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Main points of the Budget 2013

May 5, 2013   //   by Ralph   //   Latest News  //  Comments Off on Main points of the Budget 2013

It looks like Spring has finally sprung and although we don’t have the warmth of the Bahrain Grand Prix which is on whilst writing this, it is certainly an improvement over a month ago! I will try to race through the main points of the 2013 Budget – qualifying any points with comments if necessary.

Personal allowance

The basic personal allowance for 2013/14 is £9440, meaning that the standard tax code should now be 944L. Of course yours may be different for all sorts of reasons but check that it is as you expect in order to avoid problems later in the tax year especially now that we are in the new RTI regime. This will increase to £10,000 in 2014/15.

Pensions

As was announced in last year’s Autumn statement, as from 2014/15, the annual contribution limit for tax relief will be £40,000, with the standard lifetime allowance being capped at £1.25m. If you are lucky enough to have a pension pot near or above this amount you can apply for “fixed protection”. This needs to be done by 5th April 2014. You should consult your financial advisor to confirm your best course of action, and they will be able to explain the complexities that are too detailed to go into here.

Company cars

New company car benefit percentage bands have been introduced to try and make those who have a company car move to a more economical/environmentally friendly vehicle. The new bands come in to force from April 2015. The company car rates will be announced for three years in advance in future. This will enable company car drivers to try and not get caught out with their choice of vehicle. It is always worth contacting your accountant to see if the vehicle you would like is worth having. The calculation also changes significantly if it is your own company.

Loans to employees

Some employers make a loan to their employees to purchase a car for use in their employment. The limit for the loan is increased form £5,000 to £10,000. The loans do not have to be for any specific purpose and as long as they do not exceed £10,000 at any point throughout the year there is no tax charge. There is nothing in the legislation to say this does not apply to directors so those with their own company can also benefit.

Employers National Insurance reduction

To great hurrahs the Chancellor announced that as from April 2014 (yes as usual if it’s good we have to wait a year for it to come in to force!) that businesses and charities will be able to deduct £2,000 from their annual employers National Insurance Liability. This approximately equates to the contributions on 3 full time employees at the minimum wage or one full time employee on £20,000. This will affect directors too and may mean that a salary increase should be taken. Consult your accountant before taking any action though.

Reduction in Corporation Tax rates

The main rate of corporation tax will fall to the current small companies rate of 20% as from 1st April 2015. This is earlier than was originally planned, and will reduce form 23% to 21% from 1st April 2014. Therefore, to maximise the tax relief, intended capital purchases should perhaps be made in the current year, rather than that following, to attract the higher rate of relief.

Child Trust funds and Junior ISA’s

The incongruous position between Child Trust Funds and Junior ISA’s is to be resolved as the limits for both are to be equal. There is also to be a consultation document on transferring form the Child Trust Fund to a Junior ISA.

General Anti-Avoidance Rule (GAAR)

Despite the general anti-avoidance legislation specific provisions are to be introduced to combat SDLT (stamp duty) avoidance schemes. The position in relation to loans deducted from estates when calculating Inheritance Tax is also under review.

Limited Liability Partnerships (LLPs) and Limited Companies

In the budget the chancellor announced that HMRC would be reviewing the commercial reality of the position whereby LLP’s have Limited Companies as members, and the position relating to profit distribution.

And finally – Happy 40th birthday to VAT

VAT was introduced on the 1st April 1973. It was originally described as a “simple tax”. How different it is now – far from simple.

If you would like a particular issue covered in this article please let me know on ralph.robson@tagittins.co.uk

Well done, you’ve reached the chequered flag!

Tax Office Closures, HMRC Changes, Cyprus Bank Levy and VAT

Apr 5, 2013   //   by Ralph   //   Latest News  //  Comments Off on Tax Office Closures, HMRC Changes, Cyprus Bank Levy and VAT



Due to printing deadlines I am writing this in the week prior to the budget so by the time you read this we will know what George Osborne has decided is the way out of the current economic gloom and into the sunnier climes of economic recovery. I will summarise the main points of the budget in next month’s article.

