Use it or lose it

For many in 2016 the return from the Easter break characterises one thing; the fast-approaching end of the tax year.  As in previous years, those who are in position to make the most of their annual ISA allowance but have not yet done so are taking action to use their allowance before they lose it at the end of the tax year.

However, with some significant changes coming in from the start of the next tax year, there is added incentive for people to ensure that they have maximise their tax position in the current year. For example changes to pension scheme rules, particularly for higher earners with the tapering of annual relief and the reduction in the lifetime allowance, could result in some significant and unexpected tax bills in future years unless action is taken now to mitigate those changes.

At the other end of the spectrum changes to personal allowances and the taxation of dividends and bank interest could affect ongoing gift aid payments as donors cease to have any tax liability. We’ll cover this in more detail in a future article but in the meantime those who believe they are likely to be affected by the change and had been meaning to make a charitable donation may find it worthwhile to do so now rather than wait until next tax year.

If you would like to speak to a tax adviser about the implications of new taxation rules in respect of your tax position, please contact Newshams Tax Advisers on 0800 211 8657 or email us at enquiries@newshams.com.

www.newshams.com

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Budgeting for tax

Announcements on sugar tax and disability benefits may have drawn the headlines, but there was certainly plenty in the March 2016 budget to make individuals and businesses reappraise their tax planning for the years ahead.

For effective planning the ‘devil is in the detail’ and as with any budget some of the detail is still to be thrashed out via consultations and negotiations with interested parties.

However, whether you are an individual, a small business or a multinational corporation you may well be advised to check that your accounting, finance and tax planning are still on track given the proposed budget changes.

For example, individuals may have a year to consider the potential effects of the new lifetime ISA, but whether they would be better off in moving some of their funds into this investment vehicle or continuing with their pension or ordinary ISA contributions will depend very much upon an individual’s circumstances.

At the other end of the scale, international corporations will have to consider carefully the implications of the proposed transfer pricing legislation and tax restrictions on offsetting losses.

The lesson from this budget, as with all previous budgets, is that tax planning and budgeting is ever-changing. Individuals and businesses alike cannot afford to simply carry on from year to year with unchanged systems and processes and approaches. As we said in our last blog post, tax need not be taxing, but in order to be effective, tax planning does require regular reviews.

If you would like to speak to a tax adviser about the implications of the latest Budget in respect of your tax position, please contact Newshams Tax Advisers on 0800 211 8657 or email us at enquiries@newshams.com.

www.newshams.com

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Tax Simplification For Small Business

“Tax need not be taxing” so the saying goes but it can sometimes be difficult to cut through speculation, proposal and rumour and get to the heart of how tax should actually be calculated.

This is particularly true around Budget time when business organisations and interested parties are all engaged in putting forward their ideas and proposals in an attempt to influence the Chancellor of the Exchequer.

For example, at the time of writing the budget is only a day away and, whilst the CBI are concentrating on areas such as capital allowances and long term equity investments, the FSB is looking for a simplified small business tax regime which is centred on a single tax payment.

Adding to the mix, the Office of Tax Simplification (OTS) has issued its recommendations for simplifying tax for smaller companies. Containing “a mix of long range structural change ideas and simpler short term administrative improvements” the review recommends that the tax system is simplified so that micro businesses can receive the benefits of incorporation without the administrative burden.

Recommendations include aligning filing and payment dates; eliminating sundry tax allowances and potentially calculating corporation tax on a cash basis for the smallest companies.

One discussion area which has attracted headlines is the idea that profits from the smallest companies could be taxed on the shareholders rather than the company. This ‘look through’ idea was introduced in New Zealand in 2011, although a slow take-up there has been attributed to complex compliance obligations.

Whether this idea remains as a discussion point or comes into force, anything which simplifies the tax calculation burden for small businesses can only be seen as a positive move.

If you would like to speak to a tax adviser about how tax need not be taxing for your business, please contact Newshams Tax Advisers on 0800 211 8657 or email us at enquiries@newshams.com.

www.newshams.com

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Year End Tax Planning

Have you implemented any year end tax planning yet?

With the end of the 2015/16 tax year fast approaching, there is still time to implement some tax planning, but you need to act quickly.

Newshams Tax Advisers are experts at providing a whole range of tax planning solutions for both individuals and businesses. We also have specialist tax planning solutions for landlords and property owners.

So if you want leading tax experts to help minimise your tax costs so you can enjoy more of your hard earned wealth, call Newshams Tax Advisers today on 0800 211 8657.

www.newshams

Call Newshams Tax Advisers for your tax planning solutions today!

Call Newshams Tax Advisers for your tax planning solutions today!

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RBS ‘enjoyed £1bn tax breaks after investing in Harry Potter’

RBS ‘enjoyed £1bn tax breaks after investing in Harry Potter’

RBS set up 25 companies to plough money into the movie industry, which are still making profits for the taxpayer-backed bank!

