Steven Mugglestone

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Call Paddy Power it’s McGregors 2012 Budget Predictions:

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Call Paddy Power it’s McGregors 2012 Budget Predictions

We have already given our top tax tips for 2012, without moving to Switzerland as well as reminding everyone of the tax increases for 2012 already on the books, but now we are on a run up to the budget for March 2012.  So if you are betting people, please feel free to see what odds you can get on our predictions below.

According to the press, this Budget will focus on growth and supporting and directing the British business world into pulling the UK away from a double dip recession.  The budget will also be in the international spotlight from the likes of Moody’s, Fitch and Standard and Poor’s, those organisations that most people have never heard of until the news discusses state credit ratings and a focus on the UK retaining our AAA credit rating.

In the main, all the tax rates for 2012/13 have been set. The reduction in corporation tax for large companies continues to 25% from April 2012 whilst income tax rates show no sign of doing the same. As the news now reports, the Government considers that the 50% tax rate to be temporary, but there are no intentions to reduce this any time soon.

There may be targeted but small tax breaks for the most vulnerable sections of society including families on low incomes and the elderly but there will be a continued focus on anti-avoidance measures including a clampdown on stamp duty land tax avoidance.

For those who have undertaken any tax avoidance strategies
Our advice is always to engage the support of an established firm of chartered accountants for all tax advice, but if you have undertaken any scheme etc., talk to us or other firms that will support you in any of these areas.  We have seen a proliferation of tax boutiques and brokers “selling” tax avoidance structures, over a number of years, who then walk away from any future support once they have earned their commissions from the sale.  If you have been sold any of these structures by brokers and tax boutiques, our advice is to talk to us and we will help and support you in your future discussions with HMRC.

From what we know so far, our key observations, predictions and advice, therefore, to SME and owner managed businesses, based on what has largely already been leaked and/or discussed about the budget is as follows:

Look at your capital requirements NOW and consider accelerating expenditure to March 2012
Capital Allowances are also set to reduce – the Annual Investment Allowance (AIA) will decrease from £100K to £25K from April and annual writing down allowances will reduce by 2% across the board. There have been calls to retain the AIA at the current level as we would not be surprised if there was a stay of execution – perhaps a deferral for a further 12 months.

Do not miss out on R&D tax relief
We have said this on numerous occasions, and pointed out that 75% of Accountants do not claim enough legitimate tax relief or their clients, contact us and/or review what you do in respect of research and development.  The definition is wider than you think and there is significant tax savings to be obtained.  R&D relief will increase again from April 2012 to 225%. The Government is keen to encourage the generation and retention of intellectual property in the UK and we expect this theme to continue. The Patent Box (10% tax rate for IP profits) is due to be introduced from April 2013 and this will complement the R&D regime, but we don’t expect any further changes to be announced in this area at the moment.

Competitive UK Plc
The Government will want to continue making the UK an attractive place to do business and in order to do that it has already set out a corporate tax road map around controlled foreign companies and the patent box regime. The Chancellor will reiterate these changes but may announce minor tweaks in response to consultation.

EIS will be a good, and perhaps an easier alternative to bank finance
There will be a relaxation in the criteria around Enterprise Investment Schemes (EIS) and the introduction of SEIS (a similar scheme aimed specifically at start-ups and seed capital) – all of which is designed to help businesses raise finance. We may see announcements around simplifying the processes around EIS.

Pension Tax Relief
There is speculation that the Government will limit pension tax relief to the basic rate of 20% in the March Budget, so it is advisable to take advantage of the rule that allows individuals to receive any tax relief which hadn’t been claimed in the previous four years.

This rumour, however, has appeared before many of the last budgets. This time, however, it appears to have more support from the Liberal Democrats.  If this change occurs it will affect the pension contributions of higher earners to help pay towards lifting everyone earning under £10,000 out of tax. The controversial plans could lead to a potential saving for the Exchequer of billions of pounds. For higher earners, this move will feel like a tax rise as when paying the top rate of tax you can claim relief of up to 50 per cent on your pension contributions.

Higher Rate Tax Payers – 50% tax
There is currently no report on the money raised by the 50% tax rate but the Government know that they cannot remove it while public sector workers are undergoing a pay squeeze. It is likely to stay the course of the parliament.

Personal Allowances
There will be reaffirmation for the coalition to raise the personal allowance to £10,000 by April 2015. Although there are suggestions of a more rapid rise, this is unlikely to feature as the cost of implementing it is so high.

