The Fizz! Blog

Are you using RSS?

If not, you should be.  It's a fantastic way to make your use of the web more efficient.

There are lots of websites that I look at on a regular basis (insert your own joke here!).  A year ago, I used to  check each of them maybe every day, or every week, or every month, depending on how important it was to me or how much time I had.  If I forgot to check one of "my" sites then I'd miss any new content.

RSS (which stands for Really Simple Syndication) does the checking for you.  A program called a feed reader checks all your favourite websites for updates.  The sites have to be set up to use RSS, but many sites are these days - perhaps most of the sites that you'll want to monitor.  If the site has an RSS feed, it'll have a little orange icon somewhere on it that you can click on.  The feed reader I use is Google Reader, but there are tons of free readers available.

When I start up my web browser (Firefox rather than Internet Explorer, but I'll leave the reasons for that to another article), my homepage is Google Reader.  I've told Reader what sites I want it monitor (some accounting/tax sites, along with a tranche of other sites dealing with various other interests).  Reader shows me how many unread new articles there are on each of the sites I've told it to monitor, like this:

So, rather than checking the HM Revenue & Customs site periodically for updates to its internal manuals, which I used to do to stay abreast of the guidance its Inspectors were being given on thorny issues, Google Reader now alerts me when something is added to relevant section of the HMRC site.  It saves all sorts of time.  Initially you go through an enthusiastic burst of use where you add so many sites' feeds that you can't possibly read them all, but once you've pared it back down to the sites you really want (I've got about 50 sites in my list now), it's brilliant.  Try it, I guarantee you won't look back.

www.fizzhq.com

Tax crackdown on buy-to-let landlords

HM Revenue and Customs have a new target - buy to let landlords who aren't declaring income and paying tax on it.  For once, I have no criticism of the taxman!  It's hard enough for young people to buy a house round here in any case, even without those who do have the capital to invest in property making it more profitable by evading tax.

www.fizzhq.com

Buying a commercial building?

If so, you should be aware of changes to the capital allowances available on fixtures and fittings in buildings (lifts, heating and ventilation systems, that sort of thing).  At the moment, these attract capital allowances under the usual rules (25% reducing balance basically, plus a first year allowance for SMEs - the detail isn't important here).  When buying a building, it's almost always best for tax purposes to attribute as much of the purchase price as possible to fixtures and fittings, and as little as possible to the building itself.  In fact there are tax specialists who do nothing but that.

From April, that 25% rate falls to 10% reducing balance, with no first year allowance, unless your total expenditure on plant is less than £50,000 for the year, which is probably fairly unlikely if you're in a position to buy a building.  For most businesses purchasing premises, the tax relief on the fixtures and fittings is likely to be reduced (well, delayed) significantly.  The tax relief on the building itself is being drastically reduced, but that's another story.

Planning points:

1.  It's even more important than before to think about whether you can justify writing the costs off to your P&L immediately, rather than relying on the capital allowances system for tax relief.

2.  It's also even more important than before to think about exactly when you incur the expenditure - 100% relief via the £50,000 Annual Investment Allowances that also comes in April is much more attractive than eventual relief via the new 10% rate.

As ever, if you think this may affect you, we'd love to hear from you.

www.fizzhq.com

Tax Return deadlines change

The deadlines for filing of personal tax returns are changing.  For the current tax year - the year to 5 April 2008 - if you want to send the Revenue a paper return, you'll only have until 31 October 2008 to do so.  Under the old system you'd have had until 31 January 2009.

If you're filing online, you still have until the old 31 January deadline to submit, though, given recent events, you might want to think twice about leaving it that late!

We file returns for our clients online, so the change makes no difference to us.  In any case, there's almost never any need for a return to be submitted so late - in 99% of cases preparing and submitting it over the summer and autumn should be straightforward.  If you're frequently asked by your accountant to sign your tax return at the last minute, give us a call!

www.fizzhq.com

IR35 - Recent Cases

There's a very interesting and useful article here (free registration required) by an IR35 specialist on the result of four different cases that have just been concluded before the Special Commissioners, one of the arbiters of disagreements between taxpayers and HM Revenue and Customs.

