For those of you who are organising a well deserved works party this Christmas we have sketched out below the current reliefs available:

The cost of a staff party or other annual entertainment is allowed as a deduction for tax purposes. Also as long as the criteria below are followed, there will be no taxable benefit charged to employees:

1. The event must be open to all employees at a particular location.
2. The cost is only tax deductible for employees and their partners (which would include directors in the case of a company) but not sole traders and business partners in the case of unincorporated organisations.
3. An annual Christmas party or other annual event offered to staff generally is not taxable on those attending provided that the average cost per head of the function does not exceed £150. Partners and spouses of staff attending are included in the head count when computing the cost per head attending.
4. All costs must be taken into account, including the costs of transport to and from the event or accommodation provided, and VAT. The total cost of the event is merely divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring. No deduction will be allowed for the £150 exemption.
5. VAT input tax can be recovered on staff entertaining expenditure. If staff partners/spouses are also invited to the event the input tax has to be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.

A final note on gifts for employees.

Trivial seasonal gifts for employees!

Employers may find the following Revenue concession useful – we have copied the note directly from the HMRC handbook:

“An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable. For an employer with a large number of employees the total cost of providing a gift to each employee may be considerable, but where the gift to each employee is a trivial benefit, this principle applies regardless of the total cost to the employer and the number of employees concerned.”

One final caution regarding VAT and staff gifts. VAT is chargeable by the employer when an employee receives gifts totalling more than £50 in a year. Turkeys however are zero rated for VAT purposes!

Merry Christmas!

Unless you qualify for Entrepreneurs’ Relief, all taxable capital gains in excess of the annual exemption, presently £10,100, would be taxable at 18%.

There has been speculation that this rate will increase to discourage schemes to have income treated as capital gains. Next year, 2010-11, the top rate of income tax will be 50%, with some marginal rates up to 61.5%. With capital gains tax rates at 18% and in some cases 10% (if a gain qualifies for Entrepreneurs’ relief) and an annual exemption for individuals currently up to £10,100 a year, the temptation to steer earnings towards capital gains and take advantage of legitimate planning devices, seems inevitable.

The Pre-Budget report will no doubt clarify these expected changes and as soon as we have up-to-date information you will be the first to know.

In the meantime a quick reminder of the types of gain that qualify for Entrepreneurs’ Relief.

The relief has been available since the 6 April 2008 when indexation relief and taper relief were withdrawn for individuals.

Basically the relief is available in respect of:

• gains made on the disposal of all or part of a business (this includes a sale of shares in a qualifying company)
• gains made on disposals of assets following the cessation of a business, and
• gains made by certain individuals who were involved in running the business

The first £1 million of gains that qualify for relief will be charged tax at an effective rate of 10 per cent. Gains in excess of £1 million will be charged at the normal 18 per cent rate.

An individual will be able to make claims for relief on more than one occasion, up to a lifetime total of £1 million of gains qualifying for Entrepreneurs’ Relief.

If you are interested in receiving more information regarding current tax planning in this area please call.

From 6 April 2010 the 50% income tax rate comes into play – for those with income over £150,000. For those earning over £100,000 personal allowances are withdrawn, creating an eye-watering marginal rate of 61.5%

There are options. If you are concerned about the impact of this new tax band on your taxed income do call there may be planning opportunities we could discuss with you prior to the end of the current tax year.

How do these new tax changes apply?

• If your income exceeds £100,000 the basic personal allowance will be withdrawn at the rate of £1 for each £2 your income exceeds £100,000. If personal allowances stay at the present level £6,475, you will lose your allowance completely when your income exceeds £112,950. As you will be taxed at 40% on your income between £100,000 and £112,950, whilst progressively losing your personal allowance, the marginal tax rate in this banding can be up to 60% and there is also national insurance, making 61.5% in total.

Planning note:
If you have a legitimate strategy to keep your taxable income below £100,000 in 2010-11 and so potentially save 61.5% tax this would be an opportunity not to miss. Call us if you are affected.

• From 6 April 2011 higher rate pension relief is being withdrawn from individuals who earn in excess of £150,000 a year.

Business Rates
Business rates became due on most vacant business property from 1 April 2008 when previously such properties were exempt from rates. In last year’s Pre Budget report the Chancellor announced an exemption from business rates for empty properties which had a rateable value of less than £15,000, but only for the 2009/10 financial year.This exemption is now to be extended for the year to 31 March 2011, and boosted to include empty properties with a rateable value of less than £18,000.