Mansion Tax
It is envisaged the Government will rule out the creation of two new top-level council tax bands or a ‘mansion tax’. The Liberal Democrats believe installing this measure would enable the Treasury to raise the income tax threshold to £10,000 but Conservative ministers oppose the measure as it breaches the Tory manifesto commitment not to revalue homes for council tax.

Stamp Duty Land Tax
There has also been a great deal of publicity about stamp duty avoidance and it is commonly reported throughout the press. There was an expectation for the Government to act in the Autumn statement so it would be a surprise if did not provide clarity and close the perceived existing loopholes in March.

Statutory Residency Test
As already announced, the statutory test of residence will be deferred until 2013 but there may be a commitment to press ahead with establishing the test. It is understood that the Government is already refining visa and passport rules to encourage wealthy non-domiciled individuals to invest in UK businesses.

Support for Green Initiatives
There will be a balance for drivers and green lobbyists.  The fuel duty escalator will be frozen for the time being as a help for motorists. There has already been a green investment fund established for recycling projects and there is likely to be an update on the Green Investment Bank, either hearing of the first projects it will support or a projected timeline for the projects commencing

Tax Avoidance Clampdown
Following the Barclays bank story, and applying legislative changes retrospectively, the Chancellor will mention tax avoidance and the need to close down loopholes, especially focusing on higher rate tax payers and large corporates. It is anticipated that the Government will look to adopt general anti-avoidance rules (GAAR) along the lines outlined in the recent independent report by Graham Aaronson QC.

Luxury VAT Rate
The Government may impose a rate of VAT at 25% for luxury items.  This will not go down well with wealthy individuals and those that wish to purchase luxury items, especially those who are also caught by the top rate of tax.

Longer term predictions
After the March budget and longer term, there is an expectation that the Budget will contain announcements on changes which will come into effect from April 2013. We know that entrepreneurs have had a hard time over the last couple of years and we do not expect many changes to be announced this time round. The announcements are likely to will focus around encouraging investment and innovation. We work with new developments and young start-up technology businesses and we welcome this.  Our predictions for entrepreneurs are:

  • More investment in combating tax leakage from the system – both in the form of more targeted campaigns but also with the introduction of a GAAR (General Anti-Avoidance Rule)
  • Continued support and development of R&D tax credits
  • Further announcements in connection with Enterprise Zones – including the announcement of new zones.
  • Relaxation of the rules around NIC holidays, opening up the scheme to more entrepreneurs as a way of encouraging them to take on additional staff.

These are our predictions.  If you do go an put a bet on them with Paddy Power or any of the turf accountants, you do so at your own risk as we do not really have psychic powers and could well be wrong on many of the counts above.

If you do wish to consider any of these areas in more detail, do not hesitate to contact us and we can help.

Steven Mugglestone BA FCA,
Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business

steven@mcgregorsbirmingham.co.uk

steven@mcgregorsleicester.co.uk

McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.

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Written by Steven Mugglestone

March 8, 2012 at 5:58 pm

Tax increases for 2012 already on the books, a brief reminder:

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Tax increases for 2012 already on the books, a brief reminder

I am sure that we will have a go at making some predictions for the 2012 budget, as most accountants do, as most of the changes will get leaked well before the budget.  We will not, however, try and make comments on the economy, as most tax accountants try to do, despite them neither having qualifications in economics, nor having actually managed or run a business.  We will stick to reporting the facts and this, accordingly, is a reminder of the tax increases or increased powers of HMRC to raise penalties and fines etc., that have already been put in place and will be implemented post April 2012, despite what may or may not be announced in the March 2012 budget speech.

This is perhaps the opposite and balances out our article, “Top Tax Tips for 2012, without moving to Switzerland.” http://wp.me/pQyUg-7H.

HMRC increase and strengthen penalty regime

See, “HMRC seeking 100% penalties for late Tax Returns, resistance is useless & the world recession is not an excuse for having no money” http://wp.me/pQyUg-6H

HMRC powers to prevent deliberate non-payment of PAYE
From 6 April 2012, HMRC will hold additional powers enabling it to ask employers to pay a security where there is serious risk that they will not pay their Pay As You Earn (PAYE) tax deductions or Class 1 National Insurance contributions (NICs).  This will not affect employers who pay their tax on time and in full, and it will not be used for employers who are having genuine problems settling their liabilities.

