Here is my latest tranche of questions on various aspects of the tax system and related subjects, posted via my blog and which will hopefully be relevant or of interest to you.
- Pre-letting expenses
- Guitarist’s medical costs
- Hay fever medication
- Expenses allowed against rental income
- Tax on state pension lump sum
- National Insurance Numbers
Question:
Can you please advise me on the current tax position regarding the costs for the re-wiring of a rental flat? The position is this; I’m about to rent out the flat I own and buy a new house. The old flat needs re-wiring to meet my local council’s standards for rental properties and this will cost £7,500. Can any of the cost of the re-wiring be deducted from my rental income, as the work has to be completed before I can rent the property out? Many thanks in advance for your help
Answer:
I would say the costs are an allowable pre-trading expense. The work will inevitably involve a small element of improvement, but as you’re replacing the existing wiring system with the nearest modern equivalent this usually makes it allowable. It’s the same as replacing single-glazed windows with modern double-glazed units, which again would be a revenue expense.
Question:
I’m a self-employed guitarist and have damaged ligaments in my hand; this means I cannot work at all until it’s repaired. The NHS will do it, but the waiting list is 18 weeks and that is after having tests and seeing the consultant, it’ll be at least 6 months. As my hand is absolutely essential to my self-employed earnings, if I pay for private medical treatment can these be claimed (entirely or partly) as I’ll be able to work after 8 weeks, which will mean I’ll pay more tax, or don’t HMRC look at it that way?
Answer:
There has been a Tribunal case on this issue, Prince v Mapp which is relevant to your question as it related to a guitarist who incurred the cost of an operation on his hand. In the PRINCE case, the concept of “duality of purpose” lost the case for the taxpayer. In that case, whilst the guitarist played his guitar largely for business purposes, he also admitted playing it for private purposes and it was that additional “private playing” purpose which rang the death knell for the guitarist’s claim.
So the key question to be asked is whether or not your guitar playing is purely for business purposes. If the ONLY purpose of the treatment costs was a business one, then the medical treatment costs can be claimed in full.
Question:
I am a SE arborist (tree surgeon) and have been diagnosed with Allergic Rhinitis, a severe form of hay fever. To be able to do my work, I’m spending a small fortune on inhalers and pills; can these be claimed against my tax?
Answer:
The answer is most probably yes, but for the claim to be allowable HMRC will need you to obtain a letter from your doctor stating the various medications are necessary to enable you to undertake the work that you do.
Question:
I paid a mortgage fee on a re-mortgage on my property that was previously my private residence, but is now being wholly rented out. The re-mortgage was taken out at the same time the property was let out and I have no intention of returning to this property as I now have a new home. Can I claim the fee against my rental income fee as it was incurred for the purpose of raising finance for a letting business?
Answer:
Arrangement fees are accepted as tax allowable by HMRC as an “incidental cost of finance” and it follows that if the interest is allowable then so is the arrangement fee.
Question:
My official state pension starting date was May 2014, but I deferred taking it as I continued to work until March 2015. My first regular state pension commenced in April 2015 and was about £7,500 for the year and I also received my deferred pension lump sum in the 2015-16 year, but it was around £1,000 lower than I expected. When I ‘phoned the tax office they were quite rude and told me that it was taxable is this correct?
Answer:
HMRC were correct, as all pension income is taxable above your Personal Allowance (£10,600 in 2015-16 tax year) and this should have been explained to you by the DWP when you asked for the deferment. The alternative is to have your ongoing state pension permanently enhanced by 1% for every five weeks you defer, which works out at 10.4% for every full year. Unfortunately, it’s probably too late, but you could ask if the DWP are prepared to do this retrospectively, but if they agree you’ll have to return the lump sum.
Question:
Why is a National Insurance Number so-called? It has half as many letters in it as numbers; shouldn’t it be a National Insurance reference or code? Also what do the letters and numbers mean?
Answer:
A National Insurance Number or NINO is effectively a stand-in for UK Identity Card and was originally planned to be just a number, with the six digits being issued sequentially. When the system first started, the two prefix letters were intended to represent where the NINO holder lived as people didn’t tend to move around much in 1911 when they were introduced. The lone suffix letter is either A, B, C, or D and is a leftover identifier which relates to when national insurance payments were collected manually.
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.
David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David's depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire's most respected Accountancy Practice.