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/12160752/RBS-enjoyed-1bn-tax-breaks-after-investing-in-Harry-Potter.html

 

 

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Scam HMRC Emails

HM Revenue and Customs (HMRC) has again warned about scam emails on its latest blog for tax agents tinyurl.com/jbc7w4x.

HMRC reminds us that it does not matter what the subject concerns, whether it’s for tax credits, PAYE notices and/or any reminders regarding a tax payment or refund, it will NEVER send an email asking us to disclose personal or financial information.

Scammers are now starting to use the HMRC logo and becoming ever more sophisticated.

Apart from looking out for poor grammar and spelling mistakes, some of the key things to watch out for include the following:

  • Incorrect email address – You should check the “from” address. Fraudsters often try to create email addresses which appear to be genuinely from HMRC‎, for example, “@hmrc.gov.uk”.
  • Bogus website‎ – Scam emails will often include links to bogus websites, which appear to be HMRC, but which will not be and instead will ask for personal information.
  • Urgent Action required – Often the fraudsters ask you to take some immediate action. Watch out for phrases like “you only have 3 days to reply” or “urgent action needed”.

Overall, we all need to be increasingly vigilant and on guard, particularly around key tax filing and payment dates.

If you are looking for any advice on your tax affairs, please contact one of our london tax experts at Newshams Tax Advisers on 0800 211 8657 or email us at enquiries@newshams.com

We look forward to assisting you with your tax queries.

Newshams…. the professional choice!

www.newshams.com 

 

 

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Google Defends its £130m Tax Deal!

Google Logo

Google has defended its £130 million tax deal with HM Revenue & Customs in front of the Public Accounts Committee in the House of Commons reports Newshams Tax Advisers.

This has been a long drawn out affair and clearly unwelcome press and scrutiny for Google and HMRC.

Google has criticised HMRC for the length of time this has taken and believes the company has paid the right amount.

Striking tax deals capture the interest of the public and clearly in these times of heavy clampdown by Governments.

However, despite the raft of anti-abuse measures, there are still many legal tax planning opportunities for businesses and individuals to minimise their tax.

If you would like to discuss how you can reduce your tax costs, contact one of our tax advisers on 0800 211 8657 at Newshams Tax Advisers to see how we can help you.

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Government Measures Could Backfire – CIOT Warns!

Politics.co.uk has reported on how the CIOT belives the Government’s rish could backfire in its article “Rush to draconian anti-abuse penalties may backfire, warn tax experts”

The article can be found here:

http://goo.gl/3Mu4pZ

 

 

 

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The UK Patent Box

The UK Patent Box

What is the Patent Box?

The Patent Box is a new preferential tax regime that came into force on 1st April 2013. It enables companies to apply a reduced corporation tax rate to worldwide profits earned from their patents and certain other intellectual property (IP).

Why has it been introduced?

The Patent Box legislation hopes to encourage innovation by providing an attractive tax regime for companies to locate their development, manufacture and exploitation of patents in the UK and forms part of the Government’s wider aim to position the UK as a world leader in patented technologies.

How does it work?

Broadly, qualifying companies will be taxed at an effective rate of 10% on their worldwide profits arising from qualifying patents and certain other IP.

The full benefit of the regime is being phased in over four financial years and, during this period, companies will need to apply a percentage to the profits generated from their patented inventions. The percentages for each financial year are as follows:

  • 1st April 2013 to 31st March 2014: 60%
  • 1st April 2014 to 31st March 2015: 70%
  • 1st April 2015 to 31st March 2016: 80%
  • 1st April 2016 to 31st March 2017: 90%
  • from 1st April 2017: 100%

The 10% rate applies instead of the standard corporation tax rate which is currently 23%. It has already been announced that the standard rate will be reduced to 21% with effect from 1st April 2014 and then further reduced to 20% with effect from 1st April 2015.

The reduced rate will only be available once a patent is granted. However, profits arising whilst a patent is pending, for a period of up to 6 years from application to grant, can also be included in the Patent Box for the accounting period in which the patent is granted.

Which companies qualify?

The Patent Box regime is available for companies that are subject to UK corporation tax and which commercialise patents or develop new innovative patented products, processes or services.

To qualify for the regime a company must:

  • hold any qualifying IP rights (“hold” includes legal ownership, an exclusive licence to exploit a patent, partnerships, joint ventures and cost-sharing arrangements); and
  • meet a “development condition” by creating or significantly contributing to the creation or development of the patented invention or any product incorporating the patented invention.

Companies that are passive holders of IP, such as IP holding companies, will not qualify.

What about groups?

