TT147 Tax Residency
February 2010 has seen the latest decision in the battle between Robert Gaines-Cooper and HMRC.
Twenty or so years ago Mr Gaines-Cooper contends that when he purchased a home in the Seychelles and also married a “local girl” that he became non UK tax resident and in due course non UK domiciled.
Although Mr Gaines- Cooper, a very successful businessman, maintained considerable business and social ties with the UK he considered that he played the non residence “game” correctly, by establishing genuine and considerable personal and business ties in the Seychelles and retuning to UK for less than 90 days per annum.
HMRC argued that by not severing connections with the UK Mr Gaines-Cooper remained UK resident, ordinarily resident and Domiciled and hit him with tax assessments covering twenty or so years. The case went to the Court of Appeal with HMRC winning on all counts in 2008. But that is not the end of the story.
Mr Gaines-Cooper considered that he had followed the HMRC guidance in their booklet IR20 which had been regarded as authoritative guidance on residence matters. He asserted that HMRC in pursuing him had acted contrary to their published guidance and had effectively changed their interpretation of the law on residence so he applied for a judicial review. The Court of Appeal has now ruled that the guidance in IR20 was not binding and that in any event the Revenue had acted in accordance with the law and had not changed their interpretation of the law.
Not many of us were surprised that Mr Gaines-Cooper was held UK domiciled, but there seems little doubt that the Revenue have changed their attitude to individuals becoming non UK resident and the requirements for establishing such status particularly where the individual is claiming residence in tax havens such as the Channel Islands and Monaco.
HMRC have issued an updated version of their guidance in HMRC6 which we are all now supposed to follow but can we rely on the written words? Although we have a new way of counting days for residence purposes (counting nights of presence with a limited exception for transit) it is clear that the “90 day rule” is not a prime determining factor in looking at residence. It is clear that there is now a very nebulous test with each case now turning on its own facts. Whereas it is fairly easy to spot circumstances which are going to be a problem it is harder to decide upon which side of the line marginal cases will fall. HMRC will be buoyed that the decisions are going in their favour and already we are seeing them take a more aggressive attitude in tax residency cases.
Where an individual becomes resident in a country with a tax treaty with the UK, the treaty may provide some protection against HMRC attack and we are seeing this as a growing area of opportunity for clients. This is an area overall where the law is changing and all who claim non UK resident status would be well advised to assess their status a fresh.
Barnes Roffe Topical Tips:
- If you consider yourself non-resident, or intend to become non-resident, review your plans immediately to check compliance under the new rules.
- Ensure you keep detailed records to support any challenge by HMRC.
- Remember, without records it would be very difficult to resist an argument from HMRC that you are resident.
- The more visits you plan to make, the greater the care you need to take as each visit will add one day on to the total.
- Unexpected emails – keep being sceptical about all emails, but especially those you did not expect.
- Beware the email address the email came from! It is very easy to alias the sender’s address to look like a recognisable person.
- Beware the email address you are asked to reply to – if it is a different address from the senders then it might be that the sender has something to hide.
- Unprofessional layout – many of these emails look very poor and do not look like they have come from a credible company. However, it is not hard to copy an email from a bank or HMRC so expect to see the sophistication of such fraud attempts improve.
- Spelling – surprisingly many of the fraud attempts contain spelling mistakes. Again, this will improve.
- Odd URLs – if you look at the web link you are asked to click on, it often starts with a reasonable looking address (e.g. online.hmrc.gov.uk), but then carries on to reveal the remainder of the address, which is an obscure reference, sometimes on a website in another jurisdiction. Beware false websites, as some can be easily copied and mimicked.
- Security updates – be aware that a lot of very common software has security flaws. Until recently Microsoft Internet Explorer allowed web addresses to be aliased, such that the site you thought you were on was not the correct one, i.e. the dodgy internet web addresses did not appear. Ensure you are fully up to date with security patches.
- And finally, keep being sceptical.
- Please refer to TT127 and consider reviewing all staff’s company car benefit to see if the fuel benefit is worth it - often scrapping it could benefit both you and your employees!
- Ensure you update the above rates to avoid underpaying staff the highest potential tax-free amount for their business mileage, or to avoid overpaying staff and creating an unexpected tax and National Insurance bill for the company.
- If in doubt then please speak to your Barnes Roffe LLP partner for guidance.
- Turnover - £6.5m net (£7.8m gross)
- Gross Assets - £3.26m net (£3.9m gross)
- Employees - 50
- The CO2 banding lower limit remains at 120 g/km
- Generally the VAT scale charges have decreased (good news for a change!)
- 1,400cc or less: use CO2 band 140 or below
- Exceeds 1,400cc but does not exceed 2,000cc: use CO2 band 175
- Exceeds 2,000cc: use CO2 band 235 or above
- Watch out for news about VAT rate changes as this will affect the figures (currently a change is scheduled for 1 January 2010).
- Ensure that you adopt the new VAT fuel scale charge as soon as is applicable – this is usually the first thing a VAT Inspector will check during a VAT inspection.
- For any vehicles that have no private use (e.g. a pool car) it is essential that there is evidence to support this contention.
- If a car is changed during a tax period and the new car is in a different category, then the VAT should be accounted for by apportioning the scale charges for the two categories. Alternatively, to keep it simple, the higher of the scales can be used.
- If an incorrect rate has inadvertently been used, then a correction should be made on the next VAT return. However, if the cumulative error comes to more that £10,000 of VAT then a special declaration to HMRC must be made.
- If it is wished to claim the VAT on all business fuel paid for by an employee and reclaimed from the company, then the company must have specific evidence of the VAT incurred by the employee
- If you are married, take full advantage of the estate planning benefits.
- If you are not married, make sure that you have a will in place - intestacy rules are not favourable to your significant other!
- Married or not, estate planning is something that really should be done.
- If you - or your children - are considering marriage, and you have concerns about protecting family wealth, consider a pre-nup.
- Pre-nups must be done properly. Both sides should get independent legal advice before they sign up - and be prepared to make full disclosure of your assets.
- A properly drafted agreement could make life easier and much less expensive if the marriage does come to an end.
- Please refer to TT127 and consider reviewing all staff’s company car benefit to see if the fuel benefit is worth it - often scrapping it could benefit both you and your employees!
- Ensure you update the above rates to avoid underpaying staff the highest potential tax-free amount for their business mileage, or to avoid overpaying staff and creating an unexpected tax and National Insurance bill for the company.
- If in doubt then please speak to your Barnes Roffe LLP partner for guidance.
- You are allowed to have one main residence that is not subject to CGT (a married couple can only have one residence between them).
- When you sell your residence it might take a number of months, however, you might be forced to buy a new property and move on. Therefore the rules give you a period of time to sell your old property before it ceases to qualify and becomes subject to CGT.
- Since the 1980s the period of time you could continue to hold your old property has been 36 months. This was to assist through a former housing crisis when people could not sell property easily.
- Loss relief can be claimed against other income in a tax year.
- Trading capital allowances can be claimed (which are not normally allowed on residential properties).
- Gains on disposal are treated as business assets for CGT purposes - not just allowing a lower rate of tax, but allowing access to business asset roll-over relief, entrepreneurs’ relief, gift relief for business assets and Business Property Relief (BPR) from Inheritance Tax (IHT).
- The income counts as earnings for pension purposes.
- They must be situated in the UK.
- The business must be carried out with a view to a profit.
- They must be available for commercial letting for more than 140 days per year.
- They must be commercially let as holiday accommodation for over 70 days per year.
- Periods of letting in excess of 31 days do not count for the above limit, and you cannot have more than 155 days of longer lettings in a year.
- The UK rules will extend to EEA situated holiday lettings, but only for a limited time until 5 April 2010.
- The beneficial rules for both UK and EEA situated holiday lettings will cease from 6 April 2010, requiring all such letting businesses to use the normal, less advantageous property income rules. (Note, holiday lettings outside the EEA will continue on the existing, less beneficial rules.)
- Could you claim a loss on your holiday letting activity that might offset against your income in the current or a prior year?
- Have you made a gain on a sale of a holiday let on which we might be able to claim a reduced rate of tax as it is now qualifies as business asset?
- Have you bought such a business asset (a holiday let) that would allow you to roll-over a gain made on another (business or non-business) asset into the base cost?
- Hold-over relief on a gift of the asset.
- Roll-over relief on the reinvestment of a gain into another asset.
- Capital loss relief to be claimed against all other assets (previously this was restricted to relief only against other offshore assets).
- Terminal loss relief (i.e. carrying back a income tax loss three years on the cessation of a business).
- Landlords Energy Saving Allowance.
- Taper relief on the sale of a business asset.
- Retirement Relief on the disposal of an asset (when you are over 50 years old).
- Pension contributions relief.
- Substantial shareholding relief for sale of subsidiaries holding holiday lets.
- BPR on an asset that was subject to IHT in a recent probate.
- If you have had a holiday letting property outside the UK and inside the EEA in the last 6 years you should review your tax status as a matter of urgency.
- If you have a UK based holiday letting property then any loss offset against other income will cease from 5 April 2010 and you will only be able to get relief for the losses against future profits from the same property. Hence, we recommend you consider any repairs or similar expenditure in the current tax year.
- Requires the grant to make it happen, or without grant the project would only go ahead on a smaller scale, or within a longer timeframe;
- Involves capital expenditure;
- Creates new jobs or safeguards existing ones which would otherwise be at risk;
- Will created or safeguard jobs where the majority require qualifications of level 2 NVQ (or equivalent) or above;
- Will secure increased productivity;
- Is proposed by a business that is viable and can become self sustaining within a reasonable timeframe;
- Generates regional and national benefits;
- Be mainly financed from private sources.
- The cost of the tangible or intangible assets directly relating to the investment project; or
- The wage & salary costs of the employees who fill the jobs created, calculated over a two year period; or
- In Tier 2 areas only (a particular subset within the Assisted Areas as defined), a combination of both.
- Application Forms
- Business Plan
- Supporting documentation
- Accounts
- Evidence of funding
- BPR relieves ‘relevant business property’ from IHT - i.e. it is exempt from the tax.
- Relevant business property includes:
- A business or an interest in a business (e.g. as a sole trader)
- Shares in unquoted companies
- Land and buildings used wholly or mainly for business purposes
- BPR only applies to property held for business purposes at the time of the TOV and those assets must have been owned for at least two years beforehand. (Note that if the donor has contracted to sell property before he makes the TOV, BPR is not available.)
- BPR does not apply to shares in companies quoted on recognised stock exchanges. The London Stock Exchange is a recognised exchange, AIM is not!
- BPR does not apply to investment businesses. This exclusion would apply to shares in an investment business quoted on AIM.
- Even if the business as a whole qualifies for BPR, some assets of the business may be excluded (for example, if they are surplus assets and not used in the company’s trade, e.g. a property that is sublet to a third party).
- Get advice to ensure you make the most of IHT reliefs and exemptions.
- Ongoing planning can significantly increase your kids’ inheritance.
- Remember APR only applies to the value of land and buildings used for farming. Any non-farming value - such as development value - is excluded.
- BPR is available for qualifying businesses and assets. This may include the value of land owned by the business, including its development value.
- Do not assume that because you own a business it will qualify for BPR - there are conditions and restrictions that could exclude or reduce the relief.
- To distinguish the goods and services of one trader from those of another;
- To indicate the origin of goods and services;
- An indication of quality;
- As a means of advertising goods and services; and
- As a vehicle for investment (e.g. valuable brands such as Coca Cola).
- Deters competitors from using your trade mark without your permission;
- Allows you to take legal action against anyone who uses your trade mark without your permission;
- Is a property right, which means you can sell or license it to others.
- We strongly suggest you take advice before submitting your claim.
- Get this advice well before the 5 April 2009 deadline.
- Contact your Barnes Roffe LLP partner if you wish to discuss this or need introducing to a suitably qualified pension advisor.
- Finally, did you know that less than 6% of small and medium businesses have shareholder protection in place to ensure that funds are available to buy out a shareholder in the event of their death? Watch out for a Topical Tips on this point coming soon.
- Does the business have a choice about charging VAT on the letting income?
- Can the business reclaim all input VAT on the costs of the sub-let building?
- Could some of the input VAT on non-direct costs be disallowed because of the sub-let portion?
- If the business sells the building, will the VAT treatment on the sub-letting impact on the sale price?
- If you think that some of your supplies might be exempt then you need to double-check your compliance.
- House builders who have been forced to consider renting out their houses rather than selling them need to be especially careful.
- If you are partially exempt then there may be a better method to calculate your disallowed input VAT which might save you VAT.
- New penalty regimes start from 1 April 2009 which will see higher penalties for errors – be sure to review your position before then.
- Limited companies and LLPs - ten months after the accounting period end.
- Plc companies – seven months after the accounting period end.
- Limited companies and LLPs - nine months after the accounting period end.
- Plc companies - six months after the accounting period end.
- Plan ahead for the change to the rules.
- Ensure you understand the impact on your company’s position.
- In certain circumstances audit exempt abbreviated accounts can be filed on-line.
- Speak to your Barnes Roffe partner if you have any questions.
- Ensure you plan ahead - remember 31 January 2009 is on a Saturday this year!
- If you think your tax bill will be lower next year (e.g. you anticipate a lower income) then you might be able to reduce your payments on account which form part of the 31 January payment.
- If in doubt then please speak to your Barnes Roffe LLP partner or tax manager for guidance.
- Topical Tips 128 December Christmas Round-Up
- Topical Tips 127 November Company Car Fuel Update
- Topical Tips 126 October Entrepreneur Relief: Asset Sale Pitfalls
- Topical Tips 125 September New Landlord Regulations
- Topical Tips 124 September Redundancy Process Part 2
- Topical Tips 123 September Stamp Duty Land Tax Changes
- Topical Tips 122 August Redundancy Process Part 1
- Topical Tips 121 August VAT Error Disclosure
- Topical Tips 120 July Non-Domiciled Rules
- Topical Tips 119 July Plant & Machinery Tax Relief
- Topical Tips 118 June Tax: Residence Status
- Topical Tips 117 June Business Mileage Update
- Topical Tips 116 May Income Tax 10% climb-down
- Topical Tips 115 April VAT Fuel Scale Update
- Topical Tips 114 April Companies Act 2008 filing deadlines cut
- Topical Tips 113 March Shareholder Protection - take care of your assets
- Topical Tips 112 February Construction Industry Scheme Update
- Topical Tips 111 January Capital Gains Tax Update Again!
- Topical Tips 110 January Pension Scheme Administration
- Topical Tips 109 January Pension Contributions
- Get advice to ensure you make the most of IHT reliefs and exemptions.
- Ongoing planning can significantly increase your kids’ inheritance.
- Remember APR only applies to the value of land and buildings used for farming. Any non-farming value - such as development value - is excluded.
- BPR is available for qualifying businesses and assets. This may include the value of land owned by the business, including its development value.
- Do not assume that because you own a business it will qualify for BPR - there are conditions and restrictions that could exclude or reduce the relief.
- Paying only business mileage for a medium to large car fleet could save a serious amount of money.
- Under the rules an employer can change from paying for all fuel to paying for only business fuel during the year and not just at 5 April.
- Look into this area for immediate action
- If your mileage varies greatly from the above we can undertake a calculation for your individual circumstances.
- Remember that you and your employees must keep a log of the business miles claimed or else HMRC will seek to tax the payments.
- Get advice to ensure you make the most of IHT reliefs and exemptions.
- Ongoing planning can significantly increase your kids’ inheritance.
- Remember APR only applies to the value of land and buildings used for farming. Any non-farming value - such as development value - is excluded.
- BPR is available for qualifying businesses and assets. This may include the value of land owned by the business, including its development value.
- Do not assume that because you own a business it will qualify for BPR - there are conditions and restrictions that could exclude or reduce the relief.
- The individual who personally owns the property must, at the same time, make a disposal of the whole or part of their interest in the shares of the Personal Company which uses the property.
- The associated disposal of the property is made as part of the withdrawal of the individual from participation in the business of the company
- The property must be used in the business for a period of one year ending with the earlier of the date of disposal of the shares in the company or the cessation of the business of the company.
- The time the asset was occupied by third parties compared to the Personal Company.
- The proportion of the asset that was used for business (e.g. one floor might be rented out as accommodation).
- The time during the period of ownership of the assets that the owner was involved in the business of the company (i.e. the company qualified as a Personal Company, see Topical Tips TT111).
- The extent to which a market rent was charged.
- Remember, ER only is claimable by individuals (or trustees under certain circumstances). Companies continue to pay corporation tax on chargeable gains.
- Beware that gifts of assets which stand at a gain are still taxable disposals and you should seek advice before making such a gift (or making a sale at below market value).
- Be very careful when selling an asset used in the business but personally owned, as planning will be needed to get ER on the sale.
- Make a decision as to whether you need the rent on the asset owned personally to ensure that maximum ER can be claimed (assuming the asset is disposed of in the correct way).
- Get advice to ensure you make the most of IHT reliefs and exemptions.
- Ongoing planning can significantly increase your kids’ inheritance.
- Remember APR only applies to the value of land and buildings used for farming. Any non-farming value - such as development value - is excluded.
- BPR is available for qualifying businesses and assets. This may include the value of land owned by the business, including its development value.
- Do not assume that because you own a business it will qualify for BPR - there are conditions and restrictions that could exclude or reduce the relief.
- EPCs will be mandatory on 'whole' or 'parts' of buildings where the 'parts' are self-contained units of accommodation. They will not be required for Houses in Multiple Occupation where there are shared facilities.
- The definition of commercial buildings and residential properties (i.e. houses and flats) will include holiday letting properties and student accommodation.
- EPCs will be mandatory whenever there is a change of tenant. EPCs will not, however, be required where a tenant who is already in residence continues after October 1st, even when a tenancy agreement is renewed.
- The same EPC can be produced for up to ten years, even if the landlord updates the accommodation with improved insulation or other enhanced energy measures. However, if the landlord decides to sell the rental property, the EPC will expire after one year of issue.
- Other than Houses in Multiple Occupation, the only other exemption is for emergency accommodation provided by landlords for tenants needing to relocate urgently. Even so, EPCs must be provided as soon as possible.
- Do not assume that EPCs apply only to sellers of houses or commercial properties - as explained above, they apply to landlords as well.
- Plan ahead to ensure you have an EPC as any tenant could ask for it at any time - so could Trading Standards.
- Ask your Barnes Roffe partner should you have any questions.
- How many are to be made redundant?
- What sections of the workforce are the redundancies to come from?
- What factors are to be taken in to account when deciding who will go and who will stay?
- Have these matters been discussed with those employees identified as potentially redundant? (This must be a genuine discussion with proper consideration given to what the employee has to say, including why the employee was identified as potentially redundant and whether there are alternatives to redundancy.)
- Follow the process properly.
- Remember, taking shortcuts to save time and money may seem attractive, but more often than not cost much more in the long run.
- If you talk matters through with your staff, not only do you minimise the risks of claims, you will end up with the right workforce to take your business forward.
- Ensure you treat all staff the same, as off the record chats with more senior members of staff could damage the process.
- The new £175,000 threshold only applies to residential properties.
- The old £150,000 threshold remains for non-residential properties.
- Business closure
This is redundancy in its simplest form, covering a business closing down altogether. It can, however, cover other scenarios, such as an employer replacing its old business with an entirely new one, which is sufficiently different in nature.
Workplace closure
This happens where an employer closes down a particular workplace at a particular location, even where it carries on business elsewhere. It also includes an employer moving part of its business to another location.
However, there can be difficulties when it is unclear whether an employee was employed to work at the location that has closed. If not, apart from in rare circumstances (see Bumping below), there will be no redundancy. It is a common mistake to assume that if the employee's contract allows the employee to be moved round that there is no redundancy.
When assessing if a redundancy exists, it is necessary to look at the reality of what happens, rather than simply looking at the employment contract. So there is likely to be a redundancy where the employer moves its business from a particular location where an employee normally works, even though that employee's contract requires the employee to work from other locations.
Reduced need for employees
This third scenario tends to be the most difficult identify as it covers a number of different situations, although they all have a common theme, namely a reduced need for employees to do work of a particular kind. Different kinds of work are identified by the special skills, aptitudes or knowledge they require.
A reduced need for employees can cover the following situations: duties being reallocated; a fundamental change in duties; reorganisation leading to a reduced need for employees; restructuring of departments.
It is even possible to have a reduced need for employees where workload has increased. For example, an employer may choose to meet an increased workload by installing machines that do the work of several employees.
Bumping
It is common to assume that if an employee is to be dismissed for redundancy, it must be for their redundancy. This assumption is wrong. It is possible to dismiss an employee for redundancy where the redundancy relates to another employee's job, for example there is less need for the type of work that Ms. Smith does, but he is given the job of Mr. Jones, and Mr. Jones is made redundant. The reason for Mr. Jones dismissal is redundancy, only it is the redundancy of Ms. Smith's position and not his own.
- Be aware that you should not try to disguise another form of dismissal as redundancy. If the staff dismissal is really as a result of their performance then you should deal with it under the correct procedure. Redundancy is not a catch-all to let staff go when you wish avoid other dismissal processes. Incorrect treatment could leave you open to an unfair dismissal claim
- Remember that the redundancy process should follow a best practise procedure to ensure that it is fair (see next month£s Topical Tip for details)
- At Barnes Roffe we are not employment lawyers, but we will be delighted to introduce you to a specialist. You should always take such advice on such complex matters and this issue of Topical Tips should not be taken as comprehensive advice in all situations
- net errors exceeding £10,000;
or, for larger businesses,
- net errors above £10,000, which are 1 per cent of the (Box 6) turnover figure or £50,000, whichever is the lower.
- The adjustment date is the date the error is discovered, rather than the date it was made.
- The new limits only apply to 'tax periods beginning on or after 1 July 2008', so for those completing normal, quarterly returns, the first applicable return will be September 2008, October 2008 or November 2008 respectively.
- Default interest will continue to apply to voluntary disclosures, calculated from the time the error was made to the date the disclosure is received, but there will still be no penalties.
- Notice 700/45 How to correct VAT errors and make adjustments or claims
Use this notice to find out about VAT error corrections and making adjustments or claims.
What to do if you find a mistake on an earlier VAT return
Use this guide to find out how to deal with errors you discover on VAT returns you’ve already filed.
Paying interest on late or undeclared VAT payments
Use this guide to find out when and how you might be charged interest for late VAT payments.
Penalties for mistakes and delays with your VAT
Use this guide to find out what penalties you could be liable to pay for mistakes with your VAT.
- Ensure you correct any errors when discovered – letting them build up is not only against the rules, but it will risk your cumulative net error being greater than the threshold and you will be required to make a separate disclosure.
- Errors commonly occur from the claiming of VAT on items with no supporting documentation or documentation being in the name of a director instead of the company – ensure you have the correct paperwork to support your claim.
- Common errors also occur by the expenditure being covered by specific rules. For example if you lease motor vehicles which are used by staff for with an element of private use (home to work travel) then you can only reclaim 50% of the VAT back; or, you cannot claim VAT on entertaining costs, etc.
- Check any advantages or disadvantages under the new rules
- Be aware certain domiciles such as India or Pakistan give Inheritance Tax (IHT) and other advantages
- Individuals with less than 17 years residence in the UK (see TT118 for details or residence) need to be especially careful when reviewing IHT
- It is essential to seek specialist advice in this complex area.
- Detailed computations are best handled by your accountants as part of usual tax compliance work.
- Consideration should be given to rescheduling capital expenditure to ensure the business is able to claim the maximum 100% relief in each accounting period.
- The above is a summary of the rules, if you have any questions then please contact your Barnes Roffe partner.
- If you consider yourself non-resident, or intend to become non-resident, review your plans immediately to check compliance under the new rules.
- Ensure you keep detailed records to support any challenge by HMRC.
- Remember, without records it would be very difficult to resist an argument from HMRC that you are resident.
- The more visits you plan to make, the greater the care you need to take as each visit will add one day on to the total.
- If you have a specific vehicle that substantially differs from the above, then it is possible to ask your local PAYE office for their agreement to using a different rate for that vehicle.
- You must keep detailed records of amounts claimed (date, mileage, engine size, rates used, reason for the journey) to satisfy any HMRC visit.
- This treatment is extended to employers with dispensations for fuel rates that are linked to the advisory fuel rates. Where a dispensation is in place this will need to be reviewed/adjusted.
- This does not alter the 40p/25p rate payable when staff use their own cars for company business.
- In the tax year 2007/08 all taxpayers paid 10% tax on the £2,230 of income above their tax-free allowance (this allowance being £5,225 for an individual under 65 years of age).
- From 6 April 2008 (tax year 2008/09), with the abolition of the 10% rate, the 20% rate is applied to income in excess of the new tax-free allowance of £5,435 (again the rate of tax-free allowance quoted is for individuals under 65 years old).
- The 20% band of tax was expanded from £32,370 in 2007/08 to £36,000 in 2008/09, thus only compensating some people for the withdrawal of the 10% band. (Note that the 10% band remained available on savings income as long as non-saving income was less that £2,230.)
- The net result is that low-income individuals and families are worse off as their exposure to the 20% rate of tax increases, whilst they no longer benefit from the 10% rate of tax.
- Employers with large payrolls will need to plan for the change to the rates.
- For many the changes will be automatic once payroll software updates have been applied, but you should allow extra time in September to deal with the change.
- CO2 banding now as low as 120 g/km (previously the lowest band was 140 g/km)
- A general increase in VAT scale charges (no surprise there!)
- 1,400cc or less; use CO2 band 140
- Exceeds 1,400cc but does not exceed 2,000cc; use CO2 band 175
- Exceeds 2,000cc; use CO2 band 240 or above
- Ensure that you adopt the new VAT fuel scale charge as soon as is applicable - this is usually the first thing a VAT Inspector will check during a VAT inspection.
- For any vehicles that have no private use (e.g. a pool car) it is essential that there is evidence to support this contention.
- If a car is changed during a tax period and the new car is in a different category, then the VAT should be accounted for by apportioning the scale charges for the two categories. Alternatively, to keep it simple, the higher of the scales can be used.
- If an incorrect rate has inadvertently been used, then a correction should be made on the next VAT return. However, if the cumulative error comes to more that £2,000 of VAT then a special declaration to HMRC must be made
- If it is wished to claim the VAT on all business fuel paid for by an employee and reclaimed from the company, then the company must have specific evidence of the VAT incurred by the employee – see Topical Tips 77
- Turnover: Under £6.5M (previously £5.6M)
- Gross assets: Under £3.26M (previously £2.8M)
- Employees: Not more than 50 (no change)
- Turnover: Under £25.9M (previously £22.8M)
- Gross assets: Under £12.9M (previously £11.4M)
- Employees: Not more than 250 (no change)
- If one of the business owners dies unexpectedly under what rules will the business continue to operate?
- Who will become the new co-shareholder of the remaining business owners? This might be determined by the late shareholder's Will alone!
- Are the directors empowered to block such a transfer of shares if they do not see eye-to-eye with the new shareholder?
- What value will be put on the shares should the late shareholder's beneficiaries wish to sell the shares to the remaining shareholders?
- If the new shareholders want to retain their shares, will they get any dividend?
- Will the new shareholders be entitled to appoint a board member?
- The legal agreement should work both ways, allowing either the deceased's executors or the surviving shareholder to force the sale of the shares.
- The life cover must be taken out and written in trust so that on the death of one shareholder the proceeds are paid to the surviving shareholders.
- The legal agreement must not be a binding obligation to sell the shares, but create an option for both parties to trigger the sale should they wish to. This avoids the pitfall that if the contract directly converts shares to cash then HM Revenue & Customs will argue that the cash is subject to Inheritance Tax.
- An annual review should take place where an informal valuation is agreed between the shareholders and the insurance cover increased as necessary.
- More than two shareholders can be considered in such an agreement.
- Beware of the important difference between Shareholder Protection and Keyman Insurance (Topical Tip 52 refers).
- A Contractor is a business (or other concern) that pays Sub-Contractors for construction work.
- Contractors are often construction companies or building firms, but may also include other non-construction businesses (e.g. large retailers, government departments, etc.) if their average annual expenditure on construction operations over three years exceeds £1M.
- Contractors can either carry out construction work or supply labour for such work (this includes labour agencies).
- The same rules apply to foreign businesses operating in the UK.
- The definition includes property developers or speculative builders erecting or altering buildings in order to make a profit.
- There is no minimum threshold level of expenditure before you are expected to register and operate the scheme.
- Non-construction businesses spending below £1M pa on construction operations, and private households engaging builders directly, are not Contractors.
- Construction Operations are extremely diverse and can catch many modern technologies if they are supplied and installed during construction activity.
- Know the rules: some areas are automatically included, whilst others are excluded from construction operations. See the HMRC booklet CIS340 for assistance.
- Be aware that repairs are included in Construction Operations (unless you are specifically exempted, for instance you are working on a private household).
- See also www.hmrc.gov.uk/new-cis/detailed-guidance.htm for extensive HMRC guidance.
- The test of employment v. self-employment must be used when engaging a Sub-Contractor - even when they are CIS registered and are engaged on more than one project.
- PAYE and NIC rules take precedence over CIS rules and if the person counts as an employee then they are taxable as such regardless of their CIS status.
- Remember CGT is paid by individuals and trusts.
- Companies will continue to pay Corporation Tax on their chargeable gains at the prevailing rate.
- The holding of business assets in a company might be very tax-inefficient – you should review your business asset tax profile regularly.
- You should ensure you know your position before the rules change to ensure there is nothing that you should be doing to minimise your tax
- If you do not already know who your SA is, it is important that you contact your pension scheme adviser.
- You should also confirm that your SA is registered with HMRC and is aware whether a request to file a Return has been received from HMRC.
- The good news is that for next year HMRC have confirmed that they will only send out notices to deliver such Returns on a sample basis.
- Further information about the Return and the role of SAs can be found at www.hmrc.gov.uk/pensionschemes.
