We now hear that the Chancellor has ordered an investigation into how much the tax brings into the national coffers. HMRC has been told to report back by January.

This shows us the power of the people (well, a very select group of the people) to get the Government to take action.  Or does it?  The Chancellor has done nothing but buy himself some time here. 

Time to think has to be a good thing, and it is commendable that there hasn’t been another knee jerk reaction of “yes” or “no”.  What is glaringly obvious, to me, is that whilst economists may be in a position to opine as to how measures such as the 50% rate of tax affect the economy, this is only part of the picture.

The other part is politics; and it is the politicians who are responsible for making changes.  The damage which could be done in being seen to favour the rich at a time when unemployment is high and growth is flat lining means that the merits of the 50% rate are of secondary importance to “how it looks”. 

Just listen to the news and take note of how often you hear the phrase “send a message”.  Policy seems to be more about messages sent than the merit of the measure. 

I fully expect that when the Revenue report back on this next year, the results will not show a strong case for the 50% rate.  I’ve helped enough clients to shape their affairs to reduce the impact of the 50% rate to form my own view on the matter. 

Whatever the outcome of this review, my personal opinion of this is that it won’t matter.  It’s the politicians that shape the policy.  Call me cynical if you will, but the bottom line is that any changes made by politicians are going to be based more on politics than economics

This pseudo-tax known as the, Art Resale Levy, (or droit de suite in French) means that sellers will have to pay royalties on works by European artists who have died in the past 70 years, including Pablo Picasso, Henri Matisse and Francis Bacon. Cash is payable to the artist’s heirs each time a work is resold.

The tax already exists in mainland Europe and is due in Britain from January, applying to all works priced above (EURO)1,000 (£900) and on a sliding scale of 0.25 per cent to 4 per cent. 

There will be intellectual property implications of this, if the directive is brought into force in UK.

On the other hand, so the argument goes, why shouldn’t the family reap some of the benefits (in particular when success is mostly posthumous)?

For a more detailed review of the tax’s history and the UK’s derogation until 2012, I suggest an article in the FT, which can be found here (although please note that the FT is subscription only), and for the view of the art lobbyists (LAPADA), click here: LAPADA, and follow the links at the bottom of the page.

There will be scope for planning to avoid this levy if the UK is not be able to extend the derogation beyond 2012, and if you are interested in discussing this with a solicitor, please call 01923 20 20 20 and ask for the Wealth Management Department.

Last month, the French government proposed to introduce a new tax on non-residents who own a holiday home in France that they do not rent out as a long-term let. The government estimated that the total revenue from this tax would have been EURO 176 million a year, with the money used to fund proposed reform of the French wealth tax system.

However, after facing opposition from a group of senators representing French nationals living abroad, the government confirmed it was abandoning the proposal, as the new tax would have been incomprehensible to overseas French nationals.

The key points are as follows:

•  The charitable legacy must be left to a body that is a charity for UK tax purposes, that is, a charity or other organisation in the UK, European Union Member State, Iceland or Norway that would be a charity under the law of England and Wales OR settled in trust to be used for charitable purposes only OR left to a Community Amateur Sports Club.
• Beneficiaries of a will or intestacy may execute a deed of variation to make a charitable legacy.
• A beneficiary inheriting joint property by survivorship may divert all or part of that property to charity and the estate will benefit from the IHT incentive. 
• Where a discretionary trust is set up by will and there are charitable beneficiaries, a distribution within 2 years of death to charity will be treated by HMRC as though it was a legacy made under the will.  

Points for Consultation

The Consultation Paper of 10 June 2011 “A new incentive for charitable legacies – A lower rate of inheritance tax when leaving 10% of an estate to charity” seeks views on a number of detailed issues including:

• Whether, for administrative convenience, only charitable gifts of easily realised assets such as cash, land, buildings or quoted shares should count towards the 10% limit.
• How assets that are charged to inheritance tax on the deceased’s death in addition to his or her own ‘free estate’ should be treated. These assets would include those that the deceased had given away with a reservation of benefit, particular life interests in settled property and any jointly-owned property that has passed outside of the deceased’s will or intestacy.

Comments are invited by 31 August 2011.

Below is an example given by HMRC of an estate which is valued at £850,000 and where the available nil-rate band is £325,000. The minimum charitable legacy to pass the 10% test would be calculated as follows:

Planning points

If you would like to include a charitable legacy in your will or to discuss the impact of the changes, please contact a member of our Wealth Management team on 01923 20 20 20.

After this date there will be a significant reduction in the annual investment allowance for qualifying expenditure which potentially could result in lost 100% up-front tax relief.

Claiming on the balance not covered by AIA at rates applicable to the general, special or short-life asset pools spreads the claim for tax relief over much longer periods.

Here is an example I’ve seen from accountants Smith & Williamson:

Using an example of a 30 June 2012 year end, the table below shows the effect of delaying expenditure until after 1 April 2012 or 6 April 2012 on the maximum amount of AIA claimable for that year.

Businesses need to consider more than just the availability of allowances when incurring expenditure, however this change in allowances is significant enough to justify very careful consideration of when to incur qualifying expenditure.

For more information, please email me on shimon.shaw@mablaw.com.

Some would argue, however, that most consumers in the EU do not pontificate in the supermarket aisle and read the label word by word, before popping a product in the trolley or basket. Those consumers are finding it tough in these austerity times and do not really care where the food comes from or how much mono-sodium glutamate it contains. What really drives what food they buy is down to one key ingredient – price. And as we all know, with the huge increases in commodity prices (particularly the oil price) food prices in the EU have gone up a long way in the last few years. Sorry EU, but the consumer’s main concern is, and probably always will be, price – and the cheaper the better. In any event, here in the UK we are much better than some of our EU partners at providing nutritional information on labelling. As the UK’s Food and Drinks Federation (“FDF”) has pointed out in a response to the EU Food Information Proposal. Terry Jones, Director of Communications at the FDF, said:

“The UK food manufacturing sector is well ahead of other EU states on labelling, and we are pleased with the outcome of MEP’s votes on some aspects of the proposal, namely: nutrition labelling, the exemptions granted for small packs and some aspects of the broader approach on legibility – despite moves to introduce a mandatory minimum font size.”

Terry Jones went on to say:  “We are disappointed that MEPs have voted in favour of the mandatory extension of existing rules (e.g. for single ingredient products) on country of origin labelling (COOL), without considering calls from several member states, the European Commission and industry for an impact assessment to define if this would bring added value to the consumer, and the costs, feasibility and practicability of industry to implement such rules.”

So, there you have it. Mum used to know best, but now it seems our MEPs do. They govern what goes on our food labelling. Perhaps the MEPs will also vote in favour of issuing healthy eating menu cards to all EU consumers, so we all know what to cook with our “EU compliant labelled” food? I would not put it past them. As for industry, well, as the statements above indicate, it is yet more red tape and, no doubt, additional compliance costs for their businesses at a time when they can ill afford it. Still, it should keep the label manufacturers happy – or to put it another way – one man’s [labelled] meat is another man’s poison.

The changes affect Employer Annual Returns and starter and leaver PAYE forms.  From April, employers with fewer than 50 employees must now send starter and leaver forms – P45s, P46s and similar pension information – online to HMRC.  

