Everything you need to know about Diverted Profits Tax

Diverted Profit Tax (DPT) is designed to counter the use of any aggressive tax planning techniques used by multinational enterprises to divert profits from the UK.

DPT applies to profits gained since the 1st April 2015 and focuses on contrived arrangements that are designed to erode the UK tax base. DPT is purposely set at a higher rate than corporation tax as to encourage those businesses with arrangements within the scope of DPT to change those arrangements and corporation tax on profits in line with economic activity.

 

Who is affected?

1.     UK companies that uses entities or transactions that lack economic substance to exploit tax mismatches

2.     Foreign Companies with a UK-taxable presence that uses entities or transactions that lack economic substance to exploit tax mismatches

3.     Individuals who carry on activity in the UK in connection with the supply of goods, services or other property by a foreign company and that activity is designed to ensure that the foreign company does not create a permanent establishment in that UK, with an intention to avoid tax.

DPT has it’s own individual set rules for notification, assessment and payment. Diverted property tax is not self-assessed, however companies are required to notify the HMRC within 3 months of the end of an accounting period in which they are potentially within the threshold of the tax and do not meet set conditions for exemptions. There is a penalty for those who fail to do so.

Exemptions from liability

General exemptions

·       Small and medium enterprises ( EU definition) are not subject to the DPT

·       Certain loan relationships are not subject to the DPT

·       Where a mismatch arises solely due to persons being exempt from tax by reason of being a charity, pension scheme or having sovereign immunity, the DPT will not apply.

 

Avoided PE exemption

·       Activities of agents of independent status are excluded

·       Certain alternative finance arrangements are excluded

·       Foreign companies are not subject to the avoided PE DPT charge where either

·       Their total UK-related sales revenue in a 12-month period does not exceed £10m

·       Their total UK-related expenses in a 12-month period does not exceed £1m.

 

Contact us for specialist accounting advice regarding diverted profits tax 

 

 

 

 

 

Your Tax Investigation Questions Answered

If you have received a tax investigation letter from the HMRC don’t panic. Read the letter carefully and seek professional help in areas where you are unsure.

 

What triggers a tax investigation from the HMRC?

 

The HMRC do not disclose what has triggered a tax investigation. However, sometime the cause is obvious like an omission picked up by the HMRC. The HMRC also can conduct investigations at random or target a specific industry or location that is identified as high-risk for tax fraud. Another investigation trigger for the HMRC can be drastic fluctuations in your income, or continuous late-filing of your tax returns.

 

How long does a HMRC tax investigation take?

 

There is not set time period for a tax investigation. A tax investigation can range from a couple of days to an indefinite amount of months. It is not possible to appeal against an investigation once it has been opened.

 

During a tax investigation will you may have to provide a range of information to the HMRC, depending on what they are investigating. Generally, you are sent a letter that will list all the information they require- you should be prepared to supply the information that was used towards forming your tax return quickly and easily.

 

The HMRC are also able to obtain information from third parties and can issue determinations if there is no co-operation.

 

If you discover you have made an error or omission you can report it to the HMRC as a voluntary disclosure. As long as it is not purposeful the HMRC are likely to accept the mistake.

 

Penalties

 

There are a number of penalties that can be levied by the HMRC, depending on whether the omission was reported voluntarily or not, the circumstances of the omission and the quantum of the omission.

 

Penalties are calculated according to a published scale, which considers the behaviour of the taxpayer. The penalty is therefore much higher if the failure to disclose is deliberate.

 

Contact us for further tax investigation advice

Everything you need to know about FBARS

What is an FBAR (Foreign Bank Accounts Report)?

An FBAR is a report of all foreign financial accounts held by a US person, which (if required) should be electronically filed with the BSA annually. The US government introduced the FBAR in 1970 in an effort to tackle tax avoidance. In recent years, the FBAR has received more attention following the Foreign Accounts Tax Compliance Act (FATCA) of 2010 and the introduction of more severe penalties for failure to file.

 

Do I need to file an FBAR?

You are required to file an FBAR each calendar year if:

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Everything you need to know about EIS and SEIS

EIS and SEIS are two tax relief schemes available to companies. Which scheme is most appropriate for your company can depend on the size of your business and what phase of growth the business is in.

 

 

What is EIS?

Enterprise Investment Scheme (EIS) is a scheme developed to help small high-risk trading companies raise finance by offering tax reliefs to investors who subscribe for new shares.

For companies to qualify for the scheme certain conditions need to be met for up to 3 years from the time of the investment as not doing so can end up in tax relief not being given to investors or if this has already occurred, withdrawal of the relief.

 

Requirements

·       Shares must be unquoted at the time when they are issued and there must be no prearrangement for the shares to eventually become quoted on a recognised stock exchange.

