Transferring a company bicycle to an employee?
Q: We currently supply some of our employees with bicycle’s to get to our premises. Can you advise on the tax implications for us and the employees concerned. Also, some employees use the bicycles to deliver packages for business purposes, so does this affect the position?
A: Generally, company owned assets which are provide for the use of employees attract a benefit in kind based on 20% of the market value. However, bicycles which are supplied to employees for home to work travel do not attract a benefit in kind. One condition for this is that the bicycles or equipment are made available generally to all employees of the employer. This does not mean that every employee has to be provided with a bicycle or equipment, just that the offer of bicycles or equipment is open to all employees if they wish to take it up.
If your employees are using bicycles for business deliveries, it may be more tax efficient for them to own these personally. Employees who use their own pedal cycle for business mileage can claim a tax free expense of 20p per mile from the employer.
Please be aware that if you transfer the bicycle to the employee for this purpose, the employee will be assessed on the higher of the market value at the time it was first made available to employee for private use, or the market value at the time of the transfer. So if you give an employee who pays tax at basic rate, a bicycle worth £500, then he will incur a tax charge of £110. Therefore, you should always consult your employee before implementing such a change.
Employee Compensation
Q: I have recently been awarded damages for loss of earnings due to my employer’s negligence. These have been reduced by an amount for Income Tax and National Insurance, is this right?
A: Yes, the court takes into account the gross salary that you would have received had you continued to work for your employer during your period away from work. A long-standing court case has set the precedent that the award should be reduced to what you would have received net of statutory deductions such as tax and national insurance. This ensures that you do not ‘profit’ from the award. However certain awards such as payments made in respect of loss of limbs or sight are not taxable, thus you are compensated in full for disabilities you will have suffered
Buying a new suit for Company Meetings
Q: I run my building company, and while I do most of my work in protective workwear, there are frequent occasions when it is necessary for me to visit clients in an appropriate business dress. I need to buy a couple of new suits for such meetings – is this considered an allowable expense for tax purposes?
A: This is one of a variety of expenses which the Courts have held to have an “intrinsic duality of purpose” – which means they are not deductible for tax purposes.
The suits are actually classed as “ordinary clothing worn by a trader during the course of their trade”, and are not deductible expenditure for tax purposes. This is the case regardless of whether particular standards of dress are required. For example, to comply with the rules of a professional body, or simply for the trader to keep up appearances on meeting clients – because these items are regarded as ‘everyday' wardrobe.
Conversely, the cost of clothing that is not part of an ‘everyday' wardrobe, such as the protective clothing and uniforms that you normally wear, is deductible against your business income.
Company Construction Industry Deductions
Q: I run a small building maintenance company and some of the work we do falls under the Construction Industry Scheme. Consequently, the business who contracts us for the work deducts 20% tax at source under the scheme on all amounts we invoice for labour. Can we offset these deductions against our Corporation Tax liability, and if so, how?
A: Before 5 April 2002, companies that had deductions made from their income as subcontractors like you, were only able to use these deductions to reduce their final Corporation Tax bill. This was changed in April 2002, so that companies obtain relief by setting off these deductions against the monthly or quarterly payments due to the Inland Revenue.
From 6th April 2007, subcontractor companies will have tax deducted at 20%, the rate prior to this date was 18%. These amounts are set against the PAYE & NIC deductions of any employees that you may have and, if applicable, from any CIS deductions you have made from sub contractors you use.
These amounts are incorporated into the employers end of year return, the P35 and if there is a balance at the end of the tax year owing to you, it will be refunded to you once the form has been processed by the HMRC office who deals with your affairs.
Should I charge Vat on my holiday cottage rents?
Q: I run a vat registered sole trader business with a turnover in excess of £100,000. My wife has now retired and I am looking to purchase a holiday cottage in Devon. It is likely that I can rent the property out for £350 per week for approx 20 weeks from April to September, and use it out of season for weekend breaks with my wife. Should we consider anything before purchasing?
A: Assuming you rent the property for 70 days or more, and it is available to be let for 140 days in any one tax year, it will be taxed as a Furnished Holiday Let. This has favourable tax treatment for income tax purposes if you make a loss and capital gains tax purpose if you ever decide to sell it for a profit.
