QUESTIONS:

• Q50: We are attending a meeting with our accountants this week and I wanted to try to clear something up. I am a retired Director of a company in London whose MD is now running a new idea past me that does not really make sense. He explained that by not declaring a dividend until April 2007 tax does not need to be paid until 2009. He has suggested extending a Director's loan to cover the amount and put off declaring any dividend until that time. What are the overall advantages of this? - I understand that it is nice not to have to pay tax for a while however it seems just to be putting it off and then getting hit by a massive tax bill in 2009!! Any help would be greatly appreciated as I am not the most 'savvy' person when it comes to figures.
  
  
• Q49: My company is currently under investigation from HMRC for 2004/05. I have given them all information they have asked for but they say they need to interview me to understand how my company operates. My accountant declined the offer at first, saying I was a busy man and we could answer any questions in writing. My accountant didn't fill me with confidence so I sought independent advice from a local consultant. His advice was to refuse to the interview at all costs. Then we received a second letter asking again for the interview, which we again declined. We have just received a third letter, and my accountant wants me to talk to them because in his experience this prevents any deeper investigation and a deal can be done. However, I'm worried that I will say something by mistake. The issue is with employment status of sub-contractors. Should I hold out or speak with them?
  
  
• Q48: Myself and two of my business partners have been running a business online since January this year. We have made £250,000. We have not declared any of our income to the Inland Revenue. We would like to come clean with the Inland Revenue. Will we receive any penalties?
  
  
• Q47: My husband, children and I have been living with my mother for the last 5 years. It was only a temporary arrangement at first. Now my mother is 74 and has made it clear she does not want to go back to living on her own, or end up in a nursing home. She has suggested selling the house to us under its market value, so we can afford it. She would benefit from the money and by knowing we will be there in her later years. The house is worth around £140,000 but in a bad state of repair. She has suggested we buy it for £50,000. We would need to borrow another £40,000 for the repairs and an extension as we are a bedroom short. When completed the value would be around £200,000. Obviously, this makes great financial sense for us as, but I am concerned about Capital Gains Tax (CGT) and Inheritance Tax (IHT). I don't where we would stand on either. Any advice would be greatly appreciated.
  
  
• Q46: My wife and I are buying a property to live in. We have been told that we should become tenants in common as opposed to joint owners. Is this good advice?
  
  
• Q45: My partner and I set up a limited company a couple years ago. The authorised and issued share capital was £10,000 split between the two of us. My accountant is telling us we have to pay a Section 419 assessment on the directors overdrawn account. The entries in our books were debit to directors loan and credit share capital when the shares were issued for no consideration. How can we avoid paying this as we have not physically taken any money out of the business. Help!
  
  
• Q44: I do hope you are able to help shed some more light on the 'gifts that are part of your normal expenditure' stated in most IHT Gift Exemption Guides. I am assuming that 'after tax yearly income" includes, yearly interest on capital (i.e. interest on savings accounts, investments etc), as well as pension received. My mother wishes to gift some of her income to us on a regular basis which will not impact upon her normal standard of living. By gifting some or all of the yearly interest on her accounts she will also not increase her capital any further. Is there any more information available on this rather 'woolly' guidance.
  
  
• Q43: Is it possible to borrow against investments held in an AIM Portfolio plan? A woman aged 88 was widowed last year and inherited the family home. It has now been sold for £560k and she is in a retirement home paid for out of various widow's pensions. She also has her own investments broadly equal to the nil rate band (NRB), and first call on an NRB Trust set up under her late husband's will, so is financially secure. She cannot get a discount in a discounted gift trust scheme on account of her age, so is considering an AIM share portfolio (life expectancy at 88 is around 4 years so this is well worth doing). She would also like to gift the house sale proceeds to the adult children. Could she borrow against an AIM portfolio to do this and would it be effective for Inheritance Tax (IHT) mitigation? Will anyone write such a plan? Is there any other way of achieving this end?
  
  
• Q42: My wife and I have decided to leave the UK permanently and move to warmer climes. We jointly own investment properties, which are standing at substantial gains. We plan to keep our home for the time being while we arrange for the disposal of the other properties, and will probably give the house to our adult children. Will we be able to sell the properties without paying any capital gains tax?
  
