News

March 6 2022

The Budget. In ten minutes.

We’ve extract the salient points from Chancellor Rishi Sunak’s big spend Autumn Budget and provide at-a-glance analysis of the announcements most relevant to you and your clients, including:

Basis period reform for self-employed and partnerships
The CGT payment deadline extension
Extension of Annual Investment Allowance
New powers for HMRC to clampdown on tax avoidance
Discovery Assessments
New VAT rules
Corporation Tax rules and increases
Van and fuel benefit charges

March 6 2022

Can a child own shares in a private company?

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Let’s look at the key considerations of giving shares to minors.

The short answer to this is yes, it is possible. In England and Wales there are no statutory provisions prohibiting a child (under the age of 18) from owning shares. However, some companies do not accept minor shareholders by provision in their articles or terms of issue. Even though children can own shares at any age, they have to be over the age of 16 to become a director of the company.

Benefits of allotting shares to children
Some family-owned companies allot shares to children as a means of providing them with:

capital assets which may be likely to increase in value as part of longer term inheritance and capital gains tax planning
dividend income on such shares to utilise children’s personal allowance and lower tax rates applicable to dividends.

Settlement provisions
Even though a child can own shares, nevertheless one must not forget the settlement legislation under ITTOIA S629. These provisions apply to arrangements where the settlor, or their spouse or civil partner, retains an interest in the settlement.

Where ITTOIA/S629 applies, the income (over £100 per annum) paid or made available to a minor child or step child will be taxable in the hands of parents and not treated as the child’s income for tax purposes. A step child includes the child of a civil partner. This means that any income to a child on the allotted shares in a family owned company, directly or indirectly, is deemed to be that of the parents for tax purposes.

It is a similar position if they try to create a trust where the child is a beneficiary. For any income in a bare, discretionary or interest in possession trust, ITTOIA/S629 applies to treat the income belonging to the child as that of the parent for tax purposes whether or not it is paid to the child.

Example: A parent creates a bare trust (see TSEM1563) for a child on 1 January 2008. No payments are made out, and the trustees retain all the income which exceeds £100. Although no income is paid to or for the benefit of the child, ITTOIA/S629 applies to treat the income as that of the parent because the income belongs to the child.

Disadvantages of allocating shares to children
At common law a child will not be bound by a contract to buy shares as they are not ‘necessaries’, so theoretically, a child could relinquish obligations placed upon them by owning shares, particularly where there are unpaid shares. Thus, normally public companies exclude minors from holding their shares.

Sometimes it is hard for the company to attract new investors due to the restricted obligations of minor shareholders.

The dividend income (more than £100 per annum) on shares given in family owned company is taxed in the hands of the parents under settlement rules as mentioned above.

It may create fragmentation of control of the company. Children owning shares control part of the business. Sometimes it becomes very difficult if you want to resurrect the full control of the company, especially when they disagree with any of your proposals or resolutions.

Key considerations when giving shares to a minor
If you are issuing new shares to a minor child, consider taking professional advice on whether you should issue the existing share class or if you should create a new share class.

Before issuing any shares to the children, consider what impact it makes on your employees. It may demotivate your hard working key employees who are looking forward to owning a share and gaining larger influence over the company. They may believe their efforts are in vain, hence it can be hard to maintain their support in ‘family companies’.

March 6 2022

MTD for Income Tax: 6 tasks you need to consider

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Making Tax Digital for Income Tax Self Assessment takes effect on 6 April 2023.

It will affect millions of clients who are self employed and will change how you will handle their taxes. It also affects landlords as well as the individuals within certain kinds of partnerships.

Are your clients any of the following, or a combination of them?

• A sole trader (and not a limited company).

• A landlord.

• A member of a partnership that doesn’t include a limited company as one of the partners and isn’t incorporated (that is, it is not a Limited Liability Partnership).

If so, then as of 6 April 2023, they will be legally required to comply with MTD for Income Tax if their turnover is above £10,000.

