March 2011

All actors on standard Equity contracts will be treated as employees for national insurance purposes from 6 April 2011, although those individuals may continue to be treated as self-employed for income tax purposes. This means the company who hires the actor will be required to pay employers’ class 1 NIC contributions on all payments made to the actor under new and existing contracts from 6 April 2011.

Revenue & Customs Brief 10/11

http://www.hmrc.gov.uk/briefs/national-insurance/brief1011.htm

The Tax Office has become very slow in dealing with its post, which can result in a late filing penalty being issued where the tax return was received on time. If you have received a late filing penalty for a tax return submitted on paper, ask to see the physical return complete with the HMRC date-received stamp. This may well result in the penalty being withdrawn. If you want some help with challenging a penalty imposed by HMRC, do ask one of our tax investigation specialists.

Heronslea Ltd case TC00978

http://www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=5347

PAYE FORMS FOR EMPLOYERS

HMRC will now no longer routinely issue paper Employer or Budget Packs, or indeed any employer information by post. These will be replaced by online guidance and downloadable applications, as part of the cost reduction exercise.

Where we deal with all your payroll work, there will of course be nothing to be concerned about, but otherwise we recommend that as an employer you should register for the free email alert service so that HMRC can let you know when the latest information is available. 

HMRC also say, with their “customer” approach apparently forgotten, that they now expect the vast majority of employers to use the online route as opposed to requesting paper products and can only supply copies to those employers who are exempt from online obligations or who are unable to access the internet.

PENALTIES FOR LATE FILING OF YOUR INCOME TAX RETURNS

New late filing and late payment penalties will apply from 6 April 2011 (in relation to tax years ending after 5 April 2010) for personal, trust and partnership returns.

The existing rule that the late filing penalty is the lower of £100 and the balance due will be replaced.  That is hardly a surprise, but the good news is that the level of the basic £100 penalty remains.

The penalties for late filing will include:

• £100 penalty immediately after the due date for filing (whether or not the tax has been paid)
• Daily penalties of £10 per day for returns that are more than 3 months late, running for a maximum of 90 days
• Penalties of 5% of tax due for the return period (or £300 if greater) for prolonged failures, which arise after 6 months and again after 12 months
• Higher penalty of 70% of tax due where a person fails to file for over 12 months and has deliberately withheld information necessary for HMRC to assess the tax; this is 100% if deliberate with concealment)

Rest assured, we will do all we can to file your tax returns on time, but the consequences of that not happening are about to get worse.

INCREASED PENALTIES FOR OFFSHORE TAX EVASION

We knew that the sanctions available to HMRC for tackling offshore non-compliance were to be increased, and we now know when and how this will happen.

Basically, the normal maximum penalty of 100% of the tax (in practice, discounted to reflect a whole set of circumstances which we argue as part of the negotiating process) will be determined by the tax transparency of the jurisdiction in which the non-compliance arises.  Where the jurisdiction only exchanges information with HMRC on request, inaccuracies arising offshore will be subject to penalties of up to 150% of the tax.  Where a jurisdiction shares no information from HMRC, penalties will be up to 200%.

The new penalty frameworks for offshore non-compliance will apply to income tax and capital gains tax from 6 April 2011.  It categorises the source area with Category 3 being the worst.  This includes Monaco, UAE, Brazil to name just a few.

 IS YOUR BUSINESS BASE YOUR HOME?

If you are self-employed and do the core work at the premises of the client, there may have been doubts before in being able to claim that your business base is your home.  That can seriously restrict the scope for claiming tax relief on travel costs to and from your home to your various places of business.

Following a new tax case that could change this, it was decided that a sub-contractor must have a base for his business.  The same could be said of other businesses, where your work on issues such as plans and quotes at home must be a part of your trading activity which does not therefore cease when you arrive at home to deal with these.  Accordingly your base for the business is your home.

We will have to wait and see whether this decision is appealed against, but subject to that, we will ensure that any claim for tax relief for you is fully explored.

END OF TAX YEAR PLANNING ACTION

We are ready to advise on all tax planning possibilities by reference to your specific circumstances, with plenty of opportunities to save tax either by taking action by 5 April or indeed delaying until the new tax year.

