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| Welcome...
To
the latest edition of 'Tax Tips & News',
Hanley & Co's monthly newsletter designed
to bring you tax tips and business news to
keep you one step ahead.
From
this month we are including more business
development and marketing tips from our
Complete Business Development Guide.
We are committed to ensuring our clients don't
pay a penny more in tax than is necessary and
to offering sound business advice and tips
throughout the year.
Please contact us for advice in your own
specific circumstances.
We're here to help!
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April
2009
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| Traps
in the VAT Flat Rate Scheme |
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The
Taxman likes to encourage small businesses to join the
flat rate VAT scheme. This scheme simplifies your VAT
return as you apply the relevant flat percentage
applicable for your trade sector to all your total
business income each quarter, (including the VAT
charged), and pay the resulting amount as VAT to the
Taxman as VAT. You don't have to worry about
reclaiming VAT charged on purchases.
However, the flat rate VAT scheme does not suit all
small businesses. The flat rate must be applied to all
business income, including interest received from
business bank accounts, rents, and sales of assets
where VAT was not reclaimed, such as cars or property.
This means you effectively pay VAT on the gross
receipts of sales on which you have not collected any
VAT.
If you are a sole-trader the flat rate should be
applied to any letting income you receive in your sole
name, as lettings are regarded as a business for VAT
purposes. Lettings undertaken as a partnership,
perhaps jointly with your spouse, are not counted as
part of your sole-trader business income. When you
sell a let property the flat rate should be applied to
the total proceeds. You can withdraw from the flat
rate scheme before you sell a high value item such as
a property, but you have to stay out of the scheme for
at least 12 months.
Remember the flat rates for most business sectors
changed on 1 December 2008, when the standard rate of
VAT was reduced to 15%, so check you are using the
correct flat rate for your sector. |
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| The
Service Company Question |
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It's
time for employers to complete the annual form P35,
and this year section 6 of part 3 is causing confusion
once again. This asks two questions which require yes
or no answers:
- Are you a Service Company?
- If "yes", have you operated the
Intermediaries legislation (sometimes known as IR35)
or the Managed Service Companies legislation?
Guidance on how to answer these questions is found on
page 18 of the leaflet E10 (2009): Finishing the Tax
year up to 5 April 2009. A service company in this
context can also be a partnership or LLP, if it has
employees. If the business has no employees it will
not be completing a form P35.
The introduction the guidance to section 6 says:
The first question narrows those employers who
need to consider whether the second question applies.
This is a helpful statement as it leads you to believe
that if your business is not a Managed Service Company
(MSC) and is not affected by IR35 you can answer
"no" to both the first and second questions.
However, the detailed guidance to question 1 indicates
that you should answer "yes" to question 1
if the owners of the business perform any services in
person for the customers of the business, and the
income from that work forms at least half the total
business income. Services are generally anything that
is not the provision of goods.
It is clear that you should only answer
"yes" to question 2 if the IR35 or MSC rules
do apply to your business, all other businesses should
answer "no". However, a "yes" to
question 1 and "no" to question 2 may give
the Taxman cause for concern as it will not be what he
is expecting.
We believe the Taxman wants businesses that are not
subject to IR35 or the MSC legislation to answer
"no" to both questions 1 and 2 in section 6
of part 3 to the P35 form for 2008/09. If you are
concerned that IR35 could apply to your business
please contact us. |
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| Car
Benefit Changes from 6 April |
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Company
cars still used by company directors, sales
representatives, car dealership staff, and certain
disabled workers. All of these employees will be
affected by changes concerning car benefits coming
into effect from 6 April 2009.
- Form P46(car). Whenever an employee
has a new company car the employer has to complete a
form P46(car) with the details of the new vehicle and
submit to their Tax Office at the end of the quarter.
From 6 April 2009 the employer only has to complete a
form P46(car) when an employee is provided with a car
for the first time, or gives up the company car
completely. Where the company car is replaced by
another car the change will not be reported during the
tax year, as those changes will be picked up on the
annual form P11D.
- Motor-dealerships often allow their
staff to drive cars for demonstration purposes, and
take those cars home. Each member of staff may have
use of many different demonstration cars during one
tax year, which would mean numerous forms P46(car)
being completed to report each car. To ease this
administration nightmare the major dealerships have
come to local arrangements with their Tax Offices to
provide details of an "average car" provided
to their employees. These local arrangements are now
being standardised across the country from 6 April
2009. Ask us if you need more detail about these new
rules for motor-dealerships.
