This newsletter is for general information only and is not intended to be advice to any specific person. You are recommended toseek competent professional advice before taking or refraining from taking any action on the basis of the contents of thispublication. The newsletter represents our understanding of law and HM Revenue & Customs practice as at May 2012.

Summer 2012

Allotts Chartered Accountants

DoncasterSidings Court, LakesideDoncaster DN4 5NUTel: 01302 349218Fax: 01302 321739 Email: donc@allotts.co.uk

DirectorsA E (Tony) Grice BA FCA Cert PFSJ N (Jackie) Saunders BA FCA DChaSteven G Pepper FCANeil S Highfield FCASteven Watson BA ACA CTA

www.allotts.co.uk

Allotts Chartered Accountants is the trading name of AllottsBusiness Services Ltd. Registered in England and WalesRegistered No 07453228.

Registered to carry on audit work in the UK by the Institute ofChartered Accountants in England and Wales.

RotherhamThe Old Grammar School13 Moorgate RoadRotherham S60 2ENTel: 01709 828400Fax: 01709 829807Email: info@allotts.co.uk

AssociateMark Garrison BCom FCADCha

Financial Services01709 828400Email: fsd@allotts.co.uk

In this issue: Tax hurdles for higher income earners • Benefits, expenses and pay: what’snew • VAT revisions get ready to roll • Child benefit changes – not as simple as A B C •Wake-up call for your dormant accounts • Tax and working from home

Getting your customers to pay you promptly is critical toyour cash flow and ability to plan ahead. The longer ittakes customers to pay, the more likely it is that they willnot pay at all. Happily, there are steps you can take toencourage faster payment.

Your first move should be to carry out credit checks on new customers.If they are satisfactory, you can then agree credit limits and time scalesbefore any transaction takes place. You can set any credit period youlike, but if you do not have one, the law sets a default period of 30 days from the date of supply of the goods or services, or the invoicedate, whichever is later. It is best to put your terms and conditions inwriting. Don’t just credit check your new customers: your existingcustomers’ circumstances may change.

Issue invoices quickly and make sure they are clear. State whenpayment is due and warn that you will charge interest on latepayments. Where a debt becomes overdue, actively chase thepayment. Send a statement of account by post and email, but alsophone the customer. If the customer does not commit to a paymentdate, tell them you will not be able to supply further goods or servicesuntil the bill is paid. Where a customer has cash flow difficulties, youmight be able to agree a payment plan.

All this takes time and effort, but it is worthwhile if it reduces yourborrowing costs and the risk of non-payment. Customers who knowthat you will actively chase payment are more likely to prioritise yourinvoices, even before you start chasing them.

Alternatively, you could use a debt factoring or invoice discountingservice, under which you borrow, in effect, against your unpaidinvoices for a fee. But it can be expensive. If, after trying everything,your customer still does not pay, you can consider more formal means,for example, a solicitor’s letter or using a debt collection agency,although this can be costly. You can issue a statutory demand statingyou will apply to court for the winding up of the customer’s business ifpayment is not made. Legal action, where worthwhile, should be a lastresort – and remember that you cannot usually recover legal fees fordebts under £5,000.

Finally, remember to pay your own bills on time. Other businesses alsoneed good cash flow.

Dealing with late payments

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Summer 2012

In the wake of the recent Budget,here’s a timely reminder of thechanges to the tax treatment ofemployee benefits, expenses and payfor future years.

Cars Currently, the percentage used tocalculate a company car benefit is 5% of thecar’s retail list price when new for CO2emissions up to 75g/km, 10% between76g/km and 99g/km, then it rises from 11%to a maximum of 35% for emissions of220g/km or more. A 3% supplement appliesto diesel cars. There is no benefit for zero-emission cars. Over the next four years,these factors will all change:

2013/14: 1% increase for emissionsbetween 95g/km and 219g/km.

2014/15: 1% increase for emissionsbetween 76g/km and 214g/km.

2015/16: The special treatment of low-emission cars will cease. The percentagewill be 13% for emissions up to 94g/km,then rising from 14% to a maximum of37% for emissions of 210g/km or more.

2016/17: The charge will be a percentageof 15% for emissions up to 94g/km, then

rising from 16% to a maximum of 37%for emissions of 200g/km or more. The3% diesel car supplement will cease.

Private fuel The car benefit percentage ismultiplied by a fixed amount, which hasincreased from £18,800 to £20,200 in2012/13.

Smart phones An employee can be providedwith one tax-free mobile telephone, andHMRC now concedes that this exemptionincludes smart phones. If you have paid taxand class 1A national insurance contributions(NICs) in respect of the provision of smartphones, you can backdate any tax repaymentclaims to 2007/08.

Advisory fuel rates An employee can claimthe actual cost of fuel used in a company carfor business trips; but it is often easier andmore convenient to use the HMRC advisoryfuel rates.

The current rates until 31 May 2012 are:

Engine size Petrol LPG 1,400cc or less 15p 10p1,401cc to 2,000cc 18p 12pOver 2,000cc 26p 18p

Engine size Diesel1,600cc or less 13p1,601cc to 2,000cc 15pOver 2,000cc 19p

The rates will be reviewed on 1 June, andfor June either the current or new rates canbe used.

