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Tax Articles

Can you claim tax deductions for unused premises?

A tax inspector is disputing deductions for costs relating to unused business premises included in your latest accounts. Are you entitled to tax relief for these or does the inspector have a point?

Your business's accommodation needs can change for any number of reasons, such as expansion or contraction of your trade. Whatever the reason the likelihood is that it will take time to relocate to a property that better suits your needs. This means you could be lumbered with costs for unused accommodation within the building your business operates from, or for a separate building.

Tax deductions
Where you incur an expense which is not incurred wholly and exclusively in the course of your business, it's not normally tax deductible. Therefore HMRC can argue that expenses, e.g. rent payable, for an unused building, or even one that's only partly occupied for your business, are not deductible. The rules can be tricky to interpret and could easily lead to a difficult argument. However, the good news is that HMRC takes a common sense approach.

HMRC's approach
HMRC's view is that rent and other property expenses are tax deductible as long as the obligation to incur them was originally for business purposes that met the "wholly and exclusively" condition. For example, if your business occupies a premises under a lease which it took out at a time it was expected the business would use the property fully, then the fact it is partly or wholly unused doesn’t prevent a tax deduction for the associated costs.

Trap. Where you renew a lease for unused premises, or don't exercise an option you have to terminate it, HMRC will argue that no deduction for the rent or other expenses related to the property are deductible from your trading income.

Tip. You can get around the potential loss of tax relief by starting a property rental business, i.e. by letting the unused property. The related expense would be deductible from the rental income.

Surplus business accommodation
Where you let surplus business accommodation, instead of taxing it under the special rules for property rental businesses, you can choose to treat the rent you receive and corresponding expenses as if they were part of your business's trading activity where all of the following apply:

  • the accommodation is only temporarily surplus to your business's requirements
  • it relates to a premises that's partly used for your business, i.e. the rule doesn't apply to a property that's only occupied by a tenant
  • the rental income must be comparatively small - there's no guidance on what this amounts to, it's a matter of common sense; and
  • the expenses would be tax deductible if claimed under the special rules for rental businesses.

Tip. Treating surplus rental income and expenses as if they related to trade is usually tax neutral, but it can be advantageous where the expenses outweigh the rent receivable. This is because normally rental business losses can’t be set against trading profits, they can only be carried forward or set against other rental business profits.

If expenses relate to a property acquired when it was expected your business would fully occupy it, they are deductible. But where you renew a lease knowing that it includes excess accommodation, normally they will not be. Consider letting the excess space, that way you can deduct the expenses from rent you receive.

Is the cost of entertaining a director tax deductible?

One of our clients, who runs a one-man company, wanted to know if he was entitled to a tax deduction for the cost of an extravagant meal with his partner following the completion of a successful contract?

Business expenses
Generally, expenses incurred by businesses in the course of trading are tax deductible, but there are exclusions. Tax law doesn't provide a list of what type of costs are deductible, but it does identify certain expenses which aren't, including a general exclusion for purchases which aren't "wholly and exclusively for the purpose of the trade". This rule applies to companies and unincorporated businesses, i.e. sole traders and partnerships.

Business entertainment
One type of expense tax law specifically excludes is "business entertainment". However, there's an exception to the exclusion if the "entertainment is provided for employees". The bad news is that this is no help to owners of businesses which operate as sole traders or partnerships. They aren't employees and so the business can't claim a tax deduction for entertaining them. Conversely, it's good news for companies as they can normally claim a deduction for the costs of entertaining directors where they are also employees of the company (which they inevitably will be if it's a one-man company).

Is it a business expense?
Before you go rushing off with the company credit card paying for countless meals at your favourite restaurant, keep in mind that the exception which allows a deduction for employee-related entertainment costs is still subject to the general rule which says expenses aren't deductible unless they are wholly and exclusively for the purposes of the business. These factors together make the tax position very tricky to determine.

Excessive expenses
One view is that because the cost to a company of entertaining a director is taxable on them as a benefit in kind, the expense must be deductible as it's part of their remuneration - this would definitely meet the wholly and exclusively condition. The counter argument is that while a director is taxable on whatever the company spends on entertaining them, this doesn't necessarily make it part of their remuneration. It's therefore just a general expense to which the wholly and exclusively test applies. So the expenditure must have a business motive or it won't meet the wholly and exclusively condition.

Trap. We lean towards the latter view, so that if the entertainment expense is excessive it won't be deductible. That's also HMRC's stance.

Tip 1. You can get around the Trap by including the provision of meals etc. as part of the director's remuneration package. That way the company is bound to meet the expense as one of its trading costs and so it will be tax deductible. However, that's not a good idea as remuneration in this form is, as already mentioned, taxable (and NIable) as employment. It is more tax efficient for the director shareholder to take more dividends and pay for their own entertainment.

