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High street retailer Next has been hit with a £22.4m tax bill after a court ruled the firm’s complex tax scheme was artificial tax avoidance.

HM Revenue & Customs (HMRC) successfully challenged Next Brand Ltd, which is part of the well-known Next group, over its use of a tax avoidance structure known as a rate-booster.

The First-Tier Tribunal (FTT) ruled in HMRC’s favour after finding Next’s scheme artificially moved money around the group so they could try and claim tax relief on overseas profits.

HMRC’s Director General of Business Tax Jim Harra said:

This case shows how HMRC takes effective action against big businesses that try to avoid paying tax through convoluted, artificial avoidance schemes. HMRC expects all businesses to steer well clear of such schemes.

This is the second rate-booster case to reach the FTT after the tribunal ruled against P&O in 2013, who appealed and a decision is awaited.

About £130m in tax is at stake across 20 rate-booster cases, which were waiting on the P&O and Next decisions. Around 70 rate-boosters have already been conceded by companies rather than go to court, which has brought in more than £500m in tax.

Rate-booster schemes involve trying to avoid Corporation Tax on foreign profits that are paid back to the UK from a subsidiary.

The UK company receiving these profits gets credit for any foreign tax the subsidiary paid. The rules are designed to prevent companies being taxed twice on the same income and is known as double taxation relief.

Some companies set up artificial arrangements involving complex circular movements of money between companies in the same group so they can claim there has been double taxation.

Through these movements the companies claim far more tax had been paid on the overseas profits than was actually the case.

Legal changes in 2005 and 2009 mean rate-booster schemes are no longer possible or attractive.

No doubt we will see more high profile tax wins by HMRC in the coming months as the government continues its clampdown on corporate tax avoidance.

Sajid Javid set out his priorities for supporting Britain's small businesses last week. Here’s a summary of what he said:

Over the next 5 years, we’ll build on the success of ‘One in, two out’ to put a strict brake on new regulations. For the first time, the actions of regulators will be counted towards achieving the overall £10 billion in cuts.

This will be the first time in modern history that government has successively reduced red tape and continued with reductions in the next parliament.

And business will be our partner…giving us the evidence we need to roll back the state. One crucial aspect of this roll back will be the extension of the rule that is known as Primary Authority.

Primary Authority allows a business to get advice on regulation from a single local council. This advice must then be respected by all other local councils, thus reducing the time and cost to businesses of having to obey multiple masters. When Primary Authority came in, the purpose was to help larger firms trading nationwide. But it was so successful that we opened it to small business in 2013. Today, more than two-thirds of the businesses taking advantage of Primary Authority are small businesses.

It frees them from inconsistent and confusing red tape. It reduces their operational costs, and allows them to focus on expansion.

Thanks to Primary Authority, cheese makers don’t have to display their cheddar on wooden boards in one place and on steel platters in another. Yet only a tiny fraction of small businesses that could benefit are actually doing so. Accordingly, we’re going to simplify Primary Authority itself. 

And we’re going to extend its reach. There’s one more area I wish to cover this morning. It’s a subject that’s exercised me for some time.

There’s a situation familiar to small business owners up and down the country. A letter turns up from a larger customer changing payment terms, or charging them to remain a supplier, and in some cases even deducting that charge on the spot against payment owed.

This pattern of behaviour is an outrage. It’s bullying – pure and simple. In 2008, late payment alone cost British business £19 billion. This year, that’s set to exceed £40 billion. The average amount owed to a small business is more than £30,000. You know as well as I what figures like that can do to the cash flow of small businesses. It’s enough to force a company into insolvency.

We’ve not been blind to these issues.

During the last Parliament, we introduced legislation requiring the UK’s largest companies to report on their payment practices. That’s going to shine a light on poor performance when it comes into effect next April. Recent U-turns show that public scrutiny can make big firms mend their ways. We also strengthened the Prompt Payment Code to introduce a maximum 60 day payment term and promote 30 days as the norm.

Government has rightly been leading by example. We pay our suppliers within 30 days. We’ve brought in measures requiring all public sector contracts to pay out within 30 days, all the way down the supply chain.

