EMTACS
Entertainers and Musicians Taxation & Accountancy Services
69 Loughborough Road, West Bridgford, Nottingham, NG2 7LA
Phone 0115-981-5001 Fax 0115-981-5005

Recent News

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The 2002 Newsletter is out and about, and is posted here in case you haven't received it. An index of the articles appears below - click on an article and you will go to it, then click on "top" to return here.

Blurb | VAT Changes | Small Companies | Pension Changes | Children's Tax Credit | Mean Collectors | Bills 02/03 | Returns: Submitted 548 - Missed 44 | Limited Companies | On PAYE And Want To Put Off Your Bill? | Late Telling Them About Yourself? | New Rates For Cars | Internet Filing

BLURB top

It's bad enough having Budget Day on a Wednesday instead of a Tuesday but there's something profoundly wrong about having a Budget in April. For a brief period of time they were held in November and that felt wrong too. But to have the new tax year start and thhow's lifeen to have a Budget is peculiar.

Obviously the death of Gordon & Sarah Brown’s baby had to be borne in mind, but it’s rather helped the government to delay the Budget. It’s meant they have had a healthy period of time in which they have been able to soften us up by leaking left, right and centre about the amount of additional tax that is going to be needed in order to pay for public services. An additional 3% tax was the leaked figure and it actually turned out to be pretty accurate.

So where’s the money coming from? Well an increase of 1% in National Insurance for both employers and employees has provided him with £8 billion. This ‘penny in the pound’ applies to all income. In the past they stopped taking NI from individuals when earnings reached £30,000ish. No longer - if your profits are £100,000, you’ll pay 8% on the profits up to £30,000 and then 1% on the profits above. Just think yourself lucky to be self-employed - employees will now be paying 11% and employers 12.9%.

It is however going to take a long time for this to hit home. The change arrives for the 2003/04 year and will go on to your 2003/04 Tax Return and will hit home with your January 2005 tax payment!

The tax-free allowance (£4,615) will remain frozen next year, again increasing the tax bills that year.

Having raised £8 billion - not all of this money has gone to the NHS. Some has been used to increase the allowances given in the form of Child’s Tax Credit. Again the change will come in with effect from April 2003. It replaces a number of things and will be paid directly to the “main child carer”. It isn’t actually a huge increase for most people but does increase the payment for those with low (sub £13,000pa) earnings and those with a stay-at-home parent. It will be paid as a means-tested benefit and not as a reduction in your tax bill. A form will be filled in once a year to give details of your earnings and the Child Tax Credit (and Working Families Tax Credit) for the next year will be based on that.

VAT CHANGES top

There were some interesting announcements with regard to VAT. If you bothered to listen to the speech or read any of the more detailed newspaper pieces you probably read about the new kinder treatment for small businesses (turnover less than £100K). Such people are being ‘allowed’ to skip some of the book-keeping for VAT purposes and pay their VAT on a sort of averaged basis. Sadly their averages don’t actually favour people who claim much back in the way of VAT, nor do they take away your need to keep books for the taxman.

What was encouraging was the comment that the automatic penalties for late VAT returns would not be imposed on small businesses. Normally if you got a return in late too often you had to pay a penalty of between 2% and 20% on the amount of VAT that you owed them. This is being scrapped for businesses with turnover below £100K. Those whose VAT Returns do go in late will be “offered help and advice”, but there’s no mention of what they’re going to do to those that ignore the advice.

SMALL COMPANIES top

The tax regime for limited companies is being changed again. From now on the first £10,000 of a company’s profits is tax-free and the next slice (up to £50K) will be taxed at 19%. This could be advantageous (see a bit further on about this) and does point the way to self-employed people becoming companies.

And if you need some entertainment to soothe your nerves about your increased NI bills, you could always relax with a quiet game of bingo, safe in the knowledge that the tax structure on bingo is being altered so as to only pay tax on your winnings and not on your stake money as in the past. [insert table here]

PENSION CHANGES top

Next week will see our first 2001/02 Tax Return prepared. There are a couple of changes that are really going to affect the 2001/02 tax liabilities in a big way - one good and one bad.

