Tax Break for Racehorses Reply

Horse racing.

There are around 8,215 racehorse owners in the UK, ranging from gentry to plumbers united in their love of the sport.

But this is not an investment for the faint-hearted. You are unlikely to make a fortune and could end up losing a huge amount of money. The Racehorse Owners Association says that for every £100 of annual outlay (not including the purchase cost of the horse), a racehorse owner is likely to see a return of just £21.

As reported in the Telegraph (12th February 2013)

Some times it can pay off….

Rugby star Mike Tindall was branded an “idiot” by his wife Zara Phillips when he splashed out £12,000 on a racehorse.

But Mr Tindall is now looking far from stupid as his impulse purchase won last month’s Welsh National. Monbeg Dude, which Mr Tindall owns with four others, is now said to be worth more than £200,000.

VAT Tax Break for Racehorses

Following an agreement with the Thoroughbred Horseracing and Breeding Industry a scheme known as the VAT registration scheme for racehorse owners was introduced on 16 March 1993. If you meet the conditions of the scheme HMRC will accept that racehorse ownership is a business activity. You can therefore register for VAT and recover some of the VAT you are charged on your expenses as input tax.

Owners may include:

  • breeders;
  • dealers;
  • trainers; and
  • racing clubs.

You can apply for VAT registration under the scheme if you are registered as an owner at Weatherbys and you:

(a) own a horse or horses covered by a sponsorship agreement registered at Weatherbys; or

(b) own a horse or horses covered by a trainer’s sponsorship agreement registered at Weatherbys; or

(c) can show you have received, and will continue to receive, business income for example from appearance money or sponsored number cloths (SNC’s) from your horseracing activities.

You can recover as input tax the VAT you are charged on the purchase, training and upkeep of a racehorse and any overhead expenses used for the purpose of your business.


Can you reclaim the VAT on Sponsorship? Probably but not always 1


Generally sponsorship is subject to VAT because normally the organisation you sponsor will be making taxable supplies to you because in return for sponsorship, they are obliged to provide the sponsor with a significant benefit. Typically this might include any of the following:

  • naming an event after the sponsor;
  • displaying the sponsor’s company logo or trading name;
  • participating in the sponsors promotional or advertising activities;
  • allowing the sponsor to use your name or logo;
  • giving free or reduced price tickets;
  • allowing access to special events such as premieres or gala evenings;
  • providing entertainment or hospitality facilities; or
  • giving the sponsor exclusive or priority booking rights.

Donations and gift are not normally subject to VAT.

The rules are in HMRC Reference:Notice 701/41 (March 2002)

A business can recover input tax on their legitimate costs when it:

  • promotes its business; or
  • provide facilities to its staff.

When a business only makes sporting or recreational facilities available to:

  • the proprietor
  • the partners
  • the directors of a company
  • the relatives and friends of the proprietor, partners or company directors

it is unlikely that this expense can be treated as being for the purpose of the business. Therefore, the VAT incurred would not qualify as input tax.

In the case of smaller businesses there is an increased risk that the sponsorship is conducted for a private purpose so the VATman has come up with a set of tests:

VIT44300 – Specific issues: test for sporting and recreational activities

Does the proprietor, partner or director actively take part in the sport?
If the proprietor, partner or director cannot take part because of injury or business commitments is another (independent) person employed to drive?
Does a member of the proprietor, partner or director’s family actively take part in the sport?
Is there a connection between the sport and the business?
Where does the sporting activity take place?
Is there extra advertising at the racing venue or in programmes?
Is there related advertising or promotional material?
Does the business name appear on the sporting vehicle, transporter or clothing?
For companies and partnerships is there a record of a decision to use sporting facilities for advertising?
Can the business produce any evidence of research into the benefits to be gained from the advertising?
Are the benefits of the advertising monitored?
Is the car or boat an asset of the company?
What other forms of advertising are there?
Has HMRC given a ruling for direct tax purposes?
Could the business cope with an expansion of trade?

