Archives October 2024

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Autumn budget 2024

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Autumn budget overview

A few minutes after half past 12 on 30th October 2024, Rachel Reeves stood up and delivered Labour’s first budget in over 14 years.

Prior to the budget there was much speculation as to the contents of the budget, with Labour remaining fairly tight lipped on likely changes in the budget.

Below we have provided a brief summary, of the changes announced in the 2024 Autumn Budget.

Increases to Living Wage / National Minimum wage

The Living Wage is set to be increased by 6.7% Increase to £12.21 per hour for those aged 21 and above. This increase aims to support workers amidst rising living costs, particularly given recent inflation and accounts for an increase in gross income of circa £1,500 per year (for a full time worker working 37.5 hours per week)

The National Minimum wage (payable to people aged 18-20) will increase substantially by 16.3% to £10 per hour.This substantial rise aims to address youth wage disparity and ensure young workers can keep pace with the cost of living. This will be equivalent to an increase in gross income of £2,730 per year (for a full time worker working 37.5 hours per week)

These increases will account for an increase in tax revenues as the more people earn, naturally the more tax they will ultimately pay, however these changes do come with a greater wage cost for employers which could put a strain on smaller businesses particularly those in sectors with large numbers of minimum-wage employees. These changes could  result in employers altering their recruitment strategies to remain profitable.

National Insurance Changes

During the budget, Ms Reeves made it very clear that she would not increase taxes for individuals. She did however, announce an increase in employers NIC from 13.8% to 15% from April 2025 as well as decrease the threshold from which employers are required to pay NIC down from £9,100 per employee, to £5,000 per employee.

These changes mean employers will need to pay considerably more NIC for their employees.

Capital Gains Tax (‘CGT’) rates

Due to Labours manifesto promise not to increase tax rates for income tax, corporation tax and VAT, it was highly speculated that the chancellor would target other taxes such as CGT.

Currently, gains on Residential Property have higher CGT rates of 18% for gains within the basic rate band, and 24% for higher rate gains.

All other disposals (apart from Carried Interest) attract CGT rates of 10% and 20% respectively.

Rachel Reeves confirmed in the budget that CGT rates would be increased (from today) to 18% and 24% for all gains going forward.

Carried interest gains, would attract a new rate of 32%

These increases will see individuals who are disposing of capital assets pay a larger percentage of their gain in tax than before with the rate in basic rate gains increasing by a staggering 80% and higher rate gains increasing by a more modest 20%.

Capital Gains Tax (‘CGT’) – Business Asset Disposal Relief (‘BADR’)

Individuals who dispose of business assets can currently benefit from a rate of 10% CGT on their gains providing the disposals meet certain criteria.

In line with CGT increases, there will be an staggered alteration for gains eligible for BADR from the current 10% rate to 14%, and then a further increase to 18%.

The lifetime limit of BADR will be kept at the current level of £1m of gains.

These changes will see individuals who are disposing of business assets that qualify for BADR exposed to an increase in their tax liabilities of 80% on the first £1m of gains…!

Inheritance Tax (‘IHT’)

A very unpopular tax we have in the UK is Inheritance tax. While consecutive governments have been eager to point out that only 6% of estates will ever pay inheritance tax, it remains a highly criticised tax as it’s an additional tax on assets acquired during lifetime from already taxed income.

The freeze on IHT thresholds will continue and there will be no change to the rate of IHT which currently stands at 40%.

The government will however increase IHT takings by taking measures to include inherited pensions within the scope of IHT as well as to restrict the valuable reliefs of Business relief (‘BR’) and Agricultural relief (‘AR).

Currently, on death, shares in closed trading companies, as well as farmlands meeting certain criteria benefit from 100% BR / AR against IHT meaning the full value of those shares / agricultural land does not attract IHT.

Under new rules, a combined £1m limit will be placed on BR and AR qualifying assets with only 50% relief being available on value above the limit. This results in an affective IHT rate of 20% on those assets.

The same applies to shares in Alternative Investment Market (AIM shares) which will also see a 100% relief replaced with a 50% relief.

Closure of the Non-Dom regime

The tax regime designed to benefit non-domiciled individuals who leave their income and gains offshore has proven to be an unpopular one with scandal hitting the headlines over Rishi Sunak’s wife domicile status.

Initially, Labour had pledged to close the Non-Dom tax regime and replace it with a residency based scheme designed to be fair to people coming to the UK temporarily, but to capture UK taxes on overseas income and gains on individuals who call the UK their home.

The chancellor reaffirmed this position in the budget, exclaiming that she will close the perceived ‘tax loophole’ created by the non-dom regime.

Freeze on Income Tax and NI Thresholds

The departed conservative government put a freeze on Income Tax thresholds which results over time in larger tax takings (increases in pay with inflation leads to higher tax liabilities with no increase to tax free allowances / basic rate bands etc).

Rachel Reeves confirmed that the current freezes would remain in place, but then we should expect to see increases in these thresholds.

VAT on Private School Fees

Another area which was largely speculated to be changed in the budget was VAT on private school fees.

