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Welcoming Simon Newsham to the Nexa Law Tax Team

Written by admin on . Posted in Employment Tax, Law, Litigation & Dispute Resolution, Tax, VAT. No Comments on Welcoming Simon Newsham to the Nexa Law Tax Team

As some of you will recall, a few months ago, following an increase in the number of insolvency-related inquiries, I reached out to my LinkedIn contacts for help in finding professionals to join my team at Nexa Law. I am pleased to report that the search exceeded expectations and I now have three excellent practitioners in my team and one in training!

The significant expansion in the number of insolvency instructions has meant that my tax practice has taken a hit as I have been too busy to take on new instructions and have been turning clients and Nexa colleagues away or outside the firm.

Not anymore though:

It gives me great pleasure to announce the arrival of Simon Newsham to Nexa Law.

Simon is both a Solicitor and CTA (Chartered Tax Adviser). He brings a wealth of experience and expertise to our firm and will work closely with our colleagues and clients, to provide them with a combination of legal and taxation skills to provide the optimum solution for complex situations where tax knowledge is crucial to avoiding future problems and maintaining business value.

Simon’s arrival will allow me to concentrate on growing Nexa Law’s insolvency capacity as we continue to see an influx of requests for adjournments/injunctions following the issuing of winding up petitions – predominantly focussing on those issued by HMRC who are being quite active in this space, and a ten-fold increase in applications for validation orders for clients with frozen bank accounts as a result of same.

Welcome aboard, Simon Newsham! Here’s to a successful journey ahead at Nexa Law!

The importance of a well-drafted will

Written by admin on . Posted in Lasting Will & Testaments, Law, Wills & Probate. No Comments on The importance of a well-drafted will

The risk of relying on homemade wills was highlighted in a recent case where a will was held to be invalid. Even a well-written will must be kept up to date given the possibility of future inheritance tax (IHT) changes.

Invalid will

While there is usually the presumption that the testator will have had knowledge of a will, and will have approved it, a will might be considered as suspicious if:

  • It is a homemade will;
  • It is created by a beneficiary;
  • It contains spelling mistakes;
  • It represents a radical change from a previous will; or
  • The relationship between the testator and beneficiary was not close.

In the case of Ingram and Whitfield v Abraham 2023, a homemade will would have seen Joanne Abraham’s estate inherited by her brother – who drafted the will – rather than her children who were previously the beneficiaries. The homemade will, which also misspelt Joanne’s name, was held to be invalid, therefore, her children inherited the estate.

Future IHT changes

 Although IHT reliefs have remained largely unchanged since the introduction of the residence nil rate band in 2017, future changes cannot be ruled out – especially with an election on the horizon.

 The Institute for Fiscal Studies has recommended that three IHT reliefs are cancelled:

  1. AIM shares: these shares are exempt from IHT, with AIM portfolios – including AIM ISAs – often used to avoid IHT.
  2. Business and agricultural property relief: although full abolishment might be politically difficult, relief could be capped.
  3. Pension pots: funds in money purchase pension schemes can currently be passed on to beneficiaries free of IHT.

The lesson here is to review your will regularly, even if it is well-written, because your circumstances, wealth and IHT rules could change.

The Government’s guide to making a will can be found here.

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Landlord update on Renters Reform Bill

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The Renters Reform Bill has finally completed its passage through the House of Commons with important concessions made in favour of landlords. Landlords with leasehold property may also benefit from an annual cap of £250 on ground rents.

Concessions: what’s next?

The Bill has taken nearly a year to clear its first hurdle. Next, it must now proceed through the House of Lords. There is a good chance it will become law, although any subsequent changes are likely to benefit tenants rather than landlords if Labour wins the next election.

The main concessions from the original Bill are:

  • The abolition of Section 21 notices will be delayed for existing tenancies (those which commenced before the Bill comes into force) until the county court system for possession orders is deemed to be functioning properly. Such reforms might take years to complete. A section 21 notice can currently be used by landlords to take possession of a property without providing a reason.
  • Despite fixed term tenancies being abolished, a tenant will now not be able to end a tenancy during the first six months. This is effectively the same as the existing system.
  • The introduction of a tenant’s right to keep a pet will also be linked to improvements in the county court system. In future, a landlord will have to accept a request to keep a pet unless there is a reasonable reason for not doing so. Landlords will, however, be able to require pet insurance.

Leasehold property

While plans to abolish leasehold properties has been scaled back, it looks like a compromise will see ground rents capped at £250 annually for the next 20 years. However, this decision has not yet been formally announced. This will be good news for any landlords who own leasehold flats or apartments which have an escalating ground rent.

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Keeping it in the family – tax saving salary strategies

Written by admin on . Posted in Employment Tax, Income Tax, Law, PAYE, Self-Employed. No Comments on Keeping it in the family – tax saving salary strategies

An easy way to reduce a business’s tax bill – and also increase the amount of funds withdrawn from the business – is to put a family member on the payroll. Of course, the salary must be for genuine work (emphasis on this point!!), with any tax saving dependent on the overall tax position.

