CIS late filing penalties

The penalties for late CIS contractor monthly returns are changed from 6 October 2011.

Penalties will now be charged as follows:

·         £100 for the initial failure to meet the due date of 19th of the month.

·         A further £200 if the return is still outstanding two months after the due date.

Then in addition the tax geared penalties kick in  

·         The greater of 5% of any deduction shown on the tax return or £300 if more than six months late.

·         A further tax geared penalty as above if the return is more than 12 months late.  

For new CIS contractors who have not sent any previous returns and are filing your first returns late there will be an upper limit of £3,000 of the total fixed penalties (£100 and £200) that may accrue. The upper limit does not apply to any tax geared penalty unless the minimum penalty of £300 applies.

Credit risk part 1 of 3: Managing Risk Information

In the current economic climate, managing a credit rating and obtaining finance is more important and difficult than ever.   It is vital that companies are provided with the right information from the market and credit rating agencies, to ensure their credit and risk evaluation shows them in the best light.

According to the ICAEW report, Reporting business risks, the demand for better risk reporting has grown in recent years. This does not mean we need more legislation or regulation; most businesses are already struggling to keep up with the existing regulations, it is more a matter of education. Many company Directors are well aware of the issues and are managing them as effectively as possible, but for those who are not sure what they should be doing, here are Ward Williams’ 3 key points on managing risk information:

Information availability
If you are looking for investors or trying to manage your credit rating, then go direct to the source; approach the agencies, and offer to provide more up to date financial information or trade references. The agencies tend to have processes for dealing with these requests. This is bound to help them better asses your company.  The same goes for investors. You may not know who they are yet, but if you are trying to attract or obtain funding, then make it easy for them to get the information they need. This could be as simple as adding an ‘Investors info request’ option to your website and having an information pack ready to send out.

Relevant and helpful information
Review the information you are proving to ensure it is relevant to the intended user. There should be qualitative and quantitative data, headline figures and sector beak downs but also commentary where the figures only show part of the story. Relate the risks to your business model, putting them in context makes them much easier to understand and thus assess.

Keep it current
Stop thinking in accounting cycles! Your business changes and grows throughout the year. At Ward Williams we recommend sitting down a couple of times a year and reviewing your business risks. Look back; did you identify the risks for the previous period correctly? Were there some issues that you overlooked? Did you manage the risk as well as intended/expected? Could you do something differently going forward? Can you learn and evolve your business to better deal or cope with risk?

The risk profile of your company and how it is perceived not only affects your ability to obtain funding, but also affects a number of wider issues, including: Negotiating credit terms, maintaining/increasing your company credit rating, providing employees with some job security, achieving a higher price if selling and negotiating better prices if purchasing. Your company risk profile has a huge impact on your business, so it is vital you are managing it as effectively as possible.

For more information please visit www.wardwilliams.co.uk

Keep in touch, Part 2 of this series: External Risk Information coming soon...

Millions set for Tax Rebates

About six million people are set to receive tax rebates averaging £400, while another million will learn they have underpaid their tax by about £600.

H.M. Revenue and Customs (HMRC) said letters would begin going out in the next few months, with those owing money able to pay in stages either by having their tax code adjusted or coming to an agreement with HMRC.

It is the second year tax and National Insurance discrepancies have been identified by a new computer system.

Those who will be told they have underpaid tax are expected to owe between £500 and £600 on average.

In some cases, it appears the system has not been able to sort through and separate information on people leaving jobs, meaning those who have stopped working and started drawing a pension are being treated as if they have two income streams. The problems are also affecting people with more than one job, or those who have changed jobs in the past few years.

HMRC hopes to have the process completed by December 2012.

If you receive any such correspondence and would appreciate a second opinion then please do get in touch. Please visit www.wardwilliams.co.uk for more information.

Furnished Holiday Lettings

HMRC have for many years allowed the owners of furnished holiday accommodation situated in the UK to be treated for a number of tax purposes as though they were traders. In 2009 the rules were extended to cover all qualifying properties situated anywhere in the EEA.

In 2011the rules have been amended to

(1) Remove the entitlement, where there is a loss, to make claims for sideways loss relief against general income and terminal loss relief. This change takes effect for income tax purposes in relation to 2011/12 onwards and for corporation tax purposes in relation to accounting periods beginning on or after 1 April 2011.

(2) Extend the length of time for which the accommodation must be both available for letting and actually so let. This change takes effect for 2012/13 onwards for income tax or for accounting periods beginning on or after 1 April 2012 for corporation tax.

The revised day count tests are as follows:
(i) The 140-day limit is being replaced by a requirement that the accommodation must be available for commercial letting to the public for at least 210 days in the tax year.
(ii) The 70-day limit is being replaced by a requirement that the accommodation must actually be let on a commercial basis to the public for at least 105 days in the tax year

Remember that the accommodation must not be let for periods of long term occupation of more than 155 days during the year.

