News

Capital Gains Tax and the end of Entrepreneurs’ Relief?

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Capital Gains Tax and the end of Entrepreneurs’ Relief? On the 14th of July this year, in the midst of the Coronavirus Pandemic, with Her Majesty’s Government helicoptering money throughout the United Kingdom, the Chancellor of the Exchequer decided that now was the time to order a review of Capital Gains Tax [CGT], to consider how gains are taxed compared with other types of income as it applies to individuals and small businesses. A burning issue, I think you will agree, in these unprecedented times. And who is to undertake this review? Why, the Office of Tax Simplification. And what is the OTS? Well, it terms itself as an “independent office of HM Treasury” [I think my old English Teacher would have referred to that as an oxymoron] which according to its website gives “independent advice to the government on simplifying the UK tax system, to make thing easier for taxpayers”. To make things easier for taxpayers, right, yes, so nothing to do with supplying ammunition to Mr Sunak to hammer those individuals who use their capital, ingenuity and hard work ethic to create wealth, to generate capital profit. Quiz Time- answers at the bottom of the page. And here is a not very generous clue- in the fiscal year 2018/2019, HMRC’s total tax receipts were £623bn. There are many tax streams, such as fuel, tobacco and alcohol duties that make up this figure and do not feature below, so no point in trying to work out what numbers in the quiz would add up to £623bn. Question 1 – how much tax revenue did CGT generate in 2018/2019? Was it: a) £10bn b) £30bn c) £50bn d) £70bn Question 2 – how much tax revenue did Income Tax generate in 2018/2019? Was it: e) £40bn f) £90bn g) £140bn h) £190bn Question 3 – how much tax revenue did Corporation Tax generate in 2018/2019? Was it: i) £20bn j) £40bn k) £60bn l) £80bn Question 4 – how much tax revenue did VAT generate in 2018/2019? Was it: m) £80bn n) £130bn o) £180bn p) £230bn Question 5 –...
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Entrepreneurs in the cross hairs

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25 November 2019: "Entrepreneurs in the cross hairs" 2019 UK Election Manifesto Commitments from the main parties to the UK Entrepreneur “Cross Hairs” noun a pair of fine wires crossing at right angles at the focus of an optical instrument or gunsight, for use in positioning, aiming, or measuring. Example: "I raised my rifle and got the deer in the cross hairs" “Entrepreneurs” noun persons who sets up a business or businesses, taking on financial risks in the hope of profit. Example: "I raised my rifle and saw many entrepreneurs in the cross hairs" “Entrepreneurs Relief” definition is a tax relief that reduces the amount of Capital Gains Tax when you dispose of shares in your business. It results in a tax rate of 10% [instead of 28% on other capital gains] on the value of the disposal and you can claim as many times as you like up to £10 million of relief during your lifetime Example: “I am currently not in the Taxman’s cross hairs and I have liquidated my business via a Members’ Voluntary Liquidation which has resulted in me paying tax at 10p on each £1 of chargeable gain that I have realised as a result of luck, risk and hard work on my part”. It will come as no surprise to many that if you put the word Entrepreneur into the search section of the Labour Party’s 107 page Manifesto, nothing comes up. At least the party’s 44 page Costings Document entitled “Funding Real Change” does mention the E word and does not beat about the bush as far as Labour’s attitude to Entrepreneurs’ Relief is concerned “It is widely recognised that Entrepreneurs Relief in its current form cannot continue, so we will scrap it……………………..” In addition, Labour would align the rates of income tax and capital gains tax.  Accordingly, a business owner selling their business under this proposed regime could see a five-fold increase in their tax rate, meaning that potentially half of the proceeds of sale being taken away in tax. How I smiled when I read what the Business Editor at the...
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Private sector off-payroll rules [IR35]

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The imminent death of the Personal Service Company [PSC]? Never mind the prospect [Certainty? Ed.] of a Corbyn led government in April 2020, a further and potentially far reaching erosion of entrepreneurism also occurs on that same date, with the introduction of the off-payroll rules [known as IR35] to the private sector. The Budget in 2018 announced that from April 2020 businesses in the private sector will become responsible for assessing an individual’s employment status and determining whether or not the off-payroll rules apply. In cases where the business does consider that such rules apply, like it or not, the individual who historically will most likely have operated via a PSC, will be deemed an employee. Goodbye dividends, hello PAYE and NICs! HMRC has long been concerned that individuals utilising PSCs pay less income tax and NICs then those employed directly. In April 2017 the off-payroll rules were applied to the public sector and will now be extended to the private. Any private sector business that utilises consultants or contractors who provide their services through limited companies or other intermediaries should now be looking at all such contracts [At what cost to the business? Ed.] to see whether the rules apply. At the moment compliance with IR35 rests with the PSCs. Currently, it is the PSCs who will be the subject of any HMRC enquiry and demand for tax. This has resulted in HMRC pursuing individual workers and their PSCs for relatively modest amounts of tax. Under the new rules, the burden of responsibility shifts. It will be the responsibility of the client / end user to assess whether or not IR35 applies and, if it does, ensure that PAYE and NICs are applied to payments made to the PSC. Accordingly, in 2020, HMRC will be able to pursue large employers who are utilising the services of multiple PSCs to recover the same tax for a fraction of the recovery and administrative costs currently being incurred by HMRC-well that is the theory anyway. Large employers will have the financial muscle to challenge the rules as they may apply to their...
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HMRC quadruples spending on private debt collectors

