Tax Credit Overpayments - Are you a victim in need of advice and support?

Each year, due to the way in which tax credits are assessed and awarded, many people find themselves having been overpaid; with subsequent demands from HMRC to recover the money, sometimes in the thousands which undoubtedly causes stress.

Not all instances are correct, miscalculations do occur, so, before you make a payment it would be wise to seek independent advice from those that have been in the same situation before.

The Tax Credit Casualties are a voluntary organisation run by and for victims of tax credit overpayments and subsequent unfair recovery.

They offer support to people receiving overpayment demands, to enable them to know their rights and dispute automatic recovery. They also campaign and lobby cross-party MPs to support a full write-off of all non-fraudulent overpayments.

The website offers a wide range of information, from how to make calculations, understanding all the jargon, how to dispute a claim and even how to stop a court case. There is also a forum for you to share your views.

http://www.tax-sorted.biz/
http://www.stinkybooks.co.uk/

Thanks to Phil Richards for this one

5 Top Time Management Tips

1. Delegate - Divide your work into what you must do and what others can do for you.

2. Organise your work space - Categorise all paper on your “To Do" list. Consider a less paper office and use an electronic filing system where everyone knows how to retrieve it.

3. Incoming calls break concentration - Use voicemail for 2 hours per day. Stack up calls and deal with them in a batch at a convenient time to you.

4. Manage outgoing calls - Group calls and set aside a block of time to make them.

5. Junk Email - If you get lots of irrelevant emails, take the time to remove yourself from the distribution list or send to your junk mail folder.

Pre Budget Report

This was a tax cutting mini-budget covering everything from Air Passenger Duty to UK REITS. However, there is plenty of warning of specific tax rises to come in future years - should this Government still be in power!We have pulled out the matters that are most pertinent for small businesses, but as with any Budget further details are likely to emerge in the next few days so please contract us if you have specific queries. Our December Newsletter will also expand on any emerging issues.

Pre-Budget November 2008

VAT Rate Reduction
Small Business Issues
Personal Tax
National Insurance
Other Taxes

VAT Rate Reduction

In order to boost consumer spending across all sectors the standard rate of VAT will fall from 17.5% to 15% for a limited period from 1 December 2008 to 31 December 2009, when it will return to 17.5%, as the Chancellor predicts that the recession will be almost over by then.

This is going to be very awkward for VAT registered businesses as you need to consider whether to, and how to pass on the VAT reduction. You do not have to change your VAT inclusive prices, but you must change your accounting system to record the correct standard rate of VAT as follows:

1. You must record the VAT due on all your sales at the correct rate from 1 December 2008. The zero and reduced rates have not changed. Only VAT at the standard rate has reduced to 15%, which amounts to 13.043% or 3/23 of the gross figure, whereas VAT at the old standard rate of 17.5% is 14.894% or 7/47 of the gross.

ExampleA sale worth £470 including VAT at 17.5% on 28 November means you have collected VAT of £70 from the customer. The same sale of £470 made on 1 December including VAT at 15% means you have only collected VAT of £61.30, so you have kept an additional £8.70 profit from that sale.

2. Any invoices issued from 1 December 2008 must show the new standard rate of 15% for standard rated items. However, if your invoice is for something that was completely delivered before 18 November 2008, or you were actually paid for the complete sale before 1 December 2008, you should use the old standard rate of 17.5%.

3. If you have the sort of business that receives stage payments for long contracts, such as in the construction industry, there are particular rules to consider. The relevant date for VAT is normally when you issue a VAT invoice or receive a stage payment. So any invoices issued for stage payments received on or after 1 December 2008 must have VAT accounted for at 15%, even if some of the work was performed before 1 December.

4. If you use the flat rate scheme for small businesses you need to look up the new flat rate for your business sector in appendix E of the detailed VAT guide on the HMRC website at http://www.hmrc.gov.uk/pbr2008/vat-guide-det.pdf. Most, but not all of these flat rates have changed from 1 December 2008 and you must apply the new rate to your VAT inclusive sales if you want to stay in the flat rate scheme. We can help you calculate whether you should stay in the scheme with your new flat rate.

5. If you use the cash accounting scheme you need to be particularly careful about recording exactly when the sale was made and the invoice was issued. This is because you need to pay over VAT of 17.5% for sales made before 1 December 2008 even if you receive the payment on or after 1 December 2008.

Please ask us to run through the VAT rules in relation to your particular business. Remember this VAT change is only temporary, so all your systems will have to be changed again on New Years Eve in 2009 before the standard rate of VAT increases from 15% to 17.5% on 1 January 2010.

Small Business Issues

LossesTo help smaller businesses survive the recession the normal one year carry back rule for trading losses is going to be extended to three years, but only for a limited period. When a loss is carried back from the current year (year 0) to year -1, and cancels out the profits in year -1, the tax paid for year -1 can be reclaimed. This provides an immediate cash-flow boost for the loss making business.The rules will be different for companies and for unincorporated businesses such as sole-traders. In both cases the amount of loss carried back to year -1 will be unlimited as now, but the total loss which can be carried back to years -2 and -3 cannot exceed £50,000. Losses not used against profits in earlier years will be carried forward, assuming the business continues to trade.- Companies. Where a loss is made in an accounting period that ends between 24 November 2008 and 23 November 2009, that loss may be carried back up to three years, subject to the £50,000 cap. Where the loss-making period is less than 12 months the £50,000 cap is reduced proportionately. The rules for surrendering a loss to another group company will not be changed.- Unincorporated businesses. If you trade as a partnership or sole-trader you are taxed on the profits you make in the accounting period that ends in the relevant tax year. For example the profits or loss for the year to 31 March 2009 are taxed or relieved in the 2008/09 tax year that ends on 5 April 2009.In order to claim the extended three year carry back of losses you must have a loss for the accounting period that is taxed in 2008/09. Young businesses in the first four years of trading already get a three year carry back of losses, so this extended loss relief is targeted at established businesses.If you made a small profit in the year to 30 April 2008, taxed in 2008/09, but a large loss in year to 30 April 2009, taxed in 2009/10 you will not get the three year carry back. Because the loss has fallen into the 'wrong' taxed year: 2009/10 instead of 2008/09 it can only be carried back for one year instead of three years. In this situation you could change your year end to 31 March 2009 to capture the loss early and take advantage of the three year carry back.Corporation TaxTwo years ago the rates of corporation tax for companies with 'small' profits were set to rise on 1 April 2008 to 21% then on 1 April 2009 to 22%. The Chancellor has now decided to postpone the second of those increases to 1 April 2010.'Small' profits are those that fall below the small company rate threshold of £300,000. This threshold is proportionately reduced by the number of companies associated with the main company. An associated company can be one run by your spouse or civil partner, or another company over which you have control.Income ShiftingLast year the Government threatened to bring in legislation to deal with the problem of couples sharing business income to reduce tax. This was going to happen from April 2008, but was postponed until April 2009. It has now been put back on the 'too difficult pile' until at least the recession is over. So there are no immediate changes for family businesses.

Personal Tax

Income taxThe rates and thresholds of income tax have been set for 2009/10 as follows:Savings rate (on Savings income only) - 10%: £0 - £2,440Basic Rate - 20%: £0 - £37,400Higher Rate - 40%: Over £37,400However, an additional higher tax rate of 45% is promised from 6 April 2011 for those with total income above £150,000. These individuals will also lose the benefit of the personal allowance (see below). The rates paid by Trusts will also increase to 37.5% for dividends and 45% for other income from 6 April 2011.Personal AllowancesIn May 2008 the Chancellor increased the basic personal allowance to compensate lower earners for the loss of the 10% tax threshold. This increase is carried forward into 2009/10.There is a cap on the benefit of the personal allowances given to those aged over 64 where their income exceeds the income limit. A similar mechanism of reducing the benefit of the personal allowance is proposed for those with total income over the thresholds of £100,000 and £140,000 in 2010/11 and beyond.Pension ContributionsThe lifetime and annual allowance for pension contributions were set for the five years from 2006/07 to 2010/11. These allowances will now be frozen at the 2010/11 rates until at least 2015/16, which will restrict the tax relief available to very high earners:- Life time allowance: £1.8 million- Annual allowance: £255,000

National Insurance

There is no immediate change in the main rates of class 1 employers and employees national insurance from 6 April 2009. However, a large rise in class 1 national insurance is proposed from 6 April 2011 to 11.5% for employees, to 13.3% for employers, and the additional rate payable above the upper limit is to increase from 1% to 1.5%. This would bring in a significant amount of additional revenue for the Government beyond 2011.Class 3 national insurance is a voluntary class normally paid by people who want to top up their NI contributions in order to receive the full state pension. This voluntary rate is increasing from £8.10 per week to £12.05 per week from 6 April 2009. So if you need to top-up your NI contributions it would be best to do this while the rate remains at £8.10 per week.

