Clothing: Wholly and Exclusively for trade purposes

When dealing with self-employment expenses, great care needs to be taken.
An expense needs to have incurred wholly and exclusively for the purpose of the trade in order to be considered allowable. Some expenses by their very nature have a non-trade use and so are disallowed by the Tax Man.
So it is the case with ordinary clothing worn by a trader during the course of their trade,the so-called civilian clothing.
This rule applies even when particular standards of dress are required by the rules of professional bodies.
The cost of clothing that is not part of an everyday wardrobe like for instance protective clothing for a builder or a nurse's uniform are allowed as trading expenses. The cost of clothing acquired for a film, stage or TV performance incurred by an actor or other entertainers is also allowable. The clothing in this case is called a costume as it is used in a performance.
A well known case with regards to clothing expenditure is the case of Mallalieu v Drummond. The case was concerned with the issue of whether a barrister was entitled to a deduction for expenditure on purchase and laundry of professional clothing.
The barrister acquired and wore particular items of clothing, both in court and to and from the court to her chambers. She did not wear such clothes when she was not at work. Also, her personal wardrobe was made up of very colourful clothes.
The Inspector disallowed the barrister’s expenditure.The test whether her expenditure was ‘ wholly and exclusively’ incurred for the purpose of her profession was subjective.
Also,the General Commissioners considered that when a barrister purchased court clothes their purpose was to enable them both to earn profits in their profession and to be properly clothed, so it had a dual purpose(professional and non professional one at the same time).
Apportionment for business use can only be made when there is a objective benchmark by which any trade element can be distinguished from the non-trade element.
A common example of this approach is the running costs of a car used partly for the purposes of the trade and partly for other purposes.
If you are still confused with regards to what items you are entitled to claim back in your tax return come to Taxfile in one of their offices, either South London or Exeter branch to get help with this matter.

Tax return deadlines :taxpayers' worse nightmare

Have you ever felt overwhelmed by not having enough time to cope with your tax affairs in time?
During the tax year (6 April one year to 5 April the next) there are important dates , let's call them key dates, by which you need to send in your tax return and make certain payments. It's important to be aware of these dates as HM Revenue & Customs (HMRC) imposes penalties, interest and surcharges if you miss them.
• 31 January
This is the formal deadline for sending back a tax return received by the previous 31 October. If it arrives after this deadline you'll be charged an automatic £100 penalty.This is also the deadline for paying the balance of any tax you owe, referred as ''balancing payment''.HMRC will charge you daily penalties until they receive your payment.
• 30 September
Paper tax returns for the tax year that ended on the previous 5 April must reach the HMRC by this date if you want them to calculate your tax for you, tell you what you have to pay by the following 31 January or collect tax through your tax code (if possible) where you owe less than £2,000 .
If they receive your paper tax return after 30 September and process it by 30 December, they'll still calculate your tax and try to collect tax through your tax code; but they can't guarantee to tell you what to pay by 31 January.
If you file your tax return online the deadline is later (see below) because the system calculates your tax liability for you automatically on-screen.
• 28 February
If you don't pay the balancing payment by 31 January, you'll be charged an automatic 5% surcharge on top of the amount still owing. This is in addition to any interest payments.
• 31 July
This is the deadline for making a second 'payment on account' for tax owing for the preceding tax year.
If you still owe tax that you were due to pay by the previous 31 January, you'll be charged a second automatic 5% surcharge on top of the amount you owe.
Taxfile's tax accountants in South London and Exeter took a group policy for all their customers in order to protect them from any extensive work generated by an enquiry from the tax office. In order to help us protect you from the taxman you need to send your tax return in time.
Taxfile can also protect new customers for their last tax return, provided they sent their return in time, before the deadline.

