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| APART FROM THE "STOP PRESS" SECTION BELOW THE INFORMATION ON THIS PAGE RELATES TO YEARS PRIOR TO 2009/10. PLEASE REFER TO THE SEPARATE PAGE FOR 2009 BUDGET, FINANCE BILL AND FINANCE ACT CHANGES FOR 2009/10. |
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>>Registration under the second offshore TAX AMNESTY, the “New Disclosure Opportunity” (NDO), ended on 4th January 2010. The NDO involves each account holder being offered a "deal" if they come clean about overseas bank accounts not yet declared. A previous "amnesty" took place in 2007/08. NOTE TWO THINGS > (1) this is not a total amnesty in the true sense of the word. You will still have to pay tax on the money but the fines and penalites will be reduced to only 20% for voluntary disclosure. (2) the previous amnesty also applied to UK income previously undeclared. It is thought that the same will apply in this next amnesty BUT the fines / penalties are greater this time. >>In similar vein a specific new tax amnesty has been announced between H. M. Revenue & Customs and Liechtenstein. The terms are different to the New Disclosure Opportunity (NDO) above and, some say, are unfair. The Liechtenstein tax deal gives account holders the opportunity to settle any unpaid tax with only a 10% penalty and going back only as far as 10 years. If you have errors or mistakes to admit then do so NOW before the Revenue come knocking. >> It is possible to pay tax bills by credit card thus leading to the possibility of huge "rewards" and money back from such cards. It is thought that credit card companies will not give such rewards on any amounts paid to HMRC. NOTE > HMRC will be passing on the merchant's credit card charge. Any tax bills paid via credit card will be subject to an additional 0.91% charge. >> BUDGET SPEECH & FINANCE BILL >> the Chancellor's first main 2009 Budget speech, given on 22nd April 2009, was published as the Finance Bill 2009 on 30th April 2009. See our Budget page for more infomation on the current year's tax rates and other related developments. >> The Revenue is planning to swoop on all landlords to check that they have paid the correct amount of tax. The main area is the buy-to-let market and the claiming of mortgage interest relief in the expenses. Make sure all expenses claimed are accurate, provable and "wholly & exclusively" for the purposes of earning the letting income. >>The new Taxpayer's Charter is
now available online here .....
>>In April 2010 it will be compulsory
for all newly registered traders immediately to file VAT Returns online. This also applies to businesses
with turnovers of £100,000 or more. All other businesses will be brought into the compulsory online
system over a period of time. We are authorised online filers and can file
your VAT Returns online for you if required. INCOME TAX
Arguably the
most common (and often the most misunderstood) tax there are many areas
for planning to keep the bill to a minimum. For those with their own
businesses there are special opportunities to save income tax by a variety
of means although, as with all things legal, careful attention needs to be
paid to individual circumstances. For an overview of
civil partnerships & tax please click on the above link to TAX PLANNING
TIPS AND OTHER NOTES A general
overview of tax rates etc. is given below with other aspects of the tax
covered throughout this site. Note: Capital
allowances/equipment depreciation is covered under corporation tax below.
The same principles apply for income tax. Income tax in
the UK is levied on a "tax year" basis, namely, 6th April to following 5th
April. Deduct any allowances claimable (depending on your personal
situation) from gross income to arrive at the figure of net taxable
income. Some of the main
allowance deductions due for the tax year 2008/2009 are
these: *These higher allowances granted if
total income below £21,800. Taxable earned income is then charged at
the following scale: Investment/savings income is taxed at the
following rates: Dividends:
Other investment income: From total tax due reliefs may be
deducted: 10% of the following: Tax relief is due on the following investements:
Child Tax Credit
may be due to you if you or your partner fulfil the following conditions. That
you: * are aged 16 or over and
This credit is awarded on a sliding scale
reducing to nil where income is above the maxinum. Working Tax Credits are "top up" payments for
single people/couples (higher amounts for couples) who work at least 16
hours per week and are on low income. Note - children are
not required to qualify for working tax credits. For further details and application forms
telephone the HMRC tax credit hotline on 0845 300 3900 (0845 603
2000 in Northern Ireland). For additional help and contact please
visit..... The
interaction between income tax, reliefs, allowances and credits can be confusing. Care must be
taken to arrive at the correct figure of tax/refundable especially under
self
assessment where
miscalculation errors can be costly. CAPITAL GAINS TAX To ensure the
impact of this tax is as small as possible please contact us for planning
advice prior to the disposal of any asset. Care must be taken when
considering such disposals likely to produce a capital gain. There are
many facets involved meaning that calculating a gain, and planning to
reduce it, can be very complex.>> NOTE > Major changes to the rules took place on 6th April
2008. Of main note is that Indexation and Taper Reliefs are
abolished from that date. Please consult us for specific advice on how the new rules
will affect your own situation. For a brief
overview of each factor bearing on capital gains please scroll down to any
of the following subjects that are of interest. General General Special rules
apply at all times to transactions in stocks and shares and to other
assets held at 31st March 1982. Assets Disposal Profits/losses
calculations 1. Total proceeds of
disposal 2. To acquisition
price/cost/value If 1. less 2. results in a
loss no further calculations are necessary. If the result is a
gain: IF the gain arose before 6th April 2008
apply official RPI indexation figures to the total costs (in 2.) from acquisition
date to disposal date (or, if earlier, 31st March 1998 if disposal is by an individuals). Net proceeds (1.) less
costs (2.) less indexation = TAXABLE GAIN There are other deductions and reliefs
which can be claimed to reduce the gain still further most notably the annual
personal exemption and special exemptions applying to dwelling houses. ["Retirement relief" was also
available until 5th April 2003] Residency FUTURE NOTE: HMRC has announced a major
review of the regulations surrounding both residency and domicile for tax
purposes. The new rules will
identify people who have "long term" UK connections and ensure the Inland
Revenue gets the "appropriate contribution to the UK exchequer from these
individuals". The current rules can offer very
favourable tax treatment and opportunities for tax planning.
