Frequently Asked Questions | Accotax

List Of Frequently Asked Questions.
Accotax Accountants

Frequently Asked Questions

Click on a question to expand and read the answer.

Who is ACCOTAX? Where are you based & how long has the practice been operating?

ACCOTAX is a firm of Chartered Accountants based in southwest London ( Morden), We are on less than two minutes walk from Morden underground tube station. The firm was established in 2009 with the aim of providing fixed fee accounting & taxation services with distinctive customer service.  Over the period, we have served over 1200 businesses from different sectors and have proven that we are one of the best accountants in the market.

Are you a firm of Qualified Accountants? What professional certifications do you have?

Yes, we are a firm of qualified accountants with Big4 experience. We are regulated by ICAEW ( Institute of Chartered Accountants of England  Wales), ACCA ( Association of Chartered Certified Accountants), & AAT ( Association of Accounting Technicians). Therefore,  rest assure you surely will be in safe hands.

How easy it is to switch/chnage accountant?

Switching accountants is an easy & straight-forward process. All you have to do is, notify your current accountant, telling them the name of your new accountant, and advising them that the newly appointed firm will contact them.

When you switch to ACCOTAX, we make the whole process seamless for you, by contacting your previous accountant and requesting them to provide all the relevant information they hold about your business.

When you decide to switch to us, we will fully manage the transition and ensure that the handover is seamless. We will take care of everything including notifying HMRC and other government offices that we are looking after your business & tax affairs.

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Why Accotax Accountants?

Accotax makes sure you get the best accountants in London to deal with your tax-related issues. The company makes sure you’re all done setting up a new business and dealing with taxing and other accounting issues. 

  • Qualified & Experienced Team
  • Fixed Fee, No Surprise Bills
  • Free E-mail Reminders
  • Unlimited Telephone & Email Support
  • Excellent Customer Service & Google Ratings
  • Monthly Newsletter & Tax Tips
  • Work on Time, Every Time & Guaranteed Satisfaction

I want to close down my consultancy company and pay the funds it holds to me as the only shareholder. Should I wait until the new tax year or start the process now?

A. If permission is granted from the Taxman in advance (called a C16 clearance), the funds the company distributes to the shareholders during the winding-up process will be treated as a capital gain and taxed at 10%, where Entrepreneurs’ Relief applies.

I want to close down my consultancy company and pay the funds it holds to me as the only shareholder. Should I wait until the new tax year or start the process now?

If permission is granted from the Taxman in advance (called a C16 clearance), the funds the company distributes to the shareholders during the winding-up process will be treated as a capital gain and taxed at 10%, where Entrepreneurs’ Relief applies.

However, the law will change on 1 March 2012. From that date where more than £25,000 is distributed to shareholders in anticipation of the winding-up of the company, the entire amount of the distributed funds will be treated as income and taxed like dividends. That means Entrepreneurs’ Relief cannot apply and the rate of tax due on the distribution will leap from 10% to 25% or more. The capital gains treatment can still be achieved if the company is put into formal liquidation, but that is likely to cost £7,000 or more. So if you want to wind-up your company and it holds more than £25,000, get those funds paid out by 1 March 2012.

My energy bills have soared since I started using a room in my home as the base for my company’s business, as I have to have the heating on all the time. I’ve heard that my company can pay up to 1/3 of my gas bills tax-free, is that true?

Your company can pay you (as the company’s employee) £3 per week, £156 per year tax free, for working at home and no evidence has to be provided to support that payment.
If you can prove your heating bills increased because of you heating the property while working there, when otherwise it would be empty and not heated, then your company can pay that extra heating cost to you tax free. However, if the Taxman asks, you will need to provide copies of the gas bills for a period before you worked at home compared to a similar period when you have worked at home, to prove the increase in costs. The Taxman may also want to see a schedule of the days you work at home and days when you work at clients’ premises. This type of claim is referred to as ‘use of home as office’ which can also cover other costs incurred in running your business from home. Contact us for further guidance.

I received a letter yesterday addressed to my new company, asking for a payment of £320 to register the company on the ‘Intercom VAT Registry’. Should I pay this fee? Is it compulsory?

Do not make any payment or respond to this letter. It is a known scam. The ‘Intercom VAT Registry’ does not exist and it is not an official EU body as the letter suggests. If you are ever suspicious about letters or emails your business receives, check them against the list of known fraud on the Action Fraud website: https://www.actionfraud.police.uk/. We are more than happy to check any suspicious correspondence you receive, so contact us if you are unsure of the legitimacy of any letters or emails sent to you.

What records do I need to keep to claim travelling expenses? Do I also need to keep receipts for petrol?

ou should record the date, destination and distance of each business journey you drive in your own car. It is good practice to record the total on your car’s milometer at the start and end of each journey. Your employer can pay you up to 45p per mile for each business related journey you drive. Business journeys do not include normal commuting between your home and your permanent workplace. If your employer is VAT registered it will be able to reclaim VAT on part of the mileage allowance you receive, if you provide VAT receipts to the value of the fuel used. The VAT receipts do not have to exactly match the dates of your journeys. When travelling by public transport keep the receipt for the ticket.

I’ve always calculated my business income for a full year to 30 April. On my tax return for 2010/11 I’ve recorded my business profits, income and expenses for the year to 30 April 2010. But when I rang the Tax Office with a query the adviser told me that my accounts should always be drawn up to 5 April. Have I been doing it wrong for 20 years?

The adviser at the tax office is wrong. You can draw up your business accounts to any date you please. The year end of 30 April gives you a long delay between the end of your accounting year and the date on which you need to pay tax on the profits for that period.

A friend told me I’d pay less tax if I held my let properties through a company. Is that true?

The answer depends on whether you need to get your hands on the proceeds from your lettings business and your current highest tax rate. Let’s assume you need the cash and your highest tax rate is 40%.

If the properties are in a company, the company will probably pay tax at 20% on the rental profits. But its tax rate could be up to 27.5% if the annual profits exceed £300,000, or you control a number of companies. When you extract the profits from the company as dividends you will pay a further 25% income tax. So for rental profits of £100, you will end up with £60 in your hands.

If you hold the properties personally, and pay tax at 40%, for every £100 of rental profits you will receive £60 in your hands. No different to holding the properties in a company. However, if you had not extracted the profits from the company until a later year when you are a basic rate tax payer you would then be paying less tax. It can also be beneficial to keep the profits in the company to re-invest in further properties. The company may pay tax of 20% on the gain it makes when it sells the let properties. If you sell the properties you will probably pay tax at 28%, but you will be able to set-off a tax-free allowance of £10,600 against the gain, which is not available to the company. You may have to also pay further tax when extracting the profits out of the company.

I’ve received a £100 fine for not submitting my tax return, but I don’t remember receiving a form to complete. All my income is taxed under PAYE, so surely I don’t need to complete a tax form, do I?

You should first ring the Self Assessment helpline on 0845 900 0444. Have to hand your NI number and your unique taxpayer reference number (UTR), if you know it. The Tax Officer will confirm whether you need to complete a tax return for the year to 5 April 2011 or not. If you do need to complete a tax return for that year you should do that online, if you submit a paper form now you will receive an even higher penalty. We can help you submit your return online, if one is due.

I hold the lease of a property comprising of a shop on the ground floor and offices above. The shop is vacant and only one of the offices is let. I’ve received a good offer from a property developer to purchase the lease of the whole building. If I invest in another commercial let property can I rollover the gain and avoid paying tax on the sale of the lease?

It is possible to rollover gains made on land and buildings used by trading businesses or which are let to trading businesses that are connected to the building owner. However, letting of property is not regarded as a ‘trade’, so you can’t rollover the gain you make on selling the lease of this building. Even if your own trading company occupied a part of the building, rollover relief would only be available on the proportion of the building it occupied.

My bakery shop is VAT registered, but I don’t add VAT to the bread and cakes I sell. I’m going to start selling take-away filled rolls, fizzy drinks and hot pies. Will I have to charge VAT on these items?

Most food is zero rated for VAT, which for a VAT registered business such as yours, means you add no VAT to your bakery products but you can reclaim VAT on your business purchases. However, once food is supplied in the course of catering, or as hot food to eat straight away, the standard rate of VAT (20%) may apply. The rules of what must be standard rated and what should be zero rated are quite complicated, and are set out in detail in the VAT notice 701/14: Food. We can advise on what products you should apply standard rate VAT to.

I am about to move abroad, for what I hope will be a permanent relocation. Can I continue to contribute to my tax-free ISAs in the UK?

To open an ISA you must be resident and ordinarily resident in the UK for tax purposes. This broadly means that you normally live in the UK. There are exceptions for members of the military and government employees who are sent to work abroad. Once you have emigrated, you will not be permitted to open a new ISA, or contribute to ISAs already held. Also the interest paid on the ISAs you already hold may be taxable in the country you live in.

If a company pays for private medical insurance for its employees and the contract is between the employer and the insurance company, is there a tax charge on the employees? Can the company deduct the cost of the insurance from its profits?

Where the employees earn £8,500 or more a year, or are directors, there is a tax charge for the individuals based on the cost to the company of the insurance. There are exceptions to this tax charge for eye-tests required by health and safety legislation, annual medical checks or health screenings. The company can deduct the cost of the insurance from its profits, as it is part of the cost of employing staff.

I bought an investment property about 6 years ago and after expenses I have a surplus of about £250 per month. I have never declared this income or paid tax on it. How do I go about putting this right?

The Taxman is running a series of campaigns to encourage people to come clean about unpaid tax, the latest of which is aimed at people who sell through online markets. Although this is not your situation, you can make a disclosure of your rental profits. You will have to work out how much tax you owe and the interest due on that late paid tax, but we can help you with this. There will also be a penalty to pay, but as you are volunteering the information without being asked, the penalty should be minimal. The penalty could possibly be about 10% of the tax due.

I’m thinking of starting a new company. Will it qualify for the NIC exemption?

It depends where your business is based. Businesses in the east and south-east of England, or London, don’t qualify for the so-called NIC holiday. The south-east region stretches all the way up to the Northamptonshire border, so you need to be quite clear where your principal place of business is. Secondly it must be a new business, not an existing business that has been transferred to a new company. There are also some excluded sectors such as road freight, coal and export businesses. We need to talk through the detailed rules before you apply for the NIC holiday.

My business is VAT registered but the sales have dropped back, so my turnover is less than £75,000 per year. Can I stop charging VAT on my sales?

You must not stop charging VAT until you are given permission to do so by the VAT office. You need to apply to deregister for VAT on form VAT7, and send the completed form to the VAT deregistration office in Grimsby. You must continue to charge VAT on your sales until your application to deregister from VAT is accepted, and this has been confirmed by the VAT office.

Last month the Tax Office wrote to me saying I would no longer receive tax credits, but I did nothing about it. Now my wife is expecting another baby so has reduced her working hours. Can I get my tax credits back?

You need to make a new tax credits claim as soon as possible, don’t wait until the new baby arrives. Your reduced family income may mean that you qualify for working and child tax credits already, and if you don’t, you will at least have submitted a protective claim for 2012/13. Under the new rules, from 6 April 2012 couples with children must work at least 24 hours per week between them, and one member of the couple must work at least 16 hours per week. There are exceptions if one person is disabled, incapacitated or a carer.

I’m an IT contractor currently working for a government department through my own company, for £300 per day. I’ve heard that all contractors will have to go on the department payroll. I don’t want to be a wage-slave, so what should I do?

The government has announced that all senior appointments in government departments, such as executive positions, will have to be paid through payroll. This does not apply to other contractors. However, other government department contractors who are engaged for six months or more, and who are paid more than £220 per day, must when their contracts come up for renewal, or start afresh, include terms that allow the government department to seek formal assurance that income tax and NI obligations are being met. We can help you provide this assurance if it is requested.

I don’t have the all the figures needed to complete the tax credits renewal form, and I’m worried I’ll lose my tax credits as the deadline is 31 July. The main problem is my income is as a musician as I don’t know what my total income is until I receive the royalty statements.

Don’t panic. You are required to return the tax credits renewals form by 31 July, or renew by phone, but you can submit estimated figures for 2011/12. When your self-employed accounts are ready you can submit the final figures and your tax credits award will be adjusted as necessary. As long as you submit final figures by 31 January 2013 you should not lose your tax credits.

What’s all this about RTI? Do I have to do something by October? Is it going to cost me more?

Real Time Information (RTI) is a new way of submitting PAYE information to the tax office. All employers will have to use RTI by October 2013 (not this year), but some employers are starting to use RTI early in a test phase from April 2012. The aim is to add more employers to the RTI project at intervals, depending on how the first tests go. The tax office says your payroll software should cope with RTI when the time comes. We suggest you ask your software provider when their RTI update will be ready, and how much it will cost. We can help you prepare your payroll for RTI. This involves checking you have the full name, gender, date of birth and accurate NI number for every employee, including those who earn less than the NI threshold.

I’m worried about the Granny tax. Is this going to affect me? I’m aged 64 with an annual income of around £16,000.

The so-called Granny tax is actually a change in entitlement to allowances from 6 April 2013. You are currently entitled to a personal allowance (tax free amount) to set against your income, of £8,105. From 6 April 2013 you will be entitled to a personal allowance of £9,205.

As you will reach age 65 in 2013/14 you may have expected to receive the higher age allowance of £10,500 which is available to people currently aged 65 or over. However, because the rules are changing on 6 April 2013, only those born before 6 April 1948 will be entitled to the age allowance of £10,500, everyone else will get the normal personal allowance. This is not as unfair as it seems as the age allowance will be frozen, probably for ever more at £10,500, but the personal allowance will increase each year, and is likely to reach £10,000 in 2014/15.

Until 31 May 2011 I was employed as loss adjuster for company A, and I drove 4,400 business miles in my own car for that company in 2011/12. I then joined rival company B, and drove a further 8,080 miles on business, also in my own car, by 5 April 2012. Both companies paid me 40p per mile for those business journeys. Can I claim anything extra on my tax return?

Yes. The approved tax free mileage rate for 2011/12 was 45p per mile, for the first 10,000 business miles. However, this mileage threshold applies per employment. As you held two jobs with completely separate employers in the year, and drove less than 10,000 miles in each job, all your business mileage can be claimed at 45p per mile. You can claim £624 (5p x 12480 miles) on your tax return for 2011/12.

.The company provides the sales reps with pay-as-you-go mobile phones, who purchase top-ups when they need them, claiming the cost back on expenses. Does the cost of the top-ups need to be included on the forms P11D for those employees? Does it make a difference if the employee bought the pay-as-you-go phone?

Where the mobile phone is owned by the company and the contract is between the company and the telecoms provider, any top-ups purchased for that phone are tax free, as the provision of the phone is tax free. The cost of the vouchers does not have to be reported on the form P11D for each employee. Note this tax free treatment only applies to one phone per employee.

If the phone was bought by, and thus owned by the employee, the top-up vouchers are taxable and need to be reported on the form P11D. The employee could claim a deduction on their tax return for the cost of business calls made with the top-up payments, but this would involve analysing all the calls made into business and non-business calls.

Our company is owned jointly by myself and my wife, and we are both directors of the company. I do most of the work and draw a lot of funds out of the business, so my director’s account with the company is often overdrawn. My wife has another paid position, so doesn’t draw so much from the company. Her director’s account with the company is always in credit. Can our two director’s accounts be combined and set-off against each other for tax reporting requirements?

Married individuals are taxed as separate persons in the UK, and their income and liabilities cannot be amalgamated to present a better picture for tax purposes. The Taxman is dead against the overdrawn balance on one person’s account being set against the credit balance on another person’s account, even if those two people are married.

My company is doing well and I’d like a new car, possibly a BMW series 5. Should the company lease or buy this car, or does it make more sense for me to take a dividend from the company and to buy the car personally?

As the car is available to you for personal journeys you will be taxed on the ‘benefit’ of driving that car giving rise each year to a tax bill for yourself and a NI bill for your company at 13.8%.

