Tax Bulletin Autumn 2017

Autumn 2017 Latest news and updates from the Roffe Swayne teamAs autumn approaches and we pack away our summer wardrobe and look ahead to shorter days and Linda Warnercolder temperatures, for those of us working in tax it is a time to look at planning opportunities ahead of Tax Partnerthe November budget and to ensure plans are in place to meet the January filing deadline. 01483 416232Autumn is also the start of the new school term and we welcome our new trainees embarking on their [email protected] in tax. This year we are also welcoming Chris Boulet who has joined as a partner in our private clienttax team. Chirs brings with him diverse experience working to help high net worth clients to realise their @RoffeSwaynefinancial ambitions. Jane Alsop also joined the tax team earlier this year with particular expertise aroundtax investigations, with over 30 years experience working for HMRC and is on hand should HMRC comeknocking.Nothing stands still in tax and as well as all the technical changes there are significant changes ahead inhow tax returns will be dealt with as HMRC increase their ability to pre-populate return information fromother sources. For some this may mean the end of the annual tax return whilst for others it may havelittle impact. We will be writing to all clients shortly to advise how this is likely to affect them but if you doreceive any calculations direct from HMRC do please send these to us as we will not receive copies directlyfrom HMRC.Trust newsHow trusts can be used for tax planningby Stephen Pointer The reporting requirements under FATCA The benefits:Trusts are a useful means of (Foreign Account Tax Compliance Act) andpreserving wealth. They allow CRS (Common Reporting Standard) have »» no more forms lost/delayed in the post.assets to be passed down become fairly onerous and hard to navigate »» only having to answer questions through the generations in a for the non-tax technical person, so it does relevant to that particular trust type or secure and tax efficient manner. make sense to get an expert to help you out. estate. »» the ability to print out a summary Trusts can include a range of assets, Registration of Trusts with HMRC page for the trustees to keep for your including both existing family owned assets own records.(such as properties or company shares) or Another area of change is the process ofnewly acquired investments. Also, they are registering trusts with HMRC. Trusts can no Launched on 10 July 2017, this online servicea good way of providing funds for future longer be registered with HMRC using paper allows lead and corporate trustees to buildgenerations, such as the payment of school forms. An electronic registration process, on existing tax reporting mechanisms.or university fees for grandchildren. known as the Trusts and Estates Registration Service, provides a single online access All trusts with a UK tax consequence willGlobal Reporting Requirements for trusts and estates to comply with their need to be registered. Also it will be the registration obligations. trustees’ responsibility to ensure the TrustThere’s been significant changes in Register is accurate and up to date. This willglobal reporting standards in recent Used correctly, this can be a useful also include trusts which were originallyyears impacting trusts that hold financial tool for inheritance tax planning. registered with HMRC under the old system.investments as their main assets. Trusts remain one of the most versatile tax options for business or private asset owners. If you are looking to manage wealth for future generations, you should consider this option. Roffe Swayne Tax Bulletin Autumn 2017 | 1

Tax saving opportunitiesEvery business wants to minimise Groups of companies have to share the Rates of taxtheir tax liability. This factsheet allowance. Expenditure on qualifying plantconsiders some key strategies and machinery in excess of the AIA is eligible From 1 April 2017 the main rate ofand opportunities that may help for writing down allowance (WDA) of 18%. corporation tax is 19% and this rate willto reduce your tax bill. continue for the Financial Years beginning Where the capital expenditure is incurred on on 1 April 2018 and 1 April 2019. TheCorporation tax integral features the WDA is 8%. main rate of corporation tax is then set toAdvancing expenditure be reduced to 17% for the Financial Year 100% allowances on designated energy beginning on 1 April 2020.Expenditure incurred before the company’s saving technologies continue to be availableaccounts year end may reduce the current in addition to the AIA. Details can be found Self assessmentyear’s tax liability. at www.etl.decc.gov.ukIn situations where expenditure is planned Under the self assessment regime mostfor early in the next accounting year, the Trading losses companies must pay their tax liabilities ninedecision to bring forward this expenditure months and one day after the year end.by just a few weeks can advance the related Companies incurring trading losses have Companies which pay (or expect to pay)tax relief by a