To June's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Corner,
We are committed to ensuring all our clients don't pay a penny more in tax than is necessary.
Please contact us for advice in your own specific circumstances. We're here to help
Changes in Capital Gains Tax
The Coalition Programme for Government, published on 20 May 2010 contains this pledge:
We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities.
This strongly hints at an increase in the rate of Capital Gains Tax (CGT) due on gains arising from non-business assets. The easiest way to do this would be to increase the rate of CGT for all assets and provide tax relief to reduce the effective rate of CGT for selected business assets, or for assets used for 'entrepreneurial activities'. This could mean increasing the scope of existing tax reliefs such as entrepreneurs' relief, or roll-over relief on business assets.
We do not expect the rate of CGT to change before 6 April 2011, however some commentators think a change could be introduced from the next Budget on 22 June. It would be very complicated for the Taxman to programme his computers to calculate CGT at two different rates for the same taxpayer within one tax year. It is also extremely unlikely that a rise in CGT would be imposed retrospectively back to 6 April 2010. Between 6 April 1988 and 5 April 2008 CGT was charged at the taxpayer's marginal income tax rate, and this seems to be the solution the Government is leaning towards.
So what should you do before 6 April 2011 (or 22 June 2010 if ultra cautious), to avoid paying more tax? If the asset you plan to sell cannot be regarded as a business asset - for example a holiday cottage that does not qualify for furnished holiday lettings, then we should discuss the implications of making a disposal now rather than later. Remember a disposal need not be an outright sale, a transfer to a trust would give rise to CGT, but possibly also inheritance tax. If you make the disposal before 6 April 2011 rather than afterwards, the payment date for CGT is brought forward one year, and this needs to be balanced with the apparent tax saving.
It is not clear how far the 'generous exemptions' for business activities will stretch. If you currently qualify for entrepreneurs' relief as you have been a business partner, sole trader, or shareholder and employee holding 5% or more of the voting shares, for at least a year, it is probably reasonable to assume the assets connected with your business will continue to qualify for that tax relief. If you don't fall into any of those categories, you should talk to us about the risk of increased CGT, bearing in mind the level of the expected gain.
You also need to look at your projected total income for 2011/12, and the likelihood that the gain will be covered by your annual exemption for CGT. This exemption is currently £10,100 per person for 2010/11, but this could be cut back to perhaps half that amount!
The CGT changes discussed above are currently all speculation so please talk to us if you are concerned at all. We expect some definite changes to be announced in the Budget Statement on 22 June 2010. Look out for our Budget newsletter when we will explain the Budget announcements relevant to small businesses and individuals.
Other Tax Changes Ahead
The Coalition Programme for Government also contains a number of other proposed tax and law changes that may impact on you or your business if they come to pass.
The business-focused proposals include:
- Review of the IR35 rules as part of a review of all small business taxation.
- Refocus R&D tax credits on hi-tech companies, small firms and new businesses.
- Review the taxation of furnished holiday lettings so UK businesses are not penalised.
- Encourage farmers to convert existing buildings into affordable housing.
- Increase the threshold from which employer's NI is payable by £21 per week, to £6,812 a year from 6 April 2011. The employees' NI thresholds will not rise, so employees and the self-employed will bear the full brunt of the 1% increase in all NI rates.
- Provide those out of work with business mentors and start-up loans to help them start their own businesses.
The proposals affecting individuals include:
- No reduction in the imposition of Inheritance Tax in the foreseeable future.
- No reduction in Income Tax rates until the Budget deficit has been reduced.
- Increase the personal allowance significantly from 6 April 2011, but reduce the benefit of this allowance for those with high incomes. The personal allowance is currently tapered away for those with total income over £100,000, so this threshold may be lowered.
- Introduce a transferable married couples allowance, but only for basic rate taxpayers.
- Review of the taxation of individuals who are not domiciled in the UK, but who have a connection to the UK so they have some UK tax obligations.
- End Government funding of Child Trust Funds from 1 January 2011, and reduce the value of vouchers given for new-borns from 1 August 2010.
- Reform the administration of Working and Child Tax Credits to reduce fraud and overpayments.
- Reduce the penalty for living as a couple in the Working and Child Tax Credits system.
- Review the effectiveness of raising the Stamp Duty threshold for first-time purchasers.
- Remove the requirement to purchase a pension annuity at age 75.
- Phase out the default retirement age of 65.
- Bring forward the increase in the State Pension Age (SPA), which is the age from which you can draw the State Pension. This will be 66 years for men from 2016 and 66 years for women from 2020. The SPA has already increased beyond 60 for women, and is set to rise gradually to 68 for everyone by 2046.
We expect more detail on these proposals to be announced in the Budget on 22 June.
