are influenced by many factors, and too often schools are blamed for low and unrealistic expectations.

In my experience, schools do a great deal. But the role of parents and guardians is huge, and there is much responsibility on employers of young people also, to coach and empower their young female employees.

Full findings

The full findings of the brand-new research – ‘Women in Business – can we truly have it all?’ – will be unveiled at a reception event at King Edward’s High School for Girls, Birmingham, on the 15th May, where a number of the women in business who have taken part in the research will share their stories, in a bid to show that balance drives a better working world, and their views on areas where employers can improve.

For each completed response to the survey, Friend Partnership made a donation to Birmingham Children’s Hospital to commemorate the work of the late Dr Stuart Green, former head of the paediatric neurology department at the hospital.

New research reveals the challenges facing women in business

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 04 Nov 2020 16:16:17 GMT

Ahead of this year’s International Women’s Day and its #BalanceforBetter campaign, Denise Friend, founder of Chartered Accountancy firm Friend Partnership, reveals some of the initial findings of the firm’s ground-breaking research ‘Women in Business – can we truly have it all?’.

Women have spent almost half a century campaigning and fighting for legislation, promotion and recognition in the workplace, yet still face significant challenges and hurdles in their working lives.

According to recent figures, the proportion of senior roles held by women in the UK is slightly below the global average (24%) at 22%. And although around a third of UK businesses are female-led, just 9% of funding* for UK start-ups goes to female-run businesses each year.

Add to these challenges the expectation for women in business to balance a career, family, social life and personal interests, the question is can women in business truly ‘have it all’?

Our research set out to uncover whether women can, by investigating if and how the landscape for working women has changed over recent generations, the sentiment of today’s female employees and female employers, the types of challenges women in business face, along with their successes and sacrifices made along the way.

Run in partnership with Birmingham’s King Edward’s High School for Girls , with support from former head and educational commentator Sarah Evans, participants in the survey spanned a range of age-groups, professions and industries, from business owners, the self-employed, to senior and middle management employees, and retirees.

Early analysis of the survey has revealed some interesting statistics and insights

For example, more than 80% of women say fulfilling a senior role on a part-time basis is a challenge.

60% say they believe that businesses must offer flexible working conditions to attract high-performing women, but for the 90% of SMEs that are offering flexible working, 80% say this presents a real challenge for their day to day operations.

Encouragingly, our research reveals that two thirds of women (68%) believe the working environment for women has improved since their career began.

Furthermore, more than half of women say their careers have progressed at about the pace they expected when they first began their working lives, but a third of the 62% of respondents with children, and the 30% aged between 30 and 40, admit their career has progressed at a slower rate than they had expected.

When it comes to the biggest hurdles facing ambitious women, our survey reveals that for many they have had to choose a career over having children. Further common hurdles are self-limiting beliefs, imposter syndrome, not being taken seriously by work colleagues and peers, and balancing family with a career.

Around half of respondents say they have had to make sacrifices in order to balance work and personal lives, with maintaining a social life, time with the family, career progression, and arts and cultural activities making up the top four barriers.

Event will reveal the full findings

The survey’s findings will be unveiled in full at a reception event at King Edward’s High School for Girls, Birmingham, on the 15th May, where a number of the women in business who have taken part in the research will share their stories, in a bid to show that balance drives a better working world, and their views on areas where employers can improve.

The survey garnered interest and support from a number of national and Midlands organisations including Michael Page, NatWest, and the All Party & Parliamentary Group for Women in Work, with close-on 1000 respondents taking part.

International Women’s Day – for more information: www.internationalwomensday.com

*Source: The Entrepreneurs Network

Shareholders urged to secure dividend rights for 10% ER tax rate

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 28 Oct 2020 16:12:15 GMT

Holders of so-called ‘funny shares’ are being urged to review the rights attaching to the unlisted company shares they hold or risk missing out on the beneficial 10% Capital Gains Tax rate with Entrepreneurs’ Relief (ER) tax rate on any share sale.

Friend Partnership Limited explains that new ER provisions were buried in the ‘fine detail’ of the Chancellor’s October budget.

Funny shares are typically those acquired by shareholders as a result of corporate reorganisations or structuring, where the aim is simply for the shareholders to receive capital on a sale, and these shares often do not carry a right to dividends.

In his Budget, the Chancellor announced a change to the ER qualifying conditions, by extending the qualifying holding period for shares from 12 months to 24 months for all qualifying disposals after 5 April 2019. If shares are sold after 5 April 2019 and before the shares have been held for 24 months, then any capital gain arising will be taxed at a rate of 20%.

HMRC’s reason for this extension is to counter tax avoidance, but what the Chancellor didn’t make clear was that for individuals owning shares, there would be additional conditions on top of those already in place.

With effect from 29 October 2018, the date of the Budget, the shares they hold would have to also give them a right to dividends in order to qualify for the 10% rate of tax with ER.

The existing qualifying conditions for a successful claim to ER on a share disposal are: individuals must hold at least 5% of the ordinary share capital and have at least 5% of the votes, and have held the shares for at least 12 months at the date of sale and the shares sold must now give the individual a right to 5% of the dividends if an ER claim is to succeed.

Companies must also meet certain conditions throughout the same 12-month period

If a right to dividend is not created by changing the share rights, then on any sale the tax rate will always be 20%. If changed, to give a right to dividends, then the individual would still need to wait until 24 months have passed before a 10% rate would be available – assuming all other qualifying conditions are met – so holders of ‘funny shares’ need to approach the company in which they hold the shares to see whether they would be happy to change the share rights. If they are the rights should be changed as soon as possible to start the 24-month clock running.

For any disposals after 5 April 2019, the new requirement to have held the shares for 24 months at the date of sale is unlikely to cause any problems.

This is unless a newly formed company has done so well in its first year that there is the prospect of an immediate sale. If this is the case, individuals may need to focus on the timelines – for instance, could a sale be concluded before 5 April 2019, or if not, when after 5 April 2019 could a sale be concluded, which would give the sellers a full claim to ER because 24 months have passed since acquisition.

As always, the devil is in the detail, and the ER legislation, especially that relating to shares is tortuous with a number of commentators suggesting that it needs to change; in its current form, it is potentially unworkable.

In my view it is a shame that the ER legislation seems to be aimed at denying relief rather than allowing it. It is also a pity that the dividend change was not put off until 6 April 2019 to allow those with funny shares to consider what, if anything, they could do to address the changes.

Individual private company shareholders will need to review the ER legislation very carefully so that they are clear on the issues. They may need to consider further planning well in advance of any share sale.

For help or advice on any tax-related matter, contact us via our online form .

Capital allowances – timing is key to take advantage of new £1m allowance

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 28 Oct 2020 16:04:52 GMT

Businesses wanting to take advantage of the £1million Annual Investment Allowance must plan their capital expenditure carefully.

In his 29 October Budget, Chancellor Hammond announced an increase in the Annual Investment Allowance (‘AIA’) from £200,000 to £1million with effect for expenditure incurred on or after 1 January 2019.

The new limit is in place for a period of two years, ending 31 December 2020.

As with previous changes to the AIA limit, companies need to pay close attention to the timing of their capital expenditure if they are to make the most of the changes.

The AIA is applied to a business’s financial year. So, if your business has a 31 March year end, the available AIA for the year ending 31 March 2019 will be £400,000.

This is calculated as follows:

For expenditure incurred on or before 31 December 2018 the AIA will be £150,000 (£200,000 x 9/12);
For the period to 31 March 2019 the AIA will be £250,000 – (£1million x 3/12);

For the following year ending 31 March 2020, the AIA will be the full £1million.

So, if you are considering a capital purchase of £400,000, this should be deferred until after 31 March 2019, if this is commercially possible, so that the full amount would fall within the new £1million AIA limit.

If, however, the purchase needs to be made in the current financial year, and assuming that no capital expenditure has already been made, only £150,000 of the cost would be eligible for AIA if the purchase is made before 31 December.

If the purchase is delayed until after 1 January 2019 only £250,000 of the expenditure would be eligible for AIA. In these circumstances the balance not covered by the AIA would qualify for a writing down allowance, which would give relief but over an extended period.

Companies should carefully review the rules and calculate the company’s entitlement to AIA.

Once you have established your entitlement to AIA, you can then plan your capital expenditure for the coming years to maximise the tax relief.

Please note that the above apportionment rules will apply ‘in reverse’ when the limit reduces as expected on 1 January 2021.

Please also remember that the limit applies to a single company. In group situations the limit is divided between the active companies, but the group can decide which of the group companies will have the AIA as there may be a preferred recipient.

Budget set for October 29 as Chancellor seeks to avoid Brexit clash

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 21 Oct 2020 15:00:16 GMT

We finally have it – Mr Hammond will deliver his Budget speech on Monday 29th October. This is quite a bit earlier than normal and on a Monday rather than in the middle of the week. The timing has been selected to avoid the last minute Brexit negotiations expected in November.

A Budget less than a month away may dismay individuals and businesses with transactions underway as there is always a risk that the tax rules affecting their transactions may change and it may not be possible to speed them along. As an example there has been comment that the Entrepreneurs’ Relief rules, and a 10% rate of Capital Gains Tax, could be amended or even abolished.

Mr Hammond has an unenviable task of delivering a Budget with some serious issues to address.

Arguably, his three most important issues are:

The current economic health of the country;
The economic impact of the various Brexit permutations; and
A need to keep the electorate happy, and his party in power, if there is a forced general election.

In light of the foregoing, it is nigh on impossible to give any predications for measures likely to feature as part of his speech. It might be easier to guess the number of times he will use the word ‘Brexit’ in his speech.

There is no doubt that the next few months will be very trying for Government ministers and their staff – I simply hope that the 29th will not be a manic Monday for us and our clients.

Passing on the family business

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 14 Oct 2020 14:56:55 GMT

The life cycle of every family company is dotted with milestones both positive and negative. One of the biggest challenges facing family business owners is what they do with the business when they wish to take a step back or retire. Friend Partnership look at the logistics of family succession in a business and the issues you will need to address.

In simple terms there are three positive solutions and one negative – the closure and winding up of the business.

The positive solutions are:

Sell the business in a trade sale;
Sell it to the management team; or
Transfer ownership to family members.

Many family companies have a range of family members working in the business. Others may have family members who are destined to inherit the business but who have no interest in working within it.

The aim of the current owners will be to ensure that the value they have created in the business is retained for the benefit of future generations.

There are several issues they will need to address to achieve this aim:

Inheritance tax: If the business is a trading business, there should be no Inheritance Tax (‘IHT’) on death or a lifetime gift of any shares because of the availability of 100% Business Property Relief (‘BPR’).
Capital Gains Tax: For Capital Gains Tax (‘CGT’) hold over relief would be available on a lifetime transfer of shares and there would be a market value uplift on death – so no CGT to pay in either case. With the market value uplift on death it is tempting for existing owners to sit tight and hold their shares until death. Whilst this might make sense on the one hand it does restrict flexibility when considering profit extraction opportunities.
Shares: Transferring shares now, as part of a phased withdrawal from the business, could enable the existing owners to see how their intended successors perform.
Management: Ensuring that there is a strong management team would be vital especially where family members are not working in the business. Equally a strong team is also relevant where family members are involved in the business to ensure that the business is controlled and driven forward as the existing owners would want.
Wills: The existing owners need to ensure that their wills are appropriately drafted so that the benefit of IHT BPR is not wasted.
Incentive arrangements: Incentive arrangements (see my separate blog) should be considered for management team members to lock them into the business following any ownership change.
Tax reliefs: The company should be groomed for any transition because some of the tax reliefs can be invalidated if, for instance, the company is not a trading company. Thus, the company should consider very carefully its activities and assets with a view to removing those which are not used for the purposes of the
The tax issues faced by family investment companies are complex and, in many respects, less easy to address than with trading companies.

One of the most common issues we come across with family owned businesses is that the consideration of succession is often left until the last minute when the possibility of undertaking effective planning may be lost.

There is no question that the sooner succession is addressed the better and detailed advice is vital. The advice should always be kept under review as personal and business circumstances and tax law changes.

Brexit and the tax implications – advice for business owners

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 30 Sep 2020 14:36:52 GMT

Friend Partnership look at the potential tax implications post-Brexit and gives proactive advice on what to look out for in the upcoming negotiations.

It would perhaps be an understatement to say that there is still considerable uncertainty surrounding the potential financial and tax implications of Brexit for individuals and companies.

This uncertainty makes it very difficult for taxpayers to plan their affairs to accommodate any changes which Brexit might create. We have no clear idea yet whether there will be any direct or indirect post-Brexit tax changes. However, those businesses with cross border transactions are likely to face increased administration on transactions with non-UK customers.

Businesses should not sit on their hands in this hiatus period.

There are several issues you may wish to look at as the Brexit negotiations progress:

Consider your business’s VAT and customs duty procedures to ensure that they are robust. Does the business have the necessary skilled staff to deal with any additional administration?
Examine all the current tax reliefs available to the business and act to secure reliefs that may be lost or reduced post-Brexit, such as
Maximise Research & Development claims;
Consider putting in place an EMI share option scheme; and
If you plan to raise capital from external investors, secure SEIS/EIS relief now.
Consider your profit extraction methodologies and whether these need to be advanced and/or tweaked to accommodate potential direct tax increases.

The current financial and economic uncertainty may also give opportunities for business sales and purchases.

It is important for businesses to ensure that their financial and tax affairs are in order and that they have the necessary internal or external skills to enable them to cope with any potential changes. Flexibility is very important as this will enable businesses to move quickly and positively once any changes become apparent.

The uncertainty has prompted several businesses to set up operations elsewhere in Europe either as a replacement for, or in addition to, their UK operations.

If an overseas operation is part of your Brexit strategy, there are a number of key issues to consider:

Structure: whether a branch, standalone company or a subsidiary of the UK company. Watch the tax anti-avoidance issues if you are transferring assets and activities abroad;
Statutory filing requirements: make sure you understand the requirements for accounts, tax returns and so forth;
Tax framework: make sure you understand the local and national tax regime and any other levies;
Overseas profits: will you send this back to the UK or keep it in the country;
Withholding taxes: interest, dividends, royalties and other items;
Employment law and local practices: including payroll taxation and reporting obligations;
Review the double tax agreement with the UK; and
Costs and other commercial factors in setting up abroad.

There will be many changes following the UK’s exit from Europe many of which will affect the financial affairs of businesses and individuals in the UK. Some businesses are already acting, and others will need to consider what actions they may need to take as a matters progress. Sitting on the fence is not a solution.

Making Tax Digital – costs mean that businesses must act now

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 23 Sep 2020 14:27:18 GMT

In the latest update HMRC is now forecasting that the much-heralded Making Tax Digital for VAT initiative will cost, rather than save, businesses money. The cost saving element had been one of the ‘selling points’ of the new initiatives.

In addition to the increased costs for businesses, HMRC also expects Making Tax Digital (MTD) to net them less than had originally been forecast. It is a moot point whether there is any basis for the belief that HMRC will see the tax take increase because VAT submission errors are eliminated. If businesses are making errors, then some will surely be in the taxpayer’s favour. Might over-claims and under-claims cancel each other out? HMRC says not.

Business owners need to make sure that they understand the new rules and the implications for their business. The MTD for VAT initiative applies to VAT return periods starting on or after 1 April 2019 for all businesses with a turnover above the VAT threshold of £85,000.

After 1 April 2019, the manual submission of VAT return information using HMRC’s VAT gateway will no longer be possible.

Making Tax Digital will happen – so businesses should be preparing now.

Making Tax Digital – key questions that businesses must address:

Are the business’s accounting records computerised? If so:

Has the software provider issued MTD compliant upgrades?
If not, do they plan to do so?
If the answer to both points is no, then the business will need to look at alternatives.

If business records are maintained on spreadsheets, rather than a fully computerised accounting system, the business will either have to:

Put in place MTD compliant accounting software; or
Acquire ‘bridge’ software to access HMRC’s API (‘Application Programming Interface’) software platform.

If the business records are manual, the business will have two options:

Put in place an MTD compliant accounting package; or
Maintain records on spreadsheet and acquire API software to enable computerised transmission of VAT returns.

Businesses need to understand the cost implications of any new or upgraded software. The business will also need to ensure that staff who deal with VAT compliance are properly trained so that they can deal with the new rules. For many this may not be an issue. However, there are still many businesses who have been ignoring the issue or, sadly, are completely unaware of it.

Time is short, so I would urge businesses to examine the issues as soon as they can. This is not something that can be left until the last minute. Whilst HMRC have indicated that they will be lenient with businesses in the first year, that goodwill may be short lived.

It also should be remembered that the MTD for VAT is a precursor to MTD for income tax and corporation tax which will be progressed once the Brexit uncertainty has subsided. Forewarned is forearmed!

How to fund a growing business

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 23 Sep 2020 14:14:48 GMT

The UK is a great place to start a business, but can you access the finance you need to grow? Denise Friend, partner and founder of Friend Partnership offers some sage advice to current and would-be entrepreneurs.

The most important point to note in any growing business is that cash is king. Your accounts may be showing a healthy profit but if the cash isn’t there, you will struggle to cover the costs of the new machinery, the new people or the marketing required to grow your business.

When we advise businesses on financing their growth , we encourage them to consider five key areas:

Address your finances from the outset and make sure you have a sound and coherent business plan. This should set out why set out why people should lend you the finance, what you need it for, and how you plan to repay it.
Ensure you build in sufficient headroom for working capital in case there is a hiccup. This involves preparing sensible forecasts and then flexing them for different scenarios or ‘slippage’. For example, how would your cashflow be affected if you don’t get the forecasted sales or a customer is slow to pay? Your accountant will be able to help you with this.
If you are a new or early stage business applying for an overdraft or business loan, you should expect the bank to ask for a personal guarantee. The merits of this is a debate for another time but the banks are generally quite firm on the matter. You can however negotiate with the bank to set the guarantee at a fixed amount for fixed period, with criteria to release it based on your business meeting certain performance criteria.
Get the right sort of finance for each area of the business. For example, vehicles should be leased not bought, and asset finance used for plant and machinery. Key to this is making sure that the finance matches the expected useful life
Consider all forms of funding. Invoice discounting can be a great form of finance as it is linked to the growth of your business and generally doesn’t require a personal guarantee. It also worth keeping an eye out for business growth grants through your Local Enterprise Partnerships and Innovate UK but be aware that these can take a long time so are not always suitable for businesses that are looking to grow in a hurry!

Friend Partnership works with fast growth and entrepreneurial businesses to help raise finance for growth. If you are a growing business seeking advice on your finance options please get in touch .

Requirement to Correct – act now

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 16 Sep 2020 14:09:46 GMT

Friend Partnership Limited explain the steps taxpayers with foreign financial interests must take to comply with HMRC’s Requirement to Correct regulations by 30 September 2018.

The deadline for HMRC’s Requirement to Correct legislation is fast approaching and requires taxpayers to notify HMRC of any past failure to declare and pay tax in the UK on any taxable offshore income or gains that arose prior to 6 April 2017.

What is the Requirement to Correct?

