Tax e-News November 2023

In recent years many accountants have advised their director/shareholder clients that the most tax efficient method of extracting profit from their family company was to pay themselves a low salary, at or around the £12,570 personal allowance, with the balance in dividends.

This strategy may need to be revisited with the introduction of higher corporation tax rates from 1 April 2023 as company profits in excess of £50,000 are taxed at an effective 26.5% rate. Where company profits exceed £50,000 it may be more tax efficient to increase the salary or put a bonus through the company accounts.

Other things to consider would be for the company to pay more into your pension or provide you with an electric company car, both of which can be tax efficient.

There are lots of factors to take into account, including the level of profit and how much you need to draw out of the company to live on. We consider tax planning for all our company clients prior to 5 April each year.

As mentioned above it is always a good idea to set up a planning meeting with us a couple of months before your business year end so that we can advise you on the best actions to take to reduce your taxable profits. In addition to considering paying yourself a bonus from your company you might consider:

• Bringing forward expenditure on equipment to take advantage of the 100% annual investment allowance (AIA) – up to £1 million a year on new and used equipment;
• For limited companies, most new equipment qualifies for unlimited “full expensing” relief;
• Where equipment is bought on hire purchase, make sure that it is brought into use by the year end to get tax relief on the full purchase price; and
• Making additional pension contributions, taking advantage of the new £60,000 annual input allowance.

Since April 2014 members of a LLP are no longer automatically treated as self-employed for tax purposes.

A recent case before the Upper Tax Tribunal has examined the tax status of 82 members of an LLP and found that most of them should be taxed as employees not self-employed.

LLP members are treated as salaried members and taxed as employees where all of the following 3 conditions are present:-

Condition A considers the manner in which the individual is rewarded for his or her performance of services to the LLP. A Salaried Member will have a reward package that is largely that which an employee would have. This means they are being substantially remunerated through a fixed salary or a variable bonus based on their performance, rather than a share of the profits of the overall business;

Condition B is where the Member does not have a significant say in the running of the business as a whole; and

Condition C looks at the capital contribution made by the member to the LLP. This condition is met if the individual’s capital contribution to the LLP is less than 25% of their expected income from the LLP. This will need to be reviewed on an annual basis.

If you operate as an LLP, we can review the status of the various members to ensure that they are taxed correctly. Where the member is taxed as an employee, PAYE and Class 1 National Insurance Contributions should be applied and the salary would be deductible in arriving at the LLP profit.

HMRC have recently published Spotlight 63 which alerts taxpayers to a marketed tax avoidance scheme that claims to help taxpayers reduce the tax payable on their property rental profits.

The HMRC view is that the “hybrid” structure involving an LLP with individual and corporate members does not have the tax savings that the scheme promoters claim.

The scheme claims to enable buy to let landlords to transfer properties to the structure without paying capital gains tax (CGT) or stamp duty land tax (SDLT) and, once established, obtain a bigger deduction for their mortgage interest payments than they would have obtained if the property had remained in individual ownership.

It is also claimed that the “hybrid” structure saves inheritance tax when the property is passed on, which is incorrect as there is no IHT business relief for property investment businesses.

HMRC have recently clarified their view of the tax treatment of the reimbursement of electricity costs where employees charge their electric company cars at home. HMRC now accepts that reimbursing part of a domestic energy bill, which is used to charge a company car or van, is exempt from income tax. Their previous view was that such reimbursements were taxable.

Note that the exemption will only apply provided it can be demonstrated that the electricity was used to charge the company car or van, which may be difficult to determine in practice. Employers will need to make sure that any reimbursement made towards the cost of electricity relates solely to the charging of their company car or van.

It should be remembered that where the employee uses workplace charging facilities there is no taxable benefit.

The sale of shares is an exempt supply for VAT purposes, which means that input VAT on professional fees in connection with the transaction cannot be claimed. However, a recent tax tribunal decision has determined that, under certain circumstances, the input VAT may be claimed. The case concerned the sale of a subsidiary company in order to provide additional funds to complete the building of a new hotel within a hotel group. The taxpayer successfully argued that the costs had been incurred as part of raising funds for the group’s downstream activities generating taxable supplies.

HMRC may be appealing the decision, but in the meantime, companies in a similar position may seek to make protective claims to recover the input tax on professional fees.

1 November 2023 – Corporation tax payment for the year to 31 January 2023 (unless quarterly instalments apply)

19 November 2023 – PAYE & NIC deductions, and CIS return and tax for month to 5 November 2023 (due 22 November if you pay electronically)

1 December 2023 – Corporation tax payment for the year to 28 February 2023 (unless quarterly instalments apply)

19 December 2023 – PAYE & NIC deductions, and CIS return and tax for month to 5 December 2023 (due 22 December if you pay electronically)

31 December 2023 – Deadline for filing 2022/23 tax return online in order to request that HMRC collect outstanding tax via the 2024/25 PAYE code