Tax Tips

.and you have still not filed your income tax return for the year ended 5 April 2005, this may be a good time to collate the information needed to do so. There is an automatic penalty of £100 for returns not filed by 31 January.

Many thousands of parents who have received Child Trust Fund (CTF) vouchers have not yet invested in a CTF account and are losing the benefit of tax-free returns.

The CTF is a long-term savings and investment arrangement. It is started with the initial voucher worth at least £250 (the amount depends on the child's date of birth, and family income). Relatives, friends and the child themselves can then contribute up to £1,200 a year in total into the account. The fund is entirely tax free and the child will have access to the money once they turn 18.

The government has postponed the introduction of the tough new rules by 12 months, to April 2007. Any business involved in construction work should use the extra time to ensure that its existing arrangements are in order; in particular by ensuring that all workers paid under the scheme are genuinely self-employed. We are happy to advise on this thorny issue.

A non-EU business may reclaim the VAT incurred on UK expenses, even though the business is not registered for VAT here.

This can be very useful if your business is not required to be register for UK VAT - perhaps because you make no sales here - but your directors or staff have attended exhibitions or training events in this country.

However there are strict deadlines, and you only have until 31 December 2005 to claim back VAT incurred in the year to June 2005.

We are happy to assist with such claims.

For more advice on these matters, please call our tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk and he will be pleased to assist you.

As the festive season approaches, the taxman offers to help you enjoy your Christmas party. Your firm may claim a tax deduction for the cost of the event, and no tax is paid by staff for the 'benefit' they enjoy by attending. The only conditions are that the event is open to staff generally (and is not restricted to a particular group, such as directors) and that the cost per head does not exceed £150. The firm may also recover all VAT on the cost of the event if certain conditions are met.

While the cost of 'business entertaining' is rarely tax-deductible, a recent tax tribunal decision reminds us that relief remains available for promotional events. In that case, a company held a function at a hotel to publicise its training courses. While it could not claim tax relief for the food and drink it provided, it was allowed a deduction for the room hire charges which, the tribunal felt, were incurred for the purposes of business advertising or promotion.

While many benefits in kind and expenses payments are now quite heavily taxed, some arrangements remain attractive.

Where an employer provides an employee with a mobile phone, there is no tax charge on the benefit of any personal use of the phone. Also, an employee may receive generous tax free mileage allowances where they use their own car for business purposes. The tax free allowances per mile are:
- 40p for the first 10,000 miles in a year
- 25p thereafter
- An extra 5p for every other employee they carry as a passenger
There are also generous rules for computers and bicycles made available to staff, and for interest free loans of up to £5,000.

If you are keen to pass money down to members of your family while you are still alive, so as to minimise inheritance tax (IHT) on your death, you may wish to take advantage of the exemption for 'normal expenditure out of income'.

This allows you to make gifts out of your current income, and no tax arises provided that you are still left with enough money to live on, and that such gifts are made on a regular basis. Thus it is possible, if your income permits, to give large amounts to your family each year, potentially saving £400 for every £1,000 you give away.

If you have invested cash for shares in a limited company, and the business has failed, help may be at hand from the taxman. Even without selling your shares, you may be able to claim that you have made a capital loss which may be set against any capital gains you make in the same year, or in subsequent years. Even better, if the right conditions exist, it may be possible to convert the capital loss into an income tax loss, which could give rise to a refund of tax paid on your income in the year.

For more advice on these matters, please call our tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk and he will be pleased to assist you.

The government raises £2.5 billion a year from inheritance tax (IHT) - which may claim 40% of your estate at death after taking account of certain reliefs.

The 'spouse exemption' allows you to leave your entire estate to your widow or widower, to help ensure that that they can live out their days in comfort. But such a gift wastes the 'nil rate band', which enables you to pass £275,000 down to your children or grandchildren tax-free.

