Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.
While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.
Succession
Plan early to avoid disappointment. Unless you are very lucky, it’s not something that can be planned on a whim and warrants a lot of time, effort and energy.
I have heard it said that it should take about 3 years as a minimum to get the business ready for a sale and longer to get it ready for an in-house hand over.
One of the issues that we see is that there are a lot of people these days who are happy to be employed and just don’t want the responsibility, commitment and hassle of running a business. They don’t like the idea of working 60, 70 or 80 hours a week and eating, sleeping and dreaming about the business. Luckily there are still enough who are prepared to take up that challenge albeit that these days most people want a life outside of the business.
If you are planning an in house hand over, make sure your “successors” are willing to pick up the baton when you are ready to exit.
Part of the planning for any sort of exit is to organise your business so that you are largely redundant. This means that the business is separate from you, and you are not a necessary component of that business. You don’t need to be handed over as part of the business. Succession planning therefore isn’t just about planning for an exit, it’s about shifting your role within the business and creating systems, processes and playbooks that remove you from the day-to-day operations.
If you aren’t planning in this way, what happens when something unexpected happens, such as a sudden illness, family emergencies etc, when you’re forced to make decisions under time pressure and likely to lead to a sub optimal outcome, especially for you.
Succession planning gives you the luxury of time to make intentional, strategic decisions instead of scrambling to react during a crisis.
Selling your Business
The question of when to sell your business seems simple, but in reality, unless forced upon you, is unlikely to be a straightforward decision.
You are unlikely to pick the perfect moment to sell. Few business owners plan ahead and so often the timing is driven by personal issues, perhaps just by the owner losing motivation and wanting to get out.
In one survey it was stated that 70–80% of businesses that go to market never actually sell, either because the owner has either waited too long or entered the process unprepared.
Most smaller businesses will sell, but it may mean you have to accept a much lower price that you feel the business is worth. In our experience, most business owners think their businesses are worth more than in reality. The buyer is going to be parting with their hard earned cash, and they are going to be looking critically at what they will get for their money.
Seller readiness is about the business owner. It is about knowing why you are selling, what you want to achieve, and whether you are mentally and emotionally prepared for life after exit. What is the motivation for the sale and can you achieve your expectations. Are you ready for the change? Will you be able to transition out of the business with control, dignity, and alignment.
Business readiness is about whether the company is ready for sale. Can it operate independently of you, is financially healthy with a potentially long term trading future.
If you are contemplating a sale does your business display the following characteristics?
- Does your business have contracts, subscriptions, and repeatable income.
- Does the business depend heavily on you or one or two key staff or has responsibility been devolved.
- Does the business display consistent revenues, profit growth, and clean, well-organised accounts.
- Do you have well-documented systems, tech infrastructure, and scalable processes.
- Do you have a diversified customer base as opposed to one or two key clients.
The right time to sell is likely to be when you have clarity on your goals, needs and emotional readiness, and the business has strong systems, minimal dependencies, and healthy financials.
Many owners have no exit plan at all. There is the old saying that failing to plan is planning to fail, and in the context of a business sale this is just as true. You may still get a sale but not at a price that gives you what you want.
HMRC and AI
It has been revealed that 72% of tax administrations are now using artificial intelligence (AI), according to a recent Organisation for Economic Co-operation and Development (OECD) report.
AI can quickly reveal patterns and connections that would not be discernible by a human tax officer. With these opportunities come certain risks which impact both on you and on us.
The OECD report notes that 87% of tax administrations that use AI have limitations on its use and 41% have an ethical framework in place. They have already recognised the risks.
The 2023/24 HMRC Annual Report tells us that the department’s VAT predictive analytics model uses machine-learning techniques to predict the taxpayers most likely to be non-compliant. It is also actively exploring the potential of generative AI with a focus on establishing how AI could be used internally to boost productivity. This could be by enhancing search capability, data analysis and content summarisation as well as through the development of chatbots.
The Annual Report also highlights that where the use of AI could impact customer outcomes, HMRC always ensures that the result is explainable, that there’s a human in the loop, and that it complies with HMRC’s data protection, security and AI ethics standards.
This all sounds good, but I think we are all expecting a variety of issues and unexpected outcomes as HMRC uses AI more and more in its processes. Investigations may be targeted differently and things that you thought would be under the radar, are not.