Other Taxes

Business Rates
From 1 April 2008 most empty business properties became liable to business rates, when previously empty properties were exempt from rates. After much protest, and a number of instances where properties were demolished, the exemption from business rates is to be applied to all properties with a rateable value of less than £15,000 for the tax year 2009/10 only.Car tax (vehicle excise duty)There was a lot of fuss after the Budget in March 2008 over the proposed increases in car tax (VED) for older cars registered after 1 March 2001. These increases in VED have now been scaled back to £5 per car per year for most cars for 2009/10, but larger increases will apply for new polluting cars.Excise DutiesJust to prove this was a real Budget the duties on cigarettes increased from 6pm on 24 November 2008. Duties on wine and spirits go up from 1 December 2008. To compensate for the reduction in VAT, fuel duties are also to increase from 1 December 2008 and then again on 1 April 2009!

Need Help?

New Clients Welcome

Please contact us if we can help you with these or any other tax or accounts matters.If you are not already a client and are interested in becoming one, we would love to come to meet with you to discuss how we can help and provide you with a competitive quote for our services.All new client consultations are provided free of charge and without obligation.

How to piss people off and get more customers!

I found this by a guy called Shamus Brown who teaches how to sell. I Think its a wonderful attitude if you know who your prospective buyer is and can niche. Read on.......................


I am recovered coffee addict.

Mentally I still love coffee, even though I don't drink it any more.

So I really appreciated this story that I came across the other day that I am about to share with you.

A guy goes into a coffee shop in near Washington DC. Guy tries to order an iced espresso, and is told he can't have one because it's against store policy to serve espresso over ice.

Pissed off, guy orders an espresso and a cup of ice, and proceeds to pour espresso over cup of ice. Flabbergasted barista says that's really "not okay".

Guy orders a second coffee drink from the store, and leaves a dollar tip with a profane message penned on the face of the bill with a Sharpy.

Being a former coffee snob myself, I love the fact that this coffee store, Murky Coffee in Arlington Virginia, has a precision process for brewing and serving their coffee.

And they won't sell it to you in a way that will degrade the quality of the coffee.

And if you are going to ruin it yourself, they aren't going to let you do it in their store, and they're going to tell you to go buy your coffee elsewhere if that's what you want to do.

Some people will get real pissed at such an attitude of a business. The customer of this story Jeff Simmermon was so tweaked that he blogged about, which led to the Washington Post finding out and writing about this, which led to hundreds of thousands of people reading Simmeron's blog and finding out about Murky Coffee in Arlington Virginia.

Murky Coffee's website and Simmermon's blog both got tons of visitors and tons of comments many praising and blasting each of them for their respective actions and their attitudes.

Murky Coffee is the one who is coming out ahead in this dustup though. They just got a huge amount of free publicity.

Now you might say that this is negative publicity though.

The thing is that Murky Coffee now stands for something.
They stand for excellent, pure, high quality coffee.

The people who care about that (i.e. coffee snobs like myself), but who had never before heard of Murky Coffee, are now going to give them a try. And many will form an emotional attachment to them because they are defenders of quality and excellence in coffee.

The Simmermon's of the world who just want the most convenient cup, who want to do whatever they want with it, and who want to whine about "the customer is always right"
will hate this store and will stay away.

But that is OK, because those people were never the target market for a store like Murky Coffee in the first place.

You don't have to take abuse from your customers.

The customer is not always right.

Stand up for yourself in sales and you'll be more successful.

Sell with Pride,

Shameless Shamus Brown

Changes in HMRC's interest rates

As a result of recent market movement, HMRC have published their revised interest rates on direct taxes, indirect taxes and national insurance contributions paid late and overpaid applicable from 6th November 2008.


The revised interest rates are based on the average base lending rate of 4.5 per cent, calculated in accordance with the relevant Regulations. Coincidentally, the date these rates became applicable is the same day the the Bank of England cut their base rate a further 1.5% to 3%! So will there be more cuts to come? We will keep you informed.


Income tax, national insurance contributions, capital gains tax, stamp duties
The rate of interest charged on income tax, national insurance contributions, capital gains tax, stamp duty, stamp duty land tax and stamp duty reserve tax paid late, tax credits overpayments in cases of fraud, neglect and on penalties charged, and on tax charged by an assessment for the purpose of making good to the Crown a loss of tax wholly or partly attributable to failure or error by the taxpayer changes from 7.5 per cent to 6.5 per cent.
The rate of interest on overpaid income tax, national insurance contributions, capital gains tax, stamp duty, stamp duty land tax and stamp duty reserve tax (repayment supplement) changes from 3.00 per cent to 2.25 per cent.


Petroleum revenue tax, advance corporation tax
The rate of interest for development land tax, petroleum revenue tax (including supplementary petroleum duty and advance petroleum revenue tax), and on advance corporation tax and income tax on company payments which became due on or before 13 October 1999 paid late or overpaid changes from 5.75 per cent to 5.0 per cent.


Income tax on company payments that became due on or after 14 October 1999
The rate of interest on late payment of income tax on company payments which became due on or after 14 October 1999 changes from 7.5 per cent to 6.5 per cent.


Inheritance tax
The rate of interest for late payments or repayments of inheritance tax, capital transfer tax and estate duty changes from 4.0 per cent to 3.0 per cent.


Corporation tax
The rate of interest for either late payments or repayment of corporation tax for accounting periods ended on or before 30 September 1993 (pre CT [pay and file]), changes from 5.75 per cent to 5.0 per cent.


The rate of interest charged on unpaid corporation tax for accounting periods ending on or after 1 October 1993 (under CT [pay and file]) changes from 6.0 per cent to 5.0 per cent.
The rate of interest paid on overpaid corporation tax for accounting periods ending on or after 1 October 1993 (under CT [pay and file]) changes from 2.75 per cent to 2.0 per cent.
The rate of interest on unpaid corporation tax for accounting periods ending on or after 1 July 1999 (other than underpaid CT instalments) changes from 7.5 per cent to 6.5 per cent.
The rate of interest on overpaid corporation tax for accounting periods ending after 1 July 1999, in respect of periods after the normal due date, changes from 4.0 per cent to 3.0 per cent.


Customs duty, environmental levies and tax, excise duties, insurance premium tax and VAT
The rate of default interest charged on:
* underdeclared VAT, air passenger duty, insurance premium tax, landfill tax, climate change levy, aggregates levy;
* excessive repayments of VAT, insurance premium tax, land fill tax, climate change levy, aggregates levy and customs duties recovered by assessment ; and
* late payment of customs duty;
changes from 7.5 per cent to 6.5 per cent.
The rate of statutory interest paid:
* where an official error has caused an overpayment, a failure to claim credit, or a delay in certain repayments of VAT, insurance premium tax, land fill tax, climate change levy, aggregates levy and excise duties; or
* where there has been undue delay in processing a claim for repayment of excise duty and customs duty;
changes from 4.0 per cent to 3.0 per cent.
Section 178 of the Finance Act 1989 and the Taxes (Interest Rate) Regulations 1989 (S.I. 1989/1297) lay down the procedures and formulae for calculating and amending HM Revenue & Customs interest rates that apply to direct taxes, and national insurance contributions.
Section 197 Finance Act 1996 rate and the Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998 (S.I. 1998/1461) lay down the procedures and formulae for calculating and amending HM Revenue & Customs interest rates that apply to indirect taxes.
Section 37 Tax Credits Act 2002 and the Tax Credits (Interest Rate) Regulations 2003 (SI 2003/123) lay down the procedures and formula for calculating and amending interest on an overpayment of a Tax Credit in cases of fraud, neglect on penalties charged.
By Sally Richards

Does your company have a childcare voucher scheme in place?

Childcare Vouchers

If you have a child that is cared for either by a nursery, crèche, play scheme, after school club, registered child minder; all of whom need to be OFSTED approved, then you may be able to claim childcare vouchers through your Limited Company under the Government childcare voucher scheme.

Your limited company would need to register the scheme with HMRC or use a scheme provider who will carry out the registration and administration process on your behalf.
Scheme providers charge a commission rate (varying between 2.5% upwards) for their service which your company can off-set against the savings in national insurance employer’s contributions. It is also a tax deductible expense.