full 12 months. three main options to consider in utilising tax at the main rate are required to pay taxExamples of the type of expenditure to these losses: under the quarterly accounting system.consider bringing forward include: Corporation tax returns must be submitted »» they can be set against any other within twelve months of the year end and »» building repairs and redecorating income (e.g. bank interest) or capital are required to be submitted electronically. »» advertising and marketing campaigns gains arising in the current year In cases of delay or inaccuracies, interest and »» redundancy and closure costs penalties will be charged. »» they can be carried forward and setNote that payments into company pension against trading profits arising in future Capital gainsschemes are only allowable for tax purposes yearswhen the payments are actually made as Companies are chargeable to corporationopposed to when they are charged in the »» they can be carried back for up to one tax on their capital gains less allowablecompany’s accounts. year and set against total profits capital losses.Capital allowances Changes from April 2017 Indexation allowanceConsideration should also be given to the The government has proposed to make In order to counteract the effects of inflationtiming of capital expenditure on which changes to the rules for corporation tax inherent in the calculation of a capital gain,capital allowances are available to obtain the losses to make the tax relief more flexible. an indexation allowance is given. Howeveroptimum reliefs. Under the changes, when losses arising on the allowance is not allowed to increase or or after 1 April 2017 are carried forward, create a capital loss.Single companies irrespective of size they would be available to be used againstare able to claim an Annual Investment profits from different types of income in the Planning of disposalsAllowance (AIA) which provides 100% relief company and other group companies.on expenditure on plant and machinery Consideration should be given to the(excluding cars). The amount of AIA is There would, however, be a restriction on timing of any chargeable disposals tocurrently set at £200,000. the use of carry forward losses where a ensure advantage is taken where there is a company’s or group’s profits are above £5 possibility of minimising the tax liability at million. Under the changes, any profits over the small profits rate rather than the full rate. £5 million arising on or after 1 April 2017 This could be achieved (depending on the cannot be reduced by more than 50% by circumstances) by accelerating or delaying brought forward losses. Losses that have sales. The availability of losses or the arisen at any time will be subject to these feasibility of rollover relief (see later) should restrictions. also be considered. Purchase of new assets It may be possible to avoid a capital gain being charged to tax if the sale proceeds are reinvested in a replacement asset. The replacement asset must be acquired in the four year period beginning one year before the disposal, and only certain trading tangible assets qualify for relief. These are just some of the ways in which you may be able to reduce your business’s tax liability. For more information, please contact us 01483 4162322 | Roffe Swayne Tax Bulletin Autumn 2017

Making Tax Digital (MTD)Latest VAT update At present this seems to be Companies are still not really mentioned. only for businesses above the I imagine this means that they will followby Jane Alsop VAT threshold, so MTD may along with other businesses, with MTD for remain voluntary for smaller corporation tax kicking in from April 2020If you do one thing to prepare for businesses indefinitely - but as with or later.MTD now...get digital VAT, I would expect a broadening of the scope relatively soonLook at your current record keeping to see after 2020.if it will be adequate for HMRC’s ambitiousMTD..MTD for income tax will become mandatoryfrom April 2020, or possibly later.Patent Box tax reliefWhat are the benefits?by Donna KenyonPatent box tax relief can be the IP was developed by group companies Receiving income from patent-claimed where the company overseas. Previously a company could use pending product?owns broadly either UK or EU the simplified standard method or electpatents or has an exclusive under the legislation to use the streaming Where companies have applied for a patentlicence. calculation. The new rules apply to new and are receiving income from products patents granted on or after 1 July 2016. containing patent-pending items which areProfits attributable to products containing integral to the overall product, it is importantpatented items are taxed at 10%. This is done It should be noted however where income is to ensure details are recorded as to howby way of a tax deduction. received from patents granted before 1 July much income has been received. As well as 2016 and the company has elected into the specific costs incurred in producing thoseThe key to maximising patent box relief is: patent box previously, the old rules (i.e. the