Acing the SQE/Business Law

Introduction

This book aims to offer a concise elucidation of the fundamental principles of Business Law and Practice ("BLP"_ necessary for success in the Solicitors Qualifying Examination Part 1 ("SQE1").

The book's structure has been shaped by the nature and content of the SQE1 assessment.

• SQE1 comprises 360 multiple-choice questions administered across two closed-book examinations, with Business Law and Practice (BLP) being one of the 14 subject areas tested.

• The purpose of SQE1 is to assess the knowledge and application skills expected of newly qualified solicitors. It does not necessitate memorization of case names or statutes, except in instances where specific references are crucial to elucidate legal principles, such as the Rule in Rylands v Fletcher.

• The examination is structured to evaluate contemporary legal understanding, disregarding historical or potential future developments of the law. The BLP syllabus encompasses various facets of business law and practice, akin to those found in many LLB company law modules.

• Primarily, the syllabus focuses on four principal business entities: sole traders, partnerships, limited liability partnerships, and private companies limited by shares. While public limited companies are mentioned, the syllabus excludes detailed discussions on their governance, regulation, or law.

• Though not explicitly outlined in the curriculum, resolving problem-based BLP scenarios often demands a contextual comprehension of how business operates.

• The book assumes no prior familiarity with Business Law and Practice, catering to both law and non-law graduates alike. It aligns with the SQE's approach by eschewing extensive case analyses or legal research, instead concentrating on fulfilling SQE1 requirements.

• Where necessary, cases and statutes are referenced, though detailed legal dissection and historical contextualization are omitted, unless relevant to commercial awareness aspects.

According to the SQE1 syllabus published by the SRA, this syllabus excludes the Listing, Prospectus, Disclosure Guidance and Transparency Rules and any other FCA, London Stock Exchange, market rules or codes.

This book covers the following topics of Business Law and Practice according to the SQE 1 assessment specification:

• Business and organisational characteristics (sole trader/partnership/LLP/private and unlisted public companies).
• Legal personality and limited liability.
• Formation of a company/partnership/LLP.
• Corporate governance and compliance.
• Partnership decision-making and authority of partners.
• Insolvency (corporate and personal).
• Business taxation.

Note that the last topic, Taxation - business is listed as a separate topic in the Assessment Specification but is included in Business Law and Practice Subject.

Business and organisational characteristics

English Solicitors often require advice on business forms that are suitable for client’s needs. Knowledge of the main characteristics of various business structure is essential for advice on business forms. In particular, knowledge of important concepts, such as limited liability and a separate legal personality, is especially important. This chapter examines the types of business organizations listed in the SQE assessment specification, such as sole traders, general partnerships, limited liability partnerships, private limited companies and public limited companies.

sole trader

This is the simplest type of business organisation and the most common business form in the UK today. Sole traders are individual people who are self-employed. They are human beings rather than corporate forms. Many of the companies and partnerships in the UK today began as sole traderships.

If the business fails, sole traders are liable for any outstanding debts as they have unlimited liability. This means that if the business goes under, the sole trader may have to pay from personal assets. Sole traders are treated as individuals and are liable to pay income tax on profits. Sole traderships are not registered at Companies House but sole traders do need to register with Her Majesty's Revenue & Customs (HMRC) as self-employed.

partnership

• Definition: An unincorporated business that exists when two or more people ‘carry on’ a business in common with a view of profit (as defined in s 1 Partnership Act 1890 (PA)).
• no specific formalities are required (informal and unwritten, oral agreement or through conduct is OK)
• partners are liable personally with no legal separation
• No onerous filing and disclosure requirements
• Partners pay income tax on their share of the trading profits and capital gains tax on their share of the capital gains
• may be required to register for VAT

LLP

• A mix between a company (separate legal personality registered at the Companies House with limited liability to debt) and partnership (formed with a view to profit), unlike a partnership, an LLP is incorporated.
• An LLP is formed by sending form LLIN01 to Companies House
• LLP members pay income tax on their share of the trading profits and capital gains tax on their share of the capital gains

private company

• must be filed at Companies House

unlisted public companies

Comparison of Private Limited Company and Public Limited Company

Private Limited Company	Public Limited Company
Shares cannot be offered to the public (s 755 CA)	Shares cannot be offered to the public
No minimum capital requirements	Minimum capital requirements – £50k and at least one-quarter must be paid up
	More onerous filing and disclosure requirements

Legal personality and limited liability

Legal separate personality as an artificial person is a key advantage of incorporation

it was not fraud to set up a limited company in order to create a separate legal person, to avoid personal responsibility for debts.
-Salomon v A Salomon and Co Ltd [1897] AC 22

Procedures and documentation

Procedures and documentation required to incorporate a company

1. Choosing a company name: The first step in incorporating a company is to choose a company name. The name must be unique and must not be too similar to the name of an existing company.
2. Preparing the articles of association: The articles of association are the constitutional documents of the company, setting out the rules for the internal management of the company.
3. Filing the memorandum of association: The memorandum of association sets out the company's objects and powers, as well as details of the company's shareholders and directors.
4. Appointing directors: Companies must have at least one director. The director must be over 16 years of age and cannot be an undischarged bankrupt.
5. Registering with Companies House: The final step in incorporating a company is to register with Companies House, the government agency responsible for maintaining a register of all companies in England and Wales. To register, you must file the memorandum of association and the articles of association, along with a completed registration form.
6. Obtaining a registered office address: A company must have a registered office address in England or Wales, which will be its official address for legal and government purposes.
7. Appointing a company secretary (if required): Companies with only one director do not need to appoint a company secretary. However, companies with more than one director must appoint a company secretary.
8. Keeping records: Companies must keep proper records, including details of the company's finances, shareholders, and directors.

Procedures and documentation required to form a partnership

Forming a partnership does not require any formal procedures or documentation, as a partnership can be formed simply by two or more individuals carrying on a business together with a view to making a profit. However, it is advisable to have a written partnership agreement in place.

Procedures and documentation required to LLP

In English business law, a limited liability partnership (LLP) is a legal entity that combines the flexibility and tax advantages of a partnership with the limited liability protection of a corporation. The procedures and documentation required to form an LLP in England are as follows:

Choose a name: The first step in forming an LLP is to choose a name that is not already in use by another company or LLP. The name must also comply with the rules set out in the Companies Act 2006.

Register the LLP: The next step is to register the LLP with Companies House, which is the government agency responsible for maintaining the public register of companies and LLPs in the UK. The registration process involves completing a form called an LLP1, which includes details such as the name of the LLP, the registered address, and the names and addresses of the designated members.

Prepare an LLP agreement: An LLP agreement is a document that sets out the rights and obligations of the members of the LLP, including issues such as profit sharing, decision making, and the admission and retirement of members. Although there is no legal requirement to have an LLP agreement, it is recommended to have one in order to clarify the terms of the partnership and avoid disputes.

Appoint designated members: At least two members of the LLP must be designated members, who have additional responsibilities such as signing the accounts and filing the annual return with Companies House.

File annual returns and accounts: Once the LLP is registered, it must file an annual return and accounts with Companies House every year, in order to comply with the legal requirements and maintain its status as a registered entity.

Obtain necessary licenses and permits: Depending on the nature of the LLP's business activities, it may need to obtain certain licenses and permits from regulatory authorities in order to operate legally.

other steps required under companies and partnerships legislation to enable the entity to commence operating

constitutional documents

1. To incorporate a company:

Memorandum of Association: The memorandum of association is a legal document that sets out the fundamental details of the company, including its name, registered office address, objects, and the names and signatures of the subscribers who wish to form the company. The memorandum of association is a public document and must be filed with Companies House.

Articles of Association: The articles of association are a set of rules that govern the internal management of the company, including the rights and duties of the directors, the powers of the shareholders, and the procedures for holding meetings and making decisions. The articles of association are also a public document and must be filed with Companies House.

1. To form a partnership:

Under English business law, the constitutional documents required to form a partnership are a partnership agreement and a declaration of partnership.

Partnership Agreement: The partnership agreement is a legal document that sets out the terms of the partnership, including the rights and responsibilities of each partner, the sharing of profits and losses, the decision-making process, and the procedures for admitting new partners or dissolving the partnership. The partnership agreement is a private document and is not required to be filed with any government agency.

