2007 Tax tips

The end of the tax year is approaching and this is the time when we highlight tax related issues that may be of some interest or relevance. Alternatively, this is when I moan about ‘The system’.

Van benefits

Any employee who is provided with a van which is available for private use has historically been taxed at £500 per annum. From April, this goes up to £3,000 per annum. This means that the tax payable by van drivers is going up in April from £9 per month to £64 per month.

There is no taxable benefit where the van is only used to get to work and while at work. Employers need a written and enforced policy if they do provide vans where there is no taxable benefit.

PAYE incentive

Over the last couple of years, the Revenue offered a £250 incentive for Employers to file their End of Year Returns on-line. Not surprisingly, the incentive worked. They actually budgeted to pay £420 million for 4 years, but paid out £225 million just for 2004/05. There is now talk of the Revenue withdrawing these payments if they feel that the PAYE scheme was set up for tax avoidance. The incentive this year has been reduced to £150.

Capital allowances

The allowable tax deductions for the purchase of equipment is 50% until 31 March/5th April. This may be extended, but we do not know. So, if you are considering buying some equipment, it may be sensible to sign up for it before the end of the tax year. Please remember that it’s not worth buying kit just to reduce your tax bill

Penalties

HMRC have been instructed to raise more cash. The more cynical among us expect the Inspectors to be tougher generally. There is also a rumour that they have finally introduced yield related pay-scales ie the Inspector gets commission on his ‘sales’.

There are proposals to change the system for charging penalties re incorrect Returns to be applied for tax and VAT. They actually look quite sensible, in that, where the mistake is ‘innocent’ there should be no penalty. The charges would increase subject to the degree of intention to understate income. Again, the more cynical among us expect that overall, the amounts charged will be higher. Define ‘innocent’ then prove it.

Planning gain supplement
Or a tax charge on developing land

This is likely to be introduced in the next 2 years and so, if you are planning to sell or develop ANY land, the advice is to get the planning sorted now.

I’ve got 160 pages on this if anyone wants to read them. Sadly the specifics are vague, but the basic premise is to raise tax on the gains on property, based on the increase in value when planning consent is given. It will arise on residential and commercial property and be payable within 60 days of the date upon which development is permitted to start. I do not know the rate to be charged nor what the de-minimus level will be. It is not expected to affect home improvements. It is pretty grim for diversifying farmers, as this tax is payable before and regardless of sale. So far, it is not supposed to be introduced before 2009. If anyone is unfortunate to buy a property where the unscrupulous contractor has not paid his PGS, it becomes due along with interest and penalties from the new owner. Anyone feel an increase in solicitors’ fees in their water?

Status

DO NOT PAY ANYONE WHO WORKS FOR YOU WITHOUT OPERATING PAYE. If you think that it may be OK (eg a one off) GET A CONTRACT FOR SERVICES. If you do not deduct tax and NI the Inspector expects you to pay it. He will assess the previous 6 years and charge interest and penalties. No deals. It’s not worth it.

Construction Industry Scheme

All change from April. No vouchers. No cards. No certificates. You use a verification process via the telephone or internet and then deduct tax or not as instructed. Get organised before 6th April as it might not work for the first couple of weeks and we won’t be able to fix it for you.

e traders

HMRC want to make sure that all those naughty internet traders are declaring their income. The odd sale of garage junk on Ebay does not count The point is whether you have deliberately gone out to make a profit. There is a programme called Xenon which HMRC can access to see who’s trading.

Employees working at home allowance

Employers can give £104 per annum to employees to offset the costs of working at home. This is not reportable on form P11d. OK, it’s not a fortune, but it’s better than nothing and it’s tax free.

Interventions

AKA HMRC fishing expeditions. These are letters sent direct to taxpayers asking questions about their Returns. You do not have to play. If you get one, talk to us before you do anything. As with most things, now and again it may be a quicker and less painful way of handling a query, but in our experience, the risk of dropping yourself in it is greater.

Change of SA filing date

We still have until 31st January to submit Returns. January 2008 will be ‘normal’ but in the Autumn of 2008 things change. Where we want to submit paper Returns rather than internet versions, they need to be with HMRC by 30 November 2008.

Inheritance Tax on farmhouses

This has not been a problem, but will become so. The Revenue will not allow ANY Agricultural Property Relief in respect of a farmhouse which is not occupied by the person doing the hands-on farming. In addition, even where they do allow the APR to apply, they will look at the agricultural value of the property as compared with the market value and include the difference in the IHT calculation (30% of MV?).

VAT

Where employees pay for business fuel and then reclaim this from their employer, the employer can reclaim the VAT, but the employee must give the employer petrol receipts with VAT on them. The VATman will be looking for these.

HMRC are very uptight about carousel fraud. This is when a seller charges VAT, the buyer pays and claims the VAT, but the seller does not actually pay it over to Customs. They are now taking up to 4 weeks to check out new business registrations. They have decided that certain transactions should not include a VAT charge but the ‘buyer’ adds and deducts the VAT on his Return. This only applies to wholesale supplies of small electrical type goods (mobile phones, computer chips and the like).

Off shore accounts

HMRC have approached further financial institutions for details of clients with off-shore accounts.

e-mail tax scam

This attempts to persuade taxpayers to provide their bank details with promises of a tax refund. It’s from HMRC Premier Services. If you receive one, please do not respond.

Pensions

The new rules started last April. The Tax Return entries will change slightly. The amounts that can be invested have moved and if you put in too much you get to pay 55% tax on the excess. There’s lots more, but it’s dull unless pensions really get your juices flowing.

Inheritance Tax

More households are affected and there is no sign that the threshold will be lifted. The available avenues to avoid or minimise the charge become increasingly complex and expensive. As usual, it’s important to keep your will up to date and use the nil rate band where possible.

Enduring Powers of Attorney (EPAs) are due to be replaced by Lasting Powers of Attorney (LPAs) some time soon. Make sure you have an EPA (and a will) while you still can as it will take a while for LPAs to bed in.

Useless snippets

Assets Recovery Agency set up to recoup assets paid for via ill-gotten gains cost £15.5million and collected £14.4 million.

HMRC spent £106 million on outside consultants in 2005/06. Have you noticed it getting better? Money well spent?

Sara Morris

DUCKETT | 01432 370 572 | contact us

DUCKETT

t: 01432 370 572

contact us