products. The benefit of patent box relief »» to identify where income is received on standard calculation) can be used up until 30 can be accumulated over a number of years products containing integral patented June 2021 where: before being claimed in the accounting and patent-pending items; period in which the patent is granted. »» ensure any direct costs are attributable »» the value of the product is wholly or However, this can only be done where to producing those items are tracked; mainly attributable to old intellectual companies have made an election under the »» to prepare overall profit forecasts for property; legislation into the patent box regime during the company. the accounting periods prior to when the »» the proportionate number of old IP patent is granted. The deadline to elect intoThe changes rights compared to total qualifying the patent box regime is 2 years after the new intellectual property rights is 80% end of an accounting period.New rules mean that companies must or more. Where that is not the casenow calculate their patent box profits but the proportionate number of old Need our help?using an updated streaming calculation. IP rights compared to total qualifyingSimilar to the previous calculation, but new IP rights is between 20% and 80%, We can help you formalise your claim andwith the addition of a calculation to factor then that proportion of income from decide if it would be advantageous for youin the UK versus overseas development of the product can still be subject to the to elect early into the patent box regime.intellectual property. It is broadly designed old rules up until June 2021. Ensuring any tax relief due can be brought into reduce the benefit of patent box where to the company’s tax computation once the patent is granted. Roffe Swayne Tax Bulletin Autumn 2017 | 3

Tax aspects of business motoringTaxation of business motoring Capital allowance boost for low- For purchases from April 2015 to April 2018:is an important area to consider carbon transport Cars with emissions between 76 – 130 g/kmfor both your business and your inclusive qualify for main rate WDA.employees. Employer-provided A 100% first year allowance is currentlyvehicles are amongst the most available for capital expenditure on new Cars in excess of 130 g/km are placed inpopular benefits in kind, with electric vans. the special rate pool and will qualify for anmany businesses supplying their annual WDA of 8%. The 100% FYA availablestaff with cars and vans. Writing Down Allowances (WDA) on new low emission cars purchased (not leased) by a business is generally availableMethods of acquisition The WDA rates are 18% on the main rate where a car’s emissions do not exceed 75 g/ pool and 8% which applies to many higher km.Motoring costs, like other costs incurred emission cars which are part of the specialwhich are wholly and exclusively for rate pool. If a used car is purchased with CO2the purposes of the trade, are tax- emissions of 75 g/km or less, this will bedeductible, but the timing of any relief Complex cars! The green car placed in the main pool and will receive anvaries considerably according to the type annual allowance of 18%.of expenditure. There is a fundamental Cars generally only attract the WDA,distinction between capital costs and however, there is one exception to this, and For purchases from April 2013 to April 2015:ongoing running costs. that is where a business purchases a new car Cars with emissions between 96 – 130 g/km with low emissions – a­ so-called ‘green’ car. inclusive qualify for main rate WDA.Purchase of vehicles Such purchases attract a 100% allowance to encourage businesses to purchase cars Cars in excess of 130 g/km are placed inWhere vehicles are purchased outright, the which are more environmentally-friendly. the special rate pool and will qualify for anaccounting treatment is to capitalise the From April 2015, a 100% write off is only annual WDA of 8%. The 100% FYA availableasset and to write off the cost over the useful available where the CO2 emissions of the on new low emission cars purchased (notbusiness life as a deduction against profits. car do not exceed 75 g/km (reducing to 50 leased) by a business is generally availableThis is known as ‘depreciation’. g/km from April 2018). The cost of the car is where a car’s emissions do not exceed 95 g/ irrelevant and the allowance is available to km.The same treatment applies to vehicles all types of business.financed through hire purchase, with theequivalent of the cash price being treated When did you buy?as a capital purchase at the start, with theaddition of a deduction from profit for the There have been significant changes to thefinance charge as it arises. However, the tax basis of capital allowances for car purchasesrelief position depends primarily on the type and the tax relief thereon. The allowancesof vehicle, and the date of expenditure. due are determined by whether the car was purchasedA tax distinction is made for all businessesbetween a normal car and other forms of »» from April 2018 (proposed)commercial vehicles, including