Latest news on Self-Assessment £100 late-filing penalty

We have been working on the assumption that, unlike previous years, the provisions of the 2009 Finance Act meant that the £100 late filing penalty for self-assessment tax returns could no longer be avoided by paying all the tax owed for the year by 31st January of the following year. The legislation means that there is an automatic £100 filing penalty irrespective of whether all tax had been paid.

However, it now seems that the Treasury have not implemented this section of the Finance Act so this provision will not apply. In other words, provided you have no tax to pay for the 2009/10 tax year at 31st January, 2011, then the fine will be waived.

Please be aware that this concession is not available for members of a partnership where the partnership tax return is filed late. There is an automatic non-waivable £100 penalty for each partner.

New National Minimum Wages Rates

On October 1 the National Minimum Wage rates rose to:

• £5.93 per hour for those aged 21 and over (the “adult rate”)
• £4.92 per hour for those aged 18 to 20
• £3.64 per hour for those aged 16 to 17.
Please note that the adult rate now applies to all workers aged 21 and over. Previously, it only applied to those over the age of 22.

Childcare vouchers

The government is offering help in deciding whether employees would be better off receiving tax credits or taking childcare vouchers from their employer. By using an online calculator staff can determine whether they are eligible and if they would benefit from the voucher scheme.

Childcare vouchers can save many parents with children aged up to 15 up to £1195 per year for the parent (£2390 if both parents apply), enabling employees to pay for childcare out of their Pre-tax and National Insurance income.

As the employee doesn’t pay NI on the vouchers, this also equals big savings for the employer!

For further information and an overview of the information you need to input into the calculator, visit http://www.hmrc.gov.uk/calcs/ccin.htm.

National insurance holiday for new businesses in the regions begins

The new regional National Insurance Contributions (NICs) holiday for new businesses announced in the June, 2010 has now come into effect.

New business set up outside London, the South East and East of England will be eligible for a holiday worth up to £5,000 for up to the first ten employees they hire in their first year of business. This means a maximum saving on the employer's national insurance payments of up to £50,000.

The scheme will run for three years. It is estimated that 400,000 new businesses will benefit by having a lower tax bill from employing new staff.

New businesses established since the announcement in the Budget on the 22nd June, and which meet the qualifying criteria, will also be eligible to apply.

There is full guidance on the business link website. The scheme is available to new businesses in Shropshire. Please contact us if we can help.

General advice about previous year PAYE tax liabilities

You may have been hearing in the news about HMRC sending out letters advising people that they had underpaid or overpaid tax. Please note that there are no implications for business tax – the error applies to personal tax only and some six million people nationally are affected. The good news is that over 4 million of those can expect rebates – averaging £420 – because they have overpaid. But 1.4 million will receive letters saying they have to pay more. People most likely to be affected are those who failed to tell the HMRC about a change to their circumstances, such as starting a new job or receiving a new work benefit such as a company car.

The general advice is not to contact HMRC if you have not received a letter – they are issuing them from now to the end of January next year and if you haven’t received one, you’ve paid the right amount of tax. If you do get a letter and owe less than £2,000, your tax code will be altered from April 2011 so you’ll effectively be paying back in monthly instalments.

If you owe more than £2,000 you will receive a bill for a lump sum. There is a procedure called the extra statutory concession A19, which allows HMRC to write off tax, if it was provided with all the relevant information, but failed to use it within 12 months of the end of the tax year in which the information was received. Although few appeals succeed, HMRC will discuss payment arrangements on a case by case basis.

If you have any concerns and wish to discuss this or anything else to do with your business then please do get in touch.

An opportunity with tax allowance increase

At the recent emergency budget, there was one piece of good news - from 5th April, 2011, personal tax-free allowances are to increase by £1,000. However, higher rate tax payers will not benefit as the cut-off point at which higher rate tax applies will be lowered.

