A&M Taxand Scotland Asset Managers Briefing Note: Volume 2
Volume 2: May 2020
Debt Investments and the Availability of Tax Loss Relief, COVID-19 Working from Home Tax Reliefs and Exemptions, and Employment Related Securities Reporting
Expansion of A&M Taxand Asset Manager capabilities
Daniel Parry (Managing Director) joined A&M on 4 May to lead A&M Taxand’s asset manager team in the U.K. and will be working closely with our team in Scotland.
Daniel has more than 20 years of experience advising funds and fund executives. He has spent the past 6 years at EY, leading the U.K. fund structuring team. Prior to joining A&M, Daniel spent 20 years at Big Four firms (EY and Deloitte) as well as Grant Thornton.
Throughout his career, Daniel has carried out structuring of funds for large houses, the mid-tier sector and first-time entrants into the funds world. He also advised on all aspects of the tax position for the fund executives including their remuneration, carry structuring and personal family tax affairs.
His fund clients have included private equity funds, infrastructure funds, real estate and technology funds, ranging from £1 billion AuM to £150 million. In addition, Daniel has advised professional services firms, including structuring new law firms from a tax perspective.
Contact Daniel Parry at dparry@alvarezandmarsal.com
Debt investments and the availability of tax loss relief
Asset managers may wish to undertake a UK tax review of their underlying funds’ debt investments in investee companies to establish whether Capital Gains Tax (“CGT”) loss relief will be available - for individual investors in the funds, individual co-investors from the asset manager and management teams at investee companies - in the event that the investee companies become distressed and the debt investments become irrecoverable.
The availability of CGT loss relief for these individuals should depend on whether the funds’ debt investments are structured as:
- A simple debt or a debt on security; and
- If a debt on security, whether the debt investments are qualifying corporate bonds (“QCB”) or non-qualifying corporate bonds (“NQCB”)
If the debt investments are a simple debt, CGT loss relief may be available under the “relief for loans to traders” provisions if the relevant conditions are met (broadly, the debt investments have been used wholly for trading purposes and have become irrecoverable).
If the debt investments are a debt on security and structured as:
- QCB, no CGT loss relief should be available
- NQCB, CGT loss relief should be available
Any release of the obligation to repay the principal amount of the debt investment may have Corporation Tax implications for the creditor companies which the funds have invested into. We will cover these implications in a future Briefing Note.
Covid-19 updates: Working from home tax reliefs and exemptions
A number of working from home tax reliefs and exemptions may be available to individuals at asset managers who have been working from home during the UK lockdown, either because their offices have been closed or they are following advice to self-isolate.
HM Revenue and Customs (“HMRC”) have published guidance for employers to “Check which expenses are taxable if your employee works from home due to coronavirus (Covid-19)”. From 6 April 2020, employers can pay up to £6 a week (£26 a month) tax-free to employees to cover additional household costs incurred by employees working from home, without requiring supporting evidence of the cost.
Employees may also be able to make a claim for tax relief on the difference between the cost of these additional household expenses and the tax-free payment (if any) received either through submitting:
- A P87 form (if expenses are up to £2,500); or
- A self-assessment tax return (if expenses exceed £2,500)
Self-employed individuals should continue to claim for work expenses through their self-assessment tax returns.
Employment Related Securities (“ERS”) reporting reminder
Following the end of the 2019/20 UK tax year, annual ERS returns should be submitted to HMRC by 6 July 2020 to report any new or existing share plans (including co-investment and carried interest entitlements) for the previous tax year. This involves a number of key tasks, including:
- Registering new share plan arrangements
- Verifying or self-certifying the tax-advantaged plans in place
- Submitting annual returns with all reportable events (including nil returns).
All ERS annual returns should be filed with HMRC before 6 July 2020 for tax year 2019/20 with late filings resulting in an automatic penalty and potentially significant consequences for tax-advantaged plans. Please click here for further information.
