Your Money: ISA’s & Pension Contributions

Posted on February 11, 2012 by Jack Ross

Don’t waste your tax efficient saving and investment allowances

Every tax year your tax efficient savings and investment allowances are renewed, which means that before the end of each tax year (6 April to 5 April), you may want to make sure that you have made the most of your allowances.

The 2011/12 tax year ends on 5 April, and your allowances include:

ISAs

Each year you can save and invest into an ISA (Individual Savings Account), and while the amount invested does not attract tax relief, the income and gains on the investment are free from most taxes. The amount that you can put away increases each year in-line with CPI inflation.

  • The total ISA limit for 2011/12 is £10,680;
  • £5,340 of which may be saved in a cash ISA.

You can transfer previous years’ ISAs into new ISA accounts to get a better rate or return without losing the tax relief, but you must do it in the correct way, and there may be limitations. You can transfer cash into stocks and shares accounts, but NOT the other way round.

In November 2011, the Junior ISA was introduced, designed to replace the Child Trust Fund (CTF) for under 18s that live in the UK but missed out on CTFs.

  • The total Junior ISA limit for 2011/12 is £3,600;
  • The money can be split between a stocks and shares and cash ISA account, one of each can be held at any one time;
  • Anybody can pay into the Junior ISA, and the money belongs to the child but they cannot take it out until they turn 18, when it will automatically turn into an ISA.

Pension contributions

  • Pension contributions are paid net of basic rate tax, and the pension provider recovers the tax element. Up to £3,600 per year (gross) may be invested by any individual irrespective of whether they have earnings to match it or not;
  • Pension contributions also save higher rate and additional rate tax for those liable, and this relief is normally given through the self-assessment return;
  • Tax relief is generally only available for pension contributions of up to £50,000 a year, but please discuss with us the relief available to you for 2011/12.
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Communication is key

Posted on February 9, 2012 by Jack Ross

Last year saw more pay cuts and freezes than in any year since the financial crisis began in 2008, according to the Chartered Institute of Personnel and Development (CIPD). And while economic growth is vital this year, subdued pay rises and freezes are likely to be inevitable in order to make this happen.

If you are facing these options, it is imperative that you keep communication between you and your employees open. Make sure that they understand the reasons for pay freezes, and the realities of what the business needs to achieve to enable pay increases.

Keeping your employees motivated and productive has never been more important, and communication is key to this.

We can help you to do this, please contact us to find out more. 

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Business Record Checks

Posted on February 7, 2012 by Jack Ross

HMRC has come under fire in recent weeks over its Business Record Checks, which target small and medium-sized businesses. HMRC claims that 44 per cent of businesses have issues with their record-keeping, while 12 per cent have seriously inadequate records.

The checks, 20,000 of which are planned for the 2012/13 tax year, could result in penalties of up to £3,000 for ‘inadequate record keeping’, a term that HMRC has yet to define.

The Business Record Checks system is now being reviewed after considerable concern was raised over the potential compliance burden it could place on already stretched small and medium sized businesses.

While the added pressure is not welcomed, keeping on top of your business records is essential. Tips on this include ensuring:

  • All income is recorded and banked promptly
  • All recorded expenses are authorised and valid
  • All recorded debts are recoverable
  • All your liabilities are identified and recorded when they are incurred

We can help you to establish and maintain an efficient business records system. Please contact us to find out more. 

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Online VAT Filing

Posted on February 5, 2012 by Jack Ross

From 1 April 2012 all VAT registered businesses will have to submit VAT returns online and pay and VAT due electronically too.

From 1 April 2010 it was compulsory for all businesses with an annual turnover of £100,000 or more to file and pay VAT online, but the latest change will mean that every VAT registered business must do so.

If you do not already file your VAT online, we can set up authorisation to do it for you. Please contact us to find out more.

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Capital allowances

Posted on February 3, 2012 by Jack Ross

What is a capital allowance?

If you buy an asset to use in your business that has a life of more than two years, you may not be able to deduct the whole cost from that year’s profits. Instead you may get tax relief over several years as capital allowances.

There are several types of capital allowance.

Since 2008, there has been an annual investment allowance (AIA). The amount reduces from £100,000 a year to £25,000 from 1 April 2012 for companies, and from 6 April 2012 for individuals and partnerships.

If all your assets come within this allowance, you may (with a few exceptions) deduct the whole cost from the taxable profits of the year in which you acquired the asset.

There are a few environmentally-friendly assets where you may be able to claim a 100% first year allowance. This means that, again, you may deduct the whole cost from taxable profits.

Having considered these allowances, there is usually a writing down allowance where each year you can claim a portion of what is left.

