At present purchases of qualifying plant and other equipment can be written off against your taxable profits.
Tax relief is obtained by utilising the Annual Investment Allowance. For the current tax year, 2011-12, this amounts to a 100% write off with a limit of £100,000.
As with most opportunities all good things come to an end! From April 2012 the annual limit is being reduced to £25,000.
So if your plans over the next year or so include substantial investment in replacing worn out, or buying new, qualifying equipment, timing is absolutely critical.
Call us if you would like more information about these changes.
A dispensation is a notice from HM Revenue & Customs (HMRC) that removes the requirement to report certain expenses to them at the end of the year on forms P11D or P9D. There is also no need to pay any tax or National Insurance contributions to HMRC on items covered by a dispensation.
Once granted, dispensations last indefinitely. However, HMRC reviews them regularly – usually at intervals of five years or less – to make sure that the conditions under which they were issued still apply.
Expenses generally covered by a dispensation are:
- travel, including subsistence costs associated with business travel
- fuel for company cars
- hire car costs
- business entertainment expenses
- credit cards used for business
- fees and subscriptions
HMRC strictly apply the dispensation from the date they accept an application, although in most cases they will agree to retrospective cover to the beginning of the current tax year.
The application process is fairly straight forward, complete and submit form P11DX. Do take care in completing the form. If you are at all unsure of the answers to the various questions, or would like us to apply for you, please contact us.
Don’t forget that from 6 April 2011 the HMRC approved amount you can claim for the business use of your own car is 45p per mile (previously 40p per mile).
The 45p rate applies to the first 10,000 business miles claimed in a tax year, after that the rate reduces to 25p per mile.
Employers are not obliged to pay at this rate but any rate paid up to 45p per mile will be effectively tax free to the recipient. Any payments in excess of 45p would need to be declared as a taxable benefit unless the recipient could prove that their actual motoring costs equalled or exceeded 45p per mile.
If employers pay, or have paid, less than 45p per mile (40p before 6 April 2011) employees can make a claim. For instance if an employer pays £25p per mile after 6 April 2011, the employees could claim 20p per mile on their tax return as an expense of their employment that they have not been reimbursed.
Before we deal with the issue raised by the title of this article it is necessary to outline the claims procedure.
In order to qualify for tax credits for the complete tax year 2011-12 it is necessary to make a claim before 1 July 2011 as claims can only be backdated 3 months.
Any claim now for 2011-12 would have to be based on your taxable income to 5 April 2011, the previous tax year. If your income for that year was over the tax credits threshold, and if you did make a claim before the 30 June 2011, the Tax Credits office would issue a ‘Nil Award’ for 2011-12 – effectively your claim would be recorded but no payments would be made to you.
Let’s say that you are self-employed, you have made no application for Tax Credits, and during the 2011-12 tax year your income dropped from £100,000 to £10,000 due to a number of factors:
- Loss of a major customer
- Bad debts
- Claim for purchase of new plant and equipment (to take advantage of the present 100% write down)
It only became apparent that your actual income would be at this level in June 2012 when your accounts were completed for the year to 31 March 2012 (the basis for your 2011-12 tax assessment). As you have made no claim for Tax Credits up to this point you could only backdate a claim to 5 April 2012. This being so you would receive no Tax Credits for 2011-12.
If, however, you had made a protective claim before end of June 2011, you could ask for your ‘Nil Award’ to be reassessed based on your actual earnings of £10,000 for 2011-12, instead of the earnings for the previous year amounting to £100,000. If all of the other qualifying conditions were satisfied you would then get a cheque for a full year’s tax credit claim.
This scenario does not just apply to the self-employed. Anyone, whose income fluctuates for whatever reason, may benefit in the same way. If it is likely that your income may drop in 2011-12, as compared to the previous tax year, please contact us now so that a protective claim can be put in place.
If HMRC send you a notice reminding you to fill in a Self Assessment tax return, you should do so!
But what happens if you are not presently reminded or required by HMRC to send in a return?
The following persons should notify HMRC that they need to submit a return even if HMRC are not presently asking them to do so:
- If you are, or become, self-employed, this includes being a member of a partnership.
