eSmart Tax Issue 3

eSmartTax The DIGITAL TAX MAGAZINE

April/May/June 2008

Softer approach adopted for non-doms further concessions announced

Tax TASK

Force

delivers findings radical overhaul of the UK’s corporate tax system is needed

Also in this issue

Fiscal matters tax calendar 2008/2009

dates for your diary

Safeguarding basic rights charter to provide a good reference point for taxpayer

Tax-free loophole closed

new rules apply to the estates of pension scheme members

Husband-and-wife firms get a reprieve

income-splitting legislation for small business taxation plans delayed

The chancellor’s maiden Budget

growth forecasts downgraded

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Contents

05

26 11

34 eSmartTax - April/May/June 2008

05

24

In this issue

The chancellor’s maiden Budget… growth forecasts downgraded

06 The Budget at a glance…

10 10 11 11 12 13 13 13 14 14 15 15 15 16 16 16 16 17 17 17 17 18 20 21 21

key announcements

News in brief… tax simplification measures Softer approach adopted for non-doms… further concessions announced Tax-free loophole closed… new rules apply to the estates of pension scheme members Safeguarding basic rights… charter to provide a good reference point for taxpayers Tax facts 2008/2009… what the numbers really mean Allowances & reliefs Individuals income tax rates National insurance contributions Capital gains tax Inheritance tax Trusts – income tax rates Corporation tax Capital allowances VAT Stamp duty and stamp duty land tax Benefits in kind Tax free mileage rates Employee share incentives Pension contribution reliefs Tax saving investments Individual savings accounts Fiscal matters tax calendar 2008/2009… dates for your diary Husband-and-wife firms get a reprieve… income-splitting legislation for small business taxation plans delayed The Budget and business… the key announcements at a glance Life insurance bonds… no change following CGT reform

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Contents 22 22 24 24 26 26 27 27 28 30 30 30 31 32 33 33 34 34 35 35 36 4

10-year initiative… smaller businesses targeted to provide extra help HM Revenue & Customs’ extension of power… spot-checks for companies and selfemployed people who run their businesses from home

28

21

News in brief…

Budget 2008 property matters Tax Task Force delivers findings… radical overhaul of the UK’s corporate tax system is needed The Saving Gateway… first accounts available to savers from 2010 Retirement matters… commitment to help pensioners Non-payable dividend tax credit… further extension for investors Revenue actively pursue offshore bank accounts… around 5000 UK taxpayers come under scrutiny Company fleet vehicles… changes will influence purchasing choices Tax returns… new measures could lead to penalties Capital gains tax… what a relief!

27 08 08

Changes to the guidelines on tips and tipping… tronc’s to be counted as paid by the employer Capital allowances… reducing your tax bill Budget Day trivia… fascinating facts News in brief… tackling DTA tax avoidance schemes

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34

News in brief… fight against child poverty Transfer of a going concern…

VAT obligations Increases to the National Minimum Wage… changes apply from 1 October 2008 Serviced building plots… ruling will affect developers of properties of various kinds News in brief… incapacity benefit reform Changes announced to the treatment of input VAT… businesses will be affected that make exempt as well as taxable supplies

Content of the articles featured in this digital publication is for your general information and use only and is not intended to address your particular requirements. They should not be relied upon in their entirety and shall not be deemed to be, or constitute advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.

eSmartTax - April/May/June 2008

BUDGET 2008

The chancellor’s

maiden Budget Growth forecasts downgraded

The main thrust of the chancellor Alistair Darlings first Budget speech was to increase borrowing and raise taxes on drinkers, motorists and business with an ultimate goal of plugging the void in the public finances.

The chancellor downgraded his growth forecasts and described this as a “responsible Budget, “whilst endeavouring to project an optimistic outlook following the credit squeeze that continues to create turmoil in the financial markets.

In spite of his desire not to take too much money out of the economy, Mr Darling was forced to raise taxes to pass the government’s self-imposed rule on public debt and make progress towards its goals on reducing child poverty.

Higher borrowing will raise public sector net debt to 39.8 per cent of national income in 2010-11, which is marginally under the Treasury’s ceiling of 40 per cent. If Mr Darling had not raised taxes by £2bn in the same year, rising to £2.5bn in

eSmartTax - April/May/June 2008

subsequent years or had forecast slower economic growth, he would have hit his debt limit.

This Budget the chancellor explained was about “securing stability in these times of global economic uncertainty.” He downgraded growth forecasts for this year and next, and raised the borrowing forecast by £20bn over the next four years.

There were significant tax increases announced on alcohol, up 9 per cent. This has added 4p to a pint of beer, 14p to a bottle of wine and 55p to a bottle of spirits. In addition there will be further increases to follow of 2 per cent above inflation until 2013.

Presented as a package of eco-friendly measures

by Mr Darling, new higher rates of vehicle excise

duty for “gas guzzlers” were announced and the abolition of lower duty rates for biofuels. From 2010 owners of the most polluting cars will pay £950 in road tax in the year of purchase, double the rate for subsequent years, while biofuel will lose the current 20p per litre subsidy.

Mr Darling also aimed to clamp down on tax avoidance schemes used by some companies which is intended to raise another £600m.

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5

BUDGET 2008

Budget at a glance The

Some ÂŁ60m to be spent over the next three years to encourage people to enter work and progress.

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eSmartTax - April/May/June 2008

BUDGET 2008

Key announcements Economy

Tax and national insurance

n UK growth forecast for 2008 has been reduced to between 1.75 per cent and 2.25 per cent, compared to previous forecasts of between 2 per cent and 2.5 per cent. n Growth forecasts for 2009 are now set at 2 per cent to 2.5 per cent, a reduction on 2.5 per cent to 3 per cent expectations. For 2010, growth is forecast at 2.5 per cent to 3 per cent. n GDP will rise to between to 2.25 per cent and 2.75 per cent in 2008. In 2009, GDP will rise to between to 2.25 per cent and 2.75 per cent and in 2010 to between 2.25 per cent and 2.75 per cent. n The inflation target for CPI will remain at 2 per cent. n Borrowing will rise from £36 billion to £43 billion in 2008, equal to 2.9 per cent of national income.

This will decline £23 billion, or 1.3 per cent, by 2012-2013. n Borrowing will total £140 billion over the next four years. n The current Budget deficit will be £10 billion in deficit in 2008-2009. It is forecast to decline to £4 billion in the following year and is expected to return to a surplus in 2010-2011 - a year later than was scheduled. n UK debt is now 36.6 per cent of GDP. Debt is forecast to reach 38.5 per cent in 2008. n Public sector investment will reach £33 billion next year.

n Changes to income tax confirmed from April.

Basic rate drops from 22 per cent to 20 per cent and the 10 per cent band is abolished. n The upper earnings limit on national insurance contributions increased from £670 per week to £770 per week from April. n Non-domicile tax scheme implemented from April, charging a fee to those in UK for more than seven years who wish to retain non-domicile status. There will be no further changes to the regime in this parliament or the next. n Beer duty to increase by 4p per pint, wine up 14p a bottle, cider up 3p a bottle and spirits up 55p a bottle. n Tobacco duty increased by 11p per packet of 20 cigarettes and 4p for five cigars. n An escalator was introduced by the Chancellor on alcohol duties which will see charges increase by 2 per cent above inflation for the next four years.

Public spending

n Public spending in next three years will grow by 2.2 per cent. n The Government will spend £2 billion more on British troops in 2008 including £900 million on equipment. n Schools to receive £200 million extra to raise GCSE results. A £30 million fund will be introduced to improve science studies. n By April 2010, all long-term recipients of incapacity benefits will face work assessments.

eSmartTax - April/May/June 2008

Motorists

n Fuel duty will rise by 0.5p per litre in 2010. A 2p increase in fuel duty is deferred until October this year. n Reform to road tax planned for 2009. Vehicle tax rates will depend on vehicle emissions from 2010. Low-polluting cars will pay no tax for the first year from 2010.

n First year car tax on so-called “gas guzzler” vehicles will rise by £1,000. n Carbon emissions from vehicles to be reduced from 130 grammes to 100 grammes per kilometre by 2020. n Road pricing could reduce congestion and help environmental measures. The Government will invite tenders to develop road pricing technology.

Employment n Public sector employment has fallen in the past year.

Private sector employment has risen to record levels. n Some £60m to be spent over the next three years to encourage people to enter work and progress.

Education n Government to spend £10m over the next five years to create a new science fund for teachers in secondary schools. n There will be an increase in the amount of funding for adult training. Investment of £200m in under performing schools in an effort to improve GCSE grades by 2011.

