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Welcome...
To November's Tax Tips & News, our
newsletter designed to bring you tax tips and news to keep you one step
ahead of the taxman.
Congratulations to our colleague Claire who
gave birth to Lilia Elspeth on 3rd November, both mum and daughter are very
well.
Don't miss the opportunity to network with other local
businesses at the FSB Speed Networking event at Parkside International
Hotel, 72 Bath Road Reading on Thursday 12th November 6-9pm. Book via
www.fsb.org.uk or contact Sue Day on 0118 961 5444.
If you need further assistance just let us know or you can send us a
question for our Question and Answer
Corner.
Please contact us for advice in your own specific circumstances. We're here to help! |
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| Beware of Verbal Tax Advice |
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Tax is complex! It
is not always clear which particular tax, or what rate of tax applies to a
transaction. The Taxman realises that businesses often have tax questions
that need urgent answers, so he has set up a range of telephone helplines
that each deal with specific areas of tax, such as VAT or the construction
industry scheme.
Unfortunately these telephone helplines do not always give the correct
answer. You may rely on a verbal assurance from a telephone helpline, but
later get inspected by a Tax Officer who takes a different view of the
situation and raises a penalty for the incorrect tax treatment. This does
happen, and two recent cases have shown it is the taxpayer that suffers
where there is a disagreement between the helpline advice and the Tax
Inspector.
Case 1: In the first case Corkteck Ltd exported soft
drinks to Poland through a third person: Sintra SA. The VAT helpline told
Corkteck that the exported drinks would be zero-rated for VAT. However, the
VAT Inspector decided the drinks should have been standard rated as Sintra
SA was not registered for VAT within the EU.
Case2: In the second case Acrylux Ltd hired out a private
residential property for various functions, some of which lasted several
days. The VAT helpline told Acrylux that the hire of the property would be
exempt from VAT as it was not a commercial property. However, the VAT
inspector said the hire of the property was similar to short-term holiday
lettings and VAT should be charged at the standard rate.
In both cases the taxpayer could not prove exactly what facts had been
presented to the helpline, or exactly what the helpline had given as its
advice. If the advice had been requested in writing the outcome for the
taxpayer may have been different.
If you have a tax question, please ask us before reaching
for the HMRC helplines. If you act on advice that later proves to be
incorrect, you could pay a high penalty! |
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| Tips and Service Charge Changes |
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From 1 October
2009 tips, gratuities, and services charges cannot form part of the
national minimum wage of your staff who receive those payments. This
applies even if the service charge is a compulsory part of the customer's
bill. The Tax Office has reissued leaflet E24: Tips, Gratuities,
Service Charges and Troncs to explain this point
clearly.
If tips are paid directly to your staff by the customers, those employees
should declare the amounts they receive in tips to the Taxman on their
personal tax returns, but you don't have to worry about the tax situation.
Where the tip is paid to you as the employer, perhaps as an additional
amount on the credit card bill, and you decide how to distribute the total
tips pool (known as the tronc), among your staff, you must deduct both PAYE
and NICs at the relevant rate for each employee.
Where someone else manages the tronc, perhaps the manager who is not the
employer, that manager must deduct PAYE but not NICs from the payments of
tips to staff. Please talk to us if you uncertain about how to handle tips
paid to your staff. |
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| What to do When a Customer Goes Bust |
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In these troubled
times the failure of one business can have a knock-on effect on its
suppliers. If one of your customers goes down you need to quantify the bad
debts created by that failure as soon as possible.
Say your accounting year end is 30 June 2009, and one of your customers
fails in October 2009 leaving the sales invoices it received in April, May
and June all unpaid. Where it is clear that you will not receive payment
from the liquidators or administrative receivers of that business for those
sales invoices, you can include the bad debt built up between April and
June 2009 in your accounts to 30 June 2009. This applies as long as your
June 2009 accounts have not been finalised by the time you receive
confirmation of the bad debt. Any sales made to this customer between July
and October 2009 will need to be written off in your accounts to 30 June
2010.
This is a clear example of business failure, but bad debts can also arise
where your customer is still trading. Before we finalise your accounts to
submit them to the Tax Office or to Companies House, we need you to
undertake a thorough check of all your sales debts. Where you can identify
specific debts that are unlikely to be paid, and you have made every effort
to recover the money due, those amounts need to be written off in your
accounts. This will reduce your taxable profits, and avoid you paying tax
on money you are very unlikely to receive.
