FAQs

FAQ #70 – Electric cars – what are the tax rules?

For the most part, the tax treatment of running an electric car is the same way as conventionally powered vehicle: For a sole trader, all of the running costs are claimed as an expenses, but a proportion for ‘private use‘ is added back to profits for tax purposes; With a…

FAQ #69 – As an employer you may want to reward an employee for working hard or in recognition of long service, particularly when they reach a significant milestone such as 25 years of service. However, can you do this tax free?

Unfortunately the answer is no, but it is possible to make tax free non-cash awards to employees with no less than 20 years service provided the value of the award does not exceed £50 for each year of service for which the employee is being rewarded. This rule does not…

FAQ #68 – A self- employed cellist suffers from back pain which is made worse by long periods of sitting still, particularly during concert performances, so she pays for regular visits to a chiropractor. Are the costs of treatment deductible from income for tax purposes?

The courts were asked to consider a similar case of a professional guitarist who paid to have medical treatment on a finger injury which was preventing him from playing. His costs were found not to be allowable because he also played the guitar as a hobby so there was “duality…

FAQ #67 – Mr B intends to help his daughter buy her first home by taking a 25% stake in the property. He will continue to live in his current main residence. Will the higher rates of stamp duty and land tax for additional residential properties apply?

Yes.  When a property is acquired by joint owners the higher rates apply if the transaction would have been a higher rates transaction for any of the joint purchasers considered individually. Mr B is buying an interest in an additional residential property which is not replacing his main residence so…

FAQ #66- I Filed my tax Return Late – What Can I Do?

If you file your tax return late HMRC will issue with an automatic penalty, starting at £100.  However if you have a ‘reasonable excuse’ for filing late, then HMRC’s guidelines state that an appeal can be against the penalty within 30 days of the date of the penalty notice. There…

FAQ #65 – I’ve acquired a buy to let property and will be carrying out some repairs before taking on tenants. Will the costs quality for a tax deduction?

  The answer very much depends on whether the costs relate to genuine repair and maintenance and not to works which result in significant improvement over the asset’s original condition. The cost of such works will be treated as capital.   It is generally accepted that the cost of routine…

FAQ #64- Mrs S wants to put some of her substantial savings into the names of her children, who are all under the age of 18. Will the children be taxed on the interest that is earned from those savings?

Children’s income is theirs in their own right, no matter how young they are. They are also entitled to the full personal allowance. However for a child under 18 and unmarried, this does not apply to income that come directly or indirectly from a parent. Where it has come from…

FAQ #63 – Are Disabled customers exempt from paying VAT?

Mr S runs a repair garage and a customer has asked him to fit new tyres and alloy wheels to his vehicle.  The customer is disabled and has provided Mr S with an exemption certificate stating that he should not be charged VAT.  Mr S is sure this is not…

FAQ #62-What is the Personal Savings Allowance and how can I claim it?

From 6 April 2016 a basic rate taxpayer will be able to earn up to £1000 in savings income tax free.  Higher rate taxpayers will be able to earn up to £500.  This is called the Personal Savings Allowance. This means that most people will no longer pay tax on…

FAQ #61-What are the new stamp duty land tax rules?

Mr Smith has asked for clarification on the new stamp duty land tax rules. He owns his own home which he lives in and also an investment property. He is about to sell his own home and buy a new one. Based on these confusing rules does the additional rate…

FAQ #60-WHAT IS THE SDLT SURCHARGE?

Put simply, the Stamp Duty Land Tax surcharge is an additional 3% SDLT charged on the purchase of a second residential property – this includes holiday homes, buy-to-let’s and land – from April 2016 onwards. It also applies to ‘non-natural persons’ (eg a company or a trust) buying first or…

FAQ #59-STAFF DAYS OUT – WHAT CAN I CLAIM AGAINST TAX?

The rules for taking your staff for a summer social are the same as for Christmas parties – the expense is allowable as a deduction from profit if the following conditions are met: The cost per head is no more than £150 – this is for all forms of staff…

FAQ #58-WHAT TAX DO I PAY WHEN I SELL MY BUSINESS?

The answer to this will depend on what you’re selling: If you are a sole trader/partnership, you will pay income tax on the profit on any trading assets (eg stock, plant and machinery) Other assets such as land/buildings or goodwill will be subject to capital gains tax (CGT) If you…

FAQ #57- I’m Buying A Business – What’s it Worth?

When you buy a business the value is in its ability to generate profits in the future. There are a number of key components that will determine a company valuation: What’s on the balance sheet? If the balance sheet shows assets which can be valued with certainty, these will be…

FAQ #56-You Can’t Get Tax Relief on Buy-to-Let Interest Anymore, Right?

Fortunately, that’s incorrect. In this summer’s Budget the Chancellor announced that interest relief on Buy-to-Lets would be restricted to the basic rate of income tax only, not higher rates. To ease the pain, the changes are only coming in from April 2017 and are being phased in as follows: 2017/18…

FAQ #55-What Does ‘Dividend Tax’ on my Tax Code Mean?

