Midas Accountancy

 

Accountancy | Bookkeeping | Tax Planning | Consultancy | Payroll

 

Volume 2: Winter 2007

A number of changes to the tax rules for companies cars and vans are due to come into effect in the new tax year, many of which will increase the tax burden of small and medium sized businesses. Where a business owns a ‘company vehicle’ (a car or van provided for employee use), the employee will be taxed on this benefit within their P11D. The tax liability will be calculated as a percentage of the cash equivalent of the benefit provided. These benefits in kind will also result in an employers National Insurance contribution. So first the good news. From April 6th, the chargeable benefit applied to company cars will decrease from 15% to 10% of the list price for qualifying low emission cars. However, also from 6th April, the rate for qualifying low emission cars will be reduced from 120g/km to 135g/km. This is likely to result in a 1% benefit charge for most cars. There’s more bad news in March 2008 when the 100% capital allowance for qualifying low emission cars expires. Currently all businesses can reduce there tax liability by 100% of the purchase price of low emission cars that they have purchased during the tax year. In order to take advantage of this allowance, ensure that you have bought your low emissions cars before March 08.But there is worse still news is for van drivers, who from 6th April 2008, will have a maximum chargeable benefit of £3000 for all vans. This is a huge increase from the current maximum of £500 (or £350 for vans over 4 years old). There will also be an additional charge applied for free fuel that is used for private use.

The fallout of the three year pursuit by HMRC of the family owned company Arctic Systems is finally becoming clear. Not only has the long running case cost British tax payers an estimated £500,000 but it is estimated that the long-term effects will collectively cost family owned companies £500m. The dispute arose over a £7000 tax bill, for Arctic owners Geoff Jones and his wife Diana. In order to maximise tax efficiency, the profits of the company had been split between Geoff and Diana, making full use of each persons personal tax allowance and lower rate tax bands. HMRC pursued the couple on the premise that this classified as tax evasion. The House of Lords recently ruled in favour of the couple. HMRC are currently consulting on a draft legislation to prevent tax advantages from income splitting, which is estimated will cost family owned businesses millions. HMRC have indicated that the new legislation will come into effect from 2008/09.

With effect from 1st October 2007 there have been some key changes to the National Minimum Wage (NMW):

1. The NMW for adult workers aged 22 and above has risen from £5.35 to £5.52 an hour.

2. The NMW for workers aged between 18 and 21 has risen from £4.45 to £4.60 an hour, and

3. The NMW for workers aged 16 and 17 has risen from £3.30 to £3.40 an hour.

In addition, new legislation has resulted in an increase of the minimum annual holiday entitlement from 4 weeks (20 days for those working a five day week) to 4.8 weeks (24 days). On the 1st April 2009 there will be a further increase to 28 days. The proprietor of a children’s nursery became the first person to be successfully prosecuted under the National Minimum Wage legislation. The Revenue & Customs Prosecutions Office (RCPO) won a landmark case after the proprietor prevented compliance officers from accessing her staff records. After pleading guilty to the charges, she was fined £2500 and ordered to pay costs of £500. This case serves as a stark reminder that employers who are caught in breech of the NMW legislation risk a heavy fine and a criminal record.

EMPLOYER’S FOCUS:

National Minimum Wage Criminal Prosecution

Income Splitting Rules to cost Family-Owned Companies

The Increasing Cost of Company Cars & Vans