Here, we summarise six of the requirements surrounding MTD for Income Tax:

1.Sign up

People won’t be switched to MTD for Income Tax automatically. You might need to sign up your clients ahead of the first full accounting period that begins on or after 6 April 2023. If your clients follow the tax year for their accounting period, as many small businesses do, then they’ll need to sign up in advance of 6 April. If you’d like to get ahead of the game, there’s an MTD for Income Tax pilot programme in place that you can sign up today.

2. Maintain Digital Records

You’ve got to keep digital records of all business income and expenses in line with existing tax record keeping requirements. As is currently the case for Self Assessment, you might need to keep client records relating to savings, investments and pensions too, as well as details of certain kinds of grants. You will need to keep all these records digitally for at least five years after the 31 January final declaration date for each tax year (see below).

3. Quarterly updates

At a minimum, you must update HMRC every three months with a summary of the client’s business income and expenses. Landlords will need to provide you with updates on rental income but don’t need to split it out by individual properties. There is currently no legal requirement for these updates to be accurate, but it’s a good idea because it will help you know your tax position.

4. End of period statements (EOPS)

At the end of the accounting period of any business, you need to finalise the taxable profit or loss via an EOPS. For clients who operate several businesses, then each requires its own EOPS following the end of its accounting period. Landlords also need to make an EOPS for all their property rental income. Within the EOPS, you can help your clients adjust for allowances and reliefs.

5. Final declaration

By no later than 31 January following the end of the tax year, you need to make a single final declaration. That means bringing together all the data including business and non-business income needed to finalise a tax position and reach your final tax liability.

6. Pay tax

Along with making the final declaration you need to pay the outstanding tax liability by 31 January each year. As with the existing Self Assessment scheme, you may also need to provide a payment on account by the following 31 July.

Conclusion

This might sound like a long list of admin tasks, but don’t forget that software is key to making tax digital. Good accounting software will automate a great deal of it, such as creating the quarterly updates.

And if the quarterly updates are as correct as they can be, then you can head towards creating any EOPS and final declaration with confidence.

Get a full breakdown with all the insights you need to boss Making Tax Digital and register for our regular MTD webinar for Income Tax.

Register now

March 6 2022

Sage plans to unify and digitalise UK practices

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Sage, the market leader for cloud business management solutions, today (24 November 2021) announced the availability of Sage for Accountants, Sage’s newest solution to support UK accountants to work in concert with their clients. In addition, Sage also shared its plans to further unify and digitalise accountants’ practices with one-click access to a suite of tools that will provide UK accountants with a single environment to manage their practice with Sage.

99% of accountants now say they are using digital tools to run their practice

In this era of unprecedented environmental, economic, and technological transformation, virtually every industry is experiencing some form of change. With Making Tax Digital a reality the shift to digital-first accounting is seen as imperative by nearly all accountants – with new Sage research* showing 99% of accountants are using some form of digital accounting.

By ensuring accountants are equipped for what’s now, and what’s next, Sage is elevating their work beyond the day-to-day, freeing them up to provide the human touch, as well as free apps and training.

Designed by accountants for accountants, Sage for Accountants removes the friction from practice management by providing onboarding, connected client management and productivity tools, truly digitized data collection and smart reporting, bookkeeping, payroll, and compliance. In addition, Sage will provide training and education on how to start, run and grow a practice, and advise on how to become a value-add service for their clients – enabling accountants to achieve their goals.

Neal Watkins, EVP, Small Business Segment, Sage

Whilst digitalisation has accelerated, 60% of accountancy firms say they don’t feel confident using their software. The reason? Having digital products isn’t enough, accountants need truly digitised tools and connected, frictionless experiences.

“Today we have shared our vision for a truly unified and digitalised end-to-end proposal-to-advisory solution. This journey starts today with the availability of Sage for Accountants to UK practices – as we move through the coming 12months accountants will experience the integration of inhouse and 3rd party apps that will further bring the experience to life – continuing to free up accountants to deliver their most impactful and fulfilling client experience, elevating their work beyond the day-to-day,” said Watkins

NEW Sage for Accountants – Proposal to advisory, all in one cloud solution

Win and onboard clients with GoProposal by Sage to reduce risk:

Supporting accountants to price consistently, send professional, consistent proposals and produce automated engagement letters that can be sent, signed, and returned electronically.

