Frequently Asked Questions
I have a second home in Cornwall
which I use privately for holidays and I also rent it out to
holidaymakers. What is the tax position?
There are two aspects to consider - the rental income and the
tax-allowable or permitted expenses. In broad terms, tax will
be due on the difference between these two.
Rent received
Any rent the owner recieves from the tenant, whether
their tenancy is short-term or long-term, must be declared
to HM Revenue and Customs (formerly HM Customs and Exceise and
the Inland Revenue).
Expenses Incurred
Expenses will be incurred through ownership
of the property and some of these expenses can be deducted
from the rent received. Permitted expenses usually include:
- Gardening
- Council Tax
- Heating and lighting costs
- Letting Agent's fees
- Accountancy fees
- Repairs to the property
Any interest paid on a loan to buy the property will usually
be treated as a tax-aallowable expense. A reduction to the amounts
of expenditure claimed might be needed to recognise any periods
when the owner uses the property for their own occupation.
Holiday Letting
If certain conditions are met, HM Revenue and
Customs allow some rented-out properties to be designated as
'holiday lettings'. These conditions include the maximum amount
of time the property can be let to any one tenant. If the conditions
are met, the holiday letting can be treated as if it were a
trade and so qualify for such items as business asset taper relief
which can promote significant tax savings.
If you are thinking of buying a second property, contact us
and we will be happy to advise you on the tax position.
What is the difference between an Accountant and a 'Chartered'
Accountant?
There are many different types of accountant who can act for
small businesses.
Legally, there are no resetrictions preventing anyone setting
up an accountancy practice or calling himself or herself 'an
accountant'.
When engaging an accountant to act for your business, you need
to ensure that they are appropriately qualified. The main accountancy
qualifications are Chartered Accountants (ACA), Chartered Certified
Accountants (ACCA), Chartered Institute of Management Accountants
(CIMA) or Associate of Accounting Technicians (AAT).
What do these mean?
By holding one of these qualifications, the individual demonstrates
that:-
- They have obtained a minimum standard in passing entrance
examinations;
- They hold professional indemnity insurance;
- They are committed
to maintaining their professional knowledge by undertaking
continuing training; and
- Their practice work is monitored for
its quality by the professional body to which they belong.
An unqualified accountant may be able to charge lower fees but
probably won't be able to meet the standards of a qualified accountant
Any saving you make on fees might prove expensive in the long term.
Can I claim back the VAT on entertaining my clients?
Many businesses will incur expenditure on entertaining clients
and suppliers. The question that often arises is whether the
VAT incurred can be claimed back.
The VAT guidance is set out in the Revenue & Customs leaflet
700/65. This states that you cannot claim back VAT on entertainment
if it is provided free to non-employees and it is entertainment.
Entertainment is only loosely defined but would include meals
out and trips to a cinema, theatre or sporting event. So if,
for instance, you take a client to a football match and for a
meal, you could not claim back the VAT on that expenditure.
What about an employee-only event?
You can generally claim back the VAT on these events. For instance,
if you send your employees on a training day or a team-building
day, you can normally claim the VAT back on that expenditure.
However, if the entertainment is provided only for directors,
partners or sole proprietors of a business, you cannot claim
back the VAT.
If employees act as hosts to customers, these costs are considered
to be for the purpose of entertaining. The input tax cannot,
therefore, be claimed back in these circumstances.
VAT on entertaining expenditure is both a complex and a vague
area. If you would like further help and guidance, please do
not hesitate to contact us here at Appletons Accountants.
If you have any questions you'd like to add to the list below,
send them in and we'll include the best ones...
* What is the difference between 'tax avoidance' and 'tax evasion'?
* Accountants are expensive aren't they? Can't I save money doing my own book-keeping?
* How many miles do you need to do in a year to make a company car worthwhile?
* My solicitor does Wills. Why should I go to you when I can go to him?
* My partner and I have been together now for forty years. Would we be better
off getting married (assuming the bill for the event is under £1000!)?
* I really hate filling in forms. I hate my tax return. My stomach turns every
time I see the ad on the TV. It stresses me out. What can I do?
