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Important Payroll Year End News

February 17th, 2012

Beth Morrish, Sage Solutions Team, Broomfield & Alexander

The legislation for the submission of the online P35 form has changed.

If you use Sage 50 Payroll then you will need to be on the latest version, version 18 for 2012, or have valid SageCover on versions 2008 – 2011, to ensure that you receive the Year End pack with these important legislative changes.

If you do not have the above, then the online submission will fail.

You will still be able to submit via the HMRC portal, but if you want to do this through Sage 50, you will need either the SageCover or the version upgrade, available on February 27.

Please contact us on sagesolutions@broomfield.co.uk for more information or assistance.

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HMRC announces plans to extend investigations into tax evasion

February 17th, 2012

Leighton Reed, Director, Broomfield & Alexander

New campaigns will focus on builders, direct selling and at people who fail to make tax returns and who are liable to pay tax at the highest tax rates. These campaigns will be launched by 31 March 2012.

In two further campaigns, to be launched later in the year, the department will target tradespeople working in the home improvement market, and people who receive income from buying and selling goods direct to others, or are paid commission.

HMRC will use new technology to search the internet for information about specified, targeted people and businesses.

The new campaigns will focus on:

Missing returns. This will contribute to wider HMRC activity tackling failure to complete tax returns. It will initially focus on those who fail to complete tax returns and who are liable to pay tax at the highest rates.
Home improvement trades. This will build on campaigns aimed at plumbers and electricians, and will include several 100,000 tradespeople in construction and building work such as roofing, window fitting, bricklaying, carpentry and joinery.
Direct selling. This will target customers who ought to be paying tax on income they earn from buying and selling goods direct to others, or from the commission on these sales.

Two campaigns which were announced previously and will be launched before the end of 2012 are targeted at:

Electricians and electrical fitters. This will be launched in February 2012.
E-marketplaces. This will be launched in spring 2012 and will target those who are using e-marketplaces to buy and sell goods as a trade or business but not declaring the income. People who only sell a few items and who are not traders are unlikely to be liable to tax and will not be targeted by this campaign.

Each campaign follows a similar pattern. People are encouraged to come forward and settle their tax on favourable terms. There are usually two stages with deadlines first for notifying HMRC that you intend to use the disclosure opportunity, and then for making the disclosure and paying the arrears. HMRC will use information from other sources to seek out people whom it thinks should have come forward in response to the campaign but didn’t. Such people will face higher penalties and possibly a criminal investigation.

Previous campaigns have targeted offshore investments, medical professionals, plumbers, VAT defaulters and private tutors. HMRC says that more than £500m has been raised from voluntary disclosures and a further £105m from follow-up activity.

Information on campaigns for 2012, including how people can work with HMRC to influence their development, can be found at http://www.hmrc.gov.uk/ris/hmrc-campaigns.htm

Our highly-trained specialists are experienced in dealing with all forms of tax investigation and have detailed knowledge of the respective rights and powers of the taxpayer and HMRC. We can guide you through the process and negotiate directly with HMRC to ensure that tax, interest charges and penalties are minimised.

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Grants & Contracts: or as we say in VAT is it a Grant or a Contract?

February 16th, 2012

Liz Maher, Director Centurion VAT

It’s an old chestnut of an issue but one which just isn’t going away in the world of VAT, writes Liz Maher Director of Centurion VAT, which is why she welcomes the recent guidance from the Charities Tax Reform Group (CTRG).

Trying to decide whether monies received from a local authority or government body are actually payment for services rendered or a non business grant just keeps coming up as a VAT concern for charities we find. Often the position is not helped by a lack of clarity within the contracts.

At its basic level VAT is a transaction based tax and this is reflected in the recent CTRG note. Put simply you are making a supply by way of business if you deliver a benefit that has some value to a third party or to the grant provider in direct exchange for the monies received.

A good practical example is the difference between the following:

Grant to Charity:

Charity provides accommodation to the homeless and the council gives it a grant to support its’ activities. Whilst the activities of the charity benefit individuals in the council’s area there is no direct benefit or service provided to the Council itself.

Contract for Services:

The same charity is appointed by a different Council to run a Council owned homeless shelter on its behalf for which the charity receives a “grant” each year. The charity is making a supply by way of business and the charge needs to be considered in the VAT context. Does it make the charity exceed the VAT registration threshold? If already VAT registered – VAT will need to be charged but this does open up the opportunity to look at recovering VAT on costs incurred by the charity in delivering the service.