Stamp Duty
A stamp duty ‘holiday’ was announced for residential property in September 2008, which effectively raised the lower threshold property values where SDLT is imposed at 1%, from £125,000 to £175,000. The lower threshold (£125,000) will apply once again from 1 January 2010. Where the residential property is located in a disadvantaged area the threshold from which the 1% rate of SDLT is imposed is £150,000.

SDLT is normally imposed at the completion date for the property sale, not the date on which contracts are exchanged. If the buyer takes possession of the property before the completion date, SDLT is charged on that earlier date. To take advantage of the zero rate of SDLT on a property costing no more than £175,000 you need to complete or take possession of the property before 1 January 2010.

CGT on Homes
There is a relaxation of the rules on principle private residence relief where part of the home is occupied exclusively by an adult in care, and the owner of the property is paid to care for that adult. In such cases the whole of the property will qualify for exemption from capital gains tax.

Furnished Holiday Letting

Tax concessions for the commercial letting of furnished holiday lets will be removed with effect from 6 April 2010 for unincorporated businesses and from 1 April 2010 for companies. Hoteliers and bed and breakfast proprietors are not affected by these changes.

the impact is:-
- Losses - future profits and losses from furnished holiday lettings will be treated as income from a property business, and thus relief for losses will be available only against the property lettings business. Any current losses from the furnished holiday lettings, which have not been used before April 2010, will be carried forward to be set against the future property lettings business.
- Pensionable income – from 6 April 2010 income from a furnished holiday lettings business will not count as pensionable income, which may reduce the amount of pension contributions available for tax relief in any tax year.
- CGT – the capital gains relief associated with disposing of a property used in a commercial furnished holiday letting business will cease to apply for disposals made after 5 April 2010. Consider a disposal to a trust or family member before this date.

- IHT - the business property relief exemption on property will cease to apply from 5 April 2010

Owners of FHL property are currently treated as traders and the income, losses and gains on sale are potentially available for a number of tax advantages compared to non-FHL property owners. These advantages include:

• Profits are deemed to be trading income and are taken into account for pension purposes
• Certain capital expenditure will qualify for the Annual Investment Allowance. (100% tax deduction)
• Losses are deemed to be trading losses and available to set off against any other income of the owner(s).
• Gains on sale may qualify for rollover relief and entrepreneurs’ relief.

For 2009-10 and certain earlier years, property owned in the EEA (European Economic Area) was included as FHL property as long as the usual qualifying conditions were met. This was announced in the 2009 Budget.

It is also worth mentioning that FHL is not treated as trading for all tax purposes. For example, there is no special treatment for business property relief for inheritance tax purposes. Generally speaking FHL will not qualify for business property relief unless part of an enterprise incorporating other facilities.

What to do?

If you are contemplating the sale of FHL property it may make sense to complete the transaction before the present capital gains tax concessions expire on the 5 April 2010. Potentially the gain on the sale may qualify for Entrepreneurs’ Relief. This could reduce your tax on any gain to just 10%, as long as the sale meets the required criteria.

If you are a long term investor and have no intention of selling, you could consider bringing forward any capital expenditure that may qualify as part of your Annual Investment Allowance. For 2009-10 you are allowed to claim a 100% deduction for expenditure up to £50,000. If this claim either created or enhanced an overall loss, you could set off the loss against your other earnings and reduce your liability for 2009-10. (You may also be able to carry losses back if this is more advantageous.)

Planning pointer.

If you own FHL property, now would be a good time to take a hard look at the tax planning advantages that are still in date. As soon as we cross the 5 April 2010 threshold all the present options are lost! Please call if you would like more information on this topic.

Before we examine this issue from a tax perspective we need to emphasise the difference between limited companies and sole trader and partnership businesses in the way that they distribute taxed profits to the business owners.

Sole traders and partnerships are taxed under the self assessment rules. Profits are allocated as agreed by the business owners and tax is calculated on an individual basis based on this profit share. If sole traders or partners withdraw the retained profit after tax this is treated as drawings and not a business expense.

