Welcome to our March newsletter.

This is the month for limited company owner/directors to review dividends for the personal tax year to date, and to check if some more could be issued before reaching the higher rate tax threshold. If you would like to have a tax planning session with one of our accountants just let us know.

Following another successful networking event on the 21st February, the next one has been booked for 15th May, and it is FREE! There are a limited number of places, to reserve your place please contact . This an ideal opportunity for business owners who have never attended a networking event to experience an informal, friendly event.

If you think you may be due a tax refund for the year 2011/12 March is the time to start gathering up all your information, so that we can prepare your personal tax return for 2011/12 as soon as possible in April, so that you can receive your tax back.

As always if you have any questions please do not hesitate to contact us 0118 941 9997

Our blog section is packed with great articles crucial for any business owner. If there are any topics that you would like us to cover then please let us know.

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

Spreading Household Income

This is a good time to look forward to 2012/13 and assess who will be earning what in your family. The level of personal allowances (tax free income) have increased significantly over the last two years, and are expected to increase again in 2012/13 to at least £8,105 per person.

This allowance cannot be transferred between family members, so if some people in your family are earning less than this, their personal allowance is going to waste.

Strategies you may consider to avoid wastage of the personal allowance include:

  • Employing your spouse or children in your business, perhaps on a part-time basis.
  • Transferring an income-producing asset, such as a let property or savings account into the name of the lower earning spouse.
  • Taking on a family member as a partner in your business, so they can share some of the profits.
  • Ensuring the higher earner makes all the Gift Aid donations to charities from the family.

These changes should be made as soon as possible to gain the maximum advantage in 2012/13. The strategies need to be implemented correctly so please contact us for advice before proceeding.

Remember the Government plans to withdraw child benefit in 2013 from parents where either person pays tax at 40% or higher. To retain your child benefit (worth at least £1,055 per year) you need to ensure your taxable income is below the 40% threshold, which is set at £34,370 after allowances for 2012/13.

Tax Efficient Investments

Most allowances for tax efficient investments are fixed for each tax year and cannot be carried over to the next year if not used. If you have money to invest you may want use your allowance for 2011/12, or in some cases wait until 2012/13 when new rules and new limits apply.

Here is a brief summary of the 2011/12 and 2012/13 investment limits:

EIS

Investors who subscribe for shares under the Enterprise Investment Scheme (EIS) can currently receive income tax relief at 30% of up to £500,000 invested in one year. This annual cap will rise to £1 million from 6 April 2012. However, any amount can be invested in EIS shares to defer tax due on a capital gain made in the period up to three years before the EIS shares were acquired, or to up to one year later. An investment in EIS shares can be treated as if it was made in the previous tax year, to apply the income tax relief against the taxpayer’s tax due for the earlier year.

The conditions companies need to meet to raise funds using EIS are also being relaxed from April 2012. These conditions are still very complex so talk to us first before making a decision to use the EIS scheme.

SEIS

The Seed Enterprise Investment Scheme (SEIS) is a new scheme due to start from 6 April 2012, subject to the law being passed by Parliament. This will operate like a mini version of the EIS, but the scheme will only be available for five years. The maximum investment by a taxpayer in one tax year will be £100,000, with income tax relief given at 50% of the invested amount. Any gains made on the SEIS shares will also be tax free as long as the investment conditions are not broken and the shares are held for at least three years. In addition if you make a capital gain in 2012/13 (on any asset), you can invest that gain in SEIS shares and achieve 100% tax exemption on that gain. Thus the maximum tax relief for investing in SEIS shares could be 78% of the amount invested.

VCT

Investing in shares issued by a Venture Capital Trust (VCT) will give you 30% income tax relief on the amount invested, capped at £200,000 per tax year. This investment limit is not expected to increase in 2012/13. Dividends and gains from the VCT are tax free if the VCT shares are held for at least five years.

ISA

Individual Savings Accounts (ISAs) can be taken out as cash only accounts (maximum £5,340) or stocks and shares accounts up to £10,680. These limits are for 2011/12. The investment limits for 2012/13 are £5,640 for cash only accounts and £11,280 for stocks and shares.

