By the time you receive this newsletter we will have
passed the deadline for submitting the 2005 self assessment
tax returns. As you will have noticed we have been somewhat
pre-occupied during January 2006, making sure that clients
returns are filed before the end of the month. Now that this
major year end filing chore has passed we can "come up for
air" and consider other matters!
Don't forget to pay your self-assessment tax on time.
Any balance of tax due for 2005, and first instalment for
2006 (if applicable) was due to be settled by the 31 January
2006. We advise that you clear any arrears BEFORE the 28 February
2006 when both interest and a 5% penalty will be added to
your dues. (The 5% will only apply to the balance of tax unpaid
for the year ending 5 April 2005,though interest on all tax
unpaid runs from 1 February 2006)
We now have 2 months before the end of the current
tax year (5 April 2006). This is an ideal time to consider
tax year end planning to ensure that we take advantage of
tax planning opportunities - once the 5 April has passed many
of these opportunities are lost! If you require any help please
call.
The rest of the newsletter considers the transfer
of a limited company to a sole trader or partnership (disincorporation),
car mileage claims and VAT receipts, Internet shopping and
import duties, penalties under the new CIS rules and increases
in tax allowances for plant and equipment purchases.
Disincorporation - transferring your business from
a limited company to a sole trader or partnership
This article is not a recommendation that you move your limited
company business into an unincorporated, sole tradership or
partnership. It is merely a brief summary of some of the tax
effects if you do decide to disincorporate.
There are likely to be other issues, some commercial, some
tax related that would need to be considered.
Points to be aware of:
Once you have passed a resolution to wind up the company,
bringing to an end the current chargeable accounting period,
the following matters would need to be taken into account.
-
Corporation tax will be payable nine months after the
date of the resolution, as a new accounting period has
now started and the company remains liable until it has
been fully wound up.
-
VAT registration of the dissolved company can be taken
over by its unincorporated successor, but this is generally
inadvisable. It may be best to leave the liabilities,
both known & unknown, with the old business.
-
Elections can be made to transfer any plant and machinery
and industrial buildings to shareholders at tax written
down values as long as these elections are made within
two years of transfer of trade.
However this may not always be the best solution. Clients
should also value plant and equipment at a realistic market
value to see if this produces a better tax result.
-
Trading stock and professional work in progress can be
transferred at market value.
-
Care must be taken in the allocation of trading losses,
which can only be offset against income of the company
before it is dissolved, although in some instances may
be offset against trading profits of the preceding 36
months.
-
If possible, assets which may realise a chargeable gain
should be sold before disincorporation - if the company
has made trading losses in the same accounting period.
It is not possible to offset trading losses against these
chargeable gains after cessation of trading.
-
Likewise with loans that have been made by the company
to its directors - repayment should usually be made before
winding up to avoid the loan being treated as a benefit
in kind.
-
Distributions of dividends and/or capital must be made
at the optimal time, as they will affect capital gains
tax, the personal tax positions of shareholders and the
value of the company at cessation. Generally speaking
distributions to shareholders are treated as income
(dividends) prior to winding up, and as capital payments
subject to capital gains tax during winding up.
-
If the company has been making profits, the valuation
of goodwill requires consideration and may be a barrier
to disincorporation as an unattractive tax liability may
arise.
-
It is important that winding up is achieved as quickly
as possible. The shares in the company will be non-business
assets for taper relief purposes during this time - so
business asset taper relief otherwise available will be
diluted.
As indicated at the beginning of this article there are many
other considerations which need to be taken into account when
considering the disincorporation of a business. Tax legislators
are constantly "moving the goal posts"! However if you would
like more information on this topic please give us a call.
Car mileage claims - VAT receipts
Do you or your employees claim mileage for driving your own
cars for business journeys?
Unless you provide your employees with a company fuel card,
credit or debit card or a fuel account at a garage, new legislation
must be taken into account from the 1st January 2006 if you
want to continue recovering VAT input tax on the fuel element.
To reclaim VAT you must have a VAT receipt for the purchase
of the fuel. Make sure your employees are aware that they
need to ask for a receipt when they buy fuel from now on -
these receipts must be appended to their claim forms, otherwise
any reclaim of VAT on the fuel element will be disallowed.
