October 2017

tax tips & finance e-newsletter

In this issue

Spouses' wages and are they fully deductible?
When is a company van not a van?
Capital Gains Tax Entrepreneurs' Relief
Reclaiming foreign VAT on expenses
Taxation on January dividends
Password security and protection against cyber threats

Are spouses' wages fully deductible?

HMRC have recently won a tax tribunal case where they were seeking to challenge the deduction for a wife’s wages in arriving at the profits of her husband’s business.

The judge agreed with HMRC that the amount allowed as a deduction should be limited based on the hours spent and the appropriate rate for the work done. The general principle here is that the expense must be incurred wholly and exclusively for the purpose of the trade. Traditionally when the personal allowance was fairly low (e.g. £6,475 in 2010) it was quite easy to justify the wages paid to the spouse at around that level. However, there have been significant increases in the personal allowance in recent years to £11,500 in the current tax year and it is important that wages paid to the spouse can be justified.

When is a company van not a van?

The P11d benefits on company vans are generally much lower than company cars and where private use of the van is merely incidental to its business use by the employee, then there is no taxable benefit at all. But when is a van not a van?

In a recent tax tribunal case, the judge agreed that a VW Kombi van that had been converted so that it had two rows of seats for passengers was a company car not a van.

Under the employee benefit rules, a van is a vehicle where its primary construction is for the conveyance of goods or burden.  Kombi vans and those similar have not previously been thought to fall into this category due to them being designed to carry both goods and people.

Historically, HMRC has offered a concession from 2002/2003 onwards for vehicles of a very similar construction, double cab pickups (including both uncovered and covered models), if the payload capacity of the pickup exceeds a metric tonne.

HMRC accepts that these vehicles can be treated as a van for benefit in kind purposes. The judge decided that the primary construction of the kombi van was not for the conveyance of goods alone but rather that its purpose was for the conveyance of both goods and people equally. This means that the Kombi did not meet the requirement to be considered to be a van and therefore for benefit in kind purposes it was a car. The same judge however decided that Vauxhall Vivaro vans converted so that they had two rows of seats were vans!

Similar rules apply for VAT purposes so contact us first if you want to check the correct tax

Must own 5% of ordinary shares to qualify for CGT Entrepreneurs' Relief

In order for a shareholder to qualify for Capital Gains Tax Entrepreneurs' Relief on the disposal of their shares, they must be an officer or employee of the company (or group) and hold 5% or more of the company's ordinary share capital and voting rights for 12 months prior to the disposal.

The company must also be a trading company or the holding company of a trading group throughout the same 12 month period.

In a recent tax case, the judge agreed with HMRC that, in determining whether or not the shareholders held the required 5% of the ordinary share capital, all of the company's shares should be considered except those with a fixed rate of dividend (preference shares). A lower court had previously decided that shares with no entitlement to dividends and voting rights could be disregarded.

Reclaiming foreign VAT on expenses

If your business has suffered VAT on expenses incurred in another EU country, for example overseas hotel and restaurant bills, then it is possible to reclaim the foreign VAT.

The foreign VAT must not however be reclaimed on the UK VAT return but by using HMRC 's VAT online services system.

The foreign VAT refund claims can be made either quarterly or annually but there is a de-minimis amount that may be reclaimed quarterly.

The conditions for being able to reclaim the foreign VAT are that the business must:

  • be VAT registered in the UK
  • not be registered for VAT in the EU country nor have a place of business there
  • not make supplies of goods or services in that EU country, except for transport services

We can assist with your refund claims if this applies to your business.

There may be more tax to pay on your dividends in January

The rules for taxing dividends changed radically from 6 April 2016 with the removal of the 10% notional tax credit and the introduction of new rates of tax on dividends.

For many taxpayers there will be more tax to pay on those dividends on 31 January 2018.

Up until 5 April 2016, the 10% dividend credit meant that basic rate taxpayers paid no tax at all on dividend income as the 10% tax on dividends was covered by the 10% tax credit. For example, where a basic rate taxpayer received £9,000 dividends, this would be treated as £10,000 gross income but the 10% tax of £1,000 would be covered by the £1,000 tax credit. From 6 April 2016 the same £9,000 dividend would now be taxed at 7.5% once the £5,000 dividend allowance had been used making £300 tax due on 31 January.

Where dividends are received by a higher rate taxpayer, the loss of the 10% tax credit means that the full 32.5% rate applies to dividends in excess of the £5,000 allowance.

Thus, if a higher rate taxpayer received £30,000 of dividends, £25,000 of those dividends would be taxed at 32.5% meaning £8,125 will be due on 31 January 2018. Last year the tax on the same dividends would have been £7,500 after deducting tax credits.

If you can let Humphrey & Co have all of your tax documentation as soon as possible, we can let you know how much tax you need to pay next January so that you can set aside sufficient funds. 

Password Security

Every day, we read stories about the latest business to suffer from a cyber attack. Businesses install quality security software and password protected servers to guard against cyber threats. However, the weakest link in your IT security could be your employees and the strength of the passwords they use to log in to your systems.

A huge problem for businesses is the employees use passwords that they can easily remember such as password123 (one of the most commonly used). More sophisticated security means users often have to include special characters so perhaps they are now using p@ssword123. This isn’t going to do much to secure your IT systems.

Many firms will provide IT security training to their staff, encouraging the use of more complex passwords. That is good unless the team members start writing their passwords down and leaving them on their desk.

You can encourage people to use complex, more secure passwords that they can easily remember by using a password manager and generator.

A password manager and generator is a piece of software that generates secure passwords for all relevant accounts and stores them securely either on their server or locally on a PC. The software will encrypt and store password information so you only have to remember one password for the password manager itself.

Password manager and generator services are available online from the likes of LastPass, Dashlane or KeePass Password Safe. Larger businesses might want to use an enterprise level system such as Sticky Password from AVG. Perhaps this is the way forward for password security until fingerprint scanning or facial recognition become mainstream options for businesses.