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Tax if selling online

Many people supplement their income by selling services online. This is often described as the ‘sharing economy’ or the ‘peer-to-peer economy’ and usually involves renting out something using specialist websites or apps. This could include renting out your house (using websites such as AirBNB) or personal equipment (such as power tools).


You can also raise income from using specialist online marketplaces to find customers to whom you can provide services as a freelancer. The income raised from these kind of ventures is usually (but not always) supplemental to someone’s main income but this is not always the case. However, HMRC is clear that in most cases this is taxable income and Income Tax is payable subject to the usual rules.


There is no Income Tax to pay if you occasionally sell personal possessions online, and there are reliefs from Capital Gains Tax for small gains (usually under £6,000) for selling personal possessions. However, there are separate rules if HMRC deems your activities a fully-fledged business.


Tax tips


There are also two £1,000 tax exemptions for sundry property and trading income. The £1,000 exemptions from tax apply to:



  • Individuals who make up to £1,000 from self-employment, casual services or hiring personal equipment. This is known as the trading allowance.

  • The first £1,000 of miscellaneous income for income from property. For example, from renting a driveway. This is known as the property allowance.

If you are uncertain whether your online selling may be subject to a tax charge, please call for an opinion. Better safe than sorry.

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Job related expenses you may be able to claim

If you are an employee and use your own money to buy things you need for your job, you can sometimes claim tax relief for the associated costs. It is usually only possible to claim tax relief for the cost of items used solely for your work.


There is no tax relief available if your employer pays you back in full for an item you have bought for your work. In addition, you cannot claim tax relief if your employer has provided you with a suitable item, but you want a different or upgraded model. For example, you are provided with a mobile phone for your work, but you want to use a newer and more advanced model and pay for this yourself.


A claim for valid purchases can be made against receipts or as a ‘flat rate deduction’. The flat rate deductions are set amounts that HMRC has agreed are typically spent each year by employees in different occupations. They range from £60 to £140 depending on listed occupations. If your occupation isn’t listed, you may still be able to claim a standard annual amount of £60 in tax relief.


This means that if you are a basic rate taxpayer then you could claim back £12 (20% x £60), and if you are a higher rate taxpayer £24 (40% x £60) per year. Claims can usually be backdated for up to 4 years. If you work in one of the listed occupations, you could claim back even more.


Tax tip


You may also be able to claim tax relief for using your own vehicle and for travel expenses, professional fees and for buying equipment to use as part of your employment. The rules can be complex and we can help you crunch the numbers to see what tax relief may be available.

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New advisory fuel rates published

Advisory fuel rates are intended to reflect actual average fuel costs and are updated quarterly. The rates can be used by employers who reimburse employees for business travel in their company cars or where employees are required to repay the cost of fuel used for private travel. HMRC accepts there is no taxable profit and no Class 1A National Insurance on reimbursed travel expenses where employers pay a rate per mile for business travel no higher than the published advisory fuel rates.


Employees can also use the advisory fuel rates to repay the cost of fuel used for private travel. In this case, HMRC will accept there’s no fuel benefit charge. The advisory rates are not binding. Accordingly, if an employer can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile, this would be accepted.


The latest advisory fuel rates became effective on 1 March 2019. Fuel rates are reviewed four times a year with changes taking effect on 1 March, 1 June, 1 September and 1 December. You can use the previous rates for up to 1 month from the date the new rates apply.


The rates are as follows:


Petrol
Engine size 1400cc or less             11p per mile
Engine size 1401cc to 2000cc        14p per mile
Over 2000cc                                21p per mile


LPG
Engine size 1400cc or less              7p per mile
Engine size 1401 to 2000cc             8p per mile
Over 2000cc                                13p per mile


Diesel
1600cc or less                             10p per mile
1601cc to 2000cc                        11p per mile
Over 2000cc                               13p per mile


Hybrid cars are treated as either petrol or diesel cars for this purpose.


Advisory Electricity Rate


HMRC now accepts that if you pay up to 4p per mile when reimbursing your employees for business travel in a fully electric company car, there is no profit. While electricity is not considered a fuel for tax and NIC purposes, the Advisory Electricity Rate will be published quarterly alongside the other advisory fuel rates.

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Claim EU VAT refunds before Brexit

The VAT paid in other EU countries is often recoverable by VAT- registered businesses in the UK, who bought goods or services for business use. The exact rules that govern the amount of VAT refundable depends on the other countries’ rules for claiming input tax. It is important to note that VAT incurred in foreign countries can never be reclaimed on a domestic UK VAT return. There are a number of conditions which must be met in order for a claim to qualify.