A 'nil rate band discretionary trust' offers you the benefits of both reliefs. You exploit the nil rate band by placing up to £275,000 in trust, while your widow or widower may enjoy benefits from that capital during their lifetime. For more information on such arrangements, call our Director of Financial Services David Higgins on 020 8458 7427 or email david.higgins@glazers.co.uk and he will be happy to help you.

Capital gains tax (CGT) is not charged on your 'main residence', and where you have more than one residence - e.g. a holiday home - you may elect which property should be exempt from CGT. Gains on the other property are then taxable.

If you are thinking of buying a business currently owned by another company, you need to consider whether to acquire the business assets and any goodwill, or simply purchase the shares in the company that owns them. This decision can have major tax implications and you should seek advice before entering any agreement.

For example, the vendor may prefer to sell the shares (perhaps to minimise their own tax liabilities), but then you would pay stamp duty at 0.5% and forfeit the up-front tax relief available when you purchase the assets themselves. For more information, please call our tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk and he will be pleased to assist you.

If your company is approaching the end of a profitable year, you may be wondering whether to pay yourself a salary or dividend, or both. While it is often advantageous to take a substantial dividend, we would usually advise that you also take a small salary of at least £4,800. This ensures that you receive the benefit of your personal tax allowance, and this arrangement also contributes towards your state pension without you or the company having to pay anything towards it! For more information, please call our tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk and he will be pleased to assist you.

If you are leaving the UK to work or live abroad, tax may not be the first thing on your mind. But there are many opportunities if you plan your affairs carefully. These include:

But there are pitfalls too. For many years emigrants have been allowed to visit the UK for up to 90 days a year without losing the benefits of non-resident status, but this is uncertain following the recent decision in Shepherd v HMRC, where an airline pilot who continued to spend 80 days a year in the UK was held to have remained UK-resident as he had not made 'a distinct break' from this country. This reflects a tougher attitude by HM Revenue & Customs towards those seeking the benefits of non-residence.

For advice, please call our tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk and he will be pleased to help you.

It is often assumed that a company cannot reclaim the VAT it pays on the purchase of a motor car.

This is because, with a few limited exceptions, the law says that VAT cannot be recovered if it is intended that the car be 'made available for private use', irrespective of whether it is actually used for non-business purposes.

In practice it has proved extremely difficult to persuade VAT inspectors of the absence of an intention to allow private use, and so VAT recovery is invariably disallowed.

A chink of light has appeared in a recent High Court decision, where a company was allowed to reclaim the VAT on the purchase of a Mercedes Benz. In this case:

While Customs may not like this decision, it will now be more difficult for them to oppose a claim for VAT recovery if all these conditions are met.

Also, in such cases there should not be any taxable ‘benefit-in-kind’, since such charges do not apply to cars which are used solely for business travel.

For advice, please call our tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk and he will be pleased to help you.

Do you think it is unfair that you should have to pay income tax on the bank or building society interest that you earn, while you receive no tax relief on the mortgage interest you pay?

These mortgages allow you to hold your savings in an instant access account attached to the main mortgage account. Interest is calculated – at your mortgage rate – on the savings you hold, and this amount is simply deducted from the interest due on your mortgage.

Offset mortgages can be especially useful for people holding large sums for specific purposes, such as paying an income tax or VAT bill.

For more information please call Stephen Goldman of Glazers Financial Services on 020 8458 7427 or email stephen.goldman@glazers.co.uk and he will be happy to assist you.

Next year will see the most significant pensions changes in the last 15 years. From 6 April 2006 you will be able to:

• make much larger pension contributions to save more income or corporation tax.
• invest in a wider range of assets, including buy-to-let properties or second homes.
• transact with your pension i.e. buy assets from it or sell and transfer assets to it, making your pension a much more flexible, tax-saving tool.

