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Financial Monitor (November 2006)

100% tax deductions available on ‘green’ expenditure
A number of tax savings and other incentives are available to those who are willing to become more energy efficient.

The following products attract enhanced capital allowances at 100%:

New cars bought before 31 March 2008 with CO2 emissions of 120gm/km or less, or electric cars. If you are looking to buy a pool car for your staff consider one of these vehicles; as well as the available deduction against profits, road tax on these vehicles, including SMART cars or even a Renault Mégane dCi, is £50 or less. Access the full list of qualifying vehicles through www.vcacarfueldata.org.uk

Energy efficient boilers, air conditioning, refrigeration display cabinets and lighting controls. Ask your supplier whether your expenditure with them gives you a 100% write down, or search for goods and suppliers that do, at: www.eca.gov.uk/etl/homepage.asp

Water efficient taps, toilets and rainwater harvesters. Find details of products and suppliers at: www.eca-water.gov.uk

Thermal insulation for landlords letting residential property, and for owners of existing industrial buildings.

In addition, if you operate as a limited company and you own land or buildings that are polluted with asbestos or certain other contaminants, you may be able to get a 150% deduction on a clean-up under the Contaminated Land Remediation Relief scheme.

Interest free loans for upgrading to energy efficient heating and lighting are available to certain small and medium sized business from The Carbon Trust. Their website also offers energy savings tips – www.thecarbontrust.co.uk

Company law reform
The Companies Act 2006 which received Royal Assent earlier this month rewrites or amends most of the Companies Acts 1985 and 1989 and combines them with the 2004 Companies (Audit, Investigations and Community Enterprise) Act. It was the longest Bill ever to have been considered by Parliament. The Act consists of almost 1,300 clauses and most of its provisions will come into force during 2007. In future editions of Financial Monitor we will outline the changes which affect our clients.

Dental practices – are now able to incorporate
Dental practices are now able to incorporate and gain the benefits that have been available to other businesses for many years. The key benefits of incorporation are:

Limited liability to safeguard personal assets
Potential for tax savings
The ability to transfer to the company the goodwill, being in the case of dentists, the value of the patient list, to obtain a lump sum with a maximum tax liability of 10%
To enable other parties, including family members, to be shareholders in the company so that income can be divided in a more tax efficient manner
Easier succession planning and the ability to pass on ownership of a business without the complications involved in partnership dissolutions.

All those, including dentists, who currently trade as either a sole trader or partnership should review annually, with their accountant, whether incorporation would be beneficial. There are some disadvantages but these are often outweighed by the benefits referred to above.

It makes sense to appoint an Attorney
Older people who fear they may become unable to deal with their financial affairs should consider appointing a trusted relative, friend or professional to act on their behalf before a new law makes it more difficult and expensive to do so.

According to the Alzheimer’s Society one in 20 people over the age of 65 and one in five of those over 80 suffer from dementia. If someone does lose his or her mental capacity without appointing an attorney, it can cause enormous problems for carers as they may be unable to access funds or make financial decisions.

Under the current rules they can make an enduring power of attorney (EPA), giving one or more people the legal right to act on their behalf in matters of money or property. They can choose to make it effective straight away or continue to manage their own affairs for as long as they are able to do so. Then if they do lose their mental capacity, the EPA can be registered with the court and brought into effect.

However this system will be replaced by Lasting Powers of Attorney (LPA). There will be two types of LPA – one to cover finances and one for decisions on health and welfare issues. LPAs will be much more complex and costly to set up and will have to be registered with the court before they can be used, not just at the point of time they are required.

Unlike an EPA, an LPA will only be effective if it has been registered before it can be used – even if the person giving the LPA still has the capacity to manage their own affairs.

Additionally the LPA is not valid unless a third party will certify that the person signing it fully understood the document. This means that LPAs will be more time consuming and therefore more expensive to make.

Once the new law comes into effect, it will no longer be possible to set up an EPA although existing EPAs will still be valid. While there are merits in the new system, the EPA is a less onerous and less costly way to appoint an attorney. We would urge anyone concerned about their financial affairs to take advantage of the existing system while they still can.

Tax deductible Christmas gifts
As we approach the Festive Season we thought we would summarise the tax treatment of any gifts made to customers and suppliers:

Giving away free samples of your products is 100% deductible, although not necessarily a gift that would be appreciated!

Gifts carrying a company advertisement for the business are tax deductible but only up to £50 per person, per annum. Gifts of food, drink, tobacco and vouchers (eg. M & S vouchers) are not tax deductible even if the cost is less than £50 or if they carry a conspicuous advertisement.

The VAT rules are different and VAT can be claimed on all gifts including food, drink and tobacco providing the total value excluding VAT is less than £50 per person. If the gift exceeds this amount no VAT can be reclaimed.

In theory gifts to employees are taxed as a benefit in kind but the Revenue have by concession exempted small items such as turkeys, bottles of wine, chocolates etc given at Christmas time but cash is subject to PAYE whatever the amount given.

Twenty (legal) ways to take cash from your business and save tax
Taxation regulations and case law are changing all the time. In the light of recent developments therefore we have completely reworked our checklist on ways to extract profits – legally and tax-efficiently – from owner managed businesses. If you are a business owner the next time you meet one of our partners or senior staff let him or her take you through the checklist so that you are fully aware of what the Revenue will allow you to do to save tax. You can of course be assured that we are always on the lookout for ways to maximise your personal wealth.

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