balanced online: Issue 7

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Stop press! Budget 2007

Our website has a user-friendly guide to the Budget, new rates and allowances and a handy tax calendar for 2007/08.

Your business 

Companies Act 2006, the changes …

The new Companies Act is a consolidation of virtually all existing company legislation. Its provisions will be fully in force by October 2008, although some aspects will be implemented earlier. The Act is written in simplified language and with a particular focus on the smaller business. Here are some of the changes that affect private companies:

• Websites and emails must include the company registration number and registered office (this is introduced with immediate effect, so companies must review their electronic systems now).
• Directors and shareholders can file a service address rather than their private home address.
• The deadline for filing accounts will be reduced from ten to nine months.
• It is likely that turnover will have to be disclosed within abbreviated accounts filed at Companies House.
• Medium-sized groups will no longer be exempt from preparing group accounts.
• There will be simpler model Articles of Association and companies will no longer be required to specify their objects.
• There is no longer a requirement to appoint a Company Secretary to deal with secretarial duties.
• There is no need to hold an AGM unless a company opts to do so.
• It will be easier for companies to take decisions by written resolutions, avoiding the need for general meetings.
• The rules for a company purchasing its own shares have been significantly simplified.
• Directors’ duties are set out in statute for the first time.
• Shareholders can agree limitations on the liability of auditors.

Directors will need to be fully aware of the revised regulations, their responsibilities and how to implement appropriate changes. If in any doubt, clients should seek advice from their relationship partner.

Budget Report
Tax calendar 2007/08

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Giving shares to employees

It is commonly understood that if an employer gives an asset or provides a benefit to an employee, the cost to the employer is taxed as part of the employee’s income. A similar principle applies to shares received by employees (including directors), whether new shares are issued directly by the company or shareholders transfer existing shares, unless the transfers are made for purely personal reasons.

Income tax, and sometimes national insurance, is charged on the difference between the amount, if anything, paid for the shares and their market value, and perhaps on any loan benefit arising if payment of the purchase price is deferred.

It is not unusual for employees to receive restricted shares, for example the shares could be forfeit if the employee resigns. These restrictions can affect market value. An employee can jointly elect with the employer that he/she is taxed or the full (higher) unrestricted value of the shares at the outset. The advantage is that on a sale of the shares, the employee will pay capital gains tax (probably at 10%) on the gain. If the election is not made, income tax is payable (probably at 40%) on the whole gain, including both the uplift from (lower) restricted value to (higher) unrestricted value and also all growth in the value of the shares.

The legislation is particularly complex and the valuation of private company shares is subjective. In practice we prepare a valuation report and the share value is agreed by negotiation with HM Revenue & Customs Shares Valuation Division. We strongly recommend, however, that you seek advice, including consideration of the alternative strategies available to you, before giving shares to employees.

• Click here to download our guide to the New Construction Industry Scheme (Please note - it is a PDF file which will open in a new window.)
• Would you like to discuss this matter in more detail? Click here to contact us.

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Identity fraud fears for Construction Industry Scheme

The "new" CIS regime was introduced on 6 April 2007 resulting in the abolition of the "old" CIS registration cards, which provided photo-ID. The new regime normally requires only the subcontractor’s name and individual tax reference and it is feared that it won’t be long before less scrupulous subcontractors are tempted to "borrow" someone else’s details, so that they can be paid gross or without the correct tax deduction.

In these circumstances, HM Revenue & Customs may try to recover the missing deductions from the contractor who actually made the payment, so it is essential that the contractor can demonstrate reasonable care was taken to follow the verification procedures correctly. The contractor may also consider asking for a copy of a new subcontractor’s passport and driver’s licence, as a sensible precaution.

Once HM Revenue & Customs finds out that a subcontractor’s details are being abused, no doubt they will be tempted to amend his record so that he can no longer be paid gross, possibly resulting in serious financial difficulties for the innocent subcontractor. We recommend that contractors warn all subcontractors to ensure that their tax references and national insurance numbers are kept secure and divulged only to trusted parties.

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In brief...

A simple piece of tax planning is for your business to pay a salary to your spouse (or other family member) particularly if he/she has no other sources of income. It is of course essential that the family member does sufficient work in your business to justify the salary.

You can pay up to £5,225 free of tax and NIC for 2007/08, provided each weekly wage does not exceed £100. In addition, the recipient will earn credits for State Second Pension, as if he/she was earning over £12,000, and also be entitled to Statutory Sick Pay and other state benefits.