Further, all employers who send their Employer Annual Return to HMRC after the 19 May filing deadline will now receive a late-filing penalty.  Previously, an extra-statutory concession gave employers extra time before HMRC charged a penalty, but this has been withdrawn.

From this year, employers will be liable to a penalty if they file their annual return on paper. Last year, no penalty was charged for employers with five or fewer employees. But these transitional arrangements have now ended. HMRC will also be issuing PAYE penalties this spring for the first time in two key areas:

• Penalty notices will be sent out in April to employers with 50 or more employees who have not filed starter and leaver forms online to HMRC. The first penalties will apply for the three month period to 5 April 2011, with further penalties being issued on a quarterly basis.
• From May this year, HMRC will start sending out penalties for late payment of PAYE. Employers will be liable for a penalty if they haven’t made PAYE payments on time, and in full, from April 2010. The amount of the penalty will depend on the amounts paid late and the total number of late payments made. Penalties will be charged after the tax year-end.

Employers must file an Employer Annual Return (EAR) – a P14 for each employee and a P35 summary sheet – by 19 May. They must do this online (with some very limited exceptions, for example, people who employ their own carer and those with religious objections). If an employer has not previously sent their return online, they must act now by registering for HMRC’s online service. 

HMRC has published a list of common errors to avoid on its website.

There are a number of ways that employers can send employee starter and leaver details online. They can use commercial software, HMRC’s free Online Return and Forms – PAYE Service, HMRC’s Basic PAYE Tools (formerly Employer CD-ROM) or an agent can do it for them online. To avoid unnecessary administration work for employers and HMRC, employers should not send paper starter and leaver forms to HMRC where they have already filed online or intend to do so.

The amendments include:

- no longer having to state whether the company was a traded company at any time during the return period;

- when describing a company’s principal business activity, the classification scheme that companies may use is the 2007 edition of the UK Standard Industrial Classification of Economic Activities (rather than the 2003 edition); and

- requiring the annual return to state whether any of the company’s shares were, at any time during the return period, admitted to trading on a “relevant market” which, for example, would include the London Stock Exchange’s main market, AIM and regulated markets outside the UK.

The regulations setting out these amendments are currently in draft form but it is intended that they will come into force on 1 October 2011 and apply to returns made up to that date or a later date.

Anyway, this post is about a different kind of dog…a…wait for it….hot dog.  Sorry, sorry, sorry.

Anyway, the point of this blog is that Manfred Bog, who specialised in selling sausages and chips from three mobile snack bars at weekly markets, won a ruling from the European Court of Justice that he did not have to charge the full rate of VAT.

The court’s reasoning was that his sausages required so little preparation that they did not constitute catering. It found the same rules should apply to popcorn and nachos sold in German cinemas.

VAT is a EU tax, so the effect of this will spread to the UK.  The implications here will be  that caterers, cinemas, and other hot sausage sellers in the UK will need to ensure that they charge the correct amount of VAT and may need to discuss the implications of the case with their local VAT office.

So, when you are staggering home from your football match, pub or other entertainment venue and you are hungry enough that the sausages on sale by the street vendor start to look edible, remember to ask whether they are charging VAT correctly.  Then run.

On a slightly more serious note, those of you that follow VAT rulings will recall the Subway decision (which went the other way – the court held that VAT was to be charged on the supply of subs).   In that case, there was some discussion on the impact of this on rents.  It is entirely conceivable that purveyors of certain foodstuffs from more fixed premises, might not reduce their charges and therefore pocket the difference.  If this affects profits significantly then there might be scope for landlords to argue that rents should increase in the future, especially if there is a turnover rent.

But here is some good news.

Stamp duty on property (SDLT) has to be one of the most hated taxes out there.  It is a tax on mobility and, like VAT, is imposed on cash which in most cases has already been taxed.  Not only that but it makes moving house a lot more expensive.  Hence the spread of stamp duty planning in recent years, even to transactions which in the past would never have been considered for this.

So a ray of sunshine in the doom and gloom is welcome.

An SDLT case was heard in the Tax Chamber of the First-tier Tribunal towards the end of last year.  Deputy Judge Charles Hellier heard arguments over a scheme used to avoid SDLT on the £65.1m purchase of a property in London’s Regent Street in October 2006.  The SDLT scheme in question involved a subsale of the property to a partnership resulting in no SDLT being payable.

This was the first occasion a court or tribunal has considered an SDLT scheme and its importance lies in the attitude of tribunal to the technical arguments SDLT schemes rely on.

And the winner was…..the taxpayer.

The judgement has not yet been published but watch this space as this article will be followed by an examination of the tribunal’s approach and a consideration of how this will impact on future schemes.

It is very likely that fashionistas go through the same when column inches get devoted to which shoes go with which handbags and doctors cry into their corn flakes when they read about medicine fads.  However, since I know nothing about fashion (as my wife will confirm) or health (as my Mum will confirm) it just flows over me. 

The story goes that if you purchase property in an overseas company, you can avoid stamp duty.  My comments:

1. For UK resident tax payers buying their homes, they lose out on the capital gains tax relief on the sale of their homes.  They will sell shares and pay tax on the gains.  28% CGT is a lot more bothersome than 4 or 5% stamp tax.

2. It saves stamp duty on the sale but that’s not going to help the company which is purchasing now.

3. This has the potential to make administration a nightmare and there are annual directors fees etc.

4. There can be income tax charges on the use of the property if a market rent is not paid.

5. Most UK based future purchasers won’t want to buy a company so you’ve restricted your ability to market the property in the future.  And if purchasers buy the property from the company - you’ve just wasted time and a shed load of money.

6. If you are borrowing to purchase the property, you’ll have a much harder time and the cost of finance will increase.

etc…..

So who should consider buying a property in a overseas company?

First point – don’t do this without speaking to your tax adviser (or me!).  Second this is mainly of use to wealthy overseas investors.  There is inheritance tax planning which can really benefit from a structure involving an overseas property.  But that’s not stamp tax planning.

What’s funny about the article is that tucked away at the end is a comment from a partner in KPMG with which I mostly agree ” for anyone [other than a overeas investor], it’s a ticking time-bomb”.   If they had spoken to him before writing the article, perhaps they wouldn’t have bothered.

How difficult is it to gift a share? This was the question asked by Lady Justice Arden in her judgment in Shah v Shah [2010] EWCA Civ 140. The case considered whether or not a letter accompanied by an incomplete stock transfer form manifested an intention to make a gift or an intention to create a trust.

Until a transfer of shares is registered in the statutory books of a company, the transferor remains the legal owner of the shares. Therefore, a gift of the legal interest in a share is not complete until registration has taken place. However, a transferor can transfer the beneficial interest in a share prior to the transfer of the legal interest by declaring that they are holding that share on trust for the transferee.

Facts of the case

After a family feud and successive litigation two brothers (D and R) executed and delivered identical letters and stock transfer forms each purporting to dispose of 4,000 shares in a company in favour of their brother (M). However, the stock transfer forms were left undated and the consideration (being the money or monies worth provided in exchange for the transfer) was left blank. The company subsequently completed the stock transfer forms and registered the shares in M’s name. The case went back to court because D challenged his disposition to M on the basis that the letter he signed constituted a gift and as the gift was not completely constituted, it was of no effect.

