September 24, 2008Housing slump sees rental VAT hit for property developers

House for sale

HMRC advice says any VAT claimed back on new homes needs to be repaid if the house is rented instead

House builders unable to sell properties due to the housing market downturn could face a hefty tax bill if they decide to rent out new homes instead, HMRC has warned.

Advice published by the government body warns developers may have to pay back VAT they have reclaimed due to the different treatment of VAT on selling and letting properties.

HMRC claims than many house builders will not be affected as there are exemptions for small amounts of tax involving temporary lets.

However some property developers could be liable for repayments before any rental income has been accrued, as the trigger for repayment was the intention to rent, reports the Financial Times.

Story from: Accountancy Age

September 22, 2008Financial turmoil could force £20bn in spending cuts or 5p extra on income tax

Drastic cuts of £20 billion in public spending, or a rise in income tax of as much as 5p in the pound will be needed within three years as financial turmoil and the economic downturn drive the Government’s finances deep into the red, a leading think-tank said yesterday.

In the latest in a raft of warnings over the toll on the public finances from the severe shocks buffeting the economy, the National Institute of Economic and Social Research emphasised the tough choices confronting Gordon Brown and Alistair Darling as the downturn undercuts Treasury tax revenues.

As market upheavals, tumbling share prices, plunging house prices and the severe squeeze on consumer spending power all sap economic growth, the weakness of tax receipts, and higher bills for benefits as unemployment climbs, are set to send government borrowing soaring, the Institute and other experts believe.

With borrowing already at very high levels, the still sharper plunge into the red faced by the Treasury as growth remains weak in coming years will force spending cuts or tax rises by 2011 at the latest, the think-tank said yesterday.

Cuts of 3 per cent in planned levels of public spending could be needed by 2011-12, with swingeing rises in tax required if these were not made, the Institute’s economists estimated ahead of what are expected to be grim figures for the Government’s finances due to be released tomorrow.

"The Government needs to be seriously rethinking spending plans given what has happened over the past year," Ray Barrell, the Institute’s senior fellow, said. "Either spending needs to be cut or taxes must rise."

The Institute’s warning came on the heels of estimates from the Institute of Fiscal Studies that government borrowing will be £65 billion higher than is planned over the next three years if economic growth is in line with the Bank of England’s latest forecasts.

That would raise total national debt by 3.4 per cent of GDP, pushing it decisively above the 40 per cent of GDP ceiling prescribed under the Treasury’s so-called sustainable investment rule, the IFS calculations suggested.

By 2010, the extra borrowing needed would be the equivalent of £467 for every Briton, the figures also indicated. The projected worsening in the state of the Government’s finances would be still worse were the economy to suffer an even more severe downturn than the Bank of England has so far forecast.

Story from: The Times

September 22, 2008Companies Act 2006 implementation commences 1 October

It may have received Royal Assent almost two years ago, but the start of next month will a see a further stage in the implementation of the Companies Act 2006, specifically to changes in the requirements for corporate and underage directors.
Corporate Directors
From 1st October a company will be required to have at least one director who is a natural person / individual. A company can no longer have all corporate directorships.

The only exemption to this is a grace period until October 2010 for any company that had only corporate directors on the 8th November 2006, the day the Companies Act received Royal Assent.

“This flexibility has sometimes been abused by those who
wish to conceal who is controlling a company,” said BERR, “For example those intending to commit fraud may use a company with corporate directors to help obscure the identity of the individuals involved.

The Government did consider the option of banning corporate directors, but concluded an outright ban might harm those companies who make use of the current flexibilities for entirely legitimate reasons.

Under-age Directors
The Act also introduces a minimum age for a director of 16 years old. On 1st October 2008 existing underage directorships will cease with no notification to the Registrar required. However, companies will need to amend their register of directors to reflect the fact that the appointment has ceased. It also removes the restriction on directors over 70 years old.

