July 2007 Newsletter

The Dangers of Illegal Dividends

Are your dividends actually legal? We are highlighting the importance of setting up a mechanism to ensure that SME owners process their dividends properly for the purposes of the Companies Act and HMRC.

In order to make a legal distribution of profits your company must:

   1. Verify and provide evidence that there are sufficient profits to distribute at any one time. You must not overlook other distributions already made in the period. Evidence may be in the form of management accounts or by extrapolating figures forward from the last set of year end accounts.

   2. Ensure that Board’s minutes reflect the voting of the dividend. If there is only one owner manager, they must have a meeting with themselves!

   3. Prepare a dividend voucher to evidence the payment, date and tax credit, with the payment date being the date when a dividend is either physically paid or credited to a loan account. You cannot back date dividend processing.

HMRC are increasingly likely to put up the argument that excessive or illegal dividends should be re-classed as earnings rather than as illegal loans.

Dividends can be a tax efficient solution for directors of limited companies but, as indicated, it’s important to get the details right. For advice on how to keep your company dividends ‘legal’ contact your Prime Partner in Coventry or Solihull.

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Avoiding Export Debts When Trading Overseas

Trading overseas can be much more complex than doing business with a local firm, particularly when it comes to getting paid. Aside from the physical distance between the UK and a foreign customer, there are differences in payment practices, laws and regulations and even in business culture that could cause problems for unwary exporters – problems that could result in slow payment or bad debts.

Payments terms vary across Europe and although Britain is one of the slowest payers, averaging around 60 days compared to 30 or 40 days, in Eastern Europe the situation can be quite different, with some firms in Poland racking up a massive 90-day delay in settling their invoices. The Prime article Trading Overseas – Avoiding Export Debts provides some pointers on how to avoid falling into some of the obvious traps.

For advice on tax, VAT and payment issues for exporters contact Prime here.

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New Fuel Rates for Company Cars from 1 August 2007

The Advisory Fuel Rate, the rate at which employers can reimburse employees for fuel used on business trips without incurring tax or national insurance charges is being increased by HMRC – it last changed in February 2007.

It is used when employees have company cars but put their own fuel in and therefore need to reclaim fuel used on business trips, or vice versa when employees are required to reimburse fuel used for private travel in their company car when the employer pays all the fuel bills.

For VAT purposes, these rates are also used to claim back VAT on the fuel element of car and fuel allowances paid to employees.

Engine size	Petrol	Diesel	LPG
1400cc or less	10p	10p	6p
1401cc to 2000cc	13p	10p	8p
Over 2000cc	18p	13p	10p

Petrol hybrid cars are treated as petrol cars for this purpose.

What About Petrol Price Changes?
Prime have been asked whether the rate per mile figures change if fuel prices go up or down. HMRC say that they aim to provide employers with as much certainty as possible by keeping the fuel rates unchanged where there are modest variations in fuel prices. In line with the commitment made when they were introduced, they will be reviewed during a tax year only in the event of a variation in fuel prices of greater than 10% from the prices used at that time.

For VAT, Customs will accept the figures in the table for VAT purposes though employers will need to retain receipts in line with current legislation.

If you need advice on the treatment of advisory fuel rates or on the pro’s and con’s of company cars contact Sarah Nicholls at Prime Coventry on 024 7655 4310 or Jan Hornby at Prime Solihull on 0121 711 2468.

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Tax Credits Final Reminder

Tax credits are state benefits which are generally available to lower income families. However, entitlement to the credits is significantly increased where individuals pay for childcare or have a dip in normal levels of income, perhaps due to incurring trading losses.
Individuals who have already claimed tax credits for 2006/07 have to finalise their provisional award, which would have originally been based on their 2005/06 income, and advise HMRC of any changes in their circumstances for 2007/08. This procedure is known as the renewals process. The deadline for the submission of tax credit renewals is 31 July 2007, which is a month earlier than the renewal date last year.

