Tuesday 7 December 2010

Personal Tax Changes 2011/12

Personal Allowances
The tax-free personal tax allowances for 2011/12 have not been announced but we do know that the tax free allowance for those aged under 65 will be at least £7,475, although the increase of £1,000 from the present limit will only benefit basic rate taxpayers.

Child and Working Tax Credits
Working and Child Tax Credits are to be withdrawn at the rate of 41% from families with total income of £40,000 or more from 6 April 2011. Families with income of over £40,000 may no longer be eligible for the family element of £545 per year. The baby addition to the family element (also £545) will be withdrawn completely at the same time.

The change in income that can be disregarded for a tax credit claim will be reduced from £25,000 to £10,000 with effect from 6 April 2011.

Pensions
From 6 April 2011 the state pension will be increased by the greater of: the annual increase in earnings or prices, or 2.5%.

The standard minimum income guarantee given under the Pension Credit will be increased by the same cash amount as the state pension.

From 2011/12 a member of a pension scheme can contribute up to £50,000 per year into registered pension funds, and receive full tax relief on those contributions. This £50,000 cap includes employer contributions and the deemed increase in value of defined benefit pension schemes. If contributions of less than £50,000 have been made for three immediate preceding tax years when the individual was a member of a pension scheme, the unused cap for each tax year can be carried forward up to three years.

Savings
The overall tax-free ISA limit for 2011/12 will be £10,680, of which £5,340 can be saved in a cash form such as a bank savings account.

Business Tax Changes 2011/12

Corporation Tax
The small profits rate of corporation tax will fall by 1% to 20% from 1 April 2011.This rate applies to profits of up to £300,000 if there are no associated companies. The corporation tax rate for large companies with profits over £1.5million will also fall by 1% to 27%, making the marginal rate for profits between those limits 28.75%. The main rate for larger companies will also fall by 1% in each of the following 3 years down to 24% in the year beginning 1 April 2014.

Capital Allowances
Capital allowances will be reduced with effect from 1 April 2012 (6 April 2012 for income tax purposes), as follows:

- Main pool writing down allowance - reduced from 20% to 18%
- Special rate pool writing down allowance - reduced from 10% to 8%
- Annual Investment Allowance (AIA) maximum investment - reduced from £100,000 to £25,000

Where expenditure on integral features, plant and equipment (excluding cars) is within the annual investment allowance, the business can claim a 100% deduction for those costs in the year bought.

NI
From 6 April 2011 the rates for NI contributions will be increasing by 1% and the new rates become...

- Employer's class 1 above secondary threshold: 13.8%
- Employee's class 1 above primary threshold and below upper earnings limit: 12%
- Employee's class 1 above upper earnings limit: 2%
- Self-employed class 4: 9%
- Self-employed class 4 additional rate: 2%

The reduced rates of NI for contracted out contributions for employers and employees have not been confirmed as yet.

From 6 April 2011 if you are self-employed you will be able to pay your class 2 NICs in two instalments on 31 January and 31 July, the same dates as your income tax payments on account are due. You can continue to pay your class 2 NIC by monthly direct debit if you wish, but there will be a break in DD requests by HMRC from April 2011 to August 2011.

It's Christmas Time Mr Taxman!

It's that time of year when staff parties abound, and you may be thinking of handing out small seasonal gifts to employees, customers or suppliers. Before you get too generous, make sure you know the tax implications.

Entertaining your staff is tax allowable as long as the entertaining is not part of an event aimed primarily at your customers. The cost of entertaining customers or potential customers or suppliers is not tax allowable for income tax or corporation tax. Your accounting records need to distinguish between the cost of hospitality such as the provision of food or drink, and significant gifts to customers, from your other marketing expenditure. The amount classified as non-allowable entertaining is added back to your profits to calculate the total tax due.

You can reclaim the VAT on the cost of entertaining your staff, but a proportion of the costs must be disallowed for VAT purposes where non-staff, such as family members, customers or suppliers also attend the event. However, where customers from overseas are present the VAT can be reclaimed on their portion of the costs. This is because the Tax Office recently removed the block on reclaiming VAT on entertaining overseas customers. Note the VAT block is only lifted for overseas customers, not suppliers, or UK customers, or other third-parties.

An event laid on free or below cost for employees would normally be a taxable benefit for those staff who attend, but it is tax free if it is designated as an 'annual event'. The other requirements are that the event is open to all staff and the cost does not exceed £150 per head, including VAT. If the cost exceeds this threshold, your employees will be taxed on the total cost of the event as a benefit in kind. You can pay this tax and NI on behalf of your employees using a payroll settlement agreement (PSA), which you need to agree with the Tax Office. So to avoid this hassle, keep the cost of the event, including all free transport and accommodation, below £150.01 per head.

Small seasonal gifts to staff, such as a bottle of plonk or a turkey, can be treated as 'trivial benefits'. These trivial benefits can be excluded from the report of benefits and expenses (form P11D) provided to staff, if you agree a dispensation for these gifts with the Tax Office. Don't push it with the Tax Inspector by trying to pass off expensive hampers or cases of champagne as trivial benefits.

2010 Autumn Statement

The Chancellor George Osborne delivered his Autumn statement on 29 November 2010, but this was NOT a Pre Budget Report full of tax information as we had come to expect from Gordon Brown.

George Osborne was primarily responding to the report from the Office of Budget Responsibility (OBR) which was released earlier the same day. The OBR report is a forecast of the UK's economic performance for the next few years. Previously this forecasting was performed by the Treasury and was not independently checked. The purpose of the OBR is to provide independent economic forecasts that are not influenced by political concerns.

