Using your own car for business – A quick reminder.

If you are an employee or director using your own car you are able to make a tax free claim for mileage.  From the 6^th of April this year the mileage allowance on which you can claim tax relief was increased from 40p to 45p per mile. However, as before, this applies only for the first 10,000 business miles in the tax year, with the excess mileage only qualifying for a mileage allowance of 25p per mile.

 Employers do not have to pay mileage allowance nor do they have to pay 45p per mile, however if they pay less than 45p any shortfall can be claimed by the employee/director as a tax relief. If your employer pays you more than the statutory rate, the excess will be taxed.

 Do not forget that if you drive your own car on a business trip and take colleagues with you, your employer (which of course includes your own company) can also pay you a tax-free 5p per mile per passenger, so yourself and two colleagues in your car and you can claim 55p per mile tax free.  But the Revenue in their inimitable way will not allow any tax relief claim should the employer not be willing to pay this additional 5p per person, strange but true!

 The self-employed among you who have not yet reached the VAT threshold (currently £73,000) can also use these new rates to make a claim for business mileage, but of course you will also have the option of to claim the actual business use expense.

 Volunteer drivers can also use the rates to calculate the taxable profit on mileage allowances received from hospitals, social service agencies and other voluntary organisations.

About the author: Nigel Dack FATT is a client manager at Adams and Moore Charetered Certified Accountants.  Contact Nigel at Nigel@adamsandmoore.co.uk if you have any questions or wish to find out how we can help you. 

Buy green, and get £5,000 off a brand new car

JUST A QUICK NOTE FOR ANYONE THINKING OF BUYING AN ULTRA-LOW EMISSION CAR such as the ‘Smart fortwo’.  From January this year, the government has been giving a grant of 25% up to a maximum of £5,000 against the cost of a newcar.

How do you claim this?  Merely agree to buy the car from a recognised dealer who will automatically reduce the price by £5,000 but will ask you a few questions as to why you are buying the car.  More details on the Department for Transport website.

    I took a look at the first car on the Department for Transports list of qualifying cars, the ‘Mitsubishi i-MiEV’, which is small but is a four door hatch back.  The Mitsubishi company makes the following claims about running costs for this very innovative car:

• Costs just £270 to charge for 12,000 miles driving (£2.09 per full charge based on an average of 10p per kWh). If you are using the Economy7 tariff then the cost for 12,000 miles could be as little as £135 (£1.05 per full charge based on an average of 5p per kWh)
• Low servicing costs and downtime – only 4 major working parts compared to over 300 in a typical internal combustion engine
• The i-MiEV Mitsubishi Service Plan (MSP) covers the first three years servicing at a cost of just £300
• Servicing carried out by any one of Mitsubishi’s 133 service dealers
• Exempt from road tax
• First year capital allowances for fleet vehicles
• Zero benefit-in-kind company car tax
• Exempt from London Congestion Charge
• Free parking in some London boroughs and cities such as Milton Keynes
• 5 year battery warranty and 3 year vehicle warranty

Almost negligible running costs, free parking and the government gives you £5,000 to help buy it! 

    It would seem to me to be something that companies operating in and around the capital and larger cities should be at least considering, no car tax, not taxable as a benefit in kind, capital allowances available and exempt from congestion charge. 

About the author: Nigel Dack FATT is a client manager at Adams and Moore Charetered Certified Accountants.  Contact Nigel at Nigel@adamsandmoore.co.uk if you have any questions or wish to find out how we can help you. 

Recognising Income

FOR MOST BUSINESSES, INCOME RECOGNITION does not pose any problems. 

Income is recognised when a transaction is recorded with the certain expectation that payment has or will be received.

For most businesses, income is recognised on  the same date sales are made, which also tends to correspond to the date the sales invoice in raised.

For many other businesses, recognising income is no where as straight forward as that. For example, if;

• income is received prior to the goods being dispatched, manufactured or services performed,
• the services to be performed straddled more than one accounting year,
• there is some degree of uncertainty associated with the receipt of payments
• there are contract approval processes which are complex or under dispute

Left entirely to most directors, decisions to recognise income may not reflect the transaction in a clear unbiased fashion.

Accounting standards

To address this ambiguity, accounting standards which are usually derived from General Acceptable Accounting Practices (GAAP), have been established and adopted to guide the process of  income recognition. There are a couple of these, some of the most popular being;

1. IAS 18 Accounting Policies, Changes in Accounting Estimates and Errors
2. SSAP 9 Stocks and Long Term Contracts
3. FRS 5 Reporting the Substance of Transactions
4. UITF 40 Revenue Recognition and Service Contracts

As you may deduce from their headings, each of these cover different elements and scenarios associated with income generation for a range of business entities and transactions. However, they seldom cover every scenario, and sometimes conflict with other standards.

