By "other-half" we mean your live-in partner, who you are not married to, or joined to in a registered civil partnership. Such relationships are often long term and as stable as many marriages, but they can't normally take advantage of tax breaks available to married couples. That is until we got the result of the Arctic Systems case (see August newsletter), which confirmed that tax rules which apply to husband and wife companies do not apply where the company owners are not married.

Say you own all the shares in your company. You could give away some of those shares to your other-half, or they could buy shares from you, to allow them to receive the dividends paid on those shares. If you cannot benefit from the dividends that are paid on the shares you gave away (or sold), you cannot be taxed on those dividends. So the Taxman can’t challenge the split of dividends between you. This can result in less tax being paid in total between you if income is shifted from the person paying higher rate tax to one paying lower rate tax.

There is a small chance that where your other-half uses the dividends to pay for general household expenses, the Taxman could argue that you are benefiting from those dividends. But if you both contribute equally to the household costs, from your own bank accounts, one person cannot be said to be supporting the other.

There can be other tax considerations of transferring the shares in relation to both Capital Gains Tax and Inheritance Tax, so please contact us for advice before doing so.

There is certainly more scope now for tax planning with unmarried couples, but the Government is planning to change the law, which may hit married and unmarried couples equally. We will keep you updated of any changes that occur.

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May we remind all our clients that the renewal date for our tax investigation insurance scheme is 1 September 2007.  There is a short period of grace for late renewals, so if you havn't already renewed, please send us your completed application form and cheque without delay.  If you aren't already in the scheme, you still have time to join.  

The scheme covers enquiries which are opened by HMRC during the scheme year, and HMRC can start an enquiry typically three years from the period being investigated, so it is important to keep the insurance cover in place even if you have recently ceased self employment as they can still go back to enquire into your 2005 affairs.

To recap, the scheme covers you for the professional fees of ourselves and others (such as tax specialists) to defend your position in the event of HMRC investigating your previous tax returns, including personal self assessment, PAYE, VAT and corporation tax.  Without such insurance in place, you face hundreds if not thousands of pounds of fees to defend yourself.  Even those with simple tax affairs and who have done nothing wrong often lose out because HMRC don't have to repay the fees you incur in successfully defending yourself.

Whilst you don't have to join our scheme, we do recommend that you have adequate cover, perhaps under your business combined insurance policy or as a benefit of membership of a trade association such as the Federation of Small Businesses.  If you are an IT contractor or similar worker, then the Professional Contractors Group offer this and offer insurance.

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Tax demands are never welcome, but sometimes they come out of the blue. If you have received an unexpected tax demand, don’t panic. The Taxman does get his calculations wrong, even in the most straightforward of cases, so please ask us to check that the amount demanded is correct.

Once you know the tax due is correct, you need to work out how and when you are going to pay it. Look carefully at the tax statement; it may be asking for the tax to be paid at some point in the future and to cover more than one tax year. Income tax and capital gains tax for 2006/07 will be due on 31 January 2008, with an on-account payment due on the same date for 2007/08. Where the tax demanded for 2006/07 was due to a one-off jump in your income, you can ask for the estimated tax payment for 2007/08 to be reduced, perhaps to nil.

Where you owe less than £2,000, the tax can be collected through your PAYE coding for 2008/09. This will spread the tax payment over a whole year, so will be far less painful. You can ring the Taxman and ask him to adjust your PAYE code number, or we can do that for you.

If the tax is due immediately, such as late paid PAYE or corporation tax, don’t put-off dealing with the demand, as the consequences of not paying the Taxman can be pretty serious. If you are registered under the CIS to receive payments without deduction of tax, paying any tax late could mean you lose your gross payment status. That could seriously hit your cash flow.

When you receive a letter from the local Collector of Taxes (now called Recovery Office) you need to respond quickly, as these guys have a short fuse. If you really can’t pay all the tax due at once you can negotiate for time to pay, but that will usually mean presenting a list of your assets and liabilities to prove you do not have the funds. If you ignore letters from the Collector you could soon find bailiffs on your doorstep ready to seize your goods, including your car.

The Taxman can also take you to court for non-payment of tax, either to the local Magistrates for relatively small debts or to the County Court. If you lose the case you could be made bankrupt. So if you have any concerns over payment of tax liabilities please contact us for advice.

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Currently all workers are entitled to 4 weeks paid holiday a year, which amounts to 20 working days for those who work a 5 day week, including the eight bank holidays in the year. Many employers allow their staff to take bank holidays (or another day in lieu) in addition to their contractual leave entitlements, so their workers effectively get 28 paid days off per year. However, less generous employers will have to review their holiday arrangements following changes to be introduced this autumn.

