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Newsletter issue - March 09.
Q. We have just taken on a new employee who has presented his form P45. But it's an A4 sized back and white form, not the usual smaller shaded form. Is it a bad copy? If it is, what should we do?
A. Don't panic. The format of the form P45 was changed last October, but there was not much publicity about it. The new form P45 is A4 sized, double its previous size, and it must be printed in black ink on to plain white paper, not onto pre-printed HMRC stationery. The new form is valid and includes all the information that was on the old form. There are also some new compulsory boxes: date of birth and gender for the employee, and the address and postcode for the former employer must be shown in full. The new format P45 will be compulsory for all employers from 6 April 2009.
Q. I have built up quite a good business as a music teacher with profits of about £80,000 a year. Should I incorporate my business?
A. The full answer to your question will involve a lot of detailed calculations concerning how much you want to draw from the business each year, what assets you use in the business - such as a car and musical instruments, and what other people may be involved - such as your spouse. However, your main consideration should be VAT. As a sole trader the private tuition you provide is exempt from VAT. However, because the service is one of private tuition, if you provide the same service as an employee of your own company, that tuition must be subject to standard rate VAT. If your customers are individuals they will see your prices increase by 15% once you start trading through your company.
Q. I retired from the civil service in 1992 and have just been informed that my civil service pension has been overpaid for every year since then. As this money has to be repaid to the Government will I get refund of the tax I paid on that income?
A. The overpayment of pension will be recouped by the Government by reducing the amount of pension you were due to receive from 6 April 2009. This reduction will be small and should be covered by the normal inflationary increase you would have at that time, so you will receive approximately the same pension in 2009/10 as you did in 2008/09. You will not have to repay a lump sum. Your tax position for earlier years will not be affected, and you will be taxed on the pension you actually receive in 2009/10.
