Summer 2006 – Planning, VAT and Investigations

Welcome to our Summer 2006 newsletter – at the time of writing, we should all be reasonably optimistic about life. Whilst Tim Henman may have let us down again, the footballers are still in the World Cup!!!!!

Estate planning and trusts

In his Budget in March, the Chancellor revised many of the tax advantages relating to Trusts. Any clients who currently have Trusts in existence or who have Trusts written into their Wills, need to have these reviewed. One inheritance planning tool that was not affected was Discretionary Will Trusts.

Husbands and wives that have estates, including the family home, worth in excess of £285,000 can save up to £114,000 in inheritance tax if their Wills are correctly written. Estate planning and Wills are both vital in saving large amounts of tax. Most people’s potential liability to inheritance tax is far greater than any tax they may pay on their profits or earned income in any one year. For further advice on these matters, or to arrange for a review of your estate and Will, please contact us.

Wealth planning for your retirement

To generate enough income at retirement in an effort to double your state pension (currently standing at £7,000 p.a.), would require savings of £114,000. Therefore, if you have nil savings as at today’s date, ask yourself how much would you have to save each month in order to generate savings of £114,000 at aged 60 or 65.

£14,000 per year might not be much for a married couple to live on so if you would like to achieve a comfortable retirement, please contact us to discuss strategies to accomplish this.

Recovering VAT on staff expenses

VAT cannot normally be reclaimed on supplies not made directly to you. However, the following circumstances enjoy a relaxation of these rules:-

Subsistence expenses paid to employees may be treated as input tax and in order to qualify for this concession, employees must be reimbursed for their actual expenditure incurred and not merely receive round sum allowances. The VAT invoices (which may be made out in the employee’s name) must also be retained.

Reimbursement for road fuel purchased by non-taxable persons who you then pay for the actual cost of the fuel. This would allow you to recover input tax when you reimburse your employees for the cost of road fuel used in carrying out their employment duties. Again, VAT invoices must be retained.

The VAT element on the amount attributable to fuel of mileage allowances paid to employees (or subcontractors) may also be treated as input tax. HM Revenue & Customs require the following records to be kept:-

• The mileage travelled and whether it relates to business or private.
• The vehicle’s c.c.
• Rate of mileage allowance
• The amount of input tax claimed

Inland revenue investigations

Since the merger of the Inland Revenue with Customs & Excise to form HM Revenue and Customs (HMRC), we have seen a marked increase in the number of tax and vat enquiries being opened by the new department.

From our recent experience of enquiries, we have noticed a more aggressive approach from HMRC to their enquiries with an increased use of formal tax legislation and information gathering powers. In tandem with this, we have also noticed an increased willingness by HMRC to impose punitive penalties on errant taxpayers and a reluctance to negotiate to support their new robust approach.

HMRC are increasingly looking at specific “target” areas to concentrate their enquiries, these include undeclared income, the CIS Scheme, Benefits-in-kind (P11Ds), Employers PAYE and non-business expenditure and transactions.

If you think you may be vulnerable to an Inland Revenue enquiry, or you would like advice on how to improve your record keeping, please contact us.

Tax relief on investment in capital assets

In his budget, the Chancellor increased the first year tax allowance for small businesses investing in capital assets. The increase is from 40% to 50% and runs until 31 March 2007.

2006 Self-assessment tax returns

If you require our assistance in preparing your tax return to meet the 31 January filing deadline, we need to have all your information by 31 October 2006.

If you currently pay tax under Schedule E and want to submit your Return by 30 September 2006 in order that any underpayments can be collected through your coding notice, we will need all of your information by 31 July 2006.

KEY DATES

Do not forget the following deadlines in order to avoid any unnecessary penalties:-

Whilst all due care and attention has been taken in the preparation of this review, we cannot accept responsibility for loss occasioned by any person acting or refraining from action as a result of material contained therein. There is no substitute for professional advice specifically tailored to your personal circumstances. We can give that advice and welcome the opportunity of assisting you. If you would like to discuss any of the issues raised further, or for us to arrange a review of any of your procedures, please contact Alan Cohen or Darren Swann as follows:-

Tel: 0161 249 5040 Fax: 0161 448 9287
Email - alanc@leonherman.co.uk or darrens@leonherman.co.uk