Contractors Accountant Blog

Autumn Statement Tax Summary

2011-12-11T17:38:00.000Z

George Osborne did not have great tidings to impart when he presented his Autumn Statement to the House of Commons on 29 November 2011. The best he could offer the ordinary taxpayer was a freeze in road fuel duty until 1 August 2012, when it will increase by 3.02p per litre. Train and tube fares were due to rise by a whopping 8.2% next year, but this rise will be limited to (wait for it...) 6.2%.

Businesses who occupy small commercial premises receive some generosity with an extension to the business rates relief scheme to 1 April 2013 (already extended for a year to 1 October 2012). Different business rates relief schemes apply in England, Wales and Scotland so ask your local authority what relief applies to your building. Occupiers of larger business premises may be able to defer payment of up to 60% of the increase in business rates for up to two years.

Other key tax announcements for businesses and individuals were:

- New anti-avoidance rules for employer asset backed pension contributions, effective from 29 November 2011.
- State pension age rises to 67, to be phased in over two years from April 2026.
- Freeze in the couple and lone parent elements of working tax credit in 2012/13.
- No increase in child tax credit above the rate of inflation, as had been announced.
- Capital gains exemption to be frozen for 2012/13.
- Research & Development tax credit for larger companies given above the profit line rather than as a tax reduction, to apply from 2013.
- New Seed Enterprise Investment Scheme (SEIS) from April 2012, giving income tax relief of 50% for investments of up to £100,000 in start-up businesses.
- Exemption from CGT when gains realised in 2012/13 are reinvested under SEIS in the same tax year.
- 100% capital allowances in certain new Enterprise Zones, not in all zones.
- Main rate of corporation tax will reduce to 25% from April 2012.
- Air passenger duty to be extended to private jets from 1 April 2013.

Further detail on the new tax rules and rates were announced on 6 December 2011, so it is anticipated that any significant items for small businesses will be covered in future posts.

Picture courtesy of Image: Idea go / FreeDigitalPhotos.net

The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and information contained within it may be out of date.

Tax Refund Scam Email

2011-09-20T18:03:00.000+01:00

Today I received an email telling me that I was entitled to a tax refund of £268.50! Of course this would be very nice, but as I make my living giving professional tax advice, I instantly knew that sadly this was just a scam. I have seen many of these before, but this is the first that I have been sent directly as the target of a tax refund scam! A copy of the email is below:

Many people have been caught by similar scams. HMRC never contact you this way, I quote from the HMRC website:

"HM Revenue & Customs will never send notifications of a tax rebate by email, or ask you to disclose personal or payment information by email.

Do not visit the website contained within the email or disclose any personal or payment information.

Fake email addresses used to distribute the tax rebate emails include:

services@hmrc.co.uk

Message@tax.co.uk

alertsonline@hmrc.co.uk

info@hmrc.gov.uk

noreply@hmrc.gov.uk

securemail@hmrc.co.uk

rebate@hmrc.gov.uk

info.hmrc@direct.gov.uk

email4983913@hmrc.gov.uk

payment@hmrc.gov.uk

HMRC do not send emails using these email addresses."

The scammers are after your personal details, and normally ask for personal details such as:

Full name

Address

Date of Birth

National Insurance number

Bank account details

Credit card details

Mother maiden name

Occupation

Sources of income

Imagine the potential damage they could cause with those details. So please be aware and never respond to these emails. If you receive one of these emails and are concerned then please contact me.

Preferred Advisers for the Commonwealth Judo Championships 2012

2011-09-07T11:51:00.000+01:00

I am very pleased to announce that Harries Watkins Jones are the preferred adviser to CJC2012 LTD a company formed to arrange and deliver the Commonwealth Judo Championships 2012. The event will take place in Cardiff, commencing on the 22nd January 2012. An exciting high profile event for Cardiff and Wales. To find out more about the event, visit the official website.

The Commonwealth Judo Association website stated, "The Commonwealth Judo Association are delighted to announce that the 2012 Commonwealth Judo Championships has been awarded to Wales. The Welsh Judo Association will host the event in January 2012 in the city of Cardiff. The CJA Bid Committee had a difficult decision to select from the two candidates, Wales and South Africa. South Africa will host the 2011 IJF World Junior Championships.

The Welsh Judo Association is busy identifying a management team to deliver a world class event and is working closely with the Welsh Assembly Government Major Events Unit, recently involved in delivering the Ryder Cup at Celtic Manor."

Welsh Judo Association Chairman, Keven Williams said, “Wales is proud to be hosting the 2012 Commonwealth Judo Championships, we plan to run the largest ever Commonwealth Championships and welcome the world to Cardiff to enjoy some traditional Welsh hospitality. We are sure that many nations will see this event as a springboard to the Olympic and Paralympic Games later that year, and also to the Commonwealth Games in 2014. Many thanks to the CJA for entrusting their faith in us.”

Harries Watkins Jones Hits Number 1!

2011-09-05T13:11:00.000+01:00

The Contractor Supermarket website has a chart of what it rates as the top 100 contractor accountants. Customers assess accountants in relation to quality, service and satisfaction. We are pleased to announce that today we have reached the position of number 1 in the chart! You can see the chart here. We would like to thank everybody that voted for us. We however are not complacent and are still working harder than ever to increase the quality of service that we provide to our clients.

If you are not a client of Harries Watkins Jones then visit our website to find out ways that we could help you.

September 2011 Tax Tips & News

2011-09-04T16:38:00.002+01:00

Welcome...
To September's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

We are committed to ensuring all our clients don't pay a penny more in tax than is necessary.

Please contact us for advice in your own specific circumstances. We're here to help!

Swiss Bank Account Tax Deal

Stashing money in a Swiss bank account is not against the law. As long as you declare all the income and gains from your overseas investments and bank accounts on your UK tax return, there is no problem at all. Unfortunately some individuals have taken advantage of the Swiss laws which permit banks to keep their customers' details completely confidential, even from tax authorities, and did not declared the income on their tax returns.

To remedy this non-disclosure (AKA tax evasion), the UK Government has reached a unique tax deal with Switzerland. From 2013, investment income from Swiss bank accounts held by UK residents will be subject to a withholding tax of 48%, and gains made on those investments will be subject to withholding tax of 27%. These withholding taxes will NOT apply if the bank account holder authorises the bank to disclose all details of the income to HMRC, and pays any associated taxes in the UK.

To settle past tax liabilities, all existing funds held by UK taxpayers in Switzerland will be subject to a one-off deduction of between 19% and 34%. This deduction will only apply to amounts in bank accounts open at 31 December 2010, which remain open at 31 May 2013. However, if the bank account holder has instructed the bank to disclose details of the account to HMRC, the one-off deduction will not apply, but HMRC will follow-up all disclosures made.

If you hold a Swiss bank account, now would be a very good time to discuss this with us!

Business Exit Planning

Are you thinking about hanging-up your working boots and passing-on your business? This takes a lot of planning to get the best possible tax outcome.

If you have younger relatives who could take on the business it is advisable to get those individuals involved in the management for a considerable period before you go. You may need to restructure the business to make this hand-over easier, perhaps incorporate, or slim-down the enterprise.

Where your business is already run though a company, a neat method of exiting for the founder is to have the company to purchase its shares from you. However, this 'purchase of own shares', as it is called, must be planned and undertaken in a very precise way to ensure the tax charges are as low as possible.

Another option is to sell off all or part of the business to another person. This also needs to be planned at least a year in advance to ensure you and all your fellow shareholders achieve the maximum tax relief on the sale.

Entrepreneurs' relief can be claimed for most company sales, which reduces the effective rate of tax from 28% to 10% on the first £10 million of gains made by each shareholder. To qualify for entrepreneur's relief each shareholder and the company must meet all of these conditions:

- The shareholder must hold at least 5% of the ordinary shares of the company and 5% of the voting rights for the company for at least one year ending with the sale;
- The shareholder must be an employee, or director, or company secretary of the company for at least one year up to the date of the sale;
- The activities of the company must be at least 80% trading, as opposed to investments, or it must be the holding company of one or more trading companies.

Where your family members have minority shareholdings check whether they will each meet the 5% threshold. Consider gifting some shares to your grown up children or spouse to achieve this threshold. Where shareholdings exceed 5% but the individual does not work for the company, consider making them a non-executive director, or giving them a small part time position at the company for 12 months to the date of the sale.

If you are considering selling your business please talk to us well in advance to get the right planning in place first.

Jointly Held Property Tax Savings

With the threshold for 40% tax reducing every year (£35,000 after deducting allowances for 2011/12), it makes sense to review who pays the higher rates of tax within a family. Can some assets be transferred to the partner who pays a lower tax rate to reduce tax?

For example a let property could be transferred from one spouse into the joint ownership of the married couple or civil partners, or entirely into the other spouse's name. Joint ownership has advantages, as on the eventual sale of the property up to two annual exemptions (£10,600 each for 2011/12) may be available to reduce the chargeable gain. Transfers between husband and wife or civil partners who are living together do not create a capital gains tax charge at the time of the transfer.

Generally UK land can be held as joint tenants when the owners hold an equal undivided interest in the whole property, or as tenants-in-common where the individuals hold separate and identifiable shares, say 10% and 90% of the property (the legal terms may differ under Scottish law). However, where the owners are either married or in a civil partnership, the property will be treated for tax purposes as being held in equal shares (50:50), even if this is not the case. To be taxed on the actual interest each holds in the property the couple need to sign a declaration on Form 17 and submit it to HMRC.

Form 17 has recently been reissued. HMRC now require evidence of the actual beneficial interest held by each person in the property to be submitted with form 17. This evidence may be a copy of the property deeds, or the purchase or transfer document.

New Mileage Rates

Where your employees use a company car or van, but pay for the fuel themselves, the company can pay a fuel-only mileage rate for business journeys. This fuel-only rate is guaranteed to be tax free when it is equal to or less than the advisory fuel rates set by HMRC. These advisory fuel rates are now revised every quarter. The latest rates applicable from 1 September 2011 are shown below for different engine sizes, with the previous rates that applied from 1 June to 31 August 2011 shown in brackets.

Petrol & LPG Engines
1400cc or less: Petrol 15p (15p), LPG 11p (11p)
1401 to 2000cc: Petrol 18p (18p), LPG 12p (13p)
Over 2000cc: Petrol 26p (26p), LPG 18p (18p)

Diesel Engines
1600cc or less: 12p (12p)
1601 to 2000cc: 15p (15p)
Over 2000cc: 18p (18p)

Note there is now a different scale for diesel vehicles.

The advisory fuel rates are based on average fuel prices per litre:

- Petrol: 134.6p
- Diesel: 139p
- LPG: 75.8p

If the prices in your local area are significantly higher, or your company cars are less fuel-efficient than average, you can pay a higher mileage rate. You need to keep a record of how you calculated that higher rate.

Where your employees use their own cars for business journeys, you can pay a tax free mileage rate of 45p per mile for the first 10,000 business miles driven in one tax year, and 25p per mile for extra miles in the same year. This rate was increased from 40p per mile on 6 April 2011, so remember to pay the higher rate to your employees and to yourself when you undertake business journeys in your own car.

Where the company is VAT registered it can reclaim VAT on the fuel element of mileage rates paid to employees, if the employee supplies the company with VAT receipts for fuel showing enough VAT to cover the claim. The advisory fuel rates are purely for fuel. The 45p per mile rate is only partly for fuel, the excess above the advisory fuel rate is to pay for other costs of running the car which are incurred by the employee.

If you are self-employed, with an annual turnover below the VAT threshold of £73,000, you can use the 45p rate as an approximation for the cost of business journeys in your own car.

September Tax Questions and Answers

Q. I received my self-assessment statement and payslip on 17 August 2011, which shows tax due to be paid by 31 July 2011. I paid the tax due as soon as I could, but I am now worried that I will get charged interest and a penalty for late payment.

A. The late issuing of these statements was due to a lack of paper at HMRC's printers! As the delay was essentially their fault HMRC has decided to waive the interest due, as long as the tax payment is received by 27 September 2011. However, this interest free period only applies to the second payment on account of income tax for 2010/11, due by 31 July 2011. Any other late tax payments, such as tax due by 31 January 2011 will accrue interest as normal.

Q. My son worked for a company that has gone into liquidation. The Tax Office are refusing to acknowledge the student loan repayments which were deducted from his salary in 2010/11 and pass those repayments on to the Student Loans Company. What can he do to get his student loan records corrected?

A. This can happen when the company folds before submitting its end of year PAYE return: form P35. This form shows the totals for all the deductions taken from each employee during the year. Your son needs to provide HMRC with any evidence he has of the student loan repayment deductions, such as original payslips or his form P60 for the tax year. HMRC should then pass this information onto the Student Loans Company who will correct his payment record.

Q. I recently applied for VAT registration for my business as the turnover had exceeded the compulsory registration threshold. Now I've had a call from the VAT office asking to come and see me. What have I done wrong?

A. A visit to a newly registered business is now normal practice for VAT officers, particularly where the first VAT return shows a repayment due. The VAT inspectors will want to see the invoices for your first VAT period, and be assured that you know how to keep adequate business records. We can sit in on the VAT visit to provide back-up for any difficult questions if you wish.

If you have any tax questions then please email neil.harries@harrieswatkins.com or visit the Bridgend Accountants website.

August 2011 Tax Tips & News

2011-08-06T17:44:00.000+01:00

Welcome...
To August's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer section.

We are committed to ensuring all our clients don't pay a penny more in tax than is necessary.

Please contact us for advice in your own specific circumstances. We're here to help!

New Workplace Pensions Cost

Another set of regulations is set to fall on the shoulders of all employers. This time it's a compulsory pension scheme for all employees.

This new pensions law is due to be introduced over four years from October 2012. The largest employers (120,000 or more employees) will be forced to sign up first. Those who employ less than 50 workers will be required to take part in the scheme from a date sometime in 2014 to 2016. The exact date will depend on your PAYE reference number.

