Tax Planning for UK businesses trading in the USA

Typically your US business may start by selling from the UK direct to your US customer.  As your US market expands, you may have an increasing need to establish your own marketing or sales operation in the USA.  At this point it becomes important to consider the most tax-efficient structure to maximise the return to the UK corporate or individual investor.

A simple structure would be to operate through a US branch of a UK company, which would be subject to US corporate tax on the US profits at federal and state level in a similar way to a US company.  The US branch profits would be subject to UK corporation tax as part of the UK company’s total profits, with double tax relief given for the US tax, unless the UK company makes an election to exempt the foreign branch from UK corporation tax.  An alternative structure would be to operate through a US subsidiary company.  This could be a regular type of US corporation taxed in the USA at corporate level, or could be a US Limited Liability Company (LLC) which is taxed in the USA in a similar way to a partnership whilst providing limited liability protection.

There are many tax areas to consider in any cross-border structure, such as transfer pricing rules in the UK and USA, and use of tax benefits available under the UK/US double tax treaty.  It is important to find a good local tax advisor in the USA to help navigate through the complexities of US federal and state taxes, and for there to be good co-ordination of the tax planning with the UK advisor who should drive the advice for the UK investors.

Ward Williams, Chartered Accountants

www.wardwilliams.co.uk

01932 830664

enquiries@wardwilliams.co.uk

Offices locations:  Weybridge · Uxbridge · Sunninghill · London · Bracknell

HMRC Targets Private Landlords!

It is well publicised that the Government is committed to cracking down on tax avoidance and evasion, from individuals who bend the rules through to lawbreakers who evade their taxes altogether.  Whilst David Gauke (Exchequer Secretary to the Treasury) announced in his ‘Compliance Progress Report (March 2013)’ that the UK’s tax gap figures rank among the lowest in the world, the Government is still committed to investing almost £1 billion in HMRC in a clampdown on avoidance and evasion.  It is hoped that this investment will enable HMRC to secure £22 billion a year in compliance revenues by the end of 2014/15 – some 70 per cent more than 2010/11.

Since 2010 HMRC has carried out a number of specialist taskforces, targeting specific industries or locations, where there is evidence of tax evasion.  As part of this activity HMRC run specific campaigns, providing opportunities for individuals to come forward and voluntarily put their tax affairs in order.  The penalties imposed by HMRC for an unprompted disclosure under a tax campaign are more lenient than those who “choose not to pay up”.

It is believed that around a third of buy-to-let landlords could be dodging their tax on their rental income, at a cost estimated by HMRC of £550 million to the taxpayer.  It is therefore hardly surprising that HMRC announced it was launching a special taskforce in 2013 to target private landlords, initially in the south-east, in order to crackdown on those evading tax.

The latest campaign being rolled out is the ‘Property Sales Campaign’.  This provides an opportunity for individuals to bring their affairs up to date where they have sold a second or additional residential property, in the UK or abroad, and have not previously disclosed the capital gain and paid any tax that is due.  As part of this campaign individuals must also voluntarily provide HMRC with details of any previously undisclosed income, such as income from property or land rental.  To take advantage of this latest campaign individuals must voluntarily disclose their income or gains and pay any outstanding tax by 6 September 2013 (to take part in this campaign notification must be made to HMRC by 9 August 2013).

If you wish to discuss the issues raised in this article, please feel free to contact me at simon.boxall@wardwilliams.co.uk

Tax breaks for expats working in the UK

If your company is planning to second employees from an overseas associated company, significant tax breaks could be available under the UK tax rules for temporary workplace and overseas workday reliefs.

Under the temporary workplace relief (TWR) rules, where an employee is seconded from a permanent workplace to a temporary workplace for a period not exceeding 24 months, accommodation and other living expenses can be provided by the employer free of tax and NIC.  This can cover secondments from abroad as well as within the UK, and provide significant savings in the cost to the employer of the employment package as well as reduced tax liabilities for the employee.  Deductible UK living expenses can include rent, utilities, council tax, household goods, local travel, meals and food.

