May 2009 Newsletter

FOREWORD

WELCOME TO PRIME CHARTERED ACCOUNTANTS MAY E-NEWS.

Have you considered fully utilizing technology within your business to make it more efficient to run, especially in today’s current economic climate?

Using the internet, for example, to sell your products or services is a much cheaper and more cost effective way of reaching your target audience and, as you will see from the article we have included on selling online, there’s research to back up why businesses should look to pursue the use of technology to their benefit.

What’s more, to help those who still have to convert, we’re giving you the opportunity to win a web shop – that’s to design and get it up and running for a whole year! See our article below for details of how to enter.

We all knew that following the budget in April, the finer detail of the areas covered would come out eventually. We’ve, therefore, included articles relating to Furnished Holiday Lettings, here and abroad, and what you should do since the Chancellor removed the favourable tax status. We also point out differences in the tax position for unmarried couples, compared to those that are married or in civil partnerships.

As always, Prime is able to provide additional assistance if you have any queries relating to the articles covered. Simply contact us to discuss in more detail.

Laurence Moore, Chairman, Prime Group

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Are you selling online?

In the modern business world every company, regardless of size or how recently it has been established, should have an online presence.

The internet is one of the few areas in the UK relatively unaffected by the recession, with online shopping in the UK rising 25% in 2008.

However, recent research by internet company 1&1 Internet Ltd found that 46% of small firms in the UK with one to five employees do not have a website.

This is despite the fact that 41% of those surveyed recognise that a website could increase their company's sales. The main factors listed by small firms as to why they do not have a website are cost, time and feeling they lack the required expertise to set up a site.

The research also revealed that small firm owners who do not have a site significantly over-estimate the cost and time involved in setting up a website.

46% of small firms in the UK with one to five employees do not have a website.

Of those firms surveyed that have launched a website 80% reported that their site generates revenue for them, with the average revenue produced standing at a respectable 10%.

With a recent survey by the Office of Fair Trading (OFT) finding that 50% of consumers - up from 26% in 2006 - believing shopping online is as safe as in purchasing goods in a store it is clear that consumer habits are moving online.

Win a web shop!

Prime, through its membership of the International Association of Accountants Innovation & Technology Consultants (IAAITC) has teamed up with Excommerce, a leading Norwegian developer of web shop and e-commerce solutions to bring their revolutionary web shop solution to the UK.

To introduce the service we are offering one lucky business a free webshop for a year (package value £3,500). The winner will be able to chose a design from one of many templates available and will be assisted with uploading stock items and creating business online now.

To enter the competition, visit http://iaaitc.excommerce.com and simply complete the online registration form.

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60% of employees saving money by working from home

Six out of ten employees say that they are financially better off because they have the flexibility to work from home, according to research by BT Business. Nearly half of respondents believe they save between £10 to £20 per day on travel by working from home, with additional savings coming from not having to buy lunch. If you need assistance in enabling your employees to work remotely or would just like to discuss this topic in general please contact Nick Ballard.

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Wealth Preservation Seminar – 24 June 2009

Preserving your wealth is essential, especially in today’s current economic climate. Make sure you are aware of all the options available to you by attending our FREE seminar, taking place on 24 June 2009 at 5.30pm in Coventry.

Prime has teamed up with Button Legal and Cotswold Financial Services to look at:

• Long term care fees – how to avoid them
• Investments – can you do better than the current bank rates?
• Wills and Lasting power of attorney
• Inheritance Tax – the voluntary tax
• The budget – new pensions rules and avoiding 50% tax rate

To book your place email Sarah Hartland or call 024 7622 0208.

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Turning losses into cash

The budget extended the loss reliefs available to businesses. Businesses can now claim up to £50,000 which can be carried back for three years. The period over which losses can accrue varies between unincorporated businesses and companies, but essentially the 08/09 and 09/10 accounting periods.

By shortening accounting periods you can accelerate tax repayment claims if you have paid tax in the past three years, but are now suffering losses. The refund will be made upon submission of the return and does not need to wait for the normal due date of the tax.

So if you think that your latest accounts will show a loss the sooner we can prepare those and claim this relief the sooner the cash will be in your bank. Please contact Rebecca Blake for assistance.

