Tax Partners

Budget 2017 – highlights and (more) lowlights!

TAX, TAX ACCOUNTANTS, Tax Advice, Tax Consultants, UK TAX, UK TAX ADVICE, UK tax residence Comments Off

Mar 092017

Here is a summary of all the Budget 2017 proposals affecting mainly small and mediums sized businesses and private clients:

Corporation tax:

Offshore property developers: all profits arising on or after 8 March 2017 from trading in and developing land in the UK will be taxed in the UK.
Substantial Shareholding Exemption: new rules will remove the investing company requirement within the Substantial Shareholdings Exemption, and provide a more comprehensive exemption for companies owned by qualifying institutional investors.
Loss relief reform: the amended rules a) give all companies more flexibility by relaxing the way in which they can use losses arising on or after 1 April 2017 when they are carried forward – these losses will be usable against profits from different types of income and profits of other group companies and b) restrict the use of losses carried forward by companies so that they can’t reduce their profits arising on or after 1 April 2017 by more than 50% – this restriction will apply to a company or group’s profits above £5 million – carried forward losses arising at any time will be subject to the restriction
Tax treatment of appropriations to trading stock: new proposals will remove the ability of businesses with loss-making capital assets to obtain an unfair tax advantage by converting those losses into more flexible trading losses. The changes will take immediate effect from Budget on 8 March 2017.
Corporation tax rate has changed from 20% to 19% effective 01 April 2017

Income tax:

Income Tax charge and rates: tax year 2017 to 2018 will see 3 distinct groups of rates: the ‘main rates’, which will apply to ‘non-savings, non-dividend’ income of taxpayers in England, Wales and Northern Ireland, the ‘savings rates’, which will apply to savings income of all UK taxpayers, and the ‘default rates’, which will apply to a very limited category of income taxpayers that will not fall within the above 2 groups, made-up primarily of trustees and non-residents (details here)
Dividend allowance reduction: the 0% tax allowance for dividend income will be reduced from £5,000 to £2,000 from April 2018 ()
EIS and SEIS: the rights to convert shares from one class to another will be excluded from being an arrangement for the disposal of those shares within the no pre-arranged exits requirements for the EIS and SEIS for shares issued on or after 5 December 2016.

………more to follow

VAT – Limited Cost Traders

UK VAT, UK VAT ADVICE, UK VAT Registration, VAT ACCOUNTANTS, VAT ADVISORS, VAT SERVICES No Responses »

Feb 192017

At the start of 21^st century it dawned on the then generous Commissioners (HMRC) that VAT was a subject too complicated for small businesses (with turnover up to £150,000) to be spending their business time on. So, they inserted a new Part VIIA into the Value Added Tax Regulations1995 introducing what is now known as the ‘flat rate scheme’ (FRS). Simply put, normal VAT accounting would mean paying to HMRC the difference between the output tax collected on sales less input taxes paid on purchases made during a VAT period. But then simplicity has never had anything to do with VAT anyway. Accounting for VAT for each item of sales and purchases and other inputs, as a matter of fact, ate up considerable time each quarter. FRS, on the other hand, promising instant simplicity, would disregard input taxes altogether and, subject to some exceptions, the VAT due from a person operating it for any VAT period would be the appropriate percentage of his gross turnover (including VAT) for that period. The percentages varied from 4% to 14.50% depending on which sector the business operated in. So, if you were an accountant in practice, and for a VAT period if the turnover was £100,000 + 20% VAT, you would pay 14.5% of £120,000= £17,400 over to HMRC and keep the change of £2,600 (£20,000-£17,400). Simple? Not really.

Firstly, there was this constant tug of war between HMRC and the business as to what percentage should apply. HMRC would obviously look for a classification with a higher percentage rate and the business would argue otherwise. The Chilly Wizard Ice Cream Co Ltd successfully argued that its ice cream kiosk with two plastic chairs kept outside for customers to sit and relax was a business “retailing food, confectionery, tobacco, newspapers or children’s clothing” attracting 4% FRS VAT as opposed to “catering services including restaurants and takeaways” attracting 12% VAT as HMRC argued. Calibre Tas Ltd was into “business services that are not listed elsewhere” applying 12% instead of HMRC’s choice of “management consultancy” that attracted a 14% charge. Then there was this mechanical engineering business (Idess Ltd) successfully arguing that its was “any other activity not listed elsewhere” as opposed to HMRC classification of “architects, civil and structural engineers or surveyors” with 2.5% VAT advantage.

Then there were other complications; businesses seeking to apply FRS retrospectively, changing an appropriate percentage rate already chosen and applying a new percentage, and so on. However, HMRC appeared more concerned about businesses voluntarily registering (those below the registration threshold) for VAT with a view to pocketing the FRS bonus!

Enough: HMRC decided in the 2016 autumn statement that it wished no more to be generous with the small businesses as there has been an ‘aggressive abuse’ of the scheme. So, to be introduced in to the list of business sectors effective 01 April 2017 is a new category called ‘Limited Cost Trader’ effectively killing the scheme for most of the small businesses. A limited cost trader will be defined as one whose VAT inclusive expenditure on goods for a VAT accounting period is either less than 2% of their gross turnover; or more than 2% but less than £1,000 (or £250 for a quarterly return).Those hit by ‘limited cost trader’ definition will be responsible for using the new 16.5% rate or the trade-related rate as appropriate. A 16.5% on the gross turnover (including 20% VAT) will effectively mean paying 20% of the output tax collected, and thus writing the obituary of the scheme for many out there.

Now for those enterprising businessmen and women, goods, for this purpose excludes a) items of capital expenditure, b) food or drink for consumption by the business or its employees, and c) vehicles, vehicle parts and fuel (except where the business is one that carries out transport services – for example a taxi business – and uses its own or a leased vehicle to carry out those services). So, don’t just rush to buy a laptop every quarter thinking that would keep you out of being a limited cost trader! However, all is still not lost – you could still buy items of stationery, ink cartridges, software etc for example, and still stay out of this new category!

So back to the twentieth century for quite a few out there when it comes to preparing and filing their quarterly VAT returns!

