Category: HMRC notices

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 ESC C16 was withdrawn in March 2012 and replaced by s1030A Corporation Tax Act 2010 (CTA 2010) provisions.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.

4. 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.

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.

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

There are special rules that apply when a property is let at less than a commercial rate or is not let on commercial rates or terms. These rules also apply if a property is occupied rent free or at less than a commercial rates, for example, a property is occupied by a family member at a reduced or nil rent.

In these circumstances, HMRC can take the view that unless the landlord charges a full market rent for a property and imposes normal market lease conditions, it is unlikely that the expenses of the property are incurred ‘wholly and exclusively’ for business purposes.  Problems may also arise when considering the deduction of expenses during periods when the property is lived in by ‘house sitters’ who do not make any payment whilst staying at the property.

HMRC generally accepts that if a property is let at below the market rate (as opposed to providing it rent-free), the landlord can deduct the expenses of that property up to the rent they receive from letting the property. This means that the affected property produces neither a profit nor a loss. Any excess expenses cannot be carried forward to be used in a later year.

If the landlord is actively seeking a tenant and a relative house sits while it is empty, relief will not be restricted as long as the property remains genuinely available for letting. Relief for capital expenditure on uncommercial lettings may also be restricted.

HMRC has published further guidance on the implementation of the loan charge and has made clear there will be no special settlement terms.

This follows an independent review earlier this year into whether the loan charges was an appropriate way of dealing with loans schemes (also known as disguised remuneration tax avoidance schemes) that have been used by some employers and individuals in order to try and avoid paying Income Tax and National Insurance Contributions (NICs).

The government agreed a series of changes to the loan charges following the review. The amendments went before Parliament in July 2020 and became law following Royal Assent. One of the main changes following the review was confirmation that the loan charge would not apply to users of disguised remuneration avoidance schemes between 6 April 1999 and 5 April 2016 who settled the tax due with HMRC on or after 16 March 2016 and before 11 March 2020.

Most people who have used disguised remuneration schemes will fall into one of 5 main groups, depending on their circumstances.

This will determine what they need to do next, although taxpayers with more complex affairs may fall into several different categories. These groups are:

1. Taxpayers who have settled with HMRC and are not due a refund
2. Taxpayers still settling with HMRC
3. Taxpayers who have not settled and will pay the loan charge
4. Taxpayers who have settled and are due a refund or waiver following the independent review
5. Taxpayers who no longer have to pay some, or all, of the loan charge but have not settled all of their use of DR schemes

Taxpayers that have outstanding disguised remuneration loans that are subject to the loan charge need to file their 2018-19 Self Assessment tax return by 30 September 2020, including a report of any loan balances subject to the loan charge, and put in place any arrangements they need to pay the charge due on that date. Taxpayers can now elect to spread the loan balance over 3 tax years.