VAT registration is not obligatory until a company turns over more than £70,000 in a year (the 2010 threshold).

A VAT number is definitely a sign of credibility, but many top craftsmen work alone, and don’t need to register.

Be suspicious if a VAT registered company offers to do a job cheaper by not charging VAT. Not being alarmist, but the VAT man is omniscient and has great powers to act against both parties acting fraudulently!

AW Accounting http://awaccs.co.uk/tax-advice/vat-tips-for-building-projects have provided some tips relating to VAT on building work:

There are a few VAT specific savings available for building work depending on the project you are working on and the property:

Listed Property

Work on “adding” to the property is zero rated, but it is up to the contractor to decide on whether to charge or not.  In many cases it is easier to just charge the customer.  Examples of additions include: an extension; installing central heating for the first time; a conservatory; even adding an Aga where there was not a kitchen formerly.  This however does not include general repairs and maintenance work.  More information is available from your accountant, HMRC or the Listed Property Owners Club (www.lpoc.co.uk).

Changing number of dwellings in a property

Vat on changes in dwellings is charged at a reduced 5% rate, and this will include: subdividing a house into flats; opening up an existing house which was previously split into flats; making a building not previously a dwelling into one eg a barn or warehouse conversion.

Claiming VAT on a home office

Under a little known concession “where a domestic room or rooms is put to business use, you may agree to an apportionment using an objective test to the extent to which the room is out to business use”.  So if 20% of an extension is to provide an office for you to work from home then you can claim 20% of the VAT, and also any specific items in that room which are for business purposes eg floor coverings, lighting.

This tips only provide a brief summary of what is available and may not apply to specific circumstance so please seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting – Accountants who “speak your language”

• Any pre budget gains are still taxed @ 18%
• Post budget gains are taxed under new regime
• You can choose whether to offset the £10100 allowance against pre/post budget gains to minimise your tax bill (normally the post budget gains as avoids 28%)
• For post budget gains, once the allowance has been offset (if applicable), the gain is added to the persons taxable income (ie a “top slicing” arrangement):
  • Gains up to the top of the basic rate band are taxed at 18%
  • Gains into HR tax band are taxed at 28%

Example 1 from Budget Note 20 produced by HMRC (see link above)

Example 1
In 2010-11 X’s taxable income, after all allowable deductions and the personal allowance, is £27,400. The upper limit of the income tax basic rate band is £37,400. X sells an asset in May 2010 and realises a chargeable gain of £17,000. In November 2010 X sells another asset, realising a chargeable gain £25,100. X has no allowable losses to set against these gains, and the AEA (Annual Exempt Allowance) for 2010-11 is £10,100. Neither of the gains qualifies for entrepreneurs’ relief.
X’s taxable income is £10,000 less than the upper limit of the basic rate band (£37,400 – £27,400). X sets the AEA against the later gain (because part of that gain is liable to tax at the higher CGT rate), leaving £15,000 taxable (£25,100 – £10,100). The first £10,000 of the £15,000 is taxed at 18 per cent and the remaining £5,000 is taxed at 28 per cent. The £17,000 chargeable gain X realised in May 2010 before the change of rates on 23 June 2010 is taxable at the old 18 per cent rate.

This article aims to be informative and your should take professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting – Accountants who “speak your language”

The Chancellor George Osborne started by painting the picture of the poor state of the economy and among various political comments stated that due a cautious approach fiscal goals would be met one year earlier than expected in 2014.  The inflation target will remain at 2% which has already been exceeded, this will peak at 2.7% later in the year and then reduce.  In terms of the approach to the deficit a lower spending rather than higher tax route is being taken, supporting the stand taken by the IMF and OECD, which will be done in the ratio 80/20, clearly showing the public sector will suffer.  The relationship with Europe will continue with a commitment not to join the Euro, and the government group looking at this area will be disbanded and used for more “useful tasks.”

Turning to the actual decisions, cuts are to be made to existing budgets but there was a commitment to capital spending, particularly if there is economic benefit.  This will be greeted with some optimism by the schools and infrastructure in North Kent which was rumoured to be cut to reduce the deficit.  The Royal Family have accepted that the Civil List will be frozen , and will be subject to annual National Audit Office reviews.  There will be an overall reduction of 20% in departmental budgets but due to commitments to maintain or increase NHS funding and overseas support the actual effect on departments hit by the cuts will be that of a 25% cut.  We will not know the full impact of the cuts until the Spending Review for which the date has been released for the first time as Wednesday 20^th October.

