Online Accounting News

If you run a business from home then you need to be aware that from Wednesday, April 1, HM Revenue & Customs will have the power to raid residential homes without warning, and will gain new powers to fine taxpayers.

The changes to the current rules will give income and corporation tax inspectors the same powers of entry as those enjoyed by Customs officials investigating unpaid VAT.

The result is that for many thousands of business people and sole traders who claim expenses for ‘use of home as an office’, HMRC will have the right to enter their home to inspect business records.

These powers include visits to any business premises — including any part of a residential home used as an office.

Taxpayers should gain an understanding how HMRC’s new powers will affect them and review how they keep records of their tax affairs so if HMRC were to come knocking at their door they will be ready.

The changes will also give HMRC greater penalty powers. For “careless, but non-deliberate” errors, penalties worth up to 30% of an unpaid tax bill can be levied.

Fines worth 70% of the final tax bill could be imposed should officials believe the taxpayer deliberately ignored the need to make a payment. Meanwhile, “deliberate and concealed” errors could trigger fines worth 100% of the final tax bill.

It will also be far more difficult to appeal against a notice issued by HMRC — a request for statutory records, for example.

A spokesman for HMRC said that, while powers were being extended, so too were safeguards. “In particular, unannounced visits can only be made with the approval of specially authorised officers,” said a spokesman.

If you work from home or are unsure if you will be affected by the new powers then contact
net-accounting for further advice.

Net Accounting provides online accounting support for small to medium businesses. Click here for our Fees & Quotes.

Employers are reminded that October 1st brings a change in the National Minimum wage. The main rate for workers aged 22 and over is currently £5.35 an hour which will increase to £5.52 on 1 October 2007. The development rate for 18-21 year olds is £4.45 an hour, rising to £4.60 an hour in October and the rate for 16-17 year olds is £3.30 an hour, increasing to £3.40 in October 2007.
      
Failure to comply with the National Minimum wage could result in prosecution by HMRC, who recently secured their first criminal prosecution that saw the employer found guilty and being fined £2500 with £500 costs.
      
Andy Millican, Criminal Investigation Team Leader for HM Revenue & Customs said: "This prosecution sends a clear message to employers that HMRC and RCPO will actively pursue those we suspect of flouting National Minimum Wage law. If employers obstruct us and refuse to comply with the law they could receive a fine and a criminal record."

The six potential criminal offences under section 31 of the NMW Act are:

• Employer refuses or wilfully neglects to pay NMW
• Person fails to keep or preserve records
• Person knowingly causes or allows false entry in records
• Person produces or furnishes false records or information
• Person delays or obstructs compliance officer
• Person refuses or neglects to answer any questions or produce documents for compliance officer

Each criminal offence carries a maximum £5,000 fine and a criminal record.
      
If you would like assistance with your Payroll, net-accounting.co.uk offer a cost effective service that takes away the worry and ensures your payroll is accurate and efficient. Click onto Services – Payroll to find out more about this great service.

To find more information and quotes please see our Online Payroll services section.

Tax rates for 2008/09

• The government proposes to change the tax rates for 2008/09 onwards when the 10% starting rate will be abolished for earned and pension’s income and the 22% basic rate of tax will be reduced to 20%. The higher rate of tax will continue at 40%.
• The starting rate will continue to be available for savings and investment income and there are no changes to the tax rates applicable to dividends.
• Details of the income tax bands are normally made available in the main spring Budget.

VAT and housing

• VAT is currently chargeable at 5% on renovations or alterations to residential properties that have been empty for at least three years. Eligibility for this reduced VAT rate will, on and after 1 January 2008, apply to renovations or alterations carried out to residential properties that have been empty for at least two years.

