Yesterday a team from GJ were at the ICAEW IT Faculty conference "Why Cloud? Why Now?"

At the event was Andre Kwakernaat from Twinfield giving a top notch presentation which included this video. The video gives Twinfield's view on how cloud computing can change the way financial functions operate. It is a good watch as well as being insightful.

Of the 15 opportunities, just one was "old-world" business.  The other 14 were technology based, a few simply replicating old-world business with a teccy interface to boost customer flows and cut costs, but the majority exploiting social media advances to create businesses that even Asimov at his best couldn't have dreamt of.

The prize for most oft-used word undoubtedly goes to "App" - Apps for fashion, Apps for finance, Apps for logistics, for cycling, for - well - anything.

Some were pre-revenue, most weren't.  Some were aimed at SEIS, most were targeting EIS. Some were targeting very narrow sectors, others more broadly based.  They all (with one exception) told a very good story, many of which left me thinking "that could work" or "I can see how they're planning to exit", and one, simply, "brilliant!"

Of course, a 6-minute pitch followed up by instant Q&A doesn't really give you any opportunity to understand the business, its strengths, its weaknesses.  But it does give you the chance to consider whether or not you want to find out more.

These events are restricted access - you have to meet certain criteria to attend.  But if you can, it's worth it on several levels:

1. You get to meet some very imaginative people
2. You gain a better understanding of the sheer breadth of opportunity that new technologies afford
3. On a day when the ONS announced we were back in recession, you do get to realise it ain't all doom'n'gloom

When an overseas individual or company has decided to set up a business in England*, they will have considered location and logistics, suppliers, rental or purchase of office and production facilities, and a whole host of other practical operational issues. 

They will have considered such matters as whether to trade via a company or branch (although they may not know that the status of overseas individuals working in the UK can be different in a UK Limited company compared to a UK branch).  If operations are via a company, they will consider whether that is a UK Limited Company, LLP or some other special purpose vehicle.   They will have considered corporation tax rates, capital allowance, income tax rates, VAT, extraction of profits and double tax treaties.  But employment law is often forgotten, and, if not handled properly, can be both time-consuming and costly if employee relations go wrong.

Easing the burden for business

Earlier this month the qualifying period for unfair dismissal increased from 1 year to 2 years of continuous employment.  That means that for all employees starting employment after 6 April 2012, the employee will not be able to claim that their dismissal was procedurally or substantially unfair in their first 2 years of continuous employment.

This contrasts with other, particularly European, jurisdictions where employers are bound by very strict dismissal procedures and the need for employers to justify their decision to dismiss, once the employees fairly short probation period has expired. 

In 2013 further measures are likely to be introduced, which will require the employee to pay a fee for bringing a claim against their employer.  In addition, the government is planning on introducing new rules which are designed to give employers the power to have ‘frank discussions’ with employees.  These will be will be held outside formal ‘performance’ or ‘disciplinary’ procedures,  without fear of facing employee  discrimination claims, and will include talks on underperformance as well as discussions over whether or not an employee should consider retirement. 

In addition, there are proposals to cut the length of the consultation period in redundancy situations, to speed up the whole process.

The above changes are all aimed at reducing the ‘red tape’ and easing the burden for businesses in the current economic circumstances.

This all sound like good news for the employer?

Although employers in England will be able to dismiss with less than two years continuous employment without the need to give any reasons or follow any formal procedures, they need to be aware of other areas of the law, and correctly follow procedures so as to minimise the risk of a claim. 

This is because employees can claim ‘discrimination’ under the Equality Act 2010.  The act covers nine protected characteristics, which cannot be used as a reason to treat people unfairly. Every person has one or more of the protected characteristics, so the act protects everyone against unfair treatment.  Notice that I use the word ‘people’ rather than ‘employee’ here, because a claim can be brought under this heading even before employment actually starts, ie at the recruitment interview stage! 

There are nine ‘protected characteristics’ where discrimination can apply:

• Age
• Disability
• Gender reassignment
• Marriage & civil partnership
• Pregnancy & maternity
• Race
• Religion or belief
• Sex
• Sexual orientation

Looking forward

The new auto-enrolment pension scheme being introduced by the government places additional cost burdens on both employees and employers.  Employers need to cost these into budgets and forecasts.

There are possibly other measures in the offing.  We are currently awaiting the governments’ response to the Modern Workplaces Consultation.  This covers the possibility of flexible working, giving the right to all employees, not just those with young children, to request flexible working (either ‘part-time working’ or ‘working from home’ arrangements).