A scheme provider is the easiest way to use childcare vouchers as there is a fair amount of administration and record keeping that needs doing initially, however, once the scheme is up and running you simply need to issue vouchers and maintain your records are up to date, so in a sense, paying a scheme provider just becomes money for old rope.

From 6 April 2005, the government implemented new tax and National Insurance exemptions to encourage companies to assist their employees with childcare fees.
By offering a childcare voucher scheme, employees are able to receive up to £55 a week (£243 per month) in childcare vouchers which will be exempt from tax and National Insurance Contributions (NICs). This is available to each parent or legal guardian.
An employee who is a lower rate taxpayer can save tax and NICs of £938 per year, and a higher rate tax payer around £1500. The amount paid out by a company in vouchers is also exempt from employers’ NI contributions. So employers can save up to £300 per year for every employee on the scheme.

Childcare vouchers can be implemented either by way of a salary sacrifice scheme or as a normal business expenses.
Salary sacrifice happens when the employee agrees to give up part of his/her cash pay due under his/her contract of employment in exchange for childcare vouchers to the same value as the cash sacrifice.
If you make a claim using the salary sacrifice scheme your wage must remain at the minimum wage or above. Ensure you have an employment contract that reflects all the details.
If the employee receives tax credits then reducing their salary via ’salary sacrifice’ may also lower the amount of tax credits that they can claim. You can make a comparison here.

It will also make a difference on the amount an employee may claim for statutory sick pay and statutory maternity pay.
Alternatively, the employer may pay the childcare directly and deduct it against profits as an expense. Any additional salary will incur more employers NICs and payments made over the statutory exemption of £55 per week or £243 per month will be reportable on the P11d as a benefit in kind and class 1a NICs will be charged accordingly. Amounts paid at the approved rate or below are not reportable on the P11d.

The agency provider that you use will prepare vouchers (either paper or electronic) and will provide you with the templates for the variation of the employment terms for the salary sacrifice together with notification to HMRC.

Conditions
There are certain conditions to be met for use of the scheme:
The child must be resident with the employee. Thus the scheme is available to each parent or legal guardians.
The scheme must be offered to all employees and literature must be displayed and made available as evidence.
An employee’s salary must not fall below the national minimum wage or lower earnings limit after the salary sacrifice.
Vouchers cover children up to the age of 15 and can only be used to pay registered and approved child carer’s e.g. registered childminders, nurseries, after school clubs, holiday clubs etc. Childcare vouchers cover children up to the 1st September after their 15th birthday or if the child is disabled up to the 1st September after their 16th birthday.
If a relative is the child carer then they need to registered and also care for other children who are not related.

If you are a one-person Limited Company you are still eligible to administer a scheme.
Ensure that you have an employment contract stating the terms, either salary sacrifice or paid in addition to your salary and prepare literature that proves that the scheme is available to all employees.

How much to claim
Childcare is rarely as low as £55 per week so inevitably you will have a remainder to pay out of taxed income.

Or if, for example, your child care was £100 per week and the company pays for all of it, £55 is tax free, then the additional £45 you receive would be reportable on the P11d, NICs of 12.8%, £5.76 would apply and tax at the higher rate of £18, total cost of £23.76 for the extra £45.
Calculate this over the year, 45×52=2340 less 23.76×52=1235.52, total saving of £1104.48.
If you had not received the extra money and taken a dividend instead, you would save on the NICs element.

Before making a decision on whether the company or you pay, you need to carefully calculate the true costs to both yourself and the company.


http://www.tax-sorted.biz

A classic quote from an ex tax inspector

I was reading through the Property Tax Portal monthly tax tips (yes I DO subscribe to this sort of stuff to enhance my knowledge!) and there is a quote in the October newsletter from James Bailey who is an ex Inspector of Taxes. James talks about the new penalty regime and the importance of getting your tax return right first time and the options available. He says: -

"One choice, of course, is to contact HMRC
and ask them. You would expect me to be
prejudiced, but in my experience there are two
certainties about the advice you will get: it will
either be wrong or it will be the advice that
results in the maximum amount of tax
payable, and if it is wrong they will deny giving
it unless you have it in writing."

Classic! I have always said this myself but most people seem to think the tax office are there to help them. WRONG! The only person you can trust to give you the correct information is your accountant or tax advisor. Because you pay them for this.

http://www.tax-sorted.biz

Who is your accountant working for?

Is your accountant working for you - or the Taxman?

I was referred to a business owner who wasn't happy with his present accountant. After a brief chat I discovered he was being advised to draw ALL of his remuneration by way of salary from the company. By doing this with his level of profits it is the LEAST tax efficient way of taking money from a company and is costing him at least £3,000 a year in tax an national insurance.

WHY IS THE ACCOUNTANT NOT TRYING TO SAVE THIS PERSON MONEY?

Because it is EASIER to do it this way and there is no risk. But it is WRONG for the client.

As an accountant and tax advisor it is my duty to make sure my clients pay as little tax as is LEGALLY possible. And by taking money from a company by a mixture of salary AND dividend this can be achieved fairly simply.

All the best

Shaun - pulling my hair out with this kind of news!

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

Be alert - yet another scam!

Be warned, the following phish is doing the rounds at the moment.

The email, allegedly from HMRC, invites the recipient to click on the link and submit personal data.It is of course scam, HMRC do not send emails out asking people to submit data.You have been warned.

"After the last annual calculations of your fiscal activity we have determined that you are eligible to receive a tax refund of 188.50 GBP. Please submit the tax refund request and allow us 6-9 days in order to process it.A refund can be delayed for a variety of reasons. For example submitting invalid records or applying after the deadline.To access the form for your tax refund, please click here.Regards, HM Revenue & Customs© Copyright 2008, HM Revenue & Customs UK."

Not a tax tip but a good one anyway - Take a Break!

Well you won't hear from me for another 10 days or so because I am doing what most self employed people don't do enough of - taking a break and going on holiday!

Yes I know you think you are indespensible and the whole business will crumble without you but hey - why not give it a try? I'm sure your team will surprise you and function perfectly well without you.

Of course, this will be easier if your business is systemised and doesn't solely rely on you. Try it sometime. And if you havent read the book "The e-myth Revisited" by Michael Gerber then you should read it and start to systemise your business. Click here to buy a copy from Amazon.

a bientot!

Shaun

http://www.tax-sorted.biz/

http://www.welovebookkeeping.co.uk/

Is the first £30,000 of your redundancy package really tax free?

With the current credit crunch, some employers are considering reducing their work forces.

If you are an employer in this unhappy position then professional employment advice should be taken at the outset. If some employees are to be made redundant then both legal and tax issues should not be overlooked.

There is a common misconception that the first £30,000 of any payout to employees leaving the business can be made free of tax. Unfortunately it is not that simple, as a number of issues need to be considered, including;

Is the employee retiring and the payout a retirement package?
Is there an express or implied contractual obligation to pay the money?
Is the money being paid in return for something, such as a restrictive covenant?
Is the payment a terminal bonus?

If the payout does not fall under one or more of these, then it may well fall under the tax rules for genuine redundancy payments, with the result that the £30,000 tax free exemption will apply.

A wholly voluntary payment at the ending of an employment will be classed as genuine compensation for redundancy and qualify for the £30,000 tax exemption.

Tip: Before dismissing any employees or announcing redundancies take advice to cover the employment and tax issues. Attention to detail at the outset can help avoid the tax pit falls and possibly identify significant tax savings.

National Minimum Wage Increase

From 1 October 2008, the national minimum wage for eligible workers will increase. Click here to make sure you are ready for the changes.

tax-sorted.biz
welovebookkeeping.co.uk

Tax planning for the Credit Crunch

Like it or lump it, times are difficult at the moment and there’s no getting away from it – not unless you have a media blackout.

So we came up with a few tips so you can start planning now for the ongoing effects of the credit crunch.

Falling profits inevitably result in lower tax payments. If you’re a sole trader or partnership you should start thinking about reducing your self assessment tax payments due at the end of January next year – particularly as they may be based on last year’s higher profits.

However, you should be aware that the taxman will charge interest if it turns out you haven’t paid enough tax on time so make sure that you get your profit projections right.

Is there any way I can reduce my taxable profits?

Well if you’re a sole trader or partnership you can think about changing your accounting date to one later in the tax year – this may allow you to get a quicker reduction in ongoing tax liabilities for declining profits.

The flip side of course is it could accelerate tax liabilities when and if your profits start rising again.

