Business Law and Practice PDF

Business Law and Practice Table of Contents Business and organisational characteristics..............................................................................................1 Legal personality and limited liability.................................................................................

Business Law and Practice Table of Contents Business and organisational characteristics..............................................................................................1 Legal personality and limited liability.......................................................................................................4 Procedures and documentation required to incorporate a company/form a partnership/LLP....................5 Finance.....................................................................................................................................................7 Corporate governance and compliance:....................................................................................................9 Company Decision-Making and Meetings:..............................................................................................11 Partnership decision-making and authority of partners:.........................................................................14 Corporate Insolvency..............................................................................................................................15 Personal Insolvency................................................................................................................................17 Income Tax:............................................................................................................................................19 Capital Gains Tax:...................................................................................................................................21 Corporation Tax:.....................................................................................................................................23 Value Added Tax:....................................................................................................................................26 Inheritance Tax:......................................................................................................................................27 Business and organisational characteristics Traditional Partnership Preliminaries 1. Two or more persons 2. Carrying on a business in common 3. With the intention to make profit - Persons can mean companies as well as individuals - If there is no intention to make a profit, there is no partnership, however a partnership exists if there is intention to make a profit and there has in fact been a loss - No requirement for a written partnership agreement, however it is good practice to have one - No filing requirements at Companies’ House - If the requirements are met, there is prima facie evidence of a partnership even if the partners did not expressly intend to form a partnership; however, this presumption does not apply if the ‘profits’ intended are: o Repayment of a debt o Payment to an employee or agent o Annuity to a survivor of a partner on account of a share of profits or sale of the business - Agreement to share losses is not prima facie evidence of a partnership, nor is two people owning property even if they agree to share profits - Partners are not required to make financial contributions to the partnership - No limit to the amount of partners Partners’ Liability - Partners are jointly but not severally liable for partnership debts and torts o Creditors can pursue any combination of the partners for partnership debts - Incoming partners will not be liable to creditors for anything done before they became a partner - Outgoing partners will remain liable for any debts or obligations incurred before they leave the partnership - Third parties can treat all members as partners until they receive notice of the change of partnership o Actual notice should be given to existing creditors and a notice should be published in the London Gazette - Anyone stating they are a partner (even if they are not) may be held liable to creditors as if they were a partner Partnership Property - Property belonging to a partner individually will remain their property after dissolution of the partnership - Property given to the partnership by the partner becomes partnership property and constitutes a capital contribution o Each partner can keep track of their contributions, profits and losses - Determining if property belongs to the partner or firm will depend on intention - Partnership property can only be used for the purposes of the partnership - Creditors pursuing an individual partner cannot seize partnership assets for the separate debt, but can require the court to make an order charging the partners’ interest in the firm o Creditor can then seize any distributions which are due to the partner Partners’ Management Power and Duties - Every partner has an equal right to manage the firm, in the absence of contrary agreement - Most decisions are made by simple majority, but unanimous vote is required for: o Admission of a new partner o Change in the nature of the partnership business o Alteration to the partnership agreement - Partners have a fiduciary duty to one another and a duty to disclose all information on all things affecting the partnership - Partners must account for any profit obtained without consent of the other partners - Partners carrying on business in competition with the partnership must account for profits made in that business Termination of a Partnership - Termination of a partnership can happen: o If the partnership agreement provides for termination, on the date laid out o If a partner gives notice of their intention to dissolve the partnership o Upon death or bankruptcy of any single partner o If something makes is unlawful for the partnership to continue o Where the court decides a partner no longer has mental capacity to continue in the partnership - Partners can apply for the court to dissolve a partnership if: o A partner becomes permanently incapable of performing their obligations in the partnership o A partner is guilty of conduct that would prejudicially affect carrying on the business o A partner wilfully or persistently breaches the partnership agreement o The partnership is carried on only at a loss o It is just and equitable to do so - After dissolution, authority and other rights and obligations continue in order to permit winding up and complete unfinished transactions - Partnership assets will pay off partnership debts after dissolution o If the amount remaining is insufficient, the partners will personally pay the creditors Limited Liability Partnership Membership and Companies House - Without a partnership agreement, LLPA will govern the LLP - Has a separate legal personality from its members o Can contract and own property on its own behalf o Has perpetual succession - If there are less than 2 partners for a period of 6 months, any business carried out after the 6 month period will leave the remaining member fully liable for all debts incurred after the initial 6 months - Admitting a new partner will require unanimous consent - Designated members must: o Appoint auditors o Submit annual confirmation statement o Sign and file accounts o Comply with statutory filing requirements - If an LLP has no designated members, all members will be treated as designated - Companies House must be notified of any changes to membership within 14 days - All members are agents of the LLP and owe a duty of care to the LLP o All members can bind the LLP in a contract and make it liable - LLPS are not bound by a member if they act without authority and the person dealing with the member knows they have no authority - Members can retire by giving reasonable notice to the other members and to Companies House within 14 days of retirement - PSC is defined as a person or entity who holds rights to: o More than 25% of surplus assets on a winding up o More than 25% of the voting rights o Appointment or removal of the majority of those entitled to take part in management o Exercise of significant influence or control - Members have the right to share equally in capital and profits but are not entitled to remuneration for acting in the business or management - The LLP must indemnify each member for payments and personal liabilities incurred in connection with the business of the LLP - Members can access and inspect the books and records at any time - Every member can manage the LLP and decide ordinary matters, but changes to the nature of the business