Author: thesmeclinic

Directors’ duties and responsibilities

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To be a director, you must be over 16 and not currently disqualified. 

As a director your responsibilities include:

  • filing your company’s annual accounts and reports or appoint an accountant to do it for you
  • reporting changes in you or your company’s situation including changes of address
  • sending a confirmation statement every year to Company’s House
  • pay Corporation Tax, VAT, PAYE and National Insurance contributions due on time

Other key duties include:

Company’s constitution
You must follow the written constitution of your company. This is created when you set up your company.

Promote the success of the company
This means considering the impact your company has on others, the environment, any employees and colleagues. It also requires you to act in the interest of creditors if you are insolvent.

Independent judgement
Take advice, but always make decisions for yourself.

Exercise reasonable care, skill and diligence
Use the skills you have in the best way possible.

Avoid conflicts of interest
Do not take advantage of your position as a director to gain unfair advantages or create conflicts in business or other relationships.

Third-party benefits
Generally, you shouldn’t accept benefits from third parties that may cause conflicts of interest.

Interests in a transaction
You must tell other directors if you personally benefit from a company transaction.

Please call if you are uncertain what other duties directors have or any other matters that will help you decide if a corporate structure is the best option for your new business.

Gifts of shares to minor (under 18s) children

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The settlement legislation seeks to ensure that, where a settlor has retained an interest in property in a settlement, the income arising is treated as the settlor’s income for all tax purposes. A settlor can be said to have retained an interest if the property or income may be applied for the benefit of the settlor, a spouse or civil partner. In general, the settlements legislation can apply where an individual enters into an arrangement to divert income to someone else and in the process, tax is saved. 

However, in most everyday situations involving gifts, dividends, shares, partnerships etc., the settlements legislation will not apply. For example, if there is no “bounty” or if the gift to a spouse or civil partner is an outright gift which is not wholly, or substantially, a right to income.

HMRC’s manuals provide the following two indicative examples of how the legislation applies to non-trust settlements.

Direct gift of shares to minor children

Mr and Mrs X each own 50 of the 100 issued ordinary shares in X Ltd. They each decide to give 10 shares to each of their children aged 12 and 15. The children each then hold 20 shares, 10 from each parent. We would treat the dividends paid to the children as the income of their parents.

Indirect gift of shares from parent

Mr J owns 60 of the 100 issued £1 shares in J Limited. Mr J is the sole company director and is the person responsible for making all the company’s profits because of his knowledge, expertise and hard work. On starting up the company, Mr J allowed his mother to subscribe £40 for 40% of the shares but shortly afterwards she gifted them to her grandchildren. The circumstances are such that the decision to issue 40 shares at par is a bounteous arrangement (as were the shares in Jones v Garnett). The true settlor here is Mr J rather than the children’s grandmother. ITTOIA/S629 therefore applies and attributes the dividends received by the children to Mr J for tax purposes.

What counts as holiday accommodation?

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HMRC’s VAT Notice 709/3 entitled 'Hotels and holiday accommodation' explains how supplies by hotels and similar establishments such as motels, guesthouses and B&Bs should be treated for VAT purposes. In addition, the notice covers the VAT treatment of holiday accommodation such as caravans and camping facilities.

Holiday accommodation includes, but is not restricted to:

  • any house
  • flat
  • chalet
  • villa
  • beach hut
  • tent
  • caravan
  • houseboat

Accommodation advertised or held out as suitable for holiday or leisure use is always treated as holiday accommodation. There may be a restriction under which occupation of the property throughout the year is not permitted, but this will not always be the case.

If you supply holiday accommodation, you may need to account for VAT at the standard rate on any charges that you make regardless of the length of occupation or description of the charges. There are a number of exceptions to this including the sale of holiday accommodation and for off-season lettings of more than 28 days.

IHT – Giving away your home before you die

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The majority of gifts made during a person's life, including gifting a home, are not subject to tax at the time of the gift. These lifetime transfers are known as 'potentially exempt transfers' or 'PETs'. These gifts or transfers achieve their potential of becoming exempt from Inheritance Tax (IHT) if the taxpayer survives for more than seven years after making the gift. There is a tapered relief available if the donor dies between three and seven years after the gift is made.

HMRC’s guidance suggests that if the person gifting the home wants to continue living in the property after giving it away, they need to:

  • pay rent to the new owner at the going rate (for similar local rental properties);
  • pay their share of the bills; and
  • live there for at least 7 years.