- Personal contributions (by employees or self-employed persons)
Contributions are no longer limited by a percentage of earnings and an earnings cap is no longer applied. (Neither is there any longer carry-forward or carry-back of unused allowances.) Contributions are generally unlimited, but tax relief is only available on the higher of the 'relevant earnings' of the individual or £3,600 per tax year (provided the scheme operates tax relief at source). Beware that dividends and other investment income do not count as earnings for this test.
Employer contributions
These can be made gross by the employer and are generally tax deductible in the company. Spreading provisions exist for large payments of £500,000 or more which may spread the employer's tax relief over up to 4 years. The contributions are not taxable on the employee.
- If you believe that you have the opportunity to make contributions above the annual limit in an accounting year then you might consider the above arrangement
- You should take advice as the calculation can be very difficult
- You can combine this with extending your accounting period to, say, 15 months long to sweep in cash or profits to allow another contribution and accelerate the tax relief on the pension payment.
- Topical Tips 107 December 2007 Tax-Free Business Mileage Rates Update
- Topical Tips 106 November 2007 Tax Threshold Changes
- Topical Tips 105 November 2007 Inheritance Tax Changes
- Topical Tips 104 October 2007 Capital Gains Tax Update
- Topical Tips 103 September 2007 Business Fuel VAT Scale Charge
- Topical Tips 102 September 2007 Season Tickets – Tax Status
- Topical Tips 101 August 2007 Companies House Annual Return
- Topical Tips 100 July 2007 Tax-Free Business Mileage Rates Update
- Topical Tips 99 July 2007 Inheritance Tax Planning - Update
- Topical Tips 98 June 2007 Offshore Bank Accounts
- Topical Tips 97 May 2007 Business Stationery Rules
- Topical Tips 96 May 2007 Business Property Relief
- Topical Tips 95 March 2007 HMRC Spoof Emails
- Topical Tips 94 March 2007 Tax-Free Business Mileage Rates Update
- Topical Tips 93 February 2007 Employment Tax Status
- Topical Tips 92 January 2007 Construction Industry Scheme Update 2
- If you have a specific vehicle that substantially differs from the above, then it is possible to ask your local PAYE office for their agreement to using a different rate for that vehicle.
- You must keep detailed records of amounts claimed (date, mileage, engine size, rates used, reason for the journey) to satisfy any HMRC visit.
- This treatment is extended to employers with dispensations for fuel rates that are linked to the advisory fuel rates. Where a dispensation is in place this will need to be reviewed/adjusted.
- This does not alter the 40p/25p rate payable when staff use their own cars for company business.
- Do not assume everything is fine - take this opportunity to review your Will planning.
- Remember, you might still require a Discretionary Trust for other reasons.
- Note that Wills that are not tax-efficient can be rewritten with the consent of all the relevant beneficiaries within two years of a death to correct this or other problems.
- Take steps to understand your Will and the terms within it.
- Carefully consider the timing of disposals between now and April. A few weeks sooner or later could have dramatic CGT consequences.
- Do not rush to sell assets until you have considered if another anniversary of ownership (for sales before 5 April 2008) could reduce your tax bill further.
- Beware exchanging contracts with delayed completion - for CGT the effective date for the tax to be calculated is the date an unconditional contract is entered into, not the date the contract completes. For most property assets this means that the CGT point is earlier than the actual transfer of the property.
- Take action to fully understand your exposure to this tax.
- If its cylinder capacity is 1,400 cubic centimetres or less, use CO2 band 140 or below
- If its cylinder capacity exceeds 1,400 cubic centimetres but does not exceed 2,000 cubic centimetres, use CO2 band 175
- If its cylinder capacity exceeds 2,000 cubic centimetres, use CO2 band 240 or above.
- Scale charge based on CO2 emissions
- Ensure the correct rates are used as these often catch businesses out when a VAT inspection occurs. The relevant VAT and net scale charge should be declared on the Output side of the VAT return
- Ensure that for any vehicles believed to have no private use (e.g. a pool car) that there is evidence to support the fact
- If a car is changed during a tax period and the new car is in a different category, then the VAT should be accounted for by apportioning the scale charges for the two categories. Alternatively, to keep it simple, the higher of the scales can be used instead of apportioning
- If an incorrect rate has inadvertently been used, then a correction should be made on the next VAT return. However, if the cumulative error comes to more that £2,000 of VAT then a special declaration to HMRC must be made
- Remember, if it is wished to claim the VAT on all business fuel paid for by an employee and reclaimed from the company, then the company must have specific evidence of the VAT incurred by the employee - see Topical Tips 77
- Plan in advance the use of the ticket or debentures and adopt the correct treatment from the start
- Maintain proper records of the events to ensure you can calculate any VAT, income tax or corporation tax due
- Be prepared for any PAYE or VAT inspection to request these supporting records
- Don't forget to invite your local friendly accountant to a game or two! (Only joking!)
- Please send Barnes Roffe a copy of the reminder letter from Companies House if we complete the Annual Return - we will need this if we do not already know the authentication code
- If Barnes Roffe files the Annual Return for you at Companies House using the on-line service the reduced £15 filing fee will be paid as a disbursement on your behalf
- You can still request a paper copy of the Annual Return from Companies House if you so wish, but Companies House is no longer completing the shareholder details on the form from last year's data
- If you file your own Annual Return on-line, then take care to check all shareholder changes, as this is the only time Companies House becomes aware of the details.
- If you have a specific vehicle that substantially differs from the above, then it is possible to ask your local PAYE office for their agreement to using a different rate for that vehicle.
- You must keep detailed records of amounts claimed (date, mileage, engine size, rates used, reason for the journey) to satisfy any HMRC visit.
- This treatment is extended to employers with dispensations for fuel rates that are linked to the advisory fuel rates. Where a dispensation is in place this will need to be reviewed/adjusted.
- Most nil rate band discretionary trusts with a debt/charge scheme are still valid if drafted properly.
- If the Phizackerley case may apply, your wills may need redrafting to include a charge mechanism or a special trust of residue.
- If you are unsure about your situation you should review your wills in any event.
- If you are married/in a civil partnership and do not have a structure of this type you may be missing a £120,000 inheritance tax saving at current rates.
- There are many other useful planning mechanisms for inheritance tax using wills.
- the company’s business letters, order forms;
- its notices and other official publications;
- bills of exchange, promissory notes, endorsements, cheques and orders for money or goods purporting to be signed by, or on behalf of, the company;
- its bills of parcels, invoices, receipts and letters of credit;
- its websites
- place of registration
- registered number
- registered office address
- And if it is being wound up, that fact must be stated.
- Don’t forget these rules also apply to Limited Liability Partnerships.
- When reviewing your business stationery, ensure you review your email footers and websites for compliance too.
- Consult your Barnes Roffe contact partner for guidance in this important area
- BPR can apply to a range of assets, so it is vital to ensure you understand the nature of the assets you own
- Consider that any wrongly worded agreements over shares could be costly.
- Don’t neglect to have your Wills reviewed on a regular basis to ensure they are as efficient as possible, whilst maintaining necessary, flexible access to your wealth
- Consult your Barnes Roffe contact Partner for advice in this important area.
- If you have a specific vehicle that substantially differs from the above, then it is possible to ask your local PAYE office for their agreement to using a different rate for that vehicle.
- You must keep detailed records of amounts claimed (date, mileage, engine size, rates used, reason for the journey) to satisfy any HMRC visit.
- This treatment is extended to employers with dispensations for fuel rates that are linked to the advisory fuel rates. Where a dispensation is in place this will need to be reviewed/adjusted.
- Can they hire someone to do the work or engage helpers at their own expense?
- Do they risk their own money?
- Do they provide the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves?
- Do they agree to do a job for a fixed price regardless of how long the job may take?
- Can they decide what work to do, how and when to do the work and where to provide the services?
- Do they regularly work for a number of different people?
- Do they have to correct unsatisfactory work in their own time and at their own expense?
- HMRC provides an Employment Status Indicator Tool on their website to help you decide on self-employment status. http://www.hmrc.gov.uk/calcs/esi.htm
- Check all new self-employed staff carefully to ensure you do not put your business at risk.
- Re-check all self-employed staff regularly as terms of engagement can develop over time to make someone employed.
- Review your insurance cover to ensure self-employed staff do not put you at risk (e.g. you might only have third party liability for acts of employees).
- Remember employment law and tax law definitions of self-employment are different.
- Ensure you have up to date terms and conditions for engagement that will protect you if challenged by HMRC.
- Beware that just because someone has a Construction Industry Scheme registration it is not sufficient for you to treat them as self-employed without asking the above questions.
- they must have applied for renewal with HMRC in good time before April 2007.
- there is a reduction in the compliance period from 3 years to 12 months (this is the period in which sub-contractors must meet all of their tax and other obligations to remain registered for gross payment, e.g. CIS/PAYE up to date, corporation tax up to date etc).
- check with HM Revenue & Customs (HMRC) by phone or online to verify whether a sub-contractor is registered and whether to pay the sub-contractor gross or to deduct tax;
- make no deduction for tax if the sub-contractor is registered for gross payment;
- must deduct CIS tax at the new rate of 20% (instead of the current rate 18%) on payment for labour if registered for net payment;
- must deduct CIS tax at the higher rate of 30% if a sub-contractor is not registered.
- It is important to ensure all documentation for subcontractors is up to date, including the monthly contractor return and vouchers.
- Make sure you are satisfied that all sub-contractors are proper sub-contractors and not employees. This is not a new requirement but HMRC is continually increasing the focus here.
- TT76 Self-Assessment Filing Deadlines
How you can avoid a fine if you are a little late with your return.
- TT77 VAT On Employee Mileage Claims
Averting potential repayment of VAT using HMRC's new legislation.
- TT78 Payroll Return Incentive
How to get a £250 'thank you' from the taxman by filing your returns online.
- TT79 HMRC Spring & Summer Deadlines
A reminder about HMRC's key deadlines between April and July
- TT80 Benefits In Kind Update
The new rules changing the previously highly favourable tax treatment of IT equipment lent to staff.
- TT81 Classic Car Benefits
In Kind An explanation and update on the complex rules when a 'classic' car is provided by the company.
- TT82 Online Filing & Van Benefits
Information about the Chancellor's latest game of 'give and take' in these areas.
- TT83 Tax Return Filing Deadlines
Consequences of the controversy resulting from HMRC's attempt to quietly 'turn the screw' on filing deadlines.
- TT84 Tax-Free Business Mileage rates
Latest rates applicable when an employee pays for all their fuel in a company car then claims back the mileage for business use.
- TT85 Construction Industry Scheme
Very important information concerning potential tax liabilities for companies that engage self-employed sub-contractors.
- TT86 Corporation Tax Update
Details about the Chancellor's 'volte-face' concerning corporation tax as it applies to property management companies, small clubs and unincorporated associations.
- TT87 Employee Benefit In Kind Update
Mobile Phones Changes to exemptions and new definitions subsequent to the Finance Act 2006.
- TT88 VAT On Fuel Costs
An explanation of the complicated rules surrounding VAT on fuel used on business mileage.
- TT89 Composite Pay Schemes
The Pre-Budget Report (PBR) made TT89 redundant as soon as it was issued. See TT90.
- TT90 Managed Service Companies
The latest news
- property management companies which meet certain criteria (see right);
- clubs and unincorporated associations run exclusively for the benefit of their own members.
- If this condition is met then HMRC will treat the organisation as dormant and review the position every five years; however, for each year there must be no anticipated allowable trading losses, disposal of chargeable assets (i.e. assets sold at a gain, such as property), or payments from which tax is deductible for payment to HMRC (e.g. interest paid to someone other than a bank).
- has a business consisting of the management, on a non-profit making basis, of a number of flats or apartments on behalf of the owners, lessees or tenants of those dwellings;
- the Articles of Association of which contains rules to ensure that only persons having an interest in the property under management own the shares in the company;
- is not entitled to receive any income from an interest in land (i.e. ground rent) and must not pay a dividend or make any other distribution of profits.
- Such composite service companies may be beneficial to certain industries, however they must be carefully considered, as they will not suit all situations.
- Whilst there are potential cost savings (i.e. National Insurance) composite facilities may be vulnerable to attack from HMRC.
- In circumstances where the risk of PAYE may apply to contractors formerly on the CIS scheme they might help mitigate the employer's risk.
- Consider claiming the VAT back on all petrol or business mileage paid, but beware of the rules to keep more detailed records (see Topical Tips 77).
- Ensure that you declare the right amount of output VAT on company cars where private fuel is provided.
- the definition of the mobile phone has been revised;
- the number of mobiles provided for private use is now restricted to one;
- mobiles provided to members of the employee’s family and household are excluded from exemption;
- improved legislation regarding payment for top-up cards
- Review how many mobiles the company provides and ensure that any members of staff who now fall to be taxed are made aware of the options open, including handing back one or more mobile phones.
- Consider getting any benefits in kind coded out to the employee's notice of coding so they do not get a tax bill in one lump sum at the end of the year.
- Review your policy for the provision of PDAs or Blackberries and ensure that the instructions to staff are watertight to enforce the rule that these are primarily for business use and that any private use is not significant, and no motive to reward the employee is included when the insignificant private use is not recharged to them.
- The rules on the payment of phone bills for private mobile phones owned by the employees have not changed and this will fall to be taxed with the PAYE and National Insurance rules. An exemption is available to staff to avoid being subject to PAYE for business calls only, but they will have to deal with this through their private tax returns.
- property management companies which meet certain criteria (see right);
- clubs and unincorporated associations run exclusively for the benefit of their own members.
- If this condition is met then HMRC will treat the organisation as dormant and review the position every five years; however, for each year there must be no anticipated allowable trading losses, disposal of chargeable assets (i.e. assets sold at a gain, such as property), or payments from which tax is deductible for payment to HMRC (e.g. interest paid to someone other than a bank).
- has a business consisting of the management, on a non-profit making basis, of a number of flats or apartments on behalf of the owners, lessees or tenants of those dwellings;
- the Articles of Association of which contains rules to ensure that only persons having an interest in the property under management own the shares in the company;
- is not entitled to receive any income from an interest in land (i.e. ground rent) and must not pay a dividend or make any other distribution of profits.
- The subcontractor will no longer present the contractor a card or certificate to demonstrate whether they should be paid gross or net of tax at 18%. This will be replaced by a verification system to confirm the subcontractor's status before they are paid. Once verified the contractor will be able to keep paying the subcontractor gross or net until notified otherwise by H M Revenue & Customs ('HMRC').
- Instead of issuing vouchers the contractor will make a monthly return and issue pay statements.
- The monthly return will include a declaration that requires the contractor to state that they have considered the status of subcontractors on the return and consider none of them to be employees (where these subcontractors are self-employed individuals).
- In November this year HMRC will send contractors a list of subcontractors they have paid since April 2005.
- An updated list will be sent in March/April2007 These lists are based on the old CIS vouchers that have been sent in. Subcontractors appearing on the list don't need to be verified, unless HMRC has advised otherwise.
- Contractors that have more than 125 subcontractors will receive their list on a CD ROM, otherwise it will be on paper.
- Oct
Business Support Team (“BST”) seminars start
- Nov
Mailing to contractors with provisional details of subcontractors who do not have to be verified
- Jan
Contractor Guidance Pack mailed to registered contractors, with forms/posters for the new CIS
- Mar/Apr
Subcontractors mailed with confirmation of the details held on file (required for verification purposes)
Final mailing to contractors with details of subcontractors who do not have to be verified
- Apr
Go live - online registration and verification service begins
First monthly paper returns issued to contractors for filing by 19th of May
- Get all vouchers up to date, so that all current subcontractors will be included on the verified list and you will then not need to take further action.
- Keep an eye out for the upcoming free seminars run by the Inland Revenue's BST on the new CIS system.
- Check now (and keep under continuous review) the employment status of your current subcontractors. Some self-employed individual subcontractors may inadvertently cross the line and become employees. The existence of a CIS certificate, or clearance under the new verification process, will not exempt the employer from operating PAYE on such employee-subcontractors! A coming Topical Tips will give more details about this point.
- Review all staff members' petrol arrangements immediately to see how much you could save (see TT53 for details of the calculation).
- Remember that under the new rules you can change the employee's arrangement and cease paying for all fuel during the fiscal year - you do not have to wait until 5 April to do so.
- You must keep detailed records of mileage claimed (date, amount, car engine size and reason for the journey) to satisfy any future HMRC visit.
- If you have a specific vehicle that substantially differs from the above, then it is possible to ask your local PAYE office for their agreement to using a different rate for that vehicle.
- So long as we, as your agent, have a standing authority with the Inland Revenue (usually granted on form 64-8) to speak to them about your affairs, we can electronically file your tax return. Indeed, we probably filed your return in this way this year without you being aware of the fact. Therefore the existing deadline of 31 January 2009 for the year to 5 April 2008 should not change for you.
- The earlier we can do your return, the earlier you can be aware of your tax liabilities.
- Watch out for further changes, as Lord Carter’s view is that we all have an overgenerous amount of time at present to complete our tax returns.
- Ensure your year-end tax computations are adjusted to take into account the tax-free PAYE on-line payment incentive.
- Carefully scrutinise coding notices to ensure that the van benefit is removed where there is insignificant private use, both for the current year and for 2005/2006. This is especially important for employees who do not usually file tax returns, as they may be quite unaware that they are entitled to a refund!
- the car is at least 15 years old at the end of the tax year of assessment ('the year')
- the market value of the car for the year is £15,000 or more,
- the original list price is less than the market value of the car for the year.
- £5,000, or
- the total amount of the capital sums which the employee has contributed towards the cost of the car or qualifying accessories which were taken into account in arriving at the market value of the car.
- it is at least 15 years old at 5 April 2007
- its market value for the year is £17,500
- Market value for the year £17,500
- Less capital contribution (£2,000)
- Price of the car for 2006/2007 £15,500
- If you are interested in classic cars then you might consider purchasing a historic car with a market value of less than £15,000. The BIK is then simply based on the original list price resulting in some 90% less tax using our example above.
- The market value of second hand computers is low, but get and keep evidence of the value used to show Her Majesty's Revenue and Customs (HMRC) should they ask.
- Be careful about software licences if you transfer ownership of the computer to staff. If you have a business licence from Microsoft that covers the software on the computer that is on loan then this might no longer be valid and you might have to consider buying licences, or advising staff to do so.
- Don't forget that selling to an employee is a supply and you should account for output VAT on the transfer.
- Consider notifying HMRC now to alter notices of coding for employees to avoid an increased tax bill at the end of the year, or a double reduction to their following year's tax code.
- It might be possible to reduce the benefit if there is a significant proportion of business use of the assets. This could be difficult to prove, so you should ensure your records show the employee did a reasonable amount of work from home.
- 6th
A-Day and start of the new pensions regime. Also the start of the new tax year. Note that from this date a new version of form P46 must be used for new employees.
- 19th
Final date for payment of PAYE and NIC for month ended 5 April 2006. Also date of payment for deemed salary tax and NIC for companies who need to comply with IR35. Interest will accrue on late payments, but if you are paying electronically then you have until 22nd April 2006
- 1st
Corporation tax due for small companies (i.e. those not obliged to make instalment payments) for the year ended 30 June 2005
- 30th
Due date for submitting forms CT600 (Corporation Tax Returns) for accounting periods ended 30 April 2005
- 30th
Filing deadline with Companies House for private companies' statutory accounts to 30 June 2005
- 30th
Filing deadline for Plc companies' statutory accounts to 30 September 2005
- 3rd
Forms P46 (car) to be submitted to notify the Inland Revenue of all company car changes in the quarter to 5 April 2006
- 19th
2005/06 payroll and CIS forms to be submitted for the year ended 5 April 2006
- 5th
Deadline to reach PAYE Settlement Arrangement ('PSA') with the Inland Revenue on certain benefits in kind to 5 April 2006
- 6th
Deadline for forms P11D to report all benefits not covered by the PSA (above) to 5 April 2006
- 19th
Class 1A NIC due on forms P11D for 2005/06
- 31st
Income tax 2nd payment on account due for 2005/06 (based on estimate from 2004/05 Income Tax Return)
- If you are unsure whether you have to file on-line contact your HMRC office.
- Your Form P35 is due by 19 May 2006, but all PAYE and NIC deducted must be paid by 19 April.
- Check your authentication details as this has been the most common cause for rejections of returns.
- Check you can connect to the Government Gateway as your internet security might prevent this.
- If you need to run a payroll very shortly after 6 April 2006 then you must check your software will allow you to do so before filing the 2005-06 return. If it will not, you will need to speak to your software vendor to ensure that you have time to submit the returns on-line, update the codes for the new tax year and run your payroll before your payment deadline.
- Don't delay as the system is likely to be jammed with last-minute filings from 18 May onwards!
- Note that the HMRC end of year Internet filing service will be suspended for maintenance from 1 March to 5 April 2006.
- Ensure that you identify the £250 separately in your business records as it is tax-free.
- Sage payroll users: Ensure that you have v8.09 or above and at least Internet Explorer v6 (or Netscape Navigator v5.5). Windows 95 users will not be compatible with this. Also check if you need to get the Sage Internet Submission Module from the Sage website. If you have have the v11 or v12 Sage year-end update you will already have the latest module.
- the employee incurring the expense was not the VAT registered trader and the employer (the VAT registered person) was not being supplied directly;
- the employers did not hold a valid VAT invoice (the 40p per mile Authorised Mileage Rate claim for using a private vehicle for business use or the Advisory Fuel Rate for claiming business fuel on a company car were not considered VAT invoices).
- Advise employees to retain VAT petrol and diesel invoices to attach to their expense claims
- Ensure that such receipts do not post-date the mileage expenses claimed
- Review all claims back to 1 January 2006 - the date that the new regulations came into force.
- HMRC makes a great effort to allow taxpayers to drop off their income tax returns at HMRC offices. However, beware that the number of offices accepting such returns has been reduced and the centre you might have used last year may not be open for this year. Also beware you can no longer get a receipt for your return. Some commentators have even suggested using a mobile phone camera to record proof of delivery! Quite how you do this is another matter - perhaps a nice digital photograph of the friendly HMRC security guard would be good evidence!
- Following a case brought by a taxpayer, HMRC has confirmed that they cannot tell the difference between returns received between 5.30pm to midnight on 31 January, and those received in the post the following day. So, if you can get your tax return to the HMRC on 1 February 2006 you will not receive a penalty.
- On-line filing has become a preferred choice of delivery for many taxpayers and in previous years the HMRC website has become rather overloaded at the last minute, thus taxpayers have been unable to file their return in time. At Barnes Roffe LLP we have encouraged taxpayers to register for on-line filing via our tax return software, which automatically enters the tax return information into the HMRC database via a different route. Also, see Topical Tips 65 for details of the shortcomings of the HMRC on-line filing service. The method used by us does not suffer from this simplification for foreign dividends.
- Consider making the correct payment (or even a small overpayment which will be refunded in due course) by 31 January 2006 to stop penalties arising. (See the pay-slip sent to you by HMRC for payment methods.)
- Ask if we can electronically file your return.
- Consider filing your return via the HMRC website (if we cannot file on your behalf).
- Try to get the return to your local HMRC office by 1 February 2006
- TT59
Staff Home Computers How you can provide halfprice computers as a tax-free benefit for staff.
- TT60
Company Van Tax Avoiding a benefit in kind for 'insignificant' private use of a company van.
- TT61
Companies House Changes & Security Cessation of the extension to filing deadlines for companies with overseas interests, Increase in filing fees and Corporate Identity Theft prevention.
- TT62
Reclaiming VAT on Employees' Expenses The UK rules are deemed incompatible with EU rules by the European Court of Justice! A UK response still awaited - no local rule change yet.
- TT63
Personal Pensions & Property The new rules for Personal Pensions from 6 April 2006 are outlined (see below for an important update).
- TT64
New Accounting Standards News of a new accounting standard that alters when some companies will have to recognise turnover, and therefore profits (but see below).
- TT65
Tax Return Update 1 News on Revenue policy on: Tax Review Form, Treatment of Foreign Dividend, Income when you use the Revenue's online filing service or the Short Tax Return and The Short Tax Return itself
- TT66
Tax Return Update 2 Information on Approved Mileage Allowances for the use of private modes of transport for business purposes and the taxation of home internet connections provided by employers.
- TT67
Business Incorporation Sole Trade/Partnership versus Limited Liability Company - information on the decision to incorporate.
- TT68
Goodwill on Incorporation The taxation treatment of Goodwill paid to you if you incorporate your own business or sell out and join the purchaser as an employee.
- TT69
Company Car Fuel Update New rates for reimbursing employees who have company cars, but only claim petrol for business miles driven.
- TT70
Tax-Free Staff Incentives Mobile phones, long service awards and interest free loans - three ways to provide tax efficient incentives.
- TT71
Staff Suggestions Scheme Yet more important ideas for rewarding staff in tax-free ways.
- TT72
Property & SIPP Update A borrowing pitfall for a self invested pension (see below).
- TT73
Diesel Company Cars Tax Change An important change on the taxation of diesel cars registered after 31 December 2005.
- TT74
Staff Entertainment The rules on the tax-free staff entertaining allowance - more complex than many realise.
- Pensions as most people will be aware, the pension rules were drastically changed this month in the Chancellor's Pre-Budget Statement. Full details are in our report on our website and the link will have been e-mailed to you recently. In short, many of the assets that people were looking forward to putting into their pensions have now been banned, including residential property, art and antiques, classic cars, etc. Such a drastic u-turn at such short notice has altered many peoples' plans.
- VAT on employee expenses the UK was found to be not compliant with European law on the local UK rules. At present the UK rules remain untouched as the situation is unresolved.
- Accounting standard on turnover recognition with so many accounting standard changes in progress at present it is not surprising that there is one which cannot be fully agreed upon. Interestingly, whilst most commentators now agree how the new standard works, there is disagreement as to when the first implementation date for the new standard will be for small companies. The Inland Revenue and the Institute of Chartered Accountants in England and Wales say one thing, whilst the Association of Chartered Certified Accountants says another!
- transport;
- food;
- drink;
- accommodation (if provided); and VAT.
- If Mr. A attended all functions then his benefit would be £75.
- If Mrs. B attended the second and third parties then she would be taxable on the same £75.
- If Mr. C brought his wife to all three parties then the first two parties would still remain exempt (as the cost per head was under the £150 limit), but his benefit would be £150 as he would be taxable on the non-exempt party for both his attendance and his wife's - however strange this might seem given that he has had a double benefit out of the first two parties, but the 'cost per head' calculation keeps those events within the exemption.
- You can enter into a PAYE Settlement Arrangement (a 'PSA') to settle the tax on any benefit taxable on employees, but this must be done by 6 July following the tax year for which the payments were made and the PAYE and Class 1B National Insurance paid by 19 October following the end of the tax year.
- Beware, the Inspector of Taxes is unlikely to consider that any staff gifts are tax free - if you regularly provide such gifts consider putting them in your PSA (see above).
- The scheme must be available to all employees on broadly similar terms.
- There is no limit to the value of the equipment, but if the amount is over £1,000 there may be consumer credit licence implications.
- Consider buying Euro IV compliant diesel cars in preference to others.
- Most importantly, if you are changing your car in the near future and do plan to get a Euro IV compliant car, make sure you do this before the end of this year to keep the 3% discount on your scale charge.
- Further information is available from vehicle manufacturers or alternatively the Vehicle Certification Agency’s website http://www.vcacarfueldata.org.uk.
- As can be seen, it is imperative for all existing schemes in which borrowings are currently in excess of 50% of scheme assets to review their structure, ensuring that they are happy with their share in the asset, the current scheme provider and also the bank providing the borrowings. If there are concerns, then the position should be urgently reviewed, especially as these issues could well take a couple of months to resolve.
- discover ways to make your business better
- actively engage your staff in improving operations
- make cash awards of up to £5,000 free of tax.
- The employer must establish the scheme and it must be open to all employees on the same terms.
- The suggestion for which any award is made must relate to the activities carried on by the employer.
- The suggestion made by the employee must be outside the scope of their normal duties.
- The suggestion must not be made at a meeting held for the purpose of proposing suggestions.
- Awards other than encouragement awards (see right) can only be made if the employer actually implements the suggestions. The award must be made directly to the employee(s) concerned.
- The decision to make an award must be based on the degree of improvement in efficiency or cost effectiveness that is likely to be achieved. This is measured by reference to the prospective financial benefits and the period over which they would accrue.
- The amount of an award cannot exceed:
50% of the expected net financial benefit during the first year of its implementation
10% of its expected net financial benefit over a period of up to five years.
- There is a maximum of £5,000 that can be paid without tax or NIC. Any excess is not covered by the exemption.
- Where an award is made jointly to several employees the amount exempted from taxes is divided between them in proportion to the amount paid to each.
- Neither of these award schemes needs to be registered with the Inland Revenue but it is advisable for the scheme rules to be clearly set out in writing, thus ensuring that every employee is aware of them. It is also advisable to keep documentary evidence relating to every award made.
- In the case of a cash award under a staff suggestion scheme it is wise to keep records of any calculation relating to the potential improvement in efficiency or cost effectiveness on which the award was based.
- Review each staff member’s petrol arrangements immediately to see how much you could save (see Topical Tips 53 for details of the calculation).
- Remember that under the new rules you can change the employee’s arrangement to cease paying for all fuel during the fiscal year and do not have to wait until 5th April to do so.
- You must keep detailed records of mileage claimed (date, amount, car engine size and reason for the journey) to satisfy any future HMRC visit.
- HMRC offers a review service that allows a taxpayer to submit details of completed transactions for review to check the goodwill value. If HMRC does not agree with the goodwill value then the arrangements can be revised before submitting the tax return. In some cases a transaction can be completely ‘unwound’ if it was not the intention of the taxpayer to transfer excess value and reasonable efforts were taken to transact at market value.
- An additional attraction to the purchaser in buying goodwill is that since 31 March 2002 a purchaser of goodwill is able to obtain tax relief for the writing down of that goodwill in their accounts. If a sole trader incorporates his or her business by selling goodwill to their own company then the company will only be able to obtain such a relief against taxable profits if the goodwill was created by the sole trader after 31 March 2002.
