RSS logo
Home > News > Latest news > Tax > Nine for 2009

Events

Latest news


Press releases

Our publications

Recently visited pages

Nine for 2009

“Happy new year” may not be the 2009 experience for many businesses. With efforts focused on boosting revenues and cash flow and minimising costs, businesses should not overlook possibilities for tax saving and make sure they watch out for tax pitfalls. In this article we identify nine practical ways for business to reduce their tax outflows or improve their tax related cashflows in 2009:

1. VAT cashflow.

Businesses which are entitled to claim back all or some of the VAT they pay on purchases should check that their system captures information to claim relief at the earliest opportunity. Emphasis on controlling costs can lead to delays in processing invoices with more queries or additional steps in the approval process. Delayed invoices can mean the VAT is not included in that month or quarter’s input tax. There are several ways businesses can speed up their VAT recovery, including:

  • processing invoices at an earlier stage - in advance of approval,
  • listing the VAT on unprocessed invoices to be added to the VAT per the accounting records, or
  • if outstanding invoices are too numerous to feasibly list, securing HM Revenue & Customs’ agreement to a basis for estimation.

However, if you adopt any of these solutions be careful to think about any knock-on implications, for example not doubling up claims for input tax with a claim for already claimed VAT in the next VAT return.

2. VAT partial exemption.

Businesses that make some supplies that are VAT exempt cannot usually recover all of the VAT they suffer. Since VAT on their expenses is a real cost to these businesses, they will now be benefiting from the December 2008 reduction in VAT. But even with 15% VAT, irrecoverable VAT can be a large cost to these businesses. If the downturn has changed your business pattern, now may be a good time to review the basis on which any recoverable VAT is computed.

3. Claim back overpaid tax.

Companies with a ‘large’ corporation tax liability have to pay quarterly based on estimated profit figures, and those with large VAT liability have to make payments to account in advance of their quarterly VAT date. Make sure that up to date estimates are used and if there is a fall in expected profits or VAT liability – for example due to the insolvency of a customer – the company can ask HM Revenue & Customs for a repayment of tax or reduction in payments on account respectively.

4. Reduce cost of employees’ pay, without reducing their pay package.

There are many forms of non-cash benefits where changing the way the company provides the benefit can reduce national insurance and, in some instances, income tax. In a “salary sacrifice” arrangement the employee agrees to reduced cash pay for equivalent non-cash benefits such as additional holiday, contributions to their pension scheme, or childcare vouchers. Significant savings can be made but it is vital that all the paperwork is done properly. For example HM Revenue & Customs are known to be unhappy about schemes that replace salary with meals and food at a staff restaurant. It is also necessary to consider non tax implications such as employment law constraints and how it will impact on pension entitlement.

5. Reduction in staff – beware PILON.

If redundancies have to be made, both companies and employees expect that up to £30,000 of any redundancy payment will be free of tax and national insurance. Unfortunately, this is far from being a foregone conclusion and many requirements have to be met to obtain the benefit of the tax free lump sum. Imposing any conditions on payment, such as tying it to the employee completing tasks, makes it fully taxable and liable to NIC. Any payment made under a term of the contract of employment, whether explicit or implied, again makes it taxable. Payments in lieu of notice (‘PILONs’) can be a minefield and are frequently a source of additional tax revenue for HM Revenue & Customs where employers get it wrong. Incorrectly making payment without any deductions is likely to land the employer with a sizeable tax and national insurance bill.

6.Companies – R&D allowances.

Companies’ spending on research & development can attract enhanced tax relief, but many companies fail to realise they may be able to make a claim. There are two R&D tax relief schemes – one for large companies and a more generous scheme for small and medium sized companies (‘SMEs’). In the SME scheme the Government effectively subsidises the cost of R&D to the tune of 49p in every pound. If the company has no profits to use the relief then the SME scheme is particularly attractive as the R&D relief can be surrendered for a cash payment of 24.5p in every pound, which can be a sometimes substantial and always useful additional source of cash-flow. Some aspects of the R&D relief have been tightened up making it important to take advice based on each company’s own circumstances, not least since the rules are fairly complex . However, it is usually worth the investment of your time to identify expenditure that is eligible for R&D.

7. Overseas investments – major changes heralded.

After much discussion and consultation, most dividends companies receive after 1 April 2009 on shares they own in non-resident companies are expected to be free of UK tax, based on draft proposals. Inevitably with a generous exemption the legislation will include several exclusions. Most notably, as the proposals currently stand, dividends that small companies receive from 10% or greater shareholdings in non-resident companies will contine to be liable to UK tax (with double tax relief). This seems particularly harsh on small companies – so if it affects you adversely you might wish to make representations on the proposals by 3 March 2009. And there will be complications for shareholdings in “controlled foreign companies”, or CFCs. Business should prepare for the change and decide on timing and amounts of dividend receipts. Some exemptions from the CFC regime will be removed and so groups that rely on these should undertake a detailed review.

8. Pension scheme funding.

Companies with final salary schemes may be facing worsening deficits. Rather than make cash payments, consider transferring assets, such as property, to the pension scheme. These contributions in kind conserve the company’s cash but they will reduce the scheme deficit and the value of the assets transferred will be tax relievable.

9. Extended period of tax loss carry back.

The final of the nine ideas for 2009 is the one year window for an extended loss carry back that the Chancellor announced in the Pre-Budget Report. The normal rule is for a one year loss carry back. The carry back period is being extended to three years – and with the extended relief over and above the normal rules limited to £50,000 of losses per company or business. So amounts of potential relief are not large, but for smaller groups it could be a useful benefit.

It is always important to take advice first so that your own business' facts and circumstances can be taken into account.

National contact

Richard Service

Tax Director
+44 (0)141 225 4935

Contact us