November questions and answers

Newsletter issue - November 2017.

Q. My wife and I are directors of a small company. Our two children also work for the company. Is there any advantage to the company paying for all our mobile phones?

A. The tax legislation provides exemptions from tax, and often National Insurance Contributions, for certain benefits-in-kind - mobile phones being one of them. Making use of the exemptions generally offers an opportunity to extract funds from a family company without triggering a tax or NIC charge. Providing the benefit rather than the funds with which to buy the benefit saves tax. The costs are also deductible in computing the company's profits.

So, if the company takes out a contract for four mobile phones, provides each family member with a phone, and pays the bills, the costs paid by the company will be deductible in computing taxable profits. The family members get the use of a phone tax free, meaning that they do not need to fund one from their post-tax income.

Q. I am an employee and pay basic rate tax under PAYE each month. My wife works part-time and earns £10,000 per annum and does not pay any tax. Can I benefit from her unused personal tax allowance?

A. Since April 2015, it has been possible for a spouse or civil partner who is not liable to income tax or not liable above the basic rate for a tax year to transfer part of their personal allowance to their spouse or civil partner, provided that the recipient of the transfer is not liable to income tax above the basic rate. The transferor's personal allowance will be reduced by the same amount. For 2017/18 the amount that can be transferred is £1,150. The person receiving the allowance will be entitled to a reduced income tax liability of up to £230 for 2017/18. Note that married couples or civil partnerships entitled to claim the married couple's allowance are not, however, entitled to make a transfer.

Eligible couples can backdate their claim for the allowance for up to four years. This means that couples will have until 5 April 2020 to backdate their claim to the 2015/16 tax year when the allowance was first introduced.

Q. My business manufactures and supplies seasonal novelties and is registered for VAT in the UK using the cash accounting scheme. We have recently won a large order for goods from another UK company, but they have requested to be paid in Euros. I understand that I need to show the VAT amount on the invoice in sterling, using one of the agreed methods of conversion published in HMRC VAT Notice 700 section 7.6. When the invoice is paid, as the exchange rate may have changed and be different to the one on the invoice, do I need to recalculate the VAT?

A. VAT Notice 731 section 5.10 states that if you issue a VAT invoice in a foreign currency, including Euros, and then are paid in full you must always declare the sterling amount of the VAT due on the supply as shown on your VAT invoice. You do not need to recalculate the exchange rate when the cash is received.