May 2011

In this type of fraud a VAT registered business in the UK buys small high-value goods (such as mobile phones) in other EU countries and imports them into the UK (with zero-rate VAT). The importer then sells those goods at a VAT-inclusive price within the UK. However, before the VAT collected from the UK customer is paid over to HMRC, the importing company is liquidated and its directors disappear (become a missing trader), leaving the VAT unpaid. If you are the customer who bought those goods, or are involved in the supply chain in anyway, the Taxman can come after you for the VAT due. How to spot missing trade fraud:

Click here

All employers must now submit the employee starter and leaver forms to HMRC online. These include parts 1 and 3 of the form P45 and all forms P46 including P46(pen) for when a new pension is paid, and P46(expat), which a person is seconded to work in the UK. If you submit paper forms instead of filing online you could be charged a penalty of between £100 and £3000.

Filing P45 and P46 online

http://www.hmrc.gov.uk/paye/employees/start-leave/notify-online.htm

The apparently endless reorganisation of the HMRC offices means that it is sometimes difficult to know which HMRC address to write to. This is not helped by HMRC staff using out of date letter paper that shows defunct telephone numbers and addresses. If you are in doubt about the address of your HMRC office check HMRC office locator (see below) on the HMRC website.

HMRC office locator page

http://search2.hmrc.gov.uk/kbroker/hmrc/locator/locator.jsp

The Annual Allowance (AA) for pension contributions is now capped at £50,000. But your AA cap can be expanded by unused AA carried forward from the three immediately preceding tax years, if you were member of a UK registered pension scheme for at least one day in the earlier tax year.

Frozen rights in say a Civil Service pension scheme would make you a member of that Civil Service scheme. If you paid into a pension scheme many years ago, but have made no contributions since, as long as that old pension scheme is open to contributions your will still be a member of that scheme.

HMRC guidance on carry forward of annual allowance

http://www.hmrc.gov.uk/pensionschemes/annual-allowance/carry-forward.htm

The new tax year has brought a set of new repayment claim forms. The new R40 (2011) can be used for any tax year from 2005/6 to 2011/12. However, if you have a capital gain to report you must not use the form R40 but should register for self-assessment and complete a full self-assessment tax return form. This applies even if you may be due a refund of income tax for the same tax year.

New R40 repayment claim form

http://www.hmrc.gov.uk/forms/r40.pdf

Notes for new R40 form

http://www.hmrc.gov.uk/forms/r40notes.pdf

Peter German from the Personal Tax Team at CKLG ran the London Marathon in aid of MAGPAS. Peter completed the marathon in the impressive time of 4 hrs 21 mins and 35 secs and raised a total of £1565.20 from friends, family and colleagues through donations on JustGiving and personal fund raising.

CKLG is committed to supporting MAGPAS throughout 2011. MAGPAS is based and operates in the East of England and provides the UK’s only night time Air Ambulance with a doctor and paramedic on board in partnership with Cambridgeshire Police. Their highly trained doctors and paramedics work together to help save lives.  

HMRC have clarified that the current business records checks (BRC) taking place between 4 April and 15 July 2011 are a trial. HMRC does not intend to charge businesses penalties for inadequate records during this trial period. However, you still need to take any BRC visit very seriously as there is nothing to prevent a repeat visit when the full BRC programme has been rolled-out later this year, when penalties can be imposed.

 HMRC update on business records checks

http://www.tax.org.uk/media_centre/LatestNews-migrated/HMRCupdateonBRCtrial

The incidence of mis-allocated PAYE payments is increasing. If you need to confirm the allocation of the last two or three payments of PAYE with HMRC you can do this by calling the Employer Payment Helpline (0845 3667 816). However, if you want to confirmation of a long string of payments you need to write to HMRC with full details of the payments made, which HMRC will either confirm or point out the difference with their records.

See item 18 of Employer Bulletin no. 38

http://www.hmrc.gov.uk/paye/employer-bulletin/bulletin38.pdf

Back in 2008 the tax law was changed to exempt from tax any benefit in kind arising from the use of an overseas holiday home owned through a non-trading company. Certain other conditions also had to be met. The NIC regulations have now also been amended so HMRC can issue refunds of class 1A NICs paid by the company concerned for the tax years 2007/08 and earlier.

