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Business Tax News

Capital Gains Tax – recent developments

The chancellor has announced his intention to reintroduce retirement relief - a CGT exemption for people who sell their business and retire. Due to be announced in the Budget next spring, the relief could be worth up to £100,000, although the Treasury suggested no firm figure has yet been decided.

This move follows an intense business campaign against the chancellor’s announcement in the Pre-Budget report to scrap the 10 per cent rate of CGT for assets held for two years or longer. Whilst this proposed relief will help those business owners looking to retire it does nothing for entrepreneurs who build up small businesses with a view to selling it when it becomes viable and moving on to the next one. However the chancellor is considering a potential extension of the relief to all business assets.

The single rate Capital Gains Tax of 18% announced in the Pre-Budget report was primarily aimed at removing the ability to abuse the system by private equity partners. An unexpected benefit is that it will also reduce tax liabilities on speculative gains and non-business profits, such as buy-to-let investments.

Updated 1 November 2007

National Minimum Wage

From 1st October 2007, the National Minimum Wage increased to £5.52 an hour for staff aged 22 and over; the rate for those aged 18 to 21 increased to £4.60 an hour with the rate for those aged 16 and 17 increasing to £3.40 an hour.

Updated October 2007

Annual Leave

From 1 October 2007 the minimum entitlement changed from 20 days to 24 days (if the employee works a 5 day week) and from 1 April 2009 it will  change again to 28 days. This can include the 8 bank holiday days.

Part-time workers are entitled to the same leave pro rata.

Updated 11 January 2008

Capital Allowances

Capital Allowances for the tax year 2007/08 are 50% in the year of expenditure for all types of plant and equipment including IT expenditure.

There are changes from April 1 2008, predominantly amongst these are 100% allowances for all expenditure to £50,000 in a year and 20% thereafter. Writing Down Allowances are also reduced to 20% from this date.

The future allowances for low CO2 emission cars and energy efficient equipment currently allowable at 100% are currently unknown.

Updated 11 January 2008

Small company dividends

In March 2006 the tax advantage of the self-employed turning themselves into Limited Companies was slightly reduced (but still worthwhile); from April 2007 the advantage was reduced slightly further with the rise in the Corporation Tax rate for the first £300,000 of profits to 20% (21% from April 2008). The net effect is that dividends taken on taxable profits lower than £300,000 will have been taxed at a 20% tax rate but compare that with the 30% rate for self employment (22% income tax and 8% National Insurance). This works on each shareholder in the business where they have earnings up to the higher rate tax threshold. Above the higher rate tax band rate the difference is marginal, so we work with you to seek to avoid that happening!

Do not hesitate to call us if you are at all unsure what to do.

Updated 13/09/07

New Construction Industry Scheme (CIS)

Latest news is that the New CIS scheme, originally due to begin in 2006, began on 6 April 2007. If you have already not done so you need to make yourselves aware of the new regulations as since the industry was been given an additional twelve months to prepare, the Revenue are saying that no leniency will be given for errors after April 2007 when the scheme was finally introduced.

The new CIS scheme will mean no more CIS cards and certificates but more emphasis on the employment status of sub-contractors.

Perhaps the most important change to the CIS legislation is the contractors responsibility to correctly work out the employment status of their subcontractors.

Download more information.

Updated 13/09/07

Audit Limits

In 2004 the audit exemption limit rose to £5.6m (from £1m) but has not changed since despite mutterings that the limit might again rise upwards. The 2004 cahnge was estimated to save businesses over £60m per year in accountant's fees so another change will no doubt help too!

The limits for defining "small" companies also rose to turnover over £5.6m - these limits are relevant in order to claim higher rate capital allowances.

Updated 13/09/07

Owner Managed Limited Company news

Jones v Garnett (Arctic Systems)

The House of Lords have today (25 July 2007) found in favour of Geoff and Diana Jones, co-owners of a small IT company Arctic Systems, and rejected an appeal by H M Revenue & Customs in the landmark case Jones v Garner which related to the dividend income split between husband and wife shareholders.

The key issue was whether income from dividends paid out to a non-earning or low income spouse should be taxed at the same rate as the main earner’s income.

Many owner managed companies are set up as tax efficient vehicles by distributing shares between spouses. This ruling means that thousands of family businesses can breath a sigh of relief. Revenue & Customs have been arguing this case for the past 4 years but with this new ruling no further appeals are allowed.

It is still recommended that on forming such a company the initial share capital is issued to the main income generator with the bounty being gifted to the other spouse in the form of ordinary (rather than preference) shares.

If this ruling affects you and you need further clarification please contact us.

