Welcome to January’s Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

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

We are committed to ensuring all our clients don’t pay a penny more in tax than is necessary.

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

Time to Pay Your Tax!

January is the month when those big bills become due for payment, and that includes your tax bills…

– The balancing payment of income tax for 2008/09 is due by 31 January 2010 together with any Capital Gains Tax due for that year.
– The first instalment of income tax for 2009/10 is also due on that date.
– VAT for the quarter to 31 December 2009 must also be paid by 31 January, unless you file and pay your VAT return online, in which case you have another seven days to pay (ten if paying by direct debit).
– PAYE and NIC deductions for the month or quarter to 5 January 2010 must also be paid by 19th January, or by 22nd if you pay electronically.

If you do not have the funds to pay all the tax you owe in January, you should contact the HMRC Business Payment Support Service as soon as possible to arrange a payment plan. Their number is 0845 302 1435, they are open every day apart from bank holidays – Mon to Fri 8am to 8pm, Sat and Sun 8am to 4pm.

The tax officers that man this helpline can agree to spread the tax you owe over a period of up to six months, and suspend any surcharges for late payment that become due within that period, although interest will continue to be payable. However, you must set up a direct debit to pay regular instalments of the total debt. If you miss one of those instalments you will have to pay the surcharges due for late payment, and the balance of the debt will become payable immediately.

If you have a temporary funding difficulty in January you can pay a tax bill of up to £100,000 by debit or credit card through this website: https://www.billpayment.co.uk/hmrc/scripts/help1.asp. This page is part of the HMRC website, but the billpay facility is run by Alliance and Leicester. Please note you will be charged a transaction fee of 1.25% when you pay your tax by this method, and you will also be charged interest by your credit card company at a much higher rate until you pay off the full amount owing.

The Capital Gains Dilemma

The Government needs to raise more revenue to pay off the massive national debt, but it seems reluctant to announce higher tax rates. One tax that looks ripe for an increase is Capital Gains Tax (CGT). The current rate of CGT is just 18%, compared to a top rate of 40% for income tax.

An additional income tax rate of 50% will be imposed on income over £150,000 from 6 April 2010, and there are strong rumours that the rate of Capital Gains Tax (CGT) will also be increased from that date. Nothing has been announced on this issue yet. Some say this silence is deliberate to avoid people rushing to make gains that will be taxed in the current tax year at 18% (or 10% with tax reliefs), rather than pay CGT at a much higher rate in 2010/11.

If you have assets you are planning to dispose of, consider whether you should make that disposal before 6 April 2010 and pay CGT at 18%, or delay and risk paying tax at a potentially higher rate. Discuss this with us before you decide.

Reclaiming Overseas VAT is Now Easier

At last a solution has been found to the problems businesses face when trying to reclaim overseas VAT. From 1 January 2010, to claim a refund of VAT you have paid in another EU county you must complete an online claim in the UK. You don’t have to battle with lots of incomprehensible forms in other languages, as the claim will be done entirely in English. The UK tax office will forward your claim to the relevant country, which will process the refund within four months of receipt. You should then receive the payment due within a further 10 days.

To make VAT refund claims in respect of VAT paid in other EU countries you need to first register to use the Tax Office VAT EU refunds system, which is part of the VAT online service. Alternatively we can register on your behalf and submit refund claims for you.

Claims made from 1 January 2010 can cover VAT incurred on expenses in 2009. The deadline for 2009 invoices is 30 September 2010. Unfortunately claims for VAT paid on 2008 invoices are now out of time. Up to five refund claims can be made for each country for each calendar year: one for each quarter and a sweep-up claim for the whole year. The minimum amount of the VAT to be included in each claim has been standardised at €400 euros per quarter, or €50 euros for the sweep-up claim for the full year.

There are a lot of different rules that block the refund of VAT for certain purchases, such as VAT on the purchase of cars in the UK. These blocking rules vary widely across the EU countries but they are summarised in new VAT notice number 723A: Refunds of VAT in the European Community.

Are You Declaring Commissions?

