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M&S Accountancy Ethos

The ethos of the firm is "To provide the highest professional standards of service to all our clients" and we aim to achieve this:

1. By ensuring all staff adhere to the professional and ethical regulations set by the professional organisations recognised by the firm
2. By providing clients with an innovative approach to accounting and taxation services.
3. By ensuring the firm and its staff keep up to date with changes in technology and legislation.
4. By having a well trained, involved and flexible team.
5. By employing and/or recruiting employees with the appropriate skills and commitment to ensure the firm can provide a high standard of professional service.

Latest News

Budget 2011 Summary of Key Points

Income tax and Personal Allowances

The June Budget 2010 announced the main rates and allowances for income tax for 2011-12, including an increase in the personal allowance for those aged under 65 of £1,000 and a £1,400 reduction in the basic rate limit. At Budget 2011, the Government announced that the personal allowance for under 65's will increase by a further £630 bringing it to £8,105 and the basic rate limit will fall to £35,000.

The income tax rates remain the same, although the Chancellor highlighted that the 50% tax rate is expected to be a ‘temporary' rate.  The personal allowance continues to be reduced where income is above £100,000 - by £1 for every £2 of income above the £100,000 limit.

The personal allowances for those aged 65 - 74 and aged 75 and over, increase by £450 to £9,940 and 10,090 respectively.

National Insurance Contributions (NIC)

The rates of NIC will all increase by 1%.  From an employee's perspective, salaries will be charged at 12% and 2% instead of 11% and 1%.  Employer's contributions will be payable at 13.8% instead of 12.8%.  The self employed will pay Class 2 NIC at £2.50 per week instead of £2.40 and the rates for Class 4 NIC will increase from 8% and 1% to 9% and 2%.

Company Car Tax rate 2013-14

The tax charge when an employee is provided with a company car is calculated as percentage of the list price; the applicable percentage depends upon the carbon dioxide emission ratings of the car.  From April 2013, the appropriate percentages will be reduced by 1% for all vehicles with carbon emissions between 95g and 220g.  Zero emissions cars will remain at 0% and ultra low emissions cars with emissions up to 75g will remain at 5%.

Fuel Benefit Charge 2011-12

Employees and directors who are provided with a company car and who also receive free fuel from their employers are subject to the fuel benefit charge.  The cash equivalent of the taxable benefit is determined by multiplying a set figure (currently £18,000) by the appropriate percentage for the car, based on its CO2 emissions (grams per kilometre).   The set figure (or the multiplier will increase to £18,800 with effect from 6 April 2011.

Approved Mileage Allowance Payments rates from 2011-12

Where employees use their own cars for business mileage they can claim reimbursement from their employers through the approved mileage allowance payments rates (AMAPs) which is not regarded as a taxable benefit.  There is currently a higher rate of 40p per mile for the first 10,000 miles of business use and 25p per mile thereafter.  Where individuals are paid less than those amounts by their employer, they can claim mileage allowance relief (MAR) for the residual amount.  With effect from 6 April 2011, this will increase the higher rate to 45p per mile.  The rate will also apply to MAR. 

Capital Gains Tax

Entrepreneurs' Relief: The lifetime limit on gains qualifying for entrepreneurs' relief will increase from £5 million to £10 million with effect from 6 April 2011.  Subject to satisfying certain conditions gains on disposals of entrepreneurial businesses by individuals and certain trustees qualify for entrepreneurs' relief. Qualifying gains are taxed at a rate of 10%.

Annual Exempt Amount: The annual exempt amount for capital gains tax will increase to £10,600 with effect from 6 April 2011.  

Individual Savings Accounts (ISAs)

The annual limit on investment in tax-free ISAs increases by £480 to £10,680 for 2012. 

Junior ISAs

On 26 October 2010 the Government announced that it would introduce a new tax-advantaged account for saving for children, to be known as a Junior ISA.  It is expected that Junior ISAs will be available from autumn 2011 for any UK-resident child who does not currently hold a Child Trust Fund.

Furnished Holiday Lettings

The tax rules for furnished holiday lettings (FHL) will be revised and the regime will be extended to the European Economic Area (EEA).  From April 2011, loss relief may only be offset against income from the same FHL business.  UK losses can relieve UK FHL income only and similarly with the EEA losses. 

From April 2012 to qualify in a year, a property must be available to let for at least 210 days and actually let for 105 days.  Businesses meeting the actually let threshold in one year may elect to be treated as having met it in the two following years ("period of grace"), providing certain criteria are met. 

Pensions

Restricting Pensions Tax Relief:  The annual allowance for tax relief on pension savings for individuals will be reduced from £255,000 to £50,000 from 2012, and the lifetime allowance will be reduced from £1.8m to £1.5m from 2012-13.

Pensions Annuitisation:  The requirement to annuitise by age 75 will be removed from April 2011. The new legislation will include changes to the annuitisation requirements, income drawdown pension arrangements and the related inheritance tax rules.

Review of Non-Domicile Taxation

At the June Budget 2010, the Government confirmed that it would review the taxation of non-domiciled individuals.  There is currently a beneficial tax regime for non-domiciles regardless of how long they have been resident in the UK. 

The following reforms will be introduced: 

• remove the tax charge when non-domiciles remit foreign income or capital gains to the UK for the purpose of commercial investment in UK businesses;
   
• simplify some aspects of the current tax rules for non-domiciles to remove undue administrative burdens; and
   
• increase the existing £30,000 annual charge to £50,000 for non-domiciles who have been UK resident for 12 or more years and who wish to retain access tothe beneficial tax regime (the remittance basis). The £30,000 charge will beretained for those who have been resident for at least seven of the past nineyears and fewer than 12 years.

The Government will be consulting on the detail of this measure and will issue a consultation document in June.  These reforms will be implementedfrom April 2012. 

Inheritance Tax

The inheritance tax nil rate band is frozen at £325,000 until April 2015.

Corporation Tax

The main rate of corporation tax will reduce to 26% for the Financial Year commencing 1 April 2011 and to 25% for the Financial Year commencing 1 April 2012. 