However, Landlords often forget that holiday accommodation is also standard rated for VAT. Even as the total rents of £7,000 are well below the VAT threshold, as you are the sole owner of the property you will need to charge VAT on the rents, as you also operate another VAT registered business.
One way to avoid having to charge VAT is to purchase the accommodation as a joint venture with your wife, not least for the income tax saving available now that your wife is now longer employed, to utilise her personal allowance. You will not need to charge VAT on the rents (unless you operate another VAT registered partnership with your wife), as it is treated as a separate entity for the purposes of VAT registration.
Non Resident renting a UK property
Q: I emigrated to Australia a number of years ago, but recently inherited a house from my late mother which is located in the UK. I have decided to rent this property out to a friend, and as such will not be engaging a letting agent. My friend will be paying the rent directly to me whilst I am abroad. Are there UK tax issues that I face on this rental income?
A: Even though you do not live in the UK, as the income arises here you will need to declare this to the UK tax Authorities. There are special rules for landlords who are classed as “Non Resident” for UK tax purposes.
If a tenant pays net rent of more than £100 a week (£5,200 per annum) to a non-resident landlord they must deduct basic rate tax (currently 22%) from the landlord’s UK rental income and pay the tax to the Inland Revenue’s Accounts Office, Cumbernauld. Tenants who pay net rent of £100 a week or less do not have to operate the scheme unless they are told to do so by HM Revenue & Customs. When working out the amount to tax, the tenant can take off tax deductible expenses that are incurred for the purposes of letting the property.
However, if your tax affairs are up to date or you do not expect to be liable to UK income tax for the tax year, you can apply as the landlord on form NRL1 to the Centre for Non Residents for approval to receive your rental income gross. You will still need to include this information on a UK self assessment tax return at the end of the tax year. For further information on the landlords and tenants responsibility see the information on www.hmrc.gov.uk/cnr website or contact your local TaxAssist accountant.
Starting a new business
Q: I am thinking of starting my own business on the 1st October this year. A friend who is currently self employed said I had to register as self employed. Can you please tell me how to do this and how soon do I have to register?
A: You have to be registered as self employed for National Insurance purposes within three months after the end of the month in which you became self-employed. In your case you would have to be registered by 31 January 2008, and failure to do so will result in a £100 fine.
There are various ways to register. The most popular ways being either by telephoning the Self Employed Registration Helpline on 08459 15 45 15, or by filling in form CWF1 which can be obtained from your local Inland Revenue office. In each case you will need to give your full name, address, post code, date of birth, national insurance number and, if you wish to pay the Class 2 national insurance by standing order, the details of the bank account from which it will be paid.
The form will act as a joint notification for both Tax and National Insurance purposes, and you will receive a 10 digit Unique Taxpayer Reference (UTR) for tax purposes, together with a tax return to fill in for the 2007/08 tax year in April 2008.
Increased capital allowances on cars
Q: I am currently looking to purchase a new vehicle for my sole trader business. I have heard that there is an increased rate of Capital Allowances available if I bought a certain type of vehicle. Is this true?
A: Yes, there is currently an increased rate of 100% First Year Allowances available on electric cars or cars with C02 emissions of not more than 120g/km. To qualify for this increased rate are that the car should be first registered on or after 17 April 2002 and the expenditure is incurred between 17 April 2002 and 31 March 2008.
Also, the car must be unused and not second hand. It will meet this criteria even if it has been driven a limited number of miles for the purposes of testing, delivery, test driven by a potential purchaser or used as a demonstration car.
If you provide this vehicle to an employee to use privately they will receive a benefit in kind based on the list price when new of the vehicle, multiplied by 15% under current rates. However, in the 2006 budget, the chancellor announced that with effect from 6 April 2008, the employee will receive a reduced benefit in kind, as a new 10% appropriate percentage rate for company cars with CO2 emissions of 120g/km or below.
Your local TaxAssist accountant will be able to provide you with further information on the make and model of vehicles that qualify for this allowance.
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