Mike Tombs's Blog

This blog provides information about tax, accounting and other issues affecting small owner-managed businesses in the UK. It is intended as a general source of information but you should not assume that everything applies to your specific circumstances. We are always happy to discuss providing tailor-made solutions to suit your individul needs. Visit www.tlaservices.co.uk to sign up for our free monthly Tax Tips and News newsletter.

Monthly Archives: May 2010

Emergency Budget – what can we expect?

We now have a coalition government between the Conservative and Liberal Democrat parties,

which is expected to adopt tax policies from both constituent parties. The coalition agreement

statement contains a brief note on tax issues. So what changes can we expect to see?

Income Tax

There will be a ‘substantial increase’ in the personal allowance from April 2011, with the

Lib Dem target of £10,000 being a ‘longer term policy objective’. It is possible that the income

threshold above which personal allowances are phased out (currently £100,000) will be reduced.

The 50% tax rate looks likely to remain in place until the budget deficit has been significantly

reduced. The tax position of all ‘non-doms’ will be renewed. There has been some suggestion that the flat rate remittance basis charge (currently £30,000) might extend to all non-doms.

The Conservatives want to recognise ‘marriage in the tax system’ by allowing up to £750 of unused

personal allowance to be transferred between spouses and civil partners if the recipient is a basic rate taxpayer. This would have a maximum value of £150. The Lib Dems will abstain from voting on this policy under the coalition agreement.

The restrictions on pension contribution tax relief for high earners will be unchanged. The Lib Dems

want to simplify this incredibly complex legislation and limit tax relief on all pension contributions

to the basic rate. Their manifesto also proposed making tax relief on gift aid donations a flat 23%.

National Insurance (NI)

The 1% increase in rates will take effect from 2011/12. However, the threshold at which employer’s NI becomes due will rise to about £7,000, which will save employers about £150 per employee. The employee’s NI thresholds will not rise, a reversal from the Conservatives’ original proposals.

Capital Gains Tax

Non-business capital gains will be taxed ‘at rates similar or close to those applied to income’, but there will be ‘generous exemptions’ for entrepreneurs. The annual capital gains exemption (£10,100 for 2010/11), may be cut back, perhaps to £2,000.

Inheritance Tax

The Conservative policy to increase the inheritance tax nil rate band to £1 million, has been shelved for now. The nil rate band has already been frozen at £325,000 until 2015, although this tax-exempt band can be transferred to the surviving spouse or civil partner.

Tax Credits

Both parties want to remove the £545 family and baby elements of tax credits for those

earning £50,000 or more. The Lib Dems’ manifesto proposed fixing the tax credit award for six

month periods, to prevent the claw-back of accidental overpayments.

VAT

There is no mention of VAT in the government’s coalition agreement, but most economists

believe that there will have to be an increase to deal with the deficit.

Stamp duty land tax

The two year £250,000 threshold for stamp duty land tax introduced for firsttime buyers in the March Budget will be reviewed for its ‘effectiveness’. Rules to prevent the avoidance of stamp duty land tax by using offshore trusts may be introduced.

Other taxes

The parties have agreed to change Air Passenger Duty to a charge per plane, ensuring the charge will apply to cargo flights as well as to commercial and private passenger flights. The climate change levy may also be reformed.

The date of the emergency summer Budget has been announced for 22 June.

Do you have what it takes?

Note that this is a shortened version of a detailed guide I have put together. The full guide goes into details about the thinking behind the various questions posed and gives some thoughts about what you can do to overcome the impact of answering ‘No’ to some of the questions. If you want the full version please request it via the ‘Contact Us’ tab on www.taxassist.co.uk/miketombs. You will not be spammed with anything else or put onto a mailing list as a result!

Do you have what it takes to become self-employed?

 

Everyone has skills, be they in washing cars or putting together multi-national financial transactions. The people valeting cars at the local shopping centres are self-employed, so what’s stopping you?

 

For people who are unemployed or earning very low wages, the risks of becoming self-employed are relatively small. An unemployed person who decides to become a market trader may lose a few pounds that he really can’t afford to, buying goods he can’t sell on, but he’s not risking a weekly or monthly wage by leaving a paid job to work for himself.

 

A car mechanic working for a local garage may well be able to make more money by branching out on his own. If it doesn’t work out though, he will have lost his job, his wages, and possibly pension contributions and other benefits too. It could take months for him to find other work.

 

Of the nine out of ten businesses that fail, many will be through no fault of the owner at all. Like everything else, business is unpredictable. We have all seen the effects of the economic collapse which has impacted on the small-business sector as much as on any others. In the United Kingdom the five-year survival rate is about 17%.

 

Common causes of failure include:

 

  • Insufficient capital to get through the initial or expansionary phases
  • Lack of skilled personnel
  • Failure to demonstrate a sustainable marketing advantage
  • Lack of bookkeeping and other administrative skills
  • Failure to collect sums due from customers
  • Reluctance to seek professional input and advice
  • Inadequate attention to the business by the owners
  • Inadequate insurance
  • Over-pricing or under-pricing goods and services sold

 

Self-employment is not for the faint-hearted. Most people starting out underestimate the pitfalls and overestimate the upside potential. Equally importantly, they overestimate their own suitability to enter the world of the self-employed.

 

To get an indication of how suited you are to self-employment, answer the following questions honestly. The only person you can cheat is yourself.

 

Q 

Question

 

No 

Yes 

1 

Are you a (rational) gambler? 

   

2 

Are you generally a positive or a negative person? 

   

3 

Do you have total support from your family? 

   

4 

Do you have sufficient funds for the short-term? 

   

5 

Are you a self-starter?

   

6 

Do you have a good credit record? 

   

7 

Have you run your own business before? 

   

8 

Do you have the technical skills required? 

   

9 

Do you have the support-services skills required? 

   

10 

Are you status-conscious? 

   

11 

Are you a people-person?

   

12 

Do YOU think you’ve got what it takes? 

   

 

To obtain the full version of this guide please request it via the ‘Contact Us’ tab on www.taxassist.co.uk/miketombs.