Two of the UK’s leading business groups are calling on the Government to set out clear and credible plans for tackling the UK’s £178bn deficit.  In its Budget submission to Chancellor Alistair Darling, the Confederation of British Industry (CBI) has urged the Government to set out more details of its departmental spending plans, and to bring forward its targets for balancing the books, in order to obtain the critical objectives of boosting confidence in the public finances and fostering economic stability.

The CBI believes that the Government’s target date for achieving budget balance in 2017/18 is too far off, and that the bulk of the deficit should be addressed by 2015/16.  This would be achieved by adjusting expenditure plans, rather than increasing taxes.  Richard Lambert, CBI Director-General, said, ‘The UK’s deficit, though worryingly large, is still manageable, but the Government must act now to set out a convincing, credible pathway for balancing the books’.

He added, ‘The Budget should do whatever is necessary and possible to maintain and strengthen this country’s reputation as an attractive place for investment.  The planned rise in National Insurance Contributions is particularly ill-judged.  It is a direct tax on jobs and should be reversed’.

Meanwhile, the Institute of Directors (IoD) is calling for an incoming Government to act on the deficit as soon as it takes office.

Publishing its Business Manifesto 2010, the organisation echoes the CBI’s views that fiscal tightening should be based on lower public spending rather than higher taxation.  Miles Templeman, IoD Director-General, said, ‘We are convinced that we need swift action to tackle the budget deficit. The argument that early cuts would jeopardise the recovery is mistaken.  We believe that lower spending is likely to trigger a whole series of positive developments that will assist growth’.

Planning for the 50% Income Tax Rate

Higher earners should take action now to help minimise the effect of the new 50% top rate of income tax.  If you are likely to have income in excess of £100,000 for 2010/11, you could use the following strategies to reduce your total taxable income.

Accelerating Income

Consider accelerating income into the 2009/10 tax year by bringing forward bonus and dividend payments, and possibly the realisation of gains on unapproved share schemes, ahead of 6 April 2010 so that income is taxed at 40% (32.5% for dividends).

Changing Your Accounting Date

If you are self-employed and have an accounting year end of 6 April or later, you will be paying tax at the higher rate of 50% on income over £150,000. You may wish to consider changing your accounting date in order to shift profits into 2009/10.

Incorporation

While incorporating a business currently run as a sole trade or partnership is not always advantageous, there may be some potential benefits.  A change of accounting date or incorporation requires careful thought; we can review your figures and expectations for your business, to help you to decide if either of these options is right for you.

Restricting Income

If you run your business through your own company, you may wish to consider restricting your income to below either of the two key thresholds of £100,000 or £150,000 byreducing your salary and dividends and leaving any surplus cash in the company.

Transferring Income

If your spouse or civil partner has a lower marginal tax rate, you could consider either transferring ownership of income generating assets such as shares, let property or bank deposits to your spouse, or changing them to joint ownership.  Where your spouse is involved in your business, care must be taken to ensure that you comply with all of the necessary legalities.

Remuneration Options

Salary sacrifice schemes may allow a saving to be made, by replacing taxable income with certain benefits-in-kind.  The benefits may themselves be taxable, so it is important to factor this in when considering the savings.  The new restrictions on pension savings may make share based reward schemes more attractive forms of remuneration, allowing income to be taken as a capital return.  Approved share schemes could result in a capital gains tax liability of 18%, compared with a potential income tax liability of up to 50%.

Pension Payments

Pensions are a complex area for those whose income reaches (or has reached) more than £130,000 per annum, but maximising pension savings could reduce your marginal rate. Please contact us for further advice.

For further information and details of more strategies to minimise the effect of the new rates, such as deferring tax relief, tax-efficient investments, and making charitable donations, please visit the Hot Topics section of our website.  Please contact us for advice on your individual situation before taking any action.

Two recent landmark court rulings could lead to some individuals facing significant retrospective tax bills, as outlined below.

UK Citizens living abroad as Tax Exiles

Thousands of UK citizens living abroad as tax exiles could find themselves facing a retrospective tax bill stretching back as far as the previous six years, following
a recent Court of Appeal ruling.

The case involved businessman Robert Gaines-Cooper, who has lived in the Seychelles since 1976. Despite the fact that he had adhered to previous HM Revenue & Customs (HMRC) guidance by spending fewer than 91 days in the UK on average each year, the judges ruled he had nevertheless maintained ties with the country.
The Appeal Court said that the 91-day rule did not actually establish non-residency, and ruled that the UK had remained the ‘centre of gravity’ of the defendant’s life
and interests.

