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In our experience assisting property and construction businesses, one recurrent and challenging question is how to retain top talent through equity incentives. While various tax-efficient share schemes exist, such as the Enterprise Management Incentive (EMI), many property businesses find themselves ineligible for EMI and other favourable schemes like the Enterprise Investment Scheme.
This limitation leads to the question: what viable Employee Share Scheme options are available? This is typically a bespoke matter for each business to get the right advice on, but there are a number of things you can think about, and it will in part depend on what you are trying to achieve. Let’s run through some examples for ease:
Imagine you own a valuable family property company, with management who are now running the business on behalf of you and the family. Having found the right team, you really want them to stay and feel part of the business. It’s not likely the company will ever be sold, so what could you do to keep the team incentivised?
There are traditional share options, however a more feasible Employee Share Scheme involves “growth” or “flowering” shares, designed to escalate in value post-issuance without an immediate high tax impact. The tax regime that surrounds employees being awarded shares in their employing company means that if valuable shares are passed to employees, they have an income tax bill to pay – this can even be a PAYE immediate tax charge if the shares are readily convertible assets. So the idea of giving your employees growth shares is that the shares will have limited value on day 1, but they will participate in value created once they own the shares.
There are a number of different ways of creating these growth shares. Usually the focus is on keeping the immediate tax charge to a minimum so the shares don’t have a significant upfront cost to the team you are wanting to incentivise. It’s not as simple as saying the value today is £1m, so the growth shares can participate in everything beyond £1m, as HMRC are likely to say the shares have hope value, so the way the growth shares are created is key to managing the tax position.
As outlined above, crafting such shares demands careful planning to minimise upfront tax liabilities and avoid unexpected future burdens. Our corporate finance team can provide an opinion on what value attaches to growth shares and how to make sure your employees don’t get a nasty tax bill later.
Another scenario we have is a property developer who has brought on junior members of the team who are now becoming experienced in spotting the next deal. There is real risk they may choose to simply go their own way (finances permitting) because they think that they would rather share a slice of the deal profit rather than just getting a regular salary.
Structure is usually key when you are a serial property developer. An effective Employee Share Scheme option in this context involves encouraging your team to bring these deals to the table on the basis that you will use an SPV (special purpose vehicle – usually a separate limited company) for each deal, and they will have a percentage of that SPV. It’s unlikely the company has any value at the start, so the income tax position should be ok (obviously you need to consider each circumstance) but this would give the team member an equity stake in the deal they bring through. This approach can foster loyalty without immediate tax concerns, assuming the initial company valuation is minimal.
The other part of any Employee Share Scheme discussion has to be how do you actually convert shares into cash. Shares can be an incentive, but unless there is a real expectation of either regular dividend payments (which may be one part of it) or a later capital exit event, then it may be a lot of work without achieving the tie in you are looking for.
As with all things tax there are a number of possible exit routes:
It is important to give this some thought, as otherwise you could end up with a really disgruntled person holding the shares wanting an exit and no plan!
The final point to make is that the critical thing with any Employee Share Scheme is having the right sort of legal agreements in place. You need to consider that the person you are wanting to incentivise may leave, so think about good and bad leaver provisions, what would you want to do if they tragically died holding the shares? Do you want to force them to sell if you are selling (yes is the usual answer!). Good legal input is absolutely key, as well as getting the right tax advice.
Employee Share Schemes can be really powerful, but the tax aspects surrounding them are complex and not overly favourable. With good planning and advice it should be possible to create something that works, and this is an area we spend a lot of time advising on, so if you want to chat it through please do not hesitate to get in contact with Kate Naylor, a member of our Corporate Tax team, or your usual AAB Group contact.
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Striking off a limited company refers to the process of removing the company from the register at Companies House. Following the strike-off, the company ceases to exist. However, some measures can be taken to restore a company to the register by applying to court.
There are two ways in which a company may be struck off, either voluntarily or by compulsory strike-off action.
Compulsory strike-off action to remove the company from the register is commenced by the Registrar of Companies where it has reasonable grounds to believe that a company is no longer trading. This is normally where directors have failed to file confirmation statements and company annual accounts or notify Companies House of a change to the company’s registered office etc on time. It will also be likely that the Company no longer has at least 1 active director.