The following Companies Act 2006 provisions also share the same implementation date:

Objection to Company Names - Sections 69 to 74

Trading Disclosures - Sections 82 to 85

Provisions relating to the directors’ ‘conflicts of interest duties’ - Part 10

Share capital reduction through the solvency statement route - Sections 641 to 644

Control of political donations and expenditure, provisions relating to an independent candidate - Sections 362 to 379

Power of court to grant relief in certain cases - Section 1157

Restoration for personal injury claims of companies dissolved prior to 16 November 1969 - Section 1295 of the 2006 Act, and Schedule 16 (repeals)

September 17, 2008Causing Death by Careless or Inconsiderate Driving

This offence, introduced in the Road Safety Act 2006 finally became law in August. The Act defines “careless” as falling below the standard of what would be expected of a competent and careful driver.
Examples of situations where a driver has been convicted of careless driving include: Signalling one way and then carrying out a different manoeuvre; failing to take precautions at a junction with restricted visibility and crossing into the path of an oncoming vehicle; reading a newspaper whilst driving; applying brakes causing wheels to lock
It also includes, driving inappropriately close to another vehicle; turning on a radio; and selecting and lighting a cigarette. In applying the competent and careful test courts have traditionally set the bar at a very high standard, which unfortunately means it is very easy to convict of this offence.
The fact that another road user may be partly to blame is not necessarily a relevant factor to be taken into account when considering guilt. The court is confined to considering whether the driver has met the required standard. Fault of another may be relevant in mitigation.
Inconsiderate driving includes flashing lights to force other drivers to give way unnecessarily; remaining in the overtaking lane; driving with undipped headlights; splashing pedestrians by driving through puddles; and driving a bus in a way that alarms passengers.
If charged the driver can be dealt with in either the magistrates’ court or in the crown court. The offence attracts a maximum sentence of 5 years imprisonment. The sentencing council has issued guidelines dividing the offence into 3 tiers of seriousness.
At the top end is a course of driving that is so careless it falls only marginally short of being dangerous. At the other end of the scale is a course of driving where the level of culpability is low e.g. momentary inattention, misjudging the speed of another vehicle, turning into the path of another vehicle without seeing that vehicle. All other cases fall into the intermediate category.
Aggravating features which would lead to a higher penalty include driving at excessive speed, carrying out other tasks whilst driving, carrying passengers or heavy load, tiredness, high level of traffic and location e.g. near a school. Mitigating features that would reduce the penalty are minor risk, inexperience of driver and sudden change in road or whether conditions.
If convicted the driver must be disqualified, although if he can successfully argue special reasons for committing the offence e.g. emergency, shortness of distance driven then the court can endorse the licence with 3 -11 penalty points. The court can order the offender to take an extended driving test.
For a first time offender the recommended penalty is as follows:
1. For offences in the most serious category defined above -15 months imprisonment although the window for sentencing will be in the region of 9 months to 3 years imprisonment. This type of case would have to be dealt with in the crown court.
2. For offences that fall in the intermediate category the penalty will range from a community sentence to 2 years in custody with a recommended penalty of 9 months imprisonment. This would also have to be dealt with at the crown court.
3. For offences falling in the low category of seriousness a community penalty e.g. community service is recommended - and can be dealt with at the magistrates’ court.
Having dealt with many careless driving cases over the years, it is clear that if death occurs not only does it have an unbearable impact on the family of the deceased but also the guilty driver.
Until recently a driver would face a fine and penalty points - that is no longer the case. Everyday pressures can cause us to make a simple error, which could have life changing events.
I have heard judges describe cars as lethal weapons which must be driven with care, the new legislation with the introduction of much harsher penalties, shows how seriously this type of incident is now being treated.

Further reading: Stephen Thomas Law

September 5, 2008Shock IR35 decision on Dragonfly leaves freelancers reeling

The Professional Contractors Group (PCG) has expressed shock at the High Court’s decision in the 'Dragonfly' IR35 case.

The industry body represents freelancers across the UK, and the unsuccessful attempt to overturn a tax demand for £99,000 leaves many in doubt.

Jon Bessell, owner of Dragonfly Consultancy Ltd and a member of PCG, said he was devastated by the High Court's ruling.

'Not only does it affect my family and me, but all the other freelance professional consultants who are trying to earn an honest living. I was never an employee of the AA and I simply cannot understand how the High Court has reached its decision. It’s a travesty of justice,' he said.

John Brazier, managing director of PCG, said this is a potentially massive blow to freelancers throughout the country.

'This case threatens the long-established defences against IR35; we will be looking at the judgment in very close detail to work out its full implications,' he said.
Story from: Accountancy Age

September 3, 2008Stamp duty changes seen as 'sticking plaster'

Richard Lambert, director-general of the CBI

The Federation of Master Builders and the National Federation of Builders have described the confirmation of a stamp duty holiday as ’sticking plaster’.

Following yesterday’s announcement by Treasury of the 12 month stamp duty suspension and subsequent loss in taxes, many have criticized the plans as not going far enough.

