Annual Return HMRC Concession

avatar Posted on June 24th, 2015 by Mark Gearing

HMRC confirmed earlier this week that companies with no PAYE obligations do not need to register their non tax-advantaged share plans online and do not need to complete the “Form 42″ annual return. The following circumstances must all be true for the concession to apply:

• Neither the company, nor any other company in the same group or under the same ownership, is registered for PAYE.
• The arrangements are not tax-advantaged schemes (that is, not company share option plans (CSOPs), SAYE option schemes, share incentive plans (SIPs) or enterprise management incentives (EMI) options).
• The company has no obligations to operate PAYE in respect of the reportable event.
• The company has no obligation to operate PAYE in respect of anything else it does.

The concession is only likely to be relevant to overseas companies with no taxable presence in the UK.

HMRC will update its website guidance to include this information as soon as possible.

If you have any queries regarding the registration and reporting of UK share plans, please contact me. The deadline for filing the various annual returns is 6 July 2015. Further information on the registration and reporting requirements can be found here.

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Almost no-one washes a rental car – which is why employees need an ownership stake in their company

avatar Posted on June 1st, 2015 by Graeme Nuttall OBE

 

Almost no-one washes a rental car. Yet, this is what many employees, are, in effect, asked to do. Owners and managers typically strive for good employee engagement without offering an ownership stake. Recent reports from the Chartered Management Institute (“CMI“) have started to provide answers to some key questions that impact on how a business is run, including how to get staff to, in effect, “wash the company car”.

 Without an ownership stake what drives good business performance from staff?

When employees perform well, why do they do this? Is this simply obedience? Some managers require staff to do only what they are told. Others believe in consensual management and indeed welcome constructive dissent. Roger Steare in his book ethicability refers to Milgram’s experiment in which 65% (26 of 40) volunteers were apparently prepared to inflict fatal voltages when ordered to do so. This may seem an extreme way to argue for participative management but there is clear potential for commercial harm to a business and customers, if not actual harm to patients, if staff cannot occasionally “stop the line” and suggest it is best (or right) to do things differently.

So perhaps each “employee of the month” has actually worked out for themselves what is needed, what is reasonable, from first principles. Or perhaps these employees care, perhaps they simply want what is best for their customer, or patient. Or is their behaviour driven by a mix of these values? We can start to answer these questions by looking more closely at how managers behave.

• To what extent do ethics inform the decisions of managers?

A March 2014 CMI report (Managers and their MoralDNA) tackled this question. Three ethical perspectives were tested: obedience, reason and care i.e. the perspectives described above. What did the report find? Among all recognised leadership styles the strongest ethic is that of reason, with care next and obedience the least strongest ethic. The relative strength of each varies between different styles. A balance exists in each case but always with more emphasis on reason and care.

However, managers are more likely than most employees to lack empathy and to become more robotic and less caring at work, than at home, especially when they are younger, male, junior, right-wing and without any religious faith. This is a deliberate over-simplification but each of these separate trends emerged from an online psychometric survey called MoralDNA™, of about 1,500 CMI members.

This report emphasised that what it does is describe the replies and no particular characteristic is presented as better than others. The answer to a problem could well be the same: it is how managers get there that differs. But if different approaches to problem solving, if not answers, are important then it helps to have diversity among managers. This CMI report concluded that diversity, in every sense, helps managers make better decisions.

Also, it follows, says the report, that regulators should clearly change their approach. More rules do not make people more ethical. The ethic of obedience was the least significant factor in managers’ decision-making.

• What links are there between ethics and the performance of an organisation?

An October 2014 CMI report (The MoralDNA of performance) is another descriptive report. It surveyed 2,500 managers, using the same approach as before, to identify links between their MoralDNA and the performance of their organisations. The key finding was that “across all 11 performance indicators … high levels of performance were associated with higher ethical scores”. There are some, perhaps obvious, correlations.  The particularly interesting findings are those that link to employee engagement.

• Which management styles have the best link to good employee engagement?

Managers working in coaching, visionary and democratic management styles rate their organisations as better performing than those who work in command and control environments.

• Do better ethical scores tie in to better business?

Managers “who rated their organisations highly in terms of staff satisfaction and their ability to attract new staff also had higher MoralDNA scores themselves on the ethics of reason and care”. Similarly, there was a positive correlation between reason and care and good customer satisfaction scores.

