ETC Tax- Winter Newsletter 2023 | Tax Matters That Matter

TAX MATTERS

Wealth Generation Terrorists

EMPLOYEE OWNERSHIP

– Clive Haworth discusses how employee ownership is becoming more popular

DUB(AI) BE GOOD TO ME?

– Andy Wood deliberates if we can move seamlessly, fiscally speaking, from the UK to the UAE?

MEMBER’S VOLUNTARY LIQUIDATIONS, ARE YOU PREPARED?

Up and coming ETC Tax online events

Tax Issues Relating to Residence and Domicile

– The Devil is in the detail

• Book early to secure your place and don’t miss our early bird offers!

• Free ticket for Tax Partner Pro Premium Members

• Follow us on Eventbrite

To view our next up and coming events, and to purchase your tickets click here

Making the complex simple

04

Wealth Generation Terrorists

– Under neon loneliness – Self Assessment deadline looming. 08

Employee Ownership

– Clive Haworth discusses how employee ownership is becoming more popular. 10

Member’s Voluntary Liquidations, are you prepared?

– Guest article from KBL Advisory.

14

Case of the Month

– Andy Wood deliberates if we can move seamlessly, fiscally speaking, from the UK to the UAE?

Regulars 16 Bulletin

First word

Happy New Year from the team at ETC Tax

Although Christmas seems like a distant memory now, we hope you all had a wonderful break and are looking forward to what 2023 has in store!

Don’t forget Tax Matters, That Matter is released each quarter and our e-Newsletter will arrive in your inbox each month so you won’t miss out on any Tax news and updates from our expert tax advisers!

This month we bring you…

Wealth Generation Terrorists – Under neon loneliness – Self Assessment deadline looming – Vincent Costello talks about that time of the year…The annual tax return deadline!

Employee Ownership – Popularity is on the up! – Employee ownership of companies (or employees owning some shares in the company) is becoming increasingly popular, Clive Haworth looks at ways in which this can be achieved.

Member’s Voluntary Liquidations, are you prepared? – Feature guest article from Richard Cole (Director, North West) of KBL Advisory.

Case of the month – Andy Wood deliberates if we can move seamlessly, fiscally speaking, from the UK to the UAE?

Don’t forget to reserve your place on our next live webinar “Tax Issues Relating to Residence and Domicile” on 28th February at 10am click here for more information

Many thanks to Sarah Aston and all the contributors who made this edition happen.

If you have any queries, comments, or observations, then please let us know.

We’d love to hear from you.

Best wishes, Angela

Angela Wood

– Oprah Winfrey

“Cheers to a new year and another chance for us to get it right.”

Managing Director angela.wood@etctax.co.uk

WEALTH GENERATION TERRORISTS

Under neon loneliness –Self Assessment deadline looming

It’s that time of the year again when the annual tax return deadline becomes the main focus for tax advisers and accountants, as well as many taxpayers (or ‘customers’ as HMRC calls them).

Vincent Costello Senior Manager vincent.costello@etctax.co.uk

For the large majority of taxpayers their annual tax compliance, although sometimes daunting to the untrained or unfamiliar, can be relatively straightforward to manage. Having a suitably experienced professional in your corner can take stress away of knowing what to put where or determining what is taxable or allowable.

Some taxpayers do an excellent job of managing their tax affairs independently or with very little assistance. However, for a particular group the need for an adviser becomes almost inevitable if not an absolute requirement. These individuals are referred to by HMRC as ‘wealthy individuals’ and have their personal tax compliance looked after by a designated individual in a specialist HMRC unit. The aptly named ‘Wealthy Team’ sits in the Customer Compliance Group.

Feudal serf to spender – So what is a wealthy individual?

To be classed as a wealthy individual in the eyes of HMRC there are a couple of entry levels to gain access. HMRC define ‘wealthy individuals’ as those who have had income in excess of £200,000, or assets equal to or above £2million in any of the last 3 years. It is estimated that there are approximately 800,000 wealthy customers.

