NEW INFORMAL LIQUIDATION RULES (ESC C16) CONFIRMED

Date Added: 03 February 2012

As we trailed back in December, legislation has now been passed to change the tax treatment of distributions made prior to companies being struck off. Currently, If a company is not put into formal liquidation, any distribution made to its shareholders in anticipation of being struck off will be taxed as a capital gain, provided the directors and shareholders make certain undertakings to HMRC, such as paying off its creditors (including HMRC!) and not carrying on the trade elsewhere. This has meant that shareholders have had access to potentially paying 10% tax without the need to go through a formal liquidation process.

Well from 1 March 2012 the rules will be changing. From that date, only distributions of up to £25,000 will be treated as capital gains. If distributions exceed £25,000, all distributions will be taxed as income. Therefore only shareholders in fairly small companies will be able to continue to benefit from Capital Gains Tax rates. Should you be contemplating the end of your company's life and extracting the remaining money, now is the time to consider your options. HMRC have confirmed that provided both a valid application is made and the distributions are paid before the end of February, the fact that HMRC may not have replied to the application will not prevent the current rules applying.

If you want to take advantage of the existing rules this month, please get in touch with your usual Davies Mayers Barnett contact or Richard Lupson-Darnell.

The Taskforce: HMRC’s weapon of choice

Date Added: 30 January 2012

We have highlighted over the last year the increasing use by HMRC of Taskforces to target particular trades to ensure the they are being compliant and declaring all of their income. This was highlighted again last week when David Hartnett of HMRC stated that "the nation gets diddled" every time services are paid for in cash, as it leads to potential underpayment of Income Tax and VAT.

Taskforces, small groups of Revenue staff dedicated to looking into one sector of the economy, have become HMRC's weapon of choice as they seek to deter tax evasion. They have so far targeted doctors, dentists, restaurateurs, plumbers, private tutors and coaches (e.g. academic tutors, music teachers, dance instructors) and scrap metal dealers as well as traders generally who should be registered for VAT. We understand that in the coming months electricians and e-traders will fall under the spotlight.

The pattern for a Taskforce is to provide a window of opportunity for voluntary disclosure at a reduced penalty rate, followed by using the information they have available to pursue those who have not taken advantage of the amnesty provided. In some cases these have lead to criminal prosecution.

If you are concerned about HMRC's approach, please get in touch with your usual Davies Mayers Barnett contact or Richard Lupson-Darnell.

Tax deadline extended by two days due to strike

Date Added: 26 January 2012

HMRC have today announced that the deadline for on-line submission of self-assessment tax returns for the 2010/11 tax year will be extended by two days due to strike by Contact Centre workers. No penalty notices will be issued for returns submitted on either 1 or 2 February 2012. The Revenue have sighted the fact that 600,000 returns are expected to be submitted on deadline day and 90,000 people are expected to call their Contact Centres on 31 January, the day of the planned strike.

Claim Gift Aid relief a year earlier to reduce you tax liability!

Date Added: 19 January 2012

If you pay income tax at either 40% or 50%, you can claim additional tax relief on your Self-Assessment tax return for cash donations paid to charity under Gift Aid. So for example, if you donate £80 to charity, this will be treated by the charity as a gross donation of £100 after taking into account basic rate income tax of £20. The charity will be able to claim back the £20 from HMRC to increase its income from your donation. If you pay tax at 40% or 50%, you can claim back an additional amount of tax relief due of £20 or £30 respectively, making the net cost of your donation £60 or £50.

The general rule is that you can claim this relief in the tax year the donation is made provided you have paid sufficient income tax or capital gains tax to cover the tax relief due. However, you can also make a claim on your tax return to carry-back amounts paid in the current tax year to be treated as being paid in the tax year covered by the return. This does not affect the timing of the charity's claim but can serve to reduce any tax liability you have to pay on 31 January. You will need sufficient income or gains in the previous tax year to cover the claim.

So if you are preparing your tax return for 2010/11 in the next few weeks, you can claim donations made between 5 April 2011 and the date of submission. Claims have to be made by 31 January 2012.

Should you want to take advantage of this rule, please call Richard Lupson-Darnell or your usual contact on 01242-252555.