| Enews - March 2006 | ||||||||||||
Introduction As
normal in the world of tax and business, March has been a busy month.
Most notably Gordon Brown presented his tenth Budget. This has been
well reported and documented elsewhere but we take the opportunity to
highlight a few points for you in relation to proposed changes to
online filing of tax returns, corporation tax rates and the A day
pensions rules.
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| Capital allowances for smaller businesses In Budget 2006, the government announced that capital allowances in the form of first year allowances (FYAs) on plant and machinery acquisitions would be at the rate of 50% for small businesses. The normal rate is 40%. The increased rate will apply for 12 months from April 2006. The rates apply for unincorporated businesses from 6 April and for companies from 1 April 2006. The increase in allowances is supposed to, amongst other things, be a sweetener for the withdrawal of the 0% starting rate of corporation tax.
Corporation tax rates A starting rate of corporation tax of 0% was introduced in 2002 and applies to companies with taxable profits of £10,000 or less. Companies with profits between £10,000 and £50,000 enjoy a marginal relief from the small companies rate of 19%. This was followed by the introduction of the non corporate distribution rate of 19% on profits which were distributed by way of dividends back to the shareholders. The resulting has been a complex system and the government has concluded that many self employed people are still incorporating their businesses to reduce their tax and national insurance liabilities. The government has therefore decided to replace the non corporate distribution rules and 0% of corporation tax with the 19% small companies rate of tax. This will apply to companies with profits up to £300,000 with effect from 1 April 2006.
Employer payment deadlines and electronic filing Interest will start to run on any 2005/06 PAYE, NIC, student loan and CIS deductions not paid over by 19 April 2006. We are also aware that HMRC are chasing in year late payments with phone calls and in some instances turning up at the employer's premises demanding a cheque. Large employers (those with 250 employees or more) must pay electronically. Where payment is made electronically, the deadline is 22 April rather than 19 April. HMRC Employers' Bulletin Issue 22 contains more information on payment. Click on the link below to see the detailed text. In addition to paying electronically, medium (those with between 50 and 250 employees) and large employers are also obliged to file their 2005/06 end of year returns electronically. Smaller employers will not be obliged to file electronically until 2009/10. However to encourage an earlier switch to online filing small employers are being offered tax-free incentive of £250 for 2005/06 if they file electronically. The government is concerned that, in a tiny minority of cases, there has been exploitation of the incentives which also applied for 2004/05. As a consequence, they will be reviewing the end of year returns very carefully before issuing any incentives for 2005/06.
Pensions - A day 6 April 2006 The new tax regime for pensions finally takes effect from 6 April 2006, referred to as 'A' day. There will be a single set of rules for all registered pension schemes. A summary of the rules is set out in the link below. On budget day the government also published further guidance on how the inheritance tax provisions will apply to pension funds invested as an alternatively secured pension (ASP). The pensions tax rules require an individual to secure an income before they reach 75. Most people will have an annuity or scheme pension, but ASP has been provided as an alternative for those people who have a principled religious objection to annuitisation.
Jones and Garnett - off to the Lords HMRC have been given leave to appeal to the House of Lords so the saga continues. For those of you who have been following this case with interest will remember that the case hinged on whether dividends paid by the company to the wife (who was not a higher rate taxpayer) could be taxed instead on her husband (who was a higher rate taxpayer). In the High Court the Judge decided that 'well established principles' (namely legislation relating to settlements and arrangements) could apply to the case. The Court of Appeal overturned the High Court's decision. HMRC have now been granted leave to appeal to the House of Lords. This now puts those individuals whose affairs are similar to that of Mr and Mrs Jones in a difficult position as to reporting income on their tax returns.
Personal tax self assessment deadline to change to September Tucked away in the vast amount of Budget information are some radical changes which result from Lord Carter's review of HMRC online services. Businesses and individuals will have to be ready for online filing from as early as 2008. The changes will apply to personal self assessment returns, corporation tax returns, PAYE returns and VAT returns.
IOD publish report on inhibitors to growth The Institute of Directors (IoD) has published a report highlighting the problems faced by UK businesses. The IoDs' head of business policy Dr Richard Wilson, said that 'Skill shortages, red tape etc are what are holding UK businesses back'. The three principal factors identified by IoD members are:
Bad debt reaches new heights A study carried out by the Credit Management Research Centre (CMRC) shows that late payment is causing small firms in the UK to write off an average of £14,000 in bad debt every year. The study, which was carried out by Leeds University Business School, found that 24% of small and medium-sized firms think domestic bad debt is a serious problem for them, with a further 15% concerned about bad debt caused by export customers.
Family friendly policies - have your say in the consultation The DTI has launched a consultation into parental leave for employees, giving particular consideration to providing greater options for parents to choose who cares for their child during the first of their life. One suggestion is that the father could take up to six months paternity leave where the mother chooses to return to work after six months. Businesses’ views are being sought on a number of aspects of the proposals.
Business rates The Federation of Small Businesses advises that lots of smaller businesses are paying too much in business rates. To see if this applies to your business follow the link below.
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