July dates for your attention

6 July               Deadline to file PAYE end of year returns P11D, P11D(b) and P9D for 2010/11
6 July               Deadline to give employees P11D forms (year end summaries) for 2010/11
19 July             PAYE/NIC and CIS deductions due for the month to 5th July 2011
19 July             PAYE/NIC due for quarter ending 5th July 2011
19 July             Class 1A NICs for 2010/11 due
31 July             Self Assessment second payment on account due for tax year 2011/2012
31 July             Second penalty (£100) applied to 2009/10 Self Assessment tax returns not yet submitted
31 July             Automatic 5% penalty surcharge on 2009/10 outstanding tax still unpaid on 31st January 2011

Unpaid invoices and unbilled work

It is a feature of the tax system that businesses must include in their turnover for the year the value of incomplete work, of unpaid bills (debtors) and of work completed but not yet billed, all as at the end of the year. This was not always the case, and thus HMRC has been ‘catching up’.

We will need to discuss with you exactly what needs to be identified and the basis of valuation. And whether you are starting a new business or running a more mature business, keeping an eye on debtors and unbilled work is crucial to your cash flow.  Call us today 0845 258 1445

Determining your employment status

There is no statutory definition of ‘employment’ or ‘self-employment’. Rather, there is a series of ‘tests’ which HMRC will apply to ascertain whether someone is classified correctly.

Because large amounts of both tax and NICs can be at stake, HMRC can take quite an aggressive line and mistakes can cost you dearly, so advice specific to your situation is essential.

‘IR35’ rules require businesses to consider each and every contract they enter into for the provision of services. The test is whether or not the contract is one which, had it been between the owner or partner and the customer, would have required the customer to treat the owner or partner as an employee and therefore be subject to PAYE.

The contract ‘passes’ if the owner/partner would have been classified as self-employed; it fails if the owner/partner would have been classified as an employee.

If the contract ‘fails’, the business is required to account for PAYE and NICs on the ‘deemed’ employment income from the contract at the end of the tax year.

This is done using specific rules. We would welcome the opportunity to advise you about these.

Call us today on 0845 258 1445

Unincorporated businesses

Business profits are charged to income tax and Class 4 NICs on the current year basis. This means that the profits ‘taxed’ for each tax year (ending 5 April) are those earned in the accounting period ending in the tax year.

Case Study 1

Mary, a sole trader, draws up her accounts to 31 July each year. Her profits for the year ended 31 July 2010 will normally be taxed in 2010/11.
There are special rules for the early and final years of a business, and for partnership joiners and leavers. There is a growing number of ‘fines’ for those not complying with the rules and regulations of Government departments. We have already mentioned income tax and Class 2 NICs, but other ‘traps’ to avoid are:

• Late VAT registration
• Late filing penalties
• Late payment surcharges and interest
• Penalties for errors in returns
• Penalties for failing to operate a PAYE or sub-contractors scheme

If we are to help you to steer clear of these traps, you must let us have all the details for your accounts and Tax Returns in good time, and inform us of any changes in your business, financial and personal circumstances.


Give us a ring today 0845258 1445

Employing family members

You can employ family members in your business, provided the package is commercially justifiable. You can remunerate family members with a salary, and perhaps also with benefits such as a company car or perhaps medical insurance – and you can make payments into a registered pension scheme.

An alternative to a company car is to provide a van: the maximum annual tax bill on the use of a company van with unlimited private use is only £1,500 or £1,775 including free fuel.

You can also take family members into partnership, thereby gaining more flexibility in profit allocation. In fact, taking your non-minor children into partnership and gradually reducing your own involvement can be a very tax-efficient way of passing on the family business. Be aware that taking family members into your business may put the family wealth at risk if, for example, the business were to fail.

HMRC may challenge excessive remuneration packages or profit shares for family members, so seek our advice first. If you operate your business through a trading limited company, under current tax law you can pass shares on to other family members and thus gradually transfer the business with no immediate tax liability in most cases. However, a tax saving for the donor usually impacts on the donee, and you need to steer clear of the ‘settlements legislation’, so again, seek our advice first.

Need further assistance? Give us a ring today on 0845 258 1445

Research and Development relief

Tax relief is available on research and development (R&D) revenue expenditure at varying rates. Maximum rates of relief for 2010/11 are as follows:

• For small and medium-sized companies paying tax at 21%, the maximum rate of tax relief is 36.75% (that is a tax credit on 175% of the expenditure)
• For small and medium-sized companies not yet in profit, the relief can be converted into a tax credit payment worth 24.5%
• For larger companies paying tax at 28%, the maximum rate of relief is 36.4% (that is a tax credit on 130% of the expenditure).

This is subject to a minimum annual spend of £10,000. SME relief is capped at 7.5 million euros per project and subject to the most recent accounts having been prepared on a going concern basis.
SMEs barred from claiming SME R&D tax credit by virtue of receiving some other form of state aid (usually a grant) for the same project will be able to claim the large company R&D tax credit. This means that they will qualify for relief on 130% of their R&D expenditure.

Your business and capital allowances

‘Capital allowances’ is the term used to describe the deduction we are able to claim on your behalf for expenditure on business equipment, in lieu of depreciation.

