Month: October 2020

Routes For Closing A Limited Company

Posted on by Rana Zubair

A company could face numerous situations when the shareholders might decide to close the limited company. This could be because a limited company structure is not relevant to the requirements of shareholder, the business is no longer active, or the company is insolvent. You will usually need the agreement of all the company’s directors and shareholders to close down the company.

https://www.gov.uk/strike-off-your-company-from-companies-register

The method for closing down a limited company depends on whether it is solvent or insolvent. If the company is solvent, you can apply to get the company struck off the Register of Companies or start a members’ voluntary liquidation. The former method is usually the cheaper option.

Members’ Voluntary Liquidation is the most tax-efficient method for most directors, as shareholders can obtain the value of the company instead of being charged income tax and capital gains tax.

It is the responsibility of the company directors to ensure that all of a company’s assets and liabilities are dealt with before it is dissolved. For example, you have settled any outstanding bills and collected all debts owed to the business. Any assets or rights (but not liabilities) remaining in the company at the date of dissolution can pass to the Crown as ownerless property.

Where a company is insolvent, the creditors’ voluntary liquidation process must be used. There are also special rules where the company has no director, for example if the sole director has died.

A company can also elect to become dormant. A company can stay dormant indefinitely, however there are costs associated with this option. This might be done if for example a company is restructuring its operations or wants to keep hold of a company name, brand or trademark. The costs of restarting a dormant company are typically less than starting from scratch again.

If you need further information; feel free to book a free consultation with us.

Cash Accounting Scheme For VAT

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Cash Accounting Scheme generally, VAT is payable on sales irrespective of the customer has paid and can lead to a claim for Bad Debt Relief. There VAT schemes available as below:

  • Flat rate scheme
  • Annual accounting VAT scheme
  • Cash accounting scheme

In this article we will explain some salient features of the Cash Accounting Scheme as follows:

Under the Cash Accounting Scheme, VAT does not need to be paid over until the customer has paid. With cash accounting, you account for VAT when you’re paid as opposed to the date you invoice a customer.

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A business can enter this scheme provided their estimated VAT taxable turnover for the next VAT year is not more than £1.35 million in the next 12 months. The business can continue to use the scheme until their VAT taxable turnover exceeds £1.6 million.

Businesses can’t use the Flat Rate Scheme together with the (CAS). However, the Flat Rate Scheme has its own cash based method for calculating turnover. Businesses are also ineligible to use the scheme if they are behind with their VAT payments, late filing returns or have committed a VAT offence in the last 12 months.

Businesses do not need to complete an application form or advise HMRC to start using the (CAS). They can commence using the Cash Accounting Scheme at the beginning of any VAT period or if they are not already registered for VAT from the day their VAT registration starts.

Businesses can leave the (CAS) voluntarily at the end of any VAT accounting period. They do not need to notify HMRC. They can then re-join the scheme at the beginning of any VAT accounting period, provided they continue to meet the necessary criteria.

If you need further information; feel free to book a free consultation with us.

Lower Tax On Savings Income

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Lower Tax On Savings Income

Due to the Personal Allowance most people can benefit from paying no tax on interest on their savings. There is also a Starting Rate for Savings for those on low income.

In the current tax year, anyone with taxable income of less than £17,500 will have no tax to pay on their savings income – interest received. This figure is calculated by adding the £5,000 starting rate limit for savings (where 0% of the interest is taxable) to the current £12,500 personal allowance. However, this £5,000 starting rate limit for savings will be reduced by £1 for every £1 of non-savings income in excess of £12,500. Accordingly, when non-savings income amounts to £17,500 all savings income will be taxable.

https://www.gov.uk/apply-tax-free-interest-on-savings

There is also a Personal Savings Allowance (PSA) which means that for basic-rate taxpayers the first £1,000 interest on savings income is tax-free. For higher-rate taxpayers the tax-free personal savings allowance is £500. Anyone earning over £150,000 does not benefit from the PSA.

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Interest from savings products such as ISA’s and premium bond wins do not count towards the limit. Taxpayers with tax-free accounts and higher savings can continue to benefit from the relevant PSA limits.

Banks and building societies no longer deduct tax from your account interest as a matter of course. Taxpayers who still need to pay tax on savings income will need to declare this as part of their annual Self-Assessment tax return.

Taxpayers that have overpaid tax on savings interest can submit a claim to have the tax repaid. Claims can be backdated for up to four years after the end of the current tax year. The deadline for making claims for the 2016-17 tax year is 5 April 2021.

If you are looking to know more about this, feel free to book a free consultation with us.

Treatment Of Final Distribution From A Business

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We are going through a tough time and there is a risk that so many businesses might have to close down; it will be useful to explain how the final distribution would work for directors and the business.

https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm36220

The Extra Statutory Concession (ESC) – C16 was a well-used extra-statutory concession that allowed company directors to treat final distributions as a capital disposal and close down their business in an efficient manner. ESC C16 was withdrawn in March 2012 and replaced by s1030A Corporation Tax Act 2010 (CTA 2010) provisions.