• What links are there between types of business and the ethical behaviour of an organisation?

What is very interesting in this second CMI report is the substantial difference between different types of business. The highest “ethical” scores were given by managers working in co-operatives, partnerships and private companies. The report comments that in these types of organisations managers are more likely to be owners and so the suggestion is that ownership or a sense of ownership has a positive effect on ethical behaviour, which, as we have seen, links to high levels of performance.

Now it could be that the benefits of being in a smaller organisation show strongly in co-operatives and partnerships etc. and perhaps these are more likely to be organisations that are growing rather than declining. There were also fewer managers surveyed in each of these sectors. Nevertheless the headline news is that co-ops and partnerships are twice as likely to have excellent ethical behaviour in contrast to, say, listed companies, or the public sector.

Conclusions

The main conclusion from these reports is that if you want to get staff to go the extra mile and cannot offer an ownership stake you must explain why this is the right course, logically and in terms of its impact, rather than simply set rules to be obeyed.

Where this research should go next is to test the impact of actual employee ownership, as against a sense of ownership. In, say, employee-trust owned companies all staff should have a strong sense of ownership. In these organisations will managers display the high ethical scores found in co-operatives and partnerships? And, what about other employees? Will all staff display the ethical behaviours of owners? Will there be a stronger display of reason and care rather than simple obedience in employee-trust owned companies?

The employee ownership sector certainly believes that the best outcomes for a business both in terms of its performance and the well-being of staff derive from a combination of ownership and employee engagement. In other words, businesses should provide actual ownership rather than a sense of it. The “company car” is converted into something in which every employee has a real interest.

The MacLeod Report on employee engagement acknowledged employee ownership is a profound enabler of good employee engagement. These two CMI reports, particularly the October 2014 report, suggest the employee ownership sector has indeed got it right. Real ownership and good employee engagement create better business.

Anyone interested in employee ownership as a business model and, in particular, as a tax efficient succession solution should read the other articles available on this Tax Deductions blog. For #employeeownership news follow @nuttallreview.

You can test your own MoralDNA at Personal Test. You can follow the CMI via@cmi_managers

This article was originally published as a LinkedIn post on 13 April 2015

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Budget 2015 – PLC Expert Practitioners Piece

avatar Posted on March 20th, 2015 by Andrew Prowse

Once again, Fieldfisher’s tax partners have contributed to the popular PLC round-up of expert practitioners’ views on the Budget.  This year’s comments are below:

Hartley Foster

Another Budget, another raft of measures with the aim of reducing tax avoidance. And within this year’s raft is the introduction of a tax that has the potential to damage significantly the UK’s economy and standing in the global community: diverted profits tax (DPT). DPT will come into effect only a week after publication of the Finance Bill, with any time for proper Parliamentary scrutiny thereby having been precluded.

But for the desire to grandstand before the election, the introduction of DPT may have been postponed until after the end of 2015, when the OECD will have released its BEPS report that will address the shifting of profits of multinational groups to low tax jurisdictions. DPT is anticipated to raise only £360m a year by 2017/18. Postponing the introduction of DPT until after the OECD had concluded its work would have had all but no impact on the quantum of the fisc’s tax take; it would have enabled the UK to address the harm of the perceived tax avoidance in a way that is consistent with that to be adopted by other countries.

The three fundamental concerns are:

  • Gambling on all of the UK’s double tax treaty partners accepting that DPT falls outside the ambit of the treaties is akin to forcing the UK to risk its position in the global economy on rounds of Russian roulette where all but one of the chambers have been loaded.
  • There is, at the least, significant doubt as to whether DPT will be lawful as a matter of EU law, and, accordingly, there is a significant risk that the legislation will be the subject of, perhaps concerted, challenge on that basis.
  • DPT’s complex procedural framework will impose a significant, and disproportionate, compliance burden, not only on a vast number of companies, many of whom, as the Government accepts, will not be liable to pay the tax, but also on HMRC.

Whilst it is to be welcomed that the legislation has been revised to narrow the notification requirement, the fundamental concerns remain.