Annual Investment Allowance (AIA): The first £100,000 of the year's investment in plant and machinery, except for cars, is allowed at 100%. This applies to any size of business and most business structures, but there are provisions to prevent multiple claiming. Businesses are able to allocate their AIA in any way they wish; so it is quite acceptable for them to set their allowance against expenditure qualifying for a lower rate of allowances (such as long-life assets or integral features) – see below.
The maximum AIA increased with effect from 1 April 2010 (corporates) or 6 April 2010 (others). If an accounting period straddles the “operative date”, the maximum AIA for the transitional chargeable period is the sum of:

• the AIA entitlement, based on the previous £50,000 annual cap for the portion of a year falling before the relevant operative date; and
• the AIA entitlement, based on the new £100,000 cap for the portion of a year falling on or after the relevant operative date.

Thus a company with a calendar year chargeable period from 1 January 2010 to 31 December 2010 would calculate its maximum AIA entitlement based on:
(a) the proportion of a year from 1 January 2010 to 31 March 2010, that is, 3/12 x £50,000 = £12,500; and
(b) the proportion of a year from 1 April 2010 to 31 December 2010, that is 9/12 x £100,000 = £75,000.
The company’s maximum AIA for this transitional chargeable period would therefore be the total of (a) + (b) = £12,500 + £75,000 = £87,500.
Once established, the maximum entitlement can be spent at any point in the 12 month period, with one restriction, that only expenditure up to £50,000 will qualify before 1 April 2010.
Note that the maximum AIA reduces to £25,000 with effect from April 2012.
Special rules which may disallow property loss relief against general income to the extent that the loss is attributable to the AIA are now in force. This provision will only apply where there are relevant tax avoidance arrangements. Contact us for more details.
Enhanced Capital Allowances (ECA): In addition to AIA, a 100% first year allowance is available on energy saving or environmentally beneficial equipment. Where companies (only) have losses arising from ECAs, they may choose how much they wish to carry forward and how much they wish to surrender for a cash payment (tax credit payable at 19%).
There is a separate ECA scheme for electric and low CO2 emission (up to 110 g/km) cars, zero-emissions goods vehicles (the last proposed, for five years from 1 April 2010 (corporates) or 6 April 2010 (others)) and natural gas/hydrogen refueling equipment. They still qualify for the 100% first year allowance, but do not qualify for the payable ECA regime.
Writing Down Allowance (WDA): Any additional expenditure not covered by the AIA (or enhanced capital allowances (ECA)) level enters either the main 20% pool or a special 10% pool, attracting WDA at the appropriate rate. These rates are set to reduce to 18% and 8% with effect from April 2012. The special rate 10% pool applies to long life assets, the addition of thermal insulation to existing commercial buildings, and integral features of buildings, specifically:

• Electrical systems (including lighting systems)
• Cold water systems
• Space or water heating systems, powered systems of ventilation, air cooling or purification and any floor or ceiling comprised in such systems
• Lifts, escalators and moving walkways
• External solar shading
• Active facades (climate-responsive features).

The 20% pool applies to most other plant and equipment, including some cars (see below).
Businesses may claim a WDA of up to £1,000 where the unrelieved expenditure in the main pool or the special rate pool is £1,000 or less.
Cars: A rate of 20% applies to cars with CO2 emissions exceeding 110 g/km. However, cars with CO2 emissions above 160 g/km will be restricted to 10% WDA. Expenditure incurred before April 2009 on “expensive” cars continues under the old regime (£3,000 per year cap on capital allowances). For non-corporates, cars with a non-business use element continue to be dealt with in single asset pools, so the correct private use adjustments can be made but the rate of WDA will be determined by the car’s CO2 emissions.
Buildings: The phased withdrawal of industrial and agricultural buildings allowances ends during 2010/11 with essentially a further reduction in the WDA by 50%. The restricted allowance is now 1%, subject to transitional rules.
A maximum 100% initial allowance is available for conversion of parts of business premises into flats, business premises renovation allowance and Enterprise Zone Allowance. WDA of 25% (on a straight line basis) applies to expenditure on which an initial allowance is not claimed.

Claiming deductible expenses

Our role is to work with you to minimise your taxes, and it is important to take advantage of all the opportunities available.

You will pay tax on your taxable profits, so it is essential to claim all deductible expenses, many of which will be included in your accounting records. If you are self-employed and carry on your business from home you can claim tax relief on part of your household expenses, including insurance repairs and utilities.

You can also claim for the cost of travel and accommodation when you are working away from your main place of business. You must keep adequate business records – including a log of business journeys – because in addition to ensuring your accounts are accurate, these records may be requested by HMRC.

Have you considered using an appropriate computer package for record keeping?

Or better still, give us a call today.

Starting a business action plan checklist................

Prepare a robust business plan

Ensure that you have access to suitable funding

Check your right to use your chosen trading name

Choose the right business structure

Register with HM Revenue & Customs

Register for VAT

Register your business name

Trade and professional registrations

Choose your year end

Develop your branding

Involve the family

Plan to avoid fines and penalties

Plan to reduce your tax liability

Prepare a robust business plan

Ensure that you have access to suitable funding

Check your right to use your chosen trading name

We can help with all of the above.  Telephone  0845 258 1445

Regional employer NICs holiday for new businesses

This is a scheme intended to assist new businesses in targeted areas of the UK. within a three year qualifying period, employers eligible for the scheme will not have to pay the first £5,000 of Class 1 Employer NICs due in the first 12 months of employment.  This will apply for each of the first 10 employees hired in the first year of business.

The targeted countries and regions are:  Scotland, Wales, N. Ireland, the North East, Yorkshire and the Humber, the North West, The East and West Midland and the South West.

Speak to us today to see how we can help on 0845 2581445