It is
recommended that every advantage of the current position be taken before
the review is complete. Personal exemption
Note that Business Asset Taper Relief, "BATR",was abolished from 6th
April 2008. This would
give a real tax rate of only 10% to a 40% taxpayer. NEW: MANY
SHARES OWNED BY EMPLOYEES IN THEIR EMPLOYER'S COMPANY ALSO
QUALIFIED FOR THIS REDUCED RATE. A new “Entrepreneurs’ Relief” was introduced which, in essence, allows the first £1M of
gains on the disposal of a business to be free of Capital Gains Tax. However there are
many restrictions and conditions on which types of disposals would qualify for
this new relief. This may result in many business and individuals owning assets with
locked in capital gains seeing their tax bills rise on disposal of such assets. Note that this new “Entrepreneurs’ Relief” is not awarded automatically. It must
be claimed. So don't forget. Property owned personally but rented to the company is subject to special rules. Rates of charge
Individuals:
up to 5th April 2008, 20% or 40% - along similar lines to investment income. After
that date a flat rate of 18% appplies. Personal
representatives and trusts: up to 5th April 2008, 40%. After that date a flat rate
of 18% appplies. Companies This section
deals with some topical issues on personal self assessment : consideration
General/property income General/property income FHL properties have greater
tax advantages but, to qualify as a FHL, the property must first fulfil certain conditions.
The property must be: As a good
guide we recommend all landlords become familiar with the HMRC
Property Income Manual available from the HMRC website here .....
www.hmrc.gov.uk for more information.
Personal tax filing & payment dates Any HMRC issued self assessment tax
return must be filed, fully accurate and complete, by 31st January
following the tax year in question IF filed electronically online. If
filed in papar form the Return must be in the hands of the Revenue by 31st
October following the year in question. NOTE THAT ANY RETURN FILED ON
PAPER CANNOT BE WITHDRAWN. If you file on paper but file late you cannot then
withdraw that form in expectation of filing online before 31st January. POA are not
due on Capital Gains. The tax on such gains is due in one sum on the final
due date, i.e. 31st January following the end of the tax year in which
the gain arose.
The "top up" sum will usually be due if
the POA amounts were insufficient to cover the entire tax bill for the
year. For example, where the year's taxable amounts are higher than those
for the year before. New and expanding business will need to
plan for "top up " payments (particularly if
businesses are on rising profits). The "top up" is payable at the same time
as the first POA for the current year. This can be a particularly large
drain on finances if proper planning is not undertaken. WARNING IF YOU ARE NEWLY SELF EMPLOYED - New businesses will not
have any "previous year" tax bill. POA are therefore not payable in the
first tax year. All liabilities for this first year will be due in one sum
on the relevant final due* date together with the first POA for year two.
This is a relatively enormous amount and must always be considered most
carefully by new businesses. The importance of proper
planning here
cannot
be over emphasised. 30th
September date However, if a Return is submitted after
30th September there is no such guarantee. The calculation will be issued
when the Revenue can arrange it. This may be later than the relevant 31st
January. This is where self assessment comes in. To
avoid any interest etc. on late payment it is up to each taxpayer to make
their own calculation/estimate of the final amount due and send payment
voluntarily without any prompting. If the true calculation, when finally
issued, reveals a higher liability then there is a real possibility of
interest etc. being charged. It is vital that any and due all payments
are made on time. For those filing their own Returns after 30th September
without professional help this often causes great difficulties.
Interest on
overpayments and charges for late payment However, a much higher rate of interest
will be charged on underpayments than will be awarded on credit balances
and the rates will change from time to time as the Revenue align rates
with those used by mainstream commercial organisations.
"Statements" are issued periodically by HMRC
to enable taxpayers to see that tax debts and payments are registered
correctly. Penalties, surcharges and all debit/credit interest amounts are
also shown on these statements. Much adverse criticism has been made of
these statements (poorly designed, bad layout, almost incomprehensible to
follow etc.) as a result of which the forms are subject to ongoing
re-design/improvement. Indeed, the same can be said of the entire self
assessment system itself. All aspects of the scheme are continually
monitored for improvement and any constructive suggestions for change
would be welcomed by the Revenue. Failure to meet any of the statutory
deadlines could mean the incurrance of various fines etc. all of which
will suffer interest charges if not paid immediately.
Penalties >> Following a lenghty review a new system of
HMRC powers and penalties was introdced from 1st April 2009.The detials below
are of more general, continuing, fines & penalties.
Following consultation between the Revenue
and magistrates' representatives new procedures have been instigated which
grant tax collectors greater and easier access to courts. Outstanding
debts will therefore be, apparently, much easier for the government to
collect. Extended powers will mean employers will also suffer the threat
of a prompt magistrate's warrant if any usual monthly payment is late.
Surcharges Record
keeping Failure to comply can mean fines of
anything up to £3,000 for each tax year involved.
Substantial/serious
delay
In some cases penalties
can be calculated as a multiple of the tax in question AND/OR up to £60
PER DAY. Self assessment
basis for taxing business profits For 1997/98 onwards, however,
unincorporated businesses are, in general, taxed on profits shown by the accounts ending in
the tax year. For example, the entire profits shown in accounts to
30th April 2009 are taxed in the 2009/2010 year. Also "capital allowances" (granted for
depreciation of business assets) are a deduction in arriving at the
taxable profits. The importance of this may not be fully appreciated but
can have a marked effect on planning to minimise tax liabilities.
