George Osborne has
declared the date of his first Budget, Tuesday 22 June 2010. It's
difficult to call any significant changes to the tax system due to the
emerging news on higher than expected inflation. A VAT increase from
17.5% to 20% would feed into the cost of living index and increase
inflation in the short term. We may see this increase deferred until
early next year when the previous increase in VAT has worked itself out
of the numbers. There is continued speculation in the financial press
that disposals of non-business assets (shares, investment property etc)
will be taxed as income and therefore subject to the disposers’ highest
rate of tax; potentially 40% or even 50%. CGT basic rate is currently
18%. We will of course advise you of the Budget changes as soon as the
detail is available.
In this newsletter we
have included an article that explains how to structure a tax-free long
service award, possible benefit in kind complications regarding loans to
directors and employees, cars that qualify for the 100% write-off and a
word of warning about the initial use of the VAT Flat Rate Scheme.
Tax-free
long service awards
If you provide an
employee with a non-cash award to reward long service, the payment can
be made without deduction of tax or National Insurance contributions, as
long as the following criteria are observed:
1. As this is a reward to employees it is
not available to self-employed sole traders or partners. It is available
to directors who receive a salary for their services.
2. The award has to mark at least 20 years
of service.
3. You must not have made a previous long
service award within the last ten years.
4. The value of the reward cannot exceed
£50 per year of service - so the maximum value of an award to an
employee with 20 years of service is £1,000.
5. As pointed out in the opening paragraph
of this article the award has to be made in a non-cash form. Cash awards
are taxable as earnings in the usual way. You should also be wary about
awards that can quickly be converted into cash, for example marketable
stocks or shares or precious metals - these do not fulfil the non-cash
criteria.
There are a number of
complicated rules to abide by if your payment falls outside the above
five points - for instance if you exceed the £50 per year or if the
employee has less than 20 years of service.
If you are thinking of
making use of this potential tax-free perk it is best to check with us
before making the award.
George Osborne has declared the date of
his first Budget, Tuesday 22 June 2010. It's difficult to call any
significant changes to the tax system due to the emerging news on
higher than expected inflation. A VAT increase from 17.5% to 20%
would feed into the cost of living index and increase inflation in
the short term. We may see this increase deferred until early next
year when the previous increase in VAT has worked itself out of the
numbers. There is continued speculation in the financial press that
disposals of non-business assets (shares, investment property etc)
will be taxed as income and therefore subject to the disposers’
highest rate of tax; potentially 40% or even 50%. CGT basic rate is
currently 18%. We will of course advise you of the Budget changes as
soon as the detail is available.
In this newsletter we have included an
article that explains how to structure a tax-free long service award,
possible benefit in kind complications regarding loans to directors
and employees, cars that qualify for the 100% write-off and a word of
warning about the initial use of the VAT Flat Rate Scheme.
Tax-free long service awards
If you provide an employee with a
non-cash award to reward long service, the payment can be made
without deduction of tax or National Insurance contributions, as long
as the following criteria are observed:
1. As this is a reward to employees it is not
available to self-employed sole traders or partners. It is available
to directors who receive a salary for their services.
2. The award has to mark at least 20 years of
service.
3. You must not have made a previous long
service award within the last ten years.
4. The value of the reward cannot exceed £50
per year of service - so the maximum value of an award to an employee
with 20 years of service is £1,000.
5. As pointed out in the opening paragraph of
this article the award has to be made in a non-cash form. Cash awards
are taxable as earnings in the usual way. You should also be wary
about awards that can quickly be converted into cash, for example
marketable stocks or shares or precious metals - these do not fulfil
the non-cash criteria.
There are a number of complicated rules
to abide by if your payment falls outside the above five points - for
instance if you exceed the £50 per year or if the employee has less
than 20 years of service.
If you are thinking of making use of
this potential tax-free perk it is best to check with us before
making the award.
Beneficial loans to employees or
directors
If a company makes a loan or loans to
an employee or director and the combined outstanding value to an
individual never exceeds £5,000 there is no personal tax or National
Insurance contributions to pay. However, beware; loans to employees
who are also shareholders and directors may create a corporation tax
charge for the company even if the loan does not exceed £5,000.
If the combined amount exceeds £5,000
a potential benefit in kind charge may arise if no interest is
charged to the loan account or interest is charged at a lower rate
than the official rate published by H M Revenue & Customs.
The official interest rates for the
last three years are:
From 6 April 2007 to 28 Feb 2009 -
6.25%
From 1 March 2009 to 5 April 2010 -
4.75%
From 6 April 2010 - 4%
As we are now approaching the deadline
for filing forms P11D, the forms that declare employees' and
directors' benefit in kind, it is essential that loans are examined
to reveal any benefits due. Overdrawn directors' loans can create
difficulties where the amount of loans fluctuates during a tax year.
If you would like clarification on the
amount of benefit in kind you may have to pay, please contact us as
soon as you can. P11Ds have to be filed by 6 July 2010.
Cars qualifying for 100% tax
write-off
Unless the rules change on the 22 June
2010, company cars that have CO2 emissions of 110g/km or less qualify
for a 100% write-off for tax purposes in the year of purchase.
The list of vehicles that come within
this range of CO2 emissions is expanding. Take a look at the
following website that displays a fairly comprehensive list:
http://www.comcar.co.uk/newcar/companycar/poolresults/110tax.cfm
A few of the more surprising
sub-110g/km cars are listed below:
Audi A1 and A3;
BMW 3 series saloon - 320d
EfficientDynamics;
Mini Hatch, Clubman, Cambden and
Mayfair;
Peugeot 207 - 1.6 HDi Economique;
Smart - fourtwo coupe and cabrio
various VW Golf models;
various Volvo C30, S40 and V50 models.
VAT - starting on the Flat Rate
Scheme
As an incentive to new VAT registered
businesses to consider using the Flat Rate Scheme, H M Revenue &
Customs allow a 1% reduction in the flat rate percentage for your
type of business for one year. This can be a significant benefit for
newly registered traders. If your turnover including VAT is £117,500
in the first year the 1% will be worth a reduction in your VAT
payments of £1,175.
Please note that this reduction is only
available in the twelve months following registration for VAT. It is
not available for the first twelve months you decide to convert to
the Flat Rate Scheme if you are an existing VAT registered business.
Unless - if say you registered for VAT on the 1 January 2010 and
decided to apply to join the Flat Rate Scheme on the 1 April 2010,
you could apply the 1% reduction in the rate applicable to your
business until 31 December 2010; for the nine months until your first
anniversary of registration is reached.
For smaller businesses who qualify for
the lower flat rate percentages, the scheme can be cash flow
positive. If you are about to register or have recently registered
for VAT and would like more information, please call.