Currently, private school fees are not within the scope of UK VST. The chancellor confirmed that from January 2025, VAT will be chargeable on school fees increasing costs by 20%

This measure is said to be done to boost the ability to finance public schools which 96% of children in the UK attend.

Autumn budget conclusion

There are clearly a number of significant changes from the budget, most notably the hikes in liabilities for employers who will have to take into account increases to staff wages as well as higher levels of national insurance.

Hikes on CGT payable on the sale of assets, as well as IHT payable on business and agricultural assets which were previously exempt.

It will be interesting to see how the changes to the non-dom rules are drafted in the legislation to try and offer a fair system

Next steps with life after the Autumn budget

These rules will affect different taxpayers in different ways. If you are affected by any of the rules and need any help, our specialist team can help guide you along the way, providing solutions to the problems you may face. Please do get in touch

Why not join us at our next live webinar click here to find out more.



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Reducing Inheritance Tax

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Introduction

Inheritance Tax (IHT) is a concern for many individuals planning their estates, especially those with significant wealth. While several strategies are available to reduce inheritance tax liability, the ‘Rysaffe principle’ is one of the lesser-known but highly effective methods.

This strategy helps mitigate the IHT burden through the use of multiple trusts.

Here’s a detailed explanation of the Rysaffe principle and how it can benefit you if you’re looking to optimise your estate planning.

What is the Rysaffe Principle?

The Rysaffe principle originates from a 2003 tax case, Rysaffe Trustee Company (CI) Ltd v Inland Revenue Commissioners, where the court ruled on the structure of multiple trusts and their tax treatment.

The key takeaway from this case was that setting up multiple trusts on different days could result in more favourable treatment for IHT purposes. The ruling clarified that each trust would be treated independently and not as a collective group allowing for a more manageable inheritance tax position as each trust is taxed separately.

So how does it work?

At the basis of the Rysaffe principle is the creation of multiple discretionary trusts, rather than a single one.

Inheritance tax law stipulates that when calculating tax charges, the value of all property settled in a trust within a 10-year period may be aggregated. This aggregation can push the value of the trust into a higher tax bracket, increasing the IHT charge.

However, by setting up multiple trusts on different days, each trust is viewed as a separate entity for IHT purposes. This means that each trust benefits from its own nil-rate band (NRB) threshold, which is currently £325,000 (for the 2024/2025 tax year). As a result, a significant amount of wealth could be sheltered from IHT using this method.

Example – Mr Jones

Mr Jones wishes to place shares in his Family Investment Company (FIC) into trust for his children.

Mr Jones anticipates the value of the growth shares he will be placing intro trust will grow significantly during his lifetime.

If Mr Jones places £100 worth of shares into a single trust, there will be no IHT on the way in, as the £100 would only use up £100 of his personal NRB. If by the time the shares are distributed from the trust the shares are worth say £1,000,000. Only £325,000 of that would be covered by the Trusts NRB and the rest will be subject to IHT.

If however Mr Jones were to place 5 x 20 shares into 5 different trusts set up on different days, there would still be no IHT on the way in as the same £100 is covered by his personal NRB, however on exit each trust would have £200,000 of value and a NRB of more or less £325,000 [1]to cover it, leaving no IHT liability at all.

While the process of setting up multiple trusts may involve more complexity and professional advice, the potential IHT savings can be substantial.

Advantages of the Rysaffe Principle

1. Maximising the Nil-Rate Band: By dividing assets across multiple trusts, each trust can benefit from its own NRB, reducing or eliminating the IHT charge.

2. Avoiding Aggregation: As each trust is created on a different day, the assets in each trust are not aggregated for tax purposes, allowing more flexibility in estate planning.

3. Flexible Gifting: This strategy provides flexibility in how assets are distributed among beneficiaries, allowing different trusts to be tailored to different family members or purposes.

4. Long-Term Savings: Over time, the Rysaffe principle can significantly reduce the periodic IHT charges that apply to discretionary trusts during their lifetime.

Considerations and Potential Pitfalls

While the Rysaffe principle offers notable tax advantages, it’s important to consider some of the practical and legal challenges:

1. Trust Complexity: Setting up multiple trusts increases the administrative burden and may incur additional legal and trustee fees.

2. Careful Timing: To benefit from the Rysaffe principle, it’s crucial that the trusts are set up on different days. Failure to do so could result in the aggregation of assets, nullifying the tax benefits.

3. Professional Guidance: The Rysaffe principle is a sophisticated tax strategy that requires careful planning. Consulting with a tax professional or estate planner is essential to ensure compliance with UK tax laws and to optimise the structure.

Won’t HMRC challenge the arrangements?

Because of the potentially significant IHT savings, it would be natural to be wary of a challenge from HMRC.

There is a General Anti-Abuse Rule (GAAR) which allows HMRC to “look through” artificial arrangements which are only put in place to achieve a tax advantage and have no commercial basis.

However, the use of multiple trusts was reviewed by the GAAR Advisory Panel some years ago. It commented:

“The practice was litigated in the case of Rysaffe Trustee v IRC [2003] STC 536. HMRC lost the case and having chosen not to change the legislation, must be taken to have accepted the practice”.

