Q. I recently sold my main residence and down-sized to a smaller property. Unfortunately, because of current economic conditions, the sale price of the house was £30,000 less than I originally paid for it many years ago. Can I offset this loss against income from my business and reduce my income tax liability for this year?
A. Unfortunately the tax law does not permit you to off-set losses in this way. I am assuming that your business does not trade in properties. Losses on the sale of a principal private residence are generally not allowable losses for tax purposes. If the property was an investment asset, the loss on the sale may be treated as a ‘capital loss’, which could be offset against other capital gains you make, but it cannot be offset against other income. For further information on this, see the HMRC Capital Gains Manual at paragraph CG65080.
Q. I have been trading for several years. Although I am not currently registered for VAT, I think my income is getting close to the VAT registration threshold. Are there any items I can ignore for working out my ‘taxable turnover’ for VAT registration purposes?
A. When the ‘taxable turnover’ of a business reaches the VAT registration threshold, currently £85,000 per annum, it must register for VAT. As you state, any income you receive that is not counted as ‘taxable turnover’ is excluded from the £85,000 turnover figure.
There are several items that can be ignored when calculating ‘taxable turnover’ for VAT registration purposes. This commonly includes insurance, postage stamps or services; and health services provided by doctors or dentists.
Some goods and services are outside the VAT tax system so VAT is neither charged nor reclaimed on them. Such items include:
- goods or services you buy and use outside of the EU;
- statutory fees – like the London congestion charge;
- goods you sell as part of a hobby – like stamps from a collection;
- donations to a charity – if given without receiving anything in return.
Supplies of services to business customers in another EU member state or any customer outside the EU are treated as outside the scope of UK VAT and do not count towards turnover for VAT registration purposes.
Other non-business income that may be excluded includes disbursements incurred on behalf of a client, grants, or any income from employment.
It is also worth noting that ‘one-off’ sales of capital assets can be ignored. So, for example, if you sell a van and the income received puts the business turnover over the registration limit, the sales proceeds can be ignored.
Q. My employer has offered to give me an interest-free loan to purchase an annual rail fare ticket costing £3,500. Will I have to pay tax on the loan?
A. Strictly, the taxable benefit on cheap or interest-free loans is the difference between any interest paid and the interest payable at the ‘official rate’ (currently 2.50%). However, there is no charge where the total of all beneficial loans made to an employee do not exceed £10,000 at any time in the tax year. If this is the only loan you have from your employer, you will not need to pay tax on the benefit. However, it is worth noting that tax is charged on the amount written off of any loans, whether or not the recipient of the loan is still employed.
You should always seek advice about your specific requirements before you act. Speak to one of our experts on 0161 476 9000 or contact us here.