For a company (A) that is a member of a group, it is possible for A to be eligible if the qualifying development has been undertaken by another member of the group (B), provided that A meet an additional “active management” condition in terms of undertaking a significant amount of the management in relation to the development or exploitation of the IP rights.

Which patents qualify?

The Patent Box regime applies to patents which have been granted by:

  • the UK Intellectual Property Office;
  • the European Patent Office; or
  • equivalent IP offices in countries within the European Economic Area: Austria, Bulgaria, Czech Republic, Denmark, Estonia, Finland, Germany, Hungary, Poland, Portugal, Romania, Slovakia and Sweden.

The scope of the Patent Box extends to other IP rights which are similar to patents and relate to human and veterinary medicines, plant breeding and plant varieties.

What about patents which are licensed?

A company which holds a licence to use somebody else’s technology may still be able to benefit from the Patent Box. However, that company must meet all of the following conditions.

It must have:

  • the rights to develop, exploit and defend rights in the patented invention;
  • one or more rights to the exclusion of all other persons (including the licensor); and
  • those rights must be exclusive throughout at least one entire national territory (rights to manufacture or sell within only part of a country would not qualify as being exclusive).

In addition, the licensee must also either be able to bring infringement proceedings to defend its rights or be entitled to most of the damages awarded in successful proceedings relating to its IP rights.

The exclusive licensing conditions are relaxed for groups of companies, because the Government recognises that one company in the group may own a portfolio of patents while another exploits them.

Tell me more about the type of income included?

Not all of a company’s profits may come from exploiting patented inventions.

In order to be considered as relevant IP income which falls within the Patent Box regime, the income must come from at least one of the following:

  • selling patented products – that is sales of the patented product or products incorporating the patented invention or bespoke spare parts;
  • licensing out patent rights (i.e. licence fees and royalty income);
  • selling patented rights;
  • infringement income; or
  • damages, insurance or other compensation related to patent rights.

A company can also benefit from the Patent Box if it uses a manufacturing process that is patented or provides a service using a patented tool. In these circumstances, it is necessary to calculate a notional marketing royalty. A notional marketing royalty is calculated as a percentage of relevant IP income which the company would pay a third party for the exclusive right to exploit the relevant marketing assets if the company were not otherwise able to exploit them.

How is the Patent Box relief calculated?

Broadly, the reduced 10% rate is applied by taking an additional trading deduction from a company’s corporation tax profits (after certain adjustments have been made).

This is calculated using the following formula:

RP × FY% × ((MR – IPR) ÷ MR)

In the formula:

  • RP is the profits of a company’s trade relevant to the Patent Box.
  • FY% is the appropriate percentage for each financial year.
  • MR is the main rate of corporation tax.
  • IPR is the reduced rate of 10%.

This approach is used to avoid complications where a company may wish to claim losses or other reliefs for the relevant accounting period. Accordingly, before taking the deduction, it is necessary to calculate the amount of profits that qualify for the Patent Box regime.

By way of example:

If a company has taxable profits of £1,000 for the financial year from 1st April 2015 (so the 80% percentage referred to above would apply) which qualify in full for the Patent Box, and the main rate of corporation tax is 20%, then instead of arriving at a tax charge of £100 (by multiplying £1000 by 10%), the calculation is performed as follows:

Calculation Amount        £
Profits chargeable to corporation tax       1,000
Patent Box deduction = £1,000 × 80% ((20 – 10) ÷ 20)          400
Profits chargeable to corporation tax          600
Corporation tax payable = £600 × 20%          120

Where a company’s accounting period straddles two financial years, then it will be necessary to apportion the profits generated from a company’s patented inventions and other IP for that accounting period to each financial year.

How and when does a company claim the relief?

A company needs to claim the relief by way of an election and this must be made within two years after the end of the accounting period in which the relevant profits and income arose.

There is no special form of words that need to be used and the election can be made in the company’s corporation tax computations accompanying the tax return or separately in writing.

How does this work with Research & Development tax relief?

Companies which qualify for the Patent Box are also likely to be undertaking significant research and development (R&D) and, therefore, may also qualify for R&D tax credits. The Patent Box regime complements this relief and, as a result, companies will be able to benefit under both regimes if the necessary requirements are met.

What action should companies be taking?

Now that the Patent Box has come into force, companies wanting to access its benefits should consider the following (non-exhaustive list):

  • Reviewing existing patent portfolio management policies – companies should consider whether to increase the number of products for which they seek patents.
  • Reviewing existing systems – companies should ensure that they have adequate systems to track patents into products or services and to adequately track the attributable income and costs.
  • Reviewing existing licensing arrangements – companies should ensure that the exclusivity requirement is met and, if not, whether such licensing arrangements can be re-negotiated to provide exclusivity.
  • Reviewing existing IP holding company structures – the Patent Box requires a company to be carrying on a trade and, since traditional IP holding companies do not carry on any trade and would, therefore, be outside of this regime, companies should consider whether using an alternative UK IP trading structure would be more tax advantageous.
  • Reviewing group ownership of patents – groups that currently hold their patents outside the UK may wish to consider owning patents in the UK in order to benefit from the regime. Whilst a UK company needs to be involved in the active management of those patents (to satisfy the active ownership condition) and carrying on a trade, the development of the patents may continue to be undertaken by a non-UK group company.
  • Analysing whether expenditure incurred on creating and developing a company’s IP will qualify for the enhanced tax relief or tax credits under the R&D tax regime.