It is possible for sole traders and partners to draw out more than the balance on their current account, to become overdrawn, and suffer no tax consequence. Of course there is no long term future in doing this as funds needed for the business, will be dissipated and the business will drift towards insolvency. Businesses of this type pay tax on business profits, not the amount taken out of the business by the owners.

Limited companies and their owner directors are treated very differently. A limited company has a distinct legal identity of its own, quite separate from its shareholders/directors. Money that is withdrawn by the owners, in whatever way, always has a tax and possibly National Insurance consequence except as a repayment as a loan from a director.

Essentially money withdrawn by directors will be treated as:

• salaried earnings or benefits, and/or
• dividends

So if you pay your private bills through a limited company what happens?

If you already have money invested in your company that has been credited to a director’s loan account in your name, then the payment of a private bill can be debited to this account, reducing the amount the company owes you. In this case there is no tax consequence.

If you do not have money invested in your company in this way, any private payments you make will create an overdrawn balance on your director’s loan – you will owe the company money. Now there are tax consequences.

If your loan account does become overdrawn the following options and tax effects are available to you.

1. You repay the overdrawn balance. If this is done as soon as the payments are made there should be no tax to pay.
2. The company writes off the loan. The balance written off will be treated as your earnings subject to PAYE and National Insurance, or in certain circumstances, as a dividend.
3. The director’s loan remains unpaid. A benefit in kind charge will be created equal to a statutory rate of interest for the time the loan is overdrawn in a particular tax year. This benefit can be avoided if the company charges your loan account with an equivalent interest charge. Unpaid director’s loans can also create an additional corporation tax charge if the loan remains unpaid more than nine months after the company’s year end. This extra tax can be reclaimed by the company when the loan is subsequently repaid, but there will be a delay.

Action point
If you need to overdraw your loan with the company it is better to plan for the tax consequences and perhaps find a more suitable way to extract funds from the company. Please call if you would like more information on this topic.

Every business with property should during October 2009 have received their new business rates valuation. This valuation will form the basis of business rates for the next five years.

It is very important to check the detail of the new valuation to make sure that the rateable value applied to your property is correct. The rateable value is determined by a number of factors primarily the open market rental value on the valuation date. The valuation date for the 2010 changes is 1 April 2008. We are aware of cases where business rates have been reduced, following appeals on the basis that rental values have fallen.

Appeals against the new valuations should be submitted before the 30 November 2009. If you want to appeal your business rates, please feel free to phone for advice.

Business clients should also be aware that there are a number of specific reliefs that you may be able to claim to reduce your business rates – these include small business rate relief (England and Wales) and transitional relief. This isnt given automatically, so you must complete the form and claim it.

If you would like our assistance checking the valuation please call. The Valuation Office Agency (VOA) website can be accessed at www.2010.voa.gov.uk/rli/en/basic and has a number of useful FAQ sections.

We all know the property market has been through terrible times lately. Some businesses, set up in the good times to invest in let property for the long term, have been forced to sell some property to generate  funds to cover ongoing costs.

Where a property investment business starts to develop properties for sale, rather than keeping them for long term letting, the business has started a trade of property development.

So a property, previously held as an investment, is transferred to “stock” , meaning it is now stock being made ready to be sold, then that property must be treated as if it had been sold at its open market value at that point.

This can create a capital gains tax charge, or a capital loss, before the property has actually been sold.

To avoid this problem the business owners can make an election to treat the value of the property when it enters stock, as the value when it was acquired by the business. Any gain or loss will then only arise when the property is eventually sold by the business. This election must be sent to the tax office within two years of the end of the accounts year for a company, or by the first anniversary of 31 January following the tax year end for an unincorporated business.

Besides the timing issue, the advantage of making this election is that the loss, if one arises, becomes a trading loss made on the sale of stock by the business rather than a capital loss. Generally a trading loss can be set-off against a wider range of income than a capital loss. However, to use this trading loss the Taxman will have to be convinced that the property business has actually started a trade of property development, and is not simply selling off its surplus investments.

This can be a very difficult area and full advice is essential so please contact us for advice in your own circumstances.

If you are employed

It is well established through legal cases that employees cannot claim the cost of travel between home and their normal place of work. H M Revenue & Customs consider this cost merely puts the employee in a position to perform their duties. The definition of employee in the examples that follow includes salaried directors of private limited companies.