Tax Office Closures

It has been announced that all 281 tax enquiry centres will close by the end of 2014. There will be specialist teams who will be able to offer extra help to those who need it. Some of the teams may be mobile who will be able to visit you. The average cost of a visit to an enquiry centre rose to £152 in 2011/12 which compares to £3 per telephone call. This should lead to significant savings for those of us that fund the tax system, and without any loss of service (apparently!)

HMRC target undisclosed property sales

HMRC have launched (another) initiative aimed at those who have sold a residential property that is not their main home in the UK or abroad. The UK is of course relatively easy to find as the information can be obtained from the land registry. Taxpayers have until 8th August 2013 to notify HMRC that they wish to take advantage of the favourable terms of the initiative, and the tax due must be paid by the 6th September 2013. Voluntary disclosure will mean any penalties payable will be lower than if HMRC come to them first.

Trap on new child benefit rules – a reminder

Last month I mentioned about the national insurance trap if the Child Benefit is opted out of. HMRC have reminded taxpayers that in order to avoid the need to complete a tax return form for 2012/13 they should opt out before 28th March 2013. This does not change the position as outlined last month. Last month’s article can be seen on the firm’s website www.tagittins.co.uk

Holiday lets – Change of HMRC position –Concerns for B&B’s too.

In Llangollen and the locality we have some delightful holiday cottages. Unfortunately recent developments have meant that the tax treatment may now be less favourable. The Upper Tribunal, who decide cases where the taxpayer and HMRC cannot agree on the treatment of a particular item, have overruled the First-tier Tribunal in a case I referred to some twelve months ago. It relates to the treatment of a holiday let for Inheritance Tax purposes, although it also has wider implications for when a holiday let is sold. It was considered that if services were provided over and above that of merely providing the accommodation then the holiday letting would be regarded as a business. These services may include (but are not limited to) provision of a gardener, washing bedclothes, cleaning, providing a “welcome pack” of food, and the switching on of heating systems etc. prior to guests arrival. The Upper Tribunal have reversed the position and the judge considered Furnished Holiday Letting to be an investment rather than a business. In order to qualify as a business, significant services will need to be provided, such as those of a larger bed and breakfast or a hotel. Those with small bed and breakfast businesses, of which there are many in our locality, should be concerned in case HMRC look at their position too upon sale. Let us hope that common sense will prevail and the tax man will look at his manuals and not at this case.

Cypriot bank account levy

It has just been announced that as part of the EU bailout for Cyprus there is to be a levy on the amounts held in Cypriot bank accounts. The amount varies between 6.75% and 9.9% depending upon the balance. Those with Cypriot investments need to consider their position. At the time of writing all UK government employees will be compensated for any loss suffered. The concern is whether this will spread to other Eurozone countries who require assistance from the European Central Bank.

And finally –

As Easter Sunday falls on the 31st March this year, those seasonal traders who are not VAT registered will need to review their turnover figures for the year to 31st March 2013, in case they are over the registration threshold of £77,000. If over the limit, HMRC should be advised and if this is considered not to be repeated then exception from registration can be applied for. There will not be an Easter weekend in the year to 31st March 2014.

Income Tax Penalties, Child Benefit and Business Mileage

Mar 5, 2013   //   by Ralph   //   Latest News  //  Comments Off on Income Tax Penalties, Child Benefit and Business Mileage

As we enter March let us hope that all of the cold weather is behind us and we can look forward to some improved climatic and economic conditions although the collapse of several high street retail chains does not fill us with good cheer.

Tax Return penalties

Last month I mentioned that any tax returns for 2012 that were not submitted by 31st January 2013 would be subject to a penalty even if there was no liability. From April the taxman can cancel a penalty by withdrawing a self-assessment return if he doesn’t think that there is the need to complete one. However this only applies to 2012/13 onwards. Where does this leave us for 2011/12 and before? Very often HMRC will cancel a penalty if you contact them to state that you didn’t need to been issued with a return because you only had PAYE income for example. There is no guarantee of success but this has proved to be effective in the past, as I mentioned last month.

