Tax is complex! It is not always clear which particular tax, or what rate of tax applies to a transaction. The Taxman realises that businesses often have tax questions that need urgent answers, so he has set up a range of telephone helplines that each deal with specific areas of tax, such as VAT or the construction industry scheme.

Unfortunately these telephone helplines do not always give the correct answer. You may rely on a verbal assurance from a telephone helpline, but later get inspected by a Tax Officer who takes a different view of the situation and raises a penalty for the incorrect tax treatment. This does happen, and two recent cases have shown it is the taxpayer that suffers where there is a disagreement between the helpline advice and the Tax Inspector.

Case 1: In the first case Corkteck Ltd exported soft drinks to Poland through a third person: Sintra SA. The VAT helpline told Corkteck that the exported drinks would be zero-rated for VAT. However, the VAT Inspector decided the drinks should have been standard rated as Sintra SA was not registered for VAT within the EU.

Case2: In the second case Acrylux Ltd hired out a private residential property for various functions, some of which lasted several days. The VAT helpline told Acrylux that the hire of the property would be exempt from VAT as it was not a commercial property. However, the VAT inspector said the hire of the property was similar to short-term holiday lettings and VAT should be charged at the standard rate.

In both cases the taxpayer could not prove exactly what facts had been presented to the helpline, or exactly what the helpline had given as its advice. If the advice had been requested in writing the outcome for the taxpayer may have been different. If you have a tax question, please ask us before reaching for the HMRC helplines. If you act on advice that later proves to be incorrect, you could pay a high penalty!

From 1 October 2009 tips, gratuities, and services charges cannot form part of the national minimum wage of your staff who receive those payments. This applies even if the service charge is a compulsory part of the customer's bill. The Tax Office has reissued leaflet E24: Tips, Gratuities, Service Charges and Troncs to explain this point clearly.

If tips are paid directly to your staff by the customers, those employees should declare the amounts they receive in tips to the Taxman on their personal tax returns, but you don't have to worry about the tax situation. Where the tip is paid to you as the employer, perhaps as an additional amount on the credit card bill, and you decide how to distribute the total tips pool (known as the tronc), among your staff, you must deduct both PAYE and NICs at the relevant rate for each employee.

Where someone else manages the tronc, perhaps the manager who is not the employer, that manager must deduct PAYE but not NICs from the payments of tips to staff. Please talk to us if you uncertain about how to handle tips paid to your staff.

In these troubled times the failure of one business can have a knock-on effect on its suppliers. If one of your customers goes down you need to quantify the bad debts created by that failure as soon as possible.

Say your accounting year end is 30 June 2009, and one of your customers fails in October 2009 leaving the sales invoices it received in April, May and June all unpaid. Where it is clear that you will not receive payment from the liquidators or administrative receivers of that business for those sales invoices, you can include the bad debt built up between April and June 2009 in your accounts to 30 June 2009. This applies as long as your June 2009 accounts have not been finalised by the time you receive confirmation of the bad debt. Any sales made to this customer between July and October 2009 will need to be written off in your accounts to 30 June 2010.

This is a clear example of business failure, but bad debts can also arise where your customer is still trading. Before we finalise your accounts to submit them to the Tax Office or to Companies House, we need you to undertake a thorough check of all your sales debts. Where you can identify specific debts that are unlikely to be paid, and you have made every effort to recover the money due, those amounts need to be written off in your accounts. This will reduce your taxable profits, and avoid you paying tax on money you are very unlikely to receive.

VAT on bad debts can only be reclaimed six months after the due date for payment for the invoice. You must also pay over the VAT due to the VATman before it can be reclaimed. If you use the cash accounting scheme for VAT you automatically get relief for unpaid sales debts, as you do not account for the VAT due until the sales invoice is paid. Any business with a turnover of under £1.35 million can join the cash accounting scheme.

If your income has dropped in the current tax year, perhaps because your business has made a loss, or your company can't afford to pay you a salary, you could be eligible to claim tax credits or other state benefits. The Tax Office is actively encouraging people to check whether they would be eligible to claim working or child tax credits, and has included an interactive questionnaire on its website to help you decide, see: www.hmrc.gov.uk/taxcredits/start/who-qualifies/overview/quick-questionnaire.htm

The questionnaire does not cover complex claims such as where a member of the family has a severe disability, but it will cover most situations. Remember a claim for tax credits is based on your family's total income, so you need details of your partner's or spouse's income as well as your own.

