callus Testimonials


Posted on


Topics covered in this newsletter include a warning to construction clients that the new penalty rules will apply from this month, a discussion of the proposed Annual Investment Allowance, changes in the rules applying to VAT on home computers and finally a note of the increased tax-free limits for employees attending full time education.

Construction Industry Scheme – Penalties kick in this month
When the new CIS scheme was implemented in April 2007, HMRC agreed to waive the penalties for late returns for the first 6 months. This penalty free period, April 2007 to September 2007, is now over!

Automatic Penalties for late returns – form CIS300.

These will now be applied to all late returns received by HMRC after 19 October 2007. Please note the definitions that follow:

  1. All late returns means just that – if you have any unsubmitted monthly returns for the period 6 April to 5 October 2007 and they are received by HMRC after 19 October 2007, penalties will be levied on all the returns. (If you file returns electronically you get an extra 3 days so will need to file by 22 October 2007.)

  2. A return needs to be made even if it is a Nil return – penalties will still be applied if filed late.

  3. The penalty charged will be £100 for each month that the return is outstanding after 19 October 2007. This amount will be increased by £100 for each additional 50 sub-contractors who should have been entered on the return. For example the return for the month ending 5 May 2007 was due to be filed by 19 May 2007 – if this is subsequently filed after 19 October 2007 an automatic fine of £100 will be levied. If the return for the month ending 5 June 2007 is also filed after 19 October 2007 this will incur a separate penalty of £100.

  4. In future these monthly returns must be received by HMRC by the 19th of the following month. The return for the month ending 5 November 2007 must be filed by 19 November 2007 and so on. The emphasis here is the word “received”. It will not be sufficient to claim that the return was sent by the 19th of the month.

To summarise, if contractors fail to submit ANY of the monthly returns issued by HMRC for the period 6 April 2007 to 5 October 2007, by 19 October 2007 (22nd October if you file electronically), penalty notices will be issued, automatically!

Three further points that may be of assistance:

  1. You can file a Nil return by ringing the CIS help line 0845 366 7899, option 4.

  2. If you are not making regular payments to subcontractors for a period you can ask the Revenue to record you as “inactive”, this will suspend issue of monthly returns for up to 6 months.

  3. HMRC have reported that a significant number of returns have had to be sent back as contractors had omitted to sign them! If a return is sent back to you for this or any other reason it will not be registered as received until it is corrected and re-submitted.

Please call now if you are experiencing difficulties in completing the returns, you have approximately 14 days from the day you receive this newsletter to file any outstanding returns – we can help.

New Annual Investment Allowance (AIA)
HMRC are proposing a change to the way in which you can write off purchases of plant and equipment for tax purposes.

The change is likely to be introduced for companies on 1 April 2008, and for sole traders and partnerships 6 April 2008.

Presently small companies and enterprises can write off 50% of qualifying expenditure on plant and equipment against their taxable profits in the year in which the expenditure is made – any balance of expenditure brought forward or carried forward will then qualify for a writing down allowance. Medium sized businesses are restricted to a 40% initial or first year allowance.

From April next year the 50% and 40% first year allowances will be replaced with a 100% annual investment allowance for capital purchases in any one year of up to £50,000.

Obviously this will benefit certain firms and disadvantage others. If you have the ability to claim a 50% first year allowance on all your plant and equipment expenditure and this is changed to a 100% allowance on expenditure up to £50,000, you will be worse off if your expenditure exceeds the break even figure.

The breakeven figure for “Small” firms is £100,000 – if you spend more than this you will qualify for less tax relief post April 2008. The equivalent breakeven figure for “Medium sized” firms is £125,000.

Please note the following factors which also need to be taken into account:

  1. Qualifying plant and equipment expenditure does not include Motor Cars.

  2. If your company is part of a group, the group will have the £50,000 annual investment allowance which individual group members will have to share.

  3. Where a company has associated companies, companies under common control, each associated company will have its own £50,000 allowance.

  4. It is likely that HMRC will include anti-avoidance clauses to stop fragmentation of businesses to try and qualify for multiple AIA’s.

  5. It is unlikely that the introduction of the AIA will affect the other 100% tax allowances – for instance the 100% Business Property Renovation Allowance.

  6. On 6 April 2008 it is also predicted that the annual writing down allowance for plant and equipment will be reduced from the current 25% to 20% per annum. This writing down allowance is applied to the written down value of equipment brought forward from earlier tax years.

A note of caution – businesses may be encouraged by this annual investment allowance to make investment decisions purely on a tax basis. Even if you are a sole trader or partner paying tax at 40%, a £50,000 payment for equipment to save £20,000 in higher rate tax should only be made if there are compelling commercial reasons for the investment, as well as compelling tax reasons. Otherwise you may be draining £30,000 of working capital (and cash flow) from your business to buy an asset that may make very little contribution to future increases in profitability.

At present this change is based on the issue of a HMRC consultative document. It is likely that the legal framework will be included in next year’s Budget. We will need to monitor progress and will advise clients accordingly.

VAT on computers provided for home use – revised treatment
On 6 April 2006 the Government withdrew the Home Computer Initiative – from that date the provision of a computer for home use to an employee may become a taxable benefit.

On 13 August 2007 the VAT rules caught up!

Up to 13 August 2007 employers could still reclaim all the VAT they paid when they purchased a computer for an employee’s home use, as long as there was an element of business use.

From 13 August 2007 the VAT position is as follows:

  1. If the use of a computer at home is necessary for an employee to carry out their duties, the employer can reclaim all the VAT.
  2. In all other cases the reclaim of VAT