To June's 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.
Please contact us for advice in your own specific circumstances. We're here to help!
Car Scrappage Scheme Implications
The car scrappage scheme, which was launched on 18 May 2009, also applies to small vans that weigh up to 3,500kg. So if you are thinking of trading in your 10 year old van for a new one, this could be a good time.
The scrappage scheme gives you a £2,000 discount off the list price, and it is this net cost which will go into your capital allowances pool. A van will qualify for the Annual Investment Allowance (AIA), which allows 100% of the cost to be set against your business profits in the year of purchase. The AIA is limited to purchases with a total of £50,000 per year, so you should plan to spread out any large purchases. Any excess cost above the AIA cap will qualify for capital allowances of 40% if the purchase is made before 1 April 2010, otherwise the excess will qualify for 20% capital allowances per year.
If you are VAT registered you will be able to reclaim the VAT charged on the purchase of a new van, although not all of it where it is for an unincorporated businesses with private use. However, you must reduce your VAT claim by £130.43, which is 15% of the manufacturer's gross discount of £1,000. The Government contribution to the scrappage scheme of £1,000 per vehicle does not affect the VAT.
If your company is purchasing a car through the scrappage scheme, which will have some private use, the driver will be taxed on a percentage of the vehicle's list price. The percentage depends on the car's CO2 emissions, but the list price is fixed. It is not reduced by the £2,000 discount given under the scrappage scheme.
Claiming Tax Relief on Overseas Properties
In our Budget newsletter we mentioned that UK residents could now make claims for tax reliefs associated with furnished holiday let property situated in other EEA countries. The EEA countries are the 27 EU countries plus Iceland, Liechtenstein and Norway. The tax reliefs that could be claimed include:
- Setting losses on the let property against other UK income;
- Capital allowances on equipment used in the property;
- Capital gains relief on selling the property;
- Entrepreneurs' relief for disposals made after 5 April 2008;
- Business asset taper relief for disposals made before 6 April 2008; and
- Business property relief for inheritance tax.
These tax reliefs could apply for a number of PAST tax years, but to qualify you need to prove all of the following applied for the relevant year:
- The letting business was carried on commercially with a view to a profit;
- The property was available to let as furnished short-term holiday accommodation for at least 140 days per year;
- It was actually let for these short-term periods for at least 70 days per year; and
- Longer-term lettings, which exceed 31 consecutive days let to the same person, did not take up more than 155 days per year.
If this applies to you we can help you make a claim for tax relief which may be due.
Credit Crunch Tax Credit Protective Claims
You know the tax system is crazy when the Taxman encourages you to claim a benefit, which you don't currently qualify for, just in case you do start to qualify for the payment later in the tax year. That's exactly the position the Taxman is taking for Working and Child Tax Credits.
Working Tax Credit is paid to single people who work at least 30 hours a week, and to parents and disabled workers who work at least 16 hours per week, but in both cases the total family income must be below a qualifying threshold. For a single childless person aged at least 25, the qualifying income threshold is currently £13,250 per year. For a family with children the qualifying threshold is considerably higher, up to around £80,000 in certain extreme cases, although the exact amount would depend on the family's circumstances. Child Tax Credit is paid alongside Working Tax Credit and is assessed on the same claim form.
The income that counts towards the qualifying threshold is the family's income spread out over the full tax year. If the family income suddenly drops part way through the tax year, due to redundancy or business failure, which is far more likely in the credit crunch, the family's average income for the tax year may well be below the qualifying threshold.
This is where the system gets really crazy. The family or individual must make a Tax Credit claim before 6 July 2009 to allow the claim to be back-dated to the beginning of the current tax year (2009/10). Although the claim may initially give rise to a nil payment based on income received in 2008/09, the claim for 2009/10 can be amended later to take account of the reduced income for 2009/10. At that point payments will be made based on the total family income averaged out over the tax year.
If you feel your family income may be at risk in the current unstable economic climate, it may make sense to submit a protective Tax Credit claim before 6 July 2009. Do be careful if you are making a claim as a single person, when you later become part of a couple, as you must tell the Taxman when this happens. The Taxman requires couples (mixed or single sex) to make Tax Credit claims as a couple, and will demand repayment of Tax Credits paid to individuals who make an invalid single-person claim
Beware the VAT Threshold
Even if your business is not registered for VAT, you need to be aware of the point where your total sales require you to become VAT registered. This threshold is currently total sales of £68,000 for any 12 month period ending on or after 1 May 2009.
If your annual sales are near this limit you need to calculate your total turnover for the last 12 months, every month, adding the latest month and subtracting the earliest month each time, to check you haven't breached the threshold. Alternatively, if you believe your sales for the next 30 days will exceed £68,000 you must register for VAT immediately.
There are several advantages of keeping your sales below the VAT threshold:
- You don't have to register for VAT, but you can if you wish to.
- If you are not registered for VAT, your customers do not pay VAT on top of your basic prices. This makes your goods and services appear to be better value for money for non-business customers or other small non vat registered businesses.
- On your 2009/10 self-assessment tax return, which will be issued in April 2010, you will only have to complete three lines to report your business profits.
- You do not have to submit your VAT returns online.
Currently a small percentage of VAT-registered businesses submit their VAT returns online each quarter. But for periods starting after 31 March 2010 all VAT-registered businesses with a turnover of £100,000 or more will be compelled to submit their VAT returns online. Also any business that becomes VAT registered after 31 March 2010 will also have to submit all their VAT returns online, whatever its turnover.
If you become VAT registered before 1 April 2010 you will not be forced into online filing straight away, as you will be able to continue with paper VAT returns until your turnover exceeds £100,000, or the law is changed.
There are of course penalties for failing to register on time so please contact us if you need any help with the decision to register for VAT.
Mazuma – Cardiff North Branch
Please remember that if your local branch is Mazuma Cardiff North, they have re-located to a shop front in Rhiwbina, Cardiff!
Question and Answer Corner
Q. My business requires me to have up to 100 days a year away from home speaking at conferences. I always travel first class rail, to allow me to prepare notes on the way, and stay in four-star accommodation. 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 accommodation. Is he correct?
A. 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 accommodation costs were incurred wholly and exclusive for your business of lecturing the full cost can be claimed.
Q. I pay income tax at 40%, but my wife and child have no income at all. If I purchase fixed income bonds in their names will the interest be effectively tax free, as it will be covered by their personal allowances?
A. When you purchase 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.
Q. If I start earning money from a website I have setup in my spare time, will I have to pay tax and NI on that income? I am also employed full time on a salary of £25,000 a year.
A. 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 NI 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 NI.
Key Tax Dates for June
19/22 - PAYE/NIC and CIS deductions due for month to 5/6/2009.
30 - Deadline for UK businesses to reclaim EC VAT chargeable in 2008. Need Help? Please contact us if we can help you with these or any other tax or accounts matters.
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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.