News
Letter June 2003
TAX CREDITS
As you may have read in the press the Government introduced
two new tax credits from 6 April 2003, the child tax credit, replacing
the children’s tax credit and the working tax credit.
The availability of the tax credits can be very wide spread
and certainly clients, or staff of clients may well be eligible to make
claims.
A brief summary of the credits and the eligibility is as
follows:-
Tax Credits Generally
In order to qualify for tax credits, the recipient must be
over 16 years old and live in the UK. Couples must make the claim together,
the claim is made upon the joint income. Any couples with joint income
from all sources of less than £58,000 should benefit.
Child Tax Credit
In order to claim for the child tax credit, it is necessary
to have one qualifying individual who need not be in employment. The
claim is made up of three sections, the family element which is paid
for at least for one qualifying child set at an amount of £545 irrespective
of the number of children that may qualify. The child element is given
for each qualifying child at a rate of £1,445. The disability element
is again given for each child for those receiving a disability living
allowance for the child.
Working Tax Credit
In order to qualify for the working tax credit the claimant
has to be over 16 years old, either employed or self employed and usually
work at least 16 hours per week, the work is to be expected to last for
at least four weeks, and be responsible for at least one child; or the
claimant aged over 25 and working at least 30 hours per week in which
case it is not necessary to have any qualifying children.
The composition of the working tax credit is made up of a
basic element which is paid to anyone who meets the conditions, a loan
parent element or a couple’s element, the 30 hour element for people
who work 30 hours per week and a disability element. In addition, it
is possible to claim a child care element if the child is placed with
an approved child care provider and the claimant works at least 16 hours
per week.
Please note that for joint incomes over and approximately
above £10,000 the benefits are scaled back by approximately 37p for each £1
joint income over the threshold.
Claims need to be made on form TC600 which can be obtained
from the Revenue or via the Revenue web site.
Please note that for any claim to be effective from the 6
April, they have to be made within three months of that date as you cannot
backdate claims any further than that. Clients, therefore, that are
in a position to claim child tax credit or working tax credit must ensure
that their tax claims are made by the end of 5 July. If any clients
require any assistance please ring us urgently.
Taxation Benefits of Motor Vehicles
1. Car Benefit
Clients should consider carefully their arrangements for provision
of company vehicles, clients no doubt are aware of the changes in the
manner in which company car benefits are now taxed.
The provision of the company car is now taxed on the basis of its CO2 emissions and the rates are as follows:-
2003/04 2004/05 %
of list price
CO2 Emission CO2 Emission (max £80,000)
155 145 15
180 170 20
205 196 25
230 220 30
255 245 35
2. Taxation of
Car Fuel Benefits
From 6 April 2003 the system for taxing
benefits has changed and taxation is now by reference to the CO2 emissions. The same scale charge, calculator and supplements apply
as for car benefits but in all cases the deemed list of the car is £14,400.
3. Mileage claims
For an employee or director using his own vehicle on business trips the employer
can pay a non-taxable allowance up to a maximum of:-
The first 10,000 miles 40p for each business mile
Excess over 10,000 miles 25p for each business mile
Proper mileage claim forms must be prepared i.e. date, destination, number
of business miles etc.
Please note that Income Tax and NIC are due on any payments above these rates.
As a concession where a trip is made for business then the claim can be increased
by 5p for each passenger.
4. Joint Ownership of Vehicles
Significant savings can be made in relation to taxation of benefits
by vehicles being jointly owned by the company and the individual. The
individual must actually make more than a small contribution of the cost
of the car.
The principal benefit is based upon the annual value which is normally taken
as 20% of the cost of the asset provided to the employee and CO2 emissions are not relevant. Any clients who may be interested in reviewing
their policy in respect of the provision of motor vehicles should contact
us for further detailed calculations.
Income Tax Personal Allowances
The rates for personal allowances for 2003/04 and allowances
are as below:-
Income Tax Rates
Taxable Income Rate % Tax
on band
£ £
2003/04 up to 1,960 Lower 10* 196
Next 28,540 Basic 22 6,279
Excess over 30,500 Higher 40**
2002/03 Up to 1,920 Lower 10* 192
Next 27,980 Basic 22 6,156
Excess over 29,900 Higher 40**
The rate of tax on savings income for basic rate taxpayers
is 20%.
* This rate will also apply to dividend income for basic
rate taxpayers.
** Higher rate tax on gross dividends is 32.5% (25% on net dividend
receipts).