The legislation is a step change in HMRC’s approach to offshore tax evasion.

The new rules sit alongside the introduction of the Common Reporting Standard and other global transparency measures, which mean that more than 100 overseas jurisdictions will be sharing financial information with HMRC in respect of UK resident taxpayers with offshore financial interests.

The information shared will be in connection with overseas bank accounts, insurance products and other investments.

HMRC will, of course, be passing on information to overseas jurisdictions in connection with foreign nationals with financial interests in the UK.

What are the penalties for failing to correct?

It is important to review your offshore affairs as failure to notify will result in you becoming liable to a ‘Failure to Correct’ penalty, which is likely to be significantly higher than it is now and could be in excess of 100% of the tax found to be due.

The new rules allow no room for error as HMRC say they will make no distinction between a deliberate act of evasion and a genuine mistake.

What do taxpayers need to do now?

If you have any offshore financial affairs – this includes, for example, rent from an overseas holiday home – then you must take action now to ensure that your past tax returns were correct. If not, you are required to supply HMRC with details of the failure, all relevant information and your calculation of the tax, interest and penalties due. This must be done within 90 days of your notification.

Making a disclosure of an error now could result in a reduced penalty and prevent any reputational damage caused by a HMRC investigation. You can make a correction before the deadline using HMRC’s digital disclosure service.

For support with your offshore tax affairs or the process of making a disclosure to HMRC, please contact us

Do women mean business?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 09 Sep 2020 14:05:16 GMT

Denise Friend, Chartered Accountant, Corporate Financier, mother, and founder of Friend Partnership, assesses whether it is realistic for women to truly “Have it all”.

Regardless of gender, if you want to rise to the top in business, then you can’t have any impediments.

I appreciate this might not be the most fashionable view, but, after more than 30 years of leading a successful business, advising high growth companies, I am firmly of the mind that career success means singular focus.

Trying to claim, as we see and hear in the media, that special rules should apply to women, will just not wash.

I learnt that the hard way many years ago. As a child of the 1950’s, there were not many role models of women running businesses. I had a world class primary and secondary state education in Liverpool, followed by a degree from London School of Economics, which at the time, was a world class University. I started work at Price Waterhouse in London, in a graduate intake of 10 women and 130 men. That was the way it was then and was probably reflective of the percentage of women who actually wanted to go into the profession at that time. How things have changed.

Within Price Waterhouse there was no prejudice against women. The starting salary was based on the class of degree you had obtained. After that, salaries rose according to one’s ability, effort and attainment, nothing else mattered. It was a high achieving environment, but we were all treated equally.

I then went to 3i, at the time the country’s only private equity firm, as an investment controller making investments into private companies. At my interview, at age 28, I was asked the question “do you want to have children”? Not something that any employer could ask today (although the banks seem to think they have a right to ask for mortgage purposes)! I answered truthfully, “yes of course I do”. I got the job. 3i recruited purely on merit.

There were very few women in the organisation, but I felt there was certainly no prejudice against us – and there were no instances where a prospective investee company asked to deal with a man rather than with me.

I had my first child two years after joining 3i and, despite fantastically generous maternity leave arrangements, I decided it was not possible to do the job that I was doing with a young family. It was not a matter of flexibility from my employers, I suspect they would have been receptive and supportive, but certain jobs, and corporate finance is indeed one of them, can – be all consuming for large periods of time, and not conducive to family life.

Herein lies the rub. From a business perspective, how employers support employees’ family lives, from maternity leave to flexible and agile working, is greatly discussed, but little leads with exploring the thorny issue of what is best for the children, particularly babies.

Something has to give. I say that from the perspective of someone who did not want to be a stay-at-home mother and had not until the point I had children, thought of a career outside a large financial institution.

With the encouragement of a company I had invested in at 3i, I decided to set-up a Chartered Accountancy and Business Advisory firm. This company became my first client. I certainly worked as hard as I ever had, but I worked differently, and was only answerable to my clients and myself. I had no ‘boss’, which made life with young children easier.

A year or so later, I had my second child, who was a premature baby. Like so many women who have their own business, there is no such thing as winding down before the baby came, so I was in the middle of a work project. My clients were very sympathetic, but only to a point, they still needed their work to be done. I then understood very clearly that one’s own domestic arrangements or unexpected dramas cannot impact on business. My problems could not rebound on my client.

This fact is something I think the debate about women in business ignores. The impact of flexible arrangements or extended maternity leave puts tremendous strain on other people. Large private businesses and the public sector are very alike in that they generally have the resources to cover the disruption; a small business simply does not have these resources.

I was fortunate. Unlike many women who have no option but to entrust their babies to nurseries or childminders, I did have appropriate support for my children that enabled me to develop my business, but I could not work in the all-consuming way that high flying jobs demand. That would have meant virtually never seeing my children, and why have children if that is the case?

Career success and family life were both achieved but I had to take a different route – there was a tradeoff.

As a woman in business and an adviser to entrepreneurs I believe we need to be realistic about what we can achieve and when we can achieve it.

Yes, we quite possibly can have it all – but not all at the same time.

Now that my children are grown up I find myself working harder than ever before and I am able to put both my life and business experience to very good use. It’s just not me be to be a ‘lady who lunches’. I can shop with the best of them but not all the time! Nor indeed do I want to be a stay at home grandmother.

But it is this agenda that is being skewed by the media.

Personally, I do not believe anyone should or should be differentiated on the grounds of gender, race or religion. I disliked women in business groups because I felt that real business issues were not being debated and I had little interest in aromatherapy or yoga. I had my children to get home to.

My experience gained very early on is that, in business, the best employers certainly care about the wellbeing of their people and will always support them through times of loss or personal tragedy, but ultimately what they are most interested in, is business. A good employer creates a good working environment for all staff because that is good business, but if one part of the workforce demands more, it creates pressures and tensions amongst and for others.

To succeed in business, you need to have focus, keep your head down and deliver on your plans. Don’t expect others to bend to you. That will not work in the longer term.

Above all, be realistic: if you have children, your life changes. It may take you longer to achieve what you believe you are capable of, but life is a long game.

A very senior investment banker once said to me that women graduates are so much more mature and well-presented than male graduates, which actually makes it quite difficult to make a decision to employ any men. It is fair to say that middle aged women are probably the best employees of all, in large part because of their ability to balance business and personal life.

So, with that wisdom in mind, I would say to employers only employ the best person for the job – even if that means that you do sometimes have to employ a man!

Denise Friend is a founder and head of corporate finance advisory at Friend Partnership Limited, and works predominantly with business owners, owner managed business and entrepreneurs.

Since Friend Partnership Limited was established as a corporate finance boutique in 1983, it has grown into a well-respected Chartered Accountancy practice offering a full range of business advisory, accountancy and taxation advice and support services. It works principally with privately owned businesses operating nationally and internationally in a variety of sectors including manufacturing, technology, renewable energy, distribution, retail and construction, and range from entrepreneurial start-ups to well-established businesses. For more information: www.friendpartnership.com

Finance for business: why banks must rethink their approach to revolving finance

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 02 Sep 2020 13:55:07 GMT

Denise Friend, founder and head of corporate advisory at Friend Partnership, is calling on British banks to change their approach to revolving finance for high growth and entrepreneurial businesses.

Give high growth businesses access to affordable bank finance and you’ll unlock growth in the UK. Business owners can plan into the medium and long-term and undertake the investment activities that will ultimately benefit UK plc.

This is surely hard to argue against, yet time and again we hear from our entrepreneurial business clients that they cannot access the bank finance they need.

In fact, obtaining the right form of finance to enable their business to thrive and grow is probably the most difficult issue that business owners have to tackle.

Raising finance

Raising finance is easy if the asset that you need to finance has wheels, with multiple places offering vehicle finance that is generally available at reasonable cost, and repayable over a sensible period of time that matches its expected economic life.

Likewise, if you are selling finished goods to businesses, you can obtain invoice finance for which the security is your debtor book. The amount that you can borrow is expandable depending on the size of your sales ledger. I have known many such businesses which have had dramatic growth and even cash in the bank, whilst being able to negotiate credit terms from suppliers.

But these forms of finance are generally unavailable to the high added-value businesses that our economy needs to encourage, such as those that have demonstrated sustainable growth and profitability, but that do not have the type of asset security that finds favour with the banks.

I don’t believe that the banks’ thinking on how to best support those businesses have moved forward for many years and, for me, this is the biggest single challenge for SMEs.

Revolving finance

Large business has access to many kinds of revolving finance be it from a bank or by the issue of bonds. The business only repays interest for the term of the loan and often that interest is rolled up. They may have to pay a greater interest rate to obtain this finance but the ability to grow their business without the drain of repaying debt means money can be put to better use and earn a greater return for the business.

These businesses need to keep within their banking covenants which, if you have a growing, profitable and well-managed business is generally easy to do, and of course there needs to be tight financial control. But, if you fit these parameters at the start of a lend, then the bank is more than happy not to be repaid. Indeed for businesses with profit over £5 million per annum, the banks are happy to advance revolving facilities or a loan with what is known as a’ bullet repayment’, meaning repayment is made at the end of the loan in 3 or 5 years’ time and is often ‘revolved’; the last thing a bank wants is its money back if it can lend to a good customer.

The challenge for SMEs

That all works nicely if you make a profit of £5 million. But what about the vast majority of high growth, privately owned businesses that make somewhat less than £5 million profits per annum?

The parameters that work for businesses making £5m profit can easily work for a smaller entity. Indeed, a company with profits of say £500k may be able to demonstrate that a revolving loan of £2.5m would work for them and enable them to grow more rapidly.

But this is where the banks are blinkered.

I cannot think of any mainstream bank which would advance a smaller business a revolving loan, no matter how compelling their story. These businesses have to seek alternatives that are far costlier, or they are pushed into the arms of private equity which inevitably means two agendas and an unwelcome short-termist approach.

There has been much in the media about how the banks treated businesses after the credit crunch.

What is spoken about much less is that the banks wrote off vast amounts of debt where they had lent to large businesses for over-priced acquisitions of either trading businesses or properties. Not for large businesses were there the personal guarantees that the banks demand from smaller businesses. I understand that the largest loan write-off at one bank was £2.5bn against just one company. So, it seems to me that SMEs paid the price for the banks thinking that their money was safer with a large company.

Many owners of growing businesses spend huge amounts of time raising finance and then having to do it all over again when they can demonstrate the further growth that the banks did not believe at the time of the first loan.

We need a grown-up debate about this. It is simply not enough to set the bar high and tell people to come back when they have achieved £5m profit. By then they will have gone to alternative and more expensive funders when they did not need to.

Time to change

Surely as a country our best interests are served by banks funding the wealth creating sector in structures that accord with what is best for them? I am not talking about start- ups which are clearly inherently risky. I am focussing on businesses that the banks will lend to but in a form and over a period that is not in their best interests, just the best interests of the bank.

We have had various forms of government funding over the years. I don’t think it should be needed, but a small guarantee premium (and I mean small, say 0.5% or so) that would enable a company to access a revolving facility would be welcomed by business as a small price to pay to reduce the number of funding rounds and enable them to focus on what is really important.

The banks should not be at risk if that was in place.

I lay down a challenge to the banks – to do what is best for the wealth creators of the country, or tell me why they can’t. I am open to debate.

Denise Friend is the founder and head of corporate finance advisory at Friend Partnership Limited, and works predominantly with business owners, owner managed business and entrepreneurs.

Bitcoin – a tax trap for the unwary?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 26 Aug 2020 14:16:30 GMT

Clients often ask us about Bitcoin and other cryptocurrencies, and how any profits and losses should be dealt with for tax purposes.

This is a developing area, and the Government and HMRC are struggling to catch up with the progress in this virtual market.

At present the cryptocurrency market is unregulated with transactions that are virtually – no pun intended – untraceable and undertaken by individuals and companies who can remain anonymous. These features make the market ideal for those undertaking illegal activity and those who perhaps wish to evade paying tax.

However, many taxpayers, who have no illegal intentions, may come unstuck because they do not appreciate the need to pay tax on the profits they may generate. The onus is on the taxpayer to make the necessary disclosures and pay the tax.

HMRC has no access to information on who holds the virtual ‘wallets’, or on who is undertaking the transactions. This must be contrasted with the position with a normal bank account, where banks will provide details to the tax collection authorities in the UK and other jurisdictions, making bank transactions more visible.

As an aside, it is interesting to note that some countries – Finland and Sweden for example, do not recognise Bitcoin and other cryptocurrencies as legal tender. In the UK, customers of the Lloyds Banking Group are not able to buy Bitcoin and other cryptocurrencies on their Lloyds credit card.

Some have argued that Bitcoin activity, due to the volatility of the market, is gambling and therefore not a taxable activity. Cryptocurrency trading however is not gambling – tax must be considered.

The most important aspect of dealing with taxation is keeping the records to support the tax return entries – take a screenshot or download any relevant CSV files at regular intervals or when trades are completed.

The tax treatment of Bitcoin and other cryptocurrencies

For companies , the profits and losses on cryptocurrency transactions will be subject to tax in accordance with the foreign exchange and loan relationship rules.

Individuals will be subject to capital gains tax on capital gains or income tax on trading profits depending on the facts. This is where problems are likely to arise, with individuals unaware of the need to report activity and whether that activity is on capital or revenue account.

A profit on a one-off speculative transaction will be treated as a capital gain.

If the capital gain exceeds the current annual exemption of £11,700, then tax will be payable.

Even if the capital gain does not exceed £11,700, detail must be reported to HMRC if the total proceeds in the tax year are more than £46,800 (i.e.: £11,700 x 4).

However, for many individuals, the profits they generate will be subject to income tax because they are carrying on a trade.

The question of whether or not the cryptocurrency transactions amount to a trade will be determined by HMRC referring to the standard ‘badges of trade’, the more important of which are:

Motive
Frequency of transactions
Size of transactions
How the transactions were conducted
Time between purchase and sale

If a trading activity is being undertaken, the tax payable could be up to 45% of the profits. This is compared with a maximum 20% tax rate on capital gains.

Individuals using bitcoins and other cryptocurrencies must think carefully about their tax obligations and remember the following:

Keep records
Declare any profits
If not registered for self-assessment – register
Keep an eye on the business press for changes to the tax rules in this developing area

If you have any doubt as to how your cryptocurrency transactions will be treated for tax purposes, please get in touch.

HMRC targets freelancers and personal service companies

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 26 Aug 2020 14:12:34 GMT

HMRC is pursuing freelance workers and contractors for substantial tax bills, as Friend Partnership explain.

As discussed in my recent post on tax avoidance , it is not just footballers and high net worth individuals who are locked in battle with HMRC over failed tax planning arrangements and substantial tax liabilities.

Hundreds of freelance workers and contractors, who used ‘personal service companies’ to provide their services to employers, are now facing huge bills from HMRC with interest and penalties heaped on the income tax HMRC say they owe.

HMRC is using the IR35 rules, which have been heavily criticised as not fit for purpose.

Many of these freelance workers were ‘duped’ into entering arrangements that saw them being ‘paid’ with loans from a trust to which their employer had contributed.

HMRC’s stance has always been that these arrangements were contrived and were simply tax avoidance.

This issue is one which has plagued many BBC presenters and highly paid staff, who were encouraged to engage with the BBC using their own personal service companies. This approach has been challenged by HMRC, leaving hundreds of BBC staff facing substantial tax bills.

HMRC is now pursuing, without fear or favour, the tax that is due.

Time to settle?

As we know, HMRC will not do ‘deals’. They will however try to agree ‘time to pay arrangements’ with taxpayers who are unable to settle their tax bills immediately – which is of course the majority.

I have heard of one example of a time to pay agreement extending over 30 years, so HMRC can be accommodating if a taxpayer can demonstrate clear financial hardship.

An HMRC spokesperson has been quoted as stating that HMRC has no wish to make anyone bankrupt but that they do need to collect the tax – I fear though that bankruptcy may be the result for some of those who are affected.

Sadly, the taxpayers concerned may have limited redress against the promoters and other supporters of the tax planning schemes. Some promoters are no longer in business and others may well be relying on the caveats in their selling documentation that no doubt indicated that the planning ‘may not work’. This is scant solace for those affected.

In the very rare instances where no caveats were given, the taxpayers may have a right of action against the promoters, if they are still in business.

Advice for those facing a large tax liability

My advice to anyone who might be in a similar position and facing a substantial claim from HMRC, is quite simple:

Do not ignore the correspondence from HMRC!
Engage with HMRC at the earliest opportunity to confirm your position and explore the payment possibilities.
If you do not have an adviser, get a suitably qualified tax specialist onboard as a matter of urgency to guide you and help represent you with HMRC.

For help or advice on your own tax planning matters please click here to contact us .

Four questions you should ask your tax adviser

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 19 Aug 2020 14:07:14 GMT

Entrepreneurs face numerous challenges when setting up and growing their businesses, and naturally the commercial issues come first. But tax should never be far behind and, if placed at the heart of business planning, can reap financial and operational benefits.

Friend Partnership Limited, set out four of the most important tax matters that entrepreneurs should discuss with their advisers.

1. Have we got the set-up right from the start?

Try to get the share ownership right at the outset. Talk to your tax adviser about your end game – having this in sight will help with future tax planning. And, it sounds dull, but take advice on how to set up robust tax compliance procedures to deal with corporation tax, VAT , PAYE and National Insurance so that this should never be a concern in the future.

2. Are we using every tax relief available to maximise our profits?

Your tax adviser should be aware of the full range of tax reliefs and allowances that can boost your post-tax profits and help to incentivise key people within the business. Talk to your adviser to make sure you are maximising your usage of the following tax breaks:

Capital allowances:

There is an annual investment allowance of £200,000 giving a 100% deduction for qualifying capital expenditure. Greater allowances are available for energy efficient technology, heat pumps, solar thermal systems etc. and there are allowances on integral features in buildings – for example heating and ventilation systems and electrical systems.

R&D tax relief:

It can be surprising how many businesses qualify for R&D tax relief – your adviser should be able to assess if your activities qualify as R & D. And, if they do, there is a 130% uplift in the tax deduction for qualifying expenditure. For early stage or loss-making innovators, there is a tax credit of 14.5% for surrendered losses. The regime is slightly different for the largest companies.

Employee incentives:

The best known of these is an EMI share option scheme , which is a highly flexible way of incentivising key members of staff and very tax efficient for both the company and the individuals. Take advice on tax-free benefits in kind and available salary sacrifice arrangements.

There are also many different industry-specific tax reliefs available, such as theatre tax relief and other creative industry reliefs, relief under the Patent Box regime, reliefs for companies with charitable activities or corporate venturing.

3. Are our external investments tax efficient?

SEIS and EIS reliefs are available for new external investors. These can be very valuable but care with the fine detail is needed by both company and investor as HMRC applies the rules with vigour!

4. What can I do to improve my personal tax position?

As a business owner you will want to ensure your own personal tax position is well managed. This ranges from managing your own personal tax liabilities (paying the right amount at the right time!) through to effective tax planning.