The small profits rate of corporation tax will reduce to 20% from the Financial Year commencing 1 April 2011.

Capital Allowances

Annual Investment Allowance:  The amount of expenditure on plant and machinery with qualifies for 100% tax relief in the year in which the expenditure is incurred will reduce from £100,000 to £25,000 with effect from 1 April 2012.

Short Life Assets:  Businesses incurring expenditure on an item of plant or machinery from April 2011 onwards will be able to make a short life asset election in respect of that item if they expect to sell or scrap it within an eight-year cut-off period.  This election allows the business to claim full relief for the asset on disposal.  This is an extension from the current four year period.  The SLA election is not available in respect of most cars or integral features of a building or structure.

Enhanced Capital Allowances Scheme for Energy Saving Technologies: The energy-saving enhanced capital allowance scheme will, subject to State aid approval, be updated during summer 2011. The main change includes the addition of a new technology-efficient hand dryers. Also the qualifying criteria for automatic metering and targeting equipment will be simplified.

Research and Development Tax Credits for Small or Medium Sized Enterprises (SMEs)

Subject to State aid approval, legislation will be introduced in Finance Bill 2011 to increase the rate of the additional deduction for expenditure on research and development (R&D) for companies that are SMEs from 75% to 100% from 1 April 2011, giving a total deduction of 200%.

Value Added Tax

Registration and Deregistration Thresholds: No changes to the main rates of VAT have been announced at Budget 2011. However, the VAT thresholds have been increased in line with inflation. The turnover levels are calculated over a rolling 12 month period.

The following changes to the thresholds will be applied from 1 April 2011: 

• The taxable turnover threshold, which determines whether a person must be registered for VAT, will be increased from £70,000 to £73,000.
   
• The taxable turnover threshold, which determines whether a person may apply for de-registration will be increased from £68,000 to £71,000.
  

Online VAT: Online VAT registration/de-registration, and notification of changes to registration details will be mandatory from 1 August 2012.  Other changes will include removal of the VAT registration threshold for businesses not established in the UK.  Also, the Government will mandate online filing of VAT returns and electronic payments for the second tranche of existing VAT customers (with a VAT exclusive turnover of under £100,000), for VAT periods beginning on or after 1 April 2012.  Since April 2010 only VAT customers with a VAT exclusive turnover of £100.000 or more, and customers newly registering for VAT (whatever their turnover) have been legally required to file VAT returns online and pay VAT due electronically.  The Government will be consulting on this measure and will issue consultation documents in June.

Fuel Scale Charges: Budget 2011 also confirmed that VAT fuel scale changes will be revalued, with effect from 1 May 2011. Businesses which pay the cost of all fuel for cars where the director or employee is permitted to use the car for private journeys and do not make good the cost of fuel for the private journeys' must decide whether to claim any input tax on the fuel purchased for the business. If you do decide to claim you must account for the VAT due on the private fuel by reference to the VAT Fuel Scale charge, payable per VAT return period.

The VAT due per the table of scale charges below should be included in the total output tax figure at box 1 and box 3 of the VAT return. The net amount (i.e. the scale charge for the fuel less the VAT due) should be included in the value of net total outputs at Box 6. The table below shows the VAT which should be included, per vehicle, per quarter.

 

Stamp Duty Land Tax (SDLT)

The SDLT payable on transfers of residential property for more than £1m will increase from 4% to 5% on 6 April 2011.

SDLT on Bulk Purchases

Relief will be provided for purchasers of residential property who acquire interests in more than one dwelling.  Where the relief is claimed the rate of SDLT is determined not by the aggregate consideration but instead is determined by the mean consideration (i.e. by the total consideration divided by the number of dwellings) subject to a minimum rate of 1%.

Administration

Time to pay:    It was confirmed that HMRC will continue throughits Business Payment Support Service to provide advice and time to pay to viablebusinesses experiencing temporary financial difficulty.  The service was launched atPre Budget Report 2008 and is available for all HMRC taxes, including VAT,corporation tax, income tax and NICs (PAYE).  Despite this confirmation, in our experience it is becoming increasingly difficult to obtain HMRC's agreement to such arrangements.

Penalties for Late Filing and Payment:  New penalties for the late filing of returns and the late payment of tax come into force with effect from 6 April 2011.  The penalty for late submission of a personal tax return will be £100 and it will no longer be possible to mitigate the penalty to the amount of the tax due if less than £100.

Plumbers' Tax Safe Plan

HM Revenue and Customs (HMRC) recently launched a new disclosure scheme, known as the Plumbers' Tax Safe Plan (PTSP).  This was made available from 1 March and is a facility for tradepeople who work (or worked) in the plumbing, heating or gas installation trades, to disclose tax liabilities from any undeclared income in return for a small fixed rate penalty of 10%.

Although the name of this disclosure suggests that it is plumbers that are being targeted, it is in fact being directed at all tradespeople who wish to bring their tax up to date.  This includes joiners, electrician, roofing specialists, builders etc.

If an individual or a company does not voluntarily disclose under PTSP and HMRC later find through an enquiry that they owe additional tax, they will face higher penalties or even criminal prosecution in particulary serious cases.

One issue that might be of concern to most tradesmen is would HMRC inform trading bodies the outcome of an investigation.  HMRC has confirmed that they would not do this as an individual's or an entity's tax affairs are confidential.

So how does the Plumbers' Tax Safe Plan work?

 Notification

Where an individual or a company has an outstanding liability connected to income received as a plumber or other trade that has not already been taxed, they must notify HMRC of their intention to make a disclosure.  The deadline for this is 31 May 2011.

On the receipt of the intention to make a disclosure HMRC will issue an acknowledgement.

Disclosure

The disclosure has then to be prepared and submitted to HMRC by 31 August 2011.  This involves working out the tax due on the undeclared income including national insurance, where appropriate. 

Unlike previous disclosure schemes, PTSP will also allow the individuals and companies to include any other income and gains, which are not connected to the trading income of the business that they have not previously told HMRC about.

