Capital Allowances for Machinery and Vehicles

Capital Allowances for Machinery and Vehicles

 The Chancellor announced that, for two years from 1 January 2013, the annual ceiling on Annual Investment Allowances (AIAs) will be increased from £25,000 to £250,000.  Broadly speaking, AIAs allow the whole cost of machinery and vehicles (other than cars) to be written off, for tax purposes, in the year of purchase.

However, this does not necessarily mean that a company (or an unincorporated business) will be able to go out in January and buy even £100,000 of machinery that will qualify for the increased allowance.  This is because special transitional rules apply where the company’s (or the trader’s) accounting date is other than 31 December.  For example, if the accounting date is 31 March, the maximum qualifying expenditure for the whole of the year to 31 March 2013 will be:-

 

9/12 (months) x £25,000                         £18,750

3/12 (months) x £250,000                                   £62,500

                                                                                    ———–

Maximum qualifying expenditure                                    £81,250

                                                                                    ======

Of that £81,250, only £25,000 may be spent before 1 January 2013

 The full £250,000 allowance will then be due for qualifying expenditure in the next accounting year (to 31 March 2014).

 That was a very simple example, and in practice the calculation can be much more complex.  Furthermore, there are some complicated rules for determining when the purchase is treated, for Annual Investment Allowance purposes, as being made – it is not usually either the day you sign the order of the day you sign the cheque.  Accordingly, if you are contemplating a major purchase, or a programme of capital expenditure, we would strongly recommend you to contact us for individual advice.

 

Excessive CIS penalties

Tribunal Rules CIS Penalties Excessive

 

The First-Tier Tribunal has held that the statutory penalties charged for late filed Construction Industry Scheme Returns may be struck out as being (in human rights terms) disproportionate to the State’s legitimate objective of securing the payment of taxes, or may be reduced as being excessive.

 

Shortly put, under the statutory CIS scheme, a contractor is required to submit monthly Returns of payments to subcontractors.  The Case, Anthony Bosher v HMRC (2012) UKFTT 631 (TC), concerned penalties charged for Return periods before October 2011.  In outline, if a Return for such a period was not submitted on time, a fixed penalty of £100 was charged, with further £100 penalties if the Return was more than a month late, more than two months late, and so on up to twelve months.

 

If the CIS Return was more than 12 months late, an additional ’month 13’ penalty was charged.  The statutory maximum was £3,000, but in practice HMRC charged between £300 and £3,000 depending on how many times, in a rolling twelve-month period, a Return was submitted more than twelve months late.

 

Such penalties can of course quickly add up, and in Mr Bosher’s case, a total of £54,100 was charged for eighteen late monthly Returns – £19,300 of this was made up of fixed £100 monthly penalties and £34,800 of ‘month 13’ penalties.  The Revenue had offered to reduce this total to £14,600, the amount which would have been chargeable under the new system of late filing penalties which came into force in October 2011 (see page 148 of our June 2010 edition and page 67 of our December 2010 edition).

 

However, the Tribunal (Judge Aleksander and Ms Hewett) held that the monthly penalties were disproportionate, and so should be reduced to nil, and that the ‘month 13’ penalties were excessive and should each be reduced to an amount equal to the CIS tax shown on the Return or, if greater, £100 (making a total penalty charge of £6,287).

 

An interesting feature of the case is that Mr Bosher represented himself at the Tribunal and, in essence, simply claimed that ‘the fines are unjust’.  The Tribunal then based their decision on their own analysis of the law, though HMRC were represented by Counsel.

 

Finally, it seems to us that if the fixed penalties were disproportionate under the pre-October 2011 regime, they must still be disproportionate now.  The tax-geared penalties (charged on Returns more than six months late) probably are proportionate, though the statutory minimum penalty should probably be capped at an amount equal to the tax shown on the Return.

 

HMRC’s response to the decision is awaited.

 

Tax Planning Checklist

Tax Planning Checklist 

It is a good idea to periodically review your affairs to see if you are paying the right amount of tax.

Here are a few ideas to get you started. 

