Newsletter 216 West George Street Glasgow G2 2PQ Telephone 0141 226 8484 Facsimile 0141 204 4387 Email firstname.lastname@example.org Gilliland & Company Registered to carry on audit work and regulated for a range of investment business activities by the Chartered Accountants Institute of Chartered Accountants of ScotlandReforms to the SPRING 2011welfare system Business Records ChecksThe Government is to introduce a Welfare The need to keep proper records to comply with tax obligations and so avoidReform Bill in 2011 to give effect to a number penalties has been increasingly emphasised in recent times following changesof reforms to the welfare system. Over the in tax law. HMRC have a range of guidance available which can be accessed atnext two Parliaments the current system of www.hmrc.gov.uk/record-keeping/index.htm and yet they have indicated that inmeans-tested working-age benefits and taxcredits will be replaced with the Universal the small and medium sized (SME) business sector there is still concern aboutCredit. poor business records and the resulting loss of tax.Universal Credit is an integrated working-age In a recently issued consultation document that will establish:credit that will provide a basic allowance with known as Business Records Checks HMRCadditional elements for children, disability, state: • a clear understanding of record keepinghousing and caring. It aims to support people obligationsboth in and out of work, replacing Working ‘The loss of tax through poor record keeping, • the level of penalties that significant recordTax Credit, Child Tax Credit, Housing Benefit, particularly in the current economic climate, keeping failures should attract in order toIncome Support, income-based Jobseeker’s cannot continue and HMRC is, therefore, change behaviourAllowance and income-related Employment determined to use the powers at its disposaland Support Allowance. to improve business record keeping and so • whether an SME should be allowed a period reduce the loss to the Exchequer that stems of time to make necessary changes toFor those in employment Universal Credit will from poor business records’. bring records up to standard before beingbe calculated and delivered electronically, penalised.automatically adjusting credit payments They indicate that poor record keeping may be a problem in around 40% of all SME sized If you would like to discuss the nature andaccording to monthly income reported through businesses. Accordingly HMRC have now extent of record keeping requirements for youran upgraded version of the PAYE tax system announced in the consultation document that business please do not hesitate to contact us(on which HMRC has issued consultation they are planning to check up to 50,000 SME for further advice.papers). The system will thus respond more business records annually in a new initiativequickly to changes in earnings. commencing in the second half of 2011. They also state that they intend to impose penaltiesA phased approach to the introduction of for significant record keeping failures as aUniversal Credit will be adopted with the first means of bringing about an improvement inindividuals expected to enter the new system record keeping.from 2013, followed by the gradual closure ofexisting benefits and Tax Credits claims. The consultation itself is not about whether HMRC should have the powers to checkWe will keep you informed of key business records, or the penalties which ensuedevelopments as they unfold as such changes for failure as these powers and penaltiesimpact upon many workers, families and their already exist. Rather the consultation isbusinesses. concerned with implementing a programmewww.gillilandca.com Gilliland & Company
Avoiding travel turmoilIt is not just the physical battles of travelling during the winter months The Bribery Actthat can be problematic but also securing tax relief on those travellingexpenses which continue to increase. Understanding the specific rules 2010is vital to ensuring that HMRC challenges on motoring and related travel The Bribery Act is due to comecosts do not arise later! into force in April 2011 and will beThe issue is often considered to be a Once a week, the taxpayer traded fast applicable not only to all UK businesses,problem area for employed individuals but food from Chelford market. He had a including their overseas operations, butthis article focuses instead on the self- trailer from which he operated and which also overseas businesses conductingemployed individual whether operating he transported to the market. During the activities in the UK.as a sole trader or as a member of a relevant period, the taxpayer also tradedpartnership. at two markets at Kendal