Financial Store

This article relates to UK Value Added Tax (VAT).

The VAT flat rate scheme for small businesses is generally straight-forward to operate, but here are a few traps to watch out for.

Use the right rate
You will be aware that the standard rate of VAT increased to 20% on 4 January 2011. The flat rates used by traders in the flat rate scheme to calculate the VAT to pay to HMRC also changed from that date. Did you remember to apply the new rate for your business sector? Check whether you applied the correct flat rate from 1 January 2010 to 3 January 2011 when the standard rate of VAT was 17.5%, and from 1 December 2008 to 31 December 2009 when the standard rate was 15%.

Include all business income
You need to apply the flat rate for your business sector to all your business income, including income that is exempt from VAT such as rents. If you are self-employed and operate your VAT registered business in your own name, any income from property you let in your own name must also be subject to the flat rate scheme.

This applies whether or not you consider the lettings to be part of the VAT registered business. If you run your VAT registered business through a company and hold the let property in your own name, the flat rate scheme operated by the company will not include your rental income.

Bank interest
If you receive interest in your business as a core part of your business activities that interest should be included in the turnover to which you apply the flat rate. This could apply to businesses who handle large sums of money on behalf of clients and keep a share of the interest as part of the deal. However, where the interest is received as a passive activity, such as on a current or deposit account it is outside the scope of VAT and should not be included in the sum to which you apply the flat rate.
 
For tax tips and information visit the Bridgend Accountants or Cardiff Accountants websites. If you require help in dealing with VAT it is recommended to contact a Chartered Accountant.
 
The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and information contained within it may be out of date.

This article is written by a UK Chartered Accountant and relates to the UK tax system.

In October and November last year the news was that the Taxman was issuing 6 million tax reconciliations (forms P800), for the tax years 2008/09 and 2009/10. This process is still not complete, but the Taxman has started to issue a further 450,000 forms P800 for the tax year 2007/08.

There are likely to be similar problems with inaccurate data for 2007/08 as have emerged for the later tax years, but you may not have the records to check against the Taxman’s figures. If you do not run your own business you are only required to retain your tax records for 2007/08 until 31 January 2010. If you need some help checking a tax calculation for 2007/08, please contact us.

The Taxman has also discovered that the State Pension received by up to 250,000 pensioners in 2008/09 and 2009/10 has not been taxed as it should be. When a person retires they normally receive an occupational pension paid by their former employer, or an annuity paid from their personal pension scheme. In either case the payments will be subject to PAYE and will have some tax deducted by the payer. The pensioner may also receive the State Pension, which does not have tax deducted by the payer (i.e. Department of Pensions), but it is taxable.

The PAYE code applied to the occupational pension or annuity should take into account the amount of State Pension paid, but for up to 250,000 pensioners in 2008/09 and 2009/10 it did not! This meant those pensioners paid too little tax through no fault of their own. The Taxman will not collect the tax due in these circumstances, but only where he can identify the State Pension has been missed altogether.

If you receive a P800 tax reconciliation which shows tax has been underpaid due to an inaccurate figure of State Pension, you have good grounds for asking the Taxman to write-off the tax due under Extra Statutory Concession A19. This concession applies where the Taxman failed to make use of information (such as the State Pension figure provided by the Department of Pensions), to calculate the right amount of tax. We can help you apply for the A19 concession.

For specific taxation advice it is recommended that you contact a firm of Chartered Accountants.

For tax tips and information visit the Accountants Bridgend website.

The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and information contained within it may be out of date.

This article relates to UK taxation.

Q. 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?

A. 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.

Q. 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?

A. 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%.

Q. 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?

A. 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.

For specific taxation advice it is recommended that you contact a firm of Chartered Accountants such as Accountants Pontypridd.

For tax tips and information visit the Cardiff Accountants website.

The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and information contained within it may be out of date

These questions relate to UK tax.

Q. 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?

A. 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.

Q. 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?

A. 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 from his GP (now called a ‘fit note’). Don’t forget you can reclaim the amount of SSP that exceeds 13% of the class 1 NIC due for the month of payment.

Q. 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?

A. 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.

For specific it is recommended to contact a Chartered Accountant such as Bridgend Accountants.

For tax tips and information visit the Accountants Cardiff website.

The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and information contained within it may be out of date.

This article is written by a UK based Chartered Accountant and relates to UK tax law.

Furnished holiday lettings have some specific tax advantages. On 9 December 2010 the Government released draft tax legislation that is expected to become law from April 2011. This draft law includes three major changes to the taxation of furnished holiday lettings.

1. Separate FHL businesses. In April 2009 the Government announced the tax reliefs that apply to property let as furnished holiday accommodation (FHLs) in the UK, would also apply where the property was located in a European Economic Area (EEA) country. These EEA countries comprise all 27 EU member states plus Iceland, Liechtenstein and Norway. From 6 April 2011 (1 April 2011 for companies), the profit or loss from FHL property let in EEA countries other than the UK, must be calculated separately from the profit or loss arising from UK holiday lettings. Profits and losses from any other overseas lettings must also be calculated separately and not mixed with the FHL profit or loss.
2. Restriction of loss relief. Losses made from FHL businesses after 5 April 2011, either in the UK or elsewhere, won’t be available to set against your other income for the same tax year, or the previous tax year. The loss can only be set against future profits from the same FHL business (either UK or EEA based).
3. Change to lettings condition. The periods a property must be let to qualify for the FHL tax reliefs are extended from 6 April 2012 (1 April 2012 for companies). The property must be let commercially as furnished holiday accommodation for 105 days per year (previously 70), and be available for letting for 210 days (up from 140). If you let a number of FHL properties you can average let days across all your FHL properties in the UK for a tax year. You can also average the let periods for all your other FHL properties located in other EEA countries.

Once a property qualifies as furnished holiday lettings, it may fail the letting condition for up to two years and continue to qualify, if you elect for the FHL tax status to apply.

For tax tips and information visit the Bridgend Accountants website.
 
The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and information contained within it may be out of date