A Thorogood Special Briefing

TAX PLANNING FOR BUSINESSES AND THEIR OWNERS
2ND EDITION

Peter Hughes

IFC

A Thorogood Special Briefing

TAX PLANNING FOR BUSINESSES AND THEIR OWNERS
2ND EDITION

Peter Hughes

For more information contact Thorogood by telephone on 020 7749 4748. associations and other organisations. by fax on 020 7729 6110.co.co.thorogoodpublishing. by way of trade or otherwise. electronic. Special discounts for bulk quantities of Thorogood books are available to corporations. stored in a retrieval system or transmitted in any form or by any means.Thorogood Publishing Ltd 10-12 Rivington Street Other Titles from Thorogood Publishing Email – Legal Issues: 2008 Susan Singleton London EC2A 3DU t: 020 7749 4748 f: 020 7729 6110 e: info@thorogoodpublishing. Websites and the Law Susan Singleton Commercial Contracts – Drafting Techniques & Precedents Robert Ribeiro Commercial Litigation – Damages & Other Remedies Robert Ribeiro Corporate Governance David Martin Software Contract Agreements Robert Bond New TUPE Regulations Robert Mecrate Butcher No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author or publisher. recording or otherwise. institutions.uk Freedom of Information Act in Practice: 2008 Susan Singleton © Peter Hughes 2009 All rights reserved.co.uk w: www. re-sold. This Special Briefing is sold subject to the condition that it shall not. be lent.uk ISBN: 978-185418402-3 Printed in Great Britain by Marston Digital . hired out or otherwise circulated without the publisher’s prior consent in any form of binding or cover other than in which it is published and without a similar condition including this condition being imposed upon the subsequent purchaser. or email us: info@thorogoodpublishing. without the prior permission of the publisher. photocopying. International Commercial Agreements Rebecca Attree Technical Aspects of Business Leases Malcolm Dowden A CIP catalogue record for this Special Briefing is available from the British Library. No part of this publication may be reproduced.

to my parents for their unstinting love and support. .Dedication To my wife Jenny and. as always.

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.......................................................45 Overseas income...............................................................27 Tax-exempt savings income......................................................................................................................................13 2 SAVINGS AND INVESTMENT SCHEMES 24 Enterprise Investment Scheme ...........................................................................................viii Foreword ...........................................................................................................................................................................................44 Extension of basic rate band ......................................................................................................................39 4 INCOME TAX OF INDIVIDUALS 44 Allowances ........................................32 Property income.....12 Employee share schemes ...................................................................................2 Implications of the ‘Arctic Systems’ case...........................................................................................24 Venture Capital Trusts .................................................................................................9 Termination payments..........................................................................7 Car fuel..........................................................................................................................................................................................................ix 1 INCOME FROM COMPANIES 2 Dividends or salary?..........................26 Community Investment Tax Relief .........................7 Company cars .............................29 3 SOLE TRADERS AND PARTNERSHIP 32 Loss Relief.....................................................47 A THOROGOOD SPECIAL BRIEFING v ...................Contents The author ........................................................................................6 Benefits in kind............

................................................................................................................................................................................................109 Interaction with Capital Gains Tax ...................110 vi A THOROGOOD SPECIAL BRIEFING .......................................................................106 Domicile ............................................TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S 5 CORPORATION TAX 56 Losses ..88 Reliefs ....................................86 Principal private residences ................................................................90 Chattels ...........68 6 CAPITAL ALLOWANCES 72 Plant and machinery – general principles............................................................................................84 Transfers between spouses............................................................................85 Capital losses........................................................................................................................................................................................................................98 Taper relief........................82 Annual exemptions.........................................................56 Groups ............72 Cars .....................60 Purchase of a company’s own shares...............................................................................................75 Short-life assets..........................................................................................................................................101 Reliefs .................................................................................................................................................................................................................................................................................................................................................................66 Substantial shareholding relief ......99 Exempt transfers............................................................................................79 Disclaiming capital allowances ...67 Corporate Venturing Scheme............94 8 INHERITANCE TAX 98 General principles ...................................................................80 7 CAPITAL GAINS 82 Basic principles ...................78 Industrial buildings allowances .....................................................................................................................................................74 First-year allowances ............................................................................................................................

..............................................................................................................................................................112 Discretionary trusts ..............................................................................................................134 Inheritance Tax – nil rate band .....................................................133 Capital Gains Tax – taper relief ............124 Special schemes ...........122 Land and buildings .....................................120 10 VALUE ADDED TAX 122 Registration ........................................................................................................114 Accumulation and maintenance trusts...................................CONTENTS 9 TRUSTS 112 Interest in possession trusts ....130 Income Tax – rates and bands ...........................................117 Overseas trusts................................................................................................................................134 A THOROGOOD SPECIAL BRIEFING vii ..............................................125 APPENDIX 130 Income Tax – personal and married couple’s allowances ..............................................118 Comparison of trusts.........133 Capital Gains Tax – annual exemption ...............................131 Gift Aid – limit on benefit received by donor ....118 Business Property Relief and trusts..........................131 Cash equivalent of company car.........................................................116 Charitable trusts ....................................................................................................................................132 Corporation Tax – rates and bands..........................................................................................................................................

Having qualified in a vibrant Liverpool City Centre practice. based initially in Birkenhead and then. He writes and presents seminars on taxation and other subjects including International Financial Reporting Standards. he worked for a time in property management before setting up his own consultancy in 2003. He has a wide experience of advising small and medium-sized businesses on the tax implications of their business decisions. Details of the seminars can be found at www. in York. viii A THOROGOOD SPECIAL BRIEFING . and he advises private clients in these matters.com. since 2008. Company Law and Employment Law.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S The author Peter Hughes is a Chartered Accountant.uktrainingworldwide.

the starting rate of Income Tax for non-savings income has disappeared. there have been some significant changes to taxation. and in its place we have a flat rate of 18% on all gains. It focuses both on the tax implications of business decisions and on opportunities for the reduction of the owners’ personal taxation.Foreword This Report is aimed at owners and managers of businesses – businesses of all sizes but with particular emphasis on small and medium-sized entities. Peter Hughes York May 2009 A THOROGOOD SPECIAL BRIEFING ix . Capital allowances have been overhauled. The ten-year experiment with taper relief for Capital Gains Tax of individuals has come to an end. be readable. I hope. They do not pretend to be a comprehensive guide to all aspects of taxation – there are plenty of volumes which already serve that purpose – but they should set the manager or adviser on the right track towards reduction of the tax burden. Further changes are planned for 2010/11 and 2011/12 which will adversely affect those with income above £100. interesting and informative. Since the first edition of the Report in 2006. which may be good for owners of investment property but not necessarily as good for business owners. The ten chapters will.000. The information given has been updated following the Budget of 22 April 2009 and of course assumes that the announcements on that date will pass into legislation in the form of Finance Acts. and married couples now benefit from a transferable nil rate band for Inheritance Tax.

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A Thorogood Special Briefing Chapter 1 Income from companies Dividends or salary? Implications of the ‘Arctic Systems’ case Benefits in kind Company cars Car fuel Termination payments Employee share schemes .

they may wish to pay themselves periodic bonuses. The bonus would become taxable in 2009/10 if it were not discussed at the board meeting and were instead determined on 1 May 2009.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Chapter 1 Income from companies Dividends or salary? In an owner-managed company. Any of the above can be overridden by the company’s year-end if the amount of the director’s earnings for that year has been determined before the yearend. the shareholders are usually the directors. 2 A THOROGOOD SPECIAL BRIEFING . the earnings are assessable on the date on which they are determined if this falls earlier than the three dates above. as a bonus – or would a dividend be more advantageous? Bonuses are straightforward in that they are taxed at the director’s marginal Income Tax rate and are subject to employee’s and employer’s National Insurance. If the financial year has already ended. Should these sums be paid as an addition to their salaries – in other words. In addition to a monthly salary. a bonus is taxed at the earliest of the following dates: • • • the payment date. the date on which the director becomes entitled to the bonus. Timing may need to be considered: for a director. EXAMPLE A bonus in respect of the year ended 31 December 2008 is decided at a board meeting on 15 December 2008 and is paid on 1 August 2009. which falls in 2008/09. the date on which the bonus is recorded in the company’s books. When is it taxable? • • The date of assessment is 31 December 2008.

of which 10% is deemed to have been paid already. being treated as the ‘top slice’ of an individual’s income. A higher rate taxpayer is. The effect is that tax is paid at 25% of the net dividend. whose taxable income from other sources after the standard personal allowance of £6. The company has taxable profits (before payment of this sum) of £100.333 (£10. There is no Corporation Tax deduction for dividend payments.000. What are the relative tax advantages of paying the sum as a bonus or a dividend? The key to this calculation is to work out the gross payment which is needed in order to leave the director with a net receipt of £10. The complex rules on timing which often lead a bonus to be taxed before it is received do not apply to dividends. which are simply assessable on the date of payment. In order to receive a net payment of £10.000 (after Income Tax at a marginal rate of 40% and National Insurance at a marginal rate of 1%) by way of bonus. assuming that the director pays Income Tax at the higher rate.000 x 100/75).000 x 100/59). National Insurance is not payable on dividends.000 by way of dividend.5% of the gross dividend. The director must therefore gross the dividend payment up by multiplying it by 100/90 and add the gross dividend to other income. they also depend on the Corporation Tax rate which applies to the company. The dividend is deemed to have been paid net of Income Tax of 10%. EXAMPLE A director. liable for Income Tax of 32.475 is £40. If the director still falls within the basic rate band. is £13.000 and therefore pays Corporation Tax at 21%.000 after settling any tax arising therefrom.000. the gross amount of the bonus would need to be £16. The relative tax advantages of bonuses or dividends depend principally on whether the director falls into the higher rate band. whereas a company paying a bonus will be able to reduce its taxable profits accordingly. however.949 (£10. the actual amount payable by the company. is to be paid an additional cash sum of £10. A THOROGOOD SPECIAL BRIEFING 3 . If the director is to be left with £10.1 I N C O M E F R O M C O M PA N I E S Dividends are taxed on a wholly different basis. no extra Income Tax is payable.

715 ** Taxable earned income plus personal allowance £6.949 Dividend £ 40.875 less earnings threshold £5.5% x £14.600** 4.475 less upper earnings limit 4 A THOROGOOD SPECIAL BRIEFING .820 40.814 – 15.198 26 4.198 195 4.400 40% x £19.300 Bonus £ Employee’s NIC: 11% x £38.000 16.853 Dividend £ 4.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Bonus £ DIRECTOR Other taxable income Bonus Dividend (£13.335 (1.393 7.549/£2.480 7.224 * Upper earnings limit £43.333 x 100/90) Taxable income Tax: Non-dividend income 20% x £37.600 Dividend income 32.815 13.000 14.949 – 56.549/£2.480 1.160* 1% x £19.482) 11.814 7.814 54.300 Less tax deducted at source Tax liability – 15.040 4.

From 6 April 2006 the maximum annual contribution to a personal pension scheme is the higher of £3. although the difference would be less marked. A THOROGOOD SPECIAL BRIEFING 5 .949) Dividend £ 100.949 Profit chargeable to Corporation Tax Corporation Tax at 21% Tax burden: Income Tax Employee’s NIC Employer’s NIC (additional) Corporation Tax 15.000 – 100.985 100.882 16. especially if the additional payment takes the director from the basic rate to the higher rate band or moves the company down from the full Corporation Tax rate to the marginal rate.770. A final point is that dividends are not ‘earnings’ for pension purposes.300 4.853 4.847 (2.000 11.985 38. If the company were paying Corporation Tax at the full rate of 28%. rising to £245.8% x £16. It is necessary to tailor such calculations to each particular situation.000 in 2009/10 and £255.224 – 21. the dividend would still be the better option.000 in 2008/09.000 21. and they will not always be straightforward.1 I N C O M E F R O M C O M PA N I E S Bonus £ COMPANY Profit before bonus/dividend Bonus Employer’s NIC (additional): 12.000 in 2010/11 but then to be frozen for five years).600 into a pension scheme.077 The dividend option results in a lower tax burden of £1.169) 80. This may be a consideration if the bulk of a director’s earnings arise from dividends and there is an intention to pay more than £3.000 37.393 2.000 (16.169 16.600 and ‘earnings’ (subject to a maximum of £235.

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Implications of the ‘Arctic Systems’ case
It is common for directors to pay their spouses a salary and achieve an Income Tax saving, particularly if the director is a higher rate taxpayer and the spouse has no other income. This ensures that the spouse’s personal allowance and lower rate tax band are utilised. The spouse’s salary will be deductible for Corporation Tax purposes provided that it is reasonable in relation to the work actually performed. The facts in Jones v Garnett related not to a salary payment but to a dividend. Mr and Mrs Jones acquired Arctic Systems Ltd and each paid £1 for their shares. Mr Jones, a higher rate taxpayer, was the sole director. The bulk of the company’s profits were paid out as a dividend, shared equally between Mr and Mrs Jones. A small salary was also paid to Mrs Jones, which reflected the work she did for the company as bookkeeper and company secretary. The Inland Revenue (as it was then known) challenged the share arrangement on the grounds of section 660A of the Income and Corporation Taxes Act 1988. The purpose of this legislation is to stop an individual settling his income on another individual who pays tax at a lower rate. This settlement legislation dates back to the 1920s when it was designed to prevent wealthy individuals from diverting income to family members. The High Court found in favour of Revenue & Customs in April 2005, resulting in an additional tax bill for Mr and Mrs Jones of £6,000. However, in December 2005 the Court of Appeal reversed the High Court’s decision. There was no gift of shares: Mrs Jones had subscribed to her share at the time the company was set up, dividends depended on the future trading fortunes of the company and there could be no certainty at that time that the company would be profitable. The settlements legislation could apply, said the Court, only if there was an element of ‘bounty’ – a clear intention by one party to confer some benefit on another. An appeal by Revenue & Customs to the House of Lords again found in favour of the taxpayer. The Lords held that there was a settlement between Mr and Mrs Jones but that this was exempt from the settlements legislation as an interspouse transfer. The Treasury then announced plans to change the law in order to catch couples involved in ‘income shifting’ as this is known, but these plans were shelved following the Pre-Budget Report of November 2008.

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1 I N C O M E F R O M C O M PA N I E S

Benefits in kind
Employees and directors are most commonly remunerated in the form of monetary payments. Special rules exist for the valuation and taxation of benefits in kind. The tax implications for both employer and employee may need to be considered in deciding whether to pay an employee in the form of cash or benefits, particularly if the employee is a director. The most common benefits are discussed here, with the emphasis on the overall tax burden for employer and employee. Except where stated, benefits are taxable only on employees earning more than £8,500 per annum and on directors.

Company cars
VAT on the purchase of cars is irrecoverable if there is to be any private use. In practice, even pool cars are usually deemed to be available for private use because an employee may take them home at night before a business trip the next day, or used for a diversion to a supermarket. The case Elm Milk Ltd 2005 established that, where a company minutes a resolution that a pool car is for business use and that it will be a breach of the employee’s contract of employment to use it privately, the VAT on purchase may be recoverable. An employer will be able to claim capital allowances on the car at 10% or 20% of the written down value (which includes any irrecoverable VAT). This is explained in more detail at Chapter 6. The employee will then be taxed on the cash equivalent of the car, which is its list price multiplied by the relevant percentage. The percentage is dependent on the car’s carbon dioxide emission (see Appendix) and this may therefore influence the choice of car. No employee’s National Insurance is due, though the employer must pay Class 1A National Insurance on the amount of the benefit.

EXAMPLE
A company buys a car with CO2 emissions of below 160 for £15,000 for an employee paying higher rate tax. The relevant percentage is 25%, and the company pays Corporation Tax at the small companies rate (21%).

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A second company, which pays Corporation Tax at the full rate, buys a similar car for an employee paying basic rate tax. Would there be an overall tax advantage in the first year in paying the employee the cost of the car in cash over four years? The benefit is £3,750 (£15,000 x 25%).

Company 1 £ Car option Corporation Tax saving: Capital allowances £3,000 x 21%/28% Employer’s NIC: Benefit £3,750 x 12.8% Less Corporation Tax saving: £480 x 21%/28% Employee’s Income Tax: Benefit £3,750 x 40%/20% Tax burden Cash option Corporation Tax saving: £3,750 x 21%/28% Employer’s NIC: £3,750 x 12.8% Less Corporation Tax saving: £480 x 21%/28% Employee’s Income Tax: £3,750 x 40%/20% Employee’s NIC: £3,750 x 1%/11% Tax burden 38 1,129 1,500 (101) 480 (788) 1,500 1,249 (101) 480 (630)

Company 2 £

(840)

480

(134)

750 256

(1,050)

480

(134)

750

413 459

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Unless all fuel is reimbursed to the employer by the employee.900 since 6 April 2008) multiplied by the relevant percentage. for example the cash flow implications of the purchase of the car now as opposed to paying the same amount over four years. private fuel is provided with a company car. This dispenses with the need to account for any output tax. while the employer receives a Corporation Tax deduction. Other factors would need to be considered. which is the same as the percentage applied in arriving at the car benefit. but the second company would find the car option more beneficial by £203. Input VAT will have been incurred by the employer on the purchase of the fuel. the benefit is the cost of the fuel. If the fuel relates to an employee’s private car. The same method must be used for all employees. in which case the employer must account for output tax (known as the scale charge – see Appendix) because the employee has been supplied with fuel. The principal tax planning issue here is for the employee to decide whether or not to take the benefit in kind. Which method is more beneficial will depend primarily on the amount of private mileage travelled by employees and also on engine-sizes. A THOROGOOD SPECIAL BRIEFING 9 . Car fuel Fuel provided for an employee’s private use is taxable on the employee. The employer will be liable for Class 1A National Insurance on the fuel benefit. This can be recovered in full. the benefit is a fixed sum (£16.1 I N C O M E F R O M C O M PA N I E S The overall tax burden for the first company and its employee is lower by £120 as a result of giving the cash option. the employer can ask the employee to keep detailed mileage records. Alternatively. More commonly. and only the business proportion of the input tax will be recovered. although the latter course may be less attractive to the employee.

albeit less than that outlined above.225 x 40% Class 1A NIC £4. No input tax is reclaimed on private fuel.000). Assets used privately or transferred for cash An asset (other than a car or a van) made available to an employee for private use is taxed on an annual value of 20% of the market value when the asset was first made available. The benefit to a lower paid employee is the secondhand value of the asset. the benefit is 10 A THOROGOOD SPECIAL BRIEFING .TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S EXAMPLE A higher rate taxpayer drives 10. This may change if the private mileage increases or the employee is a basic rate taxpayer. To directors and to all other employees.8% Corporation Tax saving on NIC £541 x 21% Corporation Tax saving on fuel 10. but in general the tax burden on private fuel is now quite punitive. are taxable on assets transferred to them.000 miles per annum and has the option of having all private fuel paid for by the company. £ Cost to employee if fuel paid by employer: Benefit £16.500 per annum.900 x 25% = £4.907 which would be avoided if the employee paid for fuel privately – though of course the employee would then expect to be paid a higher salary in compensation.000 x 10p x 21% Extra tax paid by employer (210) 217 1. All employees. which itself would carry additional tax. including those paid less than £8. It should be noted from the above example that the tax payable by the employee (£1.225 Income Tax £4.690 541 (114) There is an overall tax burden of £1.690) actually exceeds the cost of the fuel (£1.225 x 12. The employer pays Corporation Tax at the small companies rate. The relevant percentage is 25% and the estimated cost of fuel per mile is 10p. which has the effect of discouraging employers from providing private fuel.

There is no taxable benefit if private use consists largely of commuting and any other private use is insignificant.8% Corporation Tax saving on NIC £64 x 21% Corporation Tax saving on capital allowances £2.000 x 12.000 x 40% Class 1A NIC £2. If private fuel is provided.500 x 20% Benefit in 2009/10 £2.500 as salary.000 200 64 (13) A THOROGOOD SPECIAL BRIEFING 11 .1 I N C O M E F R O M C O M PA N I E S the higher of the market value at the date of transfer and the market value when the asset was first made available. The employee is a higher rate taxpayer and the company pays Corporation Tax at the small companies rate. the tax burden would be slightly greater as employee’s National Insurance would be payable.000. unlike for company cars.500 – £500 Tax burden in 2008/09: Income Tax £500 x 40% Class 1A NIC £500 x 12.002 If the employee were simply to buy the asset himself and draw an extra £2. less any amounts already taxed. the employee is assessed on a benefit of £500.500.500. EXAMPLE An asset qualifying for the annual investment allowance is made available to an employee in 2008/09 immediately after it is purchased for £2. Ownership of the asset is transferred to the employee in 2009/10 when its market value is £1. Company vans made available for private use are taxed as an annual benefit of £3. 500 2.500 x 100% x 21% (525) (274) Tax burden in 2009/10: Income Tax £2. £ Benefit in 2008/09 £2.8% Corporation Tax saving on NIC £256 x 21% 800 256 (54) 1.

While these are almost always deductible expenses for Corporation Tax purposes. On transfer of the asset to the employee. Termination payments Payments may be made to an employee as compensation for loss of office. 12 A THOROGOOD SPECIAL BRIEFING . provided it is genuine compensation and not payable under a service agreement or rights conferred by the company’s Articles of Association. Employers who have an established practice of making PILONs may be construed to have an implied contractual arrangement – this is known as an ‘auto-PILON’. an employer may also pay an amount as compensation for loss of office. they may be exempt from Income Tax. In addition. reflecting the likelihood of the employee finding alternative employment within the notice period. It is recommended that PILONs are made following a genuine critical assessment and on an individual by individual basis. namely the immediate full reclaim of input tax followed by the subsequent payment of output tax over the period in which the private use takes place. and a week’s pay for each year of service below age 41. This is classed as a business gift. but only if there is no contractual arrangement nor even an existing understanding that such a payment was to be made. The first £30. subject to a maximum of 20 years’ service. there will also be a VAT implication. and output tax must be accounted for on the value of the gift unless this is below £50. which broadly give a week and a half’s pay for each year of service from age 41 upwards. Payments in lieu of notice (PILONs) follow the same principle.000 of any such payment is exempt from Income Tax and National Insurance.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S There may also be VAT implications. A second option may also be available. This is known as the ‘Lennartz’ mechanism after the case Lennartz v Finanzamt München 1991. They are never taxable as earnings. which may be a consideration in deciding how much to pay. Statutory redundancy payments are calculated using the rules in the Employment Rights Act 1996. A business which purchases assets and then makes them available for private use normally reclaims only the percentage of input tax on purchase which is attributable to the intended business use.

compensation for loss of office of £10.000. a PILON of £7. The exemption limit of £30. Unapproved share schemes Being free of conditions. Revenue & Customs often view such payments as terminal bonuses.000 applies to the overall total of compensation payments. and therefore £4.1 I N C O M E F R O M C O M PA N I E S ‘Garden leave’ is. EXAMPLE An employee receives statutory redundancy of £5. The total of all four payments is £34. It is recommended that employers proposing a non-statutory redundancy scheme should write to Revenue & Customs in advance for clearance.000. Any excess over £30.500 is chargeable to Income Tax.000. Payments made under a non-statutory redundancy scheme are also exempt from Income Tax and National Insurance up to the limit of £30.500 and a non-statutory redundancy payment of £12. always taxable as employment earnings. A THOROGOOD SPECIAL BRIEFING 13 . an employer may wish to reward an employee by means of shares in the company.000. however. Employee share schemes In addition to cash payments and benefits in kind. The relative tax advantages of each scheme may be an issue in choosing such a scheme and deciding how many shares to grant. unapproved share schemes do not carry the same tax advantages as approved schemes. This term describes a situation in which an employee remains bound by the contract of employment but remains at home having handed in the required notice.500. PILONs and non-statutory redundancy payments and is reduced by any statutory redundancy payment. However.000 is subject to Income Tax (though still not to National Insurance). which would bring them within the charge to tax.

