When will you get your state pension?

As I am sure you are aware, historically men could take their state pension from age 65 and women from age 60. From April 2010 a process began to increase the age or women from 60 to 65. This change means that women born between April 1950 and April 1955 would retire later than they expected between May 2010 and April 2020.

The new proposals are that women born between April 1953 and December 1953 will have their State Pension delayed by up to a further 16 months. Men and women born between December 1953 and April 1954 will also have their State Pension delayed further. There are then future changes to increase the state pension age to 67 and then 68.

You can check for your actual State Pension age (based on your date of birth) at

http://pensions.direct.gov.uk/en/state-pension-age-calculator/home.asp

and see the new proposals in detail at

http://www.direct.gov.uk/en/Nl1/Newsroom/SpendingReview/DG_192159

Building Contractors and Developers failing to submit CIS Returns. What to do to avoid problems?

There are two different problems here. Firstly, contractors within the construction industry must submit monthly returns of their payments to and income tax deductions from sub-contractors. Secondly, sub-contractors may benefit from ‘gross status’ whereby the have no tax deducted from payments made to them.

For the contractor filing returns, it is vital that the monthly returns are filed on time (e.g. for return to 5 February by 19 February). If the return is late there is a penalty due which starts at £100 for each return which is late. Under current rules this increases by £100 each month until the return is 12 months late making a penalty of potentially £1,200 for each late return! New rules come in from November 2011 which changes the rules but, penalties can still be significant. There are further penalties if the tax which has been deducted is not paid over on time.

There are three things a contractor can do to avoid or minimse these penalties : (1) make sure they have processes in place to ensure that the Returns are filed on time and tax paid over when due and (2) if either a return or payment is made late due to unforeseen circumstances or events outside the contractors control, make sure that an prompt appeal is made that there was a ‘reasonable excuse’ for the delay. (3) if the new rules give a lower penalty, you can ask HMRC to apply these early.

For the sub-contractor with ‘gross status’ it is important that all the sub-contractors tax returns are submitted on time and all tax payments made on time. If the sub-contractor fails to do this they can lose this status and would then have 20% income tax deducted from all payments made to them by the contractors for whom they work – a very negative impact on their cashflow. This is a very wide field and includes a company’s Corporation Tax obligations, PAYE/CIS obligations and if a partnership/sole trade the individuals own Self Assessment Tax Returns. Some occasional minor delays can be overlooked, but it is dangerous to rely on this. Again if there are unforeseen circumstances behind the late payment or return, an appeal can be made on the grounds of ‘reasonable excuse’.

If you are a contractor or sub-contractor in the position where returns or payments are late and you think you have reasonable excuse, it is important to properly present your case to HM Revenue & Customs (or on appeal to the Tax Tribunal). The way the facts are presented can be important to whether the penalty is withdrawn or you keep your gross payment status.

How should you deal with the VAT Increase effective from 4th January

The standard VAT rate changes from 17.5% to 20% on 4 January, but the reduced rate (5%) and zero rate are unchanged.

Broadly if you raise a sales invoice on or after 4 January 2011 you should use the new (20%) rate of VAT. When dealing with suppliers invoices you should be guided by the date and therefore the VAT rate they have used.

If you use one of the special schemes for small businesses, there are special rules to consider.

Flat rate scheme : the rates will be increasing and you should check the new rate for your particular industry.

Cash accounting : remember that the invoice date normally sets the VAT rate not the date payment is received.

For most businesses using accounting software, the key is to make the appropriate change and be very careful to date entries correctly.

There are various anti-avoidance provisions to stop people abusing the change but as long as you are invoicing your customers normally, you are not likely to fall foul of these. If you are thinking of trying to encourage customers to pay up front to get the lower VAT rate, speak to us or you accountant to make sure your proposal works.

There is a helpsheet on our website covering the basic principles and how to make changes within Sage accounting software www.hjssolutions.co.uk

The government have changed the rules for pension contributions again, do you know what is happening?

You will have heard that the before the election the previous government was intending to limit the tax relief given on pension contributions for higher income taxpayers. The new government said it was going to review these rules as they thought they were too complex. The new rules were announced in mid October and apply from 2011/12.

The basic remains rule is that your personal pension contributions cannot exceed your £3,600 or your earnings, whichever is higher. For this purpose earnings are salary, bonus etc or profits from your own business.

There is then an ‘annual allowance’ which looks at the total contributions made by employee and employer – this limit is being reduced to £50,000. If you and your employer make contributions above this amount, you (personally) will be charged tax (at 20%, 40% or 50% depending on your income) on the excess. If you are a member of a defined benefit scheme HMRC look at the increase in the value of your accrued benefits to assess this £50,000 – this can be distorted if you are promoted and your salary increases significantly.

The lifetime allowance has also been reduced to £1.5m. If your ‘pension pot’ exceeds this amount when you start to take the benefits you will have to pay tax on the excess. This will be at 25% if you are taking income (the income is then taxable as you receive it) and 55% if you take a lump sum (no further tax).

Someone from HM Revenue & Customs has turned up on my office doorstep threatening ‘distraint’ for tax they say is unpaid. What does this mean?

Distraint is a process by which HMRC are able to take possession of and if necessary sell at auction goods to recover unpaid tax – it does not require a court order or judgement. To use this process the person visiting must be an HMRC officer, they cannot send a private bailiff. The normal process is that HMRC officer inspects and then lists the items which he intends to seize. Having done so he will want the taxpayer to agree to ‘walking possession’ whereby the goods are not removed and the taxpayer has time to make payment of the tax due, agree arrangements for the payment of the tax due or show that the tax is not actually due.

Your initial decision is whether to let the HMRC officer enter your premises – without a warrant he cannot break in. If it would show that you have nothing of value it may be worthwhile allowing this. However if you have valuable assets and the tax is not actually due, you may want to refuse entry while you take advice from your accountants and try to get HMRC records to show the corrected amount due, which may require the submission of outstanding returns. It is important that it is made very clear to the HMRC officer where assets are not owned by the taxpayer owing the debt.

Distraint is a serious process and it is important that you take immediate advice on your situation, particularly as the price obtained by HMRC if your goods are actually sold will usually be significantly less than the value you put on them.

What information do you really need to keep for the taxman?

HM Revenue and Customs advise that you should keep your personal tax and financial paperwork (non-business) for at least 22 months from the end of the tax year. This would mean keeping the papers for the 2008/9 tax year until at least 31 January 2011. If you submit your Tax Return late you need to keep the supporting papers for 15 months from the submission of the Return.

Having seen the problems caused by not having the necessary papers available, I would keep some papers for rather longer. These would include :

• Any details on the purchase of assets you still own, whether this is a property, shares, valuable picture/cars/boats etc.
• Invoices supporting major work on such assets, house improvements etc
• Details of any significant gifts made (over £3,000) for at least seven years
• Details of any significant gifts or bequests received for perhaps six/seven years
• Annual valuations of pensions, life assurance etc – this is a good chance to review how these are performing as well

Do you provide a pool car for your employees?

The tax treatment of company cars is such that it is often very beneficial to argue that a car is a ‘pool car’. This generally means that no individual employee is taxed on a benefit in kind for the car. However, if you want this treatment it is vital that you meet the conditions for this treatment, two important of these are that it is not ordinarily used by one employee and that it is not normally kept at or near the residence of an employee. Even if you meet these rules and treat the car as a pool car, it is still almost impossible for a normal business (not a taxi/car hire/driving school/car sales business) to reclaim the VAT on a car (as opposed to a van) – the VAT conditions are based around the car not being ‘available’ for private use, a very strict test.