Windover House St Ann Street Salisbury Wiltshire SP1 2DR Tel: 01722 420920 Fax: 01722 411375 e-mail: firstname.lastname@example.org web: www.fawcetts.co.uk TREVOR AUSTRENG CTA RICHARD ALLEN SIMON ELLINGHAM NICK JONES Registered to carry on audit work and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales Professional Accountancy MattersBusiness UpdateClient focus SPRING 2012Voltronik is a small web designcompany specialising in Web Design,Content Management Systems, BrandDevelopment, Email Newsletters and PAYE painMobile. In April 2010 HMRC introduced new style penalties for the late payment of PAYE, certain National InsuranceThey are a modern and forward thinkingcompany who love working with small Contributions and Construction Industry Schemebusinesses and start-ups; helping them payments. The liability to a penalty is basedgrow online by offering relevant services on a totting up procedure depending on thealong with pro-active advice. number of defaults during a tax year.The owner and creative behind thebusiness is Jack McConnell - a talented A penalty is not levied for the first default and thenweb designer with a reputation for rises as follows:being friendly and fun to work with. “Ihave a genuine interest in helping small • up to three defaults - 1% of the total amount ofbusinesses grow. There’s so much those defaultspotential for enhancement online and a • four to six defaults - 2% of the totalwebsite is at the heart of everything. It’s and that the PAYE was paid as soon as possible aftera marketing, recruitment, collaboration, • seven to nine defaults - 3% of the total and the excuse ended. The rules specifically exclude cashsupport tool and more”, he said. • ten or more defaults - 4% of the total. flow difficulties as a reasonable excuse unless attributable to events outside of the taxpayer’s control.Fawcetts met Jack at Salisbury If any tax is unpaid six months after the penalty date, Recent cases have held that:Business Expo in 2011 where we then a penalty of 5% is levied and a further 5% can bewere demonstrating Xero: a cloud- levied after 12 months. • the lack of warning from HMRC of the build up ofbased accounting software that we the penalty was not a reasonable excuserecommend. HMRC may send a warning letter if a business does not pay on time for the first time in a tax year – then • the failure of nine specific clients leading to cashOf Xero and Fawcetts, Jack said, “They again, they may not! flow difficulties was a reasonable excuse, as theintroduced me to the magic of Xero business was doing all that it could to collect in itsand I am so pleased they did. Fawcetts Unfortunately, the penalty system is not automated debts and to renegotiate its facilities with itstook the hassle out of managing my and HMRC did not review the position until after the bankersbusiness finances and have been a end of 2010/11. As a result it could be 18 months or more down the line before penalties are imposed in • a change in payment terms by the company’s onlyconstant source of help and advice some instances. customer which caused the company severe cashsince then.” flow difficulties and which took a significant periodYou can see a portfolio of Voltronik’s A number of cases have now appeared through the of time to resolve was a reasonable excuse.work and their (rather clever) responsive Tribunal system and it is clear that HMRC are taking a The message is clear. If there is any problem withwebsite at http://www.voltronik.co.uk. hard line. paying over PAYE and similar payments, contactJack can be reached directly via The major let out is if the business can show that HMRC in advance and try to negotiate time to pay. Do07896 023574 there was a reasonable excuse for the late paid PAYE not wait for the bad news to appear.IN THIS ISSUE:Swiss rolled-over | P11D pitfalls | Associated companies? | Giving taxpayers time to pay |Tax credits: challenge and change | Sponsorship - tax deductible or not? | A game of location?