The company will get a deduction against profits for the cost of leasing the car, but that deduction is limited if the car has CO2 emissions over 160g/km (reducing to 135g/km from April 2013). Likewise the capital allowances are restricted for cars with CO2 emissions over 160g/km. The company can pay for the car’s insurance, servicing and repairs, with no further cost to you, the driver. However, if fuel is provided there is an additional benefit in kind to be taxed on you.

In reality the calculations need to take into account other factors such as the cost of insurance and whether you need to borrow money to buy the car. We need to talk about this in greater detail to provide you with the correct advice.

I want to buy a new business but the only way I can do that is to increase the mortgage on my house. Will the interest I pay on the extra mortgage be tax allowable for the business?

In principle yes, but there are restrictions to prevent improper use of this tax relief. Further restrictions are also proposed from 6 April 2013 (see above). Interest paid on loans used to buy into a partnership or to buy shares in a closely controlled company, or lend to such a company are generally tax allowable. However, it would be best to have a separate loan for this business investment, as when you repay any part of the mortgage the business part will be deemed to be reduced first. You will also have to hold at least 5% of the ordinary shares of the company and work for it for the greater part of your time.

Not sure what to include in invoice? letter head? emails? as a startup business

You Should Put The Following On Your Letterhead And Invoices…

  • The full name of the company, normally ending with the word “limited”.
  • The company registration number given by Companies House.
  • The company’s registered office address.
  • Where the company was incorporated – England and Wales or Scotland.
  • Your VAT number if VAT registered.
  • Details of any regulated profession of which you are a member.

Directors Names?

There’s no need to list all of the directors. However, if you do the rule is you must list them all. i.e. it’s all or nothing.

Outside The Premises

The Companies Act requires you to display the company’s name in a prominent position, even if your business operates from home! Failure to do so could in theory lead to a fine. However, putting the name on your house could lead to a Council Tax Bill. It’s worth noting Companies House don’t go around checking.

Cheques And Orders

You must show the company’s full name including the word “limited”. This is also important to avoid any confusion and you becoming personally liable for anything you thought was in the company name.

On Your Website

Every company must display on its website…

  • Company name;
  • Company registration number;
  • Place of registration;
  • Registered Office address.

All businesses whether companies or not must display the following on their website…

  • Name and trading name (if different);
  • Email address – it is not sufficient to have a contact us form, an email address has to be shown as well;
  • Geographic address from which the business trades;
  • Membership details of any trade or professional association including your registration number;
  • VAT number

The details do not have to appear on every page of the website and will probably be included on a “About Us” or “Legal Info” pages.

The Distance Selling Regulations complete the set of the current regulations and have been in force since 2000. There are long lists of items to be shown including unambiguous prices (stating whether prices are inclusive or exclusive of tax), an accurate description of goods or services and the returns policy. If you are trading over the internet you should consult the Regulations.

Emails And Order Forms

All emails and order forms from a company must contain…

  • Company name;
  • Company registration number;
  • Place of registration;
  • Registered Office address.

Businesses will probably include this information in the footers or email signatures to each of their outgoing emails.

My employees earn an average of £490 per week, how much more NI will I have to pay for each employee from April 2011?

For an employee on average earnings of £490 per week you currently pay employer’s NIC of £48.64 per week in 2010/11, but from 6 April 2011 this NIC bill increases to £48.85 per week. That adjustment appears small but it amounts to £10.92 per year per employee. The increase in NIC costs will be much larger for higher paid employees, but smaller for lower paid employees. For an employee on £210 per week, you pay employer’s NICs of £12.80 per week in 2010/11, but this will drop to only £10.21 per week in 2011/12.

I had taxable income of about £60,000 in 2009/10, made up entirely of dividends and bank interest. I also pay £2,400 per year into a personal pension. Will I get 40% tax relief on that pension contribution?

You will receive higher rate tax relief on your pension contribution if you make the claim on your tax return for 2009/10. A contribution of £2,400 is worth £3,000 to your pension fund as the pension scheme trustees reclaim £600 basic rate tax from HMRC. Your basic rate tax limit will be expanded to £40,400 by the gross value of your pension contribution. Which means £3,000 of dividends which would have been taxed at the higher rate applicable to dividends of 32.5%, will be taxed at 10%, saving you an additional 22.5% in tax, or £675.

Our trade body charges a membership fee in advance for each calendar year, but from 1 December 2010 new members who join online can pay the annual fee for 2011 and become a member immediately, effectively receiving the balance of the 2010 membership period for free. The organisation is VAT registered and the membership fee is subject to standard rate VAT. Is it correct to charge new members 20% VAT when they join online in 2010?

The organisation should charge VAT at the standard rate in force at the date of the tax point for the membership subscription. This tax point is the earlier of the date the membership fees is received or the VAT invoice is issued. For new memberships paid for before 4 January 2011, the correct rate of VAT to charge is 17.5%, even where the membership covers the whole of the year 2011.

My husband inherited a house in 1986 when it was worth £40,000. He gave me a half share in the property in 2009 when it was worth £450,000. We sold the property in December 2010 for £460,000, but we never lived there. How do I calculate my share of the profit?

As you and your husband were living together during the tax year in which he gave you a half share in the property, that gift is deemed to be made at a value that creates no gain and no loss for your husband. Thus in 2009 he disposed of half the property to you at a value of £20,000, the tax cost of which was half the probate value: £20,000. Hence he makes no profit on his gift (£20,000 – £20,000 = nil). The market value of the property in 2009 is irrelevant. You acquire the half share in the property in 2009 at a deemed cost of £20,000.

When the property was sold in 2010 your share of the proceeds was £230,000 (£460,000/2) and the cost of your half share was £20,000. Your share of the profit (taxable gain) is £210,000 (£230,000 – £20,000). Your husband has also made a taxable gain on the sale of the property of £210,000. You can both deduct an annual exemption of £10,100 from your share of the gain, but the balance of the gain will be subject to capital gains tax.

In January 2008 I formed C Ltd with my wife, we were both directors and held 50% of the shares each. In March 2010 we split up, her shares were transferred to me and she also resigned as a director. C Ltd ceased trading in July 2010, and it will be wound up informally. Can I claim entrepreneurs’ relief on the whole of the capital distribution paid to me on the winding up, or will just part of the distribution qualify because I only held 100% of the shares for the last 4 months that C Ltd traded?

You qualify for entrepreneurs’ relief on gains arising from all your shares in C Ltd, as you held at least 5% of the ordinary shares for 1 year up to the date the company ceased trading, and you were also a director of C Ltd throughout the last year of trading. Therefore any shares you held in C Ltd qualify for entrepreneurs’ relief, and you will pay capital gains tax at 10% on the capital distribution (after deduction of your annual exemption of £10,100), rather than tax at 28% or 18%.

I’ve heard that tax relief on childcare vouchers is changing from April 2011. How can I maximise the tax relief from this scheme while it lasts?

Employers can currently supply their employees with childcare vouchers worth up to £55 per week, which are completely free of tax and NI. However, employees who join the childcare voucher scheme from 6 April 2011 will only be able to receive vouchers worth £28 per week, if they pay tax at the 40% rate. Those employees in the childcare voucher scheme before 6 April 2011 will not have the value of their vouchers limited, and neither will employees taxed at the basic rate of 20%.

To gain maximum advantage from the scheme you need to bring into your childcare voucher scheme as many employees as qualify before 6 April 2011. Unfortunately employees who are not yet parents, or do not have parental responsibility for a child aged under 16, do not qualify to join the childcare voucher scheme. The childcare vouchers can only be used to pay for childcare provided by a registered or approved childcarer.

I’ve been told I will have to pay all my business taxes online very soon. How can I do this if I don’t have internet banking?

It will be compulsory to pay corporation tax electronically from 1 April 2011, and to pay all VAT due electronically from 2012. However, there are no plans to make all PAYE or CIS payments electronic, yet. Electronic payments include direct debits, debit and credit card payments. You don’t have to have internet banking, you can set up electronic payments with your bank by using telephone banking.

If you would rather pay your tax bills by cheque you can do so using a Bank Giro payslip at your own bank branch. This counts as an electronic payment, as do similar payments made at the Post Office counter by cheque, cash or debit card. You need to order the Bank Giro payslips specific to your business from HMRC.

My rental property makes a profit of £2,400 a year. I checked the HMRC website and it says I don’t have to complete a tax return. Does that mean I don’t have to pay tax on my property profits?

Although the HMRC website (www.hmrc.gov.uk/sa/need-tax-return.htm) says you don’t have to complete a tax return if your income from property is less than £2,500, you should scroll down and read the text under ‘Things to check if you don’t need a tax return’. This makes it clear that you must tell the Tax Office about any new sources of income. The deadline for reporting new income is 5 October following the tax year in which the new income first arose. If this date passed sometime ago you need to contact the Taxman as soon as possible and declare all your income and expenses relating to your let property. The Taxman may decide to charge you a penalty for failing to declare your income at the right time.

You do have to pay tax on your property profits, but if the amount owing is small compared to your salary, it may be deducted through your PAYE code. In this case you don’t need to complete a tax return each year, but without an annual tax return the Taxman will not know to vary your tax code if your rental profits increase or decrease.

I try to run my business on green principles so all the company cars are hybrid petrol/electric models. But I’ve heard that the car benefit is going to increase for all these cars from April, how is this going to affect my employees?

The good news is where your hybrid cars have CO2 emissions levels of 120g/km or less, the taxable benefit will remain at 10% of the list price. The tax increase will only apply to cars with higher CO2 emissions. Hybrid petrol/electric cars in this category currently get a 3% reduction in the percentage of list price that forms the basis of the car benefit charge for employees. From 6 April 2011 that discount will be removed, and the regular 1% increase in list price percentage will apply to all cars. For example the taxable benefit for a hybrid car with CO2 emissions of 179g/km is currently 21% of the list price. From 6 April 2011 the benefit for this car will increase to 25% of its list price.

I generally invoice about £5,000 per month, some £60,000 per year, so my business is not yet VAT registered. However, from 1 April a new customer will provide an additional £2,000 of sales per month. When exactly will I have to register for VAT?

You currently have a margin of £13,000 between your regular sales and the new VAT registration threshold of £73,000 (from 1 April 2011). Your new income will fill that margin in 7 months. If your regular sales remain constant your turnover for the past 12 months will exceed £73,000 in mid October 2011. You will need to register for VAT by 30 November 2011. As the VAT registration process can take at least a month, you should send in your application for VAT registration (online or in paper form) as soon as you realise your sales have exceeded £73,000. On that form be careful to state the date from which you become liable to register for VAT, even if that is some weeks in advance.

My PAYE tax code is 647L, but the websites I’ve looked at say it should be 747L, which is correct?

The personal allowance for individuals aged under 65 for the tax year 2010/11 (which ends on 5 April 2011) is £6,475. If you have no deductions to set against your personal allowance your tax code for 2010/11 should be 647L. The standard personal allowance for the tax year 2011/12 (from 6 April 2011 to 5 April 2012) will be £7475, so your tax code for 2011/12 will be 747L.

I work through my own UK company that has secured a 6 week contract to be performed in Amsterdam. I plan to stay with my cousin in Amsterdam while working on that contract. As I won’t have receipts from a hotel, what can I claim as expenses?

HMRC set benchmark scale rates for business trips in most countries. These cover costs for accommodation, meals, and other sundry expenses known as the residual rate. Your company can reimburse your expenses at the benchmark scale rates without receipts. However, if you are staying with a friend or relative and do not pay for accommodation or meals you can only reclaim 10% of the residual rate for the area. Where you pay for some meals (e.g. lunch) you should claim the specific meal rate or the actual expense supported by receipts. On top of these expenses you can also claim personal incidental expenses of £10 for every night that you are working abroad.

My business is to become VAT registered from 1 June 2011, but before that I will be taking delivery of a piece of equipment which will be used by the business for a number of years. Can I reclaim the VAT charged on the cost of the equipment even though the purchase was made before my VAT registration came into force?

Yes you can. VAT on equipment and goods purchased up to 3 years before you became VAT registered can be reclaimed, if you still held that equipment or goods at the date VAT registration became effective. You must also have the original invoice. You can reclaim the VAT paid on your first VAT return, or on any VAT return within the first three years of becoming VAT registered.

Help! I’ve received two tax calculations from the Taxman that say I owe £4,500 for 2007/08 and £7,200 for 2008/09. I didn’t complete tax returns for those years as I was employed in several short-term contracts. What should I do?

First check the tax computations. The calculation for 2008/09 probably includes the tax due brought forward from 2007/08, so you may only owe £7,200 not £11,700 (£7,200 + £4,500). Next try to find your P60 and P45 forms, and any payslips for those tax years, and check the figures on those forms against the tax calculations. We can help you with this. Don’t worry if you haven’t retained those papers as the law only requires you to keep then until 31 January 2010, or 31 January 2011 for the later year.
If you had good reason to believe that your tax affairs were in order for 2007/08 you may be able to ask HMRC to write-off the tax underpaid from that year under Extra Statutory Concession A19. You can also ask for the tax for 2008/09 to be collected over 36 months, if it is actually due.

Last year my company bought a second hand Mercedes AMG for £68,000. This has proved to be an expensive taxable benefit, so I’m trading it in for a cheaper model. I hope to get about £40,000 in the part-exchange and pay an additional £5,000 for the new car. What capital allowances will my company be able to claim for the old and new cars?

The Mercedes AMG has CO2 emissions of more than 160g/km so the purchase price would have been added to your company’s 10% capital allowances pool. Capital allowances of £6,800 (10% of £68,000) will have been claimed for the first year of ownership. The trade-in value of £40,000 will be deducted from the pool leaving a balance of £21,200 (£61,200 -£40,000). This balance will be reduced by capital allowances of 10% for this year, and 8% from 1 April 2012, until the balance is less than £1,000 or company ceases to trade. So it’s going to take a long time to get full tax relief for the value of the Mercedes.
If your new car also has CO2 emissions of 160g/km or more, the cost of £45,000 will be added to the 10% pool, and annual writing down allowances will be given as for the Mercedes. To avoid this problem with the new car you could look at either buying it privately, or getting the company to lease it.

In 2009 my family and I moved out of the home I owned and rented a house near my daughter’s school. I have recently sold the original home. Do I qualify for the capital gains tax exemption on that property, even though I wasn’t living in it when it was sold?

Yes you do qualify for the tax exemption. As you sold your former home within three years of moving out, all of the gain arising on the sale of property will be exempt from capital gains tax. This assumes you occupied the property for all of the period that you owned it, before you moved out. You do not have to declare the gain on your tax return.

On 15 April 2011 I received severance pay of £80,000 equal to my annual salary, but I was surprised that £23,000 was deducted as tax. I was led to believe the first £30,000 would be tax free and the rest would be taxed at 20%. Can I reclaim the excess tax deducted?

It is likely that the first £30,000 of your severance award was tax free, if it was a genuine redundancy payment. This is not always the case as a number of strict conditions must be met.

In the past when such severance payments were paid after the individual had received their P45 form, a BR (basic rate) tax code was applied to the payment which meant only basic rate tax at 20% was deducted. However, since 6 April 2011 employers are required to apply an OT tax code on a month 1 basis to such severance payments. This means that tax is deducted at the basic, higher and additional rates without the benefit of the personal allowances. The month 1 basis means only 1/12 of the basic rate and higher rate limits for the year are taken into account.

The taxable part of your severance payment (£50,000) would have generated a tax deduction of £23,166 using an OT code as follows…

Basic rate: 35000/12 = 2916.67 x 20% = 583.33
Higher rate: 115,000/12 = 9583.33 x 40% = 3833.33
Additional rate: (50,000-9583.33-2916.67) x 50% = 18,750.00
Total = £23166.66

You can reclaim the excess tax charged in your tax return for 2011/12.

I’ve received a letter from the Taxman asking for my tax return for the year to 5 April 2010 to be submitted. But I submitted that tax return in September 2010, and I’ve paid all the tax due for that tax year. Do I have to submit that form again?

