Rayney's Tax Planning for Family and Owner-Managed Companies 2021/22

"Widely recognised as the leading title targeted at privately owned companies and their advisors. It provides high quality advice on a range of factors impacting the tax planning activity undertaken by most businesses. The book is written by Peter Rayney, the current President of the CIOT. His experience in providing advice and solutions to companies of all sizes is reflected in this updated content. The structure of the book enables reader to navigate quickly to an area of that interests them, whether it be the extraction of funds from the company, remuneration strategies or the treatment of benefits and expenses. All chapters contain practical worked examples to back up the guidance given. The 2021/22 edition is updated in line with Finance Act 2021 and related HMRC guidance as well as any relevant new case summaries. The previous edition contained extensive new content on the COVID-19 support measures and this is also be updated and extended."-- Provided by publisher. Preface Table of Statutes Table of Statutory Instruments Table of Cases 1 The Family and Owner-Managed Company, Tax Planning Concepts, and Tax Avoidance Importance of family and owner-managed companies Defining a family or owner-managed company Close companies Key characteristics and dynamics of family and owner-managed companies Succession planning Financial management and cash flow Tax planning and tax avoidance General anti-abuse rule (GAAR) Disclosure of Tax Avoidance Schemes (DOTAS) regime 2 Extracting Funds from the Company Should surplus profits be retained or extracted? Capital receipts versus income receipts Bonus versus dividends Companies with tax losses When should the ‘bonus v dividend’ comparison be made? Detailed implications of paying a bonus Real Time Information (RTI) submission Payment of dividends Bonus versus dividend – other factors Extracting surplus profits – some conclusions Remuneration paid to other members of the family Transferring income to the spouse Tax deduction for remuneration paid to spouse Employing the children Charging rent on personally owned assets used by the company Interest on borrowings and capital allowances Selling an asset to the company for value Charging interest on loans to the company Accounting for owner manager’s loan to company Loans from the company and the CTA 2010, s 455 charge Waiver of loans to shareholders Benefits in kind to non-working shareholders 3 Shareholding and Corporate Structures Shares versus debt Factors that may influence shareholding structure Close company legislation Corporation tax rates Payment of corporation tax Choosing an appropriate corporate structure Tax and commercial factors affecting choice of structure Operating structure checklist The Substantial Shareholdings Exemption (SSE) Corporate group rules 4 Trading Company and Investment Company Computations under CTSA Tax status of company Corporation tax computations Calculating the tax-adjusted trading profit Enhanced Research and Development (R&D) relief Creative sector tax reliefs Patent Box regime Transfer pricing regime Capital allowances Plant and machinery allowances Temporary ‘Super-Deduction’ First Year Allowances (SD FYAs) Annual Investment Allowances (AIAs) First Year Allowances (FYAs) Special capital allowance rules Computational procedure Relief for company trading losses Investment companies and companies with investment businesses Investment companies and companies with investment businesses – pro-forma tax computation Payment of corporation tax Corporation tax self-assessment (CTSA) return HMRC’s discovery powers Penalties under CTSA 5 Remuneration Strategies Background EBT and EFRBS arrangements Alphabet share arrangements National Insurance Contributions (NICs) Taxation of earnings Additional ‘timing’ rules for directors Coronavirus job retention scheme (‘JRS’) Relief for ‘negative earnings’ Personal service companies (PSCs) and contractors Corporation tax relief for the company The PAYE system and the family or owner-managed company HMRC approach to PAYE compliance Payment in assets Use of employee benefit trusts (EBTs) and employer-financed retirement benefit schemes (EFRBS) Disguised remuneration regime Dealing with EBT/EFRBS loans PAYE and NIC tax charges under ITEPA 2003, Pt 7A The 5 April 2019 loan charge Use of share options PAYE on share options NICs on share options Corporate tax relief for share awards and the exercise of share options National insurance contributions for directors Directorships held by members of a partnership Overseas secondments Non-executive directors Share and other incentive arrangements Termination payments Post-employment notice pay (PENP) Redundancy payments Compensation for loss of office or unfair dismissal and settlement agreements Ex gratia payments Contemporaneous sale of shares Employer’s PAYE obligations and pension planning 6 Personal Service Companies and Off-Payroll Working Introduction Off-payroll working The IR35 regime Indicators of self-employment v employment IR35 deemed employment payment and PAYE/NIC calculations Problems with IR35 Managed Service Companies 7 Benefits and Expenses Strategy for working shareholders Tax relief for the company Potential impact of the Disguised Remuneration rules Strategy for other employees National Insurance Contributions on expenses and benefits Use of assets Company cars and private fuel Company car – planning points HMRC reporting requirements Company car versus own car Tax issues for company Choice of company car or salary Personal ownership of car – key points Taxation of company vans Travel and subsistence costs Beneficial loans Living accommodation Relocation packages and removal expenses Other common employee benefits OpRAs (Optional Remuneration Arrangements) The remuneration package and flexible benefits Other transactions between the company and its shareholders The P11D form and payrolling benefits Payroll and benefits compliance Benefits of PAYE Settlement Agreements Allowable expenses 8 Providing shares to employees Uses and strategies for employee shares Employee share schemes – practical design issues Simple issue or gift of shares Checklist of key practical points Unapproved share schemes – summary of key tax charges on employee shares Application of PAYE/NIC on share scheme tax charges Approved share schemes and plans Enterprise Management Incentives (EMI) schemes Company share