There are many special rules for new or
ceasing businesses, Lloyds underwriters, partnerships and other special
situations. Partnerships Unlike the previous situation (profits
taxed on partnership as a whole, each partner being potentially liable for
unpaid tax of other partners etc.) each partner is deemed to be carrying
on a separate/distinct trade. Each partner is therefore required to file
details of their own share of taxable profits and will receive individual
bills. Members will not now be required to meet the unpaid tax debts of
their Partners. Due to the interaction of these special
partnership rules and other aspects of self assessment partners must take
steps to ensure adequate funds are available to meet liabilities when
needed. This is particularly so on the termination of business when
someone may be faced with bills for huge amounts.
Again, here we recommend effective
planning especially in the area of partnership changes. Changing the date
of arrival/departure of partners can have a dramatic effect on the
resulting liabilities. An investigation, however, is in more
depth and can involve the provision of not only explanations but also all
relevant documents. For the purposes of this section, however,
no distinction is made as the procedural rules for both are the same.
The Revenue has, usually, one year from
the filing date to raise any queries into the figures. This will be
extended if a Return is late or certain other conditions apply.
If no enquiries are made in the time the
Return will stand unchanged unless some form of fraud, neglect or other
default is subsequently discovered. As there is no requirement to send any
other data apart from the Return itself "discovery" must be carefully
avoided. It is wise to ensure all information is given to the Revenue if
there is any doubt about the correctness of declared information. It is
also recommended all business, property letting etc. accounts be submitted
with reference to any contentious issues. Powers also exist allowing the Revenue to
ask questions about claims/declarations sent in separately from the Return
(subject to identical time limits mentioned above) and the Revenue can
demand to see documents relevant to the enquiries. Although appeals can be
made against such demands it is important to remember that paperwork needs
to be kept in order. On completion of enquiries the Revenue
issues details of any amendments needed to the Return and any appeals
against such amendments must be made inside thirty days.
IMPORTANT NOTE:
HMRC IS CURRENTLY REVIEWING THE ENTIRE CORPORATION TAX POSITION OF "SMALL"
COMPANIES. IT IS EXPECTED THAT WHOLESALE CHANGES TO LEGISLATION WILL FOLLOW
WHEN THE REVIEW IS CONCLUDED.PLEASE READ THE NOTES IN THE BUDGET PAGES
FOR MORE INFORMTION. We can offer all services to limited
companies including accounts preparation, tax calculations and advice on
all associated matters. We hope the information below will be of help in
answering some of the more frequently asked questions. Contact us for
specific recommendations about your own company's affairs. Each heading
listed below has its own section. Scroll down to view relevant
section. Brief notes on each subject are given
below but you should be aware this is an area of rapid change.
Why start a limited company? The question often arises as to which
business medium to use ..... a limited company or something esle such as self employment,
partnership, LLP or FLP. Each has its own good and bad points. For example, payment of dividends from a limited
company avoids paying National Insurance on those sums but there will be other issues to condsider. It
is dangerous to make a decisison such as this based on one fact alone. It is important that professional advice is
taken before embarking on a business venture in order to decide which is most appropriate
business medium for you.
Profits and losses "Profits" are defined as including all
income and taxable capital gains but certain specific types are excluded.
For example, "distributions" of profit from other UK resident
companies. It is important to note that, whilst all
forms of income may combine into one figure for the purposes of company
accounts, differing tax rules will be applied to each separate source.
Expenses must therefore be "matched" with the corresponding income -
trading income and expenses, property rental income and expenses etc. It
follows that sufficient records must be maintained to permit this
process. As with self-employed persons revenue
expenses are generally deductible for tax purposes if they are wholly and
exclusively for the purposes of the trade. Amounts claimed in the accounts
for fines (e.g. parking tickets), loan interest paid, purchase/disposal of
capital assets, depreciation, entertaining and some other areas require
careful attention as they will be completely disallowed for tax purposes
or be subject to special rules. Profit calculations for tax purposes will
follow normal accounting guidelines (with certain specified differences)
and income/expenses declared will therefore be on the basis of amounts
arising/relating to the year. This is irrespective of when the
amounts in question are physically received or
paid. Another item to receive particular
consideration is relief given for expenditure on capital assets (see
"capital allowances" below). Any claim under this heading is to be
deducted before arriving at the final tax profit/loss
figure. Losses are computed on the same basis as
profits but the manner in which tax repayments may be claimed, in respect
of those losses, is laid down by statute. The main ways in which losses
can be relieved are - 1. carry forward and use to reduce tax on
profits of the same trade in later years**
2. set losses against other income and
gains of the same accounting period 3. any balance unused can be carried back
and set against income and gains of the immediately preceding year. In some
cases the ability to carry back losses is extended. This option is not, however, available to investment
companies. 4. losses on termination of a trade may be
carried back up to three years prior to
cessation 5. losses arising to group companies may
be surrendered to other group members
**Note... point 1 states losses
cannot be used against future profits arising to a trade other than that
which gave rise to the loss
originally.
Where a change in ownership of the company
has taken place special rules may prevent full relief being obtained for
losses that arose before the change.
All loss reliefs must be claimed within specified time limits. These vary
depending on the heading under which a claim is made and care must be taken to
ensure deadlines are not missed.
Business stock & assets taken for personal use > where business owners have
removed stock and/or assets from their businesses for personal use the items are
deemed to have been taken from the business at SELLING price. This is a long
established principle previously backed up only by case law but which has now
been put on the statue books.