- If both the date of the creation of the goodwill and the value of the sale to a new company can be justified then this would be a very attractive route for a new business to plan to take.
- Companies can now obtain tax relief for goodwill purchased. This is not available to individuals or partnerships.
- On selling goodwill in a connected person transaction, i.e. selling your personal business to your own company, then the company can claim tax relief only if the goodwill was created after 1 April 2002. If the business bought commenced before this date then relief will not be available.
- The decision to incorporate a business is central to the strategy of the business owner and must not be taken lightly.
- Cars & vans – 40p per mile for the first 10,000 business miles travelled in the tax year
- 25p per mile thereafter
- 5p supplement per mile for every passenger carried on the business trip
- Motorcycles – 24p per mile
- Cycles – 20p per mile
- If an employee receives less than rates shown then they can claim tax relief on the difference e.g. if the company only pays 20p per mile then the employee can, as well as claiming the money from the employer, claim a further (40p-20p) x “the number of business miles” against his or her taxable income for up to the first 10,000 business miles and (25p-20p) per mile for the amount claimed over 10,000 business miles.
- As a concession HMRC recognises that employers might contract for an internet connection for employees to use for their duties of employment. They will accept that no taxable benefit arises where all the following conditions are met:
- the employee has significant duties of employment to undertake from home
- private usage of the internet connection is insignificant
- any private usage is at no extra cost
- There are other tax-free benefits that can be provided to enhance employees’ remuneration packages. See Topical Tips 59 for tax-free home computers for staff and Topical Tips 58 for tax-free childcare for staff.
- still requires full details of income, but is not as clear as the full Return in making sure all income types are entered
- cannot be filed electronically
- cannot be produced by the software that many accountants (including Barnes Roffe) use.
- If you wish to use a Short Tax Return or Online Filing, HMRC guidance states that if your only foreign income is from dividends and it is under £300 gross then you can include it in your Short Tax Return as if it was UK dividend income. This will leave you with a slight discrepancy in your tax calculation – you will pay a small amount too much!
- If you want a truly accurate calculation then you must complete a full Tax Return (which cannot be submitted online).
- Plan in advance for the change that this will make to your accounts
- Previous accounting periods must be restated to show the new policy as if it had always applied, so start to gather information now to make the transition easier
- Income and profits might be advanced to an earlier period, so plan ahead to mitigate the tax bill
- Consider changing the billing policy of the business to reflect the accounting policy, hence advancing cash flow to match
- Review your pension arrangements to see if it is appropriate for you to accelerate any decision to use the higher borrowing rules before 6 April 2006
- Consider whether you need to make protection elections against the new rules limiting the ultimate size of your fund – and to ensure you have flexibility going forward that does not jeopardise your elections
- Remember the risks if you have a substantial amount of your pension tied up in one asset class (e.g. property)
- is free to choose the supplier
- is free to buy whatever is required
- is responsible for payment
- does not have the authority to make the purchase in the employer’s name.
- Continue as before, but with caution.
- Make sure you can calculate the relevant amounts you are liable for, if and when the position changes
- Consider using the Monitoring service to safeguard your own records.
- Consider registering for the new PROtected On-line Filing (“PROOF”) scheme that allows certain forms to be only filed by the WebFiling or the Electronic Filing service. This covers most of the common forms in use, including Annual Returns, changes to registered offices, changes to directors or the notifying of the issue of new shares. Using the WebFiling or Electronic Filing service documents can be filed electronically using a security code and authentication code. The PROOF service will restrict filing of any paper forms to prevent unauthorised filing of documents.
- they have the van mainly for business travel, and
- any private use other than for journeys to and from work is insignificant.
- takes an old mattress or other rubbish to the tip once or twice a year
- regularly makes a slight detour to stop at a newsagent on the way to work
- calls at the dentist on his way home.
- uses the van to do the supermarket shopping each week
- takes the van away on a week’s holiday
- uses the van outside of work for social activities.
- your employer reference number,
- the names of all van users, and
- their National Insurance number.
- Normal cost to an employee is £1,410 (including VAT)
- Cost to a VAT registered business is £1,200 after reclaiming the VAT.
- The computer equipment is loaned to the employee for two years.
- Employee takes a salary sacrifice of £50 per month to compensate the company for the cost of the equipment (hence the computer does not cost the company anything).
- Employer saving £1,200 x 12.8% NIC = £153.60
- Employee saving £1,200 x 40% tax and 1% NIC, plus £210 VAT = £702.00
- Consider this scheme as it could improve staff retention, satisfaction and IT skills
- As well as hardware and software, computers can include printers, scanners, modems, disks and any other peripheral devices designed to be used by being inserted into or connected to a computer
- Staff can choose the combination of equipment that suits their home needs
- The equipment is on loan to the employee and must not be a gift
- Directors cannot be subject to more beneficial arrangements than staff, but not all staff need to be included in the scheme
- The scheme cannot include the home internet connection cost
- Look carefully at all options to provide flexible benefits that could save you and your staff tax and National Insurance
- Take care to revise contracts of employment to reflect the new arrangements, as failure to do so could leave you open to a demand from the Inland Revenue for PAYE and National Insurance on any salary reduction.
- When properties used in letting businesses are geared up by a re-mortgage care must be taken to ensure that the loan remains qualifying for tax relief.
- Monies lent to a trading company to provide working capital will get tax relief on the interest paid by the individual. However, if the individual withdraws the money lent to the company over time, but does not use it to pay down the borrowing concerned, then the tax relief on that borrowing will be reduced pro-rata.
- Make sure now that you are dealing with your sub-contractors correctly.
- Don’t ignore potential problems and allow tax liabilities and possible penalties to mount up!
- Remember, many of these rules apply to other industries apart from the construction industry.
- Review all transactions made after 17 March 1986 to see whether the POT rules apply.
- Consider using IHT planning techniques such as the Reversionary Lease arrangement (see Topical Tips No. 47) for investment properties that are not occupied.
- Consider using “excluded” or “exempt” arrangements such as quasi-equity release arrangements and/or part gifts of the family home to children who occupy the home.
- Make workplace safe and without risks to health.
- Ensure plant and machinery are safe and that safety systems are set and followed.
- Ensure that articles and substances are moved, stored and used safely.
- Provide adequate welfare facilities.
- Give employees information, instruction, training and supervision necessary for their H&S.
- Take reasonable care of your own H&S at work and that of others who may be affected by what you do or do not do.
- Co-operate with employer on H&S.
- Use work items correctly and in accordance with training or instructions.
- Fire precautions are part of the H&S requirements.
- Specific guidance is contained in the Fire Precautions Workplace Regulations 1997 (as amended) 1999.
- Advice on general fire precautions can be obtained from the Fire Brigade.
- Carry out a H&S Risk Assessment.
- Make arrangements for implementing the H&S measures identified as being necessary by the assessment.
- If there are five or more employees, record the significant findings of the risk assessment and the arrangements for H&S measures.
- If there are five or more employees draw up a H&S policy statement, and bring it to the employees’ attention.
- Appoint someone competent to assist with H&S responsibilities.
- Set up emergency procedures.
- Provide adequate first aid facilities.
- Ensure the workplace satisfies health, safety and welfare requirements, i.e. for ventilation, temperature, lighting, and sanitary, washing and rest facilities.
- Ensure that work equipment is suitable for its intended use, so far as H&S is concerned, and that it is properly maintained and used.
- Prevent/adequately control exposure to substances that could damage health.
- Take precautions against danger from flammable or explosive hazards, electrical equipment, noise and radiation.
- Avoid hazardous manual handling operations, and where they cannot be avoided, reduce the risk of injury.
- Provide free any protective clothing or equipment, where risks are not adequately controlled by other means.
- Ensure that appropriate safety signs are installed and maintained.
- Report certain injuries, diseases and dangerous occurrences to The Health and Safety Executive.
- H&S issues are not to be taken lightly.
- Apart from the obvious risks to employees, failure to comply with legislation could result in fines and/or legal action.
- If you have not already done so, you should undertake a H&S Assessment as soon as possible.
- Paying only business mileage for a medium to large car fleet could save a serious amount of money.
- Under the new rules an employer can change from paying for all fuel to paying for only business fuel during the year and not just at 5 April.
- Look into this area for immediate action.
- Decide who the intended beneficiary is to be. If it is the keyworker or his family, the policy should be in his name and the premiums should be paid by him out of taxed income.
- For a true key-man policy, consider whether the premiums might not be regarded as “wholly and exclusively” for the company’s trade (e.g. if the key-worker is a major shareholder) and therefore not tax deductible.
- Ensure that policies do not attain a surrender value (e.g. endowment policies) as such premiums will be capital in nature and gains will be taxable.
- Jointly owned sharearrangements entered into to side-step the Settlements legislation must be reviewed and alternative strategies implemented.
- If shares are owned jointly with your spouse, consider paying a large dividend on or before 5 April 2004 so as to avoid the new rules announced in the Budget.
- Consider owning non-share assets jointly with your spouse without effecting any transfer of beneficial ownership so as to spread the income tax liability whilst avoiding a Settlement.
- Reconsider any joint ownership arrangements that have been put in place, as it seems that these will no longer be tax effective (subject to the High Court decision being appealed).
- Consider the company van idea, at least until 5 April 2007.
- Review the company’s car strategy generally.Would it be more cost effective for individuals to run personally owned cars and to claim tax-free mileage allowances for business use?
- register with H M Customs & Excise (“HMCE”) before 1 April 2004. HMCE is responsible for the compliance of HVDs. Forms MLR6, MLR100 and MLR102 apply
- look here on HMCE’s website for the guidance forms or call HMCE on 0845 010 9000 for a registration pack
- register each legal entity and each place of business in your organisation that has the policy of accepting over 15,000 Euros in cash for any single transaction. It costs £60 per year per premises
- be aware that although the HVD rules do not cover businesses that accept cash for services, if you are in a position where you act as an agent selling goods, you will still have to be registered
- set up Anti-Money Laundering Systems to enable you to identify and prevent money laundering and to report suspicious transactions to the National Criminal Intelligence Service (“NCIS”). A guide to setting up your systems can be found in notice MLR7.
- keep the Anti-Money Laundering systems in place
- appoint a nominated Officer to be responsible
- train your staff
- confirm the identity of your customers
- hold all records for at least 5 years
- tell HMCE of any relevant changes to your business within 30 days using form MLR112
- avoid the offence of “tipping off” where a customer is alerted to your suspicions
- have a policy of notifying your appointed Officer of suspicions and a system for making immediate reports to NCIS
- obtain proof of identity for all customers who pay more than 15,000 Euros (or equivalent) in cash for a single transaction and retain it for at least 5 years
- where your customer is a limited company, identify both the company and the individuals you deal with who have authority within that company to move funds
- Remember, directors still have a duty to prepare statutory accounts, which must comply with accounting standards, and to file these at Companies House. Currently the majority of rejected accounts are unaudited.
- Look at the seven reasons given to continue with an audit and decide how many apply to you.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT146 Online Fraud – please stay alert!
We have received several cases of attempted phishing by fraudsters against clients. These have all, so far, taken the form of an unsolicited email which states that there is some sort of bank account problem, or under-reported income or fraud on your tax affairs and that you need to log-in to provide security details.
Sometimes such phishing attempts have targeted certain bank or online service users. Such versions of phishing have been termed “spear phishing”. Several recent phishing attacks have been directed specifically at senior executives and other high profile targets within businesses (with emails usually harvested form company websites), and the term “whaling” has been coined for these kinds of attacks. This naming convention is all very witty, until someone becomes a victim.
Recently the emails we have seen have all revolved around emails purporting to come from HM Revenue & Customs (“HMRC”).
Please note that it is unlikely that HMRC will ever contact you by email. This might change in the future, but if in doubt do not respond to such emails or provide security details.
Key things to watch out for are:
Now whilst you are reading this, I don’t suppose you could send me your bank account details and online password, and an up front fee so I could send you a large commission from a late East African dictator’s Swiss bank account could you? Ah, I thought not. You see, you’re learning already!
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT145 Company Car Fuel Update
Mileage rates from 1 December 2009:
In TT140 we reported on the new rates to be used for paying the fuel-only element to employees who claim for business miles driven in company cars. (Remember, this applies only when the employee with a company car pays for all their fuel and claims back only the business element).
The rates stated in that issue of Topical Tips should be used from 1 July 2009. However, from 1 December 2009 the rates have been altered as shown below.
The rates have previously been announced with one month’s warning and the option for employers to adopt early, but earlier this year it was announced that the additional month’s warning would no longer be provided, and that employers should adopt the revised rates immediately
Advisory Fuel Rates
| Engine size | Petrol | Diesel | LPG |
| 1,400cc or less | 11p | 11p | 7p |
| 1,401cc to 2,000cc | 14p | 11p | 8p |
| Over 2,000cc | 20p | 14p | 12p |
You should update your systems to match the new rates or you might inadvertently pay employees the wrong amount and create a tax and National Insurance bill for the company.
Future changes:
HMRC will consider changing the rates if fuel prices fluctuate by 5 per cent from the published rates when each review is made and where they consider the price change will be sustained.
Employers can check this at: http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm
The next potential review of these figures will be from 1 July 2010.
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT144 Expected changes to VAT rate and compliance
Expected VAT changes from 1 January 2010
There are a number of changes to VAT legislation which are expected to come into effect from 1 January 2010 which readers need to be aware of. Perhaps the most important of these changes are:
Expected return of standard rate of VAT to 17.5% from 1 January 2010
The standard rate of VAT is due to return to 17.5% from midnight on 31 December 2009, so you should charge 17.5% on any standard rated sales of goods and services made on or after 1 January 2010. Other rates of VAT are not affected.
But if goods are taken by the customer or delivered to them before 1 January 2010 and not paid for until after 1 January 2010, the 15% VAT rate still applies. Similarly if a prepayment is made before 1 January 2010 but goods are not delivered until on or after that date then again, the 15% rate applies.
In anticipation of the changes in VAT rate you may want to consider related issues including the following:
- How are going to ensure the standard VAT rate change is correctly implemented on your accounting software?
- Should you consider notifying customers that the price increases are due to increases in the standard rate of VAT?
Happy New Year?
There is some good news. For pubs, clubs and other venues likely to be open at midnight, the increase in VAT comes into effect at 6 a.m. on 1 January, so your celebration drinks shouldn’t go up in price at midnight!
Proposal to phase out paper returns from April 2010
HMRC is planning to phase out the use of paper returns from 1 April 2010. This will affect businesses with an annual turnover of £100k or more excluding VAT, and all newly registered businesses. They will be required to submit their return online and make payments electronically. Paper returns remain for other businesses, at least for now.
So if you think you will have to submit your VAT Return online from 1 April 2010, you should consider how to set up and implement this process within your business.
Cross border VAT changes
Currently, where services are provided cross-border within the EC, the place of supply is considered to be where the services are performed (although there are exceptions). From 1 January 2010 where services are supplied to a business customer, the place of supply will be considered to be where that business is situated (although again, there will be exceptions!).
Services provided to non business customers will still generally be liable to VAT in the country of the supplier.
The result for UK business customers is that they will be liable to account for UK VAT on most services provided by their overseas supplier under the reverse charge provisions, rather than the supplier charging VAT.
Businesses will also need to determine whether the customer is a business customer or a non business customer in order to ensure the correct VAT treatment is being applied. This is a complex area and if you are in any doubt you should seek further advice.
Barnes Roffe Topical Tips
Be prepared for the expected changes in VAT rate and compliance.
The expected change in the standard rate of VAT is going to affect not just your VAT administration, but also the nature and timing of trade of good and services just before and after 1 January 2010. It was not so long ago that the standard rate changed from 17.5% to 15%. Most will recall the administrative burden that created and the impact it had on the operations of the business.
Please also be mindful of the expected compliance related changes, in particular on cross border transactions. The stringent penalty environment for VAT non-compliance is certainly best avoided.
If you are a client, please contact your Barnes Roffe contact partner if you wish to discuss the above.
If you are not a client but would like to discuss this issue further then please contact any one of the firm’s partners detailed in the About Us section of this website who will be pleased to discuss your requirements with no obligation. Alternatively you can submit your query using the Contact Us feature.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT143 Group Accounts
Does your company need to prepare Group Accounts?
Following recent changes to company law, medium sized groups of companies are now required to prepare group accounts. These group accounts will need to be filed at Companies House. Previously both small and medium sized groups were exempt from this requirement.
This means that if your company is the parent company of a medium sized group of companies, it must prepare accounts which combine its own financial performance and position with the financial performance and position of its subsidiary companies. Such accounts are known as group or consolidated accounts. Group accounts can be complex in nature, depending on the size and number of companies within the group. Barnes Roffe is widely experienced in dealing with group accounts with many clients who either form a “large” group or already choose voluntarily to prepare group accounts.
A seminar is being held on this important topic, including a group tax update, at our East London office on Thursday 29th October 2009. To book your place please visit the Client Zone area of the website.
How do I know if my company is affected?
The changes to company law are as a result of the introduction of the 2006 Companies Act. The 2006 Companies Act had a phased implementation - with the medium sized group accounts exemption being removed for accounting periods beginning on or after 6 April 2008. Therefore, companies with a year end of 30 April 2009 were generally the first to be affected (but note that if your company has an unusual year end - such as 5 April 2009, or prepares accounts for less than one year, your company may have been affected sooner).
A group of companies will qualify as being medium sized (as opposed to small) if two of the following three thresholds are exceeded for two consecutive years:-
The calculation of group turnover and gross assets can be performed either “net” - after excluding transactions between group companies, or “gross” - without excluding transactions between group companies.
How do I know if my company is part of a group?
A group of companies will generally arise where one company has a controlling interest in one or more other companies - typically the “parent” company will own more than 50% of the ordinary share capital of the “subsidiary” company. A company may have more than one subsidiary and similarly a company may be both a parent and a subsidiary.
Are there any exemptions?
Yes. Firstly, small groups of companies remain exempt from the requirement to prepare group accounts.
Companies which are both a parent and a subsidiary company are also likely to be exempt provided they form part of a larger group of companies for which group accounts are prepared.
Similarly, parent companies whose subsidiary interests can be considered immaterial are exempt from the requirement.
Barnes Roffe Topical Tips
If you are a Barnes Roffe client and you are affected by the change then your relationship partner will be contacting you shortly to discuss and explain the group accounts process and how it affects you.
You should also contact your relationship partner if your company’s circumstances have recently changed or you have made or are considering making an investment which you think could lead to your company becoming part of a medium sized group.
There’s also never been a better time to consider the tax implications for your group. Our specialist tax partners will be pleased to review your situation and advise further.
If you are not a client but would like to discuss this issue further then please contact any one of the firm’s partners detailed in the About Us section of this website who will be pleased to discuss your requirements with no obligation. Alternatively you can submit your query using the Contact Us feature.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT142 VAT Fuel Scale Update-2009
All change again on VAT fuel scale charges
In Topical Tips 115 (April 2008) we reported on a change to VAT fuel scale charges from 1 May 2008. This linked the VAT charge for businesses that recover VAT on fuel used for private motoring to the CO2 emissions of each car.
For VAT periods starting on or after 1 May 2009 a new set of scale charges must be applied.
Points to note include:
Please refer to the table below:
Rates per vehicle
| Twelve month period | Three month period | One month period | ||||
| CO2 band g/km | Scale Charge | VAT due | Scale charge | VAT due | Scale charge | VAT due |
| £ | £ | £ | £ | £ | £ | |
| less than or equal to 120 | 505 | 65.87 | 126 | 16.43 | 42 | 5.48 |
| 125 | 755 | 98.48 | 189 | 24.65 | 63 | 8.22 |
| 130 | 755 | 98.48 | 189 | 24.65 | 63 | 8.22 |
| 135 | 755 | 98.48 | 189 | 24.65 | 63 | 8.22 |
| 140 | 805 | 105.00 | 201 | 26.22 | 67 | 8.74 |
| 145 | 855 | 111.52 | 214 | 27.91 | 71 | 9.26 |
| 150 | 905 | 118.04 | 226 | 29.48 | 75 | 9.78 |
| 155 | 960 | 125.22 | 239 | 31.17 | 79 | 10.30 |
| 160 | 1010 | 131.74 | 251 | 32.74 | 83 | 10.83 |
| 165 | 1060 | 138.26 | 264 | 34.43 | 88 | 11.48 |
| 170 | 1110 | 144.78 | 276 | 36.00 | 92 | 12.00 |
| 175 | 1160 | 151.30 | 289 | 37.70 | 96 | 12.52 |
| 180 | 1210 | 157.83 | 302 | 39.39 | 100 | 13.04 |
| 185 | 1260 | 164.35 | 314 | 40.96 | 104 | 13.57 |
| 190 | 1310 | 170.87 | 327 | 42.65 | 109 | 14.22 |
| 195 | 1360 | 177.39 | 339 | 44.22 | 113 | 14.74 |
| 200 | 1410 | 183.91 | 352 | 45.91 | 117 | 15.26 |
| 205 | 1465 | 191.09 | 365 | 47.61 | 121 | 15.78 |
| 210 | 1515 | 197.61 | 378 | 49.30 | 126 | 16.43 |
| 215 | 1565 | 204.13 | 390 | 50.87 | 130 | 16.96 |
| 220 | 1615 | 210.65 | 403 | 52.57 | 134 | 17.48 |
| 225 | 1665 | 217.17 | 416 | 54.26 | 138 | 18.00 |
| 230 | 1715 | 223.70 | 428 | 55.83 | 142 | 18.52 |
| greater than or equal to 235 | 1765 | 230.22 | 441 | 57.52 | 147 | 19.17 |
Identify the band
For vehicles registered after 2001, the CO2 emissions figure appears on the Vehicle Registration Certificate (VC5). For vehicles registered between 1997 and 2001 the information can be obtained from The Society of Motor Manufacturers and Traders Limited website. In addition, the Vehicle Certification Agency Car Fuel Data website can be used to search for specific cars. Further historical information is available at The Vehicle Certification Agency.
For vehicles that do not have a CO2 emissions figure, the CO2 band is based on engine size, as follows:
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT141 Pre-Nuptial Agreements
Background:
Estate planning is a lot easier and more tax efficient if you are married - which is of little consolation to the many people choosing to stay single these days. Perhaps one of the reasons for this reluctance to marry is the financial implication of divorce. In this edition of Topical Tips, we look at estate planning for couples, and ask if a recent case means that pre-nuptial agreements (‘pre-nups’) are now recognised under English law.
Estate planning and marriage - an example:
Peter and Jane are married. Peter gives Jane £100,000. He dies a year later, leaving everything to Jane.
If they are married, the IHT situation is benevolent: the gift is IHT exempt and no IHT is payable on his death. His nil-rate-band is not used in the will, so it is transferable to Jane, thereby reducing the IHT payable on her death.
If they aren’t married, the outcome is distinctly less favourable. The gift is only a PET (Potentially Exempt Transfer) and, as he died a year after the gift, it is added back to his estate in full.
There is no spouse exemption on his death, so after taking account of the nil-rate-band and any other IHT exemptions, IHT at 40% will be due.
Just to rub salt into the wound, the statutory rules on intestacy only make specific provision for spouses and civil partners. All that the unmarried partner can do is to seek a court order as a ‘dependant’ of the deceased.
Has the pre-nup’s time finally come?
The pre-nup is widely used in Europe and the USA as a binding agreement to regulate financial provision on divorce.
In the UK, it has struggled for recognition for reasons that are arguably well past their sell-by date, but the courts have been moving towards recognising its status for a while.
In a recent case, the Court of Appeal decided that a pre-nup should be considered in the event of a divorce and that it may even be decisive. This meant a much lower award to the husband of a wealthy heiress in this particular instance.
For those afraid to take the marital plunge, perhaps a pre-nup will make the marital waters a little less frightening!
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT140 Company Car Fuel Update
Mileage rates from July:
In TT129 we reported on the new rates to be used for paying the fuel-only element to employees who claim for business miles driven in company cars. (Remember, this applies only when the employee with a company car pays for all their fuel and claims back only the business element). The rates stated in that issue of Topical Tips should be used from 1 January 2009. However, from 1 July 2009 the rates have been altered as shown below.
Advisory Fuel Rates
| Engine size | Petrol | Diesel | LPG |
| 1,400cc or less | 10p | 10p | 7p |
| 1,401cc to 2,000cc | 12p | 10p | 8p |
| Over 2,000cc | 18p | 13p | 12p |
You should update your systems to match the new rates or you might inadvertently pay employees the wrong amount and create a tax and National Insurance bill for the company.
Future changes:
HMRC will consider changing the rates if fuel prices fluctuate by 5 per cent from the published rates when each review is made and where they consider the price change will be sustained.
Employers can check this at: http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm
The next potential review of these figures will be from 1 January 2010.
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT139 State Pension Forecast
State Earnings Related Pension Scheme
During the course of the working life of any employee in the UK they will pay Class 1 National Insurance Contributions. A proportion of these contributions are paid into the State Earnings Related Pension Scheme (SERPS). However, it is possible for the contributor to elect to have this proportion invested in their own personal pension policy. This is commonly known as claiming to opt out of SERPS. If the contributor is confident that they have not made any claim to opt out of SERPS then they will need to read the following warning. It is also worth noting that anyone receiving a state pension forecast should look at the entries made on the forecast carefully to ensure that they are correct.
State Pension Forecast
When a man is approaching his 65th birthday, or a woman her 60th, they will be sent a form from the Pension Agency that will allow the recipient to claim their state pension. When the form has been processed, the Pension Service will issue a state pension forecast. This must be very carefully checked. It is important to ensure that there are no missing National Insurance Contributions that have not been accounted for. This is because if all of the contributions have not been accounted for correctly, then this will result in a lower state pension being paid to the claimant.
Appeal
From receiving the forecast, the claimant will have only have 30 days from the date of the forecast to appeal against it if they are unsure that the contributions making up the pension forecast has been correctly accounted for.
Phantom Opt-Outs
In recent months it has come to our attention that claimants who have not in previous years elected to opt out of SERPS have received state pension forecasts that note that they had opted out of SERPS during identical periods from 1978 to 1997. Following an appeal, in one case the Pension Service restated the forecast without any challenge and awarded further pension of approximately £80 per week (over £4000 per year!).
Barnes Roffe Topical Tips
If you are uncertain about your SERPS position, please contact your Barnes Roffe LLP contact partner immediately so that they can arrange for the forecast to be reviewed.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT138 Second Home Capital Gains Tax
Background:
The recent uproar over MPs’ second homes has brought the current capital gains tax (CGT) rules onto the front pages. Commentators have speculated that the misuse of House of Commons expenses to pay for second homes will rebound in such a way that the current rules for CGT on second homes could be subject to change.
Current Rules:
Example of Use:
It can be seen above that the use of the property in the last 36 months of ownership is therefore not relevant for CGT purposes. You could have rented it out and it would still be CGT-free on the eventual sale. Indeed, if you rent the property out as residential accommodation then there is an additional CGT-free allowance you can claim if the property was once your residence. Using this rule you can have substantial periods of letting of a former residence without paying any CGT!
As an example, say you lived in one home and it was your main residence (i.e. you only had the one property). If you then bought a second home and started to use it as a residence (e.g. a weekend holiday home) then you now have a choice as to which home is your main residence. Broadly speaking you have two years from acquiring the second home to make or vary an election to nominate your main residence. If you did nothing then you risk the main residence being determined by fact later on. This might not suit your tax computation!
Using the above example, say you made the election to state the weekend retreat was your main residence. This election could then be varied after a few months to bring the main residence status back to your first house
When you come to sell the first house only a very small proportion of the gain (being a few months divided by your total length of ownership) will be subject to CGT. This would most likely be covered by your annual CGT free allowance. Alternatively, if the period of the election is in the last 36 months of ownership then it is tax-free under the above rules in any event.
However, when you sell the holiday home, the period which is tax-free is the short period for which you elected it as your main residence, plus (if not overlapping) the last 36 months of ownership. Hence, you could sell this after three and a bit years of ownership and pay no CGT without damaging your CGT free status of your first house.
Barnes Roffe Topical Tips
- The rules are complex, but there are useful aspects you can use to minimise your CGT.
- If you have a second home then take action now - even if you have not yet made an election all may not be lost!
- The tax-saving potential is large!
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT137 Holiday Home Tax Update
Tax Relief Changes:
On the same day as the last budget the government slipped in a change to tax relief on losses from renting out holiday homes. This will impact on homes in the UK and in the European Economic Area (EEA). The EEA comprises the EU plus Norway, Iceland & Lichtenstein.
Existing rules:
Many people have second homes and these are sometimes let out as furnished, short-term, holiday lettings. It is worth noting that such homes do not need to be in usual holiday destinations, they just need to meet certain tax rules to qualify as a business. The benefits of such qualification are:
The basic rules for holiday homes to count under the existing legislation are:
Note that the existing rules only allow UK situated property to qualify. Furnished, holiday properties situated outside of the UK are treated the same as all other property lettings (i.e. commercial and residential) under the existing rules. These do not allow the above tax benefits.
The Changes:
The UK Government has bowed to pressure from the EU to stop the UK tax law applying differently between UK and non-UK situated property and the rules have changed as follows:
How This Could Affect You:
If you have a non-UK holiday letting property in the EEA then you should consider the following questions:
There are strict time limits for making corrections and claims.
For income tax claims you can usually amend a return up to 12 months after the 31 January deadline for the return. Therefore you have until 31 January 2010 to amend the 2007/08 income tax return (similar rules apply for corporation tax returns, depending on the accounting period date). However, by concession HMRC will allow until 31 July 2009 to revise the 2006/07 income tax return (or 31 December 2006 corporation tax return).
For CGT you can review your situation as far back as 6 April 2003 to see if you can elect for:
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT136 Business Grants
What Are Business Grants:
Grants are a form of financial assistance available to businesses to support their expansion, modernisation, rationalisation and diversification. Known as Grants for Business Investment (GBI), they are available throughout the UK for capital projects. Regional Development Agencies (RDAs) administer the process of application for grants and their subsequent monitoring. In the south east of England the most likely RDAs you might deal with are the East of England Development Agency, the London Development Agency and the South East England Development Agency.