Tip 2. An exception to Tip 1 is where the cost of the entertaining isn't taxable on the director because of a specific exemption. That is, where the meal or other event, e.g. a Christmas party, takes place annually. In that case the company can pay entertainment costs up to £150 per head for the director plus guests and claim a tax deduction for the cost while the director escapes tax and NI free.

A tax deduction can be claimed if the cost isn’t excessive. However, it counts as employment income on which tax and NI is payable, thus overall it’s not a tax- efficient arrangement.

The only exception is where the entertainment is exempt for employment tax and NI, i.e. where it's an annual event, e.g. a Christmas party.

Top 16 Reasons to Switch Accountants

Switching accountants is a big decision. The relationship between accountant and business owner is a very personal one, and cutting off a relationship with a trusted business advisor can be extremely difficult to do.

I've often heard business owners complaining to their mates over a beer, but when asked a simple question "why don't you change your accountant?" they mostly respond with "No, I couldn't possibly leave David. I've been with him for 5 years!"

Loyalty may be a staying factor, but the latest statistics from the CCH Accounting Firm Client Survey* pinpoints that 36% of clients are dissatisfied and already shopping for another accounting firm. Businesses simply cannot afford any setbacks - especially where tax and compliance are concerned.

Here are our top 16 non-negotiable reasons to switch accountants:

ONE: They are not proactive in saving you tax

They never evidently try to find solutions to help you pay less tax.

They never offer advice tax planning or personal benefits. They simply fill out your tax return, prepare your financial statements and send you a bill.

TWO: They're late

Your information is ready by the end of January, but for some reason your tax return is always put on extension and filed 6 months after the original due date. This is a signal that you are not a valued client to them.

THREE: They have a large personal tax return practice for non-business owners

This is usually an indication that they are more focused on the private client market rather than the business market. You will benefit from an accounting firm that is dedicated and highly experienced in the SME market.

FOUR: They are unable (or unwilling) to explain things in a way you can understand

It's simply not true that all accountants are poor communicators. It is true that some accountants use industry jargon as a way of keeping their clients in the dark and making themselves seem all that more valuable.

FIVE: They don't "get" your business

If your accountant does not take the time to understand what your business is about - or if they are not interested in what makes your business 'tick', there's a chance they won't be very effective at identifying opportunities for you. You want to work with people who believe in your visions as much as your bottom line.

SIX: They're never available

Accountants need to be available for those urgent problems or requests, and they should be able to offer you the time you need.

SEVEN: They're unapproachable

You should never be in the position where you perceive that your accountant is too busy to give you advice, or feel that you are asking a 'stupid' question.

EIGHT: You have unexpected tax liabilities, penalties and interest charges

NINE: You never know what they will charge you, or they charge you unexpected or additional fees without warning you

Accounting fees should always be transparent, and you should have options for paying fixed monthly fees too.

TEN: You've been passed down the "food-chain"

People want to deal with a Partner, and when the Partner gets too busy to deal with the "smaller cases", and passes these clients down the line to younger, more junior people within the firm, the relationship with the client is put at risk.

ELEVEN: They are providing poor value for money

Accounting firms are capable of offering so much more than tax and compliance.

TWELVE: They only contact you once a year

A great accounting practice will regularly check with you on your changing needs.

THIRTEEN: They perceive that you are more interested in last year's accounts than planning for the future

You want someone to believe in your big-picture possibilities, to lead you through a business accounting path that makes the ups and downs more manageable and rewarding.

FOURTEEN: They rarely talk about ways to help you increase your profits

FIFTEEN: They have not discussed (in recent years) your exit plans - for selling the business or retirement. This is really important for business owners.

SIXTEEN: They don't stay up to date with the latest technology

You are leveraging technology and you should expect your accountant to do the same, whether it's working in the cloud or digitizing more of your environment.

How to leave your accountant

If you are not entirely satisfied with your accountant and wish to move your account, here are the steps you should take to switch:

1. First, you should appoint a new accountant, especially if you are in the middle of a tax or financial issue. Your new accountant will prepare a letter for you, which you sign and send to your current accountant. They will quickly pass over all your information and files.

2. Look in your business records to see what kind of agreement you have with your accountant. Most accountants don't work from a retainer, but if you do have a letter or contract, follow the agreement in timing and notifications.

3. Send a registered letter (so you have a record of receipt) that states your intent to terminate the relationship effective immediately upon receipt of the letter and requesting your accountant to stop working on any matters in process. You don't need to give a reason; it's not necessary. In the letter, request a refund of fees paid for work not yet completed. Ask for a statement detailing fees for all imminent work and expenses.

Ending the business relationship with your accountant is never pleasant or easy, but sometimes it's necessary. If you would like to speak to me about switching, or have any questions about moving your account, please request a call back, send me a direct email, or post your query in our contact form . We look forward to hearing from you!

