March Question and Answer Corner
Newsletter issue - March 07.
Q. I run a building company and need to take on a self-employed worker. He doesn't have his own van and so I've offered to provide him with one as a van is needed for him to do the job. What's the tax position on that?
A. You need to be very careful in doing this. The Taxman is likely to take the view that if you are providing a van, as you may do for employees, that this is indicative of an employment and not a self-employment relationship. Getting the status of the worker wrong can be very expensive. The provision of the van is not necessarily conclusive if there are other factors that are indicative of self-employment but would certainly be taken into account. If you can substantiate the worker is still truly self-employed then the van would not be taxable on him and you could claim capital allowances on the cost of the van. The same rules would apply to the provision of van running expenses. However, if the worker was classified as an employee the rules are different and less generous.
Q. My company accounts year ended on 31st December 2006. I ordered a new machine on 22nd December and received an invoice on 24th December for the machine, due for payment 30 days later. The machine was not delivered until early in January because of the Christmas holidays. Can I still claim the capital allowances in my accounts to 31st December 2006?
A. Unfortunately, the date that matters is usually the date on which the obligation to pay becomes unconditional. This is normally the invoice date but in this case, on the 31st December, your obligation to pay was still conditional on the delivery on the machine and had not yet become unconditional. Depending on the amount involved you could consider extending the year end to bring the date within your accounting period to be able to claim the first year allowances in full.
Q. I'm looking at taking out a loan with my bank and then loaning this on to my daughter to help her start her business as a sole trader. She will pay me back with interest to cover my costs but what are the tax consequences?
A. Your daughter could claim tax relief on the interest she pays to you, just as if she had taken the loan from a bank for business purposes. However, any interest you receive from your daughter is taxable on you and you cannot offset the interest you pay against this, leaving you with a nasty tax bill. I assume your daughter is unable to obtain the loan herself. One alternative solution to avoid this would be for you to become a partner in the business. The loan interest you pay would then be deductible from your share of the profits, which could possibly be an amount equal to the interest. You could also look at if your daughter could get the loan herself but with you acting as guarantor in support of the application.