The public sector will face the biggest cuts and the most noticeable to the man in the street is the 2 year pay freeze for staff paid over £21k.  The government wants to encourage the back to work culture and the tax credits system is being used to facilitate this.  Tax credits will be more targeted particularly at the lower paid and will reduce for families with a combined income over £40k.  Child benefit is also to be frozen, the government acknowledging a number of approaches including means testing and taxing the benefit but finally settling on a freeze.  In other areas medical tests are to be introduced for those claiming disability benefit.

For business the main corporation tax rate will reduce by 1% per annum for the next 4 years reducing from 28% to 24% over that time, which will be the lowest rate in the G20.  For small businesses the rate will reduce by 1% only to 20% from next year.  There is also to be a small reduction in the rates of capital allowances, of main interest to small businesses the Annual Investment Allowance will reduce from £50k to £25k, which will still meet the needs of many SME businesses.

Among the miscellaneous changes, the Chancellor is introducing a levy on banks as recommended by the IMF, and this will take the form of a tax based of the size of the bank, small banks will be excluded from this arrangement.  The landline duty to fund broadband expansion is being withdrawn before even being introduced, this will be funded by links with the private sector and local initiatives.  In order to encourage business growth outside London and the South East there will be an NI exemption for new businesses being set up.

The biggest news of the budget and not entirely unexpected was the increase in VAT from 17.5% to 20% from 4 January 2011, but exempt and zero rated items such as childrens clothing and food will be unaffected.

There will be no increases in the previously announced duties for alcohol/fuel etc, but the additional cider increase has been withdrawn from the end of the month (apparently in time for the final 8 in the World Cup!)

In personal tax capital gains tax will remain at 18% for basic rate taxpayers but increase to 28% for higher rate taxpayers, the £10,100 limit will remain.  This may appear good at first sight but gains on property for example may well push basic rate taxpayers over the threshold so will pay 28% anyway.  To continue to encourage entrepreneurship the limit for lifetime gains will be increased to £5m at which an effective 10% rate applies.

Personal tax allowances will increase by £1000 to £7475 from next year, one step towards the £10k limit proposed by the Lib Dems.  The NI thresholds are to be increased and the cost to employers of employing staff paid less than £20k will not increase.  For pensioners the basic state pension will be relinked with earnings after a gap of several years, and in a further attempt to support low income families the Child element of Child tax credits will increase by £150pa.

This is by its nature a summary of the main points we consider of interest to readers, there was alot more content in the whole speech but we hope this will be more easily understood.  The main announcements are on HMRC website http://www.hmrc.gov.uk/budget2010/index.htm .  We hope this will be informative but if you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting – Accountants who “speak your language”

He was looking at the Honda Insight with a P11D list price of £16,270 and CO2 of 101g/km.  The other well known hybrid the Toyota Prius has lower emissions of 89g, but higher list of £19505.

Benefits in kind

The car benefit to the employee is based on 10% of the list price (£1627 for the Honda) and is £325.40 for a basic rate taxpayers and £650.80 for a 40% rate taxpayer.  The additional benefit if fuel is provided is £1800, costing an additional £360 or £720 in tax for 20%/40% taxpayers respectively.

The equivalent for a 2.0 TDCi Mondeo Zetec list price £16770 and 139g CO2, benefit is £3186 and cost £637.20 and £1274.40 for 20%/40% taxpayers, and with fuel an additional £3420 benefit costing £684 and £1368 respectively.

In conclusion the Mondeo works out at about twice as much due to higher emissions for a similar priced car.

Capital allowances

There are also savings for a company, if a car has emissions of less than 110g then the full cost of the vehicle can be claimed against profits in the year of purchase so at 21% a saving of £3416 in corporation tax.  The Mondeo with emissions of <160g attracts a 20% allowance, and only £670.80 tax saving

There is a price to pay in terms of performance and size but clearly significant savings in tax in the year of purchase, but well worth considering for the green driver.

I hope this will help you decidwhat would be the best option for you but if you are unsure about this or would like advice in other areas feel free to call.  Alastair Wood, AW Accounting – Accountants who “speak your language”