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This article relates to UK tax law and is posted by a UK Chartered Accountant. In particular it relates to tax saving schemes that envolve Employee Benefit Trusts or EBTs for short.

There are a number of tax saving schemes marketed to freelancers and contractors, but these schemes can be sensitive to changes in the tax law. One such scheme that involves loans made though particular trusts (known as EBTs) has recently been taken off the market by various suppliers.

Under the EBT scheme the freelancer becomes an employee of the company in the scheme but receives only a small wage, which is subject to tax in the normal way. All his other income is provided as a loan through an EBT. The freelancer pays no tax or NI on the loan capital, but he is charged tax on the deemed interest on the loan, (i.e. on 4% of the value of the loan). The scheme assumes the loan will remain outstanding forever, so the capital value of the loan (which increases with each payment) is never taxed.

However, new tax legislation has been proposed that will apply a tax charge to loans provided under such schemes from 9 December 2010. The employer will be responsible for paying the tax due, as if the loan was regular salary. The tax and NI savings are thus eliminated.

This new tax legislation does not prevent shareholder/ directors taking loans directly from their own companies, or employees receiving season ticket loans from their employers. In both these cases the loan is not provided through a third entity such as an EBT, so it is not taxed as regular salary. However, tax charges can apply to both the company and the director when a director borrows from their own company.

This is a complex area of tax law. As such, if you operate an EBT and need help or for specific taxation advice it is recommended that you contact a firm of Chartered Accountants such as Bridgend Accountants.

For tax tips and information or to read more useful tax articles please vist the Accountants Pontypridd website.

The author does not guarantee the accuracy of any information provided in this article in any way and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and information contained within it may be out of date.

The following is a UK tax tip from a Chartered Accountant.

The cycle to work scheme allows employers to lend cycles to their employees tax-free, and in some cases the employees can purchase the cycle at the end of the loan period. However, the Taxman is looking carefully at abuses of this scheme…

- Some employers treat the loan of the cycle to employee as part of the employee’s salary and reduce their cash wages proportionately. This is known as a salary sacrifice, and the arrangement must be agreed with the relevant employee in advance. If cycles are only provided to employees under salary sacrifice arrangements the whole cycle to work scheme may lose its tax exemption, as some employees cannot have their cash pay reduced due the National Minimum Wage rate rules.

- It is quite common for the employee to purchase the cycle from the employer at the end of the loan period. However, the Taxman says that where there is an automatic transfer of the cycle to the employee at the end of the loan period, the tax exemption for the cycle to work scheme is also lost.

- The second problem with the transfer of the cycle to the employee is how to establish the market value of the cycle at that time. If the employee pays the employer less than the market value for the cycle the difference is treated as employment income subject to tax and NI. As a top of the range sporting cycle can cost several thousand, the second hand value can be quite significant!

The Tax Office have produced a table to help employers value second hand cycles, this can be found on their website.

Finally, remember to qualify as a tax free cycle, it should be used mainly by the employee for travelling to work and on work related business, although other personal use is permitted. An expensive touring cycle that is never used for work related journeys will not qualify for the tax exemption.

For tax tips and information visit the accountants Cardiff website

For specific taxation advice please it is recomended to contact Chartered Accountant.
The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and information contained within it may be out of date.

These questions and answers relate to UK tax.

Q. My employees earn an average of £490 per week, how much more NI will I have to pay for each employee from April 2011?

A. For an employee on average earnings of £490 per week you currently pay employer’s NIC of £48.64 per week in 2010/11, but from 6 April 2011 this NIC bill increases to £48.85 per week. That adjustment appears small but it amounts to £10.92 per year per employee. The increase in NIC costs will be much larger for higher paid employees, but smaller for lower paid employees. For an employee on £210 per week, you pay employer’s NICs of £12.80 per week in 2010/11, but this will drop to only £10.21 per week in 2011/12.

Q. I had taxable income of about £60,000 in 2009/10, made up entirely of dividends and bank interest. I also pay £2,400 per year into a personal pension. Will I get 40% tax relief on that pension contribution?

A. You will receive higher rate tax relief on your pension contribution if you make the claim on your tax return for 2009/10. A contribution of £2,400 is worth £3,000 to your pension fund as the pension scheme trustees reclaim £600 basic rate tax from HMRC. Your basic rate tax limit will be expanded to £40,400 by the gross value of your pension contribution. Which means £3,000 of dividends which would have been taxed at the higher rate applicable to dividends of 32.5%, will be taxed at 10%, saving you an additional 22.5% in tax, or £675.

Q. Our trade body charges a membership fee in advance for each calendar year, but from 1 December 2010 new members who join online can pay the annual fee for 2011 and become a member immediately, effectively receiving the balance of the 2010 membership period for free. The organisation is VAT registered and the membership fee is subject to standard rate VAT. Is it correct to charge new members 20% VAT when they join online in 2010?

