Stamp Duty Land Tax

Who pays the tax?

SDLT is payable by the purchaser in a land transaction.

What is a land transaction?

A transaction will trigger liability if it involves the acquisition of an interest in land in the United Kingdom. This will include a simple conveyance of land such as buying a house, creating a lease or assigning a lease.

When is the tax payable?

The tax has to be paid when a contract has been substantially performed. In cases where the purchaser takes possession of the property on completion that will be the date. However, if the purchaser effectively takes possession before completion – known as ‘resting on contract’ – that will be regarded as triggering the tax.

How much tax is payable on residential property?

From 4 December 2014 onwards each SDLT rate will only be payable on the portion of the property value which falls within each band. The government believe this will remove the distortion created by the previous system, where the amount of tax due jumped at the thresholds.

The current rates and thresholds are:

Residential property Purchase price of property	Rates paid on the part of the property price within each tax band (%)
£0 – £125,000	0
£125,001 – £250,000	2
£250,001 – £925,000	5
£925,001 – £1,500,000	10
£1,500,001 and over	12

The SDLT rates up to 3 December 2014 for residential property are set out in the table below. SDLT was charged at a single percentage of the price paid for the property, depending on the rate band within which the purchase price falls. The whole of the price was taxed at the appropriate rate:

Residential property	Rate %
£0 – £125,000	0
£125,001 – £250,000	1
£250,001 – £500,000	3
£500,001 – £1,000,000	4
£1,000,001 – £2,000,000	5
£2,000,001 and over	7

Where contracts have been exchanged but not completed on or before 3 December 2014, purchasers have a choice of whether the old or new structure and rates apply. This measure applied in Scotland until 1 April 2015 when SDLT was devolved to the Scottish Parliament (see below).

What about non-residential and mixed property?

The rates for non-residential and mixed property are set out in the table below. SDLT is charged at a single percentage of the price paid for the property, depending on the rate band within which the purchase price falls. The whole of the price is taxed at the appropriate rate:

Non-residential and mixed
£0 – £150,000	0
£150,001 – £250,000	1
£250,001 – £500,000	3
£500,001 and over	4

Broadly speaking, ‘residential property’ means a building that is suitable for use as a dwelling. Obviously it includes ordinary houses. Buildings such as hotels are not residential.

Land and Buildings Transaction Tax

Land and Buildings Transaction Tax (LBTT) is payable on land and property transactions in Scotland with an effective date on or after 1 April 2015.

Residential property	Rate %
£0 – £145,000	0
£145,001 – £250,000	2
£250,001 – £325,000	5
£325,001 – £750,000	10
£750,001 and over	12

 

Non-residential	Rate %
£0 – £150,000	0
£150,001 – £350,000	3
over £350,000	4.5

The Scottish government has LBTT calculators which work out the amount of LBTT payable. The calculators can be found at https://www.revenue.scot/land-buildings-transaction-tax/tax-calculators

The rates apply to the portion of the total value which falls within each band in respect of transactions with an effective date on or after 1 April 2015. For transaction prior to 1 April 2015 see Stamp Duty Land Tax.

More than one dwelling

There is a relief available for purchasers of residential property who acquire interests in more than one dwelling. Where the relief is claimed the rate of SDLT is determined not by the aggregate consideration but instead by the mean consideration (ie by the aggregate consideration divided by the number of dwellings) subject to a minimum rate of 1%.

Are there any exemptions?

Yes. There are a number of situations in which the transfer of land will not be caught for SDLT. These include:

• a licence to occupy
• a gift of land
• transfers of land in a divorce
• transfer of land to a charity
• transfers of land within a group of companies.

What is the tax charged on?

Tax is chargeable on the consideration. This will usually be the actual cash that passes on the sale. However the definition is very wide and is intended to catch all sorts of situations where value might be given other than in cash. For example if the purchaser agrees to do certain work on the property.

You mentioned that leases are caught. How does the tax work on them?

If an existing lease is purchased, SDLT is calculated in the same way as the purchase of a freehold property. If a lease is created for the payment of a premium ie a lump sum in addition to any rent, then the amount of the premium is the consideration subject to SDLT and is also calculated in the same way as the purchase of a freehold property.

However, there is also a potential charge to SDLT on the rental element. The calculation takes account of various factors including the rent that will be paid under the lease. If the calculated value exceeds £125,000 for residential property and £150,000 for non-residential, the excess is charged at 1%.

The government  has SDLT calculators which work out the amount of SDLT payable. The calculators can be found at https://www.gov.uk/stamp-duty-land-tax-calculators 

How do I tell HMRC about a liability?

The purchaser must complete an SDLT 1 return and this must be submitted to a special HMRC office within 30 days of the transaction. You must also send a cheque for the tax at the same time so this means that you have to calculate the tax due. A late return triggers an automatic penalty of £100, and late payment of the tax will mean a charge to interest.

What will HMRC do then?

A certificate will be sent to you to show that you have paid the tax. You will need this in order to change the details of the property ownership at the Land Registry. The fact that HMRC has given you the certificate does not mean your calculations are agreed. HMRC has nine months in which to decide whether or not to enquire into your return and challenge your figures.

How we can help

If you are planning to enter into an arrangement to purchase land, we can advise you of the precise impact of SDLT on the transaction so please contact us. We can also help you complete the SDLT1 and submit it to HMRC.

Homeworking and Tax Relief for Employees

Over the last ten years technology has advanced massively. It was not so long ago that mobile phones were the size of a brick. Now emails and the internet can be accessed on the move. However, whilst technology has moved on, travelling has become more and more difficult. Homeworking has become the answer for many but how have the tax rules kept up with these changes?

Your status is important

The tax rules differ considerably depending on whether you are self-employed, as a sole trader or partner, or whether you are an employee, even if that is as an employee of your own company. One way or the other though, if you want to maximise the tax position, it is essential to keep good records. If not, HMRC may seek to rectify the tax position several years down the line. This can lead to unexpected bills including several years worth of tax, interest and penalties.

This factsheet considers the position for employees.

General rules

Generally, any costs paid on behalf of, or reimbursed to, an employee by their employer will be taxable. The employee will then have to claim the personal tax relief themselves and prove that they incurred those costs ‘wholly, exclusively and necessarily’ in carrying out their job. The word ‘necessarily’ creates a much tighter test than that for the self-employed.

