Archive for the ‘Uncategorized’ Category

Points based penalties

Monday, August 13th, 2018

In the recently published draft clauses that will form the basis of the Budget later this year, HMRC has outlined a significant change to the way they will be levying penalties for late filing breaches under the Making Tax Digital regulations.

Rather than base penalties on each transgression, taxpayers will receive a penalty point per event, and when these penalties reach a certain amount the taxpayers will be required to pay a fixed penalty.

Essentially, if you miss a deadline a point will be given, but a penalty will only be charged when a specified number of points are accrued. According to HMRC, the number of points required for a penalty to be levied depends on the filing frequency of the return.

HMRC is also introducing an amended penalty for deliberately withholding information from HMRC. The changes to this penalty are required to accommodate the new points based regime and ensure that the penalty works as intended. The enacting schedule gives HMRC the power to charge penalties where a taxpayer deliberately withholds information which would enable HMRC to assess their tax liability. These penalties are based on a percentage of the tax due and can be reduced based on the taxpayer’s willingness to correct past disclosure.

The new system is similar to that adopted for driving offences. Of course, there is no suggestion that if you gather enough points to pay tax penalties you will then be banned from paying tax…

Changes to rent a room relief

Monday, August 13th, 2018

A new test is to be added to the qualifying criteria for rent-a-room relief from April 2019.

The test will require that the individual or individuals in receipt of income – the home owner(s) – will need to share occupancy of the residence in question with the individual whose occupation of the furnished accommodation is generating the receipts – the lodger.

In their notes advising this change HMRC says:

Rent-a-room relief provides Income Tax relief for those letting out furnished accommodation. It was introduced in 1992 to encourage individuals to make spare capacity in their homes available for rent. The government intended this to increase the quantity and variety of low-cost rented accommodation, giving more choice to tenants and making it easier for people to move around the country for work.

Rent-a-room relief presently gives relief from Income Tax for up to £7,500 of income to individuals who let furnished accommodation in their only or main residence.

In the last 25 years the housing market has changed significantly. The private rented sector has more than doubled in size, and the emergence and growth of online platforms in particular, have made it easier than ever for those with spare accommodation to access a global network of potential occupants.

The objective of this clause is to ensure that rent-a-room relief is better targeted to achieve its objective of incentivising individuals with spare accommodation (that might otherwise go unused) to share their homes.

When is Capital Gains Tax payable

Monday, August 13th, 2018

Notwithstanding any of the comments that follow, an individual is allowed to make tax-free capital gains of £11,700 during 2018-19.

There are also a number of circumstances when a disposal does not create a taxable gain. These include:

  • The sale of personal assets worth less than £6,000.
  • Gifts to your spouse or civil partner.
  • Gifts to a charity.
  • Gains when you cash in ISAs or PEPs.
  • Disposal of certain UK government gilts and premium bonds.
  • Betting, lottery or pools winnings.
  • Any personally owned car.

If you live abroad, you will have to pay tax on gains you make on residential property in the UK even if you are non-resident for tax purposes. You do not pay Capital Gains Tax on other UK assets, for example shares in UK companies, unless you return to the UK within 5 years of leaving.

Even if gains are taxable there may be reliefs you can claim to reduce or defer any Capital Gains Tax that may be due. These reliefs include:

  • Entrepreneurs’ relief

  • Business asset rollover relief

  • Incorporation relief

  • Gift hold-over relief

Circumstances when these reliefs may be of use include:

  • When you sell your business

  • When you reinvest the proceeds from a chargeable disposal into a new asset

  • When you change a sole trader or partnership business into a limited liability company, and

  • If you give away a business asset.

If you are likely to dispose of, or re-organise, any assets in this way please contact us to discuss any Capital Gains Tax implications.

Ask the government to sell property

Monday, August 13th, 2018

UK residents can ask for publicly owned land and buildings to be sold if they think that the property is vacant or underused.