How do I find out more? 

The UK Patent Box provides a tremendous opportunity for companies to access a highly generous tax regime and can, therefore, (with the Government’s backing) make a huge difference to a company’s (or group’s) overall tax charge.

We have the necessary expertise to help you take maximum advantage of this new tax regime.

If you would like to find out more and discuss how your company or group can benefit, please contact one of our Patent Box advisers on 020 7470 8820, email us at enquiries@newshams.com or visit our website http://www.newshams.com.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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International Consultants and Tax

International Consultants and Tax 

As the world becomes a smaller place and with consultants in a variety of different sectors becoming increasingly mobile, Newshams Tax Solicitors in London are seeing a steady increase of instructions from international consultants.

These are individuals who are UK resident (and usually UK domiciled) who are moving overseas to provide consultancy services to a UK company and/or with overseas parties.

So what do such individuals do about their UK tax liabilities?

To continue using their own UK company (assuming they have already been providing their consultancy services through such vehicle) or to set up a new UK company would not be the most tax efficient route.

That’s because UK companies are subject to UK tax on their worldwide income and gains. So any consultancy fees being received by the UK company would be subject to UK tax at the standard rate of 23% (unless taxable profits are below £300,000 where the 20% rate applies). It has already been announced that the main rate will be reduced to 21% for the 2014 financial year and then to 20% with effect from 1st April 2015 (meaning a single corporation tax rate of 20% for all UK companies regardless of their level of profits).

Instead, it is usually worth exploring the use of an offshore company.

There are many countries around the world which provide a range of tax incentives (including no, zero and low corporate income tax rates) in order to attract offshore business.

In addition, some overseas jurisdictions may provide better legal protection from third party creditors and potential litigants who might attempt to seize an individual’s or company’s assets.

Asset protection is often the most important aspect (or one of the most important aspects) of why offshore countries continue to remain popular. Most offshore governments uphold strict confidentiality laws for corporate registries, banks and trust companies. These confidentiality laws operate to afford protection to offshore investors (although generally excluding any proven criminal activities) from third parties, including both private and governmental authorities.

When deciding upon what location may be right for an individual going overseas to provide their consultancy services (whether it’s for the short, medium or long term), it is necessary to consider an individual’s objectives (personal, family and business), their needs for the cash (do they need it all or can some roll-up within the vehicle) together with their tax residence status and the tax laws in that individual’s new home country.

Recently, one individual we advised was moving to a country which had a very generous tax regime for foreign residents which meant that any foreign source income (i.e. from his overseas consultancy company) would not be subject to personal tax for the first 5 years and he was planning to stay for less than that. However, continued use of his own UK company would have meant paying UK tax unnecessarily.

Ultimately, the choice of jurisdiction will depend upon a variety of different factors, such as political security, the business, regulatory and legal environment, asset protection, exchange controls, ease of incorporation, set-up and ongoing maintenance costs, audit requirements, the amount and type of corporate, personal and beneficial ownership disclosures required, as well as the tax considerations such as the corporation/income tax, capital gains and withholding tax rates.

Any decision to move operations offshore should also be considered in light of the continuing international clampdown, led by the OECD and the G8 member countries, on the use of offshore tax havens.

The UK has been at the forefront of this clampdown and recently reached agreement with a number of Overseas Territories and Crown Dependencies to disclose beneficial owners of offshore companies. These territories include Bermuda, the BVI, the Cayman Islands, Gibraltar, Anguilla, Montserrat, the Turks and Caicos Islands, Jersey, Guernsey and the Isle of Man.

Accordingly, the use of any offshore company does come with a number of health warnings given the increasing scrutiny they face and the desire of many Western governments, particularly the UK, in wanting to prohibit their use.

Nonetheless, if you are about to go offshore to provide consultancy services, it is highly recommended that you seek professional tax advice before you enter into agreements with your client and so that you can ensure your commercial objectives can be met whilst at the same time minimizing any unnecessary tax charge.

Newshams Tax Advisers in London are tax experts in this area of international tax law, particularly for consultants and contractors.

If you would like to talk to one of our expert London Tax Advisers, please contact us on 020 7470 8820 or e-mail us at enquiries@newshams.com or visit our website http://www.newshams.com

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