A very worrying article!

I was reading a blog today written by Ken Frost and found it extremely worrying!

In a few weeks time HMRC will have new powers to be able to access individuals salaries and be able to deduct up to £2k per annum in order to collect underpaid tax.
Until now HMRC had to get the taxpayers consent or a court order to do this.

But the rules have changed so watch out!

You can read the full blog here

Tax breaks for those letting a furnished holiday home act before 31st July

From April 2010, those letting a furnished holiday property will see it being taxed in a different way.

Changes announced in the 2009 Budget mean that UK residents who let (or have previously let) a furnished holiday home in Europe need to act quickly to secure a short term tax break.

At the moment, those who let out a holiday home can offset any losses from the rental against other income. There are also more beneficial capital gains tax reliefs when selling such property. From April 2010, these tax advantages will be withdrawn.

However, until then, the current rules are being extended to apply to qualifying property in the European Economic Area (EEA). The particular qualifying conditions are extremely specific so you would need to speak with us to get more details.

Losses can be set against other income as far back as the 2006/7 tax year, but claims must be made before 31st July 2009. Individuals who may have sold such property in the tax years 2003/4 onwards should also undertake a review.

If you own such a property, or indeed if you previously owned such property, it would be wise to seek professional advice. In these difficult times there is real potential for tax savings through this change in legislation.

So long between posts!

Wow! I just realised how long it has been since I posted anythng here and do apologise! But if I have nothing sensible to say whats the point of posting a nonsense blog?

Anyway - I was about to write a blog about tax investigations (again!) but Ray Stewart has beaten me to it

"I know I have mentioned this a couple of times before but it still annoys me the number of clients that either refuse to pay out the £100 per year or so for the cover, or justify their non-action by thinking “it will never happen to me”.

Since April 2009 the investigation regime has changed. There were few trumpets and dancing girls to announce the change and consquently, 99% of business people have no idea things have changed and what it might mean for them.

HM Revenue & Customs are catching up to the 21st century. Instead of the old fashioned “lets ask some questions and if we like the answers, we will go away for another 10 years or so”, now they start with an innocent letter asking to see the books and records. They make it clear an investigation isn’t starting – yet – as long as they don’t find anything awry with the records. But…I can almost guaranteee you that they will find something, no mater how trivial, and a full blown investigation commences.

We still have the “old” aspect enquiries. Where three or four items are looked at in detail, but these are now in the minority.

I think the changes have come about because the government is short of money because the approach is more direct and aggressive than it was. The problem is that although the government is short of money, in the depths of a recession, most businesses are feeling cashflow tighten as well. As it tightens, HMRC knows, as do we all, that people will do what they need to do to allow their business to survive, including cutting corners and dumping established proceedures.

In a recession it is easy then for HMRC to find fault with records and as soon as they do, your business is in trouble. All your records become meaningless and the declared results based on them, entirely questionable. They may only find one mistake, but that one will cause the mindset of HMRC to assume that one will be simply one of many and they will look hard and long for evidence to corroborate their assumption.

This is why the fee insurance is so important. An investigation may be over really quickly and only cost you around 2 times your normal accounts fee. However, even if your books are good, fighting a long and determined HMRC driven assault will cost you dear just to eventually prove your innocence. By dear I mean anything up to 10 times or more of your normal accounts fee. If more professional help is needed to fight technical points such as a tax barrister, the sky is no limit to what costs could be incurred.

Please don’t think you are immune from investigation. HMRC have sophisticated ways to look at the figures you submit on your self assessment or corporation tax return each year. If they think you are running your business slightly differently from others in your industry, they will investigate; if they think your figures are too perfect, they will investigate; if you have not been looked at for many years, they will investigate; if you buy any large equipment which distorts your VAT return, they will investigate; if you consistently declare profits they deem too low for you to live on, they will investigate; if a friend/foe tells them you are up to no good, they will investigate; if you make losses over several years, they will investigate…

Basically you can expect an investigation at any point for any reason.