Conclusion

The Rysaffe principle is a valuable tool for individuals seeking to reduce their inheritance tax liability using multiple discretionary trusts. When applied correctly, it can help maximise the nil-rate band and avoid the aggregation of assets, leading to significant IHT savings.

However, due to its complexity, it’s crucial to seek professional advice to ensure the trusts are structured correctly and in line with current tax regulations.

With careful planning, the Rysaffe principle can be an integral part of a comprehensive estate planning strategy, ensuring more wealth is passed on to beneficiaries rather than the taxman.

Next Steps

If you are looking for specialist, expert IHT advice then ETC Tax is the right place to be. Our team has a vast amount of experience in planning for IHT including the use of the Rysaffe principle should that be the best option for you as part of your wider IHT plan.

Get in touch today!

 



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TPP Q&A October 20204

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We have supported our Tax Partner Pro members via email and call-back service. Here’s an overview of some of the more recent questions we have answered during October 2024

Q

Our client incorporated a rental portfolio into a limited company but had a latent gain during incorporation due to remortgaging properties.

I understand the latent gain is subject to CGT, but is the gain reported as normal CGT rates (10/20%) or residential property rates (18/28% in the year they did it)? Additionally, how is the CGT reported? I assume if the latent gain is based on the incorporation of a business and at 10/20% then it would be done via a tax return, but if it is done as a property, do we need to complete a property return within 60 days of incorporation, and is it one return for the whole portfolio or an individual return for each property involved?

A

From your email my understanding is that here the equity in the property rental business was not sufficient to cover the capital gains and therefore left outstanding gains payable on the transfer.

Here the individual will be disposing of the assets of their business which, as they are residential properties, will be subject to the residential property rates of 18/28%. Therefore would follow the usual CGT obligations of disposing the properties, such as the 60 day reporting.

Q

I noted an error on a new Ltd co client’s submitted accounts as follows:

  • 20k Sale in turnover was in fact for a disposal of plant.

Journal Required was:

Dr 20000   Sales

Cr 20000   Disposal

Cr 25000   Plant

Dr  5000    Depn on Disposal

Dr 20000   Disposal

Company is loss making in all years – so would be a slight adjustment to CT loss cf.

Looking to File 31/12/23 this month

Should we re state all  31/12/22 and re file with Co house /HMRC

Or can we post some restatement in 2023 accounts for  2022 and file that (adjusting tax comp loss where necessary this year)

Would prefer  not to have  refile if that is an option.

A

We can’t comment from an accounts perspective in regards to Companies House filings but we can comment from a Corporation Tax perspective/HMRC.

Essentially from what I understand of your email below is that the accounts submitted with the CT600 for the y/e 31 Dec 2022 were incorrect.

As the CT600 was submitted with an incorrect loss figure originally, you will need to amend the original return to reflect the correct loss figure to carry forward. You are not able to make adjustments in future Tax Return’s for previous errors.

Q

We have a client that is a limited company with income mainly coming from property (plus a small amount of income from shares).

The company, several years ago, made a loan to another company. I’m not sure of all the details as it was before our time, however it was definitely a loan of money, total £120,000k. The other company is not connected in any way (I think it was effectively an ‘investment opportunity’ structured as a loan).

They may get back a small amount c£20,000 but not the rest, so we are writing off the 100K in this year’s accounts.

I just wanted to check if the amount written off is allowable a an NLTR debit or not? I can’t tell from what I’m reading if only banks etc would be able to claim, or if any loan of money not to a connected party is covered?

The client had a capital gain in the year as they sold some properties so it is relevant in terms of whether the NTLR loss could be offset against the gain.

A

We assume that the entities are all UK resident for tax purposes.

I would recommend that you ask for a copy of the loan agreement between your client company and the third party to ensure that this was a formal loan.

Additionally, I think I would seek confirmation from the client company as to whether they complied with company law, Financial Conduct Authority regulations and Anti-Money Laundering regulations when they made the loan in the first place. As this loan was made before your appointment as agent of the Company, you want to ensure that these matters were covered.

From a tax perspective, if the companies are not connected, the waiver of the remaining debt would ordinarily mean that the lender would have a non-trading loan relationship debit. Whether this is allowable for corporation tax depends on the commercial justification for making the loan and for waiving the loan. The loan relationship regime contains various anti-avoidance rules- which can be found in Chapter 15 Part 5 CTA 2009. For ease of understanding (as tax law can be unnecessarily complex) here is a link to HMRC’s summary CFM38000.

If the non-trading loan relationship debit is allowable and if this results in the company having a non-trading loan relationship deficit in the accounting period, a claim can be made to offset this loss against total profits (including chargeable gains) of the company.

Assuming the shareholder is not involved with the third party in any capacity, it may be difficult for HMRC to argue that the write off creates an indirect distribution, taxable in the hands of the shareholder.

If the loan appears uncommercial, then there could be other issues such as a benefit on the director under s.201 ITEPA 2003 or fall within the Disguised Remuneration regime under Part 7A ITEPA 2003 so I am hopeful this is not the case.

