This year the traditional date for the Budget has been delayed for a month until 22 April. At the date of preparing this newsletter we are still "in the dark" regarding any changes Chancellor Darling will make to our tax position for 2009-10.

This month we have included information on PAYE code changes, changes to the National Minimum Wage penalty regime, the new penalties if you fail to register your liability to pay self employed National Insurance, and an update on medical check-ups provided by employers.

The VAT Flat Rate scheme offers good savings to many small businesses - savings of time and, often, VAT payments to HMRC.

However watch for the trap that if a entity using the FRS has other income outside of the business it can fall into the FRS accidentally.  EG If you are a sole trader using FRS and you let out your home then, although normally a residential property let, be it your home or a buy to let, would be VAT exempt, under FRS rules it has to be included in your FRS turnover and you pay VAT on the rent.

The simple solution to this is to make sure that there are no other income bearing assets in the same ownership as the vat registration, eg if you're vat registered personally own any let properties jointly with a spouse/partner, or if you are in a partnership own any properties personally.  

Some simple planning here can save a lot of worry later.

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Don't forget to keep an eye on garbetts.com, our www site, where you can find a selection of tools and briefings to help you with your accounts and taxes.

For clients running personal service companies (PSCs), our PSC microsite at www.garbetts.com/psc is an invaluable source of information. 

For other clients our downloads sections has all sorts of briefings on useful topics.  You can also find out more about our tax enquiry insurance schemes at www.garbetts.com/insurance, and find out more about the firm and its staff at www.garbetts.com/corporate.

Also our blog, with up to date news and comment is at: http://www.garbetts.blogspot.com/

If your business has a www site then let us know the URL and we can provide a link from our site to help your search engine rankings - a reciprocal link is appreciated.

Click on www.garbetts.com today!

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If your local tax office sent you a demand to pay tax you would obviously take some interest in the issue - is this change correct? When do I have to pay it?

Would you feel the same if you received a notification of change to your PAYE code number?

Your tax code is set at the level at which you pay no tax. If your tax code is 600L, you can earn up to £6,000 a year (£500 per month) tax free. If towards the end of a tax year this reduces to say 400L, your annual tax free allowance will have dropped to £4,000. Depending on the degree of reduction and the timing of the adjustment, you may suffer an immediate and perhaps significant drop in your take home pay.

What to do?

Your tax code can be revised in a downwards direction for a number of reasons. Some of the more frequent causes are set out below:

•  State Pensions - your State Pension is paid to you with no deduction for tax. Unfortunately the pension is treated as income for tax purposes and if you are employed and in receipt of the pension, HMRC will seek to collect any tax due by reducing your tax code.
• Benefits in kind - if your employer provides any form of taxable benefit, company car, health insurance etc.
• Unpaid tax from previous tax years.

An interesting situation arises if the total reduction in a tax year exceeds your basic tax free allowance. For instance if at the beginning of a tax year your tax free allowance was set at £6,500, but your untaxed State Pension for the forthcoming year was £10,000, this would result in a negative code of -350. (£6,500 - £10,000). On your Notice of Coding this would be displayed as K350. A K code means that you have no allowances to set off against your salary before tax is calculated - in fact, in the example set out above, £3,500 will be added to your taxable earnings! An increase in a K code will increase your tax deductions and reduce your take home pay.

If you receive a notification that your tax code has changed do check it out, H M Revenue & Customs have been known to make mistakes!

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We urge all employers to read the following changes to the penalties that will automatically be levied after 6 April 2009 if you fail to observe your obligations regarding payment of National Minimum Wage rates.

From 6 April 2009, a new automatic penalty will be levied where HMRC compliance officers find arrears of the National Minimum Wage (NMW).

Penalties will range from £100 to £5,000 and those employers who settle within 14 days of notification will receive a 50 per cent discount of the penalty for prompt payment. The penalty must be paid in addition to any arrears owed to the workers. The most serious cases of non compliance may be tried in a Crown Court and subject to an unlimited fine.

To reflect this change, the current system of separate NMW enforcement and penalty notices will be replaced by a combined notice of underpayment and penalty. This will be issued whenever HMRC discover that arrears were outstanding at the start of their enquiries.

The notice will detail the amounts due to workers and any penalty due on those arrears. For PAYE reference periods starting on or after 6 April 2009 the penalty will be half the total underpayments shown on the notice. HMRC can pursue arrears claims for workers going back up to six years.

You will be able to appeal both the amount of the arrears and the penalty to an Employment Tribunal (an Industrial Tribunal in Northern Ireland) under new appeal rights. You can call the National Minimum Wage Help line in confidence on Tel 0845 6000 678.

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From 6 April 2009 there is a change in the penalty you will pay if you are late notifying HMRC that you have commenced self-employment.

Up to 6 April 2009 the penalty was £100 and you had 3 months after commencement of trade to let HMRC know.

From 6 April 2009 the rules are changed as follows:

1. Anyone who ceases or becomes liable for Class 2 or Class 3 contributions must notify HMRC immediately.
2. A penalty may be levied (between 30% and 100% of the "lost contributions") if notice is not given by 31 January following the end of the tax year in which you become liable.
3. There will be no penalty if you have a reasonable excuse for the late notification.

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HMRC have now agreed that all medical check-ups provided by employers to an individual employee will be treated as tax and NIC free, even if the check-ups are not available to all employees.

This clarifies a number of changes in their approach, and informal concessions, in the last few years. The change will be acknowledged in the forthcoming Finance Bill 2009.

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1 April 2009 - Due date for corporation tax due for the year ended 30 June 2008.

19 April 2009 - PAYE and NIC deductions due for month ended 5 April 2009. (If you pay your tax electronically the due date is 22 April 2009)

19 April 2009 - Filing deadline for the CIS300 monthly return for the month ended 5 April 2009.

19 April 2009 - CIS tax deducted for the month ended 5 April 2009 is payable by today.

1 May 2009 - Due date for corporation tax due for the year ended 31 July 2008.

19 May 2009 - PAYE and NIC deductions due for month ended 5 May 2009. (If you pay your tax electronically the due date is 22 May 2009)

19 May 2009 - Filing deadline for the CIS300 monthly return for the month ended 5 May 2009.

19 May 2009 - CIS tax deducted for the month ended 5 May 2009 is payable by today.

19 May 2009 - The payroll forms P35 and P14s must be filed by this date - employers late in filing these forms may receive a penalty.

31 May 2009 - Ensure all employees have been given their P60s.

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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.

Garbetts,

Arnold House, 2-6 New Road, Brading, Sandown, Isle of Wight, PO36 0DT.

Tel: 01983 400350  Fax: 01983 404016.

Web: www.garbetts.com

Garbetts is a limited company, registered in England & Wales with number 02988424.