Enhanced relief for trading losses

Under current rules businesses already have a number of mechanisms to relieve trading losses against other income including past trading profits. Unincorporated businesses can offset unlimited trading losses against income in the preceding year and in the early years of business trading losses may be carried back for three years. The main relief for companies is a carry back of unlimited trading losses against profits made in the previous year.
A proposed revision will apply for two years and will extend the period that current trading losses from businesses can be carried back against previous profits to a period of three years, with losses being carried back against later years first.
The amount of losses that can be carried back to the preceding year remains unlimited. After carry back to the preceding year, a maximum of £50,000 of the balance of unused losses is then available for carry back to the earlier two years.
This change will have effect for company accounting periods ending in the period 24 November 2008 to 23 November 2010. For unincorporated businesses, the measure will have effect in relation to trading losses for tax years 2008/09 and 2009/10.

Inside this issue:

Protecting Confidential Information: Richard Cripps from Gulland explains
Enhanced relief: Robsons outline the main areas of this important benefit
‘Reasonable Care’ and Tax: Gill Millington offers some useful advice

Wealth Creation Specialist - June 2009 Newsletter

The contents of these articles represent the opinions of the authors, and not of Professional Solutions Group Ltd. Neither Professional Solutions Group Ltd nor Tenet Connect Ltd. are responsible for the accuracy of the content of the articles. These articles do not constitute a recommendation to purchase any of the products mentioned.

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Protecting Confidential Information

All employees are under a duty not to misuse their employer's confidential information, but a recently published study undertaken by KPMG and Mishcon de Reya has shown that the employees are now more often using their current employers confidential information in order to give them an edge in what is now a more highly competitive jobs market than we have seen in recent years.
Of course any confidential information that employees learn in the course of their employment should be kept confidential throughout their employment and this duty survives the end of employment in relation to information that is clearly highly confidential and highly important, including trade secrets such as recipes or production methods. It is less likely however to apply to information such as client lists or details, although the employer may own the paper or disk they are held on.
Businesses should therefore now think carefully about how they control and restrict access to confidential information through their own internal systems and should also make sure that the common law duty is underpinned by the inclusion of express restrictive covenant preventing the former employee from passing on information even after they have ceased to work for the employer in their employment contracts.

Is 'Reasonable Care' the End of Tax Penalties for Your Business?

HMRC recently announced changes to the way it calculates tax penalties which will put more responsibility on the shoulders of business owners. The size of penalties used to depend on the error itself but now HMRC is looking at the business behaviour that gave rise to the error as a yardstick for setting the fine. In short, business owners now have to take even greater steps to demonstrate they are dealing with their tax obligations responsibly.

Although this might be extra work for some businesses, the benefits outweigh the disadvantages. Overall, the new system will be fairer in the way it charges tax penalties: provided business are able to demonstrate they have taken 'reasonable care' in dealing with their tax returns and documents, the penalty charged for errors can be reduced to 0%. This should come as welcome news to business owners who in the past have dreaded filing their tax returns because they might be penalised for an honest mistake. Filing tax returns is a straight-forward business for accountants, but for a sole-trader who does it once a year the story is very different.

The term 'reasonable care' is defined as the degree of care that a reasonably prudent person would use under like circumstances. HMRC build on this definition by adding that: 'Reasonable care' varies according to the person, their particular circumstances and their abilities. Every person is expected to make and keep sufficient records for them to provide a complete and accurate return.

This falls in-line with the HMRC's claims it will give business owners the 'benefit of the doubt' if they are genuine, honest mistakes. However, this does not absolve businesses of their responsibility to keep accurate financial records. So the next question is how to demonstrate 'reasonable care'? HMRC offers the following advice:

Take 'reasonable care' to provide the correct returns and documents Keep records that are good enough to enable you to provide complete and accurate returns and documents Seek advice from HMRC or a tax professional if you encounter a transaction / event you are unfamiliar with Notify HMRC if you notice any errors once the return and / or document has been submitted

For small businesses and sole traders in particular, we have some additional advice that should help avoid incurring any suspicion or false accusations of deception:

• Keep separate bank accounts to manage personal and business expenses to avoid confusing cross-overs between the two (personal expenses registered as business expenses are a common error and the most likely to be regarded by HMRC as 'deliberate' errors)
• Keep a ledger of all business expenses backed up by third party documentation e.g. bank statements, receipts etc.
• In the case of cash payments, a record of the cost, date, location and reason for each payment should be made at the earliest opportunity
• If you do find an error on your return after it has been filed, you can minimise or completely eliminate the penalty by observing the following practices:
• Notify HMRC immediately on recognition of the error Provide all necessary documentation to allow HMRC to calculate the tax owed Allow access to all other records that might help HMRC calculate the tax owed

The change in HMRC's attitude towards tax penalties should help avoid punishing honest business people unfairly whilst actively discouraging those who would try to take advantage of the system from doing so.

If you want to help make the threat of tax penalties a thing of the past for your business but are at all unsure about any part of your tax return or documentation, you should speak to www.avsbookkeeping today. They are experts in dealing with business transactions, tax returns and accounting records for SMEs and larger firms.