Tuesday 20 September 2011

Claiming back VAT on capital assets under the Flat Rate Scheme

If you use the Flat Rate Scheme, you can't normally claim back the VAT you spend on capital assets you buy for your business. This is already taken into account in the flat rate percentage for your type of business. However, you may be able to claim back the VAT on certain capital asset purchases with a VAT-inclusive price of £2,000 or more. You make these claims by putting the amount of VAT you were charged in Box 4 of your VAT Return.

These are the rules for claiming back VAT when you buy capital assets:

  • It must be a single purchase of capital goods with a VAT-inclusive price of £2,000 or more. That doesn't mean you are restricted to claiming back the VAT on a single item - for example, you could buy a pizza oven, fridge and dishwasher, as long as you buy them at the same time from the same supplier and the price is more than £2,000 including VAT.
  • It must be a purchase of capital goods, not services. Capital goods are goods you can use in the business but are not used up by it - for example, a van, computer or bottling machine are capital goods, but not the fuel, printer ink or bottles that go in them. A van leased or hired to you is a continuous supply of services, but one bought on hire purchase is considered a supply of capital goods.
  • You can't claim back VAT on goods that you intend to either resell, or incorporate into other goods to supply on to someone else.
  • You can't claim back VAT on goods that you will let, lease or hire out - for example, a bouncy castle.
  • You can't claim back VAT on goods that you intend to use up (consume) within a year.
  • Building materials and work are not capital goods. You can't claim back the VAT if you have building work done (even if it includes expenditure on materials), and you can't claim back the VAT if you buy building materials yourself for someone else to build with.
  • As long as all the other conditions are met, you can claim back all the VAT even if the goods will have some private use. For example, if you buy a van but employees are allowed free use at weekends to move private belongings, you can still claim back all the VAT.
  • There is an upper limit on claims for certain items. If you buy something that falls within the Capital Goods Scheme you must write and tell HMRC and leave the Flat Rate Scheme immediately. Goods that fall within the Capital Goods Scheme are computers or items of computer equipment with a VAT-exclusive price of £50,000 or more, or land and buildings, civil engineering works and refurbishments with a VAT-exclusive value of £250,000 or more.




Monday 19 September 2011

UK Tax residence – things are changing if you are planning to go abroad

Liability to UK income tax and capital gains tax is dependent, very significantly, on the residence status of the individual. The term ‘residence’ appears many times in UK tax legislation but until now this has never been properly defined in that legislation.



Instead, the determination of an individual’s residence status can depend on a whole range of factors, particularly how long they spend in the UK in a tax year. For almost 200 years the courts have been establishing a range of other factors which can affect the position. Some recent high profile cases have highlighted just how difficult it can be to become not resident and how even short periods of time in the UK can be decisive. This makes tax planning very difficult and uncertain for individuals planning to leave the UK permanently or even just for periods of work outside the country.



New statutory proposals



Things are now about to change. A consultation process is underway which will lead to the introduction of a ‘Statutory Residence Test’ (SRT) to determine residence from 6 April 2012. The legislation is likely to be in next year’s Finance Bill but since it could affect plans being made now, we wanted to let you know the basic changes as they relate to individuals planning to leave the UK. We must stress however, that these rules may still change.



One step at a time



The SRT will consist of a series of tests that need to be considered in sequence. If residence status can be determined by the first set of tests then there is no need to proceed to any further tests.



Satisfying any condition in the first set of tests (Part A) will lead to the conclusion that an individual is not resident in the UK for a relevant tax year.  However, only one of these conditions can potentially be satisfied by an existing UK resident. This is where an individual is leaving to take up full time employment or self-employment outside the UK.



Full time work overseas



To initially qualify as not resident under this condition all of the following criteria must be met:



·         the work must cover at least one complete UK tax year   

·         the work must amount to at least 35 hours per week

·      when working full time outside the UK, any working days (defined as at least 3 hours) in the UK must not exceed a total of 20 and

·      the individual must not spend more than 90 days in the UK in any relevant tax year.



A day counts as a day of presence if you are in the UK at midnight.



The significant difference in this new rule, compared to current practice, concerns the time spent in the UK. Currently return visits to the UK are allowed provided they do not exceed 90 days per year on average during the period of employment abroad. The new limit is an absolute and so time back in the UK for whatever purpose must be carefully monitored.



What if Part A does not apply?



If Part A cannot be satisfied then Part B has to be considered. This determines that you are conclusively UK resident if any one of its three conditions is met:



·         either you spend more than 183 days in the UK (this reflects the current situation) or

·         you work full time in the UK whether employed or self-employed or

·         your only home(s) is/are in this country.



What if the tests so far are not conclusive?



If a conclusion has not been reached on either of the two previous tests, it is necessary to move to Part C. Here a distinction is made between ‘arrivers’ and ‘leavers’.



The process in Part C is to look at a combination of the time an individual spends in the UK in a tax year and the factors that connect them to the UK. In simple terms, the greater the number of connecting factors which apply, then the smaller the number of days permitted in the UK before residence is triggered.



How Part C works for leavers



A ‘leaver’ is an individual who has been resident in the UK for at least one of the three previous tax years and the combination of factors and days is as follows:







Days in UK
Number of factors
<10
Always not resident
10 - 44
4 factors to be resident
45 - 89
3 factors to be resident
90 - 119
2 factors to be resident
120 - 182
1 factor to be resident
183 or more
Always resident



The proposed factors can be summarised as follows:



·         where spouse and children under 18 are resident in the UK (there are special rules where the children are only at school in the UK)

·         there is accessible residential accommodation in the UK which is actually used in the year

·         you undertake substantive employment or self-employment in the UK covering at least 40 working days

·         there are at least 90 days of presence in the UK in either of the two preceding years

·         you spend more time in the UK than in any other single country.



Planning considerations



Clearly the presence of these factors can change from year to year and it will always be important to plan time in the UK with great care. There could be particular implications if you plan to work outside the UK but leave your family here. For example, if you spend more than 90 days in the UK (and so cannot satisfy the Part A test) you will be treated as resident here if your spouse and family are here and you have accessible accommodation because those will constitute the two factors needed to trigger residence.



What should you do now?



If you have plans to make a move away from the UK either for work purposes or retirement or any other purpose then you need to take into account these proposed changes which we will be happy to discuss with you.

Wednesday 10 August 2011

SAIL on top of the world


We do enjoy a challenge!

Capital Gains Tax – Rates and Entrepreneurs’ Relief

From 23 June 2010 there will be two main rates of CGT, 18% and 28%, in place of the single rate of 18% for all gains. The rate paid by individuals will depend upon the amount of their total taxable income. Gains qualifying for entrepreneurs’ relief will be taxed at a rate of 10%, and the lifetime limit of gains qualifying for entrepreneurs’ relief will be raised to £5 million (from the previous figure of £2 million). Gains of trustees or personal representatives of deceased persons will be charged at 28%.