May Question and Answer Corner
Newsletter issue - May 2010.
Q. I recently sold my 60% share in a trading company that I've been a director of for over 20 years. The sale included ordinary shares that had full voting rights, and preference shares, which had no voting or conversion rights, just the right to a fixed dividend. Can I claim entrepreneurs' relief on the gain arising on both types of shares or just in respect of the gain on the ordinary shares?
A. As you held at least 5% of the ordinary voting shares and were a director of the company for one year up to the date of sale, entrepreneurs' relief should apply. Although the conditions for entrepreneurs' relief refer to ordinary voting shares, the gains arising on both the ordinary shares and preference shares can be included in your claim for entrepreneurs' relief. If the sale was concluded on or after 6 April 2010 the maximum gain that can be covered by entrepreneurs' relief is £2 million, for sales before this date the maximum gain that can be subject to an entrepreneurs' relief claim is £1 million.
Q. My business is an agency that provides rented holiday accommodation to UK holiday-makers. My commissions are less than the VAT registration threshold, so I am not VAT registered. What contracts and invoices do I need to put in place to avoid charging VAT to either my clients (the landlords) or to the holiday-makers who rent the properties?
A. You want to stay under the VAT threshold, so you need to prove to the VATman that you are an agent working on behalf of the landlords, and are not a re-seller of holiday accommodation. You should have a written agreement with each of the landlords that clearly states that the landlord is the principal who is making a contract with the holiday-maker, and you are their agent. All invoices you issue should show your fees as separate items to the cost of the holiday accommodation. If the holiday-maker pays you for the use of the holiday-let, the bill they pay should clearly show the amount due to the landlord, and the amount due to you as the agent. Ideally the two amounts would be shown on separate invoices.
Q. Now that my top rate of income tax is a whopping 50%, will I get tax relief at that rate if I make charitable donations in this tax year?
A. Yes. If you make donations to charities under the gift aid scheme you will get tax relief at the 50% rate. Your gift is treated as being made after 20% tax has been deducted. When you give £80 the gross amount of the gift is £100. Your personal thresholds for 40% tax and 50% tax are both extended by the gross amount of your donation. For your £80 gift you have an extra £100 of your income taxed at 20% rather than 40%, and an extra £100 of income taxed at 40% rather than 50%. In total you have gained tax relief of 50% (20% +20% +10%) on the £100 gross gift.