New queries: 6 June 2019

Game over

Set off of expenses incurred after the cessation of trading.

My client was undertaking some consultancy work through a personal service company. This came to an end during his accounting year ended 31 March 2019. I have some questions relating to costs.

The client will pay professional indemnity premiums for a few more years in case any issues come to light regarding work carried out in previous years. Am I right in thinking that I can estimate those costs and include them as an expense in the March 2019 accounts? I assume that I should include the premium paid in the year ended March 2020 in the 2019 accounts rather than creating a loss and carrying this back?

There are retained profits from previous years. The client was going to withdraw these as dividends during retirement although the tax efficiency of that plan has been reduced by the tax on dividends. I am wondering whether the company could pay a pension premium on behalf of the client in the current year. Again, could the loss created as a result be set against the 2019 profits?

I should also be grateful if Taxation readers have any other tax-efficient suggestions on the use of these funds for the benefit of the client.

Query 19,379– Ender.

Antique claims

Can VAT error be corrected for deregistered business?

I have just completed a final VAT return for an antique dealer who is deregistering. Until alerted by our tax manager, I did not realise that I did not need to declare output tax on stock owned by the business when it deregistered because input tax would not have been claimed on this stock when it was originally bought by the business (under the VAT margin scheme). Fortunately, the error was discovered before I submitted the return for that period.

However, when I reflected on the situation, I realised that I made the same mistake on the final VAT return of another antique dealer I deregistered in April 2016, the VAT overpaid was £3,600 and this return was submitted to HMRC. The business was a husband and wife partnership, and they now live in Spain. I would like to correct the error if possible, or is it a case of the horse having bolted and I cannot salvage the situation?

As a separate question, my tax manager claims that for antique dealers, the £85,000 threshold for MTD is based on the gross sales of the business. However, I am sure that I read somewhere that the profit margin is the relevant figure, which seems sensible because this is what determines how much VAT is paid. Can readers clarify this point as well please?

I look forward to replies.

Query 19,380– Restoration Man.

On the road

Can a flat rate allowance be claimed for subsistence costs?

I act for a one-man limited company and am in the process of preparing the company accounts for the year ended 31 March 2019. The director does a lot of travelling around the country for his work and usually provides receipts for travel and subsistence costs such as meals away from the office. Unfortunately, he appears to have mislaid the receipts for one month.

Rather than estimate a figure based on the other months, the director has asked whether he could just use a flat rate daily amount to cover the costs of meals ‘on the road’. Is this possible or is this, in effect, a round sum allowance?

I phoned the agent helpline but was told they had not heard of such an arrangement. The director tells me he knows of many consultants in a similar situation who have been including expenses on this basis for years.

Can Taxation readers let me know if such an arrangement is possible and, if so, are there any special rules or clearances that must be complied with? And can flat rates apply to other subsistence costs such as hotels?

Query 19,381– Cassady.

MTD or bust?

Can a trader deregister to avoid Making Tax Digital?

I understand that a business with a taxable turnover above the £85,000 VAT registration threshold on 1 April 2019 must follow the Making Tax Digital (MTD) rules and I also understand, broadly speaking, what is included within ‘taxable turnover’. What I am not sure about is how one measures the turnover as at 1 April 2019 in my particular situation.

My business is on the decline as I approach retirement in a few years’ time and, looking forward (as at 1 April 2019), my anticipated annual turnover is likely to be well below £85,000. That said, my turnover for the year ended 31 March 2019 was well excess of £85,000. My next return is due for the quarter to 31 May 2019 for which the turnover will be less than £10,000, but I hope to reach a total turnover of £75,000 for the year to 31 March 2020. I know I could consider deregistration but that is not part of my immediate plans.

May I correctly say ’MTD is not for me’?

Further, and unlikely though it is, what happens if my turnover exceeds my expectations due to an unexpected source of work in, say, October 2019 and this takes my turnover over the threshold – at what point do I have to adopt MTD?

Query 19,382– Fading Fast

Replies

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