TalkingTax. Potential tax savings of 900,000. Entrepreneurs Relief - an update. Contents: The Hazlewoods Tax Newsletter

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1 TalkingTax The Hazlewoods Tax Newsletter Welcome to Talking Tax, the newsletter from the Hazlewoods tax team. For many of you it may be welcome news to hear that there is to be no Pre-Budget Report (PBR) this year. However it s not all good news because instead there is likely to be the reintroduction of the Autumn Statement (effectively a slimmed down version of the PBR). We do not have a date for the proposed Autumn Statement yet but we are expecting it to be either the end of November or early December. As with the recent Budgets follow our coverage on our website Two of the key changes in the Emergency Budget were the increase in the Entrepreneurs Relief (ER) lifetime limit and the increase in the capital gains tax rate. The article below summarises the changes and highlights planning opportunities to help ensure you qualify for ER. Can we take this opportunity to remind you to watch out for suspicious s and telephone calls. If you are due a repayment, HM Revenue & Customs (HMRC) will write to you. If anyone claiming to be from HMRC s or telephones you suggesting you are due a repayment, do not give them any personal detail. Instead forward details to phishing@hmrc.gsi.gov.uk. Contents: Entrepreneurs Relief - an update What do tax efficient benefits mean for you? How much tax can you save? Simple VAT errors can cost the unwary thousands of pounds Stamp Duty Land Tax - recent changes Tax Investigations Service 8 Oct 2010 Potential tax savings of 900,000 Entrepreneurs Relief - an update Key Tax Dates With recent changes it is important to understand the key points of this relief A brief history Entrepreneurs Relief (ER) was introduced in April 2008 and applies to "qualifying business disposals" made by individuals. The relief reduces the effective rate of Capital Gains Tax (CGT) to 10%. When introduced, the relief was subject to a lifetime limit of 1 million of qualifying gains, and the maximum rate of CGT was 18%. However, the lifetime limit is now 5 million, and the maximum rate of CGT is 28%. Therefore, the potential tax benefit for an individual has increased from 80,000 to 900,000. Qualifying business disposals Subject to certain conditions, the following disposals qualify for ER: a disposal of the whole or part of a business that the individual has owned for at least a year; and a disposal of the shares of a trading company, where the vendor has held at least 5% of the ordinary share capital and voting rights, and been an officer or employee of the company for at least a year up to the date of the disposal. Associated disposals The relief is also available in respect of assets owned by an individual and used in a qualifying business, which are sold as part of their withdrawal from participation in the business (known as an associated disposal). For example, assuming certain conditions are met, an individual can dispose of qualifying shares in a company, and at the same time sell a property they owned personally that was used by the company. Continued overleaf

2 Plan early The recent increase in both the top rate of CGT and the ER limit has made the relief extremely valuable. However, the relief can be easily lost if disposals are not planned. For example, a sale of a business after a period of ownership of only 364 days would not qualify for any relief at all. If you are contemplating a future sale you should speak to us at least 12 months before the planned disposal date. We can then do everything possible to ensure that the planned disposal will qualify for ER. Examples The following illustrate examples of where ER will not be available, or will be restricted, and possible planning opportunities to maximise the relief. Consider a shareholding of more than 5% held in a family company by an individual. If the individual is no longer an officer or employee of the company, any disposal will not qualify for relief. This is irrespective of how long the shares have been held. If a sale of the company is planned, the individual should become an officer of the company at least a year before the disposal. If a qualifying company is owned equally by a husband and wife, but only the husband meets the necessary qualifying conditions, any disposal by the wife will not qualify for ER. A transfer of the shares held by the wife to the husband before a sale of the company will mean that all of the shares will qualify for ER. Where it is intended to claim ER in respect of a property as an associated disposal, the property should not be sold before the business disposal it is associated with. The reason is this will mean that the property would not have been used in the relevant business for the required qualifying period of one year to the date of the business disposal. Structure the disposals so the property is sold at the same time as the business (or shortly afterwards). Where rent has been paid in respect of a property used in a business since April 2008 ER will be restricted in respect of an associated disposal, and may not be available at all. It may be possible to "wash out" any relief restriction by transferring the relevant asset to a qualifying spouse at least one year before a planned disposal, with no rent being paid after transfer. For more information please contact Peter Griffiths on or peter.griffiths@hazlewoods.co.uk What do tax efficient benefits mean for you? For both employees