FAQs.

When looking at the 5% surcharge you must consider any residential properties owned, regardless of where they are located. However, in some case property owned overseas may not cause the surcharge to be payable on a UK purchase, perhaps because the overseas property is valued at less than £40,000, or the beneficial ownership sits within another party. There are many types of ownership, such as certain usufruct rights, which mean that the legal owner would not be treated as owning a major interest in the property, so it would not count for the purposes of the 5% surcharge. If you have an overseas property with unusual rights in place it is worth seeking further advice.

Historically, when considering the incorporation of an existing sole trading activity or partnership into a limited company, a big benefit to doing this was the ability to ‘realise’ the goodwill built up in the existing business, and access this value at a low tax rate (if Entrepreneurs’ Relief applied).

Since 3 December 2014 the rules on incorporation and goodwill have gone through significant changes, impacting on both the tax reliefs available on incorporation, and the tax deductibility of the amortisation of any goodwill acquired by the new business.

It is therefore important that when looking at incorporation, the tax position is considered so that there are no unexpected surprises.

If you are an employee/director in a company or a salaried partner in a partnership (or LLP) you will be taxed, broadly, on the salary and any benefits paid to you during the tax year.

Up to 6 April 2023, partners in a partnership and members in an LLP were taxed based on their tax adjusted profit shares for the account year which ended in a particular tax year. For example the profit from the accounts ending 30 April 2022 would be taxable in 2022/23. There were special rules if someone joined or left a partnership in a tax year.

However, partners and members could see a major change to their tax from 6 April 2023.

For businesses with accounting years ending between 31 March and 5 April there will be no change to the way partners and members are taxed.

But if your business uses another year end date for its accounts the “Basis Period Reform” rules could have a significant impact on you; both in the technical complexity of calculating your taxable profit shares allocated to a tax year, and also in accelerating when the tax on your profit share is due to HM Revenue & Customs.

From 6 April 2024 onwards you will be taxed based on profits arising solely in the tax year, regardless of when your accounting year end falls. Where the accounting year isn’t in line with the tax year (i.e. accounts year end isn’t between 31 March and 5 April), you will need to apportion the tax adjusted profits from two accounting years to arrive at your taxable profits for 2024/25.

In 2023/24 there is a “transitional year” to prepare for this change. You will be taxed on your profit share from the accounting year that ends in the year to 5 April 2024. You will also be taxed on your “transitional profits”.

Transitional profits cover the period from your year end to 5 April 2024 less any overlap profits available for relief. Transitional profits can be spread over up to five years and careful planning will be needed to make the most of this aspect to mitigate the impact of accelerated tax payments on your cashflow.

Please speak to us if you need assistance understanding your tax position and we will be pleased to help.

This is a complex question with a number of different options available including

• A Partnership
• A Limited Liability Partnership (LLP)
• A Limited company
• Or a hybrid mixture of the above entities.

New structures are developing all the time with employee ownership and external investors becoming increasingly popular. The right structure for your business will be dependent on a number of factors including size of the business, restrictions placed by your professional body, attitude to risk, the stage the business is at in its life cycle and the number, age and income requirements of the owners. Whilst tax shouldn’t be the main driver in any business decision the tax implications are extensive and a crucial part of any decision making process. We work with our clients to develop a bespoke solution for every business which avoids inflexible structures and succession challenges whilst maximising tax saving opportunities.

It’s natural to want to know how your firm is performing compared to your competitors. The use of hybrid structures or operating vehicles which do not have to publish their results can make it difficult to get an accurate picture of how your competitors are doing. PEM, as part of the Kreston network, participates in an annual benchmarking exercise giving you the ability to assess your firm’s performance against similar size firms both nationally and locally. The benchmarking survey provides comparatives for lots of criteria including fees (both by Partner and by fee earner), salary and admin costs and Profit per Equity Partner.

Firms are required to obtain an accountants report for that accounting period if the firm has at any time during the accounting period, held or received client money, or operated a joint account or a client’s own account as signatory. The accountant’s report must be completed within six months of the end of the accounting period and if it is qualified to show a failure to comply with the accounting rules it must be submitted to the SRA. There are a couple of exemptions from obtaining an accountants report if firstly, all of the client money held or received during the accounting period was Legal Aid monies or secondly, the total of all client accounts held or operated by the firm did not excess an average of £10,000 or a maximum of £250,000 during the accounting period in question. If you have any queries about whether you require an accountants report we would be happy to discuss your requirements.