Any salaried employee of a business can be paid a long service award. The way in which the award is given can radically influence the tax treatment!

All cash awards are taxable. They will be treated as part of your remuneration and subject to deduction of tax and National Insurance. Cash awards include:

* a payment including a cheque (This also rules out National Savings Certificates, premium bonds and so on.)
* a cash voucher
* a credit token
* shares other than those issued by the company employing the person who receives the award
* an interest or rights over securities or shares

Non cash awards are tax free if certain conditions are met. The conditions are:

1. The award must be made to mark a period of not less than 20 years service with the same employer.
2. It must not be a cash payment.
3. The taxable value of the award must not be more than £50 for each completed year of service.

For most employees the amount of the award is determined as the cost to the employer. For lower paid employees it is the second hand value of the award.

If the award exceeds the £50 for each year of service limit, only the excess is taxable.

If an employer makes multiple awards to the same individual, say after 20 years and then again after 30 years; each award qualifies as a separate award – this further concession does not apply unless there is a gap of at least 10 years between the awards.

If you have clocked up 20 years service you could receive goods to the value of £1,000 and pay no tax or National Insurance – that buys a lot of golf equipment!

Following changes to the law, H M Revenue & Customs now have much stronger powers to require that you provide evidence to back up entries on your tax returns. For business owners this means your accounting records and supporting documentation need to be of very good quality.

If HMRC can demonstrate that your records are less than effective you will face penalties.

The legislation requires you to:

“keep all such records as may be requisite for the purpose of enabling him (you) to make and deliver a correct and complete return for the year or period.”

In future you will need to keep a careful eye, not only on the results generated by your accounting software, but also on the completeness of the underlying records. It may well be the case that we offer you advice to improve the way you process and maintain records.

Records include supporting documentation such as, accounts, books, deeds, contracts, vouchers and receipts.

We are now delighted to offer all clients an easy to use online accounting system. We have held off from doing this for a long time, in an effort to ensure that the solution we offer is the best. That means easy to use, and useful information graphs, and reports at your fingertips.

If you would like us to review your accounting systems and record keeping prior to the tax year end please give us a call.

On 20 November 2008 HM Revenue & Customs confirmed that it is to launch a second campaign in 2009 to collect unpaid tax in offshore accounts. The Offshore Disclosure Facility (ODF) will target account holders with money in building societies and any of the 300 UK-based banks that have offshore operations. Last year’s similar campaign focused solely on customers of the five largest high-street banks. According to an HMRC spokesman,

“The intention of the new facility will be to provide an opportunity for account holders to inform us of their own accord of any unpaid tax or duties and to settle their debts in a similar way to the original offshore disclosure facility.”

Taxpayers affected will face threat of prosecution and higher fines if they do not come forward. It is likely that fines may be capped at 20 to 30% of the tax due to encourage people to come forward. They were capped at 10% under the previous ODF. However, HMRC stressed the campaign will not be a tax “amnesty” as all unpaid tax and interest will have to be paid in full.

The Revenue will write to the 300 banks and building societies requesting names and addresses of all their UK resident customers with offshore accounts. It will then write to customers requesting any unpaid tax. The first ODF identified some 400,000 accounts as suspicious. It raised £450 million from 45,000 people but a further 50,000 are still being investigated and some may soon be prosecuted.

“HMRC has made follow-up checks of the disclosures made and has started a programme of checks on those who did not take the opportunity to come forward,” the Revenue spokesman said. “In the most serious cases, we are carrying out criminal investigations and we will bring some prosecutions before the courts.”

Whether an individual is employed or self-employed is often far from clear, it is a case of shades of grey rather than “black and white”. There have been numerous court cases over the years, and the judgements in these cases form the law on this area.

HM Revenue & Customs have recently published new guidelines to help taxpayers decide if they are employed or self-employed. We have reprinted below some of the criteria that they suggest you use in order to arrive at a decision. This information might be helpful in certain situations and to certain people, however what HMR&C say is not necessarily the law. Please do not hesitate to contact us for further assistance in this complex area.

The comments that follow are quoted from the HMR&C publication.

“In most cases your employment status will be straightforward. In general terms, you are employed if you work for someone and don’t have the risks of running the business. You are self-employed if you are in business for yourself and are responsible for the success or failure of that business.

To help you check your employment status, answer the following questions. These also apply if you are a casual or part-time worker. If you have more than one job the same questions apply for each job.

Employed – if you answer yes to most of the questions you are likely to be employed:

• Do you have to do the work yourself?

• Can someone tell you where to work, when to work, how to work or what to do?

• Can someone move you from task to task?

• Do you have to work a set number of hours?

• Are you paid a regular wage or salary?

• Can you get overtime pay or bonus payments?