What if I trade through a limited company?

You can extend the company’s accounting period so as to accommodate any losses/further provisions arising after the normal accounting date.

This may enable losses to be offset against profits made earlier on in the same accounting period or reduce the overall profits, which were possibly taxed at a higher rate.

What if I’m just about to start a new business venture?

Think carefully about your choice of business vehicle because, despite what the man in the pub says, trading as a limited company is not necessarily the be all and end all.

A limited liability partnership may be a more viable alternative as it can give commercial protection in this current difficult climate.

If you trade as a partnership or sole trader and make losses in the opening
year(s) of your trade you should be able to relieve those losses against your income for earlier years – this option isn’t available if you run your business through a limited company.

But beware – if you decide to trade as a partnership you must make sure that all partners are active in the business and that the loss claimed by each individual partner does not exceed their capital contribution.

If matters are not structured properly, then the Revenue will most likely deny your loss claim leaving you even more out of pocket.

What about extracting profits from my company?

Well dividends are still the most tax-effective way of extracting profits from the company, though company law dictates they must be “legal” so make sure you have enough reserves to pay them. Care also needs to be taken that a collapse in trading results in the later part of your accounting period does not render previously paid dividends illegal.

Finally what about VAT?

If you’re a small business (i.e. your VAT exclusive turnover is less than £1.35 million) then consider adopting the cash accounting scheme for VAT purposes.

This may be of benefit where late payment of your sales invoices results in you paying VAT to Customs potentially when you haven’t even received the money in the same VAT quarter.

Hopefully these ideas have given you food for thought though if you think we can be of any further assistance please give us a call.

http://www.tax-sorted.biz

http://www.welovebookkeeping.co.uk

Leaving on a jet plane

Well I'm packing my bags for another trip to England next week to visit some clients and (hopefully!) sign up some new ones too.

I haven't been to England since my last trip back in May so this remote working is really beginning to work for me. For the first few years I was going back every three weeks but have cut it down to over three months! But that was mainly because I hate airports during the summer holidays. Does anyone else have anything to say about running a business remotely?

I may be too busy to make any posts next week but keep checking because I may surprise you (and myself!)

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

How to be approachable and look confident to others

I discovered some great short videos on how to look more confident and how to look more apprachable. As business owners we are all sales people so it's really important we don't let ourselves down with the basics.

Click here to watch them

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

Many people pay too much tax and most of it can easily be avoided. Take this example of a family man with a van.

Let’s assume his van is a little tired looking and he thinks it’s time to get a new one for his image. If he’s making £30k profit a year and the van costs £15k then planning to buy this now can save him £6k. Here’s how: -

There are different ways to buy the van such as leasing, outright purchase from cash reserves, hire purchase or contract hire. If he buys it (and he can do this on finance) then that £15k will qualify for a new allowance and he’ll get 100% tax claim. This will reduce his taxable profit to £15k and trigger a Tax Credit claim of £3k.

Next year with all things being equal he probably won’t buy another van so his taxable profit will go up to £30k. But, with Tax Credits you get an award every year based on your last year's claim. This will give him another £3k but amazingly there’s something called the income disregard. The means that provided your income doesn’t go up by more than £25k you don’t need to repay any awards you’ve had!

Nice, but you need to make sure you claim on time because claims can not be backdated. It makes sense with these types of opportunities to have a protective claim in place. Have you done this?

This works for any reduction in taxable profit. So, if you decided to go abroad for a long holiday you’d get £6k from the taxman. Maybe some businesses will be hit with a £15k bad debt in the Credit Crunch. It would be nice to get £6k of this back.

If you would like more details about this please contact me taxsorted(at)googlemail.com

Thanks to Lesley Ward for writing this article

The dangers of a Tax Investigation

Why this report has been written
This report has been written as a warning! There have been a number of worrying developments over recent years and when combined with established Revenue practices means that investigations can no longer be ignored.

Important – your systems need to be very good.
Revenue inspectors use a practice called “breaking the records” – in plain English the taxman scrutinises your bookkeeping to find mistakes! If any are found, even if they are relatively minor, the taxman can simply say that they are not satisfied with the accounts.

We are then embroiled in a formalised investigation process until the tax man is satisfied – this can be a lengthy and expensive experience. Often you may be encouraged by the Revenue to negotiate a settlement when none may actually be due, just to get the investigation closed. To protect yourself you need to have strong and robust financial systems.

We believe the most effective way to achieve this is to purchase and use good bookkeeping or accounting software. We are issuing this warning because we have a duty of care to advise clients and offer help where we believe there is a risk. Today the tax office is more likely than ever to investigate your returns and accounts, and under the Self Assessment rules fines can be imposed for just failing to keep good records.

This report is primarily designed for small businesses which use manual or spreadsheets to do their bookkeeping. However, businesses that have a computer system can also be vulnerable to attack if the software is not used correctly. The problem with manual and spreadsheet systems is they have no built in controls and checks, which the taxman expects as a minimum.

This means small errors and mistakes can easily be made and even if there are no mistake the lack of controls means the taxman can always undermine the information. If you are using a computer system but not using it correctly it could be that the built in controls and double checks are not being used correctly.

As you will see, this report identifies the key issues relating to tax investigations and uses jargon free language to explain them. By reading this report it will give you the inside track on how tax investigations work. You won’t become an expert but you will understand why you need to take action now to ensure your bookkeeping is robust enough to withstand a Revenue audit. As a minimum you should seek independent advice to find out how weak or strong your financial systems are, and if needed you should improve your record keeping and possibly take out an insurance to cover the professional fees of defending an investigation.

The good news is that improving your accounting records will not only make your defence of a Revenue challenge that much easier, you will also gain a number of “knock on” benefits. These include:

• 
  Better management information – would you like to know who owes your money? Would it help if you knew how much profit you made last month?
• 
  Improved levels of control – would it be good to know what’s in your bank before looking at the bank statement? Would it be helpful to see your VAT bill building up?
• 
  Quicker cash collections from your customers – if you know who owes you money you can chase them quicker.
• 
  Less time spent doing the books – you could potentially save thousands of pounds of your time
• 
  Fewer questions from us – at the end of the year we’d like to have only a few questions for you to deal with
• 
  Better levels of service from us - we will be able to produce mortgage references quicker
  Easier access to additional professional services such as tax forecasting and advice on your business and financial planning.

Why do Investigations start?

Investigations can be started on a random basis – your name can just pop out of the hat! There are however some factors which could increase the risk of you being selected. Make sure you don’t draw attention to yourself by:

Obvious mistakes in your return
Sending your tax return in late
Paying your tax late
Sending two tax returns in at the same time
Fluctuating profit margins and other accounting ratios
Mistake with employer regulations
Large benefits in kind to employees, particularly directors
Loans to directors and/or participators
Overseas issues
Large balance sheet adjustments
Cash trade
Business in a sector being targeted by the Inland Revenue
Disparity between money taken from the business and private living expenditure for owners/directors
Complex technical issues
Qualified accountants report

Although the risk of selection cannot be eradicated completely, it can be reduced by taking the following actions:

Ensure that Returns are submitted and payments made on time.
Check submissions carefully to avoid obvious errors
Consider the factors that are likely to attract Revenue attention; review them to identify potential problems in advance. Provide additional explanation or information where it might assist the Revenue officer's understanding of what has happened, particularly if the results appear unusual.

The inside track about Tax Investigations

It’s true: Tax Investigations are a nightmare, no matter what the Taxman says. Quote from HM Revenue and Customs publication – “when we start an enquiry it does not mean that we think you have done anything wrong. We check some tax returns to make sure they are right or if we need further information to understand the figures.

We also and only select tax returns for enquiry to ensure the system is operating fairly” Source IR160 This sounds pretty friendly, almost like a service. But make no mistake about it, the reality is very different! Investigations are by their nature confrontational and very stressful. The technical name for an investigation is an enquiry and if you are investigated you need to know if you have a “full” or an “aspect” enquiry.

An aspect enquiry focuses on a number of specific aspects regarding your accounts or tax return. A full enquiry looks at potentially all of your return and accounts, in depth! Hopefully you will now see why investigations start, the way investigations are structured and what you can do to protect yourself.

We would also like to draw your attention to the following points:

Warning 1 - You have no choiceYou can not prevent a tax investigation. If you are selected you MUST comply with the inspector’s proper requests for information.

Warning 2 – You are guilty until proven innocentUnlike the application of common law, tax regulations treat you as guilty until you prove yourself innocent. Remember, under the current tax system (known as Self-Assessment) you assess yourself and have a legal responsibility to make sure your tax affairs are correct. As you will discover later, even a minor mistake on in your bookkeeping will be seized upon as “proof” that there is a problem.