Manage clients proactively with Client Management:

Dynamic Folders enable accountants to group people and entities, as well as services provided to clients, structured together into dynamic folders aligned to practice workflows, with security and permissions for practice management.
Collaboration tools allow accountants to see client-specific data.

Get work done for clients, with single sign-on across Sage Accounting, Sage Payroll, and online compliance tools:

Intuitive user experience and single sign-on allows accountants to easily navigate and manage clients across multiple products from a single view
Online subscription management enables practices to add new products and manage changes to client’s accounts from within Sage for Accountants with digitally enabled licenses
All products are MTD for VAT ready, helping to keep clients compliant.

Supporting practices to advise clients on how to achieve their goals with:

Multi-dimensional reporting available within Sage Accounting supports accountants with live, tailored reporting and deeper understanding of clients’ financial performance enabling a specialised advisory service (early adopter program)
View client information across multiple records to get a true understanding of their financial commitments and opportunities

As well as providing partnership tools and resources including:

Free Sage Accounting Plus, Sage HR, and Payroll** apps for accountants to use to run their practice
Sage Points allow practices to earn rewards for each new subscription, generating discounts as part of a tiered program
Simple, transparent pay-per-client pricing, starting at 50% RRP discount, with free tools to do tax and compliance on behalf of their clients
Sage Accountant Hub for Marketing support and training badges with self-learning pathways.

What practices using Sage for Accountants say

“Time is a big challenge for me in a busy practice with over 150 Small Businesses, I save 2 hours per week by serving clients through Sage for Accountants. They are all in one place easy to access and it allows me to navigate swiftly between each subscription, from data capture to tax submission.” Sarah Riley Owner – Riley Accountancy

“Sage has made this so easy and intuitive to get going. I didn’t need any training and everything I need is at my fingertips.” Donna-Leigh Penberthy, My Bookkeepers Online

“Sage has listened to the real-life challenges. The great thing is that Sage has worked with accountants to develop a product for accountants.” Martin Tregonning, Tregonning and Co. Ltd

“This is really exciting from Sage. It’s going to revolutionise the way I work with my clients…it’s brilliant!” Kerry Herbert, Crook and Herbert Accountants Limited

One-click access to a suite of tools – available through 2022

Built API first, Sage for Accountants will seamlessly connect accountants to their clients with one-click access to native and 3rd party apps including GoProposal by Sage, VAT Centre, and AutoEntry. Fully integrated and accessed with one click from within Sage for Accountants this suite of tools will provide accountants with an end-to-end single environment to manage their practice with Sage.

Following the UK Launch, Sage for Accountants will be available to practices in Ireland and Canada in FY22.

Find out more at sage.com/accountants where you can still book your place at the Sage Future Of Accounting event to be held in London on 24 November, 6pm-9pm.

** Licenses limited to 50 per firm

About Sage

Sage exists to knock down barriers so everyone can thrive, starting with the millions of Small and Mid Sized Businesses served by us, our partners and accountants. Customers trust our finance, HR and payroll software to make work and money flow. By digitising business processes and relationships with customers, suppliers, employees, banks and governments, our digital network connects SMBs, removing friction and delivering insights. Knocking down barriers also means we use our time, technology and experience to tackle digital inequality, economic inequality and the climate crisis.

Research Methodology

*The dual research, which polled both accountants and small businesses, was conducted by Portland Communications using two online surveys in the UK and Republic of Ireland. The aim was to uncover the perception small businesses have of accountants, as well as measure how accountants see their role in helping these businesses navigate modern business challenges when they collaborate.

Accountants:

This includes 411 senior decision-makers in businesses that provide accountancy services.

Fieldwork conducted between Monday 16th – Friday 20th August 2021.

SMES:

421 SMEs in the UK and Republic of Ireland

This includes decision-makers in businesses employing fewer than 250 people.

Fieldwork conducted between Monday 16th – Friday 20th August 2021.

Portland Communications’ online polling studies are accredited by the British Polling Council. All data gathered is of a publishable quality.

March 6 2022

AIA – a reminder

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30 June year ends will benefit from the full 100% relief of £1m for the financial year starting 1 July 2019.

