EWIRES
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THE IMPACT OF THE PROPOSED CAPITAL ALLOWANCE CHANGES FOR CARS - 21 July 2008
10% TAX RATE CLIMBDOWN - 14 July 2008
ONE RULE FOR HM REVENUE & CUSTOMS, ANOTHER FOR YOU - 7 July 2008
DOCUMENT RETENTION - 30 June 2008
COMPANY CAR OR NOT? - 23 June 2008
UPDATE ON RESIDENCE AND DOMICILE - 16 June 2008
'INCOME SHIFTING' LEGISLATION DELAY - 9 June 2008
THE COMPANIES ACT 2006 - 2 June 2008
ENTREPRENEURS' RELIEF DRAFT LEGISLATION - 28 May 2008
BASIC RATE TAXPAYERS ONLY TO GET £120 - 19 May 2008
FUNDS TO HELP DISPUTE RESOLUTION - 21 April 2008
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THE IMPACT OF THE PROPOSED CAPITAL ALLOWANCE CHANGES FOR CARS - 21 July 2008
This year’s Budget contained some proposals on the way in which capital allowances on cars are to be calculated in the future. These proposals are due to be introduced as law with effect from 6 April 2009. The full details of these proposals is still awaited. It is clear though from the Budget announcements what the general basis of the calculation is going forward. We have to wait to see the detail of how it is proposed to move from the old rules to the new rules.
Since the Budget there have been a considerable number of articles about these proposed changes. It is clear from these that there are some major misunderstandings over the impact of the proposed changes.
The proposed changes in the rules are in two main areas:
1. The writing down allowance is to be reduced to 20% for vehicles with a CO2 emission below 160g and 10% for vehicles in excess of 160g. From April 2009 the vehicles which are below 160g are to be pooled and a separate pool is to be created for cars with a CO2 emission above 160g.
2. The expensive car leasing disallowance rules are being revised. This is the relief claimed by the lessee and the current complexity is to be removed with a new simple rule that for cars below 160g CO2 there is full relief of the leasing costs whilst for cars above 160g the relief is restricted by 15%.
The principal impact of the first of these changes is to delay the time in which the owner of the vehicle can recover tax relief.
Suppose that your business purchased a car costing £30,000 with a CO2 emission level of above 160g. Under the old rules, it would take you about 15 years to fully claim back the £30,000 cost. Under the new rules, it will take about 34 years!
In order to maximise the tax relief on cars with CO2 emission levels of over 160g, it will be necessary to change the car far more frequently as so obtain a balancing allowance on the disposal. Even the amount of CO2 produced in manufacturing a new car, this incentive to change cars hardly seems in line with the Government’s “green” motives in changing the capital allowances regime.
10% TAX RATE CLIMBDOWN - 14 July 2008
We live in quite amazing times in the world of tax. Over a year ago, in Gordon Brown’s last Budget speech as Chancellor, the so-called ‘abolition’ of the 10% starting rate was announced. The government’s reason for this was, and still remains, the simplification of the tax system.
Of course, the 10% rate hasn’t been ‘abolished’, it merely does not apply to all forms of income anymore. The income it may still apply to, depending on your circumstances, is savings and dividend income but not pension, earned, property and other income.
It became clear that, if earnings were taxed at 20% basic rate and not the old 10% rate, there would be many losers – around 5 million of them, unfortunately most of them being the lowest earners in the country.
So, following extensive media coverage, and potentially faced with a back-bench revolt and the possibility that the Finance Bill would be compromised, the new Chancellor Alistair Darling has announced for 2008/09:
These changes mean that basic rate taxpayers will benefit by £120 per tax year whilst the position of higher rate taxpayers will be unchanged.
Provisional announcements indicate that the changes will not take effect for employees until September.
Chancellor Alistair Darling has announced an increase in the personal allowance of £600 and an adjustment to the higher rate threshold (the total of the personal allowance and basic rate limit) as reported in the earlier article, ‘10% tax rate climb down’.
HMRC have issued guidance to employers advising them that they should not make any adjustments to employees’ tax code numbers and should continue to use the allowances and guidance published in May 2008. This means that employees will not see the impact of these changes yet.
HMRC have advised that they will be issuing details in the next few weeks of how and when the changes will be implemented. We will keep you informed of developments.
