Archive for May, 2012

Tax News: A Summary

Tuesday, May 1st, 2012

Pasty Tax
One of the most controversial announcements in the budget was the introduction of VAT on all hot takeaway food.  Applies to all food, except freshly baked bread, sold at at above the ambient air temperature.

Due to the bad publicity, government has now indicated that it will review the proposal and consequently there is a distinct possibility that the changes will be scrapped.

Unlimited Relief Caps
Another controversial budget proposal was the capping of unlimited tax reliefs to a maximum of 25% of income or £50,000.

This policy has caused particular concern in the charitable sector, as the regulations will limit the amount of tax relief that individuals can obtain on charitable donations.

Charities are concerned that big donors will reduce their financial commitments to charities.

Again, the adverse publicity that followed the announcement has resulted in the government declaring that it will consult further on the proposals and consider the impact on charities.

Real Time Information
RTI was launched in April through a number of volunteer employers (including HMRC).

Most employers will need to join the scheme by April 2013 and consequently will need to plan ahead to ensure that they have the correct systems and software to adapt to this process.

RTI enables employers and pension providers to produce up to date information to HMRC, when or before payments are made, rather than waiting to the end of the tax year.

IR35
HMRC have issued guidance on IR35, the rules introduced 12 years ago to tackle the problem of ‘disguised employment’.

The guidance is to introduce a scorecard system which companies are expected to use to determine the risk of falling with IR35.  The guidance also includes record keeping requirements, business entity tests and example scenarios.

It was hoped that the new coalition government would consider scrapping the IR35 legislation but that now looks a forlorn hope and it looks as though it is here to stay for the foreseeable future.

ESC C16
The new rules governing the now enacted Extra Statutory Concession C16, commenced on 1st March and have also been the subject of wide spread criticism.

In the essence, the amount of funds that can be withdrawn from a company using the informal striking off procedures is limited to £25,000 for capital treatment.

Capital treatment is usually very worthwhile due to the availability of entrepreneurs relief but to obtain such treatment for distributions above £25,000, companies will need to go down a formal liquidation route and incur the costs, likely to be in the region of £5,000.

Companies with large cash reserves will therefore need to weigh up the costs of liquidation against the potential tax savings before deciding upon the best way of winding up the company after the cessation of trading.

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