Ai vs. legacy industry

Artificial intelligence is undoubtedly a growing segment of technology and society, but history shows that technological advances don’t eliminate the need for work, though they can shift its pattern.

This applies to agricultural production. In the UK, more than 20 per cent of the workforce was employed in the agricultural sector at the turn of the 20th century, while today, thanks to mechanisation, less than one percent work in agricultural roles. However, that small group produces vastly more food than their predecessors a century ago, which is a clear benefit to society.

Ai is likely to drive other significant productivity gains too, and that should also feed through into the cost of providing some public services. However it’s difficult to see many inroads being made into the welfare bill, particularly if fewer working hours per capita lead to the introduction of a Universal Income paid by governments to their citizens.

Taxes & a need for change

If income tax receipts should fall as automation rises, there are a number of levers governments can pull to push up tax revenues, while other existing taxes may have to pull more weight.

Consumption taxes like VAT could be hiked, and if people are working less then they may have time to consume more, which would swell coffers from this kind of taxation even without a rise in the headline rate.

Taxes on business or wealth could also enter the equation if governments find the rise of the robots opens up a black hole in their budgets.

Alternatively, new taxes may be introduced which directly tax automated production, or the gains made by owners of that production.

Indeed, the UK is now forging ahead with a digital sales tax which shows some governments are not simply going to give technology a free pass when it comes to contributing to the tax take. However, ti should be noted an alliance of Ireland, Sweden, Denmark and Germany blocked the proposal in Brussels for an EU digital sales tax on 29 November 2018.

Why Ai could spur a change in taxes

Artificial intelligence will undoubtedly deliver progress in many important areas, particularly in health care.

The accountancy firm PwC reckons that UK GDP will be around 10 per cent higher in 2030 as a result of the Ai revolution, mainly through its ability to drive consumption by the production of better and more tailored products. In the long term the impact of Ai is likely to be bigger yet, and the tax system will have to adjust accordingly.

It’s too early to call how this will happen – however, one thing we can be relatively sure of is that different models will be adopted across the globe, as political ideologies feed into the equation.

Laith Khalaf

Laith Khalaf is a senior analyst with Hargreaves Lansdown and has worked for the retail investor platform since 2001, after graduating from Cambridge University.

His research encompasses funds, markets and investment trends.

Laith is a well-known commentator and frequently features on television and radio, as well as in the national press.

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Employer

Deadlines and Filing

Limited Company

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UK limited liability companies with Non-UK resident shareholders and directors have often had to tip-toe through a range of taxation complexities.

Granville Turner, a director at Turner Little – the corporate services  provider – focuses on the tax and residential status implications for such companies; detailing for IMS StratNews just what impact this has on the tax liabilities for those companies and individuals involved.

Here information is presented in the form of a straightforward  guide. It provides clear details for Non-UK resident shareholders and directors just what requirements need to be met to ensure they are complying with UK government company – as well as individual – residential and taxation status rules!

Determining a company’s residential status

The general rule is that a company is a UK resident if either:

• It is incorporated in the UK, or 
• If the central management and control of its business is in the UK.

Therefore, a UK incorporated company will be defined as a UK resident, irrespective of having foreign directors and shareholders, says Turner. 

When special conditions apply to residency 

However, this resident status can be affected by a double tax treaty. 

A typical treaty provision provides that, for treaty purposes, a company can be treated as a tax resident dependent on where its effective management and control is located.

Turner directs attention to official commentary relating to the OECD model tax treaty (which will apply in most cases, and the Revenue and Courts will follow), which defines the place of effective management and control as:

‘The place where key management and commercial decisions that are necessary for the conduct of the entity’s business are in substance made. The place of effective management will ordinarily be the place where the most senior person or group of persons (for example a board of directors) makes its decisions; the place where the actions to be taken by the entity as a whole are determined; however, no definitive rule can be given and all relevant facts and circumstances must be examined to determine the place of effective management. An entity may have more than one place of management, but it can only have one place of effective management at any one time’.

What exactly does this mean?

• The treaty provision in relation to residency is determined by where all key operational decisions are made by the company’s executives and management: ‘The place of effective management’.
•  This location needs to be where senior figures in the company – primarily the Board of Directors – make those decisions.
• This location also needs to be where company operations mainly take place.
• A caveat or condition exists that states all of the above must be fully investigated before a company qualifies for this treaty provision, despite the overarching rules within the treaty provision.
• Ultimately therefore, if, under this test, a UK resident company is managed from overseas it may be classed as treaty non resident.

In addition:

• Significantly, business may be managed from more than one location, but a company can only have one ‘place of effective management’.

and,

• Importantly, UK tax legislation states that, where this applies, the company is treated as not resident in the UK: Note that this is a special rule – so it means that all `treaty non-resident’ companies are not UK resident for all taxation purposes

The Takeaway

Non-UK resident shareholders and directors: income tax & dividends

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The firm is an exciting automated smart business current account, built for the unique needs of freelancers and self-employed people.

It offers this group the accounting tools they need to manage taxes, stay on top of expenses and get paid on-time! 

The app-based company’s smart current account combines banking, accounting and tax services designed specifically for this area of the UK’s fast-growing workforce, including the so-called ‘gig economy‘.

Coconut launched its iPhone app for sole traders on 31 January 2018, and has since opened 2,500 current accounts with £10 mln payments processed.

In September 2018 it also pre-approved its first Android customer, and says it continues to build features to support sole traders; in addition, it is developing tools aimed at including in the future limited company contractors.

The company is backed by leading tech accelerator, Techstars, and is one of the ten winners of the Nesta Open Up Challenge; a competition which awards prizes to innovative businesses using new Open Banking APIs.

Who is Elaine Clark?

Elaine Clark created the Cheapaccounting.co.uk franchise, which was established to make small business accounting as efficient and cost effective as possible.

Coconut says she brings a wide range of experience to the firm, which will help it build additional tools perfectly suited for those accountants who support these customers.

Elaine Clark tells IMS StratNews:  “I’m really excited to be working with the Coconut team, as they build out the accountancy offering of their product.

“I think the convergence of banking and accounting will be more transformative than cloud accounting was 10 years ago; we want accountants to be able to harness the full potential of technologies like machine learning, to enable them to better service their clients – while also improving margins and allowing them to grow their practices.

“Coconut will soon allow them to do this in a single tailored product.”

Clark also adds that Coconut is building a community of accountants in a Facebook group called Coconut Partners: “In the same way that customers have been a driving force in the development of features, they aim to do the same with the accounting community”, she says.

What Coconut says

Sam O’Connor, co-founder and CEO at Coconut, says, “Coconut is bringing banking and accounting together to eliminate business admin for self-employed people and small business owners. But we want the accountants our customers work with to also benefit from real-time bookkeeping and rich data, because this saves everyone time and money.

“Ninety percent of businesses in the UK are owner managed and 90% of the growth in small companies since 2001 are non-employers.

“These businesses tend to have simpler requirements than bigger businesses, but the products out there are complicated and dated, so haven’t kept up with the shift in the market.

“We think that these businesses, and the accountants that support them, need access to the most advanced technologies, and Coconut will provide this in a tailored product.”

By Ingrid Smith, Inhouse Editor

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