Exchequer Weblog

Even if your business is not registered for VAT, you need to be aware of the point where your total sales require you to become VAT registered. This threshold is currently set at total sales of £68,000 for any 12 month period ending on or after 1 May 2009.

If your annual sales are near this limit you need to calculate your total turnover for the last 12 months, every month, adding the latest month and subtracting the earliest month each time, to check you haven’t breached the threshold. Alternatively, if you believe your sales for the next 30 days will exceed £68,000 you must register for VAT immediately.

There are several advantages of keeping your sales below the VAT threshold:

• - You don’t have to register for VAT, but you can if you wish to.
• - If you are not registered for VAT, your customers do not pay VAT on top of your basic prices. This makes your goods and services appear to be better value for money for non-business customers or other small non vat registered businesses.
• - On your 2009/10 self-assessment tax return, which will be issued in April 2010, you will only have to complete three lines to report your business profits.
• - You do not have to submit your VAT returns online. Currently a small percentage of VAT-registered businesses submit their VAT returns online each quarter. But for periods starting after 31 March 2010 all VAT-registered businesses with a turnover of £100,000 or more will be compelled to submit their VAT returns online. Also any business that becomes VAT registered after 31 March 2010 will also have to submit all their VAT returns online, whatever its turnover.
  If you become VAT registered before 1 April 2010 you will not be forced into online filing straight away, as you will be able to continue with paper VAT returns until your turnover exceeds £100,000, or the law is changed.

There are of course penalties for failing to register on time so please monitor your turnover carefully and make your decision to register for VAT in good time.

You know the tax system is crazy when the Taxman encourages you to claim a benefit, which you don’t currently qualify for, just in case you do start to qualify for the payment later in the tax year. That’s exactly the position the Taxman is taking for Working and Child Tax Credits.

Working Tax Credit is paid to single people who work at least 30 hours a week, and to parents and disabled workers who work at least 16 hours per week, but in both cases the total family income must be below a qualifying threshold. For a single childless person aged at least 25, the qualifying income threshold is currently £13,250 per year. For a family with children the qualifying threshold is considerably higher, up to around £80,000 in certain extreme cases, although the exact amount would depend on the family’s circumstances. Child Tax Credit is paid alongside Working Tax Credit and is assessed on the same claim form.

The income that counts towards the qualifying threshold is the family’s income spread out over the full tax year. If the family income suddenly drops part way through the tax year, due to redundancy or business failure, which is far more likely in the credit crunch, the family’s average income for the tax year may well be below the qualifying threshold.
This is where the system gets really crazy. The family or individual must make a Tax Credit claim before 6 July 2009 to allow the claim to be back-dated to the beginning of the current tax year (2009/10). Although the claim may initially give rise to a nil payment based on income received in 2008/09, the claim for 2009/10 can be amended later to take account of the reduced income for 2009/10. At that point payments will be made based on the total family income averaged out over the tax year.

If you feel your family income may be at risk in the current unstable economic climate, it may make sense to submit a protective Tax Credit claim before 6 July 2009. Do be careful if you are making a claim as a single person, when you later become part of a couple, as you must tell the Taxman when this happens. The Taxman requires couples (mixed or single sex) to make Tax Credit claims as a couple, and will demand repayment of Tax Credits paid to individuals who make an invalid single-person claim.

In our Budget weblog we mentioned that UK residents could now make claims for tax reliefs associated with furnished holiday-let property situated in other EEA countries. The EEA countries are the 27 EU countries plus Iceland, Liechtenstein and Norway.

The tax reliefs that could be claimed include:

• - Setting losses on the let property against other UK income;
• - Capital allowances on equipment used in the property;
• - Capital gains relief on selling the property;
• - Entrepreneurs’ relief for disposals made after 5 April 2008;
• - Business asset taper relief for disposals made before 6 April 2008; and
• - Business property relief for inheritance tax.
  These tax reliefs could apply for a number of PAST tax years, but to qualify you need to prove all of the following applied for the relevant year:
• - The letting business was carried on commercially with a view to a profit;
• - The property was available to let as furnished short-term holiday accommodation for at least 140 days per year;
• - It was actually let for these short-term periods for at least 70 days per year; and
• - Longer-term lettings, which exceed 31 consecutive days let to the same person, did not take up more than 155 days per year.

If this applies to you a claim may be made for tax relief, which may be due.

The car scrappage scheme, which was launched on 18 May 2009, also applies to small vans that weigh up to 3,500kg. So if you are thinking of trading in your 10 year old van for a new one, this could be a good time.

Capital Allowances
The scrappage scheme gives you a £2,000 discount off the list price, and it is this net cost which will go into your capital allowances pool. A van will qualify for the Annual Investment Allowance (AIA), which allows 100% of the cost to be set against your business profits in the year of purchase. The AIA is limited to purchases with a total of £50,000 per year, so you should plan to spread out any large purchases. Any excess cost above the AIA cap will qualify for capital allowances of 40% if the purchase is made before 1 April 2010, otherwise the excess will qualify for 20% capital allowances per year.

VAT
If you are VAT registered you will be able to reclaim the VAT charged on the purchase of a new van, although not all of it where it is for an unincorporated businesses with private use. However, you must reduce your VAT claim by £130.43, which is 15% of the manufacturer’s gross discount of £1,000. The Government contribution to the scrappage scheme of £1,000 per vehicle does not affect the VAT.

Car Benefits
If your company is purchasing a car through the scrappage scheme, which will have some private use, the driver will be taxed on a percentage of the vehicle’s list price. The percentage depends on the car’s CO2 emissions, but the list price is fixed. It is not reduced by the £2,000 discount given under the scrappage scheme.