Here is October’s tranche of questions I’ve received; which will hopefully be of interest to you
- Car Benefit Charge
- Tax-free dividend
- Vat Registration threshold
- Hairdressers and VAT
- Wrong VAT return sent in
Car Benefit Charge
I have been offered a company car because my job requires a lot of travel, but I don’t want to be charged ridiculous amounts of tax because of the ‘Car Benefit Charge’ rules. I have my own car for private use and don’t need or want private use of the company car. My place of employment is my home, and I’m prepared to sign a document agreeing that there will be no private use, and to keep a record of every journey to support the mileage. My question is, will this be allowed and what happens if I give a family member a lift, assuming I don’t deviate from the route of my business journey?
There needs to be more than an agreement that there will not be any private use, your employer must expressly prohibit private use in your contract of employment and that prohibition must be enforceable.
If this is the case, then the test is whether the journey is necessary; carrying a passenger would not affect the necessity of the journey (as long as there was no significant deviation from a normal route). Also you would need to keep a record of all the miles travelled to demonstrate that there was no private use
I work for a small company, earn circa £40k and have accumulated quite a lot of shares (they’re given as an annual bonus). Last year the company sold a patent and made a huge profit and have given me a dividend of around £50k. I phoned HMRC to register for a Tax Return, but HMRC said they didn’t want a return. Does this mean that I don’t need to pay higher/additional rate tax on my £50k dividend; it seems too good to be true?
Yes, I agree it is too good to be true and the HMRC has clearly got it wrong. However, if you asked for and have kept a reference for the call, then you have discharged your legal responsibility to inform them and if they don’t issue a return you are indeed a very lucky individual, who has potentially saved around £15k in tax.
Vat Registration threshold
I deregistered my small business (it is seasonal, just trading for 6 months of the year, Apr-Sep) from VAT in Feb 2014 and worked below the allowed £79k for that year. This year my turnover was just below the new £82k limit but when I put my rolling 12 months into an Excel calculator, it appears I went over the limit by £2k in August but then the status quo returns for the rest of the year i.e. no income. Is there any leeway in the HMRC rules for seasonal businesses, as I can see this repeating itself every year! I would be very grateful for any input. Thankyou.
In principle, if you trade as you suggest, you will always have 6 months’ worth of sales in your total, so there’s no doubt you exceeded the threshold and are obliged to notify HMRC/VAT. That being said, the Vatman is likely to agree not to register you if you can satisfy him that the next 12-month sales, will be below the deregistration threshold of £80k.
Hairdressers and VAT
I am a mobile hairdresser and it is clear working from a salon will considerably increase my income, even allowing for the extra costs. I have 3 friends in a similar situation and we have found suitable premises to rent. None of us want to be VAT registered and we all want to be independent of each other as we have different work patterns and service offerings; but I’ve insisted that the salon is in all our names and the costs shared equally. Can you advise on how we should set things up as I can’t see how we can be jointly responsible for the salon and its costs, whilst declaring our income separately to HMRC and avoiding VAT. Help!
Yours is not an uncommon problem and it is easy to sort out. I would suggest the following:
- The salon is taken on by you forming a limited company and all 4 of you being Directors & shareholders
- The 4 Directors rent chairs from the limited company
- Thus the only source of income for the Ltd Coy is the rent with no VAT if under the £82k threshold
- If the Ltd Coy makes a profit, this can be distributed to the Directors as dividends
- The 4 directors then declare their individual income via their individual self-assessment Tax Returns, again with no VAT if under the £82k threshold
Wrong VAT return sent in
I have 2 businesses, both VAT registered; my bookkeeper used the wrong log in when submitting one of the returns, so an incorrect VAT return was submitted. Do I call HMRC to request the return be pulled/cancelled or can I make an adjustment on the next return to correct the mistake and keep shtum? I’d appreciate any thoughts you have, thanks.
Mistakes happen and HMRC/VAT accepts that. The correct thing to do is to contact them, either by telephone on 0300 200 3700, or simply send in a VAT652 with the details of the incorrect submission to the address below:
HMRC – VAT Error Correction Team
13th Floor North Euston Tower
286 Euston Road
If you do this promptly, you won’t be penalised.
The “Spongebob Plan”
I have 2 companies, both of which have been unsuccessful for various reasons and neither has any assets. Both have a couple of creditors; I have been making payments on the creditors balances and I can’t afford to continue doing so. The companies are no longer actively trading, but exist just to decrease “creditors” and increase “directors loan” that I know I have no chance of ever getting back. There is some money in the bank, but I can’t afford to pay off the creditors, but equally can’t afford to pay for liquidation. I am considering becoming bankrupt, but do I have any other options? Help!
Yes you do, you can do a ‘Spongebob’, which is the term for winding up a company that has creditors. As you have clearly put capital into the Director’s Loan Account, any balance at the bank you should withdraw. You should then write to the creditors to inform them that the company has no assets and is therefore insolvent and invite them to appoint a liquidator (which they are unlikely to do as it will cost thousands). You then apply to Companies House on Form DS01, plus a cheque for £10 (link below) and 3 to 6 months later the company will be dissolved.
If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.