Currently individuals can offset their entire income against income tax reliefs, and as a result may pay no income tax at all. It was announced in the Budget 2012 that from 6 April 2013 there will be limits to the amount of income tax relief individuals can claim.

This cap will apply only to reliefs which are currently unlimited. This cap will be set at 25% of income (or £50,000, whichever is greater).

HMRC propose to issue a consultation document on the detail of the policy, including the implications for philanthropic giving, in the summer. We will keep you informed of developments.

Internet link: HMRC press release

Anyone whose return is more than three months late will be charged a further £10 penalty for each day it remains outstanding, up to a maximum of 90 days. This penalty is in addition to the £100 late filing penalty they have already received.

HMRC are advising that if an individual receives a late filing penalty but does not think that they need to complete a return, they should call HMRC on 0845 900 0444. Alternatively contact us so that we can help, as it may be possible to cancel the penalty if HMRC agree that the return is not due.

HMRC’s Stephen Banyard said:

‘We want the returns and not penalties. So, if you haven’t sent us your 2010/11 return, you need to do one of two things urgently – either send it online by 30 April, or call us if you think you shouldn’t have to complete one.’

Internet link: Press release

Employees pay tax on benefits provided as shown on the P11D, either via a PAYE coding notice adjustment or through the self assessment system. In addition, the employer has to pay Class 1A National Insurance Contributions at 13.8% on the provision of most benefits. The calculation of this liability is detailed on the P11D(b) form.

HMRC have issued some guidance as to common errors on the forms in the latest Employer Bulletin. These include the following:

• Not ticking the director box if the employee is a director
• Not including a description or abbreviation where amounts are included in box A, B, L, M or N of the form
• Leaving the cash equivalent box empty
• Failing to report the full gross value of the benefit where it is provided for mixed business and private use
• Not reporting a fuel benefit where one is due.

Correct completion of forms P11D can be a complex issue. If you would like any help with the forms P11D or the calculation of the associated Class 1A National Insurance liability please get in touch.

Internet links: HMRC P11D guidance Employer Bulletin

Edward Porter of Clark Howes said “As a company based in Bicester working to support the local business community, it is a real honour to have been recognised as the leading accountancy firm. It is a great time to thank the whole team, past and present, for the exceptional service they provide.”

With over 200 guests at the awards evening it was a fitting end to the selection process and a fine celebration of local Business. Clark Howes would all like to congratulate Zeta LED as eventual winners of the award and wish them the best of luck with what is a fantastic product.

Culminating in a week of activities, it showcases practical solutions from every sector of society.

The Clark Howes Group teamed up with Oxford based firm OxTreeGen to recycle it’s old mobile phones and plant a tree in place of each handset.

Working with a local landowner to plant 5 hectares of permanent woodland over the next 2 years in an area set just a couple of hundred yards from the River Thames; Clark Howes contributed 10 trees and went along to see the job through and plant them themselves!

David Nelson pictured below said “we are really proud to be involved in climate week and to have the opportunity to make a real difference. I am already looking forward to coming back next year to see how the Clark Howes trees are growing and benefitting the local area.”

In his 2012 Budget, the Chancellor confirmed the introduction of the Seed Enterprise Investment Scheme (SEIS) designed to promote investment in new business. Although not legislated until the budget receives Royal Assent the scheme will be introduced from 6^th April 2012.

For investors the SEIS offers not only the chance to grow their capital but also offers considerable tax savings based on the  level of investment.

For the company the key incentives to investors are designed to make the raising of finance for strategic business development far less challenging.

What investments qualify for SEIS?

An individual (not an employee, nor an associate) can invest up to £100,000 per year through the SEIS scheme. Though the investor must not have a substantial interest in the company which is defined as more than 30% of the share capital. The investment has to be cash (so not goodwill, loan debt, credit lines etc) and the shares must be fully paid without any preferential or redemption rights attached.

What are the tax benefits to the investor?