Areas worth considering include:

• Planning for reduced corporation tax rates. 
• New calculations for distributing profits as a dividend.
• If self-employed, look at becoming a limited company now.
• Maximising Capital Allowances claims before the reduced allowances take effect.
• Pension Contributions – better to pay now or later?
• Married couples/civil partners – use this tax year’s annual CGT exemption and save tax of £5,656.

GET YOUR TEAM TO THINK CREATIVELY & DEVELOP NEW MARKETING IDEAS

One of the biggest challenges faced by managers today is getting ideas from their team. A successful leader is one who can motivate their team to think and produce ideas that can be implemented in the firm. The team are often well placed to come up with new and innovative marketing ideas – after all they are more familiar with your products and services than anybody else! Here are some approaches to help you to get your team feeding into your marketing strategy.

• Ensure team meetings allow people to contribute and express their thoughts without being judged.  Encourage your team to contribute. Don't just tell them what needs to be done, ask them how it can be done.
• Bounce ideas off your team. If there's something in your mind, ask them. You will see how different people in the team can put a new spin on things. Your staff will appreciate being included in the marketing process and will feel like they are really part of the machine that is your business.
• Communicate your goals clearly across the firm. It is imperative that your team understands exactly what the firm is trying to achieve. When they know what needs to be done they will be able to think clearly about how best to achieve the firm’s goals and they will be able to come up with better ideas.
• Incentivise your team to feed into your marketing strategy. Incentives do not necessarily need to be monetary. A word of appreciation can go a long way in motivating employees to contribute marketing ideas again and again. Saying “thank you” helps the team members to feel like they are really contributing to the success of the business.
• Create an atmosphere of healthy competition among your team. Give people similar tasks to do. For example ask two people to come up with new promotional ideas. When people find that others are given similar tasks their human nature automatically wants them to do better. This friendly rivalry among team members encourages productivity and motivation among the team and ultimately results in more and better marketing ideas.

The Tax Office has obtained information from the Gas Safe Register (formerly CORGI), about registered plumbers and heating engineers, which it is preparing to use as the basis of tax investigations. If you are on that list and you have not declared all of your earnings on your tax returns, start worrying.

Where you make a full voluntary disclosure and pay all outstanding tax to HMRC by 31 August 2011, you will be charged a modest penalty of up to 20% of the tax due. If you wait until the Taxman calls you, the penalty will be 30% to 100% of the tax due. We can help you make that disclosure, whether you are in the plumbing trade or not.

Plumbers safe tax plan

http://www.hmrc.gov.uk/trades-disclosure/index.htm

The charges imposed by Companies House for access to information they hold, and to file forms and documents, are changing from 6 April 2011. For example the fee to accompany the annual return for a company or LLP is currently £15 for an electronic return and £30 for a paper return. From 6 April 2011 these fees will be £14 for electronic returns and £40 for paper returns.

 List of old and new fees

 http://www.companies-house.gov.uk/toolsToHelp/proposedChanges.shtml

As it is now compulsory for all employers to file end of year PAYE returns online, HMRC has dispensed with most paper forms and guidance for employers. The employer CD-rom has gone and in its place is a new set of Employer tools, which are found on the Business Link website.  If you have previously used the employer CD-rom you need to download these basic PAYE tools to complete the 2010/11 PAYE filing.

PAYE tools for employers

www.businesslink.gov.uk/basicpayetools.

Download PAYE forms and tables

www.businesslink.gov.uk/payeformsandpublications

Where you have failed to register your business for VAT on time, you will be charged a penalty, but the level of that penalty will vary depending on when you were first required to register. For VAT registrations due before 1 April 2010 the maximum penalty that can be imposed is 15% of the VAT due. Where VAT registration was first required after 31 March 2010 the penalty can be 100% of the VAT due. Although an unprompted disclosure within 12 months of the date when VAT registration was due can attract a nil penalty.  

