15 August 2019
In August’s Q&A we answer queries about CGT on a chattel, including a gross or net value in a rental income for VAT, and mobile phones for business/personal use.
Q. Several years ago, I bought an antique chair for £3,500. I have recently been offered £8,000 for it. Will I have to pay capital gains tax if I accept the offer?
A. A capital gains tax (CGT) exemption exists for tangible moveable property (a chattel) which is not a wasting asset (broadly, an asset with a predictable life not exceeding 50 years).
A gain on disposal of a chattel is exempt if the disposal proceeds are £6,000 or less. Where disposal proceeds exceed the exemption limit, the gain is limited using the following formula:
5/3 x (disposal proceeds – £6,000)
In relation to your chair, the capital gain would be:
Disposal proceeds = £8,000
Minus the allowable cost = £3,500
Which makes a gain before chattel exemption of £4,500
Less: chattels exemption: The amount by which the gain exceeds 5/3 × (£8,000 – £6,000): £4,500 – £3,333 = £1,167
The chargeable gain is therefore £3,333.
Further information can be found on the government’s website.
Q. I am a VAT-registered trader and use the flat rate scheme for working out my VAT payments. I receive a small amount of rental income each month which I include in my turnover to calculate the VAT due to HMRC. The rental income is managed by a letting agent. Should I include the gross or net rent in my VAT?
A. HMRC’s Notice 733, section 6.2 sets out what must be included for the purposes of calculating flat rate turnover, which includes the value of exempt income, such as any rent or lottery commission.
In addition, section 9.4, which deals with cash-based turnover, confirms that if a net payment is received, the full value before any deductions is included in the scheme turnover.
Q. I am the director of a family-owned company. My husband and my three children are employed by the company. If the company provides a mobile phone to each of us, what will the tax implication be?
A. No tax charge arises in the case in which an employer provides an employee with a mobile phone, irrespective of the level of private use. The exemption applies to one phone per employee.
A taxable benefit will, however, arise if the employer meets the employee’s private bill for a mobile phone or if top-up vouchers are provided which can be used on any phone.
If the company takes out a contract for five mobile phones and the bills are paid directly to the phone provider by the company, the bills will be deductible when profits are calculated. Each family member will receive the use of a phone tax-free, which means they do not need to fund one from their post-tax income.
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