The ruling means that thousands of UK tax exiles could have their lifestyle scrutinised by the Revenue, with factors such as the number and length of visits to the UK, any economic and business ties, and ongoing connections such as membership of UK banks or sporting clubs, being taken into consideration.

Contractors using Offshore Tax Schemes

Meanwhile, contractors who have used or are continuing to use offshore tax schemes could be the target of a new clampdown by the tax authorities.
The warning follows a ruling by the Royal Court of Justice, which recently dismissed an application for a judicial review in the case of a self-employed information technology contractor who sought to challenge a £100,000 backdated tax demand from HMRC. The judge ruled that the backdating of the demand did not breach human rights law. The Professional Contractors Group has warned that HMRC may now retrospectively apply the tax legislation as far back as 1987, when the relevant legislation was first introduced. Those targeted could have to pay both the fines and the backdated taxes.

It is thought there may be 2,500 taxpayers exploiting such arrangements, with around £100 million of income tax at stake. We can advise on all your tax planning needs – contact us today for a tax planning review.

An incoming Government must concentrate its efforts on reducing the budget deficit,
and should scrap the planned increase in national insurance contributions (NICs),
according to the British Chambers of Commerce (BCC).
The latest monthly survey from the business group revealed that 41% of companies
believe reducing the deficit should be the Government’s number one priority, while
many also believe that an increase in NICs represents the most damaging tax rise
that could be imposed on them.
36% of those surveyed felt that a VAT increase would be the least damaging to their
business, compared with just 6.6% who selected NICs as the more favourable option.
Meanwhile, the business group has used the Treasury’s Tax Ready Reckoner to calculate
that increasing VAT by 1% to 18.5% would raise an extra £4.5bn in revenue, compared
with the £5.1bn that would be netted by a rise in NICs. The BCC argues that the difference
between the two sums could be offset by targeted spending cuts.
David Frost, BCC Director General, said, ‘Companies have and will continue to play
their part in creating wealth and jobs, generating economic growth and driving recovery,
but the right environment needs to be in place’.
‘Raising a damaging tax on business, like NICs, will be counter-productive. It will
mean fewer jobs and less tax revenue in the long-term. While businesses fully understand
the need to bring down the UK’s deficit, they are clearly saying that using VAT would
be a less damaging way to achieve this.’

This month sees the introduction of a number of changes to the National Minimum Wage(NMW) regulations.

Main adult rate to rise

The NMW rates increased with effect from 1 October 2009, following recommendationsby the Low Pay Commission (LPC), which reviews NMW rates on an annual basis on behalfof the Government.

Furthermore, employers who are found to be in breach of the NMW legislation are nowsubject to automatic penalties, ranging from £100 to £5,000. This is in addition
to the wages already owed to the employee. From October 2010, 21-year-olds will be included in the main adult rate of the NMW.

Tips and service charges

In addition, from 1 October 2009 employers will be banned from using tips and service charges to bring the wages of bar and restaurant workers up to the statutory levels.

A recent case in the Court of Appeal concluded that employers must not take into account tips, gratuities, service charges or cover charges when paying the NMW, unless these are paid to employees through the employer’s payroll.

Apprenticeship pay

Meanwhile, the Government has asked the LPC to consider introducing a minimum wage for apprentices. Under the current legislation, apprentices aged 18 years or less are exempt from the NMW, as are those aged 19 or older who are in the first year of their apprenticeship. From August this year Learning and Skills Council apprentices are guaranteed a weekly pay rate of £95.

The LPC has been asked to report its recommendations to the Prime Minister and Secretary of State for Business, Innovation and Skills by the end of February 2010.

For more information on the National Minimum Wage changes, please visit the Hot Topics section of our website
http://www.branstonadams.co.uk/data/topical.

Fathers will gain the right to take six months’ paternity leave under new plans announced by the Government. The proposals will see parents afforded the right to share a year of parental leave to care for their newborn child, with fathers allowed to take six months off after the mother’s first six months of leave. The changes will take effect for parents of children due on or after 3 April 2011. Harriet Harman, Minister for Women and Equality, said the new rights would give ‘families radically more choice and flexibility’ and enable ‘fathers to play a bigger part n bringing up their children.’

