D J Macaulay

UK tax alerts

June 2009

Capital Allowances what is available?
Charities VAT planning tips
H M Revenue and Customes - Name and shame provisions

Capital Allowances what is available?

This alert provides a quick overview of the tax allowances now available for purchases of capital equipment.

Annual Investment Allowance

This allowance was introduced in April 2008 and provides an allowance of 100 per cent on up to £50,000 of expenditure on plant and equipment – there is exclusion for cars, but no other major assets.

A few words of warning:

1. For businesses that have small profits and do not want to claim allowances that will put them into loss, a partial claim may be appropriate.
2. To prevent large businesses dividing up to claim £50,000 allowance in many new companies, the allowance is shared in groups of companies and between connected businesses.
3. AIA is not available to a partnership which includes any member who is not an individual. It is not uncommon to have a limited company partner in some partnerships, particularly in the farming sector, so claimants should be aware that such a partnership is specifically excluded from claiming AIA.

First year allowance 40%

The Chancellor announced a 40 per cent first year allowance in the Budget, which applies to expenditure from April 2009 to 2010.

Combining the two allowances AIA and 40% FYA

If you spend more than £50,000 you can combine the two allowances (for one year to April 2010). You can claim the 100% AIA on the first £50,000 and 40% on any qualifying balance over this amount.

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Charities VAT planning tips

Charities do not get special treatment as far as VAT is concerned - if a charity is making taxable sales exceeding £67,000 per year, then it must register for VAT in exactly the same way as any commercial business.

What income is VATable?

In considering whether a charity should be registered for VAT take note of the following:

1. Charity shop sales – sales of donated items from a shop is a zero rated activity. If sales exceed the registration limit the charity will have to register for VAT. In this case a positive outcome as 0% is added to sales whereas any input VAT on purchases that relate purely to the shop can be recovered.
2. Grants – from say the local Council to help with running costs are outside the scope of VAT and do not need to be included in the calculation. But beware in certain circumstances the grant may be taxable.
   Particularly:
• Does the donor receive anything in return for the funding?
• If the donor does not benefit, does a third party benefit instead? And if so, is there a direct link between the money paid by the funder and the supply received by the third party?
• Are any conditions attached to the funding?
3. Fund raising income – all fund raising for charities is exempt from VAT
4. Subscriptions and donations – similarly membership subscriptions are exempt from VAT.

VAT on advertising costs

If you are a charity and registered for VAT most of the advertising payments you make should have no VAT added to the bills, they should be zero rated. The only exception to the zero-rating rule is if the advert relates to the business activities of the charity e.g. advertising a Christmas sale for the charity shop. If by chance your local paper has been adding VAT you can askthem to review their invoices for the last 3 years and send you a credit note and refund.

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H M Revenue and Customs - Name and shame provisions

Within the next 18 months, HMRC will be regularly publishing lists of taxpayers who have deliberately included errors on their tax returns leading to a tax loss of more than £25,000.

Taxpayers will be affected by these provisions if:

1. Errors which result in an underpayment of taxes are made deliberately. This would seem to excuse innocent errors or mistakes.
2. Errors are discovered which understate income or taxable gains, or which overstate claims or losses. This will include VAT wrongdoings.
3. The £25,000 figure of 'potential lost revenue' will cover the amount from one investigation but that means all years under investigation and all relevant taxes.

It is expected to be in force for failures and periods from 1 April 2010. Because of this it is unlikely that we will see any names published before the first quarter of 2011.

No details of taxpayers who committed defaults prior to the effective date will be published.

Details that will be published are:

• name and address
• trade, profession or sector
• amount of tax, interest and penalties
• the period covered.

This ‘Naming and Publishing’ process is obviously aimed at encouraging full and proper disclosure to H M Revenue & Customs. No doubt the lists will be scoured by national and regional press for interesting names.

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