Continue reading »]]> Budget 2012

Last Wednesday 21^st March The Chancellor George Osborne delivered his annual budget. Unfortunately for him this was quite possibly one if the most leaked budgets in history and therefore there wasn’t much in his statement which we weren’t already expecting!

We’ve allowed the dust to settle on his announcement and decided now would be a good time to post our latest blog on the subject. I will briefly go through the main areas below with my initial reaction to the points so please feel free comment on the blog with your thoughts.

Personal Allowance

There are two points on the personal allowance, one positive and one negative.

To start on a positive note the first point is to state the new personal allowance for individuals under the age of 65 from April 2013 onwards will be £9,205, which the government claim will take one million people out of paying tax at all. This also averages out to a £220 gain to the average tax payer.

The negative side of the personal allowance announcement came for the over 65’s. The current allowance is £10,500 and this will be frozen from April 2013 for anyone born after 5^th April 1938. The government estimates this will bring in £3.5bn of revenue which is a significant sum. No-one, however, that already receives these allowances will lose them.

To compensate for the increase in the general personal allowance the higher rate band has been reduced. The limit at which tax payers will contribute at 40% will be decrease from £42,275 in 12/13 to £41,450 in 13/14. This is expected to bring another 1 million people into the higher rate band. A study by Grant Thornton has revealed that the number of tax payers in the 40% bracket will have increased from 3 million to 5 million during the Chancellor’s reign.

50% Tax Rate

As leaked before the budget the Chancellor did announce that the current 50% tax rate for higher earners would be decreased to 45% from April 2013. This could be worth up to £40,000 to the highest earners in the country however Mr Osborne states that this will only result in a loss of £100m to the revenue and that this was not as big an earner to the public funds as they expected.

Stamp Duty

The announcement on stamp duty will not be greatly received by either millionaires buying luxury homes or first time buyers at the bottom of the market.

The chancellor has issued a new stamp duty on homes costing £2m or more at 7% and this equates to a £140,000 tax bill on a £2m house, and a rise in the bill on a £5m house from £250,000 to £350,000.

Wealthy individuals who buy £2m-plus properties through companies called ‘Corporate Wrapping’ to avoid tax will be hit with a hard 15% charge. There is also the expectation that a significant annual charge may be applied from next year to tackle those who have already used this tax planning loophole.

In terms of first time buyers the two-year stamp duty holiday, which ends today, wasn’t extended which did not surprise many people. Since March 2010, first-time buyers have been exempt from the 1% duty on properties between £125,000 and £250,000 this was worth up to £2,500 in some cases.

Child Benefits & Tax Credits

Individuals who work less than 24 hours per week will lose tax credits under the new regime which could cost families up to £1000. Also working more than 30 hours a week, having one child and earning more than £26,000 will mean that you lose £545 per year in child tax credits.

The Chancellor played with the idea of withdrawing child benefits for ALL higher rate tax payers last year but since then has decided against this. He has now introduced a taper system which if you earn over £50,000 then for every £100 earned over that amount you will lose 1% of your child benefits. This still gives the impression of a cliff edge scenario as two individuals in the same family earning £49,000 each will receive the full child benefits however if one earns £60,000 and the other doesn’t earn they lose them all.

The chancellor provoked uproar last year when he announced plans to withdraw child benefit from any household with a higher-rate tax payer. This Budget he relented, introducing a new system where child benefit is only withdrawn on households where someone has an income of above £50,000. At that level, the benefit will be reduced at a rate of 1% for every £100 earned over that threshold.

I expect this argument to run and run because of the sensitive nature of the subject.

Other Ancillary Taxes

Smoking will become an ever increasing expensive habit as another rise of 5% above inflation has been introduced. The average price for a packet of 20 will now be £7.46.

Alcohol will increase by 2% above inflation which is being suggested will make the average pint of beer £3.17 and bottle of wine £5.00.

Another tax being added is the ‘Hot Food Tax’ which is being more hotly debated than I initially thought would be. The Chancellor has announced that all hot food taken away for consumption will now be subject to VAT at a rate of 20% instead of the Zero rate in place before the budget.

Greggs, one of the larger outlets affected by this rise have said they will be considering challenging the government on this and even David Cameron himself has chipped into the argument stating his love for Cornish pasties in a recent TV interview.