The letter stated:

“This letter is to confirm that out of my shareholding of current 12,500.00 in the above company I am as from today holding 4,000 shares in the above company for you subject to you being responsible for all tax consequences and liabilities [arising] from this declaration and letter.”

Decision

The Court considered the words used in the letter in the context of all of the relevant facts rather than the alleged subjective intentions of D. On that basis, the Court found that there was no question that the words demonstrated an intention to dispose of the shares immediately by the use of the words “as from today”. However, the effect of the words “as from today” in law was to dispose of the beneficial interest only at that point as legal title did not pass until registration. The use of words “I am holding” as opposed to “I am assigning” or “I am giving” and the concept that D held the shares for M until he lost that status on registration could only be given effect in law by the imposition of a trust. On that basis the court found that D must be taken in law to have intended a trust and not a gift. The Court went on to find that D had intended that registration of the transfer would take place in due course otherwise why would he have also executed and delivered a signed but undated stock transfer form?

Comment

Returning to the original question in her judgment, Lady Justice Arden concluded that it is not difficult to make a gift of shares but it may take time to complete the gift by registration of the shares in the name of the transferee. If you want to make an immediate gift, one way of doing so is to declare a trust.

The study (the Truth about Bonuses) by the University’s School of Economics involved subjects either being paid a bonus or fined depending on their performance in certain areas.  The results showed that the joint earnings of employers and workers were almost 19 per cent higher when fines were handed out than when bonuses were paid. However, while employers were better off when fines were introduced, workers earned less than in the scenario without fines.

Alternatives to bonuses

So what does work?  I suspect it depends on who you ask.

Employees (especially those in the, ahem, financial services sector) will probably say cash is king, and when it comes to it, a bonus will do nicely, thank you very much.  Now where is the Ferrari showroom?

Employers will often take a longer term approach to incentives and will often prefer employee share schemes and options.  These have the benefit of being tax efficient and of promoting long term commitment to the business since employees will benefit from future growth.

I’ve yet to come across anyone offering employee fines as an incentive and, if my boss is reading this, I am not sure that it would go down well in practice.

If you would like to discuss employee incentives for your business please contact me (for a discussion of tax), or Emma Cameron in our corporate team.

Skilled workers from overseas who do not take home big salaries will have to satisfy strict criteria.  Fewer than 21,000 a year will be let in because of a new cap on the number of people coming to the UK for employment.

Applicants will need a “certificate of sponsorship” from a UK employer and they will be given points according to the rarity of their skills, for example scientists will be ranked highly. Employers filling a vacancy that attracts a salary of £150,000 or more will not be subject to the limit on the number of certificates that may be allocated.

For more information on this change, the press release can be seen here.

Looking at the bigger picture, the Government is sending out mixed messages.  On one hand, this will be welcomed by business leaders who are concerned about a brain drain from the UK.  This is clearly intended to encourage skilled immigration and to support both the knowledge based economy as well as the City.  On the other hand, HM Treasury have raised tax to 50% on the highest earners with hints from the Chancellor that the beneficial tax regime in the UK for resident non-domiciliaries (who will be the ones most interested in the above announcement) may be restricted. In an increasingly mobile global society, there are simply too many other choices and, put simply, tax is a large part of the equation when choosing where to live.

The Government needs to have a clear policy to increase the skill set (and therefore the wealth) of the UK through targeted and consistent measures.  It is not enough to simply fiddle with immigration quotas.

Where, as in this case, the fundamental motivation for the transfer was a fear on the part of the director that he was going to be subject to a major claim against him arising out of his misappropriation of funds in a bank account in respect of which he had fiduciary obligations, the director could not of his own volition tranfer some of his shares in the company by way of a gift to his daughter and wife.  The company had not authorised the director to issue share certificates to his wife or daughter or to record them as shareholders in the company’s register of members. Accordingly, legal title had not been effectively transferred.  In effecting the gifts, the director had tried, without success, to realise an immediate and outright transfer of his beneficial interest. However, no amount of benevolent construction of those transactions could lead to a conclusion that the director was intending to declare himself a trustee in respect of  his shareholding. Moreover, the director had failed to take the necessary steps sufficient to enable his wife and daughter to obtain a transfer of the shareholding without further recourse to assistance from him. All they received were documents purporting to be new share certificates in their names which the director had created without the company’s authority. The result was that, without the director’s assistance in making available the duly completed stock transfer forms, neither his wife nor his daughter could perfect the intended gifts. Accordingly, no beneficial interest had been transferred.

This case highlights once again that people trying to put their personal assets (in this case shares) beyond the reach of creditors will come unstuck if their motivation is to defeat the interests of those creditors. Furthermore, the case also highlights the importance of company board meetings approving share transfers. A proper transfer of shares requires: (i) the transfer to be approved by the directors passing the requisite resolution (usually at a duly convened board meeting, but as an alternative, the resolution could be passed by directors’ unanimous written resolution); and (2) the directors also resolving to approve a person (normally another director or the company secretary) to deal with the mechanics of recording the transfer in the company’s statutory records, and to issue new share certificates. Furthermore, if a transferee only wishes to transfer the beneficial and not the legal title, then he or she should enter into an appropriate trust instrument, for example, a Declaration of Trust over the shares, clearly setting out who the beneficiaries are and the exact details of the shares which are the subject the trust. Otherwise, as this case highlights, going forward there could be be serious question marks over the validity of the share transfer as well as the the validity of any purported transfer of the legal and/or beneficial title to the shares.

It’s common sense really – don’t act until you are in full possession of all the facts.  The following is a tale of woe that shows what can go wrong if you don’t.

As was reported in accountingWeb, a Sunderland based accountant is facing prison time after being found guilty of tipping off a client about a police investigation.  The accountant received a police order demanding him to hand over some accounts.  Rather than reading the order to determine what this was about, the accountant read the first couple of paragraphs and then immediately telephoned his client to let him know that he was being investigated.

The court held that this was in breach of the Proceeds of Crime Act with the possibility that he will now face a custodial sentence.

This takes me back to school and an early experience with exams.  As my teacher told me then – don’t do anything until you’ve read the full question!  Sometimes the early lessons we learn are the most important.

Tipping off is a serious issue and is one faced by many professionals, in particular those dealing with Money laundering compliance.  It is imperative to understand your obligations under these rules, and as cases like this make all too clear:  ignorance is no defence.

So, in practical terms, what can be gleaned from this decision in relation to the drafting and effect of indemnity clauses in contracts? The following points should be noted.

1. Parties drafting indemnity clauses in contracts must use clear and unambiguous language.  If you mean to cover a specific type of loss or liability, then say so.  Likewise, if you want the indemnifying party to pay out whatever the Court award may be, then again, say so.  Leave nothing to chance.

