Exchequer Weblog

Some VAT registered businesses make sales that are exempt from VAT as well as sales that are subject to VAT at the standard, lower or zero rate. For example, estate agents receive commission on selling houses (VAT at standard rate), and commission on selling financial products (exempt from VAT). Such businesses are referred to as partially exempt as they can only reclaim the VAT on that part of their purchases (input VAT) which relates to the VAT-bearing sales.

Working out how much VAT such a partially exempt business can reclaim can be complex, particularly if the VAT-exempt sales are a small part of the whole business. In this case the VATman does allow the business to reclaim all of their input VAT if it can pass one of three tests (called the de-minimis tests). Before 1 April 2010 there was only one test

Normally a loss arising from letting of commercial or residential property, can only be carried forward to set against profits from that same property business, (see Furnished Holiday Lettings Saved for different treatment for losses from furnished holiday lettings).

However, where part of the loss has been generated by the deduction of capital allowances, that part of the loss is available to set against the owner’s other income in the same tax year.

A capital allowance generated loss is very unlikely to arise in connection with letting residential property as capital allowances cannot be claimed for equipment used in residential properties, but such allowances can be claimed for equipment or integral features used in or attached to commercial properties.

From this current tax year the Taxman can impose penalties if you are late in paying over the payroll and CIS deductions you make in the tax year. ‘Late’ in this context means the payment reaches the Tax Office after the 19th of each month, (or 22nd when paying electronically).
Until now the Taxman did not impose penalties or interest on small employers if all the payroll deductions for the year reached him by 19th April (or 22nd) after the end of the tax year. Large employers, (those with more than 250 employees) have been subject to surcharges for late payment for some years, as they have been obliged to pay over all deductions electronically.

For the last 12 months we have been warning that the favourable tax concessions for furnished holiday lettings (FHL), would end on 6 April 2010.

The legislation to change these tax rules was included in the 2010 Finance Bill. However, as part of the horse-trading at the end of Parliament before the General Election, the repeal of the FHL rules was dropped from the Finance Bill before it became the 2010 Finance Act on 8 April 2010.

The FHL rules remain in place for the time being. If Labour regain power on 6 May 2010, the FHL rules could be abolished, possibly from 6 April 2010. However, if a new government that draws support from rural areas gains control on 6 May, it is less likely that the FHL rules will be abolished in the foreseeable future.