Welcome to October’s Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Corner.
We are committed to ensuring all our clients don’t pay a penny more in tax than is necessary.
Please contact us for advice in your own specific circumstances. We’re here to help!
Table Of Contents
VAT Option to tax – 20 Years are up!
Without activating the option to tax by election, the letting or sale of the building would be exempt from VAT (with some exceptions), so no VAT can be charged on rents, and VAT on maintenance costs cannot be reclaimed. Opting to tax is generally beneficial for commercial landlords, as they can reclaim VAT on their costs, including VAT on the acquisition of the building itself. However, some tenants such as charities and banks, cannot reclaim the VAT charged on the rent, which makes the lease on a a building with a VAT option to tax far less attractive.
The option to tax election can now be revoked if 20 years have passed since the election was made in respect of the building. You could now be in a position to revoke an option to tax you made over 20 years ago. You may want to do this to encourage a wider range of tenants to take on a lease, or to effectively lower the price of the building in this difficult market. Remember Stamp Duty Land Tax (SDLT) is charged on the VAT inclusive cost of a building or lease, so a VAT exempt building means there is less SDLT to pay.
In most cases the revocation does not need HMRC permission if 20 years have passed since the option to tax took effect, and the same person still holds an interest in the building. You just need to complete the HMRC form VAT1614J to inform the Tax Office the option to tax election for a particular building is being revoked. However, you need to check whether the anti-avoidance conditions numbered 3 to 5, on that form are also met. If those conditions are not met you need the permission of the tax Office to revoke the election. If you have any questions about the option to tax election or how to revoke it, please ask us, as it can be very expensive if you get it wrong.
Late Tax Return & Payment Penalties
The Taxman does not have much patience when it comes to late delivery of tax returns and has instructed his computer to send out £100 penalties every six months. The first penalty would have been issued in February 2009 and the second one in August 2009. If the Taxman gets really cross he will ask the Tax Tribunal to issue daily penalties of up to £60 per day, until you do deliver a complete tax return!
If you have paid all the income and capital gains tax you owed for 2007/08 by 31 January 2009, or you are due a tax repayment for that year, the £100 penalties can be reduced to nil. However, you do have to appeal against the £100 penalty notices to claim the reduction.
Late Payments: If you have not paid all the tax you owe for 2007/08 you will have been issued with a 5% surcharge in February and another 5% surcharge in August, plus interest will be mounting up at 2.5% on the amount owing. This interest rate on late tax increased to 3% from 29 September 2009. Where you have agreed a time to pay plan with the Tax Office, and are paying the instalments due under than plan on time, the 5% surcharges should not have been raised. If this is the case the Tax Office should be contacted as soon as possible to get the 5% surcharge cancelled.
New Company Forms from 1st October
Most of the new forms can be filed online through the Companies House website, which is quicker, cheaper, and more secure than sending a paper form through the post. If you sign-up to the Companies House PROOF scheme you can only file changes to your company’s details online. This prevents anyone hijacking your company by submitting a fraudulent paper form.
Transfer Investment Property to Stock
Where the property investment business starts to develop properties for sale, rather than keeping them for long term letting, the business has started a trade of property development. In this case where a property, previously held as an investment, is transferred to the “stock pile” as stock ready to be sold, the property must be treated as if it had been sold at its open market value at that point. This can create a capital gains tax charge, or a capital loss, before the property has actually been sold.
To avoid this difficulty the business owners can make an election to treat the value of the property when it enters the stock pile, as the value when it was acquired by the business. Any gain or loss will then only arise when the property is sold by the business. This election must be sent to the tax office within two years of the end of the accounts year for a company, or by the first anniversary of 31 January following the tax year end for an unincorporated business.
The advantage of making this election is that the loss, if one arises, becomes a trading loss made on the sale of stock by the business rather than a capital loss. Generally a trading loss can be set-off against a wider range of income than a capital loss. However, to use this trading loss the Taxman will have to be convinced that the property business has actually started a trade of property development, and is not simply selling off its surplus investments.
This can be a very difficult area and full advice is essential so please contact us for advice in your own circumstances.
Question and Answer Corner
A. Ask the PAYE office for the overpayment review form P35D. Complete this with as much information about how the mistake in overpaying arose, and send it back. If the repayment doesn’t arrive, chase by phone, and make a note of exactly who you speak to, and what they say. If no repayment is forthcoming, consider making a formal complaint to HMRC.
Q. I’ve received a new PAYE code notice that shows tax is due on a negative figure. What does this mean?
A. A negative PAYE code, or ‘K’ code (due to the letter K used), means your personal allowances for the tax year are less than untaxed income and benefits which have been included in the code. Your employer or pension provider will add the negative figure from this code to your annual income rather than deducting it, as they would with a normal PAYE code. However, please check that all your allowances are included in the code. If you are married and were born before 6 April 1935 you may be due a married couples’ allowance. In some cases the married couples’ allowance has been missed from PAYE codes issued since 1 July 2009. If this applies to you, ring the Tax Office number shown on your code notice, or ask us to check your code for you.
Q. My elderly aunt wants to give me a seaside chalet, which she inherited when her mother died in 1985. If I accept this gift will I have to pay tax on it?
A. You won’t have to pay any tax when you take ownership of the property. However, your aunt should declare the gift on her tax return. If the increase in value in the property between the 1985 value when she inherited it and its value when the property passes to you, is greater than her annual capital gains exemption (currently £10,100), she will have to pay capital gains tax at 18% on any excess above the unused exemption amount. The value of the chalet at the date of the gift could also be subject to inheritance tax at 40%, if your aunt dies within seven years of making the gift. However, inheritance tax will only apply if the value of your aunt’s total estate on death, plus all the capital gifts she has made in the previous seven years, exceeds the IHT exempt threshold. This is currently £325,000, and will rise to £350,000 on 6 April 2010. This exempt amount could be doubled if your aunt is a widow when she dies.
Key Tax Dates for October 2009
5 If a Tax Return has not been received, individuals and trustees must notify HMRC of new sources of income and chargeability in 2008/09
14 Return and payment of CT61 tax due for quarter to 30 September 2009
19 Tax and Class 1B NI due on PAYE settlements for 2008/09
19/22 PAYE/NIC and CIS deductions due for month to 5/10/2009 or quarter 2 of 2009/10 for small employers
31 Deadline for 2008/09 self assessment paper returns to be filed for HMRC to do the tax calculation and/or if tax underpaid is to be collected by adjustment to your 2010/11 PAYE code (for underpayments of up to £2000 only)