August Question and Answer Section
Newsletter issue - August 2012.
Q. Our company is owned jointly by myself and my wife, and we are both directors of the company. I do most of the work and draw a lot of funds out of the business, so my director's account with the company is often overdrawn. My wife has another paid position, so doesn't draw so much from the company. Her director's account with the company is always in credit. Can our two director's accounts be combined and set-off against each other for tax reporting requirements?
A. Married individuals are taxed as separate persons in the UK, and their income and liabilities cannot be amalgamated to present a better picture for tax purposes. The Taxman is dead against the overdrawn balance on one person's account being set against the credit balance on another person's account, even if those two people are married.
Q. My company is doing well and I'd like a new car, possibly a BMW series 5. Should the company lease or buy this car, or does it make more sense for me to take a dividend from the company and to buy the car personally?
A. As the car is available to you for personal journeys you will be taxed on the 'benefit' of driving that car giving rise each year to a tax bill for yourself and a NI bill for your company at 13.8%.
The company will get a deduction against profits for the cost of leasing the car, but that deduction is limited if the car has CO2 emissions over 160g/km (reducing to 135g/km from April 2013). Likewise the capital allowances are restricted for cars with CO2 emissions over 160g/km. The company can pay for the car's insurance, servicing and repairs, with no further cost to you, the driver. However, if fuel is provided there is an additional benefit in kind to be taxed on you.
In reality the calculations need to take into account other factors such as the cost of insurance and whether you need to borrow money to buy the car. We need to talk about this in greater detail to provide you with the correct advice.
Q. I want to buy a new business but the only way I can do that is to increase the mortgage on my house. Will the interest I pay on the extra mortgage be tax allowable for the business?
A. In principle yes, but there are restrictions to prevent improper use of this tax relief. Further restrictions are also proposed from 6 April 2013 (see above). Interest paid on loans used to buy into a partnership or to buy shares in a closely controlled company, or lend to such a company are generally tax allowable. However, it would be best to have a separate loan for this business investment, as when you repay any part of the mortgage the business part will be deemed to be reduced first. You will also have to hold at least 5% of the ordinary shares of the company and work for it for the greater part of your time.