In addition, the way in which the services are provided can sometimes make a substantial difference to that tax cost. For example, if the employer provides something for the employee, the rules are often much more generous than if the employee bought it themselves and attempted to claim the tax relief. A bit of advice and forward planning can often prove to be fruitful.

An exemption

The rules for employees in relation to ‘use of home as office’, contains a specific exemption from a tax charge. They allow payments made by employers to employees for additional household expenses to be tax free, where the employee incurs those costs in carrying out the duties of the employment under homeworking arrangements. ‘Homeworking arrangements’ means arrangements between the employee and the employer under which the employee regularly performs some or all of the duties of the employment at home.

The arrangements do not need to be in writing but it is advisable to do this, as the exemption does not apply where an employee works at home informally.

Where these rules are met, the additional costs of heating and lighting the work area and the metered cost of increased water usage can be met. There might also be increased charges for internet access, home contents insurance or business telephone calls and where working at home leads to a liability for business rates, HMRC accept that the additional cost incurred can also be included.

However, unlike the self-employed, HMRC do not accept that a proportion of household fixed costs such as mortgage interest, rent, council tax or water rates are allowable.

HMRC accept that a £4 per week payment from the employer is acceptable without too much formality if the above tests are met. However, to justify a higher payment, the message is prove it!

Tax relief

The above rules only allow tax free payments to be made in specific circumstances. However, if payments are made outside of these rules or, in fact, no payments are made at all, the employee can claim personal tax relief themselves if they can prove that they incurred those costs or received those payments ‘wholly, exclusively and necessarily’ for the purposes of their job. In reality this is extremely difficult – some would say impossible – as HMRC require the following tests to be met:

• the employee performs the substantive duties of their job from home (ie the central duties of the job)
• those duties cannot be performed without the use of appropriate facilities
• no such facilities are available to the employee on the employer’s premises or are too far away
• and at no time either before or after the employment contract is drawn up is the employee able to choose between working at the employer’s premises or elsewhere.

So the moral for employees is to go for tax free payments, not tax relief!

Equipment costs

Capital allowances will be available to the company for the costs of providing equipment to employees who work at home. Provided that the private use of those assets by the employee is insignificant, then there will be no taxable benefit on the employee. Again, this could apply to things such as a laptop, desk and chair, provided that the employer has a written policy making it clear that the provision of the equipment is for work related purposes.

Travel costs

The rules are so ‘simple’ that HMRC explain them in a convenient 100-page booklet, IR490! However, the main point to note is that although an employee’s home may be treated as a workplace for tax purposes this is not enough, on its own, to allow the employee to get tax relief for the expenses of travelling to another permanent workplace.

Employees are able to claim tax relief on the full travelling cost incurred in the performance of their duties. However, no relief is available for the costs of ordinary commuting or private travel.

The rules are complex but ordinary commuting is defined as travel between the employee’s home and a place which is a ‘permanent workplace’. A ‘permanent workplace’ includes places where there is a period of continuous work lasting more than 24 months or the period of attendance is all or most of the period of employment.

HMRC state that, for most people, the place where they live is a matter of personal choice, so the expense of travelling from home to any permanent workplace is a consequence of that personal choice. As a result such travelling expenses will not qualify unless the location of the employee’s home is itself dictated by the requirements of the job.

Even if that condition is met, the cost of travel between the employee’s home and another permanent workplace is only deductible during those times when the home is a place of work.

Of course, employees who work at home are entitled to a deduction for the expenses of travelling to a temporary workplace, that is anything which is not a permanent workplace. It is as clear as that!

Example Jane’s duties often involve her working late into the evenings and she has no access to her employer’s premises (her permanent workplace) at night, so she takes work home with her. As it is a matter of personal choice where the work is done (there is no objective requirement that it is done at her home) any travel to or from her home cannot be said to be in the performance of her duties and no relief is available for any costs. However, Jane’s husband is an area sales manager who lives in Leicester. He manages his company’s sales team in the Midlands and the company’s nearest office is in Newcastle. He is therefore obliged to carry out all his administrative work at home, where he has set aside a room as an office. He is entitled to relief for the expenses of travelling to the company’s office in Newcastle, as well as for journeys within the Midlands as these should all qualify as temporary workplaces.

Be reasonable

As you can see, all things are possible but the key is to be clear about the rules, keep good records and be sensible about how much to claim.

How we can help

If you would like any help about obtaining tax relief on the costs of homeworking, please do contact us.

Franchising

Franchising is becoming increasingly popular in Britain with an annual turnover of around £13.7 billion, up 2.4% on last year’s figure. The business community now takes franchising very seriously and it is accepted across a range of sectors. The advantages of owning your own business are obvious but so too are the risks. The franchisee is taking less of a risk than starting his or her own business. Fewer than one in ten franchises fail. This is because they are operating under an established and proven business model and supplying or producing a tested brand name.

Franchising is essentially the permission given by one person, the franchisor, to another person, the franchisee, to use the franchisor’s name, trade marks and business system in return for an initial payment and further regular payments.

Each business outlet is owned and managed by the franchisee. However, the franchisor retains control over the way in which products and services are marketed and sold, and controls the quality and standards of the business.

The advantages and disadvantages

Advantages

These include:

• it is your own business
• someone else has already had the bright idea and tested it too
• there will often be a familiar brand name which should have existing customer loyalty
• there may be a national advertising campaign
• some franchisors offer training in selling and other business skills
• some franchisors may be able to help secure funding for your investment as well as discounted bulk buy supplies.

Disadvantages

The potential disadvantages include the following:

• it is not always easy to evaluate the quality of a franchise especially if it is relatively new
• extensive enquiries may be required to ensure a franchise is strong
• part of your annual profits will have to be paid to the franchisor by way of fee
• the rights of the franchisor, for example to inspect your premises and records and dictate certain methods of operation, may seem restrictive
• should the franchisor fail to maintain the brand name or meet other commitments there may be very little you can do about it.

The costs

The franchisor receives an initial fee from the franchisee together with on-going management service fees. These will be based on a percentage of annual turnover or mark-ups on supplies and can vary enormously from business to business. In return, the franchisor has an obligation to support the franchise network with training, product development, advertising, promotional activities and a specialist range of management services.