From 5 April 2001, tax relief on pension contributions changed. Suppose you had a pension scheme into which you were putting £100/month. Under the old set up, you’d get tax relief on these payments by a reduction in your tax bill. It would be reduced by 12 x £100 x 22% or £264. From April 2001 onwards you got the tax relief in a different way, by giving the pension company £78 a month. The pension company would go and get the remaining £22 a month from the government and so you’d end up getting £1,200 into your pension scheme at a cost to you, of £936.

No real change overall; you just get the tax relief straight away instead of having to wait for it. Only now we’re thinking about tax bills and sadly you can only get the tax relief once. So someone whose tax situation was very similar from one year to the next will see their tax bill rise by £264 in the above example (don’t forget your pension company has taken less off you by the same amount). That means your payments on account will go up for the following year and the net result is an increase in tax payments next January for our poor victim of £396. It is fair but it won’t feel like that when you’re writing the cheque and have forgotten about the smaller monthly payments.

This does not apply to the older style of pensions (called Retirement Annuities). If anyone has a pension that was started before 1/7/88, they will continue to get the tax relief on these policies in the same old way. It’s important that we know about these older Retirement Annuities or else you may lose out on tax relief.

CHILDREN'S TAX CREDIT top

The good change to your tax bills is the arrival of Children’s Tax Credit. This benefit is worth £520 reduction in your tax bill and is paid to anyone who has a child in their care for at least part of the year. If your earnings (or those of your partner/spouse) are such that you pay more than £5,000 at Higher Rates of tax you won’t be entitled to CTC. If you or your partner has a reasonably substantial PAYE source of earnings (more than £8,000) then you can claim it through that source and get the tax relief straight away. Failing that we claim it on your Tax Return and if your circumstances haven’t really changed, it will cut your bill by £520 and also cut your payments on account by £260 meaning that the cheque next January will be £780 less.

But there are some funny rules that apply to this credit. You only get one CTC for each household with a child in it. You or your partner/spouse can claim the credit or split it between you and if some of your (or your other half’s) income is charged to Higher Rate tax you will lose some or all of the credit. For this to work the Revenue need some information that frankly feels downright nosy. They need to know your partner’s name and NI number, whether they earn more than you and if they are a Higher Rate taxpayer.

We should have asked about this when we sent out all those orange forms and we would have if we’d had a Tax Return to study first. You can help us by scribbling them on to page 2 of the orange form before sending it back or just let us have the information sometime.

MEAN COLLECTORS top

This probably isn’t news to some of you but the Collectors of Taxes have become meaner this year. I think I could have probably said exactly the same thing in any of the last 5 years, but this year there’s been a definite upping of the stakes.

Part of this is a change of philosophy to go with a change of name. They are no longer the Collectors, they are the Revenue Receivables Department (?). Their mission is to get people to pay their tax on time and, failing that, in a very short period. The internal instructions are as follows: if a taxpayer owes more than £5,000 then failure to pay on time will result in a phone-call from a Revenue computer centre within a couple of weeks.

They will call you if they have your number - if not they will call us and ask for it. We usually pretend to be ignorant of your numbers, but most of our clients live and die by having their phone number available so the Revenue can easily look people up in the phonebook. It’s a rare entertainer in any field who chooses to be ex-directory.

So - they call and ask where the dosh is and when it will be settled. If you can, you try and make an agreement. If the bill is not cleared by the agreed time, the papers are sent to the local office who’ll deliver the threats of distraint and bailiffs.

If it’s less than £5,000 then they will get round to you - just a little bit slower. A local office will then try and contact you and ask the same question and try and get some kind of commitment out of you. As before, failure to meet their timings results in threats of distraint or visits from a bailiff.

