Luxembourg recently announced plans to raise its VAT rate from 15% (currently the lowest in the European Union). Whilst it is not yet clear what the new VAT rate will be, a rise of 1% to 16% is widely forecast.
The new rate will take effect from 1st January, 2015.
On-line retailers, who are not registered for VAT, have to absorb the cost of Luxembourg VAT on Ebay and Amazon fees. This is a small but unwelcome addition to costs that needs to be planned for.
Now that HM Revenue and Custom’s formal consultation deadline has passed, it seems almost certain that a major tax relief (the renewals allowance for fixtures, furniture, furnishings and moveable equipment) available to taxpayers who let out furnished and unfurnished houses will be withdrawn in April, 2013.
The allowance currently means that the like for like replacement of fixtures, furniture, furnishings and moveable equipment is tax-deductible against rental profits. This will not be the case after 5th April, 2013. So, if you own an unfurnished rental property and you know that, say, the cooker needs replacing, you should do it before April, 2013 to get tax relief.
Owners of furnished lets will continue to be able to claim the 10% wear and tear allowance. This is in place of claiming the renewals basis for furniture, furnishings and moveable equipment.
However, owners of furnished lets will also see their tax bills rise, as it will not be possible to claim for the cost of renewing fixtures (which can currently be claimed in addition to the wear and tear allowance). Fixtures are things which would not normally be removed if the property were vacated or sold (for example, baths, washbasins, toilets). As things stand, after 5th April, 2013, the cost of repairing a toilet is tax-deductible but not the cost of replacing it.
This is a complicated area. We hope this is clear. If you need further advice, please contact us.
In my previous article on this subject, I explained the opportunities and pitfalls in a employer providing a car to an employee. I explained the taxation effect of acquiring the vehicle either by outright purchase or on hire purchase.
One other commonly used option is for the employer to take out a lease contract to provide the car to the employee. Again, tax relief depends on a vehicles CO2 emissions and there are some changes planned for future years.
Currently, a business can deduct 100% of contract hire costs against business profits provided that the car’s Co2 emissions are 160g/km or less. There is a disincentive to taking out a lease for a car with higher emissions as legislation states that only 85% of the leasing cost of these cars is allowed against tax. This adjustment is made on the Corporation Tax computation. Please be aware that this restriction with apply to cars with emissions over 130g/km for leases signed after 1st April, 2013.
You will be aware that VAT is charged on contract hire charges. Where the vehicle is used for business purposes, 50% of the VAT (not all of it) can be reclaimed. Again, this is a common area of confusion. There is no distinction for VAT regarding CO2 emissions.
A common question about company cars is which is the best way of providing one to an employee – buy, take out an HP agreement or contract hire it. It is usually important to review a number of aspects of the business’s tax affairs in order to provide a clear answer.
I hope this article has given you some useful pointers on this subject. We would be happy to advise further.
In my next article, I will talk about the taxation of cars owned and used for business by sole traders and partners.
We are often asked about the tax reliefs available for the costs incurred when working at home. In this and a previous article , I intend demistify this for you and, hopefully, help save you some tax (or at least stop you falling into some nasty hidden traps).
In the previous article, I explained the issues faced by a Director of a limited company when trying to claim tax relief to defray the costs of working from home.
The simplest route for a Director to obtain tax relief is to charge the limited company rent for the use of his own premises. There are formalities that need to be followed including a board minute and a formal rent agreement. The Director has to show this rental income on his self-assessment tax return but will be able to claim back the incremental costs incurred as a result of working from home. We recommend that the rent charged is the same as the incremental costs incurred as a result of working from home.
Sole traders and members of partnerships are able to claim tax relief (as a cost to their business) on the same basis on the self-employed pages of the tax return.
Calculating the incremental costs of working from home
You need to work out what rooms (or floor area) you use for business, and how much you’re using that room (or floor area) is for business use as opposed to private use. So lets say, you have 8 rooms and use 2 of them for business use 50% of the time. You will be able to claim 1/8th of your household costs as business costs (50% of 2 rooms = 1 room; total number of rooms 8).
Costs that can be claimed on this basis include:
Other costs you could claim include
The claim would be based on your estimate of business v private costs.
There is some very good guidance on the HMRC web-site.
I hope this is article is useful. Please do hesitate to contact us if you require further information.
We are often asked about the tax reliefs available for the costs incurred when working at home. In this and a number of future posts, I will demistify this for you and, hopefully, help save you some tax (or at least stop you falling into some nasty hidden traps).
Firstly, it is important to understand that there are different rules for
a/ employees, including directors with an employment contract
b/ directors without an employment contract (office holders)
c/ sole traders/partners
In this post, we are going to explain the rules for employees, including directors with an employment contract.
However, before we do this, we need to explain why there are different rules for Directors depending on whether or not they have an employment contract.
If you are a company director you are automatically an ‘office holder’ in law. You are not entitled to receive the National Minimum Wage for the work you do as an office holder. If you also have an employment contract, you will be entitled to the National Minimum Wage for the work you do under that contract.