If you are aged 60 or over, you may be eligible to claim pension credit from the Department of Work and Pensions (not the Tax Office). You don't have to be retired to claim pension credit, just aged 60 or more. Like tax credits your claim is based on your income as a couple, not just your income alone. If you have savings of over £10,000 these are also taken into account. This savings threshold was £6,000 until 2 November 2009, which excluded a lot of people from qualifying for this benefit.

If you find you are eligible for pension credit or tax credits, you should check whether you could receive help to pay council tax or housing benefit. Claims for both of these benefits now ignore any income received by the family as child benefit.

Q. I run a mixed arable and dairy farm in my own name, and my wife operates a holiday lettings business from two of the farm cottages. The VATman has said that we should treat both businesses as one and charge VAT on the holiday lettings. He has also sent us a bill for past VAT due of £10,000. What should we do?

A. Holiday lettings should be subject to VAT at the standard rate if the total turnover of the business is higher than the compulsory VAT threshold (currently £68,000). The VATman wants to combine the turnover of the farm, with your wife's holiday lettings business to reach this threshold. This can only be done if he can show that the two businesses are bound together on an economic, financial and organisational basis. Also the two businesses can only be treated as one business for VAT purposes from a current date, not some date in the past. You should appeal against the VAT bill of £10,000 and discuss with us how the businesses can be shown to be independent in the future. For instance the farm could charge the holiday business a small rent for the cottages used for letting.

Q. I am currently employed but I plan to start an internet-based business in my spare time, which will take about 18 months to break even. I will continue with my current position until the new internet business is making good profits. What is the best way to structure the new business so I can take full advantage of any losses it makes it the first two years?

A. If you run the new business in your own name as a sole trader, any losses made in its first four years will be available to set against your employment income. This applies as long as the Taxman does not see you as an 'inactive' trader, in which case the use of the losses against your other income will be restricted. To show the Taxman you are not an 'inactive' trader, you must work an average of at least 10 hours per week on the new business, and make a note of the hours you work. You should also draw up a business plan to prove the business is run on a commercial basis with a view to making a profit in the future.

Q. About ten years ago I acquired all the various versions of the domain names relevant to the trading name used by my business. These domain names have always been held in my own name, although the business is now run through a company. I have just had an offer for the company and one of the domain names, which values the domain name at £3 million. How will the Taxman tax the profit on the sale of the domain name: as income profits or a capital gain?

A. If we assume the full £3 million represents the profit on the sale of the domain name, as the original cost was probably very small, the difference in the tax payable under an income or capital treatment will be approximately £660,000 (£3 million x 22%). This is because gains are currently taxed at 18%, and an income profit would be taxed at your highest personal income tax rate of 40%.

Your intention when acquiring the domain names was to secure the trading name of your business, not to sell on those domain names at a profit. You were holding the domain names as an investment, not as stock to be traded. The profit on the sale of the domain name should be treated just like the sale of any other investment; as a capital gain. Report the sale on the capital gains tax pages of your tax return, and provide as much information as possible about the original cost and sale value in the blank space on those tax return pages. You may be able to claim entrepreneurs' relief on up to £1 million of the gain, if the sale of the domain name is associated with the sale of your company. The rules for this tax relief are complex, so please discuss the details of the deal with us first.

2 Last day for car change notifications in the quarter to 5 October - Use P46 Car

5 PAYE/NIC and CIS deductions due for month to 5/11/2009

Please contact us if we can help you with these or any other tax or accounts matters.

In addition, if there's anyone else who you think would benefit from the newsletter, please forward the email to them or ask them to contact us to be added to the newsletter list.

If you are not already a client and are interested in becoming one, we would love to come to meet with you to discuss how we can help and provide you with a competitive quote for our services.

All new client consultations are provided free of charge and without obligation.

Smith Emmerson Accountants are based in Nottingham, offering local business owners and individuals a wide range of services.

