Points to Ponder
Welcome to our thirty ninth newsletter – produced during April 2008 and issued in May 2008,
to keep you up to date with some of the changes in Income tax, National
Insurance and VAT along with compliance regulations for businesses,
plus other oddments that have caught our eye. If you would like a copy
of any past newsletters, please call and we can either send or e-mail
them to you.
SPECIAL ITEM – HIDDEN IN THE BUDGET
Several points have now emerged from the Budget – all of which allow for extra penalties!
1. Earlier non-on-line Self Assessment filing date. This has now officially been brought forward to 31st October. Currently the on-line filing date has stayed at 31st January, but this may be altered next year.
2. Proposal to make record keeping standards statutory -
in other words, if your records don’t meet the proposed new legal
requirements, you will have committed a criminal offence! I have
underlined that the legislation is only a proposal at the moment, but
would be expected to become law within this Parliament’s term. The
Revenue’s guideline requirements at the moment are as follows:
a) Set up a system for keeping records and record all sales and
other business receipts as they come in and keep the records.
b) Maintain records regularly / frequently throughout the year.
c) Keep back-up records e.g. invoices, bank statements and paying-in slips to show where the income came from.
d) Record all purchases and other expenses as they happen and keep invoices for them unless the amounts are very small.
e) Keep a record of all purchases and sales of assets used in your business.
f) Record all amounts taken out of the business bank account or in cash, for your own or your family’s use.
g) Record all amounts paid into the business from personal
funds, e.g. the proceeds of a life assurance policy, the sale of
personal assets, lottery winnings etc.
h) Record petty cash transactions as they happen and
i) Retain records.
3. Increased Revenue powers to obtain information. Customs and
Excise officers have always had powers of entry without a prior
appointment, now the Inland Revenue wants the same as they have
combined. Some increase in powers has been granted with this Budget but
only in cases where HMRC can convince a senior officer that if advance
warning were given, the trader would be able to conceal evidence.
These points come back to what we have been asking all clients to do – HELP US TO HELP YOU BY KEEPING RECORDS AND TELL US EVERYTHING.
We are not suggesting that you invest in complicated computer
programmes – just keep all your paperwork and we can complete the rest
but we can only help you comply with the new laws if you let us have all
the relevant information.
You may think that the property you are letting doesn’t make a profit so it needn’t go on your return – but it does.
The interest on your Building Society account may be small and has
already had tax stopped on it, but it must go on your Self Assessment.
Tips you receive from customers above the amount you have charged
them may not be subject to VAT, but they are part of your income and
must be declared.
If this item does sound heavy-handed and worrying, it is because it
is meant to. We are concerned on your behalf so please review the
records you have and talk to us about how we can help you improve them.
It may be that everything is in order, but just take time to double
check
– please!
Now to the news – not too much new this month, so I’m mostly updating last month’s newsletter.
CIS Certificate withdrawals
The Revenue has started its review of gross certificates for
sub-contractors and is withdrawing them when tax payments and returns
have not been kept up to date. There is not much scope to appeal and
reapplication can only be made after a year of keeping all payments up
to date. This can cause severe financial difficulties if a
sub-contracting business loses its gross status but in turn uses
sub-contractors who are entitled to be paid gross.
Loss of the 10% tax band.
Those of you drawing minimal salaries will have noticed the
difference the loss of the 10% tax band has made – will the Chancellor
be persuaded to make a U-turn on this? The alternative compensatory
measures put forward sound even more complex than most of the other
changes this government has made.
Capital Gains Tax
For those planning to use taper relief on business assets held ready
to sell on retirement, the pre-Budget report was a nasty shock. The
Chancellor proposed to do away with all that and just set Capital Gains
Tax at 18%. By the time he delivered the Budget proper, he had done a
partial U-turn and introduced Entrepreneur’s relief, effectively
allowing a rate of 10% on business assets that had been in use by the
business for at least a year. All other Capital Gains will be taxed at a
flat rate of 18%, rather than the current regime where the computed
gain, after the annual exemption amount has been taken off (this will
continue to be given at £9,600 in the new tax year) is added to the rest
of the taxpayer’s income and taxed at whatever the relevant rate of tax
is – either 20% or up in to the 40% bracket. Good news for speculators
or those “hobbyists” who buy a property and do it up to resell. Be
careful though; sell too often and the Revenue will deem you to be a
property developer and tax the income as a trade.