Your joys are counterfeit – What is the purpose of this elite team?

HMRC have determined that wealthy individuals present a higher risk of error than other customers as the amounts involved are greater. Because they have the opportunity to invest in more than one country, their tax affairs are much more complex.

A Customer Compliance Manager (CCM) is assigned to a taxpayer dealt with by this unit, with the task of developing an in-depth understanding of the individuals finances and behavior. They review the tax returns alongside the intelligence HMRC has gathered from the UK and overseas sources.

Individuals dealt with here and are more likely to receive a Compliance Check into their tax return, with some individuals having multiple years under investigation at the same time.

HMRC define ‘wealthy individuals’ as those who have had income in excess of £200,000, or assets equal to or above £2million in any of the last 3 years.

To discuss how ETC can help with your tax questions call the team on 0161 711 1320 or email enquiries@etctax.co.uk

This wonderful world of purchase power –the importance of an experienced adviser

Life sold cheaply – you get what you pay for (most of the time)

the

HMRC has access to vast amounts of data and intelligence, more so than ever before. So, does it give HMRC the advantage and are we on a level playing field?

The answer depends on several factors, so only sometimes. It pays to have the right person in your corner, as with most things. Who best to challenge HMRC and defend your or your client's corner than a fully qualified tax adviser who has experience in preparing complex tax returns and has dealt with HMRC's wealthy team and CCMs regularly?

How to approach such tax returns is always a matter of risk. Most accountants we come across have clients that are deemed 'wealthy', but only a few have the confidence to go up against an experienced CCM. Or they don't have the relevant experience required for completing complex tax returns.

More than 12 million tax returns were submitted by taxpayers for the 2020/21 tax year. The wealthy team are therefore dealing with less than 10% of the population. HMRC activity in checking tax compliance is on the increase and with penalties for inaccurate returns being as high as 100% (or 200% if there is offshore non-compliance) of the potential lost revenue it is imperative that advisers and clients are represented in the best possible way. HMRC are gearing themselves up to wage war and are under political pressure to increase tax yield and close the tax gap.

31 January is very close, and the pressure to get returns done and can sometimes lead to inaccurate submissions.

ETC Tax has a highly professional tax compliance team, with experience of dealing with wealthy individuals and HMRC’s wealthy team, both in terms of return preparation and dealing with compliance checks.

this article, but need more advice on any of the topics covered?

MEMBER’S VOLUNTARY LIQUIDATIONS, ARE YOU PREPARED?

Author

Richard Cole Director

KBL Advisory

07862 237741

0161 637 8100

richard

@kbl-advisory.com

There has been much speculation that the Chancellor Jeremy Hunt will look to recoup monies spent supporting companies and individuals during the pandemic via tax increases. Further to this, it has been widely reported Mr Hunt is planning a much-reduced spring budget with ‘no immediate tax cuts’, stating that boosting growth, bringing down inflation and reducing national debt were the government’s top priorities and once business and public confidence has been restored, only then could tax reductions be considered. This comment reaffirmed to many the likelihood of tax increases elsewhere.

With the Spring budget approaching, Capital Gains Tax looks to be in the crosshairs given that it is a soft target, politically, with some predicting that the top rate could more than double from 20% to 45%. There are also murmurings that Business Asset Disposal Relief could be narrowed such that it can only be utilised by retiring directors. Unfavourable changes in CGT rates and/or annual allowances (a reduction of the latter already due to take effect from April 2023) are likely to be implemented and could have significant implications for business owners who maybe retiring soon or looking to close a company.

Members' Voluntary Liquidations (MVL) are a tax efficient way of returning funds to shareholders once a Company comes to the end of its useful life. We always tend to see an increase in enquiries for Member’s Voluntary Liquidations in the lead into a budget

announcement due to concerns of reforms to Capital Gains Tax and Business Asset Disposal Relief (where tax rates are still currently 10%) – a key benefit of an MVL/Solvent Liquidation process.

Time is Running Out..

