Welcome to Our Tax and Financial Information Page

This information is updated twice every month. Next update 1st Sep 2007

ALL CHANGE FOR CAPITAL ALLOWANCES
27th April 2007
The system of tax reliefs on expenditure on equipment in your business is a complex one. Broadly when you buy a piece of equipment to use in your business you normally cannot set the full cost against that year’s profits, unless the value of the item is quite small, or a special tax relief applies. The cost of more expensive items is written off against profits over a number of years, using the capital allowances system. From April 2008 it is proposed that up to £50,000 spent on equipment in one year by any business will be set-off in full against the profits for that year. This allowance should cover most items of plant and machinery purchased by smaller businesses, although cars will not be included in this total. Where the expenditure on equipment exceeds £50,000 in one year the excess will be written off at a rate of 20% per year. The principle of giving relief over a number of years has also applied for expenditure on certain industrial or agricultural buildings. The capital allowances that are currently available for the cost of buildings will be phased out by 2011, and the changes apply for any alteration in ownership of those buildings from now on. Where equipment is fixed in a building used for your business, you can currently claim 25% of the remaining cost each year against profits. This will be reduced to 10% per year from 2008. Up until April 2008 the old system of capital allowances largely remains in place, except small businesses can claim a 50% first year allowance for the cost of new equipment purchased before 1 April 2008 by companies, or before 6 April 2008 by unincorporated businesses. The tax savings are potentially high. Please get in touch if you are planning additional expenditure on equipment or premises. HMRC Budget Notice HMRC Capital Allowances Reform

NEW VAT RULES FOR MOBILE PHONES AND COMPUTER CHIPS
27th April 2007
Following negotiations with other European Community member states the UK Government has decided to implement the reverse charge accounting mechanism on mobile phones and computer chips with effect from 1 June 2007. HMRC are restricting the new rules to mobile phones and integrated circuit devices. Blackberry’s fall within the definition of a mobile phone and will come within the scope of the reverse charge rules. The implementation of the reverse charge accounting is designed to counteract 'Missing Trader' fraud, which we have previously reported on in enews. ‘Missing Trader’ fraud is a sophisticated and organised criminal attack on the VAT system. The fraud arises through contrived transaction chains involving supplies of high value goods with the tax loss occurring when the VAT charged by the supplier is not paid to HMRC but can be reclaimed by the recipient. The legislation for the reverse charge procedure was introduced in Finance Act 2006 whereby the VAT registered customer, rather than the seller, will have to account for and pay the VAT on the supply of these goods. Although the legislation was introduced in Finance Act 2006 it has taken some time to implement due to difficulties in the negotiations with other member states on the change in law in other countries to introduce the charge. If you would like any advice on the implementation of the new rules please get in touch. HMRC VAT Brief VAT Information sheet

HMRC ASK IF YOU HAVE ANYTHING TO DECLARE
27th April 2007
It is a common misconception that interest from offshore bank accounts is not subject to UK tax. HMRC have now received information from many banks about offshore accounts and to encourage taxpayers to declare their offshore income HMRC have announced what the newspapers are calling a ‘Tax Amnesty’. The term amnesty is misleading as it only applies to the penalty that will be charged on undeclared tax relating to the offshore accounts, which HMRC have promised to cap at 10% if a voluntary disclosure is made before 22 June 2007. HMRC could in theory impose a 100% penalty. The tax and penalties due will need to be paid by 26 November 2007. HMRC have advised that the penalty cap will also apply to tax relating to other undeclared UK income if a declaration and full payment of the tax due is made by the same dates. The timescale for making use of this disclosure facility is short, so please do contact us as soon as possible if you have any concerns. HMRC Website

CONSTRUCTION INDUSTRY SCHEME
28th March 2007
With only one month to go, HMRC have been issuing packs to contractors to help them with the new rules. The new system which includes the introduction of a new monthly return will include: • a new monthly status declaration that the contractor has considered the status of the subcontractors and is sure that none of them are employees • new verification procedures to ascertain how subcontractors should be paid. HMRC will confirm whether subcontractors are entitled to be paid gross, net of 20% tax (not the 2006/07 rate of 18%) or under the new higher rate deduction for ‘unmatched’ subcontractors of 30% • penalties for the late submission of the monthly returns and incorrect returns and new verification procedures for those engaging subcontractors. Do get in touch if you want help implementing the new return. HMRC CIS mail shot