VAT on bad debts can only be reclaimed six months after the due date for
payment for the invoice. You must also pay over the VAT due to the VATman
before it can be reclaimed. If you use the cash accounting
scheme for VAT you automatically get relief for unpaid sales
debts, as you do not account for the VAT due until the sales invoice is
paid. Any business with a turnover of under £1.35 million can join
the cash accounting scheme. |
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| New Chance to Claim Benefits |
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If your income has
dropped in the current tax year, perhaps because your business has made a
loss, or your company can't afford to pay you a salary, you could be
eligible to claim tax credits or other state benefits. The Tax Office is
actively encouraging people to check whether they would be eligible to
claim working or child tax credits, and has included an
interactive questionnaire on its website to help you decide, see: www.hmrc.gov.uk/taxcredits/start/who-qualifies/overview/quick-questionnaire.htm
The questionnaire does not cover complex claims such as where a member of
the family has a severe disability, but it will cover most situations.
Remember a claim for tax credits is based on your family's total income, so
you need details of your partner's or spouse's income as well as your own.
If you are aged 60 or over, you may be eligible to claim pension
credit from the Department of Work and Pensions (not the Tax
Office). You don't have to be retired to claim pension credit, just aged 60
or more. Like tax credits your claim is based on your income as a couple,
not just your income alone. If you have savings of over £10,000 these
are also taken into account. This savings threshold was £6,000 until
2 November 2009, which excluded a lot of people from qualifying for this
benefit.
If you find you are eligible for pension credit or tax credits, you should
check whether you could receive help to pay council tax or housing
benefit. Claims for both of these benefits now ignore any income
received by the family as child benefit. |
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| Question and Answer Corner |
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 Q. I run a mixed arable and dairy farm in my own name, and my wife
operates a holiday lettings business from two of the farm cottages. The
VATman has said that we should treat both businesses as one and charge VAT
on the holiday lettings. He has also sent us a bill for past VAT due of
£10,000. What should we do?
A. Holiday lettings should be subject to VAT at the standard rate if the total
turnover of the business is higher than the compulsory VAT threshold
(currently £68,000). The VATman wants to combine the turnover of the
farm, with your wife's holiday lettings business to reach this threshold.
This can only be done if he can show that the two businesses are bound
together on an economic, financial and organisational basis. Also the two
businesses can only be treated as one business for VAT purposes from a
current date, not some date in the past. You should appeal against the VAT
bill of £10,000 and discuss with us how the businesses can be shown
to be independent in the future. For instance the farm could charge the
holiday business a small rent for the cottages used for letting.
Q. I am currently employed but I plan to start an internet-based
business in my spare time, which will take about 18 months to break even. I
will continue with my current position until the new internet business is
making good profits. What is the best way to structure the new business so
I can take full advantage of any losses it makes in the first two
years?
A. If you run the new business in
your own name as a sole trader, any losses made in its first four years
will be available to set against your employment income. This applies as
long as the Taxman does not see you as an 'inactive' trader, in which case
the use of the losses against your other income will be restricted. To show
the Taxman you are not an 'inactive' trader, you must work an average of at
least 10 hours per week on the new business, and make a note of the hours
you work. You should also draw up a business plan to prove the business is
run on a commercial basis with a view to making a profit in the
future.
Q. About ten years ago I acquired all the various versions of the
domain names relevant to the trading name used by my business. These domain
names have always been held in my own name, although the business is now
run through a company. I have just had an offer for the company and one of
the domain names, which values the domain name at £3 million. How
will the Taxman tax the profit on the sale of the domain name: as income
profits or a capital gain?
A. If we
assume the full £3 million represents the profit on the sale of the
domain name, as the original cost was probably very small, the difference
in the tax payable under an income or capital treatment will be
approximately £660,000 (£3 million x 22%). This is because
gains are currently taxed at 18%, and an income profit would be taxed at
your highest personal income tax rate of 40%.
Your intention when acquiring the domain names was to secure the trading
name of your business, not to sell on those domain names at a profit. You
were holding the domain names as an investment, not as stock to be traded.
The profit on the sale of the domain name should be treated just like the
sale of any other investment; as a capital gain. Report the sale on the
capital gains tax pages of your tax return, and provide as much information
as possible about the original cost and sale value in the blank space on
those tax return pages. You may be able to claim entrepreneurs' relief on
up to £1 million of the gain, if the sale of the domain name is
associated with the sale of your company. The rules for this tax relief are
complex, so please discuss the details of the deal with us first. |
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| Key Tax Dates for November 2009 |
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 2 Last day for car change notifications in the quarter to
5 October - Use P46 Car
5 PAYE/NIC and CIS deductions due for month to 5/11/2009 |
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 Please contact us if we can help you with these or any other tax or
accounts matters.
In addition, if there's anyone else who you think would benefit from the
newsletter, please forward the email to them or ask them to contact us to
be added to the newsletter list. |
 If you are not already a client and are interested in becoming one, we
would love to come to meet with you to discuss how we can help and provide
you with a competitive quote for our services.
All new client consultations are provided free of charge and without
obligation. |
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Goringe & Co. is an accountancy practice specialising in providing business and accounting services for companies and sole traders in West Berkshire and the surrounding area.
We deliver a professional, cost-effective, and reliable service. Visit our website http://goringeaccountants.co.uk for more information. |
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