000.000. Income Tax will be calculated as if the loan had been written off. Approved company share option plans There are various conditions which must be met for an approved company share option plan (ACSOP): • No individual may hold options over shares with an aggregate market value of above £30. measured at the time of grant of the option. Holdings of other approved or savings-related share option schemes are included. there is a charge to Income Tax and National Insurance on the difference between the market value at the exercise date and the amount actually paid. On disposal of the shares. if any. and the result is taxed as a benefit in kind – though it is ignored if all the beneficial loans to the employee in the year do not exceed £5.1% in 2008/09) is applied to this notional loan. On exercise of the option. • Only employees and full-time directors (those working more than 25 hours per week for the company) may participate. A ‘close company’ is one which is controlled by five or fewer shareholders or by its directors. they will result in the acquisition of shares by the employee at a discount to market value. A ‘material interest’ is 14 A THOROGOOD SPECIAL BRIEFING . • The acquisition price must not be manifestly less than the market value at the date of grant. The official rate of interest (6. Unapproved share option schemes An option scheme gives the employee the right to buy a specified number of shares at a specified price before an expiry date. The amount written off is taxed as a benefit in kind. The employee is then taxed as if there were an interest-free loan for the difference between the market value of the shares and the amount actually paid.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Most commonly. • Participants may not hold a ‘material interest’ in the company if it is a ‘close company’. When the employee sells the shares to an unconnected third party. There are no tax implications at the date of grant of the option. the employee is subject to Capital Gains Tax on the difference between the sale proceeds and the original cost.

1 I N C O M E F R O M C O M PA N I E S one of 25% in the company or in any company which controls it. On sale. (This may happen where a company floats.) Share options exercised less than three or more than ten years after the date of grant attract an Income Tax charge and National Insurance in the same way as for unapproved share options. A and B are associated persons who together hold 28%. The participant must not have held a material interest at any time during the past twelve months. there is no Income Tax or National Insurance. and holdings of associates are taken into account. Can either of them participate in an ACSOP? Oakham Ltd is a close company. However. the shares are subject to Capital Gains Tax based on the sale proceeds less the acquisition cost. If they are exercised between three and ten years after the date of grant. They are therefore not eligible for an ACSOP. It is not controlled by five shareholders. except where the market value is greater than the subscription price. as the largest five between them hold only 49%. EXAMPLE The shareholders of Oakham Ltd are: % A (director) B (director) C (director) D (director) E F (director) G (director) Others 15 13 10 6 5 4 4 43 A and B are husband and wife. plus any amount already charged to Income Tax on grant or exercise. There is usually no Income Tax charge at the date of grant. A THOROGOOD SPECIAL BRIEFING 15 . The acquisition price is the actual price paid for the shares. the directors own 52%.

most notably property. leasing. insurance. • There are strict limitations on the type of company which is eligible: – It cannot be a subsidiary of another company and arrangements must be not in place to allow it to become a subsidiary in the future. – If it owns any subsidiaries. there is none on exercise unless the exercise price is below the market value at the date of grant.000. the value is measured at the date of grant. legal and accountancy services and the management of hotels and nursing homes. Income Tax is charged on the subsequent exercise on the difference 16 A THOROGOOD SPECIAL BRIEFING . for which ACSOPs are also taken into account. There is no charge to Income Tax at the date of grant. in which case Income Tax is charged on the difference between the amount paid and the market value at the date of grant or exercise. whichever is the lower.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Enterprise management incentives The conditions which must be met for an Enterprise Management Incentive (EMI) are: • Participating employees must work 25 hours per week or spend 75% of their working time on company business. No one employee may hold unexercised options over shares with a total value of over £120. banking. no arrangements must exist whereby control of any subsidiary will pass to another person. • An employee with a material interest – defined in this case as 30% of the share capital or (in the case of close companies) 30% of the assets – may not participate. • The options must be capable of exercise within ten years of the date of grant. Numerous activities are excluded from the definition of ‘trading’. Likewise. there must be no more than 250 employees (part-time employees count pro rata towards this total). farming. – Its gross assets (and those of the group of which it is the parent) must not exceed £30 million. • The maximum value of shares over which unexercised options are held is £3 million. – From 22 July 2008. – It must be a trading company. In both cases. If a ‘disqualifying event’ occurs and the option is not then exercised within 40 days.

This is in addition to any Income Tax charged because the exercise price is below the market value at the date of grant.000 shares in an EMI scheme. and Income Tax is therefore payable on £35. EXAMPLE On 1 January 2008 an employee is granted options over 10. The acquisition cost is deemed to be the exercise price. there is no longer a Capital Gains Tax advantage to this scheme over other schemes.50 less £1. A THOROGOOD SPECIAL BRIEFING 17 . Additional Income Tax is chargeable because exercise took place more than 40 days after a disqualifying event.50 per share (£7. The company ceases to carry on a qualifying activity.50. Capital Gains Tax is charged on the disposal of the shares. Income Tax is chargeable because the market value at the date of grant is higher than the exercise price by £2 (£3. This is charged on £1.50. The employee exercises the option on 1 March 2009 when the share price is £7.000. The total taxable amount per share is £3. the company is taken over by another company when the share price is £6. On 1 January 2009.50.50.50 less £6). The most common ‘disqualifying events’ are: • • • • The company becomes a subsidiary of another company. and exercise price is £1.1 I N C O M E F R O M C O M PA N I E S between the market value on exercise and the market value immediately before the disqualifying event. The employee breaches the working time conditions. Market value per share at the date of grant is £3.000 limit. Since the abolition of the taper relief system from 6 April 2008.50). ACSOP options are granted which take the employee beyond the £120.

000 in any tax year. The maximum deduction in a tax year is £1. In each case.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Share incentive plans The conditions for a share incentive plan (SIP) are as follows: • The scheme must be made available to all employees who meet the qualifying criteria and are UK resident. whichever is lower. If the shares are withdrawn between three and five years. 18 A THOROGOOD SPECIAL BRIEFING . • If the company is a close company. matching and dividend. The purpose is to give employees a continuing stake in the company. measured at the date of grant. there is a charge to Income Tax based on the market value of the shares on withdrawal. • A qualifying period of employment may be specified. There is no tax charge if the shares are withdrawn after more than five years. PARTNERSHIP SHARES These are paid for by way of a deduction from the employee’s salary. The shares are acquired at the lower of market value on the first day of the period specified in the partnership share agreement (which can be no more than twelve months) and the acquisition date. the employee must not hold a material interest (defined as for ACSOPs). The shares are held in trust for between three and five years. There is no charge to Income Tax when the amount is deducted from salary.500 or 10% of an employee’s salary. which broadly must be no more than 18 months. Shares fall into one of four categories: free. there is a charge to Income Tax based on the lower of the market value on the date of grant or the date of withdrawal. and participation must be on the same terms for all. must not exceed £3. partnership. If the shares are withdrawn within three years. shares are held in a trust until they are withdrawn. The deduction is allowable against Income Tax. FREE SHARES The market value of shares allotted to any employee.

Taxation is on the same basis as for free shares. Income Tax is charged on £38. MATCHING SHARES These are offered in conjunction with partnership shares: the company provides free shares in proportion to the partnership shares. The maximum is two matching shares to each partnership share. In all four cases. the employee is taxed in the year of withdrawal on the amount of the related dividend. Income Tax on withdrawal operates on similar principles to free shares in that there is no tax charge if the shares are held for five years. when the shares are withdrawn from the plan they are deemed to have been disposed of and immediately re-acquired by the employee at market value.1 I N C O M E F R O M C O M PA N I E S EXAMPLE Mr Ashley has an annual salary of £40.000 less twelve instalments of £150. Dividend income reinvested is not treated as taxable income in the hands of the employee. DIVIDEND SHARES A company may provide that dividends due on shares held in SIPs may be used to buy further shares if the participant wishes. Shares withdrawn more than three years after the date of reinvestment are not subject to Income Tax.500 per participant per annum.200. Otherwise. If they are withdrawn within three years. subject to a maximum reinvestment of £1. and if they are withdrawn between three and five years the Income Tax charge is based on the lower of the salary deductions and the market value at the date of withdrawal.000 and a deduction of £150 per month is made in respect of partnership shares. A THOROGOOD SPECIAL BRIEFING 19 . being the salary of £40. there is a charge to Income Tax based on the market value at the date of withdrawal.

Those with a material interest (defined as for ACSOPs) in a close company may not participate. • • The company may impose a qualifying period of up to five years. • • Contributions must fall between £10 and £250 per month. No Income Tax is charged on grant or exercise. The bonus date may be selected as three. Part-time directors. There is a charge to Capital Gains Tax on sale of the shares. and employees who have worked for part of the qualifying period. 20 A THOROGOOD SPECIAL BRIEFING . • Shares must be acquired out of savings with a contractual savings (SAYE) scheme approved by Revenue & Customs.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Savings-related share option schemes The conditions for savings-related share option schemes (SRSOSs) are as follows: • The scheme must be available to all employees and full-time directors who have been employed throughout the qualifying period. • Options cannot be exercised before the bonus date or more than six months afterwards. five or seven years after commencement of the scheme. may be included. This is based on the sale proceeds less the actual price paid. The acquisition price must not be manifestly less than 80% of the market value of the shares at the time of grant. The following table summarises the essential points of the various approved share option schemes.

5 or 7 years) Contributions £10 to £250 per month Option price > 80% of MV at grant date None CGT A THOROGOOD SPECIAL BRIEFING 21 .500 per annum) Free.000 per employee (£3 million total) Income Tax if exercise price < MV at date of grant Disqualifying events may attract Income Tax CGT SIP All employees (subject to qualifying period) No material interest (25%) in close company Free shares up to £3.1 I N C O M E F R O M C O M PA N I E S Scheme ACSOP Conditions Employees & full-time directors Maximum £30. partnership and matching shares: no tax if withdrawn after > 5 years Dividend shares: no tax if withdrawn after > 3 years CGT SRSOS All employees (subject to qualifying period) No material interest (25%) in close company Shares acquired from SAYE scheme within 6 months after bonus date (3.000 per annum Partnership shares up to £1.000 per person Option price = MV at grant date No material interest (25%) in close company Tax on exercise None if exercised 3-10 years after grant Tax on sale CGT EMI Full-time employees No material interest (30%) Gross assets of company < £30 million Must be a trading company with no more than 250 employees Maximum £120.500 per annum Matching shares (maximum 2 for every partnership share) Dividend shares (maximum reinvestment £1.

Blank .

A Thorogood Special Briefing Chapter 2 Savings and Investment Schemes Enterprise Investment Scheme Venture Capital Trusts Community Investment Tax Relief Tax-exempt savings income .

if these activities comprise more than 20% of a company’s business. From 22 April 2009. Perhaps the most significant qualifying criterion is the ‘relevant assets test’: the company’s gross assets before the share issue must not exceed £7 million nor must they exceed £8 million immediately after the share issue. Three of these schemes are considered here. There are numerous non-qualifying activities which are broadly the same as for Enterprise Management Incentives (see Chapter 1). There is no maximum investment. Shares listed on the Alternative Investment Market (AIM) are classed as unquoted. The tax reduction is restricted to the amount of Income Tax payable during the tax year. The company must be unquoted and must not be a subsidiary nor itself own any subsidiaries which do not carry on a qualifying trade. it is estimated that the number of AIM shares eligible for the EIS have halved as a result of the change to the relevant assets test. 24 A THOROGOOD SPECIAL BRIEFING . If at least £500 is invested in new ordinary shares. it will not qualify for EIS relief. defined as a business operating within the UK on a commercial basis with a view to profit. generous tax relief is available to encourage investors to back these companies.000. such investments would be considered too risky for many investors. Under the EIS. Enterprise Investment Scheme Investors with a portfolio in which they wish to include high-risk companies may find Enterprise Investment Scheme (EIS) shares appropriate. the investor’s Income Tax liability is reduced by 20% of the investment. there is a requirement to use all of the money raised by the issue of EIS-qualifying shares within two years of the date of issue. The company must be carrying on a qualifying trade. These figures were £15 million and £16 million respectively before 6 April 2006.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Chapter 2 Savings and Investment Schemes The government has set up various schemes to encourage investors to subscribe for shares in certain ventures. Ordinarily. but relief will be given on a maximum amount of £500. There are strict limitations on the types of company which qualify for EIS relief.

which is useful if the potential relief exceeds the investor’s Income Tax liability for the year. However.000 x 20%) 30.000) (24.000 Additionally.000 (6. the unused balance in the previous year. the total investment can be carried back without restriction. This is calculated as the lower of the relief already given and 20% of the disposal proceeds. will be exempt from Inheritance Tax. although the loss is reduced by any EIS relief given. if the shares are sold at a loss. What is the allowable loss? £ Proceeds Cost Less EIS relief given (£30. EXAMPLE Mr Leonard buys EIS shares for £30. if held for a minimum of two years. unless the disposal is not at arm’s length. any gain is not subject to Capital Gains Tax. carryback was available only if the shares were issued before 5 October in the tax year and was restricted to the lowest of: • • • half of the amount subscribed for the share issue. £50. If the shares are disposed of after this three-year period. For 2009/10 onwards. the investment will almost certainly qualify for Business Property Relief (see Chapter 8) and. A THOROGOOD SPECIAL BRIEFING 25 .000.000) Allowable loss (4. or within three years of the commencement of the company’s trade if later. holds them for four years and sells them for £20. in which case all of the relief already given is withdrawn.000. the loss is allowable for Capital Gains Tax purposes.000) £ 20. Relief will normally be withdrawn if the shares are sold within three years of their purchase.000.2 S AV I N G S A N D I N V E S T M E N T S C H E M E S Relief can be carried back to the previous year. Previously.

Income Tax relief having fallen from 40% to 30% in 2006/07. It is not possible to defer Capital Gains Tax on other gains by reinvesting the proceeds in a VCT. these are that its income must arise mainly from investments. an investor who sells VCT shares will not be liable to Capital Gains Tax provided that the company is still a VCT at the time of disposal.000. shares in a VCT must be subscribed for and not purchased from a third party and must be new ordinary shares. and at least 70% of those investments must be in unquoted companies which carry on a ‘qualifying trade’. No more than £1 million can be invested in a single company. and the shares must be acquired for bona fide commercial reasons. Likewise. VCTs do not incur chargeable gains on the disposal of investments. no single company can comprise more than 15% of the total investments. and the VCT may not invest in companies with gross assets of £7 million before the share purchase or £8 million immediately afterwards (these limits were £15 million and £16 million respectively before 6 April 2006). The company will be given Revenue & Customs approval to be a VCT only if it meets certain conditions. Broadly. The maximum annual subscription is £200.000. Qualifying trades are the same as those defined for the purposes of EIS shares (see above). and consequently these gains can be distributed as tax-free dividends. and the minimum holding period having increased from three to five years. there is no carry-back available if the potential relief exceeds the Income Tax liability. even if the investor is a higher rate taxpayer. Unlike for EIS investments. From 22 April 2009 a VCT must use all of the money it receives for the relevant trade within two years.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Venture Capital Trusts Venture Capital Trusts (VCTs) are quoted companies which invest funds in unquoted companies. though they are not as attractive as they used to be. Like EIS shares. Dividends received by a private investor from a VCT do not give rise to an Income Tax liability. Individuals who subscribe for new ordinary shares in a VCT may avail themselves of certain tax advantages. Tax relief is given at 30% of the investment (40% before 6 April 2006) but is restricted to the Income Tax liability for the year. 26 A THOROGOOD SPECIAL BRIEFING . The subscriber must be aged at least 18. otherwise Income Tax relief will not be available. provided that the investor has not subscribed more than the permitted annual maximum of £200.

Community Investment Tax Relief The Community Investment Tax Relief (CITR) scheme aims to help investors to attain a return on their investments in the knowledge that the funds invested will be put to good use. Another beneficiary is a charity which works to enhance A THOROGOOD SPECIAL BRIEFING 27 . VCTs do have certain disadvantages. A loan may not be repayable within two years and thereafter can be repaid by a maximum of 25% per year. although there have been some good performers. investors who have purchased shares and are not the original shareholder are not eligible for Income Tax relief. as any losses on VCT shares are not available for set-off against chargeable gains. a Reinvestment Trust. VCTs do at least offer a diversified portfolio. However. Among organisations which have benefited from funds provided by CDFIs is a furniture manufacturer in the West Midlands which struggled to convince its bankers that its business plan was viable. full repayment can be required no earlier than five years after the date of drawdown. they do not suffer Capital Gains Tax when they sell their VCT shares. can mean that shareholders will lose about 20% of their money – which eats a long way into the 30% relief. or smaller organisations like credit unions. The amount of relief withdrawn is calculated in the same way as for EIS shares. CDFIs lend to and invest in deprived areas or underserved sectors which might otherwise struggle to gain access to funds. This can be a double-edged sword. it approached its local CDFI. The investment is made in an accredited Community Development Finance Institution (CDFI) and is in the form of a loan or a subscription for shares. together with the fact that shares are often illiquid and trade at a discount to net assets. According to one source. The combined effect of the initial and annual charges. Consequently. Shares may not carry any right of redemption within five years. Relief is withdrawn if the investor disposes of the shares within five years of the date of acquisition. which helped it increase its turnover and staff numbers and broaden its range of products. the average VCT lost 23% of investors’ money in the five years to December 2005. unlike most EIS shares. They may be household names such as high street banks.2 S AV I N G S A N D I N V E S T M E N T S C H E M E S As stated above.

000 5. 28 A THOROGOOD SPECIAL BRIEFING . 6 April 2013 and 6 April 2014. EXAMPLE An individual lends £100.000 100.750 2.000 Relief £ 5.250 Relief is withdrawn retrospectively if the loan is repaid or the shares disposed of. 6 April 2012. Income Tax relief is given as a tax reducer at 5% of the amount invested and outstanding for each of the five years and cannot exceed the individual’s Income Tax liability for the year. Tax relief is available as follows: Balance £ 2009/10 2010/11 2011/12 2012/13 2013/14 100.000 3.000 50.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S the quality of life of older people by using their reminiscences for exhibitions in museums. Repayments are due at £25.500 1.000 on 6 April 2011.000 to a CDFI on 6 April 2009.000 25.000 75.

100 invested at 3% – yet the scheme is worth a mention. Dividends are not subject to higher rate tax.000 per annum (minimum £500) New ordinary shares Type of investment Loan or new ordinary shares 5% per annum for five years Five years (special rules for repayment of loans) Normal CGT rules apply Income Tax relief 20% (can be carried back one year) Three years 30% (no carry-back) Minimum holding period for Income Tax relief Capital Gains Tax relief Five years No CGT if shares held for three years No CGT Tax-exempt savings income Individual savings accounts The scope for tax savings on Individual Savings Accounts (ISAs) is relatively small – £61 a year for a higher rate taxpayer with £5. not least because a cash ISA avoids the risk associated with EIS shares and VCTs.000 per annum (no minimum) New ordinary shares CITR CITF which in turn finances deserving charities or businesses None Investment limit £500. designated as such at the time of subscription. which can be invested totally in stocks and shares. although up to £3. The total allowable annual investment s £7.2 S AV I N G S A N D I N V E S T M E N T S C H E M E S The following table compares the three schemes: EIS Type of company Qualifying trade VCT Investment company investing in qualifying trading companies £200.200. A THOROGOOD SPECIAL BRIEFING 29 .600 can be held as cash. though the 10% tax credit which they carried when ISAs were introduced has now been abolished. Any interest earned is exempt from Income Tax. Investors can take out cash ISAs or stocks and shares ISAs for each tax year.

100 can be held in cash. However. they are very flexible and can be cashed in at any time. 30 A THOROGOOD SPECIAL BRIEFING .200 for the tax year 2010/11. They have become more popular of late because commercial property funds are now included in the list of permitted investments. National Savings Premium Bond winnings and interest from National Savings Certificates and Children’s Bonus Bonds are exempt from Income Tax. The 2009 Budget announced an increase in the overall ISA limit to £10. of which £5. These limits take effect for people over the age of 50 on 6 October 2009.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S ISAs are often said to be less tax-efficient than pension contributions because no Income Tax relief is available on contributions to an ISA.

A Thorogood Special Briefing Chapter 3 Sole Traders and Partnership Loss Relief Property income .

In the case of a continuing business.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Chapter 3 Sole Traders and Partnership Loss Relief Sole traders and partnerships who incur a loss in the course of a trade are eligible for loss relief. The loss can be set off against other income for the same tax year or the preceding tax year in any order. Special provisions apply in the opening and closing years of a trade. Set-off against other income A trader incurring a loss in a tax year may set the loss against other income. property income or another separate trade. 32 A THOROGOOD SPECIAL BRIEFING . A claim must be made to relieve a loss in this way. the loss for a tax year will be the loss for the accounting period ending in that year. For example. whichever year is chosen first. in this case it may be more beneficial to carry the loss forward against future trading profits (see below). which may arise for example from salary. provided that the trade was carried on with a view to profit and on a commercial basis. savings. provided that. carried forward and set off against future profits from the same trade. the other income in that year must be exhausted in full before the balance is used against the other year. This may mean that personal allowances will be wasted.) Trading losses can be set off against other income. or used in reduction of capital gains. The time limit is twelve months from 31 January following the end of the tax year of the loss. a loss for the year ended 30 April 2009 will be treated as incurred in 2009/10. (Income from the rental of property does not qualify as a trade and is dealt with separately below.

3 S O L E T R A D E R S A N D PA R T N E R S H I P

EXAMPLE
Mrs Newland has the following income: 2008/09 £ Salary Interest Rental income Trading profit Trading loss How should the loss be utilised? 2008/09 £ Other income Loss carried back Taxable income 50,000 (18,000) 32,000 2009/10 £ 40,000 – 40,000 30,000 2,000 8,000 10,000 – 2009/10 £ 34,000 1,500 4,500 – (18,000)

Loss relief is claimed in the year in which a larger slice of income falls within the higher rate band. In 2008/09, assuming that she claims the standard personal allowance, the amount of income before the loss relief claim falling within the higher rate band is £9,165 (£50,000 – £6,035 – £34,800). Having decided to set the loss against the income in 2008/09 first, Mrs Newland cannot restrict this in order to set it partly against the higher rate income in 2009/10.

As a temporary measure, trading losses incurred in the tax years 2008/09 and 2009/10 may be carried back three years. The maximum loss which may be carried back is £50,000 for each of 2008/09 and 2009/10, with the loss being set against later years first.

Carry-forward against profits of same trade
Losses not utilised against other income or chargeable gains may be carried forward and set off against profits of the same trade. There is no time limit – the loss is carried forward indefinitely, although an election for carry-forward must be made within five years of 31 January following the tax year of the loss.

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33

TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S

EXAMPLE
Taking the previous example further, Mrs Newland has the following income in 2010/11: £ Salary Interest Rental income Trading profit 35,000 2,500 6,000 20,000 63,500 The biggest tax saving would be achieved if she were not to carry the loss back but instead to carry it forward and set it off against the trading profit in 2010/11. In this way, all of the loss would be used in the reduction of income within the higher rate band. However, she would have to wait longer for the relief.

Set-off against capital gains
Trading losses may be set off against capital gains for the same or the previous tax year. The time limit for the claim is the same as for a claim to utilise the loss against other income. Set-off against capital gains is allowed only if all other income for the year in question has been exhausted. This may mean that personal allowances will be wasted. The maximum set-off under these provisions is the capital gains for the year less any capital losses for the same year and capital losses brought forward. The annual exempt amount (see Chapter 7) may therefore be wasted.

34

A THOROGOOD SPECIAL BRIEFING

3 S O L E T R A D E R S A N D PA R T N E R S H I P

EXAMPLE
Miss Claypole has the following income and chargeable gains: 2008/09 £ Salary Trading profits Trading losses Capital gains 10,000 3,000 – 10,000 2009/10 £ 11,000 – (18,000) 3,000

She could elect to set the 2009/10 loss against income and capital gains for 2008/09 but would thereby waste personal allowances and part of the annual exemption. Income would be reduced to nil and chargeable gains would be reduced to £5,000, leaving £4,600 of the annual exemption unused. If future trading profits are reasonably certain, a better option would be to carry the loss forward. If capital gains were above £14,600 in 2008/09, a claim might be more worthwhile, although the personal allowance would still be wasted.