Now, we’re going to widen the powers for representative bodies to act on behalf of their members to challenge grossly unfair payment terms. There’ll be a consultation on this later this year. And we will fulfil the manifesto pledge to set up a Small Business Conciliation Service to help small businesses settle their problems with large corporations.

The purpose is to avoid expensive legal costs and maintain business relationships by reaching mutually satisfactory agreements.

This model has worked in Australia. We will explore it, and other models, and find what works best here in the UK.

The first Budget of the new parliament is to be delivered by George Osborne on July 8^th.

Apart from tying up loose ends from the spring Budget the Chancellor will make a number of announcements:

1. His plans for eliminating the UK’s budget deficit and running a surplus by the end of the current parliament.
2. Details of the £12bn cuts in public expenditure he will need to make.
3. Further measures to crack down on tax avoidance.

There may be a few tax “sweeteners” in the summer Budget, but it is more likely that George Osborne will get the painful changes out of the way, and early in the new parliament, leaving tax cuts until later.

Two Directors and a Company Secretary have been jailed for contempt of court relating to a £7.7m VAT fraud, following an investigation by HM Revenue and Customs (HMRC).

A court order appointing a Provisional Liquidator was made by the High Court in March 2014 against Parkwell Investments Ltd, based in Wilmslow, Cheshire. The order removed the company’s officers and appointed a Provisional Liquidator in their place to protect the company’s remaining assets.

The company’s officers then deliberately and knowingly acted in contempt of court by transferring £450,000 out of the reach of the Provisional Liquidator.

The funds are now very unlikely to be recovered, a point which presiding Judge Mr Justice Norris took into consideration when sentencing. He said the company officers’ actions “were an affront to the rule of law and order”.

Amran Munir, Ali Sami Farooq, and Saif Chaudhry were each sentenced to six months’ imprisonment, of which three months is to be served in prison before being granted unconditional release. Unusually, the prison sentence was given in civil, rather than criminal, proceedings.

The individuals initially defended their actions but at the eleventh hour admitted to knowing breaches of the court’s order.

Mr Justice Norris said:

Where company officers seek to thwart a liquidator, a message must be sent to the business community.

Andy Cole CBE, Specialist Investigations Director, HM Revenue and Customs (HMRC), said:

Committing contempt of court to get out of paying your VAT debts just adds insult to injury. We will relentlessly pursue those behind this type of abuse using all the means at our disposal.

Is this a good time to invest if you are in business?

Actual business investment in the UK fell in the last quarter of 2014. This was largely driven by the reduction of investment in North Sea oil and gas exploration as global energy prices continued to fall.

Additionally, smaller businesses may have been waiting to see the outcome of the election.

Should you reconsider investment at this time? Certainly, it’s worth taking advantage of the current 100% write off available to those businesses making qualifying purchases of equipment and commercial vehicles. As mentioned in our other blog posting today, currently HMRC will allow businesses to write of up to £500,000 against their taxable profits. This relief is due to reduce after 31 December 2015.

Certainly, businesses should not let the tax tail wag the dog. Financing capital expenditure also needs to be taken into account. Businesses will be unlikely to spend hard earned liquidity especially if they operate in competitive markets where there is downward pressure on margins.

If you are in need of new plant or equipment planning your investment is critical. We would be delighted to help. Call any time to make an appointment.

So now we know. For the next five years we will have a Conservative government, albeit, with a slim majority in the House of Commons.

From a tax point of view George Osborne is continuing as Chancellor and we can probably expect more of the same as he struggles to reduce the deficit, repay debt and maintain a steady increase in economic growth. No mean feat if he achieves this.

As we reported in out last posting to this blog, it is likely there will be a second Finance Bill this year, reinstating the items that were dropped from the first Bill in order to close down government business before the election.

David Cameron also promised to increase the inheritance tax threshold to £1m for married couples and civil partners. We should expect further announcements to remove the higher rate tax relief for pension contributions. Persons who are considering significant contributions to their pension this year should speak with their advisors sooner rather than later if they want to benefit from the present higher rate relief regime.

