Q: We currently supply some of our employees with bicycles to get to our premises. Can you advise on the tax implications for us and the employees concerned. Also, some employees use the bicycles to deliver packages for business purposes, so does this affect the position?

Jackie, Worcester.

A: Generally, company owned assets which are provided for the use of employees attract a benefit in kind based on 20% of the market value. However, bicycles which are supplied to employees for home to work travel do not attract a benefit in kind. One condition for this is that the bicycles or equipment are made available generally to all employees of the employer. This does not mean that every employee has to be provided with a bicycle or equipment, just that the offer of bicycles or equipment is open to all employees if they wish to take it up.

If your employees are using bicycles for business deliveries, it may be more tax efficient for them to own these personally. Employees who use their own pedal cycle for business mileage can claim a tax free expense of 20p per mile from the employer.

Please be aware that if you transfer the bicycle to the employee for this purpose, the employee will be assessed on the higher of the market value at the time it was first made available to employee for private use, or the market value at the time of the transfer. So if you give an employee who pays tax at basic rate, a bicycle worth £500, then he will incur a tax charge of £100. Therefore, you should always consult your employee before implementing such a change.

We provide tax accountancy services in Worcester and throughout the UK.  http://www.taxassist.co.uk

Q: I have now received my tax bill for payment on account due at the end of July. Last year my business made substantial profits, but this year I have incurred lots of expenditure and as a result my business profits have fallen. Is there any scope to reduce these payments and what are the ramifications if I do not pay on time?

James, Ipswich

A: Payments on account are represented by 50% of the individual’s net tax liability for the previous year, and are used to “prepay” the tax liability due in the following January. They are made up of two payments which are due in January and July. All individuals are liable to make these payments unless their net tax liability is less than £1,000 or more than 80% of the tax due was deducted at source.

Given that your net profit and subsequent tax liability for the 2009/10 tax year is likely to be significantly less than the previous tax year (2008/09) on which the payments on account are based, you can make a claim to reduce them. The amount that you reduce these to should reflect your estimation of the tax liability for the 2009/10 tax year, which is due for payment on the 31st January 2011. Either you or your accountant can make this claim using a form SA303 available from HMRC.

However, be warned if it is later found that you have overestimated the fall in your income, and consequently paid too little, you will be liable to pay interest on the difference between the amounts paid as payments on account and the amount actually due. Equally, if you have overestimated, you will be due a tax refund for the year and receive an interest supplement.

We provide tax accountancy services in Ipswich and throughout the UK.  http://www.taxassist.co.uk

Q: I want to start a new business which benefits the schools in my local community, and recently read an article regarding Community Interest Companies. Can you provide further information?

Andrew, Waltham Abbey.

A: Community Interest Companies (CIC’s) are a new type of company set up for the benefit of the community, not to make profit and therefore recognised as Social Enterprises. They’re regulated by the Community Interest Company Regulations 2005 and are different to most limited companies which are set up to make a profit for the shareholders.

Despite being particularly attractive to those who wish to establish their business as a benefit to the community there may be a significant tax disadvantage in operating a CIC. CIC’s cannot pay dividends in the same way as a normal limited company because the director’s salary and shareholder dividends are restricted by legislation thus ensuring the assets and profits are retained for community purposes.

Also, CICs do not have any special tax status, and are generally in the same position as any other organisation in obtaining any tax concessions and are required to submit tax returns and make accounts available for public record.

In summary Community Interest Companies are a good concept but those setting them up should be aware of the tax consequences and ensure seek advice from a local TaxAssist Accountant before proceeding.

We provide tax accountancy services in Waltham Abbey and throughout the UK.  http://www.taxassist.co.uk

Q: I recently registered my small retail outlet for VAT and read that I am able to reclaim all of the input VAT on goods I purchased,. (and subsequently sold) when I first started trading two years ago? Is this possible?

Sejal, Hornchurch.

A: Unfortunately not, you can only claim back the VAT on goods that you have acquired in the 3 years prior to registration which are still held in stock (or used to make other goods which are still held in stock) and originally acquired for the business purposes. This also includes VAT incurred on fixed assets you still use in your business.

You can also recover the vat incurred on services, which have been supplied within 6 months prior to becoming registered, assuming they were also supplied for the purpose of the business. Therefore, any VAT suffered on goods which have been sold on to customers cannot be re-claimed.

To reclaim VAT on these items you need to include the claim on your first VAT return. You should also carry out a careful stock check and record the quantities of goods and the dates when you obtained them. This will form the basis of the records you need to keep to validate your claim.

We provide tax accountancy services in Hornchurch and throughout the UK.  http://www.taxassist.co.uk

Q: I’m coming to the end of my third year of business as a soletrader, and understand I can reduce my tax liability by investing in a new van and some equipment before my accounting year end. Can you explain further?

Paul, Loughborough

A: By purchasing equipment for your business before the end of your accounting period, you can receive tax relief in the form of capital allowances. The amount of tax relief you receive depends on whether you are a higher rate tax payer (currently 40%), or a basic rate taxpayer (20%). You will also receive National Insurance Class 4 relief of either 1% or 8% depending on the level of profits for the year.

Under current rules, the majority of small businesses are able to claim a 100% Annual Investment Allowance (AIA) on the first £100,000 of expenditure on most types of plant and machinery (except cars) in the 2010/11 tax year. Any expenditure exceeding this level will receive 20% writing down allowance (WDA).

Vans qualify for the AIA allowance, and therefore assuming you do not have any private use of these items, the full cost of the new van and other items will be offset against your self employed profits in the year.

You should also be aware the new government recently proposed a reduction in capital allowances rates. From April 2012, the maximum amount of AIA will reduce to £25,000, and the standard writing down allowance will also be reduced to 18%.

We provide tax accountancy services in Loughborough and throughout the UK.  http://www.taxassist.co.uk