Kilsby Williams

H M Revenue & Customs has introduced major changes to the procedure for reclaiming VAT on employee expense claims with effect from 1 January 2006.  If you do not follow the new system you will jeopardise your VAT recovery.

To comply with the new rules, employees must provide a VAT invoice for fuel purchased to support their fuel or mileage claims.

We believe local VAT offices will take a strong view if supporting VAT invoices are not held to support employee expense claims, so please be prepared before your next inspection.

H M Revenue & Customs is encouraging businesses to submit Returns electronically by offering very attractive cash-flow and filing advantages as follows:

-  An additional seven days to submit your VAT Return.

-  Payment for the VAT declared will be collected automatically by direct debit.

- The direct debit will not be taken from you bank account until three working days after the Return was due. i.e. at least 10 days after the month end.

-  Early submission of a Return will not result in VAT being collected early. It may be useful to submit early if the filing date falls at an inconvenient time for your business.

If you think your business could benefit from electronic filing of your VAT returns, please give us a call to discuss.

H M Revenue & Customs is making an increasing number of enquiries into businesses’ tax affairs, often resulting in further tax interest and penalties.  Key areas it is looking at are:

- Research and Development

Research and development claims provide enhanced tax relief.  H M Revenue & Customs will challenge the nature of the product and work undertaken to ensure that each claim satisfies all of the qualifying criteria. Technical advice needs to be taken when evaluating such a claim.

- Termination Payments

It is aggressively targeting termination payments paid to employees and is targeting companies where it is aware that there have been redundancies. The problem arises where a payment has been treated as £30,000 exempt. If challenged, tax, NIC interest and penalties could become payable by you the employer! Such challenges can often be successfully resisted with good advice.
 
- Accounting Practice

We are seeing an increasing number of enquiries into accounts and accounting practice. Popular areas of enquiry are – provisions, bad debts, repairs, capital expenditure and employee remuneration. The tax treatment of accounts entries is also increasingly following the accounts treatment. This provides opportunities. Care therefore needs to be taken when preparing accounts, not only to avoid further tax arising out of an enquiry, but to maximise tax planning opportunities.

The scheme offers loans to SMEs in England and Wales looking to invest money in energy saving projects. Loans of between £5,000 and £100,000 are available. In addition they are:

-  interest free;

-  unsecured;

-  with repayment periods of up to four years; and

-  no arrangement fees.

The loans are intended to encourage companies to invest in energy saving equipment that either upgrades or replaces existing facilities. Any project where the cumulative value of the energy savings resulting from the project over the first five years exceeds the capital value of the loan, may qualify.

Examples of this could be:

-   energy saving lighting;

-   boiler, heater or lighting controls;

-   building insulation;

-   insulation for boilers, hot water tanks and pipe work; or

-   energy efficient machinery.

In addition, the loan could work in connection with a grant application.

If you are considering any such capital expenditure, please contact us to see what assistance there is available to your company.

There has recently been a large increase in the number of cases of identity fraud against companies. The particular instance we would like to bring to your attention is where criminals identify from Companies House a suitable company and change its registered office without the directors’ knowledge. Using the company’s favourable credit rating the criminals then order goods to the new registered office and disappear with them, leaving the company with the invoice. Similar actions can result from simply changing the names of existing directors.

Companies House has recognised this weakness and has developed a system for companies to protect themselves. It involves the online filing of documents. It also notifies you immediately when the company’s details are altered or amended at Companies House.

The registration process is simple but needs completion online at www.companieshouse.co.uk. by clicking on the web filing section within online services and following the instructions.

We strongly recommend that you use this service as many companies have already been caught out. Please contact us if you need any assistance with this.

You will remember the furore that was caused by Gordon Brown’s proposed changes. After much lobbying these were enacted in a somewhat less damaging form. We want to set out the outlines for you here.

Briefly, the new legislation makes the position for Trusts under inheritance tax very much worse. It does this by moving many sorts of Trusts into an existing regime with the result that:

-  Lifetime transfers into Trusts are likely to be taxable to inheritance tax; and

-  Trusts are likely to be taxable at 6% on their value every ten years.