In summary

This brief sprint through some current employment issues shows that the government has gone some way in reducing the burden of ‘red tape’ faced by businesses. 

However, as you can see, the employer setting up in England needs to be well briefed. Policies and procedures need to be clearly set out and followed.  But it is also important to be properly advised, as attention has to be paid not only to current legislation, but also to potential future legislation, and the impact this can have on the UK business.

* Note – ‘England’ includes Scotland and Wales, (but not Northern & Southern Ireland or the Channel Islands, where employment law differs)

• A punitive SDLT rate of 15% will apply where a residential property costing over £2m is purchased by anything other than a person, eg, a Limited Company. The SDLT rate for a "person" making that same purchase would be 7% so clearly, this has a big impact - even on a £2m acquisition the difference in SDLT is £160,000.

• When drafting the 2012 Finance Bill, the Government have clearly listened to property developers and so have included a very narrow exclusion for them. The current draft therefore allows those developers who buy the property in the course of a bona fide property development business and for the sole purpose of “developing and reselling the LAND” to pay 7%, and not 15% SDLT.

• Note the inference that the company must make the purchase with a view to development and resale - not holding for investment purposes. There is no indication as to how any change of intention will be taxed.

1. That there is some change to the drafting of the Finance Bill before it is finally passed that makes the criteria more strict for example, the 2 years standing is increased - this is remote, but a risk nevertheless.


2. That the get out for property developers is narrower than my reading of it would infer. Of specific interest is the word LAND that I have written in capital letters above.

- what exactly are corporate developers supposed to do, and

- what does this do to the high end residential property market?

The media found a new target.  This time it was people whose tax bills are reduced as a consequence of totally legitimate and laudable behaviour. 

Let's deal with "laudable" first.  The country apparently approves of philanthropy.  There is widespread support for charitable causes, from the arts to medical research, from help for the aged to charities for kids, good causes command respect. 

The country also apparently approves of risk-takers establishing businesses that provide people with employment opportunities that might otherwise not exist.

Given these are perceived "good things", governments of different hues have sought to create structures over the years to promote them.  And because these good things involve individuals spending money, the structures have of necessity been money-related - which inevitably involves use of the tax system.

The Gift-Aid system is designed so that when a person gives money to charity, the charity can claim from the Treasury the basic rate tax deemed to relate to the donation.  £10 donated becomes £12.50 to the charity. And a higher-rate tax payer is entitled to recover by way of tax relief the difference between his higher-rate, be it 40% or 50%, and the basic rate of 20% imputed into the donation. So a £400K charitable donation is worth £500K to the charity - and the donor gets a deduction for tax, if he's a 50% tax payer, of £150K (50% - 20% times £500K). 

Shock, horror!  £150K tax saved!  UK Uncut will have a field day!

But it's cost him £400K to get it.

Don't know about you, but personally, I'd rather not blow £400K simply to save myself £150K of tax. I'd grit my teeth, suffer the tax, and party on the net £250K I'd saved myself.

Similarly, the risk-taker might be making substantial losses in the business he's set up. Horror of horrors!- he might get a tax break!

But the value of the tax break will only ever be a percentage of the losses that caused it.

The Chancellor now wants to cap unlimited tax reliefs at £50K or 25% of income, whichever is the higher.

Let's look at an example.  Let's assume the person who gave £400K to charity had gross income of £1 million.  Under the present regime, the charity gets £500K, a net £250K from the donor, and £250K from the Treasury.

Going forward, the individual can of course maintain his level of donation at £400K, but as his tax break will cease at £250K, he'll more than likely cap his contribution at that level.  In which case the charity will get £312.5K and the donor's tax break will fall by £56,250.  The charity will be £187,500 worse off, the Treasury £93,750 better off (£56,250 from the donor's tax bill, £37,500 from the reduced top-up it pays the charity).  The difference between the charity's loss and the Treasury's gain (£93,750) sits in the donor's pocket.

 Maybe he'll give the extra away without a tax break - anything's possible, however unlikely.

 The same applies to establishing new businesses.  The tax consequences of risk-taking are very much a part of the decision-making process as to whether or not to take the risk.  Remove the tax break, you increase downside risk, making the risk-taker much more averse in the first place.

The media initially got this one completely wrong.  Not surprising, given all it did is following the claptrap spouted by UK Uncut.  And the Chancellor simply bought into this populist message, because frankly, it suited him - the less that goes to charities, the less business risks people take, the more tax revenues go to the Treasury.  It's just those "good things" that suffer. 