HMRC has confirmed that it will only use this power to tackle employers who deliberately try to defraud the Government, and will calculate the amount of the security on a case by case basis depending on the amount of tax at risk, the previous behaviour of the employer and other risk factors.  The required security will usually be either a cash deposit from the business or director or a bond from an approved financial institution which is payable on demand.

Daily penalties increased to up to £1,000
Finance Act 2011 introduced legislation, effective from 1 April 2012, to increase daily penalties for failures to comply with a written request for information from HM Revenue & Customs (HMRC) or deliberate obstruction of an officer of HMRC in the course of an inspection.

Currently, a flat-rate penalty of up to £300 may be applied for failure to comply with an information notice, or deliberate obstruction. Additional daily penalties, of up to £60, may also be imposed if the failure persists.  With effect from 1 April 2012, however, where the failure continues for more than 30 days from the date on which the information notice was issued and if it is believed that the current £60 daily penalties will be insufficient to encourage compliance, HMRC will be able to apply to the tribunal for increased daily penalties of up to £1,000 to be imposed.

Where the increased penalties apply, HMRC must issue notice of the amounts imposed, and the date from which they apply.

Capital allowance amounts falling
Rates of writing down allowances will be reduced, with effect from 6 April 2012 for unincorporated businesses and from 1 April 2012 for companies, as follows:

  • Main rate pool will be reduced from 20% to 18% per annum
  • Special rate pool will be reduced from 10% to eight per cent per annum

Where a chargeable period straddles 6 April 2012 for unincorporated businesses and 1 April 2012 for companies a pro-rated hybrid rate should be used.  Reducing the rates of writing down allowances will mean that businesses continue to receive full tax relief to reflect the depreciation of plant and machinery assets, but over an extended timeframe.

The annual investment allowance (AIA) will also decrease from £100,000 to £25,000 from 1 April 2012 for companies and 6 April 2012 for unincorporated businesses, with the rules for periods straddling 1/6 April 2012 involving apportioning the AIA on a pro-rata basis including limiting expenditure after 1/6 April 2012 to £25,000, appropriately time-apportioned. Consideration should be given to the timing of any capital expenditure during the period which straddles the change, and it may be advantageous in some cases to amend an accounting period in order to secure the maximum AIA available.  These measures were included in Finance Act 2011.

Short life asset lives doubled (perhaps positive with a sting in the tail)
The 2011 Budget included the announcement that the period to which a short life asset election applies is to be doubled, increasing from four to eight years.

This change will allow businesses to allocate assets which they expect to sell or scrap within eight years (rather than four) to a single asset pool, and ensure that the capital allowances available to them over this period will be equal to the net cost of the asset.

Although this appears to be a positive step and may provide a cash flow benefit to businesses, the additional record keeping required by allocating each relevant asset to a single asset pool is likely to create a significant administrative burden and cost.  Many businesses, therefore, may choose not to make the voluntary election.  This measure was included in Finance Act 2011 and applies to expenditure incurred on or after 1 April 2011 for the purpose of corporation tax, and 6 April 2011 for the purpose of income tax.

Landfill tax rates increasing
Legislation was introduced in Finance Act 2011 to increase the standard rate of landfill tax by £8 per tonne to £64 per tonne for disposals made, or treated as made, to landfill on or after 1 April 2012.

The Government had previously confirmed that the standard rate would rise by £8 per tonne on 1 April each year up to and including 2014. Also, that it will not fall below £80 per tonne from 2014/15 to 2019/20.  A lower rate of landfill tax applies to less polluting wastes listed in a Treasury Order. The rate is currently £2.50 a tonne and this rate will remain frozen in 2012/13.

Keep watching this space

Steven Mugglestone BA FCA,
Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business

McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659                T: 0121 236 3317

steven@mcgregorsleicester.co.uk
steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

Written by Steven Mugglestone

February 20, 2012 at 7:41 pm

Posted in Budget, HMRC, Tax

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Autumn 2011 Statement Headline Bits

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Autumn 2011 Statement Headline Bits
The Chancellor delivered his Autumn Statement to Parliament, on 29 November 2011, together with the Office for Budget Responsibility’s updated growth and borrowing forecasts.  Reductions in spending were announced to ensure that the country meets its fiscal targets, with some of the savings being used in the short term to fund investment in infrastructure resulting in the generation of long term growth. The Chancellor also announced measures to help households and businesses cope with higher inflation and to ensure that deficit reduction is fairly implemented.

