Financial Monitor (June 2007)
Companies Act 2006 – its effect on private companies
Companies incorporated under the new Act will be formed from October 2008. The Act itself is coming into effect in stages and those provisions not in force now will become so in October 2007 and October 2008.
Private companies will be affected as follows:
- May be formed by one person, no need to appoint a company secretary
- The standard memorandum of association will be very much reduced and the principles of how the company conducts its business will be in the Articles of Association
- The concept of authorised share capital will be abolished
- At least one director will need to be a natural person and children under 16 may not be appointed directors
- AGMs will no longer be a requirement
- The notice period for a shareholders’ meeting will be reduced to 14 days
- Shareholders’ approval will not be required to allot shares
- It will no longer be illegal, in most circumstances, for the company to provide financial assistance for the purchase of its own shares, thus avoiding the need to carry out the ‘whitewash’ procedures
- Accounts will need to be filed at Companies House within nine months of the year end (currently 10 months)
- Directors’ duties will be codified. This will be covered in more detail in our July edition of Financial Monitor
- No longer necessary to maintain a register of directors’ interests in shares, nor to disclose in the directors’ report details of directors’ shareholdings, nor options granted to them.
HM Revenue and Customs (HMRC) guidance on settling tax disputes
HMRC have set out new guidance on the principles of settling tax disputes which can be summarised as follows:
- Negotiated settlements remain the norm. However there should be no “split the difference” where a dispute covers an “all or nothing” technical point nor should a range of issues be rolled up into a single “package deal”
- Where HMRC are advised that they have a strong case they will not be allowed to accept less than 100% of the tax due but where their case is weak then they should “drop the case”
- HMRC will commit its litigation resources, ie. for appeals to the Commissioners or VAT Tribunals to the strongest cases with the best chance of success and priority will be given to cases of “aggressive avoidance”
Employer pension contributions
A contribution by an employer to a registered pension scheme whether that is an employers’ scheme or an employee’s personal scheme will be an allowable expense providing it is part of a remuneration package paid “wholly and exclusively” for the purposes of the trade. This is subject to an overall annual maximum of £225,000 which can be contributed each year.
Essentially this means that providing the overall “package” which a director or employee receives is justifiable as a business expense then corporation tax relief would be granted. In addition if little has been paid into pension schemes in the past it should be possible to make higher than normal contributions (albeit within the overall limit) to make up for past underfunding.
In addition, with the ability to invest in a Self Invested Pension Plan,
where the investments are under the policyholder’s control rather than an insurance company then there is less risk. Monies can even be left on cash deposit. All our company owners should consider pension contributions. Please contact us for a free discussion on how tax efficient pension contributions could be used to reduce current tax liabilities and provide for your future retirement.
Tax payment date – second instalment due 2006/07
The second payment of 2006/07 income tax is due on 31 July 2007. If you do not receive a payslip by 19 July or you are not sure what amount is due, please contact our tax department.
If you believe your 2006/07 tax liability is likely to be lower than
that for 2005/06 please let us know as we may be able to reduce the instalment payable on 31 July.
Industrial Buildings Allowances
Industrial Buildings Allowances (IBAs), currently 4% of cost per annum, are being phased out and the percentage will be 3% for 2008/09, 2% for 2009/10 and 1% for 2010/11. The balancing charge which previously arose on the sale of an industrial building has however now been abolished which removes one of the tax disadvantages of selling.
Anyone acquiring a second hand building that qualifies for IBAs will be able to claim the remainder of the allowance for 2007/08 to 2009/10 which would have been available to the previous owner.
It is thought that the removal of IBAs will affect the second hand value of buildings and the hotel trade in particular may suffer as the result of a loss of a valuable tax relief.
It is essential that those acquiring property consider what tax allowances may be available on fixtures and fittings and we will consider this issue in greater detail in a future edition of Financial Monitor. In the meantime if you are purchasing or selling a commercial building please contact us for advice on the taxation implications.
Capital Goods scheme – avoid an expensive VAT mistake
If businesses buy a commercial property which is less than three years old or on which an “option to tax” has been exercised by the previous owner then they will be charged VAT on that purchase. If they use the property for business purposes then the VAT charged can be recovered in the normal way.
However, if no “option to tax” is exercised by the acquiring business and it will not be necessary to
do so if the property is used in the business, or the property becomes three years old then it can be sold free of VAT, which might be attractive to certain purchasers. However care must be taken by the seller because of the capital goods scheme rules which effectively say that if the property is sold without VAT within ten years of purchase then a pro rata proportion of the original input tax claimed on the purchase will need to be repaid. For
example a property costing £1 million is purchased with VAT of £175,000 which is reclaimed. If the property is then sold 5 years later, without VAT being charged then input tax of £87,500 (50% of that claim) will need to be repaid to HM Revenue and Customs. This can be avoided by “opting to tax” the property.
Professional advice prior to any property sale is essential.
Whilst every care has been taken in the preparation of these notes we can accept no responsibility for errors or omissions contained in them or for any loss arising from their use unless we have been consulted professionally prior to any action being taken.
UHY Wingfield Slater
Wellington House, 39 Wellington Street, Sheffield S1 1XB
Tel: 0114 275 1544 Facsimile: 0114 275 1366 Email: info@uhy-wingfieldslater.com Web Site: www.uhy-wingfieldslater.com
Registered to carry on audit work and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales
A member of the UHY Hacker Young Group of independent UK partnerships. A member of UHY, an international association of independent accounting and consulting firms.
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