Harry and Helen

Our newest recruit, Harry Weaver who is based at our Ledbury Office is taking part in a sponsored tandem parachute jump on April 24th 2010. The event is hosted by Skydive-Swansea and the money raised is going to St Michael’s Hospice, Hereford – a very worthwhile cause.

Harry is doing the jump along with his sister Helen in honour of their brave Auntie and Uncle who were given kind treatment in St Michael’s during their struggle battling cancer.  Between them they have a target of £600.00 and hope to raise more!

So far they have raised just over £400.00 and clients have been very generous in their donations for which Harry is very grateful!

If you would like to sponsor Harry please pop into either office and ask to speak to either Harry (at Ledbury) or Claire (at Pershore).

Sarah Smith

We are pleased to announce that Sarah Smith has now qualified as a Chartered Certified Accountant.

Sarah is an Assistant Manager at our Pershore Office and as well as dealing with our Business Services she also heads our Payroll Bureau team.

Emma, Richard and Matt

Congratulations to Emma Rees, Richard Dunkley and Matt Clifford who also passed their exams. 

Emma Rees has finished the Fundamental level of the ACCA exams and is now moving onto the Professional stage.

Registering and submitting your return online will soon become compulsory.

The main benefits of online filing of VAT returns suggested by HMRC are:

• Online submission is faster as there are no postal delays to worry about.

• Online submission is more secure.

• Online submission is more reliable as an on-screen acknowledgement is displayed.

• Electronic payment is mandatory but can be made by direct debit which allows you up to 10 extra days to pay.  Alternatively, if you do not wish to pay by direct debit, then you can pay electronically by BACS.

• Refunds can be obtained quicker due to faster submission of the Return.

Businesses with turnover in excess of £100,000 must adopt this change by April 2010 but smaller businesses can delay a bit longer.

We have developed our systems to help both existing and potential clients.

Your options are:

1. Deal with this change yourself.  We can help guide you through the process.

2. Send your Return to us and we will file it for you (see below).

3. If you use a computerised accounts program such as SAGE it is possible (if you have the correct version) that the Returns can be filed electronically from this software.  If you are in any doubt please call us and we will try to help.

OUR NEW VAT FILING SERVICE

Crowthers will perform the following work:

1. Initial set-up of your VAT online registration.

2. Electronic submission of your completed VAT Returns to Customs & Excise (you will simply need to fax, scan or post your figures for entry in boxes 1 to 9 to us no later than the 14th of the following month in which the Return is due and we will look after the rest).

3. Send you an acknowledgement from Customs & Excise that your Return has been electronically submitted and the date payment is due (if applicable).  This acknowledgement will be your copy of the VAT Return to keep as part of your business records.

Our fees for this service will be fixed at £50.00 plus VAT for each VAT Return filed and these fees are payable under a quarterly Direct Debit arrangement.

PS – please note that the VAT rate increases from 15% to 17.5% on 1 January 2010.

However, Mr Darling spoke of the Report taking place at ‘a critical time for our economy’ and that the task in hand was ‘to secure the recovery and promote long-term growth’.

Report Highlights

As accountants we have focussed this summary on the main tax measures which are being introduced and ignored the economic and political comments made during his speech.  The tax highlights are:

• a 1% increase in the NIC rates payable by employers, employees and the self-employed from April 2011
• freezing the personal allowances and tax bands at the 2009/10 amounts for most taxpayers
• the introduction of a 50% additional rate of tax for those with the highest income levels
• changes to the complex rules for pension relief affecting higher income earners.  The Special Annual Allowance charge is intended to prevent significantly higher pension contributions in anticipation of the removal of higher rate tax relief which will occur in 2011
• the deferral for a further year of the planned increase in the small companies corporation tax rate, maintaining the current rate of 21% for a further year
• the standard rate of VAT will return to its former rate of 17.5% on 1 January 2010
• a temporary bank payroll tax of 50% is to apply to certain bonuses (in whatever form).

You will find further details in the following pages.

Personal TAX

Allowances and rates

There will be no increase in the under 65 personal allowance for 2010/11 which will remain at the current £6,475. The basic rate limit will also be maintained at the current £37,400. Therefore an individual will continue to pay 40% tax rather than the basic rate of 20% when their total income exceeds £43,875.