Swiss rolled-overIn a deal made between HMRC and The agreement also includes the However, the deal is not the end of • disclose via the Liechtensteinthe Swiss authorities, the funds of following: matters as it does not necessarily facility, which does protect fromUK taxpayers in Switzerland will face cover all past tax arrears. Effectively, prosecution, ora one-off deduction of between 19% • an anti-abuse clause to prevent people have four options: • withdraw all funds fromand 34% to settle past tax liabilities. Swiss banks promoting avoidance Switzerland but risk prosecution • a programme of audits, overseen • make a full disclosure to HMRC and penalties of up to 200% ofFrom 2013, a new withholding tax of by a new UK-Swiss joint but there is no guarantee of the tax if invested in certain other48% on investment income and 27% commission, to ensure that banks non prosecution and no mention overseas jurisdictions.on gains applying to those who have are complying with their obligations of the level of penalties that maynot previously told HMRC about be due For any help in this area, please get • that Switzerland will collect data onthese assets will be charged. • retain anonymity and authorise the in touch with your normal contact. the destination of funds withdrawnHowever, the new charges will not ‘one-off payment’. The threat of from the country following theapply if the taxpayer authorises a full discovery by HMRC and potential announcement of this agreementdisclosure of their affairs to HMRC. future prosecution remains and will pass this to the UK.P11D pitfalls AssociatedTrying to get all benefits correctly treated on a P11D can be a minefield but there are companies?several common areas which HMRC will focus on. We look at a few of these below. The issue of associated companies is an old chestnut but HMRC still continue to makeBusiness and staff entertaining Company credit cards money in this area, purely because the rulesBusiness entertainment is not an allowable Credit cards are often troublesome. Commonly, it is are widely drawn. If companies arededuction for a business. This means entertainment the directors who have the cards and all sorts of associated, they have to share the(including hospitality of any kind) provided by a private expenditure can find its way onto the bills. corporation tax limits between them and thisperson, or by a member of his staff, in connection can push some or all of the companies intowith a trade carried on by that person. Detailed reviews of credit card statements are higher rates of taxation. required, not merely sample checks to identify allHowever, staff entertainment is a legitimate business private payments and to ensure that they have been Potentially, all worldwide companies whichexpense except where: correctly treated for income tax and NIC purposes. are commonly controlled are associated. In particular, this includes any companies• the provision of staff entertainment is incidental to Subsistence owned by spouses, lineal descendants, lineal its provision for customers, or ancestors, brothers and sisters. Control It is very common for employers to reimburse• the expenditure is not wholly and exclusively for means any form of direct or indirect control expenses for subsistence when employees are the purposes of the employer’s trade. and many people know that they have to away from the office. HMRC often use a rule of consider rights held by shares or votes. thumb that expenses are only allowable where theAs an allowable business expense, staff employee is away from the office for more than five What is not so commonly understood is thatentertainment should instead, unless specifically hours and the journey is more than five miles away. loan creditors can also be a form of control,exempted be included as a benefit on form P11D A problem can arise particularly in larger for example, who is entitled to the majority ofand so taxed on the employee. Alternatively, organisations where employees do not need to assets in a winding up? A recent casearrangements can be put in place for inclusion in a claim travel expenses as the employer has arranged illustrates the potential issue.PAYE Settlement Agreement. Specific exemption is the tickets or transport on the employee’s behalf. Inavailable for staff annual functions which do not these situations, HMRC may state that they are Company 1 was controlled by the father ofexceed a total amount of £150 annually per person. unable to identify where the individual was and, the family. Company 2 had been set up as aDisallowance or benefit? therefore, they may treat the reimbursed expense as property development company but could being taxable. not get finance from the banks. The fatherThe difference in establishing whether entertainment owned some shares but did not ownis staff or business related is critical to the tax They may also seek to tax subsistence payments Company 2 outright. However, he personallyimpact and explains why HMRC are likely to check where no related mileage claim is submitted. It lent a large amount of money to Company 2,this area for correct treatment. could, however, be the case that the employee meaning he would be entitled to the majority travelled in a car with a colleague who has claimed of assets in a winding up due to the loanIf it is business entertainment, the disallowance on a mileage. It will be clear from this that sufficient balance and so the two companies weresmall company only creates additional tax of 20%, narrative should be given on the expenses claim classed as associated.whereas tax on an employee benefit could be as form to show where the employee was located.high as 50% plus 13.8% employer National This loan creditor point can apply to bothInsurance Contributions (NIC). So, clear policies and procedures will always help personal lending and inter-company debt, so save tax. Are yours fit for purpose? Contact us for care must be taken when looking for finance. help. The major problem is spotting other companies controlled by other family members in the first place, so if you think we might not be aware of any of your family members’ business interests, please do let us know. None of us like unpleasant surprises!
