“If we had no winter the spring would not be so pleasant.
If we did not sometimes taste of adversity, prosperity would not be so welcome.”
Anne Bradstreet lived some 350 years ago but what she said then is still true now. Following the adversity of recession and the adversity likely to follow the General Election as we start to reduce our budget deficit, prosperity would be more than welcome. Against the background of the recent Budget and upcoming General Election it is hardly surprising that this Square Circular focuses on some very topical matters.
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.
THE BUDGET – HOW WAS IT FOR YOU?
A non-event or masterly inactivity; depends on your point of view. It was pretty good for us accountants forever whinging about the complexity of tax legislation. There wasn’t a great deal of change beyond what had previously been announced so it wasn’t too stressful.
Elsewhere in this Square Circular we’ll look at some of the things the Budget did but, first, a look at some of the things it didn’t.
IT DIDN’T …..
Increase the standard rate of VAT perhaps because of the burden on traders of having to adjust so soon after the rate changed back from 15% to 17.5% last January. The word “on the street” is that we may see VAT increases whichever political party gains power. Some have suggested that next January or April would be the most sensible date for any increase. If the Conservatives gain power a VAT increase might fit neatly with their proposal to stop the 2011 increase in National Insurance contributions.
AND IT DIDN’T …..
Go ahead with the proposed withdrawal of advantages afforded to Furnished Holiday Lettings businesses. That was only so that the Finance Bill could become law before Parliament was dissolved. Labour have promised to re-introduce the measure if re-elected. Whether the Conservatives will think about any less damaging alternatives, who knows?
AND IT DIDN’T …..
Increase the rate of Capital Gains Tax (CGT) which had been the “hot tip” for the Budget. Neither Labour nor Conservatives have said much about CGT; the Lib Dems want to align CGT rates to income tax and drastically reduce the CGT annual exemption.
PAY(E) THE PENALTY
Changing the subject just for a moment, you need to know that this year sees the introduction of penalties for late paid PAYE/NI deductions.
Until now employers have sometimes played ducks and drakes with their monthly or quarterly PAYE. As long as it’s paid by 19 April (or 22 April if paid electronically) after the end of the tax year, no problem. Even then, only interest is payable and no penalty.
The amount of the penalty on the monthly or quarterly default will be geared to the amount of tax due. It will also depend on the number of defaults in the year and the length of time for which the payments are outstanding. Now is not the time and here is not the space to go into the intricacies of how the penalties will be calculated. Let’s just hope we never have to go there.
Finally, we’re not sure if this is good news or bad news. The 2009 Budget announced that in addition to post-year interest on late payments, HMRC would also start charging in-year interest from April 2010. However, HMRC have now said that in-year PAYE interest will not now be charged until April 2012 at earliest.
INHERITANCE TAX (Ih.T)
Going back to the Budget, one of the things it did do (sorry for that clumsy expression) is freeze the nil rate band limit at £325,000 until 2014/15. An increase in the size of your estate with no corresponding increase in the nil rate band should be a spur to start Ih.T planning.
The Conservatives, if elected, have the aim of substantially increasing the nil rate band but we don’t know how quickly that would be implemented. By all means wait and see who wins the Election. If it’s the Tories you could even wait to see what’s in a Budget which would, most likely, soon follow. Then it may be time to get in touch with us to check out your Ih.T position.
And if your estate is larger than £1 million don’t wait at all to contact us.
ANNUAL INVESTMENT ALLOWANCE (AIA)
One of the surprises of the recent Budget was to double the AIA maximum from £50,000 to £100,000. What wasn’t as well advertised, because, in fairness, it didn’t need to be advertised, is that the temporary First Year Allowance (FYA) introduced last year ceases this year. Temporary is temporary, after all.
George Osborne, the Tory Shadow Chancellor, has said that an incoming Conservative Government would like to cut the small company rate of corporation tax to 20% and the main rate of corporation tax to 25%. He suggested that this could be paid for by the abolition of some complex reliefs and his further remarks were seen by some as a signal of the end of AIA. If possible, it might be an idea to invest in new equipment pretty soon just in case AIA is abolished if there is a new Government.
BUSINESS PAYMENT SUPPORT SERVICE
One of the more helpful innovations introduced last year by the nice friendly taxman is the BPSS; let’s stick to acronyms which are so popular nowadays. Basically, what’s involved is that a business which finds itself strapped for cash can make arrangements with HMRC to be given time to pay liabilities such as income tax or corporation tax, PAYE and VAT. It was introduced to help businesses cope with the recession and when introduced in February 2009 we were told that a decision on Time To Pay (TTP) can typically be reached in minutes.
Whilst the beneficence of the Exchequer hasn’t come to an end there is a certain tightening going on. If you apply for time to pay a tax debt of £1 million or more you’ll now need to engage, at your own expense, a suitably qualified professional adviser to carry out an IBR (Independent Business Review) in support of your application. And we suspect that for smaller tax debts the arrangement that “can typically be reached in minutes” may take a little longer as HMRC seek reassurance that a business has responsible cash management systems that will enable it, one day, to properly pay its tax debts.
Detailed cash flow forecasts, a robust management plan and proper cash control will help to get a TTP arrangement approved and subsequently maintained, if there are any misgivings involved. As accountants, that is “what we do” and we can help on a “hands on” basis in exactly that sort of situation. Don’t hesitate to get in touch with your usual contact partner to let us help you.
REVERSE THE CHARGES
No, it’s nothing to do with telephone calls, just in case you remember those ancient telephone boxes from which you could make a call and transfer the cost to the person at the other end. It’s all to do with VAT and the change in the rules last January when you buy goods or services from abroad.
If you get involved in reverse charges and need to know more than you do about the changes, let us know.
Traditionally, trusts have sometimes been used to pass assets down through generations. You may have noticed us lamenting in previous Square Circulars how trusts have been subjected to Inheritance Tax and income tax attack over the last few years so that what may still be a very valid way of preserving family assets now comes with certain drawbacks.
Another problem is that there is a tendency to “park” certain assets in trusts and then forget about them in the sense that trustees do not always ask themselves whether it is time to take assets out of trust. Quite often we find trusts literally doing nothing and if that’s the case we suggest a review of the position from time to time.
For the future, we’re thinking about the pros and cons of using other structures such as Family Investment Companies or Family Partnerships. Don’t be surprised if we soon start mentioning to you structures other than trusts.
A POLITICAL STATEMENT
Throughout this Square Circular, you will have noticed references to the intentions of different political parties should they gain power. In no way, should any of these references be taken as a bias in favour of one party or another.
Lack of space precludes us from mentioning matters such as SDLT changes and the CGT entrepreneurs’ relief changes contained in the recent Budget. Similarly, we haven’t mentioned the plans which different parties have with regard to income tax personal allowances, transferable personal allowances for married couples, restriction of relief for pension contributions, review of small business taxation, including IR35 with a view to simplification, to mention but a few matters.
Whilst we do not see it as our brief to make political comments we are always happy to chat about tax aspects so if you want more facts but with no political “spin” feel free to contact Simon Topperman, our tax partner.
“Income tax returns are the most imaginative fiction being written today”