View the related Tax Guidance about Tax relief
Corporation tax relief for expenditure
Corporation tax relief for expenditureExpenditureListing a company on any stock exchange, whether a full listing on the London Stock Exchange or a listing on AIM, involves substantial costs which are generally paid by the company.Tax relief for the costs will depend on whether the specific expenditure is allowable in calculating the taxable income of the company for corporation tax purposes, following the general principle as to whether the expenditure is wholly and exclusively for the purposes of the business. See the Adjustment of profits ― overview and Legal and professional fees guidance notes.In practice, little relief is usually available
Double tax relief
Double tax reliefWhen income arises in a foreign country to a UK resident company and that income is taxable in that foreign country, the UK may give the company relief for the foreign tax by crediting the foreign tax against the UK tax charged on that income. This might include withholding tax on interest or royalties, or tax on the profits of an overseas permanent establishment for example. The UK has three options for providing relief from double taxation: two via credit relief and one by way of deduction from the profits of the business.For further commentary and examples, see Simon’s Taxes D4.803 and E6.4.Credit reliefTax treaty reliefThe UK has more than 130 tax treaties, which may exempt income from tax in one country or give credit for foreign taxes suffered on income. The precise mechanism will vary from treaty to treaty. Treaty relief takes precedence over other forms of relief for foreign taxes. For details on tax treaties, see the Structure of a tax treaty guidance note. To claim treaty relief, the taxpayer must have been resident in the UK throughout the chargeable period. Residence for these purposes is defined by UK law, not by the relevant treaty. See the Residence of companies guidance note. A non-resident company with a UK permanent establishment can claim treaty relief on the same basis as is available to a UK company. However, the total relief is not to exceed what would have been available if the permanent establishment had been an
Foreign tax relief
Foreign tax reliefIncome and gains may be taxable in more than one country. The UK has three ways of ensuring that the individual does not bear a double burden:1)treaty tax relief may reduce or eliminate the double tax2)if there is no treaty, the individual can claim ‘unilateral’ relief by deducting the foreign tax from their UK tax3)the individual can also deduct the foreign tax as an expense from their income (known as relief by deduction), although this is generally less efficient This guidance note looks at these three options in turn, and then considers how the reliefs should be used efficiently for income tax and capital gains tax and how they should be reported for self assessment. It does not cover remittance basis users. For this, see Simon’s Taxes E4.1323.HMRC guidance on a country by country basis is given in DT2140PP.Minimisation of foreign taxBefore claiming relief for foreign taxes suffered, you should note that the individual can only make a claim if they have taken all reasonable steps to have their foreign liability reduced to a minimum.This includes claiming, or securing the deduction of, all allowances, reductions, reliefs and deductions which the individual might have reasonably expected to have claimed or secured if no foreign tax relief claim was open to them. Examples of such reliefs might be personal allowances in the overseas country, deductions for expenses, etc.Treaty reliefNext, you should consider the provisions of the relevant tax treaty. There is a list of current UK
Tax relief for pension contributions
Tax relief for pension contributionsThe completion of boxes 1 to 4 at the top of page TR4 of the main tax return allows a taxpayer to claim tax relief on pension contributions made in the tax year.Most contributions to registered pension schemes are paid net of basic rate tax relief (via a relief at source scheme), so the only additional relief sought by entry on the tax return is relief at higher rates of tax.For Scottish taxpayers, relief at source is at the Scottish basic rate. From 2017/18 onwards, due to the divergence in the Scottish bands and rates from the rest of the UK, multiple bands need to be extended where pension contributions are paid to relief at source schemes. Scottish tax bands need to be extended for calculating tax on non-savings, non-dividend income. UK tax bands need to be extended for calculating tax on savings and dividend income of Scottish taxpayers. This is discussed further below.Contributions are paid gross to occupational schemes that use a net pay arrangement.For the meaning of a registered pension scheme, relief at source scheme and net pay arrangement, see the Pensions glossary of terms guidance note.The tax relief available for pension contributions is summarised in the Flowchart ― tax relief for contributions to a UK registered pension scheme.Conditions for tax relief to be claimedRelevant UK individualTo obtain tax relief on pension contributions, the scheme member must be a relevant UK individual. This means that the individual must:•have relevant UK earnings chargeable
Gain deferred through EIS becomes chargeable
Gain deferred through EIS becomes chargeableThe enterprise investment scheme (EIS) encourages individuals to invest money in shares issued by qualifying unquoted companies.A subscription for eligible shares of a qualifying EIS company is a tax efficient investment for the individual. For a summary of the tax reliefs that are available to the investor, see the Enterprise investment scheme tax relief guidance note.Any profit on the disposal of the EIS shares themselves is likely to be exempt from capital gains tax under the rules discussed in the Enterprise investment scheme tax relief guidance note.CGT deferral relief allows investors disposing of any asset to defer gains against subscriptions in EIS shares. This is discussed in detail in the Enterprise investment scheme deferral relief guidance note. Under EIS deferral relief (also known as EIS re-investment relief), deferred gains are set aside or ‘frozen’ until the occurrence of specified future events. The base cost of the replacement asset (ie the new EIS shares) remains unchanged. This frozen gain crystallises and becomes chargeable in the year of a ‘chargeable event’. Usually, this will be on the sale of the EIS shares. When the EIS shares are sold, there will sometimes be a gain on the shares themselves but, in addition, this disposal will also crystallise the frozen gain.This guidance note discusses the triggers which cause the capital gain deferred on the subscription for EIS shares to crystallise.Chargeable eventsThe following are chargeable events:•gift of the EIS shares, unless the gift is to the individual’s spouse
Gifting cash and assets to charity
