SSP Claims – the rates for these are slightly different from those for the payments mentioned above. If the SSP bill is greater then 13% of the NI bill for the same month, the difference can be recovered.

Claiming procedure: the normal procedure for claiming the maternity costs etc is to deduct it from the amount payable to HMRC for PAYE, NI, CIS etc Where there are few employees the amount recoverable in maternity pay etc might exceed the amount payable in PAYE, NI CIS etc & in this case the employer should contact HMRC’s accounts office which will arrange for payment of the difference.

Real Time Information (RTI) is mandatory for employers from 6^th April 2013. Since this date each time an employee is paid e.g. each week the employer must report their earnings & the corresponding tax & NI contribution to HMRC on a date no later then when the employee is actually paid. Now, however, a little leeway is being offered. HMRC will allow employers with 50 or fewer employees to submit their report at the time the main payroll is run each month but no later than the end of the tax month which is the 5^th of the month following the month being paid for. So April tax month ends on 5^th May.

This monthly return is acceptable even in cases where employees are paid in shorter intervals than one month, say weekly or every fortnight.

The concession is given only until Oct 5 2013 so to the end of September month end & is probably given to allow employers to set up their RTI reporting software & check it’s operation is problem free. After that, every time a payment is made to any employee an appropriate RTI report must be made & submitted.

Annual Investment Allowance Claims (AIA)

The annual investment allowance that could be claimed on purchases of equipment, machinery etc against Income or Corporation Tax was reduced from £100,000 to £25,000 on 1^st April 2012. The AIA is a very useful tax break which allows you to claim a full tax deduction for the year of purchase for expenditure on capital items & means that you recover the outlay much sooner in reduced tax than through the writing down allowance method which can take years to run it’s course. To maximise the AIA which can be claimed it is sensible if it is practical to buy machinery & equipment  in each accounting period only up to the £25,000 limit which can be claimed & to delay the timing of the next purchase until the turn of the business’ or companies accounting period when a full £25,000 allowance will again be available. If this is not possible consider the life span of the equipment to be purchased. If this is less than 8 years, i.e. it will need to be replaced before this period of time has elapsed then an election can be made to treat the asset purchased or a part of it as a short life asset. This will ensure that the full cost is set against taxable income over the life of the asset & also means a much sooner recovery of outlay against tax. In this way by manipulating the timing of purchases, claiming AIA on the amounts that can be claimed & using the short life asset for the parts which are replaced more frequently, the expenditure can be recovered against tax in the shortest possible space of time.

For some time HMRC have had in place a time-to-pay negotiating department which is available to negotiate with tax payers – both individuals & businesses a time schedule over which tax can be paid if it is difficult for the taxpayer to pay it by 31^st Jan following the end of the tax year. To settle a tax bill an arrangement must be made before the time when the tax becomes due & it must also be formalised either by telephone or by letter to confirm it’s acceptance by the taxpayer. The taxpayer must then adhere to the conditions of the agreement or it may become ineffective. To avoid a late payment surcharge or penalty the agreement should be confirmed before the tax becomes due although even with an agreement on time to pay, interest will still be applied to the amount owed in tax that is paid late.

In practice HMRC are not very keen on granting these arrangements however: they will always ask for a deposit, they will ask about other sources of financing (e.g. putting the tax bill on a credit card) as they do not wish to be used as a bank & they will almost certainly be reluctant to grant such a time to pay arrangement 2 years in a row.

The government has made no secret of it’s intention to increase checks on businesses as part of it’s fight against tax evaders. But first it has to re-focus its resources before it can properly roll out this Business Records Check (BRC) programme & this is scheduled to be in place in 2013 beginning soon after 5^th April 2013. No business or company will be immune from the possibility of an investigation & HMRC now has wide powers to enable it to instigate thorough inspection procedures as part of BRC. It has recently updated it’s guidance for tax payers showing what it’s requirements are in relation to bookkeeping & records & also providing information about it’s investigation procedures as well as what penalties are levies for errors on tax returns etc. Information can be found about this from it’s website. Use the time beforehand to find out what business records are required to be kept & to make sure your business complies with a clean bill of health before the investigations begin.

If the worst happens & you have to make your employee redundant, it might be more than the worker you no longer need. The tools they used for the job may also be surplus to requirements. If you make an employee redundant you have to compensate them financially.  Payments up to £30,000 are tax & NI free but above this they must be taxed under PAYE like salary. The £30,000 can cover any sort of financial settlement. This might include the transfer of company assets like cars, IT equipment, furniture or hand tools. You can negotiate with an employee over the value of an asset but it might have a different value for tax purposes. Different values apply the asset was used solely for work (usually open market value will apply). Equipment or assets which were available to an employee for private use & taxed as a benefit in kind are valued for tax purposes by taking the market value when first taxed as a benefit in kind & deducting the amounts of benefit in kind actually taxed. This can result in a low transfer value for tax purposes but an employer may still be better off by offering it as apart of a redundancy package because of the employee’s association with it rather than disposing of the asset separately & they save employer’s NI.

HMRC have special rules to work out the value of assets transferred to employees. But where they are included as part of a redundancy package they are tax & NI free where the overall payoff is less than £30,000.

A Tax Investigation Task Force is set up specifically to look into certain business or industry types or transaction types in a particular location or more broadly across the country as a whole where it is suspected there is widespread tax evasion. They have gradually been set up over the last two years or so as HMRC attempts to clamp down on tax evaders & are generally a good thing as shortfalls in tax revenues have to be made up by honest business owners & taxpayers who stay within the rules.

Four new task forces have been set up in February 2013. Three will investigate businesses but one will look at repayment fraud. Which types of business are affected?

• Fast food outlets in East Anglia
• The jewellery trade in the Midlands
• Businesses in Northern Ireland
• Fraudulent refund claims in London & the south east

These task forces have been set up in addition to over 30 more which have been launched since tax evasion investigation came to be very high up the list of  HMRC’s objectives.

Honest businesses which come under the business types targeted by the task forces can be extensively investigated under their operation. If you are in the location or type of trade likely to be investigated you should take precautionary steps. This involves making sure record keeping & tax returns for VAT, Corporation Tax & Self-Assessment are up to date.

Investigations in cases of repayment fraud are likely to be high profile businesses & individuals or cases where large repayments are involved.

If you are contacted by a HMRC Task Force there will be no avoiding an intensive review of your business & tax records across all taxes.

It is advisable in these circumstances to contact a tax advisor or accountant.

The full list of HMRC Task Forces currently in operation can be found by following the link below.

http://www.accountingweb.co.uk/article/hmrc-task-force-tracker/521073

Income protection insurance can be taken out to protect income in the event of illness, disability, redundancy or some other reason if the beneficiary under the policy is unable to work. They can be taken out by anyone but are most likely to be taken out by the self employed, by company directors & senior employees. In some cases the company will pay the Income Protection Premium (IPP).

The unusual thing about income protection insurance (IPI) is that there are two ways in which it can be taxed & HMRC allows you to choose between them.

Where a company pays the IPP on behalf of a director or employee on an income protection policy it might be expected that this would count as a benefit in kind. But actually the company can chose not to declare it as one. However, if the premium is not declared as a benefit in kind & a claim is subsequently made on the policy, any monies paid out by the insurance company under the policy will count as taxable income & be taxed accordingly. This could be up to 40% of the payout & substantially reduce the value of the benefit.

To avoid this risk, the company can chose to declare the payment of the premium as a benefit in kind on the expenses return P11D & the beneficiary is then taxed on the premium amount. If the premium for the year was £2,000 a 40% taxpayer would pay £800 in tax & the company would pay class 1A NI at 13.8% of the premium i.e. £276.

Which option is most tax efficient?