Q

My client operates a restaurant and charges a discretionary service charge on the gross amount of the bill, which includes VAT. We want to ensure that we are only paying income tax on the tronc for the employees. Could you please advise if this approach is accurate, or do we need to calculate the service charge on the net amount excluding VAT?

Additionally, could you share the rules and regulations from HMRC regarding this, along with relevant links?

A

How the discretionary service is computed is at the discretion of the business, this can be on the NET of VAT amount or VAT inclusive amount. What is key is that, for VAT purposes, the service charge is optional in order to be exclusive of VAT, see VATSC06130 for commentary on this point.

The income tax and NIC treatment is not linked to VAT – for the service charge to be free of class 1 NIC, the gratuity/offering must meet the conditions of the exclusion under para 5 or part 10 of the Social Security Contribution Regulations 2001 – (see below exert).

Under the new legislation, the Employment (Allocation of Tips) Act 2023 which comes into force from October 1 2024, the employer must pass on the total amount of the discretionary service charge to the employees. If using an independent TRONC scheme, this must be passed in full to the Troncmaster in order to retain the NIC free treatment as mentioned above. If paid via the employer PAYE scheme, this will represent earnings for both tax and class 1 NIC (ee & er).

Relevant legislation:

Employment (Allocation of Tips) Act 2023

Exert from SSCR 2001, Sch 3, Part X, Para 5:

Gratuities and offerings

5.

(1) A payment of, or in respect of, a gratuity or offering which—

(a) satisfies the condition in either sub-paragraph (2) or (3); and

(b) is not within sub-paragraph (4) or (5).

(2) The condition in this sub-paragraph is that the payment—

(a) is not made, directly or indirectly, by the secondary contributor; and

(b) does not comprise or represent sums previously paid to the secondary contributor.

(3) The condition in this sub-paragraph] is that the secondary contributor does not allocate the payment, directly or indirectly, to the earner.

(4) A payment made to the earner by a person who is connected with the secondary contributor is within this sub-paragraph unless—

(a) it is—

(i) made in recognition for personal services rendered to the connected person by the earner or by another earner employed by the same secondary contributor; and

(ii) similar in amount to that which might reasonably be expected to be paid by a person who is not so connected; or

(b) the person making the payment does so in his capacity as a tronc-master.

(5) A payment made to the earner is within this sub-paragraph if it is made by a trustee holding property for any persons who include, or any class of persons which includes, the earner.

In this sub-paragraph “trustee” does not include a tronc-master.

(6) A person is connected with the secondary contributor for the purposes of this paragraph if his relationship with the secondary contributor, or where the employer and secondary contributor are different, with either of them, is as described in subsection (2), (3), (4), (5), (6) or (7) of section 839 of the Taxes Act (connected persons).



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Excuses for HMRC Penalties

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Regarding Self-Assessment tax returns, it’s crucial to be timely. Failing to submit your tax return by 31st January following the end of the relevant tax year or not paying your due taxes on time can lead to automatic penalties from HMRC. Additionally, failing to notify HMRC about chargeability will also attract similar penalties. However, the only way to avoid these penalties is by proving you have a reasonable excuse. But what exactly qualifies as a ‘reasonable excuse’?

What is a Reasonable Excuse?

There is no strict statutory definition of a reasonable excuse. One of HMRC’s internal manual defines a reasonable excuse as:

“Something that stops a person from meeting a tax obligation despite them having taken reasonable care to meet the obligation.”

Essentially, this means that despite taking the necessary steps and precautions, an individual was unable to fulfil their tax obligations due to unforeseen or uncontrollable circumstances. However, every case is unique, and what may be deemed a reasonable excuse in one situation might not hold up in another. HMRC review this on a case-by-case basis.

Excuses Rejected by HMRC

Each year, HMRC publishes some of the most bizarre excuses they receive from taxpayers. Here are some of the more amusing, yet rejected, submissions:

• “I was just too busy – my first maid left, my second maid stole from me, and my third maid was slow to learn.”

• “My hamster ate my post.”

• “After seeing a volcanic eruption on the news, I couldn’t concentrate on anything else.”

• “I’m too short to reach the post box.”

• “My boiler had broken and my fingers were too cold to type.”

• “My ex-wife left the tax return upstairs, and I can’t go and get it because I suffer  from vertigo.”

While entertaining, these excuses failed to meet HMRC’s criteria for what constitutes a reasonable excuse.

Examples of Valid Reasonable Excuses

To provide clarity, HMRC includes a range of scenarios in their manuals, including issues related to physical or mental illness, reliance on a third party, bereavement, postal delays, technical issues & loss of records due to fire or flood (not keeping adequate records is not a reasonable excuse).

In addition, HMRC provides specific examples in their manuals and online guidance:

• An unexpected hospital stay that prevented the person from dealing with their tax affairs.

• The person’s computer or software failing just before or during the submission of the online return.

• A fire, flood, or theft prevented the completion of a tax return.

• Delay caused by HMRC themselves.

• Active service overseas for members of the Armed Forces.

These examples show that, in essence, the taxpayer must demonstrate that they were prevented from fulfilling their obligations due to circumstances beyond their control and that they acted as a reasonable person would have in the same situation.

