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Tax Returns Help from TaxAssist Accountants

Q: I made a loss in my soletrader business this year, and sold a number of shares I own to supplement my living expenses. I estimate that selling these shares will realise a capital gain after relief’s of £30,000. Can I claim relief for any of my trading loss against the gains I have made?

Judy, Bournemouth

A: Yes, a loss relief is available that allows individuals to offset self-employed losses against any capital gains you have made in the same tax year.  

You must first offset the trading losses against your total other income for the tax year, even if this means losing the benefit of your tax free personal allowance. Any excess can then be extended under section 71 of Income Taxes Act 2007 (ITA 2007) and set against your chargeable capital gains (after capital gain losses have been accounted for) for the tax year.

Alternatively, you can choose to carry the loss back to the previous year, first against other income (s64 ITA2007), and then against capital gains (s72 ITA2007).

If you do not have any other income in the tax year, tax relief on your trading loss is claimed against your capital gains of £30,000. This will result in a significant fall in your capital gains tax liability.

However, be aware that the capital gains tax rates are currently only applied at 18% of any gain, and it may therefore be beneficial for you to consider carrying the losses forward to obtain income tax relief in a later year at a higher rate.

Your local TaxAssist Accountant can advise on the most tax efficient option available to you with a quick calculation.

Q: I recently received a letter from HM Revenue & Customs informing me that I am now required to submit my VAT returns online. Can you explain further?

A: From the 1st April 2010 all business with an annual turnover of £100,000 (excluding VAT) and any newly VAT registered business will be required to submit their VAT returns online, and pay any VAT electronically.

The online VAT Return is very similar to the paper version and there has been no change to the rules on how you complete your return or how you calculate VAT. Also, you won't have to change your existing record keeping system - you can still keep your records on paper if you prefer.

Any business which is required to file online must sign up to the VAT online service through the HMRC website. Signing up to do your VAT online is straightforward and you don't have to be a computer expert. The service is designed to make the process easier, more secure and more efficient for small businesses.

Further advantages of using the VAT online service system include setting up an email reminder service to advise when your next online VAT Return is due. Another benefit as you are required to make payments electronically either through Direct Debit, internet banking, telephone banking, is that you receive a further seven extra calendar (in addition to the usual one month deadline) to file your return and for the payment to reach the HMRC bank account.

If you are concerned about any aspect of this new requirement, please contact your local TaxAssist Accountant, who can assist with submission of your VAT returns online.

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Vat Returns Help from TaxAssist Accountants

Q: I have an employee who has recently returned from maternity leave. Previously she was working full-time, and is now returning to work from maternity leave on a part-time basis.

How do I work out her holiday pay entitlement?

Dennis, Liverpool

A: Employees continue to accrue both their full statutory annual leave entitlement of 5.6 weeks plus any additional contractual entitlement throughout both ordinary maternity leave and additional maternity leave.  This also applies to employees who take paternity and adoption leave.

For full-time employees who wish to return to work on a part-time basis after such leave, the holiday is calculated at their original contractual agreement and then adjusted from the date they commence the part-time employment.

Here’s an example based on the holiday year beginning from the 1st of January:

A female staff member is considered to be a full-time employee from the 1st of January to the 31st of October, when she returns from maternity leave.  However, from the 1st of November she wishes to work 2.5 days per week.

Her holiday entitlement from January to October will be 28 days / 12 months x 10 months = 23.33 days.

For November to December it will be 2.5 days x 5.6 weeks = 14 days / 12 months x 2 months = 2.33 days.

The total annual leave will be 23.33 days + 2.33 days = 25.66 days for the year.

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Payroll Accounting Advice from TaxAssist Accountants

Q: I am completing my VAT return and I am not sure if I can claim the VAT back on the hampers sent to some customers and hiring a corporate box at the Boxing Day football match we attended with some customers.

Chloe, London

A: If gifts to individuals do not total more than £50 in a 12 month period then the VAT can be reclaimed on the expenses incurred.