There are a number of VAT cases that have gone through the VAT tribunal system looking at the “is it a grant or contract” issue from a variety of perspectives. One case “ Trustees of the Bowthorpe Community Trust” back in 1996 determined that the existence of a written contract between the local authority and the charity for the charity to deliver work experience to the disabled in return for 50% funding of the charity was not a supply for VAT purposes even though a contract existed. Yet with the changing mechanisms of procurement we have seen many examples where now local authority bodies are going out to tender to both charity and commercial bodies for the supply of “vocational training” which is clearly regarded as the supply of training services under a contract.

Indeed there may be case when a charity actually wants to be seen to make a business supply rather be in receipt of a grant…a recent Dog Rescue Charity successfully argued that the “donation” it received from the new owners of a rescued dog was actually the payment for the supply of a pet and zero rated for VAT purposes which unlocked a sizeable amount of VAT on costs.

So what’s in the latest guidance note….interestingly the thing that struck me is the quote they’ve used from the National Audit’s Office’s (NAO) Commissioning Guide used by public sector bodies which states

“The rules on when you can use grant and when you can use procurement mean there are many situations when a public body could use either. You need to decide which one is more suitable for your programme, service or intended outcome and is likely to provide the better value for money.”

What is clear that going down the procurement route will lead the supplying charity into the realms of making a supply for business purposes and clearly there is the need to establish the VAT treatment of both the supply and the costs associated to that supply.

To review the issue in more detail from the VAT perspective and to place it in a proper context with the manner in which funds and grants are being managed in the accounting context as well as in the letting of contracts Centurion have joined together with Gareth Coles from WCVA and Sarah Case from Broomfield & Alexander to run two update events, the first of which is in Swansea on the 29^th Feb at Broomfield’s Office starting at 930.

To reserve places on this morning event please click here

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Sage hints & tips – Sage 50 Accounts iPad app

February 14th, 2012

Beth Morrish, Sage Solutions Team, Broomfield & Alexander

Since the release of Sage 50 Accounts Mobile last year, Sage have been working hard to extend the compatibility of the service with different platforms and devices. The great news now is that Sage 50 Accounts Mobile is now fully optimised for iPad and the application is available through the Apple app store here .

This is the next step in their commitment to continue developing the use of mobile technology to bring greater value for customers and help drive access to business data any time, anywhere.

All existing Sage 50 Accounts Mobile users have received an update automatically, which includes iPad users being updated to the iPad optimised version.

What does it look like?

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Research & Development Tax Relief – Is your company claiming / maximising its entitlement?

February 14th, 2012

Paul Arnold, Director, Broomfield & Alexander

Many companies in South Wales are believed to have paid, and are continuing to pay, excessive amounts of tax because they are failing to claim (or maximise) a generous tax incentive which they are entitled to.

What is Research & Development (“R&D”) tax relief all about?

Ultimately, R&D tax relief is about reducing a company’s tax liability and thereby increasing the amount of cash in the company or in the hands of its shareholders.

R&D tax relief enables companies to claim an enhanced tax deduction for all qualifying expenditure incurred. The rate of this enhanced tax deduction has now increased to 200%, and is set to increase to 225% from next April.

For example, based on the rate to apply from next April:

Qualifying R&D expenditure 10,000

Enhanced R&D tax deduction 12,500

(in addition to the tax relief for the actual £10,000 spent)

Potential tax saving (i.e. increase in cash) 3,125

If these additional funds were withdrawn by the company’s shareholders they could receive nearly £2,500 of cash, after tax, simply as a result of the company submitting the R&D tax relief claim it is entitled to.

In addition, loss making SMEs (small and medium sized enterprises) are able to surrender tax losses for a tax free cash receipt, potentially equivalent to 25% of the R&D spend. This can provide vital cash flow at a time it is most required.

For companies that exceed the SME limits (generally being those with 500 or more employees), a 30% enhanced tax deduction can be claimed. SMEs in receipt of grants can also potentially claim under this scheme.

Qualifying costs

There are a wide range of costs that potentially qualify, including staffing costs, consumables (including power, fuel and water), computer software, contracted out activities and the use of agency workers to name but a few.

Understanding the wide range of costs is important, but where companies tend to derive the most value is when they correctly identify the full range of activities that qualify. This is where claims can increase significantly, although it requires detailed knowledge of the R&D tax relief rules.

Qualifying activities

Companies which are:

investing resources to enhance their products or processes;

doing something that is innovative or unique; or

working on solving a problem that has never been solved before

could all potentially derive these cash benefits, as these types of activities are indicative of what may qualify as R&D for tax purposes.

Most companies are surprised to hear the range of activities that can qualify as R&D given the widely held perception that R&D relates only to high tech companies.

Time limit to making R&D claims

As a company has two years from the end of its accounting period to submit or amend an R&D claim, it is important that previous activities are considered as well as current and future activities.

