Bare All and Stand Out

To stand out from your competition and give your business real credibility get testimonials from your customers and publicise these on your website. Potential customers  are savvy  they will not be taken in by made up testimonials or testimonials that are not from an independent source. To give your testimonials credibility you need to ensure you do not only show the good, but also the bad and the ugly.

Every time I read 100% satisfaction testimonials, I move on to someone else who is honest enough to show me that they are not perfect. Likes of Amazon are excellent examples where they do not remove critical testimonials about them. Furthermore, this is a great way to ensure you are always on  your guard to make sure that you are doing everything to provide  outstanding customer service.

How to do it?

Sign up with FreeIndex business listing directory.  Click  here to do this . You can advertise your business for free in just a short space of time but the best thing about FreeIndex  is that it ranks businesses in each sector by the number of reviews they have received from their customers.

For example they are 1362  listed businesses in the “accountants” category. In this category with just 19  reviews we are listed as  number 1 in the rankings.

Once you have registered on FreeIndex, you can send your customers a link to leave you a testimonial. They independently rate you against the following criteria:

• Value for money
• Customer service
• Quality

FreeIndex have measures in place to ensure that the reviews system is not abused.

The way to put these testimonials on your website is by copying a piece of code from FreeIndex  and pasting these code on your website. This  will show the latest reviews you have received on the FreeIndex site, therefore acting as a constantly updating testimonial list. Click here for an example of this.

Please note I am not connected to FreeIndex,  apart from being listed on their website and acting as their Finance and Accounting Expert for which there is no pay.

Where as an employee your company van is made available to you for private use,  you will only be taxed on it if you actually use the van for private journeys.  Travelling from home to the main place work and vice versa are allowed without these being classed as private journeys.  Furthermore, you are allowed insignificant private use without any tax implications.  Examples of these include stopping at a newsagent on the way to work or calling at the dentist on your way home. If these circumstances do apply to you then it would be best:

• To keep a mileage record on the use of your van

• Sign an agreement with your employer saying that the van is only to be used for business and insignificant private use and for travelling between your home and the main place of work.

Where the company van is available for private use and you use it for private journeys, this will raise a taxable benefit in kind of £3,000 per annum. For a basic rate tax payer, this would result in £600 tax bill per year. Further, if you are also allowed free or subsidised fuel, this will result in additional benefit in kind of £500 per annum, resulting in a further tax bill of £100 per year if you are a basic rate tax payer.

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A few people are lucky enough not to have the burden of completing a Self Assessment tax  form every year. The Taxman may still keep an eye on you now and then to make sure you are paying the right amount of tax. He will do this by asking you to complete a form called 810.

The taxman  may issue  form 810 every three years. on some ocassions he may issue it more frequently. If you are issued this form, there is no penalty for not filling the form.  However, if more tax is due to the Taxman you may end up with interset to pay plus penalties for late payment. By not completing the form you could lose tax refund that may be due to you.  So it is good practice to keep HMRC informed of change in your income.  Where you do not complete the annual Self Assement  form, form 810 is a good way to keep the taxman informed.

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Tax Centre for tax help sheets.

Your spouse/civil partner may not have any income at all, and almost certainly your children don’t. This means their personal allowance is being wasted every year. Even children are entitled to a personal allowance.

If the amount up the level at which national insurance becomes payable of £5,715 in 2010/11 was paid to them as wage, they would pay no tax on it and your business profits could be reduced.

Please note that children under the minimum school leaving age can only work a limited number of hours per week and local by-laws may restrict their working hours further.

If you pay just 20% income tax and 8% Class 4 National Insurance this would save you £1600 every year on each salary. And how many children do you have?

STOP! It’s not quite that simple. To pay wages like this you need to follow the following rules:

• It must be for work actually done. Now it’s going to be tough to argue your 2-year-old son is working for you but many wives/husbands do work and mature children may also help out.

  May be they do the books, answer the phone, stuff envelopes, etc. Keeping out of your way so you can get on doesn’t count, as valuable as it may be. Draw up a list of their responsibilities to help your case.

• At present they do it for free because it’s a family business but they should and can be paid for it. If you make your spouse a director, all the responsibilities of this imposed by Company Law must be worth something.

• You can also do this where you have property that you rent out and the spouse manages the properties.

• If this is the case, it’s reasonable to pay them a salary commensurate with what they actually do. How much would it cost to get someone in to do that job? The minimum wage level is at least a good place to start but more if you can justify it.

• The amount must actually be paid. It’s no good the accountant just putting it through the accounts at the end of the year.