What is important, and often overlooked, is that to obtain these benefits, HM Revenue & Customs must be notified. You do this by sending in the annual PAYE declarations at the end of the tax year. We can do this for you.

Company vans

There are now new rules in force for company vans. When a van is used privately by an employee, a "benefit in kind” of £3,000 will be charged, plus a further £500 if using fuel paid for by the company. Now, for vans only, the journey to and from work is no longer classed as private use, so you should reconsider if there is in fact any private use at all. If not, you must inform HM Revenue & Customs as soon as possible so the benefits can be taken out of the employee’s PAYE tax code.

You must be able to provide evidence that employees are not allowed to use the van privately. So, for example, you may need to be able to show an updated contract of employment and a detailed mileage log.

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You and your family

There’s no K in BRIC!

No, it’s not a spelling mistake. BRIC stands for Brazil, Russia, India and China; and BRIC is one of the strong investment themes of 2007. Why? It’s simple. These are four of the most dynamic markets in the world. Suppose you had invested £10,000 in January 2002. By January 2007 your money would have grown like this:

• UK - £15,143
• Brazil - £20,472
• India - £36,795
• Russia - £37,663
• China - £25,256

So what’s the story? Well, actually there are four stories.

There is increasing global demand for Brazil's natural resources. Russia is profiting from its oil and gas reserves. India is benefiting from the increasing popularity of outsourcing. China is simply an industrial powerhouse, with expected GDP growth in 2007 of 9.8% (but with only 3%inflation). Four individual stories make BRIC the most attractive of the emerging markets.Emerging markets? Only in stock market terms. In economic terms China's GDP ranks 2nd in theworld (after the US) whilst India is 4th.

Even in stock market terms there are some remarkable stories. When shares in the state owned insurance company, China Life, were recently offered to the public, their value more than doubled in the first day, making China Life the world's third largest insurance company by market capitalisation.

As Steven Greenwood, Financial Services Partner, observes, &Idquo;All portfolios should be suitably balanced, according to each client's investment objectives and risk profile. But if your personal and pension portfolios do not have enough exposure to the BRIC markets you may lose out. Why not let Cassons review your portfolio?”

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Take more interest in your savings!

Would you prefer under 1% interest on your savings or over 6%? Do you think the answer is obvious? Well the experience of Paul Rosson, our Director of Financial Services, is that many of you either don't care or don't give it the time it needs.

Yes, there really are high street banks that pay less than 1% on deposits. And savers use their accounts because they don't take the time to shop around for better rates. Yet it is possible to get over 6% gross on your savings. You need only take the trouble to find out. (Hint: Ask Cassons!)

And gross rates are only the start of the answer. If you are a higher rate taxpayer, here are some other ideas:

• If your spouse or partner does not pay tax, or is a basic rate taxpayer, give them money to invest. They will get more after tax.
• If you have £50,000 or more to invest, there are guaranteed income bonds that pay 4.8%, with a 20% credit against higher rate tax. So the net rate to a higher rate taxpayer is 3.84%. That's effectively equivalent to 6.4% gross because you would have to earn 6.4% gross to achieve 3.84% after tax.
• You can give your children £3,000 each to invest in National Savings Children's Bonus Bonds. They pay 4.23% tax-free. That's effectively equivalent to 7.05% gross.
• You can get 6.5% tax-free on £3,000 in an Individual Savings Account (ISA). That's effectively equivalent to 10.83% gross. Your spouse or partner can also invest £3,000.

All these rates are liable to change. But the principle will not change: you can get better rates if you take a little care. Are you interested now?

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Using a company to own overseas property

If you own a property overseas or are thinking of buying a second home in the sun, you may well have obtained advice locally to own the property through a company. This advice is normally appropriate to mitigate local property transfer taxes, gift or inheritance taxes or even the imosition of forced heirship rules. In some countries, such as Bulgaria, only a local may own land - but you can create a "local" by using a company.

Historically, this arrangement could lead to an unexpected UK tax liability. This is because the company, whether a UK company or not, might be providing you with a "benefit in kind" based on the value of the property. The benefit in kind leads to an annual income tax charge.

It appears that HM Revenue & Customs do not have the appetite to challenge these cases or to seek the significant income tax that would result. The Budget on 21 March 2007 revealed that legislation will be introduced to exempt these arrangements from a benefit in kind tax charge, and further more that the exemption will be retrospective! There are conditions, of course. The property must be the company's only or main asset, the company's only activities must relate to the property and the company must be owned only by individuals.