Overseas workday relief (OWR) can benefit secondees to the UK who are required to work some of their time outside the UK, since the overseas workday proportion of their remuneration can be free of UK tax if certain conditions are satisfied.  Previously the employee had to be “not ordinarily resident” in the UK, which in practice meant that OWR was available for the first 3 years.  Under the new statutory residence rules effective from 6 April 2013, the concept of ordinary residence has been abolished, but OWR is still available provided that the individual is not UK-domiciled and has previously been non-resident for a consecutive period of 3 years.  Another important condition is that the overseas workday proportion of remuneration must be paid to the employee outside the UK and not remitted to the UK.  The employer can arrange with HMRC for OWR to be given through PAYE on an estimated basis pending final relief through the employee’s personal tax return.

For further information/advice on this subject please contact Ward Williams:

01932 830664  · www.wardwilliams.co.uk ·  enquiries@wardwilliams.co.uk

Top Tax Tips for High Earners

What is a high earner?

There are a few ‘stages’ at which we tax advisers may consider an individual to be a ‘high earner’ and these stages arise because there are a certain levels at which tax planning opportunities arise specifically because of a person’s income. 

For example – a person may be regarded as a high earner when they are earning £60,000 or more as at this level any entitlement to Child Benefit will be lost.

For those earning just above £100,000 this is where entitlement to the tax free allowance starts to be withdrawn. 

And anyone earning over £150,000 is subject to the top rate of tax of 45%.

In all cases these are people who would benefit from taking measures to reduce their relevant income.

Top Tips

I will talk you through 4 top tips which are designed to be easy for you to take the initiative with. I will not go into the use of Trusts (which can be a very useful area for High Net Worth individuals) as this is an area which requires detailed and personalised professional advice.

1: Income Equalisation

Where a high earner is married to or in a civil partnership with someone who either does not work or who is not a higher rate or top rate tax payer there are potential savings to make. 

The higher earning spouse may shift income over to the lower earning spouse to make sure that all personal allowances and basic rate bands are fully utilised. This can be a particularly lucrative tip as the actual transfers of assets or cash to spouses themselves are exempt from tax. 

Popular assets to transfer include income bearing investments (i.e. money held in savings accounts), dividend bearing shares and rental properties. 

2: Gift Aid

It seems to be easily forgotten but gift aid, donating to charities, can be a very tax efficient thing to do.

A top rate tax payer can save 30% of the gross donation in tax, so it is important that you tell your adviser about any charitable giving you have been doing during the year.  In real terms that’s £30 of saved tax for an £80 donation... 

Gift Aided donations also reduce ‘Net Relevant Income’ which is used when calculating entitlement to Child Benefit and Personal Allowances. 

There are a few ‘rules’ which make the donations eligible for these reliefs but it’s very easy to qualify and your adviser should be able to talk you though it. 

3: Make Sure You Declare Everything

A common mistake I find is that people feel that Self Assessment is just for people to declare their trading income, or perhaps if they’ve had a special investment mature but actually it is  designed to collect information on all of a taxpayer’s income, not just income from business sources. Bank interest from all accounts (but not ISAs) must be shown on the tax return as must all employment income, rental income and expenses and dividend income. Various institutions send HMRC your income details each year and if there is a discrepancy then HMRC may raise an enquiry. 

Dealing with an enquiry and paying the associated fines for not declaring all of your income is not only stressful but can also be costly. 

4: Plan Ahead

Whether you are thinking of investing or selling an investment it is a good idea to speak to an adviser first. 

Something as simple as the date of making an investment can have a huge effect on the amount of tax you pay – and likewise, the date of selling an investment can see your tax bill go from £££ to zero. 

It is tempting to leave planning as an after thought but it really can save you big money. Find an adviser you feel comfortable speaking to and who is easy to contact and then utilise them!

For further information/advice please contact Robyn Milstead on 01932 830664 or email: robyn.milstead@wardwilliams.co.uk