Environment n Government is to take advice on whether the carbon emissions reduction target can be raised to 80 per cent by 2050. Climate change levy increased in line with inflation from April. n Reform of the North Sea fiscal regime to encourage investment. n “Carbon Budgets” to be issued alongside regular Budgets from 2009. n Threat to introduce legislation to reduce plastic carrier bags in 2009 if voluntary action does not work, with funds going to environment charities. n Charges on plastic bags may be introduced next year if shops fail to reduce their use on a voluntary basis.

n Revenue from plane duty to rise by 10 per cent. n New measures at Heathrow and other airports to increase the use of biometric technology to speed up air travel. n A total £26 million will be committed to the Green Home Service to help families cut fuel bills. UK carbon emissions to be reduced by 80 per cent by 2050. n Energy companies to spend £150 million a year on energy tariffs. n Five million customers on pre-payment meters to be given a fairer deal. Legislation will be introduced if necessary.

7

BUDGET 2008

Welfare Government to launch the Property n Measures to keep mortgage rates low and stable n Long-term recipients of sickness benefits to attend Saving Gateway, a cash to include encouraging banks to offer long-term “work capability assessments” from April 2010. fixed rate mortgages following the turbulence in n Government plans to reform council tax and saving scheme for those world credit markets. housing benefit. n Sites identified for 70,000 more new houses in n New contract to help parents into work involving on lower incomes, will be addition to the 40,000 already under construction. a commitment to find employment. Benefits for n Some £8bn to be made available for working families will be boosted. introduced nationally, affordable housing. n Government to invest an extra £125 million over n Key workers and first-time buyers to be able three years to stop child poverty. with the first accounts to borrow from new shared equity schemes to n From April 2009, child benefits will rise to £20 for provide up to half of the price of new homes. the first child. An extra £50 above inflation will available to savers in 2010. n Stamp duty on shared ownership homes will not be added to child tax credit for low and middlebe required until the occupant owns 80 per cent of the equity. n £8 billion in funds to be committed to new, affordable and social housing. n Teachers, nurses and first-time buyers can borrow money for shared equity schemes, and the minimum stake has been reduced from 75 per cent to 50 per cent. n Labour is seeking views on how long-term fixed mortgages can help first-time buyers to get on the housing ladder. n All new offices, shops and other commercial buildings are expected to be zero carbon by 2019.

Pensions

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n Fuel benefits for the over 60s rises from £200 to £250 and for the over 80s rises from £300 to £400.

Transport n Funding for the Crossrail project in London secured. n Increased biometric measures to be introduced at Heathrow to reduce airport congestion. n Government to set aside new funding to encourage road pricing schemes. n Aviation duty to increase by 10 per cent in the second year of operation.

income families. n Government will work with energy companies on a voluntary and statutory basis to help low-income households meet fuel bills. The government wants energy companies to triple spending on social tariffs to £150m. n Winter fuel payment up to £250 from £200 for over 60s and up to £400 from £300 for the over 80s.

Savings n Government to launch the Saving Gateway, a cash saving scheme for those on lower incomes, will be introduced nationally, with the first accounts available to savers in 2010. n To encourage people to save money, the government will increase the ISA investment limit to £7,200 from April with the amount that can be held in cash rising to £3,600.

Defence n Chancellor expects to spend £2bn more on defence, including £900m on new equipment. n Business and corporation tax n New flat rate capital gains tax charge of 18 per cent for individuals introduced

eSmartTax - April/May/June 2008

BUDGET 2008

from April as previously announced, up from 10 per cent. n Small firms loan guarantee scheme increased by £60m this year. Enterprise management incentive tax relief scheme increased from £100,000 to £120,000. n Government launches £12.5m fund for female entrepreneurs. n Target for small and medium-sized businesses to win 30 per cent of public sector contracts in the next five years. n No further cut on corporation tax above the 2 per cent reduction to 28 per cent announced last year. Main corporation tax rate falls from 30 per cent to 28 per cent from April. n Small business corporation tax rate to rise to 21 per cent in 2008-2009 and 22 per cent in the following year. n Government to go ahead with plans to charge a levy, set at £30,000, for non-doms in the UK who will not be charged on offshore income.

eSmartTax - April/May/June 2008

n An extra £60 million has been committed to filling the UK “skills gap.” n Aims for small businesses to win 30 per cent of public sector business. n Funds for loan guarantee scheme for small businesses will be increased by £60 million. n Government will introduce a capital fund of £12.5m to encourage more female entrepreneurs. n The threshold for businesses to account for VAT on a cash basis increases from £660,000 to £1.35 million from April.

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9

BUDGET 2008

NON-DOMS

Tax

Softer approach

simplification

measures

adopted for non-doms

Small businesses have welcomed the announcement to delay “income shifting” legislation by a year. These anti-avoidance rules for familyrun businesses have been highly controversial because they would impose a big administrative burden on small companies.

Further concessions announced

Concessions were also announced by the Treasury on the new tax regime from April for non-domiciled residents. The chancellor said that the new regime would not be substantially revisited during this parliament or the next.

The chancellor is however still pressing ahead with what he described as a “reasonable” annual levy of £30,000 on non-doms who have been living in Britain for at least seven years. But the payment has been shifted from a stand-alone charge to a tax payment related to specific overseas earnings or capital gains. For Americans, in particular, the change makes it more likely that the payment can be offset against tax paid in the non-doms’ own country.

Children will be exempt from a £30,000 charge for foreigners who have lived in Britain for more than seven years and who want to keep their offshore income out of the tax net.

The Treasury has exempted many more people from the new regime by doubling to £2,000 the threshold of foreign income needed to trigger additional taxes.

The Treasury also announced more than 20 other tax simplification measures, including changes to the tax system for financial services and the charitable sector.

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The chancellor Mr Darling has announced further concessions relating to his proposals for a tax clampdown on high-earning “non-domiciled” residents in Britain. These included the approach to offshore trusts and the structuring of the £30,000 charge to qualify for double taxation relief, avoiding paying tax twice on the same income or gains.

The chancellor has offered a guarantee that there would be no further moves on non-doms in this parliament or the next, although there has been disappointment that the chancellor did not responded to pleas for a oneyear delay in the clampdown.

The government also made it clear that it would not impose the levy on children under 18.

The exclusion of children from the charge was also a demand of The Indus Entrepreneurs (TiE), which represents more than

1,000 entrepreneurs and investors from India and Pakistan. In another concession announced, non-doms will not have to pay tax on capital gains made on UK assets held in offshore trusts, as long as the cash is not brought into Britain.

The government is seeking to secure a deal with the US to allow American citizens to offset the £30,000 charge against their US tax bill.

The chancellor has also climbed down on the method of counting the number of days an individual spends in the UK for residency and tax purposes. The government had planned to include the days a person arrives and departs from the country. Now though, only days where the individual is present in Britain at midnight will be counted.

The chancellor said the government welcomed the “contribution made by people born outside the UK who choose to come and work here. But for those non-domiciled individuals or families who have chosen to make Britain their home, I believe that it is right and fair that they should, after seven years, pay a reasonable charge to maintain the right to be taxed differently from other UK residents.”

The government is going ahead with plans to close the loophole that allows non-doms to bring assets bought with foreign earnings into Britain without paying tax on them. From April, goods worth more than £1,000 kept in the UK for more than nine months are liable to tax. There is an exemption for works of art brought into Britain for public display, which will calm galleries’ fears.

eSmartTax - April/May/June 2008

PENSIONS

TAX PAYER CHARTER

Safeguarding

basic rights Charter to provide a good reference point for taxpayers

The government has recently agreed to a list of basic rights in a taxpayers’ charter. HM Revenue & Customs (HMRC) said the charter would cover everyone who pays tax and would “set out both taxpayer rights and responsibilities in a single accessible document.”

It was revealed in a year long consultation that taxpayers needed safeguards when there was a dispute.

HMRC will embark on a further consultation exercise to determine a list of rights to be included in the document.

Tax-free loophole closed New rules apply to the estates of pension scheme members A loophole which allowed pension funds to be passed on tax-free at death has now been closed. The announcement made by the chancellor Mr Darling during his first Budget speech has clamped down on the schemes and tax will now apply to the estates of pension scheme members who die on or after April 6 2008.

Providers of small self-administered pension schemes (SSAS) had been marketing them as a way for people to pass their pension funds on to their family without incurring tax. The schemes have typically been used by companies to provide pensions for directors and other senior employees.