Financing costs

Raising money to finance the purchase of a franchise is just like raising money to start any business. All of the major banks have specialist franchise departments. You may need to watch out for hidden costs of financing. These could arise if the franchisor obtains a commission on introducing you to a business providing finance or a leasing company for example. Of course these only represent true costs if you could have obtained the finance cheaper elsewhere.

Choosing a franchise

Factors to consider

There are many factors you may need to take into account when choosing a franchise. Consider the following:

• your own strengths and weaknesses – make sure they are compatible with the franchise
• thoroughly investigate the business you are planning to buy
• research the local competition and make sure there is room for your business
• give legal contracts careful consideration
• last but not least, talk to us about the financial projections for the business – cash flow, working capital needs and profit projections will form the core of your business plan.

Finding a franchise

The British Franchise Association is likely to be a sensible starting point. They are at Centurion Court, 85f Milton Park, Abingdon, OX14 4RY (01235 820470) www.thebfa.org

A directory of all franchises available in the UK is available at www.franchiseadvice.com

Having narrowed down your choice, you will then need to think about writing to a shortlist of probably five or six franchise companies asking them for further details. This should include projections of the likely level of business as well as a draft contract.

If the franchise is a good one there are likely to be a number of applicants. You will need to sell yourself as the ideal applicant to the franchisor which will include providing references as well as putting forward a strong case as to your suitability as a franchisee.

The contract

The contract will form the basis of all franchise agreements. It should ensure that you run your business along the lines set out by the franchisor. The following areas should be covered:

• the name and nature of the business
• the geographical territory where the franchisee can use the name
• how long the franchise will run
• the fees (both initial and on-going) that will be charged
• what happens if the franchisee wants to sell or either the franchisee or franchisor want to end the agreement
• the terms of the relationship, specifically that the franchisor will provide training, advertising etc and that the franchisee will abide by the rules laid down by the franchisor.

How we can help

The franchising industry claims to be able to help you start a new business with a much greater than average chance of survival. Statistics seem to back this up and suggest that a franchised business has a much better chance of surviving the first three ‘danger’ years than other new businesses.

However you don’t get something for nothing and we can help you to look critically at the costs of entering into a franchise. We can also help with the all important business plan, including cash flow, working capital needs and profit projections. We can also provide independent advice on the forecasts given by the franchisor and help you determine how realistic they are. Contact us to find out more.

Personal Tax – When is Income Tax and Capital Gains Tax Payable?

Under the self assessment regime an individual is responsible for ensuring that their tax liability is calculated and any tax owing is paid on time.

Payment of tax

The UK income tax system requires the payer of key sources of income to deduct tax at source which removes the need for many tax payers to submit a tax return or make additional payments. This applies in particular to employment and savings income. However this is not possible for the self employed or if someone with investment income is a higher rate taxpayer. As a result we have a payment regime in which the payments will usually be made in instalments.

The instalments consist of two payments on account of equal amounts:

• the first on 31 January during the tax year and
• the second on 31 July following.

These are set by reference to the previous year’s net income tax liability (and Class 4 NIC if any).

A final payment (or repayment) is due on 31 January following the tax year.

In calculating the level of instalments any tax attributable to capital gains is ignored. All capital gains tax is paid as part of the final payment due on 31 January following the end of the tax year.

A statement of account similar to a credit card statement is sent to the taxpayer periodically which summarises the payments required and the payments made.

Example

Sally’s income tax liability for 2013/14 (after tax deducted at source) is £8,000. Her liability for the following year is £10,500. Payments for 2014/15 will be:

	£
31.1.2015 First instalment (50% of 2013/14 liability)	4,000
31.7.2015 Second instalment (50% of 2013/14 liability)	4,000
31.1.2016 Final payment (2014/15 liability less sums already paid)	2,500 _____
	£10,500

There will also be a payment on 31 January 2016 of £5,250, the first instalment of the 2015/16 tax year (50% of the 2014/15 liability).

Late payment penalties and interest

Using the late payment penalties HMRC may charge the following penalties if tax is paid late:

• A 5% penalty if the tax due on the 31 January 2016 is not paid within 30 days (the ‘penalty date’ is the day following)
• A further 5% penalty if the tax due on 31 January 2016 is not paid within 5 months after the penalty date
• Additionally, there will be a third 5% penalty if the tax due on 31 January 2016 is not paid within 11 months after the penalty date.

These penalties are additional to the interest that is charged on all outstanding amounts, including unpaid penalties, until payment is received.

Nil payments on account

In certain circumstances the two payments on account will be set at nil. This applies if either:

• income tax (and NIC) liability for the preceding year – net of tax deducted at source and tax credit on dividends – is less than £1,000 in total or
• more than 80% of the income tax (and NIC) liability for the preceding year was met by deduction of tax at source and from tax credits on dividends.

Claim to reduce payments on account

If it is anticipated that the current year’s tax liability will be lower than the previous year’s, a claim can be made to reduce the payments on account.

How can we help

We can prepare your tax return on your behalf and advise on the appropriate payments on account to make.

We can advise you whether a claim to reduce payments on account should be made and to what amount. Please do contact us for help.

Corporation Tax – Quarterly Instalment Payments

Under corporation tax self assessment large companies are required to pay their corporation tax in four quarterly instalment payments. These payments are based on the company’s estimate of its current year tax liability.

Note that the overwhelming majority of companies are not within the quarterly payment regime and pay their corporation tax nine months and one day after the end of their accounting period.

We highlight below the main areas to consider if your company is affected by the quarterly instalments system.

Companies affected by quarterly instalment payments

Large companies

Only large companies have to pay their corporation tax by quarterly instalments. A company is large if its profits for the accounting period exceed the upper relevant maximum amount (URMA) in force at the end of that period and it therefore pays its tax at the main rate. The URMA is currently £1.5 million, and the main rate of corporation tax was 23% from 1 April 2013, 21% from 1 April 2014 and 20% from 1 April 2015).

Associated companies

Where a company has associated companies, the URMA is reduced to the figure found by dividing that amount by one plus the number of associates. The URMA is also proportionately reduced for short accounting periods.

A company is associated with another company if one is under the control of the other, or if both are under the control of the same person or persons, and the companies have financial, economic or organisational links. Control is, broadly, defined by reference to ownership of share capital or voting power.

So, if a company has three associates, the URMA is £375,000. Any of the companies that have taxable profits exceeding that figure will be subject to the instalment payments regime. Those which do not exceed that figure will not be subject to the regime.

