February 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 - February 08.

Small businesses had been promised some sort of concession from the proposed hike in Capital Gains Tax (CGT) from 5% or 10% (see below) to 18%. We thought a form of retirement relief would be introduced, but instead a brand new entrepreneurs relief has been announced.

The new entrepreneurs' relief can apply when you sell part or all of your business, or shares in your own company after 5th April 2008. The capital gain will be cut by 4/9ths leaving 5/9ths taxable at 18%. This makes the effective CGT rate on the gain before allowances just 10% instead of 18%. Currently where full business asset taper relief applies a higher rate taxpayer pays CGT at 10% and a lower rate taxpayer pays CGT at 5% on the same gains.

Any capital losses can also be set-off after the deduction of the entrepreneur's relief, which was not the case with taper relief.

There are some tight restrictions to the new entrepreneur relief:

1. You must be disposing of part or all of your business, and there are likely to be some detailed rules on what 'part of a business' means. If you are selling a single asset, perhaps one field from your farm, entrepreneurs' relief is unlikely to apply.
2. You must have held the assets or shares for at least one year before the sale.
3. The business must fall under the definition of a trading business, which means a property letting business will not qualify.
4. Where you are disposing of company shares you must have worked for, or have been a director or company secretary of that company, and have held at least 5% of the ordinary voting shares.
5. The relief only applies to the first £1 million of qualifying gains made after 5 April 2008. Gains in ex£1 million, or which do not qualify for other reasons will be taxed at 18%.

More restrictions may emerge when the full details are known.

If you are planning to sell your business the entrepreneurs' relief may allow you to defer the sale until after 5 April 2008, and not pay any more tax than you would pay if the sale was made before 6 April 2008, but where the gain is expected to run into millions, the maximum tax you will save by claiming that relief is £80,000.

Newsletter issue - February 08.

The deadline for submitting personal tax returns for 2006/07 has just passed, and in a few days time the Taxman's computer will be churning out £100 penalties for late returns. If you get one of those unpleasant letters don't panic, or rage, as the penalty may not be due at all.

For example...

1. If your tax return was issued to you after 31 October 2007, perhaps because this the first tax return you have been asked to complete for several years, you have three months in which to complete it. So the submission deadline for your particular tax return will be later than 31 January 2008. This applies irrespective of what it says on the front page of the return form, which will still refer to the 31 January deadline.
2. The late filing penalty cannot exceed the tax and NIC outstanding on 31 January. If you have paid all the tax and NI due in advance of 31 January 2008, or a repayment is due, the penalty should be reduced to nil.
3. If you have a reasonable excuse for not filing your tax return on time you may escape the penalty. However, you will have to file your return as soon as those conditions that prevented you from filing come to an end. It is also pretty difficult to find a circumstance that is accepted by the Taxman as a reasonable excuse. None of the following excuses are accepted:
   • didn't realise a tax return was required
   • the tax return form is too difficult
   • tax affairs are complicated
   • pressure of work
   • failure by your accountant!
   • delays in the post
   • insufficient records.

Newsletter issue - February 08.

The research and development (R&D) enhanced tax relief for smaller companies is often ignored as business owners feel it is too complicated to make a claim. However, the Taxman is actively encouraging small companies to claim, by providing help and guidance through a number of specialist R&D centres.

Your company could qualify if it spends at least £10,000 per year on qualifying R&D. If the claim is successful it can deduct 150% of the actual qualifying R&D costs from its taxable profits. Where the claim creates a loss for the company, part of that loss can be converted into a payable tax credit.

The catch is the definition of R&D for this tax relief is very strict. The research must directly contribute to achieving an advance in science or technology through the resolution of technological or scientific uncertainty. This means that the R&D work must not only benefit your company, but it must break new ground scientifically, or in a technological context. Achieving a patent for your innovative product goes a long way to proving you have carried out qualifying R&D work.

The deadline for submitting a claim for R&D tax relief is now two years from the end of the accounting period in which the costs were incurred. To gain the enhanced tax relief for R&D costs incurred in the year to 31 March 2007, you must send your claim to the Taxman by 31 March 2009. However, R&D tax relief claims for earlier years are still possible. You can submit R&D tax relief claims for any accounting period ending after 31 March 2002 and up to 31 March 2006, before 31 March 2008. But this doesn't leave you much time to formulate your claim.

We can help you draw up your R&D tax relief claim, but please talk to us as soon as possible.

Newsletter issue - February 08.

If you claim the working tax credit you can include in your claim the amount you spend on registered or approved childcare. This is subject to both of the adults who make the tax credit claim working enough hours to qualify, which is normally 16 hours per week. The tax credits your family receives will refund you up to 80% of your childcare costs, to a maximum of £140 per week for one £240 per week for two or more children.

You can only claim for childcare you pay for up to 1 September following your child's 15th birthday, or 16th birthday if your child is disabled. When this date passes, or you stop paying for childcare for another reason, you must tell the Tax Credits Office as soon as possible.

You must also tell the Tax Credits Office whenever your average childcare costs go up or down by more than £10 per week. To work out the average you need to estimate the total amount you will spend on childcare for the whole of the year and divide by 52 to get a weekly total.

Remember it is only the fees paid to registered or approved childcare providers that you can claim for. If you start using a childcare provider who is not registered or approved, or they lose their registration then those costs cannot be claimed for.

Newsletter issue - February 08.

Q. The Department of Work and Pensions has sent me a pension forecast which shows I've already paid enough national insurance contributions over the 44 years of my working life to receive the full state pension. Do I have to carry on paying class 2 NICs?

A. You must pay class 2 NICs if you are self-employed and have not yet achieved state retirement age, which is currently 65 for men and 60 for women. As you have already worked for 44 years you must be very close to the state retirement age. You don't have to pay class 2 NICs from the week you reach the state retirement age. Alternatively if your self-employed earnings are below the small earnings limit, (£4,635 for 2007/08) you can claim an exemption from paying NICs for the tax year.

Q. I have an order from a customer in Russia for a software licence. Do I have to charge VAT on that sale? Does it make any difference if I send the software on a CD or transfer it by email?

A. A licence to use computer software is always treated as a service even if it is supplied in a medium you can handle, such as a CD. So it doesn't make any difference to the VAT treatment if you supply the software on CD or by email. You should not charge VAT to your Russian customer as the supply of this service to a country outside the EU is outside the scope of VAT.

Q. My company is about to spend £60,000 on replacing asbestos roofs. Is there any special tax relief I can claim to help with these costs?

A. Land remediation relief applies for cleaning up contaminated land in the UK, which covers asbestos removal. If your company did not create the contamination by installing the asbestos in the first place, it can claim 150% of the costs of the clean up against its profits. If this extra deduction creates a loss, and the company can't relieve that loss against profits of the same or an earlier period, it can obtain a tax repayment of 16% of the loss from the Taxman.

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

All clients are entitled to fixed fees, work delivered on time and unlimited phone support. Visit our website jbenedict.co.uk for more information.