Help with Business rates

More time to pay your 2009-10 business rates increase

On 31 July, local authorities will be writing to local businesses offering them the option to spread payment of this year's inflation up-rating to business rates over three years, under new legislation announced by the government in March.

Business rates are adjusted every April in line with the Retail Prices Index for the previous September. The new measure is designed to smooth the effects of the spike in inflation of 5 per cent in September, which would have seen businesses facing an impact on their cash flow this year.

From 31 July:

• All business ratepayers can apply to their local council to put off 3 per cent of their whole year's 2009-2010 business rates bill. So, if a yearly bill is £5,000, ratepayers will be able to postpone paying £150.
• Those who accrued a rise in their bill because transitional relief has come to an end can defer 60 per cent of the increase.

Expenses

Personally paying for expenses

You may have incurred expenses in getting your business up and running before setting up your company but the receipts for these will be in your name. Can the company now claim a tax deduction for these, and will this affect your tax?

In the beginning

Before you set up a company you wanted to be sure that you had a viable business. So, you personally paid for travel and other costs to carry out market research etc. before forming the company through which your business would run. But can tax relief be claimed for these costs and who should claim it?

Two types

This so-called pre-trading expenditure for companies can be incurred in two ways:

• by an individual before the company was formed

• by the company after it was formed but before it started to trade.

The company paid

In the latter case the rule is fairly straightforward. If the expenditure would have been allowable for tax had the company been trading at the time it was incurred, then a tax deduction can be claimed for it in the company’s first accounts. s.61 of the Corporation Taxes Act 2009 says that the expense is to be treated as if the company had incurred the cost on its very first day of trading. But the position is more tricky if a would-be director or employee paid the expense before the company was formed.

The director paid

You would think that if the expense was incurred by a director-to-be for a legitimate business purpose, it should qualify for tax relief under the pre-trading expenses rule. The problem is that the Taxman’s rules say that the person (or company) who incurred the expenditure must be the one who claims the tax relief. No matter how you look at it, the company and the individual are clearly not the same person. So is there a solution?

Expenses claim

Example. Jim was an engineer who after being made redundant in 2007 decided to set up his own workshop. In the process of getting the business going he paid several hundred pounds on travel to negotiate with potential customers etc. Jim went ahead with the business, and on advice from his accountant he formed a company Jimeng Ltd on April 1 2008. Even at this stage in October 2009 Jim can claim the pre-incorporation travel expenses from his company. And as this is a current cost, the company can claim CT tax relief for this in its 2009/10 accounts. But where does that leave Jim?

Expenses of employment?

The expenses Jim receives from his company are taxable unless they relate wholly and exclusively to his employment. But the company wasn’t even formed at the time he incurred them, so there’s no chance that could apply. We decided to challenge the Taxman on this apparent inequity. After consideration the official line is that the Taxman will accept that expenses received by a director in these circumstances are not taxable. That’s good news for common sense!

Tip. If you paid out business expenses on behalf of your company before it was formed you can reclaim them tax-free from your company even if they date back several years. But make sure you have receipts etc. to support your claim

New company forms from 1st October

When something changes with the set-up of your company, such as a new director, change of company name or registered office address, you need to fill in a form and send it to Companies House. All the forms that are used to report these events are replaced with new versions for changes effective from 1 October 2009 or a later date. You must use the new form to report the change as the old form will be rejected and this could lead to your company being fined if the event is not reported within the statutory deadline.

Most of the new forms can be filed online through the Companies House website, which is quicker, cheaper, and more secure than sending a paper form through the post. If you sign-up to the Companies House PROOF scheme you can only file changes to your company's details online. This prevents anyone hijacking your company by submitting a fraudulent paper form.

Beware Tax Email Scams.

Many people are currently waiting for a tax rebate from the Tax Office, as they have claimed for losses to be set against an earlier year's income. If you are expecting such a tax refund, or even if you are not, take care not to be drawn in by emails that claim to have a tax rebate ready for you. These emails tend to ask for details of your bank account to pay the refund into, but they are scams.

The UK tax office HMRC does not send emails to taxpayers informing them of tax rebates. All such emails are fraudulent, and potentially very dangerous. You should not respond to the email. Do not click on any link embedded in the email as this may allow the scammers to get to your computer through a virus included in the link.

