Using A Scooter For Work
Q: I am working as self employed courier, and use a scooter to navigate round the city on various jobs. However on some occasions I use my bicycle. Is there anything I can claim other than the cost and maintenance of my bicycle?
A: Self employed taxpayers are allowed to use mileage rates as an alternative to keeping detailed records of actual expenses if their turnover is below the VAT threshold. Taxpayers can use the mileage rate if they use a car, van, pick up, motor cycle and even a pedal cycle and set rates for each type have been published.
For a motorbike or scooter, in relation to business use, there is a statutory rate of 24p per mile which can be claimed against tax instead of deducting the costs actual cost you incur. When you are using your bicycle, you can claim a statutory rate of 20p per mile instead of claiming the costs of maintenance and capital allowances on the cost of the bicycle.
To use the scheme, all you need is to record your business miles during the accounting period. Remember that home to work travel cannot be reclaimed, and you should therefore keep accurate records of all mileage to substantiate the claim to the Inspector of Taxes when needed.
VAT Flat Rate Scheme
Q: I run a small VAT registered business supplying both standard rated and exempt goods with a combined turnover of £125,000 plus VAT. In order to make my life easier I was thinking of applying to go onto the Flat Rate scheme. Are there any reasons why I should not do this?
A: Your turnover certainly falls within the limits of £187,500 total business income including VAT making you eligible for the scheme. The way the Flat Rate scheme works is that if you issue an invoice for say £1000 plus VAT of £175 then you pay HMRC the agreed flat rate percentage on the total of the invoice, in this case on £1175. The flat rate percentage is also applied to the exempt goods you supply.
Therefore you would be best advised to look at a typical quarter and apply both methods to it. If you join and then come out you cannot rejoin again within twelve months of leaving the scheme.
Reclaiming VAT on Previous Expenditure
Q: I saw recently that you can now go back more than three years to claim VAT that you had not previously claimed. I recently discovered that I had not claimed input tax on a machine I bought in 2002. Is my understanding right and if so how can I now go about reclaiming this VAT?
A: You are partially correct. In 1996/97 the then Chancellor of the Exchequer announced that there would be a three year limit on going back to claim refunds. This was recently overturned in the courts as the original announcement was not legally put in place. However the ruling only affects claims relating to those before the announcement i.e. before 1996/97. Therefore your claim will not be accepted by HMRC
Transfer of a going concern
Q: I am considering buying a business that is already trading. The owner tells me he will have to charge VAT on the sale unless I am registered for VAT, is this right?
A: Assuming the business you’re considering buying is VAT registered, then this is correct. You would probably be well advised to register for VAT, as you will not have to then fund the additional VAT. When you have registered, have the option to continue with the sellers VAT number.
We would strongly recommend that you do not do this as, if there are any problems with HM Customs & Excise relating to the previous owner, you could well be held responsible for them.
Rental Property Expenses
Q: In May last year I purchased a house, which I intended to let out. Due to various circumstances I was unable to do this until January this year. As I have no rental income, how should I claim these expenses? Can I create a loss, and claim any relief for this?
A: When you first begin to run a rental business, you are able to claim expenses that you have incurred up to 7 years previous against the rental income.
You have not said whether or not this is furnished holiday accommodation. If it were then you would be able offset the loss against your other income. However there are strict rules governing the definition of such property and you should seek professional advice before claiming this. Assuming the property is not furnished holiday accommodation then you would be unable to set off the loss in this manner. All you can do is carry the loss forward to set off against future rental profits. Again I would advise seeking professional help to ensure that you are claiming all the expenses you are entitled to.
Employees Using Their Own Vehicle
Q: I used my personal car for a substantial amount of company business, around eight thousand miles. My employer reimbursed me at thirty pence for each mile. I am I liable to tax on these payments?
A: Employees who use their own vehicle for business purposes can be reimbursed using the HM Revenue & Customs tax free authorised mileage rate of 40p for the first ten thousand miles and 25p thereafter per tax year.
