Setting up multiple companies to separate business interests can seem very straight forward. There are however important considerations. We explore the implications of owning too many companies.
July 2024 Newsletter
26 July 2024
Accounting & Compliance, Reducing Tax
General Election 2024 – What Can We Expect From The Labour Government?
Whilst the Labour party has pledged not to increase income tax, national insurance or VAT, they have pledged to introduce VAT on private school fees.
They’ve also confirmed they are committed to clamping down on tax avoidance and evasion which they claim will fund their spending plans.
The Conservatives swooped in early by announcing changes to the rules surrounding non-dom status and the remittance basis, which Labour propose to plug loopholes in the Conservative plans.
Labour claim that their proposal to close the “carried interest” tax loophole for general partners in the private equity and venture capital sector will raise £565 million.
Such returns are currently subject to CGT at 18% or 24%.
This possibly means subjecting carried interest to income tax or aligning CGT rates with income tax rates.
However there is no mention of changes to the rates of CGT generally.
Future Policies?
The King’s Speech on the 17th July outlined some more details on the policies we can expect to see enacted in the coming months, including;
- changes to housing and planning aimed to streamline planning applications and grant renters with more rights,
- a new Employment Rights Bill to ban the use of zero hour contracts and
- the introduction of the gradual ban on smoking that was first introduced by Rishi Sunak.
Keep your eyes peeled as we update you on any major changes announced.
Autumn Statement
It’s anticipated the Autumn Statement will take place in September or October time, so we’ll see the majority of changes to the tax regime and fiscal policy announced then.
If you are planning anything major in the next couple of months, such as gifting or selling property or other assets, it might be worth speaking to us first as timing could be crucial.
Vat On Private School Fees – Any Planning?
The Institute of Fiscal Studies (IFS) indicates charging VAT on private schools would generate revenue of £1.6bn per year, which Labour claim would fund 6,500 extra teachers.
Many parents have been asking if there is any planning to avoid the 20% increase in private school fees.
However, the actual increase may not technically be a full 20% for parents as schools would be able to reclaim some input tax on overheads and property maintenance, potentially off-setting a lower cost base against a slightly higher term fee.
Advance Fees?
One possible strategy involves pre-paying term fees in advance, often for multiple years rather than pay a term at a time.
This strategy relies on accelerating the “tax point”* for the service (see below).
There may be anti-forestalling legislation, effective from the day of the announcement, but although Labour have stated that any legislation will not be retrospective, the effectiveness of such strategies cannot be guaranteed.
There have recently been rumours that the new rules may take effect from as early as January next year rather than the start of the new academic year in September 2025, which does not give a lot of time to seek alternatives if parents cannot afford the higher fees.
If you are interested in potential ways to fund the increase you might like to read our blog VAT on private school fees.
*“Tax Point” For VAT
The time of supply is the earlier of:
- the date when the supply is ‘really’ made, referred to as the basic tax point;
- the date when a tax invoice is issued in respect of the supply; and
- the date when payment is received for the supply.
There are a number of refinements to be borne in mind in applying this basic rule, particularly the 14-day rule, and there are also special rules for certain kinds of supply.
If a VAT invoice is issued within 14 days of the basic tax point, the basic tax point can be ignored in fixing the time of supply and the date when the invoice is issued is used instead.
The invoice must be a proper VAT invoice and must be issued by the supplier to their customer.
It is possible to opt out of the 14-day rule, but this must be notified in writing to HMRC.
If you’ve got any further questions on the time of supply when completing your bookkeeping or VAT Return, please contact your account manager.
Childcare Accounts Can Subsidise Summer Childcare Costs
If you have children under 12 who attend a nursery, after school club, play scheme or childminder, or you are considering sending them to a summer camp, you should think about setting up a tax-free childcare account.
The government adds 25% to the amounts that you save in the account – up to £2,000 for each child – so £8,000 is topped up to £10,000 (a higher amount applies for disabled children).
The account is then used to pay Ofsted registered childcare providers.
Note that it doesn’t need to be the child’s parents paying into the account; uncles, aunts, grandparents and others can also make payments.
The government has noticed that many families who are eligible for this scheme are yet to set up their accounts, so if you are an employer you could bring this to the attention of your staff to increase the take up.
Note that parents are not eligible if either of them has adjusted net income in excess of £100,000 for the current tax year.
VAT On The Costs Of Selling Of A Subsidiary
When a holding company sells shares in a subsidiary, the VAT incurred on the professional fees involved would normally be irrecoverable, on the basis that a sale of shares is an exempt supply.
In a recent case a hotel group argued that a subsidiary was sold in order to finance the completion of construction of a new hotel and that there was a direct and immediate link between the raising of the funds and the group’s downstream activities of operating hotels.
The Tax Tribunals were satisfied the VAT on the professional fees associated with the share sale was a general overhead of the group’s business and could be recovered as input tax.
Based on the Upper Tribunal decision many other groups were advised to make protective claims for the recovery of input tax.
Unfortunately, the Court of Appeal have now rejected the taxpayer’s arguments and found in favour of HMRC, thus denying recovery of input tax on the associated professional fees in connection with the share disposal as that is an exempt supply.
If you’ve got any queries relating to the world of VAT, please contact your account manager.
The content in this blog is correct as of 26th July 2024. See terms and conditions.