  •    Have you looked at your claim for capital allowances for expenditure on business equipment.
  •   Discuss with your accountant how to minimise the cost of the company car.
  •   Ensure that tax rates are as low as possible for you and your family.
  •   Review your pension arrangements.
  •   Check your PAYE code and understand the tax rates and allowances applicable to you.
  •   Utilize your ISA allowance and consider other tax saving opportunities.
  •   Plan to minimise the tax take, including VAT and capital gains tax.
  •   Put in place a tax efficient gift giving strategy.
  •   Review your will.
  •   Contact your accountant to discuss these and other strategies to help minimise your tax liability.

If you would like a booklet with 70 ideas then please get in touch

Will the changes to child benefit affect you ?

Although the proposed changes will not be implemented until 7th January 2013, it is estimated that 1.2 million people will be affected by them.

Here is a brief summary :

Who is affected ?

Households claiming child benefit, where the income of an individual or partner exceeds £50,000 per year.

HMRC will be writing to taxpayers with income above £50,000 in the autumn.

What are the changes ?

A new income tax charge will apply to those earning over £50,000, which will either reduce or remove the financial benefit of receiving Child Benefit.

Income between £50,000 and £60,000 will result in a gradual charge in proportion to the Child Benefit received.

Income over £60,000, the amount of the charge will equal the amount of Child Benefit received. The amount of Child Benefit payable will be unaffected by the new tax charge, but basically the charge will cancel out the benefit received.

How will it be collected ?

The amount of the charge will be collected through self assessment (SA) and PAYE. Individuals who think they may be affected by these proposals do not need to do anything now.

Additional information. 

For further information please see HMRC Child Benefit Tax Charge info

 

So when did saving tax become undesirable ?

After reading news and media articles lately, a person could be forgiven for thinking that any effort to reduce your tax bill will find you among the ranks of the comic book villains.

Current global economic difficulties and severe cut backs at home, have forced many to re-evaluate their spending habits and downsize their ambitions.


Unfortunately, what is rarely mentioned, is the importance of the many small businesses and consumer support network that helps to keep the wheels of our economy turning, and money flowing through all levels of society.

We feel that it is vital to support these hard working individuals and ensure their businesses have the chance to flourish.

While we accept that tax is part of life, excessive tax is unproductive. Let’s face it, each and every contact with money generally involves a tax at some point, whether the money is earned, saved, or spent.

We believe that a more positive outlook would be beneficial, and in view of this we do our best to support businesses and individuals, helping them to realise their dreams and promote local prosperity.

Many people are unaware of the fact that for example:

If your business has made losses, have you made sure that those losses are being used to reduce your current tax bills ?

If you are self employed, it may be possible to set losses against your other income, or even against income from the previous year.

This ensures that a good year’s trading can help support the business if it hits a bad year.

If you would like to hear more of our ideas please give Steve a call on 01225 751302.

Paying the correct amount of tax ?

It is always worth checking that you are paying the correct amount of tax.  Not everyone does but making a few checks, is time well spent.

 The wrong calculation could leave you out of pocket or worse in line for an unexpected tax bill.

 HM Revenue and Customs (HMRC) use information about wages and pensions to work out what tax to deduct, unfortunately, anything incorrect or missing can put a ‘spanner in the works’ and result in inaccuracy.  This is more likely to happen if you do not submit a tax return or have multiple jobs or pensions.

What you need to do:

If you get a PAYE P800 tax calculation from HMRC there should be some notes with it to explain each section, so if there is anything you are unsure of this should help.  www.hmrc.gov.uk/helpsheets/p800-notes.pdf

 Other documents which you can use to help check the figures on your P800 are:

  • form P60 – you get this at the end of each tax year
  • form P45 – you get this when you leave a job
  • PAYE Coding Notice
  • P11D Expenses and benefits (business owners only)
  • P9D Expenses payments and income from which tax cannot be deducted
  • bank and building society statements

If you think that HMRC have made a mistake, it is best to write to them and explain what you think needs amending.  Keep a copy of your letter in case you need to refer to it later.

The address for PAYE enquiries is:

HM Revenue & Customs
Pay As You Earn
PO Box 1970
Liverpool
L75 1WX

You should also consider:

If you have made pension or gift aid contributions, and HMRC don’t know about it, it could affect your tax.