]]>Peter RogolTax Matterstax,gift aid,tax breaks,charity,tax avoidancehttp://www.goodmanjones.net/Goodman Jones Chartered Accountants/13998#0Wed, 11 Apr 2012 11:05:41 GMThttp://www.goodmanjones.net/Goodman Jones Chartered Accountants/13998http://www.goodmanjones.net/Goodman Jones Chartered Accountants/13997Notwithstanding, the public euphoria gathering pace with the Diamond Jubilee celebrations and the 2012 Olympics around the corner, here are the five top reasons why the UK remains such an attractive location to do business;

1.       Reputation and economic stability

The UK has a long established trading history and worldwide reputation built on strong ethical business standards and commercial acumen.  Whilst the global downturn has stunted economic growth, compared to the rest of Europe with economic unrest, bailouts, mass unemployment and threats of contagion, the UK appears positively bliss.

2.       Company formations

Incorporating a company in the UK could not be easier. For a nominal cost and with a minimum share capital of a humble £1, a company can be incorporated with UK Companies House following a few clicks on-line.  Contrast this with Germany; minimum share capital EUR25,000, Italy ; EUR10,000 and Spain EUR3,000 for a private limited company, not to mention the extra regulatory and administrative burden.

3.       Corporation tax rates/tax incentives

Tax will always be one of the deciding factors in establishing the attractiveness of the UK. With the main rate of corporation tax currently at 24%, falling to 23% from 1 April 2013, UK Ltd enjoys one of the lowest tax rates compared to its main European competitors; Germany, France and Italy all have corporation tax rates in excess of 30%.  The UK tax system also offers a wide range of tax/financial incentives including tax treaties with the sole purpose to attract foreign investment.

4.       Infrastructure and communications network

UK offers a world class transport network linking mainland Europe and the rest of the world and in Heathrow boasts one of the busiest airports in the World.  The UK also has an extensive broadband market and one of the strongest IT infrastructures in the world. 

5.       Low asset valuations/favourable exchange rates

Cash rich foreign investors continue to benefit from depressed property valuations post the September 2008 crash.  Coupled with the fall in Sterling against other currencies, has there ever been a better time to invest in the UK London property market?

 "I regard tax evasion and indeed agressive tax avoidance as morally repugnant." 

Tax avoidance schemes ranging from those covering Stamp Duty Land Tax to Inheritance Tax have all been targeted. Even schemes that were previously exempt will require their promoters to disclose them again and all new users will be given a Scheme reference number.

Following the Aaronson report, a consultation document on a general anti-avoidance rule is due to be released in the summer with a view to bringing forward legislation in Finance Bill 2013. 

I doubt this will mean the end of the tax avoidance schemes, but they are definitely becoming not for the faint hearted! Anyone considering going down this route should be prepared for a fight with HMRC, a fight which HMRC are currently determined to win. 

Many of the commentators on this week’s budget have used the term “the squeezed middle”. In recent years it has become a rallying call of the middle classes and intended to suggest that they are bearing the worst of the budget rises. I believe that there are many squeezed middles, and some of them are not even in the middle.

At the bottom end of the income scale the nation has many families whose financial security is reliant on tax credits and similar payments. With wholesale reform of welfare benefits, some of the families will have their incomes reduced and therefore may feel squeezed.  Families are not the only groupings who will be feeling the pinch. Pensioners have received the news that their age related personal allowances will be frozen and eventually phased out. This is a tax cost to the elderly and therefore they are also being squeezed.

Personal allowances are due to rise, which is commendable. Unfortunately, the rate at which the 40% tax band starts is due to fall from £35,000 down to £34,370. Not only does this increase the tax liabilities of many hundreds of thousand middle earners, it also increases their tax administration burdens; a double whammy of increased taxes and increased administration. Is the correct term a “double squeeze” or a” tight squeeze”?

The middle are most effected by the taxation of child benefit for incomes over £50,000. Although this increase in tax is tapered to prevent a cliff edge effect, it does represent a considerable cost to the family whose income level is starting to be sufficiently high that they may pay for private education or private medical insurance. Those families may revert back to reliance on the state system. Could this taxation increase the budgetary requirements of the NHS and Department of Education?

In my mind the most heavily squeezed are those earning between £100k and £116k. Their marginal rate of tax is in excess of 60%. That hurts them, and it should be priority of the government to eliminate this distortion.

Those earning more than £150k will be feeling the opposite of squeezed. Their tax burdens are falling, unless of course they are thinking of buying a property for more than £2million in a company.

