November Tax News

The Government has announced further funding for measures which involve a more robust criminal deterrent against tax evasion, experts on large businesses, investigators for offshore evasion, cyber-crime teams, further registration checks, debt collection agencies and freight and detection technology to prevent alcohol and tobacco smuggling.

The Treasury reckon this will bring in around £7 billion per annum by 2014/15 in additional tax revenues. That seems over-optimistic even though they plan to spend £900 million on increasing criminal prosecutions fivefold plus a further crackdown on offshore evasion, with the creation of a new dedicated team of investigators.

As a separate issue, HMRC are reported as having sent hundreds of letters to high net worth taxpayers who are clients of HSBC’s Swiss bank. A former employee of the bank stole client information from the bank and passed it to the French tax authorities, who have passed it to HMRC who now say that the data shows that the taxpayers in question have undeclared sources of income and gains. The only advice we can really give as professional advisers is that any taxpayer with undisclosed liabilities should act promptly to come forward and we will make sure that the tax, interest and penalties are kept to the minimum.

It is quite conceivable that the total tax, interest and penalties due as a result of this procedure could exceed the amount in the offshore account! Our role is to present the facts in the best light and negotiate an acceptable settlement.

It is not just taxpayers that HMRC likes to refer to as customers. We as tax agents also come into that category and as a result we do occasionally receive what they perceive as help in meeting our obligations when acting for you.

As an example HMRC publish an ever-growing set of toolkits on various tax topics which aim to highlight common errors found by HMRC in a variety of taxpayer circumstances. They are aimed at tax agents but anyone can download them from HMRC’s website. Most of the common errors pointed out in the toolkits are obvious and we do not expect them to cause any problems. Specifically, HMRC state that the toolkits should help tax agents to demonstrate that on behalf of the client they have taken reasonable care in completing a tax return. This may be an extremely useful form of protection.

The toolkits published or soon to be published cover the following topics:
Personal and private expenditure (Sole Trader/Partnerships)
CGT for Trusts and Estates
Marginal Small Companies Relief
Capital Allowances for Plant and Machinery
CGT for Land and Buildings
Trusts and Estates
Capital v Revenue
VAT input tax
Directors’ Loan Accounts
Expenses and Benefits from Employment

Quite apart from the introduction of restrictions to the maximum pension contributions coming in from next April (but with the exact details yet to be confirmed), more flexibility will be allowed in taking benefits from a pension scheme.

This is all due to what has happened in the annuity market over the past 20 years. For example, what do you think the pension would be (as a % of the fund value) given the following requirements?
Male aged 65
Pension increasing by 3% per annum
On death, a pension of 50% going to the widow

The answer is that in 1990 that required package of pension benefits would pay you 11%, so that if the fund was worth £200,000 you would get a pension of £22,000. Take the same example now and you get a measly 3.9%, meaning a pension of £7,800. That’s a staggering reduction of nearly 65%!

This is all due to a combination of (a) people living longer than ever, and (b) low interest rates. As a result there will be more opportunities made available to take benefits from your pension scheme without necessarily having to buy an annuity.

CGT ON SALE OF YOUR BUSINESS The dramatic increase in the level of entrepreneurs’ relief (now a £5 million lifetime limit) whereby tax is at 10%, plus the fact that if you do not qualify for the relief you will now pay CGT at 28%, means that is has never been so important to protect your entitlement to the relief on a business sale.
Essentially you could sell your business and receive the proceeds in one of several ways:
Cash of a fixed amount
Cash plus the right to receive more if profit targets are met (= earn-out arrangement)
Shares in the purchasing company
Loan notes in the purchasing company

There may also be a combination offered from the above, but whatever may be on the table it is vital that the sale is structured from your viewpoint to get the best tax treatment as that can vary significantly. Not that tax should be the prime motivation as you should never let the tax tail wag the commercial dog.

There are several ways of ensuring that the complete package on a sale of your business qualifies you for entrepreneurs’ relief and we are ready to advise with reference to your particular circumstances

The third Finance Bill of 2010 was published on 30 September and is set to become the Finance (No. 3) Act 2010 – something which has rarely if ever happened before. But no need to fret as it only covers issues which for one reason or another did not get into either of the previous two Bills!Perhaps the only point worth bringing to your attention is that, as already known would happen, the legislation allows for a 100% tax write-off on purchasing a business van with zero-emissions and that has been backdated to 1 April 2010.

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