VAT Campaign launched

HMRC is going to harden their approach to businesses that fail to adhere to VAT deadlines. However there is a very limited opportunity (up to 1st March) to bring your affairs up to date prior to this new hard line approach. You should check to ensure that all of your VAT returns have been submitted and that all monies due are paid. If you do have arrears contact HMRC immediately to take advantage of the vaguely described “lenient approach”, and negotiate more time to bring your affairs up to date.

Trap on new child benefit rules

If, due to one partners income, the child benefit is not payable under the new rules, unless the parent/carer who no longer claims the benefit is paid above the lower earnings limit for national insurance purposes they will not receive the automatic NI credit if their child is under 12 years old. This could have consequences in relation to the state pension as 30 years contributions are required in order to claim the full pension upon retirement. However the answer is simple. Claim the child benefit, and then repay it, via the higher earner from whom it will be reclaimed.

Business mileage claim

After three tribunal hearings, a self-employed consultant geriatrician has lost his battle with HMRC over his business mileage claims. Dr Samadian cannot treat his home as the starting point for his private practice business mileage where” habitual” journeys are made. HMRC accepted that there was a dedicated office at his home and was used for a substantive amount of professional work. We understand HMRC are already challenging mileage claims in the light of this ruling. Dr Samadian has 8 weeks from the date of the ruling on 28th January to appeal. My advice is do not capitulate to HMRC yet, wait and see what happens.

Unlock the increased value of your shares without selling them

Before the introduction of the current rules re the sale and repurchase of shares to prevent “bed and breakfasting” where shares were sold and then immediately repurchased in order to increase their purchase price and reduce any potential capital gains tax on eventual sale. One option is to transfer your shares to your pension fund. You can take advantage of the CGT exempt status of your

pension fund whilst having indirect control. A better option is to sell them to your company which will be able to utilise the CGT exemption and also take the original cost out of the company or credit your director’s loan account with the cost of the shares. You still own the shares too.

Property, Investments, Gaming and RTI

Feb 5, 2013   //   by Ralph   //   Latest News  //  Comments Off on Property, Investments, Gaming and RTI

By the time you read this I should have completed all of the tax returns for 2012 and be thinking about some tax planning prior to the financial year end that is not that far away on 5th April.

Tax Return penalties

Any returns for 2012 that were not submitted by 31st January 2013 will have an automatic penalty even if there is no liability. However if you consider that you should not have been issued with a tax return, because your income was all taxed under PAYE, for example, then you can contact them and ask them to remove the penalty. If they agree then you will be removed from the self-assessment system and the penalty removed too.

Property income and losses

As a general rule (if there is such a thing in the world of tax) losses suffered on one property can be offset against profits on another. This is only true if the properties are held in the same “business”. If, for example, a property is owned in partnership with your siblings or spouse, any losses suffered cannot be offset against profits from properties held solely. There are, however, exceptions to this and if the circumstances outlined above apply to you, then you should be wary and seek advice to ensure that your tax reliefs are maximised.

Annual Investment Allowance

Last month in my summary of the Chancellor’s Autumn statement I mentioned the large increase in Annual Investment Allowance available effective from 1st January 2013. From last month the allowance has increased tenfold to £250,000 per annum. This is to run for two years until the 31st December 2014. As there has been such a large increase, timing of any purchases needs to be considered carefully in order to maximise the relief. Farm machinery, or a new commercial vehicle for example, can be very expensive and the relief available depends upon the accounting year of the business rather than the tax year. Make sure you contact your accountant for the best advice as to when to purchase for maximum tax efficiency.

Machine Gaming Duty

By now most businesses with gaming machines on their premises need to be registered with HM Revenue and Customs for the new Machine Gaming Duty. The new levy applies from 1st February 2013 and the income received from such machines will not need to be included on the VAT return from that date. Even if you are not VAT registered, a quarterly form needs to be completed and submitted to HM Revenue & Customs. There are different rates payable on the net takings of the machines dependent upon the cost to play and the amount of the prize.

