Tax Update Bulletin - February 2008

1. Fuel Rates

From 1 January 2008 new advisory H M Revenue & Customs fuel rates, which you would use where fuel only is paid to employees in cases where cars are already provided by employers and not the fuel. This is the third time these rates have been changed, the last time was 1 August 2007. If these rates were used there are no deductions of tax or National Insurance to the employee. The revised rates per mile from 1 January 2008 are:

C.C.                                       Petrol           Diesel              LPG

1400 or less                            11p                11p                 7p

1401 to 2000                          13p                11p                 8p

Over 2000                               19p                14p               11p

These are mostly increases to reflect the recently increased fuel prices.


2. Stamp Duty Office

H M Revenue & Customs are centralising most of their stamp duty work into their Birmingham office at 9th Floor, City Centre House, 30 Union Street, Birmingham B2 4AR. Most other stamp offices are already closed including London and Manchester. H M Revenue & Customs retain an office in Scotland in Edinburgh for legal reasons.


3. Self Assessment Online Filing

Another year has passed with regard to the online filing and the 31 January 2008 deadline has gone by. This year online filing was far more robust and is very likely to become the norm, particularly given that the deadlines for non-online filing are to be brought forward for the next tax year. There were a few glitches in the system this year but primarily great improvements have been made in the Revenue online systems, compared to before.

4. H M Revenue & Customs Openness and Early Dialogue in Tax Enquiries

H M Revenue & Customs are attempting to adopt a more open approach to their enquiry work, in connection with their enquiries into tax payer’s tax returns. They are currently running this on a test basis and it may be that tax payers will be subject to this in the future. Whilst to some extent this is to be welcomed, in broad terms the rules concerning arriving at tax liabilities remain unchanged and therefore it is more of a superficial change, rather than any substantial change to the way in which settlements are arrived at. Should H M Revenue & Customs contact you, then whilst we should be informed of the matter by H M Revenue & Customs it is still important that you involve your accountant.


5. Income Shifting

In December 2007 H M Treasury issued a consultation document on some draft legislation to take effect from 6 April 2008. Broadly speaking the government is trying to identify cases where, particularly in family companies or family partnerships, income is shifted away from those principally involved in the business to other members of the family not involved. To date this has not been an area that H M Revenue & Customs have traditionally attacked in practice, but it is now something that they are looking into to ensure fairness to all tax payers. The tax professions have lobbied the position and there is currently an Early Day Motion being brought to Parliament to object strongly to this proposed change. If the changes are made then it will affect family partnerships and family companies, where dividends are paid to distribute income out of those companies. It is recommended that these provisions are discussed with your accountant to decide how they may impact on your business arrangements and any action that can be taken at this stage.


6. Capital Gains Tax Reform

The Government had drafted legislation to be brought into the Finance Bill 2008 with effect from 6 April 2008, which will change the way in which capital gains are taxed, compared to the current position. The main proposed changes are that from that date there will be a single capital gains tax rate of 18%, the reliefs known as taper relief and indexation allowance will be abolished and there will also be simplification of various rules, particularly in relation to shares and assets held at 31 March 1982. The initial reaction to these changes was that it would adversely affect businesses, as currently in broad terms if they qualify for full reliefs, would be aiming to pay a rate of 10% capital gains tax, compared with the proposed 18% after 6 April 2008. Considerably lobbying took place and as a consequence of that the H M Revenue & Customs Capital Gains Tax Team issued a proposed relief on the disposal of a business, known as Entrepreneurs Relief, which would broadly apply where a business was being disposed of after 6 April 2008, in that the first £1 million of gains qualified for this relief, which would return the effective rate of capital gains tax to 10% in relation to those gains. This relief is currently being developed by H M Revenue & Customs but it is their intention to bring this in from 6 April 2008. Again it is advised that if it is the intention to dispose of a business then this should be discussed to decide whether or not any action can or should be taken, given these proposed changes.


7. Car Benefits and Car Fuel Benefits

From 6 April 2008 these will be increasing, particularly in relation to the car fuel benefit, for which the calculation of the benefit has been increased by approximately 17% compared to the previous years. It may be worth reassessing the position, particularly in relation to fuel benefit and whether it is worth continuing with the same arrangements, if the options are available.