The new rules will treat any increase in the pension rights of one member following the death of another as an unauthorised payment, and apply a 70 per cent tax charge to it. The same level of charge already applies to funds passed on via an alternatively secured pension.

eSmartTax - April/May/June 2008

The amount passed on will also be liable to inheritance tax, bringing the potential taxation to 82 per cent. However, the charge will not apply if the scheme has 20 or more members and the funds arising following a member’s death are evenly distributed among all other members of the scheme.

A taxpayers’ charter was first published in 1991 and was then abandoned after New Labour came to power in 1997.

Financial secretary to the Treasury, Jane Kennedy, said: “The Government is committed to ensuring that the tax system is useable and accessible and a Taxpayers’ Charter will provide a good reference point for taxpayers.”

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TAX FACTS

2008 2009

Tax YEAR

12

eSmartTax - April/May/June 2008

TAX FACTS

numbers What the

really mean ALLOWANCES & RELIEFS

2008/2009 2007/2008

Personal Allowance

Dividends*

Savings

Other

£7,550

£1 - £36,000

10%

20%**

20%

£7,690

(£1 - £2,230)

(10%)

(10%)

(10%)

(£2,231 - £34,600)

(10%)

(20%)

(22%)

Over £36,000

32.5%

40%

40%

(Over £34,600)

(32.5%)

(40%)

(40%)

under 65

£5,435

£5,225

65-74

£9,030

75 and over

£9,180

Married couples/civil partners allowance (relief at 10%) age 65 before 06/04/2000

£6,535

£6,285

age 75 and over

£6,625

£6,365

minimum amount £2,540

£2,440

Age allowances reduced by 1/2 of income over

£20,900

£21,800

(to a minimum equal to the personal allowance for those under 65) Blind person’s allowance

£1,800

INDIVIDUALS - INCOME TAX RATES 2008/2009 (2007/2008)

£1,730

* Dividends are increased by a non-repayable tax credit of 1/9th ** 10% up to £2,320. If an individual’s taxable non-savings income is above this limit, the 10% rate does not apply

Rent-a-room relief - maximum

£4,250

£4,250

Dividends are treated as the top slice of total income, savings

Maximum ‘Golden Handshake’

£30,000

£30,000

as the next slice and other income as the lowest slice

NATIONAL INSURANCE CONTRIBUTIONS (NIC)

Charitable Giving

Gift

Charity receives from

Class 1 employee

Donor receives

HMRC

Total weekly earnings up to £105 (£100)

Cash (under Gift Aid)

20/80th higher

22/78th of cash

rate relief

donation

Payroll giving

100% income

10% of cash

* contracted out rate is 9.4%

tax relief

donation

Quoted

100% income tax relief

Nil

securities/property

exemption from CGT

£105 to £770 (£100 to £670) over £770 (£670) on excess

2008/2009

2007/2008

nil

nil

11%*

11%*

1%

1%

Employer up to £105 (£100)

nil

nil

over £105 (£100)

12.8%*

12.8%*

*contracted out rate is 9.1% (9.1%) for salary related schemes, 11.4% (11.4%) for money purchase schemes for earnings from £105 to £770 (2007/2008 £100 to £670)

eSmartTax - April/May/June 2008

13

TAX FACTS

Entrepreneurs’ Relief - from 6 April 2008

Class 1A employer

12.8% on taxable benefits

Class 2 self employed

£2.30 pw if earning over £4,825 p.a.

(2007/08 £2.20 pw £4,635 p.a.)

‘Lifetime’ limit

£1,000,000

Class 3 voluntary

£8.10 pw (2007/08 £7.80 pw)

Reduction in taxable gain (effective tax rate 10%)

4/9

Class 4 self employed

8% on profits between £5,435

and £40,040

(2007/08 between £5,225 and £34,840)

and further 1% on profits above £40,040

(2007/08 £34,840)

Available on ‘material disposals’ of: n Shares in a trading company (or holding company of a trading group) if holds at least 5% ordinary share capital and voting rights throughout period of ownership, and is an officer or employee for at least 12 months

NIC Class 2 Registration

n All or part of a trading business the individual carries on alone or in

Within 3 months from self

partnership, for at least 12 months

employment start

n Assets of the individual’s or partnership’s trading business following cessation and used for over 12 months n Assets owned by the individual and used by the connected trading

CAPITAL GAINS TAX (CGT) Rates

partnership or personal trading company (or group) for over 12 months

2008/2009

2007/2008

18%

Savings tax rates

Individuals (as top slice of income)

INHERITANCE TAX (IHT) Death rate

2008/2009

2007/2008

0% (nil rate band)

£1-312,000

£1-£300,000

40%

over £312,000

over £300,000

Trusts where settlor/settlor’s

As settlor’s gain

As settlor’s gain

minor child/spouse/civil partner retains interest

Other trusts and

18%

40%

personal representatives

Trusts for the vulnerable

As beneficiary’s gain

As beneficiary’s gain

Lifetime gifts n to an individual are initially not chargeable to tax n to trusts established after 22/03/06 are taxable at 1/2 death rates

(subject to election) Married couples/civil partnerships (unless permanently separated)

Gift within 7 years of death - tax at death rates payable, reduced as follows and credit given for any tax paid on lifetime gift:

Transfers between spouses/civil partners - recipient is deemed to acquire the asset at 31 March 1982 and at the value at that date, or original date and at cost of acquisition if later

Years

0-3

3-4

4-5

5-6

6-7

Reduction in tax

0%

20%

40%

60%

80%

Exemptions

£9,600

£9,200

from 6 April 2008, and all discretionary trusts are subject to a 10 year charge

Trusts

£4,800

£4,600

of 6% on assets in excess of nil rate band and pro rata on exit. Certain trusts

Individuals

Trusts established after 22/03/06, accumulation and maintenance trusts

established on death are not liable to these charges Exempt assets include main home, cars and chattels worth less than £6,000Chattels worth more than £6,000: alternative charge on 5/3 excess over £6,000

14

eSmartTax - April/May/June 2008

TAX FACTS (continued)

Main exemptions Spouse/civil partner - both UK domiciled (or transferor non domiciled)

unlimited

Non domiciled spouse/civil partner - UK domiciled transferor

£55,000

Annual gifts per donor

£3,000

Small gifts per donee not exceeding Marriage/civil partnership gifts by

£250

- parent

£5,000

- other ‘relative’

£2,500

- other

£1,000

Regular gifts out of surplus income

unlimited

Trusts for the vulnerable

unlimited

Business and agricultural relief

Interest held for more than 2 years in a business, farm or shares in qualifying unlisted companies and let farmland held for more than 7 years - 100% Assets used by qualifying company or business, or controlling holding in listed company - 50%

Payment date

6 months after death/chargeable transfer, or for lifetime gifts made 06/04 to 30/09, due 30/04 in next year.

CAPITAL ALLOWANCES

TRUSTS - INCOME TAX RATES 2008/2009 (2007/2008)

Dividends

Interest

n Plant and machinery - 20% (reducing balance)

Other

Interest in possession trusts and 10% 20% up to£1,000 for discretionary & accumulation and maintenance trusts (10%) (20%)

On income for non interest in 32.5% 40% possession trusts over £1,000 (32.5%) (40%)

If working life of 25 years or more - 10% (reducing balance) Fixtures integral to buildings - 10% (reducing balance)

20%

Annual investment allowance £50,000 per annum (excluding cars) n 100 % for: restoring flats over pre-1980 shops; designated energy saving

(22%)

plant and machinery; scientific research; commercial buildings in enterprise zones; energy efficient technologies and low emission cars;

40%

renovation of business premises in disadvantaged areas; natural (40%)

gas, biogas and hydrogen refuelling equipment

Trusts where settlor or spouse/civil partner retains interest taxed as settlor’s income

n Acquisition of intangibles (goodwill, intellectual property, etc) allowances in line with accounting depreciation (min 5% p.a.)