However, the rules are different if the person making the gift retains some 'enjoyment' of the gift made. This could apply if a person gave their home to their children but continued to live in the home rent-free. Under these circumstances, the taxman would contend that the gift falls under the heading of a gift with reservation of benefit and the 'gift' would remain subject to IHT even if the taxpayer dies more than 7 years after the transfer.

CGT – Lettings relief

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In general, there is no Capital Gains Tax (CGT) on a property which has been used as the main family residence. This relief from CGT is commonly known as Private Residence Relief or PRR. However, where part of the home has been let out the entitlement to relief may be affected. Homeowners that let out part of their house may not benefit from the full PRR but can benefit from letting relief. Since April 2020, letting relief has been restricted to homeowners who live in their property and partly rent it out.

The maximum amount of letting relief due is the lower of:

  • £40,000
  • the amount of PRR due
  • the same amount as the chargeable gain they made while letting out part of their home

Worked example:

  • You rent out a large bedroom to a tenant that comprises 10% of your home.
  • You sell the property, making a gain of £75,000.
  • You're entitled to PRR of £67,500 on the part used as your home (90% of the total £75,000 gain).
  • The remaining gain on the part of your home that's been let is £7,500.

The maximum letting relief due is £7,500 as this is the lower of:

  • £40,000
  • £67,500 (the PRR due)
  • £7,500 (the gain on the part of the property that's been let)

There's no Capital Gains Tax to pay – the gain of £75,000 is covered by the £67,500 PRR and the £7,500 letting relief.

You are not considered to be letting out your home if either:

  • you have a lodger who shares living space with you, or
  • your children or parents live with you and pay you rent or housekeeping.

Income Tax – £5,000 savings zero rate band

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If you have taxable income of less than £17,570 in 2023-24 tax year you will have no tax to pay on interest received. This figure is calculated by adding the £5,000 starting rate limit for savings (where 0% of the interest is taxable) to the current £12,570 personal allowance. However, it is important to note that if your total non-savings income exceeds £17,570 then the starting rate limit for savings is unavailable.

There is a tapered relief available if your non-savings income is between £12,570 and £17,570 whereby every £1 of non-savings income above a taxpayer's personal allowance reduces their starting rate for savings by £1.

There is also a Personal Savings Allowance (PSA) that can be beneficial to savers. This allowance ensures that for basic-rate taxpayers the first £1,000 interest on savings income is tax-free. For higher-rate taxpayers the tax-free personal savings allowance is £500. Taxpayers paying the additional rate of tax on taxable income over £125,140 do not benefit from the PSA.

Interest from savings products such as ISA's and premium bond wins do not count towards the limit. And so, taxpayers with tax-free accounts and higher savings can still benefit from the relevant PSA limits.

Banks and building societies no longer deduct tax from bank account interest as a matter of course. Taxpayers who need to pay tax on savings income are required to declare this as part of their annual Self-Assessment tax return.

Taxpayers that have overpaid tax on savings interest can submit a claim to have the tax repaid. Claims can be backdated for up to four years from the end of the current tax year. This means that claims can still be made for overpaid interest dating back as far as the 2019-20 tax year. The deadline for making claims for the 2019-20 tax year is 5 April 2024.

The badges of trade

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The 'badges of trade' tests, whilst not conclusive, are used by HMRC to help determine whether an activity is a proper economic trade / business activity or merely a money-making by-product of a hobby.

Careful consideration needs to be given to deciding whether a hobby has become a taxable trading activity. The approach by the courts in using the badges of trade has been to decide questions of trade on the basis of the overall impression gained from a review of all the badges.

HMRC will consider the following nine issues as part of their overall investigation as to whether a hobby is actually a trade:

  • Profit-seeking motive
  • The number of transactions
  • The nature of the asset
  • Existence of similar trading transactions or interests
  • Changes to the asset
  • The way the sale was carried out
  • The source of finance
  • Interval of time between purchase and sale
  • Method of acquisition.

Even if HMRC consider that the activities in question are a trade, taxpayers can make up to £1,000 per year, tax-free, from their hobby by claiming the trading allowance.

Autumn Statement Summary

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The Chancellor of the Exchequer, Jeremy Hunt, has delivered his Autumn Statement to the House of Commons. The government continues to be faced with challenging economic conditions as the cost of living crisis continues to affect many families across the UK.

The Chancellor, however, had some good news with inflation falling to 4.6% in October, down from a peak of over 11% last year. This together with the prospect of an upcoming general election suggested that there may have been more giveaways than in a usual Autumn Statement and this seems to have been borne out.

