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February Question and Answer Corner

Newsletter issue - February 07.

Q. Can I reclaim VAT on car parking charges without a VAT invoice?

A. Yes you can if it is under £25 apart from on-street meter parking which is outside the scope of VAT. In addition, no VAT invoice is required to reclaim VAT on single transactions under £25 for any of the following...

  1. Phone calls from public or private telephones.
  2. Purchases from coin operated machines.
  3. Road tolls.

Q. We've signed up for a lease and have got a rent free period in exchange for doing work on the building. What's the tax position?

A. Rent paid normally counts as a deductible tax expense but in general improvements of a capital nature to a building will not give you any tax deduction. However, it may be possible to classify some of the expenditure as repairs if it is of a repair nature as opposed to being of an improvement nature and so claim a tax deduction for that. If the building is an industrial building you may be eligible for Industrial Buildings Allowances which will allow you to claim a small part of the cost each year spread over many years. An alternative way to speed up the process of getting a tax deduction is to take the whole amount of rent you will pay over the lease term of say 10 years and divided this by 10 and claim this amount each year including the first year, as opposed to claiming the amount paid each year.

A final option would be to get the landlord to still charge you the rent and then you recharge him for the improvement costs. The landlord will however be in the same position of any improvement costs not being tax deductible and if you are VAT registered you will have to charge VAT which the landlord will only be able to recover if he is VAT registered.

Q. I understand that an effective tax strategy for an owner managed company is for the director to take a low salary with minimal national insurance and to take everything else in dividends. However, is there not a problem with the minimum wage legislation?

A. The Taxman has made it clear that the minimum wage legislation only applies when there is an explicit contract of employment between the company and the director. Therefore, to avoid the minimum wage legislation it is simply a case of ensuring you do NOT have such a contract in place. In most small companies this would be the position anyway. When adopting this strategy you must ensure proper procedures are followed when paying dividends or there is a risk of it being attacked by the Taxman. It's also the case the the minimum wage legislation doesn't apply to family members but in the case of a Limited Company it does not have any family members and so to keep the salary of a spouse at a low level you should consider making them a director.