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.
There are also two £1,000 tax exemptions for sundry property and trading income. The £1,000 exemptions from tax apply to:
If you are uncertain whether your online selling may be subject to a tax charge, please call for an opinion. Better safe than sorry.
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.
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.
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:
Engine size 1400cc or less 11p per mile
Engine size 1401cc to 2000cc 14p per mile
Over 2000cc 21p per mile
Engine size 1400cc or less 7p per mile
Engine size 1401 to 2000cc 8p per mile
Over 2000cc 13p per mile
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.
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.
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:
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.
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:
Of course, depending on what transpires with Brexit, the rules for other EU countries could be open to change.
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.
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.
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.
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.
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:
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.
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:
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:
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.
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.