Here is 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 Section. 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 2011 · New Workplace Pensions Cost · VAT Initiative Starts · Companies House Reminders · Less Tax for Students · August Question and Answer Section · August Key Tax Dates New Workplace Pensions Cost top Another set of regulations is set to fall on the shoulders of all employers. This time it’s a compulsory pension scheme for all employees. This new pensions law is due to be introduced over four years from October 2012. The largest employers (120,000 or more employees) will be forced to sign up first. Those who employ less than 50 workers will be required to take part in the scheme from a date sometime in 2014 to 2016. The exact date will depend on your PAYE reference number. Only one-man companies will be exempt, otherwise every employer who has workers in the UK will be required to enrol those workers in a pension scheme. There will be exceptions for workers aged under 22, over state retirement age or paid less than £7,475. Employees will have to take an active decision to opt out and sign a form to do so. The employer will not be permitted to induce employees to opt out, or to screen out potential employees who do not wish to opt out of the pension scheme. Employers and employees will be required to make contributions to the pension scheme totalling 8% of the workers earnings, including tax relief given on the employees contributions. The employer must contribute at least 3% of the workers’ earnings. This level of compulsory contributions will be imposed gradually over five years to 2017. Employers can use an existing pension scheme, set up a new one, or use the new low cost pension scheme established by the Government called NEST (National Employment Savings Trust). Where an existing scheme is used the employer will have to certify that it meets all the requirements for compulsory pension saving. Every employer will also be required to register with the pensions regulator. To prepare for these new regulations talk to your pension scheme provider, if you have one. If you don’t have a workplace pension scheme you need to plan to set one up as this can take sometime to implement, and to start budgeting for the costs! VAT Initiative Starts top Last month we warned you the Taxman was planning a campaign to encourage businesses to register for VAT. The Taxman is calling this campaign the ‘VAT Initiative’. To launch the VAT initiative the Taxman is writing to about 40,000 businesses whose turnover has apparently already exceeded the compulsory VAT registration threshold. Those businesses will be invited to register for VAT and pay over all the VAT owed since the date they should have registered, plus a low penalty of only 10% of the VAT outstanding. Those businesses that first exceeded the VAT threshold within the last 12 months may get away with a nil penalty, but it will be up to the Taxman to decide what level of penalty applies. The requirement to register for VAT is based on total turnover in a 12 month rolling period and needs to be reviewed each month to determine if the business needs to register immediately. The compulsory VAT registration thresholds of turnover in the past 12 months is… From 1 April 2011: £73,000 1 April 2010 – 31 March 2011: £70,000 1 May 2009 – 31 March 2010: £68,000 1 April 2008 – 30 April 2009: £67,000 1 April 2007 – 31 March 2008: £64,000 1 April 2006 – 31 March 2007: £61,000 The VAT initiative is also open to any business who has not received a letter from the Taxman, but believes they should have registered for VAT at some point in the past. If you want to take up the offer of low penalties for late VAT registration you need to tell HMRC you want to be part of this VAT initiative by 30 September 2011. We can assist you in doing this. Once your notification has been processed you will receive a notification reference number (NRN), which you must quote on your application form to register for VAT (form VAT1). Without this notification number you will not be able to take advantage of the nil or 10% penalties on offer. The VAT1 form must be completed in paper form, (NOT online) and posted to the VAT initiative section to arrive by 31 December 2011. Please talk to us before notifying HMRC of your intention to register for VAT. We can help you calculate any VAT due and any other tax owing on undeclared sales. Companies House Reminders top You can now set up an email reminder service for your company or LLP at Companies House. Once you have registered you will receive timely emails to remind you of the due dates to submit the annual return and accounts for your business, and paper reminders will cease. You can register up to four email addresses for each business. Each email address nominated will receive an activation email which must be acted upon within five days, so don’t set up the email reminder service just before you go on holiday. It will be possible to opt-out of the email reminder service and revert to paper reminders. Of course if we look after these for you, we will remind you as well! Less Tax for Students top If you are employing students over the summer months, don’t forget to give them the HMRC form P38S (2011) to sign. This form allows the student to earn their full annual allowance of £7,475 from their holiday work before any tax is deducted. The student must confirm they will return to full time study at a named college, school or university for a course that will continue until at least 5 April 2012. The student must also not have employment during term time. The tax exemption does not cover NI contributions, so if the student’s pay is at or above the earnings thresholds (£136 for employers contributions, £139 for employees contributions), you must deduct employees NICs and pay the appropriate employers NICs. Remember the national minimum wage (NMW) rates do apply to students and part-time employees. For workers aged 18 to 20 inclusive the current NMW rate is £4.92 per hour. Only apprentices aged under 19 or apprentices in their first year can be paid the reduced NMW rate of £2.50 per hour. August Question and Answer Section top Q. I’ve heard I could reduce inheritance tax by leaving money to charities in my Will. How does this work? Do I have to leave a minimum amount? A. Any bequests to charities in your Will are free of inheritance tax (IHT). This means the executors of your estate will only pay IHT at 40% on the value of your estate after deducting the following: - gifts to charities, - gifts to your UK domiciled spouse; and - your available nil rate threshold. For deaths after 5 April 2012 it is proposed that the rate of IHT paid will be reduced to 36%, if at least 10% of the net estate is left to charity. Your net estate is the amount on which IHT would be charged without considering the charitable gifts. You may need to redraft your Will to ensure your estate qualifies for this tax discount. Q. I earn £30,000 p.a. taxed under PAYE, but also have a variable amount of rental income. I read that 40% tax applies above £35,000 but I’ve also been told I can earn £42,475 before paying 40% tax. How much rental income can I receive before paying 40% tax? A. The 40% tax rate applies in the current tax year (2011/12) on taxable income above £35,000. This is your total income (earnings, rentals and any interest or dividends) less your tax free allowance of £7,475 and any other valid deductions, such as expenses relating to your rental income. So you can have gross income before deductions of £42,475 (£35,000 + £7475) before you have to pay 40% tax. However, you must declare any rental income you receive to HMRC. Q. My employees are occasionally required to work late in the evening. If I pay for taxis to take them home is that cost tax allowable for the business and will the employees be charged tax on the taxi fare? A. Where an employer pays for the travel costs of an employee for a journey between home and work (i.e. commuting), that cost would normally be a taxable benefit in kind for the employee. However, there is currently a particular tax exemption for late night taxis used when the employee is required to work past 9pm, and at the time the employee finishes work either public transport was unavailable or it would be unreasonable to ask the employee to use it, or car sharing arrangements have broken down. In this case the cost of the taxi is not taxable on the employee. But you can only use this tax exemption up to 60 times per year per employee. You need to keep accurate records of why each employee took a taxi to get home and the timing of those journeys. This tax exemption for late night taxis is due to be abolished from April 2012, so you may need to reconsider your employees’ travel arrangements in future. The cost of taxi journeys for employees on business or to or from work will always be tax allowable for the business. August Key Tax Dates top 2 – Last day for car change notifications in the quarter to 5 July – Use P46 Car 19/22 – PAYE/NIC and CIS deductions due for month to 5/8/2011 Need Help? top New Clients Welcome top 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 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. About Us top Accounts Assist offer local business owners and individuals a wide range of services.All clients receive fixed fees. Visit our website http://www.accountsassist.co.uk for more information.