As a reminder, AIA was temporarily increased to £1,000,000 from 1 January 2019 for two years. Transitional rules apply where years fall outside the two-year window, so for December year ends these transitional rules had no real impact.

For June year ends the transitional rules would have the following impact on the maximum allowance that a business can claim:

Year end 30 June 2019
£1m x 6/12 plus original allowance £200,000 x 6/12 = £600,000

Year end 30 June 2020
£1m
Year end 30 June 2021
£1m x 6/12 plus reversion back to the original allowance £200,000 x 6/12 = £600,000

March 6 2022

Smart Tools for Tax Season

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Take the stress out of tax season and improve productivity with TaxCalc’s famous efficiency-enhancing tools: SimpleStep® and Check and Finish®.

SimpleStep® works as a simple questionnaire that helps guide you through the tax return, making the process as simple and straightforward as possible and dramatically streamlining your workload. Changing dynamically based on your answers, SimpleStep only shows you the parts of the return that need completing – effectively fast-forwarding you through the form, removing the need to read and skip many irrelevant sections.

Check & Finish® Offers you additional assurance that the tax return is ready for submission to HMRC. Not only does it verify the return against HMRC’s online filing validations, it highlights any inconsistencies and provides additional in-built checks and prompts, to ensure nothing is missed and relevant claims and elections can be made.

By simplifying every step and acting as your second pair of eyes, SimpleStep and Check & Finish free you to delegate tasks to juniors and temporary staff without the need for training – boosting your productivity and saving your sanity!

Want to learn more about these productivity-boosting tools?

March 4 2022

Transform your client communications

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Is how you currently contact clients just a little too much like hard work? Sending requests and reminders on an individual basis? Working in one software application, then having to come out of it to write an email? And that’s just the tip of the iceberg…

The good news is, all that’s a thing of the past.

TaxCalc Communications Centre

Communications Centre is a powerful tool for any firm that needs to communicate efficiently and professionally, packed with useful features that let you:

Email clients from within TaxCalc
Send bulk communications
Automatically request information
Standardize client emails and deliver consistency
Get complete visibility of all client communications
View timelines of all client activity
And more

March 4 2022

Case study: William Duncan & Co

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William Duncan & Co is a long-established accounting and compliance firm in the UK that has built strong relationships with its clients that go far deeper than the numbers. From the firm’s five offices in the west of Scotland, they process payroll for over 300 small to medium-sized businesses across all sectors including agriculture, healthcare, tourism, and education. The firm counts the NHS in its portfolio, managing payroll for several GPs in the region who are effectively standalone businesses and responsible for paying their own staff.

Managing Director, Robert Fergusson, says “Payroll is a very important bureau service that we offer our clients and demand has increased significantly over the last 12 months due to the Coronavirus, but also due to the fact that we can deliver this service through Xero’s cloud technology”.

Payroll is a high priority process that has to be carried out accurately, but with multiple tasks involved, it can become incredibly complex. William Duncan’s solution is an end-to-end service, provided by experts, backed up with Xero Payroll. We talk with Linda Morrison, who has been with the firm for six years and is now the Senior Payroll Manager, based in the Ayr office on the west coast.

Adopting Xero Payroll

The main software used for processing client payrolls was Sage – but Linda saw the potential for Xero to improve things dramatically. “Xero Payroll has taken several of the tasks you need to run payroll and automated the process, which makes things so much more efficient”, Linda says.

“The Xero Payroll process automates the pension assessment, the application of tax codes, and the submission of RTI to HMRC, and there are only one or two reports to run. It’s a much slicker process than we were used to. Before it would take around 10 minutes for some clients’ payrolls, but with Xero it takes less than a minute. That’s for a payroll that doesn’t change month to month. I demonstrated it live to our managing director – in just a few clicks of the mouse, it was done. He was gobsmacked. That’s obviously the smallest size payroll, but Xero payroll is just as efficient with larger volumes.”

Migrating clients

In the last 18 months, William Duncan has migrated most of its clients over to Xero Payroll.