Real Time Information (RTI) are you ready?

Further to the successful pilot of the new RTI payroll HM Revenue & Customs have agreed that they will not charge penalties in 2013/14 for late payroll data reports (called Full Payment Submissions) submitted under RTI. However penalties will still apply for late payments. Of course as the data is submitted monthly it is easy for the taxman to check whether the payments being made are for the correct amount, and on time. Be aware that those who now prepare their wages once the employee has been paid will need to change, therefore if your payroll agent prepares you wages in arrears or several weeks in advance this will not be able to continue. This will no doubt lead to an increase in compliance costs.

Fairness ‘redefined’, Farming News, VAT Changes & IR35

Oct 5, 2012   //   by Ralph   //   Latest News  //  Comments Off on Fairness ‘redefined’, Farming News, VAT Changes & IR35

October is upon us with the appropriate change in weather and Christmas looming with cards and gifts in the shops already. Can I hear the collective groan? There are a few things that have happened over the last few weeks that I have highlighted below.

FAIRNESS BEING REDEFINED BY THE TAXMAN

If taxpayers who do not normally complete a tax return (that’s the majority of the population) are informed of a tax liability, after having reasonably believed that their tax affairs were up to date, there is a concession meaning that it does not need to be paid. The main condition for this concession is that HMRC must have failed to use all information at their disposal in a timely manner. This is mainly applied in respect of underpaid tax on employment where mistakes have been made. Due to the annual reconciliations undertaken by HMRC these occasions were few. However sometime in the last decade it was decided that these annual reconciliations need no longer be carried out. If you are the unfortunate recipient of a demand for an underpayment, when you are not required to complete a self-assessment tax return, it may be worth quoting “ESC A19” to HMRC or asking your agent to. HMRC will resist and appear to be applying a different definition to “all available information”.

 

FARMING – COMMERCIALITY – REPAIRS OR CAPITAL EXPENDITURE

It has been without doubt a wet summer. This will no doubt cause problems and reduced profits and maybe losses for some farmers. HMRC have been reviewing loss claims and have been known to ask for proof of commerciality – is it likely that a profit will be made or is it farmed with a view to profit. HMRC have requested business plans. With regard to repairs there was a recent case involving a Mr Pratt where it was successfully argued that the replacement of the concrete surface of the drive was a replacement as there had been one there before. Had it just been a track it would have probably been unsuccessful. HMRC went to the tribunal over it so they obviously thought they would be successful. One for the taxpayer!

VAT – CHANGES COMING IN SHORTLY

As I have mentioned at various times in previous articles there are various changes to VAT rates being introduced between October and next April. In summary they are:-

  • Hairdressers renting out of chairs will be standard rated not exempt
  • Sports nutrition drinks are standard rated as opposed to zero rated
  • Caravans that fall between the definition for touring, which are standard rated, and residential, which are zero rated, will have a rate of 5% applied to them from 6th April 2013
  • VAT will be chargeable on all storage income from 1st October 2012. There are limited exceptions for charities and where whole buildings are let for storage.
  • Alterations to listed buildings will be standard rated instead of zero rated from 1st October 2012 subject to certain transitional rules which mean that work could be zero rated up to September 2015.

 

HMRC SPECIALIST TEAMS FOR IR35 COMPANIES

There are now three teams nationwide who will deal with enquiries into companies where it considered that IR35 may apply. This is where a company acts as an intermediary to allow an individual to “work” for a large company without being a member of staff. There has been no change in the rules but a new business entity test is being used. If your company is selected for enquiry, make sure that your agent is aware of the new tests, although they have no legal basis, and that your enquiry is dealt with by one of these specialist teams.

 

If you wish me to highlight a particular issue then please let me know.

VAT, PAYE, Tax Breaks and Disclosure

Sep 5, 2012   //   by Ralph   //   Latest News  //  Comments Off on VAT, PAYE, Tax Breaks and Disclosure

Here we are in September our Olympians having won a lot of medals in the last few weeks. However due to the blanket coverage in the media you will be pleased to know I will not be littering this article with corny references.

