UK Tax Planning

“A look back at 2010 tax issues”

Or

“A look forward to 2011”

• Andrew McKenzie-Smart FCCA CTA – Smart Solutions

A Seminar for theChartered Institute of TaxationSouth London & Surrey Branch

Tax Issues in 2010 /11

• New Coalition Government

Tax Issues in 2010 /11

• 2 Chancellors, • 2 Budgets,• 3 Finance Acts• 1 Recession

• 500,000 redundant public sector workers…

• 2010/11Budget Deficit -£149bn

Your Country needs you!

Tax Issues in 2010 /11

• You might think though that it’s a little like:

Alastair Darling Hardy (?)

George Osborne Little (?)

And that’s another fine mess!

Tax Issues in 2010 /11

• Tax Reviews– Pensions review– Non domiciled

• Tax Changes– Entrepreneurs relief – up to £5million – 50% tax rate left for another day– 1% National Insurance increase kept – VAT rise to 20%– Increasing environmental taxation – “polluter

pays”

• Office of Tax Simplification– 1,042 clauses provide tax relief or exemption!

– Anti tax avoidance

Consultations

• PAYE improvement• Furnished holiday lets• Pensions Tax Relief• Annuitisation at 75• General Anti Avoidance Regulations• Changes to the rules regarding deductions at

source• R & D tax credits & the taxation of innovation

and IP• Improving/ simplifying Tax Policy

PAYE Improvements (?)

• Launched 27th July 2010 – now closed• Real time information collection• New NIPS computer system• PAYE Coding errors – difficulties with multiple jobs• New system – now records held at employee level

rather than employer level • Similar to CIS online system• Advantages

– pay the right amount of tax throughout the year– Employees no longer need PAYE codes issued as they

would be listed from the computer record– Employees pay gross pay to HMRC who would sort out

payments to themselves and to employees

Changes to Deductions at Source

• Affects interest, patent rights and other annual payments

• Online form should it be available?• Downloadable?• Specific form/ system for all income tax

deduction at source• Is notification really necessary in advance?• Would repeal mean that collection of tax would

be made more difficult or add to compliance burden to account for the tax due?

Furnished holiday lets

• The Hokey Cokey tax legislation • Widened in 2009 budget to include to European

holiday lets• Announced that it would cease at April 2010• Omitted from the Act in the end due to the

election• Consultation announced• Changes to legislation

– Qualifying period extended– Actually let period extended– Losses rules changed – Separate capital allowance pools

Pensions Tax Relief & Annuitisation at 75

• Attend Andrew Johnston’s seminar in March • Annual Allowance reduced from £255,000 to

£50,000• Carried forward of unused allowances for 3

years• Only 100,000 individuals affected 80% of

which earn over £100k pa• Retain 25% tax free lump sum• Finance Act 2011 to include measures

affecting EFRBs & EBTs

General Anti Avoidance Regulations/ Simplifying & Improving Tax Policy

• Office of Tax Simplification – John Whiting & Michael Jack

• 1042 reliefs & exemptions in the Taxes Acts• “Small Business Tax Review” – IR35 alternatives• Graham Aaronson to led GAAR team• Guidelines for GAAR team

– Deter & counter tax avoidance schemes– Ensure rules are fair & not undermine UK

attractiveness for business– Ensure certainty of tax treatment – Keep resource costs for HMRC to acceptable levels

• October 2011 reporting

Corporate Tax Reform…• Three main areas

– CT reform principles issued– CFC reform– Taxation of IP & R & D promoted

• 4 key areas identified– Main rate of CT– Definition of the CT base– Quality of tax making / policy– Administration & collection

• “Patent box” announced• Review of interest expenses deductions• R & D tax credits encourage innovation

Leading Tax Cases

• Obviously there’s Gains Cooper …

• Barnetts• Littlewoods Retail..• Wood• Wilkinson • Total People Limited• Williams• Antique Buildings

Limited• Convery

• HL decision soon..(?)