We could go into detail here, but the only party really likely to make a fuss as to when income is recognised is HM Revenue and Customs, because of the impact it ihas on the tax liability. For this reason, it is worth knowing whether an entity’s income is being recognised at the correct point in the trade cycle.

Get advice

Each case is different. If in doubt it is well worth getting some advice. The first point of call should be your accountants; given their knowledge of your business, they should be able to advice you without charging you an arm and a leg for what we generally consider to be routine advice.

About the author: Egbert Johnson FCCA is the Audit and Accounts Manager at Adams and Moore Chartered Certified Accountants. For more information and enquiries contact egbert@adamsandmoore.co.uk

HMRCs new late filing penalties

The new tax year inevitably means one thing – your tax return is now due!

You have until 31 January 2012 to get your 2010/11 tax returns filed online, but be mindful of the new HMRC late-filing penalty regime that packs much more of a punch than anything we have seen in recent times.

But if you are one of these upstanding citizens who always file their returns and pay their taxes well before the 31 January deadline, then carry on; there’s nothing to see here!

 

Key changes

For the rest of us, the changes to the penalty regime are well worth noting.

• From April 6, you can no longer use the well-honed get out clause ‘I’ve paid all my taxes’ or ‘I don’t have a liability so you can’t fine me £100 if my return is late’, because now they can.
• What’s more, penalty fines could increase to over £1,300 if HMRC get their way!

So what else has changed?

Well the new late filing penalty regime for tax returns is:

Day one: you will be charged an initial penalty of £100, even if you have no tax to pay or you have already paid all the tax you owe.

Three months late: you will be charged an automatic delay penalty of £10 per day up to a maximum of £900.

Six months late: You will be charged further penalties, which are the greater of 5 per cent of tax due or £300.

12 months late: You will be charged yet more penalties, set at the greater of 5 per cent of tax due or £300.

Defending this policy, HMRC have released the following statement

“The vast majority of people don’t have to pay penalties because they send in their return and pay on time. But there are always a small number of people who have avoided filing or paying on time. HMRC spends a lot of time pursuing late returns and getting involved in unnecessary appeals work. We want to focus our resources on more productive work such as catching criminals and collecting tax. The old £100 penalty was not much of a deterrent and these new penalties, which increase over time, will get people to submit returns as soon as possible. Basically, the greater the delay, the greater the penalty.”

It is important to note that these penalties are in addition to any interest charged on overdue payments, so can end up being fairly considerable. So don’t get caught out.

About the author: Richard Jepson ACCA is the Tax Manager at Adams and Moore. For more information or to make an enquiry contact Richard@adamsandmoore.co.uk

Business Secretary seeks to cut red tape for small business – Good news and Bad news

In a recent Mansion House speech, Vince Cable the Secretary of State for Business outlined his vision of the audit and accounts requirements for small companies. Notably, Mr Cable will like to see:

• Small and medium sized businesses exempt from audit
• Companies with turnover and assets less than £2m exempted from the requirements to file accounts.

Mr Cable is not alone. Generally, law makers’, not just in the UK but across Europe believe that the statutory filing requirements for small and medium sized businesses are an undue burden to small and medium-sized businesses.

Assuming Vince Cable gets his way, over 75% of UK companies  that currently file their accounts will no longer be required to do so. This in theory, should translate to reduced accountancy fees, which if it happens in practice, is great news for clients.

Now the not so good news

This is unlikely to become law anytime soon. Mr Cable does not yet have enough backing in Europe to see his ideas through to statute, nor can he expect to pass them through the UK parliamentary system without the backing of the accounting professional body’s pressure group.

Judging by recent developments in de-regulations however, it may well be just a matter of time before these changes make it to law. The big question is; when they do, will the savings be passed on to clients?

At Adams and Moore, we have reviewed our entire clients services portfolio. Where possible we have reduced clients’ fees by providing clients with adequate training so that they can maintain some of the non-accounting tasks associated with fulfiling their statutory requirements.

About the author: Egbert Johnson FCCA is the manager responsible for Audit and Accounts at Adams and Moore Chartered Certified Accountants. For more information contact Egbert@adamsandmoore.co.uk

2011 Budget Summary

CHANCELLOR GEORGE OSBORNE presented his second budget on Wednesday 23 March 2011.

In his statement, Mr Osborne began by saying,

” this budget is about reforming the nation’s economy so that we have enduring growth and jobs in the future.”

The Budget updates previous announcements and also proposes further measures. Some of these changes apply from April 2011 and some take effect at a later date, so the timing must be factored into any tax planning that must now reflect these changes.

