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					Philip Smith & Co.   ( Newsletter – February 2003 )

                                      NEWSLETTER - February 2003

It is some time since I sent out a newsletter and this seems an
opportune time to start this form of communication again given the
ever increasing volume of new legislation.

As many of you know I have taken on the practice of Stephanie
Fancett who died so tragically on 8th June 2001. After much delay
and false starts we have moved the Islington office to
Hammersmith, where we can service London based clients and also
draw on the resources of the Chertsey and Staines offices.

John, Alastair and Christina will be at the Hammersmith office while
Julie, Sue, Jane and Linda continue at the Chertsey office. Maurice
Brooks and Maurice Johnson at the Staines office specialise in
auditing and management consultancy of larger companies, while
Brian Murgatroyd continues with special tax work and investigations
as and when they come up.

The Budget last April produced some surprises which opened the
way for significant tax planning opportunities. The Finance Bill
received Royal Assent on 24th July so that Bill is now law and from
5th April 2002 a company which has not actually paid any
corporation tax because its profits are less than £10,000 will still be
able to pay a dividend to its shareholders with the benefit of the
10% non-reepayable tax credit. If a client is not a higher rate tax
payer there is no further tax to pay.

Many of you may have contemplated trading as a limited company
in the past to obtain the commercial advantages of Incorporation
but were not sure of the overall implications. These advantages may
well be compelling. However it may not be wise to rush out and
incorporate on the basis one year's tax savings alone, especially as
this Government has a habit of setting out the rules some time after
the legislation has been passed. The incentives for traders who
incorporate are very substantial and there is a suspicion that their
immplications may not have been fully realised by the Chancellor
who could be forced into a "U" turn after the next election.

The increase in the NIC charge from next April on salaries staff
accentuates the need to extract profits from a company via
dividents. In some cases where you have several income streams it
is sometimes possible to have the best of both worlds by retaining
Schedule D status and putting new income streams through a
limited company. Sadly National Insurance contribution have now
become horribly complicated.

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Philip Smith & Co.   ( Newsletter – February 2003 )

Goodwill has, in the past been regarded as a capital cost with no tax
relief associated with it. That has now changed for limited
companies which can now claim tax relief on the amount of
depreciation of this asset which is charged in the accounts each
year in line with the accounting policy adopted by the company set
out in the notes to its accounts. This enhances the benefit granted
since 23rd April 2002 of no stamp duty on transfers of Goodwill.

These of you who are already Incorporated and have company cars
will be hit hard with the new basis for taxing the benefit of free fuel
for private monitoring.
A driver of an average car would need to cover almost 30.000 miles
annually for the benefit assessed to equate to the cost of the fuel.

Additionally for those of you operating as limited companies, the
filing date of accounts with Companies House which is currently 10
months after the company's year end, is likely to be shortened to 7
months under a new Companies Act due in 2004. We are gearing up
our resources and systems to provide a quicker turnaround for your
accounts. However this can only be achieved with your help in
getting records to us sooner than later. This has the added benefit
of more effective business and tax planning as final results ar
known earlier in the business cycle, modifications made and more
effective decisions taken.

Owing to the increased complexity of our tax system, especially
under this Government which is trying to provide incentives by
opening up tax saving opportunities for businesses while at the
same time trying to take more Tax and National Insurance off us
supplements highlighting certain aspects of the tax system needed
to develop long term tax planning.

I wish you all a prosperous New Year

Yours sincerely,

Philip Smith

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