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November Question & Answer Corner

Newsletter issue - November 08.

Q. I'm worried that the cash my company has on deposit is not covered by the Government's guarantee for personal bank accounts. Should I pay my corporation tax early so the money is secure and I know that debt will be paid?

A. Deposits made by small companies in UK banks are covered by the Financial Services Compensation Scheme, for up to £50,000 per bank. A small company is one that meets at least two the following three conditions:

  • Not more than £6.5 million annual turnover;
  • Not more than £3.26 million net assets on the balance sheet; and
  • No more than 50 employees

You could pay your corporation tax early in which case HMRC will eventually pay interest at 4.25% on the amount paid before it is due, when the corporation tax return for the year is submitted and agreed. This interest will be taxable in the company's accounts. Remember to use the correct reference when paying the corporation tax.

Q. I bought a 100 year lease on a retail unit in 1988 for £20,000 and spent about £40,000 converting it into a property I could trade from. I sold the lease in March 2008 for £125,000 when it had 80 years to run. Can I get a deduction for the £40,000 I spent on making the property useable?

A. You had a right to use the property absolutely for 100 years under the lease and spent £40,000 improving that property. This expenditure also made the property more attractive to the person who has purchased the lease from you, and certainly enhanced the amount the purchaser was prepared to pay to acquire the lease. The improvement costs are thus fully deductible from the sales proceeds of £125,000. If the Tax Inspector refuses to allow you this deduction, point him to the example in his own Capital Gains Manual at para CG 71148.

Q. I am a self-employed author, mostly working from home, but I also give after dinner speeches for which I have to travel some distance. Some of these talks are for charitable organisations, in which case I only ask for travelling expenses. As I am VAT registered do I have to add VAT on to the travel expenses I charge to the charities?

A. Your VAT registration covers all of your business activities including your speaking engagements, so any fee you charge for speaking, even only to cover travel costs must have VAT added. This applies even though the underlying cost to you - the train ticket, is zero-rated for VAT.

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