The statement comprises numerous announcements, with key headlines of R&D tax credits being extended to large businesses and extension to tax relief for seed investment in start-up businesses.  Other initiatives and announcements include the following:

  • The State Pension Age is to rise to age 67 between April 2026 and April 2028. This is due to the increase in average life expectancy since the original State Pension Age timetable was produced. Future increases in the State Pension Age will be based on demographic evidence.  The Government will consult on the proposed process and take into consideration the views of all interested parties when these decisions are made.
  • The standard minimum income guarantee in Pension Credit increases by 3.9 per cent in April 2012 (to £142.70) per week for single pensioners and £217.90 a week for pensioner couples.
  • The full basic State Pension will rise from April 2012 by £5.30 to £107.45 per week. The full- rate for couples for those whose entitlement is based on their spouse/civil partner’s pension will rise by £8.50 to £171.85 per week.
  • The threshold for Savings Credit will rise to £111.10 for single pensioners and £177.20 for pensioner couples.
  • The Government has also published its National Infrastructure Plan 2011. The Autumn Statement announces a new strategy to bring to £20 billion of private sector investment. To do this a Memorandum of Understanding has been signed with two groups of UK pension funds to support additional investment in UK infrastructure.
  • The Government is also working with the Association of British Insurers to prevent employers gaining excessive tax relief for asset-backed pension contributions to their pension schemes.  The Government will introduce legislation in the Finance Bill 2012 (that takes effect on 29 November 2011) to ensure no excessive relief can arise for new arrangements.  Transitional rules will apply to existing asset-backed arrangements that have already received tax relief to ensure the correct amount is given by the end of an arrangement.  Asset backed contributions are those being made by large employers to fund their defined benefit (DB) schemes and manage pensions deficits by means of a series of payments guaranteed with security over the assets from which the payments derive, rather than making a one-off lump sum contribution.
  • Introduction of the Seed Enterprise Investment Scheme (SEIS) from April 2012. This will enable individuals to invest in qualifying new start-up companies and receive income tax relief at 50% with an annual investment limit of £100,000. In addition gains realised on disposal of an asset in 2012/13, which are then invested in SEIS in the same tax year, will be exempt from capital gains tax.
  •  The annual exempt amount for capital gains tax is frozen at £10,600 for 2012/13.
  • The Chancellor announced an indefinite delay on “auto-enrolment” for pensions for any firm with fewer than 50 employees.  Pension campaigners will to say that it undermines the Government’s attempts to encourage people to save more for their retirement.
  • Larger businesses are still be obliged to automatically enrol their employees into pension schemes from next year which is an additional cost as companies have to match the contribution made by their employees.

Other areas included in the autumn statement includes:

Growth

  • 2011 forecast revised down to 0.9% from 1.7%
  • 2012 forecast revised down to 0.7% from 2.5%
  • In 2013, 2014 and 2015, forecast growth will be 2.1%, 2.7% and 3%

Borrowing

  • Extra £11bn borrowing over the next 5 years
  • Borrowing forecast to be £127bn in 2011-2, falling to £120bn, £100bn, £79bn and £53bn in following years
  • Debt to GDP ratio to peak at 78% in 2014-5, falling afterwards

Transport Costs

  • The average rise in regulated rail fares to be capped at 6% – 1% above inflation – in January, rather than the 8% cap expected
  • Planned 3p fuel duty rise in January to be scrapped.
  • But duty will go up by 3p in August.

Business

  • OBR forecast of total public sector job losses up from 400,000 to 710,000
  • Credit easing programme to underwrite up to £40bn in low-interest loans to small and medium-sized firms
  • £1bn business finance partnership to raise money for medium-sized firms
  • Regional Growth regeneration fund to get £1bn in extra funding£250m support package for energy-intensive firms, £500m for science
  • Business rate holiday relief for small firms extended to April 2013New time limits for planning applications£1bn “youth contract” to subsidise six-month work placements for 410,000 young people
  • Bank levy to increase in January

Infrastructure

  • £5bn new spending over three years, including £1bn for the rail network
  • Go-ahead for 35 road and rail projects across England
  • Aim to unlock a further £20bn in investment from pension funds.