You will need to track down the owner of the land and ask for the property to be sold. Your application will not entitle you to purchase the land, the owners may want to consider other offers.

The government department that owns the land will not sell if:

  • the land or buildings aren’t safe for your proposed use, for example if they’re part of a port, army barracks or on a flood plain,
  • they have plans for the land, such as for a railway or road,
  • the cost of selling wouldn’t be good value for the taxpayer, for example if moving to another site would cost more than the value of the property.

You will receive a letter telling you the result of your application.

Initially, you could contact the Government Property Unit righttocontest@cabinet-office.gsi.gov.uk to start the ball rolling.

Tax Diary August/September 2018

Monday, August 13th, 2018

1 August 2018 – Due date for Corporation Tax due for the year ended 31 October 2017.

19 August 2018 – PAYE and NIC deductions due for month ended 5 August 2018. (If you pay your tax electronically the due date is 22 August 2018)

19 August 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2018.

19 August 2018 – CIS tax deducted for the month ended 5 August 2018 is payable by today.

1 September 2018 – Due date for Corporation Tax due for the year ended 30 November 2017.

19 September 2018 – PAYE and NIC deductions due for month ended 5 September 2018. (If you pay your tax electronically the due date is 22 September 2018)

19 September 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2018.

19 September 2018 – CIS tax deducted for the month ended 5 September 2018 is payable by today.

Undeclared offshore assets

Thursday, August 9th, 2018

From 1 October more than 100 countries, including the UK, will be able to exchange data on financial accounts under the Common Reporting Standard (CRS). CRS data will significantly enhance HMRC’s ability to detect offshore non-compliance and it is in taxpayers’ interests to correct any non-compliance before that data is received.

The most common reasons for declaring offshore tax are in relation to foreign property, investment income and moving money into the UK from abroad. According to HMRC, over 17,000 people have already notified the department about tax due from sources of foreign income, such as their holiday homes and overseas properties.

HMRC is urging UK taxpayers to come forward and declare any foreign income or profits on offshore assets before 30 September to avoid higher tax penalties. New legislation called ‘Requirement to Correct’ requires UK taxpayers to notify HMRC about any offshore tax liabilities relating to UK income tax, capital gains tax, or inheritance tax.

However, some UK taxpayers may not realise they have a requirement to declare their overseas financial interests. Under the rules, actions like renting out a property abroad, transferring income and assets from one country to another, or even renting out a UK property when living abroad could mean taxpayers face a tax bill in the UK.

Taxpayers can correct their tax liabilities by:

• Using HMRC’s digital disclosure service as part of the Worldwide Disclosure Facility or any other service provided by HMRC as a means of correcting tax non-compliance

• Telling an officer of HMRC in the course of an enquiry into your affairs

• Or using any other method agreed with HMRC

Once a taxpayer has notified HMRC by 30 September of their intention to make a declaration, they will then have 90 days to make a full disclosure and pay any tax owed.

HMRC have provided a list of offshore assets required to be disclosed under these arrangements. They are:

• art and antiques

• bank and other savings accounts

• boats

• cash

• debts owed to you

• gold and silver articles 

• government securities

• jewellery

• land and buildings, including holiday timeshare

• life assurance policies and pensions

• other accounts, such as stockbroker or solicitor

• other bond deposits and loans including personal portfolio bonds

• rights or intellectual property including image rights

• stocks and shares

• trusts including employee benefit trusts and self-employed persons trusts 

• and vehicles

Clearly this is a major change as HMRC will soon gain information about overseas assets that will enable them to trace taxpayers who have not declared these interests on their UK tax returns. If you are concerned by this new legislation, please contact us so that we can regularise your affairs before the 30 September 2018 deadline.

 

 

Work from home?

Tuesday, August 7th, 2018

We are often quizzed by clients who are contemplating working from home: what are the tax consequences? And in particular, will I have to pay capital gains tax?