Only one-man companies will be exempt, otherwise every employer who has workers in the UK will be required to enrol those workers in a pension scheme. There will be exceptions for workers aged under 22, over state retirement age or paid less than £7,475. Employees will have to take an active decision to opt out and sign a form to do so. The employer will not be permitted to induce employees to opt out, or to screen out potential employees who do not wish to opt out of the pension scheme.

Employers and employees will be required to make contributions to the pension scheme totalling 8% of the workers earnings, including tax relief given on the employees' contributions. The employer must contribute at least 3% of the workers' earnings. This level of compulsory contributions will be imposed gradually over five years to 2017.

Employers can use an existing pension scheme, set up a new one, or use the new low cost pension scheme established by the Government called NEST (National Employment Savings Trust). Where an existing scheme is used the employer will have to certify that it meets all the requirements for compulsory pension saving. Every employer will also be required to register with the pensions regulator.

To prepare for these new regulations talk to your pension scheme provider, if you have one. If you don't have a workplace pension scheme you need to plan to set one up as this can take sometime to implement, and to start budgeting for the costs!

VAT Initiative Starts

Last month we warned you the Taxman was planning a campaign to encourage businesses to register for VAT. The Taxman is calling this campaign the 'VAT Initiative'.

To launch the VAT initiative the Taxman is writing to about 40,000 businesses whose turnover has apparently already exceeded the compulsory VAT registration threshold. Those businesses will be invited to register for VAT and pay over all the VAT owed since the date they should have registered, plus a low penalty of only 10% of the VAT outstanding. Those businesses that first exceeded the VAT threshold within the last 12 months may get away with a nil penalty, but it will be up to the Taxman to decide what level of penalty applies.

The requirement to register for VAT is based on total turnover in a 12 month rolling period and needs to be reviewed each month to determine if the business needs to register immediately. The compulsory VAT registration thresholds of turnover in the past 12 months is...

From 1 April 2011: £73,000
1 April 2010 - 31 March 2011: £70,000
1 May 2009 - 31 March 2010: £68,000
1 April 2008 - 30 April 2009: £67,000
1 April 2007 - 31 March 2008: £64,000
1 April 2006 - 31 March 2007: £61,000

The VAT initiative is also open to any business who has not received a letter from the Taxman, but believes they should have registered for VAT at some point in the past. If you want to take up the offer of low penalties for late VAT registration you need to tell HMRC you want to be part of this VAT initiative by 30 September 2011. We can assist you in doing this.

Once your notification has been processed you will receive a notification reference number (NRN), which you must quote on your application form to register for VAT (form VAT1). Without this notification number you will not be able to take advantage of the nil or 10% penalties on offer. The VAT1 form must be completed in paper form, (NOT online) and posted to the VAT initiative section to arrive by 31 December 2011.

Please talk to us before notifying HMRC of your intention to register for VAT. We can help you calculate any VAT due and any other tax owing on undeclared sales.

Companies House Reminders

You can now set up an email reminder service for your company or LLP at Companies House. Once you have registered you will receive timely emails to remind you of the due dates to submit the annual return and accounts for your business, and paper reminders will cease.

You can register up to four email addresses for each business. Each email address nominated will receive an activation email which must be acted upon within five days, so don't set up the email reminder service just before you go on holiday.

It will be possible to opt-out of the email reminder service and revert to paper reminders.

Of course if we look after these for you, we will remind you as well!

Less Tax for Students

If you are employing students over the summer months, don't forget to give them the HMRC form P38S (2011) to sign. This form allows the student to earn their full annual allowance of £7,475 from their holiday work before any tax is deducted.

The student must confirm they will return to full time study at a named college, school or university for a course that will continue until at least 5 April 2012. The student must also not have employment during term time.

The tax exemption does not cover NI contributions, so if the student's pay is at or above the earnings thresholds (£136 for employers contributions, £139 for employees contributions), you must deduct employees NICs and pay the appropriate employers NICs.

Remember the national minimum wage (NMW) rates do apply to students and part-time employees. For workers aged 18 to 20 inclusive the current NMW rate is £4.92 per hour. Only apprentices aged under 19 or apprentices in their first year can be paid the reduced NMW rate of £2.50 per hour.

August Question and Answer Section

Q. I've heard I could reduce inheritance tax by leaving money to charities in my Will. How does this work? Do I have to leave a minimum amount?

A. Any bequests to charities in your Will are free of inheritance tax (IHT). This means the executors of your estate will only pay IHT at 40% on the value of your estate after deducting the following:

- gifts to charities,
- gifts to your UK domiciled spouse; and
- your available nil rate threshold.

For deaths after 5 April 2012 it is proposed that the rate of IHT paid will be reduced to 36%, if at least 10% of the net estate is left to charity. Your net estate is the amount on which IHT would be charged without considering the charitable gifts. You may need to redraft your Will to ensure your estate qualifies for this tax discount.
Q. I earn £30,000 p.a. taxed under PAYE, but also have a variable amount of rental income. I have read that 40% tax applies above £35,000 but I've also been told I can earn £42,475 before paying 40% tax. How much rental income can I receive before paying 40% tax?

A. The 40% tax rate applies in the current tax year (2011/12) on taxable income above £35,000. This is your total income (earnings, rentals and any interest or dividends) less your tax free allowance of £7,475 and any other valid deductions, such as expenses relating to your rental income. So you can have gross income before deductions of £42,475 (£35,000 + £7475) before you have to pay 40% tax. However, you must declare any rental income you receive to HMRC.
Q. My employees are occasionally required to work late in the evening. If I pay for taxis to take them home is that cost tax allowable for the business and will the employees be charged tax on the taxi fare?
A. Where an employer pays for the travel costs of an employee for a journey between home and work (i.e. commuting), that cost would normally be a taxable benefit in kind for the employee. However, there is currently a particular tax exemption for late night taxis used when it occurs irregularly, the employee is required to work later than usual and until at least 9pm and at the time the employee finishes work either public transport was unavailable or it would be unreasonable to ask the employee to use it. It also applies where car sharing arrangements have broken down. In these cases the cost of the taxi is not taxable on the employee. But you can only use this tax exemption up to 60 times per year per employee. You need to keep accurate records of why each employee took a taxi to get home and the timing of those journeys.

This tax exemption for late night taxis is due to be abolished from April 2012, so you may need to reconsider your employees' travel arrangements in future. The cost of taxi journeys for employees on business or to or from work will always be tax allowable for the business.

If you have any tax questions then please email neil.harries@harrieswatkins.com or visit the Bridgend Accountants website.

July 2011 Tax Tips & News

2011-07-28T18:24:00.000+01:00

Welcome...
To July's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

We are committed to ensuring all our clients don't pay a penny more in tax than is necessary.

Please contact us for advice in your own specific circumstances. We're here to help!

Web Bots Are Out to Get You!

The Taxman has announced he is going to start targeting tax evasion by online traders, private tutors, personal trainers and life coaches.

In order to find out who is failing to pay tax on all their income the Taxman is to send out web bots (automatic search programmes), to trawl the internet for data on sales and services advertised by UK residents. This data will then be compared to sources the Tax Office holds such as bank interest and tax returns.

If you declare all of your profits and earnings on your tax return you have nothing to fear. But you may have friends or family members who earn a little bit on the side by selling stuff or advertising their services online, so please pass on this advance warning.

For example, a hobby making decorative items could lead to selling the products at a market or through a website. A common misconception is that if no profit is made the income source does not need to be declared. Unfortunately the Taxman is unlikely to agree. Where the costs are not recorded any income will be treated as profit, and thus will amount to taxable income. The same applies to private tuition; even if the turnover is very small it must be declared where there is intent to make a profit from the activity.

Those online traders or private tutors who have not declared this source of income to the Taxman and who are not registered for self assessment, should contact the Tax Office by 5 October 2011 to notify them there is income received during the 2010/11 tax year. The best way to do this is to complete the self assessment registration form CWF1, either online or in paper form. We can do this for you. The Taxman will then issue the individual with a tax return form to complete for 2010/11.

Where the individual has traded online for several years without declaring the income, a more detailed disclosure to the Tax Office will be required. Please talk to us before approaching the Tax Office, as such a situation needs to be handled very carefully!

What if You Don't Pay Your Tax!July is one of those big tax-paying months...

If you are self-employed you need to pay your income tax and class 4 NIC on-account payment for 2010/11 by 31 July.
A company with a 30 September 2010 year end must pay its corporation tax by 1 July 2011.
Employers must pay class 1A NICs on benefits by 19 July.
Quarterly payments of PAYE are due by the same date. Monthly payments of PAYE and CIS deductions are due by 19th of every month, or by 22nd if paying electronically.

If you or your company will not be able to pay the tax due on time you should contact the Tax Office business payment support line (0845 302 1435) without delay, or we can do this for you. Once the tax due is actually late, even by a day, it is much more difficult to negotiate a reasonable payment plan with the Taxman.

The Taxman is now very keen to chase every penny of tax owed, and you will start to receive aggressively worded letters if you don't pay on time. If you do not react or pay promptly you will receive telephone calls and possibly personal visits from professional debt collectors. The situation can escalate quite quickly into bailiffs being authorised to seize your goods, or a court judgement being enforced.

If you receive a letter demanding tax due, don't ignore it. Even if you believe there is nothing owed you need to sort the situation before the heavies turn up!

Must You Register for VAT?

There is a myth in certain quarters that every legitimate business is required to be VAT registered. This is not the case. Your business (as a sole-trader, partnership or company) does not have to become VAT registered until the total sales for 12 consecutive months exceeds £73,000. However, this total does apply to all the businesses you run as a sole trader. You can't artificially divide your businesses to avoid registering for VAT.

Once your business is VAT registered you must charge VAT at the appropriate rate (normally 20%) on your sales. You also have to submit regular VAT returns, either quarterly or monthly, which means you need to keep your records of sales and purchases up to date. If this all sounds a bit too much to cope with there are a number of schemes you can sign up to which are designed to make VAT reporting much easier for small businesses.

One of those schemes is the flat rate scheme for small businesses. When you use this scheme you don't have to worry about your purchases. You just have to total-up your sales each quarter and pay over a flat percentage as VAT to the Taxman. The percentage used will depend on your trade sector. If your business makes very few purchases you can benefit significantly from being within the flat rate scheme.

Some people prefer to keep their total sales below the compulsory VAT registration threshold, so they don't have to charge VAT and submit VAT returns. They do this by turning down work that would take them over the VAT threshold. This is not illegal, but the Taxman is very suspicious of businesses who manage their sales in this way.

If you use this strategy to avoid VAT registration, you need to be able to prove all your sales are correctly recorded and declared. Later this year the Taxman will offer a limited amnesty to those who have sales over the VAT threshold but who have not registered for VAT. Once that amnesty period is over he will start to actively investigate traders who report total sales just below the VAT threshold. Contact us for further information if you are interested in taking advantage of the amnesty.

Repayment Claims for Tax on Interest

You may be able to claim a tax repayment from the Tax Office if your bank has deducted 20% tax from interest paid. If your tax-free allowance (up to £9,640 for those aged 75 or more in 2010/11), completely covers all of your income, the full 20% tax deducted from interest received can be reclaimed. Or you may only be due to pay 10% tax on the interest if your tax-free allowance is exceeded with savings income up to £2,440 in 2010/11. This may well apply to older relatives.

Where a tax repayment is due, and you don't submit a self-assessment tax return each year, the tax due back should be claimed on form R40. Unfortunately the R40 form cannot be submitted online, it has to be sent to the Tax Office in paper form. However, you can claim tax repayments for the years 2005/06 to 2010/11 all at once, with a separate R40 form for each tax year. We can help you with this.

To avoid these tax repayment claims being necessary in the future, if you have a low income you can register to receive interest from banks and building societies with no tax deducted. This is done by completing form R85 for each account held.

You cannot use the R40 form if you have a taxable capital gain to report for the tax year. In this case you must register for self-assessment and complete a full self-assessment tax return form. This applies even if you may be due a refund of income tax for the same tax year.

July Question and Answer Section

Q. I've always prepared the accounts for my own company and submitted them to Companies House and the Tax Office with no problems. However, this year the Taxman sent back my company's accounts and tax return saying they were in the wrong format. I'm confused. What have I done wrong?

A. Company accounts for periods ending after 31 March 2010 that are sent to the Tax Office on or after 1 April 2011 must be submitted online in iXBRL format. Please ask us if you would like help in submitting your company accounts and tax return online.

Q. My company pays a business subscription to Linkedin, the business networking site. It allows me to make business contacts that generate work for me. Is the Linkedin subscription a tax allowable expense for my company?

A. The Linkedin subscription is tax allowable for your company as it is a means to generate work for the business. However, there may be a benefit in kind charge for you if the Linkedin subscription is raised in your name rather than in the name of your company. If this is the case the company is paying your personal liability (the subscription fee). As Linkedin does not appear on the list of approved professional organisations whose subscriptions are tax allowable for employees, the Taxman will argue that there should be a personal tax charge. It will be necessary to prove that there is only a business purpose to the subscription.

Q. My wife and I acquired a cottage in 2002 and let it as furnished holiday lettings from 2005. We ceased advertising the property this year and it is now on the market. Will we get the lower 10% rate of capital gains tax on any profit we make on the property sale?

A. Yes, as long as the property is sold within three years of the date the holiday lettings business ceased you should both qualify for entrepreneurs' relief on the gain. This relief gives you the lower 10% rate of CGT after deduction of your annual exemption, for gains of up to £10 million per person.

If you have any tax questions then please email neil.harries@harrieswatkins.com or visit the Accountants Bridgend website.