Trusts for the vulnerable - subject to election taxed as beneficiary’s income

CORPORATION TAX

Year to 31 March

2009

2008

Full rate

28%

30%

29.75%

32.5%

21%

20%

Intermediate rate (profits £300,000 to £1.5m) Small company rate (profits to £300,000)

n Companies chargeable gains included in profits chargeable to corporation tax. Indexation relief continues to apply

Hotels, industrial and agricultural

- 3%

2008/2009

buildings (straight line)

2%

2009/2010

1%

2010/2011

0%

2011/2012

n Cars (maximum £3,000 p.a. per car) - 20% (reducing balance) NB: Where the original market value of a leased car exceeds £12,000, tax relief is restricted in respect of lease charges paid

n Large companies are entitled to a tax deduction equivalent to 125%* of their actual expenditure on qualifying R&D. Other businesses 150%* * To be amended to 130% and 175% respectively subject to EU approval

eSmartTax - April/May/June 2008

15

TAX FACTS (continued)

TAX FACTS (continued)

BENEFITS IN KIND

VAT Standard rate

17.5%

Lower rate

5%

General rule n Amount assessable is cost (including VAT) to employer

Exemptions

If annual turnover less than:

n Employee relocation expenses up to £8,000

£67,000 from 01/04/2008 - registration not necessary

n I ncidental expenses of business trips per night up to £5 in the UK / £10

£65,000 from 01/04/2008 - deregistration possible

outside the UK

£1,350,000 - eligible to use Cash Accounting scheme

n Staff parties not exceeding £150 per employee p.a.

£1,350,000 - eligible to use Annual Accounting scheme

n One mobile phone per employee

£150,000 - eligible to use Flat Rate scheme

n Benefit of occupying overseas holiday home owned by single purpose company

Car fuel scales (where private fuel provided)

Loans

24 bands based on CO2 emissions

n Less than £5,001: no benefit

(www.hmrc.gov.uk/budget2008/master-notes.pdf - P181 for full detail of bands)

n Over £5,000: taxable on deemed interest at ‘official rate’ n Special rules apply for some foreign currency loans

VAT for 3 month period between £20.55 and £71.94 VAT for 1 month period between £6.85 and £23.98

Living accommodation n Greater of rateable value or rent paid by employer

Errors on VAT Returns From July 2008 voluntary disclosure limit increased from £2,000 to the greater of £10,000 or 1% of VAT turnover subject to a maximum of £50,000

n F or accommodation where cost to employer was over £75,000, rateable value plus ‘official rate’ on excess of cost to employer over £75,000 ‘Official rate’

STAMP DUTY AND STAMP DUTY LAND TAX

n With effect from 06/04/2007 - 6.25%

Exempt: All assets other than land and property, shares and interests

n Benefit based on 10% to 35% of list price, dependant on CO2 emissions

in partnerships

n Supplement of 3% for most diesel cars, subject to a maximum charge of 35%

Shares and securities:

Private use of company car: scale benefits

0% up to £1,000

n No adjustment for business mileage or additional cars

0.5% above £1,000

n C ars without an approved figure of CO2 emissions will be taxed according to their engine size

Rate

Residential land & property

Commercial land & property

outside disadvantaged areas

Residential land & property

within disadvantaged areas

%

£

£

0

Up to 125,000

Up to 150,000

1

125,001 to 250,000

150,001 to 250,000

3

250,001 to 500,000

250,001 to 500,000

4

Over 500,000

Over 500,000

From 1 Oct 2007 to 30 Sept 2012 no charge on Zero Rated Carbon Emission homes up to £500,000. Above £500,000 the charge will be reduced by £15,000.

n S pecial rules apply to LPG, electric and dual fuel cars, cars over 15 years old at the end of the tax year and to the value of accessories Car fuel benefit - 2008/2009 (2007/2008) The fuel benefit is a percentage of £16,900 (£14,400). The percentage is the same as used for the company car benefit Private use of company vans Vans available for private use: taxable benefit = £3,000. Further charge of £500 for private use of fuel

TAX FREE MILEAGE RATES

New leases Rate

Net Present Value of rent

Residential outside

Commercial & residential

disadvantaged areas

in disadvantaged areas

Nil

Up to 125,000

Up to 150,000

Annual business mileage up to 10,000 miles

40p

1%

Excess over £125,000

Excess over £150,000

Each additional mile over 10,000 miles

25p

Employee’s own car

Rate per mile

Special rules apply to shared equity schemes

16

eSmartTax - April/May/June 2008

TAX FACTS (continued)

EMPLOYEE SHARE INCENTIVES Share incentive plan - up to £3,000 of free shares p.a. plus further 2 shares for each share bought by employee (maximum free shares £6,000 p.a.). Open to all employees on similar terms. No tax or NI charges on grant or exercise if retained in plan 5 years. Increase in value after withdrawal from plan charged to CGT. Enterprise management incentives - increases to £120,000 from 6 April 2008 (previously £100,000) of share options offered per employee. Maximum £3m per company. No tax or NI on grant or exercise unless granted at undervalue. Increase in value on disposal chargeable to CGT. Other approved share incentive schemes also exist Unapproved share option schemes - no limit, full discretion over qualifying employees. No tax or NI on grant of options lasting 10 years or less. Income tax charge on value when exercised plus (in certain circumstances) NI charge on exercise of options

PENSION CONTRIBUTION RELIEFS 2008/2009

Maximum contributions 100% of earnings to a limit of £235,000 (£225,000) Up to £3,600 p.a. gross can be paid into pensions irrespective of earnings to age 75

eSmartTax - April/May/June 2008

Subject to any Registration of Protected pension funds, aggregate retirement benefits in excess of the Lifetime Allowance of £1.65 million may be subject to the Lifetime Allowance Charge of 55% of the surplus benefit

TAX SAVING INVESTMENTS Subscriptions for shares in qualifying Enterprise Investment Schemes (EIS) companies and Venture Capital Trust (VCT) companies: n I ncome tax relief: Investment up to £500,000 in shares in EIS companies qualify for income tax relief at 20% if qualifying criteria met for 3 years.

Half of any investment but not more than £50,000 for investments between 06/04/08 and 05/10/08 can be carried back to give relief in 2007/08 n Income tax relief on investment of up to £200,000 on VCT companies qualify for income tax relief at 30% if qualifying criteria met for 5 years n C apital gains exemption: Gains on disposals of EIS and VCT shares are exempt from tax if qualifying criteria met for 3 years

INDIVIDUAL SAVINGS ACCOUNTS (ISAs) For individuals aged 18 or over Annual ISA allowance is £7,200. Up to £3,600 of the allowance can be saved in cash with one ISA provider. The remainder of the £7,200 can be invested in stocks and shares with either the same or a different ISA provider Individuals aged 16/17 Cash ISA only; maximum investment £3,600

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n C GT deferral: Gains on other assets may be deferred (and reinstated on the subsequent disposal of the EIS/VCT shares) if reinvested into qualifying EIS companies, or (if before 06/04/2004), a maximum of £100,000 p.a. into VCT shares

17

FISCAL MATTERS

5th Octobober deadline for notifying HMRC of new sources of taxable income or gains if no tax return has been issued.

Tax calendar

2008 2009

18

eSmartTax - April/May/June 2008

FISCAL MATTERS

Dates for your diary April 2008

31 January 2008 still outstanding.

Saturday 5th End of 2007/2008 tax year.

Sunday 6th Beginning of 2008/2009 tax year.

Monday 14th Payment of any tax due in respect of CT61 for quarter to 31 March 2008. Company CT61 return for the quarter to 31 March due.

Saturday 19th PAYE/NIC due for month to 5/04/2008 (interest will run on any unpaid PAYE/NIC for the tax year 2007/2008).

August 2008

May 2008

Friday 19th PAYE/NIC due for month to 5/09/2008.

Friday 2nd Deadline for submitting P46 (car) for employees whose car/fuel benefits changed during the quarter to 5 April 2008.

Monday 19th Deadline for Employers’ year end PAYE returns (P35, P14, P60) to be submitted.

Monday 19th PAYE/NIC due for month 5/05/2008.

Saturday 31st Deadline for copies of forms P60 to be issued to employees.

October 2008

June 2008 Thursday 19th PAYE/NIC due for month to 5/06/2008.

Monday 30th VAT Reclaim deadline for submission of all claims to European VAT authorities.

July 2008 Sunday 6th Deadline for forms P11D and P9D to be submitted to HM Revenue & Customs (HMRC) and copies to be issued to employees concerned.

Sunday 6th Deadline for employers to report share incentives (Form 42).

Monday 14th Payment of any tax due in respect of CT61 for quarter to 30 June 2008. Company CT61 return for the quarter to 30 June due.

Saturday 19th PAYE/NIC due for month to 5/07/2008.

Also, Class 1A NIC due in respect of the year 2007/2008.

Thursday 31st Second payment on account of Income Tax for 2007/2008 tax year due.

Second 5% penalty surcharge on any 2006/2007 outstanding tax due on 31 January 2008 still remaining unpaid.

Second £100 penalty if 2006/2007 tax return due on

eSmartTax - April/May/June 2008

Friday 1st Deadline for submitting P46 (car) for employees whose car/fuel benefits changed during the quarter to 5 July 2008.