Although compulsory strike-off action leads to the same eventual outcome as voluntary strike-off, that being the company is dissolved, there are different implications for directors where compulsory action is taken and this should generally be avoided.
One potential risk of having a company dissolved by compulsory strike-off is that a director may become personally liable for a debt of the company following its dissolution if, for example, a director has signed a personal guarantee. Also depending on the circumstances surrounding the compulsory strike-off, the director could risk being investigated by the Government’s insolvency service and disqualified from acting as a director in the future.
An example of a director running the risk of being investigated by the Government’s insolvency service and disqualified from acting as a director in the future is under powers granted by the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021. If a company that has a bounce-back loan is struck off, the director could be found personally liable for the entirety of the bounce-back loan after the company is struck off the register.
Prior to commencing compulsory strike-off action, Companies House is required to formally notify a company of the above breaches and give the opportunity to rectify matters. If Companies House does not receive a response within a period of 14 days, it will file a First Gazette notice for strike-off. This would be in the Edinburgh Gazette where the company is incorporated in Scotland, or the London Gazette where the company is incorporated in England. This online publication is deemed as a public notice.
The Gazette notice will set out that the company will be struck off the register within 2 months and as such this gives a short window for any relevant party, such as a director, shareholder, or creditor of the company to object to the company being struck off. An appropriate objection will be accepted, on the basis that action is taken to rectify the position, such as bringing the filing requirements up to date. In this case, strike-off action will be discontinued. If however there are no acceptable objections, the company will be dissolved.
Voluntary strike-off is initiated by the company and is permitted under section 1003 of the Companies Act. The company may be dormant or has reached its natural end by fulfilling its purpose or due to the retirement of its directors. Normally strike-off action is used to remove the administrative burdens of a company that no longer trades.
A company may not apply for voluntary strike-off if it does not meet the following criteria, as set out under sections 1004 and 1005 of the Companies Act:
Carrying out the voluntary strike-off a company ensures that:
Once these affairs have been concluded, the company can proceed with voluntary strike-off by submitting form DS01 to Companies House. The form must be signed by a majority of its directors. In addition, the form must be sent to anyone who could be affected such as:
Notice will be published by the Register of Companies in the Edinburgh Gazette where the company is incorporated in Scotland, or the London Gazette where the company is incorporated in England. If no objections are received within two months the company will be dissolved.
If you are considering applying for a limited company to be struck off voluntarily or have received notification of compulsory strike-off action, you should seek advice immediately to consider fully all the options available to you. Our Restructuring & Recovery team is available to assist – arrange a free consultation today.
Last week marked the publication of the 12th edition of the Uniform System of Accounts for the Lodging Industry (USALI). In this blog, we’ll look at what changes were made, and how they could affect you and your hotel business.
USALI provides guidance for standardised financial reporting and analysis across the hotel industry. The first edition was published in 1926 by the Hotel Association of New York City, with the aim of providing guidance to hotels to succeed by effective utilisation of their financial records.
USALI is business critical for any hotel – some of the benefits include:
USALI consists of two main parts – operating statements and a chart of accounts.
As you would expect, operating statements contain your income and expenses. The information is split into categories to make it easy to track what is being spent where, and when, giving you a clear view of your financial situation at any given time. It can also be used to identify any common themes or trends.
The chart of accounts is basically a list of all income and costs for the hotel, and would typically include food & beverage, staffing costs, laundry costs, etc.
Both of the above would usually be adhered to by any business as a matter of course, but not all industries are provided with such in-depth guidance.
Hotel owners and operators wishing to use USALI must subscribe. It’s available as a digital subscription service or a soft-cover book and is available for an annual subscription. Visit the USALI website for further details.
There are a number of key changes to the next edition of USALI, these are aimed at increasing transparency in financial reporting.
There will be new guidelines for revenue recognition, expense categorisation, and reporting standards. These changes aim to provide more clarity and consistency across the hotel and lodging industry.
We have summarised some of the key changes here although the list is not extensive:
Perhaps the most significant change is in the introduction of a new Energy Water & Waste (EWW) Schedule replacing the previous Utilities Schedule. It is designed to meet the growing demand for effective Environmental, Social & Governance (ESG) reporting. The new EWW Schedule introduces new metrics such as:-
Although the new USALI is now published, implementation will be 1st of January 2026. This will give hotels time to plan and adapt their processes in terms of recording energy consumption, waste, FTE’s etc which most of the large brands adopted a while ago, as well as time to incorporate the changes into budgets and forecasts.
