Q & A - Part 1

Q I am setting up my own business soon and I plan to re-mortgage my current home to raise the start up capital.  Will the interest payable on my mortgage be considered a tax deductible expense against my business profits?

A Whether or not the interest is deductible depends on the purpose of loan. Although the loan will be financed by other means, (and in your case on your personal residence), the interest on the element that will be used wholly and exclusively to fund your new business venture is an allowable deduction when establishing the net profit from your business activity.

However, you can only claim a deduction for the amount of “qualifying interest” which applies to the business. This is the interest paid on the amount of the loan used for your business, and any interest payable on the element relating to your existing residence is not deductible against the profits from your business.

Q I recently registered my hairdressing business for VAT.  I understand that you can claim back VAT from my previous two years of trading. Is this true?

A Unfortunately its not all the VAT you have suffered in the last 2 years, as you can only claim back the VAT on goods that you have acquired in the 4 years prior to registration which are still held in stock (or used to make other goods which are still held in stock) and originally acquired for business purposes.

Equally, it also includes the VAT on any capital assets such as equipment which you have purchased in the previous 4 years, but I am afraid any VAT suffered on goods or items that have been sold on to customers cannot be re-claimed once you have registered. You are also able to recover the VAT incurred on services, which have been supplied within 6 months prior to the date of registration, assuming they were also supplied for the purpose of the business.

Disclaimer – advice shared in this column is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this column, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.