Business News June 2006

Proposed Trust And Tax Return Changes

Last month we reported on the proposed inheritance tax (IHT) changes for trusts. The professional bodies are lobbying HMRC and the government to reconsider the rules and we will keep you in touch with developments. If you have a trust, created before Budget day, there is no need to take any immediate action as the IHT charges will not generally take effect until 2008.

You will no doubt remember we also reported the surprise announcement, made at the same time as the Budget, of the proposal to bring forward the tax return submission deadline from 31 January to 30 September for paper returns, and 30 November for electronic ones. Once again the professional bodies are campaigning against this proposed change.

We will keep you informed of developments concerning both of these issues.

Internet Link: Chartered Institute of Tax (CIOT) tax return deadline article and CIOT trust article

Will Your Business Win During The World Cup?

Independent shopkeepers are expected to score a higher percentage of alcohol sales than the big supermarkets during this summer’s football World Cup. Scottish and Newcastle UK predicts that independents will account for two thirds of the extra sales of beer to be drunk at home during the tournament.

The World Cup may also cause your business problems, according to the Federation of Small Businesses, which says that increased trade may be offset by staffing crises caused by employees skipping work to watch matches. They advise that employers should be reminding employees of holiday booking procedures and consider flexible working arrangements.

Internet Links: Independent Retail News article and Federation of Small Businesses press release. For those of you who want to know when the matches are BBC World Cup schedule

Restaurant Tips And Troncs

HMRC have issued revised guidance on the treatment of tips and troncs. This issue has been the subject of debate for some time with HMRC changing their guidance. Part of their recent attack was aimed at troncs, schemes operated by employees (and not the employer) to collect and distribute tips to other employees and, in particular, the National Insurance Contributions (NICs) due on tips distributed through troncs.

HMRC now appear to have backed down and have amended their booklet, E24, Tips, Gratuities, Service Charges and Troncs, to make changes to the section on the NICs due on tips and gratuities.

The booklet had advised that if the contract of employment indicated that the employee would be able to participate in the tronc, any payments made by the tronc were liable for NICs because they were contractual payments. HMRC now accept that these sorts of payments are to be disregarded from earnings and are not liable for NICs provided that the employer is not allocating, directly or indirectly, the tips.

It is important to make sure that you are complying with the current guidance as you do not want to be paying expensive NICs unnecessarily.

Internet Links: For HMRC’s amended tips and troncs advice and HMRC booklet E24

Small Companies And Their Associates

A decision in the High Court has overturned HMRC’s usual interpretation of the rules on associated companies. The small companies rate of tax of 19% is payable where a company’s profits are less than the upper limit of £300,000. Where the company has associates (broadly companies under common control) the upper limit has to be divided equally between the companies, resulting in the companies paying higher rates of corporation tax if they breach this reduced limit.

The case concerned a company, which had at one time been a trading company but now only owned former trading premises, some of which were being let to an unconnected business. Although the company was indeed receiving income it was held not to be trading or in business for the purpose of the associated company test. This meant that it was not treated as associated for the purposes of dividing the upper limit.

If your company has associates it may be appropriate to review the situation to see if it can benefit from this change and save some tax.

Internet Link: HMRC vs Salaried Persons Postal Loans Ltd

P11D Dispensations

Last month we reported that forms P11D which report details of employees’ benefits in kind and expenses have to be with HMRC by 6 July. Some of you will no doubt be trying to collate the necessary information to prepare these forms which is a time consuming process.

Employers who obtain a dispensation from HMRC only generally need to report taxable benefits without having to report details of expense payments. These expense payments such as payments for travel (taxis, train fares and parking) and subsistence costs (hotel bills and meals) which would normally not result in a taxable benefit as they are ‘incurred in the performance of the duties of employment’. Unfortunately the tax rules state that these payments have to be reported by the employer on forms P11D and then claimed as tax deductible personally by the employee.

HMRC have issued a new form to enable employers’ to apply for a dispensation which is far more detailed than the previous version. A dispensation should only be applied for where your expenses procedures would stand up to close scrutiny and we can help to check if this is the case.

If you already have a dispensation it may be time to review it to check it still accurately reflects your businesses procedures.

Internet Link: HMRC guidance and form P11DX

Businesses Get Disaster Planning Help

Under the Civil Contingencies Act local authorities are now obliged to help businesses plan for disasters such as fires, terrorist attacks and bird flu. The new services, launched recently, are designed to ensure that disasters cause as little damage to the economy as possible and businesses continue to trade.

