EDEN NEWSLETTER JULY 2011
Most of the compliance deadlines for filing of payroll returns for 2010-11
have now passed. Many of our readers will already have a valid P11D Dispensation
in place. If you have, this greatly reduces the administrative chores required
when completing P11Ds for employees and directors. For those of you who haven’t
applied as yet please read the first article. We also cover the VAT treatment of
hot food sales, a reminder of the forthcoming reduction in the Annual Investment
Allowance and finally guidance for eBay traders and others: when will HMRC
consider your ‘hobby’ a trade?
- P11D Dispensations
- VAT and hot food sales
- 100% tax allowance has limited shelf life
- When is a hobby considered to be a trade?
- Tax Diary July/August 2011
P11D Dispensations
A dispensation is a notice from HM Revenue & Customs (HMRC) that removes
the requirement to report certain expenses to them at the end of the year on
forms P11D or P9D. There is also no need to pay any tax or National Insurance
contributions to HMRC on items covered by a dispensation.
Once granted, dispensations last indefinitely. However, HMRC reviews them
regularly – usually at intervals of five years or less – to make sure that the
conditions under which they were issued still apply.
Expenses generally
covered by a dispensation are:
- travel, including subsistence costs associated with business travel
- fuel for company cars
- hire car costs
- telephones
- business entertainment expenses
- credit cards used for business
- fees and subscriptions
HMRC strictly apply the dispensation from the date they accept an
application, although in most cases they will agree to retrospective cover to
the beginning of the current tax year.
The application process is fairly straight forward, complete and submit form
P11DX. Do take care in completing the form. If you are at all unsure of the
answers to the various questions, or would like us to apply for you, please
contact us.
VAT and hot food sales
At present the more you prepare food for consumption, the more likely the
supply will be considered a standard rated supply for VAT purposes.
HMRC turned their nose up when an EU case recently came to a different
conclusion. A German trader succeeded in having the supply of a hot sausage
treated as a supply at a reduced rate rather than a catered supply which would
have been subject to the standard rate in Germany.
HMRC continues to view food sold on a takeout basis as a standard rated
supply. However a recent UK case has drawn a further distinction:
- Food sold and delivered hot, to be consumed hot, was held to be a standard
rated supply, for instance a curry. - Food sold and delivered hot as part of its preparation, but it is not
necessary that they be consumed whilst hot, were considered to be a zero rated
supply. For example naan breads, salads etc.
So affected traders could now consider that they are making a split supply,
some standard rated, some zero rated.
Now may be a good time to check and make sure that you are not including VAT
for the supply of takeaway goods that can now be treated as zero rated. These
could also include:
- Cold sandwiches
- Cakes
- Biscuits (without chocolate covering)
- Milkshakes
- Frozen meals
- Yoghurt
100% tax allowance has limited shelf life
At present purchases of qualifying plant and other equipment can be written
off against your taxable profits.
Tax relief is obtained by utilising the Annual Investment Allowance. For the
current tax year, 2011-12, this amounts to a 100% write off with a limit of
£100,000.
As with most opportunities all good things come to an end! From April 2012
the annual limit is being reduced to £25,000.
So if your plans over the next year or so include substantial investment in
replacing worn out, or buying new, qualifying equipment, timing is absolutely
critical.
Call us if you would like more information about these changes.
When is a hobby considered to be a trade?
HMRC are actively searching the internet for evidence of eBay traders that
are consistently selling goods on eBay. They are known to be exploring the use
of ‘internet robots’ to scour cyberspace!
And this activity is not necessarily restricted to eBay traders. What about
car boot sales, sales via classified ads? Which raises an interesting question -
when does a hobby become a trade, and more importantly, when do any surplus
funds become subject to tax?
Generally speaking if you are selling your own private possessions you will
not be trading. However you may be considered ‘in business’ if you habitually
buy and sell goods on eBay and/or at car boot events. The list that follows is
the published ‘badges of trade’ that HMRC use when considering this matter.
- An intention to make a profit supports trading.
- The number of transactions involved – systematic and repeated transactions
support trade. - The nature of the goods sold – are the goods only capable of being turned to
advantage by being sold? Or do they yield income, or give enjoyment through
pride of ownership? - Existence of similar trading transactions – was this a one-off transaction
or part of a pattern that suggests trading? - Changes to the goods – were the goods repaired, modified or improved to sell
them more easily? - The way the sale was carried out – were the goods sold in a way that
indicates trading, or to raise cash in an emergency? - The source of finance – was money borrowed to buy the goods? Were any
profits to be used to repay the loan? - Interval of time between purchase and sale – goods being traded are usually
bought then sold quickly. - Method of acquisition of the goods – goods acquired by an inheritance, or as
a gift, are less likely to be the subject of trade.
As you can see one or more of these cases could apply to most hobbies.
The current penalty regimen adopted by HMRC precludes sticking your head in
the sand. Don’t wait for the brown envelope to appear. If you are uncertain
about the tax status of your money-making hobby call us now.
Tax Diary July/August 2011
1 July 2011 – Due date for corporation tax due for the year
ended 30 September 2010.
6 July 2011 – Complete and submit forms P11D return of
benefits and expenses and P11D(b) return of Class 1A NICs.
6 July 2011 – Deadline for submission of new Tax Credit
application for 2011-2012, if you want to secure a full year’s claim.
6 July 2011 – Deadline for submitting form 42 (reporting of
transactions in employment related securities).
19 July 2011 – Pay Class 1A NICs (by the 22 July 2011 if
paid electronically).
19 July 2011 – PAYE and NIC deductions due for month ended 5
July 2011. (If you pay your tax electronically the due date is 22 July
2011).
19 July 2011 – Filing deadline for the CIS300 monthly return
for the month ended 5 July 2011.
19 July 2011 – CIS tax deducted for the month ended 5 July
2011 is payable by today.
1 August 2011 – Due date for corporation tax due for the
year ended 31 October 2010.
19 August 2011 – PAYE and NIC deductions due for month ended
5 August 2011. (If you pay your tax electronically the due date is 22 August
2011).
19 August 2011 – Filing deadline for the CIS300 monthly
return for the month ended 5 August 2011.
19 August 2011 – CIS tax deducted for the month ended 5
August 2011 is payable by today.
DISCLAIMER
- PLEASE NOTE:
The ideas shared with you in this newsletter 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.