ONE RULE FOR HM REVENUE AND CUSTOMS, ANOTHER FOR YOU - 7 July 2008
Under the proposals in this year’s Finance Act (currently going through parliament), millions of tax payers will see their rights to claim back overpaid taxes severely reduced.
Many observers have accused the Government of double standards – the proposed new rules will restrict tax payers ability to draw back tax, but will leave HM Revenue & Customs powers to collect arrears of tax unchanged.
Currently tax payers can claim back overpaid taxes for 5 years and 10 months after the end of the year to which the claim relates. This year’s proposed Finance Act will cut that time limit back to only 4 years, but will reserve HM Revenue & Customs right to go back 6 years when claiming back taxes.
The proposed changes, described by the Government as being designed to “modernise” the time limits were not highlighted in last year’s pre Budget report but were buried deep in the smaller print of the Budget. The proposed changes are set to take effect from 1st April 2010.
The proposed changes will have a massive effect – a report from the National Audit Office in 2007 found that one in five people have an incorrect tax code. The report also found that about 1 million people are paying the wrong amount of tax each year, with the total overpayments being £157 million.
Hundreds of thousands of higher rate taxpayers who make pension contributions will be particularly affected by the changes. Standard Life calculated that 250,000 higher rate taxpayers are not claiming tax relief of 20% on their pension contributions because they wrongly believe their pension provider or employer does this for them.
And it is not just higher rate taxpayers who will miss out. Tax Help for Older People, a charity, recently carried out some research on 80 of its most recent claims. It found that some 44% of claims went back 6 years.
There are still two years to go before the new rules take effect, so make sure now that you are paying the right amount of tax.
DOCUMENT RETENTION - 30 June 2008
Under self assessment if you are in business, it is a legal requirement to keep records of income and expenditure until the 5th anniversary of the 31st January next following year of assessment. So for 2008/09, you have to keep your records until 31 January 2015.
If you fail to keep such records this will result in a penalty of up to £3,000 for each failure.
The recent furore over MP’s expenses has revealed that the Government has shredded more than 1 million documents relating to MP’s expenses. Despite official guidelines saying that such records should be kept for 6 years, the expenses up to April 2004 have been shredded.
In the most recent year for which records are available (April 2007) MP’s claimed an average of £135,600 a year in expenses.
The House of Commons said its document retention policy had been drawn up in consultation with HM Revenue & Customs.
One wonders what HM Revenue & Customs would say if your claimed £135,600 of expenses and then shredded your expenses forms in less than the statutory time frame!
COMPANY CAR OR NOT? - 23 June 2008
It is a perennial question – to have a company car or not? In recent years, because of increasing levels of taxation on company cars the trend has been towards running your own car and charging the company for any business mileage.
In 2002, HM Revenue & Customs set the mileage rates at 40p a mile for the first 10,000 business miles and 25p a mile thereafter. If your company pays these rates, HM Revenue & Customs deem that you are just being reimbursed your costs. If your company pays you more than these rates, then the excess is deemed to be a benefit in kind and therefore taxable on you.
Of course motoring costs have significantly increased since 2002 and are likely to continue to rise steeply (in the first 5 months of 2008 the price of diesel has gone up by 30% and later this year we are due to see significant increases in car tax of up to 200%).
According to the AA, the typical cost of driving a mile was 51p in 2002 and it has now risen to 59.4p. This means that, at 40p a mile, you are subsidising your company to the tune of 19.4p a mile. Depending on how many business miles you do, it might be worth rethinking whether or not to have a company car!
If you do decide to keep your own car and do a mileage claim, then HM Revenue & Customs require you to keep a detailed record of the business journeys under taken. The recent furore over MP’s expenses has revealed that MP’s can claim 350 miles a month with no such records.
Quite often, HM Revenue & Customs will also ask to see your car’s service records to check that the business mileage that you are claiming for aligns with your actual mileage. Last year Janet Anderson, a Labour MP, claimed mileage for driving around her Lancashire constituency that was equivalent to driving twice round the world. One wonders if HM Revenue & Customs checked the mileage on her car!
UPDATE IN RESIDENCE AND DOMICILE - 16 June 2008
The government will implement a package of reforms announced in the 2007 Pre-Budget Report subject to certain changes. The measures will take effect from 6 April 2008.
