The Fizz! Blog

Made any big donations since 6 April?

We've written before about the Gift Aid box when you make a donation, what it means, and - amongst other things - why anyone with income that takes them into higher rates of tax should include the donation on their tax return.

Ordinarily, you'd just include donations made in the year in question on your tax return. In fact, there's an alternative option, which is to "carry them back" and include them on your tax return for the previous year, if you've not yet submitted it. Generally, it's not worth the hassle - if you're donating on a regular basis and your income doesn't vary wildly year-by-year, who cares if a £10 a month donation saves you tax this year or next year? It's not worth the hassle of keeping track of what's been carried back and making sure that you don't claim it again next time, and waiting to file your return at the last minute so as to carry back as many donations as possible.

However, this year there are likely to be a lot of people who made unusually large donations in the early part of the tax year, for obvious reasons. If you donated a one-off £1,000 in mid-April, say, as a higher-rate taxpayer you're going to get £250 knocked off your tax bill. So the amounts involved start to become a bit more interesting, and you might well consider carrying the donation back and sticking it on your 2019-20 return to save the tax early.

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"Should I put this new sideline through my limited company?"

Pretty often, someone tells us about a new activity that they've started engaging in to make a bit of money on the side. They wonder whether they should channel the income through the limited company they make their main living from, or if they should keep it separate.

In most cases, there are three big picture factors to think about.

First, there's a fundamental elegance to having all of your income going through the same vehicle. One of the benefits of a limited company is that you can chuck all sorts in revenue in, and draw your income out in a steady manner - that way, you can plan your income and tax bills, smooth out variable business profits over the years, and perhaps build up a safety cushion for the future. If you have multiple personal sources of income, things are a bit trickier. So the default is to stick everything through the company, and it's virtually always possible to do that.

However, then you have to think about VAT. If your company is VAT registered, its new sideline is going to be VATable too. That's fine if it's a business-to-business sideline - most likely the customers won't care if you add VAT to your prices. If it's business-to-consumer, though, the customers will care - the VAT is a real cost to them. So you're going to have to suck it up and pay the VAT out of the selling price, meaning 1/6th of the income going straight to HMRC before even thinking about corporation tax. So, for a B2C sideline, you might decide to operate as a sole trader. If you want to do that, though, the businesses really need to be kept separate (i.e. separate customer invoices, getting paid into a different bank account, keeping separate records, placing separate orders for any materials etc), to reduce the risk of HMRC successfully arguing that it's really just one big VATable business.

Finally, there's the trading allowance. For the last few years, sole traders have been able to claim a flat deduction of £1,000 in place of actual costs in order to work out their taxable profits. Your limited company won't get that deduction, it must claim actual costs, and maybe there aren't many of those. So you might want to keep the sideline as sole trader income; if it's under £1,000 you don't have to report it to HMRC at all.

Obviously, there are other factors too - and if it's not a sideline but a real business you'd certainly consider it in more detail. But for anyone trying at present to boost their income just a little bit, those are the first three things we'd think about. And that's a conversation best had before the sideline kicks off - if you've already agreed a contract or sale with a customer as a limited company, you can't just change your mind later!

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Furloughed staff with company cars

If you’ve a company car, you pay tax for the privilege.  That privilege is quantified based on the list price and emissions figure of the vehicle, and you pay tax on it via PAYE or Self Assessment.

There are a bunch of people with company cars that are getting little or no use are the moment, because the people have been furloughed.  Do they still have to pay tax on the privilege?  Fundamentally, yes.  The tax bill arises because the car is available for private use.  Even if there’s absolutely no business use that remains the case – and even if there’s no private use that remains the case too, as it’s still available for private use.

If there’s someone on furlough who has absolutely no use for the car and wants to avoid paying tax on it whilst it’s sitting idle, then you need to make it completely unavailable for private use, and document what you’ve done.  At the very least you’d want to formally document the fact that use of the car was forbidden for the furlough period, and a disciplinary offence, and document the mileage before and after.  And you’d probably also want to actually physically take the car away from the person too.

On top of that, for any period of non-availability to reduce the tax payable, it needs to be for at least 30 consecutive days – so for someone on furlough for three weeks, say, there’s nothing that can be done.

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