How Troncmasters can keep your tips NI and VAT Free 4

Tip jar

If your employees receive tips directly from your customers and are allowed to keep them, then you do not need to do anything for PAYE tax or NICs. There are no NICs due on the money, and the tax due is the employee’s responsibility. Your employees should declare the money to HMRC, who will usually adjust their tax code to collect any tax due.

A tronc is an arrangement for pooling and distributing tips and service charges and the person who operates the tronc is known as a troncmaster. If your employees use a tronc you must tell HMRC who the troncmaster is so that they can set up a PAYE scheme for the tronc.

Tips are outside the scope of VAT when genuinely freely given. This is so regardless of whether:

• the customer requires the amount to be included on the bill
• payment is made by cheque or credit/debit card
• or not the amount is passed to employees.

Restaurant service charges are part of the consideration for the underlying supply of the meals if customers are required to pay them and are therefore
standard rated.
If customers have a genuine option as to whether to pay the service charges, it is accepted that they are not consideration (even if the amounts appear on the invoice) and therefore fall outside the scope of VAT.
Further information is available from: Notices 700 The VAT guide and 709/1 Catering and takeaway food

Interesting Tax Facts – VAT and Hotels 5

HotelTax is made up of bizarre and complicated rules and for accountants that’s a good thing, keeps us in work, but why tax can’t be simplified is beyond me, its a crazy tax world out there.

Here are some VAT examples for Hotels – HMRC Reference:Notice 709/3 (October 2011) :

The Long Stay Rule

If a guest stays in your establishment for a continuous period of more than 28 days, then from the 29th day of the stay you should charge VAT only on that part of the payment that is not for accommodation.

A guest’s stay must be continuous to qualify for the reduced value rule. For example, if a guest stays for three weeks every month, you must always charge them VAT in full. If another guest stays for five weeks, leaves for a week, and returns to stay for five more weeks, the reduced value rule applies only to the fifth week of each separate stay.

However, a guest’s departure is not seen to end their stay provided the guest:

  • is a long-term resident and leaves for an occasional weekend or holiday,
  • is a student who leaves during the vacation but returns to the same accommodation for the following term, or
  • pays a retaining fee

In these cases the time away is ignored and you only have to charge VAT in full for the first 28 days of the overall stay.

It does not matter whether the guest returns to the same room or not.

VAT Exempt Meeting Rooms and Refreshments

Hiring a room for a meeting, or letting of shops and display cases are generally exempt, but you may choose to standard-rate them by opting to tax, see Notice 742A Opting to tax land and buildings.

If you make an exempt supply such as providing a room for a meeting or a conference and you provide minimal refreshments such as tea, coffee and biscuits, the room and the incidental catering will be treated as a single exempt supply. But, if you serve substantial refreshments such as a meal or buffet, the catering should be treated as a separate supply and you must account for VAT based on the normal charges you would make for such catering.

VAT on Deposits

Most deposits serve as advanced payments, and you must account for VAT in the return period in which you receive the payment. If you have to refund a deposit, you can reclaim any VAT you have accounted for in your next return.

Normally, if you make a cancellation charge to a guest who cancels a booking, VAT is not due, because it is compensation. This includes amounts debited from credit cards using details provided at the time of the booking. Where the cancellation charge takes the form of a retained deposit, you can reclaim any VAT already accounted for as an adjustment to your next return.

Reclaim Overpaid VAT

If you have overpaid VAT you can now go back up to 4 years and reclaim it.

HMRC to hit businesses who file their VAT returns late – are your returns up to date? 1

Tax Return Due Now

On the 9th January 2013, HMRC announced:

As many as 50,000 businesses that have failed to submit VAT returns will be targeted by HM Revenue and Customs (HMRC) this month with warnings that their tax affairs will be closely scrutinised.

More than 600,000 businesses have to put in VAT returns each month and most do so on time. But in a new campaign some 50,000 will be warned that, from 28 February, their tax affairs will attract greater attention.

Marian Wilson, Head of HMRC Campaigns, said:

“After 28 February, if they have not submitted their outstanding VAT returns and paid what they owe, HMRC will use its legal powers to pursue outstanding returns and any VAT that is unpaid. Penalties, or even criminal investigation, could follow. “

Do you have a ‘reasonable excuse’?