Warning 3 – the taxman can go back six yearsIf there is a problem with one year and the taxman can show that it is “likely” to occur in previous years they can raise a bill going back six years and add interest with penalties. The interest is based on bank rate but penalties are left to the discretion of the inspection and can be up to double the discovered tax arrears. So a £1,000 mistake can result in a tax bill for one year of £400. Multiply that by six you get £2,400. Now add on a penalty and interest and you could have a final settlement of £4,800. Take note that all the taxman needs to do is show that there are reasonable grounds for believing errors would have occurred in past years based on the results of their investigation in the current year. They do not have to find actual errors in past years!

Warning 4 - The taxman has more timeThe Self-Assessment system has freed up time for the tax office to do more investigations. In 2008 many more tax returns will be submitted online so there will increasing savings in processing time. This again will free up time for investigations.

Warning 5 - The Tax Inspector is well trained If you are selected for an investigation you will be expected to attend a meeting as part of the process. Although you are not legally obliged to attend, if you do not the Revenue may assume that you are trying to hide something. If subsequently it is discovered that there is extra tax to pay, this could increase the level of penalties charged. Also, if you do not attend a meeting the Revenue may find grounds for calling a meeting of the Commissioners. At this meeting you or your representative may have to answer questions under cross examination which can be hugely stressful and costly. The problem with attending a meeting is that the inspector is trained in interview techniques. Leading questions can result in you opening yourself to an attack even where there is no problem.

Warning 6 - The Tax Office has huge resources and powersRemember the Tax Office has wide ranging powers and almost unlimited resources. The Revenue can afford to invest time testing and analysing your records and asking lots of questions. The taxman will use the resources to their advantage in an attempt to grind people into submission - and to accept extra tax bills just to get the investigation closed down. The VAT Office even developed their own software called SPACE used to interrogate spreadsheets and find mistakes. This is now available for tax investigations.

Warning 7 - Inspectors are on a bonusHM Revenue and Customs pay bonuses on tax collected from investigations and there are internal targets for gathering additional revenue. Amazingly a settlement (extra tax) is expected in 76% of investigations. This means three in four people will be paying additional tax and extra accountancy fees to defend the Revenue’s claims. The average Investigation lasts 18-months; results in a tax settlement of £3,000 and costs £3,000 in professional fees.

Warning 8 - Information gathering and sharingThe Tax Office and VAT Office have been combined and because they are now under one roof they can share information. The Internet is a great tool for research and electronic data is more widely available.

Warning 9 – Business Economics ModelsOne strategy used by the Taxman to try to gather in more tax revenue is to argue that the business profits are understated based on business economics models. The taxman compares your business to information they have about your industry or sector. The main attack is often based on gross profit margin comparisons. If your books are accurate and based on sound accounting principals you will have a better chance of defending against unrealistic comparisons based on a business economics model. Conversely if your books are inaccurate you will find it difficult to defend your case.

Warning 10 – Interventions There is a "new game" in town, HMRC Interventions! The Revenue are trialling a new approach with their customers (taxpayers), the stated objectives being:

a review of current record keeping, to make sure they meet HMRC standards.
a short risk review.

self audit of tax returns, i.e. phone calls or letters requiring taxpayers to consider changes to their returns.

correction challenges - where the Revenue have good quality information, from banks etc, they will simply change your return and ask you why the information returned was incorrect.

Initial contact may be by letter or a telephone call. At the moment this is a trial so the Revenue have no powers to compel you - they can only do so with your agreement and co-operation. However, some people think that not co-operating can raise the interest of the Revenue! Like the standard investigation, without proper professional support, and without good underlying accounting records, this approach can quickly lead to a full blown investigation.

Warning 11 – Higher targetsThe tax office wants to collect an extra 25% tax from investigations in 2007. With government finances under pressure maybe more resources will be put into this activity. 4 What you can do to protect yourself?You can’t prevent a tax investigation starting but you can reduce your chances of being selected. For instance:

We believe that due to our reputation with the tax office you are less likely to be investigated.
Whilst completing your accounts we automatically carry out risk management checks to highlight areas of concern. If necessary we will discuss these with you.
We can recommend additional disclosure notes on tax returns to pre-empt questions.
We will manage your tax affairs and help you ensure your accounts and tax return is sent in on time.
We can help by providing free bookkeeping software and support to make sure your records are accurate. We can provide this for no charge as it saves time at the year end.
We can give you mid year or quarterly tax forecasts so you can budget for tax bills and make sure you are able to pay your tax on time.
We know the detailed rules and procedures of investigations and can help you if you are investigated.

What are you going to do?
You have three choices:

1.Do nothing and take the risk

2.Make good use of bookkeeping or accounting software

3.Take out some insurance and cover some of the risk

We believe that if you do nothing, unless you are very lucky you will eventually fall foul of the investigation process, and your lack of good evidence in the form of accurate accounting records will prejudice your case. Bearing in mind what can go wrong and how easy it is to avoid the problem we obviously don’t think doing nothing is a good idea. This is why many firms like us have a new policy - if you decide to do nothing and you are selected for an investigation we will ask you for an up-front deposit of £1,000 to represent you. This is not want we want to do but we have no choice because of the changes. Instead, we think the best choice for you is a combination of insurance and assurance supported by us.

Insurance – professional fee insurance will cover our fees representing you. This means we can argue on your behalf for as long as the taxman wants.
Assurance – producing good quality bookkeeping by using software will mean we can argue and defend you aggressively.

Keep in mind we are able to provide you with a specialist insurance and we have the capability to give you free bookkeeping software and support. We can also offer advice on selecting and purchasing more complicated accounting software and if you want we can even do your bookkeeping for you.

Copyright Notices No part of this publication may be reproduced or transmitted in any material, including photocopying or storing it by any medium by electronic means and whether or not transiently or incidentally to some other use of this publication, without the written permission of the copyright owner. The reader is authorised to use any of the information in this publication for his or her own use only. Legal Notices While all attempts have been made to verify information provided in this publication, neither the author nor the publisher assumes any responsibility for errors, omissions, or contrary interpretation of the subject matter given in this publication. The reader must accept full responsibility for determining the legality of any and all ideas adopted and enacted in his or her particular business, whether or not those ideas are suggested, either directly or indirectly in this product. Do not attempt to implement any strategy outlined or implied by this publication without first talking to your accountant.

August tax tips

Welcome...To August's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.If you need further assistance just let us know or you can send us a question for our Question and Answer Corner.We are committed to ensuring all our clients don't pay a penny more in tax than is necessary.Please contact us for advice in your own specific circumstances. We're here to help!
August 2008
Getting Your Business to Pay for Your Holiday!
Dealing with the Changed Personal Allowance
Selling Your Business - the VAT Implications
Mileage Expenses below 40p per Mile
Question and Answer Corner
Key Tax Dates for August 2008
Getting Your Business to Pay for Your Holiday!
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It's holiday time and you may be tempted to get your limited company to pay for some or all of your holiday costs. If you do this you will normally be taxed on the entire cost, but exactly when you pay the tax depends on how it was arranged.If your company contracted with the supplier, the cost is not immediately taxable on you. But where the trip had no business function the cost must be included on the annual form P11D and you will pay the tax due in the following tax year, or the next one. The company has to pay class 1A NI at 12.8% on the value of benefits declared on the form P11D, but you as the employee do not have to pay NI on the cost.Alternatively you may have arranged it yourself and then your company picks up the bill. In this case the cost should be treated as extra salary at the time the company pays the bill, so effectively the cost is put through the payroll, incurring both employers and employees NI.It is possible that some part of your trip is business related. Perhaps you have a customer in Switzerland you need to see. If your company pays for you and your spouse to have a week in Switzerland the total cost must be apportioned according to the business and personal elements. You should make a note of who attended the business meetings, on what days they were held, and any associated costs such as meals. If your spouse was not involved in the business meetings, their part of the cost is not a business expense, so must be declared on your P11D, or on their own P11D if they are also an employee of your company.The tax rules are different for companies and for unincorporated businesses. When you work as a sole-trader or in a partnership, there is no employers' NI due when the business pays for the owner's personal expenses. The personal element is treated as part of the business owner's profit for the period and will be subject to income tax and class 4 NI, just like the rest of the profits made in the period.

