Category Archives: Risk

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.

Coronavirus Job Retention Scheme – “just a little bit of work” risk?

Those with furloughed employees will have made claims from the Government under the Coronavirus Job Retention Scheme (“CJRS”). In doing so, they have ticked a declaration that it is correct and done in accordance with HMRC’s guidance.

CJRS has been implemented quickly, is generous and will save jobs and businesses. Employees will receive some pay and employers will receive state benefits to fund that pay. What might go wrong?

No work

Para 6.1(a) of the Treasury Direction says “An employee is a furloughed employee if…
the employee has been instructed by the employer to cease all work in relation to their employment”

HMRC’s guide says “The employee cannot do any work for the employer that has furloughed them.”

There is a relaxation of this for furloughed directors, due to their statutory duties, but not for staff.

Just a little bit of work?

If we ignore those who purposely abuse the scheme, are there some employers mistakenly not meeting the CJRS requirements? If so, are they exposed to refunding the furlough payments, penalties or even criminal charges (eg Fraud Act 2006 or Theft Act 1968)? Additionally, there may be consequences under the Criminal Finances Act 2017, for others who may have assisted in making the claim.

Are some taking the view that “just a little bit of work” is fine, “how will HMRC find out” or “surely HMRC are not going to attack a struggling business and put employees’ jobs at risk”?

HMRC will check

My general outlook to reduce risk is to assume HMRC know everything that you know, plus a little bit more!

But, more specifically, are there email trails, mobile phone records, social media posts, disgruntled employees, suppliers notes and third party evidence that will show that an employee has done some work? What if HMRC interviewed staff or customers? What if your accountant notices it and insists that you correct and reduce the claim?

Even if the risk of penalties and prosecution is thought to be low, would bad publicity affect the business? Would there be public sympathy or not? It is easy to see, in say 2023, political pressure to be seen to have policed the scheme robustly, including carrying out at least some prosecutions.

Casual risk messages

I have seen or heard phrases along the lines of “I’m furloughed at the moment but I’m just doing…XYZ”. If I hear such open public statements, fortunately not from any clients (yet!), it will be easy for HMRC to also see and hear these, to trigger or assist in an enquiry into CJRS.

Managing CJRS risk – a few tips

  1. Review the furlough letter agreed by the employee – does it state that no work is to be done?
  2. Is there an audit trail to show that no work is done?
  3. Does the employer and employee know that “no work” = no work?
  4. Is an “out of office” set and furloughed employee email accessed by, or diverted to, non-furoughed staff?*
  5. Is it clear that client or supplier enquiries to the employee are diverted to non-furloughed staff?
  6. Even if funds are tight, discuss the CJRS process and application with a specialist with knowledge of HMRC tax investigations (in writing this, I’ve spoken to Jon Preshaw, who can be contacted here and I also thank him for his very useful input).

*HMRC confirmed (although only by the webchat function) that a furloughed employee checking email, to forward on to an unfurloughed employee to action is fine, as long as it is not worked on by the furloughed employee. [items in green updated 30 April 2020]

Update June 2020: the draft legislation pushes known errors, not reported with 30** days, into the deliberate and concealed penalty category. This could result in a 100% penalty, in addition to the refund of CJRS support. For larger amounts, this could also trigger the “naming and shaming” rules. The ATT response to the draft legislation consultation is worth a read.

**Update July 2020: the 30 day rule has been extended to 90 days but the other provisions still apply (see clause 106 and sch 16 of the Finance Bill, which should receive Royal Assent in July).

