The office for Nation Statistics has just announced that the UK economy shrank by 0.2% in the last quarter, following a contraction in the quarter ending December 2011 – with a recession being defined by two consecutive quarters of contraction.

Though Wednesdays figures are only preliminary results from the Office for National Statistics confirmed it had double checked the figures, though this could be subject to further revisions.

From the preliminary data the contraction appears to have been caused by a sharp dip in construction output down 3%, output industries (manufacturing) decreased 0.4% while service industries only grew by 0.1%

Though this will knock the fragile confidence people currently have about the economy its not the time to panic but a good time to review your plans and forecasts for the coming year. Come and talk to us about your plans and business to see if there are opportunities to minimise the impact on your business and create a fall back plan just in case – don’t get caught flat footed like many did at the beginning of the credit crunch! Act now!

As a firm of pro-active accountants we have tax planning schemes that do just that. With one of our tax planning schemes you can take £282,475 from your business with a combination of salary and dividend and pay no personal tax. What’s better still this scheme is approved by HM Revenue & Customs.

What is this scheme you may ask? It’s a Venture Capital Trust (VCT) and they are very tax efficient investments, though any investment has to be held for five years all dividends are tax free and so is any capital gain. As these investments are regulated through the FSA before entering into one of these tax saving plans we would encourage you to talk to one of our Independent Financial Advisor’s for full details on how the investment works.

This scheme is also very effective with anyone paying 40% or 50% tax through employment as well. The VCT attracts a 30% upfront income tax relief limited to the amount of income tax paid in the year or £60,000.

With the tax year quickly coming to an end its important to have plans in place to minimise your tax liability, please contact us immediately to start saving tax.

What does this mean for your business? Well for any business with a 31st March or 5th April accounting year end quite a lot, as any purchases after these dates will attract tax relief at a lower rate and have a smaller AIA pool to play with.

The changes are as follows:

Main pool writing down allowance is reduced from 20% to 18%

Special rate pool’s writing down allowance is reduced from 10% to 8%

Annual Investment Allowance – 100% tax relief on capital assets is reduced from £100,000 to £25,000

As you can see the reduction in the AIA can have a significant effect on a tax payers annual tax bill, in the case of a 40% tax payer they will lose £30,000 in tax relief if they were to delay capital expenditure of £100,000 until after 5th April!

Businesses that’s year ends that are not 31st March or 5th April will have a pro-rated hybrid rate based on the number of months in each tax year.

Your timing of capital expenditure is crucial if you are looking to maximise the allowances available if you require further advice and assistance please contact us.

We have been notified today from our NatWest Business Banking Manager David Sedgwick of the latest Fixed Rate Deposits available from NatWest for further information and details please contact David directly at david,sedgwick@natwest.com

NatWest Fixed Rate Deposits (Issue 22)

The main group of taxpayers that HMRC are targeting are those working in education, sport, leisure and music but this current scheme could also widen its net to capture those in law, PR and IT.

To take advantage to of the scheme HMRC requires the taxpayer to notify them that they intend declare their income by 6th January 2012 with full disclosure and payment of tax completed by 31st March 2012.

HMRC state:

‘We are making it as easy as possible for people offering tuition and coaching to use this unique opportunity to put their tax affairs in order by making a full disclosure, and benefit from the best possible terms.

‘We are using various intelligence sources to identify and then target those who do not take advantage of this opportunity to declare their full income. The message is clear: contact us before we contact you.’

HMRC has commenced issuing Section 16 notices to various educational establishments to gather information on payments made to persons other than employees. Colleges that fail to comply with the demands in time will be subject to a £300 fine and a further daily fine.

This is another in a series of professions that HMRC have sort to target as it would appear they’ve had particular success in the past. Anyone who require’s further advice on this campaign should contact us directly in order that any declaration has maximised any missed tax saving opportunities.

The late filing fines start at £100 and if the the return is still outstanding after 3 months this will increase by £10 per day to a maximum of £900. For those returns over 6 months a further £300 fine or 5% of any any tax due whichever is the higher will be imposed. If you are over 12 months overdue you will incur a further £300 fine or 5% of the tax due again whichever is the higher. For serious cases in late filing there is the potential for HMRC to impose a fine of 100% of the tax instead!