IR35 and non-executive directors TheMarch Budget included a proposal that officeholders and controlling persons integral tothe running of an organisation must havePAYE and NICs deducted at source by theorganisation by which they are engaged.There will be legislation in the Finance Act2013. The change should not affect genuinefreelance workers and contractors. But thetax position can be quite complex wherenon-executive directors are paid throughpersonal service companies, and sucharrangements should be reviewed.

Enterprise management incentive (EMI)and entrepreneurs’ relief (ER) The 5%shareholding requirement to qualify for ERwill be removed where an employeeacquires shares on the exercise of EMIoptions after 5 April 2012.

Benefits, expenses and pay: what’s new

The Budget was both kind and cruelto high income earners. There is nochange to tax relief for pensioncontributions, and the income taxadditional rate will be reduced to 45%– 37.5% for dividends – after 5 April2013.

Additional rate taxpayers should considerlegitimately delaying income until next year. Ifyou have your own company, then bonusesand dividends can be postponed, and thishas the added benefit of later due dates.Delay cashing life policies, if these will resultin chargeable gains. If you are self-employed,you may be able to bring forward revenueand capital expenditure that will reduce yourassessable profits for 2012/13. And wherepossible, make pension contributions andcharitable donations this year rather than next.

From 6 April 2013, the proposal is that a capwill be applied to those reliefs that arecurrently unlimited. The cap will be the higherof £50,000 or 25% of a person’s income,and excess amounts will not qualify for a taxdeduction. From the moment this wasannounced, charities have expressed concernthat it will discourage philanthropic donations.

The furore has been such that the Governmentis considering making concessions about thisaspect of the cap. But even so, it is probablysensible to make planned charitable donationsin the current tax year if there is any danger ofexceeding this limit.

Carrying losses forward or back againstprofits of the same trade will not be

affected, but there is no detail yet regardingthe treatment of other loss relief claims.Individuals who suffer losses on investmentsin unquoted trading companies will beaffected, and it may be worth makingnegligible value claims this year to crystalliselosses before the cap bites. The cap will also affect qualifying loan interest, and itwill apply across all uncapped reliefs on acombined basis.

Another proposal for next year is theintroduction of a general anti-abuse rule.The introduction of such a general rule inother countries has shown how difficult it isto formulate a provision that clarifies what itdoes and doesn’t cover and is practical toimplement.

The concern is that a general rule againsttax avoidance could introduce enormousuncertainty into the tax system. The Budgetalso introduced several targeted anti-avoidance provisions with immediate effect,including a 15% stamp duty land tax ratewhere companies are used to acquireresidential property valued at over £2 million.

If you are concerned that any of thesechanges will affect you, please contact us.

Tax hurdles for higher income earners

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Did you know that your private bank account could be part of your statutory business records if youput business transactions through it? That would mean you would have no right of appeal against an HMRCrequest to see the statements. HMRC can generally only demand private bank statements if they are ‘reasonably required’ tocheck a tax return. A taxpayer can appeal against this. However, a recent decision in the first-tier tax tribunal rejected a soletrader’s contention that business expenses put through a private bank account should be treated as capital introduced, andthe tribunal decided that the transactions made the account part of the business.

Summer 2012

If either you or your partner have anincome of more than £50,000, thenyou may be about to lose your childbenefit thanks to proposed FinanceBill changes.

Although the child benefit will continue tobe paid, usually to the mother, HMRC willtake the equivalent value back through aspecial new income tax charge on thehigher income partner. The change comesinto effect for benefit paid from 7 January2013, but now is the time to start lookingto reduce your income and avoid the tax.

For people with ‘adjusted net income’ over£60,000 the income tax charge will be equalto the full amount of the child benefitpayments. For income between £50,000 and£60,000, the tax will equal 1% of your childbenefit for every £100 of income above£50,000. So, for example, if your income is£54,000, and your partner’s income is less,you will pay additional tax equal to 40% ofthe child benefit paid to you or your partner.Child benefit is £20.30 for first child and

£13.40 for subsequent children, so a familywith two children is entitled to £1,752.40before the tax charge, which, in the exampleabove, would reduce the benefit to £1,051.44.The Treasury estimates that 15% of familieswill lose all or part of their child benefit.

‘Adjusted net income’ is income afterdeducting the gross amount of yourpension payments and donations to charityunder gift-aid, so one way of keeping yourchild benefit may be to make additionalpayments into your pension scheme. Aswell as saving child benefit, you will benefitfrom the basic and higher rate tax relief onthe pension payment.

Another way of reducing income if you arean employee is to buy childcare vouchersthrough salary sacrifice, resulting in no taxand no employee’s national insurancecontributions on the amount of salary yougive up.

The more control you have over yourincome, the more options you have. Youmight be able to transfer investments to

your partner so that the income on thembecomes theirs and taxable on them. If youare self-employed or carry on businessthrough your own company, you may beable to pay your partner (but you must beable to justify the payment) or control thetiming of some of your income to keep itbelow £50,000.

