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Corporation Tax Q&A
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Corporation Tax Q&A
New - FREE Tax Q&A Service!
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We'll publish our FREE response to your tax question(s) on the website within 2 working days.
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Using a corporate partner and having a clearly defined role - USERNAME: tyrone
Tax Question: We are a private wealth management business structured as an LLP with four junior partners and two senior partners. The two senior partners earn in excess of the 50% tax band and would like to reduce their tax by retaining profits in a corporate partner. I have read that it is important for the corporate partner to have a clearly defined role to avoid any scrutiny by HMRC. If the role of the corporate member was to fund the working capital of the LLP, would this suffice as clearly defined role? Or does the role of corporate member need to be more specific such as undertaking the Finance or HR function? . . .
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Transfer of properties between group companies -
USERNAME: Enquirer
Tax Question: I have read your very helpful article "Should property developers use a separate company for each development?", May 2011 and also another article "Tax implications of setting up a second company", December 2007. Both have been extremely helpful, I have some questions when applying them to a specific situation (also the situation might have changed under newer laws?): Company A Ltd (which is a newish property development company) owns a land which is currently going to gain a planning permission for a residential development and then sold for profit. Company A is also considering buying a new piece of land which is currently rented. The plan is, if the lease (which will run out this year) is renewed then it will continue to be rented, otherwise it will be developed into residential units as well. If Company A sells the land as an asset, then it will obviously pay corporation tax on the profits. However, having read your articles: 1) Can Company A set up a new subsidiary, Company B Ltd (where Company A owns 100% of shares of Company B with a simple 240 shares structure for £1 each), then transfer the land asset to Company B (your article states that "group rollover relief" allows companies within the same group to pass assets free of CGT). Then Company A sells the shares of Company B instead of selling the land directly (your article states that by creating a holding-subsidiary relationship, the holding company can sell the whole development as shares, without having to pay capital gains tax on the shares, by virtue of the "substantial shareholdings exemption")? Is there something I am missing here, because under the new proposal, there will be no corporation tax or capital gains tax to pay at any level, or did I get that completely wrong? Also, how does the transfer of the land happen from Company A to Company B in accounting terms? the land value is currently sitting in the accounts of Company A as "stock" for about £150k. How will the accounts of Company B read? If the land is later sold for e.g., £300k, I am assuming that the entire profit is reflected in the shares value.. I'm not really clear on the situation, and your explanation is most appreciated. 2) Regarding the new purchase, having read your article, it is better for minimising risk to hold it in its own company as a subsidiary and for selling it in the long term (and assuming careful consideration have been given in the reduction of tax bands as you stated in your article). However, what worries me is that how does renting this new purchase (before developing it e.g., 10 years later) affect the tax situation if at all? I only ask because in your article, you say, " Note that this applies providing the companies are involved in a property development trade (not investment)" Thanks for your help . . .
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Preferential debtors on a winding up - USERNAME: karend
Tax Question: Due to downturn in business, the business may have to close. Should this be the case, corporation tax and redundancy payments will be due. If there is not sufficient funds for both of these, who will be the priority debtors? Should the company continue, but does not have the necessary funds to pay the full amount of corporation tax required, what would normally be an acceptable arrangement with HMRC? . . .
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Apportioning profits for corporation tax purposes -
USERNAME: keko
Tax Question: My company accounts for its first year run from 6-Oct 2011 to 31-Oct-2012. My accountant tells me that we should prepare just one set of accounts for this period while filing two tax returns (one for the period 6-Oct 2011 to 6-Oct 2012 and one for the period 6-Oct 2012 to 31-Oct 2012) so that in the future my CT year and company accounts year coincide. All of the above sounds reasonable to me, but the question is how to apportion the profits for CT purposes: A - My accountant proposes to do it prorata, based on the numbers of days before and after 06-Oct-2012 B - I would prefer to do it based on the actual invoices and expenses before and after 06-Oct-2012, because October 2012 was a good month and I will be able to pay CT at 20% for it, while the period between 06-Oct-2011 and 06-Oct-2012 is split (in this case I assume we have no option but to prorate it by number of days) between the 20% and 21% CT rate Do I have a choice to go for plan B, which is more beneficial, or is the way proposed by my accountant the only possible way? . . .