Giving taxpayers Tax credits:time to pay challengeIndividuals and businesses have to paytheir tax on time and HMRC have a legalduty to ensure that this happens. Whilst and changethe vast majority do pay on time HMRC HMRC are required under the 2010 Spending Review settlement to significantly reduceare aware that in the current economic spending and increase tax revenues. Taxclimate many people and businesses Credits and Child Benefit affect workingare struggling to make ends meet, and and non-working families alike and are specific headline areas thatthis includes paying their tax on time. continue to attract attention. This is due to both the level of expenditureHMRC helps individuals and businesses with short involved and because they potentially affectterm financial difficulties by offering them Time to many individuals. As a result, HMRC arePay arrangements using the Business Payment now charged with making expenditureSupport Service. HMRC have recently issued a reductions in Child Benefit, tax credits andbriefing note reminding us about how these other welfare benefits of £8.3 billion over thearrangements are intended to operate. four years from 2011/12 to 2014/15. The report also indicates that £1.1 billion ofThe briefing makes reference to the fact that any old tax credit debt, some dating back to Specifically, the planned changes have beentaxpayer facing difficulty in making a tax payment is 2003/04 has recently been written off but outlined as:potentially eligible to apply, although the vast majority clearly there may be resistance for any suchof applicants have been businesses, including the • a reduction of almost £2.5 billion from repeat action of this kind if expenditureself-employed. Furthermore, the sooner that people changes to Child Tax Credit (CTC) and targets are to be met.contact HMRC the better, as every case is Working Tax Credit (WTC) entitlements fromconsidered on its own merits although some simple 2011/12 Tax credit changes 2012/13conditions need to be met. These include: • a reduction of £5.5 billion through the A number of changes affecting entitlement to withdrawal of Child Benefit from higher rate tax credits were implemented for 2011/12.• convincing HMRC that an applicant is genuinely taxpayer families from 2013 and unable to pay their tax on time However, further and arguably more • a £300 million saving from using Real Time significant changes commence from 6 April• ensuring that they will be able to keep up with the Information to inform the calculation of tax 2012 and it will be critical that claimants are tax payments they are offering to make credit payments from 2014, thereby aware of the more significant of these to avoid• the ability to pay other tax bills as they arise. reducing the level of in-year overpayments loss of entitlement or be faced with demands which need to be recovered. for repayments. A summary of the keyUp to June 2011 some 440,400 Time to Pay changes are as follows:arrangements had been made since its launch Further, HMRC are also committed to reducing losses arising from errors and frauds • the period for which a tax credit claim andinvolving tax in excess of £7 billion. in tax credits by £2 billion a year. certain changes of circumstances can beIt is critical that an agreement is made before any backdated will be reduced from threepenalties or surcharges become due as HMRC will HMRC’s challenge months to one monthgenerally not charge these under such As well as the entitlement changes detailed • a disregard of £2,500 will be introduced inarrangements. However, interest is still charged on below, HMRC will need to make alterations to the tax credits system for in-year falls inoutstanding tax. its administrative systems for checking income entitlements and making payments. This isThe briefing comments on recent reports in the • the separate threshold for tapering the because reducing errors and overpayments ispress that HMRC have tightened up on Time to Pay family element will disappear altogether considered critical to the challenge ofarrangements. HMRC state that this is not the case achieving these significant cost reductions. In • there is to be an increase in the joint weeklyand they continue to apply exactly the same criteria particular, a recent House of Commons Public working hours requirement for WTC forthat they have always applied with more than 80% Accounts report drew attention to the levels of couples with children from 16 to 24 hours,of applicants still being approved. However, they debt arising from overpaid tax credits which with one partner working at least 16 hours,point out that there has been an increase in the has risen year on year since its introduction in andproportion of applications who do not meet the 2003/04.criteria as mentioned above. They give an example • the 50 plus element will be removed fromof businesses which have had a succession of Time It stated: the WTC.to Pay arrangements or which have failed to keep up ‘Tax credit debt stood at £4.7 billion at the In addition most rates are frozen for 2012/13with the terms of a previous arrangement which end of March 2011. The Department’s with the exception of certain disabilitymight indicate an unviable business rather than a campaign to collect £550 million of newly elements of WTC and the child element ofbusiness with short term difficulties. established tax credit debt has met with CTC.Time to Pay arrangements therefore can be valuable limited success, with only £170 million collected or cleared after five months. It If you require more information about howbut are only a temporary bridge for those businesses estimates that £1.7 billion of new tax credit these changes may affect you for the new taxand individuals with cashflow difficulties. debt will be generated in 2011/12 and that the year 2012/13 please get in touch with yourPlease contact us if we can assist you in making overall level of debt could increase to £7.4 normal contact.such an arrangement or if you require other cashflow billion by 2014/15 without further intervention.’advice for your business.
