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

Pensions minister, Steve Webb, confirmed last week that every company, regardless of size, colour or creed will have to sign up to the government’s new pension provision rules.

Although the scheme starts in 2012, it won’t impact smaller companies (those with less than 50 employees) until 2014/15.  Even then, we think that exemptions will be available for personal service companies (contractors, freelancers and the like).

Employer contributions will ratchet up from 1% to 3% of the employee’s salary over a transitional period but only where that salary exceeds £7,475.   As many contractors take a minimal salary below this level (and the rest of their earnings as dividends) you can see that the impact will be small. 

In reality, a more suitable pension provision can be made via a SIPP or stakeholder pension which is more flexible both in what it can invest in and at retirement.

A fundamental review of the tax rules known as IR35 has been started by the Office of Tax Simplification.

IR35 is the tax rule that the Taxman uses when he wants to charge freelancers (or ’disguised employees’ as he calls them) the higher taxes that people on PAYE pay.

The Institute of Directors says: “IR35 imposes a burden out of all proportion to its effectiveness. Not only are contractors unduly burdened, but HMRC staff are tied up doing frustrating and often unproductive work, at a time when HMRC staffing is under pressure and there are more useful things that the staff concerned could be doing.”

We have recently been advised of a new initiative within HMRC which appears to be known as the ‘Dash for Cash’.

We understand that Tax Inspectors have been tasked to bring in as much money as possible, as quickly as possible, which is not surprising given the current economic environment.  This is likely to include pressure to settle long running full enquiry cases and encouragement to take up aspect enquiries which can be settled more quickly to optimise the tax yield in the current financial year.

Finally, we are also hearing that the number of tax investigations been launched has doubled in recent months which serves to confirm the above comments.

In a cost-cutting move, accountants and agents will no longer get copies of some PAYE and SA forms

HMRC announced last week that it is going to withdraw the agents’ copies of some self assessment and PAYE forms.

The forms affected are:

P2 – PAYE coding notice

P800 – Tax calculation

SA250 – Letter with UTR and requirement to do an SA tax return

SA251 – Letter to someone coming out of SA

HMRC says: “We are sorry if some of these changes are unwelcome but we have tried to look for savings in those areas where there will be minimal impact on our customers.”

We say, “Ensure you send a copy to your accountant of all correspondence from the Taxman”.

Here’s a refresher for contractors with limited companies as HMRC have been reported as cracking down on this tax rule recently.

The expenses you can claim against tax for travel and susbsistence varies massively depending on whether you are at a “temporary workplace” or a “permanent workplace”.

Firstly, to have a temporary workplace (which is tax advantageous) you must also have a permanent workplace.  For contractors with their own personal service company, it could be argued that the permanent workplace is where their limited company is based which typically is their home address.  It is envisaged that this permanent workplace will exist for many years and will overarch several temporary contracts with agencies/end clients.

Contracts that oblige you to travel to geographical locations to undertake work then have the potential to qualify as temporary workplaces enabling enhanced tax claims for travel and subsistence costs.

However, as soon as you anticipate working at a temporary workplace for more than 24 months it will be reclassified as a permanent workplace resulting in the loss of these tax claims.  E.g. if you have been working at a location for 20 months and your contract is re-newed for a further 6 months you can no longer claim travel/subsistence costs after month 20.

In order to reset your workplace to temporary status you have to satisfy two rules

• the location must be at least 10 miles from the previous workplace;
• the route/journey must be substantially different.

Government ministers have confirmed that they will make online filing of VAT returns compulsory for all businesses from 2012.

The move follows the introduction of mandatory online filing for newly registered businesses and those turning over more than £100,000 from 1 April 2010.

In the run-up to the March 2010 Budget there were some signals from HMRC that it might bring forward the date for universal filing, but if the government goes ahead with what is expected to be an April 2012 start date, it will match the programme originally laid down by Lord Carter in his 2006 review of HMRC online services.

People who have a conscientious objection to using a computer will be able to continue filing paper returns.

