UPDATE – BUDGET REVIEW

Following Alistair Darling’s recent Budget, the following items stand out as being of some interest.

Most commentators have suggested that this was mainly a politically motivated Budget rather a financially motivated Budget and that with the forthcoming General Election whichever Party forms the next Government a second Budget is likely and the finer details of the tax rates and legislation affecting the fiscal year 2010/11 might be further altered.

Update for Businesses

The headline rates for Corporation Tax for small and large companies will stay consist with current rates, i.e. 21% and 28%, respectively.

There are currently tax allowances available for businesses investing in plant and machinery of up to £50,000 per annum. This limit has been increased to £100,000 per annum.

Business Rates

The Government has announced that it will fund a business rates holiday for those businesses occupying properties with a rateable value up to £6,000. This holiday will be for one year from October 2010. Additionally, small businesses benefiting from business rates relief on rateable values up to £12,000 will also receive further reductions.

Personal Tax

All headline rates and allowances have been held the same; however, the implication of this is that as inflation rates are scheduled to be over 3% per annum, this will effectively mean tax increases to all individuals.

ISAs

From 6 April 2010, the ISA annual subscription limit is being increased for all savers to £10,200 (previously the limit was £7,200).

From 6 April 2011, and over the course of the next Parliament, the ISA limit will increase annually inline with the Retail Price Index.

Capital Gains Tax

Capital Gains Tax rates and exemptions have been held at the same level. The most notable adjustment to the Capital Gains Tax regime was the increase in Entrepreneur’s Relief from a £1m lifetime limit to a £2m lifetime limit whereby the effected rate of Capital Gains Tax will be reduced from 18% to 10%.

Inheritance Tax

The Inheritance Tax nil rate band has been held at £325,000.

As well as the normal increases in duties on cigarettes, spirits, beers, ciders and fuel, there was a key announcement in relation to Stamp Duty Land Tax for first time buyers whereby the threshold for purchase before which Stamp Duty will be payable has been increased to £250,000 and the top rate of Stamp Duty has been increased to 5% on residential properties over £1m.

VAT

No change announced in the rate of VAT.

• a previous employment stopped some time ago but a coding notice is nevertheless sent for that employment (which presumably denies the taxpayer those allowances against earnings in a new job until the mistake is corrected);
• two notices have been sent from the same employment (e.g, where the employee has two payroll records that HMRC cannot differentiate); and
• code BR or D0 is issued for a continuing employment or pension.

On your quest to find a bookkeeper, you shall come across different means that shall seem equally enticing and fruitful, but not all of them shall assure you about hiring the best bookkeeper for your business. Whats then, the deal?

First, lets see why you need a bookkeeper. Its vital to keep track of the financial data of every business; the taxman doesnt like us leaving the details to chance. Thus, someone is needed to be in charge of the books dedicatedly; this person, unless with sufficient amounts of training and experience, shall not be able to get the job done properly. However, that way we are talking about the bookkeeper perse; finding whom can be quite a bit of a challenge. Therefore, knowing what to look for among the prospective candidates is paramount.

I remember an accountant in Chicago telling me: Accounting is not about mere figures; its the art of analyzing and interpreting data to make it respond correctly. The above statement is enough to make a person catch the idea what an average accountant in Chicago means; however, there are different types of accounting services that Chicago accounting firms and individual accountants provide.

Industrial Accounting: These are limited only to single firms and an accountant works under a single employer in return for a fixed salary.

Impact of the new higher rate tax:

The new 50% rate comes into force from April 2010 – taxpayers may therefore want to accelerate income into the current tax year to cap the tax rate at 40%. As a further consequence – the higher rate on income tax will make capital gains tax look more attractive and therefore taxpayers should be enquiring as to methods of generating capital rather than income. Likewise, the benefit of Gift Aid payments to higher rate tax payers becomes more interesting.

Changes to the tax benefit of pension contribution:

Pension contributions are being restricted and so taxpayers who are keen to use pension plans for financial planning should assess their needs now.

