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Child Benefit Withdrawal – what does it mean to you?

burton sweet21 Child Benefit Withdrawal – what does it mean to you?Rachel Finch of leading accountancy firm Burton Sweet discusses Child Benefit Withdrawal and what it means to businesses and families.

Major changes

From January 7 2013 major changes are happening to the child benefit system which could affect your family.

From this date taxpayers who receive Child Benefit and whose total prorated income (or whose partner’s income) exceeds £50,000 will have a tax charge applied to their income via their Self-Assessment Tax Return – which will effectively reduce the financial benefit of receiving child benefit; unless they opt out of receiving Child Benefits altogether.

For individuals with annual income over the £50,000 threshold (after gross pension contributions and gross charitable donations) who chose to continue to receive the benefit, the benefit will be reduced by £1 for every £100 that their income exceeds the threshold by paying a ‘charge’.

Penalising earning households

The reason this charge has been the subject of much discussion and protest is the fact it penalises single earning households.

For example, Mr and Mrs Smith each earn £49,999 per annum and so they have total income of £99,998. They are entitled to continue to receive full Child Benefit as neither of their individual incomes exceed £50,000.

Mr and Mrs Blogs on the other hand who have a combined income of £60,000 earned solely by Mr Blogs (whilst Mrs Blogs stays at home and cares for the children) will no longer receive any child benefit.

Self-assessment

It is speculated that many individuals will be brought into the Self Assessment Tax Return regime for no other reason but for the logistical implementation of Child Benefits and HMRC will soon be writing to individuals they think may be affected.

However, should you wish to opt out of receiving Child Benefits you will also no longer be required to file Tax Returns.

This gives individuals the option to weigh up the advantages or disadvantages of making a claim as it is also important to bear in mind the increased burden of having to complete Self Assessment Tax Returns and the associated costs should you outsource this to a third party accountant or tax adviser.

If you’re affected

If you think you may be affected by the upcoming changes, do not wait until it is too late to do anything about it, you should act now by considering the following options:

• If you are in a position to do so, it may be worth considering ways to equalise income between you and your partner to keep you both below the £50,000 threshold.

• If your income breaches the threshold by a relatively small amount it may be worth sacrificing some salary in order to continue to receive the tax free benefit.

For example, an individual who has total gross income of £51,000 with one child will receive child benefit of £1,055. This is equivalent to £1,819 of gross taxable and NIC’able income so, this individual would be better off by £818 if they were to receive the benefit and sacrifice £1,001 of their income so that it did not breach the £50,000 threshold.

• An alternative to sacrificing salary is to make pension contributions or charitable donations as these will have a compounded effect. Not only do they increase the threshold at which you pay basic rate tax but they also serve as an income deduction for the purposes of calculating your entitlement to Child Benefits.

• For the current tax year, income received prior to 7th January will be ignored. Therefore you may want to look at taking dividends or bonuses prior to 7th January so that they do not affect your Child Benefit claim for the current tax year.

For further information and advice about how these changes affect you please do not hesitate to contact a member of Burton Sweet’s tax department.

To find out more about Burton Sweet please visit: http://www.burton-sweet.co.uk/

Burton Sweet column: Research and Development

burton sweet21 Burton Sweet column: Research and DevelopmentBurton Sweet’s Rachel Finch discusses Research and Development in her latest column exclusive to the Weston & North Somerset Echo.

Research and Development (R&D) is a government scheme offering very substantial tax reliefs for advances in science and technology.

The relief only applies to companies and not sole traders or partnerships, however, it is not just for scientists and large pioneering companies at the forefront of modern technology.

Research and development has a much broader definition and is more encompassing than many people think. As a result many companies may qualifying under the scheme who did not expect to do so.

Do you qualify

If you’re developing new or improving existing products, processes, services or systems, then it is possible you will qualify for R&D relief.

