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• VAT TREATMENT OF CONFERENCING ••
HM Customs have issued revised guidance on the VAT treatment of hotel conference/function facilities. The change affects the supply of rooms by hotels that are used for meetings, conferences and other similar functions. It is emphasised that there is no change to the treatment where the primary use will be for the purpose of supplies of catering, such as weddings, etc. These are charged at the full standard rate of VAT.
At present, the supply of a room on its own is exempt from VAT (unless an option to tax has been made). If a meal is provided to delegates and an inclusive charge made, the part relating to the meal is full taxable (known as 8 hour delegate rate). If the provision of refreshments is minimal e.g. tea, biscuits, this is ignored.
Until now, the full rate for room, meal and sleeping accommodation has been treated as a single, fully taxable supply. In future, the room hire portion of the charge will be exempt (unless again the option to tax exists).
In essence, the changes relate to the practice of providing facilities on a 24 hour delegate rate. The guidance now means that only part of the delegate rate should be subject to VAT. The elements of the costs which relate to the hire of the room are exempt from VAT.
It should be noted that, where the events are run by the hotels themselves and charge delegates a fee, such supplies are fully taxable.
HM Customs have stated that there is no requirement to make adjustments in respect of supplies made prior to the date of the announcement (18th January 2006) but claims for repayment of output VAT incorrectly paid over a maximum three-year period will be entertained.
If businesses wish to continue charging VAT on the full delegates rate, Customs will allow them to do this. It will be interesting to see what effect this may have on market rates generally for events and functions.
At a practical level, hotels may decide to continue with charging VAT on the full rate.
If not, they will find that their ability to reclaim input tax will be restricted by the partial exemption rules.
• YEAR END TAX PLANNING TIPS ••
Personal Tax
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Married couples should arrange their affairs to ensure that both spouses, to the fullest possible extent, use both personal allowances and the lower and basic rate bands of tax.
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If you have children under 16 (or under 19 in full time education), and you work at least 16 hours per week, then providing your family income is less than £50,000 per year you could be entitled to at least £545 of tax credits. Even if your family income is more than £50,000 you could still be entitled to something.
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Minor children are entitled to their own income tax personal allowances but income derived from funds provided by a parent can only be treated as the child’s own income if it is less than £100 per tax year. Income arising on gifts from grandparents or from trusts created by grandparents could be a beneficial way of using up allowances.
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From April 2005, all children born after 31 August 2002 should have been provided with a £250 Child’s Trust Fund Voucher from the Government. Once a Fund has been opened, up to £1,200 per annum can be put into the account, by family, friends and others. Further government contributions will be made when the child reaches age 7. The child takes ownership of the fund at age 18. Any income arising on the Trust account, such as interest or gains, is non-taxable.
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If aged 65 or over there may be an entitlement to a higher personal allowance, the “age allowance”. For 2005/06 a restriction of £1 of allowance for every £2 of income over £19,500 applies until it reaches the level of basic personal allowance. A higher married couple’s allowance may also be available where at least one spouse has reached the age of 65 by 6 April 2000. Consider arranging your affairs so that at least one spouse will have a total income not exceeding £19,500 for 2005/06.
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If you have extra cash, donate money to charity. Keep the receipts and claim a deductionon your tax return to obtain tax relief at your marginal rate.
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Business Tax
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The choice of accounting date for a new business and the change of accounting date for an existing business could have a significant impact on the tax position. If a change of accounting date or cessation is contemplated, take advice.
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“Small” and “Medium” sized businesses will receive 40% first year allowances on plant and machinery used in the trade and purchased by 5 April 2006. In the year from 6 April 2006 “Small” businesses only will receive a first year allowance of 50%. Therefore consideration should be given to the timing of plant and machinery purchases to maximise tax relief.
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Capital Gains Tax
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Use the capital gains tax (CGT) annual exemption to realise gains of £8,500 tax free an remember that spouses and children have their own CGT exemptions.
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Watch timing of sales to maximise CGT taper relief. For example, sales of certain non- business assets on 6 April 2006 rather than 5 April 2006 will attract 5% more relief. For certain business assets, the difference in the rates of taper could be even more significant.
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Most transfers between spouses are exempt so there is scope to save CGT. For example, equities showing a gain of £17,000 could be put into joint names before the sale and the whole gain could potentially be covered by two annual exemptions. Any decisions will of course depend on your circumstances and on the status of the asset. Such a transfer must be outright and unconditional.
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Consider subscribing for new shares in Enterprise Investment Scheme (EIS) companies to defer CGT liabilities, and investment in these plus Venture Capital Trust (VCT) companies may also attract income tax relief (subject to limits). Note that strict time limits apply for the date of investment. Both EIS and VCT investments are high risk and specific financial advice would be required.
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Inheritance Tax
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Review Wills and consider Inheritance Tax (IHT) position to ensure that both nil rate bands (currently £275,000) will be used on death. If all assets are left to the surviving spouse and one nil rate band is wasted, the combined IHT bill is increased by £110,000.
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You can give away up to £3,000 per tax year without IHT liability, plus the unused allowances can be carried forward for one year, so you may be able to give away as much as £6,000 this year depending on the gifts made last year.
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Consider use of the “normal expenditure” out of income exemption. If gifts are made by way of a deed of covenant or a premium payment on an insurance policy then the habitual nature of the gifts can be easily established.
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Tax-efficient Investments
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Review pension arrangements and consider an Additional Voluntary Contribution (AVCs) if an employee, or a Personal Pension/Stakeholder contribution and, if relevant a Retirement Annuity Premium (RAP), if self employed to “top up” unused reliefs. Under the New Pensions Regime, as of 6 April 2006, you will no longer be able to carry pension contributions back. Therefore, if you wish for a contribution to apply to the tax year 2005/06, you may wish to make a contribution by 5 April 2006. Advice should be sought before making a contribution especially for Personal Pension/Stakeholder contributions.
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Consider stakeholder pension which allows most individuals, including children, to set up their own pension plans and invest up to £3,600 gross (£2,808 net) per annum.
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Note that a pension contribution paid prior to 5 April 2006 could increase your entitlement to tax credits, if applicable.
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Investments of up to £7,000 per year, of which no more than £3,000 can be invested in cash and not more than £1,000 in life assurance, into a tax free ISA (Individual Savings Account).
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Consider surrenders of single premium investment bonds in a tax year when income fall substantially short of the basic rate limit, and utilisation of 5% tax free amount.
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