Tax tips

Here are my top ten tax tips:

  1. Have your tax return completed and submitted to HMRC as soon as possible after 5 April (ideally by 31 August);
  2. If you have substantial dividend income, or are self-employed, budget for your tax payment monthly;
  3. If your non-PAYE income is significant, understand the payments on account system as soon as possible (;
  4. Pensions tax relief and ISA allowances are very generous – save as much as you can as early as you can, to maximise the tax breaks;
  5. Before you worry about inheritance tax, make sure you and your family have wills, powers of attorney and adequate life insurance (and even after that, don’t worry about it too much);
  6. Don’t introduce tax risk into your finances (;
  7. If you buy a foreign holiday home (or even a helicopter or jet), at some point you will regret doing so (and, if you must buy one, don’t put a complex and costly structure around it that may work today but not tomorrow);
  8. If a slightly artifical structure (eg using a company for assets, paying yourself in dividends or loans) saves you tax today don’t assume that it will do so in a few years’ time (and don’t assume that it will be easy, in practical or tax terms, to collapse);
  9. Take advice before you do something – if the “something” is overseas, take foreign tax and legal advice first;
  10. If you run a business, remember that VAT and PAYE are not your money – don’t “borrow” or spend the taxes – instead keep an eye on your own business net cashflows.

Tax return required within 30 days of residential property disposal?

What has changed?

Tax returns are no longer required just once a year.

If you sell a residential property (eg rental property) after 5 April 2020, you will probably need to file a special tax return and pay the estimated capital gains tax within 30 days.

This is a major change. (At the moment a sale in, for example, May 2019 would not need to be reported and tax paid until 31 January 2021.)

What about my main home?

If you sell your main home and are certain that it is exempt, due to private residence relief, no return is required. But – are you sure it is fully exempt? If not, you are at the risk of penalties. Take advice several months before the sale.

When will your tax adviser know about the sale?

Will your tax adviser know? Often it is the estate agent and lawyer who know about the sale before the tax adviser. This now needs to change.

What action is needed?

Find out the property base cost, improvement costs, your estimated income and likely proceeds. Inform your tax adviser of these, as soon as possible before the sale.

Tax relief and losses

You can take into account losses made before the disposal in computing the 30 day tax estimate but not losses or other reliefs that have not yet crystallised (such as Enterprise Investment Scheme deferral, unless you have the EIS3).

What about the normal tax return?

The disposal still has to be reported on your normal tax return, with the final tax computation taking place and credit given for the capital gains tax already paid.

Key dates

The return is required 30 days after completion, even though the tax disposal date is exchange of contracts (the binding contract).

Why is this change important?

It is likely that, due to not being aware of the change, or making assumptions on tax or relief, that many taxpayers will face penalties for errors or late filing.


Inheritance tax & houses – common errors

General election time tends to cause a spike in views being expressed on IHT and houses. By a combination of lack of awareness, the complex tax system, and sometimes political intent, common errors arise.

Some examples from the December 2019 (now with some 2022 updates) election campaign are:

  • Not realising that only around 5% of death estates suffer IHT each year – see
  • Not being aware that the residence nil rate band can increase the normal £325k nil rate band by £150k* (now £175k) – see
  • Thinking IHT is double tax, rather than often being partly or mainly the result of otherwise tax free growth (or not much worse “double tax” than VAT)
  • Hoping that giving away all or part of the house saves IHT – in many cases it makes things worse, due to reservation of benefit, pre-owned asset tax and loss of capital gains tax free uplift
  • Forgetting the instalment option – see
  • Worrying, when young and healthy enough that life cover can cheaply cover the IHT risk
  • Forgetting the transferable nil rate band – see
  • Focusing on “40%”, rather than what actual blended tax rate might apply – eg the estate of a married couple (or widow/widower) with £1.2m house might suffer 8.3% (now 8%) IHT on that asset
  • Not realising that a reduction in the IHT rate, or its abolishment, might be balanced by the removal of the tax free uplift on death or private residence relief (given much wealth is otherwise untaxed property gain)
  • In hoping for IHT to be replaced with something else, that an annual wealth tax might cause more hardship than IHT on an elderly low income and valuable house owning taxpayer
  • Worrying about IHT but not taking advice

If any others are spotted, I am happy to add to the above list.