The pre determining factor for R&D relief is whether the business carries out activities which include:

• Seeking to resolve scientific/technological uncertainties
• Seeking to make scientific/technological advancements

Therefore the question one needs to ask is “does this project or business activity seek to achieve an advance in science or technology” and “does this activity directly contribute to resolving scientific or technological uncertainty”?

Resolving technological uncertainty?

If the answer to both of these questions is “yes” you could qualify under the scheme.

R&D activities are not confined to companies in the technology sector. Construction, pharmaceutical, manufacturing, engineering, automotive and software are all examples of industries which qualify under the scheme.

There are many more, however, there are also a number of industries which do not qualify so this must be checked before any claim can be made.

Financial year

You have up to two years after the financial year end to submit R&D tax relief claims, therefore, after reading this you may find that you can make an amendment in a prior year to take advantage of R&D relief and obtain some tax reliefs.

The rates of relief are:

• 225% of the qualifying R&D costs may be claimed, as a tax deduction by SMEs, for expenditure incurred on or after 1 April 2012 (200% for expenditure incurred in the previous fiscal year)
• 130% of qualifying costs for large companies

In addition, SME’s (500 or fewer staff, turnover less than €100m and a balance sheet value of €86m) may choose to claim a tax rebate instead of carrying forwards large losses to aid their cash flow.

If a company chooses this option they will be entitled to claim 25% of the qualifying costs of R&D as a tax rebate. This is particularly relevant in the current economic climate.

Making a claim

In making a claim for R&D you will be able to claim eligible staff costs, materials, and even subcontracted work, there are extensive rules to help determine whether a cost is allowable and professional advice is recommended to ensure that you maximise any claim.

Burton Sweet have a specialist tax advisory team with extensive experience of R&D relief and strong relationships with key members of HMRC’s R&D division.

We can help at every step of the way providing as much guidance and legislative evidence as is required by you in achieving a successful claim.

To find out more about Burton Sweet please visit: www.burtonsweet.co.uk

 

Care home fees under the microscope

burton sweet21 Care home fees under the microscope

Burton Sweet’s Rachel Finch puts the hot topic of care home fees under the microscope.

As the general population’s life expectancy is increasing, so too are the demands on the state to provide continuing health care and support for our aging nation.

There have been lengthy debates and protests against the current situation, where the individual is required to pay for the full cost of their care home fees if their accumulated capital wealth is above £23,250 (this includes the value of the family home, bank balances and any other worldwide assets).

Age Concern lobbying

It is hoped by lobbyist groups, including Age Concern that this threshold will be increased to £100,000 to allow individuals to provide for their loved ones once they have passed.

Local Authorities use means rated tests to determine whether an individual should pay. But any individual who owns a property will inevitably fall into the category of people who will be required to pay at the full rate.

Fortunately for some families, the immediate charge can be avoided if one of the following applies:

• A family member >60 years of age is living in the property
• A family member with dependent children is living in the property
• Your spouse or partner is living in the property

Common misconception

A common misconception is that gifting an asset releases it from the estate (for Inheritance Tax purposes, and care home fees). The reality is that if the individual gifting the asset retains a benefit from it (ie remains living in a gifted property) they must pay current market rent to the new owner; otherwise it remains within the charge to Inheritance tax.

This however does not necessarily remove it from the individual’s capital assets as determined by the local authority, who seek to include all capital assets, gifted or otherwise, that are done so specifically for the avoidance of care home fees.

There must therefore be genuine reasons for gifting an asset for it to remain outside the scope of the local authority to pay for care home fees.

When considering the possibility of providing for care home fees, one should consider the bigger picture and evaluate whether perhaps there is more reason to plan for Inheritance Tax over care home fees; Often planning for one means accepting liability to the other.

Inheritance tax planning

If you have a substantial estate, it may be more beneficial to think about Inheritance Tax planning instead, as there is a 40% tax charge on worldwide assets over the Nil Rate Band (£325,000).

One thing that everyone must consider is the morbid fact that death is a certainty, unlike the requirement for a care home which is not, in fact; only approximately 20% of the population will require the facilities of a care home at some point in their life.

