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Tax Break for Racehorses
There are around 8,215 racehorse owners in the UK, ranging from gentry to plumbers united in their love of the sport.
But this is not an investment for the faint-hearted. You are unlikely to make a fortune and could end up losing a huge amount of money. The Racehorse Owners Association says that for every £100 of annual outlay (not including the purchase cost of the horse), a racehorse owner is likely to see a return of just £21.
As reported in the Telegraph (12th February 2013)
Some times it can pay off….
Rugby star Mike Tindall was branded an “idiot” by his wife Zara Phillips when he splashed out £12,000 on a racehorse.
But Mr Tindall is now looking far from stupid as his impulse purchase won last month’s Welsh National. Monbeg Dude, which Mr Tindall owns with four others, is now said to be worth more than £200,000.
VAT Tax Break for Racehorses
Following an agreement with the Thoroughbred Horseracing and Breeding Industry a scheme known as the VAT registration scheme for racehorse owners was introduced on 16 March 1993. If you meet the conditions of the scheme HMRC will accept that racehorse ownership is a business activity. You can therefore register for VAT and recover some of the VAT you are charged on your expenses as input tax.
Owners may include:
- breeders;
- dealers;
- trainers; and
- racing clubs.
You can apply for VAT registration under the scheme if you are registered as an owner at Weatherbys and you:
(a) own a horse or horses covered by a sponsorship agreement registered at Weatherbys; or
(b) own a horse or horses covered by a trainer’s sponsorship agreement registered at Weatherbys; or
(c) can show you have received, and will continue to receive, business income for example from appearance money or sponsored number cloths (SNC’s) from your horseracing activities.
You can recover as input tax the VAT you are charged on the purchase, training and upkeep of a racehorse and any overhead expenses used for the purpose of your business.
steve@bicknells.net
Salary Sacrifice was “clarified” in April, does your scheme comply?
Salary Sacrifice is a very tax efficient way to give your employees benefits and the most popular benefits are Pensions and Childcare. I wrote a blog back in 2011 which explained how it can save 45.8% in tax and NI
HMRC decided on 9th April 2013 that it was time to “clarify” in their Manuals what are successful and unsuccessful salary sacrifice schemes and have added some further guidance. Their Staff are instructed not to approve schemes (Employment Income Manual EIM42772)….
You (HMRC) may get requests for advice:
- on how to set up a salary sacrifice arrangement, or
- on whether draft documentation will achieve a successful salary sacrifice.
You (HMRC) should not comment on either of these areas. Salary sacrifice is a matter of employment law, not tax law. The nature of an employee’s contract of employment is a matter for the employer and employee.
The specific updates are:
EIM42750 – Salary Sacrifice – updated – this contains the examples of schemes
EIM42777 – Contractual arrangements – this has interesting comments on childcare and pensions
- If the scheme involves childcare or childcare vouchers then the conditions for exemption must be met. (See EIM21905 and EIM16057). Is the agreement to provide childcare between the employee and the childminder or nursery. If so the employer by paying the cost directly is meeting the employee’s personal liability. (See EIM00580).
- For a registered pension scheme the amount which can be contributed to the scheme is normally linked to the employee’s chargeable earnings. In consequence if the salary sacrifice results in some of the employee’s income no longer being taxable, then the amount of contribution, which can be made to the scheme, will also drop.
EIM42778 – Exemption from Tax/NIC – basically stating that exemption may require that the sacrifice may be available to all employees but that the sacrifice must not reduce the employees wages below National Minimum Wages
The following is an example of an unsuccessful Childcare Salary Sacrifice:
The pay slip for the month ended 31 July 2006 gives monthly pay as £2000 plus overtime of £100, deductions for tax of £355 and NIC. The pay slip for the following month shows monthly pay of £2000 plus overtime of £100, deductions for NIC, childcare vouchers of £200 and tax of £310. The code number operated on the salary has not changed.