• But what about others…• Hankinson• Tuberville• Favell • Osborne• Patmore• Brander• Raha• Moore• Voong

Hankinson & Tuberville

• Both residence cases

• Tuberville• Ord Res in 01/02 &

02/03 ?• Accountant working

for Shell Oil• Decided on the facts• Of wider note ?• During Nov 02 &

Dec 02 not possible to say where resident – “time of transition”

• Hankinson• UT [2010] TC 00319• Discovery assessment• “clever” tax planning?• F/t working abroad for

Dutch subsidiary• Less than 183 days in

the Netherlands• Negligent/ Incomplete

return submitted?

Favell [2010] TC 00642 & Raha

• PPR case – 2 of the 1,042 reliefs/exemptions

• Update on the seminars provided by Linda Warner & Penny Bates

• Claimed 36/56 months of gain exempt due to PPR (s222 & s223 TCGA)

• Claimed occupation Jan to Nov ’01• Query whether temporary occupation• No documentary evidence to support

occupation• Clear message get sufficient evidence to

support your planning!

Favell & Raha [2010] TC 00590

• Raha – rental expenses after ceasing rental business

• Taxpayer claims for water, council tax, furniture clearance, service charges, electricity between 03/04/06 & 01/09/06

• HMRC “reflected in the state or nature of the asset at the time of sale”

• HMRC ‘quantifiable improvement in the asset’

• No of cases/ enquiries in this area run

Osborne [FTT]

• Not about George• Gift aid on part of

subscription paid for membership of Masonic lodge

• 6 years claimed under gift aid

• Element of subscription forwarded to Masonic Grand Charity but

• Payment was for the lodge membership

Patmore [FTT]

• Strange case & stranger decision• Similar area to Jones vs Garnett – Arctic

Systems • “lack of commerciality” by both H & W

• Acquisition of business by joint mortgage • Reorganisation of shares wife had

– 2% of A shares– 10% of non voting B shares

• Protect wife from inherent risk• S660A needs gratuity/ bounteous intent• Dividends paid to clear mortgage monies

Brander [2010] UKUT 300(TC)

• IHT case re BPR• BPR available for trading entities (not mainly

or wholly making investments)• Deceased died whilst farming in partnership• Query whether the estate management and

farming activities were managed as a single composite business

• “not withstanding the estate trustees and the deceased were 2 distinct entities they could run a composite business

• Of wider note for trading partnerships…

Raha [FTT]

• Strange case & stranger decision• Similar area to Jones vs Garnett – Arctic

Systems • “lack of commerciality” by both H & W

• Acquisition of business by joint mortgage • Reorganisation of shares wife had

– 2% of A shares– 10% of non voting B shares

• Protect wife from inherent risk• S660A needs gratuity/ bounteous intent• Dividends paid to clear mortgage monies

Administration Cases

• Moore• Voong• Barnetts• Littlewoods Retail Limited

Employment Cases

• Wood• Wilkinson • Total People Limited• Williams• Antique Buildings Limited• Convery

So what does 2011 hold?

• Scope creep – UK extends tax boundaries

• More adversarial approach from HMRC to enquiries

• iXBRL difficulties for those who haven’t geared up to the March 2011 switch over for CT & Accounts

• Just the one budget & Finance Act

• Pensions system stablising

• Non domiciled changes

• Simplification of tax rates•Implementation of some of the consultations•Economic growth?•Lowering of tax rates?•GAAR ?• But will the coalition

hold through 2011?

For Further Information Contact me at:

Email : mac@smartsolutions-online.co.ukWebsite: www.smartsolutions-online.co.uk

Tel: 01883 715848Mob: 07952 217249

Andrew McKenzie-SmartSmart Solutions88 Pollards Oak RoadHurst Green Oxted Surrey RH8 0JW

Disclaimer

• The illustrations and information presented is produced for your general information. It is based upon our understanding of current legislation and correct at the time that the seminar was prepared and presented. You should contact us before taking any specific action based on the information shown on these slides or any handouts provided as part of the seminar. No responsibility can be accepted for any use made of the illustrations or information presented herewith.

• Whilst every effort is made to ensure the accuracy of information

contained herein, we cannot accept liability for any reliance placed on these seminar materials and strongly advise that you seek further specific advice relevant to your individual circumstances.