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HMRC use the Analogy of a shop window….
The cost of a web site is analogous to that of a shop window. The cost of constructing the window is capital; the cost of changing the display from time to time is revenue. (BIM35870)
UITF Abstract 29
Set out 4 key areas of cost:
- Planning – P&L
- Application and infrastructure development – Tangible Fixed Asset
- Design costs – P&L
- Content costs – P&L
HMRC also have some useful information on software in CA23410
Computer software qualifies for PMAs if it is not already plant.
Computer software is not defined in the capital allowance legislation. You should treat computer programs of any type and data of any kind as computer software. Computer programs range from operating systems like Windows to games like Solitaire. There may be no physical asset because software is sometimes transferred by electronic means, for example it may be downloaded over the Internet. Software acquired that way is also plant.
A person may acquire a right to use or otherwise deal with computer software. If so, the right and the software to which it relates are plant. Treat the person as owning the plant while the person is entitled to the right.
Capital Allowances and the Annual Investment Allowance can be claimed against Plant including software.
The latest case Vinyl Design Ltd v HMRC  TC 03345 highlights why policies and mileage records are important.
Here are the facts of the case:
- The company’s only 2 employees were the directors
- They had different cars for private use
- They argued the Pool car was only for Business Use
- They had no policy
- They had no Mileage Records
- Pool Cars kept at home due to risk of vandelism
Not surprisingly HMRC won the case !!
So what should you do to prove there is no private use:
- Keep the car on the company’s business premises
- Keep the keys at the company’s business premises
- Prepare a Board Minute
- Make sure your contract of employment bans private use
- Keep a mileage log
- Insure the car principally for business use
HMRC have specific rules on keeping vehicles at home in EIM23465
Even if you do meet the 60% rule you still have to prove ‘no private use’
How many of us know what our business needs to achieve to deliver against our personal goals in the long term?
We all know that the state pension will be unlikely to meet our retirement needs in full. Most of us will be looking for our businesses to provide a safety net of income/capital value to make sure our retirements are secure.
However, as Steven Covey says you have to start with the end in mind. This means that you have to plan NOW to ensure you get out of your business what you need for the future.
If, like me, your business is largely centred on you as an individual your business is unlikely to be worth very much to someone else when you decide to stop. This means that your business needs to earn enough for you to make decent pension contributions now to fund your retirement.
If your business employs other people to deliver the product/service then you may be able to sell your business to realise value when you retire. However, you can only maximise this value if you start to plan several years ahead. It is vital that you can distance yourself from the business and that it can run without you, for example.
Whatever your goals it is never too early to start positioning your business so it is in the best position to meet them. If you don’t, you may find your retirement dreams end in cash strapped nightmares.
Members Voluntary Liquidations have been increasing in popularity
According to the official statistics from The Insolvency Service, over the last few (financial) years the number of MVLs has been:
Since the ESC C16 change came into effect on 1st March 2012, the number increased to:
Here are my top 5 reasons why an MVL might be a good choice:
- The change in 2012 capped capital distributions on striking off at £25,000 but this cap does not apply to liquidations
- You want to retire and close your business and extract the net worth
- You created a Special Purpose Vehicle (SPV) for a specific project and the company is no longer needed
- Companies that are stuck off can be re-instated but that’s not the case with liquidated companies
- Entrepreneurs Tax Relief may be applicable meaning the capital distribution is taxed at 10%
Basically when you are self employed you spend money on 3 types of expense:
1. Capital Expenditure – Equipment & Vehicles
2. Business Expenditure – stock, wages, premises
3. Private Expenditure – day to day living expenses – mostly not allowed but some types of cost may still count as business expenses
In general its types 1 and 3 where sole traders and partnerships miss out on tax allowances.
For example, you could claim capital allowances on your car, if you use your car partly for private and partly for business you simply disallow a % for private use.
On other assets there is an Annual Investment Allowance which is currently £250,000 per year from January 2013.
For most business that will cover all their capital expenditure, but there are further allowances available too.