Example: You buy an asset for £300,000 that qualifies for £100,000 annual investment allowance and a writing down allowance at 20% a year.

Cost:
Year 1: annual investment allowance
20% writing down allowance  on £200,000
written down value

Year 2: 20% writing down allowance on £160,000
written down value

Year 3: 20% writing down allowance on £128,000
written down value

and so on.

 £300,000
(£100,000)
(£40,000) 
£160,000

(£32,000)
£128,000

(£25,600)
£102, 400

 

For what items may capital allowances be claimed?

In practice, most capital allowances are concerned with plant and machinery. However capital allowances can also be claimed for these items.

Categories for which capital allowance may be claimed

  • renovation of business premises
  • research and development
  • mineral extraction
  • patents and know-how
  • dredging
  • cemeteries and crematoria.

The government has also announced that there will be some special capital allowances for enterprise zones in assisted areas.

For capital expenditure, an allowance can only be claimed if it comes within one of these categories.

So what is plant and machinery?

Machinery is any device with moving parts. It does not have to have to be connected to any form of power, so, for example, a locking mechanism is machinery.

Plant is equipment with which you conduct your business. This definition comes from a case of 1887 which held that a wharfinger’s horse was “plant”.

There have been hundreds of cases on exactly what constitutes plant with which a business is carried out as against premises in which a trade is conducted. The answers are not always obvious. For example a dry dock was held to be plant. Similarly, in 2011, it was held that a gazebo in a pub garden for smokers was plant. Statutory guidance is given in an Act of 2001 on a range of items from advertising hoardings to zoo cages.

Calculating entitlement to capital allowances

For the writing down allowance, plant and machinery is either included in a ‘pool’ or has its allowances calculated separately.

There are two types of pool: the main pool and a special rate pool. The rates until 1/6 April 2012 are 20% and 10% respectively. From 1/6 April 2012, the rates are 18% and 8%.

An asset is not put in a pool if it is either a long-life asset or a short-life asset.

Long-life assets are those with an expected life of 25 years or more. Long-life assets must be included in the special rate pool.

Short-life assets are those with an expected life of up to eight years (four years before 1/6 April 2011), although these may be kept in the pool if you wish. The advantage of making a short-life asset election is that if you dispose of an asset which still has a written down value, you may also be able to claim a balancing allowance.

A pool that is written down each year never reaches zero. To avoid small figures, the law now allows a pool to be wholly written off if its value falls below £1,000.

Bringing expenditure forward

It may be possible to save tax by bringing forward spending on assets, particularly now that rates of corporation tax are reducing: £100,000 of capital allowance is worth £26,000 when the main rate of corporation tax is 26%, but only £23,000 at 23%.

You do not have to take the whole capital allowance. It is possible to take a lower amount in one year so more can be claimed in later years.

If you borrow money to pay for an asset, the loan relationship tax rules may need to be considered.

What about buildings?

You can no longer claim for industrial or agricultural buildings themselves. But from 1 April 2008, it is possible to claim plant capital allowance for features integral to a building (FITAB). This includes such items as electrical systems, lifts and air conditioning.

When a property is sold, the purchaser and seller should agree the figure attributable to FITAB.

What about cars?

Cars are plant and machinery but have some special rules.

If a car has exhaust emissions below 110 g/km and is new and unused, it qualifies for a 100% first year allowance and so you may deduct the whole cost from taxable profits.

For higher emissions, the car attracts the higher rate of capital allowance for emissions up to 160 g/km, and at the lower rate for emissions above this figure.

If a car has higher emissions and is bought for leasing, a capital allowance may only be claimed for 85% of its cost.

It should also be noted that if the car is to be used as a company car, the employee could be liable to pay tax on the benefit. The amount is also influenced by the car emissions.

We can advise you on how to minimise both tax liabilities if considering buying a car.

Tax planning using capital allowances

There are many ways in which capital allowances may be used to reduce your tax liability.

How capital allowances may reduce your tax liability

  • Bring forward expenditure to maximise relief before tax rates reduce
  • Allocate the annual investment allowance to assets with a lower rate of writing down allowance
  • Don’t claim the full allowance when this could restrict loss relief
  • Consider using environmentally-friendly assets and low emission cars
  • Make an election for short-life assets not to be put in a pool
  • Claim as much as possible as plant rather than premises
  • Agree a figure for features integral to a building when buying premises.

Please ask for our advice

You should not buy something just to claim the capital allowance. You show only buy something because you can commercially justify buying it. However considering capital expenditure and the entitlement to claim capital allowances can save you tax.

While this update is somewhat technical in its content it is intended to provide an update regarding important areas of tax and business planning. By its nature, this update provides a generic overview so do please ask for us for personal advice specific to your circumstances.