  Pay it, ideally through the bank rather than cash so that it’s easy to prove it’s been paid and record it in your accounting records.

• Comply with any PAYE procedures such as getting a P46 signed, completing an end of year PAYE forms as you would do for normal staff. Remember, it may also help keep up their National Insurance contribution record even if they don’t pay any National Insurance on the salary.

Irrespective of the form of business in which you operate, if you are going to have employees, then you will have to contend with payroll taxes.  The brief summary that follows will give you some guidance in the rules and regulations of H M Revenue & Customs.

Helpful publications

H M Revenue & Customs publish various booklets relating to how PAYE is operated and the legislation that you have to comply with.  Not only do you collect and remit PAYE to the Collector of Taxes on behalf of H M Revenue & Customs, you also operate the sick pay scheme and maternity pay scheme.  You should run the PAYE scheme in accordance with the legislation and should you fail to comply then H M Revenue & Customs will look to you for the tax or NIC you failed to deduct.  This can be costly if you are unable to recover the tax and NIC from the employee.

Do you have employees?

Whether an individual is an employee or not in a particular situation is a question of fact depending on the terms on which he works.  The question of whether an individual is employed or self-employed is very important for the business “employing” him or her, as that business has to comply with the reporting requirements.

In certain areas H M Revenue & Customs has placed emphasis on reclassifying individuals claiming to be self employed and has issued leaflet IR56 entitled “Tax: employed or self employed”.  This booklet sets out the questions that should be answered to determine the problem.  If you have treated someone as self employed and subsequently after a routine visit from H M Revenue & Customs it is clear that they were employees, then the tax and NIC which should have been paid will be assessed on you.  Therefore it is important to ensure when using the services of self employed people, that they are in fact self-employed. If doubt exists as to the status of an individual, the situation can be clarified with H M Revenue & Customs.

The Operation of a PAYE Scheme

Upon registration H M Revenue & Customs will send to you guidelines on operating PAYE, National Insurance, Statutory Sick Pay and Statutory Maternity Pay (employer’s pack). Included will be a number of forms with which to operate the PAYE and NIC system.  You should familiarise yourself with and have supplies of these forms, which are as follows:-

In order to calculate the amount of tax and national insurance due by an employee, H M Revenue & Customs will supply you with sets of tables.  By reference to the “tax free” tables and an employee’s tax code you will be able to calculate the amount of salary that is not subject to tax.  The difference between this figure and the gross amount is the employee’s taxable pay.  This can then be calculated by reference to another set of tables.  The employer’s and employee’s national insurance is calculated by reference to the gross pay with a third set of tables.  Special rules exist for the calculation of national insurance for directors.

The tax and national insurance should be paid to H M Revenue & Customs by the 19th of the month following that in which the salaries were paid.

In most businesses, the directors, and often the employees, have benefits that are not immediately taxed through the PAYE system, the most usual being the provision of a car and possibly fuel.  Class 1A national insurance contributions are due on the taxable value of these benefits in kind and are due on the 19 July following the fiscal year in which the benefits are made available.  In addition, H M Revenue & Customs requires on an annual basis, a form P11D (Return of expenses payments and benefits) for all directors irrespective of income and all employees receiving remuneration including the benefit in excess of £8,500.  For those employees earning less than £8,500 but who receive expense payments and benefits, a form P9D is required.

A form P46(Car) needs to be completed quarterly on 5 July, 5 October, 5 January and 5 April if any employees have been provided with or have changed their company car.  Further details are given on the taxation of company cars in Inland Revenue leaflets IR132 and IR133.  H M Revenue & Customs will still require form P11D to be submitted annually in addition to the P46 (car) forms.

Please contact us for further help.

A significant task for the new business owner is ensuring that the business is properly complying with the extensive tax and information filing requirements imposed by the various authorities. Problems and penalties could arise if the new business is not registered with the appropriate tax authorities in a timely fashion. While this post is not intended to be an all-inclusive list of filing requirements, it summarises some of the more prominent requirements common to most businesses.

HM Revenue & Customs It is necessary to notify HM Revenue & Customs of your existence by completing forms CT41G (companies) or CWF1 (sole traders/ partnerships). The form notifies HM Revenue & Customs of your accounting date, your accountant, and also enables a PAYE (Pay As You Earn Scheme) to be set up, which is a requirement if you are to be an employer. If you fail to register within the first three full months of commencing business a penalty of £100 may be levied.

