Tips on saving tax, the latest tax and business news, tax loopholes and useful links

I let my accountant do my tax returns because it saves time…
……..sometimes as much as ten years.

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Today’s statement by Alistair Darling was arguably more of a pre-election manifesto than announcing any moves to aid the economic recovery.  However, here is the good and bad news for small businesses:

Good News

• Small company tax rate to remain at 21% rather than increase to the previously announced 22%.
• The tax payment service enabling struggling businesses to spread payment of their tax bills is being extended.
• No changes to the capital gains tax rates (suprisingly).
• Various minor tax breaks for electric cars and vans.

Bad News

• National Insurance is increasing by 1% from April 2011 (a 0.5% increase had previously been announced).  This affects employees, employers and the self-employed where earnings exceed £20k pa.
• The rate of VAT will revert to 17.5% on 1 January 2010.  The Flat Rate percentages will also increase by varying amounts.
• A 50% supertax will be charged on bank bonuses in excess of £25k per employe (some may argue this should be a Good News item!).
• Company cars will become slightly more expensive as the benefit bands have been shifted down by 5g/km of Co2.
• The stamp duty exemption on the purchase of most residential properties has been reduced from £175k to £125k.
• A telephone landline tax of 50p per month per line is being introduced from 1 October 2010 to pay for faster broadband speeds.

Further details on the less common taxes can be found here and changes announced in the April 2009 Budget can be found here.

Below is our summary of the tax consequences of your business sending gifts to customers and staff:

• Gifts to customers of the products or services you normally sell are tax allowable, as long as you are not in the food business.
• Small promotional gifts of any item are also treated as tax allowable for your business if they cost less than £50 each and carry a clear advertisement for the business. However, you cannot get income tax or corporation tax relief for the cost of gifts of food, drink, tobacco and gift tokens of any value.
• A number of gifts worth more than £50 in total should not be made to the same person in any 12 month period.
• If you are VAT registered you can reclaim the VAT on small gifts that cost up to £50 each, including gifts comprising of tobacco and alcohol.
• If the gift cost more than £50 (net of VAT) you must account for the VAT on the item as if you had sold it at cost.
• Gifts to your staff are tax allowable, but your employees could be taxed on the value of the gift as a benefit in kind. In that case you would also have to pay Class 1A NI on the value of those gifts. The Taxman does consider some small items to be trivial benefits, which can be given as tax-free gifts to staff members. Trivial items can include seasonal gifts such as a turkey, an ordinary bottle of wine (not fine vintage or champagne), or a box of chocolates.

If you subscribe for shares in a trading company, and later dispose of them at a loss, you can normally offset the loss against other taxable income (section 131 of the 2007 Income Tax Act).

However, the Taxman has found a wrinkle in the tax legislation such that he thinks subscriber shares issued in joint names (usually married couples) cannot benefit from this offset.  Section 131 applies to shares “which have been subscribed for by the individual”.  The Taxman argues that jointly owned shares are subscribed for by a couple rather than an individual and thus the offset is not available.

A way round this is for one individual to subscribe for the shares and then transfer some of them to their spouse. The spouse is then treated as subscribing for the shares in their own right. 

This is how we recommend shares are subscribed for when effective joint ownership is desired.

The Taxman has set out his charter, pledging to respect taxpayers, provide help and support, and treat them even-handedly.  However, in return he does ask that the taxpayer is honest and fair with him!

Limited company directors will be excluded from the Agency Workers Directive under the lastest proposals from the Government.  However, those working through umbrella companies and all contractors who are not genuinely self-employed (i.e. if you fail the IR35 test) will still be covered.

Many freelancers have been concerned that the Directive would given them similar rights to employees in terms of hours, holidays, sick pay etc. making them less attractive to businesses.

The Directive only applies to workers who have been in a position for at least 12 weeks and is not effective until 1 October 2011.

Provisions are being introduced from 6 April 2010 to charge penalties on the late payment of monthly PAYE and CIS.  A penalty will not be levied for the first default but penalties will then increase as follows:

• up to 3 defaults - 1% of the amount paid late
• 4-6 defaults - 2% 
• 7-9 defaults - 3%
• 10+ defaults - 4%

If tax is more than 6 months overdue, a 5% penalty can be charged with an additional 5% if the tax becomes 12 months overdue.

Alistair Darling has confirmed that the Pre-Budget Report will be announced at 12.30pm on 9 December 2009.

The Taxman’s telephone helplines do not always give the correct answer.  There have been two recent cases where a verbal assurance from a telephone helpline was not later accepted by a Tax Officer who then raised a penalty for the incorrect tax treatment.  You, the taxpayer, suffers where there is a disagreement between the helpline advice and the Tax Inspector.

Case 1: In the first case Corkteck Ltd exported soft drinks to Poland through a third person: Sintra SA. The VAT helpline told Corkteck that the exported drinks would be zero-rated for VAT. However, the VAT Inspector decided the drinks should have been standard rated as Sintra SA was not registered for VAT within the EU.

Case2: In the second case Acrylux Ltd hired out a private residential property for various functions, some of which lasted several days. The VAT helpline told Acrylux that the hire of the property would be exempt from VAT as it was not a commercial property. However, the VAT inspector said the hire of the property was similar to short-term holiday lettings and VAT should be charged at the standard rate.

In both cases the taxpayer could not prove exactly what facts had been presented to the helpline, or exactly what the helpline had given as its advice. If the advice had been requested in writing the outcome for the taxpayer may have been different. If you have a tax question, please ask an accountant (we recommend using Chartered Accountants) before reaching for the HMRC helplines. If you act on advice that later proves to be incorrect, you could pay a high penalty!

As announced in the 2009 Budget, ISA limits are being increased to £10,200, of which up to £5,100 can be invested in a cash ISA with the balance in a stocks and shares ISA. Investors who will be aged 50 by 5 April 2010 can subscribe up to the new limits from 6 October 2009. All other investors can access the new limits from 6 April 2010.