Talk to your adviser about personal reliefs, such as SEIS, EIS, pension contributions and charitable giving. Are you extracting profits from the business in the most tax efficient manner? Despite the tax hike, dividends remain the ‘best’ option in total tax terms but there are additional options to consider such as the use of personally held property.

Looking to the future, tax efficient investments and inheritance tax planning are essential. The value of the business should be covered by 100% Business Property Relief but check the rules.

Entrepreneurs face many challenges with their business – it can be tempting to put tax to one side. However, tax is an unavoidable cost of doing business that, with the right advice, can be managed effectively and used as a key tool to drive profitability.

For more advice, please contact us .

When tax planning goes wrong: practical advice for the ill-advised

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 12 Aug 2020 13:37:03 GMT

April 2018 has seen tax avoidance fall firmly under the media spotlight again, with both advisers and their clients facing prosecution and large financial penalties. Friend Partnership, sets out practical tax advice for individuals affected by a tax challenge from HMRC.

Much has been written in the mainstream press over the past few days about the plight of some of the nation’s footballing stars, who are now facing huge tax bills.

HMRC has issued tax demands for many millions of pounds following its successful challenge to the film investment schemes promoted by Kingsbridge Financial.

Whilst most people will have little sympathy for the highly paid footballers there is no doubt that some will have been prey to advisers who may have simply said ‘all is above board, this will save you tax – just sign here’.

They are now paying the price for their earlier inattention to detail.

But it is not just footballers who have been in HMRC’s sights – Karen Millen the fashion designer was just one high profile name from the business world to be made bankrupt recently on the back of a tax avoidance challenge. She was one of many to have taken part in a scheme known as ‘Round the World’, which HMRC found it to be firmly in the tax avoidance category, issuing Karen Millen with a repayment demand for £6 million.

However, whilst it is the footballers and high-profile entrepreneurs that hit the newspaper headlines with their failed tax planning, there are plenty of hardworking business owners ill-advised on schemes that they believed to be legitimate tax planning.

One such example is one of the UK’s largest independent electrical distributors, now facing an unexpected tax bill of almost £700,000.

The company was advised by its accountants (an international mid-tier firm) to implement a scheme that provided tax-free or tax-reduced rewards to employees. The advice was that it was legitimate tax planning.

HMRC disagreed and found the scheme to be tax avoidance, issuing a tax demand for over £692,000.

The electrical distribution business is now bringing a claim against its advisers , stating that they: “…failed to settle with HMRC within a reasonable period and/or to engage meaningfully with HMRC within a reasonable time or at all, despite the fact that the defendant knew and/or ought to have known that the claimants wanted the dispute settled quickly”.

As a tax adviser it is essential to engage early with HMRC on your client’s behalf.

I have seen first-hand the effect that a challenge from HMRC can have on a business as the owners struggle to deal with HMRC and run the business at the same time. In cases, where a business unfortunately fails under the weight of expected tax demands, those who have no involvement with the planning, such as the business’s employees, may be directly affected.

I have been involved in several situations where my negotiations with HMRC have saved businesses. I have achieved this by ensuring that the liabilities are correct and agreeing achievable ‘time to pay’ arrangements with HMRC.

Unfortunately, for the footballers involved in the ill-fated scheme, the promoters (Kingsbridge Financial) are no longer around to help resolve the issues. This will mean further fees for advisers to help them to agree liabilities and payment terms with HMRC.

How to deal with a challenge from HMRC

If you have been asked to pay back a substantial amount of tax it is worth noting that HMRC doesn’t always get its figures spot on , so there is plenty that needs to be addressed before you write a cheque to HMRC:

Has the demand been properly raised and on the correct taxpayer?
Is it a personal or company liability?
Is the amount demanded correct?
Has HMRC taken into account all payments that have been already made?
Must the liability be paid in one lump sum?
If not, on what basis could payment be made?
What evidence, personal and/or company, is there to support any inability to pay?
Cash flow forecasts
Borrowing capacity reached
No free assets

My advice to those potentially affected is to get an adviser on board quickly if you do not have one already. If you have been given tax advice that you feel may have been close to the mark, Friend Partnership would be happy to give you a second opinion – and advise you on the likelihood of a challenge from HMRC.

And going forward, remember the old adage: if it sounds too good to be true, then it most probably is.

Our approach at Friend Partnership delivers effective and legitimate tax planning. We represent our clients thoughtfully and robustly with HMRC and provide solid tax advice that we are confident will work both today, and well into the future.

For more advice, please contact us and click here to send an online enquiry .

Tax alert: Hold fire on EMI share options

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 05 Aug 2020 13:30:25 GMT

The State Aid status of the UK’s EMI share option scheme rules lapsed on 6 April 2018.

The Enterprise Management Incentive (‘EMI’) share option scheme is a very valuable tool for medium-sized companies to provide share incentives to staff. The only tax charge for an employee is when they ultimately sell the shares they gain on the exercise of the option, and this tax charge is at a rate of 10%, rather than their usual income tax rates if the exercise is more than 12 months after the date of grant.

However, because of the lapsed State Aid status, EMI share options granted from 7 April 2018, until the new State Aid approval is given, will not receive the beneficial tax treatment. This means that any increase in value of the shares will be subject to income tax at up to 45% (and possibly National Insurance Contributions) at the time of exercise of the option.

The Government is working hard to renew the State Aid status, but until the renewed status is confirmed, companies should delay granting any EMI share options.

HMRC has confirmed that EMI options granted on or before 6 April 2018 will be unaffected.

Click here for the announcement in full.

For more advice, please contact us .

Miscalculations & inconsistent advice: tips for dealing with HMRC

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 29 Jul 2020 13:27:38 GMT

If you deal directly with HMRC for your tax affairs it can be a frustrating business, with technical errors, poor communications and inconsistent advice.

Here are some tips on how to minimise stress-levels when dealing with HMRC, and ensure the advice – and calculations – are correct…

Recently, HMRC has been under scrutiny regarding their approach to complaints from taxpayers, and the lack of clarity around some of its online guidance, both of which can cause a headache for those dealing with their own tax affairs.

There are many taxpayers who chose to deal with their own tax affairs for a variety of reasons. My fear for such individuals, and any businesses they own, is that HMRC is not always right. They may get technical points wrong or simply the calculations.

Some of my previous experiences have included HMRC:

Taking an inconsistent approach to calculating tax;
Refusing to explain how they have calculated their figures;
Giving conflicting advice;
‘Shrugging’ when we have pointed out that their own computer systems are not dealing with issues correctly – this in itself frightens me with the headlong dash to the digital world with the Making Tax Digital initiatives.

HMRC miscalculations and broken calculators

HMRC offers publicly available, online tools to help taxpayers to calculate their potential tax liabilities and identify what actions they may need to take. The only hitch is that not all of them are working quite as they should…

It has been reported recently that HMRC’s Stamp Duty Land Tax (SDLT) calculator is not calculating liabilities correctly in certain situations, such as on mixed-use properties, and leaving purchasers with SDLT liabilities that are coming out too high.

Also, the child benefit calculator has not been updated for the current tax year, meaning that those who need to ‘fine tune’ their affairs to secure the necessary tax breaks are not able to do so. For example, families may want to make pension contributions to reduce their taxable earnings to below the cut off threshold but haven’t had the necessary information to be able to do this accurately.

Tips for avoiding frustration

Dealing with HMRC can be slow, often taking many weeks to receive a response to a query. I have lost count of the number of times I have had a different response to the same issue when talking to a different staff member at HMRC. As an experienced tax adviser with over 30 years’ experience under my belt, I can tell when an answer may not be quite right, but what hope does an unrepresented taxpayer have?

To maximise your chance of a successful outcome and to reduce the associated stress and frustration, I would urge all taxpayers dealing with HMRC to:

Take notes of calls, including the name of the person you are speaking to;
Put matters in writing so that you have a record;
Complain when you believe you are being badly treated; and
Push on until you get a satisfactory conclusion or resolution.

If you have any doubts you should always seek professional help – the costs may be more than outweighed by the tax savings and reduced stress levels!

Advice for HMRC?

Whilst I appreciate that HMRC is resource constrained, it is vital that it invests time and money to address the problems and get the basics right. My suggestions include:

Making sure that online tools and calculators work and are up to date;
Dealing with issues promptly;
Moving with the times – e-mail communication is the norm not the exception; and
Accepting that taxpayers want to pay the right amount of tax and understand how the amount has been calculated.

For support with your tax affairs, or if you need help resolving an issue with HMRC, please contact us .

‘Risk to Capital’ test for enterprise investment schemes

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 22 Jul 2020 13:19:34 GMT

Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) are high risk but tax efficient investment tools. Companies using these schemes now need to be aware of the newly introduced ‘Risk to Capital’ test, as Friend Partnership explain.

Introduced in the Finance Bill 2017/18, The ‘Risk to Capital’ test is now in force and requires careful consideration by organisations using enterprise investment schemes. The test also applies to Venture Capital Trusts.

EIS and SEIS shares have always been risky commercial investments, hence the tax reliefs to encourage investors to support such businesses. Through the ‘Risk to Capital’ test, HMRC is now targeting those investments that seek to limit the commercial risk for investors, whilst preserving the tax relief.

To put it simply – if the risk of you losing your money in an EIS or SEIS investment is ‘managed’ in some way, be prepared for HMRC to challenge the arrangements and disallow the tax relief.

How will the Risk to Capital test work?

The test is principles-based, with HMRC taking a view as to whether or not an investment has been structured to provide a low-risk return for investors.

There are two parts to the test, which are relevant when the shares are issued, and both parts must be met. The first relates to the intention for the company to grow and develop, and the second to the risk to the investor of loss of capital:

The issuing company intends to grow and develop its trade in the long term; and
There is a ‘significant risk’ of a capital loss exceeding the ‘net investment return’.

The latter condition is to be considered for investors generally, rather than any one specific investor.

The test is intended to exclude artificial investments that have no real prospect of risk from benefiting from the EIS and SEIS reliefs. It is not designed to affect genuinely entrepreneurial start-ups.

Each case will be reviewed on a case by case basis, HMRC resources permitting, and it should be noted that ‘significant risk’ is not defined.

The ‘net investment return’ includes:

Income tax relief on the investment
Distributions of income from the company; and
Capital growth on the shares.

What factors will HMRC consider in the Risk to Capital test?

When addressing whether or not both parts of the Risk to Capital test are met, HMRC will consider all factors and the context relevant to the company at the time the EIS or SEIS shares are issued.

The company’s intent to increase its number of employees, turnover or customer base;
The nature of the sources of income, including risk of not receiving that income;
The extent to which the company has assets that could be used to secure external financing;
The extent to which the company’s activities are subcontracted to unconnected third parties;
The ownership structure of the company;
How the investment is marketed; and
The extent to which the investment is marketed with or linked to other investments.

Post-investment checks by HMRC

In the draft HMRC internal guidance (VCM8550) HMRC indicate that they will carry out post-investment checks on companies to see if the risk to capital condition was met. They will also check whether the money raised has been used in accordance with the information provided in the company’s compliance statement.

Following these checks, HMRC can withdraw relief if the conditions are not met. Any advance assurance the company may have secured cannot be relied upon if full facts were not provided to HMRC.

HMRC’s internal guidance at VCM8560 gives four examples of how the new test will be applied. Companies would be well advised to review these before they proceed with a fund-raising exercise with EIS and/or SEIS shares.

For advice on the new Risk to Capital rules please contact the team at Friend Partnership Limited.

Read more about our R&D Tax Relief services and case studies – click here .

Employment termination – new tax rules for payments in lieu of notice

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 22 Jul 2020 13:14:21 GMT

From 6 April 2018 new rules for the calculating the income tax due on termination payments will be in place. Employers and employees should take note as the new rules may give results they are not expecting.

Until now, contractual payments on the termination of employment, typically a payment in lieu of notice (PILON), have been taxable.

Where an employee is put on garden leave or not allowed to work their notice period, the PILON has been tax-free up to £30,000.

This is all set to change on 6 April with the introduction of the new rules.

From 6 April 2018, employers will need to calculate the amount of pay a departing employee would have received, had they worked their notice period. This sounds simple but is not so when the detailed rules are addressed.

The amount above is termed the post-employment notice pay – the PENP – which will be subject to tax and National Insurance contributions as normal earnings.

Any payment amount in excess of the PENP, and relating solely to the termination of employment, will be subject to the normal termination payment rules where the £30,000 exemption will apply.

Remember too that statutory redundancy pay counts towards this threshold.

The calculations need to exclude holiday pay, termination bonuses and such like which are taxed as normal earnings – it will not be straightforward! Calculating a departing employee’s PENP will be further complicated if the individual has received a large one-off payment in his/her last payment period.

NIC introduced on the excess from April 2019

In addition, from April 2019 employers will also have to pay Class 1A NIC on any excess payment over the above £30,000 threshold. This amount will be payable ‘in year’ rather than after the tax year end as with other Class 1A NIC liabilities.

Employers seeking to agree payments to departing employees will need to review the new rules very carefully.

As with a lot of tax legislation the devil is in the detail. Getting it wrong could mean higher costs for the employer and a reduced net of tax receipt for the ex-employee.

Sadly, whilst there may have been a need to tighten the rules, the complexity of the new rules ensures that PAYE and NIC compliance continues to be an activity fraught with difficulty.

If you think these new rules might affect you or your business, please do get in touch with our expert Tax team at Friend Partnership – we’d be pleased to help you plot your way through the process.

To see the taxation services we provide click here .

Chancellor to review Inheritance Tax

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 15 Jul 2020 13:08:22 GMT

Birmingham accountants and tax experts Friend Partnership welcome Chancellor Philip Hammond’s review of the Inheritance Tax regime and we set out our wish-list of what we would like to see in the review.

Chancellor Hammond has asked the Office of Tax Simplification to review the Inheritance Tax (IHT) regime, arguing that it is overly complex and requires simplifying. Like much of the UK’s tax regime, the IHT legislation is indeed horrendously complicated and even the most well-educated taxpayer, who is not a financial expert, will struggle with some of the rules.

So what would the tax team at Friend Partnership like to see considered in the IHT review?

The main residence nil rate band should be simplified and made fair for all

The new main residence nil rate band is a classic example of a complex tax relief that is only of benefit to a section of the taxpaying public. Some may say that it is discriminatory as it only benefits those who own their own home, are married and have children.

Even when it is potentially available to taxpayers, unless they pay close attention to the rules they can easily come unstuck. If wills are not drafted correctly then the added relief may then not be secured on death.

This main residence nil rate band was sadly a lot of political capital for a small tax cost. Whilst it gave the Chancellor the headline – £1 million IHT nil rate band – all is not quite what it seems!

Simplification is to be welcomed as long as it is fair for all. We would like to see the nil rate band increased, with no strings attached, to say £500k.

This would be a far simpler measure than having the two separate nil rate bands.

Lifetime gift limits to be increased

Having to survive a gift by seven years for it to fall out of account can materially affect the planning that taxpayers are willing to consider. With life expectancies extending it is clearly very difficult for taxpayers to predict how much money they might need in retirement, and thus how much of their capital they may be able to give away.

Increasing the annual exempt amount from the current £3,000 would help those wishing to give away smaller amounts during their lifetime.

Protect BPR and APR to support innovation

Business property relief and agricultural property relief could be easy targets for the review as they could be viewed by some as benefitting those who do not need tax breaks, as they have wealth tied up in their businesses or farms.

However, these reliefs are part of a range of tax measures that genuinely support entrepreneurship in the UK. If business property relief were to be radically reformed, those running businesses might be less inclined to take the risk with a knock-on effect in all sorts of areas.

Pension freedom

For many wealthy taxpayers the new pension freedoms, and in particular the beneficial IHT treatment of pension savings on death, mean that the pressure on planning to avoid IHT may be less important than it has been in the past. Taxpayers are more inclined now to save in to a pension scheme which in theory does take pressure off the Government finances.

Year-end tax planning and the value of investments

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 08 Jul 2020 12:58:18 GMT

As the tax year end gets closer, there are a range of tax planning points that we can consider to ensure our tax affairs in order and tax reliefs are utilised. Investments are one such area that can provide some attractive tax reliefs, particularly for individuals paying tax at the higher and upper rates.

Tax benefits of investment schemes

Investment schemes are often of particular relevance to high net worth individuals with income tax liabilities to shelter at the higher and upper rates. It is well known that there are valuable tax reliefs available to individuals who are willing and able to invest in high risk private companies whether these are new start-ups or established companies.

The Seed Enterprise Investment Scheme (SEIS), for new start-ups, gives investors a tax reduction equivalent to 50% of any qualifying investment they make. The annual investment limit is £100,000.

A similar relief, albeit at a reduced rate of 30% of the investment, is available to individuals investing in a company qualifying under the Enterprise Investment Scheme (EIS).

With the EIS scheme, the annual investment limit is currently £1 million rising to £2 million in April 2018, if an appropriate proportion of the investment is in a knowledge-based company.

Click here to read more about the qualifying conditions and associated issues for the SEIS and EIS schemes in our Briefing Notes.

Timing is crucial for year-end qualifying investments

I would encourage high net worth individuals to think carefully about the timing of any qualifying investments they may wish to make.

With each of the schemes it is possible to relate back an investment made in a tax year to the tax year prior to that in which the investment is made. This is possible if there is surplus SEIS/EIS investment capacity (i.e. the £100,000 and £1 million limits have not been reached) in that earlier year and is advisable if there is a tax liability which can be reduced.

It is important to remember that the relief can only reduce a tax liability to nil. However, if tax has been paid in an earlier year, a repayment will follow.

One major benefit of relating back investments in this way, other than generating a repayment of tax, is the preservation and maximisation of tax relief for future investments.

As an example, if an individual makes a qualifying SEIS investment of £100,000 before 6 April 2018, has not made any such investment in 2016/17, and has a tax liability of a least £50,000, then relating back in full will reduce that tax liability by £50,000.

Relating back in this way will also free up potential for another investment in the current year or the coming tax year which could be related back to 2017/18. The relating back can be of as much or as little as is appropriate in the circumstances.

The crucial aspect is to ensure that the necessary investment is made before 6 April 2018 so that the flexibility and planning as detailed above can be carried out. This can be an issue, with new start-ups especially, because there is a specific procedure to be followed before a taxpayer will be able to make the necessary claims.

Specialist advice for year-end tax planning

The planning detailed above is simply following the statutory rules and should not give HMRC any reason to enquire into a taxpayer’s affairs.

It is perhaps making an obvious point, but individuals should only make such investments if they are comfortable with the underlying investment proposition – one should never let the tax tail wag the commercial dog!

Many sophisticated investors will have SEIS/EIS investments as part of their investment portfolio. They may be well used to all the relevant issues that need to be addressed to conclude a successful investment, but nevertheless there can often be some intricacies that can catch the unwary.

To discuss year end tax planning in more detail please don’t hesitate to get in touch .

R&D tax relief: what counts as ‘research and development’?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 01 Jul 2020 12:48:19 GMT

As of the Spring 2023 Budget, updates have been made regarding R&D, please also refer to our R&D page for further guidance.

