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.
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’.
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:
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.
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.
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.
** Licenses limited to 50 per firm
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.
*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.
This includes 411 senior decision-makers in businesses that provide accountancy services.
Fieldwork conducted between Monday 16th – Friday 20th August 2021.
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.
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
Year end 30 June 2021
£1m x 6/12 plus reversion back to the original allowance £200,000 x 6/12 = £600,000
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?
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
Xero Payroll: Revolutionise payroll by moving to the cloud
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  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
Total held by Mr Hunt
Total issued by company
% of company
% of votes
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  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:
A useful webinar on this topic is available on demand on our website: Changes to Entrepreneurs’ Relief Webinar.