We provide insurance for our clients to cover the cost of professional fees in the event of a tax investigation. The company which provides this cover has revealed that their data shows HMRC has started twice as many tax enquiries last month as they did in June 2009. It seems HMRC have been instructed to ‘dash for cash’.

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Our Consultants deal with hundreds of HMRC enquiries at any given time and as a result speak with Inspectors across the whole of the UK on a day to day basis. In the last couple of weeks, we have identified a new initiative within HMRC which appears to be known as the ‘Dash for Cash’.

The Inspectors we have spoken to have told us they are being tasked to bring in as much money as possible, as quickly as possible, which is not really surprising given the current economic environment.  We understand there will be pressure to settle long running full enquiry cases and Inspectors will be encouraged to take up aspect cases which are likely to be settled more quickly to optimise the tax yield in the current fiscal year.

We have also heard from several regions that HMRC will be going back to ‘single’ case working as the new ‘Cross Tax’ enquiry framework is not working as they envisaged and is slowing up the enquiry process so it is likely that they will be reverting back to ‘where we were’!

Finally, our Claims Team received twice as many claims in June 2010 as they did in June 2009, confirming that HMRC are ‘on the move’ again and we are expecting that enquiry levels will continue to increase over the coming months.

If a company makes a loan or loans to an employee or director and the combined outstanding value to an individual never exceeds £5,000 there is no personal tax or National Insurance contributions to pay. However, beware; loans to employees who are also shareholders and directors may create a corporation tax charge for the company even if the loan does not exceed £5,000.

If the combined amount exceeds £5,000 a potential benefit in kind charge may arise if no interest is charged to the loan account or interest is charged at a lower rate than the official rate published by H M Revenue & Customs.

The official interest rates for the last three years are:

From 6 April 2007 to 28 Feb 2009 – 6.25%

From 1 March 2009 to 5 April 2010 – 4.75%

From 6 April 2010 – 4%

As we are now approaching the deadline for filing forms P11D, the forms that declare employees’ and directors’ benefit in kind, it is essential that loans are examined to reveal any benefits due. Overdrawn directors’ loans can create difficulties where the amount of loans fluctuates during a tax year.

If you would like clarification on the amount of benefit in kind you may have to pay please contact us as soon as you can. P11Ds have to be filed by 6 July 2010.

As the name suggests, tax free long service awards are tax efficient. If you provide an employee with a non-cash award to reward long service, the payment can be made without deduction of tax or National Insurance contributions, as long as the following criteria are observed:

1. As this is a reward to employees it is not available to self-employed sole traders or partners. It is available to directors who receive a salary for their services.
2. The award has to mark at least 20 years of service.
3. You must not have made a previous long service award within the last ten years.
4. The value of the reward cannot exceed £50 per year of service – so the maximum value of an award to an employee with 20 years of service is £1,000.
5. As pointed out in the opening paragraph of this article the award has to be made in a non-cash form. Cash awards are taxable as earnings in the usual way. You should also be wary about awards that can quickly be converted into cash, for example marketable stocks or shares or precious metals – these do not fulfil the non-cash criteria.

There are a number of complicated rules to abide by if your payment falls outside the above five points – for instance if you exceed the £50 per year or if the employee has less than 20 years of service.

If you are thinking of making use of this potential tax-free perk it is best to check with us before making the award.

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.

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.

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Changes have been announced to the company car advisory fuel rates with effect from 1 July 2009.

Unless you do a huge amount of private milage, you probably shouldn’t be provided with fuel for ‘private use’ because the tax charge on this is now very high. The rates below you can use to calculate the petrol cost of your private motoring, if you pay this back to your employer to avoid the fuel based benefit in kind charge.

Employers can also use the figure to isolate the petrol cost of car mileage claims in order to recover an appropriate amount of VAT – businesses still need to retain fuel receipts.

Some of the rates have been reduced in light of slightly lower fuel prices at the pumps.

Engine size: Petrol, Diesel, LPG

1400cc or less: 10p, 10p, 7p

1401cc to 2000cc: 12p, 10p, 8p

Over 2000cc: 18p, 13p, 12p

Petrol hybrid cars are treated as petrol cars for this purpose.