The situation is not clear from the payslip. When asked, the employer explains that for August, because childcare vouchers of £55 a week are exempt, £220 of vouchers has been deducted from the gross pay of £2100 and tax charged on the net figure of £1880. Further information is needed, for example a copy of the employment contract and any variations agreed by the employer and employee to that contract.
It is established that in July the employee bought childcare vouchers. The employer was not involved. The employer accepts that as the childcare in July was not provided by him, no tax exemption is available. In August the employee asked the employer to buy the childcare vouchers to take advantage of the exemption. The employer did this and deducted the cost from the monthly salary. The contract of employment shows that the employee is entitled to a base salary of £24000 to be paid monthly. This contract has not been varied. As the employee’s entitlement has remained the same, this is not a successful sacrifice. (See EIM42766).
If you operate salary sacrifice schemes its worth checking that your schemes comply, the tax consequences of failure to comply could be substantial.
steve@bicknells.net
Why it’s important to understand the theory of Queuing
Essentially, the problem of Queuing is concerned with:
- Average waiting times
- The average length of the queue
- The number of service points (channels) there should be
- The cost of servicing the queue compared to cost of reducing waiting times
There are two main approaches to working out the solution:
- Simulation
- Queuing theory formulae
Queuing theory formulae can be complicated but are normally used in preference to simulation especially in simple situations.
Let’s take an everyday example, production staff queuing to collect stock from the company stores
So let’s run some numbers assuming the average number of production employees to be served every hour is 12 and we take 3 alternative service rates – 24, 18, 15 per hour, what is the probability of having to queue.
At 24 its 12/24 = 0.5 and the average number of staff in the queue will be 0.5/1-0.5 = 1 employee
At 18 its 12/18 = 0.67 and the average number of staff in the queue will be 0.67/1-0.67 = 2 staff
At 15 its 12/15 = 0.8 and the average number of staff in the queue will be 0.8/1-0.8 = 4 staff
The next stage is to work out the cost of servicing the production team quicker compared to the cost of a faster stores service to reduce queuing
If the production staff cost £20 per hour, based on a 6 hour day that’s £120 per day, that means based on the above the cost will be £120, £240 or £480 for queuing.
If the cost of a faster store man or faster servicing rate is less than the queuing cost then it’s worth investing to reduce the queuing cost.
steve@bicknells.net
HOW LONG TO KEEP YOUR RECORDS?
As a general rule, you should keep your records for a minimum of six years. However,
if you are:
• an employer, you need to keep Pay As You Earn (PAYE) records for 3 years
(in addition to your current year)
• a contractor in the Construction Industry Scheme (CIS), you need to keep your CIS
records for 3 years (in addition to your current year)
• keeping records to complete a personal (non business) tax return, you only need to
keep them for 22 months from the end of the tax year to which they relate.
If you need to keep records for other reasons, for example the Companies’ Act
requires limited companies to keep specific records and you also use those records
for tax purposes, you need to be aware that there may be different time limits for
retaining them. Be careful not to destroy any records you also use for tax purposes
too soon.
Niall O’Driscoll FMCA CGMA
Can you reclaim the VAT on Sponsorship? Probably but not always
Generally sponsorship is subject to VAT because normally the organisation you sponsor will be making taxable supplies to you because in return for sponsorship, they are obliged to provide the sponsor with a significant benefit. Typically this might include any of the following:
- naming an event after the sponsor;
- displaying the sponsor’s company logo or trading name;
- participating in the sponsors promotional or advertising activities;
- allowing the sponsor to use your name or logo;
- giving free or reduced price tickets;
- allowing access to special events such as premieres or gala evenings;
- providing entertainment or hospitality facilities; or
- giving the sponsor exclusive or priority booking rights.
Donations and gift are not normally subject to VAT.
The rules are in HMRC Reference:Notice 701/41 (March 2002)
A business can recover input tax on their legitimate costs when it:
- promotes its business; or
- provide facilities to its staff.
