January 2010 Newsletter

FOREWORD

WELCOME TO PRIME CHARTERED ACCOUNTANTS JANUARY E-NEWS.

First and foremost Happy New Year!

I’m sure for many of you the festive period will seem a long time ago now as it hardly takes any time at all to get engrossed back in the daily running of our businesses.

However, it’s important, particularly now, to put time aside to make sure that you’re taking advantage of any tax planning opportunities, and making sure allowances and tax reliefs are fully utilised to minimise any tax liability. We’ve therefore included an article on what you should be considering as part of your year end tax planning.

Continuing along the planning theme, it may now be appropriate for you to start to consider the different VAT schemes available, given January saw the return to 17.5%, and the implications for your business with the changes to cross border VAT charging. See both our articles for further information.

And it’s not just business planning that’s required either – we’ve got news relating to the change in age for drawing pension benefits that may affect some of you. Read our article to see what planning you may need to do.

With the weather causing havoc in recent weeks, we’ve also included a short article on the importance of businesses taking flexible working seriously and how systems we’ve put in place allow remote working for our staff so that we can carry on as normal.

If you require further information regarding any of the articles included in this month’s e-news, simply contact us and we will be happy to assist.

Laurence Moore, Chairman, Prime Group

Back To Top

Year end tax planning

There are a number of year end tax planning issues that it may be productive for you to look at before the end of the current tax year 5 April 2010 (individuals and self employed).

The list we have added to this article is not comprehensive - if you would like to discuss your individual circumstances, please contact us as soon as possible as action may need to be taken before the end of the tax year.

Individuals

• Have you maximised your ISA investments this year?
• Have you maximised your pension contributions?
• If possible, have you utilised your capital gains tax personal exemption? £10,100 2009 -10.
• If your employer still pays for the private fuel used in your company car you can effectively avoid the car fuel benefit charge if you repay your employer for the private fuel before the end of the tax year. It may be worth crunching the numbers as the tax benefit in kind is expensive and the private fuel refund may be less.
• For Inheritance Tax purposes each person can give £250 a year to any number of recipients, as well as £3,000 annually over and above that. They can also make regular gifts out of their income (not capital) that should fall to be exempt.
• If you are married or in a Civil Partnership and one partner/spouse has a much lower level of earned income, consider transferring income producing assets to the lower income earner. With income tax rates due to rise to 50% next year savings could be significant.

Self Employed

• If you are carrying stock on your balance sheet at cost and it is now worth less than cost, you could revalue, reduce the stock to its current realisable value. This will reduce your trading profit in the current year or increase your losses; it will also reduce your tax bill or increase any loss relief carry backs.
• If you are about to invest in new vehicles or equipment you should work out the most effective purchase date. Should you commit to the expenditure before the tax year end or afterwards? If your trading year end is 31 March this could make a significant difference. It may help you avoid wasting personal tax allowances or maximise the benefits of loss relief carry back.
• If you are considering the sale of a business or business property which will create a chargeable gain for capital gains tax purposes you might be advised to delay contracts until after 5 April 2010. Any tax payable on gains made on or after 6 April 2010 will not be due for payment until 31 January 2012. Tax payable on gains on or before 5 April 2010 will be due for payment a year earlier, 31 January 2011.
• At present CGT rates are still 18% with the generous Entrepreneurs' Relief of 10% on sales of qualifying business assets - up to a lifetime maximum of £1m chargeable gains. In his recent Pre-Budget Report the Chancellor made no mention of increases in the 18% rate 2010. However, there is always the possibility that CGT rates may be increased in the 2010 Budget.
• Consider your pension options. Could you make additional contributions before 6 April to reduce your higher rate tax this year? But beware of the anti forestalling provisions if your income is more than £130,000.
• Are you able to bring forward revenue expenditure, repairs to equipment, redecorating the office, that will help you to reduce profits or increase losses for carry back?

As indicated in the opening to this article the ideas outlined above are by no means all the options you may have to minimise the amount of tax you pay this year and advice must be sought to take into account individual circumstances. The key is to bring your current management accounts up to date and weigh up the various options. Please contact us if we can help.