Why then do businesses think it will never happen to them – it will at some point.
Look at the costs of proving yourself to be innocent – much more than an average yearly accountant’s bill – and the costs will be more if HMRC find faults and ommissions in your records because you will be trying to limit the damage of additions that will be added to your profits and consequently your tax bill.

Why not just insure against this inevitable event for £100 per year or so.

You can get professional fee insurance from membership of the Federation of Small Business (along with a host of other benefits), from your local insurance broker, even from some household policies. It doesn’t cost much but the peace of mind is more than worth it when HMRC come calling.

And don’t forget, the premiums are tax deductible from your profits – so it’s even cheaper than you thought.

Finally, if you are not insured and run up a huge bill in defending yourself from the attentions of HMRC – if they find any faults in your information that mean you pay some extra tax as a result - NONE of the fees you pay will be allowed for tax purposes. Not a penny. Doesn’t that make the insurance option look a little more appealing?

Go and get the insurance. I will shortly be rejecting clients that do not have this insurance in place for 2 reasons. Firstly, trying to get money out of someone who has been hit by a large additional tax bill for defending them and limiting the damage is REALLY difficult. Secondly, if a business person doesn’t appreciate the impact that the inevitable investigation can have on their nerves, their wallet, their reputation and the survival of their business, I don’t think they are the type of client I want to work with.

Go check your policies now and make sure you are covered. Your own accountant may be contacting you soon asking for evidence that you are covered – so be prepared. It is the responsible thing to do. "

Thanks to Ray Stewart for writing this article!

Cashflow causing you a problem? Don’t go to the bank, go to the VATman!

Here are some timely tips for traders to ease cashflow difficulties

Delay and speed up!
Every 3 months, the VAT return falls due for payment, and when money is tight, this can cause great difficulty. Do you go to your bank and ask for an extension to your overdraft, (optimistic in these difficult times), or are there any other things you can do to improve your cashflow?

Sounds simple: The are 2 basic things you can do to improve your cashflow when accounting for VAT;


1.delay the payment of output VAT, and

2.speed up the reclaiming of input VAT.

Sounds simple, but how exactly can you do this?
Delay paying output VAT:

There are a number of things you can quite legally do to delay the payment of output VAT:


The first, and most important, is that businesses with a turnover under £1,350,000 per annum can go onto the Cash Accounting Scheme. You do not have to apply to use the scheme - if you are eligible you can just start using it. Using this scheme, you only need to account for output VAT after you have been paid. On the down side, you can only reclaim the VAT on purchases when you have paid for them. You can stay on cash accounting until your turnover goes over £1,600,000.

If you make continuous supplies of services (accountants, lawyers etc.) instead of issuing a tax invoice you can issue a request for payment. This does not create a tax point and you will only need to account for VAT when you are paid. Don’t forget to issue a proper tax invoice when you are paid. This gives you the cash flow advantage of Cash Accounting even if your turnover is above the limits.

You only have to account for VAT when a sales invoice is issued, not when it is produced. So, if you produce tax invoices on the last day of your VAT period and don’t post them until the next day, you can overstamp them with the correct issue date, and delay payment of the VAT by three months.

Under the tax point rules, you have to issue your invoice within 14 days of the basic tax point (date of supply). This creates an actual tax point on the date the invoice is issued, so if the 14 day period spans the end of a VAT quarter, you can defer paying the output tax by three months.

If you import goods, you could consider setting up a duty deferment account with HMRC. This could delay paying import VAT by up to 45 days.


Speed up input VAT repayment: How can I get back that VAT more quickly?


Input tax accruals - the right to claim back input VAT arises when the VAT was charged, the tax point. The vast majority of businesses post purchase invoices onto their accounting systems only once they have been approved for payment. Therefore, at the end a VAT period, there can be a number of invoices dated within the period which are not yet entered into the accounting system and the VAT not yet claimed. You can make a manual accrual of this input VAT without asking HMRC’s permission, but don’t forget to adjust it on your computer system at the end of the next period, or you’ll claim it twice!