No. The letter you have received from the Tax Office is a mistake. About 40,000 of these standard letters (Notices SA316) have been printed with the wrong tax year: 2009/10 rather than 2010/11. You should receive another notice SA316 asking for the tax return for 2010/11, and a letter of apology concerning the mistake.

I’ve always prepared the accounts for my own company and submitted them to Companies House and the Tax Office with no problems. However, this year the Taxman sent back my company’s accounts and tax return saying they were in the wrong format. I’m confused. What have I done wrong?

Company accounts for periods ending after 31 March 2010 that are sent to the Tax Office on or after 1 April 2011 must be submitted online in iXBRL format. Please ask us if you would like help in submitting your company accounts and tax return online.

My company pays a business subscription to Linkedin, the business networking site. It allows me to make business contacts that generate work for me. Is the Linkedin subscription a tax allowable expense for my company?

The Linkedin subscription is tax allowable for your company as it is a means to generate work for the business. However, there may be a benefit in kind charge for you if the Linkedin subscription is raised in your name rather than in the name of your company. If this is the case the company is paying your personal liability (the subscription fee). As Linkedin does not appear on the list of approved professional organisations whose subscriptions are tax allowable for employees, the Taxman will argue that there should be a personal tax charge. It will be necessary to prove that there is only a business purpose to the subscription.

My wife and I acquired a cottage in 2002 and let it as furnished holiday lettings from 2005. We ceased advertising the property this year and it is now on the market. Will we get the lower 10% rate of capital gains tax on any profit we make on the property sale?

Yes, as long as the property is sold within three years of the date the holiday lettings business ceased you should both qualify for entrepreneurs’ relief on the gain. This relief gives you the lower 10% rate of CGT after deduction of your annual exemption, for gains of up to £10 million per person.

I’ve heard I could reduce inheritance tax by leaving money to charities in my Will. How does this work? Do I have to leave a minimum amount?

Any bequests to charities in your Will are free of inheritance tax (IHT). This means the executors of your estate will only pay IHT at 40% on the value of your estate after deducting the following:

  • gifts to charities,
  • gifts to your UK domiciled spouse; and
  • your available nil rate threshold.

For deaths after 5 April 2012 it is proposed that the rate of IHT paid will be reduced to 36%, if at least 10% of the net estate is left to charity. Your net estate is the amount on which IHT would be charged without considering the charitable gifts. You may need to redraft your Will to ensure your estate qualifies for this tax discount.

I earn £30,000 p.a. taxed under PAYE, but also have a variable amount of rental income. I have read that 40% tax applies above £35,000 but I’ve also been told I can earn £42,475 before paying 40% tax. How much rental income can I receive before paying 40% tax?

The 40% tax rate applies in the current tax year (2011/12) on taxable income above £35,000. This is your total income (earnings, rentals and any interest or dividends) less your tax free allowance of £7,475 and any other valid deductions, such as expenses relating to your rental income. So you can have gross income before deductions of £42,475 (£35,000 + £7,475) before you have to pay 40% tax. However, you must declare any rental income you receive to HMRC.

My employees are occasionally required to work late in the evening. If I pay for taxis to take them home is that cost tax allowable for the business and will the employees be charged tax on the taxi fare

Where an employer pays for the travel costs of an employee for a journey between home and work (i.e. commuting), that cost would normally be a taxable benefit in kind for the employee. However, there is currently a particular tax exemption for late night taxis used when it occurs irregularly, the employee is required to work later than usual and until at least 9pm and at the time the employee finishes work either public transport was unavailable or it would be unreasonable to ask the employee to use it. It also applies where car sharing arrangements have broken down. In these cases the cost of the taxi is not taxable on the employee. But you can only use this tax exemption up to 60 times per year per employee. You need to keep accurate records of why each employee took a taxi to get home and the timing of those journeys.

This tax exemption for late night taxis is due to be abolished from April 2012, so you may need to reconsider your employees’ travel arrangements in future. The cost of taxi journeys for employees on business or to or from work will always be tax allowable for the business.

I received my self-assessment statement and payslip on 17 August 2011, which shows tax due to be paid by 31 July 2011. I paid the tax due as soon as I could, but I am now worried that I will get charged interest and a penalty for late payment.

The late issuing of these statements was due to a lack of paper at HMRC’s printers! As the delay was essentially their fault HMRC has decided to waive the interest due, as long as the tax payment is received by 27 September 2011. However, this interest free period only applies to the second payment on account of income tax for 2010/11, due by 31 July 2011. Any other late tax payments, such as tax due by 31 January 2011 will accrue interest as normal.

My son worked for a company that has gone into liquidation. The Tax Office are refusing to acknowledge the student loan repayments which were deducted from his salary in 2010/11 and pass those repayments on to the Student Loans Company. What can he do to get his student loan records corrected?

This can happen when the company folds before submitting its end of year PAYE return: form P35. This form shows the totals for all the deductions taken from each employee during the year. Your son needs to provide HMRC with any evidence he has of the student loan repayment deductions, such as original payslips or his form P60 for the tax year. HMRC should then pass this information onto the Student Loans Company who will correct his payment record.

I recently applied for VAT registration for my business as the turnover had exceeded the compulsory registration threshold. Now I’ve had a call from the VAT office asking to come and see me. What have I done wrong?

A visit to a newly registered business is now normal practice for VAT officers, particularly where the first VAT return shows a repayment due. The VAT inspectors will want to see the invoices for your first VAT period, and be assured that you know how to keep adequate business records. We can sit in on the VAT visit to provide back-up for any difficult questions if you wish.

My café was badly damaged in the recent riots, but my loyal customers have collected £3,000 to help me open the business as quickly as possible. How should I treat this sum for tax purposes? Is it a personal gift, or a contribution to be set against my repair costs?

The taxman would view that this gift from your customers should be treated as income for your business for income tax or corporation tax purposes. You are likely to have a lot of repair expenditure to set against your income for the current period, so you may well not have a profit to declare even after including the gift as income.

I’ve received a tax refund for 2010/11, but I’m worried that it’s not correct as I usually have tax to pay each year. Also I haven’t even submitted my 2010/11 tax return yet.

You are right to be worried about the tax refund, as the Taxman’s computer has issued some incorrect refunds recently. If you normally complete a self-assessment tax return but also have some income taxed under PAYE, the computer should wait until your tax return has been submitted before calculating the tax to be refunded. In a few cases this has not happened, and the tax refund has been based only on the taxpayer’s PAYE income. Please ask us to check the tax calculation that should have arrived with your refund cheque.

The Tax Office has written to me saying £2,800 tax I owe will be collected by restricting my PAYE code for 2012/13. What does this mean?

The Taxman is now permitted to collect up to £3,000 of unpaid tax or overpaid tax credits through PAYE codes. Your PAYE code tells your employer how much of your income to treat as tax free, and thus how much tax to deduct from the rest. A common PAYE code for 2011/12 would be 747L, which gives you tax free income of £7,475 for the year. If you owe £2,800 in unpaid tax, and your highest marginal tax rate is 40%, your tax free income will be reduced by £7,000 (£2,800/ 40%), leaving you with tax free income of £475 and a PAYE code of 47L. The numbers will be slightly different in 2012/13, but essentially you will pay more tax each month from April 2012 until the tax debt is eliminated.

I left London on 5 May 2010 to work full time for a Danish company in Copenhagen. My own UK-based company ceased at that time, and I received a capital payment on 30 November 2010. As I received that money after I left the UK permanently, do I have to pay UK tax on the pay-out?

Unfortunately yes. Although you may be regarded as not resident in the UK for income tax purposes from 5 May 2010, you do have to pay UK capital gains tax on the gain made in November 2010. The tax year is not split for capital gains tax, as it can be for income tax. If you are resident in the UK in any part of the tax year, you are taxed in the UK on gains made in that tax year, even if the gain is made after you have left the UK permanently.

I’ve received an alarming letter from the Taxman about a private bank account I held in Switzerland from 2000 to 2005. I didn’t include the interest from that account on my tax return as I thought it wasn’t taxable in the UK. What should I do now?

The Taxman is writing to around 6,000 individuals and organisations that held accounts with a private bank in Geneva, based on a list of accounts stolen from that bank in 2006. Unless you had non-domicile status when you held your Swiss bank account, which may have permitted you to be taxed only on funds brought into the UK, you should have declared the Swiss account on your UK tax return. You need to come clean now, and pay the tax due on your Swiss bank account interest to the UK tax office. If you delay, the Taxman will open a serious fraud enquiry into your tax affairs. Talk to us about how to confess all to the UK tax authorities.

The Taxman has hit me with a huge penalty for paying my company’s PAYE late in 2010/11. But I’ve always paid my PAYE on time. What’s going on?

PAYE deductions paid late to the Tax Office (HMRC) from 19 May 2010 attract automatic penalties. ‘Late’ means the cheque reached HMRC after the due date of 19th of the month or the electronic payment cleared the HMRC bank account after 22nd of the month or the last banking day before that. The HMRC bank accounts do not accept ‘faster payments’, which clear through most bank accounts in 4 hours. HMRC needs 3 working days to accept an electronic payment. You should have received a warning letter about your first late payment in 2010/11. If you believe you had a reasonable excuse for paying late you should appeal against the late payment penalty. We can help you with that.

I own a number of rental properties; a mixture of self-contained flats and houses. I’ve received an email from a property expert that says I can claim capital allowances as a percentage of the cost of these properties, which will produce a guaranteed tax refund for me. Is that true?

No, this is not true. Capital allowances cannot be claimed for equipment or fittings used within residential properties, which the Tax Office refer to as ‘dwelling-houses’. There is an exception for properties that qualify as furnished holiday lettings, when each letting must generally be for short periods of less than 30 days. If you make a capital allowance claim for your rental properties it may be passed by the Tax Office, under their ‘process now, check later’ system. But when the Tax Inspector checks your claim it will be refused, any tax refunded will have to be repaid with interest, and penalties will be charged. This can happen up to 20 years after you submitted the incorrect claim!

My employer has given me a form P11D, which shows that I am taxed on the cost of my smart phone. I thought each employee could have one tax-free mobile phone, so why am I taxed on my only mobile phone?

.Tax Officials think smart phones are computers rather than phones, so don’t want to apply the ‘one free mobile per employee’ rule, when the mobile phone is a smart phone. However, this can work in your favour if the private use of the smart phone provided by your employer is insignificant. Where any computer equipment is provided to you solely for work purposes, and there is no significant private use, there should be no tax charge. This tax-free treatment doesn’t apply where the contract for the mobile phone is in your own name and not the company’s name. Where the contract is not in the company’s name and your employer pays for your smart phone the cost is taxed as if it was part of your salary. To remedy this, make sure your next smart phone contract is made between your employer and the telephone provider and you are not a party to that contract.

I work as a nurse in a NHS hospital. My professional organisation tells me I can claim tax refunds for the last 6 years, for the cost of the particular shoes and stockings I need to wear for work. Is there a limit on what I can claim?

There are set limits for such costs, known as flat rate expenses, which vary according to the taxpayer’s profession and work description. The full list of tax claimable flat rate expenses can be found here:http://www.hmrc.gov.uk/manuals/eimanual/EIM32712.htm. Nurses can claim £100 per year as a flat rate expense against their taxable income for uniforms without any receipts but in addition can claim £12 per year for the cost of shoes and £6 per year for stockings or tights. The £100 figure was £70 per year from 2004/05 to 2007/08. However, you need to make your claim quickly, as the deadline for claims relating to 2005/06 is 31 January 2012. The deadline for 2006/07 is 31 March 2012, and for 2007/08 it’s 5 April 2012. However those deadlines only apply if you were taxed under PAYE, and did not submit a self-assessment tax return for those tax years. If you did submit a self-assessment tax return for the year the claim relates to, your claims period is already limited to 4 years from the end of that tax year. In that case the earliest year you can claim for is 2007/08, and the claim must be received by HMRC by 5 April 2012.

About three years ago I converted a barn into two attractive cottages, which I have since let as furnished holiday lets. Much of the expenditure qualified for capital allowances, and there is large balance in the capital allowance pool carried forward into the current tax year. Will I get tax relief for the balance in the capital allowances pool when the rules for treatment of furnished holiday lettings are changed in April 2010?

If you continue to let the cottages after 5 April 2010 you can claim the annual 20% capital allowance generated by your capital allowances pool, but you cannot add expenditure to that pool for equipment or furnishings used within the buildings. The Taxman has confirmed that you can also claim a wear and tear allowance for each tax year from 2010/11 onwards in which you let fully furnished property. The wear and tear allowance is 10% of the net rents received after deduction of council tax, water rates and other charges you pay.

I paid off my company’s overdraft with my own money, to allow the company to be closed down using the informal extra statutory C16 procedure. Can I get any tax relief for the money that was used to repay the overdraft?

It is possible to get tax relief for a loan made to a trading business, which is not repaid. However, the conditions are strict. The money lent must be used by the borrower wholly for the purposes of a trade it carries on. In this case the company had already ceased trading and funds were used to pay off a bank overdraft before the company was struck-off. In this situation you cannot argue that the money was used for the company’s trade as that had already ceased, so you cannot get tax relief for the lost funds. Even if all the conditions for the loan were met, the loss of the funds would be treated as a capital loss in your hands, and not relievable against income tax.

There are 53 Mondays in this current tax year. Does that mean I will be taxed on 53 times the weekly amount of my state pension for 2009/10?

Monday is the payment date for most state pensions, and there are 53 Mondays in 2009/10 as 6 April 2009 was a Monday. However, the state pension is taxed on the amount accruing in the tax year, not the amount actually received in the year. The Tax Office always work on the basis that 52 weeks of state pension accrues for each tax year. When it comes to completing your tax return for 2009/10 you should include just 52 times the weekly amount of your pension, excluding any non-taxable benefits such as Attendance Allowance.

Next tax year I will lose £1 of my personal allowance for every £2 of my taxable income that exceeds £100,000. To avoid this loss of allowance, can my wife and I elect for the interest on our joint bank accounts to be treated as belonging entirely to her for tax purposes?

The income from jointly held bank accounts must always be split equally between the account holders for tax purposes, you cannot elect otherwise. To move the interest into your wife’s name for 2010/11 you need to take your name off the account before 6 April 2010. To achieve this you may have to close the account and open a new account in her sole name. If you have any fixed interest accounts that are due to mature and pay rolled-up interest on after 6 April 2010, you may want to close those accounts before that date. This will ensure the interest arises in the tax year 2009/10 and is taxed at 40% rather than at a marginal rate of 60% if it arises in 2010/11. Check the penalty clauses for closing the account early before you take action.

My company has paid interest on late paid corporation tax. Is that interest tax allowable?

Yes. Interest paid to the Tax Office on late paid corporation tax is tax allowable for the company for the period in which the interest was paid. Likewise interest paid by the Taxman because corporation tax has been paid early, or in excess of the amount due, is taxable.

A friend told me I could purchase a van or motorcycle through my company and not pay any tax on it. Is that true?

There is a grain of truth in this myth, but there will still be some tax to pay if you use the vehicle for personal journeys. When your company purchases a van or motorcycle for business purposes it will reduce the taxable profits by 100% of the cost of the vehicle. This only applies where the purchase is covered by your company’s annual investment allowance (AIA) of £50,000. The AIA cannot be claimed for the cost of cars.

However, when you use the vehicle for non-business journeys there will be a benefit in kind tax charge for you and a NI charge for your company. If you want to transfer the van or motorcycle into your own hands from the company’s ownership, this must be done at the market value and again there will be a benefit in kind charge unless you pay the full value to the company. What’s more, the disposal by the company will claw-back the AIA given and increase the company’s taxable profit for the period in which the transfer is made.

I’ve just realised I missed £280 of income off my tax return for 2008/09, which I submitted online in January 2010. What should I do?