All bodybuilding drinks, currently VAT free because of their “nutritional content”, will also become VAT-payable.

Conclusion

I believe the above covers the main areas of the latest budget. If you would like to read further on this then please visit the HM Treasury site at http://www.hm-treasury.gov.uk/budget2012.htm. Should you wish to discuss any of the above points further or more tailored to your specific requirements please visit our website www.dsaccountancy.co.uk  for our contact details.

Continue reading »]]> Hi, my name’s Oliver and I love statistics, there I said it, I feel much better now.  I could sit and look at them all day long about every area possible.  I like to work with facts; statistics give you those facts in a short and simple figure.  This is probably the reason I become an accountant.  This is why I am all for the latest campaign from HMRC.  They have seen the statistics and are looking to correct it. Now I know not everyone is like me and some people have no interest in attempting to get their heads around boring government statistics so I thought I would briefly break down the important areas below.

HMRC have what they call a ‘Tax Gap’.  This in simple terms is the difference between what is collected for tax and what HMRC believes should be collected.  This is made up of the following areas: non-payment, use of avoidance schemes, interpretation of tax effect of complex transactions, error, failure to take reasonable care, evasion, the hidden economy and organised criminal attack.

In the tax year of 2009-10 they estimate this figure to be £35 billion.  This equates to 8% of the total tax liability.

See below the chart showing figures and percentages for the particular areas of concern.

To address this HMRC have set up new campaigns to target people they feel are not declaring tax that should be.  The attractions of these schemes are that if you come forward during the period that they specify then you are given certain exemptions from fines and extra fees.

There are currently two ‘live’ campaigns, the “Tax Catch Up Plan for tutors and coaches” and the “Electricians’ Tax Safe Plan”.  They also have set out the dates for a future campaign for the e-marketplaces.  This will start on the 14^th March 2012.

HMRC are clearly targeting groups they feel will include large numbers of potential tax payers that are currently not doing so.  They are making it clear in all their publications that if you do not claim within the time period they will actively come to you and the fines could be significant, this also includes legal proceedings. The plans are outlined below.

Tax Catch up Plan

This campaign started a while ago and is in the final stages.  They asked businesses to inform them of the intention to declare tax being owed and now requested amounts owed and paid by 31 March. Any businesses that have not come forward and declared any unpaid tax will now be pursued through the legal systems. If you are one of these I suggest you contact your local HMRC office quickly!

Electricians’ Tax Safe Plan

This is the current campaign from HMRC.  This campaign is designed for a similar purpose to the above in that HMRC are looking for business and individuals to come forward and declare non disclosed earnings or underpaid tax. This campaign is relevant to you if you are currently self-employed and feel there is a possibility you have not disclosed all your income, potentially meaning there would be extra tax to pay.

The main advantages for joining the scheme are that if you declare any errors now HMRC only require you to go back a maximum of 6 years and may decide not to charge interest or fines on the amounts owed. They have stated because you are the one making them aware of the discrepancy they are allowing a large amount of leniency. If you do not take part in the scheme they have the powers to go back indefinitely in order to claim all tax owed along with any interest and fines that may have accrued during this time. HMRC have a useful flow chart to help you decide if you are affected.

As you can see from the information above the government are looking to bring every penny owed to them back and seem to be hitting hard on the people that they feel are effected.

If you feel either of these plans affect you or simply wish to have a free consultation to determine if you are affected then please visit www.dsaccountancy.co.uk

Final Thought

As I said earlier I’m impressed by this government initiative.  By looking into the areas discussed above they are attempting to reduce the ‘tax gap’ meaning unnecessary tax rises are avoided in other areas. This is just the start of a long process and as seen recently in the high profile case of Harry Redknapp and Milan Mandaric, HMRC have the resources and powers to pursue any individuals or business they feel that are evading tax.

What are your thoughts?  Good idea or not so much?

Continue reading »]]> Every taxpayer may be given online access to their tax records, the government has suggested. The idea is part of a public consultation on making the personal tax system easier to use and understand.

Other ideas include supplying pre-filled tax returns to people in the self-assessment system using information from employers and banks. All taxpayers may be sent an annual tax statement in addition to their normal P60 form and PAYE tax code notice.

