Welcome to the April 2011 Newsletter from Connolly Accountants Ltd

This month saw the beginning of the new tax year and the introduction of a raft of changes to tax and benefits. The headline grabbing changes included an increase in the personal income tax allowance, coupled with a lowering of the higher rate threshold, and a 1% rise in national insurance rates for employers, employees and the self-employed.

And HMRC has confirmed that it will be levying harsher penalties on those who fail to file their tax return on time. In addition to the standard £100 fine, daily penalties of £10 a day will be levied after three months. It means that a tax return filed six months late could attract a penalty of at least £1,300.


New tax year sees raft of tax and benefit changes

Many experts are warning that families and those on middle incomes will feel the pinch this year after a raft of changes to the tax and benefits system came into force.

Dubbed by some as 'Worse-off Wednesday', the start of the new 2011/12 tax year saw the introduction of a plethora of reforms to personal and business taxes as well as state benefits. It is thought the changes could cost British households more than £2 billion this year.

From 6 April the personal income tax allowance - the amount of money you can earn before you start paying tax - increased from £6,475 to £7,475 for those aged under 65.

While the move is expected to take around 800,000 people out of tax altogether, others may be less well-off as the threshold at which people have to start paying the higher rate of tax has been reduced by £2,400 to £35,000.

It means that individuals must now start paying the higher 40% rate of tax when their income exceeds £42,475 (previously £43,875).

In addition, national insurance rates have risen from 11% to 12% for employees and from 8% to 9% for the self-employed, while employers must now pay contributions of 13.8%.

Meanwhile, changes to the welfare system will leave many families worse off, with child benefit now frozen for the next three years. It will be removed completely for families with a higher rate taxpayer in 2013.

Higher rate relief on employer-supported childcare has also been withdrawn, although employees already receiving vouchers or employer-supported childcare will continue to benefit at the higher rates where applicable.

Other changes that came into effect include: a new 5% rate of stamp duty for homes worth more than £1 million; restrictions on tax relief on pension contributions for those on more than £150,000 a year; an increase in the annual ISA limit to £10,680; and a rise in the annual capital gains tax allowance from £10,100 to £10,600.

However, the 2011/12 tax year does bring some welcome changes for many businesses, with the main rate of corporation falling by 2% to 26%. As announced in last month's Budget, Entrepreneurs' Relief has also doubled to £10 million, while firms with fewer than 10 staff can now enjoy a three-year moratorium on new employment regulations.

Please note, this is only a summary of some of the changes that have come into effect. For more information and to discuss how the latest tax changes may affect you, please contact us.


Late tax return fines to rise sharply

People who submit their tax return after the 31 January deadline will face significantly higher penalties, HMRC has announced.

Previously, returns filed after the deadline would attract a £100 fine. However under the new framework, which first applies to 2010/11 tax returns, taxpayers who file their returns late will be charged £100 on day one and further daily penalties of £10 after three months.

It means that a tax return filed six months late could attract a penalty of at least £1,300.

According to HMRC, the old £100 penalty failed to act as a deterrent. It hopes the new harsher penalty system will therefore encourage people to 'submit returns as soon as possible'.

'HMRC spends a lot of time pursuing late returns and getting involved in unnecessary appeals work. We want to focus our resources on more productive work such as catching criminals and collecting tax,' said a HMRC spokesperson.

The new penalties for filing tax returns late are as follows:

  • Day one - Individuals will be charged an initial penalty of £100, even if they have no tax to pay or have already paid all the tax owed
  • Over three months late - Individuals will be charged an automatic daily penalty of £10 per day, up to a maximum of £900
  • Over six months late - Individuals will be charged further penalties, which are the greater of 5% of the tax due or £300
  • Over 12 months late - Individuals will be charged yet more penalties, which are the greater of 5% of the tax due or £300. In serious cases people face a higher penalty of up to 100% of the tax due.

The deadline for submitting paper tax returns is 31 October, while those filing online have until 31 January.

Meanwhile, the penalties for paying income tax late are also being changed. An initial penalty of 5% of the unpaid tax will be charged after 30 days, with further penalties levied at six months and a year if it remains unpaid.


ESSENTIAL TAX DATES AND DEADLINES

30 April  Normal annual adjustment for VAT partial exemption calculations (monthly returns).

3 May  Submission date of P46 (Car) for quarter to 5 April.

19  Last day for filing forms P14, P35, P38, and P38A - 2010/11 PAYE returns - without incurring penalties.

31  Last day to issue 2010/11 P60s to employees.

For more information on key tax dates and deadlines, visit our 2011/12 Tax Calendar.


QUOTE OF THE MONTH

'With competition for international capital so fierce, the Government must play up our strengths and remove the stumbling blocks to investment. Time isn't on our side and we have less than five years to turn things around'.

CBI director general, John Cridland, calls on the Coalition to make the UK a more attractive place to do business


WEBSITE OF THE MONTH

www.startupbritain.org

Home of the Government's new scheme to encourage would-be entrepreneurs to start up in business


ON OUR WEBSITE

Essential information for business owners

For advice on all aspects of owning and running a business, visit our business guides.

The latest tax information

View the 2011/12 tax rates and allowances, plus a host of other tax information here.

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Cameron launches assault on red tape
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Plans for single flat-rate state pension are published
A new flat-rate state pension may be introduced as part of radical plans by the Government to simplify the current system.
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New paternity leave rules come into effect
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