* This independent survey commissioned by CCH, a Wolters Kluwer business, was issued to accounting firm clients including individuals and small, mid-size and large businesses.

Solicitor and firm ordered to pay more than £16,000 for refusing to provide information to The Pensions Regulator

A solicitor and the firm where he is a partner have been ordered to pay more than £16,000 in fines and costs for refusing to give documents to The Pensions Regulator (TPR) which were required as part of a wider investigation.

The case involves the first criminal convictions secured by TPR.

Anthony Wilson, the managing partner at London-based Ashley Wilson Solicitors LLP, failed to provide the required documents to TPR despite being pursued for them for almost nine months.

The documents related to a property linked to an individual who was involved in a TPR pension scam investigation. Neither Mr Wilson nor Ashley Wilson Solicitors LLP was connected with the investigation and there was no suggestion that their staff had done anything wrong in their dealings with the property.

TPR issued a notice to Ashley Wilson Solicitors LLP requiring that information be provided to its staff. However, the firm claimed that it was having trouble obtaining the documents as they were stored at a separate site. Shortly afterwards, Mr Wilson confirmed that he had located the documents, and would provide them to TPR, but did not do so.

Despite TPR staff making numerous requests for the information, it was only when they entered the offices of Ashley Wilson Solicitors LLP in Ives Street, Knightsbridge, with a search warrant in March 2016 that the documents were secured.

TPR decided that the failure to hand over the documents was so serious that it merited the criminal prosecution of both Mr Wilson and his company – the first time TPR has taken such action.

At Brighton Magistrates’ Court yesterday (Tuesday 4 April) both Mr Wilson and Ashley Wilson Solicitors LLP pleaded guilty to refusing to provide documents required under section 72 of the Pensions Act 2004 without a reasonable excuse, which is an offence under section 77 of the Act.

Sentencing them, District Judge Christopher James said that information notices were an important enforcement tool for TPR that had been used appropriately in the case.

He commented upon the lack of corporate governance at Ashley Wilson Solicitors LLP and said there were insufficient “checks and balances” operated between the partners.

The judge ordered Mr Wilson to pay a £4,000 fine, £7,500 costs and a £120 victim surcharge. He ordered Ashley Wilson Solicitors LLP to pay a £2,700 fine, £2,500 costs and a £120 victim surcharge.

Nicola Parish, TPR’s Executive Director of Frontline Regulation, said: “Our staff received a series of woeful excuses rather than the information they had requested. This was a case of the company refusing to comply with the law.

“Legal action could have been avoided if Mr Wilson or someone else at the firm had simply handed over the documents, as they should have done, because the information had already been retrieved from storage.

“As the court recognised, information notices are a key enforcement tool for TPR. We will not hesitate to prosecute those who prevent us gathering the vital data we need for our investigations. Refusing to comply with a legal request from The Pensions Regulator will not be tolerated.”

Editor's notes

  1. TPR has the power under section 72 of the Pensions Act 2004 to require pension schemes, employers and third parties to provide us with information and documents relevant to our statutory functions.
  2. Failure to provide such information is a criminal offence which can result in an unlimited fine. Additionally, those involved can suffer serious reputational damage from being successfully prosecuted for non-compliance with the law. Businesses could also face further action from their professional body.
  3. Timeline of events
    • 26 June 2015 – Information notice issued to Ashley Wilson Solicitors LLP by TPR.
    • 30 June 2015 – Deadline for responding to the information notice passes.
    • 7 July 2015 – Company contacts TPR to say it has been unable to recover documents from storage.
    • 14 August 2015 – Company contacts TPR to say documents have been recovered and are being copied.
    • 12 November 2015 – Company asks for seven more days to produce the documents.
    • 17 March 2016 – Search warrant executed and documents retrieved.
    • 15 August 2016 – TPR applies for court summonses for both defendants.
    • 4 April 2017 – Anthony Wilson and Ashley Wilson Solicitors LLP appear at Brighton Magistrates’ Court and admit neglecting and/or refusing to provide documents required under section 72 of the Pensions Act 2004 without a reasonable excuse.
  4. TPR is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).

Charity boss convicted of refusing to provide information to The Pensions Regulator

The head of a charity has been ordered to pay £6,500 for refusing to give information linked to an investigation into unusual scheme investments to The Pensions Regulator (TPR).

Patrick McLarry, the Chief Executive of Hampshire-based Yateley Industries for the Disabled Limited, failed to provide the required documents to TPR despite being pursued for them for over 18 months.

Mr McLarry, a former trustee of the charity’s pension fund, was issued with an information notice for the documents in July 2015. He refused to supply them, claiming that as the documents contained third party information, supplying them would be a breach of French privacy law. He also said that the bank statements* were protected by legal privilege, and subsequently claimed that he was refusing to provide them on the basis that they might incriminate him.