H M Revenue & Customs – NI Contributions Office

Depending on the level of profit, sole traders and partners have a liability to Class 2 NIC, and these are payable either quarterly or monthly by direct debit. Class 2 contributions are at a weekly level of £2.40 (where annual earnings are £5,075 or more for 2010/11) and the necessary form to collect Class 2 contributions should be completed at the same time as the form CWF1. Leaflet CA02 ‘National Insurance contributions for self-employed people with small earnings’ gives full details and an application form for exemption from liability.

H M Revenue & Customs – VAT

You need to consider if it is beneficial to be VAT registered from the outset. If you are registering for VAT, form VAT 1 needs completing, and if you are a partnership, form VAT 2 needs to be completed, in addition to the VAT 1, giving details of all the partners. Alternatively, an online registration process is available on HMRC’s website. If turnover exceeds the compulsory registration limit, £70,000 at 1 April 2010, in any period of 12 months or less Customs must be notified within 30 days of the end of the month in which the threshold was exceeded.

The pictures below I thought are well worth a look. The van looks great but a death trip I think – it would burn very easily. It was redesigned in Malawi (Africa).

The flat rate scheme for small businesses is designed to simplify the completion of VAT returns for small businesses but it can also save you money. Do not confuse this scheme with the flat rate scheme for farmers, which is completely different.

What happens is that rather than calculate the output and input VAT due every quarter, you simply apply a set percentage to your gross turnover (including the VAT charged to your customers) on a quarterly basis and this is the VAT due to HMRC.

To use the scheme your annual taxable supplies (excluding VAT) must be less than £150,000. Total income includes all income falling within UK VAT, which includes zero rated and exempt supplies such as letting a residential building, but not services supplied to customers outside the UK.  If you want to exclude certain income from the Flat rate VAT scheme, such as let property income, you must ensure that income is received by a different legal person than that which is applying for the scheme. . You must also not already use another special VAT scheme such as the second hand goods or tour operators scheme.

The fixed percentage that you apply depends on the particular trade sector that the majority of your business falls into. The percentages vary from 5% to 14.5%. The turnover to apply the percentage to includes all zero rated and exempt income.

To use the scheme you need to apply to HMRC.

If you buy any capital assets such as computers costing over £2000 each, you can apply to get the VAT back on these separately.

The scheme is designed to save on the administration costs of completing VAT returns, although you do still need to raise VAT invoices for your sales applying VAT at the normal VAT rate.

However it is also worth calculating how much VAT you would pay on this scheme compared to what you pay without the scheme to see if there is a VAT saving to be made by switching to this scheme. There is often a saving where you have a low value of purchases for your business sector, or make sales that fall into more than one trade sector.

So go check it out.

Please contact us for further help

What’s the argument? In the vast majority of situations with a small

Limited company, dividends are the answer and yet it’s still amazing the number of companies that don’t use them to their full effect.

Let’s go through the argument based on the normal small businesses Situation, not all the more complicated scenarios only relevant to very high earners already taking large salaries and deciding to whether to take their bonus as salary or dividend or where the company is making more than £300,000 per year.

We’re interested in how you get your basic money out of the company.

Let’s keep it simple because it’s not complicated…

• If you pay a salary, it attracts both employees National Insurance (mainly at 12%) and Employers NI (mainly at 13.8%). Dividends have no NI. It’s that simple!

• The corporation tax situation is that by using dividends, the company doesn’t get any deduction from its profits so it is paying 20% corporation tax. As an individual in the 40% rate tax band you will pay a further 22.5% on the amount of the gross dividend paid out by the company. If you are paying basic rate tax you will pay nothing more on the dividend you receive.

• For simplicity, we will add the tax paid by the company to the tax you pay personally and call the total tax paid either 20% tax for basic rate taxpayers and 42.5% for the 40% band taxpayers.

• If you pay a salary, you are largely paying either 20% basic rate tax or 40% rate tax so we can see the tax differences are small compared to the National Insurance benefits.

How much money are we talking about?

Take a straightforward situation of a small Limited Company where the choice is between taking £40,000 salary or £40,000 dividend. If we just look at the National Insurance savings, these come to over £8000 per year. It’s obvious which to go for and yet often small businesses are not doing this. It’s the one of the biggest sins in tax planning not to have considered it.

Are there any reasons why they wouldn’t be using dividends? Occasionally there are:

• If your company hasn’t made enough profits since it started to cover the dividends that you want to pay, then Company Law prevents dividends being paid.

• If you want to pay a lot into pensions you used to need a salary high enough to justify the contribution, but that is no longer is a restriction for most pension schemes.