Declaration of Partnership: The declaration of partnership is a simple document that states the name and business address of the partnership, the names and addresses of all partners, and the date on which the partnership was formed. It must be signed by all partners and is not required to be filed with any government agency.

In addition to these constitutional documents, partnerships may also have other internal documents such as a code of conduct or a partnership deed, which set out additional rules and guidelines for the partnership's operations.

1. to form an LLP:

Under English business law, the constitutional documents required to form an LLP (Limited Liability Partnership) are a limited liability partnership agreement and an incorporation document.

Limited Liability Partnership Agreement: The LLP agreement is a legal document that sets out the terms of the partnership, including the rights and responsibilities of each partner, the sharing of profits and losses, the decision-making process, and the procedures for admitting new partners or removing existing ones. It also outlines the LLP's internal governance, such as the allocation of management responsibilities and voting procedures. The LLP agreement is a private document and is not required to be filed with any government agency.

Incorporation Document: The incorporation document is a simple document that includes the name and registered office address of the LLP, the names and addresses of all initial members, and the LLP's designated members. It must be signed by all initial members and designated members and filed with Companies House.

In addition to these constitutional documents, LLPs may also have other internal documents such as a code of conduct or a deed of adherence, which set out additional rules and guidelines for the LLP's operations.

It is important to ensure that the LLP agreement is drafted carefully and accurately, as it will govern the relationship between the partners and the operation of the LLP. It is recommended to seek professional advice and assistance in drafting and reviewing the LLP agreement.

Companies House filing requirements

1. incorporate company

Under English business law, the Companies House filing requirements to incorporate a company are as follows:

Memorandum of Association: The Memorandum of Association is a legal document that sets out the company's name, registered address, and the objectives for which it is formed.

Articles of Association: The Articles of Association are a set of rules that govern the internal management of the company, including the powers and duties of directors and shareholders, the rights and obligations of members, and the procedures for meetings and decision-making.

Statement of Capital: The Statement of Capital provides details of the company's share capital, including the number and type of shares issued, their nominal value, and any amount paid or unpaid on each share.

Companies House Form IN01: Form IN01 is the official application form for registering a new company in the UK. It provides information about the company's directors, shareholders, registered office address, and the proposed officers of the company.

Registration fee: A fee is payable to Companies House at the time of registration, which varies depending on the type of company being formed and the method of registration.

In addition to these requirements, companies must also comply with ongoing filing requirements, such as filing annual accounts and annual returns with Companies House, notifying the registrar of changes in the company's details, and keeping accurate and up-to-date records.

It is important to ensure that all the necessary documents are completed accurately and submitted on time, in order to avoid delays and potential penalties. It is recommended to seek professional advice and assistance in order to ensure that the registration process is completed correctly and efficiently.

1. form a partnership:

Unlike a limited liability partnership (LLP) or a company, a partnership does not have to be registered with Companies House. However, there are certain filing requirements that must be met in order to comply with legal and tax obligations. These include:

Registering for self-assessment: Partnerships must register for self-assessment with HM Revenue and Customs (HMRC) in order to report their income and expenses and pay any tax owed.

Obtaining a unique taxpayer reference (UTR): Each partner must obtain a UTR from HMRC in order to file their tax returns.

Keeping accurate accounting records: Partnerships must keep accurate accounting records of their income and expenses, including details of any transactions between the partners.

Completing a partnership tax return: Each year, the partnership must complete a tax return to report its income and expenses, and each partner must include their share of the partnership profits or losses on their own tax return.

Registering for VAT: If the partnership's taxable turnover exceeds a certain threshold, it may be required to register for value added tax (VAT) and submit regular VAT returns to HMRC.

Overall, the filing requirements for a partnership under English business law are focused on complying with tax obligations and maintaining accurate financial records. It is important to seek professional advice in order to ensure that all legal and tax obligations are met.

1. form an LLP:

Under English business law, a limited liability partnership (LLP) is a separate legal entity from its members, which provides the benefits of limited liability while retaining the flexibility of a partnership. The Companies House filing requirements to form a LLP are as follows:

Incorporation Document: This is the document that sets out the proposed name of the LLP, the registered office address, the names and addresses of the initial members, and the initial designated members. It must be signed by at least two subscribers and must be filed with Companies House.

LLP Agreement: This is a legal document that sets out the internal management structure of the LLP, including the rights and duties of the members, the decision-making process, and the allocation of profits and losses. The LLP Agreement is not required to be filed with Companies House, but a copy must be kept at the registered office of the LLP.

Statement of Designated Members: This is a document that lists the names and addresses of the designated members of the LLP, who are responsible for the management of the LLP. It must be filed with Companies House at the time of incorporation and updated as necessary.

Registration fee: A fee is payable to Companies House at the time of incorporation, which varies depending on the type of LLP being formed and the method of registration.

In addition to these requirements, LLPs must also comply with ongoing filing requirements, such as filing annual accounts and annual returns with Companies House, notifying the registrar of changes in the LLP's details, and keeping accurate and up-to-date records.

It is important to ensure that all the necessary documents are completed accurately and submitted on time, in order to avoid delays and potential penalties. It is recommended to seek professional advice and assistance in order to ensure that the registration process is completed correctly and efficiently.

Finance

funding options: debt and equity

Debt

• Secured loans which is backed by mortgage, fixed charge and floating charge.
• Company will issue debenture
• All charges must be registered

To register a floating charge over a company's assets, the company must file a Form MR01 with Companies House. This form must include details of the charge, such as its nature and amount, as well as the names and addresses of the parties involved. The company must also pay a registration fee.

Once the Form MR01 is filed and the registration fee is paid, the floating charge is registered on the company's public record at Companies House. This means that the charge is visible to the public and can be searched by anyone who wants to know about the company's financial status.

• Priority of charges: Under English company law, the priority of charges on a company's assets is determined based on the date they were created or registered, and the type of charge.

The first charge created or registered will generally have priority over later charges, meaning that in the event of the company's insolvency or liquidation, the holder of the first charge will be paid first from the proceeds of the sale of the charged assets.

The priority of charges can be affected by the type of charge. Fixed charges are those created over specific assets, and they have priority over floating charges. Floating charges, on the other hand, are created over a class of assets, such as inventory or accounts receivable, and do not attach to specific assets until certain conditions are met, such as the company's default on its debt obligations.

However, there are some exceptions to the general rule of priority. For example, certain charges may be granted super-priority over other charges. For instance, the holder of a charge granted under the Financial Collateral Arrangements (No.2) Regulations 2003 will have super-priority over other charges, even if it was created or registered after other charges.

It is important to note that the priority of charges can have a significant impact on the amount of debt that can be recovered in the event of insolvency or liquidation. Therefore, it is crucial for creditors to carefully consider the type and timing of charges they seek to create or register.

Equity

• Types: Ordinary, preference, cumulative preference, redeemable shares
• Allotting

types of security

• mortgage
• fixed charge

Under English company law, a fixed charge is a type of security interest or lien created by a company over a specific asset, which means that the asset is used as collateral for a debt or other obligation. The asset is typically identified in the security agreement, and the charge is said to be "fixed" because it attaches to the asset and cannot be transferred to another asset without the creditor's consent.

The most common types of assets that are subject to fixed charges are land, buildings, and machinery, but other assets, such as intellectual property, can also be subject to a fixed charge.

When a company grants a fixed charge over an asset to a creditor, the creditor has a priority claim to the asset in the event of the company's default. If the company fails to repay the debt or meet its other obligations, the creditor may take possession of the asset and sell it to recover the amount owed.

In terms of priority, a fixed charge takes precedence over floating charges and unsecured creditors in the event of the company's insolvency, meaning that the creditor with a fixed charge will be paid before any floating charge holders or unsecured creditors.

• floating charge

In English company law, a floating charge is a type of security interest created over a company's assets, which enables the company to continue to use and dispose of those assets in the ordinary course of business until an event occurs that triggers the charge, such as the company defaulting on a loan or becoming insolvent.

A floating charge is generally created by a written instrument, such as a debenture, and covers a class of assets that are not specifically identified at the time the charge is created. This can include assets such as stock, inventory, receivables, and intellectual property.

The holder of a floating charge has a right to the proceeds of the sale of the charged assets in the event of a default or insolvency, but the charge is not fixed to any specific assets until it crystallizes. This means that the company can continue to use and dispose of the assets covered by the floating charge until the charge crystallizes, at which point the charge becomes fixed and attaches to the specific assets in question.

