Entries from December 2005 ↓

Income tax is due on 31 January 2006 for the 2004/05 balancing payment and the 2005/06 payment on account.

Corporation tax is due on 1 January 2006 for companies with a year end of 31 March 2005.

The Civil Partnership Act 2004 enters into force on 5 December 2005, enabling same sex couples to ‘marry’ and enjoy the same tax advantages (and disadvantages) of heterosexual married couples.

Recently certain people have been hijacking company identities and running up bills in their name. One safeguard against this is to register for their PROOF scheme which ensures certain documents can only be filed on line with a password (rather than via the post). Please consider using this facility.

From 6 February 2006, local tax offices will no longer be accepting tax payments. From that date, options to pay will comprise:

•Post Office
•Bank
•On-line
•By post to Tax Payment centres

Click here for further details.

If you work from home you can claim a proportion of the heating and lighting costs against your business tax bill.

If you do not maintain records you can claim £2 per week.

A new strategy we are aware of is to rent a room in your house to your company (with the appropriate rental contract in place). This way you should have more expenses to offset against your profits and hence a lower tax bill. This idea will only work in certain circumstances – please contact us if you are interested.

Just a quick note to highlight some of the changes announced on 5 December 2005 by Gordon Brown in his Pre-Budget Report:

- corporation tax rates will be increased slightly from 1 April 2006. The details are complicated (for political reasons!) but the increase is on a sliding scale as profits increase between £nil and £50k. For example, at £30k profit your tax bill will increase by approximately £700.

- allowances on plant & machinery and computer equipment etc. increases from 40% to 50% from 1 April 2006. Hence, if you are thinking of splashing out on some new equipment it is advisable to wait until April next year.

- allowances for income tax and National Insurance will increase in line with inflation.

The majority of business expenses are easy to account for. This is because they either have an invoice attached or they are purchased with a company credit card. With cash expenses however, there is often no convenient paperwork to indicate where the money might have gone. The use of debit and credit cards may be rapidly replacing and eliminating cash transactions, but there are still several types of minor expenses that are more conveniently paid for with cash. These could include postage, office supplies, minor repairs, tips, petrol, parking and tolls, and public transport fares among others.

A cash float
If someone takes cash out of the company float, perhaps to cover any unforeseen expenses on a trip to see a client then, in the absence of any evidence to the contrary, the Taxman might choose to regard the payment as extra income. That means having to pay tax on the money.

Proof
It is important, therefore, to secure concrete proof of any cash expenses. Tickets, receipts and bills will show that the money went on legitimate business purchases and not into someone’s pocket. Of course, it is not always possible to get a receipt or bill. In these cases, a company ought to make sure that anyone who takes cash out should, on their return, put down on paper exactly how it was spent.

Meetings
The record needs to be accurate and reasonably comprehensive. If the money was used on a visit to a client, it would help to record who the meeting was with, when it happened and why it was held. This way, it is easier to demonstrate that it was a genuine business expense and, therefore, tax deductible.

VAT
Only claim a value for VAT if you have a valid UK VAT receipt (i.e. with the UK VAT number on it and the VAT amount shown).

Remember, if you have no receipts to prove the expenditure it could be taxed on you as income resulting in a tax/NI bill.

If you use subcontractors in your business (especially within the Construction Industry Scheme) the Revenue are clamping down whether these subbies should really be treated as employees of your business. You can check your situation on the Revenue’s website.

You may have heard that Gordon Brown’s coffers are getting a bit low. A result of this is a higher than normal level of tax investigations by the tax man. Defending yourself against such investigations can involve many hours of an accountant’s time and many pounds of your money!

We recommend that you insure yourself against the costs of an investigation. Insurance premiums for small businesses typically range from £100 to £200 per year and can cover income tax, corporation tax, VAT, IR35 tax and PAYE.