For the 2012/13 tax year, the main rate of National Minimum wage is £6.08 per hour. This means that a Director with an employment contract must, in law, be paid £11,856 per annum (assuming a 37.5 hour week). That is way above our recommended tax-efficient 2012/13 Directors salary of £7,600 per annum. We, therefore, usually recommend that full-time Directors do not have an employment contract (and will not be able to claim the working from home relief outlined below – but please see later article for a method of claiming releif). If a Director works 24 hours per week or less, you should consider issuing an employment contract and subject to other considerations pay a salary of £7,600 p.a. Working Tax Credit issues may also need to be considered.
Section 316A ITEPA 2003
If you are employed specifically to work at or from home, and have no alternative but to do so, you may be able to get tax relief on some of your household expenses. Similarly, if you volunteer to work at home under a ‘homeworking arrangement’. A homeworking arrangement is an agreement with your employer that you’ll work at home on a regular basis. Evidence may be required by HMRC.
Tax relief can only be obtained by your employer making these payments free of tax and NI.
You don’t have to work at home every day but there must be a regular pattern – for example two days at home and three days in your employer’s premises each week. The work you do at home must be work that you’re required to do as part of your employment.
Typically HMRC will allow claims for:
You won’t be able to get relief on domestic expenses that you’re paying anyway – like your mortgage or council tax. You also won’t be able to get relief for expenses that relate to both business and private use – such as your telephone line rental, or Internet access.
From 2012-13 onwards, for payments of up to £4 per week, or £18 per month for monthly paid employees, you don’t need to provide any records of the household expenses you’re claiming relief for. For amounts above £4 you will need supporting evidence to show that the amount you are claiming is no more than the additional household expenses you have actually incurred.
This type of claim is most appropriate where a spouse is employed part-time to work at home on administration. The annual tax saving for a sole trader using the uncontested £4 per week rate will be £60 (at basic rate). OK its not a lot of money, but it is simple to claim.
Section 336 ITEPA 2003
For completeness, I have included tax relief claims using the above legislation. This is the only option available to the employee where the employer does not pay a tax-free allowance.
Quoting from HMRC “Before a deduction can be permitted for a household expense it must be demonstrated that the expense has been incurred wholly, exclusively and necessarily in the performance of the duties of the employment…….. HMRC accept that those conditions are met where the following circumstances apply:
As I said, any claim here faces some very difficult hurdles.
I really hope this helps. Please watch out for future articles and, as always, if you need further advice do not hesitate to call us.
I am often asked whether VAT can be claimed back on employee’s mileage claims. This includes owner-managers who trade through a limited company and use their own vehicles for work purposes. The answer is yes…but you can only claim some of the VAT back. Mileage claims are most commonly paid based on HMRC’s authorised mileage rates (45p for the first 10,000 miles in the tax year and 25p thereafter). VAT cannot be claimed on the whole payment, but can be claimed based on the relevant HMRC fuel-only rate for the car in question.
Please click this link to get the current rates.
The easiest way to manually calculate the amount of VAT that can be claimed is as follows:
1/. Find the current HMRC advisory fuel rate for your vehicle (the table is based on engine size and fuel type)
2/. Divide this figure by 6 (whilst the standard rate of VAT is 20%)
3/. Multiply the figure in 2 by the number of miles claimed.
So if an employee is paid 45p per mile for 60 miles, the amount paid to the employee is £27.00. If the car is a 2000cc diesel (advisory fuel rate = 15p per mile), the amount of VAT that can be claimed is £1.50 (60 miles times 15pence divided by 6). For your VAT records, the goods amount is £25.50 with £1.50 VAT.
We do have an app for the iphone and ipad that will do this calculation for you. Please see the link below.
http://www.taxassist.co.uk/mobile-apps.php
I hope you find this information useful. Please do not hesitate to contact us if you need any further information.
We have developed a number of useful guides on various practical and theoretical issues which may affect your business.
A full list can be accessed by clicking on the link below. You can then select and request the guides you are interested in.
Index to our tax and business helpsheets
We hope you find this useful.
There are only 14 more days until the end of the 2012 tax year. There is still time to save some tax. The tax planning fact sheet below will give you some ideas.
Year end tax planner – 5th April, 2012
I would also like to remind you that sole traders and partnerships should buy capital equipment before 5th April, 2012 to obtain tax relief in 2011/12 tax year. Similarly, limited companies with a 31st March, 2012 year end will need to buy these assets before 31st March, 2012 in order to claim tax relief in the current year.
There are major changes to capital allowances in 2012/13. The Annual Investment Allowance is reducing from £100,000 p.a. to £25,000 p.a. There is also a nasty tax complication which may affect businesses with a non-March year-end. Please contact us if you plan to make significant asset purchases after 31st March so that we can advise you.
Please click on the link below to access our really comprehensive review of the Chancellor’s announcements yesterday.
There is lots of detail to follow and we will, of course research it all and identify any potential effects. Aside from the headline grabbers, it is disappointing to note the continued aggressive taxation of motor vehicles. If you have company vehicles, you need to consider some further tax planning.
The Shrewsbury Accountant’s review of March, 2012 budget
As always, if you need further advice, please do not hesitate to contact us.
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