Recent changes/announcements to the schemes

In addition to the aforementioned rate increases, the £10,000 minimum R&D spend condition is set to be removed next April, greater relief may be available for the use of outside help and certain routine company projects may also qualify.

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on Tax and other business and financial topics, or simply register for our monthly newsletter.

Business succession – tax planning and potential pitfalls

February 14th, 2012

Paul Arnold, Director, Broomfield & Alexander

For all family businesses, succession planning is a must, given that sooner or later everyone wants or needs to retire.

However, if you own a family business (whether that be in whole or in part), there is more to retirement than just deciding not to go into the office any more. Aside from ensuring that you have sufficient funds to retire, the question of what happens to the business becomes paramount.

Key issues for consideration include, who will manage the business after you retire and how will ownership be transferred?

There are a number of potential exit strategies for a retiring business owner, such as an outright sale, a management buyout or a transfer of ownership to other family members.

Another key issue to consider is tax, with careful planning required to ensure that any potential tax exposure is minimised. Two of the key tax implications for succession planning are briefly discussed below. In addition, some of the potential pitfalls are also identified, which highlights the need not only to obtain specialist advice but also to start the planning process as soon as possible.

1. Entrepreneurs’ relief
The highest capital gains tax rate of 28% is reduced to 10% if the business owner qualifies for entrepreneurs’ relief. This could potentially apply on the sale of an unincorporated business or a sale of shares, provided certain qualifying conditions are satisfied. Each individual now has a £10 million lifetime allowance, where this 10% tax rate can apply.

For a company’s shareholders to qualify for this relief they must, throughout the twelve month period prior to any disposal, hold at least 5% of the ordinary share capital of a trading company and be an employee or officer (i.e. a director or company secretary) of the company (or another group company).

Scenarios where shareholders can (unexpectedly for them) fail to qualify for this lower tax rate can include the following:
• a spouse may own shares but not actually work for the company;
• share options may be exercised prior to a sale, with someone holding at least 5% of the shares falling below the required 5% limit after the share options have been exercised;
• those exercising their share options prior to the sale, and therefore not satisfying the 12 month ownership condition; and
• holding shares with restricted voting rights.

As the rules are complex and not necessary logical many companies have found that they have to restructure their share capital to ensure shareholders qualify, especially given that this relief potentially gives rise to a tax saving of £1.8 million per individual.

There are also other issues to consider, such as business property (for example, the business premises) being held outside the company/partnership. Although a sale of business property may still qualify for entrepreneurs’ relief if sold within three years of the share/partnership sale, if rent has been charged for use of this property it would restrict the element of the gain which qualifies.

Therefore, in assessing ongoing remuneration strategy it is important to factor in the implications that rental income has for entrepreneurs’ relief. In addition, there are further adverse implications should only one spouse own the shares (or be a partner), but both spouses personally own the property used by the business.

It is worth noting that transferring a business to family members may be possible without this giving rise to an immediate tax charge, with any gain being deferred until the transferee themselves disposes of the business.

2. Inheritance tax (“IHT”)
Businesses will often fall outside the inheritance tax regime as they can qualify for Business Property Relief (“BPR”).

This applies for a number of corporate structures, such as unincorporated businesses and unquoted shares (for example, family companies held for at least two years). BPR works by taking the value of the business out of the value of the individual’s estate for IHT purposes, and thereby provides a valuable way for businesses to be left to the next generation.

However, where land, buildings, machinery and plant is held personally and used in the company’s (or partnership’s) business, it will only qualify for 50% BPR. Therefore, 50% of the value will be included in the individual’s estate and potentially be subject to IHT.

Planning can be undertaken in such circumstances, although other taxes such as stamp duty need to be considered. In addition, the use of trusts remains a valuable tax planning instrument.

It is therefore important that appropriate professional advice is sought, and the earlier these issues are considered the better.

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How to get the backing of a bank – deals can still be done

February 9th, 2012

Seamus Gates, Director, Broomfield & Alexander

There are still deals to be done, despite banks sometimes getting unfairly blamed for not offering finance. Businesses could consolidate and develop if bids for finance were properly put together.

Banks are saying that demand for lending is actually relatively low, in part that’s because businesses’ cash balances are at an all-time high, but also because the quality of funding requests is often low.

Businesses need to go about raising funds in the right way. If you’re going to a bank, a strong business plan and pitch are more essential than ever in the current climate. Robust financials and a coherent business plan are a must – and some businesses just aren’t going in with those.

Businesses also needed to explore alternative financing options and be open to ideas. Asset-backed lenders, private equity and venture capital houses, invoice discounting providers and international banks may all be able to compete with the high street lenders, whoever you talk to, all will expect to see a well thought out and realistic business plan and supporting financial forecasts.