Dealing with the Changed Personal Allowance
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The announcement by the Chancellor Alistair Darling about the changes to the personal allowance and the basic rate tax limit for 2008/09 took HMRC by surprise as much as everyone else. It has taken a few months to work out how to tweak the PAYE system so everyone pays the right amount of tax in 2008/09.HMRC have now decided not to reissue every single PAYE code. Instead employers will have to add 60 to every PAYE code that has an L suffix. This means 543L will become 603L. For all other letter suffixes you must wait for a new PAYE code to be issued. L is the most frequently used suffix, so you as an employer are effectively doing HMRC's work, and picking up the costs incurred by the Chancellor's change of mind.The new codes should be applied from the first payday on or after 7 September 2008. The PAYE tables, or your payroll computer system, will ensure that monthly paid employees, who are on the basic rate of tax will receive a tax reduction through the payroll of around £60 over the remainder of the tax year. This will normally reduce the employee's total tax deductions for the month, but in rare cases it will create a refund for the employee of tax he has paid earlier in the tax year. Where a refund of tax is due you should deduct the amount needed to make the refund from the total of PAYE, NICs, CIS and student loans due to be paid over to HMRC for that period. If this total is not large enough to cover the refunds due to your entire workforce, you can ask for funding directly from HMRC. Do this by contacting the relevant HMRC Accounts Office by post or fax. You also need to inform the HMRC Accounts Office that there is no PAYE payment to make for the period, by telephoning 0845 366 7816 with your payroll details or online at: http://www.hmrc.gov.uk/howtopay/paye_nil.htmHMRC are sending out new PAYE tables and guidance to all employers included on an employers' CD-ROM in August. You will also be able to order paper versions of leaflets and forms from the HMRC orderline (08457 646 646) after 12 August. If you have any questions about how to treat new employees, dealing with student employees or related matters do ask us.

Selling Your Business - the VAT Implications
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When you sell the shares in your own company there are few VAT implications. The VAT registration will normally go with the company, as it is the company that is VAT registered not you as the owner of that company. If you are a director of the company you will want to resign, tell Companies House and tell the HMRC VAT office you are no longer a director.Where you sell the assets and trade of your business, either out of your company or as a sole trader or partnership business, the transfer may qualify as a transfer of a going concern (TOGC). If TOGC applies you don't charge VAT on the transfer of the assets. The conditions for a TOGC to apply for VAT purposes are:- the entire business is transferred as a going concern; - if only a part of a business is being sold, that part must be capable of separate operation; and- the purchaser must use the assets in the same kind of business, which may be as part of an existing business; and- the purchaser should already be VAT registered, or becomes VAT registered as a consequence of acquiring the business.Your business need not be profitable at the time of transfer. The TOGC treatment can apply to a trading business sold on by a liquidator or by an administrative receiver.If the conditions for TOGC are not met and you are VAT registered, you must charge VAT on the sale of each of the assets. Certain types of real property will be zero-rated or exempt from VAT, so ask us for advice in advance if the sale includes land or buildings.

Mileage Expenses below 40p per Mile
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If you receive less than 40p per mile from your employer for using your own car on business journeys you can claim the extra back from the tax office. Many public sector employers, such as local authorities, do pay less than 40p per mile but their employees may well have to undertake long business journeys to attend compulsory training courses.If you are in that position you need to calculate the total of the mileage expenses you received in the tax year, and the maximum due using the HMRC rates. Say you claimed for 1500 miles at 25p you will have received £375 (1500 x 25p), but using the HMRC rate of 40p you could claim a further £225 against your taxable income (1500 x 40p -£375). You can make that claim on the employment pages of your tax return. Or if you don't complete a self assessment tax return you can simply write to the tax office that issues your PAYE code with the details of your claim. To make this easier HMRC have produced a claim form P87. You can also submit claims for the last six tax years back to 2002/03.

Question and Answer Corner
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Q. My Uncle has recently died and my elderly father inherited the entire estate of about £400,000 under the intestacy laws, as there was no Will. Can anything be done to divert the gift from my father to avoid this money forming part of his estate and attracting another large inheritance tax bill when he dies?A. Yes, if your father is still of sound mind he can disclaim the gift from your Uncle by using a deed of variation. This can apply whether there was a Will or not. The deed must be drawn up and signed within two years of your Uncle's death. It will not affect the inheritance tax (IHT) paid on your Uncle's estate, (unless the money is diverted to charity) but it will avoid IHT arising on the same funds for a second time as part of your father's estate.Q. I was in a serious accident in early 2007 and haven't worked since, but I've been sent a tax return to complete for 2007/08. Do I have to include the incapacity benefit I received on my tax return form?A. Some types of incapacity benefit are taxable and some are not. The long term benefit (paid after 28 weeks), and the higher rate of the short term benefit are both taxable. The Benefits Agency will normally take the tax due off the gross benefit before they pay the net amount to you, based on your PAYE code, just as if the benefit was a normal wage. If you don't know exactly what amounts were paid to you and what tax was deducted during the year to 5 April 2008, ask the Benefits Agency to confirm the figures. They will normally do this over the phone, but they should put it in writing if you request that.Q. I have a large number of CDs that I built up over twenty years. I am now gradually selling these CDs online and through magazines, as many are rarities. Do I have to report the money I make to the tax office?A. If your CD's were purchased for you own enjoyment and not with the aim of selling the individual items, you are not trading as a CD dealer, you are just disposing of some surplus personal property. The money you receive is not subject to income tax as you are not trading, and as long as each CD sells for less than £6,000 there is no capital gains tax to pay.

Key Tax Dates for August 2008
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6 - Last day for car change notifications in the quarter to 5 July - Use P46 Car19/22 - PAYE/NIC due for month to 5/8/2008

Need Help?
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New Clients Welcome
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Please contact us if we can help you with these or any other tax or accounts matters.In addition, if there's anyone else who you think would benefit from the newsletter, please forward the email to them or ask them to contact us to be added to the newsletter list.
If you are not already a client and are interested in becoming one, we would love to meet with you to discuss how we can help and provide you with a competitive quote for our services. All new client consultations are provided free of charge and without obligation.

The 20 Golden Rules of Investment

1) Buy low; sell high.
2) Don’t chase performance. If you like a stock or fund, buy on the dips.
3) Run your winners. In other words let your profts roll up and don't be in too much of a hurry to kiss goodbye to your best-performing investments.
4) Cut your losses before they become excessive.
5) Never get too attached to a share or a fund. As the late Sir John Harvey Jones once said: “You sometimes have to kill your favourite children.”
6) In general, think long-term. As Warren Buffett, the great US investor once said: “Never buy a stock unless you would be happy with it if the stock exchange closed down for the next 10 years.”
7) But don’t let that stop you reviewing your portfolio regularly. You need to check that your portfolio is properly balanced.
8) Reinvest your dividends. The power of compounding your reinvested share or fund dividends makes a massive difference to your overall return.
9) Don’t put all your eggs in one basket. If you had had all your money in tech stocks in March 2000 you would probably have had about 90 per cent of the value of your portfolio wiped out over the next couple of years.
10) Although it makes sense to hold shares for the long term you don’t necessarily want to hold them forever. In the end shares are for buying and selling not for buying and forgetting about.
11) To that end make sure you spend as much time thinking about selling shares as you do about buying them. Most investors neglect this vital discipline.
12) Make sensible use of tax-privileged investment vehicles such as pensions and Individual Savings Accounts (Isas) but never let the tax tail wag the investment dog.
13) If you don’t understand how a particular investment works it’s probably not a good idea to put money into it.
14) Don’t be afraid to ask the ‘what if’ question. In the late 1990s many investors bought supposedly ‘low risk’ savings products linked to the performance of the stock market. Few asked what would happen if the stock market fell off a cliff, as it did from 2000 onwards, slashing the value of the so-called ‘precipice bonds’.
15) Be flexible and don’t back yourself into a corner. If you bought a stock for 500p and it’s now languising at 50p, don’t stubbornly hold on to it indefinitely in the misguided belief that it’s bound to recover to 500p - it may never do so.
16) Don’t be afraid to go against the crowd - some of the most successful investors have been contrarian investors.
17) Never be influenced by ‘special offers’ such as the discounts sometimes advertised by fund groups for purchasing funds within a specific time. It’s much better to buy the right fund than to get a few pounds knocked off the purchase price of the wrong fund.
18) Ignore all stock market ‘tips’, whether offered in the workplace or at the nineteenth hole of the local golf course. Remember the old stock market adage that “where there’s a tip there’s a tap”.
19) Never get too carried away by investment euphoria, whether for stocks and shares or bricks and mortar - nothing goes up for ever.
20) Remember that if something looks too good to be true - it probably is.

