EJBC Chartered Accountants

In the recent budget, George Osborne announced a National Insurance Contribution (NIC) regional holiday, for any new business set up in areas such as: Scotland, Wales, Northern Ireland, North East, Yorkshire, Humberside, North West, Midlands and the South West. You will note that London and the South East, including the Thames Valley will NOT benefit from this incentive.
 

The scheme will be implemented over 3 years, and will exempt employers from up to £5,000 of Class 1 employers’ NIC per employee, in relation to the first ten employees.  The government claim it could be worth up to £50,000 in tax relief.  Although the scheme is due to be up and running by September 2010, it will be back dated to budget day of the 22^nd June.
 

Around the 23^rd of June, it was reported in the press that there was a flurry of new businesses incorporating in these areas. So does it have a really broad appeal?
 

There are a couple of key conditions surrounding this incentive:-
 

The business must be a new start up, so it is not simply a case of relocating an existing business to one of the targeted areas, or setting up a new company to carry on the old business, or even incorporating your business. 
 

Relief is only available for the first ten employees hired in the first year of business.  This is where I think it will have a limited effect, as smaller business tend to take longer to make decisions on employing staff. In most cases, they are unlikely to take on as many as 10 new employees in the first year. 
 

For those who it will benefit, it is really good news, especially when considering that employer’s national insurance will be increasing by 1% from April 2011 to 13.8%.
 

As a warning to new employers, the regional NIC holiday is only a temporary measure and with the plans to bring in NEST (National Employment Savings Trust) from 2012, you need to ensure that you get your budgeting right in respect of long term recruitment in your business.
 

Under NEST, if the employer does not already provide a pension scheme, they will be required to set up a NEST and contribute up to 3% of employee’s gross salary in to this scheme per annum.
 

If you have any questions about the subjects in this post , please contact us at info@ejbc.co.uk

Normally a loss arising from letting of commercial or residential property, can only be carried forward to set against profits from that same property business. However, where part of the loss has been generated by the deduction of capital allowances, that part of the loss is available to set against the owner’s other income in the same tax year. 

A capital allowance generated loss is very unlikely to arise in connection with letting residential property as capital allowances cannot be claimed for equipment used in residential properties, but such allowances can be claimed for equipment or integral features used in or attached to commercial properties.

Improvements to commercial properties made since 6 April 2008, such as new lighting or air-conditioning systems are classified as integral features, and thus qualify for capital allowances.  All integral features and other plant and equipment that qualify for capital allowances can fall within the Annual Investment Allowance (AIA), which gives a 100% deduction in the year the cost is incurred. The AIA is capped at £50,000 per year for expenditure incurred before 6 April 2010, but that cap is doubled for expenditure incurred on or after that date.

The capital allowance generated loss from a let commercial property could be considerable where there has been high expenditure on items that qualify as plant, machinery or integral features.  Do be aware that losses made after 24 March 2010 may be barred from being set-off against other income if there was a plan in place to deliberately avoid tax by generating those losses. For further information or help, get in touch with Emma at emma@ejbc.co.uk  

Since April 6th, HMRC can impose penalties if you are late in paying over the payroll and CIS deductions you make in the tax year. ‘Late’ in this context means the payment reaches the Tax Office after the 19th of each month, (or 22nd when paying electronically). 

Until now HMRC did not impose penalties or interest on small employers if all the payroll deductions for the year reached him by 19th April (or 22nd) after the end of the tax year. Large employers (those with more than 250 employees) have been subject to surcharges for late payment for some years, as they have been obliged to pay over all deductions electronically. 

Those surcharges for large employers have been scrapped and all employers are now subject to the same penalties. However, small employers do not have to pay over their deductions electronically. 

The penalty will be based on the total amount of deductions paid late for the tax year and will be calculated based on the number of times payments are late in a tax year as follows … 

- Late once – no penalty - Late 2 to 4 times – 1% penalty 

- Late 5 to 7 times – 2% penalty - Late 8 to 10 times – 3% penalty 

- Late 11 or more times – 4% penalty 

The penalty applies to the total amount that is late in the tax year (ignoring the first late payment in that tax year). 

If any payment is made more than six months late a further 5% charge is added to the above penalties. Where the payment is over 12 months late another 5% penalty charge is added. 