  
• Q41: I have not been interested in serious pension planning until now because of the restrictive and complex rules regarding earnings, age, contribution rates, and permissible annuity calculations. I understand that the rules are changing from April this year, and I wondered if I should be re-thinking my attitude. In what ways are the rules making it more flexible for me to plan for my retirement?
  
  
• Q40: During the course of our company year just ended, both directors ran up loans from the company of exactly £5,000 each. Our understanding at the time was that there were no tax implications (personal or corporation tax) as long as we paid them back within a certain period. Is this correct? If not, what taxes might be due? If it is, how long is the 'certain period'? Can the loans be taken out again when repaid, and if so, how quickly? I realise that it is common for these types of loans to be converted to dividends, subject to subsequent 19% corporation tax and possible income tax for higher rate payers, but I would rather just leave them as is.
  
  
• Q39: My wife and I own a shop worth £75,000 let out at £7,500 per annum. I planned to transfer this to a new company, at value, and withdraw the capital over the next ten years, then transfer shares in the company to my children over a few years. I had planned to retain all income in the company until I had withdrawn my capital. As I would take no income I assumed no personal tax liability, and as all profit would be retained in the company until the capital was repaid, I assumed no company taxes either. Does Gordon Brown's proposed abolition of the Corporation tax exemption of £10,000 for small companies mean that before taking out my capital I would now have to account for corporation tax on the rental income or can the return of capital be seen as a business expense and therefore offset against any tax liability within the company?
  
  
• Q38: I operated my electrical retail business as a sole trader for many years until 31 December 2003. The business was then incorporated by transferring it to a new limited company set up by my accountant at that time. He advised me to sell the business goodwill to the company for a substantial sum. He said that I would pay tax at 10% on the sale, but that I would be able to draw the sale proceeds out of the company over a number of years without paying any tax. He also said that the company could claim a deduction for the cost of the goodwill. The tax authorities are now saying that the company paid too much for the goodwill, and that I may have to pay extra tax. Did my ex-accountant give me wrong advice?
  
  
• Q37: I have not declared any income for the last 5 years, or paid any tax or National Insurance contributions, from a small home-based business part-time that I have run. I have studied concurrently for the last 5 years. I hope to operate this business on a full-time basis soon. Is there any chance that HM Revenue & Customs won't ask questions about my history when I declare myself 'newly' self-employed or is that purely wishful thinking? Any advice other than 'own up' would be greatly appreciated.
  
  
• Q36: I have been a company director and 50% shareholder for many years. The company owns a chain of mini-supermarkets, which has been trading very successfully. We have not withdrawn all the profits the company made, as we had no particular need for all the income. Consequently, the company has quite a large bank balance. We have recently received an offer for the company. I understand that if we sell the company’s shares, the capital gains tax rate could be 10% with full business asset taper relief. However, our accountant tells us that the surplus cash at bank could jeopardise the taper relief. Is this the case?
  
  
• Q35: I am a director and 40% shareholder in a precision engineering company. There are two other director shareholders, who own 40% and 20% respectively. We formed the company together, which started trading in 1995, and has been fairly successful. Currently it is worth around £1.5 million. I no longer get on with the other director shareholders, and would walk away from the company if I could get a fair price for my shares. Should I ask the other shareholders to buy my shares? What if they don't have enough money?
  
  
• Q34: I need some inheritance tax (IHT) advice. I am 76 year old widow, and I understand that the value of my estate means that IHT will be payable when I die. My only son owns a trading company, which needs money to expand. I have already provided for him in my Will. However, is there anything I can do in my lifetime to help him and his business? Should I gift money directly to him, or put money directly into his company?
  
  
• Q33: We set up a company three years ago and use part of our house as an office (for four people). We now need to do some renovation and extension to this home office (renovation to existing office and extension that will be used half as personal dining room half as business meeting room), costing £30,000. Can we claim a corporate tax deduction on building costs of this work without taking the risk of being liable for capital gains tax (CGT) when selling the house?
  
  
• Q32: I understand that in most cases properties are held as tenancies in common to take advantage of the nil rate band of £263k. However when the assets involved are considerable (several millions), to ensure a smooth and most tax-efficient transfer from husband to wife, should this still be the case or should the majority of assets (properties) be held as joint tenancies?
  