These changes open up some good tax-saving and investment planning opportunities and you can start preparing for them now. But some people may lose valuable benefits under the existing rules, particularly:

• business owners
• those with company or occupational pension schemes
• those with large pension funds

You will need to check how you will be affected and may need to take action before 6 April 2006. For example:

• you may lose the right to a large tax-free cash sum from your pension
• you may be caught with penalty tax of up to 55% on your pension assets over the Lifetime Allowance

To talk through the pension changes, how they might affect you and what action you need to take now, to prepare for, or protect yourself against the new rules, please call Ben Gibbs on 020 8458 7427 or email ben.gibbs@glazers.co.uk

Employers have now passed the 6 July deadline for filing P11D returns of benefits and expenses for 2004/05, and those who have not done so now face an automatic penalty of at least £100. Nevertheless, it is still worth getting the return in quickly, as the penalty will increase for every month that you are late.

We have advised previously that employers can cut down on this annual hassle by obtaining a 'dispensation' from reporting certain items where clearly no tax charge would arise, e.g. reimbursement of business travel expenditure. It is sometimes thought that 'one-person companies' cannot qualify for dispensations as their expense claims are not independently checked within the business, but HM Revenue & Customs have indicated that even these companies can get some relief. If you want any help with this, please call our tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk and he will be pleased to assist you.

While the Government says that relatively few deceased estates attract inheritance tax (IHT), this is little comfort to anyone whose home is worth more than the £275,000 IHT threshold. Since April this year it is virtually impossible to make a tax-effective gift of your property while continuing to live there, but one useful exception covers circumstances where a child shares the same home as their elderly parent.

More and more people are opting to work from home, but it is often thought that establishing an office in a spare bedroom will trigger a capital gains tax bill when you come to sell the property. In fact the rules are more generous.

Your property may continue to qualify for complete exemption from capital gains tax provided no part of it is used 'exclusively' for business purposes. So provided the room in which you work is sometimes used for domestic purposes - perhaps you keep the second TV in there, for those evenings when your viewing tastes differ from others in the household - you may escape CGT completely.

The European Savings Directive comes into force this month. If you have a bank account in the Channel Islands or the Isle of Man, a 15% withholding tax will now be deducted from all interest paid, unless you agree with the bank to send details of your account and regular reports of interest earned to the tax authorities instead.

However, you can claim exemption from these new rules if you are not domiciled in the UK. Domicile is a complex concept, but in simple terms you are probably not domiciled here if you were born abroad and do not intend to live in the UK permanently. We are happy to advise on domicile and claiming exemption from the new Directive. Please call our tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk who will be pleased to assist you.

Geoff Jones is appealing against the High Court's ruling that dividends received by his wife from their family company are taxable at his own top tax rate (see Tax Tips June 2005). The Professional Contractors Group, which is supporting the appeal, says: "We believe that this judgment undermines the self-assessment tax system by leaving a host of questions unanswered. It could affect hundreds of thousands of small family businesses who've shared the risk and hard work of running a business, expecting to share in the rewards." We will keep you posted on developments. And in the meantime, if you have a family company and want to pay dividends to both spouses, tread carefully!

Cut down needless paperwork - and save tax

6 July is the deadline for employers to file P11Ds, reporting expenses payments and benefits-in-kind received by directors and employees during 2004-05. P11Ds are required even if you can demonstrate that the payments or 'benefits' were solely for business purposes, although the employee or director must then file another form to claim the tax exemption. Employers who ignore these requirements face financial penalties.

This annual merry-go-round may be avoided through a 'dispensation' whereby the tax office agrees that items provided solely for business purposes need not be reported, provided there are adequate controls in place. We have extensive experience of obtaining dispensations and often find that the exercise reveals tax-saving opportunities - e.g. exploiting the 40p tax-free mileage allowance, special tax rules on mobile phones, and tax free allowances for household costs of employees who regularly work at home.

For more information, call Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk who will be pleased to help.

Don't forget that the second interim payment of income tax for 2004/05 falls due by 31 July, and that interest is charged on late payments at 7.5%.

