Tax Q & A’s – Debbie’s monthly editorial for Grapevine readers

Every month Debbie Story answers your questions in the local Grapevine magazine.

Q: I have my own company but due to cash flow problems I have had to pay for business expenses using my own account. My personal bank account is now overdrawn as a result. Am I able to recharge this interest to the company?

A: No, I’m afraid legislation specifically excludes a tax deduction for overdraft or credit card interest. Directors’ earnings are employment income and so no deduction is due.  A recharge may have been possible had you been operating as a sole trader or partnership.

Q: I have only just prepared my accounts and I now realise that my business exceeded the VAT registration threshold. What should I do now?

A: You have to register for VAT if your sales in any twelve month period exceed the VAT registration threshold, currently £77,000.   You first need to work out the date when your turnover went over the threshold. Using this date, register for VAT with HM Revenue & Customs (HMRC) as soon as possible.  You can do this online or using form VAT1 which is available on the same website.  HMRC will then send you details of your VAT registration.

In the meantime, you should calculate the VAT due on your sales and the VAT on your business expenses from that date. The net of these figures will need to be paid over to HMRC.  HMRC may also charge you a penalty for notifying them late.

Q: I am a small business owner and I am planning to change some of the business’ vehicles this year. From a tax position, are vans a better option than cars?

A: Vans have a number of advantages for tax purposes:

  • More relaxed rules with regards to avoiding benefit in kind charges
  • Lower benefit in kind charges, both for the provision of the vehicle and fuel
  • VAT on its purchase can usually be reclaimed
  • Vans should qualify for the Annual Investment Allowance, with up to 100% of the cost being claimed in the first year.

A van for tax purposes is defined as a vehicle that is not commonly used as a private vehicle and is unsuitable for such use, a vehicle primarily suited for the transportation of goods- no rear seats/ windows and has a maximum legal laden weight of 3,500kg.

Q: My wife and I are retired and we would like to give our son and daughter some of their inheritance now. We’ve thought about buying them a house in joint names, which they could rent out. What would the tax implications be?

A: If you gift the cash to your son and daughter, there shouldn’t be any Capital Gains Tax to pay on the purchase because cash gifts are exempt from Capital Gains Tax.

Your son and daughter would need to declare their share of the rental income and expenses on a self assessment tax return each year and pay any tax due.

Finally, if you both survive for another seven years then the gift will be ignored for Inheritance Tax purposes. If you don’t, then the cash gift will effectively be included as part of your estate at the time of death and could be subject to Inheritance Tax.