In a year where no claim was made on the policy it would seem best not to declare the premium as a benefit in kind & then no tax bill will arise. But in a year where a claim was made & a payout arose, the company should then declare the premium payment as a benefit in kind on a P11D. This would mean that the payout itself is tax exempt. The maximum tax that would be paid would then be based on the value of the premium only.

Social & peer-to peer lending continue to grow in popularity in an economic climate where the banks are paying a paltry interest rate on deposited funds & where they are very reluctant to lend to small & medium sized businesses.

However broadly it would seem that the Government is not seeking to encourage this alternative private lending/borrowing source considering the way that the tax system currently deals with the returns for income tax purposes.

Essentially, in the case of individual to individual loans, bad debts are not factored in i.e. not allowed for when it comes to taxing the interest income from making loans unless the lender is in the business of making loans. Social lending is more risky than bank deposits & there is no corresponding compensation scheme as insurance in this alternative lending market that is present for monies loaned to banks. Bad debts have to be factored in.

Capital returns in this type of lending are much higher than bank interest even after any bad debts are taken into account, but there is a further price to pay. The tax rules say that the lender must pay tax on the amount of interest receivable under the loans made without deductions for lost interest & capital. The same rules also mean that separately charge admin or legal fees by a loan scheme manager might not be deductible for tax either.

Example: An investor makes £30,000 of loans at an interest rate of 9.5%, the social lending organisation taking 0.5%. Interest receivable on the loan is £3,000 of which £150 is payable to the social lending organisation.

Some defaults reduce the amount received from £2,850 (9.5% of £30,000) to £1,950 (6.5% of £30,000).  Bad debts are not deductible so tax is payable on the full £2,850. As the investor is a 40% tax payer he must pay tax of £2,850 * 40% = £1,140 leaving with a return of £810 for a £30,000 investment. That is a net return of just 2.7% on his investment.

The example makes an important point about bad debts & social lending. If the investor sets up in business making loans bad debts are tax deductible but there is a huge raft of regulation to be dealt with using this route. The best way to maximise returns from social lending is to shop around for a good social lending scheme perhaps lending only to list companies fully vetted by them. Reducing the risk of defaulters limits the effect of the tax trap.

Payments made to an individual from a company are usually liable to income tax unless they are made to re-imburse him for business expenses made personally. The basic rule for work related expenses is that they are tax deductible where incurred ‘wholly & exclusively’ for the purpose of a job. The company can re-imburse the business expenses & claim them against corporation tax & the individual has no income tax to pay on them. The exception is where a company pays for something that is for the personal benefit of the individual, in that case a tax bill for the individual would arise. If the personal benefit is not charged separately from normal business expenses then again a tax bill will not arise but even where it is it may not be chargeable if it falls under the exemption below.

Example overnight stays whilst on business: incidental expenses.

There is a £5 a night on average allowance per individual per overnight stay away from home on business for personal expenses. Provided this is not broken & even if it is not actually spent it can be claimed from & paid by the company without the individual incurring a tax bill. The allowance is £10 per night for a stay outside the UK. Both can be paid even where no personal expenses are incurred during the business trip.

Venture Capital Trusts have become popular investments because of the tax incentives they offer. But money is locked into them for several years. If it is withdrawn early then the advantages of the tax breaks are lost.

Unfortunately in recent times there have been a number of scams around these where fraudsters offer an excellent price for VCT shares that compensates for the loss of the tax breaks. They demand an up front arrangement fee & once this has been paid over disappear from the scene.

If you need to cash in your VCT contact the scheme manager who sold the shares to you. They might be able to offer an official buy back or sale through a genuine secondary market.

Registering a business for VAT: a common question is when should a new business register for VAT? It seems straightforward but there are a number of factors to be considered.

a)      Where your business Turnover has, in the last 12 months exceeded the VAT Threshold of £79,000 from April 1, 2013 you must register for VAT (compulsory registration).

There are other situations in which you will need to register for VAT sooner then turnover reaching this level including

b)      Where it is expected that Turnover will breach the VAT Threshold in the next 30 days alone: HMRC will then register the business from the day after the end of the 30 days. Sales which would be subject to VAT at standard, lower or zero rate are included but not exempt supplies or one-off sales of capital assets etc.

c)      Where the business is operated together with another VAT – Registered business under the same business structure. In this case the new business must be registered under the existing VAT Registration. It does not matter if the two businesses are in entirely different operations: the combined turnover must be examined to see if it breaches the threshold or will imminently do so. Where the two businesses are distinctly different however, can avoid combining the turnover for VAT purposes by running them under difference business structures say different companies or one a company & one a sole trade.

Where you are liable to register you have 30 days in which to notify HMRC which will then register you from the end of the following month. Notify as soon as you realise the need to register for VAT. The Form is VAT1 & can be obtained form HMRC’s website.

Voluntary registration is also an option where you elect to register as soon as you start to trade. This avoids a painful price increase or profit reduction later but can make your business seem uncompetitive.

The tax break for employers providing childcare vouchers to employees is to be scrapped. This means that the current arrangement whereby employees take salary sacrifices in exchange for childcare vouchers which are not subject to Employer class 1 NI will be replaced by a new scheme, the TFC as outlined below. The salary goes back to the level it would be at without the childcare scheme & the employers pays more to HMRC in terms of Employer’s NI.

For the employee the government will take up the task of providing childcare tax breaks directly giving Tax & NI free benefits of up to £1,200 per year per child into a specially designated voucher account whereby for every 80p the parent pays in the government will pay in 20p more up to the limit as above under a new tax-free childcare (TFC) scheme.

The employer is thus cut out of the arrangement. Less hassle for the employers but also a reduction in the tax break that they get for providing part of the employee salary in the form of vouchers. The new scheme is not set to come in until the autumn of 2015 so meantime the best thing employers can do is to think of other tax & NI-free benefits that they could offer employees instead

Some ideas are

• Pension plan contributions
• Mobile phone
• Training vouchers
• Sporting or recreational facilities
• Cycle to work schemes

An industrial tribunal ruled recently in a case involving a doctor who worked for the NHS & also did private work at an office at his home & also in two private hospitals as well as visiting private patients in their homes. The case concerned what was & was not counted as business mileage.

The doctor drove between his home & the NHS, between the NHS & the two private hospitals & also between his home & patients homes. He claimed that 65% of his travel as business mileage relating to his self-employed work but HMRC disagreed & the judge ruled in their favour. Only 6% of his travel costs were allowed under the travel tax rules & these were essentially those journeys he made from his home to patient’s homes.

The rules states that a deduction for an expense cannot be claimed unless the reason for the expense is ‘wholly & exclusively’ for business. For his private work the doctor had three places of business, his home & the two private hospitals. The tribunal rejected his claim for travel from home to either of the two private hospitals on the grounds that the travel had a dual function:

a)      for business to get to a patient

b)      to start or end from the place that he lived i.e. it had an element of commuting in it.

The tribunal also rejected the doctor’s claim for travel expenses from the NHS to the private hospitals in that it stated that the travel was not in itself part of the doctor’s self employed work but that it put him in a position to do his work. Again it was seen as failing the ‘wholly & exclusively’ test as it had an element of commuting in it. The journeys made to patient’s homes were part of his work in treating that patient.

This is a harsher ruling than was & could be expected based on application of the current rules concerning business mileage & its precedent could pave the way for a tightening up of the rules on tax deductibility of business travel. Watch this space for more developments.

The benefits in kind would only be triggered if the training was for the purpose of non work related leisure pursuits, training unconnected to the employment perhaps provided as an inducement to stay on in the job or as a reward for a director or an employee doing their job. An interesting case would be to consider whether training provided ahead of a redundancy programme, perhaps to bring employees skills up to date in readiness for their impending return to the job market, would have a tax charge?

The main item affecting Companies was that there is proposal to have only a single rate of Corporation Tax of 20% from 2015.