Although this is a relatively small amount you should correct your tax return for 2008/09. However, before you do so double check that you have also included all the expenses and deductions for that tax year, as it looks bad to the Taxman if you correct your return, or ‘amend’ it in tax-speak, more than once. As you filed your return online you can also amend it online, just log into the self-assessment online area of the HMRC website and pick your 2008/09 return to amend. You have until 31 January 2011 to do this. You may have some more tax to pay for 2008/09 if your extra £280 of income is not covered by losses, allowances or expenses. You should pay the extra tax due as soon as possible as interest will be charged from 31 January 2010.

I was born in Croatia but I’ve lived in the UK for 20 years. I recently inherited an apartment in Croatia which is let out. Do I need to pay tax in the UK on those rents, even though I don’t bring the money back to the UK?

As you were born in Croatia your home country is outside the UK, and you probably have the tax status known as ‘non-domiciled’. This is not certain as your domicile for tax purposes depends on a number of matters, including whether you intend staying in the UK in the future. If you are non-domiciled you may be able to ignore your overseas income for UK tax purposes, if the total income and gains left outside the UK each tax year amounts to less than £2,000. However, you must include on your UK tax return any overseas income or gains you bring into the UK, known as a ‘remittance’.

Where your overseas income and gains amounts to more than £2,000, you currently have a choice:

  • pay an annual £30,000 tax charge and ignore your overseas income (which remains overseas) for UK tax purposes; or
  • declare all your overseas income and gains on your UK tax return.

This a very complicated area of tax and you should discuss your personal circumstances with us before deciding what to include on your UK tax returns.

My company was late submitting its VAT return and payment for the quarter to 30 September 2009. The VAT office has sent a surcharge notice, but the letter also says I can have the decision to impose the surcharge reviewed. Should I ask for this review?

If there were some exceptional circumstances that contributed to the late filing of your VAT return and payment, such as a death of a close family member, or a fire at your company premises, you may well have a reasonable excuse. In this case you should ask for the surcharge to be reviewed, but you need to do this within 30 days of the date of the letter from the VAT office. The reviewer will overturn the surcharge if they agree you had a reasonable excuse for late filing. You should provide a full written explanation of the circumstances that caused the delay, including any independent evidence you have, such as a report from the fire service.

I was trying to sell my business before the new tax year, to avoid a potentially large tax bill from an increase in the rate of capital gains tax. I haven’t been able to, so what’s the position for the 2010/11 tax year.

The rate of capital gains tax (CGT) has been kept at 18% for 2010/11, so you have not lost out by delaying the sale into the 2010/11 tax year. In fact you may benefit from entrepreneurs’ relief that applies to gains on the disposal of businesses, and reduces the effective rate of CGT down to 10%. The cap on this relief has been doubled to £2 million for gains made on and after 6 April 2010.

I work as a consultant through my own company based in Surrey. I have just secured a contract in Manchester, which is expected to last eight months. Due to the distances involved I will need to stay in Manchester for at least four nights a week. If I rent a small flat, rather than stay in a Bed & Breakfast place, can my company reimburse all the expenses associated with the flat, such as cleaning costs and cooking utensils?

Your workplace in Manchester will qualify as a temporary workplace as the contract is expected to last for less than 24 months. Thus all reasonable travelling and accommodation expenses connected with that assignment can be reimbursed to you by your company. You should provide receipts for all the expenses, unless the amount is covered by a dispensation agreement your company has with the Tax Office, such as for mileage claims.

My company has recently taken on an industrial unit that needs extensive fitting-out before it can be used by the business. How can I ensure that all the fittings I use will qualify for the maximum amount of capital allowances?

The cost of fittings that qualify as plant or integral features can be set against your company’s Annual Investment Allowance (AIA), which will give 100% capital allowance in the year of acquisition. The AIA cap has been increased to £100,000 per year for expenditure incurred on and after 1 April 2010. Plant is broadly something that is not fixed permanently to the building, such as shelves or display units. Integral features are fixed to the building and fall into these five categories:

  • Cold water systems (not hot)
  • Electrical systems (including lighting)
  • Space or water heating systems, including a powered system of ventilation, air cooling or air purification
  • Lifts, escalators or moving walkways
  • External solar shading

If the fitment does not qualify as plant or integral features it can qualify for 100% enhanced capital allowance (ECA) if it has energy or water saving qualities, and it has been included on the approved ECA list atwww.eca.gov.uk.

I recently sold my 60% share in a trading company that I’ve been a director of for over 20 years. The sale included ordinary shares that had full voting rights, and preference shares, which had no voting or conversion rights, just the right to a fixed dividend. Can I claim entrepreneurs’ relief on the gain arising on both types of shares or just in respect of the gain on the ordinary shares?

As you held at least 5% of the ordinary voting shares and were a director of the company for one year up to the date of sale, entrepreneurs’ relief should apply. Although the conditions for entrepreneurs’ relief refer to ordinary voting shares, the gains arising on both the ordinary shares and preference shares can be included in your claim for entrepreneurs’ relief. If the sale was concluded on or after 6 April 2010 the maximum gain that can be covered by entrepreneurs’ relief is £2 million, for sales before this date the maximum gain that can be subject to an entrepreneurs’ relief claim is £1 million.

My business is an agency that provides rented holiday accommodation to UK holiday-makers. My commissions are less than the VAT registration threshold, so I am not VAT registered. What contracts and invoices do I need to put in place to avoid charging VAT to either my clients (the landlords) or to the holiday-makers who rent the properties?

You want to stay under the VAT threshold, so you need to prove to the VATman that you are an agent working on behalf of the landlords, and are not a re-seller of holiday accommodation. You should have a written agreement with each of the landlords that clearly states that the landlord is the principal who is making a contract with the holiday-maker, and you are their agent. All invoices you issue should show your fees as separate items to the cost of the holiday accommodation. If the holiday-maker pays you for the use of the holiday-let, the bill they pay should clearly show the amount due to the landlord, and the amount due to you as the agent. Ideally the two amounts would be shown on separate invoices.

Now that my top rate of income tax is a whopping 50%, will I get tax relief at that rate if I make charitable donations in this tax year?

Yes. If you make donations to charities under the gift aid scheme you will get tax relief at the 50% rate. Your gift is treated as being made after 20% tax has been deducted. When you give £80 the gross amount of the gift is £100. Your personal thresholds for 40% tax and 50% tax are both extended by the gross amount of your donation. For your £80 gift you have an extra £100 of your income taxed at 20% rather than 40%, and an extra £100 of income taxed at 40% rather than 50%. In total you have gained tax relief of 50% (20% +20% +10%) on the £100 gross gift.

My UK based company has bought additional bandwidth from an internet provider based in the USA. How do I treat this purchase for VAT purposes in the UK?

The supply of bandwidth as part of your internet service is an international service for VAT purposes, as the supplier is based outside the UK. As your company is VAT registered you must apply the reverse charge rules to this purchase. This means for VAT purposes you treat the transaction as if you were both the purchaser and the supplier. You charge yourself standard rate VAT on the invoiced cost and claim that VAT back as part of your input VAT for the quarter. The VAT added appears twice in the calculations for your VAT return; as input VAT on purchases and as output VAT on the reverse charge as if the purchase was one of your own sales.

My sales force all need to connect to the internet while they are out on the road, so we provide them each with a mobile phone dongle to provide the internet where and when they need it. Are there any tax implications for my company or the employees?

A mobile phone dongle is treated as a piece of computer equipment and not as a mobile phone. Where the company purchases the dongle and pays the subscription charge directly there should be no benefit in kind charge on the employee. This applies if the associated computer has no significant private use, and the private use does not affect the cost of providing the equipment.

Where the employee purchases the dongle and pays the connection charge, which he claims back from the company, the tax situation is more complicated. The employer needs to include the expense paid on the form P11D, and the employee needs to claim a deduction for the costs on his tax return, as reasonable additional costs relating to work. To circumvent this paper chase, the company should apply for the costs of the dongles to be included in a P11D dispensation.

On 1 Feb 2010 I started a self-employed consultancy business, which has generated profits of about £40,000 in the first four months. I also run my own company and let a few properties. The income from my company and the rents has been much lower in 2009/10 compared to the previous year. Do I have to take into account the income from my new consultancy business when I make my payment on account for 2009/10 due on 31 July 2010?

You do need to take into account the income from your new consultancy business when making your next payment on account for income tax. However, the opening year rules for self-employment will apply, so only two months of your first period of the consultancy business profits are taxed in 2009/10. You can apply to reduce the 2009/10 payment on account if your total taxable income for the 2009/10 tax year, including the two months of consultancy profits, has dropped below the total taxable income for 2008/09. It doesn’t matter if your income for 2010/11 rises again.

My company has bought a classic motorcycle as an investment. Can it claim a tax deduction for the cost? If the motorcycle is kept at my home, but not used at all, will I suffer a tax charge?

If your company buys a motorcycle for use in its trade, including providing the motorcycle to the director, it can claim a tax deduction for the cost. If the motorcycle is purchased as an investment and not used in the trade, the company cannot claim a tax deduction for the cost.

If the motorcycle is kept at your home it is available for your use. The benefit in kind tax charge applies if the motorcycle is made available to you, not whether you actually ride it. The same tax charge would apply whether the motorcycle was a ‘work of art’ or a functioning motorcycle, as it remains a company owned asset which is made available to you for your private use.

I’m looking to buy the property my company trades from. Should I buy it in my own name or should my company buy it? I have the reserves for either.

If you hold the property personally and let it to the company you will be able to extract funds from your company as NIC-free rents. However, when you sell the property, the gain may well be taxed at a higher rate in your hands (up to 28%) than in the company (possibly 20%). You will only get entrepreneurs’ relief on the property if it is sold in association with your withdrawal from the business that involves a disposal of some, but not necessarily all, of the company shares. The entrepreneurs’ relief on the gain is reduced where rent for the property has been paid by the company.

If the company holds property this removes the possibility of NIC-free rents. When the company sells the property it will get indexation relief on the value and the net gain may be taxed at a lower tax rate. However, the proceeds will be trapped within the company. Both you and the company could roll-over a gain arising on the sale of the property in the future, if it has been used for the purpose of the trade carried out by your personal company. As you can see there is a lot to consider and expert advice in your own situation is important!

What happened to the Furnished Holiday Lettings rules in the Budget?

The tax rules and exemptions for furnished holiday lettings (FHL) remain in place and unchanged at least until 5 April 2011 (1 April 2011 for companies). However, the Government has said that it will consult on changes to the FHL rules to be introduced from 6 April 2011.Those changes are likely to include a restriction on how losses from FHL can be set off, and a tightening of the conditions which will allow the tax reliefs for FHL to be claimed.

I work as a self-employed decorator. If I transfer my business to a new company will I be able to take advantage of the NIC holiday announced in the last Budget?

The full details of how the NIC holiday scheme will operate have not yet been released, but we do know it won’t apply to businesses established in London, the South East or East regions of England. However, even if you are based outside of those areas, we also know the scheme will only apply to new businesses set up after 21 June 2010. ‘New’ will be defined as a new economic activity, so where an existing sole-trader business such as yours, is transferred to a new company the business is unlikely to qualify as ‘new’ for the NIC holiday scheme.

My brother and sister in law each lent my company £10,000 some years ago. The company is still trading, but it is unlikely to ever be able to repay those loans. If I write off the debt in the company accounts will my relatives be able to claim tax relief for the irrecoverable loans?

Lenders in this position can sometimes treat the irrecoverable loan as a capital loss, which can be set against capital gains, but not against income. However, the Taxman will only grant this tax relief if the loan really is irrecoverable. This is taken as read where the business has gone broke. While the company is still trading there is a possibility that the money could be repaid, even if the amounts have been written off in the company accounts. The Taxman will need some considerable evidence from the company’s bankers and other sources, such as Court judgements, to be convinced that the loans cannot be repaid by a trading company.

I have volunteered for redundancy at the age of 59 and expect to receive a pay-off worth £60,000. The first £30,000 will be paid free of tax, but is there anything I can do to reduce the 40% tax I will be charged on the balance?

You could ask your employer to divert some of the redundancy payment into a registered personal pension scheme for you. You will not be taxed on this pension contribution as long as your total income for this tax year is not more than £130,000. You also need to have income below this level in the previous two tax years. If your employer is not willing to make the pension contribution, you could make the contribution yourself, but be sure to make the payment in the same tax year in which you receive the redundancy payment. Your pension contribution will be treated as being made net of 20% tax and you can reclaim a further 20% tax relief through your tax return. In both cases, as you are already over 55, you can withdraw 25% of the pension fund value as a tax free lump sum immediately. You should take advice from a pensions expert before embarking on any investment in pensions.

The Taxman has told me I owe him £3,300, and I must pay at least £200 per month or a distraint order will be served. I can only manage to pay £150 per month, so what happens now?

A distraint order means tax officers, or bailiffs acting on behalf of the Tax Office, will come to your home or business and ask for full payment. If you don’t pay immediately, they will make a list of your possessions to take away and sell at a later date. They can’t take anything that is not owned by you, or is jointly owned, but you may need to provide proof of ownership such as receipts. The bailiff should also not take any essential tools of your trade, but your vehicle may not be regarded as essential. Your best option is to try to negotiate a schedule of payments you can afford with the Tax Office as soon as possible, or you may lose your possessions and possibly be made bankrupt.

I own a very successful company in the UK, which is now largely run by the management people in the UK. This allows me to live in Spain for much of the year. I charge fees to my UK company through a Spanish company which is wholly owned by my wife. Does this set-up have any implications for UK tax?

Your UK company and your wife’s Spanish company are considered to be associated companies by the UK Taxman, because the people controlling the two companies are married to each other. It makes no difference that the companies are registered in different countries. The profit thresholds that determine the rate of corporation tax paid by your UK company must be divided by the number of associated companies plus one. For example the higher rate of corporation tax (currently 28%) is due when profits exceed £1.5 million, but where there is one associated company this higher tax rate starts when profits exceed £750,000.

The technology company I jointly own has suffered in the recession, so the directors’ fees due for 2009 have not been paid, although the fees are shown as owing in the company accounts. Should I make any adjustment to the accounting loss for the unpaid fees, before I send the loss claim to the Tax Office?

If the directors’ fees are not paid within nine months of the year end they must be excluded from the loss for corporation tax purposes. However, you should check whether the contracts with the directors include a firm promise to pay the fees by a particular date. Such a promise could create a tax point for PAYE purposes, so PAYE would be due even though the fees had not actually been paid.

As I was made redundant last year I decided to take time out and build my own house. A neighbour told me I could claim back the VAT on my costs, even though I am not a VAT registered builder. If that is true, how do I go about claiming?

You can reclaim VAT correctly charged on your building materials and on most of your building services, using the VAT refund scheme for DIY builders. The claim form for new builds under this scheme (VAT 431NB) can be downloaded from the HMRC website, but be sure to also read the guidance notes. There is a different form (VAT 431C) to use where you are converting a property rather than building it from new. In either case you can’t reclaim the VAT charged on professional services connected with the build, such as architectural or legal services. We can help you compile and submit your claim to the VAT office.

A large UK company has made a late payment of fees owed to my company. They paid interest on the late paid amount, as they are required to do so under the contract, but they deducted tax from that interest. How do I deal with that tax in my accounts?

Your customer should not have deducted tax from the interest it paid, as both parties involved in the transaction are UK resident companies trading in the UK. Companies used to have to deduct income tax from annual amounts of interest paid, but that requirement was removed from 1 April 2001 where the recipient is a UK company. Ask your customer to pay you the amount of interest it has withheld as ‘tax’. We can provide a longer explanation of the legal position if you need it.

I have received several emails recently from organisations claiming I could use an employee benefit trust (EBT) to reduce tax. Is this a scam, or is there something in it?

In outline a lot of EBT schemes work like this: the company pays money into the EBT and employees of the company receive a loan from the EBT in place of all or part of their salary. The employees pay tax on just 4% on the loan per year. This all sounds good, but there can be various problems in practice. Some schemes are more aggressive than others and you should be prepared for the Taxman to look very closely and try to challenge such arrangements. They are not for those not willing to take some risk and you should be made aware of all the risks involved before proceeding.

