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