HMRC have a flowchart so you can see if your excuse qualifies (but its pretty unlikely!)

If you can’t pay your VAT…

You need to contact HMRC’s Payment Support Service on Tel 0845 302 1435 – this service is available for individuals and businesses who have not yet received a payment demand.

Opening hours are Monday to Friday 8.00 am to 8.00 pm, Saturday and Sunday 8.00 am to 4.00 pm, excluding bank holidays.

Or you could get a loan…

The earlier you ask for a loan the better, lenders don’t like last minute requests as they will need to do credit checks etc before the loan can be approved. But there are lenders prepared to lend for VAT and other tax bills, as an example, here is a link to Lease Direct Finance/Investec who offer VAT funding

Don’t give the tax man a reason to closely scrutinised your business.

What is a Pool Car? can you reclaim VAT? will it be tax free to drive? Reply

Pool Cars

Pool cars must meet the following conditions:

  • used by more than one employee
  • not ordinarily used by one employee to the exclusion of others
  • not normally kept at or near employees’ homes
  • used only for business journeys – private use is only permitted if it is merely incidental to a business journey (for example, commuting home with the car to allow an early start to a business journey the next morning)

Provided all these conditions are met, you have:

  • no reporting requirements
  • no tax or NICs to pay

To back this up it would be worth having:

  1. A written ‘no private use policy’
  2. Business Only insurance
  3. A mileage log to show that there’s no private mileage

When you buy a car you generally can’t reclaim the VAT. There are some exceptions – for example, when the car is used mainly as one of the following:

  • a taxi
  • for driving instruction
  • for self-drive hire

If you lease a car for business purposes you’ll normally be able to reclaim 50 per cent of the VAT you pay. But you can reclaim 100 per cent of the VAT if the car is used as one of the following:

  • exclusively for a business purpose
  • a taxi, for driving instruction or self-drive hire

The following are VAT cases relating to Pool Cars and support the reclaiming of VAT Input Tax:

Masterguard Security Services Ltd VTD 18631

A business provided cars to the security guards that it employed. It was allowed to recover input tax on the cars because it banned the employees from using the cars for private use. It was able to show that all the employees had their own cars which they used privately.

Peter Jackson Jewellers Ltd VTD 19474

A company that had four shops bought a car. The tribunal allowed input tax to be recovered on the car. The company had evidence to show that the car was used to transport stock and that private use of the car was prohibited.

What counts as private use?

Private use that is not merely incidental to business use should in practice be ignored in deciding whether the vehicle comes under the protection of either Section 167 ITEPA 2003 (cars) or Section 168 ITEPA 2003 (vans) where such private use is:

  • small in extent and infrequent and
  • consists of either or both of:
    • use limited to meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds
    • use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit.

Small in extent and infrequent will generally be not more than 5% of the vehicle’s annual mileage on occasions that are neither regular nor protracted.

Use meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds covers the kind of case where an employee is taken ill at work, or learns at work that a member of his or her family has been involved in an accident. It does not apply where an employee’s normal vehicle breaks down and the pool vehicle is used as a substitute.

Use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit might apply in a number of different situations. One example would be the use of a pool vehicle to take employee-provided equipment, such as a table tennis table, to an employer-provided sports facility. (Subject to various conditions, employer provided recreational facilities do not give rise to a tax charge.)

Type of Car

You could have any car as a Pool Car and some businesses might decide to have a luxury car as the Pool Car befitting of the company image, but makesure you can prove that it hasn’t had more the a small (5%) amount of private use (as noted above).

So you could have a personally owned car to get to and from the office and then use the Company Pool Car during business hours.

Change of Use

If the car stops being a Pool Car and gets allocated to an employee you will need to do a self-supply charge for VAT at the time of change. Basically this means you account for the VAT on the ‘current value’ of the car at the time of change.