Internet Shopping and Import Duties
Customs and Excise, or HMRC as they are now known, issued
a Press Release recently that is intended to inform Internet
shoppers that hidden duties, including import VAT, will be
levied on goods valued at more than £18 bought from non-UK
based Internet retailers.
These duties are taking buyers by surprise, especially on
purchases sent by American companies.
A customs declaration has to be made by the sending company
on your parcel, and you will be regarded as the importer of
these goods, whether for private use or for onward sale, new
or used, bought by you or someone else as a gift for you.
The import duties payable by you will depend on the type
of goods that you have purchased. Cash will be demanded when
the postman knocks on your door, so be prepared!
Although customs duty is not payable on goods bought within
the EU, VAT may be payable with special rules applying to
cigarettes, tobacco and alcohol. Personal import allowances
of the duty free kind, that operate when travelling outside
the EU, do not apply when the goods are supplied by post or
courier.
AND, if you are tempted to make a false or misleading customs
declaration on your parcel then you risk further financial
penalties, criminal prosecution and forfeiture of the goods
themselves.
Construction Industry - Penalties after 1 April 2007
In advance of the changes to the CIS rules we have noted
below a quick summary of the penalties which will be applied,
post 1 April 2007, if you don't comply with the new rules.
We will be issuing more information on the amended Construction
Industry Scheme prior to implementation on the 1 April 2007.
-
Late submission of monthly return. The
penalty for this including a failure to submit a nil return
(unless otherwise agreed with the Revenue) is £100 per
50 subcontractors or part thereof per month.
-
Negligent or Fraudulent Submission of an Incorrect
Monthly Return. Penalty here is up to 100% of
the under-declared CIS deductions.
-
Failure to Produce CIS Records. Where
HMRC require the production of CIS records and the contractor
fails to do so the penalty is an initial penalty of up
to £300 and a daily penalty of up to £60 for a continuing
failure.
-
Failure to Provide Subcontractor with Payment
Advice. The penalty for this easily made error
is an initial penalty of up to £300 and a daily penalty
of up to £60 for a continuing failure.
-
Making a False Statement in order to register
for Gross Payment. A penalty of up to £3,000
(can be mitigated).
-
Making an Incorrect Status Declaration. This
is the big one carrying a penalty of up to £3,000 per
month (as it is a monthly failure).
Additionally contractors will be at serious risk of losing
their gross payment status, due to a new review process. Presently
contractors will only lose their gross payment status, if
they fail to abide by the relevant criteria at a three year
review date. Under the new rules this review will be triggered
on a "rolling basis".
For instance gross payment status could be taken away if
you were just 14 days late in making a monthly payment, or,
make 4 late payments however short the duration.
Setting up workable systems to monitor compliance under the
new regulations will pay dividends. If you are a contractor
and would like to set up a planning meeting with us please
do call.
Purchases of plant and equipment for small business
- increases in tax allowances
From April 2006 the initial first year allowance for purchases
of qualifying plant and other equipment will increase from
40% to 50%. This applies to expenditure by businesses that
qualify as small.
The first year allowance does not apply in a period that
a trade is permanently discontinued.
Tax Diary February/March 2006
1 February 2006 - Due date for corporation
tax for the year ending 30 April 2005.
19 February 2006 - PAYE and NIC deductions
due for month ending 5 February 2006. (If you pay your tax
electronically the due date is 22 February 2006)
28 February 2006 - Last day to pay your
balance of self assessed tax for the year ending 5 April 2005.
Payment made after this date will be subject to a 5% surcharge
on tax outstanding, and interest will apply from 1 February
2006!
28 February 2006 - Companies House filing
deadline for private company accounts year ended 30 April
2005.
1 March 2006 - Due date for corporation
tax for the year ending 31 May 2005.
19 March 2006 - PAYE and NIC deductions
due for month ending 5 March 2006. (If you pay your tax electronically
the due date is 22 March 2006)
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DISCLAIMER - PLEASE NOTE: The ideas shared with you in this
email are intended to inform rather than advise. Taxpayers'
circumstances do vary and if you feel that tax strategies
we have outlined may be beneficial it is important that you
contact us before implementation. If you do or do not take
action as a result of reading this newsletter, before receiving
our written endorsement, we will accept no responsibility
for any financial loss incurred
