Horwath Clark Whitehill - Entrepreneur's Outlook - May 2008

May 5, 2009 | Publisher: CroweClarkWhitehill | Category: Business & Jobs |  

Changes to the rules on rates may help spark a revival of business investment in towns and cities across the UK. With the intention of reducing rates, improving competitiveness and encouraging the re-development of brownfield sites, on 1 April 2008 The Rating (Empty Properties) Act 2007 took effect. One of the key changes in this Act was a restriction in the exemption from paying rates for empty non-domestic property. Under the old rules such properties were entitled to full relief from rates for the first three months and then 50% relief for the remainder of the period until they were re-occupied. Industrial and storage property enjoyed 100% relief until re-occupation. From 1 April 2008 empty non- domestic properties are entitled to full exemption for the first three months only, after that time they will attract full rates. Similarly industrial and storage properties can only claim exemption for the first six months – then they will attract full rates. Charities and similar organisations continue to be eligible for relief. ‘Shrewd’ landlords may try and reduce the impact of these changes by damaging or altering their properties and thus de-value their properties to acheive lower rates. The legislation permits the local authority to disregard these alterations when valuing the properties. Such ‘shrewd’ landlords are potentially in a worse position – not only are they liable for rates on the higher value, they have a property that they are unable to let to tenants. Tenants have a strong bargaining position. Armed with the knowledge that the landlords will be exposed to full rates they can use this as leverage to negotiate down the rent costs. These changes are likely to have a mixed response in the business community. Time will tell whether these measures will rejuvenate business in towns and help develop the competitiveness of the rental market. Business rates – important changes, landlords and tenants beware! Inside this issue Entrepreneurs’ outlook Issue 4 May 2008 Associated companies – now exclude business partners Small Firm Loan Guarantee scheme – changes announced by the Chancellor Tax clearances – obtaining certainty about transactions Companies Act changes – filing dates and penalties Small Firm Loan Guarantee scheme – changes announced by the Chancellor Associated companies - now exclude business partners It is official, business partners may no longer have an adverse effect on a company’s corporation tax liability. Often overlooked or otherwise a bone of contention for many businesses, prior to 1 April 2008 a company controlled by an individual who was also a business partner in a partnership was associated with any other company controlled by another partner in that partnership. This was the case even if the companies did not have any other connection. The effect of having associated companies is that the threshold at which a company pays the higher rate of corporation tax is reduced. A singleton company currently pays corporation tax at 21% on profits up to £300,000 and 28% on profits over £1.5m. Profits between these thresholds are liable to corporation tax at 29.75%. If two companies are associated, these thresholds are halved i.e. they become £150,000 and £750,000 respectively. Where three companies are associated the thresholds are £100,000 and £500,000 and so on. The definition of associated is wide and can produce surprising results. A company controlled by a husband, wife or civil partner is associated with a company controlled by the other party to the relationship. Similarly companies controlled by certain relatives are associated where there is commercial interdependence. As noted above companies controlled by business partners have also been associated even where no commercial interdependence exists between the companies - this has produced some unsatisfactory results. From 1 April 2008 the rules have been relaxed, business partners are not treated as associated unless some tax planning arrangements have previously been undertaken. This will no doubt be welcome news to many businesses for whom these provisions were draconian. Overshadowed among the Budget 2008 excitement about changes to the capital gains tax regime and the new regime for UK resident non- domiciles, the Chancellor also announced that the Small Firm Loan Guarantee scheme (SFLG) would be extended for a short period to a wider group of companies. Introduced in 1981 the SFLG is a government backed finance scheme to help qualifying entrepreneurs start their businesses. In 2006-07 over 2,700 businesses borrowed over £210 million through SFLG. According to the SFLG 2006-07 annual report, only a minority of the 4.3 million Small and Medium-Sized Entities (SMEs) in the UK fail to receive finance at their first attempt. The government seeks to use its suite of interventions to correct what it calls “the market failure in the provision of external finance”. The SFLG provides access to funding for “viable business propositions” where entrepreneurs cannot obtain conventional loans because they do not have assets to offer as security. Through the SFLG, the government guarantees 75% of the loan provided by banks should the business be in default. In return the borrower pays an annual fee of two per cent of the outstanding balance. Since 2004 following the Graham review, the SFLG has only been available for certain businesses that had a maximum of five years trading history. This is on the premise that more established businesses should have access to more commercial funding. The changes announced at Budget 2008 seeks to respond to business needs in the short term and offers a temporary increase of 20% in the amount of finance available through the SFLG and relaxes the age restriction to allow access to a wider audience. With the financial pressures facing businesses in 2008 it maybe that such changes will provide an opportunity for many exciting young businesses to survive. “…the market failure in provision of external finance…” Companies Act changes – filing dates and penalties With 1,300 different sections Companies Act 2006 is probably one of the largest pieces of legislation