Some companies have many associated companies and are treated as being large even though their own corporation tax liability is relatively small. Where the corporation tax liability is less than £10,000 there is no requirement to pay by instalments.

The associated company rules referred to above are replaced with the 51% related group company rules with effect from 1 April 2015. Broadly, a company is a related 51% group company of another company in an accounting period if it is a 51% subsidiary of another company.

Growing companies

A company does not have to pay its corporation tax by instalments in an accounting period if:

• its taxable profits for that accounting period do not exceed £10 million and
• it was not large for the previous year.

Where there are associated companies or 51% related group companies, the £10 million threshold is divided by one plus the number of associates at the end of the preceding accounting period. The threshold is also proportionately reduced for short accounting periods.

This gives companies time to prepare for paying by instalments (but see below).

The pattern of quarterly instalment payments

A large company with a 12 month accounting period will pay tax in four equal instalments, in months 7, 10, 13 and 16 following the start of the accounting period. The actual due date of payment is six months and 13 days after the start of the accounting period, then nine months and 13 days, and so on. So, for a company with a 12 month accounting period starting on 1 January, quarterly instalment payments are due on 14 July, 14 October, 14 January next and 14 April next.

There are special rules where an accounting period lasts less than 12 months.

Pattern of payments for a growing company

If a growing company is defined as a large company for two consecutive years, the quarterly instalments payments regime will apply for the second of those years.

The transition from small to large is best illustrated by an example. A company with a 31 December year end was large in 2014 for the first time and is expected to be large in 2015. Its tax payments will be as follows: for the 2014 accounting period, the tax liability is payable on 1 October 2015. for the 2015 accounting period, 25% of its tax for 2015 in each of July and October 2015 and January and April 2016. As can be seen, the first instalment for 2015 is payable before the tax liability for 2014. It is therefore essential that budgets are prepared of expected profits whenever a company becomes large in order to determine: whether the company will be large in the second year, and if so what tax payments will have to be made in month seven of the second year.

Working out quarterly instalment payments

A company has to estimate its current year tax liability (net of all reliefs and set offs) and then make instalment payments based on that estimate. This means that by month seven, a company has to estimate profits for the remaining part of the accounting period.

In particular note that tax due under the loans to participators legislation is also included.

A company’s estimate of its tax liability will vary over time. The system of instalment payments allows a company to make top-up payments – at any time – if it realises that the instalment payments it has made are inadequate. A company will normally be able to have back all or part of any instalment payments already made if later it concludes that they ought not to have been made, or were excessive.

Interest and penalties

Interest is calculated only once a company has filed its tax return, or HMRC have made a determination of its corporation tax liability and the normal due date has passed.

The payments the company makes are compared to the amounts that ought to have been paid throughout the instalment period. If a company has paid too much for a period compared to the amount of corporation tax that was due to have been paid, it will be paid interest. If it has paid too little, it will be charged interest.

Rates of interest

Special rates of interest apply for the period from the due and payable date for the first instalment to the normal due and payable date for corporation tax (nine months and one day from the end of the accounting period).

Thereafter, the interest rates change to the normal interest rates for under and overpaid taxes. This two-tier system takes into account the fact that companies will be making their instalment payments based on estimated figures but, by the time of the normal due date, should be fairly certain about their liability.

Interest received by companies is chargeable to tax, and interest paid by companies is deductible for tax purposes.

Penalties

A penalty may be charged if a company deliberately fails to make instalment payments, or makes instalment payments of insufficient size.

Special arrangements for groups

There is a group accounting facility which allows groups to make instalment payments on a group-wide basis, rather than company by company. This should help to minimise their exposure to interest.

How we can help

If you think your company may be affected by the quarterly instalment regime, procedures will need to be set in place to estimate the liability.

We will be more than happy to provide you with assistance or any additional information required so please do contact us.

Individual Savings Accounts

Successive governments, concerned at the relatively low level of savings in the UK economy have over the years introduced various means by which individuals can save through a tax-free environment.

What is an ISA?

ISAs are tax-exempt savings accounts available to individuals aged 18 or over who are resident and ordinarily resident in the UK. ISAs are only available to individual investors and cannot be held jointly.

ISAs are guaranteed to run for ten years although there is no minimum period for which the accounts must be held.

Investment limits

On 1 July 2014 ISAs were reformed and the overall annual subscription limit for these accounts was increased to £15,000 for 2014/15. From 6 April 2015 the overall ISA savings limit is further increased to £15,240.

From 1 July 2014 ISAs were reformed into a simpler product and all existing ISA are able to benefit from the revised investment options.

Investment choices

Investors are not allowed to invest in more than two separate ISAs in each tax year; a cash ISA and a stocks and shares ISA. Savers are able to subscribe any amounts into a cash ISA or a stocks and shares ISA subject to not exceeding the overall annual investment limit.

Investors are to transfer their investments from a stocks and shares ISA to a cash ISA (or vice versa).

ISAs are allowed to invest in cash (including bank and building society accounts and designated National Savings), stocks and shares (including unit and investment trusts and government securities with at least five years to run) and life assurance.

A wide range of securities including certain retail bonds with less than five years before maturity, Core Capital Deferred Shares issued by building societies are eligible to be held in a ISA, Junior ISA or Child Trust Fund (CTF).

It has previously been announced that peer-to-peer loans would be eligible for inclusion within ISAs. The government has consulted on the options for changes to the ISA rules to allow peer-to-peer loans to be held within them.

Peer-to-peer lending is a small but rapidly growing alternative source of finance for individuals and businesses. The inclusion of such loans in ISAs will increase choice for investors and encourage the growth of the peer-to-peer sector. However no start date has been announced.

As announced at Budget 2015, regulations will be introduced to extend the list of qualifying investments for ISAs and Child Trust Funds to include listed bonds issued by Co-operative Societies and Community Benefit Societies and SME securities that are admitted to trading on a recognised stock exchange, with effect from 1 July 2015.

The government will also consult during summer 2015 on further extending this list of qualifying investments to include debt securities and equity securities offered via crowd funding platforms.

Withdraw and replace monies

It was announced at Budget 2015 that regulations will be introduced in autumn 2015, following consultation on technical detail, to enable ISA savers to withdraw and replace money from their cash ISA without it counting towards their annual ISA subscription limit for that year.

