Q&A Section

Q&A: 3). Negligible Value Claims: What does ‘negligible value’ mean? How do you make a ‘negligible value’ claim?

Q&A: 3). Negligible Value Claims: What does ‘negligible value’ mean? How do you make a ‘negligible value’ claim?

 

What does ‘negligible value’ mean?

HMRC interpret ‘negligible value’ as meaning ‘next to nothing’.  It does not mean simply that the asset is worth much less than it used to be.  Effectively, it must be almost worthless. The asset must have been of negligible value while you have owned it and not when you acquired it.

It is important to note that HMRC take a strict line on what is construed as ‘negligible value’. In respect of the goodwill of a business, HMRC are likely to challenge an argument that the goodwill is worthless unless the business has ceased trading or is insolvent.

 

Making a ‘negligible value’ claim

If you own a chargeable asset on which you would normally pay capital gains tax if you sold it at a profit, and you can show that the asset is now worthless, it is possible to make a ‘negligible value claim’.  In essence, this means the asset will be treated as if you sold it and bought it back for its market value, realising a loss for the purpose of CGT.   This loss can be set against chargeable gains to reduce CGT liability.

One of the commonest assets to become of negligible value is company shares. Companies may become dormant after they cease to trade, whereby they still exist but have no assets or they may be in liquidation with no assets available to distribute after creditors have been paid off.

If the company is in liquidation the following will need to be supplied to HMRC:

  • a statement of affairs for the company and any subsidiaries;
  • a letter from the liquidator or receiver showing whether any return will be made to the shareholders;
  • details of how this decision was reached (for example, a balance sheets where liabilities are significantly greater than assets); and
  • evidence that no recovery or rescue is likely (for example, a statement that the company has ceased trading).

If the company is not in liquidation or receivership, HMRC will require comprehensive evidence to satisfy them the shares are of negligible value.

You can check the valuation of an asset by using form CG34.

Claims can be made either on your tax return or in writing to HMRC. Your tax office may send your claim to the Shares and Assets Valuation team for consideration.

To find out more on this subject visit the GOV.UK site. You can also contact our team who will be happy to provide advice and guidance. You can reach us on: 020 7193 8798 or email us at hello@accountspro.co.uk. Alternatively you can send us a message via our contact page:- https://accountspro.co.uk/contact-us/

Q&A Section

Q&A: 2). What is an Umbrella Company? How Does it Work?

Q&A: 2). What is an Umbrella Company? How Does it Work?

An umbrella company is a separate company that acts as an employer for contractors or agency workers and is an intermediary between the contractor or agency worker and the employment agency or end-client.  The company does not find work for its employees and its principle function is to collect payment from the agency or end-client and pay it to the contractor or agency worker.

The umbrella company will have a business-to-business contract with the agency or end-client. The contractor will usually have an employment contract with the company that sets out their terms and conditions. As the umbrella company is the contractor’s employer, they will pay them for the work that they do for the employment agency or end-client and deduct tax, National Insurance Contributions, any pension contributions, and their fee from the contractor’s pay.

The contractor will submit their time-sheet to either the agency or the umbrella company, who in turn will invoice either the end-client or the agency.  The agency will be paid less any fees they have agreed with the end-client.  The umbrella company will be paid by the agency which will be the amount paid by the end-client and costs such as administration costs, employer’s National Insurance, employer’s pension contributions, holiday pay and other costs that may be incurred.

Contractors working through this arrangement will normally be paid a set contract rate which should be set out in the employment contract. This will be gross pay and should be at least equal to the National Minimum Wage for the contractor’s age.

The contractor should be given key information from the umbrella company which sets out a breakdown of costs including the rate received for the assignment by the umbrella company from the agency. The company’s costs, and employer’s National Insurance should be deducted from the umbrella company’s assignment rate, not from the client’s contract rate.

The contractor should receive a payslip detailing hours worked if pay varies depending on hours, gross pay, deductions which have been made and net pay.

Umbrella companies can be seen as a “hassle-free” way of contracting. For more information click here

If you are looking for some guidance on this, then please get in touch with us on 020 7193 8798 or contact us via our website:- https://accountspro.co.uk/contact-us/

Q&A Section

Q&A: 1). How Much National Insurance Will I Pay as a Company Director?

How Much National Insurance will I Pay as a Director?

For the purposes of NI, a company director is:

  • A member of a board or similar where the company is managed by the board; or
  • An individual where the company is managed by an individual; or
  • Any person who directs the work of one of the above.

The company is limited to a £3m total value of shares and an individual employee is limited to a total value of shares of £250,000.

Being a company director basically means you are an employee of your limited company and as such, you are liable for Class 1 primary NIC’s on your earnings.  However, unlike other employees, there are special rules for company directors.  The main point to remember is that despite the actual pay period, company directors’ NICs are calculated cumulatively using an annual earnings period method. This can be disadvantageous as although the director may be paid the same amount each month, the contributions deducted may vary significantly. It is possible, if certain qualifying conditions apply, to make payments on an alternative basis to allow contributions to be calculated on a non-cumulative basis which allows the liability to be evenly spread throughout the year.

Company directors will only pay class 1 NICs on income from salary and bonuses but there are different rules for tax on dividends.  For 2021/22 the thresholds are as follows:

  • Annual lower earnings limit – £6,240
  • Primary threshold – £9,568
  • Annual upper earnings limit – £50,270
  • Annual secondary threshold – £8,840

If an annual earning period is being used, you will not pay employee’s National Insurance if you earnings are below the lower earnings limit of £6,240.  Contributions are then at zero rate until earnings reach the primary threshold of £9,568.  After that, contributions are paid at a rate of 12% until the upper earnings limit of £50,270 is reached.  Contributions on earnings above that will be at a rate of 2%.

Similarly, for employer contributions, you will not pay any contributions until your earnings reach the secondary threshold of £8,840.  Contributions on earning above this will be at a rate of 13.8% on all further earnings in the year.

The contributions are deducted from each payment and are calculated by working out the contributions due using the annual thresholds and deducting any payments already made in the tax year.  You can check your payroll calculations manually using the Gov.UK Director’s National Insurance calculator.

For further information, refer to the HMRC National Insurance for company directors booklet.

If you are looking for some advice and guidance on this, then please get in touch with us on 020 7193 8798 or contact us via our website:- https://accountspro.co.uk/contact-us/