If you're affected by it then you'll probably know what IR35 is.  Basically, many years ago, a lot of workers - particularly in the IT industry - began to offer their services to potential employers/customers via limited companies.  That way, they paid significantly less tax than they would if they were paid via PAYE.  In some cases, an employee would leave their desk at 5.30 on Friday, come back at 9.00 on Monday and do exactly the same tasks for their former employer.  However, they'd pay much less tax because they had put a limited company between them and their employer.

This went on for some time, until the government decided to crack down on it.  IR35 essentially says that if what you are doing via your limited company has the characteristics of a job then, despite the limited company, you need to take your money via PAYE, thus losing most or all of the tax saving.  Sadly, IR35 was so grey that it was very hard to be sure if it applied or not to a worker, and most of them decided to carry on as before and hope the Revenue didn't ask questions.

In most cases, this policy was a success.  The Revenue didn't have the resources to look at all the potential IR35 "victims", or even a tiny proportion of them.  However, the article I've linked to discusses four workers who did get picked out by HMRC, and have since been going through the lengthy process of arguing with the Revenue over whether IR35 applies or not.  Two of the taxpayers won their cases, two lost.  In one case, it has taken six years to establish that IR35 doesn't apply.  That will have been a very stressful six year period for the taxpayer concerned.

Most interestingly, one taxpayer who lost his case largely lost not because of their own evidence but because of their customer/employer's evidence.  A common way to try to ensure you're not subject to IR35 is to insert a "subsitution clause" into the contract between your company and its client - basically, a clause that says you don't have to do the work yourself, you can send someone else to do it.  But this tactic is only effective if the clause could actually be used - not if it's just for show.  A representative of the customer was asked if he'd have been happy if the taxpayer had actually sent a substitute in his place.  Absolutely not, was the answer.  They had entered into the contract because they wanted the taxpayer himself.  Game over.  In another case, the taxpayer himself (unrepresented by an expert at that point, unfortunately for him) confirmed personally to the taxman that the customer would not have allowed him to send a substitute.  Admirably honest, but perhaps inadvisably so.  Game over.

The overall conclusion has to be something that most accountants and tax advisers, including me, always tell clients.  When IR35 came in, many IT employment agencies put a lot of effort into coming up with watertight contracts.  But what the contract says doesn't matter if it doesn't match up with reality.

If you need advice on IR35, do give us a call.

www.fizzhq.com

Entrepreneurs' Relief

As expected, the Chancellor climbed down in large part over his proposed changes to the Capital Gains Tax system.

What was proposed was a) withdrawal of taper relief, b) withdrawal of indexation relief and c) a change in the rate of CGT to 18%.  The aim was to placate trade unions by increasing the rate of tax paid by private equity investors from 10% to 18%.  However, the collateral damage was a similar increase in tax paid by all those selling their own businesses.  In effect, it was an 80% increase in tax for entrepreneurs.

So, the change we now have is an extra relief known as Entrepreneurs' Relief.  Changes a), b) and c) above still stand - reversing the proposed changes would be too damaging politically and would never happen; you always get more rules, never fewer.  The effect of Entreprenuers' Relief will be that the first £1 million of gains made on the disposal of businesses by someone in their lifetime will effectively be taxed at 10%.

The legislation actually isn't as simple as this; the gain is tapered by 4/9ths before being taxed at 18%.  But the effect is to tax it at 10%.  In effect, for the disposal of many - probably most - small businesses, the tax bill is now pretty much the same as it would have been under the old rules - because of the interaction with the annual exemption, the bill will be a little higher, but not cripplingly so.

There was some fear that the sudden withdrawal of taper relief would lead to some business owners scrambling to dispose of their businesses before 5 April to ensure a low tax bill.  These changes do mitigate the hike in tax on the horizon, so a speedy sale of a business is unlikely to be so important now.  However, the new system still involves the abolition of indexation allowance, so it may be that those who have owned a business for a very long time will still want to take some action before 5 April to "bank" that indexation, perhaps by a transfer of their interest in the business to a spouse.