 Other income or gains might include: 

• Other income received with no tax deducted at source e.g. sale of scrap materials etc
• Investment income received with no tax deducted at source e.g. bank interest
• Rental income from properties and land
• Capital gains made on the disposal of investments such as land, property, shares, bonds.

After working out the tax and national insurance due on the undeclared income, interest is then calculated.  This will cover the time the tax and national insurance should have been paid to the date of payment.

A penalty is then calculated.  In most cases this will be a fixed rate of 10% of the tax and national insurance.

Payment must reach HMRC by 31 August 2011.  If the full amount cannot be settled by then, a payment arrangement should be agreed with HMRC in the first instance before the deadline.

The disclosure covers the last 20 years up to 5 April 2010.

What if no disclosure is made 

If HMRC holds information and no disclosure has been made then an enquiry or investigation could be opened.  Any tradesmen or companies found not to have made a declaration who should have, could face higher penalties, being at least 30% of the tax due but could be up to 100%.

The timescale for this is very short given that it will take a bit of time to ensure the information for the disclosure is complete and correct.

If further advice is required, please contact us by completing the enquiry form or call us on 01383 621118.

Changes to National Minimum Wage Rates - Effective 1 October 2010

A new national minimum wage (NMW) rate will be introduced for apprentices for pay reference periods starting on or after 1 October.  From the same date, 21-year-olds will become entitled to the main rate of NMW. (Prior to this date, only workers aged 22 and over are entitled to the main rate). 

For pay reference periods starting on or after 1 October, the new rates will be as shown below:

	£ per hour
Main rate for workers aged 21 and over	5.93
Rate for workers aged 18-20	4.92
Rate for workers aged 16-17 and above compulsory school age	3.64
Rate for apprentices who are either under 19 or over 19 and in the first year of their apprenticeship	2.50
For pay reference periods starting on or after 1 October 2010 the new accommodation offset rates will be:
Daily rate	4.61
Weekly maximum	32.27

 

Staff News

We are delighted to announce that Debbie Sinclair our Accounts Assistant has recently passed her final exams and is now a member of The Association of Accounting Technicians.

Congratulations also to Louise Smith our Tax Assistant who recently passed her final exam and is now a member of The Association of Tax Technicians.  

Scam Emails from HM Revenue & Customs

Please be aware that emails are still being sent purporting to come from HMRC, indicating that a repayment of tax is due.  The email asks for the person's bank details to process the repayment.

You should delete all such emails as HMRC never communicate with a taxpayer in this manner when a repayment is due.

Emergency Budget 2010

"TOUGH BUT FAIR" That was the theme of Mr Osborne`s emergency budget. Quite a few of the proposed tax and spending changes had already been trailed. Presumably this was a subtle ploy to make the actual changes sound not so bad.

The main tax changes are as follows:

Income Tax Personal Allowances

The current allowance of £6,475 for the under 65`s is to be increased to £7.475 from 6 April 2011. This applies to basic rate taxpayers only. The basic rate limit will be adjusted to ensure higher rate taxpayers do not receive this increase. A decision on the increase for the over 65`s will be made "at the appropriate time"

National Insurance Contributions (NIC)

The main change announced so far is to raise the secondary threshold which is the point at which employers (not employees) start to pay Class 1 NIC. This is to be increased by an extra £21 per week above indexation. The exact increase will be announced in October when the indexation figures are known and will take effect from 6 April 2011

There is no change to the increase in the employees' contributions from 6 April 2011. The main rate is to be increased from 11% to 12% and the percentage chargeable on earnings over the Upper Earnings Limit (currently £43,875) will rise from 1% to 2%. The employers NIC rate is to rise from 12.8% to 13.8%.

The self employed rate for next year has still to be set.

Interestingly there will be a new three year scheme introduced to exempt new businesses in targeted regions (essentially those outside London and the Home Counties) from up to £5,000 of Class 1 Employers NIC for each of their first 10 employees hired in the first year of business.  There is no doubt that this could be a very welcome saving for some businesses, although there are likely to be some anti-avoidance measures to stop the advantages being abused.  Further details of the exact format are to follow.

Corporation Tax

The main rate of 28% is to be reduced to 27% from 1 April 2011 and by a further 1% each year until 2014 when it will be 24%. The rate for small companies i.e. those with taxable profits of less than £300,000 will be reduced to 20% from 1 April 2011. The small reduction in the small companies' rate does mean that incorporation of a business should still be considered where appropriate, particularly as there is still no mention of legislation being brought forward to counteract the perceived avoidance of husband and wife companies.

Capital Allowances and the Annual Investment Allowance (AIA)

As a counter balance to the corporate tax rate reductions the rates of writing down allowances (WDA`s) are being reduced from 20 % and 10% to 18% and 8% respectively  The smaller rates of 10% and 8% apply to "Long Life" assets in the special rate pool. More worryingly is the reduction in the AIA limit from £100,000 to £25,000. The AIA allows businesses to reduce their taxable profits by the full amount of their expenditure on plant and machinery other than cars. The reduction of £75,000 is therefore a significant drop.

The change to WDA rates takes effect for chargeable periods ending after 1 April 2012 or 6 April 2012 for unincorporated businesses. The AIA change takes effect for expenditure incurred on or after 1 April 2012.

Capital Allowances has become an extremely complex area of taxation and advice should be sought before incurring significant expenditure. This is particularly so if relatively substantial amounts of expenditure on qualifying assets is being considered over the next two years.

Value Added Tax (VAT)

As anticipated, the standard rate of VAT will be increased from 17.5% to 20% from 4 January 2011.  This is in line with most VAT rates across the European Union. Those clients who cannot recover VAT should consider incurring expenditure before the change date. In particular personal tax clients should try and let us have their annual tax return information as soon as possible to avoid the increase!

Small businesses which are currently using or considering using the VAT flat rate scheme (FRS) will also be affected by the increase in the standard rate of VAT.  Currently, a business has to leave the FRS if its annual gross turnover (including VAT) exceeds £225,000.  From 4 January 2011, this threshold will increase to £230,000. In addition, the flat rate percentages will also be changed to reflect the increase. 

