A twist on entrepreneurs' relief
It's not unusual for a partner or a director to own property used in a business. Under the old CGT rules, whether or not rent was paid was not material in ascertaining the tax payable on selling the property.
In April, taper relief was withdrawn and replaced by entrepreneurs' relief, which is much more restrictive. Its availability could be adversely affected if rent is paid on the property, so individuals in this situation should review the position as soon as possible.
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Changes to EIS and VCT tax Incentives The Finance Act 2008 introduced some changes to the VCT and EIS rules. They apply to EISs for shares issued and to VCTs for raised funds, on or after 6 April 2008. The annual limit for an individual investing in EIS qualifying shares has been raised by £100,000 to £500,000 for the 2008/09 tax year (the £500 minimum investment remains). While claims at this level are currently being accepted, there is the proviso that the increased limit is awaiting EU state aid approval. Shipbuilding, steel production and coal production have been excluded from trades qualifying for EIS status companies and companies in which VCT's may invest. VCTs and EISs have specific requirements around the level of investment, the type of investee company and the individual who can obtain tax relief. |
A new property development tax?
Property development companies may be hit by a further tax from spring 2009.
The Government has confirmed that local authorities will be empowered, although not required, to implement the new Community Infrastructure Levy (CIL). The new tax will be used to fund local infrastructure developments.
The rate of CIL will be set by local planning authorities, based on their assessment of infrastructure costs required to support their plans. CIL collections will be used to fund infrastructure development.
The calculation of the levy will progress as planning negotiations proceed, but it will become payable at the point of development. There may be a 28-day payment window, with some flexibility where development is staged.
Unexpected liabilities of MBOs
An unanticipated tax charge may apply to management buy outs where an indirect loan is made to shareholders. It's not unusual for a target company to lend to a new company (formed to acquire the target), with the consideration then paid by this new company to the shareholders of the target.
It is understood that HM Revenue & Customs (HMRC) is targeting this area and it could potentially result in a company tax charge at 25% of the value of this type of loan. There are strategies to ensure this type of tax charge does not arise. Therefore, thought should be given to whether a liability exists and to the ways in which it could be mitigated.
Tax breaks for working from home
HMRC has published new guidance on the types of expenses the self-employed working from home can claim without the property becoming liable to CGT on sale.
If an area of the home is properly set up for use as an office, then tax relief can be claimed on the costs incurred.
As long as certain criteria are met, HMRC has said the self-employed can claim for household costs such as council tax, mortgage interest, buildings and contents insurance, gas and electricity.
Medium-sized groups to lose consolidated accounts exemption
A significant number of companies will need to prepare consolidated accounts – possibly for the first time – under changes introduced by the Companies Act 2006.
In the past, both small and mediumsized companies have generally not been required to prepare group accounts, i.e. consolidate the accounts of the parent company with those of its subsidiaries. For medium-sized companies the exemption could previously be obtained if two out of the following three limits were not breached: turnover of £22.8m, total assets of £11.4m and 250 employees. The Companies Act 2006 has now removed the exemption for medium-sized groups. Therefore, only small groups will not have to prepare consolidated accounts. While the financial limits for small groups have also increased, they are substantially less than those for medium-sized groups – turnover under £6.5m, total assets under £3.26m and 50 employees.
As no exemption has been given from the requirement for accounts to contain comparative information, this will not be just one year of consolidation, but two.
Affected companies should bear in mind that the removal of the group accounts exemption coincides with the more general reduction in filing limits for all private companies from ten months to nine months.
What's happening with IFRS and UK GAAP?
UK unlisted companies currently have a choice in preparing their financial statements. They can either switch to International Financial Reporting Standards (IFRS) or continue to apply UK Generally Accepted Accounting Principles (UK GAAP). If your company already uses IFRS or is planning to do so, your finance director will be aware that new and revised IFRS standards and interpretations are still being rolled out. For further information, see the forthcoming edition of our Financial Reporting newsletter. Visit http://www.smith.williamson.co.uk/media-events/publications
But many companies have chosen to stay with UK GAAP. On Tuesday 18 November, members of our National Assurance Technical Group are holding a seminar to guide those companies on a range of topical issues. The seminar will be relevant to finance staff involved in preparing financial statements of unlisted companies and those wishing to refresh their knowledge of accounting developments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.