Nevertheless, it is appears to be an opportunity to shift income between spouses and life partners to reduce combined tax bills by up to £400. This can achieved through use of a partnership, limited company or a sole trader paying a wage to a spouse/partner.

We need to wait for the Autumn Pre-Budget report for confirmation on the point at which higher-rate tax applies and then we will issue further advice.

Free seminar to help you navigate the new economy

THE NEW ECONOMY? … A survival guide

Three of Shrewsbury’s leading business advisors invite you to a very
important seminar for business owners.

Thursday 1 July 2010,
3.30pm for 4pm - 6.30pm
Greenhous Meadow Stadium, Oteley Road, Shrewsbury SY2 6ST

In our seminar The New Economy . . . A Survival Guide we will show you how
to build a stronger business in these uncertain times. You will learn some
simple yet effective techniques to protect and grow your business immediately.

A stronger business
Work smarter, not harder to grow your business. Gaynor Gravestock of
Synergy & Strategy explains some useful techniques to maximise profitability
and improve your cash flow.

A flexible workforce
Employees are not the only option! Paul Bennett from Bennett’s Legal presents
a practical guide to protecting and even growing your business using
Contractors; Freelancers; Consultants and Project Workers.

Securing Investment
Additional funds can help you stay ahead of your competitors. Nigel Lomax of
TaxAssist Accountants shows you how to write a business plan and present
clear financial information to potential investors.

We promise you will leave with ideas and strategies that you can start
implementing straight away.

Comments on the emergency Budget

George Osborne named his first Budget ‘the unavoidable Budget’ and the ‘emergency Budget’. It contained a number of very important announcements about tax.

These included:

• The increase in the rate of VAT from 17.5% to 20% to take effect on the 4th January, 2011.

• The £1,000 increase in the personal allowance in the tax year 2011/12.

• The immediate increase in the rate of capital gains tax for higher rate income tax payers from 18% to 28%.

• The rise in entrepreneurs’ relief for capital gains tax from £2 million to £5 million.

• The progressive cuts in the rates of corporation tax over the next four years, financed by cuts to capital allowances.

• The abolition of the effective requirement to annuitise pensions at age 75 and the prospect of changes to higher rate tax relief on pension contributions.

We hope this summary proves useful. We have a detailed summary available. If any of the areas that it covers seem likely to have an impact on your tax and financial planning, please do not hesitate to contact us.

Tax investigation time limits

New time limits for tax claims and enquiries came into force for Corporation Tax, Employers’ PAYE, the Construction Industry Scheme, income tax and Capital Gains Tax with effect from April this year.

The previous six-year window has been cut to just four years and other HM Revenue and Customs (HMRC) powers have been reduced.

Under the new rules for enquiries, HMRC can only go back 4 years unless they can prove the taxpayer has been negliglent (when they can go back 6 years). The old right to go back 20 years can only be applied when it is proved that the taxpayer deliberately set out to evade paying tax.

Of course, the rules also mean that a taxpayer can only go back 4 years if he discovers a mistake in previous years which meant he overpaid tax.

Company Directors using their own car for business purposes

I am often asked for the best way to deal with motor vehicle expenses within a limited company. The method below is tax-efficient and avoids the need to complete P11D returns. The method is suitable for all employees.

As employees, Company Directors, using their own vehicles, can charge the company 40p per mile (for first 10,000 miles in the tax year 6th April to 5th April) and 25p thereafter. The company cannot claim any other costs in respect of the car. So Directors pay for everything (except servicing - see below) privately and then use "an expense claim" to claim for the cost of using their private car for work purposes (at 40p and 25p). A log of business mileage must be kept.

For VAT-registered businesses, there are a couple of opportunities that are beneficial and often overlooked.

Firstly, when the company re-imburses a Director for use of the vehicle, it is possible to reclaim VAT on the "deemed fuel element" - this depends on the car type and engine size. It works out at about 1p of VAT per mile. The Company needs to keep evidence that the employee has paid VAT on petrol, so get a VAT receipt for all the fuel that is bought and attach it to the expense claim (just as evidence that VAT was incurred - you do not use the figures on the receipts at all). In the accounts, 39p would be charged as motoring costs and 1p as recoverable VAT.