Tax Partners

UK Company Laws

Company Secretarial Services, Company strike off - law and procedure, UK Companies Act, UK company laws Comments Off

May 252016

Companies’ legislation in the UK comprises both primary and secondary legislation. The primary legislation is made up of Acts of Parliament and comprises the following Acts when it comes to Companies’ legislation:

Acts of Parliament

Companies Act 2006

Company Directors’ Disqualification Act 1986

Partnership Act 1890

Limited Liability Partnerships Act 2000

Companies (Audit, Investigations and Community Enterprise) Act 2004

Small Business, Enterprise and Employment Act 2015

Statutory Instruments

Statutory instruments (SIs), also called the secondary or sub-ordinate legislation, are a form of legislation which allow an Act of Parliament to be altered or brought in to force without Parliament having to pass a new Act. Sis can also be used to amend, update or enforce the primary legislation (i.e. the Act). The following Sis form part of the companies’ legislation:

Accounts

The Companies (Revision of Defective Accounts and Reports) Regulations 2008

The Companies (Summary Financial Statement) Regulations 2008

The Companies Act 2006 (Amendment) (Accounts and Reports) Regulations 2008

The Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008

The Companies (Defective Accounts and Directors’ Reports)(Authorised Person) and Supervision of Accounts and Reports (Prescribed Body) Order 2008

The Companies (Late Filing Penalties) and Limited Liability Partnerships (Filing Periods and Late Filing Penalties) Regulations 2008

The Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008

The Small Limited Liability Partnerships (Accounts) Regulations 2008

The Large and Medium Sized Limited Liability Partnerships (Accounts) Regulations 2008

The Companies Act 2006 (Accounts, Reports and Audit) Regulations 2009

The Small Companies (Micro-Entities’ Accounts) Regulations 2013

The Companies, Partnerships and Groups (Accounts and Reports) (No. 2) Regulations 2015

The Companies (Political Expenditure Exemption) Order 2007

Annual return

The Companies Act 1985 (Annual Return) and Companies (Principal Business Activities) (Amendment) Regulations 2008

The Companies Act 2006 (Annual Return & Services Addresses) Regulations 2008

Articles

The Companies (Model Articles) Regulations 2008

The RTM Companies (Model Articles) (England) Regulations 2009

Audit

The Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008

Companies Act 2006 (Transfer of Audit Working Papers to Third Countries) Regulations 2010

The Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) (Amendment) Regulations 2011

The Statutory Auditors and Third Country Auditors (Amendment) Regulations 2011

The Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012

Charges

The Companies (Particulars of Company Charges) Regulations 2008

The Companies Act 2006 (Amendment of Part 25) Regulations 2013

Community Interest Companies

The Community Interest Company Regulations 2005

The Companies Act 2006 (Commencement No. 2, Consequential Amendments, Transitional Provisions and Savings) Order 2007

Companies House

The Companies (Cross-Border Mergers) Regulations 2007
The Companies Act 2006 (Part 35) (Consequential Amendments, Transitional Provisions and Savings) Order 2009
The Registrar of Companies and Applications for Striking Off Regulations 2009

The Registrar of Companies (Fees) (Companies, Overseas Companies and Limited Liability Partnerships) Regulations 2009
The Registrar of Companies (Fees) (European Economic Interest Grouping and European Public Limited-Liability Company) Regulations 2009
The Unregistered Companies Regulations 2009
The Companies (Companies Authorised to Register) Regulations 2009
The Registrar of Companies (Fees) (Amendment) Regulations 2009
The European Economic Interest Grouping and European Public Limited-Liability Company (Fees) Revocation Regulations 2009
The Companies Act 2006 (Annual Returns) Regulations 2011
The Overseas Companies (Execution of Documents and Registration of Charges) (Amendment) Regulations 2011

The Companies (Disclosure of Address) (Amendment) Regulations 2015

The Companies (Disclosure of Date of Birth Information) Regulations 2015

Company names

The Company Names Adjudicator Rules 2008

The Company and Business Names (Miscellaneous Provisions) Regulations 2009

The Company, Limited Liability Partnership and Business Names (Miscellaneous Provisions) (Amendment) Regulations 2009

Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009

The Company, Limited Liability Partnership and Business Names (Sensitive Words and Expressions) Regulations 2009

The Companies Act 2006 (Substitution of Section 1201) Regulations 2009

The Company, Limited Liability Partnership and Business Names (Public Authorities) Regulations 2009

The Limited Liability Partnerships (Amendment) (No. 2) Regulations 2009

The Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015

Directors

The Companies (Disqualification Orders) Regulations 2009

The Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Insolvency and Company Directors Disqualification) Regulations 2015

Disclosures

The Companies (Trading Disclosures) Regulations 2008

The Companies (Trading Disclosures) (Insolvency) Regulations 2008 2008

The Companies (Trading Disclosures) (Amendment) Regulations 2009

Forms

The Companies (Forms) (Amendment) Regulations 2008

The Companies (Registration) Regulations) 2008

Overseas companies

The Overseas Companies Regulations 2009

The Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009

The Overseas Companies (Execution of Documents and Registration of Charges) (Amendment) Regulations 2011

Shareholders

The Companies (Shareholders’ Rights) Regulations 2009

The Companies (Unfair Prejudice Applications) Proceedings Rules 2009

Share capital

The Companies (Reduction of Capital) (Creditor Protection) Regulations 2008

The Companies (Reduction of Share Capital) Order 2008

The Companies (Shares and Share Capital) Order 2009

The Companies (Share Capital and Acquisition by Company of its Own Shares) Regulations 2009

The Companies (Authorised Minimum) Regulations 2009

The Companies Act 2006 (Allotment of Shares and Right of Pre-emption) (Amendment) Regulations 2009

The Companies Act 2006 (Amendment of Part 18) Regulations 2013

The Companies Act 2006 (Amendment of Part 17) Regulations 2015

The Companies Act 2006 (Amendment of Part 18) Regulations 2015

Statutory records

The Companies (Company Records) Regulations 2008

The Companies (Fees for Inspection of Company Records) Regulations 2008

Strike off

The Registrar of Companies and Applications for Striking Off Regulations 2009

The Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2015

Annual Tax on Enveloped Dwellings (ATED)

ATED - Annual Tax on Enveloped Dwelling, UK TAX No Responses »

