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									   TAX
CONSULTING   TAX eNews from Albert Goodman - July/August 2010


             INTRODUCTION
             Welcome to our latest Tax eNews. In this issue, we consider the possible impact that the new
             PAYE late payment penalty regime may have on small employers and also look at the NIC Holiday
             proposed in the Coalition’s Emergency Budget.
             If you have any feedback on the contents of this e-Update, or would like to discuss how something
             may affect you, please click on the feedback link, or email Tracey Watts and she will be delighted
             to get in touch for an informal chat.


             Contents
             PAYE and Small Employers
             Protective Tax Credit Claims
             Cars Provided to Employees
             Saving Paper – Company Tax Returns
             End of Period of Grace
             Resign in Haste at Your Peril!
             VAT DIY Scheme and Holiday Homes
             First Time Buyers
             Residential Letting Agreement
             HMRC Enquiries – Repayment VAT Return
             Failure to Notify
             Safe Maintenance
             Energy Efficient Buildings
             Pay Freezes Affect the Public Sector…But Not the Private Sector
             The Sky’s The Limit
             Business Investment Increases at Fastest Pace Since 1987
             Scrap Extension of Rules on Working Time?
             New Guidance for Charities
             NIC Holiday

             Feedback
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PAYE AND EMPLOYERS
With the recent introduction of penalties for the late payment of PAYE, avoiding employed status for their workers could be
an attractive option for small employers who are feeling swamped by red tape. This could encourage more vigilant checks
by HMRC on self employed status and, at a general level, it is important for employers to be more careful, ensuring the self
employed status is genuine.
You should:
1. Review your self employed arrangements for temporary/seasonal and general staff.
2. Ensure all paperwork is in place for the self employed arrangement and this paperwork is robust in demonstrating self
employed status.
3. Review the physical arrangements between you and the worker in the Service Contract, for example, who gives the instructions.
4. Review who provides the equipment.
5. Ensure the self employed worker has adequate insurance in their self employed capacity.
For further details, please contact AG Tax Consulting.
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PROTECTIVE TAX CREDIT CLAIMS
In these uncertain economic times, it is worth remembering the value of protective tax credit claims.
Claims for tax credits can generally only be backdated by up to three months and it will be too late to make a claim at the end
of the tax year for the whole tax year even if income for the year turns out to be low enough to have qualified.
By making a protective claim, this will mean the claimant is “in the system”. It is possible to make this claim even if income is
too high when making it provided the claimant meets all the other necessary conditions to qualify for tax credits, for example,
meeting the working time requirements.
The protective claim produces a nil award of tax credits but this can be amended at a later date if the claimant’s income
reduces unexpectedly. For example, due to:
• Redundancy;
• One partner giving up work to have a baby;
• Self employed income may reduce significantly due to an unforeseen bad debt, losses or a sizeable capital allowance claim.
The amounts which could otherwise be lost could run into the £’000s, particularly where the family is paying for childcare.
Please contact AG Tax Consulting if you have any concerns about your income levels at all to consider whether a protective
claim is appropriate.
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CARS PROVIDED TO EMPLOYEES
When an employer provides a car to an employee for private use, form P46(Car) is submitted to HMRC to provide HMRC with
the relevant details to include on the employee’s coding notice.
From 6 April 2009, there has been no requirement to submit a P46(Car) when a car provided to an employee was replaced
by another car. Even if such a form is submitted, HMRC have confirmed that the change will not be processed and HMRC’s
IT will only adjust an employee’s code in respect of one change in the car benefit per year.
This unfortunately means that if you notify the withdrawal of one car and the replacement with another, the withdrawal of the
first car is counted as the one change and the replacement of the new car is therefore not then coded in.
This could end up with employees underpaying PAYE throughout the year with a large catch up payment being required in a later
year. The only way to get HMRC to process information on car changes will be for the employee to contact HMRC directly.
We recommend where an employee has a change of car in the year, that the employer notifies them they may be in for a nasty
tax surprise at the end of the year if they do not tell HMRC about the new car and we recommend for employers to provide
employees with the particulars about the old and new cars and how to contact HMRC.
HMRC have confirmed they will again process forms P46(Car) from 6 April 2011 properly but, in the meantime, your employees
could be in for an unexpected tax surprise.
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SAVING PAPER - COMPANY TAX RETURNS
As previously announced on our website, if you are filing a corporation tax return after 1 April 2011 for any accounting period
ending after 31 March 2010, the return must be filed online.
In preparation for the change from paper to online, HMRC will not be issuing any further blank paper return forms or guidance
notes with the ‘Notice to Deliver a Company Tax Return’ (Form CT603).
You will still be able to download and print the forms from the HMRC website but you will have to submit your return before 1
April 2011 if you want to use a paper return for any accounting period ended after 31 March 2010.
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END OF PERIOD OF GRACE
An HMRC concession, ESC B46, was introduced in 1995 and means that HMRC will not issue penalties for late filing of
company tax returns or employers’/contractors’ end-of-year returns, provided that they are received by the last working day
within seven days of the filing date.