- Disabled employees. An employer may
provide a severely disabled employee with a specially
adapted car to allow that person to get to work. Where
that car is also used for private journeys, other than
ordinary commuting to and from work, there is a
taxable benefit. This benefit in kind charge is
reduced where the employee needs to use an automatic
transmission car rather than a manual due to their
disability. The CO2 emissions of the equivalent manual
car (which will usually be lower) are used in the
benefit in kind calculations. From 6 April 2009 the
list price of the equivalent manual car will also be
used in the benefit in kind computations. To ensure
the employee has the correct car benefit included in
his PAYE code for 2009/10 he must tell his Tax Office
that this particular rule for disabled employees
applies, and let the Taxman know what the cost of a
manual equivalent car is. |
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| PAYE
Limits For New Employees
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With the new tax year
upon us the PAYE tax and NIC thresholds have been
revised. The
basic rules for employers with new employees (set out
below) are important for any business. Please
note:
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There
is no 'Casual Labour' exemption.
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If
the correct PAYE and NIC is not deducted off
employees, then the Employer that will be held
liable for any shortfall discovered.
Unless they present a
P45 from their previous job each new employee must
sign a P46 (or if they are students working only in
the holidays, a P38S). Provided they tick Boxes A or B
- they will be on the emergency PAYE code (of
647L in 2009/10)
Employees on the basic
code of 647L will pay no tax on earnings up to £125 a
week, above that tax is deducted at 20%.
National Insurance
Contributions are paid by the employee (11%) and
employer (12.8%) on earnings above £110 per week.
If the week's earnings
are between £95.01 and £110.00 per week there are no
contributions deducted but the employee is still
credited with a basic National Insurance
contribution. For this reason a form P11
(deduction sheet) must be maintained throughout the
year for the employee.
If the employer does
not pay an employee more than the NIC LEL (Lower
Earnings Level) (of £95 a week in 2009/10), they do
not have to prepare a P11 deductions sheet for them or
include them on the year end P35.
Hanley & Co operate
a payroll bureau service for over 100 employers.
For details about this
service or any aspect of PAYE please contact Dean
Logan |
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| Giving
to Charity Tax Efficiently |
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It's
the London Marathon this month and thousands of people
will be running to raise money for their favourite
charities. Most of this money will come from
individuals, but how should a company give to charity?
The most tax efficient way for individuals
to make charitable gifts is under the gift aid scheme.
All the individual has to do is declare to the charity
that they pay enough UK tax to cover the basic rate
tax deemed to be deducted from the gift. The charity
can then reclaim this tax. For a gift of £80 the
individual must pay at least £20 in UK tax.
A company cannot make donations
whereby the charity reclaims the tax, but it can
receive tax relief for the gross value of the
charitable gift it makes. The donation is deducted
from the company's total profits before corporation
tax is calculated, so the company receives tax relief
at its highest marginal tax rate. This gift is treated
as a non-trading charge against profits, which cannot
increase a trading loss, or be carried over to another
accounting period. The company must be making profits
in the year it makes the donation to get tax relief
for the gift. There are restrictions on the tax relief
if the company or a connected person receives benefit
back from the charity, with particular rules for
companies that are controlled by charities.
Whether it is more tax efficient to give as an
individual or through your own company depends on your
relative marginal tax rates. A small company currently
pays tax at 21%, but could have a marginal rate of
29.75% for profits over £300,000. Individuals pay
income tax at 20%, and tax relief at this level is
built into the gift-aid scheme. Higher rate taxpayers
who pay tax at 40% can reclaim the additional 20% tax
relief on their donations through their annual tax
return.
However, if you need to take the funds out of your
company first in order to get the funds personally to
make the gift you will also have to consider the tax
to pay in taking the funds out of the company. In this
situation the calculations get more complex depending
on your tax rate and whether you extract funds as
dividend or salary and whether a loss is created by
the gift. Therefore, please talk to us if considering
a large donation using funds presently in your
company. |
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| New
Businesses? Follow The Success Formula
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| Despite (or possibly due
to) the current 'economic uncertainties' we are
actually seeing an increased number of new businesses
setting up in 2009.