VAT Act 1994 Section 56 (9) – Fuel rules

(9)In any prescribed accounting period a vehicle shall not be regarded as allocated to an individual by reason of his employment if—
(a)in that period it was made available to, and actually used by, more than one of the employees of one or more employers and, in the case of each of them, it was made available to him by reason of his employment but was not in that period ordinarily used by any one of them to the exclusion of the others; and
(b)in the case of each of the employees, any private use of the vehicle made by him in that period was merely incidental to his other use of it in that period; and
(c)it was in that period not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the vehicle available to them.

What are the tax issues and advantages of a Home Office? 20

Home Office

Working from home is a popular option for business owners and employees. Assuming you need to create office space you could either convert an existing room, loft, or garage or build a new structure in the garden.


  1. Estimate the amount of Business & Personal Use – you can only reclaim VAT on the Business Use proportion – you might have 100% business use if you were building an office in the garden. HMRC’s published and internal guidance states,
    “Where a domestic room or rooms is put to business use, you may agree to an apportionment using an objective test to the extent to which the room is put to business use” (HMRC Manual V1-13, Section 14, para 14.7, and VAT Notice 700, Section 33,)
  2. The invoice should be in Business Name
  3. You can reclaim 100% VAT on Office Equipment used entirely for business purposes (if you reclaim VAT you need to charge VAT if you sell the equipment)
  4. If you then sell your home to a buyer who wants to use the premises as part of their dwelling you don’t charge any VAT as it will be exempt

Capital Allowances

Capital Allowances are not given on land and building but you could claim for integral features, assets and equipment. Sole Traders and Partners can exclude a proportion for private use.

Benefit In Kind

Directors and Employees who have personal use of the assets will incur tax as it will be a benefit in kind. So it might be better to keep business assets for business use only to avoid this tax. Here is my blog comparing Directors Loans to Use of Assets


You can claim a proportion (based on the number of rooms and hours of business use) of your household expenses

  • Mortgage interest or rent
  • Council tax
  • Water rates
  • Repairs and maintenance
  • Building and contents insurance
  • Electricity
  • Gas, oil or other heating costs
  • Cleaning
  • Telephone (based on usage)
  • Broadband

You can draw up a home rental agreement to reclaim these costs, or claim expenses, or if the use is minimal you might find it easier to claim £4 per week as suggested by HMRC.

Here are some examples

Capital Gains Tax

Your principle private residence is exempt from capital gains but your home office won’t be if its exclusively used for business, but it will only be a small proportion of the property value and as such any gain will probably be covered by your annual allowance £11,100 (2016/17) if you are a sole trader or partner, if not your company could have a small amount of capital gains tax to pay if a gain is made.

If you are a sole trader or partner and there is a private use element to your home office then the office will be exempt.

Other Issues to consider

Planning Use -You might wish to apply for a Certificate of Lawfulness (Proposed)

for a change of use, for example if you wanted to use a single room in a dwelling house as an office. 

Insurance – you will need to inform your home insurance company that you now have a home office

Business Rates

How do I calculate the VAT on a Sales Promotion? 5

VAT  Sale

Now Christmas is over the shops are full of sales promotions, discounts, double counts, 50% off but how much VAT should be charged? And what type of business promotion would be best for your business?

Here are some to consider:


Provided you aren’t connected to the person you are selling to, VAT is only payable on the discounted price. If you offer a retrospective discount or volume discount a credit note can be issued when the target is achieved.

Buy one get one free

Sounds simple but needs to be handled carefully as for VAT purposes the default assumption would be that one item is at full price and the other item is a gift, the gift would be subject to VAT (if it’s over £50 in value).  So for accounting and VAT purposes you should sell both items at 50% of their value.

Money-Off Coupons

These work in similar way to Discounts but in some cases the retailer will be able to recover the value of the Coupon from their supplier.


The purchaser pays the full price and gets cash back. Often the manufacturer gives the cash back rather than the retailer, so the retailer accounts for VAT on the full price. The manufacturer pays the Cash Back to purchaser. The Manufacturer can then reduce their output tax for the Cash Back.

Gift Vouchers and Face Value Vouchers

There is no VAT on purchased gift vouchers as they are treated as cash equivalents, its only when they are used to purchase items that VAT needs to be accounted for.