Our Hotel Accounting team has expert knowledge of USALI and would be delighted to speak to you if you have any questions, or if you need any assistance in adapting your systems or reporting tools to comply with these important updates. If you’d like to know more about the benefits of hotel accounting in general, have a read of our ‘Nine Benefits of Hotel Accounting’ blog.
La dolce vita translates to ‘the sweet life’, and it’s far more than just a phrase in Italy, it really does represent an entire lifestyle associated with their culture and way of life. Italians have a particular appreciation of celebrating quality time with family and friends and take great pride in beautiful things, particularly their own country which has simply stunning scenery, architecture, art, music and fashion. They fully embrace living life in the moment, enjoying the simple things, just as much as appreciating luxury and indulgence.
It’s probably fair to say that it’s not just the Italians who would like a little slice of that same La Dolce Vita.
Italy has always been a magnet for visitors and investors from all over the world, but a recent survey has suggested that it is expected to be the top 2024 European destination for globally mobile Millionaires, ahead of Switzerland, Greece and Portugal. This reflects attractive tax incentives for new tax residents who can relocate to Italy and benefit from various tax regimes. One of these, the Special Tax Regime (STR) or Flat Tax Regime, has proved very popular with ultra-high net worth individuals who choose to become tax resident in the country for the first time.
This tax regime aims to attract high net-worth individuals and retirees to Italy by offering 100,000 euro pa fixed tax rate on all foreign income and gains. This policy was initially introduced in 2017 by the Renzi government with the aim or attracting capital and boosting the economy
Fast forward to the Spring 2024 announcement by the then Conservative Government, indicating that Non Domicile status in the UK will be abolished, latterly confirmed by Labour. The changes to the UK non-dom tax regime has led to many UK resident non-dom’s, seriously considering permanent relocation elsewhere, thus avoiding UK tax on their overseas sourced income and gains.
The Italian Flat Tax Regime, alongside the many benefits of living in Italy in terms of lifestyle and attractive location, is proving to be a very interesting lifestyle and efficient tax option for those seeking to move within Europe.
On Wednesday 7th August 2024, Italy’s Prime Minister, Giorgia Meloni, announced plans to double this Flat Tax levy on worldwide income from 100,000 euro to 200,000 euro with immediate effect.
Foreign national individuals already resident in Italy will continue to pay the lower annual levy of 100,000 euro with the new charge only applying to new applicants. This measure is part of broader tax reforms designed to enhance Italy’s appeal as a business and lifestyle destination.
There are two main type of Flat Tax regimes in Italy
The Flat Rate scheme is targeted at high-net-worth individuals of any nationality who have not been tax resident in Italy for at least 9 of the previous 10 years. These individuals can remit worldwide income to Italy and pay at flat charge of 200,000 euro, regardless of the actual amount of income earned worldwide / remitted to Italy, and the scheme can be applied for a maximum duration of 15 years, however the taxpayer can remove the option at any time. The tax perk status automatically lapses in the event of failure to pay the annual lump sum value either partly or in full.
Those looking to move with their families can ensure that family members such as spouse or civil partner, children, siblings and ‘in law’ family members, can also benefit from the regime, but this is subject to an extra 25,000 euro charge per person annually.
Following the end of the Flat Tax duration should residents wish to remain in Italy they may transition to standard tax regimes in Italy.
The attractive benefits of the scheme include:
Note that the flat rate scheme does not apply to Italian sourced income and capital gains realised upon the disposal of certain shareholdings during the first five fiscal years of the eligibility of the Flat Tax Regime, which will remain subject to progressive Italian tax rates.
There is an alternative ‘Flat Tax’ is for retirees domiciled outside of Italy who become tax resident in municipalities in southern Italy such as Arbuzzo, Apulia, Basilicata, Sicily, Calabria, Sardinia or Campania. They can benefit from a flat tax rate of 7% on all non-Italian sourced income for a period of up to 10 years.
To benefit from this preferential rate the individual must:
There are many tax aspects to consider when relocating overseas, not least ensuring there is a clear break from UK tax residence to be able to take full advantage of any tax efficient jurisdiction. We would therefore always recommend that holistic tax advice is provided to ensure a joined up approach across both the country of departure and arrival. To that end, we work closely with our Italian network associates to ensure this joined up approach to both UK and Italian Tax advice, well in advance of any planned relocation.
