Whichever party gets elected tomorrow, no new government can avoid the reality that three of their major revenue streams are going to be basic rate income tax, national insurance and VAT.

All main three parties have announced there will be spending cuts, but these will only go some way towards reducing the UK’s massive deficit, so it’s a no-brainer that further tax rises are likely. Already last month, the new 50% top rate of tax has come into effect for incomes over £150,000, with personal allowances for anyone earning over £100,000 already scrapped.

So what might each of the three have in store for us?

LABOUR
PAYE/Tax : Income tax is to remain at current levels. Personal allowances are to be frozen though, meaning tax bills will rise as incomes increase
NI: National Insurance will be increased by 1% from April 2011 to 12%. The threshold at which NICs become payable will be raised so that anyone earning under £20,000 p.a. will not be affected
Capital Gains Tax (CGT) – no announcements on changes to the rate CGT, currently at 18%
VAT: – No proposed change to VAT rates

CONSERVATIVE
PAYE/Tax: No plans to raise income tax rates. The new 50% rate may not be a permanent feature. Transfer of £750 of personal allowances within married couples and civil partnerships will be allowable.
NI:- Will protect middle earners from the 1% NIC rise by increasing contribution thresholds so that individuals earning less than £35,000 will pay no more in cash terms.
CGT: No plans to change CGT rates
VAT: No plans to change VAT rates

LIBERAL DEMOCRATS
PAYE/Tax: Personal allowances to be increased to £10,000 (from £6,475), but basic rate band reduces from £37,400 t o £33,875
NI: Nick agrees with Gordon here – and will support Labour’s proposed changes
CGT: Will tax CGT at income tax rates, also will reduce the annual exemption to £2,000 from £10,100
VAT: No change to VAT rate

Although none of the three are proposing to alter the current VAT rate of 17.5%, many experts predict a rise to at least 20%, which would also be more in line with European VAT rates and, whilst neither Labour nor Conservative say they are going to raise CGT rates, it is widely expected that the gap between the 18% flat rate and the 50% top rate of income tax, will be narrowed in the future.

Watch this space!

Alaister Darling recently admitted that the economic downturn will reduce the Government’s tax take, leaving an alleged £23 billion hole to be filled.  HMRC is under instruction to improve its tax collection techniques,  which it is already doing by launching more investigations.

So, what’s changed?

Under new guidelines, a rise in expenses of 10% year on year could prompt a tax investigation, compared to a previous threshold of a 20% variation.  The Revenue’s recently updated computer systems are red-flagging anything out of the ordinary, or usual trading pattern, for example:-

• changes from prior year, i.e. rental income for years, then none, but no Capital Gains on disposal.
• consistent turnover at a VAT threshold
• provisional figures
• capital gains

What can YOU do to keep under the radar?

Do your own comparative analysis on…

• Income – turnover and gross profit
• Expenditure – employee costs, pension costs, repairs, entertaining
• Balance sheet – stock and WIP.  Use accurate figures.   If using estimates, make them look realistic and  check assumptions.

Keep records of any private use.  Be able to explain any where any extra deposits come from; they may be additional taxable income.

As usual, it is essential to keep all supporting paperwork.  In addition, should you receive a query from the taxman, respond promptly.  The Revenue is more likely to think you have nothing to hide if you do not delay.

Contact Julie or Aileen at accounts@fabaccounts.com for any additional advice, or leave us a message below.  We can now offer tax investigation insurance, which will cover your professional fees in the event of an unwelcome visit from HMRC, and give yourself peace of mind.   Phone us for a quote today on 01933 356286.

In November 2008, H M Revenue & Customs launched a new dedicated Business Support Service.

It is designed to help businesses affected by the current economic climate. HMRC will review each business and discuss options such as arranging for payments to be made over a longer period. However, they will only deal with new enquiries – if you have already made arrangements you should contact the office you originally dealt with.

The service is available 7 days a week. They will need your Tax Reference, details of Tax due and basic details of your business income and outgoings. Interest will continue to be payable but no late payment surcharges will be added.

DONT’ WAIT UNTIL YOUR PAYMENT IS OVERDUE.

Contact them now on 0845 302 1435

Labour cost is usually the most significant for any business, which is why redundancy is one of the most obvious ways a company can reduce its overhead.   Should the worst come to the worst and you have to reduce your costs to survive,  just remember your considerations as an employer.

These considerations are there to protect both you, and the employees in the event there’s any disagreement on how redundancies are carried out.

As ever theres a lot of documentation on-line for this,  but here are the basics.

What exactly is redundancy?

It is a form of dismissal from a job – reasons can include:

• new technology/systems have made a job unnecessary
• the original job no longer exists
• essential cost cuts means staff numbers must be reduced
• the business is closing down or moving

How much will I have to pay?

It depends….on:-

• Their age
• Length of continuous service
• Rate of weekly pay

Important!!!

Normal notice conditions still apply. i.e. if an employee is contractually obliged to 4 weeks notice, this must still be given or paid for in addition to any redundancy pay.

Who is eligible?

It can be anyone in the organization, but you need to be objective and ensure that no-one is selected unfairly.  There should also be an appeals procedure.

What can be taken into account?

• attendance record (if this is fully accurate and reasons for and extent of absence are known)
• disciplinary record (if this is fully accurate)
• skills or experience
• standard of work performance
• aptitude for work
• Formal qualifications and advanced skills, but not in isolation
• Voluntary Redundancy

Who not to select?

There are a number of selection criteria which could result in an unfair dismissal claim, the most common of which are noted below:

• being on parental leave, or maternity-related grounds
• working  part-time
• requesting flexible working arrangement
• Whistle-blowing
• participation in trade union activities
• taking action on health and safety grounds
• refusing to work on a Sunday

What happens next?

Consultation
If you intend to make 20 or more employees redundant over a 90 day period, you must consult your employees.  Lack of proper consultation may result in an employee being eligible to take legal action.

Other Obligations

Job Hunting

If eligible, reasonable time off with maximum of 2 days pay –to look for another job, attend interviews or training for future employment.

Other Help

In addition to allowing your employees time off to look for new work or for training, it’s good practice to give redundant employees as much information as possible to help them at this difficult period of their working lives.  Where possible, some support and advice should remain available to redundant employees after their dismissals.

Alternatives to consider

Reduced Hours/Pay

It may be possible to reduce the working hours/pay. Normal practice would be for the workforce or their union to agree to short-time working as an alternative to redundancies. Employees placed on short-time working might be able to claim Jobseekers Allowance for the balance of the hours they don’t work.

Early retirement – Any volunteers ?

Sabbatical – Some employees may wish to take time off to travel, take part in a charitable project or return to education with the option to return to work at some future date.

Before embarking on any decision making you should always take legal advice!.