Financial Monitor (February 2009)
Government Measures to Ease Bank Lending
A number of measures have been introduced by the Government to assist small and medium sized businesses to obtain loans which include:
Enterprise Finance Guarantee (EFG)
The main high street banks are offering EFG loans but the decision as to whether such a loan should be offered and the terms to be applied is solely that of the Bank. No business will have a right to support under the scheme. Businesses with annual turnover up to £25 million can apply for a loan between £1,000 and £1,000,000 and if successful the Government will guarantee 75% of the amount outstanding. A 2% premium is payable annually on the outstanding amount of the loan. It is paid by quarterly instalments in advance to the Department for Business Enterprise and Regulatory Reform. Premiums paid in 2009 will receive a 25% discount. Overall guarantees of £1 billion will be available to support loans totalling £1.33 billion.
The support will be available for new loans of between one and ten years, for rolling over existing loans where the lender might not be willing to re-finance or converting part of an existing, utilised overdraft providing the lender is willing to allow the borrower to retain the original overdraft facility.
Transition Loan Fund
This is a £5m loan fund available over the next 6 to 12 months to viable businesses that are short of working capital. The funds will be accessed through Business Link Yorkshire. Part of the fund will be used for SMEs in Depressed Communities or where the management team is from disadvantaged groups where the maximum loan will be £50,000. In addition part of the fund will provide loans of up to £250,000 for SMEs generally.
The fund aims to help SMEs survive through the economic downturn, safeguard jobs and put them in a position to benefit when the economy begins to grow again.
National Minimum Wage – New Enforcement Provisions
Enforcement officers will from 6 April 2009 be able to demand that underpayments of national minimum wage (NMW) are paid at the current rate rather than that in force when the underpayments of minimum wage were made. The payment of underpaid NMW can go back up to six years. Penalties will be due of half the total underpayment subject to a minimum of £100 and maximum of £5,000. A 50% discount will be available for the penalty if employers pay both the arrears and the penalty within 14 days of receiving a notice of underpayment. Currently penalties are only due if the enforcement notice is ignored whereas in future they will automatically be applied when arrears of national minimum wage are payable. Appeals can be made within 28 days to an Employment Tribunal. If a penalty is not paid then the employer can face criminal proceedings.
Interest free Loans to Directors and Employees
The rate applied to loans above £5,000 to calculate the benefit in kind charge will fall from 6.25% to 4.75% on 1 March 2009.
Why Businesses are Selected for Enquiry
Over the last few years responsibility for deciding which taxpayers are subject to any enquiry have moved away from local Inspectors of Taxes to Risk Intelligence Assessment Teams (RIATs). They have access to information from across the country and are able to risk assess using computer software based on trends so that your business can be compared with similar businesses nationwide. The RIATs do not reveal all the possible triggers for an investigation but we understand some of the more significant ones are:
- More than one tax return which has been late in recent years
- Significantly fluctuating income or expenses
- Obviously incorrect expenses
- No adjustment for private use element of expenses
- Low income compared with likely outgoings
Each taxpayer is scored on the basis of the various triggers and those with a high score can expect an investigation.
Interest on Overpaid Tax
The Revenue are no longer paying interest on tax repayments because of the reduction in base rate, so it is imperative that we have tax information as early as possible in order to calculate 2008/09 tax liabilities when it is considered that payments on account have been made which will exceed the eventual liability. Those who leave their self assessment tax affairs to near the deadline may well be giving an interest free loan to the Revenue!
Carry Back of Tax Losses
The 2008 Pre Budget Report announced a more generous but temporary carry back facility for trading losses for all businesses.
Companies
Currently trading losses can be carried back for one year. However, for company accounting periods ending in the period 24 November 2008 to 23 November 2009 (ie. years ending from 30 November 2008 to 31 October 2009) in addition to the maximum carry back of losses for one year, an additional £50,000 of losses can be carried back for up to a further two years on a last in, first out basis. The £50,000 figure is apportioned where the previous accounting period is less than twelve months. The losses can be set against any profits including chargeable gains.
Unincorporated business
For unincorporated businesses the rules are similar although the losses are those arising in accounting periods ending in the year to 5 April 2009 and the losses carried back for the additional two years can only be set against profits of the same trade, profession or vocation not against other income.
Budget Day
The Budget speech will be later than in recent years on 22 April 2009. Our April edition of Financial Monitor will give a full summary of the changes.
Inheritance Tax Clampdown
The Inheritance Tax division of HM Revenue and Customs is piloting a new process to identify gifts made in the seven years prior to death which may not have been included on the Inheritance Tax Returns made at the time of death. They will look at information provided with Self Assessment Tax Returns during the lifetime of the deceased as well as information about the deceased from other sources, although these are not identified! It is expected that they will be looking in particular at large capital gains in the years prior to death when the proceeds no longer seem to be in the taxpayer’s estate on death. This process may prevent HMRC giving inheritance tax clearance to Estates in the same timescale as previously, which may delay finalisation of the tax affairs of the deceased.
Whilst every care has been taken in the preparation of these notes we can accept no responsibility for errors or omissions contained in them or for any loss arising from their use unless we have been consulted professionally prior to any action being taken.
UHY Wingfield Slater
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