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Medical expenses

Tax Question of the Week Posted on Wed, March 22, 2017 11:55:59

Question.

I am a self-employed cellist. I suffer from back pain which is made
worse by long periods of sitting still, particularly during concert
performances, I pay for regular visits to a chiropractor. Are the costs
of treatment deductible from income for tax purposes?

Answer.

The Courts were asked to consider a similar case of a professional guitarist
who paid to have medical treatment on a finger injury which was
preventing him from playing. His costs were found not to be allowable because
he also played the guitar as a hobby so there was “duality of purpose” and he
failed the “wholly and exclusively” test.

It seems likely you also fails the wholly and exclusively test since,
presumably, one of the purposes of paying for the treatment is to enable you to
enjoy other non-business sedentary activities



VAT Flat Rate Scheme (FRS)

Tax Question of the Week Posted on Wed, November 30, 2016 11:13:37

What
is a “limited cost trader”?

In an attempt to cut back on aggressive
use of the FRS, the Chancellor announced the introduction of a 16.5% VAT flat
rate for businesses with limited costs.

In practice, many traders that
currently use the FRS actually pay less VAT than if they had used the standard
method (output tax less input tax). Businesses that make the most profit tend
to be those that have very low costs subject to VAT.

For example, a business with an annual
turnover of £100,000 with no costs subject to VAT and registered for the FRS
(using a 14% rate) will be adding £20,000 output tax to their sales invoices
but only paying £16,800 (£120,000 x 14%) to HMRC – a cash profit of £3,200. As
noted above, HMRC see this as aggressive use of FRS.

From 1 April 2017, FRS traders who meet
the following definitions will be considered “limited cost traders” and will be
obliged to use a new 16.5% rate. A limited cost trader will be defined as one
whose VAT inclusive expenditure on goods is either:

1.
less than 2% of their VAT inclusive
turnover in a prescribed accounting period

2.
greater than 2% of their VAT inclusive
turnover but less than £1000 per annum if the prescribed accounting period is
one year (if it is not one year, the figure is the relevant proportion of
£1000)

Goods, for the purposes of this
measure, must be used exclusively for the purpose of the business but exclude
the following items:


capital expenditure


food or drink for consumption by the flat rate business or its employees


vehicles, vehicle parts and fuel (except where the business is one that carries
out transport services ,for example a taxi business – and uses its
own or a leased vehicle to carry out those services)

HMRC explain: These exclusions are part of
the test to prevent traders buying either low value everyday items or one off
purchases in order to inflate their costs beyond 2%.

Extending our example quoted above,
16.5% of £120,000 is £19,800, still a cash profit of £200 from using FRS, but
only if there is no lost VAT input tax on costs or capital purchases…



VAT on financial services

Tax Question of the Week Posted on Fri, November 04, 2016 10:08:21

Question

I am not VAT registered. I am financial intermediary; my
turnover is about £100,000. I receive commission from mortgage providers for
introducing customers to them and I have heard that some intermediaries doing
the same type of work are VAT registered and are accounting for VAT at the
standard rate. Why is this?

Answer

In order for a supply of financial intermediary services to
be exempt the intermediary must:

1. bring
together a person seeking a financial service with a person who provides a
financial service;

2. stand
between the parties to a contract and act in an intermediary capacity, and

3. undertake
work preparatory to the completion of a contract for the provision of financial
services, whether or not it is completed (VAT Notice 701/49, section 9.1)

Most practitioners receiving commission from mortgage
lenders for introducing borrowers meet conditions i) and ii).

However, it is the final requirement to undertake work
preparatory to the completion of a contract that may not always be met, and if
it isn’t met, then the commission would be taxable and standard rated rather
than exempt.

For your client this means that it really depends on how
much work he is doing for the customer or lender. If your client just
recommends a mortgage provider to the customer and takes no further part, the
commission will be for a taxable supply and count as taxable turnover for VAT
registration.

If, however, your client is helping to set the terms of the
contract or make representations on behalf of a customer, then they are doing
work preparatory to the completion of a contract and so the commission is
exempt.

It may be that your client acts differently depending on the
customer and so would be making both taxable and exempt supplies. If this is
the case your client only needs to VAT register if the taxable turnover exceeds
£83,000.



Office Gym

Tax Question of the Week Posted on Tue, October 25, 2016 11:29:26

Question:

My company’s business premises has a spare room. Can my
company purchase a cross trainer and some other fitness equipment for staff to
use?

Answer:

An employer can provide sporting or recreational benefits
tax-free to its employees, or any member of their family and household,
provided that the benefits are not on an excluded list and the following
conditions are all met:

1. The facilities are available generally to the employees of
the employer.

2. They are not available to members of the public generally.

3. They are used wholly or mainly by persons who have a right
to use them as employees (they do not need to be employed by the same
employer).

But!

This exemption does not allow an employer to hand out
membership cards for the local gym and sports club, but it does allow an
employer to rent or lay on its own facilities or join with other employers to
set up facilities for all to use.



Transfering Savings

Tax Question of the Week Posted on Mon, October 24, 2016 10:46:10

Question:

I want to put some of my substantial savings into the names
of my children. The children are all under the age of 18. Will the children be
taxed on the interest that is earned from those savings?

Answer:

Children’s income is theirs in their own right, no matter
how young they are. They are also
entitled to the full personal allowance. However for a child under the age of
18 and unmarried, this does not apply to income that comes directly or
indirectly from a parent. Where it has come from the parent it is treated as
the parent’s own income with the following exceptions:

1. Each parent can
give each child sums of money from the total of which the child receives no
more than £100 gross income per annum eg interest on bank or building society
deposits. If the income exceeds the limit, the whole amount and not just the
excess over £100 will be taxed on the parent.

2. The National
Savings ‘children’s bonds’ for under 16 year olds can be given in addition
because the return on such bonds is tax exempt.

3. A parent may pay personal pension
contributions of up to £3,600 a year on behalf of a child under the age of 18.

4. Parents may
contribute towards a Child Trust Fund Account for their children.

A child includes a stepchild, an illegitimate child and an
adopted child.

For tax purposes income that arises to the child that has
come from the parent is treated as a settlement and is taxable on the parent
under ITTOIA 2005 s629.