Since the start of the tax year the basic rate of income tax has been reduced from 22% to 20% and the starting rate of 10% abolished for income except for savings and dividend income.

The government has faced opposition over the tax rate change which was announced in the 2007 Budget.  Those on low wages and some pensioners are receiving less net income than they did before the end of the tax year. The change has faced much criticism as not all those who lost out on the removal of the 10% band for earnings are able to claim tax credits to supplement their income.

Around 40 MPs apparently signed a motion challenging the decision which according to MPs left more than five million low earners worse off. The government has announced that it will “compensate” those individuals who are worse off. It is unclear quite how this compensation will work due to the individuals differing personal circumstances.

We will keep you informed of developments.

Internet Link: BBC newsand Financial Times article

The Information and Consultation of Employees Regulations 2004 have been extended to cover undertakings with 50 or more employees from 6 April 2008.

Under the Regulations, employees have the right to be:

• informed about the company’s economic situation;
• informed and consulted about employment prospects; and
• informed and consulted about decisions likely to lead to substantial changes in work organisation or contractual relations.

There is no automatic requirement to negotiate an Information & Consultation (I&C) agreement but employers are required to negotiate an I&C agreement if at least 10% of employees – subject to a minimum of 15 employees – make a formal request for an I&C agreement. Alternatively, employers can choose to start negotiations themselves.

To read more about the requirements under the regulations visit the links below.

Internet Link: BERR guidance and Business link

M&S have won a landmark victory in the European Court of Justice. The case concerned whether or not HMRC were correct to limit the amount of VAT they repaid to the company after their chocolate teacakes were reclassified as a cake rather than a chocolate biscuit.  The issue of cakes and chocolate biscuits is an important one as it means they are zero rated rather than standard rated.  The case dates back many years.

HMRC only repaid M&S 10% of the output tax it had overpaid on sales of chocolate teacakes on the grounds that the other 90% had been suffered by the customer and so M&S would be ‘unduly enriched’ if it got it all back.  The European Court of Justice has ruled that HMRC cannot restrict the repayment if they would be treating M&S unfairly by repaying others 100% of the overpayment.  The House of Lords is now expected to confirm that M&S have been treated unfairly.

Internet Link: BBC website

It appears that many businesses are suffering a cash “squeeze” from delayed payment of their invoices as the credit crunch begins to impact on the economy. There are complaints from businesses that some large customers have begun to extend their payment period terms. This is putting a strain on the cashflow of businesses.

According to the Times, the Federation of Small Businesses estimates that 10% of small business collapses are triggered by late or non-payment of bills.

Stephen Alambritis, head of government affairs at the federation, said:

‘A number of big customers have raised their payment terms because of the credit crunch. It is becoming an area of concern. Normally businesses would go to their banks when they need more cash but that is not easy at the moment.’

Internet Link: Times online and FSB website

The forms P11D, which report employees and directors benefits in kind and expenses, are due for submission by 6 July 2008 for the year ended 5 April 2008. The process of tracking down the information can take some time so it is important that you don’t leave things until the last minute.

Some things to be aware of:

Company cars
The benefit is based on a percentage of the list price plus accessories – not what the business paid for the car. The percentage is linked to the CO2 emissions of the car.

Provision of fuel
Employees provided with free fuel for private as well as business motoring will be assessed on a further benefit. This is calculated as a percentage linked to the CO2 emissions of the car and a set figure of £14,400 for 2007/08.

The set figure has increased to £16,900 for 2008/09. This is a good time to check whether or not the individual would be better off paying for their own private fuel. Don’t forget that the employer also pays 12.8% employer only Class 1A NIC on the value of broadly all benefits in kind so there is a saving for the business as well.

HMRC have issued the usual guidance to employers on the completion of the forms P11D together with tips on how to avoid errors based on last years forms P11D.

If you would like any help with the completion of the forms P11D or a reminder of the information we require to complete the forms on your behalf please get in touch.

Internet Link: HMRC guidance and P11D completion tips