VAT ON SALE OF COMMERCIAL BUILDINGS

When purchasing or selling a commercial property one of the first things to establish is whether VAT will be applied to the price of the property. Land and buildings are generally exempt from VAT, but 'new' commercial property (i.e. less than three years old) will have VAT applied. Otherwise VAT should only be charged on the sale of a commercial property where the seller has previously elected to apply VAT to the property. This election is known as the 'option to tax'.

There are circumstances where the option to tax may be disapplied by the seller, such as where the purchaser is going to use the building solely for charitable purposes or the building will be converted into residential use. If there is any question that VAT should not be applied to the sale, the seller must ask the purchaser for written confirmation of the intended use of the building.

When the purchaser plans to convert the building to residential use it must provide the seller with a VAT certificate (form VAT1614D) to confirm their intentions for the building. In other circumstances a written instruction from the purchaser should be sufficient.

Where VAT is applied to the price of the building, the stamp duty land tax (SDLT) charge will inevitably be higher, as SDLT is charged on the gross consideration paid, including the VAT charged. If you are planning to purchase a commercial property, or sell one, ask us to check the VAT implications before the price is agreed.

CONTRACTOR LOAN SCHEMES

Have you taken part in a contractor loan scheme? This is a tax saving scheme which was widely sold to workers in personal service industries, such as IT contractors.

To use the scheme the individual would sign an employment contract with an offshore employer, but work for customers in the UK. The individual would often receive a large proportion of their fee for that work as a loan from the offshore employer. They were told the loan was not taxable, except for a small benefit in kind charge on the unpaid interest on the loan, but that's not what the Taxman thinks.

The Taxman has publicly announced that he is opening tax enquires into individuals' tax returns for periods during which they have used such loan schemes. In some cases the individual will receive a tax bill for the years 2008/09 to 2010/11, to collect the tax they think they avoided. There will be penalties and interest to pay on any tax found to be avoided.

If you have used a similar loan scheme to reduce UK tax, you should talk to us.

NEW EMPLOYEE SHAREHOLDER STATUS

The Government thinks that employees who own shares in their employing company feel more involved in that business and hence are happy and loyal employees. So it has introduced a new share scheme from 1st September 2013 which allows you, as an employer, to give your employees tax-free shares in your company, but in return the employees must give up some key employment rights.

How does this work?

The employee must sign a fresh employment contract called an 'employee shareholder' contract, then they must be issued with shares worth at least £2,000 (and up to £50,000) in their employing company. When the individual sells those shares any gain arising on that disposal is completely exempt from capital gains tax. However, any gain up to £10,900 (for 2013/14) would be tax free anyway.

Normally where shares are awarded to an employee their value is treated as taxable income for that employee, unless the shares are issued under an approved share scheme. In this case the first £2,000 worth of shares awarded will be free of income tax and NIC, but not any further shares.

The downside is the employee must surrender all of following rights to take up employee shareholder status and receive the free shares:

- compensation for unfair dismissal, apart from when this is automatically unfair or relates to anti-discrimination law;
- request for time off for studying or training;
- request for flexible working; and
- statutory redundancy pay.

Also the employee must give 16 weeks' notice (instead of 8 weeks) when returning from maternity or adoption leave.

This sounds like an attractive deal for an entrepreneur who doesn't care about his own employment rights. However, any person who holds 25% or more of the company (alone or with associates) can't take up employee shareholder status and enjoy the tax-free shares. So this share scheme can only be used to give shares to employees who don't already have a significant share in the company.

Before implementing this scheme you should take employment law advice, and specialist advice on how to value your company's shares. The employees should also take independent advice before signing away their employment rights, but you, as their employer, can pay for that advice with no tax consequences.

INDIVIDUAL SAVINGS ACCOUNTS

Use your Individual Savings Account (ISA) allowance each year to enjoy tax-free interest.

For 2013/14 the limit is £11,520 (of which up to £5,760 can be invested in cash).