An individual receives income tax relief at 50% of the investment made as a reduction in tax; so if £100k is invested, £50k can be offset against the individual’s tax liability of the same year. Where the offset available exceeds the tax liability in one year, the difference can be carried back against the preceding year’s tax liability. Having said that as the scheme is new to 2012-13 it is might be unlikely that a carry back to 2011-12 will be allowed for shares issued in 2012-13.

Income tax relief is only obtained once the company has spent 70% of the cash investment.

If the shares are held by the investor or their spouse for 3 years after acquisition, any gain made on the disposal of the shares will be free of capital gains tax.

It is also proposed for the 2012-13 tax year that an investment in SEIS can exempt other 2012-13 gains from capital gains tax. So if you have made a £50k capital gain on a property which is subject to capital gains tax at say 28% this would give rise to a tax liability of £14k. If the individual invested the full £50k into an SEIS scheme the £14k capital gains tax is no longer payable. If the amount invested is not equal to the gain the tax is reduced in proportion.

What companies qualify for the SEIS scheme?

The company trade must be a new trade commenced within 2 years prior to the share issue. The company must be based in the UK and be solvent at the date of the share issue.

The company can raise funds through SEIS up to £150,000; this is an overall total and not an annual figure. The shares must be issued in order to raise funds for a new trade and the cash raised must be spent within 2 years of receipt.

Most trading activities are eligible as long as they are new and were not carried out as part of another trade. There are some activities specifically excluded such as property development, retail distribution, hotels, nursing homes and farming.

There are also a few specific conditions that must be satisfied to allow a company to setup a SEIS scheme. These include not having more than 25 employees at the time the shares are issued, excluding directors; the total value of the company’s gross assets (plus the value of any related subsidiary that has more than 25% of the voting right) must not exceed £200,000 at the time of the share issue. And lastly the company cannot have an EIS or VCT investment before the SEIS shares are issued.

What do I do now?

If you are considering using a SEIS scheme to generate investments please contact us and we will be more than happy to discuss this with you and help arrange the scheme with HMRC in the most tax efficient way.

If your business requires more funds than those permitted in the SEIS scheme the traditional EIS scheme is still in place with its attractive tax breaks and therefore it is still worth getting in touch with us.

If you wish to invest in an opportunity such as the SEIS scheme can offer, then again we can walk you through the paperwork minefield to ensure full tax reliefs are obtained…

So please do email Juliet at julietg@clarkhowes.com or Rodger at rodgerf@clarkhowes.com or call us on 01869 322261.

Or maybe you have and just can’t be fussed to read through the technical stuff or maybe you think this isn’t worthwhile??

Well once again we can leap in to help in what has been a highly successful tax-saving opportunity that we’ve used to help many clients reduce their corporation tax or obtain cash refunds.

The “Research and Development Tax Relief & Credit Scheme” has been around more than 10 years now and whilst changes have been made to enhance the scheme, it is still a complex process that means many companies just don’t bother to claim any or their full entitlement. It’s FREE money from George Osbourne!

The application process requires the clear identification and documentation of all R&D projects and expenditure undertaken. This can be started by having a general chat together; what you think might be just an experiment could turn out to be a tax refund opportunity…

Our expertise in knowing the eligibility rules, understanding the legislation and HMRC guidelines and being able to make a claim through your annual Corporation Tax return enable us to do the technical part.

So outsourcing the process on a small admin and a success contingency fee basis makes a lot of sense.

The scheme overview (updated for the March 2012 Budget):-

There are two schemes available, one for SMEs and the other for large companies:

Profit-making SMEs can deduct up to 225% of eligible R&D expenditure from their tax profits with loss making SMEs claiming the R&D tax credit back as a cash payment.

Large companies (turnover exceeding €100m and headcount exceeding 500) can deduct up to 130% of their eligible R&D expenditure from their tax profits with loss making large company’s able to offset losses against profits of the previous year or profits of future years.

Are you entitled to R&D tax relief?

Determining what real R&D activities are is the area companies find the most difficult. But R&D is not just about white coats and test tubes, or ground-breaking research. It includes a broad range of activities such as the development or improvement of processes, materials, new product ranges, pure research or equipment functionality. Indeed many things up to actual production… It’s quite a generous list.

