EJBC Chartered Accountants

With the impending changes to capital gains on the horizon, lots of clients are asking for advice on whether they should look to sell their buy to let properties.  Such a decision may be taken out of their hands if the proposed changes come in on budget day, but if they are delayed until the new tax year, what should you do?
 

Things to consider:
 

What would you do with the proceeds of a property sale?  Putting the proceeds in a building society will not yield a high return, so what other savings options are available? 

What return are you currently getting, could it be improved?  If you plan to reinvest in say another property, think about the buying costs such as legal fees and stamp duty.
 

Also consider that many other people are also considering selling at the moment. This could lead to the market being flooded with similar properties, if so, how much could this affect the selling price of your property?
 

Before making a decision, explore all the CGT reliefs that maybe available to you.  Although the tax rate maybe on the increase, there are still some CGT reliefs available such the principal private residents relief and letting relief.
 

Tax has a huge influence over decisions we make, as we all want to pay as little as possible.  If you are currently facing the dilemma of sell or not to sell, please come and talk to us so we can run through all of your options. 

Emma Thomas ACA FCCA CTA

emma@ejbc.co.uk

Last week our new chancellor announced his first budget date of the 22^nd June.  Since then there has been much speculation as to what this has in store for us.  These are just a few things I have come across:-

Personal allowance – Before Election Day it was well published that the Liberal Democrats favoured a £10,000 personal allowance, and we know that this was one of the concessions agreed under our new collation government.  The aim is to help low and middle earners so I would expect it to be capped at a certain level of income.  This is expected to come into effect from 2011.
 

Capital gains tax – I think that this is a where we will see significant changes and has been a surprise to some that changes have not been made sooner.  CGT tax currently stands at 18%, if changes are made, we could see a future tax rate of 40%. 
There is also a lot of uncertainty as to when the government will introduce CGT changes.  A change mid way through a tax year (budget date), will be the most effective for the tax man in terms of revenue, but in turn could cause them a logistical nightmare.  Some commentators believe a more realistic date will be 6^th April 2011.  For those of you who are sitting on large capital gains at this point in time, you need to look out for these changes and be prepared to act quickly to realise the gain at 18%, if the rules are introduced next year.

Corporation tax – There have been some very mixed messages on corporation tax policy.  I had read an article on accounting web suggesting that the main rate of corporation tax for large companies will be reduced to make the UK more competitive.  To pay for this concession the rate of corporation tax for smaller companies may increase, together with the abolition of the annual allowance.

http://www.accountingweb.co.uk/topic/budget-2-date-set-22-june/426119
 

Others are speculating that there will be a reduction in both the larger company and smaller company corporation rates……..watch this space!
 

Vat changes – Will the rate of vat be increased to 20%?  When the Labour government reduced the rate to 15% in December 2008, there was much discussion at the time suggesting that when the rate increased again, it would go up to 20%.  At the time it caused uproar as Vat has an impact on nearly everything we all buy.  Although it would be a quicker way of increasing tax revenue, will it be too unpopular for a new government to implement when they are still finding their feet?
 

National insurance rises – This could be good news for employers as it is being suggested that the proposed 1% increase will be stopped.  However the 1% increase for employees may well still go ahead.

We look forward to a good deal more clarity on tax policy on the 22nd June.

At this time of year, the majority of tax returns we are asked to do are for repayment cases.  The questions we always get asked is ‘how long will it take for me to receive the tax refund?’

Over the last couple of years tax refunds have been paid very quickly, but over the last couple of months, on numerous occasions there have been quite lengthy delays. 

HMRC advise that they aim to make repayments within 4 weeks of receiving the claim, as they need time to carry out security checks to ensure there is a claim to be made.  They do however advise that at busy times such as the beginning of the tax year and in January this process can take longer.

Recommendations

Be prepared to wait for at least the 4 week period.  In our experience constantly phoning HMRC chasing the refund does not work and can be very time consuming.