The Chancellor is under pressure to generate income from somewhere when he delivers his next budget, and we anticipate a surge in MVLs before reforms come into force. Early advice and planning are crucial for any business owner considering an MVL. The process requires planning prior to liquidation to deal with potential issues, ensuring a smooth distribution of funds to shareholders.

Clients that would benefit from an MVL.

- A contractor closing a ‘personal service company’ to take a full-time employed role

- A company owner looking to retire or simply wanting to close down

- Any dormant company that no longer serves a purpose

- Special Purchase Vehicles where the project is complete

Whilst many MVLs can be straightforward, there can be complicating factors. Therefore, it is important that your clients take specialist advice prior to beginning the process.

If you have any clients who would benefit from our advice – they haven’t got long, so please do not hesitate to get in touch.

www.kbl-advisory.com

Enjoying this article, but need more advice on any of the topics covered?

To discuss how ETC can help with your tax questions call the team on 0161 711 1320 or email enquiries@etctax.co.uk

Editor’s comment: Richard has highlighted an important and topical issue. As the UK faces its highest tax burden in over 70 years careful planning and careful consideration of the tax consequences of any planning such as this are critical. This is an area that ETC Tax is well positioned to advise upon www.etctax.co.uk/companies/buying-selling-company

We are an independent insolvency practitioner supporting local accountants and their clients with restructuring and insolvency advice, when they need it most.

Our role as an insolvency practitioner involves supporting and advising businesses and their directors during their most difficult times.

For those business owners and directors faced with financial challenge, having an adviser who will treat you with respect, compassion and understand the situation that you find yourself in is crucial.

Please get in touch should you wish to speak with one of our experienced team.

POPULARITY IS ON THE UP!

Employee ownership of companies (or employees owning some shares in the company) is becoming increasingly popular. Here we look at some ways in which this can be achieved.

Clive Haworth Senior Manager clive.haworth@etctax.co.uk

Employee Ownership Trust (EOT)

By far, the most popular method of transferring ownership of companies is through an EOT.

The attraction for the existing shareholders is that provided certain conditions are met, the sale of shares to the EOT is tax-free.

The main conditions to be satisfied are that the company must be a trading company, and the shares acquired by the EOT must be a controlling interest acquired from individuals.

In a typical scenario, the purchase price of the shares by the EOT will be funded over a period of time – the company will gift money to the EOT to fund these payments.

Once the EOT is in place, the employees may receive bonuses of up to £3,600 per year free of income tax (but not NIC), provided bonuses are calculated in line with equality requirements.

The EOT must be for the benefit of all employees on the same terms, and to qualify for the tax-free treatment, the EOT must hold the shares until the end of the tax year, after which the individual sold their shares.

HMRC Clearance

It is usual to seek clearance from HMRC that the company and EOT meet the qualifying conditions. In addition, it is essential to determine that the share sale price is at arm’s length – any excess is subject to income tax on the shareholder.

Future disposal of shares by the EOT

If the company is subsequently sold, the EOT will pay 20% capital gains tax on its gain on the shares it holds, but this effectively means the CGT liability that the shareholder would have paid (had there been no disposal to the EOT) is passed on to the trust.

Share Schemes

It is not unusual for a tax-advantaged share scheme to be run alongside an EOT. This is usually for the senior management team to enable them to acquire shares personally. This does not impact the EOT itself, provided its shareholding remains a controlling interest. The most popular scheme is the Enterprise Management Incentive (EMI) scheme, as growth in value of the shares from the date of grant to the date of exercise is currently subject to more favourable CGT rates rather than income tax rates. Business Asset Disposal Relief (BADR) is also available, so net gains up to £1m are taxed at 10% rather than 20%. Growth share schemes are also popular. The shares given to employees only participate in future growth in the company's value, so the initial value can usually be agreed upon at par value with HMRC. Again capital gains on the sale of the shares are taxed at CGT rates rather than income tax rates. However, BADR will not be available.

