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Welcome...
September 2012
· Gifting Assets or Shares
· Whose Fault is Underpaid Tax?
· Self-billing
·
· September Question and Answer Section
· September Key Tax Dates
Gifting Assets or Shares top
If you plan to gift assets or shares to your relatives, there are several taxes you need to consider:

Capital Gains Tax

You won't make an actual profit or gain when you give away assets or shares, so you may not expect to pay capital gains tax. However, when the gift is made to a person connected to you, such as your son or daughter, UK tax law deems you to have made a transfer of the asset at its market value. This means you could well make a paper gain on the gift, which will be subject to capital gains tax. This does not apply to a gift to your spouse or civil partner.

You need to calculate this gain to see if it needs to be reported on your tax return. Where the gain from the gift, together with any other gains you make in the year, exceeds your annual exemption of £10,600, all those gains must be reported on your tax return.

To calculate the amount of the gain you need to know the market value of the items given, at the date of the gift, and the cost or value when you acquired the items. If you acquired the assets before 31 March 1982, the value at 31 March 1982 is taken as your cost value, so you need a value at that date as well. We can help you with the calculation of the gain, but it would be wise to engage a specialist valuer to determine the value of the assets (particularly property) at the date of the gift and at 31 March 1982 if required.

Gift tax

If the asset (such as property) you plan to give away is located in another country you need to take local tax advice as to whether gift tax will apply. This is not a tax we have in the UK, so any gift tax paid in another jurisdiction will not be offset against UK tax paid on the same gift. Local transaction taxes such as VAT or stamp duty may also apply, so do your research first.

Stamp Duties

Stamp duty does not apply to shares which are transferred as a gift.

Stamp duty land tax generally applies to the transfer of land in the UK, but it will not apply if the recipient gives nothing in return for the property, i.e. it is a pure gift. However, if the recipient agrees to take on a mortgage attached to the property, the outstanding value of that mortgage will be treated as consideration for the property and stamp duty land tax will apply to that consideration.

Inheritance Tax

Most gifts of assets you make will be treated as potentially exempt transfers for inheritance tax, which means they escape inheritance tax as long as you live for at least seven years after the date of the gift. You can look to take out insurance to cover the cost of inheritance tax that will become payable in respect of the gifts made during your lifetime. Gifts made into a trust may be subject to inheritance tax immediately.
 
Whose Fault is Underpaid Tax? top
Have you received a tax calculation (on form P800) which shows you owe tax that you thought had been collected under PAYE? Every year the Tax Office undertakes a 'PAYE reconciliation' to check whether the tax collected from pensions and salary under PAYE was the correct amount. Where a taxpayer has a number of jobs or several pensions in a year, the PAYE system can get it wrong, leaving tax underpaid.

We can help you check any form P800 you receive, but we need to see the PAYE codes issued to you for the tax year, and payslips from your employer or pension provider to check what PAYE codes they have used. Where the employer/pension provider has not used the correct PAYE code and this causes any tax not to be collected, it remains their responsibility, not yours.

Unfortunately the Taxman is ignoring this piece of law and is demanding payment of the underpaid tax from employees and pensioners, where the error lies with the employer/pension provider. We can help you challenge the Taxman on this point.

Sometimes the fault lies with the Taxman who has ignored information you or your employer have provided on more than one occasion. The Tax Office may also have let tax arrears build up over two or more years without telling you. If either of these situations apply, you can ask the Taxman to write-off the tax owing under Extra Statutory Concession A19. The Taxman is very reluctant to use this concession, but we can help argue your case.
 
Self-billing top
'Self-billing' is where the customer in the supplier/customer relationship raises the invoices to themselves for work done or goods provided by the supplier, instead of the supplier raising those invoices. Self-billing helps large organisations that need to pay out lots of small amounts to hundreds of suppliers. It allows their purchase invoices to be standardised which saves costs when processing, and payments to be made automatically at the time the invoice is raised.

However, there are significant disadvantages for the supplier who agrees to self-billing. The supplier losses control of when invoices are raised and may have no control over the amount billed and the amount of VAT shown on the invoice.

Although the VATman's guidance on their website says that the recipient of the supply (i.e. the customer who raises the self-billed invoice) is responsible for ensuring the invoice carries the correct VAT amount, it is actually the supplier who remains responsible for the amount of VAT charged.

If you are signed-up to self-billing as a supplier don't assume that the VAT shown on the invoices you receive from your customers is correct. You will remain responsible for any errors.
 
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September Question and Answer Section top
Q. I run my own company from an office in a spare bedroom at home, and my wife runs a separate company from a downstairs office in the same house. Can we both claim £3 per week expenses for use of home from our companies? Would the situation be different if we both worked full time for the same company?

A. Yes, you can both claim the use of home expense allowance, which is now £4 per week as from 6 April 2012. It makes no difference whether you both work for the same company or for different companies.

Q. I own a number of rental properties but this year I've been sued over unpaid service charges. The dispute has been resolved, but I've been left with legal costs. Can I deduct those legal costs from the property rental income for the year?

A. In general any legal fees associated with acquiring or improving the property or defending the title to the property or extending a lease on a property cannot be deducted from the rental income, as they are capital expenditure. Other legal fees associated with annual bills or service charges should be allowable. You should keep all the paper work associated with the dispute just in case the Taxman asks about the legal fees in future.

Q. My business recently bought an e-book reader from an online retailer. It will be used for business purposes but the retailer is refusing to provide me with a VAT invoice, saying their products are not provided for business purposes, so VAT invoices are not provided to VAT registered customers. How can I get the VAT invoice I need to claim back the VAT charged to my business?

A. If the customer (you) asks for a VAT invoice the supplier must provide one, but in practice you can't force the retailer to comply with the VAT law. As long as you have documentary evidence that VAT was charged - the amount and rate - and evidence that you have tried to obtain a VAT invoice, you can reclaim the VAT charged in your VAT return.
 
September Key Tax Dates top
19/22 - PAYE/NIC and CIS deductions due for month to 5/9/2012

30 - Closing date to claim Small Business Rate Relief for 2011/12 in England
 
Need Help? top
New Clients Welcome top
Please contact us if we can help you with these or any other tax or accounts matters.

In addition, if there's anyone else who you think would benefit from the newsletter, please forward the email to them or ask them to contact us to be added to the newsletter list.
If you are not already a client and are interested in becoming one, we would love to come to meet with you to discuss how we can help and provide you with a competitive quote for our services.

All new client consultations are provided free of charge and without obligation.
 
About Us top
TWR Accountants are based in Brandon near Thetford, offering local business owners and individuals a wide range of services to small and medium sized businesses.

All clients receive fixed fees, work delivered on time and free unlimited phone support. Visit our website http://www.twraccounts.co.uk for more information.
 

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Disclaimer
The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.

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