CAPITAL ALLOWANCES & DEPRECIATION
Depreciation/Capital expense allowances > NOTE > from 6th April 2008 a new system of granting tax relief
for capital expenditure came into effect. Contact us if you need advice about claiming allowances
for years prior to that date. Also see the Budget pages for information on later developments.
Whilst any
accountancy depreciation is disallowed for tax the legislation permits
claims for a form of "tax depreciation". There are many areas for claiming
these allowances - plant/machinery (including ships), industrial
buildings, agricultural buildings, scientific research and know-how to
mention just a few. PLANT AND
MACHINERY is probably the largest area for claims and covers all
functional assets used in the continuance of the trade - factory
production machines, computer hardware, motor vehicles etc. Assets merely
forming part of the setting in which the trade takes place (wall
pictures/potted plants in the reception area of a factory, for example)
might not qualify for allowances under this heading. Tax legislation
does not define "plant and machinery" or the difference between
"functional" and "non-functional" assets. The matters have been before the
courts on numerous occasions with the result that a plethora of rules
relating to various items of expenditure has been established.
From 2008/9 onwards small and medium-sized businesses will be eligible for an immediate 100% first year
allowance on the first £50,000 of eligible expenditure each year on plant & machinery. This is expenditure which
would previously have been classified as "general pool" or "special rate" expenditure. This new allowance
is entitled “Annual Investment Allowance” (“AIA”). The maximum £50,000 Annual Investment Allowance is to be shared between "related" companies
in whatever proportion the owners decide. Companies are "related" if they have similar activities and/or
shared premises. Annual writing down allowances on plant and machinery is reduced from 25% to 20% with a composite/hybird rate
for the transitional period when both the old and the new rates would have appplied for different parts of
the period. Annual Writing down allowances on long-life assets is increased from 6% to 10%. Any “small” pools of unallowed capital expenditure under £1000 can be written off in full from April 2008. Expenditure on certain defined fixtures and fittings within commercial buildings are eligible for an annual writing down
allowance of just 10% from April 2008. Qualifying expenditure is set out in a statutory list which includes
electrical lighing systems,lifts, escalators, thermal insulation, cold water systems, other water & space
heating systems and ventialtion cooling. Note > always remember that special rules for capital allowances apply to North Sea oil and gas ring fence
businesses. POINTS TO CONSIDER >> in light of the withdrawal of industrial buildings allowances (see below) review capital
expenditure to investigate if it could now be better claimed as repairs or under an alternative part of the
capital allowance rules such as plant & machinery or mineral extraction. SPECIAL NOTES -
1. Cars - a
100% deduction is available where the car purchased is a low emission
model (max. 120g/Km of carbon dioxide), registered after 16th April
2002.
Allowances are
not compulsory. They may be "disclaimed", wholly or in part, if it is
financially prudent to do so. Also motor cars and some second hand assets
may have special rules restricting the allowances available. INDUSTRIAL
BUILDINGS allowances are defined by legislation. In the main these relate
to costs on building structures used for qualifying purposes, typically,
processing/manufacturing industries or the provision of certain services
including electricity, water and transport. Not included are
offices, retail shops and hotels although hotels qualify for specific
reliefs not available to other buildings. NOTE THAT Industrial, Hotel Building and Agricultural Buildings Allowances
are to be phased out completely by 2010/11. Amongst the many
changes being debated is a move towards allowing accountancy depreciation
figures instead of capital allowances. Capital
Gains/Losses As indicated above (see "Profits and Losses") net chargeable
capital gains form part of overall taxable profits and are therefore
charged to tax at the same rate as applies to other profits. If a net
capital loss arises this will not be set against other trading
profits but, instead, will be carried forward to reduce tax on future
capital gains. The ability to use losses may be prohibited if there has
been a change in company ownership. In the main,
company gains and losses will be computed using the same rules as for
individuals (see "Capital Gains Tax" page of this site) but for two main
exceptions: 1. there is no
annual exemption 2. capital gains of companies continue to
benefit from indexation relief Any year under
consideration is often referred to by the year it starts. For example, the
year 1st April 2009 to 31st March 2010 is the "2009 financial
year". Rates of tax on
profits for the financial year to 31st March 2009 were:
Small Companies' Rate - 21% - £0 to £300,000 NOTE:
Certain cash holding investment companies will pay the full 30% rate on
all profits irrespective of their size although this is now under further
review by the HMRC. Under the "Pay
& File" arrangements tax is normally due nine months after the
accounting year even if the accounts are not finalised. The corporate Tax
Return must then be filed within twelve months of the accounts. Interest
on late payment and other penalties for non-compliance apply throughout
the rules. Corporation tax
self assessment adds further complications (see below) and Companies'
House also require submission of final accounts within ten months of the
accounting period end. Not only must all
these deadlines be carefully remembered but new companies have additional
regulations placed upon them. In general, the
importance of the administration procedures cannot be over
emphasised. Corporation
Tax "Self Assessment" (CTSA) Companies are
required to work out their own assessment of tax and will not have the
option of requesting the Revenue to carry out the calculation. This is the
main difference from the personal tax system. The need for
Revenue generated tax assessments is negated by self assessment but
procedures for resolving disagreements etc. are still in place. Charitable
gifts and donations Advance
Corporation Tax (ACT) [NOTE : for the present, the Revenue has
introduced a "notional credit" of 1/9th to ensure taxpayers pay no more
personal tax now than they would have done under the old system. However
this notional credit is not reclaimable by non taxpayers.] Any unallowed ACT
as at 5th April 1999 "surplus ACT" is not lost but benefits from a new
method of relief commonly called "shadow ACT". The calculation of this new