There are consequential changes to the flat rate percentages and these are given below.

Category of business	Appropriate percentage
Accountancy or book-keeping	14.5
Advertising	11
Agricultural services	11
Any other activity not listed elsewhere	12
Architect, civil and structural engineer or surveyor	14.5
Boarding or care of animals	12
Business services that are not listed elsewhere	12
Catering services including restaurants and takeaways	12.5
Computer and IT consultancy or data processing	14.5
Computer repair services	10.5
Dealing in waste or scrap	10.5
Entertainment or journalism	12.5
Estate agency or property management services	12
Farming or agriculture that is not listed elsewhere	6.5
Film, radio, television or video production	13
Financial services	13.5
Forestry or fishing	10.5
General building or construction services*	9.5
Hairdressing or other beauty treatment services	13
Hiring or renting goods	9.5
Hotel or accommodation	10.5
Investigation or security	12
Labour-only building or construction services*	14.5
Laundry or dry-cleaning services	12
Lawyer or legal services	14.5
Library, archive, museum or other cultural activity	9.5
Management consultancy	14
Manufacturing fabricated metal products	10.5
Manufacturing food	9
Manufacturing that is not listed elsewhere	9.5
Manufacturing yarn, textiles or clothing	9
Membership organisation	8
Mining or quarrying	10
Packaging	9
Photography	11
Post offices	5
Printing	8.5
Publishing	11
Pubs	6.5
Real estate activity not listed elsewhere	14
Repairing personal or household goods	10
Repairing vehicles	8.5
Retailing food, confectionary, tobacco, newspapers or children's clothing	4
Retailing pharmaceuticals, medical goods, cosmetics or toiletries	8
Retailing that is not listed elsewhere	7.5
Retailing vehicles or fuel	6.5
Secretarial services	13
Social work	11
Sport or recreation	8.5
Transport or storage, including couriers, freight, removals and taxis	10
Travel agency	10.5
Veterinary medicine	11
Wholesaling agricultural products	8
Wholesaling food	7.5
Wholesaling that is not listed elsewhere	8.5

 *"Labour-only building or construction services" means building or construction services where the value of materials supplied is less than 10 per cent of relevant turnover from such services; any other building or construction services are "general building or construction services".

Capital Gains Tax (CGT) and Entrepreneurs' Relief

Despite much speculation of a higher rate the new rate of of CGT is 28% for higher rate taxpayers.  This new rate is effective from today.

The current CGT rate of 18% will remain for basic rate taxpayers. Where the gains and total taxable income and gains exceed the basic rate threshold then any excess over that threshold is taxed at 28%. So there could be some gains taxed at 18% and some at 28%.

Gains realised before 23 June will be taxable at 18% even if you are a higher rate taxpayer. For trustees, the CGT rate is also increased to 28% for all gains. The CGT annual exemption for the year to 5 April 2011 remains at £10,100.

Entrepreneurs' relief is still available for individuals making a gain on disposals of entrepreneurial businesses.  The amount of gains that can qualify for entrepreneurs' relief was subject to a lifetime limit of £2 million. This limit has increased to £5 million from 23 June 2010, so given the new rate of 28% on non - qualifying gains allied with the new limit of £5 million very substantial savings are available if gains can qualify for this relief.

Individual Savings Accounts (ISA`s)

From 6 April 2011 the ISA limits will be increased in line with Retail Prices Index (RPI) on an annual basis. Previously the limits were increased at the discretion of the Chancellor.

Furnished Holiday Lettings (FHL)

The favoured tax treatment for the letting of properties qualifying for FHL treatment was to be withdrawn from 6 April 2010.This will not now happen but there will be a public consultation as to how to change the rules from 6 April 2011.

Inheritance Tax (IHT)

There was resounding silence on IHT matters perhaps not surprisingly.

Pensions

There was no specific changes introduced.  The Government however  will be considering restricting relief from 6 April 2011 by reforming the existing pension savings allowances primarily by reducing the annul allowance. There is a suggestion that the current annual allowance of £255,000 may be reduced to as little as £30,000 to £45,000.

Construction Industry Scheme

There was nothing new announced here although the consultation process begun last year looking at the tax status of sub contractors is still ongoing.

Insurance Premium Tax (IPT)

There is to be an increase in the standard rate of IPT from 5% to 6%. The higher rate will rise from 17.5% to 20%. As with VAT changes these will take effect from 4 January 2011    

Stamp Duty

No changes have been announced.

Non-Domiciled Individuals

A review of the current rules introduced from 6 April 2008 is underway with more detail likely to follow later in the 2010 Pre-Budget Report.

RATES AND ALLOWANCES - INCOME TAX

Income Tax Allowances

Income Tax allowances table
Income Tax allowances	2008-09	2009-10	2010-11
Personal Allowance (1)	£6,035	£6,475	£6,475
Income limit for Personal Allowance	Not applicable	Not applicable	£100,000
Personal Allowance for people aged 65-74 (1)(2)	£9,030	£9,490	£9,490
Personal Allowance for people aged 75 and over (1)(2)	£9,180	£9,640	£9,640
Married Couple's Allowance (born before 6th April 1935 but aged under 75) (2)(3)(4)	£6,535	Not applicable	Not applicable
Married Couple's Allowance - aged 75 and over (2)(3)	£6,625	£6,965	£6,965
Income limit for age-related allowances	£21,800	£22,900	£22,900
Minimum amount of Married Couple's Allowance	£2,540	£2,670	£2,670
Blind Person's Allowance	£1,800	£1,890	£1,890

(1) From the 2010-11 tax year the Personal Allowance reduces where the income is above £100, 000 - by £1 for every £2 of income above the £100,000 limit. This reduction applies irrespective of age.