Once a floating charge has crystallized, it becomes a fixed charge and the holder of the charge has a priority claim over the charged assets in relation to other creditors. However, prior to crystallization, the holder of a floating charge is subordinate to certain preferential creditors, such as employees, and may be subject to challenge if it is found to have been created to defraud other creditors.

Corporate governance and compliance

rights, duties and powers of directors and shareholders of companies

Directors

Under English company law, directors have several rights, duties, and powers. Here are some of the most important ones:

Rights:

1. Directors have the right to attend board meetings and vote on matters brought before the board.
2. They have the right to receive information about the company's affairs.
3. They have the right to exercise their powers for the benefit of the company and its shareholders.

Duties:

1. Directors have a fiduciary duty to act in good faith and in the best interests of the company.
2. They have a duty to exercise reasonable care, skill, and diligence in carrying out their roles.
3. They have a duty to promote the success of the company for the benefit of its shareholders as a whole.
4. They have a duty to avoid conflicts of interest between their personal interests and those of the company.

Powers:

1. Directors have the power to manage the company's affairs, make decisions on behalf of the company, and enter into contracts on behalf of the company.
2. They have the power to appoint and remove senior managers and other employees.
3. They have the power to declare and pay dividends to shareholders, subject to the company's financial position and any legal restrictions.
4. They have the power to issue new shares and borrow money on behalf of the company, subject to certain legal requirements and shareholder approval in some cases.
5. It is important to note that these rights, duties, and powers are not exhaustive and may vary depending on the specific circumstances of the company and the nature of the director's role.

Shareholders

Rights:

1. Right to receive dividends: Shareholders have a right to receive dividends when declared by the company.
2. Right to attend and vote at meetings: Shareholders have the right to attend general meetings of the company and vote on company resolutions.
3. Right to transfer shares: Shareholders have the right to transfer their shares to others, subject to any restrictions in the company's articles of association.
4. Right to information: Shareholders have the right to receive information about the company's financial position and performance.
5. Right to challenge company decisions: Shareholders have the right to challenge decisions made by the directors or other shareholders.

Duties:

1. Duty to pay for shares: Shareholders have a duty to pay for the shares they have subscribed for in the company.
2. Duty not to interfere with the management of the company: Shareholders should not interfere with the management of the company's affairs.
3. Duty to act in good faith: Shareholders have a duty to act in good faith towards the company and other shareholders.
4. Duty to comply with the articles of association: Shareholders are required to comply with the articles of association of the company.
5. Duty to disclose interests: Shareholders have a duty to disclose any interests they have in transactions entered into by the company.

Powers:

1. Power to appoint and remove directors: Shareholders have the power to appoint and remove directors of the company.
2. Power to amend articles of association: Shareholders have the power to amend the company's articles of association.
3. Power to approve major transactions: Shareholders have the power to approve major transactions such as mergers, acquisitions, or disposals of substantial assets.
4. Power to wind up the company: Shareholders have the power to wind up the company if the necessary majority is obtained at a general meeting.
5. Power to challenge the actions of the directors: Shareholders have the power to challenge the actions of the directors and seek remedies if necessary.

company decision-making and meetings: procedural, disclosure and approval requirements

Companies must follow certain procedural, disclosure, and approval requirements when making decisions and holding meetings. These requirements help ensure that decisions are made in a fair and transparent manner, and that all interested parties have the opportunity to participate in the decision-making process.

Procedural Requirements

1. Notice: Companies must provide reasonable notice to all members of the company regarding the date, time, and location of meetings, and the business to be transacted. The notice period varies depending on the type of meeting, but in general, it must be at least 14 days for an annual general meeting (AGM) and 21 days for a special resolution.
2. Quorum: A quorum is the minimum number of members required to be present at a meeting in order for decisions to be made. The quorum for a general meeting is usually two members or 10% of the total voting rights, whichever is greater.
3. Voting: Voting may be done in person, by proxy, or by electronic means. Each member usually has one vote per share, although the articles of association may provide for different voting rights for different classes of shares.
4. Resolutions: Resolutions are decisions made by the company, either at a general meeting or by written resolution. There are two types of resolutions: ordinary and special. Ordinary resolutions require a simple majority (50%+1) of the votes cast, while special resolutions require a 75% majority.

Disclosure Requirements

1. Agenda: The agenda for the meeting must be included in the notice of the meeting, and should set out the business to be transacted.
2. Minutes: Minutes of the meeting must be taken, which should record the decisions made and any resolutions passed. The minutes should be circulated to all members after the meeting.
3. Related Party Transactions: The company must disclose any material transactions between the company and its directors or their connected persons. These transactions must be approved by the members or the board, depending on the size and nature of the transaction.

Approval Requirements

1. Directors' Decisions: Directors are responsible for managing the company's affairs and making decisions on behalf of the company. These decisions must be made in accordance with the company's articles of association and must be in the best interests of the company and its members.
2. Shareholders' Resolutions: Certain decisions, such as changes to the articles of association or the appointment and removal of directors, require approval by the members through a resolution at a general meeting or by written resolution.

documentary, record-keeping, statutory filing and disclosure requirements

Under English company law, there are various documentary, record-keeping, statutory filing, and disclosure requirements that must be met in relation to company decision-making and meetings. These requirements are in place to ensure transparency, accountability, and compliance with legal obligations. Some of the key requirements include:

1. Minutes of meetings: Companies are required to keep minutes of all meetings, including board meetings and general meetings, and these minutes must be kept for at least 10 years. The minutes should include a record of all decisions made and any votes taken, as well as any discussions that took place.
2. Register of members: Companies are required to maintain a register of members, which must include the names and addresses of all members, the date on which they became a member, and the number and class of shares held.
3. Register of directors: Companies are also required to maintain a register of directors, which must include details of all directors, such as their names, addresses, and dates of appointment and resignation.
4. Statutory filings: Companies must make various statutory filings with Companies House, including the annual confirmation statement, annual accounts, and various forms relating to changes in the company's structure or governance.
5. Disclosure requirements: Companies must disclose certain information to shareholders, such as the company's annual report and accounts, and any information that is required to be included in the notice of a general meeting.
6. Articles of association: The company's articles of association must set out the procedures for decision-making and meetings, including the quorum required for meetings, the procedures for voting, and any requirements for notice of meetings.

appointment and removal of directors

Appointment and removal of directors are important aspects of the management of a company under English company law.

1. Appointment:

The process of appointment of directors is generally governed by the company's articles of association. In private companies, the shareholders can appoint directors by passing an ordinary resolution in a general meeting, whereas in public companies, the appointment is made by way of election at the annual general meeting. The board of directors may also appoint a new director to fill a casual vacancy or to increase the number of directors.

1. Removal:

The removal of a director is also governed by the company's articles of association. Generally, shareholders have the power to remove a director by passing an ordinary resolution at a general meeting. The company may also remove a director if the director becomes disqualified, resigns or is declared bankrupt. The board of directors may also remove a director if the director breaches his or her fiduciary duties or is found guilty of any misconduct.

It should be noted that a director can challenge his or her removal through the courts if the procedure is not followed correctly, or if it is found to be motivated by personal interests or other improper motives.

In addition, it is important to note that there are certain restrictions on the appointment and removal of directors in public companies, which are designed to ensure that the board of directors is composed of individuals who are independent, competent, and qualified to manage the company. For example, under the UK Corporate Governance Code, the board of a public company should have a majority of independent directors, and there are specific rules regarding the appointment of non-executive directors.

minority shareholder protection

In English company law, minority shareholder protection refers to the legal measures in place to protect the rights and interests of minority shareholders who hold a smaller percentage of shares in a company compared to the majority shareholders.

Some of the key protections provided to minority shareholders under English company law include:

1. The right to sue: Minority shareholders have the right to sue the company or the majority shareholders for any breach of their rights or any act that unfairly prejudices their interests.
2. Derivative actions: Minority shareholders can bring derivative actions on behalf of the company if the directors of the company have acted unlawfully or breached their duties.
3. Shareholder resolutions: Minority shareholders can propose and pass resolutions at shareholder meetings, provided they have the required number of shares to do so.
4. Access to information: Minority shareholders have the right to access certain company information, such as the company's annual report and financial statements.
5. Share buybacks: Minority shareholders can sell their shares to the company in a share buyback, which is subject to certain conditions.
6. Pre-emption rights: Minority shareholders have pre-emption rights that give them the right to be offered new shares in the company before they are offered to other shareholders.

