Category Archives: Administration

Why do we have to pay tax? Are we overtaxed?

These questions always seem to arrive as a pair.

Paying tax

The requirement to pay income tax (if we focus on just one tax) is a combination of Income Tax Act 2007, section 4 and (for this year) Finance Act 2022, section 1.

HMRC are given their collection and management powers under Taxes Management Act 1970, section 1.

Links to the legislation are here:


You may think so. Even if you are taxed less than the equivalent incomes in many other countries.

Here is an excellent blog by Dan Neidle on this topic:

Scope of the UK trusts register widened

The trusts register first applied to UK trusts with a tax liability. This was widened in October 2020 by anti-money laundring regulations to include most other UK trusts created by individuals during lifetime or on death.

There is a list of trusts exempt from reporting, such as charities, pensions, co-ownership of land and some older very small trusts.

For others the reporting deadline is 1 September 2022 for existing trusts and 90 days for trusts created after that date.

Information gathering for old and fairly dormant trusts may take some time, so the process is best started as soon as possible. The data requirements include details of the settlor, trustees, main beneficiaries and initial trust assets.

For non-UK trusts, with no UK resident trustee, the requirement to register only applies when the trust has a UK tax liability or acquires UK land.

Once registered annual updates are required.

We can help you complete and update the trust register for a fixed fee.

Personal limited company financial risks highlighted by Covid19

Government financial help in response to Covid19 was implemented quickly, is generous and will save jobs and businesses. It is right that the state stepped in at a time of national emergency.

Covid19 highlighted many financial risk areas for personal limited companies. Most of these also arise even in “normal” times. Although the risks are well known and common financial errors, it is worth repeating these now, for future risk management.

Some key risks are:

  1. Lack of personal savings for emergencies and company cash reserves for emergency cashflow
  2. Not fully understanding that the company is a separate legal entity to the owner (and that you are “self-employed” only in the loose sense of the term)
  3. Failing to send tax returns and pay taxes on time
  4. When saving tax and NIC by the use of low salary, dividends, company retained funds, alphabet shares or the ability to time profit extraction, not being honest about it (eg when demanding help* from the Government)
  5. Following your accountant’s advice on tax saving, but not on financial management
  6. If you would have defended your “dividends are dividends, not salary” to the death with HMRC, don’t immediate flip to equating it with earnings or self-employed profits, when that becomes more convenient
  7. If your company is paying dividends, do it properly (and check that you are doing it properly, before HMRC check)
  8. If you claim to be “paid in dividends” prepare for a battle with HMRC
  9. In reality, being a disguised employee of one large company
  10. Thinking salary must be a fixed monthly amount
  11. Thinking “every business owner does it that way” – they don’t
  12. Running a business, so that it is reliant on each month’s income to pay each month’s outgoings, with no safety net
  13. Seeking the cheapest advice, internet free advice or the lowest tax rate
  14. Lack of insurance and protection (life cover, critical illness and income protection, self-insurance via savings, pension contributions, shareholders’ agreement, a will and lasting power of attorney)
  15. Lack of “what if”, crisis planning and a business plan
  16. Not understanding that every time you do something to save tax (or NIC), it could open up a potential known (or unknown) future problem – especially where tax is driving the structure or plan, instead of the commercial and practical reasons

Several of these are not self-inflicted errors. Some employers attempt to save NIC and other employee costs, by forcing employees into freelance personal service companies. Some accountants push tax savings and “solutions” before financial guidance. Many IFAs charging structures are confusing and opaque.

But, running your own business is more fun, flexible and rewarding than being an employee. By not falling into the above traps, and barring pandemics, you also should have a sound financial future in running your limited company.

*I think there should be some Government help here – but it’s complex, as the underlying company income should form part of the calculation (due to the lack of transparent taxable profits, compared to a sole trader/partner). Honesty around the tax and NIC saved would also help formulate an argument for reasonable financial help.

More record keeping for trusts in 2020?

Guidance on record keeping obligations as at 2019 can be found here:

The change

This is likely to change and become more onerous once the UK adopts the 5th EU anti-money laundering directive (“5thAML”). The number of trusts affected by this may increase tenfold to 2 million. It will include many dormant trusts simply holding land or other non-income producing assets that currently do not need to formally register. In many cases the trusts will not have cash resources to pay for professional help to complete the database requirements and trustees could face personal penalties for non-compliance.

One hope is that the HMRC trust register will be improved. The current version appears to have been programmed by someone who does not understand the concept of either a trust or a database!


It may also lead to more transparency and information being available on trust asset ownership (which may be a good or bad thing, depending on ones views on privacy).

The use of trusts

As ever, it is worth remembering that trusts are a useful vehicle to protect assets, for example minors, vulnerable persons, plus inheritance tax and wills planning encouraged by the tax legislation.


The consultation can be found here:

The EU directive can be found here:

The ICAEW response to the consultation can be found here:

Who are you? Why we check client ID

Why we check ID

If you are a new client, we need to check your identification. If I’ve known you for many years, I still need to perform the same checks. This may seem odd but is a legal requirement. If I don’t do it, my firm is exposed to a penalty.

The legal issues are discussed in the case of N Bevan Ltd TC5404, where a penalty of £3,094 was imposed. It is worth a read.

How we do it

The usual way of undertaking ID is to take a copy of your passport or driving licence when I meet you. I may also need to confirm your home address electronically. If you have a trust or company we need to identify the trustees and ultimate beneficial owners (see “additional information” below). It is important that I fully understand your assets, business structures and transactions, under the anti-money laundering regulations.

If you (our client) are another firm of advisers, we still need your underlying client ID before we can advise you.

Updating the information

I may have to refresh the information every few years or when you undertake a transaction. This can be frustrating and cause delays but is important and a legal requirement.

Making it easier

Where I hope we differ from large firms is to make that process as easy as possible, by doing the checks myself and calling out to see you to collect the information.

Source of funds

We may also need to identify and ask you to prove your source of funds and wealth. The questions may feel intrusive but we are required to ask them by law. It may also lead to better advice by fully understanding your circumstances and history, even if not linked directly to the specific tax project.

Taking it seriously

But being a small firm does not mean that it is given a lighter touch. If you do not provide adequate ID and explain sources of funds, we will not engage you as a client.

Additional information – trusts

Where a trust is involved we will need need ID on the settlor (if still alive), trustees and main beneficiaries. This may also include national insurance numbers, to assist with  trust register updates. We will also request a family tree, copies of the trust deed(s) and documentation provided to HMRC on the trust’s creation (eg inheritance tax returns, 41G or trust registration).

Additional information – companies and HMRC tax clearances

For HMRC tax clearance applications (eg demergers, new holding companies, company purchase of own shares), we will need:

  • Approximate values of the business(es)
  • Companies House reference number
  • Corporation tax reference number
  • Brief history of the business and future plans
  • Names, addresses, UTRs and NI numbers of shareholders and photo ID
  • Classes of shares
  • If there is a shareholders’ agreement
  • Relationships/connections between the shareholders
  • Latest management accounts
  • A brief note of the commercial advantages of the transaction, from the point of view of the businesses (not the shareholders)