Published on March 4, 2014
CORDIUM POWERPOINT MASTER March 4, 2014 1
10 top tax tips for 2014 LAURENCE PARRY Head of Private Client Tax
Tip 1 o LLP changes o Ensure that you know whether your LLP members are ‘salaried’ or not o Check tests o Capital contribution o Profit sharing o Significant influence o Awaiting update from HMRC
Tip 1 – profit sharing arrangements o Must be related to profit of LLP as a whole o HMRC’s view = % of total profit o But, why not stratify profit? Want to pay partner £100k o A) 20% on profits up to £500,000; + o B) 5% on profit s above £500k. o As long as HMRC would accept 5% as a share overall, then should be no issue; o As long as the % in B) is less than the employers’ NIC rate still cheaper o Must be reasonable – A) cant be too high, nor B) too low!
Tip 1 – profit sharing arrangements o New guidance note issued 21/2 o Emphasises need to relate to profits as a whole, not personal performance o May be able to reverse engineer o HMRC give examples of ‘points’ being allocated (examples 21 & 22)
Tip 1 – ‘significant influence’ o If a member has ‘significant influence’ then wont be a salaried member o Influence over running of LLP (not just their bit, or portfolio); o Equates to board of directors; o If don't have a management committee – perhaps could? o If business capable of disaggregation, consider separate LLPS – eg branches o Watch regulation and cost
Tip 1 – significant influence o Specific discussion re regulated businesses o Para 2.5.3 ‘individual in question significantly contributes to the firm's major decisions (management, strategic or investment-related), then it is likely that HMRC would accept that this constitutes significant influence for the purpose of Condition C.’
Tip 2 – corporate partners o o o o Decide! LLP – if going to take profits out; Limited – if profits to be retained Influencing factors: o new equity holders? o potential changes to dual contracts o If early years, losses available through LLP o watch restriction
Tip 3 – corporate partners o If Limited? o Incorporation can give benefits o Sale at Market value – may benefit from ER o Amount payable for business left outstanding and repaid from future cash flows o Need to watch reg cap o ‘Dry’ tax charge – 31/1 tax year following sale o Cannot sell to existing corporate member – needs to be a Newco
Tip 4 – liquidate existing corporate partner o May get ER o Activities must be 80% trading o Cash on deposit not an ‘activity’ o Risk if invested o If ER in doubt, consider retaining and investing without dry tax charge o Cost of liquidation perhaps £5k - £10k
Tip 5 – non-doms and remittances o Be careful! o HMRC nudge letters o Use of credit cards in UK paid for overseas; o Payment for service in UK – eg advice in relation to offshore investments o Overseas travel booked in UK o HMRC aware of back to back loan arrangements o Private Eye article – Oct 13
Tip 6 – non-doms and IHT o Inheritance tax charged on UK assets o For UK doms charged on worldwide assets o Non-doms become ‘deemed domiciled’ once resident for 17/20 years o (doesn't apply to Indian, Pakistani or French domiciled) o Consider moving assets from personal to trust/company ownership in year 16
Tip 7 – overseas workday relief o Non-dom comes to UK o For the rest of that tax year and two following: o Income that relates to overseas work, paid AND retained overseas, not subject to UK tax o Calculated on a days worked basis o HMRC check most day calculations o HMRC checking not ‘ordinarily resident’ in year 3 o Less of an issue going forward because of SRT, but may apply for 12/13 – get info sorted!
Tip 8 – watch losses o Use of losses now restricted o Capped at higher of £50k and 25% of income o Sideways loss relief; carry back of losses; interest relief; loss on unquoted company shares o Doesn't apply to VCT/EIS/Gift aid o If think there may be losses, need to plan
Tip 9 – Gift aid o o o o Reduces tax Can be carried back to prior year Keeping records difficult! If donations significant, consider personal charitable trust o If smaller, consider Charities Aid Foundation o Gifts into both allowable, and easy to track! o Need to watch restrictions (benefits received) and sufficient income
Tip 10 oTalk to us o It will save the headache later!
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