Please note that the rules relating to capital allowances may change in the 21 March 2012 Budget announcements.

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Economic Update January 2012

Posted on February 2, 2012 by Jack Ross

If there is one topic that continues to dominate the airwaves and the thoughts of many it is the economy – what will happen this year? What impact will result from the woes of other countries? Here we take a look at some of the factors that continue to impact our marketplace.

Looking back
2011 was the year the UK economic recovery ground to a halt. Economists forecasting for the year had underestimated the damage suffered by the credit crunch, and troubles mounted in the Eurozone, which meant a series of continuously downgraded or reconfigured forecasts.

Inflation crept up throughout the first three quarters of the year, constricting household’s already squeezed budgets, restricting their spending and their ability to pay down debts.

Meanwhile, businesses struggled to survive, as cashflow continued to cause problems, and banks restricted their lending to businesses further. Those that have survived displayed a level of ingenuity, flexibility and grit that will stand them in good stead for the year to come.

November saw the Chancellor’s Autumn Statement measures announced, and while it was the draft clauses of the Finance Bill that revealed tax changes, the Chancellor did reveal a series of initiatives, predominantly designed to ease the pressure on businesses.

2011 was also the year of the Eurozone sovereign debt crisis, and as we step into 2012 policy makers continue to grapple with the consequences and solutions, as credit rating downgrades continue to happen and increase the  interest paid on sovereign debt.

Looking forward
Unfortunately we can’t wave goodbye to the conditions we face in 2012, and the likelihood is that the situation is going to get worse before it gets better. The next twelve months will be important for everyone, and while we can’t predict what will happen in the Eurozone, we can at least put some damage limitation measures in place.

Forecasts for the following metrics will undoubtedly change as 2012 progresses, but here are some key economic indicators, how they are faring now, and common predictions over the next few months.

Read on to find out how we can help you to prepare for the coming months.

Key metrics
Jobs and unemployment
The most recent Office for National Statistics (ONS) unemployment figures showed that UK unemployment increased to 2.68 million in the three months to November 2011, the highest level since 1994, and a total of 8.4 per cent of the population.

Youth unemployment has been the most worrying statistic though, as it hit 1.04 million, and the highest since records began in 1992.

Common predictions are that the number of unemployed people will continue to rise throughout 2012, particularly as private sector job cuts kick in. In fact, the Chartered Institute of Personnel Development (CIPD) predicts that unemployment will peak at 2.85 million in 2013, before falling back again.

Gross Domestic Product (GDP)
Forecasts for UK GDP, which refers to the market value of all final goods and service produced within a country in a given period, were continuously downgraded throughout 2011. And while forecasters seem to have recognised that they were over-ambitious with their predictions, those for 2012 are still being accused of being over-generous.

In November the Office for Budget Responsibility (OBR) forecast 0.7 per cent growth in GDP in 2012, which was viewed as low compared to outside forecasts of 1.2 per cent. But more recent forecasts claim that any growth at all over the next 12 months would be a success.

Inflation
Inflation began to fall back in October 2011, and has been falling ever since. The Consumer Price Index (CPI) now stands at 4.2 per cent, and this falling streak is expected to continue, and act as a platform for consumer confidence and recovery.

January saw the UK’s leading energy providers reduce their gas and electricity prices, which will also contribute to this. This is promising, and the Bank of England expects a sharp fall in inflation during 2012, particularly after factory gate prices dropped by 0.2 per cent between November and December in 2011.

Interest rates and Quantitative Easing
The Bank of England’s Monetary Policy Committee (MPC) reduced the base interest rate to a record low of 0.5 per cent back in March 2009. It has stayed there ever since, despite various speculation, and some forecasters claim the rate will remain that low until 2016.

The fact that inflation is falling back means that the MPC is under less pressure to push rates up, and while savers are losing out, the threat is that pushing the rate up could push home owners into trouble and result in more repossessions.

 Meanwhile, the Bank’s quantitative easing (QE) scheme, first introduced in March 2009, has since increased to £275 billion, the last instalment of which was introduced in October 2011. Some economists are expecting to see a further boost as early as February, a move that has been favoured by business groups.

Exports
Exports are expected to play an important role in our economic recovery. Recent statistics from the Office for National Statistics (ONS) show that the UK’s trade deficit fell between October and November, meaning exports to non-EU countries fell and imports from non-EU countries rose.

 But on a positive note the Government is recognising this, with new initiatives to help medium-sized businesses to export into new markets. Business groups are calling for a national export drive this year, and economists claim that exporters must look to new markets in order to give the UK economy the export boost that it needs.

