January Question and Answer Corner
Newsletter issue - January 09.
Q. Last year my friend's company; MC Ltd was having cash flow difficulties, so my company; IQ Ltd paid some the outstanding debts with MC's suppliers. The amount paid was recorded as a debt between our companies. When looking at the books of IQ Ltd the VAT inspector told me I should reclaim the VAT on the invoices IQ paid on behalf of MC Ltd. Is that correct?
A. The VAT inspector is wrong. Only MC Ltd can reclaim the VAT shown on invoices from its suppliers, as MC Ltd is the company that received the goods or services, not IQ Ltd. You have treated the transaction correctly. This shows how important it is for your suppliers to make out invoices correctly. If the invoice is addressed to a business that did not receive the goods or use the services, the VAT cannot be reclaimed.
Q. In 2001 I sold my city centre property and relocated my business to a converted farmhouse with workshops. At the time my accountant said I didn't have to pay capital gains tax on the sale of the city property, as the gain was rolled over into the workshops. If I now let my surplus workshops will I have to pay tax on the capital gain I made in 2001?
A. The gain you rolled into the cost of the workshops will not become payable until your sell those buildings. As long as you used the workshops for your own business at the time you bought them, the claim to roll-over the gain was valid and is not disturbed by changing the use of the buildings at a later date. However, as you no longer use the workshops for your own business you won't be able to roll-over the 2001 gain once more when you sell those buildings and buy another business asset.
Q. I am employed to teach a few courses at a further education college and I buy a few books each year to help prepare for those courses. Can I claim the cost of those books against tax?
A. The scope for employees claiming expenses, which are not reimbursed by their employer, is very limited. The expenses must be incurred while the employee is performing the job, not to prepare for that job. So the cost of books purchased to improve your underlying knowledge cannot be claimed against tax. Many taxpayers have fought this point in the courts, and lost. It would be better to get your employer to reimburse you for the cost.