Thank you to those of you that helped us get there!

This is a great achievement for us, especially considering we were up against some of the big boys in the industry. We have been in the business for 14 years now and during this time have provided thousands of contractors peace of mind (we hope!) about their tax affairs, we have kept up to date with all the HMRC directives over the years, IR35 changes, MSC legislation and have strived to offer astute advice in these areas. We have worked hard on understanding what the “contractor” expects from a good accountant and have found friendly & reliable customer service to be the prerequisite that many firms seem to miss, we have poured our resources into ensuring every clients experience of Carrington is enjoyable (As much as tax can be!) and they feel a part of a greater community from day one with us.

We pride ourselves on being solid, innovative accountants who have a passion for small business entrepreneurs and thrive on supporting their visions of successful, financially stable and tax efficient companies.

We are a highly skilled, committed team and this award is testament to the level of service and professionalism we have strived for – May 2010 be an even better year. (For us and you!)

We welcome you to view our award banner at www.carringtonaccountancy.com

Well, last week HMRC won a High Court case to prevent IT Contractor, Robert Huitson, from seeking a Judicial Review of HMRC’s retrospective taxation demands.

Mr. Huitson was attempting to claim that his human rights were being breached by HMRC retrospectively applying tax legislation that affected his tax during his time working through the offshore umbrella provider, Montpelier. He is now faced with a £100,000 tax demand.

Judge Mr Justice Parker rejected Mr. Huitson's claim, saying that HMRC had warned users of such schemes that they may be challenged in the future, and that the Government was legally entitled to change tax laws retrospectively to squash 'artificial arrangements'. The retrospective taxation for such avoidance schemes can now go back to 1987.

Montpelier run offshore solutions for UK contractors via the Isle of Man and have acquired a reputation for questionable tax solutions with high net pay percentages.

In the last Budget HMRC signalled their resolve to target offshore arrangements where people are ‘not paying the right amount of tax’ and this win in the High Court is likely to see them stepping up their efforts to investigate similar schemes.

Many Bankrupt Contractors

The FT reported that scores of contractors had participated in the scheme and many now faced bankruptcy from these backdated tax demands. Fortunately this will affect none of Carrington’s contractors. We have long held the view that such offshore arrangements would not pass the HMRC’s ‘paying the right amount of tax’ test and would therefore be challenged.

The impact on many contractors may be severe as they could already have spent their ‘tax savings’ and are unlikely to get too much sympathy from HMRC or their tax collection agents.

One knock-on effect of this win could be that HMRC may now try to impose such retrospective tax changes into other areas, which would be very unwelcome!

Our Advice

So, if anyone is considering that very attractive offer of offshore umbrella services that just seems too good to be true, ignore it and you may save yourself a lot of sleepless nights and a lot of tax, interest and penalties too.

Do you know someone this may affect?

If you have any contractor friends who are operating through offshore umbrellas and are getting nervous (and rightly so), Carrington would be very happy to speak to them about limited company and traditional HMRC compliant umbrella options instead.

Call us on 020 7324 6020 or email to .

Most of the existing legislation was written back in the days of the quill pen and it was generally accepted that it needed updating. It was also accepted that small companies that form the vast majority of companies registered with Companies House suffered unduly from excessive administration in relation to the requirements of that old-fashioned legislation.

It would therefore be quite reasonable to expect that, as every company has to file an Annual Return, the new Annual Return would be ;

• easy to understand,
• easily completed,
• with good guidance,
• and completion online.

One out of four (online completion) is not very good!

The new Annual Return (form AR01) came into effect from 1st October 2009 for companies completing a return with a made-up date of 1 October 2009 or later. Most companies that have been around for more than a year had all their data regarding directors, registered office, shares etc on the Companies House website already and were used to filing online. It is a fairly basic form, so how difficult can it be?

One of the first questions asks whether you are a ‘traded company’. I suspect many directors would answer ‘yes’ – we are not dormant so are trading. Closer inspection of the guidance shows that you should be answering ‘no’ as a traded company is one in which its shares are publicly traded on the stock markets.

