July

Newsletter July 2012

This month we have included articles that cover: the tax treatment of payments made to directors, news of HMRC tax investigation activity, an outline of the many deadlines for filing and payment of tax this month and an interesting VAT case recently decided in favour of the tax payer.

Our next newsletter will be published 2 August 2012.

Payments to directors
July 2012 busy month...
Tax Diary July/Aug 2012
Tax dodgers beware
VAT refund for self build

Payments to directors

Any payment made to a director as part of their remuneration package is generally subject to tax that is usually collected via the PAYE system. The payments made by the employer are allowable expenditure and reduce the employer’s taxable profits.

However, many smaller limited companies pay personal expenses on behalf of directors. These personal expenses do not form part of the director’s remuneration package and should not be included as an expense in the company’s accounts - a company may not deduct expenditure unless it is incurred wholly and exclusively for the purposes of its trade.

Which begs the question, how are these personal expenses of the director treated in the company’s accounts? Unless reimbursed by the director, such personal expenses are debited to the director’s loan account.

Of course the director may have introduced funds into the company at some time in the past in which case the debiting of personal expenses will simply reduce the amount owing to the director. Problems only arise when the director’s loan is overdrawn, in which case the director owes money to the company. Two tax complications arise:

1. Company liable to additional Corporation Tax charge.

If the director is also a shareholder in a “close” company, any overdrawn balance on a director’s loan account at the end of the company’s accounting year will create a potential Corporation Tax charge based on 25% of the amount overdrawn at the year end. For example, if John, a director and shareholder of A Ltd, has an overdrawn loan account with the company at their year end, 31 March 2012, amounting to £10,000 then a potential liability to Corporation Tax will arise of £2,500. This liability will be reduced or cancelled if the loan is reduced or repaid in full before 31 December 2012 (9 months after the accounting year end). Even if the loan is repaid after the nine month deadline, the company can apply to have the additional tax repaid although there may be a significant delay. Quite often the overdrawn balances are cleared by paying dividends which are credited to the loan account within the nine month period.

2. Director may face a personal tax charge.

If A Ltd in the example quoted above, had made no interest charge to John for the loan of the £10,000 then HMRC would seek to tax John as if he’d received a benefit (the interest forgone). If John had owed more than £5,000 at any time during the year to 5 April 2012 he would be assessed to a benefit in kind charge. HMRC currently use a 4% rate to calculate the benefit which means John would pay tax on a benefit in kind charge of £400. Additionally, A Ltd would be liable to a Class 1A National Insurance charge on the same amount, i.e. on £400 assuming £10,000 was owed for a full year.

To avoid the personal tax and Class 1A charge, A Ltd could charge John for the statutory interest by crediting interest received in its accounts and debiting John’s loan account with the same amount of £400. John would then need to repay £10,400 before 31 December 2012 in order to ensure HMRC would withdraw the additional Corporation Tax charge.

Accounting for directors loan transactions can be complicated especially if the company makes an interest charge to the director. Please call if you need advice.


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Tax dodgers beware

At the end of May 2012 HMRC announced that six new taskforces had been created to target tax evasion in a number of specific locations:

  • Indoor and outdoor markets in London
  • Taxi firms in Yorkshire and East Midlands
  • Property rentals in East Anglia, London, Yorkshire and the North East
  • Restaurants in the Midlands

These specialist teams are trained to undertake intensive bursts of activity and are expected to recover more than £23m in unpaid tax.

The teams will visit traders to examine their records and carry out other investigations.

Readers whose businesses fall within these new remits may be advised to take a hard look at their record keeping ensuring that all business transactions have been correctly recorded; much better to be prepared. Do not wait for the brown envelope to drop on your doormat...


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July 2012 busy month...

Although we have summarised the various filing and tax payment deadlines for July in the tax diary it is worth looking at the detail – July is a busy month.