and employers it can mean cash savings! There are many ways for employers to provide tax efficient benefits to their employees without breaking the bank. A selection of tax efficient benefits Low emission cars - From 6 April 2010 there are no chargeable benefits in kind on company cars and vans which produce no CO2 emissions. There are also much reduced benefits on cars and vans with emissions of 75g/km or less. In addition to little or no benefit in kind on employees you could also use the vehicle for advertising. Why not include the company s contact details on the vehicle? Such cars also generate a 100% capital allowance claim for the employer thereby reducing their tax liability. Life assurance - The cost of life assurance is a specifically exempt benefit by legislation and therefore free from income tax and national insurance contributions. Again the employer receives a full and immediate tax reduction. Buying and selling annual holiday allowance - Many employers give their employees the option to buy or sell a number of days holiday per year. This is a very popular scheme, as it allows employees to have some flexibility with regard to managing their holiday requirements. It may also remove or at least reduce any issues concerning the carry over of holidays from one year to another. This type of scheme can also be set up as a salary sacrifice arrangement, removing employer and employee national insurance contribution costs, and income tax for the employee. Car parking spaces - There is no taxable benefit if the employer provides a car, motor cycle or bicycle parking space. It also covers situations where the employer reimburses the employee or pays directly for parking charges. Be careful with documentation though, as if you get this wrong an income tax and national insurance charge can easily arise. Mobile phones - An employer can provide an employee with the use of a mobile phone without any benefit arising, including situations where the employer pays the cost of private calls. There may, however, be tax implications if the mobile phone is owned by the employee and costs reimbursed to them. Staff health checks - HM Revenue & Customs (HMRC) accept that no taxable benefit arises if the employer provides health checks or medical screening for staff. Charitable giving - As an employer if you participate in the Give as you earn scheme, you can deduct donations from employees gross salary for forwarding on to their nominated charities and employees will receive tax relief in full on their donations. Bikes for work - There is no taxable benefit if an employer lends a bicycle to an employee, and at least 50% of the bicycle s use is for commuting to and, if relevant, between, work places. Again, the provision of a bicycle can be made under a salary sacrifice arrangement so employees do not pay income tax or national insurance and employers do not pay national insurance. Home working - Many employees nowadays carry out work at home. Where an employee works regularly at home under an agreed flexible working arrangement, an employer may now pay 3 per week ( 156 per year) without supporting evidence. The employer can pay more but evidence is required to show that the costs are wholly in respect of additional household expenses incurred by the employee in carrying out the duties at home. Childcare - There will be no income tax or national insurance contributions payable on childcare vouchers provided to employees with a value up to 55 per week (or 243 per month) nor will there be any benefits if an employer provides workplace nursery care for such children (subject to some qualifying conditions). Providing childcare vouchers through salary sacrifice arrangements, can save employees up to 1,196 per year and save the employer money too. Pension payments - Again, using salary sacrifice arrangements to pay pension contributions can save both the employer and employee national insurance. Also rather than an employee sacrificing some of their annual salary additional one-off contributions could be used as a substitute for an employee s bonus. The provision of an Additional Voluntary Contribution (AVC) facility alongside an employer scheme will give the employee the option to

3 make one-off contributions, when they have surplus funds available, generating the employee an income tax rebate. Take care Several of these benefits must be made available to all staff for them to be tax efficient, whereas others can be restricted to designated staff. In offering benefits as part of a salary sacrifice scheme, care is needed to ensure that the employees make a legally effective salary reduction, otherwise the potential tax savings can be lost. This requires a change to their contracts of employment and you must take advice on the employment law issues. Being competitive Employers generally want to at least keep up with their competitors, to attract and retain staff. Tax efficient benefits may be a way of delivering greater value to employees without increasing costs. Other forms of remuneration In addition to traditional 'annual' pay and bonus packages, long term reward structures for some or the entire workforce can bring increased benefits to employers. It may be possible to structure the awards paid out under incentive plans so that they are taxed at the lower capital gains tax rate of 18% or 28%, giving the employees more money in their pocket. In addition, employers gain the benefit of motivating their workforce and some share and/or option schemes also benefit from no requirement