Questions & Answers

Charities and VAT

Q: I am forming a charity to provide funds for a local hospice. 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. 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 accountant about your plans in more detail.

Information required for payroll

Q: As my business grows, I am finding that calculating weekly wages for my staff is becoming more and more time consuming and I would like to get some help. I understand that there are bureaus that will do this for me. What sort of information will they need?

A: There are indeed bureaus that will manage your payroll – as indeed an accountant can, and it may be worth getting quotes for carrying out this work before you proceed. You may be pleasantly surprised! Whichever route you choose, you will need to supply the full name, address, sex, tax code, date of birth, national insurance number, national insurance letter, gross pay to date, tax paid to date and the totals from columns 1a to 1e on the from P11 that you must be using currently for each of your employees. The bureau or accountant you choose should send you a pro forma to use, ideally two or three weeks before the change over - and can supply it in good time for the payroll to be processed without disrupting expected pay dates.

Using the word ‘British’ in a company name

Q: I wish to start a new business as a Limited Company. I have come up with a good name and want to use the word British to give the company some substance. Can I do this without anyone objecting?

A: You may be surprised to learn that it’s not enough simply to be British or based in the UK to qualify for the use of the word in a company name. Certainly the Secretary of State will expect the company to be British owned, but you will also be expected to demonstrate that your company is pre-eminent in its field, by providing supporting evidence from an independent source, such as a Government department or a trade association. If the word 'British' is qualified by words that do not describe an activity or product, for example by using a 'made-up' word, then evidence of pre-eminence may not be required. However you will still be expected to show that your company is substantial in relation to its activity or product, and that it is eminent in its own field. You will need to seek approval from the Secretary of State, and you can get further advice on this process by contacting the Business Names Section at Companies House in Cardiff or Edinburgh, or your accountant.

VAT on cessation of trade

Q: My VAT registered business is about to stop trading and I plan to keep the small amount of stock and some fixtures. Will I have to pay any VAT on these?

A: You have not mentioned the value of the stock and fixtures you intend to keep, but if the VAT on their market value exceeds £1000, then you will need to account for all of this to HMRC (HM Revenue & Customs). If below £1000, then you will not have to pay over any VAT. It will be sensible to keep a list of the stock and its value, together with an estimate of the value of the fixtures in case this is queried by HMRC at some stage. Ideally you should obtain a written valuation from the supplier of the fixtures, but if this is difficult to achieve, you could check advertisements for the sale of similar second hand goods to estimate their current market value.

Tax on Private Hire vehicles

Q: I started a private hire business on 1 May 2006 aiming at the executive market. On the same date, I purchased a new vehicle for a total cost of £50,000 that is exclusively used in the business. How is this cost dealt with for tax purposes?

A: The total cost of the vehicle is eligible for Capital Allowances, and assuming it is a qualifying hire car, it will qualify as Plant and Machinery and receive First Year Allowances. A ’qualifying’ hire car is a car provided wholly or mainly for hire to or the carriage of members of the public in the ordinary course of a trade.

First Year Allowances will be available for the period in which the vehicle was acquired, and as this was on or after 6 April 2006, it will also qualify for an increased 50 per cent allowance.

Correcting Vat return errors

Q: I have noticed that there are a number of errors on the 4 Vat returns I completed for my Limited Companies previous VAT period. Due to these errors, I will have additional VAT to pay. How do I rectify the situation and will there be any penalties or interest to pay on this?

A: If the net errors total less than £2,000 you have the choice of using two methods to disclose the errors without being charged interest or penalties. You can voluntarily disclose these errors either by contact your local VAT Business Advice Centre in writing or by adjusting your VAT account and including the value of that adjustment in the next VAT return for the current period.

If the net errors total more than £2,000, you must inform your local VAT Business Advice Centre in writing of the errors. If you use this method, you must not make adjustment for the same errors on a later VAT return. Customs may also charge interest on any under declarations you disclose in this way.

Self Employed Maternity Benefits

Q: I am expecting a baby in December, and will 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. Can I claim for this even though I am self employed?

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 accountant or local jobcentre plus office for further details, or alternatively visit their website www.dwp.gov.uk.

Accounting For Grants

Q: I am in the process of setting up a new business and have applied for some grants. Will these be taxable?

A: Generally speaking, grants are set against the expenditure for which they were given. For example, if you receive a grant for advertising, the amount of that grant will be deducted from advertising costs in your accounts, thus increasing your profits, and therefore the tax due on them. If the grant is for a capital item, such as plant and machinery, then the cost of that capital item (asset) is reduced accordingly (depreciation) for the purposes of calculating capital allowances. Some grants may be tax-free - and you should always read the small print or conditions carefully, or get your professional advisor to do so for you, before you proceed.

Hiring Goods to the Public

Q: I recently started my own video and dvd rental business, and have purchased £10,000 worth of videos and dvds to rent out and £5,000 of films for general resale. Can I write off the whole £15,000 costs of these goods against the income I will earn?

A: Unfortunately, no. There are special tax provisions relating to the hiring of goods to members of the public.
Firstly, the £10,000 spent on the films for hire should not be treated as stock, even if the films are eventually sold.

Generally, the tapes/dvds for hire that have a ‘useful economic life’ of two years or more will qualify as plant and machinery, and Capital Allowances may be claimed on the tapes that form the original library and any additions to that library. Capital Allowances may also be claimed on any replacement tapes that are sufficiently durable to qualify as plant. From April 2005 the Capital Allowance available on newly acquired plant and machinery is 40%.

The Inland Revenue publish specific guidance on this type of business, and also explain other options for claiming relief on the goods you purchase for hire, in the form of the Renewals Allowance.

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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.