MAKING YOUR MONEY WORK HARDER!
Q: My seventeen-year-old son is starting college this September and claims some of his older friends get paid an allowance from the government for continuing their studies. Is he eligible?
A: He is probably referring to the Education Maintenance Allowance (EMA) - a scheme which financially incentivises students to stay in full time education. If your son turned 16, 17 or 18 in the year up to August 31 2005, and is entering year 12, 13 or a third year respectively of full-time education, or taking an academic or vocational course (up to level 3), which involves a minimum of twelve hours per week, he can claim the allowance. The amount payable depends on the family income. For example:
Family Income up to £20,270 per annum £30 per week
Family Income from £20,271-£24, 850 per annum £20 per week
Family Income from £24,851- £30,000 per annum £10 per week
For more information visit www.dfes.gov.uk/financialhelp/ema/ or speak to your local accountant.
Q: I would like to make a donation to the Niger appeal. How can I ensure it is as tax efficient as possible?
A: If you're a UK taxpayer, you need to give the charity a Gift Aid declaration. This enables the charity to reclaim an amount equivalent to the basic rate tax paid on your donation. This means that for every £1 you give to charity, the charity will be able to claim an additional 28p from the Inland Revenue. If the charity to which you are giving doesn’t mention Gift Aid when you contact them, ensure you ask.
Q: Over the last two years my employer has loaned me a laptop to work on at home and for private use. This is being upgraded to a newer model and I’ve been offered the old one for my personal use. Will I have to pay tax on this?A: As long as you pay your employer the market value for the machine there will be no taxation charge. Incidentally this ruling also applies to energetic employees who have been loaned a bicycle and have the opportunity to purchase it!
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.
Lastly, the £5,000 you have spent on the films for resale at a profit is simply treated as stock, for which the normal rules will apply.
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 granted. 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.
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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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