Additional ISA allowance for spouses on death

The Chancellor announced in the Autumn Statement an additional ISA allowance for spouses or civil partners when an ISA saver dies. The additional ISA allowance will be equal to the value of a deceased person’s savings at the time of their death and will be in addition to the normal ISA subscription limit. Regulations will set out the time period within which the additional allowance will be used. In certain circumstances an individual will be able to transfer to their own ISA non-cash assets such as stocks and shares previously held by their spouse.

In most cases it is envisaged that the additional allowance will be used to subscribe to an ISA offered by the same financial institution that provided the deceased person’s ISA. As the new regulations will allow the transfer of stocks and shares directly into the new ISA, in many cases the effect will be that the investments are left intact and the spouse becomes the new owner of the deceased person’s ISA.

This measure applies for deaths from 3 December 2014 and takes effect from 6 April 2015.

Tax advantages

The income from ISA investments is exempt from income tax. However the tax credits on any dividends are not reclaimable.

Any capital gains made on investments held in an ISA are exempt from capital gains tax.

Uses of an ISA

Many people use an ISA in the first instance, to save for a rainy day. Since they were first introduced people have used them to save for retirement, to complement their pension plans or to save for future repayment of their mortgage to give just a few examples. We have known young people, wary of commitment to long-term saving start an ISA and when more certain of the future use it as a lump sum to start another financial plan.

Help to Buy ISA

The government has announced the introduction of a new type of ISA, the Help to Buy ISA, which will provide a tax free savings account for first time buyers wishing to save for a home.

The scheme will provide a government bonus to each person who has saved into a Help to Buy ISA at the point they use their savings to purchase their first home. For every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings.

Help to Buy ISAs will be subject to eligibility rules and limits:

• An individual will only be eligible for one account throughout the lifetime of the scheme and it is only available to first time buyers.
• Interest received on the account will be tax free.
• Savings will be limited to a monthly maximum of £200 with an opportunity to deposit an additional £1,000 when the account is first opened.
• The government will provide a 25% bonus on the total amount saved including interest, capped at a maximum of £3,000 which is tax free.
• The bonus will be paid when the first home is purchased
• The bonus can only be put towards a first home located in the UK with a purchase value of £450,000 or less in London and £250,000 or less in the rest of the UK.
• The government bonus can be claimed at any time, subject to a minimum bonus amount of £400.
• The accounts are limited to one per person rather than one per home so those buying together can both receive a bonus.
• As is currently the case it will only be possible for an individual to subscribe to one cash ISA per year. It will not be possible for an account holder to subscribe to a Help to Buy ISA with one provider and another cash ISA with a different provider.

 Once an account is opened there is no limit on how long an individual can save into it and no time limit on when they can use their bonus.

The government intends the Help to Buy ISA scheme to be available from autumn 2015 and investors will be able to open a Help to Buy ISA for a period of four years.

Junior Individual Savings Account (Junior ISA)

Junior ISAs are  available for UK resident children under the age of 18 who do not have a Child Trust Fund account. Junior ISAs are tax advantaged and have many features in common with ISAs. They can be cash or stocks and shares based products. The annual subscription limit for Junior ISA and Child Trust Fund accounts is £4,080 for 2015/16.

The government has previously decided that a transfer of savings from a CTF to a Junior ISA should be permitted at the request of the registered contact for the CTF. The government has confirmed the measure will have effect from 6 April 2015.

How we can help

Please contact us if you would like any further information on ISAs.

Securing Business Success

As many as half of all businesses fail in their first three years of trading . A contributor to ensuring business success and avoiding failure is to know your enemies.

Generally the main reason for the high failure rate of small newly established businesses is when the owner lacks experience in managing all aspects of the business. Interestingly, new businesses appear to survive better in economic downturns than older more established businesses. This may be because they are more adaptable to change, or possibly perhaps they were set up in the recession and therefore were not surprised by the sudden weakening in trading conditions.

There are many more specific reasons for business failure.

Common reasons cited by many owner managers for business failure

Increased competition from larger businesses

Competition from larger businesses can cause problems as they make use of their size and buying power to reduce costs and therefore selling prices to levels which smaller businesses simply cannot compete against.

As a small business, one of the best ways to protect against this threat is to carry out industry research to ensure that you know who your competitors are, what size they are in relation to your business, and what support network they have, such as whether they are part of a large group.

As a business owner, you need to identify the threats that competitors pose to your business and try to mitigate those threats by developing your strengths against the weaknesses of the competitor.

For example, a small local grocery shop may be under threat from a large supermarket chain opening a store on the edge of town. It would be unrealistic to consider trying to compete on price so the grocer needs to differentiate their business from that of the superstore by building on the strengths it has, such as:

• focusing on local produce from local suppliers
• offering a personal service and knowing customers and their families by name
• introduce a local delivery service where goods can be ordered by phone rather than online
• order in specific goods for customers with special requirements.

Lack of sales

A lack of sales is not only a particular problem for a new business but can also apply when new product lines or services are introduced in existing businesses.

Carrying out market research will help to eliminate as many problems as possible in the early stages. By researching the target market and local conditions, inappropriate products or incorrect pricing should be identified and corrected before, or soon after, the business commences.

Market research is an expense which many business owners try to avoid, but it can provide valuable information and prove to be cost effective. It may even be possible to conduct your own market research surveys rather than paying an expensive agency to do it on your behalf.

For example you could visit local businesses which you may want as your customers to canvass opinion on your product, or if your target market is made up of consumers, you could survey shoppers in the local town centre.

Gaining credibility for a business venture can be extremely difficult and so market research is important to assist in obtaining finance for the business.

To protect your business against loss of customers, you should try to have a mixed range of customers, in different industries and avoid over reliance on just one or a few key customers. By doing this, your business will be naturally protected against one customer going bust, or a dip in a particular industry.

Failing to keep up with technological advances in your market can also lead to lack of sales, as your business loses out to more up to date products sold by competitors. It is imperative to stay up to date for the sustainability of the business unless you choose to operate in a specialist niche market, which may have a finite life or limited market.

Poor cashflow

Poor cashflow is a key problem for many owner managed businesses as many owner managers tend to have good knowledge in their field but little experience of managing other aspects of the business, including cashflow.

