It’s been over three months since I last posted a Blog on the many questions asked by correspondents to our website and by existing clients, so today I’ll 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:
- Possible Capital Gains Tax (CGT) on private residence
- Are tips taxable?
- Indian ‘Staycation’
- Can I claim for my long johns?
- Can a freemason claim his membership fees?
- When does a deposit become taxable?
1. Possible CGT on private residence
I’m a qualified nurse and have had a job as a care home manager for a number of years which requires me to provide medical cover at night for 5 nights per week. My office at the home has a large storeroom attached which has been converted to a bedsit for me. As I’m single, 3 years ago I started renting out my house, but I’ve decided to sell it and buy a bungalow as I’m only a year or two from retirement. Will I have to pay capital gains tax on my house?
Answer
There is a special Capital Gains Tax relief when you sell your home, which is called ‘Principal Private Residence Relief’ (PPRR) and is given automatically, if you have always lived in the property. The good news is, you can be absent from your residence for work for up to 4 years and still qualify for PPRR, as long as you re-occupy the property as your principal private residence afterwards.
2. Are tips taxable?
I am a full-time musician but did not work for several months during lockdown. I decided to do a few online concerts, which were officially free. I did however include in my online post, a virtual “tip jar” into which people could put money on a purely voluntary basis. I don’t believe it’s taxable but would appreciate your opinion as I received nearly five grand in ‘tips’
Answer
Sorry to disappoint you, but the income is definitely taxable. As you’re a professional musician you were undertaking your normal work and by having a tip jar available to those who attended, you were effectively inviting payment. Also ‘tips’ are taxable, whatever your profession.
3. Indian ‘Staycation’
In March 2020, I went to India on business to meet clients and setup a subsidiary Indian business to supply my UK firm with software services. As a result of coronavirus restrictions, I had to stay there for 6 months. I continued to work for my UK clients from India but I’m now being told by my accountant that my car rental and six months accommodation costs in India, totalling around £15,000, aren’t allowable, is he right?
Answer
Assuming all income is declared to HMRC, and tax paid thereon, as long as you have documentary proof of the costs incurred and can clearly demonstrate that you were prevented from travelling by either the UK or Indian governments the additional costs are deductible against tax.
4. Can I claim for my long johns?
I’m a builder and specialise in guttering, facia boards and flat rooves and therefore am working outside most of the time. As it gets flippin’ cold a lot of the time, I’ve been told by my mates that I can claim for my long johns, thermal vests, padded gloves etcetera. Are they right?
Answer
As with many expense claims, it depends on whether the item is specific to the work performed. So items such as insulated overalls and high viz jackets/sweatshirts are fine because the colours and high-viz stripes clearly identify them as workwear. Unfortunately, items that can be used for ordinary life, such as thermal underwear or generic padded gloves cannot be claimed for.
5. Can a freemason claim his membership fees?
Can a freemason claim his membership fees?
I am a Freemason and joined the organisation only because as a senior HR consultant I wouldn’t get much, if any, work, as most of my potential clients are masons. I therefore consider that the membership fees my Lodge charges are a direct cost of my consultancy business, can you confirm this please?
Answer
No I can’t, your claim that the fees are tax deductible is wrong for a number of reasons, not least because The United Grand Lodge of England publicly states that it is a ‘philanthropic organisation primarily for the benefit of its members and their families’. So, your answer is actually in your membership documents.
6. When does a deposit become taxable?
I am a self-employed hair technician carrying out hair transplants; my terms and conditions state that deposits are non-refundable. My question is, do I have to count the deposit as revenue on the day I take it, or when I actually do the hair transplant, which can be months later
Answer
You say that your terms make the deposit non-refundable, however if you check the current consumer protection legislation, you will find that in the vast majority of cases, any deposit taken will be classed as refundable. So, in your bookkeeping records, when you receive a deposit record it as a liability until the hair transplants is performed.
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.