and one at The Act will replace the UK’s common law and Blackpool. statutory offences related to bribery. ObviouslyWhat qualifies? larger entities (British Aerospace comes to mind!) The taxpayer stored his trailer, stock and will need to assess the impact very carefully, but itTo qualify for tax relief, an expense must items used for his work at a unit called will apply to every entity regardless of size.be wholly and exclusively incurred for the the ‘Showman’s Yard’ which was fourpurpose of the trade. When an expense miles from the taxpayer’s home. There Amongst other offences such as active briberyis incurred for a non trade or private was also a workshop at the premises. and passive bribery, the Act will introduce apurpose then it is not tax relievable. There Four days a week the taxpayer attended new corporate offence which will be committedwill be situations where an expense is the Showman’s Yard in order to clean and if a person associated with a commercialincurred for more than one purpose and carry out repairs of his equipment. organisation (such as a company or partnership)modern practice may allow a deduction bribes another person with the intention ofusing apportionment where there is an On market days, the taxpayer went to gaining financial or other advantage. Any suchidentifiable part or proportion which is the Showman’s Yard, collected the trailer, organisation found guilty of the offence will beincurred wholly and exclusively for the transported it to the market, traded and subject to an unlimited fine and its directorstrade. Fuel and other motoring costs are returned it to the yard before going home. could face a prison sentence of up to 10 years.generally apportioned based on the ratio The same exercise was also performed by The only defence for the organisation is if it canof business miles to total miles, so it is the taxpayer in respect of the Kendal and demonstrate that it had ‘adequate procedures’ incritical to distinguish a business journey Blackpool markets. place to prevent bribery.from a private one. The most commonexample of a private journey is the cost of HMRC accepted that the costs of travel However, the Act currently offers no guidance astravel from home to work which is generally from his home to the yard should be to what constitutes ‘adequate procedures’ anddisallowed. allowed but refused the mileage costs it is for this reason that the Ministry of Justice between home and the markets on the delayed the implementation date of the 2010There are clearly some trades where home basis that the place of business was the Act to April 2011, to allow for public consultationto work travel may be solely for the trade market place, principally at Chelford but on this matter. In mid January it was announcedas there is no identifiable place of business also at Blackpool and Kendal. that the Act is being reviewed but it has beenoperations. These are often referred to as suggested changes are unlikely. There is aitinerant trades. However, where there is an The Tribunal agreed that the place of possibility of a further delay in the implementationidentifiable place of business operations, business was the market place and date and it is thought that there may be sometravel costs from home to that destination disallowed the costs of travel from home to amendments to the eagerly anticipated guidanceare not tax deductible as they are said to the market including the travel costs from on necessary procedures.have a predominantly private purpose. home to collect the trailer and stock on market days. A draft version of this guidance is currentlyThe site at which business records and available from the Ministry of Justice website. Thisequipment are kept and maintained does The case shows that when considering proposes a principles-based approach, referringnot necessarily equate to a place of whether travel costs are allowable or not to the following six principles:business operations as a recent case has it is vital to establish the exact nature ofdemonstrated. the trade and how business activities are • risk assessment organised. If you have any concerns in this • top level commitment area please do contact us. • due diligence • clear, practical and accessible policies and procedures • effective implementation • monitoring and review. The draft guidance also offers a series of case studies covering a variety of situations, including the use of business partners and hospitality. The key step is almost certainly the proposed risk assessment and every business needs to consider what their risks might be from April 2011. In many cases the risk will be very low but where it is not, appropriate procedures will need to be designed.
