UK Company Tax Planning

UK Corporation Tax Planning & Compliance Made Simple

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VAT for Companies

1. Tax matters include VAT within/outside EU
2. VAT rates
3. Partial exemption
4. VAT on property
5. Capital goods scheme
6. UK company law – laws re disposing of a business, intellectual property and land law
 

VAT WITHIN EU AND OUTSIDE EU
Goods to EU – Dispatch
Dispatches of goods should be zero rated for VAT purposes as long as the customer is registered and other conditions are met; otherwise VAT is charged in the country of origin.

Goods to outside EU – Exports
Goods to outside EU are zero rated (no VAT)

Goods from EU – Acquisition
If you’re VAT registered, you wont get VAT charged by the supplier, however you mush account for VAT on your VAT return; at the same rate that you would have paid if you had bought them from a UK supplier. and you can normally reclaim this if the acquisitions relate to VAT taxable supplies that you make.

If you are not VAT registered and receive goods from the EU, your supplier will charge VAT at the local rate in the EU country from which the goods are supplied. If you‘re not already registered for VAT in the UK and buy goods worth £85,000 or more in the UK from other EU countries, then you need to register for VAT.

Goods from outside EU
Goods from non-EU countries charged VAT on entry into UK at the same rate as if they had been supplied in the UK. You can recover the VAT is you are VAT registered as input tax.

VAT on services
– Generally services to non-business customer is charged in the country of origin; and services to business customer is charged in the destination country. With the exception to land and electronically supplied services.
– If you’re supplying services relating to land and property, the place of supply is always where the land or property is located.
– Sales of digital services (broadcasting, telecommunications and e-services) from a business to a consumer (private individuals and non-business entities) – the place of taxation will be determined by the location of the consumer. The supplier is responsible for accounting for VAT on the supply to the tax authority and at the VAT rate applicable in the consumer’s EU member state.
The changes will create a level playing field for UK businesses by removing the previous competitive advantage of EU member states with lower rates of VAT.

Services to EU
Place of Supply – EU country not UK – no VAT charged if the customer is VAT registered. The customer account for VAT under the reverse charge rule. You will also need to complete an EC Sales List.

Services from EU
Place of Supply – UK- no VAT charged by supplier if you are VAT registered. You account for VAT under the reverse charge rule.If you‘re not already registered for VAT in the UK and buy services worth £85,000 from EU countries, then you need to register for VAT

Services from outside EU
There will be no VAT on the sales invoice. You must account for reverse charge VAT in the UK.If you‘re not already registered for VAT in the UK and buy services worth £85,000 from outside EU countries, then you need to register for VAT.

VAT Group
Companies under common control can apply for group registration for VAT even if individually a member may be making only exempt supplies. A VAT group is treated as a single VAT entity which submits one VAT return; all entities a jointly liable for VAT, Representative member files the return on behalf of the group; no VAT charged between group members; including exempt & partially exempt companies results in partially exempt group – hence may not benefit the group.Businesses who make zero rated supplies and who receive repayments of VAT may find it beneficial to submit monthly returns; however when such a member is included in a VAT group, the company wont receive monthly repayments.

Transfer of business as a going concern (TOGC)
No VAT charged on ALL 4 conditions must be satisfied:
1- transfer as a going concern
2- assets transferred used in the same business as before
3- Buyer is or will immediately register for VAT (or get seller’s VAT number)
4- No significant break in trading

The TOGC does not apply to “new ie <3yrs” commercial buildings or land/buildings subject to an option to tax. Transferee has to “opt to tax” for land/buildings to transfer VAT free. >3yrs no VAT even if TOGC does not apply.
If TOGC doesn’t meet the conditions after disposal, the transferror is charged output tax at standard rate. If contract is silent on price re VAT. HMRC assumes price is inclusive of VAT eg sold business for £6m, VAT is 1/6 of that ie £1m. Hence transferors should always say the sale is VAT-exclusive so that any future VAT due can be recovered from transferee.

Capital Goods Scheme
– Capital Goods Scheme if you reclaim VAT on expensive land, property or computer equipment which may be used over time.
– Includes purchase of land and buildings costing at least 250,000 or single ships and aircraft or computing items (excluding software) each costing £50,000.
– Recovery for land and buildings is over 10 years; 5 years for ships, aircraft and computers -> this is called adjustment period!
– on disposal of a capital goods before end of its adjustment period, it may be subject to disposal test.
– Disposal tests compares TOTAL input tax recovered less output tax due on disposal, if this is excess, then the input tax maybe adjusted. [total input tax being intial recovered plus adjustments under CGS plus final adjustments on sale];
– HMRC will not enforce the disposal tests if:
– re sales of computer equipment
– where no unjustified tax advantage
– value has depreciated
– disposed at a loss due to market conditions
– where value is reduced due to legitimate conditio
ns

VAT on property
Property transactions may be exempt, zero rated or standard rates, depending on the nature of supply:
– Generally sales & leases of land & buildings are exempt supplies
– Sales & leases of RESIDENTIAL buildings are zero rated
– Sales & leases of “old ie >3yrs” COMMERCIAL buildings are exempt supplies subject to “Option to tax”
– Sales & leases of “new ie <3yrs” COMMERCIAL buildings are standard rate
– Work on existing RESIDENTIAL & COMMERCIAL is standard rated

Single or multiple VAT supply factors to consider?
– whether a single price is charged
– whether the services are provided separately on a stand-alone basis
– whether 1 or more items are just ancillary to other items and used for better enjoyment of main supply eg food on a long-haul plane
– the view point of customer as to what he is receiving
– whether you can identify the primary supply
– essential features of the supply
– whether supply is single supply from an economic point of view and should not be split artificially
– whether the elements are distinct and independent or merely a component of the overall supply