Capital gains tax (CGT) reform

• There were some major changes to the CGT regime. Legislation will be introduced next year to apply a new, single rate of charge to CGT at 18%. A number of changes will be made for disposals made on or after 6 April 2008 to simplify the capital gains tax regime, including:
        - the withdrawal of taper relief
        - the withdrawal of indexation allowance
        - simplification of the share identification rules.
• The current regime of an annual exemption allows the first element of chargeable gains made in a given tax year to be exempt from CGT. An annual exemption will remain in place for 2007/08 which is currently £9,200.
• For individuals capital gains are currently treated as the top slice of income. This means that tapered gains are charged at 10% where gains plus taxable income do not exceed £2,230; 20% between £2,231 and £34,600; and 40% on any balance. For trustees the rate of CGT is 40%.
• For 2008/09 there will be a single rate of capital gains tax set at 18%, which will apply to individuals, trustees and personal representatives.

Inheritance tax (IHT) threshold

• The IHT nil rate band was increased to £300,000 with effect from 6 April 2007. Transfers of property between spouses or civil partners are generally exempt from IHT which means that if an individual dies and leaves some or all of their property to their spouse or civil partner, they may not have fully used their nil-rate band.
  The new rules allow any nil-rate band unused on the first death to be used when the surviving spouse or civil partner dies. The transfer of the unused nil-rate band from a deceased spouse or civil partner, irrelevant of the date of death, may be made to the estate of their surviving spouse or civil partner who dies on or after 9 October 2007.
  The amount of the nil-rate band available for transfer will be based on the proportion of the nil-rate band which was unused when the first spouse or civil partner died.

Company cars and the fuel scale charge

• If free fuel is provided for private motoring then a fuel benefit tax charge is applicable which is based on the percentage used for the car benefit and a ‘multiplier’, which is currently £14,400.  For 2008/09 the figure will increase to £16,900.

Payments on account threshold

• Individuals completing a self assessment tax return have to make payments of their income tax and Class 4 national insurance contributions direct to HMRC. Payments on account are made on 31 January and 31 July each year with a balancing payment for the tax year being made by 31 January following the end of the tax year.  The payments on account are broadly made by reference to the previous year’s liability and are not due where more than 80% of the previous year’s liability was met by tax deductions at source i.e. income from employment or savings.
  Currently, if the previous year’s liability is less than £500 no payments on account are due and the taxpayer just makes one payment on 31 January following the end of the tax year of their full liability. From 2009/10 the £500 threshold will be doubled to £1,000.
  The first payment on account affected by this change will be those due on 31 January and 31 July 2010.

Net Accounting offers information and services for Year end accounts and tax.

With the kids back at school, and college and university courses starting soon, parents receiving tax credits are being reminded that they need to let HM Revenue and Customs (HMRC) know of any changes in their circumstances.
 
For example, if you\'ve a child over 16 who's started, or is about to start, further education at school or college, make sure you call HMRC as soon as possible and let them know. Otherwise, it could mean you're missing out on extra money.
And if you told HMRC your child was staying on at school or college after their exams and they've since changed their minds, contact them now, so they can update your claim.
 
Also, if your childcare costs, the hours you work, or the amount you earn changed after the kids went back, HMRC needs to know that too.
 
In fact, if you're receiving tax credits, it's important to let HMRC know as soon as you can about changes in your circumstances, whatever the reason or time of year.

For more information and quotes please see our Tax services section.

A reminder that the deadline has now passed for all paper tax returns.  From this year, there are now two separate Self Assessment deadlines - 31 October for paper returns and 31 January for those filed online. A late filing for either option carries a £100 penalty.
The best advice is to avoid the last minute rush and make sure that you get all of your information to your accountant as soon as possible. If you are planning to file your own return make sure that you do so by 31 January. Online submissions receive an immediate acknowledgment once you’ve filed and are processed more quickly, so any money you’re owed is repaid more quickly. If you really don’t feel confident completing your own return then the best course of action is to contact your accountant and they will sort it all out for you.
 
The net-accounting online quote section can provide you with an instant quotation for completing Self Assesments.

Net Accounting provides online accounting support for small to medium businesses. Click here for our Fees & Quotes.

Chancellor Darling has announced major changes to his Pre-Budget proposals for Capital Gains Reform by introducing:

• a new entrepreneur’s relief,
• a new lower tax rate (10%) on entrepreneur's gains, and
• a new £1 million lifetime allowance for gains made by entrepreneurs.

