The View from No 50

 

 

 

 

November 2009

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby Road  Menston

Ilkley  LS29 6JA

Tel:  01943 870933

Fax:  01943 870925

Email:  keith@kpbonney.co.uk

www.kpbonney.co.uk

 

 


 

THE BEST LEAGUE IN THE WORLD

 

How many times has this been said of the English Premier League?

 

English football generates huge amounts of money.  Most of it disappears out of the game in players’ wages.

 

Well advised players negotiate net rather than gross rates of pay.  That way the risk of changes in tax rates is borne by the club, not the player.

 

When the top rate of tax increases from 40% to 50% next year the players on net pay contracts are not going to suffer.  The clubs who pay them are.

 

Paying a European player a net annual salary of 3m euros (£2.6m) will cost an English club 6.8m euros.  To deliver the same net salary to the player European clubs need only pay

 

Spain                                   4.0m euros

Germany                              5.4m euros

Italy                                     5.7m euros

France                                 6.7m euros

 

When taken together with the slide in the value of the pound against the euro the increase in the rate of tax will make it difficult for English clubs to attract top talent in future.

 

How much longer will we be able to claim the English Premier League is the best in the world?

 

 

COMPANY CAR DRIVER?

 

Are you one of the diminishing number of people provided with a company car?  If so, you may soon be one of an even smaller group because the taxation treatment of company cars got even worse in April this year.

 

Before April a company car attracted an annual tax allowance equal to the lower of 20% of its tax written down value and £3,000.

 

From April the rate of allowance depends on whether the CO2 emissions of the car exceed 160g/km.  The new rate is 10% for cars that exceed the threshold and 20% for those that don’t.  The £3,000 restriction is abolished.  At first sight that seems like good news.  But there is a further twist.  When the company sells the car it no longer gets a balancing adjustment.  Huh?  What difference does that make?

 

Suppose your company buys you a new 170g/km car every four years.  The cost is always £20,000 and the trade in allowance for the old car is always £5,000.  In other words the company suffers depreciation of £15,000 every four years.

 

Under the old rules, at the end of twelve years, having gone through three cars the company would have received tax relief on its real economic loss which is £45,000.

 

Under the new rules the company receives tax relief on only £27,551 over the same period of time.  In other words by the time it stops providing you with a car it has still to receive tax relief for expenditure of £17,449.

 

Year           Outlay   Allowance       Written

                                                          down

                                                          value

1               20,000          2,000        18,000     

2                                    1,800        16,200

3                                    1,620        14,580

4                                    1,458        13,122

5               15,000          2,812        25,310

6                                    2,531        22,779

7                                    2,278        20,501

8                                    2,050        18,451

9               15,000          3,345        30,106

10                                  3,011        27,095

11                                  2,709        24,386

12              -5,000          1,937        17,449     

                ______       ______

 

                 45,000        27,551

                ______       ______

 

Relief for the £17,449 will be given at the rate of 10% reducing balance per year in years 13 and onwards.  In other words it will take until infinity for the company to get full tax relief for its expenditure!  In practice there will be a huge balancing allowance when the company ceases to trade.

 

The good news for sole traders and partners is that these horrible rules do not apply to you – provided you make some private use of your car.  You continue to get your car capital allowances over the period of ownership of the relevant car.

 

Our Advice:  If you run your business as a limited company and you are provided with a company car you should take extra care to consider whether your next car should be owned by the company or by you.

 

You might also consider whether it is time for a change in your mode of company transport.  Motorcycles are eligible for 100% or 40% allowances.  So are double cab pick ups.

 

 

CORPORATE GIFTS

 

Here we are in November and you are starting to wonder what gifts you should send to your best customers this year.  Do you go for the food and drink or the diary or calendar?

 

Should tax have any bearing on your decision?

 

Well, may be it should.

 

For tax purposes gifts are treated in much the same way as entertainment (see the July newsletter) which means you cannot claim the outlay as a business expense.  Gifts of food, drink, tobacco or tokens or vouchers exchangeable for goods are always disallowable for tax purposes.  However, gifts (other than those just mentioned) which bear conspicuous advertising for your business are deductible for tax purposes provided the value of gifts to any one recipient do not exceed £50 per annum.

 

Our Advice:  If you want tax relief for the cost of your corporate gifts forget the food and drink and go for the logo emblazoned umbrellas, golf balls, tee-shirts, underpants.

 

 

IS THAT A VALID VAT NUMBER?

 

For several years it has been possible to check the validity of a VAT number using a facility on HMRC’s website.  The drawback with this service was it only confirmed whether the number was arithmetically valid.  The problem was that whilst the number might have been arithmetically valid it might not necessarily have been a VAT number belonging to a properly registered trader.

 

It is particularly important obtain and to check VAT numbers when conducting transactions with traders in other EC states.

 

The new improved checking service is now available.  VAT registered traders who are concerned about the VAT registration of their customer or supplier can now run a check on the European database of registered traders.   They get an instant answer and query reference number.

 

To access the service go to

 

http://ec.europa.eu/taxation_customs/vies/vieshome.do

 

Our Advice:  If you are concerned about the validity of a VAT number run a check on the website.

 

 

HAPPY NEW YEAR

 

At midnight on 31 December 2009 the standard rate of VAT increases from 15% to 17.5%.

 

When you buy a round of drinks just before midnight you will be charged VAT at the rate of 15%.

 

When you buy another round of drinks just after midnight will the price have gone up?

 

The answer is no.  The VAT man realises it would be too much to expect pubs and clubs to implement a VAT rate change at the most hectic time of the year.  Businesses will be allowed “..a few hours’ trading grace in which they may continue charging the 15% rate for a session that goes into the early hours of 1 January.”

 

A welcome outbreak of common sense at HMRC.

 

 

ARMLESS FUN

 

A star footballer parked his BMW at the side of the road and opened his door.  Suddenly, a speeding car appeared from nowhere and ripped his door off.  The footballer was outraged.

 

When the police arrived at the scene the footballer whined “Officer, look what that idiot did to my Beemer!  You have to find him and arrest him!”

 

“You superstars are so materialistic you make me sick,” snapped the officer.  “You are so upset about your stupid BMW that you haven’t even noticed your arm was ripped off in the accident.” 

 

“Oh my God…”, gasped the footballer, finally noticing the bloody stump where his arm had been.  “My Rolex!”

 

Copyright:  K P Bonney & Co LLP 2009.  All rights reserved.  No part of this publication may be produced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording or otherwise without prior written permission of the publishers.  Disclaimer:  The publishers have taken all due care in the preparation of this publication.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publisher.

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