September questions and answers
Newsletter issue - September 2017.
Q. I have two small businesses which are treated as a group for VAT purposes, so we only submit a single VAT return covering both entities. Are we eligible to use the Flat Rate Scheme?
A. Unfortunately not. If you are part of a VAT group, or are eligible to join an existing VAT group, then you cannot use the Flat Rate Scheme (FRS).
There is also a rule which stops 'associated' businesses joining the FRS.
A business is 'associated' with another business if:
- one business is under the dominant influence of another;
- two businesses are closely bound by financial, economic and organisational links; or
- another company has the right to give directions;
- in practice, a company habitually complies with the directions of another. The test here is a test of the commercial reality rather than of the legal form.
If a business has been associated in this way with another in the last two years, but is not associated at the time an application to use the FRS is made, HMRC may allow the FRS to be used, if they agree in writing, that the former association is not a risk to the revenue.
Q. I am a sole trader and I run my business from home. I am using the cash basis for preparing my accounts for tax. Can I claim expenses for running my business from home?
A. Under HMRC's 'simplified expenses' regime, if you work more than 25 hours a month from home, you should be able to claim flat rate expenses based on the number of hours you work. Current rates are as follows:
- between 25 and 50 hours worked per month: £10 per month
- between 51 and 60 hours worked per month: £18 per month
- 101 hours or more: £26 per month.
If you claim the flat rate, you don't have to work out the proportion of personal and business use for your home, e.g. how much of your utility bills are for business.
Q. I work for a sandwich delivery company and I use the company's electric van to do my round each day. I take the van home with me at night and I am allowed to use it in the evenings and at weekends if I so wish. What is the currently tax position for electric vans?
A. The tax charge on zero-emissions vans is currently going through a period of change. From 2015/16 to 2017/18 inclusive, a rate of 20% of the van benefit charge for vans which emit CO2 applies to zero-emission vans. The taxable charge for conventionally-fuelled vans is £3,230 for 2017/18.
This means that if you are liable to the van benefit charge, for 2017/18:
- if you are a basic rate taxpayer, you will pay tax of £129.20 (£3,230 x 20% x 20%); and
- if you are a higher rate taxpayer, you will pay tax of £258.40 (£3,230 x 20% x 40%).
The charge will rise to 40% of the van benefit charge for conventionally-fuelled vans in 2018/19; it will be 60% in 2019/20, 80% in 2020/21 and 90% in 2021/22. From 2022/23, the van benefit charge for zero emission vans is 100% of the van benefit charge for conventionally fuelled vans.