Garbetts Newsletter - January 2008

Tax Losses from Trading - how to make the most of them

As we approach the end of yet another tax year readers with possible tax losses for the current tax year may find this article of some interest. A claim to set off losses has to be "all or nothing". For example, in setting a £10,000 loss against income of £10,000, the claimant would probably prefer to claim only £5,000 of relief, as the remaining income would be covered by their personal allowance, and therefore not taxable. This would preserve some loss to carry forward and set against the profits of a later year. Such a partial claim is not possible. Once a decision about loss relief claims has been made, either the full amount of the loss, or the full amount of the income (if the loss is greater) will be used.

Pension contributions - don't forget that if you reduce your taxable income by utilising tax losses you are also reducing your income for pension premium purposes.
Carry forward against future profits of the same trade - this is normally regarded as the relief of last resort, as it delays loss relief recovery. Losses are set against the first available profits generated from the same trade, and cannot be "partly disclaimed" to preserve personal allowances. If the business ceases, then subject to terminal loss relief rules (see below), any remaining losses are lost forever.
Set off against other income of the year and the preceding year - more immediate relief for the loss is available by setting it against other income sources. Relief is given by setting the loss against other income of the year of the loss, or the preceding year.
Extending claims to capital gains - it is possible to extend a loss relief claim to set the trading loss off against the capital gains of the year of the loss and the preceding year. There are a number of potential disadvantages to this form of loss relief recovery. They include the potential loss of taper relief for CGT purposes (up to 5 April 2008) and loss of the annual exemption.
Losses in the early years of trade - when businesses incur losses in the first four tax years in which the trade is carried on, special relief is available to allow the loss to be carried back three years and set against the total income of those years, earliest year first.
Terminal losses - The loss sustained in the last 12 months of trade of a business is available for terminal loss relief. Relief is given against the trading profits (not other income) of the last three fiscal years of the business, taking later (most recent) years first.

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		Self Assessment Payments
	Don’t forget your final 2006/07 tax liability is due on 31 January (individual tax payers, including company directors), along with your first 2007/08 payment on account. Interest runs on both amounts from 1 February, and there is a 5% surcharge on any 2006/07 tax unpaid by 28 February. We will have told you how much to pay when your tax return was sent to you for signature – if you are unsure of the amounts to pay, please check the information given there before contacting us as our Tax Department is very busy in these last few weeks of the filing season. You should receive, end of December / early January either a statement from HMRC showing the amount due – let us know if this differs to what we’ve told you – or a blank payslip / reminder for you enter the amount on. You can also pay online via HMRCs www site. If you’ve received a self assessment reminder / black payslip, then either your return has yet to go in, or its only recently gone in. If you haven’t provided us with all the information we need for your return, or we’ve sent you your return and you haven’t signed it and returned it to us, please do so as soon as possible bearing in mind the deadline is looming – theres a £100 penalty on late personal returns, and for partnerships a penalty of £100 + £100 per partner. When you sign and return your tax return to us, generally we only need back the page 10 and the internet filing authority – the main return is for you to keep on your files. Payments on account for 2007/08 – due equally on 31 January 2008 and 31 July 2008 – are automatically calculated based on your 2006/07 liability, although they are not due if your 2006/07 liability was small or mostly paid at source. If you have payments on account due for 2007/08 but you think you’re 2007/08 income is going to be significantly less than 2006/07 then please contact your account manager at Garbetts to discuss a possible reduction on your payment on account. If you are stuck, please get in touch – but please bear in mind this is a busy period for us, so e-mail contact is probably best. Back to top

		Is your company year end 31 March?
	If your company year end is 31 March then remember Corporation Tax for 312 March 2007 was due on 1 January 2008. HMRC will charge interest if its not paid on time, even if you haven’t had a demand. What to do if you haven’t got a demand? - If we have prepared your accounts for you, then we would have told you the Corporation Tax due when we sent the accounts out to you. If you have a blank payslip / reminder (for Corporation Tax, not PAYE or Self Assessment) then pay using that, alternatively send a cheque to our office payable to HMRC - If we haven’t prepared your accounts yet, then we suggest you estimate an amount and make payment as above. Please contact our tax department for further assistance. Unless this is your first year in business, your accounts will be due for filing at Companies House on or before 31 January - there are penalties if they are late, even by a day. We will have sent you abbreviated accounts for filing at Companies House with your year end accounts pack (normally there will be approval accounts to sign and return to us, and abbreviated accounts to sign and forward to Companies House). So double check you've sent them off, and use recorded delivery to send them. Back to top

		Neill Atkins wins IR35 case at Commissioners
	Congratulations to our client Neill Atkins on winning, with the help of Accountax, a firm of specalist tax consultants, an IR35 case at the Special Commissioners. HMRC started a PAYE investigation into Mr Atkins company nearly 6 years ago, and raised questions about IR35 compliance. After a long and tortuous exchange, initially with ourselves, and then via Qdos Consulting, including at one stage nearly a years gap between communications, HMRC raised assessments on the company. The enquiry started before we offered Tax Enquiry Insurance routinely to our clients, but fortunately Neill had insurance via the Professional Contractors Group who arranged for Accountax to handle his appeal. On the day of the hearing HMRC were unable to produce contemporaneous evidence of Mr Atkins's working patterns at the client he was contacted to. They had a letter from the clients then Finance Director who referred to the general terms for engaging contractors, and personal evidence for HMRC was provided by two successor staff at the client - but neither the Finance Director (was has now left) nor the two persons giving evidence now actually new the specifics of Mr Atkins engagement with the client, just general principles for engaging contractors. Mr Atkins was able to amass the evidence to show their evidence was wrong, eg Finance Director had said contractors could never work from home, and therefore Mr Atkins would not have been allowed to do so - which was countered by Mr Atkins producing phone logs showing when he was working at home! HMRCs case was therefore lost on the basis that they had no reliable evidence about the actual working practice, whereas Mr Atkins himself was able to evidence his own version of events. Two points are worth noting here: - First, with IR35 cases, the devil is in the detail. You can have the best - or worst - written contracts imaginable, but what counts is evidencing a IR35 compliant set of working patterns, eg payment by results, engagement linked to project, risk being carried, extra hours worked to meet deadlines, and the plethora of well known status indicators - Secondly, these cases can drag on for years, and are expensive. Insurance of some sort, either via ourselves or another course,against Tax enquiry risks is prudent, if not essential. Back to top

		Have you considered a pension deferral?
	Anyone hitting retirement with a substantial pension pot can often feel like the job is done and their comfortable retirement secured. But low interest rates mean low annuity rates and retirees may therefore wish to consider other options to maximise their income. One solution is to defer your pension payments, which, as your age increases (and assuming interest rates do not fall further) could result in higher payments. There are three main reasons why retirees might defer payments from their pension: One, because interest rates are low and waiting a few years may secure a more favourable annuity rate; Two, retirees may chose to continue some form of paid employment, which can support them in the short-term without the need for their pension; Three, a pensioner may want to buy a joint life annuity, but have a younger partner. Waiting until that partner is older will secure a better rate on the annuity. On retirement, you can take a tax free lump sum of 25% of the value of your pension pot. The rest is used to buy an annuity, but this annuity purchase can be deferred until as late as age 75 (when it becomes compulsory). There is also a deferment option for the state pension scheme. For every year you defer taking that income, you get 10.4% extra which, at today's rates, is worth £472 per year on a full state pension. Sometimes it pays to wait. It always pays to have a chat with your Garbett's Financial Adviser. Give us a call on 01983 527111 if there is anything you wish to discuss. www.garbetts.com/gfs Back to top


	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.