Most tax advisers can tell clients about the tax relief potentially available if they have suffered losses on unquoted trading company shares for which they subscribed (ie new shares issued by the company).

Under very specific rules, these losses can be set against the client’s income for the year of the loss and for the prior year. From 6 April, this could give tax relief at 50% of the amount paid – not perfect but better than the tax relief normally available for losses suffered on share investments. But our recent experience suggests that some investors do not know the full story, a view borne out by a recent tax case involving an individual who spent £400,000 in buying new shares in his company. The company, which owned a ship moored on the Thames, went into administration and the investor Mr Harper, tried to set off his losses against his other income. Had he succeeded, his overall loss might have been reduced to £240,000.

But HMRC opposed this, on the grounds that the shares were never worth anything (Mr Harper invested to stop the company and perhaps the ship going under sooner) and that he had lost nothing on the shares. The tribunal supported HMRC on this point, meaning that he got no tax relief at all and lost the whole £400,000. Before subscribing for new shares, people need to consider this; if the company is worthless after the investment, it cannot have increased in value.

There might be a better (ie more tax efficient) way of investing the money – please, please, please, take advice!

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.

• Email This
• Print
• Comments
• Trackbacks

Following the changes in capital allowances earlier this year, if your capital spend exceeds the annual investment allowance (£50,000) it could take over ten years for a business to get tax relief for most of the costs of equipment used in its business.

However, if you buy assets that you expect to be used for less than four years from the end of the current accounting period, you can make an election and keep the asset separate. Tax relief will be given at the usual 20% rate but when the asset is sold or scrapped relief for all the remaining value will be allowed in that year.

This is definitely worth looking at, particularly for unincorporated businesses, bearing in mind the new 50% tax rate.

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 blog with Cathy you can call her on 01908 605552.

• Email This
• Print
• Comments
• Trackbacks

This year’s Finance Act provides exemption from UK tax on overseas dividends with effect from 1 July 2009. The position is complicated, with different exemptions and pre-conditions plus the inevitable anti-avoidance legislation. One key point is that the exemption does not extend to branch profits. Going forward, therefore, the structure for new ventures will need careful consideration to reduce UK tax.

There are different regimes for small and large companies (large companies are defined as having more than 250 employees and turnover or balance sheet value of more than £10 million). Broadly, most 'normal' dividends will be exempt.

The provisions are welcome but do they need to be so complicated!

Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author.

• Email This
• Print
• Comments
• Trackbacks

The moral is – to use a cliché – the devil is in the details. Make sure yours are right.
It seems odd that for couples who borrow funds in joint names tax relief is usually available for the interest paid by the spouse using the loan for a qualifying purpose HMRC normally accept an entitlement to full relief for the interest paid, even if the interest is paid out of a joint account (see HMRC’s Savings & Investment Manual 10040).

However, where one spouse takes out the loan, which is then used in a joint qualifying investment, HMRC’s view is that income tax relief would only be available to the spouse who took out the loan, and only then in proportion to the amount of qualifying investment by that spouse.

The moral is – to use a cliché – the devil is in the details. Make sure yours are right.

Comment on this blog in the space provided below, or visit my profile for details of how to contact me. 

Cathy Corns is a Tax partner at Mercer & Hole. 

• Email This
• Print
• Comments
• Trackbacks

Currently interest paid by individuals on loans used to invest in certain companies or in partnerships may qualify for income tax relief.

However, HMRC believe that this relief is being exploited and so relief is being withdrawn where the loan and investment are part of an arrangement that eliminates any real commercial risk.

This may cause a problem for people who have invested in tax saving schemes in the past as the restriction applies to interest paid on or after 19 March 2009 irrespective of when the loan was taken out. 

Comment on this blog in the space provided below, or visit my profile for details of how to contact me.

Cathy Corns is a Corporate Tax Partner at Mercer & Hole.

• Email This
• Print
• Comments
• Trackbacks

As mentioned in earlier blogs, this year’s Budget will be given by the Chancellor on 22 April 2009 – it has been delayed until after the G20 summit, which is then immediately followed by the Easter recess.

At this time of year many tax professionals try to second-guess what the Chancellor may announce in his Budget. Turmoil in the world’s markets makes these predictions harder than ever – he needs to increase the tax take, but will higher taxes cripple an already weakened economy?

We do know that the rate of VAT is set to revert to 17.5% on 1 January 2010. There are already cries for the 15% to be retained, but if it does go up next year would he be tempted to fix the rate at 20%?

Scrapping higher rate tax relief on pension contributions has often been put forward as something the Chancellor might consider – will this be the year that it happens?

As usual, we will just have to wait and see! 

We will be blogging on Tax Plus Blog and SME Plus Blog on Budget day.  If you do not already subscribe to our blogs click here for Tax Plus Blog or here for SME Plus Blog to ensure you get our comment and analysis as and when it happens.

• Email This
• Print
• Comments
• Trackbacks

The Treasury is concerned that certain structures are “abusing” the rules for tax relief on travel at a cost to the exchequer of around £300m.

A Treasury consultation paper reveals that losses may significantly increase if it does not clamp down.

Let’s hope this time the solution does not penalise businesses who are not looking to avoid tax.
 

• Email This
• Print
• Comments
• Trackbacks

From 1 August the rate available for qualifying small and medium-sized enterprises (SMEs) investing in R&D will increase from 150% to 175%.

The size of company that can qualify for tax relief will also increase, from 250 employees to up to 500, with the associated limits on balance sheet value and turnover also doubling.
 

• Email This
• Print
• Comments
• Trackbacks

R&D is a wide ranging and generous tax relief. In our experience many businesses are not claiming the relief to which they are entitled because they do not recognise that they are actually undertaking any qualifying research and development activities, e.g. product development, improvement, etc. The DBERR (formerly DTI) website http://www.berr.gov.uk/files/file36112.pdf gives examples of businesses that have qualified – the range of qualifying trades is amazing.

R&D tax relief has recently become much more accessible to businesses; the set up of the new specialist units with Inspectors who state their brief is to give money away makes claiming relief simpler. However, to complicate matters the Revenue have introduced a restriction on claims: from 31 March 2008 claims may only be made for the last two years rather than the potential six as is currently the case.

R&D is a valuable relief:

• 100% capital allowances
• 125% on qualifying costs for large companies and sub-contractor costs
• 150% for direct costs of SMEs.
  
  

The rates on the latter two should increase to 150% and 175% from April this year, subject to EU State Aid approval.

Time is running out – if you think you may have a claim we need to act quickly.

• Email This
• Print
• Comments
• Trackbacks