At the end of this year the present Annual Investment Allowance limit of £500,000 is due to reduce to just £25,000. Hopefully, Mr Osborne will announce a continuation of this valuable tax incentive for businesses in the next Finance Bill.

George Osborne does have an unenviable task. If he depresses economic activity, by severe cuts to government expenditure, tax payers will not be encouraged to spend and GDP will fall. Add to this the anticipated referendum on Europe and the effects of the Scottish vote, and more of the same may be an understatement…

 This posting lists a few (but not necessarily all) of the tax issues you will need to consider when you are planning a new business:

1. Get you business registered with HMRC, failure to do this can lead to penalties. If you are incorporating your business, HMRC generally pick up your business registration via their links with Companies House. But if you are aiming to be self employed, as a sole trader or in partnership, you will need to notify HMRC within certain time limits of your commencement date.
2. In similar vein, if you need to employ staff you must register as an employer with HMRC.
3. If you intend to register for VAT from the date you commence to trade you can still recover input VAT that you have paid on certain setup costs that you expended prior to the official start date.
4. If you intend to register your business for VAT could you take advantage of one of HMRC’s special VAT schemes? For example:

1. Cash accounting: pay over the VAT you have collected on your sales when you are paid by your customer, rather than when you issue your sales invoices. There are turnover limits to registration, but this option can have a significant impact on cash flow if the amounts you are owed is more than the amounts you owe.
2. Flat rate scheme: using this scheme you calculate the amount you owe as a fixed percentage of your turnover each quarter (including VAT). For smaller businesses, who do not have significant VAT inclusive costs, this scheme can produce additional profits and simplify the calculation of your quarterly returns.
3. Annual accounting: using this scheme you send in one VAT return a year instead of the usual four. Also for nine months of the year you make agreed payments on account to cover VAT due. The scheme is simple to administer, only one set of calculations per annum, and the monthly payments help to spread the cash flow impact of payments made.

5. Invest in tax planning. The UK’s tax code is one of the most complex in Europe. We recommend that you take tax planning advice before you start in business and again at certain key moments in your trading year. At the very least you should discuss your trading results with your advisor before the end of your first trading year. It always pays to see what planning options are available before you take action to implement change.

If you are about to set-up a new business please call, we offer a no obligation first appointment to prospective new clients.    

 HMRC has kindly published a list of the tax changes that affect individuals from 6^th April 2015. We have reproduced the list below.

• Individuals over the age of 55 have flexible access to their defined contribution pension savings
• The Income Tax Personal Allowance increases to £10,600
• The higher rate Income Tax threshold increases to £42,385
• The new Marriage Allowance comes into effect
• The starting rate of savings Income Tax reduces from 10% to 0% for savings up to £5,000
• The cash ISA limit increases to £15,240
• Child Trust Funds can now be transferred into Junior ISAs
• Spouses can now inherit their deceased partner’s ISA benefits
• If an individual dies before the age of 75, they can now pass on their unused defined contribution pension savings free of Income Tax
• Beneficiaries of individuals who die under the age of 75 with a joint life or guaranteed term annuity can now receive any future payments from such policies free of Income Tax
• Employers will no longer have to pay employer NICs for employees under the age of 21
• Class 2 NICs for the self-employed can now be collected through Self Assessment
• The Employment Allowance extends to include people employing care and support workers to look after themselves or family members
• A new annual remittance basis charge of £90,000 is introduced for non-domiciled individuals who have been resident in the UK in at least 17 of the last 20 years, and the charge paid by non-domiciled individuals who have been resident in the UK in at least 12 of the last 14 years has increased from £50,000 to £60,000
• Non-UK resident individuals, trusts, personal representatives and narrowly controlled companies are now subject to Capital Gains Tax on gains accruing on the disposal of UK residential property
• Capital Gains Tax annual exemption amount has increased to £11,100
• The Capital Gains Tax charge on disposals of properties liable to ATED extends to cover residential properties worth £1 million – £2 million
• The requirement that 70% of Seed Enterprise Investment Scheme money must be spent before EIS or VCT funding can be raised is removed
• The Fuel Benefit Charge multiplier for both cars and vans increases by RPI
• The Van Benefit Charge increases by RPI. In 2015-16 the Van Benefit Charge rate paid by zero emission vans is 20% of the rate paid by conventionally fuelled vans
• Tax Credit payments are stopped in-year where, due to a change in circumstances, a claimant has already received their full annual entitlement

If you need more information regarding any of these changes please call.