You then have to answer whether you have a SAIL address. This is a Single Alternate Inspection Location. I foresee some blank faces but if you ignore the question it goes away, which is probably the right answer.

Next, you are required to confirm the addresses of directors. Same as before you might think. But if you confirm that, you are confronted with an error message saying that you need to enter the Country of Residence. You need to enter when you changed your Country of Residence as well. ‘But I haven’t’ you might say, but you cannot progress without giving a date on which you did move, even though you have not! It seems safest to use the same date as the made-up date for the Annual Return.

You are then given a number of options for Country of Residence. The most popular options are;

• United Kingdom
• England (seems to be the safest choice, if you do live in England)
• UK
• Great Britain

At this point you may also catch sight of notes asking whether you are an EEA Company, or maybe a Non-EEA Company? Don’t worry as these do not apply but it is a little tricky to know that they do not apply without reading the First Company Law Directive (68/151/EEC). Don’t have that to hand? – ignore the note, that is easiest.

On to Capital : Update/Amend. That is ok, share capital and shareholders are the same as last year, so this section must be easy, right? I am afraid not. You are asked to free-type the ‘Prescribed particulars of rights attached to the shares’. I wonder how many directors of small companies know these rights?

Most companies operating with ordinary shares will be safe with the following answer;

‘Fully voting, fully participating, non-redeemable shares’

I hope the above allows you to get through your Annual Return, if you are due to make one.

It is disappointing though, that a simplification exercise immediately makes things, more difficult and confusing.

The most likely correct answers are shown above in bold but do give it some thought.

If you do have problems with the completion of your Annual Return, Carrington will be happy to give guidance on 020 7324 6020.

We recommend you file a personal tax return if:

• Your were a company director in the tax year 08/09
• You have been sent a paper return by HMRC in the post
• If you are in higher rate tax (Higher rate tax band for 08/09 was earnings in excess of £40,025) and have income untaxed or taxed at basic rate you should do a return. This would include any capital gains such as on shares or selling a second property
• If you are a basic rate taxpayer but have untaxed income or need to disclose income such as property letting income. Even if you make a loss on property letting it should be claimed so it can be offset against future profits, so reducing future tax.

If you do not make a return and HMRC find out at a later date that you owe tax, there will be penalties of up to 100% of the tax plus interest.

It is also possible that you may have had a tax code that over-taxes you. We can help get this tax back - possibly without doing a full return.

How to Proceed

If you would like us to file this for you, we require you to complete a questionnaire, which you can do on line at https://www.carringtonaccountancy.com/self-assessments/questionnaire

If you have any queries, please do not hesitate to contact us. We look forward to being able to assist you in filing this return.

As expected there were few significant changes in the 2009 Pre Budget Report and it looks as though they won't make the major tax increases until after the next general election. We've summarised some of the main changes announced to give you a brief overview:

End of 15% VAT rate

The VAT rate will go back up to 17.5% as from 1 January 2010. Therefore any invoices raised from this date onwards will need to include the higher VAT percentage.

Corporation Tax

To soften the blow to small companies, the Chancellor announced he would postpone a planned rise in the corporation tax rate to 22% until April 2011, This higher rate was due to come into effect from April next year, but the SCR will stay at 21% to "provide further support" to 850,000 small businesses, Mr Darling said.

The 28% main rate of corporation tax is untouched and therefore the marginal rate for profits between £300K and £1.5M will remain at 29.75%.

Note that there were no changes to the rate of capital gains tax.

NIC rates to increase

As well as the 0.5% increase they announced in the 2008 Pre Budget Report, they've proposed a further increase of 0.5% from April 2011. From 2011/2012, this increases the main rate of Class 1 and 4 NICs by a further 0.5 per cent to 12 per cent and 9 per cent respectively. This also means that all employees earning over £43,875 face an uncapped 2% NIC charge on all their earnings over this level.