Interim payments are based on your tax liability for 2003/04, but these can be reduced if your tax fell in 2004/05. And even now, it is not too late to reduce that tax bill by making a payment into a personal pension and electing for this to be carried back. For more information on pensions, call our Director of Financial Services David Higgins on 020 8458 7427 or email david.higgins@glazers.co.uk who will be happy to help you.

The High Court has supported another Revenue attack on small company dividends. In the Arctic Systems case, Geoff and Diana Jones each owned one share in a company which delivered Mr Jones' IT consultancy services. He took a modest salary, so that most of the company's income could be paid out as dividends. Relying on anti-avoidance legislation, HM Revenue and Customs argued that Mrs Jones' dividends were taxable at her husband's higher tax rate, and this has now been upheld by the High Court.

The decision highlights the need for all small companies to plan their remuneration and dividend strategies carefully. The judge made it clear that the Revenue should not attack arrangements where the working partner is paid the going rate for the work done. If you need help, please call our tax partner Darren Specterman on 020 8458 7427 or e-mail darren.specterman@glazers.co.uk and he will be pleased to assist.

Tax relief to buy a second home

These days loans taken out by individuals to finance personal expenditure do not enjoy tax relief, but the official guidance of HM Revenue and Customs confirms that relief may be available where a landlord remortgages a rented property to release funds for personal needs. This could be to purchase a second home, to meet school fees or other major items of expenditure. Not surprisingly, there are conditions to be met and we shall be happy to advise. Contact our tax partner Darren Specterman on 020 8458 7427 or darren.specterman@glazers.co.uk

Watch those dreaded forms

The 6th July deadline is looming for companies to submit Form 42 for the year to April 2005. A wide variety of transactions in company shares and other securities have to be reported, on pain of a £300 penalty for each failure. There are, however, some useful exceptions including most transfers in the normal course of domestic relationships. If you need advice on this issue, please call our tax partner Darren Specterman on 020 8458 7427 or e-mail darren.specterman@glazers.co.uk and he will be happy to help.

Other forms should be handled with special care. HM Revenue and Customs' website warns that some individuals employed outside the UK have received a letter and Form P86 that purport to come from its offices, which ask for personal information including bank account details. It says the letters - signed by Fiona Delaney - are fakes and urges recipients to report such letters to the police.

By law, most employees are entitled to Statutory Sick Pay (SSP) if they are away from work through illness for four or more days. The rules are horrendously complex, but some help is at hand with the publication of an SSP calculator on HM Revenue and Customs'' website at http://sspcalculator.inlandrevenue.gov.uk/SSP01.aspx. But you may still prefer to avoid such hassles altogether by appointing Glazers to help with your payroll. Call our payroll manager Avril Wildman on 020 8458 7427 or e-mail avril.wildman@glazers.co.uk and she will be happy to discuss your requirements.

HM Revenue and Customs says it will respond constructively and speedily to requests for special treatment by businesses facing cash-flow problems in consequence of MG Rover going into administration, and has set up a special helpline - 01604 731 678 - to deal with any query. Sadly they are not offering help to car owners now in possession of worthless warranties!

1. All employers reading this, make sure you don't get stung with a late filing penalty for submitting your Employer's Annual Return form P35 late. The deadline is 19th May, which by concession extends to 26th May 2005. The penalty for late submission is pretty severe, being £100 per month late.

If you need help with your payroll please call our payroll manager Manjula Kanbi on 020 8458 7427 or email manjula.kanbi@glazers.co.uk and our payroll team will be pleased to assist.

2. Are you using your own car for work? Well, did you know that you can claim a tax-free mileage allowance from the Inland Revenue even if your employer doesn't pay it. The rate is 40p for the first 10,000 business miles, thereafter 25p. So make sure you keep an accurate log of these miles just in case the taxman wants proof.

3. Have you recently de-registered from VAT? If you have, and you are now receiving invoices for goods and services supplied to you, then don't panic - you will still be able to reclaim the VAT on invoices. There is a 3 year window and you may make a claim on the form VAT 427.

If you need help with this please call our tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk and he will be pleased to assist.