Where Do I Have To Be To Qualify:
There are two types of grant arrangement, one for businesses in Assisted Areas and another for those outside such areas. Assisted Areas are defined by exact postcodes as specified on this link: Click Here
In an Assisted Area, grants are available to any size of business, subject to certain criteria. The smaller the business the larger proportion of the capital expenditure may be eligible for a grant. Outside such areas the grants are only available to SMEs (Small and Medium Enterprises). Again, the smaller the business, the larger the proportion of capital expenditure that may be eligible. A small entity must have a headcount of less than 50 and turnover or balance sheet total of under €10M. A medium sized enterprise must have a headcount of under 250 people, turnover of under €50M or a balance sheet total of under €43M. The following table shows the proportion of capital expenditure that may be allowed:
Enterprise size Large Medium Small
Assisted areas 10-15% 20-25% 30-35%
Non-assisted areas n/a 10% 20%
What Are The Key Requirements:
The project:
Eligible Expenditure:
(In the case of a grant based on the wage and salary costs of jobs created, the jobs must be created within three years of the completion of the investment project and must be maintained for a minimum period of five years after completion of the investment project for a large enterprise or three years for an SME.)
Size Of Grant:
The amount of assistance that may be available ranges from £10,000 to £1,999,999. Applications for grants for £2 million and above are handled directly by the Department for Business, Enterprise and Regulatory Reform (BERR) in London.
What Is The Application Process:
This will include:
Other Grants:
There are also grants available for certain research & development work on technologically innovative products or processes, plus some under the Rural Development Programme for England.
Barnes Roffe Topical Tips:
To find out if your business may be eligible for a grant, contact your Barnes Roffe partner who will put you in touch with grant specialists.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT135 Business Property Relief
Some Good News - what a relief!
In this issue of Topical Tips, we look at the relief from Inheritance Tax (IHT) on business property and a recent case that has made the relief even more beneficial.
Transfers of Values
IHT arises when an individual makes a Transfer of Value (TOV). A TOV is made whenever a living person (the Donor) gives something away, say to his children or to a trust. When an individual dies, he is deemed to make a TOV of all of his estate at market value. Business Property Relief (BPR) can reduce the amount of IHT payable.
BPR Explained
BPR and business assets
Until recently it was thought that if a sole trader gave away an asset of his business, rather than the business itself, this transfer would not qualify for BPR.
For example, if Joe the Plumber gave away a piece of land he used for the purposes of his plumbing business, it was thought that this gift would not qualify for BPR, even though a gift of the business itself (or of shares in Joe the Plumber Ltd) would.
The High Court has now confirmed that a gift of land by Joe in these circumstances does qualify for BPR. The test case involved a farmer, the late Nelson Dance, who transferred some farmland into trust. This was a chargeable TOV for IHT, but to an extent the charge was relieved as it benefited from Agricultural Property Relief (APR). However, the value of the land included significant development value, which does not qualify for APR. The development value of the land would therefore be subject to IHT unless BPR was available.
The Court confirmed that Mr Dance’s estate suffered a loss in value when he gave the land away. That loss was a loss in value of a business or an interest in a business. It was therefore subject to BPR, even though, after the transfer, it was no longer held for business purposes.
This makes life simpler and more predictable than previously: if an asset is part of your business and qualifies for BPR, and you give away that asset, the loss in value of your business caused by the transfer will benefit from BPR, no matter to whom you give it or why.
This new ruling opens up important tax planning opportunities that should be reviewed to ensure you are aware of your options.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT134 Trade Marks
What's in a name?
That which we call a rose
By another other name would smell as sweet.
Romeo and Juliet (II,ii,1-2)
Or Would It?
To take this famous quote rather literally, while it may be true that a rose by any other name would smell as sweet, it would be deeply upsetting if you were a rose breeder and a competitor was selling roses under your brand name. And of course this applies to most products and services. It's certainly no joke to lose your name to a competitor.
You Could Lose Your Asset:
Brand names - known legally as trade marks - are among companies' most valuable assets, and are a vital commercial tool. Trade marks and trade names are used by every business to distinguish their goods and services from the goods and services of competitors in the market place. Consumers recognise trade marks and trade names as showing such things as a common source, a certain standard or a mark of quality.
But many brand owners find out too late that their trade marks are vulnerable to misuse by their competitors. Poorly protected marks are at risk of being lost by their legitimate owners, just for the sake of taking a few legal precautions.
What Is Classified As a Trade Mark?
A trademark as defined by the Trade Mark Act 1994 is:
Any sign capable of being represented graphically, which is capable of distinguishing goods or services of one undertaking from those of other undertakings.
The mark may consist of words (including personal names), designs, letters, numerals or the shape of goods or their packaging.
What Are Trade Marks Used For?
They are designed for various purposes including:
Protect Your Asset
To protect your trademark, your must register it. Registering your trademark gives you the exclusive right to use your mark for the goods and/or services that it covers.
Barnes Roffe Topical Tips:
Remember, a registered trademark:
Please contact us to be put in touch with legal experts who will help you register your brand to ensure your competitors do not abuse or misuse it.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT133 Pension Pot Protection
The BackGround:
The pension landscape changed in April 2006 when the limit on contributions was loosened, but replaced with a limit on the amount that you can have in a pension fund.
The limit then was set at £1.5m and is now £1.65m for the current tax year, £1.75m next year and£1.8m in 2010-11. The limit is then frozen until at least 2015-16 following the Pre Budget Report last autumn. This cap could turn out to be very unfortunate for some.
If the surplus is taken as a lump sum, then a 55% tax charge applies. If taken as income, a 25% tax charge on top of normal income tax charges applies.
Now Is The Time To Act:
Anyone wishing to protect large pension funds from the taxman needs to act now!
If your pension fund is greater (or you believe may eventually be greater) than the government's lifetime allowance, then you need to apply for tax protection by 5 April 2009 or you could suffer the unpleasant 55% tax charge on the excess.
Prepare For Tommorow:
There are two options, primary protection and enhanced protection.
Primary protection is for those whose pension entitlement was greater than £1.5m at 5 April 2006. It protects the funds built up prior to this date on a proportionate basis. A fund of £2m on 5 April 2006 would be protected up to 1.65/1.5 x £2m = £2.2m.
Enhanced protection protects all pension rights from the lifetime allowance charge. It's for those whose pensions rights were either below or above the lifetime allowance on 5 April 2006. However, for enhanced protection to be maintained, strict limits apply to the accruals allowable under defined benefit schemes, no further contributions can be made to defined contribution schemes and care is required on whether transfers are allowable.
A typical scenario could be a pension entitlement that was valued at £1.2m at 5 April 2006 and which you do not intend to take benefits until 6 April 2010. The standard lifetime allowance at that time will be £1.8m and you think that your pension rights will be worth more than £1.8m at that date. If you do not register for enhanced protection and your rights are worth £2m when you take them on 6 April 2010, you are liable to a lifetime allowance charge on £200,000. If the £200,000 is taken as pension, the lifetime allowance tax charge is £50,000 (25%) and then it will be further taxed at your marginal rate of income tax. If taken as a lump sum, the lifetime allowance tax charge is £110,000 (55%) with no further tax to pay.
However, if you register for enhanced protection and you keep to the rules, there will be no lifetime allowance charge. The entire £2m fund can be used to pay your benefits.
Pensions can be difficult to value. Whilst money purchase schemes are relatively straightforward, a defined benefit scheme where benefits have yet to be taken, each £1 per annum of pension is valued as £20 against the Lifetime Allowance. Therefore a defined benefit of £75,000 per annum pension equals the 2006-07 £1.5m Lifetime Allowance. Don't under estimate the size of your benefits!
Remember The Deadline, Make The Claim:
The required information from pension providers needs to be obtained and this can take time. A special form then needs to be submitted in time for 5 April 2009.
To make a claim, download form APSS 200 from the HMRC website at http://www.hmrc.gov.uk/pensionschemes/protection.htm or by clicking here
Barnes Roffe Topical Tips:
And a final note on another important VAT matter
Due to a recent ruling, claims (known as 'Fleming Claims') can be made to reclaim under-recovered input VAT paid before 1 May 1997 and to reclaim overpaid output VAT declared before 4 December 1996. In some cases, recent court rulings can be used and their impact backdated to make a reclaim. All claims must be submitted before 31 March 2009. In particular charities, car dealers, hot food retailers and members clubs should consider their position. Other more diverse businesses such as bowling alleys, skating rinks, etc. should consider it too. If you think this will benefit your business you must act now!
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT132 VAT on Buildings
Think Before You Act:
In the current economic climate, some businesses will take strategic decisions that, whilst done for commercially justifiable reasons, will have a VAT impact.
For instance, consider a business that decides to sub-let part of its building which is excess to requirements:
Valid questions are:
The Complication Of Partial Exemption:
At a basic level, most transactions (sales and lettings) are exempt from VAT, however there are complexities that need to be considered. While the letting of a building might be exempt from VAT, this introduces the concept of partial exemption, whereby a VAT registered business makes both taxable supplies (e.g. its normal sales) and exempt supplies (e.g. subletting of the business premises). If this occurs then the business cannot reclaim VAT on costs directly attributable to the exempt letting business (e.g. agent's fees). Also, it cannot reclaim a proportion of the input VAT on the non-direct costs (e.g. general overheads). There are two methods for computing the disallowed amount. This is subject to quarterly and annual de-minimis limits where, should the input tax on the exempt supply be small enough, all the input VAT can be claimed. Needless to say this is not a simple calculation!
In some cases it is possible to avoid partial exemption by making a decision to opt to tax the building in order to get all the input VAT back (by making only taxable supplies). This is a 20-year election made to HM Revenue & Customs where the business undertakes to charge VAT if it makes any onward supply of the building (e.g. on a sublet or an onward sale). There are strict time limits to opt to tax a building and the business must make a decision on its strategy before it makes any supply (e.g. a property owner must opt to tax the building to get the purchase VAT back before making the first rental supply).
Implications On Sale Of Building:
Some supplies of buildings (e.g. the freehold sale of a commercial building under three years old) must always be standard rated VAT supplies. If a commercial property has been opted to tax then its sale will be subject to VAT as well. This addition of VAT might have an impact on the sale of the building. For instance, if the business purchasing the building is not eligible to recover VAT (e.g. it is a charity, educational establishment or in the financial services industry) then it may be less willing to take on the building compared to another property with no VAT. However, if the purchaser is a fully taxable business using the building for its taxable activities, the VAT can be recovered, although adjustments under the Capital Goods Scheme might be required during the following ten years. In this case it is important that a record of the building's history is maintained. Should the purchaser decide to let or part let the building then it will have to consider the option to tax as explained above.
More Information:
As can be seen, the subject is very complex and this issue of Topical Tips is not meant to be a full summary of the rules. More information can be found here: HMRC VAT Notice 706
Barnes Roffe Topical Tips:
And a final note on another important VAT matter
Due to a recent ruling, claims (known as 'Fleming Claims') can be made to reclaim under-recovered input VAT paid before 1 May 1997 and to reclaim overpaid output VAT declared before 4 December 1996. In some cases, recent court rulings can be used and their impact backdated to make a reclaim. All claims must be submitted before 31 March 2009. In particular charities, car dealers, hot food retailers and members clubs should consider their position. Other more diverse businesses such as bowling alleys, skating rinks, etc. should consider it too. If you think this will benefit your business you must act now!
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT131 Get Your Company Accounts in on Time!
From 1 February 2009 the late filing penalties for company accounts have risen. Remember, the deadlines and penalties apply not only to limited companies, but also Limited Liability Partnerships (LLPs).
Filing deadlines
For accounting periods starting before 6 April 2008:New filing penalties
From 1 February 2009 the new filing penalties are:| New rules Ltd & LLP | New rules Plc | Old rules Ltd & LLP | Old rules Plc | |
| Up to one month overdue | £150 | £750 | £100 | £500 |
| Over one month and up to three months overdue | £375 | £1,500 | £100 | £500 |
| Over three months and up to six months overdue | £750 | £3,000 | £250 | £1,000 |
| Over six months and up to twelve months overdue | £1,500 | £7,500 | £500 | £2,000 |
| Over twelve months overdue | £1,500 | £7,500 | £1,000 | £5,000 |
Barnes Roffe Topical Tips
TT130 Tax Return Filing & Payment Deadline
The Deadline Approaches:
The deadline for filing your Income Tax Return (ITR) and paying any tax due is 31 January - only a few days away!
For the 2007/08 tax year the deadline for filing a paper ITR was shortened to 31 October 2008. Anyone wishing to make a filing now must file it electronically. For those people for whom Barnes Roffe acts this is not a problem as we file all ITRs electronically as soon as we receive the signed copy from our client.
However, as payment deadlines approach we are often asked for details of how the tax due can be paid on time.
Payment Methods:
By cheque please ensure that you allow plenty of time for your cheque to arrive and be processed by HM Revenue & Customs (HMRC) by the due date. You can take the cheque to the bank and pay it in over the counter, or post it. If this is not convenient, you might wish to use one of the following methods of payment.
By bank transfer many banks online e-banking systems already have the details of the HMRC bank account pre-defined as a payee. However, you should double-check the bank details offered by the e-banking system to ensure that they correspond to the details on the paying-in slip provided by HMRC. You should ask your bank for the recommended number of days you need to allow in order to be certain your payment reaches HMRC on time this is usually four working days.
By debit or credit card visit http://www.billpayment.co.uk/hmrc. Please be aware that HMRC will charge an additional 1.25% should you wish to pay by credit card (this is not charged for a debit card transaction).
By telephone call 0845 305 1000 to pay using a debit or credit card without using the Internet.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT129 Company Car Fuel
Mileage Rates from January:
In TT127 we reported on the new rates to be used for paying the fuel only element to employees who claim for business miles driven in company cars. (Remember, this applies only when the employee with a company car pays for all their fuel and only claims back the business element). The rates stated in that issue of Topical Tips could be backdated to 1 June 2008. However, from 1 January 2009 the rates have been reduced as shown below.
Advisory Fuel Rates:
Engine size Petrol Diesel LPG
1,400cc or less 10p 11p 7p
1,401cc to 2,000cc 12p 11p 9p
Over 2,000cc 17p 14p 12p
You should update your systems to match the new rates or you might inadvertently overpay employees and create a tax and national insurance bill for the company.
Future Changes:
HMRC will consider changing the rates if fuel prices fluctuate by 5 per cent from the published rates when each review is made and where they consider the price change will be sustained.
Employers can check this at: HMRC
The next potential review of these figures will be from 1 July 2009.
Barnes Roffe Topical Tips:
Please refer to TT127 and consider reviewing all staffs company car benefit to see if the fuel benefit is worth it often scrapping it could benefit both you and your employees!
Ensure you update the above rates to avoid underpaying staff the highest potential tax-free amount for their business mileage or to avoid overpaying staff and creating an unexpected tax and National Insurance bill for the company.
If in doubt then please speak to your Barnes Roffe LLP partner for guidance.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT128 Merry Christmas from Barnes Roffe
We hope that over the last twelve months Topical Tips has been useful and interesting. In this last Topical Tips for the year we present a round-up of the issues from 2008.
Editors Comments
This year has seen some remarkable events: a climb down by the Chancellor on his removal of taperrelief (see TT111); the introduction of the main bulk of the Companies Act 2006 (see TT114 for some details); a new regime for Capital Allowances (see TT119); more rule changes for so called non-doms (see TT120); a temporary stamp duty land tax relief (see TT123); and extra regulation on landlords (see TT125). However, in terms of drama, nothing compares to the sudden fall in the economy and the drastic measures announced by the Chancellor in his November pre-budget statement.
With VAT down to 15% for 13 months and proposed increases in National Insurance and Income Tax post the next general election, the taxation outlook is best described as ‘changeable’. It is clear that the economic outlook is grim and 2009 will bring some challenges for the whole of the world. More than ever, it remains a fact that good housekeeping and regular advice will allow clients to keep on top of the complex changes ahead. But for now we wish all our clients and contacts a merry Christmas and the very best for the coming year.
We hope that you look forward to receiving Topical Tips in 2009!
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT127 Company Car Fuel Update
When is a benefit not a benefit?
Employees often still regard the provision of a company car as a benefit worth having. The certainty of the tax cost is attractive when compared to the uncertainty of maintenance and depreciation. Employers also regard company cars as important to ensure that staff are motivated and able to travel for their job in a reliable and presentable fashion.
However, the tax on a company car is split into two parts. Firstly the tax on providing the car and secondly the tax on the provision of fuel that includes private travel (e.g. home to work, social and domestic). Wisely, many employees choose to drop the private fuel element of the benefit package and just claim for the business mileage incurred (see below), which paradoxically saves them (and the company) money.
What is the saving?
Consider an average car; say a 2.0L petrol Ford Mondeo Estate. This has CO2 emissions of 189 g/km. Therefore for 2008/09 the fuel benefit is 25% of the fuel scale multiplier of £16,900, so the taxable benefit is 25% x £16,900 = £4,225.
Assuming the car does 30 mpg, the employee pays tax at 40%, they do 10,000 private miles per year and the cost of petrol is £1 per litre then the following calculation shows the wisdom of not taking the private fuel benefit:
Cost to the company if private fuel paid for:
| Private fuel (net of VAT) | £1,290 (£1,515 including VAT) |
| VAT scale | £174 |
| Class | 1A NIC £541 |
| Total Cost | £2,005 |
And the cost to the employee is:
| Tax on benefit | £1,690 |
If the employee paid for all the fuel and reclaimed the Advisory Fuel Rates then they should break even on the fuel cost for the business miles. However, they would save £1,690 in tax and only pay out £1,515 in private fuel costs. The company would save £2,005. Hence, the employee will be absolutely better off by £175 per annum and the company by £2,005.
Of course, many employees will do far fewer than 10,000 private miles and the savings will be considerably more.
The company can choose to share the benefit with the employee as a sweetener for the change in the arrangements.
(the above calculations are at the 17.5% rate of VAT, but even at 15% there is little change in the benefit!)
Business mileage rates
In TT107 we reported on the new rates to be used for paying the fuel only element to employees who claim for business miles driven in company cars. (Remember, this applies only when the employee pays for all their fuel and only claims back the business element.)
From 1 July 2008 the rates have changed to:
Advisory Fuel Rates
| Engine Size | Petrol | Diesel | Lead |
| 1,400ccor less | 12p | 13p | 7p |
| 1,401cc to 2,000cc | 15p | 13p | 9p |
| Over 2,000cc | 21p | 17p | 13p |
However, due to the very steep rise in petrol costs HMRC have stated that they are happy for the new rates to be backdated to 1 June 2008.
This can be checked on http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm
As the rates have gone up you could review all payments made since 1 June 2008 and increase the tax free compensation to employees. The next potential review of these figures will be from 1 January 2009.
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT126 Entrepreneur Relief - Asset Sale Pitfalls
Background
Historically, under Taper Relief, you could sell a business asset after two years of ownership and any capital gain would be taxed at 10%. Not only did the shares in an unquoted trading company or an interest in a partnership count as business assets, but any property used in the trade of an unquoted limited company or partnership also qualified, even if it were held outside the business in personal names. The property owner could charge rent to the business and this would not have an impact on the rate of tax on a future capital gain.
With the demise of Taper Relief, from April 2008 a new regime has existed for taxation of capital gains on business assets. See Topical Tips 104 for the major details of the change. Although a flat rate of tax of 18% now applies to most capital gains, the first £1M of gains made by any individual during their lifetime on business assets is taxed at 10%. This relief is called Entrepreneur Relief (ER) and applies, for example, when the shareholder sells shares in a Personal Company (as defined), see TT111 for details.
However, business owners should be aware that the rules for assets (e.g. properties) held outside of businesses and rented to them have been changed since the days of Taper Relief.
Here we deal with our clients' most common scenario where: they own property personally: they rent it to a limited company for use in that company’s trade; and they are working shareholders in the company. Other, similar, rules exist for businesses run through partnerships.
Remember that generally a disposal can include a sale, a gift, a transfer or a sum derived from a capital asset (e.g. compensation). It is a common misconception that a gift that realises no money is not a taxable disposal, but it is - and tax will normally be payable.
In some circumstances for business assets or gifts into trusts a holdover election can be made to avoid paying the tax and transfer the taxable gain back into the base cost of the asset for the new owner, but advice should be taken before making any gift of an asset that stands at a gain!
The new rules
To qualify to pay tax at 10% on a gain made on a sale of shares in a company you must satisfy certain employment, percentage ownership and length of ownership tests (see TT111).
This makes the company a Personal Company (as defined).
To make a gain that qualifies for ER when selling a property held personally you must satisfy additional, stringent tests compared to Taper Relief. These are:
Assuming you meet the above conditions, the ER available to claim on the property will then be reduced proportionately depending upon:
For example, if the property was rented out to a third party tenant for a period of time, then that proportion of the gain would not qualify for ER. Similarly, if the owner of the property charged 75% of market rent to their business then only 25% of the gain would qualify for ER.
Pitfall 1
If an individual sells the property without selling any shares in the company then no ER can be claimed on the property gain! Timing is key!
Pitfall 2
If an asset such as a building is held outside the business then any payment for its use by the business (e.g. rent) will reduce the amount of ER than could be claimed if the asset was sold in the correct way.
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner.
Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT125 New Landlord Regulations
Compulsory Energy Performance Certificates
From 1st October 2008 new regulations come into force for anyone who is involved in letting property.
Landlords of both residential and commercial premises will need to have an Energy Performance Certificate (EPC).
What is an EPC?
An EPC contains two comparative graphs, one being the Environmental Impact Assessment, the other the energy efficiency of the property. As with domestic appliance ratings, the closer to Grade 'A' on both scales the more efficient the property and less of an impact it has on the environment.
The report also contains recommendations where the property scores could be improved. Some are as simple as changing over to energy efficient light bulbs. More costly recommendations can include double glazing, cavity wall insulation and replacement of heating apparatus. The recommendations are not mandatory, but can save money following the initial expenditure.
Comply, or face a fine
Landlords will have to obtain a new certificate once every ten years at their own expense and make them available to all prospective tenants before any tenancy agreement, rental contract or lease is signed.
Landlords who do not produce an EPC when asked, either by a tenant or local Trading Standards, will face a fine.
An EPC can be issued by a Domestic Energy Assessor, a Home Inspector or the landlord. In the latter case, the Landlord must have attended and passed an approved accreditation scheme.
General guidance
The Department for Communities and Local Government has provided some guidance for landlords as follows:
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT124 Redundancy Process - Part 2
Getting the procedure right
Last month Topical Tips 122 considered the definition of redundancy and some of the problems arising from it.
Having established a redundancy exists it is vital that the correct process is followed before an employee is made redundant. If this process is not followed an employer may face costly claims. It is not just a case of getting the right answer, but going the right way to get that answer.
The legal bare minimum
Since October 2004 the law has required that a basic process should be followed in most redundancy situations.
One of the aims was to keep matters simple and keep claims out of the Employment Tribunal. However, these minimum legal procedures have been subjected to much criticism as they have in fact led to an increase in Tribunal claims!
In essence the minimum process requires that the employer: writes to the employee explaining that they are at risk of redundancy; meets with the employee to discuss matters; and then if the employee is confirmed as redundant, offers an appeal.
In reality, the situation is more complex than this and as the minimum rules will soon be abolished, they will not be considered further here.
The real bare minimum
If the redundancy goes to a Tribunal, the Tribunal will consider whether it was reasonable to make an employee redundant and the employer will usually be expected to have followed a more extensive process. This will include a proper consideration of the need for redundancies.
Many redundancies, different rules
Different rules apply when the proposal is to make 20 or more employees redundant at one establishment in a period of 90 days or less. They require the employer to provide specified information to representatives of a recognised trade union* and to genuinely discuss certain matters with them. Depending on the numbers involved, the discussions must start between 30 and 90 days before the first redundancies are to take place. Notice of dismissal cannot be given until the process has completed. Failure to follow the process without good reason can result in compensation of up to 90 days' salary per employee - so it is very important to get it right!
*If there isn’t one, the alternative is elected representatives of the employees. The rules specify how the election is to take place.
Informing the Government
Written notice of certain redundancies has to be sent to the Department for Business, Enterprise and Regulatory Reform (BERR). If the proposal is to make 100 or more employees redundant at one establishment in a period of 90 days or less, at least 90 days' notice must be given before the first redundancy takes effect. If the proposal is for at least 20 or more redundancies at one establishment in a period of 90 days or less, at least 30 days' notice is to be given.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT123 Stamp Duty Land Tax Changes
Some weeks ago it was leaked to the press that the Government was planning changes to Stamp Duty Land Tax (SDLT) to boost the housing market. This rumour almost paralysed an already badly weakened market as first-time buyers waited for further news.
Finally, on 2 September 2008, the Government announced a temporary relief from SDLT on purchases of residential properties of £175,000 or less in value. This commenced on 3 September 2008 and will last until 2 September 2009.
Previously the exemption limit was £125,000.
Buyers of properties between £125,000 and £175,000 thus save between £1250 and £1750 compared to what they would have paid last month.
Oddly this brings the new threshold higher than not only the old threshold, but higher than the £150,000 threshold for properties in areas defined as disadvantaged. It is believed that this special threshold for disadvantaged areas will remain in place when the current special increase comes to an end.
It remains to be seen what the impact of this change will be as first-time buyers assess the value of this saving in the context of a falling market. Furthermore, in the South East most properties are valued above the threshold, so the benefits will be mainly enjoyed elsewhere.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT122 Redundancy Process - Part 1
Redundancy: avoid the mistakes and minimise the disruption
The thought of having to reorganise staff with as little business disruption as possible, while navigating through a complex legal process, can be a daunting prospect. Add to this the worry of potentially large compensation awards if you get the legal process wrong, and it is easy to understand why many employers feel despair when faced with the need to lay off staff.
However, given thought and preparation, it is possible to avoid the common mistakes and properly and sensitively complete the redundancy process.
In this and the next Topical Tips we will look at some of the more common errors and ways to avoid them. Here we will look at whether there is a redundancy, then next month we will look at the process to follow to safely implement redundancies.
Is there a redundancy?
Redundancy is a technical term, and will often catch out the unwary. It is a fundamental and often costly mistake to dismiss an employee for redundancy where no redundancy exists.
Basically, a redundancy will exist in the following circumstances:
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT121 VAT Error Disclosure
Previous rules
The previous rules for VAT registered businesses required corrections for VAT errors to be made on the next VAT return, so long as the net errors were up to £2,000 and no more; beyond this a voluntary disclosure had to be made by letter or by using form VAT 652. Click here for HMRC link
New rules
Under the new rules, effective for VAT returns starting on or after 1 July 2008, the limit above which a separate disclosure is required has been significantly increased. Taxpayers need now only make a voluntary disclosure (by letter or on form VAT 652) for the lower of:
However, there are certain aspects of the adjustment/voluntary disclosure regime that must be noted:
The changes mean that default interest will apply less often, as many more errors can now be adjusted through the appropriate return, the relevant VAT being accepted as correct tax for that period.
Although these long-overdue changes are most welcome, taxpayers should still ensure each return is carefully reviewed and voluntary disclosures made where applicable. Additional care should be taken in the transitional period to make sure whether specific errors discovered fall under the old or new limits.
Useful HMRC links
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT120 Non-Domiciled Rules
UK taxation of non domiciled individuals
There has been considerable media publicity about the proposals to amend the UK taxation policy in respect of individuals who are not domiciled in the UK (so-called non-doms). The proposals first announced in the Pre-Budget statement in October 2007 have now been published in a considerably revised form in the Finance Bill. They may still not be in their final form but it is clearer how they are likely to apply.
What is a non-dom?
Domicile is a general law concept. It is not the same as residence (see Topical Tips 118), which is determined by presence in the country. Domicile is a much more complex affair. Everyone has what is known as a domicile of origin, which is determined by the place in which their father was domiciled at the time of their birth. This may not be the same as the actual country in which they were born. For example, a child born in the UK to a father who was domiciled in India would have an Indian domicile of origin. Similarly a child born in France to a father who was domiciled in the UK would have a UK domicile of origin.
A 'non-dom' in the context of UK taxation is therefore someone resident in the UK whose domicile of origin is not the UK.
Where someone moves to a new country and decides to reside there indefinitely with no intention of ever leaving, then it may be argued that they have acquired a 'domicile of choice' in that country. Every situation must be looked at by reference to the specific facts and it is important to note that the onus of proving a change of domicile always rests on the person who claims the change.
What are the tax advantages of being a non-dom?
The domiciled individual is taxed on income and gains as they arise in each tax year. The non-UK domiciled individual has only been taxed on those sums to the extent that they have actually brought them into this country (this is referred to as the 'remittance basis').
The non-UK domiciled individual who is resident in the UK for tax purposes has thus been able to enjoy a considerable tax advantage over the resident and domiciled individual. For example, if a non-UK domiciled individual had investment income of £20,000 arising outside the UK in a tax year and only transferred £1,000 of that into the UK they would only be taxed on the £1,000. There were a number of planning routes open which allowed the nature of remittances to be planned so as to minimise the impact still further.
What is the change?
The fundamental change is that from 6 April 2008 all UK resident individuals will be taxed on their worldwide income as it arises irrespective of their domicile unless they claim to be treated under the remittance basis.
Who can make the claim?
The opportunity to make the claim to the remittance basis is open to any individual who is not domiciled in the UK or is not ordinarily resident in the UK. If the claim is made they will pay tax only on the income and gains which they actually remit to the UK in the tax year concerned. There is a downside in that they will lose entitlement to personal allowance for income tax purposes and the annual capital gains tax exemption. The decision whether or not to claim the remittance basis can be made each year and so it is possible to move in and out of the basis to secure the best tax position.
A £30,000 charge
A £30,000 remittance basis charge will be levied in addition to any tax on remittances in situations where the person making the claim for remittance basis has been resident in the UK for at least seven out of the nine years preceding the year of claim. It will not be applied where the individual is under 18 years of age throughout the relevant tax year. Years of residence before 6 April 2008 will be counted and any year where an individual was resident for just part of a year will count as a full year. Anyone who has been continually resident since 6 April 2001 will have to pay the remittance basis charge from the outset.