Some additions:

  • Even if IHT is payable on the house, there may be other resources to draw upon, such as the deceased’s pension fund
  • In some circumstances, where more than one generation live in the family home, it is possible to gift and share part of the property with the younger generation without it being a reservation of benefit – see

*it is this residence nil rate band that Labour’s 2019 manifesto suggests should be removed, leaving just £325k (but not £125k as some suggest, which is from an earlier report commissioned, but not written, by Labour).

HMRC guidance on trust record keeping

In July 2018, HMRC updated its guidance on trust record keeping. This is a mix of tax and anti-money laundering requirements.

Dormant trusts may not have to complete a tax return or trusts register but there are still record keeping obligations, such as under para 44 and 45 of the The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

I recommend that all trusts have an annual trust meeting, asset review and simple accounts (even if just one page). Whenever I am asked to advise on a historic trust problems (eg missed IHT charge) a common theme is lack of annual meetings and accounts.

Here is the HMRC website link

And a PDF version safari-30-jul-2018-at-1021.pdf

How much investment risk would you take to save inheritance tax?

The behavioural impact of tax on both advisers and taxpayers continues to fascinate me. Let’s say you have the certainty of being taxed at 40% – what percentage risk would you take to reduce that to nil?

An article in the FT (subscription required) suggests that those with inheritance tax (“IHT”) exposure as low as £15,000 are being sold business property relief (“BPR”) investments to reduce tax. As a tax adviser, the tax issues are relatively simple: invest in alternative investment market (“AIM”) shares that qualify* for BPR and survive for for two years. (*not all AIM shares qualify)

But, what about risk? It’s not too much of a tax risk but surely a significant investment risk. That’s outside my area of expertise but there is a general point here: driven by tax, why introduce the danger of overweight exposure in high risk investments to the elderly? I hear alarm bells.

Questions for the investment adviser:

  • How high risk are AIM shares?
  • Without the tax break, what proportion should an elderly person hold in such investments?
  • What is the percentage chance of the investments falling by more than the hoped for 40% tax saving?
  • Is there an AIM market bubble, caused in part by tax driven investments?
  • How active do the share/portfolio changes need to be to reduce risk (and perhaps rely on the replacement property BPR provisions)?
  • If the AIM market collapses, how many will suffer and will liquidity be an issue?
  • Is there a less risky way to save IHT?

I recall that insurance against AIM market falls used to be available with such investments. This option seems to have disappeared. If an insurer won’t take the risk, should an elderly client?

I have seen such BPR portfolios work, eg for those who were very wealthy, appreciated the risk, where BPR formed only a small part of their estate, they lived the two years and died soon afterwards and before any major fall in the investments – were their beneficiaries fortunate?

One to look back on in a few years’ time?


Buy to let – using a company may not be the answer

One of those situations where the question asked appears to contain the answer:

“I need a company for my buy to let portfolio – can you help me do that?”

It’s a common question at the moment.

Why a company? The restrictions to interest relief for individuals is the main driver, especially where the change pushes a basic rate taxpayer into higher or additional rate tax. Many with high rents covered by high debt don’t appreciate the impact this will have on their tax position.

Capital gains tax problems? Where properties stand at a gain, transferring these to a company may trigger tax. Although incorporation relief is available, property rental may not qualify. A taxpayer won on this issue (see this case) but on specific facts that will not apply to many landlords. If the properties are not standing at a gain, or just a small gain, this problem goes away.

Banking? some promote the idea of a beneficial trust company, in an attempt to use a company without telling the bank (see this article) but that would be foolish. An early discussion with the bank to get them onside with holding debt in a company is essential – it increases their risk and they may say “no” or increase their charges and interest.

What about SDLT? a transfer to a company usually will trigger Stamp Duty Land Tax. There is a relief for partnerships but two problems arise: have you really got a partnership (rather than just joint ownership) and have you put a partnership in place to avoid SDLT (in which case anti-avoidance rules probably catch it)?

Future how will you extract profits? Is there a double layer of tax on sales? What future changes to tax or company law could put you in a worse position? Will buy to let companies be targeted by anti-avoidance legislation? Will collapsing (liquidating) the company if things change cause additional taxes?