The central message conveyed by George Osborne is that there is not going to be a double dip recession, as the UK economy is growing steadily at about 2% per year. Employment is forecast to grow, but the unemployment rate is expected to remain at around 8% for the next year. The apparent contradiction is due to more claimants being moved from long-term sickness benefit (Employment and Support Allowance) to unemployment benefit.

George Osborne mentioned tax only briefly in his speech, when he announced a series of consultations concerning the reform of corporation tax. Most of the areas under review are only relevant to multinational companies. However, there will be a review of the tax incentives for expenditure on research and development (R&D).

Currently enhanced R&D tax relief is available to large and small companies at different rates, but it can be very difficult to prove to HMRC that the work undertaken qualifies for the R&D tax relief. This system of R&D tax relief may be tweaked after this review to make it easier for small high-tech companies to claim the relief.

We are still waiting for a number of key tax figures to be announced for the tax year 2011/12, including the rates and allowances for income tax, and the thresholds for both NI and income tax. However, we do have details of a number of other tax changes in the pipeline which we have outlined below.

Monday 8 November 2010

Refund of Overseas VAT

From 1 January 2010 you were able to reclaim VAT incurred on business expenses in other EU countries, by using the online portal set up by HMRC. The UK end of this EU-wide system has been operating smoothly, but there have been significant delays and problems in other EU countries, which have meant that claims have not been processed.

Due to these problems the European Commission decided to push back the deadline for submitting claims for refunds of VAT incurred in 2009 from 30 September 2010 to 31 March 2011. If you have not got round to making a claim for repayment of VAT on expenses incurred while travelling abroad since 1 January 2009, you can now do so.

However, before you take hours preparing your claim, check that it will be worthwhile. The minimum claim you can submit per country is €50. Once your refund is approved you will be paid by credit transfer into your business bank account. Such a transfer of foreign currency into a sterling bank account may well cause high bank charges, which will be deducted from the refund.

Update on PAYE 'Errors'

The Taxman's new computer has been busy reconciling the PAYE records for millions of people for the 2008/09 and 2009/10 tax years. About 4.7 million of these calculations have led to under or overpayments of tax, and in those cases a form P800 is issued to the taxpayer to show how the tax difference has arisen.

From examining the first batch of P800 forms, we've noticed a number of recurring problems with the Taxman's figures, such as:

- Incorrect state pension - check this against your notice from the Pensions Service.
- Estimated amounts of interest or rental income - check to your bank statements.
- No extension of basic rate limit for pension contributions or gift aid payments - check whether you did make pension contributions or gift aided donations.
- Missing married couple's allowance - only applies if you are already over 75.

If you do not agree with the figures shown on your P800 form you need to contact the Taxman on the telephone number shown on that form, or we can do this for you.

If you agree the Taxman's figures, and do you have some tax to pay, we have some good news. The maximum amount which will be written-off by the Taxman is now £300 per tax year, not £300 for the two tax years taken together as was previously announced by the Treasury Minister.

Pension Changes Ahead

The Government wants to restrict the amount of tax relief claimed for making pension contributions. This will now be achieved by restricting the annual allowance for everyone to a nominal £50,000 per tax year from 6 April 2011, subject to adjustments described below.

You will get full tax relief on all your pension contributions made up to the annual allowance cap. If you have made pension contributions of less than £50,000 in any of the last three tax years, you will be able to carry forward the difference between £50,000 and your actual contribution level into 2011/12 to add to your annual allowance for that year. This carry forward of unused annual allowance will apply on a rolling three-year basis for future tax years.

The only condition for the carry forward to apply is that you were a member of a registered pension scheme for the earlier tax year concerned. If you were a member and made no pension contributions in that tax year, you can carry forward the full £50,000 of unused annual allowance. Both your own and your employer's contributions to your pension fund are deducted from the available annual allowance.

Planning for the VAT Increase

We know the standard rate of VAT will increase on 4 January 2011 from 17.5% to 20%, but will your business be ready?

It may be difficult for retail businesses to re-price everything displayed in the store over the New Year break, ready for opening on 4 January. Fortunately the law does allow you to make the adjustment from 17.5% to 20% VAT at the till for up to 28 days after the VAT increase. You do need to notify your customers that you are making this adjustment so have a sign advising customers that a price adjustment will be made at point of sale to reflect the increased VAT, and find time to reprogramme your tills before 4 January!

An alternative approach is to increase all your prices before 4 January 2011 to accommodate the higher VAT rate. If you are having new menus printed for winter, now could be a good time to make the price changes.

Where a customer places an order before 4 January 2011 for goods or services to be delivered after that date, you can generally charge VAT at the current standard rate of 17.5%. To apply the current rate of VAT you must either issue an invoice, or receive a payment before 4 January 2011. You should not artificially advance sales by issuing invoices that are not due for payment for six months or more. You will also be caught by anti-avoidance rules if your business is connected with your customer, or the amount due is £100,000 or more.

If you use the flat rate scheme for small businesses you need to check-out the flat rates that will apply from 4 January 2011, as set out on the HMRC guidance website: http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#5a

You may find that when you apply the new flat rate to the gross sales made on and after 4 January 2011, you will be worse off than operating outside the flat rate scheme. If this is the case you need to inform the VAT office in writing that you want to leave the flat rate scheme. It's easiest if you do this with effect from the start of your next VAT quarter. If you leave the flat rate scheme you can't rejoin the scheme for at least 12 months.

For specific advice on how to deal with the VAT rate change in your business, please contact us.

Friday 15 October 2010

Tell the Taxman Now

Did you know you could be landed with a penalty if you fail to tell the Taxman when you become liable to pay tax? For example, when you become self-employed, or make a large capital gain. The deadline for declaring that you have income tax or capital gains tax (CGT) chargeable relating to the year to 5 April 2010, is 5 October 2010.

