UK Tax Questions Answered by Shrewsbury Accountant No.34

I’m sure it’s known as a pack

As it’s been three months since I last posted a Blog on the many questions asked by correspondents to our website and by existing clients, I thought it time to share with you a handful of the more interesting questions I’ve received in recent weeks, which I hope you will find interesting and informative. The Topics today:

1. Capital gains losses
2. Miniature Dachshunds
3. St Swithin’s Day
4. Paying back a loan by salary sacrifice
5. Bounce Back Loan default
6. Can I claim for my walking stick?

1. Capital gains losses

I dabble a bit in stocks and shares and in the last tax year (2020/21) I made a modest capital gain of £2,972, which is well below the annual exemption of £12300. However, in the previous year (2019/20) I made a capital loss of £3,038. My question is, does this loss have to be set against the 2020/21 gain or can it be carried forward to the current 2021/22 tax year, when I expect a loss similar to 2019/20?

Answer

Bad news I’m afraid, your brought forward losses can only be used to reduce gains in the current year that exceed the exempt amount. They cannot be carried forward, potentially indefinitely, until there is a year when the gains exceed the exempt amount, currently £12,3000.

2. Miniature Dachshunds

My dad is a farmer and has allowed me to use some redundant farm buildings to start my own Miniature Dachshund dog breeding business. The breeding stock of 2 dogs and 4 bitches cost me nearly £20,000 as I need to have certified pedigrees to be able to sell the puppies for top price, currently around £2,500. I’ve also spent around £15,000 on kitting out the kennels, heaters etcetera. I phoned HMRC to notify them I’d started my business and after answering a few questions, they told me that I couldn’t claim for the £20k spent on the breeding stock because they’re classed as a herd, but I’m not liable for any tax when I sell them. This seems unfair as when they’re too old to breed I will just give them away to good homes. Is there anything any way round this problem?

Answer

I suspect that there has been a misunderstanding of the situation by the HMRC officer, but he is correct that you can go down the ‘herd election’ route, but that is almost exclusively used for normal farm animals such as cows and sheep. I had a recent case involving a client when bred dogs, and I treated the breeding dogs as a capital outlay as clearly, you have no business without them! The good news is, HMRC accepted the initial stock as capital expenditure and therefore allowable against taxable income from the sale of the puppies.

3. St Swithin’s Day

After several weeks of rainfall last summer, which by coincidence coincided with the 40 days and nights of rain forecast by St Swithin, I decided that instead of paying for yet another repair to my workshop roof, I would bite the bullet and have the whole thing replaced, forking out £25,000. I’m a heating engineer and have had a really good year so far and was potentially looking at 40% tax unless I could claim for the new roof, but my bookkeeper tells me I could claim for a repair but not for a new roof. Is he correct?

Answer

As the quotation goes, ‘a little knowledge is a dangerous thing’, your bookkeeper would be right if the new roof constituted a major improvement. But under the circumstances that you have described, even though the repairs to your workshop are substantial, that does not of itself make them ineligible for tax purposes, provided the character of the asset remains unchanged. If the whole roof is damaged, then replacing the whole roof will be an allowable revenue expense.; or it could be that replacing the whole roof will be cheaper than attempting to just repair the damaged parts. In my opinion, the whole cost of the roof is allowable in the circumstances you have described, but what is not allowable as a revenue expense is when there is not a like for like replacement.

4. Paying back a loan by salary sacrifice

I need to borrow £10,000 for building works to my home to make it wheelchair accessible for my disabled son and my employer has kindly offered to provide it and allow me to repay it using a form of salary sacrifice by forgoing expected quarterly bonuses until the £10k is repaid. As the repayment won’t involve a formal salary sacrifice of basic monthly pay, what are the tax implications if any?

Answer

Nice try, but unfortunately you must pay the income tax and NIC on the bonus, before using it to repay the loan. I do though have some good news as the work to be undertaken would appear to be clearly eligible for a disabled facilities grant, which is available for the type of works you intend to carry out up to a maximum of £30,000. Go to: www.gov.uk/disabled-facilities-grants and the very best of luck.

5. Bounce Back Loan default

I took out a Bounce Back Loan last year of £40,000 and the repayments start next month, but I’m going to struggle to pay the £700 pm as my limited company is essentially not trading and has little in the way of assets. My problems started with the change in HMRC’s new IR35 rules a few months ago and my clients don’t want to fall foul of HMRC, so none of them will deal with limited company one-man bands anymore. Do you have any suggestions?

Answer

If the company is not likely to trade again, you can apply to Companies House for it to be struck off for the princely sum of £10. HMRC may object to the striking off, but unless they appoint a Receiver, which is unlikely because of the lack of assets, it will be automatically struck off the register within a matter of weeks and that will be the end of the matter.

6. Can I claim for my walking stick?

I have a dodgy hip and was told 2 years ago that I needed a hip replacement operation which was scheduled for May 2020, but which has been postponed indefinitely because of Covid-19. I’m a self-employed salesman and to be able to do my job, I’ve had to buy a couple of sturdy walking sticks with forearm sleeves and footpads, which were quite expensive. Can I claim for them against my tax?

Answer

Unfortunately, not I’m afraid. You can only claim for items that are only necessary for you to do your job and which cannot be used at other times. There is however some good news, if your doctor agrees that you need such devices for your day-to-day mobility then grants are available from your local Council.