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Furnished Holiday Lettings (FHL)

Many have missed one important change buried in the fine print of last month’s budget.

The favourable tax status enjoyed by furnished holiday lettings (FHL) will be removed on 5th April 2010 at which point those properties will be treated as normal investment properties.

The tax breaks they currently enjoy include the following:

• Ability to offset losses incurred against other income
• Ability to claim capital allowances on furniture, etc
• Any profit on the sale of the property is treated as the sale of a business and therefore attracts entrepreneur’s relief (10% capital gains tax rate).

Property advisers believe this may have a knock-on effect on FHL property values making them less attractive to purchasers.

You should therefore consider whether you need to take any action before next April. For instance, if you were planning to sell such a property it would be better to do it in the current year if it is likely to result in a taxable gain.

One upside from the rule changes is that HMRC have decided to include foreign properties in the EU within the definition of FHL until 5th April 2010.

We therefore have a very short window of time to consider amending the last couple of tax returns for any clients with such properties who sold them in the last couple of years or who incurred losses from renting them out.

If you want to discuss this you must contact us immediately, as claims to amend previous returns must be lodged by 31 July 2009.

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Tax position of unmarried couples

UK tax legislation relating to capital gains tax (CGT) and inheritance tax (IHT) is biased in favour of marriage or Civil Partnership. The recent Budget has done nothing to change this.

If you are committed to a long term life partnership with another individual, and you are not married or in Civil Partnership, the opportunities to mitigate CGT and or IHT are limited. This article discusses these limited options.

Assets owned when relationship started

Generally speaking it has been difficult to transfer assets between partners that were owned prior to the commencement of their relationship. For IHT purposes the transfer would be treated as a Potentially Exempt Transfer (PET) - any potential liability would only disappear after a seven year period. The IHT risk could be insured against by taking out a seven year life policy, but of course you would have to pay the premiums!

If assets are transferred between partners, and the asset in question is subject to CGT on disposal, any such transfer will create a CGT liability. The only exception is if the market value of the assets at the date of the gift or transfer is the same as, or lower than the original cost. With most share portfolios now in a loss position this may open up opportunities to equalise estates by gifting across securities. This may also crystalise CGT losses for the donor which he or she could put to good use.

Depending on the type of asset, transfers may trigger Stamp Duty Land Tax charges.

And finally, gains on gifts of certain business assets can be rolled over.

Assets purchased after the relationship started

Assets purchased together after the relationship has commenced opens up the possibility of equalising estates by owning such assets jointly. If there are concerns about unequal financial contributions made by partners to purchase the asset, these can be reflected in the percentage share.

In certain circumstances it may also be effective to use a trust to accommodate certain aspects of the transaction.

Insurance

If IHT planning is ignored a partner surviving a first death may be obliged to sell assets, if the couple's assets were significantly above their nil rate bands (Currently £325,000). This may involve the survivor selling the family home, or taking out a mortgage, to pay IHT. This risk can be covered by a first death life policy written in trust for the benefit of the survivor.

Conclusion

Most unmarried couples are disadvantaged in the UK tax system. Ultimately the only way to redress this is for our Government to legislate and remove this bias, or for affected couples to actually get married or enter into a Civil Partnership. Obviously there are many important non-tax reasons why this may be an inappropriate course of action to take.

If you have tax planning concerns as a result of reading this article please contact Rebecca Blake.

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Offshore accounts

HMRC has successfully obtained notices against a further four unnamed financial institutions.

Interestingly, the reports reveal that HMRC’s experience with offshore accounts so far has been that only 25.24% of undisclosed accounts actually involve tax loss. This may explain why we haven’t seen much of HMRC’s threatened onslaught against the 40,000 account holders whose details they hold but who did not come forward under the first Disclosure amnesty.

If they are finding that the vast majority lead to no yield they have possibly given up on all but the largest cases.

However, the momentum is obviously building towards the New Disclosure Opportunity scheduled for the Autumn. If you are uncertain as to their position or what to do right now simply contact us and we would be happy to offer a no-obligation initial consultation.

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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.