Topic 20 - Family Flashcards
Define a close company
- Controlled by 5 or fewer participators; or
- Any number of directors
Control:
> 50% issued share capital; or
- Voting power; or
- Right to received distributable profits; or
- Right to receive net assets in the event of winding up
Consider Shares owned by associates (Spouse/CP/Kids/parents/ancestors; business partners)
What are the implications for the company if a shareholder has a loan?
Loan outstanding x 32.5% = notional tax paid to HMRC with CT liability
Not payable if loan repaid before normal due date of corporation tax
Tax is repayable:
- when loan is repaid by shareholder
- when loan is written off.
No charge if following conditions are met: - Loan < £15,000 AND - Work full time for company AND - Owns > 5% of shares
What are the implications for the Shareholder if a shareholder has a loan?
It will be a benefit in kind (if greater than £10k)
Calculate the benefit using the lower of:
- Average method
- Strict method.
Taxed as employment income for an employee
Treated a a dividend distribution if not an employee
If company writes the loan off, it’s treated as a dividend distribution for both employee and non employee.
What are the implications if a shareholder and employee has a benefit (other than a loan)?
Employee:
- Cost is allowable for the company
- Benefit is taxed as employment income for individual
Not an employee?
Benefit treated as dividend distribution
- Amount determined using benefit rules
- No deduction for the company
Personal Service Companies:
What is the proforma for notional (deemed) salary calculation?
Amount received in tax year from relevant engagements
Less: Statutory deduction of 5% for Admin
Employer NIC paid by PSC.
Pension cont. paid by PSC.
Salary paid by PSC
Allowable expenses eg mileage
=Deemed Salary Inc employer NIC
Less Employer NIC (bal)
=Deemed Salary
(deemed paid 5 apr)
When does a Personal service company apply?
- If ignoring the company, the worker would be considered to be an employee of the client; and
- the individual owns >5% of the company.
Who is responsible for determining whether the rules apply when services are supplied to a small organisation?
What is calculated and subject to PAYE/NIC?
The personal service company.
- A deemed salary
When are tax an NIC on the deemed salary due?
Is the salary and employer NIC allowable for corporation tax for the PSC?
Are dividends paid out of the deemed salary taxable?
Due 19th April (14 days after the tax year)
NIC and Salary are allowable for PSC.
Dividend paid are not taxable as they’ve already been taxed
For services provided to a medium or large company, who is responsible for determining the status of the individual?
The Client is responsible.
What must the large or medium client issue to the individual?
What is the client required to calculate?
Issue a ‘Status Determination Statement’
Calculate a deemed direct payment (DDP)
What is DDP subject to from a tax perspective?
Tax and class 1 NC paid by client to HMRC (as if worker where an employee)
PSC paid after deduction of tax and employee Class 1 NIC.
How do you calculated a DDP?
Payment in respect of services provided net of tax X Less: Direct cost of materials incurred by PSC Deductible Ee expenses incurred by PSC = Deemed direct payment.
ADMIN EXP IGNORED FOR DDP
What’s the trigger for Purchase of Own Shares? (POOS)
A company buying back its own shares or shareholder wants to sell their shares but nobody wants to buy them.
What are the two available treatments for PoOs?
Income or capital
What is the income treatment of a POO?
Cash received: X
Less:
Subscription Price (X)
=Net Dist. X
Treated as dividend - £2k NRB.
Capital gains implications:
subscription price
Less :cost of shares
= gain/loss.
Gain/loss would be nil if subscribed at parr.
