6 July: Filing of 2007/08 PAYE forms P11D (Expenses and benefits).

31 July: Payment of 2nd instalment self assessment taxation is due.

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

On 13 May 2008 the Chancellor bowed to parliamentary pressure regarding the loss to earners of the 10% tax band. He increased the Income Tax Personal Allowance by £ 600 to £ 6,035 and reduced the income threshold at which 40% higher-rate tax applies by the same, to £ 34,800. (See inside)

Study of the ‘small print’ of the March Budget proposals shows that:

Traders and goods taken for private use.

The general rule that goods supplied for private use should be charged out at full selling value is tightened. To avoid this, it is important that, when this can be pre-determined, the trader should see no part of the transactions are allowed to go through the business records. (See below)

Losses to be set off against other income are to be restricted to a maximum £ 25,000. The general rule that no tax relief is allowed if a business is run purely to obtain such tax relief is tightened.

Capital Allowance pools of below £ 1,000 can be written off.

Goods for own use/consumption

All are probably familiar with the rule that anything purchased for private use is not allowable as an expense for taxation purposes. Less well known is that if a business purchases such, then strictly speaking, any taxable benefit enjoyed is to be treated as if it were supplied to a customer, both as regards general taxation and VAT. The perfectly proper “trick” to avoid such is to have the supplier invoice you personally for the goods and to pay it privately. I.e. avoid any record whatsoever from appearing in the business records.

IR35 Regulations

Whilst HM Revenue &Customs seem to have been remarkably unsuccessful with recent cases, they persist in bringing forward those which may be doubtful. Individual cases do need to be considered “in the round,” including (in spite of contract substitution clauses, etc.) how work done is actually performed.

The 2008/09 Finance Bill Change

The adjustment to the Income Tax Personal Allowance, increased to £ 6,035, will save £ 120 for the year for basic rate taxpayers. Regarding PAYE, instructions from HM Revenue & Customs are awaited, but it is expected that this will be in the form of a general instruction increasing PAYE codes effective from 6 October 2008. At that time, employees can expect a PAYE reduction of £ 60.00 and their taxation will reduce by £ 10.00 per month from then.

Higher-rate taxed employees can expect their taxation unchanged. (They gain the same, but loose it because of the Income Tax higher-rate threshold reduction.)

National Insurance

For 2008/09, the link between the tax personal allowance and threshold for National Insurance contributions (NIC) has been lost. There is to be no change.

The 2008/09 10% Income Tax Rate

The band of income taxable at this rate rests upon the Income Tax Personal Allowance. However, the starting rate of tax on wages, salaries and pensions is the standard rate of 20%. This means that the 10% rate will only apply to bank interest earned within annual income of the Personal Allowance £ 6,035 plus the 10% band £ 2,320 = £ 8,355 less the amount of earnings and pensions.

For example, earnings of £ 7,000 plus interest received of £ 3,000 would give PAYE tax due on earnings (£ 7,000 less £ 6,035 @ 20%) £ 193.00, plus tax due on the interest (on £ 1,355 @ 10%) £ 135.50 and (on £ 1,645 @ 20%) £ 329.00. Total Tax £ 657.50. (National Insurance Contributions deducted are on the earnings only, of course: 11% of £ 7,000– 5,435 (as before) = £ 172.15.)

Anyone under the age of 65 who has earnings/pensions exceeding £ 8,355 has no entitlement to the 10% rate on any interest received, but the effective basic rate for dividends remains at 10% of the grossed-up dividends.

Another effect is that the 10% rate is no longer automatically applied, it has to be claimed.

This agency has been having problems. Any advices from them should be studied, they could be in-accurate. The agency is having to review/revise its procedures because of the Companies Act 2006.

Accounts for periods starting on/after 5 April 2008 for private limited companies are due filed within 9 months: a month earlier than before.

Recession?

It seems clear that the UK consumer is spending less. If there are generally increasing costs and tighter credit, businesses face possible lower gross revenue and profit margins.

It is a good time to review and take action. Consider drawing up a 12 month profit forecast, review your market, selling prices, your costs, your strengths, your weaknesses, etc. At a time when there is increasing fear of recession, can you turn it to your advantage? For example, recognise the fact that customers may be worried: they too will be looking at their costs, it gives you better opportunity to be heard and possibly offer deals which are more competitive and attractive. Amongst other matters:-

What drives customers to your door? How effective are the means? Can they be improved? At what cost? Is there anything that puts them off? Is there scope to improve value and quality? What are your competitors offering? Maximise sales.