- If you are a company director, a minister of religion or member of Lloyd’s
You are also required to send in a return if your income from the following sources exceeds:
- £10,000 or more income from savings and investments
- £2,500 or more income from untaxed savings and investments*
- £10,000 or more income from property (before deducting allowable expenses)
- £2,500 or more income from property (after deducting allowable expenses)
- annual trust or settlement income on which tax is still due (even if you’re only treated as receiving this income)
- income from the estate of a deceased person on which tax is still due
* Although there is no requirement to request a tax Return if your untaxed savings income is below £2,500, it is necessary that you advise HMRC to include the income as a deduction on your Notice of Coding.
- You are 65 and receive a reduced age related allowance
- You have any foreign income that is liable to UK taxation
- Your annual income is over £100,000
- You need to claim certain allowances or reliefs
- You have capital gains tax to pay
- You are a trustee
- If you have lived or worked abroad or you are not domiciled in the UK
- If you have untaxed income sources and are using personal allowances elsewhere
As you can see this is quite a list. Unfortunately it is the taxpayers’ responsibility to notify HMRC that they need to submit a return. If you have any doubts about your status please call.
Morris Cook Oswestry hosted the latest Best of Oswestry get-together on 26th May 2011.
Andrew and Sam shared their knowledge with guests on “the four ways to grow your business” and “key performance indicators”
Four reasons for filing your tax return on time
Late filing of your self assessment tax return for 2010-11 will be subject to a new penalty regime. The old £100 penalty has not proved to be the deterrent it was intended to be – too many tax payers are still filing late returns.
From October 2011, the last date for filing a paper return for 2010-11, four penalties now apply.
- From day one: you will be charged a £100 penalty even if you have no tax to pay or you have paid any tax due.
- From 3 months late: you will be charged an automatic daily penalty of £10 per day up to a £900 maximum.
- From 6 months late: you will be charged additional penalties which are the greater of 5% of tax due or £300.
- Over 12 months late: again additional penalties based on greater of 5% of tax due or £300. In serious cases this penalty may be increased up to 100% of tax due.
Don’t forget these penalties will be applied after 31 January 2012. HMRC will assume that you are going to file online if you miss the paper filing deadline of 31 October 2011. Under no circumstances should you post a paper return after 31 October 2011. This will trigger the new penalties.
Seek advice and file your return online before 31 January 2012.
Three reasons for paying your tax on time
Penalties for paying tax late are:
- 30 days late: initial penalty of 5% of tax outstanding.
- 6 months late: further penalty of 5% of tax still outstanding.
- 12 months late: further penalty of 5% of tax outstanding.
And on top of all this:
Interest will be added to any tax paid late including interest on unpaid penalties.
If you feel that you had a reasonable excuse for not filing on time it is possible to appeal.
HMRC are in the process of sending out renewal packs to Tax Credits claimants for the tax year 2011-12. If you wish to renew your claims, make sure that you submit the forms before the 31 July 2011 deadline otherwise your payments may stop.
The tax credits helpline number is 0845 300 3900.
Claimants should make sure that any information returned on their claim form is accurate. HMRC may check earnings details with employers.
Information you will need to report includes:
- Working hours
- Childcare costs
- Income details 2010-11.
Claimants on “nil awards” and those that only receive the full family element of Child Tax Credit will receive a statement setting out their 2010-11 award. If this statement is correct there is no further action to take, your claim should automatically be renewed.
New tax changes announced:
(Legislation to be included in the Finance Bill 2011)
Enterprise Investment Scheme and Venture Capital Trusts — the rate of income tax relief given under the Enterprise Investment Scheme (EIS) will be increased from 20% to 30% with effect from 6 April 2011, subject to State aid approval.
Company Car Tax Rate 2013-14 — Legislation will be introduced in Finance Bill 2011 to reduce the appropriate percentages by 1% for all vehicles with carbon emissions between 95g and 220g from April 2013. Zero emissions cars will remain at 0% and ultra-low emissions cars with emissions up to 75g will remain at 5%.
Fuel Benefit Charge 2011-12 — Employees and directors who are provided with a company car and who also receive free fuel from their employers are subject to the fuel benefit charge. The cash equivalent of the taxable benefit is determined by multiplying a set figure (currently £18,000) by the appropriate percentage for the car, based on its CO2 emissions (grams per kilometre). This set figure will increase to £18,800 with effect from 6 April 2011.
