Q. My family has invested in rental properties over a number of years. Some properties are held in my name alone, others are owned jointly with my sister. The properties held with my sister have made losses in the last year. Can I set those losses against the profits made on letting the properties held in my own name?
A. Yes you can. All your UK property interests are treated as one property business. So the net income from your own properties is amalgamated with your share of income and expenses from the jointly held properties, and the total needs to be reported on the property pages of your tax return. The Taxman will not treat jointly held let properties as being a partnership, unless the letting of the property is ancillary to a proper trading business.
Tuesday, 7 December 2010
Monday, 8 November 2010
Should I add those old sales receipts to the 2009 sales and declare the total in my 2009/10 tax return?
Q. While collecting together the papers for my self-employed accounts to 30 November 2009, I noticed £1,500 of sales should have been recorded in the accounts to 30 November 2008, but were missed from that year. Should I add those old sales receipts to the 2009 sales and declare the total in my 2009/10 tax return?
A. The correct approach is to amend your 2008/09 tax return with the increased sales figure for the 2008 accounts, so the extra income falls in the 2008/09 tax year. This adjustment will increase the tax due for 2008/09 and you will have to pay some interest on the late paid tax. If you supply the Taxman with a full explanation of the error, without being asked to do so, you will probably get away with a zero penalty.
If, as you suggest, you add the missing 2008 income to your 2009 accounts and include the total in your 2009/10 tax return you will pay approximately the right amount of tax overall, but for the wrong tax years. This mis-timing of tax payments can attract penalties as you need to pay the correct amount of tax at the right time. Both your 2008 and 2009 accounts will be technically incorrect. You would need to declare the adjustment to your 2009 accounts on your 2009/10 tax return. If you don't make a full disclosure of the error on your 2009/10 tax return and the Taxman discovers the 'fix', he may conclude you have deliberately concealed the error and impose a penalty of up to 100% of the tax underpaid for 2008/09.
A. The correct approach is to amend your 2008/09 tax return with the increased sales figure for the 2008 accounts, so the extra income falls in the 2008/09 tax year. This adjustment will increase the tax due for 2008/09 and you will have to pay some interest on the late paid tax. If you supply the Taxman with a full explanation of the error, without being asked to do so, you will probably get away with a zero penalty.
If, as you suggest, you add the missing 2008 income to your 2009 accounts and include the total in your 2009/10 tax return you will pay approximately the right amount of tax overall, but for the wrong tax years. This mis-timing of tax payments can attract penalties as you need to pay the correct amount of tax at the right time. Both your 2008 and 2009 accounts will be technically incorrect. You would need to declare the adjustment to your 2009 accounts on your 2009/10 tax return. If you don't make a full disclosure of the error on your 2009/10 tax return and the Taxman discovers the 'fix', he may conclude you have deliberately concealed the error and impose a penalty of up to 100% of the tax underpaid for 2008/09.
Do I have to pay him statutory sick pay (SSP) for the time he takes off due to these self-inflicted injuries?
Q. One of my employees frequently sustains injuries while playing sport, and as a consequence he takes regular periods off sick. Do I have to pay him statutory sick pay (SSP) for the time he takes off due to these self-inflicted injuries?
A. You are required to pay SSP to your employee if he earns at least £97 per week, for sick periods that last 4 days or more. Your employee needs to notify you of the sickness within the period set by your company rules, or by the 7th day of absence. You may require your employee to provide you with evidence of his incapacity to work from the 8th day of absence, by say providing a certificate from his GP (now called a 'fit note'). Don't forget you can reclaim the amount of SSP that exceeds 13% of the class 1 NIC due for the month of payment.
A. You are required to pay SSP to your employee if he earns at least £97 per week, for sick periods that last 4 days or more. Your employee needs to notify you of the sickness within the period set by your company rules, or by the 7th day of absence. You may require your employee to provide you with evidence of his incapacity to work from the 8th day of absence, by say providing a certificate from his GP (now called a 'fit note'). Don't forget you can reclaim the amount of SSP that exceeds 13% of the class 1 NIC due for the month of payment.
All the business receipts and payments have been processed through my personal bank account. Will that have any tax implications?