However, these penalties cannot be imposed automatically as at present HMRC does not know how much PAYE etc you should be paying over month on month. Although, when the Taxman inspects your PAYE records and it is apparent that you been late in paying over your payroll deductions, he has every right to impose these heavy penalties for late payment. 

For the last 12 months we have been warning you that the favourable tax concessions for furnished holiday lettings (FHL), would end on 6 April 2010.
 
The legislation to change these tax rules was included in the 2010 Finance Bill. However, as part of the horse-trading at the end of Parliament before the General Election, the repeal of the FHL rules was dropped from the Finance Bill before it became the 2010 Finance Act on 8 April 2010.
 
The FHL rules can be used by any individual, partnership or company who lets property located anywhere in the UK or in any EEA member state.
 
The property must also comply with all of the following conditions:
 
- It is let out as furnished holiday accommodation for at least 70 days a year;
- It is available for commercial letting for at least 140 days per year; and
- It is not let for a continuous period of more than 31 days to the same tenant in seven months of the year, and those seven months include the periods in which it is actually let as holiday accommodation. Those seven months do not have to be a continuous period.
 
‘Holiday accommodation’ means letting to the general public for periods which do not normally exceed a month, but this can include letting to business people for short periods as well as to tourists.
 
If the property qualifies under the FHL rules the letting business is treated as a trade for most income tax and capital gains tax reliefs. This means the following tax advantages apply:
 
- Losses from the FHL business can be set against other income of the same year.
- The FHL income qualifies as earnings for pension contributions.
- Any capital gain made on the disposal of a FHL property can be:
    - reduced by entrepreneurs’ relief; or
    - deferred by purchasing another FHL property or a different business asset; or
    - deferred if the FHL property is given away or sold at below market value.
 

The FHL property may also be exempt from inheritance tax if the owner takes an active part in the FHL business.

A host of new employment related regulations came into force on 6 April 2010. This is a brief summary of those regulations that are likely to affect you or your business.
  

Fit notes - these replace sick notes issued by GPs and will state what the worker can do, rather than what he or she is prevented from doing. 

Pension date - the date from which the individual can draw the state retirement pension will not necessarily fall exactly on a woman’s 60th birthday. For example, a women who reaches age 60 between 6 April 2010 and 5 May 2010 will have a state pension date of 6 May 2010. This date also affects the payment of the employee’s NI contributions. 

NI contribution years - individuals who reach state retirement age only have to accumulate 30 full years of NI contributions or credits to gain a full state pension. 

A single year of NI contributions - will count towards the state pension. Until now a person had to accrue at least one quarter of their working life (about 11 years for a man, 10 for a woman) to be entitled to any state retirement pension. Each year of NI contributions will be worth roughly £3.20 of weekly pension at current rates. It will be essential to accurately record the NI number for every employee, so that each individual can collect their pension entitlement when they retire. 

Home responsibility protection credits (HRP) will be given on a weekly basis. This will allow the HRP credit to be combined with actual NI contributions to make up a full year of NI credits. HRP credits are given where a person stays at home to look after a child and claims child benefit. 

The taxable benefit charged for the use of company cars and fuel for those vehicles is increasing from 6 April 2010. Say you drive a petrol-powered car with CO2 emissions of 160g/km. In the tax year to 5 April 2010 you are taxed at 20% of the vehicle’s list price. From 6 April 2010 the taxable benefit for driving the same car will be 21% of its list price. 

The tax position for those who have free fuel with their vehicles is even worse. Until 5 April 2010, the value of the fuel-benefit for all company cars is based on a fixed value of £16,900 multiplied by the percentage used to calculate the car benefit. So there is the combined effect of the increased percentage and the increased multiplier. From 6 April 2010 this value increases to £18,000. This means the taxable benefit of having free fuel for a petrol car with emissions of 160g/km will increase from £3,380 to £3,780. 

Company van drivers are also hit by the rise in the fuel benefit. Currently where free fuel is provided in a company van, and the van is used for some non-business journeys, the driver is taxed on £500 per year for the use of that fuel. From 6 April 2010 the van driver will be taxed on £550 per year for use of the fuel. 

