Tax tips 2011

It’s time for the usual round up of HMRC’s latest idiosyncrasies (idiocies?).

The first point to raise is that it is increasingly apparent from our dealings with HMRC that although Customer service is going to hell in a hand cart, their ability to collect information and use it (to your disadvantage) is getting much better.

Tax investigations

Our scheme for fee protection is about to be renewed and we’ve been doing a beauty parade of providers. Taxwise (our current providers) tell me that they have seen a 30% increase in claims in the last 12 months which means that HMRC have stepped up their activity.

What we are seeing is an increase in smash and grab raids – a quick in and out targeting a specific area, say repairs. Without wishing to tempt fate we have not seen a full enquiry for some time now. They’ve finally realised that they are not cost effective.

The intention is to carry out the ‘real time’ records check and then proceed from there with anything they find. So they come along, find that you’re not keeping your records up to date, drawings aren’t recorded at the time, there’s some income that’s unidentified. They then decide that’s an indication that earlier years may be worth a look and they’re off.

Business records check

For a long time HMRC have had the ability in law to charge a fine of up to £3,000 for inadequate records. I have never seen this happen and apparently Inspectors have not previously taken advantage of it. This is all about to change.

HMRC have announced that they intend to raise £6billion over the next 4 years by carrying out 50,000 business records checks per year (50k x 3k x 4 = 6billion). This programme is being rolled out in the latter half of this year and the Inspector will contact businesses and ask to see their current records.

If that happens, you do not have to agree to the date they suggest, but they do have a legal right to see them at some point. PLEASE SPEAK TO US BEFORE YOU AGREE.

In the meantime, you need to make sure that your records are up to scratch. HMRC are vague about what is required. But they expect to see ‘an accurate record of business money in and out in whatever form, showing matters in respect of which the money was received or expended’. Diligence is paramount: technical ability is irrelevant. So it doesn’t matter if your records are all handwritten rather than computerised: they need to be complete.

We would also advise clients to keep their private finances separate from the business because if not, HMRC have the right to see your private bank statements.

It is also worth mentioning that they are different (additional) penalties for indirect tax (VAT)

PAYE

The first round of penalties will land sometime from April onwards. This was explained last year but basically, where the monthly or 1/4ly payments land late HMRC are going to charge penalties of up to 5% on the late bit. We’re expecting chaos.

The other development is ‘real time’ PAYE. This means that they are intending that Employers will submit monthly returns of PAYE (like they do under CIS). The idea being that Employers can’t fudge the system.

Capital Allowances
IBAs and ABAs

Disappearing from April

Reducing

This is ridiculously complex

The £100k allowance (at 100%) is going down to £25k from April 2012. Anyone with an accounting date of 31.12 will only get £43k in the year to 31.12.12 and that works out at £25k up to 31.3.12 and £18k from 1.4.12 to 31.12.12.

The rest of the rates are going down too:

20% => 18%

10% => 8%

That means a business with a company car with CO2 emissions over 160g/km will take 36 years to get the full cost of the car.

The gist of it is that allowances drop dramatically from April 2012 in order to pay for headline rate reductions. More on that later.

NI

Goes up in April by 1% for employers and employees.

This is mitigated slightly for individuals because they get an increase in their personal allowance of £1,000. Tax saving = £200. This will be swallowed up by the NI increase for anyone earning £26k +.

Yet another amnesty

The Plumbers Tax Safe Plan (PTSP). This is aimed at plumbers obviously, plus others in the heating engineer trade. HMRC have obtained independent lists from Corgi plus other building related organisations.

The idea is to encourage anyone who is operating below the radar, or not declaring all of their income, to come forward. The enticement being that any penalty will be lower and time to pay will be agreed.

They do say that other defaulters can use the scheme too. Anyone wanting to sign up must do so by 31 May and provide the figures by 31 August.

Of course this is a one and only chance, just like the last time and the time before that….

Corporation Tax

The intention is to reduce the big co rate to 24% by 2014. Compare and contrast the top rate of income tax (50%).

Before everyone rushes to form their limited company, it’s worth spelling out that incorporation is not for everyone. It’s more expensive to administer and if the business owner draws and spends every penny they earn, IT WILL COST MORE.

Seriously though, this is an issue to consider and we will discuss this with anyone who wants to pursue it.

Pension Contributions

The new rules allow contributions of up to £50k per annum. The pension pot is to be capped at £1.5million.

This will not interest most clients so I’m going to leave it there. If you want to pay more in, you need to speak to your financial advisor (not me). It’s too hard.

That covers the points I want to raise this year. If anyone wants to consider the points in more depth, please get in touch.

Finally we saw a bumper sticker recently:

Don’t steal: the Government hates competition.

Sara Morrris

DUCKETT | 01432 370 572 | contact us

DUCKETT

t: 01432 370 572

contact us