February Question and Answer Corner
Newsletter issue - February 09.
Q. I run two separate businesses (A Ltd and B) that have separate VAT registrations, as only one is a limited company. Both A and B use the cash accounting scheme which means the VAT due on sales is only accounted for when the payment is received. However, sometimes customers make payments to A which are due to B. I correct this by transferring funds from the bank account of A to B, or by setting-off the amounts owing between the businesses. When should I treat the payment due to B as being paid for my VAT records?
A. As your businesses have separate VAT registrations they are independent for VAT accounting purposes. Business B is only treated as receiving the payment when the money arrives in its bank account from an electronic transfer, or a cheque is received, as long as that cheque subsequently clears. It is irrelevant that the money has come via A's bank account. Where the payment to B is made by you off-setting the amounts owing between A and B, you should treat B as receiving the money on the date you made this set-off. Warning, deliberately getting your customers to pay into the wrong account, or an undue delay in making a set off in order to defer payment of VAT, could be treated by HMRC as fraudulent behaviour.
Q. My husband died in 2007 and I have recently received a large tax demand in his name for the tax year 2007/08. I calculated there was no tax to pay, as his age adjusted personal allowance covered his pension income, and all the bank interest had taxed deducted by the bank. What should I do?
A. This tax demand is probably incorrect. Ring the tax office and ask them to check their figures against what you put on your late husband's tax return. In particular query the amount of state retirement pension. The Tax office may have altered your husband's state pension figure to the amount due for the full tax year, ignoring the fact the pension stopped at his death. The tax office should have told you they were 'correcting' the pension figure. If they didn't do this send them a letter of complaint.
Q. I've been out of the country so I won't be able to finalise my accounts and submit my tax return for 2007/08 until mid February 2009. I don't think I owe any tax as I have made a loss for the year. Will I be charged the £100 penalty for a late tax return?
A. You will be sent a penalty notice if the tax office has not received your 2007/08 tax return by 1 February 2009. When you do submit your return and it shows you had no tax to pay at 31 January 2009 the penalty should be reduced to nil. However, do not delay completing your return as the Tax Inspector can ask the Tax Tribunal to impose a penalty of up to £60 per day to encourage you to file your outstanding tax return. This penalty will not be reduced even if you owe no tax.