Tuesday 19th PAYE/NIC due for month to 5/08/2008.

September 2008

Sunday 5th Deadline for notifying HMRC of new sources of taxable income or gains if no tax return has been issued.

Tuesday 14th Payment of any tax due in respect of CT61 for quarter to 30 September 2008. Company CT61 return for the quarter to 30 September due.

Sunday 19th PAYE/NIC due for month to 5/10/2008.

Friday 31st Deadline for submitting your 2007/2008 Self Assessment return by post and if you require HMRC to compute your tax liability and/or if tax underpaid is to be collected by adjustment to your PAYE code (for underpayments up to £2,000 only).

November 2008 Saturday 1st Deadline for submitting P46 (car) for employees whose car/fuel benefits changed during the quarter to 5 October 2008.

Wednesday 19th PAYE/NIC due for month to 5/11/2008.

Sunday 30th Deadline for submission of all relevant documentation to BRAL VAT (non EU traders).

December 2008 Friday 19th PAYE/NIC due for month to 5/12/2008.

January 2009 Wednesday 14th Payment of any tax due in respect of CT61 for the quarter to 31 December 2008. Company CT61 return for the quarter to 31 December due.

Monday 19th PAYE/NIC due for the month to 5/01/2009.

Saturday 31st Balance of 2007/2008 Income Tax & Capital Gains Tax due, plus first payment on account for 2008/2009 tax year (interest will run on any payment due and not paid).

February 2009 Monday 2nd Deadline for submitting P46 (car) for employees whose car/fuel benefits changed during the quarter to 5

January 2009 Thursday 19th PAYE/NIC due for month to 5/02/2009.

Saturday 28th 5% penalty surcharge on any 2007/2008 outstanding tax due on 31 January 2008 still remaining unpaid.

March 2009 Wednesday 11th Budget Day (to be confirmed).

Thursday 19th PAYE/NIC due for the month to 5/03/2009.

April 2009 Sunday 5th End of 2008/2009 tax year.

Monday 6th Beginning of 2009/2010 tax year.

Tuesday 14th Payment of any tax due in respect of CT61 for quarter to 31 March 2009. Company CT61 return for the quarter to 31 March due.

Sunday 19th PAYE/NIC due for month to 5/04/2009 (interest will run on any unpaid PAYE/NIC for the tax year 2008/2009).

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19

ENTERPRISE

Husband and wife firms get a reprieve Income-splitting legislation for small business taxation plans delayed The Treasury has signalled that it was willing to amend the current draft legislation for tax rules that govern the way family businesses distribute their profits. Husband-and-wife firms that split the income generated from their businesses in order to reduce their joint tax bills will now have a reprieve until 2009.

The Treasury announced that the government had considered the responses received to the consultation and believed that a further period of consultation would ensure that the legislation in this area provides clarity and certainty for businesses and their advisers.

It said it “firmly believed” that allowing individuals to shift part of their income to another person on a lower rate of tax was “unfair”, but conceded that it needed to rethink how it would tackle the problem.

‘The government now intends

small firms will now be able to write off historical capital expenditure to introduce legislation through Finance Bill 2009 and will not enact legislation effective from 6 April 2008,’ it said.

The chancellor Mr Darling chose not to mention this reprieve in his

20

Budget speech, even though he announced the legislation in his PreBudget report.

in the small firm’s research and development tax credit from April has been delayed and new EU state aid rules applied to restrict access.

Firms applying for the credit, worth up to 175 per cent of expenditures, will now have to prove they are a going concern by presenting accounts signed off by an accountant. A new expenditure cap of €7.5m (£5.7m) per project has also been applied.

The decision to delay the incomesplitting legislation was the most significant new change to the government’s small business taxation plans.

The Treasury also announced other tax measures that included an increase in the rate of small company corporation tax from April from 20p to 21p.

The VAT registration threshold was raised in line with inflation from £64,000 to £67,000.

The new £50,000 annual investment allowance for all businesses, announced by Gordon Brown in his last Budget, goes ahead as planned.

In addition, small firms will now be able to write off historical capital expenditure for instance on computers or office equipment worth less than £1,000 against their taxable profits in one year instead of doing so over decades. But a planned increase

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eSmartTax - April/May/June 2008

ENTERPRISE

The Budget and business The key announcements at a glance n Draft legislation for tax rules that govern the way family businesses distribute their profits delayed until 2009.

n Increase in small firms R&D tax credit delayed and new EU state aid rules applied to restrict access.

n Small company corporation tax rate rises from 20 per cent to 21 per cent.

n A temporary 20 per cent increase in Small Firms Loan Guarantee to ease the impact of the credit crunch.

n Annual investment allowance of £50,000 capital gains tax (CGT) on business assets increased to 18 per cent from April. n New ‘entrepreneurs’ relief’ CGT rate of 10pc on £1m lifetime allowance. n VAT threshold rises from £64,000 to £67,000. n More than 500,000 businesses can write off up to £1,000 of historic capital investment. n Plant and machinery allowance rate drops from 25 per cent to 20 per cent.

No change following CGT reform

The government has announced that it “does not see the need for any change to the taxation of life insurance bonds as a result of CGT reform.” Investment bonds are primarily of benefit to higher rate taxpayers, who expect their tax rate to fall in the future, and who already make full use of their annual capital gains tax allowance. But they can also be beneficial for passing money on to children, or for inheritance tax planning.

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n Hotels, industrial and agricultural buildings annual allowance falls from 4 per cent to 3 per cent.

eSmartTax - April/May/June 2008

bonds

Under the new proposals, it appears that individuals may be better off holding collective investments directly within the new capital gains tax regime.

This contrasts with gains on investment bonds which, at encashment, are taxed as income at an effective rate for higher rate taxpayers of up to 40 per cent, though there are differences for onshore and offshore bonds.

n Reforms to reduce regulatory burden.

n A £12.5m capital fund to back female entrepreneurs.

Life insurance

The effects of 18 per cent CGT on investment bonds will depend on an individuals own circumstances, whether they want capital gains or income and whether they are investing for the long or short term.

n Plan for small firms to win 30 per cent of all public sector work in the next five years.

n New £30m Enterprise Capital Fund to provide mezzanine finance to growing firms.

TAXATION

To find out how your business may have been affected, please email or contact us with your enquiry.

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21

ENTERPRISE

TEN year initiative

Smaller businesses targeted to provide extra help

The Department for Business, Enterprise and Regulatory Reform will target smaller businesses to provide extra help in a 10-year initiative to make the UK “the most enterprising economy in the world.” The package of measures include a £60 million boost to the small firms loan guarantee scheme, designed to give small companies better access to finance amid the credit crunch.

There will be two reviews launched. One will focus on the barriers small companies face when they are competing for government work. The department wants smaller businesses to be able to win 30 per cent of government procurement and to be able to compete effectively against bigger counterparts. The second review will determine how small business can more easily comply with regulation and employment law.

HMRCs’

extension of power

Spot-checks for companies and self-employed people who run their businesses from home

From next April tax inspectors will be able to carry out spot-checks on all companies and self-employed people who run their businesses from home. Inspectors under the new scheme will be permitted to visit businesses with no warning to “inspect records, assets and premises.” At present, HM Revenue & Customs’ (HMRC) must open an inquiry into a company and then give 24 hours’ notice of a visit. However, VAT officials will lose the power to turn up at people’s homes without notice.

The department also pledged to look at putting a limit on the cost of new regulation in a certain period which it said would be a world first. Such a move would give small business more certainty over costs.

In addition, a drive to increase the numbers of women in small business with see a £12.5 million injection into a capital fund investing in women-led businesses.

22

eSmartTax - April/May/June 2008

ENTERPRISE

This extension of HMRCs power comes as it also prepares to address the issue of tax loopholes in the coming year. The Treasury claims that the crackdown, which it calls “protecting tax revenue”, will raise £660 million in revenue next year alone.

In an unusual move, the Treasury has backdated one of the tax amendments to 1987, meaning that companies or individuals who have taken advantage of tax-planning measure since then could be hit with a hefty tax bill in the coming months.

A spokeswoman for HMRC said: “The aim of the Powers Review is to align and modernise the powers and taxpayer safeguards that HMRC inherited from Customs & Excise and the Inland Revenue. The intention is to provide greater consistency and alignment of our access to records and information.”

Any companies or individuals who have used trusts to take advantage of double taxation treaties to minimise their tax bills could be affected. The HMRC spokeswoman said: The other measures include tightening special stamp duty exemptions for those who take out Sharia mortgages, stopping people from setting up loss-making

eSmartTax - April/May/June 2008

businesses to minimise their tax bills and a crackdown on the way in which North Sea oil and gas companies calculate their tax liabilities. The Revenue will also clampdown on companies using UK-controlled offshore vehicles to minimise their tax payments.