The 10% starting rate for savings income band (frozen at £2,440) is only available where an individual’s non savings income (broadly earnings, pensions, trading profits and property income) does not exceed the starting rate limit.

The government had previously announced that where the RPI (measure of inflation) is negative that allowances and tax bands would be frozen.

Changes for 2010/11

The government had previously announced that the personal allowance would be subject to an income limit of £100,000. An individual’s personal allowance will be reduced by £1 for every £2 of adjusted net income above the income limit.

Adjusted net income for these purposes is broadly all income after adjustment for pension payments, charitable giving and relief for losses.

A new rate of income tax of 50% will be introduced from 6 April 2010. This will apply to taxable income above £150,000.

Dividend income is currently taxed at 10% where it falls within the basic rate band and 32.5% where liable at the higher rate of tax. A new rate of 42.5% will be introduced for dividends which fall into the income band above £150,000.

National Insurance Contributions (NICs)

The NIC rates and limits are broadly frozen for 2010/11 at the 2009/10 figures. There are two exceptions to this in that the lower earnings limit, linked to the state retirement pension, will increase from £95 to £97 per week and there will be an increase in the NIC rate which applies to Volunteer Development Workers. All other rates will be held at the 2009/10 levels.

An increase in the rates of NIC is proposed from April 2011. A further 1% will apply to the rates applicable to employers, employees and the self-employed. The main rate of Class 1 (employee) NIC will be 12% and the Class 4 rate will be 9%. The employer rate will increase to 13.8%. The additional rate of Class 1 and 4 contributions payable will be increased from the current 1% to 2%.

In order to protect those at the lower end of the earnings scale the government has announced that the primary threshold and lower profits limits will be increased by £570. Those paying the standard employee rate and earning below £20,000 will pay less NIC overall as a result of the change.

The government had previously announced that NIC rates were to increase by 0.5%. This further increase of 0.5% will represent a significant increase in costs for employers.

Furnished Holiday Lettings (FHL)

Unlike general property rental businesses, FHL are treated as a trade for certain taxation purposes, which is generally more preferential in terms of loss reliefs and CGT reliefs. The government had previously announced that it would repeal the FHL rules with effect from 2010/11 but until then it would relax the rule that FHL had to be situated in the UK. Properties situated in the European Economic Area (EEA) qualify as FHL provided they meet the other conditions.

The government has confirmed that FHL will cease to be treated as a trade which will impact for loss relief, capital allowances, pension contribution and CGT purposes. These changes take effect from 1 April 2010 for companies and 6 April 2010 for individuals.

From April 2010 those letting furnished holiday accommodation will be able to claim a 10% ‘wear and tear’ allowance which is generally 10% of the rent less rates. They will also be entitled to claim Landlord’s Energy Savings Allowances on qualifying energy saving capital expenditure incurred on the property. These allowances are currently available against general property income.

This change had been previously announced when the FHL rules were extended to include properties situated in the EEA.

Tackling offshore evasion

HMRC will be consulting on a package of deterrents and new tools to help them tackle offshore tax evasion. This includes a notification requirement for certain offshore bank accounts and a new tough approach to penalties for offshore non compliance.

Disclosure of tax avoidance schemes

HMRC have issued proposed rules on the options to strengthen and improve the system under which they receive information about avoidance schemes. The intention is to ensure they continue to receive information early and that they have sufficient powers to penalise those who do not comply with the rules.

Shared Lives carers

From 6 April 2010 income tax relief will be introduced for Shared Lives carers who provide accommodation, care and support for up to three individuals placed with them under a local authority Shared Lives Placement Scheme. The Shared Lives carers must share their homes and family life with the individuals placed with them.

Special Annual Allowance charge

The Special Annual Allowance (SAA) charge was introduced by some very complex rules in Finance Act 2009. The current rate of the SAA charge is 20% on excess pension contributions. The aim of the charge is to discourage individuals from making significantly higher pension contributions in anticipation of the removal of higher rate tax relief which will occur in 2011. The main features of the charge are:

• It applies for 2009/10 and 2010/11 to individuals with relevant income in excess of £150,000 in either of those years or the two preceding years and where increased pension contributions have been paid after 22 April 2009.
• The total pension contributions paid exceed £20,000 (the ‘SAA threshold’). A higher threshold of up to £30,000 may be possible depending on the level of contributions in previous years.
• The SAA threshold is reduced by the amount of so-called ‘protected’ contributions which are sums being paid at least quarterly under arrangements put in place before 22 April 2009.