However, there is an exception to this which is that VAT cannot be reclaimed on items that are classed as alcohol tobacco and food. Therefore it is unlikely that you will be able to reclaim the VAT on the hampers.

With regard to the costs relating to the hire of the corporate box at the football match, you are not able to reclaim any input VAT as the costs will be considered to be entertaining which is specifically blocked.  If you have employees there as guests rather than hosts then you will be able to reclaim their proportion of the VAT.

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VAT Return Advice from TaxAssist Accountants

Q: In 1995 I bought two paintings, one for £200 and the other for £300.  After watching Cash in the Attic on television I took them down to the local gallery where they offered me £5,500 and £7,000 respectively.  After talking things over with my husband we have agreed to sell them.  Will I have to pay any tax on the profit I will make?

Hailey, Manchester

A: Assuming that you are not trading in pictures then the only tax you may be liable to pay is capital gains tax. For items that are classed as non-wasting chattels such as jewellery, paintings and furniture, if the sale price is less than £6,000 then the gain is exempt.

If the sale price is more than £6,000 then the gain is restricted to the sale price less £6,000, multiplied by five over three.  Based on your figures there would be no liability to capital gains tax on the first picture as the sale proceeds are less than £6,000.  On the second painting the gain will be restricted to £1,666 (£7,000 less £6,000 times five over three) not £6,700 (£7,000 less £300).

However you have an annual capital gains tax exemption, currently £10,100.  Therefore unless you have other capital gains in this tax year or the gains are more than £8,434 you will not be liable to any tax.

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Capital Gains Tax Advice from TaxAssist Accountants

Q: I recently purchased a buy to let property which is in need of some refurbishment before my new tenants can move in. I have decided to install a new kitchen into the property.  Will I be able to claim tax relief on the cost of this?

Benjamin, Edinburgh

A: You can claim tax relief on this expense, but to decide whether it is relief for Capital Gains Tax purposes, or for Income Tax purposes will depend on how the HM Revenue and Customs classify the expenditure.

The main issue you face here is whether the expenditure you have incurred is defined as “Revenue”, which means it is allowable for tax purposes against the rents you receive from your new tenants, or “Capital”, which means you receive Capital Gains Tax relief when your sell the property.

According to the HM Revenue & Customs guidelines, if the property was not in a state to be let out until the new kitchen was installed it would seem that your new kitchen will be treated as a capital expense.  Also a new kitchen is likely to have increased the value of your property and therefore classed as an improvement.

However, if the property was in a position to be let, or was actually being let when you installed the new kitchen, and the kitchen was just reinstating a worn out or dilapidated asset, you should be able to argue it is a “revenue” expense.

As the rules relating to rental expenditure are broad, and you should always take advice from your local TaxAssist Accountant on property related tax issues.

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Property Accounting Advice from TaxAssist Accountants

Q: I’ve recently made a donation to the Haiti earthquake appeal through the website www.dec.org.uk . I ticked the box to donate using Gift Aid as I am a UK taxpayer. How will this benefit me and the charity?

Emma, Leicester

A: If you agree to make your donation under gift aid, this will allow the charity to claim an extra 28% on top of your donation from the HM Revenue & Customs. This means that for every £1 you donate, DEC can claim an extra 28p direct from the UK Government. This increased percentage is a result of the transitional arrangement available until 5 April 2011, announced on 12 March 2008 when the basic rate of tax rate fell from 22% to 20%.

You must give the charity concerned a Gift Aid declaration for any claim to become valid, and if you had made your donation orally over the telephone instead of using the website they will write to you to confirm this declaration.

One further requirement when donating under gift aid is that you must pay income tax and/or capital gains tax at least equal to the amount that charities will reclaim on your donations, so if you are not a taxpayer, you cannot make a gift declaration.

You will not receive any benefit personally if you are a basic rate tax payer, but if you are a higher rate taxpayer, you can claim the difference between the higher rate of tax of 40% and the basic rate of tax of 20% on your Self Assessment tax return. Remember to let your accountant know when he completes your Self Assessment tax return of all the donations you have made under gift aid in the tax year.

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Accounting Advice from TaxAssist Accountants