Gifting cash and assets to charityThere are a number of tax reliefs available for gifts to charities. This note sets out the UK tax treatment of gifts to organisations established in part of the UK with purposes regarded as charitable under the law of England and Wales. See the Foreign charitable trusts and other foreign charities guidance note for information on gifts to other entities of a charitable nature.Gift aidGift aid is a way for charities or community amateur sports clubs to increase the value of monetary gifts from UK taxpayers by claiming back the basic rate of tax paid by the donor.See the Gifts of cash guidance note in the Personal Tax module for details of the conditions for a qualifying donation and the tax relief available to the individual.Record keepingA charity must maintain evidence to satisfy HMRC that a payment has been made and by whom. For full details of the records to be kept by a charity and the format in which the records may be stored, see the HMRC website.Planning issues for charities Charities should encourage all donors to make use of gift aid. If a charity receives a simple cash gift it should consider contacting the donor to ask whether it would be appropriate to send him a gift aid declaration. The charity can bank the donation in the meantime.Payroll givingPayroll giving (often called 'give as you earn') is a way for employees to make regular payments to charity directly from their salary. People who
Annuities
AnnuitiesIncome tax position of the trustThe terms of a trust may require the payment of an annuity to a beneficiary. Alternatively, discretionary trustees may decide to pay a fixed annual sum to a beneficiary for a predetermined period. In both cases, the beneficiary has a right to the annuity, and effectively has an interest in possession in a fixed portion of the income. The tax treatment of annuities arises from three separate provisions in the legislation:•the income which funds the annuity, is not subject to the trustees discretion or available to be accumulated. Therefore, that portion of income is not subject to trust rates of tax, regardless of the status of the trust as a whole, because it belongs to another person. See the Discretionary trusts ― income tax guidance note•the income which funds the annuity qualifies as a charge on income as an annual
Employee trusts ― implications of disguised remuneration and where are we now?
Employee trusts ― implications of disguised remuneration and where are we now?Employee benefit trusts (EBTs) are commonly used to support employees’ share schemes and to provide other benefits to employees. For example, EBTs were used to provide additional benefits where the previous reduction of the pension lifetime allowance resulted in employees having significantly less tax efficient pension provision than was intended. Many employers established employer financed retirement benefit schemes although the trusts were in fact an EBT that permitted the provision of retirement benefits. EBTs were also used to provide what was believed to be ‘tax efficient’ bonuses ― contributions to an EBT would be held for an employee’s (or a class of employees’) benefit. The EBT would either invest for the benefit of the employees, or more widely, the EBT would provide a loan to the employee. The employee would have the benefit of the loan and not suffer the tax liability of a payment made outright to the employee.The use of EBTs has been significantly affected by the introduction of the disguised remuneration rules. For further information, please see the Disguised remuneration ― overview guidance note. There are statutory exclusions from those rules to cover many of the share scheme-related activities of EBTs. However, providing loans or opportunities for wealth creation through long-term investment schemes, has declined due to the tax and NIC treatment as a result of the disguised remuneration legislation.Legislation introduced in Finance Act 2014 promoted employee ownership of companies. Employee owners who dispose of
Pension schemes ― unauthorised payments
Pension schemes ― unauthorised paymentsSTOP PRESS: This guidance note may be affected by the changes to the taxation of pensions made by FA 2024, Sch 9 from 6 April 2024 onwards. The commentary below covers the rules that apply prior to that date. Before continuing your research, see the Abolition of the lifetime allowance guidance note.Registered pension schemes are permitted by law to make certain payments to members, known as ‘authorised’ member payments. Any payments to members other than those set out in the legislation are ‘unauthorised’. Subject to conditions, the following payments are likely to be authorised payments:•all forms of pensions, including lump sum and income withdrawals permitted under the pensions freedom rules introduced from 6 April 2015 (see FA 2004, Sch 28)•pension commencement lump sums (a lump sum which a member becomes entitled to when a pension comes into payment)•serious ill-health lump sums (a lump sum paid by commuting the whole of a member’s pension because of serious ill-health)•short-service refund lump sums (a lump sum refunding a member’s contributions because the member has only a short period of service ― that is, less than two years for defined benefit schemes and 30 days for money purchase schemes)•refund of excess contributions lump sums (lump sums refunding a member of contributions which did not receive tax relief)•trivial commutation lump sums (a lump sum paid by commuting the whole of a member’s benefits because their total pension benefits do not exceed
Research and development tax relief ― capital expenditure
Research and development tax relief ― capital expenditureThis guidance note provides information on the relief available for capital expenditure on research and development (R&D). The Research and development (R&D) relief - overview guidance note provides an overview of R&D reliefs for revenue expenditure. The guidance note Capital vs revenue expenditure provides information on whether expenditure is capital or revenue in nature.It is important to note that, although R&D tax relief for revenue expenditure is not available to unincorporated businesses or individual hobbyist inventors, only to companies, the RDAs for capital expenditure are available for companies and unincorporated businesses, provided they are carrying on a trade.See also Simon’s Taxes B3.7 for further details.Relief for capital expenditureWhat is qualifying expenditure for RDAs?R&D for these purposes is defined as activities that fall to be treated as such in accordance with GAAP and that satisfy the conditions set out in the guidelines issued by the Business, Energy and Industrial Strategy (BEIS) (formerly the Department of Trade and Industry). Essentially, R&D that qualifies for the tax relief for revenue expenditure will also be R&D for capital allowances purposes (see the Definition of research and development guidance note for further details). In addition, R&D for capital allowances purposes also includes oil and gas exploration and appraisal. Expenditure on R&D will qualify for RDAs where it is capital in nature, undertaken directly by the company or on its behalf and incurred in relation to an existing or future trade. Where R&D is carried out on behalf
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