• You believe you can only have a dividend once a year and you need your money every month. This isn’t true. There is no set interval for dividend payments prescribed by law. Quarterly payments are recommended but if you need monthly cash that can be done.

• You may not want to pay dividends because you have other shareholders that would need paying as well. You can look to get around this by using different classes of shares for different shareholders.

• Paying dividends may increase the value of the company for Capital Gains or Inheritance Tax consequences in the future. In the author’s experience, this rarely applies in practice with small companies.

• You’re worried about the minimum wage legislation and believe you have to pay a salary to cover this. However, minimum wage legislation doesn’t apply to people living in a family and working in the family business. This doesn’t include Limited Companies but as far as working directors are concerned who don’t have an explicit contract of employment, they are not subject to minimum wage legislation, so don’t give them one.

Please contact us for further help

You will not get compensation for everyday mistakes, at most an apology. Examples of this include errors in inputting tax return information, incorrect calculations, wrong penalty notices etc.

To get compensation you need serious or persistent errors. A serious error is something that no responsible person acting in good faith and with proper care could reasonably have done. Perhaps wrong advice from the Taxman that you relied upon.

A persistent error is one where the Taxman continued with the mistake after it had been pointed out to him or keeps making the same mistake or made several unconnected mistakes in the any twelve-month period.

The compensation you will get will cover putting the tax position back to where it should have been, reimbursement of expenses or financial loss and a consolatory payment

This is the final blog on a series of blogs on tax investigation. It covers penalties following a tax investigation. The other blogs covered Understand the Type of Tax Enquiry You Have, what triggers a tax inspection and tax inspection of your accounting records

Dealing With The Penalties

At the end of an enquiry or investigation, there may well be penalties to deal with.

Firstly, there is interest to pay but HMRC see this as just financial compensation for them not having use of the money from when it should have been payable and so is largely fair and at a reasonable interest rate.

However, penalties are also due. There is a new penalty regime for return periods starting on or after 1 April 2009 or where the due filing date is on or after 1 April 2009. In fact the new penalty system replaces all penalties for incorrect returns which lead to an underpayment of tax for income tax, corporation tax, PAYE, National Insurance and VAT.

Penalties under the new legislation are based on the potential lost revenue. The starting point for the maximum penalty depends on the behaviour that gave rise to the inaccuracy.

For unintentional errors…

• Mistakes made despite taking reasonable care – no penalty.
• Mistakes made where there is a lack of reasonable care (i.e. carelessness) – maximum penalty is 30% of the potential lost revenue.

For deliberate inaccuracies….

• For deliberate mis-statements – maximum penalty is 70% of the potential lost revenue.
• For deliberate mis-statements which are then concealed – maximum penalty of 100% of the potential lost revenue.

So the starting point involves an assessment of the behaviour that gave rise to the penalty. And what is reasonable care will vary from taxpayer to taxpayer and is judged on the circumstances and abilities of the individual.

The maximum penalties can be reduced based on the disclosure made by the taxpayer to the taxman. Where a disclosure is unprompted in that it is made at a time when the person making it has no reason to believe that HMRC have discovered or are about to discover the inaccuracy, the minimum penalties can be as follows…

• For careless errors – 0% (as opposed to 30%)
• For deliberate mis-statements – 20% (as opposed to 70%)
• For deliberate mis-statements which are then concealed – 30% (as opposed to 100%)

However where a disclosure is prompted as opposed to unprompted the minimum penalties are as follows…

• For careless errors – 15% (as opposed to 30%)
• For deliberate mis-statements – 35% (as opposed to 70%)
• For deliberate mis-statements which are then concealed – 50% (as opposed to 100%)

Please note that once an enquiry starts, it would be very rare for a disclosure to be unprompted if it is about something related to the enquiry.

How much the penalty is reduced from the maximum penalty to the minimum penalty is then based on the quality of the disclosure. The quality factors to consider are…

• Telling HMRC about it – up to 30% reduction
• Helping HMRC to quantify the inaccuracy – up to 40% reduction
• Giving HMRC access to the records to ensure inaccuracy is fully corrected – up to 30% reduction

So for example, someone with a prompted disclosure of a deliberate mis-statement with concealment can have the penalty reduced from 100% to 50%. If you score 25%, 15% and 30% on the above 3 items, this will give a 70% reduction of the 50% reduction which is 35%. i.e. the penalty will be 100% less 35% = 65%!

If the penalty arose because you failed to take reasonable care, HMRC can suspend the penalty for a period of time, a bit like a suspended sentence. As long as you behave during that time, the penalty will not then be payable.

