One standard HMRC letter urged people to pay their tax return on time, and another spoke of how "nine out of 10 people in Britain pay their tax on time", as well as claiming that most people in the reader's local area, or postcode, had in fact paid their tax already.   Interestingly, the government released results last week explaining that there was a 15% better response rate to the latter request.

This isn’t the first time that the government has trialled “nudge” tactics, as their Behavioural Insights Team has experimented with response rates on matters ranging from personalised texts to people who owe money to the court to letters including photographs of untaxed vehicles demanding payment.

What is particularly interesting in this development is that it shows the continuing evolution of how the HMRC wants to interact with its customers.  Time was, that a gruff letter would be all the communication one would receive before a follow-up either threatening a fine or delivering one.  Indeed, it seemed to be that the only people who could really get to grips with the HMRC’s labyrinthine system were those qualified to do so: accountants.

Traditionally the HMC were considered to give a very poor service to those who needed to fill in self-assessment claims forms.  Often, because of customer services systems that weren’t congruent they appeared unhelpful and regularly seemed short of people, an impression that was backed up by the closure of several drop-in centres and a phone line that was almost always busy.

Clearly the HMRC is experimenting with the idea that in order to receive more self-assessments completed on time they need to appear more customer friendly and helpful.  Although there’s no less emphasis on the “stick” these days – penalties are always available – the tone of their communications now seems to be more persuasive.

Tactics such as those proposed by the Behavioural Insights Team have not only suggested a more effective way of influencing individuals to complete their self-assessment, but also create a more pleasant experience when doing so.  And for that at least, they should be applauded. “

Owners of small businesses are split into two camps: those that have been the subject of  HMRC tax investigations (and lived to tell the tale!) and those that have heard the stories of just how painful an investigation can be and dread the day they receive the ominous notice that they are to be investigated.

Tax investigations may are conducted completely at random: your business may never be the subject of one or it may have to deal with this somewhat trying situation more than once.  So what can you do to minimise the impact of an investigation on your business?

The investigation itself is going to cost you in terms of time, and there’s very little you can do about the stresses involved with it, but it’s also going to cost you financially as you pay your accountant for the extra work you require from him to do the work associated with the investigation.  This, however, is something you can plan for.

Fee protection has been around for a number of years now, and while you can’t insure against the findings of the investigation – such as extra tax payments or even penalties – you can against your accountant’s time and subsequent fees.   Fee protection typically covers an accountant’s fees for the work he carries out defending you from the investigation, as well HMRC visits and written enquiries.

The average cost of accountancy fees for a business to undergo an investigation is approximately £4,000*and with many small businesses unable to afford such a sum there is suddenly a very good reason to pay a premium that is typically in the low hundreds each year.  It’s not inconceivable that a surprise set of accountancy fees such as this could drastically affect the cash flow of a business such as a small hairdresser or a dry cleaner.  Indeed, by taking out the insurance it means that cash flow is much easier to predict and a business less complicated to run.

Yet the take-up rate is very low, often because business owners believe an investigation will never happen to them or because they never quite get round to putting the insurance in place.  Once they have been the subject of an investigation, however, business owners are usually keen to find a way to avoid as much of that pain as possible should it happen again.

If you want an accountant that offers fee protection then contact us today to discuss how we can bring you peace of mind.

* Source: http://www.feeprotection.com/

It used to be the case that only the brave or foolhardy would venture into online accounting packages, which were invariably clunky, non user-friendly and could often be far more trouble than they were worth.

Now, however, online accounting packages are much more stable, infinitely slicker and are functional as well as being incredibly convenient.

Although initially I was very skeptical, but now  Iam very impressed with today’s sleek, powerful software packages and would happily recommend online accounting to my many longstanding clients.

There are many benefits to today’s online accounting packages. For a start, you can access your accounting data and reports from anywhere, whether you’re in the office, at home, or using a mobile device on the go.

In addition to this, most packages offer multi-user facilities, including a hierarchy structure to keep some information confidential from certain members of staff as you wish. The software is updated automatically so you get immediate access to improvements as well as being kept up to date with legislation changes such as increases in VAT.

Benefits

And, although some clients may be concerned about the cost of such software, I  believe the benefits of online accounting far outweigh any concerns about outlay.

Packages are generally charged on a monthly fee which might seem expensive to some. But, when taking the cost and time to deal with upgrades into account, this is a reasonably-priced option for the person who wants to stay up to date and informed. And, unlike many desktop packages, online systems tend to offer data download from banks as standard in addition to direct filing of VAT returns.

Maybe the best advantage of this software for us as an accountancy firm is the ability to look at clients’ records in real time, so that we can offer them immediate help, support and advice with any problems they are having.  Get in touch if you would like to know more about these services and discover how the full online accounting benefits can add up to a huge range of benefits for your business.

