Find out what we have been answering for you this month…
Q
If the company issues shares to an employee, how is that reported/taxed?
A
Shares issued to employees fall under the Employment Related Securities (ERS) legislation. The value of the shares will usually be reported on form P11D. Online reporting is required by 5 July following the end of the tax year.
With regard to the tax payable, obviously this will depend on the market value of the shares. It is important to have a robust valuation. For a trading company the valuation will usually be based on a multiple of the company’s maintainable earnings to arrive at the Enterprise Value of the company. Surplus cash can be added to arrive at the Equity Value.
Depending on the number of shares issued a discount can be applied to the pro-rata value of the shareholding. For holdings of 5% or less HMRC will usually accept a discount of at least 70%.
Q
Apart from EMI share options what other share schemes are popular?
A
Not all companies qualify for EMI so instead a Company Share Option Plan can be used. Not as attractive as EMI as the maximum value of share options under CSOP is £60,000 and the shares have to be help for 3 years.
For smaller companies, growth shares are increasingly popular and can incentivise employees. The shares will only have value when a specified hurdle is achieved, which means that on issue HMRC should accept that the value of the shares is low/par value.
Q
I have a client that returned to the UK during the 2023/24 UK tax year after 10 consecutive years of non-residence. When will their first year of residence for FIG purposes be?
A
Although the FIG regime started on 6 April 2025, you can still be a qualifying new resident from the 2022/23 tax year. So in this case, the client’s first year of residence under the FIG regime will be 2023/24.
Find out what we have been answering for you this month…
Q
I would like to confirm the correct VAT treatment of services provided from overseas suppliers to a GB VAT-registered business with a UK place of residence.
From my understanding, where the service is provided by a company registered abroad, even if they have a GB VAT number, the treatment should be reverse charge. However, there are occasions where the service provider isn’t aware they are providing the service to a VAT registered customer, and they issue an invoice at 20% VAT. Should this then be processed at 20%, or should all services from abroad be marked as reverse charge? We want to ensure that clients aren’t reclaiming VAT in error.
A
In this case if the UK business is receiving supplies from a non-UK supplier the reverse charge procedure should apply despite the supplier being registered in the UK as a non-established taxable person.
VAT Notice 741A section 5.17 explains:
5.17 What to do if my supplier has a UK VAT number and raises a VAT invoice
If you receive a supply to which the reverse charge applies and yet your non-UK supplier issues a VAT invoice on a UK VAT registration, you must still apply the reverse charge as it is not an optional adjustment. You should advise your supplier to amend or correct their invoice appropriately.
Q.
Can I have please list of all products that can be sold in restaurants and supermarkets that is Zero and 5% rated. I also need guidance around rules and regulations around it.
A.
There is no generic list of products sold in restaurants and supermarkets and the VAT rate that is applied to each product however the following should assist:
He was an IT contractor company, shares 5% owned by husband, 95% by wife, both are directors. The company was active from February 2023 to November 2024, I assume therefore no BADR is available.
There is a surplus of around £120k in the company and the client wishes to use it to invest in buy-to-let.
Husband is now under PAYE and is a higher rate taxpayer, looking to avoid higher rates on rental income, wife also under PAYE earns £36k. Live in Scotland.
Is it better to use the existing company with the cash for the buy to let or set up a new company? If BADR was available would an MVL and then set up a new company to invest be an option? Or something else?
A.
Your clients wouldn’t qualify for BADR as the company hasn’t traded for two years.
I’m not sure of the rationale for the 95%/5% share split in favour of wife as husband presumably did all the work and wife has earnings anyway. However, as husband is presumably now doing a similar job through PAYE, HMRC may seek to apply the TAAR (Phoenixing) rules if the company is liquidated.
It would be safer to use the existing company for the property investment to avoid any potential issues. The higher rates of SDLT/LBTT will of course apply but interest relief available in full and presumably surplus income that isn’t needed can be accumulated within the company.
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Q
I had a question about claiming trading losses against a client’s employment income.
He is a partner of an LLP which ceased trading on 31 March 2025 – this was a property rental business and before cessation he sold one of the properties so the LLP ended up making a big loss in the final year.
Can this loss be allocated against his employment income (which is not of the same trade as the LLP)?