relief can be complex and requires specialist knowledge. Foreign dividends
have certain special treatment for tax purposes. Groups of
companies/Consortia Groups are
treated as if they are "connected persons" and transactions between each
other will be viewed in the light of special rules depending on the nature
of the transaction involved. Some examples of this are as follows:
As with all areas
of taxation there are several anti-avoidance provisions covering such
matters as: Close and
"family" companies This type of
company is bound by identical rules as any other company but great care
must be taken in order to avoid the many pitfalls applicable to it. The
situation is worsened by the introduction of Corporation Tax Self
Assessment (see above) which brings with it extra
complications. IR35, the "umbrella"
company, "Managed Services" & The Personal Service Company (PSC) Where a PSC has not paid
out all its income as salary then the money is,nevertheless, likely to be classified
as salary. As a result income tax and NI are charged on both the company AND the individual. All such companies will be affected by the changes even if
they are not flouting existing rules. It is thought that, should these
continue in the adverse financial climate, many companies may cease trading and jobs will be lost. Since these
rules came into operation many legal arguments have taken place and cases
have made their way through the courts. The Stutchbury case, although
failing to dislodge the so called IR35 regulations, was important in that
the presiding judge identified imprecise areas of the legislation where
the Inland Revenue was instructed to clarify. A very recent case, involving
John Bessell and his company Dragonfly Consulting, is currently going through the UK courts'
appeals procedures. The Professional Contractors Croup claims that a rejection of his appeal
could "undermine much of the successful defence against IR35". The latest court decision is expected
around mid summer 2009. In the "Arctic Systems"
case (Jones v. Garnett) a family
company was taken to court under Trusts legislation. At the initial stages
Mr & Mrs Jones lost their case but,following a dramatic reversal of fortunes,
the House of Lords found in their favour against the Revenue. The decisison
was announced on 25th July 2007. Not surprisingly a
ministerial statement was issued almost immediately after the decision giving
the government's inital views. The statement gives clear indication of more
complex tax legislation is to be issued relating to settlements, family companies,
taxation of dividends and related issues. At the moment new legislation and other
proposals introduced by HMRC threaten to impose tax consequences on what they
describe as "income shifting". Great care must be taken where a small close company
proposes to issue dividends etc. to shareholders and employees. Consult with us
if this concerns you. Even though the government has
announced that the proposed new regulations have been "shelved" our advice is to
keep a careful watch on any rule changes and lobby Members of Parliament
as you feel appropriate.
Return to top.
We can provide
assistance in all areas of inheritance tax including compliance work and
tax planning services. For the purposes
of this web site "gifts" and "transfers" have virtually the same meaning.
However, there will be the odd occasions when their meanings will
differ. Essentially, this
legislation taxes accumulated wealth on: 1. gifts during
lifetime With a little
careful planning this tax can often be greatly reduced or avoided
completely. Special trusts and forms of insurance exist to reduce the tax.
There are also many reliefs and deductions to be claimed. Care must be
taken not to overlook the tax planning opportunities. Brief notes are
given on each of the following. Please scroll down to the topic of your
choice. > Basis of tax, tax
rates and payment dates Basis of tax,
tax rates and payment dates Any transfer
taxable during lifetime (e.g. perhaps into a Trust) is charged at half
the death rate(s). Tax is calculated
with reference to all cumulative transfers made in the previous seven
years. For deaths
occurring after 5th April 2008 tax rates are: NOTE >> whatever
proportion of the nil rate band is unused on the death of one spouse can be
added to the nil rate band of the surviving spouse on the second
death IF the executors of the surviving spouse can prove their claim to
the satisfaction of the Revenue. It is therefore vital for all papers relating to
the first death to be kept safely with the Will of the surviving spouse. Any tax due is
payable as shown below: Rules exist to
charge interest and various penalties where deadlines are
missed. Particular rules
apply to tax payable by instalments, assets "conditionally exempt" on
death, tax due from Personal Representatives applying for Grant of Probate
and others circumstances. People who are
liable to pay The definition of
"domicile" is complex as it is surrounded by much case law etc. Generally
speaking, a country of domicile is that which is regarded as "home". For
inheritance tax two extra conditions are very specifically laid down in
law. UK domicile is deemed to be established if, on or after 10th December
1974 and: 1. within 3 years
prior to the transfer, you had a UK domicile or 2. in 17 out of
the last 20 years prior to the transfer, you were UK resident (as
defined) Residency FUTURE NOTE: The
UK Revenue is undertaking a major review of the regulations surrounding
both residency and domicile for all tax purposes. It is intended
that any new rules will identify people who have "long term" UK
connections and ensure the Treasury gets the "appropriate contribution to
the UK exchequer from these individuals". The current rules
can offer very favourable tax treatment and opportunities for tax
planning. It is recommended that every advantage of the current position
be taken before the review is complete. Exempted gifts
and other transfers If a transfer or
gift is to be exempted it must be made free and unencumbered. A
transfer made with conditions attached where, for example, the donor
retains rights of ownership in, or ongoing use/enjoyment of, any
asset it will be termed a "Gift with Reservation". The intended exemption
will not then apply. As IHT is a tax
aimed at transfers of capital then any transfers proved to be out
of regular income (e.g. normal birthday presents and other
transfers not affecting normal lifestyle of the donor) are not within this
tax. Married spouses
are taxed separately and can each take advantage of all exemptions,
reliefs and deductions in their own right. Transfers between UK domiciled
spouses are completely ignored for this tax. Other principle transfers
exempted are: Wills & Taper Relief on death Many spouses have
wills that leave all assets to the surviving spouse on the first death.
