Archive for October, 2011

Reduction In Annual Investment Allowance…

Friday, October 7th, 2011

At the end of the current fiscal year, 5 April 2012 for income tax payers and 31 March 2012 for companies, the current level of Annual Investment Allowance is being reduced from £100,000 to £25,000.If your accounting year end coincides with the fiscal year end this presents no computational difficulties as all qualifying expenditure, for the year ending 5 April (31 March) 2012, up to £100,000 will provide a 100% deduction for income tax and corporation tax purposes.But what happens if your trading year end straddles the fiscal year end?

The short answer is that AIA relief is apportioned. In certain circumstances this can result in a loss of relief and higher tax bills.

Consequently if your trading year does not end 5 April (31 March) 2012, and you are contemplating significant capital expenditure in this period, we should meet to discuss tax planning options.

When IS a HOBBY really a TRADE ???

Friday, October 7th, 2011

HMRC are actively searching the internet for evidence of eBay traders that are consistently selling goods on eBay. They are known to be exploring the use of ‘internet robots’ to scour cyberspace!
And this activity is not necessarily restricted to eBay traders. What about car boot sales, sales via classified ads? Which raises an interesting question – when does a hobby become a trade, and more importantly, when do any surplus funds become subject to tax?
Generally speaking if you are selling your own private possessions you will not be trading. However you may be considered ‘in business’ if you habitually buy and sell goods on eBay and/or at car boot events. The list that follows is the published ‘badges of trade’ that HMRC use when considering this matter.

  1. An intention to make a profit supports trading.
  2. The number of transactions involved – systematic and repeated transactions support trade.
  3. The nature of the goods sold – are the goods only capable of being turned to advantage by being sold? Or do they yield income, or give enjoyment through pride of ownership?
  4. Existence of similar trading transactions – was this a one-off transaction or part of a pattern that suggests trading?
  5. Changes to the goods – were the goods repaired, modified or improved to sell them more easily?
  6. The way the sale was carried out – were the goods sold in a way that indicates trading, or to raise cash in an emergency?
  7. The source of finance – was money borrowed to buy the goods? Were any profits to be used to repay the loan?
  8. Interval of time between purchase and sale – goods being traded are usually bought then sold quickly.
  9. Method of acquisition of the goods – goods acquired by an inheritance, or as a gift, are less likely to be the subject of trade.

As you can see one or more of these cases could apply to most hobbies.
The current penalty regimen adopted by HMRC precludes sticking your head in the sand. Don’t wait for the brown envelope to appear. If you are uncertain about the tax status of your money-making hobby call us now.

100% Capital allowances

Friday, October 7th, 2011

At present purchases of qualifying plant and other equipment can be written off against your taxable profits.
Tax relief is obtained by utilising the Annual Investment Allowance. For the current tax year, 2011-12, this amounts to a 100% write off with a limit of £100,000.
As with most opportunities all good things come to an end! From April 2012 the annual limit is being reduced to £25,000.
So if your plans over the next year or so include substantial investment in replacing worn out, or buying new, qualifying equipment, timing is absolutely critical.
Call us if you would like more information about these changes.