The Government has yet to fix a date for its plans to extend mothers’ maternity leave from nine months to a year. Commenting on the shared leave proposals, Miles Templeman, Director General of the Institute of Directors, said: ‘We strongly support new paternity leave rights for fathers, providing the Government ensures that the new system is simple for businesses to administer and there is no overall increase in the total amount of paid and unpaid leave parents can take.’

Meanwhile, David Frost, Director General of the British Chambers of Commerce, said: ‘This is not the time to do it. It is a huge burden to plan for both a male and a
female employee being away.’ However, the Government anticipates that the new rules will have a ‘minimal’ impact on businesses.

31 August: Annual adjustment for VAT partial exemption calculations (May VAT year end).

30 September: End of CT61 quarterly period.

The Government’s Vehicle Scrappage scheme was hailed a success as the number of cars purchased under the initiative surpassed the half-way mark this month.

Official figures have revealed that over 175,000 new cars have been ordered since the announcement of the scheme in the 2009 Budget. This means that more than half of the funding ring-fenced for the scheme has now been exhausted.

The Government put aside £300 million for the scheme, enough to fund 300,000 transactions. However, the Society of Motor Manufacturers and Traders predicts that funding will run out well in advance of the original closing date of 28 February 2010, and possibly by ‘the end of October, early November’. Individuals and businesses wishing to take advantage of the scheme have therefore been advised to act quickly.

Following the news, Business Secretary Lord Mandelson said the scheme was ‘a great deal for manufacturers and dealers, not to mention customers’.

Its popularity has led to a 13.5% rise in car manufacturing, Mandelson confirmed, with the South-East of England seeing the highest take-up (18% of total scrappage sales).

The so-called ‘cash for bangers’ initiative offers a £1,000 subsidy, per vehicle, from the Department for Business, Innovation and Skills, matched by a further £1,000 subsidy from the manufacturer. The subsidy is in addition to any other subsidy or discount offered by the manufacturer or dealer.

The old and new vehicles are subject to a number of conditions, including restrictions relating to their weight, date of UK registration, registered keeper, and length of ownership. A full list of conditions is available from the BIS (visit www.berr.gov.uk.)

Over 300 banks and financial institutions have been ordered to pass the details of those customers who hold offshore accounts to HM Revenue & Customs (HMRC).
 
The legal ruling means that HMRC can now issue compulsory disclosure notices to the banks, ahead of the National Disclosure Opportunity (NDO). Banks will be required to reveal details of customers’ payments and transfers to overseas accounts. Tax inspectors will then cross-reference this information with that supplied voluntarily by individuals to check hat the correct amount of tax is paid.
 
Dave Hartnett, HMRC’s Permanent Secretary for Tax, said: ‘I know there are people who regret not taking advantage of our Offshore Disclosure Facility in 2007.’
 
‘I urge any of them who have unpaid tax liabilities connected to [offshore] accounts now or in the past to come forward and make a full disclosure during the NDO.’
 
The NDO offers people with unpaid taxes linked to offshore accounts or assets a final opportunity to make a complete disclosure, at favoorable penalty rates.
 
To use the scheme, a notification of the intention to disclose must be made to HMRC between 1 September and 30 November 2009. Those taxpayers notifying on paper can do so from 1 September to 30 November, while those notifying electronically can do so from 1 October to 30 November.
 
Disclosures can then be made from September 2009 to January 2010 on paper, or from October 2009 to 12 March 2010 electronically.
 
Once the NDO ends on 12 March, those taxpayers who have failed to come forward will be ‘vigorously pursued’ by HMRC and will face penalties of between 30% and 100%, together with an increased risk of prosecution.

Tel: +44 (0) 1252 728 598 Fax: +44 (0) 1252 728 652

Email: paul@taxaccountancy.com

www.branstonadams.co.uk

The amount of state pension you will receive upon retirement is based on the number of full tax years during which you have paid national insurance contributions (NICs). These years are called qualifying years. If you will reach state retirement age (currently 65 for men and 60 for women) before 6 April 2010, or are already over that age, you need up to 44 qualifying years (for men) and 39 for women in order to achieve a full state pension. This can be difficult to achieve if you have spent some years in full-time study or caring for children.  In such cases, you may wish to top up your NIC record for some of the missing years to improve the amount of state pension you will receive upon retirement. However, before you make this decision you need to check how many qualifying years you have already accumulated. You can do this by ringing the NI enquiries line on 0845 915 5996.  If you are due

to reach state retirement age after 5 April 2010 you will only require 30 qualifying years to receive the full state pension, so a top-up may not be necessary.