4. Are you a landlord renting out residential property? Do you know what items of expenditure you can claim tax relief on and those you cannot? Well, with effect from 6 April 2004 landlords can now claim a 100% deduction for the cost of cavity wall or loft insulation, even solid wall insulation.

So if you want advice on all manner of property taxation please call our tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk and he will be pleased to assist.

5. "Don't look a gift horse in the mouth" - from April 2005 the Government is setting up Child Trust Funds (CTF) and for every child born after 1 September 2002 the Government will contribute £250. Family and friends can contribute up to £1200 a year and the interest earned will be tax-free. Your child can't touch the money until they reach the age of 18.

If you want more advice and assistance on savings, investments, managing your finances, or pension advice please contact our Director of Financial Services David Higgins on 020 8458 7427 or email david.higgins@glazers.co.uk

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1. Although the 100% capital allowance for computers and the 50% allowance for fixtures and fittings have now gone , it is still possible to claim a 40% allowance in the first year on all these items if your business is small or medium. The definitions of these changed quite recently so do not forget to check these out, otherwise you may be claiming only 25% instead of the 40% your business is entitled to. If you want to know more about this please call our tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk

2. Extracting profits out of your company tax-efficiently is probably one of the most important items on your agenda when you see your accountant. Well, one very tax-efficient method is for your company to make a pension contribution into your own personal scheme. This payment attracts corporation tax relief for the company and is both tax and NI free. If you want to know more about the tax planning aspects of this please call our tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk, or for expert pension advice call David Higgins of Glazers Financial Services on 020 8458 7427 or email david.higgins@glazers.co.uk

3. This month is the deadline for paying any PAYE/NI on those year-end bonuses. The date for payment is 19th April 2005 and if payment is made after this date then interest will be due on late payment. So to avoid any interest charges please be sure to make your payment on time.

4. Individuals who are not domiciled in the UK (this normally means your father was born outside of the UK) can take advantage of preferential tax treatment in connection with income and capital gains tax. This basically means that you only pay UK tax on income and capital gains made offshore if you remit them into the UK. In order to ensure that you are treated as non-UK domiciled you may wish to ask the Inland Revenue for a domicile ruling which can give you a degree of clarity in this respect.

If you want to know more about this please call our tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk

5. If you are a professional firm (for example solicitors or architects) then you may have read recently about a change that is to come into force in connection with the valuation of work in progress. This change which comes into effect for accounting periods ending on or after 22 June 2005 could create major one-off tax bills, as the idea behind the change is to bring into account income earned which has not yet been invoiced.

The best strategy is likely to be to bill out as much work in progress as possible before the year end. There is also a get-out clause for smaller businesses.

Please call our tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk if you want to know more.

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With the end of the tax year approaching fast, this month's tips concentrate on pre-year-end tax planning.

1. The amount of capital gains you can make tax-free is £8200 for the year. So if you wish to make full use of this exemption you must ensure that any disposals of capital assets are made by 5 April 2005. If you require assistance or advice in this complex area of tax please do not hesitate to contact our tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk.

2. Are you a 40% taxpayer and wish to reduce your 2004/05 tax liability? Well, making a pension contribution by 5 April will achieve the desired result. Essentially for every £1 you pay into the pension, your tax liability will be reduced by 18p. If you require any assistance on pension planning please call our Director of Financial Services David Higgins on 020 8458 7427 or email david.higgins@glazers.co.uk.

3. One of the many Inheritance Tax exemptions is the annual exemption. This allows an individual to give away £3000 a year tax-free, per tax year. There is also a limited carry forward of the previous year's exemption if not used up. Once again, you have until midnight on April 5th to make these gifts.

4. April 5th is also the deadline for topping up those ISA's (Individual Savings Accounts). Remember, you can put up to £3000 into a cash ISA, or £3000 into a stocks and shares ISA. So if you want to make the most of these tax-efficient accounts (all interest is tax-free inside the account) ensure you save by the 5 April deadline. If you require any financial advice in this area please call our Director of Financial Services David Higgins on 020 8458 7427 or email david.higgins@glazers.co.uk.

