View the related Tax Guidance about De minimis
Partial exemption ― de minimis rules
Partial exemption ― de minimis rulesThis guidance note examines the partial exemption de minimis rules. For an overview of partial exemption more broadly, see the Partial exemption ― overview guidance note.In depth commentary on the legislation and case law can be found in De Voil Indirect Tax Service V3.465.What are the partial exemption de minimis rules?Under basic VAT principles, VAT is generally not recoverable on costs where those costs are used to make exempt supplies. However, the partial exemption de minimis rules provide that where certain conditions are met then the input VAT attributable to exempt supplies is deemed to be sufficiently negligible that a business is entitled to recover the input tax it incurs in full without a requirement to restrict input tax recovery. Essentially HMRC accepts that if the amounts are low enough, then full recovery is permissible.The de minimis rules can broadly be divided into the main de minimis test and two ‘simplified’ tests which supplement the main test. These tests set out the limits for determining if restricted input tax is considered low enough to be recovered in full. The main test requires a full partial exemption calculation in order to determine whether its conditions are satisfied and therefore whether input VAT can be recovered in full. In contrast, where one of the simplified tests is satisfied this can avoid the need to perform a full partial exemption calculation whilst still entitling a business to recover VAT to in full on its costs so exists
Seed enterprise investment scheme (SEIS) ― introduction
Seed enterprise investment scheme (SEIS) ― introductionThe SEIS, like the enterprise investment scheme (EIS), is designed to encourage individuals to invest money in shares issued by qualifying unquoted companies, though is specifically aimed at smaller companies which have only recently begun to carry on a qualifying trade.HMRC has published some basic guidance. Unlike the EIS, which will no longer be available for shares issued on or after 6 April 2025, there is no sunset clause for SEIS. Tax benefits to the individualThe main benefits of the scheme are similar to those for the Enterprise investment scheme (EIS) (see SEIS and EIS ― overview guidance note). There are no particular tax reliefs available to a qualifying company that is seeking investment. The tax reliefs are given to the investor. Under SEIS, the key incentives for investors are as follows:•income tax relief for the investor of up to 50% of the amount invested, up to an annual subscription limit of £200,000 (£100,000 for shares issued before 6 April 2023)•gains on disposals of SEIS shares after three years may be exempt from CGT•gains on disposal of any assets that are reinvested in SEIS shares attract CGT exemption against 50% of the subscriptions (100% in 2012/13)•losses on disposals of SEIS shares are allowable for CGT purposes and eligible for the share loss relief•SEIS investments should qualify for IHT BPR after two years’ ownership (see the Understanding BPR ― overview guidance note)ITA 2007, Part 5A, ss 257AB–257HG; TCGA 1992,
Liability ― fund management and other investment management
Liability ― fund management and other investment managementThis guidance note covers the liability of fund management services and some other investment management services.For an overview of liability more broadly, see the Liability ― overview guidance note.For in depth commentary on the legislation and case law on the liability of fund management see also De Voil Indirect Tax Service V4.136G.A review of the fund management exemption published in 2023 concluded that there was no need to amend the UK legislation to clarify its scope. Fund management ― the basicsThe management of certain funds is exempt from VAT. A range of categories of fund are covered by this exemption. Such funds are referred to collectively as special investment funds (or SIFs) although this is technically the terminology used in EU VAT legislation. SIFs include certain open-ended and closed-ended investment undertakings, umbrellas and sub-funds, as well as some pension schemes. The fund management exemption is limited to the management of SIFs. Consequently, the management of other investment funds will generally be standard-rated.Determining whether a given service (or package of services) represents the ‘management’ of a fund within the meaning envisaged by the VAT exemption often presents practical challenges. ‘Management’ can refer to the activities of administering a SIF as well as more typical investment management activities but only where ‘viewed broadly, they form a distinct whole and are specific to, and essential for, the management of those funds’. A single supply which is used for the management of multiple funds including both
VAT liability ― overview
