Tax Guru 09-2012

This September a free open business clinic is being held by Andrew and TaxAssist.
For more details see here.


Hello again!

My name is Andrew Richardson and I have been running TaxAssist Accountants in Elgin for five years. I am hoping that this tax advice section will become an interactive feature. Submit your tax and accountancy questions to Moray Life and I’ll answer a sample of them each month, along with a brief summary of the tax issues we should be looking out for.

Q: I am self-employed but I am expecting my first baby. Am I entitled to Statutory Maternity Pay?

A: Statutory Maternity Pay (SMP) is only payable to employees, so I am afraid that you are not entitled to this particular benefit. However, you may instead be entitled to Maternity Allowance, which is payable to the self-employed or employees not eligible for SMP.

As self-employed, you may be eligible if:

You have been paying Class 2 National Insurance contributions or hold a Small Earning Exception certificate. You have been self-employed for at least 26 weeks in your 'test period' (66 weeks up to and including the week before the baby is due).

You can claim Maternity Allowance as soon as you have been pregnant for 26 weeks. To obtain a claim form (form MA1) call the Jobcentre Plus on 0800 055 6688.

Q: Can you tell me if I can claim back tax for advertising my business on my car?

A: Partly. The cost of adding advertising graphics to a private or company car can be claimed against the profits of the business, as this is a legitimate business expense. Any VAT paid can also be claimed back (assuming you are VAT registered). What an advert doesn't do is change the usage or classification of the car.

The rules surrounding the tax treatment of motor vehicles can be quite complicated and depend upon the type of business and the usage of the car. The rules for taxi drivers are different from accountants.

The advert can be claimed back, including any additional costs in terms of its maintenance, but nothing else on the car changes.

Q: I am employed full-time but would like to set up my own part-time card making business which is likely to generate a loss, at least in the first year. Can I offset the loss against my employment income?

A: Potentially, however, if you are already employed full-time, it may be questioned how 'genuine' this business is, and if it is instead more of a hobby. Losses generated from a hobby can not be offset; there has to be a commercial motive behind the activity, i.e. you must be looking to generate profits.

The sorts of factors to consider whether a trade exists are:

  • Is there a profit seeking motive?
  • Are there a significant number of transactions?
  • Are there systematic of repeated transactions?
  • Are the transactions similar to those occurring in a trade that already exists?
  • How are the 'sales' made?

If for example, your goods are being marketed and sold on the internet, then this may indicate a trade exists.

How long is the interval between the acquisition and the sale of your goods?

It can be difficult to identify whether a trade exists, as the above list is not exhaustive and therefore the particular circumstances of each 'business' needs to be considered. Consequently I would recommend that you discuss this with an accountant before simply offsetting the loss, in order to avoid underpaying tax.

Q: I have just sold a rental property that only ever made losses because it was quite heavily mortgaged. Can I offset the losses against my income?

A: Rental losses can only be carried forward and set against profits of the same 'business'. This gives rise to two main points.

Firstly, the losses cannot be offset against other income so they simply expire.

And secondly, if you try to get around this by investing in another rental property later on; you may not be able to offset the losses from the first business against the second one. There must be a continuation of the same business. As a general rule of thumb, if the interval between the businesses is longer than three years, it would be deemed that the first business has stopped completely.

So, based on the limited information you have provided, I suspect you cannot utilise your losses and they will just lapse.

As a side issue, the sale of the property falls under the capital gains tax regime, so there may be capital gains tax to pay if you have made a profit on the sale.

If you have a tax query then please submit your questions to Moray Life and I'll try to give a response next month. And always remember...

'Next to being shot at and missed, nothing is really quite as satisfying as an income tax refund.'

By Andrew Richardson

TaxAssist Accountants Moray

Andrew’s contact details:

Please see my TaxAssist page for more details.