The main proposal is that UK residents who are non-domiciled or not ordinarily resident, who wish to continue to be taxed on a ‘remittance basis’ rather than on their worldwide income and gains, will have to pay an annual tax charge of £30,000 on unremitted income and gains. Those with unremitted foreign income and gains of less than £2,000 will however be exempt from this charge.
The charge will apply if an individual has been resident in the UK for at least seven out of the previous ten tax years. Individuals will be able to decide each tax year whether to pay the charge and be taxed on the remittance basis or be assessed on their worldwide income and gains.
Key changes include:
In addition, from 6 April 2008, when determining if an individual is resident in the UK, any day where the individual is present in the UK at midnight will be counted as a day of presence in the UK for residence test purposes. There will be an exemption for passengers who are temporarily in the UK whilst in transit between two places outside the UK.
'INCOME SHIFTING' LEGISLATION DELAY - 9 June 2008
The introduction of the proposed legislation on ‘income shifting’ has been delayed until April 2009.
You may well remember that HMRC proposed to legislate following their defeat in the Arctic Systems case. This involved a husband and wife who owned a company 50/50 and, broadly, took the profits out by way of dividends, again 50/50. HMRC attempted to tax the dividends solely on the husband, as he was performing most of the work which generated the profits of the company.
Following HMRC’s defeat in this case, the government published draft legislation to prevent a tax advantage being gained through ‘income shifting’. This legislation was expected to apply from 6 April 2008 to:
The proposed rules have been very widely drafted and would, in their current form, catch many owner-managed businesses involving husbands, wives and other family members, as well as businesses run by non-family members, leaving many with a substantially higher tax bill.
The government has reconsidered its position following a period of consultation and now believes that a further period of consultation will ensure that legislation in this area provides clarity and certainty for businesses and their advisers.
The government now intends to introduce legislation through Finance Bill 2009 and will not enact legislation effective from 6 April 2008.
THE COMPANIES ACT 2006 - 2 June 2008
The Companies Act 2006 received Royal Assent in November 2006. This new Act – which replaces almost all earlier companies legislation – updates company law to ensure that it reflects the modern business world.
The Act is being phased in over a period of three years. Final implementation will be 1 October 2009, but there are many provisions that have already been commenced. For example:
* Companies can make greater use of electronic communications for communication with shareholders;
* private companies will not need to hold an annual general meeting unless they positively opt to do so;
* it will be easier for private companies to take decisions by written resolutions; and
* a statutory statement of directors’ general duties makes the well established law in this area more accessible and brings it in to conformity with modern business practice.
This ewire highlights some of the changes coming into force in 2008 and 2009.
The time for private companies to file their accounts with the Registrar of Companies has been reduced from 10 to 9 months from their year end. The medium size group exemption from preparing consolidated accounts has now been removed – only small groups will be exempt.
Private companies will no longer be required to have a company secretary, although they may continue to have one if they wish.
Execution of documents:
Rules on execution of documents are also changing.
PROVISIONS TO BE COMMENCED ON 1 OCTOBER 2008
A few important provisions will be commenced on 1 October 2008. These include:
· the general duties of directors in respect of conflicts of interest;
· the new procedure for private companies to make capital reductions supported by a solvency statement instead of by a court order;
· companies will have to have at least one natural person as a director, so a company cannot be a sole director of another company (some existing companies will have more time before the rules change);
· there is a new minimum age of 16 for directors.
The restrictions under the Companies Act 1985 on financial assistance by private companies for the acquisition of their own shares will also be repealed with effect from 1 October 2008.
There will continue to be default model articles, but there will be separate model articles for private companies and public companies. (There are already separate model articles for companies limited by guarantee.)
Memorandum of Association
The company memorandum will become a formal document recording the position at the point of registration, with just the articles being the continuing constitutional document.
For companies formed before 1 October 2009 any provisions contained in their memorandum which go beyond the newly required limited information will be regarded as provisions of their articles of association.
Companies will no longer be required to specify their objects.
Directors’ addresses:
The information that companies must file relating to its directors will change so that for each director, a service address and the country of usual residence will be required in addition to the home address. This will apply from 1 October 2009 for new appointments; for existing directors, a service address and the country of residence will be required in Annual Returns made up to dates after 30 September 2009. Home addresses will not be put on the public record after than date.
