Financial Monitor (July 2006)

Quote of the month.
"The secret to staying afloat in business is to create something people will pay for".

Construction Industry Scheme - some important changes
Most of those involved in the construction industry will be aware that a new tax scheme is being introduced from April 2007, the main changes being:

• CIS4 registration cards, CIS5 and CIS6 gross payment cards, vouchers and annual returns will all be abolished.
• Existing sub-contractors will not need to re-register and will transfer to the new scheme automatically.
• The existing registration process, renewable every three years, will continue.
• Each sub-contractor will be required to give his name, unique taxpayer reference and national insurance number (or company number) to the main contractor.
• The contractor will then need to verify these details on line (or by telephone) and obtain confirmation from the Revenue to establish whether payment can be made gross or net of tax (18% currently). A verification number will be issued and must be retained.
• Verification is a "one-off" process for each sub-contractor and need not be carried out where a payment has been made to the sub-contractor under the present system after April 2005. The basis of payment can then be continued until advised otherwise by the Revenue.
• If a sub-contractor cannot be verified then a special reference number will be given and tax must be deducted at a higher rate which is yet to be agreed, but likely to be around 30%.
• Within 14 days of the end of each month the contractor must give a written statement of payments and tax deducted to each sub-contractor and pay over the tax to the Revenue.
• The contractor will need to provide the Revenue with a statement monthly showing payments to sub-contractors and will have to sign a declaration on that statement confirming that none of the workers listed should have employment status. This is an onerous requirement, particularly for labour only sub-contractors where establishing status can be very difficult. We will cover status in a future edition of Financial Monitor.

Fuel rates for petrol provided for those with company cars
The rates, that can be paid tax free to those provided with a company car, for fuel used for business purposes have increased from 1 July 2006. The new rates are:

Tax relief for life cover
Under the old pension scheme rules it was possible to get a tax deduction for life insurance taken out under pension scheme rules up to a limit of four times salary. Under the new rules you can include life cover within the total of £1,500,000 lifetime allowance. However, premiums under pension term assurance policies may be higher than you would pay for ordinary life cover so the savings may not be significant, especially for basic rate taxpayers.

Term assurance life cover should be reviewed at regular intervals and the availability of tax relief should be considered as part of that review.

Paid bank holidays to be phased in from 2007
The Government is planning to introduce paid bank holidays in addition to the statutory four weeks' annual paid leave. The Government is consulting on the idea and that consultation closes on 22 September 2006.

The additional paid leave is expected to be phased in with an increase from 20 days to 24 days from 1 October 2007 and from 24 days to 28 days on 1 October 2008. Alternatively subject to the consultation process the increase from 24 days may be in two phases, increasing to 26 days in October 2008 and 28 days in October 2009.

Clubs and other such associations
With the withdrawal of the corporation tax nil rate band which exempted from tax the first £10,000 of earnings by a company or incorporated association there has been concern that Clubs would have to pay tax on modest amounts of bank interest.

The Revenue has confirmed that they will not normally be seeking tax on interest and other investment income from Clubs and Associations as the amount of tax collected would be outweighed by the cost of assessment and collection.

Watch out for spoof emails
Customers of several UK banks have been the target of fraud where emails have been sent requesting confirmation of bank account details in order to verify the Bank's records.

No bank would ever send an email asking for such verification and providing the information is likely to give the fraudsters access to the funds in your bank account. All such emails should be ignored and deleted from your computer immediately on receipt.

Problems for sub-contractors who do not keep up to date with their tax affairs
The Revenue are being much stricter when issuing gross payment certificates to sub-contractors in the construction industry. Unless you have kept up to date with payment of all PAYE, sub-contractor and other income tax and corporation tax payments and complied with all your tax obligations, you may well find yourself unable to have a certificate entitling you to gross payment. Consequently tax at 18% will need to be deducted from payments made to you by contractors. This will create major cash flow problems for your business and affect its credibility with contractors.

The Revenue ignore 'minor and technical' failures to comply with obligations but they interpret this very strictly, ignoring only rare and insignificant lapses.

Forms E111 have been replaced
Inside the European Economic Area, free or reduced cost of emergency medical treatment is available to UK citizens with a European Health Insurance card. This card replaces the old E111 which was issued on a family basis whereas the cards are provided to individuals.

Forms E111 are now invalid and so if you require cover then you need to apply at the Post Office or on line for the new card.

We should add that the availability of reciprocal health cover does not replace the need to have appropriate medical insurance when travelling abroad

Next edition
Our next edition of Financial Monitor will be at the end of September. We hope those who have not yet had their summer holidays have a most enjoyable break.

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