VAT liability ― overviewThis guidance note provides an overview of the concept of VAT liability along with links to further practical guidance on the subject.In-depth commentary on the legislation and case law associated with VAT liability is covered in:•De Voil Indirect Tax Service V4.1 ― VAT exemption•De Voil Indirect Tax Service V4.2 ― the zero rate of VAT•De Voil Indirect Tax Service V4.4 ― the reduced rate of VATIntroduction to liabilitySupplies of goods and services which are made by taxable persons in the course of their UK business activities can be subject to one of four VAT liability treatments:•standard-rated•reduced-rated•zero-rated•exemptStandard, reduced and zero-rated supplies are often referred to collectively as ‘taxable supplies’. This distinguishes them from exempt supplies. The distinction between supplies that are taxable and supplies that are exempt is important because of its consequences for input tax recovery. VAT can generally be recovered on costs which are used to make taxable supplies. However, VAT cannot generally be recovered on costs which are used to make exempt supplies. This distinction is covered in greater detail in the Input tax ― overview and Partial exemption ― overview guidance notes. The reduced-rate, the zero-rate and exemption are sometimes referred to collectively as ‘VAT reliefs’. This is because VAT is either not chargeable on sales or is chargeable at a lower rate than the standard-rate. Despite being a ‘relief’, exemption will not necessarily be a more desirable treatment than the standard-rate because of its impact
Liability ― supplies of fuel and power
Liability ― supplies of fuel and powerThis guidance note examines the liability of supplies of fuel and power.For an overview of the concept of VAT liability generally, see the Liability ― overview guidance note.For in-depth commentary on the legislation and case law on supplies of fuel and power, see De Voil Indirect Tax Service V4.406.Liability of fuel and power ― the basicsThe default position is that a supply of fuel and power will be liable to VAT at the standard-rate. However, certain supplies of fuel and power which are made for a ‘qualifying use’ (see below) are subject to the reduced-rate of VAT. The reduced-rate applies to a wide range of kinds of fuel and power including solid fuels, gases, oils, electricity, heat and air-conditioning, provided they are supplied for a qualifying use. Qualifying use includes both ‘domestic’ use and a charity’s non-business use. In this context, domestic use includes certain ‘deemed’ domestic supplies which would not be considered to be domestic in the ordinary sense of the term. For example, some supplies of fuel and power below ‘de minimis’ thresholds are deemed to be for domestic use even if the fuel and power are actually used in a commercial setting. In addition, supplies of fuel and power (which are deemed to be goods rather than services for VAT purposes) can be zero-rated when they satisfy the conditions for zero-rated exports. The zero-rate for exports is covered in the Exporting goods ― overview guidance note. Types of fuel and
Interest in possession trusts ― income tax
Interest in possession trusts ― income taxIntroductionThis guidance note explains how to calculate the income tax liability on the income of an interest in possession trust. It also covers the general principles of income tax that apply to all trusts and identifies the features specific to an interest in possession trust.Trustees together are treated as if they were a single person (distinct from the individuals who are the trustees of the trust from time to time). In order to calculate the income tax liability for any trust, you first have to determine what type of trust it is. It is essential, when dealing with a trust for the first time, to read the trust instrument. As explained in the Taxation of trusts ― introduction guidance note, the income tax treatment will fall into one of two categories:•standard rate tax (bare trusts and all interests in possession), and•trust rate tax (discretionary and accumulation trusts)The nature of a discretionary interest and the income tax treatment is detailed in the Discretionary trusts ― income tax guidance note. Higher trust rates of tax apply to trustees’ accumulated or discretionary income.The income tax treatment of bare trusts is described in the Bare trusts ― income tax and CGT guidance note.An interest in possession is characterised by a beneficiary’s right to the income of a trust as it arises. The income belongs to the beneficiary, and the trustees have no authority to withhold it except to use it for legitimate expenses. The entitlement
Cancelling a VAT registration number
Cancelling a VAT registration numberThis guidance note provides:•guidance regarding when a person must deregister from VAT on a compulsory basis•guidance regarding when a person can deregister from VAT on a voluntary basis•practical points to consider in relation to the cancellation of a VAT registrationFor in-depth commentary on VAT deregistration please refer to De Voil Indirect Tax Service V2.151 to V2.155.When must a person deregister from VAT on a compulsory basis?The VAT registration ― voluntary guidance note explains when a person is entitled to be registered for VAT. A person who is registered for VAT and ceases to be entitled to be registered must notify HMRC within 30 days from the date they ceased to be entitled to be registered. HMRC can cancel the registration of a person who has ceased to be entitled to be registered for VAT, even if the person has not notified HMRC. A failure to notify HMRC may result in a penalty. If the reason the person is no longer entitled to be registered is because they have transferred their business as a going concern the VAT registration number may, subject to the agreement of the person acquiring the business and HMRC, be transferred to the person acquiring the business. The request for the VAT registration number to be transferred should be submitted to HMRC using the form VAT68. In all other circumstances the VAT registration number must be cancelled, although HMRC may agree to a request for the deregistration to be
