The first frosts of the season combined with night time starting at 5pm can be just that little bit depressing. Hopefully the issue of our Square Circular can lighten and brighten the atmosphere.
Even though we’ve decided to go with the flow and focus on the topic of “hard times” we hope that some of the issues raised in this Square Circular will give you some positive action points to think about.
If you want more details about any of the matters we’ve mentioned in this Issue, or indeed, about any matters we haven’t mentioned please do contact us on 0161 832 4841.
A welcome to three new members of staff:
Berrin Jones (bookkeeping and management accounts)
Anita Raj (graduate trainee)
Rachael Axon (office admin)
We wish them every success and hope they enjoy being with us.
MAD ABOUT CARS
Last time’s Square Circular promised to tell you more about capital allowances on cars. Not the most fascinating of subjects but a promise is a promise. What say we compromise and only tell you the fascinating bits.
You probably know that for capital allowances purposes cars have long been treated as the poor relations in the plant and machinery category, especially cars costing more than £12,000. For example, they don’t qualify for first year allowances. The exception has been cars with low carbon dioxide emissions (green cars) on which you’ve been able to claim a 100% first year allowance if they don’t emit more than 110g/km (previously 120g/km) of CO2.
Not all green cars are two seater cars with a maximum speed of 40mph. Some are quite respectable and with the benefit in kind advantages afforded by green cars providing a company car to an employee as part of a remuneration package or salary sacrifice scheme may be a blessing for employee and employer. And if you’ve also got to change to a green car from your Jaguar XK60 or your Lexus LS …… well, you just have to get used to hard times!
As regards cars which aren’t green, we’re expecting the rules to be changed next April in line with proposals in a consultation document which will reduce writing down allowances on these cars.
Last winter’s Square Circular (Issue 20) mentioned a change in the “enquiry window” for corporation tax returns. For 2007/08 a similar change applies to personal tax returns and perhaps this will be an incentive not to leave filing until the last minute.
Let’s take an example. You could file your 2006/07 tax return on 6 April 2007 (amazing!) or on 31 January 2008 (human!) and HMRC would have until 31 January 2009 to pick on you for an Enquiry. After that date if you’ve not heard from the dreaded taxman you have the certainty of knowing that matters are settled unless HMRC make a “discovery” which in broad terms means that errors in your tax return come to light. Not much of an incentive to file early.
The 12 month Enquiry window now runs from “the day on which the return was delivered “. So to take our extreme example above, if you filed your 2007/08 return on
6 April 2008 you’ll have the certainty that matters are settled by 6 April 2009 but if you wait until 31 January 2009 the taxman can keep you waiting until 31 January 2010.
“My mother told me ‘fore she passed away
Said son when I’m gone don’t forget to pray
‘Cause there’ll be hard times.”
“Well I soon found out just what she meant
When I had to pawn my clothes just to pay the rent.”
OK when we write it, the impact is nothing like when Ray Charles used to sing it but we’re sure you get the drift without being an aficionado of the blues singer. In the present harsh economic climate the personal and commercial decisions you make are all important but there are still a few tax points to bear in mind which could make the hard times a little easier and softer, even if the lowest interest rate level for 50 years doesn’t do the trick.
First, cash flow is important and you should let us know as soon as you sense that current year income will be lower than last year’s income. You don’t want to overpay instalments of this year’s tax because they are based on last year’s figures and have to wait until next year before everything is sorted out. We can submit a form SA303 for you to reduce the instalments. The position is similar if you’re a company paying tax by quarterly instalments. You may need to amend your upfront payments of tax. But, don’t try telling HMRC that your profits are reduced if they’re not just for the sake of a short term cash flow benefit. You’ll end up paying the tax plus interest.
MORE HARD TIMES
Trading and income from property losses are a feature of hard times. In the early days of a trading activity or property rental activity you may well expect to make losses and the manner in which losses can be utilised may affect your choice of trading vehicle, e.g. a company or a partnership. If losses are suffered you’ll want to find ways of using them as soon as possible. And remember that, if in your position an unincorporated entity gives you more flexibility than a limited company but you want the benefit of limited liability, you can achieve both by using a limited liability partnership (LLP).
YET MORE HARD TIMES
Don’t forget capital gains and losses. The secret here is to match them in the same year or at least get the losses in an earlier year so they can be carried forward against gains. What you don’t want is to pay tax on gains in year 1 and then have unusable losses in year 2. If, for example, you sold a property in April or May when one or two properties were still being sold (yours was the one!) and made a gain on it because you’d owned it for many years and you’re holding assets which, if sold, would produce a capital loss, you would want to crystallise that loss before next April. And, don’t forget that if you’re holding assets of negligible value you don’t necessarily have to dispose of the assets to produce a loss. We can make a negligible value claim for you.
STILL MORE HARD TIMES
Next, a VAT point. Hard times may mean bad debts. Make sure you follow the correct procedures for writing off bad debts, or, if the level of your annual turnover is less than £1.35 million think about adopting the cash accounting scheme so that you pay VAT on the cash you receive and not on your invoices.
Some of these points are quite simple and others, such as planning matters, quite complicated. Hard or easy, feel free to call us if you think we can help to ease hard times.
NOW IS THE TIME!
One feature of hard times is low asset values. This gives rise to a planning opportunity because if you want to give away assets on which there is no form of holdover relief available, now may be the time to do so. The gain may be lower and you may have other loss making assets in your portfolio which, if sold, could further mitigate any gains.
Sounds simple, but CGT and Inheritance Tax planning never is simple. Give us a call to discuss the complications.
“Taxes are what we pay for a civilised society.”
(Inscription on the IRS building in Constitution Avenue, Washington D