Registering for Self Employment and CIS
Q: My work in the building industry involves a mixture of short periods of work for an employer under Pay As You Earn and periods of self-employment within the same year. Is it necessary for me to register for self employment on a contract by contract basis?
A: You will initially have to become registered for Self-Employment using form CWF1. HMRC will then open a self assessment taxpayers record for you and issue a 10 digit Unique Taxpayer Reference (UTR) .
You also need to register as a subcontractor for CIS (Construction Industry Scheme). From April 2007 there will be no registration cards issued. Instead you now have to register with the CIS helpline (call 0845 3667899) who will verify you on their records, and contractors who you work for will use the UTR number to verify you for the 20% deduction rate. If you fail to register for CIS, you will suffer 30% tax deductions from contractors.
There will be no need for you to re-register on a future occasion unless you notify HMRC that you have ceased self-employment on a permanent basis and finalised your SA affairs and now wish to re-start.
Correcting VAT Errors
Q: I run a small retail busines and have underdeclared my sales and purchase for my last 3 VAT return periods. How do I correct the errors?
A: Currently there are two ways in which you can notify of any VAT errors arising in VAT accounting period.
You can disclose the error by adjusting your VAT account and including the value of that adjustment in the next VAT return. From 1 July 2008, the previous net errors threshold of £2,000 has been increased to the greater of £10,000 or 1% of the turnover (box 6 figure on the VAT return) subject to an upper limit of £50,000.
If the net errors total more than £10,000, 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. HM Revenue & Customs may also charge interest on any under declarations you disclose in this way.
Non Residents & UK Property Income
Q: I recently emigrated to Spain but still own a house in the UK which I am renting out. Are there any UK tax implications of which I should be aware?
A: The income received from this property income is taxable in UK as it arises here, even though you will be classed as Non Resident for UK tax purposes. You will need to register for the Non Resident Landlord scheme and if you rent the property through an Agent they should be aware of the implications.
The scheme requires letting agents to deduct Basic Rate tax from any rent they collect for non-resident landlords. If non-resident landlords don't have UK letting agent acting for them, and the rent is more than £100 a week (£5,200 per annum), their tenants must deduct tax and pay it to the Inland Revenue’s Accounts Office, Cumbernauld. When working out the amount to tax, the agent/tenant can take off tax deductible expenses in the normal way.
Taxpayers who receive income of £100 a week or less do not have to operate the scheme unless they are told to do so by HM Revenue & Customs.
Should you not wish to operate the scheme, you can apply as the landlord on form NRL1 to the Centre for Non Residents for approval to receive your rental income gross. This is usually given if your tax affairs are up to date or you do not expect to be liable to UK income tax for the tax year. You will still however need to include this information on a UK self assessment tax return each year.
For further information on the landlords and tenants responsibility see the information on www.hmrc.gov.uk/cnr website or contact your local TaxAssist accountant.
Team Building Exercises & Recoverable VAT
Q: I have recently employed a number of new employees and am looking to take all my staff away on a team building exercise so they can create a better working relationship. Can I reclaim the VAT incurred on the costs for this event?
A: Where an employer provides entertainment such as staff parties, team building exercises, staff outings and similar events for the benefit of employees to reward them for good work or to maintain and improve staff morale, they are not blocked from input tax recovery under the business entertainment rules, as it provides the event wholly for business purposes.
However, there are 2 exceptions to the general rule. These are where:
The entertainment is provided only for directors or partners of a business, the VAT incurred cannot be recovered as the goods or services purchased are not used for a business purpose.
However, where directors and partners of the business attend staff parties together with other employees, the vat is not blocked from recovery.
Employees acting as hosts to non-employees incur costs that are for the sole purpose of entertaining a non-employee, the tax is blocked under the business entertainment rules.
Cars qualifying for 100% First Year Capital Allowances
Q: I require a new vehicle for my sole trader business and understand there is an increased rate of Capital Allowances available if I bought a certain type of vehicle. Is this true?
A: Yes, there is an increased rate of 100% First Year Allowances (FYA) available on electric cars or new cars with C02 emissions of not more than 110g/km. The increased rate is available from 1st April 2008 until April 2013 for the next 5 years.
New cars are "unused and not second hand." A car is unused and not second hand even if it has been driven a limited number of miles for the purposes of testing, delivery, test driven by a potential purchaser or used as a demonstration car.
Previously, 100% FYA’s were available on cars with CO2 emmissions of 120g/km or less and the conditions to qualify for this rate are that the car must be "unused and not second hand" , is first registered on or after 17 April 2002 and the expenditure is incurred between 17 April 2002 and 31 March 2008.
Your TaxAssist Accountant will be able to provide you with further information on the make and model of vehicles that qualify for this allowance.
Soletrader Using the Stautory Mileage Rates
Q: I run a small business and have been using the HMRC statutory mileage rates claiming 40p per mile for the first 10,000 business miles and 25p per mile thereafter. I have now exceeded the VAT threshold in the current year. Can I continue to use this method?
A: The statutory mileage rates of 40p/25p per mile is only available to business who have turnover under the current VAT threshold (£67,000 from April 2008). Using this method is intended to make things simpler for small businesses. It is not compulsory and you can only use the mileage rate basis if it is applied consistently from year to year. You can only change to or from an `actual' basis when a vehicle is replaced.
As you have exceeded the VAT registration threshold, you must continue to use the scheme until you change your car, at which point you can change to the “actual” basis of calculation where you claim expenses relating to running and maintaining the car (fuel, oil , servicing, repairs, insurance, vehicle excise duty and MOT costs) in addition to capital allowances on the cost of the new vehicle .
As you only change to the actual method after you replace the vehicle, it may mean that you will continue to use the scheme for several years after you have exceeded the VAT registration threshold.
Tax Refunds and Repayment Supplements
Q: I incurred a substantial loss in my business last year, and elected to carry the loss back against earlier tax years income to generate a tax refund. I received a repayment of tax but no interest supplement. I was expecting something as the tax I paid had been with the HMRC for more than 3 years!
A: If the resulting tax refund from your loss claim is to be set off against other tax liabilities outstanding then the effective date of payment is the later of the date the valid loss claim to relief was made and the relevant due date of the charge against which the relief is to be set.
If the tax refund is to be repaid to the taxpayer then the effective date of payment is the fixed filing date of the later year’s return.
Therefore a loss arising in 2007–08 and claimed on the 2008 return which was submitted on 1 June 2008 and carried back to 2004-05 tax year, submitted May 2005 would have an effective date of payment when being set off against other tax liability purposes of 1 June 2008 but an effective date of payment for repayment supplement purposes of 31 January 2009.
This is why you received no repayment, as your tax refund was repaid to you as you presumably didn’t have any outstanding tax liabilities
Income to Date of Death and Allowances
Q: My husband recently died, and I have been asked by his accountant to provide income up to the date of his death. I know taxpayers are entitled to a tax free personal allowance each year, and does his death affect this?
A: The deceased person will get their full tax-free personal allowance, including the increased age allowance for the year of their death, irrespective of when they die during the year.
Also, you may have been entitled to the married couples allowance if you were married before 5 December 2005, and at least one spouse was born before 6 April 1935. If this was the situation, you will also get a full year's entitlement to any married couple's allowance that was due for the year of death.
If your husband did not receive enough income to use the whole of the married couple's allowances, the personal representative can arrange for the unused allowances to be transferred to a surviving spouse or civil partner.
Speak to your Tax Office for the forms to do this, or contact your local TaxAssist Accountant who can help.
Printable 'Questions & Answers - August 2008' Page