If you miss that deadline, the Taxman may send you a failure to notify penalty, which can be up to 100% of the tax due. However, if you pay all the tax due on time, which for income tax and CGT relating to the 2009/10 tax year, is by 31 January 2011, the penalty can be reduced to nil.

Where you have already received a self-assessment tax return form to complete for 2009/10 or a notice to file a self-assessment tax return online, your obligation to tell the Taxman is satisfied when you submit your tax return on time. But if you haven't got a tax return form, you need to ask the Taxman to set you up in the self-assessment system before 5 October 2010. We can help you with registration.

Once you are registered with the Tax Office, you should receive either a Tax Return form or a letter from the Taxman asking you to file a Tax Return online. The form or letter will include your Unique Taxpayer Reference number (UTR). If you submit a Tax Return that does not include your personal UTR number it may be rejected, and any tax payments you make will not be promptly matched to your records.

PAYE 'Errors'

You have no doubt heard on the news about the PAYE 'errors' affecting millions of people this autumn. The underlying problem is not new - the PAYE system does not cope well with taxpayers who have income from more than one employment or pension during the year. Under or overpayments of tax arise, and when the Taxman gets round to reconciling the tax and allowances due on the two or more employments, he issues a tax computation (form P800) to the taxpayer.

Unfortunately the Taxman did not do his reconciliations for 2008/09 (and in many circumstances for earlier years), so there are now two years' worth of forms P800 (2008/09 and 2009/10) on their way to up to 4.7 million taxpayers.

It is going to take some weeks to issue all of those forms, so you may not receive a letter immediately, if at all. If you normally complete a self-assessment tax return form you should not receive a form P800 as all of your tax liabilities are reconciled on the self-assessment form.

If you do receive a form P800, don't panic. In most cases it will show a repayment of tax, which will be sent to you within a few weeks. You do not have to supply any further details to the Taxman to get this repayment. To avoid fraudulent scams, PLEASE DO NOT respond to emails or telephone calls asking for your bank details in connection with a tax repayment.

If the form P800 shows that you owe some tax, you won't have to pay anything immediately. Indeed, if you owe less than £300 in total for 2008/09 and 2009/10 that tax will be written off and you won't have anything to pay. If the tax due is less than £2,000 it will be collected through your 2011/12 PAYE, so the amount will be deducted from your monthly salary in the year to 5 April 2012. If the tax due is more than £2,000 the Tax Office will issue a separate payment request, and ask for payments to be made in 2011. However, if you will have difficulty in paying the amount due, whether this is more or less than £2,000, you can ask to pay over an extended period of up to three years.

There is a possibility that you could avoid paying the tax due, where you can prove that the Taxman ignored information relating to your tax affairs for more than 12 months after the end of the tax year. This procedure is called Extra Statutory Concession A19, and you need to make a claim for this to apply.

We can help you check the P800 tax calculation, and to submit any claims needed.

National Minimum Wage Changes

In the current recession you may have been forced to freeze or even reduce wages. If your workers are low paid you must be careful that you continue to pay at least the national minimum wage rate (NMW).

The hourly NMW rates increased on 1 October 2010 and now apply to workers in the following age bands:

21 and over: £5.93
18-20: £4.92
16 and 17: £3.64
Apprentice rate: £2.50

The apprentice rate applies to apprentices aged under 19, or those aged 19 or more in the first year of their apprenticeship.

The Taxman can impose penalties of up to £5,000 if you do not pay the statutory NMW rate, and you may even be tried in the Crown Court for non-compliance with the NMW rate regulations, leading to an unlimited fine. You must also pay any arrears of wages owed (for the previous 6 years), based on the current NMW rate, not the rate in force when your employee was underpaid.

Taxman Brings in the Heavies

The Taxman has hired four debt collection firms to help collect an additional £140 million of unpaid taxes each year. Those firms are:

- Commercial Collection Services Ltd;
- Credit Solutions Ltd;
- Fairfax Solicitors Ltd; and
- iQor Recovery Services Ltd.

They will all be expected to operate under industry and Tax Office standards.

If you owe tax, even a just a few hundred pounds, you may well find a bailiff from one of those commercial firms on your doorstep. Before this happens you should receive a warning letter from the Collector of Taxes, but we know those letters can be out of date, contain incorrect figures or sometimes never arrive.

We are aware of some problems with corporation tax demands such as:

- Letters asking for tax to be paid but with no details of how the debt arose, or what period it is for;
- Demands sent where no corporation tax is due;
- Estimated tax bills issued and chased when in fact no tax is due.

If you receive a letter regarding an unpaid tax debt do not ignore it, even if the facts are incorrect and you don't owe the tax stated. If the Taxman's information is not corrected promptly you can expect to see the bailiffs and they can be hard people to deal with.

Monday 2 August 2010

Withdrawal of CIS Gross Payment Status

Every month the Taxman's computer reviews the tax records for a number of contractors in the Construction Industry Scheme (CIS) who qualify for gross payment status. This means that tax does not have to be deducted from payments made by customers. Every contractor's tax record should be reviewed about once a year, but it is not possible to predict exactly when any particular firm will be reviewed.

If the tax compliance record is regarded as unsatisfactory, taking into account the acceptable minor breaches, the computer automatically issues a letter to the contractor informing them that their gross payment status will be withdrawn in 90 days. This is serious stuff as the withdrawal of gross payment status can mean the loss of large contracts, as well as cash-flow difficulties.

If you have recently had problems paying your tax on time, you may have agreed a time to pay arrangement with the Tax Office. Where the tax payments are made as per the agreed schedule, the Taxman should not issue penalties for late paid tax. Unfortunately the computer that performs the CIS review of tax records knows nothing about your time to pay arrangement, so any late payment of tax within the review period is marked as a failure. This can cause a notice of withdrawal of gross payment status.

