Q1. What items can be excluded from ‘taxable turnover’ for VAT registration purposes?

A. When the ‘taxable turnover’ of a business reaches the VAT registration threshold, currently £85,000 per annum, it must register for VAT. Income that is not counted as ‘taxable turnover’ is excluded from the £85,000 turnover figure.

There are several items that can be ignored when calculating ‘taxable turnover’ for VAT registration purposes. Any income that is ‘exempt’ from VAT is ignored. This commonly includes insurance, postage stamps or services; and health services provided by doctors or dentists.

  • Some goods and services are outside the VAT tax system so VAT is neither charged nor reclaimed on them. Such items include: goods or services you buy and use outside of the EU;
  • statutory fees – like the London congestion charge;
  • goods you sell as part of a hobby – like stamps from a collection;
  • donations to a charity – if given without receiving anything in return.

Supplies of services to business customers in another EU member state or any customer outside the EU are treated as outside the scope of UK VAT and do not count towards turnover for VAT registration purposes (for example: supplying consultancy services to a business customer in Spain).

Other non-business income that may be excluded includes disbursements incurred on behalf of a client, grants, or any income from employment.

Finally, it is worth noting that you can ignore any ‘one-off’ sales of capital assets. This means that if, for example, you sell a van and the income received puts the business turnover over the registration limit, the sales proceeds can be ignored.

Q2. I bought a vehicle under a hire purchase (HP) agreement for use in my business. I did not make the final payment under the agreement, so did not take ownership of the vehicle. What happens regarding the capital allowance annual investment allowances which were claimed at the start of the contract?

A. Vehicles bought under HP agreements usually become the property of the hirer once the final payment is made at the end of the lease period. For capital allowances purposes, relief for the whole cost of the vehicle is generally allowable from the date of delivery, providing the asset was still in business use at the end of the chargeable period.

However, where the final payment is made, and subsequently the vehicle is not acquired by the hirer, then it is treated as having been disposed of by. Where, as in this case, the asset has been brought into use, the disposal value is the total of any capital sums received/receivable (if any) plus the amounts yet to be incurred under the contract – in this case this would be the amount of the final instalment.

HMRC’s Capital Allowances Manual, paragraph CA23330, explains this in further detail and provides a worked example.

Q3. I have recently sold my main residence and bought a smaller property. Unfortunately I sold the house for £30,000 less than I originally paid for it. Can I offset this loss against income from my business and reduce my income tax liability for this year?

A. There are strict rules governing the set off of losses against other income and the tax law does not permit you to do this. Losses on the sale of a principal private residence are generally not allowable losses for tax purposes.

If the property had been an investment asset, the loss on the sale may be treated as a ‘capital loss’, which could be offset against other capital gains you make, but it cannot be offset against other income. For further information on this, see the HMRC Capital Gains Manual at paragraph CG65080.