E-News: November 2006

Contents

Tax Myths
More taxpayers at risk of jail time
Step into the Dragons’ lair
Microsoft Excel passwords
Payroll online filing incentive available
Promise to employees on the sale of the business
Selling a Business Building – preserving your tax allowances

Tax Myths

The following myths have been uncovered:

Money kept overseas is not taxable

For most people living in the UK, it is taxable. It doesn’t matter if you leave the money in Jersey, for example, and never touch it, you must still pay income tax on any interest. However, if you are not both resident and domiciled in the UK the position may be different and you may need to seek further professional advice. HMRC is looking much more closely at overseas bank accounts, so don’t overlook the interest – it won’t!

Give money to your children and escape tax on the interest it earns

If a parent gives money to a child and the interest earned exceeds £100, it is treated as being the parent’s income and not the child’s. Interestingly though, a grandparent can give away money without the same problem occurring. Watch out for inheritance tax (IHT) though; some gifts will be exempt, but larger amounts may create an IHT problem.

The Inland Revenue always get your tax code right

Certainly not. Even assuming that information you have given is correct it can be easily lost amongst the millions of other PAYE codes. Make sure that any employment benefits that you give yourself have been valued correctly (look at the Form P11D given out by your employer before 6 July 2006). Check that the suffix (the letter after your numerical code number) is right for your circumstances (look at the leaflet which came with it); the letters BR for someone who only has one job should ring alarm bells since this may mean that you are paying basic rate tax (22 per cent) on all of your income and that you aren’t getting any benefit for your personal allowances. We have had a number of clients whose PAYE codes have been incorrectly issued earlier this year.

If you have overpaid tax you can always rely on HMRC to pay it back

This can’t happen by magic. If you have overpaid tax under the PAYE system and have no other income, then it should happen automatically. Often though the position will be more complicated and you will have to ask for the tax back, either by completing a Tax Return or by completing a Repayment Form (R40). Investment income is taxed at a different rate to earnings, so it’s always worth checking the tax you have paid at the end of the year.

State pension is not taxable

The State pension is taxable, but is always paid gross. If someone has no income apart from the State pension, then since for a single person it is below the level of the personal allowance, no tax is due. If they do have other income, such as an occupational pension, then you will probably find that the tax code has been adjusted for the state pension - if not, they may not have paid the correct amount of tax.

If you only ever work for cash you don’t need to pay tax

HMRC devote significant resources to tracking money in the black economy and even small one-person businesses are interesting to them. It’s your responsibility to keep records of your financial affairs and to declare your income. There are penalties for cheating and you may even go to prison. If you have made a mistake then you should seek proper professional advice to minimise the effects of the consequences.

If you want more information or help with any of the issues mentioned above contact Sarah Nickols at Prime Pilleys on 02476 554310.

Back to Contents

More taxpayers at risk of jail time

Definition of fraud to change under new proposal

The new Fraud Bill, being considered by MPs, could see more taxpayers prosecuted.

The bill proposes to change the definition of fraud in dealings with HM Revenue & Customs from ‘knowingly making false statements’ to ‘deliberately failing to disclose information’.

There is a significant difference between knowingly making a false statement and deliberately not disclosing information. The Revenue's powers to extract information will be strengthened by this bill.

Under present rules if individuals failed to provide information requested by the taxman in the course of their inquiries, they typically just face fines.

Under the new legislation, the omission of information - even as a result of an honest mistake - could be an imprisonable offence.

Back to Contents

Step into the Dragons’ lair

The BBC is offering entrepreneurs across the country an opportunity to make that special idea come true or for national, televised humiliation as the broadcaster seeks applicants for the fourth series of the show, Dragons' Den.

In the last series, the most successful entrepreneur seeking financing was Ian Chamings who secured investment of £150,000 when he convinced the Dragons that his piece of mixing software was set to revolutionise dance music downloads.

If a budding entrepreneur is genuinely serious about his or her pitch, the BBC asks applicants with ideas, businesses and products to be clear in their minds about meeting some or all of the following criteria:

• The unique selling point: a product that serves a need like nothing else; 
• Scalability: something that can be scaled-up to make real money; 
• Route to market: the clear way the product can be sold and marketed; 
• Mutually beneficial arrangement: just what will the Dragons get out of it?; and 
• Exit strategy: a plan of how the entrepreneur/Dragon will exit and make money.

The broadcaster notes some of those candidates who failed in their pitch and went on to gain financing from other quarters, such as Anneliese Pritchard and her Nitty Gritty guide to Bristol and Jacqueline Edward who is in discussions to supply her disposable toilet seat covers throughout the UK.

If you would like an application form please send an e-mail to dragonsden@bbc.co.uk or visit www.bbc.co.uk/dragonsden.

Back to Contents

Microsoft Excel passwords

You may often password protect sheets within an Excel spreadsheet to prevent some of your data or formulae being overwritten by accident. However, it can be very annoying if you have forgotten the password when you come to amend the spreadsheet. If that has happened to you, our IT department can remove the password for you, once they have established that you are the rightful owner of the spreadsheet of course! If you need help with this contact Nick Ballard on 02476 554312

Back to Contents

Payroll online filing incentive available

HMRC have advised small employers who successfully filed their 2005/06 payroll end of year returns, P35 and P14s, online that they can now reduce their next PAYE payment by the £250 incentive payment. They advise that this can be done without waiting for HMRC confirmation that the amount is due.

Apparently they have encountered problems with issuing the online notifications that the incentive is due. They hope to sort out their technical difficulties as soon as possible but say that employers are entitled to ‘self serve’ the £250 payment. If you need help with this please contact Monima Das in our payroll bureau on 02476 554324.

Back to Contents

Promise to employees on the sale of the business

Business owners often want to reward long serving key employees when their business is sold but without previously giving them shares in the business. If they just give them cash out of the sales proceeds that will attract PAYE and NICs as it is treated as employment income. However there is a much more efficient and attractive solution to this involving share options. For more information about this contact one of our partners on 024 7655 4333.

Back to Contents

Selling a Business Building – preserving your tax allowances

If you have claimed Industrial Buildings Allowance on your factory building there may well be an unexpected and unwanted clawback of those allowances on the sale of the building which can result in a hefty tax bill even if the building is not sold at a profit. However there are potential ways around this, if the problem is recognised before the sale. For more information about this contact one of our partners on 024 7655 4333.

Back to Contents

Prime Pilleys 29 Warwick Road, Coventry, CV1 2ES
Tel. 024 7622 0208

Disclaimer - for information of users
This newsletter is published for the information of clients and other recipients of our email newsletters. It provides only an overview of the regulations in force at the date of publication, and 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 result of the material contained in this newsletter can be accepted by the firm.