Removal of 14 day concession for rejected accounts

In January 1993 a concession was introduced allowing 14 days grace to companies that deliver their accounts on time, but are subsequently rejected. These companies had 14 days from the date of the rejection letter in which to amend and return accounts in an acceptable format. The concession applied in cases where accounts were received and rejected in one penalty band and re-filed in a higher penalty band.
Section 706 of the Companies Act 1985 required companies to deliver documents in a legible form and allowed 14 days from the date of any rejection letter to re-file them. There is no replacement in the Companies Act 2006 for this section and so the 14 day concession ceased to exist on 1 October 2009. 
Consequently any accounts received on or after 1 October 2009 which have to be returned to a customer for amendment will no longer receive the extra statutory 14 days.
We recommend that companies ensure they deliver accounts to Companies House well before they are due. Wherever possible use our WebFiling or Software Filing Services to file information electronically. For WebFiling, please note that a security and authentication code is required to be able to use the service. If you are not already registered please allow plenty of time in which to receive these codes.

ATTENTION ALL LANDLORDS!

If you have a mortgage on your buy to let property chances are the recent reduction in interest rates has seen your annual property letting loss turn into a profit.
Whilst this is welcoming news, you should be aware tax will soon become payable on this profit. Tax due on rental profits made in the tax year ended 5 April 2009 i.e. the 2008/09 tax year will become payable 31 January 2010, that’s just 7 months from now.
WARNING – In addition to tax payable for 2008/09, January 2010 will see a payment on account of the current years profit due for payment. This payment on account towards your 2009/10 tax will be 50% of the 2008/09 tax, and a further 50% will be payable 31 July 2010.
What to do next...? You need to estimate your tax bill now and make sure you have enough money set aside to make the tax payments due. Late payments will incur HMRC interest and possibly surcharges. Please contact us for help with this if required.

How can you reduce your tax bill...? In the current housing market downturn many buy to let landlords will be facing negative equity. However, there will be plenty in the red and if you are one of those people you could be entitled to additional tax relief on mortgage interest thereby reducing the above mentioned tax bills. This is because, depending on your circumstances, you could claim tax relief on interest paid on the mortgage on your home. Please telephone us immediately to see if this applies to you.

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If you borrow money from your company or your company pays your personal bills resulting in your director’s loan account being overdrawn, potentially there will be tax liabilities for both you and the company unless the borrowed funds are repaid.

If the amount you owe your company exceeds £5,000 AT ANY TIME during the tax year (and the company has not charged you interest in excess of the HMRC official rate) you will incur a personal tax liability on the basis you have received a beneficial loan. This benefit is reported on form P11d and the tax is payable with your self assessment. In addition your company will also be liable for National Insurance on the beneficial loan.

If your directors overdrawn loan account is not repaid in full within 9 months from the company’s accounting year-end, then the company is faced with an additional corporation tax liability (section 419) equivalent to 25% of the overdrawn amount. The company can reclaim the section 419 tax paid if your director’s overdrawn loan account is repaid. However there will be a significant time gap before the refund is received from HMRC, thus not helping the company’s cash flow.

If you do owe your company money consider the following:

1.     Use personal funds to reimburse your company the amount owed.

2.    Depending on company profits/reserves, vote a dividend to clear     your overdrawn loan account.

3.     Pay yourself a bonus to clear your overdrawn loan account.

4.     Ask the company to write-off the amount owed.

The Implications on You & Your Company

Scenario 1 – results in no additional tax charge for the company or you. This would be the best outcome.

Scenario 2 – will potentially result in more tax payable by you, especially if you are already a higher rate taxpayer. If you are already a higher rate taxpayer then you will have to personally pay 25% of the net dividend in tax via your self-assessment tax return. Don’t forget you will have not actually received the cash dividend as this will have been used to settle your overdrawn loan account, so to have residual cash you may well need to vote a bigger dividend thereby incurring further higher rate tax, and so on.

Scenario 3 – the bonus is in effect additional salary and as such the company will be liable to deduct PAYE and National Insurance from the bonus payment. This can be an expensive method as there will also be employers National Insurance due on the bonus.