A. The organisation should charge VAT at the standard rate in force at the date of the tax point for the membership subscription. This tax point is the earlier of the date the membership fees is received or the VAT invoice is issued. For new memberships paid for before 4 January 2011, the correct rate of VAT to charge is 17.5%, even where the membership covers the whole of the year 2011.

For specific taxation advice we recommend that you contact a Chartered Accountant such as Accountants Pontypridd.

For tax tips and information visit the Accountants Cardiff website.

The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and information contained within it may be out of date.

These answers are provided by a UK firm of Pontypridd Accountants and relates to UK tax.

Q. My company has bought a classic motorcycle as an investment. Can it claim a tax deduction for the cost? If the motorcycle is kept at my home, but not used at all, will I suffer a tax charge?

A. If your company buys a motorcycle for use in its trade, including providing the motorcycle to the director, it can claim a tax deduction for the cost. If the motorcycle is purchased as an investment and not used in the trade, the company cannot claim a tax deduction for the cost.

If the motorcycle is kept at your home it is available for your use. The benefit in kind tax charge applies if the motorcycle is made available to you, not whether you actually ride it. The same tax charge would apply whether the motorcycle was a ‘work of art’ or a functioning motorcycle, as it remains a company owned asset which is made available to you for your private use.

Q. I’m looking to buy the property my company trades from. Should I buy it in my own name or should my company buy it? I have the reserves for either.

A. If you hold the property personally and let it to the company you will be able to extract funds from your company as NIC-free rents. However, when you sell the property, the gain may well be taxed at a higher rate in your hands (up to 28%) than in the company (possibly 20%). You will only get entrepreneurs’ relief on the property if it is sold in association with your withdrawal from the business that involves a disposal of some, but not necessarily all, of the company shares. The entrepreneurs’ relief on the gain is reduced where rent for the property has been paid by the company.

If the company holds property this removes the possibility of NIC-free rents. When the company sells the property it will get indexation relief on the value and the net gain may be taxed at a lower tax rate. However, the proceeds will be trapped within the company. Both you and the company could roll-over a gain arising on the sale of the property in the future, if it has been used for the purpose of the trade carried out by your personal company. As you can see there is a lot to consider and expert advice in your own situation is important

For tax tips and information visit Accountants Pontypridd website or Swansea Accountants.

The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and information contained within it may be out of date.

This article relates to questions about UK tax issues answered by a firm of Pontypridd Chartered Accountants.

Q. I work as a self-employed decorator. If I transfer my business to a new company will I be able to take advantage of the NIC holiday announced in the last Budget?

A. The full details of how the NIC holiday scheme will operate have not yet been released, but we do know it won’t apply to businesses established in London, the South East or East regions of England. However, even if you are based outside of those areas, we also know the scheme will only apply to new businesses set up after 21 June 2010. ‘New’ will be defined as a new economic activity, so where an existing sole-trader business such as yours, is transferred to a new company the business is unlikely to qualify as ‘new’ for the NIC holiday scheme.

Q. My brother and sister in law each lent my company £10,000 some years ago. The company is still trading, but it is unlikely to ever be able to repay those loans. If I write off the debt in the company accounts will my relatives be able to claim tax relief for the irrecoverable loans?

A. Lenders in this position can sometimes treat the irrecoverable loan as a capital loss, which can be set against capital gains, but not against income. However, the Taxman will only grant this tax relief if the loan really is irrecoverable. This is taken as read where the business has gone broke. While the company is still trading there is a possibility that the money could be repaid, even if the amounts have been written off in the company accounts. The Taxman will need some considerable evidence from the company’s bankers and other sources, such as Court judgements, to be convinced that the loans cannot be repaid by a trading company.

Q. I have volunteered for redundancy at the age of 59 and expect to receive a pay-off worth £60,000. The first £30,000 will be paid free of tax, but is there anything I can do to reduce the 40% tax I will be charged on the balance?

A. You could ask your employer to divert some of the redundancy payment into a registered personal pension scheme for you. You will not be taxed on this pension contribution as long as your total income for this tax year is not more than £130,000. You also need to have income below this level in the previous two tax years. If your employer is not willing to make the pension contribution, you could make the contribution yourself, but be sure to make the payment in the same tax year in which you receive the redundancy payment. Your pension contribution will be treated as being made net of 20% tax and you can reclaim a further 20% tax relief through your tax return. In both cases, as you are already over 55, you can withdraw 25% of the pension fund value as a tax free lump sum immediately. You should take advice from a pensions expert before embarking on any investment in pensions.

For tax tips and information visit Accountants Bridgend or Accountants Cardiff.

The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and information contained within it may be out of date.