When a business only makes sporting or recreational facilities available to:
- the proprietor
- the partners
- the directors of a company
- the relatives and friends of the proprietor, partners or company directors
it is unlikely that this expense can be treated as being for the purpose of the business. Therefore, the VAT incurred would not qualify as input tax.
In the case of smaller businesses there is an increased risk that the sponsorship is conducted for a private purpose so the VATman has come up with a set of tests:
VIT44300 – Specific issues: test for sporting and recreational activities
Does the proprietor, partner or director actively take part in the sport?
If the proprietor, partner or director cannot take part because of injury or business commitments is another (independent) person employed to drive?
Does a member of the proprietor, partner or director’s family actively take part in the sport?
Is there a connection between the sport and the business?
Where does the sporting activity take place?
Is there extra advertising at the racing venue or in programmes?
Is there related advertising or promotional material?
Does the business name appear on the sporting vehicle, transporter or clothing?
For companies and partnerships is there a record of a decision to use sporting facilities for advertising?
Can the business produce any evidence of research into the benefits to be gained from the advertising?
Are the benefits of the advertising monitored?
Is the car or boat an asset of the company?
What other forms of advertising are there?
Has HMRC given a ruling for direct tax purposes?
Could the business cope with an expansion of trade?
steve@bicknells.net
The tax advantages of cycling to work
Summer is nearly over but cycling could be just the thing help you keep fit, save money and be kind to the environment.
HMRC like cyclists too, so what do you need to do to qualify for tax savings.
First you will need to get your employer to participate in the scheme, they can do this either by setting up their own scheme or by using www.cyclescheme.co.uk or http://www.bike2workscheme.co.uk/ there are lots of other similar sites too.
The basic rules are:
You must use the bike and/or safety equipment mainly (more than 50 per cent of the time) for ‘qualifying’ journeys. This means a journey or part of a journey:
- between your home and workplace
- between one workplace and another
- to and from the train station to get to work
Taking part in the scheme means that you don’t have to pay a lump sum up front to buy a bike and/or safety equipment. Instead, you could loan the bike and/or equipment from your employer, usually up to the value of £1000.
Making loan repayments
Your employer may want to recover all or part of the cost of loaning you the bike and/or safety equipment. If so, you would then make loan payments back to your employer over an agreed period (typically 12 to 18 months) to spread the cost.
The loan payments are usually taken out of your salary through a ‘salary sacrifice’ arrangement. This means you agree to accept a lower amount of salary in return for a benefit – the loan of a cycle and/or safety equipment.
Example of savings using Salary Sacrifice
Cost of bicycle: £500
Cost of accessories £100
Total cost £600
Income Tax 20% £120
Employee National Insurance 12% £72
Total Employee Saving £192
Your employer will save Employers National Insurance of 13.8% on the salary sacrificed
The Employee can buy the Cycle from the company for a price set using the HMRC valuation table below
| Age of cycle | Acceptable disposal value percentage | |
| Original price of the cycle less than £500 | Original price £500+ | |
| 1 year | 18% | 25% |
| 18 months | 16% | 21% |
| 2 years | 13% | 17% |
| 3 years | 8% | 12% |
| 4 years | 3% | 7% |
| 5 years | Negligible | 2% |
| 6 years & over | Negligible | Negligible |
In addition you can claim an HMRC mileage allowance for Cycling of 20p per mile and if you employer doesn’t pay the allowance you can claim back the tax on the allowance using form P87 http://www.hmrc.gov.uk/forms/p87.pdf
So as the saying goes ‘get on your bike’
steve@bicknells.net
Expenses – There’s an App for that
Keeping track of income and expenses can hard when you are busy so why not try using a phone app? HMRC suggest the following:
| Software supplier | Product | Platform |
| Forbes Computer Systems Ltd (Opens new window) | Forbes Receipt Keeper | Android |
| FreeAgent Central Ltd (Opens new window) | Earnest | iPhone, iPod touch, iPad |
| Immagini Ltd (Opens new window) | ZipZipBooks | Android |
| Intuit (Opens new window) | MyBizTracker | iOS (iPhone, iPod touch) |