Secondly, if the car has to be serviced then the invoice should be addressed to the company so that the company can reclaim VAT on the bill. The Director then pays the VAT exclusive bill back to the company.

The rise in national insurance next year and the £20,000 pa employee

I have been trying to work out how the Government has calculated that employees earning less than £20,000 will not pay any more national insurance when the class 1 national insurance rate rises (in April, 2011) from 11% to 12%. In fact, this statement in the recent budget is not all it seems. The devil is in the detail and we are again being bamboozled by the spin of our current breed of politicians.

The 1% increase in employee’s national insurance from 11% to 12% (effective from 6th April, 2011) has been announced in 2 tranches. It was first announced in the 2008 Pre-Budget Report as a 0.5% increase and now in the 2010 Budget as a further 0.5% increase (which confirmed the 2009 Pre-Budget Report).

The statement in the budget that employees earning £20,000 or less will pay no more national insurance only relates to the second 0.5% rise announced in the budget. The first 0.5% increase has not been included in the calculation as it was not a new announcement.

In fact, a person earning £20,000 p.a. will pay £74 more National Insurance in 2011/12 than in the current tax year.

Investment incentives

One of the few increases in tax allowances disclosed in the Budget last month was a doubling of the Annual Investment Allowance (AIA), from £50,000 to £100,000. This increase is effective from 6 April 2010 (income tax ) and 1 April 2010 (corporation tax). The AIA is a capital allowance, an amount you can write off against taxable profits for purchases of qualifying plant and equipment; not cars.

Profitable self-employed business owners are facing a 50% income tax charge in 2010-11 on earnings in excess of £150,000 and a marginal tax rate of 60% on income between £100,000 and £112,950.

Judicious use of the AIA can have considerable benefits. Let’s consider a self-employed trader with taxable profits after all deductions, but before claims for capital allowances, of £250,000. For 2010-11 the 50% income tax charge, not the total tax charge, would be £50,000. (£250,000 - £150,000 at 50%) If the trader spent £100,000 on qualifying plant or equipment, that qualified for the AIA, he or she could write off the £100,000 against the £250,000 profits and all of the 50% rate income tax charge would be eliminated! A tax saving of £50,000.

It is interesting to note that the budget contains this incentive to invest. It may have encouraged some delayed capital expenditure to save 50% rather than 40% tax.

Highlights of 2010 Budget

With the country likely to go to the polls on 6 May, Mr Darling’s third Budget
was predictably as much a political exercise as a conventional set of
announcements.

While many of the measures had been set out in last December’s Pre-Budget Report, there were also some surprises. These included the increased stamp duty land tax rate on residential property over £1 million from 6 April 2011 and the doubling of capital gains tax entrepreneurs’ relief to £2 million only two years after its introduction.

The parliamentary timetable is such that much of the Budget will not become
law before the current session of Parliament ends (12 April for a 6 May
election). Past experience (eg 2005) suggests that there will be a relatively
short and noncontroversial Finance Act rapidly enacted before the election.
A longer and more contentious Bill will then be introduced in the new Parliament, whatever happens at the polls. The Conservatives are committed to introducing another Budget within 50 days of the election if they win.

This year there were over 70 supporting notes with the Budget, demonstrating how many changes need consideration. The most significant of these for businesses included:

• Restriction of higher rate relief for certain pension contributions.
• The new £100,000 annual investment allowance.
• The doubling of capital gains tax entrepreneurs’ relief to £2 million.
• Retention of the 21% small companies’ corporation tax rate.

We hope that this summary proves useful and, if any of the areas discussed seem likely to have an impact on your personal or corporate plans, we would urge you to contact us so that we can help you.