Q. I incorporated my business last year, but I haven't got round to opening a bank account in the company's name. All the business receipts and payments have been processed through my personal bank account. Will that have any tax implications?
A. You must open a bank account for the company as soon as possible as using your personal bank account could create a number of problems.
As the business was previously run in your own name the Taxman may not accept that the business has been transferred to your company, and want to tax you on any business income received into your personal bank account.
If the Taxman accepts the business was transferred to the company, you have further tax problems as your personal account holds funds that belong to the company. The Taxman will argue that those funds represent either a loan to you, or your salary. In either case a tax charge will arise unless you can repay the funds to the company, and this will be difficult without a company bank account! A third option is the funds you hold represent dividends. However, to pay a legal dividend the company must first show that it is making a profit.
A. You must open a bank account for the company as soon as possible as using your personal bank account could create a number of problems.
As the business was previously run in your own name the Taxman may not accept that the business has been transferred to your company, and want to tax you on any business income received into your personal bank account.
If the Taxman accepts the business was transferred to the company, you have further tax problems as your personal account holds funds that belong to the company. The Taxman will argue that those funds represent either a loan to you, or your salary. In either case a tax charge will arise unless you can repay the funds to the company, and this will be difficult without a company bank account! A third option is the funds you hold represent dividends. However, to pay a legal dividend the company must first show that it is making a profit.
Friday, 15 October 2010
Q. I have received several emails recently from organisations claiming I could use an employee benefit trust (EBT) to reduce tax. Is this a scam?
A. In outline a lot of EBT schemes works like this: the company pays money into the EBT and employees of the company receive a loan from the EBT in place of all or part of their salary. The employees pay tax on just 4% on the loan per year. This all sounds good, but there can be various problems in practice. Some schemes are more aggressive than others and you should be prepared for the Taxman to look very closely and try to challenge such arrangements. They are not for those not willing to take some risk and you should be made aware of all the risks involved before proceeding.
A large UK company has made a late payment of fees owed to my company. How do I deal with that tax in my accounts?
Q. A large UK company has made a late payment of fees owed to my company. They paid interest on the late paid amount, as they are required to do so under the contract, but they deducted tax from that interest. How do I deal with that tax in my accounts?
A. Your customer should not have deducted tax from the interest it paid, as both parties involved in the transaction are UK resident companies trading in the UK. Companies used to have to deduct income tax from annual amounts of interest paid, but that requirement was removed from 1 April 2001 where the recipient is a UK company. Ask your customer to pay you the amount of interest it has withheld as 'tax'. We can provide a longer explanation of the legal position if you need it.
A. Your customer should not have deducted tax from the interest it paid, as both parties involved in the transaction are UK resident companies trading in the UK. Companies used to have to deduct income tax from annual amounts of interest paid, but that requirement was removed from 1 April 2001 where the recipient is a UK company. Ask your customer to pay you the amount of interest it has withheld as 'tax'. We can provide a longer explanation of the legal position if you need it.
A neighbour told me I could claim back the VAT on my costs even though I am not a VAT registered builder. If that is true, how do I go about claiming?
Q. As I was made redundant last year I decided to take time out and build my own house. A neighbour told me I could claim back the VAT on my costs, even though I am not a VAT registered builder. If that is true, how do I go about claiming?
A. You can reclaim VAT correctly charged on your building materials and on most of your building services, using the VAT refund scheme for DIY builders. The claim form for new builds under this scheme (VAT 431NB) can be downloaded from the HMRC website, but be sure to also read the guidance notes. There is a different form (VAT 431C) to use where you are converting a property rather than building it from new. In either case you can't reclaim the VAT charged on professional services connected with the build, such as architectural or legal services. We can help you compile and submit your claim to the VAT office.
A. You can reclaim VAT correctly charged on your building materials and on most of your building services, using the VAT refund scheme for DIY builders. The claim form for new builds under this scheme (VAT 431NB) can be downloaded from the HMRC website, but be sure to also read the guidance notes. There is a different form (VAT 431C) to use where you are converting a property rather than building it from new. In either case you can't reclaim the VAT charged on professional services connected with the build, such as architectural or legal services. We can help you compile and submit your claim to the VAT office.
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