I incorporated my business last year, but I haven’t got round to opening a bank account in the company’s name. All the business receipts and payments have been processed through my personal bank account. Will that have any tax implications?

You must open a bank account for the company as soon as possible as using your personal bank account could create a number of problems.
As the business was previously run in your own name the Taxman may not accept that the business has been transferred to your company, and want to tax you on any business income received into your personal bank account.
If the Taxman accepts the business was transferred to the company, you have further tax problems as your personal account holds funds that belong to the company. The Taxman will argue that those funds represent either a loan to you, or your salary. In either case a tax charge will arise unless you can repay the funds to the company, and this will be difficult without a company bank account! A third option is the funds you hold represent dividends. However, to pay a legal dividend the company must first show that it is making a profit.

One of my employees frequently sustains injuries while playing sport, and as a consequence he takes regular periods off sick. Do I have to pay him statutory sick pay (SSP) for the time he takes off due to these self-inflicted injuries?

You are required to pay SSP to your employee if he earns at least £97 per week, for sick periods that last 4 days or more. Your employee needs to notify you of the sickness within the period set by your company rules, or by the 7th day of absence. You may require your employee to provide you with evidence of his incapacity to work from the 8th day of absence by, say, providing a certificate (now called a ‘fit note’) from his GP. Don’t forget you can reclaim the amount of SSP that exceeds 13% of the class 1 NIC due for the month of payment.

While collecting together the papers for my self-employed accounts to 30 November 2009, I noticed £1,500 of sales should have been recorded in the accounts to 30 November 2008, but were missed from that year. Should I add those old sales receipts to the 2009 sales and declare the total in my 2009/10 tax return?

The correct approach is to amend your 2008/09 tax return with the increased sales figure for the 2008 accounts, so the extra income falls in the 2008/09 tax year. This adjustment will increase the tax due for 2008/09 and you will have to pay some interest on the late paid tax. If you supply the Taxman with a full explanation of the error, without being asked to do so, you will probably get away with a zero penalty.
If, as you suggest, you add the missing 2008 income to your 2009 accounts and include the total in your 2009/10 tax return you will pay approximately the right amount of tax overall, but for the wrong tax years. This mis-timing of tax payments can attract penalties as you need to pay the correct amount of tax at the right time. Both your 2008 and 2009 accounts will be technically incorrect. You would need to declare the adjustment to your 2009 accounts on your 2009/10 tax return. If you don’t make a full disclosure of the error on your 2009/10 tax return and the Taxman discovers the ‘fix’, he may conclude you have deliberately concealed the error and impose a penalty of up to 100% of the tax underpaid for 2008/09.

My family has invested in rental properties over a number of years. Some properties are held in my name alone, others are owned jointly with my sister. The properties held with my sister have made losses in the last year. Can I set those losses against the profits made on letting the properties held in my own name?

Yes you can. All your UK property interests are treated as one property business. So the net income from your own properties is amalgamated with your share of income and expenses from the jointly held properties, and the total needs to be reported on the property pages of your tax return. The Taxman will not treat jointly held let properties as being a partnership, unless the letting of the property is ancillary to a proper trading business.

I have a holiday cottage that just managed to qualify as furnished holiday lettings as it was let for 70 days in 2010/11. How will it be taxed in 2011/12 and what tax relief will I get for any loss I make on that property?

The Government is expected to announce changes to the way profits and losses from furnished holiday lettings are taxed, with effect from 6 April 2011. The proposals include increasing the number of days the property must be let per year from 70 to 140. Unless you manage to let your holiday cottage for the new number of qualifying days (expected to be 140) in 2011/12, it will be taxed just like any other let property. This means any loss you make on the letting can only be carried forward and set against a profit you make from your lettings business in the future.

My company is planning to get a new Freelander car (emissions 185g/km). It will keep the car for three years and then trade it in. What tax allowances will the company get for the cost of the car over those three years?

As the vehicle has high emissions the full cost of the car must be allocated to the special rate pool for capital allowances. Currently 10% of the balance of the special rate pool is set against the company’s profits for tax purposes each year. However, from April 2012 only 8% of the balance in the special rate pool will be tax allowable. When the car is traded in after three years the trade-in value will be deducted from the balance on the special rate pool. However, if the company makes a loss on the car that loss cannot be deducted from the company’s profits for the year.

Last year my friend’s company; MC Ltd was having cash flow difficulties, so my company; IQ Ltd paid some the outstanding debts with MC’s suppliers. The amount paid was recorded as a debt between our companies. When looking at the books of IQ Ltd the VAT inspector told me I should reclaim the VAT on the invoices IQ paid on behalf of MC Ltd. Is that correct?

The VAT inspector is wrong. Only MC Ltd can reclaim the VAT shown on invoices from its suppliers, as MC Ltd is the company that received the goods or services, not IQ Ltd. You have treated the transaction correctly. This shows how important it is for your suppliers to make out invoices correctly. If the invoice is addressed to a business that did not receive the goods or use the services, the VAT cannot be reclaimed

In 2001 I sold my city centre property and relocated my business to a converted farmhouse with workshops. At the time my accountant said I didn’t have to pay capital gains tax on the sale of the city property, as the gain was rolled over into the workshops. If I now let my surplus workshops will I have to pay tax on the capital gain I made in 2001?

The gain you rolled into the cost of the workshops will not become payable until your sell those buildings. As long as you used the workshops for your own business at the time you bought them, the claim to roll-over the gain was valid and is not disturbed by changing the use of the buildings at a later date. However, as you no longer use the workshops for your own business you won’t be able to roll-over the 2001 gain once more when you sell those buildings and buy another business asset.

I am employed to teach a few courses at a further education college and I buy a few books each year to help prepare for those courses. Can I claim the cost of those books against tax?

The scope for employees claiming expenses, which are not reimbursed by their employer, is very limited. The expenses must be incurred while the employee is performing the job, not to prepare for that job. So the cost of books purchased to improve your underlying knowledge cannot be claimed against tax. Many taxpayers have fought this point in the courts, and lost. It would be better to get your employer to reimburse you for the cost.

I run two separate businesses (A Ltd and B) that have separate VAT registrations, as only one is a limited company. Both A and B use the cash accounting scheme which means the VAT due on sales is only accounted for when the payment is received. However, sometimes customers make payments to A which are due to B. I correct this by transferring funds from the bank account of A to B, or by setting-off the amounts owing between the businesses. When should I treat the payment due to B as being paid for my VAT records?

As your businesses have separate VAT registrations they are independent for VAT accounting purposes. Business B is only treated as receiving the payment when the money arrives in its bank account from an electronic transfer, or a cheque is received, as long as that cheque subsequently clears. It is irrelevant that the money has come via A’s bank account. Where the payment to B is made by you off-setting the amounts owing between A and B, you should treat B as receiving the money on the date you made this set-off. Warning, deliberately getting your customers to pay into the wrong account, or an undue delay in making a set off in order to defer payment of VAT, could be treated by HMRC as fraudulent behaviour.

My husband died in 2007 and I have recently received a large tax demand in his name for the tax year 2007/08. I calculated there was no tax to pay, as his age adjusted personal allowance covered his pension income, and all the bank interest had taxed deducted by the bank. What should I do?

This tax demand is probably incorrect. Ring the tax office and ask them to check their figures against what you put on your late husband’s tax return. In particular query the amount of state retirement pension. The Tax office may have altered your husband’s state pension figure to the amount due for the full tax year, ignoring the fact the pension stopped at his death. The tax office should have told you they were ‘correcting’ the pension figure. If they didn’t do this send them a letter of complaint.

I’ve been out of the country so I won’t be able to finalise my accounts and submit my tax return for 2007/08 until mid February 2009. I don’t think I owe any tax as I have made a loss for the year. Will I be charged the £100 penalty for a late tax return?

You will be sent a penalty notice if the tax office has not received your 2007/08 tax return by 1 February 2009. When you do submit your return and it shows you had no tax to pay at 31 January 2009 the penalty should be reduced to nil. However, do not delay completing your return as the Tax Inspector can ask the Tax Tribunal to impose a penalty of up to £60 per day to encourage you to file your outstanding tax return. This penalty will not be reduced even if you owe no tax.

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?

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.

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?

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.

SectionI 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?

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.

I formed my own IT contracting company in 1987, which made good profits. In 2006 that company bought the assets of several small record labels which were making a loss. In May 2008 I gave up IT contracting and my company has concentrated on music since then. The music business will probably make a loss in 2009. Can I set that loss back against the profits made by the combined music and IT businesses in 2008?

Yes you can. As both trades were active in 2008; the IT consultancy and the music business, there is no restriction on the amount of music business loss you carry back from 2009 to set against the profits made in 2008.

In 2005 I retired from my architectural practice and sold my share of the business to the remaining partners. I invested the proceeds in Enterprise Investment Scheme shares (EIS), which I am about to sell, so I understand the gain from 2005 will now be taxed. Are there any reliefs I can claim to reduce that gain?

If the gain you made on selling your share in the architectural practice in 2005 would have qualified for entrepreneur’s relief, which is possible if you were a partner for at least a year, you can claim entrepreneurs’ relief on that 2005 gain when becomes taxable in 2009. Entrepreneur’s relief actually came into effect from 6 April 2008, but we pretend it was in place in 2005 for this test.

A member of my staff has had a serious operation and will be away on sick leave for some weeks. If I send her flowers from the company will this be taxable as a benefit in kind?

HMRC ignore small gifts like flowers or chocolates to valued members of staff. They are classified as trivial benefits and are not taxable. If you were to send her a cash gift, or a gift voucher that would be taxable.

I recently started a graphic-design business and I have applied for a VAT number but it hasn’t come through yet. Should I be adding VAT to my invoices or not?

The application for a VAT registration can sometimes take many weeks to be processed. If you haven’t received your VAT number you can’t issue a full VAT invoice that shows the separate VAT due and the VAT number. However, you will be required to pay over VAT on all sales made after the effective date of VAT registration that you put on the registration form. So you can’t show VAT on your invoices, but you will need to charge your customers a sufficient amount to include the VAT due. When your VAT number arrives you will need to issue full VAT invoices to all those customers you have invoiced since the effective date of VAT registration. Please contact us if you need more practical help on how to do this.

The only income I have is about £10,000 from letting rooms in my own home. As this amount is covered by the rent-a-room relief of £4,250 plus my personal allowance of £6,475 I should have no tax to pay. But do I have to inform the Tax Office about this income?

Yes you do have to tell the Tax Office, and they should issue you with a self-assessment form to complete. Even if you have no tax to pay you need to declare the taxable income to the Tax Office. If you haven’t declared this rental income for some years you should make it clear to the Tax Office that you want to declare this income for the past years.

I am under retirement age but not in employment. All my income comes from investments and a let property. Do I have to register to pay national insurance on any of my income?

You don’t have to pay national insurance (NI) on your savings or rental income, but you will have to complete a tax return to report your rental income to the Tax Office (see previous question). However, you should consider whether you have paid NI for enough complete tax years throughout your working life so far to qualify for the full state pension. If you will reach state pension age after 6 April 2010 you will only need 30 qualifying years in which you paid sufficient NI, to get the full state pension. You will also get NI credits for periods you were not in work such as a carer for a young child or disabled person. You may want to pay voluntary class 3 NI to top up your number of qualifying years to 30.

My business requires me to spend up to 100 days a year away from home speaking at conferences. I always travel first class, to allow me to prepare notes on the train, and stay in four-star hotels. The Tax Inspector has said my expenses are excessive and I should only get a tax deduction for the cost of second class travel and two-star hotels. Is he correct?

The Tax Inspector is not correct. His own Employment Income Manual at paragraph EIM 31835 says: “The tests that apply to travel expense relate to the nature of the expense and not to the amount.” It goes on to say: “You should not refuse a deduction for first class rail travel, if that has been incurred, on the basis that the same journey could have been made more cheaply in standard class”. As long as the travel and hotel costs were incurred wholly and exclusive for your business of lecturing the full cost is tax deductible.

I pay income tax at 40%, but my wife and child have no income at all. If I buy fixed income bonds in their names will the interest be effectively tax free, as it will be covered by their personal allowances?

When you buy the bonds in the names of your relatives you will be giving them the capital you invest, as they will have complete control of the bonds. There is no limit on the amount you can give to your spouse, although there could be inheritance tax implications. Your wife will be taxed on the interest from her bond, but if this does not exceed her personal allowance of £6,475, there will be no tax to pay. If your child is aged under 18, the interest from his bond will be taxed as part of your income if it exceeds £100 per year.

If I start earning money from a website I have setup in my spare time, will I have to pay tax and national insurance on that income? I am also employed full time on a salary of £25,000 a year.

You should register your new web business with the tax office as a self-employed business. We can help you do this if you wish. Your self-employment will not affect your employment, and your employer need not know about your website business. However, you will have to complete a tax return each year to declare all of your income; from your business, employment and any investments. By registering as self-employed you will also be automatically registered to pay class 2 national insurance in respect of your self-employed profits. If these profits are expected to be less than £5,075 for the current year, you should complete form CF10 which is a request for exemption from paying class 2 national insurance.

My company submitted a claim for a tax refund for £15,000 in January, but it still hasn’t materialised. We really need that cash now. I’ve chased the Tax Office but get some excuse about security checks. How long will I have to wait for this money?

HMRC have imposed extra security checks on many tax refunds in an attempt to block fraudulent claims that have been flooding the system. These extra checks are slowing up refunds to genuine businesses. A six month delay is quite exceptional. Try writing to your Tax Office suggesting you will take the matter to your local MP if you do not receive the tax refund within 10 days.

In the last two years I have lent my company in excess of £40,000, but now the company is insolvent and I will not receive any of that money back. Can I claim any tax r

Assuming your company was a trading company, as opposed to a company that just holds investments, you can claim a capital loss for your loan. The Tax Inspector may ask you to show the cash was used for the company’s trade, rather than simply use to pay dividends, so be prepared to supply the company’s accounts if requested.

I was made redundant on 27 February 2009 from a job that paid £16,000 a year. Almost immediately I found a part time job that pays about £9,400 a year. I made a claim for Tax Credits as I am working 30 hours a week now, but I’ve received a Nil award. What should I do?

Your initial Tax Credits award is based on your income for 2008/09, which was too high for you to qualify for Tax Credits, assuming you are a single person with no children. However, on your current wage you should qualify for about £1,200 a year in Tax Credits. Just ring the Tax Credits Office and tell them your current wage rate. They should revise your tax credits award within weeks.

The interest rates available on personal deposit accounts are much higher than those for business deposit accounts. Can I withdraw money from my company’s account and deposit it in an account in my name, on the understanding that I hold the funds as an agent for the company? All the interest would be declared as the company’s income rather than my own.

The Taxman accepts this plan works if there is a trust deed in place which gives the company a legal right to the funds. However, will you be completely open with the bank when opening the deposit account in your name? If you declare you hold the funds as agent for the company you may not get the higher interest rate you seek, as the bank will view the account as a commercial rather than a private account.

My company requires certain employees to attend trade shows in other countries. The company pays for all the travel costs including visas where necessary, and the employee’s passport, if one is not already held. Can the company claim the cost of the passport as well as the cost of the visas as a business expense?

Where the visa can specifically be linked to the requirement to attend the trade show it is a valid business expense for your company. If the employee makes no other personal trips in the country where the trade show is held there is no significant personal element for the employee, so there is no benefit in kind tax charge for the employee. The employee’s passport will last for 10 years, so the business element of the trip to the trade show will be tiny. Where the company pays for the passport it will be a benefit in kind for the employee that needs to be reported on the form P11D. However, if the terms of the employment require the employee to hold a passport the company can claim the cost of obtaining the passport as a business expense.

I recently formed a new company which will take over the business I run in my sole name. The formation agent charged VAT on their invoice. Can my new company reclaim that VAT?

Yes, the company can reclaim the VAT in its first VAT return as long as it becomes VAT registered within six months of the formation of the company.

I operate my own company from a room in my own home, and charge the company a small amount of rent for the space it uses. Can I claim rent-a-room relief for that income on my personal tax return?