Case: Farmer v R & C Commissioners

One case that highlights the nuances of what can be considered a reasonable excuse is Farmer v R & C Commissioners. The taxpayer in this case submitted her paper tax return for 2021–22 on time but sent it to an outdated HMRC address. She received an initial £100 penalty along with daily and six-month penalties. Although she was unaware that the address was incorrect (which served as a reasonable excuse for the initial penalty), the First-tier Tribunal ruled that she should have taken corrective action after receiving notice of the first penalty. Consequently, while the initial £100 penalty was overturned, the daily and six-month penalties were upheld because she did not act quickly enough to mitigate her situation.

This case demonstrates that even when a reasonable excuse exists, taxpayers must remedy the situation promptly to avoid accumulating further penalties.

Special Circumstances

HMRC may also consider ‘special circumstances’ that don’t qualify as reasonable excuses but warrant some leniency. This includes factors that, while not directly causing the failure, may justify a reduction or cancellation of penalties. Taxpayers are encouraged to communicate with HMRC as soon as issues arise and maintain a record of any difficulties faced.

In Summary

For HMRC to accept a reasonable excuse, the taxpayer must show that they took all possible steps to meet their tax obligations but were prevented from doing so by events outside their control. While some excuses are immediately dismissed, legitimate reasons related to health, bereavement, technical failures, or misinformation may be considered valid. However, it is vital for taxpayers to act promptly and keep thorough documentation to support their claims when penalties arise.

Next steps

If you need any help in filing your tax return, tax return advice, or in relation to any other tax matters, then please get in touch.



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Crypto Self-Assessment Tax Returns

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Things to Be Aware Of…

Cryptocurrency has rapidly grown in popularity, and as more people invest in Bitcoin, Ethereum, and other digital currencies, it’s important to understand the tax implications. In the UK, the HMRC views cryptocurrency as property, not currency, which means gains and losses from crypto transactions may be subject to Capital Gains Tax (CGT) or Income Tax, depending on the nature of the transaction. If you hold crypto and need to file a self-assessment tax return, there are several key things you need to be aware of.

1. Understanding Taxable Events

A taxable event in the context of cryptocurrency refers to a transaction that triggers a tax liability. In the UK, the following are considered taxable events:

  • Selling crypto for fiat currency (e.g., GBP)
  • Exchanging one cryptocurrency for another
  • Using cryptocurrency to purchase goods or services
  • Receiving cryptocurrency as a form of payment or reward (mining, staking, airdrops, etc.)

It’s important to keep records of these transactions as they will determine your gains or losses.

2. Capital Gains Tax (CGT)

Most individual cryptocurrency investors will need to pay Capital Gains Tax on any profits made from selling or exchanging their digital assets. The CGT rate is dependent on your income level, with basic-rate taxpayers benefitting from a 10% rate of tax on any gains that fall within their remaining unused income tax basic rate band. Higher or additional-rate taxpayers pay a flat 20% CGT on their gains. The annual exempt amount for the current tax year 2024/25 tax year is £3,000, although the threshold was higher at £6,000 in the prior tax year (2023/24). If you have gains that are lower than the annual exemption, they are not subject to CGT.

To calculate your CGT, you must subtract the cost of acquiring the cryptocurrency (including any transaction fees) from the overall sales proceeds. If you’ve made a profit, CGT may be due on the amount exceeding your annual exemption. If you’ve made a loss, it is important to carry forward that loss to use against any future gainscl

3. Income Tax

In some cases, Income Tax rather than CGT may apply, especially if you’re actively trading, mining, staking, or receiving crypto through airdrops. Mining rewards, for example, are considered income, and the market value of the crypto at the time it was received must be declared. Similarly, if you’re seen as a frequent trader, your activities may be treated as a business, and any profits would be taxed as income.

Income Tax rates vary based on your earnings: 20% for basic-rate taxpayers, 40% for higher-rate taxpayers, and 45% for additional-rate taxpayers.

4. Keeping Accurate Records

HMRC requires you to maintain comprehensive records of all your crypto transactions, even if you don’t owe tax on them. This includes:

  • Dates of transactions
  • The value of the cryptocurrency in GBP at the time of each transaction
  • The type of transaction (buying, selling, exchanging)
  • Fees or costs associated with the transactions
  • The wallet addresses involved

These records will allow you to accurately calculate your tax liability and support your figures if HMRC asks for evidence. Cryptocurrency exchanges may not provide comprehensive reporting, so it’s crucial to maintain your own records.

5. Deductible Expenses

Certain expenses can be deducted from your taxable profits, reducing your CGT or Income Tax bill. Deductible expenses include transaction fees, withdrawal fees, and the cost of professional advice or software used to manage your crypto portfolio. However, personal costs, such as electricity used for mining at home, may not be deductible unless you are running a mining business.

6. Crypto Losses

If you’ve made a loss on your crypto investments, you can use these losses to reduce your tax bill by offsetting them against any gains. To do this, you must declare the losses on your self-assessment tax return. Unused losses can be carried forward to future tax years, which could be useful if you anticipate gains in the coming years.