Where the £30,000 charge has to be paid, the individual must nominate part of their overseas income and gains on which the sum will represent the tax due. If and when that particular income or gain is remitted to the UK it will not be chargeable to tax. The charge will also be available for relief under most double tax treaties that the UK has with other countries.
Exemption from the £30,000 charge
If an individual remits to the UK all the income that arises in a year, or only leaves up to £2,000 unremitted, then they may have the benefit of the remittance basis without having to make a claim and without having to lose personal allowances or pay the £30,000 charge.
How are remittances calculated?
The rules on identifying and calculating remittances are being overhauled and all the old planning routes appear to have been blocked off. At the most basic level, there will now be a remittance if an overseas income is used to purchase an asset such as a car and then bring the asset into the UK for personal use. Previous practice of using remittances from ceased sources and the practice of making gifts outside the UK to individuals who then remit are also being blocked off.
The changes in this area represent the most significant overhaul of the taxation of non-UK domiciled individuals for decades and very careful planning is now going to be needed to ensure the most efficient approach is taken.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT119 Plant & Machinery Tax Relief
The old rules
In the March 2008 Budget, the Chancellor introduced a new form of first year allowance (FYA) for businesses that buy plant and machinery for use in their trade. Previously, a complex system existed under which medium-sized businesses* could claim accelerated tax relief in the accounting period in which they purchase plant and machinery. Assuming that the business qualified (for example, leasing businesses were excluded) and the plant and machinery qualified (motor cars, ships and long-life assets were excluded), then the business could claim 40% of the cost in the period against their taxable profits. Subsequently, 25% of the remaining pool of expenditure could be claimed against profits in successive accounting periods (on a reducing balance basis). Small businesses* were allowed to claim 50% in the period of acquisition.
In earlier years the FYA had been at different rates to incentivise certain types of expenditure. For instance, until 31 March 2004, 100% relief had been allowed on computer equipment purchased by small businesses*.
*As defined by the Companies Act size limits
The new rules
With effect from 1 April 2008 expenditure by trading companies will obtain a different form of FYA – known as the Annual Investment Allowance (AIA).
In general, a Qualifying Person can claim the AIA at 100% on the first £50,000 of Qualifying Expenditure in an accounting year. Plant and machinery additions in excess of this will get relief at a new, lower rate of 20% (but see below). The annual allowance on the reducing basis is now restricted to 20%. However, qualification for this new AIA is different from the preceding FYA rules,
Qualifying Person - a business must be a qualifying person, i.e. a sole trader (an individual), a partnership or a company. However, a partnership must be made up of only individuals in order to qualify, hence if it has a company as a member it will not be able to claim the relief. The AIA is available to all trading entities, regardless of size.
Qualifying Expenditure - this cannot include a car and also businesses that lease out their assets cannot claim the relief (as per the old rules). The equipment must be used in the trade of the business. If an entity has more than one business activity then the AIA can be allocated amongst the equipment purchased as the business requires.
A group of companies can only claim one AIA. The group can allocate the AIA amongst the group's expenditure as it sees fit.
Companies that are related and under common control can only claim one AIA between them. The same applies to groups of companies that are also related and under common control. To be 'related' the companies would have to either share premises or have similar activities. Hence an individual owning, for example, two separate companies, one a retail food business and the other a travel agency, could claim two sets of AIA.
Similar rules exist for trading entities that are not companies.
Accounting periods that straddle 1 April 2008 will need to record the date they bought the plant and machinery, as this will determine whether the old or new rules apply to the expenditure. For periods post 1 April 2008 that are less than 12 months, the limit of £50,000 is scaled back pro rata. Similarly it is scaled up for longer periods.
Other rates of allowance
There has also been introduced a new, lower rate of allowance of 10% for plant and machinery which is 'integral to a building'. Some assets will now only benefit from this lower rate (e.g. installed air conditioning or lifts), but general lighting will now attract this relief, whereas it previously did not qualify for any. This applies to all purchases post 31 March 2008.
Certain plant will attract more advantageous allowances of 100%, such as: low emission cars and refuelling equipment; energy-saving plant or machinery; and environmentally beneficial plant and machinery. See www.eca.gov.uk for details.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT118 Tax - Residence Status
Changes to residence rules
The determination of an individual's residence status in the UK is critical when establishing their liability to UK taxes. There is no legal definition of residence, but it is accepted practice that if an individual spends more than 183 days in the UK in a tax year then they will be resident here. There is also a practice that applies when a person leaves the UK permanently under which they will be treated as resident if they visit the UK for an average of 91 days or more per tax year. This average is calculated on a rolling four-year basis.
The key issue in applying these rules has been to define what is meant by a day spent in the UK; it is on this point that there is a significant change in policy that will apply as from 6 April 2008.
Who are these changes likely to affect?
The changes will affect anyone who wishes to claim non-resident status and who makes regular visits to the UK. It could be a person who has been resident in the UK and is currently working abroad on a full-time employment contract or in full-time business. It might be someone who has effectively emigrated but still wants to spend time back in the UK, or it could be someone who is resident somewhere else but wants to spend time in this country.
Which days count?
Until now it has been HM Revenue & Customs (HMRC) practice to disregard days of arrival in, and departure from, the UK in counting days of presence. Last October it was announced that from 6 April 2008 this practice would cease and days of arrival and departure would be treated as days of presence in the UK. Since then, the Government has backed away from that position and in the Finance Bill has published proposals to count a day as being where the person is present in the UK at the end of it (midnight). A day of departure will not therefore count as a UK day. Conversely, if you arrive in the country late in the day, even an hour spent here means a whole day being counted, so you may want to delay arrival until early morning.
Transit rules
There is a provision that will allow a day of arrival to be ignored if it is immediately followed by a day of departure, and during the period between arrival and departure the individual does nothing of substance other than pass through the UK. This means that if you are arriving in the UK with the intention of leaving again the following day you must not plan any activities such as business meetings, social events, medical appointments or even visits to family members because HMRC has indicated that all of these will prevent the transit exemption from applying.
How could this affect you?
If you travel regularly in and out of the UK the new rules on which days count could cause a change in your residence status. For example, if you are working full-time abroad and come home most weekends, say from Friday night to Monday morning, until now HMRC would only have counted two days on each of those trips. Under the new rules, Friday will be counted as you would be in the UK at the end of the day and so the weekend would count as three days in the country. If you visited for, say, 45 weekends each year, your days in the UK would increase from 90 to 135, which is a problem in calculating the 91-day average and you would find yourself treated as resident here.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT117 Tax Free Business Milage Rating Update
Company car mileage rates go up this time!
In Topical Tips 107 we advised on the new rates an employee can claim for business mileage when they pay for all the fuel on a company car. That was from 1 January 2008, but now the rates have changed again!
With effect from 1 July 2008 H M Revenue & Customs (HMRC) has increased the amounts that can be claimed tax-free. The revised rates are as follows;
| Engine Size | Petrol | Diesel | LPG |
| 1,400cc or less | 12p | 13p | 7p |
| 1,401 to 2,000cc | 15p | 13p | 9p |
| Over 2,000cc | 21p | 17p | 13p |
VAT reclaim
In an interesting move, HMRC has announced that given the very rapid rise in fuel prices, they are happy to allow employers to use the new, increased rates from 1 June 2008 where they are able to do so.
And remember, in order for you to claim back the VAT element your staff should follow the guidance in Topical Tips 77.
And back to the future
Concerns have been raised with HMRC regarding the consequent administrative difficulties if the tax-free rates are subject to frequent changes as a result of petrol price fluctuations. HMRC has confirmed that the rates will be reviewed for 1 January and 1 July each year and in the event of a variation of fuel prices of greater than 5% when HMRC considers the change to be sustained.
Barnes Roffe Topical Tips:
Consult your Barnes Roffe LLP contact Partner for guidance in this important area.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT116 Income Tax Changes
Background to climb-down
In Gordon Brown's last Budget in 2007 he announced the 10% tax rate would be abolished with effect from April 2008. Somewhat belatedly, Labour back-benchers and other interested groups woke up to the implications of this, and in recent months the current Chancellor, Alistair Darling, has been under considerable pressure to compensate lower paid people for the losses they will suffer as a consequence of the decision.
The facts are this:
Details of the climb-down
In a dramatic move on 13 May 2008 the Chancellor announced that from September 2008 he would increase the 2008/09 tax-free allowance by £600 to £6,035 and decrease the higher rate of tax threshold by an equivalent £600. This will result in compensation of a maximum of £120 for those affected (i.e. basic rate taxpayers), whilst not changing the overall tax bill for higher rate taxpayers.
The £120 figure has been calculated to be the 'average loss per household' under the new rules. This is a combination of: the reduction in the basic rate from 22% to 20%; the movement in the tax-free and 10% tax thresholds; and average wages. Effectively it is a statistical calculation and cannot be easily derived from the changes in the tax bands.
It is still theoretically possible for some individuals to be worse off under the new rates, but the Chancellor has estimated that this will apply to less than 5% of taxpayers.
The new rate will be implemented for employees by the use of new notices of coding applied in September 2008. The tax-free allowance will be backdated to 6 April 2008 and so basic rate taxpayers should see an additional £60 in their pay packet in that month, followed by an additional £10 per month thereafter.
For self-employed persons, or those with dividend plans, their tax rates will be applied in their end of year tax computation.
Barnes Roffe Topical Tips:
If you need any further information please contact your Barnes Roffe partner.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT115 VAT Fuel Scale Update
All change again on charges!
In Topical Tips 103 we reported on a change to VAT fuel scale charges effective 1 May 2007. This linked the VAT charge for businesses that recover VAT on fuel used for private motoring to the CO2 emissions of each car.
For VAT periods starting on or after 1 May 2008 a new set of scale charges must now be applied. Changes include;
New Rates per vehicle
| Twelve month period | Three month period | One month period | ||||
| CO2 band g/km | Scale Charge | VAT due | Scale charge | VAT due | Scale charge | VAT due |
| £ | £ | £ | £ | £ | £ | |
| less than or equal to 120 | 555.00 | 82.66 | 138.00 | 20.55 | 46.00 | 6.85 |
| 125 | 830.00 | 123.62 | 207.00 | 30.83 | 69.00 | 10.28 |
| 130 | 830.00 | 123.62 | 207.00 | 30.83 | 69.00 | 10.28 |
| 135 | 830.00 | 123.62 | 207.00 | 30.83 | 69.00 | 10.28 |
| 140 | 885.00 | 131.81 | 221.00 | 32.91 | 73.00 | 10.87 |
| 145 | 940.00 | 140.00 | 234.00 | 34.85 | 78.00 | 11.62 |
| 150 | 995.00 | 148.19 | 248.00 | 36.94 | 82.00 | 12.24 |
| 155 | 1050.00 | 156.38 | 262.00 | 39.02 | 87.00 | 12.96 |
| 160 | 1105.00 | 164.57 | 276.00 | 41.11 | 92.00 | 13.70 |
| 165 | 1160.00 | 172.77 | 290.00 | 43.19 | 96.00 | 14.30 |
| 170 | 1215.00 | 180.96 | 303.00 | 45.13 | 101.00 | 15.04 |
| 175 | 1270.00 | 189.15 | 317.00 | 47.21 | 105.00 | 15.65 |
| 180 | 1325.00 | 197.34 | 331.00 | 49.30 | 110.00 | 16.38 |
| 185 | 1380.00 | 205.53 | 345.00 | 51.38 | 115.00 | 17.13 |
| 190 | 1435.00 | 213.72 | 359.00 | 53.47 | 119.00 | 17.72 |
| 195 | 1490.00 | 221.91 | 373.00 | 55.55 | 124.00 | 18.47 |
| 200 | 1545.00 | 230.11 | 386.00 | 57.49 | 128.00 | 19.06 |
| 205 | 1605.00 | 239.04 | 400.00 | 59.57 | 133.00 | 19.81 |
| 210 | 1660.00 | 247.23 | 414.00 | 61.66 | 138.00 | 20.55 |
| 215 | 1715.00 | 255.43 | 428.00 | 63.74 | 142.00 | 21.15 |
| 220 | 1770.00 | 263.62 | 442.00 | 65.83 | 147.00 | 21.89 |
| 225 | 1825.00 | 271.81 | 455.00 | 67.77 | 151.00 | 22.49 |
| 230 | 1880.00 | 280.00 | 269.00 | 69.85 | 156.00 | 23.23 |
| greater than or equal to 235 | 1935.00 | 288.19 | 483.00 | 71.94 | 161.00 | 23.98 |
Identify the band
For vehicles registered after 2001, the CO2 emissions figure appears on the Vehicle Registration Certificate (VC5). For vehicles registered between 1997 and 2001 the information can be obtained from The Society of Motor Manufacturers and Traders Limited website. In addition, the Vehicle Certification Agency Car Fuel Data website can be used to search for specific cars. Further historical information is available at The Vehicle Certification Agency.
For vehicles that do not have a CO2 emissions figure, the CO2 band is based on engine cylinder capacity.
Note that the bands above have not changed despite the new lower bands in the scale charged.
Barnes Roffe Topical Tips:
Consult your Barnes Roffe LLP contact Partner for guidance in this important area.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT114 Companies Act - 2008
Phased implementation
The Companies Act 2006 has passed into law, but its full effects are yet to be felt. Certain measures were introduced immediately, but the remaining aspects of the legislation become effective on 6 April 2008, 1 October 2008 and 1 October 2009.
Year-end filing dates: deadlines
For accounting periods starting on or after 6 April 2008 the filing deadline for private limited companies will be shortened by one month, to nine months after the accounting period has ended. For public limited companies the time limit will also shorten by one month, to six months.
Year-end filing dates: month-end rule
When the accounting period falls on a month-end, then the filing deadline will now be nine months (or six months for a Plc) afterwards and it will also fall on the month-end. Previously, a company with an accounting period ending 28 February would have had to file its accounts by 28 December, although many people mistakenly thought it was 31 December. Under the new rules this will be a month earlier on 30 November, but under the old rules this would have been 28 November. This is more intuitive interpretation of the rules for the filing deadline. Beware though, that for the first period of account, and for accounting periods that do not end on a month end the rules must be checked, as the above will not apply in all cases.
Qualification limits for small and medium-sized companies
For accounting periods starting on or after 6 April 2008 the following limits have been increased.
To be defined as a small company, a company must meet two out of the three following criteria for two years in succession:
To qualify as exempt from audit, a limited company must qualify as small and meet both the turnover and balance sheet totals (certain companies are still unable to take this exemption, e.g. Plc companies, banks, etc.).
To be defined as a medium-sized company, a company must meet two out of the three following criteria for two years in succession:
There are also revised gross limits for small and medium-sized groups of companies. For the turnover and gross assets these are approximately 20% more, the employees remains the same. Details can be obtained from your Barnes Roffe contact partner should you require them.
Requirement to have a Company Secretary
From 6 April 2008, private limited companies will be able to dispense with the role of Company Secretary. Beware that this might disqualify a shareholder who was previously the Company Secretary, but who did not work full time, from qualifying for the new Entrepreneurs Relief from Capital Gains Tax. See Topical Tip 111 for details.
However, before dispensing with this role, the Articles of Association must be checked to see if they require a Company Secretary. If they merely refer to Company Secretarial duties then this will not require a Company Secretary position to be maintained.
It remains possible to have a single Director company because previously this was only allowed if there was a different person as Company Secretary. However, a change coming from 1 October 2009 will require every company to have at least one Director who is a natural person, not a company, so this may need consideration in due course.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT113 Shareholder Protection
A familiar format
Being a limited company is the vehicle of choice for many business people. It is familiar to customers and suppliers and provides limited liability. Many businesses are owner-managed entities, with the company acting as the trading vehicle for the business owners in the longer term.
In many small to medium businesses the shareholders are the founders and driving force behind the business. As these businesses grow the need to plan for a variety of exit strategies is often overlooked.
Obvious exits
Some exit strategies are relatively straightforward and many business owners plan for the possible sale of the business on their retirement. It is equally likely they will plan for the retirement of just one of the owners if there is more than one. Management buy-outs are often favoured. Grooming a business for sale has been dealt with in Topical Tips 14, Topical Tips 15 and Topical Tips 16
Unforeseen departures
However, planning for other situations is often less thorough, and can lead to nasty surprises:
As can be seen, the list of potential problems could go on and on! The problems could impact negatively on either the late shareholder's family or on the remaining shareholders with equally unpredictable consequences.
A sensible plan
Business owners should consider entering into shareholder protection arrangements. This involves a legally binding agreement that, should one of the shareholders die, ensures the process for the subsequent sale of the shares to the surviving shareholders is planned for. It also provides that the shareholders will ensure there is sufficient life assurance in place to pay out enough funds to enable the surviving shareholders to buy the shares of the late shareholder from their estate.
The major tax advantage from this arrangement is that the shares in a trading company will be exempt from Inheritance Tax in the estate of the deceased shareholder, but they benefit from a Capital Gains Tax uplift in their base cost. This means that the beneficiaries inherit the shares at today's market value and, should they sell them shortly thereafter under this agreement, there is no tax payable.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT112 Construction Industry Scheme Update
Why is there a Construction Industry Scheme?
From 6 April 2007 a new Construction Industry Scheme (CIS) has operated. Whilst it is not ‘new’ any more, the rules are worth revisiting for pitfalls.
Essentially, the rules exist to allow HM Revenue & Customs (HMRC) to capture all data on persons/businesses working and paid in the construction industry. This allows HMRC to ensure that no income in this industry slips through the taxation net. Stiff penalties for Contractors apply for late or missing monthly returns.
This issue of Topical Tips does not deal with the scheme in detail, but reviews the definition of Contractor to ensure clients are aware if they are obliged to register.
The definitions of Contractor and Sub-Contractor are sometimes a surprise to people who fall within the scheme. For example, someone who buys land or property and builds upon it or refurbishes it for sale, will be required to register as a Contractor under CIS, even though they may be only operating on a small scale.
Definition of Contractor:
Note that a property investor is not the same as a property developer and the investor may not be caught under the rules. However, if the property portfolio is substantial enough then it may break the £1M threshold on works on construction operations and will become a Contractor by definition. You should be careful to check your position if you wish to rely on this exemption from the CIS.
Beware!
If you are caught by the rules then you are obliged to ensure you have confirmed the taxation status of all persons working for you who are also caught under the CIS and report on a monthly basis the payments made to them. The status of the Sub-Contractor will tell you whether you can pay them gross, or have to deduct tax at either 20% or 30% on all labour elements paid to them. All persons you pay for construction operations need to be registered with HMRC or else they will suffer the maximum tax withheld of 30%.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT111 Capital Gains Tax Update
The Chancellor changes his mind!
After a barrage of criticism from the business community, the Chancellor has on 24 January 2008 announced a softening of the new Capital Gains Tax (CGT) rules due to take effect from 6 April 2008.
The death of Taper Relief
It had been proposed that the existing complicated, but often advantageous, regime of taxes that ranged from 40% down to 10% would be swept away to be replaced by a blanket 18% tax on all gains from 6 April 2008 onwards. (For a comparison of the existing and proposed rules please see Topical Tips 104). This removed the beneficial rate of 10% tax that most of our clients anticipated paying on future disposals of their business assets.
The new rules also withdrew indexation allowance, which was another relief that could be claimed on gains made on assets that were held since before 6 April 1998.
The partial climb-down
The Chancellor has announced that the new rules will be altered to allow a 10% rate of tax on the first £1M of lifetime gains made by each individual. After that threshold has been exceeded the rate will be 18%. Multiple gains would be accumulated over the life of the individual in calculating the lifetime amount that falls within the new threshold.
For most entrepreneurs this will be most welcome. It will allow quite sizeable gains to benefit from the 10% rate of tax.
The qualifications
The 10% rate will apply to gains made on the sale of trading businesses or shares in a trading company. The Treasury press release states that to qualify the shares would need to be held by employees, directors or other officers of the company and be in excess of 5% of the shares (holding at least 5% of the voting right). Subsequent legislation released requires the conditions to be met for a period of at least 12 months. (unlike the existing Taper Relief rules that require a two-year holding period to attain the 10% rate of tax).
Indexation
Note that indexation allowances will still be withdrawn for disposals made on or after 6 April 2008. At 10% or 18% tax these indexation allowances could have been a valuable relief. Clients should consider whether they could take action now to crystallise these reliefs.
Barnes Roffe Topical Tips:
Consult your Barnes Roffe LLP contact Partner for guidance in this important area.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT110 Pension Scheme Administration
Urgent action may be required
If you are a pension scheme trustee, urgent action may be required on your part, or on the part of your Scheme Administrator.
Who is your Scheme Administrator?
Under recent pension scheme changes, all registered pension schemes should have a Scheme Administrator (SA) appointed. The SA has various legal duties, amongst which is reporting various matters to H M Revenue & Customs (HMRC).
If your company has an occupational pension scheme (OPS) then it is important that you understand who the SA is. For Barnes Roffe clients a common OPS is a Small Self Administered Scheme (usually referred to as a SSAS).
If however, the company only makes contributions to Personal Pension Schemes such as stakeholder schemes, group personal pension schemes or self invested personal pensions then the SA's duties will be undertaken by the pension provider (e.g. the investment company).
What has to be done and when?
There is a requirement for OPSs to deliver a Registered Pension Scheme Return for their schemes (a ‘Return’), but only if HMRC have issued a notice requiring such a Return. HMRC has indicated that most SSAS and a sample of other schemes have been sent such a notice.
The filing deadline for a Return for the year ended 5 April 2007 is the later of 31 January 2008 or 3 months after the notice to deliver one was given. The Return needs to be filed on-line. For nearly all notices issued the deadline will be 31 January 2008.
The filing of this return is the responsibility of the SA who should be registered as such with HMRC. However, it has also become apparent that some SAs have not yet registered with HMRC. A rough sample has shown that, for reminders received at our office, four out of five do not have a SA appointed - probably leading to the conclusion that this is why the Return remains outstanding.
Barnes Roffe Topical Tips:
Consult your Barnes Roffe LLP contact Partner for guidance in this important area.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT109 Pension Contributions
Pensions simplification
From A Day (6 April 2006) Pensions Simplification altered all the rules for the various types of pensions that existed and put them into one system. However, there are some transitional arrangements for protecting benefits under the old system (particularly for funds that exceed the maximum lifetime cap of £1,600,000 per person in 2007-08) and most people by now have taken advice from their Pension Advisor to confirm their position.
Applying the rules to maximum benefit
In certain circumstances an interesting use of the rules allows double pension contributions in one year on which an employer can obtain tax relief.
The new rules on contribution limits fall into two categories depending on who is making the contributions:
There also exists an annual contributions limit for each individual. If the total contributions to all schemes come to more than £225,000 in 2007/08 (£235,000 in 2008/09) then the excess is chargeable on the individual at 40%.
It is widely believed that as an individual cannot make a contribution of more than his/her earnings in any tax year, an employer cannot make contributions of more than the employee's salary and obtain tax relief. This would prove a problem for many owner-managed businesses where the owners take a minimum salary with generous dividends, but wish to have reasonable substantial employee pension contributions made on the owner's behalf. This belief is founded on a misunderstanding. Whilst the rules for individuals might indicate a general view by HM Revenue & Customs (HMRC) that there is some sort of cap on contributions when compared to earnings, HMRC has confirmed that so long as the company pension contribution forms part of the overall remuneration package for the employee and has been paid wholly and exclusively for the purposes of the trade, then it will be tax allowable to the company.
How can you get two contributions above the annual limit in one year?
Say, for example, the company had a year-end of 31 December. The directors know that in order to get tax relief the pension contribution must be made in the year and they habitually make a contribution in November each year, based upon the company's management accounts for the nine months to 30 September.
It is perfectly allowable under the rules for the directors to make a statement to the pension administrator that they regard their annual contributions year to end on 30 November - looking back they calculate that they have remained within the limits for each year.
This means that the directors can make a further one-off contribution in December. This will form the contribution for the following annual contributions year, but as both contributions will be within the one company accounting year then they will advance the tax relief on the second contribution. Whilst they will now have to wait until December the following year they will not be at a disadvantage under the pension rules for bringing forward the contribution and obtaining tax relief twice in one year.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT108 Merry Christmas 2007
The issues from 2007
We hope that over the last twelve months Topical Tips has been useful and interesting. In this last Topical Tips for the year we present a round-up of the issues from 2007.
Editor’s comment
This year has seen a significant change to Inheritance Tax rules (see Topical Tips 105) which is generally good news for UK taxpayers. The rule change allows couples (whether married or civil partners) to benefit from sharing their IHT nil rate bands. Whilst this effect could already be achieved by decent will planning, this simplification is to be welcomed.
However, the simultaneous announcement of a change to Capital Gains tax (see Topical Tips 104) seems to be a blunt and thoughtless reaction to the 10% rate of tax on business assets that gave perceived unfair advantages to some taxpayers. Publicity about the rule changes focused on their impact on private equity funds, but the real blow will be felt by owners of business assets (i.e. the Barnes Roffe client base!). It is interesting to note that this blocks the rather unusually low rate of tax afforded to property investors by what was widely perceived to be an unintentional rule change by this government in 2000 (and extended in 2004). This allowed property investors to achieve the 10% rate of tax on their assets if they had the correct type of tenant. It is suspected that this error in 2000 has cost the government dearly as property prices have continued to rise, and this might have been the significant factor in deciding to increase the tax rate. The Chancellor has conceded the need for further consultation over his proposed changes, the result of which is due to be announced in the next few weeks.
As ever there will be winners and losers with all changes, but we hope that by alerting you using our Topical Tips service we can continue to keep you informed of matters that will impact on you. We look forward to 2008 and hope that you look forward to receiving our emails.
TT107 Tax-Free Business Mileage Rates Update
Company car mileage rates go up this time!
In Topical Tips 100 we advised on the new rates an employee can claim for business mileage when they pay for all the fuel on a company car. That was for August, but now the rates have changed again!
With effect from 1 January 2008 H M Revenue & Customs (HMRC) has increased the amounts that can be claimed tax-free.
Revised rates
| Engine Size | Petrol | Diesel | LPG |
| 1,400cc or less | 11p | 11p | 7p |
| 1,401 to 2,000cc | 13p | 11p | 8p |
| Over 2,000cc | 19p | 14p | 11p |
VAT reclaim
And remember, in order for you to claim back the VAT element your staff should follow the guidance in Topical Tips 77.
And back to the future
Concerns have been raised with HMRC regarding the consequent administrative difficulties if the tax-free rates are subject to frequent changes as a result of petrol price fluctuations. HMRC has confirmed that the rates will only be reviewed in the event of a variation of fuel prices of greater than 10%.
Barnes Roffe Topical Tips:
Consult your Barnes Roffe LLP contact Partner for guidance in this important area.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT106 Tax Threshold Changes
Little and large
Usually tax allowances and National Insurance (NIC) rates for the coming tax year are published with the Chancellor's Autumn Statement. However this year, in a break with tradition, the Government stated that the rates for 2008/09 would not be published until the retail price index for September 2007 had become available.
Previous announcements had stated that for 2008/09 age-related personal allowances would be increased by £1,180 above inflation; that the 10% rate of income tax would be abolished for earnings and pension income (with the basic rate of income tax becoming 20%); that the basic rate band for income tax would only increase by inflation and the upper earnings limit for NIC would increase by £75 per week above inflation.
The rates were eventually announced in October and the increase in the personal allowance is just £210, taking it to £5,435. However, the really bad news is there is a large NIC band increase with the lower earnings limit for employees (the effective nil rate band for NIC) being raised by a small £5 per week to £105, while the upper earnings limit (the rate up to which employees pay NIC at 11%) rises by a huge £100 per week to £770. Employees earning over £34,840 (in the current year) will thus see a significant increase in their NIC bill for 2008/09. This means that for an employee earning in excess of £40,040 they will pay £520 more NIC under the new rates.
As summary of the key rates is below:
Income tax
| £ per year (unless stated) Income tax personal and age-related allowances |
2007-08 | Change | 2008-09 |
| Personal allowance (age under 65) | £5,225 | +£210 | £5,435 |
| Personal allowance (age 65-74) | £7,550 | +£1,480 | £9,030 |
| Personal allowance (age 75 and over) | £7,690 | +£1,490 | £9,180 |
| Married couple's allowance* (aged less than 75 and born before 6th April 1935) |
£6,285 | +£250 | £6,535 |
| Married couple's allowance* (age 75 and over) | £6,365 | +£260 | £6,625 |
| Married couple's allowance* - minimum amount | £2,440 | +£100 | £2,540 |
*Married couple's allowance is given at the rate of 10 per cent.
National insurance contributions
| £ per week (unless stated) | 2007-08 | Change | 2008-09 |
| Lower earnings limit, primary Class 1 | £87 | +£3 | £90 |
| Upper earnings limit, primary Class 1 | £670 | +£100 | £770 |
| Primary threshold | £100 | +£5 | £105 |
| Secondary threshold | £100 | +£5 | £105 |
| Employees' primary Class 1 rate between primary threshold and upper earnings limit |
11% | - | 11% |
| Employees' primary Class 1 rate above upper earnings limit |
1% | - | 1% |
| Employers' secondary Class 1 rate above secondary threshold |
12.8% | - | 12.8% |
| Class 2 rate (per week) | £2.20 | +£0.10 | £2.30 |
| Class 4 lower profits limit | £5,225 per year | +£210 | £5,435 per year |
| Class 4 upper profits limit | £34,840 per year | +£5,200 | £40,040 per year |
| Class 4 rate between lower profits limit and upper profits limit |
8% | - | 8% |
| Class 4 rate above upper profits limit | 1% | - | 1% |
Summary
The forthcoming reduction in the basic rate of tax to 20% for 2008/09 will largely be offset for most people by the loss on the 10% rate of tax on earned income and the large hike in the threshold for the payment of NIC at the full rate
This increase will continue in 2009/10
Stop Press
It has become apparent that many more people than the Government expected will be affected by the increase in the rate of Capital Gains Tax to 18% on business assets (see Topical Tip 104). Please ensure you seek advice from your Barnes Roffe LLP partner at the earliest opportunity to see what the impact may be on your circumstances and to discuss your possible options.