You can invest in cash, insurance, stocks and shares, etc. up to the limit each year and all proceeds are free from personal taxation. Investing at the start of each year maximises the tax-free return.

These ISAs are also useful for the retention of income within the fund as this is received effectively tax-free. This means that the fund can grow at a faster rate than if the funds were held outside an ISA where potentially 20%, 40% or 45% of the investment return would be taxed.

Using an ISA to invest £10,000 each year for ten years will provide a pot of £100,000 plus accumulated interest which is generating tax-free returns. Over a number of years this can be a viable alternative to a pension fund as proceeds can be taken at any time and there is no requirement to wait for retirement age or to take an annuity.

USE NON-TAXPAYERS' PERSONAL ALLOWANCES

If one spouse or civil partner is working and the other has no taxable income, it is worthwhile considering transferring income producing investments to the non-working spouse/civil partner in order to utilise their personal allowance.

This will save tax on the income and will increase the overall return from these investments.

This can be useful with even the smallest amounts of savings.

PENSION LIFETIME ALLOWANCE

The Government want us to save enough so we can each draw an adequate pension in retirement, but if you save too much you will be stung with a 55% tax charge when you draw your pension. The boundary between 'enough' and 'too much' savings is set in law by the lifetime allowance, which is a value of your total pension savings at retirement. This allowance will be reduced from £1.5 million to £1.25 million on 6 April 2014.

To give you an overview on these seemingly high numbers: an annual pension of £75,000 for a man aged 65 at retirement, today requires a pension fund of roughly £1.5 million. A pension fund of £1.25 million would deliver an annual pension of about £62,500 to the same person. If you contribute to a defined contribution pension scheme (the most common type), the value of your pension fund will be shown on your annual pension scheme statement.

If you are a member of a final salary pension scheme it will promise to pay you a pension equivalent to a percentage of your final salary. That could be as much as 2/3rds of your final salary. Work backwards from your current salary to get a rough idea of how much your pension fund may be worth. Your pension scheme trustees will be able to give you more accurate figures.

Once you have those figures, you can judge whether you need to elect to fix your lifetime allowance at its current level of £1.5 million, where your pension fund already exceeds £1.25 million. This is known as 'fixed protection 2014', and you need to apply to HMRC to do this before 6 April 2014.

Once fixed protection 2014 is obtained you won't be able to make any further pension contributions to a registered pension scheme. If you are a member of an occupational pension scheme which receives automatic contributions on your behalf, you will have to opt out of that scheme or lose the fixed protection.

After 6 April 2014 there will be another way of protecting your pension fund, called 'individual protection 2014'. This will fix your lifetime allowance at the value of your pension rights as at 6 April 2014, up to a maximum of £1.5 million. You should discuss with your financial adviser which type of pension protection is best for you.

VAT ON STORAGE CHAGNE

The law on whether VAT must be charged on storage facilities changed from 1 October 2012. Before that date if you let out space for storage to individuals or businesses, that service could be exempt from VAT, if you had not elected for the whole building to be subject to VAT (AKA: 'opted to tax'). Since October 2012, if you are VAT registered, you generally need to charge VAT at 20% on the supply of storage areas.

The Taxman has recently confirmed in a new VAT information sheet (10/13) that any let space which is used for storage carries 20% VAT, not just the lock and leave facilities marketed as 'self-storage'. This could affect businesses that let properties or out unused parts of their buildings to others who use that space to store goods or materials. For example a farmer might let out surplus farm buildings on a temporary basis.

There are only a few exceptions to this new VAT rule. Those include where the space is let to a charity and it is not used for business purposes, and where the space is predominately used for an active purpose such as retail, and the storage is an ancillary activity.

It is the landlord's responsibility to know how the let space is used and charge the relevant rate of VAT. If you have not charged VAT when you should have done for periods from 1 October 2012, you may need to correct this error in your next VAT return. We can advise you on the best way to do this.