 

VAT – ZERO RATING OF SUPPLIES FOR NEW RESIDENCES OR CHARITABLE BUILDINGS – AVOID A COMMON PITFALL

The recent case of Gemini has highlighted one of the problems that often occurs in the construction industry. The incorrect zero rating by subcontractors of supplies made in the course of construction of a new residence. Firstly only the main contractor is able to zero rate supplies therefore any subcontractors that are utilised by the main contractor should standard rate their work irrespective of the type of work undertaken. Essentially Gemini had relied on the self-billing invoices raised by the main contractor, which were incorrect. Upon an inspection by HMRC the error by the main contractor was highlighted but it was Gemini’s responsibility to ensure that their income was treated correctly.

 

VAT – FLAT RATE SCHEME – ASSET SALES

Smaller traders can often use the flat rate VAT scheme to their advantage as it simplifies bookkeeping, if there are few day to day purchases there is a financial benefit and the VAT on asset purchases over £2000 can still be reclaimed. However there is a pitfall in that all income subject to some exceptions should have VAT declared upon it. What happens for example if you sell your car which is included in your accounts? If not on the FRS of course there would normally be no VAT due, however VAT could be charged on the income if you are on the FRS. HMRC have previously given assurances that this would not be charged but these assurances are not in the law or HMRC policy, so beware if you have a VAT inspection.

 

PAYE – MAJOR CHANGES COMING SOON

There is reputedly just a few months away before the largest change to PAYE since its introduction in 1944. Employers, most from April 2013 and all from October 2013, will be required to submit information on their employees pay, not annually as is now the case, but in “real time”. There will be no need to submit forms P35’s and P14’s but some forms will remain. The end of year summary forms P60 and P11D will still need to be issued. The main benefit is that the necessary departments will be able to check eligibility for the new universal credit. Information will need to be accurate and timely Needless to say as this major change is being “rushed in”, according to some commentators, there will undoubtedly be some teething troubles. If you use a payroll bureau to prepare your employees’ salaries etc. you should check that they are ready, although whether HMRC are, is another matter!

 

SEED INVESTMENT ENTERPRISE SCHEME – VALUABLE TAX BREAKS

There are three main tax reliefs available for the investor in the small investment scheme. Income tax relief at a rate of 50% is available on the investment (subject to a maximum of £100,000), irrespective of the rate paid by the individual: After three years the shares purchased can be sold free of capital gains tax: For investments made in 2012/13 only the investor can offset it against any other capital gains made in the 2012/13 tax year. There are various rules and anti-avoidance provisions so you will need to contact your accountant to ensure that you qualify, but there are good planning opportunities available for those who have funds to invest or are disposing of an asset.

 

DISCLOSURE SCHEME SUCCESS?

Finally this month I thought I would mention that HMRC have announced that their many disclosure campaigns have so far collected nearly £510 million from people coming forward to HMRC, and more than £120 million from follow up enquiries including over 18,000 completed investigations. In relation to the “amnesty” for plumbers there are 23 criminal cases under way with two having been jailed and one receiving a suspended sentence.

 

If you wish me to highlight a particular issue then please let me know.

Reclaiming VAT, HMRC & Cashflow, PPI Compensation, CGT & Tax Relief

Aug 5, 2012   //   by Ralph   //   Latest News  //  Comments Off on Reclaiming VAT, HMRC & Cashflow, PPI Compensation, CGT & Tax Relief

 

VAT. DOES A VALID INVOICE MEAN IT CAN BE RECLAIMED?

The recent case of Chain Communications Ltd has highlighted one of the principles of being able to reclaim the VAT on an invoice. As well as meeting the usual criteria such as correct registration details and rating etc., those reclaiming the VAT must also receive the supply of goods and/or services even if they have paid the invoice. You might wonder why you would pay an invoice for which you not receive anything. An example is where a bank or finance house requires a valuation but you pay for it.