Obligation to register for VAT before 1 April 2010

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_000120&propertyType=document

Obligation to register for VAT after 31 March 2010

http://www.hmrc.gov.uk/compliance/cc-fs11.pdf

The value of childcare vouchers that are tax and NI free is currently capped at £55 per week. From 6 April 2011 this cap will be restricted to £28 or £22 per week where the recipient employee is taxed at the 40% or 50% rates respectively. However, this restriction only applies to employees who join the employer’s childcare voucher scheme on or after 6 April 2011. If you or your employees have young children, setting up a childcare voucher scheme before 6 April 2011 could save you both tax and NI, particularly where the vouchers are provided in place of some salary. 

If you have questions about the operation of childcare voucher schemes do ask one of our tax experts.

Childcare vouchers – FAQs

http://www.hmrc.gov.uk/thelibrary/employer-qa.pdf

BUSINESS RECORDS CHECKS

HMRC have just announced a consultation on their planned programme of checks of business records within the small and medium enterprise (SME) sector. They attempt to justify the introduction of this programme by claiming that research by the OECD suggests (to HMRC that is) that poor business record keeping is responsible for a loss of tax in up to 2 million SME cases annually. The consultation exercise is limited to consideration of the best way to implement the programme – not whether it is a good idea in the first place. 

This is an ideal time, therefore, for your record keeping to be reviewed by us to ensure that it will withstand any new attack from HMRC under this programme.

NEED TO BUY AN ANNUITY FROM YOUR PENSION FUND?

The new rules applying from 6 April are now known, with flexibility being the name of the game. Annuity rates are very low at present, with no signs of that changing, and the new rules will allow you to draw income from your pension fund without having to buy an annuity. If you have a secured pension income of at least £20,000 a year you will even be able to access 100% of your pension fund if you wish (with an income tax charge on it of course) and the options in your particular circumstances need to be reviewed.

REDUCING YOUR CAPITAL GAINS TAX BILL

If you are expecting to pay CGT at the new rate of 28% on all or part of a capital gain on a sale in the current tax year, there may be scope to reduce the rate. This involves making a contribution to your pension scheme or a donation to a charity. It works by reducing your taxable income for all purposes – including the rule that says your rate of CGT is found by adding the gain to your taxable income. If the latter does not exceed the basic rate band of £37,400 it means that some or all of the gain is taxed at 18% instead of 28%.

FURNISHED HOLIDAY LETS

New restrictions are to be introduced from 6 April 2012. Specifically, the advantageous tax regime is only likely to apply from 6 April 2012 if the property in the EEA is available to let for at least 210 days (30 weeks) in the tax year and is actually let for at least 105 days (15 weeks). The latter requirement may well be fine for a property in France, Spain or Portugal, but you could struggle to let a property in the UK for that number of weeks given the vagaries of our climate. 

 A concession may help if you own more than one holiday lettings property. Then, if the 210 days availability test is not met for each property there is an averaging election which can be made between the properties (but keeping UK properties separate from EEA properties). Another concession is where the 105 day condition is met from 2012/13 for a specific tax year, in which case an election can be made to treat the property as continuing to qualify for the next 2 years - but not if the averaging election above is in place.

Where the timing has not changed is where you are unfortunate enough to make a loss on the lettings. From 6 April 2011 (not 2012) the loss cannot be set against your other income and instead it has to be carried forward to set against future profits - or profits from other property lettings in some cases.

We will always be mindful of the possibility that even if your lettings pattern falls short of the above new rules, we may be able to argue that given the level and extent of the services you provide to the holidaymakers, the lettings are a trade in the normal meaning of that magical word. Then, the advantageous tax regime will still apply whatever the number of days that the property is let.

USING THE CGT ANNUAL EXEMPTION

This has always been worth considering towards the end of a tax year, but the potential tax savings are now substantial and careful planning can be highly effective.

Specifically, for a married couple or civil partnership it is worth up to £5,656 each tax year.  The exemption is £10,100 x 2 = £20,200 at a rate of 28% = £5,656.

If the exemption will not ordinarily be used by each spouse or partner, it is worth looking at creating disposals by 5 April 2011 subject of course to the costs involved. The asset sold can, if desired, be repurchased although there are special restrictions for quoted investments (even they can be avoided if the other party makes the repurchase). Assets can be transferred between a married couple or civil partners without any CGT arising, and in that way the gains can be made by the right person so as to utilise two sets of the annual exemption.

