Transfer of a going concern
Q: I am considering buying a business that is already trading and the current owner says he will have to charge me VAT on the sale, unless I am registered for VAT. Is this right?
A: If 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 on the purchase of the business. However when you register for VAT, you will have the option to continue trading with the sellers VAT number - and I strongly recommend that you do not do this, as if there are any problems with HM Revenue & Customs (HMRC) relating to the previous owner, you could well be held responsible for them.
Childcare vouchers
Q: My employer gives me vouchers towards childcare. What are the tax and national insurance implications?
A: The legislation for tax and national insurance on childcare vouchers here changed from 6 April 2006. If the value of the vouchers received does not exceed £50 per week, there is no tax or National Insurance to pay. If the amount exceeds £50, then the excess is taxable and liable to National Insurance.
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.
Artificial separation for VAT
Q: My wife and I are the tenants of a public house. We do not currently serve food, but a number of customers have recently enquired and we’re quite keen to expand our offering in this way. My wife has said that she would not mind doing this, but does not want the hassle of VAT. Would it be all right for her to set up a separate business to do this?
A: You have not given much detail on the way you intend to run this. HM Revenue & Customs is keen to stop what they consider to be the artificial separation of a business in order to avoid VAT. For the food business to remain unregistered, food should ideally be charged for separately, rung up in a separate till and a charge (including VAT) made by the pub to the food business for the use of the premises. I’d strongly recommend that you take professional advice before you take this further, as at a later date a VAT inspector may decide that there is an artificial separation of the businesses and demand VAT on the food sales anyway.
VAT rules for publishing digitised books and documents
Q: My small printing business produces books, magazines and leaflets – and with the increased demand for Internet-based products, I have recently invested heavily in a computer based system that enables me to produce digitised versions of these products and at the same time reduce my costs on materials. The printed books, magazines and leaflets I produce qualify for zero-rating for VAT purposes. Does this zero-rating still apply if I sell digitised versions?
A: I’m afraid not. It’s important to remember that digitised products are regarded as services – and while the zero-rating applies for printed supplies, which are categorised as goods, it does not apply for services.
As well as being classified as a service, the supply of a digitised product often provides greater functionality and is not necessarily the same as the traditional or non-electronic product . This is quite a complex area of VAT ruling, and you may find HM Revenue & Customs VAT info sheet 01/03 a useful source of more detailed information about the VAT treatment of digitised publications, including e-books – or speak to your tax and accounting professional for further guidance.
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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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