How to reclaim class 1A NIC on holiday home

http://www.hmrc.gov.uk/thelibrary/tax-paye/nics-refund-holiday-homes.htm

If you have teenage children you may worry how you will support your offspring through university after September 2012, when the increased tuition fees for English Universities come into effect. The Department for Business Innovation and Skills (BIS) website explains how students will be able to access loans, and how graduates will have to pay the money back. The new student loans will carry interest at 3% above the RPI, which amounts to about 8% interest at today’s rates. We can help you understand the amounts that will be repayable by the graduate over the first 30 years of their working life.

Student finance page on BIS website

http://www.bis.gov.uk/policies/higher-education/students/student-finance

Welcome to the May issue of help@cklg which brings you a brief digest of information which may affect your financial life. It includes some rare good news for motorists, further benefits for companies involved in R & D and changes to the pension scheme annual allowance charge. Do make contact with us if you have any questions and remember that every issue is easier to resolve if it is addressed early.

USING YOUR OWN CAR AS AN EMPLOYEE OR DIRECTOR

A modest but nonetheless welcome increase in the mileage allowance on which you can claim tax relief applies from 6 April 2011. Instead of a maximum claim of 40p per business mile, you can now get 45p. However, as before, this applies only for the first 10,000 business miles in the tax year, with the excess mileage only qualifying for a mileage allowance of 25p per mile. If your employer will not pay as much as 45p, you can claim tax relief on the shortfall. If you receive more than the statutory rate, the excess is taxed.

If you drive your own car on a business trip and take colleagues with you, your employer (which of course includes your own company) can also pay you a tax-free 5p per mile per passenger. But if they won’t do this you cannot claim tax relief on 5p per mile – confusing but typical when it comes to the tax system for employees!

Despite the increase, the system still penalises high business mileage employees driving a car of over 2 litres. This again raises the old question of whether it is better to have a company car, or whether to get a car allowance for your own car. If you have the choice, we will be pleased to advise you of what is the better option.

A self-employed person can also use these new rates as if your annual turnover does not exceed the VAT registration threshold (currently £73,000). You still of course have the option to claim actual business use expenses. The same situation applies to volunteer drivers to calculate the taxable profit on mileage allowances received from hospitals, social service agencies and other voluntary organisations.

ENTREPRENEURS’ RELIEF

This is available for qualifying business disposals and gets ever more attractive.  The relief is in the form of a reduction in the CGT rate to 10% on the first £10 million of gains in certain circumstances (£5 million if the disposal was between 23 June 2010 and 5 April 2011; £2 million if the disposal was between 6 April 2010 and 22 June 2010, and £1 million if the disposal was before 6 April 2010). It is therefore now worth a maximum of a staggering £1,800,000 (£10 million taxed at 10% rather than 28%) per individual, so clearly any methods of making sure you qualify for the relief have to be carefully considered.

We will be pleased to offer advice on this increasingly valuable relief by reference to your specific circumstances, as it can apply not just on a business sale but also with care on the sale of an asset used in the business (such as the property from which the business is run).

There are new techniques available to maximise entrepreneurs’ relief in the event of a business sale where there is an “earn out” element offered by the new owners, so that, with care, the complete package is subject to tax at only 10%.

PENSION SCHEME ANNUAL ALLOWANCE CHARGE

If you are a member of a final salary pension scheme, the increase in your pension accrual on a year-by-year basis can result in an immediate tax charge. This arises if, and to the extent that, 16 x the annual increase exceeds £50,000. The excess is then charged to tax at your top rate, via your self-assessment tax return.

Under a new rule, if this annual allowance charge exceeds £2,000 it can be paid, by election, by 31 July following the end of the tax year from the pension benefit rather than via the self-assessment tax return. If it is £2,000 or less there is the ability to pay the tax charge through the PAYE system so that effectively 1/12th is paid each month in the next tax year through the Notice of Coding.