Protecting your business
While the overall outlook for the next 12 months is, for most, subdued, there are always ways that you can mitigate any potential negative impact or even turn the situation into a positive one. The likelihood is that if your business survived the last few years, you are in a good position to take advantage of the opportunities that arise at times like these.

Damage limitation
As the economy remains at a standstill, there are measures that you can take to limit any damage caused to you and your business. Suggestions include:

Cashflow
Keeping on top of your debtors is vital, particularly as many businesses are struggling to keep afloat. But it is also important to remember that this works both ways, and that your creditors will need to be paid on time too.

Keeping plans up to date
You should review and revisit your business plans frequently at times like these. Circumstances can change suddenly, and you may find that what was appropriate at the start of the year is no longer relevant six months later.

Flexibility
It is also important to remain as flexible as possible; you never know when you may have to suddenly change tack and being agile means that you may be able to take advantage of any sudden opportunities that arise.

Contact us to find out how we can help you to mitigate damage done to you and your business.

Business opportunities
Marketing exposure
Opportunities could be as simple as making the most of the fact that your business has survived your competitors by shouting about it through your marketing channels. In particular, making the most of the cost effective, and successful marketing approaches that the internet offers, including social media and blogs.

Learn lessons
You can learn lessons from those that have been less successful during the current economic climate. Observe what went wrong for them and ensure that you do not make the same mistakes.

Buying new businesses
The downturn could provide you with the perfect opportunity to expand through the acquisition of a business. You have obviously led a successful business through hard times, and there is no reason why you could not do the same for a new business.

We can help you to identify and grasp any opportunities that could help you to prosper over the coming months. Please contact us to find out how. 

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What happens if you don’t have a Will?

Posted on January 21, 2012 by Jack Ross

Recent figures suggest that as many as 60 per cent of Brits do not have a Will in place, but what happens if you don’t have a Will?

A Will allows you to plan, it means that your property and belongings are transferred and divided as you wish. It can also help you to plan to reduce inheritance tax and  allows you to leave part or all of your estate in trust.

All these planning advantages are lost without a Will, in particular, a surviving spouse or civil partner will not automatically receive everything. While a partner where no marriage or civil partnership has taken place may receive nothing.

Dying without a Will is known as intestacy, and the rules vary between England, Wales and Northern Ireland, and Scotland. Please contact us for more information and for advice on writing or updating your Will. 

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Time to review your inheritance tax planning?

Posted on January 19, 2012 by Jack Ross

As with business plans, reviewing your personal finance plans will help you to make the most of your money. Inheritance tax (IHT) is an area that many overlook, but planning ahead is essential to make sure you don’t get caught out by hefty taxes.

Points to bear in mind include:

  • Inheritance tax is payable on the sum of a person’s assets at death, plus any gifts that have been made within the last seven years, that exceed the current threshold of £325,000;
  • Gifts of less than £3,000 per tax year are exempt from IHT;
  • Regular gifts from income are also exempt from IHT as long as they do not reduce the usual standard of living and capital is not used;
  • Gifts to registered charities and the major political parties are exempt.

The draft clauses of the Finance Bill 2012, also set out legislative plans to provide a reduction in the rate of IHT from 40 per cent to 36 per cent, where 10 per cent or more of an estate is left to charity. This is due to take effect from 6 April 2012.

We can help you to review your inheritance tax planning to avoid unexpected tax bills. Please contact us for more information. 

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Changes to fuel advisory rates

Posted on January 17, 2012 by Jack Ross

HMRC has changed the fuel advisory rates for the third time this tax year. The new rates apply to all journeys on or after 1 December 2011 until further notice.

For one month after the date of change, employers may choose to use either the previous or new current rates.

The latest change is to the LPG rate, but the Diesel engine sizes also changed in June.

Engine capacity Petrol Diesel LPG
Up to 1400cc 15p 12p 10p
1401 – 1600cc 18p 12p
1601 – 2000cc 15p
2001cc + 26p 18p 18p

These rates are due for review in March 2012, unless the cost of fuel varies significantly in the meantime.

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Have you sent us all we need to complete your 2011 Tax Return?

Posted on January 15, 2012 by Jack Ross

2011 tax returns have to be filed before 31st January 2012. If you have not yet submitted your tax return information for the tax year ending 5 April 2011 do please let us have it as soon as possible. HMRC has a new penalty system in place that means the automatic late return penalty of £100 will apply even if there is no tax to pay, or the tax itself is paid on time.

The new penalty system means that returns filed six months late could incur fines of up to £1300.

Please note that if you have made any gifts using the Gift Aid scheme, we can include these in your 2011 return and gain tax relief even though any payments may have been made after 5 April 2011. In this instance please advise us of the payment amount, beneficiary and date of payment.

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