News Archive

• Changes to Company Car Fuel Rates
• Budget 2007
• VAT News - Don't get caught flat out
• New CIS Scheme

Changes to Company Car Fuel Rates
From 1 August 2007 new advisory fuel rates will be applicable to company cars as detailed below. These rates should be used by company car drivers where the cost of business fuel is being reimbursed to them. Where a company car driver has both their business and private fuel paid for by the business a car fuel benefit in kind applies, for further details on car fuel benefits click here.

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Budget 2007
On 21 March 2007 the Chancellor, Gordon Brown gave his eleventh and last Budget. In a budget speech where 'prudence' was not mentioned he described this budget  as to expand prosperity and fairness for Britain's families.

For further information click here to go to our budget page.

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Don't get caught flat out
A recent VAT tribunal case has shown that the VAT flat rate scheme has its pitfalls, especially where a business derives its income form more than one trade.

The flat rate scheme can be used by any business whose turnover is less than £150,000.

The scheme removes the need for a business to calculate both its output tax and input tax but instead it calculates how much VAT to pay as a percentage of its turnover, so supposedly making the calculation of you VAT easier. The percentage varies depending upon which category of trade you are in.

Where a businesses turnover is derived from more than one category of trade, the business must use the percentage that applies to the trade which accounts for the majority of its income. This is where the problem arises, a business must decide at the start of its accounting period which trade gives the majority and ensure they choose correctly. If they learn later that they have chosen the wrong category as their main source they could be liable to a further liability.

In the recent case Mr & Mrs Morgan ran a pub which also served food, they had incorrectly thought that drink sales would exceed food sales so had used the pub rate of 5.5%. However food sales exceeded pub sales so the restaurant rate of 12% should have been used.

This reinforces that care should be taken when deciding whether to use the flat rate scheme if your business is not straightforward. Other areas to consider are whether your business may make a number of zero rated sales as this could distort calculations. If thinking of using a flat rate scheme you should always seek advice first.

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New CIS scheme from 6 April 2007
From 6 April 2007 new regulations were introduced to the construction industry, these completely changed the way in which the CIS scheme is administered. The new rules introduced new forms to be filed as well as a new penalties regime for non-compliance. The government have set out that the aims of the new scheme are:

• To reduce the regulatory burden of the scheme on the construction industry.

• To improve the level of compliance by these businesses with their tax obligations

• To help construction businesses to get the employment status of their workers right.

As mentioned above one of the aims of the new scheme is to ensure that the employment status of workers is correct. This has become a hot topic for HMRC who have lately put much emphasis on this area and carried out a number of status enquires of contractors, they are obviously intending to continue this theme.

When a person commences working for a contractor they will need to determine whether that person does so on an employed or self-employed basis. If on an employed basis they will be subject to tax and national insurance being deducted under normal PAYE regulations. If on a self-employed basis the contractor will then need to obtain verification of the subcontractor with HMRC if they have not carried out any work for them in the previous two years. This is done by calling the HMRC callcentre who will then advise whether the person is registered to receive gross payment, or at which level tax should be deducted.

Under the new scheme payment classifications will change to:

1. Entitled to gross payment

2. Payment with 20% tax deducted

3. Payment with 30% tax deducted

Level three will apply where a person is not registered under the construction industry scheme.

As part of the new regulations a contractor also needs to submit monthly returns to HMRC by the 19th of the month detailing payments made to all subcontractors during the month. The workers themselves no longer receive a voucher detailing the tax deducted but instead the contractor needs to provide this information to the worker. Penalties will be in place for non submission of the return.

The new scheme has been described by some as a major attack on the construction industry. All contractors need to consider how the new rules affect them and ensure they are operating them correctly.

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Useful Information
Click on the links below for detailed information:

Disclaimer: This article is for general guidance only.  All taxation planning should only be undertaken after appropriate professional advice.  George Hay Chartered Accountants are authorised by the Financial Services Authority to carry on Investment business