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The BDO Optimism Index is an indicator of how UK businesses expect trading to develop over the next two quarters. This has continued to fall from 93.1 in August to 91.6 in September. The scale of the index is such that below 95 represents recessionary conditions – current levels are the lowest since the deepest part of the recession in May 2009.

In addition, the firm’s Business Trends report suggests the UK could be heading for no growth at all in the first quarter of 2011, with negative growth predicted for the second quarter of next year.

These projections are in stark contrast with those that underpin the government’s comprehensive spending review, which expects growth of 0.5% in the first quarter of 2011 and 0.6% in the second quarter, with improvements to the economy continued thereafter.

BDO partner Peter Hemington said: ‘The key risk for the CSR is that economic growth is much more fragile than we thought a few months ago. The government will be concerned about its credibility with the markets if it signals a desire to back away from its retrenchment programme. But the balance of risks has clearly changed since the election.’

Calls for quantitative easing are endorsed by Hemington who suggested that to stimulate growth £50bn needs to be injected in the economy before the end of 2010.

According to CIOT, the EU VAT Package, which comes into effect on 1st January 2010, means big changes to rules on the taxation of cross-border services. At present, some services (such as management services) are treated, for tax purposes, as being supplied where the business supplying them is based. But from the new year, virtually all services supplied to a business in another EU member state will be regarded as having been supplied in the place where the customer (the business receiving the service) is established.

This is a response to the internationalisation of service provision and the fact it has become so much easier over recent years to provide services at a distance. The reforms are designed to produce a more level playing field between service providers, and to prevent them reducing their VAT bill by locating outside the EU, or in the EU member states with the lowest VAT rates.

Douglas Gordon, Chairman of the CIOT’s VAT and Indirect Taxes Sub-Committee, said:

“Any business which supplies or receives cross-border services needs to be ready for these changes. Most will be already have been contacted by their advisers but any that haven’t should seek advice straight away.

“The introduction of a general rule that the place of supply of services is where consumption takes place is sensible. In the process we have lost a number of areas of uncertainty, which will deliver significant benefits.

