If your company contains significant value, you will want to extract the cash and assets in the most tax efficient manner. Until now you could ask the Taxman to apply concession C16 to the payments made during an informal winding-up up of the company. Concession C16 allows the payments made to shareholders (known as distributions) to be taxed as capital gains. Shareholders who were also officers or employees of the company may be able to claim entrepreneurs’ relief on those gains, which means the gain is taxed at just 10%.

Concession C16 is generally granted when the company has paid all its creditors, including the Taxman, and the owners promise not to start-up the same business in a different company. Concession C16 will cease to apply from 1 March 2012, and will be replaced by a new law as follows:

- Where the distributions are more than £25,000 in total, all those distributions will be subject to income tax (at rates of 25% or 36.11%), in the hands of the shareholders.
- Where the total value of the distributions to the shareholders of the company is no more than £25,000, the entire amount will be taxed as capital gains (at 10% where entrepreneurs’ relief applies, or at 18% or 28% otherwise).
- Payments made as part of an informal winding-up on or after 1 March 2012, will be subject to the new law even if permission to use concession C16 was previously given.
- It doesn’t matter on what date the company is finally dissolved or struck-off, it is the date on which the distribution is made that counts.

If your company holds significant value and you want to close it down, you can opt to use a formal liquidation. This will allow all the distributions to be treated as capital gains and for the lower tax rates to apply. However, a registered liquidator may charge a fee of £5000 or more to undertake the liquidation.

If you use the faster payments service (FPS) to make your PAYE payment, the amount transferred will clear the Taxman’s bank account the same or next day. However, there are limits on the amounts that can be transferred per day and per transaction using FPS, which vary from bank to bank. So check what limit your bank applies.

Late payments of PAYE will result in an automatic penalty of up to 4% of the PAYE that was paid late. You are permitted to make one late payment of PAYE during the tax year, but two or more late payments will mean that a penalty will be charged after the end of the year.

In addition, if you have still not paid after six months you may have to pay a further penalty of 5 per cent. A further penalty of 5 per cent may be charged if you have not paid after 12 months. These apply where only one payment in the tax year is late.

The Taxman has already issued many penalties for late payment of PAYE in 2010/11, and some of these penalties have been calculated incorrectly. If you receive a penalty notice, please ask us to check it as soon as it arrives. Any appeal must be submitted within 30 days.

If you receive a letter offering the CDF, it is a very serious matter. The Taxman has taken a view that he could launch a criminal investigation into your tax affairs, but has decided that a criminal case is not cost-effective. Instead he is offering you a binding agreement to come clean, with the promise of low penalties.

You only have 60 days to decide whether to accept the CDF. If you don’t reply in that period, the Taxman will start a formal investigation into your tax affairs, which could result in a criminal case. The CDF letter will also contain a denial letter, which you can sign and return if you believe you have no involvement in tax fraud.

Before you make any response to a CDF offer, please discuss the matter with us in confidence.

The ECSL is generally submitted quarterly, but businesses that export goods totalling more than £35,000 (excluding VAT) per quarter must complete an ECSL every month. If your business only sells services to other EU countries you can continue to submit a quarterly ECSL, but you can opt to submit monthly ECSL forms.

When you complete box 8 on your VAT return, the Tax Office will automatically send you an ECSL form to complete. The paper ECSL form must be submitted within 14 days of the end of the reporting period. You can complete the ECSL online, in which case you have 21 days from the end of the period to submit the form. Note that this deadline is well before the deadline for your regular quarterly VAT return.

We can help you submit ECSL forms, either on paper or online. Talk to us about the work involved.

A. You should record the date, destination and distance of each business journey you drive in your own car. It is good practice to record the total on your car’s milometer at the start and end of each journey. Your employer can pay you up to 45p per mile for each business related journey you drive. Business journeys do not include normal commuting between your home and your permanent workplace. If your employer is VAT registered it will be able to reclaim VAT on part of the mileage allowance you receive, if you provide VAT receipts to the value of the fuel used. The VAT receipts do not have to exactly match the dates of your journeys. When travelling by public transport keep the receipt for the ticket.