June's Tax Questions and Answers

2011-06-28T17:32:00.002+01:00

Welcome...
To June's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

We are committed to ensuring all our clients don't pay a penny more in tax than is necessary.

Please contact us for advice in your own specific circumstances. We're here to help!

Tax Efficient Profit Extraction
As a company owner you can choose how to extract the profits from your company, and by making the right choices you can minimise the tax and NI paid by you and the company.

The Taxman would like you to take all the profits in the form of a salary and possibly a bonus, as these carry the highest NI charges and ensure the tax is deducted under PAYE before you get your hands on the net income. It is good practice to pay yourself at least a small salary that is covered by your personal allowance (£7,475 for 2011/12), as this makes the best use of your tax free allowances. However, the maximum salary you can take so that neither you nor the company pay NICs is £7,072 in 2011/12, as the threshold for NICs is lower than the tax free threshold. You can get credit for NI contributions without actually paying any as long as the salary is above £5,304 in 2011/12.

Most company owners extract any further amount they need in the form of dividends. If the gross dividend is less than the basic rate limit of £35,000 you will pay no further income tax on that income, and no NI charges. However, larger dividend payments will create an additional tax charge in your hands of 25% (for 40% taxpayers) of the net dividend or 36.1% (for 50% taxpayers).

If you don't actually need the income now consider extracting the profits in another form such as employer pension contributions although you will have to pay income tax on the pension you eventually receive.

You can also charge a rent for assets you own which the company uses (although this could affect the availability of entrepreneurs' relief on a sale of that asset). These assets could be real property (land) or intellectual property (e.g. patents). If you lend funds to the company it can pay you a commercial rate of interest on that loan. These profit extraction methods are free of NI charges.

We can discuss other methods of extracting profits, perhaps using your family members. Please contact us for specific advice in your own circumstances.

Property Development Issues
There are a wide range of tax issues to consider when developing properties. Here we touch on just a few of them...

- Your own home is normally free of capital gains tax when you sell it, but this tax exemption does not apply if you purchase a property with the intention of developing it and turning a profit. In this case the profit you make could be subject to income tax (at rates of up to 50%) rather than capital gains tax (18% or 28%), as the Taxman will want to view the development activity as a trade. It is very rare that the Taxman succeeds in proving the development of a single property is a trade, but if you make a habit of developing and selling on properties, while claiming capital gains exemption, you could lay yourself open to a tax investigation.

- Where your property includes a significant amount of land, the profit attributed to the land in excess of half a hectare will normally be subject to capital gains tax. This half-hectare limit can be stretched in circumstances where the land and any accompanying outbuildings are closely related to the main residential building.

- When purchasing a run-down property to develop you must think about the cost of VAT. If you are not a VAT registered builder you normally can't reclaim the VAT on the development costs. However there is a scheme that allows DIY builders to reclaim VAT when a non-residential building is being converted into a home. There are a number of other conditions that must be met for this DIY builders scheme to apply.

- VAT may be charged at the lower rate of 5% on certain building services when the building has been empty for at least two years, or the development changes the number of dwellings in the building. The rules that allow this lower rate of VAT to apply are very complicated so you need to take advice before you start the development project.

If you are looking at property development it is important to get advice before proceeding.
Why Stamp Duty Form Changes?
Stamp Duty Land Tax (SDLT) forms have changed, but why?

The forms used to report Stamp Duty Land Tax (SDLT) due on a purchase of UK land and property are changing. The lead purchaser must now provide an identity number such as NI number and date of birth. Where the purchaser is a company the company's tax reference number (UTR) or VAT registration number should be used. Partnerships should use their UTR or VAT registration number.

If the lead purchaser does not have any of the above reference numbers, as they are not registered for tax in the UK, they should use another unique reference number such as passport number, and state the country of issue of the document.

The new forms have been available since 11 April 2011, and will become compulsory from 3 July 2011. The online filing system for SDLT will incorporate the changes from 3 July.

The Taxman may well be collecting the additional information for a reason, perhaps to cross-reference to taxpayers files!

Missing Trader Fraud
This is a type of VAT fraud that costs the UK millions of pounds every year. It works like this...

A VAT registered company based in the UK purchases small high-value goods (such as mobile phones) in another EU country and imports them into the UK (with zero-rate VAT). The importer then sells those goods at a VAT-inclusive price within the UK. However, before the VAT collected from the UK customers is paid over to HMRC, the importing company is liquidated and its directors disappear (become a missing trader), leaving the VAT unpaid.

However, this is not the end of the story, as if you are the UK customer who bought those goods from the fraudulent importing company, the Tax Office will block your claim for repayment of the VAT you paid on your purchase. This block can apply whether or not you knew you were part of a fraudulent supply chain.

To avoid involvement in a chain of suppliers that includes a criminal trader you should undertake 'know your customer' checks. These involve carrying out credit and identity checks on your supplier, and on the directors of the company. Also check the goods actually exist and are as described (i.e. new goods). You should be suspicious if you are offered a deal that looks very attractive and has any of the following attributes:

- The company is newly established and has no financial or trading history.
- The company has been acquired recently and the new owners have no previous involvement in your sector.
- The company trades from residential or short-term lease property.
- Your contacts in that company have a poor knowledge of the market and products.
- There is no apparent risk for you in the deal.
- Repeat deals at the same or lower prices and small or consistent profit.
- Instructions to make payments to third parties or into offshore bank accounts.
- You are asked to pay much less than the full market price for the goods.
- You are offered an unsecured loan with unrealistic interest rates and/or terms.

June Question and Answer Section
Q. In 2009 my family and I moved out of the home I owned and rented a house near my daughter's school. I have recently sold the original home. Do I qualify for the capital gains tax exemption on that property, even though I wasn't living in it when it was sold?

A. Yes you do qualify for the tax exemption. As you sold your former home within three years of moving out, all of the gain arising on the sale of property will be exempt from capital gains tax. This assumes you occupied the property for all of the period that you owned it, before you moved out. You do not have to declare the gain on your tax return.
Q. On 15 April 2011 I received severance pay of £80,000 equal to my annual salary, but I was surprised that £23,000 was deducted as tax. I was led to believe the first £30,000 would be tax free and the rest would be taxed at 20%. Can I reclaim the excess tax deducted?

A. It is likely that the first £30,000 of your severance award was tax free, if it was a genuine redundancy payment. This is not always the case as a number of strict conditions must be met.

In the past when such severance payments were paid after the individual had received their P45 form, a BR (basic rate) tax code was applied to the payment which meant only basic rate tax at 20% was deducted. However, since 6 April 2011 employers are required to apply an OT tax code on a month 1 basis to such severance payments. This means that tax is deducted at the basic, higher and additional rates without the benefit of the personal allowances. The month 1 basis means only 1/12 of the basic rate and higher rate limits for the year are taken into account
The taxable part of your severance payment (£50,000) would have generated a tax deduction of £23,166 using an OT code as follows...

Basic rate: 35000/12 = 2916.67 x 20% = 583.33
Higher rate: 115,000/12 = 9583.33 x 40% = 3833.33
Additional rate: (50,000-9583.33-2916.67) x 50% = 18,750.00
Total = £23166.66
You can reclaim the excess tax charged in your tax return for 2011/12.
Q. I've received a letter from the Taxman asking for my tax return for the year to 5 April 2010 to be submitted. But I submitted that tax return in September 2010, and I've paid all the tax due for that tax year. Do I have to submit that form again?

A. No. The letter you have received from the Tax Office is a mistake. About 40,000 of these standard letters (Notices SA316) have been printed with the wrong tax year: 2009/10 rather than 2010/11. You should receive another notice SA316 asking for the tax return for 2010/11, and a letter of apology concerning the mistake.

If you have any tax questions then please email neil.harries@harrieswatkins.com or visit the Accountants Pontypridd website.

April 2011 Tax Tips & News

2011-04-07T12:16:00.005+01:00

Welcome...
To April's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

We are committed to ensuring all our clients don't pay a penny more in tax than is necessary.

Please contact us for advice in your own specific circumstances. We're here to help!

Plumbers Tax Safe Plan

The Taxman has launched a new tax disclosure opportunity called the Plumbers Tax Safe Plan (PTSP). It is aimed at plumbers and heating engineers who have not fully disclosed all of their income on their tax returns in the past. However, anyone in any trade or profession can use this disclosure opportunity to make a full disclosure of previously undeclared income to the Tax Office.

If you use the PTSP disclosure opportunity to declare unpaid tax, you will be charged a low penalty on the tax due. If you delay and are later found out by the Taxman the penalty could be as high as 100% of the tax due, or 200% if funds have been hidden off-shore. You will also be subject to a full tax investigation and possibly charges under criminal law.

To take advantage of the PTSP you need to fully disclose all your additional tax liabilities by 31 August 2011, and pay all the tax, interest due on late paid tax, and penalties by that date as well. To start the PTSP process you must first notify HMRC by 31 May 2011 that you wish to disclose. We can help you do this and HMRC will respond with a disclosure reference number.

You will need the disclosure reference number to complete the PTSP disclosure form, which can be done online or by using a PDF of the form downloaded from the HMRC website. Most taxpayers will need some help with this disclosure form as the tax, interest and penalties all need to be calculated. It is up to you to decide which penalty rate should apply to your tax errors under the PTSP:

- Innocent mistakes have zero penalty;
- Careless errors attract 10% penalty; and
- Deliberate errors attract 20% penalty.

Think very carefully before admitting to a deliberate error, as this could lead to very strict sanctions in future.

If you think you will not be found out by the HMRC investigators, consider the information HMRC can collect from other sources. To back-up this PTSP scheme HMRC have obtained information concerning plumbers and heating engineers from the Gas Safe Register (formerly CORGI registered). They have cross-referenced this information to advertising directories to work out who was trading as a plumber or heating engineer but were not registered with HMRC.

If you would like some assistance in making a full disclosure of unpaid tax, or know someone who does need help, please contact us as soon as possible.

Changes to NIC Class 2 Payments

As a self-employed person you probably pay your class 2 NIC, (formerly known as 'NI stamp') by monthly direct debit, or when the quarterly bill arrives from the Tax Office.

From April 2011 the Tax Office is changing the way it collects class 2 NICs. The payment will be due in two equal instalments on 31 July and 31 January. The Tax Office will send out separate bills for the class 2 NICs in April and October that demand payment for the amounts due in the following July and January.

If you already have a monthly direct debit set up to pay your class 2 NICs, those direct debits will be suspended from April 2011 and will start again in August 2011. You can opt to pay your class 2 NIC bill when the payments become due in July and January, by telephone banking, Bank Giro, at the Post Office, by direct debit or by cheque.

PAYE Notices are Coming

The Tax Office has started to issue electronic PAYE code notices (forms P9) to employers for 2011/12. If you have provided an email address for the Tax Office to contact you concerning PAYE matters, you should receive an email to inform you that new PAYE codes have been issued for your employees.

To view the PAYE codes you need to log on to the PAYE online service on the HMRC website (or through your Payroll software), and choose the option required (e.g. tax code notices). Change the option 'tax year' from 'current' to 2011/12 to see the notices for 2011/12.

Remember you can be held liable for under-deducted tax if an incorrect PAYE code is applied to your employee's wages, or a PAYE code is applied incorrectly.

If you have a large number of tax code notices to manage you may want to use the HMRC tool: PAYE Desktop Viewer (PDV). This is a free HMRC tool that allows you to search and sort tax codes, notifications and other reminders.

New Pensioners to Receive Tax Bills

If you first received your state pension after 5 April 2010 you may have to pay an unexpected tax bill. This is because of yet another programming error with the Tax Office PAYE computer.

The state retirement pension is taxable but it is paid without tax being deducted. The amount of your state pension should be set against your personal allowance in your PAYE code. However, this adjustment to the PAYE code was not done by the PAYE computer for state retirement pensions that commenced in the tax year 2010/11.

Any pensions paid by your former employer, or as an annuity from a personal pension plan, are taxed under PAYE. Where the state pension has been set-off against your personal allowance in your PAYE code, any balance of your personal allowance is used against your occupational pension leaving the rest of your occupational pension to be taxed at your marginal rate. Where your state pension has not been included in your PAYE code, all of your tax free personal allowance will be set against your occupational pension and not enough tax will be deducted from that income under PAYE.

If you are in this position you will receive a PAYE reconciliation (form P800), at some time in the next 12 months, which will show you how much tax was deducted under PAYE and how much should have been deducted. If the difference is less than £2,000, the tax due will be collected through your PAYE code in the three years to 2013/14. However, where the amount owing is £2,000 or more the Tax Office may demand payment immediately. You should resist this, and ask for the tax due to be collected through your PAYE codes, as the tax underpayment is purely due to a Tax Office mistake.

This is not the first time the PAYE computer has made this error. Up to 250,000 pensioners had an incorrect amount of their state pension included in their PAYE codes for the tax years 2008/09 and 2009/10. In these cases the Taxman decided not to collect the underpaid tax and the pensioners were not informed of the mistake.