MTD & Joint Ownership Landlords
HMRC assumes that married couples and civil partners living together split rental income equally, regardless of actual ownership percentages. This automatic income splitting often works in couples’ favour by transferring income from higher-rate taxpayers to basic-rate taxpayers.
Form 17 allows couples to elect for tax treatment based on actual ownership rather than the automatic 50/50 split. But the numbers need to work in your favour. This might apply where each has contributed different amounts of capital to the acquisition.
However, the use of Form 17 comes with strict rules that often catch many people off guard.
First, the property must be owned with unequal beneficial interests, and you need solid evidence of unequal ownership – typically a declaration of trust, deed of assignment, or purchase documentation that shows different contributions. This evidence can be years old, but the Form 17 itself must be submitted within 60 days of the date of signing.
Once filed, Form 17 remains in effect automatically until one of three events occurs:
- A spouse or partner dies
- The couple permanently separates
- Or the beneficial ownership changes
Transfer any of the ownership between spouses or civil partners and the existing Form 17 becomes invalid, and you need a new one.
You can’t use it if you actually own 50/50 as the form achieves nothing and separated couples can’t file because they must be living together.
Also, you can’t use Form 17 if the income rights don’t match the property ownership rights. The beneficial interests in both the property and its income must correspond exactly. HMRC requires that your share of ownership and your share of income be the same percentage.
Property ownership is rarely static over time. Couples refinance, add names to mortgages, or adjust ownership percentages for various reasons. Each change can invalidate an existing Form 17 elections without anyone realising the implications.
An additional complication is that under Making Tax Digital for Income Tax, you will need to set up and accurately report your ownership stake in each of your quarterly updates which means your ownership split needs to be defined in the digital record-keeping software that you use.
Share Loss Tax Relief
Income tax relief can be available where a Capital Loss has been made on the disposal of shares that you subscribed in a company, as opposed to buying from someone else.
It is also possible to generate a loss for capital gains tax purposes in situations where the shares have not actually been disposed of. The mechanism for this is via a ‘negligible value claim.’ The shares must have become of negligible value since you acquired them and had a non-negligible value when acquired.
It does not matter when the asset became of negligible value, only that it is of negligible value on the effective date of the claim.
There is no official definition of ‘negligible value’ for these purposes but would include shares in an insolvent company.
Following the making of a negligible value claim, the asset is treated as having been disposed of for the specified amount, which can be nil, and then immediately reacquired for that same value. This effectively creates a loss while allowing you to retain the asset.
If the shares for whatever reason increases in value, the full proceeds will potentially then be subject to capital gains tax.
There are various options for how you offset the income tax loss against your other income. Any amount of the loss which cannot be relieved in this way will remain a capital loss and be set first against any gains of the same year, before being carried forward against gains of later tax years.
£3.75k Grant for Electric Vehicles
The government is reinstating grants for buyers of brand new zero emission vehicles.
The grant of up to £3,750 on new electric cars will apply to electric cars with the maximum car priced at £37,000 or under.
Manufacturers will be able to apply to join the electric car grant (ECG) with eligibility dependent on the highest manufacturing sustainability standards.
Drivers will start to benefit from discounts as soon as manufacturers successfully apply for their zero emission cars to be part of the grant scheme from 16 July 2025, with funding available until the 2028-29 financial year.
Farming in the New Tax Environment
The reduction in APR and BPR from April next year is likely to impact on future farm cashflows.
It was bad enough having to think about funding of care costs but now tax must come into the equation.
One source of funding is the sale of surplus assets that can be sold off without impacting on the viability of the farming business.
Cottages are one example but there may possible be capital gains tax to pay on the sale of the cottage..
There are some basic elements that should always be put in place when it comes to succession including:
- Written partnership agreements which are consistent with partners’ own wills.
- Wills, but first make sure any interests in property and land are accurately recorded, so everyone understands who owns what assets and whether there are any claims over them.
But it can be hard to plan ahead effectively when there are always so many unknowns. For example, what will the next budget bring?
Tax Rises – the Public’s View
Some of the tax rises have been better received than others. Increases in the rate of employers’ NIC was generally disliked but imposing VAT on Private School fees drew a much less negative reaction.
In the same survey it was identified that the most disliked tax raising measure is taxing unused pension pots through inheritance tax (IHT) with only 21% of British people supporting the proposal, and 44% opposed it outright.
The proposals to subject unused pensions funds to IHT on death is the most widely opposed of all the tax raising measures announced so far.
Questions?
If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at alan.long@thelongpartnership.co.uk
