Newsletter of 25 June 2007

We are now two months in to the new tax year and it is now time to gather the information required for last year’s returns. Most information should be available from employers, banks and stockbrokers by now though forms P11d detailing expenses and benefits may not be available yet. So do not put it off, gather the details now and you may even be due a refund! If you are due a refund and file on line the refund will frequently be received within a couple of weeks, though if a paper return is used it may take considerably longer.

Gift aid Do you find it a struggle remembering the gifts you have made to charities during the year, if you are a higher rate tax payer you could be missing out on tax relief due on gift aid payments made. An easy way to keep track of your charitable donations is to make them through the Charities Aid Foundation (CAF), that way you only have to keep track of payments to one body and they provide regular statements. The CAF system is easy to set up, it can be funded via regular payments, one-off payments or Give As you Earn where amounts are deducted through your payroll, all contributions are credited to a charity account for which you receive a card and cheque book to make payments to charities of your choice. For more information and how to set up a CAF account see www.caf.org.uk  As a planning point couples where one pays tax at a higher rate than  the other  may wish to ensure that gift aid payments are made by the higher earning partner to obtain higher rate tax relief.

Tax free benefits and salary sacrifice Some benefits are really worth having, such as childcare vouchers or free parking, but they can be expensive for the employer to provide. A solution is for the employee to voluntarily reduce his or her salary by the value of the benefit or some other agreed sum, and the employer pays the benefit directly. The agreement to reduce salary must be made in advance and in writing, perhaps as an adjustment to the employment contract, but this arrangement can work to the advantage of both parties.

Take the example of car parking; which is often in short supply, and expensive, in city centre locations. If the cost of car parking is £10 per day, this adds up to £2,400 for 48 working weeks. An employee on basic rate tax needs to earn £3,582 gross to have £2,400 net after deduction of tax at 22% and NICs at 11% to pay for this parking.

Where the employer pays for a parking permit for the employee to park at or near the place of work, the employee is not taxed on that benefit. Note the parking must be at or near the actual place of work, not at the railway station near the employee's home.

In this example if the employee chooses to reduce their salary by £2,400 and the employer pays for a parking permit. The employer gets a tax deduction for the cost of the permit in its own accounts, and saves 12.8% employers NIC on the reduced salary. The employee now gets this benefit tax free plus the remainder of the taxable salary that wasn't sacrificed (£1182) so everyone wins - except of course the Taxman!

A future newsletter will provide details of other tax free benefits that companies can provide employees.

Pensions Traditionally accountants discuss pensions with clients towards the end of the tax year when the level of income / profits can be estimated more easily and the impact on tax liabilities determined. The principle of not putting off hard choices applies particularly to pensions as procrastination reduces the time period for funds to grow. So if you have been putting off reviewing your pension make a start to-day and take a look at the Pension Calculator a website www.pensioncalculator.org.uk that aims to help you work out how much you need to save for retirement. We will be happy to advise on the tax implications of pensions and can introduce you to a number of financial advisers who we have worked with previously to help clients manage their affairs.

Pensions are not the only means of saving for retirement. Pensions have the advantage that there is tax relief on contributions, your employer may contribute and the funds grow free of tax. However apart from a potential tax free lump sum, the income from a pension is taxable in the normal way, there are limits on contributions, restrictions on investment, funds cannot be accessed until a certain age, for most practical purposes an annuity has to be taken at age 75 if an annuity is not taken then any funds remaining on death will be subject to penal rates of tax. Although pensions have a valuable role in retirement planning, many individuals are looking to put some of their finances in to other forms of investment which will allow greater flexibility to access funds at any age, pass funds to the next generation and greater investment freedom. Possible vehicles includes stocks and shares and property and can have tax advantages such as individual savings accounts (ISAs), venture capital trusts, enterprise investment scheme companies, shares on the alternative investment market. In future newsletters further details of tax efficient investments will be provided.

Offshore disclosure facility  Earlier in the year HMRC set up arrangements for individuals to report previously undeclared offshore bank accounts. This was not an amnesty but did offer the incentive of limited penalties. The deadline for taxpayers to notify HMRC that they intend making a disclosure under the Offshore Disclosure Facility was last Friday 22 June. Holders of offshore accounts may receive enquiries from HMRC if the accounts have not been reported and should be prepared to explain the source of the funds and reason for non-disclosure.

Impending deadlines

30 June 2007  Private companies with 31 August 2006 year-ends should file their accounts at Companies House.

Corporate tax returns for periods ended 30 June 2006 should be filed by concession no penalty is charged if the return is submitted by 7 July 2007.

6 July 2007 Last day to file 2006/07 forms P11D / P9D and issue to employees.

30 September 2007 Last day to submit paper returns for 2006/07 if you want to have unpaid tax up to £2,000 collected through the 2008/09 PAYE code

For more information or to discuss how the ideas can be applied to your particular situation please contact Simon Bell by phone on 01376 571358 or email simon.bell@sjbtax.co.uk .

This newsletter is written in general terms and therefore cannot be relied on to cover specific situations; applications of the principles set out will depend on the particular circumstances involved and it is recommended that you take professional advice before acting or refraining from acting on any material in the newsletter.

For more information contact Simon Bell FCA, CTA
Tel: 01376 571358 | Email: simon.bell@sjbtax.co.uk