“It’s quite easy, though you need to consider whether it’s worth waiting for the tax year changeover so you don’t have to carry over any mid-year figures. Some of our team favour a manual transfer, but some like the spreadsheet format. Either way, it doesn’t take long – around five minutes per employee once you know what you’re doing and have all the information at hand,” advises Linda.

Cloud accounting during COVID-19

Some colleagues were still not convinced that Xero was the way to go but then COVID-19 arrived.

“When we went into lockdown in March 2020, the benefits of working in the cloud became clear. I was able to work from home pretty easily and run payroll seamlessly with Xero – clients saw no disruption. But for the payrolls on Sage, we had to run that through desktop software off-server, through a VPN, which got really slow and clunky. We decided that we had to make the move to Xero for as many of our clients as we could so that we could maintain an efficient service for them. Our workload had increased substantially with furlough calculations and claims, so we had to make sure that we were being as efficient as we could be.

And it wasn’t just the practice that saw the benefits of payroll on Xero. “One of our clients was stranded in Spain because he had to quarantine. He’s a property developer, and he couldn’t get back in time to pay his staff. We moved him over to Xero Payroll remotely. I did some quick training for him, with me on the phone in Ayrshire and him in Spain. We painlessly managed to avert what would have been a crisis for him and his business.

“Working in the cloud also gives us a great opportunity to support and help clients who process their own payroll on Xero – we can remotely log in to their Xero and help whenever required,” adds Linda.

Looking forward

“The new upcoming tax year will see us migrating the last of our clients over to Xero Payroll. We will also be looking to progress some clients to the next stages with things like encouraging all employees to use My Payroll (their own secure portals where they can view payslips) and looking at the Timesheet facility for some clients allowing their employees to complete and submit a timesheet in My Payroll for approval making things even more efficient. We would also like to look into how Xero Projects works with Xero Payroll. In addition, there is also Benefits in Kind to consider, as well as CIS and IR35 Off-payroll working. It’s an exciting year ahead,” Linda exclaims.

Robert Fergusson also gave a further glimpse of the future by explaining how they are on a project they refer to as the ‘100% quality data initiative’.

He explains it “translates into us working in partnership with our clients, and them with us, to achieve 100% quality data on their Xero accounts systems. If we can achieve that, we can provide valuable advice to our clients using real-time accurate data.

Xero Payroll and the bureau team have a big part to play in this initiative as payroll is usually a significant cost to a business and needs to be fed into the accounts accurately and on time. Xero Payroll makes this task simple.”

To find out more about Xero Payroll, visit our dedicated Payroll Learning Centre here.

February 25 2022

Xero launches cloud-based personal tax solution

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New end-to-end tool supports the UK’s next stage of tax digitisation, connecting client data to their tax return and syncing with Xero’s practice tools to support a seamless experience

Xero, the global small business platform, has today launched a personal tax solution for UK accountants and bookkeepers built to save them time and pave the way for future digital transformation.

The addition of this new end-to-end personal tax solution reinforces Xero’s critical role in automating tasks, as the industry gears up for the next phases of Making Tax Digital (MTD).

Following a comprehensive testing phase with accountants and bookkeepers, personal tax and sole trader accounts production is now available within Xero Tax. This is Xero’s cloud compliance solution which also includes company accounts and tax. Available at no extra cost as part of the company’s partner programme, data can be connected from clients’ books, accounts production and to their tax return. With everything now in one place, manual data entry is minimised and the process is streamlined.

Claire Markham from The Focus Collection who took part in the testing phase commented: “So far, Xero’s personal tax is the easiest tax software I have used in my 15-year career. It has already saved us time, and has made it easier when training new members of staff. We have been using Xero for the past six years and have moved everything over to Xero, as we find it so easy to use and our clients think the same.”

Andy Housley from Square 1 Accounting added: “As with all things Xero it’s intuitive, at least for me. I also like the fact it’s very simple and easy to navigate around.”

Future-proofing compliance

This new software development forms part of Xero’s commitment to being ready to support MTD for Income Tax Self Assessment (MTD for ITSA). Through launching this solution today, the company’s aim is to ensure accountants and bookkeepers can seamlessly make the transition to MTD for ITSA in the future.