This move meant that from 1 March 2012, the concessionary treatment provided by ESC C16 were replaced by more restrictive statutory rules which included the introduction of a new £25,000 threshold.

Under the legislation, distributions made in anticipation of dissolution under the striking off process will not be taxed as ‘income’ distributions provided:

  • at the time of the distribution, the company has secured, or intends to secure, payment of debts due to it, and similarly has satisfied, or intends to satisfy, debts due from it, and
  • the amount of the distribution, or total amount of distributions if more than one, does not exceed £25,000.

Directors with more than £25,000 of reserves will not be able to treat the final distribution as a capital disposal but rather as ‘income’ distributions.

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Conditions of ESCC16

  1. The company is not one which, if the distributions were made in a winding up, would be reported to the Anti-Avoidance Group, Clearance and Counteraction Team in relation to ITA07/PART13/CHAPTER1 (formerly ICTA88/S703) under sub-paragraphs (e) or (f) of CTM36875.
  2. The company is not the subject of an enquiry either on its own or as part of an enquiry embracing individuals or other companies.
  3. The company satisfies an HMRC officer that:

(a) it does not intend to trade or carry on business in future, and

(b) it intends to collect its debts, pay off its creditors in full and distribute any balance of its assets to its shareholders (or has already done so), and

(c) it intends to seek or accept striking off and dissolution.

  1. The company and its shareholders agree that:

(a) they will supply such information as is necessary to determine, and will pay, any CT liability on income or capital gains, and

  1. b) the shareholders will pay any CGT liability (or CT in the case of a corporate shareholder) in respect of any amount distributed to them in cash or otherwise as if the distributions had been made during a winding-up (see CG40430to CG40432).

If you are looking to know more about this; feel free to book a free appointment contact us.

Using Your Own Vehicle For Work?

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If you are an employee and use your own money to buy things you need for your job, then you can sometimes claim tax relief for the associated costs. It is usually only possible to claim tax relief for the cost of items used solely for your work. You may also be able to claim tax relief for using your own vehicle, be it a car, van, motorcycle or bike.

There is generally no tax relief for travel to and from your place of work. The rules are different for temporary workplaces where the expense is usually allowable and if you use your own vehicle to do other business-related mileage.

Employers usually make payments based on a set rate per mile depending on the mode of transport used. There are approved mileage rates published by HMRC. The approved mileage allowance payment rates are available where you use your own car on a business trip. Where the approved mileage rates are used, the payments to you are not regarded as a taxable benefit.

Where an employer pays less than the published rates, you can make a tax relief claim for the shortfall using mileage allowance relief. For all cars, the approved mileage allowance payment for the first 10,000 business miles is 45p per mile and 25p per mile for every additional business mile. The approved mileage rates are 20p per mile for bicycle travel and 24p per mile for motorcycle travel.

There is an additional passenger payment you can receive of 5p per passenger per business mile from your employer. This is available if you carry fellow employees in your car or van on journeys which are also work journeys for your colleagues.

Source: HM Revenue & Customs Wed, 19 Aug 2020 05:00:00 +0100

Brexit – Tips For Importers And Exporters

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Tips For Importers And Exporters

From 1 January 2021, UK businesses that export, import, or transport goods to and from the EU will need to comply with a number of new regulations.

https://www.gov.uk/topic/business-tax/import-export

Inevitably, some will fall short and these will create delays, in your goods reaching EU customers, the goods of EU suppliers reaching you, and transport drivers spending more time than is necessary for queues of traffic as the paperwork threads are resolved.

Leaving aside the obvious need to become acquainted with, and comply with, the new regulations, to some extent the flow of goods – back and forth – will be held back by those businesses who fail to meet the required standards.

Importers and exporters would therefore be advised to consider the following:

  • Increasing your stock of goods before the end of the year such that you do not need to make further orders from EU suppliers until say February 2021, by which time – hopefully – there is a better understanding of the new customs clearance processes and other regulatory matters that need to be considered.
  • Similarly, see if you can inspire your EU customers to double up on their orders before the end of the year.

In this way you may be able to distance your business from the initial, likely chaos and minimise any additional disruption to your business as we continue to grapple with COVID challenges.

Source: Other Mon, 19 Oct 2020 00:00:00 +0100

Tax Relief For Donating Land, Property Or Shares To A Charity

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There are reliefs available if a taxpayer gifts land, property or certain shares to the charity. The reliefs are in Income Tax and the Capital Gains Tax (CGT), provided all the necessary conditions are met. This is important to note that there is no Income Tax relief on donations to community amateur sports clubs (CASCs).

Capital Gains Tax relief

The Taxpayers do not have to pay CGT on land, property or shares they give to charity. Taxpayers may have to pay some tax if they sell for more than the land, property or shares cost, but less than their market value. The gain should be calculated using the amount the charity actually pays, rather than the value of the asset.