5. If you qualify as a small business, then you can currently claim 50% first-year allowances on the acquisition of plant and machinery. However, this rate will reduce to 40% for items acquired after 31 March 2005 (for Companies) and 5 April 2005 (for individuals). If you need advice in this area please do not hesitate to contact our tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk.

1. Van drivers with company vans who have private use are assessed to tax on a scale charge of £500 per annum. However, from 6 April 2005 if you can show that the van is used mainly for business travel then no personal benefit charge will arise. In this respect the Inland Revenue ignore travel from home to work and back.

2. Are you VAT registered? If so, have you considered using the flat rate scheme? This scheme basically pigeon-holes various trades into differing VAT rates, so for example an IT consultant would only be liable to pay VAT at 13.5%, thus he still charges his customers 17.5% VAT and keeps the difference. The downside is that you cannot claim any VAT on your expenses. This scheme just got better as the rates have been reduced, thus allowing you to keep even more.

If you require assistance calculating whether the flat rate scheme would benefit you, or have any other VAT questions, then please call our VAT consultant Simon Levine on 020 8458 7427 or email simon.levine@glazers.co.uk.

3. Did you pay your self-assessment tax for 2003/04 on time? If you have not paid it yet and you want to avoid a 5% surcharge, then make sure the tax is paid by 28 February at the latest. If you need assistance or advice on any personal tax issues please call our personal tax partner Pratima Patel on 020 8458 7427 or email pratima.patel@glazers.co.uk.

4. Are you claiming tax relief for website expenditure? According to the Inland Revenue, building a website is not allowable as a trading expense, but updating and maintaining it is. Well our tip is that if you approach this carefully in a way that circumvents the Revenue's argument, you can then claim a tax deduction for pretty much all the expenditure. If you want to know more about this area of taxation please contact our corporate tax partner Darren Specterman on 020 8458 7427 or email darren.specterman@glazers.co.uk. and he will be happy to assist.

5. Have you made a significant capital gain this tax year and would welcome advice on the various ways of mitigating the tax on it? Well our Director of Financial Services David Higgins can help you. He can advise on various tax shelters, such as Enterprise Investment Schemes, Film Partnerships and Technology Partnerships.

If you want to save tax give David a call on 020 8458 7427 or email david.higgins@glazers.co.uk.

1. If you have given substantial amounts to charity, then why not consider electing to carry back gift aid donations paid between 6 April 2004 and 31 January 2005 to the tax year 2003/04 and achieve a reduction in your January tax liability.

2. In order to avoid late tax return filing penalties you should either ensure all your 2003/04 tax is paid by 31 January 2005, or submit your tax return by that date. The normal late-filing penalty is £100, but the penalty cannot be more than the amount of tax unpaid.

3. If you want to top up your pension and carry back this payment to 2003/04, then you must make the payment at the latest by 31 January 2005. You need to make the claim to carry back by this date as well. Remember this useful carry-back facility can give rise to tax refunds which can be useful at this time of year.

4. Have you made a significant capital gain this tax year and would welcome advice on the various ways of mitigating the tax on it? Well our Financial Services team can probably help you. They can advise on various tax shelters, such as Enterprise Investment Schemes, Film Partnerships and Technology Partnerships. If you want to save tax, give our Financial Services Director, David Higgins, a call on 020 8458 7427 or email david.higgins@glazers.co.uk.

5. Are you making the most of tax-free benefits-in-kind for your staff? For example, providing mobile phones, lending computers, paying relocation expenses, etc. There are many more ways of paying your staff tax-efficiently which you could be taking advantage of.

If you would like help with any of the points above, contact either of our tax partners, Darren Specterman or Pratima Patel, on 020 8458 7427, or email darren.specterman@glazers.co.uk. or pratima.patel@glazers.co.uk.