7. Staking, Airdrops, and Forks

  • Staking Rewards: If you earn cryptocurrency through staking, this is usually considered income and subject to Income Tax. The value of the cryptocurrency when you receive it should be reported as income.
  • Airdrops: Receiving cryptocurrency through airdrops may also be subject to Income Tax. However, if you receive an airdrop without performing any action in return, it may not be taxable until you dispose of the crypto.
  • Hard Forks: If a cryptocurrency undergoes a hard fork, resulting in the issuance of new coins, these new coins may be subject to Capital Gains Tax when disposed of, similar to other crypto assets.

8. Deadlines and Penalties

The UK tax year runs from 6th April to 5th April of the following year. If you have crypto gains or income to declare, you must file your self-assessment tax return online by 31st January following the tax year. If you miss this deadline or underreport your crypto taxes, you could face penalties and interest charges.

9. Getting Professional Help

Crypto taxation can be complex, especially with the added volatility and unique aspects of digital assets. It’s easy to overlook taxable events or miscalculate gains. If you’re unsure about how to report your crypto transactions or calculate your tax liability, it may be worthwhile seeking professional help from a tax advisor familiar with crypto.

Final Thoughts

As the HMRC continues to refine its stance on cryptocurrency, staying compliant with tax regulations is essential to avoid hefty fines and penalties. Whether you’re an occasional crypto trader or a seasoned investor, understanding your tax obligations and keeping thorough records will ensure you file accurate self-assessment returns. Make sure to review your transactions carefully and seek advice when needed to ensure you stay on the right side of the law.

Next Steps

By staying informed and organised, you can minimise your tax liability while complying with HMRC’s requirements. ETC Tax is here to help you with your crypto, ensuring you’re maximising tax efficiency.



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Inheritance Tax and the Autumn Budget

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Inheritance Tax: What can we expect from the Autumn Budget?

The new labour government are facing potentially painful decisions in an attempt to fill the ‘£22bn black hole’ allegedly left in the government’s finances. So, we should be braced for potential impactful tax changes.

Inheritance Tax and Capital Gains Tax will they be a hot topic?

Labour have previously ruled out changes to rates of Income Tax, NICs, VAT and Corporation Tax. Therefore, it wouldn’t come as a surprise therefore if they turn to the remaining ‘big’ revenue raisers such as IHT and CGT.

Given that before the election, Labour’s manifesto made no mention of IHT, a complete reform of the tax regime should not be ruled out and it is speculated that it could be a hot topic in the upcoming Autumn Statement.

Therefore, we might expect Labour to put in more measures generate higher IHT revenue, having seen the upward trends recently. With up to £2.8 billion generated from April to July 2024 this year alone, this is already showing a significant increase of 9% from the same period in the previous year.

These changes could have significant implications for both business owners, and high net-worth individuals alike.

What is in place currently?

The most standard exemptions that are applied include the use of the Nil Rate Band of £325,000 (£650,000 for couples) and the Residence Nil Rate Band of £175,000 (£350,000 per couple). The NRB has remained fixed at this level since 2009, while the RNRB has been in place since 6 April 2017, benefitting those who wish to pass on the family home.  A restriction applies for estates valued over £2 million, which tapers the level of RNRB available.

For those with businesses, the most notable and important relief is Business Relief (and Agricultural Property Relief). This provides an exemption of up to 100% of the value of any business property or agricultural property for business owners and farmers.

On the subject to exempt assets, any residual pension funds on the date of death are also free of inheritance tax.

A standard planning tool for many individuals has been to make gifts out of their estate within a seven-year window to ensure the value is removed from their estate. This considers that ‘potentially exempt transfers’ only fall within your estate if you pass away within 7 years of making the gift, with taper relief applying between 3-7 years.

Another tool is via the use of trusts. Currently, individuals can transfer value into a trust up to the NRB available (£325,000 or £650,000) every seven years. Any amounts above this impose a 20% lifetime IHT charge. Where assets are held in trust, a 10 yearly charge will apply, which is a maximum of 6%.

What changes could be put in place?

Nil Rate Bands

The £325,000 tax-free allowance has remained at the same level since 2009, and it was frozen at this amount by the Conservative government until 2028. This, along with increases in house prices is the main reason for the large increase in IHT receipts over the past few years.

There has been talk of instead abolishing the Residence Nil Rate Band (currently £175,000) and instead, raising the NRB to £500,000. This equates to £1,000,000 per married couple.

However, like in most budget decisions, where they give with one hand, we expect them to take with another – ways of which they could do this might include some of the speculations below.

Business Relief (and Agricultural Property Relief)

These are generous reliefs seek to incentivise individuals to invest or start-up their own businesses or farms.  However, due to speculation, many clients are accelerating plans to gift such property to the next generation prior to 30th October, with a view to making the most of a relief potentially on the chopping block.

Plans are reportedly being considered for capping the benefit of both reliefs to just £500,000 per person. This means IHT could be payable at 40% on any value exceeding this amount.

It is also possible that other criteria to be tightened in this area, for example by extending the ownership period from 2 years, or introducing a minimum % holding requirement for shares.

