Pentlands - Business & Tax Advisors
Newsletter February 2006
Tax News

Disincorporation - transferring your business from a limited company to a sole trader or partnership.

Car mileage claims - VAT receipts

Internet Shopping and Import Duties

Construction Industry - Penalties after 1 April 2007

Purchases of plant and equipment for small business - increases in tax allowances

Tax Diary February/March 2006

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By the time you receive this newsletter we will have passed the deadline for submitting the 2005 self assessment tax returns. As you will have noticed we have been somewhat pre-occupied during January 2006, making sure that clients returns are filed before the end of the month. Now that this major year end filing chore has passed we can "come up for air" and consider other matters!

Don't forget to pay your self-assessment tax on time. Any balance of tax due for 2005, and first instalment for 2006 (if applicable) was due to be settled by the 31 January 2006. We advise that you clear any arrears BEFORE the 28 February 2006 when both interest and a 5% penalty will be added to your dues. (The 5% will only apply to the balance of tax unpaid for the year ending 5 April 2005,though interest on all tax unpaid runs from 1 February 2006)

We now have 2 months before the end of the current tax year (5 April 2006). This is an ideal time to consider tax year end planning to ensure that we take advantage of tax planning opportunities - once the 5 April has passed many of these opportunities are lost! If you require any help please call.

The rest of the newsletter considers the transfer of a limited company to a sole trader or partnership (disincorporation), car mileage claims and VAT receipts, Internet shopping and import duties, penalties under the new CIS rules and increases in tax allowances for plant and equipment purchases.

Free Book keeping software from Pentlands reserve your trial today!

MORE is a book keeping software package that is individually tailored to your company requirements - designed to be user friendly, easy to use and understand. And it is completely free for Pentlands clients both new and existing who currently do manual accounts or use a spreadsheet such as excel for their book keeping. It will save you time, give you more financial control, it produces easy to understand management information reports and offers you more protection and investment with in build error mechanisms to avoid inputting mistakes.

Watch out for the Pentlands information sheet which will be coming out to everyone in the coming weeks. But if you would like more information please contact us on 01926 424 455.

Fancy doing your bit for the environment and charity all at once?

If you or your organisation uses HP, Lexmark or Canon inkjet cartridges you can recycle them in aid of The Philippine Community Fund who receives 1.00 for every cartridge sent. Contact us and we will forward on some bags or call 0800 435576 quoting "PCF bag" or email to get your recycling bags. Or if you need a recycling box for larger cartridges please contact us or the same details above and ask for "PCF - recycling boxes".

The benefits of recycling are that it reduces carbon emissions, a major cause of global warming and without recyling inkjet cartridges takes about 1000 years to decompose in landfill sites. And the cost to you is nothing but the benefit to PCF and the environment could be amazing. Pentlands have already started recycling their cartridges in aid of PCF and if even just a few people do the same, simply just by recycling over 100 could be raised over the year.

Time to update your accounting software?

Are you thinking of updating or changing your accounting software? Pentlands can arrange new Sage software and updates at a discount, as well as providing the training you will need to use it.

By ordering Sage software from Pentlands you will not only receive a discount from the RRP and complimentary 30 day telephone support from Sage but you have the benefit of knowing the software will make tax returns and your accounts more user friendly and will save you money and stress in 2006 and beyond!

Please note that versions 7 and below are no longer supported so you will need to upgrade soon should you have these versions.

Disincorporation - transferring your business from a limited company to a sole trader or partnership.

This article is not a recommendation that you move your limited company business into an unincorporated, sole tradership or partnership. It is merely a brief summary of some of the tax effects if you do decide to disincorporate.

There are likely to be other issues, some commercial, some tax related that would need to be considered.

Points to be aware of:

Once you have passed a resolution to wind up the company, bringing to an end the current chargeable accounting period, the following matters would need to be taken into account.

  1. Corporation tax will be payable nine months after the date of the resolution, as a new accounting period has now started and the company remains liable until it has been fully wound up.
  2. VAT registration of the dissolved company can be taken over by its unincorporated successor, but this is generally inadvisable. It may be best to leave the liabilities, both known & unknown, with the old business.
  3. Elections can be made to transfer any plant and machinery and industrial buildings to shareholders at tax written down values as long as these elections are made within two years of transfer of trade.
    However this may not always be the best solution. Clients should also value plant and equipment at a realistic market value to see if this produces a better tax result.
  4. Trading stock and professional work in progress can be transferred at market value.
  5. Care must be taken in the allocation of trading losses, which can only be offset against income of the company before it is dissolved, although in some instances may be offset against trading profits of the preceding 36 months.
  6. If possible, assets which may realise a chargeable gain should be sold before disincorporation - if the company has made trading losses in the same accounting period. It is not possible to offset trading losses against these chargeable gains after cessation of trading.
  7. Likewise with loans that have been made by the company to its directors - repayment should usually be made before winding up to avoid the loan being treated as a benefit in kind.
  8. Distributions of dividends and/or capital must be made at the optimal time, as they will affect capital gains tax, the personal tax positions of shareholders and the value of the company at cessation. Generally speaking distributions to shareholders are treated as income (dividends) prior to winding up, and as capital payments subject to capital gains tax during winding up.
  9. If the company has been making profits, the valuation of goodwill requires consideration and may be a barrier to disincorporation as an unattractive tax liability may arise.
  10. It is important that winding up is achieved as quickly as possible.  The shares in the company will be non-business assets for taper relief purposes during this time - so business asset taper relief otherwise available will be diluted.