It is now proposed to lower the threshold for triggering the SAA charge by reducing the relevant income limit to £130,000 with effect from 9 December 2009. Individuals will be affected by this if their relevant income in 2009/10 or either of the two preceding years exceeds £130,000. For 2009/10 only, protected contributions will include any contributions paid up to and including 8 December 2009.

Example

Mary has relevant income of £140,000 in 2009/10. She makes regular monthly contributions of £2,000 under arrangements which have been in place for several years. She made a one-off contribution of £5,000 in September 2009 and another of the same amount in March 2010. Her basic SAA for the year is £20,000. In her case all the regular contributions plus the September payment are protected and so her SAA reduces to nil.

The contribution made in March will be caught and will be subject to the 20% charge which is payable by Mary.

Comment

This will potentially catch a significant number of individuals. It is important to review the level of relevant income for 2007/08 and 2008/09. If in either year the figure is over £130,000 and below £150,000 the new rules will apply irrespective of the income level in 2009/10. If in either year the figure exceeds £150,000 the existing rules will bite.

The rules will catch one-off contributions made by employers as well as lump sum payments made by the scheme member. In either case the charge is on the individual.

SAA rates for 2010/11

The current rate of the SAA charge is 20% on the excess contributions. For 2010/11 the rate will be that necessary to reduce the tax relief on the excess to the basic rate. Bearing in mind that the top rate of tax will be 50%, some of the charge could be at 30% and some at 20% depending on the effective rates at which pension contributions are being relieved.

Pension from 6 April 2011

Further detail has been provided on the plan to remove higher rate relief on the pension contributions of those with high income.  However some of the detail is still subject to consultation. The rules will apply to those whose gross income exceeds £150,000 and in calculating this limit account will be taken of employer pension contributions.

There will be an income ‘floor’ of £130,000 (excluding employer pension contributions). Any individual with income below this limit will not be affected at all by the rules. If the income exceeds £130,000 then the amount of any employer contribution must be added to establish if the £150,000 limit is exceeded.

Comment

The basis of this calculation will be very important for many family companies where annual employer pension contributions have been a feature of remuneration planning.

Refunded pension contributions

When a registered pension scheme repays contributions to members who leave having completed less than two years service, they are required to pay a tax charge to recoup the tax relief given on the original contributions. That charge is currently 20% on the first £10,800 of refunded contributions and 40% on any balance. Where a refund is made on or after 6 April 2010 the 20% rate will apply to the first £20,000 of refunded contributions and any balance will be taxed at 50%. The charge is levied on the pension scheme.

Lump sums from Employer

Financed Retirement Benefit Schemes (EFRBS) – In certain situations a lump sum, gratuity or other benefit may be paid by an EFRBS to an entity other than an individual. In those cases there is a tax charge payable by the recipient which is currently 40%. That rate will increase to 50% for benefits paid after 6 April 2010.

Business TAX

Corporation tax rates

The small companies corporation tax rate which applies to companies with up to £300,000 of profits is currently 21%. An increase to 22% was originally planned to take effect from 1 April 2010 but was deferred. This has now been deferred for a further year until 1 April 2011.

Business Payment Support Service (BPSS)

The service launched by the 2008 Pre-Budget, which enables viable businesses to negotiate more flexible payment arrangements to meet business tax liabilities including PAYE, will continue to be available for the foreseeable future.

The service supplements the existing Time to Pay (TTP) arrangements which may be negotiated by all taxpayers. However from April 2010 a new requirement will apply where a business seeks a TTP arrangement and the liability is worth £1 million or more. Such a business will need to provide an ‘Independent Business Review’ in support of the request and this is expected to be implemented from April 2010.

Capital allowance boost for low-carbon transport

A 100% first year allowance will be available for capital expenditure on new electric vans from 1 April 2010 for companies and 6 April 2010 for an unincorporated business. This proposal is subject to European State Aid rules.

Reduced corporation tax for innovation

A reduced corporation tax rate of 10% is to apply from April 2013 to income arising from patents. It is intended that there will be a consultation with business in time for the Finance Bill 2011.  It will apply to patents granted after the legislation is passed.