Each spouse has the ability to benefit from a large lifetime exemption
(see "Rates of tax" above) but, if the exemption is not used efficitently at the first
death, financial benefits will be lost forever. The result can sometimes be large amounts
of tax being paid on the second death that could have been
avoided. In most cases it is now possible for all or part of the "nil rate band" to be transferred
to the surviving spouse if not used fully on the first death. However, even this
is not as simple as it sounds. There are restrictions and requirements involved. Appropriate
action is needed to ensure the wills are drafted with tax planning in mind
particularly to keep this exemption. If death occurs
before a will can be changed it may be possible for all beneficiaries to
agree to a Deed of Family Arrangement. This, in effect, rewrites the will
in arrears. There are time limits and other legal considerations to this
in respect of which it may be appropriate to seek advice from a solicitor
(or other legally qualified source). NOTE: There is much
speculation that the Deeds of Variation tax planning tool will be
cancelled out by new legislation. This appears to be under review by the
Revenue. Taper relief
on death As indicated
above, any tax paid on a lifetime gift is calculated at half the full
death rates. If the donor dies
within seven years of the transfer the transfer will be charged to
additional tax as if it were still in the estate at death. The following
scale then applies to arrive at the extra tax due: Tax is calculated
at full death rates but the tax paid on the original transfer is then
deducted. The result is the extra amount payable. This additional
tax is payable by the recipient of the original transfer but, if the tax
at full rates is less than the tax paid originally, no refund is
made. WARNING: if a gift escaped tax when made, it
may still be charged FULLY to inheritance tax, without reduction, if death
occurs inside 7 years. Some thoughts on changing from joint tenancy to Tenants in
Common There is clear potential for tax saving here. If a property is owned by a married
couple under joint tenancy then, on the first death, property passes straight to
the surviving spouse. This is without any IHT charge but also without the benefit
of the deceased’s “exempt” amount. In consequence, on the survivor’s death, the
whole property falls into that estate and is charged to IHT with only the benefit
of one “exempt" amount. If the ownership was as Tenants in Common then each spouse could leave their share
of the property to, for example, their children (taking care to ensure the surviving
spouse’s rights to total occupancy during their life). This would mean the couple’s
estates would benefit from using both "exempt” amounts. On the other hand there are also potential pitfalls both financial and non-financial. How does the surviving spouse feel about one half of their home being in the
ownership of their offspring? What happens in the event of a serious family fall out?
What happens if the offspring is sued for divorce and the half share in this property
forms part of the “assets” to be distributed in the divorce? Not nice. Another option would be to consider the creation of “nil rate band" discretionary trusts.
The trustees would own the property interest so the trust assets would stay outside the
estate of the surviving spouse who, with the offspring, are the trust beneficiaries. Legal
advice will be necessary here on the drawing up of such trusts and the impact of changes
brought about by the 2006 Finance Act This is an area often
overlooked. We can provide guidance to ensure compliance with all the
regulations whilst not overlooking any planning opportunities. Adherence
to regulations and planning is as important here as anywhere else. General
guidance on some issues is given blow - please scroll down to any topic
that is of interest. This is an area often overlooked. Adherence to
regulations and planning is as important here as anywhere else. General
guidance on some issues is given blow - please scroll down to any topic
that is of interest. Government
Departments Government Departments Rates of
VAT Annual accounting scheme
Flat rate
scheme Business are required to
issue invoices to customers under the flat rate scheme but not necessarily
to keep all records of income and
expenses. WARNING - there is
some doubt as to how tax inspectorate view this scheme as the rules of that
departmental section state clearly that full records are required
to be maintained. A trader needs to check
if any of the following conditions apply from 6th April 2008. If any is
answered "yes" it would be advisable to consider
registration: 1. Has the turnover of
the business exceeded £67,000 in the 12 consecutive months just ended? In
this case registration is mandatory within 30
days. 2. Is the entire
£67,000 amount likely to be received in the next 30 days? Here,
Customs and Excise should be approached immediately as registration
is required before those next 30 days' sales are
made. 3. Am I approaching the
£67,000 threshold and is my business expanding? It would be advisable to
review the business particularly to see if record keeping is adequate to
cope with VAT. Also consideration should be given to possible advantages
of voluntary registration. If turnover falls below
the above mentioned registration limits it may be possible to cancel
registration. The levels of turnover applicable to deregistration vary
from year to year. Exemption and
zero rating "Exemption" indicates
that the particular trading activity is entirely outside the scope if VAT
regulations. The result is that no VAT is chargeable on sales but no VAT
is reclaimable on expenses. Examples include most medical or educational
services. "Zero rating" means the
business charges VAT but at 0% and it is entitled to claim
qualifying VAT on expenses. In these circumstances VAT refunds may
occur. Administration Income ("outputs")
and expenses ("inputs") Virtually all VAT paid
on business expenses can be reclaimed via the quarterly VAT Return form.
It is necessary to prove any claims. Typically, this is achieved by
keeping proper VAT receipts for expenses. In some circumstances
it is possible to reclaim VAT paid on expenses before
registration. As always there are
exceptions to the general expense principle. For example, VAT on road
vehicle fuel is subject to special rules, no VAT on entertainment is
reclaimable (except for certain "staff" entertainment) and land/property
regulations impose their own rules for VAT. There are many
others. If a trader makes
"mixed" sales, i.e. some sales taxable and some not, it may be possible to
take advantage of a special Retail Scheme (there are several) to ease the
burden of calculating VAT reclaimable. Approval must be obtained from the
VAT Office if such a scheme is to be used. Income and expense
records will be inspected periodically by visits from Customs officers.