2. Avoid use of the archaic phrase “insofar as“.  The judge commented that this does not mean the same as “to the extent that ” and effectively means the same as “if “. The phrase “to the extent that” is more specific in meaning, and could, for example, precede words such as “…those liabilities are specifically identified in…[then identify the relevant document in or under which the liabilities may arise]. Make use of specific definitions and include them in the indemnity clause, as appropriate. The use of defined terms will add clarity to the drafting and reduce the risk that the indemnity may not be be enforceable against the indemnifying party.    

3. Consider using associated clauses that make it more likely that the indemnifying party is bound to accept any settlement or court judgment.  Clauses dealing with notice of claims; claims control; and covering settlement of claims  are all useful tools to protect the indemnified party.

4. As an indemnified party, with either the benefit of insurance or an indemnity against third party claims, do not assume that any settlement with a third party will be covered under the appropriate insurance contract or indemnity clause.  Go and check first. Will the indemnifying party be obliged to accept the terms of the settlement and pay out? What steps should the indemnified party take to ensure it can enforce the indemnity?

Most of all, from the indemnified party’s point of view,  be  clear, careful and concise in what you draft – it could just be the difference between recovering your loss or sitting there reflecting ruefully on what might have been.

Corporate insolvencies across the board were down on the same period last year: compulsory liquidations and creditors’ voluntary liquidations decreased by 11.3% (seasonally adjusted), corporate receiverships by 23.9%, administrations by 24.4% and company voluntary arrangements by 22.4%.

Personal insolvencies followed the same trend, save for debt relief orders. Bankruptcies decreased by 29.2% and individual voluntary arrangements by 5.4%. Debt relief orders increased by 15.4%.

Further analysis of these statistics by the Corporate Recovery and Insolvency Team follows shortly.

The articles of association of a company (articles) govern its constitution and often contain provisions relating to the transfer of shares. If a company has directors or employees who own shares, the share transfer provisions may contain “good leaver” and “bad leaver” provisions. Such provisions have the effect that, if a director or employee ceases to work for the company, his shares are automatically offered for sale to the other shareholders. If the director or employee leaves for a “good reason”, he receives “fair value” for his shares and if he leaves for a “bad reason”, he receives nominal value for his shares.

The case

A company removed a director (D) and invoked the automatic “good leaver” share transfer provisions in its articles. These provisions stated that D was entitled to the “fair value” of his shares, to be determined by a third party accountant. D nominated three potential accountancy firms and the company selected one of those firms. D then refused to sign the accountancy firm’s letter of engagement, demanding that the company first disclose various documents and taking issue with certain parts of the accountancy firm’s letter of engagement.

The Court of Appeal decided in D’s favour, stating that the agreement to appoint an accountancy firm under the articles had to be a tri-partite agreement between the company, D and the accountancy firm.

The company then brought further proceedings on various grounds, including that:

(a) it was necessary to imply a term into the articles that the accountancy firm’s terms of engagement would be binding on the parties unless otherwise unreasonable;

(b) it was necessary to imply a term into the articles that D was obliged to co-operate with the engagement of an accountancy firm by not unreasonably withholding his consent to an appointment; and

(c) the wording in the articles relating to the appointment of the accountancy firm had broken down and the court should substitute its own wording in order to determine the fair value of D’s shareholding.

Decision

It was decided that:

(1) generally, articles are to be construed in the context of their commercial purpose and in the light of their full text;

(2) the articles in question did not state that the accountancy firm could be appointed on the basis of a unilateral agreement with the company;

(3) having regard to the legal principle that “a contract should better function than perish”, it had to be implied into the articles that D could not unreasonably withhold his consent to the appointment of the accountancy firm. Consequently, D’s actions in withholding consent were unreasonable; and

(4) despite the wording in the articles relating to the appointment of an accountancy firm having broken down, it was not a case that would require the court to step in and take control of the valuation process.

Comment

This case highlights the importance for companies to put in place articles which contain carefully worded share transfer provisions.

Cream Holdings Ltd v Davenport [2010] EWHC 3096 (Ch)

Well, essentially, the BIS report says the following:

1. Broadly speaking, the report identifies that there has been a better than expected awareness of the key changes in the Act and a higher than anticipated take up of certain measures. 85% of those companies interviewed were aware of the changes under the Act.

2. Whilst there was an acknowledgement that there were costs savings and benefits from simplifying procedures for private companies on resolutions and meetings, over a third of companies interviewed disagreed that company law had been simplified. This is a rather telling statistic in itself given that simplification was one of the main objectives of the Act when the White Paper was issued a number of years back.

3. The report highlights that there is already a need to improve certain areas of the Act – in particular those provisions dealing with directors’ duties and the duty to promote the success of the company, business review and enfranchising indirect investors.

So what can directors glean from this report? Not a great deal really, and it can be argued that at a time of continuing economic uncertainty, the Government should be spending more time and resources on guiding and assisting directors through the maze of this complex piece of legislation, with a view to helping them run their companies more efficiently. No doubt directors will be thinking they would like a helping hand from the Government on the key provisions in the Act rather than have to face the prospect of having to implement further changes in the future. Is this really simplification? Probably not, but we live in an age of over reporting and no doubt there will be more reports to follow. Whatever happens, directors can be certain of one thing – Whitehall will be introducing changes to the Act – you have have been forewarned !

Ok, maybe not, but they will be increasing tax on some of the equipment for leisure activities – sailing and caravaning.  If you own (or want to buy) a caravan or a sailboat, HMRC have put out two press releases today that could be relevant to you.

Sailaway Boats

A VAT concession on sailaway boats will stop from January 2012 because it conflicts with EU law, HM Revenue & Customs (HMRC) announced today.

From 1 January 2012 VAT registered businesses will no longer be able to zero rate the supply of a sailaway boat to a UK resident who intends to keep it outside the EC.

Businesses can continue to zero rate the supply of a boat to a UK resident provided they either undertake to export the boat themselves or make all the arrangements for the export.

Following a recent legal decision HMRC is reviewing its concessions. The majority are being retained but a minority, after a period of notice, will end. This is because they are outside the scope of HMRC’s administrative discretion and it has not been possible or appropriate for HMRC to legislate these extra statutory concessions (ESCs) as they are contrary to EU law.

Caravans

Three VAT concessions for caravan owners will cease to apply from 2012 because they conflict with EU law, HM Revenue & Customs (HMRC) announced today.

Following a recent legal decision HMRC is reviewing its concessions. The majority are being retained but a minority, after a period of notice, will end. This is because they are outside the scope of HMRC’s administrative discretion and it has not been possible or appropriate for HMRC to legislate these extra statutory concessions (ESCs) as they are contrary to EU law.

From 1 January 2012 caravan owners will no longer receive:

• the recharge of business rates as outside the scope of VAT
• zero rate water and sewerage charges where actual consumption cannot be identified; and
• first time connection to utilities as zero rated for VAT.

The lower rate of corporation tax has a threshold of £300,000.  If you have two associated companies the threshold for each is reduced to £150,000.  If you have three, then the threshold reduces to £100,000 for each.  The same will apply to the upper threshold (£1.5m).

The case below shows how this rule can apply in quite unexpected ways.

Executive Benefit Services (UK) Limited v HMRC [2010] UKFTT 550 (TC).

