January Questions and Answers
Newsletter issue - January 2015
Q. My company has some surplus cash which I would like to use to support a local charity. Can the company make the donation directly or do I have to make a personal donation so it qualifies for Gift Aid, and the charity can claim the tax back?
A. Companies can make charitable donations under Gift Aid, but those gifts are made without deduction of tax, so the charity does not reclaim tax on the gift.
The company's gift is treated as an expense and deductible from its profits as long as the company has profits for the accounting year in which the gift was made. The value of the gift cannot change a profit into a loss, increase a loss, or be carried forward as an expense for a future period. The gift must also not be subject to conditions which would make it repayable by the charity, and you or the company must not receive significant benefits from the charity.
Q. I recently turned 60 and I have an idea for a new business venture. I want to take £20,000 from my personal pension scheme to invest in my new business. Can I do that without paying tax and may I continue to make pension contributions after I extract that lump sum?
A. You will be able to make any withdrawals you wish from your pension fund after 5 April 2015. Before that date there are restrictions over how much you can withdraw, but you can still take 25% of your fund as a tax-free lump sum. Any amount taken in excess of the 25% tax-free lump sum (before or after 5 April 2015) will be taxed at your marginal tax rate, and that will depend on the level of your other income for the tax year. However, you don't pay national insurance on your pension scheme withdrawals.
You can continue to make pension contributions after you withdraw the lump sum of £20,000, but your contributions may be capped at £10,000 per year. The conditions surrounding this cap are complex and will depend on the specific attributes of your pension scheme.
Q. I love knitting, and I sell the occasional knitting pattern I have designed through my website. Do I have to charge VAT when I sell to overseas customers? This is a tiny part of my income and I am not registered for VAT in the UK.
A. The requirement to charge VAT to the overseas non-business customers depends on exactly how you supply those knitting patterns, and where those customers are based.
If you receive an order through your website, and send out a paper version of the pattern, that is not an electronic service, so no VAT applies.
If you send out the patterns as PDF files or similar electronic images attached to an email, which is an electronic service, so you may have to charge VAT at the rate that applies in the EU County where your customer is located. However, that VAT is only chargeable if the knitting pattern is automatically delivered over the internet. This means there is little or no human intervention in the delivery process. As you sell only a few patterns to overseas customers you will probably personalise your email to each customer containing the requested pattern. That human intervention removes requirement to charge VAT to the overseas customer.