Questions and Answers - March 2007
Non Resident renting a UK property
Q: I emigrated to Australia a number of years ago, but recently inherited a house from my late mother which is located in the UK. I have decided to rent this property out to a friend, and as such will not be engaging a letting agent. My friend will be paying the rent directly to me whilst I am abroad. Are there UK tax issues that I face on this rental income?
A: Even though you do not live in the UK, as the income arises here you will need to declare this to the UK tax Authorities. There are special rules for landlords who are classed as “Non Resident” for UK tax purposes.
If a tenant pays net rent of more than £100 a week (£5,200 per annum) to a non-resident landlord they must deduct basic rate tax (currently 22%) from the landlord’s UK rental income and pay the tax to the Inland Revenue’s Accounts Office, Cumbernauld. Tenants who pay net rent of £100 a week or less do not have to operate the scheme unless they are told to do so by HM Revenue & Customs. When working out the amount to tax, the tenant can take off tax deductible expenses that are incurred for the purposes of letting the property.
However, 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 can apply as the landlord on form NRL1 to the Centre for Non Residents for approval to receive your rental income gross. You will still need to include this information on a UK self assessment tax return at the end of the tax 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.
Can I store my VAT records electronically?
Q: I recently upgraded my IT equipment for my business, and now have the ability to store and produce all of my VAT information on my computer system. I usually have boxes of invoices and records relating to VAT each year, can I dispose of these?
A: A business is not obliged to keep VAT invoices and records in any particular format, but they must be kept in one that means they can be readily accessible in to VAT inspectors in a legible form. Records must be kept of all taxable goods and services received and supplied in the course of a business.
HM Customs & Excise has rights of access to VAT-related records on a computer and can check its operation and the information stored – in doing this, they can ask for help from people in a business who are in charge of or who operate the computer or its software.
HMRC suggests that on first registering for VAT a business should notify the local VAT Business Centre if it intends to use a computer for VAT accounting. Businesses like yours also now have the ability to complete VAT returns online using the ‘eVAT’ service, which removes the requirement to complete paper forms, and if you pay by an approved electronic method, your business will also receive additional time to make returns and payments.
Who Can Sign my Tax Return
Q: At the end January I was out of the country on business and to avoid a late filing penalty of £100, I asked my wife to sign my tax return and send this in. It has recently been rejected by the HMRC and returned to me. Surely as I gave permission for my wife to sign it should have been accepted?
A: Unfortunately, there is only very few instances where someone else can sign your tax return. Unless your wife is a Receiver appointed by the Court of Protection, or an Attorney appointed under an Enduring power, he is unable to sign on your behalf. The other instances include death. When someone dies, an executor may sign a return for the tax period from 6 April up to the date of death on behalf of a taxpayer.
Therefore, I’m afraid that it will need to be your signature that is on the declaration on page 10 of the return. If not the HMRC are correctly within their rights to reject the return. Remember, however, the £100 late filing penalty is only charged where there is tax to pay at 31st January, so if you actually paid all of your tax by the due date, they you can successfully reduce the £100 late filing penalty to nil.
Starting a new business
Q: I am thinking of starting my own business on the 6th April this year. A friend who is currently self employed said I had to register as self employed. Can you please tell me how to do this and how soon do I have to register?
A: You have to be registered as self employed for National Insurance purposes within three months after the end of the month in which you became self-employed. In your case you would have to be registered by 31 July 2007, and failure to do so will result in a £100 fine.
There are various ways to register. The most popular ways being either by telephoning the Self Employed Registration Helpline on 08459 15 45 15, or by filling in form CWF1 which can be obtained from your local Inland Revenue office. In each case you will need to give your full name, address, post code, date of birth, national insurance number and, if you wish to pay the Class 2 national insurance by standing order, the details of the bank account from which it will be paid. The form will act as a joint notification for both Tax and National Insurance purposes, and you will receive a 10 digit Unique Taxpayer Reference (UTR) for tax purposes, together with a tax return to fill in for the 2007/08 tax year in April 2008.
Bad paying customers
Q: I have a particular customer who has a history of bad payments with me. I am considering taking legal action against this customer to try and recover this debt. Can my solicitor’s fees and other legal costs be regarded as a legitimate business expenses for tax purposes and are there different procedures depending on the size of the debt?
A: Legal and professional costs that a business incurs are allowable when they directly relate to trading. Therefore the legal fees incurred in attempting to recover trade debt owed by this customer are therefore allowable as expenditure in establishing your business profit for the year. In addition, as it is a specific customer against which the bad debt has arisen this will be also be allowable as a deduction for tax purposes when establishing your business profits for this period.
High rate relief on gifts to charity
Q: I am a higher rate taxpayer but do not currently fill in any tax returns. I have made a number of donations to charity in the last year and I have been advised I can claim some tax relief against these gifts. How can I go about doing this? Do I need to file a tax return?
A: If the salary from employment is your only source of income then you do not have an obligation to file a tax return each year unless HM Revenue & Customs sends one to complete.
However, as a higher rate taxpayer you are entitled to claim tax relief at 18% of your gross charitable donations in the year.
To do this you should write a letter to your tax office each year, quoting your National Insurance number and PAYE reference telling them the dates, amount donated and the charities involved. They should then issue you a new PAYE code which will include the higher rate tax relief due on your donations.
Supplying equipment to a disabled person
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.
Claiming trading loss relief against Capital Gains
Q: I am coming to a particularly bad year of trading, and believe that I have made a substantial loss for my business this year. I had to sell a number of shares I own in the tax year to supplement my living expenses. I estimate that selling these shares will realise a capital gain after relief’s of £30,000. Can I claim relief for some of my trading losses against the Capital Gains I have made?
A: Yes, there is a relief available which allows you to offset self-employed losses against any capital gains you have made in the same tax year.
However, you must first offset the trading losses against your total other income for the tax year, even if this means losing the benefit of your tax free personal allowance. Any excess can then be extended under section 72 of Finance Act 1991 and set against your chargeable capital gains (after capital gain losses have been accounted for) for the tax year.
If you do not have any other income in the tax year this will result in a relief claimable up to the amount of your trading loss claimed against your gain of £30,000. This will result in a significant fall in your Capital Gains Tax liability. Your local TaxAssist accountant will be able to advise how you make the claim on your tax return.