There are two elections you can make to reach the occupancy threshold. There is an averaging election which can be made for any year where one or more of the properties do not reach the requisite limit. Thus, if, in 2011/12, two holiday cottages were let for 75 days each and a third one was let for only 68 days, the taxpayer could make an election which would treat each of the properties as satisfying the day count test for that tax year. Where a person has holiday property both in the UK and elsewhere in the EEA, the averaging election must be made separately for each of the two categories of property.

In addition the new period of grace election can assist where a property which has previously qualified as holiday accommodation fails to do so in the following year despite genuine efforts to do so. For 2010/11 onwards, where the property owner makes an election on or before the first anniversary of the normal self-assessment filing date for the tax year, the accommodation can be treated as satisfying the ‘letting condition’ for that year. Where an election has been made for that first year the period of grace can be extended to take in the following year as well. This election can only be made if an averaging election is not made in respect of the same tax year.

If the holiday property is owned jointly by a husband and wife, the normal 50:50 rule for splitting income does not apply and the couple are entitled to divide up their income for tax purposes as they see fit.

Note that the capital gains reliefs will continue to apply to UK letting businesses and now extends to non UK lettings:

·         entrepreneurs’ relief;

·         rollover relief;

·         holdover relief;

·         relief for loans to traders; and

·         the substantial shareholdings exemption.

HMRC have issued an advanced version of their new Helpsheet (HS253) which can be found at www.hmrc.gov.uk/manuals/pimmanual/attachments/PIM4100_helpsheet.doc

Tax strategies for contractors and directors

Following on from our earlier post on current tax strategies we have set out an overview of an opportunity for contractors together with a variation on this which is available to directors. We would again stress that this is about understanding your options and the associated risks. In short we would rather you hear about these opportunities from us and have a sensible discussion about whether they fit your circumstances. The area around contractor solutions is complex which has not been helped by the huge amount of misinformation that exists in this market place and historically commercial solutions that simply don't work. 

Contractor Solutions- for individuals providing personal services. Equivalent monthly contract value in excess of £4,000. Indicatively the net funds available to workers will be between 82 to 84%

Contractor Solutions for directors -  for individuals in owner managed companies currently providing services to the company as a director, there is an opportunity to provide services in the form of consultancy. Equivalent monthly contract value in excess of £5,000. There is a substantive process which can deliver significant long-term benefits to the individual and the company. Indicatively the net funds available to workers will be between 80 to 82%.

Please contact us if you would like to know more.

Tax Strategies and Structures

Now that the last Finance Bill has received Royal Ascent it is noticeable that a number of new tax strategies have been released. The new disguised remuneration legislation brought an end to many strategies that had been around for some while. The longer a tax strategy is around the more likely there is to be copycat solutions. This new legislation is both long and complex and more particularly has been spectacularly poorly drafted. This has meant that it has been difficult to unwind existing structures caught by the new legislation and gain any certainty in the interpretation of that legislation as it impacts on current transactions, both those which are simply undertaken in the normal course of business and those that could be seen as part of a more aggressive tax strategy.  

Our objective is to ensure that clients are fully informed of their tax options so that they can make informed decisions. It is not our role to second guess what our clients want to do. What we can do when looking at any tax planning is to assess both the commercial and tax risks associated with it and to assist the client in understanding whether the tax planning meets their needs. The truth is that some tax planning, from that perceived as low risk through to the more aggressive high risk strategies, is poorly thought through and even more poorly implemented.

That is not to say that there are not some very effective tax solutions available which are not only robust in their structure but also rigorous in their implementation. Even in these circumstances it must be assumed that HMRC will enquire into any tax planning and therefore it is vital that those providing a solution also have the skills, resources and the will to defend their planning. The fact is that it can take many years for an enquiry to be closed. This extended open enquiry period is in part a result of the complexity of the tax legislation and the shortage of resources available to HMRC, and if one were cynical there is little incentive for HMRC to close a case where it is not certain of winning the argument as it creates uncertainly in the minds of the taxpayer and may dissuade them in carrying out any new planning.  Danny Alexander's announcement this week suggests that HMRC will increase its focus in this area backed by greater resource.  

There may be new opportunities out there that fit with your own needs but after reviewing your options the answer may simply be to do nothing. Over the next few days we will provide details of the tax strategies that we are familiar with and which meet our own internal quality and risk assessment.

VAT initiative campaign

A business has until 30 September 2011 to tell HMRC that it should have been VAT registered at an earlier date and as a result be able to take advantage of a late registration penalty that is likely to be capped at 10% of the tax unpaid during the late period.

A business has then until 31 December 2011 to send the completed VAT registration form (VAT 1) to HMRC, while the online registration is not open to those taking part in the VAT initiative.