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October 2008 NewsletterFOREWORDWELCOME TO PRIME CHARTERED ACCOUNTANTS OCTOBER E-NEWS. Having just attended our two recent Business Academy events, it was encouraging to hear that, for many of the businesses represented, the impact of current economic conditions is, in the main, yet to be really felt. In fact it seems that business owners are using it as an opportunity to tweak business processes and general working practices to their advantage. We’ve, therefore, included a few ways that may be worth considering of how to further beat the recession and credit crunch, as well as a change in the benefits system employers should be aware of and areas where the power of HMRC has significantly increased. Here at Prime, we are optimistic about the future and feel we are in a position to further strengthen our business, particularly through the tax services we offer. We are, therefore, pleased to welcome Rebecca Blake as Group Tax Director who, over the next year, will come into contact with many of our clients and professional contacts, as we continue to be proactive in the services and advice we provide. Laurence Moore New Tax Director joins the Prime GroupRebecca Blake joins Prime as Group Tax Director this month, and further strengthens our Tax department. Amongst other responsibilities she will oversee the teams in both offices and brings with her a wealth of experience of dealing with high net worth individuals, complicated tax planning opportunities, inheritance tax, capital gains tax and business restructuring. Rebecca has worked for the past 11 years for a well established LLP in Worcester specialising in business and tax advice, where she held several positions including Tax Manager, Tax & Production Manager, Corporate Tax Director and most recently Managing Director. Rebecca is a member of the Institute of Directors, and a Fellow of the Institute of Chartered Accountants. In her spare time, she enjoys boating, reading and eating out. Change to benefits systemFrom 27 October 2008, in a change to the benefits system, Employment and Support Allowance (ESA) will replace the current state benefits (Incapacity Benefit and Income Support) which are paid to individuals on incapacity grounds. Initially, the new ESA will only be payable to new claimants. Existing Incapacity Benefit or Income Support claimants will initially continue to receive their existing benefits, so long as they satisfy the entitlement conditions. The change to the benefits system will have some implications for employers with the introduction of a new SSP1 form. This form is used where an employee has reached their maximum entitlement to Statutory Sick Pay (SSP). The changes to SSP1 are designed to make it quicker and easier to complete, as less information has to be reported for benefit claims starting on or after 27 October 2008. Another form the SSP1L (Leaver’s statement of SSP), which is currently given to employees who leave within 8 weeks of claiming sick pay, will be discontinued from 27 October 2008. If you need any help with these please email Monima Simpson-Smith or call 024 7655 4321. Internet link: DWP – Employment and Support Allowance Fake HMRC emailsHMRC are warning taxpayers that they are aware of a high number of emails being sent out offering a tax rebate. The warning confirms that HMRC do not email taxpayers advising them of tax rebates or invite them to complete an online form to receive a rebate. The advice goes on to say that anyone receiving such an email should not visit the website contained within the email or disclose any personal or payment information. Internet link: HMRC fraud attempts Isle of Man Tax Information AgreementHMRC have confirmed that a new agreement has been reached between the UK and Isle of Man governments over exchanging tax information. The agreement is far reaching in terms of its objects and scope and gives HMRC a lot more power, going further than any previous exchange agreements between these countries. HMRC will be able to obtain and provide information held by banks and other financial institutions as well as information as to ownership of a wide range of different entities, including settlers/beneficiaries of trusts and foundations - a very wide ranging power. They will be allowed to enter the territory of IoM, to interview individuals, examine records and attend what are referred to as "tax examinations". What appears to be, on the face of it, a fairly routine piece of protocol is in fact a rather potent information power so be warned – now that HMRC have these powers it is almost certain they will use them! If this affects your business and would like to further advice, please contact the Partner who normally handles your affairs. Landlords take notice!HMRC are increasing their efforts to claw back lost revenue from landlords who have either made accidental errors on their tax returns or have deliberately sought to avoid paying tax on rental income. As part of a new initiative HMRC will "data match" information gathered from letting agents, local government authorities and the Stamp Office to identify