1. Top tax tips 2006 Top FAQ’s! 1.Why do I pay so much tax? How can I minimise what I pay? 2.There are special VAT schemes for small businesses – would these help me? 3.I own two residential properties – how can I save Capital Gains Tax when I sell one or both of them? 4.I want to pass on my wealth to my children and grandchildren – not the taxman. What can I do? 5.I am buying a commercial building – the seller is charging me VAT – can I claim the VAT back? 6.I am a “service” business and my business shows year end “work in progress” on its balance sheet. I have heard that there are some changes coming this year. What are these and what should I do? 7.What tax credits and tax breaks are available for me and my staff? 8.A “friend” had an HMRC PAYE compliance visit. It cost him a lot of money. How can I stop this happening to me? 9.A “friend” had an HMRC investigation into his business and it cost him substantial extra tax and expensive accountancy fees. How can I avoid this?

2. Top tax tips 2006 1Why do I pay so much tax? How can I minimise what I pay? Suggestions: Personal allowances and basic rate tax bands – use these up for both you and your spouse If you are self employed – think about using a limited company Pay dividends rather than salary If you have lent money to your family company, consider paying interest (to yourself) on these borrowings. No national insurance is payable Personal borrowings – make sure that interest paid on these is tax deductible If you are self employed or in partnership and have a year end other than 31 March / 5 April, you may have some pre 1997 overlap relief to use up Maximise claims to capital allowances – including [a] short life asset claims and [b] claims on plant & equipment in commercial buildings Consider some non taxable benefits for directors and staff

3. Top tax tips 2006 2There are special VAT schemes for small businesses – would these help me? Suggestions: Flat rate scheme – sales turnover limit of £150,000pa Cash accounting scheme – VAT paid on cash received and paid out – sales turnover limit currently £ 660,000 pa Annual accounting scheme – sales turnover limit currently £ 1,350,000 pa

4. Top tax tips 2006 3I own two residential properties - how can I save Capital Gains Tax when I sell one or both of them? Answers: Consider living in both properties at some time during your ownership, to maximise the use of your CGT principal private residence (“PPR”) election Make the PPR election within two years of purchase / availability (to live in) of the second property Use the let property exemption if you can If all else fails, make sure you sell in joint names of both spouses

5. Top tax tips 2006 4I want to pass on my wealth to my children and grandchildren – not the taxman. What can I do? Suggestions: Don’t die without having an up to date will Use up the nil rate band for the first spouse to die Use a “nil rate band” discretionary trust if you have insufficient cash assets to use up the nil rate band of £285k Consider a “civil partnership” if you are in a same sex relationship, or get married Give away assets and survive 7 years Do NOT give away assets and retain the “benefit” – these gifts will be ineffective for IHT purposes – and will be treated as “GWR’s”, (gifts with reservation of benefit) Business property relief (at 100% and 50%) and agricultural property relief (at 100% and 50%) – try and use these up – if available Beware of the “POAT”, (pre owned assets tax). This is a “new” income tax, charged on assets given away that might escape an IHT charge. This tax comes into force for 2005/2006 Avoid IHT planning on your private residence unless absolutely necessary

6. Top tax tips 2006 5I am buying a commercial building – the seller is charging me VAT – can I claim the VAT back? Answers: Yes, if you are making VAT standard or zero rated sales If you are not VAT registered or you are making VAT exempt sales, then the answer may well be “no” If the former, you can get the VAT back, but you may have to “VAT opt” the building VAT opting is irrevocable (it lasts for 20 years) and the consequences are: –You can recover input VAT on purchase –You must charge VAT on rents received and any recharges such as insurance –You must charge VAT on the sale of the building in most circumstances –Any subsequent change of use – for charitable or non business usage – can result in a clawback of input VAT

7. Top tax tips 2006 6My business provides services and shows year end work in progress on its balance sheet. I have heard that there are some changes coming this year. What are these and what should I do? Answers: The changes apply to year ends after 30 June 2005 WIP (work in progress) should now recognise the right to revenue over the life of a contract – involving a recognition of profits earlier Large tax catch up charge may arise This would normally increase the tax payable for 2005/2006 However, there will be a “spreading” concession over three to six years – detailed legislation to come in this year’s Finance Bill / Act Revise your billing and cash collection arrangements – to help finance the additional tax due

8. Top tax tips 2006 7What tax credits and tax breaks are available for me and my staff? Suggestions: Provision of qualifying childcare of up to £55pw can be tax free Take up entitlement to child tax credit (CTC) and working tax credit (WTC) Take up the child trust fund entitlement for new born children Pay the maximum tax free mileage rate (of 40p per business mile) Pay pension contributions to staff pension plans rather than staff paying contributions out of taxed income

9. Top tax tips 2006 8A “friend” had an HMRC PAYE compliance visit. It cost him a lot of money. How can I stop this happening to me? If you have a PAYE scheme, you will get a visit sooner or later, so prepare now …… Consider the tax status of freelancers – are they really self employed? If not, you, as employer, could be liable for the unpaid PAYE/NIC Have you got signed forms P46 for all your low paid and casual staff? If not, organise this now Do you properly report taxable staff entertaining? Business meetings and “entertaining” for staff are a favourite target Mobile phones – the contracts should ideally be in the employer’s name to avoid any benefit in kind issues For company cars, do you keep mileage logs to ensure that ONLY business fuel is reimbursed? Are car benefits and van benefits accurately reported? Pool cars and vehicles with no private use will be open to challenge Have you paid Class 1A NIC at 12.8% on taxable benefits in kind? Report changes in company cars at the end of each calendar quarter – using the form P46(car) Do you comply with the national minimum wage? If you are a builder, make sure you are ready for the “new” CIS scheme in April 2007 Is fuel for private motoring for a company car still viable? Be ready for the revised company van rules from April 2007 HMRC can go “back” for up to 6 years

10. Top tax tips 2006 9A “friend” had an HMRC investigation into his business and it cost him substantial extra tax and expensive accountancy fees. How can I avoid this? Suggestions: Keep good and accurate records Can you demonstrate that you have enough CASH drawings to live on? Keep accurate records of cash receipts and takings – till rolls, etc., can provide you with valuable evidence – or not…… Do your payments for supplies tally with your sales? HMRC have access to information from all sorts of different sources – which you may not be aware of – including anonymous tip offs…… Is your gross profit % in line with industry norms? Don’t stand out from the crowd…… Are your private use proportions fair and reasonable and supportable? File your returns on time Take out professional fees insurance to cover your accountancy and legal costs HMRC can go “back” for up to 6 years