UK Tax Questions Answered | Government Gateway

internet kid the feeling you get when you finally login to your govenment gateway account

Here is my latest tranche of UK Tax Questions Answered. Each question is from a Tax blog reader which I hope will be helpful to you or at least you’ll find the answers interesting. The Topics today:

Two companies, two VAT schemes
Government Gateway problems
Tax code changed to Zero
Annual State Pension Credit
Mileage claim

1. Two companies, two VAT schemes

I would like some advice please. I set up two companies a year ago (same shareholders, directors and share the same premises). Company 1 markets a property refurbishment business, gains customers and supplies all the labour to refurbish the property, with the labour being a mixture of employees and contractors. This company is VAT registered on the flat rate scheme so pays 9% as a construction company. Company 2 supplies all the materials for the refurbishment to the customer and is VAT registered on the normal 20% scheme. I’m doing this to give me a sales advantage, but am I doing anything wrong as far as HMRC are concerned?

Answer

Yes you are. For a start, under the new VAT Flat Rate Scheme rules, Company 1 would be classified as a limited cost business as it is buying no goods and therefore the correct rate would be 16.5%, thus negating the advantage. Secondly, HMRC are likely to view the separation as artificial to give you a VAT advantage that the law never intended and may well be consider the arrangement to be aggressive tax avoidance. My advice is to immediately merge the companies into one entity and operate VAT on the normal 20% scheme.

2. Government Gateway problems

I run a small business and for about a month now, every time I try logging on to our online gateway account it takes multiple attempts to actually succeed. It’s not a PC or browser issue as I have tried other PCs and browsers (e.g. chrome, firefox). When failing it doesn’t come up with the message that the ID or password is incorrect, there is no message, the screen just refreshes. Do you think it’s just some weird anomaly with our account, or is this happening to other people?

Answer

This has happened to many of our clients and to us, we have had to undertake two logins to actually get in. Apparently it’s part of HMRCs IT improvements that the eventual switch to MTD requires. To improve online security HMRC are switching to a two-step verification, but like most things they change they never get it right first time, so I’m afraid you’ll have to live with it until they eventually iron out the glitches.

3. Tax code changed to Zero

We recently submitted our online PAYE return and 3 of our 6 employees have received coding notices asking us to change their tax code from 1150L to 0T. As each of the 3 saw their tax payable shoot up by around £300, one of them rang HMRC and was told that a duplicate record had been created and the only way to amend it is by submitting a P45 before their tax code could be amended. No other employees have received a notice, just these 3. The advice given to the employee seems a little odd, what do you suggest I do?

Answer

We have had a similar issue with one of our staff, who received at notice stating that their code was changing to a K code (A K-code is a negative tax code for an individual whose taxable deductions in their code number exceeded their tax-free allowances). The person concerned only works for us and does not get any benefits.

HMRC were telephoned and were of little help, only telling me that we had to update our employee’s record. However being that I know quite a bit about tax I was able to correct them and demanded to speak to somebody more senior who resolved the problem. The issue is that the HMRC call centre are giving out incorrect information to people who are not experts on tax and the payroll process. It’s HMRC’s error, not yours, so call again, tell them that you’ve spoken with an accountant and demand to be put through to someone more senior who should sort the problem out without you having to do anything more.

4. Annual State Pension Credit

I set up a PAYE scheme for my new company in August 2015. As the sole Director, I had PAYE earnings for the 8 months to March 2016 of approximately £8,000, but had no earnings/employment in the period April 15 to July 2015. Will I get a full years credit towards my state pension or will the result be that there’s no entitlement for that year and mean that voluntary contributions will be required?

Answer

You have to have at least £5,824 of earnings, which must be shown on your P60 in the National Insurance section. So as a director with a salary of £8,000 in a single earnings period, it would qualify for one year’s pension credit even though you did not pay any tax or NI in the year.

5. Mileage claim

I’ve worked for a local housing association for 3 years and have to use my car to visits the 100 or so properties spread over a fairly large geographical area. The association pays me a flat rate of 20p per mile to cover my fuel and last year I did just over 23,000 miles and received £4,600 from the association. Am I liable for any tax on this money?

Answer

No you’re not and in fact you can make a claim to HMRC. The rules are that if you have to use your own vehicle for work; you can claim ‘Mileage Allowance Relief’. To work out how much tax relief you can claim, add up your business mileage for the tax year and multiply it by the approved mileage rates (Up to 10,000 miles 45p per mile, any miles over this limit can be claimed at 25p per mile)

As your employer pays you a mileage allowance that is less than the approved amount, you can claim Mileage Allowance Relief on the difference, which in your case would result in a claim of approximately £3,150. Additionally as you have worked for the association for the two previous tax years, you should be able to retrospectively make a claim for those years as well.