For couples, a planning opportunity is to set up a will trust so that on the first death, the 50% share is held in trust rather than passing to the surviving spouse, who, would otherwise be assessed on the full value of the property should a care home be required.

Instead, the property is accepted as having no value to a third party as 50% is already owned by the trust.

There is argument that it is otherwise unfair on current taxpayers to provide the cost of care home fees, however, for the time being whilst the capital assets de minimis limit remains so low, it is essential for individuals to consider the possibility of requiring the facilities of a care home and the effect it will have on loved ones and your estate.

Specialist planning division

Burton Sweet have a specialist Trust and Estate planning division who will be happy to go over these points in specific detail to ensure that all aspects of bloodline planning have been considered and to minimise the impact of having to provide for care home fees should it be required.

For more information about Burton Sweet visit: www.burtonsweet.co.uk

The Burton Sweet column

burton sweet21 The Burton Sweet columnBurton Sweet’s Rachel Finch highlights how you can minimise the threat of fraud within your business.

Fraud can be one of the biggest worries when running a business. From embezzlement through to people stealing stock, stationery, few businesses are immune to the risk.

All businesses need to be on the alert for fraud, particularly during recession, where history shows that rates increase. It is actually estimated that fraud costs UK businesses as much as £5 billion a year!

It is therefore important that all business owners review the potential threats to their business, both internally and externally and put plans to place to minimise their exposure. Here are my top tips to businesses to minimise the risk of fraud:

Internal Controls

Effective internal controls can drastically reduce the risk of fraud in your business – but each control will have an administrative cost. You need to evaluate the time and cost of each control against the perceived risk of fraud.

However, the following measures are relatively inexpensive and effective controls all businesses should use:

∙ Separate key duties – wherever possible separate or rotate duties amongst several key employees. Having the same person in charge of more than one procedure, such as placing orders, running credit checks, delivering goods etc, is tantamount to inviting fraud.

∙ Purchase and payment authorisation – decide on a reasonable figure and ensure that single transactions above that amount require additional authorisation, either from you or a trusted senior employee.

∙ Compare actual to budget expenditure – the most frequent fraudulent transaction takes part via expense accounts. By comparing budget to actual expenditure by employees you can review discrepancies and identify any inappropriate transactions.

Stock and Equipment

Pilfering and theft are very common in most areas of business. Theft of small tools or items by employees for personal use or resale can add up to large losses for your business.

If questioned about stock he or she might claim it is damaged, used up, or being stored offsite.

To prevent this remove keys from unattended equipment and put alarms on major pieces of equipment. Have an inventory for all items of stock and stationery – which is reviewed regularly. Light all storage areas, limit the number of entrances to the site and consider cameras or CCTV.

Purchasing and Payroll

The department responsible for paying out money also offers opportunities for fraud. For example, an employee might invent a non-existent supplier and pay phoney invoices for an account that is basically his or her own.

An employee running the Payroll may use his or her bank account to credit other employee’s wages.

To prevent these kinds of fraud check selected invoices for signs of doctoring, check supplier invoices for unusual amounts, pricing or volumes, and keep an eye of payroll cheque distribution and monitor unclaimed cheques.

Also review bank account details for any Payroll payments made via BACS or direct credit.

Cultivate honesty and ethics

Put an ethics statement in your staff handbook and tell employees you expect them to adhere to it. Encourage employees to communicate with you when they see something suspicious.

Let your staff know you will check computers and files. If you have suspicions keep checking on employees – if it bothers them, ask why.

Purchase employee theft insurance

Most businesses don’t cover the theft of money and securities unless you purchase a special crime policy. A special employee theft policy can cover you both inside and outside the office.