HMRC BUSINESS RECORD CHECKS

HMRC have scored another own goal by starting these checks earlier than originally planned. In addition, they have commenced these checks without telling anybody beforehand! This is hardly a customer-friendly move, and HMRC concede that they should have informed all concerned of their change of plan.

Rather than consulting fully with businesses before commencing the checks in Autumn, HMRC have already started them on a “test and learn” basis. This means that no penalties will be charged if poor records are detected, although HMRC have failed to make this totally clear when notifying businesses that their records are to be checked. This seems to be another example of a high-handed and insensitive approach by HMRC, you should urgently review your record-keeping to ensure it can withstand any new scrutiny.

SHORT LIFE ASSETS

When claiming capital allowances on plant and machinery purchased in excess of the annual investment allowance limit, if the asset(s) concerned only have a short life they can by election be looked at separately. That is a very useful tool, as it means that when the asset is sold for a small amount (or perhaps more realistically scrapped) you get the balance of expenditure written-off for tax straight away.

The expected life to be a short-life asset increased from 4 years to 8 years from April 2011. Perhaps the best practical example of an asset this will benefit is a commercial vehicle, which ordinarily could be expected to last more than 4 years but not more than 8.

RESEARCH AND DEVELOPMENT TAX RELIEF

If you undertake any research and development within your business, and operate as a limited company, you should look at the big improvements being introduced to this enhanced tax relief regime.

As from 1 April 2011, the relief is to be increased to 200% of the qualifying expenditure, up from 175%. Then from 1 April next year, and subject to EC State Aid approval, for every £1,000 you spend on R & D you will get tax relief on £2,250 = 225%. Well worth having!

There is currently a minimum expenditure level of £10,000 in a 12-month accounting period, but this to be removed from 1 April 2012. The definition of R & D is clearly vital to know. Basically it covers activities treated as such under generally accepted accounting practice. Under DTI guidelines it covers an activity, which is seeking to achieve a significant advance in science or technology through the resolution of a scientific or technological uncertainty.

We will be looking to help you identify the scope for claiming this relief under the more relaxed regime, talking to HMRC specialist units where any doubts arise before submitting a claim on your behalf. 

As part of its campaign to encourage small businesses to keep better business records HMRC officers are starting to visit businesses the check the quality of their record keeping. If you receive a business records check appointment letter please let us know ASAP. Although HMRC have said they will not impose a penalty based on the first visit, they could revisit at a later date and charge a penalty of up to £3,000 for inadequate records.

Business records checks have started

http://www.tax.org.uk/media_centre/LatestNews-migrated/BRCstartearly

HMRC make mistakes and sometimes these lead to you being asked for tax you don’t owe. HMRC has outsourced the collection of tax debts to four private sector companies, who are expected to operate according to guidelines set by The Office of Fair Trading (OFT). If you believe the debt collector is not acting reasonably when you explain you do not owe the tax demanded, you can complain to the OFT.
 
How to complain about debt collectors

http://www.oft.gov.uk/about-the-oft/legal-powers/legal/cca/debt-collection

All VAT registered businesses will be required to submit their VAT returns online for periods that start on and after 1 April 2012. At present only VAT businesses with turnover of £100,000 or more, and those that registered for VAT after 31 March 2010 must file VAT returns online. If you are required to file your VAT return online you must also pay any VAT due by electronic means. Ask us for help with filing online. 

VAT notes No. 1 of 2011

CLICK HERE TO READ MORE

If you first received the state pension in the year to 5 April 2011, HMRC forgot to include that pension income in your PAYE code for 2010/11. If this is the case you may not have paid enough tax for that tax year. HMRC will send you a PAYE reconciliations (form P800), which will set out how much tax remains underpaid for 2010/11.

If the tax due is less than £2,000, the amount will be automatically collected through your PAYE codes for the three years to 2014/15. Where the amount due is £2000 or more we can help you negotiate with HMRC to spread the payment over time.

Tax Faculty comment on pension PAYE errors

http://www.ion.icaew.com/TaxFaculty/21959