With regard to private expenditure, there are tax reliefs available for working from home
If you have to spend money on tools or specialist clothing for your job you may be entitled to either:
- tax relief for the actual amounts you spend
- a ‘flat rate deduction’
A classic car is one where:
- the age of the car at the end of the year of assessment is 15 years or more and
- the market value of the car for the year is £15,000
I found a 1968 Jaguar MkII for sale for £15,000 on
The Mark 2 gained a reputation as a capable car among criminals and law enforcement alike; the 3.8 Litre model being particularly fast with its 220 bhp (164 kW) engine driving the car from 0-60 mph (97 km/h) in 8.5 seconds and to a top speed of 125 mph (201 km/h) with enough room for five adults. Popular as getaway cars, they were also employed by the Police to patrol British motorways.
Assuming the list price was £2,000 (I can’t find the actual list price), the taxable benefit in kind would be £2,000 x 35% (maximum)x 40% (higher rate tax) = £280
As long as the Market Value is below £15,000 these rules apply above £15,000 the market value is used for the calculation, you can pay for your private fuel to avoid the tax on that.
Pool cars must meet the following conditions:
- used by more than one employee
- not ordinarily used by one employee to the exclusion of others
- not normally kept at or near employees’ homes
- used only for business journeys – private use is only permitted if it is merely incidental to a business journey (for example, commuting home with the car to allow an early start to a business journey the next morning)
Provided all these conditions are met, you have:
- no reporting requirements
- no tax or NICs to pay
To back this up it would be worth having:
- A written ‘no private use policy’
- Business Only insurance
- A mileage log to show that there’s no private mileage
When you buy a car you generally can’t reclaim the VAT. There are some exceptions – for example, when the car is used mainly as one of the following:
- a taxi
- for driving instruction
- for self-drive hire
If you lease a car for business purposes you’ll normally be able to reclaim 50 per cent of the VAT you pay. But you can reclaim 100 per cent of the VAT if the car is used as one of the following:
- exclusively for a business purpose
- a taxi, for driving instruction or self-drive hire
The following are VAT cases relating to Pool Cars and support the reclaiming of VAT Input Tax:
Masterguard Security Services Ltd VTD 18631
A business provided cars to the security guards that it employed. It was allowed to recover input tax on the cars because it banned the employees from using the cars for private use. It was able to show that all the employees had their own cars which they used privately.
Peter Jackson Jewellers Ltd VTD 19474
A company that had four shops bought a car. The tribunal allowed input tax to be recovered on the car. The company had evidence to show that the car was used to transport stock and that private use of the car was prohibited.
What counts as private use?
Private use that is not merely incidental to business use should in practice be ignored in deciding whether the vehicle comes under the protection of either Section 167 ITEPA 2003 (cars) or Section 168 ITEPA 2003 (vans) where such private use is:
- small in extent and infrequent and
- consists of either or both of:
- use limited to meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds
- use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit.
Small in extent and infrequent will generally be not more than 5% of the vehicle’s annual mileage on occasions that are neither regular nor protracted.
Use meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds covers the kind of case where an employee is taken ill at work, or learns at work that a member of his or her family has been involved in an accident. It does not apply where an employee’s normal vehicle breaks down and the pool vehicle is used as a substitute.
Use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit might apply in a number of different situations. One example would be the use of a pool vehicle to take employee-provided equipment, such as a table tennis table, to an employer-provided sports facility. (Subject to various conditions, employer provided recreational facilities do not give rise to a tax charge.)
Type of Car
You could have any car as a Pool Car and some businesses might decide to have a luxury car as the Pool Car befitting of the company image, but makesure you can prove that it hasn’t had more the a small (5%) amount of private use (as noted above).
So you could have a personally owned car to get to and from the office and then use the Company Pool Car during business hours.
Change of Use
If the car stops being a Pool Car and gets allocated to an employee you will need to do a self-supply charge for VAT at the time of change. Basically this means you account for the VAT on the ‘current value’ of the car at the time of change.
VAT Act 1994 Section 56 (9) – Fuel rules
(9)In any prescribed accounting period a vehicle shall not be regarded as allocated to an individual by reason of his employment if—
(a)in that period it was made available to, and actually used by, more than one of the employees of one or more employers and, in the case of each of them, it was made available to him by reason of his employment but was not in that period ordinarily used by any one of them to the exclusion of the others; and
(b)in the case of each of the employees, any private use of the vehicle made by him in that period was merely incidental to his other use of it in that period; and
(c)it was in that period not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the vehicle available to them.