Budget prediction

With an election looming, the Chancellor seems certain to postpone the tax rises that many economists say are inevitable. Instead, a second Budget is likely after the election, whichever party wins – and this is when painful tax rises are expected. But some changes to the big revenue-raisers such as income tax are possible, experts say. We look at some measures the Chancellor could announce.

INCOME TAX
The basic and higher rates of income tax are unlikely to change in the Budget, experts believe, the Chancellor might be tempted to augment the 50pc income tax rate for high earners with a 'super tax' of, say, 60pc on income over £1m. Mr Darling could also be tempted to reduce the tax threshold for the new 50pc rate of tax from £150,000 to £130,000.


NATIONAL INSURANCE
No change is expected in National Insurance, given that all three rates – employers', employees' and the rate for high earners – were raised in the pre-Budget report, experts say. The increases take effect in April next year.

VAT
Analysts think VAT is unlikely to rise in this Budget – but is almost certain to be increased later in the year. Its scope could also be extended to items now zero-rated.

CAPITAL GAINS TAX
This is one tax that seems certain to rise, experts said. "With the 50pc rate of income tax due to take effect from April 6, many expect the current rate of CGT – just 18pc – to rise to counter tax avoidance by switching investments to generate capital gains instead of income," said Matt Coward, director of private client tax at PKF. "A CGT rate as high as 25pc or 40pc could be announced."

INHERITANCE TAX
Although the Chancellor has frozen the IHT nil-rate band for the next tax year at £325,000, he may make other changes to squeeze more revenue out of death duties. "Tightening the rules on gifts could bring more funds into the IHT net and higher rates of tax on larger estates, perhaps a 50pc rate on estates of over £5m, could raise significant amounts," Mr Coward said.

CAR TAXES
The Chancellor is thought unlikely to announce any new taxes given that duty on petrol is due to go up every April until 2013, by 1p a litre, plus inflation. He will probably announce the final amount of this year's rise, which could be about 2p a litre.

Keeping control of your company

Keeping control of your company through Company Voluntary Arrangements

The challenges that many businesses have recently faced as a result of the economy can often result in good businesses being severely affected by a downturn in sales, or by rising overheads.

This has placed additional pressure on businesses who may not know if they should continue to trade or not. One solution, which appears to be becoming more popular with Directors, is to look at Company Voluntary Arrangements. A CVA would enable a business to ‘ride the storm’ with their existing business, believing that they are sufficiently profitable to enable payment of their historical debts providing they are given the time to do so.

A CVA is a legally binding agreement between a Company and its creditors to pay back as much as they can afford over a given period of time. It enables the business to continue to trade and the contributions can be made through ongoing profits introduced monthly, or via a lump sum. Debts will also crystallise meaning that no further interest is likely to be accrued.

Main considerations for a CVA

* The outcome for the creditors

The proposal must ensure that what is being proposed would be better than the alternative.

* The attitude of the Creditors

75% of the unsecured creditors (by value) who vote in relation to the CVA need to accept the terms of the proposal in order for it to be deemed approved.

* Crown Liabilities

Although government legislation is intended to promote business rescue, H M Revenue & Customs may reject a CVA proposal on the grounds of a previous history of poor payment. Companies therefore need to ensure that every effort has been made to seek repayment plans with HMRC.

* Fit, feasible & fair

The CVA should represent a fair offer, which is capable of being achieved and is fit to be proposed and considered.


BENEFITS OF A CVA

The most important benefit of a CVA is that it is a formal method of business recovery, providing protection to the company and allowing the business to continue, whilst enabling a better outcome for creditors. Another benefit of a CVA is that it is a way of buying time to either cut unprofitable areas of a Company or to simply start seeing the benefits of rises in sales or increased spending on marketing.

An added benefit available to Directors when choosing a CVA is that less focus remains on them; limited investigations are undertaken and no report is submitted to the Insolvency Service on their conduct.

