Author: thesmeclinic

Voluntary “give-aways”

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In a recent post we warned of the likely loss of billing opportunities if you give away service advice just to demonstrate how informed you are.

In this post we outline when it may be appropriate to volunteer information or other free offers in order to secure additional sales.

For example, when you deliver goods to your customers, do you insert information about other goods or services that they might find of interest? A car dealership may be the place where you go to purchase or lease a car, but once you have chosen your vehicle you will likely be offered insurance or service plans as add-on sales.

Fishermen will “give-away” bait by broadcasting it in areas of water where it expects fish to reside. This process is an invitation. Invite your customers to sample more of your goods and services, don’t be shy.

Don’t assume that customers will know what is on offer, tell them.

You have done the hard work and converted business prospects into business customers. Be sure that each sales point is also a business development opportunity.

New employment rights for parents and carers

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Three new pieces of legislation that received cross party support were granted Royal Assent on 24 May 2023. 

  1. The Neonatal Care (Leave and Pay) Act 2023: This new Act will allow for up to 12 weeks of paid neonatal care leave. This will be made available to employed parents if their new-born is admitted to neonatal care so they can spend more time with their child. These parents will continue to be entitled to normal maternity, paternity, and/or shared parental leave.
  2. Protection from Redundancy (Pregnancy and Family Leave) Act 2023: This Act will extend existing redundancy protections. This will allow for existing protections whilst on Maternity Leave, Adoption Leave or Shared Parental Leave to be extended to cover pregnancy and a period of time after a new parent has returned to work.
  3. The Carer’s Leave Act 2023: This Act will introduce a new entitlement of one week of flexible unpaid leave per year for employees who are caring for a dependant with a long-term care need.

The implementation dates of these new employment rights have not yet been announced as the government will need to lay down secondary legislation in due course to implement these new entitlements. This is likely to occur at some time after April 2024.

Help to Save extended to April 2025

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HMRC has confirmed that plans to extend the Help to Save scheme by 18 months, until April 2025 have been confirmed.

The Help to Save scheme is intended to help those on low incomes to boost their savings. Eligible users of the scheme can save between £1 and £50 every calendar month and receive a 50% government bonus. The 50% bonus is payable at the end of the second and fourth years and is based on how much account holders have saved. The bonus is paid directly into the account holder’s chosen bank account.

This means that account holders on low incomes can receive a maximum bonus of up to £1,200 on savings of £2,400 for 4 years from the date the account is opened. The scheme is open to most working people who receive Working Tax Credits or Universal Credit.

Almost 360,000 people have opened Help to Save accounts since the scheme was launched in September 2018 and an additional 3 million individuals could still benefit from the savings scheme as a result of the extension.

The government also published a consultation on the scheme that is looking at how the scheme can be reformed and simplified.

HMRC strike causes CIS delays

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Some 400 HMRC helpline service advisers who are members of the Public and Commercial Services (PCS) Union have been on strike intermittingly since 10 May 2023. These strikes are by staff working in HMRC’s East Kilbride and Newcastle offices. The striking workers are with the department of Personal Taxation Operations on Employer Service.

The following are the strike dates that were announced:

  • 10-12 May
  • 15-19 May
  • 22-26 May
  • 29-31 May
  • 1 and 2 June

These dates exclude weekends and effectively mean that employer services are affected until 5 June 2023.

It has been widely acknowledged that these strikes are having a serious impact on HMRC’s helplines which were already struggling to cope with demand. 

Specifically, there have been many reports of long delays to those trying to contact the Construction Industry Scheme (CIS) helpline. The CIS helpline is widely used to help those registering for the CIS and to resolve issues that arise with CIS deduction rates. This means that affected subcontractors may be paying more tax than necessary, with a long wait to recover the overpaid amounts.

The strikes are also having a significant impact on other helplines including the employer helpline, student loans unit, PAYE registrations, maternity, paternity and sick pay.

Selling your home – taxes to pay

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In general, there is no Capital Gains Tax (CGT) on a property which has been used as a main family residence. An investment property which has never been used will not qualify. This relief from CGT is commonly known as private residence relief.

Taxpayers are usually entitled to full relief from CGT where all the following conditions are met:

  1. The family home has been the taxpayers only or main residence throughout the period of ownership.
  2. The taxpayer has not let part of the house out – this does not include having a lodger.
  3. No part of the family home has been used exclusively for business purposes (using a room as a temporary or occasional office does not count as exclusive business use).
  4. The garden or grounds including the buildings on them are not greater than 5,000 square metres (just over an acre) in total.
  5. The property was not purchased to purely make a financial gain.

If a property has been occupied at any time as an individual’s private residence, the last 9 months of ownership are disregarded for CGT purposes – even if the individual was not living in the property when it was sold. The time period can be extended to 36 months under certain limited circumstances. There are also special rules for homeowners that work or live away from home.

Married couples and civil partners can only count one property as their main home at any one time.

If the conditions outlined above are not met, then CGT may be due on some or all of the gain.

Selling all or part of your company

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If you are selling your company, there are important actions you must take to properly finalise your affairs. Please note that this is not an exhaustive list, and it is important to check what else may be required.