NI: all businesses & charities are to get a reduction of up to £2,000 against their secondary Class 1 NI contributions but this will not be effective before April 2014.

Note directors/shareholders of small companies meantime should review how much they take as salary & how much as dividends from April next year. For 2013-14 maximum Tax & NI efficiency can be achieved by keeping annual salary below the level at which Employers NI becomes payable, now around £7,700 & taking out extra remuneration as dividends. But from April 2014 the new employment allowance will reduce the secondary Class 1 NI contributions so that directors/shareholders who pay only basic rate tax & have little or no income outside what their company provides will be tax efficiently able to take a salary up to £10,000, the level of the tax free allowance. The move brings into line the NI-free & tax-free thresholds for the single owner managed business a common model for small business in the UK.

Company Loans: another break for the small director/shareholder business is the doubling of the loan amount which they can borrow from their company without a benefit in kind tax charge being applied. Currently up to £5,000 can be borrowed & be outstanding at any time during the tax year & no benefit in kind will arise. But from the 6^th April 2014 the outstanding loan can be £10,000 before any benefit in kind will arise.

The temporary Tax charge of 25% payable by the company on loans outstanding to it by a director/shareholder at the end of the period of 9 months after the end of the company’s financial year remains in place. In fact it has been made harder to avoid it’s payment as part of an anti avoidance rule by the practice of the director repaying the loan just before the reporting deadline as above & then re-borrowing it soon after. That new rule applies now & so will catch owner-managed companies with a financial year after this date.

HMRC issues PAYE Dispensations to applicant Employers whereby Business expenses incurred by employees or directors of the business & re-imbursed to them or paid on their behalf by the employer do not have to be declared on Form P11D & on the employee or directors self assessment tax returns. The idea is to save HMRC employers & employees unnecessary administration & to save employees from tax bills on payments that they receive no benefit from. However, the dispensation process only applies to expenses & should not be used to reduce the Tax & NI on normal pay as well. The dispensation will be withdrawn where it is suspected that it is not being used properly.

In cases where a salary is paid to an employee or a director & where certain business expenses are not specifically re-imbursed by the employer but are provided for within the salary amount, then the procedure to avoid an unfair tax bill is as outlined below. The recipient of the salary should make an estimate of likely expenses in each tax period & apply to HMRC for an increase in their tax free amount to recover this sum before tax is paid on the remainder of their taxable income. The Tax Code can be adjusted tax year by year & within year to recover outlay on expenses much sooner than under the self-assessment scheme.

HMRC & Penalties.

It is well known that HMRC penalise those taxpayers who submit their tax returns late i.e. after the 31^st January deadline of the year following the end of the Tax Year in question. However, it may not be so well known that HMRC also fines those in whose Tax Returns errors are discovered, especially if these involve a loss of tax to the Government. This does not mean that HMRC expects everyone to be a tax expert especially on some of the more technical tax details. Those taxpayers who are deemed to have taken ‘reasonable care’ to avoid inaccuracy in preparing their tax returns will not be penalised even if it is found to contain a mistake. This usually (though not exclusively) involves the tax payer doing the following :

-          using an accountant to prepare Tax Return forms especially if the tax payer’s business is complicated or there are multiple sources of income or types of expense or reliefs claimed

-          submitting all relevant information or providing reasonable estimates for the completion of the Tax Return form

-          Reviewing the Tax Return in it’s completed form to see that all the information provided was used in it’s composition before it is sent to HMRC

-          Asking about items not fully understood: the practice of asking shows the tax paper to be taking reasonable care, retaining evidence of communications with the agent.

If there is a mistake the taxpayer will not be penalised where the above applies.

The accountant cannot be charged either so that everyone wins.

Crucially, if there is an error in your Tax Return you have a year from the deadline of 31^st January following the end of the tax year in question in which to correct it. If you (or your agent) discover the error & report it you will not be penalised, however if HMRC discover it you may be penalised unless you appeal & your explanation is accepted. The concept of ‘reasonable care ‘ will the come into play.

Please be advised that the deadline for the submission of completed P11D forms to HMRC is 6^th July 2012. This includes all business organisations who are subject to PAYE administration, even if only for the owner of the business.

There are 3 possible types of expense that might need to be declared on a P1D:

a)      Personal expenses paid for by the company and treated as part of employee earnings (e.g. if the company pays for private health insurance)

b)      Interest on overdrawn Director’s Loan Accounts, where monies have been withdrawn from the company without being accounted for under PAYE or as dividend (only applies to Distribution)

c)      Normal business expenses refunded to employees: there is no tax effect from these however and the need to declare them can be eliminated by use of an expenses dispensation.

P11D forms can be obtained from HMRC website

http;;//www.hmrc.gov.uk/form/p11f in a pdf format. It is a 2 page form indicating what ought to be declared where applicable. HMRC encourage form completion & submission on line but it can also be printed out & sent through the post. The penalty for failing to submit a P11D where it is applicable is £100 for each month or part thereof that it remains outstanding.

Which Expenses qualify for a tax deduction & do Companies House fees & fines qualify?

To qualify for a tax deduction an expense first has to meet a basic condition.

It must be incurred wholly & exclusively for the purposes of the trade.

There are two parts to this condition & both have to be met in order for the expense to qualify for a tax deduction.

The wholly & exclusively refers to the amount & structure of the cost & the exclusively refers to how the purchase is used in the business or trade.

The second part of the condition is that the purchase must be used for the purpose of the trade: there can be no private use or the condition is not met & the claim fails.

Additionally where a trade operates within the business structure of a Company, the cost must not be for the company rather than for its trading activity. The key is, but for the trading activity the costs would not be incurred & this determines it’s eligibility for tax deduction.

However where a trade operates within a Company & where the Company incurs costs in the fulfilment of it’s legal obligations, then these costs do qualify for tax deduction. Companies House Fees & other licences bought under the Company’s name would qualify here. On the other hand a fine or a penalty levied on the Company & intended as a punishment for a failure to comply with a legal requirement will never qualify as a tax deductible expense. This is because it is not fair on other tax payers if they are asked to pay part of this through the common obligation to pay enough in taxes to meet public needs.

Administrative  expenses for running the company qualify for a tax deduction: for example fees for preparing & submitting documents to Companies House.

Fines & penalties do not qualify under any circumstances to reduce a trade/company’s tax bill except in the case below

Where a fine or penalty is paid on behalf of an employee of the trade/company it will qualify for tax deduction. In this case it is regards as part of salary or as a benefit in kind & the company will be liable for NI on it’s payment & the employee for tax.

HMRC are only interested in those whose activities amount to ‘trading’. Three principles are used to determine if a sale is in the course of a trade:

1. Non personal items are sold i.e. items which have not been used previously by the seller

2. Frequency of Sales – in general the more frequently sales are made the more likely they are to be classed as sales in the course of trading unless thee previous personal use test applies in which case it is irrelevant how frequent sales are made. Conversely a single sale can bring taxable trading income where no previous personal use of the item was made.

3. Intention to make a profit. HMRC would look at the underlying motive behind a sale to try to determine if profit was a predetermined objective or the result of unpredictably strong demand & an incidental part of the sale. Sales of items made in the course of pursuing a hobby would count as trading but all the costs of the activity would have to be taken into account in calculating taxable profits on it. A growth area with lots of potential & will undoubtably be the subject of some rule refining & adjustment. Watch this space.

Use your proprietary payroll software to file the returns (usually a separate module has the facility to transmit the details to HMRC over the internet)

Use HMRCs own on-line submission service where you have calculated the pay & tax details separately & have 50 or fewer employees

Use an accountant or payroll agent to submit the details for you. This can be purchased as a stand alone service from many providers with the software & expertise.

The key thing is to get the process started on time with plenty of time to submit, check & confirm the results are with HMRC before midnight on 19^th May 2012..