Opening year losses
Losses arising in any of the first four tax years of a new trade can be carried back and utilised against the trader’s total income for the three years preceding the year of loss. They must be set off against earlier years first. For example, a trade’s first year of assessment is 2009/10. Losses can be set against other income in 2006/07, then – if all of the income of 2006/07 is exhausted – 2007/08, and finally 2008/09. A loss in 2012/13 can be set off against income in 2009/10 and the following two years. The potential advantage over the loss claims previously discussed is that an individual may have been paying Income Tax at the higher rate in earlier years, perhaps while in salaried employment. Tax relief is also available more quickly than if the loss were carried forward. A claim for relief of a loss in this way should be made within twelve months of 31 January following the tax year in which the loss arises. Many traders mistakenly believe that losses can be utilised twice, in the same way that profits can be taxed twice in the early years.

A THOROGOOD SPECIAL BRIEFING

35

EXAMPLE A trader commences trading on 1 September 2009 and makes a loss of £24. The same does not apply to losses. In the year ended 31 August 2011 he makes a profit of £30.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S EXAMPLE A profitable business commences trade on 1 January 2009 and has a yearend of 31 October. so any loss made from 1 January to 5 April 2009 can be attributed to 2008/09 only and not to 2009/10. It will be assessed as follows: 2008/09 2009/10 Date of commencement (1 January 2009) to 5 April 2009 Twelve months from the date of commencement 1 January to 31 December 2009 2010/11 Twelve months to the accounting date 1 November 2009 to 31 October 2010 (Note that.000. when he left to start his own business. If this period is twelve months or more. the basis period for tax is the first twelve months of the business.) The profits for the periods from 1 January to 5 April 2009 and from 1 November to 31 December 2009 are taxed twice. the basis year is the twelve months from 6 April to 5 April.000 which did not change from 1 January 2006 until 31 March 2009. Where there is no accounting period ending in the second tax year. where an accounting period ends in the second tax year and is less than twelve months as above. the basis period is the twelve months to the accounting date. He was previously an employee on a salary of £40.000 in the year ended 31 August 2010. though overlap relief is given when the business ceases. he had no other income apart from the business. After 31 March 2009. What is the best way to utilise the loss? 36 A THOROGOOD SPECIAL BRIEFING .

A better option is to carry the loss back and use it against higher rate income. the losses in the last twelve months of trading can be relieved against profits for the last tax year and the preceding three tax years. but he is then only a basic-rate taxpayer. The final twelve months of trading are split into two periods: the period to 5 April and the period from 6 April.000 (14.000 24.000) 30. The loss available for relief is the total of the losses in the two periods (note that.3 S O L E T R A D E R S A N D PA R T N E R S H I P £ Loss in 2009/10: £24. but the loss in 2010/11 could not be used in this way because there is no taxable income either in 2009/10 or in 2010/11. if either period produces a profit.000 – 40.000 2008/09 £ 40. Terminal losses When a trade ceases. A THOROGOOD SPECIAL BRIEFING 37 .000 (14.000) 26. The loss is utilised against profits of later years first.000 The loss in 2009/10 could of course be set against the income in 2008/09 under the usual rules of set-off against other income. it is ignored and netted off the loss).000) 10.000 2007/08 £ 40.000 (10.000 The loss could be carried forward to 2011/12. 2006/07 £ Salary Loss relief 40.000 x 7/12 Loss in 2010/11: 12 months to 31 August 2010 Less already given 14.

000 Under normal rules. it could not then be relieved in full.000 is treated as incurred in 2010/11 and may be carried back to 2009/10. Mr Bishop will benefit from a terminal loss relief claim as follows: £ 1 September 2009 to 5 April 2010 £25.625) (23.000) – 2009/10 £ 5. and losses are treated similarly.000 x 5/8 Total loss The loss is relieved as follows: 2007/08 £ Profit Loss relief 20.000 x 3/8 less £5.000) – (15.000 Profit 20.000 (5. Partnerships Profits of a partnership are distributed between the partners in accordance with the partnership sharing agreement. the loss of £25.667 2008/09 £ 5.333) 6.000 Profit 5.000 Profit 5. 38 A THOROGOOD SPECIAL BRIEFING .708) A claim for relief of a terminal loss should be made within five years from 31 January following the tax year of discontinuance.000 x 4/12 6 April 2010 to 31 August 2010 £25. Each individual partner can therefore decide how best to utilise losses.000 (13.000 Loss 25.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S EXAMPLE Mr Bishop’s trading results prior to cessation of trade on 31 August 2010 are as follows: £ Year ended 31 December 2006 31 December 2007 31 December 2008 31 December 2009 Period ended 31 August 2010 Profit 50. However.333) (7.000 (5.

000 and her share of the loss is £3. Rental income is always treated as property income.000. He is therefore a higher rate taxpayer in 2008/09 and should elect to carry the loss back. The partnership sharing agreement states that profits and losses are shared between Mr Stanton and Miss Berkeley in the ratio 80:20. Profits from hotels. is considered to be a trade.000 from 1 April 2009 onwards. Mr Stanton’s share of the profit is £48.000 and his share of the loss is £12. Miss Berkeley has income from another source in the form of salary of £50. and a loss of £15. whereas if it simply restores the building to its original state.000 in the year to 31 December 2008. and she should therefore elect to set the loss against income in 2009/10. She is a higher rate taxpayer in 2009/10 because of her salary. Revenue or capital? Taxable profits from property consist of rental income from all UK properties less allowable expenditure.000 in the year to 31 December 2009. Miss Berkeley’s share of the profit is £12. However. It is not possible to treat it as earned income for pension purposes. market gardening and mining are also taxed as trading income. it is usually considered to be revenue expenditure (and therefore allowable). Work is normally of a capital nature (and therefore disallowable) if it improves the building. which involves the purchase of properties with a view to generating profits by reselling them. They make a profit of £60.000. Property income Income from property is not treated as trading income and any profits or losses are taxed separately.3 S O L E T R A D E R S A N D PA R T N E R S H I P EXAMPLE Mr Stanton and Miss Berkeley are in partnership. There is a wealth of case law on what constitutes revenue and capital expenditure. property dealing. A THOROGOOD SPECIAL BRIEFING 39 .

whereas the landlord’s options are far more restrictive. there are two options: • Claim expenditure on replacement furniture as it occurs (but not on the initial purchase of furniture). cookers. whereas tenants may be judged to be carrying out the work for the specific needs of their business. lifts and electrical systems have been held to be plant. Losses may be set against total income of the same or the following tax year if they include capital allowances. If works are to be carried out during a tenancy. The tenant may be able to carry losses back or claim group relief. This will be the case if it is part of the apparatus for carrying on the business within the property. The loss which can be utilised in this way is restricted to the capital allowances for the year net of balancing charges.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Some capital expenditure nevertheless qualifies for capital allowances (see Chapter 6) as it falls under the definition of ‘plant’. the tenant may have more flexibility than the landlord for the relief of the expenditure. It can sometimes be more tax-efficient for the tenant to carry out repairs instead of the landlord and for the landlord to offer a rent-free period in return. Loss relief Losses from a property business can normally only be carried forward and used against future profits from property. This is because the test of whether an item qualifies as ‘plant’ – and is therefore eligible for capital allowances – revolves around whether it performs a business function. which is 10% of the rental income net of council taxes and water rates paid by the landlord. • Claim an annual allowance for wear and tear. A landlord may have difficulty in arguing that a refurbishment qualifies as plant. Alarm systems. In these circumstances it may be more tax-efficient for the tenant to carry out the repairs in return for a reduction in rent. though the last of these depends on the nature of the business being carried on. If residential property is let furnished. 40 A THOROGOOD SPECIAL BRIEFING . Other situations FURNISHED LETTINGS Capital allowances are available only on property let commercially.

there is a choice of treatments. If the annual gross rental income exceeds £4. but the most important are that. They allow an individual to let furnished residential accommodation within his own residence for up to £4. Either the excess over £4.250 per annum free of tax. The criteria for furnished holiday lettings are very detailed. Faster relief is normally given by claiming the annual 10% allowance. This special treatment will be withdrawn from 6 April 2010. and a director cannot therefore let an office to his company within his home.250 can be taxed (the taxpayer must make a written election to do this within twelve months of 31 January following the tax year). or the net rent after allowable expenditure is taxed (this will apply if no election is made). FURNISHED HOLIDAY LETTINGS Until 5 April 2010. Additionally. they can be treated as earnings for pension purposes and they qualify for certain Capital Gains Tax reliefs when sold (see Chapter 7). furnished holiday lettings are taxed as trading income and therefore a more generous treatment is available for losses. the property must be available for letting for 140 days and actually let for 70 days. during a tax year. A THOROGOOD SPECIAL BRIEFING 41 .3 S O L E T R A D E R S A N D PA R T N E R S H I P The landlord will need to consider the likely amount of future renewals of furniture before deciding which treatment to adopt. as the treatment must usually be adopted consistently from one year to the next. and no one person should occupy it continuously for more than 31 days in a five-month period. RENT A ROOM RELIEF The rent a room relief provisions give scope for tax savings. Note that the accommodation must be let for residential purposes.250.

TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S EXAMPLE Mr Walden lets a room in his house. The income and expenditure are as follows: 2008/09 £ Rental income Expenditure Profit 4.000) 3.000 2009/10 £ 4.000 (4.250.500 (3. 42 A THOROGOOD SPECIAL BRIEFING .000 (1. In 2010/11 he should withdraw the election and will be taxed on the net rents of £500.250 (£250).500) 500 There is no tax in 2008/09 as the rental income falls below £4.000) 1.500 2010/11 £ 5. In 2009/10 he should elect to tax the excess over £4.

A Thorogood Special Briefing Chapter 4 Chapter – Income Tax of Individuals Allowances Extension of basic rate band Overseas income .

000. and it can be increased to a maximum of £6.335) unilaterally. This £2. it makes no difference if the wife pays Income Tax at the higher rate and the husband does not. which may be increased beyond the age of 65 if income is below certain levels (see Appendix). A husband may claim a married couple’s allowance of £2.475.670 is. This is given as a tax reducer and attracts tax relief at 10% – a tax reduction of £267. The opportunity for tax planning arises because the allowance can be transferred between spouses.965 if the husband is 75 or over at the end of the tax year and has an income of £22. For every £2 of income above £100. The allowance is given on a sliding scale depending on the age of both spouses and the level of the husband’s income.000. 44 A THOROGOOD SPECIAL BRIEFING . but it has been eroded in recent years and is now available only where one spouse was born before 6 April 1935. The marginal Income Tax rate for those earning just above £100. They include the personal allowance. The married couple’s allowance may be transferred between spouses. the full minimum amount may be transferred. however. a minimum. the personal allowance is reduced by £1. The personal allowance is gradually reduced to nil from 6 April 2010 for those earning over £100.670 if he lives with his wife at any point in the tax year 2009/10. Based on the 2009/10 personal allowance of £6.900 or less. Because it is simply given as a tax reducer. however.000 will therefore be 60%. If both parties make a claim before the start of the tax year. a person with income of above £112.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Chapter 4 Income Tax of Individuals Allowances Most Income Tax allowances are a matter of fact and there is no scope for tax planning.950 will have no personal allowance. The wife may claim half of the minimum allowance (£1. Details are given in the Appendix.

Extension of basic rate band Taxpayers who are in the higher rate band may bring some or all of their income back into the basic rate band by making payments either to charities or to personal pension schemes. The grossed-up payment is then added to the basic rate band.490) 2. A THOROGOOD SPECIAL BRIEFING 45 . In both cases.360 2. A notice must be given by five years after 31 January following the tax year. the payment is deemed to have been made net of basic rate tax. A couple who married before 5 December 2005 may make a joint election to be brought within these rules.640) 10.072 There has been an extension to the married couple’s allowance for marriages and civil partnerships entered into from 5 December 2005: the allowance is given to whichever individual has the higher total income for the year. Mr Hatfield is 71 at 5 April 2010 and Mrs Hatfield 76.000.965 x 10% Excess to Mrs Hatfield (502) – (194) 1. if the joint election has been made) tax liability is insufficient to take advantage of the married couple’s allowance.000 and Mrs Hatfield £20. the unused amount can be transferred to the wife (or husband).510 502 £ 20.000 (9.000 (9.878 12. The right to transfer all or half of the allowance remains. EXAMPLE Mr Hatfield has annual income of £12. What is the most beneficial use of the married couple’s allowance? Mr Hatfield Mrs Hatfield £ Income Personal allowance (age-related) Taxable income Tax liability at 20% Married couple’s allowance £6.4 C H A P T E R – I N C O M E TA X O F I N D I V I D U A L S If the husband’s (or wife’s.

525 Excess over higher rate band £39.525. There are limits on other benefits (see Appendix). The effect of this is that his Income Tax is reduced by 20% of the gross gift.700 and the charity will reclaim tax of £425 (20/80). A pitfall of Gift Aid is that there are restrictions on benefits which can be received by the donor from the charity. His higher rate band will rise to £39. Gift Aid donations. can be made to UKregistered charities only. It is possible to carry back a Gift Aid donation to the previous year – for example. as opposed to goods and services) and signing a declaration that they have paid sufficient Income and Capital Gains Tax in the year to cover the tax reclaimed by the charity. it is not a bona fide donation. This does not apply to newsletters or to reduced or free entry to properties managed by the charity for public benefit (which is why subscriptions to the National Trust qualify for Gift Aid).400 = £2. as these are known. if any benefit is received in return for the payment.525 less £37. In principle. a payment made in 2009/10 can be treated as made in 2008/09 if a claim is made 46 A THOROGOOD SPECIAL BRIEFING .475) 39. Mr Hitchin will pay £1. the charity can reclaim a transitional Gift Aid supplement to bring it up to the amount it would have been able to claim at the old 22/78 rate which applied up to 2007/08.700. For the three years 2008/09 to 2010/11.000.000 (6. How much should he donate by way of Gift Aid in order to bring his income below the higher rate band? £ Income Personal allowance Taxable income 46.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Gift Aid Individuals who wish to make donations to a charity while reducing their tax liabilities can do so by making a donation (which must be in the form of cash.125 x 80% = £1.125. EXAMPLE Mr Hitchin has income of £46. Net payment needed £2.

an individual can be a member of both occupational and personal schemes. dividends or rental income. The 2009 Budget announced a number of measures which adversely affect high earners. and earnings from pensionable employment (where the employer operated an occupational pension scheme) did not count towards net relevant earnings. contributions were restricted to an age-related percentage of ‘net relevant earnings’. Personal pension contributions A payment to a personal pension scheme is grossed up and increases the higher rate band in exactly the same way as a Gift Aid donation.000 and £180.600 and 100% of ‘earnings’ (subject to a maximum of £245. Taxpayers with income of over £150. ‘Earnings’ arise from employment or trading income.000 was mentioned earlier in this chapter. higher rate pension relief will be restricted. a taper relief will apply. Until 5 April 2006. For these taxpayers. ordinarily resident or domiciled in the UK. Under the new regime. but not from savings. The withdrawal of the personal allowance for those earning over £100.4 C H A P T E R – I N C O M E TA X O F I N D I V I D U A L S by 31 January 2010. The maximum gross contribution is now the higher of £3. The detailed rules have yet to be published at the time of writing. These terms are considered in turn. Individuals who pay tax at the higher rate can make a pension payment to reduce their Income Tax.000). Of course. Overseas income There is scope for very large tax savings by ceasing to be resident in the UK. Those earning above £180. This would be beneficial if the taxpayer were in the higher rate band in 2008/09 but not in 2009/10. An individual may be resident. but some individuals consider this worthwhile.000. A new regime for personal pensions came into force on 6 April 2006.000 will be subject to a new top rate of Income Tax of 50%.000 will obtain relief at only 20% on pension contributions. drastic action is required in order to bring about non-residence. A THOROGOOD SPECIAL BRIEFING 47 . Between £150.

bank charges) are deductible. If an individual is physically in the UK for an average of 91 days per year over four successive tax years. even if their average over the last four tax years has been 91 days or more. and it implies greater permanence. the sale of all UK property and the purchase of property in the new country of domicile. which up to age 16 is normally the parents’ domicile (the ‘domicile of origin’). The 91-day test for residence also applies to ordinary residence.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Residence An individual who is physically in the UK for at least 183 days in a tax year (usually ignoring days of arrival and departure) is UK-resident. This means that. If an individual regularly visits the UK and has accommodation which is available to him for at least three years. Strong evidence is needed before Revenue & Customs will accept this – for example. Ordinary residence Ordinary residence is more difficult to define than residence. residence begins on the first day of the fifth year. Domicile An individual can have only one domicile. Foreign income Foreign income is usually taxed on an arising basis. After the age of 16. the individual may acquire a ‘domicile of choice’ which involves physically moving to another country and severing ties with the former domicile. that individual is ordinarily resident. the statement of a desire to be buried in the new country. Individuals are non-resident if they do not visit the UK at all in a tax year. it is taxable in the UK. regardless of whether the income is remitted to the UK. 48 A THOROGOOD SPECIAL BRIEFING . though any expenses outside the UK which are directly related to the collection of the income (for example. such as the purchase of a burial plot there. or the movement of family to that country. even if they are not resident as a result of being absent for an entire tax year. marriage to an individual already domiciled in the new country. Normally individuals who have lived in the UK throughout their lives are ordinarily resident.

claim to have foreign income (except income arising in Eire) taxed on a remittance basis. The proportion of salary which relates to work abroad is taxed only if it is remitted to the UK. probably to a UK bank account. Those with more than £2. There was a change to the taxation of non-domiciles from 6 April 2008. An individual who is non-domiciled in the UK – even if resident or ordinarily resident – is not liable to UK Income Tax on earnings from employment with a foreign employer carried out wholly outside the UK unless those earnings are remitted to the UK.4 C H A P T E R – I N C O M E TA X O F I N D I V I D U A L S Individuals who are not ordinarily resident or non-domiciled in the UK can. an individual not ordinarily resident in the UK is able to have salary apportioned between income earned from working days within the UK and working days abroad. thus avoiding the taxation of the income on the remittance basis. they are never taxable. Alternatively. Irrespective of domicile or residence. 70% of their work is in London. irrespective of whether it is remitted to the UK. Consequently if the funds are never remitted. It is possible to use the foreign income to buy an asset abroad and then bring this asset into the UK.000 of unremitted income and gains and who have been UKresident for seven of the previous nine tax years have to pay a £30. There does not in this case need to be a separate contract for time abroad. Many foreigners working in London as city bankers take advantage of this by persuading their employers to give them two contracts of employment – one for their work in London and one for their work elsewhere. they may choose to be taxed on all income arising. However. for example. unlike for those who are resident and ordinarily resident but non-domiciled. Employment income Many employees carry out part or all of their duties abroad or for an employer who is not resident in the UK. if any part of the duties is performed in the UK.000 ‘remittance basis charge’ each tax year. If. they will pay tax on only 70% of their income – an effective rate of 28%. however. The latter contract is with an overseas subsidiary and the income is remitted to an offshore bank account. there is a liability to UK Income Tax on the whole. This means that the income is not taxed in the UK until it is received there. A THOROGOOD SPECIAL BRIEFING 49 .

If he were to restrict his time in the UK to 180 days. For the years 2006/07 to 2009/10. he would be non-resident and then only 40% of the profits would be taxable in the UK. For an individual who is resident but not ordinarily resident. she spends an average of 85 days in the UK and rents property on one-year leases.000 but the remaining £35.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S EXAMPLE Mrs Romney. EXAMPLE Mr Wade carries on a trade which makes 40% of its sales in the UK and 60% in Germany.000. Trading income Any trade carried on at least in part in the UK is taxed as UK income except in the case of an individual who is non-resident. it is not taxable in the UK. domiciled in the US. For a non-resident. If in future years she spends an average of at least 91 days in the UK and becomes UK-resident for seven out of nine years. has a contract with a London bank. or resident but non-domiciled. It will then be more tax-efficient if she elects to be taxed on the arising basis. paid direct to a US bank. He is not ordinarily resident in the UK. when the profits are apportioned between the UK part and the overseas part. working 65% of the time in the UK and 35% in the US. it is taxed on a remittance basis. Her income is therefore apportioned. she will have to pay the £30. A trade carried on wholly outside the UK is still wholly taxable in the UK if carried on by an individual who is resident and ordinarily resident. but in 2009/10 he spends 200 days in the UK. Her income is £100. He is resident and therefore the whole of the profits are taxable in the UK. She is not required to pay the remittance basis charge as she is not UK resident.000 charge. 50 A THOROGOOD SPECIAL BRIEFING .000 is free of tax unless it is remitted to the UK. She is not ordinarily resident as she neither has accommodation available to her for a three-year period nor spends an average of 91 days or more in the UK. She is taxed in the UK on £65.

888 26. Individuals who make a declaration that they are not ordinarily resident can receive interest from UK banks gross.366 31. her tax liability is calculated as follows: Tax on non-savings income: 20% x £3.5% x £81.000 125.000.959 Less deducted at source Tax liability (13.525 Tax on interest income: 20% x £15.000 Tax on dividend income: 10% x £18.125 1.000) 18.000 and net dividend income of £90.475) 118.000 Personal allowance Taxable income (6. Broadly.000 x 100/90 10. Her income is summarised thus: £ Employment income Interest £12.875 32.000 x 100/80 Dividends £90.000 100. their tax liability cannot exceed the total of tax charged on non-savings income (ignoring the personal allowance) and tax deducted at source on interest and dividends. EXAMPLE Miss Stone has employment income of £10. She also has net interest income of £12.959 705 3.000 15.000 A THOROGOOD SPECIAL BRIEFING 51 .000 in the UK.4 C H A P T E R – I N C O M E TA X O F I N D I V I D U A L S Dividends and interest Individuals who are non-resident can avoid the higher rate on dividends and interest.525 If she is resident.

000) and Spain. Because days of travel to and from the UK do not count towards the 91-day threshold. Italy. Monaco. Income may in theory be taxable in two countries. her tax liability is calculated as follows: Tax on non-savings income: £10.000 By being non-resident.000 2.000 10.000 Less deducted at source Tax liability (13.000 15.000 3. An example would be foreign income which is taxed in the country of origin and also on the remittance basis in the UK. According to one report.000 x 20% Tax on interest income: 20% x £15.959. the income will be taxed in the UK and maybe also the country of residence. their income will generally be taxable in the country of residence. Spain and Portugal.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S If she is non-resident. it is easy to remain non-resident and therefore only suffer tax deduction at source on dividends. If a non-resident owns and lets property in the UK. but it is usually possible to obtain a credit for the UK tax paid so that the tax in the country of residence is correspondingly reduced. there are 650 directors of UK companies who give their address as Monaco.000 Tax on dividend income: 10% x £100. Certain countries do impose a wealth tax.55% per annum on assets of more than €750. a well-known tax haven. such as France (starting at 0. houses many wealthy British business people who fly to the UK on a Monday and return on a Thursday for most weeks of the year. although for individuals with a mid-range retirement income there is no significant difference between the tax burden in the UK and that in popular retirement destinations such as France. A further point to note here is that the letting agent acting 52 A THOROGOOD SPECIAL BRIEFING . it is possible to achieve significant tax reductions – in this case £16. Double tax agreements exist between the UK and many other countries so that income is not taxed twice. though it is possible to be resident in no country. A detailed analysis of the tax rates and rules in other countries is beyond the scope of this work.000) 2. Tax in more than one country If individuals become non-resident.

A THOROGOOD SPECIAL BRIEFING 53 . tax relief may not be available under a double tax agreement. In some cases. This is known as unilateral relief. The 2009 Budget announced that from 6 April 2010 the personal allowance would be withdrawn from individuals who are not resident in the UK but who claim UK personal allowances and reliefs as Commonwealth citizens. provided that this arises from the same type of income as the foreign tax.4 C H A P T E R – I N C O M E TA X O F I N D I V I D U A L S for a non-resident landlord must deduct 20% of the rent and send it to Revenue & Customs. UK residents in this position may set the foreign tax against their UK tax. If there is no letting agent. the tenant must make the deduction.

Blank .

A Thorogood Special Briefing Chapter 5 Corporation Tax Losses Groups Purchase of a company’s own shares Substantial shareholding relief Corporate Venturing Scheme .