Partnership decision-making and authority of partners

procedures and authority under the Partnership Act 1890

Under the Partnership Act 1890, partners in a partnership have equal authority to make decisions unless the partnership agreement specifies otherwise. Each partner is an agent of the firm and has the power to bind the partnership and other partners in contractual agreements, as long as those agreements are made in the ordinary course of business.

Decisions regarding ordinary business matters can be made by a simple majority of the partners. However, decisions regarding fundamental changes to the partnership or business require the consent of all partners. This includes decisions such as admitting a new partner, changing the partnership agreement, or dissolving the partnership.

In the absence of an agreement among the partners, decisions can be made by a majority vote. If there is a tie, the Act provides that the matter should be decided by the senior partner, or by an outside mediator if there is no senior partner.

Partners also have a fiduciary duty to act in the best interest of the partnership and not to use their position for personal gain. This duty includes a duty of loyalty, good faith, and full disclosure of any conflicts of interest. Partners must also account for any profits or benefits they receive from the partnership and may not compete with the partnership unless permitted by the partnership agreement or with the consent of all partners.

common provisions in partnership agreements

Partnership agreements are legal documents that govern the relationship between partners in a partnership. While the specific provisions in a partnership agreement can vary widely depending on the nature and objectives of the partnership, there are several common provisions that are typically included:

1. Profit and loss sharing: This provision outlines how profits and losses will be allocated among the partners. It may specify different ratios or percentages for different partners, or it may provide for equal sharing.
2. Capital contributions: This provision sets out the amount of capital that each partner is required to contribute to the partnership and the timeframe for making those contributions.
3. Management and decision-making: This provision sets out how decisions will be made in the partnership, including who has the authority to make decisions and how disputes will be resolved.
4. Partner duties and responsibilities: This provision outlines the specific duties and responsibilities of each partner in the partnership, including their role in managing the partnership and their obligations to contribute capital, time, or other resources.
5. Partnership term and termination: This provision sets out the length of the partnership term, as well as the circumstances under which the partnership may be terminated.
6. Partner withdrawal and expulsion: This provision sets out the procedures for partners who wish to withdraw from the partnership or for the expulsion of a partner.
7. Dissolution and winding up: This provision sets out the procedures for dissolving the partnership, including the distribution of assets and liabilities and the termination of the partnership's legal existence.
8. Non-compete and confidentiality clauses: This provision sets out any restrictions on partners engaging in competing activities or disclosing confidential information.
9. Amendments and modifications: This provision sets out how the partnership agreement can be amended or modified, including the process for proposing and approving changes.
10. Governing law and jurisdiction: This provision sets out the law that governs the partnership agreement and the jurisdiction in which any disputes arising from the agreement will be heard.

Insolvency (corporate and personal)

options and procedures - CVA/IVA, bankruptcy, administration, fixed asset receivership, voluntary and compulsory liquidation

CVA/IVA

CVA (Company Voluntary Arrangement) and IVA (Individual Voluntary Arrangement) are two types of insolvency procedures under English company law that aim to help financially distressed companies or individuals avoid bankruptcy.

A CVA is a legally binding agreement between a company and its creditors to pay back some or all of its debts over a set period of time, usually three to five years. The company continues to trade while the CVA is in place, and creditors agree to freeze the interest and charges on the debt. The CVA proposal is drafted by an insolvency practitioner and must be approved by at least 75% of creditors in value who vote on it. Once approved, the CVA is supervised by the insolvency practitioner who oversees the company's compliance with the terms of the agreement.

An IVA is a similar procedure for individuals who are struggling with debt. It is a legally binding agreement between the individual and their creditors to pay back some or all of their debts over a set period of time, usually five to six years. The IVA proposal is drafted by an insolvency practitioner and must be approved by at least 75% of creditors in value who vote on it. Once approved, the IVA is supervised by the insolvency practitioner who oversees the individual's compliance with the terms of the agreement.

Both CVAs and IVAs provide an alternative to bankruptcy, allowing companies or individuals to avoid the stigma and restrictions associated with bankruptcy. However, they can be complex and require professional advice to ensure that they are the right option and that the proposal is drafted correctly.

bankruptcy

It's important to note that bankruptcy is a form of insolvency that applies to individuals, not companies, under English law.

Bankruptcy is a formal legal process by which an individual who is unable to repay their debts can be declared bankrupt by a court, and their assets are collected and sold to pay off their debts. It's typically initiated by the debtor or one or more of their creditors.

The process of bankruptcy involves several key steps, including:

Filing a bankruptcy petition: The debtor files a petition for bankruptcy with the court. The petition must include a statement of the debtor's assets, liabilities, income, and expenses, as well as other financial information.

Appointment of a trustee: Once the bankruptcy petition is filed, a trustee is appointed to manage the debtor's assets and oversee the bankruptcy process. The trustee's duties include collecting and liquidating the debtor's assets, distributing the proceeds to creditors, and investigating the debtor's financial affairs.

Stay on collection actions: When the bankruptcy petition is filed, an automatic stay goes into effect, which prohibits most collection actions by creditors. This gives the debtor a temporary reprieve from collection efforts while the bankruptcy process is underway.

Meeting of creditors: The debtor is required to attend a meeting of creditors, where the trustee and creditors can ask questions about the debtor's financial affairs.

Sale of assets: The trustee will typically sell the debtor's assets and distribute the proceeds to creditors in order of priority. Some assets may be exempt from sale, depending on the laws of the relevant jurisdiction.

Discharge of debts: Once the trustee has sold the debtor's assets and distributed the proceeds to creditors, the court may discharge the debtor's remaining debts. This means the debtor is no longer legally obligated to pay those debts.

It's important to note that bankruptcy can have serious long-term consequences, including damage to the debtor's credit rating and restrictions on their ability to obtain credit in the future. As a result, it's usually seen as a last resort for individuals who are unable to manage their debts in other ways, such as through debt restructuring or negotiation with creditors.

administration

Administration is a procedure available under English company law for companies that are facing financial difficulties and are in danger of becoming insolvent. The purpose of administration is to provide a period of protection for the company, during which the administrator can assess the company's viability and formulate a plan to rescue it as a going concern or achieve a better result for its creditors than would be likely in liquidation.

The options and procedures for administration under English company law are as follows:

Filing an application: The first step in the administration process is for the company or its directors to file an application with the court seeking an administration order. The application must include a statement of the company's financial affairs and the reasons why the administration is necessary.

Interim moratorium: Once the application for administration is filed, an interim moratorium comes into effect immediately. This means that no legal action can be taken against the company or its assets without the court's permission.

Appointment of an administrator: If the court is satisfied that the company is insolvent and that administration is in the best interests of the company and its creditors, it will make an administration order appointing an administrator. The administrator must be a licensed insolvency practitioner.

Management of the company: Once appointed, the administrator takes over the management of the company and has the power to make decisions about its future. The administrator's primary objective is to rescue the company as a going concern, but if this is not possible, the administrator may sell the company's assets to achieve a better result for the creditors.

Creditors' meeting: The administrator must call a meeting of creditors within ten weeks of their appointment to explain the company's financial position and the proposals for rescuing it. The creditors have the power to approve or reject the proposals.

Exit from administration: The administration will end when the administrator has achieved its objectives, which may include rescuing the company as a going concern or selling its assets to achieve a better result for the creditors. Once the objectives have been achieved, the administrator will either hand the company back to its directors or seek to place it into liquidation.

fixed asset receivership

Fixed asset receivership is a process available to secured creditors under English company law when a company is insolvent and has defaulted on a secured debt. In this process, the creditor appoints a receiver, who is an insolvency practitioner, to take control of the company's fixed assets that have been secured against the debt. The receiver has the power to sell those assets and use the proceeds to repay the creditor's debt.

The main objective of fixed asset receivership is to recover the money owed to the secured creditor, not to save the company. The process is not available to unsecured creditors or to the company itself.

The secured creditor can appoint a receiver without going to court if the terms of the security agreement allow it. If the terms do not allow for appointment of a receiver without a court order, the creditor can apply to the court for an order. The court will only grant the order if the creditor has a valid security interest and there has been a default on the secured debt.

Once a receiver is appointed, they have a duty to act in the interests of the secured creditor, but they also have a duty to the company's other creditors and to the court. They must ensure that the assets are sold at the best possible price and that the proceeds are distributed fairly.