Graeme Nuttall, OBE

Budgets 2012, 2013 and 2014 contained unprecedented support for the employee ownership (EO) business model. After such an amazing era it was expected that the pre-Election Budget 2015 would be silent on EO policy. The heavy-lifting was done in Schedule 37, Finance Act 2014. The Government has ensured that tax does not distort the choice of EO business model by creating support for the indirect form of EO, as well as strengthening the direct form. Every month companies are now switching to EO. This is not because of the new CGT exemption for the sale of a controlling interest to an employee-ownership trust (EOT) or because employees in a company controlled by an EOT may receive up to £3,600 a tax year income tax free, as John Lewis Partners enjoyed recently. These tax exemptions provide an invaluable prompt to consider EO especially as a business succession solution. The main reason for choosing EO is that EO is a successful and enduring business model: one that is good for business performance and good for staff. This is why businesses such as Hayes Davidson, St Brides Partners and Stride Treglown have all switched to EO in recent weeks and why EO is establishing itself in the mainstream of the UK economy.

 

 

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Budget 2015 – Entrepreneurs’ Relief – Man Cos will not work

avatar Posted on March 19th, 2015 by Andrew Prowse

Entrepreneurs’ relief (“ER”), where it applies, provides an effective 10% rate of CGT on disposals on the first £10m of lifetime gains.  The attraction of a 10% rate has led to structures designed to access ER where, without such structure, the ER conditions would not be met.  In the context of share sales, broadly, ER may apply where the individual seller holds 5% or more of the votes and share capital in the target company which is a trading company or a member of a trading group, and is an officer or employee of that or a group company (there are also rules around how long the shares have been held).

Until yesterday, a trading company could include a company which was not itself a trading company but which held at least a 10% interest in a joint venture company which was a trading company.  In effect a portion of the trade of the JV company would be treated as a trade of the first company, making that first company a trading company.

Structures developed under which a management company (or ManCo) was established, in which individuals held shares, which in turn held 10% of the shares in an underlying trading company.  In that way, the managers could hold more than 5% of the ManCo, which was deemed a trading company, even though, had they held shares directly in the underlying company, they would not have passed the 5% ER shareholding threshold.

With effect for disposals made on or after 18 March 2015, the joint venture deeming provision described above will be repealed.

This will affect existing ManCo structures, probably rendering them ineffective (subject to the detailed facts).

It will also affect other existing corporate structures which happen for commercial reasons to involve joint ventures, irrespective of whether or not those structures derive from tax planning.  It is not uncommon for individuals to hold interests in trading companies through their own companies.  In those circumstances, ownership structures should be reviewed carefully in the light of the new changes.

Finally, the Budget Tax Note introducing the change was written confusingly and in some places suggested that any non-trading holding company (even with a grouped (rather than JV) trading subsidiary) would prevent the holding company shareholders from qualifying for ER.  Some other commentators have remarked on this.  Looking at the Budget Tax Note as a whole, it is only targeting the rules allowing non-trading companies to be deemed trading for ER purposes by reason of 10% or more holdings in non-grouped JV companies.  This is supported by the draft legislation.

Here is a link to the Budget Tax Note.

 

 

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Budget 2015 – Mini Bonds – some good news?

avatar Posted on March 19th, 2015 by Andrew Prowse

Yesterday, the Chancellor announced that the Government will explore further extending the list of ISA-eligible products to include debt and equity securities offered via crowd funding platforms.  They will consult on this proposal in the summer this year.  Given the increasing flexibility of ISAs, this will be a welcome shot in the arm for those companies wanting to raise funds through crowd-funding as opposed to more traditional bank debt.

As part of the Chancellor’s reform of the taxation of personal savings, he announced a new Personal Savings Allowance, to be created from April 2016.  It is therefore subject to the outcome of the General Election.  If introduced, it will exempt the first £1,000 of savings income from any tax for basic rate taxpayers and the first £500 of any savings income for higher rate taxpayers.  In keeping with the Chancellors’ stance on additional rate taxpayers, this change will not help them.

As a result, the automatic 20% withholding tax at source operated by banks and building societies on non-ISA interest income will no longer be necessary.

The Budget announcement refers only to savings income paid by banks and building societies.  It remains to be seen, therefore, whether this abolition will extend to comparable interest payments made by other entities, such as companies paying interest on mini bonds.  Whilst it may not, because the source legislation requiring banks and building societies to withhold tax is different from that applying to companies, it is to be hoped that it will.  The basic point is the same and otherwise there will not be a level playing field for entrepreneurial companies wishing to issue mini bonds and similar instruments to raise funds from individual savers.  Of course, if mini-bonds may be added to ISAs, the issue may be less important in many (but by no means all) cases.