In a ministerial statement to the House of Commons he introduced a £1 million lifetime allowance in respect of any chargeable gains, which forms the basis of a new CGT entrepreneurs relief. Gains which exceed the annual CGT exemption and do not exceed £1 million will be taxed at 10%. Any gains in excess will be taxed at the mainstream CGT rate of 18%.
The relief will apply to entrepreneurs who dispose of all or part of a trading business, trading partnership, or shares in a trading company providing that they are a director or employee and hold a stake of at least 5% in the business. It will also apply to disposals of business assets after the cessation of a business.
The chancellor said that the measure will also benefit venture capitalists, business angels and all those who take a stake of 5% of more.
 
No changes will be made the to the CGT annual exemption. No changes have been made to EIS, VCT and rollover reliefs. Employee tax advantaged share schemes remain intact such as EMI, etc and employees will pay tax at 18% if their shareholding is less than 5%.
 
He added that anti-avoidance measures are in the pipeline to ensure that income cannot be disguised as capital.
If you have any questions relating to the changes to CGT please contact your net- accounting Account Manager.

For more information and advice please see our Online Accounting services

CBI chief Richard Lambert has claimed that uncertainty over whether or not the government is to introduce controversial capital gains tax (CGT) changes has led to many entrepreneurs considering selling their companies for reasons other than business.

The director-general of the employers' organisation launched a renewed attack on ministers saying the Treasury's delay in making a final decision on the issue has left business in a "state of complete confusion".

The criticism is among the fiercest yet since the CGT changes were announced last October. Following the wave of outrage which it provoked among the small business community, Chancellor Alistair Darling agreed to listen to concerns. He promised on 27 November that an announcement would be made within three weeks but so far nothing has been revealed.

Speaking on BBC Radio 4's Today programme, Lambert said: "If you have been building up a business over donkey’s years and you suddenly face the prospect of a higher tax bill, you have to think now about whether you're going to get out of it. Thats what people are doing. They are beginning to take decisions that have nothing to do with business or economic common sense. They are doing it because they don't know what their tax liabilities are going to be."

Under the proposed changes, CGT would be raised for people selling businesses or shares after 5 April but decreased for those getting rid of second properties.

Lambert said it was "completely and utterly crackers" that buy-to-let investors would have the same tax level as somebody who had built a successful business over several decades.

"People who've been at the CBI longer than I have say they can't remember anything which made people quite as annoyed and angry as this decision," he added.

For more information and advice please see our Online Accounting services

This Christmas consumers will spend £1.8bn online according to the British Retail Consortium (BRC).

The BRC believe that online purchases will account for around 15% of the total £12bn predicted to be spent on Christmas related products. The overall figure is a rise of £200m compared to the festive season last year when the internet was responsible for 13% of all purchases.

However, with most of the consumers shopping online intending to spend roughly the same amount as last year, the retail organisation said the majority of growth will come from an increase in the number of web shoppers, rather than an increase in spend.

The BRC estimated that each online shopper will spend an average of £70, compared with an average spend per head of £365 in stores and the internet has become an important tool when comparing prices, with 63% referring to the internet before making a purchase, up from 35% in 2006.

Kevin Hawkins, BRC director general, said: "This Christmas the internet will be a more important channel than ever, as consumers take advantage of retailers\' improved on-line offers, increased security and cheaper broadband. There will be intense competition for online spending, with retailers vying for a share of this valuable channel, which is very much complementary to traditional methods of buying."

Net Accounting provides online accounting support for small to medium businesses. Click here for our Fees & Quotes.

Corporation tax changes

1. The planned increase in the small companies rate from 21% to 22% has been delayed until 1 April 2010. This was previously to take effect from 1 April 2009.

2. A maximum £50,000 of trading losses incurred in accounting periods ended between 28 November 2008 and 23 November 2009 can be carried back three years, starting with the latest year.