HMRC have been busily advertising the renewals process in the national press. Claimants need to be aware that the payment of tax credits will stop at the end of July if they have not renewed their applications by that date.

HMRC are also reminding claimants that the deadline for letting them know that their circumstances have changed has been reduced from three months to just one. Some examples of the sorts of changes which have to be notified as soon as they happen are changes in family circumstances, perhaps a partner moving in or out of the family home, or a reduction in childcare costs. A reduction of £10 a week for a mere four weeks has to be reported!

If you need any help with the completion of your form, or any advice on tax credits generally, contact Sarah Nichols in Coventry on 024 7655 4310 or Jan Hornby in Solihull on 0121 711 2468.

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Personal Accounts Pensions

The government has published details of a new savings scheme which will give all employees the right to a workplace pension with a contribution from their employer. At present employers with five employees have to offer access to a pension scheme but do not have to make an employer contribution.

The government expect that six to ten million people would save in personal accounts from 2012. Personal accounts will have low charges which should ensure that people keep more of their savings.

Under the Personal Accounts scheme employees should see their savings in personal accounts matched £1 for £1 by a combination of contributions from their employer and the government. The proposal is that employees will be expected to contribute a minimum of 4% of their salary. The employer would contribute a minimum of 3% and this would be topped up by a further 1% from the government in tax relief.

This is a radical change as for the first time employees will have the right to a contribution from their employer which will increase the value of their pension fund.

To read more about the Personal Account Pensions visit the Department for Work and Pensions website.

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28 Days holiday entitlement - but not yet

A couple of months ago the government reported its proposal to increase the minimum statutory holiday entitlement from the current 20 days (including bank holidays) to 28 days (bank holidays inclusive). The 28 days equates to 5.6 weeks for an employee working a five day week.

Following the consultation some amendments have been made. The main change is delaying when employees will be entitled to the full amount of additional leave.

The government will delay introducing the increase from 4.8 to 5.6 weeks until 1 April 2009. This will increase the holiday entitlement of an employee, who works a five day week, from 24 days to 28 days leave.

The initial increase from 4 to 4.8 weeks, or 20 to 24 days for an employee who works a five day week, will come into effect on 1 October 2007, as originally suggested.

The government have amended the proposals to enable employers to pay employees for the additional holiday entitlement (the additional 0.8 weeks or 4 days) until 1 April 2009. This is a temporary measure to ease the transition.

The increased leave entitlement includes bank holidays, so employees who already get four weeks leave plus bank holidays will not be entitled to an increased entitlement.

Part time workers minimum entitlement will be calculated on a pro-rata basis.

Internet links: DTI annual leave press release and to be kept informed of developments email annual.leave@dti.gsi.gov.uk

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PAYE Online

HMRC have issued a reminder to employers concerning their PAYE online service. The online service, which is used by many employers to submit the employer annual returns P35 and P14, is also used by HMRC to issue PAYE notices and reminders back to the employer.

Employers can opt out of online notification and we have included a link at the bottom of this article to enable you to do this if appropriate.

HMRC have also reminded employers that they must access and action the online notices regularly. If not, there is a risk that employers may make incorrect deductions from their employees by using out of date tax codes.

The online system is also used to advise smaller employers, those with less than 50 employees, that HMRC have awarded them the tax-free payment for filing end of year returns.

Internet links: HMRC article and How to opt out of online notification

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No smoking in vans

Employers may not realise that fines may be levied on them and/or their employees if they fail to observe the new "Anti-Smoking" legislation that applies in England from 1 July 2007.

Believe it or not a vehicle used solely for business purposes is likely to be considered "business premises" for the purposes of the Anti Smoking legislation. You are obliged to display No Smoking signs in such vehicles.

   • Smoking in a smoke free vehicle carries a potential fine of £200.
   • Failing to display a No Smoking sign carries a potential fine of up to £1,000 per      offence.
   • Failing to prevent smoking in a smoke free vehicle carries a potential fine of up to      £2,500 per offence.

Again the requirements of this legislation should be included in your contracts of employment.

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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.