| Mr Tax Software Ltd (Opens new window) | Text 2 Save Tax | Android. |
| Quick File Ltd (Opens new window) | Quick File | All – free web-based application |
| Sage (Opens new window) | Sage Record Keeper | iPhone, iPad iOS |
| 123 Tax (Opens new window) | 123 Tax application | Windows Phone |
I have been trying out the Sage Record Keeper Mobile on my iPhone, its pretty good for free, here is an overview:
- Record cash in and cash out
- See your balances at a glance and track CIS deductions – Standard or Higher Rate
- You can even take photos of your receipts – no longer worry about losing them- multiple photos if needed
- Estimate the current year’s tax and refer back to previous ones (up to 6 years)
- Quick links to record income and expenses in seconds
- Enter details, specify type of payment used and add notes
- Add and customise tags for transactions to group them into categories
- Add several tags to each transaction
- Search and filter by category, supplier / customer, amounts or other details
- Backup your information using iCloud
For use outside of the app you can export all or just a selection of transactions and photos as CSV and image files. They’re automatically attached to an email for sharing with anyone.
So no excuses, use your phone and stay organised.
steve@bicknells.net
What Travel Expenses will the taxman allow?
Apart from Business Mileage, what can you claim and what counts as a business trip?
Assuming your employer or supplier or customer aren’t reimbursing your costs….
If you’ve got to make journeys for business purposes you can deduct your travelling expenses from your taxable income – so you’ll pay less tax.
In addition, there is no restriction on the standard of travel and accommodation, provided the main purpose of the trip is that of business, you can travel first class and stay at the best hotels.
But what if the trip is partly business and partly pleasure, in this case you will need to apportion the costs and only claim for the business element.
What are business journeys (HMRC definition)
You can only get tax relief on the cost of business journeys. These are when, as part of your job:
- you have to travel from one workplace to another – this includes travelling between your main ‘permanent workplace’ and a temporary workplace
- you’ve got to travel to or from a certain workplace because your job requires you to
But business journeys don’t include:
- ordinary commuting – when you travel between your home (or anywhere that is not a workplace) and a place which counts as a permanent workplace
- private journeys – which have nothing to do with your job
If you’re not sure if a place you travel to counts as a permanent workplace telephone HM Revenue & Customs for advice.
Travel expenses include the actual costs of travel and also the subsistence expenditure and other associated costs that are incurred as part of the cost of making the journey.
The cost of business travel includes
- the cost of any necessary subsistence costs incurred in the course of the journey
- the cost of meals necessarily purchased whilst an employee is at a temporary workplace.
If an overnight stay is needed then the cost of the accommodation and any necessary meals is part of the cost of business travel. Even where an employee stays away for some time and the travel expenses are deductible, the cost of meals and accommodation is part of the overall cost of the business travel.
Travel expenses that qualify for relief
You can get tax relief on the necessary costs of business travel like:
- public transport fares
- hotel accommodation
- meals
- tolls
- congestion charges
- parking fees
- business phone calls, fax or photocopying costs
But you can’t get tax relief for things that aren’t directly related to the business journey.
So far so good, but what about…..
Alcohol – claiming for a few drinks with your meal will be fine but other than with meals they would generally be considered a personal expense
Your Family – if you take your wife, husband or partner on a business trip their costs will be taxable unless they are on the trip for a business reason
Newspapers, Laundry and Phone Calls Home – HMRC allow claims for incidental overnight expenses up to £5 per night in the UK and £10 per night outside the UK
Learning the Lingo – no you can’t claim for language lessons
Staying with Friends – until 2009 HMRC were happy to agree a scale rate of £25 per night but now its based on actual costs
Basically, before you claim, stop and think, can you justify the expense as being a business expense for business purposes.
steve@bicknells.net
What expenses can I not claim when I am self-employed?