Fraudulent emails normally stand out as they are not correctly addressed to you personally. The email may have missing address details or say 'Dear Subscriber' or 'Dear Taxpayer'. Some scam emails include what looks like a tax refund form including a fax back number. You should never complete such a form sent to you by email supposedly from HMRC. To complete genuine HMRC forms yourself you need to log into the HMRC secure website using the login details which will have been sent to you in the post.

Late tax returns and penalties.

Late Tax Returns: Your personal tax return for the year to 5 April 2008 should have been submitted to the Tax Office by 31 January 2009 at the very latest. Tax returns submitted on paper for that year were due in by 31 October 2008. These deadlines may be later if the 2007/08 tax year was the first year for which you needed to submit a tax return, and you didn't receive the tax return form until after 31 July 2008.

The Taxman does not have much patience when it comes to late delivery of tax returns and has instructed his computer to send out £100 penalties every six months. The first penalty would have been issued in February 2009 and the second one in August 2009. If the Taxman gets really cross he will ask the Tax Tribunal to issue daily penalties of up to £60 per day, until you do deliver a complete tax return!

If you have paid all the income and capital gains tax you owed for 2007/08 by 31 January 2009, or you are due a tax repayment for that year, the £100 penalties can be reduced to nil. However, you do have to appeal against the £100 penalty notices to claim the reduction.

Late Payments: If you have not paid all the tax you owe for 2007/08 you will have been issued with a 5% surcharge in February and another 5% surcharge in August, plus interest will be mounting up at 2.5% on the amount owing. This interest rate on late tax increased to 3% from 29 September 2009. Where you have agreed a time to pay plan with the Tax Office, and are paying the instalments due under than plan on time, the 5% surcharges should not have been raised. If this is the case the Tax Office should be contacted as soon as possible to get the 5% surcharge cancelled.

Are you having problems to pay your tax bill? Vertice Services can help you. New Business Payment Support Service.

From 24 November 2008, HMRC has introduced a new, dedicated Business Support Service designed to meet the needs of businesses affected by the current economic conditions.

If you're worried about being able to meet tax, National Insurance, VAT or other payments owed to HM Revenue & Customs (HMRC), or you anticipate that payments coming due will cause you problems, you can contact Vertice Services and we will call the Business Payment Support Line on your behalf.

HMRC’s staff will review your circumstances and discuss temporary options tailored to your business needs, such as arranging for you to make payments over a longer period. They will not charge additional late payment surcharges on payments included in the arrangement, although interest will continue to be payable on those taxes where it applies.

Please note: The Business Payment Support Line is for new enquiries only. If HMRC has already contacted you about an overdue payment, or if you already have a payment arrangement with them, please let us know.

When is paying a dividend illegal?

A dividend may be 'illegal', in that it is contrary to Company Law, when the proper procedures are not followed. If the Taxman examines the paperwork and decides the payment from your company was not a legal dividend he may treat the amount paid as a loan, or even as a bonus payment.

In both cases additional tax may be due from the company and sometimes from you.

To pay a legal dividend it is not sufficient just to write 'dividend' on the cheque stub or against the entry in director's loan account.

We recommend following these steps when paying dividends...

1. The directors should first review the profits available for interim dividends. This is not the same thing as funds in the bank account, as you have to take account of other assets and liabilities. Those deliberations should be recorded as a formal board minute, so if the Taxman ever asks, you can prove the profits were there when the decision to pay an interim dividend was made.

2. If the final accounts for the year are complete and show the accumulated profit and loss account is positive, the directors can recommend that the profits, which are not required for investment, can be paid out as a final dividend to the shareholders. The shareholders can either accept the directors' recommendation or suggest a lower figure of dividend. Both these decisions also need to be properly recorded at the time they are made.

3. Dividend vouchers need to be prepared when either a final or interim dividend is paid, for each shareholder showing the total due, the tax credit attached to the dividend and the date of payment.

4. The dividend should be paid. The payment can be transferred from the company's account by cheque or bank transfer into the shareholder's own bank account. If the shareholder is a director his account in the company books may be credited with the dividend due to him or her, but this needs to be done as soon as possible after the decision to pay a dividend is taken.

We can help you with all this paperwork, but it is important that the decision to pay a dividend is made in advance of any payment being paid out of the company.