Wednesday 23 June 2010

Emergency Budget Newsletter

Welcome...

To our Emergency Budget newsletter.

This newsletter aims to summarise the main measures that affect our clients. If you need further assistance just let us know

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!


Summary

We all knew that Chancellor George Osborne was going to announce an increase in Capital Gains Tax (CGT) today, but we didn't expect the rate to rise immediately. Other surprises included reductions in the rates of corporation tax for both small and large companies and in the rates of capital allowances for all businesses.

A rise in the standard rate of VAT to 20% was widely expected, but this increase has been delayed until 4 January 2011, which is the first working day after the Christmas break.

The 1% point increase in NI rates from 6 April 2011 is already planned, but we are assured by George that through some manipulation of thresholds this increase will not be felt by most people. However, we won't know the exact starting points for employers and employees NI until the Autumn Budget statement on 20 October 2010.

Basic rate taxpayers aged under 65 will benefit from a £1,000 increase in their personal allowance from 6 April 2011. Those aged over 65 already receive a higher personal allowance, if their total income is below £28,930.

Individuals

Capital Gains Tax
The rate of CGT is to increase from 18% to 28% from 23 June 2010, but taxpayers with taxable income and gains below £37,400 will continue to pay CGT at 18%.

All trustees and personal representatives with any level of income and gains will also rise to 28% from 23 June 2010.

We thought the Government would not increase the rate of CGT in the middle of a tax year, as that would cause so many complications when calculating the tax due for 2010/11. However, that is exactly what George plans to do. The increase in CGT is not as high as many feared, as it is still well below the highest income tax rates of 40% and 50%. Although trusts are particularly badly hit as they will pay the higher rate of CGT on all gains and only have half the annual exemption of individuals. There are special rules for trusts for the disabled.

The annual exemption remains at £10,100 for individuals and £5,050 for most trusts.

All gains that qualify for entrepreneur's relief will continue to be taxed at 10%, whether the disposal is made before or after the changes on 23 June. There will be an increase from £2 million to £5 million in the lifetime limit on gains that can qualify for entrepreneurs' relief from 23 June 2010 and this is very welcome, but many gains will never qualify for that relief. For example, the sale of a commercial property, which is not associated with the disposal of a trading business, will not qualify for the relief. Letting of commercial property does not count as a trading business for entrepreneurs' relief.

If you are in the middle of arranging a large sale, you could escape the CGT rise if you have already exchanged contracts. This is because the disposal date for CGT is the date that unconditional contracts are exchanged, not the completion date for the deal. If the contract is conditional, the disposal date is the date those conditions are satisfied. The disposal date for a gift is the date the beneficial ownership passes.

Income Tax
The personal allowance for those under 65 will rise by £1,000 to £7,475 for 2011/12. However, this generous increase in tax free income will be limited to those who pay income tax at 20%, as the threshold at which 40% tax starts will be reduced to take into account the increased allowance. We won't know the exact tax thresholds until the Autumn Budget statement, as the increases in threshold for 2011/12 will be based on the RPI to September 2010.

Child Benefit and Tax Credits
Child benefit is available to all parents of children under 16, and is not means tested. This benefit will be frozen at current levels until April 2014, and the money saved will be transferred to child tax credits.

Working and Child Tax Credits are to be withdrawn gradually from families with total income of £40,000 or more from April 2011. The special baby rate will be withdrawn at the same time, but the child element for less well-off families will increase by £150. There are a number of other changes planned for later years including a reduction in the period for which claims can be back-dated.

Child Trust Fund
Child Trust funds are special tax free savings accounts that are set up with Government funds for children born after 31 August 2002. Additional savings of up to £1,200 per year can be contributed to each account by anyone. Reductions in the funding for these accounts will be made from August 2010 and no further funding will be provided for new accounts from 1 January 2011. The accounts that are already open will remain in place until the child reaches age 18.

Retirement and Pensions
The state pension age (SPA), from which individuals can receive the state pension, is currently 65 for men and is rising to 65 for women. Legislation is already in place to increase the SPA to age 66 for everyone from 2026, but the Government wishes to bring this date forward.

From April 2011 the state pension will be increased by the greater of: the annual increase in earnings or prices, or 2.5%. The standard minimum income guarantee given under the Pension Credit will be increased by the same amount as the state pension.