Smith Emmerson received the prestigious award of AVN 2007/08 Accountancy Firm of The Year as voted for by fellow firms of accountant. We are very proud of the award as it is recognition of the service and advice we provide to our client's. Visit our website http://www.smithemmerson.co.uk for more information.

On 1 August 1989 the VAT law was changed to permit property owners to elect for specified buildings to be subject to VAT at the standard rate. This election is known as the "option to tax".

Without activating the option to tax by election, the letting or sale of the building would be exempt from VAT (with some exceptions), so no VAT can be charged on rents, and VAT on maintenance costs cannot be reclaimed. Opting to tax is generally beneficial for commercial landlords, as they can reclaim VAT on their costs, including VAT on the acquisition of the building itself. However, some tenants such as charities and banks, cannot reclaim the VAT charged on the rent, which makes the lease on a building with a VAT option to tax far less attractive.

The option to tax election can now be revoked if 20 years have passed since the election was made in respect of the building. You could now be in a position to revoke an option to tax you made over 20 years ago. You may want to do this to encourage a wider range of tenants to take on a lease, or to effectively lower the price of the building in this difficult market. Remember Stamp Duty Land Tax (SDLT) is charged on the VAT inclusive cost of a building or lease, so a VAT exempt building means there is less SDLT to pay.

In most cases the revocation does not need HMRC permission if 20 years have passed since the option to tax took effect, and the same person still holds an interest in the building. You just need to complete the HMRC form VAT1614J to inform the Tax Office the option to tax election for a particular building is being revoked. However, you need to check whether the anti-avoidance conditions numbered 3 to 5, on that form are also met. If those conditions are not met you need the permission of the Tax Office to revoke the election. If you have any questions about the option to tax election or how to revoke it, please ask us, as it can be very expensive if you get it wrong.

Late Tax Returns: Your personal tax return for the year to 5 April 2008 should have been submitted to the Tax Office by 31 January 2009 at the very latest. Tax returns submitted on paper for that year were due in by 31 October 2008. These deadlines may be later if the 2007/08 tax year was the first year for which you needed to submit a tax return, and you didn't receive the tax return form until after 31 July 2008.

The Taxman does not have much patience when it comes to late delivery of tax returns and has instructed his computer to send out £100 penalties every six months. The first penalty would have been issued in February 2009 and the second one in August 2009. If the Taxman gets really cross he will ask the Tax Tribunal to issue daily penalties of up to £60 per day, until you do deliver a complete tax return!

If you have paid all the income and capital gains tax you owed for 2007/08 by 31 January 2009, or you are due a tax repayment for that year, the £100 penalties can be reduced to nil. However, you do have to appeal against the £100 penalty notices to claim the reduction.

Late Payments: If you have not paid all the tax you owe for 2007/08 you will have been issued with a 5% surcharge in February and another 5% surcharge in August, plus interest will be mounting up at 2.5% on the amount owing. This interest rate on late tax increased to 3% from 29 September 2009. Where you have agreed a time to pay plan with the Tax Office, and are paying the instalments due under than plan on time, the 5% surcharges should not have been raised. If this is the case the Tax Office should be contacted as soon as possible to get the 5% surcharge cancelled.

When something changes with the set-up of your company, such as a new director, change of company name or registered office address, you need to fill in a form and send it to Companies House. All the forms that are used to report these events are replaced with new versions for changes effective from 1 October 2009 or a later date. You must use the new form to report the change as the old form will be rejected and this could lead to your company being fined if the event is not reported within the statutory deadline.

Most of the new forms can be filed online through the Companies House website, which is quicker, cheaper, and more secure than sending a paper form through the post. If you sign-up to the Companies House PROOF scheme you can only file changes to your company's details online. This prevents anyone hijacking your company by submitting a fraudulent paper form.

The property markets in all sectors have been through terrible times lately. A number of businesses, which were set up in the good times to invest in let property for the long term, have been forced to sell some properties to generate enough funds to cover costs.

Where the property investment business starts to develop properties for sale, rather than keeping them for long term letting, the business has started a trade of property development. In this case where a property, previously held as an investment, is transferred to the "stock pile" as stock ready to be sold, the property must be treated as if it had been sold at its open market value at that point. This can create a capital gains tax charge, or a capital loss, before the property has actually been sold.

