May 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 - May 07.

It's amazing how many people still believe that income from offshore accounts is not subject UK tax, but if you live in the UK and are domiciled here, you must pay tax on all your income wherever in the world it arose.

The Taxman has now received details from the top five high street banks about offshore accounts held by UK residents, including the balances held and transactions made through the account. He would like to enquire into each one of these accounts where the details do not match what has been declared on a UK tax return, but he just doesn't have the resources to do so at present.

The solution, as far as the Taxman is concerned, is to use a carrot and stick approach to encourage taxpayers to declare their offshore income by launching a limited offer for voluntary disclosures. This has been dubbed a "tax amnesty" by many newspapers, but there is no reduction in the tax or interest due on the undeclared income. The only carrot is a fixed penalty of 10% if before 22 June 2007 you tell the Taxman you are prepared to come clean. This compares to a probable penalty of 30% to 50% that would apply to a voluntary disclosure outside this scheme. However if the undeclared income is under £2,500 there will be no penalty charged at all.

If you take up the Taxman's offer you need to make a full disclosure of all your undeclared tax liabilities, including VAT and business taxes, even if these are not connected with the offshore account, and pay all the tax, interest and penalties due by 26 November 2007. This disclosure must cover the last twenty years, so it is not a small task. The Taxman will also want to know how the capital came to be in the offshore account, and whether UK tax was paid on the funds before they were deposited there.

If you need further advice on what to do in your own situation, please contact us.

Newsletter issue - May 07.

If you have no valid Will when you die your assets are divided up according to the intestacy rules, which set out a strict order of relations who must inherit all your worldly goods. If you own more than £125,000 at your death, your spouse (or civil partner), will only get £125,000 and a right to use half of the reminder during his or her lifetime. The balance is divided between your children, or if they have died, your grandchildren. This could mean that the family home will have to be sold if your children and grandchildren don't agree.

The situation is much worse if you are not married to your partner, as they have absolutely no rights on your death at all. Unless your partner owns part of the home you share, he or she could be made homeless when you die. If your parents are no longer living at the time of your death, all your wealth will be shared between your brothers and sisters, and if they have died, it goes to your nieces and nephews. This could mean your assets, including the value of your home, are given to relatives you hardly know, and who may not have any loyalty to your partner.

The best policy is to have a properly written Will, but unfortunately to save tax when leaving assets to your partner you must be legally married or in a same-sex civil partnership. A so-called common law relationship is not legally recognised, even if you have been living together for years and have children together.

Newsletter issue - May 07.

If you drive a company owned van you are now taxed on an extra £3,000 per year, plus a further £500 if the company pays for the fuel. These new scale charges came in on 6 April 2007, but there is a way of avoiding them completely if you keep good records.

The Taxman has said that where the van is only used for travelling between your home and work, there is no significant private use so the tax charge does not apply. It is crucial that you can prove the van is only used for work related journeys, as otherwise the Taxman will assume you have used it for personal shopping trips, holidays or even social activities.

Short of having a camera constantly running in the cab, the best way to prove how the van was used is through mileage records. For example, by keeping a log of every business journey and a record of regular trips such as from home to work, and compare the total business miles to vehicle's milometer on a regular basis. If your company runs a number of vehicles draw up clear company policy on the use of vans, and make sure each driver has signed an undertaking not to use the van for purely private journeys.

Newsletter issue - May 07.

If you provide fuel to the drivers of your company cars you have to pay the VAT on the fuel scale charge where any of the fuel is used for private motoring. The scale charge has just been altered for VAT periods beginning on or after 1 May 2007 (see below), to take account of the CO2 emissions of the car, as opposed to engine size previously used. You will therefore need to adjust your VAT calculations for the next quarter.

The CO2 emission figure can be found on your car registration certificate or on www.vcacarfueldata.org.uk

Newsletter issue - May 07.

Q. Can I treat my buy-to-let property as my main home so it is exempt from capital gains tax?

A. You can only treat your buy-to-let property as your main home for capital gains tax purposes if you actually live in it for a period, so the property cannot be let out at the same time. This period can be quite short, such as a few months, but you do need to have some evidence that you lived there to show the Taxman if he should ask, such as utility bills or correspondence. If you also have another home which you plan to return to you need to make an election to state which property is your main residence.

Q. I have received a leaflet from the VATman that says the flat rate VAT scheme would save me a lot of time and hassle, is this true?

A. Under the flat rate VAT scheme you simply multiply your gross sales (including VAT) by a percentage ranging from 2% to 13.5%, depending on your trade sector, to calculate the VAT you owe the VATman. This may be quicker than adding up all the VAT paid on your purchases, and deducting that figure from the VAT charged on your sales, but it could cost you money. If you are in a sector with a high flat rate percentage, or you have a high ratio of purchases to sales, you may end up paying more VAT to the VATman under the flat rate scheme. However, in other cases you can pay less VAT. Ask us to help you with the calculations.

Q. My mate is starting a new business and wants me to invest. Should I lend him the cash or buy shares in his new company?

A. If the business fails you are more likely to get your money back from a loan than as shares, especially if the loan is secured on the assets of the business. If your loan is not repaid you can claim a capital loss, which can be used against you other capital gains, if you have any. If you subscribe for shares and the company fails you can claim the amount paid for shares as an income tax loss, which is usually better for tax purposes. If the business is very successful you won't make a profit from the loan if the business is later sold for a huge amount, or becomes listed on the stock exchange. To realise those gains you need to hold shares in the company.

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

All clients are entitled to fixed fees, work delivered on time and unlimited phone support. Visit our website jbenedict.co.uk for more information.