(2) These allowances reduce where the income is above the income limit - by £1 for every £2 of income above the limit. For the 2008-09 and 2009-10 tax years they will never be less than the basic Personal Allowance or minimum amount of Married Couple's Allowance. However, from the 2010-11 tax year the Personal Allowance for people aged 65 to 74 and 75 and over can be reduced below the basic Personal Allowance where the income is above £100,000.

(3) Tax relief for the Married Couple's Allowance is given at the rate of 10 per cent.

(4) In the 2009-10 tax year all Married Couple's Allowance claimants in this category will become 75 at some point during the year and will therefore be entitled to the higher amount of the allowance - for those aged 75 and over.

Income Tax rates and taxable bands

Income Tax rates and taxable bands
	2008-09	2009-10	2010-11
Starting rate for savings: 10%*	£0-£2,320	£0-£2,440	£0-£2,440
Basic rate: 20%	£0-£34,800	£0-£37,400	£0-£37,400
Higher rate: 40%	Over £34,800	Over £37,400	£37,401-£150,000
Additional rate: 50%	Not applicable	Not applicable	Over £150,000

* From 2008-09 there is a 10 per cent starting rate for savings income only. If your non-savings income is above this limit then the 10 per cent starting rate for savings will not apply.

The rates available for dividends for the 2008-09 and 2009-10 tax years are the 10 per cent ordinary rate and the 32.5 per cent dividend upper rate. For the 2010-11 tax year, as well as these rates there is a new dividend additional rate of 42.5 per cent.

INDIRECT TAX

Value Added Tax

With effect from 4 January 2011 the standard rate of Value Added Tax will increase to 20 per cent.

VAT	April 2010-11	4 January 2011
Standard rate	17.5%	20%
Reduced rate	5%	5%

Budget also announces that sectoral rates for the VAT Flat Rate Scheme (FRS) will be updated. Details of new sectoral rates will be available on the HMRC website.

Insurance Premium Tax

With effect from 4 January 2011 the standard rate of Insurance Premium Tax will increase to 6 per cent and the higher rate will increase to 20 per cent.

IPT	April 2010-11	4 January 2011
Standard rate	5%	6%
Higher rate	17.5%	20%

PERSONAL TAX AND BENEFITS

Income tax

Budget announces that in 2011-12, the income tax personal allowance for under 65s will be increased by £1,000 in cash terms, taking it from £6,475 in 2010-11 to £7,475 in 2011-12. To ensure that the majority of higher rate taxpayers will pay the same total level of income tax and National Insurance Contributions (NICs) as previously planned, the Government will also reduce the basic rate limit for tax by £2,500, and the upper earnings and profits limits for NICs by £1,650, based on current estimates of the Retail Prices Index (RPI). Exact figures for the basic rate limit and higher rate threshold will be confirmed in the autumn.

National Insurance Contributions

Budget announces that the level at which employers start to pay NICs will increase by £21 per week above indexation from April 2011. The value of indexation will be determined by data available in the autumn.

The Government will shortly announce a three-year scheme to exempt new businesses in targeted regions from up to £5,000 of class 1 employer NICs payments, for each of their first 10 employees hired in their first year of business. Subject to meeting the necessary legal requirements, the Government aims to have the scheme up and running by September, but any qualifying new business set up from today will also benefit.

The upper earnings limit and the upper profits limit will maintain alignment with the income tax higher rate threshold.

Employee and employer rates
Employee (Class 1 primary)				Employer (Class 1 secondary)
Earnings per week	April 2010-11	April 2011-12	April 2010-11		April 2011-12
Below primary threshold / secondary threshold	Nil	Nil	Nil		Nil
Above primary threshold/ secondary threshold*	11%	12%	12.8%		13.8%
Above upper earnings limit	1%	2%	12.8%		13.8%

*Reduced rate for married women between primary threshold and upper earnings limit is 4.85 per cent for 2010-11 and 5.85 per cent for 2011-12. The reduced rate applies to women married before 6 April 1977 who have elected to pay a reduced rate of class 1 contributions.

Self-employed rates
Class 2 (per week)*				Class 4
Profits per year	April 2010-11	April 2011-12	April 2010-11		April 2011-12
Below small earnings exception	Nil	Nil	Nil		Nil
Small earnings exception to lower profits limit	£2.40	Not available **	Nil		Nil
Lower profits limit to upper profits limit	£2.40	Not available **	8%		9%
Above upper profits limit	£2.40	Not available **	1%		2%

*Class 2 NICs are paid at a weekly flat rate of £2.40 by all self-employed persons. Those with profits less than, or expected to be less than, the level of the small earnings exception may apply for exemption from paying Class 2 contributions.

**The exact figure for Class 2 for 2011-12 will be determined by data available in the autumn.

BUSINESS AND FINANCIAL SERVICES

Corporation tax

Budget announces annual reductions to the main rate of corporation tax. The main rate of corporation tax will be reduced to 27 per cent in 2011-12, with further reductions to 26 per cent in 2012-13, 25 per cent in 2013-14 and 24 per cent in 2014-15. 

Budget also announces a reduction in the small profits rate of corporation tax to 20 per cent from April 2011.

Corporation tax on profits	April 2010-2011	April 2011-12
£0 - £300,000	21%	20%*
£300,001 - £1,500,000	Marginal rate	Marginal rate
£1,500,001 or more	28%	27%

* The small profits rate was due to rise to 22 per cent in 2011-12, as announced originally at Budget 2007 and deferred to 2011-12 at 2009 Pre-Budget Report.

Bank levy

Budget announces that a bank levy based on banks' balance sheets will be introduced, effective from 1 January 2011. It is proposed that the levy will be set at a rate of 0.07 per cent, with a lower initial rate of 0.04 per cent in 2011.

CAPITAL, ASSETS AND PROPERTY

Capital gains tax

Budget announces that from 23 June 2010 capital gains tax will rise from 18 to 28 per cent for higher and additional rate taxpayers. The 10 per cent for entrepreneurs' relief rate will be extended from the first £2 million to the first £5 million of gains made over a lifetime.

