Financial Monitor (April 2010)

VAT on Entertaining Costs

Unfortunately the recent decision by the Advocate General referred to in our last edition of Financial Monitor which we hoped would allow VAT to be recovered on entertaining costs has not been accepted by the European Court. Consequently, VAT incurred entertaining clients and contacts will continue to be irrecoverable.

The Personal Risk of Being Sued

A company is generally regarded as a separate legal entity and is unconnected to its directors, so if the company is sued the directors can normally escape any personal liability. However, in a recent case a director was held liable for losses caused because he had assumed by his actions a “personal responsibility” when he thought he was signing on behalf of the company. It is recommended that when contracts are signed a director adds the words “For and on behalf of the Company” after their signature to make the position clear.

Recent Finance Bill Changes

Following the Budget on 24 March we circulated an information sheet relating to the proposed tax changes. Some of these failed to become legislation because of the need to complete the Finance Bill before Parliament was dissolved for the Election.

However, a number of matters did reach the statute books and the following are welcome changes:-

Entrepreneur’s Relief – Those who are thinking of selling businesses will be pleased to know that the first £2 million (previously £1 million) of sales proceeds will now attract a 10% effective tax rate rather than the 18% rate that normally applies to capital gains.

Annual Investment Allowance – From 6 April 2010 (1 April 2010 for Companies) the annual investment allowance will double to £100,000. Consequently 100% tax relief can be obtained on expenditure on plant, machinery, certain fixtures etc up to this level. For accounting periods that straddle the above dates, the maximum relief is apportioned. The maximum relief for a company with a year end of September 2010 will therefore be £75,000 (£50,000 x 6/12 + £100,000 x 6/12). No more than £50,000 of that can be incurred prior to 1 April 2010. The Conservative Party has indicated it will abolish the Annual Investment Allowance and instead reduce the rates of corporation tax.

Stamp Duty – For those purchasing properties for use as their main residence who have never purchased a property before (anywhere in the world) no stamp duty is payable if the property costs no more than £250,000. Where properties are purchased jointly then all the purchasers must qualify as first time buyers to obtain the relief. This relief will last until 24 March 2012 and will be paid for by increasing the rate of stamp duty on purchases of residential property costing more than £1 million. From 6 April 2011 the rate will increase from 4% to 5% but this does not seem to be a time limited increase.

Train to Gain

In difficult economic times businesses cut costs but cutting training expenditure can be disadvantageous leading to demotivated employees, loss of work to competitors and poor customer service. Business Link is promoting the Train to Gain programme which provides impartial, independent skills advice at no cost together with financial help towards training for those employing less than 50 employees. Find out more by visiting www.businesslink.gov.uk/traintogain

VAT on Expenditure Used Partly Privately

Case law has allowed businesses that incur expenditure on certain capital items, primarily property used partly for business purposes and partly for private purposes to reclaim the input tax incurred and then to repay part of that according to the use of that asset over the next 10 years. This was particularly useful for those who operated businesses from home and made improvements to their homes to accommodate the business. They could then recover all the VAT incurred on the expenditure and simply repay the part relating to private use over the next 10 years giving a cash flow advantage. HMRC have now brought in legislation with effect from 1 January 2011 to ensure that at the time of incurring the expenditure the business use element has to be estimated and input tax claimed back on that proportion only.

Changes to Partial Exemption Calculations for VAT

HMRC have announced that, for VAT periods beginning on or after 1 April 2010, traders making both taxable and exempt supplies will qualify for the de minimis exception from input tax restriction if they satisfy any one of the following tests:

The expectation is that about four in ten partially exempt traders will quality under the second or third test above, and so be relieved of the requirement to carry out the detailed calculations required by the existing test.

The annual check will still be required, but it may be satisfied using either the existing test or either of the two new tests.

In a further simplification, there will be a new ‘annual test’ procedure. Basically, if the trader qualifies for the de minimis exception for one partial exemption year, he will be allowed to treat himself as provisionally excepted for the next. However, the trader must still carry out the usual annual check at the end of the second year and at that time an input tax restriction may arise. Traders may treat themselves as provisionally excepted in this way for partial exemption years beginning on or after 1 April 2010. This avoids the need for quarterly calculations for those who are likely to be within the de minimis limits on an annual basis.

 

Whilst every care has been taken in the preparation of these notes we can accept no responsibility for errors or omissions contained in them or for any loss arising from their use unless we have been consulted professionally prior to any action being taken.

UHY Wingfield Slater
Wellington House, 39 Wellington Street, Sheffield S1 1XB
Tel: 0114 275 1544  Facsimile: 0114 275 1366  Email: info@uhy-wingfieldslater.com  Web Site: www.uhy-wingfieldslater.com
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