A MORE EFFICIENTLY RUN OFFICE FOR THE NEW YEAR

 As we begin 2011 many firms are looking at improving the way they do business. Here are some steps to help boost productivity levels in your office this year.

• Limit social media use among staff. Research has shown that a blanket ban can have negative effects on productivity levels so just introduce an office policy on usage.
• Although some people consider meetings to be a waste of time, you can boost productivity by having meetings between individuals, different departments or even the entire firm. Make sure you have a flip chart or white board in the boardroom to note down the ideas you discuss. A monthly staff meeting could highlight new ideas that develop into new revenue streams for the firm.
• Consider replacing older / malfunctioning office equipment. Slow printers that often jam could damage staff morale by frustrating workers and hindering productivity. It may be an expensive task, but an update could be an important step.
• Make sure you always have a healthy stock of stationery and other office products available. From packaging supplies to envelopes and paper, it's vital that everything is there for when you need it most.
• Consider offering more flexible working conditions to your staff. Flexible working hours for some staff may help them to get more done, so don't rule it out.
• One reason for an office's poor levels of efficiency could be low motivation amongst the team. Perhaps staff could do with a team building day in order to re-establish morale. Consider introducing new incentives. Communication is key. Let staff know that the firm is doing well and announce new client / new business wins. This will act as a “pick me up” for staff morale.

The Tax Office is going to hassle those who deliberately cheat the tax system, as opposed to those who make careless mistakes. Taxpayers who have received a penalty for making deliberate tax errors will have all aspects of their tax affairs closely monitored by HMRC for two to five years, or for as long as the HMRC believe the person is a tax risk. The taxpayers affected will be told in writing that they are in this monitoring programme. 

Announcement of deliberate defaulters programme

http://www.hmrc.gov.uk/about/tax-defaulters.htm

Factsheet on managing deliberate defaulters

http://www.hmrc.gov.uk/compliance/cc-fs14.pdf

All company cars that run on something other than petrol or diesel currently attract a discount in the percentage of list price used to calculate the car benefit. Hybrid electric/petrol cars qualify for a 3% discount, and LPG cars are given a 2% discount. All such discounts are abolished from 6 April 2011, and the regular 1% increase in list price percentages will apply to all cars with CO2 emissions of 130g/km or more. This could have a significant effect on the taxable benefit for larger hybrid cars.

Changes to company car benefit from 2011/12       

http://www.hmrc.gov.uk/budget2009/bn64.pdf

If a business does not keep adequate records to support the entries on its tax returns, it can be fined up to £3,000. HMRC has just launched a campaign to encourage better business record keeping, which includes advice on the Business Link website and an online tool designed to test if sufficient business records are retained. This online guidance includes quite a lot of jargon words and phrases, so please speak to us if you can’t follow what HMRC is asking for.

Advice on how to set up accounting records

www.businesslink.gov.uk/recordkeeping

Online tool to determine if sufficient records are kept

www.businesslink.gov.uk/recordkeepingcheck

HMRC are beginning to issue PAYE reconciliations (forms P800) for 2007/08.
If you owe tax for this year it will normally be collected through your 2011/12 PAYE tax code, but you can ask for the debt to be spread over three years, or written off completely in cases of financial hardship. If the tax is due because HMRC have not made use of information they held, you have good grounds for asking for the tax to be written off under Extra Statutory Concession A19. Where the tax due for 2007/08 is less than £300 it will be written-off in all cases.

Using ESC A19

http://www.hmrc.gov.uk/esc/esc.htm

HMRC have changed their view on what should be defined as ‘debt collection services’ following the judgement in the case AXA UK plc (case ref C-175/09).
Debt collection services are subject to standard rate VAT, although other financial services are generally exempt from VAT. If you need help in working out how this new VAT rule applies to your business do ask one of our VAT experts.

Revenue & Customs Brief on AXA UK Plc

http://www.hmrc.gov.uk/briefs/vat/brief5410.htm