 

Steven Mugglestone BA FCA,
Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business

McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659                T: 0121 236 3317
steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

Written by Steven Mugglestone

November 30, 2011 at 5:34 pm

Tax Planning Newsletter Autumn 2011

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Autumn 2011 – McGregors Tax Planning Newsletter

Click for a copy: http://twitdoc.com/upload/mcgsadvisers/autumn-2011.pdf

Current Hot Topics

  • Tax efficient profit extraction
  • Tax efficient monthly directors’/partners’ remuneration
  • Use of pension money
  • Commercial property tax relief

 

Steven Mugglestone BA FCA,
Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business

McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659                T: 0121 236 3317
steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

Written by Steven Mugglestone

November 25, 2011 at 9:10 am

Budget 2011 – The best of the leaks and predictions

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Budget 2011 – The Best of the Leaks and Predictions

Business tax

Enterprise zones
Unable to resist the temptation of leaking his own Budget announcements, the Chancellor has already stated that he will create new enterprise zones across the UK. Enterprise zones are a long-standing Conservative creation to aid regional development, that have virtually been phased out and only loosely replaced by Labour’s ‘disadvantaged areas’ (with very different tax rules). Whether or not the new enterprise zones will operate in the same way as the old ones (with 100% up front capital allowances on the cost of building business premises) remains to be seen but they may provide some useful options for expanding or new businesses and investors.

Small businesses
The Chancellor has tasked the Office of Tax Simplification (OTS) with making recommendations on the simplification of the tax rules for small businesses and in particular, ways in which the IR35 legislation could be simplified or removed. The OTS is due to report on 10 March and, in his response in the Budget, it is likely that the Chancellor will issue a consultation document or at least outline which of the OTS suggestions are to be pursued in more depth: however, any legislative changes are unlikely to take place until April 2012.

Even so, it is understood that the OTS is considering some radical solutions to level the playing field between sole traders and small companies: removing the current tax incentive to incorporate a business is seen as the most effective way to tackle the IR35 issue. Such simplification is likely to lead to owners of small companies paying more tax. Whether or not the OTS can come up with a similar method of dealing with income splitting remains to be seen.

On the positive side, the Chancellor may allow some more administrative short cuts and opt-outs for small businesses – e.g. ‘payrolling’ employee benefits rather than completing forms P11D, or an opt-out for payroll year end returns where the business takes part in the proposed real time information system.

R&D tax credits
The Government has consulted on ways to refocus the current R&D tax credit schemes on high tech companies, small businesses and new start-ups as well as making the credit easier to claim. It is likely that some technical amendments will be announced in the Budget although a major extension of the credits seems unlikely on the grounds of affordability.

Green investment bank
Although the Government has committed to base level funding for its proposed green investment bank, there will be a considerable funding gap to be filled if it is to achieve the Government’s green objectives. It is possible that the Chancellor will offer tax incentives for private and corporate investors to help raise the additional funds required. Whether these will be for direct investment into the new bank or will be triggered by the bank launching it own funds and investments that qualify for the existing Venture Capital Trust (VCT) or Enterprise Investment Scheme (EIS) reliefs remains to be seen. As the bank could be a key part of the Government’s overall growth plan, significant proposals may well be announced.

The Chancellor has publicly spoken of making the UK an attractive location for green energy generation projects so there may be some comment on support for such projects from the new bank. There may also be some comment on the Department of Environment and Climate Change’s impending review of the current solar feed-in tariff system which has cast a long shadow over large scale investment in such projects since it was announced.

Enterprise Investment Scheme
It already appears that much of the Government’s growth plan will focus on ‘freeing’ entrepreneurs so it may well appeal to the Chancellor to enhance the current EIS, either by increasing the tax reliefs available or by simplifying the qualifying criteria (as suggested by the OTS) – for example, raising the ceiling on permitted fund raising beyond the current £2m in any 12 month period limit. Softening certain EIS criteria for green businesses may also be a tempting option although any changes may require EU state aid approval so could take some time to become law.

NIC holiday
The twelve month ‘holiday’ for new business that was announced in the Emergency Budget in June 2010 is only available in limited parts of the country. It is conceivable that, as part of a wider growth plan, the scheme could be extended to the whole country and also perhaps to Class 4 NIC that would otherwise be paid by sole traders starting up in self employment in affected areas. It is unlikely that the scheme will be made any more generous for employing companies.

Capital allowances
Cuts to the rates of capital allowances and the amount of the annual investment allowance (AIA)(reducing from £100,000 to £25,000) are due to take effect from April 2012. It is possible that these changes will be put back a year if business investment is still in the doldrums. Alternatively, some support on the timing of investment may be forthcoming so that small companies do not miss out on the AIA. Many companies do not invest in expensive plant and machinery every year, so a rule allowing the carry forward of the AIA limit for up to four years would be very welcome for those businesses investing in new machinery sporadically every few years.