Other news reports predict an abolishment altogether. However, we would expect this would at least be phased in to allow some succession planning opportunities for those affected. The affect could potentially force many family-run businesses to sell up just to afford their IHT liability.

Planning for Gifts

There has also been talk about overhauling the IHT system with a view to revising or abolishing the favourable seven-year rule. This provides an incentive for individuals to give away wealth during their lifetime. We would expect that this would take time to bring in and would at least allow for affected clients to plan ahead appropriately.

It could potentially rise to, say, 10 years but we think this is more unlikely as the additional revenue resulting from this change is unlikely to impact the Treasury in this current parliament.

The chancellor may introduce further IHT burden on trusts by increasing the 10 yearly charges from 6%.

Pensions

Its possible that residual pension funds might be brought within the scope of Inheritance Tax, or perhaps limit the amount that can be passed on IHT free.

Final thoughts

Of course, we do not know what the Chancellor’s plans are, and this is all just speculation. However, reforms can be introduced fairly quickly so it important to plan ahead.

We recommend advice is taken before any plans are put into place to ensure you are maximising the reliefs available to you and considering the impact of any rules introduced.

We will be monitoring the developments following the Autumn Budget to ensure our clients stay well informed of any rule changes.

Next Steps

If you are concerned about how Labour’s plans might affect you, please get in touch.



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Tax Partner Pro – Your Q answered September 24

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Q

I have a question regarding our client, who sporadically exports physical and digital goods to EU and US.

In the past he sent a package over to Poland, and didn’t charge them VAT, as it was a B2B sale.

At the time the package reached Poland it was stopped by customs which resulted in our client received a VAT invoice (I guess polish import VAT) from UPS.

I have a few questions I hope you can help me with:

  • Is the client doing OK by selling to the client outside the UK without charging VAT?
  • Why was he charged that VAT?
  • Can he claim it back on a tax return?
  • Should he be registered for some sort of import VAT scheme so that this doesn’t happen again?
  • What can we do to minimise packages being stopped and getting charged VAT (if anything)?

A

The place of supply of goods is where the goods are located when ownership title transfers.
Where the place of supply is the UK, the export of goods from the UK can be zero rated as per s3 of VAT on goods exported from the UK (VAT Notice 703) – GOV.UK (www.gov.uk).

Where the place of supply is another country then that countries VAT/taxation rules will apply. 

Imports into the EU will be subject to EU import rules and related import VAT and duty. If your client is the importer of record into the EU it suggests that they have yet to transfer title to the goods (the importer of record is usually the owner of the goods). Delivered Duty Paid  (DDP) terms usually lead to this. 

If that is the case, and your client has effectively supplied goods when they are in Poland, then they will be liable to register for VAT in Poland and account for Polish VAT on the sale accordingly.

There are EU mechanisms that allow for simplification of accounting across EU Member States such as the Import One Stop Shop (IOSS) where all EU imports for sale can be reported in one place. There is no import VAT charged under the IOSS (the IOSS only relates to imports <150EURO)

Where Polish import VAT has been incurred it cannot be reclaimed via a UK VAT Return. It can be reclaimed on the Polish VAT Return subject to Polish input tax rules.

Q

The director and 30% owner has a privately owned vehicle – he was using it on a business trip and had an accident.

He has received insurance claim excess invoice- made out to the company with him named as insured.

£1,500 excess  + £2,300 vat on repair Total – £3,800

Questions

  1. Company will pay the £3,800 and dealt with the claim –  is the £3,800 a P11D benefit and added to salary for EE’s NI?
  2. Is the VAT claimable.

A

If the vehicle is used for business purposes, you can reclaim the VAT you were charged on repairs and maintenance as input tax as long as the business paid for the work. This is confirmed in the following HMRC manual:

VIT54500 – Motoring expenses: car repairs and other motoring expenses – HMRC internal manual – GOV.UK (www.gov.uk)

Regarding your second query, assuming the individual contracted with the insurance company, but the employer paid the bill direct to the insurance company, then you must:

  • Report the cost on form P11D
  • Add the full cost to the employee’s earnings and deduct Class 1 National Insurance (but not PAYE tax) through payroll

If the company contacted with the insurance company rather than the individual then the treatment might be slightly different, therefore please do let me know if this is the case.  

Q

My client has built an extension which is a home office which will be exclusively used as a business.

My understanding is that the building cost cannot be claimed through the business and also we don’t want her to incur any issues with capital gains.

However, from what I have read the VAT element can be claimed as the cost is for business use.

Please can you advise whether or not she can claim the VAT back on the business costs.

A

Provided these are business expenses and the invoices are made out to the business and paid by the business, then the VAT can be reclaimed. 

The rules relating to input tax are as follows:-

Input tax is VAT which:

(1) was incurred by a taxable person;

(2) comprises either:

(i) VAT incurred on the supply to him of any goods or services;

(ii) VAT paid or payable on the importation of goods; or

(iii) VAT incurred on the acquisition of goods from an EU member state in Northern Ireland*.

(3) provided that those goods or services are used or are to be used for the purposes of any business carried on or to be carried on by him.

The availability of CGT relief will depend on the use of the room. If it is used 100% of the time for business, then PPR would be affected.

