Taxation law is one of the most complex areas of law and is derived from a variety of sources. It also has significant financial implications for you and your business if you do not properly understand it or choose to ignore it.
As businesses grow and succeed it’s important to consider the taxes on your income, be it income tax or the trade or corporation tax on a company.
The government uses taxes to fund its public spending initiatives and HM Revenue and Customs (HMRC) is becoming increasingly efficient and effective in ensuring that individuals and businesses are paying what they owe. We touch upon a few of the main tax considerations below but recommend you seek specialist advice before making a personal or business decision that may affect your tax status or liability.
Tax payers frequently operate or live across national borders. Working out whether or not you are a UK resident for tax purposes is vital for efficient tax planning and will depend on how many days you have spent in the UK in the past tax year. It may change from year to year. You are automatically resident if you have spent 183 days or more in the UK. If you are a UK resident, you need to pay tax on any foreign income and property as well as your UK income. However, there are special rules for UK residents whose usual domicile is outside the UK.
Capital Gains Tax
You may have to pay Capital Gains Tax when you sell or dispose of a personal possession. However, you do not need to pay tax on gifts. Items you may need to pay tax on include second homes, jewellery, paintings etc.
If you are a self-employed sole trader or partnership, you are liable for Capital Gains Tax. Business assets you may be required to pay Capital Gains Tax on include:
- Land and buildings
- Fixtures and fittings
- Plant and machinery
- Registered trademarks
- Your business’ reputation
We provide Capital Gains Tax advice and guidance on liability, the relevant rates and eligibility for relief through allowances and exemptions. We will identify triggers to a Capital Gains Tax liability, such as selling shares, and advise on the most tax- efficient arrangement for your circumstances.
As well as your Capital Gains Tax annual exemption, we will explore additional reliefs that may be open to you, such as Entrepreneurs’ Relief.
We also have experience providing Capital Gains Tax advice to buy-to-let landlords or property owners of second homes, who may be hit hard by Capital Gains Tax on any property sales.
The law requires tax to be paid when someone dies leaving an estate of at least
£325,000. The standard rate is 40%, however, reliefs and exemptions exist. Inheritance tax can also apply if assets are transferred into a trust during a person’s lifetime.
More and more families are finding themselves subject to inheritance tax, simply by virtue of the fact that they own property. Proactive inheritance tax planning for your estate is the only way to protect your assets and maximise the amount you are able to pass on to your loved ones.
Tax is payable on profits from doing business as a limited company, a foreign business with a UK branch or office, a club, co-operative or unincorporated association. You will not be sent a tax bill, but you are legally obliged to:
- Register for corporation tax when you start a new business
- Keep accounting records
- File your company tax return by a set deadline
Value Added Tax (VAT)
You can only charge VAT if your company is VAT-registered. If you are a VAT- registered business you must report the amount of VAT you have charged and the amount of VAT you have paid, via a VAT-return, which is due every three months. You are responsible for any difference in these amounts. There are three rates of VAT and it is essential that you charge the right rate.
As a general rule UK law states that companies registered abroad whose income or interest is derived in the UK are required to pay withholding tax of 20%. From 1 June 2021 withholding tax now applies to payments from the UK to EU Member States at whatever the individually agreed rate is. However, a company that has income in one country but is resident in another country may be able to claim a tax exemption if a double taxation treaty is in place.
Avoiding Tax and HMRC Prosecutions
Tax Fraud and Tax Evasion are very similar but tax evasion is a type of tax fraud which may lead to an investigation. Both involve misleading the tax authorities in order to pay less tax. If your activities are under investigation by HMRC, you need to manage your approach carefully, and we urge you to seek advice from us immediately.
We are experienced taxation lawyers and can assist across all aspects of taxation law, from individual and business tax planning and structuring, to providing guidance should you or your business be the subject of an HMRC investigation.
We work closely with a number of highly qualified Tax Advisors and can help with a wide variety of tax issues, whether that’s planning for the future or assisting in dealing with an HMRC prosecution, it is likely your problem will not be new to us.