Basic computation Trading income.75%. The result is the profit chargeable to Corporation Tax (PCTCT). a marginal rate applies. it is necessary to outline the rules for computation of Corporation Tax. Between £300.000. If a company has received no dividend income in the period. the marginal rate is 29. In order to aid an understanding of the relative advantages of the various options for utilisation of losses. Charges on income comprise only payments to charity. The relevant Corporation Tax rate is applied to this. in the same way as dividends payable are not a deduction. a claim must be made to utilise trading losses against other income of the same or a different accounting period.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Chapter 5 Corporation Tax Losses This section focuses chiefly on losses incurred by a company in its trading activities.000 and £1.500. income from other sources (such as property income and interest) and chargeable gains are added together. The thresholds and rates are in the Appendix.000) P = PCTCT plus franked investment income I = PCTCT 56 A THOROGOOD SPECIAL BRIEFING .000 pay tax at 28%. Charges on income are then deducted. There are three Corporation Tax rates for the year commencing 1 April 2009: companies with PCTCT of up to £300.000 pay tax at 21%. which happens automatically. and companies with PCTCT of £1. Apart from the carry-forward of trading losses. The method of calculation is first to apply the main rate of 28% to PCTCT and then to apply the following fraction by way of marginal relief: (U – P) x I/P x 7/400 U = the upper limit (£1.500. Note that dividends receivable do not form part of PCTCT.500.

100. A THOROGOOD SPECIAL BRIEFING 57 .000.636 280.000. the upper limit will be £375.000) x £1.000 from splitting into seven companies and thus taking advantage of the small companies rate.636 Tenterden Ltd’s marginal rate is 30. The purpose of this is to stop companies with.000 – £1.000 x 28% Marginal relief: (£1.000) 210.500. say. Companies are associated if one controls another or both are under common control.636/ (£1. 273. grossed up by 100/90.636 (63.000.000 and has received net dividends of £90.000/£1. The size limits are divided by the number of associated companies – for example. The limits are also reduced if the company has any associated companies. The Corporation Tax is computed as follows: £ Tax at full rate: £1.000 x 7/400 (6.000) = 30.000.09% The marginal rate will always be 29.000.75% if there is no franked investment income. a profit of £2.000.09%: Tax Less tax at small companies rate: £300.000.100.000 Note that the upper and lower limits are reduced accordingly if the accounting period is less than twelve months.000 x 21% Tax at marginal rate Marginal rate £210.000 – £300. EXAMPLE Tenterden Ltd has PCTCT of £1.000 and the lower limit £75.5 C O R P O R AT I O N TA X Franked investment income consists of dividends received from another UK company. if Tenterden Ltd has two subsidiaries and is owned by another company.364) 273.

000 for each the accounting periods in which a loss is made.000 31.000 – 70. losses in periods ending between 24 November 2008 and 23 November 2010 may be carried back three years.11 (Budget) £ 500.3. The amount of the loss which can be carried back in this manner is restricted to £50.000 – 100. Carry-back of losses If the trading loss is set off against other income for the same year and this other income is insufficient to relieve the loss in its entirety. EXAMPLE Hampstead Ltd has the following results: Year ended 31. which includes chargeable gains.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Set-off of losses against other income A company may set a trading loss off against other income from any source.10 £ – (100.3. the remaining loss may be carried back and used against the income of the previous twelve months. being relieved against later years first. A claim for set-off in this manner must be made within two years of the end of the accounting period in which the loss arises.000) 20. As a temporary measure.09 £ Trading profit Trading loss Chargeable gain 2. they are carried forward and utilised against profits of the same trade only.3.100.000 58 A THOROGOOD SPECIAL BRIEFING . Carry-forward of losses If no claim is made to utilise trading losses against income of the same year or to carry them back.000 31. A separate claim must be made within the same time limit as for set-off against other income of the same year.

This will usually mean that they can be carried back three years to a date which is midway through an accounting period.000 3.06 £ Result Profit Loss utilised 20.000) – 30.75%. This is the best option.000 30. Complications arise when the final period is shorter than twelve months: part of the loss for the penultimate period can then also be carried back. however.6. Cash flow might be an issue.000.5 C O R P O R AT I O N TA X How is the loss best utilised? The tax rate in the year to March 2009 is 28%.000 20.09 £ (10. the profit for that period must be apportioned.6.000 (10.6.12. Period ended 30. The tax saving will therefore be at 29.000) 10. will reduce the PCTCT from £570.000 (3.000 5.000 to £470.6. if carried forward.08 £ 5. Terminal losses Losses incurred in the final twelve months of a company’s trading may be set off against the other income for the previous three years. In the following year it is 21%.000) 31. In the year to March 2011 the loss. proving that losses should not necessarily be set off against the year with the largest PCTCT. All the periods are of twelve months except for the final period.000) A THOROGOOD SPECIAL BRIEFING 59 .000 (5.07 £ 3. as Hampstead Ltd will have to wait until 2011 to gain relief if the loss is carried forward.000) – 30. EXAMPLE Harrow Ltd has the following results prior to ceasing to trade on 31 December 2009. in this case. still within the marginal rate band.09 £ (20. whereas immediate relief could be claimed for carry-back.

If these conditions are met. A Ltd and B Ltd are in a 75% group. 2.08 30.1.06) 2.000 of the loss in the year ended 30 June 2009 is also unrelieved. No claim is required. Groups Companies associated by various means can form a group.6.6. rather than having to carry them forward for set-off against future profits. This 75% interest must meet three conditions: 1.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Loss memorandum: Terminal loss 30.000) (6/12 – carried back to 1.000) (10. Schedule A (property) losses Property losses are automatically set off against other income of the same accounting period. This is a very flexible way of gaining immediate Corporation Tax relief for losses.000) (3. A Ltd owns 75% of B Ltd.07 30.000 (last period and 6/12 x y/e 30. Taking a simple example.6. It is entitled to 75% of B Ltd’s distributable profits. 60 A THOROGOOD SPECIAL BRIEFING .6. It is entitled to 75% of B Ltd’s assets on winding up. which gives opportunities for the saving of tax by setting the losses of one company off against the profits of another. 3.09) (5. Any loss remaining is carried forward and utilised against total income of subsequent periods. or by reducing tax on chargeable gains. Group loss relief Companies which are members of a 75% group can utilise losses by setting the loss of one company against the profits of another.06 Unrelieved 20. It owns 75% of B Ltd’s ordinary share capital.000 The remaining £10.

When deciding how or whether to apply group relief. C and D form a 75% group. but they must first be set against the company’s other income for the year. the group should always consider setting losses off against the company with the highest marginal tax rate. A THOROGOOD SPECIAL BRIEFING 61 . The surrendering company need not first set the losses against its other income for the year. This is because A’s effective interest in E is 93% (an actual holding of 30% and a 90% share of B’s 70%). but B’s interest in D is 81%. Losses may be surrendered between any companies in a group. B and C form a 75% group. the losses in question will be trading losses. E can be added to the first group.5 C O R P O R AT I O N TA X An interest may be indirect. Therefore B. and therefore A.9%. Take the following more complex example: A 90% 30% B 90% 70% E C 90% D A has an indirect interest of 81% in C. A’s interest in D is only 72. Most commonly. Schedule A (property) losses can also be surrendered.

It could set the loss against Salthouse Ltd’s profits for 2008. Salthouse Ltd can carry its loss back and save tax at the full rate. It could carry the loss forward to 2009 and save tax at the small companies rate.000 (12.000 back and save tax at the marginal rate and apply group relief to the remaining £10. In that year it paid tax at the small companies rate on the first £150. The best option for Salthouse Ltd is to carry its loss back.000) – 170. Group relief is simplest to operate when all companies have the same accounting period. Salthouse Ltd could set its loss against Cromer Ltd’s profits for 2006. saving tax at the small companies rate.000 160.000 (remember that the small companies threshold is halved because there are two associated companies) and at the marginal rate on the next £20.000. It can alternatively carry it forward but future results are uncertain.000 (30.000) 75. 62 A THOROGOOD SPECIAL BRIEFING .TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S EXAMPLE Cromer Ltd and Salthouse Ltd have the following results: Year ended 31 December 2007 £ Cromer Ltd: Trading result Salthouse Ltd: Trading result Chargeable gain 100. Salthouse Ltd is a large company paying tax at the full rate The best option for Cromer Ltd is to carry £20. If the companies have different accounting periods.000 – 700.000. the loss can only be surrendered within the overlapping period.000 2008 £ 2009 £ What is the most beneficial way of claiming group relief? Cromer Ltd could carry its loss back to 2007.

Consortium relief operates on broadly similar lines to group loss relief. of which 9/12 fell in Stanford Ltd’s year ended 30 September 2009. 20 or fewer companies (the consortium members) must each own 5% of another company (the consortium company). Consortia For a consortium to be in place. A THOROGOOD SPECIAL BRIEFING 63 .000 20. Consortium companies must be trading companies. the consortium members must in total hold at least 75% of the ordinary share capital. The same principle will apply to Stanford Ltd’s loss in the year ended 30 September 2010. Additionally.000 30.000 10. the relief is restricted in proportion to the member’s interest in the consortium company.000 Loss £ Brixworth Ltd made a loss in the year ended 31 December 2009.500) is available for group relief. Therefore only 9/12 of the loss (£15. of which 9/12 fell in Brixworth’s year ended 31 December 2010. Therefore only 9/12 of the loss (£7. and that when losses are surrendered from the consortium company to the members.000) is available for group relief.5 C O R P O R AT I O N TA X EXAMPLE Brixworth Ltd and Stanford Ltd have the following results: Profit £ Brixworth Ltd – year ended 31 December 2008 2009 2010 Stanford Ltd – year ended 30 September 2009 2010 25. except that losses may be surrendered only between the consortium company and the members (and not between members).000 10.

As for group loss relief.000 Dorney Ltd £90. Gains groups For a gains group to exist.000 (60. 64 A THOROGOOD SPECIAL BRIEFING .TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S EXAMPLE Addlethorpe Ltd is owned as follows: Bibury Ltd 30% Crediton Ltd 30% Dorney Ltd 37% Evesham Ltd 3% Addlethorpe Ltd makes a loss of £200.000 Dorney Ltd £ 90.000 Crediton Ltd £80.000) 20. the parent must own 75% of the subsidiary and must have an indirect interest of at least 51% in each of the subsidiary’s subsidiaries.000) 16. The profits of the consortium members are: Bibury Ltd £50.000) – Crediton Ltd £ 80.000 (74.000 The loss not surrendered is £16.000.000 Addlethorpe Ltd’s loss is surrendered as follows: Bibury Ltd £ Profit Less surrendered 50.000 (50. ownership of share capital and entitlement to profits and assets are all taken into account.000 (Evesham Ltd’s share and excess not claimable against Bibury Ltd).

This preentry loss is normally computed by time-apportioning the loss between the periods before and after the company joined the group. Note that a company cannot be a member of more than one gains group. Albury Ltd. they can treat the asset as if it had been transferred immediately before sale. However. which removes the necessity to effect a physical transfer of the asset. In theory. it is necessary to transfer the asset from one to the other and sell it to relieve the capital loss.25%. The transferee company then sells the asset with a consequent tax saving. A company wishing to dispose of a capital asset may therefore wish to transfer the asset to a group company which has a lower Corporation Tax rate. and a company which is itself a 75% subsidiary cannot stand at the head of a gains group. Special provisions exist to prevent this from happening. using the ensuing capital loss against existing chargeable gains. Capital losses of one group company cannot be relieved against chargeable gains of another. Birtles Ltd and Chewton Ltd are in a gains group. Hence Birtles Ltd cannot head a group which includes Chewton Ltd and Dunsfold Ltd. and the transferee is deemed to have acquired it for the same value. which in turn owns 75% of Dunsfold Ltd. Companies sometimes buy other companies which own assets on which there is a potential loss. A THOROGOOD SPECIAL BRIEFING 65 . if both companies make a joint claim to do so. the transfer is deemed to have been made at ‘no gain no loss’ – in other words. if one company is about to sell an asset which generates a capital loss and another company has chargeable gains. Gains groups provide an opportunity to save tax on chargeable gains. the transferor is deemed to have sold it for its original cost plus indexation. If a capital asset is transferred from one group company to another.5 C O R P O R AT I O N TA X EXAMPLE Albury Ltd owns 75% of Birtles Ltd. which owns 75% of Chewton Ltd. as Albury Ltd’s effective interest in Chewton Ltd is 56. but Dunsfold Ltd is not in the group. They then transfer those assets on a ‘no gain no loss’ basis and sell the assets outside the group. The pre-entry loss cannot be set against chargeable gains.

there is a dissenting shareholder. as a dividend). and the purchase must be for the benefit of the trade. but Zennor Ltd has surplus funds. for example. it is taxed as a capital gain. whereas there is an annual exemption of £10. however. and must not be connected with the company immediately after the sale.100 available before Capital Gains Tax becomes payable. If certain conditions are met. The capital treatment also applies if the purpose of the transaction is to enable Inheritance Tax to be paid on the death of a shareholder. which leads to difficulties in the management of the group. must have held the shares for five years (or three if they were inherited). Barton and Chester do not have the funds to buy out Ashton. 66 A THOROGOOD SPECIAL BRIEFING . More often than not – but not always – this latter treatment is more favourable for the shareholder. For example Ashton. The capital treatment applies only to unquoted trading companies. a shareholder with more than 30% of the ordinary share capital of a company is connected with it. The vendor must also be UK-resident and ordinarily resident. Zennor Ltd therefore repurchases the shares from Ashton. Broadly. because higher rate taxpayers are liable for additional Income Tax on distributions. the transaction is treated in the hands of the shareholder in the same way as a distribution (in other words. Perhaps most commonly. died or simply wishes to withdraw equity finance. Generally this second condition will be satisfied if a shareholder has retired. Occasionally it will be more beneficial for the shareholder to have the transaction treated as a distribution – if there are already gains above the annual exemption. Barton and Chester are equal shareholders in Zennor Ltd but Ashton increasingly disagrees with Barton and Chester.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Purchase of a company’s own shares Usually when a company repurchases its shares from shareholders.

Would it be more beneficial for Mr Leigh to have this treated as a distribution or as a capital payment? £ Tax on distribution No additional tax – basic-rate taxpayer. taking into account the interest in ordinary share capital and the entitlement to profits and to assets on winding up. Tax on capital payment Proceeds Cost Gain Capital Gains Tax at 18% 20. Advance clearance for one treatment or the other may be obtained from Revenue & Customs. A substantial shareholding is one of at least 10%. He has a shareholding in Martock Ltd which the company wishes to repurchase for £20. provided that certain conditions are met. the transaction must be treated as a capital payment.000 (5. this A THOROGOOD SPECIAL BRIEFING 67 .000 in the current year. Note that.000 and chargeable gains of £10.000 2.000.700 by treating the transaction as a distribution. Substantial shareholding relief Substantial shareholding relief was introduced with effect from 1 April 2002. The shares were purchased five years ago for £5. The principal feature is that there is no chargeable gain when a company disposes of a shareholding in another company. So if a company buys 20% of another company on 1 January 2007 and sells it on 1 January 2008.000) 15. It will therefore be necessary for the company to ensure that it breaches one of the conditions for a capital payment.700 In the above example.000. if the conditions are met. this is an exempt disposal. there is a tax saving of £2. The shares must have been held in any continuous twelve-month period in the two years prior to disposal. If it then buys another 5% on 1 July 2008 and sells it by 31 December 2008.5 C O R P O R AT I O N TA X EXAMPLE Mr Leigh has taxable income after personal allowances of £10. perhaps by manipulating the transaction so that the shareholder retains a holding of at least 30%.

If a company subscribes for new ordinary share capital in a company which meets the conditions. In such a situation. However. if Lullington Ltd sells Shepton Ltd. Corporate Venturing Scheme The Corporate Venturing Scheme operates in a broadly similar way to the Enterprise Investment Scheme (see Chapter 2). there is no chargeable gain provided that the twelve-month criterion is met and both are trading companies. However. EXAMPLE Lullington Ltd owns 100% of Shepton Ltd. There may also be a chargeable gain on any plant and machinery if it is sold for more than its written-down value. if it delays the sale of the 5% holding beyond 1 January 2009. However. the investing company may gain tax relief at 20% on the amount invested. The investor company. there will be no tax allowance – though. must not hold an interest of more than 30% of the investee company. Should Shepton Ltd sell its assets and goodwill.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S is also an exempt disposal because a 10% shareholding was held for a twelvemonth period in the previous two years. which must be a trading company. it will not be an exempt disposal. Lullington Ltd has an opportunity to sell Shepton Ltd’s trade to Taunton Ltd. it will benefit from substantial shareholding relief. if it in turn holds Shepton Ltd for twelve months. which owns chargeable assets. there will be a chargeable gain on the goodwill. it can amortise this in its own profit and loss account and claim the amortisation as a Corporation Tax deduction under the new regime for intangible assets which was introduced on 1 April 2002. if it purchases Shepton Ltd. however. the seller may have to consider the buyer’s wishes. or should Lullington Ltd sell Shepton Ltd in its entirety? If Shepton Ltd sells the assets and goodwill. There are numerous conditions. Both investor and investee must be trading companies both for the twelve-month period and immediately after the sale. If it purchases goodwill. Taunton Ltd may not be as enthusiastic. 68 A THOROGOOD SPECIAL BRIEFING .

must not be controlled by another company. however. and must be a trading company (broadly defined in the same way as for the Enterprise Investment Scheme). the relief is given. and immediately afterwards no more than £8 million. the investee company must have had gross assets of no more than £7 million. It must not have subsidiaries for which there are arrangements in force which would pass control to a third party. subject to a claim on the Corporation Tax Return. A THOROGOOD SPECIAL BRIEFING 69 .5 C O R P O R AT I O N TA X The investee company must be unquoted. When the investee company has traded for at least four months following the date of the investment. Relief will. Immediately before the purchase of the shares. must be at least 20% owned by individuals who are not directors nor employees nor their relatives. be withdrawn if the shares are sold within three years of their purchase.

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A Thorogood Special Briefing Chapter 6 Capital Allowances Plant and machinery – general principles Cars First-year allowances Short-life assets Industrial buildings allowances Disclaiming capital allowances .

but this is spread over the life of the asset. Items which merely provide the place or setting in which the business operations are performed are not considered to be plant and are therefore ineligible for capital allowances on plant and machinery. whether it is a sole trader. These items provide the opportunity to make profits or losses. such as property. Consequently they do not qualify for a full tax deduction in the year in which the expenditure is incurred. do not qualify as revenue items and are therefore capital in nature. however. Second. The question of what is capital and what is revenue has formed the subject of many a case. stationery and raw materials are classed as revenue expenditure. Plant and machinery – general principles There is no statutory definition of plant and machinery. The meaning of ‘plant’ has been considered by the courts in many cases. The essential features are that it is kept for permanent use in the trade and performs a function in the business operations. It is capital allowances. Capital items are those with which the business does not part but which belong to the capital structure. A rule of thumb is that capital items tend to be used over more than one year. There is no simple test. but it forms by far the largest part of assets eligible for capital allowances. partnership or company. plant and machinery and goodwill. and plant. 72 A THOROGOOD SPECIAL BRIEFING . and the opportunities for increasing the amount of the allowance and claiming it as early as possible. heat and light. Broadly. the day-to-day running costs of a business. Relief for capital items can be given in two ways. so the cost is allowable as a deduction from profit.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Chapter 6 Capital Allowances A business. certain items qualify for capital allowances. such as wages and salaries. First. Broadly. Certain items. it covers machinery in its widely understood sense. and a balanced judgement will often be necessary. the cost can be taken into account when computing a chargeable gain (see Chapter 7). which form the subject of this chapter. will be able to treat most of its expenditure as revenue items and will therefore be able to claim a deduction against Income or Corporation Tax as appropriate.

000 After 30 June £ A THOROGOOD SPECIAL BRIEFING 73 . EXAMPLE Fryerning Ltd has a pool of plant and machinery of £200.6 C A P I TA L A L L O WA N C E S Items held by the courts to be plant include movable office partitions. and the annual allowance given is 20% of the written-down value of the pool. If an item qualifies as plant and machinery.000 WDA* at 20% WDV* at 30 June 2010 (36.000) 144. the distinction is a fine one. Building Society window screens and a barrister’s books.000 on or about 30 June 2010. the 2009 Budget announced that a first-year allowance of 40% is available for 2009/10 (see below).000) 160. However. a writing-down allowance of 20% of the cost is given in the accounting year of purchase (unless first-year allowances are available – see below).000 – 200. Items held not to be plant include a canopy over a filling-station. shop fronts and stairs.000 200. Most plant and machinery goes into a ‘pool’. swimming pools on a caravan site. As can be seen. less the disposal proceeds of any assets sold in the year. It wishes to sell an asset from the pool for £20. It does not matter when in the year the purchase is made: a business with a year-end of 30 September would gain faster tax relief by purchasing an asset on 29 September than it would if the same purchase were made on 2 October.000) 180. which is the amount carried forward at the end of the previous year. What are the consequences of delaying the sale to 1 July 2010.000 at 1 July 2009. since 6 April 2008 for Income Tax purposes (1 April 2008 for companies) an annual investment allowance of 100% is available on the first £50. false ceilings. plus any additions in the year.000 (40.000 (20. Additionally.000 spent on plant and machinery. assuming a Corporation Tax rate of 28%? Before 30 June £ Year ended 30 June 2010: WDV* at 1 July 2009 Disposal proceeds 200.

a balancing allowance or charge arises by comparing the sale proceeds with the written-down value at the start of the year. this treatment changes.000 (20. there is a special treatment (those costing £12. If a car purchased from 1 April 2009 for a company (6 April 2009 for Income Tax purposes) has CO2 emissions of up to 160. Cars For cars purchased for more than £12. Alternatively. Otherwise.000 160. This is partially offset in the second and subsequent years. it is added to the general pool. road tax and other running costs – can be claimed. If the written down value of the pool after deducting disposal proceeds but before making the 20% writing down allowance is less than £1.120 (£4. the Revenue & Customs approved mileage rates can be used (40p per mile up to 74 A THOROGOOD SPECIAL BRIEFING .000 or less are simply treated as part of the general pool – there is no longer a separate pool for them).TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S WDV at 30 June 2010 Year ended 30 June 2011: Disposals 144. A sole trader with a turnover not exceeding the VAT registration threshold (currently £68.000 x 28%).200 (28. The private use element of all of the expenses – including capital allowances.000) has a choice of two treatments for the use of a car. it is added to a special rate pool and is subject to an annual writing-down allowance of 10%. They are treated individually and given a maximum annual writing-down allowance of £3.000) 112. * WDA: writing-down allowance WDV: written-down value The writing-down allowance is increased or reduced accordingly for long or short accounting periods.000) 140. insurance. When the car is sold. though expensive cars already purchased continue to be treated under the old rules for a transitional period of five years.000 before the tax year 2009/10. the business may claim the entire value of the pool as a writingdown allowance.000 The tax saving in the first year achieved by delaying the disposal is £1.000 WDA at 20% WDV at 30 June 2011 (28.800) 115.000. petrol. From the tax year 2009/10.000.

Her total mileage is 15. but running costs tend to increase with the age of the car. which may be a consideration in timing the purchase of an asset. The position in future years is less clear – capital allowances will reduce after the second year. 25p per mile thereafter). The running costs including petrol in the year ended 31 March 2010 are £2.000 on 1 April 2009.000 1.500 x 40p 3.000 miles per annum. EXAMPLE Miss Lawford. a sole trader with a turnover of £50. It is anticipated that there will be no first-year allowance for the tax year 2010/11. unlike previous first-year allowances which were available only to small and mediumsized businesses.000.500 1.000 x 20% x 50% Running costs £2.000 2. these A THOROGOOD SPECIAL BRIEFING 75 .000.500 There is a clear advantage here in claiming the mileage rate.000 of which half is estimated to be business mileage. The basis can be changed only when the car is changed.000 x 50% Amount claimable Mileage 7. buys a car with CO2 emissions of 145 for £15. First-year allowances are available on all plant and machinery except cars or assets used for leasing. The temporary first-year allowance of 40% in the tax year 2009/10 announced in the 2009 Budget is available to businesses of all sizes. Unlike standard writing-down allowances. Should she claim actual costs or the mileage rate? £ Actual costs (50% private use) Capital allowances – WDA £15. First-year allowances First-year allowances are designed to allow faster tax relief for purchases of assets.6 C A P I TA L A L L O WA N C E S 10.

it is not always the best course of action to claim first-year allowances in full. This advantage is even greater if a first-year allowance is available. How much of the first-year allowance should not be claimed. An asset is sold in the year ended 31 March 2010 for £12. The part added to the general pool is computed using the following fraction: First-year allowance unclaimed/Full first-year allowance x Cost of asset EXAMPLE Maldon Ltd has a general pool brought forward of £10.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S percentages do not change if the accounting period is longer or shorter than twelve months. there will be a balancing charge.000. This can be avoided by not claiming the full amount of the first-year allowance and instead adding part of the cost of the asset to the general pool. and how much Corporation Tax will thereby be saved in the year of purchase (assuming a rate of 21%)? 76 A THOROGOOD SPECIAL BRIEFING . If an asset is disposed of and the proceeds exceed the balance in the general pool. The advantage of bringing a purchase forward so that it happens just before a year-end was highlighted earlier. However.000 and one is bought for £15.000 and has exhausted its annual investment allowance for the year ended 31 March 2010.