Insurance companies often pay commissions to professionals who recommend certain insurance policies to their clients. For example; hospital consultants may recommend health insurance, vehicle dealers may propose car insurance, and lawyers may put forward accident and legal cover. The professionals in these situations should report any commissions they receive on their tax returns, but sometimes they forget to do this.

The Taxman now has wide powers to ask for information about a person’s tax affairs from third parties. He can issue a notice to an insurance company asking for a list of all persons who receive commissions in a certain period, and the amounts paid to each individual.

We understand that HMRC has recently issued several such notices to a number of large insurance companies. When the information requested in these notices is received, the Taxman is likely to open enquiries into the tax affairs of a number of professionals.

If you have received some commission, however small, and you failed to disclose that amount on your tax return, now would be a good time to come clean. If you make a voluntarily disclosure to HMRC, you could benefit from a reduction in the penalty due from 30% of the tax due, down to nil. However, this penalty range (from 0% to 30%) will only apply if the Tax Inspector judges the omission from your tax return to be careless. In most cases the Taxman will view the under-declaration of commission to be a deliberate error, in which case the minimum penalty will be 20%, and the maximum 70% of the understated tax.

Please speak to us before you contact the tax office about any under-declaration of income, as the way in which you present the information to the Taxman can influence the amount of penalty charged.

Question and Answer Corner

Q. About three years ago I converted a barn into two attractive cottages, which I have since let as furnished holiday lets. Much of the expenditure qualified for capital allowances, and there is large balance in the capital allowance pool carried forward into the current tax year. Will I get tax relief for the balance in the capital allowances pool when the rules for treatment of furnished holiday lettings are changed in April 2010?

A. If you continue to let the cottages after 5 April 2010 you can claim the annual 20% capital allowance generated by your capital allowances pool, but you cannot add expenditure to that pool for equipment or furnishings used within the buildings. The Taxman has confirmed that you can also claim a wear and tear allowance for each tax year from 2010/11 onwards in which you let fully furnished property. The wear and tear allowance is 10% of the net rents received after deduction of council tax, water rates and other charges you pay.

Q. I paid off my company’s overdraft with my own money, to allow the company to be closed down using the informal extra statutory C16 procedure. Can I get any tax relief for the money that was used to repay the overdraft?

A. It is possible to get tax relief for a loan made to a trading business, which is not repaid. However, the conditions are strict. The money lent must be used by the borrower wholly for the purposes of a trade it carries on. In this case the company had already ceased trading and funds were used to pay off a bank overdraft before the company was struck-off. In this situation you cannot argue that the money was used for the company’s trade as that had already ceased, so you cannot get tax relief for the lost funds. Even if all the conditions for the loan were met, the loss of the funds would be treated as a capital loss in your hands, and not relievable against income tax.

Q. There are 53 Mondays in this current tax year. Does that mean I will be taxed on 53 times the weekly amount of my state pension for 2009/10?

A. Monday is the payment date for most state pensions, and there are 53 Mondays in 2009/10 as 6 April 2009 was a Monday. However, the state pension is taxed on the amount accruing in the tax year, not the amount actually received in the year. The Tax Office always work on the basis that 52 weeks of state pension accrues for each tax year. When it comes to completing your tax return for 2009/10 you should include just 52 times the weekly amount of your pension, excluding any non-taxable benefits such as Attendance Allowance.

Key Tax Dates for January 2010

1 Due date for payment of Corporation Tax for the year ended 31 March 2009

14 Return and payment of CT61 tax due for quarter to 31 December 2009

19/22 PAYE/NIC and CIS deductions due for month to 5/1/2010 or quarter 3 of 2009/10 for small employers

31 Deadline for filing 2009 Self Assessment personal, partnership and trust Tax Returns.
Balancing self assessment payment due for 2008/09.
Capital gains tax payment due for 2008/09.
First self assessment payment on account due for 2009/10.
Interest accrues on all late payments.
Last time for HMRC to inform you if it intends to start an enquiry into your 2007/08 Tax Return.