Rent a Room Scheme

If you're thinking about letting furnished rooms in your home, you may want to take advantage of the special Rent a Room Scheme . Under this scheme you can be exempt from income tax on profits from furnished residential accommodation in your only or main home if the gross receipts you get (that is, before expenses) are £4,250 (£2,150 if letting jointly) or less. But you can't then claim any of the expenses of the lettings.
A lodger can occupy a single room or an entire floor of your home. It does not apply if your home is converted into separate flats that you rent out. In this case you will need to declare your rental income to HM Revenue & Customs (HMRC) and pay tax in the normal way. Nor does the scheme apply if you let unfurnished accommodation in your home.
There are certain advantages and disadvantages of using this scheme -Taxfile in South London and Exeter can help you choose the best option according to your specific circumstances. Their tax accountants will work out whether you're better off joining this scheme or declaring all of your lettings income and claiming expenses on your tax return.
The main point to bear in mind is that if you are in the Rent a Room scheme you can't claim any expenses relating to the letting (for example, wear and tear allowance, insurance, repairs, heating and lighting).
If you don't normally receive a tax return and your receipts are below the tax-free thresholds for the scheme, the tax exemption is automatic so you don't need to do anything.
If your receipts are above the tax-free threshold, you must tell your Tax Office - you can do this by completing a tax return and claiming the allowance.

That's all for today. Next week we will discuss, in more detail, the allowable expenses that you can deduct from your lettings income, provided you don't use the Rent a Room scheme.

Confused about your tax code?

A tax code is usually made up of one letter and several numbers, for instance 161L or K567 . A tax code is used by your employer or pension provider to calculate the amount of tax to deduct from your pay or pension. If you have the wrong tax code you could end up paying too much or too little tax.
The letters in your tax code have different meanings:
• L- for those tax payers that are eligible for the basic personal allowance or those that are on the emergency code.
• T-if there are any other items HM Revenue and Customs (HMRC) needs to review in your tax code.
• P- for persons aged 65 to 74 and eligible for the full personal allowance.
• V-for persons aged 65 to 74, eligible for the full personal allowance and the full married couple's allowance (for those born before 6 April 1935 and aged under 75) and estimated to be liable at the basic rate of tax.
• Y-for persons aged 75 or over and eligible for the full personal allowance.

If your tax code has two letters but no number, it normally indicates that you have two or more sources of income and that all of your allowances have been applied to the tax code and income from your main job:
•BR-Is used when all your income is taxed at the basic rate - currently 22 per cent (most commonly used for a second job)
•D0-Is used when all your income is taxed at the higher rate of tax - currently 40 per cent (most commonly used for a second job)
•NT-Is used when no tax is to be taken from your income or pension.

Your employer will use an emergency tax code when you start a new job and your pay is above the PAYE threshold or when you declare on your P46 that this is your only job. Also your employer will use the emergency tax code if you don't give him/her a P45 when starting a new job.
Taxfile in South London and Exeter can help you sort out your tax code and make sure you pay the right amount of tax.
If you have paid too much tax under the PAYE code , Taxfile's tax accountants in Tulse Hill you will get in touch with the Inland Revenue and request a refund on your behalf.

IHT:Transfer of unused nil-rate band

The Pre-Budget 2007 Report published on Tuesday 9th October announced various changes, one of them referring to the inheritance tax(IHT).
Previously, married couples could transfer an unlimited sum to each other when one died without paying inheritance tax. But when the survivor died, their estate was then taxed at 40% on anything exceeding £300,000.
Couples can now transfer their allowances to each other. When the first person dies, they can transfer their allowance to the second person. When the survivor dies, their beneficiaries can add the two allowances together.
In other words, the change in IHT is concerned with ''the transfer of any unused nil rate band allowance on a person's death to the estate of their surviving spouse or civil partner.''
It is important to remember that there is a ''permitted period''which is the time limit within which a claim must be made by the personal representative. This is two years from the death of the survivor spouse. If the claim is not be made within the time limit, than a claim may be made by any other person who could be liable to the inheritance tax.
By 2010, the combined tax-free allowance for couples will rise to £700,000.Experts emphasise the need to keep good records, especially where the spouse who dies first does not use the whole of their IHT allowance.
Although this is a great news for married couples or those in civil-partnerships these changes will not help unmarried or non-civil partnership couples, or siblings who share homes.
If you would like to know more details about the way IHT works, you can visit Taxfile's accountants in South London or Exeter.