in history. The provisions are being introduced in phases. One of the changes relates to the date that all companies must file their accounts at Companies House – from 6 April 2008 this deadline has reduced by one month. This is a change of which all directors and company owners must be aware. Under the outgoing rules private companies must file their accounts within 10 months after the year end and public companies have seven months. For accounting periods commencing on or after 6 April 2008 such companies will have nine months and six months respectively. Table 1 below provides some examples Directors and company owners should also note that changes have been announced to the late filing penalties structure effective from 1 February 2009. Two of the main changes to this regime: the amount of the penalty is being increased the date that the penalty is triggered is being changed. Currently penalties are levied if the accounts are late - penalties start at £100 (£500 for public companies) and increase incrementally if the accounts are more than three months late. From 1 February 2009 penalties will also be levied if the accounts are late; however penalties will start at £150 (£750 for public companies) and then start to increase if the accounts are more than one month late. This new penalty regime is set out in table two below. More significantly, for accounting periods ending after 5 April 2010, if the accounts are submitted to Companies House late and they were also late the previous year, these penalties will be doubled. Directors and company owners need to ensure that they are compliant with Company Law. They should also note that failure to file accounts on time could adversely affect their reputation with credit agencies. The filing penalty may therefore not be the only cost that they need to consider. Accounting period start date 1 April 2008 6 April 2008 1 May 2008 1 March 2009 Accounting reference date 31 March 2009 5 April 2009 30 April 2009 28 February 2010 31 January 2010 5 January 2010 31 January 2010 30 November 2010 31 October 2009 5 October 2009 31 October 2009 31 August 2010 Deadline for delivery of Annual Accounts to Companies House Private companies Public companies Example for accounting period starting before 6 April 2008 Example for accounting period starting on or after 6 April 2008 Table 1 - change to filing date Table 2 - new penalty regime How late the accounts are delivered Not more than 1 month More than 1 month but not more than 3 months More than 3 months but not more than 6 months More than 6 months Penalty – Private companies £150 £375 £750 £1,500 Penalty – Public companies £750 £1,500 £3,000 £7,500 Are we moving further from the age of tax uncertainty? From April 2008 as announced in the 2007 Pre-Budget Report HM Revenue & Customs (HMRC) is providing non-statutory tax clearances in respect of all areas of business tax. The purpose of the clearance service is to provide an understanding of HMRC’s view on the tax consequences of a transaction. An application can be made before or after the transaction takes place. A clearance application can be submitted in respect of areas of material uncertainty arising from the last four Finance Acts. A clearance application can also be submitted to HMRC where issues arise from older legislation – in this case the matter must be of material uncertainty the outcome of which is a real issue of commercial significance to the business. The clearance procedure is being extended to inheritance tax Business Property Relief (BPR). Business owners can make applications to HMRC between 1 May 2008 and 31 October 2008 where there is demonstrable material uncertainty about the BPR implications of a transfer of value following a transaction which affects their business. The UK tax system is complex and successive legislation appears to exacerbate the position. Tax uncertainty will therefore still exist but no doubt the opportunity to apply for clearance on a transaction will be good news for many businesses. Tax clearances – obtaining certainty about transactions www.horwathcw.com This information in published without the responsibility on our part for loss occasioned to any person acting or refraining from action as a result of any information published herein Horwath Clark Whitehill LLP is registered to carry on company audit work by the Institute of Chartered Accountants in England and Wales and is authorised and regulated by the Financial Services Authority. © May 2008 Horwath Clark Whitehill LLP All rights Cheltenham 01242 234421 Kent – Maidstone 01622 767 676 – Tunbridge Wells 01892 700 200 London 020 7842 7100 Manchester 0161 214 7500 Midlands – Kidderminster 01562 60101 – Walsall 01922 725 590 Thames Valley 0118 959 7222 Associate firms in: Hartlepool 01429 234414 Isle of Man 01624 627335 The office in the Isle of Man is Horwath Clark Whitehill LLC and the office in Hartlepool is Horwath Clark Whitehill (North East) LLP. These are all separate, independent firms and not part of Horwath Clark Whitehill LLP. Accordingly, these firms cannot be held liable for the acts or omissions of each other. We hope you find this newsletter of interest. If you have any questions about any of the topics covered, please call your regular Horwath Clark Whitehill contact.

Horwath Clark Whitehill - Entrepreneur's Outlook - May 2008.pdf

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Crowe Clark Whitehill is a top 20 UK accountancy firm providing exceptional assurance and business advisory services. We are a leading authority in five areas of excellence: Corporate, Not for profit, Professional Practices, Pensions Funds and Private Clients. Our goal is to build a long-term relationship with our clients and dedicate as much partner time as possible to meet their needs. We have over 60 partners and around 500 staff based in eight offices in the UK. Our firm is the UK member of Horwath International. As one of the largest global professional service organisations, Horwath International has more than 140 independent member firms operating from 560 offices around the world. With instant access to commercial intelligence worldwide, we can help our clients to succeed in both local and global markets.


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