If you are considering a move overseas and need help with your tax position, please contact either Carol Edwards or Lynn Gracie, or your usual AAB contact.
The taxation of non-domiciled individuals has been a hot topic over the last few years, and has been at the forefront of many people’s minds since the 2024 Spring Budget, where a raft of changes were announced effectively abolishing the tax benefits available to many individuals who do not originate from the UK.
The new Labour government have recently launched a consultation on the proposed changes to the non-domiciled regime, which we have been fortunate to be able to feed into on behalf of our clients, and they have also released some limited guidance on their plans. Whether they will have time to legislate the changes by 6 April 2025 remains to be seen, and there is still significant uncertainty over certain aspects of the changes such as the 12% temporary repatriation rate for previously unremitted foreign income and gains (FIG) – which could be increased. We have summarised the most recent non-domicile proposed changes.
However, those with an Indian or Pakistani domicile may be left wondering what the changes could mean for them, due to unique agreements between the UK and those jurisdictions which in certain scenarios offered them significant estate planning advantages under the existing regime.
Domicile is a common law term which can broadly be defined as the country that a person considers as their permanent home. Note that this is completely separate from tax residence, which instead follows physical days of presence in any jurisdiction. We have previously discussed how an individual determines their domicile.
With effect from 6 April 2017, individuals who are non-UK domiciled under common law are “deemed” to be UK domiciled for tax purposes if they have been UK resident for at least 15 of the prior 20 tax years. Deemed domiciled individuals can no longer benefit from the remittance basis of taxation, and are subject to UK Inheritance Tax (IHT) on their worldwide assets (broadly speaking, non-domiciled individuals are ordinarily only subject to UK IHT on UK-situs assets).
However, where an individual is Indian or Pakistani domiciled under local law (and non-UK domiciled under UK law), the position may differ.
The Double Taxation Relief (Estate Duty) (India) Order 1956 and The Double Taxation Relief (Estate Duty) (Pakistan) Order 1957 resulted from mutual agreements with those territories that individuals who are domiciled in India or Pakistan should not be subjected to UK IHT on their non-UK assets, and vice-versa.
It should be noted that obtaining this beneficial treatment is not necessarily straightforward and it is vital that the financial affairs of those with an Indian or Pakistani domicile are structured correctly – in particular, any non-UK assets should pass via a non-UK Will.
As noted above, the Labour government have confirmed they will continue with the plans to scrap the non-domicile status for tax purposes, and move to a residence-based system of IHT – it is expected that individuals will potentially be subjected to UK IHT after 10 years of residence rather than the previous 15 year deemed domicile rule.
Whilst this could bring more non-domiciled individuals the UK IHT net than under the current regime, the agreements with India and Pakistan will continue to override domestic legislation. Those agreements are based on the common law principles of domicile in each jurisdiction, whereas the anticipated changes to be made by the government relate to tax legislation only.
As such, it is highly likely that the position for Indian and Pakistani domiciled individuals will remain the same, and they may not be subjected to UK IHT on their overseas assets provided they structure their affairs correctly.
In a word, yes. There are a number of changes on the horizon, and there may be more to come in the new government’s first Budget. For non-domiciled individuals (whether Indian, Pakistani, or anywhere else), it is vital to ensure your financial affairs are structured correctly and that you review your options with a suitably experienced adviser before any changes take effect.
If you would like any further information on the proposed tax changes and what they could mean for your bespoke circumstances, please don’t hesitate to contact Gunhild Dam, Tom Andrew, or your usual AAB Group contact.
This week we have received the first significant update from the new government on how the regime for non-UK domiciled and internationally mobile individuals may look under their stewardship. It’s helpful then, to revisit the initial proposed non-dom changes from the Spring 2024 budget and consider what Labour have proposed with their own the non-dom changes and the impact they might have.
Back in the Spring significant changes to the way in which non-domiciled individuals are to be taxed in the UK were announced by the then Conservative government who sought to raise additional funds via the changes I covered these proposed non-dom changes in my earlier blog. The Spring 2024 Budget announcements were to an extent unexpected, but while the changes proposed were significant, they did offer some generous transitional provisions for impacted individuals.
