Starting A New Business
Q: I am starting a new business from the 6th April this month. 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 both Tax and 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 2008, 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 154515, 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 £2.30 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 2008/09 tax year in April 2009.
Correction Of VAT Errors
Q: I regularly make mistakes on my quarterly Vat return and have to amend these errors. I recently read they are changing the limits for advising of VAT errors. Is this correct?
A: Under the current system, if the net errors total less than £2,000 you have the choice of using two methods to disclose the errors without being charged penalties. You can voluntarily disclose these errors either by contacting your local VAT Business Advice Centre in writing or by adjusting your VAT account and including the value of that adjustment in the next VAT return for the current period.
For all periods commencing after 1 July 2008 the limit has been increased to the greater of £10,000 or 1% of turnover, subject to an upper limit of £50,000. The only other change is that unlike the previous £2,000 limit where penalties were not charged, the HMRC have said you could potentially be charged a 30% penalty for incorrectly disclosing your VAT liabilities. You should therefore ensure that as soon as you become aware of any errors within these limits, you advise the HMRC immediately.
Buying My Old Work Laptop
Q: Over the last two years my employer has loaned me a laptop to work on at home and be available for personal use. This is going to be changed to a newer model and I have been offered the old one for my personal use. Will I have to pay any tax on this?
A: As a computer is termed as a “readily convertible asset” for tax purposes (i.e it is able to be sold for cash) then you will be charged a benefit in kind in the tax year in which it is transferred, and your employer will need to pay class 1A national insurance on the value. This should be reported on section A of your form p11d and you will need to make an entry on your tax return for the year.
The amount on which you are assessed is the second hand value of item at the date of transfer, less any amount reimbursed by the employer. Therefore if your employer obtains an independent valuation of the old laptop, and you agree to purchase it from them for this value, then there will not be a charge to tax for this.
Selling Shares At A Loss
Q: Last year I bought some shares in a number of Banks listed on the Stock Exchange. Due to the recent fall in values I have now decided to cut my losses and sell. Can I get any tax relief on this loss?
A: The sales of shares are assessed to Capital Gains Tax. When you incur a capital loss on the sale of any asset you can choose to either set the loss off against gains which you have made on the sale of other assets in the year, or carry them forward against future capital gains in later tax years.
At present, you have a requirement to only report gains on your tax return each year if the gain is greater than the annual exemption (for 2007/08 this is 9200) and the proceeds from the sale are greater than 4 times the annual exemption.
However, if you wish to obtain relief for the loss on the sale of these shares in a later period, you should report the loss on your tax return to ensure HM Revenue & customs are aware that it exists.
Mileage Payments to Passengers
Q: I recently attended a number of staff meetings where a certain amount of travel is required. My employer pays us mileage at 40p per mile and rather than everyone coming separately, they often ask us to carry passengers. Can I claim a greater amount for the fact that I have to take passengers to these meetings also?
A: if passengers are carried in a vehicle which is qualifying business travel, your employer can pay you an additional amount of 5p per mile for each passenger without creating any benefit in kind or national insurance liability for you, the driver.
Unfortunately, if your employer decides not to pay you more than the 40p per mile authorised rate, then no tax relief can be claimed on your tax return for the additional 5p per mile passenger payment.
It would be advisable to ensure that the staff doing the driving to get confirmation that they are insured to do so. Most insurers are happy with this type of business use provided that there is no element of profit involved.
Tax Free Incentive for Filing Payroll online
Q: I remember last year employers were offered a £250 tax free payment to file their end of year PAYE returns online. Is this still available for the current tax year and how do I register?
A: Yes, HM Revenue & Customs require small firms (those with less than 50 employees), to start using online filing for their end of year forms P35 by the 2009-10 tax year. (returns due by 19 May 2010). However, to encourage employers to familiarise themselves with the process they introduced tax free filing incentives commencing in the 2004/05 tax year.
This is the 4th year of the filing incentive, and even if you haven’t submitted online before, you can still take advantage of these payments, and if you file your PAYE end of year form P35 for the 2007/08 tax year, (which is due by 19 May 2008) you will receive £100 tax free. Again, if you file online for the next tax year will receive a further £75 tax free.
To qualify for the payments the form must meet HM Revenue & Customs standards and you must therefore use an approved piece of software to file the forms electronically. For details of how to file online, contact your nearest TaxAssist Accountant.
VAT on cessation of trade
Q: I am ceasing my VAT registered business at the end of this month. I am keeping personally a number of small tools and equipment which I used for the business, and also some left over stock which I have not managed to sell. Will I have to pay over any VAT on these?
A: You must remember that when ceasing to trade, you should notify the Revenue and Customs within 30 days of the date you cease. Once they receive this notification, they will send out a final VAT return for you to complete.
If you still have any goods, stock or assets on hand at the date of deregistration, you must pay VAT on the market value of items exceeds £6714.28, which is equivalent to £1,000 in output VAT. If the items are valued below this figure, then you will not have to pay over any VAT.
It would be sensible to keep a list of the stock and its value together with an estimate of the value of the equipment in case this is queried by H M Customs & Excise. If you can obtain a written valuation from the supplier this would be ideal; otherwise you could relate the value to advertisements for similar second hand goods.
Tax Relief on Trading Losses
Q: I am coming to the end of my first year of trading and believe I have made a substantial loss. Someone said I could go back and claim this against previous income, is this true? Prior to starting my new venture I was employed over the last 4 years paying tax at 40%.
A: You have a number options with regard to claiming relief for the income tax loss you have incurred in your first year of trading. You can offset the loss against the income you earned in previous tax years. The options you have are to:
• carry the loss back against other income you received in the tax year arising 3 years previous or
• set it against other income in the tax year of the loss , or
• set it against other income in the previous tax year.
You will reduce your total taxable income by the amount of the loss and as you are a higher rate tax payer in all of these years you will effectively receive up to a 40% tax refund for the losses you have made. If circumstances were different, and neither of these is beneficial, you can instead chose to carry the loss forward and set it against future profits from your business.
One other useful point to note is that you are also entitled, under any of the options above, to obtain National Insurance Class 4 relief for the losses. This can provide you up to a further 8% relief through a reduction in your National Insurance liability on future profits from your business.
In all cases it is best to seek professional advice from an accountant on this subject, as they can establish which option is most tax efficient, and provides you with the greatest tax refund.
Claiming Trading Loss relief against Capital Gains
Q: I am coming to a particularly bad year of trading, and believe that I have made a substantial loss for my business this year. I had to sell a number of shares I own in the tax year to supplement my living expenses. Can I claim relief for some of my trading losses against the Capital Gains I have made on the sale of these shares?
A: Yes, there is a relief available which allows you to offset self-employed losses against any capital gains you have made in the same tax year.
However, you must first offset the trading losses against your total other income for the tax year, even if this means losing the benefit of your tax free personal allowance. Any excess can then be extended under section 72 of Finance Act 1991 and set against your chargeable capital gains (after capital gain losses have been accounted for) for the tax year.
If you do not have any other income in the tax year this will result in a relief claimable up to the amount of your trading loss claimed against your gain of £30,000. This will result in a significant fall in your Capital Gains Tax liability. Your local TaxAssist accountant will be able to advise how you make the claim on your tax return.
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