Q. I’ve always calculated my business income for a full year to 30 April. On my tax return for 2010/11 I’ve recorded my business profits, income and expenses for the year to 30 April 2010. But when I rang the Tax Office with a query the adviser told me that my accounts should always be drawn up to 5 April. Have I been doing it wrong for 20 years?

A. The adviser at the tax office is wrong. You can draw up your business accounts to any date you please. The year end of 30 April gives you a long delay between the end of your accounting year and the date on which you need to pay tax on the profits for that period.

Q. A friend told me I’d pay less tax if I held my let properties through a company. Is that true?

A. The answer depends on whether you need to get your hands on the proceeds from your lettings business and your current highest tax rate. Let’s assume you need the cash and your highest tax rate is 40%.

If the properties are in a company, the company will probably pay tax at 20% on the rental profits. But its tax rate could be up to 27.5% if the annual profits exceed £300,000, or you control a number of companies. When you extract the profits from the company as dividends you will pay a further 25% income tax. So for rental profits of £100, you will end up with £60 in your hands.

If you hold the properties personally, and pay tax at 40%, for every £100 of rental profits you will receive £60 in your hands. No different to holding the properties in a company. However, if you had not extracted the profits from the company until a later year when you are a basic rate tax payer you would then be paying less tax. It can also be beneficial to keep the profits in the company to re-invest in further properties. The company may pay tax of 20% on the gain it makes when it sells the let properties. If you sell the properties you will probably pay tax at 28%, but you will be able to set-off a tax-free allowance of £10,600 against the gain, which is not available to the company. You may have to also pay further tax when extracting the profits out of the company.

19/22 – PAYE/NIC and CIS deductions due for month to 5/2/2012

29 – Talk to us about year end and pre-budget planning
First 5% penalty surcharge on any 2010/11 outstanding tax due on 31 January 2012 still unpaid

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.

All new client consultations are provided free of charge and without obligation.

We pride ourselves on having a fresh, pro-active approach to accountancy to help you achieve the right results in your business.

Visit our website http://www.fsraccountancy.com for more information.

RTI is a new way of submitting payroll data to the Tax Office. Instead of sending the PAYE information in annually after the end of the tax year, all employers will have to submit the payroll data online on every occasion the payroll is run. This will allow the Taxman to understand who is being paid what amounts, and what PAYE is due, on a real-time basis. The details of employees’ pay will be passed to the Department for Work & Pensions, to allow the amount of Universal Credits (which are replacing Tax Credits from October 2013) paid to workers to be adjusted on a monthly basis.

RTI will be compulsory for all employers and pension providers by October 2013.

Before payroll data can be accepted under the RTI system it must be ‘clean’. That means having an accurate date of birth, full official name (not just initials or nick-name) and correct National Insurance number, for each and every employee. If the data for one of your employees does not agree to that on the Tax Office computer, the submission of the payroll data under RTI may fail, and you may get fined.

It will take some time to check the details of every employee on a large payroll, so it would be best to start this task as soon as possible.

You will no longer be able to pay the VAT due by cheque. You have to pay by electronic means. This includes using a direct debit, bank-transfer such as CHAPS or BACS, a personalised bank giro payment slip paid in at a bank (these need to be ordered in advance), or a debit card or credit card over the internet.

The good news is that Tax Office has now instructed its bank to accept tax payments by the faster payment service. This means the tax or VAT due will take less than a day to clear from your account to the Taxman’s bank account. Before relying on this shorter timescale, check whether your bank account is set-up to use the faster payment service and if any money limits apply. Many bank accounts can only pay out up to £10,000 by electronic payments in one day. If your VAT bill exceeds that cap you may have to spread the payment over several days, or talk to your bank about other transfer methods.

We can file your VAT electronically on your behalf once you have completed the necessary authority forms from HMRC. We will also require all your VAT information in good time before the due date for the VAT return, so we can calculate the VAT due and tell you what to pay to ensure the return and payment is received by HMRC before the deadline.