TPR decided that the failure to hand over the documents was sufficiently serious that it merited the prosecution of Mr McLarry – only the second time it has taken such action.

Mr McLarry pleaded not guilty to refusing to produce, without reasonable excuse, documents required under section 72 of the Pensions Act 2004, which is an offence under section 77 of the Act, but he was convicted of the offence at Brighton Magistrates’ Court. TPR engaged an expert in French law to give evidence on its behalf, following which the court agreed that Mr McLarry had been wrong not to comply with the information notice.

Finding Mr McLarry guilty and ordering him to pay a £2,500 fine, £4,000 costs, and a £120 victim surcharge, District Judge Christopher James said he had imposed a significant financial penalty to reflect high culpability. The harm caused by Mr McLarry’s actions was unknown but the consequent elongation of TPR’s investigation has caused delay and an increase in costs.

He also commented that TPR carries out a very important regulatory function and section 72 of the Pensions Act 2004 is an important investigative tool for TPR.

Nicola Parish, TPR’s Executive Director for Frontline Regulation, said: “Patrick McLarry refused to co-operate with TPR staff and gave a number of excuses which were rejected by the court. This was a clear case of him deliberately refusing to comply with the law.

“Legal action could have been avoided if Mr McLarry had simply complied with the legal notice.

“This is another example of how we will use our powers to take action against individuals who hamper our investigations into the management of pension schemes.

“Refusing to comply with a legal request from The Pensions Regulator will not be tolerated.”

Editor's notes

*The bank statements requested were from a French bank account in the name of Mr McLarry and his wife that Mr McLarry had access to.

  1. TPR has the power under section 72 of the Pensions Act 2004 to require pension schemes, employers and third parties to provide us with information and documents relevant to our statutory functions.
  2. Failure to provide such information is a criminal offence which can result in an unlimited fine. Additionally, those involved can suffer serious reputational damage from being successfully prosecuted for non-compliance with the law. Businesses and professionals could also face further action from their professional body.
  3. TPR is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).


Marriage breakdown - move quickly to avoid a tax trap

Some years ago you transferred shares in your company to your spouse. Sadly, you’re about separate and so need to take steps to sort out the assets. It’s vital that priority is given to the company shares, but why?

Dividing the assets

In February 2017 we looked at capital gains tax (CGT) planning involving the marital home in the course of separation. But the home isn’t the only major asset which needs special consideration. If your spouse doesn’t play an active role in your company but is a shareholder, you’ll want them to give up their shares to avoid possible conflict.

Timing is important

A value will, of course, need to be put on the shares. The trouble is that valuation can be a long and tricky process for shares in private companies. If discussions over valuation take too long, and so delay the transfer of shares, it can result in a CGT liability for the spouse making the transfer. Inevitably this will be factored into the overall financial settlement meaning it ends up costing both spouses, while HMRC reaps the reward.

Example. Tim is a director shareholder of Acom Ltd. His wife Shelly owns 100 shares in Acom which were allotted to her at £1 each when the company was set up ten years ago. Tim and Shelly separated in July 2016 but aren’t yet divorced. In May 2017, when the shares are valued at £150,000, she transfers them to Tim. Shelly will have to pay CGT on £149,900, i.e. the difference between the cost and current value. The tax will run to tens of thousands of pounds.

Act fast

Transfers of shares and other assets between married spouses don’t trigger a CGT bill. Instead, HMRC treats these deals as if the transferring spouse sold them to the other at a price which results in neither a CGT gain nor a loss; this is the so-called “no gain, no loss” rule. In our example, this would mean, irrespective of what value was put on the shares, they would count as having been sold by Shelly to Tim for £100, i.e. what they cost, but only if the transfer took place in the tax year in which they separated.

Trap. The no gain, no loss rule only applies in a tax year where, for at least some time, a couple are living together as husband and wife, in a civil partnership or same sex marriage. That means the rule will apply to transfers in the tax year you separate, but not a later one. For the rule to have applied to Shelly and Tim, she would have had to transfer the shares by no later than 5 April 2017.

Note. It’s the date of separation that’s important for CGT (and most other) tax purposes and not the date of divorce. As soon as you separate you’re not considered married by HMRC.

Plan of action

Tim and Shelly could have avoided the massive tax bill if they had acted just a little sooner.

Tip. In case of separation, shares and other assets liable to CGT should be transferred between spouses by no later than the following 5 April. You can argue about their value for divorce purposes later and make balancing payments if necessary. But it’s to no one’s financial advantage, except HMRC’s, to delay.

Assets transferred between separated spouses can count as if they were sold at their full value, and so result in a capital gains tax bill. This trap is avoided where the transfer is made in the same tax year as the separation. If necessary make it quickly and discuss the value of the asset later.



