Do the Self Employed qualify for maternity pay?
Q: I am expecting a baby in October, and will be temporarily ceasing my sole trader business. I need to know if I am entitled to any benefits such as statutory maternity pay, which I assume I am entitled to based on the fact that I have been paying regular National Insurance Contributions in respect of my business?
A: To qualify for maternity leave and statutory maternity pay, a woman must be an employee, that is to say, she must work under a contract of employment. In the same way that individuals who are self-employed are not bound by statutory legislation on, for example, sick leave or holidays, any period of leave to cover the birth of a baby will be a matter of personal decision.
However, as a self employed person you may be able to claim maternity allowance (as opposed
to the statutory maternity pay due to employees) to fund the period that you will not be working, assuming you satisfy the criteria outlined in the claim form.
You should contact your local TaxAssist Accountant or local jobcentre plus office for further details, or alternatively visit their website www.dwp.gov.uk .
Should I charge Vat on my holiday cottage rents?
Q: I run a vat registered sole trader business with a turnover in excess of £100,000. My wife has now retired and I am looking to purchase a holiday cottage in Norfolk. It is likely that I can rent the property out for £350 per week for approx 20 weeks from April to September, and use it out of season for weekend breaks with my wife. Should we consider anything before purchasing?
A: Assuming you rent the property for 70 days or more, and it is available to be let for 140 days in any one tax year, it will be taxed as a Furnished Holiday Let. This has favourable tax treatment for income tax purposes if you make a loss and capital gains tax purpose if you ever decide to sell it for a profit.
However, Landlords often forget that holiday accommodation is also standard rated for VAT. Even as the total rents of £7,000 are well below the VAT threshold, as you are the sole owner of the property you will need to charge VAT on the rents, as you also operate another VAT registered business.
One way to avoid having to charge VAT is to purchase the accommodation as a joint venture with your wife, not least for the income tax saving available now that your wife is now longer employed, to utilise her personal allowance. You will not need to charge VAT on the rents (unless you operate another VAT registered partnership with your wife), as it is treated as a separate entity for the purposes of VAT registration.
Can I reclaim VAT I paid prior to registration?
Q: My business is has been growing very steadily and I am very close to reaching the threshold for becoming VAT registered. A close friend - who also runs a small business - mentioned that once I reach the threshold for becoming VAT registered, I will be eligible to claim back the VAT from my previous two years of trading. Is this true?
A: Unfortunately not, you can only claim back the VAT on goods that you have acquired in the 3 years prior to registration which are still held in stock (or used to make other goods which are still held in stock) and originally acquired for the business purposes. This also includes VAT incurred on fixed assets you still use in your business. You can also recover the vat incurred on services, which have been supplied within 6 months prior to becoming registered, assuming they were also supplied for the purpose of the business. Therefore, any VAT suffered on goods which have been sold on to customers cannot be re-claimed.
Get paid to go to College!
Q: My sixteen-year-old son is starting college this September and claims some of his older friends get paid an allowance from the government for continuing their studies. Is he eligible?
A: He is probably referring to the Education Maintenance Allowance (EMA) - a scheme which financially incentivises students to stay in full time education. If your son turned 16, 17 or 18 in the year up to August 31 2006, and is entering year 12, 13 or a third year respectively of full-time education, or taking an academic or vocational course (up to level 3), which involves a minimum of twelve hours per week, he can claim the allowance. The amount payable depends on the family income (before tax). For example:
- Family Income up to £20,817 per annum / £30 per week
- Family Income from £20,818 - £25,521 per annum / £20 per week
- Family Income from £25,522 - £30,810 per annum / £10 per week
For more information visit www.dfes.gov.uk/financialhelp/ema/ or speak to your local TaxAssist Accountant.
Previous accountant refusing to provide records
Q: In 2005 I started my own business, and asked a local accountant to deal with my Bookkeeping, VAT returns, Income Tax Return and Accounts. I recently received his bill which is double the amount I had anticipated. I cannot afford to pay the fee in full, and have offered to give my old accountant 2 post-dated cheques to settle my account in full. However, he has now refused to provide my records to my new accountant. Do you have any advice on how I can get these records from him?
A: On the assumption that your previous accountant had made it clear to you at the outset what his charging structure would be, and you agreed to his terms, then yes, your accountant is perfectly entitled to retain your records while his fees are unpaid (technically, the right to retain records is called a lien). You would have to show that he was negligent or dishonest in his dealings with you to avoid that result.
You can request his Professional Institute to get involved if you feel you have been overcharged, and they may review the case. You can also ask the Institute to pressure him to return your records. Your new accountant can also write to the old one advising them that the retention of records may prevent the completion and submission of your returns for the deadline. They could also mention that this may result in penalties or interest being incurred as a result of their refusal and they could be held responsible for meeting these. Also the fact that you have offered to pay the outstanding fee in instalments is much more favourable than refusing to pay at all.
Payments for Loss of Earnings
Q: I have recently been awarded damages for loss of earnings due to my employer’s negligence. These have been reduced by an amount for Income Tax and National Insurance, is this right?
A: Yes, the court takes into account the gross salary that you would have received had you continued to work for your employer during your period away from work. A long-standing court case has set the precedent that the award should be reduced to what you would have received net of statutory deductions such as tax and national insurance. This ensures that you do not ‘profit’ from the award. However certain awards such as payments made in respect of loss of limbs or sight are not taxable, thus you are compensated in full for disabilities you will have suffered.
Discounted Mortgage Rate for Employees
Q: As part of my employee benefits package, my employers have offered me a mortgage at a discounted rate. However they have mentioned I will have to pay tax on this, is this correct and if so how it is a benefit to me?
A: Unfortunately it is correct. If an employer provides an employee with a subsidised loan, the employee will be assessed to a benefit in kind on the difference between the interest rate actually charged and what is known as the “official rate” of interest. You then pay Income tax (22% if you are a basic rate taxpayer, 40% if you are a higher rate taxpayer) on the value of the benefit received each year, so it is still beneficial to take up the low interest loan you have been offered.
At present the “official rate” is 5% and this will be frozen for the 2006-07 tax year, subject to review, in the event of significant rate changes. Therefore, if you were paying interest of say 3% on £60,000, which is £1800, you would be taxed on £1,200, which is the difference between 5% on £60,000 and 3% on £60,000. You would not be liable to make any National Insurance contributions as the employer will be liable to pay these direct at the end of the tax year.
Employee Death – PAYE procedure
Q: One of my employees recently passed away after a short illness. I have continued paying him up until his death under the terms of his contract, but I don’t know what I need to do with regard to the payroll now?
A: When you learn of the death of an employee you should complete a form P45 as normal for any employees who leave, write D in the box at the bottom of the form, and send all four parts of the form to your Inland Revenue office.
Obviously there may be some of the payments due to this employee made after the date of death. In this situation, you should make the payments of the outstanding wages to the personal representative of the deceased employee. Pay As You Earn deductions will need to be made on this, using tax code BR on any payments after you have completed the form P45 as advised above. Also all payments made after the date of death should continue to be detailed on the PAYE working sheet (form P11)
If the payments you are making fall into a later tax year than the one in which your employee died, you should deduct PAYE using the code BR and record details on a new form P11 in the name of the deceased employee. Again these payments should be made to the personal representative of the deceased.
Require Expert Help?
If you have these questions about your business then you should be using a better Accountant! TaxAssist Accountants are answering these kinds of questions for their clients all the time. Contact us now to become a part of this growing number.
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.
Printable 'Questions & Answers - August 2006' Page