It is important to ensure that the business has enough working capital to meet day to day cashflow requirements.

Day to day cashflow can be improved by:

• making sure the business is not carrying too much stock, particularly old or slow moving stock
• having disciplined credit control procedures to chase up overdue debts
• undertaking credit checks on new customers before offering credit facilities.

Common reasons cited by many professional advisers for business failure

Lack of monitoring of performance and results

Many small businesses do not prepare management accounts, so the only time they review the results of their business is when the year end accounts are prepared, which is typically at least six months after the year end. Year end accounts do not carry much detail which means that the business is often lacking in detailed information. Consequently a business cannot use this for comparisons to actual and expected performance.

All businesses should carry out reviews of their results periodically during the year, and compare the actual results to last year and expected figures. This will help to identify any potential problems so that corrective action can be taken on a timely basis.

Turnover instead of profit led

It is easy for business owners to focus on sales growth and be overoptimistic about the level of sales which can be achieved, especially in the early years. Very few such entrepreneurs actually have any solid facts behind their projected turnover figures. As previously mentioned, market research is very important to ensure that the expected market share is realistic.

Many business owners also tend to focus on trying to increase sales, instead of focusing on controlling costs and increasing profits.

As a business owner you must put together a proper budget to ensure that all costs are covered. Typical errors made include setting sales prices based on the direct costs of the product and not including any of the overheads of the business such as rent and rates.

Preparing an annual business plan to include a forecast profit and loss account can help to identify all potential costs to ensure they are considered when calculating selling prices. This will also give you a valuable measurement tool to compare with the actual performance of the business.

Taking too much out of the business

Some business owners like to take large amounts out of their business, either by way of drawings, salaries, bonuses or dividends. If your business is struggling it may be worth reviewing personal drawings and reducing them for a short period, to help the long term viability of the business.

It is better to have lower income from a sustainable business than higher income over a short term.

Other issues

Taxation

Some businesses struggle to meet their tax liabilities on time. The Business Payments Support Service provided by HMRC allows a business to negotiate ‘time to pay arrangements’ across the various taxes. However, this service is only offered to businesses who are likely to be able to pay their tax liabilities if they are given more time to pay and not to those which can no longer feasibly pay at all.

Therefore, if your business is struggling to meet its tax liabilities, it may be worth contacting the service to see if you can agree a time to pay arrangement before matters reach a crisis level.

Management skills

Management skills are necessary to develop a strategy and to train and manage people. Owner/managers are usually specialists in the product and services their business offers, so issues are dealt with on a day to day basis.

These individuals often have a passion for their business however may not possess expertise in the area of management and as a result long term planning is neglected. It may be worth investing in a training session or online course to develop management skills to obtain the best results from your staff.

A happy, motivated workforce can drive the success of a business.

It is especially important to have the right people in key roles within your business, so you must consider how to retain them within the business over the long term.

Every business should also have a ‘succession plan’ in place to cover roles if a key person leaves. This helps the business to survive when it loses a key member of staff, whether permanently or temporarily if for example, they are off sick for a long period.

If a business is being run single-handedly by the owner/manager, you should have a succession plan and insurance in place in case of personal emergencies.

Legislation

Small businesses often do not have the necessary in house expertise to ensure compliance with legislation for issues such as employment law, health and safety law and environmental standards.

Complying with all the legislative requirements can be a major problem for the small business. Form filling and staying up to date with all of the changes is unlikely to be a priority for the owner, and yet it is essential if the business is to survive and continue successfully. Occasionally new legislation can remove a market or actually make it too costly to continue to serve it.

This can lead to costly consultancy fees for the business. Unfortunately, it is difficult to avoid these fees for complex issues.

There are government agencies which offer free, impartial support to businesses, such as Acas which offers advice regarding employment issues. Health and safety information can be found on the internet and consultants may only be needed if trading in a high risk environment.

Location

The choice of location can have a big influence on your business. If your business depends on customers visiting the premises, it must be based somewhere which is easily accessible for customers, and not somewhere which is too remote or in a bad area. If the business depends on passing traffic, such as a shop, it must be situated somewhere with a lot of people passing on foot or with easy parking.

Finance and business plans

It can be difficult to obtain financing for a business or even to keep your existing facilities.

When applying for finance it is very important to submit a business plan to demonstrate the viability of your business and lend credibility to your application. This business plan should include forecast financials (profit and loss account, cashflow statement) as well as market research backing up your sales figures.

Even if you do not require finance, it is a good idea for any business to prepare a business plan. This will give the business a strategic direction and something to monitor actual results against.

Planning is extremely important. It can be said that ‘failing to plan, is planning to fail’. The business plan should include external and internal issues to see if the owner/manager can cope with the potential ‘worse case scenario’ that could arise. Comprehensive discussions with an adviser can prevent (or at least highlight) a wide range of problems and methods of minimising or overcoming their impact.

When things go wrong

It can be extremely difficult and traumatic to face up to the failure of your own business. Many owners are tempted to bury their heads in the sand and hope that things will somehow improve. However, the best way to get things to improve is to face up to the fact that the business is struggling as soon as possible – the earlier you identify there is a problem, the earlier you can take remedial action to try to save the business before it is too late. If you think that your business is struggling, seek help and advice immediately.

How we can help

There are undoubtedly many advantages to securing business success.

We are able to assist you in the areas where businesses generally fail and assist in ensuring that you have the right mix of skills suitable to making your business a success.

We can assist with preparing management accounts, cash flow forecasts and finance and business plans and, if things go wrong we can assist with remedial action.

If you would like to discuss these procedures any further please contact us.

Age Discrimination

The Equality Act 2010 replaces all previous equality legislation, including the Employment Equality (Age) Regulations 2006. The Equality Act covers age, disability, gender reassignment, race, religion or belief, sex, sexual orientation, marriage and civil partnership and pregnancy and maternity. These are now called ‘protected characteristics’.

The Act protects people of any age, however, different treatment because of age is not unlawful if you can demonstrate that it is a proportionate means of meeting a legitimate aim. Age is the only protected characteristic that allows employers to justify direct discrimination.

Employers need to ensure they have the appropriate policies and procedures in place to deal with age discrimination and should raise awareness of it so that acts of discrimination on the grounds of age can be prevented.

Discrimination

Discrimination occurs when someone is treated less favourably than another person because of their protective characteristic.