How to correctly handle VAT errors and adjustments

Honest mistakes in your VAT returns are bound to happen, even HMRC acknowledges this. What steps must you take to put them right and what other tax adjustments might you need to consider?

How to correct errors

Making a mistake is easy, but putting it right can be quite the opposite. That’s true for VAT returns as it is for anything else and different types of error require different actions to correct them:

o    if the correction requires you to issue an amended invoice or credit note to your client, as long as your bookkeeping is carried out correctly the VAT adjustment in the corresponding return will be taken care of without further action

o    if the correction doesn’t involve issuing a revised invoice or credit note, for example, where you’ve reclaimed too much or too little VAT for a purchase, you’ll need to make a manual adjustment to your bookkeeping records.

No further action is required as long as the adjustments are within the same VAT return period or, if not, their total value doesn’t exceed the limits allowed by HMRC.

Trap. Where the total value of the errors exceeds £10,000, or if greater, 1% of the turnover figure shown in Box 6 of the return in which the correction is made (up to a maximum of £50,000), you must send a separate report (voluntary disclosure) to HMRC.

Tip. Even if the corrections don’t require a voluntary disclosure, it’s sometimes advisable to make one anyway as this will give you extra protection from penalties.

Side effects

VAT corrections can increase or decrease business profits and so affect corporation tax and income tax bills. For example, where a business incorrectly fails to charge VAT on a sale and, for whatever reason, it’s not possible to issue a corrective invoice to the customer. When the error is corrected, the extra VAT paid to HMRC will reduce the business’s profit. As long as the error and the correction fall in the same financial year there’s no problem, but if they don’t the business will need to revise its accounts to reflect the adjustment to profit.

Tip.  Take care with VAT corrections which fall in a later financial year than the original transactions as you may need to make an adjustment to the annual accounts in which the error arose.

Bad debt relief

A similar situation occurs, if having claimed bad debt relief against your profits in your business’s annual accounts, you later claim VAT bad debt relief. The VAT reclaimed results in an increase in profits. However, it won’t usually be necessary to amend the past financial accounts. Instead the adjustment can be made in the accounting period in which the VAT bad debt relief was claimed.

Capital goods scheme

Another thing easily overlooked is that if you reclaim the VAT on the purchase of an asset within the capital goods scheme (CGS), e.g. a building or IT system, and later have to repay some of it, the effect is to increase the cost of the asset for capital gains tax (CGT) and capital allowances (CAs) purposes. You might therefore be able to claim further CAs or a reduced CGT bill.

If corrections are made by issuing a revised invoice or credit note, normal bookkeeping procedures are sufficient, unless the mistakes exceed £10,000 or 1% of turnover for the VAT period. Adjustments made in other ways can affect your business profits, so make sure they are reflected in your accounts.


My client has recently arranged for a UK business to supply consultancy services to a business in the USA and he will be invoicing the UK business for his commission imminently. I understand that the place of supply for intermediary services is where the customer belongs and so, as my client’s customer is in the UK, he should charge UK VAT. However, the customer has indicated to my client that no VAT should be charged as the supply is zero-rated. Please could you clarify the position?


You are correct in your understanding that intermediary services fall under the general rule in respect of the place of supply rules and so the place of supply is where the customer belongs when supplied to another business.

However, if you act as an intermediary and the place of supply of your service is the UK, but the place of supply of the service being arranged is outside the EC, your supply can be zero-rated. The legal reference for is Item 2(c) to Group 7 of Schedule 8 of the VAT Act 1994.

This means that your client’s supply can be zero-rated because the place of supply of the consultancy service from the UK business to the business in the USA is outside of the EC (consultancy services are also supplied where the customer belongs when supplied to another business). Thus your client is arranging a supply of services that is made outside the EC.

The implementation of the VAT package on 1st January 2010 was intended to simplify the existing rules for businesses selling services to overseas customers and buying from overseas suppliers. Despite the intention, the new rules are full of subtle intricacies and anomalies, similar to the one explained above, and there are many other matters for businesses making cross border supplies to contend with including invoicing obligations and EC sales lists. Businesses and their advisors need to be aware of when things are not as straightforward as they seem. Without knowledge and awareness of these issues and with the added risk of penalties mistakes can prove costly.


Don’t get taxed twice on the same income

IR35 applies to some of your company’s income and so PAYE tax and NI has to be accounted for on a deemed payment of salary. The trouble is that you’ve also drawn the income as dividends. How can you avoid being taxed twice?


Where your business consists of providing your personal services to clients through a company, special tax rules, known as IR35 can apply. These say that if the terms and conditions of your work would count as an employment if the contract with your client was with you direct instead of through your company, you must pay PAYE tax and NI on the income as if it were salary. The trouble with these tax rules is that they sometimes conflict with company law.