 If a wealth tax is imposed in a future budget the highly remunerated may suffer. The inequality of a wealth tax is that it is not necessarily backed by money with which to pay the tax bill.

One of the difficulties that Government have is to strike the three way balance between tax certainty, tax simplicity and tax fairness.  The recent headlines around Barclays Bank’s tax structuring brings this dilemma into focus.

The UK is seen as having a tax regime which is stable (i.e. certain) and businesses are treated fairly by the taxing authorities.  Despite this we have one of the, if not the, longest tax codes in the world. This does not imply simplicity. 

The UK is often held as an example of a fair tax system.  Many non-British nationals find it hard to believe that we have a self-assessment regime for individuals and corporate which effectively require the taxpayer to self-determine their liabilities.  The tax calculation is not necessarily subject to any form of review by HMRC.  Compare that with for example the recent European convention on human rights case where a shopkeeper in the Ukraine claimed that their human rights had been violated by the actions of a tax police squad who, during a premises visit, allegedly, assaulted a business employee. Even the concept of a tax police is alien to a UK national.

The UK enhances its reputation for certainty by consulting  with the taxpayers before implementing wide ranging legislation and by avoiding retrospective legislation.

Fairness and certainty are two of the many reasons that the UK is an attractive place for inward investment.  Our tax code attracts investment with incentives such as tax free perks for immigrating staff, the non-domicile regime, a wide network of tax treaties, the lack of dividend withholding tax and the substantial shareholding exemption.  Some of  these incentives  have been varied in a way which reduces their impact. An example being the introduction of the remittance base user charge.  Even when they are varied the changes have been well trailed by HMRC which demonstrates that it is possible to change legislation whilst still retaining the certain nature of the UK’s tax code.

Recent actions to retrospectively close down Barclays tax structuring may be understandable in the context of the tax at stake and the perceived artificiality of the arrangements.  My concern is that this retrospective legislation will have a long term disadvantage of reducing the UK’s standing in the area of certainty.  Only time will tell.

Whilst anti-avoidance measures are in place to counter the most blatant use of personal service companies, the fact is that with reducing corporation tax rates and increasing national insurance it has become ever more tax efficient to incorporate a small business over recent years.

Tax saved by operating a business through a company compared with a sole trader:  

We will have to wait to see whether George Osborne will respond to the current media attention to this matter, but I think it likely we will see some measures taken in the near future to level the playing field between the incorporated and the unincorporated small business.

One route would be to increase corporation tax for small businesses, perhaps by scraping the small companies’ rate, although this would be politically difficult for a pro-business conservative Government.  Alternatively, HMRC may revisit the possibility of applying national insurance to dividends for small companies.

The difficultly that all governments face in dealing with this matter is not some much to do with levelling the playing field between the incorporated and unincorporated small business, but it is how to do this without encouraging many employed individuals to try to reclassify themselves as self-employed. At the moment however, it remains a legitimate and potentially tax efficient option to incorporate a small business.

]]>Richard VergeTax Matterstax,corporation tax,incorporation,small businesses,pre-budgethttp://www.goodmanjones.net/Goodman Jones Chartered Accountants/13992#0Wed, 22 Feb 2012 09:46:33 GMThttp://www.goodmanjones.net/Goodman Jones Chartered Accountants/13992http://www.goodmanjones.net/Goodman Jones Chartered Accountants/13990 Last week the question of UK and overseas companies came up. It is an area that often starts a conversation when international groups are looking to set up in the UK.

A company is resident in the UK if it is incorporated in the UK. For example, if you have a Limited Company that you have incorporated in England then it will be a UK resident company.

A UK resident company will be within the charge for corporation tax on all its profits wherever the income arises. For example, if your UK Limited Company has sales income from customers in Europe then these sales will be within the charge for corporation tax.

The situation with a UK incorporated company is generally clear and consistent, but matters do become more complicated when considering non UK incorporated companies that generate income from the UK. For example, a Limited company incorporated in Australia, but with customers in the UK. Can this overseas company become liable to UK corporation tax even if it was not incorporated in the UK?

Yes, it can.

An overseas company is chargeable to corporation tax if it carries on a trade in the UK through a permanent establishment. More on permanent establishments later, but for now please be aware that a permanent establishment can be a branch or an agency.

Just one final point - as ever the above is a general overview only. You’ll find there are many circumstances in UK tax legislation where it varies depending on the specifics. Please consider your individual situation carefully to avoid missing both pitfalls and opportunities.

