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September questions and answers

Newsletter issue - September 2020.

Q. I am approaching retirement age and I am looking forward to receiving my state pension. Will I have to pay tax on it?

A. The state retirement pension currently counts as taxable income. However, whether you have to pay tax on it will depend on the level of other taxable income you receive.

If your state pension exceeds your personal tax allowance (£12,500 in 2020/21), but you do not have any other source of income, then HMRC will collect the tax in a lump sum through another method. You will be sent Simple Assessment (PA302 calculation). You will need to check that the figures are correct and pay by the following 31st January. If you don't agree with the figures, you should contact HMRC immediately as late payment interest will start after the payment deadline.

There is no mechanism to deduct tax due at source so those pensioners with occupational pensions have their personal tax allowance reduced by the amount of the state pension so that the tax due on both sources is all deducted from the occupational pension.

Further information on tax on pensions, see the GOV.uk website at https://www.gov.uk/tax-on-pension.

Q. I have recently been able to reopen my small hotel and I am selling face value gift vouchers which can be redeemed against room reservations and/or in the dining room and bar. I have previously charged VAT at the standard rate for all supplies. How does the temporary VAT rate affect my business?

A. A new temporary reduced rate of 5% applies, from 15 July 2020, to sleeping accommodation in hotels and similar establishments, on-premises catering services, hot takeaway food and drink and admissions to certain attractions. This rate can be applied until 12 January 2021.

You can charge VAT at the reduced rate on room reservations and on-site dining until 12 January 2021, but the supply of alcoholic drinks remains at the standard 20% rate.

The changes affect the accounting treatment for VAT when issuing face value vouchers. There are two main types, as follows:

  • Single purpose face value vouchers (SPFVV). Where at the time of issue, the goods or services have a single VAT liability and the place of supply is known.
  • Multi purpose face value vouchers (MPFVV). These are vouchers which do not fall within the definition of a SPFVV.

For vouchers issued and/or redeemable whilst the temporary reduced-rate is in place, the treatment will change from that of a SPFVV to a MPFVV.

A voucher issued up to 12 January 2021 will be a MPFVV, because the liability of the underlying goods or services is not known and spans across two different VAT rates. You will need to account for any VAT on redemption for this particular type of voucher, instead of when it is issued.

Gift vouchers issued after 12 January 2021 will return to being SPFVV's, as all supplies will be subject to a single rate of VAT at the standard rate and VAT should be accounted for on issue not redemption.

HMRC Brief 10/2020 provides further details on the temporary rate change.

Further guidance on vouchers can be found in VAT Notice 700/7, at section 9.

Q. My mother is a widow in her nineties but still lives in the same house that she and my late father bought in the early 1960s. I also lived there from birth until I married and moved out in 1990. Will I be able to claim inheritance tax (IHT) relief for the time that I lived there?

A. Unfortunately, the period that you lived in the house will not count because you did not own the house at that time. However, it may not be all bad news for IHT purposes. If your father left everything to your mother when he died, she may well have inherited his 'nil rate band'. In addition there are 'residence nil rate band' rules increasing the IHT nil rate band when the asset passing on death to the descendants of the deceased is the house that the deceased lived in. Further details can be found on the Gov.uk website Check if you can get an additional Inheritance Tax threshold.

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