Since the Spring Budget 2024, both pre and post-election, there has been much speculation and discussion (which I have previously discussed in our blog about Labour introducing a 4 year tax residency), as to which of the changes a Labour Government may adopt. We now have a clearer idea of how the post 6 April 2025 tax regime may work for non-doms and internationally mobile individuals, and it seems, a step towards certainty.
The below table illustrates the Spring Budget 2024 proposed changes, the Labour Government July 2024 updates on non-dom changes, and the headline impact of the July 2024 updates.
The IHT regime is to be subject to a consultation paper.
IHT changes are not to be subject to a formal consultation, but the government will consider existing stakeholder feedback and carry out further external engagement over the summer of 2024.
This change would bring long term UK resident non-doms into the scope of UK IHT.
These rules are not likely to be subject to change until 6 April 2026.
As of yet, we don’t not have any draft legislation or detailed guidance published. We now expect further details to be announced, as part of Labour’s first Budget statement, on 30 October 2024.
There will be a short time period in which to consider the changes which are to be introduced from 6 April 2025, therefore individuals who are impacted by the above should plan ahead and should consider their affairs, including Trust structures which are currently excluded property trusts.
Our Private Client International Tax team have significant experience in this area of UK tax law and are perfectly placed to help with any UK residence or non-dom aspects. Please do not hesitate to get in touch with Lynn Gracie, Joel Nuttall, or a member of our Private Client Team if you would like to discuss how we can help.
As part of the latest HM Revenue & Customs (‘HMRC’) nudge letter campaign, HMRC have once again cross-referenced Companies House records to Self-Assessment Tax Returns and are writing to anyone they believe to be a Person with Significant Control (‘PSCs’) asking them to consider the accuracy of their tax reporting. All PSCs are required to be reported to Companies House as part of the reporting obligations of a company. These records are publicly available and are regularly reviewed by HMR), therefore any discrepancies between company records and the tax reporting of those PSCs are easily spotted by HMRC.
Nudge letters are nothing new and do not necessarily mean there has been any wrongdoing. Still, they should be taken seriously and appropriate timely action should be taken following receipt of a nudge letter.
Nudge letters are issued to taxpayers who HMRC believe may be affected by the area of the nudge campaign. In this case, HMRC is focusing on PSCs, however, nudge letter campaigns can focus on other areas, such as rental property income and overseas income, to name a few.
As aforementioned, receipt of a nudge letter is not a guarantee that your tax affairs are incorrect, but rather they are a prompt from HMRC to ensure that you have considered all relevant tax implications in the area they have focused on and giving you an opportunity to correct your tax position ahead of more serious action being taken.
Nudge letters typically come with deadlines of 4 – 6 weeks for a response. Where action is not taken, HMRC may seek to open a formal enquiry.
In short, it depends. Irrespective of the background, we would always recommend that a full review of your particular circumstances is undertaken before any response is made to HMRC.
If you have submitted a 2022/23 tax return to HMRC, double check what has been reported previously and ensure that you are comfortable that all sources have been correctly reported to HMRC. If you have not submitted a 2022/23 tax return to HMRC, double check whether you should have made a submission to HMRC. It is also important to ensure that you are comfortable with what the letter is asking for and how best to respond, therefore seeking professional advice prior to responding to HMRC would be recommended. Our team of Tax Investigations specialists are well versed in dealing with nudge letter responses and can provide support with determining whether any additional details are required to be reported to HMRC.
If you believe there may be an inaccuracy with regards to your tax reporting for 2022/23 or earlier years, we would strongly recommend obtaining advice from a professional with suitable experience in HMRC disclosures. It is of utmost importance that any submissions are made to HMRC accurately, in order to ensure efficient correction of your tax affairs.
Our highly experienced Tax Investigations Team are here to help identify any additional information to report, can make the submissions and liaise with HMRC on your behalf, giving you peace of mind that the matter is being appropriately handled. If you receive a nudge letter and would like to discuss what this means for your and your tax affairs, please contact Michaela McCombie or your usual AAB Group contact in the first instance.
Following Labour’s win at the 2024 General Election, there has been speculation that changes may be made to the current Inheritance Tax (IHT) regime in order to generate more tax revenue.