In this sense, the pre-Budget report is kinder to limited company contractors than umbrella company contractors, as the additional half a per cent rise in National Insurance will have an impact on umbrella workers, who already pay a fair amount of NI, however Limited Company directors will be largely unaffected as most income is taken by way of dividend.

Income tax rates and thresholds to stay the same for 2010/2011

The rates of income tax (20%, 40%) will remain the same as will the personal allowances (ie basic personal allowance will still be £6,475). The new 50% income tax rate will still apply on earnings above £150,000. The new dividend tax rate of 42.5% will also still apply on dividends above £150,000.

Bank payroll tax

With effect from 9/12/09, where bank or building society employees are awarded discretionary bonuses of greater than £25,000 before 5 April 2010 employers will have to pay an additional 50% tax on the excess above this threshold. This will not be a deductible expense in calculating the company's taxable profits.

Reducing tax relief on pensions if earning over £130,000

The Government will keep to its plan of reducing the pensions tax relief for high earners.
Alistair Darling, said in his Pre Budget Report speech: "I announced in the Budget that we would reduce pension tax relief for people with incomes over £150,000.I want to do this as fairly as possible and treat individuals the same regardless of whether they receive their pay as current salary or as a future pension benefit, and prevent tax avoidance. So I have decided to include employer pension contributions in the definition of income for this tax measure. No one with an income below £130,000 will be affected."

This will affect some high earners that used salary sacrifice schemes to reduce their earnings to below the £150,000 threshold by having employers make a large pension contribution in lieu of salary.

The Chancellor also added the state pension would rise by 1.5% in 2011.

Changes to workplace pension reform

The Chancellor announced changes to the plans for workplace pension reforms.

Instead of reaching the 3% level of employer contributions in October 2016, this has been delayed by one year to October 2017. The 1% employer contribution will therefore now continue until October 2016, and the 2% employer contribution will apply from October 2016 to October 2017, with 3% applying thereafter. Automatic enrolment will still start as planned in October 2012.

IHT nil rate band to be frozen

The inheritance tax threshold, for individuals, will be frozen at £325,000 (£650,000 for married couples / civil partners) for the tax year 2010/2011. This overrides the original planned increase to £350,000 announced in Budget 2006. This may provide a need to review your inheritance planning.

Clarification of the furnished holiday rules

Furnished holiday lettings will be taxed as standard rental properties as from April 2010 as previously announced. The report did clarify some of the previously unexplained issues eg any losses will be carried forward against rental profits and capital allowances can be claimed on pre 2010 expenditure.

Conclusion

Overall, the report was not too negative for freelancers as it did not feature any new clampdown on employment status, 'income shifting' or umbrella companies operations.

It was a very busy year for us, we are positioned as well as ever in the market place for Umbrella Solutions and present the leading service offering for contractors in the form of same day payments, a dedicated personal team, expense dispensation, innovative tax seminars, no hidden fees, and best of all - minimal admin for you!

As it is nearing the start of a new year, we felt it necessary to reassess the structure of our business. Unfortunately the cost of providing this service to you has increased over the last year and we want to continue to offer you the same high quality, as well as continuing to make improvements which you will benefit from. Carrington have not reviewed our pricing during 2009, so after due consideration of the services we currently provide you, we find it appropriate to increase our weekly fees.

Our weekly fee has been £12.50, this will be increasing by £2.50 per week from January 2010 onwards, therefore a total fee of £15 per week gross will be deducted. This only equates to £9.10 per week net - that is what you actually pay us per week after tax.

This change will be effect from 11 January 2010 i.e. All weeks worked from the 11/01/10 onwards will be charged at this level. Any weeks worked before then will continue to be charged at £12.50.

We hope you understand our reasons for the increase, and we assure you this will not happen again for a long time to come.

Thank you for your continued support.

While our offices are closed, you can still email us and when the office reopens on the 4/01/10 it will be 'business as usual' and we will begin responding to any enquiries then.

We apologise in advance if this is going to cause you any inconvenience, but through experience this is rarely the case.

Please contact us on 020 7324 6020 if you have any queries about this.