“However, I fear that the changes will add to the administrative burden on many businesses. This is because the shift in the general rule means that national governments need statistical data on cross-border transactions in order to police them. The existing ‘Intrastat’ system is therefore being extended from goods to services, with a consequential increase in the administrative burden, and many businesses being brought into the system for the first time.

“Unfortunately, the system will continue to have its complexities. The EU needs to be ready to step in and resolve problems that come about where there are differences in views between member states. For example, where a UK company has a presence in, say, Germany and makes a supply to a German customer, what level of involvement does the UK company’s German presence require before the supply is treated as having been made by that entity? It is important that businesses are not caught in the middle.”

For any student planning to work over Christmas, if they expect to earn less than £6,475 in the tax year to 5 April 2010 and complete a form P38(S) at the beginning of employment – they will be entitled to receive their money tax free.

Students can find all the information they need at Direct.gov.uk/studenttaxadvice.

Furthermore, students who have worked part-time throughout the year, and think they may have paid too much tax, could be eligible for a cash refund. They just need to use the student tax calculator on the HMRC website (http://www.hmrc.gov.uk/calcs/stc.htm).

According to HMRC, three out of every four students take paid work, and if they have worked part-time during term-time, or intend to get a temporary Christmas job, HMRC wants to help them to get the facts about tax right so that they don’t pay more than absolutely necessary on their hard-earned cash.

Jane Frost, Director of HMRC Individuals Customer Directorate, said:

“Before starting any vacation job, it’s a good idea to make sure you know about tax.

“Making sure your tax code is right from the start of your paid employment can save you money and is good training for life after graduation. We want to help students understand how the tax system works so they don’t pay more than they should and also get back what is due.”

The leaflet has been sent to all 1.9m VAT-registered businesses to alert them to the fact that, from 1st April 2010, those with an annual turnover of £100,000 or more (excluding VAT) will have to file their VAT returns online and pay their VAT electronically.

Under the changes, businesses registering for VAT on or after 1st April 2010 will also have to file their return online and pay electronically, whatever their turnover.

To file a VAT return online, businesses new to HMRC’s online services need to register for the VAT Online service. Once there, just click “Register” under the “New user” section and then follow the instructions. Current HMRC online service users can add VAT Online to their portfolio in the ‘Services you can add’ section of ‘Your HMRC services’.

HMRC’s Stephen Banyard said:

“Filing your VAT return online has a number of benefits: it’s secure, convenient, does arithmetical checks and calculations for you, and provides you with an immediate online acknowledgement that your online return has been safely received by us.

“So, if your turnover is £100,000 or more, and you’re not already filing your VAT return online, sign-up now for VAT online services – that way, you’ll avoid a last-minute rush, and be able to enjoy the benefits of online filing sooner rather than later.”

HMRC will also be sending formal letters, in February 2010, to all existing businesses affected by the new online filing and electronic payment requirements, confirming that in future they must file online and pay electronically. And, from 1st April 2010, a letter explaining the requirement to file online will be included in all registration packs issued to newly registering VAT businesses. Both letters will be accompanied by a handy guide on registering for VAT Online.

The reminder stresses that the 31st October deadline for paper returns has now passed, which means anyone yet to file must do soonline by the 31st January deadline. HMRC warns that if you submit a paper return after 31st October, or you file online after 31st January, you could receive a £100 penalty.

HMRC are expecting more than 9.5m Self Assessment returns this year. Around 5.8m people filed online last year, up from 3.8m the previous year – an increase of over 50%.

If you’re a first-time Self Assessment filer, or you are new to online filing, you’ll first need to register for HMRC’s Self Assessment Online service first.

Registering is simple – visit the HMRC website and click “Register for Self Assessment Online”. Once you’ve registered, an activation code will be sent to you in the post.

Note: It can take up to seven days for your activation code to arrive, so register as soon as possible.

The main benefit of filing online is that your tax is calculated automatically, you get an online acknowledgement once you’ve filed, and it’s processed faster, so any money you’re owed is repaid more quickly.

HMRC’s Sarah Walker said:

“If you haven’t yet sent us your 2008-09 tax return, don’t forget, it must be sent online before 31 January. And if you haven’t filed online before, make sure you allow plenty of time to complete the registration process – that way, you’ll avoid a last-minute rush at the end of January.”

And don’t forget, 31 January 2010 is also the deadline for paying any tax you owe for the 2008/09 tax year.

16% of small businesses were found to have downgraded environmental issues this year in order to keep their firms afloat, with nearly half of them blaming the cost. In addition, 42% reported that they are held back from improving their environmental practices.

Around one in six (17%) have not been able to make their companies more environmentally sound, as desired improvements are prohibitively expensive. One in ten (9%) are hindered because of restrictions placed on the business or the premises, while 4% say they don’t understand the changes that could be made.