Company Purchase of Own Shares

than than Company

In some circumstances, the company can buy out the majority shareholder leaving other shareholders (which can include employees) in control of the company. Care should be taken in structuring such a transaction correctly to avoid adverse tax consequences.

DUB(AI) BE GOOD TO ME?

Andy Wood Founder & Director andy.wood@etctax.co.uk

Acouple of months ago I wrote a rather bilious article after viewing a video post about a ‘tax influencer’ (should that be effluencer?) shilling the benefits of Dubai.

In short, move here and pay no tax on your personal and business income. It wasn’t a great take.

That’s not to say I don’t like Dubai or the UAE, of course. Being half-reptilian, I love the sun. Further, and more seriously, the UAE is bursting with business opportunities and the ambition of the region is as remarkable as it is refreshing.

As such, the attractions for setting up one’s business and life over there are not lost on me.

But does our fresh-faced influencer have a point or not?

Of course, historically, the UAE has had an exceedingly light touch (we’re talking helium, here) to taxation. However, as we will see, this is shifting for corporate taxes and has already done so for VAT.

So, can we move seamlessly, fiscally speaking, from the UK to the UAE?

Case of the month ETC Tax Your newsletter on tax matters ... that matter Winter 2023

Things tend to be relatively simple where one is upping sticks and moving to the UAE. Say, breaking UK residency and taking up residency in the UAE.

But what about where the entrepreneur is not able, or willing, to leave the UK?

Well, this is where the position is trickier.

In that case, one cannot simply remain in the UK and offshore one’s activities to a new company in the UAE without some substantial tax issues. Depending on the circumstances –these may or may not be manageable.

However, our influencer, who thinks Transfer of Assets Abroad is a cryptic crossword description of suitcase, has not missed a beat.

Corporate taxes

I will start with corporate taxes, as this is perhaps where – from the UAE perspectivethe biggest change is.

UK corporation tax

Assuming that our intrepid entrepreneur has:

• set up a new company in the UAE; and

• has appointed directors in that jurisdiction such that it is ‘managed and controlled’ from the UAE

then the company should not be resident for tax purposes in the UK.

However, a UAE company could still have a UK taxable presence where it has a UK trade or where it has a UK Permanent Establishment. (“PE”) The Company might have a UK PE where is has a UK sales office, for example.

It should be noted that the fact that the Company has UK customers is largely irrelevant. However, clearly, at the other end of the spectrum, where the client base is almost wholly non-UK, then the chances of creating taxable apparatus in the UK is less likely.

Further, for corporation tax matters, unless it can be argued he or she is managing and controlling the company from the UK, the location of the individual shareholder does not really matter.

However, if the shareholder remains UK resident, then this will cause issue with a key set of anti-avoidance provisions called the transfer of assets abroad. We will discuss this below.

New local UAE corporate tax

On the 9th December 2022, the UAE set out legislation for the well anticipated corporate tax, which will be effective for financial years starting on or after 1 June 2023.

Up until now, the UAE has not had any tax on direct profits of individuals or companies. It is thought that the introduction of this new regime better reflects international standards. As such, and by not swimming against the tide, it is hoped these changes will fortify the UAE’s growth as a go-to jurisdiction for business and investment.

Under the new rules, the following will be “Taxable Persons”:

• UAE companies and other non-natural persons (referred to simply as Companies for the rest of this article) that are incorporated or effectively managed and controlled in the UAE;

• Non-resident Companies that have a Permanent Establishment in the UAE

• Natural persons (individuals) who conduct a Business or Business Activity in the UAE as specified in a Cabinet Decision to be issued in due course; and Companies established in a UAE Free Zone are also within the scope of Corporate Tax as “Taxable Persons”.

However, there is an all-important qualification around so-called Qualifying Free Zone Persons. These characters will pay 0% on their Qualifying Income. However, it is not yet understood what this Qualifying Income is!