– iXBRL deadline approaching fastIn 2006 Lord Carter reported on his review of HMRC online services. He recommended that all statutory business tax returnsshould be filed electronically by 2012 and significant progress has been made. The next major milestone, which is nearlyupon us, concerns corporation tax returns.All corporation tax returns (including form CT600, tax computations and is being adopted by numerous governments, regulators, companies andcompany accounts) in relation to accounting periods ending after 31 March organisations across the world. However, XBRL is only machine readable2010 and submitted after 31 March 2011, must be filed online as paper whereas iXBRL is both machine and human readable so HMRC can seereturns will no longer be accepted. In addition, corporation tax and related what you intended to display.payments must be paid electronically. Most accountants in business or practice will rely on support from:It is important to appreciate that compulsory filing will not change: • commercial accounts production software• who has to file a company tax return • corporation tax software• when the return has to be filed or the tax paid • HMRC online filing tool (suitable for straightforward situations only)• what is legally required to be filed as part of a company tax return. • template based workbooksSo what is going to change? • conversion softwareSpecifically CT600 returns will have to be submitted electronically and in • outsource providers.XML (Extensible Markup Language) format together with the accounts andtax computations in iXBRL (Inline Extensible Business Reporting Language) HMRC have recognised that this is a fundamental change to corporation taxformat. In broad terms tags are used to define both the content and the compliance and appreciate that not everyone will get it right first time. Theystructure of data and operate in a similar way to bar codes. There are many have indicated that they will take a sympathetic approach to penalties in thethousands of different tags which are pre-defined using special dictionaries first two years of implementation where there is a reasonable excuse andknown as taxonomies. reasonable care has been undertaken.These formats are computer-readable data standards for financial If this is a matter where you require further information or advice pleasereporting statements. Extensible Business Reporting Language (XBRL) contact us.Child savings accountsFor children born before 3 January 2011, a Government voucher was issued to open a child trust fund (CTF) account. Thiscapital would then be invested in either cash or shares, with returns being tax free. The idea behind these accounts was toprovide all children with a ‘nest egg’ for when they reached adulthood. Extra vouchers were issued when children turned 7,but these were withdrawn from 1 August 2010.Vouchers at birth will not be issued for children new accounts will provide parents with a simple ensure that no child born after the withdrawal ofborn on or after 3 January 2011. However, and tax free way to save for their children but the child trust fund vouchers will miss out on aany existing vouchers which have not yet been without any contributions from the Government. tax free savings opportunity.used to open an account remain valid. Existing The key features of the new account will be:accounts remain open and the tax free status will The key advantage of parents makingstill apply. In addition parents, friends and family • All returns will be tax free. contributions into a CTF account or a Junior ISAcan contribute up to £1,200 in total per year. is the combination of tax free status and capital • Funds placed in the account will be owned byThe registered contact can change the trust fund growth. More significant capital growth may be the child and will be locked in until the childaccount type or provider at any time. The child realised with a stocks and shares investment reaches 18.can do this once they turn 16. When the child rather than cash investment alone.turns 18 the account stops being a CTF account • Funds can then be withdrawn without losing any of the tax benefits. If a parent instead provides capital in an ordinaryand the money can be withdrawn or reinvested. bank account or makes share investments forSee www.childtrustfund.gov.uk for information. • Investments will be available in cash or stocks their child, annual income in excess of £100 and shares. will be treated as taxable income of the parent.So how can parents save for their • Annual contributions will be capped, although It therefore follows that significant tax savingschildren born after 2010? the limit has not yet been set. could accrue over the life of a CTF or Junior ISA account.Well, the Government is to introduce a new The new accounts should be available in autumn‘Junior ISA’ to replace the CTF account. These 2011. Eligibility will be backdated from then to