800 9.000 WDV carried forward 9.000 FYA restricted WDV brought forward Addition FYA FYA not claimed (6.000 x £15.000 4.000 – (2.000 A THOROGOOD SPECIAL BRIEFING 77 .000) Addition FYA at 40% 15.000 (12.6 C A P I TA L A L L O WA N C E S FYA* £ FYA claimed in full WDV brought forward Disposal £ General pool £ Allowances £ 10.000) 9.000 10.200 15. 5.800 (2.000 Disposal Transfer from FYA WDV carried forward 9.200 * FYA: First-year allowance There is a tax saving of £252 (£1.800 5.000) 2.000 (6.000) – 9.000) Balancing charge 2.000 (12.200) 9.000 6.800 Added to general pool £800/£6.000) (2.000) 800 (5.200 x 21%) in the year by restricting the firstyear allowance claimed.

its written-down value is transferred to the general pool. There is no practical benefit where the item remains in use for five years or more.000 in a year on such assets – are another. if this is expected to happen. being the difference between the written-down value and the sale proceeds (if any). long-life assets – those with an expected life of more than 25 years where the business spends more than £100. If the short-life asset has not been disposed of by the end of the fourth year after its acquisition. faster capital allowances can be claimed on assets which the taxpayer elects to treat as short-life assets. By contrast. there will be a balancing charge.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Short-life assets Not all plant and machinery goes into the general pool. 78 A THOROGOOD SPECIAL BRIEFING . These are generally assets with an expected useful life of four years or less. a balancing allowance is given. there is a tax disadvantage and the asset should simply be placed in the general pool at the outset. The consequence is that. Long-life assets enter the special rate pool (like cars with high fuel emissions) and attract a writing-down allowance of 10%. Amongst other assets. Cars. Every short-life asset is placed in a pool on its own and a writing-down allowance is given in the usual way. when it is sold or otherwise disposed of. assets used for leasing and those used partly for non-business purposes cannot be treated as short-life assets. If the proceeds exceed the written-down value.

000) 48.000) 38.000 Balancing allowance WDA at 20% WDV carried forward – (38.000 (40. What is the advantage of treating it as a short-life asset if it is to be sold for £10.600) 30.000) 60.6 C A P I TA L A L L O WA N C E S EXAMPLE Thaxted Ltd purchases an asset for £100.000 General pool £ There is an additional allowance of £30.000) 60.000) (7.400 in year 3 which at the full rate of Corporation Tax translates into a saving of £8. A THOROGOOD SPECIAL BRIEFING 79 .400 (10.000) 48. correspondingly more tax will be paid in future years. there is little scope for planning in the claim of industrial buildings allowances.000 in 2011? Short-life £ Year ended 31 December 2009: Addition WDA at 40% WDV carried forward Year ended 31 December 2010: WDA at 20% WDV carried forward Year ended 31 December 2011: Disposal (10. It has exhausted its annual investment allowance for the year.000 100.000 (12. Of course.000 in the year ended 31 December 2009.000 100. Industrial buildings allowances Other than the timing of purchases to ensure that they fall shortly before the year-end (and disposals to fall shortly afterwards). so the basic rules are included here purely for completeness.000 (12. and first-year allowances are available.512.000) 38.000 (40.

The purchase of land is not eligible. 80 A THOROGOOD SPECIAL BRIEFING . and the deferral of capital allowances might be a way of achieving this.000. There is no balancing adjustment for disposals on or after 21 March 2007. The same may apply if the business has losses brought forward which it wishes to utilise against the profit for the year. Disclaiming capital allowances It may sometimes be desirable not to claim full capital allowances on plant and machinery. In these circumstances it may wish to maximise the taxable profit in order to relieve the losses. Industrial buildings have a tax life of 25 years from the date they are first brought into industrial use.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Broadly.475 will be wasted if capital allowances of more than £1.525 are claimed. for example. If a sole trader’s profit before capital allowances is only £8. and consequently greater allowances can be claimed in subsequent years. This means that an allowance of 4% of the cost is given in the year of first use and every year as long as the building remains in industrial use. An election can be made to reduce capital allowances to this amount. and the only tax allowance claimable on land will usually be in reduction of a chargeable gain when the land is ultimately sold. industrial buildings allowances are available only on buildings used for manufacture. storage or processing and are restricted to the costs of construction. the personal allowance of £6.

A Thorogood Special Briefing Chapter 7 Capital Gains Basic principles Annual exemptions Transfers between spouses Capital losses Principal private residences Reliefs Chattels .

antiques and paintings. and investments in other companies (but see substantial shareholding relief at Chapter 5). a chargeable gain or capital loss may arise. Computation – companies The pro forma computation for companies is: £ Disposal proceeds Original cost Enhancement expenditure Unindexed gain Indexation allowance Chargeable gain x (x) (x) x (x) x There is no annual exempt amount for companies. 82 A THOROGOOD SPECIAL BRIEFING . partnership or company. Commonly. a business may find itself with chargeable gains on land and buildings. This chapter explains how to minimise tax on chargeable gains but starts with a brief explanation of how Capital Gains Tax for individuals and Corporation Tax on chargeable gains for companies work. whether by an individual. but items sold as part of trading activities are taxed under the provisions for Income and Corporation Tax. Most assets are chargeable assets. shares. goodwill and other intangible assets.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Chapter 7 Capital Gains Basic principles If a chargeable asset is sold. An individual may find himself with chargeable gains on a second property (see principal private residence below).

If one produced a gain and one a loss. If there is a loss before indexation. A THOROGOOD SPECIAL BRIEFING 83 . two calculations were prepared: one using the actual cost and the other using the market value at 31 March 1982. even if those assets were owned before 6 April 1998.7 C A P I TA L G A I N S The indexation allowance is computed by reference to the retail price index on the date of acquisition and the date of sale. This still applies to disposals by companies of assets held at 31 March 1982. Broadly. there will be no gain and no loss. compared to 40% after ten years for a non-business asset. though the annual exempt amount is first deducted (see below). cost is ignored and the market value at 31 March 1982 substituted. For disposals before 6 April 2008. Much faster taper relief was given for business assets – 75% after two years’ ownership. if the gain before indexation is £10. this is the allowable loss and no indexation is added. assets held at 5 April 1998 were indexed up to that date.000. partnerships and trusts from April 1998 following a major review of the Capital Gains Tax regime. Computation – individuals The pro forma computation for an individual is: £ Disposal proceeds Original cost Enhancement expenditure Chargeable gain x (x) (x) x Indexation ceased to apply for individuals. If both produced a loss. The lower of the two gains was taxed. the lower loss was allowable. many of the opportunities for tax planning in relation to chargeable gains have been removed. and indexation no longer applies to assets disposed of by individuals. Tables showing how taper relief operated up to 5 April 2008 are in the Appendix. Taper relief was abolished for disposals on or after 6 April 2008. With the abolition of taper relief. a business asset was one used by the taxpayer in carrying on a trade or profession. For assets held before 1 April 1982.000 and indexation is computed at £15. For disposals by individuals prior to 6 April 2008. there was deemed to be no gain and no loss. A flat Capital Gains Tax rate of 18% now applies to all chargeable gains by individuals. Indexation can never be used to create or increase a loss – for example. Taper relief was then applied and varied depending on whether the asset is a business or non-business asset and on the period of ownership.

for all assets held before 1 April 1982.000 (20. and some of them are likely to be sold with a capital loss.000) In the absence of a rebasing election.000) 30. which is payable only if chargeable gains less capital losses (see later) exceed this figure. If an individual wishes to dispose of shares with an estimated gain of £15.000 Value in 1982 £ 50.000 (80. 84 A THOROGOOD SPECIAL BRIEFING . it may make sense to sell half in one tax year and half in the next.000 but the likely sale proceeds are only £50. The annual exemption cannot be carried forward and used in future years.) Computation based on: Cost £ Proceeds Cost/1982 value Chargeable gain/Capital loss 50. This is set at £10.100 for 2009/10. the disposal will be treated as no gain and no loss. cost is ignored and the market value at 31 March 1982 substituted. for example. a loss of £30. a higher gain could result from having made this election. individuals are.000 can be claimed. This is likely to be of benefit if all or most of the pre-1982 assets which the taxpayer intends to sell in the future rose in value between the date of their acquisition and 31 March 1982.000. If the election is made. By 31 March 1982 their market value had risen to £80. This is irrevocable once made. Should it make a rebasing election? (Ignore indexation.000. The result is that. Annual exemptions Although companies are not entitled to an annual exemption. The result is that the first £10.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Companies may still make a global rebasing election. EXAMPLE Hale Ltd wishes to dispose of shares bought on 1 January 1974 for £20.000.100 of gains are free of Capital Gains Tax.000) (30. Hale Ltd would need to be aware that if it later sold any assets whose value had fallen between the date of the acquisition and March 1982.

The annual exemption cannot be transferred between spouses. This is no longer possible. Anyone wishing to sell and buy back shares since 1998 must wait more than 30 days before repurchase if the above rule is not to apply. She sells them for £13. The disposal on 1 March 2011 is deemed to relate to the purchase on 1 January 1999 and there is a gain of £10. the 30-day rule does not apply to individuals who are non-resident and not ordinarily resident. the following applies also to civil partners. The tax saving should outweigh any additional dealing costs. there was a practice known as ‘bed and breakfasting’. The annual exemption of both can be utilised.000. A THOROGOOD SPECIAL BRIEFING 85 . Transfers between spouses Since 5 December 2005. for acquisitions since 22 March 2006. because an individual selling shares and then buying the same class of shares back within the next 30 days is deemed to have sold the shares which were bought subsequently. She sells the shares on 1 June 2009 for £10. The disposal on 1 June 2009 is deemed to relate to the shares bought on 2 June 2009 and there is a capital loss of £100.000 shares in Portchester plc for £3. A transfer between spouses living together is deemed to be at no gain and no loss.7 C A P I TA L G A I N S thus ensuring that both gains are covered by annual exemptions. An individual would sell shares. but nevertheless there is a tax planning opportunity here. so that the receiving spouse takes over the asset at its original cost. Any gain or loss on disposal will be calculated on the basis that the shares were acquired before the disposal rather than within 30 days afterwards.100.000 on 1 January 1999. Before 1998. EXAMPLE Mrs Lyndhurst buys 2. It is possible for the taxpayer’s spouse or even an ISA (Individual Savings Account) to repurchase the shares. thus reducing any future gain. However.000 and buys them back on 2 June 2009 for £10. realising a gain just below the annual exemption.000 on 1 March 2011. This of course runs the risk of a rise in the share price in the meantime. and buy them back the next day.

Capital losses A capital loss arises when the original cost exceeds the disposal proceeds. The inter-spouse transfer must be made before the assets are sold.000 in 2009/10. Capital losses on assets disposed of before 6 April 2008 are set against chargeable gains before taper relief is given.000 (5. The assets transferred should have been those which would produce gains of £1. An individual with numerous gains and losses on pre-April 2008 disposals should therefore allocate the losses against the gains with the lowest taper relief first. if one spouse is a higher rate taxpayer but the other is not. Alternatively.000 and Mrs Kenton £12.000 10. EXAMPLE Mr Hartland disposes of three non-business assets in 2007/08 as follows: Gain/(loss) £ Asset 1 Asset 2 Asset 3 20.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S EXAMPLE Mr Kenton has gains of £4. What would have been the best way to reduce their tax liabilities? Mrs Kenton should have transferred assets to Mr Kenton. Her gains would then have totalled only £10.000) Years owned 8 2 4 86 A THOROGOOD SPECIAL BRIEFING .100.900 when sold to a third party. it may be beneficial to transfer an asset to the spouse and then sell it.

the gains for the year will be: £ Gain on asset 1 Taper relief at 30% Chargeable gain Gain on asset 2 Loss on asset 3 Net chargeable gain Total gains 20.000 The difference is the 30% taper relief on the amount of the loss.7 C A P I TA L G A I N S If the loss is set against asset 1.000) 5.500) 10.000 10.000 (5.000 (4.000 20.000) 15.000 (5. the gains for the year will be: £ Gain on asset 1 Loss on asset 3 Gain before taper relief Taper relief at 30% Net chargeable gain Gain on asset 2 Total gains 20.500 10. Losses unused in the tax year are carried forward and set against chargeable gains in future years. which attracts no taper relief. because carried forward losses are used only to the extent that they reduce the gains to the annual exempt amount. A THOROGOOD SPECIAL BRIEFING 87 . The loss should be set against asset 2. This is more beneficial than using the losses in the year in which they are incurred. Losses set against gains in the same year are used even if they bring the gains below the annual exempt amount.000 (6.500 If the loss is set against asset 2.000) 14.000 19.

Even if the two-year deadline is missed. though. A nomination of any of the three properties can be made within two years of the date of acquisition of the third. Taxpayers often assume that there is a disadvantage in nominating the holiday home as the principal residence because it limits relief on the main residence. there will be a chargeable gain calculated in the normal way. if an individual acquires a second residence and wishes to claim exemptions on this. Note. 88 A THOROGOOD SPECIAL BRIEFING . It will also be exempt for the period of actual occupation. perhaps as little as one week. In fact there is nothing to prevent the taxpayer nominating the holiday home as the principal residence and then re-nominating the main residence after a very short period. But if it has been the principal residence at some stage during the period of ownership. The same applies if the owner was required to live elsewhere in the UK by reason of his employment. but in this case the exemption is limited to four years. provided that the house was actually occupied as the principal residence at some stage both before and after (not necessarily immediately before and after) the period of absence. and large tax savings can result from careful forward planning. a property which at some time has not been the principal residence of the individual is subject to Capital Gains Tax. no chargeable gain accrues in respect of that period. If the property has never been the principal residence. there will be an exemption for the last three years of ownership whether or not it was occupied during that period. The stumbling block is that. one acquired and simply let to a third party – can never be nominated as a principal residence. There are further exemptions available. Hence the chargeable gain is time-apportioned over the period of ownership (ignoring periods before 1 April 1982). that a property never occupied by the taxpayer as a residence – for example.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Principal private residences There is no chargeable gain when an individual sells a house which has been the principal private residence throughout the period of ownership. there can be another window of opportunity if a third residence is acquired. If the owner was employed abroad for any of the period of ownership. he must nominate it as the principal residence within two years of the date of acquisition. Many taxpayers fail to do this and in this case Revenue & Customs will decide which was the principal residence based on the facts. There are numerous relaxations of this rule. This enables exemption to be claimed for the last three years of ownership of the holiday home. In principle.

She occupies it as her main residence except for the following periods: 1 January 1991 to 31 December 1993 1 January 1995 to 31 December 1999 1 January 2001 to 31 December 2009 Working elsewhere in the UK Working abroad Moved to a larger property The exemptions total eleven years – the three years working elsewhere. EXAMPLE Miss Bakewell owns and occupies a property for 20 years.000 and the relief attributable to owner occupation.000 £ 200. There is also a letting exemption. the five years working abroad and the last three years.000 16. The gain is calculated in the normal way but only nine-twentieths of it will be chargeable. For the last eight years she lets out 80% of the property. There is no three-year exemption for any of the period from 1 January 2001 to 31 December 2006 as this was not followed by a period of actual occupation. There is a gain on sale of £200.000) Gain before letting relief 64.000 A THOROGOOD SPECIAL BRIEFING 89 . subject to the same provisions regarding occupation both before and afterwards. letting relief is given at the lower of £40. £ Gain Attributable to owner-occupation: £200. If the property has been let at any time and has at some stage been the principal residence.000 x 12/20 £200.000 x 8/20 x 20% 120. any other period of absence of up to three years will be exempt. EXAMPLE Miss Melbourne owns a property from 1 January 1990 to 31 December 2009.000 (136.7 C A P I TA L G A I N S Additionally.000 before time-apportionment.

000) 24. no tax will be payable straightaway.000 (40.000 Note that a couple jointly owning and letting a property will be able to claim relief of £40. which includes land and buildings. The replacement asset must be acquired within the period starting one year before and ending three years after the disposal. This means that the chargeable gain will be deferred.000 ensues on the goodwill. he or she should ensure that the house is sold within three years in order to ensure that the sale is free of Capital Gains Tax. If the party moves to a house which was previously let. If a couple is divorcing or separating and one party moves out of the marital home. Both the asset disposed of and the replacement asset must be ‘qualifying assets’.000.000. with the effect that any chargeable gain on the eventual sale of the replacement asset will be correspondingly increased. including letting relief.000 relates to goodwill. Reliefs Rollover relief A business which sells an asset with a chargeable gain may opt to claim rollover relief if it reinvests the proceeds in another asset. but the base cost of the replacement asset will be reduced. A chargeable gain of £300.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Gain before letting relief Letting relief – lower of: £40. this will become the principal private residence (although it is wise to make an election to this effect) and the usual reliefs will then apply. on 1 July 2009. of which £400. fixed plant and machinery and goodwill.000 Principal residence relief £136.000 each. On 1 January 2011 the company buys land and buildings for £600.000. 90 A THOROGOOD SPECIAL BRIEFING .000 Chargeable gain 64. EXAMPLE Morley Ltd sells an unincorporated business for £1.

For example. These third parties will generally. whether for value or as a gift.000) 300.7 C A P I TA L G A I N S The base cost of the new land and buildings is: £ Actual cost Gain rolled over Deemed cost 600. if Morley Ltd reinvested only £300. be family members. to third parties. often also known as gift relief.000 (200. This also applies to any transfers to connected persons.000 Note that if only part of the proceeds were reinvested.000 (200. the gain chargeable now would be as follows: £ Gain before relief Gain rolled over Chargeable gain Actual cost Gain rolled over Deemed cost 300.000) 100.000) 100.000 It was at one time possible to gain rollover relief by reinvesting in the shares of an ordinary trading company. or more especially shares in their companies. but not always.000 300. still available via the Enterprise Investment Scheme (see below). The definition of ‘connected persons’ includes the spouse. Since 2005. the relief would be restricted.000 (300. civil partners have been treated in the same way as spouses. is given by deferring any chargeable gain and deducting the whole gain from the deemed cost of the new asset A THOROGOOD SPECIAL BRIEFING 91 . A similar relief is. relatives (siblings and direct ancestors and descendants) and the relatives of the spouse. This relief became unavailable in 1998. Holdover relief. Gifts are usually treated as if the asset had been sold for its market value.000. The gain would be limited to the proceeds not reinvested. Holdover relief Owners of businesses may wish to gift certain business assets. however.

000 Relief will be clawed back if the donee emigrates within six years of the end of the tax year of the gift.) EXAMPLE Mrs Appleby gifts shares in an unquoted trading company to her daughter.000 200. (Until April 2003. no relief is available. Gifts of shares qualify for holdover relief if the shares are in an unquoted trading company.000. 92 A THOROGOOD SPECIAL BRIEFING . A claim for holdover relief may result in extra Capital Gains Tax being payable by the donee at a later date.000 (120. This deemed cost will be the market value. Broadly. The held-over gain will become chargeable in the year of emigration. must be signed both by the donor and by the donee. partial relief was available in these circumstances. Business assets are those used in the taxpayer’s trade or in a company in which the taxpayer holds at least 5% of the voting rights.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S to the donee. If the company has investments which form more than 20% of its net worth. so the claim. Holdover relief is available whether the transfer is made as a gift or at an undervalue. Both parties sign a claim for holdover relief. the only assets qualifying for holdover relief are business assets and unlisted shares in trading companies (though transfers into a trust also qualify if Inheritance Tax is payable – see Chapter 9).000.000) 120. which is irrevocable.000 (80. £ Chargeable gain: Market value Cost Gain held over Allowable cost: Market value Gain held over Deemed cost 200. The market value of the shares is £200. She acquired the shares in April 2000 for £80.000) 80.

The market value of the shares received is £150. For example. This entails the disposal of the assets of the business and a consequent chargeable gain on assets such as land and buildings and goodwill.000 on the assets. The deemed cost of the shares issued to the shareholder of the new company will be the lower of the market value of the shares and the value of the assets transferred.000 less £33. He incorporates the business.333).000. the gain held over would be £33. The acquisition cost will be: £ Market value Gain rolled over Deemed cost 150.000 If any other consideration is received in return for the assets.000) and the cost of the shares would be £66.000 and cash of £50. realising chargeable gains of £50. The investment can. EXAMPLE Mr Swaffham has run a business as a sole trader for many years. Incorporation relief Often the owner of an unincorporated business will make the decision to transfer the business to a company.7 C A P I TA L G A I N S Gifts to charities A gift to a charity is an exempt disposal for Capital Gains Tax purposes. on a claim to A THOROGOOD SPECIAL BRIEFING 93 . if Mr Swaffham received shares of £100.333 (£100. it may be difficult to find a purchaser and thus realise a capital loss.000 (50.000 x £50.000.667 (£100.000/£150. Negligible value claims If an investment has gone badly wrong and the taxpayer paid an amount for the shares but they have fallen to a very small value. the gain is proportionately reduced.000) 100. The gain will be computed by taking the disposal proceeds to be their market value at the date of transfer. Incorporation relief works by rolling the chargeable gain over into this deemed cost of the shares.

acquires ordinary shares in an unquoted trading company. There are restrictions on the type of company eligible for this investment and they are broadly the same as for Enterprise Management Incentive companies (see Chapter 1). thus allowing the loss to crystallise and be used to reduce chargeable gains. Revenue & Customs maintain a list of quoted shares which have fallen to negligible value and on which claims will automatically be allowed.000. Other chattels may attract Capital Gains Tax when sold. Enterprise Investment Scheme The Income Tax benefits of investing in companies under the Enterprise Investment Scheme (EIS) were highlighted in Chapter 2. the exemption limit of £6. In the case of an asset owned jointly. where it was also explained that EIS shares sold after more than three years are not treated as chargeable gains. 94 A THOROGOOD SPECIAL BRIEFING . the gain can be deferred and rolled over into the base cost of the shares. be treated as if it had been sold and immediately re-acquired at market value. which is known as EIS deferral relief. Unlike for EIS Income Tax relief. Chattels with a predicted useful life of 50 years or less which have not been used for business purposes are exempt from Capital Gains Tax.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Revenue & Customs. and it can be claimed even by investors who hold more than 30% of the ordinary share capital. although a capital loss can be claimed if appropriate. but not if the proceeds fall below £6. Chattels Chattels are defined as tangible movable property and often consist of paintings. This can create a tax planning opportunity. There is no need for EIS Income Tax relief to have been claimed. there is no maximum limit on the investment. If an individual who is resident and ordinarily resident incurs a chargeable gain on any asset and.000 is multiplied by the number of joint owners. antiques and jewellery. during a period starting one year before and ending three years after the disposal. There is a further Capital Gains Tax relief under the EIS.

A THOROGOOD SPECIAL BRIEFING 95 . Provided that he has no other gains.000.000 on which the chargeable gain is £8.7 C A P I TA L G A I N S EXAMPLE Mr and Mrs Langley wish to raise funds to build an extension to their house.000. how could the Capital Gains Tax have been avoided? Mr Langley should have transferred a 50% share of the painting to Mrs Langley well before the sale. but if he does have other gains. The chattels exemption would then have applied as the proceeds fall below the limit of £12. he will be covered by the annual exemption. Mr Langley owns a painting worth £10.

Blank .

A Thorogood Special Briefing Chapter 8 Inheritance Tax General principles Taper relief Exempt transfers Reliefs Domicile Interaction with Capital Gains Tax .

