Q. I've heard that tax relief on childcare vouchers is changing from April 2011. How can I maximise the tax relief from this scheme while it lasts?
A. Employers can currently supply their employees with childcare vouchers worth up to £55 per week, which are completely free of tax and NI. However, employees who join the childcare voucher scheme from 6 April 2011 will only be able to receive vouchers worth £28 per week, if they pay tax at the 40% rate. Those employees in the childcare voucher scheme before 6 April 2011 will not have the value of their vouchers limited, and neither will employees taxed at the basic rate of 20%.
To gain maximum advantage from the scheme you need to bring into your childcare voucher scheme as many employees as qualify before 6 April 2011. Unfortunately employees who are not yet parents, or do not have parental responsibility for a child aged under 16, do not qualify to join the childcare voucher scheme. The childcare vouchers can only be used to pay for childcare provided by a registered or approved childcarer.
Friday, 4 February 2011
Can I claim entrepreneurs' relief on the whole of the capital distribution paid to me?
Q. In January 2008 I formed C Ltd with my wife, we were both directors and held 50% of the shares each. In March 2010 we split up, her shares were transferred to me and she also resigned as a director. C Ltd ceased trading in July 2010, and it will be wound up informally. Can I claim entrepreneurs' relief on the whole of the capital distribution paid to me on the winding up, or will just part of the distribution qualify because I only held 100% of the shares for the last 4 months that C Ltd traded?
A. You qualify for entrepreneurs' relief on gains arising from all your shares in C Ltd, as you held at least 5% of the ordinary shares for 1 year up to the date the company ceased trading, and you were also a director of C Ltd throughout the last year of trading. Therefore any shares you held in C Ltd qualify for entrepreneurs' relief, and you will pay capital gains tax at 10% on the capital distribution (after deduction of your annual exemption of £10,100), rather than tax at 28% or 18%.
A. You qualify for entrepreneurs' relief on gains arising from all your shares in C Ltd, as you held at least 5% of the ordinary shares for 1 year up to the date the company ceased trading, and you were also a director of C Ltd throughout the last year of trading. Therefore any shares you held in C Ltd qualify for entrepreneurs' relief, and you will pay capital gains tax at 10% on the capital distribution (after deduction of your annual exemption of £10,100), rather than tax at 28% or 18%.
How do I calculate my share of the profit?
Q. My husband inherited a house in 1986 when it was worth £40,000. He gave me a half share in the property in 2009 when it was worth £450,000. We sold the property in December 2010 for £460,000, but we never lived there. How do I calculate my share of the profit?
A. As you and your husband were living together during the tax year in which he gave you a half share in the property, that gift is deemed to be made at a value that creates no gain and no loss for your husband. Thus in 2009 he disposed of half the property to you at a value of £20,000, the tax cost of which was half the probate value: £20,000. Hence he makes no profit on his gift (£20,000 - £20,000 = nil). The market value of the property in 2009 is irrelevant. You acquire the half share in the property in 2009 at a deemed cost of £20,000.
When the property was sold in 2010 your share of the proceeds was £230,000 (£460,000/2) and the cost of your half share was £20,000. Your share of the profit (taxable gain) is £210,000 (£230,000 - £20,000). Your husband has also made a taxable gain on the sale of the property of £210,000. You can both deduct an annual exemption of £10,100 from your share of the gain, but the balance of the gain will be subject to capital gains tax.
A. As you and your husband were living together during the tax year in which he gave you a half share in the property, that gift is deemed to be made at a value that creates no gain and no loss for your husband. Thus in 2009 he disposed of half the property to you at a value of £20,000, the tax cost of which was half the probate value: £20,000. Hence he makes no profit on his gift (£20,000 - £20,000 = nil). The market value of the property in 2009 is irrelevant. You acquire the half share in the property in 2009 at a deemed cost of £20,000.
When the property was sold in 2010 your share of the proceeds was £230,000 (£460,000/2) and the cost of your half share was £20,000. Your share of the profit (taxable gain) is £210,000 (£230,000 - £20,000). Your husband has also made a taxable gain on the sale of the property of £210,000. You can both deduct an annual exemption of £10,100 from your share of the gain, but the balance of the gain will be subject to capital gains tax.
Tuesday, 7 December 2010
What tax allowances will the company get for the cost of a car over three years?
Q. My company is planning to get a new Freelander car (emissions 185g/km). It will keep the car for three years and then trade it in. What tax allowances will the company get for the cost of the car over those three years?
A. As the vehicle has high emissions the full cost of the car must be allocated to the special rate pool for capital allowances. Currently 10% of the balance of the special rate pool is set against the company's profits for tax purposes each year. However, from April 2012 only 8% of the balance in the special rate pool will be tax allowable. When the car is traded in after three years the trade-in value will be deducted from the balance on the special rate pool. However, if the company makes a loss on the car that loss cannot be deducted from the company's profits for the year.
A. As the vehicle has high emissions the full cost of the car must be allocated to the special rate pool for capital allowances. Currently 10% of the balance of the special rate pool is set against the company's profits for tax purposes each year. However, from April 2012 only 8% of the balance in the special rate pool will be tax allowable. When the car is traded in after three years the trade-in value will be deducted from the balance on the special rate pool. However, if the company makes a loss on the car that loss cannot be deducted from the company's profits for the year.
How will my furnished holiday let be taxed in 2011/12?
Q. I have a holiday cottage that just managed to qualify as furnished holiday lettings as it was let for 70 days in 2010/11. How will it be taxed in 2011/12 and what tax relief will I get for any loss I make on that property?
A. The Government is expected to announce changes to the way profits and losses from furnished holiday lettings are taxed, with effect from 6 April 2011. The proposals include increasing the number of days the property must be let per year from 70 to 140. Unless you manage to let your holiday cottage for the new number of qualifying days (expected to be 140) in 2011/12, it will be taxed just like any other let property. This means any loss you make on the letting can only be carried forward and set against a profit you make from your lettings business in the future.
A. The Government is expected to announce changes to the way profits and losses from furnished holiday lettings are taxed, with effect from 6 April 2011. The proposals include increasing the number of days the property must be let per year from 70 to 140. Unless you manage to let your holiday cottage for the new number of qualifying days (expected to be 140) in 2011/12, it will be taxed just like any other let property. This means any loss you make on the letting can only be carried forward and set against a profit you make from your lettings business in the future.
Can I set those losses against the profits made on letting the properties held in my own name?
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.
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.
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.
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