April Questions and Answers

Newsletter issue - April 2015.

Q. My personal company operates from a little brick building at the end of my garden, which is heated with a portable gas heater. Can the company pay me for the cost of the gas bottles used for that heater, on top of the "use of home" allowance of £4 per week?

A. The company can pay you the actual additional costs for using your home for business purposes instead of the £4 per week working at home allowance. You would need to record and calculate the additional running costs you incur for using the brick shed, but we can help you with that.

Alternatively, the company could pay you rent for the shed including an amount for heat and light, but you would have to declare the rent received on your personal tax return. This arrangement could also have implications for the tax due when you sell the whole property. We need to talk through the details.

Q. Which is cheaper: the company to take out a corporate health insurance policy for its employees, or each employee to take out personal health insurance policies and the company to pay the policy premiums on behalf of the employees?

A. Generally, a corporate health plan is cheaper than several individual health plans, but that would depend on the number of employees involved and their ages. The cost of the corporate policy must be divided between the employees covered and reported as a benefit in kind on their P11D forms. The company will pay class 1A national insurance contributions (NIC) at 13.8% on the value of the P11D reported benefit, and each employee will pay income tax on the reported value of the health plan.

If the company pays the premiums for the personal policies of the employees, those amounts are taxed as additional pay of the employees. Thus the company must pay class 1 NIC due from employers at 13.8%. The employees must pay income tax, as well as the employees' NIC at 12% on the amount paid for the policy premiums. The employer's class 1 NIC may be off-set against any available employment allowance (worth up to £2,000 per business) for the year.

Q. I started trading as a hairdresser nine months ago and have made sales of £66,000 so far. I'm worried that I will have to register for VAT soon and lose 20% of my income directly to the taxman. What can I do?

A. The VAT registration threshold increased to £82,000 with effect from 1 April 2015. This is the maximum total sales you can make in any 12 month period before you are required to register for VAT. On your current sales pattern you will exceed the VAT threshold within the next three months.

Other than reducing your sales to keep the total below £82,000, perhaps by taking a break from work, there is nothing you can do to avoid the need to register for VAT. However, once registered you can reclaim VAT on things you buy for your business such as hair dyes, scissors etc. In your first VAT return you can also reclaim VAT charged on any services you used for your business within the six months ending with the VAT registration date and on goods purchased in the four years ending with the date of registration, as long as you still hold those items at the registration date. It is essential that the right VAT registration is entered on the VAT application form, we can help you with this.