Sep 242015

ATED is a tax (s.94 Finance Act 2013) charged on ‘non-natural persons’ (a company, a partnership with a company member, or a collective investment scheme) that hold an interest in one or more UK residential dwelling(s) known as (a ‘single-dwelling interest’) and where that single dwelling interest is worth a certain value threshold as follows:

above £500,000 (but not more than £1 m) — tax charge £3,500 (from 1 April 2016 – s.110 Finance Act 2014)

above £1 million (but not more than £2 m) — tax charge £7,000 (from 1 April 2015 – s.109 Finance Act 2014)

above £2 million (but not more than £5 m) — tax charge £23,350 (from 1 April 2015; for chargeable periods beginning 1 April 2014, the charge was £15,400; for chargeable periods beginning 1 April 2013, the charge was £15,000 – s.70 Finance Act 2015)

above £5 million (but not more than £10 m) — tax charge £54,450 (from 1 April 2015; for chargeable periods beginning 1 April 2014, the charge was £35,900; for chargeable periods beginning 1 April 2013, the charge was £35,000 – s.70 Finance Act 2015)

above £10 million (but not more than £20 m) — tax charge £109,050 (from 1 April 2015; for chargeable periods beginning 1 April 2014, the charge was £71,850; for chargeable periods beginning 1 April 2013, the charge was £70,000 – s.70 Finance Act 2015)

above £20 million — tax charge £218,200 (from 1 April 2015; for chargeable periods beginning 1 April 2014, the charge was £143,750; for chargeable periods beginning 1 April 2013, the charge was £140,000 – s.70 Finance Act 2015)

It does not apply where an individual alone, or with other individuals, owns a residential property. ATED is an annual tax and is charged in respect of ‘chargeable periods’ running from 1 April to 31 March. The first chargeable period was 1 April 2013 to 31 March 2014. Where a person owns a single-dwelling interest for a shorter period then its chargeable period will be 1 April to the date it no longer owns the interest (for example 1 April 2015 – 28 January 2016). Furthermore, where a liability arises in only part of the year then a proportion of the annual amount payable will need to be paid.

In order for ATED to apply all of the following conditions must be met:

The ownership condition
Beneficial entitlement, either alone or with others, to a single-dwelling interest
The single dwelling interest has a value that fits the band above
None of the exemptions apply, and the person is
Unable to claim any relief

The ownership condition is met if the single dwelling interest is held by a company (otherwise than as a member of a partnership or for the purposes of a collective investment scheme), or by a company which is a member of a partnership, or for the purposes of a collective investment scheme.

Beneficial entitlement in a single-dwelling interest means an interest which a person is entitled to or in which the person has an interest for its own benefit.

Single dwelling interest is an important definition and to understand that meaning of ‘dwelling’ will need to be understood first. A ‘dwelling’ has its normal meaning and will comprise a distinct unit of residential property (i.e. a house or flat which is considered as one residence). Non-residential properties are not within the charge to ATED. A dwelling not only includes a property that is used as a dwelling but also one that is suitable for use as a dwelling. The ‘dwelling’ may extend beyond the actual building. It will include land which comprises the grounds or gardens to a dwelling and any other land that is, or is at any time, intended to be occupied or enjoyed with a dwelling. A dwelling also includes land which subsists (or is intended at any time to subsist for the benefit of the dwelling). This ensures that any land which would naturally be associated with a particular house is treated as part of that dwelling. The most obvious example is a garden, but a tennis court, drive, garage, swimming pool and changing room, summerhouses etc would all be included as part of the dwelling for the purposes of ATED.

Exemptions apply to charitable companies provided the interest is held by that charitable company for qualifying charitable purposes, and the necessary conditions for the exemption from the charge are met. A charitable company is charity that is a body of persons and is distinct from a charitable trust. A ‘charity’ is defined as: ‘a body of persons or trust that: (a) is established for charitable purposes only (b) meets the jurisdiction condition (c) meets the registration condition, and (d) meets the management condition. Exemption also applies to public bodies which are not regarded as companies for the purposes of ATED and they will therefore not meet the ownership condition in section 94(4) FA 2013. As well as the bodies themselves, any company in which all the shares are owned by a listed public body, as well as any wholly owned subsidiary of such a company, will also be exempt. Certain bodies established for national purposes (e.g. The Historic Buildings and Monuments Commission for England) and certain dwelling conditionally exempt from inheritance tax are also not hit by the charge.

Reliefs are available and can be claimed against ATED which being an annual tax must be paid if the conditions for a liability are met at the beginning of a chargeable period. Reliefs must be claimed on the ATED. The reliefs are:

Qualifying property rental businesses including preparation for sale etc carried on a commercial basis and with a view to a profit.

Dwellings opened to the public where a single-dwelling interest is exploited as a source of income in a qualifying trade which offers the public the opportunity to make use of, stay in or otherwise enjoy the dwelling as customers of the trade on at least 28 days of the year. Relief will also be available where a single-dwelling interest is not yet being exploited provided there is an intention to do so and steps are being taken so that the trade can begin without delay (except so far as any delay is justified by commercial considerations or cannot be avoided). This is the case even if the trade in question has not commenced. Furnished holiday letting is an example.

Property developers including exchange of dwellings where a single-dwelling interest is held by a person carrying on a property development trade (the ‘property developer’), and the interest is held so that it will be developed and resold as part of the property development trade.

Property traders where a single-dwelling interest is held by a person carrying on a property trading business (the ‘property trader’), and the interest is held as the stock of the business and for the sole purpose of resale in the course of that property trading business.

Financial institutions where repossesses a property as a result of its business of lending money.

Occupation by employees or partners where a dwelling may be owned by a trading business to provide living accommodation to employees or where a trading business is structured as a partnership, providing accommodation to certain partners may also be relievable (as well as to employees of the partnership).

Farmhouses occupied by a ‘farm worker’ or a ‘former long-serving farm worker’ may qualify for relief. The farmhouse, however, must form part of the land that is occupied for the purposes of a qualifying trade.

Providers of social housing where the providers must be either a ‘profit making registered provider of social housing’ or a ‘relevant housing provider

Filing return and payment of tax

The ATED return must be made by a person for a chargeable period in respect of any single-dwelling interests within 30 days of the date on which the person first comes within the charge to ATED. A person who owns a single dwelling interest on the first day of the chargeable period (1 April each year) will have a filing date for the return of 30 April. For a newly built property the return should be filed within 90 days of the earliest of the date your property becomes a dwelling for Council Tax purposes or the date it was first occupied. However if your property was valued between £1 million and £2 million for the chargeable period 1 April 2015 to 31 March 2016 you need to submit your return a) by 1 October 2015 if your property is within the scope of ATED on 1 April, or b) by the later of 1 October 2015 or within 30 days of acquisition if your property comes within the scope of ATED after 1 April. The return could be filed using this form. A taxpayer can make an amendment to its return, or its return of adjusted chargeable amount, at any point within 12 months of the end of the chargeable period to which the amendment relates. The paper form of the return could be sent to HMRC, ATED, Crown House, Birch Street, Wolverhampton, West Midlands, WV1 4JX. HMRC will send you a reference number by letter or email, within 10 days of receiving your ATED return which could be used for making the payment.