25/07/07

Company Car – Advisory Fuel Rates from 1 February 2007

New rates were introduced from 1 February 2007 to reimburse employees for business travel in their company cars.

30/05/07

National Insurance Contributions 2004/05

H M Revenue & Customs recently admitted that letters have been sent out in error to what could be as many as 700,000 taxpayers . . .

» See full article in the National Insurance Tax news page.

Electronic Filing of Year End Payroll info.

In May 2005 cash incentives were introduced to encourage small businesses, those with fewer than 50 employees throughout the year, to file their end of year P35 and P14 forms on line. The total benefit available amounted to £825 spread over a 5 year period. Whilst the first two years produced the greatest benefit, £325 is still available to small businesses over the next three years. From 2009/10 all employers must file electronically. We adopted this scheme on every payroll client's behalf in 2004/05. If you are interested in this service please email chrism@clarkhowes.co.uk for further details.

Updated 11/12/06

Did you know? - Income Tax

You can pay PAYE quarterly if your average monthly cost is below £1,500 per month. If paying electronically the employer has the cash flow benefit of an additional 3 days for the payment to reach H M Revenue & Customs, with the due date being 22nd of the month.

Updated 11/12/06

Benefits in Kind

The new tax rules for Company Vans come into effect from 6 April 2007.

Currently a van weighing up to 3,500 kgs under 4 years old attracts a benefit-in-kind of £500 (over 4 years old £350).

From April 2007 the van scale charge rises 6 fold to £3,000 per year plus an additional £500 per year if any private fuel is paid, unless the following strict definition is adhered to:

The van is only provided to the employee on the basis they drive to and from home to their place of work, however ‘insignificant’ private usage is allowed – Revenue define ‘insignificant’ as taking a mattress to the local dump or popping into the local shop en-route to work to buy a paper! This may require a specific letter to the employee advising them of such.

We strongly suggest that employers start changing contracts of employment or issuing supplementary letters to staff to comply with the restrictions imposed. It will be a lucrative Revenue investigation point after April 2007.

Updated 11/12/06

Share Option Schemes

The Enterprise Management Incentive scheme (EMI) is devised to incentivise key staff within companies of all sizes. It is a Revenue-Approved share option scheme with significant tax advantages. By November 2005 over 75,000 people were in these schemes with options over £1.3 billion of value. We have a summary sheet of the scheme points if you are thinking of a way to lock-in key staff.

25/01/06

Do you sell your own time?

From June 2005 any business that sells its own time should take into account in its year-end accounts the sales value of work not invoiced. Technically this is a requirement of UITF 40; in reality the Revenue will be looking for this adjustment in your annual accounts for tax purposes. A recent change is that the Revenue will allow up to 3 years to settle the first years additional tax bill.

As always if you are unsure, call us!

25/01/06

P11d’s and Dispensations

Every year the employer has to complete forms P11d for each employee and director that have any form of company benefit. At best this is a time consuming exercise at worst a minefield but did you know you also have to declare all expenses repaid?

If your accounting is under effective control we can help you apply for a Dispensation to avoid declaring expense claims and ease this administration nightmare. Just call and we will do the paperwork!

09/01/06

Transfer Pricing Agreements

International trading between a UK entity and an overseas parent or subsidiary requires a Transfer Pricing Agreement to establish fair prices charged between the two (or more) parties.

From April 2004 these rules extended to related UK parties so 2 UK companies will now have the same requirements.

There are now exemptions for small and medium trading parties within the EC but not those outside this area, such as the US or Far East.

21/07/05

Data Protection Scams

Operators posing as "collectors" are sending out letters inviting you to pay up to £95 to register under the Data Protection Act. The wording and tone of the letters is very persuasive and suggests you are at risk if you do not pay up.

As it only costs £35 to register directly - you can do so via the Information Commissioners Office on 01625 545740 or via www.dpr.gov.uk - don't be taken in by these fraudsters.

Updated 21/07/05

London Congestion charges

The Revenue has now agreed that the payment of the Congestion charge by the company will not be a taxable benefit but a fine will. Did you know that "alternative fuel" vehicles are exempt totally from the charges and there are grants up to £1,000 for LPG or autogas conversions.

05/12/03

Use of home allowances.

The Revenue has agreed that up to £104 per year may be claimed for home working without supporting evidence.

06/10/03

Money Laundering

Within the Proceeds of Crime Act, accountants, auditors, estate agents, tax advisors and other professionals have to report any suspicious transactions under the 1993 Money Laundering Regulations. If we are called upon to do this we also cannot advise you of what we are doing...