If your 65th birthday (60th for women) falls between 6 April 2008 and 5 April 2015, you have a unique opportunity to top up your NIC record for any six tax years since 1975 where you are missing contributions. You may do this by paying voluntary Class 3 NICs at £12.05 per week. The National Insurance office is responsible for notifying taxpayers when they have not paid enough NICs in a tax year to make it a qualifying year.  However, for the years 1996/97 to 2001/02 the office failed to do this.  Consequently, many people received letters informing

them that their NICs for past years had fallen short.  Despite this, taxpayers who reached retirement age before 24 October 2004 can still top up their NICs for the years between 1996/97 and 2001/02 by 6 April 2010.  Furthermore, contributions may be paid at the rates that applied in those years.

The deadline for paying NICs for missing years is generally six years from the end of the relevant tax year. So if you missed paying contributions in 2003/04 you have until 5 April 2010 to top up that year.  Paying missing NICs for a recent tax year will also allow you to qualify for incapacity benefit or maternity allowance. You may want to provide cover for these allowances even if you already have 30 qualifying years.  Please note, if you reach state pension age on or after 6 April 2010 your entitlement to bereavement allowances will still depend on 44 years (men) or 39 years (women) of contributions. If you qualify for Home Responsibilities Protection, this will help to protect your entitlement to the state pension, and could reduce the number of qualifying years required.

We can help you to decide whether to top up your NICs, and to plan for a more comfortable retirement – please contact us for details.

Tomorrow:  “The Rise and Fall of Furnished Holiday Lettings – New penalty system for incorrect tax”

Chartered Certified Accountants & Savvy Panellists

Suite 2, Victoria House, South Street, Farnham, Surrey. GU9 7QU

Tel: +44 (0) 1252 728 598 Fax: +44 (0) 1252 728 652

Email: paul@taxaccountancy.com

http://www.branstonadams.co.uk

Tomorrow: “Should You Increase Your National Insurance Contributions?”

You can download the newsletter in full by visiting

http://www.branstonadams.co.uk/newsletters.htm

Introduction

Maintaining your existing customer-base is invariably less costly than generating new business. Consider the following low-risk strategies.

Responding to current trends

Researching current trends in the market and observing how your customers and competitors are responding will allow you to adjust your products or services accordingly, and to compile

a clear and consistent marketing message which demonstrates how you can meet the changing needs of customers.

Increasing cross-selling and upselling

Cross-selling and upselling to existing customers are cost-effective ways of increasing revenue. Make sure your customers are aware of the other products and services

you can provide and offer them incentives to increase the volume and range of their existing orders.

Rewarding loyalty

Offering a loyalty scheme for long-standing and valued customers can show your appreciation and help to secure future business. Consider including loyalty vouchers to encourage your customers to try your other products or services; these can be a preferable alternative to cutting prices and will not devalue your business.

Keeping in regular contact

It is important to keep the lines of communication open. You might send a regular newsletter to your top customers, offering useful information and advice while

promoting your services. Contact customers by telephone to discuss how you can help them further, and if appropriate offer to arrange a meeting.

Generating new leads

As well as working to maintain existing customers, businesses must also continue to target prospects. By instigating some low-cost marketing strategies, you could even turn the situation to your advantage by gaining market share from your competitors.

Encouraging referrals and recommendations

Setting up a cross-referral system with your suppliers, an other businesses that complement yours, is an effective way of generating mutually beneficial leads. You can

also use incentives to encourage existing customers to recommend your business.

Networking

Attending conferences, networking events, trade shows or lunches can generate significant new business opportunities. You can improve your success rate by researching the details

of the events beforehand and selecting those which are most likely to generate useful contacts.

Your business website

A well-designed and up-to-date company website provides both prospects and customers with 24-hour access to your products and services, and can be an

effective and low-cost way of generating sales. Make it easy for visitors to find information and place orders, and include your website address on all correspondence.

Electronic marketing

Sending a monthly email update containing news, information and useful tips is another cost-effective way of keeping in regular contact with both customers and prospects, and

reminding them of how you can be of assistance.

Marketing your business in a downturn

During times of economic difficulty, the marketing budget is often one of the first casualties.  However, in a recession it is more important than ever to promote awareness of your

business, protect your existing customer base and to be well-positioned when the economy picks up.  In an economic downturn, it is essential to find ways of securing new and repeat business.  With careful planning you could even improve your business’s prospects in the long-term.