Income Tax relief

Where qualifying assets are gifted, the market value of the asset is deducted from the taxpayer’s total income rather than adjusting their basic rate tax band. This should be done for the tax year (6 April to 5 April) in which they made the gift or sale to charity.

Selling land, property or shares on behalf of a charity

When a taxpayer offers a gift of land, property or shares, the charity might ask the taxpayer to sell the gift on its behalf. Taxpayers can do this and still claim tax relief for the donation, but they must keep records of the gift and the charity’s request. Without them, they might have to pay CGT.

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Time To Pay Service – Increase In Limit

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One of the measures announced by HMRC to support businesses during coronavirus pandemic was the introduction of service of Time To Pay for those affected by COVID-19.

https://www.gov.uk/government/news/self-assessment-customers-to-benefit-from-enhanced-payment-plans

Businesses and self-employed people in financial distress and with outstanding tax liabilities may be eligible to receive support with their tax affairs by accessing this service.

An online payment plan was available to set up installment arrangements for paying tax liabilities up to £10,000. This limit has now been increased to £30,000 from 1 October 2020.

HMRC estimates around 95% of Self-Assessment customers who are due to make payments on 31 January 2021 could qualify to implement a Time To Pay arrangement using the self-serve, online Time To Pay facility, without needing to speak to an HMRC adviser.

Taxpayers that want to use the online option must meet the following requirements:

  • Have no outstanding tax returns
  • No other tax debts
  • No other HMRC payment plans set up.

The debt needs to be between £32 and £30,000, and the payment plan needs to be set up no later than 60 days after the due date of a debt.

Taxpayers using self-serve Time To Pay will be required to pay any interest on the tax owed. Interest will be applied to any outstanding balance from 1 February 2021.

Taxpayers with Self-Assessment Tax payments of over £30,000, or who need longer than 12 months to pay in full, may still be able to set up a Time To Pay service arrangement by calling the Self-Assessment payment helpline.

If you are looking for more information; book a call with us.

VAT Changes For Subcontractors In Construction Industry

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From 1 March 2020, contractors who employ subcontractors, will need to assume responsibility for declaring and paying the VAT that was previously settled by their VAT registered subcontractors.

https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services

The new rules will make the supply of construction services between construction or building businesses subject to the domestic reverse charge. The reverse charge will only apply to supplies of specified construction services to other businesses in the construction sector.

Guidance on the workings of the domestic reverse charge (referred to as the reverse charge) has been published by HMRC. The reverse charge will affect certain specified supplies of building and construction services supplied at the standard or reduced rates that are reported under the Construction Industry Scheme (CIS). This will place the onus for dealing with the VAT charge due on subcontractors’ bills, on the main contractor.

There are now less than 5 months until the new rules come into effect and you should ensure that your construction clients are making the necessary preparations.

Affected construction clients should:

  • make sure their accounting systems and software can deal with the reverse charge
  • consider whether the change will impact their cash flow
  • make sure all their staff who are responsible for VAT accounting are familiar with the reverse charge and how it will work

You must use the reverse charge for the following services:

  • constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services
  • constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
  • installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure
  • internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration
  • painting or decorating the inside or the external surfaces of any building or structure
  • services which form an integral part of, or are part of the preparation or completion of the services described above – including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works

  

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Introduction Of Freeports In UK

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In an effort to moderate the vagueness in imports and exports from the UK after Brexit, the government is going ahead with the plans of free trade zones – known as Freeports. Freeports are a special kind of ports where normal tax and custom duty rules do not apply. These rules are simplified within Freeports.

https://www.city.ac.uk/news/2020/september/free-ports-could-help-britain-take-back-control-and-keep-trade-flowing-with-the-eu

 

Free ports often offer a wide range of incentives for businesses to operate here. These include lower corporate taxes, providing basic utilities at below-market prices and laxer regulations and employment rules.

The initiative would allow firms to import components and other pre-manufactured goods into a Freeport without paying taxes. The goods would then be processed into a finished product to be built in the UK. In these new Freeport areas, no duties would be charged on goods or materials until they leave the zone as a finished product for the UK domestic market. There should be no UK tariffs payable when the finished product is re-exported directly from the Freeport.

The Freeport bidding process in England is expected to open before the end of the year and the first Freeports on track to be open by the end of 2021. In this opening series of applications, sea, air and rail ports in England will be invited to bid for Freeport status.

The Chancellor of the Exchequer, Rishi Sunak, said: “Our new freeports will create national hubs for trade, innovation and commerce, regenerating communities across the UK and supporting jobs.

The government is also working with the devolved administrations to establish at least one Freeport in each nation of the UK and will introduce a package of tax reliefs for business investment in the Freeports. This will include speeding up the planning process to accelerate development. We are also told there will be new initiatives to encourage innovators to generate new ideas to create additional economic growth and jobs.

 

 

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