The law says this tax relief can only apply where rent is received from letting ‘furnished accommodation in a residence’, where that residence is the taxpayer’s own home. Although the law doesn’t say that the let room itself must be used purely for residential purposes, that is how the Taxman interprets the law. The Taxman says that letting a room as an office does not qualify for the rent-a-room relief, and he will not budge from that view until a taxpayer wins a case on those grounds. So although the law is silent on the matter of what the let room must be used for, the Taxman is clear that he will not agree to rent-a-room relief for office space.

I am a self-employed fitness instructor and I teach classes at a number of locations. What records do I need to keep regarding my motoring expenses?

If your turnover does not exceed the VAT registration threshold (currently £68,000), you have a choice as to how to record your motoring expenses. When you use your own car for business journeys you need to note down exactly the number of miles driven. The choice is then whether to charge those journeys to your business at the standard rate set by the Taxman: 40p per mile for the first 10,000 miles per year, and 25p per mile for additional miles, or at the actual cost of using your car. For the actual cost method you need to record the total cost of all costs related to your car from fuel to servicing and any loan interest costs. This total cost is then split between business and non-business parts based on the total business miles driven in the entire year. You should also record any additional costs such as parking or tolls.

My company is likely to fold soon leaving a number of debts including PAYE and VAT owing. Can HMRC demand that I pay those taxes personally after the company closes?

Anyone who was a director, manager or company secretary of the company, can be landed with a personal liability notice (PLN) for unpaid NI that was due from the company. The Taxman does not issue a PLN very often, but he will do so if he believes the company intentionally avoided paying NI. A similar power can be used to collect PAYE tax payable by the company, from the directors. If the Taxman believes the company has fraudulently avoided paying VAT he can transfer any VAT penalties to the directors or managing officers of the company.

My payroll clerk accidentally overpaid the PAYE payable by my company for 2008/09. I have rung the PAYE office, but they refuse to repay the amount or reallocate it to another period. What can I do to get the money back?

Ask the PAYE office for the overpayment review form P35D. Complete this with as much information about how the mistake in overpaying arose, and send it back. If the repayment doesn’t arrive, chase by phone, and make a note of exactly who you speak to, and what they say. If no repayment is forthcoming, consider making a formal complaint to HMRC.

I’ve received a new PAYE coding notice that shows tax is due on a negative figure. What does this mean?

A negative PAYE code, or ‘K’ code (due to the letter K used), means your personal allowances for the tax year are less than untaxed income and benefits which have been included in the code. Your employer or pension provider will add the negative figure from this code to your annual income rather than deducting it, as they would with a normal PAYE code. However, please check that all your allowances are included in the code. If you are married and were born before 6 April 1935 you may be due a married couples’ allowance. In some cases the married couples’ allowance has been missed from PAYE codes issued since 1 July 2009. If this applies to you, ring the Tax Office number shown on your coding notice, or ask us to check your code for you.

My elderly aunt wants to give me a seaside chalet, which she inherited when her mother died in 1985. If I accept this gift will I have to pay tax on it?

You won’t have to pay any tax when you take ownership of the property. However, your aunt should declare the gift on her tax return. If the increase in value in the property between the 1985 value when she inherited it and its value when the property passes to you, is greater than her annual capital gains exemption (currently £10,100), she will have to pay capital gains tax at 18% on any excess above the unused exemption amount. The value of the chalet at the date of the gift could also be subject to inheritance tax at 40%, if your aunt dies within seven years of making the gift. However, inheritance tax will only apply if the value of your aunt’s total estate on death, plus all the capital gifts she has made in the previous seven years, exceeds the IHT exempt band. This is currently £325,000, and will rise to £350,000 on 6 April 2010. This exempt band could be doubled if your aunt is a widow when she dies.

I run a mixed arable and dairy farm in my own name, and my wife operates a holiday accommodation business from two of the farm cottages. The VATman has said that we should treat both businesses as one and charge VAT on the holiday lettings. He has also sent us a bill for past VAT due of £10,000. What should we do?

Holiday accommodation should be subject to VAT at the standard rate if the total turnover of the business is higher than the compulsory VAT threshold (currently £68,000). The VATman wants to combine the turnover of the farm, with your wife’s holiday lettings business to reach this threshold. This can only be done if he can show that the two businesses are bound together on an economic, financial and organisational basis. Also the two businesses can only be treated as one business for VAT purposes from a current date, not some date in the past. You should appeal against the VAT bill of £10,000 and discuss with us how the businesses can be shown to be independent in the future. For instance the farm could charge the holiday business a small rent for the cottages used for letting.

I am currently employed but I plan to start an internet-based business in my spare time, which will take about 18 months to break even. I will continue with my current job until the new internet business is making good profits. What is the best way to structure the new business so I can take full advantage of any losses it makes in the first two years?

If you run the new business in your own name as a sole trader, any losses made in its first four years will be available to set against your employment income. This applies as long as the Taxman does not see you as an ‘inactive’ trader, in which case the use of the losses against your other income will be restricted. To show the Taxman you are not an ‘inactive’ trader, you must spend an average of at least 10 hours per week on the new business, and make some record of the hours you work. You should also draw up a business plan to prove the business is run on a commercial basis with a view to making a profit in the future.

About ten years ago I acquired all the various versions of the domain names relevant to the trading name used by my business. These domain names have always been held in my own name, although the business is now run through a company. I have just had an offer for the company and one of the domain names, which values the domain name at £3 million. How will the Taxman tax the profit on the sale of the domain name: as income profits or a capital gain?

If we assume the full £3 million represents the profit on the sale of the domain name, as the original purchase price was probably very small, the difference in the tax payable under an income or capital treatment will be approximately £660,000 (£3 million x 22%). This is because gains are currently taxed at 18%, and an income profit would be taxed at your highest personal income tax rate of 40%.

Your intention when acquiring the domain names was to protect the trading name of your business, not to sell on those domain names at a profit. You were holding the domain names as an investment, not as stock to be traded. The profit on the sale of the domain name should be treated just like the sale of any other investment; as a capital gain. Report the sale on the capital gains tax pages of your tax return, and provide as much information as possible about the original purchase cost and sale value in the blank space on those tax return pages. You may be able to claim entrepreneurs’ relief on up to £1 million of the gain, if the sale of the domain name is associated with the sale of your company. The rules for this tax relief are complex, so please discuss the details of the deal with us first.

I have acquired a personalised number plate that spells out the name of my business. Can I put it on my business vehicle and claim tax relief for the cost?

The Taxman views the cost of a personalised number-plate, over and above what you have to pay to register the car, as an intangible capital asset. Companies can claim a deduction in their accounts for intangible assets acquired since 1 April 2002, but unincorporated businesses cannot. If your business is a company it can write-off the cost of the number plate over a reasonable period, which the Taxman will normally accept to be up to 20 years. If you trade in your own name or as a partnership, your business cannot claim a deduction for the cost, as the number plate does not qualify for capital allowances.

My employer has just paid me a substantial sum described as ‘damages’ to compensate me for an injury I received at work. Will this payment be taxable?

Any payment to compensate for personal injury is not taxable. This applies whether the compensation is paid in one lump sum or as a series of periodic payments. Interest paid as part of the damages award is also tax free but interest paid because of the late payment of the award will be taxable

Can I set-off the losses from my sole-trader business against my employed income for the year?

Yes you can set the losses from your sole-trader business against your earnings from your employment in the same tax year, or in the previous tax year. If you started your sole trader business in the last four years, you can set-off the loss against your other income from the previous three tax years. However, the Taxman will need to be convinced that your sole-trader business is a real commercial business and not just a personal interest that you don’t expect to generate a profit from. You will need to submit a personal tax return showing the business turnover, expenses and resulting loss. If your business turnover for tax year 2008/09 is £30,000 or more you will need to provide details on your tax return of the various categories of tax allowable expenses.

I’m worried that the cash my company has on deposit is not covered by the Government’s guarantee for personal bank accounts. Should I pay my corporation tax early so the money is secure and I know that debt will be paid?

 Deposits made by small companies in UK banks are covered by the Financial Services Compensation Scheme, for up to £50,000 per bank. A small company is one that meets at least two the following three conditions:

  • Not more than £6.5 million annual turnover;
  • Not more than £3.26 million net assets on the balance sheet; and
  • No more than 50 employees

You could pay your corporation tax early in which case HMRC will eventually pay interest at 4.25% on the amount paid before it is due, when the corporation tax return for the year is submitted and agreed. This interest will be taxable in the company’s accounts. Remember to use the correct reference when paying the corporation tax.

I bought a 100 year lease on a retail unit in 1988 for £20,000 and spent about £40,000 converting it into a property I could trade from. I sold the lease in March 2008 for £125,000 when it had 80 years to run. Can I get a deduction for the £40,000 I spent on making the property useable?

You had a right to use the property absolutely for 100 years under the lease and spent £40,000 improving that property. This expenditure also made the property more attractive to the person who has purchased the lease from you, and certainly enhanced the amount the purchaser was prepared to pay to acquire the lease. The improvement costs are thus fully deductible from the sales proceeds of £125,000. If the Tax Inspector refuses to allow you this deduction, point him to the example in his own Capital Gains Manual at para CG 71148.

You had a right to use the property absolutely for 100 years under the lease and spent £40,000 improving that property. This expenditure also made the property more attractive to the person who has purchased the lease from you, and certainly enhanced the amount the purchaser was prepared to pay to acquire the lease. The improvement costs are thus fully deductible from the sales proceeds of £125,000. If the Tax Inspector refuses to allow you this deduction, point him to the example in his own Capital Gains Manual at para CG 71148.

Your VAT registration covers all of your business activities including your speaking engagements, so any fee you charge for speaking, even only to cover travel costs must have VAT added. This applies even though the underlying cost to you – the train ticket, is zero-rated for VAT.

I see that the Chancellor has postponed bringing in a new law to tax family companies who share business profits between spouses, the so-called income shifting rules. I’m an IT contractor starting a new company through which I will provide my services. In light of this would you advise me to issue shares to my wife on the formation of the company to help avoid higher rate tax in the future?

The proposed income shifting rules were to supplement the existing settlement rules that tax the artificial transfer of income between spouses. If your spouse holds shares and receives dividends from your new company you may avoid higher rate tax, but you must also avoid being caught by the settlement rules. To do this give your spouse ordinary shares which have full voting rights, which you have subscribed for yourself. It is good practice for your spouse to also be a director of the company and take part in all major decisions, such as who to bank with, and when dividends should be issued. Whilst the Chancellor has said income shifting rules will not be introduced in the Finance Act 2009, there is no guarantee that the law will not be changed the following year as the Chancellor has said it will be kept under review in the most tax efficient manner. However, for now it does work. Please note this advice is on the assumption you are not caught by the IR35 service company rules.

My son built and maintained a few websites on behalf of local businesses. Before he started his university course in October he transferred the code and customer details to an established website creation company for £18,000. How should this money be taxed?

It seems your son has a bright future as an entrepreneur. The sum he received is a capital payment for selling his first business and it is taxed as a capital gain. The full gain of £18,000 (assuming no costs) should qualify for entrepreneurs’ relief, which will reduce it by 4/9ths, leaving £10,000. From this sum he can deduct his annual capital gains exemption of £9,600 leaving just £400 taxable at 18%, producing a tax liability of just £72. He should declare the gain on the capital gains tax pages of his 2008/09 tax return.

We raised some sales invoices in November 2008 with VAT charged at 17.5%, for services to be delivered in December 2008. The invoices have already been paid. Do we have to take any action now because of the decrease in the standard VAT rate to 15% from 1 December 2008?

You don’t have to make any adjustment to your invoices if you don’t want to, as the VAT was correctly accounted for in November. However, you may issue a credit note if you wish to amend the original invoices to show services supplied in December at 15% VAT. This will only be worthwhile where your customers are unable to reclaim the full amount of the VAT charged.

My sales have fallen off drastically in the last few months and my customers are getting much more price sensitive. Can I deregister for VAT and so effectively drop my prices?

If your total sales for the last 12 months have been less than £65,000, and you expect them to stay below this threshold for the next 12 months you can ask HMRC to cancel your VAT registration. This is not an automatic process and the VAT office may not grant you permission to escape the VAT net. You need to complete form VAT 7, which can be downloaded from the HMRC website, and give some convincing reasons on that from why your turnover is unlikely to rise about the compulsory VAT registration limit (£67,000) in the foreseeable future.

I’m about to buy a shop with a flat above. Will the value of the flat be covered by the Stamp Duty holiday, and so be free of duty?

Unfortunately not. The Stamp Duty Land Tax ‘holiday’ only applies to purely residential properties where the value of the sale is £175,000 or less, and the deal is completed between 3 September 2008 and 2 September 2009. Commercial properties, and properties where there is both a commercial and residential part, such as your combined flat and shop, are covered by the commercial rates of Stamp Duty Land Tax which start at £150,000. There is no ‘holiday’ for these commercial properties.

I held shares in the company I worked for, which was taken over in February 2008. The amount I received for those shares was less than I paid for them. Can I get any benefit from that loss?

If the company was not quoted on a stock exchange you may be able to set the loss against your income for 2007/08 or 2006/07, but you must have bought the shares directly from the company, not from another person. The company must also meet a number of conditions regarding its size and trade. If the company was quoted or does not meet all the conditions, the only option for you is to claim the capital loss on the capital gains tax pages of your tax return. You can then set the loss against any taxable capital gains you make in the future.

I run a restaurant and employ a lot of part time staff. I’ve heard I’ve got to exclude their tips from their wages when calculating whether I am paying the National Minimum Wage (NMW). Is this true?

No immediate action is required on this. Yes, the government has announced that NMW legislation will be changed so that tips will not be able to be counted under any circumstances as part of an employee’s NMW entitlement. However, this isn’t expected to take effect until sometime in 2009.

My sister and I are about to inherit our late mother’s house – a 50:50 share each. The property is valued at around £220,000. If I was to buy my sister out of the property, would I have to pay stamp duty?

Stamp Duty Land Tax (SDLT) is charged, at varying rates, on the consideration given for a land transaction. The Chancellor has just announced an increase in the Stamp Duty threshold for 12 months from on or after 3/9/08 and as a general rule, no tax is payable on transactions in residential property if the consideration does not exceed £175,000 (previously £125,000). Tax is payable at: 1% between £125,001 and £250,000; 3% between £250,001 and £500,000; and 4% above £500,000.

So no, you will not pay SDLT as the market value of the share you are buying is under the 1% threshold of £125,000. If you were at one of the SDLT thresholds you should consider identifying any fixtures and fittings you might want to pay your sister separately for. These are then excluded from the SDLT calculation.

If I and my business partners meet at a local hotel to discuss future business plans, having a meal whilst there, will the cost of this be tax deductible?

Providing you definitely hold a meeting and could produce minutes to prove this, it is not for HMRC to challenge the scale of your “meetings” budget. For the avoidance of doubt add to those minutes that you have chosen to eat in the restaurant to avoid the cost of hiring a room or to enable you to meet in the evening and so not waste the working day. Of course if you meet in a hotel and refreshments are part of the package involving room hire, then the total cost plus travel costs would be allowable.

I’ve heard on the radio that my small pension is going to be taxed, but I’ve never paid tax on it before. Will I have to pay the tax due for all the years I’ve received the pension in one go?

Don’t panic. The change in tax treatment only applies to pensions of £1,000 or less per year, which were not previously taxed. If you have one of these small pensions you will not have to pay tax immediately, any tax due will be collected month by month after 6 April 2009 under the PAYE system. No tax will be demanded for small pension payments made before April 2008. It is quite possible that your tax free personal allowance will cover all of your state pension and small private pension you currently receive, so no tax will be due on any of your pensions. Ask us to check this for you.

I receive maintenance from my ex-husband under a court order. Do I have to include this income on my tax return?

