News from Cryer Sandham Limited
Business and financial news

March Newsletter

 

 

1.     2008-2009 Tax Rates

 

For 2008-2009 the basic tax free allowances for each individual are as follows:-

 

Income tax £5,435

Capital Gains Tax £9,500

Inheritance Tax £312,000

We would also advise that the basic rate of income tax is reduced from 22% down to 20%; however the starting rate of tax of 10%, which has existed for a number of years, has been removed. The higher rate of tax remains at 40%.

 

May we also remind our limited company clients that the corporation tax rate (for small companies) rises on 1 April 2008 from 20% to 21%.

 

 

2.     Penalties for incorrect returns – the new regime

 

A new regime for penalties payable on incorrect returns was established in 2007.

 

As with the previous regime H M Revenue & Customs are able to charge a penalty of up to 100% of the tax ‘lost’ as well as collecting the lost tax itself  . (This is in addition to interest being payable on all unpaid sums plus charging non tax geared penalties for late returns).

 

Under the old system tax payers could reduce the penalty payable quite significantly based on such factors as voluntary disclosure, cooperation and seriousness of the offence. Accordingly an overall penalty charge of around 15% was not uncommon

 

The ability to ‘negotiate down’ penalties under the new scheme has been restricted. Instead under the new regime the penalty charged is based primarily on the nature of the offence with a possible reduction for disclosure.

 

The table below details this new system:-

 

Reason for Penalty

Full penalty payable

Possible min. penalty for unprompted disclosure

Possible min. penalty for prompted disclosure

 

 

 

 

Careless

30%

0%

15%

Deliberate not concealed

70%

20%

35%

Deliberate and concealed

100%

30%

50%

Error in HMRC  assessment

30%

0%

15%

 

The above penalties relate to errors, omissions and inaccuracies on all tax forms and therefore include (amongst others) VAT returns, Corporation Tax returns, Self Assessment Tax Returns PAYE/NIC & CIS forms such as year end returns and P11D’s.

 

With regard to the last item in the table above (Error by HMRC) the time limit for unprompted disclosure is a mere 30 days. This also relates to any ‘estimated assessments’ raised by them due to the lack of the relevant form being lodged.

 

 

3.     Compliance checks

 

As a follow on from ‘interventions’ which were mentioned in earlier newsletters HMRC has now moved onto ‘compliance checks’. This is a new system for looking into income tax, capital gains tax, corporation tax, NIC, PAYE, CIS and VAT for those individuals in business.

 

HMRC’s intention is to make visits to a trader’s premises (normally by appointment although unannounced visits may be sanctioned in certain cases). The purpose is to gain first hand knowledge on how the business operates and to check the adequacy (and accuracy) of the records maintained. The scheme is intended to target those taxpayers suspected of inadequate record keeping however some random visits will also be arranged.

 

We therefore recommend that clients should review all their accounting systems at their earliest convenience and make any improvements considered desirable. We would point out that one area (despite a number of letters on this matter) which still gives us cause for concern in some cases is that of payroll and dividends.

 

Please note that whilst the insurance policy referred to above does not cover the cost of our attendance at the compliance visit (should such an attendance be required), it does cover our time costs in dealing with any enquiry or investigation arising therefrom.

 

 

4.     Income splitting

 

Finally on a positive note the Chancellor announced in the recent budget that the government will not be enacting its proposed legislation to combat what it terms as "income shifting". Instead, new measures will be postponed until 2009, pending further consultation to ensure that any legislation will provide "clarity and certainty" for businesses.