The following summary distils some very complicated legislation down to its bare bones:

- Discretionary Trusts

These are already under the new tax regime. Everything else is being put under that same rather unattractive regime. Thus it follows that a Discretionary Trust should not need any review as a result of this legislation.

- Accumulation and Maintenance Settlements

These are usually set up for grandchildren. Typically, the grandchildren can have the income up to age 25 and then they either get a right to the income or to the income and the capital. These Trusts have potentially been legislated against and any existing Trusts should be reviewed.

- Life Interest Settlements

These are settlements where somebody has a right to the income but not to the underlying capital. They are often set up by Will for surviving spouses or young adult children. Existing Trusts should be protected from the new regime until there is a change of life tenant. There is an opportunity prior to April 2008 for an existing life tenant to step aside for a successive one. These are somewhat rare circumstances but Trusts with elderly life tenants should consider their position.

- Trusts arising from your Will

Most arrangements for Trusts for surviving spouses should not suffer under the new legislation. But long-term arrangements for children and grandchildren are likely to be affected. Certainly, we would recommend a review here.

- Future planning

It is broadly true to say that large settlements will be much more difficult to do in the future. The legislation forces gifts within families to go to individuals in their own right and not be sheltered behind Trusts. This can be a very real problem where parents do not know – because they are young – how things will turn out with their children.

KEY CHANGES TO PENSIONS THAT EMPLOYERS HAVE TO ADDRESS

The Department for Work and Pensions has published regulations that relate to Occupational Pension Schemes.

The regulations set out key points which impact on these schemes and Trustees will need to be aware of how their pension scheme will be affected.

There are various parts of this legislation but the key areas that will impact employers will be:

- Appointment of Member Nominated Trustees.

Between now and October 2007, any occupational scheme that has 12 lives or more must find and put in place Member Nominated Trustees. Previously, schemes could elect to opt out of appointing member nominated trustees and this has generally been taken up by employers.

The option to opt out is not available after October 2007.

- Trustees Knowledge & Understanding.

The Pensions Act 2004 also lays more responsibility on the role of the Trustee (including any new Member Nominated Trustee). The Trustee will have to gain a much higher level of knowledge to fulfil this role.

The details of this knowledge are laid out in the Pensions Regulator’s “Code of Practice for Trustee’s Knowledge & Understanding.” This is a 62 page document that we can make available to you.

This will be extremely onerous on any Trustees especially newly appointed ones that have no experience in the role.

- Introduction of Scheme Administrator.

The concept of the Scheme Administrator, also introduced by the Pensions Act 2004, will mean that Trustees have to take on new responsibilities. These involve detailed online reporting on an annual basis and additional reporting on a three monthly basis will also need to be submitted.

The majority of these reporting commitments can be delegated to an “authorised practitioner”, which most Trustees will look to delegate to the product provider of the scheme. However, not all product providers will offer to be the Scheme Administrator.

The Next Steps

Taking into account these three key changes and the changes that have been introduced by the simplified regime effective from 6 April 2006, we think you that you should be analysing your scheme and determining how it will be effected by both the Pensions Act and the new regime changes. Industry commentators expect many occupational money purchase schemes to be wound up and replaced by the less onerous stakeholder or personal pensions.
 
As fee-based independent financial advisors, Kilsby Williams & Gould is well placed to discuss the impact of these changes on your company pension scheme and review other options.

In the past H M Revenue & Customs has always made a distinction between trading companies and investment companies on, amongst other things, pensions. Changes to pension legislation have removed the anomalies on pensions.

- Your company can contribute significant amounts into your pension per year

- You can contribute up to 100% of remuneration (exclude dividends) per tax year, with an over-riding maximum of £215,000

Why would you consider pension contributions?

- Company contributions can reduce corporation tax and do not attract company or personal national insurance.

- Personal contributions can be offset against your highest rate of income tax.

- Assets held within a pension fund are free of inheritance tax, whereas assets held in an investment company are fully chargeable to inheritance tax.

- Assets bought and sold within a pension fund are free of capital gains tax.

- Very little income tax is settled within a pension fund.

- Pension funds can hold commercial property.

- Pension funds can now purchase assets (ie commercial property) from ‘connected parties’

The above opportunities with careful financial planning can lead to significant tax savings for individuals who own investment companies.