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There has been highly aggressive avoidance with the clear intent of frustrating [the] previous legislation, hence the clarification.

23

NEWS IN BRIEF

CORPORATION TAX

Budget 2008

property matters Stamp duty and shared ownership The proportion of stamp duty payable on the shared equity Open Market HomeBuy scheme will no longer be required until buyers own 80 percent of the equity in their home.

In addition, key workers qualifying to enter into shared ownership schemes will only need to borrow 50 per cent of the purchase price rather than 75 per cent previously.

Long-term fixed

mortgages

The Treasury will consult further on how to achieve affordable long-term fixed-rate mortgages, reporting back at this year’s Pre-Budget Report. The aim is to encourage more 10, 15 and 25-year mortgages, but details of how this will be achieved in a way that appeals to borrowers have still not been revealed.

Green homes The zero carbon scheme for new homes will be extended to cover nondomestic buildings by 2019 and there will be an additional £26bn of funding for greener homes next year.

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24

Tax Task Force

delivers findings Radical overhaul of the UK’s corporate tax system is needed

A radical overhaul of the UK’s corporate tax system is needed urgently if the country is to regain its status as an internationally competitive location, a new report argues from the CBI, the UK’s leading business organisation that speaks for some 240,000 businesses employing around a third of the private sector workforce.

eSmartTax - April/May/June 2008

CORPORATION TAX

The CBI’s independent Tax Task Force has spent nine months collating intelligence and conducting detailed international research to produce a longterm vision for the UK tax system.

Its report, ‘UK business tax: a compelling case for change’, reveals that the UK has now reached a tipping point. The ever rising business tax burden and the failure of the tax system to respond to increasingly global business activity is creating a corporate tax system which is unsustainable in the long-term.

To tackle this, the report proposes a root and branch overhaul of the UK corporate tax system, with a wide-ranging programme of reform to include: A headline corporation tax rate of 18 per cent within eight years, with the cut more than paying for itself over time through increased economic activity.

Tax calculated on the basis of existing company accounts, scrapping the current system where firms have to maintain two sets of books. Allow all genuine business expenses to be properly recognised and replace complicated capital allowances with accounts-based depreciation.

A ‘no surprises’ legislative and administrative process, with more time allowed for proper consultation on tax proposals, better resourced and effective parliamentary scrutiny, and limited budget secrecy.

A non-political, independent tax law commission, established to monitor and review existing tax law and suggest improvements.

Proactive UK government action on all cross border tax issues, co-ordinating with other governments, including on treaties to assign primary taxing rights.

eSmartTax - April/May/June 2008

A simplified and improved tax system to stimulate the growth of small and medium-sized enterprises (SMEs), with an exemption from rules intended for multinationals, a small firms corporation tax rate brought back rapidly to 18 per cent within three years and the SME investment allowance doubled to £100,000.

The report makes clear that the advantages the UK gained from cuts to corporation tax during the 1980s and late 1990s have been lost. Other countries have taken bold steps to cut their rate: the Netherlands and Portugal to 25 per cent and Ireland is famously at 12.5 per cent. The UK’s rate meanwhile has lagged and is now higher than the OECD average of 26.8 per cent, even after this April’s cut from 30 per cent to 28 per cent.

A more complex tax system creates uncertainty In terms of the burden of corporate tax, the UK’s effective average tax rate is now the eighth highest in the OECD. Nor is corporation tax the only burden; companies pay £1 in other taxes for every £1 of corporation tax. According to the World Economic Forum, the UK has slipped from 4th place in 1998 to 15th in 2003 on the Global Competitiveness Index.

New analysis conducted for the report supports the argument that cutting corporation tax can actually boost rather than reduce tax receipts over the long term, as has been the experience in Ireland.

Using US-style ‘dynamic analysis’, the figures show a net cost to the Exchequer, varying from £0.3bn to £4.2bn, in each of the first seven years of the CBI’s proposed reform. But from then on, government

revenues would be boosted by an average of £15.6bn each year, over years 8 to 12, rising to £26bn in year 12.

The way business works has changed dramatically, says the task force. Twice the number of multinationals operate in the world today as did in 1990, an estimated 77,000 with a network of around 866,000 subsidiaries. Small firms are now just as likely to be global, with new technology making it ever easier for them.

Complexity in the tax system makes it harder for business to plan ahead and pay its taxes. The average number of pages contained in the Finance Bill rose from 153 pages during 1980-4 to 312 pages from 1995-9 and 463 pages between 2000-7. In 2007, Tolley’s Yellow Tax book totalled 9,866 pages, 4000 more than in 2001. So it is no surprise that the UK now has the longest tax code in the world.

A more complex tax system creates uncertainty, and this has led to charges of unfair tax ‘avoidance’ made against firms even when planning arrangements are legitimate and purely commercial. Smaller firms suffer disproportionately from increased complexity because they cannot afford the same level of in-house resource or external advice as many larger firms.

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25

WEALTH CREATION

The

Saving

Gateway

First accounts available to savers from 2010 Following the pilots in promoting saving and financial inclusion, the Saving Gateway will be introduced nationally, with the first accounts available to savers from2010.

The Saving Gateway is a cash saving scheme for those on lower incomes.

Individuals in receipt of the following benefits and tax credits will be entitled to open an account in the national scheme: Working Tax Credits; Child Tax Credits paid at the maximum rate; Income Support; Jobseeker’s Allowance; Incapacity Benefit; Employment and Support Allowance and Severe Disablement Allowance.

Saving Gateway accounts will be offered by financial institutions such as banks and building societies, and will run for two years. At the end of the accounts the government will match (make a contribution for each pound saved) money which people have saved into their accounts.

Third sector organisations such as credit unions, social housing providers and the Citizens Advice Bureau have expressed interest in providing information and support for savers in the scheme.

26

RETIREMENT

Retirement

matters Commitment to help pensioners

New rules announced in the Budget will allow small pension benefits to be paid as a lump sum where the value is below £2,000. This allows people to take very small benefits in one occupational scheme as a lump sum under the triviality rules while receiving an income from another, larger, pension pot.

Previously it was not possible to take small pension pots as a lump sum if the value of a person’s pension’s savings in total exceeded £16,000.

or over and £300 for households with someone aged 80 or over.

Winter fuel bonus

Gas and electricity companies will have to provide £150m of subsidies per year to the poorest households through social tariffs. By next winter they will have to show they have stopped penalising users of prepayment meters by making them pay higher rates for energy.

The chancellor announced a higher winter fuel payment for older people, but it will be paid only once.

The Treasury said: ‘Building on the government’s substantial commitment to help pensioners, Budget 2008 announces an additional one-off payment of £100 to households with someone aged 80 or over and £50 to households with someone aged 60 or over, to be paid alongside the winter fuel payment in 2008-09.

The winter fuel payment is £200 for households with someone aged 60

for married couples and civil partners.

For 2009-10 it will be £325,000 for individuals or £650,000 for married couples and civil partners.

Energy bills

Inheritance tax As previously announced, the inheritance tax allowance will be increased by more than inflation in each of the next three years.

The allowance for the tax year 2008-09 is £312,000 for individuals or £624,000

For 2010-11 it will be £350,000 for individuals or £700,000 for married couples and civil partners.

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eSmartTax - April/May/June 2008

TAX

Non-payable

Dividend

tax credit

Further extension for investors There is currently a one ninth nonpayable dividend tax credit available for UK individuals receiving dividends from UK resident companies. Higher rate taxpayers, who are liable to tax at 32.5 per cent, in practice pay only 25 per cent (of the net dividend) because part of the tax liability is covered by the tax credit. Basic rate taxpayers who are liable to tax at 10 per cent, in practice do not pay any

tax on dividends from UK companies because the tax liability will be entirely covered by the tax credit.

Budget 2007 announced a simplification of the tax system for UK individuals with foreign shares.

From April 2008 the non-payable dividend tax credit has been extended to dividends from non-UK resident companies, provided the

investor owns less than a 10 per cent shareholding.

Announced in Budget 2008 from April 2009, the non-payable dividend tax credit will be further extended to investors with a 10 per cent or greater shareholding in a non-UK resident company, unless the source country does not levy a tax on corporate profits similar to corporation tax.