Fixed asset receivership is a relatively quick process, and the receiver can be appointed and start selling the assets within a matter of days. However, it can be costly, and the value of the assets may not be sufficient to cover the entire debt owed to the secured creditor. Any surplus from the sale of the assets will be paid to the company or its other creditors, depending on their priority.

voluntary liquidation

Voluntary liquidation is a process under English company law where a company's directors or shareholders choose to wind up and dissolve the company. There are two types of voluntary liquidation: members' voluntary liquidation (MVL) and creditors' voluntary liquidation (CVL).

1. Members' Voluntary Liquidation (MVL):

MVL is a voluntary liquidation process that is initiated when a company is solvent. This means that the company is able to pay its debts in full, including interest and expenses, within 12 months of the start of the liquidation process. In an MVL, the shareholders of the company pass a special resolution to wind up the company. The company must then appoint a liquidator, who takes over the management of the company and sells its assets to pay off its debts. Once all debts have been paid, the remaining assets are distributed among the shareholders and the company is dissolved.

1. Creditors' Voluntary Liquidation (CVL):

CVL is a voluntary liquidation process that is initiated when a company is insolvent. This means that the company is unable to pay its debts in full as they fall due. In a CVL, the directors of the company pass a resolution to wind up the company and call a meeting of the company's creditors. At the creditors' meeting, the creditors appoint a liquidator, who takes over the management of the company and sells its assets to pay off its debts. Any remaining assets are distributed among the shareholders in proportion to their shareholdings. Once all debts have been paid, the company is dissolved.

The procedures for voluntary liquidation are set out in the Insolvency Act 1986 and the Companies Act 2006. The process typically involves filing certain forms and notices with Companies House and the appointment of a licensed insolvency practitioner to act as the liquidator. The liquidator is responsible for investigating the company's affairs, selling its assets, and distributing the proceeds to creditors and shareholders.

It's important to note that voluntary liquidation does not guarantee that all creditors will be paid in full. If there are not enough assets to pay all debts, the remaining debts may be written off. Additionally, directors of the company must ensure that they have fulfilled all their legal obligations, including filing all necessary tax returns and paying all outstanding taxes and national insurance contributions. Failure to do so could result in personal liability for the directors.

compulsory liquidation

Compulsory liquidation is the process by which a court orders the winding-up of a company. It is typically initiated by creditors, shareholders or directors when a company is unable to pay its debts. The procedure is set out in the Insolvency Act 1986 and involves the appointment of a liquidator to wind up the company's affairs.

The options and procedures for compulsory liquidation under English company law are as follows:

1. Petition for Winding-Up: A petition for winding-up must be presented to the court by one or more of the company's creditors, shareholders, or directors. The petition must be supported by evidence that the company is unable to pay its debts. The court will then review the evidence and decide whether to make a winding-up order.
2. Appointment of a Liquidator: Once the court has made a winding-up order, a liquidator is appointed to manage the affairs of the company. The liquidator is responsible for realizing the company's assets, paying off its creditors, and distributing any remaining assets to the shareholders.
3. Public Notice: A public notice of the winding-up order must be placed in the London Gazette, a newspaper that publishes legal notices. This notice alerts creditors and others that the company is in liquidation.
4. Creditors' Meeting: A creditors' meeting is held within a few weeks of the winding-up order. The purpose of the meeting is to allow the creditors to appoint a liquidation committee to supervise the liquidator's activities.
5. Statement of Affairs: The directors of the company are required to provide a statement of affairs to the liquidator. This document details the company's assets, liabilities, and creditors. It helps the liquidator to assess the company's financial position and to identify any potential claims against the company.
6. Realization of Assets: The liquidator is responsible for realizing the company's assets. This may involve selling the company's property, equipment, and inventory. The proceeds from the sale are used to pay off the company's creditors.
7. Payment of Claims: The liquidator will pay off the company's creditors in accordance with the priority of claims set out in the Insolvency Act 1986. Secured creditors are paid first, followed by preferential creditors, and then unsecured creditors.
8. Distribution of Remaining Assets: Once all of the company's debts have been paid, any remaining assets are distributed to the shareholders. If there are no remaining assets, the company is dissolved and struck off the register at Companies House.

In summary, compulsory liquidation is a court-driven process that allows the winding up of a company that is unable to pay its debts. The liquidator is appointed to realize the company's assets, pay off its creditors, and distribute any remaining assets to the shareholders. The procedure is set out in the Insolvency Act 1986 and involves a series of steps that must be followed in order to properly wind up the company's affairs.

claw-back of assets for creditors

In English insolvency law, clawback provisions are designed to enable the recovery of assets or payments made by an insolvent company prior to its insolvency, with the aim of ensuring fair distribution among creditors.

preferences

Preference: Preference refers to situations where the insolvent company, in the period leading up to insolvency, favors certain creditors over others by making payments or transferring assets. Section 239 also addresses preferences, allowing the liquidator or administrator to challenge and reverse such transactions if they occurred within a specific time frame prior to the commencement of insolvency proceedings.

transactions at an undervalue

Transactions at an undervalue refer to those transactions executed by the company during a relevant time with an individual, wherein the company either receives no consideration or the value of the consideration received is substantially lower than the value provided by the company.

The “relevant time” is two years prior to the onset of insolvency.

Under S.238(5) Insolvency Act 1986, the court will not make an order if it is satisfied:

(a) that the company which entered into the transaction did so in good faith and for the purpose of carrying on its business, and (b) that at the time it did so there were reasonable grounds for believing that the transaction would benefit the company.

fraudulent and wrongful trading

Fraudulent trading, as defined in section 213 of the Insolvency Act 1986 (IA 1986), is a provision in English insolvency law that addresses situations where company directors or officers engage in business activities with the intent to defraud creditors, regardless of whether the company is insolvent or not. This provision aims to hold individuals accountable for their actions if they knowingly operated a business with fraudulent intent, leading to losses for creditors.

Here's a breakdown of fraudulent trading within the context of clawback provisions under S.213 of the IA 1986:

Definition: Fraudulent trading occurs when a company carries on its business with the intent to defraud creditors, for example by continuing to trade when there is no reasonable prospect of avoiding insolvency, or by deliberately accumulating debt that the company cannot repay.

Intent: Unlike wrongful trading, which requires proving that directors or officers continued trading while knowing or should have known that the company could not avoid insolvent liquidation, fraudulent trading specifically focuses on proving fraudulent intent. This means showing that the individuals involved knowingly intended to defraud creditors through their actions.

Consequences: If fraudulent trading is proven, the court has the authority to impose various penalties on the individuals responsible. This can include personal liability for the company's debts, disqualification from acting as a director, fines, or even criminal prosecution in severe cases.

setting aside a floating charge

In English company law, setting aside a floating charge refers to the process of invalidating or nullifying a floating charge created by a company, with the goal of recovering assets for the benefit of its unsecured creditors.

Under the Insolvency Act 1986, a floating charge may be set aside if it is proven that the company created the charge with the intention of preferring a particular creditor or group of creditors over others. This is known as a "fraudulent preference" and is considered a form of misconduct.

Additionally, a floating charge may be set aside if it is proven that the company was insolvent at the time the charge was created or that the charge caused the company to become insolvent. This is known as "insolvent trading" and is considered a breach of the directors' duties to act in the best interests of the company and its creditors.

Once a floating charge is set aside, the assets covered by the charge are no longer considered secured and can be used to satisfy the claims of the company's unsecured creditors. The process of setting aside a floating charge can be initiated by the company's liquidator, administrator, or a creditor, and usually involves court proceedings.

order of priority for distribution to creditors

The order of priority for distribution to creditors in insolvency under English company law is as follows:

Fixed charge creditors: Creditors who hold a fixed charge on the assets of the company, such as a mortgage, have first priority in the distribution of assets. The proceeds from the sale of the assets secured by the fixed charge are used to repay the fixed charge creditor in full before any other creditors are paid.

Expenses of the insolvency process: This includes any costs associated with the insolvency process, such as the fees of the insolvency practitioner and the costs of the administration or liquidation.

Preferential creditors: Certain creditors are given preferential treatment under the law, such as employees who are owed wages or holiday pay. They have priority over unsecured creditors but are paid after the fixed charge creditors and expenses of the insolvency process.

