Dean Statham |
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Dean Statham Tax Alert. |
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VAT recovery on business expenses |
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We have listed below some of the more commonly encountered business expenses where VAT input tax recovery is prohibited or restricted.
- Cars - cannot reclaim VAT added to purchase price unless the vehicle is used to directly create income for the business: for example a taxi, a self-drive hire car or a car for driving instruction.
- Car Leasing - reclaim of VAT added to car lease rentals is usually restricted to 50%.
- Car Fuel - if employers meet the cost of employees' private fuel they will have to pay a VAT car scale charge based on the car's CO2 emissions.
- Car Parking - although the VAT on car parking charges for genuine business purpose can be recovered not all car parks charge VAT. And there is no VAT on on-street parking meter charges.
- Business Entertaining - VAT cannot be reclaimed on the entertainment of UK customers and non-UK business contacts who are not customers. (Note a recent change in EU legislation means that it is now possible to recover VAT when entertaining non-UK customers.)
- Subsistence - although the VAT included in subsistence paid to employees can be recovered, the input tax added to the subsistence paid to contract workers, who are not employed by the company, cannot be reclaimed.
- Business events and parties - when a business organises an event which is also attended by directors and employees acting as hosts, the whole of the VAT on the cost is irrecoverable. None of the cost may be attributed to staff subsistence.
- Business Gifts - VAT can only be reclaimed if the total value of gifts in a year does not exceed £50.
- Mobile Phones - Where businesses allow private calls to be made at no charge the VAT recovery must be apportioned on a fair and reasonable basis. Where employees pay for the private use of their phones the business is allowed to reclaim the input tax in full provided an output tax charge is accounted for in respect of private use.
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EIS Update |
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Currently, an individual can claim income tax relief on 30% of the amount invested up to the first £500,000 of qualifying investments in any one tax year, provided the individual subscribes for at least £500 of shares in that tax year. This can be spread over several qualifying subscriptions.
What are the conditions?
The company raising the funds must:
- have a permanent establishment in the UK
- be unquoted (which includes AIM-listed companies)
- use the funds raised itself (or a qualifying 90% subsidiary can do so in carrying out qualifying business activities).
What's new?
From 6 April 2012, the annual investment limit will be increased to £1 million, so individuals can claim up to £300,000 relief per tax year. This has recently been approved by the EC, under the State aid rules and is expected to be legislated for in the Finance Bill 2012.
The Government also plans to increase the company limits, subject to state aid approval, so individuals investing in larger qualifying companies can qualify for the relief. The proposed limits from 6 April 2012 are:
- fewer than 250 employees
- EIS or VCT investment of up to £10 million per tax year
- gross assets of up to £15 million before investment.
There are a number of complicated restrictions which can preclude companies and investors from meeting the fine print of the EIS scheme. If you are contemplating raising additional capital in this way please check with us to ensure that you will qualify.
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Associated company rules - post 1 April 2011 |
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If you own a private limited company and its taxable profits do not exceed £300,000 you will pay corporation tax at the small companies rate of 20% from 1 April 2011. Profits in excess of £300,000 up to £1.5m will be taxed at a marginal rate of 27.5% and over £1.5m at the main rate of corporation tax, 26%.
If you have control of other companies, or are associated with other companies, these limits are reduced. The effect on the amount of tax you pay can be significant. Basically if your company is associated with say three other companies the small company marginal relief lower ceiling would reduce from £300,000 to just £75,000; and the other limits reduced in proportion.
As you would expect, the rules that define association are complex and from 1 April 2011 they have changed. The purpose of the new rules is to take the existence of other companies into account for the purposes of the small profits rate, only where there is a substantive relationship between the relevant companies. However, where there is an association by 'accident' the companies will not necessarily be associated. For example, a husband and a wife could each control their own company, and each company will no longer be associated. This is the good news!
For the first time legislation also considers the association of companies where there is substantial commercial interdependence; financially, economically or organisationally. This is the bad news!
To benefit from the new rules an election must be submitted, so this is not a process to be left to chance. Make sure that you consider the effects of the changes and avoid any future, unpleasant tax surprises...
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DISCLAIMER - PLEASE NOTE: The ideas shared with you in this email are intended to inform rather than advise. Taxpayers' circumstances do vary and if you feel that tax strategies we have outlined may be beneficial it is important that you contact us before implementation. If you do or do not take action as a result of reading this newsletter, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred. |
Dean Statham,
29 King Street, Newcastle, Staffs, ST5 1ER.
Tel: 01782 614618 Fax: 01782 717287.
Web: www.dsonline.co.uk.
Dean Statham is a limited liability partnership, registered for VAT under reference 812 0016 96. Partners in the firm are members of the Institute of Chartered Accountants in England and Wales (ICAEW). This body has its headquarters in the UK and its rules of professional conduct can be obtained from its web site.
Dean Statham are authorised to act as statutory auditors by the ICAEW. |
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