You can reduce these high tax charges by switching to a low emissions car. Where the CO2 emissions are 120g/km or less the car benefit for petrol cars is just 10% of the list price, and half that amount where CO2 emissions are 75g/km or less. We could only find one car with emissions in that bottom category: Toyota plug-in Prius, which has an official CO2 emissions rating of only 67g/km. 

If your vehicle has zero emissions such as an electric car or van, there is no tax charge at all from 6 April 2010. What’s more, when your business buys a new electric vehicle it can write-off the full cost for tax purposes in the year of acquisition. 

A recent press story caught my eye. It involved a Kent tradesman who was penalised under HMRC’s new penalty regime for overclaiming a rebate by £2,000.  The rebate error came about when he submitted his self assessment tax return expecting a refund of £3,000, when in reality the correct amount to be refunded was only £1,000.
Under the old penalty system, HMRC fined taxpayers who had either underpaid their taxes or were late in submitting their returns or paying their due taxes. 

Under the new regime, HMRC can now levy penalties on individuals and businesses for inaccuracies in tax returns and other documents. They can even raise penalties if the taxpayer is owed money, but have made administrative errors, as in this case.
 

The new approach allows HMRC to impose a maximum penalty of 30% for “careless” mistakes, and between 30% and 70% where taxpayers have been deliberately misleading, but have not concealed their actions.

Those who have been deliberately misleading and have concealed their actions can pay fines ranging from 50% to 100% of the amount owed.
 

In this case, the taxpayer was fined 70% (his actions were seen to be deliberately misleading) of the £2,000 difference between the size of his claim and what he was actually owed, which amounted to £1,400.
 

So what went wrong?

In 2009, the taxpayer completed his first self assessment tax return on paper, without the assistance of an adviser. As a self-employed subcontractor under the Construction Industry Scheme, he interpreted the instructions on the form to mean that he did not have to file full details of his income or expenditure if he earned less than £30,000, but he did include the full amount deducted under the CIS.
 

HMRC spotted that he couldn’t have had CIS deductions without any income and wrote back to ask if he had made a mistake to open an enquiry into the matter.
 

The worrying thing in this case, is the fact that had the return been completed online, it would have been rejected due to pre-submission checks.  The paper system obviously did not allow for this.

This case shows how an apparently simple misinterpretation, can have serious financial implications.

By 30^th April you may have to file your VAT returns electronically, as paper VAT returns are being phased out.
 

All businesses that register for VAT on or after 1 April 2010 must file electronic returns and will not have the option of paper returns.
 

In addition, a business that is already VAT registered and has a turnover of £100,000 or more must file electronically after this date.
 

If VAT returns are filed electronically, then any VAT due must also be paid electronically.
 

If you are not prepared for this, what do you need to do?

• Register and enrol for the VAT online service.
  
• Consider whether you need to change any of your business processes for checking and signing off your VAT return.
  
• Identify your preferred form of electronic payment (e.g. direct debit, internet banking etc.) and set up the necessary arrangements.
  
• If your business has to pay your VAT by cheque, make sure you order from HMRC the necessary Bank Giro paying-in slips.  If you pay this way bare in the mind, that if the cheque is not cashed by the filing deadline, it will be treated as having been received late, therefore you may be liable for a late surcharge.
  

For more information, see the HMRC website or call us for details and help.

Although there are a lot of column inches being dedicated to the 1% increase in National Insurance Contributions (NIC’s) due to take effect next April, we find it odd that a change in pension legislation due to come into force in 2012, which will have a big impact for small businesses who employ staff, hasn’t attracted much media attention at all.

The changes:-

If, as an employer, you don’t currently offer pension provision with employer contributions, from 2012 you will have to automatically enroll employees into the new proposed pension scheme to be run by the Personal Accounts Delivery Authority (PADA). As an employer, you will be required to make a contribution of 3% of earnings. Employees will be required to pay 2% of their gross earnings as a contribution.

If you already provide a pension scheme, you may be able to opt out of the PADA, but only if your current scheme offers a 3% employer contribution to all staff.

From personal experience, we would recommend that employers start to look at this area now.  In February, we mentioned the option of paying employer contributions into pension scheme as a tax efficient alternative way of paying salary increases. Why not start this now and gradually make the contributions up to the 3% in time for 2012.