David Gauke, the Exchequer Secretary, said: “At the moment, for a lot of people, the tax line on their pay slip is the only time they see just how much they’re paying in tax, but the government doesn’t think that’s good enough.”

“We plan to lift the lid on tax so that people understand how much they are paying, what their overall tax rate is, and what they should be paying, in the same way that the government has lifted the lid on what they are paying for,” he added.

Online access to individuals’ tax records is a system that already operates in the Irish Republic. The government wants to know if UK taxpayers would be happy with a similar system here.

It also wants to know if UK taxpayers in the self-assessment system, who account for about 22% of all income tax payers, would like to copy the Danish example, in which some information is already filled in on tax forms when they arrive.

They draw on existing sources of information about incomes, such as employers, banks, pension schemes and letting agencies.

The Danes also send fully pre-filled tax statements to the 90% of taxpayers there who are not in the Danish self-assessment system.

The tax statements lay out where all the tax information has come from and what taxpayers can do if they think any of it is wrong.

The possible initiatives are part of a wider move by the government to improve the income tax system.

It is about to pilot a new system for the collection of so-called real time information (RTI), whereby employers will supply updated pay, tax and national insurance (NI) data about their staff to HMRC each month. This will mean the Revenue will not have to wait until the end of each tax year to work out if a person has paid the right amount of tax or not.
The introduction of a new computer system for income tax and national insurance two years ago revealed that millions of tax records for the past few years had not been reconciled properly.

This has led to several waves of letters being sent to millions of taxpayers giving them a tax rebate for one or more past tax years, or asking them to pay extra tax because they had been under-taxed in the past.

RTI will be piloted from April 2012 and will become mandatory for all employers from October 2013.

In addition, the government is in the process of consulting on a wider plan to merge the separate income tax and NI systems, which would help save some of the £1bn a year that HMRC spends on administering NI.

Source: BBC NEWS

Continue reading »]]> Ed Balls has unveiled a five-point plan to kick-start Britain’s stalled economy in a speech to Labour’s conference. It includes a VAT cut, tax breaks for small firms and using a bank bonus tax to pay for new affordable homes and guaranteed jobs for young people. If the coalition adopted the proposals, Labour would back it, the shadow chancellor said.

Mr Balls is trying to boost Labour’s economic credibility by saying it would not reverse all the coalition’s cuts. But the Conservatives said the plan would cost £20bn and Labour was “still dangerously addicted to debt”.

His five-point growth plan includes:

Repeating the bank bonus tax – and using “the money to build 25,000 affordable homes and guarantee a job for 100,000 young people”

Bringing forward long-term investment projects, such as schools, roads and transport, to create jobs

Reversing January’s “damaging” VAT rise now for a temporary period

Immediate one-year cut in VAT to 5% on home improvements, repairs and maintenance

One-year national insurance tax break “for every small firm which takes on extra workers, using the money left over from the government’s failed national insurance rebate for new businesses”

Mr Balls said David Cameron and George Osborne had “the wrong prescription” for the current economic crisis, which was the “most serious in my lifetime”. The shadow chancellor said Britain’s economy faced a “global growth crisis” which was becoming “more dangerous by the day”. He argued that having a growth plan would help get the economy moving again and “stop the vicious circle on the deficit” but said it wouldn’t “secure our economic future” on its own and tough decisions would still be needed on tax and spending.

With the party in the middle of a two-year policy review, manifesto commitments have so far been thin on the ground in Liverpool.

But the shadow chancellor made two new pledges in his speech.

“First, before the next election – and based on the circumstances we face – we will set out for our manifesto tough fiscal rules that the next Labour government will have to stick to – to get our country’s current budget back to balance and national debt on a downward path. And these fiscal rules will be independently monitored by the Office for Budget Responsibility.

“And second we know that, even as bank shares are falling again, David Cameron and Nick Clegg are still betting on a windfall gain from privatising RBS and Lloyds to pay for a pre-election giveaway.

“We could also pledge to spend that windfall.

“But we will commit instead in our manifesto to do the responsible thing and use any windfall gain from the sale of bank shares to repay the national debt. That will be Labour’s choice – fiscal responsibility in the national interest.”