You need to appeal in writing against that notice within 30 days of it being issued. Include in your appeal the following details:

- the date you or your firm requested time to pay from the Tax Office;
- which tax debts are included in the arrangement; and
- the agreed payment amounts and dates.

Your gross payment status should be restored if there are no other late tax payments or late tax forms delivered in the review period.

Business Assurance Visits

If the Taxman suggests he should visit your business as part of their Business Assurance programme, should you agree? The answer is, almost certainly not!

The Business Assurance programme involves Tax Officers offering to visit new businesses to help them understand what sort of business records they should be keeping. During the visit the Tax Officer will ask the business owner how they record sales, purchases and expenses, how they handle cash, and how they calculate and record drawings or remuneration.

These questions amount to a tax compliance check and any answers you give will be recorded by the Tax Officer. What may not be recorded is any advice given by the Tax Officer in answer to your own questions. For example, you may ask: 'Is this expense tax allowable?' If the tax officer gives the wrong answer, and you act on it, you could be penalised in the future for getting it wrong.

Penalties for errors in tax returns are now dependent on your behaviour, so it is crucial that the Taxman does not form the impression that you have a careless approach to keeping business records. If you are offered a business assurance visit, either politely decline, or ask us to be present to ensure you are not tricked into saying something that may incriminate you in a future tax investigation. For any advice you need, you should talk to us, not the Taxman!

VAT on Google Adwords?

Google Adwords is a popular form of marketing for getting your website onto the Google search results page. It is an international service for VAT purposes as it is sold to UK businesses by Google Ireland Ltd from Dublin.

If you are a UK business you should not be charged VAT on the cost of the adwords service, as it subject to the reverse charge regulations. This means, if you are VAT registered you need to add VAT at the standard rate applying in the UK to the adwords cost and add the gross cost to both your purchases and sales for the period. You pay the VAT due as if you had made the sale, and you reclaim the VAT due on your purchase of the same service. The net effect for a VAT registered business should be zero, unless it makes VAT exempt sales.

Certain accounting software programmes need some tweaks to cope with the reverse charge mechanism. Please ask us to check your system if you are not confident that it is processing the VAT on adwords costs correctly.

If you have been charged Irish VAT at 21% on your Google adwords, this may be because Google Ireland Ltd has recorded you as being a personal customer, not a business. If you are a UK business, not necessarily VAT registered, you can reclaim this erroneously charged VAT from Google Ireland Ltd. You cannot reclaim this VAT through the international VAT refunds service operated by HMRC as the VAT should not have been charged by Google in the first place. You should not include the Irish VAT on your UK VAT return as it is not correctly charged VAT.

Q. I have volunteered for redundancy at the age of 59 and expect to receive a pay-off worth £60,000. The first £30,000 will be paid free of tax, but i

A. You could ask your employer to divert some of the redundancy payment into a registered personal pension scheme for you. You will not be taxed on this pension contribution as long as your total income for this tax year is not more than £130,000. You also need to have income below this level in the previous two tax years. If your employer is not willing to make the pension contribution, you could make the contribution yourself, but be sure to make the payment in the same tax year in which you receive the redundancy payment. Your pension contribution will be treated as being made net of 20% tax and you can reclaim a further 20% tax relief through your tax return. In both cases, as you are already over 55, you can withdraw 25% of the pension fund value as a tax free lump sum immediately. You should take advice from a pensions expert before embarking on any investment in pensions.

Q. My brother and sister in law each lent my company £10,000 some years ago. The company is still trading, but it is unlikely to ever be able to repay

A. Lenders in this position can sometimes treat the irrecoverable loan as a capital loss, which can be set against capital gains, but not against income. However, the Taxman will only grant this tax relief if the loan really is irrecoverable. This is taken as read where the business has gone broke. While the company is still trading there is a possibility that the money could be repaid, even if the amounts have been written off in the company accounts. The Taxman will need some considerable evidence from the company's bankers and other sources, such as Court judgements, to be convinced that the loans cannot be repaid by a trading company.

Q. I work as a self-employed decorator. If I transfer my business to a new company will I be able to take advantage of the NIC holiday announced in th

A. The full details of how the NIC holiday scheme will operate have not yet been released, but we do know it won't apply to businesses established in London, the South East or East regions of England. However, even if you are based outside of those areas, we also know the scheme will only apply to new businesses set up after 21 June 2010. 'New' will be defined as a new economic activity, so where an existing sole-trader business such as yours, is transferred to a new company the business is unlikely to qualify as 'new' for the NIC holiday scheme.

Tuesday 13 July 2010

Young People and Taxes

The summer is here and the exams are over, so many young people will be leaving school or college this month to take their chances in the jobs market. It is a daunting prospect; trying to cope with the tax and benefits systems for the first time.

If your child is in this position you could point them towards the HMRC website designed for 16 to 19 year olds: http://www.taxmatters.hmrc.gov.uk

It covers topics such as NI and how the NI number is important, what is PAYE and self-assessment. There are also quizzes and a teacher's area including materials teachers can use to explain tax to different age groups of students.

As a parent you may need to tell HMRC that your child is no longer in full-time education.

- Child benefit is paid until 31 August following the child's 16th birthday, but after that date the benefit if only paid while the child is under 20 and in relevant education or training, or is aged under 18 and is registered for work, education or training with an approved body. You can provide the relevant details to HMRC using an online form on their website, or by phoning the child benefit helpline on: 0845 302 1444.

- If you are claiming Child Tax Credits for that child you also need to inform the Tax Credits Office that your child is no longer in full-time education. You can only do this by telephone on 0845 300 3900 as the online forms for Tax Credits were taken down some years ago due to fraud.

Although Working and Child Tax Credits are administered by HMRC who also administer Child Benefit, you will need to make to make a separate call to the Tax Credits office as their computers are not linked into the Child Benefit system.