Barnes Roffe Topical Tips:
Consult your Barnes Roffe LLP contact Partner for guidance in this important area.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT105 Inheritance Tax Changes
The current position
Every person has a nil rate band (NRB) that they can pass on at death that is free of Inheritance Tax (IHT). The current NRB in 2007/08 is £300,000. With certain specific exceptions the amount of the deceased's estate in excess of this NRB is subject to IHT at 40%. One key exemption is that assets passed from one spouse to the surviving spouse on death are exempt from IHT.
However, those assets passed to the second spouse remain to be taxed as part of the surviving spouse's estate when they ultimately pass away. A problem used to be that if the first spouse did not make use of their NRB and passed all their assets to the survivor then, as a couple, their estate would only benefit from the one NRB on the death of the second spouse - this would cost an additional £120,000 IHT at current rates!
To mitigate or remove this problem, Will structures have been developed that allowed the first spouse to create a NRB Discretionary Trust on their death and pass to this Trust assets to the value of the NRB. The balance of the estate would be given to the surviving spouse. This allowed the NRB to be used up on first death and also the surviving spouse could be one of the potential beneficiaries of the Trust and could access the assets if they required them during their lifetime. Most usually the asset passed to the Trust would be a loan note to the value of the NRB, which would be secured on the house that the surviving spouse would inherit.
These Will structures did work, but as Topical Tips 99 described, they could go wrong if not set up correctly. Additionally, only those couples who took the steps of having correct Wills drawn up would benefit. For many whose combined estate exceeded the NRB the failure to do the Will planning correctly resulted in a large liability.
The new rule
In his Pre Budget Report the Chancellor, Alistair Darling, made a change to IHT to ensure that all married couples and registered civil partners will automatically benefit from both of the couple's NRBs without Will planning. Under the new rule the unused proportion of the NRB on the first death is passed onto the surviving spouse to use on their death. Importantly, this new rule will be effective for couples where the first spouse has already passed away. This is a major benefit to all widows and widowers.
Action points
If you already have a Will with a Discretionary Trust structure in place then don't panic! You may not need to change your Wills. If you do not want to use the NRB Trust on first death it can usually be broken within 2 years of death and the survivor can still benefit from the 'double' NRB. The NRB trust could still be useful, for example for assets that are going to increase in value faster than the NRB. The Trust may also exist for other valid purposes such as Double Dipping the value of business assets that benefit from Business Property Relief - see Topical Tips 6.
However you should not use the NRB Discretionary Trust in all circumstances - there may be a pitfall that could cost your family IHT. For example, if a spouse died today and used their old Wills to set up a NRB Discretionary Trust then this would shelter £300,000 from IHT. If the second spouse died, say after 2010, then the second spouse will use the current NRB value (which will have grown to £350,000 by that date under the government's proposals) and therefore the IHT free part of the estate would total £650,000. However if the first spouse did nothing and let the new rules take effect then on the death of the second spouse the double NRB that would be effective would be 2 x £350,000 and hence an extra £50,000 would be passed on free of IHT. This £50,000 at 40% would otherwise cost £20,000 in IHT under the old Will structure.
Barnes Roffe Topical Tips:
Consult your Barnes Roffe LLP contact Partner for guidance in this important area.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT104 Capital Gains Tax Update
A major shake-up
As has been widely publicised after the Pre Budget Statement, there will be a significant change to the capital gains tax (CGT) regime from April 2008 for individuals and trustees making disposals. Taper Relief will be abolished and there will be a flat rate of 18% on all taxable gains made on disposals from that date. (This is the first major shake up since Gordon Brown, then Chancellor, made dramatic alterations in 1998.)
The current regime
This is fairly complex. The rate of tax paid by individuals depends on whether they are a basic or higher rate taxpayer (the threshold being £39,825 for the tax year to 5 April 2008).
It also depends on the length of time the asset has been held. A capital gain is reduced by Taper Relief. There are two types of Taper Relief, one for business assets and one for all other assets. For business assets the gain is reduced by 50% for assets owned for over 12 months and by 75% for assets held for over 24 months. For all other assets the gain tapers by 5% for each full year of ownership from the third year to the tenth year, eventually exempting 40% of the gain after the full decade of ownership (i.e. for a higher rate taxpayer, each 5% taper of the gain reduces the rate of tax by 2%).
Business assets most commonly held by Barnes Roffe clients tend to be: shares in trading companies; interests in partnerships; properties rented to trading businesses for use in their trade; and some AIM shares. Note that the rules defining business assets for shares and property changed in 2000 and 2004, so some assets have a mixed period of ownership where they qualified as business and non-business assets. This makes the calculation complicated.
Finally, for some assets held before March 1982, you can calculate the gain by reference to the March 1982 value plus indexation uplift (i.e. not the original cost). This will usually reduce the gain.
So is it good news, or bad news?
The table below shows the effective range of rates of tax payable after considering Taper Relief. (Note all taxpayers get a CGT-free annual exemption. This is £9,200 for 2007/08.)
| Basic rate Taxpayer | Higher rate Taxpayer | |
| Business assets held for: | ||
| < 1 year | 20% | 40% |
| > 1 year and < 2 years | 10% | 20% |
| > 2 years | 5% | 10% |
| All other assets held for: | ||
| < 1 year | 20% | 40% |
| 2 whole years | 20% | 40% |
| 3 whole years | 19% | 38% |
| 4 whole years | 18% | 36% |
| 5 whole years | 17% | 34% |
| 6 whole years | 16% | 32% |
| 7 whole years | 15% | 30% |
| 8 whole years | 14% | 28% |
| 9 whole years | 13% | 26% |
| 10 whole years | 12% | 24% |
Superficially, most higher rate taxpayers appear to be better off with the new rate of 18%. The exceptions, unfortunately, are owners of business assets - usually people who have built up businesses and want to benefit from their endeavours and the risks they have taken.
The situation is further complicated by the forthcoming removal of the indexation allowance for assets held since before 5 April 1998. This allows the cost of the asset (or March 1982 market value if the asset was held at that date) to be uplifted for inflation before deduction from the sales proceeds to calculate the gain. The indexation can only be calculated to March 1998 when the Taper Relief rules were introduced, but it can be quite valuable. This allowance will be withdrawn from 5 April 2008.
Barnes Roffe Topical Tips:
Consult your Barnes Roffe LLP contact Partner for guidance in this important area.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT103 Business Fuel VAT Scale Charge
The VAT scale charge
Businesses can reclaim the input VAT they incur on fuel costs, however if the vehicle concerned has a private element of use, for example it is a company car that is being used by an employee, then a certain fixed amount of VAT must be declared as output VAT and paid over by the business. This element of VAT is called the 'scale charge'.
To apply the scale charge first recover all the VAT charged on road fuel (there is no need to split mileage between business and private use), then use the set amounts prescribed by H M Revenue & Customs (HMRC) to declare as output VAT an amount that represents the private usage.
Note that until 2007 the scale charge was based on engine size and the type of fuel used, but with effect from Budget 2007 it is based on carbon dioxide emissions, and for VAT periods starting on or after 1 May 2007 new scale charges apply. For example, if a company's quarterly period ends 30 June 2007, the new scale charge will first apply in period ending 30 September 2007.
Finding out the CO2 emissions for a car
For vehicles registered after 2001, the CO2 emissions figure appears on the Vehicle Registration Certificate (VC5). For vehicles registered between 1997 and 2001 the information can be obtained from The Society of Motor Manufacturers and Traders Limited website. In addition, the Vehicle Certification Agency Car Fuel Data website can be used to search for specific cars. Further historical information is available at The Vehicle Certification Agency. For vehicles which do not have a CO2 emissions figure, the CO2 band is based on engine size, as follows:
Once the CO2 emissions have been established, the following table can be used to identify the new scale charge rates for VAT accounting periods starting on or after 1 May 2007:
Rates per vehicle
| Monthly VAT returns | Quarterly VAT returns | Annual VAT returns | |||||||
| CO2 Band | Scale charge | VAT due per car will be | Net amount | Scale charge | VAT due per car will be | Net amount | Scale charge | VAT due per car will be | Net amount |
| £ | £ | £ | £ | £ | £ | £ | £ | £ | |
| < 140 | 60.00 | 8.94 | 51.06 | 182.00 | 27.11 | 154.89 | 730.00 | 108.72 | 621.28 |
| 145 | 65.00 | 9.68 | 55.32 | 195.00 | 29.04 | 165.96 | 780.00 | 116.17 | 663.83 |
| 150 | 69.00 | 10.28 | 58.72 | 207.00 | 30.83 | 176.17 | 830.00 | 123.62 | 706.38 |
| 155 | 73.00 | 10.87 | 62.13 | 219.00 | 32.62 | 186.38 | 880.00 | 131.06 | 748.94 |
| 160 | 77.00 | 11.47 | 65.53 | 231.00 | 34.40 | 196.60 | 925.00 | 137.77 | 787.23 |
| 165 | 81.00 | 12.06 | 68.94 | 243.00 | 36.19 | 206.81 | 975.00 | 145.21 | 829.79 |
| 170 | 85.00 | 12.66 | 72.34 | 256.00 | 38.13 | 217.87 | 1,025.00 | 152.66 | 872.34 |
| 175 | 89.00 | 13.26 | 75.74 | 268.00 | 39.91 | 228.09 | 1,075.00 | 160.11 | 914.89 |
| 180 | 93.00 | 13.85 | 79.15 | 280.00 | 41.70 | 238.30 | 1,120.00 | 166.81 | 953.19 |
| 185 | 97.00 | 14.45 | 82.55 | 292.00 | 43.49 | 248.51 | 1,170.00 | 174.26 | 995.74 |
| 190 | 101.00 | 15.04 | 85.96 | 304.00 | 45.28 | 258.72 | 1,220.00 | 181.70 | 1,038.30 |
| 195 | 105.00 | 15.64 | 89.36 | 317.00 | 47.21 | 269.79 | 1,270.00 | 189.15 | 1,080.85 |
| 200 | 109.00 | 16.23 | 92.77 | 329.00 | 49.00 | 280.00 | 1,315.00 | 195.85 | 1,119.15 |
| 205 | 113.00 | 16.83 | 96.17 | 341.00 | 50.79 | 290.21 | 1,365.00 | 203.30 | 1,161.70 |
| 210 | 117.00 | 17.43 | 99.57 | 353.00 | 52.57 | 300.43 | 1,415.00 | 210.74 | 1,204.26 |
| 215 | 121.00 | 18.02 | 102.98 | 365.00 | 54.36 | 310.64 | 1,465.00 | 218.19 | 1,246.81 |
| 220 | 126.00 | 18.77 | 107.23 | 378.00 | 56.30 | 321.70 | 1,510.00 | 224.89 | 1,285.11 |
| 225 | 130.00 | 19.36 | 110.64 | 390.00 | 58.09 | 331.91 | 1,560.00 | 232.34 | 1,327.66 |
| 230 | 134.00 | 19.96 | 114.04 | 402.00 | 59.87 | 342.13 | 1,610.00 | 239.79 | 1,370.21 |
| 235 | 138.00 | 20.55 | 117.45 | 414.00 | 61.66 | 352.34 | 1,660.00 | 247.23 | 1,412.77 |
| > 240 | 142.00 | 21.15 | 120.85 | 426.00 | 63.45 | 362.55 | 1,705.00 | 253.94 | 1,451.06 |
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT102 Season Tickets - Tax Status
Staff benefit or entertaining?
With the recent sale of debentures at Wembley Stadium and similar season tickets at Premiership clubs, it is worth reviewing the tax implications of businesses buying such things. The assumption is that there will be a mixture of business entertaining and the provision of staff benefits, as tickets or debentures are commonly used to reward or incentivise employees. It is therefore important you follow the correct procedure.
Rules of the game
So long as there will be a mixed use then you should claim the VAT on the purchase of the ticket or debenture in next VAT return for the business.
You must keep a log of the attendees of each event and decide if the purpose was entertaining of business contacts (suppliers, customers, etc.) or a staff benefit (employee of the month, etc.).
On a quarterly basis (or monthly/annually if your VAT period is different) you should account as output tax for the VAT on the proportion of the cost that relates to entertaining. In order to do this you should spread the cost of the economic life of the ticket or debenture (see below for an example).
For corporation tax or income tax the entertaining proportion is also disallowable as a deduction against profits so this should be calculated annually from the attendee log and the correct apportionment made in the tax calculation.
For the staff benefit you must remember to put the benefit of the tickets/debenture on form P11D for the staff concerned. Alternatively you could consider making a PAYE Settlement Arrangement at the end of the tax year to avoid the staff being taxed and to have the business pick up this bill.
If the intention for the ticket or debenture is wholly entertaining then you should not claim the VAT up front. However, you might not be able to predict this with accuracy so you could probably assume there is mixed use and claim the VAT and follow the steps above.
Staff who attend an event in order to entertain the clients who are present should not be treated as receiving a benefit for that attendance as this is counted as entertaining.
Predict the score
Say four season tickets at Arsenal cost £10,000, inclusive of VAT. The economic life of the ticket will be the length of the football season. You should count the number of months in the season (say nine) and divide this into the cost, coming to £1,111 per month. If, for example, the business is doing its VAT return for the three months to September then this will overlap with approximately 1.5 months of the football season to which the tickets relate. The VAT on this will be £1,111 x 1.5 x 7/47 = £248. If 1/3 of the games attended were business entertaining then 1/3 x £248 = £83 should be declared as output tax on the 30 September VAT return.
A debenture will have a life in excess of one season so the same calculation should be carried out as above, but the economic life will be, say, 10 years.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT101 Companies House Annual Return
The way it was
In previous years Companies House always sent out paper copies of companies' Annual Returns (form 363). These forms show details of all directors, company secretaries and shareholders known by Companies House. In the case of directors and secretaries, companies are obliged to notify Companies House as soon as any changes occur, and Companies House will update their records accordingly. However, it is only once a year on the Annual Return that a company is required to notify Companies House of changes to shareholders.
The way it is
Although it is still possible to make a paper submission, as many are aware, Companies House has now commenced WebFiling. Once registered, companies can now file certain documents, including their Annual Return, directly on-line. This costs a reduced filing fee of £15, whereas a paper return costs £30. Unauthorised filing is prevented by an authentication code.
Remember the change!
Once a company has filed on-line, Companies House will no longer issue a paper return to that company. They will simply issue a reminder letter that states the Annual Return is due. Helpfully this reminder letter will also contain the authentication code for reference.
There is a risk that some companies might still wait for the paper Annual Return to arrive and not take action when the reminder letter arrives. Thankfully Companies House will send a second reminder if the Annual Return is late.
Barnes Roffe Topical Tips:
Look here https://ewf.companieshouse.gov.uk/ for further details
Consult your Barnes Roffe contact partner for guidance in this important area
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT100 Tax-Free Business Mileage Rates - Update
Company car mileage rates change… yet again!
In Topical Tips 94 and Topical Tips 84 we advised on the updated rates available for employees to claim on business mileage when they pay for all the fuel on a company car.
With effect from 1 August 2007, H M Revenue & Customs (HMRC) has increased the rates - making this the second time in a row they have been changed after only six months! This will reverse some of the reductions that were introduced in February, although overall the rates remain less generous than they were last August. The revised rates are shown below (with old rates in brackets):
| Engine Size | Petrol * | Diesel | LPG |
| 1,400cc or less | 10p (9p) | 10p (9p) | 6p (6p) |
| 1,401cc to 2,000cc | 13p (11p) | 10p (9p) | 8p (7p) |
| Over 2,000cc | 18p (16p) | 13p (12p) | 10p (10p) |
* Petrol hybrid cars are treated as petrol cars for this purpose.
Advance warnings
After HMRC suddenly announced the February 2007 change on 1 February itself, an agreement was made that subsequently one month's notice of any further alterations would be given. As a result the announcement for this August was made on 27 June - meaning there are a few weeks to prepare for it this time! However, unlike the previous change, there will be no grace period and the new rates must be applied immediately from 1 August.
Future variations
Due to concerns over the effect of the continual changes to mileage rates, HMRC has once again confirmed that future reviews to the rates will only occur in the event of a variation in fuel prices of greater than 10%.
Barnes Roffe Topical Tips:
Consult your Barnes Roffe contact partner for guidance in this important area
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT99 Inheritance Tax Planning Update
The death of estate planning using houses and will trusts…
There has been much inheritance tax 'doom and gloom' subsequent to a media storm about a tax case known as Phizackerley. This case was about an Oxford don, Dr Patrick Phizackerley, and wife Mary who used their home as part of their inheritance planning in their wills, using a standard trust mechanism. The two of them owned the house, and on Mrs P's death her half share was left to a 'nil rate band” discretionary trust in her will. The trustees later transferred it to Dr P, who signed an IOU to say that he owed the trust the equivalent value of the half share.
Unfortunately HM Revenue and Customs (HMRC) applied anti-avoidance rules that had been introduced in 1986 and refused to allow the executors to deduct the IOU from the estate of Dr P when he died. They were able to do this because all the assets used in the structuring had originated from Dr P alone and he was the sole financial contributor to the family. The facts of the case were very unusual and it is not going to be appealed.
...has been greatly exaggerated
Despite the comments in the press, the Phizackerley situation is not going to apply to most couples who are married or in civil partnerships, and will trust structuring is still available when set up properly. Even if the position is similar to the Phizackerleys, there are still ways to plan without triggering these anti-avoidance rules. For example wills can include a 'charge” structure rather than an IOU, or a second trust.
Barnes Roffe Topical Tips:
Consult your Barnes Roffe contact partner for guidance in this important area
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT98 Offshore Bank Accounts
Or slick collection method?
There has been extensive press coverage of an 'Amnesty' relating to tax liabilities arising from undisclosed offshore bank accounts. This refers to an initiative by HM Revenue & Customs (HMRC) called the Offshore Disclosure Facility (ODF). This has come about after HMRC successfully forced five UK banks to provide it with details of offshore bank accounts operated by UK resident individuals. However, the ODF is not in any way an Amnesty; it is an attempt by HMRC to efficiently collect back taxes, interest and penalties.
The carrot being offered…
Individuals who come forward and make a disclosure under the ODF will have the penalties chargeable limited to 10% of the under-declared tax, providing a full and honest disclosure is made. HMRC has indicated that individuals who fail to take advantage of the ODF will be charged penalties of at least 30% of any tax that it subsequently discovers to be under-declared.
The deadlines
If taxpayers wish to take advantage of the ODF, it is a requirement that they must notify HMRC of this intention by 22 June 2007. They must then provide HMRC with details of the under-declared income. The tax, interest and penalties must be settled by 26 November 2007. Clearly, the first deadline is fast approaching and anyone wishing to use the ODF needs to take early and urgent action.
A sting in the tail
Any disclosure under the ODF must consider the whole of a taxpayer's affairs and should not be limited to quantifying tax under-declared on interest arising on offshore bank accounts. HMRC will want to establish the source of money deposited into offshore bank accounts and will seek to levy tax, interest and penalties if the source of the money is itself under-declared income. They have indicated that they will seek to collect under-declared tax, interest and penalties covering the period of 20 years to 5 April 2007 unless the under-declared income in periods prior to 6 April 2001 was trivial. The term 'trivial' has not been oficially defined, but HMRC regards it as being absolute in nature rather than relative.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT97 Business Stationery Rules
What is BPR?
The rules regarding business stationery have changed, but remarkably little publicity has been given to the fact! From 1st January 2007 the following applies to business stationery whether in hard copy, electronic or any other form:
A company must state its name, in legible lettering, on all:
Furthermore, on all of its business letters, order forms or web sites, the company must show (in legible lettering) its:
Emails
Whenever an email is used where its paper equivalent would be covered by the stationery requirements, then that email is also subject to the same requirements.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT96 Business Property Relief
Take care of your family assets
Families or business partners usually wish to ensure that they can properly plan for the death of a shareholder. If they undertake tax planning or succession planning without detailed advice then unexpected consequences can occur.
In TT43 we reported on a case where family asset planning created a problem for Inheritance Tax (IHT). Here we review two other common pitfalls illustrating potential problems for family owned companies and their succession planning. Both examples centre on the misunderstanding of how Business Property Relief (BPR) exempts assets from IHT.
What is BPR?
BPR will exempt assets from the charge to IHT if they are qualifying assets and they have been held for the minimum period of two years. Most commonly in our client base such qualifying assets are shares in unquoted companies, however these are not the only assets that receive this relief. It is possible to damage your ability to claim this valuable relief by using qualifying assets for non-qualifying purposes.
Note: BPR cannot be claimed for companies carrying on certain non-qualified activities such as share dealing, dealing in land or buildings, or the making or holding of investments.
Pitfall 1
Two company owners wish to plan that on the death of one owner the control of the company automatically passes to the survivor. They draw up an agreement that on the death of one, the shares will be automatically bought by the other for an agreed amount.
Problem! The Inland Revenue will maintain that on the death of one party, their estate no longer owns shares that are exempt from tax, but owns an amount due by the survivor which is taxable to IHT!
Solution! Ensure any such agreements only allow the survivor the option to buy the shares from the deceased’s estate. Therefore this option can be triggered after the death and the shares are free from IHT in the estate of the deceased.
Pitfall 2
A parent wishes to pass on his or her shares in the family company to the next generation. They know the shares are free from IHT as they qualify for BPR, and they know that if they give them to the next generation they can claim hold-over relief and no Capital Gains Tax is payable. They therefore make a gift to the next generation, either to the individuals or to a family trust. The next generation trade successfully and sell the company a few years later.
Problem! If the parent dies within seven years of the gift then all assets gifted in the last seven years are added back to the estate for the calculation of IHT. Common sense would suggest that as the asset given away (the shares in the company) qualified for BPR at the date of the gift then this exemption would still apply when it is added back to the estate on death. Unfortunately, common sense is not built into tax legislation. The asset given away has ceased to qualify as it has changed from being shares to being cash and is taxable to IHT!
Solution! Will planning must be kept under review as family and financial circumstances change regularly. Good Will planning can seek to mitigate IHT as much as possible, but Wills must be kept up to date.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT95 HMRC spoof emails
A new angle on an old trick
Phishing is a scam that has been around for a few years where criminals send emails to thousands of people. Historically these emails have purported to come from banks, credit card companies, online shops and other trusted organisations. They usually contain a compelling but bogus reason to send money or personal details to a specific address or go to a fake site, for example to update your password before your account is suspended.
Victims are usually asked to click on an embedded link in the email itself which takes them to a website that looks exactly like the real thing but is, in fact, a fake site designed to trick victims into entering personal information such as a password or credit card number.
The effectiveness of these scams diminishes as more people become aware of them, so the criminals come up with new ideas - and Barnes Roffe has become aware these criminals have decided H M Revenue & Customs (HMRC) can help them put a new angle on their old trick.
How it works
The Internet scammers send emails seemingly from HMRC that ask for bank details or even ask directly for money. They usually apply either a ‘carrot’ (e.g. a tax rebate is waiting to be sent to you) or a ‘stick’ (e.g. Failure to comply will result…) approach. Clients should be aware that HMRC would never use the Internet for such purposes.
Barnes Roffe Topical Tips:
If you are in any doubt about an email you receive, consult your Barnes Roffe contact Partner. Our IT department is constantly monitoring such activity and will be able to advise you.
More information on fraudulent HMRC emails can be found on the HMRC website at http://www.hmrc.gov.uk/security/spoofs.htm
HMRC invite you report spoof emails by forwarding them to (JavaScript must be enabled to view this email address) They will not respond individually to each email but will take action.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT94 Tax-Free Business Mileage Rates Update
Company car mileage rates go into reverse
In Topical Tips 84 we advised on the new rates an employee can claim for business mileage when they pay for all the fuel on a company car.
With effect from 1 February 2007 H M Revenue & Customs (HMRC) has reduced the amounts that can be claimed tax-free. The revised rates are as follows (old rates in brackets):
| Engine Size | Petrol* | Diesel | LPG |
| 1,400cc or less | 9p (11p) | 9p (10p) | 6p (7p) |
| 1,401 to 2,000cc | 11p (13p) | 9p (10p) | 7p (8p) |
| Over 2,000cc | 16p (18p) | 12p (14p) | 10p (11p) |
*petrol hybrid cars are treated as petrol cars for this purpose.
A short breathing space
HMRC has acknowledged that there may be some practical difficulties in immediately implementing the new lower rates and that the old rates can be used for a further month i.e. to 28 February 2007.
And back to the future
Concerns have been raised with HMRC regarding the consequent administrative difficulties if the tax-free rates are subject to frequent changes as a result of petrol price fluctuations. HMRC has confirmed that the rates will only be reviewed in the event of a variation of fuel prices of greater than 10%.
Barnes Roffe Topical Tips:
Consult your Barnes Roffe LLP contact Partner for guidance in this important area.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT93 Employment Tax Status
'Can I hire somebody as self-employed?' is something our clients ask regularly. The main risk to your business is that if you hire an individual and incorrectly treat them as self-employed, then HMRC will demand PAYE and National Insurance Contributions (NICs) on the money you paid the person as if you had paid them their net salary!
It should be noted that all circumstances are different and this issue of Topical Tips is for general guidance only. Furthermore, it does not deal with employment law, which could take a contrary position.
Are you hiring a company or an individual?
If you are hiring a limited company to provide the services of the individual then you can usually treat this as not subject to PAYE or NIC (assuming that you receive an invoice from the limited company).
However, that individual may be obliged to operate PAYE and NIC within their company if they are caught within the so-called IR35 rules. This will not impact upon you directly, but it might impact on an important worker in your business who is using their own personal service company. You might want to ensure that they have matters in hand so that the work they do for you is not interrupted if they have unexpected financial difficulties.
If you are hiring an individual, there is no defined test of selfemployment. One rule you must remember as the hirer is that it is your decision alone on the employment status of the individual and not theirs. They might be correctly treated as self-employed elsewhere, but with you the circumstances may differ slightly and employment may be the correct status.
In other words, it is the facts of your engagement alone, and not the existence of other 'clients' that determine the treatment. Also, being registered for VAT, or being registered for tax as self-employed, has no bearing on your responsibility. HMRC's website usefully summarises the points to be considered. http://www.hmrc.gov.uk/employment-status/index.htm#1
Questions you will want to ask individuals
HMRC believe that they need to answer 'yes' to all the above questions to be self-employed.
Barnes Roffe Topical Tips:
Consult your Barnes Roffe LLP contact Partner for guidance in this important area.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT92 Construction Industry Scheme Update 2
Important news for the construction industry
In TT85 we gave advance warning of the changes scheduled for the Construction Industry Scheme (CIS) effective 6th April 2007. Here we provide more details about these imminent changes.
Changes - for the contractor
Sub-contractors should note:
Changes - for the contractor
The new CIS will operate very differently from the current one.
The existing system with its exemption certificates, registration cards and annual returns will be replaced by a system heavily reliant on online facilities and a monthly return.
The key to the new scheme is the correct classification of workers to ensure the person being engaged is a subcontractor and not an employee. The contractor must put procedures in place to validate the status of all subcontractors.
If the sub-contractor is correctly classified as self-employed, then under the new scheme, on engagement, the contractor must:
Once verified, repeat verifications are not normally necessary - HMRC will advise of any change in status.
Contractors should by now have received form CIS333 and can start preparing their records using the details it contains about sub-contractors and their current status.
Existing sub-contractors shown on this form do not need to be verified with HMRC.
Note that vouchers will no longer be issued and instead a monthly return and pay statement must be issued by the contractor. This is best done on-line. Beware the monthly return includes a declaration from the contractor stating they have considered the status of sub-contractors and consider none of them to be employees.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT91 Merry Christmas from Barnes Roffe
Merry Christmas from Barnes Roffe LLP
In this last issue of Topical Tips for the year we present a round-up of the issues from 2006.
Whilst we try to bring to you important and useful tips, the very nature of most of the subjects means that things can, and often do, change at short notice. We would therefore ask you to consult your Barnes Roffe LLP Contact Partner for guidance in these important areas before taking any action.
We always appreciate feedback and would be delighted to receive your comments at (JavaScript must be enabled to view this email address)
TT90 Managed Service Companies
It's back to where we were!
In 2002 the Chancellor introduced a nil rate of Corporation Tax for companies with profits of up to £10,000. It was an untypically naive move that led to a rash of small companies being set up, purely for the purpose of avoiding tax. This resulted in the Chancellor in 2004 having to introduce a minimum 19% tax rate on dividends paid by small companies, a move which greatly complicated their tax affairs. The further result was that effective 1st April 2006 the Chancellor was forced to recant and the nil starting rate was abolished, taking the situation back to where it was before 2002.
Special rules
Following the change detailed above HM Revenue & Customs ('HMRC') has recently clarified the Corporation Tax status of property management companies, small clubs and unincorporated associations.
The guidance is that where the annual corporation tax liability is not expected to exceed £100, returns will not be required from:
What is a property management company?
If the company earns interest on monies held in trust on behalf of tenants (i.e. a sinking fund) then it will be required to submit an income tax self assessment return, unless the annual interest is less than £1,000 and taxed at source.
TT89 Composite Pay Schemes
A nervous construction industry
The changes to the Construction Industry Scheme ('CIS') as outlined in Topical Tips 85 in September are making contracting companies and construction agencies nervous. This is because the tax implications for such businesses could mean that many individual subcontractors (i.e. those not supplying their services through a limited company) may be more correctly reclassified as employees. The risk of paying PAYE and National Insurance remains with the 'employer' and this would be on top of the amounts already paid to the subcontractor and at the expense of the 'employer'. The existence of the relevant CIS paperwork will not protect the employer if they are judged to be incorrect in their treatment of the 'contractor' as a self-employed CIS individual.
It should be pointed out that this risk has always been present, but from April 2007 the risk is becoming more explicit. The new CIS rules from that date will mean that each monthly return of tax deducted from subcontractors will be accompanied by a declaration to be signed by the employer to the effect that all subcontractors are correctly treated. This makes HMRC's case easier to pin on the unfortunate employer!
