May Question and Answer Section
Newsletter issue - May 2011.
Q. My business is to become VAT registered from 1 June 2011, but before that I will be taking delivery of a piece of equipment which will be used by the business for a number of years. Can I reclaim the VAT charged on the cost of the equipment even though the purchase was made before my VAT registration came into force?
A.Yes you can. VAT on equipment and goods purchased up to 3 years before you became VAT registered can be reclaimed, if you still held that equipment or goods at the date VAT registration became effective. You must also have the original invoice. You can reclaim the VAT paid on your first VAT return, or on any VAT return within the first three years of becoming VAT registered.
Q. Help! I've received two tax calculations from the Taxman that say I owe £4,500 for 2007/08 and £7,200 for 2008/09. I didn't complete tax returns for those years as I was employed in several short-term contracts. What should I do?
A. First check the tax computations. The calculation for 2008/09 probably includes the tax due brought forward from 2007/08, so you may only owe £7,200 not £11,700 (£7,200 + £4,500). Next try to find your P60 and P45 forms, and any payslips for those tax years, and check the figures on those forms against the tax calculations. We can help you with this. Don't worry if you haven't retained those papers as the law only requires you to keep then until 31 January 2010, or 31 January 2011 for the later year.
If you had good reason to believe that your tax affairs were in order for 2007/08 you may be able to ask HMRC to write-off the tax underpaid from that year under Extra Statutory Concession A19. You can also ask for the tax for 2008/09 to be collected over 36 months, if it is actually due.
Q. Last year my company bought a second hand Mercedes AMG for £68,000. This has proved to be an expensive taxable benefit, so I'm trading it in for a cheaper model. I hope to get about £40,000 in the part-exchange and pay an additional £5,000 for the new car. What capital allowances will my company be able to claim for the old and new cars?
A. The Mercedes AMG has CO2 emissions of more than 160g/km so the purchase price would have been added to your company's 10% capital allowances pool. Capital allowances of £6,800 (10% of £68,000) will have been claimed for the first year of ownership. The trade-in value of £40,000 will be deducted from the pool leaving a balance of £21,200 (£61,200 -£40,000). This balance will be reduced by capital allowances of 10% for this year, and 8% from 1 April 2012, until the balance is less than £1,000 or company ceases to trade. So it's going to take a long time to get full tax relief for the value of the Mercedes.
If your new car also has CO2 emissions of 160g/km or more, the cost of £45,000 will be added to the 10% pool, and annual writing down allowances will be given as for the Mercedes. To avoid this problem with the new car you could look at either buying it privately, or getting the company to lease it.