HMRC have now set out their understanding of the consequences of the transfer of Northern Rock plc into temporary public ownership. The guidance relates to:
As no monies were received for the shares, the disposal in February 2008 will normally give rise to a loss in respect of any allowable costs of acquisition. The loss will crystallise in the 2007/08 tax year.
Shareholders who are entitled to receive a payment under the Compensation Scheme Order will be subject to capital gains tax and the gain will be charged in the tax year in which the compensation is received.
Please contact us if you need more detailed assistance.
You may be aware that the government is proposing to change the tax relief available to businesses when they purchase cars. This relief is known as capital allowances, the tax alternative to depreciation on the vehicle.
Although we are short on detail, the comments from HMRC in this year's Budget are reproduced below:
'With effect from 1 April 2009 for corporation tax purposes (6 April 2009 for income tax) the capital allowance treatment of cars will be reformed. Expenditure on cars with CO2 emissions above 160 grams per kilometre (g/km) will attract 10% Writing Down Allowance (WDA) and expenditure on cars with CO2 emissions of 160g/km or below will attract 20% WDA.'
This would appear to be a major change in the tax treatment of cars, particularly those that are known as 'expensive' cars. Cars costing over £12,000 have, for many years, had an annual maximum of £3,000 WDA. It seems as though this limit may disappear.
Whilst the full effect is as yet unknown, certain general assumptions can be made. Assume a business purchases a new car for £25,000 and uses it for 4 years before it is sold for £11,000. The table below compares the differences that could arise.
| Current rules | 10% WDA more than 160g/km CO2 | 20% WDA up to 160g/km CO2 | |
| £ | £ | £ | |
| Year 1 - cost | 25,000 | 25,000 | 25,000 |
| Allowance | 3,000 (max) | 2,500 | 5,000 |
| Amount to carry forward | 22,000 | 22,500 | 20,000 |
| Year 2 - allowance | 3,000 (max) | 2,250 | 4,000 |
| Amount to carry forward | 19,000 | 20,250 | 16,000 |
| Year 3 - allowance | 3,000 (max) | 2,025 | 3,200 |
| Amount to carry forward | 16,000 | 18,225 | 12,800 |
| Year 4 - sale | (11,000) | (11,000) | (11,000) |
| Balancing allowance | 5,000 | None | None |
| Year 4 - allowance | N/A | 723 (7,225 x 10%) | 360 (1,800 x 20%) |
| Total allowances over economic life | 14,000 | 7,498 | 12,560 |
As can be seen, the main difference is that there is no final allowance when the car is sold. Whilst the effect is not too bad in respect of cars in the 20% bracket, those in the 10% bracket suffer quite badly.
Whilst the full detail of the changes is as yet unknown, if you are buying a business car in the near future you may wish to think about its level of emissions.
For some years a complete write off (first year allowance) has been available for super-clean cars. This 100% first year allowance for the cleanest cars has been extended to 31 March 2013. To qualify, the car needs CO2 emissions not exceeding 110g/km. For a list of cars that meet this test, please visit www.comcar.co.uk
Research suggests that it costs between three and ten times as much to replace lost customers than to keep them. Here is a brief 'what, why and how' on customer retention.
| WHAT | Keep in touch with what your customers want and how their needs are changing. |
| WHY | Prevents complacency. |
| HOW | Regularly measure customer satisfaction levels and use market research. |
| WHAT | Welcome complaints. |
| WHY | Something is wrong and you need to know what it is so that you can act and keep the customer. |
| HOW | Record and analyse the complaint so that you can see what changes you need to make. |
| WHAT | Introduce a Customer Relationship Management (CRM) system. CRM is the process of developing ongoing relationships with existing and potential customers. |
| WHY | As your business grows, it becomes more difficult to maintain a personal relationship with all of your customers leaving them to feel that they are not receiving the same quality of service. |
| HOW | A CRM solution may involve databases, the internet, telemarketing, direct mail, etc. |
An example of how a CRM system might work where you have a large customer base could be to communicate:
Where HMRC are happy that there is no liability to income tax or national insurance for certain expenses paid or benefits given to employees, a notice of dispensation can be issued.
This means that an employer does not need to report any of the expenses and benefits included in the dispensation on forms P9D or P11D. It also means that employees do not need to put these items on their tax returns.
