UK tax legislation is often complex and not always easy to interpret, and taxpayers typically want to know the tax considerations of a transaction in advance. To assist with this uncertainty, taxpayers can apply for clearance from HMRC on the tax treatment of certain transactions before the relevant transaction or event takes place. What is a Clearance?  Clearances are broadly defined as written confirmation of HMRC's view of the application of tax law to a specific transaction or event, where the taxpayer can rely on this verification in most circumstances. Our previous blog discusses where HMRC will not give clearance. Clearance applications to HMRC can come under: ‘Statutory clearances’ – the tax treatment of certain...

The division of marital assets is a difficult time for most couples undergoing separation/divorce/dissolution, and little thought may be given to the potential tax implications that can arise. This article seeks to highlight some of these tax issues, and potential planning to help mitigate the potential tax charges and ensure that a larger pool of assets remains for apportionment between the parties. Capital Gains - Tax Year of Separation The transfer of assets between spouses/civil partners who are 'living together' in the tax year, is at no gain/no loss for capital gains tax. Individuals will be treated as living together unless they are separated under a Court Order or formal Deed of Separation, or they are separated in circumstanc...

At PD Tax Consultants we value companies for all kinds of reasons, ranging from setting up employee share schemes to facilitating a management buy-out. In this article, we have provided a brief overview of the methods we typically use to value unquoted trading companies. It is important to understand that valuing companies is both a science and an art, and each valuer will make different judgement calls resulting in a differing result. With this in mind, it is often appropriate to use two or more valuation methods in order to ascertain a better idea of a value range and to ensure that the valuation reached is reasonable. 1. Maintainable Earnings Method The first and most commonly used method for valuing trading companies is the mai...

In our previous article Protect & Thrive - Asset Protection & Holding Companies (30 March 2020) we looked at the benefits of inserting a 100% parent company above a trading subsidiary. But what happens when a group decides to simplify and rationalise its structure instead? This article focuses on situations where there are a number of holding companies above one or more trading companies and looks at the reasons why a group may choose to streamline its structure and the different options available. Benefits of a Simpler Structure A group structure may have arisen as a result of one or more management buy-outs and/or capital reduction demergers, rather than a direct conscious choice by the directors. Each company is required ...

It is common for business/financial decisions to be guided by the tax treatment of the transaction. However, in light of the tax legislation's complexity taxpayers may seek advance assurance before the event takes place to guarantee that the expected tax implications will indeed apply. In light of this, it is possible to write to HMRC to request advance clearance of the tax treatment of certain transactions. The tax legislation provides for clearances for certain arrangements (i.e. statutory clearances), and HMRC also provides a non-statutory clearance service for areas where the rules do not otherwise provide for it. The most common transactions that we as a firm seek clearance from HMRC include: Share-for-share exchanges Pu...

In these uncertain times, surplus cash not required for working capital and other prized assets held by a company are potentially being left at risk. Therefore, a company may wish to implement an asset protection strategy to help limit liability risks arising from the coronavirus crisis. Holding Companies & Shielding Company Assets A holding company (“HoldCo”) is a limited liability company that acts as the parent of a trading company (“TradeCo”). HoldCo does not carry out any trade activities itself and will instead own the shares in TradeCo along with any other assets that the owners would like to protect. The basic steps to implement the planning are as follows: The shareholders of TradeCo incorporate a new c...

On a sale of shares, proceeds of the sale may be paid in full on completion. Alternatively, part of the proceeds may be paid on completion, with the balance becoming payable at one or more future dates. In the latter case, there may be certain performance conditions attached to the future proceeds (typically related to the financial performance of the company) that must be met in order for the vendor to receive further payment. The latter case is commonly called an “earn out”, and there are several tax points to consider when negotiating a sale of shares to ensure that the earn out is practical and tax effective for the parties involved. Why Consider an Earn Out? There are numerous reasons to have an earn out as part of a share...

When businesses/companies employ capital assets (e.g. machinery, motor vehicles) for use in their business, such costs are not deductible from trading profits because the expenditure will have an enduring benefit for the trade. Instead, relief is available through capital allowances which essentially allows relief for the fall in value of capital assets, providing a deduction when arriving at taxable profit. Furthermore, the annual investment allowance (AIA) is available to businesses to encourage greater levels of investment. The AIA reduces the costs of capital by providing 100% capital allowances for the first £1,000,000 (between 1 January 2019 and 31 December 2020) of plant an machinery (excluding cars) acquired by the business for...

Changes introduced by the Finance Act 2019 (FA-2019) address inconsistencies between the tax treatment of tangible fixed assets (e.g. cars, vans, machinery, buildings) and intangible fixed assets (e.g. goodwill, intellectual property). The new provisions bring the intangible fixed assets rules more in line with those applying to tangible fixed assets. Degrouping Charge A degrouping charge may apply where a company (Co A) acquires assets from another group company (Co B) on a no gain/no loss basis, and Co A leaves the group within 6 years of acquiring the asset. The effect of a degrouping change is that Co A is deemed to have disposed of and reacquired the asset at market value immediately after the asset was acquired, thereby crea...

The provision of company shares can be a valuable tool in incentivising key members of staff to remain with the company long term and actively grow the company’s business and increase profits. HMRC has several approved employee share schemes, each with their own tax advantages for the employee and employer/shareholders. However, certain conditions must be met by the employer/employee in order for these schemes to qualify and therefore they are not always commercially viable. Growth shares are a practical option, especially where the company shares already have significant intrinsic value. What are Growth Shares? Suppose that a company wishes to incentivise one of its managers to stay with the business and continue to contribut...