Revenue actively pursue

offshore bank accounts Around 5000 UK taxpayers come under scrutiny Around 5,000 UK taxpayers believed to hold offshore bank accounts are being written to

by Revenue and Customs requesting them to pay the unpaid tax they owe.

the chance to disclose hidden money in exchange for a flat rate penalty of 10 per cent of underpaid taxes and payment of all back taxes with interest.

accounts and they will all have received letters by 4 April. Those individuals with offshore accounts who do not cooperate could face prosecution for tax evasion.

This follows the Revenue’s so-called ‘amnesty’ last year, when the agency gave holders of offshore bank accounts

The Revenue are now actively pursuing a group of 5,000 people who it suspects have still not owned up to holding offshore

Prior to the June deadline last year over 60,000 people notified the Revenue over their offshore accounts.

eSmartTax - April/May/June 2008

27

ENTERPRISE

Company

fleet vehicles Changes will influence purchasing choices Changes announced in Budget 2008 will mean that from April 2009 vehicles with emissions of 160g/km of CO2 or less will suffer no rental disallowance and could encourage more fleets to consider contract hire and leasing. The changes will make a big difference and effectively set two benchmarks for company fleet vehicles, one below 120g/km and one below 160g/km. Vehicles with emissions of 160g/km will, however, attract a flat 15 per cent disallowance, which gives fleet operators an extra incentive to select cars submitting less than 160g/km. This means that vehicles emitting more than 160g/km will become more expensive than cars up to 160g/km to buy or lease in tax terms.

The new 10 per cent benefit-in-kind tax band for company cars producing 120g/km of CO2 or less from the 2008/09 tax year is an important consideration.

The Budget also revealed a reform of car vehicle excise duty rates and bandings, introducing new bands from 2009, which allow drivers of the cleanest cars to pay no tax in the first year.

Higher first year rates will apply in 2010-11 to influence purchasing choices. Capital allowances have also been reformed to base them on emissions. The greenest cars chosen for your staff will reduce the driver’s tax bill and the company’s Class 1A NICs. Initially review whether your employees have access to the low emission cars that will enable them to reduce their tax bills in accordance with the new tax rules. Consider reviewing your fleet list by approaching manufacturers and explore with them possible models that could help. With safety in mind, review the latest safety ratings from the European New Car Assessment Programme to ensure you aren’t providing drivers with vehicles that won’t perform well in an accident. Try to get behind the

28

wheel at events such as Company Car in Action so you can give your drivers a considered opinion.

The start of the 2008/09 tax year coincided with the launch of the new Corporate Manslaughter Act. Review your fleet safety policy and accident rate and benchmark these against other companies

It is important that you plan ahead to ensure that your budgets can cope with the changes using services such as the one provided by interactive driving systems.

Consider requesting from your suppliers information about their risk management services and whether they will provide a free fleet review.

Make it a priority to review how your fleet meets the standards set down in the Department for Transport/Health and Safety Executive Driving At Work Guide

It is important to have accurate records and information that can help you manage drivers effectively. Ensure driving licence checks are up to date and consider how you will assess the risks facing your drivers on the road over the next year.

Use your review to draw up a communication plan for the next 12 months targeting the areas where drivers face the highest risks, according to your own figures on accidents.

The introduction of a fleet ‘driving licence’ is something you could consider that is only issued if key checks on drivers have been carried out. Make it a priority to find out how many drivers are covering business mileage in private vehicles and ensure you have documentation for each employee and for their vehicles, including driving licence, insurance, MoT information and a record of servicing.

Carry out a review your fleet costs and determine how much you are paying. You could ask potential suppliers to submit data showing what they would charge to provide your fleet and make use of free running cost benchmarking services. Ensure that in working out the actual cost of your vehicles, you include tax costs in your equation for both the employee and the company, as these are a significant expense but are often ignored in cost comparisons.

One important area sometimes overlooked by drivers and employers are the tyres chosen and how they are looked after.20 per cent of a car’s fuel consumption is caused by tyres. Under-inflation increases braking distances and increases fuel consumption.

One possible solution is to introduce office car park tyre checks for all vehicles through major providers.

Also, ensure you encourage regular tyre checks by

eSmartTax - April/May/June 2008

ENTERPRISE

drivers by explaining the safety and fuel economy benefits of taking good care of their rubber.

The introduction of a reminder on claim forms for business mileage, would remind drivers what they should be checking and at what intervals could.

Also, ensure your procedures clearly show when a vehicle is next due a service and list the work carried out.

Consider sending out a survey to every driver and assess what congestion is costing them in time, and your business in lost productivity.

Provide drivers with the tools and information to check traffic routes before they set off and encourage them to think about how they make their journey. If you have drivers entering the congestion charging zone, make sure you are registered for a fleet account to avoid unexpected penalty notices for non-payment of fines.

eSmartTax - April/May/June 2008

It is important to be clear about what technology is fitted to vehicles. Anti-skid control or electronic stability control (ESC) are essential devices that can prevent a vehicle from flying out of control during emergency manoeuvres. There is a European campaign calling for ESC’s to be standard in to all cars. By contrast, many companies are now reviewing their approach to hands-free phone kits in cars as there is clear evidence that drivers find talking on a hands-free phone just as distracting as talking on a hand-held one.

It is important that you plan ahead to ensure that your budgets can cope with the changes announced with fuel prices continuing to rise, initially by 2p a litre from this October with further steady inflationary duty rises promised from 2010, You also need to review how to use less fuel and also how you are paying staff to cover their costs. Many companies use pence

per mile fuel rates to reimburse their staff, but it could pay to introduce fuel cards to enable effective management of actual business fuel costs. It could also be beneficial to invest in fuel economy training for staff. To help limit the impact of fuel use on the environment, investigate carbon offsetting.

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TAXATION

ENTERPRISE

New measures could lead to penalties

Changes to the guidelines on

Taxpayers could pay penalties of up to 30 per cent of any unpaid tax if they mistakenly mis-state their income in self-assessment returns, according to new measures introduced in the Budget.

HM Revenue & Customs (HMRC) will be allowed to levy the fines if taxpayers ‘fail to take reasonable care’ when preparing tax returns, the Budget documents have revealed.Before the changes the penalty was only 5 per cent of tax owed.

Taxpayers who try and hide deliberate omissions from their tax returns face a 100 per cent penalty.

The penalties will not apply to basic errors, but HMRC has cast the net wider than before so that penalties will apply to most cases when money is income and has been understated.

What a relief!

The capital gains tax (CGT) annual exempt amount is increased in line with statutory indexation to £9,600 for the tax year 2008-09 for individuals, personal representatives of deceased persons and trustees of certain settlements for the disabled.

The annual exempt amount for most other trustees is increased to £4,800.

Every husband, wife, civil partner and child has his or her own £9,600 annual exempt amount.

tipsand tipping

Tronc’s to be counted as paid by the employer The Central London Employment Tribunal’s decision that discretionary service charges and credit card tips paid via the tronc are to be counted as paid by the employer, and thus a component of an employee’s wages for the purposes of National Minimum Wage (NMW) legislation is to be appealed by HM Revenue and Customs (HMRC), according to a recent report. A tronc is an arrangement for the pooling and distribution to employees of tips,

gratuities and/or service charges in the hotel and catering trade.

If successful, HMRC’s challenge will make it necessary for employers to pay the NMW excluding the value of gratuities. The benefit to HMRC would be a greater Income Tax and National Insurance take due to the higher levels of basic wages which would have to be paid to some employees.

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For gains above the annual exempt amount the CGT rate for 2008-09 will be 18 per cent. In addition, a new entrepreneurs’ relief will reduce the effective tax rate on some gains to 10 per cent.

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eSmartTax - April/May/June 2008

ENTERPRISE

Capital allowances

Reducing your tax bill

As a business you can claim tax allowances, called capital allowances, on certain purchases or investments. This means you can deduct a proportion of these costs from your taxable profits and reduce your tax bill.

will be able to surrender losses from qualifying expenditure for a cash payment of 19 per cent of the expenditure, subject to a cap of the higher of £250,000 or a

Capital allowances are available on plant and machinery, buildings including converting space above commercial premises to flats for renting - and research and development.

company’s PAYE/National Insurance Contributions liabilities.

The amount of the allowance depends on what you’re claiming for.

In some cases, the rates are different in the year you make the purchase from those in subsequent years.

From 1 April 2008 for corporation tax and 6 April 2008 for income tax,

changes apply to the rates of capital allowances. Allowances for plant and machinery have been reduced to 20 per cent, allowances for long-life assets increased to 10 per cent and a new classification of features integral to a building has been introduced at a rate of 10 per cent.

