Churchill Tax Advisers swiftly close a large tax investigation

Churchill Tax Advisers swiftly close a large tax investigation

This was a client from London that was being investigated by HMRC.  The client had acquired a number of investment properties over the recent years. HMRC’s main concern was how the acquisitions were financed considering the client’s regular income not being sufficient to justify this. In addition HMRC were looking into the client’s rental income and expenditure. The client had received large sums of cash as inheritance from his parents based abroad but there was no audit trail of the monies being transferred. At one stage, our client was even ready to pay tax to HMRC as he felt that his case was not strong enough and the monies inherited could not be proven. There were a few expenses that our client had not claimed that could have been claimed. We dealt with HMRC using our experience and knowledge of HMRC’s practices and put forward strong arguments and alternate sources of evidence defending our client’s position. Eventually after three exchanges of letters HMRC proposed that they were willing to close the enquiry without any adjustments if our client chose not to claim the unclaimed expenses. Our client was happy to accept this proposal and the investigation was closed with no tax to pay. We are grateful to the HMRC inspector for his cooperation and adopting a positive approach towards our client’s circumstances.

Our analysis: This client came to us as soon as he received the letter from HMRC opening an enquiry. As there had been no prior involvement by another accountant, we were able to close this investigation swiftly. This is in contrast with cases where individuals tend to go to the cheapest accountant in the market to seek help which makes matters worse. These taxpayers eventually end up paying a lot more in taxes and fees as they eventually realize they need to appoint a tax specialist firm to represent them.

Churchill Tax Advisers provide strategic capital gains tax advice for a national chain

Churchill Tax Advisers provide strategic capital gains tax advice for a national chain

This case came to us from another firm of accountants in London. It concerned a multi-million-pound capital gain that was made by a national chain and were looking for strategies to mitigate the tax payable. Having discussed the matter in detail with the accountants and the client’s future plans, we were able to find a few strategies for deferring the gain using rollover relief. The strategies involved offshore acquisitions of trading assets that still qualified for the relief. As the scenario was quite complex, in addition to the legislation and HMRC guidance, we had to base our planning on various tax cases that have been decided by the courts over the last 20 years on rollover relief. The ultimate result was that the client’s entire capital gain was deferred until the disposal of the newly acquired assets which could be another 15-20 years if not more.

Our analysis: Rollover relief is a lucrative relief that is often overlooked by accountants. It can be applied in a number of situations and allows substantial tax savings if planned and executed correctly.  

Business Property Relief (BPR)

Business Property Relief (BPR)

Inheritance tax and business property relief

You probably know that inheritance tax is due at 40% on your estate after death over and above any nil rate band available.

You may know that business property relief can exempt trading assets from that tax.

What you may not fully understand are the conditions for business property relief (BPR), and this could lead to you missing out on a valuable relief.

If we look at the availability of BPR on shares, they will qualify for BPR if 51% of the company’s activities are trading and not holding investments. This is a cliff test – if you do not meet it, BPR is not available at all, if you do meet it BPR is available at 100%.

However, this is not the end of the matter.

The 100% relief is applied to the value of the company attributable to the trade and not the investments. So, if the company just meets the trading test and gets 100% relief, this might only be on half the value of the company, sometimes even less where the company holds a valuable investment asset such as a property.

What can you do about it?

The first step is to work out how much BPR is worth to you as things stand.

· Review your accounts – what assets are part of your trade, which assets are investments? How much are they worth?

· Do you have large cash balances?

· What are your future aims for the business?

 

Review

Although the test for BPR is whether the company is 51% trading, there are a variety of ways that percentage can be calculated – balance sheet assets, turnover, time spent in the business. And sometimes these approaches will give a different answer. A tax adviser can guide you as to which is the relevant test for your circumstances, as well as suggest how to improve matters across the board. Sometimes it is simply a question of recording time spent in the business better, or bringing property into use in the trade again.

Cash balances

Large cash balances held in the business can reduce BPR if they are viewed as investment assets.

Sometimes cash balances are retained for business purposes such as an acquisition of a new property, as working capital, to pay creditors and get reduced prices, etc. If you do not record the reasoning behind your cash balances, HMRC will assume they are not part of the trade.

An adviser can assess what cash balances are acceptable and advise on how to document the decisions taken.

If the cash is not required in the business, then it may be worth considering other uses and / or distribution to shareholders and again tax advice would help make this as tax efficient as possible.

 

Future Aims

If you are considering retiring, a sale or passing the company on to your children, then it is vital to speak to an adviser as early in the process as possible to allow us the best chance to restructure the business to get maximum business reliefs. There are capital gains tax reliefs available for trading businesses, and although these are not the same tests as for BPR, the issues they raise are very similar.

Whatever you want to do with your business in the future, early planning will allow you to face the future in the best possible way.

 

Churchill Tax Advisers

Tax is on HMRC’s menu for restaurants and takeaways

Tax is on HMRC’s menu for restaurants and takeaways

It has been announced that HMRC will issue thousands of letters to businesses it believes have made incorrect or suspicious claims under the Eat Out To Help Out scheme. At the beginning of November, three people were arrested in London linked to fraudulent claims. 

If you, or your client, receives one of these letters you will have 60 days to respond before HMRC start a full tax investigation. These letters should not be ignored. Please contact us straight away for advice on how to proceed. Even if there have been no errors in the claims HMRC will still need to be satisfied about that. 49,000 claims had been submitted to HMRC by 30 September with HMRC stating that 4,000 businesses will receive one of these “nudge” letters. 

Equally, if you know, or think, you or your clients may have made an incorrect claim please contact us for advice on how to make a disclosure to HMRC before they open an investigation or send you a letter. This will help reduce any penalties charged. If a voluntary disclosure is made within 90 days of the claim having been made then no penalty should be chargeable by HMRC. 

We are also aware that HMRC has received bulk data from Just Eat and this is being used during current tax investigations or to justify opening a new enquiry into the business. If the Just Eat income has not been disclosed in the business accounts and tax returns then HMRC will seek penalties and interest for any errors. For the most serious cases HMRC may prosecute for criminal tax evasion with a risk of prison and sever financial penalties. Again, we strongly advise that you or your client come forward first if there have been any mistakes – even if it has been deliberate. We can help you obtain an immunity from prosecution in the most serious of cases or help make a voluntary disclosure for the less serious problems.

Virtual Christmas parties are eligible for the annual function exemption

Virtual Christmas parties are eligible for the annual function exemption

Section 264 ITEPA 2003

With 2020 being a year of lockdowns, social distancing and working from home, the HMRC have made virtual company Christmas parties exempt from their annual returns.

Section 264 of ITEPA 2003 allows an exemption of a company annual event hosted by an employer at a cost of less then £150 per head  The annual events can be held at any time of the year and made available to all employees.

When calculating the event the employer can consider entertainment, food and drink, transport and accommodation and VAT.

The cost per head should be divided by the total expenses and the number of attendees.

The £150 is not an annual allowance, if the cost is exceeded then the whole amount will become taxable.

Virtual functions

Where an annual function is provided virtually using IT then the exemption is capable of being met provided all other conditions are also satisfied as the exemption applies to allow for costs of provision which are generally incurred for the purposes of the event itself.