If the court order, was made after 15 March 1988 the maintenance will not be taxable in your hands, so you don’t include it on your tax return. If the court order pre-dates 15 March 1988 your ex-husband may be due some tax relief on the maintenance if he or you were born before 6 April 1935, and in that case the maintenance may in part be taxable, but this is unlikely. A ruling on the particular court order would have to have been obtained from the Tax Office before July 1988, to make any part of the income taxable.

I recently registered for VAT, effective from 1 June 2008, but my business has been running since 1 November 2007. I need to issue a credit note to a customer in respect of services supplied in March 2008. Do I have to include VAT on that credit note?

The credit note relates to services you supplied before your business became VAT registered, so you do not add VAT on to the credit note amount. The rule is: the rate of VAT to be used in a credit note is the rate in force at the time of the tax point of the original supply. The tax point for services will normally be the date of the invoice, or it could be earlier if the customer agrees the service has been completely delivered at an earlier date.

I gave a personal guarantee for the overdraft of my property development company. Unfortunately the company went bust and I had to repay the overdraft personally. Can I get any tax relief?

It is possible to get tax relief when you are called on to honour a guarantee made for an overdraft of a UK trading company. The amount you had to pay to the bank under the guarantee is treated as a capital loss for the tax year in which you made that payment. This will not reduce your income tax liability, but you can set the loss against capital gains you make in the same year or subsequent tax years. The Taxman may argue that the company was an investment company and was not actively trading to try to deny you the tax relief.

I have just started my own company to provide consultancy services. Can the company pay for me to attend a presentation skills course? Will the cost be taxable on me personally?

If you are an employee of your own company, and as the owner/ director you normally will be, the company can pay for any training that is relevant to your work, and claim tax relief for the cost incurred. As you will be required to make presentations as part of you job with the company, then the training is definitely relevant to your work. The cost is not taxable on you. If you had set-up your business as a self-employed consultant the training may not be tax deductible as different rules apply.

For the last few years I’ve paid into a personal pension scheme but I have never shown those payments on my tax return. Is it too late to get higher rate tax relief for those pension contributions?

As a higher rate taxpayer you should enter on your tax return the gross amount of personal pension contributions you paid in the tax year, to claim the additional 18% tax relief available, for the tax years up to and including 2007/08. So for every £78 you paid (equivalent to £100 gross), you should receive tax relief of £18. You are still within time to make a claim for 2006/07. Just write to the tax office where you submitted you tax return saying you are making an amendment to your 2006/07 return and provide details of the gross pension contribution paid. For the years back to 2000/01 you could make so-called error and mistake claim. We can help you with this, but the Taxman is not obliged to accept this special claim.

I’m about to pay a significant initial franchise fee. Will I be able to deduct any of that cost from my earnings for my first year of trading?

It depends on exactly what the initial franchise fee represents. It may include elements for staff training, stationery, operating manuals, stock, which can be generally deducted from your trading income. However, a large part of the fee may represent know-how or goodwill attached to the franchise brand. This is a capital cost, which may be written off gradually against your profits if you trade as a company. The franchisor should provide you with an itemised breakdown of the initial fee, which we can help you analyse into deductible and non-deductible elements.

Can the sole director of his own company be paid £5 per night when away on business without producing receipts to cover expenses incurred?

The £5 per night limit is for personal incidental expenses such as laundry costs and telephone calls, which are rarely supported by receipts. As long as the company does not pay more than £5 per night on average per business trip, the full amount paid will be tax free. However, if the company pays in excess of £5 per night, the total is taxable. Any amount paid or reimbursed by the company for actual personal expenses, such as laundry bills, must be deducted from the £5 nightly limit.

We pay our employees a mileage allowance for business journeys in line with the Taxman’s recommended rates. Can we reclaim any VAT in respect of those payments?

You can reclaim the VAT but only on the proportion of the mileage allowance that relates to fuel. The mileage rate of 40p per mile has a large element of reimbursement for the vehicle’s other running costs. You need to use as a reference point the HMRC advisory fuel only rates which vary according to the size of the car, and are reissued several times a year. For example, if the vehicle has a 1500cc petrol engine and you reimburse the driver for 1000 miles, the value of the fuel used is 13p per mile: £130. The VAT element is 7/47 x £130 = £19.36. However, the employee must supply you with fuel receipts totalling at least £130 to allow you to reclaim the VAT shown on those receipts.

I am about to sell my VAT registered business as a going concern, but the buyer will not take on my VAT number so I will deregister for VAT. My business has been using the cash accounting scheme, so what happens to VAT received from customers after the date of deregistration?

Your final VAT return for your business must be completed on the normal accruals basis, not on the cash basis. You need to include all of the VAT that you added to your sales, or which has been charged on your purchases, and hasn’t already been included in your previous VAT returns. The VAT on your sales invoices must be included even if those invoices have not been paid. Further details are given in VAT leaflet 731: Cash Accounting.

I expect to make a taxable profit of £150,000 in my self-employed business in the year to 5 April 2008 and I’ve also made a capital gain of £65,000 in this tax year. Can I shelter these items from tax by making pension contributions?

The bad news is you only have until 5 April 2008 to make pension contributions to reduce the tax payable on your 2007/08 taxable profits. You cannot carry back pension contributions made in a later tax year to be set against income of an earlier tax year. You can pay pension contributions up to the limit of your taxable profits for 2007/08, subject to a cap of £225,000. The maximum you can actually pay is a net contribution of £117,000 (78% x £150,000). Your pension fund will then reclaim the basic rate tax of £33,000 (22% x £150,000), leaving a total gross contribution in your fund of £150,000. You cannot pay pension contributions to reduce the amount of capital gains that are taxed in 2007/08, but a large pension contribution could ensure your gains are taxed at the basic rate of 20% rather than 40%.

My company has had a PAYE inspection and the Taxman said I must pay NICs on the telephone bills we pay for employees. Is this right and how can I avoid this extra expense in the future?

Where the employer pays a bill in the employee’s name, such as the employee’s telephone bill, the amount paid is treated as earnings and class 1 NICs are due. The costs that relate to business calls may be excluded from this value of ‘earnings’, but not the cost of the line rental. If the employer pays for a second line to be installed at the employee’s home to be used exclusively for business calls, class 1 NIC is not due on the cost of those calls or line rental. So to reduce your NIC costs make sure the contract with the telecoms company is with your company as the employer.

The Taxman has asked me about my rental income, but I’ve never made a profit from my let properties, so do I have to complete his form?

The Taxman is currently writing to people who he believes are letting properties, but that rental income is not shown on their tax returns. You do have to declare the rental income even if your interest payments and other expenses cancel it out to make a loss. You are not obliged to respond to the Taxman’s letter, but if you don’t things will only get worse.

Is there anything I should do before the end of the tax year to save inheritance tax?

If you have not made any significant gifts of capital since 6 April 2007, you can give a total of £3,000 to individuals to use your annual inheritance tax exemption for 2007/08. If you did not make any similar gifts in 2006/07 you can give a total of £6,000 before 6 April 2008 and all those gifts will be exempt from inheritance tax. Make sure you leave enough time for your cheques to pass through the banking system before 6 April 2008, as otherwise the gifts will not be completed.

Should I invest in an ISA now or wait until the new tax year?

The investment thresholds for ISAs are set for each tax year and cannot be carried over into the next tax year. The limit for 2007/08 is £3,000 for a cash ISA and the balance of up to £7000 in stocks and shares. These limits increase on 6 April 2008 to £3,600 and the balance up to £7,200 for stocks and shares. So if you don’t invest before 6 April 2008 you have missed you 2007/08 ISA allowance, but you will have more scope with the higher investment limits in 2008/09.

The Department of Work and Pensions has sent me a pension forecast which shows I’ve already paid enough national insurance contributions over the 44 years of my working life to receive the full state pension. Do I have to carry on paying class 2 NICs?

You must pay class 2 NICs if you are self-employed and have not yet achieved state retirement age, which is currently 65 for men and 60 for women. As you have already worked for 44 years you must be very close to the state retirement age. You don’t have to pay class 2 NICs from the week you reach the state retirement age. Alternatively if your self-employed earnings are below the small earnings limit, (£4,635 for 2007/08) you can claim an exemption from paying NICs for the tax year.

I have an order from a customer in Russia for a software licence. Do I have to charge VAT on that sale? Does it make any difference if I send the software on a CD or transfer it by email?

A licence to use computer software is always treated as a service even if it is supplied in a medium you can handle, such as a CD. So it doesn’t make any difference to the VAT treatment if you supply the software on CD or by email. You should not charge VAT to your Russian customer as the supply of this service to a country outside the EU is outside the scope of VAT.

My company is about to spend £60,000 on replacing asbestos roofs. Is there any special tax relief I can claim to help with these costs?

Land remediation relief applies for cleaning up contaminated land in the UK, which covers asbestos removal. If your company did not create the contamination by installing the asbestos in the first place, it can claim 150% of the costs of the clean up against its profits. If this extra deduction creates a loss, and the company can’t relieve that loss against profits of the same or an earlier period, it can obtain a tax repayment of 16% of the loss from the Taxman.

Disclaimer

How do I know the VAT number on my suppliers invoice is genuine?

It’s a good idea to check any VAT number you have doubts about, as you can’t reclaim the VAT charged if the VAT registration is invalid. The quickest way to do this is to ring the VAT helpline on 0845 010 9000. The VAT officer will tell you if the VAT number and address details you read out match theirs. If they don’t match, they won’t tell you the details they have on file, but then you know you have a problem, so go back to your supplier.

What will I gain by sending in my monthly CIS return online?

Your CIS return needs to be with the Taxman by 19th of every month, even if you have no payments to report. If you submit the return online you don’t have to allow for the time a letter takes in the post. The online service is available 24 hours a day, so you can do your return at any time it suits you. You gain peace of mind knowing your return has arrived safely as you get an instant acknowledgement with an online return. As long as you receive this acknowledgement by midnight on 19th of the month you can also be sure you won’t get fined for submitting a late return.

I’m going to be a bit short of money for the self-assessment payment due on 31st January and was wondering what the Taxman would do if I paid another creditor I have instead of the Taxman?

If you don’t pay your income tax bill by 31 January 2008 you will have to pay interest at 8.5% on the unpaid balance. Also if you delay paying beyond 28 February 2008 you will have to pay a surcharge of 5% on the outstanding tax due for 2006/07, which will also carry interest at 8.5%. What’s more the Taxman marks late payers as high risk cases. A high risk marker means you are more likely to get investigated and end up paying penalties for any tax errors you have made in the last six years. If you are really going to struggle to pay it is sensible to talk to them to arrange a payment plan.

I own a number of house-boats which are permanently moored and are let as holiday accommodation. Can I claim capital allowances on the cost of acquiring similar new boats?

The Taxman will normally only give capital allowances for boats or caravans if they are regularly moved and do not occupy a fixed site, although there are exceptions for caravans on registered sites. As the house-boats are in a permanent location the Taxman will view them as buildings, which do not qualify for capital allowances, although some of the fixtures and fittings for the boats may qualify.

My company makes a regular donation to the local youth club­, is this expense tax deductible for my business?

If the youth club is a registered charity your company can make a donation under the gift aid scheme and achieve tax relief for the business and the charity. The Taxman also allows deductions for small donations to local bodies such as churches where there may be a benefit to the employees and their families. The youth club may qualify under this concession.

I’ve heard I will soon get the first £100,000 on the sale of my business tax free. Is that true?

This is a rumour about retirement relief released by the Prime Minister’s office to soften the blow for small businesses, who are upset about the withdrawal of business asset taper relief from 6 April 2008. However the Treasury refuses to comment specifically on this idea, so we can’t be sure that the proposed relief will actually come into force. If there is to be a new form of retirement relief for small businesses, there are indications there will be some announcement on softening the blow of the loss of taper relief before Christmas, but there are no guarantees! We will keep you updated with any news on the subject in this newsletter.

I am about to sell a trailer that has been used by my VAT registered business for a few years. Do I have to add VAT to the price?

As your business is VAT registered you must add VAT to anything you sell, whether it’s your regular services or assets that been used in the business. This applies whoever you sell the asset to.

I have a joint savings account with my husband that pays about £1,000 in interest each year. We are both higher rate taxpayers, so does it matter which of us includes this interest on our tax return?

As a married couple you are deemed to receive an equal share of the interest, so half of the total amount should be included on each of your tax returns. Although the same tax overall would be paid if only one person returned all of the interest, that would not be the correct position. In this case the Taxman could demand tax, interest and penalties from the spouse who did not include their share of the bank interest on their tax return.

I’m selling part of my business, and the buyer has asked for the VAT records relating to purchases and sales made by that section. It would be difficult to separate out those records, so do I have to hand them over?

If the assets you are selling can be operated as a separate business the whole sale should be treated as a transfer of a going concern to avoid charging VAT on the sale, in which case you as the seller should hang on to the VAT records. The law was changed on this point for sales of businesses made from 1 September 2007. You need to provide the buyer with any information that may affect his VAT returns, such as details of assets under the capital goods scheme. Otherwise you should only hand over VAT records if you are also transferring your VAT number, but that is very unlikely with the sale of only part of your business.

I have heard the state pension age has increased again. When will I get my state pension? I am a woman aged 42.

The state pension age, when you receive your state retirement pension, has already been aligned at 65 for both men and women who retire from 2020, but the Pensions Act 2007 has increased this age to 68. The change is applied in stages so if you are currently aged 42 you will get your state pension from age 66. There is an online calculator to help you work out your new state pension age on The Pension Service website at:http://www.thepensionservice.gov.uk/resourcecentre/statepensioncalc.asp

Can I claim the cost of travelling to work against my taxable income?

 If you are a permanent employee based at one site the cost of commuting to work is not tax deductible. However, if your work requires you to travel to different sites and you attend each site for a limited period or temporary purpose, and you do not attend one site for more than 40% of your time for more than 24 months, the cost of travel may be tax deductible. Strictly you should claim the cost of the travel from your employer, which may be your own company. The Taxman sometimes treats a large area as ‘one site’, so it is best to ask for special advice for your circumstances.

One of my employees has died suddenly and I want to make a lump-sum payment to his family. Will this be tax deductible for my company and will the family be taxed on the payment?

Any lump sum payment made in connection with the death of a serving employee is tax free for the recipient, as long as that payment does not constitute an un-approved retirement benefit scheme. The payment should also be tax deductible for your company as it is made in connection with the termination of the employment of one of your staff, (unfortunately in this case by death).

My bank paid me some compensation due to their mismanagement of my account. Is it taxable?

It depends whether the compensation relates to your business or private bank account. A payment in connection with your private account is a personal matter and is not taxable. If the payment was made in connection with your business bank account, and as a result of a claim being made to the bank, then it is a trading receipt and is taxable as part of your business. If the compensation payment was made without being asked for, (very unlikely from a bank) it may not be a trade receipt, and thus not be taxable unless was paid to replace an asset that was lost or destroyed.

I’m on the flat rate VAT scheme for small businesses and have recently paid over £2,000 for membership of trade organisation. Can I claim the VAT back on that fee as a capital asset?

Under the flat rate VAT scheme you are not permitted to reclaim VAT paid on any purchase, unless it is a capital asset costing £2,000 or more. The capital asset acquired must be a physical good, not a service. So the payment to join the trade organisation does not qualify as a capital asset for the flat rate VAT scheme, and you can’t reclaim the VAT.

I am about to sign a lease for a new shop, but the landlord wants to charge VAT on the lease rental payments. The solicitor has grossed up the lease payments including VAT for the full lease term, to calculate the Stamp Duty Land Tax due. This means I am paying Stamp Duty on the VAT on the rents. Is that right?

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I applied for a VAT number for my new business months ago, but it still hasn’t arrived. I now need to invoice clients, or I will run of cash. What should I do?

Ringing the VAT office to chase up your registration application is probably a waste of time. You probably won’t get through, and if you do, it won’t speed up the process. You can send invoices to your clients but you can’t technically charge the VAT due until you have your VAT number. You can do this by either:

  • issuing an invoice for the net amount, then when you VAT number comes through send a VAT-only invoice to collect the VAT due; or
  • sending a ‘request for payment’ for the full amount including VAT , but do not separate out the VAT and make it clear the request for payment is not a VAT invoice. When you VAT number arrives send a correct VAT invoice, showing any amounts that have already been paid.

