Entries from July 2006 ↓

If you want to claim back the VAT when you purchase a new car make sure the car is only used for business purposes and no private journeys are made in it.

The most common way to do this is to have the car as a pool car for use by various employees. Here’s some of the areas that the Taxman asks about pool cars:

- private use must be banned (include in employment contract ideally);
- keep a log of actual use / reasons for the journey;
- the car must normally be kept at the business premises overnight;
- it should be insured for business use only;
- employees must have another car available for their private journeys.

You don’t have to have all of the above in place but the more you do have the more likely the Taxman will allow you to claim back the VAT.

Your tax circumstances can change each year. If you jointly own property that is rented out you can vary your respective share of the rental profits to suit your situation year on year.

It is an idea to give a greater share to the lower earning partner as they could well be paying tax at a lower rate. However, this loophole will not work for married couples or registered civil partnerships.

Here’s how to do it:
- before the beginning of the tax year record the profit shares that will apply for the year;
- ensure that the monies are paid into the right bank accounts to reflect the agreed profit shares;
- if the Tax man challenges you quote his own guide book to him - para PIM1030.

You can also rest assured that when you sell the property in the future, the gain is determined in accordance with your actual ownership - past profit shares have no impact.

Up to 14,000 taxpayers have received an ‘intervention’ letter this week from HM Revenue & Customs

The government has sent out 70 different kinds of letter, detailing common mistakes in tax filings that individuals may have made. The letters are intended to resolve problems without opening costly enquiries.

An example letter provided by HMRC suggests taxpayers look again at their arrangements and re-file returns: ‘I am not suggesting that you have made errors but I would like you to review your declarations made within the past 12 months and let me have, by (insert date), details of how any such (disposals/transactions) were dealt with together with: confirmation that your declarations are correct; or a schedule of disposals/transactions) along with your revised figure for (tax type), in order that I can recalculate your tax liabilities,’ .

If you receive such a letter don’t get too worried; it doesn’t necessarily mean that you have done anything wrong or have an unkown tax liability somewhere. By all means double check that what you have submitted is indeed correct or speak to your accountant, but bear in mind that HMRC are just targetting those people that statistically are either more likely to make an error or hide something. If you are confident everything is okay then stick to your guns.

The government has awarded tougher powers of search and seizure to tax inspectors and other Revenue & Customs staff.

But the use of the powers provided under the Serious Organised Crime and Police Act, which came into force in April, is limited to cases where their use has been sanctioned by the new Revenue & Customs Prosecution Office (RCPO).

The powers are now available for use by RCPO in respect of tax offences. They concern the serving of disclosure notices, obtaining material, conducting compulsory interviews and executing search warrants.

If you need an office at home for your business or you need to store your stock in your garage here’s some ideas to get the taxman to pay for some of the costs.

Self employed
You can claim for the additional costs of working from home. So, apportion the variable costs of running your home (gas, electricity, water, insurance etc) by the numer of rooms used (including a garage for storage, if appropriate). E.g. if you use 2 rooms out of a total of 6 then claim for one third of these costs.

Employed
This is more difficult to claim for than the self employed. However, our favourite solution is to rent the room(s) to the company. It means you have to fill in the rental pages on your tax return but you do get to claim for an appropriate part of the costs (including council tax, mortgage interest) which should elminate any tax bill (if you set the rental levels correctly!). We would also recommend having a written rental agreement in place, just in case the taxman comes knocking.

The VAT man has confirmed that he has developed a computer search engine to target high volume e-commerce traders.

The number of people who make a second income on websites such as eBay has grown massively recently and the VAT man in now trying to take a slice of the cake.

If traders exceed the VAT registration limit of £61k in a 12 month period they should be completing VAT returns or expecting a knock on the door from the VAT authorities.

UK Company law is being revised to make life simpler for small companies. However, one side effect of this will be to reduce the amount of time directors have to submit their accounts to Companies House from the current 10 months down to 7 months.

If you company year end is 31 March you will have to finalise and submit your accounts by 31 October rather than 31 January of the following year.

The Taxman now seems to be getting in on the act. We have heard reports that he is thinking of reducing the deadline for company tax returns from 12 months down to 9 months after the end of the company’s year.

All this will obviously put more pressure on getting your accounts finalised sooner. One solution may be to change your year end so that the new submission deadlines fall in to a quieter period for your business. For example, if your business is selling sun tan lotion a December year end would make more sense than a June year end.

Back in March we reported on the proposed new deadlines for filing your self assessment tax return.

We are pleased to report today that Lord Carter has done somewhat of a u-turn and has recommended that the deadline for online filing remains as 31 January while the paper return deadline is moved forward by 3 months only to 31 October.

We think this is a much more sensible recommendation!

Although Gordon Brown did a u-turn in the March 2006 Budget and increased the tax rate for small companies back to 19%, there can still be significant tax savings to be had by running your business through a company compared to the alternative of being self employed.

For a start, the 19% company rate is still 3% less than the equivalent 22% self employment tax rate. In addition you can get out of the 8% national insurance that the self employed have to pay by taking dividends rather than salary from the company.

Companies pay their tax bills 9 months after their year end whereas self employed pay it partly during the year and partly 4 months after the end. So there is also a significant cash flow benefit to being a company.

If you are currently self employed there are additional tax benefits to be had if you transfer your business into a company. For example, by selling the goodwill, plant & machinery, computer equipment etc to the company it is possible for you to make tax free profits in the company of up to the value of those assets.

So, even though you may hear that some of the benefits of incorporating a business have gone - we think it is still worthwhile.

If you take on self employed sub-contractors please note that the Taxman is taking a new approach as to who should pay their tax bills, in certain circumstances.

If he says your subbies are really employees of your business he will now come after you for the whole of their tax/NI bill. In the past you would only have to pay the shortfall of tax after taking into account the self employed tax already paid by the subbies. Subbies can be deemed to be employees in many circumstances - ask your accountant if this could apply to you.

The tax liability can cover the previous six years which is when the amounts can really start to add up.

Our recommendation is to get your subbies to sign a tax mandate which gives you permission to offset tax paid on their self employment record against any tax bill you might be landed with. Make this a condition of your contract with them.