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November Questions and Answers

Newsletter issue - November 2015.

Q. I am a director and employee of a trading limited company (A Ltd), of which I also own 100% of the shares. I am about to set up a holding company in the European Union, which will own 100% of the shares in A Ltd. I will own 100% of the new EU company. Will there be any capital gains tax or stamp duty payable on the transfer of shares?

A The 'share for share' rules should apply to the transfer, so there should be no capital gains tax or stamp duty payable on the transaction. Further information on these rules can be found in the HMRC Capital gains tax manual at www.hmrc.gov.uk/manuals/cgmanual/CG52521+.htm, and www.hmrc.gov.uk/manuals/cgmanual/CG52800.htm.

Q. I have recently registered for VAT. I understand that I can use a flat rate for working out the VAT payable to HMRC, but I am not sure how the scheme works and how to register for it.

A This scheme is designed to help small businesses with a turnover of no more than £150,000 a year, excluding VAT, by taking some of the work out of recording VAT sales and purchases. If you use the scheme, you pay HMRC a single percentage of your turnover in a VAT period.

The percentages applicable to this scheme currently vary from 4% for food and children's clothing retailers up to 14.5% for builders and contractors who supply labour-only services.

In your first year of VAT registration you get a 1% reduction in flat rate, which means that you can take 1% off the flat rate you apply to your turnover, until the day before your first anniversary of becoming VAT registered.

The scheme works well for some but not others. On the positive side, the scheme may save you some admin because you don't have to work out every item of input and output tax, but if your customers are VAT registered, you do have to calculate the VAT and issue VAT invoices in the normal way. Financially, the flat rates averages may work out cheaper for you than normal accounting or you may find this scheme more expensive - use HMRC's ready reckoner to check.

Under the scheme, you pay the VAT quarterly and you can swap back to the normal VAT scheme at any time if your inputs rise. You can also claim VAT on any capital expenditure of more than £2,000 including VAT.

You can register to join the scheme online. See the GOV.UK website at www.gov.uk/vat-flat-rate-scheme/join-or-leave-the-scheme for further details.

Q. I am a self-employed painter and decorator. I own two properties, one of which I rent out. My next self-assessment payment on account is due for payment shortly. I will need to pay £13,500 to HMRC. The rental property is currently worth around £20,000 less than I paid for it. If I were to sell it now, would I be able to off-set the loss against my self-assessment tax bill?

A Sadly not! For capital gains tax purposes, allowable losses of an individual can generally only be set against capital gains in the same tax year or in future years.

The HMRC capital gains tax states:

"Allowable losses must be deducted:

  • as far as possible from chargeable gains accruing in the same year of assessment; and
  • any balance must be carried forward without time limit and deducted from chargeable gains accruing in the earliest later year. Losses brought forward are deducted after losses accruing in the year of assessment and cannot reduce the net chargeable gains to below the annual exempt amount. Any losses which thus cannot be deducted remain available for deduction in later years."

See the HMRC Capital Gains Tax Manual at www.hmrc.gov.uk/manuals/cgmanual/CG15810.htm for further details.

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