As usual for this time of year, HMRC have been issuing new tax codes ahead of the 2016/17 tax year. What’s different this year though is that some of them are being adjusted for the new tax that’s payable on company dividends. To recap, whereas dividends were taxed at an…

FAQ #54 – Will I Have To Do Four Tax Returns A Year For My Business?

In the March 2015 Budget, the Chancellor announced, to most people’s horror, that they were introducing ‘digital accounts’ that would effectively report profits to HMRC on a quarterly basis. This caused a huge outcry and a petition was raised which eventually led to a debate in Parliament . HMRC have…

#53 – Can I Claim For Time Spent Repairing My Rental Property?

I own three rental properties and spend a considerable amount of time each year undertaking various necessary repairs. Can I pay myself say, an hourly rate, for the time I spend on the properties and claim a corresponding deduction in my accounts? Any amounts taken from the property rental business…

#52 – How do I treat tips during the festive period?

My client has just opened a restaurant and has several staff on his payroll. Over the festive season he is expecting business to pick up and tips received to increase. What will the tax treatment be on the tips received? The way the tips are treated will depend on who…

#51 – When Are Christmas Gifts Tax Deductible?

HMRC aren’t generally known for their generosity, but even they get into the Christmas spirit (a bit!). You are allowed to give Christmas gifts away to the maximum value of £50 per recipient and claim a tax deduction. They can be given to both staff and customers/suppliers, providing that the…

#50 – Residential Letting – Is a Company Structure Viable?

The ‘old’ view was almost always keep rental properties in your own name, rather than putting the properties into a company. The main reason for this is down to Capital gains tax – in a nutshell individuals get the first £11,000 of gains tax free each year, whereas companies do…

#49 – You Can’t Get Tax Relief on Buy-to-Let Interest Anymore, Right?

Fortunately, that’s incorrect. In this summer’s Budget the Chancellor announced that interest relief on Buy-to-Let would be restricted to the basic rate of income tax only, not higher rates. To ease the pain, the changes are only coming in from April 2017 and are being phased in as follows: 2017/18…

#48 – Tax On Company Dividends – Updated

As we reported last month, this summer’s Budget saw the Chancellor introduce major changes to the way tax is paid on dividend income. We have now received updated advice from the Institute of Chartered Accountants on some of the technical aspects of how the tax works. The most significant of…

#47 – Tax on Company Dividends

This summer’s Budget saw the Chancellor introduce a new measure that almost crept in unnoticed – a controversial new tax on company dividends, adding yet more complexity to the already burdensome tax system. In summary, from April 2016

#46 – I’m Selling My Stuff on eBay. Am I Self Employed?

Selling old and unwanted items has been made much easier with the advent of online platforms such as eBay and Gum Tree; but are these transactions taxable, and does the seller become self employed? As is often the case with tax, the answer is ‘it depends’. Each case will be…

#45 – How Do I Claim The Married Allowance?

The Married Allowance is available to spouses and civil partners who have income of less than £10,600, enabling them to transfer up to 10% to their other half, as long as the recipient is not a higher rate taxpayer. Taxpayers can initially register with HMRC on their website.  HMRC will…

#44 – What is the Deficit?

The Deficit (or Budget Deficit) is a hot topic in the run-up to the General Election. But what is it and why is it so important? The deficit is the gap between the government’s income and its expenditure. For 2014/15 the figure is expected to be £90bn, ie the government…

#43 – Can I Put Childcare Costs Through My Business?

As unfair as it may seem, if you are a sole trader or in a partnership, the answer is ‘no’ you cannot put childcare costs through your business, but if you have a limited company then ‘yes’. Well, sometimes anyway. The simple reason is that the rules apply to employees,…

#42 – What Tax Do I Pay on a Company Car?

The amount of tax paid by company car drivers depends on three factors: 1. The listed cost price of the car when new (not what you actually pay) 2. The CO2 emissions rating of the vehicle (available here from DVLA) 3. The rate of tax paid by the driver Example 1: a…

#41 – What Happens If I Pay My Self-Assessment Late?

One of the worst things HMRC could have done is set up a tax system that creates bills at the one time of year when everyone has no money… The key date is 31st January 2015, which is the date for paying any unpaid tax for the year ended 5 April…

#40 – What Tax Do I Pay On An Overdrawn Director’s Loan?

One of the basic principles of having a limited company is that you pay tax when you take money out of your company, be it as a director or a shareholder. To make the day to day finances simpler, most owner/managers draw money from their company through their Director’s Loan…

#39 – When are Christmas Gifts Tax Deductible?

HMRC aren’t generally known for their generosity, but even they get into the Christmas spirit (a bit!). You are allowed to give goodies away to the maximum value of £50 per recipient and claim a tax deduction. They can be given to both staff and customers/suppliers, providing that the following…

#38 – What Does my Tax Code Mean?