Approved Mileage Allowance Payments Rates from 2011-12 — Where employees use their own cars for business mileage, they can claim reimbursement from their employers through the approved mileage allowance payments rates (AMAPs). These payments are not treated as taxable benefits. The current higher rate of 40p per mile for the first 10,000 business miles is to be increased to 45p. The rate for mileage over 10,000 miles remains at 25p.
Capital Gains Tax Entrepreneurs’ Relief — The lifetime limit on gains qualifying for entrepreneurs’ relief is to be increased from £5 million to £10 million with effect from 6 April 2011.
Capital Gains Tax Annual Exempt Amount — This will increase to £10,600 with effect from 6 April 2011.
Corporation Tax Rates:
Capital Allowances: Short Life Assets — Businesses incurring expenditure on an item of plant or machinery from April 2011 onwards will be able to make a short life asset election in respect of that item if they expect to sell or scrap it within an eight-year cut-off period. This is an extension from the current four year period.
Research and Development Tax Credits for SMEs — The rate of the additional deduction for expenditure on research and development (R&D) for companies that are small or medium sized enterprises (SMEs) is to increase from 75% to 100% from 1 April 2011, giving a total deduction of 200%.
Supplementary Charge — To help fund fuel duty decreases announced today, the rate of the supplementary charge levied on profits from UK oil and gas production will increase from 20% to 32%.
Bank Levy — The Bank Levy rates will be increased from 1 January 2012 to offset the benefit to banks of the further decreases in corporation tax rates.
Business Rate Discounts in Enterprise Zones — The Government announced the creation of 21 new Enterprise Zones. 100% business rate discount for five years will be offered to businesses located in Enterprise Zones.
Extend Small Business Rate Relief (SBRR) Holiday — The SBRR holiday will be extended by one year from 1 October 2011.
Gift Aid Donor Benefit Limits — The maximum value of benefits that individuals and companies may receive as a result of making a donation to a charity of more than £10,000 under Gift Aid is to be increased from £500 to £2,500. The new limit will be subject to the existing rule that the benefit must not exceed 5% of the gift.
Alcohol Duty Rates — Changes announced today will add:
The changes will take effect on 28 March 2011.
Tobacco — Tobacco duty rates will increase by 2% above the rate of inflation. Duty on hand rolling tobacco will increase by an additional 10%. The Government is also restructuring cigarette duty. Ad valorem duty on cigarettes has been reduced to 16.5% and specific duty has been increased by 25% above inflation. These changes came into effect at 6pm on 23 March 2011.
Fuel Duty Rates — The following changes in fuel duty were announced today:
Vehicle Excise Duty — From 1 April 2011, VED rates will increase by indexation only apart from VED rates for heavy goods vehicles which will be frozen in 2011-12.
VAT: Registration and Deregistration Thresholds — The following changes will be made to the VAT registration and deregistration thresholds from 1 April 2011:
Anti Avoidance Measures – A number of complex anti avoidance measures are to be introduced. In summary the schemes affected include:
Time To Pay — Budget 2011 also confirmed that HMRC will continue its Business Payment Support Service to provide advice and time to pay to viable businesses experiencing temporary financial difficulty.
Tax reliefs to be Abolished – As part of the Governments Tax Simplification process the following tax reliefs are withdrawn from April 2011:
The changes will take effect on 28 March 2011.
Future changes announced:
Income tax and NICs Reform — The Government has announced that it will consult on the options, stages and timing of reforms to integrate the operation of income tax and National Insurance contributions (NICs). If this progresses to legislation, it will be a major reform of the UK tax system.
Enterprise Investment Scheme and Venture Capital Trusts — Subject to State aid approval, legislation will be introduced in Finance Bill 2012 making the following changes to the Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT) which will have effect on and after 6 April 2012:
Inheritance Tax Changes:
Business Premises Renovation Allowance — The Government has confirmed it will extend the allowance for a further five years from 2012.
Review of Non-Domicile Taxation — At the June Budget 2010, the Government confirmed that it would review the taxation of non-domiciled individuals. The Government will introduce the following reforms: