Those who take part in the Olympic Torch relay can buy their Olympic Torch as a commemorative keepsake for £215 .
A number of Olympic Torches have been put up for sale on online auction websites, however torchbearers should be careful because where the sale proceeds are above £6,000 the sale will be a chargeable disposal for capital gains tax (CGT).
The amount of CGT will depend on whether the seller has already used their annual exemption (£10,600 for 2012/13) and the amount of their other income (18% rate of CGT for basic rate taxpayers and 28% for higher rate taxpayers).
Those planning to donate the proceeds to charity should be careful because the gain will still be chargeable to CGT although income tax relief may be available for the amount of the gift.
From 2006/07 to 2008/09 the taxpayer claimed a number of expenses as wholly and exclusively for the purposes of trade as a self-employed radio presenter. The expenses claimed included part of her expenses incurred for things such as clothing, cosmetics, hairdressing along with a proportion of her home office expenses. She also claimed travel costs from her home to the radio station as well as food and drink.
When the taxpayer began self employment she had sought the help of two HMRC officers who had advised her on her expenses and what she could claim against her self employment income. In particular she was told that she could claim costs relating to public appearances and that the cost of a meal could be claimed if she was more than 5 miles from her place of office.
Once HMRC enquired into her returns they sought to disallow some of the expenses. Following this, the taxpayer appealed to the first tier tribunal on the grounds that she had been given misleading information by the HMRC officials she had received help from in completing her tax return when she first became self employed.
The appeal was allowed in part for 2006/07 but not for the following years because HMRC’s incorrect advice had been pointed out to her.
The government has made a number of high profile U-turns in recent weeks.
The chancellor has decided to modify plans to impose VAT charges on takeaway food and static holiday caravans, as well as deciding not to introduce a limit on the amount of tax relief that can be claimed on charitable donations.
All three changes appear to have come about directly as a result of considerable public pressure, with the ‘pasty tax’ in particular capturing the public’s imagination. However these U-turns are expected to cost the treasury in the region of £120m in lost revenue.
The pasty tax, as it has now become known, was proposed in order to bring clarity to the VAT position on the supply of baked goods.
However, the proposed changes in the budget appeared to cause more confusion and place a greater administrative burden on taxpayers. The amendments should reduce the burden on those affected, but the recent furore has merely highlighted the discrepancies and complications involved in the current VAT system.
The VAT amendment will mean a rate of 5%, rather than the full rate of 20% being applied to static holiday caravans to ‘reflect their position between permanent residences that are not liable for VAT and other caravans that are liable for the standard rate’.
Cap on Charitable Donations Relief
The above amendments on VAT can be seen to have clear tax and administrative reasons for the U-turns. However the removal of the cap limiting income tax relief on donations to charities to £50,000 appears, on the basis of donation figures, to be as a result of the public outcry rather than based on substantiated facts.
In order to exceed the previously proposed cap an individual would have to make donations exceeding £100,000 in one tax year (assuming they were a 50% rate taxpayer). That is a substantial donation and it is unlikely that the vast majority of individuals could afford such giving in one tax year.
This was confirmed by BBC Radio 4 who conducted a study of the largest charities and found that only around 1% of their income came from donations over £50,000, suggesting that the cap would have had nowhere near the impact on charities’ funding as heralded by the media and various charity lobby groups. It would be interesting to see how many donations charities receive in excess of £100,000, as this was the effective ceiling for donations that was initially proposed.
Whatever your views on the U-turns, it will be interesting to see how the chancellor proposes to fill the £120m ‘gap’.
A recent Eaves and Co project involved helping a client prepare a claim for their Research and Development (R&D) Expenditure. Small and medium companies are able to benefit from a deduction of 200% (2011/12) and 225% (2012/13) of the qualifying expenditure.
The initial stage in the process was determining whether the research and development undertaken qualifies for a claim for a deduction from their taxable profits. In order for the expenditure to qualify, the research and development undertaken must aim to solve a scientific or technological uncertainty and not just find evidence to support previous conclusions. We interviewed the individual who is responsible for R&D and formed a ‘product matrix’ of all the products worked on and why the work qualified as R&D.
Once it had been decided that the client’s research and development qualified for the deduction, Eaves and Co gathered the information required, for example expenditure on gas, water and electricity as well as staff costs and materials specifically relating to the research and development undertaken.
The next step involved determining whether the client would be classed as a large or small/medium company and calculating the tax reduction/saving that they would benefit from. This entailed applying the company in question to the legislation on R&D in areas such as the criteria for small and medium companies and the criteria surrounding the number of employees, and the annual turnover and balance sheet figures.
The final part of the project involved the preparation of the R&D calculations and the supporting paperwork to the claim. This also involved liaising with the company’s accounts department and auditors to ensure that the claim was reported in the correct manner.
On this occasion, Eaves & Co were able to help the client save nearly £60,000 in their R&D claim.
Inheritance Tax is a thorny subject for families and can affect couples with more than £650,000 of net wealth between them (2012/13 rates).
For such couples planning to avoid inheritance tax is never easy because there is a balance to be achieved between maintaining a standard of living through the later years and giving assets to younger generations.
It is never too early to start planning for IHT mitigation; but typically it would be sensible for the process to begin in the late 50s or 60s.
It is important to understand that capital gains tax can often hamper planning for IHT and so succession planning in relation to property, shares and businesses is important if this is to be accounted for.
The first stage of planning is to estimate a family’s current exposure to IHT and if this is material some initial ideas can be suggested. It will become clear to the family which ideas are practical and which are not, and then we can focus on the ones which have a chance of practical success.
For an initial consultation please call Eaves & Co on 0113 2443502 to arrange an appointment. We have much experience in this area of tax planning and testimonials are available on our website.