Questions and Answers - July 2007
Bringing Cash into the UK
Q: I regularly travel abroad on business and sell some products on these trips. I recently read an article that I could be fined for bringing cash into the UK. Can you advise on the new rules and limits which apply?
A: From 15 June 2007, new rules will apply to people entering or leaving the UK. They state that if you are travelling to or from a country outside the European Union (EU), you will need declare to HM Revenue & Customs any sums of cash in any currency exceeding 10,000 Euros or more (approximately £6,700). Before this date, there was no such requirement.
The change is part of the EU’s efforts to prevent money laundering and is designed to make border cash controls consistent across the EU. There is no requirement to declare cash if you are travelling to countries inside the EU, but if you are travelling to/from the Channel Islands or the Isle of Man you will be required to make a declaration.
HMRC can seize cash of £1,000 or more if they have reasonable grounds to suspect it is the proceeds of, or is intended for use in, unlawful conduct. There is a right of appeal against the seizure and seized cash cannot be kept for more than 48 hours without a court order.
You will be required to complete a cash declaration form in the port or airport in which you arrive. The term ‘cash’ covers currency notes and coins, bankers’ drafts and cheques of any kind including travellers’ cheques. If you fail to complete this form, or disclose incorrect information you could be fined up to £5,000. HM Revenue & Customs can exercise discretion to impose a lesser amount or to limit action to issuing a warning letter.
For further information on this requirement, please contact your local TaxAssist accountant.
Apprentices & The National Minimum Wage
Q: I am currently looking to take on a new member of staff as an apprentice. I understand the national minimum wage rules may mean I have to pay him a certain hourly rate? Is this true?
A: The minimum wages rates are currently set at £5.35 for adults aged 22 and older. The development rate for 18-22 year olds is £4.45 and the development rate for 16-17 year olds is £3.30. It was announced in the Chancellors Budget 2007 that these amounts are going increase on 1st October 2007. However, there are a few exceptions which apply to these rates for a small minority of workers.
Currently, apprentices under the age of 19 are not entitled to the national minimum wage, and apprentices over the age of 19 and below the age of 25 are not entitled to the minimum wage in the first year of their contract.
Apprentices as far as the minimum wage is concerned are either workers who have contracts of apprenticeship; or workers who are taking part in the specific training programmes which are funded by a local development agency. You must ensure you have a written agreement between you and your new worker which confirms they are employed an apprentice contract.
For more information on whether or not your employee counts as an apprentice you should contact the National Minimum Wage helpline on 0845 6000 678 or speak to your local TaxAssist accountant.
Notification of Rental Income
Q: I purchased a rental property three years ago, but due to a substantial amount of refurbishment and problems with non paying tenants, have yet to make a profit. I haven’t received a tax return to fill in as I am in PAYE employment. Do I need to let the HM Revenue & Customs know about my income?
A: If a taxpayer receives any taxable income in a tax year of which HM Revenue & Customs is unaware, then they have a legal duty to “notify of chargeability” by 5 October following the end of the tax year in which the income was received. Notification can take the form of a letter to your tax office, or a telephone call. Also, from April 2004, if the amount was £15,000 or less, then they are likely ask for 'short' tax return to be completed.
Presumably you made a loss on the property in the last year. You should still notify the HMRC of the position, as you will benefit once you begin to make a profit from the rental business. By completing a tax return, the HMRC will receive a note of the loss you have made, and relief can be claimed for this once you have made a profit as it can be set against your first available rental profits in future years.
Even if you were set up under self assessment and have already submitted a Tax Return, you can submit a revision to the land and property pages within 12 months of the filling deadline for the tax return to declare the loss. If the time limit for revisions has passed, then you can submit a revised Tax Return under the error or mistake provisions and hope that the Revenue accepts this late revision.
However, do not be too surprised if you find the Revenue opening an enquiry into your Return as a result of the submission as they will want to know when the letting of the property commenced and may take the opportunity to review all aspects of your Return
Charities and VAT
Q: I am forming a charity to provide funds for a local childrens hospital. Am I right in thinking that because we are a charity, we will not be charged VAT on the equipment we donate?
A: I’m afraid charitable status does not entitle you to VAT exemption. If the charity registers for VAT, which it must if its business activities exceed the VAT limit, then it will be able to reclaim the VAT charged.
A: However there are some items that VAT will not be charged on, including some advertising services and certain sound recording equipment supplied for caring for the blind. You should find it useful to talk to your local TaxAssist accountant about your plans in more detail.
Reducing Payments on Account in July
Q: I have now received the demand from the Inland Revenue for my tax payments on account due at the end of July. Last year my business made substantial profits, but this year I have incurred lots of redevelopment expenditure and as a result my business profits have fallen. Is there any scope to reduce these payments and what are the ramifications if I do not pay on time?
A: Payments on account are represented by 50% of the individual’s net tax liability for the previous year, and are used to “prepay” the tax liability due in the following January. The are made up of two payments which are due in January and July. 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 and subsequent tax liability for the 2006/07 tax year is likely to be significantly less than the previous 2005/06 tax year on which the payments on account are based, you can make a claim to reduce. The amount that you reduce these too should reflect your estimation of your tax liability for the 2006/07 tax year, which is due for payment on the 31st January 2008. Either you or your accountant can make this claim using a form SA303 available from www.hmrc.gov.uk .
However, be warned 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 actually due. Equally, if you have underestimated the fall, and paid to much, you will be due a refund and will receive an interest supplement.
Sole Trader Maternity Allowance
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
Reclaiming VAT on Goods held before registration?
Q: I recently registered my small retail outlet for VAT and read that I am able to reclaim all of the input VAT on goods I purchased, (and subsequently sold), when I first started trading two years ago? Is this possible?
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.
Reducing My Carbon Footprint
Q: I have recently read a number of articles on the damage some small business have on the environment, and one such article suggested that there are some tax relief’s available to small businesses who invest in energy efficient machinery. Is this true?
A: In 2001, the government introduced a scheme which allows businesses investing in qualifying energy saving plant and machinery investments to reclaim 100% Capital allowances on the expenditure incurred. A joint venture was then developed between the HMRC , DEFRA and The Carbon Trust, which is an independent company funded by Government. Their role is to help the UK to a low carbon economy by helping business and the public sector reduce carbon emissions now and capture the commercial opportunities of low carbon technologies that are being developed.
Various types of expenditure will qualify for the 100% allowance, if it meets the required energy-saving standards as outlined on the by the Enhanced Capital Allowances scheme.
To see if your item qualifies for the increased allowance, visit www.eca.gov.uk . Claims for Enhanced Capital Allowances are made in the same way as other capital allowances on the Corporation Tax Return for companies and the Income Tax Return for individuals and partnerships.
Each year the government adds further items to this list in their annual budget update. Your local TaxAssist accountant will be able to advise on this further.
