Tax Partner's Blog - 19th December 2008

Tempting though it is, I will not start this blog with “bah humbug” or some misery about the state of the economy and the Government’s total incompetence – there’s so much gloom in the media I just don’t need to. 

The UK economy is on its knees, 2009 will be terrible, the banks have no money, the UK is bust, the currency is worthless…etc etc…but, you then see the state of so many other countries in the world and realise a UK in recession is still better than many other places.  So let’s be positive and get on with “beating the system” where we can.  Let’s see if we can minimise taxes and thank Mr Darling and Mr Brown for setting borrowing and tax structures for the UK that will see me in work for the rest of my working life !

I suppose, as we get to the end of the year, 2008 will not be looked upon fondly by many businesses.  It was the year that the world’s finance came unstuck and the reality that spending borrowed money doesn’t really make you rich, just makes you look rich, came home to roost in the UK.

It’s not ALL bad though really!

The first good news is that a number of clients have had notable success in agreeing “soft” payment terms for tax by using the HMRC business support service for debt.  This was announced in the PBR last month and a quick click to www.hmrc.gov.uk should see you finding a link on the home page.  The Revenue seem very keen to allow taxpayers to pay “on the drip” with interest (for most taxes 5.5% just now – but it might come down as that was based on 3% base rates).

The next good news is that if you are making trading losses you can potentially carry them back against past profits and “release” past tax payments.  I don’t wish losses on you but if you have them it is worth getting your accounts done early if you paid tax last year on profits.

However, the rest is probably bad news for most businesses who rely on their banks to support them in “fair weather and foul”. 

Our experience is that the banks are all seeking to "deleverage" - so less borrowing to customers.  For those with substantial facilities we are seeing substantial pressure by all of the main banks to increase their margins, to move to “LIBOR” based lending terms instead of the base rate.  Any new client is being met with a more cynical eye and there is little appetite for new customers unless they are bringing a deposit. 

It would be easy to criticise the banks for our woes and, certainly, it is sad that the leading lights of the Scottish economy were so obviously operating businesses that couldn’t withstand any “stormy weather”.  Within Milne Craig we are very sympathetic to many of the friendly contacts we have within the main banks.  For the most part, many bankers were doing a good job and have been just as let down by their employer's "strategic vision".

However, sympathy is one thing but the partners and directors at Milne Craig share the frustrations of many of our clients.  The failures in banking have led to a near total loss of new lending for UK businesses.  What is the result of the "computer says no" reality?  We have to suspect 2009 will see a "hard landing" for the economy - many consumers and businesses cannot obtain finance.  A real problem because our UK economy has become totally reliant on credit - as people don't spend what they've earned but what they "are going to earn".  It's been a boom in the psychology of "I can afford that car as it's only £400 per month". 

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So, what tax tips do I have –

1. If you are spending money on capital projects take time to see that you get clear invoices and ensure that you try to isolate the money you spend on environmentally helpful plant – see www.eca.gov.uk – as these items generally get a 100% write down for tax.  If you are involved in the sale of plant that might qualify – have a look!

2. If you are making trading losses call Milne Craig-  make sure we get early accounts drawn up so that we can carry back your loss and get tax repayments.

3. The rules for tax relief on plant have changed and cars, in particular, are likely to be contract hired more efficiently than purchased (if company buys).  The benefit in kind tax on cars is not bad for cheaper / lower CO2 cars.

4. Watch out if you run vans – if the “men” commute in them make sure they have a written private use ban and that you monitor this – or keep mileage logs.  The benefit in kind if a van is used for private use (commuting in a van is okay but not in a car!) is £3,000 so the tax cost is significant.

5. If you are making staff redundant, take advice on the tax aspects – people assume the first £30,000 is tax free but, as always, the tax rules aren’t that simple – you need to take real care to get the tax on such payments right.

Before I sign off for the year, may I wish all the "blog readers" a Merry Christmas and a happy (and prosperous) New Year.

Thank you for reading my blogs.

Regards

Donald Parbrook

Tax Partner

***The above is a personal commentary by Donald Parbrook, tax partner, and his comments my not reflect the views of the firm or his colleagues***

*** Always take individual tax advice before acting on comments on a web page***