of the LLP must be made with consent of all members - If a member carries on business in competition with the LLP without consent, they must account for all profits and personal benefits - Members are not liable for wrongful acts or omission of other members, but the LLP is liable to the extent of such members Liability of Members - Members are not liable for LLP debts owed to creditors and are only liable to the extent of their capital contribution - Members who act wrongfully or trade fraudulently can be held personally liable for LLP debts upon insolvency - Clawback provisions exist for LLPs Termination of LLPs - If members decide the LLP is no longer needed or is dormant, a majority can apply to Companies House for the LLP to be struck off the register and dissolved - Companies House can strike of an LLP if it believes it is not carrying on business - LLPs cannot be struck off if: o It carried on business in the last 3 months  o It changes its name in the last 3 months o It is subject to insolvency proceedings - The members’ striking off must notify all other members, creditors, employees and trustees o Companies House will publish a notice in the London Gazette, if there are no objections within 3 months Companies House will strike off the LLP - LLPs can be liquidated, put into administration, subjected to voluntary arrangement, or enter a moratorium Taxation of LLPs - LLPs do not pay corporation tax - Members are individually taxed on their income - Stamp duty does not need to be paid if property is transferred to LLP within 1 year of incorporation, if: o Transferred by a partner in a partnership comprised of LLP members who hold property as a trustee for such partnership, and o The proportional ownership of the LLP remains the same as the proportional ownership of the partnership Companies Nature and Formation of Companies - Private and Public companies have different requirements: Private Public Directors Minimum 1 Minimum 2 Company secretary Not required Minimum 1, must be suitably qualified Shares Sold privately Can be sold publicly if company is listed Minimum shareholding No requirement Minimum nominal value of £50k Trading No minimum or maximum Requires trading certificate requirement Account and audit Accounts must be filed within 9 Accounts must be filed within 6 months months of account reference date of accounting reference date and must Certain small companies are be audited exempt - Promotors owe a duty of good faith to the company - Promotors will make contractual arrangement to enable the company to operate once it is registered and a certificate of incorporation is issued o Promotors will be personally liable for pre-incorporation contracts even after company is incorporated - Promotors can protect themselves against personal liability by: o Preparing the contract in draft to be executed upon incorporation o Entering into a novation agreement after incorporation o Entering into a contract post-incorporation to assign its benefit of the pre-incorporation contract to the company in exchange for the company indemnifying the promotor o Setting up the company faster via a shelf company - Company names cannot be the same as an already existing company, offensive, suggest connection to government, and must end in Ltd or Plc o Approvals may be needed for names containing sensitive words - Companies can change their name via special resolution Legal personality and limited liability - Companies and LLPs have separate legal personality to their members and can: o Own property  o Contract o Borrow money and grant security o Be taxed separately from members (only companies) o Sue o Have perpetual succession - In some cases, members can have personal liability for debts of a company (lifting the corporate veil): o Directors trades under the company name knowing it is insolvent o PLC trades without a trading certificate Limited Liability (Companies, LLPs) Unlimited Liability (Sole traders, Traditional Partnerships) Liability of members limited to member contributions Owner(s) have full liability for debts Filing requirements at Companies House No filing requirements Corporation tax (companies only) Owner(s) pay income tax on profits Shareholders (companies) & Partners (LLPs) pay income tax Debt finance (both) and equity finance (companies only) Cannot create a floating charge available Owners are separate from management (companies only) Owner and manager is the same Procedures and documentation required to incorporate a company/form a partnership/LLP Set-up Formalities & Constitutional Documents Traditional Partnerships - No formal arrangements are required before the partnership can begin trading - Partnership Agreement not required but it is good practice to have one in place LLPs - Similar set-up requirements to companies and will need to file documents with Companies House in order to begin trading o Cannot trade until they receive a certificate of incorporation - Application to Companies House must include: o Name of LLP o Registered office address o Names and addresses of partners (at least 2) o Details of PSCs Companies - A Memorandum of association must be filed alongside the application for registration (Form IN01), which must include: o Proposed company name o Location of registered office o Details of business and SIC code o If the company will be limited by shares or guarantee o If it is private or public o Details of subscribers o Statement of capital and initial shareholding (including aggregate nominal value, classes and amount paid up) o Statement of proposed officers o PSC details  o Statement of compliance with Companies Act 2006 o Relevant fee - If not adopting Model Articles, a copy of the Articles of Association must also be filed alongside the Form IN01 and Memorandum - Articles of Association must include clauses governing: o Directors meetings and decision making o Appointment and removal of directors o Share capital o Rights attached to shares o Shareholder meetings - If AoA restrict the objectives of the company, directors must adhere to these restrictions or else be found in breach and possibly subject to an injunction or equitable remedy - If the company does not place restrictions on its business, directors can carry on any kind of commercial activity - Members can only enforce rights regarding membership - Contracts Act 1999 allows third parties to obtain the benefit of contracts to which they are not a party and enforce the terms of such contract if they are specifically identified in it - Special resolutions require 75% approval of members and must be filed at Companies House - Certain provision of the articles can be entrenched requiring more onerous processes for alternation than special resolutions o Restrictions can be in the articles either at formation or by amendment via special resolution o Companies House must be given notice and restrictions cannot prevent amendments of articles or fetter the company’s statutory rights - If shareholders make alterations to the articles that no reasonable person would otherwise make, the shareholder who didn’t vote in favour can challenge it by making an application to the court Companies House Filing Requirements Traditional Partnerships have no Companies House filing requirements LLPs must file with Companies House: - Annual accounts - Annual confirmation statement - Details of appointment and removal of members and changes to members’ details - Details of changes to the registered name or office of the LLP Companies must file with Companies House: - Annual accounts no later than 9 months (6 months for Plc) after accounting reference period and must include: o Registration number and nature of business o Indication of the part of the UK in which it trades o Balance sheet o Profits and loss account - Annual confirmation statement filed within 14 days of review period - Certain changes to the company must be reported to Companies House within 14 days: o Changes to addresses o Addition or removal of director or secretary o Changes to details of existing directors or secretaries - Medium and large companies must file an annual directors report naming the directors and stating the amount they recommend should be paid in dividends - Medium and large companies must file an annual strategic report - Some other important changes to a company that must be reported to Companies House:  o Change of company name o Location of statutory company records and registers o Changes to PSC register o Issuing or transferring shares o Altering the Articles of Association o Changes to company share capital o Changing trading status of the company o Special resolutions of shareholders - Additional points of company filing requirements