The amount of relief claimable under industrial and agricultural buildings allowances is reduced by one quarter, as part of phasing them out in full

eSmartTax - April/May/June 2008

by 2011. First-year allowances for small and medium-sized enterprises will be replaced by a new Annual Investment Allowance of £50,000 for most businesses regardless of size, giving relief on 100 per cent of the first £50,000 of expenditure.

Loss making companies investing in plant and machinery which qualifies for Enhanced capital allowances for environmentally beneficial and energy saving technologies

From April 2008, the rate of research and development tax credits increases from 125 per cent to 130 per cent for large companies and from 150 per cent to 175 per cent for SMEs (the SME increase is subject to approval from the European Commission and will be made effective by Treasury Order from a date not earlier than 1 April 2008).

31

BUDGET DAY

Budget Day

trivia Fascinating facts

Governments have budgeted for a thousand years, and many Budget traditions date back hundreds. The word itself comes from the French ‘bougette’, a little bag, now used to hold the Chancellor’s Budget Day plans.

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eSmartTax - April/May/June 2008

BUDGET DAY

NEWS IN BRIEF

Tackling DTA tax avoidance schemes The government has announced measures to tackle an avoidance scheme that seeks to use the UK’s Double Taxation Agreements (DTAs) to avoid UK tax. This involves artificially diverting income of a UK resident individual to a foreign partnership comprised of foreign trustees and claiming that the provisions of the UK’s DTAs exempt the partnership profits from UK tax, not only in the hands of the foreign partners but also in the hands of the UK beneficiaries.

The Budget box or ‘Gladstone box’ was used to carry the Chancellor’s speech from Number 11 to the House for over one hundred consecutive years. The wooden box was hand-crafted for William Ewart Gladstone, lined in black satin and covered in scarlet leather.

Lord Callaghan was the first Chancellor to break with tradition in 1965 when he used a newer box.

In July 1997, Gordon Brown became the second Chancellor to use a new box for the Budget. It was made by industrial trainees at Babcock Rosyth Defence Ltd ship and submarine dockyard in Fife. The new box is made of yellow pine, with a brass handle and lock, covered in scarlet leather and embossed with the Royal initials and crest and the Chancellor’s title.

Gladstone drank sherry and beaten egg while giving his Budget speeches.

Since May 1997 the Treasury presents two economic forecasts per year. In the spring the Chancellor presents the Budget, and in the autumn, the Pre-Budget Report (PBR) is released.

The origins of the Exchequer go back to the Norman period (1066-1154).

The Norman system included both a Treasury and an Exchequer. The word ‘exchequer’ comes from the Latin ‘scaccarium’, meaning a chessboard.

The name was given to the court dealing with the King’s finances because counters were moved on a square table.

Income tax was first introduced in the 1798 Budget by William Pitt.

Since the twentieth century, Chancellors who have also become Prime Minster include Lloyd George (seven budgets from 1909 to 1915)

The first annual Budget dates from the 1720s and Sir Robert Walpole.

eSmartTax - April/May/June 2008

Winston Churchill (five budgets from 1925 to 1929), Neville Chamberlain (six from 1932 to 1937), James Callaghan (three from 1965 to 1967), John Major (one in 1990) and the current Prime Minister, Gordon Brown (a record eleven consecutive budgets from 1997 to 2007). He drank natural Scottish mineral water during his budget speeches, but other Chancellors have chosen whisky (Kenneth Clarke), gin and tonic (Geoffrey Howe - who named his dog ‘Budget’), brandy and water (Benjamin Disraeli), spritzer (Nigel Lawson), and sherry and beaten egg (William Gladstone - presumably to sustain him during his marathon four hour speech in 1853).

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Fight against child poverty The government is to bring forward an increase in child benefit to help in its fight against child poverty, Mr Darling announced during his Budget 2008 speech. From April 2009 to rate for the first child will rise from £18.80 a week to £20.

There will be an increase in the child element of the Child Tax Credit by £50 a year on top of the normal index-linked increase from April 2009 to further help low to middle income families.

Also, child benefit will be disregarded in calculating income for housing and council tax benefit from October 2009.

The government says this will improve work incentives for many of the lowest paid families and boost their incomes.

The government calculates that a working family with one child on the lowest incomes will gain up to £17 a week from this change.

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ENTERPRISE

Transfer of a going

concern VAT obligations

One of the perennial problems with the sales of businesses has been the requirement by HM Revenue and Customs (HMRC) that where such a sale constitutes a Transfer of a Going Concern (TOGC), the vendor was required to transfer the records of the business to the purchaser. This has caused many problems where the vendor subsequently needed to have access to the records (for example, to deal with a past tax issue which has arisen after the sale).

HMRC have announced that the requirement to transfer the business records has been replaced by a requirement that the vendor provides the purchaser with all the information necessary to enable the purchaser to comply with his VAT obligations.

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34

Increases to the National Minimum Wage Changes apply from 1 October 2008 The government have announced the annual increase to the National Minimum Wage (NMW) to apply from 1 October 2008.

From 1 October 2008, you will have to ensure that employees’ wages are adjusted to reflect the new rates.

The proposed increases to the current NMW bands from 1 October 2008 are as follows:

RATE

CURRENT NMW

PROPOSED NMW

Adult

£5.52

£5.73

18-21 year olds

£4.60

£4.77

16-17 year olds

£3.40

£3.53

eSmartTax - April/May/June 2008

ENTERPRISE NEWS IN BRIEF

Incapacity

benefit reform

From late 2008, an integrated and simplified Employment and Support Allowance (ESA) will replace the current system of incapacity benefits for new claimants and will have a clearer balance of rights and responsibilities.

The introduction of ESA will be

Serviced building plots Ruling will affect developers of properties of various kinds HM Revenue and Customs (HMRC) have announced changes to the VAT treatment of serviced building plots.

A serviced building plot is a plot of land on which the civil engineering works have been carried out in order to facilitate construction. As such, the plot has electricity, water, sewerage and drainage and, if applicable, lighting and/or gas available to it.

In the past, a supply of such a plot has been treated as two supplies for VAT purposes, a supply of the land (exempt from VAT) and a supply of the civil engineering services (standard-rated for VAT purposes). HMRC now accept that there is only a single exempt supply of land in such cases.

This in turn means that where civil engineering services are supplied to a landowner, these should be zero-rated when being made in the course of the construction of a building designed as a dwelling, or buildings intended for use solely for a relevant residential or a relevant charitable purpose.

eSmartTax - April/May/June 2008

For this to apply, HMRC expect that the landowner holds sufficient planning consent to demonstrate that the civil engineering works were carried out in the course of construction of a building designed as dwellings, or buildings intended for use solely for a relevant residential or a relevant charitable purpose; the civil engineering is closely connected with or facilitates the construction of buildings; and the construction of the buildings will follow on closely after the completion of the civil engineering works.

The ruling will affect developers of properties of various kinds, including DIY house builders. The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

accompanied by a new Work Capability Assessment (WCA), which will apply to new claimants from October 2008. To ensure that the increased focus on a person’s capability to work has an impact for current as well as future claimants, the Budget announces that all existing incapacity benefits claimants will be required to take the Work Capability Assessment from April 2010.

The government is also looking at the way it contracts with specialist providers to support existing longterm incapacity benefits claimants.

The government will explore using a new funding mechanism to reward private and voluntary sector specialist providers for investing in helping long-term incapacity benefits claimants to return to work.

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35

ENTERPRISE

Changes

announced to the treatment of input VAT Businesses will be affected that make exempt as well as taxable supplies

HM Revenue and Customs (HMRC) have announced changes to the treatment of input VAT that will affect businesses which make exempt as well as taxable supplies.

Under the previous system, a business which purchased an asset used for both exempt and nonexempt supplies could reclaim all of the input VAT when it was purchased (called ‘Lennartz’ VAT accounting, following the leading case on the matter) and then pay output tax relating to the use of the asset during its period of use. The alternative, of claiming the same proportion of the input VAT that applied to the taxable use of the asset, was also allowable.

Modifications were made on 1 November 2007 relating to the period over which output VAT needs to be accounted for when using the Lennartz system.

It has been announced recently that the European Union is to review the whole area of partial exemption for VAT and, in particular, is likely to abolish the availability of Lennartz VAT accounting on the purchase of freehold property.

In a further move designed to increase VAT receipts, HMRC have announced that ‘independent living units’ for the elderly that are built in the curtilege or grounds of a care home do not meet the requirements for zero-rating and their construction will therefore be subject to VAT at the standard rate.

However, following a reverse in the court, HMRC have had to relax the rules on reclaims of VAT paid by mistake in the past.

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