November 2008 Newsletter

FOREWORD

WELCOME TO PRIME CHARTERED ACCOUNTANTS NOVEMBER E-NEWS.

Whilst it may not feel like it sometimes, believe it or not being a smaller firm in uncertain economic times does actually have its advantages, as many can react more quickly and easily to latest market conditions and exploit opportunities that arise.

I am sure that many of you have been reviewing your business operations and determining how best to deal with the current economic climate, but I would urge you all to consider very carefully before cutting back on the ‘nice to have’s’, to focus your efforts on the principle business activities.

The ‘nice to have’s’, for example, a good accounting system which gives you more than the basics, or marketing initiatives, are in fact even more essential in the current circumstances.

It is of paramount importance to have a full understanding at any given time of your financial situation and, without a robust accounting system in place, this will be difficult to achieve. Similarly, to survive you still need customers, whether it’s existing ones buying more from you or brand new ones.

Taking advantage of opportunities to promote your business, perhaps a little more creatively without making a huge investment, can make a big difference.

If we can be of any further assistance, or you would like to discuss any of the articles featured in more detail, please do not hesitate to contact us.

Laurence Moore
Chairman, Prime Chartered Accountants

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Pre-Budget report 2008

The Chancellor has announced that he will deliver his Pre-Budget Report (PBR) to Parliament on Monday 24 November at 3.30pm. A summary will be emailed to you by close of play on Tuesday 25 November.

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Intestacy rules

The Ministry of Justice has announced an increase in the amount of the statutory legacy on intestacy. The statutory legacy is the amount which an individual is entitled to receive from the estate of their husband, wife or civil partner where the individual has not made a Will.

From 1 February 2009 the statutory legacy will increase to:

£250,000 (from £125,000) where there is a surviving spouse or civil partner and children

£450,000 (from £200,000) where there is a surviving spouse or civil partner and parents or siblings, but no children.

The statutory limits only apply in certain circumstances. They were last increased in 1993 and the government has acted because of concerns that the current levels are too low.

It should be noted that civil partnerships are same sex marriages and not couples just cohabiting, for which there are no statutory legacies.

Please do get in touch with Rebecca Blake on 0845 872 6484 if you have any queries on inheritance tax or the intestacy rules or if you think your Will needs reviewing.

Internet links: Press release & Directgov website

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Changes to rights during maternity leave

Following changes made to the Sex Discrimination Act and to the Maternity and Parental Leave Regulations, the law on contractual terms of employment during Additional Maternity Leave (AML) changed in respect of women whose babies were due on or after 5 October 2008. The date the baby is due, as shown on the MATB1 certificate (provided by the midwife or doctor at around 20 weeks into the pregnancy) is the relevant date and not the date the baby is actually born.

The main effect of the change is that broadly all non-pay contractual terms and conditions of employment to which a woman is entitled during Ordinary Maternity Leave (being the first 26 weeks leave) continue throughout her AML, including accrual of contractual annual leave. These rights could also include such things as the use of a company car or availability of private medical cover.

These rights and entitlements will therefore now apply to the full 52 weeks maternity leave entitlement as opposed to the first 26 weeks as previously.

Please contact Kerrie Lucas on 024 7622 0208 in our Paysolve Payroll Bureau for further advice.

Internet links: HMRC guidance & Government Equalities Office

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Coventry Office Tax department

Sarah Nickols, whom many of you will have had contact with, if your tax affairs are handled from the Coventry Office, has just commenced maternity leave following the birth of a little boy.

In her absence, the department will be managed by Jan Hornby. Jan is no stranger to Prime, having previously worked in our Solihull office as Tax Manager, before leaving to spend more time with her children.

Please contact Jan with any queries or, of course, Paislei or Jenni. Jan can be contacted either via email: jshornby@primeaccountants.co.uk or by telephone 024 7655 4310.

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Getting income from your home

It has been some time since we were given tax breaks for owning our own homes, as a consequence we have to fund both interest and capital repayments out of our taxed income.

For instance you would need to earn over £1,000 per month as a 20% tax payer, or more than £1,300 per month as a higher rate tax payer, to pay £800 per month of mortgage interest.

As recession starts to bite and taking into account the difficult property market, we may consider letting either part or all of our homes. This article sets out a number of the tax considerations you will need to consider.

Rent-a-room relief

At present you can elect to claim this relief if you let out a room in your home.

The following rules should be considered.

If you don't make such an election you will be taxed on the difference between the rents you charge and directly attributable costs (such as a proportion of gas, electricity, water and general rates, repairs and of course mortgage interest).

If you do make such an election you will be taxed on the difference between the total rents you receive and £4,250. Expenses are ignored. (If your property is owned jointly the £4,250 will be shared between the partners, as will the rents.)

In most cases it will be necessary to work out the tax charge using both methods to see which is more beneficial.

If the rents received from letting a room are less than £4,250 per annum (£354.17 per month) the income is entirely tax free!

Letting your home

If you decide to move from your home and let the whole property the following points should be considered.