The development of Xero Tax and the seamless integration it has with Xero HQ (the central place for accountants and bookkeepers to manage their practice) is a huge milestone for Xero as it works towards achieving its Next Generation Practice vision. The vision is to provide a unified experience across its suite of practice tools that accountants and bookkeepers use every day to onboard, collaborate and manage client workloads in the cloud from within Xero HQ.

Damon Anderson, Director of Operations, Xero UK said: “Technology forced about a decade’s worth of change during the pandemic, and the government’s digital tax agenda is gaining momentum. Xero Tax has already transformed the work accountants and bookkeepers do for small businesses in the UK, and this new tool is a game changer for the industry as it prepares for the next stages of tax digitisation.”

“Our new personal tax and sole trader accounts solutions remove manual tasks, create more accurate data and facilitate seamless digital filing experiences. This gives firms the ability to put the right attention on compliance, so they can provide full advisory services, which is so crucial at this time.”

Thousands of practices already use Xero Tax to manage accounts production and corporation tax. This new development means it is now possible to also process personal tax for individuals and company clients. Through its high level of automation, coupled with its simple design, personal tax helps every user carry out their accounts and tax tasks effectively and accurately. This means client data automatically flows through, populating the personal tax form. Within the client record, partners can add in their clients tax information so they don’t have to add that information multiple times or in multiple places.

Xero is working on the next stage of the Xero Tax journey to deliver more enhancements and expand its coverage to more tax and entity types in the coming months.

Xero Tax is available to all accountants and bookkeepers on the Xero Partner Programme. Find out more here

February 25 2022

HMRC wins entrepreneurs’ relief case

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The qualifying conditions for entrepreneurs’ relief continue to evolve.

The qualifying conditions for entrepreneurs’ relief continue to evolve and March 2019 saw the conclusion of another tribunal challenge in a related case.

One of the qualifying conditions for entrepreneurs’ relief is that the disposed shares must be shares of a personal company, where the shareholder and employee holds at least 5% of share capital and voting power.

P Hunt v HMRC [2019] UKFTT 210 (26 March 2019) centred on the definition of that share capital means in this case.

Mr Hunt held different number of two classes of shares of differing nominal value in Foviance Group Ltd, as follows:

	No of shares	Nominal value per share	Issued share capital
E shares	73,448	10p	£7,344.80
B shares	100,000	£1	£100,000
Total held by Mr Hunt	173,448		£107,344
Total issued by company	2,198,355		£2,576,483
% of company	6.21%		4.16%
% of votes	6.21%

Mr Hunt sold the shares and claimed ER. HMRC challenged his claim and raised a CGT assessment for £199k.

The Taxpayer appealed based on the fact that a multi-factorial test should be applied to consider whether the number of shares vested sufficient ownership rights from a commercial economic point of view including rights to vote, rights to receive dividends, and rights to receive capital on a winding up.

The FTT based its judgement on the exact wording in legislation, which mentions ‘issued share capital’ rather than ‘issued shares’.

It added that both in TCGA 1992 and the Companies Act 2006, share capital is divided into shares each of which has a fixed nominal value. The 5% test therefore refers to 5% of the total nominal value of a company’s share capital.

Tribunal found that:

The multi-factorial test should be rejected, noting that the ER legislation is highly prescriptive
For ER, ‘ordinary share capital’ means all the company’s issued share capital (however described), other than capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the company’s profits.
Further narrowed down the definition of ‘issued share capital’ following that in McGarry J in Canada Safeway v IRC [1972] 1 All ER 666 to the nominal value of share capital, stating that ‘the test of nominal value is simple, workable and, above all, related to the words share capital’.

The appeal was dismissed.

Other available resources

More information on entrepreneurs’ relief, the changes it has undergone and their impacts is available here:

In Practice – Update on entrepreneurs’ relief changes

CPD Online Entrepreneurs Relief

A useful webinar on this topic is available on demand on our website: Changes to Entrepreneurs’ Relief Webinar.

News

The Budget. In ten minutes.

Our experts provide an easy-to-digest overview of yesterday’s Budget.

Can a child own shares in a private company?