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PLEASE NOTE: This article was correct at the date of going to press, but details and rates described are liable to change over time – please check the tax rate section of our newsletter for up to date details. Welcome to our Winter 2002 Newsletter!
Please contact us about any of the
matters raised in this newsletter
Historically, a car purchased by a business has been eligible for a tax deduction by way of capital allowances. However, these have been restricted to 25% per annum and, in the case of cars costing £12,000 and over, to an annual maximum of £3,000. In order to encourage investment in ‘cleaner’ cars, new rules have been introduced which allow a 100% up front tax deduction, provided certain conditions are satisfied. We summarise the conditions and give an indication of some of the cars that qualify. Conditions to be satisfied
Some of the cars qualifying for the new 100% allowances
Warning! Be careful that your precise desired specification has CO2 emissions not exceeding 120gm/km. For example an automatic as opposed to a manual can add significantly to the emissions. A final word Remember that if the car is for the proprietor of an unincorporated business the allowances will be restricted to take account of the proportion of private use.
Please talk to us if you need any further information or wish to discuss any of the points raised in this article. Franchising - risk or business certainty?
The advantages of franchising These include:
Some disadvantages Of course there are potential disadvantages. It is not always easy to evaluate the quality of a franchise especially if it is relatively new. You should make extensive enquiries to ensure a franchise is strong and not take on one that doesn’t have a proven pilot operation. Who is in control? Each business outlet is owned and managed by the franchisee. However, the franchisor retains control over the way in which products and services are marketed and sold, and controls the quality and standards of the business. The costs The franchisor receives a fee from the franchisee together with on-going management service fees. These will be based on a percentage of annual turnover or mark-ups on supplies. In return, the franchisor has an obligation to support the franchise network with training, product development, advertising, promotional activities and a specialist range of management services. Choosing a franchise Consider the following:
If this is something you want to think about further contact the British Franchise Association at Thames View, Newtown Road, Henley-on-Thames, Oxon RG9 1HG. Telephone 01491 578050. Alternatively visit their website at www.british-franchise.org
Company
cars...and vans...and fuel
Vans When the new rules for cars were introduced the Inland Revenue said that they were reviewing the position on company vans. Currently the maximum annual taxable benefit for a company van is £500 whatever its list price and CO2 emissions. Free fuel The current rules give rise to a further taxable benefit if, in addition to a company car, you are provided with fuel for private motoring. The benefit is determined by reference to the engine size of your car. This is set to change from 6 April 2003 when the benefit will be determined by reference to the CO2 emissions of your car. The calculation will require you to take the same percentage as that used for your car benefit and for 2003/04 apply it to a figure of £14,400. This means that the maximum benefit for the provision of private fuel next year will be 35% x £14,400 - ie £5,040. Generally you would need to be doing rather more than 10,000 private miles a year for the benefit to be worth bearing. At lower private mileage levels, the alternative of paying for your own private fuel could be cheaper and you would be saving the company some Class 1A national insurance contributions. Contents | Please contact us with any questions
An increasing problem? Rising house values in particular have contributed to the increasing inheritance tax problem. Currently the tax is charged at 40% on everything in an estate above a £250,000 threshold.
There is a way of leaving all of your wealth directly to a spouse on death which still enables use of the £250,000 nil rate band. It can be done by each spouse writing a tax efficient Will including a discretionary Will trust with a debt-charge arrangement. Such a Will is sometimes referred to as a Loan Plan Will. In essence the plan works by leaving everything to the surviving spouse as before but in addition leaving £250,000, typically in the form of a charge on the house, to a discretionary trust. On the death of the first spouse there is no inheritance tax liability. On the death of the second spouse, his or her estate is reduced by the £250,000 owed to the trust. Such an arrangement for Mr and Mrs Smith would save the whole £100,000 inheritance tax liability. The children then inherit everything free of tax when Mrs Smith dies but she has had use of all the assets without restriction during her lifetime. She could have sold the house and purchased another one. Furthermore, a local authority cannot make a charge against any portion of a home owed to a trust should the surviving spouse need to go into long-term care. We would welcome the opportunity to talk to you about inheritance tax planning. Please get in touch if this is an area of concern for you. Contents | Please contact us with any questions
The majority of people investing in films do so through film partnership arrangements. Individuals invest in the partnership and the partnership then uses the funds to purchase a film from the producer. The film is then leased back to the distributor in return for an annual income stream typically lasting 15 years. The investment is financed partly through cash and partly through bank borrowings arranged for the purpose.
However, if the benefit of the scheme is merely a tax deferral, what purpose does it serve? The tax break on its own is not enough. For the scheme to have real benefit, it will be necessary to put the tax refund to good use and invest it so as to earn a return in excess of around 4%. The precise figure depends on the particular circumstances but the required return is generally referred to as the hurdle rate. Assuming this is possible, a film partnership may look very attractive. Remember however that the schemes are unregulated investments so there is no investor compensation if things go wrong. Please talk to us if you would like any further information.
Bad debt relief If you sell to a customer and account to Customs for the VAT on the sale but the customer fails to pay you, you can claim a refund of the VAT paid. Currently this requires you to wait six months and in addition to write to your debtor customer advising that a claim for VAT bad debt relief has been made. For supplies made from 1 January 2003, relief can be claimed automatically after six months without having to write to your customer. This change is designed to make claiming the relief easier and removes any commercial barrier to claiming relief in circumstances where the late payer is a valued customer. VAT repayments Marks and Spencer has had a long running dispute with Customs over VAT repayments going back to the introduction of the tax in 1973. Customs had argued that any repayment must be limited to three years by virtue of the capping provision introduced in 1996. However, the European Court of Justice has decided that although the three year cap is lawful it should not have been introduced retrospectively. The consequence is that some businesses may now be entitled to further VAT repayments and Customs is inviting claims where:
All such claims say Customs must be made by 31 March 2003. Further details can be found in Business Brief 22/02 which can be found at www.hmce.gov.uk Contents | Please contact us with any questions Businesses forced to make website and e mail changes
You should read this article if your business:
The new rules cover the provision of information, electronic marketing and forming contracts. Failure to comply could mean the cancellation of orders, payment of damages for breach of contract or even a stop now order forcing a business to change its procedures. We summarise the new requirements below. Summary of new requirements Businesses are required to:
The DTI website has further detailed information on how to comply with the new regulations. UK 200 Group News The UK 200 Group has developed a marketing action plan - 'Marketing for Success' - which was presented at the Group's annual November conference held in Manchester. As usual, the conference was attended by partners from most UK 200 member firms. There will be a wide strategic review of the UK 200 Group in 2003 and renewed focus on our products and services. Disclaimer
- for information of users
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