It’s also common for Gift Vouchers to be lost and never used, which is great for the retailers.

If the voucher is sold for more than its cash equivalent then part of the value will be vatable.

Reward Cards

There are several ways to handle these let’s assume the points operator pays the retailer the value of the points, the operator will then reclaim input tax. Alternatives could follow the Discount rules or Voucher rules.

When should you charge VAT on inter company recharges? 1

3D Vat button block cube text

The answer depends on whether you have made a Taxable Supply or not.

A vatable inter company charge would be where one company buys business services and goods from suppliers and shares them with another related company so for example the invoice might say:

Recharge from Company A to Company B

10% Insurance

5% Rent/Rates

8% Motor/Travel

12% Office Salaries (but check notes below on employment)

As long as the charges have a logical and reasonable basis for them then these costs can be recharged plus VAT (even if the original item such as insurance wasn’t originally vatable)

However, the following are not Taxable supplies for VAT:

Common Directors – Notice 700/34 (May 2012)

An individual may act as a director of a number of companies. For convenience one company may pay all the director’s fees and then recover appropriate proportions from the others.

The individual’s services, such as attending meetings or approving expenditure, are supplied by the individual to the companies of which they are a director. The services are supplied directly to the relevant businesses by the individual and not from one company to another. Therefore there is no supply between the companies and so no VAT is due on the share of money recovered from each company.

Joint Employment – Notice 700/34 (May 2012)

Where staff are jointly employed there is no supply for VAT purposes between the joint employers. Staff are jointly employed if their contracts of employment or letters of appointment make it clear that they have more than one employer. The contract must expressly specify who the employers are for example ‘Company A, Company B and Company C’, or ‘Company A and its subsidiaries’.

Paying a Bill on behalf of an associated business

This is basically an inter company loan which will be repayable in full, its not a taxable supply.

Why does this matter?

An article in Tips and Advice  – VAT issue 11October 2012 reported that HMRC have applied penalties of up to 30% of the error where incorrect treatment has been applied.

So it is very important to get the VAT treatment correct.

Alternatively you might consider forming a VAT Group so that you don’t need to charge VAT on inter company charges but this isn’t always a practical solution as it means changing the VAT registration and doing a single return for all companies/businesses in the VAT group.

Will I be taxed on Christmas gifts recieved at work? 1

Christmas Gifts

It’s Christmas and even though times are tough, you could still get a gift from your employer or client or supplier, will it come with a tax bill attached?

The answer depends on the value.

HMRC Helpsheet 207 – Non-taxable payments or benefits for employees

The Helpsheet says, certain gifts from third parties are non-taxable if all these conditions are satisfied:

• the gift consists of goods or a voucher or token only capable of being used to obtain goods, and

• the person making the gift is not your employer or a person connected with your employer, and

• the gift is not made either in recognition of the performance of particular services in the course of your employment or in anticipation of particular services which are to be performed, and

• the gift has not been directly or indirectly procured by your employer or by a person connected with your employer, and

• the gift cost the donor £250 or less, and

• the total cost of all gifts made by the same donor to you, or to members of your family or household, during the tax year is £250 or less.

An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts can be treated as trivial benefits. . For an employer with a large number of employees the total cost of providing a gift to each employee may be considerable, but where the gift to each employee is a trivial benefit, this principle applies regardless of the total cost to the employer and the number of employees concerned. If a benefit is trivial it should not be included in a PSA (EIM21861).

Will the employer or supplier or client have to account for VAT?

You do not have to account for VAT on business gifts made to the same person so long as the total cost of all the gifts does not exceed £50, excluding VAT, in any 12-month period. To check this it is acceptable for you to adopt any 12-month period that includes the day on which the gift is made.

But where the following apply:

  • the total cost of business gifts given to the same person in any 12-month period exceeds £50
  • you were entitled to claim the VAT on the purchase as input tax

you must normally account for output tax on the total cost value of all the gifts. How to work out the cost is explained in Notice 700, ‘The VAT Guide’.