Class 2 National Insurance Contributions (NIC)– the new payment arrangementsClass 2 NIC will be payable by the self employed at a flat rate of £2.50 per week in 2011/12. Currently, Class 2 NIC are paidby quarterly account billing or by monthly direct debit. This is set to change in 2011/12, to bring it in line with payments ofincome tax and Class 4 NIC.There will be no collections of Class 2 NIC Other NIC changes Employees earning above this limit will see anpayments from April 2011 until August 2011. increase in their NIC bill.Payments will commence in August from when The rates and limits for NIC generally area monthly direct debit will be taken. This means changing from 6 April 2011. The new rates and For the self employed, those with profits upthat by January 2012 six instalments will have limits can be found at hmrc.gov.uk/rates/nic.htm to £19,000 will be paying less Class 4 NIC inbeen paid, equal to half the liability for the year. 2011/12 than in 2010/11. Those with higherBy 31 July 2012, the liability for the year will have Employee salary profits will see a rise in their Class 4 NIC liability. 2010/11 2011/12been paid in full. Unlike income tax and Class (employee NIC only) If you require any further information about the4 NIC there will be no balancing payment on £20,000 £1,571 £1,533 NIC changes for 2011/12 do contact us.31 January 2013, as Class 2 is a set amount and £50,000 £4,259 £4,380does not need to be estimated. £100,000 £4,759 £5,380There will be an alternative option to pay Class Self employed profits2 NIC by two six-monthly direct debits, one on (Class 4 NIC only)31 January in the tax year and one on 31 July £20,000 £1,143 £1,150following the end of the tax year, instead of £50,000 £3,114 £3,323paying monthly direct debits. For 2011/12this means the first payment will be due on £100,000 £3,614 £4,32331 January 2012 and the second on 31 July2012. The amounts of the monthly direct debits Due to the increase in the 0% band for Class 1will vary between £10 and £12.50. The six- NIC, employees earning up to £23,800 will bemonthly payments will be £65 each. paying less NIC in 2011/12 than in 2010/11.Counting the costThe rate of corporation tax your company pays not only depends on the level of profit it makes but also on the number ofcompanies that are associated with your company.For example, if a single Company S has annual What is an associated company? It is proposed to amend the circumstances inprofits of £200,000 it will pay corporation tax at which rights held by linked persons are attributedthe rate of 20% from 1 April 2011. This means A company is associated with another company to each other to establish control. Attributionsthat the corporation tax due on those profits, if one of them has control of the other or if both will only be made where there is ‘substantialassuming they relate wholly to the year to 31 are under the control of the same company or commercial interdependence’ between theMarch 2012, will be £40,000. person(s). businesses being run in the companies. So where spouses each separately control theirHigher rates of corporation tax apply on profits in The shares of direct relatives, business partners own company and there is no commercialexcess of £300,000 and £1.5 million. For profits in certain situations and some trustees can be interdependence between the companies, eachbetween £300,000 and £1.5 million the effective attributed to the person for the control test. In company will have the use of their own profitcorporation tax rate is 28.75% and for profits in a situation where spouses each own separate limits.excess of £1.5 million the rate is 27%. Both rates companies their shares are attributed to the otheralso apply from 1 April 2011. with the result that both companies are treated There will clearly be many small and medium as controlled by the same person. This means sized companies where family shareholdingThe impact of associated companies that the two companies are deemed associated attributions could deem companies to be even where they are in all other respects associated. The identification of whether thereIf a company has associated companies, the independent operations. is substantial commercial interdependence mayamount of corporation tax may be increased. The precise application of these so called therefore be vital for the operation of the correctThis is because the profit thresholds of £300,000 attribution rules in other situations can be corporation tax rate.and £1.5 million must be shared equally betweenthe company and its associated companies. For complex so professional advice is recommended When considering whether there is ‘substantialexample when a company has two associated in interpreting when and how to apply them. commercial interdependence’ HMRC will havecompanies, then there are three companies regard to the degree of financial, economic orin total. This means that the corporation tax Changes ahead organisational links which exist, or have existed,rate of 28.75% applies between £100,000 and However, a change to the associated company or might be expected to exist between the£500,000 and then 27% thereafter. If this applied rules to be included in the Finance Bill 2011 may relevant activities/companies involved.to Company S its corporation tax due would at least offer some relief to spouse controlledincrease to £48,750 (20% x £100,000 + 28.75% companies with effect for accounting periods If you consider these matters may affect youx £100,000). ending on or after 1 April 2011. please do not hesitate to get in touch.Disclaimer - 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 without consulting the detailedlegislation 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 can be accepted by the authors or the firm.