The OBR also provided good news and forecast inflation to continue to fall gradually. CPI inflation is expected to be 4.8% in Q4 2023 and fall further to 2.8% in Q4 2024. The OBR expects CPI inflation to average 1.8% over 2025 before returning to the 2% target in the medium term.

The following summary of the measures announced by the Chancellor as part of the Autumn Statement measures is split into two sections:

  1. Taxation changes
  2. Other announcements

Please call if you need to discuss how these changes may affect your business or tax affairs in the coming months.

Taxation changes

National Insurance

The Chancellor announced a number of changes to the National Insurance contributions (NICs) rates.

His first announcement concerned the removal of Class 2 NICs for the self-employed. This means that self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs from 6 April 2024. Class 2 NICs are currently paid by the self-employed who make profits above £12,570, in order to qualify for benefits such as the state pension. This change effectively abolishes Class 2 NICs for some two million self-employed people. The self-employed benefitting from this change will continue to receive access to contributory benefits including the State Pension. Those currently paying Class 2 NICs voluntarily will still be able to do so at the same rate.

In addition, the Chancellor announced that the main rate of self-employed National Insurance, Class 4 NICs, on all earnings between £12,570 and £50,270 will be cut by 1%, from 9% to 8% from April 2024.

The Chancellor saved his largest giveaway of the Autumn Statement for the end of his speech with the announcement of a reduction in the main rate of Employee National Insurance. This will see Class 1 NICs reduced by 2% from 12% to 10%. Unusually, this measure will come into effect before the start of the next tax year, effectively, from 6 January 2024. Perhaps this can be seen as a not-so-subtle hint of an earlier than expected general election? The Chancellor said this change will save the average worker some £450 a year.

Business Tax – Full expensing

The major announcement in the Autumn Statement affecting business investment related to ‘full expensing’. Full expensing was introduced at Spring Budget 2023 and offers companies the ability to write off the purchase of qualifying plant and machinery. The relief was initially introduced for a 3-year period from 1 April 2023 until 31 March 2026. In the Autumn Statement, the Chancellor announced that the government will now make full expensing permanent. According to the Chancellor, this means that the UK will now have one of the most generous capital allowances regimes in the world.

Full expensing is available on expenditure that includes, but is not limited to, warehousing equipment such as forklift trucks, tools such as ladders and drills, construction equipment such as bulldozers and excavators, machines such as computers and printers, vehicles such as tractors, lorries and vans, office equipment such as chairs and desks, and some fixtures such as kitchen and bathroom fittings and fire alarm systems. This effectively allows qualifying purchases to be written off completely against company taxable profits in the year when purchased.

Business Tax – R&D

The existing R&D Expenditure Credit and Small and Medium Enterprise Scheme will be merged from April 2024, simplifying the system and boosting innovation in the UK.

The rate at which loss-making companies are taxed within the merged scheme will be reduced from 25% to 19%, and the threshold for additional support for R&D intensive loss-making SMEs will be lowered to 30%, benefiting a further 5,000 SMEs.

Other announcements

National Living Wage increases

Promoted as the “Biggest ever increase to the National Living Wage (NLW)” the Chancellor confirmed the following changes that will apply from 1 April 2024. For the first time, eligibility for the NLW will be extended to 21 year olds. The increase will see the NLW rate increased to £11.44 per hour.

The National Minimum Wage (NMW) rates are also to be increased from the same date, 1 April 2024.

The new rates will be:

  • 18 to 20 year-old rate will be £8.60 per hour
  • 16 to 17 year-old rate will be £6.40 per hour
  • The apprentice rate will also be £6.40 per hour

It is interesting to reflect that the impact of these increases will fall on employers, not the government.

Back to Work

The government is expanding its programme of employment support for the long-term unemployed for two years from 2024 across England and Wales.

Mandatory work placements will boost skills and employability for those who have not found a job after 18 months of intensive support. Those who choose not to engage with the work search process for six months will have their claims closed and benefits stopped.

Making Tax Digital

It was announced during the Autumn Statement that the government will introduce a package of changes to simplify the design of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA). This will benefit 1.7 million businesses and landlords set to be mandated to use MTD.

It was announced late last year that the introduction of MTD had been delayed until April 2026. From that date, those with annual income over £50,000 will be mandated to join the scheme, followed by those with income over £30,000 from April 2027. The government has said they will keep under review the decision on whether MTD for ITSA will be extended to businesses and landlords with income below £30,000.

