To quote the American author, James Dent, “a perfect summer day is when the sun is shining, the breeze is blowing, the birds are singing and the lawn mower is broken”.
We would beg to differ. It can be improved by having our seasonal Square Circular to read. We’ve not made this summer’s Issue too “heavy” but it still contains some items which we hope you’ll find both interesting and useful.
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.
Well, the Square Circular for a start. The Square Circular first saw the light of day around the summer of 2000 soon after we moved back to St Ann’s Square after a brief interlude in Cross Street. Hence, the name of St Ann’s Square Circular. It hasn’t changed much in 11 years. After a decade of the old Square Circular it’s time to think about the decade ahead.
Nothing is set in stone yet and you’re welcome to contact us and tell us what kind of Square Circular you’d like to see in future. One thing we are contemplating is email delivery only. If you receive only a hard copy of the Square Circular but have an email address, please be sure to let us have your email address. If you don’t have an email address and would find life without the Square Circular not worth living tell us and we’ll see what solution we can work out for you.
Just looking back to that very first Square Circular we included an article with the attention grabbing title of Capital Allowances on Plant in Buildings. Just in case you were one of the those readers whose life wasn’t changed for ever by reading about capital allowances on plant in buildings we’ll just remind you of the gist of that article. It was talking about the opportunity of maximising claims for allowances on capital expenditure incurred on buying or majorly refurbishing a building. Claims can be made in respect of items such as electrical wiring, air conditioning, lifts and a variety of other items.
As you know, the Square Circular is ahead of its time. This topic has grown hotter over the years. Some firms of surveyors have specialised in capital allowances claims. Whereas we untrained observers, when told that £1m has been spent on a building know only that £1m has been spent on a building, surveyors are able to say how much of that £1m relates to plant on which capital allowances can be claimed. Working in tandem with such a firm of surveyors we have been able to generate some very healthy claims for clients by claiming allowances in current years for expenditure incurred many years ago, in some cases going back to the 1980s and 1990s.
Why mention it now? HMRC have recently issued a consultation document proposing amendments to the capital allowances rules for fixtures and fittings in a building. One of the proposals may require pooling of such expenditure within a time frame that no longer enables claims to be made on expenditure incurred many years ago if appropriate claims were not made at the time.
Of course, we’re not talking about claims on expenditure of just a few £k. The exercise has to be worthwhile. But if you think you may be in with a shout for making a substantial claim the message is to tell us now before it becomes too late.
WATCH THE TRAP
Still on the subject of capital allowances, we told you in Square Circular Issue 33 that the Annual Investment Allowance (AIA) maximum expenditure limit was being reduced from £100,000 to £25,000 with effect from April 2012. We suggested that capital expenditure be advanced rather than deferred.
Since then a nasty little trap has emerged from the drafting of the Finance Bill for those businesses whose accounting period straddles April 2012 (1 April for companies, 6 April for income tax businesses). If you want the precise details contact our tax partner, Simon Topperman, but we don’t want to bore you with too many details just now. Suffice to say as follows. If the end of your accounting period is, say, 30 April 2012 the maximum AIA to which you’d be entitled would be 11 months or so of £100,000 p.a. and 1 month of £25,000 p.a. That works out at a little under £94,000 of which approximately £2,000 refers to the actual month of April 2012. Until recently you’d be forgiven for thinking that your allowance would be around £94,000 whenever in the year the asset is bought. If it’s bought before the end of March 2012 that’s still true. But it it’s bought in April under the new provisions, your AIA is going to be around £2,000 only.
This will particularly affect businesses contemplating heavy capital expenditure with accounting periods ending in the few months after March 2012. If that’s you, get in touch with us to discuss what you should do.
PENSIONS – YOU HAVE TO BE IN IT TO WIN IT
We’re not telling you anything dramatically new here; just repeating an old story because it’s so important.