April Question and Answer Section

Q. I generally invoice about £5,000 per month, some £60,000 per year, so my business is not yet VAT registered. However, from 1 April a new customer will provide an additional £2,000 of sales per month. When exactly will I have to register for VAT?
A. You currently have a margin of £13,000 between your regular sales and the new VAT registration threshold of £73,000 (from 1 April 2011). Your new income will fill that margin in 7 months. If your regular sales remain constant your turnover for the past 12 months will exceed £73,000 in mid October 2011. You will need to register for VAT by 30 November 2011. As the VAT registration process can take at least a month, you should send in your application for VAT registration (online or in paper form) as soon as you realise your sales have exceeded £73,000. On that form be careful to state the date from which you become liable to register for VAT, even if that is some weeks in advance.
Q. My PAYE tax code is 647L, but the websites I've looked at say it should be 747L, which is correct?
A. The personal allowance for individuals aged under 65 for the tax year 2010/11 (which ends on 5 April 2011) is £6,475. If you have no deductions to set against your personal allowance your tax code for 2010/11 should be 647L. The standard personal allowance for the tax year 2011/12 (from 6 April 2011 to 5 April 2012) will be £7475, so your tax code for 2011/12 will be 747L.
Q. I work through my own UK company that has secured a 6 week contract to be performed in Amsterdam. I plan to stay with my cousin in Amsterdam while working on that contract. As I won't have receipts from a hotel, what can I claim as expenses?
A. HMRC set benchmark scale rates for business trips in most countries. These cover costs for accommodation, meals, and other sundry expenses known as the residual rate. Your company can reimburse your expenses at the benchmark scale rates without receipts. However, if you are staying with a friend or relative and do not pay for accommodation or meals you can only reclaim 10% of the residual rate for the area. Where you pay for some meals (e.g. lunch) you should claim the specific meal rate or the actual expense supported by receipts. On top of these expenses you can also claim personal incidental expenses of £10 for every night that you are working abroad.

If you have any tax questions then please email neil.harries@harrieswatkins.com or visit the Accountants Pontypridd website.

Budget 2011, Tax Summary

2011-03-24T10:58:00.001Z

This article aims to summarise the main tax measures of yesterdays Budget however it is not intended to be comprehensive.

Individuals

Personal Allowances
These allowances represent the amount of an individual's income in the tax year that is not subject to income tax. Some people are eligible for several allowances such as the personal allowance, and married couples allowance. The married couples allowance is available to married persons and civil partners, but only where at least one person of the couple was born before 6 April 1935.

The personal allowance for 2011/12 will increase by £1,000 to £7,475, but the 40% tax threshold will reduce to £35,000 (see below). This ensures that higher and additional rate taxpayers do not benefit from the increased personal allowance in this year. From 6 April 2012 the personal allowance will be increased again by £630 to £8,105, and in that year the 40% threshold will be reduced further to £34,370.

Personal allowances are withdrawn at certain income thresholds, indicated below, and cannot be claimed by non-domiciled individuals who elect to have their foreign income and gains taxed on the remittance basis for the tax year.

The 2011/12 personal allowances are...

Under 65 - £7,475
65-74 - £9,940
75 and over - £10,090
Minimum married couples allowance* - £2,800
Maximum married couples allowance* - £7,295
Blind person's allowance - £1,980
Income limit for allowances for those aged 65 or more - £24,000
Income limit for allowances for those aged under 65 - £100,000

* given where one partner was born before 6 /4/1935, and only as 10% reduction in tax.

Income Tax Rates
The tax rates for 2011/12 have been frozen at the 2010/11 levels but the threshold at which the 40% tax rate is applied is reduced to £35,000. This introduces a subtle tax increase as it pulls more taxpayers into the 40% tax bracket, and increases the amount of income subject to tax at 40%.

The 2011/12 rates and bands are...

Savings rate* (10%) - 0 to £2,560
Basic rate (20%) - 0 to £35,000
Higher rate (40%) - £35,001 to £150,000
Additional rate (50%) - over £150,000

* Only applies if non savings income is below this amount

Non-Domiciled and Non Resident
Individuals who are domiciled outside of the UK (non-doms), and who have been resident in the UK for at least 7 years out of the previous 9 tax years, must pay a remittance basis charge if they want to exclude their off-shore income and gains from UK taxation. This remittance basis charge is current set at £30,000 per year. It is proposed that from 6 April 2012 the remittance basis charge will increase to £50,000 for non-doms who have been UK resident for at least 12 years. Those who have been resident in the UK for at least 7 years but less than 12 years will continue to pay the £30,000 charge.

There is currently no clear measure by which an individual can determine whether they are treated as resident for tax purposes in the UK. The Government intends to introduce a legal test of residence with effect from April 2012.

Tax Credits
The main changes to Tax Credits as it applies to the self-employed, is the change in the income disregard from £25,000 in 2010/11 to £10,000 in £2011/12.

The income disregard provides a buffer for changes in income, so overpayments of tax credits do not arise where income varies within this threshold year on year. The reduction in this threshold is likely to adversely affect families with fluctuating incomes, such as the self-employed. In the future, in order to avoid a claw-back of tax credits, the claimant will need to finalise their self-employed profit figures as close to the tax year end as possible.

Savings and Investments

Enterprise Investment Scheme
Income tax relief for investors is to be proposed to be enhanced as follows:

Rate of income tax relief: 2010/11 - 20%, 2011/12 - 30%, 2012/13 - 30%

Annual maximum investment qualifying for income tax relief: 2010/11 - £500,000, 2011/12 - £500,000, 2012/13 - £1,000,000

These changes will be subject to State aid approval from the EU.

Venture Capital Trusts
The range of companies that can accept investments through the EIS or Venture capital Trusts is to be increased from April 2012 to include those with gross assets less than £15 million, and with less than 250 employees. At present only companies with asset value of less than £7 million and with less than 50 employees can qualify for these tax favoured investments. The cap on the amount a company can raise through these schemes in any year will also be increased from £2 million to £10 million.

Pension Contributions
The level of contributions that can be made with full tax relief to a registered pension scheme is to be reduced from £255,000 to £50,000 per pension input period (PIP) falling in the tax year. However, this cap can be expanded by bringing forward unused relief from the previous three tax years, up to a maximum of £50,000 from each year. If the annual allowance is exceeded the taxpayer must pay an annual allowance charge on the excess at their marginal rate of income tax.

The Lifetime Allowance will reduce from £1,800,000 in 2011/12 to £1,500,000 in 2012/13.

Independent Savings Accounts (ISAs)
The ISA savings limits applicable in 2011/12 for those over 18 are:
Overall limit - £10,680
Cash up to - £5,340
Balance in stocks and shares up to - £10,680

For those aged 16 & 17:
Overall limit - £5,340
Cash up to - £5,340
Balance in stocks and shares up to - nil

From April 2012 the ISA savings limits will be increased in line with the consumer Prices Index (CPI) rather than in line with the Retail Prices Index (RPI), as has been the case so far.

Savings for Children
Children born between 1 September 2002 and 2 January 2011 inclusive were eligible for a child trust fund account (CTF). Each child received a voucher to allow the account to be opened which also provided an initial deposit. The existing CTF accounts will continue and funds of up to £1200 per year can be contributed for each child tax free. The CTF account can only be accessed by the child when he or she reaches age 18.

Junior ISA
The Junior ISA is a replacement for the CTF but no funds will be provided by the Government. The junior ISA will be available to all children resident in the UK who do not have a child trust fund account. It will also have the following features:

- No tax will be charged on income or gains earned within the ISA.
- Funds placed in the account will be owned by the child and locked in until the child reaches age 18.
- Accounts can be opened from autumn 2011 (exact date to be announced).
- Sharia compliant products will be offered as Junior ISAs.
- The annual savings limits will be announced later, but are likely to be similar to normal ISAs.

Capital Taxes

Capital Gains Tax Rates and Thresholds
The rates and thresholds for capital gains tax are as follows for 2011/12:

Annual exemption - £10,600
Annual exemption for most trustees - £5,300
Rate for gains in basic rate band - 18%
Rate for gains above basic rate band - 28%
Rate for gains subject to entrepreneurs' relief - 10%
Lifetime limit for entrepreneurs' relief - £10,000,000

Entrepreneurs' Relief
This relief applies to gains made on the disposal of businesses, parts of a business, shares in trading companies and certain business assets disposed of after a business ceases or in association with a business disposal. The taxpayer and the business must both meet a number of qualifying conditions for the relief to apply.

Each taxpayer has a maximum amount of gains that they can include in a claim for entrepreneurs' relief, called the lifetime limit. This lifetime limit was initially set at £1 million from 6 April 2008. It was increased to £2 million from 6 April 2010, increased again to £5 million from 23 June 2010. The lifetime limit will be doubled to £10 million for gains made after 5 April 2011.

Inheritance Tax
The nil rate band for inheritance tax (IHT) will remain frozen until 2014/15 at £325,000. This is the amount of a person's estate that is free of inheritance tax.

The rate payable on death for 2011/12 remains at 40% with the rate payable on lifetime gifts to certain trusts remaining at 20%.

From April 2012 those that give at least 10% of their estate on death to charity will pay a reduced rate of IHT of 36%. Gifts made to charities are exempt from IHT.

Business Tax

IR35 Review
The Office of Tax Simplification was tasked with reviewing the operation of IR35, or the provision of services through intermediaries as the legislation is more correctly called. Unfortunately the Government does not agree that IR35 should be abolished. However, it has promised to improve the way HMRC provide guidance to businesses who are trying to operate IR35.

Capital Allowances
The rates and thresholds of the main capital allowances will apply as follows for the year from April 2012:

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) cap: reduced from £100,000 to £25,000

Short Life Assets
At present a business can elect for named assets (not cars) to be treated individually for capital allowance purposes rather than being included in the main pool or special rate pool. The assets subject to this election are called short life assets as they are deemed to have a useful life of less than 4 years. If the business sells or scraps the short life asset before the end of its deemed life, the business will get tax relief for the full cost of that asset while it is being used by the business. This would not apply when the asset is included in one of the capital allowance pools.

For assets purchased on or after 1 April 2011 (6 April 2011 for unincorporated businesses), the life of the short life asset will be deemed to be 8 years. This will benefit larger businesses that incurred expenditure on assets in excess of their Annual Investment Allowance cap for the year.

Enterprise Zones
The Government will create 21 Enterprise Zones around the country. Further details of the exact location and duration of these zones will be released later. All we know so far is that businesses within these zones will be able to apply for up to 100% discount on business rates.

Tax Reliefs to Go
The Office for Tax Simplification has suggested a list of more than 40 tax reliefs that could be abolished because they are rarely used, or are in fact obsolete. Most of these reliefs will be abolished after consultation. Reliefs on this list which may be of interest to small businesses include:

- Tax free meals for employees who cycle to work
- Tax free late night taxis for employees
- Additional tax relief for companies that clean up contaminated land or buildings (land remediation relief)
- Relief from CGT for grants for giving up agricultural land

Corporation Tax Rates
The small profits rate of corporation tax will be cut from 21% to 20% from 1 April 2011, and is expected to remain at that rate for the next four years, but this has not been confirmed. The small profits rate applies to profits of up to £300,000 where the company has no associated companies which are trading.

The main rate of corporation tax was due to be cut from 28% to 27% from April 2011, but that rate will now be 26%, reducing by 1% per year thereafter until the rate reaches 23%.

Research and Development Tax Credits
Small and medium sized companies could previously claim tax relief of 175% for qualifying revenue expenditure incurred on research and development (R&D) projects. This tax relief will increase to 200% for R&D expenditure incurred after 31 March 2011. A further increase in this tax relief to 225% is planned for qualifying R&D expenditure incurred after 31 March 2012.

The rules that govern what type of expenditure qualifies for this relief will also be revised with effect from 2012 to make it easier for small companies to claim this relief.

Employers

NIC
When business owners and accountants are asked what single action could simplify the tax system, most suggest merging income tax and NI. This message has finally been heard by the Government, who will start consulting on how the operation of the NI and income tax could be combined.

This does not mean these two taxes will be merged. The Government has stated that NI will not be applied to savings, dividends or pensions. The likely changes will involve aligning the rules and mechanics of collecting the two taxes. However, don't expect big changes any time soon!

From 6 April 2011 the rates and thresholds for the main NI contributions were already known with most increasing by 1%. The main figures for 2011/12 are:

Lower Earnings Limit (LEL) for Class 1 NICs - £102/week
Employer's class 1 above £136/week not contracted out - 13.8%
Employee's class 1 not contracted out from £139 to £817/week - 12%
Employee's additional class 1 above £817/week - 2%
Self-employed class 4 from £7,225 to £42,475 per annum - 9%
Self-employed class 4 additional rate above £42,475 per annum - 2%
Self-employed class 2 - £2.50 per week
Voluntary contributions class 3 - £12.60 per week

Approved Mileage Rates
Where an employee uses his or her own car for business journeys their employer can pay them an approved mileage allowance payment (AMAP), free of tax and NIC.

This AMAP rate has been stuck at 40p per mile since about 2002, and at current petrol prices many employees who need to use their car for business cannot afford to do so. The AMAP will increase to 45p per mile from 6 April 2011 for the first 10,000 business miles per year, any additional miles can be reimbursed at 25p per mile. If the employer does not pay the full AMAP rate the employee can claim the additional amount in tax relief from HMRC.

The tax free AMAP can also be paid by charities to volunteers. The self-employed, who have profits below the VAT registration threshold (£73,000 from 1 April 2011), may also use the AMAP rate as a substitute for motor expenses claimed in their accounts.

Where an employee carries a fellow employee as a passenger on a business journey, an additional 5p per mile tax free can be paid. The rate will also now apply to volunteer drivers who take other volunteers on business/ charity related journeys.

Car Benefit
The tax charge for personal use of a company car is based on a percentage of the list price of that car when new.

From 6 April 2011 the percentages are all increased by 1% for those in the 15% to 35% range but with a 35% maximum kept. The taxable benefit of using a car with CO2 emissions of 121-129g/km is 15% of the list price. This percentage increases by 1% for each additional 5g/km of CO2 emissions to a maximum of 35% for cars with CO2 emissions of 225g/km or more.

Where a company car driver receives free fuel, the taxable benefit is calculated as the percentage of the list price for the car applied to a set value, currently £18,000. This value will increase to £18,800 from 6 April 2011. The maximum taxable benefit of receiving fuel for personal use will increase from £6,300 (for 2010/11) to £6580 (for 2011/12).

