ISSUE 24 - February to May 2004
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3.AUDIT EXEMPTION THRESHOLD INCREASE |
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In no time at all the end of the current tax year will be upon us and it’s important that both individuals and businesses take a few moments to review their respective tax affairs to ensure that all available reliefs and allowances are fully utilised before 6th April.
Areas to consider will include:
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ADVICE: A little thought now could save you additional taxation. Please contact us if we are able to assist in relation to any of the above points. |
2. REFORM OF THE CONSTRUCTION INDUSTRY SCHEME
The Revenue recently published a consultation document, which outlined proposals for the reform of the Construction Industry Scheme (CIS), the changes are outlined here.
The process of registering for the CIS is currently complex and time-consuming. Various stringent conditions must be satisfied before a gross payment certificate is issued. The main conditions to be satisfied by the applicant are as follows:
The main change being proposed as part of the CIS reform is that registration will no longer be necessary in person at an Inland Revenue office. In future it will be possible to register over the telephone or internet. Whilst this will not reduce the regulatory burden of the registration conditions set out above, it will no doubt produce both time and cost savings and will undoubtedly be welcomed by sub-contractors.
Since August 1999, in order to be paid by a contractor, all subcontractors working within the construction industry must obtain either a registration card or a tax certificate. When the changes were first brought into play, the Revenue anticipated that most subcontractors would be issued with a registration card (CIS4) and receive payment after a deduction for tax and NIC, thus minimising the risk of lost revenue due to avoidance.
Where the criteria outlined above is satisfied by individuals, partnerships and some companies, the Revenue will issue a tax certificate (CIS6), thus enabling the holder to be paid gross (ie without deduction of any tax or NIC). A construction certificate CIS5 (the old 714C), may be issued to companies that either qualify automatically (subject to certain additional criteria), or where a company can show, by way of a "business case" that operating with the normal company certificate (CIS6) would cause substantial difficulties.
Under the new proposals replacement cards and certificates would be issued and it would no longer be necessary to travel to present documents. This change would produce considerable time and financial saving implications for sub-contractors. However, the construction industry has been united in its view that verification would not be practical on a contract-by-contract basis. So, the Revenue are considering confining the verification process to those sub-contractors who have received no payments from the contractor in the current and two previous tax years. Those who have received payments in that period will not have to be verified.
Under the new proposal, contractors in the construction industry would be asked to confirm that they had correctly considered the employment status of their workers to ensure that those that are actually employees are not included in the construction industry scheme.
However, feedback during the consultation period has indicated that contractors would ideally like some additional help with status issues and consequently the Revenue are currently looking at possible options in this respect, one of which includes a new computerised tool which will give guidance on employment status.
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ADVICE: The Revenue will continue to consult on this issue and the changes are expected to come into effect some time in 2005. |
3. AUDIT EXEMPTION THRESHOLD INCREASE
The audit exemption threshold was increased from £1 million to £5.6 million on 30th January 2004. The new threshold will take effect in relation to financial years ending on or after 30th March 2004. The reason for the two month delay is to allow shareholders a period during which they can consider whether they wish to require the company in which they hold shares to obtain an audit.
4. FIXED RATE MORTGAGES
At the beginning of February, the Bank of England increased the bank base rate by 0.25% to 4.00%, the second time rates have risen in two months. This increase inevitably leads to increases in borrowing rates from banks and building societies and an increase for many in relation to the amount they are paying on their mortgages. It is generally expected that baserate will continue to increase, with many economists of the opinion that the rate could increase to 5.25% in twelve months time, as the Bank attempts to keep inflation under control. This could, in turn, mean that mortgage rates might be increased from the typical rate of 5.5% to as much as 7.25%, so someone with mortgage of say £100,000 paying £506 a month might pay an additional £100 a month.
Those borrowers who are at present on variable rate mortgages will notice any increase in rates immediately, whilst those who fixed their rates when the rate was 3.5% will not notice the increase until the fixed period ends - at which time they could be in for a drastic increase.
So is this the time for first time borrowers and those taking out additional borrowings to think about fixing their rates? It depends on an individual’s personal circumstances, but it is worth considering. However, the money market has been predicting interest rate increases for some time and for this reason alone the price of a fixed rate mortgage can be expensive. But, there may be some good news on the horizon for borrowers. The major banks have announced a mortgage scheme similar to that
used in the USA. These mortgages are written for between 25 and 30 years at a fixed rate, and in addition, there is no early repayment penalty. The aim of the new scheme is to make the housing market more stable, although some argue that with proposed interest rates of between 6.5% and 7% this could put off a number of borrowers. This might be when compared with today’s typical 5.5% rate but, they may be more attractive as the base rate rises.|
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ADVICE: As with many areas of the money market, how interest rates will climb is a matter of speculation and there are risks involved in taking out a fixed rate mortgage. However, such schemes are worth looking at, provided that they are not too expensive and the rate is not fixed for too long a period. If you are currently looking into taking out a mortgage, please contact us for our assistance. |
There are
hefty penalties if employers fail to pay the minimum wage, so we thought it prudent to give a reminder to our readers that the rates for the national minimum wage were increased from 1st October last year. The minimum wage is the minimum amount of pay that workers aged 18 years or older are entitled to be paid. There are two levels of national minimum wage:
