Davis Burton Sellek Blog

The 9th October 2007 is clearly going to stand out in many Tax Advisers’ minds as one of those key dates in tax history, but unfortunately for all of the wrong reasons.

Dealing with the plus side first; the Inheritance Tax nil rate band is now transferable between spouses, which is good but only reflects what could be achieved with tax effective will drafting. The claim is available to surviving spouses and therefore provides backdated relief.

Now onto the real business!

Taper Relief & Frozen Indexation Allowance Abolished
So just 10 years after one of the biggest shake ups in the history of Capital Gains Tax (CGT) it is decided that taper relief should be withdrawn in favour of a flat rate of 18% regardless of how long an asset has been held or whether or not it is a business asset. So, for example, the tax due on an asset qualifying for the business rate of taper relief, taking a gain of £100,000 will almost double from £10,000 to £18,000 (an 80% rise). These proposals will not however take effect until 5 April 2008, providing a short window for planning.

Clearly action will be required, and those most likely to be affected are individuals, executors and trustees owning business assets and/or non business assets which have been held for several years. Although details of the proposed legislation will not be available until December, this should be possible with advance planning to “bank” claims to both Taper and Indexation Allowance.

Non Resident / Non Domicile
UK non domiciles will be faced with an annual tax charge of £30,000 on top of the tax due on income remittances, if they wish to continue to enjoy this basis of assessment. The tax charge will not bite until seven years have been spent in the UK and it is currently proposed to be applied to those who are UK resident but not domiciled. It remains to be seen how the proposed legislation will be extended to assets settled on trust or if, by becoming non resident for a year, this will then trigger a new seven year period in which remittance basis can be applied. Again, we will have to wait until December before the picture becomes clearer.

As if these plans were not enough, residency rules are to be tightened so that days of arrival & departure must be counted and the most popular methods of remittance planning outlawed.

If you would like to discuss any of these issues further please call and make an appointment with one of our personal tax experts.

Labels: Written by Mark Busby

Whilst in the media, the broadsheet headlines have been dominated with the increase in the IHT threshold for married couples, and the tabloid headlines with accusations of Darling stealing Osborne's thunder, it has been relatively easy to overlook the proposed changes to Capital Gains Tax (CGT).

A complete reform of CGT by abolishing taper relief and indexation and introducing a single rate of 18 per cent from 2008/09.

No more 40% CGT rates? No more 20% CGT rates?? The changes seem generous at first glance, but is there more to it?

Yes is the answer! Particularly for owners of small businesses where the effects of the withdrawal of indexation and business asset taper relief could be enormous.

Take, for example Mr X, a sole trader who sells his business thereby crystallising a gain of £100,000. Providing he has owned the business for more than 24 months the sale will currently attract business asset taper relief at 75%, leaving £25,000 chargeable to CGT. Should Mr X be a higher rate tax payer the effective rate on the gain is therefore 10% (CGT at 40% of £25,000 = £10,000 from the overall £100,000 gain). Of course should Mr X remain a basic rate taxpayer the effective rate of CGT is 5%.

When we take into account the fact that any assets owned pre April 1998 currently attract indexation allowance, which effectively increases the cost in line with indexation and takes the inflatory element out of a gain, the rates mentioned above can be pushed lower still.

However as from April 2008 taper relief and indexation allowance are to be withdrawn and the CGT due on Mr X's gain will be a straight 18% of £100,000. Almost double for higher rate taxpayers and more than treble for basic rate taxpayers!

Whether it was Mr Darling's intention to attack small businesses or not, it is clear that it is the entrepreneur and business community that are left to pick up the bill from this pre budget statement.

Labels: Written by Dean Hardy

After six months "penalty-free" under the new CIS regime, the penalties will finally kick in on 19th October. Any contractor's monthly returns (CIS300) due by that date, but not filed by then, will attract a minimum penalty of £100 each.

We say "minimum" because, in some cases, this could be grossly understated. The actual rules for late filing are that each return attracts a £100 penalty:

1. Per month
2. Per 50 subcontractors.

Let's say, for example, that ABC Ltd has 60 subcontractors and the June 2007 return went astray and was subsequently not filed on time. If this return is not filed by 19th October, this will attract a penalty of £800. Don't believe us? See below:

• The June 2007 return covers the tax period 6th June to 5th July. This is due for filing by 19th July. Late filing would attract a penalty of £100 but, as there 60 subcontractors (i.e. more than 50) this increases by a further £100.
• This penalty applies per month that the return is late. Missing the 19th July deadline will incur a penalty of £200 (see above). Missing 19th August, 19th September and 19th October deadlines as well will total £800.

The official statistics are worrying too. Since new CIS came into existence, only a maximum of 59% of all contractors have managed to file their return on time. (Source: HMRC press release) This information suggests that the late/non-filing trend over the summer could have netted HMRC at least £62million!

October also sees the commencement of the compliance review process. This presents a further problem: those contractors who haven't got up to date yet, but who are registered for gross payment, could lose their gross payment status. Under the review process, contractors will be reviewed annually to ensure that they have complied with their tax obligations throughout the period since 6 April 2007. Failure to comply could make things difficult, both from a commercial and financial perspective.

