Author Archives: Andrew Fearn

HMRC Launches New Site For Those With Undeclared Income

HMRC has launched a new mini-site aimed at those with undeclared income. “We’re closing in” they say, using new technology and additional staff. They follow it up to say “if you have any income you haven’t told us about, you need to declare it before we catch you”. So the site aims to encourage relevant parties to come forwards voluntarily to declare such income, rather than waiting to be discovered. It’s not quite an ‘amnesty’ but it kind of hints at being a better way to deal with the situation. Links are given such as “How do I put it right” which takes them to the main HMRC website page outlining how to put your tax affairs in order.

Other links on the same mini site take visitors to areas such as ‘Owning up to fraud‘ and ‘Tell us about someone who is not declaring all their income” so the net is clearly closing in*. We took a look at the ‘Owning up to fraud’ page and it makes interesting reading. According to the site it seems that it’s better to own up voluntarily when tax fraud has been committed, and enter into what is known as a ‘CDF contract’ with HRMC. By following the terms of the CDF contract, HMRC will apparently agree “not to criminally investigate and prosecute you over the fraud you tell them about in that CDF contract” so clearly it’s better to volunteer such information rather than it being discovered.

HMRC have  run adverts on billboards, telephone boxes and bus shelters for 2 weeks  aimed at all such people who might have undeclared income.

* According to The Independent, last year HMRC managed to claim back a whopping £21bn from tax avoiders/evaders. This was a significant increase compared to other recent years and signals that the clamp-down on tax cheats is finally bearing significant fruit.

Will there be a rush of visits? Time will tell, in the mean time if you need advice on Tax – get in touch, we are here to help.

The more eagle eyed of you may be aware that HM Revenue & Customs’ (HMRC) released a consultation document on partnerships, representing the biggest shake up of partnership taxation for decades.

A very quiet revolution has been going on in the world of partnerships over the last few months, starting with low-key announcements in the Autumn Statement and further announcements in the Budget. Ordinarily, this would largely be of interest to partners in professional service firms and other businesses that traditionally operate in partnership (and I admit to a certain level of personal interest). But these changes are likely to be far wider reaching given the number of businesses that have in recent times incorporated limited liability partnerships (LLPs) for good commercial reasons.

There are two parts to the consultation. The first focuses on the presumption of self-employed status for a member (partner) of an LLP and the National Insurance that arises as a result.

The second focuses on countering the reduction of tax liabilities by firms that have introduced corporate partners to shelter their profits. While this kind of structuring has received mixed levels of interest, a number of businesses have explored it, often in order to preserve cash flow in the increasingly difficult market place.

The changes are expected to generate additional revenues for the Government of around £300m a year, so these changes are clearly significant. So the impact of the consultation may feel like yet more bad news for many firms struggling in a difficult economic climate. There have been well-reported victims of the downturn while others have seen cash flow become increasingly difficult in recent times – especially around tax payment deadlines.

In particular, firms with fixed share equity partners as a normal step in career progression and those that have introduced corporate partners for reasons such as partner ‘lock in’ or long-term incentivisation will need to keep an eye on what the changes mean for them.

While the new rules won’t come into effect until 2014, firms and partners that could be affected need to follow these developments closely over the coming weeks and months so they can prepare well in advance for the changes.

As the owner of a small business, when you decide to “go limited” you have two choices – private limited company (LTD) or a limited liability partnership (LLP). When there are only 2 or 3 of you in the business it can be hard to make the choice – and it may not make much difference either way in the early days. The answer may lie in your plans for the future…

We outline here ten reasons why you should use an LLP

1. Flexible business structure.

2. Key individuals can be rewarded and retained by offering share of income profits and capital profits on a disposal without having to resort to establishing share schemes such as the EMI.

3. If the business of an LLP is acquired by a third party purchaser, they can claim tax relief on the amortised amount of the goodwill acquired. Whilst this can be achieved similarly in a company (where the company sells the business as opposed to the shareholders selling the shares) it avoids the double tax charge that arises where the buyer does not want to purchase the shares.

4. Where there is a corporate member, excess profits can be allocated to the member and are taxed at corporate rates.

5. Individual members profit share allocations are not liable to employers NIC. By contrast anyone using a company would suffer employers NIC at 13.8% on salary or bonus payments.

6. Where individuals possess business knowhow, the value of this knowhow can be introduced into the LLP. The individual members can draw surplus cash from the business against their capital account (represented by the knowhow) without an immediate tax charge. In a company, if a director or shareholder borrow from the company there is a tax charge under s455 Corporation Tax Act 2010 where they borrow in excess of the balance of their directors capital account with the company. There is currently no similar tax charge where an individual member borrows from an LLP against their capital account.

7. There are no taxable benefits in kind on individual members so there is no requirement for P11Ds. Any non-business element is added back to taxable profits.

8. Favourable tax savings where cars are provided to individual members.

9. Non-resident partners can avoid all UK taxes providing there is no UK trade carried out.If a UK company was used this would remain subject to UK corporation tax irrespective of the residence of the shareholders.

10. If all profits are extracted from a company there is not usually a massive difference in the actual tax payable on the profits as an LLP versus a limited company, particularly for profits under £200K. The LLP though can provide other tax planning opportunities as above.