When a member of a money purchase pension scheme reaches age 75 they are required to purchase an annuity to provide their future pension, or heavy charges can apply. This requirement to purchase annuity at age 75 is to be scrapped from April 2011. In the meantime if the scheme member has not reached age 75 by 22 June 2010, they can defer purchasing an annuity until age 77.

Tax relief for pension contributions is expected to be limited to around £35,000 per year per person from April 2011. This cap will replace the complex tapering of tax relief that was due to apply to individuals with total income of £180,000 or more.

Currently employees can be required to retire when they reach the default retirement age of 65. The Government is going to consult on how to remove this default retirement age.

Furnished Holiday Lettings
The changes that were announced by the previous Government will not be taking effect, although new measures will be considered to ensure the rules apply equally to properties in the EEA as well as increasing the number of days that properties have to be available for let and actually let as commercial holiday lets.

Businesses

Corporation Tax
The small profits rate of corporation tax will be cut from 21% to 20% from 1 April 2011, when it was previously expected to increase to 22%. The small profits rate applies to profits of up to £300,000 if there are no associated companies. The corporation tax rates for large companies will reduce from 28% to 27% from next April and then fall by 1% per year eventually down to 24%.

Capital Allowances
The previous Government was always messing with capital allowances in an attempt to incentivise businesses to invest in this or that type of equipment. The new policy is to cut back on capital allowances with effect from 1 April 2012.

The main pool rate is reducing from 20% to 18% from that date and the special pool rate from 10% to 8%. The Annual Investment Allowance (AIA) Limit is also reducing from £100,000 to £25,000 from 1 April 2012.

Small businesses will not be affected if all of their expenditure on equipment is within the annual investment allowance, which gives 100% deduction for costs in the year of purchase. Unfortunately expenditure on cars cannot be covered by the AIA. However, expenditure on new (not second-hand) low emissions cars and vans can be covered by a separate 100% allowance.

NIC
2011/12
Although we know the rates of NI that will apply from 6 April 2011, (2010/11 rates + 1%), we don't know the new thresholds, so we cannot construct a meaningful table for 2011/12. We know the employer's secondary threshold for class 1 NICs will increase by £21 per week above the RPI increase. The RPI increase is based on the RPI to September 2010. We will provide a full NIC rates and thresholds table when we have the full details in October.

NIC Holiday
The Treasury are feeling guilty about cutting loads of public sector jobs in the less prosperous regions of the UK, so they have come up with the idea of an 'NICs holiday'. A business will be exempt from paying the employer's class 1 NICs for 12 months for up to 10 employees, capped at £5,000 per employee.

This scheme will start in September 2010 but will apply to new businesses set up on and after 22 June 2010. It will only apply in Scotland, Wales, Northern Ireland, the North of England, Yorkshire, the Midlands and the South West regions. Certain businesses are excluded, such as those under the IR35 or Managed Service Company rules, and businesses in grant-supported sectors such as agriculture, fisheries and coal. More details are expected to be made available shortly.

VAT

Change of Standard Rate
The standard rate of VAT will increase from 17.5% to 20% from 4 January 2011. Goods and services that are currently exempt from VAT or are subject to VAT at the zero, or 5% rates will not be affected by this change.

If you are planning to invoice or pay in advance to avoid the VAT rise, think again. There will be a special 2.5% VAT charge on such advance sales where the customer cannot recover all the VAT on the supply, and one or more of the following applies:

- the supplier and customer are connected,
- the supplier funds the purchase,
- the payment is not due for at least six months;
- the value of the supply is £100,000 or more, unless the prepayment or advance invoice is normal commercial practice.

Flat Rate Scheme
Small businesses can start to use the flat rate scheme if their VAT exclusive turnover is no more than £150,000, but must leave the scheme if their VAT inclusive turnover exceeds £225,000. This exit turnover figure will rise to £230,000 on 4 January 2011.

The flat rates that are applied to gross sales under the flat rate scheme will increase on 4 January 2011 to reflect the increase in the standard rate of VAT. If your business will no longer benefit from using the flat rate scheme you can leave scheme at any time.

Payments on Account
Businesses who have annual VAT due of £2 million or more must make monthly VAT payments on account. This threshold will be increased in 2011.

Tax Avoidance

A corporate tax avoidance schemes has been blocked from 22 June 2010 that uses financial instruments to remove profits from UK tax or is used to create an artificial tax credit.