I understand that there may be a limited of up to £50,000 or 25% of total income in the year, does this limit apply to this situation?
A
Only trading losses can be set against other income under s.64 ITA 2007, which I understand is the relief you are referring to.
Firstly, a property rental business is not a trade for these purposes, there are different rules for dealing with losses for property businesses.
In this case the sale of a property (which increased the loss) would also not be a trading loss nor a property business loss – it would be a capital loss so that partner’s share of the capital loss would only be available against current or future (carry forward) capital gains they make. They could not offset it against employment income.
Q
One of my clients person A is currently a 50:50 shareholder. The other shareholder person B wants to sell his shares and no longer work with the company.
My client A now is looking at buying the shares for £22,500 from his own funds.
-It looks like an SH03 form is needed- is that right? There is a reference to HMRC authorisation codes on the letter- what is this?
-Do they have to pay 0.5% in stamp duty? And complete a stock transfer form? Is this something you do as a service?
-Then Companies House is updated to reflect the change is share capital.
Then in terms of personal tax liability for B- it looks like capital gains tax with the potential to utilise BADR- is that right?
Is any formal paperwork needed for lawyers etc?
Is there anything else that I should be aware of?
A
SH03 form is only relevant when a share buyback occurs i.e. when the company itself buys back the shares. In this case person A is buying the shares individually rather than from Company funds so it isn’t a “share buyback”. As it is a private share transfer between the shareholders a stock transfer form (J30) would be required. Stamp Duty would be payable as the consideration is over £1,000. The company will need to update its register of members internally and reflect the change on the next confirmation statement (or it can file an updated CS straight away).
Depending on the Articles of Association and any existing shareholders agreement (if there is one) these may need to be considered to check if any resolutions are required to approve the transfer. Sometimes a share purchase agreement is recommended to document the transaction, but this is entirely for the clients to decide and take legal advice on.
We don’t do the forms – normally a solicitor will handle this (including the stamp duty filing). This is our understanding from handling multiple exit transactions however its best to obtain the opinion of a solicitor for the legal side.
For Person B, as they would be disposing of their shares to another individual this would be subject to CGT and provided they meet the BADR conditions (which as a ‘quick summary’ are that the co is a personal trading company, they own at least 5% voting/capital, they are an office holder/employee, they have met these conditions for 2 years and not previously used lifetime limit of £1m) then they can claim BADR on the sale.
Q
It has recently come to light that in May 2024 a client transferred a residential property he owned into a Ltd company (not his PPR). He did not realise this was a Capital gains tax event.
I am now completing his 2024/25 self assessment tax return and he has set up a Capital Gains on UK property account to report the CGT details. The 60 day reporting deadline was almost 12 months ago so this will presumably incur penalties and interest.
The Capital Gains on UK property account says the service can’t be used if the 2024/25 self assessment return has been filed. Is it better just to file the self assessment and pay the tax now and so not use the Capital gains on UK property account? Does it make any difference that the account has been set up?
A
As the deadline for the 60-day CGT return has passed, penalties and interest are likely to apply. Despite this, HMRC still requires that the disposal be reported using the Capital Gains on UK Property account. Submitting the details via the 2024/25 self-assessment return alone is not sufficient and does not remove the obligation to file the CGT return separately.
If the self-assessment tax return has not yet been submitted, we recommend completing and filing the CGT UK Property return as soon as possible, even though it’s late. Once that is submitted, the disposal can also be reflected in the self-assessment return for completeness.
However, if the 2024/25 self-assessment return has already been filed, and the online CGT reporting service is now unavailable, we would suggest contacting HMRC directly. They may advise on filing a paper return or provide an alternative method of disclosure, and they’ll also confirm how any penalties and interest will be dealt with.
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Q
I have a client who owns several limited companies, including a group holding company where he is the main shareholder. He is considering selling his shares in one of the limited companies to the group holding company. The company in question has not generated any profit, and the value of its assets has remained unchanged since incorporation. Could you please advise whether there would be any Capital Gains Tax implications for the client personally if he proceeds with this share transfer to the group holding company?