o Directors must approve accounts prior to filing o Failure to file accounts on time will result in financial penalties and possible criminal sanctions and disqualification of directors Finance Funding options: debt and equity Equity Finance - Shares are sold to a third party for money - Initial share capital: initial shareholders agree to purchase shares once the company is formed o Board allot shares and shareholder money becomes share capital - If company formed after 2009, directors have automatic power to allot additional shares provided: o There is only one class of shares in issue, and o There are no restrictions in the Articles - If directors do not have automatic power to allot, they will require shareholder approval by ordinary resolution - If the shares are of a new class not currently defined in the company’s Articles, the Articles will need to be amended to include the new class of shares by special resolution of the shareholders o Shareholders resolution and new Articles need to be filed at Companies House - Directors determine a price and number of shares and resolve to allot them once an interested person has applied o The full value of shares must be paid on allotment - If a company issues ordinary shares (equity securities) for cash, it must offer the shares to current shareholders first (pre-emption rights), giving them at least 14 days to accept o Pre-emption rights can be disapplied by special resolution of the shareholders - Shareholders can sell their shares in a way governed by the Articles (transfer of shares), no new shares are created: 1. Existing shareholder gives share certificate and complete Stock Transfer Form to transferee 2. If necessary, transferee pay stamp duty 3. Transferee sends share certificate and stamped STF to company 4. Board checks Articles and consider if they have the power to refuse registration 5. Board resolve to register new member or to refuse registration 6. If resolved to register, Board resolve to issue a new share certificate 7. Register of members is updated (no Companies House filing required) Debt Finance - Company can borrow money to raise capital - Debt holder has no ownership interest in the company - Directors can borrow money on behalf of the company under the Model Articles - Secured loans will give a lower interest rate - Charges must be registered at Companies House within 21 days from creation of the charge, or they will be void against liquidators, administrators and other creditors - Any holder of a debt security is entitled to interest and repayment of the loan provided in the security - Priority over debts: o Fixed charges over the same assets in order of creation (as long as properly registered) o Floating charges over the same assets in order of creation (as long as properly registered) o Fixed charges over floating charges over the same assets always, even if the fixed charge was created after the floating charge (as long as both properly registered) Types of security - Pledge: Security provider gives possession of an asset to the creditor until debt is paid back. - Lien: Creditor retains possession of the asset until the debt is paid back. - Mortgage: Security provider retains possession of the asset but transfers ownership to the creditor, subject to the security provider’s right to require the creditor to transfer the asset back to it when the debt is repaid. - Charge: Security provider retains possession of the asset, but creates an equitable proprietary interest in the asset in favour of the creditor, charging documents give the creditor certain contractual rights over the asset. o Fixed charge: Creditor can control what the security provider can do with the asset.  Security provider can normally still use the asset in the ordinary course of business but is restricted from disposing of or charging it.  If the charge becomes enforceable, the creditor has the ability to appoint a receiver of that asset or to exercise a power of sale over the asset. o Floating charge: ‘Floats’ over a whole of a class of circulating assets.  Security provider is free to dispose of assets in the class until crystallisation.  Crystallisations occurs by operation of law or triggering of contractually agreed events.  At point of crystallisation, charge becomes fixed over any assets in the class at the time. Distribution of profits and gains Partnerships & LLPs: - In absence of contrary agreements, partners are entitled to share equally in profits and gains of the partnership and are not entitled to a salary. Companies: - Articles of Association will set out shareholders’ rights to share in profits and gains of the company. Financial records, Information and Accounting Requirements. Partnerships: - Partnership must be registered with HMRC - Each partner registers for self-assessment and completes a separate tax return for their share of the partnership’s profits and losses. LLPs: - Every LLP must keep accounting records, whether they are trading or not. - These must contain: o entries showing all money received and expended by the LLP, and o a record of the assets and liabilities of the LLP. - If the LLP’s business involves dealing in goods, the records must contain: o statements of stock held by the LLP at the end of each financial year, o statements of stock takings from which partners have taken or prepared any statements of stock, o statements of all goods sold and purchased, other than by ordinary retail trade (should list the goods, the buyers and sellers) Companies: - Companies must keep the registers of members, directors, secretaries, charges and PSCs updated - Registers should be available for inspection by members for free and by the general public for a fee - Minutes of general meetings should be kept for 10 years and available to members to inspect for free - Directors service contracts should be kept for 1 year beyond the end of service - Annual confirmation statements must be filed within 14 days of the review period, it is a criminal offence not to - Accounts must be filed no later than 9 months (6 months for Plc) after the accounting reference period - Statutory accounts must include: o a ‘balance sheet’, which shows the value of everything the company owns, owes and is owed on the last day of the financial year o a ‘profit and loss account’, which shows the company’s sales, running costs and the profit or loss it has made over the financial year o notes about the accounts o a director’s report Letterhead requirements Company/LLP Partnership Sole trader Registered name Partnership name Business name Where in the UK it is Names of each member Real name if different registered Registered number Business address Business address Registered office address If name of a director included, must include names of all directors Corporate governance and compliance: Rights, duties and powers of directors and shareholders of companies Company Directors and Officers - Directors’ duties: o Act within their powers o Promote the success of the company o Exercise independent judgement o Exercise reasonable care, skill and diligence o Avoid conflicts of interest o Not accept benefits from third parties o Declare interest in transactions or arrangements - Private companies need at least 1 director - Public companies need at least 2 directors, 1 must be a natural person - Types of directors o De jure: formally appointed and registered o De facto: not formally appointed and registered but carry out all duties and behaves as a director o Shadow: regularly influences the acts of directors o Non-executive: act as consultants o Alternate: appointed by a director to attend and vote at board meetings in lieu o Nominee: represents the interests of a particular stakeholder - Directors must act collectively as a board but powers can be delegated - Actual authority can be given to a director allowing them to act in a way outlined in the Articles or via a resolution - Companies enter into contracts under their seal or by a person with authority to act - Directors duties arise from common law, company articles and statutes - Enlightened Shareholder Value requires directors to consider: o Likely long term consequences of decisions o Interests of company employees o Foster business relationships o Impact of operations on community and environment o Desirability of company reputation for high standards of business conduct o Acting fairly between members - If the company is insolvent or on the brink, directors must act in the interests of creditors - Directors must disclose any interest in a proposed transaction or arrangement o No particular form of disclosure is required but notice must include that nature and extent of the interest - Directors interested