February 2008 Newsletter

FOREWORD

WELCOME TO PRIME CHARTERED ACCOUNTANTS (PRIME) FEBRUARY E-NEWS.

Firstly, I trust that despite the traditional 'technical difficulties' at HMRC’s online filing site, you managed to file your Self Assessment Tax Returns successfully and the whole process was as painless as possible this year. If you used Prime’s tax team, I hope we took away much of this burden from you.

Yesterday the Bank of England's rate-setting committee has cut interest rates to 5.25% from 5.5% amid signs that the UK economy is slowing down, it is hoped that this cut will soften the blow of the down-turn and more cuts are expected in the coming months.

Since our January e-news we have had the much anticipated U-turn on CGT announced by Chancellor Darling on the 24th of January, we will touch on this in more detail. We’ve also had the Budget date set for 12th March, so that’s one for your diaries!

We also include our usual round up of news and some tips. As ever, feel free to contact us regarding any issues or questions that arise.

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Entrepreneurs’ Relief

In the Pre-Budget Report in October 2007 the Chancellor, Alistair Darling, announced a series of changes to the capital gains tax (CGT) regime for individuals and trustees. These changes included the abolition of taper relief and indexation relief and the introduction of a single rate of CGT of 18%. The changes take effect from 6 April 2008. The minimum postage required for the smallest tax return or set of accounts is now 48p.

On 24 January 2008, in response to pressure from the business community, the Chancellor announced a new ‘Entrepreneurs’ Relief’. The first £1m of gains qualifying for relief will be charged at an effective rate of 10%.

Gains in excess of £1m will be charged at 18%. An individual will be able to make more than one claim for relief, up to a lifetime total of £1m of gains.

Business leaders had been calling for the re-introduction of a form of Retirement Relief, which some of you may remember. The rules for retirement relief required you to have been in business for a number of years but the new rules are designed to be simpler:

• there will be no minimum age limit, and
• relief will be available where the relevant conditions are met for a period of one year.

The relief will apply to gains arising on the disposal of:

• the whole, or part, of a trading business that is carried on by the individual, either alone or in partnership, and
• shares in a trading company, or holding company of a trading group, provided that the individual owns broadly a 5% shareholding and has been an officer or employee of the company.

Commenting on the announcement Richard Lambert, Director General of the CBI, said:

‘This is superficially quite clever and on the surface might seem like a relief after three months of uncertainty, but even the smallest business owner will lose taper relief and indexation and be worse off.

The reality is that these revised measures will do nothing to help the real business powerhouses of this country. Although £1 million might sound a lot, it could have been built up over twenty or thirty years. It is clear that the real wealth and job creators of the UK's economy, selling assets for a lot more, will be seriously clobbered.”

Please do get in touch if you have any immediate concerns. We will let you have further detail once this is available.

Internet Links: HMRC guidance and CBI Press release

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Smaller firms will be hardest hit by steep rise in visa fees

The Government’s announced this week (Wednesday 4/02/08) changes of the fees it will charge business for visas under the new Points Based migration system. (PBS) businesses are going to face a considerable increase in visa fees this year, and some smaller firms could see them go up by as much as 580%.

Whether an employer needs just one skilled migrant or fifty, they must pay a new flat registration fee. This only becomes cost effective the more people you hire, so smaller firms will take more of a hit.

A firm with 50 or more staff, hiring one migrant will face a cost increase from £200 to £1170. As more skilled migrants are hired, the extent of the increase comes down but smaller firms are less likely to be in this position.

Also please be aware that…

Legislative changes coming into force on 29th February which mean employers face civil penalties of £10,000 for each illegal worker they employ; while the introduction of a new criminal offence means a prison sentence of two years is possible.

Under the updated Immigration, Asylum and Nationality Act, owners who take on migrant workers will also have continuing responsibility to check their ongoing work entitlement.

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Export orders drive manufacturing demand in most UK regions, but confidence takes a hit across the board

Strong international demand for British-made goods drove growth in new orders in most UK regions, according to the latest quarterly Regional Trends Survey published on Monday 4/02/08 by the CBI and Experian.

The West Midlands is firmly upbeat, with its strongest export order expectation since 1994, underpinning an overall optimism for new orders.

However, the deteriorating economic outlook has depressed confidence in manufacturing businesses across the UK and, as costs continue to surge, virtually all regions plan to raise their prices in the coming quarter.

To read the full article please click here.

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PAYE end of year returns

HMRC are running a series of workshops on the online completion of end of year PAYE returns. You can use the link below to see when sessions are running in your area.

The end of year forms P35 and P14, which include details of amounts paid to employees as well as deductions made under the CIS scheme, have to be filed by 19 May 2008. Employers with more than 50 employees have to file online or face penalties. Smaller employers are entitled to a tax free incentive payment of £100 for filing the 2007/08 end of year forms online.

