Is VAT registration needed, despite income being exempt?
Our UK-based raffle business exclusively makes VAT-exempt supplies. However, advertising is a major cost and we have incurred approximately £130,000 a year in advertising expenses with Facebook and Google for the last three years, which are both overseas suppliers.
Given that our sales are VAT-exempt, I understand they do not count towards the VAT registration threshold, is this correct? However, I have read that services received from overseas suppliers may count towards this threshold because of the reverse charge. This raises these questions:
- VAT registration requirement: Does the £130,000 spend on overseas advertising necessitate VAT registration for our business, despite our VAT-exempt sales?
- VAT liability on reverse charge services: If registration is required, are we obligated to account for and pay VAT on these advertising services, even though we cannot reclaim it due to our exempt status? When will we need to register for VAT with HMRC?
Readers’ thoughts on these two issues would be appreciated.
Query 20,575 – Raffle Ray.
Employment allowance: too good to be true?
In calculating the optimum balance between drawing salary and dividend out of a personal company, I have reckoned that the full advantage of the employment allowance (no employers’ National Insurance contributions) is reduced by the liability to employees’ NIC that that amount of salary entails.
Now, however, one of my client companies has two directors who are both over pensionable age. I calculate that the employment allowance of £10,500 would be fully used on salaries of £40,000 each (thresholds of £5,000, plus 15% x £35,000 = £5,250), on which they would pay no primary contributions.
Is that correct, or is there any catch? Alternatively, would the employment allowance be available to a small company paying a large salary to one pension-age director and just over £5,000 to another who is under pension age?
Query 20,576 – Oldie.
Making optimum use of the annual allowance.
In query 20,555 ‘Can my client draw his pension’s tax free lump sum?’ (Taxation, 31 July 2025), I asked whether my client could restart pension contributions (to be made by his employer) without jeopardising his fixed protection 2016 enhanced lump sum, following the abolition of the lifetime allowance charge. The answers confirmed that he can. My question now is how the annual allowance works in this circumstance. He has made no contributions since 2016, so I presume he can bring forward the allowances of 2022-23, 2023-24 and 2024-25 to the current tax year. 2022-23 is simple: his income was well below the thresholds, so the brought forward figure is £60,000.
In 2023-24 his total income was over £400,000, so I presume what he can bring forward from that year is the minimum £10,000. But in 2024-25 his total income was £220,000, which gives me pause: if his employer had contributed £60,000 to his pension fund in that year (ignoring brought forward relief), I believe the annual allowance would have been restricted by reference to his ‘adjusted income’. As his employer made no contribution at all in 24/25, can he simply bring forward £60,000 from that year? And if his threshold income is over £200,000 this year, what is the effect (if any) of using the brought forward relief on his annual allowance for 2025-26?
Readers’ views would be very welcome.
Query 20,577 – Minted.
Self-employed client uses own equipment for PAYE job
My client is employed for three days a week by a publishing company where she is responsible for editing technical materials. She has spent the other two working days doing freelance writing. This has up to now been little more than a hobby with minimal earnings. However she has recently had success with a series of books that she is writing and has started to earn quite reasonable amounts from her writing, although she is continuing with her employment. She has upgraded her IT equipment with a faster computer, dual screens, a printer and scanner etc.
She has asked me about tax relief for these costs. Normally I would have had no problems in saying that the expenditure qualified for capital allowances but she tells me that she also uses the equipment in her editing job. Her employer provided her with a basic laptop, but she now prefers to use her own IT kit when she is doing her paid editing job, as it has a higher spec and it is more convenient simply to have one set of equipment to use all of the time.
In the circumstances do readers think that capital allowances on the new equipment should be restricted: she would not have purchased it had her freelance writing not taken off.
Query 20,578 – Hopeful.
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