The Old Penalties

Although the new regime is coming in based on return dates, there will still be penalties around under the old rules for some time. So these are summarised here.

The starting point is 100% of the tax underpaid. That’s an awful lot and another good reason to get your Tax Return right in the first place.

However, the penalties will be mitigated downwards according to certain factors as follows:

• Up to 40% discount relating to the amount of tax at stake.
• Up to 40% discount for the degree of co-operation of the taxpayer.
• Up to 20% discount for voluntary disclosure at an early stage.

In theory the penalty can go down to zero but this is rare. Something like a 10% to 30% penalty is more normal. If you disagree on the penalty, you can again make an appeal.

Please contact us for further help

The previous blogs on tax enquiry covered what triggers a tax inspection and tax inspection of your accounting records . This blog  takes this further by explaining  the type of tax enquiry you have.  Please remember you can sign up for our monthly tax tips news letter to receive equally helpful information straight into your inbox. Just  click here to sign up,

Technically HMRC  now start with enquiries rather than investigations into your Tax Return. Let’s start with the basic facts…

• The enquiry may be an aspect enquiry into one aspect of your tax return or a general enquiry into the whole return.

• Over 250,000 enquires are carried out every year and most are innocent enough affairs but if it leads to a full-blown investigation, it’s not nice.

• The change to the self-assessment system has allowed HMRC to spend more time on enquiries and they have also put more and more resources into it.

• Interestingly, most enquiries are into the affairs of men, rather than women.

• HMRC are also becoming more business like, targeting the businesses where they are most likely to get a result.

• Whether they admit it or not, HMRC do have internal targets for the number of investigations to be carried out that are there to be met.

• HMRC may select you for enquiry for a reason or you may be chosen at random for a full enquiry.

• The problem is, they don’t tell you whether you have been picked randomly or not, and they don’t tell you what they already know. They often indicate they know something to make you confess to perhaps more than they know about.

• It all starts with a standard letter saying they are going to make an enquiry into your return and assuming you have an accountant, they will send a separate letter to them with the details of what their enquiries are. From this you can normally tell whether it is an aspect or general enquiry into the whole return.

• Aspect enquiries do have the potential to turn into full enquiries. A full enquiry will turn into an investigation when it spreads over into looking into your affairs for more than one year.

• With effect from 2007/08 onwards HMRC have one year after the date you file your tax return to enquire into it.
• After that you are safe unless they make a discovery of fraudulent or negligent behaviour. In these cases they can go back up to 20 years, although 6 years is the norm. It therefore helps to give them all relevant information when submitting your return to help ensure finality.

• Even your death isn’t the end of the matter as the enquiry can still continue through your representatives. In war, your death is the end, but not so with tax.

As an example, let us say the Taxman finds just £1000 of income that hasn’t been declared on a return, the tax on this could be £400.

If they can show this was likely (not proven) to have occurred for 6 years, that tax bill becomes £2400. Interest will now be due on this, which could perhaps be another £1000.

In addition, there can be a penalty that can be as much as the tax. And in some situations from 1 April 2011 this can be up to 200% of the tax for those with financial interests outside the UK who have failed to declare the full extent of their offshore liabilities.

You are now looking at a tax bill of up to £5800, just because they found £1000 of income missing in one year.

Imagine how much you’re looking at if £20,000 was missing from your accounts in a year.

Aspect enquiries often tend not to lead to fines and penalties but general enquiries are more likely to. Jail is always an option but very rare amongst small businesses and is reserved for cases of serious fraud.

Accountants are more likely to go to jail for tax evasion and no doubt lists of dodgy agents exist at local tax offices whose clients are therefore more prone to enquiry.

The problem with investigations is that the Inspector seems to have all the time in the world to go through your affairs with a fine tooth comb, to the extent of identifying what restaurants you eat in, where you go on holiday, etc. They do this to try to prove the income declared in your accounts cannot support your lifestyle. They may want detailed information going back years.

Can you…

• Remember why you didn’t have any cash takings on the 3^rd November 2001?

• Identify where a banking in your private bank account 6 years ago for £123.18 came from?

• Remember how much a week you spent on milk in 2002?

It’s not out of the question that some tax inspectors will want to know the answers and be suspicious if you can’t answer.

The taxpayer on the other hand has to pay an accountant and so time is often limited by cost constraints and even when you’ve done nothing wrong. It can end up being easier for some taxpayers to just give up the fight, particularly when the investigation has been going on for a couple of years.

Please note a full investigation can take years, not months to conclude.