The Government is to consider whether a General Anti-Avoidance Rule would be effective in reducing tax avoidance. It will also examine the following anti-avoidance measures:

- Expand the disclosure of tax avoidance schemes regime to include schemes involving IHT on trusts.
- Block the manipulation of consortium relief.
- Restrict the use of employee trusts, including employer finance retirement benefit schemes (EFRBS).
- Amend Stamp Duty Land Tax due on high value property transactions.

Other Duties

- Landline duty of £6 per year will not go ahead from 1 October 2010.
- Alcoholic duties rates on strong cider will reduce from 30 June 2010, back to the levels which were in place before the March 2010 Budget.
- A bank levy on bank's balance sheet values will be introduced from 1 January 2011 at 0.04% , which will rise to 0.07%.



Disclaimer
The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. 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 consequence of the material can be accepted by the authors or the firm.

Monday 14 June 2010

Mazuma to Adjudicate Miss Wales 2010

South Wales based Accountancy firm Mazuma have been named as the official adjudicators for Miss Wales 2010.

Lucy Cohen (Commercial Director) and Sophie Hughes (Operations Director) will be adjudicating the event being held in Cardiff on 26th June 2010, culminating in the finals that evening in St David's Hall.

"We are delighted to have been chosen to take the official adjudicators role at such a prestigious event" says Sophie Hughes, "It's a privilege and an honour and we are thrilled to be part of something that raises so much money for good causes like The Joshua Foundation".

The Miss Wales competition has been organised by Vibe since 2004. It has grown to become more popular than ever with around 1,000 women registering an interest in entering the competition each year.

The competition final is held annually in Cardiff and is sold out within days of tickets going on sale. The winner is automatically guaranteed a place at the most respected and established contest in the world - Miss World.

Lucy Cohen says "Running a firm of Accountants, it's not often that we get to attend, let alone participate in events like Miss Wales. It is great to know that once again Mazuma are smashing the Accountancy stereotype and showing that Accountants are important, even in the more glamorous parts of life that they might not naturally be associated with!"

The media interest in the competition is phenomenal. Each year, it features in the local, regional, national and specialist press and media. Vibe has also won a number of awards from the Chartered Institute of Public Relations for the press and publicity surrounding the Miss Wales event.

For more information on Miss Wales you can visit the website here.

To find out more about The Joshua Foundation you can visit the website here.

Monday 7 June 2010

Too good to be true?

Things that sound too good to be true usually are and lots of companies make claims about their services, their prices and how unique they are!

We know that our services are second to none, but here are a handful of testimonials from our clients so that you don’t just have to take our word for it!!

"If you enjoy preparing returns for your accountant (wading through order books and invoices and all those fiddly receipts) then trust me, the last thing you should ever do is switch to Mazuma. They'll take it all off your hands in a funky purple envelope and you'll have to find a new hobby like Scottish country dancing or basket weaving. On the other hand, if your accounts are just one gigantic hassle, give them a call. I did 3 years ago, and life has been much, much easier since."
James Daniel
Copywriter, EarthMonkey

“I signed up with Mazuma after hearing about them nearly 2 years ago. Personally I couldn't recommend them highly enough. They combine professionalism with a sense of personality, dealing with queries & issues quickly in a friendly manner. Having been a sole trader for 2 years the business went limited in January and Mazuma have helped enormously in making that transfer as smooth as possible. They've really given us a level of service we didn't expect, and we see our relationship with them as a long lasting one...”Ben Smith
Gingenious

"For people who work in TV time is too precious to be taken up with paperwork. All my team use Mazuma's services for the same reason I do... Mazuma's Purpleforce scheme is efficient, low cost and hassle-free."
Mark Hutchings
Gaffer (Dr Who, Torchwood, Sarah Jane Adventures)

Still not sure if Mazuma is quite right for you?

Why not give us a call on 0845 310 5654?

Or get a quote online

Tuesday 1 June 2010

Tax Changes Ahead

Welcome...

To June'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 Corner,

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

Changes in Capital Gains Tax

The Coalition Programme for Government, published on 20 May 2010 contains this pledge:

We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities.

This strongly hints at an increase in the rate of Capital Gains Tax (CGT) due on gains arising from non-business assets. The easiest way to do this would be to increase the rate of CGT for all assets and provide tax relief to reduce the effective rate of CGT for selected business assets, or for assets used for 'entrepreneurial activities'. This could mean increasing the scope of existing tax reliefs such as entrepreneurs' relief, or roll-over relief on business assets.