Capital gains tax	April 2010-11	23 June 2010-11
Standard rate	18%	18%
Higher rate*	n/a	28%
Entrepreneurs' relief rate	10%	10%
Annual Exempt Amount	£10,100	£10,100
Entrepreneurs' relief lifetime limit of gains	£2,000,000	£5,000,000

 *For higher and additional rate tax payers

Company Cars - advisory fuel rates from 1 June 2010

These rates apply to all journeys on or after 1 June 2010 until further notice, allowing them to reflect fuel prices  more quickly.  For one month from the date of change, employers may use either the previous or current rates, as they choose.  Employers may therefore make or require supplementary payments if they so wish, but are under no obligation to do either.

 

Engine size	Petrol	Diesel	LPG
1400cc or less	12p	11p	8p
1401cc to 2000cc	15p	11p	10p
Over 2000cc	21p	16p	14p
Petrol hybrid cars are treated as petrol cars for this purpose.

  

Petrol
Engine Size (cc)	Mean APG	Applied APG	Fuel Price (per litre)	Fuel Price (per gallon)	Pence Per mile	AFR
Up to 1400	49.3	44.4	119.9	545.2	12.3	12
1400-2000	41.2	37.1	119.9	545.2	14.7	15
Over 2000	28.8	25.9	119.9	545.2	21.0	21

  

Diesel
Engine Size (cc)	Mean APG	Applied APG	Fuel Price (per litre)	Fuel Price (per gallon)	Pence Per mile	AFR
Up to 2000	54.3	48.8	121.9	554.3	11.4	11
Over 2000	39.4	35.4	121.9	554.3	15.6	16

  

LPG
Engine Size (cc)	Mean APG	Applied APG	Fuel Price (per litre)	Fuel Price (per gallon)	Pence Per mile	AFR
Up to 1400	39.4	35.5	65.4	297.3	8.4	8
1400-2000	33.0	29.7	65.4	297.3	10.0	10
Over 2000	23.0	20.7	65.4	297.3	14.3	14

 Notes:

• 1. Mean mpg - miles per gallon - from manufacturers information, weighted by annual sales to businesses (Fleet Audits, 2009).
• 2. Applied mpg - adjusted downwards by 10 per cent to take account of real driving conditions and lower fuel economy for older cars.
• 3. For LPG, mpg is assumed to be 20 per cent lower than for petrol due lower volumetric energy density.
• 4. Department for Business, Innovation & Skill's latest petrol and diesel prices (24 May 2010), LPG from AA website (May 2010).

 

 

 

 

Important PAYE Changes

HMRC is writing to all employers to remind them that, from this year, they must file thier Employer Annual Return (P35) online by the 19 May deadline - there is no longer a paper filing option for small employers with fewer than 50 staff.  So, if you file your return on paper, even if it's before 19 May, you could receive a penalty.

To file online, employers must register with HMRC's PAYE Online service - they can do this by visiting www.hmrc.gov.uk/paye and clicking 'Register for PAYE Online'.  Smaller employers can then use HMRC's own free software to file their employee data securely online, while larger employers can purchase a range of commercial software.  Alternatively, an intermediary can file on an employer's behalf.

Further help on employer filing is available from the HMRC website at www.hmrc.gov.uk/paye or from HMRC's Employer CD-ROM, which is being sent to all employers.  If you have any difficulties please contact us.

Also from May 2010, HMRC is introducing new penalties for late payment of PAYE - this includes Income Tax, National Insurance Contributions (NICs), student loan deductions and Construction Industry Scheme deductions.

Under these changes, employers may incur penalties if they don't make PAYE payments on time, and in full.  These penalties will be calculated as a percentage of the amount paid late, and, for in-year payments, the percentage charged increases as the number of late payments in the year increases.

Employers who think they may have difficulty paying should call HMRC's Business Payment Support Service, before the payment is die, on 0845 302 1435.  If they dom and HMTC agrees time to pay, it will not charge late payment penalties - provided the business keeps to the agreement.

VAT Online Services events - free help

HM Revenue & Customs (HMRC) plan to phase out the use of paper VAT Returns from 1 April 2010, when businesses with an annual turnover of £100,000 or more excluding VAT, and all newly registered VAT businesses, will be required to file their VAT Returns online and make payments electronically.  Paper returns will still be an option for the remaining VAT registered businesses, but this will be reviewed in the run up to 2012.

 

Day Subsistence Rates

HM Revenue & Customs (HMRC) has introduced an advisory system of benchmark scale rates which employers can use to make subsistence payments to employees who incur allowable business travel expenses free of tax and National Insurance contributions (NICs).  The new advisory system will be implemented from 6 April 2009.

The advisory system only covers benchmark scale rates for day subsistence payments.  If an employer wishes to pay subsistence to employees who have to stay overnight they can either reimburse the actual cost incurred by the employee or agree a tailored scale rate to cover meals and other expenses in a dispensation with HMRC.

The rates that can be used will be:

Breakfast rate (irregular early starters only) - a rate of up to £5.00 may be paid where a worker leaves home earlier than usual and before 6.00 am and incurs a cost on breakfast taken away from his home.  If the employee regularly leaves home before 6.00 am because of, for example, he works an early shift, he would not be entitled to use the breakfast benchmark scale rate.

One meal rate (Five hour rate) - A rate of up to £5.00 may be paid where the worker has been away from his home/normal place of work for a period of at least five hours and has incurred a cost on a meal.

Two meal rate (Ten hour rate) - a rate of up to £10.00 may be paid where the worker has been away from his home/normal place of work for a period of at least ten hours and has incurred a cost on a meal or meals.

Late evening meal rate (irregular late finishers only) - A rate of up to £15.00 may be paid where the employee has to work later than usual, finishes work after 8.00 pm having worked his normal day and has to buy a meal which he would usually have at home.

 If the employee is paid an allowance under the five or ten hour rule, the late meal allowance could still be paid if he finishes work after 8.00 pm and buys a meal that he would usually have at home.  However, if the employee regularly finishes work late because, for example, he normally works the afternoon or evening shift, he would not be entitled to use the late evening meal rate.