Floating charge creditors: Creditors who hold a floating charge on the assets of the company, such as a debenture, are paid after fixed charge creditors, expenses of the insolvency process, and preferential creditors. The proceeds from the sale of the assets covered by the floating charge are used to repay the floating charge creditor.

Unsecured creditors: These are creditors who do not hold any security over the assets of the company. They are paid last, after all other creditors have been paid. The proceeds from the sale of the remaining assets of the company are used to repay the unsecured creditors, pro rata according to the amount of their debt.

It's important to note that if there are insufficient funds to pay all creditors in full, each class of creditor is paid in full before the next class is paid anything. Any remaining funds after all creditors have been paid are distributed among the shareholders of the company.

Taxation - business

Income Tax

chargeable persons/entities (employees, sole traders, partners, shareholders, lenders and debenture holders)

Chargeable persons under income tax in the UK include individuals (including trustees), companies, and certain other entities such as limited liability partnerships, and certain foreign entities.

basis of charge (types of income/main reliefs and exemptions)

1. Income from employment
2. Income from self-employment
3. Income from investments
4. Income from rental property
5. Income from pensions
6. Income from savings and bank accounts
7. Income from foreign sources
8. Capital gains tax
9. Inheritance tax

the charge to tax: calculation and collection

The charge to tax, calculation, and collection for income tax in England and Wales is a complex process governed by the Income Tax Act 2007 and other relevant legislation. The process involves several steps, including the identification of taxable income, the calculation of tax liability, and the collection of tax.

Identification of Taxable Income: The first step in the process is the identification of taxable income. This includes income from employment, self-employment, savings, investments, and pensions. Once the taxable income is identified, various allowances, reliefs, and deductions are applied to arrive at the taxable amount.

Calculation of Tax Liability: The next step is to calculate the tax liability. In England and Wales, income tax is levied at different rates depending on the amount of taxable income. The current tax rates and bands for the tax year 2022/23 are:

Personal Allowance: £12,570 (no tax payable) Basic Rate Band: £12,571 to £50,270 (20% tax) Higher Rate Band: £50,271 to £150,000 (40% tax) Additional Rate Band: Above £150,000 (45% tax) Once the taxable income is determined, the tax liability is calculated by applying the relevant tax rates to the taxable income.

Collection of Tax: The final step is the collection of tax. In England and Wales, income tax is generally collected through the PAYE (Pay As You Earn) system, where tax is deducted from an individual's salary or pension before it is paid. Self-employed individuals and those with income from investments or property are required to make payments on account twice a year.

If an individual fails to pay the required amount of tax, penalties and interest may be charged, and HM Revenue and Customs (HMRC) may take legal action to recover the outstanding tax.

In conclusion, the charge to tax, calculation, and collection for income tax in England and Wales is a complex process that involves the identification of taxable income, the calculation of tax liability, and the collection of tax through various means. Taxpayers are required to comply with tax legislation and ensure that they pay the correct amount of tax on time to avoid penalties and legal action by HMRC.

the scope of anti-avoidance provisions=

Anti-avoidance provisions for income tax in England and Wales refer to a set of legal measures designed to prevent taxpayers from using complex and artificial schemes to reduce or avoid their tax liabilities. These provisions aim to ensure that taxpayers pay the correct amount of tax, taking into account the true nature of their income and transactions.

The scope of anti-avoidance provisions for income tax in England and Wales is quite broad and covers various types of tax planning schemes and strategies. The provisions are intended to capture arrangements that have no real economic substance and are purely designed to reduce tax liabilities. Examples of such schemes include:

Tax sheltering: This involves the use of offshore structures to shelter income or assets from UK tax, or the creation of artificial losses to offset against taxable profits.

Transfer pricing: This involves the manipulation of prices in transactions between connected parties to reduce taxable profits.

Artificial transactions: This involves creating transactions that have no commercial purpose other than to reduce or avoid tax liabilities.

Disguised remuneration: This involves paying employees or contractors through structures such as employee benefit trusts or offshore trusts to avoid income tax and national insurance contributions.

To counter these tax avoidance schemes, HM Revenue and Customs (HMRC) has introduced several anti-avoidance provisions, including the General Anti-Abuse Rule (GAAR), the Disclosure of Tax Avoidance Schemes (DOTAS), and the Specific Anti-Avoidance Rules (SAARs).

The GAAR is a broad-based provision that allows HMRC to counteract any tax arrangement that it deems to be abusive. DOTAS requires promoters of tax avoidance schemes to disclose details of their schemes to HMRC, while SAARs target specific types of tax planning schemes and aim to prevent taxpayers from exploiting loopholes in tax law.

Overall, the scope of anti-avoidance provisions for income tax in England and Wales is wide-ranging and continually evolving as tax planning strategies become more sophisticated. The aim is to ensure that taxpayers pay their fair share of tax and that the tax system is seen to be fair and transparent.

Capital Gains Tax

chargeable persons/entities (sole traders, partners, and shareholders)

Capital gains tax (CGT) is a tax on the profit made from the sale or disposal of certain assets, including property, investments, and business assets. In England and Wales, CGT is charged on individuals, trustees, and personal representatives, including the following chargeable persons:

Individuals: Individuals who are resident in the UK are subject to CGT on any gains made from the disposal of chargeable assets, whether the assets are located in the UK or overseas. Non-residents are only subject to CGT on gains made from the disposal of UK residential property.

Trustees: Trustees are individuals or groups of individuals who hold assets on behalf of a beneficiary or beneficiaries. They are subject to CGT on any gains made from the disposal of trust assets, including investments and property.

Personal Representatives: Personal representatives are individuals or groups of individuals who are responsible for administering an estate after someone has died. They are subject to CGT on any gains made from the disposal of assets within the estate, including property and investments.

Companies: Companies are subject to corporation tax on any gains made from the disposal of chargeable assets. However, there are some exceptions, such as gains made from the disposal of UK residential property, which are subject to CGT.

It's important to note that there are various reliefs, exemptions, and allowances available to reduce the amount of CGT payable by chargeable persons. For example, individuals can claim an annual exemption of £12,300 for the tax year 2022/23, and entrepreneurs' relief (now called business asset disposal relief) may be available to those who sell qualifying business assets.

In conclusion, chargeable persons for capital gains tax in England and Wales include individuals, trustees, personal representatives, and companies. The amount of CGT payable depends on the gain made from the disposal of assets and various reliefs, exemptions, and allowances may be available to reduce the amount of tax payable.

Capital gains tax (CGT) is a tax on the profit made from the sale or disposal of certain assets, including property, investments, and business assets. In England and Wales, CGT is charged on chargeable entities, including the following:

Companies: Companies are subject to corporation tax on any gains made from the disposal of chargeable assets. This includes assets such as land and buildings, shares, and goodwill. Companies are also subject to CGT on gains made from the disposal of UK residential property.

Partnerships: Partnerships are business structures where two or more people run a business together. Each partner is subject to CGT on their share of any gains made from the disposal of partnership assets. If the partnership is dissolved, any gains made from the disposal of assets are subject to CGT by the individual partners.

Limited Liability Partnerships (LLPs): LLPs are a type of partnership where the partners have limited liability. They are subject to the same CGT rules as partnerships.

Trusts: Trusts are legal arrangements where assets are held by trustees on behalf of beneficiaries. They are subject to CGT on any gains made from the disposal of trust assets, including investments and property. The trustees are responsible for paying the CGT.

It's important to note that there are various reliefs, exemptions, and allowances available to reduce the amount of CGT payable by chargeable entities. For example, companies can claim indexation allowance and annual investment allowance to reduce their CGT liability, and entrepreneurs' relief (now called business asset disposal relief) may be available to those who sell qualifying business assets.

In conclusion, chargeable entities for capital gains tax in England and Wales include companies, partnerships, LLPs, and trusts. The amount of CGT payable depends on the gain made from the disposal of assets and various reliefs, exemptions, and allowances may be available to reduce the amount of tax payable.

basis of charge (calculation of gains/allowable deductions/main reliefs and exemptions)

The basis of charge for capital gains tax (CGT) in England and Wales is the gain made on the disposal of a chargeable asset. The gain is calculated as the difference between the disposal proceeds (i.e., the sale price) and the acquisition cost (i.e., the purchase price), plus any incidental costs of acquisition and disposal.