Your personal tax allowance

Everyone who lives in the UK is entitled to a personal allowance. This is the amount of income you can receive each year without having to pay tax on it. Depending on your circumstances, you may also be able to claim certain other allowances.
There are three levels of personal allowance for 2007/2008 tax year:
•Basic rate, which is 5225 (with no income limit)
•age 65 to 74, which is 7550 (with an income limit of 20900)
•age 75 and over 7690 ( with an income limit of 20900).
It is important to bear in mind that if your income is over the income limit, the age related allowance reduces by half of the amount (£1 for every £2) you have over that limit, until the basic rate allowance is reached (you'll always get the basic allowance, whatever the level of your income).
If you become 65 or 75 during the year to 5 April 2008, you are entitled to the allowance for that age group.

So if, for example, you are 69 and have an income of £22,000( £1100 over the limit) your age-related allowance would reduce by £550 to £7,000.

If HM Revenue & Customs (HMRC) knows your age you should get the personal allowance automatically. But bear in mind they won't know your age unless you've told them or shown your date of birth on a tax return or claim form. If you haven't done this already and you are 65 or over you need to contact your Tax Office.
If you want to claim a tax refund because you didn't use your personal allowance (or for any other reason), you need to do so within five years from the 31 January following the end of the tax year concerned. Taxfile in South London and Exeter can help you claim the overpaid tax . Their tax advisers deal with the Inland Revenue on your behalf , taking the strain off you at a taxing time, making sure that you never pay more than your minimum tax liability, whether this be income tax, capital gains tax (CGT) or inheritance tax(IHT).

Tax Enquiry Nightmare Gets Worse

If you are unlucky enough to be the subject of a tax enquiry by the tax man, it could now be an even worse nightmare for you than ever before. HMRC has recently introduced a new bonus scheme for the tax inspectors who conduct the enquiries, which means they have a vested interest in coming down hard on ordinary folk and negotiating far less. The more tax they find you need to pay - in their opinion - the more they will earn.

The average extra tax they are demanding in recent enquiries now averages a worrying £7,778 for each self-assessment enquiry it undertakes - that's a steep jump of £3,251 extra on last year's average. The new statistics also show that the amount of extra tax generated just from the band of those earning more than £200k per year has risen to £197 million which is a 150% increase on the preceding year. Clearly those bonuses are having the desired affect on the individual tax inspectors who appear to be squeezing every last penny from each of the enquiries they are undertaking.

It's times like these when services of tax advisers like TaxFile really come into their own. Because they know the rules (and any allowable expenses) as well as the tax inspectors do, they level the playing field for ordinary hard-working people and can argue the case on your behalf. For a low fixed fee the whole headache can be taken over by an accounting professional who is on your side. Taxfile have offices in South London and in Exeter, Devon. Telephone 0208 761 8000 for further information.

Taxman's mistakes mean 1 million pay wrong bill

There are more than a million of us in the UK who are paying the wrong amount of tax, thanks to the taxman. £157 million was overpaid to the Revenue last year, according to the National Audit Office (NAO). 540,000 of us - that's over half a million - were overcharged, but still others were undercharged, the latter totalling £125 million in the same period.

The NAO attributes the staggering level or errors to the fact that many people change jobs so frequently and this makes the calculation more complicated. But it doesn't end there. Correcting the mistakes will cost both the Revenue and the tax-payer time and money, as well as unnecessary stress. Unexpected tax demands will come as a shock, particularly to vulnerable groups such as pensioners, who are likely to be the most severely affected.

Matthew Elliott of The Tax-Payers' Alliance commented that "This report demonstrates yet again that the tax system is becoming too complicated and taxpayers who do not have the money to afford top accountants are getting tied up and ripped off by the taxman....It's the complexity of the system that's trapping people, so it needs radical reform."

