TAX PLANNING AND UPDATE - September 2016

FAMILY INVESTMENT COMPANIES

With Corporation Tax at 20%, falling by April 2020 to 17%, compared with personal income tax rates of up to 45%, as well as the ability of a company to receive dividend income tax free, some wealthy individuals are attracted by the advantages of holding portfolio investments through a company.

The expressions “personal investment company” or “family investment company” are commonly used to describe such arrangements.

DIVIDENDS – From 6 April 2016 the dividends in excess of £5000, are taxed in the hands of individuals hence increases the income tax payable by those with large incomes from share portfolios.

EXTRACTING PROFITS

  • Family investment company, Where the company’s initial capital was provided by loan or redeemable preference shares, partial repayments may allow funds to flow out without any adverse tax repercussions.
  • The loan may also carry a right to interest.
  • Pension contributions should be considered, up to £40,000 per annum can potentially be paid per employee - with a CT deduction allowed.

OVERVIEW

The personal or family investment company is still a useful planning vehicle, in particular if there is no immediate need for an income from it.

VAT INVOICE

In order for an invoice to be a VAT invoice there are certain items that must be included on it as follows:-

  1. For invoices with a value below £250 and provided the supply is not to a person in EC country:-
    • The supplier’s name, address and VAT registration number
    • The time of supply
    • A description which identifies the goods or services supplied
    • The gross amount payable
    • For each rate of VAT chargeable, the gross amount payable including VAT and the VAT rate applicable.

2.:   For invoices in excess of £250, VAT invoices must show:

  • An identifying number.
  • Supplier’s name, address and VAT registration number;
  • The time of supply (tax point);
  • Date of issue (if different to the time of supply);
  • Customer’s name (trading name) and address;
  • The type of supply; and
  • A description which identifies the goods or services supplied and for each description you must show:
  • The quantity of goods or extent of the services;
  • The charge made, excluding VAT;
  • The rate of VAT;
  • The total charge made, excluding VAT;
  • The rate of any cash discount offered;
  • Each rate of VAT charged and the amount of VAT charged at each rate and shown in sterling; and
  • The total amount of VAT charged, shown in sterling.

 

Advisory fuel rates for company cars
New company car advisory fuel rates have been published which take effect from 1 September 2016.
 

Residential property income and interest relief
The government has issued guidance and examples on the restriction of income tax relief for interest costs incurred by landlords of residential properties

The new rules, which are phased in from April 2017, only apply to residential properties and do not apply to companies or furnished holiday lettings.

From April 2017 income tax relief will start to be restricted to the basic rate of tax. The restriction will be phased in over four years and therefore be fully in place by 2020/21. In the first year the restriction will apply to 25% of the interest, then 50% the year after and 75% in the third.

Bad Debt Relief - VAT

Bad debt relief allows businesses, that have made supplies on which they have accounted for and paid VAT but for which they have not received payment, to claim a refund of the VAT by reference to the outstanding amount.

The Conditions for Relief

In order to make a claim a business must satisfy the following conditions:

  • goods and services have been supplied and the VAT in question has been accounted for and paid
  • six months has elapsed since the later of the date of supply and the due date for consideration, whichever is the later
  • all or part of the outstanding amount must have been written off in the accounting records as a bad debt (in the ‘refunds for bad debts account’).