Neil Warren shares some practical tax tips from Bloomsbury Professional’s first owner managed business tax planning conference in Manchester.
Peter Rayney said HMRC does accept that dividend waivers can be used to retain profits in the company. However, HMRC will argue that a settlement has been created where a dividend waiver is used to channel greater dividends to a spousal shareholder than they would otherwise have been entitled to on a pro-rata basis.
Peter used the case of Donovan and McLaren v HMRC (TC03188) to illustrate this point. In such cases, the settlor spouse (the person who waives his dividend) cannot use the outright gifts exemption since the arrangements surrounding a dividend waiver constitute a transfer of income.
Accounting issues for tax
Steve Collings reminded delegates that micro entities reporting under FRS 105 are prohibited from recognising deferred tax. For businesses that need to consider deferred tax, he emphasised that a calculation should always be made – it is not good practice to note a file along the lines of: deferred tax is not material. If you don’t do the calculation, how do you know it is not material? Fair point!
Succession and management buy-outs
Pete Miller emphasised the CTA 2010 s 459 trap which can potentially impose a 32.5% tax charge on loans paid up from the existing trading company to the ‘Newco’ acquiring company in a management buy out to fund the purchase consideration. HMRC has stated that it takes this point where appropriate. It is therefore preferable for the trading company to transfer the monies to Newco by way of dividend (which is tax-free in Newco’s hands under CTA 2009, Part 9A).
Tackling debt transactions for owner-managed companies
Where connected companies (for loan relationship purposes) need to waive inter-company debt between them, Peter Rayney stressed that this should be implemented in the correct legal manner. This involves the creditor (the lender) company executing a formal deed of waiver, appropriately witnessed. A simple letter forgiving the debt will not suffice.
Capital allowances on property acquisitions
Steve Bone emphasised the need for the parties to make competent CAA 2001 s 198 elections for fittings where buildings are purchased. He reported that he had come across a number of elections where the election just says: “all the fixtures at the property”. The legislation requires that sufficient information is required to identify the plant and machinery, and hence a difficult HMRC inspector could reject poorly completed elections.
More care should therefore be taken to ensure that the section 198 election provides a detailed list of the relevant plant and machinery items that are being transferred as part of the property.
Anne Fairpo reminded us that very few of our OMB clients are likely to be affected in the 50% offset restriction for brought forward trading losses. For a singleton company, this restriction only kicks-in where the company’s annual profits exceed £5 million. Where companies are members of a group this £5 million limit is apportioned between the members.
About Neil Warren
Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.