to pay employers' national insurance on awards. There are a wide range of long term incentive plans, some of which may 'pay' for themselves in terms of overall tax and national insurance savings. For more information about tax efficient remuneration packages please get in touch with Adrian Randle on or adrian.randle@hazlewoods.co.uk Simple VAT errors can cost the unwary thousands of pounds How much tax can you save? If your business makes even a simple VAT error HM Revenue & Customs (HMRC) are likely to charge a 30% penalty. Read this to find out how to ensure this doesn t happen to you. What to do when you find an error If your business finds that it has made errors on previous VAT returns, those errors can be adjusted via the current VAT return. This is provided the value of the errors does not exceed the greater of: 10,000 or 1% of the value of Box 6 (sales net of VAT) on the current VAT return, subject to an upper limit of 50,000. Any error in excess of these limits will need to be disclosed separately, typically using the VAT 652 Voluntary Disclosure form. How the penalty regime works Under the previous penalty regime, correction via the VAT return would have constituted disclosure and there would have been no penalty or interest assessment. Under the new regime, any error committed (even if subsequently corrected) gives rise to a potential penalty, unless regarded as noncareless. Other errors are categorised as either careless (failure to take reasonable care), deliberate but not concealed and deliberate and concealed. In the absence of further evidence, HMRC are likely to try to treat the majority of errors as careless, for which the basic penalty is 30% of the potential lost revenue,. However the penalty can be mitigated where the business makes either an unprompted or a prompted disclosure. How to make an unprompted disclosure An unprompted disclosure could reduce the penalty to Nil. To do this the business must write to HMRC to tell them about the error, in addition to correcting the error through the VAT return (where appropriate). The VAT 652 form can be used for the purpose of writing to HMRC to tell them about the error, as it now contains an extra box where the business indicates whether or not the error has been adjusted through the VAT return. For more information about VAT errors and disclosures speak to Adam Lloyd or Julian Millinchamp on In the last few months we have helped many of our clients potentially save significant amounts of tax and national insurance. We do this by offering bespoke planning advice on all areas of tax. Examples of the potential savings achieved Stamp Duty Land Tax (SDLT) A client purchased a residential property for 775,000 and saved 20,000 SDLT. A client purchased a commercial property for 1.6 million and saved 40,000 SDLT. Employer Financed Retirement Benefit Scheme (EFRBS) During August three businesses made investments into EFRBS totaling 1.6 million. They stand to make total savings, after costs, of 325,000. Business structure changes A partnership employing several people earning 50,000 each was able to save national insurance of 7,000 per employee. Reorganising a partnership into a combination of two limited liability partnerships and a limited company could save the owners tax of approximately 100,000 per year for at least the next three years. The planning advice we give is fully supported by legislation and if necessary Counsel s Opinion. To ensure you re not unnecessarily paying off the UK s national debt then you need to speak to us about current planning ideas.

4 Appointment to HLB International Hazlewoods has joined HLB International (HLBI), a fast-growing, dynamic network of independent professional accounting firms and business advisers. HLBI was formed in 1969 and ranks in the top 12 international accounting networks, servicing clients through its member firms in over 100 countries. We had previously been a member of MRI and more recently Praxity. As we are becoming increasingly involved with international business, we believe HLBI offers us greater opportunity to develop our offering. This will result in both improved service to existing clients with international reach, and the ability to more quickly increase the amount of international work that we do. We deal with all aspects of international tax work including: Expatriate tax planning Transfer pricing The setting up of international operations If you would like more information about our international tax services speak to Ruth Dooley on or ruth.dooley@hazlewoods.co.uk Stamp Duty Land Tax - recent changes There have been some changes to the Stamp Duty Land Tax (SDLT) regime over the past few months, and it is worth highlighting a few of them. Good news for first time buyers One of the last acts of the Labour Government was to announce, in the March Budget, that first time buyers of residential property would be exempt from paying SDLT on properties up to a value of 250,000, for a two year period. Many in the property industry have been calling out for this kind of measure for some time and it should provide some much needed assistance for those seeking to get a foot on the housing ladder. Not for all The exemption is restricted by the definition of first time buyer. So where a couple are buying a house for the first time together, but one of them is a previous homeowner, this exemption is not available. There are also issues for people buying through the shared ownership scheme, where an election may be required. Further issues to be aware of