If we already deal with your payroll, you can be assured that we will deal with this on a timely basis for you. If however you would like some help in this area please get in touch with Monima Das who heads up our Payroll Team, Prime PaySolve, on 024 7622 0208.

Internet Link: HMRC online filing

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HSE launch campaign to stop slips and trips

The Health and Safety Executive (HSE) have announced that they will run a workplace slips, trips and falls campaign in February and March this year. The campaign, which is called Shattered Lives, is aimed at workers who are most at risk of a slip, trip or fall in the workplace. These include not surprisingly construction workers and kitchen workers.

The HSE says that around 1,000 workers every month are seriously injured during these types of accidents.

Internet Link: HSE Shattered Lives

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PAYE tax codes about to be issued

HMRC have advised that they are about to issue PAYE tax codes to employees for the 2008/09 tax year.

If you receive a coding notice it is worthwhile letting us have a copy for checking if you have any concerns. Employees who have the use of a company car may find they are worse off in the new tax year due to an increase in the percentage, linked to the car’s CO2 emissions, applied to the list price of the car.

HMRC’s guidance on PAYE tax codes includes some frequently asked questions and can be found at the link below.

Please contact Sarah Nickols in our Coventry office on 024 7655 4310 or Jan Hornby in our Solihull office on 0121 711 2468 if you would like more advice on this issue.

Internet Link: HMRC coding notice guidance

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Holidays

At this dreary time of year, many will be reaching for the travel brochures to plan their next holiday getaway. Now would be a good time to ensure that your employees (or your own) holiday entitlement has been correctly calculated. The minimum statutory holiday entitlement was raised from 20 days to 24 days per annum from 1 October 2007. This entitlement is inclusive of Bank Holidays.

Where the holiday year end is not 30 September, then employees are entitled to a pro-rated entitlement. The Business Link website gives a link to enable individual entitlement to be calculated. This is particularly helpful for part time employees.

The further increase in entitlement from 24 to 28 days applies from 1 April 2009.

Internet Links: Business link holiday calculator and BERR website

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How to survive a slowdown

Confident economic planning is never more important than when the economy takes a downward turn.

ACCA (Association of Chartered Certified Accountants) offers the following 20 tips to minimise the impact the credit crunch and economic slowdown could have on your business:

1. Start questioning early your credit facilities with UK retail banks
2. Maintain a meaningful dialogue with your bank and also with your accountant if necessary
3. Review your bank charges. Could you switch accounts and find a better deal with a new bank? Could your current bank give you any special deals as a loyal customer?
4. When it comes to rolling-over banking facilities, watch out for hidden charges and factor those into financial planning if necessary
5. Review all your direct debit arrangements for the business and for your personal finances
6. Keep a tight rein on cashflow, make sure they can pay and be paid on time and keep a dialogue open with their bank
7. Try to clear credit card debt. But if you use them, try to pay without incurring interest and pay off balances before charges are incurred
8. Chase your cashflow and if you can't make payments, then let your creditors know why and when they can expect a payment
9. Pay special attention to cash flow forecasts and to monitoring cashflow. Ensure management accounts are up-to-date, and that all key financial reconciliations are done, reviewed, and outstanding items cleared
10. Tighten up credit control, cash collection procedures and treasury management
11. Look carefully at your forward order book, and the timing of future orders
12. Consider carefully current and future customers and their ability to pay - do not simply rely on credit ratings
13. Pay particular attention to investments and major capital expenditure. Appraise rigorously and consider the extent to which such items can be rescheduled
14. For those businesses which import / export, consider foreign exchange hedging and where this could be relevant to your business
15. For December year-ends, be clear about stock and work-in-progress valuations and get early audit agreement to valuation principles. Do the same for all ‘'fair value' items on your balance sheet
16. Look critically at staff requirements/recruiting strategy. Instead of taking on new staff, you could consider paying for more paid overtime
17. Consider, where relevant, temporary or fixed-term assignments but make sure you have weighed up the pros and cons against full-time recruitment
18. Be cautious in awarding pay rises and in setting up staff incentive schemes. Ensure such schemes relate as much to profitability and cash generation as much as to growth. Be alert for performance distortions related to incentivisation schemes
19. Critically evaluate your own financial drawings from the business. Are they appropriate in the light of current and future profitability and cash generation? Cars? School fees? Home improvements? Holidays? Insurances?
20. Revisit the Risk Register as a matter of priority. Are all risks included, particularly financial/liquidity? Are risk mitigation measures still valid?

I hope you found some of that advice useful, I would like to highlight point number two “Maintain a meaningful dialogue with your bank and also with your accountant.” As I hope you are aware, Prime works as a trusted partner for its clients and I would like to reiterate that we genuinely want to help our clients succeed. So if you need to talk to a member of our team at Prime Chartered Accountants, do not hesitate to get in touch with us.

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Disclaimer
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.