Welcome to August’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 Section. 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!

Are You A Shadow?

When a company fails to pay over the PAYE and NIC which should have been deducted from salaries paid to the employees and directors, HMRC can issue the directors and shadow directors of the company with personal demands for the tax due.

A shadow director is not registered as a director of the company with Companies House, but he or she will effectively control the company by giving instructions to the named directors, and to other staff who are accustomed to act on those instructions. Majority shareholders may be deemed to be shadow directors if they effectively run the company.

Liquidators can take action against shadow directors just as they can against the named directors for debts owing, including tax.

There have been a number of cases recently where HMRC has gone after the shadow director of the company to collect the unpaid PAYE. In those cases the individuals may have assumed they could avoid any responsibility for the company’s debts by not appointing themselves as a director of their company. However, HMRC questioned the staff involved to find out who issued the instructions to pay salary and not pay over the PAYE due, concluding that certain persons were shadow directors.

Online VAT Filing Reminder

Have you signed-up with the Tax Office to submit your VAT returns online, or agreed that we will do this online filing for you? If neither applies then you will shortly receive a letter from the Taxman reminding you of your online filing obligations. Almost all VAT businesses are now required to submit their VAT returns online for periods starting on and after 1 April 2012. The only exceptions are for:

  • those who are subject to insolvency proceedings; or
  • where the person is a practising member of a religious order whose beliefs are incompatible with the use of electronic communications.

You must also pay any VAT due electronically, but this includes many more options than just using online banking. For example you can set up a direct debit (by phone or letter), which will automatically collect the amount of VAT reported on the online VAT return, three days after the deadline for submitting that return. However, the direct debit does need to be in place before your VAT return is submitted and at least two working days before the deadline for that return. So Friday 3 August 2012 is the last day for setting up a direct debit for VAT returns to be submitted by 7 August 2012.

You can use a debit or credit card to pay VAT due of less than £100,000 (but not any penalties or interest due), via the BillPay service online. However, if a credit card is used a fee of 1.4% will be added to the VAT amount due, and the payment will take three working days to arrive.

Restricted Losses Ahead

A lot of businesses have made significant losses in the current recession and will continue to make losses for a while yet. Where those losses are made outside of a company they can generally be set-off against the entrepreneur’s other income, or in some cases their gains, without limit. There are restrictions on the use of losses made from a business where the trader is not actively involved. Losses are often created by the amount of interest the business has to pay to the bank.

From 6 April 2013 the Government is proposing to cap the amount of loss relief and interest relief given in any one tax year to the higher of:

  • £50,000; and
  • 25% of the taxpayer’s income.

The restrictions on losses and interest may affect business decisions you have taken, or which you are about to make in the next few months. Here are five ways the proposed restrictions could affect you:

  1. Where you have significant losses in a current accounting period which will end in the 2013/14 tax year, you may be thinking of selling an asset for a gain to off-set those losses. Such plans need to be reviewed as your total loss relief will be restricted in 2013/14.
  2. Partners who currently pay significant amounts of interest on their partnership loans may need to restructure those loans before 6 April 2013, to ensure their loan interest does not exceed the greater of £50,000 or 25% of their income.
  3. If you are planning to invest in EIS shares or SEIS shares in the knowledge that if the enterprise doesn’t work out, you will get income tax loss relief on the capital invested, you need to know that your loss relief may be restricted.
  4. Where you have already subscribed for shares in an unquoted trading company which is sliding into insolvency, you may need to make a negligible value claim for the value of those shares, to ensure the loss falls in the tax year 2012/13 and is not restricted from 2013/14.
  5. If you are planning to set up a new business which is going to make significant losses in the first couple of years, we need to discuss the structure of the proposed new businesses to ensure the losses are used as quickly as possible.

Tax Taskforces

These are teams of tax investigators who target particular trades in defined geographical areas with one-to-one visits. A typical taskforce team will include specialists to cover the taxes the business pays: VAT, PAYE, and corporation tax. It may include a computer expert to help with the computerised business records or the till. The Tax Office plans to have over 30 taskforce teams operating round the country by April 2013.

We have summarised below the target areas for the taskforce teams, as they have been announced. Each team has a target of about 300 businesses in the specified areas and trade sectors to visit.

Normally the taskforce team will arrange a time to visit the business and inspect the records, either by phone or letter. Please tell us as soon as you get a letter or call to arrange this. If we can speak to the tax inspector at this stage we may be able to limit the scope of the visit, or get it cancelled. For example if we can confirm that all your staff are always paid through PAYE, give the PAYE scheme reference number and the amount of PAYE and NI paid in the previous tax year, the PAYE specialist may stay at home.

Areas and trades targeted:

  • London: Markets, property rentals, property transactions, restaurants, fraudulent repayments
  • South West: Restaurants, motor trade, fast food outlets
  • South East: Overdue tax returns
  • Midlands: Taxi firms, restaurants
  • East Anglia: Property rentals
  • North East: Property rentals, motor trade
  • North West: Restaurants, construction, landlords
  • Yorkshire: Taxi firms, motor trade
  • Nottinghamshire: Motor trade
  • Northern Ireland: Hair and beauty
  • Scotland: Pubs & nightclubs, fast food outlets, restaurants, scrap metal dealers, landlords
  • South Wales: Restaurants, motor trade
  • North Wales: Restaurants, construction, landlords

August Question and Answer Section

Q. Our company is owned jointly by myself and my wife, and we are both directors of the company. I do most of the work and draw a lot of funds out of the business, so my director’s account with the company is often overdrawn. My wife has another paid position, so doesn’t draw so much from the company. Her director’s account with the company is always in credit. Can our two director’s accounts be combined and set-off against each other for tax reporting requirements?

A. Married individuals are taxed as separate persons in the UK, and their income and liabilities cannot be amalgamated to present a better picture for tax purposes. The Taxman is dead against the overdrawn balance on one person’s account being set against the credit balance on another person’s account, even if those two people are married.

Q. My company is doing well and I’d like a new car, possibly a BMW series 5. Should the company lease or buy this car, or does it make more sense for me to take a dividend from the company and to buy the car personally?

A. As the car is available to you for personal journeys you will be taxed on the ‘benefit’ of driving that car giving rise each year to a tax bill for yourself and a NI bill for your company at 13.8%.

The company will get a deduction against profits for the cost of leasing the car, but that deduction is limited if the car has CO2 emissions over 160g/km (reducing to 135g/km from April 2013). Likewise the capital allowances are restricted for cars with CO2 emissions over 160g/km. The company can pay for the car’s insurance, servicing and repairs, with no further cost to you, the driver. However, if fuel is provided there is an additional benefit in kind to be taxed on you.

In reality the calculations need to take into account other factors such as the cost of insurance and whether you need to borrow money to buy the car. We need to talk about this in greater detail to provide you with the correct advice.

Q. I want to buy a new business but the only way I can do that is to increase the mortgage on my house. Will the interest I pay on the extra mortgage be tax allowable for the business?

A. In principle yes, but there are restrictions to prevent improper use of this tax relief. Further restrictions are also proposed from 6 April 2013 (see above). Interest paid on loans used to buy into a partnership or to buy shares in a closely controlled company, or lend to such a company are generally tax allowable. However, it would be best to have a separate loan for this business investment, as when you repay any part of the mortgage the business part will be deemed to be reduced first. You will also have to hold at least 5% of the ordinary shares of the company and work for it for the greater part of your time.

August Key Tax Dates

2 August

  • Last day for car change notifications in the quarter to 5 July
  • Use P46 Car

19/22 August

  • PAYE/NIC and CIS deductions due for month to 5/8/2012

Need Help?

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