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Autopsy of a Newspaper headline At the end of last month the main heading of this article was the heading to a piece in the pages of an internationally renowned daily UK newspaper- the one that does not quite fit the riddle “what is black and white and red all over?”-more pink if you get my meaning. The findings, by a well-regarded firm of accountants, seem to have been covered by all the leading papers utilising headlines in much the same vein. As someone who, in his working life, has almost daily contact with HMRC, this headline rather surprised me, as in my experience, I have almost never seen evidence of private debt collectors [“PDCs”] in matters of tax. I suspect that this is because our practice is one that predominately deals with companies in financial difficulties rather than individuals with debt issues. Yes, we do very occasionally come across bailiffs acting on behalf of HMRC but these are court appointed bailiffs rather than private bailiffs. There are 10 PCBs utilised by HMRC and their names are provided on the Government’s own website: https://www.gov.uk/if-you-dont-pay-your-tax-bill/debt-collection-agencies Let’s deal with the headline first. Accordingly to the article, the money spent by HMRC on PDCs had quadrupled in the past five years suggesting an increasingly “aggressive” approach to collecting unpaid tax. In 2018, HMRC spent £26.3m on PDCs up from the figure of £6.2m in 2014. What the article did not say is that spending year-on-year was in fact down to 67% of the 2017 expenditure level [£39.1m]. My further research revealed the following expenditure on PDCs by HMRC: Year £m 2018 26.3 2017 39.1 2016 24.1 2015 12.5 2014 6.2 2013 14.8 The aforementioned figures did allow another national daily [the one with all the spelling mistakes] in May of last year to say that “HMRC spending on debt collectors up by more than 500% in three years”. The paper went on to say that the taxman had little day-to-day control over the firms in question [I would suggest that HMRC had no day-to-day control-why have a dog and bark yourself?] and that...
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The High Street is dead! Long live the High Street!

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The High Street is dead! Long live the High Street! And why is the number 14 haunting your author? High Street, definition OED Noun, British, Meaning: Place you end up when you get lost. The imminent, inevitable, incontrovertible demise of the UK High Street has been written about many times in recent years. So much so, that I have never really thought it worthwhile to put together a piece on a subject that is well travelled ground. Hardly a week goes by without another old established department store group or celebrity chef chain throwing itself at the mercy of its creditors by attempting to downsize and restructure through the Administration or Company Voluntary Arrangement insolvency processes, resulting in closed outlets and job losses. Well that was until earlier this month [the same month that saw the demise of Woolworths 10 years ago] when I started to see the number 14 combined with the words High Street everywhere. Let me explain. At the beginning of the month, one of the “Big Four” accountancy firms came forward with a report showing that High Street shops were closing at the rate of 14 per day in the UK’s top 500 High Streets. The gap between closures and openings has widened to a record level, but it is suggested that closures may have stabilised. The reasons for the decline are well known: •    On-line shopping •    Digitisation of services •    Preference for in-home leisure •    Overcapacity in certain sectors •    Out of town stores In the recent past, we have had High Street Czars [or was it a Czarina] appointed by the Government seeking to explain and address the issue and we have had, what some commentators rather unkindly refer to as “tinkering at the edges” of the problem, by the Government who rather belatedly have announced rate reforms and reliefs for smaller retailers which may slow, but will not halt the decline. A few days later, I then saw another headline with the number 14 and the words High Street in it. This time the report related to the High Street in Christchurch...
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Companies House – user beware

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“Long firm fraud” given a helping hand by the openness and visibility of the information at Companies House... As my long departed Great-Grandmother used to say to me “There’s nowt new under the sun”. Long firm fraud has probably been around as long as credit itself -  a nice little earner, much used back in the 1960s by East End villains, has not gone away and in this era of increasing identity theft, this type of fraud is very much on the increase. A long firm fraud uses a trading company that has been set up to appear to all intents and purposes as a legitimate business. Quite often a company, that has been dormant at Companies House for several years, is reactivated. Several years of glowing accounts are filed overnight, bogus lists of shareholders and directors are posted and then the company starts to buy goods and services and pays its suppliers promptly in order to quickly secure a good credit record. Couple this misuse of Companies House with a good looking web-site [with content usually taken from other genuine sites] and the fraud quickly acquires a patina of respectability and the impression of a bona fide business. Once the fraudsters are sufficiently well-established, they then purchase the next round of goods on credit and disappear with both the goods and profits from previous sales. The procedure needs a certain amount of money to set up, often the proceeds from other criminal activities, but once the fraudsters are ready to execute the final sting of ordering significant quantities of goods on credit, the hapless supplier is usually not aware of the fraud for another 90 days. Any saleable commodity can be the subject of fraud although certain goods are preferred because they are not easily traceable and can be disposed of very quickly. Building materials, wines, spirits, and sweets used to be the staples as they all had a high turnover and could be sold on easily. Nowadays, high value audio/visual products, computer products, mobile phones, furniture and high-end merchandise including clothing, branded accessories and sports goods are often...
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