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Halloween Horror Tax Stories

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Over the years we’ve heard a number of scary tax stories that will send shivers down your spine. This Halloween we’ve delved into the #FrighterThinking crypt to raise a few from the depths…

…sleep tight and don’t let the tax man bite.

The missing.

A Halloween tax tale so haunting you might end up losing more that just your mind…

headless

A UK company walked innocently into a fearsome mire. They sent an employee to Australia to set up a new division there assuming that the profits would continue to be assessed in the UK and that UK PAYE would continue to apply to the employees pay. They were terrified at discovering the additional taxes, social security, interest and truly horrifying penalties. If only they had taken advice – the Menzies Team could have protected them from these Demons!

Relax, no one can hear you scream!


Two VAT registrations ahhhahahahahaha

A tax tale that will drain the colour right from your cheeks…

halloween-bat

Our next tale begins with a UK business who held an event in another EU Member State and sold tickets to its customers.

They did not realise that this would give them a liability to register and account for VAT in the country where the event was held.

The bill for VAT and penalties came as a horrible surprise.

Rest in peace.

The tortured soul

A tax tale that will drive a stake through your heart…

stake

Our next tale has a bit of a ghastly twist as we delve in to the self assessment graveyard.

John Doe has previously filed a 2014/15 return for rental income. All was going well until a nightmare employment income oversight turned a four figure tax rebate into a tax payment!

The final nail in this coffin was the terrifying note that John could also be liable for penalties for carelessness.

Truly bloodcurdling.


The tale of the agency worker

paye

A Halloween tax tale so gross-tesque it might keep you awake at night….

Our next tale is a real shocker and concerns a business not clear on the implications of agency staff on PAYE.

Unknowingly the company did not realise:

  • The simplified test that means PAYE is applicable to most agency workers
  • They needed to check that the agent has a permanent establishment and a PAYE scheme in the UK
  • PAYE was their responsibility, rather than the agent’s, because the agent did not have a permanent establishment in the UK

Consequently, they paid the agent gross on the assumption that the agent would operate PAYE if appropriate.

So what’s the sum of this grotesque mistake? The probability of a never ending nightmare that they may never recover the liability from the overseas agent for PAYE tax and NIC purposes!

This horror story could have been avoided with one simple phone call to check the circumstances before advising to establish whether the agent had a UK establishment and would be operating PAYE. Our silver bullet would have been to suggest:

  1. Requesting that the overseas agent sets up a UK establishment so that they become responsible for the PAYE;
  2. Obtaining staff from a UK business instead.
  3. Failing this, operate PAYE on the payments for the workers.

The moral of this tale…upfront advice is essential to protect against the things that go bump in the night.


The Decision.

A Halloween tax tale that could lead you to madness…

skull

Our final tale has all the gory details to leave you feeling a little faint as we uncover the Entrepreneurs’ Relief.

Unfortunately, life in business is not always straightforward and since it’s 2008 introduction, Entrepreneurs’ Relief has made a nasty habit of creeping up and scaring applicants. Here are just a few examples:

Shareholding percentage

There is a requirement that each individual holds at least 5% of the ordinary share capital. Pitfalls here can include subsequent share issues to investors, the exercise of share options by employees, or determining what shares fall under the definition of ordinary share capital.

Voting rights

Not only must the individual hold at least 5% of the ordinary share capital, they must also be able to exercise at least 5% of the voting rights. This can be especially in point where a company issues different classes of share capital and varies the rights attributable to each class of share.

Officer or employee

The shareholder must be an officer or employee of the company (or a group company). Care will be needed to ensure the commercial substance behind the arrangements, and it is worth noting that this is an area in which HMRC have recently challenged a number of claims.

Trading company

The company must be carrying on trading activities, and there must not be ‘substantial’ non-trading activity. Substantial in this context means 20%, and it is therefore necessary to manage the company’s non-trading activities so that this threshold is not exceeded.

However, the devil is in the demonic detail as all too often Entrepreneurs’ Relief applications are left until the last minute without understanding the overriding requirement that an individual must meet all of the qualifying conditions for a period of at least one year ending with the date of the share disposal. This rules out making share transfers or adjustments at the witching hour just prior to a sale!

The moral from our tale? Identify your shareholder eligibility for Entrepreneurs’ Relief early especially if you’re company is found in Hospitality and Leisure sector.

And so ends our Tales of the #FrighterThinking Crypt for this Halloween. Sleep tight and don’t let the bed bugs or tax man bite…

…but if you aren’t able to sleep for fear of the Bogey man, then get in touch with Menzies and we’ll exorcise those troublesome queries.

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Richard Godmon - FCA CTA

Partner

Richard Godmon is a Menzies Tax Partner in the Solent office specialising in corporate tax for SME businesses and personal tax planning for individuals.