 

HOW HMRC CAN HELP WITH CASHFLOW

In these economically tricky times cashflow for small businesses is often king. If your business turnover is less than £1.35m then it is possible to take advantage of the cash accounting scheme where VAT is only paid on monies received, BUT can only be reclaimed on monies paid, so may not be the panacea hoped for. If you are in a retail environment then it is probably best to remain on the invoice accounting basis. There is though a 14 day rule whereby if a sales invoice is raised within 14 days of the sale being made or the monies being received the latter date dictates which VAT period the sale should be declared in. Also remember that if you receive repayments you can submit VAT returns monthly, thus obtaining some monies up to two months earlier.

 

PPI COMPENSATION – THE TAX POSITION

There is an estimated £9 billion in compensation due to be paid by banks and insurance companies for the mis-selling of payment protection insurance. Many of the claims will, as well as repayment of premiums, include an element of interest. Whilst HMRC have agrees that the repayment of the premiums isn’t taxable any interest received is. If you have received your claim you need to ascertain if any interest was included and if so was it taxed. You may have a tax liability on the interest as it may not have been taxed and you certainly will if you are a higher rate taxpayer. You may of course be due a tax refund if you have spare personal allowances in the year and your PPI claim interest has been taxed at 20%.

 

CAN A HOLIDAY HOME BE CAPITAL GAINS TAX FREE?

You might well be the owner of a holiday home. Can this be Capital Gains Tax free when it is sold? Although many MP’s made “flipping” a dirty word they actually only followed tax advice which is laid down in HMRC’s manuals. As long as it is not let an election to make your holiday home your main residence must be made within two years of purchase, which can be for only a month or so then elect to revert your main residence your main home. This one month election means that the last three years of holiday home ownership also qualify for relief too. Whether tax is payable does of course depend upon the figures involved and the length of ownership etc.

 

TAX RELIEF CAP – DOES IT FIT?

Finally this month I thought I would mention the proposed cap on all uncapped tax reliefs of the greater of £50,000 or 25% of income. A consultation document has been published and draft legislation is proposed in the early autumn. Although it might be argued that “the losses can be carried forward and offset against future profits” it is the cashflow element that is important. If a business has had to sustain large losses which it cannot offset against previous profits or other income or capital gains where an asset has had to be sold to realise capital, then severe cashflow problems may follow. One can only hope that banks will be sympathetic!

 

If you wish me to highlight a particular issue then please let me know.

Accountants Corner July 2012

Jul 5, 2012   //   by Ralph   //   Latest News  //  Comments Off on Accountants Corner July 2012

 

REALLY – SELF-EMPLOYED?

I said in my June article that I would mention the case of the unusual decision by the first tier tribunal in respect of employment status. In this instance rather unusually HMRC were arguing for self-employment. It involved a Mr Coffey who was a builder and a Dr Selvarajan who had his clinic refurbished by Mr Coffey. The tribunal heard that Mr Coffey received £500 per week for supervising the works at the clinic. He was paid whether he worked a full week or not and was paid while he was on holiday too. Dr Selvarajan also paid for all materials, plant and sub-contractors. HMRC issued assessments for tax against Mr Coffey as self-employed. It appeared that there was no financial risk to Mr Coffey who took the stance that he was an employee. It is obvious that the tribunal were influenced in their decision making by the credibility and differing evidence of the parties. Mr Coffey had not mentioned the income to his accountant and he made (perhaps unwisely) various allegations against the doctor thus affecting his credibility as a witness. The tribunal referred to the Ready Mixed Concrete case which listed the standard tests of status BUT also stated that these should not be followed dogmatically. Additionally the tribunal found that Mr Coffey had control over the building project and that “Dr Selvarajan had not directed him in this task”. Conclusion – Mr Coffey was self-employed. Would you have come to the same conclusion?

 

OFFSHORE INCOME PENALTIES

HMRC have issued a new factsheet relating to higher penalties for income tax and capital gains tax when offshore matters are involved. A maximum of 200% of the tax due may be imposed whereas it is 100% normally.

