Entries from January 2008 ↓

Alistair Darling has announced that the 2008 Budget will take place on 12 March 2008.

The chancellor has today announced changes to the new CGT regime which is due to commence in April 2008. After much lobbying, the Government has caved in and offered the relief which helps individuals who are selling either a trading business, partnership or company.

These individuals will effectively only pay 10% tax on the first £1m of gains when disposing of such assets. The £1m cap is a lifetime limit; after that the tax rate returns to the new mainstream rate of 18%.

The annual exemption remains which means the first few thousand of gains (£9,200 in 07/08) in any one year are effectively taxed at 0%.

Two recent IR35 court cases have been won by HMRC where the Special Commissioner found that contractors, Dragonfly Consulting Ltd and MKM Computing Ltd, had become part of the team and integrated into their client companies.

Increasingly its seems that HMRC and the Commissioners are looking beyond the terms of the contract and examining the working practises of the arrangement as seen through the eyes of the end client.

In some cases, where the contract has included ‘ the right of substitution’, the end client has refuted this would have been the case in practical terms. These cases make it clear that the evidence of the end user clients can play an important role in how the court interprets the working practices of contractors.

Where the contractor and his end user client differ on the main employment status issues it is likely that the Courts will give more weight to the evidence given by the end user as they have the final say on whether they would accept a right to substitution and also the level of control exercised.

The Special Commissioner judge, commented that “when I stand back and look at the overall picture I see someone who worked fairly regular hours during each engagement, who worked on parts of a project which were allocated to him as part of the end client’s teams, who was integrated into the end client’s business, and who had a role similar to that of a professional employee.

Hence if a contractor wants to be more certain of their IR35 status they will need to talk to their end client to ascertain the end client’s thoughts on the subject.

In 2006, a total of 84 self assessment tax returns were filed online on Christmas Day. We thought this was bad enough but this year 489 returns were filed on 25 December 2007. I guess we know who didn’t get very good presents!

The Formula 1 racing driver, Lewis Hamilton, should save approximately £4m in tax next year by moving from the UK to Switzerland. The British driver is expected to have earnings of £10m in 2008/09.

On average businesses should expect a VAT visit every 7-10 years in business. VAT Officers now have aggressive targets to meet so here’s TaxationWeb’s guide to the things you should do to prepare your business now, and how to handle a VAT inspection when it happens.

Preparation
The most obvious step is to ensure your VAT affairs are totally in order. You should employ a suitably qualified accountant or bookkeeper to help you keep track of VAT and ensure your returns are not late. Even if you feel competent to do this yourself, it is a good investment to pay a professional to take an overview for you – they will ensure you stay within the law.

Protection
It’s worth every business taking out VAT investigation insurance. If you are subsequently investigated, the policy will pay an accountant to handle the investigation for you. Some policies also cover other tax investigations. One of the most cost effective ways to get this insurance is to join an organisation such as the Forum of Private Business – which, amongst other membership benefits, provides members with tax investigation cover.

If you have made a mistake
Even innocent mistakes can be viewed badly by Officers, so you must take professional advice immediately to work out the best course of action. There are firms that specialise in helping businesses declare mistakes while reducing their liability. Your accountant will be able to give advice on the best course of action for your circumstances.

Inspection date
The first you may know about an impending visit is when HM Revenue & Customs phone to book a time for the inspector to visit and look at your books. You don’t have to accept the first date offered… if you need time to get your records in order, then politely offer some alternative dates. You should pick a date when all your staff will be in, and your accountant or bookkeeper is available to attend.

Get your staff ready
Ensure your staff are aware that the business is being investigated and that it is a routine event you are prepared for. There’s nothing more worrying than seeing the boss stressed while a stranger roots through the paperwork. It’s also worth telling your staff that if the inspector asks them any questions, they should direct them to you rather than attempt to answer them.

On the day
Get in early, make sure you have your last three years’ audited accounts available, and your bookkeeper or accountant is readily available – ideally in person. Be polite and professional when dealing with the VAT Officer. Give them plenty of room to work in, and keep them comfortable with tea and coffee as appropriate. But also ensure you stay in control.

Take notes
It’s vital that you or your representative keep careful notes of what is said to you by the VAT Officer. Get copies of their interpretations of VAT law in writing; this will help you apply their ruling consistently and deal with any future challenges.

Don’t panic!
If you use professional advice or support, keep your VAT up-to-date and deal with any enquiries promptly, you really have little to worry about. An investigation won’t necessarily find anything wrong, and you do have rights, including the right of appeal. The most extreme option to you is to appeal to a VAT tribunal. A VAT specialist will be able to advise you on this.

HMRC has issued detailed guidance on income splitting following their defeat in the Arctic Systems case in 2007.

Examples 9, 11 and 12 will be of greatest interest for most taxpayers. Please note this guidance only applies up to 5 April 2008 as new legislation is being introduced by the government to effectively counter their loss in the courts.