·       Another company cannot control a company wishing to qualify and cannot control any subsidiaries it has. The value of gross assets should not exceed £15m before the share issue and £16m after. It must have at least 250 employees at the time of the share issue and 500 if it is a knowledge intensive company.

·       It must have a permanent establishment in the UK. Within 2 years of the share issue all money raised must be used by the company or by a 90% qualifying subsidiary solely for the purpose of a qualifying activity. It can carry on some excluded activities (for example dealing in land, commodities, financial instruments and goods other than in an ordinary trade of retail or wholesale distribution) however this can only be a maximum of 20% the company’s total activities. 

·       Qualifying companies and their subsidiaries cannot take more than £5m of EIS or other risk investment in a year. No more than £12m can be taken in total; this amount is £20m for a knowledge intensive company.

 

Requirements for Investors

·       An investor cannot have a connection with a company in order to claim relief. Having a financial interest in a company can make someone connected. If an investor holds more than 30% of the share capital or voting rights and is entitled to more than 30% of the assets in the occurrence of closing down the company then he/she will be deemed as having a connection by financial interest. This condition is for 2 years before and 3 years after the issuing of the shares, if not 3 years after the start of qualifying trade if this is later.

·       Investors cannot be partners, directors or employees of the company as this is deemed an employment connection. This limitation has the same time window as a connection through financial interest.  However, there is an exception for directors who are Business Angels who do not receive remunerations who may qualify for Income Tax relief. If they become a paid director during the 3-year window the tax relief will not be withdrawn as long as the remuneration is reasonable.

 

 

Requirements for Shares

·       When the shares are issued they must be paid up in full in cash and they must not be full-risk ordinary shares nor be redeemable.

·       An investor cannot acquire the shares in question using a loan offered on terms and conditions that would not have been in place for any other shares.

·       There must not be arrangements in place for the investor that would protect him/her from the usual risks associated with investing in shares and there must be no strategic alliances where the company owners agree to similarly invest in each other to obtain the tax relief.

  

Tax relief

EIS offers potential relief in Income Tax, Capital Gains Tax (CGT) and Inheritance Tax (IHT).

 

Income tax reducer

For Income Tax a reducer of 30% is used against the lower of the cost of shares or £1m.  For shares issued before 6 April 2011 the reducer is 20%. Carry back of relief is available for one tax year provided the limit was not exceeded that year.

 

EIS Reinvestment Relief

For CGT relief, EIS Reinvestment Relief is available to defer all or part of a capital gain arising on any asset as long as the proceeds are reinvested in EIS shares. The amount that can be deferred is the lower of the gain, the amount reinvested and a specific amount claimed. Unlike for Income Tax relief there is no limit. A gain will be charged when the shares are sold.

Where there are losses, this is allowable even if the shares were not owned for the full 3 years. An investor can claim to use the loss against net income instead of a capital loss.

 

2017/18 tax year

Income Tax relief: 30%

Limit for relief: £1m

CGT deferral relief limit: ∞

 

 

Business Property Relief

Business Property Relief (BPR), a relief available from IHT, applies to lifetime gifts and shares in the death estate as long as it has been owned for 2 years.  If the beneficiary becomes entitled to the shares on the death of a spouse or civil partner, the 2 years after the investment is made counts towards the requirement.  In some cases if the investment lasts less than 2 years relief is still available.

If the shares are sold before the end of the 3 year period, claw back will be the lower of the original incomes tax reducer and if made a loss, sale proceeds x rate of the initial relief. Any gains that were previously deferred will now become taxable in year of sale. In instances where a fraction of the shares were sold, only that fraction of the gain is taxable.

EIS3 forms are used to claim the relief. A claim cannot be made until they receive the EIS3 form from the issuing company and this can be done 5 years from 31 January after the end of the tax year when the shares were issued.

 

About SEIS

Seed EIS (SEIS) helps very early stage companies therefore the tax reliefs are greater.

Company Requirements

·       Another company cannot control a company wishing to qualify. The company’s gross assets should not exceed £200k or exceed a limit of 25 employees at the time of the share issue.

·       Qualifying companies cannot take more than £150k of SEIS or other risk investment in total. This total includes other de minimis state aid received in the prior 3 years.

·       At the point of investment any trade carried on must be less than 2 years old and the company must not have carried on any other trade before this. Within 2 years of the share issue all money raised must be used solely for the purpose of a qualifying activity. Former funds raised through the EIS or Venture Capital Trust (VCT) schemes are prohibited. A minimum of 70% of funds raised on any shares issued before 18 November 2015 has to be spent before any EIS shares are issued.

Requirements for Investors

·       Once again an investor cannot have more than 30% of the share capital or voting rights, this will be from the incorporation date up to 3 years after the share issue.

·       Investors cannot be associates or employees of the company, up to 3 years after the share issue. However, for SEIS a director is not deemed connected as an employee but would be deemed if owned more than 30% of the shares in the company.