The only thing clear about the changes ishow complex the process of finding asolution can be. Please get in touch with usif you think you may be affected.

Child benefit changes – not as simple as A B C

In the March Budget, ChancellorGeorge Osborne announced a range ofmeasures aimed at ending anomaliesin the VAT system which currentlyresult in VAT being payable on someitems while other similar productsescape the VAT net. The measuresare subject to consultation and willbe implemented from 1 October 2012.

The way that VAT is charged on food canoften be bizarre. VAT is payable at thestandard rate on hot takeaway food, butsupermarkets have argued that their hotfood, such as rotisserie chickens, is not forimmediate consumption and is only kept hotto improve appearance and aroma – and sotheir hot food has therefore been zero-rated.

However, VAT will now be charged on allfood which is above the ambient airtemperature at the time it is provided, with

the exception of freshly baked bread. Thiswording means VAT will be payable ifsausage rolls or hot pastries are sold tenminutes after they come from the oven, butmay not be charged if sold later. Themeaning of ‘premises’ has been clarified sothat shared food courts and tables andchairs outside a café are included.

Currently, the sale of a caravan towable by a typical family car is subject to VAT, butlarger caravans escape VAT even thoughthey may be used for holiday purposes. Thistreatment will be replaced by one that zero-rates only those caravans that have beendesigned and constructed for continuousyear-round occupation.

The VAT treatment of listed buildings is alsocomplex. Currently, repairs and maintenanceare subject to VAT, but approved alterationsare not. The rules therefore give an incentive

for change rather than repair, and theGovernment contends that much of theextension work undertaken is not necessaryfor heritage purposes. The zero-rating ofalterations will therefore be removed. Thesupply of self-storage is currently exemptfrom VAT, but other types of storageservices are not. Again, the playing field is tobe levelled by the removal of the exemption.

When hairdressers rent a chair to self-employed stylists, VAT must be paid on therent charged. Nothing has actually changed,because the High Court had previouslydecided that such a supply cannot be exempt.The hairdressing business is supplying awhole package of services – not just thesupply of ‘land’. However, the matter hasnow been put beyond doubt and will forcethe remaining minority of non-complyingsalons to conform.

VAT revisions get ready to roll

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Paper produced using FSC mixed sources from well managed forests and other controlled sources, at a mill that is certified to the EMAS environmental management standard.

Acas warns of imitatorsDid you know that although the Advisory, Conciliation and Arbitration Service (Acas) can help businesses improve theiremployment practice, you should beware of imitators? Some companies have been contacting employers falsely claiming they areacting on behalf of Acas. These firms typically offer free advice at first, but then ask their ‘clients’ to sign up to an expensive long-term contract foremployment and/or health and safety advice. Acas says it does not use agents. If you receive a cold call from someone claiming to be from Acas,check their contact details carefully to ensure they are who they say they are. For more information, go to the ‘about us’ section onwww.acas.org.uk.

The bank’s money, £400 million of which comes from dormantbank accounts that have been left unused for at least 15 years, willbe lent to social enterprises and charities but remains the propertyof the customer. Since 2009, the Government has been able to takecontrol of money left untouched for 15 years. However, while thedefinition of ‘dormant account’ varies from bank to bank, mostdeclare untouched accounts ‘dormant’ after either a year or threeto five years.

If you remember a bank account that you have not used for 15 years or more, you should contact the bank to check what hashappened to it and gather any documentary evidence that themoney is yours. Banks have been trying to trace owners of dormantaccounts since the Big Society Bank was announced in early 2011,but if you have forgotten about an account, the bank might nothave your current address.

If you are unsure where you held an account, there is a free centraltracing scheme spanning banks, building societies and NS&I, includinginstances where the bank or building society has closed or merged.

You can download a claim form at www.mylostaccount.org.uk andyou should receive a response within three months. You will still haveto prove ownership before the bank reactivates any account found.

Wake-up call for your dormant accounts

There has been an increase in the tax-free allowance thatcan be paid to employees working from home. It hasincreased to £18 a month for monthly paid employeesand to £4 a week for weekly paid employees.

The change is effective from 6 April 2012. The allowance covers theextra light and heat costs incurred because of homeworking, andthere is no need to provide records of the actual expenses incurred.

‘Homeworking’ employees regularly work from home under anemployer arrangement – the exemption is not available for simplytaking work home in the evenings.

Of course if the actual homeworking costs are higher than £4 aweek then that actual amount can be reimbursed instead, butevidence must be provided to justify the higher figure. The £4allowance may be insufficient if there are increased charges forinternet access, business telephone calls or contents insurance.There may also be a charge to business rates.

Employees who choose to work from home are not entitled to anexpense deduction if the employer does not make them anyreimbursement. A deduction is only available for those employedspecifically to work from home who have no alternative but to doso. The deduction is then based on the £4 allowance or on theactual additional costs they have incurred.

Tax and working from home

Money from bank customers’ dormant accounts has now been transferred to the Government’s Big Society Bank,but account holders can still get it back if they can prove ownership.

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