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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 AA 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 cr 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 cr 6 April 2012] and
- the maximum AlA entitlement based on the new 225,000 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.
Example 1
A business makes up its accounts to 30 September annually. For the year to 30 September 2012, the limit is calculated as follows:
October 2011 - March 2012: 6/12 x 2100,000 250,000
April - September 2012: 6/12 x £25,000 = 212,500
Total £62,500
If, in the six months to March 2012, the business spends £60,000 on purchases of machinery, it will all qualify for AIA as it is below the total available A1A of £62,500.
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Avoid the new late filing and late payment penalties
Over 85% of people avoid a penalty by filing on time. Make sure you join them and make sure you pay on time
From April 2011, if you don't file your SA Tax Return or pay your tax on time, the penalties you will have to pay are changing. The more you delay the greater the penalty.
Penalties for filing late
- One day late and you will he charged an initial penalty of £100 (even if you have no tax to pay or you have already paid all the tax you owe).
- Three months late and you will be charged an automatic daily penalty of £ l0 per day, up to a maximum of £900.
- Six months late and you will be charged further penalties, which are the greater of 5% of tax due or £300.
- Twelve months late and you will be charged yet more penalties, which are the greater of 5% of tax due or £300. In particularly serious cases you face a higher penalty of up to 100% of the tax due.
Penalties for paying late
- Thirty days late and you will be charged an initial penalty of 5% of the tax unpaid at that date.
- Six months late and you will be charged a further penalty of 5% of the tax that is still unpaid.
- Twelve months late and you will be charged a further penalty of 5% of the tax that is still unpaid.
These penalties are additional to the interest you will be charged on all outstanding amounts, including unpaid penalties, until payment is received.
Don't be late. Make sure you know the deadlines.
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Web bots are out to get you!
The Taxman has announced he is going to start targeting tax evasion by online traders, private tutors, personal trainers and life coaches.
In order to find out who is failing to pay tax on all their income the Taxman is to send out web bats (automatic search programme's), to trawl the Internet for data on sales and services advertised by UK residents. This data will then be compared to sources the Tax Office holds such as bank interest and tax returns.
If you declare all of your profits and earnings on your tax return you have nothing to fear. But you may have friends or family members who earn a little bit on the side by selling stuff or advertising their services online, so please pass on this advance warning.
What if you don't pay your tax?
July is one of those big tax-paying months...
- if you are self-employed you need to pay your income tax and class4 N1C on-account payment for 2010111 by 31 July
- a company with a 30 September 2010 year end must pay its corporation tax by 1 July 2011
- employers must pay class 1A NIC's on benefits by 19 July
- quarterly payments of PAYE are due by the same date. Monthly payments of PAYE and CIS deductions are due by 19th of every month, or by 22nd if paying electronically
If you or your company will not be able to pay the tax due on time you should contact the Tax Office business payment support line (0845 302 1435) without delay, or we can do this for you. Once the tax due is actually late, even by a day, it is much more difficult to negotiate a reasonable payment plan with the Taxman.
Must you register for VAT?
There is a myth in certain quarters that every legitimate business is required to be VAT registered. This is not the case. Your business (as a sole-trader, partnership or company) does not have to become VAT registered until the total sales for 12 consecutive months exceeds £73,000. However, this total does apply to all the businesses you run as a sole trader. You can't artificially divide your businesses to avoid registering for VAT.
Once your business is VAT registered you must charge VAT at the appropriate rate (normally 20%) on your sales. You also have to submit regular VAT returns, either quarterly or monthly, which means you need to keep your records of sales and purchases up to date. If this all sounds a bit too much to cope with there are a number of schemes you can sign up to which are designed to make VAT reporting much easier for small businesses.
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