  
• Q31: Several years ago I entered into a “Double Trust” estate protection scheme to take my house out of IHT. I understand that this has now fallen foul of the new pre-owned assets tax. Should I elect to have the house treated as part of my estate?
  
  
• Q30: I am currently employed earning £30,000-35,000 a year. However, I am looking to start a business with a friend who is already registered self-employed. We are unlikely to make over £55,000 in our first year and I would like to know what the best route to take is i.e. whether we open as a limited company or not?
  
  
• Q29: Could you tell me please if a Discretionary Will Trust only applies to married couples? We are an unmarried (or common law) couple who wish to use a Discretionary Will Trust if possible but cannot see where this is defined.
  
  
• Q28: One of our non-executive directors also provides professional consultancy services to the company. It has been suggested to us that we should be applying PAYE and NIC to all of the payments we make to him for the work he does for us. Is this correct? What difference would it make if we paid him through his limited company?
  
  
• Q27: I am approaching the end of the first tax year with my limited company. Out of necessity, I have been transferring as much money as possible each month from the company account into a personal bank account. I have been taking a nominal salary and paying NI on this each quarter, as well as paying VAT each quarter. I have the following questions: 1) Will the money I have been transferring out each month be considered as dividends for tax purposes?; 2) If so, is it true that whereas money left in the company account attracts 19% tax, the dividends will attract 40% as I am a higher rate taxpayer?; 3) I have taken out about £100,000 in this way – is it possible to borrow this money short term to put back into the company account for the year end?; 4) How will the tax man view all this?
  
  
• Q26: I have just joined a business as a director, and all the staff etc have also transferred from my previous trading company. However, my previous company, in which I owned a 75% shareholding, still has approximately £40,000 in it. What is the most tax-efficient method of withdrawing this cash for myself? I don't think we can close the company, since we are waiting to see if one of our clients who owes £50,000 and is currently in administration, will be able to pay us the money owed.
  
  
• Q25: I own a house which I currently live in with my wife. I also bought a property a few years ago as an investment. I now want to sell both properties to invest in one single larger one. Do I run the risk of paying a large amount of tax on this?
  
  
• Q24: I operate a limited company as a professional adviser. My business operates from home in a dedicated office - with some private use as well. In the company's 2003 accounts, my wife and I jointly charged the company £9,000 rent for this use of home as office which we have disclosed separately in our individual tax returns - and paid income tax on as appropriate after claiming relevant deductions. The company has not claimed any tax deductions for a proportion of utilities/council tax/home telephone - it is bundled up as part of the overall rent charge. The rent charge (£750 per month) is commercially justifiable in view of the value of the property where I trade from and what I would have to pay if I had to lease other premises. Can my company claim a corporation tax deduction for rent paid? Particularly as we have paid tax in our personal capacity on rent received? Plus are there any National Insurance implications I should be aware of?
  
  
• Q23: My company recently issued a few shares at par to an employee. As the shares only represent about 2% of the company's share capital, my accountant took the view, taking into account the discounts appropriate for minority shareholdings, that the shares had little value and a benefit in kind charge on the employee could only be minimal. Inland Revenue Shares Valuation, however, say the shares must be valued on an "investment basis" by discounting a comparable quoted PE ratio. This produces a much higher valuation and potential tax liability. Are the Inland Revenue correct?
  
  
• Q22: I have read about the new 'Pre-Owned Assets' Tax that has recently become law, and wondered: 1) what Inheritance Tax planning options are still viable generally; and 2) what can be done specifically for someone who has a valuable family home?
  
  
• Q21: I have just started a taxi business. I borrowed £5,000 from a friend (an interest-free loan, which I repay when I can) to buy the vehicle. Can I claim capital allowances on the cost of the vehicle? Can I claim anything for the loan? As regards expenses, can I claim a mileage allowance (and if so, how much?) or do I need to keep petrol, oil etc receipts and claim actual expenses against takings?
  
  
• Q20: I am a 40% taxpayer in my ‘full time' job and have also set up a small PC repair business. I have registered for Class 2 National Insurance contributions and have registered as self- employed with the tax office. My self-employed business is going to lose money this year. Can I claim this as a loss on my tax return and offset it against the tax I have paid in my full time job?
  