Your Tax Code (or PAYE code) is a way of making sure you get you get your tax free Personal Allowance (PA) offset against your earnings from salary, wages or pensions. So, you start out with the basic PA which is currently £10,000. The total is divided by 10 to…

#37 – Where can I go if I’ve lost my NI Number?

If you’ve lost or can’t remember your NI number, and you’ve checked any correspondence from HMRC/DWP etc you can ask HMRC to confirm it by: completing and returning Form CA5403 – Your National Insurance number, or contacting the National Insurance Registrations Helpline on telephone 0300 200 3502. You will be asked some…

#36 – When do RTI Penalties come into place?

Since HMRC introduced the Real Time Information (RTI) system in April 2013, there have been a great deal of uncertainty as to when HMRC would implement penalties to those who report their PAYE liabilities late. This is mainly due to HMRC’s failure to have their own systems in order and constantly…

#35 – Payments on Account – Who has to pay and why?

31st July 2014 is the date for paying the second of two payments on account for the tax year ending 5th April 2014. The payment is usually 50% of the liability for the previous tax year, with the first being due on the previous 31st January. A payment on account is due if:…

#34 – My VAT Return WILL Be Late, What Are The Consequences?

If your VAT return is submitted late, or you can’t pay the amount owed on time, you may have to pay a percentage of the unpaid VAT as a penalty. This is known as a ‘default surcharge’. If you continue to submit returns or pay late, then the default surcharge…

#33 – Why Do I Pay Tax On Property Rentals When I Make a Loss?

This is a common problem faced by many residential property investors. The scenario often goes like this: a property is purchased with a view to making a capital gain in the long term, with the rental income being sufficient to cover mortgage payments and incidental running costs. This strategy is…

#32 – Research & Development Tax – How Does it Work?

Research & Development tax relief has two schemes, one for SMEs and one for larger companies. They work by inflating expenditure on R&D for tax purposes, so that the tax relief on the expenditure is far greater than the amount actually spent: SME scheme is for companies with fewer than…

#31 – Accommodation and Subsistence Expenses – What Can I Claim?

For business owners, the golden rule for claiming expenses is that they have to be incurred ‘wholly and exclusively’ for the purposes of the trade. As a general rule, you have to eat/sleep to live, not to work. However, it is recognised that if a business trip requires a period…

#30 – How Do I Get Tax Relief on my Personal Pension Contributions?

Pension contributions are a very tax efficient way of saving for the future. Unlike other investment vehicles, such as ISAs, you get tax relief on the money you put in as well having growth in a tax free environment. If you are self employed or an employee paying into a…

#29 – Tax Codes Are Changing, But Are They Correct?

HMRC will be issuing tax codes to employers for the new tax year over the next few weeks. But over recent years they have had a habit of making some strange decisions when it comes to issuing new codes. So what do you look for and how do you know…

#28 – What Happens If I Pay My Self-Assessment Late?

One of the worst things HMRC could have done is set up a tax system that creates bills at the one time of year when everyone has no money… The key date is 31 January 2014, which is the date for paying any unpaid tax for the year ended 5th April…

#27 – Self Assessment Tax Payments! What, When & How?

There are two ways to pay your tax: 1.  By having your tax code adjusted – this only applies if you pay under PAYE 2.  By making a direct payment to HMRC If you want HMRC to collect the underpayment through your PAYE code •  the bill must be less…

#26 – I’m Think About Exporting, What Are The VAT Implications?

The answer to this will depend on whether you sell goods or services, and whether or not the export is inside or out of the European Union. Export of Goods Exporting outside of the EU • Sales are Zero rated • You need to keep documentary evidence that the goods…

#25 – I need funding, but the bank has said NO! Where do I go next?

The banks are still in a long-drawn out process of re-building their balance sheets following the 2008 crash. This process hasn’t been helped by the scandals that followed, such as LIBOR-rigging and PPI, all of which means that traders can be hard-pressed to get additional funding. However, there are a number…

#24 – How Does The Personal Tax Work On A Company Dividend?

This is something that often causes confusion with clients, so here’s an illustration of how it works with numbers to (hopefully) make it easier to follow! A Company makes a profit for the year of £20,000. It pays its tax bill of £4,000 so has £16,000 left. This £16K can…

#23 – Can I Convert The Garage Into An Office/Workshop?

The short answer is yes, but as you might expect there are tax consequences. The main result relates to the Capital Gains Tax exemption known as PPR Relief, which allows you to sell your home for a profit and not pay CGT. However this ddoesn’tapply to business premises, which would…

#22 – Can I Take My Spouse/Family On A Business Trip?

The simple answer is ‘Yes’, you can take whoever you like, but as you might expect the tax consequences aren’t as straight forward. Assuming that the said spouse/family members aren’t employed by the business then the following rules apply: Self employed/partnerships – the proportion of the costs that relate to the…

#21 – What Is The VAT Threshold & What Happens If I Don’t Register?

The current VAT threshold is £79,000. For most businesses, if your sales reach that level in a twelve month period then you should register. It’s important to remember that the twelve month period is not an accounting year, it is a rolling twelve months. So if your turnover is around…