Labour’s plans for Inheritance Tax have not been confirmed, however it is likely that any changes would target reliefs primarily benefitting the wealthy. There are a multitude of reliefs under the current Inheritance Tax legislation, predominantly utilised by individuals with substantial estates.
The Institute for Fiscal Studies (IFS) noted that the effective rate of Inheritance Tax peaks at 25% in respect of estates between £3 million and £5 million and declines to 17% on estates over £10 million. This demonstrates the significant impact that succession planning can have on the amount of tax levied on an estate, by ensuring utilisation of available Inheritance Tax reliefs.
Reliefs that Labour may set their sights on include Agricultural Relief (AR) and Business Relief (BR). Broadly speaking, under the current legislation, AR is available in respect of agricultural property at 100% or 50% where the relevant conditions have been met. Assets which could qualify for AR would include land or pasture used to grow crops or rear animals, as well as farm buildings and farmhouses, located within the UK. In order to qualify, any buildings must be of a size and nature appropriate to the farming activity being carried out.
Similarly, BR is available in respect of ‘relevant business property’ at 100% or 50% provided certain conditions are met. Business property can include a sole trade business or interest in a partnership, unquoted shares in a trading company, as well as certain assets used by a business but owned personally by the individual making the transfer.
It may be that AR and BR are scrapped entirely, or relief may be capped at £500,000 per person. The IFS argue that there is a strong case for abolishing these reliefs as they currently cost around £400 million and £1.4 billion respectively each year in lost tax revenue. However, abolition or restriction of this relief will seriously impact the ability for individuals to pass on family farms or businesses.
Another IHT relief that may be targeted is the tax-free passing on pension pots. Currently, defined contribution pension pots can be passed on in full without being subject to IHT, however the IFS estimates that abolition of this relief would raise approximately £200 million in IHT the 2024/25 tax year. It is anticipated that this would double by 2029/30.
Individuals who benefit from any reliefs that may come under review by the new Labour government should consider the possible effect any changes may have and seek advice on options to mitigate the impact on their expected IHT position.
Planning ahead is key as various IHT exemptions are available in respect of gifts made during a person’s lifetime, which could be increasingly beneficial if changes are made to AR, BR or relief on pensions.
Each person is able to benefit from annual gifting allowances, including the £3,000 annual exemption for gifts and the small gifts exemption, which enables gifts to any number of individuals of up to £250 per person to be made each year. Additional gifting allowances are available in respect of gifts for weddings or civil partnerships. Wedding gifts of up to £5,000 can be made to a child, reducing to £2,500 to a grandchild or great grandchild, and £1,000 to any other person.
In addition, gifting by way of ‘normal expenditure out of income’ is exempt from IHT, allowing individuals to pass surplus income onto beneficiaries, provided that it does not impact their standard of living, by gifting as part of their regular spending habits.
Where an individual gifts assets of any value during their lifetime to another individual they will usually be Potentially Exempt Transfers (PETs). Where a gift is a PET, the asset is exempt from IHT provided the donor survives for 7 years from the date of the gift, at which point the asset will fall out of their estate for IHT purposes. Where the donor does not survive 7 years, the asset will be subject to IHT on death, however the rate of IHT charged is tapered where there has been more than 3 years between the date of the gift and the date of death.
Seeking advice and planning ahead can minimise your exposure to IHT, enabling you to preserve your wealth and transfer as much of your estate as possible to your loved ones. However, IHT planning can be complex, and advice should be taken to ensure the best possible position is obtained.
If you have any queries about IHT, the potential changes or how you can plan ahead please do not hesitate to get in contact with Alex Thomson, Jen Kinnear or your usual AAB contact.
Whether it’s a knock on the door, a phone call or a letter with the tell-tale HMRC logo, there’s little that will strike more fear into the heart of any individual or business owner than an unexpected enquiry from HM Revenue and Customs (HMRC).
No matter the scale of the business, there will be common concerns about financial liability and penalties. Worries around future planning, working cashflow and of course the impact of taking time away from business-critical operations, not to mention the consequences on mental health.
However, it’s important to note that some investigations are routine and end with no additional tax liability. Nevertheless, with the average length of an HMRC enquiry being between one – two years it’s still crucial to take any HMRC enquiry seriously, co-operating fully with HMRC, and seeking professional advice.
During recent years, HMRC stated that their priority was to deliver government support to protect livelihoods and support businesses to survive challenging financial times. It’s a commitment that was certainly borne out in how sympathetic HMRC were during that Covid period.
