As I haven’t posted a Blog on the varied questions on tax asked by clients and members of the public for several months, I thought that today I would trawl through my internet postbag again. Hopefully I’ve found an interesting tax related question or two that you will find helpful or at least interesting.
So, today’s question selections are:
- Do I deduct 20% from materials under the CIS scheme?
- Must I pay tax on property sold abroad?
- Do I pay tax on my hobby business?
- Have HMRC made a mistake?
- Can I deduct my gym membership and streaming subscriptions?
1. Do I deduct 20% from materials under the CIS scheme?
I run a small building business and have to use subcontractors, so I use the Constructions Industry Scheme and deduct 20% from their invoices. Last month I received an invoice with a breakdown (labour + materials) from a new subcontractor and I paid him 80% of the invoice total. He went ballistic and told me in words of very few syllables that I shouldn’t deduct 20% from the materials amount. I think he’s wrong, but am I right?
Answer
No, you’re wrong I’m afraid, as the CIS scheme is operated to essentially collect Income Tax. Providing your subcontractor provides an accurate breakdown of labour and materials, you should only withhold 20% of the labour element. For more detailed information, go to:
https://www.gov.uk/government/publications/construction-industry-scheme-cis
2. Must I pay tax on property sold abroad?
I have lived and worked in Germany for well over 20 years and sold my property there on retirement. As I had owned my flat for 20+ years, I was exempt from any taxes in Germany. I’ve now permanently moved back to the UK, but if I transfer the proceeds from my property sale to my UK bank, am I liable to any UK tax?
Answer
This is a tricky one, as in theory, you’re taxable on worldwide gains, but it is highly likely that you will be eligible for one of the exceptions provided for in the Double Taxation Treaty. My advice is to ask your German bank to transfer the money to your UK bank, which they will only do if they’re satisfied that it’s not money laundering, not from the proceeds of crime or tax evasion.
3. Do I pay tax on my hobby business?
Wood carving has always been a hobby of mine, but as I’m now semi-retired, I’ve started making pieces for sale. I make the odd sale on eBay and do a monthly Car Boot sale, but my mate says that I need to register with HMRC. Surely, he’s wrong as it’s a hobby business, making very modest profits.
Answer
You can currently earn up to £1,000 per tax year (the Trading Allowance) from hobbies without needing to inform HMRC or pay tax. But if your total income before expenses exceeds £1,000, you must register as a sole trader and potentially pay Tax & NI and do a tax return. But there’s some good news in the offing, as very soon, if you go over the £1,000 threshold, but don’t exceed £3,000 you merely report this to HMRC via a new simple online service. However, if you exceed £3,000, you’ll need to complete a full tax return.
4. Have HMRC made a mistake?
I have recently received a ‘Self-employed Class 2, NIC Due” notice for the 2024-25 tax year for £179, but I haven’t submitted a Tax Return since 2022 following HMRC writing to me to state that I no longer had to file a Tax Return as I’d become 100% PAYE. So, do you have any idea why I’ve received this demand as I wasn’t self-employed in the 2024-25 tax year and have had no dealings with HMRC since 2022?
Answer
This is rather odd and the only time that I’ve seen this before, has been when a client has made a request to pay voluntary Class2 NIC to buy a year for their State Pension for a year when previously self-employed. I would check your contributions record with the DWP first, before contacting HMRC.
5. Can I deduct my gym membership and streaming subscriptions?
I am an online influencer, which is incredibly stressful, so to keep physically and mentally fit for my work and to keep my TikTok performance at peak level, I’ve taken out up a gym membership together with a streaming subscription, but I’ve been told that they don’t qualify as business expenses. Surely this is wrong and I should be able to write them off as business expenses, as I only use them to help me de-stress?
Answer
To qualify as a business expense, any expenditure must meet the basic HMRC test of being used “wholly and exclusively” for the purpose of your profession. You could write to HMRC for a ruling, but I wouldn’t hold your breath on them saying yes, as unless a direct and legitimate business purpose applies—such as a fitness coach using a gym as part of their practice—expenses like these don’t qualify.