The taxpayer company and its associated company had completely distinct businesses.  However, a shareholder of one was found to control both companies since he had become a loan creditor of the associated company for purely commercial reasons.  Essentially by virtue of lending the other company money (combines with a minority shareholding) he became entitled to the “greater part” of the company’s assets “available for distribution to participators”.

The First-tier Tribunal held that the associated company test applied irrespective of any tax avoidance motive in structuring a company’s financing and shareholdings. 

Conclusion

This is a good reminder of some of the mischief which can be caused by the associated companies rules. 

The facts here are clear that there was no tax avoidance motive, in fact the shareholder in question was clearly trying to help out his son (who was the owner of the second company).  The loan was interest-free with no fixed repayment date and with no other entitlements, such as voting control or a share of a distribution of profits in the event of a winding-up.  Despite all this, the tribunal held that the companies were associated and reduced the rate of tax for both companies accordingly.

This case is going to be of particular interest in these times when (as happened here) lenders are holding back the flow of credit and children are turning to the bank of Mum and Dad.  When Mum and Dad are themselves in business, they need to look very carefully at the position of both companies.

For more information please contact James Odds or Shimon Shaw on 01923 20 20 20.

The personal tax details for 2011/12 have now been released.  Some of the key points:

• The personal tax allowance will rise by £1000 to £7,475.
• The higher allowance for those aged 65-74 and aged 75 or more will both go up by £450 to £9,940 and £10,090 – though only if your income is less than £24,000 (up from £22,900 last year).  Over this the higher allowance tapers back down to the standard.
• Higher rate tax will begin to be paid on annual incomes above £42,475 which is £1,400 less than the limit this year (£43,875). Therefore higher rate tax payers will not gain from the £1k rise in the personal tax allowance.
• The 50% rate remains at £150,000 and the income at which the personal allowance begins to be clawed back remains at £100,000.  Anyone with an income between £100,000 and of £114,950 – when personal allowance disappears altogether – will be paying an effective marginal rate of tax of 60% on some of their income.

Tax returns for last year will be due in January.  If you need assitance in preparing your return, please contact James Odds on 01923 20 20 20.

HMRC v Airtours Holiday Transport Ltd [2010] UKUT 404 (TCC)

A large holiday company (My Travel Group) suffered financial difficulties, and arranged for PwC to liaise on its behalf with its banks, bondholders and other creditors.  The company reclaimed input VAT in respect of these services.

HMRC issued assessments to recover the tax, on the basis that the supplies had actually been made to the company’s creditors, rather than to the company itself.   Their contention was that since the company had not recevied the supplies (even though they had paid for them) the company would not not be able to recover VAT.  Since the creditors had not paid for the supplies they also could not recover the VAT.

The First-Tier Tribunal allowed the company’s appeal but the Upper Tribunal reversed this decision and found in favour of HMRC.

Comment

This case seems to be a victory for the taxman but a loss for professional advisers and struggling businesses.  Since VAT will be paid but not recovered this will make professional fees that much more expensive.

In light of this decision, professional advisers should assess their letters of engagement and billing arrangements to determine who, in truth their client is.

If you would like to discuss this with anyone please contact me or Carolyn Jones (in our Banking and Finance team) on 01923 202020.

The question to ask yourself as you quaff your bananas, blackberries, strawberries and boysenberries is: “Am I having a drink or am I eating food?”. 

Innocent think that they are food, HMRC think that they are drinks.

The tribunal found that the smoothies had ‘the consistency of a moderately thin soup’ but were intended ‘to be drunk from the bottle’.   What it came down to (as is so often the case for VAT) was the intention of the customer – since they were intended and sold as drinks, the products were within the definition of ‘beverages’.

Once again the VAT man leads the cutting edge of food technology and science.

I’m posting it since it’s amusing and with no reflection of whether or not I think it is accurate.  For one thing, if I have a hard time imagining the pub suggesting that they drop the price of beer by 20%, I don’t have words to describe my feelings as to the impossibility of the Govt dropping income tax by any amount at any time before they start campaigning for the next election!

Shimon

……………………………………..

Suppose that once a week, ten men go out for beer and the bill for all ten comes to £100.
If they paid their bill the way we pay our taxes, it would go something like this..

The first four men (the poorest) would pay nothing.
The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7.
The eighth would pay £12.
The ninth would pay £18.
And the tenth man (the richest) would pay £59.

So, that’s what they decided to do.

The ten men drank in the bar every week and seemed quite happy with the arrangement until, one day, the owner caused them a little problem.   “Since you are all such good customers,” he said, “I’m going to reduce the cost of your weekly beer by £20.”  Drinks for the ten men would now cost just £80.

The group still wanted to pay their bill the way we pay our taxes.   So the first four men were unaffected. They would still drink for free but what about the other six men? The paying customers?  How could they divide the £20 windfall so that everyone would get his fair share?  They realized that £20 divided by six is £3.33 but if they subtracted that from everybody’s share then not only would the first four men still be drinking for free but the fifth and sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fairer to reduce each man’s bill by a higher percentage.  They decided to follow the principle of the tax system they had been using and he proceeded to work out the amounts he suggested that each should now pay.

And so, the fifth man, like the first four, now paid nothing (a100% saving).
The sixth man now paid £2 instead of £3 (a 33% saving).
The seventh man now paid £5 instead of £7 (a 28% saving).
The eighth man now paid £9 instead of £12 (a 25% saving).
The ninth man now paid £14 instead of £18 (a 22% saving).
And the tenth man now paid £49 instead of £59 (a 16% saving).
Each of the last six was better off than before with the first four continuing to drink for free.

But, once outside the bar, the men began to compare their savings. “I only got £1 out of the £20 saving,” declared the sixth man. He pointed to the tenth man, “but he got £10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a £1 too. It’s unfair that he got ten times more benefit than me!”

“That’s true!” shouted the seventh man. “Why should he get £10 back, when I only got £2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”  The nine men surrounded the tenth and beat him up.

The next week the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important – they didn’t have enough money between all of them to pay for even half of the bill!

And that, boys and girls, journalists and government ministers, is how our tax system works.

The people who already pay the highest taxes will naturally get the most benefit from a tax reduction.  Tax them too much, attack them for being wealthy and they just might not show up anymore.

In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics.

This continues the trend in recent years of grandparents picking up increasingly more of the burden, both financially and in terms of time.

Unless your kids are really demanding, you probably won’t need to consult your solicitor to get you out of babysitting for the little darlings.  However, if you are a grandparent providing financial support (for example, school fees) there are a number of steps you can take to reduce the cost of helping.

For example, many grandparents put money or investments on trust for their grandchildren.  Any growth in the fund gives rise to tax on the grandchildren (which in most cases will mean that there is effectively no tax).  This may also be effective inheritance tax planning.

If you would like to discuss tax planning to provide for your grandchildren, please contact me or any member of the Wealth Management team on 01923 20 20 20.

The Treasury have just now issused the following press release, which we will consider in more detail and comment on in due course.

Financial Secretary to the Treasury announces changes to restricting pensions tax relief

Financial Secretary to the Treasury, Mark Hoban MP, announced today that the annual allowance for tax-privileged pension saving will be reduced from £255,000 to £50,000, and the lifetime allowance will be reduced from £1.8 million to £1.5 million. This will replace the complex proposal legislated for by the last Government in the Finance Act 2010.