To avoid this difficulty the business owners can make an election to treat the value of the property when it enters the stock pile, as the value when it was acquired by the business. Any gain or loss will then only arise when the property is sold by the business. This election must be sent to the Tax Office within two years of the end of the accounts year for a company, or by the first anniversary of 31 January following the tax year end for an unincorporated business.

The advantage of making this election is that the loss, if one arises, becomes a trading loss made on the sale of stock by the business rather than a capital loss. Generally a trading loss can be set-off against a wider range of income than a capital loss. However, to use this trading loss the Taxman will have to be convinced that the property business has actually started a trade of property development, and is not simply selling off its surplus investments.

This can be a very difficult area and full advice is essential so please contact us for advice in your own circumstances.

Q. My payroll clerk accidentally overpaid the PAYE payable by my company for 2008/09. I have rung the PAYE office, but they refuse to repay the amount or reallocate it to another period. What can I do to get the money back?

A. Ask the PAYE office for the overpayment review form P35D. Complete this with as much information about how the mistake in overpaying arose, and send it back. If the repayment doesn't arrive, chase by phone, and make a note of exactly who you speak to, and what they say. If no repayment is forthcoming, consider making a formal complaint to HMRC.

Q. I've received a new PAYE code notice that shows tax is due on a negative figure. What does this mean?

A. A negative PAYE code, or 'K' code (due to the letter K used), means your personal allowances for the tax year are less than untaxed income and benefits which have been included in the code. Your employer or pension provider will add the negative figure from this code to your annual income rather than deducting it, as they would with a normal PAYE code. However, please check that all your allowances are included in the code. If you are married and were born before 6 April 1935 you may be due a married couples' allowance. In some cases the married couples' allowance has been missed from PAYE codes issued since 1 July 2009. If this applies to you, ring the Tax Office number shown on your code notice, or ask us to check your code for you.

Q. My elderly aunt wants to give me a seaside chalet, which she inherited when her mother died in 1985. If I accept this gift will I have to pay tax on it?

A. You won't have to pay any tax when you take ownership of the property. However, your aunt should declare the gift on her tax return. If the increase in value in the property between the 1985 value when she inherited it and its value when the property passes to you, is greater than her annual capital gains exemption (currently £10,100), she will have to pay capital gains tax at 18% on any excess above the unused exemption amount. The value of the chalet at the date of the gift could also be subject to inheritance tax at 40%, if your aunt dies within seven years of making the gift. However, inheritance tax will only apply if the value of your aunt's total estate on death, plus all the capital gifts she has made in the previous seven years, exceeds the IHT exempt threshold. This is currently £325,000, and will rise to £350,000 on 6 April 2010. This exempt amount could be doubled if your aunt is a widow when she dies.

1 Due date for payment of Corporation Tax for the year ended 31 December 2008

5 If a Tax Return has not been received, individuals and trustees must notify HMRC of new sources of income and chargeability in 2008/09

14 Return and payment of CT61 tax due for quarter to 30 September 2009

19 Tax and Class 1B NI due on PAYE settlements for 2008/09

19/22 PAYE/NIC and CIS deductions due for month to 5/10/2009 or quarter 2 of 2009/10 for small employers

31 Deadline for 2008/09 self assessment paper returns to be filed for HMRC to do the tax calculation and/or if tax underpaid is to be collected by adjustment to your 2010/11 PAYE code (for underpayments of up to £2,000 only)

Please contact us if we can help you with these or any other tax or accounts matters.

In addition, if there's anyone else who you think would benefit from the newsletter, please forward the email to them or ask them to contact us to be added to the newsletter list.

If you are not already a client and are interested in becoming one, we would love to come to meet with you to discuss how we can help and provide you with a competitive quote for our services.

All new client consultations are provided free of charge and without obligation.

Smith Emmerson Accountants are based in Nottingham, offering local business owners and individuals a wide range of services.

Smith Emmerson received the prestigious award of AVN 2007/08 Accountancy Firm of The Year as voted for by fellow firms of accountant. We are very proud of the award as it is recognition of the service and advice we provide to our client's. Visit our website http://www.smithemmerson.co.uk for more information.