EJBC Chartered Accountants

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.

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.
 

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. 

Your workplace in Manchester will qualify as a temporary workplace as the contract is expected to last for less than 24 months. Thus all reasonable travelling and accommodation expenses connected with that assignment can be reimbursed to you by your company. You should provide receipts for all the expenses, unless the amount is covered by a dispensation agreement your company has with the Tax Office, such as for mileage claims.

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.

Stamp Duty Land Tax
One of the give-aways of this Budget is relief from Stamp Duty Land Tax (SDLT) due on buying residential properties that cost up to £250,000, where the property transaction is completed between 25 March 2010 and 25 March 2012. The issue is that this zero rate only applies to first-time buyers, and the relief will have to be claimed by those individuals, it will not be given automatically.
To help fund this tax relief an additional rate of SDLT is to be introduced at 5% on properties costing £1 million or more from 6 April 2011. So if you are planning to buy that million pound home, get on with it!
 

VAT Rates
The rates of VAT have not been changed. The standard rate remains at 17.5%, the reduced rate is 5%.
 

VAT Registration Threshold
The level of turnover that triggers a requirement to become a VAT registered trader within 30 days is to rise by £2,000 to £70,000 with effect from 1 April 2010. The turnover threshold below which traders can apply to become deregistered for VAT increases by £2,000 to £68,000 from the same date.
 

Postal Services VAT
Certain commercial postal services provided by the Royal Mail and ParcelForce will become subject to standard rate VAT from 31 January 2011. Services provided to private individuals, such as stamped mail, will continue to be exempt from VAT.
 

TAX Avoidance
 

Off-shore Income
The Taxman has been gathering information about off-shore accounts held by British residents from banks based in the UK and in tax havens such as Liechtenstein. Now three further tax havens; Belize, Grenada and Dominica are about to sign information exchange deals with the UK.

Tax evaders with off-shore accounts were given until 12 March 2010 to come clean and declare all their off-shore income and gains to HMRC. If they persist in their tax evasion tactics after 1 April 2011 and hide money in a country that does not have an information exchange agreement with the UK, they will find themselves subject to penalties of up to 150% of the tax due. If the tax evaded is £25,000 or more, HMRC may publish the taxpayer’s name and address as part of their name and shaming powers.
 

Security for PAYE
Currently the owners or directors of new businesses may be asked to provide a lump sum to HMRC as security before the business is permitted to become VAT registered. The Tax Office tends to demand such payments where the business owners have previously been involved in a business that failed owing VAT. From 6 April 2011 HMRC will also be able to ask for security payments from the business owners before the business is permitted to operate a PAYE scheme.
 

Special Annual Allowance Charge
Taxpayers with total income of over £150,000 will have to pay a special annual allowance charge (SAAC) of 20% to 30% of the irregular pension contributions they make that exceed £20,000, or in some cases £30,000, in 2009/10 or 2010/11. Irregular contributions are defined as those made less frequently than quarterly. The measure of income is the taxpayer’s total income before deductions for the current tax year, or in either of the two preceding tax years.

New Obligations on Employers
In spite of these excessive tax charges on high pension contributions the Government wants all workers to be a member of a pension scheme. From a date to be announced in 2012, all employers will be required to ensure that their employees are members of a pension scheme. If the employee is not already a member of a registered pension scheme he will be automatically enrolled in the Government scheme known as the National Employment Savings Trust (NEST). The employer will be required to make contributions to NEST or the employee’s registered pension scheme.