The frequency of these visits will depend on a number of factors - nature
of business activities, accuracy of records kept, co-operation of the
trader etc. Customs will decide how often to visit and the first visit
after registration is, we feel, the most important. The success, or
otherwise, of this first visit can guide Customs in their
decision. If rules are broken,
mistakenly or deliberately, interest and penalties can be severe. Advice
must be taken promptly from appropriately qualified persons if any VAT
questions arise. Remember that time limits are most
important. International
matters Special rules apply if
goods/services are provided by a UK registered business to a
person/business based in another EC country. A VAT charge may not be
necessary but other statistical information may still be required (the
"Intra Stat" rules). It is also important to establish whether the
goods/services are provided to the recipient in its business or personal
capacity. In general,
goods/services provided to a customer outside the EC are outside the scope
of VAT. If so, a VAT charge may again be
unnecessary. Other
aspects ROAD FUEL SCALES
CHARGES - latest scale charges for deemed "private motoring" of cars
are available here at the HMRC website here..... BAD DEBTS - recovery of
bad debts is now automatic after 6 months' non-payment has passed.
Conversely, VAT input tax is not reclaimable if a purchase invoice is
unpaid after 6 months. It is vital that VAT on
any bad debt is reclaimed within 3 years otherwise no claim will be
allowed but see the Budget page for new changes.
FINES - automatic fines
for late returns are scrapped. The VAT office would rather "educate"
business to improve their Return rate rather than
penalise. BUILDINGS - some changes
have been put in place regarding extension of the reduced rate (5%) on
residential conversions/renovations and improved treatment of "zero
rating" for charitable part-use of a building. Call us for full
details. NATIONAL INSURANCE
CONTRIBUTIONS Over recent years many
changes have taken place in this area. It is a worthwhile exercise
ensuring all liabilities are covered before records are inspected, thereby
avoiding penalties, and to assist in planning to reduce the
costs. The details
below will give some insight into the operation of the main rules. The
rates stated are those for 2008/09. Classes and Rates for
NIC charged to the self-employed as part of their self assessed
Tax Return calculations: > Classes 1A and 1B
National Insurance are special classes of charge levied on employers for
certain perks/benefits given to employees and on any "PSA", a PAYE
Settlement Agreement. It is possible to reduce
the impact of this increase by effective advanced planning. As with all
planning it is better to start it sooner rather than later. Contact
us for more details. Administration NIC are usually payable
monthly with interest/penalties being chargeable if paid late. Other
payment periods (quarterly, annually, irregular) are negotiable and must
be discussed/agreed by HMRC. Exemption and
exceptions Deferment may also be
granted if maximum NIC are already being paid from a source of PAYE
income. This may be of help to those who, for example, have multiple
employments/self employments, one office highly paid and other positions
paying lower salaries. All tax
planning needs careful attention to avoid contravening "anti avoidance"
regulations and case law interpretations. IMPORTANT: Please click
here to read the
disclaimer then click the back button in your browser to return to this
page. New tax
penalty & appeals regime - a new tax penalty system has been
introduced across all taxes managed by H. M. Revenue & Customs from
1st April 2009 where the return in question is due on or after 1st April
2010. We feel the new rules have more clarity on the penalties charged and
more relief for innocent error as the new rules include a distinction between
"careless" and "deliberate" conduct. Note also the design and
procedures for Commissioners’ appeal hearings is changed as is their name. They are
now referred to as Tax Chambers (NOT to be confused with lawyers who work in leagl
chambers). Income tax
& married persons/partners - if one spouse is taxable at
higher rate(s) than the other consider transferring income generating
asset(s) to other spouse. Objective is to put taxable income in the hands
of the spouse paying tax at the lower rate(s) and keep overall household
tax bill lower BUT BE VERY CAREFUL about new taxes on "income shifting"
referred to above. Civil Partnerships
- the Civil Partnership Act 2004 (CPA) created an entirely new legal status of civil
partner giving same-sex couples in the United Kingdom the opportunity of acquiring
a legal status for their relationship. For tax purposes the Government announced that
civil partners would be treated the same as married couples. The tax changes took
effect from 5 December 2005. The most significant are as follows: 1. Transfers between civil partners in lifetime or on death are generally exempt from inheritance tax without limit. 2. Only one property owned by a couple who are civil partners, whether that property is owned solely or jointly, may be treated as the principal private residence of either of them at any time for the purposes of capital gains tax “private residence” relief. 3. Transfers of assets between persons who are civil partners and living together will be on a “no-gain, no-loss” basis for capital gains tax purposes. 4. Pension tax legislation is amended so that references to husband, wife, ex-husband, ex-wife, spouse, ex-spouse, surviving spouse, widow, widower will now include civil partner, former civil partner and surviving civil partner under the terms of the Act. 5. There is an exemption from stamp duty and stamp duty land tax for transactions carried out in connection with the dissolution of a civil partnership so that transfers of shares or the transfer of the partners’ home from joint ownership into the sole ownership of one of the ex-partners is exempt. 6. Where one of the partners was born before 6 April 1935 the partners will be entitled to an allowance equivalent to the married couple’s allowance (see next topic below). 7. Anti-avoidance legislation is extended to include civil partners in the same way as spouses. This includes the legislation relating to settlements, company control and the transfer of assets abroad. Income tax
& older people - those aged 65 or over may be entitled to
higher personal tax allowances (see Income Tax). To avoid the infamous
"tax trap", keep taxable income below the limit and qualify for these
allowances by placing cash in alternative investments (e.g. Individual
Savings Account plans and "With Profits" bonds). Rented out
property - if property is let furnished remember to claim all
available expenses including either the 10% "wear and tear" deduction or