Using capital losses effectively

With the 5th April tax year end fast approaching, some investors will be looking to minimise their capital gains tax liability on assets (usually shares) sold at a profit. In the last 12 months, most shares have performed well but there may have been some shares sold at a loss. Using these losses effectively needs some planning.

As a result of the capital gains annual exemption, the loss will reduce the amount chargeable to capital gains tax but may not reduce the amount of capital gains tax payable.

So here are some rules of thumb:

1/. Only sell the loss-making assets to claim a capital loss in a tax year when your gains (before losses) are more than the capital gains annual exemption (£10,100 in 2009/10). You will not benefit from the loss claim if you would not have paid tax on the gains

2/. If you have sold assets at a loss and your planned disposals will generate capital gains lower than the annual exemption, consider not making any disposals at a profit in that tax year. The loss can be carried forward where it is relieved after the annual exemption is taken into account. When claimed, losses carried forward to a later year always reduce capital gains tax liabilities.

As you are aware, there are no capital gains tax liabilities for shares held in an ISA which is, therefore, very tax-efficient.

New PAYE penalties starting in May, 2010

Starting 19th May, 2010, HM Revenue and Customs have introduced a penalty for late payment of monthly PAYE liabilities including Tax, National Insurance contributions, Construction Industry Scheme deductions and Student loan deductions.

The new late payment penalties will apply to all employers. There is some respite to small employers since they pay quarterly.

The penalties will be a percentage of the amount paid late and start at 1% and increase to 4%, depending on the number of late payments in the tax year. There are also penalties of 5% if any of the PAYE due is still not paid after 6 months and again after 12 months.

There are heavy penalties for late payment of Class 1A National Insurance (from P11D returns) with a 5% penalty if paid 30 days late then a further 5% if 6 months overdue and a further 5% if 12 months overdue

Free seminar at the Welti in Shrewsbury

Why don't you come along to a "Maximising Business Finance" seminar which Paul Bennett of Bennett's Legal, Dan Hetherington of Hetherington Wealth Management and I have organised. It takes place on Wednesday, 24th February at 4pm at the Welti in Shrewsbury. It is free to attend. Just contact me to book your place.

Paul is talking about employment solutions after the Pre-Budget report and possible National Insurance savings. Dan is talking about tax efficient forms of retirement planning, pensions, VCT's, EIS's etc.

I am talking about management accounts and cashflow. I will demistify the subject of capital employed and help you see how to be more profitable with more money in the bank rather than tied up with stock and debtors. I am going to use a case study to make it more interesting and relevant.

Advice to buy to let investors

I was recently asked by a client to provide a checklist of all expenditure which can be claimed against rental income. "Buy to let" landlords are an important part of my business and, in the current difficult climate, it is important that they are minimising their tax liabilities.

I have found an excellently written concise guide at http://www.paragon-mortgages.co.uk/files/taxguide.pdf.

I have used this as the basis for the advice below.

Mortgage interest
You may generally claim tax relief on interest payments on a mortgage or loan taken out to fund the purchase,refurbishment or repair of a let property.

Insurance
You may include all insurance policies paid by you in connection with your property.

Water rates, council tax, service charges, ground rent
You can include these costs on the let property in question if these are not paid by the tenant.

Council Tax
In certain circumstances, a landlord may be liable for Council Tax. This could then be included.

Legal fees and Management or Letting Agent fees
These fees in respect of ongoing tenancies are allowable.

Accountancy
Any accountancy costs can be offset as long as they relate directly to the let property.

Repairs and maintenance
When making repairs to your let property you may be able to go beyond replacing 'like with like' and make an improvement. For example, HMRC are usually agreeable to replacing wooden window frames with UPVC ones.

Wear and tear
For fully-furnished let properties, you can claim for wear and tear on all furnishings (but not fittings), calculated as 10% of the rental income for the year, less water rates and Council Tax (if paid by you). Alternatively, you can claim for replacement costs but in most cases, the 10% allowance is both more beneficial and simpler.

