Archive for September, 2013

Thinking of selling all or part of your business?

Thursday, September 26th, 2013

If you have spent your working life building your business, when you reach the point at which you are considering a sale, planning is critical.

VAT, corporation tax, income tax, stamp duty land tax, and capital gains tax are all standing in the wings waiting for you sign on the dotted line; so they can take a share of your hard-earned, sale proceeds.

Key areas that you will need to seek professional advice are:

• Do you need to strip surplus cash from your business prior to sale? What is the most tax effective way to do this?

• Are you selling all, or only part of your business? Do you need to consider demerging?

• If you are selling shares in your company will the sale benefit from Entrepreneurs’ Relief?

• Do you want to keep property owned by the business?

• If you have a group of companies would the group benefit from a formal reorganisation prior to sale?

• What impact will the sale have on any employee share options?

You may also need to consider that a potential buyer will be taking a close look at due diligence issues, particularly PAYE, VAT and corporation tax contingent risks.

In order to maximise the amount of post-tax sale proceeds you receive planning is absolutely key. We recommend that this be done before you instruct the selling agents and lawyers.

Payroll giving award for HMRC

Tuesday, September 24th, 2013

Payments that your employees make through a Payroll Giving Scheme are deducted from their pay before tax is deducted. This means that employees are given tax relief on their donation immediately – and at their highest rate of tax.

It's easy to set up a Payroll Giving Scheme for your business. There's little in the way of cost and administration, and you'll probably be able to adapt your existing payroll system to operate the scheme.

Figures recently published show that HMRC is the top Government department for payroll giving – almost 10,000 of its staff donate through their salary. In July, HMRC published figures for the UK that confirmed payroll giving had risen £4m since 2012 to £124m.

Charities benefit from this type of donation as tax relief at the donor’s highest rate is applied when the donation is made. Giving by direct debit and ticking the Gift Aid box effectively pegs tax benefits to the charity at basic rate only.

Managing expectations

Saturday, September 21st, 2013

Planning for retirement usually involves attempting to put away sufficient funds to provide retirement income equal to a proportion (perhaps half or two thirds) of ‘normal’ income. This is such a daunting task that it causes people to not even try. Funding retirement, fully, in this way would often mean restricting full meals to the third Wednesday in the month (from a very young age).

The downturn in the economy has lent itself to an alternative strategy. Profits and income from full-time work may have reduced to the point that earnings closely match the potential retirement income. Retirement then becomes an even more attractive and manageable prospect.

Merlin the magician

Saturday, September 21st, 2013

We recently acquired two new Border Collie puppies to join our remaining (and ageing) Setter.   They are now four months old.  As part of our daily routine, we wipe the puppies’ paws at the end of their walks before they go back into the house.  I suspect this is a common activity for many dog owners.  One of the puppies, Merlin, this morning offered his paw for the first time.  That’s the magic.

Too Panoramic

Saturday, September 21st, 2013

A recent Panorama programme reported on some shortcomings of the tax system and the failure of HMRC to act on data available. The criticisms may have been valid, but like much media coverage of the tax avoidance problem, it treated all tax saving as equally distasteful and blamed both Government and accountants for helping people to pay less tax, more specifically helping rich people and large corporations to pay less tax at the expense of ‘the man in the street’ (the rest of us).
Given the opportunity, how many of us would not jump at the chance of paying less tax. How many people have ISAs? What are ISAs? – They are a valid means by which people can avoid paying tax. How many people are willing to pay a tradesman cash (to avoid the vat) or to do a job ‘for cash’?, both resulting in (illegal) tax evasion, a step beyond (legal) tax avoidance. No morality issue there then? It becomes a moral issue when someone else is doing it and when programmes like Panorama present a biased appraisal. It is, of course, difficult to present a full, balanced, picture in 30 minutes, which is a good reason not to do it.
We, as a small firm of accountants, are not dealing with manufactured avoidance schemes, but we are always looking at ways of interpreting tax rules to clients’ advantage. That has to be the very least that every tax-payer and business man expects of an accountant. Where is the moral issue?
Schemes concocted for the sole purpose of avoiding tax, with no commercial substance, are difficult to justify. It is this aspect of tax avoidance that needs controlling and for which the new GAAR should be used. Left to journalists, anyone with an ISA might be locked up.
If Governments want to encourage more investment in the country, or in a particular area of activity, to generate more employment (for the man in the street) why is it wrong to provide incentives through the tax system? Governments and H M Revenue and Customs do lots of things wrong, but that is not one of them. It is the abuse of those incentives where the problem lies – too many seem to escape for too long. There is an industry dedicated to exploiting loopholes, and no shortage of people willing to participate. This is not serviced exclusively by accountants – and there are comparatively few accountants involved in this aspect of avoidance.
The fact that a company pays little tax on its profit through the use of tax reliefs is not the problem. These companies will have provided jobs resulting in work and income for many employees, each contributing tax & National Insurance. The problem is in the manner of its reporting – often comparing tax paid with the company’s turnover, which never has any bearing on the tax liability of a business.
Combatting the extremes of tax avoidance will be better served if the reporting is better targeted and acknowledges a clearer distinction between the real abuse of the system and the legitimate work of accountants interpreting and advising on the tax laws to take advantage of the intended tax reliefs available.

What is a salary sacrifice?

