01743 271071 tax@morganjones.co.uk

Here is the latest tranche of questions I’ve received; which will hopefully be of interest to you

  1. VAT on childcare
  2. Late filing penalties
  3. Bank of Mum & Dad
  4. VAT on mileage claims
  5. Directors Loan Account (DLA)
  6. Entrepreneurs’ Relief

VAT on childcare

Question:

If you are providing childcare services operated from your own home is it exempt, zero rated or standard rated for VAT? I seem to recall having read somewhere that VAT isn’t payable, but I can’t find an explicit confirmation of that anywhere. Thanks in advance

Answer:

I am pleased to tell you that the services of a childminder are exempt

Late filing penalties

Question:

Following protracted correspondence with HMRC they issued tax returns for 11/12, 12/13 and 13/14 in one go, on March 14th and I’ve now a received a statement dated June 15th showing 3 x £100 late filing penalties, with a request to pay by 16th July. It’ll take me more than a month to sort things out and I’d like to know why I’ve been fined and when further fines kick in? I thought I’d have until January 31st next year, or have I got it wrong?

Answer:

Unfortunately, when HMRC issue Tax Returns late you only have 3 months in which to submit them as opposed to the normal 10 months (April to January). You will not incur further penalties as long as the Returns are submitted within 3 months from the date of the first fine, so I’d get my skates on and get them sorted.

Image of test reading bank of mum and dad

Question:

Some years ago my dad helped me purchase my first property by lending/investing 40K. We agreed that as no interest would be payable on the loan that we’d treat it as an investment and when I was in a position to repay the loan I’d pay him the same proportion of the value of the property. I’m now in a position to repay the loan, but the property has doubled in value, so will the extra £40k be treated as a capital gain and my dad taxed? Also my solicitors were not informed and my dad is not on the purchase documentation. Help!!

Answer:

As there wasn’t any paperwork in law it’s likely that you’ll be able to argue that there is a presumption of a gift here, in which case there will not be any CGT payable.

VAT on mileage claims

Question:

I am a one woman limited company and pay myself the standard 45ppm for mileage for business travel. When this is paid, I reclaim the VAT element (about 2ppm) through the VAT return. However, sometimes I recharge the mileage to my clients and in so doing, add 20% VAT onto the mileage costs on the invoice. My question is this: On any mileage recharged to the client, should I claim the input VAT and if so, should the mileage recharged to the client be the original less Input VAT reclaimed (43ppm), with 20% added, or should it be the 45ppm with 20% output VAT added? I’m going round in circles with this one, hopefully you can help me out!

Answer:

Your costs (and input tax claimed) are entirely separate from what you charge your client. It’s no different to buying and selling goods, where you claim back the input VAT on the purchase and add output VAT to the sale price. You can recharge your client 43p or 45p or any other figure you choose, but you must add output VAT. This will not impact on the VAT you claim in any way.

Directors Loan Account (DLA)

Question:

My limited company went into voluntary liquidation in December 2014; having not really traded since the end of the financial year to 31st July 2014. As the company owed me my original capital investment of circa £50k (shown in the DLA) I withdrew £30k out of the company between August and October 2014. I did not record this money as salary or dividend, but just adjusted the DLA, so will I have to repay the DLA, as if that happens it’ll probably get eaten up by the liquidators’ charges and I won’t get much if any of my money back. Also how do I show this on my Tax Return?

Answer:

The primary obligation of a Liquidator is to obtain the best deal for the creditors (for whom they work) and as the DLA shows what you’ve invested in the company that makes you a creditor too. The only problem you may have is if there are other creditors, when it could be argued that gave yourself preferential treatment before other creditors, which you can’t do. If this is the case you’ll be asked to repay the money and you will be treated like everyone else. Whatever the outcome, it will not affect your Tax Return or tax payable, as any money repaid is not treated as income.

Entrepreneurs’ Relief

Question:

I run a car sales business via a limited company and it operates from a row of 6 shops, with the fronts opened out and I own the shops personally. I want to transfer the shops to the company as it’ll be easier to sell in 3 years’ time when I retire. The shops were bought in the early 1980’s, with each shop costing around £20k and the current market value is £150k each. I currently pay tax at 40%, can you tell me what reliefs are available, if any?

Answer:

You appear to clearly qualify for Entrepreneurs’ Relief which will reduce the Capital Gains Tax payable from 28% to only 10% and this can be reduced further by your annual tax-free allowance (£11,100 2015/16). My advice would be to sell 2 shops to the company now and 2 in each of the next 2 tax years, which will effectively triple your tax-free allowance.

 

Image of David Jones Shrewsbury Accountant and Founder of Morgan JonesIf any of you would like more detailed information on any aspect of UK Tax Returns, send me an e-mail and I’ll be pleased to advise further.

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