In either case you need the co-operation of your clients and you will need to go through the invoicing process twice.

I’m a driving instructor and operate through a limited company. The Taxman wants to tax me for using my instruction car and fuel as a taxable car benefit. I don’t think that’s fair as the car is necessary for my business. Is he right?

Essentially the Taxman is correct. If you use the instruction car for even one mile of a private journey, there will be an income tax charge. It is irrelevant whether the car is necessary for your business or not. Taxi drivers who run their businesses through limited companies have the same problem. If you can show that you make absolutely no personal use of the instruction car, perhaps because you use another car for all private journeys, the Taxman may be persuaded to treat the instruction vehicle as purely business. However, he may want to see an insurance policy that prohibits private use.

My company has recently applied for gross payment status under the new CIS, but the application was rejected as the Taxman says my personal income tax was paid late for 2005/06. I sent the tax payment on 24 January 2007, so how can this have been late?

This is a problem with the new CIS computer system, as one late payment of income tax should not make your application for gross payment fail. The tax office also should have received your cheque before 31 January 2007, the deadline for that payment. Unfortunately your only option now is to appeal against the decision, although in this case the Taxman appears to be completely in the wrong.

My husband has been seconded to the Dubai office of his company for six months, but I won’t be joining him, as we don’t want to disrupt our children’s schooling. Do I need to tell the Taxman?

If you are claiming tax credits you do need to tell the Tax Credit Office as soon as possible. You will be counted as a single parent while your husband is away and your tax credits claim needs to be reassessed.

I started a new business last year and have only just begun to make profits after a year of losses. Can I set the losses made in the first year against the profits made in the second year?

Yes you can, but if your business is run as a sole-trader rather than through a company you can set the first year losses back against your other income made in the four years before you started the business. If the business is operated through a company the use of losses is more restricted as they can only generally be set against income made by the same company in the future.

Before I married I lived in a small flat, which is now let. I would like my wife to receive the income from this flat to use up her personal tax allowances, as she is no longer working. How can I arrange this?

To share the income from the flat the property must be held in your joint names. Ask a solicitor to transfer ownership of a defined share in the property to your wife. There will be legal charges and possibly Stamp Duty Land Tax to pay if the property is subject to a mortgage.

I am setting up a café in a local gym to sell hot and cold drinks including fruit smoothies made on the premises. Do I have to charge VAT on the smoothies?

Assuming you are or need to be registered for VAT, then Yes. Smoothies and juices are a drinks subject to standard rate VAT. If you sell the fruit unprocessed it is a zero-rated food.

Can I treat my buy-to-let property as my main home so it is exempt from capital gains tax?

You can only treat your buy-to-let property as your main home for capital gains tax purposes if you actually live in it for a period, so the property cannot be let out at the same time. This period can be quite short, such as a few months, but you do need to have some evidence that you lived there to show the Taxman if he should ask, such as utility bills or correspondence. If you also have another home which you plan to return to you need to make an election to state which property is your main residence.

I have received a leaflet from the VATman that says the flat rate VAT scheme would save me a lot of time and hassle, is this true?

Under the flat rate VAT scheme you simply multiply your gross sales (including VAT) by a percentage ranging from 2% to 13.5%, depending on your trade sector, to calculate the VAT you owe the VATman. This may be quicker than adding up all the VAT paid on your purchases, and deducting that figure from the VAT charged on your sales, but it could cost you money. If you are in a sector with a high flat rate percentage, or you have a high ratio of purchases to sales, you may end up paying more VAT to the VATman under the flat rate scheme. However, in other cases you can pay less VAT. Ask us to help you with the calculations.

My mate is starting a new business and wants me to invest. Should I lend him the cash or buy shares in his new company?

If the business fails you are more likely to get your money back from a loan than as shares, especially if the loan is secured on the assets of the business. If your loan is not repaid you can claim a capital loss, which can be used against you other capital gains, if you have any. If you subscribe for shares and the company fails you can claim the amount paid for shares as an income tax loss, which is usually better for tax purposes. If the business is very successful you won’t make a profit from the loan if the business is later sold for a huge amount, or becomes listed on the stock exchange. To realise those gains you need to hold shares in the company.

I deal in small electronic goods such as Sat Navs, CD-players and DVD players. I heard there was something in the Budget that could affect my business. Can you explain please?

This is to do with special powers the VATman has to demand from you any unpaid VAT arising in your supply chain. From 1 May 2007 the type of goods that can trigger the use of this power is expanded to include electronic items that may be owned by individuals and used by them personally for leisure, amusement or entertainment, and this would include Sat Navs and DVD equipment.  To avoid the VATman asking you for extra VAT be sure to carry out reasonable checks to establish the integrity of all your supplies, supplier and customers. If you are concerned that you could be caught up in deals that deliberately under price the goods on offer, please talk to us without delay.

I am a contractor and I work through a managed service company. The organisation that runs this company wants to transfer me into a new personal service company to avoid the Budget tax changes. Will this work?

Probably not if there are no other major changes in how everything is organised and run. Your new personal service company will be treated like a managed service company where the provider controls aspects of the personal service company such as the finances, the payments made to you out of that company, or how you find your next contract. The payments to you from the personal service company will have to have PAYE deducted from them after 5 April 2007, even if they are called “dividends”. You will also no longer get a deduction for your traveling expenses. For more advice on how you could structure your own personal service company with a view to avoiding both the new MSC legislation and IR35 please talk to us

One of my employees has just told me she is pregnant and says I have to give her a full year off work. Is this true, and do I have to pay her for all that time as well?

Your employee is correct, she is entitled to up to 52 weeks of statutory maternity leave, but this leave is not necessarily paid leave. You only have to pay her Statutory Maternity Pay (SMP) while she is on maternity leave, if she has been on your payroll for at least 26 weeks, including the 15th week before the baby is due. The SMP also doesn’t last for the full 52 weeks, it currently can only be paid for up to 39 weeks. This has increased from 26 weeks for babies due after 31 March 2007. The SMP is also not paid at the employee’s full wage rate. The first six weeks are paid at 90% of her average weekly wage and the rest of the period is paid at a flat rate of £112.75 (from 6 April 2007). As a small employer you can claim back from the Taxman all the SMP you pay out, plus an extra 4.5% as compensation for the employer’s class 1 NIC you have to pay on the SMP.

I run a building company and need to take on a self-employed worker. He doesn’t have his own van and so I’ve offered to provide him with one as a van is needed for him to do the job. What’s the tax position on that?

You need to be very careful in doing this. The Taxman is likely to take the view that if you are providing a van, as you may do for employees, that this is indicative of an employment and not a self-employment relationship. Getting the status of the worker wrong can be very expensive. The provision of the van is not necessarily conclusive if there are other factors that are indicative of self-employment but would certainly be taken into account. If you can substantiate the worker is still truly self-employed then the van would not be taxable on him and you could claim capital allowances on the cost of the van. The same rules would apply to the provision of van running expenses. However, if the worker was classified as an employee the rules are different and less generous.

My company accounts year ended on 31st December 2006. I ordered a new machine on 22nd December and received an invoice on 24th December for the machine, due for payment 30 days later. The machine was not delivered until early in January because of the Christmas holidays. Can I still claim the capital allowances in my accounts to 31st December 2006?

Unfortunately, the date that matters is usually the date on which the obligation to pay becomes unconditional. This is normally the invoice date but in this case, on the 31st December, your obligation to pay was still conditional on the delivery on the machine and had not yet become unconditional. Depending on the amount involved you could consider extending the year end to bring the date within your accounting period to be able to claim the first year allowances in full.

I’m looking at taking out a loan with my bank and then loaning this on to my daughter to help her start her business as a sole trader. She will pay me back with interest to cover my cos

Your daughter could claim tax relief on the interest she pays to you, just as if she had taken the loan from a bank for business purposes. However, any interest you receive from your daughter is taxable on you and you cannot offset the interest you pay against this, leaving you with a nasty tax bill. I assume your daughter is unable to obtain the loan herself. One alternative solution to avoid this would be for you to become a partner in the business. The loan interest you pay would then be deductible from your share of the profits, which could possibly be an amount equal to the interest. You could also look at if your daughter could get the loan herself but with you acting as guarantor in support of the application.

Can I reclaim VAT on car parking charges without a VAT invoice?

Yes you can if it is under £25 apart from on-street meter parking which is outside the scope of VAT. In addition, no VAT invoice is required to reclaim VAT on single transactions under £25 for any of the following…

  1. Phone calls from public or private telephones.
  2. Purchases from coin operated machines.
  3. Road tolls.

We’ve Signed Up For A Lease And Have Got A Rent Free Period In Exchange For Doing Work On The Building. What’s The Tax Position?

Rent paid normally counts as a deductible tax expense but in general improvements of a capital nature to a building will not give you any tax deduction. However, it may be possible to classify some of the expenditure as repairs if it is of a repair nature as opposed to being of an improvement nature and so claim a tax deduction for that. If the building is an industrial building you may be eligible for Industrial Buildings Allowances which will allow you to claim a small part of the cost each year spread over many years. An alternative way to speed up the process of getting a tax deduction is to take the whole amount of rent you will pay over the lease term of say 10 years and divided this by 10 and claim this amount each year including the first year, as opposed to claiming the amount paid each year.

A final option would be to get the landlord to still charge you the rent and then you recharge him for the improvement costs. The landlord will however be in the same position of any improvement costs not being tax deductible and if you are VAT registered you will have to charge VAT which the landlord will only be able to recover if he is VAT registered.

I Understand That An Effective Tax Strategy For An Owner Managed Company Is For The Director To Take A Low Salary With Minimal National Insurance And To Take Everything Else In Dividends. However, Is There Not A Problem With The Minimum Wage Legislation?

The Taxman has made it clear that the minimum wage legislation only applies when there is an explicit contract of employment between the company and the director. Therefore, to avoid the minimum wage legislation it is simply a case of ensuring you do NOT have such a contract in place. In most small companies this would be the position anyway. When adopting this strategy you must ensure proper procedures are followed when paying dividends or there is a risk of it being attacked by the Taxman. It’s also the case the the minimum wage legislation doesn’t apply to family members but in the case of a Limited Company it does not have any family members and so to keep the salary of a spouse at a low level you should consider making them a director.

I'm starting a new business as a plumber and don't know if it would be a good idea to register for vat. Can you advise?

It is only compulsory to register for VAT if your annual cumulative turnover to the end of any month exceeds £61,000 or if you expect your turnover to exceed this in the next 30 days. So it is likely when starting you will not have to register but you should keep an eye on your turnover every month to monitor this. By registering, you have to add VAT onto your outputs (sales) which if supplying non vat registered businesses or people such as the general public will put you at a competitive disadvantage and is generally not advisable if this is your main customer base. However, the advantage of registering will come if you are supplying mainly vat registered businesses who can reclaim the vat and it largely doesn’t matter to them whether you charge vat or not. By being registered you can then reclaim input vat on purchases and services including on any goods purchased within 3 years before registration, although this doesn’t include any goods consumed before registration such as electricity but it does not apply to trading stock and capital assets such as equipment. For services, you can only go back 6 months. A vat registered business may also have more credibility with potential customers. To register voluntarily it will be necessary to satisfy HMRC that you are on intend to carry on a business making taxable supplies.

Q. The taxman has selected me for an enquiry, has had all my books and records and now wants me to have a meeting with him. Do I have to go?

Meeting the taxman can be a worrying process and if you are doing so it is vital that you are properly represented at the meeting. Under no circumstances should you attempt to go alone. However, there is no legal obligation for you to attend and you are within your rights to refuse to attend and deal with the enquiry through correspondence, saying you will be better able to consider the questions and give a fuller response that way. However, a meeting can often help to resolve matters more quickly and is a sign of co-operation that can help to reduce any eventual penalties should tax be found to be owing. You should ensure you are being advised by an accountant experienced in enquiry work as the right approach will vary depending on the client. Ensure an agenda is requested prior to any meeting and fully prepare beforehand. At the meeting you do not have to answer questions there and then. Do not be pressured into answering questions you are not certain of the answer to and ask them to be put in writing for you to consider.

It’s also worth pointing out that there was also no legal obligation for you to send all your books and records to the taxman. For example it may be better to have him inspect the records at the office of your accountant.

I've sold a lot of unwanted Christmas presents on Ebay and I remember reading something about paying tax on what you make on Ebay. That doesn't seem fair.

What HMRC say is that if you are trading online using Ebay, you will be liable to tax on your profits. Even if your profits are below the level of personal allowances you should still inform them that you are trading. However, the receipt of unwanted presents and then selling them would not be considered to be a trade and nor would the sale of any other unwanted personal goods if they were not bought with the intention of making a profit. A trade is where you buy the goods with the intention of selling them on at a profit and this occurs no matter the extent of it. So even if you did a bit with just a couple of items in the run up to Christmas to make some more money for Christmas, that is trading. In practice, it’s likely HMRC are only going to go after the more substantial cases.

What is a registered office (RO) address?

All companies must have a registered office, which must be a situated at a physical location in their country of registration. It can be your business address, the address of your accountant or any other address you choose. However, it must be an address at which you will be able to deal with all official letters and notices that you receive.

What is a Service Address?

When a company is incorporated, a director must include their residential address and a service address. The service address will be on the public record at Companies House; the residential address will be protected information and is not available to the public (although it is available to some public authorities). Shareholders and secretaries only need to supply one address – a service address.

Can a P .O.Box be used for the registered office address?

Yes, provided the full physical address is given including the postcode.

What addresses can be used as Registered or Serviced Office address?

We provide two London based registered office addresses for limited companies:

  • Mitcham Registered Office Address – Access House, office 9103, 141 Morden Road, Mitcham, CR4 4DG
  • Chelsea Registered Office Address – Fairbanks Studio (Unit 112) 65-69 Lots Road, Chelsea, London, SW10 0RN

What is statutory mail?

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Why would I want to use the Service Address service?

Many directors, company secretaries and shareholders only have one address – their residential address – so this is the address they use as their service address at Companies House. This means that their residential address is shown on the public record at Companies House. By using our Service Address service, directors, company secretaries and shareholders can keep their residential address confidential as our London address will be shown instead of their residential address.

My Uncle has recently died and my elderly father inherited the entire estate of about £400,000 under the intestacy laws, as there was no Will.Can anything be done to divert the gift from my father to avoid this money forming part of his estate and attracting another large inheritance tax bill when he dies?

Yes, if your father is still of sound mind he can disclaim the gift from your Uncle by using a deed of variation. This can apply whether there was a Will or not. The deed must be drawn up and signed within two years of your Uncle’s death. It will not affect the inheritance tax (IHT) paid on your Uncle’s estate, (unless the money is diverted to charity) but it will avoid IHT arising on the same funds for a second time as part of your father’s estate.

I was in a serious accident in early 2007 and haven't worked since, but I've been sent a tax return to complete for 2007/08. Do I have to include the incapacity benefit I received on my tax return form?

Some types of incapacity benefit are taxable and some are not. The long term benefit (paid after 28 weeks), and the higher rate of the short term benefit are both taxable. The Benefits Agency will normally take the tax due off the gross benefit before they pay the net amount to you, based on your PAYE code, just as if the benefit was a normal wage. If you don’t know exactly what amounts were paid to you and what tax was deducted during the year to 5 April 2008, ask the Benefits Agency to confirm the figures. They will normally do this over the phone, but they should put it in writing if you request that.

I have a large collection of music CDs that I built up over twenty years. I am now gradually selling these CDs online and through magazines, as many are rarities. Do I have to report the money I make to the tax office?

If your CD collection was purchased for you own enjoyment and not with the aim of selling the individual items, you are not trading as a CD dealer, you are just disposing of some surplus personal property. The money you receive is not subject to income tax as you are not trading, and as long as each CD sells for less than £6,000 there is no capital gains tax to pay.

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