But Treasury minister Justine Greening said the plans did not add up. “Announcing £20bn new spending after claiming he would be tough on the deficit shows Ed Balls has zero credibility,” she said. “He’s ducked all the tough decisions and refused to apologise for Labour overspending. “Labour is still dangerously addicted to debt.”

SOURCE: BBC NEWS

Continue reading »]]> Penalties could reach 100% of all outstanding tax for firms failing to take steps

HM Revenue & Customs (HMRC) will write to more than 40,000 small firms and sole traders over the next few weeks, in a bid to stamp out VAT evasion.

The Revenue says the letters will be sent to companies which, they believe, are avoiding the requirement to register to pay VAT – even though their earnings exceed the £73,000 threshold.

Businesses which only passed the £73,000 mark within the past 12 months will not face a penalty. However, for those which should have been paying VAT for a year or more, the fine will depend on the actions they take in response to HMRC’s enquiries.

Companies which come forward before September 30, and make a full disclosure, may be offered a partial amnesty; they will be required to pay just 10% of the VAT they’ve accrued since passing the threshold.

However, if they fail to take these steps, the fine could be significantly higher. Accountants are warning that HMRC could, ultimately, demand that a company pay 100% of all outstanding VAT.

Mike Wells, HMRC’s director of risk and intelligence, commented: “This is our third campaign, raising more than £500m from voluntary disclosures and a further £100m so far from follow-up activity.

“Our campaigns are designed to ensure tax is paid so that the money is available to spend on public services used by everyone. The aim is to make it easy for individuals and businesses to contact us, make a full disclosure of their income and face a reduced penalty on any tax owed.”

Continue reading »]]> Allowances are set to change, bringing to an end a way of offsetting costs against properties that are let to tourists.

Landlords are being urged to make the most of a little-known tax relief on their holiday homes before it’s too late.

Imminent changes to valuable tax allowances on holiday lettings mean that they should act now to offset losses potentially worth hundreds of thousands pounds against their income.

Favorable tax rules for furnished holiday lettings (FHL) survived by the skin of their teeth after the previous Labour government’s plans to withdraw all tax relief were scrapped. Under these rules, if you rent out your holiday property as short-term lettings, you are treated as if you are trading, rather than investing, for some specific tax purposes. As long as you meet the criteria and let on a commercial basis, you can deduct various expenses and allowances from your rental income to work out your taxable profit.

Instead of scrapping this relief altogether, the coalition has decided to restrict the use of loss relief for FHLs as of this April. Now holiday home trading losses can be offset only against future profits from that specific lettings business. Previously, owners could offset the cost of running and maintaining the holiday home against other personal income to produce a tax refund.

In the past the loss was treated as a trading loss and was available to offset against other income, but now you can carry this forward only against future profits. Capital allowances themselves haven’t changed and you may well still generate a loss, but you won’t be able to offset this against your salary or pension.

The other big change is the raising of the eligibility criteria so that, from 2012, qualifying properties must be let for at least 105 days in the year, up from 70 days. You must also advertise the holiday home as being available for at least 210 days of the year instead of 140 days and you cannot let the property to an individual for longer than 31 continuous days.

There’s no giving your friends and family cheap rent either – you must charge the market rate. Anyone who owns a number of FHLs will be able to average out the days they are let for across their properties. And, to make the transition easier, there is a “period of grace” to allow businesses that meet the threshold in only one year to use that to qualify for the following two years whether they meet the threshold in those years or not.

As a business, FHL properties qualify for capital allowance tax relief on the costs associated with providing plant and machinery, which you must claim in your annual tax return. This covers bathroom fittings, white goods, central heating, fitted carpets, pools, furniture and curtains. Typically, you can claim 50 per cent of the cost when you buy it and 25 per cent of what is left each year after that.

Tax experts estimate that capital allowances can be worth between 20 and 30 per cent of the purchase price of a property, equating to a tax saving of between £15,000 and £37,500 on a home worth £250,000. In many instances, once you’ve taken these allowances it is easy for many landlords to fall into red. Under the old rules this meant you could potentially generate a big tax rebate by setting it against other taxable income such as your salary. So for every £1 of loss, that’s £1 of your salary you don’t have to pay income tax on.