vans, lorries, »» from April 2015 to April 2018and some specialist forms of car, such as a »» between April 2013 and April 2015car used by a driving school or as a taxi. »» or between April 2009 and April 2013.Tax relief on purchases The dates are 1 April for companies and 6 April for individuals in business.Vehicles which are not classed as carsare eligible for the Annual Investment For purchases from April 2018:Allowance (AIA) for expenditure incurred. The annual allowance is dependent on theThe AIA provides a 100% deduction for the CO2 emissions of the car.cost of plant and machinery purchased by abusiness up to an annual limit. The amount Cars with emissions between 51 – 110 g/kmof AIA available varies depending on the inclusive currently qualify for main rate WDA.period of the accounts. The current amountof AIA is £200,000 and prior to 1 January Cars exceeding 110 g/km are placed in2016 it was £500,000. the special rate pool and will qualify for an annual WDA of 8%.Where purchases exceed the AIA, a WritingDown Allowance (WDA) is due on any excess The 100% first year allowance (FYA) availablein the same period. The WDA available is on new low emission cars purchased (notcurrently at a rate of 18% or 8%, depending leased) by a business is generally availableon the asset. Cars are not eligible for the AIA, where a car’s emissions do not exceed 50 g/so will only benefit from the WDA. km. If a used car is purchased with CO2 emissions of 50 g/km or less, this will be placed in the main pool and will receive an annual allowance of 18%.4 | Roffe Swayne Tax Bulletin Autumn 2017

If a used car is purchased with CO2 emissions Example Disposalsof 95 g/km or less, this will be placed inthe main pool and will receive an annual A company purchases two cars for £20,000 in Where there is a disposal of plant andallowance of 18%. its 12 month accounting period to 31 March machinery from the main or special rate 2017. pools, any balance of expenditure, afterFor purchases from April 2009 to April 2013: taking into account sale proceeds, continuesThe annual allowance is dependent on the The dates of purchase and CO2 emissions to attract the annual allowance.CO2 emissions of the car. are as follows: Where there is a disposal of a car held in a »» Cars between 111 – 160 g/km are White car Blue car single asset pool, the disposal proceeds are placed in the main rate pool and will deducted from the balance of the pool and a qualify for an annual WDA of 18%. 1 May 2016 1 May 2016 balancing allowance or a balancing charge is calculated to clear the balance on the pool. »» Cars in excess of 160 g/km are placed in 125 145 the special rate pool and will qualify for This applies to any cars used by the self an annual WDA of 8%. Allowances in the year to 31 March 2017 employed with part non-business use relating to these purchases will be: whenever purchased.If a used car is purchased with CO2 emissionsof 110 g/km or less, this will be placed in White car Blue car What if vehicles are leased?the main pool and will receive an annualallowance of 18%. (main pool as (special rate pool The first fact to establish with a leased emissions less than as emissions more vehicle is whether the lease is really aNon­-business 130) than 130) rental agreement or whether it is a type of purchase agreement, usually referred to asAny cars used by the self employed where £20,000 @ 18% = £20,000 @ 8% = a finance lease. This is because there is athere is part non-business use will still be £3,600 £1,600 distinction between the accounting and taxseparately allocated to a single-asset pool. treatment of different types of leases.The annual allowance will initially be eitherthe current 18% or 8%, depending on the In the following year to 31 March 2018 theCO2 emissions, and then the available allowances will be:allowance will be restricted for the privateuse element. White car Blue car £16,400 @ 18% = £18,400 @ 8% = £2,952 £1,472Event The speakers Mark Taylor Technical InnovationClient Briefing: Linda Warner Manager, ICAEW Tax Partner,Top tips for dealing with cyber Roffe Swayne securityPreparing for the forthcoming GDPR DetailsGeneral Data Protection The data protection laws are changing onRegulations (GDPR) 25th May 2018. Businesses must comply 8 November, 5pm, for 5:30pm to with these changes or face hefty fines. Mark 7pm when drinks and canapés willTax update: pre-budget predictions will give a brief overview of GDPR, plus some be served steps you need to take to remain compliantPlease join us for an informal briefing with how you manage the personal data you Held at Roffe Swayne officessession with Mark Taylor from the Institute of hold and how to record and manage consent.Chartered Accountants in England and Wales To book your place(ICAEW). email [email protected] Crime Tax updateGet practical tips on how to protect your Linda Warner will also be giving her view andbusiness and your client data from cyber advice on recent tax changes and any budgetcriminals. implications for business and individuals. Roffe Swayne Tax Bulletin Autumn 2017 | 5