When you are operating a business as a sole trader, you will need to complete a self-assessment return for your income. Self-employed income is taxable after deducting allowable expenses. Previously I talked about the expenses that a sole trader can claim but now I am going to tell you about the expenses that you cannot claim.
Non allowable expenses for sole traders include:
Your own wages and drawings, national insurance contributions and pension contributions.
Childcare costs. These can only currently be claimed through a limited company scheme.
Subsistence. You can only claim for hotel and meal costs if you have an overnight business trip. You cannot claim for other meals including lunches, snacks and coffee.
Any business entertaining including entertaining clients and suppliers and hospitality at events.
The purchase cost of business premises and any costs relating to a non-business part of your premises. Also the cost of improving and altering premises and large equipment.
Motoring costs like fines, purchase cost and travel between home and work.
Repayment of loans, overdrafts and other finance solutions.
Some professional fees like the legal costs of purchasing property and large assets. Also the cost of settling tax disputes and fines.
Payments to clubs, charities, political parties.
Cost of ordinary clothing even if you only wear it for work.
Personal use including goods bought for personal use, the personal proportion of your home costs if you work from home, personal phone calls on your mobile phone etc.
Rebecca Taylor
What expenses can I claim as a sole trader
When you are operating a business as a sole trader, you will need to complete a self-assessment return for your income. Self-employed income is taxable after deducting allowable expenses. None of us want to pay more money than necessary to HMRC so use this guide as a starting point to ensure that you are claiming all you can.
There are two main types of expenditure:
Capital expenditure
Capital expenditure is money spent on items (assets) that will have a useful life to the business of more than one year, for example premises, furniture, machinery, vehicles, tools, IT equipment.
These costs cannot be included when working out taxable profits. However you can claim Capital Allowances which give tax relief for the reduction in value of the assets.
Revenue expenditure
Revenue expenditure is the allowable expenditure which is incurred in the general day to day running of a business. This can include:
Cost of goods bought for resale and cost of producing goods that you are going to sell or use in providing your goods or services to sell.
Employee costs including wages, employers’ National Insurance, benefits for employees, agency fees, subcontractors and training.
Business premise costs including rent, rates, utilities, maintenance and cleaning.
A proportion of your home costs if you work from home, including a proportion of the costs for rent, rates, utilities, mortgage interest, maintenance and cleaning. The costs should be apportioned based on how much of the home is used for business and for how much time if not exclusively. Or you can claim a fixed rate of £4 per week (from 2013-14).
Office running costs like phones, mobiles, broadband, email hosting, postage, stationery, printing, software and small office equipment.
Vehicles including the running costs (petrol, car tax, insurance, repairs, MOT and servicing). If the vehicle is also used privately, you can only claim for a proportion of the cost in relation to how much the vehicle is used for business mileage. Business mileage includes trips to the bank, post office, business meetings and networking events.
Mileage can be claimed instead of a proportion of the running costs of a vehicle if your turnover is below the VAT threshold when you acquired your vehicle. Mileage rates are 45p a mile for the first 10,000 business miles a year, then 25p a mile.
Travel, meals and accommodation including hotels when an overnight stay is required for business.
Business insurance including public liability, professional indemnity and employer liability.
Marketing and advertising including PR, free samples, networking, website maintenance costs, printed ads and brochures.
Magazine subscriptions if they are relevant to your business or are for client reading in a reception area.
Professional fees are usually allowable. Legal fees for drawing up contracts and terms and conditions are allowable as are your accountant’s fees for completing the year end accounts. Architect and surveyors fees are also allowable.
Bank, credit card and other finance charges including overdraft charges, hire purchase interest and lease payments.
If the expense relates to business and personal cost, only the business cost is deductible but also if the expense is dual purpose then no deduction is allowed. Always remember to keep detailed records of your transactions and keep copies of receipts and invoices as back up (these can be the originals or scanned copies on your computer).
Rebecca Taylor
Business Accountant 