EJBC Chartered Accountants

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

Insurance companies often pay commissions to professionals who recommend certain insurance policies to their clients. For example; hospital consultants may recommend health insurance, vehicle dealers may propose car insurance, and lawyers may put forward accident and legal cover. The professionals in these situations should report any commissions they receive on their tax returns, but sometimes they forget to do this.

The Taxman now has wide powers to ask for information about a person’s tax affairs from third parties. He can issue a notice to an insurance company asking for a list of all persons who receive commissions in a certain period, and the amounts paid to each individual.

We understand that HMRC has recently issued several such notices to a number of large insurance companies. When the information requested in these notices is received, the Taxman is likely to open enquiries into the tax affairs of a number of professionals.

If you have received some commission, however small, and you failed to disclose that amount on your tax return, now would be a good time to come clean. If you make a voluntarily disclosure to HMRC, you could benefit from a reduction in the penalty due from 30% of the tax due, down to nil. However, this penalty range (from 0% to 30%) will only apply if the Tax Inspector judges the omission from your tax return to be careless. In most cases the Taxman will view the under-declaration of commission to be a deliberate error, in which case the minimum penalty will be 20%, and the maximum 70% of the understated tax.

Please speak to us before you contact the tax office about any under-declaration of income, as the way in which you present the information to the Taxman can influence the amount of penalty charged

January is the month when those big bills become due for payment, and that includes your tax bills…

Business Rates
From 1 April 2008 most vacant business properties became liable to business rates, these properties were previously exempt from rates. In last year’s Pre Budget report, the Chancellor announced an exemption from business rates for empty properties which had a rateable value of less than £15,000, but only for the 2009/10 financial year.

CGT on Homes
Some commentators expected the rules that exempt one’s ‘main home’ from capital gains tax on sale would be tightened up. This has not happened. Instead there is a relaxation of the rules where part of the home is occupied exclusively by an adult in care, and the owner of the property is paid to care for that adult. In such cases the whole of the property will qualify for exemption from capital gains tax.

Although no immediate change in the main rates of class 1 employers and employees NI from 6 April 2010 was announced. From 6 April 2011 there will be a double whammy, as the 0.5% planned rise has been increased to 1% for most rates of NI as shown below.

These NIC increases will bring in a significant amount of additional revenue for the Government from April 2011.

The standard rate of VAT will increase from 15% to 17.5% on 1 January 2010. The Chancellor has emphasised that he has no plans to make further changes to VAT, so we can be fairly certain that the VAT rates will remain as they are, at least until after the election.

If your business is registered to use the flat rate scheme for small businesses, the flat rate used to determine how much VAT to pay to the Taxman will also change with effect from 1 January 2010. The new flat rates for each business sector are found in the Pre Budget Report Press Notice no. 33 on the HMRC website at http://www.hmrc.gov.uk/pbr2009/pbrn33.htm

Most, but not all, of these flat rates have reverted to the rates that applied before 1 December 2008. However, some rates have been increased by a greater amount to reduce the gain some businesses make by using the flat rate scheme. You may find that the new flat rate for your business sector does not produce the savings for your business as it did previously. If so you can leave the flat rate scheme at any time. We can help you calculate whether it is beneficial for you to stay in the flat rate scheme or not.

Corporation tax for companies with ’small’ profits was set to rise on 1 April 2010 to 22%, a rise originally planned to apply from 1 April 2009. However, the Chancellor has decided to postpone this increase for a second time. The corporate tax rate for companies with ’small’ profits will now remain at 21% until at least 1 April 2011.

Currently any companies controlled by your spouse or civil partner are also associated with your own company, even if your spouse’s company has no commercial links to your own company. This associated rule is under review by the Taxman so it may be relaxed from April 2010 where the companies have no commercial links.

Tax is a complicated subject! It is not always clear which particular tax, or what rate of tax applies to a transaction. The Taxman realises that businesses often have tax questions that need urgent answers, so he has set up a range of telephone helplines that each deal with specific areas of tax, such as VAT or the construction industry scheme.

In both cases the taxpayer could not prove exactly what facts had been presented to the helpline, or exactly what the helpline had given as its advice. If the advice had been requested in writing the outcome for the taxpayer may have been different. If you have a tax question, please ask us: mail@ejbc.co.uk before reaching for the HMRC helplines. If you act on advice that later proves to be incorrect, you could pay a high penalty!