As indicated at the beginning of this article there are many other considerations which need to be taken into account when considering the disincorporation of a business. Tax legislators are constantly "moving the goal posts"! However if you would like more information on this topic please give us a call.

Car mileage claims - VAT receipts

Do you or your employees claim mileage for driving your own cars for business journeys?

Unless you provide your employees with a company fuel card, credit or debit card or a fuel account at a garage, new legislation must be taken into account from the 1st January 2006 if you want to continue recovering VAT input tax on the fuel element. 

To reclaim VAT you must have a VAT receipt for the purchase of the fuel. Make sure your employees are aware that they need to ask for a receipt when they buy fuel from now on - these receipts must be appended to their claim forms, otherwise any reclaim of VAT on the fuel element will be disallowed.

Internet Shopping and Import Duties

Customs and Excise, or HMRC as they are now known, issued a Press Release recently that is intended to inform Internet shoppers that hidden duties, including import VAT, will be levied on goods valued at more than 18 bought from non-UK based Internet retailers.

These duties are taking buyers by surprise, especially on purchases sent by American companies.

A customs declaration has to be made by the sending company on your parcel, and you will be regarded as the importer of these goods, whether for private use or for onward sale, new or used, bought by you or someone else as a gift for you. 

The import duties payable by you will depend on the type of goods that you have purchased. Cash will be demanded when the postman knocks on your door, so be prepared!

Although customs duty is not payable on goods bought within the EU, VAT may be payable with special rules applying to cigarettes, tobacco and alcohol. Personal import allowances of the duty free kind, that operate when travelling outside the EU, do not apply when the goods are supplied by post or courier.

AND, if you are tempted to make a false or misleading customs declaration on your parcel then you risk further financial penalties, criminal prosecution and forfeiture of the goods themselves.

Construction Industry - Penalties after 1 April 2007

In advance of the changes to the CIS rules we have noted below a quick summary of the penalties which will be applied, post 1 April 2007, if you don't comply with the new rules.

We will be issuing more information on the amended Construction Industry Scheme prior to implementation on the 1 April 2007.

  1. Late submission of monthly return. The penalty for this including a failure to submit a nil return (unless otherwise agreed with the Revenue) is 100 per 50 subcontractors or part thereof per month.
  2. Negligent or Fraudulent Submission of an Incorrect Monthly Return. Penalty here is up to 100% of the under-declared CIS deductions.
  3. Failure to Produce CIS Records. Where HMRC require the production of CIS records and the contractor fails to do so the penalty is an initial penalty of up to 300 and a daily penalty of up to 60 for a continuing failure.
  4. Failure to Provide Subcontractor with Payment Advice. The penalty for this easily made error is an initial penalty of up to 300 and a daily penalty of up to 60 for a continuing failure.
  5. Making a False Statement in order to register for Gross Payment. A penalty of up to 3,000 (can be mitigated). 
  6. Making an Incorrect Status Declaration. This is the big one carrying a penalty of up to 3,000 per month (as it is a monthly failure).

Additionally contractors will be at serious risk of losing their gross payment status, due to a new review process. Presently contractors will only lose their gross payment status, if they fail to abide by the relevant criteria at a three year review date. Under the new rules this review will be triggered on a "rolling basis".

For instance gross payment status could be taken away if you were just 14 days late in making a monthly payment, or, make 4 late payments however short the duration.

Setting up workable systems to monitor compliance under the new regulations will pay dividends. If you are a contractor and would like to set up a planning meeting with us please do call.

Purchases of plant and equipment for small business - increases in tax allowances

From April 2006 the initial first year allowance for purchases of qualifying plant and other equipment will increase from 40% to 50%. This applies to expenditure by businesses that qualify as small.

The first year allowance does not apply in a period that a trade is permanently discontinued.

Tax Diary February/March 2006

1 February 2006 - Due date for corporation tax for the year ending 30 April 2005.

19 February 2006 - PAYE and NIC deductions due for month ending 5 February 2006. (If you pay your tax electronically the due date is 22 February 2006)

28 February 2006 - Last day to pay your balance of self assessed tax for the year ending 5 April 2005. Payment made after this date will be subject to a 5% surcharge on tax outstanding, and interest will apply from 1 February 2006!

28 February 2006 - Companies House filing deadline for private company accounts year ended 30 April 2005.

1 March 2006 - Due date for corporation tax for the year ending 31 May 2005.

19 March 2006 - PAYE and NIC deductions due for month ending 5 March 2006. (If you pay your tax electronically the due date is 22 March 2006)

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DISCLAIMER - PLEASE NOTE: The ideas shared with you in this email are intended to inform rather than advise. Taxpayers circumstances do vary and if you feel that tax strategies we have outlined may be beneficial it is important that you contact us before implementation. If you do or do not take action as a result of reading this newsletter, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

Contact Details

Pentlands - Business & Tax Advisors

Tel: 01926 424 455

Fax: 01926 424 042

Mobile: 07946 633 664


Note: Pentlands is open on the 1st Saturday of the month between 9am - 12pm. Please call us to make an appointment.

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Pentlands Business & Tax Advisors, Edmund House, Rugby Road, Leamington Spa, CV32 6EL. Telephone: 01926 424455 Pentlands is a limited company, Registered for VAT under reference 738 6962 78. Directors of the firm are members of the Association of Chartered Certified Accountants (ACCA). This body has its headquarters in the UK and its rules of Professional Conduct can be obtained from its web site. Pentlands Ltd are authorised to act as statutory auditors by the ACCA.

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Free Book keeping software from Pentlands reserve your trial today!

Fancy doing your bit for the environment and charity all at once?

Time to update your accounting software?

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