Investing in Water Saving Technologies.
Q: I run a small manufacturing company and I am looking to refit my staff room with a number of new sinks and sanitary ware. I have spoken to a supplier who has advised some of the products I am looking at qualifies for First Year Capital Allowance at 100%. Is this true?
A: In 2001, the government introduced a scheme which allows businesses investing in technologies and products that encourage sustainable water use to reclaim 100% Capital allowances on the expenditure incurred. A joint venture was developed between HM Revenue & Customs, DEFRA and The Carbon Trust, which is an independent company funded by Government.
Various types of expenditure will qualify for the 100% Capital Allowances, if they meet the required standards outlined by the Enhanced Capital Allowance Scheme for Water Technologies. This will enable businesses to write off the whole cost of their investment against their taxable profits of the period during which they make the investment.
To see if the items concerned qualify for the increased allowance and for further information on the scheme, visit www.eca.gov.uk and click on “water” . Each year the government adds further items to this list in their annual budget update. Your local TaxAssist Accountant will be able to advise on this further.
Are my subscriptions allowable for tax purposes?
Q: I am employed by the NHS and pay a number of annual subscriptions to professional bodies such as the Royal College of Nursing. Am I entitled to tax relief on these payments?
A: If you are employed, you are entitled to claim a deduction for costs you have incurred that relate “wholly, exclusively and necessarily” to your employment which have not been reimbursed by your employer.
Annual subscriptions paid to professional bodies will be allowable provided it is paid to body approved by the HMRC and the activities of the body directly benefit, or concern the profession practised in, the employee in the performance of their duties of employment.
HM Revenue & Customs publish a list of the approved bodies to which they allow tax relief for annual subscriptions (list 3 is available on the www.hmrc.gov.uk website). The Royal College of Nursing is on the list, together with a number of other bodies relating to your profession, so if you have not been reimbursed in full by your employer you should speak to your accountant to discuss the submission of a claim. You are also entitled to make a claim for up to 6 years previous if these also have not been reimbursed.
In addition to tax relief on your annual subscriptions, you and your colleagues may also be entitled to claim tax relief on expenses of maintaining and laundering equipment and uniforms that is necessary to carry out the duties of your employment.
The HMRC have agreed flat rates for specific categories of workers such as you, who are obliged to spend small amounts each year in this way and these are also available on their website.
Do I need a property rental licence?
Q: I own a large three storey property near the local university, and have considered renting the 5 rooms to students in the forthcoming academic year. I have heard recently that I may need to apply for a licence from the local council to rent my property in this way. Is this true?
A: If your property is classified as a House in Multiple Occupation (HMO) under new legislation, then from 6th April 2006 you may need to pay a licence fee to your local council in order to continue letting the property. Part-time landlords like you, who view their properties more as an investment or pension, rather than as a business, are most likely to be most affected as the fee can vary from £400 to £1,000 depending on area and you may also be obliged to carry out additional work on the property.
The main objective of the licence is to ensure that sub-standard properties are no longer being let. If you choose to do nothing, the next time you hear about the Act may come in the shape of an enforcement notice through the letterbox, with a demand to apply for a licence within 28 days - or cease renting.
Previously, an HMO has meant a group of bed-sits, a hostel or a rehabilitation centre, not a residence. However, a change made in the 2004 Housing Act means rented property containing at least three unrelated individuals is now legally classifiable as an HMO - and that means it is licensable. However, licensing is at the discretion of local authorities and, in most cases, only properties with three or more floors and five or more tenants will be termed an HMO.
National government and local councils are preparing a nationwide press campaign with advertisements on the television and radio campaign to raise awareness about the new Act, but in the meantime if you require more information visit www.propertylicence.gov.uk.
How will the VAT Flat Rate scheme help me?
Q: I have exceeded the VAT threshold and will be registering for VAT at the end of the current month. I am not great with administration aspects of my business and accounting for VAT is going to take a lot of time that I don’t currently have. Are there any schemes which will make accounting for VAT easier?