A summary of the current work of those task forces is listed below, but bear in mind that each task force will move on to a new geographical area once the first area has been investigated.

London Properties

This task force is investigating commercial property deals in Greater London, where the VAT rules may not have been applied correctly. Where they find such a case, the tax officers will review the entire tax compliance of the property owner, across all taxes.

Landlords

HMRC are targeting landlords with three or more let properties in the North West of England and North Wales. Have you or your family correctly declared all of your rental income?

Construction Industry

The targets are self-employed builders (including small companies) in the North West of England and North Wales. The task force is looking for under-declared sales (such as cash jobs) and over-claimed expenses (where there are no supporting invoices). Remember to keep every receipt for purchases and keep a log of all business mileage. We can help you by advising what expenses are allowable to claim against your income.

No Tax Return Submitted

This task force is currently operating in the South East of England, looking for businesses who have not submitted tax returns for corporation tax, VAT, PAYE or income tax.

Income Tax Personal Allowances
Under 65: £8,105
65-75: £10,500
75 and over: £10,660
Minimum marriage allowance: £2,960
Maximum marriage allowance: £7,705
Blind person’s allowance: £2,100
Income limit for those aged 65 or more: £25,400
Income limit for under 65 personal allowance: £100,000

Income Tax Rates
Savings rate* (10%): £0 – 2,710
Basic rate (20%): £0 – 34,370
Higher rate (40%): £34,371 to 150,000
Additional rate (50%): Over £150,000

* Rate does not apply where other income exceeds the savings rate threshold.

Different tax rates apply for dividend income as follows:

Basic rate (10%): £0 – 34,370
Higher rate (32.5%): £34,371 to 150,000
Additional rate (42.5%): Over £150,000

NI
The rates and weekly thresholds for NI contributions will be:

Employer’s class 1 above primary threshold (above £144): 13.8%
Employee’s class 1 not contracted out (from £146 to £817): 12%
Employee’s additional class 1 (above £817): 2%
Self-employed class 4 (annual figures from £7,605 to £42,475): 9%
Self-employed class 4 additional rate (above £42,475 per year): 2%
Self-employed class 2: £2.65 per week
Voluntary contributions class 3: £13.25 per week

Capital Gains Tax
Tax rates for individuals

Up to basic rate band: 18%
Above basic rate band: 28%
Annual exemption: £10,600

Corporation Tax
From 1 April 2012:

Profit of £0 – £300,000: 20%
Profit of £300,000- £1,500,000: 26.25%
Profit of £1,500,000 and over: 25%

These rates apply where there are no associated companies.

A. If permission is granted from the Taxman in advance (called a C16 clearance), the funds the company distributes to the shareholders during the winding-up process will be treated as a capital gain and taxed at 10% where entrepreneurs’ relief applies.

However, the law will change on 1 March 2012. From that date where more than £25,000 is distributed to shareholders in anticipation of the winding-up of the company, the entire amount of the distributed funds will be treated as income and taxed like dividends. That means entrepreneurs’ relief cannot apply and the rate of tax due on the distribution will leap from 10% to 25% or more. The capital gains treatment can still be achieved if the company is put into formal liquidation, but that is likely to cost £7,000 or more. So if you want to wind-up your company and it holds more than £25,000, get those funds paid out by 1 March 2012.

Q. My energy bills have soared since I started using a room in my home as the base for my company’s business, as I have to have the heating on all the time. I’ve heard that my company can pay up to 1/3 of my gas bills tax-free, is that true?

A. Your company can pay you (as the company’s employee) £3 per week, £156 per year tax free, for working at home and no evidence has to be provided to support that payment.
If you can prove your heating bills increased because you heating the property while working there, when otherwise it would be empty and not heated, then your company can pay that extra heating cost to you tax free. However, if the Taxman asks you will need to provide copies of the gas bills for a period before you worked at home compared to a similar period when you have worked at home, to prove the increase in costs. The Taxman may also want to see a schedule of the days you work at home and days when you work at clients’ premises. This type of claim is referred to as ‘use of home as office’ which can also cover other costs incurred in running your business from home. Contact us for further guidance.

