A reminder of three basic areas of VAT regulation that you may not be taking full advantage of:

Building projects where a 5% rate of VAT should be charged. These would include supplies to:

·       Convert a non-residential building into a residential building – unless
the work is for a housing association, in which case zero-rating applies.

·       Changing the number of residential units before and after a job has
been carried out – for example, converting a detached house into two
flats.

·       Carrying out work on a residential property that has been empty for at
least two years – an empty period of three years was required until 31
December 2007.

The petrol element of mileage claims.

A reminder that input tax can be claimed on the petrol element of mileage claims paid to employees. This opportunity is often overlooked because it is one of the few situations where input tax is not claimed according to the VAT figure that is shown on a purchase invoice.

Recovering input tax on pre-registration expenses and, in some cases, pre-incorporation expenditure.

If you would like more information on any of these issues please call.

Sheltering income via Limited Company

As we approach the new tax year tax payers with earnings in excess of £100,000 will start to feel the effects of loss of personal allowances and for some a higher rate tax level of 50%.

Taking into account National Insurance the changes in 2010-11 can produce marginal rates up to 61%.

Presently small companies pay corporation tax at 21% and there is no legislation currently in place which says that you have to distribute all your profits. Consequently if you earn £200,000 but only need to draw £100,000 as salary or dividends there are considerable tax savings to be made by retaining the £100,000 difference in a company.

You could always split your earnings. If you are self-employed you could split off part of your trade to be managed by a limited company. Care has to be taken in the manner in which this is done but it does offer up the possibility of sheltering income at the 21% corporation tax rate.

As we have commented above there is no legislation currently in force that forces companies to pay tax and perhaps National Insurance on retained (sheltered) profits. It is not inconceivable that the law in this regard may be changed at some point. We will of course keep you informed!

Clearly every tax payer´s circumstances are to some extent unique and care must be taken in planning the most appropriate solution. If you are a high income earner and presently employed or self-employed, and would like to see if placing some of your earnings through a limited company would be advantageous, please call.

Change UK tax residence rules

The Court of Appeal has just ruled on a case that has important ramifications for taxpayers moving overseas to qualify as non-resident for UK tax purposes. The case is Gaines-Cooper.

Prior to this ruling the only clear rule in legislation is that anyone who is present here for 183 days or more in a year is treated as resident. However, there is also the so-called ´91 day´ averaging test. For many people this is enough to determine their residency but for some it is becoming more and more difficult to give a clear answer - the case of Gaines-Cooper highlights those difficulties.

The case rests on whether the tax payer has actually left the UK. In future it may be prudent to sever as many ties as is possible with the UK to avoid a challenge from HMRC that a tax payer never really left the UK in the first place. In particular this should probably include such action as:

·       selling any home in the UK

·       staying outside the UK for a complete tax year following their departure

·       providing evidence of a clean break in their personal circumstances
e.g. ceasing employment in the UK, selling their business interests
and resigning from UK directorships.

Investments would probably be overseas in any event, but the client should consider whether to avoid retaining UK assets such as rental property.

HMRC will be (and already are in many cases) expecting to see evidence that someone has established a clear country of residence overseas. It will want to see a footprint of activities overseas, such as the filing of tax returns, membership of clubs and registration with a local doctor.

Please call if you would like guidance on this topic.

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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.