Q. 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?
A. 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!
Q. 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?
A. 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. In that case, where 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.
Q. 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 socks I need to wear for work. Is there a limit on what I can claim?
A. 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.
Monday, 12 December 2011
Wednesday, 12 October 2011
Question and Answer Corner - October
Riots, Refunds and Restricted PAYE - it's all happening in this month's Q&A!
Q. My cafe 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?
A. 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.
Q. 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.
A. 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.
Q. 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?
A. 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.
Q. My cafe 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?
A. 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.
Q. 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.
A. 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.
Q. 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?
A. 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.
Thursday, 8 September 2011
September's Question & Answer Corner
So....summer is drawing to a close and autumn hails the start of the count down to tax season! At least you've got your favourite purple envelope to answer some tricky tax questions for you!
Q. 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.
A. 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.
Q. 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?
A. 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.
Q. 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. 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.
Q. 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.
A. 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.
Q. 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?
A. 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.
Q. 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. 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.
Wednesday, 3 August 2011
August's Question and Answer Corner
Hello! I can't believe that it's August already! Time flies when you're having fun with purple envelopes!
Here are the Q&As for August - keep 'em coming folks, I do love a tax riddle!
Q. 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?
A. 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.
Q. 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?
A. 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 + £7475) before you have to pay 40% tax. However, you must declare any rental income you receive to HMRC.
Q. 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?
A. 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 the employee is required to work past 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, or car sharing arrangements have broken down. In this case 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.
Here are the Q&As for August - keep 'em coming folks, I do love a tax riddle!
Q. 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?
A. 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.
Q. 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?
A. 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 + £7475) before you have to pay 40% tax. However, you must declare any rental income you receive to HMRC.
Q. 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?
A. 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 the employee is required to work past 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, or car sharing arrangements have broken down. In this case 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.
Monday, 4 July 2011
July's Question and Answer Corner
Thanks for all of the questions that you've been submitting to me on Twitter! It's always nice to know that people have the time to Ask Mr P about the odd tax niggle!
Here are some of the answers that I just simply couldn't fit into 140 characters!
July’s Question and Answer Corner
Q. 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?
A. 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.
Q. 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?
A. 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, there will be a personal tax charge.
Q. 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?
A. 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.
Here are some of the answers that I just simply couldn't fit into 140 characters!
July’s Question and Answer Corner
Q. 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?
A. 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.
Q. 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?
A. 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, there will be a personal tax charge.
Q. 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?
A. 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.
Wednesday, 1 June 2011
June's Q&A session
As always, here are the more in-depth answers to a few questions I've had this month. Keep them coming folks!
June Question and Answer Session
Q. 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?
A. 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.
Q. 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?
A. 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.
Q. 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?
A. 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.
June Question and Answer Session
Q. 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?
A. 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.
Q. 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?
A. 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.
Q. 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?
A. 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.
Tuesday, 3 May 2011
Mr P's Question and Answer Corner! - May 2011
Well, it's been a busy month here at Mazuma HQ. We've opened up our office in the USA and we've started to send out reminders to all our clients about their self assesment tax returns. I can't quite believe that we're into a new tax year and so far through 2011 already; I've been such a busy little envelope that time has just flown by!
Anyway, here are the slightly more complex questions that people have been asking me about on Twitter. If you want to ask me a question, then check out the rules for Ask Mr P and fire away!
May Question and Answer Section
Q. 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?
A. 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.
Q. 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?
A. First compare 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.
Q. 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?
A. 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.
Anyway, here are the slightly more complex questions that people have been asking me about on Twitter. If you want to ask me a question, then check out the rules for Ask Mr P and fire away!
May Question and Answer Section
Q. 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?
A. 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.
Q. 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?
A. First compare 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.
Q. 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?
A. 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.
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