A survey by the Cabinet Office and the Chartered Management Institute of 1,150 firms and public sector organisations found that while disaster planning was seen as important by the majority, less than half had actually put together a plan.

The most common business disruptions are currently the loss of IT, followed by the loss of key staff and then phone system failures.

Internet Links: Telegraph article to read the government’s guidance go to Preparing for emergencies and www.ukresilience.info

How Much Spam?

Did you know that more than 1,000 emails were sent every second in the UK last month. Nine out of ten were spam according to research by search engine provider Lycos. The worst offenders are finance and pharmaceutical firms. Record numbers mean some people are reaching ‘email overload’, with 12% of users receiving more than 200 messages a day.

If you want to cut out some of this spam, and some of the time it wasted in dealing with it, make sure you and your business have the necessary spam controls in place.

Internet link: Lycos survey icwales

Practical Guidance On Age Discrimination

ACAS have published a free guide for business owners to help them prepare for the regulations which take effect from 1 October 2006. The guide looks at key areas such as recruitment, appraisal, promotion, redundancy and retirement. The guidance is being produced now so you can review your procedures before the legislation takes effect.

The guidance answers questions such as Can I ask for dates of birth on job applications?

Internet link: ACAS Age and the workplace guide

HMRC And Offshore Assets

There has been a lot of recent publicity about HMRC formally requesting financial institutions, including Barclays, to deliver up details relating to offshore bank accounts. This is clearly a major offensive by HMRC, who seem to feel that many UK residents ‘hide’ monies offshore.

HMRC have published some guidance about how additional income should be reported to them.

Internet Link: HMRC guidance

New Funds Available

Two new Enterprise Capital Funds (ECFs) are to be created under a multi-million pound government scheme to boost innovation, jobs and growth for small businesses trapped in the equity gap, Small Business Minister Margaret Hodge has announced.

ECFs invest a combination of private and public money in small high-growth businesses seeking up to £2 million of equity finance. It is expected that the funds will help to address the scarcity of equity capital in the £500,000 to £2m funding bracket.

Small Business Minister, Margaret Hodge MP said:

"These new funds will help many small businesses that might otherwise have been unable to develop their potential because there was no equity finance available to them. These funds demonstrate how the government is actively working with private investors to create an environment where British businesses are given the world-class support they need to succeed.”

Internet Link: DTI press release

Benefits In Kind Forms P11D Are Due

It is time to start gathering together the information to complete the forms P11D which report to HMRC details of benefits and expenses provided to employees and directors in the tax year to 5 April 2006. The forms have to be submitted to HMRC by 6 July so you have some time to track down the relevant information and to complete the forms.

Some things to be aware of:

Company cars
The benefit is based on a percentage of the list price plus accessories – not what the business paid for the car. The percentage is linked to the CO2 emissions of the car.

Provision of fuel
Employees provided with free fuel for private as well as business motoring will be assessed on a further benefit calculated as a percentage linked to the CO2 emissions of the car and a set figure of £14,400. This is a good time to check whether or not the individual would be better off paying for their own private fuel. Don’t forget that the employer also pays 12.8% employer only Class 1A NIC on the value of broadly all benefits in kind so there is a saving for the business as well.

Vans
During 2005/06, for the first time, we had the situation that where the private use of van is restricted to ordinary commuting (home to work) then the scale charge of £500 can be avoided. Make sure that contracts and staff handbooks have been amended to reflect the change as well as employees abiding by the rules before deciding not to include the benefit.

Incidentally the £500 benefit is set to increase six fold to £3,000 from 6 April 2007 so it may be time to think about planning for this change as you will need to consult with employees and put contractual changes and monitoring procedures in place.

Incidental overnight expenses
HMRC allow employees to be paid £5 a night (£10 if overseas) for personal expenses frequently extras on hotel bills which are tax-free. Unfortunately if the limit is exceeded the full payment becomes taxable. Make sure you are monitoring these expenses carefully and reporting any amounts that should be taxed.

Internet link: HMRC form P11D guidance

Are Your VAT Details Up To Date?

HMRC have issued a reminder to businesses to ensure that their registered details are up to date. Details to check are principal place of business, bank sort code and account details (used for repayment purposes). Changes need to be advised to the relevant regional registration unit. HMRC will advise businesses of the relevant office on calling the National Advice Service on 0845 010 9000.

Internet link: HMRC VAT notes 1

Charities – Dedicated One Stop Shop Helpline For VAT And Tax Queries

HMRC have set up a specialist office providing advice to charities – and those dealing with charities (individuals and businesses). The HMRC Charities helpline phone number is 08453 02 02 03.