3. Where companies are connected under loan relationship rules, a creditor company which releases a debtor company from a trade debt cannot claim a deduction for the loss. However, the debtor company could be taxed on the “profit”. Provisions will be introduced to the effect that the debtor company will not be taxed on the release.

4. Provisions will be introduced to counter an anomaly on the introduction of international accounting standards that could have given rise to double taxation or double relief in connection with financial instruments and foreign exchange hedging transactions.

Personal tax implications

1. The temporary personal allowance increase becomes permanent The temporary £120 personal allowance increase that was a government response to its own abolition of the 10p tax rate has become permanent.

2. A new tax band for earnings over £150,000 Those earning over £150,000 a year will face a new 45% tax band from April 2011.

3. Personal allowances to change for those earning over £100,000 April 2010 will see restriction in the personal allowance for those earning £100,000 or above. Those on £150,000 and over will receive no personal allowance at all.

4. National Insurance to go up Employer and employee contributions are to go up 0.5 pence. Effectively the top rate for NI will now be 46.5%.

5. National Insurance starting point to match income tax The starting point for national insurance will now match that for income tax in an effort to simplify matters

6. Child benefits The increase in Child Benefits will be paid from 5th January 2009 instead of 6th April 2009. The new amounts will be £20.00 per week for the first or only child and £ 13.20 per week for subsequent children

 VAT rate cut to 15%

The Chancellor confirmed that the standard rate of VAT is to be cut by 2.5% to 15% - the lowest level allowed under EU law - with effect from 1 December 2008. The reduction will apply for 13 months, returning to 17.5% from 1 January 2010. The new VAT fraction will be 3/23.

Only standard-rated sales are affected. There are no changes to sales that are zero-rated or reduced-rated for VAT. Similarly, there are no changes to the VAT exemptions.
 
Duties on fuel, alcohol and tobacco will be increased from 1 December 2008 to offset the VAT reduction
 
Flat Rates reduced Most (but not all) of the Flat Rate percentage rates have been reduced from 1 December 2008, but generally not by the full 2.5%. It is recommended that you speak to your accountant for clarification.

Net Accounting offers information and services for Year end accounts and tax.

Over recent years British consumer debt has risen considerably and the current thinking is that the situation is set to worsen in 2008. When it comes to Christmas, add up the cost of presents, socialising, food and drink and on average we will spend £614 each to celebrate the festive season. Months rarely come so costly, and with the temptation to spend, spend, spend, things aren’t always quite so cheerful in the New Year when people realise how much debt they’ve accrued.

Here are a few suggestions on how to avoid a Christmas debt hangover:

• It may sound obvious but know what you have available to spend before you spend it. Budgeting is vital, but so is knowing what you have in your bank account. Research by the Clydesdale Bank found that 58% of people in Scotland will go Christmas shopping without knowing how much they have in their account. Find out your account balance, work out all of your direct debits, and then consider how much you have to spend and stick to it.

• Where possible avoid paying on credit. Paying off interest will always make a purchase more expensive in the long term, and using store cards is often incredibly expensive. They often have many joining perks, but interest payments sometimes hit the 30% mark!
• Think about your winter bills. Remember that fuel bills in particular are often higher in winter and if you’re not paying a fixed direct debit these need to be accounted for in your budget.
• If you really do need extra cash to get you through Christmas start looking around now. Credit is becoming increasingly difficult to obtain and might take you a bit longer to get a loan or a credit card deal. Look out for interest free deals on credit cards and if you think you might need an overdraft make sure that you arrange it with your bank BEFORE you spend the money to avoid heavy penalty charges.
• Start shopping early. With retailers having a gloomy time at the moment watch out for special offers and sales and if you see things that you know people will like buy them. Accumulating things gradually will mean it’s unlikely you’ll rush around with a credit card at the last minute.
• And the final tip is – set your budget and then aim to spend at least 20% by shopping around and maybe your New Year might just be a Happy New Year after all.

Net Accounting provides online accounting support for small to medium businesses. Click here for our Fees & Quotes.