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Your Questions

Should I be registered for VAT?

You should notify HM Revenue & Customs when your taxable turnover for the past twelve months exceeds £64,000, or there are reasonable grounds for believing that your turnover for the next 30 days will exceed £64,000. In the first case, notification must be within 30 days of the end of the relevant month. In the latter case, notification must be within 30 days of the date on which grounds first existed. It’s important to monitor turnover because there is a penalty for late registration. This is in addition to the tax payable.

Can I register for VAT if my taxable turnover does not exceed the prescribed limits?

It is possible to register voluntarily, provided you have a bona fide business.

When do I have to submit my self-assessment tax return?

Generally you are required to submit your self-assessment tax return by 31 January following the end of the tax year. However, if you wish HM Revenue & Customs to calculate your tax liability for the year, you will need to submit the return earlier, by 30 September following the end of the tax year. Taxpayers who wish to have a liability of less than £2,000 coded out through PAYE are advised to file their return by 30 September if it’s filed manually, or by 30 December if filed online.

As from 2007/08, different dates are specified for those filing manually and those filing online. The self-assessment deadline will be brought forward from 31 January to 31 October if you wish to file manually, but remains at 31 January if you file online.

What expenses can I claim in respect of the furnishings in my furnished residential rental accommodation?

The expenses incurred by you on furnishings for the properties are not allowable as a deduction if they are the first acquisitions of the items. There are however a few options for subsequent replacements as detailed below:

If the property is let furnished, you can either claim a deduction of 10% wear and tear allowance each year to cover the cost of replacing furnishings, or you can claim the actual expenses of replacing the assets as and when they occur. The wear and tear allowance is calculated as 10% of your rental income, minus charges or services that a tenant would usually bear but are borne by you as a landlord, for example, council tax. The wear and tear allowance can be quite a generous deduction, especially as it is received annually. Overall, it can exceed the actual replacement costs. Note that once the preferred method of either replacement or wear and tear has been chosen, it cannot be changed.

I feel that I pay a lot of tax when extracting funds from my company. What can I do?

There are various options available such as dividends, salary and pension contributions. However, Armstrong Watson has an alternative solution that may be ideal when extracting larger sums. Each case will be different and needs to be tailored to your individual circumstances. We’d be delighted to tell you which method suits your circumstances.

I’ve had a house rented out for a number of years.  If I go and live in it can I avoid Capital Gains Tax (CGT)? How long do I have to live there for?

The Revenue is likely to challenge short term occupation where no other motivation than avoiding tax is apparent.  Quality, not quantity, of occupation is relevant, it must be apparent that the taxpayer is substantially living in the property, carrying on his life from there. The length of time spent there, the ‘quantity of occupation’, is only an issue in that it is often indicative of ‘quality of occupation’. The actual occupation of the property, needless to say, must be genuine, it is not unknown for taxpayers to merely divert post, register billing addresses, etc, at the property in question, and merely visit to collect these, while the property otherwise stands empty.  All evidence of actually moving in and living there should be procured and kept.  Providing this is done, a claim for CGT reliefs is legitimate.

What are the tax risks of engaging a worker on a self employed basis?

There are a number of risks including HM Revenue & Customs classifying the engagement as one of employment with the result that you could be liable for PAYE, NIC, interest and penalties on the amount you have paid the worker over several years, even if the worker has other self employed engagements and has already paid tax on all of their income through the self assessment system. 

Another variation on this is that a worker could assert that they were always an employee when they receive an unwelcome statement from HM Revenue & Customs for the tax due on their self employment income!