EJBC Chartered Accountants

So what does the new National Insurance holiday mean for you?

Emma — Mon, 05 Jul 2010 09:05:26 +0000

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

Basic Tax Planning could help couples avoid budget blues

Emma — Fri, 18 Jun 2010 12:42:11 +0000

With the budget less than a week away, our future tax regime, although not certain, is highly likely to impact individuals, particularly those fortunate enough to be higher earners.

This has made me think about getting back to basics when looking at tax planning advice.

When was the last time you reviewed your income streams to ensure that they are spread as evenly as possible between you and your spouse or civil partner? Even if you are not a higher rate tax payer, there could be some benefits for you.

To give some examples:-

Investment income such as bank interest and dividends should ideally be held in the name of the lower tax earner. If you currently pay tax at 50%, why pay higher rate tax on your investment income if your spouse or civil partner pays tax at a lower rate!
I appreciate that interest rates are low at the moment, however, even if your investment income is as little as £2000, paying tax at the 50% tax rate will mean your additional tax bill is £600, whereas a taxpayer who is not in the higher rate tax band, has nothing further to pay.

Reallocating investment income can also be important for those taxpayers eligible for the aged related allowance. For taxpayers 65 and over, your personal allowance is increased from £6,475 to £9,490 assuming that your income levels are below £22,000.
If you receive income above this level, the personal allowance is reduced on a sliding scale. If you are on the borderline for receiving this allowance, you should consider carefully if any income streams can be paid to your spouse to keep your higher personal allowance intact.

If you are self-employed and your spouse / civil partner has no earnings, you should consider employing them in your business and paying them enough salary to cover their personal allowance at the very least. If this income is recorded correctly, it won’t only save you tax, but will also give them a National Insurance record for the year, free of charge, which will count in the future when they come to apply for a state pension.
You could take the above example one step further and bring your spouse or civil partner into your business as a partner.

The partnership does not have to be 50:50 and may be set up as any percentage split to reflect their involvement in the business. The idea of this type of tax planning would be to reallocate some of the business profits being taxed at 40% or 50%, to a partner who would pay tax at 20%.

A similar scenario would apply to those who trade through a Limited Company. In this case, we would look to transfer ownership of shares to the lower rate tax payer.
These are just a few examples of where reallocating income streams can prove useful from a tax perspective.

A note of caution

Please remember that if you do reallocate investment income, you are giving away some control over that income stream, so if your spouse or civil partner decides to use their new found income to treat themselves, you may have little recourse!

Q&A - Tax Relief on Charity Donations

Emma — Mon, 07 Jun 2010 12:00:43 +0000

Now that my top rate of income tax is a whopping 50%, will I get tax relief at that rate if I make charitable donations in this tax year?

Yes. If you make donations to charities under the gift aid scheme you will get tax relief at the 50% rate. Your gift is treated as being made after 20% tax has been deducted. When you give £80 the gross amount of the gift is £100. Your personal thresholds for 40% tax and 50% tax are both extended by the gross amount of your donation. For your £80 gift you have an extra £100 of your income taxed at 20% rather than 40%, and an extra £100 of income taxed at 40% rather than 50%. In total you have gained tax relief of 50% (20% +20% +10%) on the £100 gross gift.

Q&A

Emma — Fri, 04 Jun 2010 11:43:54 +0000

My company has recently taken on an industrial unit that needs extensive fitting-out before it can be used by the business. How can I ensure that all the fittings I use will qualify for the maximum amount of capital allowances?

The cost of fittings that qualify as plant or integral features can be set against your company’s Annual Investment Allowance (AIA), which will give 100% capital allowance in the year of acquisition. The AIA cap has been increased to £100,000 per year for expenditure incurred on and after 1 April 2010. Plant is broadly stuff that is not fixed permanently to the building, such as shelves or display units. Integral features are fixed to the building and fall into these five categories:

Cold water systems (not hot)
Electrical systems (including lighting)
Space or water heating systems, including a powered system of ventilation, air cooling or air purification
Lifts, escalators or moving walkways
External solar shading
If the fitment does not qualify as plant or integral features it can qualify for 100% enhanced capital allowance (ECA) if it has energy or water saving qualities, and it has been included on the approved ECA list at: http://www.eca.gov.uk/

Commercial Property Losses

Emma — Fri, 04 Jun 2010 09:46:18 +0000

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

To Sell or not to Sell?

Emma — Wed, 02 Jun 2010 11:48:29 +0000

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

Q&A

Emma — Thu, 27 May 2010 11:01:26 +0000

My business is an agency that provides rented holiday accommodation to UK holiday-makers. My commissions are less than the VAT registration threshold, so I am not VAT registered. What contracts and invoices do I need to put in place to avoid charging VAT to either my clients (the landlords) or to the holiday-makers who rent the properties?

You want to stay under the VAT threshold, so you need to prove to the VAT man that you are an agent working on behalf of the landlords, and are not a re-seller of holiday accommodation. You should have a written agreement with each of the landlords that clearly states that the landlord is the principal who is making a contract with the holiday-maker, and you are their agent.

All invoices you issue should show your fees as separate items to the cost of the holiday accommodation. If the holiday-maker pays you for the use of the holiday-let, the bill they pay should clearly show the amount due to the landlord, and the amount due to you as the agent. Ideally the two amounts would be shown on separate invoices.

New Penalties for late PAYE Payments

Emma — Thu, 27 May 2010 10:56:30 +0000

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.

Coalition Tax Plans

Emma — Wed, 26 May 2010 09:37:37 +0000

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.

Q&A

Emma — Thu, 20 May 2010 08:05:57 +0000

I recently sold my 60% share in a trading company that I’ve been a director of for over 20 years. The sale included ordinary shares that had full voting rights, and preference shares, which had no voting or conversion rights, just the right to a fixed dividend. Can I claim entrepreneurs’ relief on the gain arising on both types of shares or just in respect of the gain on the ordinary shares?

As you held at least 5% of the ordinary voting shares and were a director of the company for one year up to the date of sale, entrepreneurs’ relief should apply. Although the conditions for entrepreneurs’ relief refer to ordinary voting shares, the gains arising on both the ordinary shares and preference shares can be included in your claim for entrepreneurs’ relief. If the sale was concluded on or after 6 April 2010 the maximum gain that can be covered by entrepreneurs’ relief is £2 million, for sales before this date the maximum gain that can be subject to an entrepreneurs’ relief claim is £1 million.