However, at £39.8 billion, the tax gap – the measure of the difference between the amount of tax that is owed and the amount that is collected – is as large as it’s ever been. In addition, HMRC have identified that £24 billion of this tax gap comes from SME businesses. The pressure is therefore intensifying on HMRC to ramp up their activities in relation to tax compliance, and crack down on tax avoidance and evasion.
From our own experience at AAB, it’s clear that HMRC have accelerated their pursuit of unpaid tax. In fact, they have opened 1,091 serious tax investigations in the UK in the past year, according to law firm, Pinsent Masons. In 2022/23, every pound spent on investigations into wealthy individuals brought in an extra £30 in tax – up from £28 in the previous tax year. HMRC’s Large Business Directorate saw even greater returns, generating £58 in extra tax per pound spent. Combined with an ever-tightening squeeze on the public purse, it’s a trend that is only set to increase.
There are two main methods of HMRC recovering underpaid taxes where reporting failures exist:
The first is classed as an enquiry (or compliance check), where HMRC contact businesses or individuals by letter or phone call, or even in person, to query unreported or under-reported income.
This can range from omitting to notify HMRC of bank interest on a tax return, to failing to declare millions of pounds worth of sales.
During a full enquiry, HMRC can review all business records, usually because they believe that there is a significant risk of an error involving business or personal taxes. When investigating limited companies, they might look closely into the tax affairs of company directors as well as the affairs of the business itself.
Where HMRC believe that deliberate/fraudulent behaviour has occurred to underpay taxes they will open an enquiry under Code of Practice 9 (COP9). These enquiries are the most serious civil enquiry cases that HMRC can raise. They are used for cases where a taxpayer is suspected of serious fraud, and usually cover the past 20 years of their tax affairs.
A voluntary disclosure may be required in certain circumstances, from a disclosing a careless mistake in a tax return, through to voluntarily disclosing a history of deliberate failures.
HMRC look very favourably on taxpayers who make voluntary disclosures, as they have taken the proactive step of notifying HMRC of any failures. Consequently, tax liabilities , interest and financial penalties for a voluntary disclosure can be lower than for a ‘prompted’ enquiry, where HMRC have instigated and opened an enquiry. It’s therefore imperative that taxpayers take the first step in disclosing any errors leading to underpaid taxes to HMRC before any enquiry starts
The tax investigations team at AAB works closely with individuals and business owners at every stage of an enquiry or disclosure process, from initial approach through to final settlement. We negotiate with HMRC to mitigate taxes, interest and financial penalties wherever possible.
Where voluntary disclosures are required, HMRC accepts disclosures about errors online using its Digital Disclosure Service. This could apply to a business or an individual that has not declared all of its income, or an entity that has not registered with HMRC at all.
If a disclosure involves income, assets or gains outside the UK, there is a specific Worldwide Disclosure Facility that can be used to make an offshore disclosure.
At AAB we complete the digital disclosure on behalf of businesses and individuals, and calculate the all liabilities due. There is no requirement for individuals to attend meetings with HMRC, and the vast majority of cases these disclosures are approved and accepted.
The difference between a successful outcome which mitigates any taxes, interest and penalties, and one which sees excessive liabilities paid, or names published by HMRC, is frequently a subtle one, hinging on the experience of the tax professional. Our tax investigations team at AAB has years of experience across different specialisms including, Corporate Tax, R&D, Private Client, PAYE and Indirect Taxes. Indeed, many have an HMRC background, giving us the insider track on how they approach tax enquiries.
It’s a very nuanced field, requiring the most diplomatic of negotiating skills blended with the sharpest eye for detail and most in-depth knowledge of tax legislation. Where appropriate AAB also work closely with colleagues in the legal profession, providing much needed reassurance, whilst also ensuring matters are resolved as quickly and efficiently as possible, so that knock at the door needn’t be quite so daunting.
If you have any questions about tax investigations, HMRC enquiries or compliance checks, or any other matters we discussed in this article please do not hesitate to get in contact with Stuart Petrie, a member of our tax investigations team or your usual AAB Group contact.
