D J Macaulay

UK Tax Alerts

November 2009

Unwelcome capital gains charge for non-doms

VAT place of supply changes 1 January 2010

Tax Losses, accounting date considerations

Unwelcome capital gains charge for non-doms

If you live and work in the UK but your country of domicile is not the UK you may get caught by an unwelcome effect of the recent changes to tax legislation in the UK.

Foreign gains and losses from transfers between foreign bank accounts are subject to capital gains tax (CGT). However H M Revenue & Customs have confirmed that a taxpayer may treat all bank accounts in his or her name containing a particular foreign currency as one account and disregard direct transfers among such accounts for CGT purposes.

A problem arises as the above concession does not apply to non-domiciled individuals. Prior to the introduction of the remittance basis charge the potential CGT charge did not cause many problems as non-domiciled individuals were only taxed on a remittance basis on chargeable gains. Movements between offshore bank accounts would not constitute a remittance and as such were not in the charge to UK tax. Alternatively, those who were taxed on an arising basis would still have their annual exempt amount for CGT purposes to cover any chargeable gains. Unfortunately as those who are taxed on the remittance basis are no longer entitled to this annual exemption they could potentially become taxable on any net foreign exchange gains made in the tax year on funds remitted to the UK.

This means that if a non-domiciled individual is taxed on an arising basis with currency in the home bank account (ie outside the UK) they will have a disposal of foreign currency every time money is spent from that bank account. If the exchange rate were fixed, there would be no gain or loss but with a weak pound, every time a euro account is used for any expenditure, Euros are essentially sold and a foreign exchange gain occurs.

If you feel you may be affected by this issue please call to discuss your vulnerability to a CGT charge.

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VAT place of supply changes 1 January 2010

If you supply goods or services, business to business, to customers located outside the UK you may need to change the way you account for VAT on the supply from 1 January 2010.

Unless the supply falls into one of the three categories mentioned at the end of this paragraph, the default position for business to business supplies from 1 January 2010 is as follows - the place of supply will change from the location of the supplier to the location of the customer.

This default position does not apply where the place of supply is already based on:

• the location of the customer (commonly known as ‘Schedule 5’ services such as accountancy);
• the place where the service is being performed (e.g. training services),
• in the case of building related services (e.g. services of a plumber or architect), the location of land.

If this change means that you are no longer charging VAT to European Community businesses from 1 January 2010 you will need to make appropriate entries on the quarterly EC Sales List form.

The full scope of the changes enacted are beyond the scope of this short alert. If you trade with overseas businesses please call so we can fully brief you based on your particular circumstances.

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Tax Losses, accounting date considerations

Businesses which incur tax losses can, for a temporary period, carry those losses back three years and obtain tax refunds in respect of tax paid in those earlier years. This temporary measure, introduced last autumn in the Pre Budget report affects both income and corporation tax, although the way the relief works and the precise period for which relief is available varies between the two taxes.

This article flags up the way in which your business accounting date can affect the amount of loss relief you could claim.

Businesses affected by income tax, sole traders and partnerships, can carry back losses under these provisions suffered in accounting periods, of any length, ending in the tax years 2008-09 and 2009-10.

Businesses that pay corporation tax can carry back losses under these provisions suffered in accounting periods, again of any length, ending in the two year period from 24 November 2008 to 23 November 2011.

With no change of your usual accounting date, only two trading year’s profits or losses will be affected. For instance if you are a sole trader and have a 31 March year end, the year’s results affected will be to 31 March 2009 and 31 March 2010. However if your accounting date is say 30 April the two years available for the loss carry back with no change of accounting date are 30 April 2008 and 30 April 2009. If your business was late to be affected by recession you may still be making losses after April 2009. If this is the case you could consider shortening the accounting period to 30 April 2010 to the eleven months to 31 March 2010. In this way you could look at using losses in the trading years to 30 April 2008 and 2009 and also the eleven months to 31 March 2010.

The calculations for companies are based on different date criteria but similar principals apply.

It is not always advisable for other tax planning reasons to change your accounting date! In certain circumstances a change of accounting date may be blocked due to Companies Act and tax law considerations.

However the availability of the extended loss relief should be investigated if tax paid in previous years can be recovered. Please contact us if you would like more information on this topic.

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