Main Budget proposals

• A 2% cut in the main rate of corporation tax to 26%
• Enhanced tax incentives for investment in higher risk companies and for SMEs investing in research and development
• Reintroduction of Enterprise Zones
• Entrepreneurs Relief doubled to £10m
• An increase in the mileage rate payable to own car drivers
• Consultation on integrating income tax and national insurance contributions
• Reduced inheritance tax rates for those giving one tenth of their estate to charity

Our summary focuses on the issues likely to affect you, your family and your business. We have included our own comments to help you understand how what was said could impact you.

Click here to read our summary of the Budget 2011

Please do not hesitate to contact us for advice.

2011 Budget: Our verdict and initial reactions

CHANCELLOR GEORGE OSBORNE announced today that public borrowing figures will be down to £29bn by 2015/16 compared with £146bn for 2010/11.

The budget was received with ‘cautious optimism’ from the city, as the Chancellor set out policies that could see Britain simplify the tax system, return the lowest corporation tax in Europe by the end of this parliament, and deliver a package of initiatives to boost jobs and youth employability.

Labour Leader Ed Miliband ridiculed government claims that its budget is about growth and recovery. Citing the Chancellor’s downgraded forecast for economic growth from 2.1% to 1.7% this year, the leader of the opposition said:

“Growth is down this year and next year. It’s the same old Tories. It’s hurting not working.”

Miliband said the slowdown was because the government was going “too far, too fast” in its plan to eradicate the budget deficit by 2015.

The Chancellor began his speech by saying the government does not intend to increase taxes.

Indeed, Osborne increased the personal tax allowance by £1,000 – the highest annual increase in history, which will lift millions out of paying taxes altogether. The Chancellor of the Exchequer also announced plans to create 250,000 apprenticeships over the next 4 years, extended the Business Rate relief till October 2012, and surprisingly reduced fuel duty by 1p a litre, where Labour had planned an increase of 4p.

Over the next week, we will be examining the detail behind the announcements and advising our clients accordingly.

New Junior ISA to replace child trust fund (CTF)

The Government is to introduce a new Junior ISA to replace the child trust fund (CTF) account which has been discontinued.

Vouchers at birth will no longer be issued for children born on or after 3 January 2011. However, any existing vouchers which have not yet been used to open an account remain valid. See http://www.childtrustfund.gov.uk for more information.

The new arrangements will provide parents with a simple and new tax-free way to save for their children but without any contributions from the Government. The features of the new account will be:

• All returns will be tax-free
• Funds placed in the account will be owned by the child and will be locked in until the child reaches 18
• Funds can then be withdrawn without losing any of the tax benefits
• Investments will be available in cash or stocks and shares
• Annual contributions will be capped, although the limit has not yet been set

The new accounts should be available in autumn 2011. Eligibility will be backdated from then to ensure that no child born after the withdrawal of the child trust fund vouchers will miss out on a tax-free savings opportunity.

“The key advantage of parents making contributions into a Junior ISA is the combination of tax-free status and capital growth. If a parent instead provides capital in an ordinary bank account or makes share investments for their child, annual income in excess of £100 will be treated as taxable income of the parent. It therefore follows that significant tax savings could accrue over the life of a Junior ISA account.” – Richard Jepson ACCA (Tax Manager at Adams & Moore Chartered Certified Accountants)

New government tax proposals may impact those with unearned income

CHANCELLOR GEORGE OSBORNE is expected to outline how he will merge income tax and national insurance contributions (NICs), and phase out differences between the tax and what is technically a contribution towards welfare and pension provision, in tomorrows budget speech.

In 2011, income tax and NICs are forecast to raise c£250billion, or approximately 45% of tax revenues. If the recommendations of the Office of Tax Simplification (OTS) created  in July 2010 by the Chancellor of the Exchequer to review small business taxation are fully implemented, the Chancellor could announce a timeline for the unification of income tax and NICs in the House of Commons tomorrow.

This is not a new issue. HM Treasury last publicly commented on this in the 2007 paper Income Tax and National Insurance Alignment: An Evidence Based Assessment. Since then, the Mirrless Review  produced by the Institute of Fiscal Studies has come out in favour of integrating the two systems into a single tax.

In a move Sir Humphrey from the 1980s hit satirical sitcom ’Yes Minister’ would describe as ‘courageous’; if this goes ahead, there are bound to be winners and losers.

The approach will make it easier to deal with the outstanding issue of IR35 and the fairly complicated taxation of the self-employed; but with different thresholds and rules to be aligned, it is likely that attention will concentrate on those who will lose out, including those with unearned income such as pensioners who at present pay no NICs and higher earners, such as company directors who try to ‘disguise’ some of their earnings.

“We will carefully study the Chancellor’s proposals in order to be in a position to advice our clients on how they may be impacted by the proposed changes”                                                                                                                                - Richard Jepson ACCA (Tax Manager at Adams & Moore Chartered Certified Accountants)