The majority of these are apparently no more than expenses & income lists & are simple to use but some of the more sophisticated ones are essentially links to cloud (internet-based) book-keeping programs. User reviews suggest the apps are liked but they are only a first step to keeping records from an accounting & tax point of view. One feature that is present with most of them is the ability to quickly & easily produce a report that can be transferred or exported as a spreadsheet file & then, with a little re-working updated into your main accounting software.

The idea should be encouraged. One of the most common difficulties accountants have with small businesses is with the quality of record keeping: these apps allow a busy person on the move to enter relevant income & expense data, mileage etc in a timely manner , the more information that is captured the better the quality of the accounts produced resulting in more accurate tax calculations.

Companies are excluded but directors who provide services to their companies on a freelance basis may be able to indirectly use the scheme to reduce tax on their freelance income.

VSCB will mean more straightforward book-keeping in that there is no need to take account of timing differences between purchases & sales. Tax is levied on a Profit calculated on an actual cash in & cash out basis. This means that stock which is unsold at the end of the year but which has been paid for is included in the calculation of taxable profit, (unlike at present where it is not part of the costs of generating sales & so is not allowable). Using the VSCB, any business expense actually paid for can be claimed. It will have the effect of encouraging small business to pay their creditors on time & to better manage their cashflow. The Tax payable on profits will be more closely related to the time period in which those profits were generated.

Fixed rate deductions can be claimed for certain costs like working from home & for business use of cars & vans.

The only drawback seems to be that Interest payable on loans & overdrafts appears not be a tax deductible expense - the very types of business most likely to use VSCB will be those who, often as small start-ups will incur this type of expense. The scheme is still in it’s consultation period so this may well be ironed out by the time it is operational.

The director or employee who benefits from the loan will be taxed on a notional interest charge calculated at HMRCs official rate (currently 4% per annum) of the loan outstanding & the employer will have to pay class 1A NI. The Interest foregone on the loan is treated as extra Income & tax & NI are payable on it. HMRC’s standard rate is applied to an average of the loan balance outstanding during the year except where the loan is actually repaid during the year. Then, the method is to time-apportion the average balance to the months where there’s an amount owing. The net result is it is better not to pay off the loan in full before the end of the tax year but if possible, to repay most of it just at the end of the tax year to minimise the tax on the BiK. There is nothing to stop you from immediately taking out extra monies on the loan after the end of the tax year. Anti-avoidance rules of HMRC mean that they can elect to change the method used to calculate the tax on the BiK to the balance outstanding on a daily basis but this is time consuming & it is difficult to adopt in practice so unlikely to be used.

Examples to illustrate:

Loan £40,000 taken out 06/04/2011

1. None repaid.

Balance 06/04/2011 £40,000 Balance 05/04/2012 £40,000 BiK is £40,000 *4% * 12 months is £1,600

1. Loan repaid in full 4^th March 2012

Balance 06/04/2011 £40,000 Balance 05/03/2012 £0 BiK is £40,000 *4% *11/12 months is £1,467

1. Loan almost fully repaid 4^th March 2012 to a balance of £100 outstanding

Balance 06/04/2011 £40,000 Balance 05/03/2012 £100 BiK is £40,000 + £100 /2 = £20,050 average balance in tax year *4% is £820

As it often the case with these loan scenarios it is better to keep a portion of the loan outstanding to benefit than to repay it in full.

There used to be a week’s grace period which meant that provided the forms were received by 26^th May no penalty would be levied: this no longer applies. A minimum of £100 penalty will be charged for any form submitted late for each month that it is late. In addition, employers need to be aware that they do not use the TEST on line submission screens to send in their forms as these will not be accepted: they should double check that a live submission has been made.

Planning to leave a sum to Charity in your will?

In the last Budget, a tax break was given to the other beneficiaries when part of a net estate was given to Charity. The Inheritance Tax rate applicable is reduced from 40% to 36% but only where the Charitable gift made is at least 10% of the value of the net estate. It might be seem as an attempt to compensate the other beneficiaries for the share that they have ’surrendered’ to the Charity. Net estate is the value of someone’s estate less exemptions, e.g. gifts to spouse, less business property relief less the nil rate band (the amount of the taxable estate after reliefs on which the inheritance tax rate is 0%). This is the portion on which at least 10% of the value must be made over to the charity in order for the remainder to qualify for the 4% reduction tax break. Difficult to know what this might be until after death. So if you intend to leave a gift to charity , the best way to ensure that the tax break can be used is to have the will drawn up by a solicitor.

Doing Business within the EU

If your business involves trading with another country within the EU then you must report the EU Sales & Purchases made on your VAT return if it is registered. Where the EU Sales & Purchases figures are completed on the VAT return you must also complete an EC Sales list form showing the value of goods & services traded. All of this is for gathering statistics on the extent of European trade.

In addition, if the Sales made exceed £250,000 and/or your Purchases exceed £600,000 in a VAT period then a Supplementary Declaration, known as Intrastat is also required.

HMRC will fine a business £250 for failure to complete an Intrastat form for the first offence. After that the penalty goes up… to a maximum of £2,500 for repeated failures. From April 2012, the form must be submitted on line (no paper versions accepted) by the 21^st of the month following the VAT Period covered by the report i.e. by 21^st April for a VAT Period Jan to Mar 2012. Make sure you have got the dates in your financial deadlines diary.

Tax Efficient Investment for Children

The Tax Anti-avoidance rules operate effectively to prevent family members shifting income amongst themselves purely to avoid paying income tax on it, However some breaks are given.

The Child Trust Fund & the more recent Junior ISA are investment funds in which parents (or others) can invest a maximum of £3,600 per annum per child of taxable income & not have this sum subject to the tax anti-avoidance rules. This is the limit for these investment products for parents. However the rules which effect parents investing for their children do not apply to grandparents.

Grandparents can invest further on behalf of the child in tax efficient investment options:

they simply purchase a suitable investment in their own name & designate the grandchild as the beneficiary of it. This action creates a bare trust. The Income generated from the investment is counted as the child’s for both income tax & for capital gains tax purposes. Each child is allowed the full annual tax free allowance & CGT exemption as for any adult. With current interest rates so low, a sum of up to £250k could be invested & generating income without triggering a tax bill. All you have to do is make sure the child’s income & gains stay under the tax free limits. A very useful way of both transferring wealth to the next generation & for help with paying those school fees.

Directors Loan Accounts

Overdrawing your Director’s Loan Account i.e. taking out more money from the Company than it is actually making in profits, and even doing so on a temporary basis can mean a tax bill for both you as Director & for the Company.

The Company may have to pay tax equal to 25% of the amount that you owe on it & you may have to pay tax on a deemed Benefit in Kind in the form of an interest free loan.

A taxable benefit in kind arises when the owner-director owes the company more than £5,000, even for just one day & this is not cancelled even when profitable company earn sufficient dividends for their owners to clear the balance on the Director’s Loan Account. The best advice is to keep a close eye on your Company’s trading results throughout the year & to keep an even closer one on the balance of the DLA to ensure it always stays under £5,000. If you do not run your accounts yourself, it may cost you a bit more in accountancy fees but it is worth this to avoid penalties & tax.

Tax Relief for buying equipment for your Company

Where you take out a loan to buy equipment used for your job in your Company the interest payable is tax deductible. The equipment must be of the kind that qualifies for capital allowances (regardless of whether you claim them or not) but need not be used wholly for the business. Claim a proportion of interest equal to the proportion of business use of the equipment purchased upon which the loan was taken out & interest arises.

