Pay Entitlement For A Pregnant Employee
Q: One of our employees, who has only been with our company for 16 weeks, has just informed me that she is pregnant. What leave and pay is she entitled to?
A: All pregnant employees are entitled to ordinary maternity leave (OML), regardless of their length of service, provided proper notification has been given. Under changes announced from 1st April 2007, this lasts for a maximum period of 39 weeks and can start no earlier than the 11th week before the expected week of childbirth.
Your employee must notify you of her pregnancy and the date she wishes her leave to start no later than the 15th week before the week in which the birth is due. You then have 28 days to respond to the employee’s written notification and must set out in writing to the employee the expected date of return to work. Once this notification has been sent, you should assume that the employee will be absent for the full 39 week period. If the employee wishes to return to work prior to the end of the ordinary maternity leave period she must provide you with 28 days written notice.
To be eligible for Statutory Maternity Pay (SMP) an employee must have been continuously employed by you for 26 weeks ending with the 15th week before her expected week of childbirth (this is called the qualifying week), and have average earnings of at least the lower earnings limit for National Insurance contributions, which applies at the end of the qualifying week. Therefore, your employee will not be entitled to Statutory Maternity Pay, but can claim Maternity Allowance from the government.
For the first 6 weeks, SMP is payable at the earnings-related rate (equivalent to 90 per cent of earnings) and for the remaining 33 weeks at the standard rate as set by the Government, which is currently a maximum of £112.75 for the 2007/08 tax year.
Donating to A Raffle – VAT issues
Q: I run a pub/restaurant in a small village and our local football club are holding a fundraising raffle. We have agreed to donate a voucher for a meal for two with a bottle of house wine as a raffle prize. We have also agreed to donate part of the night’s bar takings to the club. How would we treat this for VAT purposes?
A. The voucher would represent provision of free hospitality to someone other than an employee and it would be treated as ‘business entertainment’ by HM Revenue & Customs. Unfortunately, this means that any input tax you incur on providing the “supply” will be disallowed.
In the case of a supply of catering it is likely that the majority of the components used to make up the meal will be zero-rated foodstuffs, but you should disallow the recovery of input VAT incurred on any standard-rated items given away, such as the alcohol or ice-cream for the dessert.
The fact you have chosen to donate a proportion of the bar takings does not reduce your VAT liability and output tax should still be accounted for on the full amount of the bar takings.
VAT exemption does exist for certain charitable fund-raising events by charities and other eligible bodies where they are advertised as such. More information on this can be provided from your local TaxAssist Accountant.
Gift of Money To Purchase a Home
Q: A friend of mine will be receiving £20,000 from a family member to buy a flat. What are the tax implications if the person making the gift dies soon afterwards?
A: The Gift of cash in this way does not have any income tax implication for the recipient. However you should make the family member aware of the Inheritance Tax (IHT) implications which apply. You can gift £3,000 per annum without any issue to IHT. In addition, £3,000 can be carried forward from a previous year if unused, making up to £6,000 IHT free. The balance of the gift is called a potentially exempt transfer (PET). This means that if the donor dies within 7 years there may be tax payable by the donor’s estate. Tapering provisions apply so the longer the donor lives the less the potential tax. The two extremes are that gifts made "on the death bed" are fully taxable, but gifts where the donor survives 7 years are not taxable.
In addition, to the £3,000 per annum exemptions there are specific exemptions for normal expenditure out of income, gifts on occasion of marriage, small gifts, gifts to spouses and other specific gifts.
The rules are very complex and if you are the donor, you should seek specialist advice from your local TaxAssist Accountant. The answer also assumes that the donee is not an executor or trustee of the donors estate. If he is, specialist advice will be required, as the answer will change.
Exchanging A House – Stamp Duty
Q: An elderly friend has offered to part exchange her property for our smaller property. Her house is currently valued at £290,000 and mine £215,000. We have agreed to pay £80,000 cash to cover the difference. Do you still have to pay stamp duty on the total price of a house if you are part exchanging a property as part of the transaction or do you just pay it on the cash difference?