If you are currently looking for a PAYE refund for the tax year ending 5 April 2010, when you apply for the repayment (or make the claim on a R40 form), also send through a copy of your P60 and prominently mark the letter as a ‘Repayment claim’.

We would be very interested in hearing of your experiences with claiming refunds, so please let us know.
 

Now is often the time of year businesses review staff salaries & benefits. With an eye to future tax increases and pension law changes, you may want to think about ways to mitigate costs of these changes:
The easiest and most used way to address employee benefits would be to offer a straight salary increase. However, for every £100 increase in salary, there is a further £12.30 to pay per year in employers’ National Insurance Contributions (NIC). From April 2011, when NIC rates increase again, £100 salary increase will cost an additional £13.30.

What about pensions? Making a pension contribution is a great way of rewarding staff without incurring a National Insurance charge. In addition, it may well be worth considering now in your pay & benefits considerations ahead of pension rules coming into play in 2012.
 Bear in mind that paying pensions for people earning more that £150,000 per annum, can become very complicated, so please get in touch if you need help.
 

Other options

A company mobile phone - This can be a popular choice, as a mobile provided and paid for by an employer is not a taxable benefit even, if an employee never makes any business calls. The phone contract must be in the name of the employer. 
 

Providing a free parking space - As an employer, you can provide a parking space at or near your workplace with no tax implications for either the employer or the employee. The same rules apply for another vehicle, such as a motorcycle or bicycle. Such arrangements can be in the form of purchasing a season ticket for the employee.
N.B. If the team member does not drive (and is a health fanatic!) you could consider providing a free bicycle. As long as the bicycle is used mainly for travelling to work, it is again a tax-free perk with no National Insurance consequences.
 

Health insurance - This is often paid to employees as a benefit in kind, but it is treated as a taxable benefit for the employee and incurs a national insurance contributions for the employer. However, a simple health screen is a tax-free benefit and offers piece of mind!
 

Childcare vouchers - If you have an employee paying child care costs, then you should consider implementing a Childcare Vouchers scheme. Childcare vouchers are tax and national insurance free to both employer and employee. It normally requires a element of salary sacrifice, but could be implemented as part of an overall pay review. Childcare vouchers can affect tax credits, so please advise your employee to make their own checks on this before signing up to a work scheme.
 

Mileage rates - Do you currently pay mileage rate to employees which are less that the Inland Revenue fixed profit car scheme?  If you do, please consider that employees can receive up to 40p per mile for the first 10,000 business miles driven in a year, and 25p thereafter. The mileage is an allowable business expenses and neither employee or employer incur a tax or national insurance charge if you keep within the rates mentioned above. 
Please bear in the mind that commuting costs do not get classed as business mileage.   

HMRC are very keen for all businesses and individuals who need to submit a tax return, to keep complete and accurate records. They recently issued a new leaflet that summarises all the records different types of businesses should keep, and those they are required to keep by law. See:
http://www.hmrc.gov.uk/factsheet/record-keeping.pdf   

If you do not keep complete and accurate records of all your income, sales, gains, expenses, and business costs, you will not be able to prove the figures reported on your tax return are correct. If the Taxman challenges the entries on your tax return, and you cannot produce the evidence to back up those figures, he will assume they are incorrect. The Taxman will then think up a more reasonable figure (in his eyes), and look to tax you on that. You may then have to pay the additional tax, interest for late paid tax, and a penalty of up to 100% of the underpaid tax.

You can avoid such a nightmare if you keep accurate and complete records. Talk to us if you are uncertain about what paper and electronic records you should keep.

If your business is not VAT registered, you need to keep a 12-month rolling total of your sales (’taxable supplies’ in VAT-speak), to check this total does not exceed the VAT registration threshold (currently £68,000). Taxable supplies are those sales which would be subject to VAT (at 0%, 5% or 17.5%), if your business was VAT registered. Once your 12-month taxable supplies total exceeds the VAT registration threshold you must register your business for VAT within 30 days.