So what if you haven’t got the money? Well they are empowered to accept people paying a liability off in 3 instalments, one-third now, one-third in a month and the remainder in 2 months time. If you cannot manage this schedule they will suggest other options to you - bank borrowing, credit-card cash advances, borrowing off friends or family. If none of these are going to work then you can try and claim “hardship”. To wangle this you have to (a) show you haven’t got the money, (b) prove you have tried to borrow from the bank and been refused and (c) have them run through all your ins and outs in their office so as to prove what level of payments you can afford.

You can muck them around - but not too much. You can make payments just a bit slower than you promised. You can send them post-dated cheques that cover everything but stretch it beyond their 3 months. Don’t try paying them cheques that you know will bounce or they’ll want cash next time. Above all talk to them. Sadly they are not quite as human as they used to be, but if you ignore them they only get more angry. Communication works better than hiding under the duvet or taking the ostrich approach.

The liabilities that were due on 31 January are right now getting this treatment and some of you may well have had the pleasure of a call from the Revenue. They’d quite rightly point out that it is now getting round to 3 months late and if this were a gas or phone bill they’d be threatening to cut you off by this stage. The problem is not that they’re being unfair, but that they’ve given people lots of leeway in the past. So this tightening up of procedures means that you’re having to pay this year’s bill only a few months after settling up for the last one.

It isn’t hard to work out how to deal with this problem. You should get things sorted out early so that you know well in advance what the forthcoming liability will be and then carefully put money aside on a routine basis in an interest-bearing account so that you can just write them a cheque next time money is due. Yeah right. And you should also eat 5 portions of fruit and veg a day and take regular exercise as well.

Certainly knowing in advance is a big help since it gives you time to react. If we get the raw material to do your accounts in late January, you’ll get no warning at all. However if we have your details in the Summer, you’ll get 6 months or more warning and can take those jobs you might have avoided because frankly you’re going to need the money.

BILLS 02/03 top

One of the things you can traditionally expect in the newsletter is some indication of charges in coming years and this time is no different. We expect our fees to rise slightly, by around £5 each for tax returns and £10 or so for accounts preparation work. A typical client will face bills of around £310-320 + VAT. This isn’t cheap but is worth it and remains substantially cheaper than the other firms who deal with the same customers.

As ever we continue to encourage people to pay us by standing order. Not only does it take the sting out of your bills when they come but it takes away one of the reasons people leave their accounts to the last minute. If it’s May and you don’t want to face bills from us, it’s all too easy to leave things until later in the year because that defers your accountancy bill. But if you paid by standing order you could get things sorted out sooner, by sending the stuff sooner, knowing that settling the bill would happen over the following months.

This is a kind of virtuous circle because if you do this, we can give you a liability figure for next January at a much earlier stage and you can perhaps, just perhaps, put money aside for the planned tax payments. In case you want to take us up on this a standing order form is attached as the back page of this leaflet.

This year was the first one for a number of years in which the number of Tax Returns that didn’t go in on time fell. Only 44 of our clients failed to get the Return in on time and some of these had zero liabilities so won’t be fined. This compares very favourably with the previous year’s 67.

I’ve been trying to work out what went right and it’s a combination of things. Firstly we did more nagging and did it earlier. Secondly each year that goes by sees us chisel out one or two of our more ostrich-like clients from their sandpit and once you’re back on the rails you tend to stay that way. Thirdly we had a settled team here and everyone knows what they’re doing.

Whatever we did, we need to keep doing it. So the carrot and stick approach will continue. In an ideal world we will have everyone’s accounts raw material in by 5th November 2002 at the latest. Sooner is better but that does give everyone at least seven months to gather together their stuff. I know it’s a job you don’t want to do. I know it’s a pain because it means facing up to unpleasant things you hoped were swept under the carpet, but you also know you’ll feel happier when it’s done.

And if you really can’t make it on time, we need to continue to prioritise our time in November-January with the following additional fees:

      For stuff received November 6-30 ... £5
      For stuff received in December ... £10
      For stuff received in January ... £15

We’d really rather collect nothing from this exercise by getting everyone’s stuff in without the stress. I guess that we’ll never get things perfect; no year will ever go by with every single Return in on time, but it would be nice to get the figure down even further.