• Are you responsible for managing anyone else engaged by the person or company that you are working for?

Self-employed – if you answer yes to one or more of the questions you are likely to be self-employed.

• Can you hire someone to do the work, or take on helpers at your own expense?

• Can you decide where to provide the services of the job, when to work, how to work and what to do?

• Can you make a loss as well as a profit?

• Do you agree to do a job for a fixed price regardless of how long the job may take?

If you can’t answer yes to any of the above questions, you are still likely to be
self-employed if you can answer yes to most of the following questions.

• Do you risk your own money?

• Do you provide the main items of equipment (not the tools that many employees provide for themselves) needed to do the job?

• Do you regularly work for a number of different people and require business set up in order to do so?

• Do you have to correct unsatisfactory work in your own time and at your own expense?”

Please note that the opinions quoted above are those of HMR&C; we do not necessarily agree with all of the comments made! If you are at all uncertain about your tax status can we suggest that you give us a call and we will provide you with advice based on your own individual circumstances.

Like it or not, your future relationship with H M Revenue & Customs has been changed forever, thanks to the Finance Act 2008. Read on to find out how……

In the past regular visits have been restricted to VAT audits and PAYE visits. Additionally inspectors may have picked up on areas of concern in your annual tax return and launched a formal aspect, or full enquiry into your affairs.

Unfortunately the Finance Act 2008 takes this process to a new level!

In future you will be penalised if HMR&C believe you have not taken reasonable care in preparing any information (accounting or otherwise) that underpins any return made to them. It is likely that any under-declared tax that is discovered will be subject to a penalty approaching 30%, and if HMRC can prove negligence or fraud this can increase to 100%.

The way in which these errors will be discovered are set out in changes to HMRC’s legal powers to investigate tax returns. It is envisaged that an officer of HMRC might begin a compliance check in respect of any of the relevant taxes for one or more of a number of purposes. These include checking that:

* a tax return, amendment to a return or claim is correct;
* statutory record keeping requirements are being met;
* tax has not been underpaid or over-claimed; or
* any issues concerning possible tax avoidance are considered.

This means you can expect that future visits by tax officers will take a great interest in the care that has been taken to keep proper accounting records. In particular how these records affect your VAT and payroll returns.

Access to information.

HMRC have included changes to the law in the Finance Bill 2008 that would give them rights regarding access to records that underpin your returns.

There is to be no right to appeal against HMRC seeing records.

Another interesting development recognises the use of computers in storing relevant data. HMRC state:

“An authorised person may, at any reasonable time, obtain access to, and inspect and check the operation of, any computer and any associated apparatus or material which is or has been used in connection with a relevant document.”

This would provide officers of HMRC access to any computer which has been used in connection with the accounting records (including supporting documents) required of the taxpayer. This is a new development, as normally taxpayers would expect HMRC to have access to the records themselves, but not the computers on which the records have been prepared or maintained. The practical implications of this are significant.

You may want to ensure that no critical business information is kept on the same computer as the accounting records, so that risk of breach of confidentiality, or even business disruption, is kept to a minimum should HMRC require access to the computer during the course of an enquiry.

Visits will be made during the year to check that the record keeping provisions are being complied with during the accounting period, and given the significant concern expressed about the quality of accounting records by HMRC and the impact on tax take, this is likely to be the main HMRC compliance contact that small businesses will have in the future.

What does this mean for me?

For most businesses the new rules will have effect for accounting years ending 31 March 2009. Therefore the records that you are presently updating for this period of account may be open to inspection.

Please contact us if you are interested in a formal review of your accounting and related administration systems, in order to minimise any possible financial consequences of future HMRC visits.

In order to deal with complaints from its backbenchers Gordon Brown, or more accurately his Chancellor Alistair Darling, has announced two changes to the taxation of earnings for 2008-09. The changes attempt to compensate taxpayers on low earnings who were disadvantaged by the loss of the 10% starting rate of income tax.

The additional changes are:

1. The basic personal tax allowance has been increased by £600 to £6,035, and
2. The income limit where earnings will be taxed at the 40% higher rate has been reduced from £36,000 to £34,800.

The effect of these changes is to reduce the income tax bill for basic rate tax payers by £120 this year. If you pay your income tax by PAYE as a deduction from your salary, the changes to your tax code will be effective from September 2008 when you could pay up to £60 less tax. The ongoing tax reduction will be £10 per month to the end of the tax year.

As the income limit at which earnings are taxed at the higher rate has been reduced, if you are a higher rate tax payer there will be no change in your total tax bill this year.

Previous changes to address this issue included adjustments to tax credits. We are also promised further assistance for disadvantaged low income groups to be announced in the pre-budget report Autumn 2008.