The fuel rates are usually reviewed twice a year effective 1 January and 1 July although may change more often where there is significant fluctuation in fuel prices. The rates are ‘advisory’ so if you have justification, you may use a different rate.

New tax rates – you have choices!

We all know the story. Banks not properly regulated by the Government, and bailed out to the tune of billions and billions of pounds. The figure given in the budget was £175 billion deficit up from an expected £38 billion expected deficit just one year ago. I think most people agree the increased figure is also going to be an under-estimate. Now we have to pay for it.

From 6th April 2010 personal allowances are gradually withdrawn for those earning over £100,000. For every £2 of income earned above £100,000 personal allowances will be reduced by £1. This makes the effective rate of tax for those with earnings over £100,000 of 60%. There is national insurance of 1% also, so the true rate is 61%.

The rate will go back to 40% (really41%) for earningas over £112,500.

Then from £150,000 the new rate of 50% plus 1%NI ie 51%will apply.

If you dont like the idea of paying 40%, 51% or even 61% tax rates, you do have choices.

Perhaps one of the most straightforward options is to organise your affairs so that some or all of your income goes into a limited company. A company will pay 21% tax on profits up to £300,000. Clearly a big saving on 61%.

There is much more detail to discuss than we would wish to include here and indeed other tax planning options. Please contact us to discuss the details.

HM Revenue & Customs have announced they will spend £1 billion on enforcement and compliance this year, in the hope that they will cut tax avoidance and evasion by £2.4 billion.see Times article

That is a huge quarter of its £4 billion budget to be spent on catching tax-dodgers. The clampdown comes after a  “litigation and settlement review” the Revenue promised to take more people to court to recover tax instead of cutting deals in out-of-court settlements. Beware the cost of   defending yourself or your company in court if the need arises can be frighteningly expensive. That is why we recommend all clients take up our professional fees insurance. This enables your fees to be paid in the event of HMRC enquiry.

Lesley Strathie, who took over as the HMRC’s chief executive and permanent secretary five months ago, said that the organisation would relentlessly pursue those who bent or broke the rules.

Last month on the ITV Tonight programme an HMRC employee claimed that HMRC staff routinely bin letters and ignore tax errors in order to meet performance targets.

He said “Staff have actually been told that when someone rings in with a tax enquiry and you spot a mistake on a person’s record, you have to ignore itunless they have actually asked you to look at the mistake. Its all about the Government target of answering so many calls a day. And if you write in, the post often goes missing. It just disappears, just gets binned, some letters simply aren’t seen by anyone.”

HMRC’s official comment was that anyone found to be binning correpondence would be subject to disciplinary action.

A client recently asked me why MP’s are able to claim for Widescreen TV’s, expensive rugs, leather setees etc etc and not have a tax liability. All these things wouldnt normally be allowed as expenses.

The reason is a piece of law that MPs have passed which applies only to their own expenses. It is S292 ITEPA 2003. This law gives exemption from tax to any expense paid in accordance with a resolution of the House of Commons.

So they are exempt from the usual test as applies to everyone else in terms of an expense being necessary for their duties as an employee. S292 states that allowance is given for expenses “expressed to be” in respect of additional expenses necessarily incurred by a Member…..in performing parliamentary duties.

The Green book explains for MP’s the code of conduct on expenses adopted in 1995. This states in respect of expenses for staying overnight away from their main home MP may claim for the following costs:

• Rent or mortgage interest
• Hotel expenses
• Utilities and telecommunications chages
• Furnishings
• Maintenance, service agreements, cleaning and insurance
• Subsistence

So providing an MP expresses an expense to be in performance of his or her duties and that expense is approved by the Fees Office then it is not subject to tax.

Isn’t it typical

• Dream up a law that applies only to them….600 odd people out of a working population of millions
• Make things complicated, so people can’t really see what is going on

Part of the problem of course is that the Fees Office have been approving expenses which the Inland Revenue would not dream of allowing. Duck islands, moat clearing, patio heaters, wisteria removal, tennis court repairs, dog food – the list is endless!