Tax Partners

Summer Budget 2015 – Key Tax Changes

Budget July 2015 No Responses »

Jul 082015

Here are some of the key changes proposed in the 2015 summer budget:

• Personal allowance: the income tax personal allowance will be increased from £10,600 in 2015-16 to £11,000 in 2016-17, and to £11,200 from 2017-18.

• Higher rate threshold will be increased from £42,385 in 2015-16 to £43,000 in 2016-17 and to £43,600 in 2017-18. The NICs Upper Earnings Limit will also be increased to remain aligned with the higher rate threshold.

• Dividend taxation – in a major policy shift the government will abolish the Dividend Tax Credit from April 2016 and will introduce a new Dividend Tax Allowance of £5,000 a year. The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

• Wear and Tear Allowance will be replaced from April 2016 with a new relief that will allow all residential landlords to deduct the actual costs of replacing furnishings. Capital allowances will continue to apply for landlords of furnished holiday lets. A technical consultation to follow before the summer.

• Tax relief on finance costs that individual landlords of residential property can get will be restricted to the basic rate of tax. The restriction will be phased in over 4 years, starting from April 2017. Deductions from property income will be restricted to:

– 75% for 2017-18
– 50% for 2018-19
– 25% for 2019-20
– 0% for 2020-21 and beyond

Individuals will be able to claim a basic rate tax reduction from their income tax liability on the portion of finance costs not deducted in calculating the profit. In practice this tax reduction will be calculated as 20% of the lower of:

– the finance costs not deducted from income in the tax year (25% for 2017-18, 50% for 2018-19, 75% for 2019-20 and 100% thereafter),
– the profits of the property business in the tax year, or,
– the total income (excluding savings income and dividend income) that exceeds the personal allowance and blind person’s allowance in the tax year. Any excess finance costs may be carried forward to following years if the tax reduction has been limited to 20% of the profits of the property business in the tax year.

• Rent-a-Room relief will be increased from £4,250 to £7,500 from April 2016.

• Employment Allowance will be increased from the current annual level of £2,000 to £3,000 from April 2016.

• Non-domicile status: new legislation will be introduced so that from April 2017 anybody who has been resident in the UK for more than 15 of the past 20 tax years will be deemed to be domiciled in the UK for tax purposes. Further from April 2017, individuals who are born in the UK to parents who are domiciled here will no longer be able to claim non-domicile status whilst they are resident in the UK.

• Non-domiciled inheritance tax: From April 2017, inheritance tax is payable on all UK residential property owned by non-domiciles, regardless of their residence status for tax purposes, including property held indirectly through an offshore structure.

Legislation will be introduced in Summer Finance Bill 2015 to provide for an additional main residence nil-rate band for an estate if the deceased’s interest in a residential property, which has been their residence at some point and is included in their estate, is left to one or more direct descendants on death.

The value of the main residence nil-rate band for an estate will be the lower of the net value of the interest in the residential property (after deducting any liabilities such a mortgage) or the maximum amount of the band. The maximum amount will be will be phased in so that it is £100,000 for 2017-18, £125,000 for 2018-19, £150,000 for 2019-20, and £175,000 for 2020-21. It will then increase in line with CPI for subsequent years.

The qualifying residential interest will be limited to one residential property but personal representatives will be able to nominate which residential property should qualify if there is more than one in the estate. A property which was never a residence of the deceased, such as a buy-to-let property, will not qualify.

A direct descendant will be a child (including a step-child, adopted child or foster child) of the deceased and their lineal descendants.

A claim will have to be made on the death of a person’s surviving spouse or civil partner to transfer any unused proportion of the additional nil-rate band unused by the person on their death, in the same way that the existing nil-rate band can be transferred.

If the net value of the estate (after deducting any liabilities but before reliefs and exemptions) is above £2 million, the additional nil-rate band will be tapered away by £1 for every £2 that the net value exceeds that amount. The taper threshold at which the additional nil-rate band is gradually withdrawn will rise in line with CPI from 2021-22 onwards.

The legislation will also extend the current freeze of the existing nil-rate band at £325,000 until the end of 2020-21
• Lifetime Allowance for pension contributions will be reduced from the current £1.25 million to £1 million from 6 April 2016. Annual Allowance for top earners with incomes, including pension contributions, above £150,000 will be reduced by tapering away their Annual Allowance to a minimum of £10,000. This policy will come into effect from April 2016.

The ‘adjusted income’ definition adds-back any pension contributions, to prevent individuals from avoiding the restriction by exchanging salary for employer contributions. For those in defined benefit or cash balance arrangements, the value of the employer contribution will be calculated using the annual allowance methodology. That is the employer contribution will be the pension input amount for the arrangement, less the amount of any contributions made by or on behalf the individual during the tax year.

To provide certainty for individuals with lower salaries who may have one off spikes in their employer pension contributions, a net income threshold of £110,000 will apply. If the individual’s net income is no more than £110,000 they will not normally be subject to the tapered annual allowance. However, anti-avoidance rules will apply so that any salary sacrifice set up on or after 9 July 2015 will be included in the threshold definition.

The rate of reduction in the annual allowance is by £1 for every £2 that the adjusted income exceeds £150,000, up to a maximum reduction of £30,000. Where an individual is subject to the money purchase annual allowance, the alternative annual allowance will be reduced by £1 for every £2 by which their income exceeds £150,000, subject to a maximum reduction of £30,000. The carry forward of unused annual allowance will continue to be available, but the amount available will be based on the unused tapered annual allowance. All pension input periods open on 8 July 2015 are closed on that date, with the next pension input period running from 9 July 2015 to 5 April 2016. All subsequent pension input periods will be concurrent with the tax year from 2016-17 onwards.

To prevent retrospective taxation, individuals will have an £80,000 annual allowance for 2015-16, but subject to a £40,000 allowance for savings from 9 July 2015 to 5 April 2016. To achieve this, the 2015-16 tax year will be split into two notional periods, 6 April 2015 to 8 July 2015, the ‘pre-alignment tax year’ and 9 July 2015 to 5 April 2016, the ‘post-alignment tax year’. All individuals will have an annual allowance of £80,000 for the ‘pre-alignment tax year’. Where this amount has not been used in the ‘pre-alignment tax year’, it will be carried forward to the post-alignment tax year, subject to a maximum of £40,000. In addition, any unused annual allowance from the previous three years can be added to these amounts in the normal way

• Corporation tax rates will be reduced from 20% to 19% in 2017 and to 18% in 2020. Corporation tax payment dates for companies with annual taxable profits of £20 million or more (if member of a group, the £20 million threshold will be divided by the number of companies in the group) will be required to pay corporation tax in quarterly instalments in the third, sixth, ninth and twelfth months of their accounting period starting on or after 1 April 2017.