HM Revenue and Customs has reported a surge in tax scam phishing attempts after shutting down more than 180 websites responsible for sending out fake emails.

The body also warned taxpayers to be on their guard for fraudsters posing as HMRC agents on the phone, seeking account details.

Chris Hopson, director of customer contact, said HMRC only contacts customers in writing by post.

“We never use telephone calls, emails or external companies in these circumstances. We strongly urge anyone receiving such a phone call not to give any information to the caller, but report it to the police straightaway,” he said.

“If customers receive an email claiming to be from HMRC, we recommend they send it to us for investigation before deleting it permanently.”

If you are concerned about this you can check the advice published on the HMRC website and forward any suspicious emails to phishing@hmrc.gsi.gov.uk.

If you pay for your company’s business costs personally there are a couple of things to look out for if you want to reclaim the VAT.

• ensure you have a valid VAT receipt
• ensure the receipt/invoice is made out to the company and not to you personally

There are exceptions to these rules such as low value items and travel and subsistence costs of a director/employee.  Also, remember that the VATman can allow a claim by discretion if it looks reasonable – quote his Statement of Practice dated March 2007.

Further information can be found here: http://www.hmrc.gov.uk/vat/managing/charging/vat-invoices.htm#6

No receipts are required at all for items such as parking and toll charges where the cost is less than £25.

1. Should you be VAT registered?

If your taxable UK supplies are above £70,000 p.a., you must register compulsorily, unless they are all zero-rated, in which case, you could apply for exemption from registration. If your taxable supplies are below £70,000, and your customers are mainly or wholly VAT-registered, you can register voluntarily to recover UK input tax.

2. Make sure you recover all pre-registration VAT

VAT incurred up to four years previously on capital assets and stock which is still on hand at the registration date can be recovered. VAT paid for services received up to six months before the registration date can usually be deducted.

3. Unregistered businesses can also save VAT

The use of unregistered suppliers may help. If you are looking to rent premises, consider looking for a property with a non-VAT rent, or else raise the issue of your inability to recover VAT in the rent negotiations.

4. Use an appropriate simplification scheme

The Flat Rate Scheme (with a 1% discount in first year of registration), Cash Accounting, or Annual Accounting can all create cash flow and/or administrative savings.

5. Be compliant

Keeping up-to-date VAT records, submitting and paying VAT returns on time, and disclosing errors as soon as they are found will avoid interest, potential penalties, and endless hassle from HMRC.  

6. Recover VAT incurred elsewhere in the EU

You may be able to claim EU VAT via HMRC’s online portal under the EC 8th Directive.

7. Need a car?  You could save VAT by leasing

Unless there would be purely business use (e.g., a taxi, hire car, or pool car), which would allow full VAT recovery, the VAT on the purchase of a car is irrecoverable just by the car’s being ‘available’ for private use. Consider leasing rather than buying, as 50% of VAT on the lease charge is recoverable, as is 100% of roadside maintenance if it is split out on the invoice. 

8. VAT on entertainment costs

The VAT on entertaining clients, potential clients, and non-employees is not recoverable (unless a reasonable charge is made), but the cost of staff entertainment will be recoverable if incurred for the ultimate benefit of the business (e.g., a team away-day).

These tips were provided by Steve Allen of VAT Advisers Ltd.

The Taxman is ending the seven-day ‘grace’ period for filing company tax returns and employers end of year PAYE returns.

From 31 March 2011, these returns must be submitted to HMRC by the actual deadline. Under the concession, HMRC did not issue penalties for late filing of Company Tax returns or employers’ and CIS end of year returns, provided they were received by the last working day within seven days of the filing date.

This ensured that penalties would not be charged when customers had taken all reasonable steps to file the returns on time, but were prevented from doing so, for example due to postal delays.

HMRC has said that the concession has become redundant because from 1 April 2011 most returns are required to be filed online and so the ‘postal delay’ excuse is no longer valid.

Anyone filing a return late will, as now, be able to request HMRC to remove any penalty, if they believe they had a reasonable excuse for the delay in filing. HMRC says that it will consider every case on its own merits.