Historically, once a dispensation had been granted it would continue to apply until the qualifying conditions were no longer met. However, where a dispensation had been operated incorrectly, it could be revoked retrospectively. HMRC's practice was to only revoke retrospectively in exceptional circumstances.
HMRC have become concerned that a small number of employers have taken advantage of this and have gone on to abuse the terms of the dispensation, so HMRC have now changed their practice in this area.
HMRC will now consider revoking a dispensation retrospectively where there is any evidence of negligence or misrepresentation by an employer, such as where:
Whilst HMRC state that this will not affect the great majority of employers, the second point is potentially very wide ranging.
If you rely on a dispensation, you may wish to ensure that it is up to date and covers all relevant benefits and expenses. If you have any concerns in this area, please do not hesitate to get in touch.
The ongoing introduction of this important legislation continues, with three of the key implementation dates having now passed.
October 2007 saw changes in respect of formal company procedures, such as meetings and resolutions brought into force.
April 2008 saw changes in respect of company reports, accounts and audits introduced, although a number of these only take effect for accounting periods beginning on or after 6 April 2008. It will therefore be April 2009 year ends and beyond before we really begin to see the effects of these.
More recently, 1 October 2008 saw the following changes introduced:
The final implementation date of 1 October 2009 will see the remaining sections of the new Act brought into force. A large number of provisions will then take effect, mainly dealing with company formation and administration.
You are by now likely to have heard the news that private companies are no longer required to have a company secretary. Previously, all private companies were required to have a minimum of two officers - a director and a company secretary, as a sole director could not also be the company secretary.
The change arises from the Companies Act 2006, which aims to make it easier to set up and run a company. The change took effect from 6 April 2008 and also means that it is now possible for a private company to be formally run by a single individual.
Existing companies that have a company secretary in place, whose details are registered at Companies House, are now able to decide whether or not they wish to continue with a formal appointment in this role.
The tasks to be undertaken
While the position of company secretary does not need to be filled, many of the tasks that a company secretary traditionally undertook remain. Directors will continue to be legally responsible for these, which include for example, filing documentation at Companies House and maintaining statutory registers. These tasks may be delegated to an individual or to a corporate entity specialising in this administrative function.
The size and complexity of the company
Doing away with this role is a realistic possibility for smaller owner-managed companies, where statutory tasks are often undertaken by the director-owner or company accountant. There may be a more significant 'real' company secretarial role to play in larger companies.
Signing official documents
Documents can be signed by just one director, provided this is in the presence of a witness.
The company's Articles of Association
These may expressly require the company to have a company secretary, therefore these will need to be amended if the company no longer wish to have a company secretary.
If you decide that your company no longer needs a formal company secretary, the secretary must resign or the directors must resolve to remove the secretary. Companies House must be notified of any resignation or removal.
Where a business is trading through a limited company, the issue of tax efficient extraction of funds is always of practical interest and an area where decisions can change depending on changes to tax rules and rates.
Corporation tax (CT) rate changes have been the most recent factor to impact on the ever popular issue of whether it is more cost efficient to pay a bonus or a dividend, as this alters the true real cost of the bonus option...
This article considers the factors which impact upon the cost of providing a dividend or bonus by a company, to a shareholder/director, where the aim is to provide a set amount of post tax income in the most beneficial way.
Firstly the company needs to ascertain the tax and National Insurance position of the director/shareholder to determine the pre tax cost of the bonus. This depends on:
The company then needs to allow for the additional employer NIC cost, currently charged at 12.8%.
All costs are then reduced depending on the CT rate of the company. This primarily depends on the level of company profits but other factors may affect the exact CT rate in a company's circumstances so advice is recommended.
To demonstrate how this might operate the illustration below assumes:
The £10,000 received by the director has to first be grossed up for the tax and NIC:
£10,000 x 100/59= £16,949.
Then the employer NIC of 12.8% is added to this to find the total pre tax cost:
£16,949 x 112.8/100 = £19,118
The true cost to the company is now determined by the (CT) rate saving. The following table uses the effective CT rates, at different profit levels, for a single company for the period 1 April 2008 to 31 March 2009.
| Profits | ≤ 300k | > 1.5 mill | 300k-1.5mill |
| Rate of corporation tax | 21% | 28% | 29.75% |
| £ | £ | £ | |
| Cost before CT saving | 19,118 | 19,118 | 19,118 |
| Tax relief for company @ 21% / 28% /29.75% | (4,015) | (5,353) | (5,688) |
| Net overall cost | 15,103 | 13,765 | 13,430 |
The cost to the company is solely determined by the income tax position of the director/ shareholder. The only direct outlay of the company is the dividend payment. There is no additional NIC cost for either the employee or employer on a dividend but there is no CT relief saving either.
Assuming again that the individual is a higher rate taxpayer then on receipt of a cash dividend, 25% effectively needs to be retained to pay the higher rate tax.
If a dividend of £13,333 is paid then, after settling the 25% tax £10,000 cash will be available. As can be seen from the table above, in the current financial year this is currently a cheaper cost alternative compared to a bonus whatever the rate of company tax.
There are a range of other considerations aside from the numerical comparisons which may need to be borne in mind. These include but are not limited to:
As this area is constantly subject to changes in rules and rates please contact us to discuss what strategies would be suitable for you and your company.
The issue of the abolition of the 10% starting rate for non-savings income became a highly emotive one which resulted in concessions from the Chancellor in the so-called 'Mini Budget' in May 2008. The primary effect of the climb-down was that changes were made to both the personal allowance and the basic rate band limit but not to tax rates. The personal allowance was increased to £6,035 and so any income up to that amount is tax free. The increase is aimed at individuals on low earned income, which is the main type of non-savings income, to ensure that they do not end up with a higher tax liability this tax year compared to the previous year.
However as an increase in the personal allowance applies to all taxpayers, all basic rate tax payers benefit. Higher rate taxpayers do not benefit overall but are in a neutral position. This is because the effect of the increase in the tax free personal allowance has been offset by reducing the upper limit at which you start paying higher rate tax from the planned £36,000 to £34,800.
The table below usefully summarises the revised tax band position for the current tax year. It also shows the tax rates for different types of income and the retained 10% starting rate on savings income.
| Between | Non savings rate | Savings rate | Dividend rate |
| £ | £ | £ | £ |
| 0 -2,320 | 20% | 10% | 10% |
| 2,321-34,800 | 20% | 20% | 10% |
| Over 34,800 | 40% | 40% | 32.5% |
Tax law sets out a strict order in which sources of income are charged to income tax as follows:
Effectively, this means that savings and dividend income are treated as the 'top slice' of income. If taxable non savings income (after deducting the personal allowance) exceeds the starting rate band of £2,320, then this band will not be available for any savings income received.
However if the taxable non savings income is below the starting rate band, this band will be available in full or part for savings income up to the limit of £2,320.
Christina only works part time but following a recent inheritance has a significant sum on deposit at a bank and so has the following forecast income this tax year:
| Non savings £ | Savings £ | |
| Part time wages | 5,500 | |
| Bank interest income | 4,035 | |
| Less personal allowance | (5,500) * | (535) |
| Taxable income | Nil | 3,500 |
*The personal allowance is always allocated against non-savings income before other sources of income.
As there is no taxable non savings income, the whole of the starting rate band is available on the savings income and the balance is then charged at the normal basic rate of tax of 20% as follows:
| First £2,320 is @10% | £232 |
| Next £1,180 is @ 20% | £236 |
| Total tax due | £468 |
Christina will be able to claim a tax refund as 20% tax is automatically deducted at source on most savings income. Tax of £807 (£4,035 @20%) will have been deducted at source so she will be able to reclaim £339 (£807- £468).
Please do get in touch if you need any help with this.
UK tax law has never been regarded as kind when it comes to tax relief on buildings expenditure. As a result many battles have been fought over the years in the courts as businesses have contested that certain expenditure is plant and machinery not premises. The war will never be over but the introduction of a new category of plant for capital allowances is a compromise akin to a truce.
This new category is integral features and includes:
Some of these items were already treated as plant and machinery in the past but general electrical and cold water systems for buildings have only ever qualified as building expenditure. Unless the building then qualified as an industrial or agricultural building there were no allowances, meaning that many commercial premises did not attract any form of tax relief.
An Annual Investment Allowance of £50,000 is now available for a business to use against plant and machinery costs which can include this type of capital expenditure. In the case of certain energy saving expenditure such as lighting systems you may alternatively qualify for a 100% enhanced capital allowance irrespective of cost. Where immediate write off is not available using these alternatives, a lower 10% annual allowance can be claimed, ensuring that the business will get tax relief over time.
If you require further information or advice before making such expenditure commitments please contact us.
Disclaimer - for information of users: This newsletter is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, 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 newsletter can be accepted by the authors or the firm.