Combining employment and self employment
Q: I am currently in employment and am looking to start up in self-employment at the same time. As I already pay National Insurance through my job will I have to register as Self-Employed and pay the £2.30 per week and the class four National Insurance?
A: The different classes of National Insurance cover the different types of employment, so you must register for Self-Employment. Failure to do so within three months will give rise to a fine. If your self-employment earnings are going to be less than £4,825 per annum then you can apply for small earnings exemption to exempt you from the £2.30 per week. On earnings above £5,435 per annum you will still need to pay Class 4 National Insurance. The annual maximum applicable to each individual will vary according to their total earnings. It is not possible to give you a figure of total earnings above which you would get a refund, and you should contact us for specific advice.
Employing students
Q: During July and August we will need to employ some temporary staff. Someone in the office has suggested we employ students, as they do not have to pay tax. Is this right and if so how do we do it?
A: If you employ students in the recognised vacation periods of summer, winter and Easter, then they can be paid without deduction of tax, provided they meet certain conditions. In order for you to do this each student must sign a form P38S which you can obtain from the Inland Revenue. Provided that the student will not earn more than £5,435 in the tax year then they can be paid without deduction of PAYE. Both employers and employees National Insurance will be due if the earnings exceed £105 per week.
Capital Gains Tax loss on selling a house
Q: House prices where we live seem to be dropping. If we move and the selling price is less than the original purchase price and the cost of the extension we added to the property, will we be able to claim a Capital Gains Tax loss?
A: The largest capital gain that most individuals are likely to realise is on the disposal of the house in which they live. Exemption from tax on capital gains arising from the disposal of an individual’s sole or main residence has remained largely unaltered by successive governments since the introduction of capital gains tax in 1965, as a means of encouraging home ownership and assisting greater mobility of the nation’s workforce. This exemption has survived, despite some individuals being able to make significant tax-free profits over a short period of time during a period of spiralling property prices. Conversely though, as this exemption results in any profits not being charged to capital gains tax, it also means that tax relief is not available for any losses incurred on the sale of a sole or main residence in a falling market.
VAT Reclaims
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
Self Build and VAT
Q: We have just bought a run down house and are seeking planning permission to partly demolish it and build a new house in its place. We wondered if we could use the scheme for DIY builders and claim back the VAT on the materials etc.
A: I noticed that you said you were planning to partly demolish the old building. In a recent case before the VAT tribunal, a couple had partly demolished a house but left the fireplace and stack in place and built round this. The tribunal ruled that the house had not been completely demolished and therefore did not qualify under the DIY scheme.
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.
Being taxed at 20%
Q: I saw in the last budget that all of my income after my personal allowance has been used will be taxed at 20%. I am sure that before this part of my income was taxed at 10%. Can you confirm if this is true and will I be able to still get a refund as my only income is £5,000 from part time earnings and £5,500 interest before tax deducted from a building society account?
A: Assuming you are under 65 years of age, and have no other sources of income then you will still be entitled to a refund. This is because there is still a 10% band that is applied to savings income only.
Total Income £10,500
Less personal allowance £5435
Taxable Income £5065
As your personal allowance covers you earnings, only your savings income will be taxed. Thus your tax liability is calculated as follows:
£2320 @ 10% £232.00
£2745 @ 20% £549.00
Total Tax £781.00
Tax deducted by Building Society £1100.00
Refund due £319.00
Flat rate expenses
Q: I work for construction firm as a joiner and each year in my tax code I get a ‘Flat Rate Expenses’ amount. Can you please tell me why I get this and does it increase each year?
A: Various employer groups have agreed with HM Revenue and Customs an amount that an employee can spend as an employment related expense without having to provide evidence of expenditure. In your case this would to cover say small tools or work-wear. Incidentally new figures have been issued for the current tax year. You should therefore have a figure of £140 in your current notice of coding.
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