Fuel duty
Increasing fuel prices will be filling the treasury coffers nicely but are also building up considerable political pressure for action on the rate of duty. The Chancellor has already indicated that he is listening to public opinion on this issue and it is likely that the duty rise scheduled for April will be deferred, although the introduction of a fuel duty stabiliser mechanism is perhaps less likely on technical and practical grounds.

Controlled foreign companies
With interim improvements to the CFC rules already published in the draft Finance Bill 2011, the Chancellor is likely to focus on the longer term improvements suggested at the time of the Autumn Statement. Therefore, we can expect to see further consultation on the suggested partial exemption for group finance companies and ways to target the CFC rules at high risk areas – specifically involving intellectual property held offshore.

Personal taxes

Income tax rates
As the whole focus of the Budget is expected to be on growth and supporting entrepreneurs, the Chancellor may wish to make some conciliatory noises about the one tax that is most widely seen as making the UK an unattractive location – the 50% top rate of income tax. Although cutting the rate now may not be affordable, or politically astute, with spending cuts about to have an effect on those on low incomes, he may confirm his intention to cut it in the future and may even set a date (with the proviso that the economy recovers as planned).

Tax allowances
Having already announced increased personal tax allowances for 2011/12 it is unlikely that there will significant further changes in the Budget unless the Chancellor decided get his teeth into the ‘spaghetti’ of tax allowances and reliefs identified by the OTS. It has recommended the abolition of a number of redundant and minor reliefs and allowances. Perhaps the most controversial item on the hit list is the OTS’s suggestion that the blind persons allowance should go – although the OTS recommends that it is only cut once more practical financial support is put in place for blind people (presumably in the form a tax credit or enhancement to the forthcoming universal credit).

Announcing a long term objective of merging income tax and NIC would be another significant move towards simplification. Unfortunately, this is likely to be a very long term project, partly because it is highly politically sensitive and partly because of a number of administrative obstacles. Interestingly, some of the obstacles to unification are already scheduled to be removed. For example, auto-enrolment to pensions for employees and the creation of NEST will abolish contracting out of the state second pension; the proposals to introduce a flat rate state pension and proposals to introduce a universal credit for state benefits that is not dependent on past NIC contributions.

Tax residence and domicile
The Government’s original Coalition Agreement stated that there would be a further review of the tax treatment of non-UK domiciled individuals living in the UK. Given the current economic climate, it is perhaps no surprise that this review has yet to materialise so the Chancellor may announce that a review will take place during 2011. A task that has been outstanding for even longer, is to write clear rules on personal tax residence in the UK into primary legislation, it is hoped that draft clauses for Finance Bill 2011 will be published with the Budget.

More controversially, the Chancellor may decide to look at the capital gains tax rules for non-UK residents. Currently, most states impose CGT on sales of real property (land, houses, etc) in the jurisdiction, irrespective of whether the vendor is tax resident there. The UK currently does not do this and there is an argument that this contributes to the inflation of residential prices at the top end of the market, which has a knock-on effect down the range. The Chancellor may regard this as an easy and popular way of raising cash in the coming months.

The future of inheritance tax
The OTS’s comments on the plethora of IHT reliefs has led some to speculate that the Chancellor may announce that a full review of IHT will start in 2011 with changes in future years. The Conservatives have previously stated that creating an IHT nil band (effectively an exemption) for the first £1m of an individual’s estate was one of their policy objectives. This may not be affordable at the moment but, as part of an overall review that removes many of the complex IHT reliefs that now exist, it is perhaps possible for the nil band to be increased to £500,000 per person (effectively £1m per married couple or civil partnership) in a tax-neutral way. Therefore, it seems quite likely that a review will be announced now although concrete changes should not be expected for several years.

Tax Avoidance

Disguised remuneration
New rules to tackle disguised remuneration were announced with the 2010 Autumn Statement and amended legislative clauses are expected to be published that incorporate most of the exemptions and clarifications consulted on since then. This should finally clarify the tax treatment of employee benefit trusts and EFRBS from 9 December 2010 although the tax treatment for earlier years is likely to remain in dispute.

These new rules also affect the tax treatment of the image rights arrangements often set up for high profile sports people although it is understood that HMRC is negotiating directly with employers in a many cases.