A: Yes there are. HM Revenue & Customs have three simplified accounting schemes for small businesses, one of which is the “Flat Rate” scheme. If your business has a taxable turnover (excluding VAT) up to £150,000 you may be eligible. You are also able to join on initially registering for VAT if you expect your turnover to be under this threshold for 12 months from registering.
The flat rate scheme saves you time, by simplifying your VAT accounting into a single calculation. Under the scheme, you pay VAT as a percentage of your turnover instead of having to work out and record the VAT on all your sales and purchases.
The percentage is determined by the type of business (that is, the kind of goods or services being traded) and this varies between 2 and 13%. It makes your life easier as there is no input tax to account for (although a business can reclaim VAT on capital items costing over £2,000). Additionally, businesses on the scheme may take 1% off the flat rate they are using for the first year they use the scheme.
You must leave the scheme when your turnover (excluding sales of capital assets) exceeds £225,000. You can however voluntarily leave the scheme at any time but you must let the HMRC know in writing, and if you do decide to leave, you cannot rejoin it for 12 months.
There are certain businesses excluded from using the scheme so you should contact your accountant to discuss registering for the Flat Rate scheme.
Declaring Rental Income in your wife’s name
Q: I recently purchased a second property in joint names with my wife to let out. The deeds show joint 50:50 ownership of the property. However, as I am already paying tax at higher rate and my wife does not work, can she declare all the rental income on her tax form because she is a lower rate payer?
A: If a husband and wife own a property jointly, for rental income purposes, by default, half the income is attributed to him, and half to her.
Unless the rental property it is actually owned in a different proportion than 50:50 and this is evidenced by the ownership deeds of the property, then the income received should always be as a half share to the husband and a half share to the wife.
If you wish for your wife to take advantage of her tax free personal allowances and lower rate of tax by receiving more of the rental income, you will need to make her owner of the flat in the proportion that you wish to declare the rental income. For example, if you wish for 90% of the rental income to be declared by your wife, you have to make her a 90% owner of the property by changing the ownership deeds, and advising the HMRC of the different ownership proportions.
You will also need to consider the Capital Gains Tax and Stamp Duty Land Tax implications of transfer, and should therefore always take advice from your accountant before proceeding.
Is Principle Private Residence relief available?
Q: I currently live with my parents and own a buy- to-let property which has increased in value quite substantially over the last 3 years. I am now looking to sell this, and as I do not own another property am I able to nominate this as my residence to benefit from the Capital Gains tax relief available?
A: The Capital Gains tax relief you refer to is Principle Private Residence (PPR) relief. This is only available to the owner of a house if he occupied it as his only or main residence. Unfortunately, an intention to occupy it is not sufficient to qualify for this relief.
It is not necessary to have lived in it as the only or main residence for all the period of ownership, but it must have been occupied for at least part of the period of ownership as your only or main residence.
HM Revenue and Customs state that to qualify, “residence is one of quality rather than the length of occupation which determines whether a dwelling-house is its owner's residence”. A dwelling house must have become its owners home at some point during ownership even though no minimum qualifying period of occupation is required to qualify for the relief.
There is an exception to this rule if you live in job related accommodation and own an interest in a dwelling house which you intend to occupy in due course as your only or main residence. Provided it was always your intention during to live in the property, PPR relief will be available for the period concerned, even if it is being let out whilst you are living in another property for the purposes of your job.
Renting a Room in your house
Q: I have a spare room in my house and both my wife and I have considered letting this out. I've noticed that an annual rent of less than £4,250 is tax exempt. Is this correct?
A The £4,250 tax free amount is available if you are using the “Rent A Room” scheme. Under “Rent A Room” a taxpayer can be exempt from income tax on profits from furnished accommodation in their only or main home if the receipts they get (that is, before expenses) are £4,250 or less.
If the receipts exceed the £4,250 exemption limit, you can choose to be taxed on the gross receipts as an alternative to preparing the standard profit and loss account for the rents received. This may in some case be more favourable if the rents only slightly exceed the exemption limit.