The regime for providing tax incentives for companies carrying out research and development (R&D) has been part of the UK tax legislation for some years. However, many companies who are undertaking R&D are missing out on the tax relief. Friend Partnership consider why this is the case and provide some useful guidance on what activities can be classed as R&D.

Why are companies missing out on R&D tax relief?

In our experience at Friend Partnership, we come across many companies carrying out genuine R&D activity but that have not considered claiming R&D tax relief.

This is usually due to one of three reasons: they aren’t aware of the rules; they have been badly advised by their advisers; or, they may simply think that the process will be too complicated and onerous.

So what can be classed as R&D?

The important starting point is that the R&D activity must involve the resolution of uncertainties that leads to an advance in science and/or technology.

The company must be able to demonstrate that the technical problems they encounter are resolved with original solutions that advance science and technology rather than just advancing the knowledge of the staff members in the company.

An engineer may come up against a problem that he is unable to resolve by talking to appropriately qualified colleagues or by reference to technical resources – the internet or others.

Developing a solution in this case is likely to be R&D even if the work is ultimately unsuccessful. Care is needed with regard to the development of prototypes and HMRC have updated their guidance in this area.

When HMRC review R&D claims they will want to understand the nature of the advance, what problems the company faced, how they overcame them and why the information to address the problem was not readily available to a competent professional working in the field.

Product and process development can count as R&D

The R&D reliefs are not limited to those companies who are creating the latest wonder product. The rules will apply to companies who may be going about their business developing products and processes and dealing with and resolving technical problems as they go.

R&D activity may be undertaken by companies where R&D may not be the first thing that comes to mind when considering the company’s activities. Companies should thus give some thought to their activities to identify any areas where R& D might be a feature. If any are identified, do they fall within the parameters detailed above?

Examples of R&D activity that could be eligible for R&D tax relief

Manufacturers – in many cases manufacturing companies will face technical problems when producing products for customers. Some of these problems may be resolved in a routine manner, others may require more in-depth work which will fall to be treated as R&D. There are many well-known companies creating cutting edge products where R&D is an obvious element of the work they undertake;
Metal fabricators – creating a large free-standing metal structure in a hostile environment where temperature variation is a material problem. R&D needed to resolve this issue to ensure that the structure does not fail. R&D may also extend to the fabrication process needed to achieve this;
Insurance company – developing a new website which provides a customer engagement platform not seen or developed before;
Architect practices – with individual projects designed for clients there will be many construction methods never attempted before – difficult locations/environments, new materials, new techniques. There will be technical uncertainties which will need to be resolved to complete the designs and delivery of the projects;
IT companies – there are many examples of IT companies creating bespoke programmes for their own use or for their clients. In many such cases the programme will be unique and will have required detailed examination of algorithms, artificial intelligence and new computer languages to create the finished software package.

What is not classed as R&D activity?

Some companies mistakenly believe that because they describe an activity as R&D then they will be able to access the tax reliefs – they get quite a shock when HMRC reject the claims because the activity does not meet HMRC’s stringent tests.

It is important to appreciate that just because something may be new for the company does not necessarily mean it is R&D – the creation of a new website is not R&D per se, the purchase and installation of a new piece of machinery in a production line is not necessarily R&D, the resolution of problems by searching the internet is not R&D but a simple advancement in the company’s own knowledge.

Care is needed because a false claim for R&D tax relief may be more problematic than no claim at all.

Making an R&D related claim

Once an R&D activity has been established, quantifying the amount of the claim is then largely a secondary issue dictated by rules and guidelines.

HMRC’s resources are such that they cannot check every claim, with the result that some companies may believe that an R&D claim is possible for almost anything – this is sadly not true!

It is important that companies do consider making an R&D claim where they believe what they are doing is unique and meets the various tests detailed above. There are valuable reliefs available that are definitely worth exploring.

Friend Partnership – 100% success in securing R&D tax relief

If you are in any doubt about your own company’s activities and whether they might qualify as R&D, please do not hesitate to get in touch. The R&D tax relief experts at Friend Partnership have extensive experience of successfully advising companies on R&D claims. Contact us for more information.

Click here to read the Friend Partnership R&D tax relief briefing note.

You can also read more about our specialist taxation services here .

Tax affairs and image rights – lessons to be learned from footballers

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 24 Jun 2020 12:40:54 GMT

Recent cases involving the tax affairs of top-flight football clubs, international professional footballers and issues surrounding taxation of their ‘image rights’, reinforce the importance of careful planning if investigations by HMRC are to be avoided.

“There has been a spate of high-profile blows by the HMRC to aggressive tax planning schemes recently; this week they raided the offices of Newcastle United and West Ham United as part of the wide-ranging investigation into suspected criminal tax fraud in professional football, which follows on the heels of the case involving Messi in Spain, who was recently given a 21-month tax fraud sentence, and the Rangers case in the UK.

“All these hold a great number of warning lessons for all taxpayers. “The message for all taxpayers is quite clear and positive – tax planning is alive and kicking. However, more care and attention is needed than may have been the case in the past. If tax planning is carried out correctly, and at the right time, tax savings and deferrals can still be secured.”

“The Chancellor announced in his Spring Budget that guidance will be issued for employers on the taxation treatment of ‘image rights’, and HMRC have also initiated a review of compliance within the football industry.

“The aim of the latter review is to gather information which will enable HMRC to identify the risks to the Exchequer, and it can only be presumed that guidance or legislation will be issued to deal with any problem areas they identify.

Tax treatment of image rights

“A current and very particular concern of HMRC is the tax treatment of so called image rights, the exploitation of which can yield tax planning opportunities. In its simplest form, a footballer’s playing income is taxed in one way whilst the exploitation of his/her image rights is taxed completely differently. This can be particularly beneficial for foreign players playing in this country where image rights income can be channeled offshore, but with a potential loss of tax on that income to the UK Exchequer.

“Whilst the exploitation of image rights is an obvious issue for HMRC to address, their review may unearth other practices which HMRC may feel need to be eliminated or legislated for.

“I think the lesson for all taxpayers is that if HMRC believe that a particular sector of society is not playing the game, and paying their fair share of tax, they will investigate,” adds Simon.

“If there are any anomalies they will sort them. On occasions, though, the solutions can often have much wider consequences than anticipated – the old shotgun in place of the sniper’s rifle issue – and new legislation is sometimes rushed with negative consequences.

“HMRC continues to concentrate on those taxpayers who are already known to them,” he says, and this is my continuing frustration with all such initiatives and ‘reviews’; HMRC continues to focus on taxpayers they are already aware of, and are seemingly making less of an effort at ensuring that those who believe that tax is discretionary are paying their way.

“I may be being unfair and HMRC are working hard trying to deal with this group of society as well as extracting the right amount of tax from those who are compliant. However, there is plenty more to do as the man down the pub who ‘does not pay any tax’ is still seemingly earning money to pay for his pint.

“Consequently, it is perhaps no surprise that HMRC are now taking a more high profile look at the football ‘industry’ specifically, in an attempt to increase and secure the healthy income stream it generates for HMRC. The raids by HMRC on two football clubs with the mention of tax fraud and a number of arrests, is a very clear indication that HMRC are paying very close attention to the football industry and those involved with it.

“Firms still pushing aggressive tax planning schemes are a particular personal bugbear,” warns Simon, “but the new enabler’s legislation should help here once it starts to bite.”

Making Tax Digital delayed until at least 2020

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 24 Jun 2020 12:36:46 GMT

It was no surprise to many when Mel Stride MP, Financial Secretary to the Treasury, recently announced further substantial delays to the implementation of the much talked about Making Tax Digital (MTD) initiatives.

Since the MTD proposals were first announced I have been suggesting that the initiatives were being pushed on too quickly and without sufficient consultation with interested parties. There has been consultation but, up until now, HMRC have not been listening. Now, however, the dissenting voices have been heard and the new rules will not come into force, other than for VAT, until 2020 at the earliest.

VAT to be filed digitally from April 2019

The only exception to the delay is for VAT registered businesses.

MTD will be obligatory from April 2019 for VAT returns. This is perhaps a sensible move given the existing requirements for quarterly submission of VAT returns online.

Businesses can, if they wish, voluntarily adopt the MTD procedures from April 2019 for other taxes. However, I suspect that there will be very few early adopters because it could well be beyond 2020 when MTD becomes mandatory – the announcement was ‘2020 at the earliest’.

With the delay, and the staged approach with VAT, HMRC should now have plenty of time to test their systems to ensure that they work and are robust before a full roll out of MTD is sanctioned.

I believe that the announcement is very good news and does show that ministers have listened to representations and announced what many thought was an inevitable conclusion to what is potentially a very significant change to the UK tax system.

For help or advice on any tax matter contact us.

Buy to let tax changes – minimising the impact

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 17 Jun 2020 12:32:13 GMT

In the past couple of years, the Government has ‘attacked’ the buy to let market seemingly viewing it as having a harmful effect on the UK property market. As a result, many landlords are now reviewing the viability of continuing in the buy to let market. Friend Partnership examine the recent tax changes and provides some tips to help landlords respond pro-actively.

The changes to buy to let tax

The key tax changes that buy to let landlords need to be aware of are:

A 3% SDLT surcharge, which came into effect from 6 April 2016;
A change to the income tax relief available in respect of loan interest – from April 2017, mortgage tax relief will gradually be cut back, over a three-year period to 20%.
From April 2019 CGT will be payable within 30 days of completion; and

It is the second measure which is potentially most troublesome as many landlords will have geared up their property portfolios with interest only loans and will be used to getting income tax relief at their full marginal rate which would be 45%. If landlords are unable to pass on this impending cost increase to their tenants they may end up making a financial loss.

Pro-active measures for buy to let landlords

Although the changes will have a significant impact on buy to let landlords, there are a number of pro-active measures that landlords can take to help minimise the impact.

In order to avoid the 3% SDLT surcharge, purchases could be made through a company set up for the purpose. Here landlords would need to remember to include the costs of setting up and running a limited company in their analysis. Profits retained in the company for further buy to let investment will be more lightly taxed than if the income is received personally. Interest is an allowable deduction for the company. With careful dividend planning, it may be possible to reduce the overall tax burden. However, beware, whilst the SDLT surcharge only applies to individuals it may not be too long before the Chancellor extends it to residential property holding companies;
Transferring personally held properties to a company is not likely to be a viable proposition simply because of the SDLT charge on transfer, which can only be avoided if certain partnership structures are used, and also the potential capital gain on the market value of the property at the date of transfer. However, landlords could, alternatively, consider in investing in commercial or semi-commercial property, which is exempt from the SDLT surcharge;
Landlords may be able to reduce their borrowings to limit the potential impact of the interest relief restriction. However, many landlords may not have the resources to do this and selling part of the portfolio may result in higher tax charges than if they do nothing;
Landlords could sell property. However, the potential capital gains tax liability might be high if the property portfolio has been held for a number of years. Buy to let landlords should review their portfolios to confirm the capital gains tax position for each property they hold as selective disposals may be possible. Other points to consider here are:
Spousal transfers if properties are solely owned;
Timing of transactions – tax year end, matching gains and losses, annual exemptions; and
Capital losses – brought forward and arising in the year.
Pass the increased costs onto tenants. Many buy to let landlords, perhaps those with more extensive portfolios and a more ‘robust’ approach to this issue, may simply pass on the increased costs to their tenants especially if they own properties in sought after locations where rental properties are in high demand.

What next for buy to let landlords?

There is no doubt that the recent changes have caused a great deal of concern in the buy to let market.

All buy to let landlords should be considering their position and reviewing their options in the next few months so that they can put in a plan in place to deal with, and minimise the impact, of the changes.

For help or advice on buy to let tax or any other tax matter for you or your business, contact Friend Partnership or on 0121 633 2000.

Company cars – are they worth it?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 17 Jun 2020 11:35:05 GMT

For many years the company car has been a recognised benefit-in-kind for many employees. However, over the years, the tax cost of driving a company car has crept up and more employees are opting for private car ownership. Here we examine the tax implications of driving a company car and provide some tips to help reduce the associated tax costs.

Car ownership plans

There are a number of car ownership plans that enable employers to provide cars to employees without triggering the benefit-in-kind (BIK) rules. However, care is needed as recent tax cases have shown that HMRC are looking closely at this issue and seeking tax in those cases where the planning has not been implemented correctly. Typically, car ownership plans are only viable for those organisations with large car fleets.

The benefit in kind rules for company cars

The price of the car when new, including accessories, needs to be ascertained. Note it is the price when new and not second hand;
The CO2 emissions rating for the car will then determine the percentage which needs to be applied to the price to get the taxable BIK. The percentages can be found on the HMRC website for the respective tax year and typically the percentage increases year on year with a 3% addition for diesel cars;
Appropriate allowance is made for vehicles not available throughout a particular tax year or that are off the road for extended periods;
Any personal contribution will affect the calculations; and
The BIK amount ascertained above is subject to income tax at the individual’s marginal rate for the year in question.

Useful guidance can be found at: www.gov.uk/tax-company-benefits/overview

If an individual is provided with private fuel then a separate BIK charge arises which is based on an amount set for each year, to which the percentage determined above is then applied.

Note that the fuel benefit applies if one drop of private fuel is provided in any tax year and this amount is not reimbursed by the individual concerned. Travel to work is private mileage.

How to reduce the tax cost of a company car

There are, however, a few things that could be considered to help manage or reduce the individual employee’s tax cost:

Select a vehicle with as low a CO2 emission rating as possible. Vehicles with alternative technologies (electric/hybrid etc.) have the lowest BIK tax rate;
Make a personal contribution;
Review the private fuel position. In many cases individuals with a private fuel BIK are not doing sufficient private miles such that it would be ‘cheaper’ for them to pay for their own private fuel;
If your employer allows, consider forgoing a company car in favour of a car allowance. With a mileage rate at 45p for the first 10,000 business miles and the allowance this can be a cheaper alternative for some employees;
Ensure you understand the separate and specific rules to deal with older cars, vans and motorcycles which are provided to the individuals by their employers.

The push towards green technologies is ensuring that the tax rules are moving in line making it more costly for those individuals driving company cars. This increase in tax will continue with each year’s Budget.

It pays for all employees with company cars to examine the tax rules. In most, if not all, cases savings can be made. These savings can be for both the individual and their employer.

For help or advice on tax related to employee benefits or any other tax matter for you or your business, contact us for advice and assistance.

Inheritance Tax planning – don’t leave it too late!

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 10 Jun 2020 14:32:27 GMT

For many taxpayers, Inheritance Tax (IHT) planning always seems to be on the bottom of their ‘to do list’. However, with the introduction of the Residence Nil Rate Band (RNRB), accountants and business advisers, Friend Partnership, advise that now is the right time to undertake some simple IHT planning.

The RNRB was introduced on 6 April this year and forms part of previous commitments to increase the IHT threshold for couples to £1 million. The RNRB is set at £100,000 in 2017/18, rising in £25,000 increments until 2020/21. The introduction of the RNRB means that the estates of many taxpayers may now fall out of the IHT net, particularly if taxpayers are savvy with their IHT planning.

IHT planning – some considerations

Here are some useful tips to consider when carrying out IHT planning:

Nil rate band

For spouses and civil partners, any unused nil rate band (currently £325,000) of the first to die is available to the survivor on their death so a potential £650,000 on the second death;
The RNRB is only available in respect of closely inherited residential property. There is a host of conditions here. The full rate of £175,000 is not available until 2020 and like the existing nil rate band it is transferable;
The two nil rate bands will give an individual £500,000 IHT free with £1 million in total for a couple.

Gifts

Always keep a record of the gifts which have been made. This does not need to be sent to HMRC but it will help executors to decide which, if any, gifts need to be considered for IHT purposes post-death;
Gifts which are made 7 years before death all fall out of account;
There is an annual exemption each year of £3,000 along with certain other exemptions for small gifts, gifts in consideration of marriage and gifts to charity;
Normal gifts out of income are ignored. Here it is important to establish a pattern of gifting to satisfy the ‘regular’ element. Appropriate evidence will need to be retained to demonstrate that the gifts are made out of surplus income. This relief can be useful for grandparents funding grandchildren’s school fees for example;
There is a reduction in the IHT rate applicable to the estate where the individual concerned has left at least 10% of the estate to charity.

Investments, pensions and debts

Certain investments may have a favourable treatment for IHT purposes namely agricultural and business property. If certain conditions are met 100% relief from IHT is available. Note such property must be held for at least two years prior to death for it to qualify. There is a range of investments in the marketplace which may qualify for relief so taxpayers should look at their investment portfolios to see whether any realignment is needed. Remember to consider other taxes as part of any realignment exercise;
Watch borrowings and how the debts will be deducted on death. In light of recent changes to the legislation the new rules may not give the result that taxpayers want/expect;
Pension arrangements should be reviewed. Pension funds can now be passed to beneficiaries IHT free.

Finally…

Make sure that wills and powers of attorney are up to date.

IHT planning doesn’t have to be as onerous as people expect. With an IHT rate of 40%, there are some significant savings which can be made which will be no doubt welcomed by the beneficiaries. I would certainly encourage individual taxpayers to advance IHT planning up their ‘to do list’.

For help or advice on IHT planning or any other tax matter for you or your business, contact Friend Partnership Limited on 0121 633 2000 or contact us via our website .

Enterprise Management Incentive (EMI) schemes – a no brainer?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 03 Jun 2020 14:24:36 GMT

Many small or medium-sized businesses are overlooking a key piece of tax legislation which can enable them to reward key employees, and lock them into the business, in a very tax efficient manner. Birmingham accountants and business advisers Friend Partnership, explain more about Enterprise Management Incentive (EMI) schemes and the benefits.

What is an EMI scheme?

An Enterprise Management Incentive scheme allows companies, which meet certain criteria, to rewards and incentivise key staff with the award of share options.

An EMI option is great for the employee, giving them a potential capital sum at some point in the future which would suffer tax at a much lower rate than employment income.

Business owners can often be concerned at the prospect of reducing their shareholding percentage in the business. The counter to that concern is that as a result of the incentivised efforts of the employee, the value of the business owner’s shareholding should increase.

Eligibility for EMI schemes

EMI schemes can be put in place by the majority of owner managed businesses.

When exploring the possibility of an EMI scheme, it’s important to consider the following points:

The shares which are offered must be shares in an independent company or the holding company of a trading group;
The company must be a trading company (there are certain non-qualifying activities) with gross assets less than £30 million and less than 250 employees;
The individual employee must work in the company, or a group company, for at least 25 hours per week or 75% of their working time;
There are limits on the value of the options which can be granted and the limits apply at the company and individual levels;
There are various other conditions which need to be met none of which are particularly problematic in most circumstances; and
There are certain prescribed issues which need to be addressed in the EMI scheme documentation.

Benefits of EMI schemes

If the EMI scheme is properly created and implemented, the only tax liability for the individual employee will be when they sell their shares that they acquire as a result of the scheme. This typically will be on a trade sale of the business.

The individual’s tax liability will be at 10% with Entrepreneurs’ Relief, which will be available if the shares are sold more than 12 months after the grant of the option.

