Tax issues for SMEs and owner-managed …...on the webinar details page, to reinforce your...

9/24/2019

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Tax issues for SMEs and owner-

managed businesses (2019)

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LexisNexis® Confidential 2

The law as stated during this webinar is

up to date as of 23rd September 2019

Tax issues for SMEs and owner-

managed businesses (2019)

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Introduction


Associate Partner

Hazlewoods LLP

Pete Woodall

Senior Tax Manager

Hazlewoods LLP

Jenny Boden

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Setting Up A New Company

• Share structure

o Get it right up front and make sure that it is maintained properly!

• Entrepreneurs’ relief (“ER”) issues – planning for the future

• Employment-related securities

o S431 elections – why you do them?

• Profit extraction

o Alphabet shares – care is needed


New Company – Compliance Obligations

• Tax registrations – corporation tax, VAT, PAYE etc

• Making Tax Digital – the brave new world!

• Self-employed individuals and IR35 – a hotter and hotter issue!

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Getting Money In

• Debt vs Equity – flexibility and tax relief issues

• Tax-efficient investment reliefs

o EIS – 30% income tax relief + CGT exemption after 5 years

o SEIS – 50% income tax relief + CGT exemption after 3 years

o VCTs – 30% income tax relief + CGT exemption over any period

o SITR – 30% income tax relief + CGT exemption after 3 years


Incentivising Key Employees

• Bonuses / unapproved share options – CT deduction and PAYE

• EMI option schemes – the panacea, ER available and no income tax on exercise (usually!)

• Pensions – rules have got more complex but still worth it!

• Other tax approved share schemes

o CSOP

o SIP

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Keeping The Corporation Tax Bill Down!

• Corporation tax rates going down – 17% from April 2020 (at the moment!)

• Claim Research & Development Tax relief where possible - 230% x qualifying expenditure for SME claims

• Patent Box reliefs – 10% tax rate on patent related profits, complex rules!

• Maximise capital allowances – 100% / 18% / 6% / 2%

• Remember the basics - Provisions / paid basis


Expanding The Business

• Relief for financing costs – thin capitalisation/distribution rules/CIR

• Group structures for new/developing businesses – consider “ring-fencing”

• Property acquisitions

o Fixtures elections to agree capital allowances transfer value

o Consider VAT implications as often complex

o Stamp Duty Land Tax (“SDLT”) issues

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International Tax issues for SMEs

• It’s early days, we do make overseas sales but don’t have a subsidiary or a branch

• We just sent one of the executive team overseas to see if we can make more of the market out there…..

• Isn’t there an SME exemption for transfer pricing ?

• Why has our overseas customer deducted withholding tax from the payment to us?

• Why are we having to prepare a tax return in two countries for our subsidiary

• Surely we’re just too small to have to worry about any of this….


Permanent Establishment (PE)

• A corporate taxable presence aiming to tax business income generated in a country and not dependent on having a legal entity set up

• Known as “source” taxation which all countries use as a basis for taxation

• Simplest form is a branch, but can arise without a formal branch

• Various thresholds – determined by domestic law in the first instance

• Generally speaking 2 types:

o Fixed place of business

o Dependent Agent

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So what ?

• If you are a UK company with a PE overseas

o Company taxed in the UK on worldwide income and gains

o Local tax compliance obligations in the source country

o Potential Double taxation – look to the tax treaty for relief!



So what ?

• If you are a UK company with a PE overseas

o Company taxed in the UK on worldwide income and gains

o Local tax compliance obligations in the source country

o Potential Double taxation – look to the tax treaty for relief!

• Important to understand:

o What activities are being undertaken overseas

o Keep this under review

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Corporate residency

• Basis for taxation – usually based upon:

o Country of incorporation

o Where a company is essentially managed – in the UK, “Central Management and Control”

• Issues ?

o Tax resident in one country on the basis of incorporation

o But, executive decisions are made in the UK therefore centrally managed and controlled in the UK

o Double tax ? – Look to the Double tax treaty


Transfer Pricing

• The UK has an SME exemption whereby transfer pricing regulations do not fully apply if:

• If a company is “small” the regulations do not apply

• If a company is “medium sized” they do not generally apply, but HMRC can raise a transfer pricing assessment

• Patent box transactions

• Transactions with parties in “non-qualifying territories”

And less than one of the

following limits:

Max number

of staff

Annual

Turnover

Balance Sheet

total

Small 50 €10 million €10 million

Medium 250 €50 million €43 million

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Transfer Pricing

• In the UK

o Deductibility is still based upon the expense being “wholly and exclusively” for the purposes of the trade

o New legislation in the Finance Act 2019

• Transfer Pricing by the back door for SME’s ?

• There are two sides to every transaction

o Does the other country operate SME exemptions ?

o Could be risk based / transaction based

o Defence documents ?

• What happens if we continue to grow?


Withholding taxes

• UK company in receipt of income from overseas

o Interest

o Royalties

o Dividends

• Another form of source taxation

o Double tax relief generally available – have to offset expenses.

o Interest and royalties are usually “pure income profit”

o Technical services – possible economic loss

o Gross up clauses in agreements?

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Reorganising The Business

• Purchase of own shares if individuals want to exit? – CGT treatment if 5 year ownership (normally), not connected afterwards, for benefit of trade,

• “Internal” buy-outs for new management? Beware of “transaction in securities” rules

• Tax efficient demerger of businesses to refocus shareholder groups? Can be complex but worthwhile!


Selling The Business

• Entrepreneurs’ Relief / substantial shareholdings exemption – attractive reliefs on selling shares by individuals and corporates

• Tax due diligence issues – plan for this as can impact on deal!

• Tax assets to consider – R&D reliefs, capital allowances, share option deductions

• Inheritance tax (“IHT”) impact for shareholders – lose 100% IHT exemption

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Summary

• Tax issues are important but don’t let them drive the commercial agenda!

• Professional advice should be taken to maximise tax savings and avoid issues in the future

• We are seeing more and more overseas tax issues and other countries may have completely different rules!

• Thanks very much for listening!


Upcoming Tax for General Practice webinars

• Tax for General Practice – End of year round-up 2019 – 3rd December 2019

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On Demand Tax for General Practice webinars

• Capital Gains Tax and Entrepreneur's Relief (2018) – Available until 27th

February 2020

• Capital allowances in 2018 – Available until 27th March 2020

• Inheritance Tax and trusts in 2018 – Available until 24th April 2020

• Real estate tax update (2018) – Available until 26th June 2020

• The latest in VAT for general practitioners (2018) – Available until 31st July 2020

• Tax for General Practice end of year round-up (2018) – Available until 27th

November 2020

• Non residents tax: changes in principle and in practice (2019) – Available until 18th February 2021

• Taxation of termination payments (2019) – Available until 27th March 2021

• Tax For General Practice – Spring Update 2019 – Available until 30th April 2021

• Accounting for lawyers (2019) – Available until 3rd September 2021


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