However, this issue of Topical Tips has advice not restricted to the building trade!
Pay contractors through a composite
A composite facility is basically a group of companies, run by a management services company. These composite facilities handle the payment of contractors from many sectors (construction, HGV/LGV driving, medical, I.T. and sales to name but a few) in a tax-efficient way.
The composite facility employs contractors or temporary workers and subcontracts them back, so there is no liability for employer's National Insurance Contributions, thus saving 12.8%. The contractors do not become directors of any of the companies (only shareholders) and so will not be submerged in paperwork or have corporate responsibilities thrust upon them.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT88 VAT on Fuel Costs
Company car, but no private fuel
In Topical Tips 84 we dealt with the tax-free mileage rate that can be paid to employees to reimburse them for petrol on business journeys when using a company car. It specifically examined the example of an employee who has a company car but chooses to take no fuel benefit, merely claiming the petrol cost for business journeys as they arise. In Topical Tips 77 we dealt with the new rules for a VAT claim that can be made by the employer in this circumstance.
No company car, but business mileage
VAT can also be reclaimed on the petrol element of the authorised mileage rates which can be paid tax-free to employees when using their private vehicle for company business. These authorised mileage rates remain as:
| Up to 10,000 miles | Over 10,000 miles | |
| Cars | 40p | 25p |
| Cycles | 20p | 24p |
| Motorcycles | 24p | 24p |
The driver can also claim a tax-free amount of up to 5p per mile for each passenger.
Company car and private fuel
Where an employer provides a company car and provides private fuel they can claim back the VAT incurred (subject to the employer's VAT status) but they are required to adjust their VAT returns according to a scale charge which represents the assumed VAT on the private element of the VAT reclaimed on fuel. These are revised annually and the following table shows the current adjustments that should be made:
| 12 month output | VAT per car | 3 month output | VAT per car | 1 month output | VAT per car | |
| Diesel | ||||||
| < 2,000cc | 1,040 | 154.89 | 260 | 38.72 | 86 | 12.81 |
| > 2,000cc | 1,325 | 197.34 | 331 | 49.30 | 110 | 16.38 |
Other
|
|
|
|
|
|
| |
| < 1,400cc | 1,095 | 163.09 | 273 | 40.66 | 91 | 13.55 |
| >1,400 < 2,000cc | 1,385 | 206.28 | 346 | 51.53 | 115 | 17.13 |
| > 2,000cc | 2,035 | 303.09 | 508 | 75.66 | 169 | 25.17 |
The above scale charges are per vehicle, effective from 1 May 2006.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT87 Employee Benefits in Kind Update - Mobile Phones
Changes to exemptions
The rules regarding the tax exemption for mobile phones were substantially amended by the Finance Act 2006, and this impacts from 6 April 2006. The changes are:
What were the old rules?
These defined a mobile as equipment, including that installed in a car, that could be used to transmit spoken words and was not connected to a landline. There was also a tax exemption for computer equipment up to £2,500 supplied to employees. It was HMRC’s view that this exemption covered the provision of PDAs such as Blackberrys, therefore there was no need and distinguish whether a Blackberry was a mobile phone or a computer as either way it was not taxable. From 6 April 2006 all computers provided with a private element of use are taxable benefits.
New definition of a mobile phone
From 6 April 2006 the definition of a mobile has been expanded to include anything that can be used to gain access to the public electronic communications service. This covers, for example, a sim card provided independently of a mobile phone if an employee uses it in a mobile phone that is not provided by the employer.
‘Business only’ use
If mobiles are provided solely for business then there is no need to try and get within the exemption to avoid tax. Under this the private use should be not significant and the employer's policy should be clearly stated. Also any decision by the employer not to recover the costs of the private use should be a commercial decision because of the impractical nature of trying to calculate it. If there is any desire to reward the employee then this test will fail. Also, under the old rules, there was the possibility of a tax charge if a pay as you go mobile phone and top-up cards were provided to employees. This is because they fell open to be taxed under rules that caught vouchers and credit tokens. The law has now been tidied up so that no tax charge will arise.
Blackberries and other PDASM
It is HMRC's assertion that these have now evolved far beyond an electronic diary in a telephone and have functions typically associated with computers. Therefore, with the removal of the exemption for computers provided for private use to employees, the provision of a Blackberry or PDA is technically taxable. However, the general exemption (explained below left) for items provided solely or business use with no significant private element may still allow them to be provided without a tax charge arising.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT86 Corporation Tax Update
It’s back to where we were!
In 2002 the Chancellor introduced a nil rate of Corporation Tax for companies with profits of up to £10,000. It was an untypically naive move that led to a rash of small companies being set up, purely for the purpose of avoiding tax. This resulted in the Chancellor in 2004 having to introduce a minimum 19% tax rate on dividends paid by small companies, a move which greatly complicated their tax affairs. The further result was that effective 1st April 2006 the Chancellor was forced to recant and the nil starting rate was abolished, taking the situation back to where it was before 2002.
Special rules
Following the change detailed above HM Revenue & Customs (‘HMRC’) has recently clarified the Corporation Tax status of property management companies, small clubs and unincorporated associations.
The guidance is that where the annual corporation tax liability is not expected to exceed £100, returns will not be required from:
What is a property management company?
If the company earns interest on monies held in trust on behalf of tenants (i.e. a sinking fund) then it will be required to submit an income tax self assessment return, unless the annual interest is less than £1,000 and taxed at source.
TT85 Construction Industry Scheme
Changes for next tax year
In April 2007 the Construction Industry Scheme ('CIS') taxation regime will change significantly.These are the main points:
Imminent notification
HMRC timetable 06/07
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT84 Tax-Free Business Mileage Rates
Money-saving update on company car fuel
In Topical Tips 53 and Topical Tips 69 we dealt with the important saving available if an employee chooses to pay for all fuel in their company vehicle and then claims back money to cover the fuel cost for only the actual business miles driven.
With effect from 1 July 2006 the new rates allowed by HM Revenue & Customs ('HMRC') have been revised upwards as shown below (old rates in brackets):
| Engine Size | Petrol | Diesel | LPG |
| 1,400cc or less | 11p (10p) | 10p (9p) | 7p (7p) |
| 1,401cc to 2,000cc | 13p (12p) | 10p (9p) | 8p (8p) |
| Over 2,000cc | 18p (16p) | 14p (13p) | 11p (10p) |
Remember, employer and employee can benefit
In the example quoted in TT53 we showed that an employee will be break-even, even if they pay for their private fuel, by saving the income tax they otherwise would have suffered. The company is substantially better off and can afford to compensate the employee for the change, whilst still making substantial savings.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT83 Tax Return Filing Deadlines
Less time to file
Few people will have noticed that the last Budget hid a sneaky announcement by the Government that dramatically shortened the time taxpayers have to file their income tax returns.
Few people will have noticed that the last Budget hid a sneaky announcement by the Government that dramatically shortened the time taxpayers have to file their income tax returns.
Following a report by Lord Carter of Cole into the Revenue's online filing system, the Revenue had decided to accept his recommendations to bring forward income tax self-assessment filing deadlines. This recommendation was completely unexpected and had not been consulted upon.
The announcement said that from the tax year ended 5 April 2008 all individuals were going to be expected to file their paper income tax returns by 30 September 2008 or their online returns by 30 November 2008. This compared very unfavourably with the deadline under the current rules of 31 January 2009. (However, it should be pointed out that the tax payment deadline would have remained 31 January 2009.)
A partial backtrack
After much complaint from interested bodies, including all the major accountancy bodies, Lord Carter announced on 10 July 2006 that he would change his recommendation; the online filing deadline would remain 31 January 2009, and although the paper deadline would still come forward, it would be only to 31 October 2008 (even this is still three months earlier than it would have been under current rules).
An incentive for early filing
As a concession to the early filing deadline, Lord Carter also recommended that the window of time in which the Revenue can make an enquiry into your income tax return will be linked to a period from when your return is filed and not for the current fixed period of one year from 31 January 2009 (or one year from the date of filing if later). This removes the perceived disadvantage against filing returns early.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT82 On line Filing Incentives & Van Benefits
All may not be what it seems
We all welcome Gordon Brown's strenuous efforts to reduce the tax burden, or even to send us money tax-free, and recently he has done just that in relation to on-line filing of PAYE returns and van benefits.
But wouldn't it be dreadful if, without our realising, tax-free cash and non-taxable benefits were taxed after all? Yet there is a real risk of this happening unless you keep a close eye on what Her Majesty's Revenue and Customs ('HMRC') is doing!
Tax-free incentive payments
You probably know that if you have fewer than 50 employees you will not have to file PAYE returns on-line until 2010, but that in voluntarily doing so earlier, you can receive incentive payments of up to £825 tax-free - great!
Unfortunately, because of perceived abuses of this generosity, HMRC has gone off the idea of sending out cheques and usually employers merely make an adjustment to their PAYE payments. But then, of course, the tax-free sums can 'get lost' in the accounts. If they are not specifically adjusted for in the year-end tax computations HMRC will automatically recoup up to 41% of the 'tax-free' amount - ouch!
Van benefits
You may also know that from 2005/06 there is no benefit charge for insignificant private use of a van provided by an employer. Insignificant private use basically means home-to-work travel, and in this circumstance there is no tax to pay - great again!
However, if the benefit is still included as a taxable item in a PAYE coding notice, the tax is probably still being paid anyway - ouch again!
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT81 Classic Car BIK
What is a classic car
There is special legislation to deal with the benefit in kind ('BIK') value of certain classic cars because their list price will be low compared with their current value.
The special rules apply where:
And what's it worth?
The price of a classic car for the year is the market value of that car for the year less the amount of any capital contribution (if applicable).
The market value of a car for the year is the sale price it might reasonably have been expected to fetch in the open market on the material day*. The valuation must be made on the assumption that all of the qualifying accessories available with the car on the material day are included in the sale.
Market values of classic cars may be found in specialist publications, contemporaneous sale documents or insurance details for the car concerned. If a classic car is bought in a poor state of repair and is restored during the year, then it is the market value of the restored vehicle on the material day which is needed to calculate the car benefit charge and not the earlier purchase cost.
The price of a car for the year is restricted to an upper limit of £80,000 as with all company cars.
*The material day is either the last day of the year of assessment, or the last day of the year on which the car is made available to the employee or to members of his or her family or household.
Capital contribution
The appropriate amount of any capital contribution is calculated in the same way as for other cars, with the same limit, being the lesser of:
Example BIK calculation
On 1 May 2006 a company buys a car for £12,000 and provides it for private use to the director, who contributes £2,000. It was first registered in 1951 and had a list price then of £2,800. During the year the car is renovated and on 5 April 2007 it has a market value of £17,500.
The car is therefore a 'classic car' because:
The price of the car for the year is therefore:
Cars registered before 1 January 1988 have no CO2 emission figures and the scale charge is based on engine size. If the car has an engine capacity of more than 2,000cc then the scale charge will be 32% of the price of the car.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT80 Benefits In Kind Update
No more tax-free computers!
Disappointingly, last month the Chancellor of the Exchequer used the 2006 Budget to remove an important and useful tax break on staff benefits. As explained in Topical Tips 59, the government had previously allowed a tax-break whereby employers could loan IT equipment (usually computers and printers) worth up to £2,500 to staff. Subject to the arrangement meeting all the rules, this was not a taxable benefit. Also, the employer could reclaim VAT and claim tax relief on the equipment cost. In many cases this was done using a salary sacrifice arrangement, leaving the employer with a National Insurance saving and the employee with a half-price computer. Originally the government heralded this tax-break as being an important IT literacy boost to the UK economy, but they've now decided they were too generous!
So where are you now if you have such an arrangement?
Arrangements instigated before 6 April 2006 can continue with no tax.
If you provide a new loan to staff after 5 April 2006 then this will be a benefit in kind taxable on the staff and you will have a Class 1A NIC bill in 2007.
You could consider selling or giving the equipment to the staff (on an individual case by case basis) but this transaction should be at market value, or any undervalue will be taxable. If you choose to give the equipment to staff then this will be a one-off benefit in kind at the market value of the equipment at that date. They will pay tax and you will pay NIC.
Beware, many employers have provided the equipment under leasing arrangements with third party providers in return for a salary sacrifice. These too will no longer work after 5 April 2006. If a new lease is entered into after that date the taxable benefit will be the value of the lease. This will have to be reported on form P11D and will be taxable on the employee, and the employer will have to pay Class 1A NIC.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT79 HMRC Spring/Summer Deadlines
As we approach the busy season for filing returns with Her Majesty's Revenue & Customs (HMRC) and Companies House, here is a summary to help you meet the deadlines.
April 2006
May 2006
July 2006
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT78 Payroll Return Incentive
Do you have fewer than 50 employees?
If you do, you might qualify for a case of Champagne, or rather a £250 refund from the taxman so you can buy it yourself!
In November 2004 HM Revenue & Customs ('HMRC') wrote to all UK employers warning that if they had 50 or more employees at that date, their 2005-06 payroll returns (Forms P14 and P35) would have to be filed on-line. Smaller employers (less than 50 employees) were offered a £250 credit to encourage compliance.
Making the Return
Your software must contain all the relevant details or the filing will be rejected by HMRC's computer system, thus you should try to file earlier rather than later, as mistakes might need correcting.
Check your authentication details before filing, or register now if you do not have any - go to www.hmrc.gov.uk and look for 'PAYE for employers' under 'Do it online'.
When you file your returns you will receive two messages. The first will be an e-mail from the Government Gateway confirming receipt. The second will follow shortly to say that the return has been accepted, or if it has failed it will say why.
Once you have filed on-line and you have received an acceptance message you can relax. Do not send a paper copy as this might be processed before the on-line version and you could be fined automatically.
You will get a letter confirming that the £250 payment has been agreed. To claim it you deduct this amount from your next payment, or if you would rather receive a cheque then you can say so.
Already had a £250 refund?
If you had a £250 payment for 2004-05 you must enter this in the correct box on the 2005-06 P35 if you received the money by credit to your payment history, or leave it off the return entirely if you received it by cheque. If you set the payment off against an amount of PAYE and NIC paid for 2005-06 then you should report the net amount paid on the 'NICs and Tax paid' box on the P35.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT77 VAT on employee mileage claims
Potential repayment of VAT…
In March 2005 we reported on a new twist in VAT law (see TT62). This arose as a result of the European Court of Justice ('ECJ') handing down a ruling that UK law on employee-incurred expense payments was contrary to European law (essentially the UK allowed VAT registered traders to reclaim VAT incurred by employees on certain motor and subsistence expenses).
To re-cap, the UK rules were declared wrong because:
The UK Government had argued that not to allow employers to claim such VAT would be unfair and to make other arrangements would place a large administration burden on those employers.
However, whilst the case went against the UK, the ECJ did acknowledge that in principle the VAT registered trader should be allowed to claim back the VAT in some way.
As at March 2005 HM Revenue & Customs ('HMRC') had not decided on a response to the ruling and was still considering the matter. They advised that while the UK law remained unchanged, they could not rule out a potential repayment of VAT being due.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT76 Self-Assessment Filing Deadline
Deadlines and fines
Despite the massive annual publicity drive by H M Revenue & Customs (HMRC) to remind people to meet the self-assessment filing deadline of 31 January, many still miss it. Last year 1 million out of the 9.8 million people required to file a tax return were late, many receiving a £100 penalty.
Three second-chances - if you are quick!
If you think you are narrowly going to miss the deadline, you have three last-minute chances to avoid the penalty:
A cap on the fine!
Another small bit of good news is a little known rule is that the penalty for late filing is £100, but it cannot exceed the tax liability for the year, or the amount outstanding at the filing date. So, if you are due a refund, due to pay no tax or can make an accurate estimated payment (or even a small overpayment) by 31 January 2006 then you have a further breathing space in which to file your return. See this link for details.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT75 Merry Christmas from Barnes Roffe
Barnes Roffe Topical Tips:
Whilst we try to bring to you important and useful tips, the very nature of most of the subjects means that things can, and often do, change at short notice.We would therefore like to draw your attention to the following:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT74 Staff Entertainment
Christmas party time
You want to reward your staff at Christmas, but what can you do without landing them a tax bill?
Most people are aware of the exemption of £150 for entertaining staff, but this must not be regarded as the budget for the office Christmas party.
The figure of £150 is an annual limit, so all social functions for staff in a tax year (e.g. 6 April 2005 to 5 April 2006) must be counted. Also, the functions will need to be open to all employees generally, or all employees at any one location (if you have more than one place of business). However, if you have a large workforce and divide your staff on a divisional basis and separate parties are organized, then the exemption should still apply (as long as all employees in that division are invited).
It is important to emphasise that exclusive parties for selected staff only (e.g. directors or senior managers) will not count in the exemption!
Calculating the cost
Each event in the year must be recorded and the cost per head calculated and the attendees' names known. This is not as simple as it sounds, as you must remember to include all costs, including:
When working out the cost per head, don't forget to include any partners of employees who also attended. Not only is this fully permissible, but it can dramatically reduce the 'per head' figure.
Once you know your 'party history' you can select which functions are exempt from tax. Remember that the £150 is an exemption and not an allowance to offset against the total cost, so you must choose which parties to claim as exempt so that the total is less than the £150 per head. For instance, if you held three parties costing £50, £80 and £75 per head then you would nominate the £50 and £80 parties, meaning that the whole of the £75 party would be taxable.
Calculating the tax
If you go above the £150 limit you must calculate the benefit for your staff members, noting that not all might have attended each function. Using the figures below left as an example:
Barnes Roffe Topical Tips:
Any employees earning less than £8,500 per annum are not taxable on this benefit.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT73 Diesel Company Cars - Tax Change
The current situation with diesel company cars
HM Revenue and Customs imposes a 3% surcharge on the taxable scale charge for diesel-engined company cars registered after 31 December 1997 which do not meet Euro IV emission standards.
For example, this means that for the 2005/06 tax year a petrol-engined company car with CO2 emissions of 140 g/km will carry a charge to income tax based on 15% of the vehicle's list price, while a similar non-Euro IV compliant diesel-engined company car will carry a tax charge of 18% of the vehicle's list price. This surcharge will also increase the amount of Class 1A National Insurance Contributions levied on the provider of the company car benefit.
However, where the company diesel car is Euro IV compliant then no surcharge is imposed.
A major change in April
From 5 April 2006 the favourable treatment of Euro compliant diesel-engined cars will not apply to cars registered on or after 1 January 2006. (Euro compliant cars registered before 1 January 2006 will remain free of the surcharge after 5 April 2006 i.e. the change will not be retrospective.)
Something for cyclists!
Did you know that an employer can set up a scheme to buy and loan bicycles (including necessary safety equipment) to members of staff with no tax charge? The company will also get back the VAT and obtain tax relief on the assets purchased. A salary sacrifice option can also be set up to make the purchases cost neutral to the employer, but allowing the employees to enjoy a much reduced net cost by saving tax and National Insurance. And as icing on the cake, an employer can pay a taxfree 20p per mile to their employees if they use the bicycle for business purposes.
Notes
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT72 Property & SIPP Update
Borrowing under the new rules
With the publicity surrounding the rule changes from April 2006 ('A Day '), most people interested in buying property via pension schemes are aware of the heavy restriction on borrowings that will take effect. These will mean that after A Day they can only borrow up to 50% of scheme assets (compared to the current 75% of purchase cost). Many people are therefore looking to complete on property deals before A Day to get within the old rules. However, those people who already have property in self invested pensions might be paying less attention to the situation, believing the changes will have no impact upon them; however, this could be a false assumption!
A hidden trap for current owners
A darker side to the legislative changes has now emerged that could have a profound effect on members of schemes who already own their property, but have borrowings which are in excess of 50% of scheme assets. Whilst the rule changes regarding borrowings will not be retrospective, there are concerns over the potential implications the new rules could have, should circumstances warrant either a change in scheme provider or bank.
You could be chained to your provider or lender…
For example, a SIPP (or SSAS) that acquired a property through 75% borrowings under the old rules will find itself unable to transfer to a new SIPP provider should the existing relationship become strained. Similarly it could be chained to the same lender if the interest rates became uncompetitive. This is because either transfer would result in a new funding test against the post A Day limit and, if borrowing was in excess of 50% of the scheme's assets, the scheme would be in breach of the new regulations.
...or an unwilling member
This scenario above will also apply to multi-member schemes that have acquired property jointly and where one member wants to exit the property. In a worst-case scenario, if the property was already highly geared, this could result in the members having to find sufficient cash to buy out the member without being able to source any additional funding from bank borrowings.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT71 Staff Suggestions Scheme
Make your business better and save your staff tax!
If you run a staff suggestions scheme you can potentially:
How should the Suggestion Scheme run?
To comply with tax legislation, the following conditions apply:
Encouragement Awards
An encouragement award is a tax-free cash award up to £25. It can be made to an employee in respect of a suggestion made that has some intrinsic merit or reflects an effort on the part of the employee in making the suggestion. These awards can be made regardless of whether or not the employer acts upon the suggestion made.
Barnes Roffe Topical Tips:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT70 Tax-Free Staff Incentives
I don’t believe it – more good tax news!
Many of our recent Topical Tips have dealt with various types of tax free ‘perks’ that can be offered to employees and this one is no exception! In this issue we look at three more tax-efficient incentives for employees! And remember, Directors are employees too!
Tip 1 Mobile Phones
Most people know that there is no charge to tax on a mobile phone provided to an employee by an employer, or on any line rental for that phone paid for by the employer (as long as it cannot be converted into money by the employee). However, where an employer pays an employee to use their own mobile phone a tax liability does arise.
It would be a considerable perk therefore to many employees to have their mobile phone supplied and paid for by their employer as there would be no benefit and thus no tax or NIC on the cost. Also the employer would not suffer class 1A National Insurance Contributions. Mobile phone tariffs are getting cheaper every day and it possible to get 500 minutes of free call time plus 60 text messages for as little as £15 per month!
Tip 2 Long Service Awards
Long service awards can be made to directors and employees as testimonials to mark long service. They can take the form of tangible articles of ‘reasonable cost’ or shares in an employing company. These awards are not taxable when the relevant period of service is not less than 20 years and no similar award has been made to the employee within the previous 10 years.
An article may be taken to be of ‘reasonable cost’ where the cost to the employer does not exceed £50 per year of service, so for an individual that has been an employee for at least 20 years, the first maximum award could be goods costing up to £1,000. When, 10 years later, service has reached 30 years, a further award could be made valued up to £1,500.
Tip 3 Interest Free Loans
Employers may make interest free loans to employees of up to £5,000 in any one tax year without a taxable benefit in kind arising. Such loans can be used for any purpose such as buying season tickets, clearing credit card debts or paying a deposit on car. The terms of such loans should be set out in writing and should deal with events such as the sudden death of the employee or resignation from the employment.
Remember though that if all or any part of the loan is forgiven, this will be treated as ‘net pay’ and will trigger a charge to income tax and National Insurance in the month in which the loan is forgiven.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT69 Company Car Fuel Update
Stop “free” company fuel and everybody saves
In Topical Tips 53 we dealt with the important saving available if an employee chooses to pay for all fuel in their company vehicle and then claim back money for only the actual business mileage driven (to cover just the fuel cost).
In the example quoted we showed that an employee will break-even, even if they paid for all their private fuel because they then saved the swingeing benefit in kind income tax levied on “free” fuel provided by the company.
However, the example showed the company was substantially better off and could thus afford to compensate the employee for the change, whilst still making substantial savings.
New rates
With effect from 1st July 2005 the new rates allowed by H M Revenue & Customs (HMRC) for reclaiming fuel used in company cars have been revised upwards as shown in the table below.
| Engine size | Petrol | Diesel | LPG |
| 1,400cc or less | 10p | 9p | 7p |
| 1,401cc to 2,000cc | 12p | 9p | 8p |
| Over 2,000cc | 16p | 13p | 10p |
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT68 Goodwill on Incorporation
Why is ‘goodwill’ an issue?
Goodwill is the difference between the price the purchaser pays for the business and the value of the underlying assets. For example a business might have assets worth £100,000 (e.g. plant and machinery, stock, debtors less creditors), but will be worth more than £100,000 as it is capable of generating profits over and above the management cost of running it.
Income earned by an individual is taxed at a basic rate of tax of 22% and at 40% for the higher rate. However, capital gains tax paid by an individual on a business asset owned for only two years is just 10%, so selling ‘goodwill’ can save tax.
The tax treatment
In April 2005 HMRC published their commentary on the tax treatment of goodwill purchased in two circumstances:
a) when the seller of the business is selling to his or her own company
b) when the seller of the business is selling to someone else’s company and is joining as an employee
The Inland Revenue are on the look out for goodwill sold at an overvalue. If the goodwill was sold to a new company in which the taxpayer is a shareholder then the inflated goodwill value will probably be taxed as a distribution (like a dividend) and the taxpayer will be liable to additional tax if the distribution to them is at their higher rate of income tax.
If the goodwill was purchased at an inflated value as an inducement for the seller of the goodwill to take up employment with the company or in return for future services (e.g. a depressed pay packet) then the inflated value of the goodwill will be taxed as employment income. It is up to the employing company to declare the PAYE and NIC on the amount or, in exceptional circumstances, put the amount on the P11D as a benefit.
The taxman is watching
H M Revenue & Customs (‘HMRC’) is alert to individuals incorporating their own businesses and selling the business to their own limited company with inflated rates of goodwill. Taxpayers trying to swap income tax rates for the 10% capital gains tax on businesses assets need to take care.
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT67 Business Incorporation
Many businesses start as sole traders or partnerships, but after a short period of time often expand into serious concerns. It is then that the proprietors usually begin wondering whether they ought to be trading via a limited liability company (‘company’) or a limited liability partnership (‘LLP’). There are four important aspects to be considered:
1. Limitation of liability
A sole trader is personally liable for all the debts and liabilities of their business.
Trading via a limited liability vehicle allows the owner of the business to distance themself from personal liability for the trading debts of the business. (However, owners could remain liable for certain debts, for example the bank might insist on personal guarantees.)
2. Commercial presentation
A company or LLP may create a better image to customers and suppliers. However, the benefit of limited liability comes with the downside of more publicity. Companies and LLPs are required to file annual accounts at Companies House along with details of directors and shareholders (or members, in the case of a LLP).
At present most companies under £5.6M turnover can take advantage of filing abbreviated accounts consisting of only a balance sheet and certain disclosure notes that hide key facts such as director’s earnings or shareholder’s dividends. The pending Company Law rewrite is expected to end this and force all companies to file simplified, full accounts showing more financial information.
LLPs have broadly similar rules for abbreviated accounts, but depending on profitability their full accounts may disclose the income of the higher earning member and an analysis of members’ earnings in bands.
3. Tax consequences
A company has its own tax return and will pay tax on its profits at a rate usually lower than the sole trader. This allows businesses that make more profits that the owners take for their living expenses to accumulate profits at a lower rate of tax. Remember though, such decisions as company cars and salary versus dividend become quite complex to avoid paying too much tax. However, giving employees shares and retrieving them later can be fraught with tax consequences.
For LLPs the situation is very different. A LLP, will split all profits between the members and those members will pay tax on the profits as individuals at their full rate of tax. If much of the profit is tied up in long-term items such as fixed asset acquisitions or working capital the members might be paying tax on profits they can not yet draw. However, the tax rules allow members to join and leave trading LLPs with little or no tax consequences or downsides.
4. Costs
A company has its own legal identity and it requires accounts in a format prescribed by the Companies Act 1985 and a host of accounting standards. Also it requires a Corporation Tax Return for each year of trading. The cost implications of this must be set against remaining unincorporated.
Similarly a LLP must prepare accounts in a prescribed format, but as it is taxed just like a partnership then the tax return should not place a greater cost on the business compared to an unincorporated entity.
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT66 Tax Return Update 2
Some good tax news
Topical Tips 65 dealt with changes to the Income Tax Return situation for 2004/05. This issue deals with some advantages you might be able to claim from HMRC!
Approved mileage allowances
An employer can reimburse an employee for business travel in the employee’s own vehicle at approved mileage rates. As well as not having to report these payments on form P11D they are tax-free provided they remain below certain limits:
If you pay more than these rates then the excess will be taxable on the employee and both employee and employer will pay national insurance (NIC) on the benefit provided.
If you reimburse only fuel costs for business mileage to drivers of company cars then there is an equivalent HMRC approved scale of tax-free rates. In both cases a full log of all business mileage must be kept. See right for further potential relief.
Home internet connections
It is sometimes sensible to allow employees to work from home via internet connections. There are, however, some income tax and NIC considerations.
If an employer reimburses the employee for their home internet service then this is taxable and subject to NIC. The employee must make a counterclaim on their tax return for the business element. Evidence such as a record of private and business usage for a representative period will be required.
If the employer can get the internet connection in their name rather than that of the employee, then they can reclaim the VAT and the employee is only taxed on the benefit (inclusive of VAT) and pays no NIC. The amount should be put on the form P11D and the employer will pay Class 1A NIC. See right for possible relief from this.
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT65 Tax Return Update 1
Returns they are a changing
Yes, the tax return season has well and truly started! This issue of Topical Tips highlights some changes this year that might affect Barnes Roffe LLP clients.
New (tax) year, new name
Now that it has merged with H M Customs and Excise the Inland Revenue is to be known as H M Revenue & Customs. As that’s a bit of a mouthful we’ll refer to it here as HMRC. No doubt other abbreviations will emerge in due course!
Some good news… or not?
Some taxpayers will have received notification from HMRC that they are not being sent a Tax Return this year. Whilst this might seem like good news, it does remain the duty of the taxpayer to tell HMRC if they should be completing a Return. For instance, if you have a new source of income (e.g. rent, or any income not taxed at source) or are amongst the class of people who are obliged to complete returns, (e.g. a director of a company) you must request a Return. There is a possibility that you might receive a P810 Tax Review Form to check your tax-paying status.
More good news… or not?