If your employer was to pay you more than the tax-free amount, any excess is taxable as income, and your employer should deduct the necessary tax and National Insurance. If you receive a tax return, you are responsible for including the same amount on the return.
If you are paid less than the tax-free amount, you are entitled to Mileage Allowance Relief for the amount by which the payments you received fall short, and in your situation this is an additional 10p per mile on which you can claim tax relief. You should also be aware that you can make a claim for 6 previous tax years, which can amount to a substantial tax refund in certain situations.
If you complete a tax return, details of the above should be included on your employment pages under the expenses section. If you do not complete a tax return, you should contact your local TaxAssist Accountant who can advise on how to make this claim.
Limited Liability Partnerships
Q: I am thinking of going into business with some friends and one of them has said that a Limited Liability Partnership would be a good idea. What are they and do you think it a good idea?
A: Limited Liability Partnerships (LLPs) are a hybrid of partnerships and limited companies. Briefly, the liability of the partners is limited to the amount they have invested into the company. Under normal partnership rules there can well be further personal liabilities if the business becomes insolvent. However the profits of the partnership are subject to the Income Tax system, which might not be as advantageous if the profits were taxed under Corporation Tax Rules. Generally speaking firms of accountants who wish to limit their professional negligence exposure use LLPs, as limited companies cannot be auditors. For most businesses a limited company is probably the best method when friends trade together, however you must always seek professional advice before committing yourself to any business venture.
Maternity Pay for Part Time Worker
Q: One of my part time employees has recently advised me she is expecting her second child. Is she entitled to maternity pay and leave, as she is only working for me part time?
A: Maternity Pay is available to all employees whether they are full or part time, and assuming they have met the requirements outlined here:
• Your employee must have worked for you in the 15th week before the week her baby is due.
• You must also have employed her without a break, for 26 weeks into the 15th week before the week her baby due.
• They must also be paid above the Lower Earnings Limit (£87 per week for the 2007/08 tax year).
From 1st April 2007, parents are entitled to up to 39 weeks’ ordinary maternity leave followed immediately by up to 13 weeks’ additional maternity leave - a total of up to 52 weeks’ leave.
Statutory Maternity Pay is paid by employers for up to 39 weeks, and entitles the parent to the first 6 weeks of payment at an of 90% of the average weekly earnings, and then the lower of £112.75 a week or 90% of average weekly earnings.
There is a useful calculator on the HMRC website (www.hmrc.gov.uk) for employers to work out how much Statutory Maternity Pay to pay an employee.
Digital Books VAT Status
Q: I run set up a website to begin selling digital versions of books, magazines and guides that I produce in my printing business. Currently the supplies I make qualify for zero-rating for VAT purposes. Would the zero-rating still apply if I sold digitised versions of my products?
A: It is important to remember that digitised products are regarded as services. In this case, the zero-rating of supplies of printed matter does not apply because the relief is for goods and not services.
As with all supplies, it is the nature of what is being provided that determines the treatment for VAT. As well as being classified as a service, the supply of a digitised product often provides more functionality and is not necessarily the same as a supply of the traditional or non-electronic product.
HM Revenue & customs produce a useful guide on this, called VAT Information sheet 01/03 and this provides in depth information on the changes to the place of supply after 1 July 2003 for these types of electronically supplied services.
Q: I am a bit concerned in that my company pension payslips show that I have got my personal tax allowance taken into account when I also receive a state pension. I am under the impression that my state pension is subject to tax and that my personal allowance should have been used on that. What should I do to clear this up?
A: H M Revenue and Customs have known about this anomaly since 2005 but have been very slow to act. They have agreed to write off any underpaid tax to 5th April 2007 but will collect it for 2008/09 onwards. This will be done by adjusting the pensioner’s PAYE code for 2008/09 to collect the back tax for 2007/08 and also to collect the current tax for 2008/09 resulting in a double tax bill. Talks are under way to try and alleviate this problem and give taxpayers longer to settle the tax due.
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