The plan needs to be delivered by all the key members of the management team. Funders need to be convinced not only about the skills and experience of the finance director, but also of the managing director to drive forward the business and, for example, the sales director to drive forward top line growth.

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on funding and corporate finance, or simply register for our monthly newsletter.

What is your charitable impact?

February 9th, 2012

Sarah Case, Director, Broomfield & Alexander

New independent research commissioned by the Charity Commission has found that charities need to do more to describe how people benefit from their work. Many charities are missing out on the opportunity to explain, through their reporting on public benefit, how their work has a positive impact on their beneficiaries.

The research, by Sheffield Hallam University, assessed how well registered charities are getting to grips with the new requirement, introduced in 2008, to report on public benefit in their Trustees’ Annual Report (TAR).

Put simply, public benefit reporting is about explaining:

What a charity’s aims are and what it has done to carry them out
Who it seeks to benefit
How people have benefitted

The research has shown that trustees are generally able to explain their charity’s aims and who benefits from its work. However they are less successful in explaining how their charity’s activities have contributed to their aims or how people have benefitted in practice.

The Charity Commission is concerned that some trustees involved in the research had not familiarised themselves with its guidance. They had instead relied on staff or external advisors to deal with the public benefit reporting requirement on their behalf. The research has also highlighted confusion amongst charities about the purpose and importance of their TAR. Submitting a TAR is a statutory requirement, and for charities over £25K these are made available for public scrutiny on the online Register of Charities.

HMRC increase business investigations – are you covered?

February 9th, 2012

Leighton Reed, Director, Broomfield & Alexander

The current state of the UK economy has put significant pressure on HMRC to recover additional tax revenue in order to help them meet the growing deficit in the economy. Obviously, one way to achieve this goal is by carrying out additional enquiries into Tax Returns. Enquiries can be more complex than in the past and the costs of responding are consequently higher. The government have announced that they will be investing £900 million into HMRC over the next 4 years to clamp down on people and businesses who underpay their taxes. They have also suggested that they will be increasing Tax Investigations by 3000%, as a main spearhead to their new strategy. So it is increasingly important for clients to obtain protection against those costs.

We do have considerable expertise in defending clients under enquiry by HMRC and always ensure Returns are filed in a manner that should limit the possibility of an enquiry by HMRC. However HMRC select thousands of cases a year for random enquiries. If you are selected for a tax enquiry we will naturally aim to settle it quickly and minimise the final tax liabilities. However, answering all of HMRC’s questions takes time and the enquiry could take several months. As a result the costs to defend you can be significant.

To provide peace of mind, we run a Tax Investigation Service. The Service is backed by an insurance policy under which we can claim the costs of defending clients in tax enquiries. HMRC’s statistics show that an additional £12 billion was raised from investigations and compliance activities last year and the government has confirmed that more investigations will be undertaken in the coming tax year. In order to support you we have enhanced our service this year to make sure you are protected against most types of enquiry.

HMRC recently announced their intention to roll out a programme of Business Record Checks in the start of 2012. They have already started visiting taxpayers and reviewing business records as part of a series of test cases and are now ready to roll this out nationally (much sooner than expected). HMRC have now said they have set a minimum target to inspect 20,000 businesses a year. This is down from the 50,000 originally stated but still represents a significant number of checks annually. With a maximum penalty of £3,000 for a failure to keep adequate records and book-keeping HMRC wishes to earn in the region of £60,000,000 annually from these record checks on an ongoing basis. Our enhanced service will also protect you against this new environment.

Should business clients subscribe to the service all Directors and Partners will be covered for their personal affairs (as long as Broomfield & Alexander are the appointed accountant for the Director or Partner and they have no other business which requires independent cover).

If you would like more information about our newly enhanced service, please contact us on tax@broomfield.co.uk

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on Tax and other business and financial topics, or simply register for our monthly newsletter.

Self-assessment late filing and payment penalties

February 8th, 2012

Leighton Reed, Director, Broomfield & Alexander

Many individuals who are late in filing their 2010-11 self-assessment return may not realise that they will suffer late filing penalties even if they owe no tax for 2010-11.

And the days of a single £100 fine are long gone. The new fines are:

• One day late an initial penalty of £100
• Three months late a daily penalty of £10 per day up to a maximum of £900
• Six months late an additional £300 or 5% of any tax outstanding, whichever is the higher amount
• One year late a further £300 or 5% of any tax outstanding, whichever is the higher amount

As you can see the minimum penalty for filing 6 months late is £1,300 even if all your tax due is paid on time or you are due a tax repayment.

Late payment:

If you are late in settling your self-assessment liabilities a penalty calculated as 5% of tax unpaid at 30 days, 6 months and 12 months will be added to your debt. Additionally interest will be due until the debt is cleared.

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