 

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Budget 2015 – Entrepreneurs’ Relief – Companies in Partnership

avatar Posted on March 19th, 2015 by Andrew Prowse

Entrepreneurs’ relief (“ER”), where it applies, provides an effective 10% rate of CGT on disposals on the first £10m of lifetime gains.

As one of a number of measures announced in the Budget in connection with ER, companies that are members of a trading partnership will no longer be able to count a portion of the partnership’s trade as if it was their own (and so non-trading partner companies will no longer be able to look to the underlying partnership so as to be treated as trading for ER purposes).  This is allied to the changes repealing the joint venture rules concerning ER and companies holding interests in JVs, which is discussed in another of my blogs.

As a result, the usual assumption that a partnership is transparent for tax purposes should no longer be made in the ER context without a careful review of the exact ownership structure.

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Budget 2015; Inheritance Tax

avatar Posted on March 18th, 2015 by Amanda Gordon-Napier-Tompkinson

George Osborne has announced that the Government will conduct a review on the avoidance of inheritance tax through the use of deeds of variation and will report by the Autumn.

A beneficiary of a deceased person’s estate may redirect their interest in the estate by using a deed of variation.  If a non-exempt beneficiary redirects their interest in the estate to an exempt beneficiary (the spouse/civil partner of the deceased or a charity) that interest will no longer be subject to inheritance tax if the variation complies with the provisions set out in section 142 Inheritance Tax Act 1984 (for example the variation must be made within 2 years of the date of death, the variation must be in writing, the beneficiary redirecting their interest must be a party of the deed, the deed must state that the parties to the deed intend section 142 Inheritance Tax Act 1984 to apply to the variation and the variation cannot be made for consideration).

HM Revenue & Customs (‘HMRC’) are already cracking down on people avoiding inheritance tax through the use of deeds of variation.  For example, HMRC state in their inheritance tax manual number 35093 that if HMRC believe that the exempt beneficiary will return the interest to the original beneficiary, they will challenge the variation.

References:

Chancellor George Osborne’s Budget 2015 speech, https://www.gov.uk/government/speeches/chancellor-george-osbornes-budget-2015-speech, (accessed 18 March 2015).

‘After death variations: IHT and CGT’, Practical Law, (accessed 18 March 2015).

C. Butcher and A. King-Jones, Probate Practice Manual Thomson Reuters (Professional) UK Limited, 2014, paragraphs F1.1, F2.1-F2.24, F5.1-F5.4.

C. V. Margrave-Jones, ‘After-death variation: Narrative’, Butterworths Wills, Probate & Administration Service, Issue 71, December 2010, paragraphs F[1.1]-F[1.11].

Inheritance Tax Act 1984 s142

HM Revenue & Customs, ‘IHTM35093 – Property redirected to the spouse or civil partner: gifts back to original beneficiaries’, http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM35093.htm, (accessed 18 March 2015).

 

 

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Budget 2015; the new non-resident CGT charge explained

avatar Posted on March 18th, 2015 by Penny Wotton

The Chancellor has not announced any new taxation measures which will apply to non-UK residents owning property in the UK but the Government has today issued long awaited guidance on how the new charge to CGT on gains which arise to non-UK residents from 6 April 2015 on the sale of UK residential property in their direct ownership will work.

The Government has confirmed that in calculating the gain arising from 5 April 2015 you will have a choice of either rebasing the value of the property at 5 April 2015 or carrying out a straight-line time apportionment of the whole gain over your period of ownership.

The rate of tax will be the same for non-UK residents as for UK residents i.e. 28% for trustees and personal representatives and 18% or 28% for individuals.

The Government has also confirmed that private residents relief (PRR) will be available if the property is your only or main residence for each year in which you satisfy a new occupancy test.  The new occupancy test will require you, in conjunction with your spouse/civil partner (but not allowing double counting) to stay overnight in the property at least 90 times during a tax year (apportioned where you own the property for only part of the year).  In addition, if you met the conditions to claim PRR under the old test before 5 April 2015 you will still be entitled to claim PRR under the old rules.

