Yorkshire Young Achievers Awards 2017

Achievement in Education sponsored by Positive Tax Solutions LLP

We were delighted to be sponsoring the Achievement in Education Award again this year at the 25th Anniversary Yorkshire Young Achievers Awards.

Dally Purewal receives the Achievement in Education Award from Stephen Burwood of Positive Tax Solutions LLP
Yorkshire Young Achievers Awards 2017

 

 

 

 

 

 

 

The winner, Dally Purewal of Leeds, runs a successful business in Chapel Allerton, providing web design, graphic design and print to a number of both established businesses and start-ups.

But in addition to her full-time career, she also works tirelessly to ensure other people have similar success.

She is a valued member of the Yorkshire Asian Business Association and of the Women in Business Network and is regularly involved with business advice pop-up cafes with the Leeds City Region Enterprise Partnership.

She has worked with Global Diversity Positive Action, a charity which supports young people who are not in education, employment or training to get back into the workplace by creating an on-line platform to engage its young users.

She is passionate about coming up with ideas to help businesses thrive and grow and a great believer that women encouraging and supporting each other can create amazing opportunities.

 

Winding up a company – The Targeted Anti-Avoidance Rule

HMRC introduced a Targeted Anti-Avoidance Rule in Finance Act 2016 to counter the practice of winding up a company for tax avoidance purposes, specifically attempting to convert dividends into a capital payment.

HMRC have now published guidance (see here ) to indicate the circumstances in which the anti-avoidance rule would be invoked leading to the extracted profits being subject to income tax rather than the hope for capital gains tax.

HMRC give an example of such a practice

Mr J is a dance instructor who runs his business through his own company. At the end of each year, instead of paying himself a dividend (which would be liable to Income Tax), Mr J winds up his company and receives the profits as a distribution in a winding up, liable to Capital Gains Tax. He then immediately creates a new company and continues his dance instruction business.

This practice is often known as ‘phoenixism’ (because the new company rises from the ashes of the old).

The example given is straight forward but it comes as no surprise that the guidance covers more sophisticated methods of attempting to extract profits from the company at capital gains tax rates where the owners intend to carry on the business albeit in a new guise.

HMRC say in their guidance

Ultimately, the legislation is asking whether the individual that has received the distribution is continuing what amounts to the same business, having extracted the accumulated profits in a capital form. This is inevitably a question of judgment to be made on the basis of facts in individual cases.  The following issues are likely to be relevant:

  • Is there a tax advantage, and if so, is its size consistent with a decision to wind-up a company to obtain it?
  • To what extent does the trade or activity carried on after the winding-up resemble the trade or activity carried on by the wound-up company?
  • What is the involvement in that trade or activity by the individual who received the distribution? To what extent have their working practices changed?
  • Are there any special circumstances? For example, is the individual merely supplying short-term consultancy to the new owners of the trade?
  • How much influence did the person that received the tax advantage have over the arrangements? Is it a reasonable inference that arrangements were entered into to secure this advantage?
  • Is there a pattern, for instance have previous companies with similar activities been wound-up?
  • What other factors might be present to lead to a decision to wind-up? Are these commercial and independent of tax benefits?
  • Are there any events apparently linked with the winding-up that might reasonably be taken into account? For example, was the only trade sold to a third party, leaving just the proceeds of the sale?

Clearly a business can come to the end of its useful life, for example, as a result of:

1. The shareholders reaching retirement
2. Loss of business

The shareholders may then consider winding the company up and distributing any assets, including cash, to themselves.  Generally that would result in a capital gains tax liability arising where the value of the assets received exceeds the base cost of the shares.  The rate of tax payable, after taking into account the annual exemption,  will depend on whether or not entrepreneurs’ relief is available.

In those circumstances where there is no continuing business activity it is unlikely that HMRC would invoke the anti-avoidance rule.

As always when contemplating change in business circumstances professional advice should be sought.

EMI and CSOP schemes gain in popularity

HMRC have published a report setting out the statistics in respect of the 4 shares schemes that have advantages to employers and employees.  In their summary they say:

Employee share schemes are used by companies to grant options to buy shares or award shares directly to their employees. HMRC offers four share schemes that have tax-advantages to both employers and their employees. Company Share Option Plan (CSOP) and Enterprise Management Incentives (EMI) are for certain employees chosen at the discretion of the employer. Save As You Earn (SAYE) and Share Incentive Plan (SIP) are for all employees.

The value of EMI and CSOP share options granted increased by 23% and 20% respectively between 2013-14 and 2015-16. SIP share values have reduced by 6%. The value of tax relievable gains on EMI and CSOP share options exercised have increased by 23%, this is mainly driven by the large increase in EMI gains in 2015-16.

Click here To see the full report

Share Scheme – Reports to HMRC

Employee share schemes have their own reporting regime called ERS online.

The first year for which annual reports had to be submitted using ERS online was 2014/15.

To file the ERS report the employer, or tax agent, must submit a spreadsheet in a particular format. Templates are provided for the four tax advantaged share schemes (CSOP, SIP, EMI and SAYE), other arrangements or schemes under which employees have acquired shares must be reported using the “other employment related securities schemes” template.

The HMRC templates are in open document (ODS) format, so the employer has to download the right software to use them. HMRC say that the CVS format is acceptable if employer wishes to construct their own spreadsheets, but CVS spreadsheets often fail to submit. There have been problems with these spreadsheet templates since 2015, and this year the whole ERS online system has been down for some weeks.

As the statutory deadline for submitting the annual share scheme reports for 2016/17 is 6 July 2017, some employers are starting to panic. Late on 23 June HMRC released the June 2017 issue of the Employment-related Securities Bulletin, which revealed the ERS reporting deadline has been extended by concession to 24 August 2017. Penalties will apply if the share scheme reports are not received by this extended deadline.

HMRC emphasis that an annual report is due for every share scheme registered with ERS, even if there are no events in the year, in which case a nil report is required. Where the share scheme was closed in the year an annual report must still be submitted for that tax year.