Thursday, September 19th, 2013

A salary sacrifice is a voluntary reduction in your salary in exchange for tax-free benefits. These benefits can include:

• Child care vouchers
• Cycle to work schemes
• Bus passes for commuters
• Canteen tokens
• Staff car parking and vouchers

The Government have also launched a consultation into the promotion of payroll giving. The aim is promote the system that allows monthly charitable donations to be taken from your salary before tax and National Insurance are deducted.

Ironically, the higher your income, and therefore your marginal tax rate, the less you will have to contribute to achieve the same result. For example:

1. If you pay income tax at 20%, and want to contribute £20 a month to a charity you would have approximately £16 stopped from your salary.
2. If you pay income tax at 40% and want to contribute £20 a month to a charity you would have approximately £12 stopped from your salary.
3. If you pay income tax at 45% and want to contribute £20 a month to a charity you would have approximately £11 stopped from your salary.
You could also use a salary sacrifice arrangement to reduce your taxable income if it seems likely that it will break through a significant tax threshold. For example:
• If your income is about to exceed £100,000 you will lose your personal tax allowance at the rate of £1 for every £2 your income exceeds £100,000.
• If your salary, or that of your partner, is about to exceed £50,000 you may lose entitlement to some or all of Child Benefit you may receive.
• You could also use salary sacrifice to keep your income below an increase in a tax band rate: from 20% to 40% or 40% to 45%.

It is important to crunch the numbers before you approach your employer so that you can quantify the benefits.

Landfill tax clarification

Tuesday, September 17th, 2013

HMRC have published draft guidance on landfill tax. Materials that can be classified as naturally occurring, and therefore taxable at the lower rate of £2.50, include:

“Group 1 of the 2011 Order allows the following waste materials to be lower rated: naturally occurring rock, clay, sand, gravel, sandstone, limestone, crushed stone china clay, construction stone, stone from the demolition of buildings or structures, slate, sub-soil, silt, and dredgings. Generally, these materials are formed by a natural process and are therefore naturally occurring.”

HMRC also states:

“Mechanical processing such as crushing or sorting does not in itself affect the 'naturally occurring' status. Therefore waste containing only naturally occurring group 1 materials that have been crushed or sorted are still 'naturally occurring'. However, chemical or thermal processing does affect the 'naturally occurring' status (but minerals that have been processed or prepared may qualify for the lower rate under Group 3 of the 2011 Order).”

Do you receive Child Benefit?

Thursday, September 12th, 2013

Many parents who receive Child Benefit may be blissfully unaware that they are walking into a tax trap.

From 7 January 2013 Child Benefit payments are effectively means tested by the tax system. If either parent, or both parents, has income in excess of £50,000, then part or all of the Child Benefit you have received after 7 January 2013 may be clawed back by the new High Income Child Benefit Charge (HICBC).

For every £100 your income exceeds £50,000, 1% of the Child Benefit you have received will be clawed back. Accordingly, if your income is in excess of £60,000, the benefit you may have received will be fully recovered by the HICBC. 

Apparently, over 400,000 people have opted out of receiving Child Benefit and they will be unaffected by the HICBC – you cannot be asked to repay what you have never received!

However, if you continued to receive Child Benefit after 1 January 2013, and if either you or your partner has income in excess of £50,000, then the HICBC will apply. This has implications for high income earners who do not normally submit a self assessment tax return.

You only have until 5 October 2013 to register for self assessment for the year to 5 April 2013. On the return you are required to state the amount of Child Benefit you received for the period 1 January 2013 to 5 April 2013. When your return is submitted, HMRC will work out the amount of the HICBC you need to pay and this will be collected through the self assessment system.

If both parents have income in excess of £50,000 then the highest earner will need to register for self assessment. If you prefer to avoid the HICBC, and registration for self assessment, you could always elect not to receive Child Benefit in future tax years.

G20 agree tax crackdown

Monday, September 9th, 2013

Although the recent G20 conference in St Petersburg failed to reach a consensus on the best way to deal with the Syria crisis, they did agree on a long term strategy to make it harder to hide money in tax havens. The ultimate goal, to force companies to pay tax in the countries where they make the profits, will take a number of years to organise as the necessary legislative changes required will no doubt take time.

The breakthrough was facilitated by the Chinese who finally agreed to align with the other members of the G20 by signing an agreement to share tax records.

The G20 accord states:

“Cross-border tax evasion and avoidance undermines our public finances and our peoples’ trust in the fairness of the tax system,” it read. “We endorse plans to address these problems and committed to take steps to change our rules to tackle tax avoidance, harmful practices, and aggressive tax planning.”

The G20 members have committed to begin the exchange of information by the end of 2015.

Tax Diary September/October 2013

Thursday, September 5th, 2013

 1 September 2013 – Due date for Corporation Tax due for the year ended 30 November 2012.

 19 September 2013 – PAYE and NIC deductions due for month ended 5 September 2013. (If you pay your tax electronically the due date is 22 September 2013.)

 19 September 2013 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2013.

 19 September 2013 – CIS tax deducted for the month ended 5 September 2013 is payable by today.

 1 October 2013 – Due date for Corporation Tax due for the year ended 31 December 2012.

 19 October 2013 – PAYE and NIC deductions due for month ended 5 October 2013. (If you pay your tax electronically the due date is 22 October 2013.)

 19 October 2013 – Filing deadline for the CIS300 monthly return for the month ended 5 October 2013.

 19 October 2013 – CIS tax deducted for the month ended 5 October 2013 is payable by today.

 31 October 2013 – Latest date you can file a paper copy of your 2013 Self Assessment tax return.