INCOME TAX RATES
28th March 2007
There has been a lot of publicity about the announcement that the government propose to reduce the basic rate of income tax from 22% to 20%. This change is due to take effect from 2008/09 and not from 6 April 2007. 2008/09 The proposal is to radically change the tax rates for 2008/09 onwards when the 10% starting rate will be abolished for earned and pensions income and the 22% basic rate of tax will be reduced to 20%. The higher rate of tax will continue at 40%. The starting rate will continue to be available for savings and investment income and capital gains. There are no changes to the tax rates applicable to dividends. 2009/10 He also announced that the point at which people start paying the higher rate of tax will be increased significantly to £43,000 from 2009/10. Not all good news watch the national insurance (NI) There is, however, a significant sting in the tail for those with earned income. For 2007/08 there is no change in the rates of NI but there are significant proposed changes to the limits between which NI contributions are payable. For 2007/08 the lower and upper earnings limits (UEL) increase by inflation so that employees will pay 11% NI on earnings between £100 and £670 per week. Employees continue to pay contributions of 1% on earnings above the UEL. For 2008/09 the UEL will be increased by £75 per week above indexation. The upper profits limit for Class 4 NI for the self-employed will also be increased in 2008/09 by £75 per week above indexation. In 2009/10 UEL will be aligned with the point at which the higher rate of income tax becomes payable. The government claims the increases in national insurance are aimed at simplifying the tax system but it comes at quite a cost to employees and the self-employed. Treasury press notices

CORPORATION TAX CHANGES
28th March 2007
The Chancellor has moved to discourage small businesses from incorporating for tax reasons by increasing the tax they will pay on profits up to £300,000, from 19% to 20% with effect from 1 April 2007. The small companies rate will further increase 21% in 2008 and to 22% in 2009. In contrast the corporation tax rates for large companies, broadly those with profits of £1,500,000, are set to be cut form 30% to 28% from 1 April 2008. BUDGET NOTES

CASH ACCOUNTING LIMIT RAISED
28th February 2007
HMRC have announced that the threshold for the Cash Accounting Scheme will be more than doubled from £660,000 to £1,350,000 from 1 April 2007. The Cash Accounting Scheme allows eligible businesses to defer paying their VAT over until they have received payment from their customers instead of accounting for and paying VAT when they issue and receive invoices. John Healey MP, Financial Secretary to the Treasury, said: "Doubling the threshold of the Cash Accounting Scheme will allow more than 50,000 businesses to significantly improve their cashflow. We know that small businesses are the engine for the UK's economy, so it is only right that we look to improve the climate for them." Please get in touch if you would like to know more about the Cash Accounting Scheme. Press Release

VAT FUEL SCALE CHARGES
28th February 2007
HMRC have produced some of the tables but not the final VAT fuel scale charges which are due to come into effect on 1 May 2007. Businesses will have to use the new scale charges from the start of their first accounting period beginning on or after this date. HMRC are announcing the change early to allow businesses time to familiarise themselves with the new charging structure and make any necessary IT system changes. The existing system, which is based on the engine size and fuel type of a car, will be replaced by a VAT fuel scale charge based solely on the CO2 emissions of the car. The new table, which mirrors that used for benefit in kind purposes, will have 21 bands with 5g/km of CO2 increments. HMRC have published an outline of the table but have not as yet put any amounts in the table which will be finalised following Budget 2007. HMRC state that this change is not intended as a revenue raising measure and that the change to a CO2 based system should be revenue neutral overall. We have also included a link which will enable you to check the CO2 emissions of most cars. HMRC Brief and CO2 emissions data

USE OF COMPUTERS
28th February 2007
Before 6 April 2006 the first £500 of the benefit in kind charge arising on the private use of employer provided computer equipment was exempt from tax. As the ‘annual value’ benefit in kind on the use of an asset is calculated as 20% of the market value of the asset when first used to provide the benefit, this exemption generally covered any potential benefit in kind. The exemption was removed from 6 April 2006 and a computer provided after that date is therefore potentially chargeable to benefits in kind using the annual value calculation. However, tax legislation exempts any benefit if there is no 'significant private use'. HMRC have recently revised the Employment Income Manual to give guidance on 'not significant'. An extract from the guidance states that: '…where the employer's policy about private use is clearly stated to the employees and sets out the circumstances in which private use may be made; and any decision of the employer not to recover the costs of private use is a commercial decision, for example based on the impractical nature of doing so, rather than a desire to reward the employee, ‘ then HMRC should accept that the test is met. This extract makes is clear that businesses need a written to policy to avoid the possibility of a benefit arising. Please do get in touch if you need any help in drafting a policy. HMRC manual

ADVISORY FUEL RATES FOR COMPANY CARS
28th February 2007
HMRC have announced new rates for journeys on or after 1 February 2007.

HMRC Advisory fuel rates

HOMEWORKING COSTS FOR THE SELF EMPLOYED
1st February 2007
HMRC have revised their guidance on the deductibility of household expenses for those people who work from home on a self employed basis. This has always been a complex area and case law has meant that the rules were at least very confusing! The guidance appears to represent a relaxation of the rules and also offers some clarification and examples of the costs which are deductible. HMRC guidance and HMRC examples

EMPLOYER LATE FILING PENALTIES FOR 2005/06
2nd January 2007
HMRC have announced that they have started sending out late filing penalty notices to those employers who they believed sent in their 2005/06 employer’s annual return forms P35 and CIS36 late. The due date for the 2005/06 returns was 19 May 2006 and fixed penalties are charged where the employer’s original return was received after 29 May 2006. If you believe you have been incorrectly issued with a penalty notice do get in touch. HMRC advice