Homeworking
HomeworkingIntroductionThe developments in information technology and communications have seen an increasing popularity in employees working from home. There are a number of tax consequences associated with home working which are outlined below..In 2022, the OTS undertook a review into hybrid and distance working. This constituted a policy paper in July 2022 and accompanying call for evidence in August 2022. The scope of this work was wide ranging, including:•implications of cross border working•permanent workplace rules•accommodation travel and expensesThe subsequent Hybrid and distance working report: exploring the tax implications of changing working practices was published by the OTS in December 2022. It recognised that home and hybrid working arrangements are here to stay. Whilst many employers favoured extending the tax relief system to allow for travel between home and work, the potential costs of such a move was also acknowledged. More realistic may be the support for further potential HMRC easements and de minimis exemptions in cross-border situations, both from the employee tax and social security standpoint, and any employer ‘permanent establishment’ concerns. The Government’s response to the report is awaited.What is homeworking?There is no statutory definition of what constitutes a home worker, nor a single collective set of principles which guide what can and cannot be claimed as a tax deduction. Instead, an individual has to identify allowable expenditure using the various general and specific rules around expenses.There are some specific exemptions which are addressed further below. Where none of these apply, the general rules for expenses
Weekly tax highlights ― 25 March 2024
Weekly tax highlights ― 25 March 2024Direct taxesNational Insurance Contributions (Reduction in Rates) Act 2024The National Insurance Contributions (Reduction in Rates) Act 2024 received Royal Assent on 20 March 2024.Originally introduced to Parliament on 7 March 2024 (the day after Spring Budget 2024) as the National Insurance Contributions (Reduction in Rates) (No 2) Bill, the legislation was fast-tracked through the Parliamentary process without amendment.The Act makes the following changes with effect from 6 April 2024:•reduces the main primary rate of Class 1 NICs to 8% (from 10%, which had applied since 6 January 2024), and•reduces the main Class 4 rate to 6% (from 9%, superseding the previous cut to 8% which otherwise would have applied from 6 April 2024)The annual maxima calculations are also adjusted accordingly.Social Security (Class 2 National Insurance Contributions) (Consequential Amendments and Savings) Regulations, SI 2024/377The Regulations make various changes as a consequence of the removal of the requirement to pay Class 2 NICs from 6 April 2024, including the following:•with effect from the tax year 2022–23, a self-employed earner who files their self-assessment tax return late will be treated for benefits purposes as having paid Class 2 NICs late. HMRC says that this ‘aligns with the rules for self-employed earners who, prior to 6 April 2024, were liable to pay Class 2 NICs and paid their contributions late’. Also with effect from that tax year, those who are treated as having paid Class 2 contributions will be subject to a ‘residence and
Corporate debt ― overview
Corporate debt ― overviewThis guidance note provides an introduction to the provisions governing the taxation of debt for UK companies and also provides links to more detailed guidance notes dealing with those provisions.The taxation of corporate debt in the UK is complex. There are several different sets of rules governing the amount and timing of tax deductions available for interest and other amounts relating to corporate debt. These include:•the loan relationships regime•the corporate interest restriction (CIR) rules•transfer pricing and thin capitalisation requirements•a range of associated anti-avoidance measures ― it should be noted that there are regime anti-avoidance rules (RAARs) in CTA 2009, ss 455B–455D and related sections for loan relationships and in TIOPA 2010, s 461 applicable to the CIRIt should also be remembered that payments of interest by a UK company on all liabilities capable of remaining outstanding for more than one year are subject to withholding tax, unless they are expressly exempt or qualify for relief.Loan relationshipsIn most instances, a company’s financing costs and income are taxed or relieved under the loan relationships regime. Relief is only available where the cost attaches to the company’s own loan relationships or a balance which is deemed to be a loan relationship for tax purposes. See the What is a loan relationship? guidance note.A loan relationship exists where a company stands in the position of debtor or creditor in respect of a money debt that arises from a transaction for the lending of money. Although, it
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