The crucial message, however, is that these rules still apply for the 2010/2011 tax year, so you must make the most of the last opportunity to offset any losses while you still can. There is also still time to amend previously submitted tax returns to HMRC to take advantage of the reliefs under the old rules; for the 2009/2010 tax return you have until 31 January 2012 to include a claim.

There are still opportunities for the owners of FHLs to offset losses sideways against any income for two tax years provided they owned a qualifying FHL in the year ending April 2010. The normal time limit for amending income tax returns is one year. As such, until 31 January 2012 clients may amend their April 2009/2010 tax return and offset the allowances against ‘other’ income.

Anyone letting property abroad should also make the effort to check and amend previous returns, as it was only in 2009/2010 that the FHL legislation was extended to qualifying property in the European Economic Area (EAA) as well as the UK. The final deadline for claiming capital allowances that would qualify for the 2010/11 tax year is 31 January 2013.

Furnished holiday lettings will continue to qualify for capital gains tax (CGT) reliefs so there is no CGT to pay providing you invest in another holiday let (known as rollover relief). You can enjoy entrepreneurs’ relief of business rates at 10 per cent rather than the personal rate of 18 per cent. Also, unlike private rentals, you can include income from an FHL for pension contributions.

Continue reading »]]> Help for Businesses

• Corporation tax to be cut by 2% in April, not 1% as previously planned
• Tax to cut by 1% in each of the next three years, reducing it to 23%
• Bank levy to be adjusted so banks do not pay less tax as a result
• 43 tax reliefs to be scrapped as part of simplification of tax code
• No new regulation on firms with fewer than 10 staff for three years
• Business rate relief holiday for small firms extended for another year
• New rules to require planners to prioritise growth and jobs
• £100m funding for science facilities
• 21 “enterprise zones” to be created in England, backed by tax incentives
• Reform of gift aid administration for charitable donations

Income Tax

• Personal tax allowance to rise a further £630 to £8,015 in April 2012
• Consultation on long-term plan to merge income tax and National Insurance
• 50% top rate of tax to remain but review of how much it raises
• Direct tax rates to be indexed to Consumer Price Index from 2012

Fuel, Cigarettes and Alcohol Duties

• Fuel duty to be cut by 1p per litre from 1800 GMT
• Planned inflation rise in fuel duty due in April to be delayed until 2012
• Annual 1p above inflation “fuel escalator” rise scrapped until 2015
• Measures to be paid for by £2bn extra taxes on North Sea oil firms
• VAT on fuel will not be reduced
• No additional changes to alcohol duty rates but 2% above inflation rise in excise duties for wine and beer to go ahead
• Tobacco duty rates up by 2% above inflation, duty regime to be reformed

UK Economy

• 2011 growth forecast downgraded from 2.1% to 1.7%
• 2012 forecast also down from 2.6% to 2.5%
• Inflation set to remain between 4% and 5% in 2011, falling to 2.5% in 2012

Borrowing

• Forecast borrowing of £146bn this year, £2.5bn lower than anticipated
• Borrowing to fall to £122bn next year, dropping to £29bn by 2015-16
• National debt forecast to be 60% of national income this year, rising to 71% in 2012 before falling to 69% by 2015

Other Taxes and Allowances

• Council tax to be frozen or reduced this year in every English council
• 10% inheritance tax discount for those leaving 10% of estate to charity
• Rise in air passenger duty to be frozen this year
• Private jet users to pay passenger duty for first time
• Inflation rise in road tax but duty for HGVs frozen
• Levy of up to £50,000 on so-called “non-doms” resident in the UK for 12 years
• Support for families in the south-west of England with water bills
• Tax avoidance clampdown to raise £1bn this year
• Supplementary tax on North Sea oil firms to rise from 20% to 32%

Housing

• Government-backed shared equity scheme to help 10,000 first-time buyers to purchase properties

Jobs and Skills

• Funding for 12 further university technical colleges
• Extra 40,000 apprenticeships for young people out of work
• Funding for 100,000 new work experience placements

Pensions

• Long-term aim for £140 a week flat-rate state pension not to applied to current pensioners

Roads and Transport

• £100m for repairing potholes in England
• £200m support for regional railways in England

Green Measures

• £2bn extra funding for Green Investment Bank – to launch in 2012
• UK to introduce a carbon price floor for the power sector

SOURCE: BBC NEWS

Continue reading »]]> Business secretary Vince Cable has pledged to remove the need for independently audited accounts for tens of thousands of small businesses.

