November questions and answers
Newsletter issue - November 2019.
Q1. I have recently started running my own business providing training services. HMRC have advised me that VAT is not charged on the type of services I am providing. Does this mean that my services are zero-rated for VAT or actually exempt? Do I need to register for VAT?
A. Although both zero-rated and exempt supplies result in no VAT being applied to the supply, the consequence is very different between them and it is important to get it right.
Zero-rating is a rate of VAT, albeit at zero per cent. The goods and/or services to which it applies are taxable supplies. This in turn renders any supplier of zero-rated goods and/or services liable to register for VAT, where appropriate (see the GOV.uk website at https://www.gov.uk/vat-registration for further information on registration). The advantage of VAT registration is that VAT can be reclaimed on costs. However, a business making solely exempt supplies is not making taxable supplies, so cannot register for VAT. Consequently, all VAT incurred upon expenditure becomes an additional irrecoverable cost. Where a supply could be either zero-rated or exempt, zero-rating will take priority.
Q2. I am a company owner and employer. One of my key employees has recently become ill and requires medical treatment. If the company pays for the treatment directly on her behalf, will the employee have to pay tax on it?
A. Expenditure by employers on medical treatment for employees is generally chargeable to income tax either as a payment of earnings or as a taxable benefit. However, an exemption from income tax applies where an employer funds recommended medical treatment where the recommendation itself meets certain specific requirements. This means that expenses incurred by an employer to cover medical treatment which is recommended to an employee for the purposes of assisting the employee to return to work after a period of absence due to injury or ill health should not be treated as a chargeable benefit on the employee. The exemption applies to expenditure up to a cap of £500 per tax year per employee.
Further information on this subject can be found in HMRC's Employment Income Manual at paragraph EIM21774.
Q3. I have recently purchased three properties which I intend to rent out. I envisage that I will need to spend a considerable amount of time each year undertaking various necessary repairs. Can I pay myself say, an hourly rate, for the time I spend on the properties and claim a corresponding deduction against my rental income?
A. Any amounts taken from the property rental business will simply be viewed as a withdrawal of profits from the business and taxed accordingly. The HMRC Property Income Manual at paragraph PIM2210 states:
'A landlord can't deduct anything for the time they spend themselves working in their own rental business. They can deduct any wages or salaries they pay to their spouse, civil partner or other relations for working in the rental business provided the amounts paid represent a proper commercial reward for the work done. The spouse, civil partner or relative will be taxable on their earnings if their income is large enough.'