Comment

This proposal is to be known as the ‘Patent Box’ and is designed to ensure that the UK remains an attractive location for innovation, by offering stronger incentives.

Venture Capital Schemes

Certain changes to the qualifying conditions for the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) are being made to ensure that both schemes continue to meet European State Aid requirements.

In summary the proposed changes are:

to qualify a company must not be in difficulty

• to qualify a company need only have a permanent establishment in the UK rather than carrying on a qualifying trade wholly or mainly in the UK
• a VCT’s shares must now be traded on an EU regulated market rather than being restricted to an official UK list
• rules governing the amount of a VCT’s investment which must be held as equity are changed.

In addition a new ‘small enterprise’ definition is to be incorporated into legislation to ensure that the schemes remain targeted on the small enterprises for which they are intended and do not benefit larger enterprises.

Controlled Foreign Company reform

The government remains committed to the reform of these rules and has announced that proposals will be issued in the New Year.

Worldwide Debt Cap for large groups

Further amendments have been proposed to the debt cap legislation which comes into force for periods of account beginning on or after 1 January 2010 for large groups. The amendments eliminate various anomalies which have been identified in applying the rules and include additional provisions relating to the allocation of disallowed finance costs.

Bank payroll tax

A temporary bank payroll tax of 50% is to apply to certain bonuses (in whatever form). The tax will apply to the amount of the bonus which exceeds £25,000 for any individual employee. The tax will apply to banks, building societies and other related financial businesses.

It is to apply to all discretionary and contractual bonus awards made after the announcement of the measure on 9 December 2009, except for contractual bonus entitlements which existed at the time of the announcement, where the payer has no discretion as to the amount of the bonus. The initial charging period will run until 5 April 2010. However the government has indicated that this period of charge could be extended until other relevant provisions of the Financial Services Bill come into force.

This one-off tax is payable on 31 August 2010. It will not be deductible in calculating the institution’s profit or loss for corporation tax or income tax purposes.

Comment

This intervention is designed to tackle certain remuneration practices that are considered to have contributed to the excessive risk taking in the banking industry.

Employment

Workplace canteens

Legislation will be introduced to restrict the existing tax exemption for workplace canteens.  However this will only affect employees and employers who use the exemption in conjunction with salary sacrifice or flexible benefit arrangements.

These arrangements allowed some employees to purchase canteen meals out of gross pay and hence obtain a significant tax advantage over the majority of employees who purchase meals using their net pay.

The legislation will not affect canteen subsidies that are available to all employees.  This will take effect from 6 April 2011.

Company cars

From 6 April 2012 the CO2 emissions bands used to work out the taxable benefit for an employee who has the use of a company car will be shifted down by 5gm CO2 per km. In addition, the current graduated table of company car tax bands will be extended down to a 10% band. This will mean that a 10% band will apply to company cars with CO2 emissions up to 99gm CO2 per km.

As a result ‘qualifying low emissions cars’ will no longer exist as a separate category.

Comment

Whilst a welcome move there are very few cars that might appeal to company car drivers that fall into this new band.

Changes to fuel benefit tax

From 6 April 2010 employees who receive free private fuel from their employers for company cars or vans will pay more income tax on this benefit.

For company car drivers the existing figure used as the basis for calculating the benefit will be increased from £16,900 to £18,000.  For company van drivers the benefit will be increased from £500 to £550.

Comment

As a result of these increases employers will suffer additional Class 1A National Insurance Contributions.

Electric cars and vans

Employees who are provided with a company car for their private use, which is propelled solely by electricity, currently pay tax on the benefit which is based on 9% of the list price of the car.  From 6 April 2010 this percentage will be reduced to 0% therefore reducing the benefit calculation and tax liability to nil.  This will apply for five years.

In a similar vein, employees who are provided with a company van for their private use, which is propelled solely by electricity, currently pay tax on a flat rate benefit of £3,000. From 6 April 2010 this benefit will be reduced to nil thereby eliminating the tax liability. This will also apply for five years.

Comment

As a result of these changes employers will eliminate their Class 1A National Insurance liabilities on cars and vans provided to employees this way.

OTHER MEASURES

The government has announced the following measures.

An extension to the temporary exemption from business rates for empty properties. For 2009/10 properties with a rateable value of up to £15,000 are exempt. The relief will be extended to 2010/11 for empty commercial properties with a rateable value of up to £18,000.