Benchmark scale rates must only be used where all the qualifying conditions are met. 

The qualifying conditions are: 

• the travel must be in the performance of an employee's duties or to a temporary place of work
• the employee should be absent from his normal place of work or home for a continuous period in excess of five hours or ten hours
• the employee should have incurred a cost on a meal (food and drink) after starting the journey 

Early starter and late finisher rates - The early starter and late finisher rates are for use in exceptional circumstances only and not intended for employees with regular early or late work patterns.

Tax and NICs free scale rate payments must be limited to three meal rates in one day (or 24 hour period).  A meal is defined as a combination of food and drink.

Where employees are required to start early or finish late on a regular basis, the over five hours or over ten hours rates could be paid provided all the other qualifying rules are satisfied.

The whole question of employee's expenses is fraught with difficulty and advice should be sought if you are in any doubt.

New Payment Arrangments for HMRC

You should be aware that if you are to pay income tax liability by CHAPS or BACS, then HMRC have new bank suppliers, the details are as follows:

Sort Code - 08-32-00

Account Number - 12000962

Account Name - HMRC FAS

Tax Changes following The 2009 Pre-Budget Report

Tax Changes following The 2009 Pre-Budget Report

Company Car Tax 

• From 6 April 2010 the current graduated table of company car tax bands will be extended down to a new 10 per cent band, and all CO2 emissions thresholds moved down by 5g/km. This will mean that the 10 per cent band will apply to company cars with CO2 emissions up to 99g/km. Qualifying Low Emissions Cars (QUALECs) will therefore no longer exist as a separate category.
• The appropriate percentage for electric cars for the purposes of company car tax will be reduced from 9% to 0% for 5 years from April 2010. This will reduce the employee car benefit charge to nil and remove the Class 1A NICs on employers.

 Cars and Vans Fuel Benefit Tax Changes 

• The figure used as the basis for calculating the benefit of private fuel received for a company car which is chargeable to tax and Class 1A NICs will be increased from £16,900 to £18,000 from 6 April 2010.
• The figure used as the basis for calculating the benefit of private fuel received for a company van which is chargeable to tax and Class 1A NICs is increased from £500 to £550 from 6 April 2010.
• As from 6 April 2010, the current flat rate for all vans of £3000 will be reduced to nil for electric vans with effect for a period of 5 years. This will reduce the employee van benefit charge to nil and remove the Class 1A NICs charge on employers.

 Pension Contributions

Tax relief will be restricted to taxpayers with incomes over £150,000 from April 2011.  A significant change here is that the £150,000 refers to all types of income and not just earnings income.  It also includes any employer contributions to the pension scheme.  There will be measures to stop people on very high earnings paying unusually large contributions to take advantage of the greater relief in advance of the change: if someone with earnings over £130,000 pays contributions that are greater than £20,000 and greater than the regular contributions paid in previous years between 22 April 2009 and 5 April 2011, there will be a supplementary tax charge which will have the effect of cutting the tax relief to 20%.

It is important to note that the definition of regular contributions is quarterly or less.  What that means therefore is taxpayers who pay annual contributions will be restricted in future to £20,000 contributions that will qualify for higher rate relief.

R&D Changes

The condition requiring that any intellectual property (IP) deriving from the R&D to which the expenditure is attributed be owned by the company making the claim will be abolished.  The change will have effect for an expenditure incurred by a SME company on R&D in an accounting period ending on or after 9 December 2009.

VAT Flat Rate Scheme Changes 1 Jan 2010

The flat rate scheme provides an optional simplified VAT arrangement for businesses with a turnover up to £150,000.  The percentages were re-calculated in December 2008 to reflect the temporary reduction in the standard rate of VAT.  The flat rate percentages have now been re-calculated to reflect the reversion of the standard rate of VAT to 17.5%.  The new rates will be implemented on 1 January 2010.

For more information visit http://vatreadyreckoner.hmrc.gov.uk

Other VAT Changes

From 1 April 2010, businesses with an annual turnover of £100,000 or more (not including VAT), and all businesses newly registering for VAT, irrespective of turnover, will have to file their VAT returns online and pay any VAT due electronically.

HM Revenue & Customs (HMRC) has updated their VAT Online service for customers.  Current users of the online service can continue using their existing login details but may notice some changes to the screen.

The improvements to the online services will make it easier for new users to register and enrol for the service, file VAT Returns online and set up an email reminder to let them know when a VAT Return is due.

Inheritance Tax - Rates and Threshold

The nil rate threshold rose on 6 April 2009 for gifts up to £325,000 and will at that after 6 April 2010.

Business Payment Support Service

HM Revenue & Customs now has a new support line open Monday to Friday 8.00am to 8.00pm and Saturday and Sunday 8.00am to 4.00pm.  The telephone number is 0845 302 1435.

If you have payments of tax and NIC that are due soon and you will have difficulty in paying you should call the above number.  You will need to have the following information to hand. 

• Your Tax reference number
• Details of the tax that has become due
• Details of your business income and expenditure

They will discuss with you arrangements for paying the tax due over a period of time.  In most cases you will have a decision in 10 minutes.

You should be aware that interest of 2.5% will still be payable on tax paid late but the 5% late payment surcharges will not apply if you contact the support line.

This new facility is only available where you have not already been contacted by HMRC regarding outstanding arrears.

In addition the arrangement has been extended to cover the situation where a business expects to make a loss in its current period which it will set off against profits of previous periods.  The expected current loss can be taken into account in agreeing the level of payments which will be required.

Increase in the Standard Rate of VAT

Most accounting software allows either changes to VAT rates or the setting of additional VAT codes to accommodate varying rates. In many cases both options are available. We have set out below the recommended action to implement these changes for the users of

• Sage Instant and Line 50
• Quickbooks
• Miscrosoft Axapta Online
• Flat Rate Scheme
• Excel spreadsheets provided by M&S Accountancy and Taxation

To access these guidelines click on the appropriate item above.