000 to only £300. where house prices tend to be higher than the average. In this case. they become potentially exempt transfers. Owners of businesses will generally own other assets in addition to their houses. Inheritance Tax has become a political issue.000 while the Inheritance Tax threshold rose from £223. Between 1998 and 2007. the average house price nationwide rose from £72. General principles Lifetime transfers Most transfers made during an individual’s lifetime are exempt from Inheritance Tax at the time of the transfer.000 to £182. So a house alone will in many cases be sufficient to ensure an Inheritance Tax liability.000. In the five years to 2004. If the transferor survives more than seven years after the date of the gift. the number of estates paying Inheritance Tax rose by 72%. especially in London and the South-East. and careful planning is necessary to maximise the wealth which can be passed on to the next generation. notably gifts to trusts. The difference between the two taxes is that. 98 A THOROGOOD SPECIAL BRIEFING . however. They may. there is no Inheritance Tax. although taper relief (see below) will apply to transfers made between three and seven years before death. a gift or a sale made at an undervalue. Death within seven years of the transfer will mean that it will form part of the transferor’s estate for Inheritance Tax purposes. fall within the scope of Inheritance Tax on the individual’s death if they are ‘transfers of value’ – in other words. which may be taxable during an individual’s lifetime. its tentacles have now spread to a very large number of home-owners. Originally designed to catch only the very wealthy in its net.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Chapter 8 Inheritance Tax Capital Transfer Tax was introduced in 1975 and was replaced by Inheritance Tax in 1986. most gifts are exempt except for gifts made in the last seven years of a individual’s life – which are potentially taxable on death – and a small number of other gifts. under Inheritance Tax.

8 I N H E R I TA N C E TA X The most common example of a chargeable lifetime transfer is one into a trust. since 22 March 2006 transfers to interest in possession trusts and accumulation and maintenance trusts are brought into the charge. If the total exceeds the nil rate band for the year of the transfer (£325. To this are added potentially exempt transfers and chargeable lifetime transfers made in the seven years before death. If. and the remainder of this chapter explains how to achieve this.000 in 2009/10). Inheritance Tax is payable on the excess at 20%. however. Taper relief If death occurs within three years of a potentially exempt transfer. When a chargeable lifetime transfer is made. Any tax paid on chargeable lifetime transfers within the last seven years is deducted from the Inheritance Tax bill. Death estate The estate on death includes all property owned by the individual less liabilities. As explained at Chapter 9. the full amount of the transfer is added to the estate. There are several means of reducing the death estate and therefore the Inheritance Tax liability. which previously applied only to discretionary trusts. and the excess over the nil rate band is charged at 40%. death occurs between three and seven years. taper relief is applied. reducing the Inheritance Tax payable as follows: Death between 3 and 4 years 4 and 5 years 5 and 6 years 6 and 7 years Reduction 20% 40% 60% 80% Although precise planning is by nature impossible. it is aggregated with the total of all the chargeable lifetime transfers in the previous seven years. A THOROGOOD SPECIAL BRIEFING 99 . prudent individuals will plan ahead and distribute gifts during their lifetimes in the hope that they will survive long enough for Inheritance Tax to be reduced or even not to apply at all.

000 on 1 March 2006. 100 A THOROGOOD SPECIAL BRIEFING . and therefore the transfer is treated as if it had never been made. They are still enjoying and benefiting from it.000) 8.000 (325.000.000 Gifts with reservation A word of warning – a potentially exempt transfer may be seen as a ‘gift with reservation’ if the transferee does not genuinely take possession of it.000 £ 150.000 (2.000 (150.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S EXAMPLE Mr Shere dies on 1 January 2010 leaving an estate of £100. Calculate his Inheritance Tax liability on death. It will not be a potentially exempt transfer and instead will form part of the death estate.000) – 200. He made potentially exempt transfers (net of the annual exemption) of £150.000 100.000 25. £ Potentially exempt transfer 1 February 2004 Nil rate band Chargeable to Inheritance Tax Potentially exempt transfer 1 March 2006 Nil rate band Less transfers in previous seven years 325.000 10.000) Chargeable to Inheritance Tax Inheritance Tax at 40% Taper relief at 20% Inheritance Tax payable Death estate Inheritance Tax at 40% (nil rate band fully utilised by potentially exempt transfers) Total Inheritance Tax 40. Parents may give an antique to their children but continue to have it in their home.000 48.000) (175.000 on 1 February 2004 and £200.

but professional advice is recommended before relying on this. Again. Gifts made before 18 March 1986 can never be treated as gifts with reservation. this is seen as a gift with reservation. A gift of more than a 50% share may well fail. Potentially. Exempt transfers Annual exemption The wise individual will make lifetime gifts with sufficient regularity to utilise the annual exemption of £3. The annual exemption can be carried forward for one year only if unused. A THOROGOOD SPECIAL BRIEFING 101 . Inheritance Tax of £8. on death there will be a chargeable gain which is calculated as the increase in value from the premium to the surrender value on the day before death. while the payout on death is exempt from Inheritance Tax.000. This is often used by parents who wish to give a share of the family home to their children who live with them. However.8 I N H E R I TA N C E TA X Likewise. parents often transfer their home into the name of their children but continue to live in it. The only way to avoid this is by paying the children a market rent for occupation. Some individuals use equity release schemes to generate a potentially exempt transfer. Note that the annual exemption does not apply to death transfers. There is an important let-out from the gifts with reservation rule.400 could be saved (seven years’ annual exemptions of £3. An individual transferring a half share in a property to another individual is not seen as having made a gift with reservation if the transferor continues to meet the relevant share of the expenses.000 at 40%). The cash paid to buy the policy is a potentially exempt transfer. The cash from the equity release is used to buy a life policy paying out a lump sum on death.

£2.000 (2.000 Small gifts exemption Individuals may make unlimited gifts during their lifetimes (though not on death) of up to £250 per person per tax year.000 in year one.500 in year two and £4.000) – Annual exemption carried forward Year two Transfer Annual exemption Annual exemption brought forward 3.000 1.000) 1. £ Year one Transfer Annual exemption 2. £ Year three Transfer Annual exemption 4.000) (500) – No annual exemption carried forward – the remaining £500 from year one is lost. 102 A THOROGOOD SPECIAL BRIEFING .000 (3. Note that this is a maximum – a gift of £250 will be exempt from Inheritance Tax but a gift of £300 will be a potentially exempt transfer in full.500 (3.000 in year three.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S EXAMPLE Mrs Harting makes potentially exempt transfers of £2.

500 1. All that is now sought is evidence of a commitment to continue making the payments.000 2. ensuring that. Until a landmark case (Bennett) in 1995. Prudent individuals will draw up their wills accordingly. but this is no longer the case. birthday and Christmas presents.500 2. life policy premiums on behalf of another person and payments under deeds of covenant qualify for this exemption. Normal expenditure out of income Gifts made during an individual’s lifetime which can be shown to be normal expenditure paid out of after-tax income (as opposed to capital) are exempt from Inheritance Tax. as the increase in value will be outside the estate. if they so desire. the Inland Revenue (as it was then known) was more likely to allow this exemption if payments were made over at least three years. Usually.8 I N H E R I TA N C E TA X Gifts of assets which rise in value If the individual owns an asset – such as a property or a stamp collection – which is expected to rise sharply in value over the coming years. it is more tax-effective to give it away now. The pattern of these gifts must have left the individual with enough income to live on without having to draw on capital.000 If a gift exceeds the maximum amount. Gifts should be conditional on the marriage taking place. Gifts to spouse Transfers to a spouse are exempt whether made during the lifetime or as part of the death estate. an amount up to the Inheritance Tax threshold is bequeathed to other parties and the remainder to the spouse. the excess is subject to Inheritance Tax. are exempt from Inheritance Tax up to the following amounts: Gift made by Exemption £ Either parent Grandparent or great grandparent Bride or groom Any other person 5. provided that they are made before the wedding or there is a binding promise. Marriage gifts Lifetime gifts to either party to a marriage. A THOROGOOD SPECIAL BRIEFING 103 .

They have two children.000. EXAMPLE Mr Hampton owns assets of £600. Given that transfers to spouses are exempt. On her subsequent death.000 will have been unused.500. Inheritance Tax is therefore due on £67.000 by the time of her death. it will be exempt from Inheritance Tax. (This cannot be claimed by co-habitees. half of his nil rate band in 2009/10 of £325. She would therefore benefit from the entire nil rate band at the date of her death. Her estate will be her own £200.500).000 and Mrs Hampton owns assets of £200. and again assuming a nil rate band at that time of £380. She will have benefited from the transfer of his nil rate band.000.000 plus the amount left to her by her husband (£437.500 to his children and the remainder to his wife.000. the survivor has two nil rate bands on death (£650. If instead he leaves £162.500. The amount of the nil rate band transferred is the percentage of the pre-deceased nil rate band unused on death multiplied by the survivor’s nil rate band.000 in the tax year 2009/10). her estate will be £800. giving her a total of £570. her total nil rate band will be £760.000 (50% of his nil rate band was unused and this 50% is applied to the nil rate band in the year of her death) will be transferred to her.000 and Inheritance Tax will be due on £40. The better option would therefore have been for Mr Hampton to transfer his entire estate to his wife. giving a total of £637. Assuming that the nil rate band has risen to £380.000. the amount of Inheritance Tax would be the same using either option.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Since 9 October 2007 there has been a transferable nil rate band. Where one spouse or civil partner dies and leaves a survivor who dies on or after 9 October 2007.) 104 A THOROGOOD SPECIAL BRIEFING . the unused nil rate band of the pre-deceased is transferred to the survivor. On her subsequent death.) It is immaterial that the pre-deceased may have died many years before 9 October 2007. (Note that if the nil rate band did not change between the date of his death and the date of her death. if the pre-deceased estate is left entirely to the survivor.000. an extra £190. How should Mr Hampton draw up his will? If Mr Hampton leaves his entire estate to his wife in the event of his pre-deceasing her.

but not parents. and if each partner has a minority shareholding in an unquoted company but the two added together form a majority holding. grandparents.8 I N H E R I TA N C E TA X The exemption is limited to £55. aunts or uncles. Problems may arise if the matrimonial home is in the deceased spouse’s sole name. it is wiser to make gifts which are exempt during one’s lifetime only – the small gifts exemption. pre-existing wills are revoked on registration of a civil partnership (as indeed they are on marriage).000 where a UK-domiciled spouse makes transfers to a non-domiciled spouse. have the right to apply to the courts under the Provision for Family and Dependants Act 1975. the surviving spouse again receives all the personal chattels. Civil partners need not live together. The intestacy rules treat surviving spouses harshly. be of any particular sexual orientation or be in a sexual relationship. Civil partnerships do also carry pitfalls: if one partner wanted to leave his or her estate to children or anyone else. Domicile rules are discussed later. there is no tax benefit to be gained from making them during an individual’s lifetime. however. but it passes to the children when he or she dies.000 and half of the balance. furniture and jewellery – plus a legacy of £200. One half passes to the children as they reach the age of majority. for example – and leave the following in the will. the surviving spouse receives all the personal chattels – such as cars. If there are no children.000. A THOROGOOD SPECIAL BRIEFING 105 . Other gifts exempt both as lifetime transfers and on death Given that the following are exempt from Inheritance Tax on death. plus £125. The biggest tax advantage is the right to leave assets to a surviving partner without an Inheritance Tax liability. siblings. If there are children. as this may have to be sold to meet the share attributable to the children. the valuation – and potential Inheritance Tax liability – may increase considerably. the surviving spouse has a life interest in the other half and receives interest from it. Gifts to charities which either are registered or operate within the UK are exempt from Inheritance Tax. The remainder passes to various relatives. The Civil Partnership Act 2004 came into effect on 5 December 2005 and gives civil partners the same rights as spouses. The surviving spouse does. If Inheritance Tax is the only consideration. the surviving partner might try to thwart that. The remainder of the estate is divided into two halves. Cousins may become civil partners.

In most cases. Land and buildings or plant and machinery owned by the transferor and used in the transferor’s business or in a company which the transferor controls (50% relief). as the tax saving can be significant. As long as a business is predominantly trading and does not hold investments which are worth more than half its value. It is important that businesses must be trading. Gifts to numerous national bodies are exempt. or one Member of Parliament and a total of 150. holdover relief from Capital Gains Tax. Shares in a quoted company controlled by the transferor (50% relief). It is important to take this into account when planning for Inheritance Tax. the National Gallery. There are two reliefs which relate specifically to businesses and provide significant opportunities for tax planning: business property relief and agricultural property relief. The principal classes of business property are: • A sole trader’s business. the value is reduced by 100% – in other words. which requires that less than 20% of the net worth of a company be made up of investments – see Chapter 7). provided that certain conditions are met. a health service body and any government department. The definition of a trading company is more relaxed than in other areas (for example. They include the National Trust. Reliefs So far in this chapter we have looked at various ways of reducing Inheritance Tax by making gifts largely of personal assets.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Gifts to political parties are exempt if the party had two Members of Parliament elected at the last General Election. it will qualify for BPR. Business property relief Business property relief (BPR) reduces the value of business property in the death estate and in lifetime transfers. or a partner’s share in a partnership (100% relief). • • • Shares in an unquoted company (100% relief).000 votes polled. no Inheritance Tax is payable. 106 A THOROGOOD SPECIAL BRIEFING . the British Museum.

an important condition: the transferee must still own the property at the transferor’s death. they are a business asset for Capital Gains Tax taper relief – they do not qualify for BPR. If the property has been sold on in the meantime. it will be a potentially exempt transfer and will be exempt from Inheritance Tax if the transferor survives for seven years. there will potentially be a charge to Inheritance Tax. She sells the building and buys a replacement on 1 June 2008. There is a minimum ownership period of two years. It is important to make the transferee aware of this condition. and BPR can then apply. and other assets must have been used in the business for two years. A THOROGOOD SPECIAL BRIEFING 107 . EXAMPLE Mrs Warwick owns a building which she uses in a company controlled by her between 1 January 2007 and 31 December 2007. as the potential Inheritance Tax bill could be significant. however. If the transferor dies within seven years.8 I N H E R I TA N C E TA X Although furnished holiday lettings qualify as a trade for Income Tax and Capital Gains Tax purposes – for example. There is. they will qualify provided that the combined ownership period is at least two out of the last five years before the transfer. Shares must have been owned for two years. BPR will not apply. If the property is transferred during an individual’s lifetime. she must own it at least until 1 June 2009 before transferring it. BPR is given automatically on property which forms part of an individual’s estate. There is a relaxation of the two-year rule. or even if it is the subject of a binding contract for sale. If the shares or assets have been owned for less than two years but they replaced other property which would have met the criteria for BPR. In order to claim BPR on the replacement building.

600 44. In principle it operates in the same way as business property relief.000 at nil £19. This is not usually the case. including buildings used in connection with the rearing of livestock or fish. He dies on 1 January 2010 having made a potentially exempt transfer of £50.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S EXAMPLE Mr Alton has an estate of £450. From 22 April 2009 it applies to such land anywhere within the European Economic Area. stud farms and shares in a farming company.000. the APR provisions often result in a farmhouse becoming exempt.000) 300.000 which includes shares in an unquoted company valued at £150. but the value it would carry if there were a covenant restricting it to agricultural use. or owned it for seven years while it was in agricultural use.000 £ Agricultural property relief Less common than business property relief. but it applies to agricultural land or pasture.000 Inheritance Tax: £325. Taxpayers frequently confuse Capital Gains Tax and Inheritance Tax and assume that private residences are exempt from Inheritance Tax. The agricultural value is not necessarily the value of the land. £ Cumulative total brought forward (after annual exemptions) Estate Less BPR 450. Relief is usually given at 100% of the agricultural value.000 344.000 on 1 January 2008. However. farm buildings.000 at 40% 7.000 (150. agricultural property relief (APR) nevertheless deserves a mention. Farmers who wish to retire from farming should plan carefully if they wish to 108 A THOROGOOD SPECIAL BRIEFING . provided that the transferor occupied the property for the two years prior to the transfer.

should wait until at least three tax years have passed since becoming non-resident. if an individual is domiciled elsewhere but has property in the UK. It may be more beneficial to continue farming but enter into an arrangement with a subcontractor. An individual who is not UK-domiciled is liable to Inheritance Tax only on UK property. If they sell the land but continue to live in the house.000 limit on transfers to a non-domiciled spouse could create problems and opportunities. transfers of property should be made either before they leave the UK or in the first three years after A THOROGOOD SPECIAL BRIEFING 109 . shares registered in the UK and life policies payable in the UK. Additionally. Becoming non-domiciled will therefore not affect the Inheritance Tax treatment of these assets. Inheritance Tax may be payable in two countries – for example. In certain circumstances. The same will apply if they rent the farm out and continue to live in the house.000.8 I N H E R I TA N C E TA X minimise Inheritance Tax. In most cases. The transfers will then fall outside the scope of UK Inheritance Tax – although they may be taxed in the new country of domicile. An individual becoming non-domiciled who wishes to transfer non-UK property. A couple retiring abroad will find that any transfers between them – even of UK property – will be exempt from Inheritance Tax but only to the extent of £55. Individuals who have been domiciled in the UK at any time during the last three years before a transfer are treated for Inheritance Tax purposes as if they were domiciled at the time of transfer. This includes bank accounts in the UK. double taxation agreements exist. The definition of domicile for Inheritance Tax purposes. however. The £55. To avoid this situation. an individual who has been UK-resident for at least 17 of the last 20 tax years ending with the year of transfer is also treated as UK-domiciled for Inheritance Tax purposes. however. APR will be lost because it is no longer being used for agricultural purposes. and even if they do not in a particular case. Individuals domiciled in the UK are liable to Inheritance Tax on lifetime and death transfers of property situated anywhere in the world. a credit for the foreign tax may be allowed against the UK Inheritance Tax liability. Domicile Domicile was defined for Income Tax purposes in Chapter 4. goes further than for Income Tax.

usually when the transferor is on the death-bed – are treated in the same way as death transfers. This is because individuals who are not domiciled in the UK are taxed only on gains on assets situated in the UK. This is just as well. when they will still both be treated as UK-domiciled for Inheritance Tax purposes. If the resultant chargeable gains fall below the annual exemption of £10. By using the annual exemption and making only small gifts.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S they leave. This rule is extended so that transfers made donatio mortis causa – in contemplation of death. If the transferor subsequently dies within seven years. Legatees are deemed to have acquired the asset at its market value at the date of death.100 for Capital Gains Tax. both taxes can be avoided. lifetime transfers may be subject to both Capital Gains Tax (the disposal proceeds of a gift being treated as market value) and Inheritance Tax. this should not be a problem. Unfortunately. whereby the chargeable gain at the time of the gift is deferred and rolled into the deemed cost to the donee. this may create an Inheritance Tax charge. which is important for the future computation of Capital Gains Tax. as legatees would otherwise be hit with both Capital Gains Tax and Inheritance Tax. Transferred assets are not only exempt from Inheritance Tax but may also be exempt from Capital Gains Tax if only one spouse is non-domiciled. 110 A THOROGOOD SPECIAL BRIEFING . Interaction with Capital Gains Tax The death estate is not subject to Capital Gains Tax. gifts of certain assets can qualify for holdover relief. The asset can be gifted from a UK-domiciled spouse to a non-domiciled spouse. Gains on assets situated overseas are taxed only if the proceeds are remitted to the UK. As outlined at Chapter 7. transferred out of the UK and then sold. The donee may reduce any chargeable gain on the subsequent sale of the asset by any Inheritance Tax attributable to the asset.

A Thorogood Special Briefing Chapter 9 Trusts Interest in possession trusts Discretionary trusts Accumulation and maintenance trusts Charitable trusts Overseas trusts Business Property Relief and trusts Comparison of trusts .

TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S

Chapter 9 Trusts

An individual who wishes to give away ownership of assets, including money, but still control how those assets are used will often place them into a trust. If handled properly, a trust can be an effective means of reducing Inheritance Tax. Apart from certain tax advantages, trusts are attractive to wealthy families wishing to protect assets from large divorce settlements which deplete assets. It was reported in July 2006 that a family which has occupied an estate in North Wales over twenty generations since the fifteenth century will be forced to sell the property following a £1.5 million divorce settlement. Alternatively, the individual to whom the family wishes to make gifts may not be good at handling money, and so the family wishes to retain control over that individual’s access to the money. Three conditions must be met when a trust is set up: there must be an intention to create a trust; the trust must own clearly-defined property; and the beneficiaries must be clearly identified. The settlor is the person who gives the assets to the trust, the trustees are the legal owners of the trust’s assets, and the beneficiaries are those who may share the property and any income arising from it. This chapter focuses on the different types of trust available and the tax advantages and disadvantages of each.

Interest in possession trusts
Interest in possession trusts are also known as life interest or fixed interest trusts. Property remains in the trust and the beneficiaries have the right to receive the income earned or to use the assets. At a future date, or once a future event has occurred, the assets are distributed to the persons who hold a reversionary interest. These are the remaindermen. For example, a man wishing to ensure that his wife is provided for if he predeceases her but wanting his assets to pass to his children on her subsequent death (which they might not if she were to re-marry) should set up an interest in possession trust.

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9 TRUSTS

Interest in possession trusts are less flexible than discretionary trusts and accumulation and maintenance trusts, and individuals wishing to give assets to children may find an accumulation and maintenance trust more suitable. The popularity of interest in possession trusts has waned because the favourable Capital Gains Tax treatment was removed in 1998.

Tax treatment
Before 22 March 2006, a gift to an interest in possession trust was a potentially exempt transfer and there was therefore no Inheritance Tax if the settlor survived for seven years (see Chapter 8). From 22 March 2006, gifts to an interest in possession trust are treated as chargeable lifetime transfers in the same way as transfers to a discretionary trust (see below). The ten-year charge which previously applied only to discretionary trusts (see below) will now apply also to interest in possession trusts. Trusts set up for children under 18 or for disabled persons are not affected, and transfers to such trusts will continue to be potentially exempt transfers, nor will there be a ten-year charge. For Capital Gains Tax purposes, the usual rules for gifts apply: broadly, gifts are subject to Capital Gains Tax as if they were a transfer at market value, but holdover relief may be available (see Chapter 7). Gifts of money are never subject to Capital Gains Tax, nor are transfers of property which has been the principal private residence throughout its ownership, nor transfers on death. Any income is due to the beneficiaries, either being paid to them direct or to the trust first. Income earned by the trust is taxed in the same way as Income Tax on an individual, except that there is no higher rate. So there is no extra tax on dividends and interest (which are received net of Income Tax), and any other income such as property rental income is taxed at the basic rate of 20%. Income paid out of the trust to beneficiaries is taxed on the beneficiaries at their normal rates. So dividends and interest are paid net and other income is paid with basic rate tax at 20% already deducted. Higher rate taxpayers will have an additional liability of 22.5% on the grossed-up dividends, and 20% on the grossed-up interest and grossed-up other income. There is a refund for nontaxpayers on interest and on other income, but not on dividends. When trust property is disposed of, a chargeable gain may arise. Until 1998, Capital Gains Tax was payable by interest in possession trusts at the basic rate, but this provided a useful loophole for higher rate taxpayers and the loophole was closed. Now, interest in possession trusts are liable to Capital Gains Tax in exactly the same way as other trusts.

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An annual exemption is available for Capital Gains Tax purposes and this is usually at half the amount applicable to an individual. So in 2009/10 it is £5,050. The annual exemption is reduced if the same settlor puts assets into more than one trust, in which case the annual exemption of £5,050 is divided by the number of such trusts subject to a maximum of five. Thus, if the settlor has made eight settlements, the annual exemption will still be £631. Any gains above the annual exemption are taxed at 18%. All of this is the same as for other types of trust. The question often arises as to whether assets should be transferred to the beneficiaries and holdover relief claimed. The beneficiaries may have unused annual exemptions or capital losses which would lead to more favourable Capital Gains Tax treatment. When the beneficiary dies or that beneficiary’s interest in possession comes to an end, the relevant share of the property will pass either to other beneficiaries or to the remainderman. The beneficiary thus makes a transfer which will be part of the death estate. If the event happens in the beneficiary’s lifetime, there is a potentially exempt transfer and also a disposal for Capital Gains Tax purposes, depending on the type of property involved. Occasionally the remainderman comes into possession of trust property but does not need it and wishes to pay it to another party – most commonly children. This disposal is exempt from Inheritance Tax and Capital Gains Tax.