Q. I received a letter yesterday addressed to my new company, asking for a payment of £320 to register the company on the ‘Intercom VAT Registry’. Should I pay this fee? Is it compulsory?

A. Do not make any payment or respond to this letter. It is a known scam. The ‘Intercom VAT Registry’ does not exist and it is not an official EU body as the letter suggests. If you are ever suspicious about letters or emails your business receives, check them against the list of known fraud on the Action Fraud website: http://www.actionfraud.org.uk/. We are more than happy to check any suspicious correspondence you receive, so contact us if you are unsure of the legitimacy of any letters or emails sent to you.

14 – Return and payment of CT61 tax due for quarter to 31 December 2011

19/22 – PAYE/NIC and CIS deductions due for month to 5/1/2012 or quarter 3 of 2011/12 for small employers

31 – Deadline for filing 2011 Self Assessment personal, partnership and trust Tax Returns – £100 first penalty for late filing even if no tax is due or tax due is paid on time.
Balancing self assessment payment due for 2010/11.
Capital gains tax payment due for 2010/11.
First self assessment payment on account due for 2011/12.
Interest accrues on all late payments.
Half yearly Class 2 NIC payment due.

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.

All new client consultations are provided free of charge and without obligation.

We pride ourselves on having a fresh, pro-active approach to accountancy to help you achieve the right results in your business.

Visit our website http://www.fsraccountancy.com for more information.

Businesses who occupy small commercial premises receive some generosity with an extension to the business rates relief scheme to 1 April 2013 (already extended for a year to 1 October 2012). Different business rates relief schemes apply in England, Wales and Scotland so ask your local authority what relief applies to your building. Occupiers of larger business premises may be able to defer payment of up to 60% of the increase in business rates for up to two years.

Other key tax announcements for businesses and individuals were:

- New anti-avoidance rules for employer asset backed pension contributions, effective from 29 November 2011.
- State pension age rises to 67, to be phased in over two years from April 2026.
- Freeze in the couple and loan parent elements of working tax credit in 2012/13.
- No increase in child tax credit above the rate of inflation, as had been announced.
- Capital gains exemption to be frozen for 2012/13.
- Research & Development tax credit for larger companies given above the profit line rather than as a tax reduction, to apply from 2013.
- New Seed Enterprise Investment Scheme (SEIS) from April 2012, giving income tax relief of 50% for investments of up to £100,000 in start-up businesses.
- Exemption from CGT when gains realised in 2012/13 are reinvested under SEIS in the same tax year.
- 100% capital allowances in certain new Enterprise Zones, not in all zones.
- Main rate of corporation tax will reduce to 25% from April 2012.
- Air passenger duty to be extended to private jets from 1 April 2013.

Further detail on the new tax rules and rates will be announced on 6 December 2011, so we will cover any significant items for small businesses in our January 2012 newsletter.

The limit per parcel for LVCR was £18 for years, but it was reduced to £15 from 1 November 2011. HMRC have just announced that the LVCR will be removed altogether from 1 April 2012 for goods imported from the Channel Islands. This change should help UK based businesses, but will not help the distribution centres and flower growers in the Channel Islands!

The maximum fund of £1.8 million will produce an indexed linked pension of around £75,000 p.a. for a man retiring at 65, using current annuity rates. So the new cap of £1.5 million is not helpful. If you already have pension funds, which in total are worth more than £1.5 million, you may need to apply to HMRC to ring-fence your existing pension savings for tax purposes, under what is called ‘fixed protection’.

To work out whether fixed protection is required, you must add together the values of all your various pension funds. Most people will have accumulated funds in a number of schemes over their working life as they change jobs, or start contributing to new pension schemes for other reasons. If you are in this position, you will need to request a ‘Lifetime Allowance Factor’ (valuation of the fund), from all the companies with which you hold a pension scheme. Such requests normally take around eight weeks to process, so you need to get a move on.

