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Newsletter 2008 – 12

This month’s newsletter features the Pre-Budget Report and a


number of miscellaneous items of news. We also include brief
reports of two recent Special Commissioners’ decisions and
Peter Arrowsmith’s NIC tip of the month, which has been
partially overtaken by events but is still relevant.

FTA Member’s Newsletter Sponsored by:

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Tax and Finance Deadlines

December 1:
Due date for payment of corporation tax for accounting periods ended
29 February 2008.

December 5:
End of the week of grace allowed by ESC B46 for the receipt of CTSA
returns for accounting periods ended October 2007.

December 19:
PAYE: Remittances for the month ended 5 December 2008 due.
CIS: Return of payments to subcontractors for month ended 5
December 2008 due to reach HMRC.

December 29:
Accounts for private companies to 29 February 2008 and public
companies to 30 April 2008 due at Companies House.

December 31:
Effective due date for payment of corporation tax for accounting
periods ended 31 March 2008 (as January 1 is a public holiday).

January 7:
End of the week of grace allowed by ESC B46 for the receipt of CTSA
returns for accounting periods ended 31 December 2007.

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PRE-BUDGET REPORT

We have prepared this summary immediately after the


Chancellor’s speech in the House. Whilst we have taken every
care in preparing it, we trust members will conduct their own
research and forgive any mistakes.

VAT

The standard rate of VAT is reduced from 17.5% to 15% from 1


December 2008 to 31 December 2009. This change is cancelled
out in respect of alcohol, tobacco and motor fuel by
compensating increases in other duties. It is unclear whether
there will be any reduction in the percentage rates applied in the
flat rate scheme.

Corporation Tax

The increase in the small companies’ rate to 22% planned for


April 2009 will not now take place until April 2010. Relief for
losses up to £50,000 incurred for accounting periods ending in
the year 24 November 2008 to 23 November 2009 can be
obtained by set-off against profits of the three previous years.
There is no limit on loss relief set against the profits of the
previous year; the figure of £50,000 comes into play when relief
is claimed against the two earlier years. Further details of the
relief, including details of the corresponding relief for
unincorporated businesses, are available at
http://www.hmrc.gov.uk/pbr2008/loss-relief-583.pdf.

Income Tax

The increase in the personal allowance is to be made permanent.


The allowance will be £6,435 for 2009-10. From 6 April 2010
the allowance will be subject to an income limit of £100,000,
above which it will reduce by £1 for every £2 of excess income
until it is reduced by 50%. There will be a similar reduction for
incomes above £140,000, which will apply until the allowance
disappears altogether. From 6 April 2011, a 45% tax rate will
be introduced in respect of incomes in excess of £150,000
(37.5% for dividends). These highest rates will also become the
new rates for trusts.

Other tax allowance data is as below:


2008- 2009-
09 10
Basic personal allowance £6035 £6475
Personal allowance (65-74) £9030 £9490
Personal allowance (75+) £9180 £9640
Blind person’s allowance £1800 £1890
Married couple’s allowance £6265 £6965
Income limit for age-related allowances £21800 £22900
Minimum amount of MCA £2540 £2670
Basic rate limit £34800 £37400
Starting rate limit for savings income £2320 £2440

NIC

Rates of Class 1 (including employer’s and Class 1A) and Class 4


contributions increase by 0.5 percentage points from 6 April

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2011. From the same date, the primary NIC threshold will once
again be broadly aligned with the basic personal allowance. For
2009-10 the primary threshold is £110 per week (£5720 p a).

If, in common with your editor, you rely for the success of your
practice on the day-to-day administrative skills of a resident
witch or wizard, this may be an appropriate time to consider a
modest increase in her or his remuneration.

Business Rates

The business rates exemption for empty properties is extended


to properties with a rateable value of up to £15,000 for the tax
year 2009-10.

Tax Payment Problems

The Chancellor announced that HMRC will spread tax payments


where businesses are in difficulties as a result of the current
economic difficulties. HMRC has set up a Business Payment
Support Service in response to this pledge. Clients who have
problems with payment that can be attributed to the economic
situation may be referred to the service on 0845 302 1435. For
further details and advice on what to do where debt
management units have already commenced action, clients can
be referred to the advice given at
http://www.hmrc.gov.uk/pbr2008/business-payment.htm.
Whether officers will in fact be as understanding as the
Chancellor suggested remains to be seen, but past form is less
than entirely encouraging.

OTHER ITEMS OF NEWS

Extra-Statutory Concessions
Following the decision of the House of Lords in R. v
Commissioners of Inland Revenue ex parte Wilkinson in 2005, a
review of Extra-Statutory Concessions has been going on for
some time. A tranche of draft legislation to replace some
concessions that appear to be beyond the powers of HMRC was
published on 3 November for consultation. Members or their
clients who wish to have an input on this rather obscure process
have until 26 January 2009 to submit comments. A link to the
document is available via
http://www.hmrc.gov.uk/news/index.htm under the heading ‘3
November.’