A: You will effectively be purchasing the property for £290,000 by way of £80,000 cash (known as 'equality money') and £215,000 house transfer. Unfortunately , Stamp Duty Land Tax (SDLT) will be charged on the market value being transferred. However, as the transaction has not taken place between connected parties, such as husband and wife, or brother and sister, the transaction is not treated as linked for Stamp Duty Land Tax purposes which could have resulted in a higher rate prior to new rules being passed in the 2007 budget..
The amount payable by you on this transaction will however, be based on the full £290,000 at the current rate of 3%. Your friend will pay Stamp Duty Land Tax on the value of your current property which at £215,000, will be £2,150 under the current rate of 1%.
Renting Your Home During A Sporting Event
Q: A major sporting event is being held locally and I have been approached to see if I would take one of the competitors as a lodger for the fortnight. I would be expected to provide meals and obviously a bed. The amount offered is quite tempting. Would I have to declare this on my tax return?
A:
The short answer is yes. However provided the amount involved is less than £4,250 and you continue to live in the property whilst looking after the lodger, then you could claim Rent a Room relief. This was bought in to encourage home owners to use surplus rooms and benefit by not paying tax. This assumes that you do not rent out your house in any other way. Even though you will not pay tax you should report the income on your tax return.
Selling Through Classified Adverts & Internet Auctions Sites
Q: For a many years I have sold a number of old second hand items I own through classified adverts in my local newspaper, and I have recently started selling on internet auction sites. I saw an article in a magazine which suggested I may have to pay tax on the money I receive in this way. Is this correct?
A: If you are just selling some unwanted items that have been lying around in the attic and your home, the answer is probably no, as in order to pay tax on the goods you sell, you either have to be trading or make a capital gain.
You are likely to be treated as trading where the HMRC consider you to be purchasing or making goods for resale with the intention of making a profit, or sell goods for others and receive a commission.
If you only sell occasional, unwanted personal items through internet auctions, car boot sales and classified advertisements then it is unlikely they will view you as self-employed. This is due to the fact that in most cases the second hand value and amount you receive rarely exceeds the original price you paid for item, and as tax is only chargeable on the profits you make, no tax will be chargeable.
Capital Gains Tax is only charged on gains you make and if you sell an item for less than you purchased it for you will not make a gain. It is the gain that is taxed, not the amount you receive. Therefore, you will only have to pay tax if the items you sell have increased in value during the time you have owned them, and as they are likely to be personal effects or goods (known as ‘chattels’) you are selling, which are individually worth less than £6,000 when you dispose of them, it is very unlikely you will have made a gain.
If you are concerned that your situation may be considered to be trading you should discuss this with your accountant, as there is a late registration penalty if you do not register within 3 months of starting.
Gift Of Goods To Charity Shops
Q: I have recently cleared out lots of old summer clothes which I have stored over the years. If I give these items to my local charity shop can I include a deduction in my tax return for Gift Aid, as I am a Higher Rate taxpayer and will receive 40% tax relief on this gift?
A: Unfortunately donations of goods and other items to a chosen charity can not be Gift Aided as Gift Aid only applies to gifts of money.
However, your charity can act as an agent for you by selling goods on your behalf in the hope that you then donate the proceeds from the sales to the Charity. If the donation of the eventual sale proceeds is made in this way then you will be able to include a deduction for gift aid in your tax return, and receive 18% tax relief either in the Tax Year you make the donation, or the year before.
Initially, we recommend you speak to your local Charity shop to see if they will actually sell the goods on your behalf, as they must remain your property until they are sold.
Also you reserve the right to keep all or part of the proceeds of the sale, so the charity must keep a record of the items they sell on your behalf and if they ask you to complete a Gift Aid declaration before the sale (in anticipation of the proceeds being gifted to them) the wording of that declaration must not commit to you making a donation as you must retain a choice of whether or not to gift the proceeds.
Errors on a Previous Vat Return
Q: I have noticed that there are a number of errors on my businesses previous Vat return. Due to these errors, I will have additional VAT to pay. How do I rectify the situation and will there be any penalties or interest to pay on this?
A: If the net errors total less than £2,000 you have the choice of using two methods to disclose the errors without being charged interest or penalties. You can voluntarily disclose these errors either by contact 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.
If the net errors total more than £2,000, you must inform your local VAT Business Advice Centre in writing of the errors. If you use this method, you must not make adjustment for the same errors on a later VAT return. Customs may also charge interest on any under declarations you disclose in this way
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