VAT

VAT Rates and Thresholds
There were few changes announced for VAT. The rates and thresholds are as follows from 1 April 2011:

Lower rate - 0%
Reduced rate - 5%
Standard rate - 20%
Registration turnover - £73,000 (up from £70,000)
Deregistration turnover - £68,000 (up from £71,000)

Low Value Consignments
Low value consignment relief allows goods to be imported into the UK by post from outside the EU, with no VAT or duties charged, if the value of the package is less than £18. This has encouraged suppliers of CDs, DVDs and other durable items, to supply goods via the Channel Islands and other non-EU territories to avoid VAT being applied on the sale price. The monetary limit for low value consignments will be reduced to £15 from 1 November 2011, and this limit will be reviewed in March 2012. The Government will also look at other ways of closing this loophole.

Online Filing
It will be compulsory for all VAT registered businesses to file their VAT returns online from 1 April 2012. At present only businesses who became VAT registered from April 2010 or those with turnover of £100,000 or more must file VAT returns online. Also from 1 August 2012 all requests to register or deregister for VAT will have to be made online.

For more tax tips please visit our website Bridgend Accountants Harries Watkins Jones.

Taxation Editor

2011-03-03T12:44:00.000Z

I am pleased to announce that I have accepted the role as Tax Editor on totalinvestor.co.uk. I am honoured to have been chosen for this position.

Total Investor is a multi disciplinary information website for both consumers and professionals. It is growing rapidly with the total number of unique visitors to Total Investor rising by 350% during the last quarter. Total registered individual professional membership rose from 8,129 to 8,528. The total number of average daily professional searches rose from 229 to 294, annualising at 107,310 profile searches, up 28%.

However my heart remains firmly in accountancy practice and as Total Investor will only take a fraction of my time, my practice work will remain unaffected. To review the type of work that Harries Watkins Jones undertakes, please visit Accountants Bridgend.

March's Tax Tips & News

2011-03-02T14:51:00.004Z

Welcome...
To March's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Questions and Answers section.

We are committed to ensuring all our clients don't pay a penny more in tax than is necessary.

Please contact us for advice in your own specific circumstances. We're here to help!

Taxman Starts Business Records Check

The Taxman is concerned that many small businesses are not keeping adequate records to support the entries on their tax returns. To encourage better record keeping he is taking a carrot and stick approach.

The carrot encouragement comes in the form of a number of new HMRC leaflets, and an online tool www.businesslink.gov.uk/recordkeepingcheck designed to help small businesses decide what records they must keep. These tools and leaflets contain quite a lot of jargon words and phrases, so we would recommend discussing your requirements with us.

The stick is a letter he is about to send to 50,000 small businesses, advising that they may be subject to a detailed records check.

Only a minority of these businesses will actually receive a visit from the Tax Office compliance check unit, and those visits will normally be arranged in advance. However, if your business is visited and your records are found to be inadequate you may receive a penalty of up to £3,000, which cannot be suspended even if you promise to keep better records in future.

Taxman to Hassle Tax Cheats

In addition to the 50,000 letters being sent about keeping business records, the Taxman is writing to 12,000 self-employed people who claim Tax Credits, to check whether they have been understating their income.

As a self-employed person you can claim Child and Working Tax Credits just like an employee, but your self-employed income is likely to be more variable than a regular wage or salary. If the income from your self-employed business has fluctuated wildly during the past recession, you may well get one of those letters from the Taxman. You will be asked to supply evidence of your income, which will normally be your business accounts and possibly bank statements. We can help you compile the information requested.

The Taxman is also getting serious about tackling those who deliberately cheat the tax system, as opposed to those who make careless mistakes.

He is targeting individuals and businesses identified as deliberate tax cheats since April 2009, and will regularly monitor all aspects of that person's tax affairs. This will involve asking for further information to support figures on tax returns, and possibly making unannounced visits to business premises.

The monitoring will continue for two to five years, or as long as the Taxman thinks the person is a tax risk. Initially, about 900 people will soon be informed they are included in this monitoring scheme but this number may well increase in time.

Traps with the Flat Rate VAT Scheme

The VAT flat rate scheme for small businesses is generally straight-forward to operate, but here are a few traps to watch out for.

Use the right rate
You will be aware that the standard rate of VAT increased to 20% on 4 January 2011. The flat rates used by traders in the flat rate scheme to calculate the VAT to pay to HMRC also changed from that date. Did you remember to apply the new rate for your business sector? Check whether you applied the correct flat rate from 1 January 2010 to 3 January 2011 when the standard rate of VAT was 17.5%, and from 1 December 2008 to 31 December 2009 when the standard rate was 15%.

Include all business income
You need to apply the flat rate for your business sector to all your business income, including income that is exempt from VAT such as rents. If you are self-employed and operate your VAT registered business in your own name, any income from property you let in your own name must also be subject to the flat rate scheme.

This applies whether or not you consider the lettings to be part of the VAT registered business. If you run your VAT registered business through a company and hold the let property in your own name, the flat rate scheme operated by the company will not include your rental income.

Bank interest
If you receive interest in your business as a core part of your business activities that interest should be included in the turnover to which you apply the flat rate. This could apply to businesses who handle large sums of money on behalf of clients and keep a share of the interest as part of the deal. However, where the interest is received as a passive activity, such as on a current or deposit account it is outside the scope of VAT and should not be included in the sum to which you apply the flat rate.

Leaving it to Charity

If you haven't made a Will, you should do so without delay. If you don't have any relatives you want to leave your estate to, consider making a Will that leaves most of your assets to specified charities. This avoids the potential problem of intestacy (dying without a Will), and saves tax as gifts to charities are free of inheritance tax. However, there are two traps to avoid:

Identifying the charity
Many charities have merged or changed their names in the recent past, so when it comes to distributing the estate according to the Will, it may be difficult to work out exactly which charity you intended the funds to go to. To avoid this problem make sure your Will states the charity's registered office and charity number. You can also include a clause in your Will specifying that the gift should be directed to any organisation that amalgamates with the original charity.

Residue of the estate
The second problem can occur where the charity has been left an undefined amount in your Will, such as the residue of your estate. This can lead the charity's officers hassling the executors, querying deductions such as legal fees and in extreme cases challenging the distribution of your estate in Court. To avoid this problem leave specified amounts of cash or assets to your chosen charities rather than the amount left over after other gifts have been made and any tax paid.

March Question & Answer Section

Q. I've been told I will have to pay all my business taxes online very soon. How can I do this if I don't have internet banking?

A. It will be compulsory to pay corporation tax electronically from 1 April 2011, and to pay all VAT due electronically from 2012. However, there are no plans to make all PAYE or CIS payments electronic, yet. Electronic payments include direct debits, debit and credit card payments. You don't have to have internet banking, you can set up electronic payments with your bank by using telephone banking.

If you would rather pay your tax bills by cheque you can do so using a Bank Giro payslip at your own bank branch. This counts as an electronic payment, as do similar payments made at the Post Office counter by cheque, cash or debit card. You need to order the Bank Giro payslips specific to your business from HMRC.

Q. My rental property makes a profit of £2,400 a year. I checked the HMRC website and it says I don't have to complete a tax return. Does that mean I don't have to pay tax on my property profits?

A. Although the HMRC website (www.hmrc.gov.uk/sa/need-tax-return.htm) says you don't have to complete a tax return if your income from property is less than £2,500, you should scroll down and read the text under 'Things to check if you don't need a tax return'. This makes it clear that you must tell the Tax Office about any new sources of income. The deadline for reporting new income is 5 October following the tax year in which the new income first arose. If this date passed sometime ago you need to contact the Taxman as soon as possible and declare all your income and expenses relating to your let property. The Taxman may decide to charge you a penalty for failing to declare your income at the right time.

You do have to pay tax on your property profits, but if the amount owing is small compared to your salary, it may be deducted through your PAYE code. In this case you don't need to complete a tax return each year, but without an annual tax return the Taxman will not know to vary your tax code if your rental profits increase or decrease.

Q. I try to run my business on green principles so all the company cars are hybrid petrol/electric models. But I've heard that the car benefit is going to increase for all these cars from April, how is this going to affect my employees?

A. The good news is where your hybrid cars have CO2 emissions levels of 120g/km or less, the taxable benefit will remain at 10% of the list price. The tax increase will only apply to cars with higher CO2 emissions. Hybrid petrol/electric cars in this category currently get a 3% reduction in the percentage of list price that forms the basis of the car benefit charge for employees. From 6 April 2011 that discount will be removed, and the regular 1% increase in list price percentage will apply to all cars. For example the taxable benefit for a hybrid car with CO2 emissions of 179g/km is currently 21% of the list price. From 6 April 2011 the benefit for this car will increase to 25% of its list price.

If you have any tax questions then please email neil.harries@harrieswatkins.com or visit the Accountants Bridgend website.

Disclaimer
The information contained in this article is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.

February's Tax Tips & News

2011-02-01T13:57:00.002Z

Welcome...
To February's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

We are committed to ensuring all our clients don't pay a penny more in tax than is necessary.

Please contact us for advice in your own specific circumstances. We're here to help!

More PAYE Reconciliations

In October and November last year we told you the Taxman was issuing 6 million tax reconciliations (forms P800), for the tax years 2008/09 and 2009/10. This process is still not complete, but the Taxman has started to issue a further 450,000 forms P800 for the tax year 2007/08.

There are likely to be similar problems with inaccurate data for 2007/08 as have emerged for the later tax years, but you may not have the records to check against the Taxman's figures. If you do not run your own business you are only required to retain your tax records for 2007/08 until 31 January 2010. If you need some help checking a tax calculation for 2007/08, please contact us.

The Taxman has also discovered that the State Pension received by up to 250,000 pensioners in 2008/09 and 2009/10 has not been taxed as it should be. When a person retires they normally receive an occupational pension paid by their former employer, or an annuity paid from their personal pension scheme. In either case the payments will be subject to PAYE and will have some tax deducted by the payer. The pensioner may also receive the State Pension, which does not have tax deducted by the payer (i.e. Department of Pensions), but it is taxable.

The PAYE code applied to the occupational pension or annuity should take into account the amount of State Pension paid, but for up to 250,000 pensioners in 2008/09 and 2009/10 it did not! This meant those pensioners paid too little tax through no fault of their own. The Taxman will not collect the tax due in these circumstances, but only where he can identify the State Pension has been missed altogether.

If you receive a P800 tax reconciliation which shows tax has been underpaid due to an inaccurate figure of State Pension, you have good grounds for asking the Taxman to write-off the tax due under Extra Statutory Concession A19. This concession applies where the Taxman failed to make use of information (such as the State Pension figure provided by the Department of Pensions), to calculate the right amount of tax. We can help you apply for the A19 concession.

Changes to Tax Credits

The system of Child and Working Tax Credits is due to be reformed over the next few years, and it is expected a new benefit called Universal Credit will replace the familiar Tax Credits from April 2014.

Before then there will be some significant cuts in the benefits paid to many tax credit claimants, phased in over the next three years. The following summarises the rates and thresholds that will be cut or frozen in 2011/12 compared to 2010/11.

Child Tax Credit

Family element: no change at £545
Baby element: decrease from £545 to nil

First income threshold: decrease from £16,190 to £15,860
Second income threshold: decrease from £50,000 to £40,000

Working Tax Credit

Childcare element:
Maximum costs for one child: no change at £175 per week
Maximum cost for all children: no change at £300 per week
Percentage of costs covered: decrease from 80% to 70%
First income threshold: no change at £6,420
First withdrawal rate: increase from 39% to 41%
Income disregard: decrease from £25,000 to £10,000

The income disregard provides a buffer for changes in income, so overpayments of tax credits do not arise where income varies within this threshold year on year. The reduction in this threshold is likely to adversely affect families with fluctuating incomes, such as the self-employed. In the future, in order to avoid a claw-back of tax credits, the claimant will need to finalise their self-employed profit figures as close to the tax year end as possible.

How to Challenge a VAT penalty

If you receive a VAT penalty, perhaps because you have submitted your VAT return late, the Taxman should offer an independent review of the penalty.

You should certainly take up this offer of a review, as this may be the first time that a human (rather than a computer) has looked at the circumstances under which the penalty was imposed. You should reply in writing to the Taxman accepting (or in rare cases rejecting), the offer of the review within 30 days of the date of the penalty notice. Don't delay, as the penalty notice may have been sitting in the Taxman's post area for weeks before it reaches you.

Where you believe the penalty is not due, because you have a reasonable excuse for submitting your form late (or whatever was the cause of the penalty), set out your reasons in the letter that accompanies the acceptance of the review. When the review department within the Tax Office looks at your case you have a chance of having the VAT penalty overturned. We can help you set out your reasons to the Tax Office.

Clamp-down on Loan Schemes

There are a number of tax saving schemes marketed to freelancers and contractors, but these schemes can be sensitive to changes in the tax law. One such scheme that involves loans made though particular trusts (known as EBTs) has recently been taken off the market by various suppliers.

Under the EBT scheme the freelancer becomes an employee of the company in the scheme but receives only a small wage, which is subject to tax in the normal way. All his other income is provided as a loan through an EBT. The freelancer pays no tax or NI on the loan capital, but he is charged tax on the deemed interest on the loan, (i.e. on 4% of the value of the loan). The scheme assumes the loan will remain outstanding forever, so the capital value of the loan (which increases with each payment) is never taxed.

However, new tax legislation has been proposed that will apply a tax charge to loans provided under such schemes from 9 December 2010. The employer will be responsible for paying the tax due, as if the loan was regular salary. The tax and NI savings are thus eliminated.

This new tax legislation does not prevent shareholder/ directors taking loans directly from their own companies, or employees receiving season ticket loans from their employers. In both these cases the loan is not provided through a third entity such as an EBT, so it is not taxed as regular salary. However, tax charges can apply to both the company and the director when a director borrows from their own company.

February Question & Answer Section

Q. My husband inherited a house in 1986 when it was worth £40,000. He gave me a half share in the property in 2009 when it was worth £450,000. We sold the property in December 2010 for £460,000, but we never lived there. How do I calculate my share of the profit?

