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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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. I started a new consulting and investment business this

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Hi. I started a new consulting and investment business this year and have a few of questions on which I would appreciate a clear reply so that I can take any action this week if required. My personal tax is part of the question (I am the sole owner and director of this ltd company).
1. The company has earned interest income but has some small bad debts written off (investments on p2 platforms). Can i reduce such bad debts from interest income for taxation? can I create a provision for losses (based on market norm of 2% of o/s less any bad debts already incurred) to reduce my tax as I do expect bad debts to happen over course of loans (some repaid and some outstanding long term loans) and would like to accrue for it. Pls note rest of my accounting is on cash basis (some invoices of this year will be paid next year and i have not included them in this income this year) though thats not difficult to change to accrual basis. If this question is too complicated, drop it pls as I have time until 21apr (closing date of accounts per HMRC letter to me) to decide on this.
2. I have paid for private health insurance for me (director sole owner) and my wife (consultant to company) from the company. I understand that this is tax-deductible expense in the company but taxable in our personal hands. Correct?
3. I had personally made an EIS investment this year on which I can take 30% tax-deduction on my personal account. However, as I didn't have a salaried job this year and income is booked in my company, I have very little personal tax to set off the EIS deduction which I will lose this year if I don't use it. So i want to create some income in my personal name to not lose this which I can do by transferring salary or dividend from company to me. I have not started a PAYE account in my name so I need to keep salary+health benefit below 473 per month. That leaves dividend which I understand is tax free until my total personal income is with 20% tax band i.e. GBP37865. if that is correct, does this mean that I have to get a dividend of an amount when my total income exceeds 37865 and then calculate tax @40pct for the amount above this to net off EIS against?
4. Finally, I understand that if I buy a car below 95gm/ltr (correct?) in my company name, then i can write off the total cost against company income thereby in effect reducing my cost of acquisition of car by 20%. Also 8-12% (?) of the cost of the car will be added to my personal income, which is fine as long as again I keep all within 473pm to avoid PAYE admin. getting a new car in stock by 21apr (my closing date) is tricky so is it allowed if I order and pay for my car before 21st to get this benefit this tax year? or does the car have to be fully invoiced and registered within the tax year? also on ongoing basis, can I charge the company for running/maintenance/repairs of the car? I have compared it with buying a car personally and charging for mileage to the company but given then low mileage, it is not making sense to me but I could be wrong.
Can I have this devise today if I need to pass any banking enteries/buy car this week?
Regards
Sandeep
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

1The government plans to allow individual investors to offset bad debts from P2P lending against interest income from P2P lending from April 2016 as you can read here. At present, only a capital loss can be claimed against capital gains. Chapter 2 of the proposed technical criteria here defines a qualifying lender as an individual or a group of individuals acting in partnership or as part of an unincorporated body. That would appear to preclude your company from offsetting the bad debts against the interest income. It might be worth clarifying that with your P2P platform.

2 You should have the private medical insurance set to cover you and your wife. Having a separate policy for your wife may have HMRC questioning the fact that she is not an employee but has an employment benefit. The company will get a deduction but you will be taxable on a benefit in kind equal to the premiums paid.

3 If your only income is dividends within the basic rate threshold, you won't get any tax relief as the notional tax credits are not repayable under any circumstances. You need to pay some actual tax to get tax relief for your EIS investment. You can claim the relief against the previous tax year.

4 Take a look here for the capital allowances available for cars. A 100% first year allowance (FYA) is only available on cars with CO2s of 75g/km or less if it is bought on 1 April 2015 or later (previously 95g/km or less). There will be a taxable benefit calculated as a percentage of the list price of the car when new as you will see here. As the car would be owned by the company, the running costs would be paid by the company (not you) and will be fully deductible. You would need an invoice dated within your accounting period to claim capital allowances.

Taxable benefits need to be reported to HMRC on a form P11D for each employee and director who has them. You will need a PAYE scheme set up with a PAYE reference to submit P11Ds to HMRC. All the Real time Information PAYE filing obligations will flow from that.

I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.

Hi Tony

Thanks for your prompt response. Some clarifications needed for me to understand your replies though. In the same order:

1. Thanks. How do I create my loans under company as 'part of an incorparated body'. what does that mean?

2. My wife is a consultant to my firm and I pay her 500 per month for the admin work she assists with but is not on PAYE as its below 8500 per annum (health insurance is 800 pa so total income for her is 6800). Is that ok?

3. Dont understand this. This will be my first dividend out from my company. Do you mean that while paying dividend, I will have to pay some tax on it from the company to pay it? at what rate? is this the credit thats not refundable and therefore becomes a non-taxable income up to my total income of 38k in my hands? In my personal account I have other income of 14k including her above health insurance benefit and I am hoping to create more tax in my personal return through the above my company dividend to use EIS this year (didnt have enough tax last year too to use it)

4. Thanks. Very clear.

Regards

Sandeep

Expert:  TonyTax replied 1 year ago.
1 An individual person is not incorporated. A partnership is not incorporated. A limited company is an incorporated body. You could lend through P2P personally as opposed to via your company.

2 PAYE registration has nothing to do with £8,500. That level is no longer used to classify an employee as lower paid if they are under it or higher paid if they are over it in any event. My point was that you cannot offer employment benefits to consultants, especially if that consultant is your spouse. HMRC will have you register her as an employee, especially if she has no other income source. Its fine for the medical insurance to cover your wife if you are taxable on the benefit.

3 Your accountant should have explained how company tax, dividends and personal tax connect. Take a look here for information on dividends and tax. If you take a £9,000 dividend, that equates to £10,000 gross for personal tax purposes. The difference is a notional 10% tax credit of £1,000. That notional tax credit is not paid to HMRC, hence the term notional and the reason why it is not repayable under any circumstances. It is deemed to cover your liability at the basic rate on that dividend. Only if your total income for the tax year exceeds £41,865 will you pay actual real money tax on the dividend which can be absorbed by EIS relief.
Customer: replied 1 year ago.

Tony

Thanks. You have added more than enough value for the money I paid. I have rated you now but I if I want to pursue some of these issues later, can I get in touch with you again direct as you know my story?

Expert:  TonyTax replied 1 year ago.
This question will stay open to you even after you have rated my answer. Bookmark it or save the page address into an email and sent it to yourself.

You can come back to the same question to post follow up queries on the same topic. If you have a new question, you will need to post it as a new question and ask for me specifically by mentioning my name in the body of the question if you want me to answer it.
Customer: replied 1 year ago.

great. will do.by the way the link on tax on dividends is not working from the landing page you have attached...any other place i can check?

Expert:  TonyTax replied 1 year ago.
Try here. It has a dividend tax calculator which you may find useful.

Dividends are paid out of net of corporation tax profits. That is the reason you have ni liability at the basic rate of personal tax.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15763
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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