include that any property previously acquired outside the UK stops you from being a first time buyer. Although you are not precluded from qualifying if any previous acquisition is of a leasehold interest of less than 21 years. It remains to be seen whether all possibilities have been covered, although it is unlikely! Increased SDLT for 1 million properties The above giveaway is going to be paid for through an increase in the SDLT rate for properties over 1 million, from 4% to 5%. This was, again, announced by the previous Government, but there are no signs within the current coalition that it is to be renounced. The new 5% rate is to be brought in on 6 April 2011, so there may be a significant number of high value properties completing shortly before then. The slight concern is that, whilst the first time buyer exemption has been restricted to a two year period, no such restricted period applies for the new 5% rate, so it may be here for some time. The new 5% rate will surely drive more people to look at ways of planning around SDLT. Possibly with this in mind, the Emergency Budget announced that the Government are going to consider whether a tightening of the rules regarding avoidance of SDLT is necessary. This announcement gives people a window of opportunity, before any such tightening is brought in. There are ways and means of planning around SDLT for any properties over 500,000, but it is important to talk to us early in the buying process, to ensure no last minute hiccups. For more information about SDLT planning, please contact Nick Haines on or nick.haines@hazlewoods.co.uk. Tax Investigations Service With the Government looking to reduce the massive national debt it is likely that even more pressure will be put on H M Revenue & Customs (HMRC) to bring in additional money to the Exchequer. Combine this with the additional powers of inspection given to HMRC in 2009 and it is likely to mean that tax enquiries will become more complex and expensive than ever. Our Tax Investigations Service enables you to claim the cost of our fees should you suffer an HMRC enquiry or other type of investigation. We strongly recommend you subscribe to the service, as tax enquiries can cost many thousands of pounds and take several years to settle. If you are already covered by the service or are going to apply, make sure you do so by Monday 25 October 2010, ready for the 1 November 2010 renewal. If you would like more details or an application form please contact Margaret Wilkinson on or margaret.wilkinson@hazlewoods.co.uk. Last chance to win a trip to Dublin To be in with a chance to win a trip to Dublin ensure your tax return information and postcard entry are with us by 31 October Feeling lucky?

5 New Director appointed to tax team We are delighted to announce the appointment of Adam Lloyd to the new position of VAT Director. Adam has over 20 years experience in VAT, including 12 years with KPMG. He has also worked for HM Revenue & Customs and in house for major banks such as Deutsche Bank and LloydsTSB. Having worked in both industry and practice, Adam aims to use his experience to help Hazlewoods clients. He will do this by bringing tailored, practical and cost effective solutions to all VAT issues. Adam and Julian Millinchamp, Senior VAT Manager, will be working together to grow our VAT offering. With the aim of being the leading VAT practice in the region. Adam can be contacted on or Growing tax team Our tax team is continuing to grow, and following Adam s appointment we now have 42 dedicated tax professionals. We have experience, knowledge and understanding of all areas of taxation and our team appreciates the needs of both business and personal clients. If you would like to know more about how our team can help you and your business please contact your usual Hazlewoods tax contact Jon Cartwright on or jon.cartwright@hazlewoods.co.uk "I am thrilled to have become VAT Director at Hazlewoods. I am looking forward to working with Julian and the wider tax team to further develop the VAT practice of this highly respected firm". Adam Lloyd VAT Director Employees cars - buy or lease? Do you provide your staff with cars? If you do, are you aware of the recent changes to the tax rules which mean you should reconsider whether to buy or lease the cars? Here is a summary of the rule changes you need to know. Throughout the article we refer to companies however the rules apply equally to unincorporated businesses that provide cars to their employees. Buy To encourage companies to purchase environmentally friendly cars, a company can claim 100% of the cost of such cars as a deduction against their taxable profits in the year the car is purchased. Cars with fuel emissions of less than 110g/km are entitled to this enhanced relief, so long as they are bought brand new. Recent changes to the tax relief available on the purchase of cars with higher fuel emissions have significantly increased the benefits of purchasing environmentally friendly cars. Under the old capital allowance rules, each car acquired by a company costing more than 12,000 would be allocated to something called a a single asset pool. The car would receive a writing down allowance of 25% (20% between April 2008 and April 2009), capped at 3,000 per year. As the car was in a single asset pool, when it was sold the company would normally receive a balancing allowance (being the difference between and the tax written down value remaining in the single asset pool the sale price of the car). From April 2009 the tax rules