VAT Online - Are You Ready?

Compulsory online filing for VAT returns is here. The first period for which an established business with a turnover of £100,000 or more is required to submit their tax return online is the quarter ending 30 June 2010. That VAT return is due in by midnight on 31 July 2010. In fact as the VAT return is submitted online the submission date is stretched to 7 August 2010, although a VAT repayment claim must still be received by 31 July.

Businesses who always receive VAT repayments can ask to complete monthly VAT returns, in which case the first period for which they must submit their VAT return online was 30 April 2010.

Once you start to submit your VAT returns online you will no longer receive a paper form from the VAT office, or any type of paper reminder.

If you have included your email address in the information about your business in the HMRC online services page, you should receive an email reminder when your VAT return becomes due.

When you submit your VAT return online you also need to pay any VAT due electronically. One of the easiest ways to do this is by direct debit (DD), when the VATman calls the exact amount of VAT due from your account as reported on your VAT return. To allow the VAT office time to allocate your VAT return to the DD instruction, you must set up the DD instruction at least five working days before your VAT return is submitted online. Not five days before the VAT payment is due.

Please talk to us without delay if you would like us to submit your VAT returns online on your behalf.

Giving Shares to Employees

There are a number of approved share schemes that a company can use to provide its employees with shares in the company they work for, or options to buy those shares at a favourable price. The scheme designed for small companies to use is the Enterprise Management Investment scheme (EMI).

If the company chooses not to use one of the approved share or share option schemes and issues shares or options to its employees, there can be some very serious tax consequences, such as:

- The employee is taxed on the value of the shares he receives as if that value was part of his salary.
- The company must pay the employer's class 1 NICs on the value of the shares issued.
- The company must also fund the employee's class 1 NIC and the tax that should have been deducted under PAYE from the value of the shares provided to the employee.
- If the employee leaves shortly after acquiring the shares, the employer may not be able to recover the PAYE and NIC paid in respect of the value of those shares.
- If the Taxman views the giving of the shares as part of a tax avoidance scheme, the employee may be subject to tax and NICs on any dividends he receives from those shares, as if those dividends were salary payments.

If you want to provide your employees with shares please talk to us about how you want to achieve this, so we can advise on how to do it the most tax efficient manner.

Applying New CGT Rules

The June Budget introduced some complex changes to capital gains tax (CGT) that apply from 23 June 2010. For disposals made on or after that date there are now three alterative tax rates for individuals.

Taxable income and gains after deduction of allowances up to £37,400 are taxed at 18%. Those over the £37,400 limit are taxed at 28% and gains subject to entrepreneur's relief are taxed at 10%.

The old CGT rate of 18% applies to all capital gains made by individuals and trustees from 6 April 2008 to 22 June 2010 inclusive, irrespective of the amount of the gain or the person's level of income. Trustees pay CGT at 28% on all gains made on or after 23 June 2010 irrespective of the level of income of the trust.

The new higher rate of 28% only applies to individuals where their total taxable income and gains exceed the higher tax rate threshold of £37,400. That sum includes the total income for the full tax year less allowances and all allowable deductions, plus all capital gains made on or after 23 June less your annual CGT exemption of £10,100. Any gains made before 23 June 2010 are not included in this total. You can choose how to set-off any losses and your annual CGT exemption so you pay the minimum amount of tax. This is best illustrated by an example:

Example
Sid's taxable income for 2010/11 is £27,400 after his personal allowance and all tax allowable expenses have been deducted. He sold a property in May 2010 that made a gain of £17,000, and sold another property in November 2010 for a gain of £25,100. Neither property qualifies for entrepreneurs' relief or for the exemption as his main residence. Sid has no capital losses to use in 2010/11. The CGT on those gains is calculated as follows:

The first gain of £17,000 in May 2010 will be taxed at 18%. The second gain in November 2010 of £25,100 plus his taxable income of £27,400 exceed the higher rate threshold of £37,400 by £15,100 and are liable to the higher 28% rate. As such it makes sense to deduct the CGT annual exemption of £10,100 from the second gain so that only £5,000 of the gain is taxed at 28%. The remainder of the gain of £10,000 will be taxed at 18%. If Sid has any CGT losses he could also have chosen to offset those against the second gain to maximise relief at 28% rather than 18%.

Thursday 13 May 2010

New Employment Regulations

There are a host of new employment related regulations coming into force on 6 April 2010. This is a brief summary of those regulations that are likely to affect you or your business.

Fit notes – these replace sick notes issued by GPs and will state what the worker can do, rather than what he or she is prevented from doing.
Pension date - the date from which the individual can draw the state retirement pension will not necessarily fall exactly on a woman's 60th birthday. For example, a women who reaches age 60 between 6 April 2010 and 5 May 2010 will have a state pension date of 6 May 2010. This date also affects the payment of the employee's NI contributions.
NI contribution years - individuals who reach state retirement age only have to accumulate 30 full years of NI contributions or credits to gain a full state pension.
A single year of NI contributions will count towards the state pension. Until now a person had to accrue at least one quarter of their working life (about 11 years for a man, 10 for a woman) to be entitled to any state retirement pension. Each year of NI contributions will be worth roughly £3.20 of weekly pension at current rates. It will be essential to accurately record the NI number for every employee, so that each individual can collect their pension entitlement when they retire.
Home responsibility protection credits (HRP) will be given on a weekly basis. This will allow the HRP credit to be combined with actual NI contributions to make up a full year of NI credits. HRP credits are given where a person stays at home to look after a child and claims child benefit.

New Rateable Values from 1 April

Business rates are a big fixed cost for many small businesses and it is not easy to move to smaller premises if your sales decline. What's more, the rateable value of commercial properties is revised every five years, normally upwards. The latest revaluation takes effect from 1 April 2010, but it is based on the market value of the property at 1 April 2008, when the value of all commercial property was at an all time high!

