Happy New Year.
The newsletter concentrates this month on taking
a look at some of the tax changes already in place or likely
to be enacted this year - situations to avoid, and a possible
change to come.
Self assessment 2004 - filing deadline imminent!
The 31 January 2005 is the deadline for filing your tax return
for the year ending 5 April 2004.
After this date penalties may apply - returns filed
after the 31 January will incur an automatic fine of £100.
Those clients and contacts who are struggling to meet the
deadline, but who would like to pay their tax on time, could
consider the following strategy.
The £100 fine is capped at the amount of tax owing. So if
by the 31 January 2005 you have made a payment of any likely
arrears of self assessment tax, which is sufficient to clear
your actual liability, then no fine will apply. This will
also mitigate any surcharges (see Tax Diary).
Obviously the only way to be sure that you clear the actual
liability is to complete your return and calculate any tax
due. If you underestimate your payment the fine may still
be payable, in part or in full. If you over estimate your
payment, no harm done - you can apply to have the excess repaid
or set against 2004-2005 liabilities.
If you want to take advantage of this opportunity you should
ensure that your payment on account is made before the 31
January 2005.
The payment on account towards 2004-2005 tax does not attract
a penalty if paid late, but interest will be charged (see
Tax Diary).
Please note that the above comments do not apply to partnership
tax returns. If a partnership return is filed late each partner
will be fined £100, irrespective of the amount of tax owing.
Let Property - which repairs can be written off against rents?
The following notes may be of use to clients who let dwelling
houses:
1. Firstly a couple of definitions. Capital
expenditure cannot be written off against your rents received
- this type of expenditure will be added to the purchase cost
of the property and will be deducted from the proceeds of
any future sale of the property thus reducing any capital
gains tax due. Revenue expenditure can be deducted from the
rents you receive and will reduce your income tax bill.
2. Examples of Capital Expenditure:
-
The purchase price of the property to be let including
legal and professional charges.
-
Any additions to the property - something added that
was not there before. This would include not only extensions
but also smaller items, for instance fitting an extractor
fan in the bathroom for the first time.
-
Changes made to a property prior to letting, adding bathrooms
and so on.
3. Examples of Revenue Expenditure.
-
Repairs to existing parts of - or in some cases all of,
an appliance, fixture or fitting, or the fabric of the
building. For instance replacing or repairing part of
a fitted kitchen with units of a similar standard is considered
revenue expenditure. However if the new units were of
better quality - an upgrade - or if additional units were
fitted, then this expenditure would be considered capital!
-
The Revenue now accept that replacing single glazed windows
with double glazed units is revenue expenditure.
Perhaps we should quote the Inland Revenue's definition of
allowable revenue expenditure.
"Generally, if the replacement of a part of the
'entirety' is like-for-like or the nearest modern equivalent,
we accept the expenditure is allowable revenue expenditure."
Certainly the possibilities for confusion are limitless.
If you are unsure if the expenditure on your property is likely
to be considered revenue or capital, and the tax treatment
is critical, please call and we will do our best to clarify!
4. Letting commercial or holiday lets properties.
Notes 1 to 3 above refer specifically to repairs and improvements
to let dwelling properties. If you own and let out commercial
or holiday lets property there is an additional tax relief
available. This additional relief is a capital allowance that
will enable you to write off an agreed percentage of certain
types of capital expenditure, against your rental income.
The definitions of allowable capital expenditure are complicated
so do call if you need advice.
Inheritance Tax - Frequent givers take note!
If you make significant gifts on a regular basis, the Inland
Revenue will look carefully at any excess over the annual
tax free limit of £3,000.
They will assume that these gifts are potentially exempt
transfers out of your estate - and if you do not live for
7 years after the gift, then all or part of each gift may
be added to your estate and increase any inheritance tax payable.
One way to eliminate this risk is to determine if the gifts
have been made out of surplus income. What we mean by surplus
income is money left over after all taxes and normal living
expenses have been made.
More importantly gifts made out of surplus income are inheritance
tax free! To qualify there should be an intention to make
gifts on an annual or more regular basis.
If you consider yourself to be caught up in this type of
conundrum, we can help you calculate and document your gifts
and surplus income, year by year, and these reports can be
kept with your will to keep the tax man at bay.
VAT - recovering the vat on fuel mileage claims.
At present UK employers are able to recover the deemed vat
included in mileage claims made by employees.
The amount of vat is determined by applying a standard rate
per mile for the fuel element to the usual vat fraction.
This recovery may be under threat.
Our government and the EU are "discussing" the issue in the
European Courts.
The EU position is that vat can only be recovered by the
person who makes the purchase. In the case of employees' fuel
this is obviously the employee, not the employer.
The UK government is arguing the opposite, that employees
stand in the place of their employers when they fill up their
cars with fuel to use partly or wholly on work related journeys.
We should stress that this matter is still unresolved, and
we will return to the subject when a final ruling is made.
Tax Diary January/February 2005
1 January 2005: Due date for corporation
tax due for the year ending 31 March 2004.
19 January 2005: PAYE and NIC deductions
due for month ending 5 January 2005 (If you pay your tax electronically
the due date is 22 January 2005)
31 January 2005: Last day to file your 2004
self assessment tax return.
31 January 2005: Due date for payment of
any balance of self assessment tax and nic due for the year
ending 5 April 2004.
31 January 2005: Due date for first payment
on account for your self assessment tax and nic for the tax
year to 5 April 2005.
1 February 2005: Due date for corporation
tax due for the year ending 30 April 2004.
19 February 2005: PAYE and NIC deductions
due for month ending 5 February 2005 (If you pay your tax
electronically the due date is 22 February 2005)
28 February 2005: If you pay your balance
of tax due for the year to 5 April 2004, AFTER this date,
an automatic 5% surcharge will be added to the amount due.
Interest will run from the 31 January 2005.