Are you involved in any loss-making products or activities? If these are discarded, what are the consequences?

Can you get better deals from your suppliers? Or, should you re-source from elsewhere? Minimise costs.

Could some activity be better out-sourced, or indeed “in-sourced?”

What assets are under-utilised? Can better, or additional profitable use be made of them? Should any be sold?

Bad Debts are generally of more concern. Insist that you are paid in accordance with your terms.

Format of the Returns has been made so that these are easier completed. The self assessment calculation is not necessarily shown, but we will always calculate it and advise you. Filing of paper Returns must now be completed by 31 October. We are taking steps to see that we are in a position to file all clients’ forms electronically “on-line,” for which the final filing date remains 31 January. Because we will always need a copy of the signed document and dealing with these on paper does provide a double-check, filing on paper is still a preferred (and less expensive) method.

Re-Mortgaging and the ‘credit crunch.’

If you are thinking of re-mortgaging:

Credit Rating

As soon as you can, first check your credit rating. If necessary, take action to make it good.

Valuation and Deposit

Check the current value of the property and consider what your equity is. You may need to talk to your Estate Agent to establish the value. If possible, consider you may reduce the amount of your loan application.

Costs

Be aware of the costs. Lender’s fees have been increasing. Standard variable interest rates can generally be increased with short notice. Do not forget study of early redemption charges. Offset loans can reduce interest costs.

The Deal

If you have found a good deal, see if you can reserve it to be activated later.

General

Be prepared to act quickly. Offers can be withdrawn without notice.

Application ‘on-line’ can make the process quicker.

Make sure that you can prove your income (particularly self-employment).

Consider any other options.

New Mortgages

Broadly, the same considerations apply.

There is no definition of a “service company” by HM Revenue & Customs. In context, a question in the PAYE form P35 is very clearly aimed at companies subject to IR35, or Managed Service Company regulations. There is no doubt in how this is to be answered.

A new question appears in the personal 2007/08 Income Tax Return. This asks for the total income appearing in the Income Tax Return derived from “provision of services, through a service company.” In this case there are no contextual considerations. We take the view that, if it applies, the question must be answered. However, answering does not mean that the company is necessarily subject to any particular regulations.

@ 27 May 2008    At Close £ = Euro € 1.256

                                                    = US $ 1.975

                                    FTSE 100 = 6058.5

With on-going investor concern regarding the world-wide high price of oil, commodities generally, the ‘credit-crunch’ and monetary inflation, stock-markets remain volatile.

The FTSE 100 index being very much weighted with oil, mining and banks stocks is not a very good indicator of the state of the UK economy, nor of its prospects.

Changes of the nature announced 13 May increase the propensity for errors made by HM Revenue & Customs and also in respect of taxation software and generally, by anyone.

It was no surprise that a few FTSE 100 listed companies are seeking to move from the UK and trade from Ireland. They could save a lot of Corporation Tax.

Hard on the heels of shocks about MP’s expenses comes the revelation that the 83,000 staff of HM Revenue & Customs do not need to submit receipts, etc. to justify their claims.

On the day that the Bank clipped 0.25% off its lending rate, some mortgage lenders actually increased some of theirs. The banks are still not over-keen to lend to each other. Credit is generally much more difficult to obtain, so what was an automatic link between BoE and commercial lenders is broken. It is the market that determines such things. In effort to bring it back, with technical asset swap procedures, BoE puts unlimited funds into it! This is in the form of UK Treasury bonds, in exchange for mortgage backed guarantees, from lenders.

So, what did our newly nationalised lender do?

Northern Rock

‘The Rock’ reduced its variable rate by just 0.10%. (If the above sort of BoE funding had been available in August 2006 ‘The Rock’ could have remained solvent and private.)

To return directly to the greenhow home page click here: [home] or view:   [Bulletin No.40], [Bulletin No. 41],[Bulletin No. 42] , [Bulletin No.43],[Bulletin No.44],[Bulletin No. 45],[Bulletin No. 46],[Bulletin No. 47]

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