Company Car and Fuel Benefit Tax

If a car can run on E85 fuel ( that is 85% ethanol and 15% gasoline), then a 2% discount fro the appropriate percentage rate for company car tax will be available from 6 April 2008.

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Pensions tax: A few minor changes

Changes will be introduced from 6 April 2007 to pensions tax rules:

  • Minor benefits provided to ex-employees will be excluded from tax.
  • If death benefits are paid to a discretionary trust, HMRC practice was to allow 2 years for the benefits to be paid out so that no inheritance tax was charged on the trust property. New rules will be introduced to align this treatment with the time scales set out in the registered pension scheme’s rules.
  • Two anti-avoidance measures are introduced. The first ensures that unauthorised payments cannot be manipulated to reduce the overall tax charge. The second aims to make sure that existing anti-avoidance arrangements still apply, even where scheme pensions are paid early on ill-health grounds.

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Employee Benefit Trusts

Under current rules, where an employer makes a contribution to an employee benefit trust, the employer will only be entitled to a corporation tax deduction as and when a taxable benefit is provided to employees. However, schemes have been developed under which these rules are side-stepped by companies that, rather than making a payment to an employee trust, simply declare a trust over assets they already own and then seek a tax deduction equal to the value of those assets (without making any payment to employees).

New rules are to be introduced, with effect from Budget Day, to make it clear that no deduction will be allowed under these schemes unless and until a taxable benefit is provided to employees.

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Managed Service Companies

Managed Service Companies are service companies marketed by providers to large numbers of individuals. They aim to increase the take home pay of the individuals, whilst charging an administrative fee for doing so.

They are intermediaries and as such the intermediaries legislation ("IR35") applies to them (like it does for personal service companies). However, HMRC find the existing legislation difficult to apply in practice to MSCs and therefore new provisions have been introduced to deal specifically with MSCs.

If individuals provide their services through Managed Service Companies (“MSCs”), the MSC will be required to operate PAYE on any payments made to the individual from 6 April 2007 (the requirement to operate Class 1 National insurance will come into force shortly after the Finance Bill 2007 receives Royal Assent).

If the MSC does not account to HMRC for the PAYE and Class 1 NIC contributions, and HMRC cannot recover the debt from the MSC, HMRC may transfer the debt to the directors of the MSC and the MSC provider. In some circumstances the debt can also be transferred to persons who encourage, facilitate or are otherwise actively involved in the provision of individuals’ services through MSCs.

The new rules will apply strictly and irrespective of whether the individuals can prove that they would genuinely be self-employed if they provided their services direct to clients.

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Filing Returns and paying tax

The enquiry period during which HMRC can make enquiries into a tax return will now be 12 months from the date the return is filed (rather than 12 months from the deadline for filing), provided the return is filed within the statutory deadline. However this change will not apply to large groups of companies.

The changes will apply to individuals for 2007/8 and all subsequent tax years. For companies the changes will apply for all accounting periods ending after 31 March 2008.

Regulations are to be introduced allowing HMRC to require electronic filing of returns, and electronic payment of tax bills. These regulations will also provide that for companies paying tax and VAT bills by cheque, the payment will only be deemed to have been made when the cheque has cleared (and not the date on which the cheque is received) by HMRC.

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New filing dates are to be introduced for self-assessment tax returns for individuals, trusts and partnerships. For 2007/8 and all subsequent tax years, the last day on which a return may be filed is 31 October for paper returns and 31 January for returns filed online. For taxpayers filing paper returns who want HMRC to calculate their tax liabilities for them, the cut off date will move to 31 October.

The period during which a return may be amended will be linked to the 31 January deadline.

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