A
“Assuming that your client has control of the holding company, the transaction would take place at market value for tax purposes under s18 of TCGA 1992. However, so long as the market value of the shares now is the same as your client’s base cost for them then there would be no gain being made and therefore no Capital Gains Tax to pay.”
Q
We have had a query from a client about getting a valuation from HMRC re issuing new EMI share options. I have copied the extract below.
We are now at the point in the year where we’d like to allocate additional options to employees, and have had advice from elsewhere to say that we would likely now not be able to obtain a ‘par’ valuation from HMRC due to tightened restrictions (rather than an actual change in the rules) and that we should be asking for maximum 70% of the share price from our last funding round (which closed in May 2024).
Do you have any comments on the point about obtaining a par valuation or advice we should give to the client.
A
Where there have been recent transactions in shares, HMRC will take that valuation into account and as this will usually be above par value, HMRC will be reluctant to agree par value for EMI. Of course the terms of the fund raising would also be taken into account, for example preferential rights on shares etc. Maybe HMRC would accept slightly higher than 70% but it depends on the facts. Presumably the EMI options will be for a very small percentage of the share capital so a significant minority discount would be appropriate.
Q
We have a self-employed client who last tax year made losses of £25,974 and this year made a profit of £37,554. Offsetting one against the other gives taxable profits this year of £11,580. Do we have to utilise all their loss brought forward, or can we limit the loss used to £24,984 so the client makes full use of their personal allowance this tax year and carries the remaining £990 to future years?
A
A loss carried forward under s83 ITA 2007 must be relieved against the first profits of the same trade until such as point as there is no more loss remaining. As such it is an ‘all or nothing; claim, so its not possible to only relieve enough of the loss b/f to take advantage of the personal allowance.
The method of giving relief for losses in this way is set out in s84 ITA 2007 and in HMRC’s manual at BIM85060.
Find out what we have been answering for you this month…
Q
I have a client who has hurdle shares which he has contributed cash to purchase in their employer. in the contract of employment and share agreement, he negotiated an option that on any exit unvested shares which is what he has would vest automatically. this is still at boards discretion which they are fine with.
The question is, if those shares are vested if he decides to leave, will he pay CGT on the gain or will he pay Income tax?
A
“If they purchased shares at the market value when they were offered, the resulting sale of the shares will give rise to a capital gain on any growth in value. However, given a hurdle share is a common type of restricted security whereby the employee cannot do anything with them until certain criteria have been met, did the employer and employee make an election under section 431 ITEPA 2003 which allows the employer and employee to ignore the restrictions in place allowing the employee to pay the MV on acquisition? If so, the employee will be subject to CGT only. If not, the employee will be potentially subject to income tax under chapter 2 of part 7 ITEPA 2003 ‘restricted securities’.
See HMRC commentary on the principle of the calculation of charge to income tax (if applicable) in ERSM30400 along with worked examples in ERSM30420 & ERSM30430.”
Q
One of my clients, a company director, is using company car Tesla with a list price of £58,000.
How are we calculating the P11D.
Do we need to add repair and insurance paid by the company?
A
All the associated costs of the employer (the company) providing the car (i.e. the costs of repairs and insurance) are already included as part of the car benefit calculation, so there is no need to report a separate benefit for the repairs or insurance (and I don’t believe there is the box to do this on the P11D form regardless)
For reference, HMRC guidance at EIM44105 refers to this explaining that as below:
‘When a car is made available to an employee, the employee is often provided with connected benefits such as insurance, servicing, vehicle tax and breakdown recovery. The exemption under section 239 ITEPA 2003 means that there is no separate charge to tax under the benefits code in respect of those connected benefits.’
Q
I have a client that wishes to list a property on AirBNB and other online hosting services.
I am under the impression having looked at HMRC that this rental income ( from an inherited property ) however the client has read the following online …
If you simply rent out a room or property without providing additional services, it’s likely to be treated as a rental investment.
However, if you offer services beyond basic accommodation, like cleaning, linens, or amenities, it’s more likely to be classified as a trading business
For clarification we will be offering services beyond accommodation, including cleaning, linens and amenities possibly in the form of a hot tub or gym / workout room, access to gardens and log burner, guided local walks, locally supplied produce from local farm shops as a welcome hamper etc.
