Valentines Day is just around the corner and here are some ideas for couples to show each other how much they care. And if it can be done in a tax-efficient manner, then so much the better! Try one of these romantic tax tips:

1. A romantic dinner for two
   Can you claim the cost of your dinner or hotel stay as a business expense? If your loved one is your only employee, why not have a Valentine's party? Bear in mind the £150 per head per annum limit for benefit-in-kind purposes, to avoid any unexpected tax bills. Otherwise, this expense is purely pleasure!
   
   
2. Tax relief for your Valentines gift?
   Alternatively you could risk a black eye and spoil your loved one with a gift of something (other than food, drink, tobacco or a gift voucher) bearing a conspicuous advertisement for your business. A tax deduction may be claimed, but don't get too carried away - the cost of the gift must be no more than £50.
   
   
3. What's mine is yours
   Consider transferring assets to your spouse*. Gifts between spouses* living together are normally made on a 'no gain, no loss' basis for capital gains tax purposes, and are completely exempt from inheritance tax between United Kingdom domiciled spouses*. Such gifts can assist in utilising unused capital gains tax losses and annual exemptions, and in equalising estates for inheritance tax purposes to use the nil rate bands of both spouses*. Outright gifts of income producing assets can also take advantage of income tax allowances and rates.
   
   
4. Be generous…but don't get carried away!
   Before you get too misty-eyed and make any inter-spouse* transfers of business assets, aside from the settlements anti-avoidance rules, consider the implications for capital gains tax taper relief purposes. Would your gift be a business asset in the hands of your loved one, and would the holding periods of both spouses* be taken into account on a subsequent disposal?
   
   
5. Planning a rosy future together
   Consider giving a romantic stakeholder pension to your partner. Even if your beloved has no earnings (or is earning less than £30,000 a year) it may be possible to contribute up to £3,600 per annum into a stakeholder pension. And don't forget a stakeholder pension for the kids!
   
   
6. Keep it in the family
   Why not employ your loved one? Make sure the salary is a commercially justifiable reward for the work, is recorded in the books and records, and is physically paid. Beware the national minimum wage rules (unless your spouse* works in the family business and shares the matrimonial home, or is a director of the family company and does not have an employment contract), especially if you don't end up walking hand in hand into the sunset!
   
   
7. Wedding bells
   Getting married? Does your beloved have wealthy parents? What about dropping a subtle hint about the £5,000 inheritance tax exemption for gifts in consideration of marriage by each parent?
   
   
   
8. Diamonds are forever
   Are you still waiting to receive that diamond ring? Remember that there is no capital gains tax charge on the disposal of certain 'wasting' chattels, i.e. assets with a predictable useful life of 50 years or less. As 'a diamond is forever' trying to classify it as a wasting asset is likely to be problematic. However, if its value is less than £6,000 the gift will in any event be subject to exemption from capital gains tax.
   
   
9. Share and share alike
   Wishing to make an extravagant gesture? Why not gift your spouse* between £500 and £200,000? They could use this money to invest in the shares of an enterprise investment scheme company, and potentially obtain income tax relief on 20% of the investment. Husband and wife may each subscribe up to £200,000 and claim the relief. Alternatively, a transfer of enterprise investment scheme shares to your spouse* should not result in any withdrawal of relief, if you are both living together. An investment in a venture capital trust of up to £200,000 could also be considered. The rate of income tax relief is increased from 20% to 40% for a limited period only, i.e. for shares issued in the tax years 2004/05 and 2005/06.
   
   
10. Are you lonesome tonight?
    Have you been working abroad for 60 days or more? Missing your loved one? Why not arrange for your spouse* to visit you? A deduction from earnings may be claimed for certain travelling expenses of your spouse*, which are paid or reimbursed by your employer. This includes up to two outward and two return journeys in the same tax year.

If you have any questions on the above or would like to advice on a specific aspect of your tax affairs, please contact our tax partner Steve Cook on 01753 888211 / steve@nunn-hayward.com

[The above are based on an article that appeared on a professional website for tax practitioners, “taxationweb.co.uk”]

* Includes civil partners from December 2005 onwards.

VAT Recovery on fuel purchased by employees for the purpose of their employers business

Effective Date 1st January 2006

Up to now, businesses have been entitled to recover input tax on fuel purchased by their employees provided it was for the purposes of their business. Reimbursement of the employee could be by means of payment of the actual fuel purchased or a mileage allowance.

The European Commission took infraction proceedings against the UK and the European Court ultimately decided in its ruling in March 2005 that although businesses were entitled to recover the VAT incurred by their employees on business journeys, they should be in possession of a VAT invoice to support the deduction.

HM Revenue and Customs remained silent on the judgement until recently, but have now introduced secondary legislation to clarify the position:

Under the provision of Value Added Tax (Input Tax) (Road Fuel Purchased By Employees) Order 2005 businesses can still recover input tax on fuel purchased by the employees provided a VAT invoice or less detailed tax invoice is proved by the employee to their employer and it is retained by them.

Clearly, an employee will not fill his or her tank solely for the purpose of the business, but provided the employer is in possession of sufficient appropriate invoices to cover the expense which is being claimed, the deduction of input tax is permitted.

The revised rules take effect from 1st January 2006 and businesses are recommended to ensure that employees comply with these requirement. Failure to obtain and retain the invoices will mean that the business renders itself liable to be assessed for arrears of VAT with commensurate interest and penalty charges.

If you have any queries or need help in respect of the issues raised please contact Steve Cook, Tax Partner at steve@nunn-hayward.com or call on 01753 888211.

STOP PRESS!!

Artic Systems Tax Case – HMRC to Appeal!

HMRC has just issued a statement announcing its intention to appeal to the House of Lords against the Court of Appeal’s ruling in favour of the taxpayer, Artic Systems.

As this case will probably rumble on for a number of months we will keep you notified of events

Please contact us to discuss the above further

Tel: 01753 888211 Fax: 01753 889669 Email: abacus@nunn-hayward.com
Nunn Hayward, Sterling House, 20 Station Road, Gerrards Cross, Bucks SL9 8EL.

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