Blind persons allowance is often forgotten.  This also includes anyone with severely impaired sight, and can be transferred to a spouse, so it is worth checking if you are eligible. 

Employees may be able to claim the cost of laundering uniforms needed for work, if their employer does not provide this service or recompense.

 If it all seems a bit much we are more than happy to help, and can also apply for a tax refund on your behalf should you be entitled.

Lasting Power of Attorney – How it helps.

Setting up a Power of Attorney won’t make you rich, but it will reduce the stress and hassle for your family should anything unpleasant happen to you.

Essentially, a Power of Attorney is a legal document that nominates a trusted individual to deal with your financial affairs and property in the unfortunate event of you being incapacitated, either physically or mentally. 

Without a Lasting power of attorney your family may need to apply to the Court of Protection to be able to make any decisions on your behalf.  This can be costly, and demanding and stressful for your relatives, friends and carers.  It is not tax planning but an essential aspect of it.

 

Late tax return filing penalty ?

If you have recently received a letter from HM Revenue and Customs with regard to  non filing of your 2010/11 tax return, you need to act now !  The inital £100 penalty is just the start. 

After 3 months there are additional penalties of up  to £10 per day to a maximum of £900.  This is on top of the initial £100.

After 6 months there is an additional £300 or 5% of tax due, whichever is highest.  Again on top of previous fines. 

 

Where there is a late partnership tax return, each partner will face penalties.

Even if you are worried about paying your tax bill, it is better to do something about it rather than wait and accumulate a considerable debt on top of any tax owed.

Do not delay, call us now to make an appointment to see Jo our Tax Expert, who will be able to help and advise you.  Call 01225 751302.

How To Stop Care Fees From Costing Your Home !

If you paid a mortgage for most of your working life to purchase your home, it could be taken from you in your last few years.  

Do you think it is fair ?

If you are one of the millions that think the system is unfair, and that it penalises those that work hard to provide for their future, and that of their loved ones there  is a solution.

Do you want to protect your savings and inheritances from being swallowed up by long term care fees ?

This question is worth asking because should you or any of your family ever need to go into a care home, you may find most of your savings taken by the government to pay for care home fees.

The facts are quite alarming. Surveys show that:

  • Typical care fees can cost £30,000 per year or more.
  • If you have assets or capital (ie) your home is worth over £23,000, you would be expected to pay 100% of the cost of your care home fees.
  • As people live longer, the cost of fees can seriously erode an inheritance.

What you can do.

There is a way to protect savings and inheritances from this, through the use of an Asset Protection Trust.  This allows your assets to be ring fenced from long term care costs.  You will still have access to the money and assets in Trust when needed, but can avoid it being used when calculating your contribution to care home fees. 

As you would pay less in care home fees, this leaves you more left over to spend during your lifetime and pass on to your loved ones on your death.

In order for this to work, an arrangement needs to be in place long before care is needed, as it cannot be done retrospectively or once the need for care arises. 

Don’t leave it too late to get something in place.  We can advise on this issue with a free one hour consultation available on request.  Please call us to make an appointment with our tax expert.

 

2011 Tax Saving Tips

  • If you use your home for business purposes, care is needed now in order to avoid any surprise Capital Gains Tax bills arising when you eventually sell the property.

If any part of property is used for business then ensure that it is not used exclusively for business purposes, by making sure that the room has dual purpose (business and personal). If any part of the garden is used for business then it may be possible to reverse use prior to sale to save tax.

When considering the planning please give our tax expert a call to discuss this further on 01225 751302. 

  • If you continue to rent out your investment property, then you may wish to consider a tax allowance against the rental income for expenditure on energy saving insulation.

An allowance of up to £1,500 for expenditure on energy saving insulation is allowed per property as a landlord. This can include wall, floor and loft insulation for expenditure before 6th April 2015.

  • Company owners may wish to consider making contributions to your business for use of the company car in order to reduce your tax bill. In order to save tax it will need to be carefully documented. Please contact us if you are interested to discuss the matter further.