Business Rates

The Chancellor announced a business rates support package worth £4.3 billion over the next 5 years. This included a rollover of 75% Retail, Hospitality and Leisure relief for 230,000 properties and a freeze to the small business multiplier, which will protect around 90% of ratepayers for a fourth consecutive year.

Investment Zones

The Investment Zones programme and freeport tax reliefs will be extended from 5 years to 10 years. This will double the envelope of funding and tax reliefs available in each Investment Zone from £80 million to £160 million, to provide greater certainty to investors.

The Chancellor also announced that three advanced manufacturing Investment Zones will be established in Greater Manchester, East Midlands, and West Midlands.

Alcohol duty

As part of the Autumn Statement measures the Chancellor announced, to a big cheer, that the duty rates on beer, cider, wine and spirits will be frozen at the current rates until 1 August 2024.

Tobacco duty

The duty rates on tobacco products were increased by 2% above the rate of inflation (based on RPI) effective from 6pm on 22 November 2023. The Chancellor also announced that the duty for hand-rolling tobacco increased by RPI plus 12% at the same time. The government remains committed to maintaining high tobacco duty rates as a tool to reduce smoking.

Benefits Uprating

Benefit payments will rise by September Consumer Price Index (CPI) inflation – 6.7% rather than what many had predicted which could have seen the Chancellor using the lower 4.6% October rate.

This means the government will raise benefits, including Universal Credit and other working age benefits by 6.7% from April 2024. 

The new full State Pension will increase by 8.5%, in line with average earnings growth, from £203.85 per week in 2023-24 to £221.20 per week in 2024-25.  The basic State Pension and Pension Credit standard minimum guarantee will also increase by the same percentage.

Local Housing Allowance

To support low income households, the government will increase the Local Housing Allowance rate to cover the lowest 30% of rents from April 2024. This will benefit 1.6 million households with an average gain of £800 next year.

Fuel price watchdog sharpens its teeth

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UK motorists will be protected at the pumps under tough new powers that will shine a light on any attempt from retailers to unfairly hike up fuel prices.

Under new amendments tabled on 15 November 2023, to the Digital Markets, Competition & Consumers Bill, the CMA will become the body responsible for closely monitoring road fuel prices and reporting any sign of malpractice to the government. The move aims to help improve competition in the market, making sure customers across the country are given a fair choice of prices when they buy fuel.

Fuel retailers, including supermarkets, will be forced to come clean on how much they are charging customers on their forecourts versus their profits. Those that fail to comply could face a fixed fine from the watchdog of up to 1% of their worldwide turnover, or an ongoing fine of up to 5% of daily turnover.

The Energy Security Secretary has cautioned retailers that she will not hesitate to hold them to account, if there is any evidence of unfairly hiking up prices and holding back savings from UK motorists.

The warning follows a report from the CMA earlier this year that revealed some supermarkets had failed to pass on savings in oil prices – charging drivers 6p more per litre for fuel, which amounted to £900 million in extra costs in 2022 alone. It forms the latest step in the government’s drive to halve inflation and reduce costs for families across the country.

£4.5bn for British manufacturing from 2025

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The government has announced £4.5 billion in funding for British manufacturing to increase investment in eight sectors across the UK. The funding will be available from 2025 for five years, providing industry with longer term certainty about their investments.

Over £2 billion has been earmarked for the automotive industry and £975 million for aerospace, supporting the manufacturing, supply chain and development of zero emission vehicles, and investment in energy efficient and zero-carbon aircraft equipment. 

Alongside this, the government has committed to £960 million for a Green Industries Growth Accelerator to support clean energy manufacturing, and £520 million for life sciences manufacturing to build resilience for future health emergencies and capitalise on the UK’s world-leading research and development.

With the entire manufacturing sector making up over 43% of all UK exports and employing around 2.6 million people, this funding is targeted at the UK’s strongest, world leading sectors; including where the industry is undergoing fundamental changes to remain at the forefront of the global transition to net zero, like the move to zero emission vehicles in the automotive industry.

The Green Industries Growth Accelerator investment will support the expansion of strong, home-grown, clean energy supply chains across the UK, including carbon capture, utilisation and storage, electricity networks, hydrogen, nuclear and offshore wind. This will enable the UK to seize growth opportunities through the transition to net zero, building on our world-leading decarbonisation record and strong deployment offer.