help@cklg November 2010

This month’s newsletter looks at a variety of topics of interest to business owners and private individuals – be assured, it’s not all bad news. If you would like further information or advice on any aspect of your financial life, call us on 01223 810100 or email help@cklg.co.uk

CLOUD COMPUTING

Cloud computing seems to be a business buzzword at the moment. But what does it mean for businesses? Simply put, it helps save time and money while providing firms with greater flexibility.

Cloud computing results in cost savings because it uses shared IT resources located in data centres to provide services. This means that users benefit from economies of scale since the service provider purchases servers and storage in bulk. These cost savings are then passed on to the end users. The biggest saving for businesses comes from the fact that they no longer need to invest as much capital in hugely expensive servers and storage as this is all provided by the cloud computing service provider. Most cloud computing service providers operate on a per-user per-month payment model which means that a business only pays for the resources it actually needs. This compares favourably to investing in servers where you generally buy a higher specification system than you need so that you have extra capacity for extra users in the future (at extra cost). Until you have the extra staff, this spare capacity is simply wasted.

Another reason to consider the cloud is to reduce or remove the need to become caught up in operating and maintaining technology. The service provider maintains their servers (and looks after software upgrades) at their own cost. Cloud computing also makes working remotely easier. In this day and age where many of us work from home from time to time, we can now do so efficiently and effectively.

ANTI-VIRUS FOR FREE!

As business people, we are all aware of the threats posed by computer viruses. In order to avoid losing valuable data, businesses spend thousands each year on the latest and greatest anti virus software (usually supplied by one or two security software firms). However, most of us are also aware that installing these security programmes tends to slow our computers down.

There is a solution to this problem and it’s free! Microsoft Security Essentials is free to download. It tends not to slow down you computers as it is designed to run very efficiently. Microsoft Security Essentials includes antivirus and antispyware, rootkit protection, and real-time detection courtesy of Microsoft SpyNet, the cloud-based service that compares file behaviour across computers.

According to various industry reviews, the software offers good virus detection and is light on system resources. The fact that it is available free of charge makes it irresistible to businesses and we recommend a look.

REDUCING STRESS IN THE WORKPLACE

As everyone in business knows, work is a source of stress. A certain amount of stress is a good thing. It encourages staff to get to work on time, to deliver projects within deadlines and act in a professional manner. However, beyond a certain level, stress can become counter productive – for example if a business is under staffed and over worked, the staff will be under huge pressure and will suffer the negative effects of too much stress. Fortunately there are many ways to mitigate stress levels in a business.

Communicate with your staff
Much of an employee's stress comes from not being sure about where they stand. Staff need feedback about their work in order to feel appreciated. If your staff feel that you value their work, they will continue to put the effort in.

Clearly set out responsibilities and don’t be afraid to delegate
Frustrating situations can be avoided if staff members are familiar with their job responsibilities and what is expected of them. They can then set their own parameters within which to work. If they are to be an effective part of your team they should be encouraged to take on new responsibilities (delegated to them by management).

Encourage autonomy
Business people hate being micromanaged and feel devalued when they are forced to fit their personal working style into the corporate machine. Instead, employees should be allowed to get the job done in their own way. Essentially management states the tasks that are to be delivered and the staff then go off and work out the best way to achieve these goals. This creates a situation where staff feel ownership of their respective projects and put in a greater effort as a result.

Support employees
In order for employees to do their jobs, they need to be given support. Managers should help them get rid of any red tape that could be preventing them from doing their best. An open door policy for management’s offices can help achieve this.

CAPITAL ALLOWANCES ON PLANT AND MACHINERY

Whilst the current annual investment allowance of £100,000 (applying from 1 April 2010) may not be reached in your business, when this reduces dramatically to £25,000 from 1 April 2012 the position could be a lot different.

We will be pleased to advise on timing issues for future capital expenditure plans, and where the £25,000 limit for a 100% tax write-off is likely to be reached we will look at the separate 100% first year allowances regime covering unlimited expenditure on investment in energy-saving plant or machinery and investment in designated plant or machinery to reduce water use and improve water quality

CGT ON SALE OF YOUR BUSINESS

The dramatic increase in the level of entrepreneurs’ relief (now a £5 million lifetime limit) whereby tax is at 10%, plus the fact that if you do not qualify for the relief you will now pay CGT at 28%, means that is has never been so important to protect your entitlement to the relief on a business sale.

Essentially you could sell your business and receive the proceeds in one of several ways:

• Cash of a fixed amount
• Cash plus the right to receive more if profit targets are met (= earn-out arrangement)
• Shares in the purchasing company
• Loan notes in the purchasing company

There may also be a combination offered from the above, but whatever may be on the table it is vital that the sale is structured from your viewpoint to get the best tax treatment as that can vary significantly. Not that tax should be the prime motivation, as you should never let the tax tail wag the commercial dog.

There are several ways of ensuring that the complete package on a sale of your business qualifies you for entrepreneurs’ relief and we are ready to advise by reference to your particular circumstances.

YET ANOTHER FINANCE ACT!

The third Finance Bill of 2010 was published on 30 September and is set to become the Finance (No. 3) Act 2010 – something, which has rarely if ever, happened before. But no need to fret as it only covers issues which for one reason or another did not get into either of the previous two Bills!