ENTREPRENEURS' RELIEF DRAFT LEGISLATION - 28 May 2008
In the Pre-Budget Report last October Chancellor Alistair Darling announced a series of changes to the capital gains tax (CGT) regime for individuals and trustees. These changes included the abolition of taper relief and indexation relief and the introduction of a single rate of CGT of 18%. The changes take effect from 6 April 2008.
On 24 January 2008, in response to pressure from the business community, the Chancellor announced a new ‘Entrepreneurs’ Relief’. The first £1m of gains qualifying for relief will be charged at an effective rate of 10%.
Gains in excess of £1m will be charged at 18%. An individual will be able to make more than one claim for relief, up to a lifetime total of £1m of gains.
The new relief is similar to Retirement Relief, which was phased out with the introduction of taper relief in 1997, but the new rules are designed to be simpler:
* there will be no minimum age limit
* relief will be available where the relevant conditions are met for a period of one year ending with the disposal / cessation.
The relief may be available to gains arising on the disposal of:
* certain disposals by trustees of business assets and company shares where a ‘qualifying beneficiary’ has a qualifying interest in the business / shares.
A trading business includes professions but only includes a property business if it is a ‘furnished holiday lettings’ business.
A trading company will have the same meaning as currently applies for taper relief.
HMRC have issued the draft legislation together with draft explanatory notes and frequently asked questions.
This is a complex area and if you have any queries or concerns please do get in touch.
BASIC RATE TAXPAYERS ONLY TO GET £120 - 19 May 2008
Chancellor Alistair Darling has put up the personal tax allowance by £600 – meaning every basic rate taxpayer will pay £120 less tax this year.
1. A new penalty regime – introduction
From 1 April 2009, HMRC is introducing a new regime for determining penalties which will apply across income tax, corporation tax, capital gains tax and VAT. The new penalty regime is described as being ‘behaviour related’ and uses new terms to describe behaviour that will lead to penalties.
The first penalties under the new regime will not be issued until 1 April 2009. There is nothing in the legislation which refers to dates on which returns or documents were submitted to HMRC so it must be assumed that penalties will be applied to any offence which comes to light after 1 April 2009 irrespective of when that offence was actually committed.
There are two areas in which penalties may arise. One is where a document has been submitted by the taxpayer, the other is where the taxpayer has failed to submit a document and HMRC have issued an assessment to bring tax into charge.
2. Basic trigger for documents
2. the document contains an inaccuracy which amounts or leads to either:
· an understatement of the person’s liability to tax; or
· a false or inflated statement of loss by that person; or
· a false or inflated claim to repayment of tax; and
· a breach of duty existing at the time when the duty should have been performed;
· not doing something that the person knew or should have known ought to have been done and which the person concerned had the power to do;
· the absence of such skill, care and diligence as it was the duty and capacity of the person to bring to the work;
· omitting to do something a reasonable person would do and the person concerned could do, or doing something a reasonable person would not do;
or
· negligence, importing some duty of neglect of duty in relation to facts or to interpretation of the law, provided the capacity to perform the duty is present.
· mis-classifying items of income and expenditure without giving the matter adequate consideration or taking professional advice;
· keeping incomplete books and records;
· omitting occasional items of income and gains;
· having insufficient quality control over the work of others;
· applying PAYE wrongly occasionally or to an unusual item without checking on the correct treatment.
· deliberately getting something wrong.
· including personal expenditure in business expenditure in circumstances that rule out genuine misunderstanding;
· making inadequate private use adjustments where amounts are significant;
· omitting significant amounts of income;
· adopting inappropriate accounting treatment;
· describing transactions in a misleading way;
· deliberately misinterpreting the law with a view to understatement.
· backdating or post-dating;
· creating fictitious minutes of meetings;
· destroying books and records;
· deliberately misleading accountants or HMRC;
· systematic diversion of income into undisclosed bank accounts and covering the traces.
In outline the new calculation proceeds by:
· basing the penalty on the ‘potential lost revenue’;
· taking into account whether any disclosure was prompted or unprompted;
and
· considering the ‘quality’ of the disclosure.
Deliberate but not concealed
Deliberate and concealed
Accepting under assessment
8. Disclosure
· they give HMRC reasonable help in quantifying the inaccuracy; and
· they allow HMRC access to records for the purpose of ensuring that the inaccuracy is fully corrected.
