On 24 January 2008, in response to pressure from the business community, the Chancellor announced a new 'Entrepreneurs’ Relief'. The first £1m of gains qualifying for relief will be charged at an effective rate of 10%.  

The headlines, as the Chancellor obviously hoped, gave the impression that this is very good news and some commentators thought that this put the small business owner back in the same position as before.  Unfortunately, for the smallest of businesses, the capital gains tax on the sale of a business, or business property, will continue to be vastly higher if they sell on or after 6 April 2008 compared with a sale on or before 5 April 2008.  

Our advice continues to be that if you were thinking of selling a business or a business property, then you should aim to sell on or before 5 April 2008.  If you are currently trading as a sole trader or partnership business, then it may make sense to incorporate your business as a limited company prior to 5 April 2008 in order to realise the "goodwill" value of your business in the current lower tax regime.

As already mentioned in an earlier newsletter, the "winners" of the CGT changes are those people who have non-business investments, such as buy-to-lets and shares, so if you are in that category, you are probably better off by delaying a sale of shares or non-business property until on or after 6 April 2008!

Just a warning, though, the devil is often in the detail with the current Government, so until the "small print" is published, you need to tread very carefully as there is still time for changes to be made and for hidden "nasties" to appear, so really speaking, the best thing is to try to delay any important decisions until the finer details are known, hopefully contained within The Budget, usually in March each year.

Back to Table of Contents

The tax credits your family receives will refund you up to 80% of your childcare costs, to a maximum of £140 per week for one £240 per week for two or more children.

You can only claim for childcare you pay for up to 1 September following your child's 15th birthday, or 16th birthday if your child is disabled. When this date passes, or you stop paying for childcare for another reason, you must tell the Tax Credits Office as soon as possible.

You must also tell the Tax Credits Office whenever your average childcare costs go up or down by more than £10 per week. To work out the average you need to estimate the total amount you will spend on childcare for the whole of the year and divide by 52 to get a weekly total.

Remember it is only the fees paid to registered or approved childcare providers that you can claim for. If you start using a childcare provider who is not registered or approved, or they lose their registration then those costs cannot be claimed for.

Back to Table of Contents

It is now an annual event that HMRC send out an unbelievable amount of wrong PAYE tax code notices.  Usually, these are wrong because HMRC are ignoring details on the tax return and previous instructions to them.  The main areas of error are them wrongly including an underpayment from an earlier year when the taxpayer opts to pay the tax directly instead, and secondly, where they wrongly include other untaxed income in a PAYE tax code.  You, the taxpayer, have the right to ask that your PAYE tax code only includes things relating to the employment for which the tax codes apply - higher rate tax on other income, for example, tax on untaxed income, or tax underpayments from earlier years don't have to be included in your PAYE tax code at all.  Sadly, in some cases, HMRC make the same mistake year after year for the same people, simply because their systems seem to be programmed to ignore a taxpayer's instructions already given to them.  So, if you get a strange PAYE tax code, don't assume it is correct as the chances are it isn't.

Now, another annual saga - fines for late self assessment tax returns.  HMRC's systems are set-up to assume that a fine is due if HMRC think your tax return was submitted after the due date of 31 January.  If you receive an unexpected penalty, the chances are that it is wrong and you don't owe them.  HMRC are notorious for "losing" things - if you receive a penalty but can prove that you sent it to them in good time, they have probably lost it themselves and you should get the penalty waived.  Even if you did submit your return late, the penalty may not be due - the penalty for a late personal self assessment tax return cannot exceed the amount of tax due as at the 31 January - so if you paid your tax on time or was due a refund, you can demand that they reduce the penalty to zero - if your tax due is less than £100, then the penalty should be reduced to the amount of tax payable.  Finally, if HMRC knew you were liable to complete a self assessment tax return, but didn't send you a formal notice to complete one, then your filing deadline is 3 months after the date when they do eventually give you formal notice!

Back to Table of Contents

From April 2008 it is proposed that up to £50,000 spent on equipment in one year by any business will be set-off in full against the profits for that year. This allowance should cover most items of plant and machinery purchased by smaller businesses, although cars will not be included in this total. Where the expenditure on equipment exceeds £50,000 in one year the excess will be written off at a rate of 20% per year.

The actual "small print" has not yet been announced and it is possible that changes may be made in the March 2008 Budget, but as things stand, if you are thinking of buying any equipment for your business (including vans), and if you don't expect to spend more than £50,000 p.a. on equipment, then you are probably better off waiting to buy your equipment until after 6 April 2008 so that you get tax relief on the full cost of your purchases.

Conversely, if you are likely to spend at a rate higher than £50,000 p.a. (pro-rata'd), then you are probably better off bringing forward the purchase of the excess into the current tax year, i.e. before 5 April 2008, so that you continue to get the current 50% first year allowance, instead of only 20% if you delay until after 6 April 2008.

The tax savings are potentially high. Please get in touch if you are planning additional expenditure on equipment or premises.

Back to Table of Contents

It has just been announced that the 2008 Budget will be held on 12 March 2008.   It is highly likely that this Budget (or more likely, the unannounced small print) will have a major impact on small businesses, with new rules being introduced less than a month later, on 6 April 2008 in the following areas:-

- Capital gains tax for small businesses

- Capital allowances for small businesses

- "Income Shifting" legislation for partnerships and "husband & wife" companies

Our advice must be to make yourself ready to take whatever actions may be required in that ridiculously short time-frame between knowing what the new rules are going to be, and the date for their introduction.  If you are thinking of buying equipment or selling your business, then try to be flexible and not commit yourself to any fixed dates, as it is highly likely that a slight change in date could have a massive impact on your taxes.  If you operate as a husband & wife limited company, make sure that you maximise the dividends paid to the lower earning spouse whilst you can as you may not be able to do so after 6 April.

As always, please contact us to discuss your situation before taking any action as these matters are too serious to be dealt with by generic advice and there are often other factors to take into account.

Back to Table of Contents