Identity Fraud

This is an ever increasing, well publicised, problem in the UK. Businesses can help protect themselves by putting in place the following procedures:

∙ Storing sensitive documents in a secure place and shredding before disposal
∙ Limiting access to sensitive information to yourself or trusted key employees
∙ Checking customers credentials before extending credit to them
∙ Keeping key bank account details out of the public domain
∙ Ensuring firewall and anti-virus software is up to date

Whilst the risk of fraud cannot be fully stamped out, all businesses, no matter how small, can and should take steps to reduce their exposure. Taking these steps will benefit not only the owner, but also the employees and the customers, as you will be reducing the risk of your business failing.

Rachel Finch is the Tax Advisory Partner at Burton Sweet Chartered Accountants and Business Advisors. She specialises in providing advice to business owners and individuals on a wide range of issues from Income Tax and Corporate Tax through to International Tax and Corporate restructuring.

To find out more about Burton Sweet visit: http://www.burtonsweet.co.uk or call them on: 0844 225 0750

Burton Sweet’s Rachel Finch reviews recent tax changes

burton sweet21 Burton Sweets Rachel Finch reviews recent tax changes‘May you live in interesting times’ goes the ancient Chinese curse, and as far as tax is concerned, we live in very interesting times indeed. Tax today is a minefield, with changes taking place part-way through a year and announced one, two, or even sometimes three years ahead.

As the new 2012/13 tax year starts on Friday I thought that it would useful for readers to summarise some of the changes which may affect you or your business in the coming year:

Personal Taxes

• Personal Allowance – The basic personal allowance has been increased to £8,105, and then increases to £9,205 from April 2013 as part of the coalition Government moving towards its target of personal allowances of £10,000. This is good news for low and middle income earners.

• Higher Rate Tax Threshold – However, the threshold at which you pay Higher Rate Tax will be coming down, the overall affect is that the point at which you start to pay Higher Rate Tax (£42,475) is the same for 2012/13 as it was for 2011/2012.

• Child Benefit – One very important change that is being implemented later in the year is the phased withdrawal of Child Benefit for people earning over £50,000. The changes come into effect from 7 January 2013. Child Benefit is still be received by households, however it will need to be declared on your Tax Return and ‘repaid’ with your tax liability.

• Furnished Holiday Let’s (FHL’s) – From 6 April for a property to still qualify as a Furnished Holiday Let it must be available to be let 210 days of the year (increased from 140 days) and actually let 105 days of the year (up from 70 days).

• Tax Credits – The secondary threshold for Tax Credits is being removed, this means that the ‘Family Element’ which households with children under 16, and which earned under £40,000, received in full will now be abated with the rest of the Tax Credits. This will have a significant impact on a low income families.

• Non-Domiciled UK Remittance Basis Tax Charge – The tax charge for non-domiciled individuals, who wish to use the remittance basis for their foreign income, has been increased for long-term residents who have been here for 12 of the last 14 tax years – from £30,000 to £50,000.

• Inheritance Tax – The threshold remains fixed at £325,000 per person.

• Capital Gains Tax – The threshold is not being increased, and will remain at £10,600 per person for the 2012/13 tax year.
Business Taxes

• Corporation Tax – The main rate of Corporation Tax has been reduced from the 1st of April 2012 from 26% to 24%. This then falls to 23% in April 2013, and 22% in April 2014. The small profits rate (which is paid on profits under £300,000) remains at 20%.

• Enterprise Investment Scheme (EIS) – Changes have been made to the EIS Scheme, making it available to larger companies. This scheme is aimed at trading companies and offers investors generous Income Tax and Capital Gains Tax reliefs for purchasing new shares in those companies. Increasing the size of company that can qualify should make these investments less risky, however please seek advice from a qualified IFA before making any such investment.

• Seed Investment Scheme (SEIS) – This is a new tax relief which has been introduced this year. This scheme offers an investor a very generous 50% Income Tax relief on qualifying investments and is aimed at new and growing companies. These companies will be very high risk, again you should take financial advice before making any investment.

• Research and Development Tax Credits – From 1st April the rate of relief was increased from 200% to 225% for qualifying expenditure. This means that a business can receive Corporation Tax Relief at a rate of £2.25 for every £1 spent on qualifying R&D.