From 1 October 2007 the statutory holiday entitlement will increase to 4.8 weeks (24 days), and from 1 April 2009 it will increase again to 5.6 weeks (28 days). So where an employer allows his workers to take 20 days plus bank holidays the change will have no effect, but workers who must currently count the bank holidays as part of their annual leave will gain extra paid holiday. 

The additional holiday entitlement for each worker is calculated according to the amount of the holiday year left to run from 1 October 2007, and the number of days they normally work per week. Say your holiday year runs to 31 December, and your standard working week is 5 days. Each full-time worker will be entitled to 21 days paid holiday in 2007 and 24 days in 2008. We can help you calculate the extra holiday entitlement for part-time workers and those that join or leave part way through the year.

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The taxable benefit of using a company van for private journeys is now £3,000 per year, plus an extra £500 if fuel is provided. If you pay tax at the 40% rate, that amounts to an additional tax bill of £1,400. Compare that to the benefit of using a company car that cost say £22,000 with a CO2 emissions rating of 178gr/km. The total taxable benefit of car plus fuel would be £8008, which at the 40% rate is a tax charge of £3293.20 for 2007/08.

Most company vans are hardly suitable for using for family transport, but there are some very comfortable double-cab pick-ups that do count as vans for tax purposes. There are two criteria to meet:

• The vehicle must be designed primarily to carry goods or other loads; and
• It should be designed to take a payload of at least 1 tonne, but weigh no more than 3,500kgs, when fully laden. Anything heavier makes it a heavy goods vehicle which does not carry a benefit in kind charge for the driver.

The payload test can be tricky as a fibre-glass cover for the back will eat-into the payload amount. Check with the manufacturer or dealer about the payload for the particular model you are interested in, as a few kilos out will mean you pay tax of a percentage of the list price as a company car, rather than the flat rate benefit of £3000 as a van.

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If you make a loss, it is often possible to claim a tax refund or reduction in your tax payments.

As a sole trader or partner, you can offset a trading loss against your other income on which you are paying tax, such as employment income, to claim a tax refund.

If you make a "capital loss", i.e. a loss on selling an investment, such as property, a business, or shares, you can carry the loss forward indefinately against capital gains in the future.  If you hold shares in a quoted company which become worthless, you can still claim a capital loss even though you never actually sell the shares.

The thing with losses is that at the time you make a loss, you may not be able to claim relief so many people forget about it.  BUT, you only have a short period of time to claim your loss by making a formal claim to the tax inspector, so it is important to make a formal claim for every loss you make, even though you don't expect to be able to claim relief for it.

We often see cases where a client makes a capital profit but then remembers some shares they had say 10 years earlier that made a loss.  Unfortunately, because they didn't claim loss relief at the time, they are time-barred and those losses can't be used now to reduce the capital gains tax on more recent profits.

If you think you have made losses in the past six years, please get in touch with us without delay so that we can help you make the necessary claims to protect your losses to set against future profits!

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Q. One of my employees has died suddenly and I want to make a lump-sum payment to his family. Will this be tax deductible for my company and will the family be taxed on the payment?

A. Any lump sum payment made in connection with the death of a serving employee is tax free for the recipient, as long as that payment does not constitute an un-approved retirement benefit scheme. The payment should also be tax deductible for your company as it is made in connection with the termination of the employment of one of your staff, (unfortunately in this case by death).

Q. My bank paid me some compensation due to their mismanagement of my account. Is it taxable?

A. It depends whether the compensation relates to your business or private bank account. A payment in connection with your private account is a personal matter and is not taxable. If the payment was made in connection with your business bank account, and as a result of a claim being made to the bank, then it is a trading receipt and is taxable as part of your business. If the compensation payment was made without being asked for, (very unlikely from a bank) it may not be a trade receipt, and thus not be taxable unless was paid to replace an asset that was lost or destroyed.

Q. I'm on the flat rate VAT scheme for small businesses and have recently paid over £2,000 for membership of trade organisation. Can I claim the VAT back on that fee as a capital asset?

A. Under the flat rate VAT scheme you are not permitted to reclaim VAT paid on any purchase, unless it is a capital asset costing £2,000 or more. The capital asset acquired must be a physical good, not a service. So the payment to join the trade organisation does not qualify as a capital asset for the flat rate VAT scheme, and you can't reclaim the VAT.

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