The maximum annual pension contribution is now £50,000 gross and any contributions in excess of this annual amount will be taxed at the individual’s marginal rate. Last year the maximum annual contribution was five times as much. Those who can’t afford to put much into a pension don’t have much choice but those who can afford it sometimes don’t bother because you can always catch up later in life anyway, can’t you? If you’re one of those who can but don’t, just remember that at a reduced amount of annual contribution it’ll take you a whole lot longer to catch up. “Start early” is the message.
There is a similar theme in the carry forward rules. If you didn’t use up your £50,000 contribution last year you can carry it forward to this year. So, if you paid say £1,000 in pension contributions last year your maximum annual amount this year is effectively £99,000 – this year’s £50,000 plus £49,000 unused from last year. You can carry forward in this way for 3 years maximum.
Just one catch. You have to be in it to win it. If you start a pension this year and put just £10 in it, next year your contribution can be £99,990. But if you don’t even start it your maximum contribution will be £50,000. It’s worth starting something now even if you can’t contribute much just yet. Get in touch with your usual contact partner who can introduce you to our specialist in Pareto Alexander.
STILL ON PENSIONS
Talk about starting early, have you ever thought of making pension provision for kids.
Take an example of Mr & Mrs Flowerpot who have two young grandchildren, Bill and Ben. The Flowerpots, who are reasonably well off decide to utilise their annual Inheritance Tax gift allowance of £3,000 each by Mr Flowerpot putting £2,880 into a pension for Bill and Mrs Flowerpot doing the same for Ben. Why £2,880? Because if you gross it up by 20% tax relief you get to the contribution limit of £3,600 in cases where the donee has no earnings.
For an outlay of £2,880, Mr Flowerpot’s estate saves Inheritance Tax at 40% i.e. £1,152 but has an investment base of £3,600 which should grow tax free. And the same for Mrs Flowerpot. Make no mistake, it’s not a solution to a real Inheritance Tax problem and it’s not a way of providing a real pension. It’s just a little help towards the former and a little start towards the latter, especially if at a later date Bill and Ben want to move their little stakeholder pension into something more substantial.
CHILD BENEFIT – FOR THOSE WITH YOUNG KIDS
You may wonder why your accountants are talking to you about Child Benefit. What’s it got to do with the price of cheese? Or tax, for that matter?
If you or your spouse are a higher rate taxpayer you’re sure to know that from 2013 you’ll lose your Child Benefit probably by claw back through the tax system. If you’ve not got kids or if they’re too grown up you won’t have to give it a second thought. If you do claim Child Benefit but are a basic rate taxpayer the chances are that you wouldn’t have given it much thought either.
What’s going to happen when you’re pushing the top of the basic rate band and get that pay rise which just about tips you into higher rate tax? You have an extra 20p in the £ to pay in tax. It’s worth it anyway for the bit of the pay rise you get to keep. But what’s going to happen in 2013 when you lose 20p in the £ PLUS Child Benefit. You could easily lose more than you gain especially if you happen to be particularly prolific. And if you’re already a higher rate taxpayer and have just the average 1.76 kids (let’s call it 2) you stand to lose £1,752 per year of tax free income.
SHOPPING IN WALES
Here’s an interesting snippet of tax news. From 1 October 2011 the Welsh Assembly Government will make it compulsory for retailers in Wales to charge a minimum of 5p for a “single use” carrier bag. The same goes for “foreign” retailers who deliver goods to customers in Wales.
The important tax point is that the bag is treated as a standard rated supply for VAT purposes i.e. it costs 4.17p plus VAT. Of course receipts from the compulsory charge have to be accounted for in trading profits for income tax or corporation tax purposes.
We have visions of hordes of our Cambrian cousins from North Wales crossing the border to do their shopping in Chester and get carrier bags for free.
“When everybody has got money they cut taxes, and when they’re broke they raise ‘em. That’s statesmanship of the highest order.”
(Will Rogers (1879-1935) US humourist)