The Fizz! Blog

A u-turn I forgot about

One of the consequences of reducing the basic rate of income tax to 20% (from 22%) from 6 April was a loss of income to charities.  Before, in order for a charity to get £1 in its coffers, you gave them 78p and the government topped it up with another 22p - in other words the government gave it 28% on top of your donation.  After, in order for a charity to a charity to get £1 in its coffers, you would give them 80p and the government would top it up with another 20p - in other words, the government would just give it 25% on top of your donation.

In practice, of course, we weren't all going to suddently start increasing our charitable donations from 78p to 80p (or whatever).  We'll carry on paying £x a month or a year, resulting in a loss of income to charities.

There was a fair amount of negative publicity about this (presumably unintended) consequence of the decrease in basic rate tax.  As a result, in the budget the Chancellor announced that the government would carry on topping charities' coffers up at 28% for the next three years, to soften the impact.

Of course, they waited until three weeks before the change was due to come in before announcing this.  I was reminded of this today when looking at a leaflet from the National Trust that assures me that, if I tick the Gift Aid box, each £1 I donate to them will be worth £1.25.  It won't now - it'll be worth £1.28.  But the National Trust, being responsible and thinking ahead, have now presumably got millions of leaflets that are factually inaccurate to get rid of.

More significantly, no doubt some charities have had the foresight to ask their donors to up their contributions to make up for the reduction in the tax break.  Now that the tax break has been temporarily restored, are they to contact all those donors again to ask if they'd like to reduce their contributions to their previous level?

Once again, this is what happens if you make up taxation policy as you go along.

www.fizzhq.com

How do you know if a charity is doing a good job?

How do you know if a charity is doing a good job?  As a) someone who acts for charities and b) a trustee of a charity myself, this is something I think about on a regular basis.  You don't generally expect to find articles relevant to the subject in the Food & Drink section of The Times, but here's one:

Review of Jamie Oliver's charity, Fifteen, finds training was as raw as recruits

A non-profit organisation lacks the fundamental indicator of success - profit.  If you're running a shop, a factory, a consultancy firm or any other conventional business, profit (or lack of) provides you with tangible proof that you're doing a good job.  Maybe you could do a better job, and maybe the success of some parts of your business is masking the lack of success of others, but fundamentally profit tells you that the open market considers the output of your businesses to be more valuable than the costs of the inputs.  The market provides a clear signal to the business owner as to whether or not they're wasting their time.

If that signal is taken away, how can you tell if things are going well?  It's easy within a charity to lose sight of the big picture.  Without an external trigger - a funding crisis perhaps - there's a risk that you'll just carry on doing things the way you've always done them, and miss opportunities to grow or change and better serve the interests of your donors and other stakeholders.  As long as you spend a donor's money, and secure a similar donation for next year, keeping everyone in a job, there's a chance that you'll just keep spending money in the same way - even if there are more efficient ways of getting the job done.

Fifteen looks at first glance as if it should be able to just take restaurant profits as a signal of success, but what if an annual loss of, say, £100,000 is considered a fair price to pay for the opportunities afforded to disadvantaged youngsters, and donors can be found to cover the shortfall?  Is that a good way of providing the opportunities?  Could the £100,000 be better spent to provide more (or better) life chances to the kids?  The tills don't give you that information.

Fifteen's answer has been to commission an external report into the organisation.  Of course, they are in the happy position of having donors queueing up to pay the £50,000 cost of the report on their behalf in return for the chance to bask in the reflected glory of Jamie.  Other charities aren't so lucky.  On the other hand, a less costly report might suffice - the director of Fifteen interviewed here reckons that £10,000 would do the job for a typical charity.

Regardless of the fact that they didn't have to pay for the report, hats off to Fifteen for its openness in making the results public.

www.fizzhq.com

Made an error on your VAT return?

If so, there was a change that was hidden away in the Budget that's actually quite useful.

For the last 10 years at least, if you realise you've made a mistake on your VAT return, then you've been able to just correct it on your next return, as long as the error was of £2,000 or less.  Any more than that and you have to fill in a special form.

Now, that threshold has been increased to £10,000, (or 1% of turnover, up to a maximum of £50,000, if that's greater - but if your turnover is less than £1million then £10,000 is the right figure) which means that many more errors can just be amended on the next return without jumping through hoops.

www.fizzhq.com

ISA allowances increasing

From 6 April, the annual ISA allowance is increasing to £7,200, with £3,600 allowed in a cash ISA.  The previous equivalents were £7,000 and £3,000.  If, like me, you have a standing order into your cash ISA of £250 a month, from 6 April you can change it to £300 a month.

www.fizzhq.com

Research and Development - changes next month

As announced in the Budget, from 1 April the tax incentives for R&D expenditure become more attractive.  They were pretty generous before, and there's now an even better opportunity for companies engaged in R&D to get a really desirable tax break.  What counts as R&D is not black and white, and the taxman will often query a claim.  However, at Fizz we have lots and lots of experience of successful claims of the credit, and successful negotiation if claims are enquired into, so if you'd like to know more about how you could benefit, give us a call.