Post Credibility Team
This is the new name for the VAT investigations unit! This new unit is sending out computer-generated letters to businesses who have claimed a refund for the last VAT period or periods. The letters are very poorly worded and may well be confusing on first reading. However, what the VATman is trying to say is that he wants an explanation of the refund claim. He is not accusing you of doing anything wrong.
If you receive a letter from the Post Credibility Team please deal with it or send it on to us ASAP. If you ignore it you will start to receive annoying phone-calls from the VAT office.
PAYE Codes for 2010/11
We have heard that the Taxman has almost finished sorting out the mess his new computer made out of the 2010/11 PAYE codes. If you have not received a P2 form for your employees that gives their PAYE code for 2010/11, carry on using the PAYE code issued for 2009/10. You should shortly receive the updated P2 forms for 2010/11.
One of the problems with the PAYE codes occurs where an individual starts to receive an occupational pension, or that pension is paid by a different pension provider, perhaps due to a restructuring of companies.
In such cases the pension provider should send a form P46(pen) to the Tax Office. However, the Taxman has said that many of these P46 (pen) forms contain mistakes, and this is causing the PAYE computer to churn out crazy codes, or send out unnecessary forms P161 to the pensioner. If you need to tell the Tax Office that you have started paying a pension to a former employee, please ask us to check the P46(pen) form first.
June Question and Answer Corner
Q. My UK based company has bought additional bandwidth from an internet provider based in the USA. How do I treat this purchase for VAT purposes in the UK?
A. The supply of bandwidth as part of your internet service is an international service for VAT purposes, as the supplier is based outside the UK. As your company is VAT registered you must apply the reverse charge rules to this purchase. This means for VAT purposes you treat the transaction as if you were both the purchaser and the supplier. You charge yourself standard rate VAT on the invoiced cost and claim that VAT back as part of your input VAT for the quarter. The VAT added appears twice in the calculations for your VAT return; as input VAT on purchases and as output VAT on the reverse charge as if the purchase was one of your own sales.
Q. My sales force all need to connect to the internet while they are out on the road, so we provide them each with a mobile phone dongle to provide the internet where and when they need it. Are there any tax implications for my company or the employees?
A. A mobile phone dongle is treated as a piece of computer equipment and not as a mobile phone. Where the company purchases the dongle and pays the subscription charge directly there should be no benefit in kind charge on the employee. This applies if the associated computer has no significant private use, and the private use does not affect the cost of providing the equipment.
Where the employee purchases the dongle and pays the connection charge, which he claims back from the company, the tax situation is more complicated. The employer needs to include the expense paid on the form P11D, and the employee needs to claim a deduction for the costs on his tax return, as reasonable additional costs relating to work. To circumvent this paper chase, the company should apply for the costs of the dongles to be included in a P11D dispensation.
Q. On 1 Feb 2010 I started a self-employed consultancy business, which has generated profits of about £40,000 in the first four months. I also run my own company and let a few properties. The income from my company and the rents has been much lower in 2009/10 compared to the previous year. Do I have to take into account the income from my new consultancy business when I make my payment on account for 2009/10 due on 31 July 2010?
A. You do need to take into account the income from your new consultancy business when making your next payment on account for income tax. However, the opening year rules for self-employment will apply, so only two months of your first period of the consultancy business profits are taxed in 2009/10. You can apply to reduce the 2009/10 payment on account if your total taxable income for the 2009/10 tax year, including the two months of consultancy profits, has dropped below the total taxable income for 2008/09. It doesn't matter if your income for 2010/11 rises again.
June Key Tax Dates
19/22 PAYE/NIC, student loan and CIS deductions due for month to 5/6/2010.
22 New Coalition Government first Budget.
30 Deadline for UK businesses to reclaim EC VAT chargeable in 2009.
Much More from Mr P!
Well, can you believe that it's June already? The months just seem to fly by nowadays! Those of you who are current clients may have recently received a letter regarding your self assessment tax return. We'll have had most of the information on this already if you've been using our Purpleforce service, but just in case you've missed anything out, it's an opportunity to let us know. If you've been super organised all year and haven't forgotten anything then you can happily ignore the letter!
I want to thank all of our clients for continuing to spread the word about Mazuma. We've had record numbers of client referrals in the last month. To make it even easier to refer your friends to us we have put a Refer A Friend section on the website. Don't forget that for every friend refer who signs up, you'll get £25 of retail vouchers as a thank you!
Finally, if you are referring someone to us, or thinking about moving to Mazuma yourself then why not try us our for free? We know that changing your Accountant or getting one for the first time can be a difficult decision, so why not try us out so you can see exactly how good our service is! All you have to do is get a quote online using the promo code FREE, or email sales@mazumamoney with the subject of the email as FREE and give us your name and address and we'll get your trial pack out to you, simple!
The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.
Take 30 seconds to get a quote and see how we can help you.