Perhaps the only point worth bringing to your attention is that, as already known would happen, the legislation allows for a 100% tax write-off on purchasing a business van with zero-emissions and that has been backdated to 1 April 2010.

HMRC TOOLKITS

It is not just taxpayers that HMRC likes to refer to as “customers”. We as tax agents also come into that category and as a result we do occasionally receive what they perceive as help in meeting our obligations when acting for you.

As an example HMRC publish an ever-growing set of toolkits on various tax topics which aim to highlight common errors found by HMRC in a variety of taxpayer circumstances. They are aimed at tax agents but anyone can download them from HMRC’s website. Most of the common errors pointed out in the toolkits are obvious and we do not expect them to cause any problems. Nevertheless we will try and use them to your advantage. Specifically, HMRC state that the toolkits should help us to demonstrate that on behalf of the client we have taken reasonable care in completing a tax return, which may be an extremely useful form of protection.

Consequently we will be ready to show that we have used a toolkit where we consider that it will provide comfort to HMRC.

The toolkits published or soon to be published cover the following topics:

• Personal and private expenditure (Sole Trader/Partnerships)
• CGT for Trusts and Estates
• Marginal Small Companies Relief
• Capital Allowances for Plant and Machinery
• CGT for Land and Buildings
• Trusts and Estates
• Capital v Revenue
• Losses
• VAT input tax
• Directors’ Loan Accounts
• IHT
• Expenses and Benefits from Employment

THE GOVERNMENT’S ATTACK ON TAX EVASION

Further measures to combat tax evasion announced by the Treasury are estimated to bring in around £7 billion per annum by 2014/15 in additional tax revenues. That seems over-optimistic even though they plan to spend £900 million on increasing criminal prosecutions fivefold plus a further crackdown on offshore evasion, with the creation of a new dedicated team of investigators.

As a separate issue, HMRC are reported as having sent hundreds of letters to high net worth taxpayers who are clients of HSBC's Swiss bank. A former employee of the bank stole client information from the bank and passed it to the French tax authorities, who have passed it to HMRC who now say that the data shows that the taxpayers in question have undeclared sources of income and gains. The only advice we can really give as professional advisers is that any taxpayer with undisclosed liabilities should act promptly to come forward and we will make sure that the tax, interest and penalties are kept to the minimum.

It is quite conceivable that the total tax, interest and penalties due as a result of this procedure could exceed the amount in the offshore account! Our role is to present the facts in the best light and negotiate an acceptable settlement.

TAX SNIPPETS

Penalties for VAT errors

If you make a mistake in your VAT records, so your VAT return is wrong, you can correct the mistake on your next VAT return, where the total error is less than £10,000. However, HMRC expect you to explain your mistake in a separate letter. If you don’t do this and HMRC discover your error you are likely to get a penalty of 30% of the underpaid VAT. We can help you get your VAT returns right first time.

 Penalties for VAT errors

http://www.hmrc.gov.uk/vat/managing/problems/penalties.htm#2

How to appeal against a decision on VAT

http://www.hmrc.gov.uk/complaints-appeals/indirect-tax-appeal.htm

Tax relief for pensions

From 6 April 2011 the amount you and your employer can pay into your pension fund will be capped at £50,000 per year. However, if the total contributions to your pension scheme were been less than £50,000 in each of the last three years, you can carry forward the used cap to add to the  £50,000 cap for the fourth year. The calculations are a little more complicated if your pension scheme did not start at the beginning of the tax year, ask us to explain.

HMRC guidance on new pension scheme cap

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

Are you ready for iXBRL?

From 1 April 2011 all tax returns for companies and the accompanying accounts must be submitted online to HMRC using the special iXBRL programming language. You may receive a penalty if you submit a paper corporate tax return, or paper or PDF copies of company accounts to HMRC after that date.

HMRC have provided some free software that small companies with simple tax affairs can use to submit their tax return and accounts using the iXBRL standard, but it is quite difficult and time-consuming to use. We can submit your company’s tax return and accounts for you using commercial iXBRL software.

 iXBRL guide for UK businesses

http://www.hmrc.gov.uk/ct/ct-online/file-return/xbrl-guide.pdf

Swiss bank accounts

You may have been alarmed by reports of HMRC writing to holders of Swiss bank accounts accusing them of fraud. The account details concerned were stolen from a private Swiss bank in 2006, and that data is now in the hands of HMRC. The Tax Inspector is sending out copies of Code of Practice 9 (COP 9), with letters opening investigations into these accounts. If you receive such a letter please ask us for advice on how to respond to HMRC.

Code of Practice 9

http://www.hmrc.gov.uk/leaflets/cop9-2005.htm

Will the flat rate scheme suit you in January 2011?

If you use the flat rate scheme for small businesses you should check out the new flat rates that will apply when the standard rate of VAT increases to 20% on 4 January 2011.

From that date you could be worse off than operating outside the flat rate scheme, it depends on the flat rate that applies to your business sector. If you want to stop using the flat rate scheme you need to inform the VAT office in writing. It’s easiest if you leave the scheme from the start of your next VAT quarter. Once you leave the flat rate scheme you can’t rejoin for at least 12 months.

New flat rates from 4 January 2011

http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#5a