We do not expect the rate of CGT to change before 6 April 2011, however some commentators think a change could be introduced from the next Budget on 22 June. It would be very complicated for the Taxman to programme his computers to calculate CGT at two different rates for the same taxpayer within one tax year. It is also extremely unlikely that a rise in CGT would be imposed retrospectively back to 6 April 2010. Between 6 April 1988 and 5 April 2008 CGT was charged at the taxpayer's marginal income tax rate, and this seems to be the solution the Government is leaning towards.

So what should you do before 6 April 2011 (or 22 June 2010 if ultra cautious), to avoid paying more tax? If the asset you plan to sell cannot be regarded as a business asset - for example a holiday cottage that does not qualify for furnished holiday lettings, then we should discuss the implications of making a disposal now rather than later. Remember a disposal need not be an outright sale, a transfer to a trust would give rise to CGT, but possibly also inheritance tax. If you make the disposal before 6 April 2011 rather than afterwards, the payment date for CGT is brought forward one year, and this needs to be balanced with the apparent tax saving.

It is not clear how far the 'generous exemptions' for business activities will stretch. If you currently qualify for entrepreneurs' relief as you have been a business partner, sole trader, or shareholder and employee holding 5% or more of the voting shares, for at least a year, it is probably reasonable to assume the assets connected with your business will continue to qualify for that tax relief. If you don't fall into any of those categories, you should talk to us about the risk of increased CGT, bearing in mind the level of the expected gain.

You also need to look at your projected total income for 2011/12, and the likelihood that the gain will be covered by your annual exemption for CGT. This exemption is currently £10,100 per person for 2010/11, but this could be cut back to perhaps half that amount!

The CGT changes discussed above are currently all speculation so please talk to us if you are concerned at all. We expect some definite changes to be announced in the Budget Statement on 22 June 2010. Look out for our Budget newsletter when we will explain the Budget announcements relevant to small businesses and individuals.

Other Tax Changes Ahead

The Coalition Programme for Government also contains a number of other proposed tax and law changes that may impact on you or your business if they come to pass.

The business-focused proposals include:

- Review of the IR35 rules as part of a review of all small business taxation.

- Refocus R&D tax credits on hi-tech companies, small firms and new businesses.

- Review the taxation of furnished holiday lettings so UK businesses are not penalised.

- Encourage farmers to convert existing buildings into affordable housing.

- Increase the threshold from which employer's NI is payable by £21 per week, to £6,812 a year from 6 April 2011. The employees' NI thresholds will not rise, so employees and the self-employed will bear the full brunt of the 1% increase in all NI rates.

- Provide those out of work with business mentors and start-up loans to help them start their own businesses.

The proposals affecting individuals include:

- No reduction in the imposition of Inheritance Tax in the foreseeable future.

- No reduction in Income Tax rates until the Budget deficit has been reduced.

- Increase the personal allowance significantly from 6 April 2011, but reduce the benefit of this allowance for those with high incomes. The personal allowance is currently tapered away for those with total income over £100,000, so this threshold may be lowered.

- Introduce a transferable married couples allowance, but only for basic rate taxpayers.

- Review of the taxation of individuals who are not domiciled in the UK, but who have a connection to the UK so they have some UK tax obligations.

- End Government funding of Child Trust Funds from 1 January 2011, and reduce the value of vouchers given for new-borns from 1 August 2010.

- Reform the administration of Working and Child Tax Credits to reduce fraud and overpayments.

- Reduce the penalty for living as a couple in the Working and Child Tax Credits system.

- Review the effectiveness of raising the Stamp Duty threshold for first-time purchasers.

- Remove the requirement to purchase a pension annuity at age 75.

- Phase out the default retirement age of 65.

- Bring forward the increase in the State Pension Age (SPA), which is the age from which you can draw the State Pension. This will be 66 years for men from 2016 and 66 years for women from 2020. The SPA has already increased beyond 60 for women, and is set to rise gradually to 68 for everyone by 2046.

We expect more detail on these proposals to be announced in the Budget on 22 June.

Post Credibility Team

This is the new name for the VAT investigations unit! This new unit is sending out computer-generated letters to businesses who have claimed a refund for the last VAT period or periods. The letters are very poorly worded and may well be confusing on first reading. However, what the VATman is trying to say is that he wants an explanation of the refund claim. He is not accusing you of doing anything wrong.

If you receive a letter from the Post Credibility Team please deal with it or send it on to us ASAP. If you ignore it you will start to receive annoying phone-calls from the VAT office.