Richard Lambert, director-general of the CBI, warned that the changes to stamp duty would come at a cost and ‘may turn out to be largely symbolic’.

In addition to the stamp duty holiday, the Government also announced a £1bn mortgage package aimed at restoring the flailing property market.

The Council of Mortgage Lenders said the package could help “some vulnerable customers” and welcomed the extension of income support for mortgage interest.
Story from: Accountancy Age

September 2, 2008WHAT HAPPENS WHEN YOUR EMPLOYEE IS INJURED IN A ROAD ACCIDENT?

OK, so it wasn’t their fault “does it really matter to you? After all, even if they were off work for a month, you can get the wages you pay them back from the other driver’s insurers” right? WRONG!
Most companies large or small fall into this trap. Only your injured employee has the right to claim loss of earnings and any wages you pay them either contractually or out of the kindness of your heart cannot be recovered by you.
WHAT’S THE SOLUTION?
Any earnings paid by you can be recovered from the negligent driver but only if your contracts of employment provide for this. Ask your company solicitors’ employment department to draft the necessary wording and this could result in your company recovering substantial sums without your employee suffering financially. This can include all the wages you would normally be obliged to pay under the contract of employment.

Alternatively, if your contract of employment does not yet provide for this, you agree with your employee to pay them not a penny over their contractual entitlement but you can then enter into a loan agreement with them (preferably drafted by your lawyers) for the same amount as their wage (or any other amount to tide them over) on the basis that they will repay you when they are paid by insurers of the other driver. This must not however be paid as wages. It should be simply a repayable loan.

WHAT HAPPENS WHERE THE EMPLOYEE IS FULLY OR PARTLY TO BLAME?

If your employee caused the accident, they cannot recover any loss of earnings, in which case nor will you, the employer. If however, fault is split between your employee and the other driver, they will each recover a percentage of their losses and normally (depending on the wording of your contract) you would only be entitled to recoup that same percentage of the wages paid.

If you are entering into the loan arrangement, you will need to consider carefully whether your employee can recover all the lost wages.

In reality, motorcycle couriers are more prone to split liability accidents that van drivers.

GET PROPER PROFESSIONAL ADVICE

Before embarking on any of these suggestions, get legal advice to ensure that the wording used protects you and your employee.

If your employee is using the same solicitors as you (assuming there is no conflict of interest), the employee can sign a form so that wage loss is paid directly back to you.
If your company solicitors do not have a specialist employment department, contact us and we will put you in touch with solicitors who can arrange this for you.

September 1, 2008Alistair Darling’s job on the line after recession blunder

Alistair Darling

Alistair Darling’s future was in question last night after Whitehall insiders said that he could be involved in an imminent Cabinet reshuffle.

The Chancellor’s assertions at the weekend that government changes were unlikely were described in categorical terms as “wrong”. Whitehall insiders told The Times that a controversial interview, in which he claimed that Britain could be heading into the worst economic conditions for 60 years, may have harmed his position.

Tensions between the Treasury and Downing Street were threatening to undermine Gordon Brown’s relaunch, which will begin tomorrow with a package of help for first-time buyers.

Ministers privately criticised Mr Darling for his interview, in which he said that the public were “p***** off” with Labour and even suggested that other ministers were keen on his job.
At Mr Brown’s insistence, the Chancellor launched a damage-limitation exercise, insisting that he had been talking about world conditions and that Britain was better placed than before to withstand problems.

However, a document leaked last night showed that ministers are braced for a surge in crime. In the draft report to the Prime Minister, Jacqui Smith gives warning that violent crime could rise by 19 per cent in the event of a full-blown recession, while theft and burglaries could rise by 7 per cent this year. The Home Secretary adds that a growing sense of disadvantage could push many susceptible people into extremist groups “that can lead to people becoming terrorists”.

Mr Brown and Mr Darling will announce an expansion of share-equity schemes for first-time buyers tomorrow. A scheme to help with energy bills could come later in the week. On Thursday the Prime Minister will set out his analysis of the challenges facing Britain and promise immediate measures to help ordinary families.

George Osborne, the Shadow Chancellor, said that Mr Darling’s “outburst of truth” had torpedoed the Prime Minister’s recovery plan. “We now know that this won’t be an economic recovery plan,” he said. “It will be Gordon Brown’s short-term political survival plan for which the country may have to pay an unfair price with billions of extra borrowing.”
Story from: The Times