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Tax Tips
EMPLOYING A SUBCONTRACTOR
Contrary to popular belief the length of time a contractor is engaged to work for you does not in itself determine whether they are employed or self employed. PAYE inspectors are always on the lookout for individuals who, although they submit invoices, are effectively employed rather than self employed.
If you get it wrong you, not the worker, will be liable for National Insurance and any unpaid tax. The safest solutions are either to put them on the payroll and make the necessary deductions or deal only with people working through a limited company. You will also need to ensure that any contract is with the limited company and not the individual. The tax and National Insurance will be the liability of the consultant company.
IHT TAX GAP
The taxman received 67,500 Inheritance Tax Returns 2003/4 but only enquired into 3,600, although this did yield additional tax of £126 Million. Penalties can be charged for negligently completed returns, but this only occurred in 100 cases in 2003/4.
BEST TIME TO BUY PLANT AND MACHINERY
Unlike cars, vans are classed as general plant and machinery. For the corporation Tax year April 1 2005 to March 2006 the First Year allowance is 40%. However, the chancellor's Pre Budget Report indicated that this will increase to 50% for small companies.
If your company year end is March and you buy Plant and Machinery costing £20000, you will reduce your tax bill by £1520 in that year and by £570 in the year following.
If you defer the expense you will get no relief in the first year and £1900 in the year after.
Our advice; if your year end is March then don't defer the expenditure, but if you don't have a March year end it's best to wait until April to take advantage of the 50% FYA.
A small company is classified as any company that meets two of the following:
- Turnover less than £5.6 million
- Balance sheet assets less than £2.8 million
- Less than 50 employees
CAN THE TAXMAN SEE YOUR PERSONAL RECORDS?
Increasingly during company investigations the taxman is requesting director's private bank statements. He can ask to see any documents that form part of the company's records. However he would only be entitled to your private records if they have been tainted by the business, e.g. if you have made a payment for a company expense from your private bank account or credit card or paid company income (aside from salary, dividends or reimbursed expenses).
Try to avoid tainting your private accounts as any receipts you can't explain could end up as undeclared company income on which there will be an unpleasant tax bill (even if they weren't company income).
ROSINA
TAPER RELIEF
Those of you that received the Aspen Waite Budget 2006 booklet recently will be aware that the removal of Taper Relief was something that caused a lot of speculation in the run up to the budget this year.
However, the Chancellor seems to have seen sense and, for the avoidance of any doubt, Taper Relief remains essentially unchanged at present.
On the premise that there is no smoke without fire it is something that we will keep a close eye on in the future and let you know if you need to be thinking about getting some fire extinguishers ready in time for the next budget!
KEVIN
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