people who have not made the appropriate returns and have therefore avoided paying the correct tax on rental income and gains. HMRC's well publicised new powers which take effect from 1 April 2009 will enable officers to inspect business records at the premises where they are held if they suspect there is untaxed income or gains. For a landlord, this could include their private residence. For further information, please email our Coventry office Tax Manager, Sarah Nickols or call 024 7655 4310 or email our Solihull office Tax Manager, Ian Frost or call 0121 711 6363. Immediately vested pension contributionsQualifying pension contributions continue to attract tax relief for individuals at their highest rate, potentially 40%. Tax Relief of 20% is usually deducted from the payment you make to your pension provider which they reclaim from the Treasury. Any higher rate relief needs to be claimed via your tax return. If you are of pensionable age, presently 55 or 50 if you were born before 6 April 1960, you can accelerate the tax and cash benefits of single, lump sum contributions by opting for an immediately vested investment. What you do is: (This illustration assumes that all of the qualifying contribution can be relieved at the 40% income tax rate) Make a payment to your pension provider of say £40,000. Your pension provider then recovers the 20% tax deemed to have been deducted of £10,000. You then claim an additional 20% higher rate tax relief, this being £10,000. You then immediately vest the fund created (£40,000 + £10,000) after taking 25% or £12,500 as a cash free lump sum. The result? You have created a fund of £37,500 (£50,000 less lump sum £12,500), which you could start to take an annuity or drawdown based on this fund. The amount of the drawdown or annuity will depend on current annuity rates. You have invested net funds of just £17,500 to do this (£40,000 less higher rate tax relief £10,000 and cash lump sum £12,500). If you would like advice on the options available to you, and would like to book and appointment with one of Prime’s Financial Advisers, please contact Wendy Tipler via email, or call her on 0845 872 2099. Beating recession and the credit crunchIn light of the current unprecedented economic conditions, here are a few general considerations, particularly designed for small business to help you beat the recession and credit crunch. VAT Cash Accounting - if your VATable turnover is under £1.35m and you are not using cash accounting, now would be a good time to consider it, particularly if you sell goods on credit and you are usually owed more than you owe to suppliers etc. Essentially you only pay VAT when it is collected from customers. Outputs and inputs are based on monies received and paid, rather than amounts invoiced. Flat rate scheme - if your turnover is under £150,000 and you have small amounts of input tax to reclaim each month, this scheme may increase your retained profits. Each business sector suffers a different flat rate of VAT so the only way to see if this scheme would be beneficial is to crunch the numbers. Even if you don't qualify for a special scheme, don't forget to claim bad debt relief. Any debt that is over 6 months old qualifies as a bad debt and you can reclaim the output tax you will have paid. (Note: the flip side also applies. If you have invoices unpaid from your suppliers more than 6 months old, you should repay any input tax you have claimed!) It is also worth filing your VAT return online. You are given an extra 7 days to file the return and if you pay your VAT by direct debit the payment will not appear on your bank account for a further three days. Making a loss or less profit One of the more obvious effects of recession is a downward trend in profit creation, and if your business is badly affected, making losses. The notes that follow set out a few ideas for capitalising on the tax planning opportunities this affords. Self assessment payments on account - if you are a sole trader or partnership and your current years profit is likely to be lower than the previous year, you may be able to elect to reduce the payments on account for the current year. The claim should be based on realistic trading results. Losses - if your business is currently making losses it may be possible to carry these losses back to previous years, when you may have paid significant tax. Any tax overpaid as a result can be reclaimed. Need more time to pay Generally speaking if you are late paying your tax or VAT, interest and in some cases penalties will be applied. If you can justify the reasons for your inability to pay it is usually advisable to contact HMRC and agree a payment timetable that your cash flow can afford. Burying your head in the sand is not a useful strategy! If your business is starting to feel the pinch, pressure on profits and cash flow, do keep in touch. As mentioned at the beginning of this article each business is unique. Please contact the Partner who normally handles your affairs for advice. New factsheets added to our websiteCompany Secretarial Duties Disclaimer
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