Property investmentWhen investing in property, Who or what should purchase Residential propertythere are many tax implications the property?to consider. Here are some of the The decision as to who should own a An initial decision needs to be made residential property to let is a balancing actkey areas to take into account. whether to purchase the property: depending on overall financial objectives. The answer will be dependent on theInvestment in property has been and »» as an individual following factors:continues to be a popular form of »» as joint owner or via a partnership »» do you already run your businessinvestment for many people. It is seen as aroute by which: (often with a spouse) through your own company? »» via a company »» how many similar properties do you »» relatively secure capital gains can be made on eventual sale There are significant differences in the tax want to purchase in the future? effects of ownership by individuals or a »» do you intend to sell the property and »» income returns can be generated company. throughout the period of ownership when? Deciding the best medium will depend on a »» mortgage finance is covered in number of factors. Company versus personal repayment terms by the security of the ownership - eventual disposal eventual sale of the property and in Commercial property interest terms by the rental income. If you already run your business through You are currently trading as a limited a company it may be more tax efficient toOf course, the net returns in capital and company own the property personally as you willincome will depend on a host of factors. But The personal purchase of new offices or be able to make use of your CGT annualon the basis that the investment appears to other buildings and the charging of rent for exemption (and your spouse’s annualmake commercial sense, what tax factors the use of the buildings to your company exemption if jointly owned) on eventualshould you take into account? is very tax efficient from an income tax disposal to reduce the gain. position as: »» the rental you receive from the In contrast, a company can still use indexation allowance to reduce a capital company allows sums to be extracted gain. This effectively uplifts the cost of the without national insurance property by the increase in the Retail Price »» the company will be able to claim a Index (RPI) over the period of ownership. corporate tax deduction for the rent Indexation is not available to reduce the »» finance costs are currently deductible gain on the disposal by an individual so in from the rents situations where indexation allowance is substantial, this could result in lower gains. Capital gains Company versus personal Capital gains on the disposal of an asset are ownership - rental income generally calculated by deducting the cost of the asset from the proceeds on disposal For personally-owned property the net and reducing this by the annual exemption. rental income will be taxed at your marginal Gains are treated as an individual’s top slice rate of tax, but if you are financing the of income and generally taxed at 10% and purchase with a high percentage of bank 20% or a combination of the two. However finance, the income tax bill will be relatively gains on residential property are charged at small. However for rented property with 18% and 28%. personal ownership the deduction for finance costs is restricted to basic rate relief Capital gains tax (CGT) and from April 2017. This restriction is to be Entrepreneurs’ Relief (ER) phased in over a four year period and will impact higher and additional rate taxpayers. Unfortunately ER is unlikely to be available on the disposal of business premises used The net rental income will be taxed at the by your company where rent is paid. This current corporation tax rate of 19%, which is due to the restrictions on obtaining the is generally lower than for an individual. relief on what is known as an ‘associated Where the purchase is being financed with disposal’. These restrictions include the a high percentage of loan/bank finance, the common situation where a property is corporation tax bill will be relatively small. currently in personal ownership, but is used in an unquoted company or partnership But there are other factors to consider: trade in return for a rent. Under the ER »» there is frequently a further tax charge provisions such relief is restricted where rent is paid. should you wish to extract any of the proceeds from the company6 | Roffe Swayne Tax Bulletin Autumn 2017

