Wimbledon Accountants

Tax Questions and Answers

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Tax Questions & Answers

 

Q. My company submitted a claim for a tax refund for £15,000 in January, but it still hasn't materialised. We really need that cash now. I've chased the Tax Office but get some excuse about security checks. How long will I have to wait for this money?


A. HMRC have imposed extra security checks on many tax refunds in an attempt to block fraudulent claims that have been flooding the system. These extra checks are slowing up refunds to genuine businesses. A six month delay is quite exceptional. Try writing to your Tax Office suggesting you will take the matter to your local MP if you do not receive the tax refund within 10 days.


Q. In the last two years I have lent my company in excess of £40,000, but now the company is insolvent and I will not receive any of that money back. Can I claim any tax relief for that loss?


A. Assuming your company was a trading company, as opposed to a company that just holds investments, you can claim a capital loss for your loan. The Tax Inspector may ask you to show the cash was used for the company's trade, rather than simply use to pay dividends, so be prepared to supply the company's accounts if requested.


Q. I was made redundant on 27 February 2009 from a job that paid £16,000 a year. Almost immediately I found a part time job that pays about £9,400 a year. I made a claim for Tax Credits as I am working 30 hours a week now, but I've received a Nil award. What should I do?


A. Your initial Tax Credits award is based on your income for 2008/09, which was too high for you to qualify for Tax Credits, assuming you are a single person with no children. However, on your current wage you should qualify for about £1,200 a year in Tax Credits. Just ring the Tax Credits Office and tell them your current wage rate. They should revise your tax credits award within weeks.


Q. My business requires me to spend up to 100 days a year away from home speaking at conferences. I always travel first class, to allow me to prepare notes on the train, and stay in four-star hotels. The Tax Inspector has said my expenses are excessive and I should only get a tax deduction for the cost of second class travel and two-star hotels. Is he correct?

 

A. The Tax Inspector is not correct. His own Employment Income Manual at paragraph EIM 31835 says: "The tests that apply to travel expense relate to the nature of the expense and not to the amount." It goes on to say: "You should not refuse a deduction for first class rail travel, if that has been incurred, on the basis that the same journey could have been made more cheaply in standard class". As long as the travel and hotel costs were incurred wholly and exclusive for your business of lecturing the full cost is tax deductible.

 

Q. I pay income tax at 40%, but my wife and child have no income at all. If I buy fixed income bonds in their names will the interest be effectively tax free, as it will be covered by their personal allowances?

 

A. When you buy the bonds in the names of your relatives you will be giving them the capital you invest, as they will have complete control of the bonds. There is no limit on the amount you can give to your spouse, although there could be inheritance tax implications. Your wife will be taxed on the interest from her bond, but if this does not exceed her personal allowance of £6,475, there will be no tax to pay. If your child is aged under 18, the interest from his bond will be taxed as part of your income if it exceeds £100 per year.


Q. If I start earning money from a website I have setup in my spare time, will I have to pay tax and national insurance on that income? I am also employed full time on a salary of £25,000 a year.

 

A. You should register your new web business with the tax office as a self-employed business. We can help you do this if you wish. Your self-employment will not affect your employment, and your employer need not know about your website business. However, you will have to complete a tax return each year to declare all of your income; from your business, employment and any investments. By registering as self-employed you will also be automatically registered to pay class 2 national insurance in respect of your self-employed profits. If these profits are expected to be less than £5,075 for the current year, you should complete form CF10 which is a request for exemption from paying class 2 national insurance.


Q. I have built up quite a good business as a music teacher with profits of about £80,000 a year. Should I incorporate my business?

A. The full answer to your question will involve a lot of detailed calculations concerning how much you want to draw from the business each year, what assets you use in the business - such as a car and musical instruments, and what other people may be involved - such as your spouse. However, your main consideration should be VAT. As a sole trader the private tuition you provide is exempt from VAT. However, because the service is one of private tuition, if you provide the same service as an employee of your own company, that tuition must be subject to standard rate VAT. If your customers are individuals they will see your prices increase by 15% once you start trading through your company.


Q. I retired from the civil service in 1992 and have just been informed that my civil service pension has been overpaid for every year since then. As this money has to be repaid to the Government will I get refund of the tax I paid on that income?

A. The overpayment of pension will be recouped by the Government by reducing the amount of pension you were due to receive from 6 April 2009. This reduction will be small and should be covered by the normal inflationary increase you would have at that time, so you will receive approximately the same pension in 2009/10 as you did in 2008/09. You will not have to repay a lump sum. Your tax position for earlier years will not be affected, and you will be taxed on the pension you actually receive in 2009/10.


Q. I am about to sell a trailer that has been used by my VAT registered business for a few years. Do I have to add VAT to the price?

A. As your business is VAT registered you must add VAT to anything you sell, whether it's your regular services or assets that been used in the business. This applies whoever you sell the asset to.


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.