option plans (CSOPs) SAYE share option schemes Share incentive plans (SIPs) Employee share reporting to HMRC Corporate tax deduction for ‘director/employee’ share awards or options 9 Distribution of profits and dividend planning Introduction Procedure for paying a dividend and concept of ‘distributable profits’ Directors’ fiduciary and statutory duties Legal and tax consequences of an unlawful dividend Cash and in specie dividends Distributions for tax purposes Dividend taxation Taxation of dividends/distributions received by UK companies Timing payments of dividends Dividend waivers Using separate classes of shares Providing dividend income for the spouse Practical issues with spouse shareholdings and disclosure on tax returns Using separate classes of shares to ‘stream’ dividend payments Shares provided to children, other family members and friends 10 Pension Scheme Strategies The owner-manager’s perspective Restrictions in pensions tax relief Overview of the current pensions regime Different types of pension schemes Occupational pension schemes Executive pension plans Small self-administered schemes (SSASs) Personal pension plans (PPPs) and group personal pension (GPP) schemes Self-invested personal pension plans (SIPPs) The auto-enrolment scheme Tax treatment of pension contributions AA and pension inputs Lifetime allowance relating to registered schemes Pension fund investments Pension fund borrowings Vesting of pension funds Qualifying recognised overseas pension schemes (QROPs) Employer Financed Retirement Benefit Schemes (EFRBs) 11 Share Issues and Financing the Company’s Activities Introduction Long-term versus short-term funding Government-backed assistance during Covid-19 Venture capital/private equity Business angels Crowdfunding and peer to peer lending (P2P) Company borrowings Shareholder loans to company Financing with share capital Debt-for-Equity swaps Enterprise Investment Scheme (EIS) Seed Enterprise Investment Scheme (SEIS) Investor’s relief (IR) Venture capital trusts (VCTs) Social Investment Tax Relief (SITR) 12 Expanding the Company’s Activities and Structuring Business Acquisitions Making a business acquisition Final sale contract Structuring an acquisition – assets or shares? Outline of trade and asset purchase Basic overview of share purchase Trade and asset purchase – detailed aspects including SDLT Corporate tax treatment of assets purchased Share purchase – detailed analysis Use of hive-downs Protecting the buyer Warranties The tax indemnity/tax covenant CGT treatment of indemnity payments Retention against warranty/indemnity claims and transaction insurance Franchising 13 Share Transfers, Share Buy-Backs and Company Reorganisations/Demergers Introduction Gift of shares – married couples (and civil partners) Gifts of shares – family members, employees, etc Business asset hold-over relief Issue of new shares Employment income tax charges for directors and employees Purchase of own shares (POS) Distribution treatment Capital gains treatment Buy-backs – financing issues and problems Reduction of share capital under Companies Act 2006 Inserting a new holding company Company partitions and demergers Permitted types of statutory demerger Statutory demerger reliefs for shareholders Statutory demerger reliefs for distributing company Statutory demerger conditions Return of capital demergers Capital reduction demerger with retention of the company’s trading property Companies Act requirements – demerger distributions and other intra-group transfers 14 Valuing a Family or Owner-Managed Company Introduction Commercial valuations Valuations required under the company’s Articles of Association Unfair prejudice actions Value of company Maintainable earnings Price/earnings (P/E) multiple or rate of return Net asset valuations Purchaser valuation issues Fiscal or tax-based valuations Basic valuation concepts Employee share valuations for employment income purposes Dealing with HMRC – Shares and Assets Valuation Team Net assets basis Dividend yield basis March 1982 rebasing valuations Key March 1982 rebasing issues 15 Selling the Owner-Managed Business or Company Preparing a business for sale Possible sale routes and structures Basic CGT rules Sale of assets and trade Sale of shares Main CGT rules for share sales Business asset Disposal relief (BADR) previously known as Entrepreneurs’ Relief (ER) Investors’ Relief (IR) Structuring the consideration for a share sale Loan note consideration – QCBs versus non-QCBs Earn-out deals Potential application of the Transactions in Securities (TIS) legislation Enterprise Investment Scheme – CGT deferral relief (in relation to share sales) Seed Enterprise Investment Scheme CGT Exemptions CGT exemption for sale of a controlling shareholding to employee share ownership trust (ESOT) Pre-sale tax planning strategies Becoming non-UK resident Use of non-resident trusts and structures Inheritance tax issues post-sale 16 Winding-Up, Administration of Companies and Disincorporation Background Consequences for the company Legal formalities Dealing with surplus available to individual/trustee shareholders Pre-liquidation dividend versus capital distribution HMRC and ‘unacceptable’ phoenix arrangements The ‘anti-phoenix’ TAAR BADR on associated disposals of personally held property Disincorporation of the business Insolvent companies Covid-19 and distressed companies Companies in administration Pre-packaged administrations Relief for shareholders of insolvent companies Relief for shareholder loans Converting loans into new shares 17 Succession Planning and Passing on the Family or Owner-Managed Company Introduction Relevant inheritance tax principles Transfers on death Residence nil rate band (RNRB) IHT payment and filing of returns Business property relief (BPR) for the family or owner-managed company BPR qualification issues and tests Succession issues for the owner manager Passing shares to the next generation Drawing up a will and related planning issues Using trusts Non-resident trusts Settlor-interested UK trusts Overview of IHT regime for trusts Creating the trust – tax and regulatory implications Bare trusts Interest in possession/life interest trusts Discretionary trusts Relevant income tax rates Distribution of trust dividend income Accumulation and maintenance trusts The FA 2006 ‘Age 18 to 25’ trust regime Family investment companies (FICs) Assets held outside the company Pre-owned assets – income tax charge Index