Give Tax Status a Second Thought

January 2008

Sutton Coldfield based accountants Weatherer Bailey Bragg are warning individuals to give a second thought to the tax status of a worker.  Whether someone is classed as employed or self-employed for tax purposes is ascertained by reference to case law, rather than to statute, so while there is nothing to clearly define the specifications of an individual’s status, there has been some criteria established that should be adhered to.

If you own your own business, can not be controlled in terms of when, where and how you work, and have the right to choose and if you are free to hire other people to work for you, or to help you at cost to yourself, then you could be classified as self-employed.  On the other hand, if you are contractually bound to work a set amount of hours, have a set amount of pay and are answerable to someone who is accountable for the business, you could be classified as being employed by a third party.

The responsibility for ascertaining the correct tax status, however, belongs to the engager of an individual, instead of the individual themselves.  While the established criteria should make it relatively easy to define whether or not an individual is self-employed, the onus is on the engager to make sure they know for certain.

Steve Horsley, Tax Partner explains: “HMRC are likely to back date any income tax, National Insurance Contributions and interest charges for the entire period that wrong tax codes are declared and expect the engager to make good the missing funds.  So although the prospect of not having to pay Employers National Insurance Contributions, sick pay and holiday pay, for example, may seem appealing, the financial risks involved in simply taking an individual’s word on their tax status should not be underestimated.”

For more information contact Weatherer Bailey Bragg on 0121 355 1901

CGT U-Turn Welcomed

January 2008

A major change to Chancellor Alistair Darling’s plans for a controversial shake-up of the capital gains tax regime has been welcomed by Sutton Coldfield accountants, Weatherer Bailey Bragg as a respite for businesses.

In his October 2007 pre-Budget report, Mr Darling announced that he planned to scrap taper relief on capital gains tax (CGT) from April 2008. Currently, someone selling shares or a business they have owned for more than two years pays CGT at 10p in the pound on profits above their £9,200 tax-free allowance, instead of at 40 per cent, assuming they pay the higher rate of income tax.

Mr Darling planned to levy CGT at a flat rate of 18 per cent and to scrap the indexation allowance, which inflation-proofs an asset’s rise in value, which would have triggered a steep rise in CGT bills.

The proposals attracted opposition from the business community, including the Institute of Directors, the CBI and the Federation of Small Businesses, which regarded the plan as damaging disincentive to enterprise and investment and a serious blow to small business owners planning retirement sales. A petition opposing the move on the Prime Minister’s website has attracted more than 18,000 signatures.

Today Mr Darling confirmed that taper relief would cease from 6 April, when a flat rate of 18 per cent would be introduced – but to help entrepreneurs, he said there would be a ten per cent rate on gains of up to £1 million accumulated during their lifetime.

To qualify for the relief, a taxpayer will have to own at least five per cent of a trading business and be an employee, director or hold another office within the company. The relief will cost an estimated £200 million a year and 80,000 people could benefit in the next tax year.

Steve Horsley, tax partner at Weatherer Bailey Bragg said: “This is welcome news, which ends several months of uncertainty as the business community waited for Mr Darling to finalise his proposals. It shows the strength of the voice of the UK business sector, and its importance in the country’s economy, that he has modified his plans in the light of some very vocal opposition.

“While he may not have gone as far in amending his proposals as some in the business community would wish, this is still a valuable concession. CGT remains a complex area and anyone considering the sale of a business or substantial shareholding would be wise to seek the advice of a qualified professional in exploring the most beneficial tax options.”

Could You Up The Ante When It Comes To Tax Efficiency?

January 2008

Weatherer Bailey Bragg accountants are asking local individuals whether their tax saving strategies are as efficient as they could be.  There are a number of ways employers can alleviate taxation for their employees, at little or no extra cost to themselves.  On a more personal level, individuals can reduce the amount of tax they pay by implementing minor adjustments to their lifestyle.

With increasing focus on the Arctic Systems case, in which a husband and wife business team had ‘shifted income’ between them, and were subsequently handed a tax bill for £42,000, the Government is working hard to fill in what it believes to be ‘tax loopholes’.  Whatever personal views on tax are held, it is a legal requirement of this country, and must be paid.  However, there are a number of perfectly legitimate ways of reducing a tax bill significantly, without the added worry of a hefty back dated bill looming in the future.

For business owners there are a number of strategies for tax free trading including, again only where legally appropriate, gambling.  A source of income can be gained (or lost, as there is a large element of risk involved) by spread betting.  This involves betting on whether share prices will rise or fall.

For the more risk averse business owner, other strategies can be implemented.  Offshore trading, for example, if the correct provision is made, can be financially beneficial, and is even easier if you actually move to be resident in the non-UK country from which you hope to trade.  Another alternative is commercial occupation of woodlands.  Profits made from owning an area of woodland is not taxable, and therefore could make a sound, if long-term, financial investment.

For staff, there are a number of benefits that can be offered by an employer, that are not subject to tax.  Childcare contributions, for example, can be offered to employees at up to £55 per week, tax free.  If your workplace does not have a car park, an employer can pay for nearby car parking facilities without it being taxable.  Similarly, certain home working or relocation costs can be covered and schemes such as long-service awards or financial reward for suggestion schemes all have a monetary ceiling before the funds are liable to taxation.

Steve Horsley, Tax Partner at Weatherer Bailey Bragg explains:  “The UK Government is clamping down on tax avoidance, but there are ways of reducing tax bills without refusing to comply with legislation.  Tax is a complex area of finance, and so there will always be several ways of approaching the issue.”

For more information contact Weatherer Bailey Bragg on 0121 355 1901