Despite this, nearly all (98%) small business owners claim to have taken some measures to improve their environmental impact, up from 80% in 20082, spending a total of £1.5 billion, or around £1,000 per company, in the process. The measures taken, range from ensuring that all electrical equipment is turned off when not in use, through to the installation of renewable energy sources.

Paula Ickinger, Head of Business Banking Marketing at Abbey and Alliance & Leicester said:

“There are one and a half million small businesses in the UK, so it is very encouraging to find that so many of them have taken steps to reduce the environmental impact of their operations, in some cases at great expense. While some of these changes are relatively minor, the cumulative impact will have been huge.”

“It is particularly interesting that so many companies have actually made environmental considerations a higher priority since the economic downturn. Many green initiatives incur a significant up front cost, which can be off-putting but in the longer term they can help to reduce overheads as well as carbon emissions.”

“Businesses could help cover the cost of being more environmentally sound by saving money in other ways, such as reviewing regular costs like utilities and bank charges. By researching the deals available and switching to a more competitive offer, businesses can save thousands of pounds each year, which can then be put to better use.”

Under the Charter, HMRC gives a commitment to:

• respect individuals and businesses;
• help and support them to get things right;
• treat them as honest;
• treat them even-handedly;
• be professional and act with integrity;
• tackle people who deliberately break the rules and challenge those who bend the rules;
• protect their information and respect their privacy;
• accept that someone else can represent them; and
• do all it can to keep the cost of dealing with HMRC as low as possible.

In return, the Charter states, HMRC expects individuals and businesses to be honest, respect its staff, and take care to get things right. The Charter also provides pointers to further information on rights, where help and support can be found, and HMRC’s role.

Financial Secretary to the Treasury Stephen Timms said:

“The Government is committed to making the tax system as useable and accessible as possible, for individuals, businesses and all the other organisations who interact with HMRC. The new Charter will go a long way to helping achieve that goal.”

HMRC Permanent Secretary for Tax Dave Hartnett says:

“The Charter’s key aim is to improve the relationship between HMRC and our customers, and we obviously have a crucial role in making that possible. But we can’t do it all on our own. Both parties have a part to play, and that’s why the Charter sets out people’s rights and their responsibilities.”

The findings also reveal a small increase in the number of small businesses confident that they will survive, with 81% now of the belief that they will get through the downturn, compared with 76% in the first quarter of this year.

However, small business owners still expect the recession to have a long lasting impact. Over a quarter (27%) say that it will take their business between six months and a year to get back to normal again, while 26% say that it will take them more than a year. Nevertheless, 32% say it will only take up to six months to recover with 14% of these saying it will take them no time at all to get back on their feet.

The uSwitchforBusiness.com SME Confidence Survey, from which the findings are draw, also shows that despite increased optimism, 58% of small companies are finding trading conditions difficult (59% in Q1). However, there has been a small increase in those saying that current trading conditions are OK (40% compared with 38% in Q1).

Earlier in the year, cutting costs was the biggest issue for SMEs and this remains the case today with 58% of companies actively looking for ways to cut back. Similarly, the number of small companies reporting a drop in demand remains unchanged from Q1 (34%). However, 35% are now experiencing cashflow concerns (up from 33%) making cashflow the second biggest concern facing SME owners today.

Jake Ridge, small business expert at uswitchforbusiness.com, said:

“Despite having the odds stacked against them, Britain’s SMEs have battled to stay afloat and to survive the recession. It has meant making tough decisions and inevitably most small businesses have felt some pain, whether having to lay off staff, find ways to cut costs or learning to combat cashflow concerns. In the first quarter of 2009, 59% were looking for ways to cut costs and this strategy seems to have paid off as most small businesses are now feeling confident about surviving this downturn.

“Small business owners are not feeling complacent though – 43% can see signs of recovery but they know they are not out of the woods yet. They are continuing to keep a tight lid on costs and know that the next challenge comes at the end of the recession when they begin the task of building their businesses back up again.”

There were 4,716 compulsory liquidations and creditors’ voluntary liquidations in total in England and Wales in the third quarter of 2009 (on a seasonally adjusted basis). This was a decrease of 4.7% on the previous quarter but an increase of 14.6% on the same period a year ago.

This was made up of 1,301 compulsory liquidations (which are down 9.8% on the previous quarter and down 12.9% on the corresponding quarter of the previous year), and 3,415 creditors voluntary liquidations (which are down 2.6% on the previous quarter but up 30.2% on the corresponding quarter of the previous year).

In the twelve months ending Q3 2009, approximately 1 in 114 active companies (or 0.9%) went into liquidation, which is up slightly on the previous quarter when the figure was approximately 1 in 120.

Additionally, there were 1,578 other corporate insolvencies in the third quarter of 2009 (not seasonally adjusted) comprising 410 receiverships, 974 administrations and 194 company voluntary arrangements. In total these represented an increase of 9.3% on the same period a year ago.