• Capital allowances: Annual Investment Allowance will be increased to £200,000 for all qualifying investment in plant and machinery made on or after 1 January 2016 on a permanent basis.

• Corporation tax relief on all goodwill and customer related intangible asset acquisitions will be withdrawn. Goodwill means the reputation and customer relationships associated with a business. This will affect all acquisitions and disposals on or after 8 July 2015.

• Insurance premium tax will be increased by 3.5 percentage points to 9.5% from 01 November 2015. From this date all premiums received by insurers using the IPT cash accounting scheme will be charged at 9.5%. For insurers using the special accounting scheme, there will be a 4 month concessionary period that will begin on 1 November 2015 and end on 29 February 2016, during which premiums received that relate to policies entered into before 1 November 2015 will continue to be liable to IPT at 6%. From 1 March 2016 all premiums received by insurers will be taxed at the new rate of 9.5%, regardless of when the policy was entered into.

• Controlled Foreign Companies (CFC): Companies won’t be able to use UK losses and reliefs against a CFC charge from 8 July 2015.

• Taxation of carried interest: Legislation will be introduced effective from 8 July 2015, whereby sums which arise to investment fund managers by way of carried interest will be charged to the full rate of capital gains tax, with only limited deductions being permitted. Where an individual performs investment management services for a collective investment scheme through an arrangement involving one or more partnerships, then any sums received in respect of carried interest under that arrangement will constitute a chargeable gain and be subject to capital gains tax.

Tax Partners

Sole Trader v Private Limited Company

sole trader v limited company, Sole trader v ltd No Responses »

Mar 022014

Historically, businesses would set out as sole traders and would then ‘graduate’ to limited companies as growth graphs climbed. Until not too long ago, the limited company was perceived by creditors and investors to be a more ‘credible’ structure than the sole trader one. However, the ‘contractors’ revolution of the 21st century changed all that upside down. Millions of limited companies sprang up and disappeared overnight, having got incorporated in hours and ‘struck off’ after three months of inactivity! To some extent the business-friendly provisions within the Companies Act too have helped, as much as the tax advantages offered by the incorporated form. In short, the private limited company is indeed the most favoured business structure for today’s budding entrepreneurs looking to set up a business.

There are, in fact, significant differences between the two forms of businesses and we have tried to put together an overview of the main differences here below.

Setting up

Setting it up is fairly straightforward in either case but setting up a company is more formal in terms of paperwork. Any one could do it online these days for a fee of under £20 though!

	Sole Trader	Private Limited Company
Registration	No formal registration required. For tax purposes you will need to let HMRC know that you’re now in business	Formal registration with companies house required
Business name	No prior approval required – but general restrictions apply	Prior approval required before setting up
One-man band	Indeed it’s a one-man band	One-man company (single shareholder/director) allowed
Ownership	You (only you) are the owner	You, the shareholder, is the owner. Joint ownership with others shareholders allowed
Constitution	No constitution required	You should follow a model constitution or have a bespoke constitution, which is not in violation (ultra vires) of the company laws.
Non-resident ownership	Possible, though unusual	Allowed

Legal status and governance

This is where the real difference begins. An incorporated company is a separate legal entity (person) from you. It can own land, property and other assets and can borrow in its own name. As a sole trader all the business debts are personal to you whereas the debts of the company are the company’s debts and the owners (shareholders) are not personally liable for the debts of the company except where the management (the director) has personally guaranteed the loans or it is apparent that s/he has continued to trade and incur liabilities in the name of the company when it was insolvent.

	Sole Trader	Private Limited Company
Legal status	The individual is the business	The company is a separate legal entity
Governing law	No specific law	The company laws (The Companies Act)
Ownership	The individual owns the assets and property	The company owns the assets and the property
Liability – general	All liabilities are personal	All liabilities are the company’s
Management	The individual is the manager and the proprietor. No difference between the owner and the management	The director(s) manage(s) the company. Whilst the law does distinguish between the ownership and the management the same person can be director and the shareholder
Liability – Compliance	You are personally liable	The directors are liable for the compliance
Transparency	Business details are not known the public	Business details available on the public register maintained at the Companies House
Annual updation of ownership and changes	Not required	Required to be filed with the companies house
Event-driven returns	Not required	Required for changes to the management, business address etc
Initial capital	Not required; purely business-driven	Required, negligible though
Withdrawal of capital	As easy as writing a cheque!	Subject to restrictions and tax consequences

Employment status

As the business expands you take people on, and from being a self-employed you become a business. A sole trader is personally liable for complying with the employment laws whereas in the case of a company all the liabilities are on the company, which is legally a separate entity from you. So, in that sense, if your business is likely to employ people a company structure is preferable to being a sole trader.

	Sole Trader	Private limited Company
Employer	You can’t be your own employer	Your company can be your employer. Being a director of your own company doesn’t result in employment laws or minimum wage or tax credits applying though.
Employment laws	You are liable for all the compliance if you employ people. The employment contract is between you and the employed	The company is liable for all the compliance. The employment contract is between the company and the employed
Liability	Paying wages is your personal liability.	Paying wages is the liability of the company. Your wealth is unaffected even where the company can’t pay wages.

Taxation

Taxation is one of the key reasons why a company structure is preferred over a sole trader one. Detailed differences apart, very broadly, if your cash withdrawals from the business in a year are not likely to go over c £40,000 then it may well be advantageous to operate a through a company structure. That does not automatically mean that over that level, the sole trader structure offers great tax advantages. What it means is that limited company businesses (subject to the small profits rate) could retain profits within the business by paying tax at 20% which could then be withdrawn during rainy days without paying any tax.