Discretionary trusts
Discretionary trusts are very flexible. Income can be accumulated within the trust to be paid out at a later date, or it can be paid out at the discretion of the trustees. Usually there is more than one beneficiary, and beneficiaries need not have been born when the trust is set up – for example, the beneficiaries may simply be stated as children or grandchildren. The advantage of a discretionary trust is that the beneficiaries or their entitlements can be altered. For example, individuals wishing to provide for their children, who themselves currently have varying financial circumstances, may want to give the trustees discretion to make payments to the children as they see fit. The individual may specify that, on a certain date, the assets will pass to the beneficiaries, and the trust will then cease to exist.

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There is also an exit charge on distributions out of a discretionary trust. Income Tax rates on income received by the trust are punitive compared to interest in possession trusts and have become even more so since April 2004. the calculation is broadly similar to that for the first ten-year charge. the tax rate is the appropriate rate for the ten-year charge multiplied by 1/40 for each period of three months which has elapsed since the previous charge. Tax is charged on the value of the trust at a maximum of 6%. the rate will be lower and is calculated at 30% of the ‘effective Inheritance Tax rate’. This is charged on the tenth anniversary of the setting up of the trust and is repeated every ten years.9 TRUSTS Tax treatment A transfer into a discretionary trust is a chargeable lifetime transfer as explained in Chapter 8. Distributions out of the trust in the last ten years are added to the total of other chargeable transfers in deciding whether the nil rate band has been breached. Previously it was taxed at 34%. or when the trust ends.5% for gross dividends. since 6 April 2005 there has been a basic rate band. All income falling within this band is taxed at the same rate as for interest in possession trusts. The annual exemption of £3. Discretionary trusts attract a ten-year charge. then against interest and finally against dividends. The assets transferred need not be business assets in order to qualify for holdover relief. However.000 since 2006/07. and the band is used against income taxed at 20% first. In practice the rate will usually be the maximum only if the settlor at the date of settlement had already used the nil rate band in full by making other chargeable transfers in the previous seven years (the nil rate band used is the one which applies in the year of charge. and Inheritance Tax at 20% is payable if the total of such transfers in the past seven years exceeds the nil rate band (currently £325. not the year of settlement). though holdover relief may apply (see Chapter 7). All income is liable to Income Tax at the higher rate (32.000). which has been £1.000 may also apply. If the distributions occur in the first ten years. advice should be taken as to whether to make the distributions before or after the ten-year charge falls due. If distributions are planned around the ten-year mark. 40% for all other income). Broadly. This will vary according to circumstances. If it has not. which is in many ways similar to the wealth tax imposed in some countries on individuals. with the tax rate again based on 1/40 for each complete quarter. A THOROGOOD SPECIAL BRIEFING 115 . There may be a Capital Gains Tax liability.

Interest in possession trust or discretionary trust? If there are elderly beneficiaries.000. or to an income from it. A beneficiary receiving £600 is issued with a tax certificate for a gross amount of £1. on reaching the age of 25. This is because trust property will not be deemed part of their death estate. Distributions out of a discretionary trust are paid net of Income Tax at 40%. the Income Tax rate will rise to 50% on income other than dividends. except that it can be paid out for maintenance.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S From 2010/11. a discretionary trust may be the more suitable vehicle. which has the beauty of simplicity. • There must be at least one living beneficiary when the trust is created. Accumulation and maintenance trusts Accumulation and maintenance trusts have the same characteristics as discretionary trusts but with the following restrictions: • At least one beneficiary must become entitled to the property. The settlor of a trust can obtain holdover relief when he makes a transfer into the trust. • There is a maximum trust life of 25 years unless all the beneficiaries are grandchildren of a common grandparent. This is in line with income for individuals with earnings above £150. 116 A THOROGOOD SPECIAL BRIEFING . The Inheritance Tax advantage on transfers to an interest in possession trust has been removed in most cases since 22 March 2006 (see above).5% on dividend income.000. • Income must be accumulated. and taxpayers below the higher rate bracket can reclaim the excess Income Tax. The Capital Gains Tax position of discretionary trusts is exactly the same as for interest in possession trusts. Beneficiaries of an interest in possession trust. and 42. education or another benefit of the beneficiaries. by contrast. However. will have trust property added to their estate when they die. the higher Income Tax rates need also to be taken into account.

nor will there be a ten-year charge. religion. There is also a ten-year charge. Many families will be forced. As with interest in possession trusts. as for discretionary trusts. Income Tax and Capital Gains Tax on accumulation and maintenance trusts are broadly the same as for discretionary trusts. A THOROGOOD SPECIAL BRIEFING 117 . and transfers to accumulation and maintenance trusts are now in most cases chargeable lifetime transfers in the same way as transfers to discretionary trusts (see above). The more favourable Inheritance Tax treatment was largely negated from 22 March 2006. except that if a beneficiary becomes entitled to income. Charitable trusts Trusts which exist for charitable purposes only.9 TRUSTS Tax position Accumulation and maintenance trusts are. trusts set up for children under 18 or for disabled persons are not affected. The tax advantage of paying a sum of money into an accumulation and maintenance trust rather than leaving it in one’s own bank account is not as great as it was since the trust rate was increased from 34% to 40%. The settlor may therefore be tempted to put money into an accumulation and maintenance trust for the benefit of children and have interest paid out to them. that share of the trust’s income is taxed as if it were an interest in possession trust. education and other community purposes. It follows that the only way to avoid a transfer being a chargeable lifetime transfer is to allow children control of assets at the age of 18. to make outright gifts when young persons are not of sufficient maturity to handle the money. strictly speaking. As for interest in possession trusts. trust monies must not be used for private benefit. It is therefore better to leave it in the trust to accumulate. which include poverty. which potentially saves up to £225 a year. the new rules catch trusts set up on or after 22 March 2006 from the outset. discretionary trusts. in order to avoid Inheritance Tax. which could be seen as irresponsible. and they could consequently be deflected from their studies. any income of the trust exceeding £100 a year paid out to an unmarried child under the age of 18 is treated as if it were the settlor’s own income. can register with the Charity Commission as charitable trusts. As would be expected.000 basic rate band is now available. however. There is a ready-made scheme offered by the Charities Aid Foundation. but the £1. and transfers to such trusts will continue to be potentially exempt transfers.

Income. otherwise it is not resident. Business Property Relief and trusts As outlined above. There is an advantage in having an overseas trust because the trustees are then liable to Income Tax only on their UK income. the settlor was resident. If some are resident and some are not. including most trading income (the exception being a trade which is not exercised in the course of carrying out a primary purpose of the charity) is exempt from Income Tax. The ten-year charge now applies to most trusts. the residence status of the trust depends on the status of the settlor. and gains are not subject to Capital Gains Tax if they are applied for charitable purposes. the trust is treated as resident for both Income Tax and Capital Gains Tax purposes. A word of warning – if a trust becomes non-resident. Overseas trusts If a trust is UK-resident. Many advisors are recommending that transfers into the trust are made in the form of shares listed on the Alternative Investment Market (AIM). the trustees will be liable to immediate Capital Gains Tax if the trust ceases to be a charitable trust. they will attract Inheritance Tax at 20%. the changes introduced from 22 March 2006 have the effect that transfers to most trusts are now chargeable lifetime transfers. if applied with foresight. as the trustees are then deemed to have disposed of the trust’s assets and immediately re-acquired them at market value. which means that to the extent that they exceed £325. it is liable to Income Tax on its worldwide income. Residence status depends on the residence of the trustees. If the settlor was resident. a Capital Gains Tax charge may arise. the residence status of the trust follows this.000. If all of the trustees are either resident or non-resident. ordinarily resident or UK-domiciled immediately before death).TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S The settlor is able to make payments into the Trust via the Gift Aid scheme (see Chapter 4). provided that they are not quoted 118 A THOROGOOD SPECIAL BRIEFING . ordinarily resident or domiciled in the UK at the time the settlement was made (or. if the settlement was created on the settlor’s death. However. AIM shares are unquoted for the purposes of Inheritance Tax. significantly reduce chargeable lifetime transfers and the ten-year charge. Business Property Relief (see Chapter 8) can.

and they therefore attract Business Property Relief at 100%. The shares must have been owned for two years prior to the transfer in order to qualify for the relief. Likewise. the shares can be sold and the converted into cash. There is little point in saving tax at 20% if the value of the shares has fallen by more than that amount. which may be a drawback in the case of volatile shares. Once the trusts have been set up. A THOROGOOD SPECIAL BRIEFING 119 . if AIM shares are held for at least two years prior to the ten-year charge. Business Property Relief will be available and will reduce the amount of trust property subject to the charge. which is of course much less volatile. Agricultural Property Relief (see Chapter 8) can also be used to reduce the chargeable transfer and ten-year charge.9 TRUSTS on a recognised Stock Exchange elsewhere in the world.

000 as for interest in possession If a beneficiary is entitled to income.5% for dividends) Income Tax rates on trust income First £1.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Comparison of trusts The following table compares the salient features of the three principal types of trust and their tax treatments. Interest in possession Discretionary Accumulation & maintenance At least one beneficiary must receive property or income at age 25 Income must be accumulated except that it can be paid out for education and maintenance Beneficiaries’ right to receive income Yes At trustees’ discretion Inheritance Tax on settlement into trust Chargeable lifetime transfer with limited exceptions 10% dividends 20% savings 20% other income Chargeable lifetime transfer Chargeable lifetime transfer with limited exceptions First £1. that part is as for interest in possession Otherwise 40% (32.5% for dividends) Income Tax rates –status of payments to beneficiaries Capital Gains Tax on disposals of trust assets Paid net of tax at 10% or 20% Paid net of tax at 40% Paid net of tax at 40% Annual exemption applies Rate 40% Taper relief Annual exemption applies Rate 40% Taper relief No Inheritance Tax Annual exemption applies Rate 40% Taper relief No Inheritance Tax Death of beneficiary Property forms part of death estate for Inheritance Tax Yes with limited exceptions Ten-year charge Yes Yes with limited exceptions 120 A THOROGOOD SPECIAL BRIEFING .000 as for interest in possession Otherwise 40% (32.

A Thorogood Special Briefing Chapter 10 Value Added Tax Registration Land and buildings Special schemes .

provided that they make at least some taxable supplies. children’s clothing and construction of new residential or charitable buildings. for example. forcing it to keep its books up to date at least once a quarter. A bookshop makes zero-rated supplies. finance. which will often be enhanced by the existence of a VAT registration. Voluntary registration – for and against A business which is VAT-registered is able to recover its input tax to the extent that it makes taxable supplies. they would be in a position to reclaim the VAT which he charged.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Chapter 10 Value Added Tax Registration Businesses with an annual taxable turnover of over £68. such as stationery. or an expected turnover of £68. must register for VAT.000. but may incur input tax on some of its costs. Exempt supplies are not taxable supplies. Another advantage is the image of the business. education. postal services and many transactions in land (but see below). In the case of the bookshop mentioned above. It would normally be in the interests of such a business to register for VAT in order to obtain a repayment of this input tax. But a plumber might predominantly be carrying out work for private individuals. Exempt supplies include insurance. and a business making only exempt supplies cannot usually register for VAT. and his prices would effectively rise by 15%. Businesses with customers who are not VAT-registered – whether these customers are individuals or small businesses – should think carefully before registering voluntarily. most food.000 in the next 30 days. Taxable supplies include zero-rated supplies such as books. A final advantage is the discipline which registration imposes on the business. and in this case there would be a good argument for voluntary registration. passenger transport. Suppliers and customers may be less reticent in dealing with a business which is VAT-registered. it would make no difference because the supplies are zero-rated. Businesses below this threshold have the option of registering voluntarily. computer equipment and maybe the rent it pays to its landlord. If all of his customers were themselves VAT-registered. 122 A THOROGOOD SPECIAL BRIEFING .

Deregistration In many cases a business has no choice but to deregister. the whole amount can be ignored.000. in a week’s time. on which the VAT would be £1.000. However. Should it delay its deregistration? The machinery is ignored because no VAT was reclaimed on purchase. on which the VAT would be £652. A THOROGOOD SPECIAL BRIEFING 123 .043 (using the VAT fraction of 3/23). The relevant assets are valued at market value and the business must account for output tax at 15%. The total of the stock and computers is £8.000 1.000 2. EXAMPLE Garway Ltd is a VAT-registered retail outlet with an expected turnover in the next twelve months of £55.000. because the business will be liable for VAT on any tangible assets on hand at the date of deregistration. Businesses who can satisfy Revenue & Customs that they will fall below the deregistration threshold (currently £66.000. Assets on which the business incurred no input tax on purchase can be excluded. machinery and fixtures. It wishes to deregister and has assets on hand with the following VAT-inclusive market values: £ Stock Computers Machinery bought from a non-registered supplier 6.000. The VAT could therefore be ignored. its stock will have fallen to £3. the total will be £5.1 0 VA L U E A D D E D TA X Paperwork and penalties are also arguments against voluntary registration.000) in the next twelve months have the option of deregistering. for example when it has ceased to make taxable supplies. Timing may be an issue. The same considerations apply as for voluntary registration. If the output tax thus calculated falls below £1.000 It estimates that in a week’s time. including stock. A business which submits late Returns or does not make timely VAT payments is liable to penalties whether it registered voluntarily or compulsorily.

Once this has been done. but for one who is not registered.000 and exempt supplies of £400. sale – of land and buildings is exempt from VAT. provided that its trade consists of making exclusively taxable supplies. will be irrecoverable. which would be £6. once an option to tax has been made. but also who may wish to rent the property in the future. So a landlord will not charge VAT on the rent to the tenant.000. such as painting.000. in most cases. even by selling and repurchasing the property. the landlord must charge VAT on all future supplies from this property. and input tax on general overheads of £10. be they rental or sales. permission may be required. which is done on a property by property basis.000. this percentage would rise and its input tax recovery would be greater. Rental – and. 124 A THOROGOOD SPECIAL BRIEFING . The downside is that. A landlord renting a property to a VAT-registered tenant but considering changing the use of the property to residential use in the future can safely opt to tax. The consequence of this is that any input tax incurred on upkeep. So the landlord needs to consider not only who the current tenant is. though in the case of property from which exempt supplies have previously been made. The landlord is then able to recover any input tax on upkeep. The landlord may opt to tax the property.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Land and buildings A business which owns property for use in a trade will be able to reclaim all of the input tax it incurs on upkeep. Opting to tax can also have a beneficial effect on the recovery of input tax on general overheads. re-wiring and plumbing. Businesses which own property and rent it out as a landlord face a different situation. re-roofing. Options to tax are usually made internally and simply notified to Revenue & Customs. There is a solution to this. a landlord with taxable supplies of £600. could reclaim 60% of its input tax on general overheads. it is not possible to revoke it for 20 years. This is because the option to tax is disapplied if the building is used for residential purposes. If the landlord were to opt to tax more and more properties. A business making a mixture of taxable and exempt supplies is known as ‘partially exempt’ and its input tax recovery on general overheads is restricted to the percentage of its supplies which are taxable – for example. A property with an option to tax will make no difference to a VAT-registered tenant. the rent will increase by 15%.

when the dealer purchases the goods from a private individual or unregistered trader. With cash accounting.350. However. and those making a loss – will find that cash accounting actually produces a cash flow disadvantage. with standard VAT accounting. and even goods which are eligible may be treated normally and VAT charged on the full sale price. Businesses which usually receive VAT repayments when submitting their VAT Return – for example those making mainly zero-rated supplies including exports and sales of goods to other European Union countries. Although in the long run this does not save any VAT. he must make out and retain a purchase invoice with certain details specified by Revenue & Customs. The great advantage is that.1 0 VA L U E A D D E D TA X Special schemes Cash accounting A business with an expected taxable turnover below £1.000 per annum may join the cash accounting scheme. input tax can be recovered only when the invoice has been settled. bad debt relief is automatic because the output tax is never paid over. Likewise. This significantly reduces the VAT and is an attractive scheme for motor traders. No VAT invoice must be produced on sale. Motor dealers will invariably have purchased second-hand vehicles from private individuals. in which case there will have been no VAT. A sale of goods qualifies only if no VAT was charged when the goods were purchased. a business may opt to charge VAT only on its profit margin if the sales meet certain criteria. Output tax is paid over only when cash has been received. it will for most businesses help with their cash flow. The scheme is not compulsory. whose customers cannot generally reclaim the VAT they pay at the point of sale. They should therefore not opt for it. A THOROGOOD SPECIAL BRIEFING 125 . it is necessary to wait six months from the due date of payment before claiming bad debt relief. Second-hand goods scheme By using the second-hand goods scheme.

The aim is to simplify VAT accounting. The business charges VAT to its customers in the normal way.500 10. She will incur input tax of £4.5%.000 will be recoverable under the normal rules. of which £3. It simply applies a given percentage to its gross sales.388 7. The given percentage varies according to the type of business.000 67.000) 4. it does not reclaim any input tax except on the purchase of capital items costing over £2.5% The flat rate scheme would save VAT of £112 in the year. including exempt supplies.000.000 in the year ended 30 June 2010. However.500 (3. it is 11. when it comes to complete its VAT Return.500 x 6.000. Note that these are temporary rates which will apply until 31 December 2009.5% for computer consultancy. She is considering changing to the flat-rate scheme and the relevant percentage would be 6. When the standard rate of VAT reverts to 17.5% for photography and 5. For example. and pays this over to Revenue & Customs. the flat rates will increase. 4. EXAMPLE Miss Newland estimates that she will make standard-rated supplies of £50. Would this be of benefit to her? £ Normal rules Output tax £50.000 plus VAT and exempt supplies of £10.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Flat rate scheme Businesses with an annual taxable turnover of up to £150.5% on 1 January 2010.500 £ 126 A THOROGOOD SPECIAL BRIEFING . but businesses may find that the scheme leaves them with cash in hand.000 are eligible to join the flat rate scheme.000 x 15% Input tax Payable to Revenue & Customs Flat rate scheme Standard-rated supplies (gross) Exempt supplies 57.500 Payable to Revenue & Customs: £67.5% for farming. 8.

Whether it will be worthwhile will depend on the relevant percentage for this type of business and the relative values of outputs and inputs.1 0 VA L U E A D D E D TA X The scheme cannot be used alongside the cash accounting or second-hand goods schemes. Not all small businesses would benefit from the scheme. A THOROGOOD SPECIAL BRIEFING 127 . advice should be taken before making the decision. As in all areas covered in these ten chapters.

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A Thorogood Special Briefing Appendix Income Tax – personal and married couple’s allowances Income Tax – rates and bands Gift Aid – limit on benefit received by donor Cash equivalent of company car Corporation Tax – rates and bands Capital Gains Tax – annual exemption Capital Gains Tax – taper relief Inheritance Tax – nil rate band .

475 9.180 9.900 2.535 Not applicable 6.640 6.965 21. In the 2009/10 tax year all married couple’s allowance claimants in this category will become 75 or over at some point during the year and will therefore be entitled to claim the higher amount of the allowance – for those aged 75 or over.030 2009/10 £ 6.670 1) These allowances reduce where the income is above the income limit by £1 for every £2 of income above the limit.490 9.035 9. 130 A THOROGOOD SPECIAL BRIEFING .TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Appendix Income Tax – personal and married couple’s allowances 2008/09 £ Personal allowance Personal allowance for people aged 65-74 (1) Personal allowance for people aged 75 and over (1) Married couple’s allowance (born before 6th April 1935 but aged under 75) (1) (2) (3) Married couple’s allowance where one spouse is 75 or over (1) (2) Income limit for age-related allowances Minimum married couple’s allowance 6.800 22. They will never be less than the basic personal allowance or minimum amount of married couple’s allowance.625 6.540 2. 2) 3) Tax relief for the married couple’s allowance is given at the rate of 10%.

400 Over 37. maximum £250 A THOROGOOD SPECIAL BRIEFING 131 .APPENDIX Income Tax – rates and bands 2008/09 £ Starting rate for savings 10% Basic rate 20% Higher rate 40% 0 – 2.800 2009/10 £ 0 – 2.000 Limit on benefit £ 25% of gift £25 2. If non-savings income is above this limit then the 10% starting rate for savings will not apply.5% of gift.440 0 – 37.000 Over £1.400 There is a 10% starting rate for savings income only.800 Over 34. Gift Aid – limit on benefit received by donor Amount of gift £ Up to £100 £100 to £1.320 0 – 34.

TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Cash equivalent of company car 2008/09 and 2009/10 CO2 emissions (g/km) (rounded down) Up to 120 121 to 135 140 145 150 155 160 165 170 175 180 185 190 195 200 205 210 215 220 225 230 235 and over Petrol % of list price 10 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 13 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 35 35 35 Diesel 132 A THOROGOOD SPECIAL BRIEFING .

001 – £1.500.000 Marginal relief fraction 7/400 7/400 Full rate 28% £1.500.500.APPENDIX Corporation Tax – rates and bands Rate Year starting 1 April 2008 £0 – £300.100 9.001 or more Capital Gains Tax – annual exemption 2008/09 £ Individuals Trustees 9.500.000 £300.600 A THOROGOOD SPECIAL BRIEFING 133 .001 or more £1.800 2009/10 £ 10.000 Small companies rate 21% Marginal relief £300.000 Year starting 1 April 2009 £0 – £300.001 – £1.600 4.