Our Free 73 page
Business Start Up Guide is packed full of useful
information and advice to help anyone new to business.
Please contact Dean Logan for
details:
Here are some useful
guidelines to help any business venture:
- Believe you can.
- Create the right environment at home and at work.
- Enjoy yourself.
- Expose yourself to what’s new and keep learning.
- Plan what you’re going to do.
- Stick at it.
- Be willing to take risks.
- Take responsibility for your actions.
- Take action – follow Nike’s “just do it” slogan.
- And finally: Make sure you have good experienced advisors to back you up! |
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| The Two Ways To Increase Profits
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There are only two ways to increase profits.
Either you increase sales or you reduce costs. It’s that
simple! The amount you can reduce costs is
limited but in most businesses the amount you can increase sales
is more or less unlimited.
There are three basic ways to generate more sales…
Increase the number of customers.
Increase the value of each transaction.
Increase the frequency of sales to each customer.
More importantly, if you do all three together, you can achieve far higher growth.
And how do you increase the number of customers /
clients?
Increase the number of leads / referrals to your business
Improve your 'conversion rate' turning prospects into customers / clients
At Hanley & Co we offer all our client 'business development
advice'. This now includes suggestions for
improving and focusing their marketing efforts and
many more practical tips and suggestions.
We also have a Free 300
Page 'Complete Business Development Guide' packed full
of useful advice, guidance and examples.
Please call
or email Dean Logan for further details. |
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| Question
and Answer Corner |
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Q.
I formed my own IT contracting company in 1987, which
made good profits. In 2006 that company bought the
assets of several small record labels which were
making a loss. In May 2008 I gave up IT contracting
and my company has concentrated on this since then.
The new business will probably make a loss in 2009.
Can I set that loss back against the profits made by
the combined new business and IT businesses in 2008?
A. Yes you can. As both trades were
active in 2008; the IT consultancy and the new
business, there is no restriction on the amount of the
new business loss you carry back from 2009 to set
against the profits made in 2008.
Q. In 2005 I retired from my architectural
practice and sold my share of the business to the
remaining partners. I invested the proceeds in
Enterprise Investment Scheme shares (EIS), which I am
about to sell, so I understand the gain from 2005 will
now be taxed. Are there any reliefs I can claim to
reduce that gain?
A. If the gain you made on selling
your share in the architectural practice in 2005 would
have qualified for entrepreneur's relief, which is
possible if you were a partner for at least a year,
you can claim entrepreneurs relief on that 2005 gain
when becomes taxable in 2009. Entrepreneur's relief
actually came into effect from 6 April 2008, but we
pretend it was in place in 2005 for this test.
Q. A member of my staff has had a serious
operation and will be away on sick leave for some
weeks. If I send her flowers from the company will
this be taxable as a benefit in kind?
A. The Taxman is cool about small
gifts like flowers or chocolates to valued members of
staff. They are classified as trivial benefits and are
not taxable. If you were to send her a cash gift, or a
gift voucher that would be taxable. |
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| Key
Tax Dates for April 2009 |
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5
- End of 2008/09 tax year. Last day to use up
your annual exemptions for capital gains tax,  inheritance tax and ISA's.
14 - Return and payment of CT61 tax
due for quarter to 31 March 2009.
19/22 - PAYE/NIC due for month to
5/4/2009 or quarter 4 of 2008/09 for small employers.
Interest will run on any unpaid PAYE/NIC for the tax
year 2008/09.
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| We
Want To Help More Clients
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If
you have received this newsletter and are not already
a client of Hanley & Co we
would
be delighted to hear from you.
If
you are already a client you may know someone who is
setting up in business or who is looking to change
accountants for their existing business. Please
be sure to pass on our details so we can offer them a
Free Unlimited Initial Consultation - with Absolutely
No Commitment.
We feel sure they will also benefit from receiving our
FREE 73 page 'Business Start Up' Report or the easy to
read 'How To Pay Less Tax' report. |
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Hanley & Co Chartered Accountants & Business
Advisors have offices in Ashton under Lyne
and at Squires Gate, Blackpool.
We provide personal advice to all clients based on
twenty years experience as practising
accountants.
We have clients across the North West of
England and some even further afield.
See
our website www.hanleyandco.co.uk/whyus.htm
for more information.
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| HANLEY
& CO - ACCOUNTANTS YOU CAN TALK TO |
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