The Fizz! Blog

A late tax return could be expensive this year

For many years, the fine for sending your Self Assessment Tax Return in late has been £100, with a second penalty of £100 if you then failed to get it in within six months of the deadline.  However, the fines would be reduced if the tax due was less than £100.  If no tax was payable, the penalty would be cancelled entirely.

For the year ended 5 April 2011 (for which the deadline for submission is the end of this month) the rules have changed.  They are now:

• £100 if you're late.
• After three months, a further penalty of £10 per day, for the next 90 days.
• After six months, another fine of £300 - or 5% of the tax due, if higher.
• After twelve months, a further £300, or 5% of the tax due.

Crucially, these fines are no longer reduced or eliminated if there's little or no tax due.  Historically, many people have not bothered too much about the 31 January deadline - knowing they've no tax to pay, they've submitted the return later with no real consequences.  Or they've seen £100 as a reasonable price to pay for being able to submit their return many months late.  If they take the same approach this year, they could find themselves with a substantial bill.

At the moment there's no indication that HMRC will exercise any discretion about charging these penalties, though it seems likely that before long some taxpayers will challenge what could be seen as disproportionate fines when compared to a negligible tax bill.  But you'd be well advised to get your return done this month to make sure you're not one of those test cases.

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Another scam aimed at new businesses

This is from the ICAEW website:

Fraudsters invent a new registration requirement for VAT

We regularly receive emails from members alerting us to the latest scams as fraudsters invent new ways to try to defraud taxpayers in the UK. We always advise the sender to contact HMRC at phishing@hmrc.gsi.gov.uk
 
The latest scam purports to relate to tax obligations under EU law.
 
In this case, a newly incorporated company receives a fraudulent letter asking it to pay £320 by credit card to register on the ‘Intracom VAT Registry’. The form and style of the letter suggests to the recipient that it has the official backing of the UK or EU tax authorities and it would be easy for innocent businesses to be taken in by this scam.

If you receive anything like that, ignore it.  There's no liability to pay anything at all.

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Fit notes as compared to sick notes

A couple of years ago, sick notes were reframed as fit notes.  Rather than just saying a patient wasn't able to work, doctors had the ability to say that a patient was able to do *some* work, and specify what they were able to do.  The idea was that this would reduce absenteeism, and avoid employees becoming isolated at home when it would actually be healthier and better for them (and their employer) if they were engaged in some aspect of their employment, even if they couldn't fulfil all of their duties.

However, every single fit note that we've handled on behalf of our payroll clients since the change has had the "you are not fit to work" box ticked.  So, in practical terms, the cost and upheaval of the change appears (based on this completely unscientific sample) to have made absolutely no difference to anything.  Perhaps the lesson is that changing human nature and behaviour can take a bit more than just adding some more tick boxes to a form.

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Junior ISAs start tomorrow

Junior ISAs become available tomorrow.  To be honest, it's probably not going to be enormously exciting to many people.  The reason that most people don't save enough for their children's futures doesn't really have a lot to do with whether any interest will be taxable or not - it's more usually to do with them either a) not having enough cash or b) preferring to use the cash for short-term gratification rather than long-term planning.  And, even for those who do save for their kids' university education or whatever, the idea of handing the whole balance over to their child on their 18th birthday may seem a bit risky, to say the least.  So at the moment Junior ISAs look like a bit of a gimmick.  At the moment there's only a couple of providers offering them in any case, so it'll be a while before it's possible to really say if there's been an enthusiastic take up.

For people who are more interested in saving money for a child but who don't want them to be able to blow the lot when they're 18, a stakeholder pension for the child could be a more tempting option.

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Investing in new kit for your business?

When a business buys equipment for long term use (computers, furniture, vans and the like - most assets of that nature qualify), it can usually set the cost against its profits before working out its tax bill.  This tax year, every business can deduct the first £100,000 of investment against its taxable profits in that way.  Obviously, that £100,000 allowance covers most of us!  Any excess will get tax relief eventually, but on a much slower basis.