6 July 2012

  • Filing deadline forms P11D, P9D and P11D(b) 2011-12. As this newsletter is being published on 5 July we sincerely hope that readers have already filed these annual returns that disclose benefits paid to employees and directors during 2011-12.
  • Distribute copies of P11D and P9D forms to employees.
  • Redundancy report. Employers who have provided a redundancy package during 2011-12, which includes benefits in kind and which over its lifetime is estimated to be worth more than £30,000, must report details to HMRC by today.
  • Unapproved share schemes. Deadline to inform HMRC of any reportable events for 2011-12.
  • Tax approved share schemes. Return deadline on statutory forms due today in respect of tax approved share schemes including Enterprise Management Incentive schemes.

7 July 2012

  • Retired employees’ non-cash benefits. Any non-cash benefits provided to retired employees under an employer financed retirement benefit scheme should be reported to HMRC by today. Benefits are taxable unless exempted or below the £100 per annum de minimis.

19 or 22 July 2012

  • Payment of Class 1A NICs for 2011-12. Payment deadline is 19 July if paying by cheque or 22 July if paying electronically – payments must clear by 22 July if paid electronically.

31 July 2012

  • Late filing 2010-11 self assessment return. If you have still not filed your SA return for 2010-11 by today, a further tax related penalty will be charged. The penalty will be £300 or 5% of tax liability whichever is the higher amount.
  • 2nd payment on account 2011-12. This amount is usually based on 50% of the reported self-assessment liability for 2010-11, unless adjusted.
  • Tax credit renewals. Deadline to renew tax credit claims for 2012-13 and to return final income figures for 2011-12. It is possible to provide estimated figures for 2011-12 but the final figures must be provided by 31 January 2013.

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VAT refund for self build

It is possible to register a self-build application for VAT purposes and reclaim any VAT charged on certain materials and services paid out. In a recent tax case an individual and his partner decided to build a new home for themselves and two children from a previous relationship. The building was actually two separate buildings (one for the kids) linked by timber decking. HMRC refused the claim to include VAT recoverable for the construction of the separate building.

On appeal the Tribunal allowed the claim, arguing that the singular word ‘building’ should be construed as including the plural ‘buildings’ so that the claim for the two buildings should be allowed.


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Tax Diary July/Aug 2012

1 July 2012 - Due date for Corporation Tax due for the year ended 30 September 2011.

6 July 2012 - Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

6 July 2012 - Deadline for submitting form 42 (reporting of transactions in employment related securities).

19 July 2012 - Pay Class 1A NICs (by the 22 July 2012 if paid electronically).

19 July 2012 - PAYE and NIC deductions due for month ended 5 July 2012. (If you pay your tax electronically the due date is 22 July 2012.)

19 July 2012 - Filing deadline for the CIS300 monthly return for the month ended 5 July 2012.

19 July 2012 - CIS tax deducted for the month ended 5 July 2012 is payable by today.

31 July 2012 – Payment of self-assessment, second payment on account for 2011-12 due today.

31 July 2012 – Deadline to renew tax credits claim for 2012-13 and provide details of income for 2011-12.

1 August 2012 - Due date for Corporation Tax due for the year ended 31 October 2011.

19 August 2012 - PAYE and NIC deductions due for month ended 5 August 2012. (If you pay your tax electronically the due date is 22 August 2012.)

19 August 2012 - Filing deadline for the CIS300 monthly return for the month ended 5 August 2012.

19 August 2012 - CIS tax deducted for the month ended 5 August 2012 is payable by today.


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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.


Exceed UK Limited

Bank House, 81 St Judes Road, Englefield Green, TW20 0DF

Tel:                01784 439 955         Web: www.exceeduk.co.uk

Exceed UK is a limited company registered in England & Wales (4473979). Registered for VAT (792 6771 79). Directors of the firm are members of the South African Institute of Chartered Accountants and the Institute of Chartered Accountants England & Wales.

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