• An additional £500 million of lending available to small and medium-sized enterprises through a 12 month continuation of the Enterprise Finance Guarantee. This provides targeted support for viable businesses with less than £25 million turnover that have no or insufficient security.
• Creating a new Growth Capital Fund to support growing companies seeking to borrow amounts between £2 million and £10 million. Further details will be announced in 2010.
• Further investment in the Strategic Investment Fund and UK Innovation Investment Fund.

CAPITAL TAXES

Inheritance tax (IHT) nil rate band

The nil rate band for 2010/11 will be frozen at the current level of £325,000.

Comment

The original intention of the government was to increase the nil rate band to £350,000.

IHT avoidance

Legislation, effective from 9 December 2009, will be introduced in Finance Bill 2010 to counter two tax avoidance schemes that have been designed to avoid IHT charges on property in trusts. The measures will have effect for:

• transfers into a trust where the settlor retains a future interest, or where a future interest in a trust is purchased, on or after 9 December 2009
• interests purchased in trusts on or after 9 December 2009.

Capital gains tax (CGT)

Principal private residence relief (PPR) is not available on any part of a house which is used exclusively for the purposes of a business or vocation. On disposing of the house the appropriate proportion of the gain relating to the part occupied as the only or main residence is eligible for PPR.

Where a person cares for an adult under a local authority placement scheme, their contract with the local authority may require them to set aside one or more rooms exclusively for the use of the adult in care. In such a case, PPR may not be available on that part of the property. Finance Bill 2010 will remove this possible restriction.

The measure will have effect for disposals on or after 9 December 2009.

VAT

Standard rate of VAT

As previously announced the temporary reduction in the standard rate of VAT to 15% will end on 31 December 2009.

The Pre-Budget Report confirms arrangements to smooth the transition for businesses back to the 17.5% standard rate.

• There will be a ‘period of grace’ for businesses trading across the midnight deadline to charge the lower 15% rate until they close (or until 6 am on 1 January 2010, whichever is earlier).
• Shops will be able to add the extra VAT to prices at the tills for up to 28 days, giving them extra time to complete the re-pricing of their stock.

VAT Flat Rate Scheme changes

The Flat Rate Scheme provides an optional simplified VAT arrangement for businesses with a turnover up to £150,000. The percentages were re-calculated in December 2008 to reflect the temporary reduction in the standard rate of VAT. The flat rate percentages have now been re-calculated to reflect the reversion of the standard rate of VAT to 17.5%. The new rates will be implemented on 1 January 2010.

Changes also include technical adjustments to reflect more up to date business patterns. This means that, for some sectors, the rates will not simply return to the level set prior to December 2008. Virtually all sectors will face an increase because of the increase in the standard rate, although increases in some sectors will be larger than others.

MISCELLANEOUS

Spotlights on avoidance

HMRC’s internet publication, ‘Spotlights’, which highlights avoidance schemes, will be expanded to include more general ‘buyer beware’ messages. These will provide taxpayers with an indication of the type of arrangements to avoid. It will continue to highlight specific avoidance schemes that in HMRC’s view are ineffective or have unintended adverse consequences in order to deter taxpayers from buying into high risk avoidance.

Equitable Liability

Extra Statutory Concession

A concession has existed for taxpayers in receipt of a determination of income or corporation tax who are out of time to file their tax return and who can demonstrate that the sums charged are excessive.

By concession HMRC only collected the sum that would have been due for the period had the taxpayer filed the return on time. Legislation will be introduced to permit HMRC to continue to apply this treatment provided certain conditions are met.

Comment

HMRC’s original intention was to remove this concession but not introduce relieving legislation. After pressure from professional bodies, HMRC have changed their mind.

Disclaimer – for information of users

This summary is published for the information of clients. It provides only an overview of the Pre-Budget Report, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this summary can be accepted by the authors or the firm.

Sophie Howard ACA, our Agricultural Manager, takes a look at the implication for farmers and other owners of furnished holiday property.

The Current rules

 For property to count as a holiday letting you are probably aware it must be:

• In the European Economic Area.
• Furnished.
• Available to the public for at least 140 days a year.
• Commercially let for at least 70 days a year.
• Consist of short lets of not more than 30 days.
• Only let for 210 days a year.

