Bet you thought you’d never see another of these old style Square Circulars. Wrong! While discussions go on about new format, content and style, we’ve still got to find some way of using the old stationery. So for the time being it’s back to the same old Square Circular.
Well, actually, no – this one is a bit different because it includes something that isn’t about tax. There’s a bit about turnover level for audit exemption at the beginning and a bit about managing risk at the end. Sandwiched in between are one or two points about (yes, we have to admit) tax.
NEW AUDIT REGULATIONS – AND TAX!
The DTI recently changed the rules regarding audit exemption allowing companies with turnover of less than £5.6m to take advantage of audit exemption for financial years ending on or after 30 March 2004. In order to qualify and be defined as “small”, companies must also have total assets of less than £2.8m (before deducting liabilities) and not more than 50 employees. If the company is part of a group the criteria apply to the group in aggregate.
A company which has now become “small” by virtue of the DTI’s decree should not necessarily dash to grab audit exemption. Audit certificates may still be beneficial for bankers, credit reference agencies, suppliers and other organisations. The directors may also value the comfort provided by an audit.
However, the good news is that the Taxman’s generosity knows no bounds and if the DTI have demoted you from “medium” status to “small” status you can, at least, take advantage of an enhanced rate of first year allowance on capital expenditure. The rate available to small enterprises has been increased from 40% to 50% for a period of one year starting from April 2004.
IN CASE YOU’D FORGOTTEN
An individual selling a property is in a better Capital Gains Tax position if the property is used for a business purpose. There is more advantageous taper relief than if the property had been an investment asset. Originally, to be a business asset, such a property had to be used for the purposes of the owner’s business, or a business in which the owner was a partner, or for a limited company in which the owner had a shareholding qualifying for business asset taper relief.
As from April 2000 by what was, at first, thought to be a quirk in the legislation, business asset status was extended to premises rented to an unlisted trading company. You didn’t have to be a shareholder or anything like that. It turned out not to be a quirk. It seems Gordon Brown really meant it.
The only thing is, it threw up something of an anomaly. Why should you be better renting out a trading property to a private limited company than to a partnership or a sole trader or to the trustees of a settlement? So, in 2003, the Revenue said they would bring partnerships, sole traders, etc. into line with private limited companies; but not until April 2004. Well, we’re there, at last!
MOVE OR EXPAND
Your business premises which qualify for business asset taper relief have become too cramped. Business is booming. Do you extend your premises assuming there’s room to do so, or do you sell up and buy something new? Don’t forget the tax angle if there’s a possibility that another move or a cessation of trade may be on the cards within the next two years.
If you already qualify for maximum taper relief, the cost of the extension dates back to the original purchase. No problem. If you move you have to own the new premises for two years before you’re back in the same taper relief position.
A lot can happen in two years.
COMPANIES COMMENCING TO TRADE
You are probably aware that a new unincorporated business has three months in which to notify the Revenue that it has started to trade. Failure to notify means a penalty of £100.
Companies now also have three months in which to report commencement of trade. Failure to notify means a penalty. Admittedly, not a fortune but not the best way to start off business.
A new company lying dormant for a while, then one day starting to trade and forgetting to make the necessary introductions to Mr Taxman is a more common scenario than you might imagine.
When did you last set aside time to identify the key risks that could damage your business? What steps have you taken to try to manage these risks?
The best way of assessing risk and what can be done is for the business owners and key staff to spend a day brainstorming off site with no interruptions (it’s worth it just for the ‘no interruptions’!) to identify risks and formulate an action plan. An example of some of the risk areas to be considered are:
What happens if a key member of your staff leaves? Do they have information about your customer base and what can you do to stop them taking business away from you after they’ve left?
Is your business heavily dependent on a single supplier and should you be searching for ways to reduce your reliance on that supplier?
What are your main competitors doing? Is there anything they are doing or are there changes in the marketplace that could seriously affect the sales of your product or service?
If your IT was disabled, how would it affect your business and can you put in place any plans to minimise the disruption?
Do you have a disaster recovery action plan?
A brainstorming ‘away day’ can do more than just deal with the threats. What about the opportunities? We can help you identify where you are now, where you want to be in the future and how to get there.
In our experience, such ‘time out’ is certainly worthwhile. If you do want to take a long hard look at yourself and want our input as a co-ordinator and facilitator who already knows something about your business just call your usual contact partner.
WHILE WE’RE ON THE SUBJECT
Take the scenario we’ve just described. What if the business owners, directors and key staff are….well, just you! And, maybe also another family member. You carry all the burden, make all the decisions and, in fact, are so busy doing so that you don’t really have time to plan properly. You can’t grow the business because you’re working too hard! Outside the business….the expression “get a life” springs to mind.
It wouldn’t do you any harm to have a day off, specifically for thinking. Just to think about:
– growing turnover
– trimming expenses
– employee matters
– succession or exit strategy
– funding for your pension
– tax planning
Ah, yes, but who can you talk to? There’s always us.
You know Square Circular never sets out to be an events diary but DON’T FORGET:
19 May ’04 – submission of Forms P35 for 2003/04
6 July ’04 – submission of Forms P11D for 2003/04
31 July ’04 – second tax instalment for 2003/04
If you need any help with the PAYE or benefits forms DON’T FORGET to ask us.