The major differences are as follows:

	Sole Trader	Private limited Company
Taxation of profits
Tax profits	From 20% to 45%	Currently 20% up to £300,000 profit
Tax free profit	£10,000 (2014-15) provided the total income doesn’t exceed £100,000	No tax free limit; tax payable even on a £1 profit
Class 2 NIC	£2.75 per week (2014-15)	Not applicable
Class 4 NIC	9% on profits between £7,956 and £41,865, and 2% thereafter	Not applicable
Extracting money out of the business
General	No tax consequence regardless of whatever the nature and level of extraction	There are tax consequences for the shareholder/director
Salary	Not applicable	Salary (alone) up to £ 7,956 (2014-15) in a year suffers no tax and NIC in the hands of the director. Salary allowed as a deduction from the business profits
Dividend	Not applicable	Dividend (alone) up to £ 38,678 (2014-15) suffers no further tax in the hands of the director
Salary + dividend	Not applicable	Salary of £7,956 + dividend of £30,518 (2014-15) suffers no further tax in the hands of the director
Loans from the business	No tax	Loans taken out of the business by the owner when not refunded in 9 months after the accounting year-end is over, suffers additional tax at 25%. Interest-free loans from the company subject to a benefit in kind charge for the director
Growth and expansion
Expenses	Expenses incurred ‘wholly and exclusively for the business allowed as a deduction. Personal expenses of the sole trader are disallowed.	Expenses incurred ‘wholly and exclusively for the business allowed as a deduction. Personal expenses of the director are taxed as ‘earnings’ of the director and deemed ‘distributions’ if incurred for the shareholder.
Assets used	Capital allowance on cars used for private use split according to business and personal use. Mobile phones costs are also split according to business and personal use.	Full capital allowance allowed where the car is owned by the company even if used by the director for personal use. Mobile phone costs allowed as a deduction where the contract is in the name of the company.
Use of home for business	A sole trader can’t obviously charge a rent to himself!	The director/shareholder can charge the company for use of home for business subject to elaborate rules
Pension contribution	Not allowed as a business deduction	Allowed as a deduction subject to lifetime limit. Opportunity for setting up SSAS, SIPP schemes.
Employment taxes	No separate tax unless you employ people.	Employment taxes apply even whey you’re paid salary as a director. These include PAYE and the employer and employee NICs. From 06 April 2014 employer’s NIC up to £2,000 is waived off.
Goodwill on acquisition	Not allowed as a deduction	Allowed as a deduction subject to rules
Investment from external sources	No flexibility in terms of structuring the funding	Great flexibility in terms of structuring the funding in to debts and equity
Personal loan to the business	No tax relief on interest paid	Tax relief can be claimed by the director on interest received from the company on the loan to the company in certain circumstances
Loss offset	Loss offset against personal general income including employment income allowed subject to limit of £50,000 or 25% of adjusted net income	Not allowed against the owners’ personal income
Diluting ownership with spouse	Not possible unless the structure becomes a partnership	Possible subject to careful paperwork, and in effect can save on tax
Exiting the business
Capital gains	Gains arising on sale of the business or the business assets are taxed at your personal tax rates, which could either be 18% or 28% (in most cases).Entrepreneurs’ relief may apply in which case 10% tax applies	Gains arising on the sale of business or business assets may be taxed at the company level and at the shareholder level. To avoid this shares in the company are transferred.Entrepreneurs’ relief may apply in which case 10% tax applies
Inheritance tax	Business Property Relief may apply if it is a qualifying trade	Business Property Relief may apply on the company shares subject to rules

Accounting

Sole trader accounts can be quite simple to make unlike the company one which is more detailed and needs to comply with various legal requirements. It thus follows that the accountant’s fees can be higher too in the case of companies.

	Sole trader	Private limited company
Basis	Both cash basis and accrual basis allowed	Only accrual basis allowed
Accounting period	Usually tied to the tax year which runs from 6 April to 5 April next year	The first accounting year ends on the last day of the anniversary month with yearly periods starting the next day, unless changed by the directors
Deadline	No deadline, except that accounting information may be needed to fill in the tax return	First accounts to be prepared and submitted within 21 months of incorporation. Second year on, within 9 months after accounting year is over.
Formal accounts	No need to prepare formal accounts. However, adequate records are required to support tax claims	a) Formal accounts required in compliance with the company laws and accounting standards.b) IXBRL accounts required for tax return purposes

Closing down the business

Again, a company having come in to existence by the operation of law can end its life only by the operation of law. This means more form filling, filing returns and complying with the laws.

	Sole Trader	Private Limited Company
Formal closing down	No formal requirement. Should notify HMRC to avoid having to file tax returns	Either the company will need to be liquidated or struck off. Specific rules apply with regard to dissolution of the company
Assets and liabilities on closing down	All yours	All belongs to the company. There are complex tax consequences upon distribution of the dissolution proceeds depending upon whether it is a capital or a revenue receipt
Death	The business ceases with owner’s death	The owner’s death doesn’t automatically end the company’s life

So in sum if you’re in to some serious enterprise go limited!!

Tax Partners

LLP taxation – disguised employment

Disguised employment - LLPs, LLP taxation No Responses »

Feb 212014

An LLP is normally regarded as transparent for tax purposes and each member is assessed to tax on his/her share of the LLP’s income or gains as if s/he was a member of a general partnership governed by the Partnership Act 1890. Specifically s. 863 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA/05)/ S863 provides, for income tax purposes, that, where an LLP carries on a trade, profession or other business with a view of profit:

all the activities of the LLP are treated as being carried on in partnership by its members (and not by the LLP as such),
anything done by, to or in relation to the LLP for the purposes of, or in connection with, any of its activities is treated as done by, to or in relation to the members as partners, and
the property of the LLP is treated as held by the members of the LLP.

One of the consequence of this tax treatment was that LLPs were used by members (otherwise normal employees) to avoid payment of employment taxes by disguising employment relationships using the LLP structure. Simply put, being self-employed for tax purposes, a partner of an LLP is not an employee and no employment taxes were due!

However, this has all changed now. A new section 863A Limited liability partnerships: salaried members will be introduced from 06 April 2014 for income tax purposes and from 01 April 2014 for corporation tax purposes. Should a member be caught by this section, the profit share is treated as employee remuneration and taxed under PAYE rules. Consequently the LLP will become liable for employers’ National Insurance as well. Once classed as an employee the member ceases to be self-employed and will no longer be included in the LLP tax return. Of course, the LLP will be entitled to a tax deduction for the ‘salary’ and the employers’ National Insurance.

In order to be caught by this section a member will need to ‘pass’ all the tests as stated below:

Condition A is that the services performed by the member and the amounts payable there for constitute ‘wholly or substantially wholly’ disguised salary. Amounts payable will be disguised salary if it is fixed or variable without reference to the overall profitability of the LLP. Substantially wholly is taken to mean 80%. This is to identify those members who are working for the LLP on terms similar to employees. However the test is limited to the payment aspects. The test is applied at the later of the date the member first joins the LLP and 6 April 2014. The test is only revisited if there is a change in circumstances. Members will be caught by this condition unless more than 20% of their variable remuneration is linked to the overall profitability of the business.