· the disclosure is prompted or unprompted; and
· the quality of the disclosure which reflects timing, nature and extent.
Max Penalty
30%...........................................unprompted....................................................0%
30%...........................................prompted........................................................15%
70%...........................................unprompted.....................................................20%
70%...........................................prompted.........................................................35%
100%.........................................unprompted.....................................................30%
100%.........................................prompted.........................................................50%
10. Special reduction
Provision is made to avoid a double penalty on the same lost revenue.
Conclusion
We recommend that you review your affairs now, and if there is any area that causes you concern, please do not hesitate to contact us to discuss how it may be resolved.
P11D Deadline Looming
The forms P11D, which report employees and directors benefits in kind and expenses, are due for submission by 6 July 2008 for the year ended 5 April 2008. The process of tracking down the information can take some time so it is important that you don’t leave things until the last minute.
The benefit is based on a percentage of the list price plus accessories – not what the business paid for the car. The percentage is linked to the CO2 emissions of the car.
Provision of fuel
Employees provided with free fuel for private as well as business motoring will be assessed on a further benefit. This is calculated as a percentage linked to the CO2 emissions of the car and a set figure of £14,400 for 2007/08.
Employment Support Allowance
Incapacity Benefit and Income Support are to be replaced by Employment Support Allowance (ESA). The change takes effect from 27 October 2008.
The employer form SSP1, which is used when an employee’s entitlement to SSP ceases, will be re-designed to coincide with the change. The change should mean that employers will not need to include as much information on the new form which will be made available from October 2008.
From 6 April 2008, HMRC has increased the tax and NIC free guideline rate that employers can pay home working employees without keeping records from £2 to £3 per week.
HM Revenue & Customs Annual Report in February 2006 contained some interesting data on where they have got extra taxes from for the last six years.
The following tax summarises the percentage of the extra taxes the local offices of HM Revenue & Customs obtained in 2005:
..................................................................%..................%
Companies
Full investigation....................................00.06
Aspect enquiries...................................33.27
.......................................................................................33.33
Sole traders/partnerships
Full investigation....................................11.78
Aspect enquiries.....................................5.50
.......................................................................................17.28
Non-business...............................................................15.83
Late filing penalties.......................................................5.59
Employer reviews
Full investigation....................................12.16
Aspect enquiries.....................................7.75
.......................................................................................19.91
.......................................................................................91.94
Although these statistics are for 2005, the previous five years show a remarkably similar pattern.
The above figures are only for the local network offices and do not include the specialist offices. However, they do tell us a number of interesting things:
· Full investigations into company accounts contributed only 0.06% of the extra take, whereas it was 11.78% of sole traders and partnerships. The conclusion one draws if that full investigations for companies yield few results for HM Revenue & Customs, where as sole traders and partnership are a more fruitful area. One could think that we would see fewer companies being selected for full investigations as a result. However, our own experience is that full company investigations outnumber those of sole traders and partnerships by about 2 to 1. It therefore seems that HM Revenue & Customs are not directing their efforts to those areas that yield the most results!
· company credit cards
If you need any assistance in these areas, please let me know.
FUNDS TO HELP DISPUTE RESOLUTION - 21 April 2008
The Government has announced up to £37m of funding to prevent work place disputes unnecessarily going to employment tribunals. The measures are part of a package designed to simplify the dispute resolution system.
The extra funding will allow ACAS to increase its advice services to make sure an informal resolution is achieved instead of a tribunal hearing.
Minister for Employment Relations, Pat McFadden, said:
‘The link between successful employment relations and productivity is clear. Early action can often prevent the need for tribunals, bringing enormous benefits to business and employees.
This new system will strike a balance between ensuring workers can protect their rights through employment tribunals while helping them to resolve disputes as early as possible.’
The changes are in addition to changes introduced by the Employment Bill, which is currently before Parliament. The Bill proposes removing fixed periods for conciliation after a claim is made to the tribunal, enabling ACAS to get involved at any time until the tribunal reaches its verdict. The Bill is designed to deliver less formal processes to cut red tape and deliver quicker decisions on more straightforward claims. Initial estimates suggest that this approach could save businesses more than £175m a year.