Personal Allowances
2003/04 2002/03
£ £
Allowances that reduce taxable income
Personal allowance (PA) - under 65 4,615 4,615
- 65-74* 6,610 6,100
- 75 and over* 6,720 6,370
Blind person allowance 1,510 1,480
Allowances that reduce tax
Married couples allowance (MCA):
Tax reduction - under 75 and born before 6.4.35 556.50 546.50
- 75 and over * 563.50 553.50
‘Rent a room’ exempt on gross annual rent 4,250.00 4,250.00
*The age related allowances are progressively with drawn
if income exceeds £18,300 (£17,900 for 2002/03).
Capital Allowances
Clients should be aware that the Government have extended
the 100% first year allowance relief on any expenditure relating to information
technology. This applies for small businesses only and on expenditure
incurred up to 31 March 2004. The 100% relief also applies to any expenditure
on approved energy saving schemes and the conversion costs converting
vehicles to run on natural gas.
A small company is defined as a business which satisfies
two of the following three conditions:-
1. Turnover less than £2.8
M
2. Assets less than £1.4M.
3. No more than 50
employees.
National Minimum Wage
With effect from the 1 October 2002 the national minimum
wage is as follows:-
18 to 21 years £3.60
Aged 22 and over £4.20
The national minimum wage is set to increase from the 1 October
2003 to £3.80 for people up to the age of 21 and £4.50 for people over
21 years of age.
Corporation Tax
The rates of Corporation Tax for the years to 31 March 2003
and 31 March 2004 are set out below:-
Year
to 31 March
Taxable
profits 2004 2003
£
Starting rate 0 - 10,000 0% 0%
Lower marginal rate 10,001 - 50,000 23.75% 23.75%
Smaller companies’ rate 50,000 - 300,000 32.75% 32.75%
Upper marginal rate 300,0001 - 1,500,000 19% 19%
Standard rate 1,500,001 and over 30% 30%
Clients should be aware of the following points.
1. Close investment
holding companies are always chargeable at the standard rate.
2. Companies with
taxable profits in excess of £1.5M may be liable to quarterly instalment
payments on account. Whilst this may appear high this amount is split
equally between associated companies. Consequently if there are say
10 associated companies and any company with taxable profits of £150,000
or more is going to have to account quarterly for its Corporation Tax.
3. All the tax rates
referred to above are adjusted for associated companies. Consequently,
clients need to advise us if they are aware either of their interest
in any other companies or any interest that their spouses may have in
any companies so that we can then check whether that it is going to affect
the associated company provisions.
Value Added Tax
The rates of registration and deregistration for VAT are
as follows:-
Standard rate - 17.5% VAT fraction of gross price - 7/47
Reduced rate - 5%
Annual turnover limits in last 12 months (or in next 30 days)
From 10 April 03 From 25 April
02
£ £
Registration 56,000 55,000
Deregistration 54,000 53,000
Annual accounting – turnover limit pa 600,000 600,000
Cash accounting – turnover limit pa 600,000 600,000
Fuel for private use – VAT due per car 2003/04
(from 1 May 2003)
Yearly Quarterly Monthly
Petrol Diesel Petrol Diesel Petrol Diesel
£ £ £ £ £ £
Up to 1,400cc 950 900 237 225 79 75
1,401 – 2,000cc 1,200 900 300 225 100 75
over 2,000cc 1,770 1,135 442 283 147 94
The availability of the flat rate scheme to
small businesses is now available to businesses whose annual turnover
is not in excess of £150,000. The idea of the scheme is to simplify
the production of the quarterly VAT Returns. In principle VAT sales
invoices are produced as now with VAT taxable at the standard rate
charged on the sales invoices.
At each VAT quarter period the VAT inclusive turnover is
calculated and the relevant flat rate percentage is then applied to
VAT turnover. The flat rate scheme cannot be used with clients that
are already on cash accounting or on special retail schemes or the
margin scheme for second hand goods. Attached are the percentages
set out by Customs and Excise for the various different categories
of business. Any clients wishing to consider transferring to this
scheme should contact us.
Trading as Limited Companies
Clients may have read in the post recently about the move
by small self employed traders into trading as a Limited Company.
Possible saving may be made as follows:-
Potential Tax Saving :-
Self-employed Limited
Company
Income
Tax and Class 2 Income Tax and
and
Class 4 NIC costs NIC costs Saving
Based on profits of £12,000 (see below) £2,017. 25 £ Nil £2,017.
25
Based on profits of £15,000 £2,887. 25 £ 91.
44 £2,795. 81
Based on profits of £20,000 £4,337. 25 £1,278.
94 £3,058. 31
Based on profits of £25,000 £5,787. 25 £2.466.
44 £3,320. 81
Based on profits of £30,000 £7,237.
25 £3,653. 94 £3,583. 31
The profits shown above are before the personal tax allowance for
one individual.
The tax liability on Limited Company profits assumes salary
up to the personal allowance level of
£4,615 and the balance paid as a dividend.