Condition B is that the mutual rights and duties of the members of the limited liability partnership, and of the partnership and its members do not give the member significant influence over the affairs of the partnership. Basically the question is whether the member has influence over the affairs of the LLP. Many large LLPs are likely to be caught by the condition because they are run by a Board comprising a small number of members whilst the vast majority of the members may not have any influence over the affairs of the LLP. The test is applied at the later of the date the member first joins the LLP and 6 April 2014. The test is only revisited if there is a change in circumstances.

Condition C: Again this test is applied at the later of the date the member first joins the LLP and 6 April 2014 but is revisited at the beginning of each tax year. Basically the test is whether the capital invested in to the LLP by the member is less than 25% of the total amount of the disguised salary which, it is reasonable to expect, will be payable in the relevant tax year by the limited liability partnership in respect of the member’s performance of services. Capital contribution includes long term loans and undrawn profits to the extent converted into capital.

Whilst for purposes other than tax there is no change to the status of the members or the LLP, it is ideal that LLPs review their structure and re-organise where necessary before 06 April 2014.

Tax Partners

Now £2,000 off the employers’ NIC

Employers' NIC, Employment Allowance No Responses »

Feb 202014

Employment Allowance 2014

The finance bill for 2014 includes a National Insurance Contributions Bill 2014. The bill has introduced Employment Allowance that can be claimed by eligible employers from 6 April 2014. If eligible, an employer can reduce Class 1 NICs by up to £2,000 each tax year. The Employment Allowance can be claimed by a business or charity (including Community Amateur Sports Clubs) that pays employer Class 1 NICs on the employees’ or directors’ earnings.The following excluded employers won’t be able the claim it though i.e.:

Those who:

employ someone for personal, household or domestic work, such as a nanny, au pair, chauffeur, gardener, care support worker
already claim the allowance through a connected company or charity
are a public authority, this includes; local, district, town and parish councils

and those who carry out functions either wholly or mainly of a public nature (unless you have charitable status), for example:

NHS services
General Practitioner services
the managing of housing stock owned by or for a local council
providing a meals on wheels service for a local council
refuse collection for a local council
prison services

collecting debt for a government department

Claiming the employment allowance

The allowance is straightforward to claim as part of the normal payroll process through Real Time Information (RTI) within the software package or using the Basic PAYE Tools available from the HMRC website. In terms of the actual process of claiming it software, an Employment Payment Summary (EPS) submission specifically to claim the employment allowance will be required. Alternatively, the Employment Allowance can be claimed through the 2014-15 version of the Basic PAYE Tools. Employers exempt from filing online can claim the Employment Allowance by using the paper EPS from April 2014. Effectively, the Employment Allowance will be offset against payments of employer Class 1 NICs when they are due to be paid, until the full £2,000 Employment Allowance is used up or the tax year ends, whichever is soonest.

Tax Partners

Tax changes 2014 – Autumn Statement

Tax Changes 2014 No Responses »

Feb 192014

Business taxes:

A new social investment tax relief for investments in social enterprise to begin in April 2014. Investment in Social Impact Bonds will also be eligible, subject to consultation.

A new limited corporation tax relief for commercial theatre productions and a targeted relief for theatres investing in new writings or touring productions to regional theatres will be introduced subject to consultations in 2014.

Changes to the debt cap provisions: Two changes basically; one is the grouping rules for accounting periods starting on or after 5 December 2013 and the second is the change to the regulation-making powers which will have effect on or after the date that Finance Bill 2014 receives Royal Assent.

Controlled foreign companies (CFC): the change removes the partial exemption rules for loan relationship credits of a CFC that arise from an arrangement with a main purpose of transferring profits from existing intra group lending out of the UK. It also amends the anti-avoidance rule relating to the transfer of external debt to the UK to ensure that the rule works as intended. The change is effective 05 December 2013

Partnership taxation: again two changes; the first one will affect mixed membership partnerships where partnership profits are allocated to a non-individual partner so that an individual member may benefit from those profits. The second change affects cases where partnership losses are allocated to an individual partner, instead of a non-individual partner, to enable the individual to access certain loss reliefs. The changes will take effect from 6 April 2014.

Double Taxation Relief (DTR) rules will be amended to check tax avoidance effective 5 December 2013 which will affect non-trading credits for accounting periods beginning on or after 5 December 2013, with transitional provisions where accounting periods straddle this date.

Charities established for tax avoidance purposes: Legislation will be introduced in Finance Bill 2014 to prevent a charity from being entitled to claim charity tax reliefs if one of the main purposes of establishing the charity is tax avoidance. The definition of a charity for tax purposes will be amended to exclude such charities.

High-risk promoters: A new information disclosure and penalty regime for high risk promoters of avoidance schemes will be introduced. Objective criteria for identifying high risk promoters and a higher standard of reasonable excuse and reasonable care that will then apply to them will also be introduced. Clients of these promoters will also have certain obligations including identifying themselves to HMRC.

Follower Penalties: A new measure to introduce a new obligation for users of an avoidance scheme that HMRC have defeated in a tribunal or court hearing in another party’s litigation, to concede their position to reflect that decision. When there has been a relevant decision HMRC will issue a notice to all users of the scheme in question requiring them to amend their return or advise HMRC why they believe they should not. A tax-geared penalty would be charged if they failed to amend their return and it was subsequently found that the avoidance scheme they used failed on the same point of law. Taxpayers will be able to appeal against the penalty.

Accelerated tax payment in avoidance cases: Legislation will be included in Finance Bill 2014 to require payment of the tax in dispute in a tax avoidance enquiry when an ‘avoidance follower penalty notice’ is issued. This will take effect from Royal Assent which is expected mid July 2014. At present taxpayers (in most cases) can hold on to the disputed tax while the dispute is being investigated. This can take a number of years, and there is evidence that some taxpayers enter into avoidance schemes primarily for the cash flow benefit.

Onshore Intermediaries: Further measures to prevent employment intermediaries being used to avoid employment taxes and obligations by disguising employment as self-employment will be introduced. Existing legislation will be strengthened from April 2014.

Offshore tax evasion: At 2014 Budget HMRC will consult on a range of enhanced proposals to penalise those who hide their money offshore. This initiative underlines the commitment to pursue offshore evaders and to increase the deterrence for would-be evaders.

Dual Contracts: Legislation will be introduced in Finance Bill 2014 to prevent a small number of high earning non-domiciled individuals from avoiding tax by creating an artificial division of the duties of one employment between contracts in both the UK and overseas. These are commonly known as ‘dual contracts’.

Personal taxes:

Personal allowance and basic rate limit: Personal allowance for for people born after 5 April 1948 will be £10,000 for 2014-15. And as a result the basic rate limit will be £31,865. The Class 1 Upper Earnings Limit and the Class 4 Upper Profits Limit for NICs will then be aligned accordingly but there are no changes to rate of contribution for Class 1, Class 1A, Class 1B and Class 4 National Insurance Contributions (NICs).