in a transaction cannot vote or count towards the quorum - Directors do not need to declare an interest if: o It is not reasonably likely to create a conflict of interest o The other directors are already aware of it o It concerns the terms of their service contract - Companies cannot make loans, guarantee or grant security to a director unless the transaction is approved by the members - Directors will have service contracts outlining their rights o The board can determine what constitutes fair compensation and reasonable expenses may be given in relation to attending meetings - Directors service contracts with a guaranteed term of more than 2 years need shareholder approval by ordinary resolution Members - Rights to dividends will depends on the class of shares held o Distributions must come out of profit only and cannot render the company insolvent Ordinary shares Preference shares Dividend rights Paid after preference shares Fixed % paid in priority Not cumulative May be cumulative Voting rights Full voting rights Usually none Position on winding up Return of surplus capital after Return of surplus capital first preference shareholders - Directors will decide if dividends will be recommended for approval - Shareholders will then approve the dividend via ordinary resolution o They cannot declare an amount in excess of the director’s recommendation - Unlawful dividends are those payable other than out of profits o If the shareholders knew the dividend was unlawful they are liable to repay it and the directors will be personally liable too - Shareholder resolutions are passed at general meetings o The class of shares will determine the voting rights available - Duomatic Principle: informal decisions of the shareholders can be binding if ALL shareholders who are entitled to vote agree - Any shareholder can apply to have the company wound up if it is just and equitable to do so - Members can inspect service contracts of directors for up to 1 year after the director leaves o They can inspect the register of members also - The register of members must include: o Name and address of members  o Date on which they were registered or ceased being a member o Index of members if there are more than 50 - Shareholders must require inspection and include their name and address and the purpose of such inspection as well as the same information for anyone with whom they share the information - The company must comply with inspection requests within 5 workings days or apply to the court claiming the purpose to be improper Shareholdin Power g Any Receive notice of a GM Appoint a proxy to attend a GM in their place Vote at a GM (provided they hold voting shares) Receive a dividend (if declared) Receive a copy of the company’s accounts Inspect minutes and company registers Ask the court to prevent a breach of directors’ duties Commence a derivative claim Bring a petition for unfair prejudice Bring a petition for just and equitable winding up 5% Require directorshtorcallla GeneralhMeeting Require the circulation of written statements regarding proposed resolutions to be considered at a GM Circulate a written resolution 10% Demand a poll vote 25%+ Block a special resolution 50% Block an ordinary resolution 50%+ Pass an ordinary resolution 75% Pass a special resolution Company Decision-Making and Meetings: Procedural, Disclosure and Approval Requirements Joint Decision Making - PLCs are required by statute to hold an AGM but LTDs are not - Shareholders holding at least 5% of paid up voting capital can require directors to call a general meeting o Must be called within 21 days o If directors refuse, shareholders can call the meeting themselves - Resigning auditors can require directors to call meeting if auditor wants to give reasons for resignation - Courts can order a meeting if it is impractical for the company to call it - If a decision is only for directors, the board will pass a resolution and comply with filing requirements - If a decision requires approval of directors and members: 1. BM is held to resolve to (i) approve the matter and (ii) pass second resolution to call a GM or circulate a written resolution 2. GM will pass the resolution 3. BM is held to pass another resolution to carry out the task 4. PMMs are carried out, namely to file relevant documents at Companies House Ordinary resolution Special Resolution Appoint/remove auditors and directors Buy back company shares Adopt annual accounts and director and auditor reports Change Articles of Association  Declare dividends Change company name Approve directors’ decision to allot shares Disapply pre-emption rights Approve substantial property transactions involving directors with a personal interest Ratify director breach of duty Enter service contract with a director for more than 2 years Make a loan to a director Give a director payment for loss of office Notice for General Meetings - Given to all shareholders, directors, personal representatives and trustees in bankruptcy - Can be written or electronic (email/website) - Notice must include: o Company name o Time, date and place of meeting o General nature of business o Statement of right to appoint proxy o Full text of any special resolution - Notice must be given 14 clear days before the meeting unless the Articles provide otherwise o If the meeting is to remove a director, 28 clear days’ notice is required - If a notice is communicated other than by hand, 48 hours are needed for deemed service - For PLC AGMs the notice period is 21 clear days - Short notice can be given if shareholders holding 95% (90% PLCs) of the shares agree Voting - Quorum for a GM is 2 unless Articles provide otherwise - Ordinary resolution: simple majority (50%+) of members present - Special resolution: 75% of member presenta - All special resolutions must be filed at Companies House within 15 days of passing - Voting on show of hands is one vote per present member - A poll vote (1 vote per share) may be demanded by: o the chairman of the meeting; o the directors; o two or more persons having the right to vote on the resolution; or o a person or persons representing not less than 10% of the total voting rights of all the shareholders having the right to vote on the resolution - Board resolutions are passed by majority vote on a show of hands, where each director has one vote o Chair has casting vote unless Articles have been amended to provide otherwise Written Resolutions - Only available to private limited companies - Can be used for ordinary or special resolutions o Cannot be used to remove a director or auditor - Directors can circulate or shareholders holding 5% of voting rights can force directors to circulate - Must be circulated to all members - Must contain a statement on how to signify agreement and when it will lapse (usually 28 days from and including circulation) - Documentation to be filed at Companies House must be included - Percentage required (50/75) is based on all shareholders, not just those present and is based on one vote per share Documentary, Record-keeping, Statutory Filing and Disclosure Requirements Post-Meeting Matters - Internal: o Minutes of all meetings must be kept for 10 years o Updating of statutory books (register of members, directors, PSCs) - Filing at Companies House: o All special resolutions must be filed within 15 days of passing  Most ordinary resolutions do not o Amended Articles must be filed, along with any forms that Companies House requires (such as Change of Name form) - Record keeping: o Various documents need to be kept at the registered office, such as directors service contracts Appointment and Removal of Directors Appointment of Directors - The Model Articles allow a company to appoint a director by: o Ordinary resolution of the shareholders, or o Decision of the directors (board resolution) - Terms of a director’s service contract are determined by the board - Directors service contracts with guaranteed term of 2 years or less only require approval of the board - If guaranteed term is over 2 years, shareholder approval by ordinary resolution is required o Where ordinary resolution is to be passed at a GM, a memorandum setting out the proposed contract must be made available for inspection by members for not less than 15 days ending with the date of the meeting and at the meeting itself o There is no 15-day requirement where written resolution procedure is used Removal of Directors - Shareholders can remove a director by ordinary resolution - Special notice (28 days) is required for a removal resolution - Board cannot remove a director without shareholder approval unless Articles specifically allow - Directors who are also shareholders may vote in the ordinary