Internet links: www.hmrc.gov.uk/charities You can email them at Charities@inlandrevenue.gov.uk

Data Protection Guidance For Mailing Lists

Additional guidance on complying with the Data Protection Act 1998 when buying or selling databases containing personal information has been published. The guidance suggests that where the information comes from a business which is closing down or being sold, that individuals whose names are included must be told about the change of ownership.

Internet link: ico guidance

Family-Friendly Policies Take Off

Research into the effects of the family-friendly legislation introduced in 2003 has found a big increase in the number of working parents taking advantage of benefits such as flexible working.

Nearly 50 per cent of mothers and 31 per cent of fathers worked flexible hours last year, compared with 17 per cent and 11 per cent respectively in 2002, according to a survey by the DTI and the Department for Work and Pensions (DWP).

The legislation also extended maternity leave and introduced paid paternity leave. The survey also showed that last year, mothers took an average of six months' maternity leave compared with only four months in 2002.

Interestingly the number of fathers taking two weeks' paternity leave also increased from 22 per cent in 2002, to 36 per cent last year.

The DTI and DWP also claim the legislation has improved retention rates. The number of women who changed employer when they returned to work after maternity leave dropped from 41 per cent in 2002 to 20 per cent last year.

Alan Johnson, minister for trade and industry, said "Employers recognise the benefits of better enabling employees to balance work and home lives. It saves time and money on recruitment and training while ensuring they keep the staff with the skills they need."

Internet link: DTI survey

Confusion Over Workplace Training Scheme

A £400 million government scheme designed to improve opportunities for workplace training has been launched. But according to the Daily Telegraph, vital details of the scheme, called 'Train to Gain', have not been published, and the detail about the level of compensation available to small businesses participating are unavailable. The scheme aims to involve 50,000 businesses and 300,000 workers in its first year.

Internet link: telegraph article

Delay On Sunday Trading Decision

The government has delayed its decision on whether to extend superstores’ Sunday opening hours until next year. Retail giants have been campaigning to have the law changed to allow them to trade for nine hours on a Sunday, rather than the six currently permitted. The DTI is holding a second consultation amid opposition to the plan from small businesses. The Association of Convenience Stores (ACS), backed by more than 200 MPs, has been campaigning against the proposed change and claims that 68% of the public oppose longer Sunday hours.

Internet link: acs article

New Inheritance Tax Rules

The chancellor, Gordon Brown has revised his proposed Budget measures in respect of trusts, following protests by the life assurance industry and MPs amongst others.

HMRC have published additional guidance with the draft Finance Bill, which states that there will be no ‘retrospective tax charges’ to trusts. What the guidance fails to explain is that there will be new charges to certain existing trusts if the terms of the trust are not changed.

All future as well as existing bare trusts are not affected by the changes. An example of a bare trust would be a life insurance policy set up to pay off a mortgage if a person dies, and this remains outside the new rules.

The Finance Bill sets out the details of how the rules for Accumulation and Maintenance (A&M) Trusts and Interest in Possession (IIP) Trusts announced in the Budget, will be applied. Lifetime transfers into accumulation and maintenance trusts or interest in possession trusts have always been exempt from inheritance tax (IHT) if the settlor lived for the next seven years. These trusts have also not been subject to the periodic or exit charges suffered by other trusts.

Legislation has been proposed to make these types of trust immediately chargeable to IHT.

The new rules will apply from 22 March 2006 to new trusts and to additions of new assets to existing trusts. There are transitional provisions which will apply to existing trusts in the period up to 6 April 2008.

The new rules will apply the provisions currently relating to discretionary trusts to both A&M and IIP trusts. So there will be:

a chargeable transfer on entry with a lifetime rate of 20%;
a periodic charge of up to 6% every ten years; and
an exit charge when funds leave the trust between periodic charges.

There will be some limited exceptions to the new rules.

Existing A&M trusts which provide that the assets in trust will go to a beneficiary absolutely at 18 – or where the terms on which they are held are modified before 6 April 2008 to provide this – the current IHT treatment will continue.

Where the entitlement rules are different, the trust assets will become ‘relevant property’ from 6 April 2008 and the periodic and exit charges will apply.

The current rules for existing IIP trusts will run on until the interest in the trust property at 22 March 2006 comes to an end. Any subsequent trust will broadly fall to be assessed to the periodic and exit charges.

Where a trust is set up by a will, then the trustees will have two years to alter the terms of the trust to comply with the new rules. In this period any changes they make will be treated as if made in the will itself.

Internet links: Guidance note and Q & A section