 

Tax relief

For Income Tax a reducer of 50% is used against the lower of the cost of shares or £100k.

SEIS Reinvestment Relief exempts 50% of the capital gain arising on any asset from CGT. The 50% exemption is on the lower of the gain on any asset, amount of income tax relief claimed and any other amount.

 

2017/18 tax year

Income Tax relief : 50%

Limit for relief: £100k

CGT deferral relief limit: 50%

 

How to get a mortgage as a self-employed worker or freelancer

One of the top concerns of many freelancers is whether they will be able to be accepted onto a mortgage. Securing a mortgage is difficult for the best of us. With tighter rules enforced by lenders, there has been an increase in applications being declined, with freelancers often being very present on that list.  

Why is it harder to get a mortgage when you’re self employed?

After the credit-crunch it became harder for self-employed workers, freelancers and contractors to get a mortgage. Prior to 2007, self-employed workers could apply for a self-certification or self-cert mortgage. With these loans, borrowers didn’t have to prove their income using bank statements or payslips; instead they simply told the mortgage lender what they earned. Abuse of loans led to the self-cert mortgages being dubbed ‘liar loans’. As a result self-cert mortgages were banned, making it much more difficult for the self-employed.

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Embedded Capital Allowances for Architects

Commercial property owners are able to claim thousands of pounds in tax relief against their property through Embedded Capital Allowance. An embedded item is inherent in property and can come in the for of anything from air conditioning to toilet fittings.

It is estimated that up to 80% of the allowance is never claimed. There are many commercial property owners that do not receive the due tax refund due to a lack of expert property tax advice.

For commercial property, you need a specialist team to determine the qualifying items embedded in the property, an understanding of how to use complex HMRC formula and an understanding of the complex tax rules. All of those skills can be applied by an embedded capital allowances expert.”

A typical claim would be around 25% of the original purchase value of the property, which represents £125k of allowances in a £500k property, translating as £50k in tax refunds. 

 

Contact us now for expert accounting advice for architects

Tax Advice for Doctors: Maximise on Tax Deductible Expenditure

 

As a self-employed doctor it is likely that you incur costs due to your trade. Many of these expenses are deductible against tax. A claimable expenses is regarded as an expense that is incurred ‘wholly and exclusively’ for the purpose of trade, profession or vocation.

 

When there is only an ‘identifiable proportion’ of the expense that is wholly and exclusively for business, you must apportion the expense so that only the percentage of the portion that related to work is claimed.

 

Examples of claimable expenses as a doctor:

·      Professional indemnity cover

·      Most professional subscriptions

·      Drugs and medical supplies

·      Printing, postage and stationary

 

If the expense is clearly wholly and exclusively for work, there is rarely any difficulty claiming the expense form HMRC. There is more scrutiny put onto other expenses, such as:

·      Motor and travel expenses

·      Use of home

·      Salary to a spouse

·      Clothing

 

For more advice regarding doctors expenses contract us now

National Living wage affecting SME’s Profit

According to FSB 47% of SME’s identified wages as the main contributor to the rising costs of doing businesses.

It has been reported that 65% of SME’s have seen a decline in profit since the latest national living wage rise.

On the 1st April 2017, the National Living wage rose from £7.20 to £7.50 per hour. The Federation of Small Businesses has reported that 39% of businesses have had to raise prices to cope with the wage increase. 24% of small businesses have either cancelled or scaled down investments as a result of the national living wage alterations, while 22% reduced working hours or hired fewer staff.

Previous findings from FSB in 2016 revealed that 59% companies absorb the rising costs by reducing profitability.

Retail, wholesale, hospitality and accommodation businesses are said to be the most negatively affected by the national living wage changes.

With the national living wage set to rise to £9.05 by 2020 many are uncertain of what the future for SME’s has in store.


If you’re an SME seeking accounting advice contact us now

Allowable expenses for Architects

As an architect there are several expenses that you are entitled to claim against tax.

Meals and Travel

You can claim the cost of buying meals when you work overtime- provide that you have been paid an allowance by your employer.

The cost of your parking, tolls, taxis and public transport is also claimable if you are required to travel to attend seminars, meetings and training courses. The costs of travel incurred through using your own car for work are also claimable. This is usually calculated based on millage.

 

Work Clothing

Work clothing is claimable against taxes. This includes:

·      The cost of buying uniforms

·      The cost of dry cleaning and clothing repairs

·      The cost of buying sun protection if you are working on site

·      The cost of buying any protective equipment required for your work

 

Training

The cost of work-related training course is claimable as long as the subject of training related directly and clearly to your job.

 

Work Tools and Equipment

You can claim the costs incurred when buying or repairing equipment you use at work. The cost of the supplies you use at work such as stationary are also claimable.