resolution to remove them - If a director wishes to resign, they tender a letter of resignation which is accepted by board resolution - Directors are automatically terminated if: o They become disqualified from being a director o They become subject to an individual voluntary arrangement o They become bankrupt o A registered medical practitioner who is treating the director states in writing to the company that the director has become physically or mentally incapable of acting as a director and will remain so for more than 3 months - Directors can be disqualified under the CDDA 1986 for a maximum of 15 years o Grounds include fraudulent or wrongful trading or persistent breaches of company law - Model Articles for PLCs require retirement and reappointment of directors by members every 3 years o All directors of listed companies are subject to annual re-election - When a director leaves office, the company must: o Update the company’s register of directors, and o Give notice to Companies House by filing form TM01 Minority Shareholder Protection Derivative claims - Shareholder’s right of action is derived from the company’s right of action which the company has not exercised - Initiated by a member of the company: o In respect of a cause of action vested in the company, and o Seeking relief on behalf of the company - Cause of action only arises in respect of actions or omissions of a director, but may be brought against the director, another person or both Unfair Prejudice - Any shareholder can bring an unfair prejudice claim on the grounds that the running of the company has unfairly prejudiced them - Personal action brought by the shareholder against the company - Most common order for relief is that other shareholders or the company buy out the claimant shareholder’s shares from them Just and Equitable Winding Up - Most drastic remedy available to any shareholder - Shareholder can bring a petition to the court for the company to be liquidated on the grounds that it is just and equitable to do so under Insolvency Act 1986 - Court has discretion to decide whether it is just and equitable to wind up the company - Common for this to be used in conjunction with unfair prejudice claim Partnership decision-making and authority of partners: Procedures and Authority under the Partnership Act 1890 - Partners can bind the partnership as they carry out the business of the partnership - Actual authority to bind the partnership is carried out by: o Showing an intention to bind the partnership o Authorisation to undertake an act on behalf of the partnership - Implied actual authority is recognised if the partners have allowed a partner to act despite not giving express actual authority - The act of carrying on the business in the usual way will bind the partnership and be seen as apparent/ostensible authority unless: o The partner did not in fact have authority to act, and o The person with whom the partner was dealing:  Knew they had no authority to act, or  Did not know or believe the person was a partner - Partners contracting on behalf of the partnership without authority to do so will be personally liable to the third party under the contract - Partners share losses equally in the absence of contrary agreement - Partnerships must keep books which can be inspected by any partner - Partners are not entitled to interest on their capital contribution, but are entitled to interest on any loan at a rate of 5% per annum - Partners are not entitled to remuneration unless the partnership agreement states otherwise - The partnership must indemnify partners for payments or liabilities incurred whilst acting for the partnership Common Provisions in Partnership Agreements - Commencement and duration o Default provisions of PA 1890 will apply until the commencement date of the partnership agreement if partners begin working together prior to commencement date o If agreement has a fixed term and partners continue in business after the expiration without a new agreement, they are presumed to be partners on the same terms as before - Partnership name and place of business  - Partnership property o Without separate legal personality, each partner is deemed to own a share in the property belonging to the partnership o Individual partners do not have a right to any particular partnership asset o Default provisions:  All property brought into the partnership for the purposes of the partnership business is partnership property  All property bought with partnership money is deemed to have been bought on account of the partnership unless contrary intention is shown - Share in capital, profits and losses o Default provision: partners share equally in capital and profits, contribute equally toward losses - Drawings / salary o May set out how much each partner may draw in any given period o Default provisions: no partner is entitled to salary, all partners share equally in income profit - Work input and roles, limits on authority o Default provisions: every partner may take part in management but is not obliged to do so - Decision making o Default provisions: decisions in the ordinary course of business are decided by majority, except for (require unanimity):  Any change to nature of partnership business  Introducing a new partner  Varying rights and duties of partners - Accounts - Dissolution of the partnership o Default provisions: if no fixed term is agreed, partnership will be dissolved by any partner leaving - Duties, power and restrictions on partners o Non-compete clause: prevent former partners competing with the business o Non-solicit clause: prevent former partners from soliciting business from partnership clients o Non-dealing clause: prevent former partners from entering contract with clients, former clients or employees of partnership o Default provisions: duty not to compete with the firm Corporate Insolvency Options and Procedures Receivership Secured creditors can recover what is owed solely to them Fixed charge is defaulted and the creditor can take possession of the asset If company breaches a condition of the loan, an administrative receiver will be appointed to possess and sell the asset The company need not be insolvent Restructuring plan Companies can restructure debts using court sanctions Enter into an arrangement with creditors to accept less than is owed Plan must be approved by at least 75% in value of unsecured creditors Pre-Insolvency Halts creditor actions Moratorium Designed to return a company to profitable trading Directors appoint an insolvency practitioner as a monitor, they file papers with the court and directors continue to run the business Lasts for 20 business days, but can be extended by directors for further 20 business days Administration Administrator runs, reorganises and sells the company to avoid liquidation and acts in the interests of the creditors as a whole Can be done via a formal court hearing or filing certain documents with the court  Court will make an order if the company is (i) unable to pay its debts and (ii) the order is likely to give creditors a better outcome than liquidation Floating charges usually allow the lender to appoint an administrator in the event of a breach Administrator must be a licensed insolvency practitioner Administration will impose a moratorium giving the administrator time to work Company Voluntary Used when the company has a short term cash flow problem Arrangement Agreed with creditors to accept less than owed At least 75% in value of unsecured creditors must agree Does not bind secured creditors unless they agree Members Voluntary Members and directors control the process Liquidation Only available if company is solvent and the desire is to dissolve the company for retirement Creditors Voluntary Directors resolve that company is insolvent, members pass special resolution, start liquidation Liquidation Creditors take over Directors may be personally liable for debts incurred through wrongful trading Compulsory Creditor can petition to the court showing the company cannot pay its debts liquidation Court may pass an order to appoint a liquidator - Statutory moratoriums are NOT available to: o Financial services firms (eg banks and insurance companies) o Companies party to capital markets arrangements of over £10 million Claw-Back of Assets for Creditors Preferences - When a debtor does something to put a creditor in a better position than they would be during liquidation or administration - Desire to prefer must exist o Presumed if preference is in favour of a connected person - Must have occurred within 6 months of insolvency (2 years for connected person) - Any preference transactions are voidable at the court’s discretion Transactions at an