Broadly, the exposure to UAE corporate tax is as follows:

• Resident Persons: taxable on income derived from both domestic and foreign sources

• Non-Resident Persons: taxed only on income derived from sources within the UAE

The headline rate of corporate tax is 9%, which applies to Taxable Income exceeding AED 375,000. Below this threshold, the rate of tax is 0%

This is an overview of the position and we would strongly recommend obtaining formal local advice before taking, or refraining from, any actions.

Up until now, the UAE has not had any tax on direct profits of individuals or companies.

It should be noted that the fact that the Company has UK customers is largely irrelevant.

To discuss how ETC can help with your tax questions call the team on 0161 711 1320 or email enquiries@etctax.co.uk

Personal taxes

Perhaps somewhat counter-intuitively, it can be the personal tax rules, and the personal tax anti-avoidance rules in particular, that make or break such an exercise.

Leaving the UK

As stated above, whether our entrepreneurial friend is leaving the UK or not will be the seminal question here.

Of course, when I say ‘leaving the UK’, I mean becoming non-UK resident for tax purposes. I haven’t got the space to discuss the statutory residence test here. However, here’s one we prepared earlier!

Where the shareholder in the new company is going to be non-UK resident, we do not have to worry about the anti-avoidance provisions listed below. In addition, if the individual is non-UK resident, then any dividends paid by the new UAE company will be free of UK tax.

One needs to be mindful of the 5-year temporary non-residence rule here. However, if the profits of the Company arise after breaking UK residence, then this should not be an issue even if the individual returns within the 5 year window.

The position is much more perilous where the individual remains in the UK, however…

UK anti-avoidance

If the shareholder remains UK resident, then we have to run the gauntlet of the transfer of assets abroad (“TAA”) rules.

These rules have been on the statute for many decades but are over-looked by those who think that ‘doing a Google’ is as easy as the press want us to think.

These rules bite where, in the context of a company, assets are transferred to a non-UK company to avoid tax and they produce non-UK income. Under basic principles, the Company may escape corporation tax for the reasons set out above.

However, the rules put an end to this relatively simple wheeze by allowing HMRC to essentially look through the entity and assess the individual shareholder on the profits. There are two relevant defences to these rules. Firstly, where the non-UK entity is established broadly for commercial purposes. Also, there is a statutory EU defence if the Company is resident in an EU member state (clearly not relevant for the UAE!)

Local personal taxes?

At present, there is no personal income tax in the UAE.

Value added tax

VAT was also introduced in the UAE relatively recently. The standard rate is 5%.

Conclusion

So, there we have it.

As with any tax planning, it all boils down to the personal and commercial objectives of the individual.

In fact, some might say it’s all in the ‘Tank fly boss walk jam nitty-gritty’.

Something that is difficult to distil into a Tik Tok video.

Of course, when I say ‘leaving the UK’, I mean becoming non-UK resident for tax purposes.

Bulletin:

The latest news round-up from the ETC team

Welcome to the team...

The gift at Christmas

When ETC Tax host an event, whether it's online or an all-day conference we try, where possible to add a charitable element.

We are proud to say in 2022 we raised just over £1,000 for local charities including The Children’s Adventure Farm Trust, Just Drop In and Cash for Kids! We look forward to raising more money for worthy causes in 2023.

Charlotte

We are pleased to introduce Charlotte Murray, who has joined us as Team Administrator. Charlotte is a valuable member of our friendly business support department providing effective administration support to HR, Marketing, Finance, and the wider tax team.

The Report

– Assisting with several voluntary disclosures

– Advising a non-resident landlord on their UK tax requirements

– Dealing with tax matters for a complex estate

– VAT issues relating to a holiday letting business

– Restructuring property investment business

– VAT for a property developer

Christmas drinks all round!

Manchester was the natural choice for our night out celebrating all we’ve achieved in 2022! Good food, fine wine and great company meant the team could forget tax for a few hours and hit the bars of Manchester!

Up and coming ETC Tax online events

28th February

Tax Issues Relating to Residence and Domicile

Click here to book tickets

27th April

Self-Assessment – The Devil is in the detail Click here to book tickets