However, there are a number of important exceptions to this general principle, that home to work travel costs cannot be claimed:-

• Travel costs from home to a temporary workplace can be claimed – a temporary workplace can be a place of continuous work for up to 24 months, if this period is likely to be exceeded from the start, then the workplace would be considered permanent from the start and no relief would be due. (Note: If it isn’t known that the contract will exceed 24 months, then relief will be due up to the 24 month point, or up to the point when it is known that the 24 months will be exceeded if earlier.) A temporary workplace is one where less than 40% of working time is spent; if this is the case, the 24 month rule doesn’t apply and relief will be available in full.
• Travel between two places of work required by the same employer.
• Travel to attend an appointment required by an employer. This cost is allowed even if the journey starts at home.
• Travel between home and work where home is a workplace and the location of home is dictated by the requirements of the job.

If you are self-employed

Many self-employed business people have set up their businesses to run from their home address. If you are self-employed you can claim for any travel expense which is required by your trade as long as the business element can be separated from any private element. For instance you may use your car for a trip into town to bank your business cheques and call at the supermarket on the way home.

To meet the HM Revenue & Custom’s requirement of reasonable care in apportioning such costs, you must keep appropriate records. For car users this would normally be a written log of business miles and a record of the vehicles recorded mileage at the beginning and end of each trading year. In this way an accurate assessment of average business use can be calculated and applied to total running costs.

And don’t forget, if you run your business through a limited company you are not self-employed. The comments in the first section of this article would apply to your business.

There has been a lot of publicity lately about the tax advantages of running cars with low CO2 ratings. There are a number of benefits:

• possible 100% first year tax deduction for the cost of the vehicle,

• much reduced benefit in kind charges,

• lower road fund tax and so on.

But not all of us want to run such vehicles even if there are tax, VAT and running cost advantages.

Double cab pickups, sometimes described as crew cab pickups, are an anomaly!

For business users, especially the self

-employed, they present an unusual tax opportunity.

The HMRC web site describes double cab pickups as:

“… a front passenger cab that contains a second row of seats and is capable of seating about 4 passengers, plus the driver with four doors capable of being opened independently (two door versions are normally accepted to be vans, even those with rear doors that can only be opened after the front doors and that must be closed before the front doors) and an uncovered pick-up area behind the passenger cab.”

From the tax year 2002 -03 onwards a double cab pickup is classified as a van for both VAT and benefits purposes if it has a payload of 1 tonne (1,000kg) or more.

If your double cab pickup meets this definition:

You can reclaim any VAT added to the purchase price, and

The net capital cost (after VAT has been reclaimed) could be available for a 100% first year tax allowance as part of your Annual Investment Allowance up to a maximum of £50,000 each tax year.

If you are a director or employee, any significant private use of the double cab pickup will trigger a standard benefit in kind charge of tax on £3,000 per year. In addition if your firm/employer provides fuel to cover private use of the vehicle there will be an extra benefit charge of tax on £500 per year at current rates. The best way to minimise any risk of these benefits being applied is to restrict the use of the pickup to business use only, or make sure that any private use meets the HMRC definition of “insignificant private use”.

If you would like more information regarding this article, or any advice regarding tax effective strategies for running your business vehicles please call.

As a measure to help businesses during the recession, the Finance Bill 2009 allows trading losses for businesses to be carried back up to a maximum of three years. To qualify the losses must be suffered:

For limited companies, during trading periods ending in the two year period to 23 November 2010, and
For unincorporated, self-assessed businesses, during the tax years 2008 -09 and 2009 -10.
Losses have to be carried back to the latest year first. For example if the loss is incurred in the year to 31 March 2010 the first carry back is to the year ending 31 March 2009 (there is no restriction on the amount of losses carried back to this year). If losses are still available after this first set off they can be carried back a further two years. (In our example to the year ending 31 March 2008 and then the year ending 31 March 2007).

However the carry back to these further two years is capped at £50,000 per year against total profits for companies. For unincorporated businesses the carry back to the two earlier years is also capped at £50,000 per year but only against profits from the same trade.

If the loss carried back reduces taxable profits in any of the earlier years tax refunds should be forthcoming.

Take note of the following factors:

Tax losses can be enhanced by claims for equipment purchases, and
Self-employed tax payers can lose the benefit of their individual (personal) tax allowances and this needs taking into account when making loss relief claims.