FHL’s are treated favourably for tax purposes, as currently you can:

1. Set losses against other income in the same way as trading losses.
2. Claim capital allowances on the cost of furnishings, furniture and equipment.
3. Use Entrepreneurs relief to reduce effective CGT rate to 10% instead of 18%.
4. Hold over and rollover relief are available.
5. FHL profits count as pensionable income.

The new rules – from April 2010

For basic holiday lets, all of the above 5 reliefs will be abolished as your holiday let income will be treated like any other property rental income.  This is very frustrating for farmers along with other owners of self-catering properties including some caravan parks.

However, some tax reliefs will still be available if you can prove your holiday letting income is trading income (a business) and not just investment income.

 NB For VAT purposes nothing has changed and so you still need to charge VAT at the standard rate if your business is VAT registered.  This could change so keep an eye on the Budget announcements.

Key points and Tax planning opportunities!!!!

The main opportunity arises if you are able to treat your “holiday let” as a “holiday business”!

• What can you add or do to prove your FHL is treated as a business or trade?  It is important to demonstrate that you provide services to your guests such as meals in the farmhouse, laundry, transport etc.   The more additional services provided, the more likely the business will qualify as a trade.
• Business Property Relief (BPR) can be allowed on FHL’s and this may continue in the future.  Where it is available, the tax payable on death is reduced as 50% or even 100% of the market value of the business excluded from IHT.   However, once again it is important to demonstrate that it is a business property.  For instance, ensure that:
  • Lettings are short term (for example weekly, fortnightly).
  • The owner has involvement in the business.
  • Lettings are not just to friends and relatives.

Farmers have been encouraged by the government to diversify and add other income streams to their core business which many farmers have done.   This could though prejudice future eligibility for BPR.  In the case of Farmer v IRC in 1999, it was held that an element of investment activity is acceptable providing the trading activity dominates.  So it is important to demonstrate that the farm business is the main trade and that the owner has involvement and is needed in both sides of the business.

It is important to consider your individual circumstances and be careful if the holiday business is run separately, for example by the farmer’s wife (this may have been set up for VAT reasons).  There may be an opportunity for a Potentially Exempt Transfer (PET).

For caravan parks it is becoming more important to look at the level and type of service provided rather than who is providing the service.

Other planning points are:

• If you are thinking of selling your holiday business it may be advisable to do before 5 April 2010 to take advantage of the extra CGT reliefs available!
• If you were considering passing on the holiday accommodation to the next generation this may be a time to do so.
• Loan planning should be considered as for IHT purposes it is more efficient to have the loans secured on non-business property.
• Consider maximising expenditure on your FHL before 5 April 2010 to claim the capital allowances available.  However, with any expenditure you should always ensure it is commercially viable.

This is just a brief overview of the changes and we do not know what is going to happen in the pre-budget speech on 9 December 2009.

If you would like to discuss any of the above please telephone either Jonathan Crowther or Sophie Howard on 01386 552644.

The Chancellor is expected to outline how he plans to reduce public debt over the next four years.  Many experts have been predicting changes to Capital Gains Tax and further changes to the new 50p rate of Income Tax being implemented in April 2010.  Also, will he look at changing the VAT rate in the future, which is set to return to 17.5% in January 2010?

Our senior team will be listening to the live Budget speech and looking at how the measures announced will affect our clients, so watch this space!!!

Now for the really scary bit … only 7 days notice is required of an HMRC visit and that can be verbal or in writing.  There is no appeal.  Penalties for obstruction are £300 and then £60 per day.

Think about it.  This is a real time inspection so there is no opportunity to put things right in the records at the year end and so it is crucial that transactions are properly recorded eg drawings, dividends, salary etc.  Also, how are leases, HP and entertaining recorded?  Inadequate business records will inevitably lead to a discovery assessment.  Can small businesses get their records all in order and reviewed by their accountant in just 7 days?  Will they realise the significance of the visit??

Tax Tribunals will become more commonplace.  Once an assessment is raised we can then appeal but new procedures must be followed under Section 54.  We can ask for a review and once this is received we have 30 days to accept or decline the HMRC offer.  This will be a very legalistic system.  Penalties will be much higher in future and it is expected that many enquiries will be settled with an additional penalty of 30% to 70% of the tax underpaid.