Following submission of a 2023 Norwegian tax return for individuals under the general taxation scheme once processed by Skatteetaten (the Norwegian tax office), a Tax Assessment Notice (TAN) will be issued showing the final position for the year. The Norwegian tax office cannot provide an exact date for when individuals will receive their 2023 TAN – most people will receive their assessment between April and June whilst others will receive it between August and November.
Everyone will be issued with their tax assessment notice before December. The 2023 TANs will typically be available in Altinn (online filing portals) or posted directly to individuals. Failure to have submitted the 2023 tax return before the deadline of 30 April 2024 will mean it is unlikely the TAN is issued in June 2024. It is anticipated that the Norwegian tax authorities will issue minimal TANs during July 2024 or the first half of August 2024.
The TANs provide a summary of earnings reported for the tax year as well as how the Norwegian tax authorities have assessed this and the final income tax due by an individual. Any allowances or claims granted should also be shown. The TAN compares the final income tax due with the amount of tax withheld by the employer / paid by the taxpayer during the 2023 tax year and subsequently advises of any refund of tax that may be due to the individual or any additional amount payable to the Norwegian tax collector.
Experience has taught us that given the often-complex working arrangements that internationally mobile employees have and the fact the Norwegian tax administration system is primarily designed for Norwegian individuals, tax assessment notices can often be incorrect. It is therefore critical that the TAN is reviewed by a Norway tax specialist who will be able to identify and resolve any potential errors. Failure to detect and challenge any errors can result in the Norwegian tax authorities deeming the TAN position to be final and correct and subsequently result in significant penalties and interest being charged, potentially to both the individual and their employer.
In addition, the TAN acts as confirmation of Norwegian tax paid which could be presented to HMRC to support any foreign tax credit claim being made in the UK as part of the self-assessment process. Any over claim of credit in the UK is treated as a serious matter by HMRC.
The TAN is a very important document and should not be ignored. If an individual receives a demand to pay Norwegian tax, immediate action should be taken – the demand will not go away. Where the Norwegian tax authorities believe that an individual has a tax liability and it is not paid, they have the power to instruct HMRC to collect the money from the individual in the UK through the ‘Mutual Assistance in the Recovery of Debt’ directive. If an individual has underpaid tax, the deadline for settlement will usually depend on when the TAN was issued:
Where the liability is more than NOK 1,000, the amount due will be split into two instalments with the deadline for the payments depending on when the assessment was received. For example, if the TAN is issued in June 2024, the first instalment would be due on 20th August 2024 and the second instalment due on 24th September 2024. Where the payment deadline falls on a weekend, funds can be transferred on the Monday (the first working day) after the deadline. Failure to pay by the deadlines will return in interest accruing. You do not have to pay underpaid tax of less than NOK 100.
Where a taxpayer has overpaid for the year, a refund will be issued. If Skatteetaten hold bank details on file, the funds will be automatically transferred to the specified bank account of the taxpayer shortly after the TAN has been released however refund amounts under NOK 100 will not be issued. If a bank account has not been specified by the taxpayer, the Norwegian tax office will issue a request in the post to the address registered in the National Norwegian Registry in order obtain the necessary information.
It should be noted that where Skatteetaten issue a refund of Norwegian tax and it subsequently transpires it is not correct, they will seek recovery directly from the taxpayer – for this reason, it is important that the TAN is reviewed irrespective of there being a refund, demand, or neutral position. Furthermore, in some cases, refunds of Norwegian tax may be due to be repaid to HMRC rather than the taxpayer personally depending on the personal circumstances therefore it is the responsibility of the taxpayer to ensure their overall tax position is correct.
Should the amount of withholding tax deducted or additional tax be incorrectly shown on the TAN, or the taxpayer disagrees with the basis upon which their position has been assessed, an appeal can be submitted to the Norwegian tax office in writing either via the Altinn portal or post. An appeal must be lodged within a set timescale which should be detailed on the TAN.
We are experts in advising companies & individuals that have, or are considering, work in overseas locations, and particularly Norway. Across the team we have decades of experience supporting companies & individuals, in assessing what their Norwegian reporting obligations may be and support them in making all necessary registration, tax filings and payment requirements, ensuring the process is as seamless and painless as possible.
If you or your employees have received a Norwegian tax assessment notice recently and wish to discuss further, please do not hesitate to get in contact with Carol Sim, or a member of our Overseas Employment tax service team, or learn more about how we can support with our Overseas Employment Taxes