Allowable deductions from the gain include any costs incurred to enhance the value of the asset, such as renovation or improvement costs. In addition, there are certain reliefs and exemptions available that can reduce the amount of CGT payable. Some of the main reliefs and exemptions include:

Annual exemption: Every individual has an annual exemption of £12,300 for the tax year 2022/23. This means that they can make gains up to this amount in a tax year without having to pay any CGT.

Entrepreneurs' relief (now called business asset disposal relief): This relief is available to individuals who dispose of all or part of their business or shares in a qualifying company. The relief reduces the rate of CGT from the standard rate of 20% to 10%, subject to certain conditions.

Private residence relief: This relief is available to individuals who dispose of their main residence. It exempts any gain made on the disposal of the property from CGT, subject to certain conditions.

Gift holdover relief: This relief is available to individuals who give away an asset to someone else, such as a family member or a charity. The relief defers the CGT liability until the recipient disposes of the asset.

Roll-over relief: This relief is available to individuals who dispose of certain business assets and use the proceeds to purchase replacement assets. It defers the CGT liability until the replacement assets are sold.

In addition to the above reliefs and exemptions, there are other specific reliefs available for certain types of assets or transactions, such as agricultural and woodlands relief, and company reorganisations relief.

In conclusion, the basis of charge for CGT in England and Wales is the gain made on the disposal of a chargeable asset, calculated as the difference between the disposal proceeds and the acquisition cost, plus any incidental costs of acquisition and disposal. Allowable deductions include any costs incurred to enhance the value of the asset. There are various reliefs and exemptions available to reduce the amount of CGT payable, including the annual exemption, entrepreneurs' relief, private residence relief, gift holdover relief, and roll-over relief.

the charge to tax: calculation and collection

The charge to tax for capital gains tax (CGT) in England and Wales is based on the gain made on the disposal of a chargeable asset, as discussed in the previous answer. The calculation of the CGT liability depends on the chargeable entity and the type of asset disposed of.

For individuals, trustees, and personal representatives, the CGT rate is 10% for gains that fall within the basic rate income tax band, and 20% for gains that fall within the higher or additional rate income tax bands. For companies, the standard rate of corporation tax applies to any gains made from the disposal of chargeable assets.

The CGT liability is reported and paid through self-assessment. Individuals, trustees, and personal representatives are required to report and pay CGT on the self-assessment tax return for the relevant tax year. The deadline for filing the tax return is 31 January following the end of the tax year in which the disposal took place. Payment of the CGT liability is also due by this date.

For companies, the CGT liability is reported and paid through the company tax return. The deadline for filing the company tax return is usually 12 months after the end of the accounting period in which the disposal took place, with payment of the CGT liability due by the same date.

It is important to note that there are various reliefs, exemptions, and allowances available to reduce the amount of CGT payable, as discussed in the previous answer. These should be taken into account when calculating the CGT liability.

In conclusion, the charge to tax for CGT in England and Wales is based on the gain made on the disposal of a chargeable asset. The CGT liability is calculated based on the chargeable entity and the type of asset disposed of. The CGT liability is reported and paid through self-assessment for individuals, trustees, and personal representatives, and through the company tax return for companies. Reliefs, exemptions, and allowances are available to reduce the amount of CGT payable.

the scope of anti-avoidance provisions

The UK tax system includes a range of anti-avoidance provisions to prevent taxpayers from using artificial schemes or arrangements to reduce their tax liability, including for capital gains tax (CGT) in England and Wales.

One of the key anti-avoidance provisions for CGT is the General Anti-Abuse Rule (GAAR). This rule allows HM Revenue and Customs (HMRC) to challenge tax arrangements that are considered abusive and impose penalties and charges on the taxpayer. The GAAR applies to all taxes, including CGT, and covers both UK and non-UK resident taxpayers.

In addition to the GAAR, there are various specific anti-avoidance provisions for CGT. For example:

Transactions in securities rules: These rules prevent taxpayers from avoiding CGT by entering into arrangements that involve the disposal of shares or other securities. The rules apply where an individual or company acquires shares or securities in a company, and then disposes of them within a short period of time (30 days).

Transfer of assets abroad rules: These rules prevent taxpayers from avoiding CGT by transferring assets to a person or entity located in a country with a lower tax rate. The rules apply where an individual or company transfers assets to a person or entity located in a territory outside the UK, and then disposes of them within a certain period of time (5 years).

Substantial shareholdings exemption: This exemption provides relief from CGT on the disposal of shares in a company that meets certain conditions. However, the exemption is subject to anti-avoidance provisions that prevent taxpayers from artificially manipulating the conditions to benefit from the relief.

Disclosure of Tax Avoidance Schemes (DOTAS): This regime requires promoters and users of certain tax arrangements to disclose the details of the scheme to HMRC. The aim is to enable HMRC to identify and challenge abusive tax arrangements.

In conclusion, there are various anti-avoidance provisions for CGT in England and Wales, including the GAAR, specific rules for transactions in securities and transfer of assets abroad, the substantial shareholdings exemption, and the DOTAS regime. These provisions are designed to prevent taxpayers from using artificial schemes or arrangements to reduce their tax liability and ensure a fair and consistent application of the tax rules.

Corporation Tax

basis of charge

The basis of charge for corporation tax in England and Wales is the taxable profits of a company. Taxable profits are calculated by subtracting allowable expenses and deductions from the company's total income for a specific accounting period.

Total income includes all profits earned from trading activities, investment income, and any other income earned by the company. Allowable expenses and deductions include all expenses incurred in the course of carrying out the company's trade or business, such as salaries, rent, and raw materials.

There are also certain expenses and deductions that are specifically disallowed for tax purposes, such as depreciation of land, certain types of entertaining expenses, and fines or penalties incurred by the company.

Once the taxable profits have been calculated, the company must then apply the relevant corporation tax rate to the taxable profits to determine the amount of tax payable. The current standard rate of corporation tax in England and Wales is 19%.

In addition to the standard rate, there are also special rates for certain types of income, such as income from patents and income from ring-fenced profits of oil and gas extraction companies.

Finally, it is important to note that companies in England and Wales are required to file a corporation tax return and pay any tax due within 9 months and 1 day of the end of their accounting period. Failure to comply with these deadlines can result in penalties and interest charges.

calculation, payment and collection of tax

The calculation, payment, and collection of corporation tax in England and Wales follows a set of rules and procedures. Here is an overview of the process:

Calculation of corporation tax: The taxable profits of a company are calculated by subtracting allowable expenses and deductions from the total income for a specific accounting period. Once the taxable profits have been calculated, the corporation tax rate is applied to the profits to determine the amount of tax payable.

Filing a corporation tax return: A company is required to file a corporation tax return with HM Revenue and Customs (HMRC) within 12 months after the end of its accounting period. The corporation tax return provides details of the company's taxable profits, allowable expenses, and tax due. The corporation tax return must be filed electronically.

Payment of corporation tax: The payment of corporation tax is due within 9 months and 1 day after the end of the company's accounting period. The payment can be made electronically or by post. Companies can make payments in installments if they meet certain criteria.

Collection of corporation tax: HMRC is responsible for collecting corporation tax. HMRC may contact a company to request further information or clarification on its tax return. HMRC may also carry out an investigation or audit to ensure the company has paid the correct amount of tax. Penalties may be imposed for late filing of the corporation tax return, late payment of tax, or errors on the tax return.

In summary, the calculation, payment, and collection of corporation tax in England and Wales requires companies to calculate their taxable profits, file a corporation tax return, pay the tax due, and comply with HMRC regulations. Non-compliance with these procedures can result in penalties and interest charges.

tax treatment of company distributions or deemed distributions to shareholders

The tax treatment of company distributions or deemed distributions to shareholders for corporation tax in England and Wales is subject to the rules governing the treatment of dividends and other distributions under the Income Tax Act 2007 and the Corporation Tax Act 2010.

When a company makes a distribution to its shareholders, the distribution may be treated as either a dividend or a repayment of capital, depending on the circumstances. Dividends are taxed differently from repayments of capital.

The tax treatment of dividends is as follows:

Taxation of dividends: Dividends received by individuals are taxed as income, subject to certain tax-free allowances. Dividends received by companies are subject to corporation tax.

Dividend allowance: Individuals are entitled to a tax-free dividend allowance, currently set at £2,000 per tax year. Dividends received above this allowance are taxed at different rates depending on the individual's marginal rate of income tax.

