News - Nov 2005 - SOME TAX THOUGHTS

Tax efficient childcare for employees

Since the start of this year it is possible for your company to pay for childcare up to £50 per week which is tax deductible to the company and not taxed on you (the employee) as a benefit.

Colloquially referred to as Nursery Vouchers, vouchers are not essential - neither is nursery care. The company must contract with and pay the school/nursery/carer directly although it must not simply pay your fees. However the scheme does not only apply to nursery education. It applies to a child up to the age of 15 receiving approved childcare and so it includes after school clubs and education which is not part of the national curriculum - violin lessons, football coaching perhaps?

Please note it can affect tax credits for those wishing to help employees. Please also note this does not assist sole-traders or partnerships except with regard to their employees (one of whom may be the spouse).

There will be scope for parents with children of school age and if a family have two companies both can utilise the £50 per week. Please email me if you require further details.

Accounting for work-in-progress - UITF Abstract 40

The accounting standards board have decided that the long standing treatment of work-in-progress of service providers does not reflect the true profitability of the company. The main impact of this is deemed to apply to accountants, solicitors, surveyors, architects and similar although it will extend to any business selling a labour service. Until now costs incurred in the year have formed the basis of valuation. Although there remains a healthy debate about the implementation of the new ruling generally, the selling price of the service has to be brought in to account even though the service has not been completed.

The practical impact will be that service providers will need to invoice work done much more frequently than in the past or they may pay tax on monies they have not yet received.

Company vans - including 4*4 cabs

For the tax year 05/06 if a van is provided to an employee who only has minimal incidental use then no benefit-in-kind charge arises. It may be wise to have a company policy which states that although vans may be taken home they are not available for private use. If they do have private use then a tax charge on £500 arises. With effect from April 2007 the tax charge will be based on £3,000 benefit and those changing their 4 cabs should be aware of this.

Employment status of contractors

I had intended commenting on the change to the CIS scheme in April 2006 affecting the Construction Industry. This has been deferred until April 2007. For any industry, if you have any contractors where the employment status is in doubt, please ensure you have written contracts which support the self employed status.

I believe HMRC are sending questionnaires to agencies supplying labour and I understand this is related to the Morecambe Bay tragedy. Please be aware of the need for all businesses to be sure they are entitled to pay employees.

Dividends and non working spouses

HMRC have in recent years suggested that dividends paid to non-working spouses are taxable on the worker. This has been contested and an appeal is to be heard in November with the decision announced some time after. During the passage of the case through the courts a judge has extended the potential impact beyond even what the Revenue considered it to be. A very uncertain time prevails for a number of limited companies which I will comment on when the outcome is known.

I am aware of a potential way of mitigating this situation should the case be lost although until the case is decided and digested I believe we continue as before.

Dividends and salary

Much legislation has been passed in recent years with a view to defeating schemes aimed at avoiding NI. One concerning piece of legislation contained in the 2005 Finance Act although applying from December 2004 enables dividends paid on special classes of shares to be assessed as salary and subject to PAYE. It is suggested this only applies where shares have restricted rights and not for special classes of shares with full rights although the interpretation is unclear.

If your company pays dividends on "funny" shares you should contact me.

Company car scheme

If you wish to have a company car (not an easy decision in itself although if not too expensive or air polluting then worth considering) you can borrow up to £5,000 from the company which you then pay back to the company as a contribution to the car purchase and which reduces the amount on which the car benefit is assessed. There is no income tax charge on notional interest. When the car is sold you are repaid a proportion (perhaps most) of the £5,000 contribution with which you repay the loan. The exercise is repeated when the car is replaced.

Whether the savings are worthwhile has to be considered individually particularly bearing in mind the complication of loans made by a company to a director or shareholder.

High income : paying too much tax! Do tax favoured investments help?

Apart from organising your affairs as efficiently as possible and planning on a transaction basis the scope for mitigating tax really is limited. There are tax favoured incentives although unfortunately they are favoured for a reason and that tends to be the downside as an investment medium. Pension changes are well documented although not set in stone and not the panacea the national press might suggest although certainly now an option. You can invest in VCT's or through EIS whilst investing in film marketed schemes maximise the up front benefit unless the income is generated through dividends. In spite of government crackdown there are a few marketed schemes available. Offshore schemes in the writer's opinion are to be treated with severe reservation as stories of increased rather than reduced tax liabilities have been whispered.

We are well aware of what is happening in this area and will advise on an individual basis.

Fee Protection Insurance

We have for many years promoted a scheme for insuring against the professional fees involved in defending an HMRC enquiry which can be significant. Many of you participate in this at present and everybody should. The premium is less than £100 per annum except for larger companies.

E-learning - IT and other training

Not quite our core department although our association with Clearly Business enables us to arrange for you, or any of your family, to access any of the numerous courses listed on the Mind Leaders web site for only £10 per month subscription. If interested click here