To Augusts' Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Corner
We are committed to ensuring all our clients don't pay a penny more in tax than is necessary.
If you own and occupy more than one property as your home you can elect, within a set time period, for one of those properties to be your main home for tax purposes. You can change this election at any time so another property qualifies as your main home, hence the term 'flipping'. When you sell your main home the increase in value that has built up while it was your main home, and for the last three years of ownership, is free of capital gains tax.
Three years of the ownership period will be free of tax, even if the property has only been designated as your main home for a very short period, perhaps only a week. This is the tax rule many MPs used to avoid paying tax on the home that had been largely funded by their expense claims.
You can flip your properties just like an MP, if you make the first election within two years of acquiring another residence, or within two years of marrying (or civil partnership). If you have missed this deadline on your current properties it may be worth acquiring a very small third property to give you the option to make the election again.
However, beware that the law in this area could be changed with little advance notice following the MP's scandal. If you want to take advantage of this flipping rule, talk to us without delay.
Budget for Your Tax Bill
If you are self-employed it can be a struggle to have enough money to pay the two instalments of your tax bill for the year due on 31 July and 31 January. HMRC has realised these two large six-monthly bills can be difficult to manage, so they have set up a budget payment plan to help individuals pay their tax bill in smaller chunks.
It works like this:
- You register on the HMRC website to use the HMRC online service for self-assessment. You don't have to use this service to send in your tax returns, we can still do this for you, but you can review your tax statements online, which is useful.
- Next, set up a direct debit online to pay your self-assessed tax to HMRC. You chose exactly what to pay and whether to pay weekly or monthly.
- About 5 days later the direct debit will be 'live' and it will start to take the amount you have authorised from your bank account at the intervals you specified. These amounts will be set against your next tax bill. You can change the amounts or the intervals at any time, and even cancel the payment plan if you wish.
- Your bank statements will show the payments to HMRC as: 'HMRC NDDS'.
There are some disadvantages to using this budget payment plan:
- HMRC will not pay you any interest on the amounts you have paid in advance towards your tax bill. A deposit account with a bank would pay a very small amount of interest.
- You can only make payments under the budget payment plan by direct debit.
- You cannot get the money back from HMRC to use for another purpose, unless you are due a tax repayment.
- You must be up to date with your self-assessment tax payments before you can join the budget payment plan.
Currently this budget payment plan can only be used by individuals. There is no similar payment plan in place for companies.
Beware Tax Email Scams
Many people are currently waiting for a tax rebate from the Tax Office, as they have claimed for losses to be set against an earlier year's income. If you are expecting such a tax refund, or even if you are not, take care not to be drawn in by emails that claim to have a tax rebate ready for you. These emails tend to ask for details of your bank account to pay the refund into, but they are scams.
The UK tax office HMRC does not send emails to taxpayers informing them of tax rebates. All such emails are fraudulent, and potentially very dangerous. You should not respond to the email. Do not click on any link embedded in the email as this may allow the scammers to get to your computer through a virus included in the link.
Fraudulent emails normally stand out as they are not correctly addressed to you personally. The email may have missing address details or say 'Dear Subscriber' or 'Dear Taxpayer'. Some scam emails include what looks like a tax refund form including a fax back number. You should never complete such a form sent to you by email supposedly from HMRC. To complete genuine HMRC forms yourself you need to log into the HMRC secure website using the login details which will have been sent to you in the post.
If you have doubts about an email supposedly from HMRC, forward it on to the HMRC at: firstname.lastname@example.org then delete it.
When is a Pick-up a Van?
Certain pick-up trucks and other commercial-type vehicles are built to very high comfort standards these days, so a pick-up or 'van' can easily be used as the main family vehicle. In which case does the company owned van become a company car?
The distinction is important because the benefit in kind tax charges are far higher for a car than a van (see example). Also vans, but not cars, qualify for the annual investment allowance (AIA), which allows the full cost of the vehicle to be set against profits in the year of acquisition, subject to the AIA cap of £50,000.
The Mazda BT-50 2.5 TD double cab pick-up has a list price of £15,063 and a CO2 emissions rating of 244g/km. Below shows the difference in the taxable benefit for 2009/10 should this vehicle be classed as a car or van.
Taxable benefit of personal use: Car:£5,272, Van:£3,000
Fuel provided for personal journeys: Car:£5,915, Van:£500
Total taxable benefit: Car:£11,187, Van:£3,500
In tax law a van is a goods vehicle that has a design weight not exceeding 3,500kg. In addition the HMRC guidance specifies that a pick-up truck is a goods vehicle if it has a payload of least 1 tonne. Payload is the difference between the kerb weight and the gross weight as stated in the vehicle's specifications. So if the pick-up is primarily designed to carry goods rather than people and can safely carry 1 tonne in weight, it falls squarely into the van category.
However, this statement about the 1 tonne payload is not law, it is only HMRC guidance. If you have a pick-up that carries less than 1 tonne it will be a van for tax purpose if you can show that it is either:
- a goods vehicle; or
- a vehicle of a type not commonly used as a personal vehicle and unsuitable to be so used.
It doesn't matter what the vehicle is actually used for, it's what it was designed to be used for that counts. The Taxman says in his own internal manuals: "Actual use of a particular vehicle is irrelevant: the statutory test is a test of construction, not use."
For advice on choosing the right vehicle to qualify as a van please contact us.
Question and Answer Corner
Q. 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.
A. 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 personal account.
Q. My company requires certain employees to attend trade shows in other countries. The company pays for all the costs including any visa 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 any visa as a business expense?
A. 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 trip 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.
Q. 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?
A. 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.
Key Tax Dates for August 2009
2 - Last day for car change notifications in the quarter to 5 July - Use P46 Car.
19/22 - PAYE/NIC and CIS deductions due for month to 5/8/2009.
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The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.