31 January 2008 Payment of Self Assessment tax.

2006/07 Income Tax Returns must be lodged by the above date.

We should have dealt with, or be dealing with, any Accounts to be dated 30 May 2007, or earlier.

It has always been normal good practice, but it is now mandatory for those registered, to issue VAT invoices containing a sequential invoice number.

Those employing sub-contractors under the above are reminded that monthly Returns must be made on time. HM Revenue & Customs have power to issue penalties for late submissions. This even applies to nil Returns!

A nil Return can be made by simply ’phoning the CIS help-line. If not making regular payments, contractors can ask to be recorded as inactive. Returns may not then be required for up to six months.

According to the National Audit Office, 1/3rd of large UK companies paid no Corporation Tax in 2004/05.

It must be the case that most (if not all) of these companies are multi-national. They are subject to the same general rules as your company. The differences are most probably:

If multi-national they would tend to “slant” taxable profit towards the most tax- friendly nation. For example: if they have a presence in Eire, it would be natural to prefer to see profits subjected to just 12.5% there, rather than 28% here.

They may get tax relief in the UK for some (but not any) expenses incurred here which actually benefit an overseas interest.

Most probably, unlike your company, all their executives are paid mainly in the form of salary and share options, etc., fully subjected to UK PAYE taxation. If you did the same, perhaps your company would pay very little Corporation Tax too (but an awful lot more PAYE!).

The malaise demonstrated means that we must ensure that we have clients’ correct and up to date telephone / fax numbers and e-mail addresses.

Capital Gains Tax

With effect from 5 April 2008, the rate applicable taxable gains is to be 18%.

This is proposed to replace the regime under which gains were taxed at 10%, 20% or 40%, depending upon the taxpayer’s highest marginal rate of Income Tax.

It is proposed, at the same time, indexation allowance and Taper Relief are to be abolished.

The simplification is to be welcomed, but there is now another tax rate and the loss of the allowance and relief (particularly that for Business Assets) is a shame.

This is evidently in response to the perception that Private Equity managers were not paying enough tax. It means that there is now no tax benefit in holding assets for any length of time.

The Annual Exempt Amount (currently £ 9,200) will remain in place.

Some tax planning may be necessary now.

Inheritance Tax

With effect from 9 October 2007, the estate arising from the death of the previously surviving party to a marriage can claim that proportion of the nil rate band unused upon the earlier death. The balance of such unused band will then be added to the estate arising on the second death.

This means (for example) where a whole estate has passed to a surviving spouse, free of Inheritance Tax, upon the second death there should be 2 x the nil rate band (currently £ 300,000) available before any tax becomes due.

“Non Doms.”

Non domiciled UK residents (resident for more than 7 year) will be required to pay an annual charge of £ 30,000 as contribution, in respect of foreign income and gains. Users of the remittance basis will loose their tax personal allowances thereon.

The detail is to be subject to consultation. The measures will be if concern only to those “Non Doms.” who have significant income, or gains arising outside of the UK.

Previously, “Non Doms.” might only have been required to pay tax on foreign income remitted to the UK.

                                I Tax                   NIC                    NIC

Income, per annum     Rate                 Employee          Self-Employed

First    £   5,330             Nil                       Nil                    Nil

Next    £ 33,410            20%                     11%                 8%

Next    £  1,890             20%                       1%                 1%

Above £ 40,630             40%                       1%                 1%

Other tax rates, etc. known as should be for 2008/09 are:

Corporation Tax (Main Rate) 28%

Corporation Tax (Small Company) 21%

Income Tax Lower Rate abolished

Income Tax Standard Rate 20%

Income Tax Dividend Tax Credit 10%

Income Tax Savings Rate 20%

Capital Allowances (annual) 20%

From 9 October 2007

Inheritance Tax threshold is increased to take in the proportion of £ 300,000 not taken on the first death . This is irrespective of how long ago the first death occurred.

Family Companies and Partnerships

For the individual members, consider: their investment, the risk undertaken and their work actually done, compare to their salary and dividend entitlements / share-holdings. Be prepared to take action before 5 April 2008.

More generally: is it possible to move remuneration more tax efficiently between members and the tax years 2007/08 and 2008/09? As far as is possible, see that Personal Allowances and lower/standard tax rates are utilised to best effect.

Capital Gains

1. If you are to make asset disposals that will attract Capital Gains Tax, consider whether your spouse has un-used allowance that could also be utilised. And:

2. Would it be better to leave the disposals until after 5th April, to take benefit of the new rate of 18% and postpone tax payment for a year?

3. After all available relief and the Annual Exempt Amount if you have taxable gains, consider realising some losses to off-set the gains.

4. If you have Capital losses, but could realise gains, it may be sensible to realise such gains as will cause no taxation payment. It may be possible to re-acquire the assets, thus re-basing asset costs to current (but most probably re-acquisition must be more than a month after the sales).

5. If you currently have assets that attract indexation allowance and / or taper relief. You may need to discuss this with us. Even if it will precipitate a taxable gain, it may be that assets sales, under the existing rules, should be made.

More Generally:

Pension Contributions: Bring forward a payment into within the year 2007/08?

ISA  Take up a plan for 2007/08? (These will be less beneficial under the new CGT rules, but still advantageous.)

Inheritance Tax  Use the allowances for exempt transfers for 2007/08?

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