Enquiry Selection criteria will also change as random enquiries have been abolished.  However, a business may be selected for enquiry due to any reasons such as late Returns, change in accounting date, benchmarking (iXBRL), change in gross margin, using standard estimates such as £104 or £208 (multiple of 52 weeks) etc.  It is essential that the “white space“ on Returns is used to explain any changes in the business.

Initial Conclusions

Businesses must now be very careful with any estimates for private use of phone, motor, subsistence etc.  The use of home and own consumption figures must be very accurately calculated.  Details must be obtained to back up any estimate and they must clearly vary, year on year.  Any significant analytical review points that suggest a change in the business model must be reported on the tax returns.

Accountants must become really proactive and tell clients which records they must keep right up to date at all times. 

Accountants must visit clients immediately they receive a Section 36 Notice of an HMRC visit and check everything is in order.

This is a massive issue for us all businesses owners.

Finally, it should go without saying that anyone who receives a notice of a visit from HMRC should contact their usual Accountant immediately!

Jonathan Crowther FCA

Our New "Green" Bags!

Sophie Newton has recently taken on a more focused marketing role.  Her first idea was for Crowthers to do its bit in helping the environment by giving our small business clients an eco-friendly jute bag, as opposed to the plastic bags we were previously using.  Hopefully our clients will be encouraged to re-use these.

We are holding a competition for the best photo of someone holding the bag whether that is in an exotic place, next to a celebrity or simply in an exclusive surrounding.  The photos will be displayed on this website, and a £50 Marks and Spencer voucher will be given to the winner awarded at the end of February 2010.  Please email your photos to Sophie at competition@crowther.co.uk.

Although specific rules were put in place to ensure that VAT was accounted for at the correct rates on the way into this scheme HM Revenue and Customs were quite relaxed about this due to the short notice given to implement the changes.  However, it is unlikely that they will be so relaxed with the VAT treatment of transactions around the time of the increase to 17.5%.

This means that it is important that all VAT registered businesses plan to ensure the changeover is a smooth one.  There are two planning issues:

Firstly, there is an opportunity to lock supplies in at the 15% rate of VAT by way of fixing the tax point of supply at a date before 1 January 2010.

Secondly, you need to avoid any unwanted reductions in your margins.  You may have seen many retailers advertise the fact that your 2.5% VAT reduction would be deducted at the till.  Can you imagine a sign saying that the 2.5% VAT increase will be added at the till!

If you advertise your prices gross, and the prices are not corrected by 1 January 2010, you are reducing your margins by 2.5%.  It is unlikely that you would want to be inadvertently reducing your margins by 2.5%!

If you wish to take advantage of these planning opportunities and avoid any unwanted losses, please contact us for additional advice focussed specifically on your business needs.

Budgeting in the real world

Understanding common budgeting problems helps ensure your budgeting procedures work.  You must:

• Involve the right people in preparing the budget.
• Create realistic and up-to-date budgets using last year’s figures as a guide.
• Use your budgets effectively. 
• Using updated budgets lets you manage your cashflow and identify what needs to be achieved in the next budgeting period.

Forecasting sales

Sales forecasts are typically based on a combination of your sales history and how effective you expect your future sales to be.

Use your sales history as the basis for your forecasts, remembering that sales variations may occur. So:

• Assess what sales resources you have, and how you will use them.
• You may prefer to build up your sales forecast from separate forecasts for different products or geographical areas.
• Take into account seasonal patterns in your business and industry.

 
 Forecasting costs:

• Analyse your costs and how they relate to sales ie. fixed or variable.
• Forecast your costs (either as a fixed amount or in relation to sales).
• Control significant uncertain costs.

Preparing budgets 

Use sales and expenditure forecasts to prepare your budgets which will include:

• Forecast the timing of cash movements.
• Include non-operating cashflow in your cashflow forecast.
• Prepare a cash budget.
• Prepare profit and loss and balance sheet budgets.

 
Budget analysis

Analysing your budgets gives you the chance to deal with potential problems before they occur:

• Your cash budget projects your future cash position month by month.
• Profit and loss budgets let you analyse projected margins and other key ratios.
• Your projected balance sheet allows you to analyse stock turnover and other key figures.

Compare projected figures with previous years to see where performance is improving or deteriorating.

Conduct sensitivity analyses to see how different outcomes affect performance.

If you need help in preparing your budgets or advice as to how to start the process please contact us.