Happy New Year.
The newsletter concentrates this month on taking a look at some of the tax changes already in place or likely to be enacted this year - situations to avoid, and a possible change to come.
Tax Diary January/February 2005
1 January 2005: Due date for corporation tax due for the year ending 31 March 2004.
19 January 2005: PAYE and NIC deductions due for month ending 5 January 2005 (If you pay your tax electronically the due date is 22 January 2005)
31 January 2005: Last day to file your 2004 self assessment tax return.
31 January 2005: Due date for payment of any balance of self assessment tax and nic due for the year ending 5 April 2004.
31 January 2005: Due date for first payment on account for your self assessment tax and nic for the tax year to 5 April 2005.
1 February 2005: Due date for corporation tax due for the year ending 30 April 2004.
19 February 2005: PAYE and NIC deductions due for month ending 5 February 2005 (If you pay your tax electronically the due date is 22 February 2005)
28 February 2005: If you pay your balance of tax due for the year to 5 April 2004, AFTER this date, an automatic 5% surcharge will be added to the amount due. Interest will run from the 31 January 2005.
Self assessment 2004 - filing deadline imminent!
The 31 January 2005 is the deadline for filing your tax return for the year ending 5 April 2004.
After this date penalties may apply - returns filed after the 31 January will incur an automatic fine of £100.
Those clients and contacts who are struggling to meet the deadline, but who would like to pay their tax on time, could consider the following strategy.
The £100 fine is capped at the amount of tax owing. So if by the 31 January 2005 you have made a payment of any likely arrears of self assessment tax, which is sufficient to clear your actual liability, then no fine will apply. This will also mitigate any surcharges (see Tax Diary).
Obviously the only way to be sure that you clear the actual liability is to complete your return and calculate any tax due. If you underestimate your payment the fine may still be payable, in part or in full. If you over estimate your payment, no harm done - you can apply to have the excess repaid or set against 2004-2005 liabilities.
If you want to take advantage of this opportunity you should ensure that your payment on account is made before the 31 January 2005.
The payment on account towards 2004-2005 tax does not attract a penalty if paid late, but interest will be charged (see Tax Diary).
Please note that the above comments do not apply to partnership tax returns. If a partnership return is filed late each partner will be fined £100, irrespective of the amount of tax owing.
Let Property - which repairs can be written off against rents?
The following notes may be of use to clients who let dwelling houses:
1. Firstly a couple of definitions. Capital expenditure cannot be written off against your rents received - this type of expenditure will be added to the purchase cost of the property and will be deducted from the proceeds of any future sale of the property thus reducing any capital gains tax due. Revenue expenditure can be deducted from the rents you receive and will reduce your income tax bill.
2. Examples of Capital Expenditure:
- The purchase price of the property to be let including legal and professional charges.
- Any additions to the property - something added that was not there before. This would include not only extensions but also smaller items, for instance fitting an extractor fan in the bathroom for the first time.
- Changes made to a property prior to letting, adding bathrooms and so on.
3. Examples of Revenue Expenditure.
- Repairs to existing parts of - or in some cases all of, an appliance, fixture or fitting, or the fabric of the building. For instance replacing or repairing part of a fitted kitchen with units of a similar standard is considered revenue expenditure. However if the new units were of better quality - an upgrade - or if additional units were fitted, then this expenditure would be considered capital!
- The Revenue now accept that replacing single glazed windows with double glazed units is revenue expenditure.
Perhaps we should quote the Inland Revenue's definition of allowable revenue expenditure.
"Generally, if the replacement of a part of the 'entirety' is like-for-like or the nearest modern equivalent, we accept the expenditure is allowable revenue expenditure."
Certainly the possibilities for confusion are limitless. If you are unsure if the expenditure on your property is likely to be considered revenue or capital, and the tax treatment is critical, please call and we will do our best to clarify!
4. Letting commercial or holiday lets properties.
Notes 1 to 3 above refer specifically to repairs and improvements to let dwelling properties. If you own and let out commercial or holiday lets property there is an additional tax relief available. This additional relief is a capital allowance that will enable you to write off an agreed percentage of certain types of capital expenditure, against your rental income. The definitions of allowable capital expenditure are complicated so do call if you need advice.
Inheritance Tax - Frequent givers take note!
If you make significant gifts on a regular basis, the Inland Revenue will look carefully at any excess over the annual tax free limit of £3,000.
They will assume that these gifts are potentially exempt transfers out of your estate - and if you do not live for 7 years after the gift, then all or part of each gift may be added to your estate and increase any inheritance tax payable.
One way to eliminate this risk is to determine if the gifts have been made out of surplus income. What we mean by surplus income is money left over after all taxes and normal living expenses have been made.
More importantly gifts made out of surplus income are inheritance tax free! To qualify there should be an intention to make gifts on an annual or more regular basis.
If you consider yourself to be caught up in this type of conundrum, we can help you calculate and document your gifts and surplus income, year by year, and these reports can be kept with your will to keep the tax man at bay.
VAT - recovering the vat on fuel mileage claims.
At present UK employers are able to recover the deemed vat included in mileage claims made by employees.
The amount of vat is determined by applying a standard rate per mile for the fuel element to the usual vat fraction.
This recovery may be under threat.
Our government and the EU are "discussing" the issue in the European Courts.
The EU position is that vat can only be recovered by the person who makes the purchase. In the case of employees' fuel this is obviously the employee, not the employer.
The UK government is arguing the opposite, that employees stand in the place of their employers when they fill up their cars with fuel to use partly or wholly on work related journeys.
We should stress that this matter is still unresolved, and we will return to the subject when a final ruling is made.
Printable 'Tax News - January Newsletter 2005' Page
