Q&A: Claiming expenses when working abroad, the cash accounting scheme for VAT and Marriage Allowance

5 July 2018

In this month’s Q&A we consider: claiming expenses when working abroad on a temporary basis; the cash accounting scheme for VAT payments and the conditions for claiming Marriage Allowance.

Q. I am a company director and usually work from an office in Newcastle. However, I will shortly be relocating to Germany for a couple of months and will be working from there. Will I be able to claim travel expenses whilst I’m abroad?

A. Whether you will be able to claim tax relief on travel expenses depends on the reason for your relocation. If the move is for personal reasons, you will not be able to claim tax relief for expenses. However, if the duties of your role require you to relocate abroad, you should be able to claim for some expenditure incurred. The HMRC Employment Income Manual (EIM34000) can assist with further details.

Q. As a sole trader providing IT consultancy services to customers, I am registered for VAT. Can I use the cash accounting system for paying VAT and do I need to apply to HMRC to use it?

A. Usually, the amount of VAT paid to HMRC is the difference between the business’s sales invoices and its purchase invoices. These figures are reported to HMRC and the net amount paid, even if the invoices haven’t been paid. This anomaly means that smaller firms often find they struggle with cash flow, since they are required to pay out money that they haven’t received.

Under the VAT cash accounting scheme, businesses:

  • pay VAT on their sales when their customers pay them;
  • reclaim VAT on their purchases when they have paid their supplier.

The business issues tax invoices as normal, but only accounts for VAT when, and to the extent that, payment is received. This means the business gets a cash flow advantage, which may be significant, depending on how long customers take to pay their bills. It also has the bonus of built-in bad debt relief!

This advantage is, however, offset by the fact that the business cannot recover input tax until it pays its bills, so the scheme will be most beneficial to a business selling services rather than goods, and which, therefore has relatively low taxable inputs.

Broadly, a business can use cash accounting if:

  • it is registered for VAT; and
  • its estimated VAT taxable turnover is £1.35 million or less in the next 12 months.

A business which satisfies these conditions can use the scheme without prior approval from HMRC.

Please see HMRC’s Notice 731 for further details.

Q. What are the conditions for claiming Marriage Allowance and what is the maximum that can be claimed in 2018/19?

A. Broadly, although not strictly a separate allowance, Marriage Allowance is a way for couples to transfer a proportion of their individual Personal Allowance between them in a tax-efficient manner. For 2018/19, the maximum amount that can be transferred from one partner to the other is £1,190. This means that the spouse or civil partner receiving the transferred allowance will be entitled to a reduced income tax liability of up to £238 for 2018/19 (£1,190 @ 20%).

For a couple satisfying the following criteria, it should be possible to claim the allowance:

  • The couple must be either married or in a civil partnership – living together is not sufficient for the allowance to be claimed.
  • One partner needs to be a non-taxpayer – which generally means they are earning less than the personal income tax allowance (£11,850 for 2018/19).
  • The other partner needs to be a basic 20% rate taxpayer, which generally means they are earning less than £46,350 in 2018/19 (note that rates are different for Scottish taxpayers). Higher rate and additional rate taxpayers are not entitled to the allowance.
  • Both partners must have been born on or after 6 April 1935.

For further information about any of these topics, please speak to one of our accountants in Newcastle, Jarrow or Sunderland.

As one of the leading firms of accountants in the North East, with offices in Newcastle, Sunderland and Jarrow, we have the expertise to advise you on a wide range of tax related issues. If you would like to speak to one of our local experts, please contact us.