If you claim the interest paid  from your Company & it re-imburses you & you do so in lieu of salary then both you & the Company could save up to 26% of the value of the interest paid & claimed in lower NI charges. This is because whilst the re-imbursement of the interest paid qualifies as earnings for tax purposes to be set against PAYE code, the payment will not count as earnings for NI purposes & so the Company saves 13.8% of it & you 12% of this amount. Make sure that the Interest is not on a credit card or overdraft however as it would not then qualify for NI relief: the loan must be expressly taken out for the purpose of buying the equipment for the Company & the interest thereon clearly distinguishable.

PAYE Penalties

Employers have to pay over to HMRC the PAYE & NI deductions they make from employee wages & also employers NI. Most employers must do this by the 19^th of the month following that in which the deductions were made unless the sums involved are less than £1,500 per month in which case the payment can be made quarterly with the 19^th deadline of the month following the quarter for which the sums are due. Penalties apply for late payments but they seem to be applied subjectively by HMRC & more particularly based on their judgement between those employers who ‘genuinely seem to be trying to pay & those who don’t’.

A sliding scale operates whereby penalties of between 1% & 4% of the amounts to be paid over is levied depending on the number of times the payments were made late. Smaller employers paying less frequently are penalised by a maximum of 1% of the PAYE tax & NI paid late. HMRC will recognise an effort to pay & to pay on time with reasonable excuses being accepted.

To avoid penalties altogether, it is best always to pay on time, leaving sufficient time for the payment to clear to HMRCs account & if sending by post to make a note of the date of posting a cheque.

You can avoid a penalty even if a payment was late by having good communications with HMRC & if the issue is not having enough money to pay on time, to make a time to pay arrangement or plan well in advance of the deadline. Then even though technically the payments are late no penalty will arise.

Tax Investigations.

HMRC are now taking a much tougher line in cases where they suspect fraud. Fraud means any deliberate step taken to gain advantage, usually financial by deception. Under paying tax falls under the heading of fraud where it cannot be defended as the result of a mistake.

Investigations are expected to be much more common, driven by the need to gain more tax revenue, limited only by the resources HMRC has at its’ disposal to follow up enquiries. The Investigation of Fraud is initiated by a form called a Code of Practice 9 (COP9), continued by means of a ‘contractual disclosure facility (CDF), whereby the tax is provided with an opportunity to own up to any underpayments of tax, & the process ends with either a criminal case brought against those who continue their deception or a fine & payment of the additional tax due.

If you receive a COP9 from the HM Revenue & Customs, don’t ignore it… call your accountant immediately.

Business Sale qualifying for Entrepreneur’s Relief (ER)

If you sell all or part of your business it may qualify for Entrepreneur’s Relief on the consequent gain & this would mean a tax bill of only 10% of the value of the gain. But there are qualifying conditions to be eligible for ER. After the recent ruling in a high profile case, it emerges that what must be sold is all or part of a business comprising assets which, from the buyer’s perspective can be used to run a stand alone business. It does not matter what the seller’s business is like after the sale. If the assets can be used thus, their transfer is a transaction to which ER will apply.

If the business is run through a Company, ER will not apply as it only applies to gains made by Individuals or trustees. However Company owners can get ER on gains made from selling all or some of their shares, provided an owner is an employee or an officer of the Company & have held at least 5% of more of the voting shares for at least a year before the date of the share sale.

HMRC acceptance of FPS in time for SA Tax Payments deadline

Self Assessment Bills – just in time for the tax payment deadline of 31 January HMRC announced that they can now accept payments made using the Faster Payments Service (FPS). This ensures payments made from your account on one day will reach the HMRC account on the next day. Check that your Bank operates the FPS & get set up.

Under new regulations which came into force from 1^st Jan 2012, the Payment Service Regulations (PSR), every bank must ensure that electronic payments made (including those made by telephone or by Internet) must reach their destination account one business day after the customer made the payment request. So with PFS & PSR operating together you can pay your tax bill of £99,999.99 or less on 30^th Jan in a year & it will reach HMRC by 31^st Jan.

Faster Payments Service

The PFS is also  very useful for paying HMRC PAY Tax & Employers NI on time & the payment can be delayed until the very last minute without being late & incurring penalties.

Further, extending its’ use to payment of Creditors & to Employees means that you can manage timely payments & hold onto your money for the maximum period of time without the Bank having it for the working day(s) they do whilst it goes through the BACS system.

It is fast & secure & its’ use expected to become widespread.

Fraudsters invent a new registration requirement for VAT

We advise any recipient to contact HMRC at phishing@hmrc.gsi.gov.uk

The latest scam purports to relate to tax obligations under EU law.

In this case, a newly incorporated company receives a fraudulent letter asking
it to pay £320 by credit card to register on the ‘Intracom VAT Registry’. The
form and style of the letter suggests to the recipient that it has the official
backing of the UK or EU tax authorities and it would be easy for innocent
businesses to be taken in by this scam.

New Traders must register with the Taxman as a business for the payment of Tax.

The Taxman’s Internet spy. HMRC will use a ‘web robot’ to search out new traders who have not registered with them & will fine them where they have been identified. To avoid inadvertently overlooking a notification, registration deadline or a limit refer to the website http:/tax.indicator.co.uk. If you find that you have missed a deadline, the best advice is to contact the Taxman immediately as doing so can mitigate any potential penalty.

Where Company employees & directors make private trips in a company car & do not re-imburse the company, it has to pay tax & NI on the costs of the fuel used at quite a prohibitive rate depending on the Car’s CO2 emissions. The Costs can amount to over £1 a mile. This is then rechargeable to the employee or director. To avoid this entirely the company should have a policy where employees & directors are required to re-imburse the Company for the actual costs of the fuel used & that it is in fact adhered to by re-imbursement within 30 days of the date of the private travel.

Where employees are paid on a Monthly basis, for all amounts paid between £603 & £3,540, an NI rate of 12% applies, all amounts above the upper of these limits are subject to NI rates of just 2%. If commission or bonuses are paid as part of employee payment packages it makes sense to pay these quarterly or bi-annually rather than monthly as all amounts over £3,450 will have an NI rate of just 2% applied & therefore a greater portion of these payment will be paid as lump sums at the lower NI rate.

We think that it is good enough for up to a few (5 or so ) employees; beyond that it is worth purchasing a Commercial package which can costs less than £60 & does not have the limitation referred to above, but may be subject to a renewal fee for every year after that of first purchase.

But is is different for businesses: if you install renewable energy systems on near your business premises you are liable for Corporation Tax on all electricity sold & income generated. As against this, the capital allowances claimed as a tax deductible cost on the costs of installation mean that it would be at least 10 years before the tax would actually have to be paid

In the last Budget, a tax break was given to the other beneficiaries when part of a net estate was given to Charity. The Inheritance Tax rate applicable is reduced from 40% to 36% but only where the Charitable gift made is at least 10% of the value of the net estate. It might be seem as an attempt to compensate the other beneficiaries for the share that they have ‘surrendered’ to the Charity. Net estate is the value of someone’s estate less exemptions, e.g. gifts to spouse, less business property relief less the nil rate band (the amount of the taxable estate after reliefs on which the inheritance tax rate is 0%). This is the portion on which at least 10% of the value must be made over to the charity in order for the remainder to qualify for the 4% reduction tax break. Difficult to know what this might be until after death. So if you intend to leave a gift to charity , the best way to ensure that the tax break cann be used is to have the will drawn up by a solicitor.

A partially exempt business is a VAT registered business which makes both chargeable & VAT exempt supplies: provided the costs attributable to the exempt supplies are below certain limits, the VAT paid on those can be claimed. If the business does not use up all the amounts claimable under the limits, then the rental property VAT can be claimed so long as the owner of the VAT-registered business & the rental Property are one & the same.

The underlying message is if the VAT amounts are small enough they can be ignored.

