Archive for September, 2018

Powers of attorney

Thursday, September 27th, 2018

As we will possibly live on until our 80s and beyond, and as that may involve coping with disability of one form or another, the need for consideration of support as we get older is ever more pertinent.

Readers will no doubt have heard the term “power of attorney”, but not many, we suspect, will have made the investment and appointed someone trusted to act as their representative if they become physically or mentally unable to look after themselves in old age.

If you did become infirm and unable to make sensible decisions about your health care or finances, and you had not appointed a lasting power of attorney (LPA), then management of health care and finances would pass to your doctors and the Court of Protection. Whilst these two outside-the-family institutions will no doubt try their best on your behalf, they may not do so in accordance with your wishes, or the wishes of your close family.

There are two types of LPA that will deal with:

1. Health and welfare, and

2. Property and financial affairs.

You can complete the forms to apply for the two types of LPA with the Public Guardian’s office, without professional assistance, but we suggest you invest in the required legal advice as part of a wider consideration of tax and inheritance issues.

LPAs, if properly considered, will give both you and your family a clearly defined structure to work within should you become incapacitated in old age. And as you would expect, you need to be able to demonstrate that you have the mental capacity to make you own decisions when you make an LPA.  

Cash is king

Tuesday, September 25th, 2018

If the present wrangling over the terms of our exit from the EU result in terms that disadvantage UK businesses, what can we do now to protect our hard-earned business assets?

It is difficult to make this call as negotiations could drift in either direction: a continuing trade agreement or a so-called “hard-Brexit”.

No-one can say what trading conditions will be like from April 2019, but it is likely that perception will rule the roost. If uncertainty continues to cloud the debate, and there is no sign of resolution on the political front, opportunists, those brave, and some would say reckless, few will be on the lookout for ways to profit from any downward trend. For the rest of us, we need to consider our options, and quickly.

What could we do?

As the title of this piece suggests, we could add fat to our balance sheets by improving cash flow, cash is king.

How to do this:

•    Examine your options if you are registered for VAT. There are schemes that determine liability based on monies received and paid rather than sales and purchases invoiced. Why pay VAT if it is tied up in debtors: money owed to you? There are turnover limitations, but worth considering if these don’t apply.
•    Determine how many days credit you are giving to customers and aim to reduce these. Bad payers can quickly become bad debts if economic activity slows down. If customers are bad payers, what they are doing is using your money to underpin their cashflow.
•    If you buy production goods from the EU consider increasing your stocks, or better, discuss setting up stock-holding facilities for your EU suppliers. Perhaps you could find space for them and they would provide stock on a sale or return basis?
•    If you sell goods to EU suppliers adapt the previous strategy in reverse?
•    Release working capital from obsolete or slow moving stock by offering to customers at reduced prices, a late summer sale?

Every business will have different opportunities to ready themselves for the changes next year. There is still time to consider your planning choices. Please contact us if you would like our help in considering your options.

Selling the garden shed?

Thursday, September 20th, 2018

When you are selling your home, you are likely to be selling a range of fixtures and fittings. For example:

• White goods, washing machines, fridges, cookers etc,

• Furniture,

• Carpets,

• Curtains,

• Garden equipment,

• Leisure or fitness equipment, jacuzzi etc,

• And the garden shed.

If identified in the sale contract, any value attributed to these personal assets, or chattels, will not attract a stamp duty charge for your purchaser.

Accordingly, if you are selling at a value that just tips your property into the next band for stamp duty purposes, being able to allocate part of the price to stamp duty free “chattels” may provide an incentive to buyers to make an offer.

What you cannot do is allocate an arbitrary amount when pricing up your list of exempt fixtures and fittings. You will need to base your valuations on the cost price. Unless you have a very special garden shed, valuing it at say £5,000 to avoid stamp duty would beg the unwanted attention of HMRC, who would rightly see the transaction as tax avoidance.

Selling personal, home based assets in this way should not create any other tax issues, capital gains tax for example. You do not need to declare any gain on the sale of a personal chattel if the disposal proceeds do not exceed £6,000.

Talk with your selling agents as they should be able to help you draw up a realistic, costed list. 

Evidence or assertion?

Monday, September 17th, 2018

In a recent tax case, three taxpayers asserted that cleaning costs of work clothes amounted to £2,200 a year and HMRC disagreed.

The facts were compelling. Each of the appellants worked in the drainage or sewage industry and to maintain personal hygiene they washed work clothing on a daily basis. Why shouldn’t they claim for the costs of keeping their work apparel clean?

Claims were based on the purchase of sanitising and washing products, wear and tear on their home washing machines and an apportioned cost of home electricity charges. Importantly, no receipts were kept.

To succeed in their tax claim, the appellants needed to satisfy three criteria:

1. That the amounts claimed were actually paid by the claimants,

2. That they were obliged to clean the clothes by their employers,

3. That the amounts incurred were wholly and exclusively laid out for the purposes of their employment.

The First Tier Tribunal did not see any evidence that these three criteria had been met and they dismissed the claims. What they did agree, was that each appellant could claim the HMRC’s £60 maximum cleaning allowance.

What this case illustrates is the importance of keeping evidence of expenditure. For example, keeping supermarket bills with the cleaning products highlighted. Electricity is more difficult as even if meter readings were taken when the washing machine was running it would be difficult to prove that no other appliances or lighting were also switched on at the same time.

Wear and tear of the washing machine would be impossible to claim, Its use would always fail as it was partly used for personal cleaning purposes – in other words the cost of the machine was not incurred wholly and exclusively for the purposes of their employment.

To stand a reasonable chance of success in their claim, it would appear that each would need to:

• keep receipts for the purchase of cleaning products and somehow restrict its use to work clothes only,

• meter the electric supplied to the washing machine,

• install a washing machine that was only used for cleaning work clothes, and

• make sure that their contracts of employment required that they wash work clothes each day.

As always, the burden of proof is on the taxpayer and evidence is the key to a successful claim. However reasonable the assertion – who would not want to wash their work clothes each day if required to crawl through sewers – without proof that expenditure qualifies, a claim is likely to fail.

Self employed liability

Thursday, September 13th, 2018

If you are a sole trader, or in a basic partnership, and if your business gets into financial difficulties, any liabilities that cannot be covered by the disposal of business assets may have to settled out of personal assets.

In accountancy speak, you have unlimited liability; there is no protection for your personal assets.

You have options. 

The Office for Tax Simplification has suggested, welcomed, the idea that sole traders can elect for a form of limited liability status that will allow them to protect their homes from any claim by business creditors. At present, this is pure conjecture. Mr Hammond may introduce this option in the forthcoming Budget later this year, we will have to wait and see.

Alternatively, sole traders – or those in an unlimited partnership – could form a Limited Liability Partnership (LLP), but in the case of sole traders they would need a partner to do this.

Finally, sole traders or those in a partnership could incorporate their business, convert to a Limited Company status.

The last two options will create additional compliance costs: LLP and Limited Company accounts have to be drawn up in a statutory format and filed at Companies House and tax planning will need to be reconsidered.

It has always been the case that highly profitable businesses, and businesses where commercial risks cannot be adequately covered by insurance, should consider a form of incorporated status: LLP or Limited Company. Now that the outlook is being clouded by the Brexit issue, the self-employed may like to reconsider their options.

It may well be that what has served you well in the past will do so in the future, but we recommend that you take time out to reassess your risks, just in case there is an argument for change.  

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