Dividends as well

If your company makes a profit, company law says it can pay it to the shareholders as dividends. Naturally, HMRC expects you to pay tax on these too. This means tax can be payable under two different rules on the same income; once as employment income and secondly as dividends.

Example. Hal’s company, Acom Ltd, provides his services as an IT consultant to his only client. The arrangement is caught by IR35. In Acom’s financial year ended 31 March 2017 the IR35 income was £110,000. In 2016/17 Hal draws £8,000 from Acom as salary and £50,000 as dividends. He also takes another £10,000 of the income as dividends in 2017/18. After the deductions allowed by IR35, Acom must apply PAYE tax and NI to £95,000 as if it had paid Hal that much in salary. This forms part of Hal’s taxable income for 2016/17, but so does the £50,000 dividends, which was paid out of the same income.

Trap. If Hal did nothing he would face a tax bill of up to £16,250 (£50,000 x 32.5%) on the dividends having already paid £20,000 tax through PAYE.

Tip. Hal can avoid double taxation by claiming a special deduction, known as s.58 relief, for the income potentially liable to double taxation.

S.58 relief

The special deduction reduces the amount of dividends on which Mal pays tax. In our example all of the £50,000 dividends are subjected to IR35 tax therefore s.58 relief for 2016/17 would be £50,000. Therefore, the taxable dividends would be reduced to zero. Plus, Mal could make another s.58 claim for 2017/18 of £10,000 in respect of the dividends paid out of the IR35 income in that year. However, if, say, IR35 PAYE tax applied to just £30,000 of Acom’s income, the s.58 relief Hal can claim would be capped to that amount.

The company’s position

IR35 rules also conflict with other legislation; this time the corporation tax (CT) rules. A company can deduct the salaries it pays from its taxable profits. In our example Acom only paid £8,000 salary to Hal in its financial year to 31 March 2017, the other payments to him were dividends, which aren’t deductible for CT. So by applying the normal rules Acom could only obtain CT relief on £8,000, even though £95,000 had in effect been treated as salary.

Tip. Another special rule allows Acom to claim a CT deduction for the £95,000 as if it were an actual salary.

A special claim can be made that reduces the amount of dividend liable to tax by up to the amount of deemed payment. Claims can be made for the year of the deemed payment or later years. A different claim can be made by your company to obtain corporation tax relief for the deemed payment.



Are you too late to make a claim?

If you forget to claim an allowance or deduction on your tax return you have a relatively short time in which to put it right. The good news is that if you miss the deadline all is not lost as a different type of claim can be made. What’s involved?

Stake your claim

As a general rule, the deadline for claiming tax reliefs and deductions is four years from the end of the tax year to which the claim relates for personal taxes, and four years from the end of the accounting period for corporation tax. In some situations, essentially where you haven’t been asked to submit a tax return by HMRC, the time limit is extended beyond four years, but this loophole closes on 5 April 2017.


In normal circumstances, i.e. where you’ve submitted a tax return and the four year limit applies, a late claim involves one of two methods:

1.     Amending your self-assessment return.

2.     Submitting an overpayment relief claim.

The first method will be modified slightly from 6 April 2017 to fit in with the introduction of a new system of tax assessments.

Amending your tax return - individuals

If you’ve submitted a tax return and want to amend the figures, that includes making or increasing a claim for a tax deduction, say job expenses, or claiming an allowance, such as pension contributions, you have one year from the normal filing date for the tax return, i.e. one year after 31 January that follows the end of the tax year. For example, the deadline for amending your 2015/16 tax return is 31 January 2018.

Amending your tax return - companies

The deadline for increasing or making additional claims for companies follows a similar pattern. It’s one year from the normal filing date of the return. For example, for an accounting period ended on 31 March 2016, the deadline is 31 March 2018.

Overpayment relief

Where you’re too late to amend your tax return you can make a claim for overpayment relief, as long as it reaches HMRC within the four-year time limit.

Trap. The format of the claim must be spot on otherwise HMRC can, and often will, reject it. If you’re running close to the deadline, by the time HMRC rejects your claim it might be too late to send another in the required format. It seems unfair, but it has happened. Tip. When making an overpayment claim it must be in writing and signed by you, not your accountant and state:

o    that it’s being made under sch 1AB Taxes Management Act 1970 for personal taxes or para. 51 schedule 18 Finance Act 1998 if it’s for corporation tax

o    the tax year the overpayment relief is for

o    why the overpayment arose

o    the amount of tax that has been overpaid

o    if you’ve previously made an appeal in connection with the overpayment; and

o    that you have included documentary proof of the tax paid for the year in question.


