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Financial Monitor (July 2007)

Using your company to provide benefits in kind
Company owners should consider having benefits paid by their company rather than paying themselves salary or dividend to enable them to buy the particular items themselves. Benefits can include golf club subscriptions, new kitchens, furniture etc, almost anything providing the company contracts direct with the provider.

Say, the company owner wants a new kitchen costing £5,000. What are the comparable costs, compared to receiving a dividend from the company to cover the cost?

	£
Company pays a dividend to cover the cost
Corporation tax on profit to pay dividend £5,000 x 20%	1,000
Higher rate tax on dividend	1,250
Total tax liability	2,250

Company provides a benefit in kind
Personal tax on value of benefit £5,000 x 40%	2,000
Employer’s national insurance on benefit in kind £5,000 x 12.8%	640
Tax relief in company £5,000 + £640 x 20%	(1,128)
Total tax liability	1,512

Overall saving	738

The additional tax payable by the individual is £750 (£2,000 - £1,250) and a further dividend of £1,000 less tax of £250 would enable this to be settled. The overall saving is still £488 and would increase significantly if corporation tax is paid at the higher rate.

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 will change from 1 August 2007. The new rates are:

Engine size	Petrol	Diesel	LPG
1400cc and less	10p	10p	10p
1401cc to 2000cc	13p	10p	8p
Over 2000cc	18p	13p	10p

Has your business been affected by flooding?
If your business is in Sheffield and has been affected by the floods you should contact 0800 915 6913 regarding grants of up to £2,500 from the recovery fund. Businesses outside Sheffield should telephone 0800 022 6201 for further details of the recovery fund.

Paying wages to summer casuals
Employers often wish to employ casual staff during the summer period. It is essential that the HMRC rules are followed. If they only employ someone for a week or less and pay them less than £100 it is not necessary to complete any PAYE formalities. They must however keep a note of the employee’s name and address, the amount and date paid.

Those employed for more than a week should provide a P45 or alternatively complete a form P46. If the employee will not sign the P46, tax should be deducted at basic rate 22% and it is then up to the employee to claim back any overpaid tax.

Students working during the vacations, who are returning to college after the vacation and are not expected to earn more than £5,225 during the tax year need not complete a form P46. They should sign a form P38 (S) and they can then be paid tax free using an NT code although there is still liability for both employee’s and employer’s national insurance if pay is more than £101 per week, £437 per month. However, if the student works during term time they must complete a form P46 or suffer tax at basic rate. Employers should remember that students aged from 18 to 21 need to be paid at least £4.45 per hour currently.

It is also important for employers to carry out identity checks under the Asylum and Immigration Act 1996. They need an NI number and must check the name against a passport, driving licence or work permit. If they employ someone who does not have the legal right to be in the UK, there is a maximum fine of £5,000 which can be levied.

Buying a property for children off to University
The cost of accommodation at university is the biggest burden for a student or parent and finding good quality accommodation can be difficult. Parents should consider acquiring a property for their child and generating income by letting rooms to fellow students. Loans to buy can be secured using the equity in the parent’s home.

It is most tax effective if the property is in the name of the student because as their principle private residence any gains when the property is sold will be tax free. The rental income from fellow students, under £4,250 will also be tax free under the rent-a-room scheme and any excess over that would probably be covered by the student’s personal allowance. The income so generated can be used towards repayment of the interest on the mortgage to buy the property.

Any parent who is concerned their child might sell the house and pocket the proceeds should ensure that a loan agreement is in place to cover the original capital and any rolled up interest and a legal charge is drawn up by a solicitor and deposited at the Land Registry to ensure that the parent is repaid out of the proceeds.

Inheritance tax – are you concerned?
The Chancellor has announced the nil rate band for inheritance tax will rise to £350,000 from 6 April 2010. A well advised couple, with a joint estate of less than £700,000 can avoid any liability. Unfortunately, house price increases have in many cases taken a large proportion if not all of this exemption. In addition, couples who are not well advised could see their exemption reduced to £350,000, increasing their overall liability by up to £120,000 needlessly.

The Chancellor has made various changes to the treatment of pensions and to the trust regime which has made planning more difficult but it is still possible to minimise the liability by some simple planning and make further savings by changing investments. The first and most basic step is to make sure Wills are in place, regularly updated and are drafted in a way which seeks to minimise inheritance tax. If you need to discuss the issues please contact Peter Newsam.

Arctic Systems – a win for the taxpayer
Those who have been following this long running case will know that the treatment of dividends paid to spouses who do little work in a business, that is essentially their husband’s or wife’s “one man” business was under investigation. The Revenue wanted to treat these dividends as the income of the spouse who did the work, thus increasing the tax liability. The House of Lords have decided in favour of the taxpayer which is a great relief to those many companies where dividends have been used in this way to minimise tax liabilities.

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.

Whilst every care has been taken in the preparation of these notes we can accept no responsibility for errors or omissions contained in them or for any loss arising from their use unless we have been consulted professionally prior to any action being taken.

UHY Wingfield Slater
Wellington House, 39 Wellington Street, Sheffield S1 1XB
Tel: 0114 275 1544 Facsimile: 0114 275 1366 Email: info@uhy-wingfieldslater.com Web Site: www.uhy-wingfieldslater.com
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