With this in mind we are thinking it will fall more into the trading classification than investment?
A
“We have rental investment income, a business, and a trade. We need to draw a distinction between them.
This has echoes of the Ramsay case and in particular incorporation relief. This case eventually resulted in HMRC accepting that the letting of property could qualify for relief even though they typically see rental income as an investment activity – if the owner spent typically 20 hours a week on the matter and there were other indications that a ‘business’ was being carried on. If this is not met then it would fall back to being letting/investment income.
The Ramsay case did not make letting a trade. It made it a business.
However, depending on the scale of the guided walks etc there may be an argument to be made that there is a trade. This would have to become the focal point of any business.
The question is are you substantially offering more services than a passive investment landlord would be offering?
The provision of a gym and log burner etc and local produce are neither here nor there. These are all common offerings for higher end holiday lets.
At the moment, there is no trade. If they work on offering additional services and specifically services that are not minor and not incidental to letting then we might have to revisit this.”
Q
Our client has moved overseas in the 24-25 tax year and is applying for split year treatment Case 1. He has sold shares in the overseas part of the year – is he liable to UK CGT?
A
For non-UK resident individuals, CGT is generally only applicable to the sale of UK-based assets, such as property or shares in UK companies. Non-residents are not subject to UK CGT on the disposal of assets outside the UK, unless they are specifically connected to UK activities, such as certain disposals of residential property or business assets.
I have client that is receiving pension here in U.K. but lives and is a tax resident in Portugal. She is also renting out property here in U.K.
Does she needs to do tax return here in U.K. regarding the property income?
A
Yes, as the client is receiving UK sourced income, this Is taxable in the UK, and reportable on their Self-Assessment tax return.As a non-resident landlord, the client should register for the Non-Resident Landlord Scheme (NRLS). Under this scheme, letting agents or tenants are required to deduct 20% tax from the rental income before paying it to the landlord unless HMRC approve their application to receive the rent without tax deductions.To receive the rental income gross, your client will need to complete the NRL1 form and submit it to HMRC.Even if tax is deducted under the NRLS, your client must report their rental income annually through a UK Self-Assessment Tax Return.
Q
Saw this online under “CAN YOU DECLARE A DIVIDEND AND NOT PAY IT.” Retained Earnings – Companies can work on retained earnings. No need to pay out money as a result no tax implications
Can you explain what it means?
A
In general the tax treatment of the dividend depends on the type that is paid/declared ie:
Interim dividends are due and payable when physically paid. A resolution to pay an interim dividend does not create a debt until the dividend is paid. The shareholder is taxed when the dividends are physically received.
Final dividends are legally due when declared unless a later date for payment is specified, in which case they are due on that payment date.
If the client has already taken the funds from the business during the year and this was originally treated as a directors loan but now being treated as a distribution then this is reportable as a dividend.If the client has what is simply a repayment of a loan then there are no tax consequences.
Q
We have a client who has an open enquiry by HMRC into their personal tax return for 2022/23 due to a disposal relief claim. We are happy with answering most of the questions, however one question HMRC have asked is as follows:
“Provide the full name and address of each company in which you were a shareholder”.
I suspect this is HMRC fishing for more information, but I am inclined to not provide this information as it has no affect on the disposal claimed in the year, any dividends from any shares would be declared as and when received, and any CGT declared if there were a sale in future.
I would be interested to hear your thoughts on if you think this information would be required or not.
A
HMRC should only be asking for information where it is reasonably required by the officer for the purpose of checking the taxpayer’s tax position.The definition of what is “reasonably required” is going to vary from person to person, and HMRC provide guidance to their staff which is publicly available at CH21620.In your circumstances, is a list of all shareholdings owned by your client reasonably required to determine their tax position? You may argue not, as holding shares in a company doesn’t impact someone’s tax position until such point as income or gains occur in respect of those shares.If you think HMRC are on a fishing trip looking for further information, you are well within your rights to push back and refuse to provide the information requested on the grounds you do not believe it is reasonably required. If HMRC disagree, they may issue a formal notice under Schedule 36 FA2008 requesting the information, which gives your client the right of appeal to HMRC in the first instance and subsequently to the First Tier Tribunal.
Next Steps
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