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February Questions and Answers

Newsletter issue – February 2023

Q. One of my let properties required extensive repairs to cure a damp problem. The tenant was on an assured tenancy, so we reached an agreement under which I paid her to vacate the property, to allow the repairs to be carried out. The flat was relet after the repairs were completed. Is the payment to the tenant treated as capital or a revenue expense?

A. Your payment to the tenant to surrender her tenancy will be treated as a capital payment if it is reflected in the state or nature of the property at the date of disposal. However, as you relet the property (presumably on similar terms) the surrender of the tenancy is not reflected in the value of the property, so it cannot be treated as a capital cost. It is also not a revenue expense, so it ends up being a 'tax nothing', not deductible for tax at all.

Q. I am the sole employee of my company and I pay myself £100 per week. Does the company have to operate a PAYE scheme and report my wages under RTI to HMRC?

A. The company does not have to operate a PAYE scheme if none of its employees earn at least £123 per week, and none receive expenses or benefits or have another job or pension. However, the company must keep adequate payroll records so it can prove what has been paid as wages and when.

As an employee, you don't pay tax or national insurance contributions (NIC) on your wages under £175 per week, but if you are paid at least £123 per week you receive a NIC credit. This allows you to build up entitlement to the state pension and other state benefits.

Q. I work through my own company and the business is run from my home. I use my kitchen for entertaining clients as well as other rooms in the house. Can I claim back the VAT charged on fitting a new kitchen in my home on the basis that it is used partly for business purposes?

A. The company cannot claim back VAT on an invoice addressed to you personally. If the company has directly paid for the new kitchen in your home, this would amount to a benefit in kind for you, on which you will need to pay income tax and NIC. The company would need to report this benefit to HMRC as part of the annual benefits and expenses declaration, or treat the cost as part of your salary and tax it through the payroll. The cost of entertaining clients is not a deductible expense for the company, and VAT cannot be reclaimed on those costs.