This measure will raise £4 billion per annum in steady state and will help reduce the record Budget deficit that this Government inherited. It will be targeted at those who make the most significant pension savings. An annual allowance of £50,000 will affect 100,000 pension savers 80% of those will have incomes over £100,000.

The Government is committed to protecting individuals on low and moderate incomes as far as possible. To protect individuals who exceed the annual allowance due to one-off “spikes” in accrual, the Government will allow individuals to offset this against unused allowance from previous years.

We will also consult on options enabling people to meet tax charges out of their pensions in November.

In order to protect the public finances it is necessary to introduce the reduced annual allowance from April 2011. The Government plans to introduce the reduction in the lifetime allowance from April 2012.

Mark Hoban said:

We have abandoned the previous Government’s complex proposals and developed a solution that will help to tackle the deficit but not hit those on low and moderate incomes. We have taken a tough but fair decision.

The Coalition Government believes that our system is fair, will preserve incentives to save and – compared to the last Government’s approach – will help UK businesses to attract and retain talent.

See my article on the Act published in the Director of Finance magazine in March 2010. The article focusses on two important areas for corporates – hospitality and maintaining adequate procedures to prevent bribery.

It must also be filed when no tax is due as a result of the transferable nil rate band applying.  Essentially, this would be on the second death of a married couple or civil partnership where the first to die did not use all of their nil rate band.  This rule was introduced in late 2007 and is currently being used in 27,000 full estate returns each year.

HMRC now proposes to extend this exemption to some cases where the transferable nil rate band rule applies.  HMRC estimates this will apply in three out of every four cases where transferable nil rate band is invoked.  In all other more complex cases a full estate return will still have to be completed.

Not only will this save time and benefit probate practitioners, but it could lead to cost savings for clients and would be a most welcome change.

If you would like to speak to someone about probate, wills or estate planning please contact us on 01923 202020 and ask to speak with the Wealth Management team.

A statutory will is a will made on behalf of someone who lacks the necessary capacity to do so themselves by application to the Court of Protection.

In the case of Re D (statutory will), the Court of Protection considered what principles should be applied in determining whether to order the execution of a statutory will for and on behalf of a person who lacked the mental testamentary capacity to do so.

The Court of Protection held that under the Mental Capacity Act it can authorise a statutory will on the grounds that the validity of an earlier will is in dispute.  Decisions taken on behalf of a mentally incapacitated adult must be taken in his or her best interests.  This can include being remembered for having done the ‘right thing’ in his or her will.  In this case the judge ruled that the ‘right thing’ meant ensuring Mrs D’s memory was not ‘tainted by the bitterness of a contested probate dispute between her children’.

Comment

It is heartening to see the Court taking such a practical (and sensitive) approach.  The alternative would have been for the beneficiaries to have waited until Mrs D had died and to then contest her will in the courts.  This would have been far more stressful and expensive and would almost certainly not have been what Mrs D would have wanted.

If you would like advice on statutory wills or mental capacity please contact me on iain.donaldson@mablaw.com or 01923 202020.

In Akzo Nobel Chemicals Ltd And Akcros Chemicals Ltd V European Commission Advocate General Juliane Kokott confirmed that confidential communications between companies and their in-house lawyers should not, in Commission investigations, attract the same professional privilege as communications between companies and outside counsel.

Privilege will only attach to communications with independent external lawyers in relation to clients’ rights of defence.  The position under EC law is therefore different from that throughout the UK where privilege attaches to internal client communications with internal lawyers in the same way as communications with external lawyers.

The reason given by the European court is that in-house lawyers are not fully independent of the company in which they work. Although presently there remains a distinction between the common law and other jurisdictions, the danger is that this decision opens the floodgates and that all communications between a company and its in-house legal team may be under threat of exposure in the event of subsequent proceedings.

Tim Constable comments: It is not clear how far-reaching this decision will prove to be, but for in-house counsel the safety play for more sensitive legal communications could be to copy in external legal advisers from the start to ensure that privilege and confidentiality are maintained.

Within the qualifying period, these employers will not have to pay the first £5,000 of Class 1 employer NICs due in the first twelve months of employment. This will apply for each of the first 10 employees hired in the first year of business and operate in selected countries and regions.

Subject to meeting the necessary legal requirements, the scheme is intended to start no later than September 2010. Any new business set up from 22 June which meets the criteria set out in the forthcoming announcement will benefit from the scheme.

The countries and regions which will benefit will be Scotland, Wales, Northern Ireland, the North East, Yorkshire and the Humber, the North West, the East Midlands, the West Midlands and the South West.

For more information HMRC have published questions and answers which can be found here.

The big news is that companies that fail to register their energy use by next month will be hit with fines that could reach £45,000 under the little-known rules. 

Those that do participate in the Carbon Reduction Commitment (CRC) initiative by declaring their energy use will face charges for every ton of greenhouse gas they produce.  These payments are expected to average £38,000 a year for medium-sized firms, and could reach £100,000 for larger organisations.

Many businesses are (understandably) aggrieved at this prospect fines which will put pressure at a time when bottom lines are shrinking.

Any company or public sector organisation that consumes more than 6,000 megawatt hours (MWh) of energy a year – meaning a power bill of about £500,000 – must register its energy use by the end of next month.  From April 2011, they will need to buy permits for each tonne of carbon dioxide emitted. For those using 6,000MWh, that could mean £38,000.

Of about 4,000 organisations estimated to qualify for the scheme, only 1,229 have registered to date.   Missing the Sept 30 deadline leads to an immediate £5,000 fine, and £500 for each day after that, up to a maximum of £45,000.

Another 15,000 smaller organisations are also required to register and could be expected to buy permits in the future. If they miss the September deadline, they face fines of £500.

For more information click here for the Environment Agency (who administer the scheme).

Training is a professional requirement but for many doctors the cost of courses comes out of their own pockets.  They rightly want to know whether it is possible to obtain tax relief for these costs.

The case of CRC v Dr Piu Bannerjee (heard in the Court of Appeal) goes some way to answering some of those questions.  The taxpayer worked for the NHS as a specialist registrar in dermatology.  For those who aren’t familiar with the exact terminology, a registrar is still in training.  Under the terms of her contract she was required to attend external training courses.  She claimed back the expenses incurred in this training but HMRC argued against this.

The issue was whether the expenses incurred in attending the training courses and defrayed by the taxpayer were wholly, exclusively and necessarily in the performance of the duties of her employment.  HMRC argued that attendance at the course was simply a means to better performing her duties, improving her professional skills and as part of her training.  This meant that there was a duality of purpose behind the training and therefore it would not meet the test of exclusivity.

The Court of Appeal held that the taxpayer had been ‘employed exclusively for training purposes’, not just to attend to patients on the ward, but also to attend the compulsory training that was part of her obligations to her employer – and therefore there was no ‘dual purpose’ in incurring the related expenses.  The result was that HMRC’s appeal was dismissed.

Conclusion

This case could have ramifications not just for other doctors but for other professions too with rigorous professional training requirements (such as architects, surveyors, solicitors, accountants and actuaries).  Each case needs to be considered going forward, and it might be possible in some cases to amend prior returns in light of this decision. 