HMRC do not need to sign off the rules. The only HMRC input required is the agreement of the value of the shares prior to the grant of the option. In order to secure the tax efficiency mentioned above, the option exercise price must be no less than the market value of the shares under option at the date of grant. In most cases, it is possible to get a low valuation because the shares under option will be a small minority holding with all the usual discounts which apply to any such valuation.

For any business which meets the criteria, and has key staff they wish to retain and incentivise, or indeed wish to recruit with the offer of an equity stake, an EMI share option scheme is an absolute must.

An EMI scheme gives a company considerable flexibility whilst at the same providing the employee with a remarkably tax efficient incentive.

For help or advice on EMI schemes or any other tax matter for you or your business, don’t hesitate to contact us .

Enterprise Investment Schemes – is the relief too good to be true?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 27 May 2020 14:07:45 GMT

Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) provide attractive tax reliefs for those investors who are comfortable with the associated risks.

Birmingham accountants and business advisers Friend Partnership explain more about EIS and SEIS, along with some factors to consider.

EIS and SEIS – the basics in very simple terms, with an SEIS investment 50% of the investment can be taken as a relief against tax whilst it is 30% with EIS. The difference in rates is simply recognition that an SEIS investment is likely to be commercially more risky than an EIS investment.

The relief is a deduction from the investor’s tax liability in the tax year of the investment. Alternatively, part or all of the relief can be taken back to the tax year prior to that of the investment if that is more beneficial.

The relief reduces the tax liability potentially to nil but it does not create a repayment unless there is a carry back which results in a repayment of tax which has already been paid.

If the investment is held for at least 3 years there will be no capital gains tax on an ultimate disposal and after 2 years the investment will qualify for 100% Business Property Relief so no Inheritance Tax would be payable on death.

If the investment is not a success and the investor suffers a capital loss, this loss can be deducted from income. However, there are anti-avoidance rules here that limit the amount of any such deduction.

Investments which qualify for EIS and SEIS relief can give investors tremendous personal tax breaks even if the investment does not work out as anticipated.

Companies wishing to raise capital may also be more likely to attract investors if they can offer the EIS or SEIS tax breaks.

Things to consider with EIS AND SEIS

There are a number of conditions which apply to both the company and the potential investor which all need to be met before relief can be claimed. HMRC monitor the rules and conditions very closely and many an opportunity has fallen by the wayside because the rules have not been followed to the letter.

Some of the main issues which need to be considered are as follows:

The company must be carrying out a qualifying trading activity – there are various activities treated as a non-qualifying so these need to be reviewed;
There are financial limits for both the company and the investor which limit the amount the company can raise and an individual can invest;
The shares acquired must be new ordinary shares issued for cash;
The individual investor must have no connection with the company and must not have an investment that would give them more than 30% of the ordinary share capital;
The financial limits for an SEIS company are much lower than those for an EIS company;
An SEIS company must have a new trade which is a trade that has been going for less than 2 years; and
The company must be an independent company and not under the control of another company.

Setting up a scheme

The authorisation procedures for both EIS and SEIS are very prescriptive cialisfrance24.com and care is needed when dealing with the various steps and completing the necessary forms.

It is possible for companies to secure an advance approval from HMRC that their activities qualify. This is an advisable approach if there is any doubt as to whether or not a company’s activities fall within the legislation.

The EIS and the SEIS rules give tremendous tax breaks for sophisticated investors and an opportunity for potentially qualifying companies to tap into a market which they may have overlooked to date.

However, care is needed as there is devil in the detail and HMRC are assiduous in ensuring that there is compliance with the legislation at all levels. Therefore, companies wanting to raise EIS and SEIS funds need to take great care and seek appropriate advice.

For help or advice on EIS and SEIS or any other tax matter for you or your business, contact us via our online form or on 0121 633 2000 or click here to send an email .

Footballers and tax – image is everything

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 27 May 2020 13:55:56 GMT

‘Aggressive tax planning – it’s all getting rather Messi’

We comment on the tax case which went against Messi and urged all taxpayers to be careful when considering any tax planning which HMRC might view as unacceptable. As has been seen with the Messi case in Spain and the Rangers case in the UK, there is great interest shown by tax professionals and football supporters alike in the tax affairs of footballers and their clubs.

It is clear from a number of tax cases in the UK that the tax affairs of footballers are complex especially when players are coming to play in the UK from all parts of the world. The amounts of money involved are so great that this has encouraged a number of them to indulge in planning which has been found to be unacceptable to the revenue authorities both here and abroad.

HMRC review

In light of the above it is perhaps no surprise that HMRC are now taking a more high profile look at the football ‘industry’ in an attempt to increase and secure the healthy income stream it generates for HMRC.

To this end Mr Hammond announced in his Spring Budget that guidance will be issued for employers on the taxation treatment of ‘image rights’. In addition HMRC have also initiated a review of compliance within the football industry. The aim of the latter review is to gather information which will enable HMRC to identify the risks to the Exchequer. One can only presume that guidance/legislation will be issued to deal with any problem areas they identify.

HMRC’s particular concern at present is the tax treatment of so called image rights the exploitation of which can yield tax planning opportunities. In its simplest form a footballer’s playing income is taxed in one way whilst the exploitation of his/her image rights is taxed completely differently. This can be particularly beneficial for foreign players playing in this country where image rights income can be channelled offshore with a potential loss of tax on that income to the UK Exchequer. One obvious issue is the distinction between the two elements and the value attaching to each.

Whilst the exploitation of image rights is an obvious issue for HMRC to address, their review may unearth other practices which HMRC may feel need to be eliminated or legislated for.

A lesson for taxpayers

I think the lesson for all taxpayers is that if HMRC believe that a particular sector of society is not playing the game, no pun intended, and paying their fair share of tax they will investigate. If there are any anomalies they will sort them. On occasions though the solutions can often have much wider consequences than was anticipated – the old shotgun in place of the sniper’s rifle issue. Also, new legislation is sometimes rushed with negative consequences.

My continuing frustration with all such initiatives and ‘reviews’ is that HMRC are concentrating on those taxpayers who are already known to them. HMRC are seemingly making less of an effort at ensuring that those who believe that tax is discretionary are paying their way. I may be being unfair here and HMRC are working hard trying to deal with this group of society as well as extracting the right amount of tax from those who are compliant. However, there is plenty more to do as the man down the pub who ‘does not pay any tax’ is still seemingly earning money to pay for his pint.

Tax planning

My other bugbear – those firms still pushing aggressive tax planning schemes – is likely to be a reducing irritation as the new enablers legislation starts to bite.

The message for all taxpayers is quite clear and positive – tax planning is alive and kicking. However, more care and attention is needed than may have been the case in the past. If tax planning is carried out correctly, and at the right time, tax savings and deferrals can still be secured.

Taxpayers and their advisers must though pay very close attention to the changing legislation because as we have seen in the past 6 months the Government is more than happy to introduce new legislation with retrospective effect.

For help or advice on effective tax planning or any other tax matter for you or your business, contact us on 0121 633 2000 or click here to send an email .

Snap Election

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 20 May 2020 13:48:14 GMT

A dramatic Election U turn from the Prime Minister this morning – no doubt she has been taking lessons from Mr Hammond and a few others besides!

Whilst the announcement does not per se have any particular or direct relevance for the tax profession given recent events, and the looming Brexit negotiations, a few thoughts spring to mind:

Will this adversely affect any tax initiatives which are at an early stage – consultations, reviews and so forth;
Might HMRC use the cover of the Election hullaballoo to sneak out some unwelcome measures;
Could we have some interesting manifesto pledges which might give the incoming government a little more latitude so that Mr Hammond, if indeed he is the Chancellor after the Election, can push on without needing to worry about manifesto pledges;
How will any pledges affect the stratification of the tax paying public between those who have and those who have not;
Could there be some welcome ‘white rabbits’ in the manifestos – a more realistic time scale for Making Tax Digital, a lightening of the tax burden for the squeezed middle, some real incentives for business for instance; and
Will there be a rush to execute financial transactions in the fear that certain tax rules may change. There could of course be a push to delay if tax breaks are promised.

One thing I can state for certain is that it will be some time before there is clarity and certainty with regard to the future direction of the tax code in the UK. In the absence of this I and many other tax advisers will be treading very carefully when giving forward looking tax advice to clients in the coming months.

For help or advice on tax matters for you or your business, contact us on 0121 633 2000 or click here to send an email .

2017 Finance Bill gets hacked

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 13 May 2020 10:56:44 GMT

In an extreme measure the draughtsmen hacked 600-odd pages from the Finance Bill this week. This is to get the Bill though Parliament before the Election chaos breaks loose.

Whilst one’s first reaction might be to jump with joy, having seen detail of the measures which have been dropped, I urge caution as I fear that some of the measures may come straight back on to the statute book once the Election result is known and the existing, or new, Chancellor finalises their economic plans.

What’s been shelved?

The headline grabbing measures which have been shelved, for the time being at least, are:

Making Tax Digital due to come in from 2018;
The reduction in the dividend allowance from £5,000 to £2,000 due to apply from April 2018; and
The reduction in the money purchase annual allowance from £10,000 to £4,000 in theory in place now.

The first casualty is very good news as I have long stated my views that the Making Tax Digital (MTD) initiative was being rushed in. Now we may see further delays which should give more time for the provisions to be properly thought through and tested – I have no doubt that they will come in.

There are some tax practitioners who are ‘up in arms’ over this move having spent time wrestling with the new rules and setting up systems with their clients that might now not be needed as soon as they had expected.

The proposed change to the dividend allowance was always viewed as an underhand move and the abandonment of this measure for now will be welcome news to many investors and director/shareholders alike.

There are other changes that will have limited impact for mainstream taxpayers but will be welcomed by those affected.

Will the Finance Bill amendments be permanent?

I fear that some of the provisions will reappear, perhaps completely unaltered, when the next Budget announcements are made, whether in the Autumn or Spring, and whether by Mr Hammond or somebody new. It could also be the case that there are additional, and unexpected, measures on the back of manifesto pledges.

However, advisers and their clients will need to look carefully at these recent changes as the light in the tunnel may not be the freight train they feared after all.

For further information on the Finance Bill changes, or any other tax matter for you or your business, contact us on 0121 633 2000 or click here to send an email .

Hammond’s NIC U-Turn

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 06 May 2020 10:31:35 GMT

Perhaps this is not an auspicious start for the new Chancellor in that he has now abandoned one of the measures he announced only last week in his first Spring Budget.

No doubt the mounting pressure from his colleagues, and a closer scrutiny of the manifesto pledges made by the Conservatives, has led him to the conclusion that it would be inappropriate for him to proceed with the proposed increases in National Insurance for the self-employed which were timetabled to come into force on 6 April 2018. Whilst this may be good news for many, one is left wondering where he will now get the £2 billion from which he was expecting to raise with this measure by 2022.

My fear is that he may look to other perceived “inequalities” which exist within the UK tax legislation.

If the difference in the rates of National Insurance paid by employed individuals and a self-employed individual was viewed as an inequality, perhaps he will now turn his eye to the OMB sector. Here dividend planning is an integral part of remuneration strategies for all such businesses.

Notwithstanding the planned reduction in the dividend allowance from £5,000 to £2,000 planned for 6 April 2018, might the Chancellor now look to take further measures to reduce the benefits which can arise with appropriate share and dividend planning for OMBs? My fear is that he will and that we will have to wait until the Autumn Budget to find out more.

This may therefore be an appropriate time for business owners to take a close look at their profit extraction strategies.

For help or advice on this or any other tax matter for you or your business, contact us at Friend Partnership Limited on 0121 633 2000 or click here to send an email .

Click here to read our Budget comment from 8 March 2017.

Strong signs of success

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 29 Apr 2020 10:17:56 GMT

The Birmingham signage company behind the iconic digital media eyes at New Street Station has worked with Friend Partnership since late 2014, and Friend’s impact on the business has been substantial, according to Sean Morrough, MD of Concept Group .

An accountancy team that could add value

“As a rapidly growing business we realised we needed to find an accountancy team that could add value, business acumen and guidance in wider areas such as financial advice and management information. We asked our bank manager to suggest a firm that could help, and he put us in touch with Friend.

“We met with Denise Friend in late 2014 and immediately got on; they are entrepreneurs as well as accountants and understand about running a business; we needed a mentor and Denise has provided this. They understood the challenges we were facing and saw the potential in our business – we had grown from £1.5m to £8m in just three years.

“Friend helped us with the transition through the growth period and have been ‘the arm around the shoulders’ that we needed during this exciting but challenging time. They have supported us with processes and systems and always have an eye on the margins – so much so that we had a record year last year with a seven figure net profit.”

Sean Morrough established Concept Sign & Display as a traditional signage company in 1998.

In 2004, the company became one of the first to design and install digital signage. Business partner Dave Neale joined the business in 2010, marking the start of the company’s fast growth. Sean and Dave built their leadership team in 2016, and this was swiftly followed by a brand refresh and a new website, that together helped to position the business as very well placed to continue its powerful growth trajectory.

Today, Concept Group is firmly established as one of Europe’s leading visual communication experts, providing distinctive sign and large format LED solutions through the use of traditional, bespoke & digital signage. The business works with major outdoor media operators, such as City Outdoor and JC Deceaux, as well as the shopping centre specialists Hammerson, and commercial and industrial developers such as Prologis.

One of Concept’s most visible projects in Birmingham is the ‘digital media eyes’ at New Street Station. Part of the £600 million redevelopment of the station, these innovative, elliptical advertising displays, that are almost 30 metres wide, were commissioned by Network Rail and are the first of their kind of the UK’s ‘out of home’ advertising market to use large format, curved LED display solutions.

“Concept was originally a traditional signage company and this remains a significant part of our business, but digital is very important and the biggest growth sector,” says Sean.

TurnKey is our USP

“Turnkey is our USP – we are able to act as principal designer and contractor and have all the necessary expertise in-house – and this is leading to some fantastic opportunities in the UK, Europe, and also the Middle East.”

Friend’s Tax team is also a key member of Friend’s team working with Concept and advise Sean and Dave on their personal tax planning matters. Additionally, tasks that are the foundation of the day-to-day running of the business are also part of the Friend remit, from credit control and cash flow management, to payroll matters.

“The best bit about our support from Friend is the relationship and personal contact we have with Denise,” Sean adds. “She is always available and has ensured we have a real grip on where we sit with things. When the day-to-day gets a bit tricky, Denise always helps us to understand our options – she’s been a big source of comfort and a great mentor.

“Concept has a fantastic team, is a very solid business and, with the excellent support from Denise and the team, we are able to plan for the next stage of our growth with confidence.”

For more information visit: http://www.conceptsigns.co.uk/

Pictures above show digital signage and build solutions by Concept Group.

Brexit and tax – what can we expect?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 22 Apr 2020 10:06:19 GMT

The result of the 2016 referendum, in which the UK voted to leave the EU, will have a number of significant implications for the UK economy.

As the UK prepares for Brexit, Friend Partnership Limited, considers some of the likely tax implications.

Customs Duties

Customs Duty is one area that is likely to face significant change post-Brexit and will be particularly affected by the negotiations and agreements that are made. If the UK remains part of a Customs Union, little may change. However, if the UK breaks away completely, the changes are likely to be far more significant.

Currently goods can be supplied freely within the EU and European Economic Area, without being subject to customs duties. Once the UK leaves the EU/Customs Union, taxpayers are likely to face additional costs as a result of increased customs duties and import VAT.

If custom duties and import VAT are applied, the attractiveness of our exports will be reduced as they will be more costly, as will the goods we import. Furthermore, if an organisation is based in the UK and imports goods from outside the EU to sell within the EU, there will be additional duty and administration costs that will require consideration.

The EU has negotiated favourable terms with other countries, from which the UK has benefited. Once the UK leaves the EU it is likely that new agreements will need to be independently negotiated. The timeframe for negotiating new agreements is uncertain. In the meantime, the UK will be subject to less favourable terms, which are likely to result in additional costs which businesses may not be able to pass on to their customers.

In order to prepare for the likely changes to customs duties, organisations should take time to consider their existing supply chain and the likely impacts, as they may be able to make changes to the supply chain now.

VAT

VAT is a consumption tax levied in the UK under EU law, as amended following decisions of the Court of Justice of the European Union (CJEU).

Post-Brexit, EU legal constraints will no longer apply and there may be more freedom for the UK government when formulating future VAT policy.

Any changes to the VAT system will heavily depend on what form Brexit takes; if the UK was to remain part of a customs union, European influence is likely to be higher on VAT.

As VAT contributes a significant amount to the UK’s tax revenue, it is highly unlikely to be abolished completely, although it is speculated that there may be a temporary reduction in VAT on certain supplies to help stabilise the UK economy, post-Brexit.

Little planning can be undertaken until the precise terms of any changes are known.

Direct tax

Direct taxes are imposed by UK law, so are likely to remain unchanged. The current laws have been reshaped based on outcomes from the CJEU on the grounds that UK tax law was subject to compliance of the four fundamental freedoms in the EU Treaty – freedom of establishment, free movement of capital, free movements of workers and free movement of goods.

Post-Brexit, some UK tax law may no longer be required to comply with some EU laws and some EU directives will no longer apply to UK companies.

It may be that further reductions in the rates of corporation tax and income tax are announced to stimulate the economy and encourage international investment in the UK.

In addition there are already moves to protect the UK tax base from erosion as a result of the exploitation of the rules for the taxation of international transactions. There are likely to be further moves to prevent tax ‘leakage’.

EU Directives

Currently there are a number of directives in place to provide tax reliefs within the single market – particularly around withholding taxes. The Parent Subsidiary Directive provides relief from withholding taxes on dividend income made by subsidiaries operating in different EU member states, and prevents companies from being taxed twice on profits made by subsidiaries.

Post-Brexit this directive will no longer apply and as a result UK companies could face withholding taxes and double taxation unless the UK negotiates individual tax treaties with each EU country.

However, this will take time and, in the meantime, businesses will need to ensure that they factor in to any contract negotiations the potential additional costs that may result.

State Aid

State Aid regulations are imposed on governments to create a level playing field for companies across the EU. There are likely to be changes to the EU-driven tax rules which require that EU-resident individuals and companies be treated in the same way that HMRC treats UK-resident individuals and companies.

The requirement to comply with State Aid rules has resulted in the scaling-back of some UK tax laws, which were intended to boost the UK economy. Post-Brexit, the UK may no longer be required to comply with these rules, providing an opportunity to restore these tax rules to ensure they are more beneficial to the UK.

It is difficult for taxpayers to plan in advance of any expected changes but they should be prepared to revisit your financial and tax plans to accommodate any new initiatives which may be announced.

R & D Relief and Patent Box

The Patent Box tax regime is regulated by UK tax laws and should be unaffected by Brexit. This is also true for the UK domestic R & D tax relief regime. The rules are complex for both initiatives and are currently affected by the State Aid regulations mentioned above.

It will be interesting to see to what extent there is a relaxation of the State Aid restrictions with an exit from the EU.