If you think you property has been valued too highly for business rates, you can appeal against the rateable value of the property. This can be done online through the website of the Valuation Office Agency (VOA): http://www.2010.voa.gov.uk/rli. However, before you decide to launch into an appeal you should check what your neighbouring businesses are paying, and whether they have already submitted an appeal against their premises value. You can also do that online on the VOA website.

You need to have good grounds for your appeal. For example, perhaps something in the property's immediate surroundings has altered and had a detrimental effect on trade. Perhaps there are a high number of empty neighbouring buildings, or there has been a change in the size or use of the premises. The VOA also encourages you to talk to your local valuation office before submitting a formal appeal against your business rates.

You can also apply for small business rates relief where the rateable value of the property is less than £18,000 (for properties in England). This normally needs to be done through your local rating authority. There are different small business rates relief schemes for properties in Wales and Scotland, which will have various caps for the relief available.

The Budget also announced a temporary increase in business rates relief for properties in England with rateable values of up to £6,000. Businesses occupying such properties can claim full exemption from business rates for 12 months from 1 October 2010. In addition businesses occupying English properties with rateable values of up to £12,000 will be able to claim a tapered reduction in their business rates from that date.

VAT Payments and New Penalties

From 1 April 2010 most businesses will be required to file VAT returns online and also pay the VAT due online. However, existing businesses with a turnover of less than £100k can continue to file paper returns and pay by cheque.

From 1 April 2010 all VAT payments made by cheque will be treated as being paid on the day the cleared funds reach the Taxman's account. Previously the VAT was treated as being paid on the working day the cheque reached the VAT Office. A cheque will normally take at least three working days to clear. Where VAT payment is received late more than once in 12 months you may have to pay a default surcharge (a penalty).

The Taxman will exercise his discretion not to charge a default surcharge for VAT periods that commenced before 1 April 2010, where the paper VAT form and the cheque payment are both received on time. VAT cheque payments for periods that begin on and after 1 April 2010 will have to clear the Taxman's bank account by the due date, or surcharges may apply.

Where the VAT return is submitted online the payment for any VAT due must also be made online. However this can cause problems where the VAT due for the quarter exceeds £10,000.

Many banks impose a daily limit of £10,000 for electronic payments for both business and personal accounts. Larger electronic payments can be made by CHAPs but this may involve bank charges of up to £35 per transaction. You need to check with your bank in advance about the best way to pay a large VAT bill electronically.

If your business is not already VAT registered but your sales are edging up towards the VAT compulsory registration threshold, (£70,000 from 1 April 2010), you need to be particularly careful about when you register. From 1 April 2010 there is a new set of penalties for failing to register for VAT on time. The penalty is based on the underpaid VAT. The minimum penalty will be 10% of the VAT due, and the maximum penalty 100%. The highest penalty will be charged where there has been deliberate concealment of the need to register for VAT.

Company Car and Van Changes

The taxable benefit charged for the use of company cars and fuel for those vehicles is increasing from 6 April 2010. Say you drive a petrol-powered car with CO2 emissions of 160g/km. In the tax year to 5 April 2010 you are taxed at 20% of the vehicle's list price. From 6 April 2010 the taxable benefit for driving the same car will be 21% of its list price.

The tax position for those who have free fuel with their vehicles is even worse. Until 5 April 2010, the value of the fuel-benefit for all company cars is based on a fixed value of £16,900 multiplied by the percentage used to calculate the car benefit. So there is the combined effect of the increased percentage and the increased multiplier. From 6 April 2010 this value increases to £18,000. This means the taxable benefit of having free fuel for a petrol car with emissions of 160g/km will increase from £3,380 to £3,780.

Company van drivers are also hit by the rise in the fuel benefit. Previously where free fuel was provided in a company van, and the van is used for some non-business journeys, the driver is taxed on £500 per year for the use of that fuel. From 6 April 2010 the van driver is taxed on £550 per year for use of the fuel.

You can reduce these high tax charges by switching to a low emissions car. Where the CO2 emissions are 120g/km or less the car benefit for petrol cars is just 10% of the list price, and half that amount where CO2 emissions are 75g/km or less. We could only find one car with emissions in that bottom category: Toyota plug-in Prius, which has an official CO2 emissions rating of only 67g/km.

If your vehicle has zero emissions such as an electric car or van, there is no tax charge at all from 6 April 2010. What's more, when your business buys a new electric vehicle it can write-off the full cost for tax purposes in the year of acquisition.

Changes to the EC Sales List

If you regularly sell goods to VAT-registered businesses in other countries you will be familiar with the form VAT 101, also known as the EC Sales List. This form has been used to record the cross-border movement of goods for Government statistical purposes. It does not require a payment to be submitted with the form. However, you can be charged a penalty if you don't submit your EC Sales List on time.

For sales made on and after 1 January 2010 the EC Sales List must also record the value of certain services supplied to VAT registered businesses in other EU countries, as well as goods. The services affected are those where the reverse charge applies, which means the customer charges themselves VAT at their own local rate, the supplier of the service does not add VAT to the invoice. This reverse charge procedure applies to most services supplied to business customers across international borders from 1 January 2010.

The EC sales list must be completed monthly if the value of the goods supplied to overseas businesses exceeds £70,000 per year, otherwise the form must be submitted for each calendar quarter, which are not necessarily your VAT quarters. If your annual turnover is less than £145,000, and your overseas sales of goods and services amounts to less than £11,000 you can ask the Tax Office for permission to submit the EC sales list on an annual basis.

You are not given much time to complete an EC sales list, as the paper form must reach HMRC within 14 days of the end of the quarter, so that's by 14 April 2010 for the quarter ending on 31 March 2010. If you chose to submit your EC Sales List online you have 21 days from the end of the quarter to submit the form, which is still not long. We can submit the EC sales list on your behalf, but we need details of all your overseas sales and customers to do so.