There are four definitions of discrimination:

Direct Discrimination: treating someone less favourably than another person because of their protective characteristic

Indirect Discrimination: having a condition, rule, policy or practice in your company that applies to everyone but disadvantages people with a protective characteristic

Associative Discrimination: directly discriminating against someone because they associate with another person who possesses a protected characteristic

Perceptive Discrimination: directly discriminating against someone because others think they possess a particular protected characteristic

Examples of Age Discrimination

An example of direct discrimination would be where someone with all the skills and competencies to undertake a role is not offered the position just because they completed their professional qualification 30 years ago. Other examples could include refusing to hire a 40 year old because of a company’s youthful image, not providing health insurance to the over 50’s and not promoting a 25 year old because they may not command respect.

A business requiring applicants for a courier position to have held a driving licence for five years is likely to be guilty of indirect discrimination. A higher proportion of people aged between 40 and above will have fulfilled this criteria than those aged 25. Other examples of indirect discrimination could include seeking an ‘energetic employee’, requiring 30 years of experience or asking clerical workers to pass a health test.

An example of perceived discrimination could be where an older man who looks much younger than his years is not allowed to represent his company because the Managing Director thinks he is too young.

However, different treatment because of age is not unlawful if it can be objectively justified and you can demonstrate that it is a proportionate means of meeting a legitimate aim. For example, an employer might argue that it was appropriate and necessary to refuse to recruit people over 60 where there is a long and expensive training period before starting the job. However, cost by itself is not capable of justifying such an action.

Harassment

Harassment on the basis of age is equally unlawful. For example, a mature trainee teacher may be teased and tormented in a school on the grounds of age during the teaching experience. If no action is taken by the head teacher, this may be treated as harassment. An employee may be written off as ‘too slow’ or ‘an old timer’. This too could be seen as harassment.

The Equality Act 2010 covered harassment by a third party, making employers potentially vicariously liable for harassment of their staff by people they don’t employ. However, this has been repealed with effect from October 2013, and employers will no longer have the risk of being held responsible if an external third party harasses an employee. However, employers must continue to take ‘all reasonable steps’ to ensure that employees don’t suffer harassment at work; therefore it is recommended that your harassment policy still states that you show “zero tolerance” towards such behaviour.

Recruitment

Employers must be aware of the significance of the legislation at all stages in the recruitment process and to avoid breaking the age rules they should consider:

• removing age/date of birth from adverts for example: ‘Trainee Sales Representatives.. envisaged age 21-30 years’
• reviewing application forms to ensure they do not ask for unnecessary information about periods and dates
• avoiding asking for ‘so many years of experience’ in job descriptions and person specifications for example: ‘graduated in the last seven years’
• avoiding using language that might imply a preference for someone of a certain age, such as ‘mature’, ‘young’, ‘energetic’ or ‘the atmosphere in the office, although demanding, is lively, relaxed and young’
• ensuring that other visible methods are used to recruit graduates as well as university milk rounds, to avoid limiting opportunities to young graduates
• focusing on competencies to undertake a role and not making interview notes that refer to age considerations
• never asking personal questions nor make assumptions about health or physical abilities
• never ask health related questions before you have offered the individual a job.

Service related benefits

Employers are allowed to use a length of service criterion in pay and non-pay benefits of up to five years’ service. Benefits based on over five years service are also allowed if the benefit reflects a higher level of experience, rewards loyalty or increases or maintains motivation and is applied equally to all employees in similar situations. It is for the employer to demonstrate that the variation in pay/benefits over five years can be objectively justified.

Employers are recommended to review their pay and benefits policies to ensure that they are based on experience, skills and other non-age related criteria.

Redundancy

The existing statutory payment provisions remain in place. Employers can, as before, pay enhanced redundancy payments. However, to avoid discriminating, employers should use the same age brackets and multipliers as used when calculating statutory redundancy pay.

Retirement

The default retirement age and the statutory retirement procedure were abolished from 6th April 2011.

Employers that wish to prescribe a compulsory retirement age may do so only if it is a proportionate means of achieving a legitimate aim.

Action for employers

Employers need to undertake the following to ensure that they are not breaking the law:

• review equality policies
• review employee benefits
• review policies and procedures on retirement
• undertake equality training covering recruitment, promotion and training.

How we can help

We will be more than happy to provide you with assistance or any additional information required. Please contact us for more detailed advice.

Capital Gains Tax

A capital gain arises when certain capital (or ‘chargeable’) assets are sold at a profit. The gain is the sale proceeds (net of selling costs) less the purchase price (including acquisition costs).

What are the main features of the current system?

• Capital gains tax (CGT) at the rate of 18% applies to gains (including any held over gains coming into charge) where net total taxable gains and income is below the income tax basic rate band of for 2015/16 £31,785 (2014/15 £31,865). Gains or any parts of gains above this limit will be charged at 28%.
• Entrepreneurs’ relief may be available on certain business disposals.

Entrepreneurs’ Relief (ER)

ER may be available for certain business disposals taking place on or after 6 April 2008 and has the effect of charging the first £10m (from 6 April 2011) of gains qualifying for the relief at an effective rate of 10%. The lifetime limit has previously been £5m, £2m and £1m since the introduction of the relief.

The relief will apply to gains arising on a disposal of:

• the whole, or part, of a trading business that is carried on by the individual, either alone or in partnership;
• shares in a trading company, or holding company of a trading group, provided that the individual owns broadly a 5% shareholding and has been an officer or employee of the company;
• assets used by a business or a company which has ceased;
• assets used in a partnership or by a company but owned by an individual, if the assets disposed of are ‘associated’ with the withdrawal of the individual from participation in the partnership or the company.

A trading business includes professions but only includes a property business if it is a ‘furnished holiday lettings’ business.

Restrictions on obtaining the relief on an ‘associated disposal’ are likely to apply in certain specific situations. This includes the common situation where a property is currently in personal ownership, but is used in an unquoted company or partnership trade in return for a rent. Under ER the availability of relief is restricted where rent is paid from 6 April 2008 onwards.

What is clear is that careful planning will be required with ER but if you would like to discuss ER in detail and how it might affect your business, please do get in touch.

Simplification of the share identification rules

All shares of the same class in the same company are treated as forming a single asset, regardless of when they were originally acquired. However, ‘same day’ transactions are matched and the ‘30 day’ anti-avoidance rules will remain.

