Tax matters

Traditionally, this is the point where we review tax planning issues. I will do this later, but first there are a number of other areas, which I think should be highlighted:

Employer compliance

The burden placed on small businesses to comply with the myriad of laws and regulations is steadily increasing. The complexities of the PAYE system, Health & Safety Legislation, Disability and Employment Law become scarier by the day.

These points have been flagged in the press, but I cannot overstate the importance of following professional advice on all of these subjects. These days, your employees can sue you for virtually any perceived infringement of Employment or Human Rights Law. Even the charity calendar made famous by the enterprising WI could be considered offensive and lead to a claim.

Tax credits

Moving back towards tax issues, the whole system is an absolute shambles, but I hope that everyone who is entitled is claiming these credits. Anyone with fluctuating profits has the added excitement of being alternately over and underpaid. The only way to minimise this is to keep the TCO informed of any changes.

Big Brother

No, not the increasingly explicit show, the sex and violence in this letter comes later. I'm talking about Inland Revenue Investigations or VAT enquiries, which are a risk for any business. Most people think that they have nothing to fear as their records are "straight". However, my experience has shown that this is no bar to the Revenue absorbing huge amounts of time (yours and ours) in proving this and defending you against the additional tax (and penalties) that they will try to levy. This is not likely to get any better when the two departments merge.

The Revenue is getting increasingly keen on PAYE compliance, particularly targeting workers who consider themselves to be self-employed, but whom the Revenue feel should, in fact, be employees. If the Revenue wins the argument, it is the person paying the worker/employee who gets to pay the arrears of PAYE. National Insurance for an employee totals 23.8%.

The latest news from my contacts on the other sideā is that Revenue investigations are now yield based. The more cash they get, the more money they earn. They also have to investigate a certain percentage of their client base.

We can therefore expect more investigation cases and higher penalties for underpaid tax. On the plus side, they will be more inclined to do deals to settle and get the cash in. The fight could become quite bloody (violence) and therefore time consuming for me.

We offer insurance, which will pay our fees for fighting your case, and the annual cost is in the region of £99-£150. Trust me, this is labour intensive and fees can easily exceed £2,000. Let's face it, this is one worry that you don't need on top of all the other angst.

Structurally, you will all have noticed that most of the correspondence has been centralised. Hereford work has gone to Worcester and although Gloucester still operates for some things, Cheltenham does the company stuff. This is all going to centralise further with the work in a handful of large city centre offices.

Now for some brighter news:

Vans

From 6th April 2005, you can provide a van for your employees and this is tax free in their hands, providing that they use it for work purposes and normal commuting. Any more than that and the existing benefit applies (£500 or £350). From April 2007 this goes up to £3,000 plus £500 for fuel.

Employee Childcare

It's actually cost effective. It can save both the employer and employee money if the employer contributes. Contact me if you want more information, but honestly it's a good deal. Even the boss likes it.

PAYE on line

I've already publicised this, but you can get £250 back from the Revenue if you send in the Employer's End of Year Returns via the Internet.

Incorporation

This can save huge amounts of tax, but it is not suitable for all businesses. The tax savings come with the usual fine print. Operating as a limited company takes you to the next level of red tape and can easily cost you more in the long run. If you are interested in looking at this issue, we can consider the pros and cons with you. The Revenue, having made it attractive, appears to be back-peddling with a vengeance and chips away at the edges of the savings with each passing budget.

Their particular bone of contention is husband and wife companies, where one does most of the work, but the income is split to minimise the tax. The war between the Revenue and the Professional Contractors Group rages on, so incorporations of this kind must be considered carefully.

Pension contributions

I am expressly forbidden from advising on investments of any kind. Hypothetically speaking, for a 40% tax payer, a pension contribution of £100 will cost £60, but of course, the value of the investment could go up or down. I will say no more, other than to publicise the fact, that the pension rules are changing from 2006. More to follow.

Purchase of equipment

At the moment, all plant and equipment (not cars) qualifies for a 50% allowance in the year of purchase up to 31st March 2005. The allowance may be extended after that date but, then again, it might not. So, if you are thinking about it, do it now.

Whilst it is never worth buying things to reduce your tax bill, it may be worth buying an asset before the year end if you would have bought it anyway.

You should also be satisfied that profits are sufficient to make it worth having the higher level of allowances.

Subcontractors

Only relevant to those of you in the Construction Industry. They are changing the rules again. CIS vouchers are going. It will not happen until next year, but Contractors will need to ask permission from the Revenue as to how to pay the subcontractor. I cannot see that working well, but I'm just an old cynic. We'll just have to wait and see.

Other matters to consider

Our annual interview tends to concentrate on clearing the accounts queries, looking at how the business is going and considering the tax implications. There are a series of other issues that you may wish to think about every year:

Is my will up to date?

Do I have an Enduring Power of Attorney? (You need to have one)

Are risks covered adequately (life cover/critical illness/permanent health insurance)?

Is there a need for retirement planning?

Am I considering any asset disposal which might attract capital gains tax?

Have any changes taken place which might affect my inheritance tax position?

What are the implications if a family member needs long term care?

Are my investments performing adequately? (Or no worse than anybody else's).

The reality is that your finances could probably be more effectively organised, but the question is how this can be done impartially. We cannot do it for you, but we can point you in the right direction without a hard sell. If you are interested in discussing these issues, please speak to Chris or me.

I think that's probably enough from me. Please contact me with any issues you may have. Don't forget that we do issue a monthly newsletter, jam-packed with interesting snippets (well my bits are!) and if you want to receive this, let me know.

Sara Morris

DUCKETT | 01432 370 572 | contact us

DUCKETT

t: 01432 370 572

contact us