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In the past as long as you paid your tax liabilities on time and cleared any self-assessment tax due by 31 January, no late filing penalties were due. Even if you failed to pay your tax on time, late filing penalties were capped at £100 or nil if you were due a tax refund. The goal posts have moved! The 2010-11 tax returns have to be filed by 31 October 2011 if you are filing a paper return, or 31 January 2012 if you are filing electronically. If you fail to meet these deadlines you face the following penalty regime, even if your tax payments are up-to-date.

* One day late an initial penalty of £100.

* Three months late a daily penalty of £10 per day up to a maximum of £900.

* Six months late an additional £300 or 5% of any tax outstanding, whichever is the higher amount.

* One year late a further £300 or 5% of any tax outstanding, whichever is the higher amount.

As you can see the minimum penalty for filing 6 months late is £1,300 even if all your tax due is paid on time or you are due a tax repayment. If you have had a relaxed attitude to meeting the filing deadline in the past; you may like to reconsider your priorities for the filing of the 2011 return!

Pretty well all businesses need to file their yearend payroll returns for 2010-11 online.
The Employer Annual Return comprises:
. a form P14 for every employee
. a form P35 that summarises the end of year payroll totals.
These returns for 2010-11 must reach HMRC by 19 May 2011. Returns filed after this date may incur a penalty.

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There are a few excepted employers, those that can still send in paper returns. They are:
. employers using a simplified scheme for personal or domestic employees,
. members of religious societies or orders whose beliefs are incompatible with the use of computers,
. employers who employ persons to provide care or support services at or from their home – subject to certain conditions,
. limited companies that need to file solely to confirm CIS deductions suffered, Box 28 on form P35.
Employers should be aware that if they file paper returns for 2010-11, when online filing was required, HMRC may charge a penalty even if the paper filing is within the required filing deadlines.
What if you have no returns to make this year?
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If you have a commercial furnished holiday let within the EU, then there is potential for a tax refund.

Did you know up to 30% of the purchase price of a furnished holiday letting may be eligible for capital allowances? If these allowances are higher than your profits from rental income, any excesses may be set against tax payable on general income such as salary or business profits. There is a limited window of opportunity to make use of this “set off”, or sideways loss relief, as it will only be available until 5th April 2011.
Capital allowances are available on plant and machinery such as fitted kitchens, plumbing, central heating, loose furniture, and equipment.

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How it works
Typically, the level of plant and machinery is between 10 and 30% of the purchase price of the property, for example:

On a £500,000 property in Spain, the potential allowances are up to £150,000 made up of heating system, swimming pool, sanitaryware and electrics, amongst many others

This would translate to a total tax saving of £75,000 for a 50% tax payer!

What conditions must you satisfy?
The property must be in the UK or in the EU
The property or properties must be run on a commercial basis
Available to let for 140 days per year, and actually let for over 70 days per year
Not let to long term tenants for over 155 days per year
Long term letting is to the same person for over 31 days

At first glance, Paul Mellor’s recent Tribunal victory was nothing to write home about. Mellor, a self employed electrician living in Ruislip, successfully argued his home was his business base and won his appeal against an increased amendment to his self assessment, in which HMRC had disallowed a proportion of his motor expenses. HMRC had contended Mellor’s home could not be considered to be his business base.

Mellor travelled from his home to the various sites he was engaged to work at and claimed business mileage when he closed his front door and got into his car to set off for work. The majority of readers familiar with this subject will immediately recognise that Mellor should have won because of the precedent set by the Horton v Young (40TC60) tax case. As usual, HMRC sought to apply the factors featured in the Newsom v Robertson (33TC452) tax case. The full decision can be found at www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=5275

What is interesting about this victory is the thinking behind the Tribunal’s decision, as it potentially reignites the whole debate about what constitutes the business base for all trades and professions, and may be particularly relevant to professionals such as Hospital Consultants and barristers.

50% rate tax payers beware…

HMRC have no present system for deducting tax at a flat rate of 50% from second or subsequent employments. The nearest tax code is DO that only collects tax at 40%.

As a result tax payers in this position will be underpaying tax through the PAYE system and should be prepared for an underpayment when they complete their annual tax return.

Beware bogus emails from HMRC

Scammers are capitalising on the recent publicity surrounding HMRC demands for unpaid tax and notification of refunds by sending out spurious emails that seek to obtain personal data and financial information by deception.

HMRC will never email you on any aspect of your tax affairs and all emails purporting to be from HMRC should be ignored. If you are due a refund or have underpaid tax you will be notified by post.

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.

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.

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.