Tax deductions for buying equipment: If you are planning to buy capital assets for your business – then with the new enhanced rates of tax deductions available on this expenditure – advice should be sort on how to maximise the advantage.

A number of issues have caught my attention over the last few months relating to where VAT should be charged.

1. Intercompany charges: Where management charges are levied between businesses – these generally should be VATable where the seller is VAT registered. Sometime where the seller is exempt or not registered – the addition of a taxable supply like management charges can mean that they should be registered – care needs to be taken.

2. Disbursements – the general rule is that where expenses are recharged to customers – irrespective of whether the original cost incurred VAT (such as travel) the recharge should carry VAT. There are exceptions - but that is the basic rule.

3. Recharging employment costs – likewise, generally if recharges of salaries etc are made – VAT should be charged. Again, there are many exceptions but this is the general rule.

4. In 2010 the rules will be changing in relation to some services sold and purchased within the EU and the regulations as to how VAT should be charged will be amended. If you do buy and sell services now is the time to consider whether the changes will have an impact on your business and you should consider the impact of these changes now.

VAT was meant to be an easy to understand tax – it is probably the most complicated of all the taxes when it comes to dealing with everyday matters and very often the common sense answer is far from the legal requirement. Always ask a question when something out of the ordinary occurs – never assume. I am of course happy to answer your questions.

The VAT rate reverts to 17.5% on January 1st 2010. Details of the rules relating to the changes can be found on all 45 pages of the HMRC guidance at:

www.hmrc.gov.uk/vat/forms-rates/rates/rate-rise-guidance.pdf

For most traders the change will not be complicated – but there are special provisions
for situations such as:

1. Continuous services

2. Deposits

All registered traders should review the guidance and if specific assistance is required please call with your enquiries

I am aware that there are a signifi cant number of employees who do not retain the services of accountants and have incorrect code numbers – the Revenue seem to have a policy of reducing code numbers (which increase their tax take) on the assumption that the average employee on PAYE will be unaware of any overpayment of tax. I have therefore advised my clients to have all their employees check and if they have anything other than a basic 603L code number and that they are not aware of the reason for any differences they should either call their tax offi ce and check it out or wait until, they receive their P60 and use one of the many on line tax calculators.

From the employer’s point of view – if staff are incorrectly paying too much tax then it means that they be more inclined to query their gross wages thus adding pressure to costs.

(Likewise any taxpayers on self assessment should check that any tax refunds are being paid – HMRC can be slow to give money back)

PS: It also good practice to advise employees as to other benefi ts available – ones to check out are:

Child tax Credits
Childcare Vouchers
Early learning classes
Summer schools and activity clubs
Medical check ups

It is that time of the year again when the annual round of year end reminders appears in the financial pages. I would like to highlight just 3 matters:

1. For employers (Limited companies and Sole Proprietors / Partnerships) P11d’s are going to have to be completed. The emphasis must be on accuracy as the taxman is finding from their compliance visits that there are huge returns as invariably there are errors in preparing these forms (assuming that they are actually prepared and not ignored.) Such errors can result in aggravation, penalties and interest.

Chestnut errors are:

• Incorrect identifi cation of benefi ts in kind and expenses and so incorrect payments of Class 1 and Class 1A national Insurance
• Incorrect treatment of overdrawn director’s loan accounts
• Entertaining reimbursed for all expenditure and not just in relation to the business
• Motor expense logs not being kept.
• Inappropriate claims for travel and subsistence – especially between home and work.

2. For clients who are benefi ciaries under trusts – especially foreign trusts – changes in the rules require certain actions to be taken before April 5th this year.

3. Non-domiciled but UK tax residents need to consider their position in relation to remittances or face the annual tax charge.

In respect of these ad hoc items – and if advice is required on any other matters relating to year end tax planning then please call my office to make a convenient appointment.

Over the last few months I have been asked about the eligibility for these government payments.

Welfare benefits are not a topic covered by us – especially as there is so much publicity on the TV, radio and newspapers that I presume that clients are aware of their own situations and can be pro-active in dealing with these matters.

There is a tremendous amount of help available – and the internet in particular has many references – but do try: