Avoid the cost of lengthy tax investigations
Our fee protection service was renewed on 1 July 2012 and invoices will be issued shortly. For those of you that did not renew on time, late applications are still possible but a £25 plus VAT administration fee applies.
The service is designed to reimburse the costs of your defence in the event that you are selected for tax enquiry, whilst at the same time providing you with the best possible representation and assurance that you won’t have to concede to HMRC’s demands on a purely commercial basis.
The cover that we have arranged includes:
- Income tax full enquiries and aspect enquiries.
- Corporation tax enquiries.
- Employer compliance disputes including PAYE, NIC and P11Ds.
- VAT disputes.
- Schedule 36 enquiries.
The annual fees for the service are:
- Individuals £45
- Sole traders £129
- Companies and partnerships, from £179
All fees are subject to VAT.
As an additional benefit, all business clients who subscribe to our service also have 24 hour access to a Business Legal Helpline; this is a valuable service available to subscribers at no additional cost.
We strongly recommend that you subscribe to the service. If you would like further information please contact firstname.lastname@example.org.
HSBC Thames Valley Pension Seminar
You may or may not be aware of the Governments intentions with regards to pension planning for employees and the impact these legislation changes may have on your business.
On 17th July 2012 HSBC are holding a seminar to help enlighten you to the requirements of the changes and help you fully understand the implications on your own business.
A number of us will be attending so if you would like to join us for the seminar which starts at 8am in Oxford please let us know.
Payments to directors
Any payment made to a director as part of their remuneration package is generally subject to tax that is usually collected via the PAYE system. The payments made by the employer are allowable expenditure and reduce the employer’s taxable profits.
However, many smaller limited companies pay personal expenses on behalf of directors. These personal expenses do not form part of the director’s remuneration package and should not be included as an expense in the company’s accounts – a company may not deduct expenditure unless it is incurred wholly and exclusively for the purposes of its trade.
Which begs the question, how are these personal expenses of the director treated in the company’s accounts? Unless reimbursed by the director, such personal expenses are debited to the director’s loan account.
Of course the director may have introduced funds into the company at some time in the past in which case the debiting of personal expenses will simply reduce the amount owing to the director. Problems only arise when the director’s loan is overdrawn, in which case the director owes money to the company. Two tax complications arise:
Company liable to additional Corporation Tax charge
If the director is also a shareholder in a “close” company, any overdrawn balance on a director’s loan account at the end of the company’s accounting year will create a potential Corporation Tax charge based on 25% of the amount overdrawn at the year end. For example, if John, a director and shareholder of A Ltd, has an overdrawn loan account with the company at their year end, 31 March 2012, amounting to £10,000 then a potential liability to Corporation Tax will arise of £2,500. This liability will be reduced or cancelled if the loan is reduced or repaid in full before 31 December 2012 (9 months after the accounting year end). Even if the loan is repaid after the nine month deadline, the company can apply to have the additional tax repaid although there may be a significant delay. Quite often the overdrawn balances are cleared by paying dividends which are credited to the loan account within the nine month period.
Director may face a personal tax charge
If A Ltd in the example quoted above, had made no interest charge to John for the loan of the £10,000 then HMRC would seek to tax John as if he’d received a benefit (the interest forgone). If John had owed more than £5,000 at any time during the year to 5 April 2012 he would be assessed to a benefit in kind charge. HMRC currently use a 4% rate to calculate the benefit which means John would pay tax on a benefit in kind charge of £400. Additionally, A Ltd would be liable to a Class 1A National Insurance charge on the same amount, i.e. on £400 assuming £10,000 was owed for a full year.
To avoid the personal tax and Class 1A charge, A Ltd could charge John for the statutory interest by crediting interest received in its accounts and debiting John’s loan account with the same amount of £400. John would then need to repay £10,400 before 31 December 2012 in order to ensure HMRC would withdraw the additional Corporation Tax charge.
Accounting for directors loan transactions can be complicated especially if the company makes an interest charge to the director.
Tax dodgers beware
At the end of May 2012 HMRC announced that six new taskforces had been created to target tax evasion in a number of specific locations:
- Indoor and outdoor markets in London
- Taxi firms in Yorkshire and East Midlands
- Property rentals in East Anglia, London, Yorkshire and the North East
- Restaurants in the Midlands
These specialist teams are trained to undertake intensive bursts of activity and are expected to recover more than £23m in unpaid tax.
The teams will visit traders to examine their records and carry out other investigations.
Readers whose businesses fall within these new remits may be advised to take a hard look at their record keeping ensuring that all business transactions have been correctly recorded; much better to be prepared. Do not wait for the brown envelope to drop on your doormat…
July 2012 busy month…
Although we have summarised the various filing and tax payment deadlines for July in the tax diary it is worth looking at the detail – July is a busy month.
6 July 2012
- Filing deadline forms P11D, P9D and P11D 2011-12. As this newsletter is being published on 5 July we sincerely hope that readers have already filed these annual returns that disclose benefits paid to employees and directors during 2011-12.
- Distribute copies of P11D and P9D forms to employees.
- Redundancy report. Employers who have provided a redundancy package during 2011-12, which includes benefits in kind and which over its lifetime is estimated to be worth more than £30,000, must report details to HMRC by today.
- Unapproved share schemes. Deadline to inform HMRC of any reportable events for 2011-12.
- Tax approved share schemes. Return deadline on statutory forms due today in respect of tax approved share schemes including Enterprise Management Incentive schemes.
7 July 2012
- Retired employees’ non-cash benefits. Any non-cash benefits provided to retired employees under an employer financed retirement benefit scheme should be reported to HMRC by today. Benefits are taxable unless exempted or below the £100 per annum de minimis.
19 or 22 July 2012
- Payment of Class 1A NICs for 2011-12. Payment deadline is 19 July if paying by cheque or 22 July if paying electronically – payments must clear by 22 July if paid electronically.
31 July 2012
- Late filing 2010-11 self assessment return. If you have still not filed your SA return for 2010-11 by today, a further tax related penalty will be charged. The penalty will be £300 or 5% of tax liability whichever is the higher amount.
- 2nd payment on account 2011-12. This amount is usually based on 50% of the reported self-assessment liability for 2010-11, unless adjusted.
- Tax credit renewals. Deadline to renew tax credit claims for 2012-13 and to return final income figures for 2011-12. It is possible to provide estimated figures for 2011-12 but the final figures must be provided by 31 January 2013.
VAT refund for self build
It is possible to register a self-build application for VAT purposes and reclaim any VAT charged on certain materials and services paid out. In a recent tax case an individual and his partner decided to build a new home for themselves and two children from a previous relationship. The building was actually two separate buildings (one for the kids) linked by timber decking. HMRC refused the claim to include VAT recoverable for the construction of the separate building.
On appeal the Tribunal allowed the claim, arguing that the singular word ‘building’ should be construed as including the plural ‘buildings’ so that the claim for the two buildings should be allowed.
This month we have included articles that cover: the tax treatment of payments made to directors, news of HMRC tax investigation activity, an outline of the many deadlines for filing and payment of tax this month and an interesting VAT case recently decided in favour of the tax payer.