Back To Top

New Year VAT resolutions

After the change back to 17.5% it is an appropriate time for businesses to review whether they could take advantage of the cash accounting scheme or flat rate scheme (don’t forget that the flat rate percentages have changed).

Also, if relevant, take time to familiarise yourself with the new cross border charges covered in a separate article in this months e-news.

If you would like to discuss the various schemes available and whether it would be beneficial to your business to change, simply contact Colette White or Steve Moorcroft on 024 7622 0208 or John Osborne on 0121 711 2468.

Back To Top

Cross-border VAT changes 2010

HMRC issued some important guidance regarding the changes in the place of supply of services rules which take effect from 1 January 2010.

This guidance is part of a package of measures being introduced to simplify and modernise the VAT system for cross-border trading and to counter fraud across the EU. The measures include:

• Changes to the basic place of supply of services rules
• Changes to the time of supply rules
• European Sales List (ESL) reporting for supplies of cross-border services
• A new electronic refund procedure for VAT incurred in other EU Member States.

If you are unsure how these changes affect you or your business, please do get in touch with Colette White or Steve Moorcroft on 024 7622 0208 or John Osborne on 0121 711 2468.

Internet link: HMRC cross border changes

Back To Top

Extra National Insurance burden ahead

One of the significant announcements in the Pre-Budget Report was a further increase in National Insurance Contributions (NIC) which is to take effect from 6 April 2011.

The NIC rates and limits are broadly frozen for 2010/11 at the 2009/10 figures, with a couple of minor exceptions.

An increase in the rates of NIC is proposed from April 2011 with an extra 1% being added to the rates applicable to employers, employees and the self-employed. The main rate of Class 1 (employee) NIC will be 12% and the Class 4 rate will be 9%. The employer rate will increase to 13.8%.

The additional rate of Class 1 and 4 contributions, payable on pay and profits currently in excess of £43,875, will also increase from the current 1% to 2%.

The government has announced that it will protect those at the lower end of the earnings scale by an increase in the point at which contributions become payable. It is therefore expected that employees paying the standard employee rate and earning below £20,000 will pay less NIC overall as a result of the change.

The government had previously announced that NIC rates would increase by 0.5% from April 2011. This further increase of 0.5% will represent a significant increase in costs particularly for employers.

Please do contact us if you would like further information.

Internet link: HMRC pbrn1

Back To Top

Businesses still deferring tax payments

A scheme designed to provide firms facing short-term financial problems with more time to pay their tax bills is still attracting applications.

The latest figures from HM Revenue and Customs (HMRC) revealed that, as of 20 December 2009, some 249,000 businesses had come to agreements under the Business Payment Support Service.

The scheme, which allows firms struggling with cashflow to negotiate an extended timetable for settling PAYE, corporation and income tax bills, was extended by the Chancellor in his pre-Budget Report.

The total amount of deferred tax has now reached £4.37 billion of which £3.33 billion has been repaid.

The majority of rescheduled payment agreements (60 per cent) are for three months or less.

Back To Top

Changes to the advisory fuel rates from 1 December 2009

To reflect the increase in fuel prices, HMRC have issued new advisory fuel rates for employees driving employer provided cars. These take effect for all journeys undertaken from 1 December, so employers using the advisory rates should advise affected employees and update any expense forms as soon as possible.

The advisory fuel rates may be used for journeys undertaken on or after 1 December 2009.

Engine size	Petrol	Diesel	LPG
1400cc or less	11p (10p)	11p (10p)	7p (7p)
1401cc - 2000cc	14p (12p)	11p (10p)	8p (8p)
Over 2000cc	20p (18p)	14p (13p)	12p (12p)

HMRC have in the past given employers a month’s notice of changes to these rates which has been withdrawn for this change.

Employers are not obliged to reimburse their employees for business fuel at these rates as long as they do not exceed them overall. Employers making or collecting payments at the superseded rate, because they have not been able to change their systems in time, may use their judgement on whether to make or require a second payment in respect of the same period, in order to apply the new rate from its effective date. However, employers should note that, under the normal rules, employees are only able to avoid the car fuel benefit charge if the amount they repay in respect of private fuel at least equals the amounts based on the rates as published.”