Why do we need such a complicated system?

Surely the solution is to adopt a simple transparent system?

If your constituency is outside London, then you need somewhere to stay in London. Some state owned accomodation could be made available, perhaps together with an alternative option to receive a fixed sum perhaps a maximum of say £100 per night. Transparent, simple but perhaps less lucrative for those involved!

Update 27th May 2009

The Daily Telegraph has reported that HMRC issued a statement yesterday (Tue 26th) to say that MPs were not exempt from tax laws and that tax must be paid on some expenses.

“It’s a general principle of tax law that accountancy fees incurred in connection with the completion of a personal tax return are not deductible.

“This is because the costs of complying with the law are not an allowable expense against tax. This rule applies across the board.”

So HMRC are clearly saying the Fees Office has been wrong in approving these expenses.

It seems to me MP’s are in the embarrassing position that these expenses are not taxable because of the law they have created just for themselves, even though HMRC is clearly saying they should be taxable.

From 2009/10 (i.e. from 1st  or 6th April 2009) the notion of an ‘Expensive Car’ will disappear for tax purposes. Instead of there being single asset pools for these vehicles, based on purchase cost to the business, cars will be added to the 10% or 20% pools depending on their CO2 emissions:

Over  160 g/km – 10% pool

110-160 g/km – 20% pool

Below 110 g/km – 20% pool but with 100% FYA (the significance of adding the 0% unrelieved expenditure to the pool is that any proceeds on the sale of the vehicle will be deducted from the pool on disposal)

The effect of pooling cars is that balancing adjustments will not be received on disposal and this will have a big effect on businesses that regularly replace expensive cars.

There is a transitional 5 year period where existing single asset pool cars are treated under the old rules. Thereafter these cars will be pooled.

Capital Allowances – Companies

A couple of examples below highlight that cases need to be assessed on their individual circumstances:

1) A company buying a £15,000 car in either March or April 2009, with the intention of keeping it (say) 5 years. CO2 emissions 159 g/km, disposal proceeds £4,500:

2) A company buying a £45,000 car with the intention to keep it 3 years. CO2 emissions 195 g/km, disposal proceeds £22,000:

In both examples, the residue of expenditure in the pool continues to attract annual writing down allowances in future years, meaning that the differences between the tax allowances claimed under the old and new schemes will be recouped eventually, but not for many years.

Capital Allowances – Unincorporated Entities

The rules for unincorporated entities mirror those for companies, but, due to the nature of unincorporated entities, there is one exception. It is possible for unincorporated businesses to own vehicles that have an element of private usage. Typically this applies to cars driven by the business proprietors. Cars with private use adjustments will continue to be dealt with via single asset pools, meaning balancing adjustments on disposal will still be available.

Consider a car costing £16,000, which will be kept for 5 years, with CO2 emissions of 165 g/km and expected proceeds of £5,000 on disposal:

As with the company example above, the difference in allowances claimed will be recouped over a number of years.

Motorbikes

Under the first year allowance (FYA) scheme motorbikes were treated as if they were cars. Under the new regime, they will be excluded from the definition of cars, meaning that they will be eligible for the annual investment allowance (AIA).

Company Cars and Benefits in Kind

We all know that providing company cars is generally considered to be less cost / tax efficient than providing employees with additional money to provide their own car. Whilst this rule of thumb continues to hold largely true, consider a car like the Toyota Aygo. A basic model costs c£6,950 and has CO2 emissions of 108 g/km. As such:

Employee: – Benefit in kind £695, equating to £278 (Higher rate) or £139 (Basic rate) tax per annum

Employer: – Ers NI £89 per annum – 100% first year tax relief on the vehicle – RFL £0 (CO2 < 100 g/km) or £35 (CO2 101-120 g/km) per annum

The only question is, how do you convince your sales reps that they want a 1.0 litre Toyota Aygo?!

Other manufacturers are also working on cheap, low emission cars and something like 106 of these are below the 110 g/km threshold for FYA’s) and more below the 120 g/km (for the minimum benefit in kind charge). See:(http://www.comcar.co.uk/newcar/companycar/poolresults/110tax.cfm)