Time Runs Out for Tax Claims

For as many years as we can remember individuals have had six years from the end of the tax year to claim most allowances and tax reliefs in respect of that tax year, (some tax claims have to be made within two years). That long claims period was shortened to five years from 31 January following the end of the tax year when self-assessment was introduced in 1996/97, but that change meant the loss of just two months. Now the long claims period is changing to four years from the end of the tax year with effect for claims submitted from 1 April 2010.

Thus claims and elections for the tax years 2004/05 and 2005/06 need to be made by 31 March 2010 and 5 April 2010 respectively. Such claims could include an error or mistake claim where tax has been overpaid, claims for personal allowances for marriage, age or blindness, and a number of capital gains tax reliefs.

Confusingly these new claims periods do not apply to everyone from the same date. If you have only recently come within the self assessment system, but you want to make a claim for an earlier year when you were taxed only under PAYE, you will have a further two years to make the claim. For example, claims from PAYE taxpayers for the tax year 2004/05 run out of time on 31 January 2011.

The long claims period for limited companies is also changing from six years from the end of the accounting period, to four years from the end of the accounting period, for claims submitted on and after 1 April 2010. Thus claims for accounting periods that end between 31 March 2004 and 31 March 2006 all need to reach the Tax Office by 31 March 2010.

The period during which the Taxman can normally raise a tax bill for a particular tax year has also been cut back to four years from the end of that year. However, where the extra tax is due because the taxpayer has made a careless or deliberate error, the Taxman has six years, extending to 20 years for deliberate errors, to raise the tax bill.

How to Keep Accounting Records

The Taxman is very keen for all businesses and individuals who need to submit a tax return, to keep complete and accurate records. He has recently issued a new leaflet that summarises all the records different types of businesses should keep, and those they are required to keep by law. See: http://www.hmrc.gov.uk/factsheet/record-keeping.pdf

If you do not keep complete and accurate records of all your income, sales, gains, expenses, and business costs, you will not be able to prove the figures reported on your tax return are correct. If the Taxman challenges the entries on your tax return, and you cannot produce the evidence to back up those figures, he will assume they are incorrect. The Taxman will then think up a more reasonable figure (in his eyes), and look to tax you on that. You may then have to pay the additional tax, interest for late paid tax, and a penalty of up to 100% of the underpaid tax.

You can avoid such a nightmare if you keep accurate and complete records. Talk to us if you are uncertain about what paper and electronic records you should keep.

Filing VAT Returns Online

You may have recently received a letter from the VATman that officially notifies your company or business to file its VAT return online, or face penalties. If your business had a turnover of £100,000 or more in the year ending 31 December 2009 you are legally required to file your VAT returns online, rather than as a paper form, for all periods beginning on or after 1 April 2010. So you can file your VAT return for the quarter to 31 March 2010 on paper, but VAT returns for later periods must be submitted online.

If you don't agree that your turnover was £100,000 or more in the year to 31 December 2009, you need to appeal against the VATman's decision within 30 days of the date of his letter. The VATman has not sent a copy of his letter to us, so please forward it on if you have concerns about this turnover threshold. If you want us to submit your VAT returns online on your behalf we will need that letter as it contains some key details for the registration process.

Even if you have already filed several of your VAT returns online, and your turnover is over £100,000, you will still receive the notification letter from the VATman, including the expensive glossy brochure. If your turnover is currently less than £100,000 per year, you will not have to file your VAT returns online until 2011. The Government has announced that all VAT registered businesses will be required to file their VAT returns online from April 2011, but that requirement is not law yet.

If your business first registers for VAT on or after 1 April 2010 you will be required to file all your VAT returns online from your first VAT return, even if your turnover is way below the £100,000 threshold.

Saturday 27 February 2010

Changes to EC Sales List

If you regularly sell goods to VAT-registered businesses in other countries you will be familiar with the form VAT 101, also known as the EC Sales List. This form has been used to record the cross-border movement of goods for Government statistical purposes. It does not require a payment to be submitted with the form. However, you can be charged a penalty if you don't submit your EC Sales List on time.

For sales made on and after 1 January 2010 the EC Sales List must also record the value of certain services supplied to VAT registered business in other EU countries, as well as goods. The services affected are those where the reverse charge applies, which means the customer charges themselves VAT at their own local rate, the supplier of the service does not add VAT to the invoice. This reverse charge procedure applies to most services supplied to businesses customers across international borders from 1 January 2010.

The EC sales list must be completed monthly if the value of the goods supplied to overseas businesses exceeds £70,000 per year, otherwise the form must be submitted for each calendar quarter, which are not necessarily your VAT quarters. If your annual turnover is less than £145,000, and your overseas sales of goods and services amounts to less than £11,000 you can ask the Tax Office for permission to submit the EC sales list on an annual basis.

You are not given much time to complete an EC sales list, as the paper form must reach HMRC within 14 days of the end of the quarter, so that's by 14 April 2010 for the quarter ending on 31 March 2010. If you chose to submit your EC Sales List online you have 21 days from the end of the quarter to submit the form, which is still not long. We can submit the EC sales list on your behalf, but we need details of all your overseas sales and customers to do so.

Time Runs Out for Tax Claims

For as many years as we can remember individuals have had six years from the end of the tax year to claim most allowances and tax reliefs in respect of that tax year, (some tax claims have to be made within two years). That long claims period was shortened to five years from 31 January following the end of the tax year when self-assessment was introduced in 1996/97, but that change meant the loss of just two months. Now the long claims period is changing to four years from the end of the tax year with effect for claims submitted from 1 April 2010.