The concession ensures that penalties will not be charged where all reasonable steps to file the returns on time have been taken.
However, all forms P35 and P14 must already be filed online by the majority of businesses and contractors are no longer
required to file end-of-year construction industry returns. In addition, from 1 April 2011 company tax returns for accounting
periods ending after 31 March 2010 must be filed online.
Therefore, ESC B46 has become redundant and so will come to an end on 31 March 2011. Any businesses filing a return late
will have to show that they had a reasonable excuse for the delay in filing to avoid a penalty.
Link: HMRC statement
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RESIGN IN HASTE AT YOUR PERIL!
Directors owning more than 5% of the share capital in a trading company, for at least one year, will normally qualify for
entrepreneurs’ relief. However, if he were to fall out with his fellow directors/shareholders and immediately resigned as a
director, walking out of the office and demanding his fellow shareholders pay him for his shares, he will not have been an
officer or employee of the company at the time he disposes of his shares.
In this situation, he will then not qualify for the entrepreneurs’ relief which could be worth up to £900,000 under current rules.
Our advice is that even if you do fall out with your fellow directors/shareholders, please retain your office before disposing of
your shares.
For further advice on business disposals, please contact AG Tax Consulting.
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VAT DIY SCHEME AND HOLIDAY HOMES
HMRC have confirmed that VAT refunds now apply to the construction of new holiday homes and to the conversion of non-
residential buildings into holiday homes under the DIY House Builders’ Scheme.
Claims for VAT incurred on building materials can be made for holiday homes that meet the necessary criteria and taxpayers
may now submit claims subject to the usual conditions.
Claims made in the past in relation to a holiday home which were refused in full, or in part, may be resubmitted.
All claims should be accompanied by planning permission applications, certificates of completion, building plans, all original
VAT invoices, bills and credit notes.
For further information, please contact Andy Branson.
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FIRST TIME BUYERS
First time buyers of residential property costing less than £250,000 between 25 March 2010 and 24 March 2012 may claim
relief from stamp duty land tax,
To claim the relief, the buyers should enter relief code 32 in the stamp duty land tax return.
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RESIDENTIAL LETTING AGREEMENTS
Letting agreements for residential property are known as Assured Shorthold Tenancies (ASTs) and, in order to be
legally binding, these agreements may only be granted for a maximum of three years, otherwise they need to be treated
as a deed.
ASTs cannot be granted to companies, charities or trusts, with these tenancies needing to be written as a contractual tenancy.
Any tenancies exceeding a rental of £25,000 per annum also needed to be written as a contractual tenancy although this
rental level will increase to £100,000 per annum from 1 October 2010.
Any contractual tenancies that fall below the £100,000 per annum will automatically become ASTs from October 2010, which
means that any deposits held by landlords will need to be held within a recognised deposit scheme.
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HMRC ENQUIRIES - REPAYMENT VAT RETURNS
Historically, VAT repayment claims have been checked by the HMRC computer against certain parameters. Depending on the
history of the business concerned, an individual return may have been selected by the computer for further query or simply
approved.
We understand that HMRC have now been making written enquiries into repayment VAT returns, taking the form of a standard
letter from the ‘Post Credibility Team’ and are sent to an affected business after a VAT return repayment has been made.
The typical request will ask the business to check the details on its VAT return, provide an explanation as to why a large
amount of VAT has been reclaimed and produce evidence to support the claim.
This is presumably an example of how HMRC are attempting to reduce its costs by reducing the number of actual visits.
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FAILURE TO NOTIFY
Taxpayers have a duty to notify HM Revenue & Customs when they become chargeable to any particular tax.
Penalties applying to the failure to notify HM Revenue & Customs will change with effect from 1 April 2010 for most taxes.
The penalty will now be a percentage of the tax unpaid at a specified date, or to which the person is liable for the relevant
period, with the percentage being determined by the taxpayer’s behaviour that led to the failure to notify and the behaviour
after the failure has been established.
In order to encourage people to join the tax system, HM Revenue & Customs have confirmed that if the failure is notified within
12 months of the tax becoming unpaid, the penalty may be reduced.
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SAFE MAINTENANCE
A new European initiative has been launched which highlights the risks during maintenance and repair work and how to avoid them.
It is estimated that between 25% and 30% of all manufacturing industry deaths in Britain result from maintenance activity, with
common causes of fatalities and major injuries including falls from height and failure to properly isolate machinery so that it
restarts while being worked on.
The British campaign includes a ‘one stop shop’ safe maintenance section of the HSE website, which features a checklist to
assess how good current maintenance practices are and pointers on how to improve.
HSE Chair, Judith Hackitt, said:
‘Maintenance work is often seen simply as a disruption to normal service, but it is fundamental to the integrity of every system
and to the health and safety of workers and the public.
All organisations, irrespective of their size and purpose, need to take the opportunity to look at how they plan and manage
maintenance to see if improvements could be made. With planning and the right skills it can be done efficiently and will lead
to increased production and better service delivery.’