Both the financial pressure and the pressure of just dealing with the investigation enquiries can be an enormous strain to taxpayers if they let it get on top of them. It’s important not to panic or be pressurised into surrendering.

Also, did you know accountancy expenses in dealing with a tax investigation are not usually deductible as an expense against tax.

Sometimes it doesn’t pay to own your own home, have savings, etc. There are some clients that just don’t worry about a Tax Investigation and are happy to concede whatever the Taxman wants. Often, these are clients with few assets who know that whatever the Inspectors finds, they can’t pay. If you haven’t got the assets to pay, HMRC aren’t going to be able to take anything from you. If this is the case with you, it helps to point this out at an early stage.

Remember also, ignorance of the law is no excuse. As Lord Denning once said, “ignorance is a misfortune, not a privilege.”

Here is a summary of the main tax advantages of self-employment:

Expenses to Claim

• The cost of any goods or services you use fully for your business can be deducted from your sales revenue for tax purposes. Where an item is used partially for your business and partly for private purposes, such as your private car or home, you can claim the business proportion of the costs against your business profits. However, you must be able to justify the business proportion with evidence such as the miles driven, or space used by the business.

• Capital allowances – if you purchase an item that is expected to last several years, such as a van, you can claim a special deduction known as a capital allowance. The first £100,000 you spend on equipment each year qualifies for 100% capital allowances in the year of purchase. This does not include cars.

• Loan interest – if you take out a business loan the interest paid on that loan can be deducted from your sales revenue. The loan must be taken out to fund your business, rather than a personal loan or credit card borrowings.

Government Support

• Government funding – if you live in an area in the UK that has been designated as a regeneration area you may qualify for a government funded programme to help people start their own businesses.

• Charitable support is also available from the Prince’s Trust throughout Britain for those aged 18 to 30 who wish to start their own business.

• Self-employed credit – if you have been registered as unemployed for at least six months you may qualify for a self-employed credit of £50 per week if you start your own business. Ask at your local Jobcentre Plus office for more details.

• Working and child tax credits – You may qualify for these while you run your own self-employed business. Your tax credit award is based on your family’s joint income including your self-employed profits, but it will also be determined by the number of hours worked by the adults in the family, and the number of children aged under 16.

Please contact us to see how we can help you

2010 Budget News

This was a pre-election Budget but without many give-away prizes. Many of the standard allowances and thresholds have been frozen for two to five years, which introduces hidden tax rises by way of fiscal drag.

This summary concentrates on the main tax issues affecting our clients.

The good news points for small businesses are the extensions of entrepreneurs’ relief and the Annual Investment Allowance. The bad news includes the new anti-avoidance rule for loans provided to participators in private companies. There are also a large number of complex measures which may not pass into law before this Government runs out of Parliamentary time.

Business Tax

Capital Allowances

The maximum Annual Investment Allowance (AIA) available to each business or group of companies will double to £100,000 for expenditure incurred from 1 April 2010 (6 April 2010 for unincorporated businesses). The cost of all qualifying equipment (not cars or buildings), that falls within the AIA limit can be deducted in full from the business profits in the year the equipment is bought.

The AIA was introduced in April 2008 with a cap of £50,000, which was sufficient to cover the annual capital expenditure for about 90% of businesses. This increase in the AIA limit means the capital expenditure of about 99% of businesses will be covered by the AIA, and thus will be allowable in full when incurred. Any capital expenditure in excess of the AIA limit is taken into the relevant capital allowance pool where it receives tax relief at either 10% or 20% per year.

Partnerships where one or more of the partners is a company do not qualify for the AIA. Also a group of companies only qualifies for one AIA limit for the whole group.

Loans to Participators

This is bad news for private companies. It undermines an arrangement that is becoming popular in owner-managed companies; where the director takes a loan from his company to spread the taxation of that income into a future tax year. When the loan is written-off or released by the company, the director is taxed on the value of the loan as if it was a dividend. However, the Taxman may also insist that the company pays class 1NICs on the loan write-off where the loan may have been substituted for part of the director’s remuneration.

Before today’s Budget the company could claim a deduction in its accounts for the value of the loan written-off as well as any NICs paid on that amount. For loans written-off on or after 24 March 2010 the company will not be able to claim a deduction in its accounts for the value of the loan, which will make the whole exercise very expensive. This new rule applies where the loan is provided by a privately owned company to a participator of that company, which includes all shareholders, directors and loan creditors of the company and their associates.