On disposal of UK residential property after 5 April 2015 you will need to report the disposal to HM Revenue & Customs on-line on a new NRCGT return and pay the CGT due within 30 days of completion of the sale.  If you already file a UK self-assessment return you will still need to report the disposal on the NRCGT return within 30 days of sale, but you will have the option of deferring payment of the CGTuntil your normal end of year tax payment date.

You will be required to file a nil return on a relevant disposal even if no CGT is due.

You will also be entitled to set any losses on disposal of UK residential property against gains on disposals of UK residential properties in the same year, or to carry those losses forward to later years and if you later become UK resident you will be allowed to claim those losses as general losses against other chargeable gains.

These changes do not affect ATED related CGT which will continue to apply.  However, where ATED related CGT is payable there  the gain will not also be subject to the new non-resident CGT charge.

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Nuttall Review of Employee Ownership – a guide to source materials including the employee ownership tax exemptions introduced in the Finance Act 2014

avatar Posted on March 14th, 2015 by Graeme Nuttall OBE

This article was originally published on 9 February 2014 and contains links to the main documents related to the Nuttall Review of Employee Ownership. It has been updated to include links to statutory instruments that deal with making EMI options compatible with employee-ownership trusts and amendments to the “Nuttall Review” share buy-back provisions. There are additional materials available from the Making employee ownership more accessible UK Government policy web page.

1.  Nuttall Review – main documents

2.  Nuttall Review announcements

3.  Informal consultation

4. “Right to request” consultation

5.  Robert Oakeshott Memorial lecture

6.  Employee ownership and share buy backs

7.  EO Day 2013 publications following Nuttall review recommendations

8.  Amending the rule against perpetuities

9.  Implementation Group on Employee Ownership

10.  Government home pages

  • UK Government web page with “making employee ownership more accessible” policy statement
  • Department for Business, Innovation & Skills and HM Treasury Employee Ownership home page
  • HM Revenue & Customs Employee Ownership home page

11.  HM Treasury internal review

  • Budget 2012 (21 March 2012) announcement that “HM Treasury would conduct an internal review to examine the role of employee ownership in supporting growth and examine options to remove barriers, including tax barriers, to its wider take-up”
  • Autumn Statement 2012 (5 December 2012) set out the key outcomes of HM Treasury’s internal review

12.  Employee ownership trust tax exemptions in the Finance Act 2014

Please note: Employee-shareholder status (originally announced as employee-owner status on 8 October 2012) is not a Nuttall Review recommendation, and neither is the Employer Ownership Pilot. For information on UK public service mutuals please start with the Cabinet Office Mutuals Information Service

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Diverted Profits Tax

avatar Posted on February 9th, 2015 by Hartley Foster

On 4 February 2015, we submitted our response to the consultation in respect of the introduction of the new tax, to be called the Diverted Profits Tax (“DPT”).

 

Our primary recommendation to the Government was that the introduction of DPT should be postponed until after the OECD has released its report on Base Erosion and Profit Shifting (“BEPS”), which report will address the shifting of profits of multinational groups to low tax jurisdictions and the exploitation of mismatches between different tax systems.

 

DPT is anticipated to raise only £360m a year by 2017/18. It is anticipated that the OECD’s report will be released by the end of 2015. Hence, postponing the introduction of DPT until after the OECD has concluded its work on BEPS would have all but no impact on the quantum of the fisc’s tax take. A comparatively short period of consideration would enable the UK to address the harm of the perceived tax avoidance in a way that is consistent with that to be adopted by other countries and it could be used to ensure that the DPT legislation is clear and targeted, and compliant with both EU and international law.

 

Our three fundamental concerns with the draft legislation are:

(1) Gambling on all of the UK’s double tax treaty partners accepting that DPT falls outside the ambit of the treaties is akin to forcing the UK to risk its position in the global economy on rounds of Russian roulette where all but one of the chambers have been loaded.

(2) There is, at the least, significant doubt as to whether DPT would be lawful as a matter of EU law, and, accordingly, there is a significant risk that the legislation would be the subject of, perhaps concerted, challenge on that basis.

(3) Its complex procedural framework would impose a significant, and disproportionate, compliance burden not only on a vast number of companies, many of whom, as the Government accepts, will not be liable to pay the tax, but also on HMRC.

 

If you would like a copy of our detailed submissions to the Government, please contact Hartley Foster (020 7861 4257; hartley.foster@fieldfisher.com).

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