Thus claims and elections for the tax years 2004/05 and 2005/06 need to be made by 31 March 2010 and 5 April 2010 respectively. Such claims could include an error or mistake claim where tax has been overpaid, claims for personal allowances for marriage, age or blindness, and a number of capital gains tax reliefs.

Confusingly these new claims periods do not apply to everyone from the same date. If you have only recently come within the self assessment system, but you want to make a claim for an earlier year when you were taxed only under PAYE, you will have a further two years to make the claim. For example, claims from PAYE taxpayers for the tax year 2004/05 run out of time on 31 January 2011.

The long claims period for limited companies is also changing from six years from the end of the accounting period, to four years from the end of the accounting period, for claims submitted on and after 1 April 2010. Thus claims for accounting periods that end between 31 March 2004 and 31 March 2006 all need reach the Tax Office by 31 March 2010.

The period during which the Taxman can normally raise a tax bill for a particular tax year has also been cut back to four years from the end of that year. However, the where the extra tax is due because the taxpayer has made a careless or deliberate error, the Taxman has six years, extending to 20 years for deliberate errors, to raise the tax bill.

Filing VAT Returns Online

You may have recently received a letter from the VATman that officially notifies your company or business to file its VAT return online, or face penalties. If your business had a turnover of £100,000 or more in the year ending 31 December 2009 you are legally required to file your VAT returns online, rather than as a paper form, for all periods beginning on or after 1 April 2010. So you can file your VAT return for the quarter to 31 March 2010 on paper, but VAT returns for later periods must be submitted online.

If you don't agree that your turnover was £100,000 or more in the year to 31 December 2009, you need appeal against the VATman's decision within 30 days of the date of his letter. The VATman has not sent a copy of his letter to us, so please forward it on if you have concerns about this turnover threshold. If you want us to submit your VAT returns online on your behalf we will need that letter as it contains some key details for the registration process.

Even if you have already filed several of your VAT returns online, and your turnover is over £100,000, you will still receive the notification letter from the VATman, including the expensive glossy brochure. If your turnover is currently less than £100,000 per year, you will not have to file your VAT returns online until 2011. The Government has announced that all VAT registered businesses will be required to file their VAT returns online from April 2011, but that requirement is not law yet.

If your business first registers for VAT on or after 1 April 2010 you will be required to file all your VAT returns online from your first VAT return, even if your turnover is way below the £100,000 threshold.

How to keep Accounting Records

The Taxman is very keen for all businesses and individuals who need to submit a tax return, to keep complete and accurate records. He has recently issued a new leaflet that summarises all the records different types of businesses should keep, and those they are required to keep by law. See:
HMRC - Help Sheet

If you do not keep complete and accurate records of all your income, sales, gains, expenses, and business costs, you will not be able to prove the figures reported on your tax return are correct. If the Taxman challenges the entries on your tax return, and you cannot produce the evidence to back up those figures, he will assume they are incorrect. The Taxman will then think up a more reasonable figure (in his eyes), and look to tax you on that. You may then have to pay the additional tax, interest for late paid tax, and a penalty of up to 100% of the underpaid tax.

You can avoid such a nightmare if you keep accurate and complete records. Talk to us if you are uncertain about what paper and electronic records you should keep.

Thursday 18 February 2010

Adding Overseas Purchased to Sales

If your business is not VAT registered you need to keep a 12-month rolling total of your sales ('taxable supplies' in VAT-speak), to check this total does not exceed the VAT registration threshold (currently £68,000). Taxable supplies are those sales which would be subject to VAT (at 0%, 5% or 17.5%), if your business was VAT registered. Once your 12-month taxable supplies total exceeds the VAT registration threshold you must register your business for VAT within 30 days.

Unfortunately you now also need to keep track of the value of the services you purchase from any overseas businesses. Since 1 January 2010 most overseas services supplied to a business from another business (B2B) are subject to the reverse charge. This means you as the customer need to act as both the supplier and customer for the transaction for VAT purposes.

You must add the value of the overseas services acquired to your total purchases, and add the same value to your taxable supplies total, for VAT purposes only. The addition of the overseas services to your taxable supplies total may push this figure over the compulsory VAT registration threshold, in which case you must register your business for VAT in the UK.

It doesn't matter whether the business you are purchasing the service from is registered for VAT or not. You still have to apply the reverse charge treatment to the value of the service acquired. There are some exceptions for services relating to land and transport. Please ask us if you are uncertain about when you should apply the reverse charge or register for VAT.

Is Interest on Corp Tax Allowable?

Q. My company has paid interest on late paid corporation tax. Is that interest tax allowable?

A. Yes. Interest paid to the Tax Office on late paid corporation tax is tax allowable for the company for the period in which the interest was paid. Likewise interest paid by the Taxman because corporation tax has been paid early, or in excess of the amount due, is taxable.

Friday 29 January 2010

Errors in New PAYE Codes

The Taxman has started to issue the 2010/11 PAYE codes, for the tax year that starts on 6 April 2010. This code arrives in the form of a P2 notice, and a copy should go to your employer (on a form P9). If you have received your 2010/11 PAYE code already please study it carefully, as any corrections need to be made in the next few weeks.



Since the Taxman fired up a new PAYE computer last summer there have been a number of faults appearing in PAYE codes. In some cases the age allowance or married couples allowance disappeared, in other cases the state pension amount was understated. Now many of the 2010/11 codes have excluded some of the basic personal allowance, which should be £6,475 for those aged under 65.



This fault occurs if you have changed jobs in the last few years, or started to receive a pension.



The Taxman's computer thinks you are still receiving a wage from your old job, so has split your personal allowance over your current employment or pension and your old job. If you do not have your full personal allowance of £6,475 shown on your 2010/11 PAYE code, ring the Tax Office to ask why, or speak to us