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October Questions and Answers

Q1. I have been on the VAT flat rate scheme for several years. I have two business activities that fall into different categories with differing FRS percentages. I have apportioned VAT between the rates, but a chance conversation with an old colleague leads me to believe this is incorrect. What do I need to do?

A: Under the FRS, you should not apportion VAT where you have multiple activities. Instead, you should use the FRS percentage that corresponds to the activity with the greater percentage of turnover. As an example, suppose an IT consultant (FRS percentage 14.5%) also offered computer repairs (FRS percentage 10.5%). If the turnover from repairs exceeded the turnover from consultancy work, they would use 10.5%. You will need to go back and correct your calculations for the last four years. This might result in an additional liability or a refund depending on the circumstances. If the net error is less than £10,000 you can include it on your next VAT return, otherwise you will need to make a standalone disclosure to HMRC using form VAT 652.

Q2. I am preparing my tax return for 2020/21 using software. I have £10,000 of employer pension contributions as part of my remuneration annually. However, after realising some gains on investments in the year I also paid approximately £32,000 into a plan in the year. The return is showing an annual allowance charge of £4,000, but this looks excessive to me as I’ve only exceeded the allowance by £2,000! What’s going on?

A: Don’t forget that the £40,000 annual allowance refers to the amount of gross contributions that can be made with tax relief. Your personal contributions will have attracted basic rate tax relief, as your provider will have received an additional £8,000 from HMRC. This means your total gross contributions, including the employer payments, were £50,000 not £42,000. The charge is therefore based on £10,000, not £2,000.

If your contributions in previous years were lower, e.g. if it were just the employer contributions that were made, you can claim to carry forward the unused amount for up to three years – there should be an option somewhere in your software to add this information in. Hopefully this will get rid of the charge for you.

Q3. I am buying some land in Shropshire. I am trying to understand the SDLT position, which is complicated due to the fact that some of the fields lie across the Welsh border. Most of the land is on the English side, so do I just file a return to the English authorities?

A: No, this is known as a cross-border transaction and will require the consideration to be apportioned on a “just and reasonable” basis. A return with the apportioned amounts will then need to be made to each tax authority. HMRC may challenge an apportionment if it appears unreasonable, and so it is probably best to speak to a conveyancing solicitor with experience in cross-border transactions.

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