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Reducing tax on disposal of property owned by Ltd company - USERNAME: Gem
Tax Question: I own a commercial property through a Ltd company in which I own 100% of the shares the company owns no other property and has no employees. I am the Director & Co. Secretary. The property is let to a third party tenant. The company was set up in the year 2000 specifically to purchase the commercial property. I expected to be able to take advantage of the old CGT taper relief scheme and or reinvestment relief because the property was let to a 'trading company' as I understand things even though my company was not a trading company the fact that the property was let to a trading company was enough for it to be a 'qualifying company' In April 2008 the situation changed (I believe) and now taper relief has been abolished letting to a trading company does not allow my company to be a qualifying company for the new 'Entrepreneurs relief'or any kind of reinvestment\rollover relief. I paid around 225K and estimate that the property is now worth around 950K and I would expect to want to reinvest a substantial amount of any gain. My questions; 1)Am I right about the changes as described above. 2)Am I disqualified from any and all types of CGT relief since 2008 3)Would the Inland Revenue make any allowances for the fact that my company had been a 'qualifying company'for 8 years if I sold it now. 4)If the company sold the commercial property instead of me selling the company would there be any advantage with regards to relief. . . .
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Getting a UK certificate of tax residence -
USERNAME: teluu
Tax Question: My company, limited company registered in UK, provide software licenses to customers around the world. Two countries in particular Germany and Poland have tax withholding on royalties, unless I have proof of tax residence. How do I go about getting one? The HMRC helpline does not know anything about this. Thanks! . . .
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Moving overseas to reduce corporation tax -
USERNAME: mulbury1
Tax Question: I own a UK Limited company which is making Circa 1.4Mil profit and expecting 2.25 mil profit for the current year. I would like to know how I can reduce my Corporation and Income tax without the hassle of doing an EBT. I am happy to move to an English speaking country with good schools for 2-3 years. Can anyone offer any guidance on how I go about this and where would be best to move to and how I go about it or other suggestions. Thank you . . .
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Tax for property development company - USERNAME: Enquirer
Tax Question: A property developing limited company was set up by 4 shareholder, each owning 60 shares (at the value of £1 each) and injecting £60 at startup. The company is due to make profits soon. Let's assume it will make £300k in year 1. 1) How does the value of the shares change if the company makes profit, or does the share value always stay the same at £1? 2) If some shares are transferred from one of the shareholders to another after profits have been made, is there capital gain on the share transfer? What about if the shares are transferred before any profits have been made? 3) Let's say £30k is extracted from the company in year 1 as dividends. The rest of the profits are retained in the company as cash in its bank account. But the company doesn't make any profit in years 2 and 3. Can dividends be extracted from the company in years 2 and 3 from year one's left over profits? 4) If after a few years the company doesn't manage to develop any other properties and therefore fails to make any more profits. But there is still e.g., £250k left in the bank account from the first year's profit. i) How can this cash be extracted in the most tax efficient method? ii) I've heard of e.g., becoming non resident to extract this amount, but not sure how this works, can you please explain it? iii) What is the most tax efficient method to extract it if the shareholder wanted to remain living in the UK? Thanks for your help . . .
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Company tax treatment under the UK-Estonia double tax treaty - USERNAME: Andre
Tax Question: Assuming I as an ordinary resident of UK owns a company in Estonia (to 100% and I being a board member, no director in the private limited liability company), how how will the company be taxed in terms of capital gains from shares, immovable property and business profits? Estonian companies owned by Estonian residents only pay 21% tax on distributed profits taken out of the company. My Estonian company would probably be deemed UK resident (due to my residency) although it's not doing business in UK at all? An thus be taxed in UK as a UK company? The systems of taxing business in Estonia and UK are different, I don't understand how the double taxation agreement would work? Link to the double taxation agreement: http://www.hmrc.gov.uk/manuals/dtmanual/dt6700+.htm Thanks! . . .
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Accounting periods and corporation tax on property disposal - USERNAME: Enquirer
Tax Question: Thank you for your response earlier today to the question entitled "Corporation tax on company capital gain" From your response, I believe that delaying the completion till 1 March 2012 will be beneficial as then all the gains will be taxed at the 2012/13 year (not 2011/12). The company will have no other gains other than £500k. Also because the company is a property trading company, I assume that no CGT is involved. I don't understand how the marginal rate is calculated: I know that the first £300k will be taxed at 20% but I don't know at what rate will the remaining £200k be taxed at if it is not 25% main corporation tax rate? Thanks for your help again . . .
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Tax relief for expenses of refurbishing property -
USERNAME: snowman
Tax Question: Hello and a Good New Year to all. I would to clarify the following. A Ltd Co needs to purchase a building, completely refurbish, design and equip it for use as a business facility with specialist acoustic and visual properties changing the property completely to meet the business specifications. Can any of the considerable costs be claimed against tax due by the company? Major building and design costs etc. The property would not be in any "special needs area" and may not even be in the UK. Thank you . . .