• Capital Allowances – These allowances are effectively HMRC’s rates of ‘tax approved’ depreciation for businesses. The Annual Investment Allowance, for which businesses can write-off 100% of the cost of qualifying business assets, has been reduced from £100,000 to £25,000.

Writing down and Special rate pool allowances have also been reduced – which is partly to pay for the reduction in Corporation Tax rates.

• VAT – The turnover threshold for registering for VAT will increase to £77,000.

Rachel Finch is the Tax Advisory Partner at Burton Sweet Chartered Accountants and Business Advisors. She specialises in providing advice to business owners and individuals on a wide range of issues from Income Tax and Corporate Tax through to International Tax and Corporate restructuring.

To find out more about Burton Sweet visit: http://www.burtonsweet.co.uk or call them on: 0844 225 0750

How much is your business worth – science or black magic?

burton sweet21 How much is your business worth   science or black magic?If you have a business, have you ever thought how much it might be worth?

Every homeowner will probably have a rough idea of the value of their home, but as the details of the sale and purchase of small businesses are rarely if ever made public, and as every business is unique, it’s much harder to establish even a ballpark figure for what any small business might be worth.

Large companies, whose shares are publicly traded on the stock exchange, are different, but in this article we’ll only be looking at small businesses.

The simple answer to the question ’how much is my business worth?’ is – ‘whatever someone else is willing to pay for it’! An original piece of art might be worth millions of pounds, but only because that’s how much a collector would be prepared to pay for it.

When I value a business, I put myself in the position of a hypothetical purchaser of the business, and consider how much I might be prepared to pay for it, on the open market. To value the business, I need to understand where the profit comes from, how much profit there really is, and what valuable assets the business holds, all of which will help me understand what value there may be to a potential purchaser.

Assets and liabilities

A good starting point when valuing a business is its balance sheet. This is a snapshot of the assets and liabilities held by the business on a specific date – cash, debts, plant and machinery, and so on. Any business will in principle be worth at least the value of its balance sheet.

However, if a business is sold as a going concern in most cases it will be worth more than its balance sheet value. To understand why, it’s important to realise that when it comes to businesses, there is really only one reason why someone would want to buy a small business, and that is to enjoy the profit it will make in the future.

Accountants refer to this estimate of future profitability as ‘goodwill’. Any value we place on goodwill is highly subjective, because we clearly cannot know what profit a business will make in the future. We do, however, know what profit it has made in the past, because this is recorded in its accounts.

Taking past profit as a guide to future profitability, the value of goodwill is normally calculated as a multiple of past profits. To look at it another way, when calculating goodwill we are considering how many years a potential purchaser might have to wait before the business has given him enough profit to cover his original investment.

Public companies

With public companies, this price-earnings ratio might be very high, but for small business where the risk of failure is much more significant, a goodwill value of three to five times annual profit might be more realistic.

It’s important to bear in mind, though, that many other factors can influence the value we put on goodwill – for example, the accounts may contain one off expenses or income sources which will not be repeated again in the future, these need to be stripped out to identify the underlying profit position of the business.

Just as every business is unique, the circumstances in which each business is valued are unique. It is not always a case of businesses being bought and sold. A valuation may be needed by a couple who are separating or divorcing and dividing their assets, including a business; it may be needed for probate purposes if the business owner has died; or it may be needed if a sole trader or partnership have decided for tax reasons to incorporate, and sell their business to a company they themselves own.

And sometimes, people who own businesses just want to know what they’re worth.

For more information please visit: http://www.burtonsweet.co.uk/

The End Is Nigh….. So Plan Now! Burton Sweet’s latest column

burton sweet21 The End Is Nigh….. So Plan Now! Burton Sweets latest columnWith the end of the tax year on 5 April rapidly approaching, now is an excellent time to be making sure your personal and business affairs are structured in a tax efficient way ready for the new tax year, and that this year’s allowances has been used. Here are our top ten tax tips….