Unfortunately, as you rent the property with your wife, you cannot both benefit from the exemption limit of £4,250. If more than one person is letting a room in the same home, the limit is reduced to £2,125 for each person receiving rental income.
The “Rent A Room” scheme only applies to ordinary lettings of living accommodation in the taxpayer’s own home. You cannot apply it where the rooms(s) are let as an office or for other business purposes.
You should ensure that when claiming “Rent A Room”, this method is more beneficial than establishing your profit after expenses, as you have the a choice of which method to use.
Going Self Employed
Q: I am thinking of going self-employed from the 6th April this year. A friend who is in business said I had to register as self employed. Can you please tell me how to do this and how soon do I have to register?
A: You have to be registered as self employed for National Insurance purposes within three months after the end of the month in which you became self-employed. In your case you would have to be registered by 31 July 2006, and failure to do so will result in a £100 fine.
There are various ways to register. The most popular ways being either by telephoning the Self Employed Registration Helpline on 08459 15 45 15, or by filling in form CWF1 which can be obtained from your local Inland Revenue office. In each case you will need to give your full name, address, post code, date of birth, national insurance number and, if you wish to pay the Class 2 national insurance of £2.10 per week by standing order, the details of the bank account from which it will be paid. The form will act as a joint notification for both Tax and National Insurance purposes and you will receive a 10 digit Unique Taxpayer Reference (UTR) for tax purposes, together with a tax return to fill in for the 2006/07 tax year in April 2007.
Capital allowances on Taxis
Q: I started a taxi business last year and business has been so profitable that I am now looking to employee my son as driver and purchase another vehicle. I am looking to purchase a new vehicle for a “on the road price” of £18,000. How is the cost dealt with for tax purposes?
A: The total cost of the vehicle will qualify for Capital Allowances, and assuming it is a “qualifying hire car” it will qualify as Plant and Machinery for this purpose. First Year Allowances will therefore be available on the full cost of £18,000 in the period the vehicle is acquired. If the vehicle is acquired prior to 5 April 2006 it will qualify for a First Year Allowance of 40%. However, if you delay the purchase until after this date it will qualify for the increased 50% First Year Allowance which was announced in the pre-budget report in December.
A “qualifying hire car” is a car provided wholly or mainly for hire to or the carriage of members of the public in the ordinary course of a trade and satisfies one of the three conditions outlined by the HMRC legislation. Your accountant will be able to provide you with further details on this.
You must also remember to ensure that if your son receives private use of the vehicle, he will be assessable to a benefit in kind based on the CO2 emissions level of the car. Equally, if he receives private fuel in addition to the use of the car, a benefit in kind for this will also be applicable. You will need to produce and submit end of year forms P11d and P11d(b) disclosing these benefits to the HMRC by 6 July after the tax year end in which the benefits are received.
Construction Industry Deductions for a LTD Company
Q: I run a small building maintenance company and some of the work we do falls under the Construction Industry Scheme. Consequently, the business who contracts us for the work deducts 18% tax at source under the scheme on all amounts we invoice for labour. Can we offset these deductions against our Corporation Tax liability, and if so, how?
A: Before 5 April 2002, companies that had deductions made from their income as subcontractors like you, were only able to use these deductions to reduce their final Corporation Tax bill.
However, from 6th April 2002, subcontractor companies having 18% deductions made from the income are able to set off these deductions against the monthly or quarterly payments due to the Inland Revenue. They are set against the PAYE & NIC deductions of any employees that you may have and, if applicable, from any CIS deductions you have made from sub contractors you use.
These amounts are incorporated into the Employers end of year return, the P35 and if there is a balance at the end of the tax year owing to you, it will be refunded to you once the form has been processed.
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By TaxAssist Direct Ltd. Both answers and advice are offered strictly on the basis that no legal liability is created thereby. Personal circumstances may vary and TaxAssist Direct Ltd advises that individuals seek personal professional advice in all situations.
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