The auditing changes form part the government’s overall growth review and come at the same time as CBI calls for economic growth in the forthcoming Budget. While still at the consultation stage, the auditing proposals are expected to save 42,000 small firms up to £40m per year. The government has identified accounts production and regulation as one of the greatest burdens to small business.

Cable said: “It’s important that we free small firms up so they can grow and drive the economy. The changes I have announced today mean that small firms will be able to concentrate on growing and taking on more people instead of paperwork.”

The government is taking action in the following areas:

• government will amend the Companies Act to bring small company audit rules in line with the EU minimum (50 employees or less, €10m turnover/balance sheet – roughly £8.6m at today’s rates) in 2012
• for even smaller businesses (less than 10 employees, €2m turnover/balance sheet – £1.7m equivalent) government will push for exemptions in European rules to remove the requirement to produce specific accounts for Companies House in addition to those for tax purposes – saving around £400m
• for medium sized businesses government will push for EU restrictions to be lifted so that they no longer need their accounts independently audited – this change could free more than 32,000 businesses from red tape
• government will look at relaxing the audit and accounts rules for subsidiaries.

The last change will benefit up to 23,000 dormant companies, including those set up to hold assets or intellectual property, or in preparation for transactions at a future date.

The increase in the audit level would bring the UK into line with the level suggested by the European Union, which is currently reviewing its 4th and 7th Accounting Directives, which may also pave the way for some of the other relaxations suggested. But the UK accountancy profession has taken the idea badly.

Source: accountingweb.co.uk

Continue reading »]]> Prime Minister David Cameron has hinted that the rise in VAT from 17.5% to 20% will be permanent. He said measures to tackle the budget deficit would have to be “pretty permanent” – but he hoped the 50p tax rate for top earners would be scrapped. Labour’s Alan Johnson said it would be “extraordinary” to scrap the 50p rate, not the VAT rise which hit the poor.

Last week’s VAT rise is the second increase in a year, after Labour chancellor Alistair Darling restored the 17.5% rate in January 2010, having temporarily reduced it to 15% for 13 months to stimulate the economy.

Mr Cameron was asked about whether the rise was a temporary measure, following comments from his chancellor, George Osborne, who last week said he regarded it as “permanent”.

The prime minister told the BBC’s Andrew Marr Show the government was trying to deal with the “structural budget deficit” – the gap between spending and taxes.

“That is structural, that’s not going to go away because of the growth, so the changes we are making have to be pretty permanent too,” he said.

The government hopes the rise in VAT will raise £13bn a year but it is predicted to hit retail sales.

However the prime minister said it was part of an economic policy, which was forecast to lead to an increase in employment in the next five years.

Continue reading »]]> The government has revealed details of its overhaul of state-funded business support, starting with the closure of regional Business Link support services on 25 November.

Business Link paid advisers will be replaced by thousands of volunteer mentors, the government has revealed, with plans to replace the current network with an improved national website and contact centre.

The main Business Link website will be re-launched in April with new features including a “Business Startup Hub” providing access to company registration, a searchable database of government contracts, online training tools and “better, clearer information” on regulation. A national contact centre to help businesses who cannot find the information they need on the web or who are not connected to the internet will also be set up.

Business Link’s 1,600 paid advisers meanwhile will be replaced by a network of 40,000 unpaid mentors who the Department for Business, Innovation and Skills said will offer “practical advice to existing businesses and people who want to start a business”.

It is expected that the mentors will be confirmed by June when an online “Mentoring Gateway” will go live. Among the organisations talking to the government about providing mentors are Ecademy, Horsesmouth and the Prince’s Trust.

The unemployed are also being targeted as future entrepreneurs with the introduction of the National Enterprise Allowance (NEA). It will be launched in Merseyside later this month and rolled out nationwide in the Autumn. Around £50m is expected to be available.

The NEA will give people who have been unemployed financial support for their early months of self-employment, access to a start-up loan, and a mentor. The government claims up to 40,000 new businesses will be created through the scheme by 2013.