Other points to be aware of about the advisory fuel rates:

• Employers do not need a dispensation to use these rates.
• Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates. Such claims should be based on the actual costs incurred.
• The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC under a dispensation.

If you would like to discuss your car policy, please contact us.

Internet link: HMRC advisory fuel rates

Back To Top

Smaller firms get extra time to prepare for new pension scheme

Small businesses are to be given flexibility over the introduction of the government’s new compulsory workplace pension scheme.

The scheme is to be known as the National Employment Savings Trust (NEST), a change from the original Personal Accounts, and is aimed at employees aged over 22, earning between £5,035 and £33,540 and who do not have an occupational pension scheme.

The scheme is to commence in October 2012 when the largest businesses – those employing 120,000 staff or more – will begin enrolling workers.

However, smaller firms will join the scheme on a phased basis over the next three years. Start-up businesses formed from 2012 won’t be required to implement a NEST fund until 2016. Auto-enrolment is expected to be fully introduced by 2017.

Employer contributions will also be implemented on a staggered schedule.

Employers will be required to contribute a minimum of 1 per cent of an employee’s gross salary to the fund as from 2012. That will rise to 2 per cent from 2016 before reaching 3 per cent in October 2017.

The Forum of Private Business (FSB) welcomed the additional time granted smaller firms.

Back To Top

Current Personal Pension minimum retirement age is 50

Did you know that, if you’re lucky enough to be in the position, you can at present take your personal pension benefits from age 50?

The rules are changing though – from 6th April 2010 the minimum age for taking personal pension benefits is increasing to age 55. The change in the pension rules could mean those people who are now aged 50-54 and wanting to take their pension benefits early being forced to take pension benefits from age 55 – thereby having to defer retirement for up to 5 years.

So, it pays to plan ahead!

Does this just affect people who want to take an annuity from their personal pension plan?

No – it also affects anyone who wants to move into “income drawdown” before age 55 as well as anyone receiving pension benefits in the form of “phased retirement” – this is whereby you take a percentage of your pension plan each year and is designed, through a combination of tax-free cash and annuity income, to provide you with a level of pension income which allows your remaining pension plans to remain invested and benefitting from tax-efficient growth.

Any unvested (i.e. pension funds which you have not taken pension benefits from) will have to remain so until age 55.

If you’re currently aged under 55 you seriously need to speak to your pension/financial adviser as soon as possible.

Action

If you’re in ”phased retirement” through your personal pension and are currently under 55, then urgently speak to your financial adviser about what actions you need to take, as your income could be cut short from 6th April 2010.

If you’re aged 50-54 now, and plan on retiring in the next few years, you should consider taking benefits now, to ensure you don’t fall foul of these changes in personal pension minimum retirement ages.

Naturally, before taking any actions with regard to your personal pensions, or any other investments, you should seek advice from a suitably qualified professional adviser.

If you would like to discuss this further, please contact Sarah Hartland on 0845 872 2099, who will be happy to arrange an appointment for you with a representative from Prime Financial Advisers.

Back To Top

Are you benefiting from flexible working?

The recent heavy snow has highlighted the need for all small businesses to have flexible working practices in place.

Driving down cost is at the centre of most business decisions these days. Innovative firms have looked to implement flexible benefits to replace bonuses and help retain key employees. At the same time, a recent catalogue of man-made and natural crises has seen the mobile working revolution gather momentum. Businesses are increasingly recognising tangible benefits from working away from the office and have begun to see it as an essential part of an overall business continuity strategy.

We have implemented systems in our offices that allow for flexible working. If you think we could help you in this area please contact us.

Back To Top

HMRC behind almost half of wind-up petitions

The taxman has been accused of pushing businesses into collapse, after a survey revealed authorities were behind almost half of wind-up petitions, The Guardian reports.

"HM Revenue & Customs lodged 43% of petitions. Businesses will be concerned about Revenue & Customs turning the screw after the election. Company directors who can't come to a workable agreement with the taxman or who break the terms of an agreement, will find that HMRC will be very quick to push the button on their business”

Back To Top

Online Business Link tool for remembering deadlines

Have a look at: http://www.businesslink.gov.uk/bdotg/action/keydates

Back To Top

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.