Capital Allowances work in exaclty the same way as enhanced capital allowances for purchases of equiment up to £100k in any one year, so in order to benefit from enhanced capital allowances purchases have to be over this upper limit. The annual investment allowance, this £100k allowance is set to be redu ed to £25 by April 2012 so it will be easier to make those green purchases & capture tax incentives to do so going forward.

For the Taxman, what counts as a reasonable excuse is very limited indeed, usually must be something as defensible as a very serious illness for example & almost certainly excludes excuses like one’s inability to complete the Tax Return on line & submit it over the Internet. Difficulties with the logging on process, with interpretation of the requirements, with completing the return accurately etc simply will not be tolerated under the new tough regime & ignorance is no excuse now even less than it ever was.

The best solution is to make sure that you start work on your Tax Return early enough to have sufficient time to overcome any difficulties that you encounter, get some professional help if you feel you need it (even just a check over what you have done) & ask HMRC for any assistance required early , preferably in writing, keeping a careful record of all such instances of request & reply. If such assistance does not arrive in time & you do end up submitting a return late, the more broader ruling under Tax law may protect you against a penalty but should not be replied upon.

Well the answer depends on a number of things..

Where you discover the error & go online to correct it, this may count in your favour as a voluntary disclosure. Where the HMRC discover yet they are less likely to mitigate the penalty.

Where the error is in your favour, not disclosing all income accurately for example & the revenue loses tax income, they will be less sympathetic. You would also have to pay interest on any monies paid late.

Where the error is in their favour & tax is overpaid, the penalty may not be enforced & they would repay the tax along with interest to the taxpayer.

Whether or not assistance was sought from the HMRC itself. If there were delays in responses to queries on the part of HMRC itself, which contributed to an error, they are less likely to pursue a penalty.

With a recent decision by the European Court of Justice, you can now give away samples for marketing purposes without having to account for the VAT. They must be free and they must be from your current product range.

You can reclaim any VAT paid on samples over the last four years. Don’t forget that if the amount being reclaimed is less than £10,000 you can just alter your VAT return (as with any correction to previous returns) but if the amount is over £10,000 you will need to provide the Taxman with full information.

Please note that samples given for marketing purposes differ in their treatment from products given as business gifts. Business gifts are only VAT-free where their total cost is less than £50 per year per person or business so you will still need to account for VAT on these items (and keep a record).

If you are late by up to 3 months, the penalty is a flat rate of £100. Thereafter, there is a penalty of £10 per day for the next 90 days (£900), bringing you up to 31 July 2012. Returns filed late after that will attract a further penalty of £300 or 5% of any tax owed for 2010/11, whichever is the greater amount.

The potential minimum penalty is therefore £1,300 compared to the current penalty of £200.

If you have not already registered for onliine filing, consider doing this and act now. This will extend your deadline to 31 January 2012.

Also, if you do not have all the information you need to complete your return, include estimates (providing the information in the Additional Information section) and tick the ‘estimates included’ box to alert the Taxman.

This is a useful tax relief if you live somewhere that holds an annual event, such as Wimbledon or Glastonbury festival and you can rent your house out during the event. The Olympics also spring to mind. Although the taxman would like to restrict the relief to where only part of the house is available, in fact it also relates to where you let out you whole home, as long as the property is your ‘only or main residence’.

If you also charge for meals, laundry and other services you can include this income in your claim for RARR.

Where you have a new employee who has not given you a P45 or completed a P46, you will be required to operate tax code 0T instead of BR. This has the effect of not allowing any tax-free allowances and it should be operated on a cumulative basis.

Where you have already issued a P45 to a leaving employee but need to pay them more, you are also required to operate the rate 0T, this time on a week1/month 1 basis.

Any shortfall in tax resulting from operating an incorrect code may be the liability of the employer so make sure you operate the correct code.

And don’t forget that as from April 6 2011, all tax forms relating to starting and leaving employees must be submitted online.

If, for example, you have a 10 year lease with a 12 month rent-free period on your premises, you can calculate the rent for the 10 years, calculate the average charge over 10 years and claim it against your income over the 10 years, rather than as you pay it.

If you have rent reviews so that you won’t know the rent for the 10 years, you can calculate the average rent for the period you do know (possibly 3 or 4 years) and claim that over the period.

Ultimately, it all ends up with you claiming the same amount of rent against tax but it may help cashflow in the early years.

You will need to register – give yourself a couple of weeks before the deadline as you will need to receive an Activation code and this can take a week. You will also need some payroll software. The Taxman’s free version is adequate if you only have a few employees. Note that you will need to order paper-copy P60s for manual completion to give to your employees.

If you employ more than a few employees, you will need to buy payroll software (or use a payroll bureau such as Longhill Accounting offer). Using a computerised payroll system will have many benefits, not just for the year-end and will save you time in the long run.

Aim to have prepared your year-end return as early as possible after the tax year end. If there are errors in it (such as including employees on your P35 but not submitting P14 details; errors in NI numbers; including tax from a previous employment in an employee’s total tax paid, to mention a few common errors) it will be rejected. You will then have time to correct these before the deadline of May 19.

Failure to file your Year-end returns online on time will result in a penalty.

For useful notes on Year-end filing, look at http://www.hmrc.gov.uk/paye/payroll/year-end/annual-return.htm

Secondly HMRC is fond of including adjustments to your tax code to cover almost any kind of expected income to save them the trouble of collecting the taxz after the year-end Self-Assessment return is submitted.

HMRC can include almost any type of adjustment in your code but you are not obliged to accept them unless they relate to your earnings or pensions received. So ask HMRC to remove any you do not agree with.

However you can reclaim VAT on capital items worth a VAT-inclusive amount of £2000 or more. However ‘capital items’ excludes repairs or modifications to existing buildings or items of machinery.

- Luncheon Vouchers

- Late-night taxi fares

If your employees currently make use of these benefits these will become taxable if the reliefs are withdrawn. To prevent the resentment that might be generated if you ask employees to fund their own tax bills on these you may wish considering settling any tax arising yourself via a PAYE Settlement Agreement (PSA). But any reliefs withdrawn are likely to apply w.e.f. 6 April 2011; i.e. next tax year

Surprisingly the tribunal disagreed with HMRC, drawing a distinction between supervision of MF himself and of the work he carried out (i.e. in the context of airline safety there have to be checks). Checking someones work does not therefore mean that you are controlling them

The solution is to include a ‘prohibition of private use’ clause in your employment contracts so that you can demonstrate to the Taxman that the asset was provided for business use only.

Mobile phones and computers supplied primarily for business use are exempt from benefit in kind if the private use is insignificant. This also applies to equipment provided for employees to work from home.

The whole area of benefits to employees and directors is fraught with difficulties and needs careful consideration when being set up.

The allowance of £50,000 will apply to any ‘golden handshake’ payments made by an employeer into a pension plan for an employee or director who is retiring. This is a change from previous arrangements, where the payment could exceed the normal annual contribution limit.

If you are in a position to retire before April 6 2011, this may be a factor worth considering.

As there is can be a signficant time difference between agreeing your tax and it being collected through your tax code, over-collection may be missed by you so check the code carefully.

Credit notes issued after 4 January relating to invoices with 17.5% rate should be at the 17.5% rate, ie the rate of the original invoice.

For details of flat rates, see  http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#5a

If you cannot get your tax return in on time, then at least pay enough to cover the tax owed for 2009/10, to be paid before 31 January 2011, and you can avoid this penalty for the current year.  This is because the new law only comes into effect when the Treasury says so and it didn’t say so in the Finance Act 2010.

If you have to estimate the amount, aim on the high side and don’t forget to include your payment on account for 2001/11.

If an employee undertakes a training course and pays for it personally, the costs will only be allowed against his/her tax if it can be shown to be ‘wholly, exclusively and necessarily in the performance of the duties of the employment.’  However, if the employer pays for the course, it can be claimed against the company’s tax and the employee is not deemed to have received a benefit-in-kind. (Section 250, Income Tax (Earnings and Pensions) Act 2003).