Marriage and tax: From April 2015, inter-spouse transfer of personal allowance up to £1,000 will be allowed where both the spouses are liable to income tax within the basic rate threshold.

New Class 3A NICs: A new voluntary Class 3A NIC will be introduced from October 2015 that gives those who reach state Pension age before 6 April 2016 an opportunity to boost their Additional State Pension.

No NICs for under 21s: Employers employing those under the age of 21 will no longer be required to pay Class 1 secondary NICs on earnings paid up to the Upper Earnings Limit (UEL) from 6 April 2015.

CGT – PPR change: For those claiming the principal private residence relief the final period exemption stands reduced to 18 months from the earlier 36 months effective 6 April 2014.

CGT – Non-residents: A capital gains tax charge apply on future gains made by non-residents disposing of UK property from April 2015 a capital gains tax charge will be introduced on future gains made by non-residents disposing of UK residential property. A consultation will be out early 2014.

CGT Annual Exempt Amount will be £11,000 for the year 2014-15 and £11,100 for 2015 -16 and subsequent years, and for most trustees £5,000 and £5,500 respectively.

A new joint digital registration for Charities with Charity Commission to allow organisations wanting to register with the Charity Commission for England & Wales (CCEW) and seeking charity tax status with HMRC to submit their applications through a single online portal. The new system is planned to be introduced in 2015-16.

Introduction of a new inheritance tax online service to support the administration of Inheritance Tax: Expected to go live in 2016 this will do away with the need to complete paper versions of forms and enable people to proceed with their application for probate and submit Inheritance Tax accounts online.

Tax Partners

UK Tax Residence – The Statutory Test

Statutory Residence Test, Tax Advice, UK TAX ADVICE, UK tax residence No Responses »

Jan 182014

Tax residency in the UK has long been a highly contentious issue particularly for those with tax affairs in more than one jurisdiction. As there was no statutory definition of what makes a person a ‘resident’, often it was left to individual circumstances, general practice, judicial interpretations and at times even pure ‘common sense’! The system was so uncertain that the Gaines-Cooper case of 2008 demonstrated how unreliable HMRC’s published guidance in this regard could get. Well, that is all history now. Finance Act 2013 (Schedule 45) now clearly defines under what circumstances a person could be resident or non-resident, with the concept of ‘ordinary residence’ having gone the dinosaurs’ way!

Let us in this article consider the status of a person arriving in the UK.

First Test – Automatically resident in the UK

If you spend 183 or more days in the UK in a tax year you’re tax resident in the UK. You will be considered to have spent the day in the UK if you’re here at midnight. Even if you have not been in the UK at the end of the day (midnight) for 183 days, still you could be UK resident under the ‘deeming rule’ whereby a) you have been tax resident in the UK in one or more the last three years, b) you have at least 3 UK ties, and c) you have been present in the UK for at least 30 (qualifying) days without being present at the end of the day. However, transit days are not counted where you arrive in the UK whilst travelling from one country to another outside the UK and leave the next day. Transit passengers are not expected to engage in any activity substantially unrelated to your transit.

Second Test – Automatically resident overseas, so not resident in the UK

If you fail test 1 and is unsure of your residence then you need to check the following table and see if you’re automatically resident overseas. If you’re automatically resident overseas then obviously you’re not resident in the UK.

Days spent in the UK during the tax year	Resident in any of the previous 3 years	Not resident in any of the previous 3 years
Less than 16	Automatically Non-resident	Automatically non-resident
Less than 46 days	Take Test 3	Automatically non-resident

There is yet another way to be automatically resident overseas; i.e. if you work full time overseas. The conditions are:

a) If you work full time overseas over the tax year without any significant breaks from overseas work during the tax year, and

b) You spend fewer than 91 days in the UK during the tax year

c) You work in the UK for more than 3 hours a day but fewer than 31 days in the tax year.

Broadly, fully time overseas work effectively means working 35 hours during a working week. Obviously days worked in the UK will be disregarded.

Third Test – Other cases of being automatically resident in the UK

Having come this far and if you’re still unsure of whether you’re resident or not, follow these steps to see if you still automatically qualify to be a UK resident.

1. This is relevant if you have a home in the UK.

If you had a home in the UK and you spend at least 91 consecutive days in the UK and at least 30 of those days fall within the tax year, then you are conclusively tax resident in the UK

2. This is for those working work full time (broadly at least 35 hours a week) in the UK.

If you work in the UK for any period of 365 days without any significant break from UK work and:

a) all or part of the 365 days fall within the tax year,

b) 75% of the work days comprising more than 3 hours of work a day out of the 365 days are within the UK, and

d) at least ONE of those of days per b) above fall within the tax year then

you’re automatically UK resident.

Finally the fourth sufficient ties test

Having taken the three tests above and still unsure of whether you’re tax resident in the UK you could now take this test which is based on your connections with the UK.

Days spent in the UK during the tax year	UK resident in one or more of the last 3 years	Non-resident in the last 3 years
< 16 days	Always non-resident	Always non-resident
16-45 days	4 ties	Non-resident
46-90 days	3 ties	4 ties
91-120 days	2 ties	3 ties
120-182	1 tie	2 ties
> 182 days	Always resident	Always resident

And the four relevant ties are:

Tie 1 – Family tie: This tie is basically about the relationship of an individual with a family member who is tax resident in the UK. If your spouse, civil partner (not yet separated) or minor children (not those in full time education) are resident in the UK you satisfy the family tie test. Children under the age of 18 are considered for this tie and you should have spent at least 61 days with the child during the tax year to have had this tie.

Tie 2 – Accommodation tie: If you have a place available to you to live in the UK and a) that is available to you for 91 days or more during the tax year and, b) if you spend one or more nights there during the tax year, c) or if it the home of a close relative (parent, grandparent, brother, sister, children or grandchildren of 18 and above) you spend 16 or more nights there during the tax year you have had this tie.

Tie 3 – Work tie: If you work for 40 or more days in a tax year with each work day comprising 3 hours of work, you will have had this tie.

Tie 4 – 90 day tie: If you spend more than 90 days in either or both of the last two tax years in the UK you will have met this tie test.

Tie 5 – Country tie: You will have met this tie test if UK is the country where you spent more nights than any other country in the tax year.

Whilst this is a simplified version of a very elaborate rule-based statutory residence test, it nevertheless should give the reader a broad idea of how the whole test system works.

Tax Partners

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