May questions and answers
Newsletter issue - May 2021
Q. I am newly VAT-registered (voluntarily). I believe that I will usually need to pay VAT to HMRC each quarter, rather than receiving a refund. However, I have some concerns about running up arrears in case I experience cash flow problems. Can I ask to complete monthly returns and pay monthly instead?
There is no statutory right to make monthly, rather than quarterly, returns. The legislation simply permits HMRC to allow a business to do so. The problem is that HMRC generally won't allow you to use monthly filing where you have VAT to pay - it's for businesses that usually receive repayments. You have a couple of options in order to avoid building up arrears. You can simply make a monthly payment of the estimated net VAT position to your account and sort the difference out when you complete the VAT return. Alternatively, you could consider using the annual accounting scheme. You would only be required to file one return, but you would make nine payments on account during the year. Information about the scheme is available here.
Q. I am looking to raise some funds by selling some personal possessions, some of which have appreciated in value quite considerably. I've heard there is a special exemption that might mean I don't need to pay CGT on any gains. Is that correct?
One of the unfortunate consequences of the coronavirus pandemic is that many individuals are selling personal possessions to help raise funds, either for themselves or for family members. There are actually two exemptions that may be of use to you.
The first is the wasting assets exemption. This applies to assets that have an expected useful life of 50 years or less (based on the nature of the asset and its intended use when it was acquired), and completely exempts the asset from CGT. Machinery is always treated as having an expected useful life of less than 50 years, so things like cars or clocks always qualify. Things are less clear cut when it comes to things like fine wine collections, and you should seek advice from a specialist. Note that the exemption doesn't apply to assets used in a business if you claimed, or could have claimed, capital allowances in respect of them.
If the asset you sell has an expected useful life of more than 50 years, there is a limited chattels exemption. The exemption is calculated as follows:
- if you receive £6,000 or less from the sale, it is wholly exempt from CGT
- if you receive more than £6,000, the amount chargeable to CGT will be the lower of the actual gain, or 5/3rds of the difference between £6,000 and the amount received for the sale.
As a result, the chattels exemption will only be of use where the proceeds received are less than £15,000.
Q. I have recently granted a lease to a tenant in respect of a building out of my freehold interest. They have paid a large premium for this and will not be required to pay rent. However, an associate of mine has said that this might be charged as income. I thought it was a capital receipt?
It will depend on how long the lease you have granted is to run for. If it is for more than 50 years, you are treated as having made a part-disposal of your interest, and the premium will all be treated as a capital receipt for this. However, if the lease is for less than 50 years, some of it will be treated as property income. The shorter the lease, the higher the proportion of it taxed as income will be. Speak to your accountant about the correct way to report the gain, or refer to Helpsheet 292.