Follow up Q

So even by the fact of the VAT being claimed it affects PPR (even though no capital allowance is claimed)?

Follow up A

For CGT purposes PPR relief is specifically restricted by TCGA 92 s.224(1) where a part of the dwelling is used “exclusively for the purpose of a trade or business, or of a profession or vocation”, therefore reclaiming the entirety of the VAT relating to a part of the house would likely trigger s.224(1) on that part, as this would effectively be declaring that that part of the house was being used exclusively for business purposes.

However, HMRC manual CG64663 confirms that s.224(1) only applies where the use is exclusive, therefore provided there is some residential use, the PPR claim is unlikely to be affected; the corollary to this is that there would be non-business use and so the VAT reclaim would need to be appropriately restricted.

Note also HMRC’s comments in paragraph four of CG64663 that ‘occasional and very minor residential use’ will generally be disregarded, leading to a restriction in the PPR claim, so the residential use does need to be tangible.

The post Tax Partner Pro – Your Q answered September 24 appeared first on Making the Complex Simple.



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Considerations for a merger or acquisition

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There are many reasons why companies may consider mergers or acquisitions with competitors.

The reason may include

  • Expanding their market presence
  • Enhancing financial efficiency
  • Increasing shareholder value
  • Achieving economies of scale

Merger or acquisition – exciting or challenging!

A merger or acquisition transaction can be an exciting and challenging time. Still, it is important to ensure that you or your clients take time to fully understand the tax position of the transaction you are undertaking.

Key tax considerations for a merger or acquisition

In this article, we have highlighted some of the key tax considerations when companies are considering undertaking merger or acquisition activity.

Whilst not every point will be relevant for every company, this gives a flavour of some things that should be considered once, or ideally before(!) a transaction reaches the head of terms stage. The earlier these points are considered the better. Some points can be used in negotiations and may impact valuation and any price paid on an acquisition.

1. Utilising trading losses

If a profitable company acquires another company that has accumulated trading losses, those losses can usually be used to offset the combined entity’s future taxable profits. This can result in significant tax savings. However, it’s important to be aware of the restrictions which may be imposed on the use of such losses, particularly if as a result of the transaction there is a major change in the nature or conduct of the trade.

2. Group Relief

Group relief allows losses from one group company to be surrendered against the profits of another group company. This reduces the group’s overall tax liability. Following an acquisition, if the acquired company becomes a member of the acquiring company’s group (meeting the 75% ownership requirement), it can participate in group relief. This can be particularly beneficial in the immediate post-acquisition period when integrating the operations of the two businesses.

3. Stamp Duty and Stamp Duty Land Tax (SDLT) Reliefs

When shares are transferred as part of an acquisition, Stamp Duty (at 0.5%) of the transaction value will usually be payable. However, there are various exemptions and reliefs which may be available. For example, if the acquisition qualifies as a “reconstruction” or “amalgamation” relief from Stamp Duty may be available.

Similarly, for transactions involving property, SDLT can be a significant cost. However, group relief for SDLT can be claimed if the transaction involves companies within the same group, provided certain conditions are met. This can result in substantial savings, particularly in property-intensive acquisitions.

4. Capital Allowances

Acquiring the assets of another company can allow the purchaser to claim capital allowances on the newly acquired assets. This can provide a substantial tax saving. The ability to claim these allowances can vary. It varies depending on whether the transaction is structured as a share purchase or an asset purchase. An asset purchase often allows the acquiring company to “step-up” the base cost of the assets to their market value. This then enhances the capital allowances available.

5. Substantial Shareholdings Exemption (SSE)

Where Substantial Shareholdings Exemption (SSE) is available no corporation tax on chargeable gains will be paid by the selling company. To qualify, the selling company must have held at least a 10% interest in the company being sold for a continuous period of at least 12 months within the two years before to disposal.

6. Rollover Relief

Rollover relief allows companies to defer capital gains tax on the disposal of certain business assets if the proceeds are reinvested in new qualifying business assets. This can be particularly advantageous in the context of M&A, where companies may dispose of non-core assets and reinvest in assets that align better with their strategic objectives. The deferred gain is effectively rolled over into the new asset, postponing the tax liability until the new asset is disposed of.

7. VAT Considerations for a merger or acquisition

In certain types of business transfers, VAT can be a critical consideration. A transfer of a going concern (TOGC) can be treated as outside the scope of VAT, meaning that no VAT is charged on the sale of the business. This can improve cash flow and reduce the administrative burden associated with VAT recovery. To qualify as a TOGC, specific conditions must be met by both the seller and the buyer and it is important to seek specialist advice.

Conclusion

Tax can play a crucial role in the planning of mergers and acquisitions. If a seller understands the tax opportunities available for a buyer this can allow them to negotiate a better price. Likewise, if a buyer is fully aware of some of the tax efficiencies which may arise as a result of the proposed transaction this may make the opportunity more attractive.

Next Steps

Companies need to seek expert advice as early as possible so as to ensure that both sides can maximise the potential benefits of their M&A transactions. If you need any help with any aspect of a merger or acquisition please do contact us.  We would be happy to help.



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