A. As you and your husband were living together during the tax year in which he gave you a half share in the property, that gift is deemed to be made at a value that creates no gain and no loss for your husband. Thus in 2009 he disposed of half the property to you at a value of £20,000, the tax cost of which was half the probate value: £20,000. Hence he makes no profit on his gift (£20,000 - £20,000 = nil). The market value of the property in 2009 is irrelevant. You acquire the half share in the property in 2009 at a deemed cost of £20,000.

When the property was sold in 2010 your share of the proceeds was £230,000 (£460,000/2) and the cost of your half share was £20,000. Your share of the profit (taxable gain) is £210,000 (£230,000 - £20,000). Your husband has also made a taxable gain on the sale of the property of £210,000. You can both deduct an annual exemption of £10,100 from your share of the gain, but the balance of the gain will be subject to capital gains tax.

Q. In January 2008 I formed C Ltd with my wife, we were both directors and held 50% of the shares each. In March 2010 we split up, her shares were transferred to me and she also resigned as a director. C Ltd ceased trading in July 2010, and it will be wound up informally. Can I claim entrepreneurs' relief on the whole of the capital distribution paid to me on the winding up, or will just part of the distribution qualify because I only held 100% of the shares for the last 4 months that C Ltd traded?

A. You qualify for entrepreneurs' relief on gains arising from all your shares in C Ltd, as you held at least 5% of the ordinary shares for 1 year up to the date the company ceased trading, and you were also a director of C Ltd throughout the last year of trading. Therefore any shares you held in C Ltd qualify for entrepreneurs' relief, and you will pay capital gains tax at 10% on the capital distribution (after deduction of your annual exemption of £10,100), rather than tax at 28% or 18%.

Q. I've heard that tax relief on childcare vouchers is changing from April 2011. How can I maximise the tax relief from this scheme while it lasts?

A. Employers can currently supply their employees with childcare vouchers worth up to £55 per week, which are completely free of tax and NI. However, employees who join the childcare voucher scheme from 6 April 2011 will only be able to receive vouchers worth £28 per week, if they pay tax at the 40% rate. Those employees in the childcare voucher scheme before 6 April 2011 will not have the value of their vouchers limited, and neither will employees taxed at the basic rate of 20%.

To gain maximum advantage from the scheme you need to bring into your childcare voucher scheme as many employees as qualify before 6 April 2011. Unfortunately employees who are not yet parents, or do not have parental responsibility for a child aged under 16, do not qualify to join the childcare voucher scheme. The childcare vouchers can only be used to pay for childcare provided by a registered or approved childcarer.

If you have any tax questions then please email neil.harries@harrieswatkins.com or visit the Accountants Bridgend website.

January's Tax Tips & News

2011-01-02T18:11:00.000Z

Happy New Year & Welcome...
To January's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

A reminder that the most immediate issue to deal with for most businesses is of course the rise in VAT to 20% from 4th January 2011 and of course if you need any help with that at all please contact us.

If you need further assistance with anything just let us know or you can send us a question for our Question and Answer Section.

Associated Company Changes

Companies controlled by the same people plus their relatives are counted as 'associated' for corporation tax purposes. The upper profits limit for the small profits rate of corporation tax is divided by the number of associated companies. A company with no associates currently pays 21% tax on profits up to £300,000, but a company with one associate pays tax at 21% on profits up to £150,000, and 29.75% on profits above that up to £1.5 million. This tax rule is supposed to discourage large companies from splitting into smaller ones to take advantage of the lower tax rate, but it catches many smaller companies.

For periods ending before 1 April 2011 where spouses or civil partners own separate companies, those companies are automatically associated companies, even if there is no commercial relationship between them. For periods ending on or after 1 April 2011 the companies controlled by relatives are not associated companies unless there is substantial commercial interdependence between those companies. This change could lower a small company tax bill by up to £13,125!

Substantial commercial interdependence includes situations where one company is financially dependent on the other, where they have common customers or they share the same management, employees, premises or equipment. The commercial links between the companies must be significant before the companies will be treated as associated. Please discuss with us any commercial relationships between your company and companies controlled by your relatives.

Furnished Holiday Lettings Changes

Furnished holiday lettings have some specific tax advantages. On 9 December 2010 the Government released draft tax legislation that is expected to become law from April 2011. This draft law includes three major changes to the taxation of furnished holiday lettings.

1. Separate FHL businesses. In April 2009 the Government announced the tax reliefs that apply to property let as furnished holiday accommodation (FHLs) in the UK, would also apply where the property was located in a European Economic Area (EEA) country. These EEA countries comprise all 27 EU member states plus Iceland, Liechtenstein and Norway. From 6 April 2011 (1 April 2011 for companies), the profit or loss from FHL property let in EEA countries other than the UK, must be calculated separately from the profit or loss arising from UK holiday lettings. Profits and losses from any other overseas lettings must also be calculated separately and not mixed with the FHL profit or loss.
2. Restriction of loss relief. Losses made from FHL businesses after 5 April 2011, either in the UK or elsewhere, won't be available to set against your other income for the same tax year, or the previous tax year. The loss can only be set against future profits from the same FHL business (either UK or EEA based).
3. Change to lettings condition. The periods a property must be let to qualify for the FHL tax reliefs are extended from 6 April 2012 (1 April 2012 for companies). The property must be let commercially as furnished holiday accommodation for 105 days per year (previously 70), and be available for letting for 210 days (up from 140). If you let a number of FHL properties you can average let days across all your FHL properties in the UK for a tax year. You can also average the let periods for all your other FHL properties located in other EEA countries.

Once a property qualifies as furnished holiday lettings, it may fail the letting condition for up to two years and continue to qualify, if you elect for the FHL tax status to apply.

Take Care with VAT

The VATman expects all businesses to take reasonable care when completing their quarterly VAT returns. If you make a mistake, which results in the VAT being underpaid, the VATman is likely to charge you a penalty. Penalties can also be applied where a mistake results in you claiming a higher VAT refund than is due.

If the VATman believes your careless behaviour lead to the error, he will impose a penalty of between 15% and 30% of the underpaid (or over-claimed) VAT. If you can show that you took reasonable care when completing your VAT return, but still made a mistake, you should get away with a zero penalty.

Reasonable care can be demonstrated by taking any of the following actions, when faced with a VAT problem:

- Contact your supplier to query the VAT charged on their invoice.
- Read the VAT notice or VAT Information Sheet that relates to the issue, (if there is one).
- Speak to a VAT officer and make a note of the advice given.
- Seek advice from a competent adviser.

We can help you with your VAT problems, but please raise the matter with us as soon it occurs. Sometimes it can take a while to get to the bottom of a VAT issue, so its best not to leave the problem on the shelf until the day before the VAT return has to be filed!

Tax Numbers for 2011/12

Most of the tax rates and thresholds for 2011/12 were announced on 2 December 2010 as follows:

Personal Allowances
Under 65: £7,475
65-74: £9,940
75 and over: £10,090
Minimum marriage allowance*: £2,800
Maximum marriage allowance: £7,295
Blind person's allowance: £1,980
Income limit for under 65 personal allowance: £100,000
Income limit for allowances for those aged 65 or more: £24,000

* given at 10% rate and only where one partner was born before 6 /4/1935.

Income Tax Rates
The tax rates for 2011/12 have been frozen at the 2010/11 levels but the threshold at which the 40% tax rate is applied is reduced to £35,000. This introduces a subtle tax increase as it pulls more people into the 40% tax bracket, and increases the amount of income subject to tax at 40%.

Savings rate* (10%): £0 - 2,560
Basic rate (20%): £0 - 35,000
Higher rate (40%): £35,001 to 150,000
Additional rate (50%): Over £150,000

* Only applies to savings income such as interest where earned income is covered by allowances or is also within this range.

NI
The rates and weekly thresholds for NI contributions will be:

Employer's class 1 above primary threshold (above £136): 13.8%
Employer's contracted out for money purchase schemes (from £136.01 to £770): 12.4%
Employer's contracted out for salary related schemes (from £139.01 to £770): 10.1%
Employees' contracted out for both schemes (from £139.01 to £770): 10.4%
Employee's class 1 not contracted out (from £139 to £817): 12%
Employee's additional class 1 (above £817): 2%
Self-employed class 4 (annual figures from £7,225 to £42,475): 9%
Self-employed class 4 additional rate (above £42,475 per year): 2%
Self-employed class 2: £2.50 per week
Voluntary contributions class 3: £12.60 per week

January Question & Answer Section

Q. My employees earn an average of £490 per week, how much more NI will I have to pay for each employee from April 2011?

A. For an employee on average earnings of £490 per week you currently pay employer's NIC of £48.64 per week in 2010/11, but from 6 April 2011 this NIC bill increases to £48.85 per week. That adjustment appears small but it amounts to £10.92 per year per employee. The increase in NIC costs will be much larger for higher paid employees, but smaller for lower paid employees. For an employee on £210 per week, you pay employer's NICs of £12.80 per week in 2010/11, but this will drop to only £10.21 per week in 2011/12.

Q. I had taxable income of about £60,000 in 2009/10, made up entirely of dividends and bank interest. I also pay £2,400 per year into a personal pension. Will I get 40% tax relief on that pension contribution?

A. You will receive higher rate tax relief on your pension contribution if you make the claim on your tax return for 2009/10. A contribution of £2,400 is worth £3,000 to your pension fund as the pension scheme trustees reclaim £600 basic rate tax from HMRC. Your basic rate tax limit will be expanded to £40,400 by the gross value of your pension contribution. Which means £3,000 of dividends which would have been taxed at the higher rate applicable to dividends of 32.5%, will be taxed at 10%, saving you an additional 22.5% in tax, or £675.

Q. Our trade body charges a membership fee in advance for each calendar year, but from 1 December 2010 new members who join online can pay the annual fee for 2011 and become a member immediately, effectively receiving the balance of the 2010 membership period for free. The organisation is VAT registered and the membership fee is subject to standard rate VAT. Is it correct to charge new members 20% VAT when they join online in 2010?

A. The organisation should charge VAT at the standard rate in force at the date of the tax point for the membership subscription. This tax point is the earlier of the date the membership fees is received or the VAT invoice is issued. For new memberships paid for before 4 January 2011, the correct rate of VAT to charge is 17.5%, even where the membership covers the whole of the year 2011.

January Key Tax Dates

1 - Due date for payment of Corporation Tax for the year ended 31 March 2010

14 - Return and payment of CT61 tax due for quarter to 31 December 2010

19/22 - PAYE/NIC and CIS deductions due for month to 5/1/2011 or quarter 3 of 2010/11 for small employers

31 - Deadline for filing 2010 Self Assessment personal, partnership and trust Tax Returns - £100 first penalty for late filing.
Balancing self assessment payment due for 2009/10.
Capital gains tax payment due for 2009/10.
First self assessment payment on account due for 2010/11.
Interest accrues on all late payments.

For more information visit the Harries Watkins Jones website Bridgend Accountants.

Disclaimer
The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.

Image: Idea go / FreeDigitalPhotos.net

October's Tax Tips & News

2010-10-05T16:31:00.000+01:00

Welcome October's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman. Should you wish to be emailed a copy each month then you can subscribe here.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

We are committed to ensuring all our clients don't pay a penny more in tax than is necessary.

Please contact us for advice in your own specific circumstances. We're here to help!

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.

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.

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.

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.

October Question & Answer Section

Q. As I was made redundant last year I decided to take time out and build my own house. A neighbour told me I could claim back the VAT on my costs, even though I am not a VAT registered builder. If that is true, how do I go about claiming?

A. You can reclaim VAT correctly charged on your building materials and on most of your building services, using the VAT refund scheme for DIY builders. The claim form for new builds under this scheme (VAT 431NB) can be downloaded from the HMRC website, but be sure to also read the guidance notes. There is a different form (VAT 431C) to use where you are converting a property rather than building it from new. In either case you can't reclaim the VAT charged on professional services connected with the build, such as architectural or legal services. We can help you compile and submit your claim to the VAT office.

Q. A large UK company has made a late payment of fees owed to my company. They paid interest on the late paid amount, as they are required to do so under the contract, but they deducted tax from that interest. How do I deal with that tax in my accounts?

A. Your customer should not have deducted tax from the interest it paid, as both parties involved in the transaction are UK resident companies trading in the UK. Companies used to have to deduct income tax from annual amounts of interest paid, but that requirement was removed from 1 April 2001 where the recipient is a UK company. Ask your customer to pay you the amount of interest it has withheld as 'tax'. We can provide a longer explanation of the legal position if you need it.

Q. I have received several emails recently from organisations claiming I could use an employee benefit trust (EBT) to reduce tax. Is this a scam, or is there something in it?

A. In outline a lot of EBT schemes works like this: the company pays money into the EBT and employees of the company receive a loan from the EBT in place of all or part of their salary. The employees pay tax and NI on just 4% on the loan per year. This all sounds good, but there can be various problems in practice. Some schemes are more aggressive than others and you should be prepared for the Taxman to look very closely and try to challenge such arrangements. They are not for those not willing to take some risk and you should be made aware of all the risks involved before proceeding.

October Key Tax Dates

1 Due date for payment of Corporation Tax for the year ended 31 December 2009

5 If a Tax Return has not been received, individuals and trustees must notify HMRC of new sources of income and chargeability in 2009/10

14 Return and payment of CT61 tax due for quarter to 30 September 2010
19 Tax and Class 1B NI due on PAYE settlements for 2009/10

19/22 PAYE/NIC, and CIS deductions due for month to 5/10/2010 or quarter 2 of 2010/11 for small employers

31 Deadline for 2009/10 self assessment paper returns to be filed for HMRC to do the tax calculation.

Disclaimer

The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.