It is possible to set up a salary sacrifice scheme for training, even if it is contains an element of personal development not directly relevant to the employment, and this has the added attraction of saving on NI contributions.

If the dormant company commences to trade, you need to submit a CT41G to let the taxman know this.

Even dormant companies need to submit an Annual Return and accounts to Companies House.  Guidance is available at http://www.companieshouse.gov.uk/about/gbhtml/gp2.shtml#ch8

Another solution is to set up a limited liability partnership (llp) and transfer the property to that.  An llp is similar to a limited company and it must submit accounts and an annual return to Companies House each year.  However, because it is also similar to a partnership, the split of income can be agreed by the partners each year irrespective of how the partnership is owned.

The cost of setting up a simple llp is not onerous and it may prove to be cost-effective in the long-term because of tax savings.

However, following a recent court case (HMRC vs Patmore), if you have raised finance for your company using your family home, which is jointly owned by you and your spouse, your spouse is entitled to a share of the company and to a dividend stream.  For example, if a mortgage of £100,000 is raised to finance a £200,000 investment, the spouse can be deemed to be a 25% owner (50% x 50%), even if no shares are issued to reflect this. Your spouse can then receive dividends to reflect this ownership, useful if he/she is taxed at the lower rates.

This can be done through a separate trading company which is jointly held or through a consortium, where at least 75% of the share capital is owned by the members of the consortium, each member owning at least 5%.  Any tax losses arising (and these can be high on start-up) can be passed back to the owners and this is known as consortium relief (CR).  There are certain rules which need to be looked at on an individual basis.

The rules were that the losses could be allocated on a basis agreed by the group, regardless of the shareholdings.  Now, new rules will restrict CR in proportion to direct voting powers, not shareholdings or prior agreement amongst the group.

It is possible to agree a balancing payment with group members to compensate a company which loses out significantly under these new arrangements but make sure a clear formula is agreed in advance for this.

If both are paid say £6,500, the amount on which employer’s NI is charged is £780 x 2, ie £1,560.  At 12.3%, the NI payable will be £192.  If, however, you pay one individual £13,000 to do the same job, employer’s NI will be charged on £7,280, so you will be paying £895 in NI.  There is therefore a saving of £703 per annum at current rates of Employer’s NI.

Using childcare vouchers, to a maximum of £55 per week, is also tax effective as they are not subject to Employer’s NI.

The savings need to be weighed up against costs of training two employees instead of one etc.

You must wait until the European Court has confirmed the Advocate General’s decision (it may reject the decision but this is unlikely) but compile the details so that you are ready to make a claim as soon as it is possible.

Any payment which remains overdue for 6 months can attract a further 5% penalty and yet a further 5% if overdue after 12 months.

So, if you think you won’t be able to pay your PAYE on time, contact HMRC before the due date and you may be able to come to an agreement for late payment and avoid any penalty – providing you stick to the terms of the payment agreement.

Also, if you don’t have any PAYE in a particular month, don’t forget to complete the payment slip with ‘Nil Due’ so that the taxman knows that you haven’t just forgotten to pay him.

This should mean that there will be a longer timescale between inspections.  If you have recently had an inspection and receive notice of a combined inspection – or Cross Tax Check (CTC) as they are now called – notify the tax office and they may put you further down the list but they are not obliged to do so.

If you have different advisors for different aspects of your tax affairs, authorise one to act as your CTC co-ordinator as this may cut down on the inspector asking duplicate questions from the different advisors.

If your private mileage is less than 10,000 miles per year, it may be worth claiming the VAT on the business element of fuel rather than claiming the VAT on all fuel and applying the fuel scale charge for the private mileage element.

From a business and tax point of view, most allowances and levels have been frozen at last year’s levels.

The big exception to this is the much-trailed 50% income tax rate for those of us lucky enough to have income in excess of £150,000 during 2010-11. Dividends will be taxed at 42.5% and NI contributions will be increased by 1p next year.  Also, the personal allowance will be withdrawn on a tapered basis for people earning in excess of £100,000 per annum.  Anyone earning in excess of £112,950 in 2010/11 will not receive a personal allowance.

Another exception is the increase in Annual Investment Allowance (the value of fixed assets that you can write off within a tax year) from £50,000 to £100,000. In small business terms this is most likely to be useful for businesses starting up close to the tax year end (they can now write off £8,333.33 of assets for each full month of trading rather than £4,166.66).

Corporation tax remains at 28% and entrepreneur’s relief for capital gains tax is to be raised from £1m to £2m effective from 6 April 2010 so if you are considering a disposal of a business, check if it is worth delaying until after 5 April.

Stamp duty for first-time buyers has been abolished on purchases of houses costing less than £250,000, with immediate effect. This was previously £125,000 and is in place until March 2012.  The relevant date is the date of completion not the date of exchange and only applies to buyers if none of the buyers in any one transaction have ever owned a property before (so people returning to the housing market, divorcees buying under their own name, couples buying jointing where one of the two has bought a property before do not qualify). Buy-to-let residences are also excluded.

Duty on alcohol has been increased by 2% above inflation, while ciders have had an extra 10% slapped on them.  This is bad news for Somerset cider producers.

An important thing to note is the tightening up on late submission of VAT returns. Late submissions will now carry penalties.

The turnover threshold for compulsory VAT registration will rise from £68,000 to £70,000 on 1 April 2010.

Partnerships must submit a paper Form VAT2 as there is no online facility yet for this form.  At the moment, sole traders are probably the only group who can save time with online registration.

If your customer pays you after you have claimed tax relief, you will need to include that payment as income in your next tax return and pay any tax due on it.

You will not be liable for personal income tax on reimbursement of these expenses by the company.

• the debt is more than 6 months old and less than 3years and 6 months old;
• you have written off the debt in your VAT accounts and transferred it to a separate bad debt account;
• the debt has not been sold or handed to a factoring company;
• you did not charge more than the normal selling price for the items;
• you are only claiming VAT on the unpaid proportion of any invoice.

To claim a repayment of VAT, include the amount – at the original rate charged – with your purchases for that period, putting the total figure in Box 4 of your VAT return.  You will also need to keep a record of the original invoice, the VAT amount and the period in which it was originally paid, the period in which it was reclaimed and a history of any payments on account.

If your customer subsequently pays you, you must account for the VAT on the receipt and include it in your next return with your Sales figures.

The requirement to report the supply of services came into effect on 1 January 2101 and can be a complex area.  There is help available from HMRC on their website at

http://www.hmrc.gov.uk/vat/managing/international/esl/reporting-esl.htm#2

This service enables you to check the code number in force for your employees and download a copy for your files.  You can also check what forms have been submitted by you and add comments if necessary.

More information is available from HMRC on their website at:

http://www.hmrc.gov.uk/paye/tools/pdv/index.htm

Alternatively, you could consider keeping the company running and release the profits through the payment of dividends over a number of years. Tax-free allowances and rate bands can be used to maximise the dividend payable each year.  Transferring some of the shares to your spouse could mean that they too can withdraw dividends to utilise their tax-free allowances and lower rate tax bands.

Further indicators of such a relationship include the level of control you exercise over the work, when it is done and who provides most of the tools of the trade, as is whether you pay on a job-by-job basis or on an hourly or daily rate.

If you are a company director and the service is something you could use for personal purposes, then you will be taxed on the benefit-in-kind (BIK).  The value of the BIK is based on the cost of providing it so if, for example, your customer can sort out your home computer for you and the only cost is the hard-drive, then this is the cost that you will be taxed on.  The BIK will have to be included on your P11D so don’t forget to get your customer to itemise this cost on his invoice.

