September 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 - September 08.

Inspired by the efforts of Team GB's cycling squad at the recent Beijing Olympics? Then why not implement a Cycle to Work scheme and award yourself a gold medal for achieving tax savings for both you and your employees. How is this possible?

Let's say, Mark, under his employer's scheme, chooses to have the loan of a road bike retailing at £499. His employer buys the bike and reclaims the VAT on the purchase - reducing the cost of the bike immediately to £425 (£499 x 100/117.5). By Mark agreeing to a salary sacrifice, his gross pay is reduced by £23.61 per month over say 18 months to meet this net amount. However, the monthly net cost to Mark will only be £16.29 (£23.61 x 69%) because he saves income tax (at 20%) and NI (at 11%) on what would have been his gross pay.

At the end of the 18 month agreement period Mark's employer offers the ex-loan bike for sale at a fair market price which will be substantially reduced from the new price, perhaps just £40. The cost to Mark is: net salary given up £16.29 x 18 months = £293.22 plus the cost to buy the bike at end of the period = £40 .Total cost £333.22 or 67% of the price the employee would have to pay outside such a scheme. As well as saving employers NI on the salary sacrificed Mark's employer can include the cost of the bike within their new Annual Investment Allowance claim, and obtain a 100% write off in the first year against Tax.

This is just an example. There are various ways the tax savings could be structured between employee and employer but you get the idea!

The Cycle to Work exemption removes the tax charge (and need for a P11D entry) on a benefit-in-kind that would otherwise apply to cycles and cyclists safety equipment loaned to employees. The key conditions, other than those for any salary sacrifice scheme, are that:

1. ownership of the equipment must not be transferred to the employee during the loan period;
2. employees must use the equipment mainly (say 50%) for qualifying journeys; i.e. between the home and workplace, or part of (for example, to the station), or between one workplace and another ; and
3. the Cycle to Work scheme must be made available generally to employees of the employer concerned and not confined to directors or offered to them on more favourable terms. This scheme can be used by one person companies but not the self-employed.

Employees are not expected to keep mileage logs but you should make it clear to them that if they do not use the cycle mainly for qualifying journeys, they may lose the benefit of the tax exemption. Finally, you do not need approval from HMRC to set up or run such a scheme.

Newsletter issue - September 08.

Let's say you are feeling generous, and want to share your wealth with your children. A gift on the occasion of a forthcoming birthday would seem like an ideal time to do so. However, gifts of assets are not generally free of Capital gains Tax (CGT) if their market value exceeds the value of the cost to the donor (you).

For example, if David gifts a property to his daughter in 2008/9 worth £150,000 (which was bought for £90,000) he would technically make a gain of £60,000, even though no money has changed hands. The CGT bill payable by him on this deemed disposal would be £9,072 (£60,000 - annual CGT exemption of £9,600 = £50,400 x 18%). This would need to go on your tax return for 2008/9 and the tax settled by 31 January 2010.

So what if anything can you do about this? If you are married, you could transfer a half share of the property to your spouse/civil partner first. Transfers between spouses are CGG free. Both of you could then gift your shares in the property to utilise two annual exemptions. Care should be taken that the transfers are not too close together to avoid the risk of HMRC seeking to ignore the transfer to the spouse and taxing the entire gain on you.

Gifts can be spread over two or more tax years so that more than one annual exemption is used. For example, if you transferred half a share to your spouse and you each gifted a quarter share away for four years, then more of the gain each year could be covered by the annual exemption. To summarise you can make a tax free transfer of property to spouse/civil partner but not to children and other relatives.

Newsletter issue - September 08.

Having an invalid VAT number amongst your documentation when the VATman investigates can be a costly problem. However, there are ways to minimise this risk.

The two danger areas for invalid VAT numbers are:

1. suppliers pretending to be VAT registered; and
2. exports to EU customers (if you have them).

What's the problem with suppliers? As an unregistered person is not able to issue a proper VAT invoice HMRC will not support your claim to recover input VAT on that invoice, so they may well ask for it back. The most face saving thing you can do is to check a sample of VAT numbers on an annual basis (not just new suppliers) and keep a record of this on file.