It also highlights the benefit of proper advice in preparing tax returns.

If you would like advice on claiming expenses or in relation to your tax return, please contact James Odds on james.odds@mablaw.com or 01923 202020.

A will is one of the most important documents you will ever write, so it is important to ensure that it is done properly.

Tonight’s Panorama on BBC 1 at 8:30 has a look at some of the issues involved with getting a will drafted and some of the pitfalls.  According to the report on this morning’s Today programme on Radio 4, will writers and banks get rather pummelled whilst the legal profession comes out on top.

The reasons for this are clear.  It boils down to professional standards. 

Customers of will writers and banks are enticed by slightly lower fees but often find themselves encouraged (and in some cases pressured) into appointing the will writers or the bank as executors without being fully informed of what this means in terms of fees (which can amount to about 4% of the estate).  Customers are often then charged to have their wills stored.  To add insult to injury the advice in preparing the will is not always correct with no legal redress against the will writers.

How can this happen?  Simply put, the will writing industry is unregulated and anyone with a PC and a desk can make themselves a will writer. 

Solicitors, conversely, are regulated by the Law Society and the Solicitors Regulation Authority.  We have a code of conduct which places the client first.   Whilst not all solicitors are experts in trusts and inheritance tax, one must have a certain level of expertise and training to be admitted as a solicitor.

I’m not saying that the legal profession is perfect.  There is a diverse range of solicitors from sole practitioners on the high street to the multi-nationals in the city.  But what using a solicitor offers is the security of a skilled professional, putting your interests first, backed up by the guarantee of insurance should something go wrong.  Because of this costs are sometimes higher, but at the end of the day you know what you are getting.

Matthew Arnold & Baldwin LLP does have a dedicated team of Wealth Management specialists with expertise in wills, tax, trusts and probate.

If you would like to speak to someone about making a will, please contact Suki Sandhu or Emma Alford on 01923 202020, or email info@mablaw.co.uk.

The case involved a deed of variation, which changed the terms of a will.  By way of background, it is possible for the effect of a will to be varied within two years of death, provided that various conditions are met, including the agreement of the affected beneficiaries.  In many cases wills are varied for tax reasons.

In the present case £10,000 plus some farmland of the £1.7m estate was to pass to the deceased’s husband and the rest was to pass to the deceased’s children.  The husband’s accountant suggested that the effect of the will should be varied to make it more tax efficient and a deed of variation was executed.  This was defective and led to an additional £33,000 of inheritance tax.  The parties attempted to rectify the deed of variation to the effect that the husband would not be liable to pay inheritance tax.  HMRC refused to accept the efficacy of the deed of rectification for tax purposes.  The claimant applied to the court seeking approval of the deed of rectification.

The court found in favour of the husband and allowed the deed of rectification.  The judge distinguished between a mistake as to the fiscal effect of the deed of variation and the document not giving effect to the true agreement or arrangement between the parties.  The court would not order rectification of a document if the parties’ rights would be unaffected, and if the only effect of the order would be to secure a fiscal benefit for one or more of them.  On the other hand, where the  mistake was as to the meaning or effect of a document, this might be amenable to rectification.

In many ways this case highlights just how flexible our legal system is.  The parties were not only able to amend the will, but when they got this wrong, they were then able to correct this mistake to give effect to their true intentions.

The case also highlights two other things.  First is the need for proper will planning – for if the deceased had received the correct advice while alive none of this would have needed to happen.  The other is the power of deeds of variation to create a much more favourable outcome for the beneficiaries.

If you would like to discuss any of the points raised here, please contact our Wealth Management team on 01923 202020.

Getting technical, there are nine consultation / discussion documents which invite views from the public and professions on:

• PAYE reform
• Furnished holiday lettings
• Pensions tax relief
• Associated company rules
• Disclosure of inheritance tax avoidance
• Foreign branch taxation
• Controlled foreign company interim improvements
• Modernisation of investment trust company rules
• National minimum wage regulations

This is supposed to be the start of a new era of openness and transparency.  It is hard, though, to escape the cynicism engendered by 13 years of Mr Brown at the tiller.  Under the last regime, consultations meant less and less as time went by.  It became increasingly clear that they were more of a statement of intent than a genuine request for views. Time will tell how the new Government will act.

Only the papers PAYE and national minimum wage have the potential to be of interest to the public at large (and even then, there is a limited audience).  The other consultations are of more interest to the professions and to business.

Many people will look carefully at the proposed changes to pensions tax, and associated companies which could have a genuine impact on owner managed businesses.  For tax planners, the outcome of the discussions on disclosure of inheritance tax avoidance and foreign branch taxation will be of particular interest.

If you would like to discuss the impact of any of these proposals please contact me on james.odds@mablaw.com or comment below.

The Chancellor has appointed a Board of tax experts who will be responsible for leading the work of the OTS over the next year. The Board Members are Michael Jack (Chairman) and John Whiting (Tax Director).

Their responsibilities will be to identify areas where complexities in the tax system for both businesses and individual taxpayers can be reduced and to publish their findings for the Chancellor to consider ahead of his Budget.

The OTS will undertake two initial reviews over the coming year. They will focus on tax reliefs and small business tax simplification (including IR35). The OTS will publish the initial findings from their work on reliefs in late autumn and on small business tax by the 2011 Budget.

The OTS will also draw on external expertise from the tax and legal profession over the coming months. These experts will focus on specific areas of complexity in the tax system and provide additional advice to the OTS.

The Government is committed to making the UK the most competitive country in the G20 and to reducing the complexity in the tax system. Over the past decade, the tax code doubled to more than 11,000 pages and the UK slipped from 7th to 13th in the World Economic Forum’s Global Competitiveness Index between 1997 and 2009-10. This trend needs to be reversed, and the OTS is an important part of making the tax system work better for the taxpayer.

Comment

This is to be welcomed (cautiously). However, this must not turn into an excuse to change the current system without proper debate.   The fact that the well respected John Whiting has such a prominent role will be of reassurance since he will be considered a steady hand at the tiller.

A lot of people will be watching eagerly to see what they have to say about IR35.

Update: a rather cynical view of this is expressed in this article in the Telegraph.  Note the stats about the increase in sheer volume in tax legislation that we’ve seen over the last few years.

Basics

Inheritance tax (IHT) generally arises on death. It is normally only a concern if the estate on death is over the nil-rate band threshold, currently set at £325,000 for a few years. Over this amount, IHT is charged at 40%. IHT is also charged on gifts made in the seven years prior to death.  IHT can be charged on gifts made during someone’s lifetime, including gifts made to trusts.  

Married couples and registered civil partners are able to benefit from the transferrable nil rate band.  This can effectively increase in the nil-rate band threshold when the second partner dies – to as much as £650,000 currently.

Saving IHT with business property relief

Business property relief (BPR) is one of the most useful IHT reliefs. BPR can reduce the value of the relevant assets in the estate by up to 100% of its value. It is available in respect of a range of shares, securities or other property classed as an interest in a business.  The relief is also available for unquoted shares, which includes shares in AIM listed companies. The business property needs to have been held for two years before relief is available.