This year a new initiative by HMRC is to issue Short Tax Returns (form SA200) to up to a reported 2 million people out of the 9 million taxpayers who usually complete the full Tax Return. Again this might seem like a good thing, but it should be borne in mind that the Short Tax Return:
Given the above, taxpayers can elect to complete the full Self Assessment Tax Return.
Foreign dividend income
Until now most people were generally unlikely to have foreign listed shares, however since the recent takeover of Abbey by Banco Santander, many people who held Abbey shares will now be the proud owners of such investments.
The Short Tax Return has no box in which to show foreign dividend income received. Also, taxpayers using the Online Filing facility for their full Tax Return will not be able to complete the foreign income supplementary page.
This matters because dividend income on UK shares come with a notional tax credit of 10%. This is deemed to satisfy the tax chargeable for basic rate taxpayers, and for higher rate taxpayers it is taken into account when calculating their liability to tax on such income. Foreign dividend income will not necessarily have the same tax credit e.g. dividend income on the Banco Santander shares will have a 15% tax credit.
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT64 New Accounting Standards
No more room for manoeuvre
New accounting standards have been issued in the UK that attempt to harmonise UK accounting standards with International Standards. The standards have been introduced because businesses have used the lack of specific standards to measure income recognition (i.e. accounting for sales) to either delay or advance the reporting of profit – depending upon their needs. How was this done?
Delaying profits
To achieve this, accounting for the sale would only be recognised at the end of a job. Until that point work in progress would be accounted for at cost. This delayed the profits on the service until the latest possible date.
Accelerating profits
As an opposite alternative, sales were recognised immediately and a minimal amount of the sale was deferred to match the costs of finishing the job. This advanced profits to the earliest possible point.
Effects of the new standards
Broadly speaking these will be felt in two ways:
1. A seller must recognise income when it obtains a right to consideration from its performance of the service – this is not the same as when all the contractual obligations have been fulfilled
2. Income recognised in advance of invoicing date will be shown under debtors as ‘amounts recoverable on contracts’
For example, if you are half way through an assignment at your year-end you must provide for half your fee, thus “work in progress” will only be shown in accounts in exceptional cases where the contracts concerned are truly conditional or contingent upon future outcome.
Who will be affected and when?
All companies providing services will be affected; the date of implementation of the new policy will depend upon their size. Small companies* will adopt the new changes for accounting periods starting on or after 1 January 2005. Other companies that do not qualify as small will have to adopt the changes for accounting periods ending on or after 22 June 2005, potentially a lot earlier. Unincorporated entities (e.g. professional service firms such as Solicitors) are required to prepare accounts for the Inland Revenue that comply with accounting standards.Which standards they must use is dependant upon their size as if they were companies.
* To qualify as small a company must pass two of the three following limits for two years in a row: £5.6M turnover, £2.8M gross assets and 50 employees. Additionally it cannot be a Plc or licensed under the Financial Services & Markets Act 2000 (e.g. Independent Financial Advisors), or be a member of a group containing such a member.
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT63 Personal Pensions & Property
How things stand today
Owner-managers of businesses have often used a company Small Self Administered Scheme (“SSAS”) to make company pension contributions into their plan to invest in commercial property; other individuals can do the same with their personal pension scheme by starting a Self Invested Personal Pension (“SIPP”). The investments within existing personal pensions can then be transferred into the SIPP and converted into cash, which can be used to buy commercial property. It is also possible for both these schemes to borrow money to make such investments, or to make pooled investments to jointly own property between several SIPPs. However, while commercial property is allowed, residential property is not.
Changes from 6 April 2006
From this date (known as “A” Day) a new “simplified” regime for all pensions starts. A key change is that under the new regime investments in residential property will be allowed. Numerous articles have been written in the press on this subject and at Barnes Roffe many questions have been received. A summary of the relevant SIPP changes follows (current rules red, new rules black):
Only commercial property can be bought within a SIPP.
Any type of property will be able to be bought, and even otheritems such as classic cars or art will be eligible.
The SIPP can borrow up to 75% of the value of the property, so long as the forecast for the investment’s rental return and the pension contributions will pay off the loan by retirement date.
The new schemes will only be able to borrow a further 50% more than the cash invested by the scheme, i.e. only 33% of the property value to be purchased.
A SIPP can only buy from an unconnected third party.
The SIPP will be able to buy assets held by connected people – including you!
Overseas property has historically not been available.
No assets are prohibited, but costs must be considered and also overseas legislation might not interact well with UK Trust law.
SIPPs can be grouped together to combine buying power, e.g. to jointly buy a property with associates. Certain syndicated SIPPs are available in the market.
No change, but the borrowing power will be reduced.
Contributions are limited by a link to earnings in the year (or best out of the previous five years) multiplied by an increasing % based on age (up to 40%).
Contributions will be limited to 100% of earnings for the year, subject to a maximum limit of £215,000 in 2006/07, rising to £255,000 in 2010/11.
No maximum fund value.
Funds in excess of £1.5M (2006/07), rising to £1.8M (2010/11) will be taxed on retirement at 55%!
25% of the fund can be tax-free cash on retirement.
No change.
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT62 Reclaiming VAT on Employees’ Expenses
Europe says ‘no’
In a surprising case heard recently at the European Court of Justice (ECJ) it was held that UK VAT law was incompatible with European law. This means that there is potentially a forthcoming change in the way that UK companies handle their VAT reclaims for certain expenses paid to employees, particularly road fuel costs.
The current situation
Under general European VAT law a VAT registered employer cannot take input tax relief on expenses incurred by the employee when the employee:
(Note that if the expenses are incurred on an employer’s credit card, VAT relief can legitimately be obtained.)
However, these rules have been relaxed in the UK by certain concessions and a statutory provision in respect of road fuel. The recovery of input VAT on certain subsistence payments, relocation expenses, mobile phone costs and road fuel are all specifically exempted from the general prohibition.
The European Commission (EC) has not been happy with this, taking the view that the UK law allowing such reclaims of employee expenses was in breach of the European Sixth Directive on VAT. They stated that as the VAT registered employer is not the recipient of the transaction and has not got an invoice in its name then it cannot claim the VAT back.
The UK VAT Commissioners were given two months to respond to the initial view of the EC and they did so by defending UK law. After a similar case heard by the ECJ involving the Netherlands found in the EC’s favour, the UK case was referred to the ECJ and the Advocate-General handed down a verdict against the UK on 10 March 2005.
So what next?
HM Customs & Excise have yet to publish a response on the matter. Barnes Roffe spoke to a representative from HM Customs & Excise on 15 March 2005 and all they could advise was that the position might change in the future. They went as far as to say that they could not rule out amounts already claimed being repayable by VAT registered parties. It would be difficult for any change in treatment to be applied retrospectively, but not impossible.
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT61 Companies House Changes & Security
Changes at Companies House
There have been changes at Companies House and to the Companies Act 1985. Here we deal with the aspects that will most commonly affect our clients.
End of extension to filing deadlines
Previously companies that carry on business or have interests outside the UK have relied upon Section 244(3) of the Companies Act 1985, under which they simply file Form 244 to obtain a 3 month extension to their accounts filing deadline (10 months to 13 for a limited company, or 7 months to 10 for a Plc). For all accounting periods starting on or after 1 January 2005 this application process has been cancelled. Press comment has suggested that Companies House will consider any requirements for an extension on their merits, but experience shows any extension not previously covered by Section 244 is very hard to obtain.We advise that clients should no longer rely upon an extension being granted.
Fee revisions
From 1 February 2005 revised fees apply for companies and limited liability partnerships. Whilst many fees have been reduced, the most common fee paid has risen: the Annual Return (Form 363) filing fee has doubled to £30. However, if the form is filed electronically the fee is frozen at the previous level of £15. Fees for on-line company searches with Companies House Direct have been reduced to £1 per item, making this a very cost-effective way to source information. If you are interested in using this service go to http://www.companieshouse.gov.uk for details.
Access to corporate data
As a useful extension to the service above, if you register as a customer of Companies House Direct then the new Monitor service will be available to you. This allows you, for 50p per company per year, to monitor filings made by companies you are interested in. When a filing is made you will be notified by e-mail and can choose whether to pay the £1 per item charge to view or download the information.
Company security issues
As well as monitoring competitors, customers or suppliers, Companies House has recently highlighted the issue of corporate fraud and the importance of monitoring your own company’s record for unauthorised filings. Remember, anyone can submit a document to Companies House and these could alter your credit history. Companies House does not have the power or the resources to investigate documents filed. Identity theft can more easily happen to companies than individuals. “Company Hijacking” is where a fraudster files documents to alter the company directors’ names and the registered office of the company and uses the new “identity” to order goods that are never paid for. This can cause a large headache for the true owners of the company concerned as they will need to correct the on-line company record and deal with the problem arising from those unpaid suppliers.
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT60 Company Van Tax
From 6 April 2005 company van tax changes
Currently, employees who have private use of a company van are charged with a benefit in kind of £500 (or £350 for older vans).
From 6 April 2005 they will have that charge reduced to nil if:
Also, where there is no tax charge on the van there will be no Class 1A charge for the employer either.
So what’s “insignificant”?
The word “insignificant” is not defined by the Inland Revenue, so it takes its normal English meaning. For example, the New Oxford English Dictionary says it means “too small or unimportant to be worth consideration”.
Examples from the Inland Revenue to illustrate what they take to be insignificant use are when an employee:
Examples they give of use which is NOT insignificant are when an employee:
…and what about travel to and from work?
Home to work journeys are still considered to be private use, but the new rules allow employees to use their van for these journeys without paying tax.
Barnes Roffe Topical Tips
If any of your employees meet the conditions for a nil charge from 6 April 2005, please contact your Inland Revenue PAYE office and let them know:
The Inland Revenue will then change the employees’ tax codes so they pay the right amount under PAYE from 6 April 2005. It is a good idea to consider providing the information as soon as possible so that your employees start the year with the correct tax code.
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT59 Staff Home Computers
Amazing but true…
Sometimes, just sometimes, the Chancellor is kind with benefits in kind! Topical Tips 58 highlighted a tax efficient benefit enabling both employers and employees to save money by altering the employee’s remuneration package to include an element of child-care. Amazingly there are other significant benefits that can be enjoyed in a similar manner! This issue of Topical Tips deals with a way of providing computer equipment for staff to have at home that can save them half the cost of the computer and save the employer money as well!
Encouraging the development of IT skills
The Government has set the rules on benefits in kind so that employers can provide free computer equipment to staff (up to quite a high value) at no tax cost. This is primarily to encourage the development of Information Technology skills amongst the general population, but it also recognises the fact that employees often undertake work from home and it would be unfair to tax them if the employer made computers available for this purpose.
How does this IT tax exemption work?
If an employer makes an asset available for private use by an employee then generally a benefit arises that is taxable on the employee (and Class 1A National Insurance Contribution (“NIC”) is payable by the employer). Unless the asset is covered by special rules (e.g. company cars) then the benefit is calculated as being 20% of the market value of the asset when first made available, plus any other costs e.g. maintenance/upgrades. However, if the asset is computer equipment and software, then the first £500 of the benefit is exempt – so a computer worth £2,500 is tax-free! (£2500 x 20% = £500 benefit.)
Both employer and employee can save
Take as an example a computer with software worth £1,200 plus VAT:
In other words the employer saves the NIC on the salary sacrifice and the employee saves the tax and NIC that would have been paid and does not have to pay the VAT.
At the maximum the computer equipment and software can cost up to £2,500 with savings of £320 for the employer and £1,462.50 for the employee!
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT58 Employer Contracted Child-Care
An easing of the tax burden for parents
From April 2005, employers can pay for child-care of up to £50 per person per week without the employee being liable for income tax and National Insurance Contributions. However, there are two conditions that must be met:
1) The contract must be with a Registered child-carer.
2) The facility must be made available to all eligible staff i.e. those bearing child-care costs for children under sixteen years of age.
...and that could mean Mum and Dad
Although there is only one amount of £50 available per ‘claimant’, no matter how many children there may be, the relief is not restricted to mothers. Therefore a mother and father of one or more children could each get £50 worth of child-care, even from the same employer.
An end to the crèche restriction
At present only crèche facilities provided by the employer are eligible for relief, thus many people are paying for all of their child-care costs out of taxed income. But from April 2005 this restriction ends, so a husband and wife working for the same employer could each effectively get £2,500 tax-free under this arrangement if the employer pays the first £100 per week directly to the child-carer.
Both employer and employee can benefit
If an employee sacrifices an amount of salary equivalent to the child-care contribution made by the employer, the following savings could be made:
Potential employer saving:
£2,500 x 12.8% x 70% (Post CT) = £224 per annum per claimant.
Potential employee saving:
Lower rate: £2,500 x (22% + 11%) = £825 p.a.
Higher rate: £2,500 x (40% + 1%) = £1,025 p.a.
(NIC assumptions are that a higher-rate payer has only a 1% exposure to employees NIC on additional earnings whereas a lower-rate tax payer has an exposure of 11%)
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT57 Investment Property Finance
A bigger loan may not mean more tax relief
With the recent increase in property prices, people owning investment properties may be thinking about increasing the borrowings on their investments to release equity and obtain more tax relief on the interest paid. In some cases they might pay more tax than expected…
How the law works
Example 1
In 1996 Mr. Smith bought himself a flat to live in (price £75,000, loan £67,500). In 2004 he decided to buy a new house, but keep the flat (now worth £150,000) as a buy-to-let investment. Under the old rules (see below) he could not have borrowed more than £67,500 against the flat for interest relief purposes. However, now he can extend his mortgage above the original loan before he lets the flat and the interest will all be allowable against rental income.
Example 2
As example 1, except that Mr. Smith increases the mortgage after letting. Remember the letting business has a balance sheet. At the date the letting business started the asset introduced was worth £150,000, hence Mr. Smith has a capital account worth £82,500, as the original loan of £67,500 is a liability. If Mr. Smith subsequently chooses to increase the business loan above £67,500 to withdraw capital he has introduced, then the interest on this will still fully qualify for tax relief.
So, in examples 1 and 2 when the loan was taken out makes no difference in terms of tax relief. The critical aspect is the value of the property when the letting started.
Example 3
In 1996 Messrs. Jones and Brown bought a commercial property for £300,000 and let it to their limited company. By 2004 the property was worth £750,000 and they wished to re-mortgage for substantially more than £300,000 in order to withdraw some equity and pay off personal mortgages on their homes. Here the extra loan is taken above the original price at which the property was introduced to the letting business. The Inland Revenue regard the extra loan above the £300,000 as being a withdrawal of capital greater than the capital originally introduced, and the interest will not be fully allowable.
Example 4
As example 3, but the extra loan above the original purchase price is used to invest in another property for letting or to loan to the business as working capital. Here the increase in the loan above £300,000 is for another qualifying purpose and the interest will be allowable (albeit for a different reason than the letting of the original property). But see right for a possible pitfall.
The historical context
Prior to 6 April 1995 only the interest on a loan taken out to buy a property qualified for tax relief against rentals received. From that date, the relief changed to normal trading principles, where the interest had to be incurred wholly or exclusively for the purpose of the rental business. This seemingly small change has made a big difference.
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT56 Sub-Contractor Tax Status
Sub-contractor or employee?
The fact that an individual may hold a CIS card does not necessarily mean that he is a subcontractor for tax purposes!
The Inland Revenue is undertaking a sweeping review of the “employment” status of various individuals working within the construction industry. If you use sub-contractors in your business, you as the contractor, not the individual concerned, are responsible for deciding on their correct employment status – whatever they tell you it is!
You could end up paying the tax!
If you incorrectly treat a person as a subcontractor when in fact they are considered an employee of your business by the Inland Revenue, you could have to pay PAYE tax and Class 1 National Insurance contributions on that individual’s earnings. Failure to do so could also result in penalties being charged by the Inland Revenue.
How to check if you have a problem
If you answer yes to any of the following statements you might have a significant problem justifying an individual’s self-employed status:
1. Does the individual sub-contractor have to do the work himself?
2. Do you tell the individual what to do, where to work and when and how to do it?
3. Does the individual use tools supplied by you (this would include a company vehicle)?
4. Do you supply the materials which the subcontractor uses?
5. Do you supply the bulk of the materials, plant and equipment needed on-site?
6. Do you pay a set rate for work by your sub-contractor on an hourly, weekly or monthly basis?
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT55 Prior Ownership Tax
Take care when you give things away!
This issue looks at the complicated and onerous rules introduced by the 2004 Finance Act in respect of the beneficial enjoyment of property that has been wholly or partly given away. Under these new rules an income tax charge given the acronym POT (Prior Ownership Tax) arises. The most relevant nuances of these rules are considered here and in the next few issues.
Inheritance Tax by the back door
The new POT rules are seen by most commentators as illogical and unfair. Their aim is to attack retrospectively various inheritance tax (‘IHT’) mitigation strategies previously upheld by the Courts. In essence, the Government has shied away from tightening IHT rules and has instead chosen to impose an income tax charge on various validly made arrangements. This charge commences on 6 April 2005, allowing Government Ministers to claim that it is not a retrospective measure. However, lawful transactions effected on or after 18 March 1986 are caught by the POT rules, so whatever it is labelled, it is retroactive in nature.
Not one, but three POT holes
The POT legislation has three distinct elements: there are rules concerning “land” (including property on land, leases etc.); there are rules concerning “chattels” (any tangible, movable property other than money); and there are further rules concerning “intangible property” (any property other than interests in land, or chattels). Thus, all possible assets are covered one way or another.
POT hole No.1 – Land
POT income tax arises if an individual occupies land in respect of which the “disposal condition” or the “contribution condition” is met. (If land is owned but not occupied (eg it is let to a third party), POT rules do not apply).
The “disposal condition” is met if, after 17 March 1986, the individual owned an interest in the land and has disposed of the whole or a part of that interest other than by an “excluded transaction”.
The “contribution condition” is met if, after 17 March 1986, the individual has directly or indirectly contributed towards the cost of land owned by another person.
Examples of “excluded transactions” are equity release schemes and such arrangements do have interesting IHT planning opportunities. There are also certain defined “exemptions from charge”, for example gifts inter-spouse and gifts to children who jointly occupy the property (subject to various complex rules).
What is the amount chargeable?
The chargeable amount is the amount of annual rent that would be payable in respect of the land in an open market let, less any rent actually paid. In the cases of part disposals of land and part contributions to the cost of land owned by someone else, the annual rent in respect of the whole property is apportioned. In the case of large residential properties, the POT charge could be a very large sum.
Watch out for information about *POT holes Nos. 2 and 3 in future issues!
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT54 Health & Safety Law
H&S is a potential minefield!
Issues relating to Health and Safety (H&S) are of increasing concern to employers, and this edition of Topical Tips has been produced to provide a brief reminder of key points of the relevant legislation (The Health and Safety at Work Act 1974; The Management of Health and Safety at Work Regulations 1999). Compliance with this legislation is enforced by The Health and Safety Executive, a government department.
Overview
Employees’ health, safety and welfare at work are protected by law. However, they have a responsibility to look after themselves and others.
An Employer has a duty to protect employees and keep them informed about H&S, and must consult with them (or their safety representative) on relevant matters.
Employer’s legal duties
Employee’s legal duties
Fire precautions
Employer actions required
Barnes Roffe Topical Tips
TT53 Private Fuel for Company Cars
Your company car tax review starts here
Car taxation remains an area where employers find it hard to judge where a cost saving can be made and, if it can, hard to communicate the nature of the saving to employees.While company car taxes are complex, the the simplest aspect to consider is whether the company should provide private fuel for company vehicles.
What are the fuel rules?
If you as employer provide a company car for your employee you can choose to provide all fuel for the vehicle (i.e. both private and business use) or just reimburse the cost of business fuel.
If you provide all fuel, the accounting and tax treatment is straightforward, although expensive! The employer pays the fuel and claims the VAT back, but has to pay a flat rate VAT scale charge (based upon engine size) and Class 1A National Insurance on the benefit in kind (“BIK”). The employee will have to pay income tax on the BIK at their highest marginal rate. Since 6 April 2003 the private fuel BIK for the employee has been calculated by multiplying the scale charge percentage for the vehicle (based upon the CO2 emissions) by £14,400.
Alternatively, if the employee pays for all fuel then claims back the business mileage, the employee can be reimbursed by the employer at the Advisory Fuel Rates and incur no income tax charge. These rates are published annually by the Inland Revenue and for 2004-05 the rates for fuel are:
| Engine size | Petrol | Diesel | LPG |
| Under 1,400cc | 10p | 9p | 7p |
| 1,400 to 2,000cc | 12p | 9p | 8p |
| Over 2,000cc | 14p | 12p | 10p |
The employee will pay tax on the benefit of having a company car, but pay no tax for private fuel. It goes without saying that a proper mileage log must be kept.
The saving if private fuel is not paid
Consider the following example:
Car
BMW 318i (petrol)Scale Charge
21%MPG
30Petrol per litre
80pEmployee’s rate of income tax
40%Private mileage
10,000 p.a. (including home to business premises)Cost to the company if private fuel paid for:
| Private fuel costs (net of VAT) | £1,031 |
| VAT scale charge | £175 |
| Class 1A NIC | £387 |
| Total cost to the company | £1,593 |
Cost to the individual of only claiming business fuel:
| Private fuel cost (inc. VAT) | £1,210 |
| Income tax saved | (£1,210) |
| Net cost to employee | NIL |
Conclusion
The employee is break-even if they pay for their own private fuel, but the employer has saved £1,593 with which to compensate the employee for the change and keep the rest of the saving for itself.
Barnes Roffe Topical Tips
TT52 Key-Man Insurance
Directors beware!
Key-man insurance policies are becoming increasingly popular (or are increasingly being demanded by banks), but the tax treatment of the premiums payable and the proceeds receivable is far from straightforward. Traps await the unwary!
How do we define “key-man” insurance?
A “key-man” insurance policy is one taken out by a business on the life of key-worker to Topical Tips provide it with funds to protect it from the financial consequences of the key-worker dying or becoming incapacitated. The premiums are paid by the company and the proceeds will be receivable by the company, but it is the key-worker’s life (or health) that is insured.
Tax trap 1
If the policy proceeds are not payable to the company, but are payable to the keyworker’s estate or family, that is not a key-man policy and the premiums will constitute earnings on behalf of the key-worker and PAYE liabilities will arise. If the payments are not declared the back tax and NICs can be considerable when discovered by the Inland Revenue.
Tax trap 2
Assuming one is dealing with a true key-man policy, there are no PAYE or benefit in kind problems as no benefit accrues to the key-worker or his family. The company should be able to claim a corporation tax deduction, but – here comes the next tax trap - this might be denied if the key-worker is also a substantial shareholder in the company.
Tax trap 3
If the policy was taken to provide a financial “cushion” from the loss of the key-worker, then the proceeds will be taxed as if they were a trading receipt. It is often mistakenly assumed that if tax relief on the premiums is not claimed, then any proceeds receivable will be tax-free. This is not correct as the Inland Revenue has win-win rules. The taxability of policy proceeds is dependent upon the nature of the policy, not on whether a tax deduction is allowed (or claimed) in respect of the premiums. If the premiums are allowable as trading payments, the proceeds will inevitably be taxable as a trading receipt – but the reverse is not necessarily true.
So take care!
It can be seen above that it is quite possible for premiums not to be tax deductible, but for the proceeds to be taxable! These proceeds will usually be quite large, so the tax liability arising could be significant. And if the intention is to pass the proceeds to the key-worker or his family, double-taxation could arise.
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT51 Settlements Legislation
The Kraken awakes
The recent Budget brought into focus the potentially very nasty Settlements legislation. This little-used legislation has been in existence for a number of years but it is becoming increasingly clear that the Inland Revenue is now seeking to use it in a more aggressive way as a means of blocking commonplace tax saving strategies.
What does it mean?
The idea behind the Settlements legislation is quite simple. It operates in certain circumstances to treat income receivable by one person as belonging to another person (“Mr A”) for income tax purposes. The circumstances when this legislation applies are when a “Settlement” has been made by Mr A and he personally, or his spouse, or his minor, unmarried child benefits from it. The expression “Settlement” is very wide and includes not only formal trusts and dispositions, but also transfers of assets and “arrangements”. However, the Courts have held that a Settlement cannot exist for tax purposes unless there is an element of bounty. Thus, a sale of assets from one person to another at full value is not a Settlement for tax purposes.
Given the above, a gift of an asset from a husband to his wife would constitute a Settlement, and any income arising would therefore remain taxable on the husband; but when the rules concerning the independent taxation of husbands and wives were introduced in 1990, straightforward inter-spouse gifts of assets were specifically exempted. Regrettably though, the Inland Revenue is trying to argue that frequently the transaction is not just a straightforward gift and that other ‘arrangements’ are present. The main focus is where the asset gifted is a block of shares in a closely controlled company in respect of which it is intended to declare dividends.
Can it be avoided?
A way round the problem has been for husband and wife couples nominally to own assets jointly, but without effecting any transfer of the underlying beneficial ownership of the asset. In such cases, there will have been no gift and, therefore, no Settlement, thus the Inland Revenue has been obliged to tax income arising on a 50:50 basis. Unfortunately in the Budget the Chancellor announced that such a joint ownership arrangement would cease to apply from 6 April 2004. Mercifully, the tax treatment of jointly owned assets other than shares in closely controlled companies is unaffected.
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT50 Company Car Tax
Company cars revisited
In this post-Budget issue we return to one of our favourite topics – the tax charge that is imposed on employees and directors who enjoy the benefit of private use of a company owned vehicle. The news is mixed: some bad, some good and some neutral.
First, the bad news
In Topical Tips 44, we highlighted a cunning idea that had received approval from the Special Commissioners. A taxpayer (Mr Vasili) had successfully argued that if a motor car was jointly owned by him and his company (but mostly by the company), the benefit of any private use was not based on the usual (and costly) scale charges. Instead, it was held that the general rules regarding the provision of assets applied, such rules reflecting the actual cost of the asset and the actual private use involved. Benefits calculated on such an ‘actual’ basis are generally much lower than those derived from artificial scale charges. Unfortunately, the High Court recently overturned the decision of the Special Commissioners, ruling that scale charges do indeed apply in such circumstances. It remains to be seen whether Mr Vasili will take the matter to the Court of Appeal.
The new position with vans and ‘vans’
The Budget produced some modest amounts of good news for company van drivers. With effect from 6 April 2005, a scale charge of Nil will apply to van drivers who have to take their vans home at night, but who are not allowed any other private use. Other than this small but welcome relaxation of the rules, the existing regime continues unaltered until 5 April 2007. Thus, the idea of making a substantial tax saving by using a reasonably luxurious double-cab pick-up ‘van’ (see Topical Tips 1 and Topical Tips 27) as one’s company vehicle will continue to be valid for the next three years. Thereafter, it was announced in the Budget that the scale charge for having the unrestricted private use of any van would increase to £3,000 per annum, plus a further £500 per annum if fuel is also provided for private motoring.
Company car scale charges
Following the Budget, the position is that the basic scale charge rules (including the amounts) remain unaltered up to 5 April 2007 and the fuel scale charges have been fixed at the same amount for 2004/05 as they were for 2003/04. Some minor changes have been made to the rules in respect of cars taken home by emergency service workers (who are on call and need them to respond quickly to emergencies) if no other private use is allowed. It beggars belief that the Inland Revenue would ever attempt to tax such ‘benefits’, but any relaxation of the rules has to be welcomed!
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
TT49 Money Laundering Regulations 2003
What is Money Laundering?
‘Money laundering’ is exchanging criminally obtained money or other assets for ‘clean’ money or other assets with no obvious link to their criminal origins. It also covers money, however come by, which is used to Changes from April 2004 fund terrorism
Changes from April 2004
The Money Laundering Regulations 2003 now affect most businesses in the financial sector, including accountants and lawyers – but from 1 April 2004 new rules come into force for other businesses including Money Services Businesses (e.g. third party cheque cashers or bureaux de changes) and High Value Dealers (“HVD”). This issue focuses on the latter category.
Are you a High Value Dealer?
Businesses that deal in goods and accept (or are prepared to accept) in cash the equivalent of 15,000 Euros or more for any single transaction are classed as HVDs. This is irrespective of whether they actually have had any such transactions recently.
Barnes Roffe Topical Tips
If you think your business is a HVD initially you must:
And then on an on-going basis you must:
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement. Be aware this is only a summary of complex regulations and if you are in doubt you must seek advice. Your Barnes Roffe LLP contact partner will be pleased to talk this over.
TT48 Audit Exemption
Are you exempt from the requirement to have an audit?
If your company’s financial year ends on or after 30 March 2004 increased audit exemption thresholds come into effect.
The new thresholds are in line with the new small company limits. To qualify, a company must be a small company and have a turnover of not more than £5.6 million and gross assets (fixed assets plus current assets) of not more than £2.8 million. For companies that are part of a group, there is an additional requirement that the group qualifies as a small group and has a total turnover of not more £6.72 million and total gross assets of not more than £3.36 million.
The annual cost savings of not having an audit average between £1,200 and £1,500.
So why should exempt companies have an audit?
Despite the superficial cost saving there are many important reasons a small company might choose to continue having an audit. Here are seven:
1. Banking and other finance facilities: Not having audited accounts could lead to problems obtaining bank borrowing and other finance facilities such as hire purchase. Once facilities have been granted, it may also be a requirement that audited accounts are presented to the bank or other institution annually.
2. Credit references: A company without audited accounts may have difficulty obtaining goods from suppliers who use credit reference agencies or insure their debts.
3. Tenders: Potential customers inviting tenders for large contracts may well require audited accounts from prospective bidders.
4. Sale of business: Clearly if accounts are audited a buyer will place more reliance on these and the seller may find it easier to sell the business and/or obtain a better price. Also, information may be available as a result of the audit which could make the selling process quicker and cheaper than if no audit had taken place.
5. Fraud: The audit can be an important deterrent to protect the company from fraud and can provide guidance on areas of weakness where fraud may occur.
6. Advice: Information may come to light that allows important advice to be given to the company and directors, particularly in relation to taxation matters.
7. Credibility: Audited accounts will be viewed as being more credible by users of the accounts.
Barnes Roffe Topical Tips
Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.