We have summarised below some of the main steps you need to take if closing your business:

  • Your responsibilities when selling a limited company will depend on whether you’re selling your entire shareholding, or the company is selling part of its business. 
  • Keep staff informed about redundancy terms or relocation packages and be mindful not to breach your employees’ rights.
  • If you are selling your entire shareholding, you should appoint new directors before you resign as a director yourself.
  • Consider your liability to Capital Gains Tax and whether you can benefit from reliefs including Business Asset Disposal Relief, previously known as Entrepreneurs’ Relief.
  • If there are charges against your company, for example a mortgage on your house to secure a business loan, you must let the provider know within 21 days of the sale.
  • You may want to transfer your VAT registration to the new owner.

Can a charity claim Gift Aid?

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Charities can claim Gift Aid on donations made by eligible taxpayers. This can boost donations by an extra 25% if the donor makes a Gift Aid Declaration (GAD).

To claim Gift Aid, charities need to obtain a Gift Aid declaration from the donor. It should state that the donor:

  • has paid the same amount or more in Income Tax or Capital Gains Tax in that tax year; and
  • agrees to Gift Aid being claimed.

Charities must keep a record of Gift Aid declarations for 6 years after the most recent donations they claimed.

The Gift Aid Small Donations Scheme can be used on small donations of £30 or less and no GAD is required. The Gift Aid Small Donations Scheme (GASDS) scheme allows qualifying charities and Community Amateur Sports Clubs (CASCs) to claim a top-up equivalent to Gift Aid on small donations of money made without a Gift Aid declaration. A small donation is defined as a donation of £30 or less made in cash or using contactless technology, such as a contactless credit or debit card. Donations made by other methods of payments such as cheque or bank transfer do not count. 

The maximum annual amount of small donations that can be claimed through the GASDS is the lower of £8,000 or 10 times the amount the charity receives in Gift Aid donations – known as the matching rule. The £8,000 limit allows charities and CASCs to claim Gift Aid style top-up payments of up to £2,000 a year.

Involuntary “give-aways”

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If you sell services, rather than supply goods, this usually involves you providing advice for a fee.

If your advice is sought after, the amount you can charge for your service(s) may be considerable. Which is why you should be wary of giving away your advice FOC.

Why would you do this? Why would you part with your hard-won expertise without charging a fee?

Perhaps you would be prepared to offer free advice if you are tempting a business prospect to join your customer list. And you may have clients who may be suffering a temporary downturn in activity, and you might be willing to offer pro-bono advice in limited amounts to help them through hard times.

The time to bite your tongue, and apply caution, is if a client reveals that they have a specific problem, and you can immediately see a fix. The urge to “blurt” out your solution will be irresistible but resist you must.

The skills you have acquired to provide the services you offer demand a return on this investment and giving away your solutions – whilst delighting your client – will defeat the object of you being in business.

Next time you are tempted in this way simply suggest that you may have a solution to their problem, but you will need time to check out a few details and promise to get back to them the following day. This will give you time to firm up your ideas and represent your pitch as an outline of what you can achieve, how this will benefit your client – and importantly – how much it will cost for you to deliver the solution.

Clearance to secure exempt distribution status

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Most payments a company makes to its shareholders, in respect of their shares, will be qualifying distributions and may be subject to Income Tax.

If certain conditions are met, the payment can be treated as an exempt distribution. An exempt distribution is a payment that is not treated as a distribution. It is treated as consideration for the disposal of shares and is subject to CGT.

When a company makes a purchase of its own shares, any excess paid over the amount of capital originally subscribed for the shares is usually treated as a distribution. However, there are special provisions that enable an unquoted trading company or an unquoted holding company of a trading group to undertake a purchase of its own shares without making a distribution.

In order to do this, a clearance application may be made. Under this procedure a company wishing to make a purchase of its own shares can obtain advance confirmation from HMRC that the distribution arising will be an exempt distribution.

If the application is approved, the payment is treated as consideration for the disposal of the shares in the hands of the seller and subject to CGT. Where entrepreneurs' relief is available, CGT of 10% is payable in place of the standard rate. There are a number of qualifying conditions that must be met in order to qualify for the relief. Where the necessary conditions are met a company purchase of own shares can be a tax efficient way of exiting a business.

Transfer of Business as a Going Concern

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The transfer of a business as a going concern (TOGC) rules concern the VAT liability on the sale of a business. Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate.

Where the sale of a business includes assets and meets certain conditions the sale will be categorised as a TOGC. A TOGC is defined as 'neither a supply of goods nor a supply of services' and is therefore outside the scope of VAT. Under the TOGC rules no VAT would be chargeable on a qualifying sale.

All the following conditions are necessary for the TOGC rules to apply:

  • The assets must be sold as part of a 'business' as a 'going concern'. In essence, the business must be operating as such and not just an 'inert aggregation of assets'.
  • The purchaser intends to use the assets to continue the same kind of business as the seller.
  • Where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer.
  • Where only part of a business is sold it must be capable of separate operation.
  • There must not be a series of immediately consecutive transfers.
  • There are further conditions in relation to transactions involving land.

The TOGC rules can be complex, and both the vendor and purchaser of a business must ensure that the rules are properly followed. The TOGC rules are also mandatory which means that it is imperative to establish from the outset whether a sale is or is not a TOGC. For example, if VAT is charged in error, the buyer has no legal right to recover it from HMRC and would have to seek to recover this 'VAT' from the seller.