Top Tips:

• Some providers offer investments in a selected portfolio of shares all of which qualify for business property relief after 2 years. Clearly there are risks involved in investing in shares, and proper advice should be taken.
• BPR is only available for businesses which are substantially trading businesses.  If the business comprises a mix of investments and trading stock, or even large amounts of cash, careful planning will be required to ensure that relief is not restricted.  Compare, for example a business which develops properties and then rents them.  The development trade would qualify but the property rental would not, potentially contaminating the overall BPR position.
• For business owners, will planning is essential.  Not only does this give the opportunity to plan for the continued success of the business but through careful use of the nil rate band and other reliefs, it may be possible to minimize the overall IHT burden on the estate.
• If you are owed money by your business then this is an asset in your estate (and therefore subject to IHT).  It may be possible to convert this into a security which can benefit from BPR.

For more information about these planning ideas (or others) or to discuss inheritance tax generally please contact me on james.odds@mablaw.com

Background

A court has ruled as a preliminary issue that where a partnership deed is silent as to the basis of valuation for the purpose of determining the amounts payable to outgoing partners, such amounts have to reflect a fair value of the partnership’s assets and cannot be based on historical annual accounts which greatly underestimate the value of the partnership’s main asset which, in this case, was land.

Facts

The partnership deed provided that when a partner retired, died, became bankrupt or became a patient under the mental health legislation, his share in the assets of the partnership would accrue to the surviving partners in the same proportions as their respective shares in the partnership property, and the outgoing partner (or his personal representative) would be paid the amounts standing to his credit as his share in the capital of the partnership and as undrawn profits belonging to him in the “last annual general account prior to his retirement, death or bankruptcy or becoming a patient”.  However, no accounts had been agreed for any of the relevant years.

Decision

The court held that the outgoing partners were entitled to a “fair value” which was the market value of the land in question unless there was an agreement to the contrary, or there were other factors rendering such a value unfair. 

Comment

In the circumstances, the court decided in favour of the outgoing partners receiving a “fair value” but the case is nonetheless an important reminder that it is best to include clear valuation provisions in any partnership deed and ensure that proper and up-to-date accounts are kept so as to avoid the extra expense and stress of a court application at the time of determining an outgoing partner’s share.

Drake v Harvey & Ors [2010] EWHC 1446 (Ch) ]]> http://www.mablaw.com/2010/06/valuation-of-partnership-assets/feed/ 0 http://www.mablaw.com/2010/06/working-from-home/ http://www.mablaw.com/2010/06/working-from-home/#comments Mon, 14 Jun 2010 10:15:31 +0000 Shimon Shaw http://www.mablaw.com/?p=3895 Working from home is a phenomenon on the rise.  The advent of very widely available broadband means that it is even easier to log on remotely from your home computer and largely take your office home with you.

There may, however, be tax traps for unwary home workers.  Here’s an article that I wrote for Accounting Web on the subject which sets out some of the issues you should consider, in particular if home working is something you do regularly.

The CBI argues that decreasing the deficit should be done by controlling spending rather than increasing taxes.   Specific points made by them include:

• The CBI wants to see a broad definition of business assets (which would benefit from tax relief) to prevent disincentives to investment or start-ups, and the tax should be structured to minimise the impact on long-term investment.
• The CBI is encouraged by the Dyson commission’s support for the R&D tax credit and urges the Government to retain it in its current form.
• Changes to tax treatment of pensions, planned to come into force from April next year, are unnecessarily complex and expensive to administer, and in their current form would make it harder for UK businesses to attract and retain global talent.

Undoubtedly, their concerns are echoed across the country.  I have spoken with many clients concerned about their own position if capital gains tax increases on 22 June.  Whilst there are steps which can be taken prior to then, the time for doing so is getting increasingly tight.

If you want to speak to an advisor about CGT increases please call 01923 202020.

The thinking behind this is that the rate is (relatively speaking) low at 5% compared to 17.5% VAT, which is what is already charged on certain types of insurance, such as travel insurance.  We also charge less IPT than some other EU countries.

The other thing which can’t have escaped notice is that premiums are already rapidly increasing and once people have forgotten about the budget they’ll probably blame their insurers.

The only people who are likely to benefit from this are meerkats.

I’ve just seen a great article in the Times here. Alice Thompson makes a strong case why Mr Osborne’s proposed rise in the rate of CGT is poorly judged and counter productive. It seems to me that it will be even more damaging if the increases take effect on 22 June as opposed to on 6 April next year, since this will not give people the chance to take steps to reduce their exposure and will be seen as incredibly unfair.

If you are concerned about the effects of the emergency budget on you, please contact one of our tax team who will be happy to discuss the options open to you.

Let’s be clear – there is nothing wrong per se with using offshore centres to hold your assets be they trusts or companies.  However, what is frowned upon is transferring assets offshore to evade tax or conceal your true wealth from creditors or governments.

Some countries have added very nicely to their GDP in past years by providing the “nudge, nudge, wink, wink” facility to hold assets through nominees and complex holding structures. Times are changing though, and it is becoming harder and harder to evade tax though taking such steps.

Legitimate tax avoidance and asset protection is always an option, with proper advice, and for those with an offshore presence or origin in particular there are quite valid and tax efficient ways to reduce your UK tax profile.

For more info – speak to our Wealth Management team.

Look out for Budget # 2, but these are some of the points I’ve culled from the papers today:

• The Lib-Dem’s headline reform of increasing the lower tax threshold to £10k will be introduced.
• The rate of capital gains tax (CGT) on the disposal of non-business assets will increase.  We will therefore have two rates.   It remains to be seen how this will operate in practice but we are likely to see the rates of tax for income and capital being matched – with the top rate of CGT at 40 or 50 per cent.  People thinking of making taxable disposals (in particular making gifts and settling trusts) should seriously consider accelerating these.  
• There will be a lower rate of CGT, or an exemption (a la business assets taper or entreprenuers’ relief) for entrepreneurial assets.  This is unlikely to cover shares other than in your own business (which could mean 5% ownership – but this remains to be seen).
• A reversal of the increase in the threshold for national insurance contributions made by employees.
• The tax break for married couples will go ahead, but it is not likely to be big enough to cover the cost of the engagement ring (or even the mangagement ring).  The Lib-Dems have not agreed to support this but they’ve agreed not to block it.
• Plans to increase the inheritance tax threshold to £1m are deferred indefinately.

They treated their supplies as exempt from VAT on the basis that they were insurance intermediaries and did not register or account for VAT. HMRC issued a ruling that the companies were not within the definition of an ‘insurance agent’ partly on the basis that there was no negotiation with customers – rather the websites provided click through services.

HMRC therefore ruled that they were required to register for VAT and account for output tax on their supplies.

The companies appealed, contending that they were acting as ‘insurance intermediaries’ and that their supplies qualified for exemption. The Chancery Division accepted this contention and allowed the appeal, and the Court of Appeal upheld this decision. On the evidence, the companies were providing services which were characteristic of an insurance broker or agent, and which were vital to the process of introducing those seeking insurance with insurers. Accordingly, the supplies qualified for exemption.