]]>Philip WoodgateBusiness MattersTax MattersInternationaltrading uk,subsidiary,branch,uk establishmenthttp://www.goodmanjones.net/Goodman Jones Chartered Accountants/13990#0Mon, 06 Feb 2012 13:01:59 GMThttp://www.goodmanjones.net/Goodman Jones Chartered Accountants/13990http://www.goodmanjones.net/Goodman Jones Chartered Accountants/13988

Yesterday I was at the Cloud Expo Europe event speaking about our experience at GJ in a presentation called 5 Years In The Cloud. It was a short pleasant train journey for me to Olympia in London. I count myself fortunate as it was in stark contrast to another speaker I met who had journeyed across from San Francisco.

The cloud has gone mainstream - the event was packed.  Change is coming and people are connecting with new tools. Services that were once manual are being automated. Perhaps, a big indicator of how Cloud has gone mainstream is that you'll now find a handy guide in WHSmith - last time I looked it was right next to the photography magazines.

Annuity rates fell over 9% between June '09 and December '12.  Getting 4% on a Single Life policy is an achievement, getting it on joint lives a pipe dream.  In another few years, the situation is likely to get worse rather than better.  So what's the underlying logic supporting the concept that saving into a pension fund makes sense?

Ignoring growth within the fund and the ravages of inflation, we have the following maths:

Assume the amount being saved is 100. The cost to a basic rate tax payer is 80, a higher rate payer, 60, and a top-rate payer, 50.

Under present legislation, 25 can be withdrawn as a tax-free lump sum.  So the net cost of the remaining 75 in the fund is 55 to a basic rate tax payer, 35 to a higher rate payer, and just 25 to a top-rate payer.

Now assume that by the time the pension is taken, annuity rates have slipped to 3% on single lives, 2.5% on joint. That's around 25% less than at present, which at present rate of loss (9% in 2.5 years) could be less than 10 years away.

The 75 left in the fund would produce, pre-tax, 1.875.  On current basic rate tax, it's worth just 1.5.  So the basic rate tax payer might need to live over 36 years in retirement to recoup the net cost of his pension contributions.  A higher rate tax payer wouldn't need to live so long to reap a positive reward from his savings - 23 years if he was a basic rate payer in retirement, whilst for a top rate tax payer going down to basic rate, the reward kicks in after 16 years. 

The figures are worse if basic rate rises. And they'll be much worse still if the entitlement to draw a tax-free lump sum is removed.

But the anomaly here is that the wealthier you are, all other things being equal, the greater your life expectancy.  So the people least likely to live long in retirement are those to whom the net cost of creating their pension pot is greatest. Expressing this the other way round, those least able to build their fund are those most likely not to get its value in their own lifetime.

Government will argue that auto-enrolment has built into it an employer contribution, so employees start not with 100, but perhaps 200.  And government will also argue that with age-related personal allowances, you need a reasonable-size pension pot to generate an income that, combined with the OAP, would actually take you into a tax-paying situation. But the first argument doesn't stand up to scrutiny, because the employer contribution will simply come off the total the employer's prepared to pay for that employee, and the second depends on future governments not playing around with tax allowances - which government hasn't?

Government promotes pension provision for one reason only - to ensure the taxpayer of tomorrow isn't burdened with the cost of supporting those who haven't made adequate provision for their old age.  But when it transpires that those cajoled into saving via pensions would have been better off by far saving outside the pension regime, there'll be hell to pay. Will the Financial Ombudsman be prepared to fine the UK Government for this particular miss-selling scandal? I doubt it.

From the start of the new tax year, qualifying investments into start-up businesses will attract a fairly extraordinary 50% income tax relief - but even more extraordinary, if the funds used to make such investments in 2012-13 come from Capital Gains made in the same year, the CGT liability on those reinvested funds will be waived.  In effect, it's conceivable that total investments of £100K by an individual into start-ups in 2012-13 will actually cost the investor just £22K.

The devil of the detail has yet to be announced, and you can be pretty sure there will be some fairly intense detail here - because if there isn't, given the availability of income tax relief down the line should the investment fail, it wouldn't take long to create a structure that gave a guaranteed payback - Create a Newco with a nonsensical business plan - attract Angel Investment of £150K.  The Angel Investors save themselves 28% tax on gains they've made - that's £42K - and get an income tax deduction of £75K.  Three years down the line, the business duly fails - and the Angel Investors get further income tax relief in the year of loss of up to another £37.5K.  That's a total tax saving of £154.5K on a failed investment of £150K - can't see it happening.

But this new scheme fits perfectly with the comments in my earlier post.  We need to find ways to get businesses funded, the Treasury has found ways to significantly limit the downside risk of doing so.