At the same time the Chancellor is extending 100% capital allowance write off for plant and machinery investment incurred between April 2012 and March 2017 in six enterprise zones, principally areas in the north of England.

Although both of these measures are positive and can only encourage direct investment in businesses and/or equipment it seems to us that the tax break would have been better if the 100% capital allowances had been extended to the whole of the UK.  It is all very well encouraging people to make direct investments into small businesses which are of course risky but surely it is better to encourage existing businesses to invest in equipment and get an immediate cash flow advantage.  After all not that many people have £100,000 sitting around that they wish to invest in a new business and it is only they who get the tax benefit.  There are plenty of businesses who need to invest in plant and machinery but could do with a bit of cash flow help them achieve it.

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From 1 April 2011, the Government reduced the rates of corporation tax for all companies. However, in order to ‘pay’ for this reduction, the Government has changed the capital allowances system for all businesses, not just companies, to take effect from April 2012.

Changes to the Annual Investment Allowance (AIA)

The main change is to reduce the maximum AIA from its current level of £100,000 to £25,000 for expenditure incurred on or after 6 April 2012 (1 April 2012 for companies).

As the accounting periods of many businesses will span these start dates, a pro rata calculation of their maximum entitlement will be required. Where a business has an accounting period that spans the 1 or 6 April 2012, the maximum allowance for that period is the sum of:

• the maximum AIA entitlement based on the previous £100,000 annual cap for the portion of the accounting period falling before the 1 or 6 April 2012; and

• the maximum AIA entitlement based on the new £25,000 cap for the portion of the accounting period falling on or after the 1 or 6 April 2012.

However, a restriction is set so that, for expenditure incurred in the part of the accounting period falling on or after 1 or 6 April 2012, the maximum entitlement is given only by reference to the second bullet point above.

This does not affect the business’s maximum AIA for the accounting period as a whole but rather the amount of expenditure after the relevant start date that may be covered by the AIA.

Timing

Obviously, the timing of expenditure may be critical. Consideration should be given to ensuring that expenditure is incurred before the 1 or 6 April 2012, as the date that expenditure is incurred usually triggers the entitlement to capital allowances.

Traps for the unwary

Two points are worth noting in relation to the trigger point for capital allowances.

Firstly, the normal rule is that expenditure is incurred on the date on which the obligation to pay becomes unconditional. The contract for purchase will be evidence of when this arises. So if the contract specifies that payment is required within 30 days of delivery, the obligation to pay arises on the date of delivery.

However, if there is a gap of more than four months between the date on which the obligation to pay becomes unconditional (eg delivery) and the date on which payment is required to be made, the expenditure is not treated as incurred until the date on which payment is required to be made. This could, for example, apply to interest-free credit arrangements.

Secondly, a special rule applies to hire purchase agreements. Usually all of the capital expenditure incurred under a hire purchase contract is treated as incurred up front. However, if the asset is not brought into use by the end of the accounting period, any capital expenditure not incurred at the end of that period is deferred until the asset is actually brought into use.

Changes to writing down allowances (WDAs)

For accounting periods commencing on or after 6 April 2012 (1 April 2012 for companies), the rates of WDAs per annum on expenditure not relieved by other allowances is reduced as follows:

• from 20% to 18% on expenditure allocated to the main pool; and
• from 10% to 8% on expenditure allocated to the special rate pool.

Transitional rules apply for accounting periods which span 1 or 6 April 2012. The broad effect of the rules is to give a rate for the transitional period between 20% and 18% (or 10% and 8%).

This change affects all the main rates which apply to plant and machinery, including cars.

What to do

As you can see, the changes are not positive for businesses but, with a bit of careful planning, the rules for capital allowances can be maximised. If you would like to discuss these changes in more detail, please feel free to get in touch.

All these would in theory encourage people to go into business in the UK and employ people in doing so but it has to be funded.
They suggest that to fund this the government:
• Abolish higher rate tax relief on pension contributions i.e. basic rate relief only,
• Scrap the 25% tax free lump sum on retirement, and
• Reduce foreign aid.
This seems a bit short sighted. The 50% rate does not encourage people to work and have businesses in the UK but should we go to the point of asking future pensioners to fund the tax reduction now. There are plenty of people paying tax at 40% who would lose half of their tax relief in order that a much smaller number of people could save 10% tax. Pension provision has already taken too many hits from previous governments.
To boost the economy the government needs to recognise the contribution by SME’s rather than offering breaks to big business by:
• Bringing back 100% capital allowances to encourage investment up to say £100,000 per annum
• Extending the NIC holiday to all new businesses
• Find a way to force banks to lend.