Corporation tax deduction: Companies are entitled to a deduction for dividends paid to their shareholders when calculating their taxable profits. However, this deduction may be restricted in certain circumstances, such as when the recipient of the dividend is a non-resident company.

The tax treatment of repayments of capital is as follows:

Treatment as a capital receipt: Repayments of capital are treated as a capital receipt for tax purposes and are not subject to income tax or corporation tax.

Reduction in share capital: When a company reduces its share capital, the repayment of capital is treated as a distribution and is subject to the same tax treatment as dividends.

It is important to note that the tax treatment of distributions to shareholders is subject to various rules and restrictions, and companies should seek professional advice before making any distributions to their shareholders.

outline of anti-avoidance legislation

There are several pieces of anti-avoidance legislation for corporation tax in England and Wales, which are designed to prevent companies from engaging in aggressive tax planning or using artificial structures to reduce their tax liability. Here is an outline of some of the key anti-avoidance measures:

General anti-abuse rule (GAAR): The GAAR is a rule designed to counteract tax arrangements that are contrary to the purpose of tax legislation and are abusive. The GAAR applies to all taxes, including corporation tax, and allows HM Revenue and Customs (HMRC) to challenge and counteract abusive tax arrangements.

Transfer pricing: Transfer pricing rules are designed to ensure that transactions between related companies are conducted at arm's length, meaning that they are priced as if the parties were unrelated. The rules require companies to document their transfer pricing policies and to provide evidence that their pricing is at arm's length.

Controlled foreign companies (CFCs): CFC rules are designed to prevent UK companies from diverting profits to low-tax jurisdictions by artificially locating their subsidiaries or activities overseas. The rules require companies to include the profits of their CFCs in their UK tax returns, subject to certain exemptions and reliefs.

Diverted profits tax (DPT): The DPT is a tax designed to counteract profits that are diverted from the UK to low-tax jurisdictions through arrangements that lack economic substance. The DPT applies a 25% tax rate to profits that are deemed to be artificially diverted from the UK.

Hybrid mismatch rules: Hybrid mismatch rules are designed to prevent companies from exploiting differences in the tax treatment of entities or instruments across different jurisdictions. The rules apply to arrangements that result in a double deduction or a deduction without an inclusion.

Thin capitalisation rules: Thin capitalisation rules are designed to prevent companies from excessively loading their UK operations with debt to reduce their UK tax liability. The rules restrict the amount of interest that a company can deduct for UK tax purposes on loans from related parties.

These are some of the key anti-avoidance measures for corporation tax in England and Wales, and companies must be aware of the rules and regulations to avoid penalties and reputational damage.

Value Added Tax

key principles relating to scope, supply, input and output tax

The key principles relating to scope, supply, input, and output tax for value added tax (VAT) in England and Wales are as follows:

Scope: VAT is a tax on goods and services supplied in the UK. It applies to most goods and services, whether produced domestically or imported from abroad, but there are some exemptions and reduced rates.

Supply: VAT is charged on the supply of goods and services made by a taxable person in the course of their business. A taxable person is a person who is registered for VAT or required to be registered for VAT. The supply of goods and services is deemed to take place at the time of delivery or performance.

Input tax: Input tax is the VAT that a business pays on goods and services that it purchases in the course of its business. A business can deduct input tax from the VAT it charges on its own supplies of goods and services (output tax).

Output tax: Output tax is the VAT that a business charges on the goods and services it supplies to its customers. A business must register for VAT if its taxable turnover exceeds the registration threshold, which is currently £85,000.

VAT rates: VAT is charged at different rates depending on the type of goods or services supplied. The standard rate is currently 20%, but there are also reduced rates of 5% and 0%, as well as exemptions.

VAT returns: A business registered for VAT must submit VAT returns to HM Revenue and Customs (HMRC) on a regular basis (usually quarterly), showing the amount of output tax and input tax. The business must pay the difference between the output tax and input tax to HMRC, or claim a refund if the input tax exceeds the output tax.

In summary, VAT is a tax on goods and services supplied in the UK, charged on the supply of goods and services made by a taxable person, and payable on the difference between output tax and input tax. There are different VAT rates depending on the type of goods or services supplied, and businesses must register for VAT if their taxable turnover exceeds the registration threshold.

registration requirements and issue of VAT invoices

In England and Wales, businesses that make taxable supplies of goods or services and have an annual turnover of more than £85,000 must register for VAT with HM Revenue and Customs (HMRC). This is known as the VAT registration threshold.

Once a business is registered for VAT, it must charge VAT on its taxable supplies of goods and services and issue VAT invoices to its customers. A VAT invoice is a document that shows the amount of VAT charged on the supply of goods or services, along with other information such as the date of supply, a description of the goods or services supplied, and the VAT registration number of the supplier.

The following information must be included on a VAT invoice:

A unique invoice number The date of issue The name, address and VAT registration number of the supplier The name and address of the customer A description of the goods or services supplied The total amount payable, excluding VAT The rate of VAT charged The total amount of VAT charged If the customer is registered for VAT, they can use the VAT invoice to claim back the VAT charged on their purchases. If the customer is not registered for VAT, they cannot claim back the VAT and must pay the full amount shown on the invoice.

It's important to note that there are certain rules and requirements around issuing VAT invoices, and businesses must ensure they comply with these rules to avoid penalties from HMRC.

returns/payment of VAT and record keeping

In England and Wales, businesses registered for VAT must submit VAT returns to HM Revenue and Customs (HMRC) on a regular basis, usually quarterly. The VAT return is a document that shows the amount of VAT charged on sales (output tax) and the amount of VAT paid on purchases (input tax) during the period covered by the return. The difference between output tax and input tax is the amount of VAT owed to HMRC, or the amount of VAT that can be reclaimed.

The deadline for submitting a VAT return and paying any VAT owed to HMRC is usually one calendar month and seven days after the end of the VAT accounting period. The VAT accounting period is usually three months long, but businesses can apply to HMRC to change the length of their accounting period.

In addition to submitting VAT returns and paying any VAT owed, businesses must also keep accurate records of all their sales and purchases, including:

VAT invoices issued and received Credit and debit notes Customs and import documents (if applicable) Records of goods used for business purposes and goods taken out of stock for private use Annual accounts and tax returns Records must be kept for at least six years, and businesses must make them available to HMRC for inspection upon request.

It's important for businesses to keep accurate records and submit VAT returns on time to avoid penalties and interest charges from HMRC. There are also various schemes and reliefs available to help businesses manage their VAT obligations, such as the flat rate scheme, cash accounting scheme, and annual accounting scheme.

Inheritance Tax

business property relief

Business Property Relief (BPR) is a tax relief available in England and Wales that can help reduce the inheritance tax (IHT) liability on certain business assets that are included in an individual's estate when they die. BPR was introduced to help business owners pass on their businesses to the next generation and encourage investment in small and medium-sized enterprises (SMEs).

The relief is available on two types of assets: business assets and shares in unquoted companies. Business assets can include land, buildings, machinery, and other tangible assets used in a business. Shares in unquoted companies refer to shares in companies that are not listed on a recognized stock exchange, and where the shares are held as part of a trading business.

BPR provides full relief on the value of qualifying business assets at a rate of 100% or 50%, depending on the type of asset. This means that the value of the business assets is completely or partially exempt from IHT when the individual dies. The rate of relief depends on whether the asset is a business or an asset used in a business, and how long the asset has been owned by the individual.

To qualify for BPR, the asset must be a business asset and must have been owned by the individual for at least two years prior to their death. The asset must also be used for a qualifying trade, which means it must be used for the purposes of a business or an enterprise, and not held for investment purposes.

BPR can be claimed by the personal representatives of the deceased individual when the estate is being valued for IHT purposes. If the business or shares in an unquoted company qualify for BPR, the value of those assets will be reduced or eliminated from the taxable value of the estate.

In conclusion, Business Property Relief (BPR) is a tax relief available in England and Wales that can help reduce the inheritance tax (IHT) liability on certain business assets that are included in an individual's estate when they die. BPR provides full relief on the value of qualifying business assets at a rate of 100% or 50%, depending on the type of asset. To qualify for BPR, the asset must be a business asset, must have been owned by the individual for at least two years prior to their death, and must be used for a qualifying trade. BPR can be claimed by the personal representatives of the deceased individual when the estate is being valued for IHT purposes.