Corporation Tax
The Chancellor is increasing this to 22% over the next couple of
years, effectively making it higher than the basic rate of income tax,
which is reduced to 20%. (Although the 10% tax band has ceased.) He is
undermining small businesses though, as the rate of Corporation Tax for
large companies has been reduced.
Capital Allowances
These are more easily understood as depreciation allowances and have
varied on the types of items bought. Computers have for some time
attracted the best allowances while cars over £12,000 have been (and
still will be) restricted. From 1st April 2008 for companies and 6th
April 2008 for sole traders and partnerships, up to £50,000 of capital
assets will be given 100% tax relief in the year of purchase, but
anything over that will be restricted to 20% of the reducing balance
annually afterwards.
ISA’s
If the current climate has left you any spare funds, the amount you
can invest in ISA’s has been increased up to £7,200 if split between
cash and shares or all put in to a stocks and shares ISA.
VAT Registration Level
This has been increased to £67,000 in any rolling 12 months with the de-registration level being £65,000 in the next 12 months.
Income Shifting Regulations
These were intended to close the “gap” highlighted by the Arctic
Systems case. However, the legislation has proved rather difficult to
formulate so it has been delayed until the next Budget. Now is the time
to review “family” arrangements in respect of business shares. If you
have given shares to other members of your family to maximise tax
advantages, the new legislation is aimed at stopping this. Shares need
to be held in the ratio of work carried out for the company or on the
basis of who generates how much income.
Travel Allowances
Normally you can’t claim tax relief on the cost of travelling to
work. However, if you have to visit several sites in the course of your
job, each for a limited period, and you don’t attend one site for more
than 40% of your time for more than 24 months, you can claim tax relief
for the costs of travelling to these sites. This is of course providing
that your employer doesn’t reimburse your travel expenses. This also
applies if you work for your own company.
CIS Fines
As expected, HMRC have not got everything working properly with the
scheme. It appears that the Government’s computer system can’t cope with
continuing nil returns. The on-line submissions allow for returns to
show that no subcontractors are expected to be used for the next six
months. This should allow the contractor to be “excused” making returns.
The computer doesn’t know this and is happily issuing monthly fines.
Dealing with this takes time but does result in a short letter stating
that the penalty has been waived but doesn’t say sorry for the error.
Revenue advertising
I see in one of the Sunday newspapers that the Revenue has taken a
full page colour advertisement to tell you all how wonderful and helpful
it is, especially its on-line services! Could this be a contravention
of the Sales Description Act?
Excessive Bank Charges
The delayed decision is expected soon on the legality of bank
overdraft fees. If the banking industry loses its case, it will have to
repay the excess charges levied on unauthorised overdrafts, going back
over six years. It appears that some banks do not have full records back
that far so may not be able to make the necessary calculations. If
taxpayers are required by law to retain their records for six years, why
are banks exempt?
Offshore accounts
The saga continues this week as the Revenue is sending follow-up
letters to account holders who didn’t respond to the first letter. They
will impose the maximum penalties allowed under the law.
Pensioner Winter Fuel Payments
The Government is trying to block payments made to pensioners who
have retired overseas to warmer climates. If they find a way to do so,
it would save in the region of £8million.
Property Owners Beware! (Speak to Sue)
Last month, HMRC sent out 500 letters to property owners who they
believe are not declaring income from lettings. These taxpayers have
been traced through small ads in local newspapers, cards in newsagents’
windows and the Internet. They expect to send out at least a further
1,500 letters shortly. Even if your lettings are making a loss, you are
required by law to make returns of all rental income. This is another
source of penalty income for HMRC to tap in to, as well as the
likelihood of large sums in back tax. As failure to declare income is
fraud, the Revenue can go back at least 20 years in making assessments.