»» inserting the property into an Changes to the taxation of dividends mean SDLT existing company may result in your that: shareholding in that company not »» the cash dividend is the gross amount SDLT is payable by the purchaser of the qualifying for ER. You could however property although Land and Buildings form another company to protect the potentially subject to tax (no tax credits Transaction Tax (LBTT) is payable in trading status of the existing company. are available) Scotland. »» a Dividend Allowance charges the firstIf you do not have a company at £5,000 of dividends received in a tax Corporate investment inpresent year at 0% expensive residential property »» for dividends above £5,000, dividendPersonal or joint ownership may be the income will be taxed at 7.5% for basic Where expensive residential property,more appropriate route but there are rate taxpayers, 32.5% for higher rate valued at more than £500,000, is purchasedcurrently other significant advantages of taxpayers and 38.1% for additional rate by a ‘non natural person’, broadly acorporate status particularly if you expect taxpayers. company, there is a potential charge - thethat: Annual Tax on Enveloped Dwellings (ATED). »» you will be increasing your investment It was announced in Budget 2017 that the The ATED is payable by those purchasing Dividend Tax Allowance will be reduced to and holding their homes through corporate in residential property £2,000 from 6 April 2018. envelopes, such as companies. In addition »» you are unlikely to be selling the a higher rate of SDLT of 15% applies to the Selling the shares purchase. properties on a piecemeal basis; or »» you are mainly financing the initial CGT will be due on the gain on the eventual There are exemptions from the higher rate sale of the shares. of SDLT and the ATED charge; in particular, purchases of the property from your property companies letting out residential own capital. The share route may also be more attractive properties to third parties. to the purchaser of the properties ratherIf so, the use of a company as a tax shelter than buying the properties directly, as CGT is charged at 28% on disposals offor the net rental income can be attractive. they will only have 0.5% stamp duty to pay properties liable to ATED and valued at rather than the potentially higher sums of more than £500,000 from 6 April 2016.Use of a company as a tax shelter Stamp Duty Land Tax (SDLT) on the property purchases.Profits will be taxed at the currentcorporation tax rate of 19%. This rate Prospective landlords and investors are advised to consider the points raised in thisapplies to trading companies or property factsheet before investing in property. For more information, please contact usinvestment companies. 01483 416232Where profits are retained, the income maybe suffering around half of the equivalentincome tax bills. That means there are morefunds available to buy more properties inthe future.Tax efficient long-term plansThere are two potential long-termadvantages of the corporate route forresidential property: »» is there an intention to sell the properties at all? Maybe the intention is to retain them into retirement (see below, ‘using the company as a retirement fund’) »» can the shares be sold rather than the property? (See later for issues regarding selling the shares.)Using the company as aretirement fundA potentially attractive route is to considerthe property investment company as a‘retirement fund’. If the properties areretained into retirement, it is likely that anyinitial financing of the purchases of theproperty has been paid off and there will bea strong income stream. The profits of thecompany (after paying corporation tax) canbe paid out to you and/or your spouse asshareholders. Roffe Swayne Tax Bulletin Autumn 2017 | 7

Chris returns to Roffe SwayneMeet our new Private Client Tax In 2008 he then started his own tax position and has expertise in respondingPartner, Chris Boulet. consultancy practice. to complex enquiries into clients’ affairs by HMRC and related tax investigations.We are delighted to introduce Chris Boulet Chris works with a broad spectrum of clientswho has joined our ever growing tax team. from large multi-national companies to Chris can be contacted on 01483 416232 or SMEs, as well as individuals and families on email [email protected] originally joined the firm’s tax tax. Much of his work has an internationaldepartment in 1989 as a tax trainee. He then dimension.moved on to Smith & Williamson and intoin-house international partnership tax roles Chris advises many UK and internationallywith Linklaters, Bird & Bird and Coller Capital. based families and family offices on their taxMeet the contributorsLinda Warner Chris Boulet Justin BondTax Partner Tax Partner Tax [email protected] [email protected] [email protected] Alsop Stephen Pointer Donna KenyonTax Investigations Private Client Tax Corporate TaxAdviser Adviser [email protected] [email protected] [email protected] us to stay in touch Please could we ask your help in complying with this law.Many of you will know that the General Data We must also have evidence that we haveProtection Regulations (GDPR) are becoming asked you. If you are unsure, or want to do this via thelaw next May 2018. This means that we must phone, call either:ask your consent to send you marketing Attached to this newsletter is a short formmaterials, as well as other client data. that can be filled in online or in printed form Sharon Hammond or Virginia Cook on and returned. 01483 416232.Roffe Swayne, Ashcombe Court, Woolsack Way, Godalming, Surrey GU7 1LQ. Tel: 01483 416232. Email: [email protected] | Roffe Swayne Tax Bulletin Autumn 2017