LIMITED COMPANIES top

Over the years a regular query that we receive from those who have a reasonable level of income has been “shall I set up a Limited Company”. We’ve usually talked people out of this. In recent years it has not been tax-efficient to do anything like this. After all if you get your money through a Limited Company, the money is still taxable - even if you dress it up fancy and take it as a dividend. There could be small benefits but a Limited Company produces a need for even more dull paperwork and it was often the case that the people who make the most money out of Limited Companies are those accountants who set them up.

A proper Limited Company set of accounts is not quite the same thing as an individual needs and all sorts of extra hoops (separate business bank accounts, lots of additional paperwork) need to be gone through. Dealing with a fairly basic Limited Company is likely to set you back a minimum of £500 and that is a relatively bargain price when compared with bigger firms. So saving a few quid in tax isn’t really going to be worthwhile.

But there have been significant changes in the last year or so, and especially in this Budget, that produce an environment in which tax can be saved through the use of a Limited Company. Not enormous amounts but enough to make it a feasible option for those with significant tax bills to think about this. If you are interested in this, let us know and we’ll explain more. We may even try and publish something which explains how it can be a tax-saving device.

ON PAYE AND WANT TO PUT OFF YOUR BILL? top

Those of you with a steady and substantial source of income from PAYE have another possible good reason for getting their raw material in on time. A Tax Return prepared and submitted by 30 September enables the tax liability to be paid by fiddling with your PAYE tax code for the next year. So if you get your Return in by 30 September 2002 and owe (say) £1,200 then the Revenue will get this money by collecting £100 a month in extra tax via your PAYE deductions from April 2003. As a result you do get a long time to settle up on the money you’ve earned.

LATE TELLING THEM ABOUT YOURSELF? top

Last time we sent out a Newsletter we let people know of the £100 liability that was coming in for people who take more than 3 months to inform the Inland Revenue of their beginning to earn money on a self-employed basis. This came into force on 30 April 2001 and has been quite fiercely applied ever since. There are a couple of get-outs - if you can show that you shouldn’t be paying self-employed NI then they let you off or if you can show that they’ve been a bit slow in dealing with you. Apart from these though, you’re on to a loser.

Obviously all of you who are getting this newsletter are already on the books of the Revenue but the rules apply to others you might meet and I wouldn’t want the wrong message circulating. The rule is, tell them within 3 months of starting or swallow a £100 fine.

NEW RATES FOR CARStop

We’ve mentioned before that there is an alternative basis for claiming for your motoring expenses. The normal system is to record all your motoring costs, keep a means of working out what percentage of your motoring is business and then claiming, say, 80% of your £3,500 costs. We also claim for the depreciation in value of the car.

The alternative method is called the Fixed Profit Car Scheme. Under this, you keep an accurate basis of splitting your mileage between business and private and then claim 40p/mile for the first 10,000 miles of business motoring (25p/mile above 10,000). You can’t then claim for depreciation as well. In a way this rewards careful drivers of lower-engined cars that didn’t cost a great deal.

You can only change from one system to the other when you change car, but is it worth it? Well it does depend on individual circumstances, but generally if the car costs more than £8,000 then leave it on the normal basis. If it’s less, call us and we should be able to give you a good idea one way or the other.

By the way, you can also get this scheme to apply to motorbikes and pushbikes as well at rates of 24p and 20p a mile respectively.

INTERNET FILING top

Accompanying all those millions of Tax Returns that went out to people was a little note about Internet filing. This is the fancy way by which the Revenue hope people will send their forms in in the future. In actual fact we’ve had the facility to file forms electronically for about 3 years now but have always chosen not to do so, partly because the system has been flaky but mainly because we need to have a signed return from you in order to submit an electronic one. And of course if we have a signed form, we can as easily deliver the Returns by hand.

There are however some advantages and we’ll be studying the Revenue’s performance in this area to see if there aren’t advantages for us all. The Chancellor mentioned in the Budget that they were planning to financially encourage people to operate payroll and other things as they move towards full electronic. All employers will have to file electronically by 2009/10. No computer? No employees.