At TaxFile in Tulse Hill, South London (& Exeter in Devon) you can drop in to see one of their tax advisers and, for an affordable fixed fee, they will sort your tax out for you and relieve you of the stress and uncertainty. TaxFile bridge the gap between you and the taxman. They level the playing field. They specialise in one thing; tax, and do not charge the higher fees normally associated with swishy accountants.

Taxman wants powers to seize tax straight from bank accounts

HM Revenue & Customs is seeking the right to seize unpaid tax straight out of bank and building society accounts, without consent. Apparently such powers would be used only against deliberate tax evaders in a bid to avoid seeking a court order. They are part of a consultative document called, "Modernising Powers, Deterrents and Safeguards". It would work like this: the relevant amount would be frozen in the account. It would be withdrawn by HMRC only if a payment ultimatum had not been met after several written letters were sent, several telephone calls had been made, and at least one visit had been made to the non-payer's home. We all know that tax bills are not always correct, however, and this is a major worry for some.

A spokesman for HMRC defended the idea saying that it would use the proposed powers only against chronic late payers and continued, "We do not, and will not, seek access to personal bank accounts unless all other exacting avenues of communication have failed."

Tax advice from such companies as South London based TaxFile can help to level the playing field when a tax dispute arises. As we say above, tax bills from the HMRC are not always correct first time, and a little professional advice from an expert in the field of tax accounting will mean that you only pay the correct amount of tax and nothing more.

Taxman sinks his teeth into your pension

This was the headline in the Daily Mail article of 4 July 2007, complete with a picture of a vampire! The story outlines how pensioners on low incomes are being taxed up to 40% in what the Mail describes as "an extraordinary cash grab by HM Revenue & Customs".

Under "trivial commutation" rules, pensioners with pension funds of £16k or under can actually cash them in instead of using them to buy annuities which would, of course, pay ridiculously small monthly amounts. As you might expect, the first 25% of the pension fund taken as cash comes tax-free. It is the other three-quarters which fall foul of HMRC's cash grab. While most of the pensioners involved are basic-rate tax payers, many have this portion of the fund taxed at the higher 40% rate by the Revenue.

The reason for this ludicrous state of affairs is that, even more absurdly, if HMRC does not have a pensioner's tax details, they assume the pensioner receives this amount of income every month and apply an emergency 40% rate charge to the top three-quarters of the fund. Pensioners who realise the mistake are then left to try to reclaim the overpayment, however many of them will not know how to even start such a claim as some will not have dealt directly with the tax system before. It is thought that up to 50,000 pensioners will be hit with this overcharge each year.

Walk-in accounting services provided by companies such as TaxFile in Tulse Hill, London as well as Exeter, Devon, are perfectly placed to offer low cost solutions to this type of tax error. When it comes to tax advice, they are a low cost alternative to a full accountancy firm and even the playing field between ordinary folk and Her Majesty's Revenue & Customs.

Let Taxfile introduce you to VAT

Value Added Tax is a tax on consumer expenditure. It is collected on business transactions, imports and acquisitions.
There are three rates of VAT:
•standard rate, 17.5%
•reduced rate, 5%
•zero rate.
Businesses charge VAT on their sales and this is known as output VAT and the sales are referred to as outputs. Similarly, VAT is charged on most goods and services purchased by the business and this is called input VAT.
The output VAT is collected from the customer by the business and must be regularly paid to HMRC.
The input VAT on goods and services purchased can be deducted from the amount deducted from the amount of output tax owed. It is worth mentioning that certain types input tax can never be reclaimed such as business entertainment expenses and for most of business cars.
You are required to register for VAT if your turnover is over 64000.
You can apply for voluntary registration that would allow you to reclaim your input VAT which could result in a repayment of VAT if your business was principally making zero rated supplies.
It is very important that a VAT registered business maintains complete and up-to-date records including details of all supplies, purchases and expenses for 6 years.
Taxfile can assist you with registering for VAT and with completing your VAT return.
We will discuss VAT in more detail next week!