What do I do now?

Easy, email Juliet at julietg@clarkhowes.com or Rodger at rodgerf@clarkhowes.com or call us on +44 (0) 1869 322261.

The salary verses dividends argument has been hotly debated in recent years but structuring  the remuneration of owner-managed directors in an appropriate way can be cost effective and tax efficient.

Most British tax payers have a 2011/2012 personal tax allowance of £7,475 (for 2012/13 it is £8105) which they can earn during the tax year without incurring Income Tax. Assuming there is no other income to take into account (such as bank interest, pension income or property rental) a salary of the same amount could be paid tax free – less a very small National Insurance cost. And because you are a Director, you fall outside the Minimum Wage legislation, so you don’t have to pay yourself the £11,856 per year this Act requires…

The remainder of your income could be made up of dividends, assuming the Company has the profits to do so, such that if the combined dividend and salary amount (plus any other income) is kept within the 20% basic rate tax band, you will not incur any income tax.

The tax saving can be seen in practice in the following example.

On a normal tax code, to achieve a net take home pay of £2,500 per month, you need a gross salary of £40,643. This will incur a total of £15,276 in Income Tax and National Insurance with a Corporation Tax saving of £9,055. This is a net tax liability of £6,221.

If you stay with the £30,000 take home amount as a combination of a £7,500 salary and the remainder as dividends, you will incur a total of £97 in tax but no tax on dividends up to £31,400. This would give you a corporation tax saving of £1,512, giving a net tax saving of £1,415.

You could therefore enjoy the same net income with a tax saving of close to £5,000 a year!

If would like to join the debate, or think you are paying too much tax, please give us call and we will be glad to look at your package…

Every year HMRC receive thousands of employer returns which contain the details of millions of employees, including their names, dates of birth and National Insurance numbers. HMRC are keen to point out that whilst the vast majority of the employee data is correct, in some cases dummy, incomplete or incorrect information is included. According to the press release:

‘…a recent study of employer returns found that 128 staff were entered as Mr, Ms or Mrs Dummy, while 824 employees had the surname ‘Unknown’.’

‘Another 40 employees, according to their dates of birth, were aged over 200.’

The short YouTube video discusses how inaccurate employer returns can affect employees, employers and HMRC and offers advice on how employers can help reduce errors.

Jim Harra, HMRC’s Director of Customer Operations, said:

‘It’s really important that employers get their employees’ information right, so that HMRC can match it to the right tax records. Otherwise, it can lead to more contact from staff, trying to sort out their tax, and from HMRC, trying to sort out the data issues.’

‘So, if you’ve got a spare few minutes, watch the video and see what you can do to help your organisation get things right, for you, your employees and HMRC.’

If you would like any help with payroll issues please do get in touch.

Internet links: Press release Video

HMRC have previously offered Tax Catch Up Plans to Plumbers, Dentists and Tutors amongst others. According to the press release their latest campaigns will target:

‘Missing returns. This will contribute to wider HMRC activity tackling failure to complete tax returns. It will initially focus on those who fail to complete tax returns and who are liable to pay tax at the highest rates.’

‘Home improvement trades. This will build on campaigns aimed at plumbers and electricians, and will include several 100,000 tradespeople in construction and building work such as roofing, window fitting, bricklaying, carpentry and joinery.’

‘Direct selling. This will target customers who ought to be paying tax on income they earn from buying and selling goods direct to others, or from the commission on these sales.’

‘As with previous campaigns, the focus of the new campaigns will be on providing those in the selected groups, who may not be paying the tax they owe, a chance to put their affairs in order on the best possible terms.’

HMRC have announced that they will be using new technology to identify traders in both sectors with unpaid taxes.

Marian Wilson of HMRC said:

‘We are offering all the people targeted the opportunity to come forward. Penalties will be higher if we come and find people after the opportunity.’

Please do get in touch if you have any concerns in these areas.

Internet links: News release HMRC website