Anna’s Accountancy Alerts – Week 46 (15th – 21st February 2021)

Anna's Accountancy Alerts

Annual Investment Allowance (AIA) Reduction Postponed

The (AIA) was to be cut from £1m to £200k on 1 January 2021 but this has been postponed by a year.

If your company never spends more than £200,000 on machinery, vans and equipment in a year, then this postponement won’t affect you.

But if you’re planning to make some major capital purchases of over £200,000 in the next few years then this AIA extension requires you to reconsider the timing. To gain the maximum benefit buy any new plant or equipment by 31 December 2021.

Reclaiming VAT On Business Entertaining Costs

As a general rule HMRC doesn’t allow VAT to be reclaimed on the cost of business entertaining.

HMRC’s rules block businesses from obtaining tax relief for most types of business entertaining. The block covers corporation tax as well as VAT. VAT can be apportioned between allowable and non-allowable amounts.

Say one of the sales team visits a customer and takes them to lunch. For corporation tax purposes, the entire lunch bill is disallowable even though part of it relates to feeding the employee while on business.

However, your company should be able to reclaim VAT on the part of the lunch bill which relates to your employee’s meal if it can be classed as “subsistence” rather than “entertainment”.

To ensure the meal for the employee is treated as subsistence, the employee/client meeting should be away from the company’s premises.

Where you intend to reclaim some of the VAT on business entertaining as part of the cost relating to your employee’s meal, you’ll need to apportion the bill. The rules say this can be done in any “fair and reasonable” way.

In most cases splitting the bill 50/50 will be fine. HMRC doesn’t expect you to identify who ate what starter and main course. However, if there are clear and easily definable costs relating to the different parties, you should apportion the VAT accordingly.

Also, make sure your employees provide accurate descriptions for entertainment costs they reclaim and provide receipts.

Training – Tax Deductible Or Not?

Not all work-related training costs are tax-deductible. Or if they are, they might result in a tax bill for those receiving the training. The tax position turns on two key questions:

  • who is being trained; and
  • is the business run by a company or run as a partnership or sole trade?

For tax purposes, training and retraining costs incurred by a company owner (shareholder) who is also one of its directors or employees are tax-deductible from the company’s profits.

It doesn’t matter whether the training is for the current trade or a new one.

For partnerships and sole traders, the deductibility of training costs can differ depending on whether the person being trained is the business owner or an employee.

Where the training involves acquiring new knowledge or skills, the cost is not tax-deductible if the person being trained is the business owner but the cost of training employees is.

Training which reinforces or keeps the company’s owners or employees up to date with current practices, rules and regulations relating to the business’s existing trade is tax-deductible.

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