have changed, so that cars are allocated to one of the plant and machinery general pools rather than a single asset pool. This means that the company will not receive a balancing allowance when the car is disposed of. Instead the tax relief is obtained over an extended period of time. Furthermore, the tax relief obtained may be lower than under the old rules as the rate of tax relief is determined by the car s CO2 emissions, as shown in the following table: CO2 Emissions 110g/km to 160g/km Over 160g/km Capital allowance available 20% writing down allowance 10% writing down allowance Thus, the amendments to the rules have the potential to significantly reduce the tax relief available to a company on the purchase of a car. Lease Due to the reduction in the capital allowance benefits available on cars, companies may wish to consider leasing cars instead. If a company leases a car with fuel emissions less than 160g/km all of the rental payments will be allowable for corporation tax purposes. Cars with CO2 emissions over 160g/km will be subject to a flat rate tax relief disallowance of 15% of the rental payments. For more information about providing cars for your employees, please speak to David Clift on or david.clift@hazlewoods.co.uk

6 1st 7th 14th 14th 19th 19th 21st 22nd Key Tax Dates Deadlines coming up October th Corporation tax liability due for accounting periods ended nine months previous (apart from companies subject to the quarterly instalment payment regime). Due date for VAT return and payment for the month/quarter ended last day of previous month, where paying electronically. Due date for quarterly instalment payments for large companies with a year ended 15,12, 9 and 6 months before the end of the previous month. Submission deadline for EC sales list (ESL) for the month/quarter ended last day of previous month, where submitting paper version. Due date for payment of PAYE/NIC/CIS deductions and student loan deductions for the month ended on the 5th of this month, where paying by cheque. Submission deadline for CIS300 (CIS monthly return) for the month ended on the 5th (nil payments must also be advised to HMRC). Statement of deductions must also be given to each subcontractor. Submission deadline for EC sales list (ESL) for the month/quarter ended last day of previous month, where submitting online. Due date for payment of PAYE/NIC/CIS deductions and student loan deductions for the month ended on the 5th of this month, where paying electronically. Filing deadline for corporation tax return, computation and accounts for accounting periods ended exactly a year previous. Filing deadline for VAT return and payment due for month/quarter ended at the end of the previous month, where paying by cheque. Intrastat declaration return due for month ended at the end of the previous Month. Annual VAT partial exemption adjustment under the standard method of calculation should be made in the first VAT return following the tax year end. But by choice can be brought forward to the last VAT return of the tax year. Final date to inform HMRC if tax is chargeable on income or gains for 2009/10 that have not been taxed at source and no Self Assessment income tax return has been issued. 14th Due date for income tax for the CT61 (income tax on loans) quarter to 30 September th Payment of tax and class 1B NIC due on benefits in kind included in PAYE Settlement Agreements (PSA) for the year ended 5 April 2010 (deadline extended to 22 October if you pay electronically). Final date to manually submit your paper return if you wish to pay tax underpaid via your tax code. Only tax liabilities of 2,000 or less can be collected this way. Final deadline for submitting your return if you do not wish to calculate your own tax and want to guarantee that HMRC notify you of your liability in time to pay on 31 January next year. Last date to send us your 2009/10 tax return information for a chance to win a weekend to Dublin. November st Our HMRC enquiry insurance renewal deadline. December th Submission deadline for on-line Self Assessment income tax returns where underpaid tax is less than 2,000 and is to be collected through a tax code. January th VAT standard rate increases to 20%. 14th Due date for income tax for the CT61 (income tax on loans) quarter to 31 December Filing deadline for 2009/10 on-line Self Assessment income tax returns. Due date for payment of balancing payment of income tax and class 4 NIC and capital gains tax due for 2009/10. Due date for payment of first Self Assessment payment on account for 2010/11. Gloucester Office: Windsor House Barnett Way, Barnwood, Gloucester, GL4 3RT Tel: Fax: Hazlewoods Tax Team Cheltenham Office: Windsor House Bayshill Road, Cheltenham, GL50 3AT Tel: Fax: Staverton Office: Staverton Court Staverton, Cheltenham, GL51 0UX Tel: Fax: This newsletter has been prepared as a guide to topics of current financial and business interest. We strongly recommend you take professional advice before making decisions on matters discussed here. No responsibility for any loss to any person acting as a result of this material can be accepted by us. Hazlewoods is a member of International. Hazlewoods LLP is a Limited Liability Partnership registered in England with number OC Registered Office: Staverton Court, Staverton, Cheltenham, Glos. GL51 0UX A list of LLP partners is available from each office. Registered as auditors by the Institute of Chartered Accountants in England & Wales. Hazlewoods LLP is authorised and regulated by the Financial Services Authority.