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Blog posts tagged Corporation tax

How you can legally get away with not paying Corporation Tax

September 22, 2010 by Elaine Clark

Amazingly, a change in policy means that if Companies House compulsorily closes your company you could avoid paying any Corporation Tax you owe.

How? It seems that Companies House has adopted a new approach to closing a limited company (by a process known as “striking off”) if that company does not complete an annual return.

An annual return, of course, is a snapshot of certain company information at the made-up date (ie address of registered office, details of directors etc). It is different to the company accounts and does not contain any financial data about the company’s performance.

There are no fines for filing the annual return late, unlike if you file your accounts late, where fines start at £150 and rise to £1,500 for private companies.

For clarification, I telephoned the Companies House helpline and was told: “We changed this in about August 2009. If companies do not reply to our letters, we begin the ‘strike-off’ after about two to three months. The change was as a result of a policy decision – not a change in law.”

What does this mean?

As a result of the action by Companies House to close the company, technically, the company no longer exists. And a company that no longer exists cannot pay Corporation Tax.

Because Companies House took this action, the directors or shareholders have not avoided their duties to inform creditors.

So let’s just say you have a company that has traded, made a profit but for whatever reason has been compulsorily closed down by Companies House, then you could just start another one and do the same again.

What is going wrong?

It seems that while HMRC is told of these compulsory closures, it is not doing anything about them.

It could easily stop the close down until it has the final accounts and tax paid by the limited company.

Why doesn’t HMRC do something about it? That’s the question I would love to have answered.

Should HMRC do something? Well in my opinion – yes. At the moment, in this regard, HMRC is avoiding collecting taxes. Mind you – should we be surprised about another HMRC fiasco?

Footnote

While I totally disagree with the ethics behind owners of companies taking advantage of this loophole, it is legal and done with full knowledge of Companies House and HMRC. So who am I to question it?

Caution – if the company is closed the business bank account will be closed and the money belongs to the Crown, as will any other company assets.

There may also be other reasons for not wishing your company to be closed down. However, I’m sure there will be a few who will enjoy making use of this loophole.

Elaine Clark, www.cheapaccounting.co.uk

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Pre-Budget Report 2009

December 15, 2009 by Raphael Coman

In his last Pre-Budget Report before the general election, Chancellor Alistair Darling unveiled a number of measures aimed at bringing about economic recovery in the UK economy.

For individuals, the allowances will remain frozen at 2009/10 levels, although the pledged increase in income tax for those earning over £150,000 will be introduced on 6 April 2010.

There will be a rise in National Insurance of 0.5% from 6 April 2011, affecting all those with earnings over £20,000. The temporary VAT rate cut will cease on 31 December 2009 and at the same time the stamp duty holiday will end. Due to a lack of rise in property prices the inheritance tax allowance will be frozen at £325,000 until 2011.

For businesses there will be a deferral of the increase in corporation tax and an extension of the empty property relief and of the Enterprise Finance Guarantee for a further year.

Income tax rates and allowances
Income tax rates and thresholds for 2010/11 will be unchanged from 2009/10, with the notable exception of a new 50% rate that will apply to income above £150,000. With the tax thresholds static, the effect of any inflation will cause a real terms reduction on net income.

Pension contributions
The proposals to restrict the pension relief on contributions for those earning over £150,000 were confirmed for 6 April 2011. The Chancellor also announced an immediate measure to prevent high earners from avoiding the restriction by receiving pension payments instead of salary before the new rules take effect. This anti-avoidance move applies to those with income over £130,000.

National Insurance
The increase of 0.5% in National Insurance planned for 6 April 2011 has increased to 1%; double the amount announced in the 2008 Pre-Budget Report. The higher rates apply to employees, employers and the self-employed from 6 April 2011. The limit at which an individual starts to pay national insurance will also increase by £570 on the same date. As an overall effect, those with earnings below £20,000 will not be any worse off.

Corporation tax
At last – some good news. The 1% rise in corporation tax for small companies, which was due to take effect on 1 April 2010, has been postponed until 1 April 2011.

VAT
The VAT rate will revert to 17.5% from 1 January 2010, but no other VAT changes are proposed. For businesses using the flat rate scheme, the percentages are also changing on 1 January 2010. Most flat rates will go back to being the same as they were before 1 December 2008. For certain businesses it may be beneficial to leave the scheme in the new year, which can be done voluntarily. We can help you to decide whether it will stay worthwhile to use the flat rate.

Business rates
The exemption from business rates will be extended one year to 31 March 2011 for all empty properties with a rateable value below £18,000. The increase in the threshold from £15,000 to £18,000 reflects the rise in rateable values from 1 April 2010.

Furnished Holiday Lettings
The tax benefits available to furnished holiday lettings will be removed from 1 April 2010 for companies and 6 April for unincorporated businesses. The changes will not affect hotels or bed and breakfasts. The withdrawal of the treatment will mean that with respect to furnished holiday lettings:

  • Losses will only be available to reduce profits from other property income.
  • Profits will not count towards income on which pension relief can be obtained.
  • Special treatment for capital gains tax purposes will no longer continue.

Stamp duty
The increase in the limit on which an individual starts to pay stamp duty, announced in September 2008, will finish at the end of the year. From 1 January 2010, stamp duty will be payable at 1% on residential properties over £125,000.

Stamp duty is normally charged at the completion date or the date on which an individual takes possession of the property. To avoid stamp duty of 1%, transactions on properties between £125,000 and £175,000 will usually need to be completed before 31 December 2009.

Inheritance Tax
The threshold on which an estate is exempt from inheritance tax was due to rise to £350,000 on 6 April 2010, but it will now be left at £325,000 for a further year. The government has sited a lack of improvement in the property market as a reason for the change.

Other tax changes
Backing from the government for loans to small businesses through the Enterprise Guarantee Scheme will be extended by another year to 31 March 2011.

Banks will pay tax on all discretionary bonus over £25,000 at 50%. The 'super-tax' will be payable by banks in addition to income tax and will take immediate effect.

An employee's use of an electric car will be a tax-free benefit in kind for five years from 6 April 2010. In addition, where a company acquires a new electric van from 1 April 2010, it will be able to deduct the full cost from its profits for tax purposes. Meanwhile, the tax cost of providing non-electric cars and vans as a benefit will increase from the same date.

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