H M Revenue and Customs - Spam E-mails

HMRC have recently updated their website to provide details of known e-mail scams or 'phishing' scams as they are otherwise known.

The following phishing activity is the most frequently reported fraud attempt to HMRC at the present time and the following is an extract from their website.

Tax Rebates
We are aware of a high number of emails being sent out offering a tax rebate. HMRC would not inform customers of a tax rebate via email, or invite them to complete an online form to receive a rebate of tax.

Do not visit the website contained within the email or disclose any personal or payment information.

Email addresses used to distrute the tax rebate emails include:
service@hmrc.gsi.gov.uk
claims@hmrc.direct.gov.uk
notice@hmrc.gov.uk
hmrc@hmrc.gov.uk
admin@hmrc.gsi.gov.uk
info@hmrc.gsi.gov.uk
no-reply@hmrc.gsi.gov.uk

HM Revenue & Customs does not send out emails using these email addresses and should you receive such an e-mail please do not hesitate to contact us or visit http://www.hmrc.gov.uk/security/fraud-attempts.htm

Inheritance tax – transfer of unused nil rate band

Guidance is now available on how the rules will work governing the transfer of unused nil rate inheritance tax band.

This measure was announced in the 2007 Pre-Budget Report and applies from 9 October 2007. The essence of the proposal is that proportion of the nil rate band that was not used on the death of one member of a couple will be available when the second member of the couple dies. (A couple is a married couple, or those in a civil partnership)

For married couples the first death may have occurred many years ago – even in pre-inheritance tax days. For civil partners the first death must have occurred on or after 5 December 2005. Legislation will be brought in as part of the 2008 Finance Act.

The guidelines, which cover 24 pages, cover such issues as:

What constitutes a valid marriage
Dissolution or separation
Procedure and time limits (usually 24 months from the end of the month of the second death)
Detailed examples of the calculation of relief available

Full details can be found at http://www.hmrc.gov.uk/cto/iht/tnr-draftguidance.pdf or you can contact us for more information and see what we can do to help reduce the tax burden.

Employed or Self-employed? New fact sheet

There is a new fact sheet for workers on the issue of employment and self-employment. The guidance highlights key issues and special circumstances. Workers are reminded that employment status is a question of fact rather than choice.

The leaflet can be found at http://www.hmrc.gov.uk/leaflets/es-fs1.pdf

There are specific issues for certain groups of individuals. For example, you can be an employee if you work for a relative in their business; but family members working in a domestic context such as a carer or cook etc are not employees.
(See http://www.hmrc.gov.uk/manuals/esmmanual/esm4156.htm). Unrelated individuals who work in a domestic context can be employees (or self-employed). The dividing line here can be difficult to draw, but working set hours on a fixed rate exclusively for one person as, for example a cleaner, with the householder providing all material would seem like employment. On the other hand, a cleaner who worked for 5 or 6 different people might be more likely to be self-employed.

Individuals working as office cleaners, by contrast, will normally be employees (see http://www.hmrc.gov.uk/manuals/esmmanual/esm4018.htm).

A full list of other ‘special cases’ can be found at http://www.hmrc.gov.uk/employment-status/index.htm#3

Have you renewed your tax credits claim?

Renewing claims
If you have been claiming tax credits you should now be familiar with the need to renew claims by 31 July. Failure to renew claims on time is a reason for many substantial overpayments. The overpayment arises because payments between

5 April 2008 and 31 July 2008 are ‘on account’. There is no valid claim until the renewal pack information is given to HMRC. If a claim lapses, a new claim is needed and this can only be back dated for 3 months.



So even if a fresh claim is made immediately, one month’s entitlement has been lost. This is so even if your circumstances have remained the same.

Renewal may be made by phone or by post. It is important not only to renew the claim, but to check that the Tax Credit Office has actually processed the renewal. When you have renewed your claim you should receive a final award notice for 2007/08 and a revised award notice for 2008/09. If you do not receive these you should contact the Tax Credit Office to check if the renewal has been properly processed.

To reduce the dangers associated with late renewals, HMRC has introduced some additional procedures this year:

Claimants who are considered to be at risk of failing to renew will be pro-actively contacted by the Tax Credit Office.


A 30 day waiting period has been formally introduced. This means that claimants who contact the Tax Credit Office within 30 days of the deadline and provide all the necessary information will have their claims re-instated. But with payments stopping and starting, there is a lot more scope for things to go wrong – so renew before 31 July to be sure!

If you renew by post close to the deadline it is wise to send the papers by recorded delivery. If you renew by phone, take details of the date and time of the call (and if possible the adviser’s name) so that a recording of the call can be located easily if there is a dispute later.

Do not delay your renewal because you do not have confirmed income figures. There are two particular circumstances which we have come across where provisional figures might need to be included before confirmation:

Self employed individuals whose accounts have not been finalised
Employees earning less than the taxable earnings threshold – who are not entitled to a P60 (as there have been no deductions of tax or National Insurance). A statement of earnings from your employer may be the only information you have

Do not delay your renewal in these cases. Instead provide the best information you have and tell the Tax Credit Office if the figure is estimated. If you give an estimated figure, you must contact the Tax Credits Office by 31 January 2009 to give the final figures.

Why don't they answer the phones?

My sympathies with the employee of HMRC who posted this comment, about call centre problems, 3 days ago on Audio Talk.

"What fucking next. I work for H Em Arse Sea.

'This is our busiest year so far......................' , 'The calls continue to increase.....................'

The corporate brain cell hasn't been able to figure the fucker out. If you put so much pressure on people to reduce call handling times, some people will inevitably hang up on people to make the calls shorter. So, it follows that these people will call back again and again, and again. There are so many calls on the network that shouldn't be there. Dohhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh!!!!

How fucking stupid can people be??

They talk about us as a business. I'm sorry but businesses have to be much more effective than this.

Oh well........................... "

Rather interestingly the original post has since been removed from the board.

I wonder why?

Lucky it was spotted in time by Ken Frost who posted this.

For this week a sales tip

People Prefer Talking To Listening

The number one rule in communication is: People prefer talking to listening.
Think about the people you enjoy being with. Aren't they people who listen to you? Think about the people you avoid. Aren't they people who talk incessantly, and never let you get a word in edgewise? Now think about this:

Have you ever heard anyone complain about someone who listens too much?
People buy because they like you. Listening is one of the most genuine compliments you can give another person.

A good salesperson is a good listener. A great salesperson is a great listener.
------------------------------------------------------------------
On a scale of one to ten, evaluate yourself as a listener. One is low, ten is high.
How do you stack up? ______________________________

Now that you've evaluated yourself, ask your spouse or friends for some honest feedback. You might discover that you're not as good a listener as you thought you were.

What can you do to become a better listener?
_______________________________
Work on it each day this week.
Monday: _________________________
Tuesday: ________________________
Wednesday: ______________________
Thursday: _______________________
Friday: _________________________

Do you want to claim some FREE cash? Millions of pounds are owed to UK parents and families.

The year before the current tax credits were introduced there was a different allowance available which was never advertised by the Inland Revenue. You can still claim this £520 - £1,040 allowance provided the claim is made before
31 January 2009.

You are eligible to claim the £520 allowance if: -

• You have a child born between 6 April 1986 and 5 April 2003 and
• The child lived with you for all or part of 2002/03 and
• You worked and paid tax for all or part of 2002/03

You are eligible to claim the £1,040 allowance if: -

You can answer yes to the above questions and one of your children was born between 6 April 2002 and 5 April 2003.

• Making the claim does not affect your current or future Working/Child Tax Credits
• Your marital status does not affect your claim
• You or your partner must have earned more than £6,000 in the 2002/03 tax year
• If you claimed the allowance in 2002 you cannot claim now
• If your final tax code on your April 2003 notice of coding ended in a H or a T you have already had the allowance
• We will charge you a total of £97 including VAT for making the claim on your behalf

If you are interested in grabbing this cash which belongs to you please either email shaun(at) shaunmcguinness.com or call us on 0800 634 4476 and we will explain what needs to be done.

July Tax Tips

Welcome...To July's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.If you need further assistance just let us know or you can send us a question for our Question and Answer Corner.We are committed to ensuring all our clients don't pay a penny more in tax than is necessary.Please contact us for advice in your own specific circumstances. We're here to help!