Example On 15 April 2015 Jeff sold 2000 shares in A plc from his holding of 4000 shares which he had acquired as follows: 1000 in January 1990 1500 in March 2001 1500 in July 2005 Due to significant stock market changes he decided to purchase 500 shares on 30 April 2015 in the same company. The disposal of 2000 shares will be matched firstly with later transaction of 500 shares as it is within the following 30 days and then with 1,500/4,000 (1000+1500+1500) of the single asset pool on an average cost basis.

CGT annual exemption

Every tax year each individual is allowed to make gains up to the annual exemption without paying any CGT. The annual exemption for 2015/16 is £11,100 (2014/15 £11,000). Consideration should be given to ensuring both spouses/civil partners utilise this facility.

Other more complex areas

Capital gains can arise in many other situations. Some of these, such as gains on Enterprise Investment Scheme and Venture Capital Trust shares, and deferred gains on share for share or share for loan note exchanges, can be complex. Please talk to us before making any decisions.

Other reliefs which you may be entitled to

And finally, many existing reliefs continue to be available, such as:

• private residence relief;
• business asset roll-over relief, which enables the gain on a business asset to be deferred until a point in the future;
• business asset gift relief, which allows the gain on business assets that are given away to be held over until the assets are disposed of by the donee; and
• any unused allowable losses from previous years, which can be brought forward in order to reduce any gains.

How we can help

Careful planning of capital asset disposals is essential. We would be happy to discuss the options with you. Please contact us if you would like further advice.

Companies – Tax Saving Opportunities

Due to the ever changing tax legislation and commercial factors affecting your company, it is advisable to carry out an annual review of your company’s tax position.

Pre-year end tax planning is important as the current year’s results can normally be predicted with some accuracy and time still exists to carry out any appropriate action.

We outline below some of the areas where advance planning may produce tax savings.

For further advice please do not hesitate to contact us.

Corporation tax

Advancing expenditure

Expenditure incurred before the company’s accounts year end may reduce the current year’s tax liability.

In situations where expenditure is planned for early in the next accounting year the decision to bring forward this expenditure by just a few weeks can advance the related tax relief by a full 12 months.

Examples of the type of expenditure to consider bringing forward include:

• building repairs and redecorating
• advertising and marketing campaigns
• redundancy and closure costs.

Note that payments into company pension schemes are only allowable for tax purposes when the payments are actually made as opposed to when they are charged in the company’s accounts.

Capital allowances

Consideration should also be given to the timing of capital expenditure on which capital allowances are available to obtain the optimum reliefs.

Single companies irrespective of size are able to claim an annual investment allowance which provides 100% relief on expenditure on plant and machinery (excluding cars). The amount of AIA available for a particular accounting period varies depending on the accounting period.

Periods from:	Annual limit
1 April 2012	£25,000
1 January 2013	£250,000
1 April 2014	£500,000
1 January 2016	£25,000 (under review)

There are special rules where accounting periods straddle one of the above dates.

Groups of companies have to share the allowance. Expenditure on qualifying plant and machinery in excess of the AIA is eligible for writing down allowance (WDA) of 18%. Where the capital expenditure is incurred on integral features the WDA is 8%.

100% allowances on designated energy saving technologies continue to be available in addition to the annual investment allowance. Details can be found at www.etl.decc.gov.uk.

Limited allowances are also available for investments in certain types of building.

Trading losses

Companies incurring trading losses have three main options to consider in utilising these losses:

• they can be set against any other income (for example bank interest) or capital gains arising in the current year
• they can be carried forward and set against trading profits arising in future years
• they can be carried back for up to one year and set against total profits.

Extracting profits

Directors/shareholders of family companies may wish to consider extracting profits in the form of dividends rather than as increased salaries or bonus payments.

This can lead to substantial savings in national insurance contributions.

Note however that company profits extracted as a dividend remain chargeable to corporation tax at a minimum of 20%.

Dividends

From the company’s point of view timing of payment is not critical, but from the individual shareholder’s perspective, timing can be an important issue. If the shareholder is a higher/additional rate taxpayer, a dividend payment which is delayed until after the tax year ending on 5 April may give the shareholder an extra year to pay any further tax due.

The deferral of tax liabilities on the shareholder will be dependent on a number of factors. Please contact us for detailed advice.

Loans to directors and shareholders

If a ‘close’ company (broadly, one controlled by its directors or by five or fewer shareholders) makes a loan to a shareholder, this can give rise to a tax liability for the company.

If the loan is not settled within nine months of the end of the accounting period, the company is required to make a payment equal to 25% of the loan to HMRC. The money is not repaid to the company until nine months after the end of the accounting period in which the loan is repaid by the shareholder.

A loan to a director may also give rise to a tax liability for the director on the benefit of a loan provided at less than the market rate of interest.

Rates of tax

For the 2015 financial year the rate of corporation tax will be 20%

Self assessment

Under the self assessment regime most companies must pay their tax liabilities nine months and one day after the year end.

Companies which pay (or expect to pay) tax at the main rate are required to pay tax under the quarterly accounting system. If you require any further information on the quarterly accounting system, we have a factsheet which summarises the system.

Corporation tax returns must be submitted within twelve months of the year end and are required to be submitted electronically. In cases of delay or inaccuracies interest and penalties will be charged.

Capital gains

Companies are chargeable to corporation tax on their capital gains less allowable capital losses.

Indexation allowance

In order to counteract the effects of inflation inherent in the calculation of a capital gain, an indexation allowance is given. However the allowance is not allowed to increase or create a capital loss.

Planning of disposals

Consideration should be given to the timing of any chargeable disposals to ensure advantage is taken where possible of minimising the tax liability at small profits rate rather than full rate. This could be achieved depending on circumstances by accelerating or delaying sales. The availability of losses or the feasibility of rollover relief (see below) should also be considered.

Purchase of new assets

It may be possible to avoid a capital gain being charged to tax if the sale proceeds are reinvested in a replacement asset.

The replacement asset must be acquired in the four year period beginning one year before the disposal and only certain trading tangible assets qualify for relief.

How we can help

Tax savings can only be achieved if an appropriate course of action is planned in advance. It is therefore vital that professional advice is sought at an early stage. We would welcome the chance to tailor a plan to your specific circumstances. Please do not hesitate to contact us.