September's Tax Tips & News

2010-09-04T23:04:00.000+01:00

Cycle to Work Scheme Update
The cycle to work scheme allows employers to lend cycles to their employees tax-free, and in some cases the employees can purchase the cycle at the end of the loan period. However, the Taxman is looking carefully at abuses of this scheme...

- Some employers treat the loan of the cycle to employee as part of the employee's salary and reduce their cash wages proportionately. This is known as a salary sacrifice, and the arrangement must be agreed with the relevant employee in advance. If cycles are only provided to employees under salary sacrifice arrangements the whole cycle to work scheme may lose its tax exemption, as some employees cannot have their cash pay reduced due the National Minimum Wage rate rules.

- It is quite common for the employee to purchase the cycle from the employer at the end of the loan period. However, the Taxman says that where there is an automatic transfer of the cycle to the employee at the end of the loan period, the tax exemption for the cycle to work scheme is also lost.

- The second problem with the transfer of the cycle to the employee is how to establish the market value of the cycle at that time. If the employee pays the employer less than the market value for the cycle the difference is treated as employment income subject to tax and NI. As a top of the range sporting cycle can cost several thousand, the second hand value can be quite significant!

The Tax Office have produced a table to help employers value second hand cycles: www.hmrc.gov.uk/manuals/eimanual/EIM21667a.htm

Finally, remember to qualify as a tax free cycle, it should be used mainly by the employee for travelling to work and on work related business, although other personal use is permitted. An expensive touring cycle that is never used for work related journeys will not qualify for the tax exemption.

Dividend Planning for Tax Credits
It is sometimes suggested that Child and Working Tax Credit awards can be maximised if the family's income is low in one year and high in the next year. The Tax Credit award for the first low year is substantial, and the award is not changed for the second year if the income increase is within £25,000 of the total income for the first year. However, note that this 'income disregard' of £25,000 is being reduced to £10,000 from April 2011.

This 'lumpy' income pattern can be achieved if you run your own company and take dividends from that company only every other tax year. In practice there are a number of difficulties as follows:

- Your family may need the cash. If income is not taken as dividends, it will need to be extracted in another form.
- If you take a loan from your company this can create tax charges for you and your company.
- If you deliberately deprive yourself of income to increase a Tax Credit award you can be deemed to receive that income in the appropriate tax year.

So please talk to us before varying your income for tax credit purposes.

Maximum NI Contributions
Before the General Election NI was referred to as a 'tax on jobs', and essentially it is a tax, as once you have sufficient NI contributions to qualify for state benefits any extra payments will not entitle you to further benefits.

If you have paid in excess of the maximum NI contributions required for the tax year you can reclaim the excess amount. The PAYE system will normally ensure that you will not pay more than the annual maximum on your regular employment. However, if you have two or more concurrent employments in the tax year, or you are employed and self-employed at the same time, you may pay more NI in the year than the annual maximum.

Each taxpayer has their own annual maximum figure based on their individual earnings. The annual maximum NI for employees will be at least £4,279 and for taxpayers who are both employed and self employed the annual maximum is at least £3,180. However, you need to add to those figures the amount of NI payable at the additional rate (currently 1%), which cannot be reclaimed.

If you believe you have paid more NI than your personal annual maximum you can reclaim the excess by writing to the NI Office in Newcastle upon Tyne. You don't have to calculate the amount of NI repayment due, as the NI Office will do this for you. But you must provide evidence of your earnings during the tax year, such as P60 forms or accounts. We can help you with all of this.

There is no time limit for reclaiming overpaid NI contributions, so you can submit claims for all past years where a repayment is due.

If you are likely to overpay NI for the current tax year you can apply to defer the NI charges on one of your jobs. Do this by completing form CA 72A for employees, or form CA 72B if you are also self-employed. It is not too late to submit either application.

VAT Rates and Refunds
VAT can be very complicated at times! Most goods and services carry VAT at the standard rate, which is currently 17.5% and is due to increase to 20% on 4 January 2011. However, some transactions, such as financial services, are exempt from VAT, and some goods, such as children's clothes, carry VAT at 0%.

To confuse matters even more, certain services can carry VAT at 5%, or 17.5% or 0%, depending on the circumstances. For example, renovating a house that has been empty for at least two years can carry VAT at 5%, but repairing a roof on another building will generally require VAT to be charged at 17.5%, unless the building has 'listed' status when the work may be zero rated if it is an approved alteration.

If you find you have charged VAT at too high a rate to your customer you should refund the excess VAT charged, if this is practical and possible. You also need to correct your VAT returns for the excess VAT paid over to the VAT office. You can only make a claim for overpaid VAT for VAT periods ending in the last four years, so don't delay if you find an error that covers several periods.

September Question and Answer Section
Q. The Taxman has told me I owe him £3,300, and I must pay at least £200 per month or a distraint order will be served. I can only manage to pay £150 per month, so what happens now?

A. A distraint order means tax officers, or bailiffs acting on behalf of the Tax Office, will come to your home or business and ask for full payment. If you don't pay immediately, they will make a list of your possessions to take away and sell at a later date. They can't take anything that is not owned by you, or is jointly owned, but you may need to provide proof of ownership such as receipts. The bailiff should also not take any essential tools of your trade, but your vehicle may not be regarded as essential. Your best option is to try to negotiate a schedule of payments you can afford with the Tax Office as soon as possible, or you may loose your possessions and possibly be made bankrupt.

Q. I own a very successful company in the UK, which is now largely run by the management people in the UK. This allows me to live in Spain for much of the year. I charge fees to my UK company through a Spanish company which is wholly owned by my wife. Does this set-up have any implications for UK tax?

A. Your UK company and your wife's Spanish company are considered to be associated companies by the UK Taxman, because the people controlling the two companies are married to each other. It makes no difference that the companies are registered in different countries. The profit thresholds that determine the rate of corporation tax paid by your UK company must be divided by the number of associated companies plus one. For example the higher rate of corporation tax (currently 28%) is due when profits exceed £1.5 million, but where there is one associated company this higher tax rate starts when profits exceed £750,000.

Q. The technology company I jointly own has suffered in the recession, so the directors' fees due for 2009 have not been paid, although the fees are shown as owing in the company accounts. Should I make any adjustment to the accounting loss for the unpaid fees, before I send the loss claim to the Tax Office?

A. If the directors' fees are not paid within nine months of the year end they must be excluded from the loss for corporation tax purposes. However, you should check whether the contracts with the directors include a firm promise to pay the fees by a particular date. Such a promise could create a tax point for PAYE purposes, so PAYE would be due even though the fees had not actually been paid.

September Key Tax Dates
19/22 PAYE/NIC and CIS deductions due for month to 5/9/2010

30 Closing date to claim Small Business Rate Relief for 2009/10 in England.

Harries Watkins & Jones Chartered Accountants are based in Pontypridd and Bridgend, offering local business owners and individuals a wide range of services.

Visit our website Accountants Bridgend for more information.

Disclaimer
The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.

Harries Watkins Jones a first in Wales

2010-08-20T11:28:00.000+01:00

The Professional Contractors Group (PCG) is the voice of freelancing: the association that represents, supports and promotes freelancers, contractors and consultants in the UK.

I am very pleased to announce that Harries Watkins Jones are the first firm of accountants in Wales to achieve PCG Accredited Accountant Status.

If you are a freelancer, contractor or consultant based in South Wales and are looking for expert tax and accounting advice then do not hesitate to contact us.

August's Tax Tips & News

2010-08-02T18:24:00.000+01:00

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.

Please contact us if you want further advice about VAT on international services.

Deferring a Capital Gain and EIS

We are now in a new regime for Capital Gains Tax where the total of your gains and your taxable income for the year influences the rate of Capital Gains Tax (CGT) you pay. This means you could pay CGT at 28% in tax years where your income and gains are high, but only 18% on gains in years where your income is low.

If you have made a gain this year that will be taxed at 28% you could defer it to a later tax year when you might pay tax at 18%. Alternatively the deferred gain may be taxed at 0% as it may be covered by your annual exemption in the future period.

One way to defer any capital gain is by subscribing for Enterprise Investment Scheme (EIS) shares. The shares must be subscribed for in the period that starts one year before the date you made the gain and ending three years after making the gain.

You only need to reinvest the amount of the gain you want to defer, not the full net proceeds from your disposal, or the full amount of the gain. You can leave some of the gain in charge in the current tax year if that part carries CGT at 18%, or it is covered by your annual exemption.

The deferred gain comes back into charge to CGT when you dispose of the EIS shares, and this may be done gradually over many tax years. This spreads out the gain, so only small parts are taxed in each year, and you can therefore avoid the 28% rate of CGT.

One drawback is that you must pay any CGT due for 2010/11 by 31 January 2012, which is well within the period in which you can to subscribe for EIS shares. You may need to pay the 2010/11 CGT on time, then reclaim the tax once you have received your EIS shares and your deferral claim has been processed.

Do be aware that EIS shares are risky investments and they can only be issued by unquoted companies.

August Question and Answer Section

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 the last Budget?

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.

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 those loans. If I write off the debt in the company accounts will my relatives be able to claim tax relief for the irrecoverable loans?

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 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 is there anything I can do to reduce the 40% tax I will be charged on the balance?

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.

August Key Tax Dates

2 Last day for car change notifications in the quarter to 5 July - Use P46 Car

19/22 PAYE/NIC, student loan and CIS deductions due for month to 5/8/2010

For information about the services we offer please visit or main website Accountants Bridgend.

Disclaimer

The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.

New Bridgend Offices Opening Soon

2010-07-12T18:57:00.000+01:00

We are moving from our Pencoed offices on Monday 26th July 2010 to 1a Charnwood Park, Bridgend, CF31 3PL, in order to make using our offices more convenient for our clients. The offices are located approximately 5 minutes from Junction 35 of the M4 motorway.

Our telephone number will change from 01656 863000 to 01656 661100.

The offices are situated just off the A48 to Cardiff, next to the Bridgend Ford Car Dealership.

The offices will have ample dedicated parking spaces for clients, as such you can park outside the offices to deliver books and records. Should you wish, for your convenience, you can also arrange for us to collect records from your premises at no additional charge.

The Pontypridd office remains unaffected by this change.

If you have any queries then please do not hesitate to contact us. For more information about the services we offer, please visit our main website South Wales Accountants.

The origins of IR35

2010-07-10T10:09:00.002+01:00

In this post we consider what IR35 is.

In the words of the Inland Revenue (now HMRC) they defined IR35 as follows:

“These rules were first proposed in the 1999 Budget news release numbered IR35. They have since become commonly referred to as “IR35”. The purpose of the rules is to remove opportunities for the avoidance of tax and Class 1 National Insurance Contributions by the use of intermediaries, such as service companies or partnerships, in circumstances where an individual worker would otherwise be an employee of the client or the income would be income from an office held by the worker. “(Inland Revenue 2004)

Further explanation is given on the HMRC website:

“The aim of the legislation is to eliminate the avoidance of tax and National Insurance Contributions (NICs) through the use of intermediaries, such as Personal Service Companies or partnerships, in circumstances where an individual worker would otherwise -

For tax purposes, be regarded as an employee of the client; and

For NICs purposes, be regarded as employed in employed earner’s employment by the client.”

So we may conclude that IR35 rules apply in a situation where an individual would be considered an employee if it were not for the use of an intermediary, such as limited company or partnership. It follows that when a relationship between a worker and a client is reviewed to consider if IR35 is applicable, then it should be determined whether there would be an existence of an employee/employer relationship and thus a “contract of service”.

If you are concerned about how IR35 may affect you then contact us, more information can be found here contractors accountant.

IR35 They think it is all over!

2010-07-08T12:21:00.000+01:00

I found this interesting article on the PCG website PCG IR35 article.

If you need IR35 advice then contact us.

Is this the end of IR35?

2010-07-01T12:38:00.002+01:00

The new coalition government has promised a comprehensive review of IR35, read here the Professional Contractors Group (PCG) view on the matter.

July's Tax Tips & News

2010-07-01T00:01:00.000+01:00

July's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Corner.

We are committed to ensuring all our clients don't pay a penny more in tax than is necessary.

Please contact us for advice in your own specific circumstances. We're here to help!

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 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%.

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 find 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 to 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 what you want to achieve this, so we can advise on how to do it the most tax efficient manner.

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.

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 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.

July Question and Answer Section

Q. My company has bought a classic motorcycle as an investment. Can it claim a tax deduction for the cost? If the motorcycle is kept at my home, but not used at all, will I suffer a tax charge?

A. If your company buys a motorcycle for use in its trade, including providing the motorcycle to the director, it can claim a tax deduction for the cost. If the motorcycle is purchased as an investment and not used in the trade, the company cannot claim a tax deduction for the cost.

If the motorcycle is kept at your home it is available for your use. The benefit in kind tax charge applies if the motorcycle is made available to you, not whether you actually ride it. The same tax charge would apply whether the motorcycle was a 'work of art' or a functioning motorcycle, as it remains a company owned asset which is made available to you for your private use.

Q. I'm looking to buy the property my company trades from. Should I buy it in my own name or should my company buy it? I have the reserves for either.

A. If you hold the property personally and let it to the company you will be able to extract funds from your company as NIC-free rents. However, when you sell the property, the gain may well be taxed at a higher rate in your hands (up to 28%) than in the company (possibly 20%). You will only get entrepreneurs' relief on the property if it is sold in association with your withdrawal from the business that involves a disposal of some, but not necessarily all, of the company shares. The entrepreneurs' relief on the gain is reduced where rent for the property has been paid by the company.