Motor vehicle costs for visiting/inspecting the property
As long as they are appropriate to the circumstance and are incurred visiting the rental property, petrol and vehicle costs are an allowable expense. You should speak to us to identify what is and isn't deemed to be an acceptable expense.

Advertising
Any costs you incur advertising for tenants to fill your rental property are allowable.

Energy Saving Allowance
Landlords are allowed a deduction for Income Tax purposes up to a maximum of £1,500 p.a. when they install loft or cavity wall insulation, draft proofing, insulation for hot watersystems or floor insulation in a dwelling house, which they let. This is a relatively new allowance and often not claimed.

VAT rates - a refresher

One of my clients asked me the other day if there is a simple guide to the rates of VAT applying to different goods and services. The best one I have seen is on the Business Link website (http://www.businesslink.gov.uk). It can be navigated from the Business Link home page by choosing the following menu options > Taxes, returns & payroll > VAT > VAT rates, thresholds, fuel scale charges, exchange rates > Rates of VAT on different goods and services.

The guide is very comprehensive.

It starts with a reminder that food and drink for human consumption is, in general, zero-rated but many items are standard-rated, including alcoholic drinks, confectionery, crisps and savoury snacks, food for catering or hot takeaways, ice cream, soft drinks and mineral water. Do you remember the Jaffa cake ruling?

The guide also gives the special rules applying to a number of services which I have listed below. Almost every service except for those shown below are standard-rates. Building and construction, land and property is fiendishly complicated (tax is really taxing here)

Services which may not be standard-rated
1/.Sport, leisure, culture and antiques
2/.Charities, welfare, health and education
3/.Power, utilities, energy and energy saving, heating
4/.Building and construction, land and property
5/.Transport, freight, travel and vehicles
6/.Printing, postage, publications - books, magazines and newspapers
7/.Clothing and footwear, protective and safety equipment
8/.Financial services and investments, insurance

Please contact me if I can be of further assistance.

Troubles paying your self-assessment tax bill

Hopefully, by now, you have filed your self-assessment tax return. If you have then you won't get the £100 fine. But what happens if you can't pay your tax bill.

Your tax bill at 31st January 2010 comprises what you owe for the tax year ended 5th April, 2009 and your first payment on account for the tax year ended 5th April, 2010. From 1st February, 2010, interest will be charged on the total owed. If your 2008/9 liability is not paid by 28th February, 2010 you will receive a surcharge (penalty) of 5% of 2008/9 tax owed. There will then be a further 5% surcharge if any of the 2008/09 tax due remains outstanding after 31 July 2010.

Recently, the Chancellor announced an extension to the Business Payment Support Service for businesses affected by the current economic conditions. This service is designed for businesses who are worried about being able to meet tax, National Insurance or other liabilities owed to HMRC. You can get in touch with them to discuss payment options to help you deal with temporary cashflow difficulties on 0845 302 1435.

New Vat rules for overseas services

If your VAT-registered business supplies or receives services from businesses in the EU then you need to be aware of some new rules which came into effect on 1st January, 2010.

Businesses supplying services to EU-based businesses will need to complete an EC Sales List (ESL - VAT form 101). There are penalties for failing to do this.

Businesses receiving services from EU suppliers outside the UK (with some exceptions) will have to account for VAT under the reverse charge provisions. The reverse charge is reported on the VAT return as output tax and input tax. Some businesses which cannot recover all their input tax (ie with partially exempt supplies) will suffer and non-VAT registered businesses need to be mindful of this when reviewing whether they have to register for VAT

Some people are calling it the VAT Flat Rate Scheme (FRS) fiddle.

HMRC have just announced new FRS rates (which are necessary as the VAT rate increased from 15% to 17.5% on 1st January, 2010). Instead of the rates simply reverting to the pre-November, 2008 rates (when the standard VAT rate was 17.5%), HMRC have taken the opportunity to change a number of rates.

If you are on the FRS, you need to make sure that the scheme is still advantageous for you.