Although Entrepreneurs' relief is readily available to employees and directors who have held the right number of shares for long enough, there is a trap for the unwary and hot headed.

An employee or director who, for example, falls out with his colleagues and resigns before selling his shares in the company will forfeit his right to reduce his tax bill by nearly two thirds, since he will no longer be an employee and will therefore fail to meet this criterion at the date of sale, regardless of how long he might have worked for the company.

There are many times when it's right to make a stand or act on a matter of principle.

But there are others where it may be better to bite your tongue and count to ten...

David Mansell is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with David you can call him on 01604 669330.

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As you may have read in the recent press, the European Court of Justice recently ruled that employers must account for VAT on retail vouchers provided to employees under salary sacrifice arrangements.

The case involved Astra Zeneca and vouchers which could be used by employees in certain shops. Employees who chose to participate in the scheme gave up part of their remuneration and opted to receive the vouchers instead ie a standard salary sacrifice arrangement. The Court took the view that the cash remuneration which the employees gave up was consideration for a supply of services by the company and output tax was due. Astra Zeneca (and others) had sought to recover input tax paid on the purchase of the vouchers but had not accounted for any VAT on providing them to employees.

It is thought that the decision could cost employers £500 million in total if, as expected, HMRC proceed to collect backdated VAT for the last 4 years.

Whilst the case only involved John Lewis/M&S type vouchers, there are potential implications for other salary sacrifice arrangements such as ‘bike to work’ schemes. Childcare vouchers should not present a problem hopefully as childcare is exempt from VAT.

HMRC will no doubt be reviewing all of these schemes over the next few months to see if they can apply the judgement to collect VAT. They have yet to issue any guidance on what they see as the full implications of the decision.

Jane Stacey is a VAT adviser and a senior manager at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Jane you can call her on 01727 869141.

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The increase in capital gains tax to 28% (on most significant gains) may not be welcome.

However, with personal tax rates at 40% or 50% and employees’ and employers’ national insurance set to rise from April 2011, gains are still a more tax-effective option than earned income.

On a personal, level investing for gains rather than income is likely to be more tax effective.

On a business level, is this the time to look at equity incentives rather than bonuses for employees?

There are no easy answers but, despite the Budget, careful planning can still provide a benefit.

Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Cathy you can call her on 01908 605552.

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Enterprise Investment Scheme (EIS) is a generous relief for investors; it potentially offers:

• an income tax credit at 20% of the amount invested – capped at £500,000
• an exemption from capital gains tax on shares on which income tax relief was obtained; and
• an unlimited ability to reinvest sale proceeds and defer a gain.
  It can be useful for companies seeking external finance to be able to offer reassurance on the availability of this relief.

The emergency Budget extended the scope of companies that potentially qualify for EIS investment. Historically the company had to trade as to 80% in the UK. However from the date of the third Finance Act this is changed to a requirement to trade as to 80% in the EEA.

Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Cathy you can call her on 01908 605552.

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According to HMRC’s own statistics there is still a low number of companies claiming tax relief on R&D costs. This is currently a valuable relief and in the short term the number of qualifying companies has been extended. For accounting periods ending on or after 9 December 2009 small and medium sized companies do not have to own the intellectual property created by their R&D.

This should lead to an extension of relief and it is important to look at whether or not your company qualifies.

There is the promise of a review on R&D following the Dyson report that is likely increase the amount of relief available but seek to restrict the availability to a more targeted group including start-ups etc.

It is important therefore to look at qualification and make any claims while you can. We are experienced in this area and are happy to talk through the position.

Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Cathy you can call her on 01908 605552.

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There have always been tax problems where a company purchased a creditor loan relationship at a discount together with a controlling interest in the debtor company. Historically, this gave rise to an immediate taxable profit in the purchasing company – now stopped. However, following changes made by this year’s first Finance Act the tax on the discount would now fall on the debtor.

There are exceptions including corporate rescue transactions but the rules are complex and unless the conditions are satisfied, a deemed release will arise in the debtor company equal to the discount at which the loan was acquired.

This area needs careful planning to avoid problems.

Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Cathy you can call her on 01908 605552.

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The Government has issued a consultation on the taxation of foreign branches of UK companies. Currently companies pay UK tax on these profits but with credit for foreign tax paid.

The proposal is to exempt such profits from UK tax altogether.

The corollary is that losses from such branches would not be deductible for UK tax purposes.

Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Cathy you can call her on 01908 605552.

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As a balance to the reduction in capital allowances, corporation tax rates are reducing from 1 April 2011.

For companies paying tax at the lower rate ie those with taxable profits of less than £300,000, the small company rate is reducing to 20% (from 21%). For large companies with taxable profits over £1.5 million the reduction is more generous; the rate is reducing by 1% pa from 28% down to 24% between 2011 and 2014.

You should remember that the profit limits are reduced for the number of associated or group companies.

It is not easy to move profits but, in view of the reductions in rates, it may be worth reviewing expenditure and provisions with the aim of reducing profits in the current year at the expense of later years when rates will be lower.

Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Cathy you can call her on 01908 605552.

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Unfortunately, the answer is - it depends. The key factor is the commercial deal you or your business can get.

Tax can have an impact though.

Companies claim capital allowances on cars based on CO2 emissions. For cars with CO2 emissions over 160g/km, you can claim CAs at 10% of the cost of the car each year on a reducing balance basis but for lower emission cars capital allowances are available at 20%. These rates reduce to 8% and 18% from April 2012.

In fact, if you buy a car with emissions of 110g/km or less you can claim 100% tax relief in the year of purchase. You may be surprised at what is available at that level and there are several websites where you can see what is on offer.

The other point is that the personal tax charge on benefits for those cars is also lower and hence the company NIC cost.

Just a thought.

Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Cathy you can call her on 01908 605552.

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