May 2007 Newsletter
New online service for Prime clients
Prime have introduced a facility on our website to enable the secure exchange of files with clients. These files can be anything from Excel spreadsheets to Sage backup files. The system provides for two way access, so that clients can upload files for Prime to download and vice versa.
Our intention in the future is to routinely store copies of client accounts and tax returns online so that copies can be downloaded when necessary together with the associated letters advising of tax liabilities.
The new system will also be used for ad-hoc transfers of files, such as payroll spreadsheets and reports and management accounts information.
Any clients interested in this facility can register online or contact their Prime partner.
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An invitation to make more profit
Prime clients and contacts are invited to the next Coventry and Warwickshire Business Academy event to be held on 14th June 2007. Well known local speaker, Mike Pagan, will give a challenging presentation entitled: Building A1 clients – could you sack 50% of your customers and make more profit. More details and a booking form available online.
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R&D tax relief improved in the Budget
The 2007 Budget has introduced a number of favourable changes to the R&D tax relief regime for companies of all sizes. The extension of the criteria used to define an SME was expected but increases in the rates of relief were a surprise. There were also changes to the rates of corporation tax in the form of a decrease in the top rate and a gradual increase in the small companies’ rate but overall the net value of the R&D benefit has increased. This is very encouraging and reinforces the Government’s commitment in this area. Bearing in mind that eligible companies can claim for their revenue expenditure on staff, consumables and even power and computer software it is worth looking into. If you are involved in research, development or innovation in any form within your business you may qualify. Contact Prime to find out more.
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Directors and National Insurance
Many directors will have noticed that their take home pay has dropped in April 2007 as compared to the previous 9 months. This is particularly so for directors whose pre-tax salary is the same each month, and who earn substantial salaries.
This is because Directors are subject to the so-called Annual Earnings Period for National Insurance purposes. The effect of this rule is that the director’s personal contributions, in the first 3 months or so of the tax year, will cover the majority of his or her contributions for the entire tax year.
If, for instance, a director's monthly gross salary was £12,000, 75% of National Insurance deductions i.e. £3,239 will have been made in the April - June 2007 period. After this initial charge the monthly employees contributions would drop to just £120 per month!
If the gross monthly salary is a more modest amount, say £1,000 per month, there would be no employees deductions for most of the year, any liability would only arise in the final few months.
Overall a director pays no more National Insurance than a colleague paid at the same rate who is not a director. Directors, it seems, need to adjust to the lower take home pay in the first or last quarter of each tax year - dependent on the amount of their monthly salary.
There is a possible remedy which would allow contributions to be spread equally over the year. However this remedy may create an underpayment at the end of a tax year!
If directors would like us to review their earnings for NIC contribution purposes please call the Prime Paysolve team on 02476 554321.
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HMRC invite taxpayers to own up!
It’s amazing how many people still believe that income from offshore accounts is not subject to UK tax!
HMRC have now received information from many banks about offshore accounts and to encourage taxpayers to declare their offshore income HMRC have announced what the newspapers are calling a ‘Tax Amnesty’. The so-called 'amnesty' actually only applies to the penalty that will be charged on unpaid tax, which HMRC have promised to cap at 10% if a voluntary declaration is made before 22 June 2007.
HMRC could in theory impose a 100% penalty. The tax and penalties due will need to be paid by 26 November 2007.
The penalty cap also applies to undeclared UK income if a declaration to a local HMRC office and full payment of the tax due is made by the same dates.
If you have any concerns about the disclosure facility contact Sarah Nickols in Coventry on 02476 554310 or Jan Hornby in the Solihull office on 0121 711 2468, as soon as possible, as the timescale to take advantage of the facility is short.
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All change for capital allowances
The system of tax relief’s on expenditure on equipment in your business is a complex one. Broadly when you buy a piece of equipment to use in your business you normally cannot set the full cost against that year’s profits, unless the value of the item is quite small, or a special tax relief applies. The cost of more expensive items is written off against profits over a number of years, using the capital allowances system.
From April 2008 it is proposed that up to £50,000 spent on equipment in one year by any business will be set-off in full against the profits for that year. This allowance should cover most items of plant and machinery purchased by smaller businesses, although cars will not be included in this total. Where the expenditure on equipment exceeds £50,000 in one year the excess will be written off at a rate of 20% per year.
Where equipment is fixed in a building used for your business, you can currently claim 25% of the remaining cost each year against profits. This will be reduced to 10% per year from 2008.