The application for fixed protection must reach HMRC by 5 April 2012, and it must be made on the prescribed form. Late applications will not be accepted. Where fixed protection is granted you will not be able to make any further tax-allowable pension contributions to a registered pension scheme, or build-up further benefits in a defined benefits scheme. So if you are considering applying for fixed protection for your pension funds, you should first take expert pensions advice.

The companies within the VAT group don’t have to carry on similar trades, they can operate in quite different business sectors. However, where some companies regularly receive VAT refunds and others pay VAT each quarter, it would not be sensible to put those payment and repayment companies together in one VAT group. Also, once the companies are together in one VAT group the limits for various VAT reliefs, such as cash accounting, error reporting, or partial exemption, apply to the turnover of the whole group.

An LLP can join a VAT group with a company, if both bodies are under common control. This can be useful where an LLP has been used in place of another associated company (an additional associated company may increase the corporation tax rate paid by the main trading company). A general partnership, which is not an LLP, cannot join in a VAT group under any circumstances.

A. No, this is not true. Capital allowances cannot be claimed for equipment or fittings used within residential properties, which the Tax Office refer to as ‘dwelling-houses’. There is an exception for properties that qualify as furnished holiday lettings, when each letting must generally be for short periods of less than 30 days. If you make a capital allowance claim for your rental properties it may be passed by the Tax Office, under their ‘process now, check later’ system. But when the Tax Inspector checks your claim it will be refused, any tax refunded will have to be repaid with interest, and penalties will be charged. This can happen up to 20 years after you submitted the incorrect claim!

Q. My employer has given me a form P11D, which shows that I am taxed on the cost of my smart phone. I thought each employee could have one tax-free mobile phone, so why am I taxed on my only mobile phone?

A. Tax Officials think smart phones are computers rather than phones, so don’t want to apply the ‘one free mobile per employee’ rule, when the mobile phone is a smart phone. However, this can work in your favour if the private use of the smart phone provided by your employer is insignificant. Where any computer equipment is provided to you solely for work purposes, and there is no significant private use, there should be no tax charge. This tax-free treatment doesn’t apply where the contract for the mobile phone is in your own name and not the company’s name. In that case, where your employer pays for your smart phone the cost is taxed as if it was part of your salary. To remedy this, make sure your next smart phone contract is made between your employer and the telephone provider and you are not a party to that contract.

Q. I work as a nurse in a NHS hospital. My professional organisation tells me I can claim tax refunds for the last 6 years, for the cost of the particular shoes and socks I need to wear for work. Is there a limit on what I can claim?

A. There are set limits for such costs, known as flat rate expenses, which vary according to the taxpayer’s profession and work description. The full list of tax claimable flat rate expenses can be found here: http://www.hmrc.gov.uk/manuals/eimanual/EIM32712.htm. Nurses can claim £100 per year as a flat rate expense against their taxable income for uniforms without any receipts but in addition can claim £12 per year for the cost of shoes and £6 per year for stockings or tights. The £100 figure was £70 per year from 2004/05 to 2007/08. However, you need to make your claim quickly, as the deadline for claims relating to 2005/06 is 31 January 2012. The deadline for 2006/07 is 31 March 2012, and for 2007/08 it’s 5 April 2012. However those deadlines only apply if you were taxed under PAYE, and did not submit a self-assessment tax return for those tax years. If you did submit a self-assessment tax return for the year the claim relates to, your claims period is already limited to 4 years from the end of that tax year. In that case the earliest year you can claim for is 2007/08, and the claim must be received by HMRC by 5 April 2012.

31 – Deadline for 2010/11 self assessment online returns to be filed if you are an employee and want tax underpaid to be collected by adjustment to your 2012/13 PAYE code (for underpayments of up to £3000 only). VAT reclaim deadline for submission of all claims for non EU traders wanting to reclaim VAT in the UK

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.

All new client consultations are provided free of charge and without obligation.

We pride ourselves on having a fresh, pro-active approach to accountancy to help you achieve the right results in your business.

Visit our website http://www.fsraccountancy.com for more information.