 

PASTY TAX – THE FINAL BAKE?

I am reminded of the twists and turns that those competing in Formula One make when I read the tale of the “Pasty Tax”. The Government’s latest decision is that “VAT should be consistently applied to food that is marketed as hot or marketed as hot but not to food left to cool naturally”. This in itself raises issues with regard to the natural cooling of the food. Shelves will need to be open and not have any heating or “display lighting” that gives off a disproportionate level of heat.

 

TRICKY REVERSING A CARAVAN

There has been another reversal – well in part, in relation to the VAT position of static caravans. The Treasury stated that “the zero rate was only ever intended to apply to the sale of residential caravans….but the boundary between residential and non-residential caravans is not clear cut”. To resolve this issue a permanent rate of 5% will be applied to static caravans from 6th April 2013 (and not the 1st October 2012 as originally envisaged). It is not yet settled though as this may require EU approval, and if this approval is denied then the rate will have to be 20% as once the zero rate has been removed it cannot be reinstated. Watch this space!

 

ARE WE CUSTOMERS?

Finally HMRC are continuing to call us customers, although of course if we had the choice we may take our custom elsewhere – perhaps somewhere cheaper or that gives better value? I do object to being called a customer – no doubt you will be able to think of a range of names that HMRC could refer to us as. Taxpayer is probably one of the politest – and possibly the most accurate, and was used in the past. I shall put my soap-box away now.

 

 

Accountants Corner June 2012

Jun 6, 2012   //   by Ralph   //   Latest News  //  Comments Off on Accountants Corner June 2012

Welcome to the June edition of Accountants Corner. Hopefully it will be a return to “Flaming June” but we will have to wait and see. Let’s hope the sun shines on the Jubilee celebrations. Last month I said I would give a couple of further points regarding changes in the budget, which is now being debated by the Public Bill Committee.

 

VAT on food served above ambient temperature.

It is rare that tax legislation receives such a large amount of coverage in the mainstream press. The Chancellor in his budget speech said he planned to “Address some of the loopholes and anomalies in our VAT system”. VAT is a complex area and is often illogical. There are several aims to the consultation document issued on the 21st March, including clarifying the treatment of catering to ensure that all hot takeaway food is subject to VAT as well as clarifying the meaning of premises.

 

Other VAT “loopholes” to be closed.

The consultation document I mentioned above is also looking at the following areas: VAT applicable to sports drinks and nutrition drinks, removing the exemption relating to self-storage, removing the relief on alterations to listed buildings, ensuring VAT is charged on rental of hairdressers chairs, and that holiday caravans are taxed at the standard rate of VAT.

 

Tax credit notice period is shortened.

From 6th April this year the period to notify HMRC has been reduced to one month from three. It is therefore important to advise of any changes to your financial or personal circumstances immediately so that you do not lose out on increases for example on the birth of a child or reductions in your income.

 

Corporation Tax Rate.

The main rate of corporation tax has been reduced to 24% (from 26%) and it is anticipated that eventually the small companies rate (currently 20%) and the main rate will become one rate of 20% in a few years.

ONLINE TRADING – WILL HMRC LOOK AT YOU?

Those who buy and sell through the various online auction and sales sites are the target of the taxman’s latest initiative. There is a limited opportunity to notify him of the trading in the tax years 2010/11 or earlier, by June 14th in order to benefit from reduced penalties. Of course, if you are not trading he is not interested, as there is nothing wrong with simple good housekeeping and selling items that are no longer required. The question is what defines trading? It is likely that if you have purchased a personal item, such as a DVD, watched it and then sold it, you will receive less than you paid for it. Even if you receive more than you paid, this isn’t trading income as it was a personal item. The HMRC guidance states that frequently selling items can count as a trade. This is incorrect, as long as the items are used personally, it doesn’t matter how frequently sales are made.