PAYE Codes for 2010/11

We have heard that the Taxman has almost finished sorting out the mess his new computer made out of the 2010/11 PAYE codes. If you have not received a P2 form for your employees that gives their PAYE code for 2010/11, carry on using the PAYE code issued for 2009/10. You should shortly receive the updated P2 forms for 2010/11.

One of the problems with the PAYE codes occurs where an individual starts to receive an occupational pension, or that pension is paid by a different pension provider, perhaps due to a restructuring of companies.

In such cases the pension provider should send a form P46(pen) to the Tax Office. However, the Taxman has said that many of these P46 (pen) forms contain mistakes, and this is causing the PAYE computer to churn out crazy codes, or send out unnecessary forms P161 to the pensioner. If you need to tell the Tax Office that you have started paying a pension to a former employee, please ask us to check the P46(pen) form first.

June Question and Answer Corner

Q. My UK based company has bought additional bandwidth from an internet provider based in the USA. How do I treat this purchase for VAT purposes in the UK?

A. The supply of bandwidth as part of your internet service is an international service for VAT purposes, as the supplier is based outside the UK. As your company is VAT registered you must apply the reverse charge rules to this purchase. This means for VAT purposes you treat the transaction as if you were both the purchaser and the supplier. You charge yourself standard rate VAT on the invoiced cost and claim that VAT back as part of your input VAT for the quarter. The VAT added appears twice in the calculations for your VAT return; as input VAT on purchases and as output VAT on the reverse charge as if the purchase was one of your own sales.

Q. My sales force all need to connect to the internet while they are out on the road, so we provide them each with a mobile phone dongle to provide the internet where and when they need it. Are there any tax implications for my company or the employees?

A. A mobile phone dongle is treated as a piece of computer equipment and not as a mobile phone. Where the company purchases the dongle and pays the subscription charge directly there should be no benefit in kind charge on the employee. This applies if the associated computer has no significant private use, and the private use does not affect the cost of providing the equipment.

Where the employee purchases the dongle and pays the connection charge, which he claims back from the company, the tax situation is more complicated. The employer needs to include the expense paid on the form P11D, and the employee needs to claim a deduction for the costs on his tax return, as reasonable additional costs relating to work. To circumvent this paper chase, the company should apply for the costs of the dongles to be included in a P11D dispensation.

Q. On 1 Feb 2010 I started a self-employed consultancy business, which has generated profits of about £40,000 in the first four months. I also run my own company and let a few properties. The income from my company and the rents has been much lower in 2009/10 compared to the previous year. Do I have to take into account the income from my new consultancy business when I make my payment on account for 2009/10 due on 31 July 2010?

A. You do need to take into account the income from your new consultancy business when making your next payment on account for income tax. However, the opening year rules for self-employment will apply, so only two months of your first period of the consultancy business profits are taxed in 2009/10. You can apply to reduce the 2009/10 payment on account if your total taxable income for the 2009/10 tax year, including the two months of consultancy profits, has dropped below the total taxable income for 2008/09. It doesn't matter if your income for 2010/11 rises again.

June Key Tax Dates

19/22 PAYE/NIC, student loan and CIS deductions due for month to 5/6/2010.

22 New Coalition Government first Budget.

30 Deadline for UK businesses to reclaim EC VAT chargeable in 2009.


Much More from Mr P!




Well, can you believe that it's June already? The months just seem to fly by nowadays! Those of you who are current clients may have recently received a letter regarding your self assessment tax return. We'll have had most of the information on this already if you've been using our Purpleforce service, but just in case you've missed anything out, it's an opportunity to let us know. If you've been super organised all year and haven't forgotten anything then you can happily ignore the letter!

I want to thank all of our clients for continuing to spread the word about Mazuma. We've had record numbers of client referrals in the last month. To make it even easier to refer your friends to us we have put a Refer A Friend section on the website. Don't forget that for every friend refer who signs up, you'll get £25 of retail vouchers as a thank you!

Finally, if you are referring someone to us, or thinking about moving to Mazuma yourself then why not try us our for free? We know that changing your Accountant or getting one for the first time can be a difficult decision, so why not try us out so you can see exactly how good our service is! All you have to do is get a quote online using the promo code FREE, or email sales@mazumamoney with the subject of the email as FREE and give us your name and address and we'll get your trial pack out to you, simple!





Disclaimer
The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. 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 consequence of the material can be accepted by the authors or the firm.