Both initiatives provide valuable tax reliefs for businesses as is evidenced by Dyson’s decision to build an enormous ‘R & D campus’ in Wiltshire . The choice of location is likely to have been prompted by the very advantageous tax regime in the UK for innovative businesses.

It will be important for such businesses to understand how their current or future planned R & D reliefs might be affected by any changes.

Contact Friend Partnership on 0121 633 2000 or click here to email.

Since Friend Partnership Limited was established as a corporate finance boutique in 1983, it has grown into a well-respected Chartered Accountancy practice offering a full range of business advisory, accountancy and taxation advice and support services. It works principally with privately owned businesses operating nationally and internationally in a variety of sectors including manufacturing, technology, renewable energy, distribution, retail and construction, and clients range from entrepreneurial start-ups to large well-established businesses.

Chancellor should include delay to digital tax in Spring Budget

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 15 Apr 2020 09:32:37 GMT

The Chancellor should use the Spring Budget to show support for business owners and entrepreneurs and delay the introduction of new systems for managing tax affairs through a digital account.

Friend Partnership Limited has issued the plea to Philip Hammond, as he believes business owners, companies and individuals are already battling significant regulatory red tape as part of the country’s already complex tax regime as he explains:

“It is critical that HMRC takes time to ensure that the proposed digital tax systems are effective and sufficiently robust, and not simply a tool to accelerate the receipt of taxation income into Treasury coffers.”

The changes are part of HMRC’s ‘Making Tax Digital’ project and will affect all UK taxpayers: OMBs, SMEs, large corporates, the self-employed, and individuals. Over the next 18-months, HMRC is believed to be planning to roll-out its plans that will require all businesses to deal with all aspects of their tax affairs online by 2020.

“The digital tax system will mean that business and ultimately individuals will have to manage their tax affairs through a digital account and report quarterly instead of at the end of the tax or accounting year as they do now”.

“Despite the new system scheduled to come in from April 2019, HMRC is still to confirm the exact details as to how it will work, and specifically the detail of the information companies and individuals will need to provide and with what software.

“The transition will require significant investment in time and resources by all businesses and any change to systems and software will need a budget and an implementation strategy.

“For the busy FD, Making Tax Digital amounts to another raft of activity and regulation to address, and resource. Clearly, the planned new four-times a year cycle has the potential to generate more work, but the lack of information and indeed, low confidence in HMRC’s ability to effectively implement the change and cialisfrance24.com operate the new online systems, means it is impossible for anyone to plan for it.”

We believe that the knock-on effects could be huge:

“The online tax system will doubtless affect financing plans as companies may well need to recruit additional resource for in-house finance and administration teams, or buy-in specialist advice to deal with it. There is the added risk of peaks and troughs in tax liability, and for seasonal businesses for example, HMRC hasn’t offered any guidance on how HMRC will expect taxpayers to deal with these kinds of fluctuations”.

“The busy and unrepresented taxpayers will simply struggle. Making Tax Digital will be just another process for companies and individuals to suffer, manage and resource”.

“With the Spring Budget looming large on the horizon, this is the perfect time and opportunity for the Chancellor to show that the government really is in-tune with UK business and entrepreneurs, and slow the Making Tax Digital implementation. HMRC need to take time to develop and test the necessary IT systems and deliver detailed guidance to all taxpayers. If this is not done there is a real risk that the Making Tax Digital project will at best give months of uncertainty and additional work and at worst be a complete failure..”

Click here for more information about HMRC’s ‘Making Tax Digital’ project .

Contact Friend Partnership on 0121 633 2000 or click here to email.

Stop the rush to make tax digital

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 08 Apr 2020 14:49:54 GMT

HMRC needs to put the brakes on rushing through plans to make companies and individuals manage their tax affairs through a digital, online account.

The changes, set to come into force in 2020, are a key part of HMRC’s preparation for its ‘ Making Tax Digital ’ project, and will affect all UK taxpayers from large corporates to OMBs, SMEs, the self-employed and individuals.

“HMRC is simply not taking the time to review the findings of the consultation that has only just closed, or consider the widespread impact of the enforced changes. Timing really could have been better, with everyone still coming to terms with the impact and challenges of Brexit, and the Autumn Statement just around the corner too.”

“It will be a more sophisticated version of the personal tax accounts which are already in use for individuals who currently file their tax affairs via the self-assessment regime – whether online or on paper. The move to quarterly tax returns and a fully digital system will carry practical implications for a huge number of businesses and individuals, as well as their advisors.”

The planned digitisation of tax will allow taxpayers to see all of their tax details online. By 2018, banks and building societies will be required to report interest payments to HMRC to be included in digital tax accounts, and individuals will be able to report additional sources of income digitally.

“FDs of corporates will have to increase the frequency with which they review their company’s tax affairs. Individuals used to filing their tax forms on an annual cycle will need to increase this to four times each year too. For High Net Worth individuals in particular, this presents a potential headache, with the nature and location of their assets and investments often being complex.”

For businesses, the planned digital tax accounts will show an overview of income tax or corporation tax, VAT and National Insurance Contributions, plus income and expenses on a quarterly basis.

“Quarterly returns will force businesses to divert existing staff resources and expenditures to deal with the tax accounting. If they don’t have capacity to input the data and keep the system up-to-date, they will need to spend money and recruit,” says Simon.

“For larger companies with financial controllers, accounts teams and reasonably sophisticated software accounting systems in place, the switch has the potential to be quite arduous and will bring implications in terms of business and expenditure planning.”

There are also technical issues that are seen as potential problems for clients, such as whether tax advisors are going to be able to access their clients’ digital tax accounts easily and effectively:

“HMRC officials are happy to make the information in the digital tax account available to agents, who will be able to dial into HMRC’s systems, download the information they need, pull it into the tax return or the accounts that they’re preparing, or use various interfaces to see the information in the way that they want to. They’ll not be restricted to seeing the information in the way that the client does, and the format will be more flexible and more useable.

“However, HMRC officials have said that the agent will not be able to see the digital tax account itself. What they will have to do is to reconstruct the tax account from the data they have available. This has the potential to be very dangerous, as the taxpayer and the agent will potentially see different things. If we cannot see a client’s tax details, how are we supposed to help them to handle their tax affairs?”

For more information about HMRC’s ‘Making Tax Digital’ project: https://www.gov.uk/government/organisations/hm-revenue-customs .

Contact Friend Partnership on 0121 633 2000 or click here to email.

Aggressive Tax Planning – it’s all getting rather Messi

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 01 Apr 2020 14:45:34 GMT

Never having to pay tax is a utopian dream harboured by many, not least Barcelona footballer, Lionel Messi who has only recently been given a 21-month tax fraud sentence. Friend Partnership discuss the future of financial planning.

However, despite a number of high profile blows by the HMRC being administered to aggressive tax planning schemes, there are many still out there which are being very aggressively marketed.

Any financial planning sold as a product or a scheme which is tax driven and yet has no – or at best a very flimsy – commercial basis is considered ‘aggressive tax planning’.

In a bid to convince clients there is a good chance of succeeding if challenged by HMRC, promotors of such schemes will argue their planning is within the law, they have tax counsel’s opinion in support, and there is a commercial purpose. However, this confidence has not been borne out in recent court decisions that have resulted in resounding victories for HMRC on a range of tax planning schemes.

It is set to get tougher for businesses and individuals who buy into aggressive tax planning, with legislation constantly being enhanced to deal with these schemes. In many cases, users of such planning schemes will have to pay an upfront amount calculated to exceed the amount of tax they hope to save, only to be repaid as and when HMRC is satisfied the planning ‘works’.

I do not see this as a viable proposition and I have never discussed such planning with clients. However, I have assisted clients when the planning has been challenged by HMRC. Many of these clients have indicated that if they had known the hassle and heartache, as well as the level of the tax and professional costs of concluding matters, they would never have gone into the planning in the first place.

While HMRC enquiries can prove costly, time consuming and potentially disruptive when it comes to the day-to-day running of a client’s business, there can also be an adverse effect when it comes to selling the business. In many cases, clients have been forced to conclude matters with HMRC, agree to substantial price reductions with buyers, or agree escrow arrangements – which have made the potential sale not financially viable.

I am constantly amazed that taxpayers buy-into the tax avoidance dream they are sold by promoters and fail to read the small print, which clearly indicates in every case that the planning may be challenged and may ultimately not work. Oh, and by the way, you have to pay the tax up front.

I may be the odd-one-out here, but what with the range of new anti-avoidance measures and the stated intention on the part of HMRC to uncover and neutralise any ‘offensive’ tax planning, I simply cannot see the commercial and financial logic for anyone undertaking such planning. Maybe it is the influence and experience of the ‘bloke down the pub’ who apparently doesn’t have to pay any tax. Just remember that the next call he may get is from the taxman.

Panama Papers – the veil of secrecy removed

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 25 Mar 2020 15:42:40 GMT

The fallout from the release of the Panama papers is continuing, as investigative journalists sift through the huge amount of information released in what The Guardian called ‘history’s biggest data leak’. With 11.5m files from offshore law firm, Mossack Fonseca, now shared internationally, the ‘veil of secrecy’ has been released with quite a flourish.

While a number of individuals have been identified as being ‘up to no good’, there is also evidence many have set-up structures through the firm concerned to hide their own involvement in certain transactions. This of course may well be in addition to securing tax savings – which may or may not have been available had they had conducted their affairs in a more traditional, morally-acceptable way.

Transparency has been an issue in the UK for some time. In fact, moves have recently been made to address this with the introduction of rules for the disclosure of controlling interests in UK companies and limited liability partnerships.

What does this additional layer of reporting achieve? The measures are designed to create transparency and force disclosure of detail with regard to individuals who are able to control companies. Quite simply, this will help various agencies to ensure all is in order. In particular, HMRC will be better able to track down the individuals behind corporate entities to ensure necessary tax rules are being followed at both a personal and corporate level.

How does this affect today’s business owners? From April this year, most UK companies and LLPs have been required to keep a ‘persons with significant control’ (PSC) register. This will detail the individuals who are achaten-suisse.com the ultimate beneficial owners of the business. The register will be a matter of public record and will become part of the annual filing routine for corporate entities in the UK.

Who is classed as a ‘person with significant control’? The rules define control as being present where an individual meets one of the following five conditions with regard to a corporate entity:-

Directly or indirectly holds more than 25% of the shares
Directly or indirectly controls more than 25% of the votes
Directly or indirectly is able to control the appointment or the removal of the board of directors
Is actually able to exercise significant influence or control over the company
Is actually able to exercise control over any trust or firm which itself has significant control as defined above over the company

The PSC register will need to contain the following detail for an individual who meets one of the above conditions:

Name
Service address
Country of residence
Nationality
Residential address
Date of birth

Are there any exceptions? The public register will not include the residential address, unless it is also a service address. It will also omit the day element of the date of birth – unless the company has opted to keep its registers centrally at Companies House rather than at its own registered office – an option that will be available to private companies and LLPs.

For certain companies it may be appropriate, for the safety of the individuals concerned, not to have residential addresses in the public domain. This may be necessary where a company is involved in activities which a group of society may find objectionable.

Today’s business owners must be aware of these recent changes and all companies should make sure they have created the necessary PSC register. I would also urge those responsible for reporting to have a procedure in place to make sure the information is regularly updated.

It is important to note this is not a matter which can necessarily be deferred, especially if an entity is undergoing any form of due diligence exercise – an onward sale or negotiating a new bank facility for instance. A copy of the PSC register may be requested as part of the due diligence exercise.

As the ripple effect from the Panama leak continues to be seen, we are moving towards a new era in transparency and accountability, and it seems there will finally be fewer places to hide for those who are looking to shroud their tax affairs in secrecy.

Pensions – some nasty traps!

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 25 Mar 2020 15:38:30 GMT

Birmingham chartered accountants and business advisers Friend Partnership give important advice on pensions.

Urgent advice may be needed so read on…

With all the recent changes to the tax treatment of pension contributions, planning in this area has become much more of a minefield than ever it was.

Individuals are understandably concerned about what might happen in the Budget on 16 March. A good number are considering what actions they may need to take prior to the Budget or the tax year end in light of some of the ‘scare’ stories in the press.

Whilst looking forward is to be commended some taxpayers are finding that there are some inherent problems with the pension planning they may have in place already. So it pays to be sure you understand your present pension position.

The existing rules are well known:

An annual allowance of £40,000 per pension input period – a year typically. Note that PIPs are aligned with the tax year for 6th April 2016 onwards; and
A lifetime allowance of £1 million from 6 April 2016.

The potential pitfalls and planning opportunities are perhaps not as well known.

If the annual allowance is exceeded in any particular year a tax charge will arise. Remember that for those taxpayers with long established pension arrangements any unused capacity in the previous three years can be taken into account in a later year with any excess over the £40,000 taken from the earliest of the previous three years.

There is also a ‘bonus’ in the current tax year in that if a taxpayer has already used up the £40,000 at the start of the year – i.e. before 8th July 2015 – they can still make a contribution of £40,000 before 6th April 2016. This is as a result of the alignment of the PIPs with the tax year.

Remember also that the £40,000 annual allowance will be reduced for high earners with a £1 reduction for every £2 of ‘adjusted income’ above £150,000 until the lower contribution limit of £10,000 is reached when the adjusted income level is £210,000. Note here that ‘adjusted income’ is total gross income from all sources with the addition of employer’s pension contributions.

The above rules can give considerable contribution potential in the current tax year. However, note that there may be a further restriction depending on whether the contributions are personal or company. Personal contributions are limited to the taxpayer’s ‘net relevant earnings’ in the particular year. Company contributions are not restricted by reference to earnings. However, company contributions must meet the ‘wholly and exclusively’ test to be deductible for corporation tax purposes.

For those individuals in final salary schemes great care is needed and immediate advice should be sought if none has been taken already! The calculations which determine whether or not the annual and lifetime allowances have been exceeded for final salary scheme members are complicated and can potentially lead to some very material tax liabilities which may have to be funded out of post tax income rather than being set against the pension fund itself. This latter course of action will obviously reduce the pension fund and thus future pension entitlements.

This final salary issue is particularly relevant for those taxpayers with NHS pensions. A modest increase in salary can have a dramatic effect on the calculation of excess charges.

If you have a finally salary pension scheme and have not already taken advice then you should do so urgently.

There is no doubt that we will see further changes to the pensions regime in the forthcoming Budget.

The change which seems to be the favourite within the industry is a restriction of tax relief on pension contributions to a flat rate with that flat rate yet to be determined. It seems unlikely that the Chancellor will change the 25% tax free lump sum rules for existing funds but he may do so for future contributions. The suggestion of a ‘pension ISA’ would be a fundamental change to the pension framework which would take a number of years to implement and bed-in.

The pensions regime is now tremendously complicated and there are plenty of examples of instances of individual taxpayers being faced with unexpected tax liabilities which in some cases have been very difficult to settle.

I have no doubt that securing appropriate advice is advisable if only to ensure that any tax liabilities are not totally unexpected.

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Acquisition of Coventry manufacturer

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 18 Mar 2020 15:04:22 GMT

Acquisition of Coventry manufacturer creates new force in the UK’s laser cutting and fabrication industry

Coventry-based HTA Group Limited, one of the UK’s largest subcontract manufacturers, has been acquired by Lancashire-based WEC Group in an undisclosed deal which creates a business with 800 employees and a projected £75 million turnover.

Established in 1973, HTA Group is a leading supplier of laser cut parts, sheet metal components and fabricated assemblies. Operating from an advanced manufacturing facility in Coventry, it has a 130-strong workforce and a £10 million annual turnover.

The new multi-million pound partnership created through the sale of the business will enable HTA Group to continue its expansion delivering market leading levels of customer service and engineering capability, while also enabling WEC Group to build on its growth within the UK’s laser cutting and fabrication sector.

HTA Group managing director, Adam Thomas, will work within the expanded business on a consultancy basis, while his brother Philip Thomas also remains a key member of the HTA Group team.

Adam Thomas said: “There are great synergies between HTA Group and WEC Group and this deal makes both businesses much stronger entities. It really enhances our capabilities and capacity and that is a major advantage to all our customers.”

WEC Group has a 35-year track record in investment and job creation. The company, formed in 1979, has an extensive customer list across a wide range of industries including rail, automotive, nuclear, offshore oil and gas and aerospace.

Wayne Wild, commercial director of the family-owned WEC Group, said:

“This is an exciting new chapter for HTA Group, its workforce and its present and future customers. HTA Group’s partnership with WEC Group will create a major new force in the UK’s laser cutting and fabrication sector and allows both companies to offer more to our customers.

“Continuous investment in new technology and in our workforce has been the hallmark of the WEC Group’s success and we’re delighted to welcome HTA into our growing family. It’s a really great fit for our business. The expanded group makes us one of the largest laser cutting and fabrication operations in the UK. It means we can offer more services and skills to our customers.”

The sale has been completed with the support of Birmingham-based accountants and business advisers Friend Partnership Limited, which has worked with HTA Group for the past three years.

Friend Partnership Limited, said: “HTA Group has become well-established as a customer-focused business which prioritises investment in innovation and ongoing improvement. For several years now, Friend has worked closely with Adam Thomas to help shape the strategic future of HTA Group, and we are thrilled to have played a key part in a landmark deal for the business.”

Along with Friend Partnership Limited, Higgs & Sons’ Birmingham office acted for HTA Group.

R&D Tax Credits – what are you waiting for?

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 11 Mar 2020 14:58:57 GMT

Friend Partnership Ltd asks if SMEs are waiting too long to reap the rewards of R&D tax credits…

For any business undertaking qualifying R&D activity, tax credits can be a very welcome cash flow boost. In fact, the current R&D regime is hugely beneficial – the tax deduction uplift is currently 130% with a payable tax credit of 14.5% available from HMRC for any losses surrendered.

10-day turnaround

However, many SMEs are waiting too long to reap the financial rewards of R&D tax credits, not realising that they could be securing repayments from as early as 10 days from the submission of the claim.

Alarmingly, some tax professionals involved with such claims are happy to perpetuate the myth that R&D refunds involve reams of paperwork and that HMRC takes its time in processing them. Businesses are therefore needlessly waiting months for tax repayments to hit their bank account.

When it comes to quickly and efficiently securing R&D tax credits, it is important to remember that claims will only be successful if the business can demonstrate that what they are doing is innovative and creating an advance in science or technology – rather than simply an advancement in their knowledge.

It is now possible for companies who are undertaking R&D for the first time to get advance assurance from HMRC by completing a simple online form. Care will be needed in completing the form so that the best possible explanations are given for the R&D activity.

This is well worth doing. If HMRC give a positive assurance they will not look at R&D claims for this company for a period of three years. This facility will help speed up the acceptance of the company’s first claim and any subsequent tax repayments.

When it comes to the misconception that HMRC require long reports and huge amounts of supporting information, I would urge businesses to understand this is simply not the case.

A straightforward process

The process is relatively straightforward and is by no means onerous. Firstly, companies must ensure the detail in the tax computation gives a clear breakdown of the R&D expenditure. The detailed supporting narrative can be held in reserve to use if HMRC ask any questions rather than necessarily being provided with the claim.