 

Other work expenses

 

·      Annual membership and union fees

·      Work-related books, magazines and journals

·      Work related phone calls and rental

·      Work related internet connection fee costs

 

For more information on what you can claim as an architect contact us now

As an architect there are several expenses that you are entitled to claim against tax.

 

Meals and Travel

You can claim the cost of buying meals when you work overtime- provide that you have been paid an allowance by your employer.

The cost of your parking, tolls, taxis and public transport is also claimable if you are required to travel to attend seminars, meetings and training courses. The costs of travel incurred through using your own car for work are also claimable. This is usually calculated based on millage.

 

Work Clothing

Work clothing is claimable against taxes. This includes:

·      The cost of buying uniforms

·      The cost of dry cleaning and clothing repairs

·      The cost of buying sun protection if you are working on site

·      The cost of buying any protective equipment required for your work

 

Training

The cost of work-related training course is claimable as long as the subject of training related directly and clearly to your job.

 

Work Tools and Equipment

You can claim the costs incurred when buying or repairing equipment you use at work. The cost of the supplies you use at work such as stationary are also claimable.

 

Other work expenses

·      Annual membership and union fees

·      Work-related books, magazines and journals

·      Work related phone calls and rental

·      Work related internet connection fee costs

 

 

For more information on what you can claim as an architect contact us now

 

Why US Businesses go to Delaware: LLC VS C-Corp

Delaware’s advantageous state business laws and regulations, which are familiar and popular among investors, make it a choice location when deciding to form a company in the US. Delaware is also unique due to its special court, the Court of Chancery, which is dedicated to quickly settling business disputes with expert judges.

A Delaware Limited Liability Company (Delaware LLC) is a great option if you are looking for a simple, inexpensive and flexible way to start a company in the US.

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HMRC overtaxing savers on pension withdrawals

Thousands of people aged 55 and over, who have made a one-off pension withdrawal, have paid too much tax in 2016/17.

Research undertaken by The Telegraph has suggested that as many as 200,000 savers have overpaid on tax, many of who are completely unaware. The HMRC do not proactively contact those who have paid too much in tax. Only 42,700 savers have attempted to reclaim the deductions relating to the 2016/17 tax year.

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Stamp duty payment rise to £8.3 Billion

Homeowners in England and wales paid £8.3 Billion in stamp duty during 2016. This is a 17% rise from the £7.1 Billion total Stamp Duty contributions seen in 2015.

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Canadian Expat Tax UK- the basics

Canadian residents are taxed on worldwide income. It is therefore important for Canadians moving to the UK to plan ahead, to avoid paying more than necessary.  Maintaining your residency in Canada will require you to file a Canadian tax return on an annual basis. If you are self-employed, have investments or earn over the set threshold you will also be required to file a tax return in the UK.

An option that is chosen by many Canadians moving to the UK is to sever their Canadian residency. By severing your Canadian residency ties you will no longer be required to file a tax return. In order to sever your Canadian residency you must file a ‘Departure Tax Return’.

When severing your Canadian residency you must consider whether it is practical. You must ask yourself if you plan to return to Canada in the ‘foreseeable’ future. If you do not plan to return to Canada then severing your residency is a definite option.  

There is no specific time period after which you will be seen as a non-resident of Canada. It is therefore important that the steps that you take to prove your intention to be a non-resident are followed carefully.

 

What are residential ties with Canada?

Residential ties with Canada are categorised as either primary or secondary. It’s important to sever all primary ties when ceasing your residency. Maintaining any significant ties can lead the Canada Revenue Agency (CRA) to maintain your residency.

Common examples of primary residency:

·      Maintaining Canadian bank accounts

·      Canadian credit cards

·      Professional or club membership to Canadian organisations

 

If your residency is questioned by the CRA, you are likely to be asked to submit a form NR73- Determination of Residency Status (Leaving Canada).

 

Contact us now for expert Canadian tax advise

Creative Industry employment growing four times faster than the UK’s workforce average

The number of people working the creative industries in the UK has grown at four times the rate of the UK’s general workforce, according to new government figures.

 

The statistics released by the Department for Digital Culture, Media and Sport found that almost two million people were employed by the Creative Industry in 2016, that’s 5% more than the figures found for 2015.

The general workforce growth for the UK sat at a significantly lesser growth of 1.2% year on year. The Creative Industries Minister, Matt Hancock, commented on the growth saying that the figures show that Britain’s creative industries are ‘performing better than ever’.

'Those working in the creative industries are cultural ambassadors for Britain and play a hugely important role in helping form and shape the way we are viewed both at home and abroad. And while there's still more to do before diversity in the creative industries mirrors that of our society as a whole, I'm encouraged to see that this area is improving at more than twice the rate of the wider workplace.'

-Matt Hancock, Minister of Creative Industries

If you’re a creative industry professional looking for expert creative industry tax advice contact us