If you make an error on your tax return which results in your tax bill being too high you can amend it within a limited time. After that you must claim overpayment relief instead. You have four years from the end of the tax year or accounting period to do it. Claims must be in the correct format or HMRC can reject them.



Two businesses, one car, how many tax bills?

Our subscriber and her husband run separate companies. They want a new car and plan to use the wife’s company to pay for it. Because of her income she’ll pay little or no tax. As the husband will pay more tax can HMRC tax him instead?

New rules for perks

Until 6 April 2016 certain benefits in kind, including company cars, were only taxed on employees who earned over £8,500 per year, including the value of the benefit, and all directors. Since then tax applies to all employees and directors regardless of their rate of pay. Nevertheless, one of our subscribers wants to use her company to pay for a car for her and her husband to use, and wants to know whether it can be done tax and NI free.

High income and low income

Currently, the husband’s company pays for and provides a car on which he is taxed. As he’s a higher rate taxpayer he pays around £2,800 per year for their joint use of an Audi A4. The wife’s level of income means she currently pays no tax. If it were her company car she would be taxable on it, but after knocking off her personal allowances she would pay nothing. It seems mad not to rearrange things so that the car benefit falls on her instead of her husband. But surely HMRC will object and use some anti-avoidance rule to scupper the plan?

Anti-avoidance rule

There are anti-avoidance rules which can prevent companies reducing the tax by providing cars to directors’ spouses and other members of their family instead of them. However, the good news for our subscriber is that these don’t apply where the car is provided to a director and he or she is liable to tax on it. The fact that no tax is actually payable is irrelevant.

National Insurance

The news is not so good for NI. An employer must pay Class 1A NI contributions at 13.8% on the taxable value of a company car regardless of whether the director has to pay tax on it. As the new company car has a taxable value of £6,200, NI will be payable whichever company provides it and whoever is taxed on it.

Company tax

The corporation tax position is also neutral. Whichever company provides the car can claim tax deductions for the purchase, running costs and the Class 1A NI bill. However, because our subscriber’s company has far less income than her husband’s they need to watch this. If the car expenses start to outweigh the company’s profit she should consider whether it’s still tax efficient to keep the car in her company. Tip. In that event it won’t save tax overall to sell the car to her husband’s company so that he becomes taxable on the benefit again, but it might be worth taking the car out of the business altogether. The only way to check this is to crunch the numbers at the time. This is probably a job for their accountant as the numbers can be tricky.


While not a tax issue, our subscriber should make sure that when her company takes on responsibility for the new car that the insurance policy covers use by both her and her husband. If they stick with the same insurer her husband’s company currently uses that shouldn’t be an issue.

Where a company provides a car to a director the taxable benefit falls on them alone even if because of their financial circumstances they don’t actually have tax to pay. This means it can be especially tax efficient to provide a company car through a company where the director has a low income.



IHT tax break for second homes

For a few years you’ve owned a seaside apartment as a holiday getaway. You’re now trying to reduce your estate to save inheritance tax. Can you keep the apartment for your use while shifting the value out of your estate?

It’s no give-away

As you probably know, where you make a gift to another individual there’s no inheritance tax (IHT) as long as you survive at least seven years. However, if you give away an asset, such as a holiday home, say, to your adult children, but continue to use it (this is known as reserving a benefit), anti-avoidance rules mean it remains part of your estate for IHT purposes. The seven-year clock only starts ticking when you stop using the asset.

Tip. If you gave away your second home to your children the anti-avoidance rules don’t apply if you only pay them a brief visit, or maybe even stay the occasional night. The law says that as long as you’re “virtually entirely” excluded from using the property, you’re OK. Of course, your idea of virtual exclusion might differ from HMRC’s.

Avoiding anti-avoidance

You can’t rely on the “virtually entirely” get-out clause to achieve what you want, i.e. to get the property out of your estate, so you need a more robust strategy, especially if you want to be able to continue to use the property for your holidays.

Tip. If you pay rent to your children at a commercial rate when you stay (other than for brief visits when your children are using it), HMRC accepts there’s no reservation of benefit.

Pros and cons of rent

If you’re trying to reduce your estate then paying rent to your children for use of the property of, say, £2,000 a year, isn’t a bad idea. This means your estate is reduced further, but the downside is that the rent is income for your children on which they must pay income tax.

Possible tax exemption

There’s a proposal in the pipeline to allow people to receive up to £1,000 per year in rental income tax free. If this comes into force in April 2017 as planned, your children could use the tax-free allowance to avoid or significantly reduce their tax liability on the rent you pay. However, there might be an even better option.

Tip. By only giving your children a joint share of the property and keeping a share for yourself, you won’t have to rely on the “virtually entirely” exclusion rule or pay rent. Subject to just two simple conditions, you can continue to use the property when you like and the value of the share you give away will cease to be part of your estate for IHT purposes after seven years.


