December Tax Tips & News

Welcome to the Benedicts Tax Tips & News monthly newsletter, bringing you the latest news to keep you one step ahead of the taxman.

If you need further assistance just let us know or send us a question for our Question and Answer Section.

We’re committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.

Please contact us for advice on your own specific circumstances. We’re here to help!

Newsletter issue - December 07.

You may be about to have your firm's Christmas party and hand out seasonal gifts for staff and customers, but remember there are strict rules about what is deductible for tax and reclaimable for VAT.

The cost of entertaining customers or potential customers is not tax deductible for income tax or corporation tax. Your accounting records need to distinguish between the cost of hospitality such as the provision of food or drink, and significant gifts to customers, from other marketing expenditure. The amount classified as non-deductible entertaining is added back to the profits to calculate the tax due.

Free samples of the products or services your business normally sells are permitted, as long as you are not in the food or restaurant business. Small promotional gifts of any item are also acceptable if they cost less than £50 each and carry a clear advertisement for the business, although food, drink, tobacco and gift tokens of any value do not fall into this exemption. Small gifts worth more than £50 in total should not be made to the same person in one year.

You can't reclaim VAT on the costs of entertaining customers or potential customers. Where your staff are required to attend an event to act as hosts for potential customers, all of the VAT cost is blocked. A VAT registered business can reclaim the VAT on small gifts that cost up to £50 each, including gifts comprising of tobacco and alcohol.

Entertaining staff is tax deductible if it is not incidental to customer entertaining. The VAT on staff entertaining can be reclaimed, but a portion of the cost may need to be disallowed where customers also attend the event.

Staff entertainment can be tax free for the employees if it is in the form of an annual event or number of events to which all the staff are invited. However, you should try to limit the annual cost to £150 per head, counting all those who actually attend the event. If the costs exceed £150 per head (including VAT) your employees will be taxed on the total cost per head (not the excess above £150) as a benefit in kind. You as the employer can pay this tax on behalf of your employees through a payroll settlement agreement (PSA), but this does involve a degree of grossing-up, which can be expensive.

Newsletter issue - December 07.

New rules about how to draw up a valid VAT invoice have came into effect on 1 October 2007, without much fanfare from the VAT office.

The biggest change is it is now compulsory to have unique and sequential numbers for your invoices. Most businesses do this anyway, but some restart their numbering every year, which could lead to identically numbered invoices in different years. If you use separate sequences for different customers that's fine as long as each sequence of invoices is separate and unique. You can also continue to use customer prefixes on the invoices, as long as no two customers have the same prefix.

If you use the special Second-hand Margin or the Tour Operators Margin VAT scheme, you need to state which scheme you are using on the face of the invoice. Other changes involve cross-border sales within the EC where the full VAT is not automatically charged to the customer. Where the sale is 'reversed charged', so the seller bears the VAT on the supply, the invoice must state this. Similarly if the sale is VAT exempt or zero-rated because the goods are moving across borders the invoice must make this clear.

The VAT office will operate a twelve-month grace period while these new rules bed-down, before they start to prosecute traders for non-compliance. However you need to plan any changes to your invoicing systems as soon as possible. Ask us if you need further information.

Newsletter issue - December 07.

It's a huge scandal that HMRC have lost a copy of the database containing the personal details, including bank account numbers, of every family that claims child benefit. HMRC have written to all child benefit recipients to apologise, and say the lost discs containing the data are probably still in a Government office somewhere, but they can’t be sure! This does not remove the very real risk that every individual named on those discs, including the partners of the claimants and their children could be the target for identity or bank fraud, now or at any time in the future.

If the missing data does fall into the hands of criminals they could use it to obtain loans, buy goods on credit, or set up bank accounts through which they could launder proceeds from criminal operations. You need to be constantly vigilant about odd bills arriving for items you haven’t ordered, or confirmation of loans you haven’t applied for. If your post suddenly goes missing this can be a sign that someone has applied to redirect your post for criminal aims.

It is unlikely that criminals could access the funds in your existing bank accounts without further information such as passwords or pin numbers. However as many people use a memorable date for a pin number, such as a child’s birthday, it may be advisable to change the relevant pin number immediately. Also don’t forget to check bank accounts held in the names of your children. The money in a child trust fund account can’t be withdrawn until the child reaches 18, but from that date this security is removed.

As a matter of routine you should never dispose of bank or credit card statements in your normal household rubbish. In any case you need to keep all the documents used to complete your tax return for at least one year after the tax return filing date. So bank statements covering the year to 5 April 2007 must be kept until at least 31 January 2009. All business records, including receipts, need to be preserved for at least six years after the end of the year they refer to. When you do decide to have a clear out shred all your statements, including utility bills, before you throw them away. Shredded paper makes an excellent addition to the compost heap!

Never give personal details over the phone or to personal callers, even if they claim to be from your bank, water board or power company. If the transaction is important call them back on a telephone number you already know. It also goes without saying you should never open emails which are supposedly from your bank asking you to confirm security details. There is a particularly nasty scam doing the rounds at the moment in the form of an email apparently from Paypal confirming payment into your account. Be suspicious of all unexpected emails and never click on links embedded an email from someone you don’t know.

Newsletter issue - December 07.

Q. I own a number of house-boats which are permanently moored and are let as holiday accommodation. Can I claim capital allowances on the cost of acquiring similar new boats?

A. The Taxman will normally only give capital allowances for boats or caravans if they are regularly moved and do not occupy a fixed site, although there are exceptions for caravans on registered sites. As the house-boats are in a permanent location the Taxman will view them as buildings, which do not qualify for capital allowances, although some of the fixtures and fittings for the boats may qualify.

Q. My company makes a regular donation to the local youth club­, is this expense tax deductible for my business?

A. If the youth club is a registered charity your company can make a donation under the gift aid scheme and achieve tax relief for the business and the charity. The Taxman also allows deductions for small donations to local bodies such as churches where there may be a benefit to the employees and their families. The youth club may qualify under this concession.

Q. I've heard I will soon get the first £100,000 on the sale of my business tax free. Is that true?

A. This is a rumour about retirement relief released by the Prime Minister's office to soften the blow for small businesses, who are upset about the withdrawal of business asset taper relief from 6 April 2008. However the Treasury refuses to comment specifically on this idea, so we can't be sure that the proposed relief will actually come into force. If there is to be a new form of retirement relief for small businesses, there are indications there will be some announcement on softening the blow of the loss of taper relief before Christmas, but there are no guarantees! We will keep you updated with any news on the subject in this newsletter.

Benedicts Accountants are based in London, offering local business owners and individuals a wide range of services.

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