Undervalue - Property that would have been part of the assets during liquidation is given as a gift or sold for significantly less than market value - Must have occurred within 2 years of insolvency - Company must have been insolvent at the time of the transaction or become insolvent as a result o Presumed if to a connected person - Defence is that it was entered into in good faith for the purpose of carrying on the business and there was reasonable grounds to believe it would benefit the company - Security is not considered a transaction at an undervalue if it does not change the company’s assets Fraudulent Trading - Director carries on business intended to defraud creditors - Must be an intention to defraud – difficult to prove, so wrongful trading is more commonly used - Can be personally liable to the company Wrongful Trading - Claim that before insolvency, directors knew or ought to have known company had no real prospect of avoiding insolvency and didn’t take every step to minimise loss to creditors - Court can order directors to contribute to the company assets - Defence is to show directors took every step to minimise potential loss after becoming aware of the status of the company’s finances Set aside a Floating Charge - Floating charges are automatically void if created: o For no new consideration, and o Within 12 months of insolvency (2 years for connected persons), and o At the time the company was insolvent, or became insolvent as a result of the charge Ring Fencing (prescribed-part fund) - Liquidators must set aside a portion of assets subject to floating charges for unsecured creditors - 50% for the first £10k in value Order of Priority for Distribution to Creditors Statutory order of payment on liquidation of a company: 1. Expenses of realising fixed charge assets 2. Fixed charge creditors from proceeds of sale of fixed charge assets 3. Sale of floating charge assets 4. Remaining expenses of liquidation 5. Preferential creditors a. Employees up to £850 each b. HMRC 6. Set aside prescribed part fund 7. Floating charge creditors 8. Unsecured creditors 9. Interest on unsecured debts 10. Shareholders Personal Insolvency Options and Procedures Negotiating with creditors - Ask for reduced debt or more time to repay - Such an agreement is not binding on the creditor as there is no new consideration - At any point the creditor can demand the full amount - Does not prevent other creditors starting proceedings Individual Voluntary Arrangement - Formal agreement where creditors accept less than they are owed - Advantages for debtor: o Avoid restrictions and disqualifications o Avoid stigma and stress of bankruptcy o Continue to trade - Advantages for creditor: o May receive more money than in bankruptcy o Quicker than bankruptcy o Keep a future customer - Debtor must hire an insolvency practitioner to draw up proposals o IVAs cannot be entered independently - Practitioner will prepare a statement of affairs and apply to the bankruptcy court for an interim order o No petitions, proceedings or executions can be commenced against the debtor while the order is in place - Practitioner prepares a report advising on realistic proposals - Meeting is called and if 75% in value of unsecured creditors agree, proposals will bind all unsecured creditors who have notice of the meeting, even if they did not attend  - Preferential creditors and secured creditors are not bound unless they agree - Insolvency practitioner will now be called a supervisor and will oversee and implement the proposals Bankruptcy - Advantages for debtor o Start free from debt o Keep a reasonable amount of income to live on - Disadvantages for debtor o Affect credit rating o Home may be sold o Public record o Prevent certain jobs - Advantages for creditor o Debts are paid off in statutory order and not preferentially - Application for bankruptcy is made by: o Debtor applying online o Unsecured creditor(s) owed at least £5k combined present an order of bankruptcy to the court  Must prove the debtor is insolvent o Supervisor of an IVA petitions for bankruptcy - Ways to prove a debtor is insolvent: o If owed a liquidated debt for more than £5k: make a statutory demand for payment, must be paid off within 3 weeks o If owed a future liability of more than £5k: serve statutory demand for proof of ability to pay, reasonable prospect must be shown o If owed a judgment debt of more than £5k: execute on the judgment - Bankrupt’s estate automatically vests in the trustee o Bankrupt can keep assets needed for daily living and retain a salary subject to an income payments order if the salary exceeds the amount needed for reasonable expense - If the home has equitable interests of another person, trustee cannot sell home without a court order o After 1 year, all interests of creditors override equitable interest - Bankrupt is restricted from certain behaviour - If there is not enough to cover all creditors, creditors in each rank will be awarded an equal percentage of their original debt - If the bankrupt complies with all restrictions and has been honest, bankruptcy will end after one year - If the bankrupt is found to be dishonest, negligent or reckless, they can be subject to a bankruptcy order of up to 15 years Individual who is a partner becomes bankrupt Partnership at will Partnership not at will LLP Partnership will be dissolved Partnership will not terminate if Undischarged bankrupt cannot be a agreed in partnership agreement member of LLP without court agreement Trustee in bankruptcy will Remaining partners will purchase Trustee will realise the member’s interest receive all money due to the insolvent partner’s interest from for the benefit of the creditors by selling bankrupt partner trustee it to the remaining members - If a traditional partnership is insolvent, partnership is wound up in the same way as for individuals - The insolvency practitioner will: o Complete, transfer or end all contracts o Settle legal disputes o Sell assets o Collect money owed o Distribute funds to creditors Claw-Back of Assets for Creditors Preferences - When a debtor does something to put a creditor in a better position than they would be during liquidation or administration - Desire to prefer must exist o Presumed if preference is in favour of a connected person - Must have occurred within 6 months of insolvency (2 years for connected person) - Any preference transactions are voidable at the court’s discretion Transactions at an Undervalue - Property that would have been part of the assets during bankruptcy is given as a gift or sold for significantly less than market value - Must have occurred within 5 years of insolvency - Individual does not need to be proven to be insolvent at the time if made within 2 years of petition o Presumed if made to a close relative or business associate Order of Priority for Distribution to Creditors Statutory order of priority for bankrupt individuals: 1. Costs of bankruptcy 2. Preferential debts 3. Ordinary unsecured creditors 4. Postponed creditors Taxation - business Income Tax: Chargeable Persons/Entities - Individuals pay income tax on their income: o Natural persons o Sole traders o Partners in traditional partnership / LLP - Income receipts: money received on a regular basis - Income expenditure: money spent as part of day-to-day trading - Employees pay income tax indirectly through the PAYE system, where their employers pay the employee’s income tax directly to HMRC - Income tax year is 6 April – 5 April - Tax bands 2023/24: o Basic rate: £0 - £37,700 o Higher rate: £37,701 - £125,140 o Additional rate: over £125,140 Basis of Charge Types of income - Total income: taxpayer’s gross income from all sources o Net income: total income less available tax reliefs o Taxable income: net income less personal allowance - Non-savings income: any income other than savings income and dividend income - Savings income: interest received on savings - Dividend income: income received by way of dividend Main reliefs / exemptions - Interest paid on qualifying loans is exempt from income tax, such as: o Loans to buy an interest in a partnership o Loans to contribute capital to make a loan to a partnership o Loans to buy shares in (or make a loan to) a close company o Loans to buy shares in an employee-controlled company or invest in a cooperative - Contributions into a pension scheme are exempt from income tax - Personal allowance: £12,570 o Reduced by £1 for every £2 of net income above £100,000 (£0 if net income > £125,140) - Personal savings allowance (savings income): o Basic rate: 0% for first £1,000 o Higher rate: 0% for first £500 o Additional rate: none - Dividend nil rate (dividend income): 0% for first £1,000 (all taxpayers) The