Conditions for exports of goods to be zero rates
Exporter ensure goods are indeed exported within Obtain valid commercial/official evidence of export 6m from later of supply or when payment became due/payable
– Claim of VAT due is added to the input tax claimed in the Q after >6m period above

VAT on illegal items
– Generally VAT is not charged on illegal supply -eg drugs, pornography etc
– However it would be unfair under the principle of fiscal neutrality that criminals are treated more favorably hence some goods are charged VAT eg stolen goods, counterfeit etc

Legal considerations for Registering a Patent in UK

Before the issue of a patent can be considered, the Patents Act 1977 states four criteria that must be met. The invention must:

  1. Be new, and not have been made public anywhere in the world;
  2. Involve an inventive, non-obvious step;
  3. Be functional or technical;
  4. Have an industrial use

Other benefits of obtaining patents are as follows:

  • A patent would give a company exclusive rights for up to 20 years to stop others from copying, manufacturing, selling or importing any of its patented products without permission;
  • A company could claim damages for any infringement of these rights by others;
  • A company could receive additional revenue from licensing its patents to other businesses;
  • Income from patent royalties or from the sale of patented products could constitute qualifying income for the Patent Box regime, resulting in a potential tax saving.

PAYE Warranty
warranty incorporated in SPA that no outstanding PAYE or a specified amount disclosed. IF breached, rescission of contract or damages may be sort

Choses in Possession vs Choses in Action
– Choses in Possession means actual possession of a thing eg Loose plant & machinery items
– Choses in Action – property owned due to the right to sue eg intellectual property

Ownership vs possession
– Ownership – right of exclusive used and enjoyment of property
– Possession – Exercise physical control of an object

Sale Agreement Process
1. Initial negotiations
2. Heads of terms/agreement -precontractual (though maybe binding re confidentiality; exclusivity and costs)
3. Sale agreement

Acquisition Process
1. Purchaser due diligence investigation as assets/liabilities will be on purchaser’s books
2. Warranties by vendor eg no o/s PAYE. IF breached, rescission of contract or damages may be sort
3. Vendor may disclose certain facts against warranties in the disclosure letter – so that no future action by purchaser against vendor
3. Tax indemnity – vendor may compensate the purchaser for paying the tax liability of the vendor- usually specified risks/tax amounts.

Information required for due deligence investigation
At least 6yrs period unless specified (period open under CTSA)
1. General tax compliance – penalties, disputes,agreements with HMRC,tax avoidance used etc.
2. Provision for tax in accounts – current & deferred tax in last statutory, unprovided deferred tax etc.
3. Corporation tax returns- past 6 years returns, status of returns, group relief claims and related o/s amounts, degrouping charges, rollover reliefs, trading loses, capital losses, carried forward amounts etc
4. Other taxes – PAYE, VAT, Stamp duty etc

Other UK law

Duties under SDLT for land transactions:
– Every notifiable land transaction return to be completed <30 days after transaction - Return to be accompanied by payment of SDLT - Return to be signed by purchaser - Supplimentary pages to be completed eg >1 purchasers, leases, >1 pieces of land sold etc

Note – no SDLT charges on transfer of group shares.

SDLT Adjudication
HMRC formally assesses the SDLT amount due (if any) + penalties
This may be voluntary to estabilish correctness of SDLT or to initiate an appeal
Copy accompanied by full disclosure of all relevent facts
HMRC may require further info if need be
HMRC adjudicate as to:
Whether SDLT is due and amount
Late payment penalties

Legal considerations for Registering a Patent in UK

Before the issue of a patent can be considered, the Patents Act 1977 states four criteria that must be met. The invention must:

  1. Be new, and not have been made public anywhere in the world;
  2. Involve an inventive, non-obvious step;
  3. Be functional or technical;
  4. Have an industrial use

Other benefits of obtaining patents are as follows:

  • A patent would give a company exclusive rights for up to 20 years to stop others from copying, manufacturing, selling or importing any of its patented products without permission;
  • A company could claim damages for any infringement of these rights by others;
  • A company could receive additional revenue from licensing its patents to other businesses;
  • Income from patent royalties or from the sale of patented products could constitute qualifying income for the Patent Box regime, resulting in a potential tax saving.

PAYE Warranty
warranty incorporated in SPA that no outstanding PAYE or a specified amount disclosed. IF breached, rescission of contract or damages may be sort

Choses in Possession vs Choses in Action
– Choses in Possession means actual possession of a thing eg Loose plant & machinery items
– Choses in Action – property owned due to the right to sue eg intellectual property

Ownership vs possession
– Ownership – right of exclusive used and enjoyment of property
– Possession – Exercise physical control of an object

Sale Agreement Process
1. Initial negotiations
2. Heads of terms/agreement -precontractual (though maybe binding re confidentiality; exclusivity and costs)
3. Sale agreement
Acquisition Process
1. Purchaser due diligence investigation as assets/liabilities will be on purchaser’s books
2. Warranties by vendor eg no o/s PAYE. IF breached, rescission of contract or damages may be sort
3. Vendor may disclose certain facts against warranties in the disclosure letter – so that no future action by purchaser against vendor
3. Tax indemnity – vendor may compensate the purchaser for paying the tax liability of the vendor- usually specified risks/tax amounts.

Information required for due diligence investigation
At least 6yrs period unless specified (period open under CTSA)
1. General tax compliance – penalties, disputes, agreements with HMRC,tax avoidance used etc.
2. Provision for tax in accounts – current & deferred tax in last statutory, unprovided deferred tax etc.
3. Corporation tax returns- past 6 years returns, status of returns, group relief claims and related o/s amounts, degrouping charges, rollover reliefs, trading loses, capital losses, carried forward amounts etc
4. Other taxes – PAYE, VAT, Stamp duty etc