July 2008
Mileage Expenses and Rocketing Fuel Prices
Planning to Sell Your Company?
£50,000 Annual Investment Allowance
Protect Your Pension Fund
Question and Answer Corner
Key Tax Dates for July 2008
Mileage Expenses and Rocketing Fuel Prices

Fuel prices are rocketing, so employees are increasingly reluctant to use their own cars for business journeys. As an employer you can pay a tax free mileage rate to your employees of 40p per mile for the first 10,000 business miles driven in one tax year, and 25p per mile for extra miles in the same year. These rates haven't been changed for over 6 years. To keep your employees happy you could pay a higher mileage rate, but you need to report the excess amount paid on the form P11D and the employee will be taxed on that extra payment.Where an employee uses a company car, but pays for all the fuel, the company can pay a fuel-only mileage rate for business journeys. This fuel-only rate is guaranteed to be tax free when it is equal to or less than the advisory fuel rates set by the Taxman every six months. This advisory fuel rate has just been increased with effect from 1 July 2008, although due to the escalating fuel prices the Taxman has said the higher rates can be used for journeys made in June.The new advisory fuel rates, with the old rates in brackets, are: 1400cc or less: Petrol: 12p (11p) Diesel: 13p (11p) LPG: 7p (7p)1401cc to 2000cc: Petrol: 15p (13p) Diesel: 13p (11p) LPG: 9p (8p)Over 2000cc: Petrol: 21p (19p) Diesel: 17p (14p) LPG: 13p (11p)These rates are based on average fuel prices per litre of 114.8p (petrol), 127.2 (diesel) and 57.1p (LPG). If the prices in your local area are much higher, or your company cars are less fuel efficient than average, you can pay a higher mileage rate. You need to keep a note of how you calculated the higher mileage rate.

Planning to Sell Your Company?

The process of selling an established business can take some time. Even when you find a buyer the negotiations over exactly what will be sold can be drawn out. It makes sense to smarten up the company financially first. For example, dispose of any assets which are not really pulling their weight, such as obsolete machinery. Also any assets which have a personal connection with the directors, such as holiday homes or valued cars, can be put in the directors' own names.Now look at what tax reliefs you could benefit from on the sale. If you leave the country before the sale and stay abroad for a period of five years or more, you could avoid paying UK capital gains tax on the gain. However, you may pay tax on the profits in your new country of residence, so be careful about the country you choose!Entrepreneurs' relief can be claimed for most company sales, which reduces the effective rate of tax from 18% to 10% on the first £1 million of gains made by each shareholder. This can reduce the tax by up to £80,000 for each shareholder who qualifies for the tax relief. To qualify each shareholder and the company must meet all of these conditions:
The shareholder must hold at least 5% of the ordinary shares of the company and 5% of the voting rights for the company for at least one year ending with the sale;

The shareholder must be an employee, or director, or company secretary of the company for at least one year up to the date of the sale;
The activities of the company must be at least 80% trading, as opposed to investments, or it must be the holding company of one or more trading companies.

Where family members hold a small number of shares check whether they will each meet the 5% threshold based on their own shareholdings alone. Consider gifting some shares to your grown up children or spouse to achieve this threshold. Where shareholders do own over 5% of the shares but do not work for the company, consider making them a director, or giving them a small part time position at the company for the year before the sale.Company sales require a lot of planning, so talk to us as soon as you consider selling so we can help with the long term arrangements.

£50,000 Annual Investment Allowance

All businesses can now claim a 100% allowance for items of equipment, including vans and trucks, but not cars, purchased from 1 April 2008, or from 6 April 2008 for unincorporated businesses.This allowance is called the annual investment allowance (AIA), and it is capped at £50,000 per year, per single company, or per group of companies. This cap is also reduced in the first accounting period that straddles 1 April 2008, to take account of the portion of the year that falls before 1 April (or 6 April). So a single company that makes up its accounts to 30 September, could claim the AIA 100% allowance on up to £25,000 of expenditure incurred in the period from 1 April 2008 to 30 September 2008. Items purchased before 1 April 2008 may qualify for the old allowances for small or medium sized businesses of 50% or 40% for the first year.Where expenditure incurred after 1 April 2008 exceeds the available AIA cap it still gets some tax relief at 20% or 10% in the first year, depending on the type of asset. Certain equipment, which is included on the Government approved list of energy or water efficient items, can attract a 100% allowance, called an enhanced capital allowance (eca). The eca is available whether or not the business has used its AIA cap for the year. Its worth checking on the eca website (www.eca.gov.uk ) whether an item of equipment qualifies before you acquire it.

Protect Your Pension Fund

The taxation of pensions changed on A Day: 6 April 2006. From that date a cap (the so-called lifetime allowance) was set on the value of a pension fund that can be used to pay out tax favoured pensions, including a tax free lump sum of up to 25% of the fund. On A-day the lifetime allowance was £1.5 million, but it increases every year and is currently £1.65 million.If your pension fund exceeds the lifetime allowance when you start to draw your pension the excess funds above the cap are taxed at up to 55%. The cap of £1.65 million sounds a lot, but if you have been in an occupational pension scheme for 20 plus years, especially one that has been well funded by your company, your personal pension fund could exceed that limit.If your pension fund did exceed £1.5 million on A-Day you can register the total value of the fund with the Taxman. That higher registered value becomes your personal lifetime allowance, which increases each year until you retire. The higher personal lifetime allowance protects your pension fund from the 55% tax charge. But you need to get the registration process completed by 5 April 2009 for this protection to apply, so if you haven't already done so, its time to start sorting it out.You first need to get a valuation of all your pension funds from your various pension companies as the lifetime allowance applies to the sum total of the combined values. As you can imagine it can take months to collect all the necessary information, as some pension companies are very slow to respond. The pension industry estimates that up to 500,000 people could be eligible to apply for pension protection.As a rule of thumb if you have been a member of an occupational pension scheme for 20 years or so and your highest salary multiplied by the years you've been in the scheme is more than £3 million, then your pension fund could be at risk of higher tax charges. However, the figures for you will depend on how the pension from your scheme is calculated. If you have the annual statements from your pension company we can help you get a rough estimate of the value of your pension fund, before going to the trouble of asking for a formal valuation of the fund.

Question and Answer Corner

Q. I've heard that my small pension is going to be taxed, but I've never paid tax on it before. Will I have to pay the tax due for all the years I've received the pension in one go?A. Don't panic. The change in tax treatment only applies to pensions of £1,000 or less per year, which were not previously taxed. If you have one of these small pensions you will not have to pay tax immediately, any tax due will be collected month by month after 6 April 2009 under the PAYE system. No tax will be demanded for small pension payments made before April 2008. It is quite possible that your tax free personal allowance will cover all of your state pension and small personal pension you currently receive, so no tax will be due on any of your pensions. Ask us to check this for you.Q. I receive maintenance from my ex-husband under a court order. Do I have to include this income on my tax return?A. If the court order, was made after 15 March 1988 the maintenance will not be taxable in your hands, so you don't include it on your tax return. If the court order pre-dates 15 March 1988 your ex-husband may be due some tax relief on the maintenance if he or you were born before 6 April 1935, and in that case the maintenance may in part be taxable, but this is unlikely. A ruling on the particular court order would have to have been obtained from the Tax Office before July 1988, to make any part of the income taxable.Q. I recently registered for VAT, effective from 1 June 2008, but my business has been running since 1 November 2007. I need to issue a credit note to a customer in respect of services supplied in March 2008. Do I have to include VAT on that credit note?A. The credit note relates to services you supplied before your business became VAT registered, so you do not add VAT on to the credit note amount. The rule is: the rate of VAT to be used in a credit note is the rate in force at the time of the tax point of the original supply. The tax point for services will normally be the date of the invoice, or it could be earlier if the customer agrees the service has been completely delivered at an earlier date.

Key Tax Dates for July 2008

6 - Deadline for 2007/08 forms P11Db, P11D and P9D to be submitted and copies of P11D and P9D to be issued to relevant employees6 - Deadline for employers to report share incentives for 2007/08 - form 4214 - Return and Payment of CT61 tax due for quarter to 30 June 200819/22 - PAYE/NIC due for month to 5/7/2008 or quarter 1 of 2008/09 for small employers19 - Class 1A NIC due in respect of the tax year 2007/0830 - Deadline for UK businesses to reclaim EC VAT chargeable in 200730 - Second self assessment payment on account due for 2007/08.Second 5% penalty surcharge on any 2006/07 outstanding tax due on 31 January 2008 still unpaid.Second £100 penalty if 2006/07 tax return due for filing on 31 January 2008 is still outstanding.