The published list of tax changes that affect primarily businesses are listed below.

• The Corporation Tax rate has been reduced to 20%
• The new Diverted Profits Tax has been introduced
• The bank levy has increased from 0.156% to 0.21%
• Air Passenger Duty has been restructured – abolishing bands C and D
• Hospice charities, blood bikes, search and rescue, and air ambulance charities will be eligible for VAT refunds
• Business rates changes (England only):
  • The business rates multiplier has increased from 48.2p to 49.3p (47.1p to 48.0p for small business multiplier). This includes the 2% inflation cap
  • The Small Business Rate Relief scheme has doubled for a further year – providing 100% relief for businesses with a single property with a rateable value of less than £6,000, and tapered relief with a rateable value of £6,000 – £12,000
  • The business rates discount for shops, pubs, cafes and restaurants with a rateable value of £50k or below has increased from £1,000 to £1,500
• The cultural test for high-end TV tax relief has been modernised and the minimum UK expenditure requirement for all TV tax reliefs has reduced from 25% to 10%
• A new tax relief on the production of children’s television has been introduced
• The amount of banks’ annual profit that can be offset by carried forward losses has been restricted to 50%
• Two new bands for the Annual Tax on Enveloped Dwellings (ATED) have been introduced
• Capital Gains Tax exemption for wasting assets will only apply if the corporate selling the asset has used it in their own business
• An investment allowance for North Sea oil and gas, replacing the existing offshore field allowances and simplifying the existing regime, has been introduced
• A reduced rate of fuel duty to methanol will apply – the rate is 9.32 pence per litre
• Fuels used to generate good quality electricity by CHP (combined heat and power) plants for onsite purposes are exempt from the Carbon Price Floor
• Climate Change Levy main rates have increased in line with RPI
• The VAT registration threshold has increased from £81,000 to £82,000 and the deregistration threshold from £79,000 to £80,000
• Scottish Government’s Land and Buildings Transactions Tax (LBTT) will replace Stamp Duty Land Tax in Scotland
• The associated companies rules have been replaced with simpler rules based on 51% group membership
• The standard and lower rates of landfill tax have been increased in line with RPI

Again, if you need more information on any of these changes please call.

If you pay your employees a mileage rate for the business use of their personal vehicles, as long as you do not exceed the approved rates per mile, there is no necessity to report these payments to HMRC and the payment will not be treated as a taxable benefit. Employers and employees may also find the notes that follow instructive:

1. The maximum tax free rates per mile for the use of a car are: 45p per mile for the first 10,000 business miles and 25p per mile thereafter.
2. Employers are not obliged to pay these rates, but if they are exceeded the excess will need to be reported to HMRC as a benefit in kind.
3. If employers pay less than the 45p (25p) rates the employee can obtain tax relief on the difference by making a claim to HMRC.
4. Employers can reclaim the deemed VAT on the fuel elements of the mileage allowance payments by using the approved fuel rates. See table below.

 Advisory fuel rates per mile from 1 March 2015 are:

• 1400cc or less: petrol 11p; LPG 8p.
• 1401-2000cc: petrol 13p; LPG 10p.
• Over 2000cc: petrol 20p; LPG 14p.

 Diesel rates are:

• 1600cc or less: 9p
• 1601-2000cc: 11p
• Over 2000cc: 14p

 Example:

 David is paid for a 200 mile business trip at 30p per mile (his annual business mileage claims are well below the 10,000 maximum). He runs a 1500cc petrol car. He can make a claim to HMRC to deduct £30 mileage allowance from his taxable pay (200 x 15p).

 His employer can recover VAT input tax on the fuel element (200 x 13p) x 1/6 = £4.33.

 If you would like help to make back-dated claims to recover VAT if you are an employer; or make a claim if you are paid less than the 45p (25p) rate, please call for further advice.