Overall, it's hard to describe the process by which we've arrived at this point as anything other than a shambles.  Radical rule changes, designed to curry favour before a possible election, announced with absolutely no consultation, then radically altered when almost everyone complained, and all coming into effect with only a couple of months' notice.  I think Vince Cable summed it up best: “The Chancellor’s climbdown on Capital Gains Tax reform was inevitable and is a stark demonstration of the pitfalls of making up tax policy over a weekend.  The truth is that Capital Gains Tax does need reform, but it must be done through full and open consultation with business, not written on the back of a fag packet in a bid to pull together a snap election manifesto."

http://www.fizzhq.com

Client Focus: Ranieri Communications

Ranieri Communications is a PR and marketing agency based in Aylesbury.  Specialising in the IT and consumer sectors, they help their clients to get media coverage for their products.  If you see a gadget featured in a magazine, then Pietro Ranieri and his team may well be responsible for getting it there.  It’s an expanding business and you can find out more about the new clients they’ve been taking on by looking at their news page or blog.

Great things about Ranieri Communications as a Fizz client:

1.      It’s a successful business.  It’s all very well being able to offer tax planning advice, but if there are no profits, then there’s not going to be a lot of tax to save!

2.      The business is expanding and evolving all the time.  Pietro and his team are always generating new ideas and coming up with new projects.  That means that there are some real opportunities for Fizz to add value with tax planning and business advice.

3.      They’ve put systems in place to get the day to day bookkeeping and admin right.  That means that we can actually spend time on offering valuable advice rather than wading through inadequate records trying to work out whether they’ve made a profit or not!  Putting adequate systems in place means an initial investment in time and money, but it pays off down the line.

4.      It’s an interesting business with a lively atmosphere and they are great people to work with.  Life’s too short to work with clients you don’t get on with!

If you’d like to find out more about Ranieri Communications and what they do, just give Pietro Ranieri a call on 01296 394614.

Investing in fixed assets soon? Get the timing right!

The rules for capital allowances are about to change, and the standard advice for investing in new assets is turned on its head this year.

In accounts, when a business buys an asset - say, a van - it doesn't show the whole cost as an expense in its profit and loss account straight away.  Instead, it has to spread the cost over a number of years.  This is called depreciation, and the aim is to match the cost of the van with the income it generates.  Estimating the depreciation each year is down to the directors, but typically you do something like spreading the cost over four years.

Unlike most of the costs in the profit and loss account, you don't get tax relief for depreciation.  That's because, if you did, many businesses would probably suddenly decide to spread the cost of the van over one or two years so as to get tax relief sooner.  Instead, you have to claim something called Capital allowances - they are the standard Revenue and Custom subsititute for depreciation.  They have historically given tax relief by giving you credit for quite a bit of the cost in year one, less in year two, even less in year three, and so on.

So, the standard advice to a company thinking of buying a van around the end of its accounting year has always been - buy it before the year-end so as to start the tax relief process sooner.  If a company with a 31 March 2007 year-end bought the van on 29 March, it got its first batch of Capital Allowances in the year ended 31 March 2007 and reduced a tax bill payable on 1 January 2008.  If it bought it on 1 April 2007 then it didn't get its first Capital Allowances until the year ended 31 March 2008, reducing a tax bill payable on January 2009.  In other words, by delaying the purchase by three days it delayed tax relief by a whole year.

But, from 1 April (6 April for sole traders and partnerships), a business can get complete, 100% relief for the first £50,000 of assets purchased in a year.  So, if the same company buys a van on 29 March 2008, it'll get a bit of tax relief in the year ending 31 March 2008, a bit in the year ending 31 March 2009, a bit in 2010, and so on.  If it delays the purchase until 1 April 2008, it'll get tax relief for the entire purchase in the year ending 31 March 2009.  That's likely to be a much better choice.

Circumstances may vary from company to company, and there are other changes to Capital Allowances beyond this one, but it's definitely right to say that any company thinking of investing in fixed assets in March and April should look carefully at the timing of the purchase to optimise the tax relief they get.  If you'd like to talk to us, we'd love to hear from you.

http://www.fizzhq.com