It is important to note that whatever software or other means you use to keep your books you will have to deal with two standard rates for a period.  From 4 January 2011 all your standard rated sales invoices must be charged at 20%. However you will still receive purchase invoices raised by your suppliers before that date which include VAT at 17.5%. If you do not account for these properly you will not reclaim the correct amount of input tax on these costs.

If you use other software, have any questions regarding these changes, or would like further assistance please get in touch with us by using the Contact page of this website.

Sage Instant/Line 50

Accounting for VAT within Sage software is handled by a series of T codes, only some of which are used. The default standard rate code is T1 and it is possible to change the percentage rate in the software configuration.  Because you will need to deal with the old and new standard rates for a period you will also need to activate one of the currently unused codes. These steps are explained below.

We recommend that you change code T1 to the new rate of 20%. Code T3 should then be set at 17.5%. Before you do this you must ensure that you have processed all your December 2010 sales invoices as the default tax code for all your customers is T1.  When you are ready to start your January 2011 invoicing, and have changed the T1 rate, any sales invoices generated will be charged at 20%. If you do not use Sage to generate your sales invoices but use a bespoke add-on then you will need to speak to the supplier of that piece of software to confirm the method of processing the changes proposed here.

We also recommend that you process all purchase ledger invoices before you change the T1 rate to 20%, as well as all bank receipts and payments up to 3 January 2011. However, if you need to generate sales invoices on 4 January this will not be possible. After changing the T1 code to 20% Sage will calculate the VAT on any purchase invoices at that rate. However you can override this by selecting code T3 when processing the invoice.

Method

Before you do the changes below it is recommended that you to enter all bank payments/ bank receipts and cash payments/ cash receipts up until 3 January 2011.

Open Sage - it will automatically open in the default window of customers - close this window so that you are still in Sage but have no modules open.

1. In the top menu, go to "settings" - choose the first option "configuration" - you will then see the following screen:-

 

 

Click on the Tax Codes tab if it does not automatically display.

2. Highlight T1 and click on the edit button - change the rate to 20%

3. Highlight T3 and again click on the edit button - change the rate to 17.5%

4. Click on the "apply " button at the bottom.

5. Go into your sales ledger module and open up the record window for any customer:

 

Click on the defaults tab if it does display and you will see that the default VAT rate is 20%. You can test that the change has taken effect in the purchase ledger by going to the defaults page for any supplier who has a T1 default code. Other suppliers (e.g. your electricity supplier) may have a different default tax code, but they will not be affected.

6. If you have a large number of December invoices to process after changing your VAT configuration you have two options to deal with them.

 a. When in the invoice window enter the net invoice amount. Sage will by default calculate VAT at 20%. You can override this in two ways. Firstly, you can use the pull down menu in the tax code field to choose T3 instead of T1. Sage will recalculate the VAT 17.5%. Alternatively, tab to the VAT figure and simply overwrite the amount to that shown on your suppliers invoice.

b. The alternative, which we recommend only in cases where there a large volume of November invoices to be processed, is to change the default tax code from T1 to T3 for all relevant suppliers. This will allow quicker processing of the batches of supplier invoices and avoid keying errors. Once you have entered all December  invoices you must then go back through each supplier record and change the default tax code back to T1 before you process your January invoices.

It is the responsibility of the issuer of an invoice to ensure that they charge the correct rate of VAT - so strictly, if you receive an invoice with what you perceive to be the wrong rate you are still entitled to claim the VAT as they have stated it. However where this is your major/regular suppliers we would suggest that, if you notice a consistent mistake, it will be quicker to flag it to them as they will undoubtedly have to correct these if they have made substantial errors re the timing change.

Quickbooks

QUICKBOOKS PRO

How to implement the changes necessary to handle the change in the Standard Rate of Value Added Tax.

In order to manage the temporary change in the standard rate of VAT, a new VAT Code must be implemented in Quickbooks.

To incorporate a new VAT code.

Access "VAT Code List" through the "VAT" section of the main screen menu.

 

This will open the VAT Code List. To create the new VAT code, select "New" from the "VAT Code" drop down box and a window will open to enable you to create the new code.

    

Call the new VAT Code RS.

Description:       Reduced Standard

Select the button "Taxable"

The Taxable Information will need to be created. To do this, select Purchases and Sales options in turn, and "Add New".

 

When the window opens, choose the type "VAT Item"

 The name will be:
"VAT on Purchases 20%

 The description will automatically fill in with the same info.

 Enter the VAT Rate "20.0%".

 Select the VAT Agency as being "HM Customs & Excise"

 Select the VAT Return Box "Domestic Purchases <Box4, Box7>, and then select "OK".

 Repeat this procedure for "VAT Item for Sales", entering the data as:-

The name will be:
"VAT on Sales 20%

 The description will automatically fill in with the same info.

Enter the VAT Rate "20.0%".

Select the VAT Agency as being "HM Customs & Excise"

Select the VAT Return Box "Domestic Sales <Box1, Box6>, and then select "OK".

 

In order to make the Reduced Standard rate the principal rate, access VAT preferences.

From the main menu select "Edit", "Preferences", "VAT", "Company Preferences"

You can then choose "RS" as the VAT Code you most often use for Taxable items.

Select "OK" and then you are ready to continue with the new VAT rate.

 

Excel spreadsheets provided by M&S Accountancy and Taxation

If you are using Excel spreadsheets you will need to record all your transactions up to 3 January 2011. Do not record any transactions prior to that date in this file.

When you are ready to record December transactions you must first change the standard VAT rate. In the MASTER file go to the Codes page and then cell I29. Enter 20 as the new rate. You should then use a copy of this file to record all your post 4 January 2011 transactions.

Please contact us if you require any assistance.

Company Secretarial

There have been changes to the rules for having company secretaries in limited companies. From 6th April 2008 private companies will have the option whether or not they have a company secretary. For further information visit www.companieshouse.gov.uk or contact us if you require further advice.

 

Flat Rate VAT Scheme

Remember that if your business turnover is less than £150,000 you could register for the flat rate scheme and simplify your VAT accounting.