Claims must be made electronically via the tax authority in which the claimant is established i.e. a claim from a UK company to any other EU country must be submitted electronically to HMRC. The deadline for the submission of a refund request for expenses incurred in other EU member, states during the 2018 calendar year is usually 30 September 2019.


However, HMRC’s guidance has been updated to make it clear that in the event the UK leaves the EU without a deal, the existing electronic process for making a claim will no longer be available to UK businesses. If you want to use the EU VAT refund electronic system to submit a refund claim for 2018, you’ll need to do so by 5pm on 29 March 2019. If there is a no deal Brexit, then claims submitted after that date will not be forwarded to the relevant EU member state.


Going forward, if there is a no deal Brexit, UK businesses will need to apply for VAT refunds from EU member states using the same existing process for businesses based outside the EU. This will apply to any outstanding claims for 2018 and for 2019.

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What is a Company Voluntary Arrangement?

A Company Voluntary Arrangement or CVA is a special arrangement that allows a company with debt problems or that is insolvent to reach a voluntary agreement to pay its business creditors over a fixed period of time. The arrangement is similar to the more well-known Individual Voluntary Arrangement (IVA) that can be used by a sole-trader or self-employed person who is unable to pay their debts.


An application for a CVA can only be made with the agreement of all directors of the company in question or all of the partners of a limited liability partnership (LLP). A CVA can only be realised by using an insolvency practitioner who would be responsible for setting up the arrangement and administering it.


Once an insolvency practitioner has been appointed, the following steps will take place:



  1. The insolvency practitioner will work out an ‘arrangement’ covering the amount of debt the company can pay and a payment schedule. They must do this within a month of being appointed.

  2. The insolvency practitioner will write to creditors about the arrangement and invite them to vote on it.

  3. To get a CVA, it must be approved by creditors who are owed at least 75% of the overall debt.

If the agreement is approved and the company does not meet the terms of the CVA, then any of the creditors can apply to have the business wound up.

Byadmin

National Insurance if you go abroad

If you move abroad it can often be advantageous to continue paying your UK National Insurance Contributions (NICs) in order to preserve your entitlement to the State Pension and other benefits. If you are working in the European Economic Area (EEA) the rules depend on your situation. The EEA includes all EU countries as well as Iceland, Liechtenstein and Norway. The same rules apply in Switzerland.


The rules are as follows:



  • If you work for an employer in the EEA. You’ll normally pay social security contributions in the EEA country you work in instead of NICs. This means you’ll be covered by that country’s social security laws and may be entitled to benefits there, but your entitlement to benefits in the UK (for example State Pension) may be affected as there’ll be a gap in your NICs.

  • If your UK employer sends you to work in the EEA. You might be able to carry on paying NICs if you’re abroad for up to 2 years. This means you won’t have to pay social security contributions abroad. There is a special form which your employer must complete to notify HMRC.

  • There are special rules if you are self-employed or working in two or more EEA countries (including the UK).

  • Some countries have a Reciprocal Agreement (RA) or Double Contribution Convention with the UK. These countries include the USA and Japan. You will usually pay social security contributions in that country instead of NICs.

  • For all other countries, you can usually continue paying NICs for the first 52 weeks you’re abroad if you meet the qualifying conditions.

Of course, depending on what transpires with Brexit, the rules for other EU countries could be open to change.

Byadmin

What is taxable when you sell a commercial vehicle or other equipment?

When you purchase a van or other equipment that qualifies for tax relief, the cost of the asset is reduced – for tax purposes – by the amount of any Capital Allowance you claim.

Consequently, if you sell the asset at a later date you will need to compare the tax written down value (cost minus any capital allowances claimed) with the sales proceeds.

If the amount you receive on sale is higher than the tax written down value, then this profit will be added to your taxable income for the relevant tax period.

If the amount you receive is lower than the tax written down value, you can write off the difference against your related profits for the relevant tax period.

Planning note

You don’t need to physically sell an asset to trigger a disposal for tax purposes. You will also be considered to have disposed of an asset if you: give it away as a gift, transfer it to someone else, swap it for something else, get compensation for it – like an insurance payout if it’s been lost or destroyed, keep it, but no longer use it for your business or start to use it outside your business.

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Sooner is better than later

This week we pass the filing deadline (31 January 2019) for the 2017-18 Self Assessment tax returns. A surprising number of taxpayers are still content to deal with this annual chore at the last minute. This article sets out a few compelling reasons for preparing your tax return as soon as you can after the end of each tax year.