You can now open a Junior ISA (up to £3,600 per year) for children aged under 18, who do not already have a child trust fund account in their name. Individuals who are aged 16 or 17 can also open a standard cash only ISA in addition to the Junior ISA.

Working from Home

If you work from home as an employee or director of your own company, or for any other employer, you can claim £3 per week (tax free) to reimburse you for the costs of running your home as your work-base. This claim needs to be made to your employer directly, not to the Taxman.

If the additional costs of running your home while you work there exceed £3 per week you can put in a higher claim for the costs incurred, but you do need to back-up that claim with copies of energy bills etc. You also need to work out the additional costs quite precisely, which can be tricky, but is possible if you are methodical. We can help you calculate the amount to claim and advise on what evidence you need to keep. If you just claim the flat £3 per week, you don’t have to provide any calculations or evidence in the form of bills.

The Taxman has just announced that the £3 per week expense limit for working at home is to increase to £4 per week from 6 April 2012. It was last increased from £2 to £3 per week on 6 April 2008, so an increase is well over-due.

Capital Exemptions and Losses

You can make up to £10,600 of capital gains in 2011/12 and pay no tax on that amount, as it should be covered by your annual capital gains exemption. If you have not used this annual exemption in 2011/12, check whether you can make any disposals which will crystallise gains before 6 April 2012. Individuals who have non-domicile status may not qualify for this annual exemption.

The annual exemption limit will be frozen in 2012/13 at £10,600. Any unused exemption for 2011/12 cannot be carried forward or passed on to a spouse. However, you can pass assets to your spouse or civil partner tax free. Then on the sale of the asset your spouse’s annual exemption can be set against the gain.

The gift of the asset to your spouse must be done well in advance of the sale, with the correct legal documents drawn up. Take legal advice if you are not sure how to change the ownership of an asset.

If you have assets that have reduced in value so they are now worth almost nothing, you can make use of that loss by making a negligible value claim. If you submit the claim in 2011/12 you can ask for the loss to be treated as arising in 2009/10 if the asset was also virtually worthless at that earlier date. This is useful, as capital losses can generally only be carried forward, not backwards.

Question & Answer Section

Q. I’ve received a £100 fine for not submitting my tax return, but I don’t remember receiving a form to complete. All my income is taxed under PAYE, so surely I don’t need to complete a tax form, do I?

A. You should first ring the Self Assessment helpline on 0845 900 0444. Have to hand your NI number and your unique taxpayer reference number (UTR), if you know it. The Tax Officer will confirm whether you need to complete a tax return for the year to 5 April 2011 or not. If you do need to complete a tax return for that year you should do that online, if you submit a paper form now you will receive an even higher penalty. We can help you submit your return online, if one is due.

Q. I hold the lease of a property comprising of a shop on the ground floor and offices above. The shop is vacant and only one of the offices is let. I’ve received a good offer from a property developer to purchase the lease of the whole building. If I invest in another commercial let property can I rollover the gain and avoid paying tax on the sale of the lease?

A. It is possible to rollover gains made on land and buildings used by trading businesses or which are let to trading businesses that are connected to the building owner. However, letting of property is not regarded as a ‘trade’, so you can’t rollover the gain you make on selling the lease of this building. Even if your own trading company occupied a part of the building, rollover relief would only be available on the proportion of the building it occupied.

Q. My bakery shop is VAT registered, but I don’t add VAT to the bread and cakes I sell. I’m going to start selling take-away filled rolls, fizzy drinks and hot pies. Will I have to charge VAT on these items?

A. Most food is zero rated for VAT, which for a VAT registered business such as yours, means you add no VAT to your bakery products but you can reclaim VAT on your business purchases. However, once food is supplied in the course of catering, or as hot food to eat straight away, the standard rate of VAT (20%) may apply. The rules of what must be standard rated and what should be zero rated are quite complicated, and are set out in detail in the VAT notice 701/14: Food. We can advise on what products you should apply standard rate VAT to.

March Key Tax Dates

19/22

  • PAYE/NIC and CIS deductions due for the month to 5/3/2012

31

  • Last minute tax planning for the 2011/12 tax year. Ensure you use up all exemptions to which you are entitled.

Need Help?

Please contact us if we can help you with these or any other tax or accounts matters.

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