March Questions and Answers
Newsletter issue – March 2023
Q. My company is buying an electric car for me to use for business and private journeys. In truth there will be very few business journeys. Can the company still claim the 100% first year allowance, although the business use will be small?
A. Your company can claim the 100% first year allowance if the car is acquired brand new and not second hand. It is irrelevant that you use the car mainly for private journeys, as you will be taxed on that benefit calculated at 2% of the list price of the car each year. This taxable benefit will increase on 6 April 2025 to 3% of the list price.
Q. I will have to register my business for VAT soon, but I‘m confused as how to work out net and gross amounts, when the VAT rate is 20%. If I want to receive £2000 for a job, after VAT, what do I quote as the VAT inclusive price for the customer? If my customer will only pay £1600, how do I calculate what I will get after paying over VAT.
A. If you start with the net figure and need to work out the gross amount including VAT, multiple the net amount by 1.2. Using your figures above:
£2000 x 1.20 = £2400. The VAT is £400.
When you start with the gross figure (the maximum the customer will pay) you need to divide by 6 to find the VAT. When the customer pays £1600:
£1,600/ 6 = £266.67. The VAT is £266.67. The net sale is £1333.33 (1600 - 266.67)
Once you are registered for VAT you will be able to reclaim VAT on your purchases, so the amount of VAT you pay to HMRC will be after deducting VAT you paid on things you buy for the business.
You may also qualify for the VAT flat rate scheme which could make the VAT calculations easier, but that will depend on your business sector.
Q. My wife and I lived in our joint-owned property for 12 years and it is now let it out, but we plan to sell it in two years time. What will be the impact of capital gains tax on that sale?
A. When you sell the property you need to calculate the gain made, being the difference between the sales and purchase price after deducting selling/ purchase costs in each case, including stamp duty land tax paid on purchase. Let‘s assume the capital gain made on the property will be £180,000.
If you own the property for exactly 15 years: 180 months, you will make an average gain of £1,000 per month. The period you lived in the property as your main home (12 years: 144 months) and the last 9 months are free of CGT: 153 months: £153,000.
Your taxable gain is £27,000 (180,000 – 153,000). As you owned the property jointly (presumably 50: 50), you have £13,500 of gains each. There is no deduction for a period of letting after you have moved out.
If you were selling the property before 6 April 2023 that gain would be mostly covered by your individual annual exemptions of £12,300. But this exempt amount is cut to £6,000 in 2023/24 and cut again to £3,000 in 2024/25.
If you sell in 2024/25 you will each have to pay CGT on £10,500 (13,500 – 3000).