  1. Until you prepare your return and calculate your liability for a tax year, you can have no certainty about the level of any tax payments that you may have to fund in the January and July of the year following the tax year end. So for 2018-19, payments possibly due January and July 2020. By crunching the numbers as soon as you can you will maximise the time you have available to save for any taxes due.
  2. If your return is prepared before the end of July 2019, there may be a possibility to reduce the second payment on account for 2018-19 (due 31 July 2019) if your liability for 2018-19 is lower than that of 2017-18.
  3. By preparing your return early in the tax year there are a number of tax planning opportunities that you will have time to consider before you formally file your return. For example, you could make charitable contributions in the year following the year of the return and carry them back to the previous year.
  4. You will be your tax advisor’s best friend as early-birds will increase the time available for consideration of tax planning options.

Tax saving opportunities

You will note that we use the expression "prepare" rather than "file" in our notes above. The deadline for filing a return is the 31 January following the relevant tax year end. By preparing the return as soon as possible after the tax year end date, we can ascertain what tax liabilities are expected and what opportunities there are to save tax by adopting any tax planning options.

Byadmin

Brexit – what the UK government has advised business owners to do

The Brexit uncertainties continue. To help businesses consider their options HMRC has published more information for UK businesses that buy or sell goods from or to the EU. We have copied in below three specific actions that need to be considered and updated them for recent changes to the information available on the GOV.UK website. They are:

  1. Complete an application and register for a UK Economic Operator Registration and Identification (EORI) number athttps://www.tax.service.gov.uk/shortforms/form/EORIVAT. You’ll need an EORI number to continue to import or export goods with the EU after 29 March 2019, if the UK leaves the EU without a deal. Registration will make customs processes easier for you. Full details of why you should consider registering for EORI can be found herehttps://www.gov.uk/guidance/get-a-uk-eori-number-to-trade-within-the-eu.
  2. Decide if you want to hire an agent to make import and/or export declarations for you or if you want to make
    these declarations yourself (by buying software that interacts with HMRC’s systems). If you want to:
    declare through an agent, contact one to find out what information they’ll need from you, use software to make declarations yourself, talk to a software provider to make sure that their product meets your needs, depending on whether you import, export or both.
  3. Contact the organisation that moves your goods (for example, a haulage firm) to find out if you will need to
    supply additional information to them so that they can make the safety and security declarations for your
    goods, or whether you will need to submit these declarations yourself.

Planning note

Please call if you would like help in actioning these points. We are getting close to the 29 March 2019 leave date and prudence would seem to dictate that this advice from the government is given appropriate consideration.

Byadmin

Charities – reducing input VAT

Charities pay VAT on all standard-rated goods and services they buy from VAT-registered businesses. They pay VAT at a reduced rate (5%) or the ‘zero rate’ on some goods and services.

Charities pays 5% VAT on fuel and power if they’re for:

  • residential accommodation (for example, a children’s home or care home for the elderly),
  • charitable non-business activities (for example, free daycare for the disabled),
  • small-scale use (up to 1,000 kilowatt hours of electricity a month or a delivery of 2,300 litres of gas oil).

If less than 60% of the fuel and power is for something that qualifies, charities pay the reduced rate of VAT on the qualifying part and the standard rate (20%) on the rest.

Qualifying fuel and power include gases, electricity, oils and solid fuels (such as coal). It does not include vehicle fuel.

Certain costs may qualify for the zero VAT rate. For example:

  • advertising and items for collecting donations,
  • aids for disabled people,
  • construction services,
  • drugs and chemicals,
  • equipment for making ‘talking’ books and newspapers,
  • lifeboats and associated equipment, including fuel,
  • medicine or ingredients for medicine,
  • resuscitation training models,
  • medical, veterinary and scientific equipment,
  • ambulances,
  • goods for disabled people,
  • motor vehicles designed or adapted for a disability,
  • rescue equipment,
  • VAT-free goods from outside the EU.

Charities don’t pay VAT on goods imported from outside the EU as long as they’re benefiting people in need by providing: basic necessities, goods to be used or sold at charity events, equipment and office materials to help run charities for the benefit of needy people and goods to help deal with disasters within the EU.

Planning opportunity

Any opportunity to reduce costs – by paying VAT at less than the standard rate on specific services and supply of goods – will be welcomed by charities and is advice that practitioners can readily supply.