Such salary arrangements are most beneficial if they are in place from the start of a tax year, so right now is a good time to be looking at 2022/23.

When does this work?

Paying a salary to a spouse, partner or child at university makes sense if the recipient is not using their personal allowance. A tax-free salary can be paid, with the business or company receiving a corresponding deduction in calculating their trading profit. For a sole trader, the saving could be as high as 63.25% if caught in the personal allowance tax trap.

However, there will also be a saving if the recipient is using their personal allowance but has a lower marginal tax rate than their self-employed spouse, partner or parent. With a company, there is currently no advantage to taking a salary in this situation, but there will be from April 2023 when higher corporate tax rates come into effect.

One important point to remember is that the salary must actually be paid out for the work, so it should be payrolled and transferred into the family member’s personal bank account.

How much to pay?

There are two main restrictions:

  • The amount of salary must be commensurate with the work done; HMRC will refuse a tax deduction if no work or little work is undertaken. Work will obviously depend on the recipient’s skill set, but bookkeeping, payroll, marketing, or website maintenance might be options; and

 

  • Keeping the national insurance contribution (NIC) cost to a minimum. With employee and employer NICs set to be 13.25% and 15.05% respectively from April, these can easily wipe out any tax saving. An annual salary for 2022/23 of between £6,396 and £9,880 will mean no employee NICs and will also give the recipient a year’s contribution towards the State pension. Paying up to the annual personal allowance of £12,570 can work if employer NICs are covered by the employment allowance.

HMRC’s approach to allowing a deduction for salary paid to dependents and close relatives can be found here.

A caveat to anyone interested in this article’s content: do make sure you seek professional advice before embarking on this strategy, as getting it wrong could have severe consequences for you and/or your business.

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Leasehold shake-up on the horizon

Written by admin on . Posted in Law, Wealth. No Comments on Leasehold shake-up on the horizon

Ground rents for residential properties on long leases in England and Wales will soon be abolished, with further reform to follow. This first step in the government’s plan to reform leasehold law affects new leases. However, many homeowners will benefit immediately following a commitment made by two big players in the leasehold sector.

Government reforms

The Leasehold Reform (Ground Rent) Bill currently passing through parliament will remove ground rents for residential leasehold properties with leases of more than 21 years.

The next step, if the Government follows through with its intentions, will be to give leaseholders the right to extend a lease to a maximum term of 990 years, with no ground rent payable. This term is more than 10 times the current standard 90-year extension. An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to extend.

Persimmon and Aviva

The Competition and Markets Authority (CMA) has been investigating the leasehold sector, with doubling ground rent clauses of particular concern. Also, many homes that should ordinarily be sold as freehold have been mis-sold as leasehold. Crucial changes have recently been agreed by housebuilder Persimmon and insurance company Aviva (which buys leaseholds from housebuilders), including:

  • Aviva will remove leasehold clauses that double ground rent every 10 to 15 years, with leaseholders refunded for past increases.
  • Persimmon will grant leaseholders the chance to acquire the freehold of their property at a concessionary price (capped at £2,000), and refund homeowners who have already bought their freehold at a higher price.

As yet there is no date for the implementation of the new leasehold rules. The CMA is continuing its investigations into several other housebuilders and investors in freeholds. The Leasehold Reform (Ground Rent) Bill doesn’t help existing leaseholders, but the hope is that that the recent move by Persimmon and Aviva will send a clear signal without the need for costly court cases.

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IR35: The Question of Control

Written by admin on . Posted in IR35, Law, Tax. No Comments on IR35: The Question of Control

The off-payroll working (IR35) tests are still relevant despite the blanket approach often in place regarding contractors’ employment status. They must always be applied if you are contracting for a small organisation.

Two recent decisions in the Upper Tribunal closely examined the question of control.

In both cases, the Upper Tribunal upheld First-Tier Tribunal decisions, with one going the way of HMRC, and the other for the contractor. The court was prepared to look beyond the contract in question and consider the contractor’s wider business structure.

A win for HMRC

Robert Lee’s company was contracted to work for the Nationwide Building Society from 2007 until 2014. Even though Lee’s contract contained a substitution clause, the Upper Tribunal did not consider there to be a genuine right of substitution because the Nationwide valued Lee for his specialist expertise and familiarity with the work.

One way to strengthen contractor status is to make sure your substitution clause can be actioned. In the words of one commentator, “give your right of substitution clause teeth”.

The degree of control by the Nationwide was held to be significant, with Lee having to work when and where he was told. In addition, he was required to obtain approval for project plans and his performance was monitored.

The contractor comes out on top

Kaye Adams, via her company, presented a radio show for the BBC during the tax years 2015/16 and 2016/17.

Although there were factors indicating employee status, the Upper Tribunal found that the BBC did not have the level of control that would exist in an employment relationship. Despite some 50% to 70% of Adams’ income coming from the BBC contracts, the Upper Tribunal looked at the bigger picture of her career in the surrounding years when Adams generally acted as an independent freelance journalist.

Up to date HMRC guidance for contractors can be found on its website.