Charge to Tax: RATES: Basic rate: 20% (£0 - £37,700) Higher rate: 40% (£37,701 - £125,140) Additional rate: 45% (over £125,140) Rates on savings income: Starting rate: 0% for first £5,000 **(Every £1 of other income above Personal Allowance reduces starting rate for savings by £1 – not available if other income is £17,570 or more)** Basic rate: 20% Higher rate: 40% Additional rate: 45% Rates on dividend income: Dividend nil rate: 0% for first £1,000 Basic rate taxpayers: 8.75% Higher rate taxpayers: 33.75% Additional rate taxpayers: 39.35% ALLOWANCES: Personal Allowance £12,570 (reduced by £1 for every £2 of net income above £100,000 – not available if net income > £125,140) Personal Savings Allowance (after applying starting rate for savings if applicable) Basic rate taxpayers: 0% for first £1,000 Higher rate taxpayers: 0% for first £500 Additional rate taxpayers: nil Calculating Income Tax: Steps 1. Calculate total income (gross income from all sources) 2. Calculate net income (deduct exemptions from total income) 3. Calculate taxable income (deduct personal allowance from net income) 4. Split taxable income into non-savings, savings and dividend income 5. Apply appropriate tax rate to non-savings income  6. Apply appropriate tax rate to savings income (including PSA if available) 7. Apply appropriate tax rate to dividend income (including dividend nil rate) 8. Add tax due on each income type to give total income tax liability Important additional notes: - If income straddles more than one tax bracket, apply the appropriate tax rate to the share of income in EACH tax bracket, for example if non-savings income is £40,000: o £0 - £37,700 taxed at 20% o £37,701 - £40,000 taxed at 40% - Use the ‘cake’ method to determine which tax rate to apply in cases where income crosses into different tax brackets o Think of each type of income type as tiers on a cake o Example: If non-saving income crosses into higher rate, then savings income will START at the higher rate Scope of Anti-Avoidance Provisions - Taxpayers cannot reduce their income tax liability by making gifts of certain income-producing items to their children, such as: o Shares (gives rise to dividends) o Lump sum (gives rise to interest) - If they do, income is treated as remaining with the taxpayer who made the gift Capital Gains Tax: Chargeable Persons/Entities - CGT is charged where there is: o A chargeable disposal o Of a chargeable asset o By a chargeable person (individuals, sole traders, partners, shareholders) o Which gives rise to a chargeable gain - Companies do not pay CGT, they pay corporation tax - Chargeable disposal: o Sale of an asset o Gift of an asset during taxpayer’s lifetime - Death is NOT a chargeable disposal, so gifts under a will normally do not give rise to CGT charges - Chargeable asset: o All forms of property except:  Principal private residence  Motor cars from private use  Certain investments (government securities, national saving certificates, ISAs, life assurance policies)  UK Sterling and any foreign currency held for personal use - Chargeable gain o Starting point is consideration received / deemed to have been received o Disposals to charities are treated as no gain/no loss o Disposals between spouses are treated as no gain/no loss o Disposal at am arm’s length: consideration will be price paid by buyer when asset is sold o Disposal between connected persons: seller is deemed to have received market value regardless of actual sale proceeds o Disposals at an undervalue between connected persons: seller is deemed to have received market value at date of disposal o Gifts: donor is deemed to have received market value of asset at date of the gift Basis of Charge Allowable expenditure - Initial expenditure o Cost price of the asset (base cost) o Incidental costs of acquisition - Subsequent expenditure o Subsequent expenditure on asset which enhances its value o Expenditure incurred in establishing, preserving or defending title to the asset - Disposal expenditure o Incidental costs of disposal Calculation of gains 1. Consideration received (sale proceeds / market value) 2. LESS: Disposal expenditure 3. = Net sale proceeds 4. LESS Initial expenditure 5. LESS Subsequent expenditure 6. = Chargeable Gain Reliefs and Exemptions - Annual Exemption: £6,000 (all individual taxpayers, companies do not have AE) - Business Asset Disposal Relief o Reduces higher rate of CGT from 20% to 10% for gains arising on qualifying disposal:  All or part of a trading business  Assets in a business that used to trade  Shares in a trading company  Shares in a company that used to trade o The assets must have been owned for at least 2 years before disposal in each case  If business used to trade: disposal must occur within 3 years of ceasing to trade  If disposing of shares in a company: must be an officer or employee of company, holding at least 5% of ordinary voting shares, and entitled to at least 5% of profits on distribution and 5% net assets on winding up - Investors Relief o Reduces higher rate of GCT from 20% to 10% for gains arising on disposals of qualifying shares, subject to lifetime limit of £10 million o Shares will qualifying if all of the following are true:  They are fully paid ordinary shares, issued to an individual for cash consideration, on/after 17 March 2016  Company is (and has been since shares were issued) a trading company or holding company of a trading group  None of company’s shares were listed at the time of issue  Shares are held by the individual for at least 3 years from 6 April 2016 (and continuously since issue)  Individual (or any connected person) is not (and has not been since issue of shares) an officer/employee of the company or any connected company - Rollover Relief (replacement of business assets relief) o Taxpayer elects to postpone CGT liability by rolling over chargeable gain into replacement asset o Applies to land, buildings, fixed plant and machinery, and goodwill o Replacement asset does not need to be same time as old one o Effect is that gain from old asset is rolled into cost of qualifying replacement asset   Acquisition cost of replacement asset is reduced by amount of gain rolled over o Can be used indefinitely until no new replacement asset is purchased o AE cannot be used to reduce gain rolled over - Holdover Relief (gift of business asset relief) o Donor and donee can claim o Applied to goodwill, assets used in the business, and unlisted shares in trading company o Donor will have no liability to CGT but donee’s acquisition cost for CGT purposes is reduced by amount of donor’s deemed gain (market value rule applies) o CGT liability is postponed until donee disposes of asset o Whole chargeable gain must be held over o If asset sold at undervalue, holdover relief only applies to gift portion o AE cannot be used to reduce gain held over The Charge to Tax RATES: Standard rate (Basic rate taxpayers): 10% Higher rate (Higher/Additional rate taxpayers): 20% Business Asset Disposal Relief and Investors’ Relief rate: 10% Upper rate gains 8% above base rate (18%/28%) Annual Exemption £6,000 - If a person’s income falls below the basic rate threshold (£37,700), but after the addition of the chargeable gain it is above that threshold, the rates are apportioned as follows: o (£37,700 – annual income) = Amount of chargeable gain charged at 10% o Remaining chargeable gain above £37,700 charged at 20% - Certain assets such as property not qualifying for primary residence relief is charged at 8% above the base CGT rate (18% for basic rate taxpayers / 28% for higher/additional rate taxpayers) Capital Gains Tax Calculation: 1. Sale proceeds / market value 2. LESS Disposal expenditure 3. = Net sale proceeds 4. LESS Initial expenditure 5. LESS Subsequent expenditure 6. = Total chargeable gain 7. LESS carried forward / carried-across losses 8. LESS annual exemption 9. = Taxable chargeable gain 10. Apply CGT at applicable rate (10% or 20%) Corporation Tax: Basis of Charge - Corporation tax is payable on: o All income profits and chargeable gains o Of a body corporate o That arise in its accounting period - Sum of company’s profits and gains is TTP (taxable total profits) - Companies are assessed to corporation tax by reference to financial year (1 April – 31 March) - Rates of corporation tax: o 25% for companies with profits over £250,000  o 19% for companies under £50,000 o Marginal Rate for companies between £50,000 and £250,000 – tax rate is tapered so companies are charged a rate between 19% and 25% Calculation, Payment and Collection of Tax Calculation of TTP 1. Chargeable gains a. Sale proceeds b. LESS Allowable expenditure c. LESS Indexation allowance d. LESS Capital/Trading losses