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CT41G and payments to a shareholder - USERNAME: Cashbuyer
Tax Question: I have recently set up a new Ltd company (company A). The main activities will be property investment. I am 100% shareholder, and a family member is the sole director (unsalaried). I will be completely responsible for running the company, and sourcing property deals. Independent Letting agents will be responsible for day to day management of the properties. I already own a portfolio of investment properties in my own name, which takes up the vast majority of my time and from which I earn a self-employed income. I own other Ltd companies and do not draw a salary from any of them, although I receive dividend payments from time to time. It is my intention to invoice company A on an ad hoc basis as a self-employed consultant and also for sourcing fees when I find the company suitable properties to purchase, rather than becoming an employee on PAYE. As I have significant other sources of income I am hoping that I do not need to set up a PAYE scheme. The first propery purchase is due to exchange in 2 weeks and I am completing a CT41G form. In section 16 the form asks that I tick each box that applies if the company makes any payments, including benefits, to: - Directors and/or shareholders - Employees - Subcontractors The notes accompanying the form state: "The company will need a PAYE or contractor scheme if it: -makes payments to directors/employees, or -provides benefits and/or expenses to a direcor/employee, or -makes payments to subcontractors, or -intends to claim a refund of Construction Industry Scheme deductions it has suffered" 1) I am not sure whether, if I invoice the company for consultancy services and sourcing fees as planned this would be classed as a "payment" to a shareholder in section 16 of CT41G and I would therefore need to tick the box relating to directors/shareholders. 2) If I do have to tick the box, does this mean the company will have to set up a PAYE scheme? 3) If (1)and (2) above do apply, could I avoid a PAYE scheme by transferring all of the shares to my wife before trading commences? 4) I am also wondering whether as a consultant to the company I would be classed as a sub-contractor? Many thanks. . . .
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Corporation tax on company capital gain - USERNAME: Enquirer
Tax Question: Dear Sirs, A limited property trading company is about to sell one of its properties for a large profit (expected to produce about £500k or more profit). This will make it have to pay main corporation tax rate (26% for 1 April 2011 - 31 March 2012 and 25% for the following year). The limited company's tax year ends on 28 February. My questions are: 1) What tax rate will it have to pay if the sale happens: a) before 28 February 2012 b) between 28 February 2012 and 31 March 2012 c) On or after 1 April 2012 I seem to recall reading in TaxCafe's book "Using a property company to save tax" that if the sale happens e.g., anytime in the 2012-13 company's tax year (i.e., between 1 March 2012 and 28 February 2013), then a 1/12 (i.e., one month in a year) of the profit of £500k will be taxed at the 2011 rate of 26% while 11/12 of the £500k will be taxed at 25%. If this is correct, then is there any way to force the whole sale to be taxed at 25% by making the sale after 1 April 2012 and proving this was the case? 2) An exchange might have to take place, and 10% of the amount might have to be received before 28 February 2012. How will this deposit be taxed (as it will appear in the company's bank accounts and will have to be accounted for in the more tax expensive 2011-12 tax year). And will it affect the tax on the future remaining 90%? (again I seem to recall reading about WIP but not quite sure how would work in this example). 3) Will all the £500k+ profit be taxed at the main corporation rate or will the first £300k be taxed at the small profits rate of 20% and only the remaining amount taxed at the higher rate? Thanking you in advance for your help . . .
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Moving to the UK and using an offshore company to reduce tax - USERNAME: ph1973
Tax Question: I have a question about offshore corporations/ partnership and the remittance basis of taxation. I own half of an offshore company based on the Seychelles. I have a partner that owns the other half. Nominee director and shareholder on the Seychelles. We create software applications sold to end users worldwide and run the business through this company. The company was founded about 1 year ago. I am considering moving to the UK. I would be a resident non-dom. I would bring in enough capital to support myself for a few years so wouldn't need to remit any funds from the offshore company. Question: - Will this company be considered a foreign company so I can claim the remittance basis and only pay tax in the UK on income I bring into the country? My partner is resident abroad so central management and control will be 50% abroad, 50% in the UK. Although I will make trips now and then to spend time with my partner which will tip it more abroad I guess. - Any pitfalls we should watch out for that could make the corporation a UK corporation in the eyes of the HMRC? - If I go ahead and treat this as a foreign company and the HMRC somehow finds out about it, investigates and reaches the conclusion that it is not foreign: How severe penalties can I expect? Thanks for your input! Cheers, Peter . . .
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