  
• Q19: What significant tax changes have taken place affecting small businesses, following the announcements in Budget 2004?
  
  
• Q18: I am a self-employed professional, earning about £35,000 per annum from consulting services. I pay 40% tax on all this, as I also have a £40,000 pension. My wife is a housewife with no significant income. If she and I formed a consulting partnership, are there rules about how the partnership profit must be divided? Obviously I would like the bulk of the profit to go to her, so that income tax is only paid at the basic rate. However, she would not be able to take anything other than a trivial role in the partnership, such as taking occasional telephone calls and opening letters, so that actually all the income would be generated by myself.
  
  
• Q17: I am considering selling a rental property. I acquired the property for £70,000 in April 2000, and it is currently worth approximately £150,000. Please can you tell me if this qualifies as a business asset under the taper relief definition (I have two other properties currently rented and will be acquiring more, so I view this as a business from a layman's perspective)? The beneficial treatment versus non-business asset is obviously desirable.
  
  
• Q16: Are there any recent developments involving working from home and tax related issues?
  
  
• Q15: I recently started a small, part-time business from home. Do you have any potentially suitable tax planning ideas that I could use?
  
  
• Q14: My wife and I are worried about Inheritance Tax (IHT). Our accountant has suggested creating a trust for family members, but we would like to make direct gifts to our adult son and daughter, particularly as our son has recently started a transport business. What are the IHT implications?
  
  
• Q13: I sometimes carry out work for my business at home. Can I claim part of my property running costs?
  
  
• Q12: My Husband and I live in a property worth £175,000 (held in my name). We are considering buying my elderly father, age 90 a retirement property, worth about £150,000 and would finance the purchase partly from savings and partly a Halifax mortgage. We were concerned about the possible Capital Gains Tax and Inheritance Tax implications. We would continue to live in our present property. Can you offer any advice, please?
  
  
• Q11: I am considering investing in UK residential property. Someone told me that it could be tax efficient to set up a limited company, instead of owning property personally. What are the main tax implications?
  
  
• Q10: Have any recent developments taken place in the tax world in connection with working from home?
  
  
• Q9: In a previous 'Tax Doctor' (Tax Doctor 4), you mentioned that it can be possible for a small family company to spread income between husband and wife in order to reduce their overall tax bill. For example, shares could be gifted from one spouse (paying higher rate tax) to the other spouse (who is not), enabling dividends to be paid to both spouses. However, I have subsequently read a newspaper article about the Inland Revenue attacking such arrangements. I am concerned because I propose to gift some shares to my wife. Should I now abandon this idea?
  
  
• Q8: I want to start a small business buying items at car boot sales and selling them over the internet, i.e. via a website or auction site. However, it is simply not practical to ask 'car booters' for receipts in respect of trivial amounts, and many do not carry receipt books anyway. How do I prove to the tax man how much I paid, or is there a way around this? How long must I keep any receipts I do manage to obtain?
  
  
• Q7: I understand that it can be beneficial for tax purposes to start a new business venture through a limited company, run the business profitably for two years and then sell it. Is this correct?
  
  
• Q6: I am a self-employed individual with my own home. I recently bought a second residential property (financed by a loan) as an investment. What are some tax considerations of owning a second property?
  
  
• Q5: What is 2003 likely to have in store for taxpayers and for small businesses in particular?
  
  
• Q4: As a director and shareholder in a small limited company, I am in the 40% tax bracket. However, my wife has zero income. Is there a tax-efficient way to spread income (i.e. payments of bonuses and share dividends) between us?
  
  
• Q3: I make a profit of around £30,000 a year (before drawings) as a sole trader. Normally, I draw all of this for my living expenses etc. Would I save tax if I incorporated the business? And, if so, what about the higher national insurance contributions and audit fees etc?
  
  
• Q2: My girlfriend and I have lived together for several years and she helps me with my business on an informal basis. She doesn't have any other earnings. I operate as a sole trader and I make about £18,000 a year profit. I would like to pay her about £100 a week, and I wonder if it would be more tax-efficient to employ her or to make her a partner of the business?
  
  
• Q1: I have recently started a small business from a spare bedroom at home. Can I claim tax relief on a proportion of my home running costs, and if so, how do I work out the deduction? Are there any points I have to watch out for?
  

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