Q1. Do all assets qualify for the capital allowances Annual Investment Allowance?

A. Unfortunately not all expenditure on plant and machinery will qualify for annual investment allowances (AIA). The most common examples of assets that are not eligible are cars and assets that have been used for some other purpose before being brought into the business, for example a personally owned computer. These assets should still qualify for capital allowances, but allowances will be given gradually over several years, rather than the full cost being allowed against income all at once, which is what the AIA gives.

The AIA was set at its current level of £200,000 from 1 January 2016, but it was increased to £1,000,000 for a temporary period of two years from 1 January 2019. It is therefore currently expected that the allowances will revert to £200,000 from 1 January 2021.

Q2. Due to cash flow difficulties I have not yet paid my self-assessment payment on account, which was due on 31 July 2019. I realise that I will have to pay interest on the amount outstanding, but will I also have to pay penalties?

A. HMRC charge interest on any tax paid late. The current rate in force is 3.25%.

With regards to penalties, you will only be charged if your balancing payment (due 31 January 2020) is late. The penalties for late payment under self-assessment are as follows:

  • 30 days late: 5% of the unpaid tax
  • 6 months late: additional 5% of the unpaid tax
  • 12 months late: additional 5% of the unpaid tax.

HMRC may reduce a late payment penalty in ‘special circumstances’, which does not include inability to pay. In addition, a defence of ‘reasonable excuse’ may be available.

In relation to payments on account, the maximum penalty for fraudulent or negligent claims by taxpayers to reduce payments on account is the difference between the correct amount payable on account and the amount of any payment on account made.

Q3. My wife doesn’t work. Can she transfer her unused personal tax allowance to me?

A. It is possible for a spouse or civil partner who is not liable to income tax, or not liable above the basic rate for a tax year, to transfer part of their personal allowance to their spouse or civil partner, provided that the recipient of the transfer is not liable to income tax above the basic rate.

The transferor’s personal allowance will be reduced by the same amount. For 2019/20 the amount that can be transferred is £1,250. The spouse or civil partner receiving the transferred allowance will be entitled to a reduced income tax liability of up to £250 for 2019/20.

If you make the claim before 6 April 2020 for the tax year 2019/20, the claim continues until either you withdraw it or the recipient spouse or civil partner does not obtain a tax advantage. On the other hand, if you make the claim after the end of the relevant tax year, it will only have effect for the tax year to which the claim relates. So, if you make a claim after 5 April 2020 for 2019/20, you would need to make another claim for 2020/21 if appropriate.

The claim can be made up to four years from the end of the relevant tax year. In other words, a claim for marriage allowance for the tax year 2019/20 must be made by 5 April 2024.