Scenario 4 – the director’s loan account write off, will be treated as a net dividend in your hands at the date the company writes off the loan. The company will not receive a corporation tax deduction for the amount written off and you should be aware HMRC is likely to argue National Insurance contributions are payable on the value of the amount written off.

The simplest position is not to let your director’s loan account go overdrawn. However, if this does happen please ensure you consult us as soon as possible to discuss the most tax efficient option available as this will depend on anumber of circumstances.

Warning

Personal monies paid back to the company just prior to the 9 month tax deadline and then taken back out just after is likely to be challenged by HMRC on the basis this was an exercise to avoid the section 419 tax charge.

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The Taxman allows a business to spend up to £150 (including VAT) per employee on an annual Christmas party withoutemployees being taxed on it! If spouses attend, the Taxman says they can alsohave a £150 allowance. However, there are a few things to watch out for if youwant to maximise the benefit of this allowance:

1. The £150 per employee covers not just the Christmas party but also anytransport and accommodation costs. So, if the budget allows and you are feelinggenerous you could also provide your employees with an overnight stay! I wonderhow many of you will do that!
   
2. If the cost per employee is just 1p over the limit, thenunfortunately the whole cost becomes a taxable benefit on the employee. Shucks!However, if the employee suffers the excess over £150, then that is OK!
   
3. This allowance isn’t just applicable to Christmas parties,it also applies to any event open to all staff throughout the year! Therefore,you can have a Christmas party, a summer BBQ party, etcand as long as the total cost doesn’t exceed £150/employee for the year thenthe benefit is tax-free. I’ll drink to that!
   
4. The exemption doesn’t just apply to companies with lotsof employees. In theory even a one man company can have a function for himselfand his spouse because the event would be open to all employees.
   
5. You can only recover the VAT onthe element relating to your employees. Therefore, you cannot recover VAT on spouses’ element of the cost.

As you may be aware, the Inland Revenue takes a keen interest in monitoring activity on eBay. The Revenue has even now asked eBay to provide it with a list of its users!! Can you imagine their reluctance!

Many people who sell items on eBay may not have even considered that this activity has tax consequences, even if the ‘business’ activity started as ahobby!!

Fortunately, not all transactions on auction sites are taxable. The sale of unwanted household items for example will not be taxable. However, if items are bought, kept for a short time and then resold later for a profit, this may constitute a trade and lead to a tax liability. The Inland Revenue will particularly consider this to be the case if such transactions occur frequently.

In addition, if you have not notified the Inland Revenue that you are “trading”, you may be liable to a penalty. You should also bear in mind that undisclosed internet trading income could result in overpayments to you of taxcredits or benefit claims, as you will have under-declared your income.

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One way that shareholders of companies can avoid a large tax bill is by paying themselves mostly dividends and a low salary at a sufficient level so that National Insurance benefits can still be claimed (currently between £90 and £105 per week). The problem with this is that companies are, in a large number of cases, falling foul of the National Minimum Wage rules.

It is possible to avoid this in the case of Directors by ensuring that a Director is not classed as an “employee”. If you are paying a low salary and high dividends to a Director, you should ensure that there is no employment contract in place. A Board Minute should record the fact that he is being paid as an office holder of the Company and not as an employee or worker. There should be no reference in any of the Company’s records to imply that there might be an employer/employee relationship. This also applies to any family members who are shareholders and who have been appointed as office holders, for example a company secretary.

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An election for a second home to be treated as the main residence can sometimes offer substantial capital gains tax savings.

The election to choose which is your main residence for CGT purposes has to be made within two years of the period to which the election is to apply. This usually means within two years of the acquisition of the second property.

If you leave it too late to make an election, it can sometimes be a good idea to deliberately do something that triggers a fresh opportunity to make the election. For example, if one of your properties is let out, the departure of a tenant could provide such an opportunity. Once an election has been made, it can be varied at any time.

From the Inland Revenue’s point of view, the election should only apply to a property in which you actually reside, not to a property that you own but never occupy.

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