This summer 14,000 directors received letters from HM Revenue & Customs (HMRC) suggesting that they might have made mistakes in their tax returns. This was a pilot scheme and now there is concern that these “intervention letters”, which bypass taxpayers’ professional advisers, will become much more widespread.

If you receive one of these letters, do not reply but pass it on to us immediately. If HMRC telephones you, just take details and then seek your accountant’s advice. We are here to look after your tax affairs. Also, you should not worry that such a letter means you necessarily owe more tax. Despite their threatening, the letters, which come in several standard versions, do not necessarily mean that the Revenue has any information that your tax return is incorrect in any way. If HMRC did have such details, it would have opened a formal enquiry.

One of these letters suggests that directors commonly include personal items in their claims for business expenses. Another accuses the recipient of not declaring taxable bank or building society interest. Although the letter says “participation in this trial is voluntary”, it goes on to ask the recipient to contact HMRC within 30 days and threatens to make an assessment “to collect the amount that we believe is due”.

When we prepare your tax return, we take steps to exclude all personal items from your business expenses claims and to make sure all your income is shown. Of course we can only do this if you keep all relevant paperwork and tell us everything. If you think you might have forgotten something, please let us know right away so that we can sort it out for you and give you peace of mind.


Capital allowances for energy-saving and water-efficient equipment

Did you know that you can claim a 100% first-year allowance for expenditure on energy-saving equipment? Provided it meets certain conditions, you can write off the whole cost against your business profits in the year of purchase rather than over a period of years.

The enhanced allowance started in 2001 and its scope has widened since then. The plant and machinery must appear on the energy technology list, which now covers 16 qualifying technologies. They include boilers, refrigeration equipment, lighting, various types of heating equipment, combined heat and power, insulation, monitoring controls and others. The list specifies the strict energy-saving criteria that each type of equipment must meet.

The benefit to your business is not limited to the tax relief. You should save in energy costs and you will be able to show your customers and employees that you care about reducing carbon emissions and protecting the environment.

Businesses are also able to claim a 100% allowance for water-efficient equipment that reduces water use and improves water quality. The equipment must appear on the water technology criteria list. This includes items such as efficient toilets, taps and showers, monitoring equipment, flow controllers, rainwater harvesting equipment and filtration systems.

Details of the technologies and criteria for energy-saving and water-efficient equipment are available at www.eca.gov.uk. We can advise you on the full financial implications of the cost and installation of the equipment for your business, as well as the savings. We can also help you claim the enhanced allowances on your tax return.


Business travel in company cars

The advisory rates for employers who reimburse employees for fuel costs for business travel in a company car have been increased. The new HM Revenue & Customs (HMRC) rates, which apply to journeys from 1 July 2006, follow a steep rise in the prices of petrol and diesel.

HMRC will always accept that there is no liability to tax or national insurance where employers pay business mileage at not more than the July rates.

However, if the employer pays a lower mileage rate, employees cannot claim tax relief for the difference. This contrasts with the rule for business mileage in an employee’s own car, where the employee can claim tax relieve based on the official mileage rates of 40p for the first 10,000 miles and 25p thereafter, even where the employer pays less than this.

The guideline rates are not binding and employers may in some cases be able to reimburse at a higher rate if they can demonstrate that the actual cost of business travel in the cars concerned is higher.

Where employers provide all the fuel for company cars, employees are liable to tax on a fixed sum based on the car’s emissions, unless they repay the cost of all fuel used for private travel. The same advisory rates should be used to calculate the reimbursement.