March is the last month of the tax year! If you are a client of Mazuma you will soon start receiving reminders and requests for information that may have been missing from your records during the tax year, especially for Self Assessment clients. Responding to these requests promptly will ensure that your work is completed in a timely manner and you know what you have to pay (or maybe get back) well before the deadlines for payments approach!
H M Revenue & Customs now have extensive powers to require that you provide evidence to back up entries on your tax returns. For business owners this means your accounting records and supporting documentation need to be pristine.
If HMRC can demonstrate that your records are less than effective you will face penalties.
The legislation requires you to:
"Keep all such records as may be requisite for the purpose of enabling him (you) to make and deliver a correct and complete return for the year or period."
Records include supporting documentation such as, accounts, books, deeds, contracts, vouchers and receipts.
The Taxman is getting tougher on taxpayers, businesses and employers, who make mistakes on tax returns, VAT returns and other forms such as P11Ds, and PAYE end of year returns which must be submitted to HMRC. From April 2009 there is a new system of penalties, which will be calculated as a percentage of the potential lost revenue that arises from the mistake.
Say, for example, you forget to include a company car on a form P11D. The tax due from the employee for the year could be £2,300, with NIC class 1A payable by the employer of £736, which would make the potential lost revenue from that one mistake: £3,036 (£2,300 + £736).
A penalty for this mistake can be imposed by the Tax Inspector according to your behaviour when you made the error. You and the Inspector will need to agree whether you:
- Made the mistake in spite of taking re asonable care: no penalty;
- Failed to take reasonable care: up to 30% of the potential lost revenue;
- Deliberately made the error: 20% to 70% of the potential lost revenue;
- Deliberately made the error and attempted to concealed the error: 30% to 100% of the potential lost revenue.
As you can see there is still some scope for negotiation with the Inspector regarding the level of penalties for errors and mistakes. However, there will be less negotiation possible than under the present penalty system. The amount of penalty will depend on whether you were prompted or unprompted by the Taxman to disclose the error and on various quality factors relating to the disclosure. If the mistake occurred because you failed to take reasonable care, the Inspector may suspend the penalty if you agree to improve your systems so that the mistake is unlikely to happen again.
One point worth considering is that if you take reasonable care there can be no penalty. It may therefore be worthwhile reviewing your book-keeping systems with us to ensure you have a system that may lead the inspector more towards the opinion that any error did not come because you failed to take reasonable care over your book-keeping! If you use of monthly Purpleforce service then we take care of all of this for you anyway so you know each month that your records are in tip-top condition!
Long service awards
Any salaried employee of a business can be paid a long service award. The way in which the award is given can radically influence the tax treatment.
All cash awards are taxable. They will be treated as part of your remuneration and subject to deduction of tax and National Insurance. Cash awards include:
Non cash awards are tax free if certain conditions are met. They are:
For most employees the amount of the award is determined as the cost to the employer. For lower paid employees it is the second hand value of the award.
If the award exceeds the £50 for each year of service limit, only the excess is taxable.
If an employer makes multiple awards to the same individual, say after 20 years and then again after 30 years; each award qualifies as a separate award - this further concession does not apply unless there is a gap of at least 10 years between the awards.
If you have clocked up 20 years service you could receive goods to the value of £1,000 and pay no tax or National Insurance - that buys a lot of golf equipment!
Budget Day will be 22nd April 2009!
Normally March is the month in which the Budget is presented, during which the tax rates and thresholds for the coming tax year are announced. However, this year, for various political reasons, the Budget speech has been delayed until 22 April 2009.
This delay should not affect the running of the tax system, as all the tax rates, thresholds and allowances for 2009/10 were announced in the Pre-Budget report on 26 November 2008. The PAYE codes for 2009/10 including the new personal allowance of £6,475 have already been issued, and the new PAYE and NIC tables are available from HMRC. Details of other Pre-Budget report announcements that affect employers are given in the Employer Bulletin no. 31, which was recently sent to all employers.
One announcement that was not made in November was the threshold for compulsory VAT registration. This increased from £64,000 to £67,000 on 1 April 2008, so the threshold could be frozen at that level in 2009. The UK has one of the highest thresholds for compulsory VAT registration in the EU, so freezing this threshold would not put the UK out of line with other countries. A freeze on the VAT threshold would also bring in more tax, as more businesses would have to become VAT registered.
Dispensations and benefits in kind
If you provide any sort of beneficial payment or gift of goods to employees, generally speaking most will be taxable as a benefit in kind - as if they were payments of salary etc.
However there are some beneficial payments that you can include in a dispensation. For example the provision of certain business travel for an employee. Items covered by a dispensation do not have to be returned on the annual P11D form. (Payments for the use of a company car or van are not included here as they are covered by separate rules.)
Essentially you can apply to HMRC to dispense with the need to include expenses or benefits for which your employee gets a full tax deduction.
For some businesses this could take some of the pain out of this annual chore.
HMRC require that you need to have the following systems in place to qualify you for a dispensation, they are:
You must have an independent system in place for checking and authorising expenses claims. At a minimum, this means having someone other than the employee claiming the expenses check that:
If it is not possible for you to operate an independent system for checking and authorising expenses claims, for example, because you are the sole director of your company and you have no other employees, you will only be able to obtain a dispensation if you:
Once a dispensation is granted it will last indefinitely although HMRC may review from time to time to make sure the conditions under which the original grant was made still apply.
Generally speaking dispensations are granted from the application date. However HMRC may agree to apply the dispensation from the beginning of the tax year in which you apply. It's not too late to apply for 2008-09!
Tax Diary March/April 2009
1 March 2009 - Due date for corporation tax due for the year ended 31 May 2008.
19 March 2009 - PAYE and NIC deductions due for month ended 5 March 2009. (If you pay your tax electronically the due date is 22 March 2009)
19 March 2009 - Filing deadline for the CIS300 monthly return for the month ended 5 March 2009.
19 March 2009 - CIS tax deducted for the month ended 5 March 2009 is payable by today.
1 April 2009 - Due date for corporation tax due for the year ended 30 June 2008.
19 April 2009 - PAYE and NIC deductions due for month ended 5 April 2009. (If you pay your tax electronically the due date is 22 April 2009)
19 April 2009 - Filing deadline for the CIS300 monthly return for the month ended 5 April 2009.
19 April 2009 - CIS tax deducted for the month ended 5 April 2009 is payable by today.
DISCLAIMER - PLEASE NOTE: The ideas shared with you in this newsletter are intended to inform rather than advise. Taxpayers circumstances do vary and if you feel that tax strategies we have outlined may be beneficial it is important that you contact us before implementation. If you do or do not take action as a result of reading this newsletter, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
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