Q. I am a VAT-registered sole trader, owning a cycle shop in my local town. I am thinking of opening a second shop in another town and am wondering how I will deal with this for self-assessment and VAT. Will I need to register the new shop for VAT separately and complete two VAT returns – one for each business?
A. I presume you are going to be selling similar goods and providing similar services in the new shop. If that is the case, you will be able to do one self-assessment for the two businesses by amalgamating the figures for both shops. For VAT purposes, the HMRC state that it is the ‘person’, not the business, who is registered for VAT. A person can be either an individual or a legal person or entity and each VAT registration covers all the business activities of the registered person. This means that even if your new business has a different name, you will only need one VAT registration number.
Q. I own a rental property and let it out on a fully-furnished basis. Can I claim a tax deduction for the cost of replacing items as and when needed?
A. The government withdrew the ‘renewals basis’ capital allowance for furnishings in rental properties from April 2013, which means that currently only the 10% wear and tear allowance for a fully furnished rental property is available to you. Note that the wear and tear allowance is not available to those property businesses that rent part-furnished or unfurnished property.
The good news, however, is that in the Summer 2015 Budget the government announced that, as from April 2016, the 10% wear and tear allowance will cease and will be replaced with a new ‘replacement allowance’. Broadly, the new relief will enable all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings in the property. The relief will apply to landlords of unfurnished, part-furnished and furnished properties (but not to ‘furnished holiday lettings’ (FHLs) or commercial properties).
Under the new replacement furniture relief, landlords of all non-FHL residential dwelling houses will be able to claim a deduction for the capital cost of replacing furniture, furnishings, appliances and kitchenware provided for the tenant’s use in the dwelling house, such as:
- movable furniture or furnishings, such as beds or suites,
- fridges and freezers,
- carpets and floor-coverings,
- linen, and
- crockery or cutlery.
The new replacement furniture relief will only apply to the replacement of furnishings. The initial cost of furnishing a property will not be included.
Q. I am a higher-rate taxpayer. My wife currently works part time and pays tax at the basic rate. We have a second property that we rent out but the deeds are held in my sole name. Is it worth putting the property into joint names, or even transferring it to my wife outright, so that we pay tax on the rental income at the basic rate?
A. If you live with a spouse or civil partner and have income from property you jointly own, you will normally be taxed on an even split of the income between you. In your particular circumstances there are two options available:
1. Under what is known as the ’50:50 rule’, you can simply make your wife a partial owner of the property, which means you will each be taxed on 50% of the rental income. For the purposes of these rules, the actual amount she owns is not relevant – it could be 99%, 50% or even 1%, as long as she is a partial owner.
2. You can make your wife a partial owner of the property and notify HMRC of the proportion she holds accordingly. You do this by submitting Form 17 to HMRC to record your actual shares of ownership. You will both then be taxed on the rental income according to the proportion you both actually own in the property (known as the ‘actual basis’). You will need to provide HMRC with evidence that your beneficial interests in the property are unequal, for example a declaration or deed. You can complete Form 17 online here. https://public-online.hmrc.gov.uk/lc/content/xfaforms/profiles/forms.html?contentRoot=repository:///Applications/SpecPersTax_iForms/1.0/17&template=17.xdp