Now that Tax Return season is coming to an end, I’ve turned my attention to my growing inbox of questions. It has been a while since I’ve written a blog of this type, largely because of the impact of the Coronavirus, the plethora of mini-budgets and the suspension of many tax rules by Chancellor Rishi Sunak.
With the vaccination programme in full swing with around 15 million of the population expected to have been vaccinated by Valentine’s Day on Sunday; the various temporary arrangements and suspension of many tax rules will be coming to an end quite soon.
So today I have picked half a dozen of the most interesting questions I’ve received in the recent past that I hope you will find interesting and informative. The Topics today:
- Can I have my money back without paying tax?
- The man down the pub has been replaced by YouTube!
- Please pick up the ‘phone!
- Splitting your business for VAT
- Can I claim a tax deduction for clothing?
- VAT on Advance payment from customers
I run a small limited company and to keep the business afloat during the COVID-19-crisis, I paid directly from my personal bank account to the business bank account much needed cash to cover many company expenses and rent. I accounted (perhaps incorrectly) for these under the “director loan” account. My business has picked up recently and is profitable again, but can I treat myself as any other creditor and start paying myself back even though I’m the director, without making PAYE and NIC contributions?
When you put money into a limited company, it can be either payment for shares or an injection of capital via a Director’s Loan. The amount you paid for shares will stay in the company as share capital and you can only take out when you sell the shares later. Any amount you put in as Director’s Loan, you can take money back as loan repayments with no tax implications. It doesn’t matter when you take it back or how much you take back a month, you can take all loan out if you want without any tax implications for you personally.
I know that I will have to register for VAT soon and having watched a lot of YouTube experts on the subject, I am looking forward to when I register as they’ve told me I will be able to claim back all the VAT I have ever paid so presumably I’ll be quids in.
Well, this makes a change from the classic “a man down the pub told me”, replaced by social media as you can’t go for a pint at the moment. But as with taking advice from a ‘pub expert’, the YouTube experts’ advice should also be taken with a large pinch of salt.
What the ‘experts’ didn’t tell you is that there’s a time limit for backdating claims for VAT paid before registration. From your date of registration, the time limit is: 4 years for goods you still have, or that were used to make other goods you still have and 6 months for services. For more information, go to: https://www.gov.uk/vat-registration/purchases-made-before-registration
I am in PAYE employment and recently noticed that my tax code was K100 and went to the company’s payroll officer, who told me that the standard tax code for the 2020/21 year is 1250L. She said a K code is used by HMRC when you have additional income that is not being taxed and advised me to telephone HMRC directly to sort it out. I do not receive any other income or benefits and have tried 6 times so far to call them and every time after being put on hold for around 45 minutes the call is cut off, is there anything else I can do?
Your payroll officer is correct if you have no other income other than your salary you should have a 1250L tax code and HMRC have made a mistake. This happens far too often and is usually able to be sorted by a ‘phone call. I have every sympathy with your frustration at not getting through, as I’m having similar issues.
It is a truly shoddy service and rather than wasting even more of your life hanging-on the end of the ‘phone I would get the address of the HMRC office dealing with your company’s PAYE and write to them and enclose a copy of the K100 coding notice, but make sure that you send the letter by recorded delivery. This will pretty much guarantee that your incorrect coding is dealt with quickly.
I’m a commercial photographer and operate my own ltd company. My work involves corporate clients hiring me for marketing and advertising photography within their businesses. I’ve been in business for 20 years and am VAT registered. I’ve framed the odd picture and have decided to start a new picture framing business using different resources and premises to my photography. The service will be aimed at private individuals and I would ideally like to do this as a sole trader and not be VAT registered. Will HMRC allow this?
The question is whether or not HMRC will see the framing as a sufficiently different business to your existing photography business and given that different equipment and premises are being used, I would be cautiously optimistic that they won’t view it as an artificial separation, if as you imply picture framing was not part of the historical core business of your limited company. However, you must keep separate accounting records, have different suppliers, a separate bank account and avoid trading between the two entities.
I’m a personal trainer and spend a small fortune on leotards, sweatbands, trainers and the like. My friend who is a bookkeeper, says they’re not tax-deductible as the clothes don’t constitute a uniform. This seems very unfair, are there any exceptions to this rule?
Unfortunately, a little knowledge can be a dangerous thing! Your friend is correct with regard to normal clothing, but yours is specialist clothing pertinent to your profession and I would consider that it falls under the ‘workwear’ exemption and can therefore be claimed as a taxable deduction from your income.
I have a number of customers who pay in advance prior to delivery, most of whom are invoiced within 14 days. My problem is at the end of a VAT period when the payment and invoice dates are in different quarters. At present I’m using the date of the invoice as the tax point, but am I doing it wrong?
Yes you are, as a tax point occurs on receipt of cash, so it needs to be included in the quarter it was received.
As ever, 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.