1. Use your ISA allowance – An ISA is a tax free wrapper for your investments. You can invest up to £10,680 in the current tax year and you can hold a mixture of cash and shares. No more than £5,340 can be in cash. Interest and all income and capital gains on shares held in your ISA are tax free. So use this year’s allowance while you still can.

2. If you are a higher rate taxpayer, then you can contribute up to £50,000 per year into your pension fund. In addition if you invested under £50,000 in the previous 3 tax years you may be able to contribute even more. Speak to your IFA for more details.

3. If you have a business, consider your capital expenditure. The Annual Investment Allowance, which gives tax relief for expenditure on large, capital items such as plant and machinery, is being cut from £100,000 to £25,000 at the end of this tax year (or 1 April, for companies). If you are considering buying capital items, timing is crucial!

4. On a similar note, Enhanced Capital Allowances are available for certain items of energy efficient and water efficient plant and machinery. ECA’s give 100% relief for qualifying purchases, however these reliefs are only available for items on the lists published at etl.decc.gov.uk/etl and wtl.defra.gov.uk. Therefore, if your business is planning on buying items such as boilers or air-conditioning make sure you check the lists as a little research could save you tax!

5. If you are thinking of buying a new car through your business, consider buying a low emissions car. Cars will emissions of no more than 110g of carbon dioxide per kilometre qualify for favourable tax treatment, for both you and your business. You can check the emissions of any car before you buy at carfueldata.direct.gov.uk.

6. If you are married, then make sure you and your spouse hold assets which produce income, such as shares and rental properties, in the most tax efficient way. If you pay higher rate tax and your spouse pays basic rate tax or no tax at all, then considering giving him or her some of your income producing assets will reduce your combined tax bill. It’s important to think as a family.

7. If you have a large Income Tax liability for the current year, or if you have made a significant Capital Gain, then you might want to consider buying shares in an Enterprise Investment Scheme (EIS) company. A qualifying investment will give you 30% Income Tax Relief and you can defer all or part of a Capital Gain made between 12 months before and 3 years after the investment. Bear in mind that such investments are potentially high risk and you should take Independent financial advice from a qualified IFA before making this type of investment.

8. Use your Capital Gains Tax annual exemption. You may make gains – profit on the sale of capital assets such as shares– of up to £10,600 this year tax free. Also, remember that both you and your spouse have an allowance, so that it a potential tax free amount of £21,200!

9. Use your inheritance tax annual exemption. You may give away – for example, to your children or grandchildren – capital assets worth up to £3,000 per year without triggering an inheritance tax liability. With inheritance tax at 40%, this will save your estate £1,200 for each year you use your exemption.

10. Finally, if your estate is likely to pay inheritance tax and you have more income than you need, you can reduce the scale of the problem by making gifts out of surplus income. This does not use up your annual exemption and you can give away as much income as you do not need to live on.

If you’d like to talk about year-end tax planning, or if you would like to receive a copy of our Year End Tax Planning Strategies brochure, then please call me on 01452 305651 or email me at rachel.finch@burton-sweet.co.uk.

Latest article from Burton Sweet’s Rachel Finch

burton sweet21 Latest article from Burton Sweets Rachel FinchChanges to the tax system in April next year will affect owners of Furnished Holiday Let properties in the UK and the European Economic Area.

The new rules, which will come into effect on 6 April 2012, will make it harder to qualify for the tax advantages furnished holiday lettings currently enjoy.

There have been two significant changes announced so far:

1. If you make a loss in the year on a qualifying property it can be offset against your other income, potentially giving rise to a tax refund. New legislation will mean that losses may only be used against profits made by other furnished holiday let properties.

This changes means that if only have 1 qualifying property, or if you make a bigger overall loss than you make a profit then the balance of the loss is just carried forward, you do not get relief against your other Income Tax.

2. A furnished holiday let property is any property in the UK or elsewhere in the European Economic Area (EEA) which is commercially let and meets certain letting criteria, which are also set to change.

