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September Questions and Answers

Q1. I am an IT consultant that has just returned from Jersey where I was undertaking some work for the government. I want to raise my invoice now, but don’t know whether to add VAT or not following Brexit?

A: You don’t need to add VAT here as the Channel Islands are not part of the UK for VAT purposes, and your professional services are of a qualifying type specified in VAT Notice 741A. This is unaffected by Brexit as the Islands are also outside the EU. The good news is that you can still claim input tax on any UK costs relating to the consultancy work!

Q2. I am in the very fortunate position of being promoted this year, despite the effects of COVID19 on our company’s trade. Now that we are starting to recover from the lockdown restrictions, I have been told I can choose a company car, subject to an overall spending threshold (including optional extras). Am I right in thinking that as long as the emissions do not exceed a certain threshold, there is no taxable benefit?

A: Firstly, congratulations on your promotion. Whilst low emission vehicles have always attracted relatively favourable tax treatment for income tax purposes, I’m afraid there is no longer any possibility of a zero benefit in kind treatment for any vehicle provided by an employer available for private use. The most tax-efficient option is to choose a wholly electric vehicle, but even this will attract a charge of at least 1% of the list price.

Q3. I own the freehold interest in a building which has recently been leased to a tenant for 23 years. We have received a premium for this and will also receive an annual rent payment. Is the premium a capital sum?

A: As the lease duration is less than 50 years, part of the premium will be treated as an income receipt. Generally, the shorter the lease, the more “income-like” it is in nature in HMRC’s eyes. You will need to use the formula Premium x [50-Y/50] to work out how much should be declared as income, and how much as a capital gain. Y in the formula is the number of complete years other than the first in the term of the lease, i.e. you will use 22 here.

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