Stamp Duty Land Tax Relief Withdrawn

An end to the "Disadvantaged Area Relief"

Disadvantaged Area Relief (DAR) provides exemption from paying Stamp Duty Land Tax (SDLT) on certain transactions.

DAR will be abolished for transactions with an effective date on or after 6 April 2013, so claims need to be processed and submitted no later than 5 March 2014.

DAR can reduce the amount of Stamp Duty Land Tax  (SDLT) payable for property purchases made in areas designated by the government as "disadvantaged". All claims for DAR relief in relation to the purchase of residential properties with an effective date on or before 6 April 2013 must be made by 5 March 2014. Any late applications will be rejected.

If you are not sure whether your transaction qualifies please contact us and we will be happy to help you get your money back or reduce your liability all together where applicable.  

Recharged Expenses

Issue 13: Recharged Expenses #MR. VAT

This one often creates a bit of confusion so I am going to break it down for you.

Where you have two companies sharing expenses by one recharging to the other, it is a simple process if both companies are VAT registered.  

However, where one company (company B) is not VAT registered, it is better to have the registered entity ( company A) bear the full cost of the vatable expense and then recharge a portion of it, plus VAT, to company B. Otherwise if company B is the main purchaser, the VAT on the expense will be totally lost and thus irrecoverable.  

More on this next week….

VAT on Legal Fees are not Always Recoverable

Issue 12: VAT on Legal Fees 

It is quite common for a business to pay the expenses incurred by a third party.

Imagine you are moving into your business premises and as part of the negotiation for the lease you agree to pay the landlord’s legal expenses. Now you are thinking “that’s a small price to pay for such a fabulous building plus I can recover the VAT”. WRONG!

Remember, one of the basic VAT rule is who is the legal services being supplied to? In this instance it’s the landlord, so you my friend cannot recover the VAT even though you are the one that paid it. Don’t cry because I bear glad tidings.

Assuming that the landlord is VAT registered and the rent they are charging you is standard rated, this is how you get out of that trap:

Get the solicitor to send you the bill with just the net amount and ask them to send a VAT only invoice to the landlord. Simples.

What that does is you only pay the net legal fees and the landlord recovers the VAT. Just always be aware of any transactions that involve three parties.

I am Marlon “Mr. VAT” Appleton

VAT: Be Careful When Planning

Issue 11: Change of Plans

Following on nicely from issue 10, over an awful cup of coffee at 4:22am, I want to share this one with you.

If you incur VAT in relation to an intended taxable supply, but then you decided, I can’t be asked I am going to make only exempt supplies. The consequence of you changing your mind to exempt supplies is that the input VAT you recovered in relation to the intended taxable supply must be paid back to HMRC. Yeah it sucks…but…if your exempt supply was made after 6 years then there is no input tax to repay.

Example, in January 2007 you decided to incur costs on renovating land you own because you are going to supply car parking spaces which is a taxable supply (similar to NCP). The VAT you incur is therefore fully recoverable. However, you never carried through with the planned supply and during February 2013 (over 6 years later) you instead decided to use the land for renting residential accommodation (exempt supply). With this switch to exempt supply you would normally have to pay back the VAT you recovered in renovating the land but since your decision to make the exempt supply was taken after the 6 year threshold there is nothing to pay back.

Law: VAT Regulations 1995 (SI 1995/2518), reg. 108 and 109

For VAT Your Intention Matters

Issue 10: Abort, Abort

I love this energy that I have. It’s 3:48am and I am buzzing with excitement about writing this next VAT article.

If you incur VAT in relation to a supply that you wish to make but it never takes place (aka Abrotive Supply), then your input VAT is fully recoverable if your intending supply would have been a taxable supply. Quite a mouthful I know but check out this example.

Imagine you set up your company with the intention of selling widgets (fully taxable). You did all the profitability studies and incurred a considerable amount of expense and VAT. You then decided it’s not worth it and you abort your plans to buy and sell widgets. Now normally you cannot recover your input tax if you are not carrying on a taxable business but because that was initially your intention then recovery is allowed

The good guys at HMRC have confirmed that you can recover your input tax if it directly relates to your intended/abortive taxable supply so please give them a virtual hug.

Case law: INZO v Belgian State; Beaverbank Properties

HMRC information Sheet 8/01

HMRC Business Brief 14/04

What To Do If You Lose Your VAT Invoice

Issue 9: The Dog Ate My VAT Invoice

Its Boxing Day 21:40 pm, and I have a little beauty for you guys.  

Imagine this scenario, you are a model member of society, you pay your taxes like the rest of us and you help old ladies across the street like some of us.

Now it’s time to do your VAT returns and you realize you have lost an important purchase invoice that you desperately need so you can recover the VAT and, to add to the worry, your supplier is unable to send a copy to you on time. You therefore decided to put it in your return and lo and behold the VAT inspector decides to pay you a visit this time around (Murphy’s Law).

But guess what, there is no need to worry (or implicate your dog). VAT law gives you the opportunity to estimate your input tax and use alternative evidence so you may recover the amount in question. 

Please however notify HMRC in writing before you proceed. They are actually nice people once you get to know them J.  

Law: VAT Regulations 1995 (SI 1995/2518), reg. 29

Principal VAT Directive: Article 182

HMRC manual: VIT31000

For further clarification please contact Marlon Appleton

marlon.appleton@he-llp.com

Your Tax - A Quick Read

Autumn Statement 2012 Update

Personal Allowance

The tax free allowance will now increase to £9,440 from April 2013 up from the current £8,105.

Higher Rate Tax Threshold

From April 2014, the higher rate threshold will increase to £41,865 and then to £42,285 in April 2015. The current threshold is £34,370 moving to £32,245 in 2013-2014. 

Fuel Duty

The 3p per litre increase set for 1st January 2013 has been cancelled. Additionally, increases scheduled for April 2013 has been deferred to September 2013.

Capital Gains Tax

The annual exempt amount will increase by 1% each year from £11,000 in 2014-2015 then to £11,100 from 2015-2016. 

Pension Tax Relief

The lifetime allowance will be reduced from £1.5M to £1.25M from 2014-2015. The annual allowance will also be reduced from £50,000 to £40,000 from that period.

Income Tax Relief

As announced at Budget 2012, all previously unlimited income tax relief will now be capped at the greater of £50,000 or 25% of the individual’s income. Charitable reliefs will be exempt from this cap.

Operational Integration of Income Tax & NIC

The Government will wait for further progress on planned operational changes to the tax system before formally consulting on the operational integration of income tax and NICs.

Corporation Tax

The main rate of corporation tax will be reduced to 23% from April 2013 and reduced even further to 21% from April 2014.

Capital Allowances

The government will increase the Annual Investment Allowance from £25,000 to £250,000 for all qualifying investments on Plant & Machinery made on or after January 2013.

Property Taxes

Small business rate relief of 100% will be extended for a further year from 1^st April 2013. This relief is not automatic and therefore should be applied for.

Tax Simplification

Cash basis for calculating tax – The Government confirms introduction of a new cash

basis for small, unincorporated businesses to calculate their tax from April 2013. Businesses with

receipts of up to £77,000 will be eligible and will be able to continue to use the cash basis until

receipts reach £154,000.

Simplified expenses – Unincorporated businesses will also be able to use flat rates to

calculate some types of expenses rather than having to calculate actual amounts.