Close or personal companies
Much anti-avoidance legislation in the past few years has been created in response to tax legislation being used creatively, particularly where people take advantage of the differences in tax treatment between individuals and companies. From personal service companies (IR35) to image rights planning or simply the pragmatic payment of dividends within a family company, the differences in treatment have led to many tax planning arrangements that HMRC has disapproved of. Rather than continue to tackle the symptoms, the Government may finally choose to tackle the root cause with general provisions attacking close companies and single owner companies. These may be combined with the simplification proposals of the OTS (see above).

Tax amnesties
HMRC has recently announced a fifth tax amnesty, the Plumbers Tax Safe Plan (PTSP), but these remain confusing for taxpayers. Despite its name, the PTSP is actually open for virtually any UK resident to use (unless they previously had the chance to use one of the other amnesties) – on “very similar terms” according to HMRC’s own published guidance. Strangely, HMRC seems keen to play this down in its press comments. When the Government is in such dire need of tax revenue it would seem more sensible for the Chancellor to confirm in the Budget that the amnesty is to apply to everyone, to extend the registration deadline a little and to encourage everyone who needs to put their tax affairs straight to do so now.

Steven Mugglestone BA FCA, McGregors Corporate, More than just Accountants!

McGregors Corporate are a Member Of Probiz Tax.  We provide Innovative Tax Solutions to Owner Managed Businesses.  We are relentless in helping businesses.  Here are some examples of how we do that:

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How an FD drives a business when sometimes Accountants are just catching up
http://wp.me/pQyUg-j

We like to keep things simple, for ourselves and our clients;
We build our business by reducing our clients’ business and taxation costs;
We build our business by increasing our clients sales;
We build our business by helping our clients succeed in their business;
It is that simple and we meet you to discuss all these things for free;

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/contact-us.html
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659
T: 0121 236 3317

steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

Written by Steven Mugglestone

March 21, 2011 at 10:14 am

To Budget or Not to Budget, That is The Question

with 2 comments

To Budget or Not to Budget, That is The Question

I have just read a number of articles and discussions in an Accountants discussion group about why a business/organisation budgets and whether it is necessary at all.  The discussion was heated at times (for Accountants), and it was interesting to read both accountants and non-accountants views (particularly those who view Accountants as unproductive evil bean counters whose sole purpose in an organisation is to suck the joy out of life).  I do not usually read Accountants discussion groups, as I usually acknowledge that Accountants are unproductive evil bean counters whose sole purpose in an organisation is to suck the joy out of life, but the discussion did touch upon a number of really key issues.

To a Finance Director or a Strategic Director the answer is simple; in fact the answer is why are you asking.

Business improvement and success is down to people, people, people

The success of any business does not (usually) just happen, in a Field of Dreams kind of way (i.e. if I build it, they will come).  Success, improvement and continued success of all businesses and organisations are down to a number of key factors:

  • People, people and people (and probably people)
  • Leadership, management and delivery (people, people and people again)
  • Marketing, networking and sales (what people are you selling to, how do you find them, and what do they want)
  • Systems and processes (tools being developed by people to help people)
  • The products or services (for other people by your people)
  • A plan to bring it all together (created by people for people)

We could digress down a route of leadership, management, journeys, buses, architects and builders etc., but the purpose of the blog is to concentrate on budgets.  We have already started our advice on successful change management, http://wp.me/pQyUg-28, and budgets and budgeting plays an important part in the changes for the better.

Given that people are the key, how can budgets really help to add value and drive a business?  Whilst business is about people, people are only, well human people, and we need help, structured help and systems.  Hopefully we can highlight some of those areas below.

Understanding and the starting point

All businesses are aiming to achieve something as, I would hope, are all people.  Leadership training and MBA theory would compare this to a journey.  Defining where we want to be may be one thing, but to get there we need a route map and a set of instructions of how to get there.  Any instructions for a journey, however, need to define where we are now.  Most organisations understand this and reflect on self-evaluation before they start on their development plans.

A budget can be seen as a starting point to actually understanding how a business operates financially, in the appropriate detail.  It is still quite incredible the number of businesses which only rely on an annual set of accounts to reflect on the business performance.  These accounts are usually prepared by their accountant up to nine months after the year end and provide little in the way of real support and direction for a business.  I read today that the key to success is to channel 80% of our time in effort in developing the opportunities of the future, rather than dealing with the mistakes of the past, and pretty much a large number of businesses are doing the opposite.

