The recession is over-what about HMRC’s ‘time to pay’ scheme?

LONDON - NOVEMBER 25:  British Chancellor of t...
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Now we have 0.01% growth, and the recession is officially ‘over’, HM Revenue & Customs (HMRC) seems to be toughening its stance on payment and appears to be rejecting an increasingly large number of applications for the scheme.

Chancellor Alistair Darling stated that ‘Time-To-Pay’ will be there “for as long as is needed” but this is questioned by figures obtained by

accountancy firm Wilkins Kennedy – the money owed under the scheme has reduced from £1.15billion in April 2009 to £1.01billion at the end of November 2009.

It seems that arranging a ‘Time-To-Pay’ deal in the current climate is now more difficult than ever before.

Some key ‘Time-To-Pay’ statistics:

  • To date c. 240,000 businesses have been able to reschedule their crown debt;
  • 60 per cent of these arrangements are for three months or less;
  • 1 per cent of arrangements are for 12 months or more;
  • 8 per cent of businesses which have an arrangement under the scheme have failed to make ANY monthly payments.

Presenting a workable, robust and deliverable case to HMRC will greatly improve your chances of obtaining their support.

’Time-To-Pay’ developments:

  • Following the Pre-Budget Report the ‘Time-To-Pay’ scheme has been extended to include partnerships;
  • From 31 January 2010 all unincorporated businesses from sole traders to large partnerships will be required to make payment on account for their self-assessment tax;
  • The VAT rate has returned to 17.5 per cent leading to a rise in payments due to the revenue;
  • The 0.5 per cent rise in National Insurance (NI) contributions will further increase the crown liabilities burdening businesses;
  • Where tax arrears exceed £1million there will be a requirement for an Independent Business Review (IBR) to be conducted to establish a company’s needs.

We are happy to assist in arranging time to pay agreements.

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Connected persons

If you are a connected person for tax purposes you will be required to substitute the market value of any asset you transfer or acquire when working out the gain or loss on disposal – not the amount you have actually agreed, unless of course this is the same as market value.

The most likely connection is that you are married or in a Civil Partnership. Fortunately if you and your spouse or civil partner are living together at any time in a tax year in which you make the transfer or sale, any gains are deferred until your spouse or civil partner sells the asset.

One consequence of being connected is that any company you control, either on your own or with other connected persons may be treated as associated companies and affect the amount of company profits that qualify for the small company’s rate.

The full list of connected persons for the purposes of transferring assets is set out below:

  1. Your spouse or civil partner.
  2. Your brothers and sisters, and those of your spouse or civil partner.
  3. Your parents, grandparents or other ancestors, and those of your spouse or civil partner.
  4. Your children and other direct descendents, and those of your spouse or civil partner.
  5. The spouses or civil partners of any of the above relatives.
  6. Your business partners and their spouses or civil partners and relatives (except for genuine commercial acquisitions or disposals of partnership assets.)
  7. As mentioned above any company you control, on your own or with any of the people listed above, will be connected for tax purposes.
  8. The trustees of any settlement where you or any person connected with you is a settlor.

The definition for the purposes of determining associated companies is more limited.

Clogged Losses

If for any reason you dispose of an asset to a connected person and make a loss on the transaction, the loss can only be used in the same year or carried forward and used against future gains, to the same connected person.

It will also be necessary to demonstrate that on the second or subsequent disposal you were still connected.

HMRC refers to these as Clogged Losses!

Filing VAT online

You might have received a letter from the VATman that officially notifies your company or business to file its VAT return online, or face penalties.

If your business had a turnover of £100,000 or more in the year ending 31 December 2009 you are legally required to file your VAT returns online, rather than as a paper form, for all periods beginning on or after 1 April 2010. So you can file your VAT return for the quarter to 31 March 2010 on paper, but VAT returns for later periods must be submitted online.

Our online accounting software makes online filing of your VAT return very easy.

If you don’t agree that your turnover was £100,000 or more in the year to 31 December 2009, you need appeal against the VATman’s decision within 30 days of the date of his letter. The VATman has not sent a copy of his letter to us, so please forward it on if you have concerns about this turnover threshold. If you want us to submit your VAT returns online on your behalf we will need that letter as it contains some key details for the registration process.

Even if you have already filed several of your VAT returns online, and your turnover is over £100,000, you will still receive the notification letter from the VATman, including the expensive glossy brochure. If your turnover is currently less than £100,000 per year, you will not have to file your VAT returns online until 2011. The Government has announced that all VAT registered businesses will be required to file their VAT returns online from April 2011, but that requirement is not law yet.

If your business first registers for VAT on or after 1 April 2010 you will be required to file all your VAT returns online from your first VAT return, even if your turnover is way below the £100,000 threshold.

We can assist with online filing of VAT returns.  From simply submitting the return to a full outsourced bookkeeping function.  Please contact us for more details.

Bonus, dividend or higher salary?

If you run your own company and are considering an increase in your salary 2010-11 you might like to consider the following points:

  1. From 6 April 2010 if your income is in excess of £100,000 you will start to lose your tax personal allowance, initially this can create a marginal tax rate up to 60%.
  2. From the same date if your income is over £150,000 you will be subject to the 50% rate of income tax.

Consequently increasing your earnings in 2010-11 may not be a tax effective move if you are a high income earner. Instead you may like to consider paying yourself a bonus in March 2010? You must have a clear and commercially sound reason for a bonus payment. If you were to follow this strategy the bonus would be taxable at the current highest rate, 40% and would have no effect on your current year personal allowance.

There is a timing downside to this arrangement; any tax and NIC due on the bonus would become payable on 19 April 2010 (22 April if you pay electronically) instead of being spread over the year if you settled on a salary increase instead.

Of course, when practical to do so, extra dividends are a better option than bonuses (because of the NIC costs). Dividends voted in March 2010 will mean extra higher rate tax due 31 January 2011.

If you are a high income earner and would like to discuss this and other strategies for minimising the impact of the changes coming in the next tax year please get in touch. There are still options we could look at before 6 April 2010.