There are four different methods for dealing with this:

• claim 100% of the VAT if there is NO private mileage;
• Use the HMRC scale charge payment for the private element, information available on http://www.hmrc.gov.uk/budget2009/bn69.pdf.  This may not be appropriate if your annual mileage is low so you need to keep an eye on this to ensure you are not losing out;
• mileage method, keeping a record of mileage for business purposes (for cars and vans, that’s 40p for the first 10,000 miles, 25p per mile thereafter in the tax year);
• reclaim nothing – though a disclaimer to this effect will relate to all your vehicles, including commercial trucks etc.

There may be VAT periods when one or other method is more appropriate and you can change your method from one period to the next.

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To qualify for the full basic pension, currently £4,953 per annum, you will need 30 years of full contributions, effectively £165 per year of contributions.  This will cost £626.60 (£12.05 * 52) per missing year. To make it worthwhile topping up, you would need to collect your pension for almost 4 years – £626/165.

For others not reaching retirement age before April 5 2015, topping up is restricted to buying a maximum of six years of contributions, with at least one full year already on record.

Providing him with your bank details – securely – will also speed up the process as he can refund the money directly into your account.

The effect will be to allow 100% capital allowances in the year of purchase.  The re-definition applies retrospectively to April 2008 so if you have purchased a double-cab pick-up since then, you can claim full tax relief for it.  If you have already submitted a claim, you are entitled to amend it.

While there are the more obvious factors of salaries, dividends, tax implications for capital allowances and loss relief, one less obvious factor relates to motor cars.  The treatment of cars for tax purposes differs depending on whether you are a partner/sole trader or a director of a company.  There is a big benefit-in-kind charge for directors who have a company car.  The company also has to pay Class 1A NI contributions on the value of that benefit-in-kind.  On a car costing £20,000, and using current rates of tax and NI, the total additional cost of the car will be almost £13,000, some of which is picked up by the director and the balance by the company.

If a car is part of the deal, this needs to be factored in when deciding on which route to take.

• give them as much information as possible to enable them to give you as appropriate an answer as they can; and
• keep a written note of what was discussed and follow the conversation up with a letter to them, setting out your understanding of what was said.  Request written confirmation or clarification if they do not agree.

This applies to all tax and HMRC-related topics.

In the unlikely event that he does arrive unannounced, the best thing to do is to remain calm, say it is not a convenient time and try to re-arrange a mutually convenient time, possibly at a neutral venue such as your accountant’s office or even suggest that you will come to his office.

If the VAT effect of the error is less than £10,000, you can adjust your next VAT return.  If it exceeds this amount, you need to advise the Taxman in writing and provide him with full details of the error.  Do not also adjust your VAT return as this may result in double accounting for the VAT.

The Taxman may charge a penalty for underpaid VAT if he thinks you didn’t take ‘reasonable care’.  It is best practice to advise him of errors of less than £10,000, if only to show willingness for full disclosure as this may reduce or even eliminate the risk of him charging a penalty.

Main accountancy bodies are co-ordinating responses – watch this space.

Cars have not qualified for the Annual Investment Allowance since it was brought in last year and are subject to the new Capital Allowances rules (less advantageous than the old ones). They now get a First Year Allowance of 40% (for this year only; 20% in any other year) on the business element, and 10% on the reducing balance thereafter. However when the car comes to be sold then there is no longer a balancing allowance available for the full remaining cost; instead the business only gets 10% of the remaining balance after sale proceeds deduction – the rest is lost.

Consider providing employees with a car allowance rather than a car – it will usually turn out to be cheaper for all concerned (unless the car really is needed for business and has high mileage).

It does however indicate that at the very least HMRC will be expecting businesses to keep some basic records (a box of invoices and bank statements handed to your accountant at the end of the year is not likely to be acceptable), and these will likely include an analysed cash book, the ability to work out a statement of debtors and creditors, till reconciliations if the business deals in cash, a detailed VAT account if the business is VAT-registered, and a breakdown of capitalised items. Other records may be added depending on the type of business.

Paying yourself dividends is absolutely fine but you must ensure that you have post-tax reserves available at the time of payment – this means putting some accounts together.

In addition, in light of the Government’s stated intention to look carefully at the extent to which profits are extracted as dividend rather than salary, you should also:

- Ensure that the distribution is approved via a signed board minute (even if there is only one director / shareholder)

- Prepare a dividend voucher to evidence the payment, date & tax credit

This relief has been restricted as a result of FA 2008 to losses of not more than £25,000 per year or to losses incurred in businesses in which you work at least 10 hours per week. That is, large losses incurred in part-time businesses can no longer be offset against other income. Therefore if you are likely to fall into this category record the time spent on your business, including all the administration stuff, emails, phone calls, doing the books etc. – it all adds up and is useful ammunition if the taxman ever asks.

These payments enable employers to pay employees tax-free if they are passengers in a car being used on a business trip. Therefore if you have 3 employees going to the same meeting, instead of them driving separately and being paid up to 40p per mile you can get them to share, pay the driver up to 40 per mile and the passengers up to 5p per mile. This could reduce your travel costs significantly.

A full set of Q&A can be found on www.hmrc.gov.uk under the ‘VAT’ section but key points to note are:

- the rate of VAT to charge depends on the date of supply of the goods /services not the date of the invoice unless the invoice is issued within 14 days of the goods changing hands in which case the invoice date applies.

- If using accounting software you will need to change the VAT rate used by the system; usually this is something that can be done in the company preferences. If using an online ordering & invoicing system you will need to ensure that invoices raised on customers carry VAT at the new correct rate.

The deal is that you can claim VAT back on services received in the previous six months ( a service relates to anything where goods do not change hands – e.g. accountancy or training) or on goods received in the previous three years provided that the business still possesses them. This will tend to apply only to fixed assets or items still in stock. The business will need to have proper VAT receipts for these items and although VAT-registered suppliers are not obliged to provide VAT invoices to non-registered customers (though most will) there is a retrospective requirement to do so after registration.

This ‘one-off’ VAT win should be added to the business’s first VAT return as purchases.

However just as it is possible to claim VAT on goods purchased pre-registration so VAT becomes repayable on goods held at the time of deregistration. This includes goods for resale and assets used in the business. VAT of less than £1,000 is ignored so if the business holds VATable stock and assets of £6,666 or less (or £5,714  when the VAT rate reverts to 17.5%) no VAT becomes due.

If thinking of deregistering it therefore makes sense to run stocks down to a minimal level. In addition, if stock is damaged then it can be valued down for VAT purposes to the price expected to be payable for the goods in their current condition.

- The flat rate schemes works by levying VAT as % of business turnover (the exact % depends on the industry) and blocking input tax on purchases. This tends to work well for profitable businesses using a large number of unregistered suppliers and less well for businesses making losses or whose VAT position is neutral or in a refund position

- The annual accounting scheme requires a business to make monthly payments for nine months (months 3-11) of the year and a single VAT return plus balancing payment in month 12. This reduces the administration of 4 VAT returns but puts all the pain into a single month instead.

The cash accounting scheme allows businesses to account for VAT on the basis of cash received and paid – this is most suitable for businesses with credit customers who take a long time to pay.

Where a business spends less than £50,000 per annum on business capital items meeting HMRC definitions, it will now be acceptable to offset the full cost against profits arising in that same year. Capital Allowances on costs above this figure will be available but at a very low rate. At the end of the tax year and if close to the spend limit it is therefore worth considering whether it is feasible to defer expense into the following tax year.

This is in order to offset the effects of the abolition of the 10% tax band which took effect from the beginning of the tax year. Upper rate tax payers will not be affected by this change and most employees will receive a tax refund or pay a reduced amount of tax in their September salary. For taxpayers making payments on account it may be worth considering whether the increase in allowances will warrant a decrease in the payments on account for 2008/09, the first of which will be due on 31 January.