Many owner managed business people often claim that they completely understand their business, the gross margins, the product mix, the cost of production, the cost of developing, etc., etc., but actually when they look at the accounts, nine months later, they tend to find that they were wrong and we are now a year behind to address it.

Many people have said that accountants know the cost of everything and the value of nothing, but having a robust budget that allows an understanding of what is business is doing at the moment is the key starting point to being able to develop the business, improve the business and achieve its ultimate goals.

Spotting the improvements

At the early stages of using budgets, often a common quick win is to identify where improvements in profits can be obtained.  If budgeting is new to an organisation, it is likely that that organisation has been doing things pretty much in the same way for a considerable time.  Back to another saying, if you carry on doing the same thing the same way, you are likely to get what you have got.

The process of developing a budget to fully understand the operation of a business will produce the ideas and solutions to obtain improvements.  If it does not and your accountant does not help with this, it is more than likely that your accountant has never been a Finance Director within a business and has never had to tackle profit improvement.  Try talking to a Finance Director or an accountant who has been a Finance Director and I am sure you will be surprised at the improvements that can be found very quickly.

Executing the plan

OK, so we now understanding where we are and we have set a plan to reach our business aims (that bit, together with business turnaround and further change management, we will look to develop in other blogs, but we are sticking to budgets).

The budgets for each area, department, product, improvement etc., can know be used for control and evaluation.  A strategic plan will consist of a series of stepping stones and milestones of achievements, both operationally and financially.  Budgets can be used as a financial route plan to both control and evaluate, to ensure that the business is on course.  As with any journey, we need to understand that if we are going off course, we have the process and system in place to be able to identify this as quickly as possible, to be able to rectify this and head back on course.  As an analogy, if I am planning a trip to Edinburgh, I would hope that I realised that I was off-course before I reached Cairo.

Back to People

Budgets are just numbers really and I have already said that the key to the success of a business is people and good people change management http://wp.me/pQyUg-28. Again, budgets can play a vital role in this as a toll for communication and motivation.

All good and successful businesses provide regular and relevant channels of communication to their team; it is the key to all great organisations and their success.  A budget can be used to communicate to the team how the business is doing.  It breaks down what is required of an individual or their department into easy to understand pieces.  How much can I spend on this area this month, how many sales do I need to achieve today, how much money needs to be collected today etc., etc?  Many organisations give their staff little or no information about performance and the owner/directors then wonder why their management ends in frustration from both sides.  Leaders need to be able to not only provide vision, they need to ensure that their team are fully prepared for the delivery of the plan and that includes tools, training and understanding.  In providing a plan, they also need to allow that information is used to be able to provide small simple to understand stepping stones for all of the team.

Back to another analogy, how do you eat an elephant, ……?  The answer is one bite at a time.

Not only do budgets provide a channel of communication, they serve as a vital tool for motivation.  Everyone likes to be part of success, and to be recognised for their part in success.  (If not you have the wrong team, another analogy for the journey, right people on the bus and wrong people off the bus).  Achieving and beating budgets should be recognised.  This does not have to be totally financial (although that helps), saying thank you, a round of drinks or a box of chocolates can really help when dealing with bite size budget achievements and milestones.

Whilst we could go on and on, the purpose of the blog is to briefly highlight why budgets are important and provide a business with a vital tool.  Some people may say that budgets are there only to control and get in the way.  We really think that budgets can provide a business with a real opportunity to achieve their aims and fulfil their goals by:

  • To provide an opportunity to fully understand the operations of the business
  • To provide an opportunity to achieve initial and immediate profit improvement
  • To provide a route plan, stepping stones and milestones together with support for the strategic direction and strategic plan of the business
  • To ensure that the business is adequately controlled and evaluated (and this is done timely)
  • To provide key communication to your team and this is a key area for successful change management
  • To provide a key tool for motivation for your team and in doing so continue your plans for continued success

We aim to provide real support and advice to our current and future clients.  We see everyone as either our clients or our future clients.  We utilise our real and practical experiences as specialist advisers and Finance Directors to do this and because of our unique backgrounds, we know that we can make a difference and provide real success to our clients.

Steven Mugglestone BA FCA

We like to keep things simple, for ourselves and our clients;
We build our business by reducing our clients’ business and taxation costs;
We build our business by increasing our clients sales;
We build our business by helping our clients succeed in their business;
It is that simple and we meet you to discuss all these things for free;

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/contact-us.html
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659
T: 0121 236 3317

steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

Written by Steven Mugglestone

November 28, 2010 at 4:13 pm