As long as you and your children can use the property and you all share the running costs, there will be no reservation of benefit for you. The simplest way to prove to HMRC that expenses are being shared is for you and your children to contribute equally to a joint bank account set up to meet property running costs. Note. There could be capital gains tax payable when you give away assets, such as a second home, so check this before you go ahead.

Either pay a commercial rent each time you use the property, or only give away a share of it. In the latter situation as long as you and the new joint owners share running costs, you can continue to use it as much as you like. The value of the joint share will cease to be part of your estate after seven years.



When can share losses be set against income tax?

If you’re unlucky enough to have bought shares in a company which has gone bust you can claim a tax deduction for the loss. However, the Upper Tribunal had to decide for which year it could be claimed. What was the outcome?

If you buy shares in a company and then sell them for less than you paid for them, the difference counts as a capital gains tax (CGT) loss. This can be set against capital gains you make for the same or later years. What’s more, in some circumstances you can claim a CGT loss even where you don’t sell the shares.

Negligible value

A special rule allows you to claim a CGT loss where the value of the shares has become negligible; there’s no requirement to actually sell them to claim the loss. It’s a sort of “have your cake and eat it” clause because if, and hopefully when, the share value increases, there’s no clawback of the loss relief claimed.

Tip. You can claim the loss for the year in which the share value became negligible, or any subsequent year, as long the shares remain worthless at the time. This gives you some useful flexibility when setting the loss against capital gains.

Income tax relief

Where conditions are met, broadly that you subscribed for the shares, i.e. bought them direct from the company, and the company carries on a trade, you can convert the capital loss into an income tax one. The chances are that you’ll be able use this more tax efficiently than a CGT loss. For example, the maximum rate of CGT for 2016/17 is 28% (in most situations the maximum is only 20%), whereas the highest income tax rate is 45%.

Loss disputed

It’s against this background that Mr and Mrs Dyer (D) made a claim for negligible value in respect of shares in their trading company for 2007/8, which they converted to an income tax loss for the same year. HMRC refused the claim, and so D argued their case at the First-tier Tribunal (FTT), but lost. They appealed to the Upper Tribunal (UT).

Questions of timing

The UT confirmed the FTT’s ruling. Its decision turned on a single word in the negligible value rules - “become”. A loss can only be claimed if the shares have become of negligible value after you have bought them. The company was already worth virtually nothing when D bought the shares so the value could not become negligible because it already was. It’s a small but vital point.

Were losses lost?

Ultimately, D’s company went into liquidation and they received nothing for their shares. This meant they had an actual CGT loss, rather than one created by the negligible value rules. So they could have claimed the loss at that time, but this was not what happened and so their claim for 2007/8 loss relief failed.

Tip. Before making a high risk investment in a company where CGT or income tax loss relief is an important factor in your decision, first make sure the conditions are met.

The Tribunal ruled that if you buy shares in a company, which are worth little or nothing at the time, you can’t later claim a capital gains tax loss for your investment because the shares are of negligible value. You can only claim a loss when you sell the shares for less than you paid or receive less as a result of liquidation.



New pensions exemption takes shape

The 2016 Budget proposed a new tax exemption for pension’s advice. A recent HMRC document about it contains one or two surprises. What’s the full story?

New exemption. In September 2016 HMRC published a consultation paper that spells out in more detail the pensions advice allowance (PAA), which is scheduled to take effect from 6 April 2017. The PAA will be tax-free money you can take from your pension fund to pay for pension’s advice by an authorised financial advisor.

Defined contribution schemes only. The PAA will apply to defined contribution schemes, also known as money purchase schemes, such as personal pension plans. These involve investing money which you can draw or use to buy a pension when you reach 55. Defined benefit schemes, also called final salary schemes, already offer a means of providing for tax-free pensions advice so the PAA won’t apply to these.

How much? The Budget announcement indicated that the PAA would be set at £500. While the consultation paper confirms this, it also proposes that it should be available more than once up to the age of 55, although the precise number of PAAs hasn’t been decided on.

Two allowances. The 2016 Budget also proposed a £500 exemption for employer-paid-for pension’s advice. An exemption of £150 has existed for many years, so the increase is just to give it parity with the PAA. The really good news, especially for financial advisors, is that the government intends to allow you to combine the increased exemption and the PAA to pay for up to £1,000 worth of tax-advantaged financial advice. This could be really beneficial as pensions advice can more than pay for itself.

Tip. It’s intended that, as an employer, you’ll be allowed to pay up to £500 for pensions advice for employees using a salary sacrifice arrangement, despite the new restrictions which will apply to these).

The new exemption can be combined with a similar one for employer-paid-for pension’s advice. This means that from 6 April 2017 you’ll be able to obtain up to £1,000 of tax-advantaged pensions advice


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