Qualifying Recognised Overseas Pension Schemes

A revised list of these schemes has been published. It is


available at
http://www.hmrc.gov.uk/pensionschemes/qrops.pdf.

P11D(b) Penalties

On 10 November, HMRC announced that it was starting to issue


penalty notices for non-submission of P11D(b) returns and
accompanying forms P11D for 2007-08. On 19 November,
HMRC announced that it had issued some notices in error where
the forms had been submitted online and on time. HMRC will
seek to identify the cases concerned and discharge the penalties.
The advice meanwhile is to contact the employer’s helpline
(08457 143 143) rather than appealing in writing.
http://www.hmrc.gov.uk/employers/p11db-penalties.htm
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Penalties

A PowerPoint presentation on the new penalty system coming


into force for next year can be downloaded from
http://www.hmrc.gov.uk/about/new-penalties/index.htm. It is
designed so that practitioners can customise it for presentations
to clients. Other information and publications can also be
downloaded or ordered through the same link.

Statutory Instrument

The Taxes (Fees for Payment by Internet) Regulations 2008 (SI


2008 no 2991), despite their title, in fact refer to payment by
credit card and provide for the taxpayer to have to pay an
additional 1.25% of the tax payment to recompense HMRC for
any fee charged by the credit card provider. The regulations
come into force on 9 December.
http://www.hmrc.gov.uk/si/2008-2991.pdf

Rates of Interest

The rate of interest on late paid taxes falls from 7.5% to 6.5%
from 6 November. At the same time the rate of interest on late
repayments (‘repayment supplement’ falls from 3% to 2.25%,
whilst interest on overpaid Corporation Tax falls from 4% to 3%.

TAX CASES

Gower Chemicals Ltd v HMRC

This case relates to the correct tax treatment of deposits


received for the loan of returnable containers. The appellant
company’s practice was to charge a deposit for the containers in
which it issued its chemicals and to issue credit notes on return
of the empty containers. The credit notes had a twelve-month
time limit. In about 80% of cases the credit note was claimed
against a later invoice or paid out; in the remaining 20% it was
abandoned.

The Special Commissioner held that, because the company knew


the deposits would not have to be repaid in 20% of cases, all the
deposits were trading receipts of the year in which the
customers paid them. It was right to make a provision of 80%
for repayable deposits.

The difference between this case and Elson v Prices Tailors


Limited was that in the latter case there was no contractual
obligation to repay deposits received. It was held, however, that
this did not affect the accounting or taxation treatment.
http://www.bailii.org/uk/cases/UKSC/2008/SPC00713.html

Lee & Anor v HMRC

This was an application under s 28A for a direction to issue a


Closure notice. The Commissioner held that an application could
only be considered in relation to an enquiry under s 9A (or its CT
equivalent in Sch 18) and not to any investigation under s 29,
including a reopening of earlier years. The application failed, but
the Commissioner expressed the opinion that in a letter opening
a s 9A enquiry ‘an indication of relevant dates is needed because
section 9A(2) provides a specific "window" with regard to any
return.’ It may be possible to argue on those grounds that an
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enquiry has not been properly opened.
http://www.bailii.org/uk/cases/UKSC/2008/SPC00715.html

National Insurance

[Peter Arrowsmith’s article below was written before the PBR on


24th November during which the Chancellor significantly deferred
its introduction planned for April 2009. Nevertheless it is
included below as it includes some valuable comment and
income shifting will, without doubt be raised again and in the
not-too-distant future.]

At the time of the Pre Budget Report (PBR), our minds turn to
the matter of 'Income Shifting'. Action is threatened by way of
changes that would take effect from 6 April 2009. Although I
cannot envisage how it might work, there must be the possibility
of additional measures designed to stop businesses forestalling
any new legislation.

Where there are companies with a spouse (and indeed other


family members) involved and the business would ordinarily
expect to pay dividends on or before 5 April 2009 and it is not
already caught by 'IR35' or the managed service companies
legislation, consideration might be given to paying those
dividends before the PBR. As always with dividends (whenever
they are paid) the following additional caveats apply:

• ensure that there are sufficient reserves


• remember the effect on values of minority shareholdings
• dividends are not pensionable earnings, although the
post-2006 regime offers quite a degree of flexibility
• always pay earnings of at least the Lower Earnings Limit
so that entitlement to state benefits is not impaired. (In
the case of most directors a single sum of at least £4,680
(52 times £90) will suffice this year. Greater care is
required with non-directors.)

Reference should also be made to the Tax Faculty Guide on the


income shifting proposals. Tax Guide 6/07 is available to both
members and non-members at www.icaew.com/taxfac (go to
'Publications and technical guidance' section).

All of that said, there are rumours that the proposals for income
shifting will be quietly dropped. That would indeed be good news
- but perhaps it suits the government for us all to think that,
whether it is true or not.

Disclaimer. NI Tip of the Month is © Peter Arrowsmith 2008 and provided on the
understanding that no responsibility can be accepted for actions taken or not
taken as a result of its contents.

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whole or any part of this publication.
© FTA Ltd & Jonathan Atkinson 2008.

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