Autumn usually brings the prospect of a long cold winter as the memory of a summer holiday fades into the past. If you’re one of those who wishes that the short summer break could have lasted a little longer this Square Circular is for you!
It focuses on the extended National Insurance holiday which started a few weeks ago, gives you a fascinating insight into what accountants read to relax during the holiday month of August and finishes with a quick trip to Liechtenstein.
If you want more details about any of the matters we’ve mentioned in this Issue, or indeed, about any of the matters we haven’t mentioned please do contact us on 0161 832 4841.
Congratulations to Jenny Laffan who got married in Vegas and had a terrific honeymoon in the USA a few weeks ago. Sounds more fun than operating all those payrolls but now it’s back to the grindstone.
EXTENDED NATIONAL INSURANCE HOLIDAY SEASON
We haven’t mentioned this in any depth before because the holiday season only started a few weeks ago, 6 September, to be precise. But it does last until 5 September 2013; that’s a good long holiday.
Don’t think you can holiday anywhere in the UK. London, the South East and East of England are excluded. The holiday destination has nothing to do with the weather. It’s all to do with encouraging the location of new businesses. You have to be a new business to qualify. As you might expect there are all kinds of rules about what constitutes a new business. You can’t carry on a business, close it down and then start it up again soon afterwards and claim you’ve a new business. Incidentally, even though the scheme only started on 6 September it includes businesses started after Budget Day, 22 June.
What’s involved in this package tour? Assuming you qualify as a new business in the right location, the first 10 qualifying employees of your new business are your holiday travelling companions. Your holiday consists of being able to make a deduction against the amount of employer Class 1 NI contributions payable each month or each quarter for the first year of employment for the first 10 qualifying employees limited to £5,000 for each employee. ‘Qualifying employees’ includes directors. Once the company has taken on its first ten employees no other employees will qualify even if any of the original “top ten” leave.
The way it will eventually work is that the new employer will calculate tax and NIC liabilities in the normal way but throughout the year when making payments will reduce these payments by the amounts which would have been paid for the qualifying employees. At the end of the year as well as submitting the usual P35 return, a “holiday” return will also have to be sent in to explain the apparent underpayment on the P35.
The above gives you just a brief outline of this magical mystery holiday tour and if you need any further details, please just give us a call.
PAYE – RTI AND CD
Still on the subject of holidays, HMRC very thoughtfully issued half a dozen or so Consultation Documents at the end of July with responses requested by September. After all, what else do accountants have to do during the August holiday season?
We’re not going into detail about all of them, but we are going to tell you about the reform of PAYE, if only because it introduces the new acronyms RTI and CD. We all know how much HMRC (sorry) likes acronyms.
RTI is Real Time Information. Under RTI, employers would send HMRC information on gross pay, tax and NIC deducted every payday rather than just at the end of the year. CD stands for Centralised Deductions under which HMRC would calculate deductions from gross pay and would, in effect, operate the nation’s payrolls.
While we appreciate there may be benefits in RTI we’re not at all sure how appealing CD would be, at least not until HMRC have enhanced their reputation for efficiency and good customer service.
Another of the consultation documents, about pensions, deserves a brief mention.
We’re sure you know the headline news by now. The annual contribution limit will reduce from £225,000 to £50,000 and the lifetime allowance from £1.8m to £1.5m. The reaction in the pensions industry varies from disappointment to one of relief because it could have been worse. Another successful exercise in managing expectations.
It seems open to debate exactly how many people will be affected by the proposed changes. Even if you’re not one of those putting more than £50,000 annually into a pension it still throws the focus on your own pension provisions and that usually means it’s time for a review. Pensions will be a “boiling hot” topic between now and next April so contact us and we’ll let you know the next step to take to review your pension arrangements.
DIVIDEND OR BONUS?
From time to time we try to answer the ongoing conundrum as to whether a shareholder/director should extract profit from his company in the form of dividend or remuneration. As personal and corporate tax rates change, the goal posts move slightly. So where are they fixed for 2010/11?
If a company pays tax at the small companies rate, an individual paying tax at the higher rate or additional higher rate is clearly better off with a dividend. At the other end of the scale, when a company pays tax at the full rate of corporation tax the individual is still better off with a dividend. The effective overall tax rate is 2 or 3% less using the dividend route. The surprise is with companies paying the marginal rate of corporation tax. Whereas the remuneration route was once more effective the pendulum now seems to have swung ever so slightly in favour of dividends for both higher rate and additional higher rate taxpayers.
Of course, it may be wrong to go for dividends in all cases. In some cases there may be reasons other than tax to drive the decision. There may also be quirks in a person’s circumstances which can influence matters. The strictly correct answer is not remuneration and not dividends but “ask us”.
THE COST OF A CAR
The price of cars is going up next January. How do we know?
People forget that there’s VAT on the purchase of a motor car available for private use unless the car is a tool of the trade for a business such as a taxi business or driving school. That’s because you can’t claim back the VAT input tax but, of course, it’s still there even though the input tax is blocked.
So, in January, when the VAT rate goes up from 17.5% to 20% for most people it will effectively serve as a 2.5% increase in the cost of the car. If you’re thinking of buying a new car, say, in January it might be worth giving yourself a special Xmas present and buying it in December instead.
WHAT A COP OUT!
Here’s the story so far. Some information is stolen from a bank. It just happens to be a Swiss bank and includes data about the accounts of British taxpayers.
Before you know it HMRC get their hands on that information. Then, before you know it, they start to send out COP 9 notices. COP stands for Code of Practice. It also stands for Bad News although you wouldn’t necessarily guess it from the initial letters. A COP 9 notice means that HMRC think you’ve been so naughty in not disclosing all your income that they’d like you to reconsider your tax returns for the past 20, yes 20, years. If you have any back tax to pay the bill you’ll get will have a large accumulation of interest and a hefty penalty. A short stay in one of Her Majesty’s rest homes can’t be ruled out.
One solution to the problem is to tell them before they ask you. We’ve previously mentioned tax amnesties (see Issues 17 and 26) and the one that’s still going is the Liechtenstein Disclosure Facility (LDF). If you make a disclosure under the LDF the look-back period only goes back to 1999 rather than the usual 20 years, the penalty is a fixed 10% and there is an assurance against criminal prosecution in cases of full, accurate and unprompted disclosure. The LDF can be used to own up to any tax misdemeanour, onshore or offshore. It doesn’t have to be disclosure of a Liechtenstein account. You only need to establish a “meaningful” relationship with Liechtenstein, for example by transferring assets there, and then disclose your omission.
Obviously, we hope you don’t have to disclose anything under the LDF but all the same we have to let you know it’s there.
Here’s a quote from a purportedly genuine letter to HMRC dating from before the days of independent taxation of spouses:
“I am writing to inform you that I am now married. I realise I should have done so eight months ago, but I was not aware that I had to.”