Photo by Agni B on Unsplash 

 

Missing out on tax-free childcare?

Written by admin on . Posted in Benefits, Law, self-assessment, Self-Employed, Tax. No Comments on Missing out on tax-free childcare?

By setting up an online childcare account, you can get a government top-up to help with the costs of childcare. However, thousands are missing out on this payment.

Tax-free childcare is worth up to £500 every three months (£2,000 a year) for each of your children, which doubles if a child has disabilities. Despite the impact of lockdowns, nearly 250,000 families saved money using the scheme in December 2020, an increase of more than 40,000 compared to a year earlier.

How tax-free childcare works

Your child must be aged under 12, with eligibility ceasing on 1 September after their 11th birthday (under 17 if a child has disabilities).

For every £8 you pay into your childcare account, the government will pay £2. These amounts can then be used to pay for approved childcare, such as:

  • childminders, nurseries and nannies;
  • after school clubs and play schemes; and
  • home care agencies.

The childcare provider must also be signed up to the scheme, but there is no other reason why childcare cannot be provided by a relative.

You can only get help paying for care outside of normal school hours, so, for example, private music lessons during school hours don’t count. Money can be saved during term time, earning the government top-up, and then used for summer camps or play schemes during school holidays.

Restrictions

There are certain restrictions on eligibility:

  • Other benefits – You cannot have tax-free childcare and also receive universal credit, tax credits or childcare vouchers, so it is worth checking if tax-free childcare is the right option.
  • Minimum income – Both parents must normally earn at least the national minimum/living wage. However, you may still be entitled if temporarily earning less as a result of Covid-19.
  • Maximum income – Both parents must earn less than £100,000. If previously ineligible, you might now qualify if income has fallen, for example due to being furloughed.

You can check if you’re eligible for tax-free childcare, find out how to apply and how to pay your childcare provider here.

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Life After Brexit – Travel to Europe on Business

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Continuing my immigration theme from earlier this week, I thought I’d comment on business travel to the EU as this has become significantly more complicated since 1 January, with many activities carried out by short-term business visitors now requiring a work permit. Business travel includes activities such as travelling for meetings and conferences, providing services, and touring art or music.

The 90-day rule

If you travel to Schengen area countries (including Switzerland, Norway, Iceland and Liechtenstein) for less than 90 days in a 180-day period, certain activities, such as attending a business meeting or conference, conducting market research or a sales trip, are permitted without the need for a visa or work permit.

Bulgaria, Croatia, Cyprus and Romania, who are not yet Schengen area countries, form a separate bloc, with another combined limit of 90 days’ entry. You can spend 30 days each in France, Germany and Spain, but 30 days in France and Germany, followed by 31 days in Spain would breach the 90-day limit. However, there would be no problem if the second, 31-day trip was instead to, say, Romania.

Business travellers will need to track how many days they spend in the EU, although this should be fairly straightforward given your passport will be stamped on entry to and exit from each EU country you visit.

When the 90-day rule does not apply

A visa, work permit or other documentation may be required if you are planning to stay for longer than 90 days in a 180-day period, or if you’ll be doing any of the following:

  • carrying out a contract to provide a service to a client in an EU country in which your employer has no presence;
  • providing services in an EU country as a self-employed person; or
  • transferring from the UK branch of a company to a branch in an EU country, even if just for a short period of time.

Advice about travelling abroad, including the latest information on Covid-19, safety and security, entry requirements and travel warnings, can be found on the government’s travel advice website.

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Brexit and the impact on immigration rules

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With the end of freedom of movement between the UK and EU from 1 January 2021, the UK has introduced an immigration system that treats all applicants equally. Anyone recruited to work in the UK from outside the UK, excluding Irish citizens, must meet certain requirements and apply for permission. Employers will need a sponsor licence.

The new system does not apply to EEA or Swiss citizens already employed in the UK, although they will have to apply under the EU Settlement Scheme to continue living in the UK.

Sponsor licences

A sponsor licence will normally be required to employ someone from outside the UK, with the application process typically taking six to eight weeks. Once obtained, the licence is valid for four years.

The licence can cover those with long-term job offers and temporary workers. You can apply for a licence covering one or both types of worker. Before applying to be a sponsor, you should check that the people you want to hire will meet the requirements for coming to the UK for work.

Skilled worker route

This will be the route for most workers employed from outside the UK. Visas are only awarded to those who gain sufficient points, with key requirements including:

  • job offer at the required skill level (A Level and equivalent);
  • English spoken to the required standard; and
  • minimum salary threshold.

Applicants can trade characteristics, such as their qualifications, against a lower salary to get the required number of points.

Impact on recruitment

As expected, the impact on employers and their workforces will be varied. You can no longer rely on EU recruitment to fill low-skilled and mid-level occupations, while those recruiting skilled workers face more onerous requirements and greater expense.

The retention of existing workers is more important than ever, and you will need to plan over the longer term how vacancies are to be filled. For some companies, remote working may offer a solution.

A good starting point for anyone looking to employ from outside the UK is the introduction to new recruitment rules for employers found here.

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