Also, there's a significant deadline at the end of this month for backdating claims - if this applies to you, get your skates on!

www.fizzhq.com

"Income shifting" legislation postponed

I've written at length before about the massive flaws in the the government's plan to crack down on what it's called "Income Shifting" - basically "husband and wife" businesses, where one spouse generates most of the income but the dividends are split with a spouse or partner so as to use their tax allowances.

Following the almost universally negative reaction to the plans, the Chancellor announced in the Budget yesterday that the introduction of the legislation has been postponed until 2009.  It remains to be seen whether it will be implemented in its current form.  At least for the next year, it's still legitimate to set up your business so that the allowances of both spouses are used.

As an aside, there have been two massive u-turns on small business tax recently - this, and the recent change of heart on CGT with the introduction of entrepreneurs' relief, following a similar outcry about the Chancellor's initial plans.  It's hard enough for professional advisers to advise their clients accurately with the goalposts constantly shifting like this.  How the unrepresented taxpayer is expected to get things right is beyond me.

www.fizzhq.com

How the government supports Small and Medium Enterprises

I was with a client all day yesterday, and I only actually heard about a minute of the Chancellor's budget speech.  This was the bit I heard:

A competitive and simplified tax regime is essential.

That is why we cut the main rate of corporation tax in 1997 and again in 1999.

And from next month the main corporation tax rate falls again from 30 per cent to 28 per cent.

Mr Deputy Speaker, the UK is one of the best places in the world to do business. We are committed to consultation with business to maintain a stable business tax system that remains responsive to business’ needs and internationally competitive.

Underlining our commitment to maximising the economic recovery of the UK's oil and gas reserves, I can also confirm reforms to the North Sea fiscal regime to help incentivise investment and support production.

But today I also want to do more to support Small and Medium Enterprises now and in the longer term.

13 million people work in Small and Medium Enterprises. And there are over 750,000 more firms than in 1997.

The new Capital Gains Tax rate will come in next month including the entrepreneurs’ relief I announced in January.

And that will benefit over 80,000 businesses and investors in the next year alone – 90 per cent will continue to pay Capital Gains Tax at 10 per cent – one of the lowest rates in the world.

This Budget continues a programme of tax simplification. I am today announcing further steps to help small companies simplify their tax calculations.

Mr Deputy Speaker, especially at this time we need to do more to help Small and Medium Enterprises get access to the finance they need.

To help them in current conditions, I can therefore announce that funds available through the Small Firms Loan Guarantee scheme will be increased by £60 million for the coming year.

And I am from next month extending the scheme to small and medium firms.

Can you spot what's missing here?  The Chancellor tells us about the reduction in corporation tax for large companies to 28%, as already announced in the Pre-Budget Report, and he tells us how important SMEs are.  But there's no mention at all of the increase in corporation tax for small companies to 21% from 1 April.  The claim that the Chancellor wants to supports SMEs is undermined somewhat by that tax increase - it dwarfs any extra funds made available under the Small Firms Loan Guarantee Scheme.  As ever, the good news gets repeated, the bad news gets buried or twisted.

www.fizzhq.com

Company Accounts - Late Filing Penalties

Under the new Companies Act, the penalties payable by companies that file their accounts late are to shoot up.

At present, a private limited company filing accounts up to three months late faces a penalty of £100, which rises to £250 for up to six months late. From 1 February 2009 the harsher penalties of the new Act will apply - there will be a £150 penalty for accounts filed up to one month late, rising to £375 for up to three months late and £750 for up to six months late.

I'm perfectly happy with the change.  In fact, I think it's great.  In general, it's far better to prepare statutory accounts right after the year-end.  Firstly, if you've any queries about transactions during the year, then if you ask fairly shortly after the year-end there's a fair chance that the directors and staff might actually be able to remember what happened.  The longer you leave it, the harder it is for anyone to recollect clearly what went on.  Secondly, if the accounts are available shortly after the year-end they may actually be of some use in running the business - not as useful as management accounts, but still informative nonetheless.  If you're not preparing accounts for the year to May 2007 until March 2008, then, beyond satisfying the statutory requirement for accounts to be prepared are they actually going to be desperately useful?

Where companies are unable or unwilling to prepare accounts promptly after the year-end, it's usually either because they have inadequate records, their management doesn't value the information, or they don't have the money to pay their advisers.  As an accountant, those aren't usually your best clients!

www.fizzhq.com

Minimum wage to rise in October

Advance notice of increases in the minimum wage from October, just announced:

General increase: from £5.52 to £5.73
18 to 21 year-olds: £4.60 to £4.77
16 & 17 year-olds: £3.40 to £3.53

Company cars - fuel benefits going up

From 6 April, the tax cost of having free fuel in your company car is going up by about 17%.

At present, the tax you pay is based upon a fuel multiplier of £14,400.  That's going up to £16,900.  A higher rate tax payer with a typical car might presently pay tax on his fuel benefit of (£14,400 * 25% * 40%), which is £1,440.  From 6 April the bill will be (£16,900 * 25% * 40%), which is £1,690.

So, now would be a good time to think about whether you really do need your employer to pay for your private fuel - if you reimburse the company for all your private fuel (or you pay everything and they reimburse you for the business part) then you can avoid the tax liability.

www.fizzhq.com