Typically with R&D claims there are a series of questions which each and every company will have to address – questions which may well be asked by HMRC in support of the claim. In many cases claims are never questioned, but I would always ensure that the claim is valid and supporting information is available if required by HMRC.

The questions are:

What is the scientific or technological advance being sought?
What are the scientific or technological uncertainties involved in this process?
How does the project plan to deal with these uncertainties?
Why is the knowledge being sought not readily deducible by a competent professional?

Ultimately, for businesses with established R&D activities, which may or may not have been questioned by HMRC in the past, the turnaround time for R&D repayment claims can be very quick and can be secured without the need to provide HMRC with reams of information. Don’t be fooled into playing the waiting game.

OMB company – onward sale

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 11 Mar 2020 14:19:44 GMT

Chartered accountants and business advisers Friend Partnership discuss possible opportunities for OMB corporate clients.

As a tax practitioner I am always keen to understand the end game for the shareholders of my OMB corporate clients. I believe that it is very important to understand a client’s aims at the outset as this will undoubtedly have an impact on the financial and tax decision making as the business grows and progresses.

In most cases it will be important to create an appropriate business model so that when the time comes to ‘sell’ there is a solid and positive balance sheet and profit stream for the business.

There are many ways in which a company can be ‘sold’:

A trade sale of the business or shares in the company;
A management buy-out or buy-in;
A listing of the shares on the junior or senior stock markets;
Passing the business onto family members;
Passing the business onto employees; and
Winding down and liquidation/dissolution.

With the first three possibilities the owners of the business will be keen to: maximise the value they receive for their shareholding; reduce the personal tax liability on the sale; and maximise the return they get from the ‘use’ of the post-tax proceeds.

Maximising the value is not directly a tax issue but some of the relevant issues will be:

Creating a solid set of results for the three/four years leading to the disposal;
Ensuring that all of the company’s affairs are in order so that the due diligence exercise will not highlight issues which might scupper a sale;
If there are any problematic issues these need to be raised with the potential purchaser as early in the negotiations as is possible;
Ensuring that all the assets a potential purchaser might want to acquire are within the company and any which they would not wish to acquire are removed from the company paying heed to the tax implications that might arise in bringing this about; and
Ensuring that any tax issues resulting from any HMRC enquiries are resolved and if this is not possible that the potential cost of appropriate resolution is identified.

In most cases the business owners will wish to sell their shares in the company rather than sell the assets out of the company. This can often create conflict because the potential purchaser may not wish to acquire the shares because in so doing they acquire the company ‘warts and all’.

An asset purchase would enable a purchaser to acquire only those assets that they want with no hidden current or future liabilities.

Until the Summer Budget there was also a tax benefit in that the purchaser would have been able to get a tax deduction for the amortisation of goodwill that might have featured as part of an asset purchase. With the relief now removed for disposals after 8thJuly 2015 it will have to be seen whether or not this reduces the pressure against a share sale.

If shareholders are selling their shares the most important issue for them will be assessing the level of capital gain and the rate of tax payable on that capital gain.

If they are fortunate enough to hold EIS shares in the company then providing all the necessary conditions are met there will be no tax liability.

If this is not the case, the availability, or otherwise, of Entrepreneurs’ Relief (‘ER’) will be important as this will give them an effective capital gains tax rate of 10%.

In very simple terms ER is available to individuals disposing of shares in a trading company, or the holding company of a trading group, where they have held 5% of the shares and votes in that company for at least twelve months prior to the date of disposal and they have been an officer (director or company secretary) or employee of that company throughout that same 12 month period.

In most OMB situations, ER will be available. However, if it is not in all likelihood the gain would be taxable at 28% – nearly three times the cost so well worth some planning to secure ER.

With most disposals it is never simply the case that cash is paid for the shares sold. There can be many variations the most common of which are: simple cash deferral, loan notes in addition to cash, shares in the purchaser in addition to cash, or shares for shares.

With each of these variations there are varying tax treatments to examine which are beyond the scope of this blog. Suffice it to say that care is needed when vendors are agreeing the consideration not only to establish the amount but the way in which it will be satisfied and the potential tax cost associated therewith. In most cases vendors are able to agree with the purchaser a structure which minimises the tax liabilities for the vendor if this is not possible it may not be the right deal!

There are various elections available which will help a vendor manage the quantum of the tax liability and when it needs to be paid. Care is also needed with regard to ER because there are a number of detailed conditions which if not met will triple the tax liabilities.

With capital planning the tax liabilities and associated cash flows can often be managed. In certain cases it is possible to defer the tax liabilities on the sale by reinvesting the sale proceeds in appropriate investments. In many cases this is not a realistic proposition because the main reason for the sale may be to free up cash to enable the vendors to pursue other business initiatives or clear personal borrowings or indeed provide for a future pension.

If the business owner wishes to pass on the business to family – it is possible to do so in most cases without creating any tax liabilities with appropriate tax holdover elections.

If the business owner wishes to pass on his business to the company’s existing workforce there are ways in which this can be done in a very tax efficient manner.

One particular element of an onward sale is the potential Inheritance Tax (‘IHT’) implications. In all likelihood, prior to any disposal, the company shares will rank for 100% Business Property Relief. This means that on death, or certain lifetime transfers, the shares would be ignored. This in turn can lead to various planning opportunities which are beyond the scope of this blog but which I will return to in a later blog.

However, as soon as the individuals sell their shares in the company and receive cash or other securities in all likelihood these amounts will be fully exposed to IHT. It is thus important as part of the sale planning for the individual vendors to have in place an IHT plan to deal with the net sales proceeds.

In addition to a plan to deal with IHT they should also have an investment strategy to deal with the post-tax proceeds of sale. What I have in mind here is the individuals ensuring that they maximise any tax free allowances available whether it be ISAs or other investment products and ensure that they remember to set aside funds to satisfy any future tax liabilities.

The tax planning for an onward sale cannot start soon enough. If it is done properly significant savings and deferrals can be secured.

If you would like to learn more, contact us here or give us a call on 0121 633 2000.

HMRC’s going digital

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 04 Mar 2020 14:02:05 GMT

Birmingham based chartered accountants and business advisers Friend Partnership discuss the recent developments in digital tax.

The IT boffins at HMRC have announced that by 2020 all businesses and individuals will be able to manage their tax affairs online.

This is being heralded as a great move for taxpayers which will enable them to manage their tax affairs more efficiently. What HMRC have been less vociferous about is that the new digital regime will require certain taxpayers to pay tax sooner than they do at present.

The proposals have created quite a storm in the tax community especially with regard to smaller businesses which are already suffering from an unacceptable level of bureaucracy.

Some observations:

HMRC will require taxpayers to maintain their tax affairs on a quarterly basis;
The quarterly reporting will also require quarterly tax payments in certain cases – an acceleration of tax payments from the position we have now;
Whilst the new approach may eliminate some paper returns quarterly reporting could create a tremendous burden of extra work for many taxpayers, or their advisers, particularly small businesses suffering under the weight of red tape and potentially without the IT systems that may be needed to comply;
Garbage in Garbage out – just because information is collected digitally does not mean that it is correct;
Not all information can be collected digitally – this is where the extra work will be necessary;
As a result taxpayers may have to get extra professional help to sort this or indeed get professional help when none is needed at present. As a result this may be more expensive than the existing annual arrangements;
Taxpayers are being promised free software to help with this process. However, will the software be compatible with existing commercial software or will taxpayers have to pay out for additional/improved software;
HMRC, in what might be described as a heavy handed approach, have completely overlooked the fact that there are many taxpayers who comply with the current tax filing requirements without any recourse to the digital world. This may be through choice, cost constraints, religious grounds or an inability to master the technology. How are these taxpayers going to be accommodated?; and
HMRC are considering their proposals during the course of 2016. However, will HMRC listen or will they plough on with their heavy handed approach seemingly unaware that there are many who have no wish to join the digital age.

The professional bodies are making their views known to HMRC on behalf of their members with the general thrust being that whilst the moves are generally positive the potential burdens that this move will place on individuals and businesses must be considered.

It is also interesting to note that there is an online petition calling for HMRC to abandon/materially modify the proposals.

Once the detailed proposals become clearer we will be working with our clients and others to ensure that the impact of any changes is managed in a positive manner.

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OMB company – profit extraction

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 26 Feb 2020 13:28:47 GMT

In this Blog, we discuss owner managed businesses (OMBs) and profit extraction.

It is perhaps one of the commonest questions I get asked by owners of OMBs – how can I take money out of my business tax efficiently?

Clearly this question is only raised with me by individuals who are running their business activities through a company.

One very important, and often overlooked, issue is the fact that there is a clear distinction between corporate and personal money. It is unfortunately a common situation that many a business man/woman has got into problems by not appreciating the distinction and in particular the fact that tax is nearly always relevant when extracting company funds.

The current taxation regime is such that extracting profits from a company by way of dividends, rather than salary/bonus, is the most tax advantageous route when looking at the total tax take. It is for this reason that many businesses are set up as companies to enable this planning to be exploited. This is why the owners of many OMBs are typically paying themselves a modest salary topping that up with the payment of dividends on a regular basis.

The changes to the tax treatment of dividends announced in the Summer Budget have attempted to deal with this issue. However, the planning is still sound albeit the tax saving will be eroded from April 2016. The owners of OMB companies will need to be alive to this change and the message it may be sending that the planning opportunity is in the Government’s sights such that the ‘advantage’ may be further eroded over time.

There are some issues to bear in mind when pursuing dividend planning in this way:

Salaries can be paid regardless of the state of the company’s finances, i.e. the company does not necessarily have to be a profitable business and have available reserves.
It follows from the first point that dividends are only payable if there are sufficient distributable profits to make the necessary payment. Care is needed if regular dividend payments are being made during a financial year as allowance will need to be taken for expected events which might arise later in the year, i.e. just because there may be available reserves six months into the year, based on reserves brought forward and profits to date, that is not to say that there will still be available reserves at the end of the year if that business has a poor second half of the year or a cataclysmic event which wipes out profits. I have seen many a situation where companies have ended up in a position where the dividends paid earlier in the year have turned out to be ‘illegal’ and have needed to be dealt with slightly differently, when preparing the year-end financial statements.
There must be sufficient reserves to enable the payment of the full dividend on the class of shares concerned. If one shareholder decides that they do not require a dividend and choose to waive that dividend, that must be taken into account when quantifying the dividend payable to the other shareholders. As an example, if a company has distributable profits of £100 and two shareholders owning 50% of the shares which are of the same class, the maximum dividend payable to each shareholder is £50, i.e. a dividend of £100 cannot be paid to shareholder A if shareholder B decides to waive their entitlement.
The tax liability with regard to salary/bonus will be dealt with in accordance with the PAYE rules whilst the tax payable in respect of the dividend will be payable in accordance with the personal tax self-assessment regime, i.e. a balancing payment 31 January after the tax year in which the dividend is paid with payments on account 31 January, 31 July thereafter.
As a useful rule of thumb where the gross dividend payable falls totally within the 40% tax band, the tax due on the dividend is 25% of the net amount where the dividend falls entirely within the 45% band the tax due is 30.56% of the net dividend. The gross dividend is the net divided plus the tax credit of one ninth so net dividend times ten divided by nine, e.g. £100 x 10 / 9 = £111.11. The check is to ensure that the tax credit is 10% of the gross dividend. The new rules announced in the Summer Budget will remove this complication. I will have a later blog on this and the planning opportunities available in the run up to April 2016.

Other ways in which funds can be extracted from the business are:

Ensure that spouses and other family members are properly rewarded for the work that they may do for the business albeit that they may not visit the company’s premises on a regular basis. They may be supporting the business with work they do at home.
Consider charging the company rent for assets owned personally which are used in the business. Typically this will be office/factory premises that may be held personally. Income tax payable at the highest marginal rate will be due on any such income. There are some important Capital Gains Tax and Inheritance Tax implications of doing this which I will address in a later blog.
Whilst not necessarily giving immediate access to cash, pension contributions should also be considered in light of the relaxation of the rules with regard to accessing pension pots. For those business owners of a certain age this can be attractive especially if they have any element of the tax free lump sum available to be drawn from their pension arrangements.
Loans can be taken from the business if there is a short term cash need. If the loan is repaid within 9 months of the company’s year-end then the only tax payable will be on the benefit in kind resulting from the ‘cheap loan’ if no interest is paid to the company by the borrower. If the loan is not repaid within the 9 months the company will have to pay 25% of the amount outstanding. That amount will be repaid to the company as and when the loan is repaid but only when the corporation tax return for the year of repayment is processed by HMRC. So timing is critical with such planning as there are some detailed anti-avoidance rules which prevent such practices as ‘bed and breakfasting’.

There are a number of issues which need to be borne in mind when considering profit extraction, the more important of which are as follows:

The strength of the balance sheet and how this might be weakened by extractions and how this might be relevant for external users of the financial statements.
Available cash in the business. Loan accounts can be used if a dividend is required for tax planning purposes.
Cash flow implications for the individual recipients in terms of both the extraction and the tax due on that extraction.
Problems can be encountered with mortgage lenders where dividends feature heavily as part of the income stream for the mortgage applicant. In most cases it will simply be necessary for the mortgage applicant to provide the potential lender with the appropriate income and tax statements from HMRC (SA302s) which will address any concerns with regard to the discretionary nature of dividends.

Profit extraction remains a recurrent theme for OMB companies. If profits/cash do not need to be retained in the business and are required for personal use a company is perhaps not the best structure. Alternatively, if cash is not an immediate requirement for the business owner a company can be a useful way by which tax liabilities can be managed.

OMB companies – management and staff incentives

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 19 Feb 2020 16:38:23 GMT

Chartered accountants and business advisers Friend Partnership discuss management and staff incentives with OMB corporate clients.

Any business will need to ensure that it rewards its management and employees proactively to ensure that those currently with the business stay with the business and those that the company may wish to attract to the business are encouraged to do so.

One element will be the financial reward structure at the company which will typically have three elements; cash, benefits in kind and equity participation.

The split of the total package across these various elements will be important in determining the personal tax liabilities for the individuals concerned and the amount of work the company will need to do to deal with tax compliance.

There is not too much which can be said with regard to cash – any amounts paid in cash or cash equivalent will be taxable on the employees in accordance with the PAYE regime.

There is draft legislation which deals with the taxation treatment of benefits in kind. The most important starting point is to appreciate that anything an employee receives as a result of their employment will give rise to potential tax liabilities. The amount of the liability will depend upon the nature of the benefit in kind and whether or not there is any specific legislation which deals with it.

There are also some benefits which do not give rise to tax liabilities: childcare vouchers, season ticket loans, bicycles provided under cycle to work schemes, being three of the more common such benefits – there are others so always check.

Common taxable benefits in kind are items such as; private medical cover, sports club membership where the taxable benefit for the employee is the cost to the employer of providing the facility.

One issue which has always caused problems is reimbursed expenses. These in theory need to be reported as a benefit in kind. It is then up to the employee to make a claim on their personal tax return that such expenses are for business purposes and should not therefore be taxed.

It is perhaps worth mentioning that an employer can pay for up to £8,000 of relocation costs for relocating employees without this giving rise to a taxable benefit for the employees concerned.

There are some complex rules to deal with the following:

Cars and vans and fuel provided for private purposes. In essence the extent of the tax liability is driven (no pun intended!) by the emissions of the vehicle and its value.
Living accommodation provided by an employer;
Assets made available to employees – holiday homes, yachts etc. will give rise to a taxable benefit equivalent to 20% of the value of the asset concerned;
Beneficial loans received by shareholders and employees; and
With each of these benefits care is needed to ensure that each separate benefit is dealt with correctly as material tax liabilities can arise if errors are made.

All taxable benefits in kind must be returned on form P11D after the end of each and every tax year. This can be a considerable burden for companies. However, HMRC until recently enabled employers to agree a PAYE dispensation which effectively meant certain items need not be reported. Typically a dispensation would have covered: reimbursed expenses solely for business purposes, fixed allowances, business mileage costs and anything which would not give rise to a tax liability for the employee.

However, a new regime is being introduced which will do away with PAYE dispensations and instead require employers to deal with certain benefits in kind through the PAYE system. I will cover this is a later blog.

Equity participation

One increasingly important way in which individuals can be rewarded is by giving them a minority equity stake in the company they work for.

This can be used as an incentive to both encourage staff to join the business and work hard whilst there knowing that the value of their stake will hopefully increase with the effort they put in.

An equity stake may also help to discourage key personnel from leaving the company.

If shares are simply given to employees they will have an income tax liability by reference to the value of the shares they receive – not much of an incentive unless the company puts the employee in funds to pay the liability with the payment of a bonus say. The payment of a bonus can prove costly for the company though when looking at the cost on a ‘grossed up’ basis.

Equally it is not particularly attractive asking individuals to pay the market value for the shares, even if it is a heavily discounted value because it is a minority stake, in order to avoid an income tax liability.

HMRC have recognised the need to create a tax framework for employee equity participation which enables share incentives to be provided to individuals without creating unwelcome tax charges for the recipients.

There are now a range of approved share incentive arrangements which achieve this end result.

For large companies, with many hundreds of employees, there are a range of possibilities: Share Incentive Plans, SAYE option schemes, Employee Shareholder Schemes and Company Share Option Plans. However, all these require HMRC approval and are most appropriate for larger companies.

For OMBs in many cases the above schemes are not appropriate primarily because of the cost and administration which accompanies the implementation and running of the schemes.

The main alternative for OMBs, which meet the activities, gross asset value and employee tests, is the Enterprise Management Incentive scheme. This is an HMRC ‘approved’ share option scheme with some significant tax breaks for individuals and flexibility for the company.

I will not go in to all the conditions which are relevant suffice it to say that an EMI scheme does not need formal HMRC approval – unlike the three schemes mentioned above. The only HMRC input is seeking HMRC’s approval to the market value of the shares under option. The detail of the EMI scheme conditions is not relevant for this blog – please see my EMI Briefing Note on our website which gives more detail. There is also one which deals with the Employee Shareholder Scheme.

If an EMI scheme is set up and operated correctly it will enable a company to provide shares to employees in a manner where the tax liabilities for the employees can be managed, with appropriate planning, and will typically only result in a tax charge for them of 10% when they ultimately sell their shares.

I believe that an EMI scheme is a fantastic way in which companies can proactively incentivise their employees whilst retaining control of the shareholding base of the company.

How a company will choose to reward its management and employees will be dictated to a degree by the employee profile of the business. Whilst share incentives and benefits may be important for senior management it could well be that cash and suitable benefits is most appropriate for the more junior members of the team. However, whichever profile exists it is clear that there are plenty of opportunities for companies to reward staff in a variety of tax efficient ways.

OMB company – tax planning

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 12 Feb 2020 12:25:55 GMT

Accountants and business advisers Friend Partnership discuss tax planning in the start of a series of blogs dedicated to OMBs (owner managed businesses).