Intention. It is a question of whether the item was purchased with the intention of making a profit. If you bought a second hand vase at a car boot sale because it looked like a bargain and thought you’d “try your luck” by trying to sell it online, then you are trading. However if you are trading, then HMRC must allow all of the costs associated with that trade, such as motor expenses going to view, collect and deliver items, as well as any other associated costs. If your trade makes a loss this can be offset against your other income generating a tax refund! So it’s not all bad news.

 

Next month I will look at a recent tax case that has reached a strange conclusion on employment status, as well as the usual round up of HMRC’s latest antics.

 

If you would like me to cover a particular subject then please contact TA Gittins today

Accountants Corner May 2012

May 5, 2012   //   by Ralph   //   Latest News  //  Comments Off on Accountants Corner May 2012

Welcome to the May edition of Accountants Corner. We are looking forward to the bank holidays that give us a chance to rest (possibly), and maybe think about what George Osborne’s budget means to us. As promised last month here is a brief resume of the main points of the 2012 budget.

PERSONAL TAX

Age related personal allowances are to be frozen and only available to those born prior to 6th April 1938 for the higher rate available to the over 75’s and for those born between 6th April 1938 and 5th April 1948 for the slightly lower allowance available to those aged between 65-74. Eventually there will just a single personal allowance for all individuals.

Child benefit restriction for higher earners. With effect from 7th January 2013 (a date that shows the that the legislation may have been copied from the USA, whose tax year end is the 31st December) those who are in receipt of child benefit and either they or their partner own over £50,000 will have the child benefit withdrawn progressively at 1% of the child benefit received for every hundred pounds over £50,000 earned. This effectively raises tax rates higher the more children you have. It means that pension contributions or charitable donation (more of which below) can be even more attractive.

Cap on unlimited tax reliefs. Legislation will be introduced in the 2013 Finance Bill to apply a cap of £50,000 or 25% of income whichever is the greater to income tax reliefs claimed by individuals for 2013/14 onwards. You will have no doubt heard in the press about this being described as detrimental to charity donations. There is also the issue of loss relief to consider. This is a bigger issue for business than the donations.

There are various other changes to Residence, Reform of the taxation of Non-domiciled Individuals, and changes to reliefs available in the Enterprise Investment Scheme Venture Capital Trusts, and Seed Enterprise Investment Scheme, which I can advise on if required.

EMPLOYMENT TAXATION

Company Car and Fuel Tax Rates. The amount of tax due will increase over the next few years and from April 2016 the diesel supplement will be removed. The fuel benefit multiplier will be £20,200 for 2012/13 and will increase by 2% above the RPI for 2013/14.

BUSINESS TAX

Tax simplification. The much paraded simplification of tax for small businesses has begun. The Government is to consult on introducing a voluntary cash accounting basis for unincorporated businesses with receipts up to the VAT registration threshold.

Personal Service Companies. The measures to tighten up on tax avoidance through the use of personal service companies and to make the current IR35 rules easier to understand are to be brought forward. HMRC are strengthening their specialist compliance teams to ensure the simplified rules are adhered to.

CAPITAL ALLOWANCES

Fixtures. There will be legislation introduced to make the availability of capital allowances to the purchaser of a property on or after 1st April 2012 subject to certain conditions. You should bring these changes to the attention of your advisors when you are buying or selling a property used in your business.

Solar Panels, Feed-in Tariffs and Renewable Heat Incentive. From April 2012 expenditure on solar panels will be designated as special rate expenditure rather than being able to claim the usual rate. This of course only applies to those who are using the solar panels for business use. Additionally enhanced capital allowances are not available on any equipment where a feed in tariff is received on energy produced

Emissions Thresholds for Cars. The threshold for main rate capital allowances to be claimed on cars will be reduced to 130g/km (currently 160g/km) from April 2013.

There are also revisions to corporation tax rates and allowances, Capital Gains Tax Pensions, Inheritance Tax, Charities and VAT as well as other miscellaneous changes which there isn’t room for in this article. Some tax planning can be worthwhile so I will mention the more useful items next month, and I haven’t even mentioned the “Pasty tax”. Now there’s a half baked idea!

 

If you need help or advice on any of the issues in this article, contact T A Gittins and Company

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