If you are over 12 months late in filing your tax return you could end up with a fine of £1,600.

Fines will also now be imposed even if you have no tax to pay, before if you had no tax to pay and your return was late you could have the fine cancelled but after 31st January 2012 this will no longer be the case.

Tax payers are in real danger of incurring significant fines due to the new penalty regime if tax returns are not submitted on time. Don’t delay and get your tax return completed on time, what’s the point in paying the tax-man any more than what you have to!

HMRC’s aim is for plumbers to contact them and fully disclose their income and only receive a reduced penalty, before they start targeting the industry aggressively after 31st May.

By using a a variety of intelligence sources the Revenue will target self employed plumbers in order to investigate their tax affairs which will lead to increased penalties and tax to pay.

If you feel you may be effect by the Revenues targeting of this industry we advise you contact us immediately to discuss your personal tax affairs.

HMRC we be seeking confirmation that businesses are keeping and maintaining adequate and accurate records in order for them to complete their tax returns.

This is a big change in approach by HMRC as it only use to scrutinise a businesses tax affairs if it thought they had filed an inaccurate tax return and was paying too little in tax. This new approach see’s a toughening of HMRC’s attitude to SME record keeping.

For anyone directly effected by this or anyone who wishes to have their records checked to ensure they are compliant please contact us for a free review of your business records.

When dividends are paid they are paid to all share holders in proportion to their individual shareholding. So if a £10,000 dividend it paid to a class of shares and you hold 10% of those shares you will receive a £1,000 dividend.

This inflexibility can result in the distribution of profits not being made in the most tax efficient manner or produced difficulties for a shareholder who does not want or need the payment – a dividend waiver may offer a solution to this.

How it works – the share holder voluntarily waives their right to their share of the dividend allowing the dividend to be shared between the remaining shareholders in proportion of their holdings.

HMRC becomes interested in this approach to paying dividend as try to argue that a settlement is being made to individuals in a lower tax bracket, however:

• considered to create a tax advantage.
• They will try to argue that the waiver indirectly provided funds for an ‘arrangement’ or ‘settlement’ under Income Tax (Trading and Other Income) Act 2005 Pt 5 Chpt 5 s623; an element of bounty being needed for the settlement provisions to apply.
• If the transfer is between spouses HMRC will deem the settlement to be one of income and unless there is an outright transfer/gift of ownership of the shares protection under s624 (husband and wife exemption) will not apply (Buck v HMRC (SpC 716)).
• Buck v HMRC also confirmed that a company may legally distribute all of its distributable reserves/shares* to a single shareholder if all of the other shareholders waive entitlement but again in the taxman’s eyes that could represent bounty and if present the settlement provisions would apply.

In order to ensure that any waivers are not challenged by HMRC the following points need to be followed:

• A written formal waiver is required which must be signed, dated and witnesses and help on record in the companies files.
• Waivers should be used sparingly, overuse of them may may result in the Revenue taking a closer look at the arrangements – don’t use every year.
• The waiver needs to be in place before the right to a dividend arises any waivers after the payments is a transfer of income and will be taxed as a settlement.
• Waivers can cover a single dividend, or a time period, or a series of dividends.

Other options to dividend waivers could be the issuing of new classes of shares, by having A Shares and B Shares allows differing rates of dividends to paid to holders of each class of share.

The shareholder how does not want the dividend could transfer their shares to another shareholder but this would result in a loss of ownership and control over the business.

Careful planning is required when using waivers and the additional options need to be considered, for more information please contact us to arrange a meeting to discuss your options.

Under its new Managing Deliberate Defaulters (MDD) programme HMRC will impose additional checks and information requirements on any business or individual that has been to have made deliberate errors for a period of five years.

Any individual caught under the programme will also have any company or partnerships they are involved in scrutinised by the scheme as well. Anyone caught under the scheme will be notified by HMRC by letter that will require them to submit additional information.

The checks can take a variety of forms, including:

• making announced or unannounced inspection visits to carry out pre-return checks of their books and records
• in-depth compliance checks into all or any part of the defaulter’s tax affairs
• observing and recording the defaulter’s business activities and cross-checking details in their accounts. This could include test purchases and inspections of their suppliers’ and customers’ records.