Q. I try to run my business on green principles so all the company cars are hybrid petrol/electric models. But I've heard that the car benefit is going to increase for all these cars from April, how is this going to affect my employees?
A. The good news is where your hybrid cars have CO2 emissions levels of 120g/km or less, the taxable benefit will remain at 10% of the list price. The tax increase will only apply to cars with higher CO2 emissions. Hybrid petrol/electric cars in this category currently get a 3% reduction in the percentage of list price that forms the basis of the car benefit charge for employees. From 6 April 2011 that discount will be removed, and the regular 1% increase in list price percentage will apply to all cars. For example the taxable benefit for a hybrid car with CO2 emissions of 179g/km is currently 21% of the list price. From 6 April 2011 the benefit for this car will increase to 25% of its list price.
Friday, 4 March 2011
Do I have to pay tax on my property profits?
Q. My rental property makes a profit of £2,400 a year. I checked the HMRC website and it says I don't have to complete a tax return. Does that mean I don't have to pay tax on my property profits?
A. Although the HMRC website (www.hmrc.gov.uk/sa/need-tax-return.htm) says you don't have to complete a tax return if your income from property is less than £2,500, you should scroll down and read the text under 'Things to check if you don't need a tax return'. This makes it clear that you must tell the Tax Office about any new sources of income. The deadline for reporting new income is 5 October following the tax year in which the new income first arose. If this date passed sometime ago you need to contact the Taxman as soon as possible and declare all your income and expenses relating to your let property. The Taxman may decide to charge you a penalty for failing to declare your income at the right time.
You do have to pay tax on your property profits, but if the amount owing is small compared to your salary, it may be deducted through your PAYE code. In this case you don't need to complete a tax return each year, but without an annual tax return the Taxman will not know to vary your tax code if your rental profits increase or decrease.
A. Although the HMRC website (www.hmrc.gov.uk/sa/need-tax-return.htm) says you don't have to complete a tax return if your income from property is less than £2,500, you should scroll down and read the text under 'Things to check if you don't need a tax return'. This makes it clear that you must tell the Tax Office about any new sources of income. The deadline for reporting new income is 5 October following the tax year in which the new income first arose. If this date passed sometime ago you need to contact the Taxman as soon as possible and declare all your income and expenses relating to your let property. The Taxman may decide to charge you a penalty for failing to declare your income at the right time.
You do have to pay tax on your property profits, but if the amount owing is small compared to your salary, it may be deducted through your PAYE code. In this case you don't need to complete a tax return each year, but without an annual tax return the Taxman will not know to vary your tax code if your rental profits increase or decrease.
How do I pay tax bills electronically?
Q. I've been told that I will have to pay all my business taxes online very soon. How can I do this if I don't have internet banking?
A. It will be compulsory to pay corporation tax electronically from 1 April 2011, and to pay all VAT due electronically from 2012. However, there are no plans to make all PAYE or CIS payments electronic, yet. Electronic payments include direct debits, debit and credit card payments. You don't have to have internet banking, you can set up electronic payments with your bank by using telephone banking.
If you would rather pay your tax bills by cheque you can do so using a Bank Giro payslip at your own bank branch. This counts as an electronic payment, as do similar payments made at the Post Office counter by cheque, cash or debit card. You need to order the Bank Giro payslips specific to your business from HMRC.
A. It will be compulsory to pay corporation tax electronically from 1 April 2011, and to pay all VAT due electronically from 2012. However, there are no plans to make all PAYE or CIS payments electronic, yet. Electronic payments include direct debits, debit and credit card payments. You don't have to have internet banking, you can set up electronic payments with your bank by using telephone banking.
If you would rather pay your tax bills by cheque you can do so using a Bank Giro payslip at your own bank branch. This counts as an electronic payment, as do similar payments made at the Post Office counter by cheque, cash or debit card. You need to order the Bank Giro payslips specific to your business from HMRC.
Friday, 4 February 2011
How can I maximise tax relief on childcare benefits?
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.
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.
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.
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