Corporation Tax

The corporate tax rate for small profits remains frozen at 21% for the financial year that runs from 1 April 2010 to 31 March 2011 (2010/11). The small profits rate applies where a single company has profits of no more than £300,000. Companies with profits of £1.5 million or more pay corporation tax at 28%. Profits that fall in the band £300,000 to £1.5 million are taxed at a marginal rate of 29.75%. Companies with ring-fenced trades (basically those in the oil industry), pay corporation tax at 19% or 30% for the financial year 2010/11.

Where a company is part of a group or has associated companies the profit thresholds that determine where each tax rate applies are divided by the number of associated or group companies.

Business Rates

Businesses that occupy premises in England with rateable values of up to £6,000 per year will be able to claim full exemption from business rates for 12 months from 1 October 2010. In addition those businesses in properties with rateable values of up to £12,000 will be able to claim reductions in their business rates from that date. Different business rates relief schemes apply for properties in Wales and Scotland, but details of those schemes were not given in this Budget statement.

Individuals

Income Tax Allowances

All personal tax allowances have been frozen for 2010/11 at the 2009/10 levels as follows:

Under 65 – £6,475
65-74 – £9,490
75 and over - £9,640
Minimum marriage allowance* - £2,670
Marriage one partner born before 6 /4/1935* - £6,965
Blind person’s allowance – £1,890
Income limit for allowances for those aged 65 or more £22,900
* given at 10% rate only

This freezing of allowances for everyone amounts to a hidden tax increase as the value of the allowance is reduced in real terms by inflation, which from the latest measure of the consumer prices index (CPI) is now 3%. Unfortunately the annual adjustment in allowances is based on a different measure of inflation: the Retail Price Index (RPI) as reported for the year to September which was a negative number: (-1.4), which has resulted in frozen personal allowances for 2010/11.

Another hidden tax rise lies in store for those with total income of £100,000 or more. From 6 April 2010 those individuals will lose £1 of their personal allowance, for every £2 of their total income that exceeds £100,000. This equates to a marginal tax rate of 60% on that slice of income.

Income Tax Rates

The tax thresholds for 2010/11 at which each tax rate is imposed have also been frozen at the 2009/10 levels. This also introduces a subtle tax increase for those people whose income has increased, if that increase takes their taxable income over one of the tax thresholds.

Savings rate* – 10% - £0 – £2,440
Basic rate – 20% – £0 – £37,400
Higher rate – 40% – £37,401 to £150,000
Additional rate - 50% – Over £150,000

* Only applies to savings income such as interest where earned income is covered by allowances or is also within this band.

The 50% tax rate only applies on income over £150,000, it does not replace the 40% tax rate.

Capital Gains Tax

The much anticipated increase in the rate of capital gains tax (CGT) did not emerge, the CGT rate remains at 18% for 2010/11. The CGT annual exemption is also frozen for 2010/11 at £10,100, with the exemption for trusts set at £5,050.

The good news for all ambitious business people is that entrepreneurs’ relief is to be extended. Entrepreneurs’ relief reduces the effective rate of CGT to 10% on gains arising on the disposal of businesses and certain business assets. Taxpayers are limited to claiming this relief on up to £1 million of gains made from 5 April 2008 to the end of their life. This lifetime limit is to be increased to £2 million for disposals made after 5 April 2010. No additional relief is given for gains realised before 6 April 2010 that exceed £1 million.

Inheritance Tax

The nil rate band for inheritance tax has been frozen at £325,000 for 4 years. Although widows and widowers can benefit from the transfer of any unused nil rate band from their deceased spouse or civil partner, this freezing of the IHT zero rate represents a hidden tax rise in real terms.

Savings Income

The tax-free ISA limits have already been increased for 2010/11 to £10,200, of which £5,100 can be saved in a cash form such as a bank savings account. These limits will now be increased by the rate of inflation (RPI measure) every year from 6 April 2011. If the RPI is negative the ISA limit will not be reduced. The amount that can be saved in a cash form will continue to be half the value of the full ISA limit for stocks and shares.

Pension Contributions

Special Annual Allowance Charge

Taxpayers with total income of over £150,000 will have to pay a special annual allowance charge (SAAC) of 20% to 30% of the irregular pension contributions they make that exceed £20,000, or in some cases £30,000, in 2009/10 or 2010/11. Irregular contributions are defined as those made less frequently than quarterly. The measure of income is the taxpayer’s total income before deductions for the current tax year, or in either of the two preceding tax years.

Employees with total annual income before deductions of £130,000 or more can also be caught by the SAAC if the sum of their income plus value of the pension contributions made by their employer on their behalf totals £150,000 or more.