Although the detailed rules are not available, this will be a welcome relief for everybody with property abroad owned in this way. You should always take local advice when buying property or making any investment overseas, but do not overlook the impact back home. Do not forget that any income from letting your overseas property is still taxable in the UK, and the property still forms part of your estate liable to UK inheritance tax. There may yet be other UK tax implications from owning your overseas property in a company and you should speak to us to discuss them further.

Click here to request a meeting with Colin Tice.

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In brief...

Inheritance tax

The Budget in March 2007 announced an increase in the inheritance tax threshold to £350,000 so estates below that should avoid the tax. But this is not until 2010/11. House values may well increase at a higher rate than this tax-free band, and your house may well represent a large proportion of your assets. You need to review your estate’s potential liability to inheritance tax on a regular basis, following significant life events for you or your family, or at least every 5 years. This review may result in the adoption of tax-efficient wills, a strategy for gifting assets, inheritance tax-efficient investments, low cost life insurance, or other tax-effective planning. You should call us for advice on this important area of tax mitigation.

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Cassons profile:

Our new Lancashire office

It is now almost a year since we opened our new Lancashire office and we are delighted to report that it has been a great success. Certainly many of our clients have told us that it is more convenient to visit us, given that we are now located right on the A56, with car parking immediately outside the front door.

We now have six meeting rooms and a boardroom, making it much easier to schedule conferences with our clients. Our new training room has full audio visual equipment. In fact, we are making our training room available free of charge for clients to host their own meetings. All we ask in return is the opportunity to say "hello" to your guests. If you would like to take advantage of this, please contact your client relationship partner.

Our Manchester office has all the commercial and retail attractions of the city. Conscious, however, of our out of town location in Lancashire, a great deal of thought went into how to accommodate staff at lunch time. As a consequence we have a fully equipped kitchen and seated dining area. Our 1,000 square foot recreation room provides comfortable seating, satellite TV and even table football, with a quiet area also provided for reading. We have prepared for the anticipated long hot summers with a splendid outdoor decked area where we can keep an eye on the neighbouring livestock!

Work takes place in large open plan offices where we have been able to locate our audit and account teams in one room and our tax and financial services teams in another. This makes for much improved communication and team work. Moving office gave us the opportunity to carry out a complete overhaul of our IT systems, which have bedded in very well. We are now about to move on to the second phase of our IT development, which will reduce our dependence on paper.

We believe that our move has helped us to provide our clients with an even better service. If you haven't visited our new Lancashire office yet, please call in and see us!

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Client profile

Crow Wood Leisure

Some people say the best customers of a gym are those that don't attend, so imagine a gym which actually writes "We've missing you!" letters if you haven’t been for a while. This is the approach taken at Crow Wood Leisure in Burnley – and one of the many reasons why they have 3,600 very happy members.

Customer service is everything, according to Ron Sykes, the director responsible for the day-to-day running of the site. "I think the best way to keep people long-term is to give them value for money," he says. "Our facilities are second to none and the more you use them, the cheaper they become. We do actively chase people if they haven’t been for a while but it’s a fine line between pushing too hard and showing we care."

Not that people should need to make excuses about going to the state-of-the-art leisure centre in its beautiful rural setting.

Crow Wood was the vision of client and local businessman, Andrew Brown. When Andrew and his brother sold their family stationery and business equipment company, FH Brown, in 1998, they could have retired early as wealthy men - but Andrew had other ideas.

Says Ron:"Andrew didn’t want to retire and had always wanted a tennis club. To make the business plan work, you couldn’t just have a tennis club. You had to have the other facets - a gym, a swimming pool, spa and so on."

Planning consent was finally granted in 2000 after a public enquiry and the cows were moved off the land on 1 December 2000. The centre opened exactly one year later to the day.

As part of the planning consent, the site had to retain some agricultural status, so the plans were revised to include an equestrian centre with stabling for 49 horses, a cross country course, all-weather gallop and indoor and outdoor arenas.

The facilities are of such quality that Myerscough College have since taken over 10 livery boxes and set up two classrooms to run equine studies courses.

Cassons acted for the family when they were running FH Brown, guided them through the company sale and provided complex tax planning advice in the development of Crow Wood.

No expense has been spared in creating Crow Wood, but it is its friendly, caring attitude which is perhaps its best asset.

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