We have been keeping under review a possibility for certain
clients who currently trade as partnerships or self employed individuals
to trade as Limited Companies.
Whilst there are a number of factors that need to be taken
into account relate to individual circumstances may be situations where
it would be advantageous for certain clients to incorporate their businesses.
Certainly prior to any clients incorporating we would wish
to review the client’s individual circumstances to confirm that it
would be beneficial from a tax saving point of view. However, it may
just be sensible to run through some of the advantages and disadvantages
of incorporation.
Advantages
¨ Possible
overall saving on tax (Income Tax and Corporation Tax) as opposed to
Income Tax only.
¨ Potential
savings on Class 2 and Class 4 NIC.
¨ More
tax efficient payment of pension contributions.
¨ More
flexibility on determining the taxable level of personal income for
each tax year (which may be advantageous when considering the new tax
credits).
Limited Liability
Disadvantages
¨ More
stringent requirements for expenses incurred.
¨ Possible
tax implications of provision of benefits in kind.
¨ Lack
of flexibility, in so far as once incorporated more difficult to become
unincorporated.
¨ More
stringent accounting requirements as set out by the Companies Acts.
¨ More
stringent time limits for filing accounts with the Registrar, failure
to so could result in substantial fines.
¨ Additional
costs of preparing company accounts.
¨ Transparency
of business results as accounts have to be filed in the public register.
As we refer to above whether to incorporate or note will
very much depend upon individual circumstances and clients should contact
us to discuss the possibilities.
Husband and Wife Companies
The Revenue are currently attacking situations where both
husband and wife own shares in a company but contend the husband does
all the work. The scenario may be where the husband draws a salary
but then the company pays dividends part of which go to the wife who
has had no input into the business. The Revenue are arguing that the
dividends paid to the wife should be assessed on the husband and, therefore,
taxed at the husband’s top rate. Not only are the Revenue are attacking
the current year, but they have also indicated that they may wish to
review such situations going back over 6 years.
Clients should, therefore, be aware of the current Revenue
attitude and where such situations arise they should contact ourselves
in respect of the arrangements between the husbands and wives.
Capital Gains Tax
The current rates for Capital Gains Tax are as follows:-
2003/04 2002/03
Annual Exemption £7,900 £7,700
Business & Assets Non-Business
Assets
Taper Relief Whole
Years % of Gain Whole Years % of Gain
Held Chargeable Held Chargeable
1 50 1 100
2
or more 25 2 100
3 95
4 90
5 85
6 80
7 75
8 70
9 65
10
or over 60
All business assets acquired before 17 March 1998 qualify
for one extra year of ownership. Transfers between husband and wife
living together are exempt from Capital Gains Tax.
Any clients considering selling any assets which may give
use to a Capital Gains Tax liability should contact us.
Inheritance Tax
Current rates of Inheritance Tax is as follows:-
Rate on cumulative transfers
Rates 2003/04 2002/03
£ £
Nil on first 255,000 250,000
40% on excess
Chargeable lifetime transfers (e.g. to discretionary trusts)
– 50% of death rates apply subject to taper relief which reduces the
tax due.
Years between gift and death 0-3 3-4 4-5 5-6 6-7
% of tax due 100 80 60 40 20
Main Exemptions £
Spouse – both UK domiciled (or transferor non domiciled) unlimited
Non domiciled spouse- UK domiciled
transferor 55,000
Annual gifts per donor 3,000
Small gifts per donor not exceeding 250
Marriage gifts by - parent 5,000
- grandparent 2,500
- other 1,000
Charities and political parties unlimited
Regular gifts out of surplus income are also exempt.
Special relief’s exist for qualifying business property
and agricultural property.
Many clients’ estates will now exceed the Inheritance Tax
threshold simply based on the residential home. It is now more important
than ever to consider as early as possible Inheritance Tax planning.
Any clients considering their estate should contact us
as we have an overview of clients’ financial affairs.
We are also now dealing with obtaining the grant of probates,
which as we have a detailed knowledge of the deceased’s affairs, is
often quicker and more economical for clients.
Wife’s Wages
When wives take an active roll in the family business,
it is tax efficient for wives to be paid a wage. The current level prior
to any tax and NIC liability arising in the wages is £88 per week.
Free Advice Provided by Town Hall
Manchester City Council is offering free crime audits to
small businesses in the city.
Businesses with up to 250 employees can apply for advice
on a range of topics including security, risk
assessment and security auditing, group security schemes,
insurance counselling and business watch schemes.
Small businesses interested in the crime audit scheme should
contact Frank Dale on 0161 234 1506
Shacter Cohen & Bor
31 Sackville Street
Manchester
M1 3LZ
tel: 0161 236 3909
www.shacter-cohen-bor.co.uk
reception@shacter-cohen-bor.com