You will be taxed on the rents received less attributable costs. Costs will include mortgage interest paid. As the property has been your principal private residence any gain that you make on subsequently selling the property will be tax free until you move out plus the last three years of ownership.

Consequently if you do not let for more than three years there will be no capital gains tax to pay.

If part of the gain becomes taxable because of the property being let as residential accommodation, then you can also make a claim for lettings relief of up to £40,000. The relief is available to both owners if property is jointly owned including married couples or civil partners.

You should also be mindful in both these situations that letting or part letting of the property may be prohibited by your mortgage lender.

Contact Rebecca Blake on 0845 872 6484 for further information.

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Shopping on the Internet

HMRC have updated their guidance on buying goods on the internet explaining when duty and / or VAT will need to be paid. The guidance has been updated in recognition that we are becoming increasingly global shoppers and may therefore benefit from some straightforward guidance.

The information includes warnings that although you may think that a website is quoting the full price for goods you may also have to pay Customs duty, Excise duty and / or import VAT.

For more information visit the links below.

Internet links: HMRC guidance & Frequently Asked Questions

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Second chance to disclose offshore accounts

HMRC are expecting to uncover many more offshore accounts in the near future, as the account holders move funds to UK banks from offshore for the £50,000 government protection in the time of the world financial crisis. The Revenue have already raised around £400m from disclosures from the last Offshore Disclosure Facility, and are pushing the boat out to catch more people not disclosing their true tax liability.

HMRC will be revisiting the 2006 investigations into the use of offshore bank accounts in 2009 in the hope to raise more capital. It has been suggested that a possible penalty rate of 15% will apply, just 5% above the 2006 penalty of 10%. HMRC is already in the middle of investigations into 12,000 accounts and would hope that a further 79,000 will be investigated within the next two years.

Be aware that HMRC are now fully committed to high-profile criminal prosecution, in the hope that more people will disclose their offshore accounts. The Organisation for Economic Cooperation and Development (OECD) estimate that there is between $5000bn and $7000bn hidden in offshore accounts which makes the £400m already collected by the revenue look exceedingly small.

For further information, please contact Rebecca Blake on 0845 872 6484.

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Take advantage before income shifting rules come in

As you may remember, the government has postponed new laws that would prevent people reducing their tax liability by shifting business income to another person such as a non-working spouse or civil partner. This may provide some valuable tax planning opportunities.

Although proposals were announced last December, aimed at an April 2008 start, the government decided further consultation was needed. The difficulty is to frame legislation that distinguishes between ‘acceptable’ business arrangements and ‘income shifting’ to avoid tax, while providing clarity and certainty for businesses. It’s a tall order.

The delay gives businesses an extended opportunity to save tax by paying dividends up to 5 April 2009. Since losing the Arctic Systems tax case in the House of Lords last year, HMRC has confirmed that where a non-working spouse holds ordinary shares with rights to the company’s capital, dividends can only be taxed as the income of the spouse to whom they are paid.

You can therefore save tax by paying dividends in the current tax year up to the limit of a non-working spouse’s basic rate income tax threshold, ie up to £40,835. Remember though that you have to count as income the 10% tax credit as well as the cash dividend itself.

You should also deduct any other income your spouse might have, such as bank interest. You can even give your spouse shares shortly before paying the dividend, provided the gift is unconditional and is of ordinary shares with full voting rights.

Because the 10% tax credit is not repayable, all or part of the personal allowance of £6,035 is wasted if other income is less than this amount. If your spouse or partner does some work for the business, you could increase the tax saving by paying some salary as well. The salary will be deductible from business profits, provided it is a reasonable amount for the work done.

Whilst there are ample opportunities for planning as noted above, you should be aware that this whole area has many traps for the unwary, and you would be wise to take professional advice before proceeding.

We can advise you on how to make best use of the current rules. There are some restrictions on paying dividends, but we can check whether they affect your company. This will probably be your last chance to save tax in this way, although further delays cannot be ruled out. We can also consider whether you should change the way your business is set up for the future.

Simply contact Rebecca Blake on 0845 872 6484 to find out more.

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IT department

In response to demands from our clients for IT support as part of the all encompassing business support service available, we are pleased to announce we have just appointed Mark Cowley to strengthen our IT team.

We already offer an IT support service to some of our clients in addition to the accountancy work undertaken but this will mean more clients can also benefit by outsourcing their IT functions too, not only relieving them of the expense of employing a full time person but also the hassle when things go wrong.

Our IT professionals can be drawn upon to assist with specific one-off projects or can provide ongoing maintenance and support as required by the business. Systems are often accessed remotely reducing amounts of downtime and the need for someone to fix the problem on-site.

As our press release says “Our clients have come to expect from us not just their accounts prepared or their tax returns completed but a range of other business services too such as payroll, business forecasting and IT support that will add value to their business. More and more these days, a client’s IT is an integral part of the systems used for keeping their accounting records and other critical business processes and they don’t want to look to an IT company to help them with that in isolation. We understand the impact that each part of the business has on another and so can help the business as a whole run as efficiently as possible.”

If you would like to find out how you can benefit from this support, simply contact Nick Ballard on 024 7622 0208.

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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.