HMRC update: Collecting small debts through PAYE

From April 2012 HMRC will be able to collect debts of less than £3,000 by including them in the taxpayer’s PAYE code. This applies to both tax debts and tax credit overpayments.

Last year HMRC began writing to affected individuals so that they would have the opportunity to arrange to pay the outstanding amount by another method. HMRC will now start including outstanding debts in PAYE codes issued from January 2012. Such amounts will be included in the code issued at the start of the tax year but will not be added to the code in-year.

There are some points here which Ward Williams draw to the reader’s attention:

·        Is the HMRC calculation of tax underpaid (or tax credits overpaid) correct? HMRC have been through torrid times lately with staff reductions and management and software traumas, which means their information is not always up to date. Unfortunately it has been the experience of the writer that many of the tax calculations issued by HMRC are wrong; indeed one of my colleagues believes that they are “usually” wrong.

·        Do you wish to pay this tax debt through PAYE, thereby reducing your take home pay every pay day or is the collection of an extra amount of tax of up to £2999 causing you hardship? As agents, we have access to a dedicated telephone line to HMRC and we should be pleased to use this to attempt to arrange some other form of payment. For instance the PAYE regulations prohibit more that 50% of an employees cash earnings (E.g. his/her earnings excluding benefits such as BUPA or a company car) from being deducted in tax. In some cases HMRC may not have realised that this limit has been exceeded. It might also be possible to spread the payments over up to 3 years rather than one where hardship can be demonstrated.

·        Whose fault was the underpayment? Where it was caused by a HMRC error, in some cases HMRC will agree to totally or partially write off the debt.

For further information/advice on this topic please visit www.wardwilliams.co.uk

Car tax levy could hit SME owners

SME owners and their employees may face a hefty increase in tax and NIC charges when a new emissions scale for company car tax comes into play on the 6^th April 2012.

An income tax charge (and Class 1A national insurance liability [currently 13.8%]) will be applied for the private use of a company car on 10% of the car’s list price where a car has CO2 emissions from 76g/km to 99g/km. For emissions of 100 g/km the rate will be 11% rising by 1% per 5g/km band, to a maximum of 35% (emissions of 220 grams per kilometre or above).

For example the taxable benefit for emissions of 120g/kms is 10%. From 6^th April 2012 this will increase to 15%. That is a 50 % increase in the tax payable. The new charge means that a car with emissions of 120g/kms and a list price of £12,000 used by a 40% taxpayer will face an increased tax liability of £240 calculated as:

List price £12,000 x 5% (being the increase from 10% to 15%) x tax rate of 40%

There will also be a further increase, albeit of just 1% of the list price, for vehicles with CO2 emissions of between 95 and 219 g/km in 2013/14.

It is therefore important to review the company car you either provide as an employer or drive as an employee.

For further information/advice on this topic please visit www.wardwilliams.co.uk

Number of SMEs on the increase but then what?

As the UK economy hits hard times and redundancies, pay reductions and unemployment rises, one might expect to see a fall in the number of registered companies. However, the opposite is happening; the UK has seen a surge in the registration of new companies in the last year. Research by Creditsafe found that there was an 18% increase on 2010.

It is thought that university leavers finding it hard to secure employment and those being made redundant have decided to go for it and open up business for themselves. Initially this seems like a very positive move and could help with the UK recovery but looking at what we already know about small-to-medium sized companies (SMEs) it may be just another route to the same old issues.

Online lender borro.com found that 24% of SMEs claim to have missed out on growth opportunities due to the lack of accessible finance, and it was widely reported in the financial press that realistic finance was not available to SMEs.

This is further confirmed by the figures released on Project Merlin. Merlin was a pledge made by most of the high street banks to lend £190bn to businesses in 2011, £76bn of which to go to SMEs. At the end of the year it was expected that they would fall short of the SME target by over £1bn. Also they classified an ‘SME’ as a company with a turnover of less than £25m. This implies the lending that did get approved may not have even reached the smaller businesses where it is most needed.

However, the SME Finance monitor found that many SMEs knew there was finance available but did not follow through with the application process; as they did not wish to be tied into repayments when the coming year looked uncertain. They chose instead to use their own funds or ask friends or relatives to assist with additional capital.

This was confirmed by the findings of borro.com who found that 57% of SME owners had used their own funds to inject capital into their business. They also found that 66% of SME owners lacked confidence in their bank and were unsure whether their bank would lend to them. Only 19% of those surveyed had actually attempted to secure bank finance in the past year and only 31% of those had been successful.

So it may be a positive sign that more people are confident enough to start up a new business in the face of uncertainty, but how long will it be until these start-ups require some finance?....what happens then?

When considering finance options the best thing to do is speak to your accountant/business advisor who can provide guidance and advice on the relevant options available. There are various routes to explore, so make sure you are well informed before using your own funds or assuming finance is not available at all.

For further information or advice on this topic please visit http://www.wardwilliams.co.uk/

Maximising your business Annual Investment Allowance

Businesses should consider making the most of the current £100,000 tax-free Annual Investment Allowance (A.I.A) before it reverts back to just £25,000!

The AIA is currently offering 100% tax relief on qualifying investments such as technology, machinery, furniture and business vehicles up to £100,000.

However, you need to invest soon as businesses have until 31 March 2012 to plan and complete any capital investments that are likely to exceed the £25,000 threshold you want maximum tax relief.

Although some tax relief will still be available on investments over £25,000 from April 2012, it will be less generous. Therefore businesses should consider bringing forward any capital investment plans to maximise the higher available tax relief in 2011-12. As always any investment must be based on commercial principles and not simply tax led.

For further information or advice on this topic please visit http://www.wardwilliams.co.uk/

Statutory residence test

The Government has confirmed that it proposes to introduce a statutory residence test. However the introduction has been delayed by a year to April 2013.

The response to the consultation together with draft legislation will be published around Budget 2012. The Government announced that it would include any reforms to ordinary residence at the same time.

Distributions to shareholders – ESC C16

As expected ESC C16 is to be put on a statutory basis with effect from 1 March 2012, but capital treatment will only apply to distributions of up to £25,000. Where a company distributes surplus assets to shareholders and is then struck off the register, Extra Statutory Concession ESC C16 treated the distributions as the equivalent of a distribution in a winding up, allowing the distributions to be treated as capital payments, provided the relevant conditions are met.

Feed-in Tariffs and the Renewable Heat Incentive

Solar panels will attract plant and machinery allowances in the special rate pool. Businesses receiving payments or incentives under the Energy Act 2008 (Feed-in Tariffs and the Renewable Heat Incentive) will not be eligible to claim Enhanced Capital Allowances.