Links: HSE guidance HSE release
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ENERGY EFFICIENT BUILDINGS
The European Union has published a new energy efficiency Directive for buildings, which sets out rules for the energy
performance of both new and existing buildings. This is considered to be an important target area in achieving the EU climate
and energy objectives.
The new Directive will require Member States to update their building codes so that all new buildings, by the end of 2020,
meet high energy-saving standards. Existing buildings will have to be upgraded where possible.
Where technically and economically feasible, the energy performance of existing buildings will have to be improved during
major renovations and regular inspections of boilers and air conditioning systems will also be required.
Link: EU Directive
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PAY FREEZES AFFECT THE PUBLIC SECTOR… BUT NOT
THE PRIVATE SECTOR
The latest research on pay settlements from Income Data Services (IDS) has found that pay freezes have dropped to the lowest
level since January 2009 but that, in the public sector, 35% of pay awards with effective dates in April resulted in pay freezes.
The typical pay awards in the private sector rose to 2% in the three months to the end of April 2010, up from 1.9% in the three
months to March.
Ken Mulkearn, editor of IDS Pay Report, said:
‘Our latest figures present strong evidence that pay freezes – one of the key features of the recession – are now fading, in the
private sector at least, as the economy stabilises.
However, the picture in the public sector is very different, with the number of freezes rising. The number of employees affected
by freezes is likely to rise as well, since the public sector bargaining groups are relatively large.’
Link: IDS press release
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THE SKY’S THE LIMIT
Cloud computing allows businesses a way of managing data, hardware and software requirements by using internet-based
resources. Documents, emails, customer information, business applications and other assets can be stored online and this
makes them accessible from any computer or mobile device with an internet connection and web browser.
Cloud computing can help businesses become more efficient and this new guide from Business Link explains how cloud
computing works, how to decide if it is right for your business and what you need to consider when implementing it.
This guide also looks at some of the risks involved with cloud computing including data protection, business continuity and
issues around service provision.
If you would like any further guidance, please contact Joe Tilley in our IT Department.
Link: Business Link
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BUSINESS INVESTMENT INCREASES AT FASTEST PACE
SINCE 1987
Investment by UK businesses rose at the fastest rate since 1987 in the first quarter of 2010, according to the Office for
National Statistics.
Business investment rose by 7.8% compared to the previous quarter but business investment is still 7.7% lower than the
same period in 2009.
In addition, the UK financial services sector grew at the fastest rate since September 2007 during the second quarter of 2010,
according to the Confederation of British Industry. However, the growth was much lower than expected and firms still feel that
business levels are well below normal.
Links: ONS release CBI release
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SCRAP EXTENSION OF RULES ON WORKING TIME?
In June, the European Parliament voted in favour of including self-employed lorry drivers within the 2002 Directive on the
organisation of the working time of lorry and bus drivers.
Previously, self-employed drivers could spend up to 56 hours/week driving as long as they drove no more than 90 hours over
a two-week period. This change means that drivers will be limited to working a total of 48 hours/week including maintenance,
loading and administrative work.
The Federation of Small Businesses (FSB), supported by business leaders and MEPs, has called on the European Commission
to stand by its proposal not to include self-employed lorry drivers within the working time regulations.
Link: FSB release
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NEW GUIDANCE FOR CHARITIES
Earlier this year a series of changes were made to the tax rules for charities and Community Amateur Sports Clubs (CASCs).
Broadly, the rules are intended to offer UK tax reliefs to EU charities and also allow donations to EU charities to qualify under
the Gift Aid scheme.
However, one of the knock-on effects of these changes was to alter the rules about who is allowed to manage the charity. For
tax purposes, those involved in managing the charity must be ‘fit and proper’.
HMRC have issued guidance on this test for managers, which is important to read if you are involved in running a charity or a
CASC. If you would like further help or advice, please get in touch with Paul Hake.
Link: HMRC guidance
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NIC HOLIDAY
The Coalition government intends to introduce a scheme to help new businesses in targeted areas of the UK by allowing a
reduction in employers’ national insurance (NIC).
For a business commencing within a three-year qualifying period, the employer will not have to pay the first £5,000 of Class
1 employers’ NIC due in the first 12 months of employment. This will apply to each of the first ten employees hired in the first
year of the business.
The scheme is intended to start no later than September 2010. Any new business set up from 22 June 2010 which meets the
criteria set out will also benefit from the scheme.
The counties and regions which will benefit will be Scotland, Wales, Northern Ireland, the North East, Yorkshire and the
Humber, the North West, the East Midlands, the West Midlands and the South West.
Further details are to be released soon.
Link: HMRC FAQs
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                         Tracey Watts
                         Tracey is one of three tax partners at Albert Goodman, helping to manage a large team of tax compliance
                         and consulting advisors.
                         Tracey specialises in corporate tax matters, in particular advising on business reorganisations and
                         transactions and in maximising claims such as capital allowances and research and development.
                         A strong practical accounting background also means that Tracey heads up the partnership’s Tax
                         Investigations group and she relishes the challenges being presented by the Revenue under their
                         newly extended powers.



                                  www.albertgoodman.co.uk
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