From 6 April, the number days in a tax year for which the property must be available for letting to third parties to qualify as a furnished holiday let will increase from 140 days to 210 days. Secondly, the number of days for which the property must actually be let will increase from 70 days to 105 days.

These changes mean that properties in areas with short seasons which had previously qualified for furnished holiday let treatment may no longer qualify for beneficial tax treatment.

At the moment there is no word on whether the favourable Capital Gains Tax treatment of Furnished Holiday Lettings will also change in April, these include:

1. Provided that you have held the property for over 12 months, that you own over 5% of it, and that it meets the Furnished Holiday Letting criteria, then the property may qualify for Capital Gains Tax Entrepreneur’s Relief. This means that if the property is sold the rate of Capital Gains Tax payable could be reduced from 28% down to just 10%.

2. Currently, Furnished Holiday Lets qualify for certain Capital Gains Tax Reliefs, such as ‘Business Asset Roll-Over Relief’, this means that if you sale a qualifying property and reinvest the sale proceeds within 3 years in certain other business assets, you may be able to defer payment of Capital Gains Tax until you dispose of those new assets.

Further details of the changes are expected in the March 2012 Budget.

If you have a furnished holiday let property and are unsure how the changes may affect you, please contact Rachel Finch, Tax Advisory Partner at Burton Sweet, on 01452 305651 or Rachel@burton-sweet.co.uk

Burton Sweet’s Rachel Finch reviews the Autumn statement

burton sweet21 Burton Sweets Rachel Finch reviews the Autumn statement The Chancellor of the Exchequer George Osborne delivered a mixed bag in his Autumn Statement on the nation’s finances.

The review of the economy and the economic predictions made depressing listening and whilst there was good news for businesses, investors and motorists, there was bad news for public sector workers and tax credit claimants.

So what did he announce and how does it affect you? Below is a summary of the main points of his speech:

Pay, Pensions, Taxes & Allowances

• The Chancellor plans to cap increases to public sector pay to 1% per year over the next two years.
• The government’s Office for Budget Responsibility (OBR) has also increased its estimate of public sector job cuts, from 400,000 to more than 700,000.
• The unemployed will however benefit from an increase to state benefits of 5.2%, in line with inflation, from April next year.
• Personal allowance will be increased, with the intention of bringing up to a million people out of paying tax altogether.
• Tax credits will increase, however the increase will below inflation. In addition, the proposed increase in the child element of the child tax credit has been scrapped.
• The basic state pension will rise by £5.35 from next April up to £107.45
• However, young people will have to wait longer to get their pension, with the increase in the state pension age from 66 to 67 being brought forward to 2026. It is anticipated that this change will save £59bn.
• There was good news for motorists as the increase to fuel duty planned for January was cancelled, and August’s increase will be limited to 2p.

Housing

• The Right to Buy scheme for council house tenants is to be reintroduced. Tenants will be offered a 50% discount on the Market Value of their property, with the money raised being used to build new homes to stimulate the construction industry.
• A £400m scheme will be introduced to jump start stalled construction projects in England.
• The Government will underwrite mortgages for 100,000 young families trying to get on the property ladder.

Business

• Businesses may also benefit from the changes the Chancellor announced, with business rate holiday being extended to 2013.
• A proposed reform of employment law may make it easier for businesses to hire and fire staff
• The new National Loan Guarantee Scheme is intended to cut the costs of borrowing for small businesses by up to 1%.
• The Chancellor confirmed that the Main Rate of Corporation Tax will be cut from 1st April down to 25%.
• A £1bn youth contract will subsidise six-month work placements for 410,000 young people

Local Impact

• The Chancellor’s list of planned infrastructure projects includes the construction of a new ring road to the south of Bristol, which should create more jobs.
• Families in the South West will have their water bills cut by £50

The Economy

The Chancellor’s announcements come against the backdrop of falling growth, with the OECD predicting Britain will fall back into recession. The OBR disagrees, but has drastically cut its predictions for growth in the nation’s economy from 1.7% in 2011 to a mere 0.9%. Next year is worse, with expectations of growth cut from 2.5 to only 0.7%.