The new system comes into force from 6 April 2008. For what you should do before then, if affected, and for more information read our Capital Allowances Update Fact Sheet here.
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Changes to VAT Fuel Scale Charges
The VAT Fuel scale charge changed from the 1st May 2007.
The output charge is payable by VAT registered businesses which reclaim VAT on the full amount of fuel purchased for employee cars without making an adjustment for private use. The details of the new VAT Fuel Scale Charges can be found on our website. If you need more information about these or help in applying them, contact Colette White in Coventry on 02476 220208 or Matt Page in Solihull on 0121 711 2468.
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Small Business: Should I ditch the company?
You may well ask - following the tax changes for small companies announced in the Budget. The corporation tax rate for small companies with profits of up to £300,000 has already increased to 20%, and it is due to increase again in April 2008 to 21%, and once more in 2009 to 22%.
These corporation tax changes for small companies are intended to discourage businesses from incorporating just to save tax, as the corporation tax rate will be higher than the basic rate of income tax by 2009. However, an individual also has to pay Class 4 national insurance (NI) at a further 8% on his self-employed profits.
The tax saving for operating a business making about £55,000 a year as a company will still be about £5,000 per year. However these funds are held within the company, and transferring the money to the shareholder can create a further tax charge, if the shareholder pays higher rate tax.
Small businesses should also not forget the commercial and other non-tax advantages of operating through a limited company.
If you are considering forming a company, or want to go back to being self-employed, you should take advice. Any one of the Prime partners can help you work through the numbers. There will be a different answer for each business.
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Online businesses benefit from Prime advice
Over the last few years Prime has noticed a dramatic increase in the number of clients running online businesses. In just the last few months Prime has helped launch a Greek owned global hotel booking service and worked alongside a husband and wife team running an online lingerie business with an order book that has doubled in the last six months.
In the main the accountancy requirements of an online business are the same as any bricks and mortar company – but the timeframe for change can be much faster, competition can be intensely fierce and it’s all the more important to have efficient systems for stock control and invoicing, and as HMRC start to clamp down on e-bay traders and other online firms it’s very important to get the right advice about how to structure the business, how and when VAT is to be paid and so on.
At Prime we have developed considerable interest and expertise in this growing area and welcome the opportunity to talk to businesses with online aspirations. Contact Laurence Moore on 024 7622 0208 about this or email Laurence.
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Companies Act 2006 update
An overview of the commencement timetable for Companies Act 2006 was published by the government at the end of February 2007. Some of the changes you can expect to see over the forthcoming months include:
From October 2007 private companies will no longer be required to hold an Annual General Meeting and written resolutions will no longer be required to be signed by all shareholders.
from April 2008 the filing deadline for private company accounts will reduce from ten to nine months (and from seven to six for public companies). The exemption from preparing consolidated accounts for medium-sized groups will be lost.
Private companies will no longer be required to appoint a company secretary.
from October 2008 new companies will be able to adopt default model Articles of Association. Existing companies will also be able to adopt these new Articles.
Directors will be required to file a service address for the public record at Companies House. This may be their company’s address, rather than their residential address.
The precise implementation dates for Companies Act 2006 will be given in secondary legislation. To date there have been two Commencement Orders under the new Act. These have, for example, enabled further use of electronic communications with shareholders and have also repealed certain sections of the 1985 Companies Act.
We will continue to keep you up to date with the proposed changes. If you would like to discuss the impact of the new Act on you and your company please contact Prime.
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Minimum holiday entitlement to rise
A few months ago we reported on the proposal by the Department for Trade and Industry (DTI) to increase the minimum statutory holiday entitlement from the current 20 days (including bank holidays) to 28 days (bank holidays inclusive). The DTI have been consulting with interested parties and should shortly publish the findings of their consultation.
The proposal is to increase the statutory annual leave entitlement in two stages:
• rising from 20 to 24 days on 1 October 2007, and
• from 24 to 28 days on 1 October 2008.
If, as expected, the proposal becomes law employers will have to increase holiday entitlements from 1 October 2007 for the four days increase from 20 days to 24 days. This may not coincide with the employer’s holiday year and it will have to be awarded proportionally from 1 October.
To give an example an employee currently entitled to the statutory minimum entitlement of 20 days (including bank holidays) with a holiday year to December 2007 would be entitled to one additional day for the three months covered by the increased minimum entitlement from 1 October 2007 to 31 December 2007 (i.e. four day annual increase from 1 October 2007 pro rated for three months).
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