Monitor aged debtors so that you can make a bad debt relief claim once a debt is six months past its due date for payment.

If you have a company that receives property rental income, you will normally bill it at the end of each calendar quarter. If this is the case, make sure your VAT returns end February, May, August and November as this will gain two months' use of the VAT before paying it to HMRC.

If you have a number of associated companies which make supplies to each other, or you have a parent company making management charges to its subsidiary, you could take a look at your VAT return staggers to make sure that you can claim back the input VAT in one company before you have to account for the output VAT in the other. If not, change your VAT return stagger.

Make sure you have claimed back all the VAT you possibly can - check that VAT has been claimed on petty cash, staff expenses, mileage allowances etc. If you have not, you can go back over the last three years and claim it all back.

http://www.tax-sorted.biz
http://www.welovebookkeeping.co.uk
http://shaunstaxtips.blogspot.com
http://www.stinkybooks.co.uk

Thanks to Andrew Needham of VAT Solutions (UK) Ltd for this article

Annual investment allowance and tax credits

Business is poor, money is tight and even worse the firm’s van is on its last legs and without it you can’t trade. But is there a way you can afford a new van with some help from the Taxman?

Nothing for free
It’s an old adage that there’s no such thing as a free lunch. That may be so but you might be able to get a free van or other equipment for your business at the Taxman’s expense. Here’s how.

Case study
Miss X is a single mother who owns and operates a sandwich delivery business. The van she uses has become unreliable but she can’t afford to replace it. If the van completely fails, so will her business. How does she escape this dilemma?

Annual investment allowance
The new capital allowances rules, that came into effect in April 2008, allow a 100% deduction for the cost of plant and equipment used in a business on expenditure of up to £50,000 in one year. This is called the annual investment allowance (AIA).

Miss X’s van qualifies as equipment and is therefore subject to the usual rules: expenditure on a replacement would qualify

The full cost of the new van will be allowable as a deduction from Miss X’s taxable profit. Thus, if her profit ignoring the cost of the new van would have been £27,000, and the new van cost £18,000, her revised profit is £9,000.

Tip. If you can’t afford to buy the equipment outright, a hire purchase agreement could still allow a deduction from your taxable profit of the full value of the asset under the AIA rules.

Tax credits
Miss X’s profit for income tax has been radically reduced by the AIA on the new van. This has a dramatic effect on her eligibility for tax credits.

Miss X’s income has been more or less stable for a couple of years, around £27,000, and her accounting year ends on March 31. If she bought the new van for £18,000 in March 2009, she could claim the AIA deduction against her 2008/9 profit.

Miss X notifies the tax credits people by July 31 2009 of her much lower profit for 2008/9. As her tax credits award for that year was originally based on an income of around £27,000, she will now be owed a lump sum award of around £7,000

Disregarded income
The tax credit rules disregard an increase in income of up to £25,000, so Miss X’s 2009/10 tax credits will be based on the much lower 2008/9 profit figure, providing her profits don’t exceed £34,000 (£9,000 profit plus £25,000) for that year.

The final result
The cost of her new van (£18,000) has been paid for as follows:

• AIA relief on cost of new van - £5,040
• extra tax credits for 2008/9 - £7,000
• extra tax credits for 2009/10 - £7,000
• a total tax benefi ts package of £19,040.

Tip. The AIA applies to all equipment, not just vans. So if your profit is reduced as a result of an AIA claim, tell the tax credits people.

The next step
The annual investment allowance provides a 100% tax deduction for the cost of equipment. It will also reduce your profit for tax credit purposes and could increase your claim, so notify the tax credits people of your reduced income.

If you would like any help to see if you could benefit please contact me.

http://www.tax-sorted.biz
http://shaunstaxtips.blogspot.com
http://www.welovebookkeeping.co.uk