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 and as a subcontractor for CIS (Construction Industry Scheme). The HMRC will then open a Self Assessment record and you will be given a Registration Card. There will be no need for you to re-register on a future occasion unless you notify the HMRC that you have ceased self-employment on a permanent basis and finalised your SA affairs and now wish to re-start.
Q: Our company pays one of our employed salesmen the Inland Revenue approved tax free mileage rates of 40p and 25p per mile for using his own car for business use. The company is VAT registered and we would like to know whether there is any input VAT reclaimable on this payment, as he currently drives 10,000 business miles per year?
A: The Inland Revenue publishes deemed fuel only mileage rates in addition to the authorised mileage rates. New rates were introduced on 1 July 2005 and available on the www.hmrc.gov.uk website. These rates are dependant on the type of fuel (Petrol, diesel, LPG) and size of engine.
You can then claim back the input VAT on the “deemed fuel element”.
Q: I am coming to the end of a particularly bad year of trading, and believe that I have made a loss of £20,000 for the tax year. I had to sell a rental property I own in the tax year to supplement my living expenses. I estimate that this will realise a capital gain after reliefs of £50,000. Can I claim relief for some of my trading losses against the Capital Gain on my rental property?
A: Yes, you must first offset the trading losses against your total income for the tax year, and any excess can be extended and set against your chargeable capital gains for the tax year. If you do not have any other income in the tax year this will result in a relief of £20,000 being claimed against your gain of £50,000, leaving a chargeable gain before taper relief and annual exemption of £30,000. This will result in a significant fall in your Capital Gains Tax liability.
Q: My employer has recently offered me private use together with private fuel of a new company car. They feel, given the number of business mileage I travel that a diesel vehicle will be their best option. However, I remember reading in an article that employees receiving private use of a diesel vehicle will receive a supplement of 3% on the percentage used to calculate their taxable benefit. Does this mean that I will have to pay more tax if I use a diesel vehicle compared to a petrol vehicle?
A: You are correct, if both a diesel and petrol vehicles have the same Co2 emission; you will pay more tax as a 3% supplement is applied to diesel vehicles.
However, Diesel cars that meet the Euro IV standard are currently subject to a lower scale of carbon dioxide based tax rates than older diesels. The 3% supplement is waived, making a 20% tax difference for cars at the bottom of the scale since the minimum is only 15% rather than 18% CO2 tax percentage. In your situation you will therefore pay the same amount of tax as petrol vehicle with exactly the same Co2 emissions.
You should note that this waiver is being scrapped for cars registered after 31.12.2005. The good news is that Euro IV diesels registered prior to that date will benefit from the 3% waiver for the rest of their lives as company cars.
Q: I have received a demand from the Inland Revenue for a payment on account due at the end of July. My accountant advised me in January of my first payment on account, but business has been really poor in the current year and I do not have enough money to make this payment. What are the ramifications if I do not pay, and is there any possibility that I can reduce the amount that is due?
A: Payments on account represent 50% of the individual’s net tax liability for the previous year. All individuals are liable to make these payments unless their net tax liability is less than £500 or more than 80% of the tax due was deducted at source.
Given that your income is likely to be significantly less than the previous year which the payments on account are based on, you can claim to reduce these payments. The amount that you reduce these too should reflect your estimation of your earnings for the year of the claim.
However, if it is later found that you have overestimated the fall in your income, and consequently reduce the payments on account by to much, you will be liable to pay interest on the difference between the amounts paid as payments on account and the amount due. Equally if you have underestimated the fall, you will be due a refund and will receive interest.
Q: An elderly friend has offered to part exchange her property for our smaller property. Her house is currently valued at £240,000 and mine £160,000. 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 £240,000 by way of £80,000 cash (known as 'equality money') and £160,000 house transfer. The Stamp Duty payable by you on this transaction will be based on the full £240,000. Your friend will pay Stamp Duty on the value of your current property which is £160,000, which is currently set at 1%.
Q: I am expecting a baby in September, and will 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. Can I claim for this even though I am self employed?
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 m aternity p ay 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 accountant or local jobcentre plus office for further details, or alternatively visit their website www.dwp.gov.uk.
Q: My company has been contracted to undertake some specialist work for a number of disabled persons on equipment in their homes. I have heard there are various supplies of services which are supplied to people with disabilities which do not have VAT charged on their supply. Is this true?
A: If you supply certain types of goods or services to disabled people then the supply can be zero rated, and no VAT needs to be charged. The following services may qualify for relief: installing zero-rated equipment which has been designed solely for use by a disabled person
- adaptation of goods to suit a disabled person condition
- repair and maintenance of equipment designed solely for use by disabled people
- certain building alterations.
There are 3 conditions must be met in order for these services to qualify for zero rating and your accountant will be able to supply further details.
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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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