The Chancellor blamed current poor expectations of growth on the previous government, saying that it was now clear that the boom had been even bigger than previously thought, and the bust would be even deeper.

He was forced to admit that public sector borrowing is not falling fast enough, and that the Government will not meet its target of balancing the nation’s books, and eliminating the structural deficit, by the end of this Parliament. Government borrowing will actually be £112bn higher than expected over the next four years, with debt peaking at 78% of gross domestic product (GDP) in 2014.

One thing is for certain – Britain’s economic growth will depend at least as much on what happens in the Eurozone as on what the Chancellor does.

Rachel Finch is the Tax Advisory Partner at Burton Sweet Chartered Accountants and Business Advisors. She specialises in providing advice to business owners and individuals on a wide range of issues from Income Tax and Corporate Tax through to International Tax and Corporate restructuring.

To find out more about Burton Sweet visit: http://www.burtonsweet.co.uk or call them on: 0844 225 0750

Latest article from Burton Sweet’s Rachel Finch.

burton sweet2 Latest article from Burton Sweets Rachel Finch.

Choosing the right business structure

One of the most important questions that every business owner should ask themselves is ‘am I in the right business structure?’ Too many people choose the wrong structure from the start, or simply do not review the situation as their business grows. What was right on day one is rarely right 10 years down the line.

There are 3 main alternatives which you need to consider, at the start and at regular intervals thereafter. Should you be a sole trader? Operate as a partnership? Or is a limited company the right choice for you?

In choosing the best business structure, commercial and family considerations must be weighed up alongside the comparative tax positions. The best structure for you and your business may not necessarily be the most tax efficient.

Sole Trader
Running your business as a sole trader offers the simplest legal structure and often the most flexible. Accounts and record keeping are relatively straightforward, and your profits are declared annually on your tax return. After paying your tax and National Insurance the money left is yours to spend freely. If you decide to stop trading you simply notify HM Revenue and Customs and complete a final tax return.

However, as a Sole Trader you are liable for all debts of the business to the full extent of your personal assets, leaving potential exposure to bankruptcy if things go wrong.

Partnerships
Partnerships share the burden of ownership, allowing two or more people to set up in business together. They are run in a very similar way to sole traders, the main difference being that profits and losses are shared between the partners in an agreed ratio. Again, after the partners pay their individual tax and National Insurance liabilities the profits left over are theirs to spend as they wish.

As with Sole Traders, the partners are liable for all debts of the business to the full extent of personal assets, if things go wrong.

Limited Company
The third option, and one which, in my experience, too many business owners choose without being aware of the pitfalls as well as the benefits, is a Limited Company.

A limited company is a separate legal entity from its owners, and provides limited liability for its shareholders. This means that, in the majority of cases, the private assets of the owners are protected in the event that the company were to fail, which is not the case with sole traders or partnerships. However, lenders and landlords can sometimes ask for personal guarantees in respect of the company’s obligations which can reduce the benefits of this.

Limited Companies are often perceived as being more tax efficient, however if you need to draw out all of the profit that the business makes to cover your personal living expenses then this is not necessarily the case.

There are major compliance requirements with running a limited company – accounts must be filed at Companies House which means they are freely available for the public to see, and the costs of running a company are far greater than a sole trader or partnership.

The best advice I can give is to review the structure that you trade through on a regular basis to make sure that it is the best one for you. Tax should not be the main factor in the decision that you make, the commercial realities of your business and your need for access to the profits should always be considered in priority.

Rachel Finch is the Tax Advisory Partner at Burton Sweet Chartered Accountants and Business Advisors. She specialises in providing advice to business owners and individuals on a wide range of issues from Income Tax and Corporate Tax through to International Tax and Corporate restructuring.

To find out more about Burton Sweet visit: http://www.burtonsweet.co.uk or call them on: 0844 225 0750