Illegal Working Fines (Speak to Sue)
From 29th February 2008, new measures have come in to
force that were set out in the Immigration, Asylum and Nationality Act
2006. These measures include a fine of up to £10,000 per illegal worker
for employers who employ illegal migrant workers and a maximum two-year
prison sentence and / or an unlimited fine for employers who knowingly
employ illegal migrant workers. Employers will also have a
responsibility to check the on-going entitlement of migrant workers who
have a time-limited visa (such as a working holiday visa) to ensure that
their employees’ immigration status remains valid.
Increase in SSP, SMP etc. (Speak to Sue)
From 6th April 2008, statutory sick pay will go up to
£75.40 per week. Statutory maternity, paternity and adoption pay will
also increase to £117.18 per week. Additional information is available
at www.berr.gov.uk
Lower VAT Rate on renovations (Speak to Sue)
From 1st January 2008, renovations and alterations to
residential properties that have been empty for at least 2 years will be
eligible for the reduced VAT rate of 5%.
Offshore account disclosures. (Speak to Sue)
HMRC has given notice that a further 175 banks have been targeted but
may extend their disclosure scheme with reduced penalties but only to
account holders who haven’t received a letter from their bank. If you
have an offshore account, please make sure we know about it.
No more paper Self Assessment returns
From next April, HMRC will no longer accept substitute paper Self
Assessment returns, like those we generate on our computer system.
Returns must be made on line or completed by hand on the forms supplied
by HMRC.
HMRC promise “Openness and early dialogue in enquiries”.
HMRC has published a notice that it intends to be more open and
direct when initiating enquiries, including full information on what and
why it is making enquiries, how long it estimates they will take to
complete. This may be the time to consider your Professional Fee
Protection Insurance; especially if we said your records were not really
up to scratch!
Introduction of the new Money Laundering Regulations.
With the increase in terrorism and drug smuggling, we can understand
the need to monitor movements of money but the controls we have to
introduce are very heavy-handed and will be time-consuming, all adding
to overhead costs. Basically we need to be able to prove that we have
checked our clients’ identities and have such proof on file. For those
who have been with us for some years, we should hopefully have
sufficient documents already to satisfy the requirements, but for the
majority of you we shall still need to copy your passport or some other
identification that carries your photograph. We shall also need utility
bills to prove your home address. It would really help us if we can make
the necessary copies next time you call in to the office. I feel that
this identity checking is intrusive to say the least, especially as we
have known so many of you for so long, but if we are to maintain the
practise, we must ensure we have the required information on file – and
Oh yes – it will be securely stored to comply with the Data Protection
Act too!
Directors’ Duties & Responsibilities – changes in the Companies Act
From 1st October 2007, directors have additional obligations by law.
Rent deposits
Landlords are now required to register tenants’ deposits with one of
three Government approved schemes. Now deposits are either held by a
third party or covered by insurance.
Health and safety regulations and training
Any business with 5 or more workers, including sub-contractors,
owners and part-timers, must have a written Health and Safety Policy and
have carried out risk assessments as well as nominating and training a
first aider and a fire marshal.
Spam e-mails
Just don’t open these, or they will multiply. If you’re not sure of a message’s content, delete it unread.
Rent-a-room
Don’t forget this useful tax-free source of income.
Increase in the right to paid holidays.
With effect from 1st October 2007, the entitlement is going to increase to 4.8 weeks or 24 days for a full-timer and then on 1st April 2009, increases again to 5.6 weeks or 28 days for a full-timer. These days include bank holidays and will be pro-rata’d for part-timers.
National Minimum Wage
These have all increased and are due to increase again in October.
The rate for adult workers goes up to £5.73 per hour, for 18 – 21 year
olds it will be £4.77 and for 15 – 17 year olds, £3.53
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