replacement costs.Watch out too for changes in attitude as well as
legislation. For example, the rules on claiming for the costs of
replacement double glazing have been relaxed. We recommend you discuss
this issue with us as the rules and attitudes are constantly changing. Dividends
or salary? - small/family companies may be tempted to pay out
profits via dividends rather than salary as costs are reduced and cash
flow greatly improved. However, the following points must be
remembered: 1. Impact of the
tax credit system (see Corporation Tax). 2. What is classed as "pensionable income" for
some pension planning purposes? Dividends may not be. 3. Dividends
could artificially inflate the value of the paying company for inheritance
tax purposes and could cause artificially high tax bills on shareholder's
death. 4. Until 2005/06 there were
special rules to determine how much corporation tax small companies will
pay, that is companies with profits of up to £50,000, where some or all of
the profits were paid out as dividends.As mentioned elsewhere in this site
GREAT CARE must now be taken where a company wishes to pay dividends and/or salary
to connected people(e.g. husband & wife or other family members). New
businesses - Care must be taken on start up in choosing the date
at which the first accounts will end. This is particularly so when initial
profits are erratic. Tax can be saved and cash flow improved if time is
taken to examine which date to choose. Inheritance
tax - Make careful use of Trusts to assist in reducing the
potential bill and ensure death benefits from pension plans
are written in Trust. Company
cars - since 6th April 2002 drivers of "gas guzzling" vehicles
have seen a large increase in their tax bills. Advice is to review cars
and plan to change to more fuel efficient transport. Advice may be to
simplify arrangements and consider using the Authorised Mileage Rates.
These authorise tax free payments to employees for the use of their own
car on company business. The rates are 40p per mile, for the first 10,000
business miles, and 25p per mile thereafter. If the employer pays less
than the full rate the employee can claim the difference as a deduction on
his/her personal Tax Return. Company
vans - Up to 2004/05 a van provided by an employee for an
employee's use results in a flat rate tax benefit charge of £500 to the
employee. From 2005/06 this is reduced to NIL but only IF the van
in not used for any private purposes whatsoever. From 2006/07 the
taxable benefit charge, where applicable, is increased to £3,000.
It is therefore vital that all employers in this position review the basis
on which employees are provided with company vans to ensure that, so far
as is practical, no tax benefit charge arises. Unpaid
tax - under a new EC agreement regulations are being put in place
to allow the tax authorities of EC countries to pursue people across all
member countries for unpaid tax debts, wherever arising originally.
PLANNING GAIN
SUPPLEMENT ("PGS") - Make no mistake … IF EVER INTRODUCED IN ITS PROPOSED FORM
(which is now unlikely)
this will be yet another new tax if not in
name. The last attempt to tax these types of development gains was Development
Land Tax (DLT) but that was eventually decided to be unworkable and DLT was
abolished in the Finance Act of 1985. It is believd that the PGS proposala may be shelved. Brief
notes on what the new rules may look like are as follows: Consideration is to be given to the treatment of small-scale improvements
on non-residential property. A lower rate of PGS may be applied to brownfield sites. Unlikely that there will be a general de minimis limit. The Barker report recommended special consideration be given other
circumstances. For example areas with particular housing growth strategies
or other social/environmental costs. The consultative document makes no mention of this. Instead the consultative document promotes a unified single rate to minimise the risk
of distortion and mitigate the problem of apportionment where the site in question
is for “mixed use” purposes. The tax rate to be applied is unknown although speculation is that the rate will be
in the region of 20%. It is reported the rate will be ‘modest’ so as not to discourage development. Basis of calculation PGS would be charged on the planning gain. This is the difference between the
“planning value” (PV), the value of the land with full planning permission, and
“current use value” (CUV), the value of the land in its current state without any
development permissions. PV and CUV would be assessed on the assumption the whole site is unencumbered
freehold with vacant possession. When assessing the PV all contributions made under a reformed planning system
would be taken into account. PV will be determined largely by the ultimate development value which, in turn,
looks to be determined by the development nature and other related factors
(density, location etc.). CUV would depend on the value of any development already permitted and the
nature of the site (developed sites being subject to more variation than undeveloped
ones). The calculation would appear to result in …. (PV – CUV) x PGS rate = PGS liability It is likely that PGS would be treated as an allowable business expense. We cannot see any proposed legislation allowing PGS to be offset against other
taxes such as VAT and SDLT. Planning Gain Supplement calculations look likely to be applied at the point when
full planning permission is granted but the tax would not be due until development
actually starts. The developer is required to declare his intention to commence development. To proceed he will need a statutory Development Start Notice which will identify
him as the chargeable person for the purposes of the tax. Legally no development can start without a validated Development Start Notice. The chargeable person will then be required to make a return of the tax (and payment)
to H. M. Revenue & Customs within a specified time. The Report suggested that the tax be paid over instalments but the Revenue document
makes no mention of this. It is assumed, therefore, that the tax will due in one sum. HMRC and the Valuation Office Agency will carry out risk-based assessment of the
return and valuations. Should a developer fail to comply with these regulations he is likely to suffer
the usual consequences of interest, penalties, the issue of a “Development Stop Notice”
and possible Court action as necessary. Legally development cannot then recommence without a new Development Start Notice.
To get this the developer will have to resubmit paperwork together with full payment
of PGS, interest and any penalty charges. ....and
finally.....
Overseas
bribes - even if payment of an overseas bribe is not a crime in
the UK it is, from 1st April 2002, no longer a tax deductible expense in
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