Taper relief applies to disposals by individuals and trusts from 6 April 1998 to 5 April 2008. the period of ownership is increased by one year (the ‘bonus year’).000 134 A THOROGOOD SPECIAL BRIEFING . Inheritance Tax – nil rate band 2008/09 2009/10 £312.TA X P L A N N I N G F O R B U S I N E S S E S A N D T H E I R O W N E R S Capital Gains Tax – taper relief Number of complete years Business assets % of gain chargeable Disposal from 5 April 2002 1 2 3 4 5 6 7 8 9 10 50 25 25 25 25 25 25 25 25 25 Non-business assets % of gain chargeable Disposal from 5 April 1998 100 100 95 90 85 80 75 70 65 60 For non-business assets owned on 17 March 1998.000 £325.

it is a must for all those who need to draft commercial contracts. and to view sample extracts.thorogoodpublishing. drafting common clauses and contracting electronically. please visit: www. such as listed PLCs. the author guides the reader through all aspects of the Corporate Governance programme. With up-to-the-minute information on key cases and materials and in-depth analysis of the important drafting issues. For full details of any title. competition law.. The report explains the principles and techniques of successful international negotiation and provides a valuable insight into the commercial points to be considered as a result of the laws relating to: pre-contract. David ISBN: 978-185418354-5 £85 The FOI Act gives companies and individuals important powers to request information from public bodies. With short case studies to illustrate legal requirements. namely agency and distribution and licensing. opportunity. use and data and recent landmark cases have altered the ground-rules. Susan ISBN: 978-185418632-4 NEW EDITION £125 Corporate Governance Martin. accessible and jargon-free analysis of the practical application of Corporate Governance. Robert ISBN: 978-185418271-5 £169 Email: Legal issues 2008 Singleton. Completely updated. concentrating specifically on its use by organisations who are not required to adopt it. Robert ISBN: 978-185418397-2 £169 A great deal has changed in the last few years. Freedom of Information Act in Practice 2008 Singleton. Rebecca ISBN: 978-185418286-9 £95 This report is a clear. Susan ISBN: 978-185418630-0 NEW EDITION £125 This report takes you through the drafting process giving practical guidance from start to finish. this report includes accounts of all the most recent important cases and highlights significant changes in the way that the courts now assess damages. resolving disputes (including alternative methods. Commercial Litigation: Damages and other remedies for breach of contract Ribeiro..uk A major report on recent changes to the law and their commercial implications and possibilities. . private international law.co. Are you equipped to take advantage and to protect yourself? International Commercial Agreements Attree. such as mediation). a new emphasis on claims for damages such as loss of business. What are the chances of either you or your employees breaking the law? This report explains clearly: • How to establish a sensible policy and whether or not you are entitled to insist on it as binding • The degree to which you may lawfully monitor your employees’ e-mail and Internet use • The implications of the Regulation of Investigatory Powers Act 2000 and the Electronic Communications Act 2000 • How the Data Protection Act 1998 affects the degree to which you can monitor your staff • What you need to watch for in the Human Rights Act 1998 and TUC guidelines.Other specially commissioned reports from Thorogood BUSINESS AND COMMERCIAL LAW Commercial Contracts: Drafting techniques and precedents Ribeiro. It also examines in more detail certain specific international commercial agreements. chance.

describing the nature of the right itself and explaining: How rights arise or can be obtained. It is a practical guide to the use of business excellence models and frameworks. Software Contract Agreements Bond. Insights into successfully managing the in-house legal function discusses these and other issues. and the introduction to each chapter also makes it clear where awareness of another section may be useful. Barry ISBN: 978-185418174-9 £95 Intellectual Property Protection and Enforcement Brazell. this report reviews each of the principal forms of intellectual property right available in the United Kingdom. strategies and techniques for negotiating the best agreement. and finally the techniques of successfully managing a license operation.orders@marston. Incorporating the latest developments in IP law. The Commercial Exploitation of Intellectual Property Rights by Licensing DesForges. Each chapter can be read on its own for convenient reference. Colin & Hopper. Quality and Performance Improvement Chapman. under either civil (enforced by the owner) or criminal (enforced by public authorities) law. Charles ISBN: 978-185418285-2 £95 Websites and the Law Singleton. PO Box 269 Abingdon. Robert ISBN: 978-185418146-6 £80 Fully up-to-date with all changes to the law. Oxon OX14 4YN Web: www. What is necessary to protect rights from erosion or loss. Caroline ISBN: 978-185418367-5 £80 This valuable report identifies all the areas critical to developing an effective performance improvement process.co. benchmarking tools. directives and regulations mean in practice and what you need to do to stay within the law. This valuable report explains what all the new legislation. What actions will constitute infringement of a right. Dennis ISBN: 978-185418018-6 £95 Waste Management: The changing legislative climate Hand. once infringement has been proved. self-assessment programmes and the latest performance improvement initiatives.uk Telephone: +44 (0)1235 465 500 Fax: +44 (0)1235 465 556 Please see order form at the back of this report Post: Marston Book Services. Susan ISBN: 978-185418331-6 £95 This report will show you – whether as licensor or licensee – how to identify and secure profitable opportunities. Is your company/client website legal? Do you know what information you are required by law to put on it? What can you do with people’s personal data sent to your website? This report deals with all the practical legal issues which arise with websites – both those sites which sell goods or services and those which advertise.Insights into Successfully Managing the In-house Legal Function O’Meara. quality standards. this report is a thorough explanation of the law combined with expert guidance on negotiating and drafting the best contract for your client. Lorna ISBN: 978-185418054-4 £159 Negotiating the fault-line between private practice and in-house employment can be tricky. Recent far-reaching changes to the law and practice affect everyone – commerce and industry. How rights can be exploited. Achieving Business Excellence.co. What remedies are available to the owner of the right. central and local government and householders. HOW TO ORDER Email: direct.thorogoodpublishing.uk . as the scope for conflicts of interests is greatly increased.

processes and procedures involved in tendering and negotiating MoD contracts. Project Risk Management: The commercial dimension Boyce. its impact on the organisation as a whole and on the IT group specifically. negotiation and contractual negotiations in this new era. Tim ISBN: 978-185418276-0 £95 This specially commissioned report sets out what the latest legislation says and what it means. . This report aims to draw out the main principles.BUSINESS STRATEGY AND MANAGEMENT A Practical Guide to Knowledge Management Brelade. As Tim Boyce writes in the Introduction. please visit: www. Analyse your Business – A performance health check O’Connor. What does this ‘huge shift in thinking’ mean for contractors? How exactly has the role of MoD purchasing changed? This report covers every aspect of competitive tendering. Chris ISBN: 978-185418230-2 £99 Understanding SMART Procurement in the MOD Boyce. There is a commitment within the high political echelon of the MoD to make this change happen.uk This report will show you how to fully appreciate all the commercial dimensions of important projects and understand how to identify all the risks during the pre-contract bidding phase. and how to implement an effective IT governance initiative in your company. Ralph ISBN: 978-185418099-5 £99 How to ensure you have a reliable system in place. Sue & Harman. gather and use that knowledge to maximum advantage. There can be few people who combine Tim Boyce’s experience and expertise with a gift for explaining issues and procedures with such clarity. The main thrust of this report is on issues to do with strategy. The single most encouraging and exciting feature of the SMART procurement initiative is that it embraces the need to change the culture. Carol ISBN: 978-185418170-1 £89 This briefing offers the tools and techniques for company-wide analysis and is essential reading for business leaders responsible for corporate performance. Practical Techniques for Effective Project Investment Appraisal Tiffin. Tim ISBN: 978-185418257-9 £95 For full details of any title. organisation and processes. Its purpose is to put minor issues into perspective and discourage the use of quick fix solutions for bigger problems. ‘it is important to realise that the SPI embraces a conceptual shift in the role of the MoD procurers’.co. Tim ISBN: 978-185418164-0 £69 An expert but jargon-free guide to enable you to manage the knowledge in your organisation successfully and to identify. Probably the greatest single challenge is to ensure that this commitment is maintained through the inevitable changes of personality at the political and senior management level. David ISBN: 978-185418371-2 £95 Tendering & Negotiating MoD Contracts Boyce. Spending money on projects automatically necessitates an effective appraisal system – a way of deciding whether the correct decisions on investment have been made.thorogoodpublishing. IT Governance Norfolk. and to view sample extracts.

Strategy Implementation Through Project Management
Grundy, Tony ISBN: 978-185418250-0 £99

Surviving a Corporate Crisis: 100 things you need to know
Batchelor, Paul ISBN: 978-185418208-1 £80

The gap: Far too few managers know how to apply project management techniques to their strategic planning. The result is often strategy that is poorly thought out and executed. The answer: Strategic project management is a new and powerful process designed to manage complex projects by combining traditional business analysis with project management techniques.

Seven out of ten organisations that experience a corporate crisis go out of business within 18 months. This report not only covers remedial action after the event but offers expert advice on preparing every department and every key player of the organisation so that, should a crisis occur, damage of every kind is limited as far as possible.

Technical Aspects of Business Leases: Overcoming the practical difficulties
Dowden, Malcolm £95

THE THOROGOOD PROMISE If you are not totally satisfied and you return a publication in mint condition within 14 days of receipt, we will refund the cost of the publication, no questions asked.

ISBN: 978-185418194-7

The purpose of this report is to highlight areas where technical issues might lead to practical difficulties, and to give clear guidance to help those involved in property management avoid the pitfalls.

FINANCE Tax Planning for Businesses and their Owners
Hughes, Peter ISBN: 978-185418334-7 £95

Trade Secrets of Business Acquisitons
Pearson, Barrie ISBN: 978-185418366-8 £145

Written for business owners and managers, this special briefing offers expert advice on the tax implications of your business decisions – guiding you in making the right business and personal choices for tax reduction.

Trade Secrets of Business Disposals
Pearson, Barrie ISBN: 978-185418321-7 £145

In this invaluable new briefing one of the City’s most successful deal-makers distils 40 years’ experience as both principal and advisor. “Losing a deal by adopting the wrong tactics is unforgiveable” he writes, but it happens all too often. This briefing offers both professional advisors and principals the opportunity to transform their rate of success, clarifying hard truths and highlighting avoidable mistakes. It is laced throughout with proven tactical advice to ensure that both deals and post-acquisition management are carried out with maximum success.

If you’re like most people, you’ll only get one chance to sell your business and to capitalise on years of hard work and planning. You can either fluff it, or make sure you get the best possible advisor and become financially secure for life, and possibly very rich. This report shows you how to make your business ‘investor-ready’ for maximum capital return.

VAT Liability and the Implications of Commercial Property Transactions
Buss, Tim ISBN: 978-185418307-1 £149

The option to tax is a major VAT planning tool but you have got to get the detail right to take full advantage – and getting it wrong can be very costly. This report shows you how to plan for maximum advantage and avoid costly mistakes.

EMPLOYMENT LAW Data Protection Law for Employers 2008
Singleton, Susan ISBN: 978-185418626-3
NEW EDITION

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£125

The four-part Code of Practice under the Data Protection Act 1998 on employment and data protection places a further burden of responsibility on employers and their advisers. The Data Protection Act also applies to manual data, not just computer data, and a tough enforcement policy was announced in October 2002.

Employee Sickness and Fitness for Work: Successfully dealing with the legal system
Howard, Gillian £95

Discrimination Law and Employment Issues
Martin, David ISBN: 978-185418339-2 £55

ISBN: 978-185418281-4

The Age Discrimination Act is billed by lawyers as the most significant change in employment law since the 1970’s. In addition to sex and race discrimination laws, in the last two years employers have also had to cope with sexual orientation discrimination and religious discrimination. David Martin, an expert on employment law and practice, analyses the practical aspects of dealing with each of the anti-discrimination laws. He demonstrates how to ensure that paperwork and systems comply totally with the law, and he provides a range of helpful case studies to illustrate the key issues and bring them to life.

Many executives see employment law as an obstacle course or, even worse, an opponent – but it can contribute positively to keeping employees fit and productive. This report will show you how to get the best out of your employees, from recruitment to retirement, while protecting yourself and your firm to the full.

Employment Law Aspects of Mergers and Acquisitions: A practical guide
Ryley, Michael ISBN: 978-185418363-7 £95

Effective Recruitment: A practical guide to staying within the law
Leighton, Patricia & Proctor, Giles ISBN: 978-185418303-3 £85

This Report will help you to understand the key practical and legal issues, achieve consensus and involvement at all levels, understand and implement TUPE regulations and identify the documentation that needs to be drafted or reviewed within the context of a merger, acquisition or disposal.

The ways to undertake the task continue to grow, making the decision as to how best to recruit for a given employment situation more complex. This specialist text is responding to a number of imperatives, including legal ones. There have been, and are, anticipated changes that make it essential that recruitment practitioners act both effectively and within the law.

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Navigating Health and Safety Law: Ensuring compliance and minimising risk
Pope, Chris ISBN: 978-185418353-8 £95

Successfully Defending Employment Tribunal Cases
Hunt, Dennis ISBN: 978-185418267-8 £95

If you have already been challenged by the insurer, inspector, or one of your workforce about the status of your health and safety this report will give you a workable answer to questions like Is my health and safety policy legally compliant? How do I avoid being liable for an employees ill health arising from previous employment? Who should carry out safety inspections – is it my responsibility?

Sweeping changes to the way employment tribunal claims are dealt with have increased the risk of higher costs and more expensive claims. This indispensable report covers all the changes and their implications for HR professionals.

HR, RECRUITMENT AND TRAINING Applying the Employment Act 2002: Crucial developments for employers and employees
Williams, Audrey ISBN: 978-185418253-1 £95

Enabling Beyond Empowerment
Williams, Michael ISBN: 978-185418084-1 £95

The Act represents a major shift in the commercial environment, with far-reaching changes for employers and employees. The consequences of getting it wrong, for both employer and employee, will be considerable – financial and otherwise. The Act affects nearly every aspect of the workplace.

By applying the range of practical management techniques detailed in this report, you can provide the authority and means to empower in a way that substantially reduces the dangers.

Flexible Working
Williams, Audrey ISBN: 978-185418306-4 £95

Dismissal and Grievance Procedures
Hunt, Dennis ISBN: 978-185418376-7 £95

This report explains what all the regulations say and what steps you need to take to operate effective dismissal, disciplinary and grievance procedures. It covers all the requirements of the Disputes Resolution Procedures that came into effect in October 2004. It tells you where and when the regulations apply – and what you need to do.

Recent research shows that far too many individuals, as well as firms, are unaware of flexible working rights. How employers and employees deal with them is of crucial – and increasing – importance to both. This report clarifies the law, sets out the rights of employer and employee, and offers valuable practical advice on best practice.

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James ISBN: 978-185418149-7 £95 There is growing evidence that the organisations that ‘get it right’ reap dividends in corporate energy and enhanced performance. The HR manager can learn how to deal creatively with stress from the information in this briefing and pass on their knowledge down the ranks. This report will: • Ensure that you have a total grip on what should be in a contract and what should not • Explain step by step how to achieve changes in the contract of employment without causing problems • Enable you to protect clients’ sensitive business information • Enhance your understanding of potential conflict areas and your ability to manage disputes effectively. understand and implement TUPE regulations and identify the documentation that needs to be drafted or reviewed.thorogoodpublishing. please visit: www.THE THOROGOOD PROMISE If you are not totally satisfied and you return a publication in mint condition within 14 days of receipt.uk . we will refund the cost of the publication. Stephen ISBN: 978-185418169-5 £99 How to Turn your HR Strategy into Reality Grundy. Reviewing and Changing Contracts of Employment Phillips. Daniel ISBN: 978-185418176-3 £99 Internal Communications Farrant. Power Over Stress at Work Araoz. New Ways of Working Jupp. it spans the concerns of people. Tony ISBN: 978-185418183-1 £85 New ways of working examines the nature of the work done in an organisation and seeks to optimise the working practices and the whole context in which the work takes place. Tom & Rome. For full details of any title. no questions asked. can improve the performance of organisations. Player. In these organisations.co. From a diagnosis of HR issues to an analysis of the external and internal future environment of your company and the effect on your human resources – this is practical information aimed at HR and senior line managers. property. achieve consensus and involvement at all levels. Annelise. Although it emphasises the importance of business and organisation. It is more about promoting the best ways of doing things than simple cost driven change. and to view sample extracts. taken in their widest sense. Imperfect understanding of the law and poor drafting will now be very costly. He or she will then halt the downward spiral of diffusing stress and produce a more positive knock-on effect – namely to increase the productivity of the entire workforce and reduce absenteeism resulting from this terrible illness. internal communications have equal status with the external communications functions. Paula £95 ISBN: 978-185418296-8 Mergers and Acquisitions: Confronting the organisation and people issues Thomas. This practical report will show you how internal communications. Mark ISBN: 978-185418008-7 £95 The Employment Act 2002 has raised the stakes. Why do so many mergers and acquisitions end in tears and reduced shareholder value? This report will help you to understand the key practical and legal issues. technology. community and environment.

The report covers HR outsourcing and shared services. The best lobbying is always based on accurate. Get ahead and stay ahead of your competition through better integration of your marketing communications. business and colleagues. Norman Hart was an international consultant. lecturer and author on marketing. Corporate community investment (CCI) is the general term for companies’ support of good causes. does not want published’ William Randolph Hearst When a major crisis does suddenly break. PR AND SALES Corporate Community Investment Genasi. Chris ISBN: 978-185418192-3 £99 Insights into Understanding the Financial Media: An insider’s view Scott. Ian and Saunders. founded on credible evidence. and delivered to the right audiences in the right tone of voice at the right time. this report is practical and jargon-free – giving you step-by-step skills and processes to enable you to design effective e-learning products with confidence. ‘Buildings can be rebuilt. Defending your Reputation Taylor. but it isn’t. Simon ISBN: 978-185418083-4 £99 Supporting good causes is big business – and good business. His books included The CIM Marketing Dictionary. Simon ISBN: 978-185418251-7 £99 This briefing will help you understand the way the financial print and broadcast media works in the UK. but a reputation lost can never be regained…The media will publish a story – you may as well ensure it is your story’ Simon Taylor.Trade Secrets of Using e-Learning in Training Bray. Norman ISBN: 978-185418120-6 £99 Lobbying is an art form rather than a science. no questions asked. This expert report explains the knowledge and techniques required. people can be recruited. so there is inevitably an element of judgement in what line to take. IT systems replaced. Strategic Public Relations. and is a very fast growing area of PR and marketing. . advertising and public relations. THE THOROGOOD PROMISE If you are not totally satisfied and you return a publication in mint condition within 14 days of receipt. MARKETING. ‘News is whatever someone. somewhere. to help you achieve accurate and positive coverage of your organisation and its operations. The Practice of Advertising and Industrial Marketing Communications. Tony ISBN: 978-185418326-2 £95 Transforming HR Hunter. Michael ISBN: 978-185418240-1 £99 Implementing an Integrated Marketing Communications Strategy Hart. Sounds simple. Jane ISBN: 978-185418361-3 £95 Definitely not for ‘techies’. we will refund the cost of the publication. The report is based on interviews with 60 HR leaders from across industry and public and not for profit sectors. up-to-date information and on a wellargued case. how ready will you be to defend your reputation? Lobbying and the Media: Working with politicians and journalists Burrell. The blue-print for the future of HR – how to deliver proven value to your Board. It will also provide you with techniques and guidelines on how to communicate with the financial media in the most effective way.

Uncoordinated.Managing Corporate Reputation: The new currency Dalton. uncontrolled and badly planned approaches will do more harm than good. WORLDCOM… who next? At a time when trust in corporations has plummeted to new depths. Ken ISBN: 978-185418388-0 £95 ENRON. please visit: www. Strategic planning is a fresh approach to PR. and risk antagonising the people you most want to influence. For full details of any title. Public Affairs Techniques for Business Wynne-Davies. This in-depth briefing will give you the tools and techniques you need to enjoy the opportunities offered by the regional and local media. and more successful in your tendering.uk . They are not usually trained in selling. Jeff ISBN: 978-185418235-7 £95 To win business. Peter ISBN: 978-185418175-6 £95 Techniques for Ensuring PR Coverage in the Regional Media: An insider’s view Imeson. This report provides valuable tips and techniques to improve your PR and campaign planning. Today’s successful companies recognise that in order to survive and prosper a comprehensive and disciplined approach to public affairs is no longer just a useful asset. checklists and diagrams throughout. After reading those parts that are relevant to your business. knowing how to manage corporate reputation professionally and effectively has never been more crucial. This is a much-needed report which addresses the unique concerns of professionals who wish to sell their services successfully and to feel comfortable doing so. This report will help you become more skillful. This report shows you how to: • Develop PR. Kim ISBN: 978-185418179-4 £99 Many professionals still feel awkward about really selling their professional services. It offers you practical guidance and advice on how to apply them with maximum effect for your next PR campaign. it is now a necessity. John & Croft.thorogoodpublishing. Charts. Strategic Planning in Public Relations Knights.co. clearly presenting the arguments for a campaign proposal backed with evidence. Understanding the system and the process in which it works is essential to lobbying effectively. An approach that is fact-based and scientific. you must make a convincing case. This report provides the techniques required for effective lobbying. Mike ISBN: 978-185418019-3 £99 This report shows in practical terms how you can counter potential threats through a professionally structured and implemented public affairs campaign. Susan ISBN: 978-185418272-2 £95 Strategic Customer Planning Melkman. Successful Competitive Tendering Woodhams. Charles ISBN: 978-185418089-6 £95 Tips and techniques to aid you in a new approach to campaign planning. and to view sample extracts. Alan & Simmonds. Kieran ISBN: 978-185418225-8 £99 Practical Techniques for Effective Lobbying Miller. Selling Skills for Professionals Tasso. you will be able to compile a powerful customer plan that will work within your particular organisation for you. brands and relationship management as the vanguards of your corporate reputation • Strengthen your internal as well as external communications • Improve the effective management of your stakeholders This is very much a ‘how to’ report.

Robert Chapman. Sue & Harman.Order Form FIVE WAYS TO ORDER: Email: direct. David Tiffin. no questions asked. Chris O’Connor. Susan Brelade. Charles Brazell. Robert Ribeiro. Susan Attree. Colin & Hopper. Peter Pearson. Rebecca O’Meara. Robert Martin. Barry Bond. Ralph Boyce. Caroline Singleton. Tim Norfolk. London EC2A 3DU Web: www.thorogoodpublishing.uk Tel: Fax: +44 (0)1235 465 500 +44 (0)1235 465 556 Post: Marston Book Services. Quality and Performance Improvement The Commercial Exploitation of Intellectual Property Rights by Licensing Intellectual Property Protection and Enforcement Waste Management: The changing legislative climate Websites and the Law A Practical Guide to Knowledge Management Analyse your Business – A performance health check Tendering & Negotiating MoD Contracts Understanding SMART Procurement in the MOD IT Governance Practical Techniques for Effective Project Investment Appraisal Project Risk Management: The commercial dimension Strategy Implementation Through Project Management Surviving a Corporate Crisis: 100 things you need to know Technical Aspects of Business Leases: Overcoming the practical difficulties Tax Planning for Businesses and their Owners Trade Secrets of Business Disposals ISBN Price Authors Ribeiro. Tim Boyce. Malcolm Hughes. . Tony Batchelor. Tim Grundy. we will refund the cost of the publication. Paul Dowden. Carol Boyce. Susan Singleton.uk Title Commercial Contracts: Drafting techniques and precedents Commercial Litigation: Damages and other remedies for breach of contract Corporate Governance Email: Legal issues Freedom of Information Act International Commercial Agreements Insights into Successfully Managing the In-house Legal Function Software Contract Agreements Achieving Business Excellence.orders@marston.co.co. 10-12 Rivington Street. Lorna Hand. Dennis DesForges. David Singleton. Barrie Qty 978-185418271-5 £169 978-185418397-2 £169 978-185418354-5 £85 978-185418256-0 £80 978-185418347-7 £95 978-185418286-9 £95 978-185418174-9 £95 978-185418146-6 £80 978-185418018-6 £95 978-185418285-2 £95 978-185418054-4 £159 978-185418367-5 £80 978-185418331-6 £80 978-185418230-2 £99 978-185418170-1 £89 978-185418276-0 £95 978-185418164-0 £69 978-185418371-2 £169 978-185418099-5 £99 978-185418257-9 £95 978-185418250-0 £99 978-185418208-1 £80 978-185418194-7 £95 978-185418334-7 £95 978-185418321-7 £145 THE THOROGOOD PROMISE If you are not totally satisfied and you return a publication in mint condition within 14 days of receipt.

Tony Hunter. Simon Hart. Player. Dennis Williams. Simon Burrell.Title Trade Secrets of Successfully Acquiring Unquoted Companies VAT Liability and the Implications of Commercial Property Transactions Data Protection Law for Employers Discrimination Law and Employment Issues Effective Recruitment: A practical guide to staying within the law Employee Sickness and Fitness for Work: Successfully dealing with the legal system Employment Law Aspects of Mergers and Acquisitions: A practical guide Navigating Health and Safety Law: Ensuring compliance and minimising risk Successfully Defending Employment Tribunal Cases Applying the Employment Act 2002: Crucial developments for employers and employees Dismissal and Grievance Procedures Enabling Beyond Empowerment Flexible Working How to Turn your HR Strategy into Reality Internal Communications Mergers and Acquisitions: Confronting the organisation and people issues New Ways of Working Power Over Stress at Work Reviewing and Changing Contracts of Employment ISBN Price Authors Pearson. Ian and Saunders. John & Croft. Susan Qty 978-185418366-8 £145 978-185418307-1 £149 978-185418283-8 £80 978-185418339-2 £55 978-185418303-3 £85 978-185418281-4 £95 978-185418363-7 £95 978-185418353-8 £95 978-185418267-8 £95 978-185418253-1 £95 978-185418376-7 £95 978-185418084-1 £95 978-185418306-4 £95 978-185418183-1 £85 978-185418149-7 £95 978-185418008-7 £95 978-185418169-5 £99 978-185418176-3 £99 978-185418296-8 £95 Trade Secrets of Using e-Learning in Training Transforming HR Corporate Community Investment Defending your Reputation Implementing an Integrated Marketing Communications Strategy Insights into Understanding the Financial Media: An insider’s view Lobbying and the Media: Working with politicians and journalists Managing Corporate Reputation: The new currency 978-185418326-2 £95 978-185418361-3 £95 978-185418192-3 £99 978-185418251-7 £99 978-185418120-6 £99 978-185418083-4 £99 978-185418240-1 £99 978-185418272-2 £95 For full details of any title. Daniel Phillips. Tony Farrant.co. Stephen Araoz. Barrie Buss. Gillian Ryley. Annelise. and to view sample extracts. Michael Williams. Audrey Hunt.thorogoodpublishing. Chris Taylor. Audrey Grundy. please visit: www. Michael Dalton. Tim Singleton. David Leighton. Giles Howard. Chris Hunt. Dennis Williams. Paula Bray. Tom & Rome. Patricia & Proctor.uk . Jane Genasi. James Thomas. Susan Martin. Norman Scott. Michael Pope. Mark Jupp.

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