From 6 April 2011 tax relief on pension contributions will be tapered down to the basic rate of tax for those earning between £150,000 and £180,000 or more.

Annual Allowance Charge

Tax relief on pension contributions is capped at the lower of 100% of the taxpayers’ relevant earnings, or the annual allowance. This annual allowance is to be frozen at £255,000 for the tax years 2010/11 to 2015/16. Where the pension contributions made exceed the annual allowance the taxpayer must pay an annual allowance charge (AAC) of 40% of the excess pension contribution. The SAAC and the AAC can apply on the same pension contributions, but the amount subject to the SAAC is reduced by the amount of contributions already subject to the AAC.

The detailed rules that govern exactly how these charges apply are very complex, so if your pension contributions or earnings are likely to break any of the thresholds mentioned please ask us for tailored advice.

New Obligations on Employers

In spite of these excessive tax charges on high pension contributions the Government wants all workers to be a member of a pension scheme. From a date to be announced in 2012, all employers will be required to ensure that their employees are members of a pension scheme. If the employee is not already a member of a registered pension scheme he will be automatically enrolled in the Government scheme known as the National Employment Savings Trust (NEST). The employer will be required to make contributions to NEST or the employee’s registered pension scheme.

Stamp Duty Land Tax

One of the give-aways of this Budget is relief from Stamp Duty Land Tax (SDLT) due on buying residential properties that cost up to £250,000, where the property transaction is completed between 25 March 2010 and 25 March 2012. The issue is that this zero rate only applies to first-time buyers, and the relief will have to be claimed by those individuals, it will not be given automatically.

To help fund this tax relief an additional rate of SDLT is to be introduced at 5% on properties costing £1 million or more from 6 April 2011. So if you are planning to buy that million pound home, get on with it!

VAT

Rates

The rates of VAT have not been changed. The standard rate remains at 17.5%, the reduced rate is 5%.

Registration Threshold

The level of turnover that triggers a requirement to become a VAT registered trader within 30 days is to rise by £2,000 to £70,000 with effect from 1 April 2010. The turnover threshold below which traders can apply to become deregistered for VAT increases by £2,000 to £68,000 from the same date.

Postal Services

Certain commercial postal services provided by the Royal Mail and ParcelForce will become subject to standard rate VAT from 31 January 2011. Services provided to private individuals, such as stamped mail, will continue to be exempt from VAT.

Tax Avoidance

Off-shore Income

The Taxman has been gathering information about off-shore accounts held by British residents from banks based in the UK and in tax havens such as Liechtenstein. Now three further tax havens; Belize, Grenada and Dominica are about to sign information exchange deals with the UK.

Tax evaders with off-shore accounts were given until 12 March 2010 to come clean and declare all their off-shore income and gains to HMRC. If they persist in their tax evasion tactics after 1 April 2011 and hide money in a country that does not have an information exchange agreement with the UK, they will find themselves subject to penalties of up to 150% of the tax due. If the tax evaded is £25,000 or more, HMRC may publish the taxpayer’s name and address as part of their name and shaming powers.

Security for PAYE

Currently the owners or directors of new businesses may be asked to provide a lump sum to HMRC as security before the business is permitted to become VAT registered. The Tax Office tends to demand such payments where the business owners have previously been involved in a business that failed owing VAT. From 6 April 2011 HMRC will also be able to ask for security payments from the business owners before the business is permitted to operate a PAYE scheme.



Starting your business as a self employed person is both an exciting and a challenging prospect. One key area you need to ensure is to register as self employed with taxman (HMRC). This post explains how you do this and time limits for you to register.

Time Limits

For National Insurance purposes make sure you are registered within three months from the end of the month in which became self employed. If you do not get around doing this it will result in £100 fine. Further, you will need to make payments of £2.40 per week for Class 2 National Insurance contributions. However, if your earnings are below the small earnings exception level – £5,075 for tax year 2009/10, you are not required to make any Class 2 National Insurance contributions.

How to Register

You have the following options to register:

• Call the Self Employed Registration Helpline on 0845 915 4515 or
• Completing CWF1 or mailing it to HMRC or
• Registering online via the government gateway portal on www.hmrc.gov.uk.

Whichever method you choose to register you will need to provide the following information: full name, address, post code, date of birth, national insurance number and, if you decide to pay your Class 2 National Insurance through a standing order – your bank details.

Joint Notification

Once you have registered, this will act as joint notification of tax and national insurance. You will receive a 10 digit Unique Taxpayer Reference (UTR) and a blank tax return for you to complete for the year 2009/10.

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