August Tax Tips & News

Welcome to the Benedicts Tax Tips & News monthly newsletter, bringing you the latest news to keep you one step ahead of the taxman.

If you need further assistance just let us know or send us a question for our Question and Answer Section.

We’re committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.

Please contact us for advice on your own specific circumstances. We’re here to help!

Newsletter issue - August 08.

It's the holiday season and you may be tempted to get your limited company to pay for some or all of your holiday costs. If you do this you will normally be taxed on the entire cost, but exactly when you pay the tax depends on how the holiday was arranged.

If your company contracted with the travel agent, airline or hotel to provide tickets and accommodation, the cost is not immediately taxable on you. But where the trip had no business function the cost must be included on the annual form P11D and you will pay the tax due in the following tax year, or the next one. The company has to pay class 1A national insurance at 12.8% on the value of benefits declared on the form P11D, but you as the employee do not have to pay NI on the cost.

Alternatively you may have arranged the holiday yourself and then your company picks up the bill. In this case the cost of the holiday should be treated as extra salary at the time the company pays the bill, so effectively the cost is put through the payroll, incurring both employers and employees NI.

It is possible that some part of your trip is business related. Perhaps you have a customer in Switzerland you need to visit. If your company pays for you and your spouse to spend a week in Switzerland the total cost of the trip must be apportioned according to the business and private elements. You should record who attended the business meetings, on what days they were held, and any associated costs such as local travel, and meals. If your spouse was not involved in the business meetings, their air fare and accommodation is not a business expense, so must be declared on your P11D, or on their own P11D if they are also an employee of your company.

The tax rules are different for companies and for unincorporated businesses. When you work as a sole-trader or in a partnership, there is no employers' national insurance due when the business pays for the owner's private expenses such as a holiday. The private element of the trip is treated as part of the business owner's profit for the period and will be subject to income tax and class 4 NI, just like the rest of the profits made in the period.

Newsletter issue - August 08.

The announcement by the Chancellor Alistair Darling about the changes to the personal allowance and the basic rate tax band for 2008/09 took HMRC by surprise as much as everyone else. It has taken a few months to work out how to tweak the PAYE system so everyone pays the right amount of tax in 2008/09.

HMRC have now decided not to reissue every single PAYE code. Instead employers will have to add 60 to every PAYE code that has an L suffix. This means code 543L will become 603L. For all other letter suffixes you must wait for a new PAYE code to be issued. L is the most frequently used suffix, so you as an employer are effectively doing HMRC's work, and picking up the costs incurred by the Chancellor's change of mind.

The new codes should be applied from the first payday on or after 7 September 2008. The PAYE tables, or your payroll computer system, will ensure that monthly paid employees, who are on the basic rate of tax will receive a tax reduction through the payroll of around £60 over the remainder of the tax year. This will normally reduce the employee's total tax deductions for the month, but in rare cases it will create a refund for the employee of tax he has paid earlier in the tax year.

Where a refund of tax is due you should deduct the amount needed to make the refund from the total of PAYE, NICs, CIS and student loans due to be paid over to HMRC for that period. If this total is not large enough to cover the refunds due to your entire workforce, you can ask for funding directly from HMRC. Do this by contacting the relevant HMRC Accounts Office by post or fax. You also need to inform the HMRC Accounts Office that there is no PAYE payment to make for the period, by telephoning 0845 366 7816 with your payroll details or online at:
http://www.hmrc.gov.uk/howtopay/paye_nil.htm

HMRC are sending out new PAYE tables and guidance to all employers included on an employers' CD-ROM in August. You will also be able to order paper versions of leaflets and forms from the HMRC orderline (08457 646 646) after 12 August. If you have any questions about how to treat new employees, dealing with student employees or related matters do ask us.

Newsletter issue - August 08.

When you sell the shares in your own company there are few VAT implications. The VAT registration will normally go with the company, as it is the company that is VAT registered not you as the owner of that company. If you are a director of the company you will want to resign, tell Companies House and tell the HMRC VAT office you are no longer a director.

Where you sell the assets and trade of your business, either out of your company or as a sole trader or partnership business, the transfer may qualify as a transfer of a going concern (TOGC). If TOGC applies you don't charge VAT on the transfer of the assets. The conditions for a TOGC to apply for VAT purposes are:

• the entire business is transferred as a going concern; or
• if only a part of a business is being sold, that part must be capable of separate operation; and
• the purchaser must use the assets in the same kind of business, which may be as part of an existing business; and
• the purchaser should already be VAT registered, or becomes VAT registered as a result of acquiring the business.

Your business need not be profitable at the time of transfer. The TOGC treatment can apply to a trading business sold on by a liquidator or by an administrative receiver.

If the conditions for TOGC are not met and you are VAT registered, you must charge VAT on the sale of each of the assets. Certain types of real property will be zero-rated or exempt from VAT, so ask us for advice in advance if the sale includes land or buildings.

Newsletter issue - August 08.

If you receive less than 40p per mile from your employer for using your own car on business journeys you can claim the extra back from the tax office. Many public sector employers, such as local authorities, do pay less than 40p per mile but their employees may well have to undertake long business journeys to attend compulsory training courses.

If you are in that position you need to calculate the total of the mileage expenses you received in the tax year, and the maximum due using the HMRC rates. Say you claimed for 1500 miles at 25p you will have received £375 (1500 x 25p), but using the HMRC rate of 40p you could claim a further £225 against your taxable income (1500 x 40p £375). You can make that claim on the employment pages of your tax return. Or if you don't complete a self assessment tax return you can simply write to the tax office that issues your PAYE code with the details of your claim. To make this easier HMRC have produced a claim form P87. You can also submit claims for the last six tax years back to 2002/03.

Newsletter issue - August 08.

Q. My Uncle has recently died and my elderly father inherited the entire estate of about £400,000 under the intestacy laws, as there was no Will. Can anything be done to divert the gift from my father to avoid this money forming part of his estate and attracting another large inheritance tax bill when he dies?

A. Yes, if your father is still of sound mind he can disclaim the gift from your Uncle by using a deed of variation. This can apply whether there was a Will or not. The deed must be drawn up and signed within two years of your Uncle's death. It will not affect the inheritance tax (IHT) paid on your Uncle's estate, (unless the money is diverted to charity) but it will avoid IHT arising on the same funds for a second time as part of your father's estate.

Q. I was in a serious accident in early 2007 and haven't worked since, but I've been sent a tax return to complete for 2007/08. Do I have to include the incapacity benefit I received on my tax return form?

A. Some types of incapacity benefit are taxable and some are not. The long term benefit (paid after 28 weeks), and the higher rate of the short term benefit are both taxable. The Benefits Agency will normally take the tax due off the gross benefit before they pay the net amount to you, based on your PAYE code, just as if the benefit was a normal wage. If you don't know exactly what amounts were paid to you and what tax was deducted during the year to 5 April 2008, ask the Benefits Agency to confirm the figures. They will normally do this over the phone, but they should put it in writing if you request that.

Q. I have a large collection of music CDs that I built up over twenty years. I am now gradually selling these CDs online and through magazines, as many are rarities. Do I have to report the money I make to the tax office?

A. If your CD collection was purchased for you own enjoyment and not with the aim of selling the individual items, you are not trading as a CD dealer, you are just disposing of some surplus personal property. The money you receive is not subject to income tax as you are not trading, and as long as each CD sells for less than £6,000 there is no capital gains tax to pay.

Benedicts Accountants are based in London, offering local business owners and individuals a wide range of services.

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