The rules allow certain breaches to be overlooked, and the following will not compromise gross payment status:

Any, or all of the following in any twelve month period will be ignored:

• Three late submissions of your CIS monthly return - up to 28 days late.
• Three late payments of CIS/PAYE deductions - up to 14 days late.
• One late payment of Self Assessment tax - up to 14 days late.
• Any employer's end of year return (form P35) made late.
• Any late payments of Corporation Tax - up to 28 days late, including where any shortfall in the payment has incurred an interest charge but no penalty.
• Any Self Assessment return made late.

To read more about retaining your gross payment status, have a look at our news article on the subject.

If you need help with your CIS filing obligations, contact Tanya Matheson at our office today for assistance.

Labels: Written by Tanya Matheson

H.M. Revenue & Customs say that they are issuing interim penalties for outstanding 2006-07 Employer Annual Returns from 24th September 2007. Penalty notices will be sent out where records show that 2006-07 Employer's Annual Returns (P14s and P35s) and 2006-07 Contractor's Annual Returns (CIS36) which are due have not yet been received.

These returns were due by 19th May 2007. The penalty is levied at £100 per 50 employees and/or subcontractors for each month a return is outstanding, as at 19th September 2007. If the return has not yet been filed that already amounts to £400.

HMRC's advice is to send in outstanding returns immediately. If no return was due and a penalty is issued, employers have 30 days to appeal.

Late returns will still attract an online filing incentive of £150 tax-free if an employer has fewer than 50 employees, and submits the return online.

HMRC will be sending out further interim penalties later in the year where any return remains outstanding, and final penalties will be issued on receipt of the late return.

For the 2005-06 tax year, many penalty notices were sent out in error and evidence would suggest that the same thing is happening 2006-07. There have been a number of instances where penalty notices have been wrongly issued to clients. The various Annual Returns were filed online long before the due date and confirmation/receipt of filing received from HMRC!

A particular 'problem' date for HMRC appears to be the 17th May 2007, with many Annual Returns filed online on this particular day. It would appear that the vast majority of these Annual Returns are still in the queuing system at offices to which they relate, with penalty notices automatically being generated due to non-processing of Returns. Although the Revenue has vastly improved its online filing capabilities, a number of problems still exist.

If you have received a penalty notice and you feel it should not apply feel free to contact our Payroll Manager, Sam Hillier, and we can attempt to resolve the situation on your behalf.

Labels: Written by Colin Willett

The Shadow Chancellor George Osborne has been grabbing the headlines this week with his announcement at the Tory Party Conference that under a Conservative Government the Inheritance threshold would be lifted to £1m. And if that's not enough Stamp duty would be reduced to nil on purchases of less than £250,000.

What is somewhat surprising is the means by which he intends to fund this tax break - as a flat rate annual levy of £25,000 applied to individuals residing in the UK who claim non-UK domiciled status. On Monday Mr Osborne announced "There are currently a number of people living in Britain who register for non-domiciled tax status offshore. It is a good thing for Britain that they live here and bring their talent and their investment to our economy. I make this promise: I am not going to tax all that income as Gordon Brown has persistently threatened to do. But in return for that promise, and the certainty it brings, we will charge a flat annual levy of around £25,000 for those who register for non-domicile status".

The suggestion here is that in exchange for £25,000 per annum an individual would enjoy immunity from investigations by H.M. Revenue & Customs into their offshore income streams and Capital Gains. While this may seem like a gift to the super wealthy (who probably pay as much, if not more, to their tax advisors to protect their incomes) it could leave a number of middle income non-domiciled individuals in a much disadvantaged position when one considers that foreign income would have to exceed £62,500 to make paying the levy a viable financial option.

While the Shadow Chancellor's statement can only be viewed as an aspiration at this point it would appear, at face value, that under a Conservative Government Non-UK Domicile status is destined to become the preserve of the elite.

Labels: Written by Mark Busby

As of the 30th September the first deadline relevant to the Self Assessment regime for filing individual Tax Returns expired. But what effectively does this mean and what can be done about it?

Firstly it should be noted that there is no financial penalty for missing this deadline. There are, however, two implications:

Firstly, H.M. Revenue & Customs (HMRC) will not extend the facility to have underpayments of tax, being less than £2,000 in value, collected through the following years coding notices. Instead the tax will be demanded in one payment on 31st January 2008 (for 2007 Tax Returns).

Secondly, HMRC will not undertake to calculate tax due on your behalf. In practice what will happen is that, in the case of a repayment, it will not be issued for several months. In the case of tax due, HMRC may not have calculated the liability by the due date of payment, which is 31st January 2008, leaving the taxpayer with a bill for interest and possibly surcharges of 5%.

It is however worth checking the date on which your Tax Return was issued as if this was after 1st August the filing deadline is two months from the date of issue, This thereby preserves the advantages mentioned above until that later filing date.

For those who miss the 31st January 2008 deadline a £100 fixed penalty awaits so there is no time to delay.

If you have missed the 30th September deadline, and wish to obtain professional advice for your own peace of mind, why not come and speak to us as in many cases we may be able to resolve your problems.

Please contact either Mark Busby at mark.busby@dbsellek.co.uk or Dean Hardy at dean.hardy@dbsellek.co.uk. Alternatively you can phone the office to speak to either on 01344 620495.

Labels: Written by Mark Busby