e. = Chargeable gain 2. Income profits a. Income receipts b. LESS Deductible expenditure c. LESS Capital allowances d. LESS Trading losses e. = Income profits 3. Chargeable gain + Income profits = TTP Taxable income profits - Chargeable income receipts: receipts of income nature which arise from business/trading activity - Tax deductible expenditure: o Wholly and exclusively incurred for purposes of the trade o Not prohibited by statute (business entertainment expenditure, provision made in accounts for doubtful debts) o Be of an income nature - Capital allowance (reducing balance - plant and machinery): o Companies can deduct 18% of value of plant and machinery (P&M) from income receipts each year on reducing balance basis o Reduced value of P&M each year is Tax Written Down Value (TWDV) o Each year company claims capital allowance of 18% of TWDV of previous year - Annual investment allowance o Company can deduct 100% of expenditure on P&M up to £1 million on any qualifying purchases before 31 March 2023 o Can be used together with normal Capital allowance of 18% for year of purchase Taxable chargeable gains - Same rules apply in relation to allowable expenditure as for individuals, except: o No annual exemption for companies o Indexation allowance is available but is frozen up to 31 December 2017 o Substantial Shareholding Exemption can exempt the whole chargeable gain when company disposes of shares in a trading company, as long as shares held are at least 10% of ordinary share capital and they are held for at least 12 consecutive months in last 6 years  Not available for individuals o No BADR or IR available for companies - Rollover relief (replacement business assets) o Works in same way as for individuals to carry forward the gain from disposal of a qualifying asset and roll it into the acquisition cost of the qualifying replacement asset o Acquisition cost of replacement asset is reduced by value of the gain rolled over  Deductibility of Trading Losses Current year profits Trading losses can be set off against all other profits (income & chargeable gains) of same accounting year Claim must be made within 2 years of end of accounting period where loss arose Previous year profits Company can carry back any remaining losses against taxable profits (income & chargeable gains) of previous accounting period Company must carrying on the same trade in both years Claim must be made within 2 years of end of accounting period where loss arose If company ceases trading, any trading loss in final 12 months can be set off against any profits from 3 years prior to start of final 12 months Future trading profits Any remaining trading losses are automatically carried forward and set off against all future taxable profits (income & chargeable gains) Company must continue to trade but is not restricted to same trade Group relief One company with trading loss can surrender that loss to another profitable company in the group Deductibility of Capital Losses - Can generally only be set off against chargeable gains o Can be set off against chargeable gains in current year, but cannot be carried back to previous year o Can be carried forward and set off against any capital gains in future accounting periods - Company may use carried forward capital losses against capital gains of up to available Deductions Allowance in relevant accounting period, provided deductions allowance had not yet been used against trading profits in same period - If company has unrelieved capital gains in excess of available deductions allowance, carried forward capital losses may be used to relieve a maximum of 50% of unrelieved gains - Can be carried forward indefinitely but claim must be made to HMRC within 4 years from end of accounting period where loss arose for loss to crystallise Procedure for Corporation Tax Companies with TTP of £1,500,000 or less 1. Company estimates tax liability, pays HMRC within 9 months and 1 day of end of accounting period 2. Company files electronic tax return and accounts within 12 months of end of account period 3. Unless HMRC examine / make enquiries, company’s tax computation is finalised 12 months after filing date for tax return 4. Interest will accrue on any under/over-payments Companies with TTP more than £1,500,000 1. Same as above, but required to pay tax bills in 4 instalments over the course of the relevant accounting period and the next one Tax Treatment of Company Distributions or Deemed Distributions to Shareholders - Dividends paid to UK companies are subject to corporation tax unless exempted o All dividends are exempt from corporation tax unless anti-avoidance provisions apply - Dividend income received by a company is generally exempt from corporation tax o Not included in TTP for tax purposes - Company pays a dividend out of profits that have already been taxed, so tax already paid satisfies recipient company’s tax liability in respect of dividend - Dividend is not tax deductible for company paying it Outline of Anti-Avoidance Legislation - Trading losses cannot be carried forward or back where company has been sold to a new owner and nature of the trade of the company has substantially changed within 3 years after the sale - Prevents buyer acquiring loss-making companies purely to make use of their losses Value Added Tax: Key Principles Scope - VAT is charged on o Any supply of goods/services made in the UK o Where it is a taxable supply o Made by a taxable person o In the course/furtherance of any business carried on by that person - A person is required to be registered if their annual taxable supply exceeds (or they have reasonable grounds to believe it will exceed) VAT registration threshold (currently £85,000) o Person can voluntarily register - Person can de-register if value of future annual taxable supplies will not exceed VAT deregistration threshold (currently £83,000) Output tax - VAT chargeable by a business when making a supply of goods/services - Price stated on contract is deemed to be inclusive of VAT unless contract states otherwise - Seller accounts for VAT to HMRC Input tax - VAT paid by a person on goods or services supplied to the person - Input tax can be set off against output tax on chargeable supplies so seller only pays a portion of output tax to HMRC Types of Supply - Standard rated (20%) o All goods/supplies are standard rated unless they fall into other categories o Input tax can be recovered - Reduced rated (5%) o Supplies such as domestic heating and power, installation of mobility aid, smoking cessation products, and children’s car seats o Input tax can be recovered - Zero rated (0%) o Supplies including food, sewerage and water, books/newspapers, talking books, new houses and construction of new houses, public transport, children’s clothing o Input tax can be recovered - Exempt o Supplies including provision of insurance, finance, education/health services, sale of land and buildings (with exceptions) o Cannot recover input tax Registration Requirements and Issue of VAT Invoices & Returns - Taxable businesses making standard/reduced rate supplies to another taxable business must supply customer/client with a VAT invoice within 30 days of the supply and keep a copy - Taxable businesses must submit a VAT Return online to HMRC every 3 months o Due date is within 1 month and 7 calendar days after end of VAT period  o Must show total output tax charged less total input tax expended o Business normally paying more than £2.3 million VAT per year must make monthly payments on account and then pay the balance when submitting quarterly VAT return - Special schemes are available to simplify accounting for VAT or reduce VAT liability Inheritance Tax: Business Property Relief - Applies to value of qualifying business assets for both lifetime transfers and death estate - Business property includes: o Business or interest in a business o Shares in an unquoted company o Shares in a quoted company o Land/buildings, machinery/plant owned by transferor but used for business purposes by either  A company of which the transferor has control, or  A partnership of which the transferor was a partner - Transferor must have owned the business assets for at least 2 years immediately prior to the transfer o Not available if business consists wholly/mainly for making/holding investments - 100% relief is available for transfer of a business / interest in a business / shares in an unquoted company / shares in all private companies - 50% relief applies to: o Shares in a quoted company, but only if shareholder had control of the company (holds 50%+ voting shares) o Land/buildings, machinery/plant owned by transferor but used for business purposes Powered by TCPDF (www.tcpdf.org)