Unfortunately you now also need to keep track of the value of the services you purchase from any overseas businesses. Since 1 January 2010, most overseas services supplied to a business from another business (B2B) are subject to the reverse charge. This means you as the customer need to act as both the supplier and customer for the transaction for VAT purposes.

You must add the value of the overseas services acquired to your total purchases, and add the same value to your taxable supplies total, for VAT purposes only. The addition of the overseas services to your taxable supplies total may push this figure over the compulsory VAT registration threshold, in which case you must register your business for VAT in the UK.

It doesn’t matter whether the business you are purchasing the service from is registered for VAT or not. You still have to apply the reverse charge treatment to the value of the service acquired. There are some exceptions for services relating to land and transport. Please ask us if you are uncertain about when you should apply the reverse charge or register for VAT.

HMRC have started to issue the 2010/11 PAYE codes, for the tax year that starts on 6 April 2010. This code arrives in the form of a P2 notice, and a copy should go to your employer (on a form P9). If you have received your 2010/11 PAYE code already please study it carefully, as any corrections need to be made in the next few weeks.

Since the Taxman fired up a new PAYE computer last summer there have been a number of faults appearing in PAYE codes. In some cases the age allowance or married couples allowance disappeared, in other cases the state pension amount was understated. Now many of the 2010/11 codes have excluded some of the basic personal allowance, which should be £6,475 for those aged under 65.

This fault occurs if you have changed jobs in the last few years, or started to receive a pension.

The Taxman’s computer thinks you are still receiving a wage from your old job, so has split your personal allowance over your current employment or pension and your old job. If you do not have your full personal allowance of £6,475 shown on your 2010/11 PAYE code, ring the Tax Office to ask why, or speak to us.

EJBC Chartered Accountants: www.ejbc.co.uk

At last a solution has been found to the problems businesses face when trying to reclaim overseas VAT. From 1 January 2010, to claim a refund of VAT you have paid in another EU county you must complete an online claim in the UK. You don’t have to battle with lots of incomprehensible forms in other languages, as the claim will be done entirely in English. The UK tax office will forward your claim to the relevant country, which will process the refund within four months of receipt. You should then receive the payment due within a further 10 days. To make VAT refund claims in respect of VAT paid in other EU countries you need to first register to use the Tax Office VAT EU refunds system, which is part of the VAT online service. Alternatively we can register on your behalf and submit refund claims for you. Claims made from 1 January 2010 can cover VAT incurred on expenses in 2009. The deadline for 2009 invoices is 30 September 2010. Unfortunately claims for VAT paid on 2008 invoices are now out of time. Up to five refund claims can be made for each country for each calendar year: one for each quarter and a sweep-up claim for the whole year. The minimum amount of the VAT to be included in each claim has been standardised at €400 per quarter, or €50 for the sweep-up claim for the full year. There are a lot of different rules that block the refund of VAT for certain purchases, such as VAT on the purchase of cars in the UK. These blocking rules vary widely across the EU countries but they are summarised in new VAT notice number 723A: Refunds of VAT in the European Community.

It is no surprise that the Government needs to raise more revenue to pay off the massive national debt, however it seems reluctant to announce higher tax rates. One tax that looks ripe for an increase is Capital Gains Tax (CGT). The current rate of CGT is just 18%, compared to a top rate of 40% for income tax.An additional income tax rate of 50% will be imposed on income over £150,000 from 6 April 2010, and there are strong rumours that the rate of Capital Gains Tax (CGT) will also be increased from that date. Nothing has been announced on this issue yet. Some say this silence is deliberate to avoid people rushing to make gains that will be taxed in the current tax year at 18% (or 10% with tax reliefs), rather than pay CGT at a much higher rate in 2010/11.If you have assets you are planning to dispose of, consider whether you should make that disposal before 6 April 2010 and pay CGT at 18%, or delay and risk paying tax at a potentially higher rate. Discuss this with us before you decide.

EJBC Chartered Accountants: www.ejbc.co.uk