I am now going to concentrate on limited companies with a series of blogs specifically targeted at such entities and their owners:

Tax planning;
Management and staff incentives ;
Ownership structure ;
Profit extraction ;
Onward sale ; and
Succession planning.

Some straightforward planning opportunities are detailed below in no particular order of priority:

Deferring income and advancing expenditure is the simplest way to reduce tax liabilities. However, the commercial pressure for good results and the strictures of the accounting regime means that this is very rarely a practical approach.
Provisions – ensure that all stock, bad debt and other provisions made in the year are specific in nature and amount as these will be deductible for tax purposes. General provisions, such as 5% of bad debts, will not be allowable.
Pension payments – are deductible for tax but only in the accounting period in which they are paid – a year end accrual is not sufficient. In view of the fact that individuals can now access their pension pots more easily pension planning has become more attractive than it has been in the past.
Management/staff bonuses – if there is a commitment at the year end to make such bonus payments they will be deductible in the period so long as they are paid within nine months of the end of the period. This gives the company the flexibility to agree the amounts to be paid after the financial results for the year are known.
R&D – if the company is undertaking R&D it will be very important to ensure that all necessary conditions are met to enable the company to claim an enhanced deduction of 130% (from 1st April 2015) of the R&D expenditure incurred in the year. So for every £100 spent a tax deduction of £230 is available. In certain situations R&D losses can be surrendered in return or a tax payment at 14.5% of the amount surrendered. The big question is quite simply; is the company carrying on a qualifying R & D activities.
Patent box – if profits are being generated by a company as a result of the exploitation of patents which the company has secured ensure that all the necessary conditions are met to secure the reduced tax liability – 10% by April 2017. The rules have been challenged by Germany because the UK legislation is viewed as favouring the UK and is thus deemed as anti-competitive. This threat now seems to have disappeared.
Intangible assets – a deduction may be available in certain situations for the amortisation of intangible assets. The legislation was changed by the Summer Budget such that a deduction for the amortisation of goodwill and customer related intangibles is no longer available but remains for other intangible assets.
Capital allowances – with the Annual Investment Allowance at £500,000 (£200,000 for expenditure after 1st January 2016) for most companies capital expenditure should qualify for a 100% deduction. This can have an important bearing on the company’s cash flow. If an item of plant is acquired under an HP agreement capital allowances will be available on the full capital cost of the plant on the day the contract is signed, i.e. there is no spreading of the relief over the term of the contract. Certain assets, such as integral features, have to go in to separate pool for capital allowance purposes. With any major capital expenditure project it will be important to ensure that capital allowances are thought about up front so that all the necessary paperwork can be generated and retained.
Profit extraction – remember that dividends are not deductible for corporation tax purposes but salaries and bonuses are. Dividends require distributable reserves but salaries do not.
Notwithstanding the changes announced in the Summer Budget the tax regime is such that it is still more beneficial, from a total tax point of view, to take profit from a company by way of dividend rather than salary. This is still relevant for those director shareholders in a position to do so.
Creative sector – there are various reliefs available to companies involved in creative sector activity, TV/video/theatre etc.

There may be other reliefs available depending upon the company’s particular activities.

With all tax planning care is needed in light of HMRC’s expanding raft of anti-avoidance legislation which can in certain cases catch simple planning initiatives.

However, if the above ideas are properly dealt with no issues of concern should arise.

OMB – Taxing the business structure

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 05 Feb 2020 12:19:46 GMT

Here, we give an overview of tax treatment with OMB companies.

In my last blog I looked at the possible structures for a business. I now give an overview of the tax treatment of the three alternatives I discussed.

I am not going to go into the detail and mechanics of calculating tax liabilities. However there are certain basic principles which need to be borne in mind:

Depreciation on fixed assets is not a tax deductible expense and will be replaced with capital allowances for any fixed assets which qualify.
To be deductible for tax purposes expenses need to be wholly and exclusively for the purpose of the business . Where there is any ‘duality’, and a non-business element of the expenditure, a deduction may not be available.
Entertaining in all its forms is not tax deductible.
Capital expenditure is not tax deductible so care is needed when looking at repairs and renewals for instance to establish whether or not it is a repair, and therefore deductible, or a capital improvement which is not tax deductible.

The above are the more obvious issues but there may be specific tax treatments available which may depend upon the structure adopted – i.e. there are certain tax reliefs available which only apply to companies.

So how are each of the structures taxed?

Sole trader

The taxable profits of the sole trade will be charged to income tax at the sole trader’s marginal rate. Class 2 and Class 4 National Insurance contributions will also be payable on the profits by reference to threshold limits. If the business is loss making the trading losses in the year will be deductible, subject to certain anti-avoidance rules, from general income.

The tax payments will be in accordance with the personal tax self-assessment regime, i.e. a balancing payment 31 January after the end of the tax year concerned with payments on account 31 January and 31 July.

Partnership

A tax return will be required for the partnership which will show the computation of the taxable profits for the partnership and how those are allocated between the various partners. The allocation will be in accordance with the partnership’s profit sharing ratio.

A partnership is not a legal entity in its own right so it has no tax payment responsibility.

A partner’s allocated profit share will be taxed at the partner’s marginal rate of income tax.

Thus the tax liabilities for sole traders and partners are by reference to the results for the year, i.e. regardless of what happens to those funds.

A partner will be taxed on their full profit allocation ignoring the fact that some of the profits/cash may be retained within the business for future growth or other purposes.

This can result in tax planning issues for the individuals concerned especially with personal income tax rates at a maximum of 45% and an abatement of the personal allowance for taxable incomes in excess of £100,000.

There are no particular tax breaks available to partnerships and their partners and indeed there are some reliefs which are only available to corporate entities. I will, however, look at the tax planning possibilities for individual high earners in a later blog.

As with a sole trader a partner can set any partnership trading losses against their general income. However, there are comprehensive anti-avoidance provisions to prevent abuse of these rules which have been exploited in the past with some of the ‘aggressive’ tax planning schemes.

Limited company

A company’s book profits are adjusted for tax and are taxed at 20% with the tax payment due nine months after the end of the accounting period.

If the company has trading losses these can be carried back one year or carried forward indefinitely against future trading profits from the same trade.

In certain situations if a shareholder takes a loan from the company the company will have to pay tax at 25% on the amount borrowed if it is not repaid by the shareholder within 9 months of the accounting period end. The tax paid by the company is repaid to it as and when the shareholder’s loan is repaid. Writing off or waiving the loan will give rise to material income tax liabilities for the individual.

There are certain tax reliefs which are only available to a company such as:

R&D;
Patent Box; and
Creative sector activities.

The individuals involved with the company are taxed on any extractions – i.e. salary and dividends.

However, a company can give flexibility in that tax liabilities can be managed to a degree so that individual director/shareholders can balance the mix of salary and dividends to suit their personal circumstances.

This will enable them to manage their personal tax exposure at the higher rates, deal with the abatement of the personal allowance and address any cashflow issues.

I will look at these aspects in a little bit more detail in a later blog because there are some very easy steps which can be taken which may help any business owner to mitigate their corporate and personal tax liabilities.

Dividends – start planning for April now!

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 29 Jan 2020 11:57:15 GMT

The tax team at Birmingham chartered accountants and business advisers Friend Partnership, discuss why you need to start planning for April now.

Introduction

The Summer Budget gave us a nasty surprise which was totally unexpected, as all surprises are I suppose, and which will affect the majority of OMBs. I am of course referring to the change to the taxation of dividends.

The announcement was clearly at odds with the current ‘we support entrepreneurs’ sound bites from the Chancellor and others.

There are a number of actions which can be considered in advance of the change.

As always care is needed with any dividend planning as each and every case will be different.

Detailed changes

The new rules will impose new rates of tax for dividend income when that income exceeds the ‘Dividend Allowance’ of £5,000. The new rates will be: 7.5%, 32.5% and 38.1% for dividend income falling within the basic, higher and upper rate bands respectively. The existing regime, with a tax credit which satisfies the basic rate liability on a dividend, will be abolished.

Dividend income is always taxed as the ‘top slice’ of taxable income.

Unfortunately the rules are complex in that the dividend allowance is not simply deducted from the dividend with the net amount then subject to tax. Rather the allowance is treated as a zero rate band for dividends. This is especially telling when the dividend is potentially exposed to higher rates of tax.

The change is apparently aimed at reducing the advantage of taking dividends rather than salary from a company for those who are able to influence such decisions – e.g. entrepreneurs and those with OMBs.

In the future it is perhaps to be expected that the dividend rates will be increased to eliminate the benefits of dividend over salary completely. This has to be set against the position for savers who in many cases may rely on a dividend stream from a portfolio of investments.

Potential impact of changes

As an example the tax increase under the new rules is just under £2,500 for a business owner with a salary of £12,000 and dividend of £50,000 – a not insignificant sum.

Points to note

For all shareholders with a dividend materially in excess of £5,000 per annum there will be an increase in personal tax liabilities.
Some limited planning is available and will consist of the following:
Making sure that the £5,000 dividend allowance is used in full; and
Dividend payments could be advanced and credited to loan accounts (to ease company cashflow). This will result in a lower rate of tax but an amount which would be paid earlier – a due date of 31 January 2017 for 2015/16 balancing payments.
A redistribution of shares between family members is worthwhile if it is possible to access further tranches of the £5,000 dividend allowance.

Points to consider

In order to decide what actions may be appropriate before April the following points should be considered by all business owners:

The level of the company’s distributable profits paying attention to the likely outturn for the current financial year – i.e. make sure that contingencies and corporation tax liabilities are taken in to account if profits fluctuate and there is no material balance of undistributed profits brought forward. I have seen many situations where dividends have been ‘overcooked’ such that overdrawn loan account have to be created at the company’s year-end;
The level of available cash in the company;
The current shareholding structure paying heed to the ‘problems’ associated with dividend waivers;
The level of taxable income for current or prospective shareholders remembering that the personal allowance is lost on a scaled basis when taxable income exceeds £100,000; and
Whether there are any ‘better’ ways of extracting profits such as pension contributions for business owners approaching 55.

Conclusions

The new rules are unwelcome and may herald the slow death of the dividend v salary discussions which take place in all OMBs.

In anticipation of the changes there are certain actions which can be taken in the next six months which might save business owners some material amounts of tax if they have a profitable business with ample reserves.

OMB – structuring the business

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 22 Jan 2020 11:22:17 GMT

In this Blog, Friend Partnership break down key ideas of how to structure a business.

In essence there are three main ways in which a business can be structured: sole trader, partnership or limited company. There are other possibilities, such as a joint ventures or less formal arrangements but for the purposes of this blog I will concentrate on the three mentioned restricting my examination to UK entities.

The choice of entity will depend on a number of factors; banking, commercial risk, requirements of customers/suppliers, public perception, taxation, compliance costs etc.

In a small number of cases businesses may start as a sole trade finally ending up as a limited company once the business is mature.

There is no right or wrong way for a business to be formed but some thought is needed at the outset as it can often be difficult to go against the natural progression – for instance it is difficult to ‘disincorporate’ a limited company once it has been formed.

I will now look at each of the potential structures in turn.

Sole trader

This is the least formal of the structures – i.e. there is no need to register the business with Companies House. Care is needed with regard to business names to make sure that there is no potential risk of challenge. HMRC needs to be notified within three months of the start of the sole trade activity. VAT will need attention to ensure that the VAT threshold is constantly monitored so as to ensure that if appropriate the business is registered for VAT. The registration threshold is currently £82,000.

The results of the sole trade will be reported to HMRC and taxed, as part of the self-assessment regime for the individual sole trader, with the completion of the self-employment pages of the personal income tax return. National Insurance will also be payable in respect of the sole trade activity.

It is very important that individuals remember that there is a tax liability to be paid in respect of the sole trade, the calculation of which may need professional input as it may not simply be the case of paying tax on the profit which has been made.

All businesses need to prepare and retain all paperwork in connection with the business activity to enable the accounting and taxable profits to be calculated.

Typically a sole trade may be appropriate for an individual ‘testing the water’ with a new business idea or perhaps providing their personal services as a consultant having given up employment.

For a sole trader the financing and associated commercial issues may not hamper the activities. However, it will be important for any sole trader to think about appropriate insurances to cover any interactions with the general public or in respect of work done at home.

Partnership

Partnerships are more formal arrangements whereby individuals come together to carry on a particular business.

This may be no more sophisticated than a husband and wife partnership but it can extend to partnerships with many hundreds of partners across the globe.

There are a number of forms which a partnership may take, the most common of which are a general partnership and a limited liability partnership (‘LLP’).

As the name implies the LLP gives the members of the partnership (the partners) protection from creditors should the business fail. A member’s liability is limited to their capital contribution. This protection is not available for a general partnership where a partner’s liability is joint and several and unlimited. The choice of partnership structure will often depend upon the perceived and actual risks involved with the business being undertaken.

A partnership has more formality in that the activities of the partnership will be governed by a partnership agreement which all partners will sign.

As with the sole trade the partners will need to notify HMRC of the creation of the partnership and register for VAT as necessary.

An income tax return will be needed for the partnership even though the partnership tax liability falls on the individual partners (I will deal with this in a later blog).

Formal accounts will need to be prepared for the partnership to support its tax computation.

A partnership can be useful when a group of individuals are coming together to run a business and formality is needed for third parties dealing with the business.

Partnerships can be more flexible arrangements, when compared with a company, if partner changes are expected.

In the past many of those dealing with partnerships have been a little nervous of the structure. This is now changing with the increase in the number of LLPs used for all manner of business and investment activity.

Limited company

This is perhaps the commonest business structure with companies ranging in size from small ‘one man’ companies right through to large multibillion multinational corporations.

A limited company has a number of attractive features: limited liability for the shareholders, gravitas for those dealing with the business, the opportunity for tax planning with certain specific reliefs and structuring possibilities, familiarity for the finance providers, visibility, which can be good or bad depending on the circumstances, and a host of other issues.

A company needs to be formally set up with a name acceptable to Companies House. It needs to prepare and file with Companies House annual financial statements in accordance with prevailing accounting standards, it also needs to account for corporation tax, VAT and PAYE and NIC in respect of its employees. PAYE and NIC compliance will also be relevant for a sole trader and partnership if the business has employees. The accounts will be in the public domain which can be a problem for some wishing to keep the financial performance of the business activities ‘under wraps’. However, smaller entities can file abbreviated accounts.

The company can have as many shareholders as it likes but it must have at least one director. A company secretary is no longer necessary but the role can be important in certain tax scenarios.

One important point, which is often overlooked by smaller companies and those involved with them, is the fact that company money is not personal money. There are plenty of issues to be considered when individual owners wish to access company money.

As with partnerships there are costs involved in creating the corporate structure and operating it on an annual basis.

The choice of structure will depend on a number of factors. However, a little care and attention at the outset will ensure that expensive mistakes are not made by setting up a structure which is found to be unnecessary or unwieldly once the business gets going.

My next blog will look at the tax treatment of the three structures which is quite different for each.

Owner managed businesses

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 15 Jan 2020 11:16:44 GMT

Now that the dust has settled on the Summer Budget, and what passed for a summer is behind us, I am starting a series of fortnightly blogs concentrating on tax issues with a particular target audience in mind.

I am going to start with a series of topics which are relevant for owner managed businesses and their owners.

I will follow this with a series of blogs looking at tax planning for high net worth individuals after which I will have a series on relevant one-off specialised tax topics.

I will intersperse the planned blogs with blogs on topical issues resulting from changes in: prevailing tax legislation, HMRC practice, decided tax cases and anything else with a newsworthy tax angle.

My first series of blogs will cover the following topics for OMBs:

Structuring the business
Taxing the business structures
Company – tax planning
Company – management and staff incentives
Company – ownership structure
Company – profit extraction
Company – onward sale
Company – will and estate planning

It is intended that each of the blogs will give the headline issues.

As with all such blog items I can only cover the main issues so please ensure that you secure proper professional input before any action is taken on the back of what you may read.

I hope you find the blogs useful.

Share it out

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 08 Jan 2020 11:13:13 GMT

The tax team at Friend Partnership Limited discuss a number of tax planning opportunities available to OMBs.

Owner managed companies have a number of tax planning opportunities which are not available to larger companies. This is particularly so with regard to equity participation and reward. It is well established that a payment of a dividend is a more tax efficient means of extracting profit from a company than say salary. This is important for the owner managers, their families and those who work for them.

Some available opportunities are:

Tax efficient extraction of profit;
Use of basic rate bands with “alphabet” shares for spouses and family members;
Incentivisation of staff with tax efficient share options;
Can selectively target and reward key individuals;
Changing remuneration packages to maximise tax savings;
Gifting shares where share valuation is low – start-ups for instance; and
Capital Gains Tax savings with an onward sale.

Some issues to consider are:

Share valuations;
Shareholders’ agreements;
Potential for ‘irritating’ minorities; and
Good and bad leaver provisions.

All owner managed companies should be considering their shareholding structure. In most cases some very simple changes could make a material difference to the tax liabilities for those involved with the company.

Please contact us if you would like to explore some of the tax planning opportunities which may be available.

Solicitors beware!

onslo.rahman@friendpartnership.com (Onslo Rahman) — Wed, 01 Jan 2020 10:33:16 GMT

Solicitors in the West Midlands, and indeed the rest of the UK, need to be looking at their tax affairs.

HMRC have launched their latest tax gathering initiative which is aimed at solicitors who have not been paying enough attention to their tax affairs.

It is the latest voluntary disclosure opportunity for a specific group of taxpayers to get their tax affairs in order on the best terms available.

Medical professionals, plumbers, tutors and coaches, electricians, online traders, landlords and health professionals have been the targets for previous campaigns. The approach has so far netted almost £1bn from voluntary disclosures and follow-up activity by HMRC.

Solicitors have until 9 March 2015 to tell HMRC that they would like to take part in the campaign, and until 9 June 2015 to disclose the tax they owe and pay it. HMRC have indicated that there are more than 7,400 solicitors – around 6% of the UK total – in the West Midlands.

If solicitors come forward voluntarily, any penalties they might have to pay will be lower than if HMRC has to approach them first.

HMRC have commented as follows:

“Information gathered by HMRC has allowed us to identify solicitors who thought they could operate without declaring income and paying the taxes that others have to pay.

If you have not declared all of your income, you need to put your tax affairs in order. Take this chance to come forward and put things right in a straightforward way and on the best possible terms. It will be easier and cheaper for you to come to us than for us to come to you.

Those who make a deliberate decision not to pay the taxes due could face a penalty of 100% or more of the tax due, or even a criminal prosecution.”

Solicitors who make a full disclosure of tax owed will be offered a simple and straightforward way to put their tax affairs right, and will avoid paying a higher penalty. The penalty would normally be between 0% and 20% depending on the circumstances.

Solicitors who do not come forward but are found to have unpaid tax liabilities will face higher penalties, rising to 100% of the tax unpaid or, possibly, criminal investigation. Penalties for offshore-related income can be up to 200%.

This is a one-off opportunity for those at risk to get their affairs up to date secure in the knowledge that the penalties will be much reduced. Solicitors at risk should act quickly. Please contact us for assistance.