For new suppliers ring the VAT National Advice service (on 0845 0109000) and ask if the supplier number is valid and belongs to the address given. Unfortunately HMRC won't tell you any more than this. You should also check out the business address given on the invoice. It is now a legal requirement for any business to declare exactly where it trades from. And check the phone number by using directory enquiries for the business name and address given.

Exports? You can only zero rate your sales of goods to VAT registered customers in member states providing you...

1. obtain their VAT registration number and quote it in your sales invoices; and
2. have commercial evidence that the goods have been removed from the UK within three months.

Sales to unregistered customers are subject to UK rates. When you ask for a valid VAT number you might not get an immediate answer from your export customers. If this is the case, always keep some form of documentation to satisfy HMRC (if they visit) but do follow up to make sure you get the VAT number.

The above steps prove that you have done you best to establish the validity of VAT numbers given to you. You have acted in "good faith" and your input claim should not therefore be overturned.

Newsletter issue - September 08.

In our August newsletter we reminded you about tax and NI free mileage rates for using your own car for business journeys. However, questions about mileage are still very topical given recent rises in running costs. How can you maximise a tax-free payment from your company?

When an employee takes colleagues on business trips in their vehicle, they can be paid up to 5p per passenger mile without deduction of tax and NI, provided the passenger is also travelling for business purposes. This effectively extends the current tax and NI free mileage rate to 45p and 30p respectively on journeys with one passenger; 50p and 35p on journeys with two passengers, and so on. However, the additional passenger rate of 5p must be paid to you; it's not something you can later claim through your tax return.

More significantly, you might just not realise how many business errands you and your family run, during a tax year...

• Who picks your customers up from the airport or railway station?
• How many times have you called for a lift after a late night function?
• And what about the last minute dashes to: the bank to pay in cash/cheques; get something urgent in the post; or collect cheques from late payers rather than have them say "it's in the post".

Small amounts of mileage claimed from the company can add up to large amounts that are tax and NI free.

For 2008/9 why not get your company to pay out a lump sum now, to cover your mileage for the whole tax year. For example, if your anticipated business mileage for 2008/9 is 2,500 miles then you could take a lump sum of £1,000 (2,500 miles x 40p per mile). You then keep a record of the mileage as you go along, settling up with the company before the tax-year end with a balancing payment or refund. A simple way of proving the mileage between two points is to use one of the route planners available on the internet. In fact this is the method a tax inspector would use if he was checking mileage claims.

Newsletter issue - September 08.

Q. I run a restaurant and employ a lot of part time staff. I've heard I've got to exclude their tips from their wages when calculating whether I am paying the National Minimum Wage (NMW). Is this true?

A. No immediate action is required on this. Yes, the government has announced that NMW legislation will be changed so that tips will not be able to be counted under any circumstances as part of an employee's NMW entitlement. However, this isn't expected to take effect until sometime in 2009.

Q.My sister and I are about to inherit our late mother's house - a 50:50 share each. The property is valued at around £220,000. If I was to buy my sister out of the property, would I have to pay stamp duty?

A. Stamp Duty Land Tax (SDLT) is charged, at varying rates, on the consideration given for a land transaction. The Chancellor has just announced an increase in the Stamp Duty threshold for 12 months from on or after 3/9/08 and as a general rule, no tax is payable on transactions in residential property if the consideration does not exceed £175,000 (previously £125,000). Tax is payable at: 1% between £125,001 and £250,000; 3% between £250,001 and £500,000; and 4% above £500,000.

So no, you will not pay SDLT as the market value of the share you are buying is under the 1% threshold of £125,000. If you were at one of the SDLT thresholds you should consider identifying any fixtures and fittings you might want to pay your sister separately for. These are then excluded from the SDLT calculation.

Q. If I and my business partners meet at a local hotel to discuss future business plans, having a meal whilst there, will the cost of this be tax deductible?

A. Providing you definitely hold a meeting and could produce minutes to prove this, it is not for HMRC to challenge the scale of your "meetings" budget. For the avoidance of doubt add to those minutes that you have chosen to eat in the restaurant to avoid the cost of hiring a room or to enable you to meet in the evening and so not waste the working day. Of course if you meet in a hotel and refreshments are part of the package involving room hire, then the total cost plus travel costs would be allowable.

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