If the company holds property this removes the possibility of NIC-free rents. When the company sells the property it will get indexation relief on the value and the net gain may be taxed at a lower tax rate. However, the proceeds will be trapped within the company. Both you and the company could roll-over a gain arising on the sale of the property in the future, if it has been used for the purpose of the trade carried out by your personal company. As you can see there is a lot to consider and expert advice in your own situation is important

Q. What happened to the Furnished Holiday Lettings rules in the Budget?
A. The tax rules and exemptions for furnished holiday lettings (FHL) remain in place and unchanged at least until 5 April 2011 (1 April 2011 for companies). However, the Government has said that it will consult on changes to the FHL rules to be introduced from 6 April 2011.Those changes are likely to include a restriction on how losses from FHL can be set off, and a tightening of the conditions which will allow the tax reliefs for FHL to be claimed.

Please contact us if we can help you with these or any other tax or accounts matters.
Harries Watkins Jones are accountants based in Bridgend & Pontypridd. To find out more please visit our website Cardiff Accountants.

Disclaimer

The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.

VAT Flat Rate Scheme

2010-06-25T21:37:00.000+01:00

We find that many of our contractor clients have benefited from switching to the VAT flat rate scheme. The VAT flat rate scheme is designed to make it simpler and quicker for small businesses to complete their VAT return.

This is because VAT payable to HMRC is calculated as a particular percentage of the gross turnover of the business and not as the difference between VAT on individual sales and purchases. In particular there is no need to record the VAT incurred on most purchases and determine whether it is reclaimable or not, so there is less chance of error. The amount of VAT charged to customers remains the same whether using the flat rate scheme or not.

However, some business will pay less VAT by using the scheme and some may pay more by using it as the percentages used are based on the average VAT payable by particular trade sectors. It is important to calculate the financial effect before applying to use the scheme.

The Flat Rate Scheme Calculation
These are the steps in the calculation...

■The output VAT for a VAT return is established by multiplying the VAT-inclusive turnover by a fixed percentage which is determined by the sector in which the business operates. This goes in Box 1 on the return.
■All turnover is included in the taxable supplies it has made, whether standard, reduced, zero rated or even exempt and it is the gross turnover.This figure goes into Box 6.
■Usually no VAT can be reclaimed on purchases but there are exceptions for any VAT on purchases before the business was registered and VAT and on a single capital asset that costs over £2000 inclusive of VAT can be reclaimed. The VAT on these goes in Box 4 as usual and the net amount of the purchase in Box 7.

So if for example your gross turnover comes to £20,000 and the percentage for the sector is 10%, the VAT due is £2000. If what you purchased was a capital asset for £3833 including £500 of VAT , then the VAT payment due would be £1500.

To qualify to join the scheme...
■A business must have a taxable turnover, excluding VAT, of no more than £150,000 a year. The taxable turnover is the total value of supplies or sales made by the business that are liable to a VAT whether at standard, reduced or zero rates, but excluding any expected sales of capital assets.
■A business must not already use the second hand goods, the tour operators or retail schemes.
■The business must not be required to use the capital goods scheme for certain capital items.
■A business must not have been found guilty of a VAT offence in the past year or be associated with another business or registered as part of a VAT group in the past 2 years.

A business must apply to join the flat rate VAT scheme and can leave whenever it chooses by informing HMRC in writing.

The Business Sector Flat Rates
Different business sectors must use their own flat rate.

A business must choose its sector on the grounds that it most closely describes its main trading activities. If the trading mix changes, so say the majority of the turnover comes from supplying restaurant meals rather than alcoholic drinks the trade sector to be used will change from 'Pubs' (5.5%) to 'Catering Services' (10.5%). The change in sector should be made from the start of the VAT period that contains the anniversary of joining the scheme.

It is advisable to set out in writing why you made the selection of trade sector.

A lot of the rates changed following the 2009 pre-budget. See a full list of business sectors and their rates from 1 Jan 2010 to 3 Jan 2011. The rates will change again on 4 Jan 2011 when the VAT rate increases to 20%. Here are the rates from 4 Jan 2011.

A Trap in the Flat Rate Scheme
The flat rate must be applied to all business income, including interest received from business bank accounts, rents, and sales of assets where VAT was not reclaimed, such as cars or property. This means you effectively pay VAT on the gross receipts of sales on which you have not collected any VAT.

If you are a sole-trader the flat rate should be applied to any letting income you receive in your sole name, as lettings are regarded as a business for VAT purposes. Lettings undertaken as a partnership, perhaps jointly with your spouse, are not counted as part of your sole-trader business income. When you sell a let property the flat rate should be applied to the total proceeds. You can withdraw from the flat rate scheme before you sell a high value item such as a property, but you have to stay out of the scheme for at least 12 months.

How We Can Help You
We can advise you on the suitability of the flat rate scheme for your business, applying to join the scheme and assistance with completion of your VAT returns.

Emergency Budget June 2010

2010-06-23T09:54:00.002+01:00

We all knew that Chancellor George Osborne was going to announce an increase in Capital Gains Tax (CGT) today, but we didn't expect the rate to rise immediately. Other surprises included reductions in the rates of corporation tax for both small and large companies and in the rates of capital allowances for all businesses.

A rise in the standard rate of VAT to 20% was widely expected, but this increase has been delayed until 4 January 2011, which is the first working day after the Christmas break.

The 1% point increase in NI rates from 6 April 2011 is already planned, but we are assured by George that through some manipulation of thresholds this increase will not be felt by most people. However, we won't know the exact starting points for employers and employees NI until the Autumn Budget statement on 20 October 2010.

Basic rate taxpayers aged under 65 will benefit from a £1,000 increase in their personal allowance from 6 April 2011. Those aged over 65 already receive a higher personal allowance, if their total income is below £28,930.

Individuals

Capital Gains Tax
The rate of CGT is to increase from 18% to 28% from 23 June 2010, but taxpayers with taxable income and gains below £37,400 will continue to pay CGT at 18%.

All trustees and personal representatives with any level of income and gains will also rise to 28% from 23 June 2010.

We thought the Government would not increase the rate of CGT in the middle of a tax year, as that would cause so many complications when calculating the tax due for 2010/11. However, that is exactly what George plans to do. The increase in CGT is not as high as many feared, as it is still well below the highest income tax rates of 40% and 50%. Although trusts are particularly badly hit as they will pay the higher rate of CGT on all gains and only have half the annual exemption of individuals. There are special rules for trusts for the disabled.

The annual exemption remains at £10,100 for individuals and £5,050 for most trusts.

All gains that qualify for entrepreneur's relief will continue to be taxed at 10%, whether the disposal is made before or after the changes on 23 June. There will be an increase from £2 million to £5 million in the lifetime limit on gains that can qualify for entrepreneurs' relief from 23 June 2010 and this is very welcome, but many gains will never qualify for that relief. For example, the sale of a commercial property, which is not associated with the disposal of a trading business, will not qualify for the relief. Letting of commercial property does not count as a trading business for entrepreneurs' relief.

If you are in the middle of arranging a large sale, you could escape the CGT rise if you have already exchanged contracts. This is because the disposal date for CGT is the date that unconditional contracts are exchanged, not the completion date for the deal. If the contract is conditional, the disposal date is the date those conditions are satisfied. The disposal date for a gift is the date the beneficial ownership passes.

Income Tax
The personal allowance for those under 65 will rise by £1,000 to £7,475 for 2011/12. However, this generous increase in tax free income will be limited to those who pay income tax at 20%, as the threshold at which 40% tax starts will be reduced to take into account the increased allowance. We won't know the exact tax thresholds until the Autumn Budget statement, as the increases in threshold for 2011/12 will be based on the RPI to September 2010.

Child Benefit and Tax Credits
Child benefit is available to all parents of children under 16, and is not means tested. This benefit will be frozen at current levels until April 2014, and the money saved will be transferred to child tax credits.

Working and Child Tax Credits are to be withdrawn gradually from families with total income of £40,000 or more from April 2011. The special baby rate will be withdrawn at the same time, but the child element for less well-off families will increase by £150. There are a number of other changes planned for later years including a reduction in the period for which claims can be back-dated.

Child Trust Fund
Child Trust funds are special tax free savings accounts that are set up with Government funds for children born after 31 August 2002. Additional savings of up to £1,200 per year can be contributed to each account by anyone. Reductions in the funding for these accounts will be made from August 2010 and no further funding will be provided for new accounts from 1 January 2011. The accounts that are already open will remain in place until the child reaches age 18.

Retirement and Pensions
The state pension age (SPA), from which individuals can receive the state pension, is currently 65 for men and is rising to 65 for women. Legislation is already in place to increase the SPA to age 66 for everyone from 2026, but the Government wishes to bring this date forward.

From 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 amount as the state pension.

When a member of a money purchase pension scheme reaches age 75 they are required to purchase an annuity to provide their future pension, or heavy charges can apply. This requirement to purchase annuity at age 75 is to be scrapped from April 2011. In the meantime if the scheme member has not reached age 75 by 22 June 2010, they can defer purchasing an annuity until age 77.

Tax relief for pension contributions is expected to be limited to around £35,000 per year per person from April 2011. This cap will replace the complex tapering of tax relief that was due to apply to individuals with total income of £180,000 or more.

Currently employees can be required to retire when they reach the default retirement age of 65. The Government is going to consult on how to remove this default retirement age.

Furnished Holiday Lettings
The changes that were announced by the previous Government will not be taking effect, although new measures will be considered to ensure the rules apply equally to properties in the EEA as well as increasing the number of days that properties have to be available for let and actually let as commercial holiday lets.

Businesses

Corporation Tax
The small profits rate of corporation tax will be cut from 21% to 20% from 1 April 2011, when it was previously expected to increase to 22%. The small profits rate applies to profits of up to £300,000 if there are no associated companies. The corporation tax rates for large companies will reduce from 28% to 27% from next April and then fall by 1% per year eventually down to 24%.

Capital Allowances
The previous Government was always messing with capital allowances in an attempt to incentivise businesses to invest in this or that type of equipment. The new policy is to cut back on capital allowances with effect from 1 April 2012.

The main pool rate is reducing from 20% to 18% from that date and the special pool rate from 10% to 8%. The Annual Investment Allowance (AIA) Limit is also reducing from £100,000 to £25,000 from 1 April 2012.

Small businesses will not be affected if all of their expenditure on equipment is within the annual investment allowance, which gives 100% deduction for costs in the year of purchase. Unfortunately expenditure on cars cannot be covered by the AIA. However, expenditure on new (not second-hand) low emissions cars and vans can be covered by a separate 100% allowance.

NIC
2011/12
Although we know the rates of NI that will apply from 6 April 2011, (2010/11 rates + 1%), we don't know the new thresholds, so we cannot construct a meaningful table for 2011/12. We know the employer's secondary threshold for class 1 NICs will increase by £21 per week above the RPI increase. The RPI increase is based on the RPI to September 2010. We will provide a full NIC rates and thresholds table when we have the full details in October.

NIC Holiday
The Treasury are feeling guilty about cutting loads of public sector jobs in the less prosperous regions of the UK, so they have come up with the idea of an 'NICs holiday'. A business will be exempt from paying the employer's class 1 NICs for 12 months for up to 10 employees, capped at £5,000 per employee.

This scheme will start in September 2010 but will apply to new businesses set up on and after 22 June 2010. It will only apply in Scotland, Wales, Northern Ireland, the North of England, Yorkshire, the Midlands and the South West regions. Certain businesses are excluded, such as those under the IR35 or Managed Service Company rules, and businesses in grant-supported sectors such as agriculture, fisheries and coal. More details are expected to be made available shortly.

VAT

Change of Standard Rate
The standard rate of VAT will increase from 17.5% to 20% from 4 January 2011. Goods and services that are currently exempt from VAT or are subject to VAT at the zero, or 5% rates will not be affected by this change.

If you are planning to invoice or pay in advance to avoid the VAT rise, think again. There will be a special 2.5% VAT charge on such advance sales where the customer cannot recover all the VAT on the supply, and one or more of the following applies:

■the supplier and customer are connected,
■the supplier funds the purchase,
■the payment is not due for at least six months;
■the value of the supply is £100,000 or more, unless the prepayment or advance invoice is normal commercial practice.

Flat Rate Scheme
Small businesses can start to use the flat rate scheme if their VAT exclusive turnover is no more than £150,000, but must leave the scheme if their VAT inclusive turnover exceeds £225,000. This exit turnover figure will rise to £230,000 on 4 January 2011.

The flat rates that are applied to gross sales under the flat rate scheme will increase on 4 January 2011 to reflect the increase in the standard rate of VAT. If your business will no longer benefit from using the flat rate scheme you can leave scheme at any time.

Payments on Account
Businesses who have annual VAT due of £2 million or more must make monthly VAT payments on account. This threshold will be increased in 2011.

Tax Avoidance

A corporate tax avoidance schemes has been blocked from 22 June 2010 that uses financial instruments to remove profits from UK tax or is used to create an artificial tax credit.

The Government is to consider whether a General Anti-Avoidance Rule would be effective in reducing tax avoidance. It will also examine the following anti-avoidance measures:
■Expand the disclosure of tax avoidance schemes regime to include schemes involving IHT on trusts.
■Block the manipulation of consortium relief.
■Restrict the use of employee trusts, including employer finance retirement benefit schemes (EFRBS).
■Amend Stamp Duty Land Tax due on high value property transactions.

Other Duties

■Landline duty of £6 per year will not go ahead from 1 October 2010.
■Alcoholic duties rates on strong cider will reduce from 30 June 2010, back to the levels which were in place before the March 2010 Budget.
■A bank levy on bank's balance sheet values will be introduced from 1 January 2011 at 0.04%, which will rise to 0.07%

If you wish to discuss any of the above then please email me neil.harries@harrieswatkins.com, further resources can be found on our website South Wales Accountants.

Disclaimer
The information provided in this post is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from a professional accountant before you take any action or refrain from action.

Whilst we endeavour to use reasonable efforts to furnish accurate, complete, reliable, error free and up-to-date information, we do not warrant that it is such. We and our associates disclaim all warranties.

The information can only provide an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice.