A very busy Autumn for Tax Planning – ten examples of what we have been doing
As we slide into the winter time of this extraordinary year of pandemic, 2020, Tax Tuesday contemplates just how busy Autumn has been in our part of the commercial sector, despite lockdown, and recaps on just some of the many things which the Harold Sharp Tax Advisory Service has been dealing with during the last quarter, throughout the lifecycles of its clients.
Business structure and commercial protection
An online reseller client faces the rare but occasional risk of their suppliers’ products causing loss or injury to consumers, and is unfortunately not always able to rely upon every overseas manufacturer to take due responsibility. In one of various corporate reorganisations completed this semester, the company’s trading premises and cash are now safely out of harm’s way – fully accessible to the business for the ongoing trade, but no longer accessible to creditors or claimants;
Succession and realisation of tax efficient capital
A significant automotive retail business with outlets in the South wishes to transfer control to the participating members of the next generation. In one of a number of well-timed succession plans undertaken and underway, we are establishing the next generation at the helm, with the security and motivation which that provides for them and their families, consolidating the medium term prospects for the business, and releasing a major amount of tax efficient capital for Mum and Dad;
Recruitment and retention of key employees
A long-established client, engaged in design, manufacture and equipment installation, has identified a need to retain and reward two key members of their senior team, with a view to enhancing all parties’ combined drive towards a valuable medium term exit. Among a number of recent equity solutions achieved this quarter, using our favourite Enterprise Management Incentives (EMI) share option facility, we have been able to secure a commercially powerful outcome in a highly tax efficient way for both key employees and employer alike;
Private investment and accessing government tax incentives
A brand new trading business, established to provide specialised care services to local authorities, has required significant injections of capital, much of which has needed to be sourced from private investors. Organising this investment with a view to achieving the Enterprise Investment Scheme (and, potentially, its baby sister, Seed Enterprise Investment Scheme) for investors, with the generous Income Tax and Capital Gains Tax incentives involved, has been critical to ensuring that this venture will have sufficient funds to get off the ground;
Trading into US and transfer-pricing to suit
A UK-based supplier of branded product has needed to formalise their entry into the US market, establishing corporate infrastructure there and a fiscal relationship with nearly every State, as well as with the Federal government. Working with a like-minded and capable US advising partner, we have helped to establish a meaningful business structure, under a transfer-pricing arrangement which will ensure that we retain virtually all of the profit in UK where the exposure to taxation is significantly lower than the corresponding combination of US State and Federal Taxes on corporate income;
Research & Development tax relief and managing CT costs
The R&D tax relief regime continues to be the most significant source of tax-advantaged CT relief in UK (with eligible costs still enhanced by 130% for tax purposes). Several claims have been established and completed during the period. We are currently engaged in assisting a low cost, next day delivery, supplier to the public with their highly innovative automated assembly and despatch systems, and their programme of continuous development. This claim will represent a significant source of funds as we anticipate obtaining a “refund” from government under the scheme amounting to one third of the considerable development costs they have so far incurred;
Winding up and tackling the anti-avoidance
Several trading and investment business clients have found cause to consider the merits of winding up (via solvent liquidation), this Autumn, and have come to us for advice. The untested “TAAR” (targeted anti-avoidance rule) threatens to turn expected capital distributions into “income” for tax purposes, typically at between twice and four times the tax cost of capital. Our advisory service has been able to identify viable grounds for defence that the TAAR should not apply, to provide our clients with confidence to proceed and, crucially, to evidence a reasonable course of action and credible guidance from a qualified source (which should also protect our clients from penalties in the unlikely event that HMRC are successful in a challenge down the line);
Estate management and use of exempt and chargeable lifetime transfers
A wealthy individual in his 60’s has begun attending to his estate management affairs and is ready to pass down material value associated with an incorporated property business which he has built up. The relevant assets in his estate represent a personal loan account (established to fund the investments in the first place) and his shares in the company which now reflect all of the income and capital growth achieved over a sustained period of time. A small reorganisation of his assets followed by a combination of outright gifting and transfers into trust for his two adult children will ensure that he and his wife can move these assets on at nil IHT and nil CGT tax cost, and on a basis under which he will maintain control over the assets and can protect them from the perennial risk of marriage break-up;
Property development and the challenge of VAT
The challenge of VAT and the trouble it can cause to property transactions arises regularly, throughout the business year. During the period we have advised upon the acquisition of an “opted” commercial premises for conversion to residential purposes, together with an area of car parking space for further development, with a view to securing exemption from VAT for the entire transaction, zero irrecoverable input, lower funding requirements, and reduced Stamp Duty Land Tax costs.
Personal Service Companies and the changing IR35 landscape
As we get nearer to April 2021 and the extension of the revised rules, allocating responsibility for assessing and applying IR35 to the “end clients” (or to any intermediate “fee payers”), there have inevitably been more affected parties needing guidance on what the new rules will mean for them and whether their existing contractual arrangements might need to alter. That advice typically also covers the new accounting required for continued use of a PSC where the individual in question is likely to be treated and taxed as an employee. This process of advising the “IR35 community” continues.
Tax advisory work from starting up in business through to the end of life of the owners (and, even then, a potential variation of their Wills!), continues to be highly active for the Harold Sharp Tax Advisory practice. If you have anything which you would like to talk over from within the vast spectrum of business and domestic affairs, please do not hesitate to email tax@haroldsharp.co.uk for a no obligation chat.