Next year (i.e. from April 2012), that allowance is going down to £25,000.  That will still cover the entire spend of most small businesses, of course.  But there are some businesses that invest more each year - and some small businesses could spend more if they had a big one-off project, like an office move or a big new IT system.

So, if you're in that position, you might want to look at bringing forward some spending so that it falls under the period covered by the £100,000 allowance rather than later on, when only the first £25,000 of your investment will save tax in the first year.

It's potentially a bit more complicated than that, but those are the basics.  Talk to your accountant if you think it could be an issue for you.

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New National Minimum Wage rates

New NMW rates came into force on Saturday 1 October:

• Adult rate £6.08 (currently £5.93)
• 18-20 year olds £4.98 (currently £4.92)
• 16-17 year olds £3.68 (currently £3.64)
• Apprentice rate £2.60 (currently £2.50)

If this affects your staff, remember not to just process the same salaries in October as you did in September!

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Fuel-only mileage rates change

Taxman-approved fuel-only mileage rates changed today.  These are the rates that HMRC are happy for employers to use a) to reimburse staff for fuel used for company business that they've paid for and put in company cars, or b) reclaim from staff the cost of company fuel they've used for their own private motoring.  But they're also the rates that businesses can use to reclaim VAT on some of the mileage allowances paid to employees and directors.

Employers can pay a mileage allowance of up to 45p a mile, tax-free, when employees use their own car for business.  That hasn't changed, it remains 45p.

You can’t reclaim VAT on all of the 45p, but you can reclaim VAT on the part that represents fuel, as long as you retain VAT receipts covering the cost.  As fuel costs have increased so sharply, the approved rates - the part of the 45p that the taxman is happy to accept as representing the cost of fuel - have just been increased once more.  The new list of rates is here:

http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm

The new rates are to be applied from 1 September.  If you're VAT registered, not on the flat-rate scheme, and failing to reclaim VAT on your mileage costs at all, you should start.  You can even reclaim some of the VAT you've missed out on in the past - get in touch with us to find out how.

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VAT Flat Rate Scheme and bank interest

Counter-intuitively and controversially, since the introduction of the VAT Flat Rate Scheme (FRS), HMRC had insisted that any bank interest earned by a business must be included as part of its income.  Therefore, a business registered under the FRS effectively had to pay over VAT on its bank interest, even though bank interest is not generally VATable.

Following a recent case, they've changed their guidance.  They now accept that interest doesn't have to be included in the income of a business when working out its FRS liability.

We've yet to see any guidance from HMRC on whether previously declared VAT on interest can now be recovered.  It's unlikely that any business is massively out of pocket - especially with interest rates so low right now - but it might be worth considering a reclaim if you have been affected.

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Why we're not always mad on franchises

The idea of buying a franchise is persuasive.  Rather than building a brand and set of business processes from nothing, making losses while your business grows, why not buy the business model ready made and skip that stage?

It can actually work sometimes.  By buying a franchise, many business owners do manage to miss out some of the painful business-building years and, in return for their investment, get straight to the profitable phase.  Fortunately, the franchise clients we look after are usually in that category.

But there's one common trait we've noticed amongst those successful franchisees - they would all have been able to build the business from scratch had they wanted to.  They made a rational decision that their investment would be worth the shortcut.

Sadly, many franchisees aren't in that position.  They buy a franchise because they wouldn't be able to build the business from scratch - either because of a lack of experience or an inability to think with focus and clarity.  Not everyone is cut out to run a business - which is fine, of course.

But, if you ever think of buying a franchise, do consider why you're buying it.  Is it a shortcut to somewhere you'd be able to get yourself eventually?  Or are you buying it because the franchisor has convinced you that it's a "business in a box" that's guaranteed to work?

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New National Minimum Wage rates from October

It's still a way off, but new NMW rates have been announced that will apply from 1 October:

• Adult rate £6.08 (currently £5.93)
• 18-20 year olds £4.98 (currently £4.92)
• 16-17 year olds £3.68 (currently £3.64)
• Apprentice rate £2.60 (currently £2.50)

It's easy to just forget about the change and process the same salaries in October as you did in September, so you might want to make a diary note now if this will affect you.

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