Sponsorship - tax deductible or not?Sponsorship can be a useful tool in promoting a Capital expenditure HMRC guidance gives details of other examplesbusiness. Commercial sponsorship often involves of non-business purpose including:some form of advertising of the business name Capital expenditure may include assets such asand products. Association with popular events or cars or racehorses. However, a contribution to a • circumstances where the sponsored person ispersons can enhance reputation, goodwill and permanent exhibit could be disallowed if it was a relative or close friend of the business ownerpublic image with resulting commercial benefits. considered to be of enduring benefit to the orThis often includes links with sporting or cultural business. Depending on the nature of the capital • circumstances where the business owner hasevents such as: expenditure it might at least be possible for the a personal involvement in the sponsored business to instead make a capital allowances activity (such involvement often pre-existing• corporate packages – advertised on the club/ claim or if a company a claim for relief under the the sponsorship). venue website intangible assets rules.• sponsor opportunities to individual A recent case concerned a company involved in productions, players or races Non business purpose the construction industry that, over a four year• longer term commitments e.g. sponsoring a Expenditure which is not wholly and exclusively period spent nearly £400,000 on sponsorship football club. for business purposes because there is also a fees on rally cars. It just so happened that theBusinesses will be keen to ensure that the cost of non-business purpose is not allowable. This is an owner of the company had previously been asponsorship is tax deductible in arriving at area which can cause difficulty because of the rally car driver and competed in vehicles ownedtaxable profits. However, the costs will not be perception of what sponsorship actually means. by the sponsored business.allowable where they are: At one end of the spectrum, sponsorship can be The Tribunal agreed with HMRC that the lack of of a charitable or philanthropic nature such as• capital expenditure commerciality in the transaction inferred that the supporting the arts. Expenditure on this would• expenditure not wholly and exclusively for sponsorship was not wholly and exclusively for not normally be wholly, let alone exclusively, business purposes, or the purposes of the trade and was therefore not incurred for the purposes of the sponsor’s• expenditure which is specifically disallowed for allowable. business. At the other end of the spectrum, tax purposes such as entertaining costs. sponsorship could amount to pure advertising or If this is an area of interest please contact us for pure public relations. In this situation the quid pro further information to ensure your businessAn example of the latter could include the quo for the sponsorship payment will be, for maximises its allowable business expenditure.hospitality element of a corporate sponsorship example, the advertising facility and no more.package.A game of location?Following the establishment of 24 new Enterprise Zones (EZ) in 2011 the Government has now announced that selectedzones are to benefit from 100% First Year Allowances (FYA) on qualifying plant and machinery.What’s to play for? Exclusions to a fundamental change of business product or service providedThe advantages of being labelled an EZ Only companies within the charge to corporationdesignated area have so far been limited to a tax will be able to qualify for these FYA. Care will • plant must be new, unused and cannot bebusiness rates discount package, and promised also need to be taken as there are a number of replacement expenditure of existing plant.assistance with simplified planning and superfast exclusions. These are: If this is an area which interests you and youbroadband access. However, the Government • certain companies ‘in difficulty’. require further guidance on eligibility please doalso indicated that they might offer enhanced contact us.capital allowances in limited cases and proposals • selected industries are excluded such ason this have now been made. agricultural production, fisheries, coal and steel.The proposals apply to expenditure on certain • expenditure on transport and transportplant and machinery for use primarily in an EZ equipment for the freight and air transportarea specifically designated at the time the sector are also to be excluded though not otherexpenditure is incurred. 100% FYA means the qualifying expenditure for such undertakings.ability to deduct capital expenditure in full for taxrelief purposes. This may be attractive, given that • expenditure taken into account for anotherin general businesses may only qualify for 100% State aid grant/payment is also excluded.relief on the first £25,000 of expenditure fromApril 2012 onwards. Elite squad conditions The other key conditions include the following:The winners • expenditure must be incurred in the five yearThere are 6 locations which have been selected period from 1 April 2012 to 31 March 2017for these proposals. They are the designated inclusiveassisted areas within the Black Country, Humber,Liverpool, North Eastern, Sheffield and Tees • expenditure must relate to a new business,Valley Enterprise Zones. expansion of business or a new activity relatingDisclaimer - for information of users: This newsletter is published for the information of clients. It provides only an overview of the regulations in force at the date of publication and no action should be taken withoutconsulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this newsletter canbe accepted by the authors or the firm.UK200Group is an association of separate and independently owned and managed accountancy and lawyer firms. UK200Group does not provide client services and it does not accept responsibility or liability for theacts or omissions of its members. Likewise, the members of UK200Group are separate and independent legal entities, and as such each has no responsibility or liability for the acts or omissions of other members.