October Questions and Answers
Newsletter issue - October 2014
Q. My consulting company holds a significant amount of cash and I would like it to buy a piece of art work as an investment, what are the tax implications?
A. If the artwork is kept at your home there will be a taxable benefit in kind, which needs to be declared on the annual form P11D.
Say the art work cost £30,000:
You will pay income tax on 20% x £30,000 = £6,000 at your marginal rate, each year. The company must also pay class 1A NICs of 13.8% x £6,000 = £828 per year.
If the artwork is to be kept in a bank vault as a pure investment, there won't be a benefit in kind charge for you. However, the business must pay the insurance and storage costs, for which there will be no tax deduction. There is also no tax deduction for the cost of buying the artwork as it is not an item used for the business.
If the company closes any creditors will be able to access the value of that art, just as if it was cash. If the business is solvent when it closes holding significant investments, it may not qualify for entrepreneurs' relief, which would otherwise reduce the tax you pay on any gain made on the liquidated asset of the company down to 10%.
Q. I am currently aged 57 and while I have been out of the country, I have paid voluntary national insurance contributions to allow me to qualify for the state pension. I recently asked the Pensions Service whether I need to carry on paying voluntary NICs but I'm very confused about the answer. Do I need 10, 30 or 35 qualifying years, to get the full state pension?
A. The rules for qualifying for the State Pension will change for anyone who reaches state pension age after 5 April 2016, so that includes you. A person currently needs 30 years of NICs to achieve full entitlement to the state pension, but that is to increase to 35 years for people who reach state pension age from April 2016. You will need a minimum of 10 qualifying years get any of the new state pension, which will be paid at a flat rate.
Q. How can I easily calculate a total amount to claim for the self-employed business I run from my home, for example the total amount of usage for rent, gas, insurance, council tax, internet usage, broadband?
A. There is an easy way to calculate the deductible amount of your home expenses, you simply record how many hours you work at home each month and claim the appropriate flat rate:
- Working 25 to 50 hours in home allows a £10 claim for the month
- Working 51 to 100 hours in home allows a £18 claim for the month
- Working 101 or more hours in home allows a £26 claim for the month
This rate covers the cost of power, telephone, internet access, but it doesn't cover council tax, insurance, rent or mortgage interest. Those other costs should be apportioned according to the space you use for your business in the property, and how many hours you use that space. We can help you with the calculation.