The View from No 50
K P Bonney & Co
Chartered Accountants and
Chartered Tax Advisers
Ilkley LS29 6JA
Tel: 01943 870933
Fax: 01943 870925
It emerged in the December pre-budget report that the government is not going to pursue its plan to raise extra tax from family businesses. We are absolutely delighted with this news. No doubt our joy is shared by the thousands of small businesses which were threatened with extra tax bills of up to £50,000.
Having been kicked in to the long grass we hope the income shifting provisions stay there for ever.
TIME TO PAY ARRANGEMENTS
Another piece of good news to appear in the pre-budget report was the government’s renewed commitment to giving businesses extra time to pay their tax bills.
H M Revenue & Customs will allow cash strapped businesses to pay their tax bills over an agreed time frame. Businesses are encouraged to discuss their situation early with HMRC. One of the benefits of entering into a ‘time to pay’ arrangement is that late payment surcharges are not charged on amounts included in the agreement. Interest continues to run as normal.
Our Advice: If your business is struggling to pay its bills, make early contact with HMRC to work out a tax payment plan. The government is putting pressure on HMRC to help small businesses so you stand a good chance of being able to reach an agreement.
You know Bob. Horticulturalist, panellist on Gardeners’ Question Time and harmless, pony-tailed tree hugger.
The Financial Times of 8/9 November featured an interview with Bob. Here is an interesting extract.
“Four years ago the Inland Revenue decided that I must have had a bigger income. And they were convinced I had hidden accounts! I said if I had them, would they tell me where they were and I would be happy to split them 50-50.
“This dispute went on for years and cost me thousands in fees. I won it but they didn’t apologise. I now have insurance against the cost of another investigation.
“If I had done my own books to save on accountancy fees I would certainly have lost the investigation.”
Our Advice: It is not unusual for a taxpayer to emerge from an HMRC enquiry with no extra tax to pay but with a hefty bill for professional fees. If you do not already participate in a professional fee protection scheme, give some thought to joining one now. Tip: Our scheme happens to renew at the end of January. Give us a ring.
CHERISHED NUMBER PLATES
Ever been tempted to buy a cherished number plate? Ever wondered whether you could get some tax relief if you were to buy it through your business?
It’s a great idea but, sadly, the only relief you will get is relief for any actual loss you make on the eventual disposal of the plate. As you are not buying in order to make a loss that is hardly helpful.
How is that? Surely I can claim it is a business advertising cost!
The plate might well serve an advertising purpose but the fact of the matter is the outlay is capital not revenue, by which is meant the outlay is on an asset of enduring benefit not on an expense which is consumed or used up straight away. You cannot claim that an outlay on an asset is a deductible expense for tax purposes.
OK, so it’s an asset, surely I can claim capital allowances!
Here is the interesting bit (or perhaps frustrating is a better word). When you buy a cherished plate you are buying up to three separate things. First there is the plastic or metal plate on which the registration is stamped. H M Revenue and Customs accepts that once this is fixed to a motor vehicle it is ‘plant’. You can claim capital allowances on plant. But the fair value of the piece of plastic or metal is negligible so there is little tax relief here. The second thing you could be buying is the car to which the plate is attached. You can claim capital allowances on the fair value of the car. The third and probably most valuable element of your purchase is an intangible asset. A what? An intangible asset: in this case a right to use a specific combination of letters and numbers when registering a car.
If you run your business as a sole trade or as a partnership you cannot claim tax relief for expenditure incurred on the purchase of an intangible asset. When you sell your cherished plate any gain is chargeable to capital gains tax and any loss is only offsettable against gains of the same and future years. If you have no other gains in the year of disposal you can deduct your annual exemption (currently £9,600). Only the excess is actually charged to tax.
If you run your business as a limited company you can get tax relief for the depreciation you provide in your accounts for the writing down of the number plate. When the company sells the plate it is chargeable to corporation tax on the difference between the proceeds of sale and the written down value in the accounts. Companies do not have an annual exemption. If the plate is sold at a loss compared to its written down value the company is given relief for the loss against its other income.
If you are VAT registered and your purpose in buying the plate is to benefit the business, you can reclaim any VAT you incur on the purchase. On disposal you must account for VAT out of the proceeds of sale.
Our Advice: So you may well have a genuine business motive for buying a cherished plate but the taxman isn’t going to give you any financial assistance. If you like the idea of owning a cherished plate, buy it for the enjoyment of ownership. The tax benefits are negligible.
CASH IN THE ATTIC
Here is an idea for taxpayers who want to de-clutter.
Of course you could sell your junk / valuables on E-bay and keep the entire proceeds. But if you are feeling charitable you could give your unwanted stuff to a charity which operates a ‘Tag Your Bag’ or similar scheme. When the charity sells your things the proceeds of sale are treated as a Gift Aid donation by you. This means if you are a higher rate taxpayer you can claim a reduction in your tax bill equal to 25% of the proceeds.
The charity benefits too. Provided you are either a higher rate or a basic rate taxpayer the charity can claim 28p from the tax man for every £1 of proceeds.
Here are two examples of schemes.
Now where did I put that old laptop?
Three footballers and three supporters are travelling by train to an away match. At the station the three players each buy a ticket. The three supporters buy only one ticket.
"How are three of you going to travel on only one ticket?" asks one of the players.
"Watch and you'll see," answers a supporter.
They all board the train. The players take their seats but the three supporters cram into a restroom and close the door behind them. Soon after the train has departed, the conductor comes round collecting tickets. He knocks on the restroom door and says, "Ticket, please." The door opens just a crack and a single arm emerges with a ticket in hand. The conductor takes it and moves on. The players see this and agree it is a clever idea. So, after the match, the players decide to copy the supporters on the return trip and save some money.
When they get to the station, they buy just one ticket for the journey. To their astonishment, the supporters don't buy a ticket at all.
"How are you going to travel without a ticket?" asks a perplexed footballer.
"Watch and you'll see," answers a supporter.
When they board the train the three footballers cram into a restroom and the three supporters cram into another one nearby. The train departs. Shortly after, one of the supporters leaves his restroom and walks over to the restroom where the footballers are hiding. He knocks on the door and says, “Ticket, please."
Copyright: K P Bonney & Co LLP 2009. All rights reserved. No part of this publication may be produced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording or otherwise without prior written permission of the publishers. Disclaimer: The publishers have taken all due care in the preparation of this publication. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publisher.
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