Overall there is a strong hint that the Treasury and Bank of England wish to discourage smaller buy to let landlords, to protect against a property crash, so any planning may be targeted by future legislative changes.

An outline plan

  1. work out your tax impact of the interest relief changes;
  2. consider if you need to adjust your debt, even if that means selling some property;
  3. speak to a financial adviser on commercial property (which tends to have a better tax treatment), indirect property investment, asset diversification, ISAs and pensions (ie generally, what exposure should you have in a balanced porfolio to debt funded residential property?);
  4. if an adviser says that you should qualify for incorporation or SDLT reliefs, do they mean will qualify? Are they or you taking that tax risk if HMRC challenge and win? (Beware the “we have Counsel’s opinion” line – to me that indicates they see risk, not safety.);
  5. Don’t pretend to be more actively involved than you are in reality in order to get incorporation relief and don’t set up a partnership just to avoid SDLT;
  6. Consider a company for new acquisitions;
  7. Consider a transfer of the existing property and debt to a company, if you are satisfied that it can be done with low or no tax and the bank are happy to do so;
  8. Work out the costs and administration of having a company;
  9. Expect future attacks on buy to let property.


QNUPS – for pension or tax purposes?

Having posted a slightly negative view of FICs in the last blog, it is a natural step to also do something similar for another fairly common structure with apparent tax savings, QNUPS.

Tax objective or pension?

QNUPS are Qualifying Non-UK Pension Schemes. The main selling point is the possibility of IHT exemption and a tax deferral of income and gains. These benefits feel vulnerable to HMRC attack or legislative change.

If the desire is wholly or mainly to have a top up pension scheme (in addition to a fully funded normal UK pension), the concept may work. But, the more that tax is the driver, the risk of unexpected tax charges increase.


The rules are rather thin, being mainly one paragraph of IHT legislation and a Statutory Instrument. These were introduced to amend a tax anomaly with another type of offshore pension (QROPS). The idea of a QNUPS is to piggy back on another country’s pension rules applying to its residents, subject to certain qualifying criteria.

As complex structures, advisers and offshore companies like them, as they generate relatively high or recurring fees.

What could go wrong?

  • The income and gains of a QNUPS may be taxable on the person funding it, under the UK anti-avoidance rules, although these rules have been relaxed recently, to be more proportionate in line with EU law
  • HMRC may argue that the IHT breaks do not apply
  • The press may see it, rightly or wrongly, as the next tax scam
  • Targeted legislation may be introduced to negate the tax advantages, possibly with retroactive effect
  • QNUPS may be difficult to unwind, if attacked by the tax system, as they are long term pension-like structures
  • The structure might not fully meet the requirements to be a valid pension in the other country (some countries have adapted their rules to make QNUPS attractive to UK residents – but is that enough?)
  • Even if it works, you may face the costs and uncertainty of defending it from HMRC attack


To safeguard against these, you should involve a pensions adviser as well as a tax adviser and I suggest taking a specific opinion from Tax Counsel, based on your own circumstances, to fully explore the risk areas.

A general opinion from Counsel may not be enough – that will be addressed to the those selling the idea to you (check that you also read the instructions to see what was asked). It may not cover downsides or specifics (eg it may say “if entered into as a pension scheme” but that doesn’t mean that you are entering into it as a pension scheme). Ensure that you ask for a review of possible downsides.

Also assume that a tax challenge will take place – does all the evidence genuinely point in the right direction? Who is responsible if ultimately tax is charged? An “audit” of the live paperwork by a tax investigation specialist may be useful to stress test the structure, advice, file notes and email trail in anticipation of a HMRC enquiry.

HMRC consultation

There is an impression that HMRC and the Treasury do not like QNUPS. There was a hint that a consultation would take place, with draft tax changes, but nothing has appeared. It would have to fit within EU law, which may limit what could be done, although a possible Brexit impacts on that, of course.

Overall, tread carefully when considering QNUPS, if the reason is any wider than “I wish to have an additional pension fund”.