Capital gains tax

Generally speaking, if your business use is limited to allocating space for a home office, then as long as there is duality of use, no capital gains tax complications should arise when you sell the property. Duality of use means that your home office: doubles as a spare bedroom, or a storage space for domestic items, or is a study or has a similar non-business as well as a business use.

If the property you work in has a more permanent business area, for example if you live in a flat above shop premises, then sale proceeds will need to be apportioned and you will need to consider the capital gains tax position of any profit on sale attributed to the business premises.

Business tax

If you use space at home as a self-employed person you can claim reasonable, apportioned costs for the use of the space. How you make the calculation can be quite complex and will need to be based on the actual costs of occupying the relevant space. If you work 25 hours or more from home each month, you can claim using HMRC’s simplified rates:

• 25 to 50 hours a month – £10 per month,

• 51 to 100 hours a month – £18 per month, and

• Over 100 hours a month – £26 per month.

Business rates

You won’t need to worry about paying business rates for home-based businesses if you:

• use a small part of your home for your business, for example if you use a bedroom as an office, or

• sell goods by post.

You may need to pay business rates as well as Council Tax if:

• your property is part business and part domestic, for example if you live above your shop,

• you sell goods or services to people who visit your property,

• you employ other people to work at your property,

• you’ve made changes to your home for your business, for example converted a garage to a hairdresser’s salon.

You should contact the Valuation Office Agency to find out if you should be paying business rates. In Scotland, contact your local assessor.

In conclusion

Other complications arise, for example you may be required by your employer to work from home a fixed number of days a week. Any contribution you receive from your employer to cover your costs could be tax free if a nominal amount or a taxable benefit if excessive.

If you are considering working from home, to manage your own business or your employment needs, we can help you quantify any tax implications, and in particular, calculate a realistic “rent” for your home space that will not cause any unexpected tax consequences.

Planning for early losses

Thursday, August 2nd, 2018

If you are setting up a new business, you may discover that establishing a profitable base takes time. If your pre-trading planning discloses an initial loss making period, you may want to take advice about the business structure you adopt.

For example, if you set up the business as a company, the early year’s losses can only be carried forward to set off against future profits.

Alternatively, if you set up the business as a sole trader (or certain partnerships) there is a possibility of setting the initial trading losses against your other earnings. In this way you could recover the tax relief much faster than waiting for a company to become profitable.

This would be especially beneficial if you have paid income tax on other earnings at the higher rates as the early trading losses would create tax refunds at your marginal rates (40%, 45%, or perhaps 60% if your other income exceeds £100,000). Losses carried forward in a company would only reduce any future liability at corporation tax rates, currently 19%.

Deciding on the optimal structure for a new business is not a process that you should contemplate without taking professional advice. There are many pitfalls waiting for the unwary entrepreneur. We have listed below a few examples of the restrictions you would need to consider. It is unlikely that you could claim to set losses against other income if you:

  • use the cash basis for working out your tax
  • don’t run your trade commercially and for profit, for example if your trade is run as a hobby
  • are a farmer or market gardener and you also made a loss (worked out for this purpose only before capital allowances are considered) in each of the previous 5 tax years

The amount of loss relief you claim against income or capital gains may be restricted or limited for example if you:

  • worked for less than 10 hours a week on average on commercial activities of the trade
  • are a Limited Partner or a member of a Limited Liability Partnership
  • have a trade which is carried out wholly overseas
  • have claimed certain capital allowances
  •  have income from oil extraction activities or oil rights.

However, there is some merit in the strategy outlined in this article. If you are thinking about a new business, and you are more than likely to make losses in the early years, then you may be able to make best use of any tax losses by being a sole trader in this early period. You will need to consider other commercial factors, such as the exposure to your personal assets of business risks.

We can help you explore your options.

Are you missing out on tax credits?

Tuesday, July 31st, 2018

There has been much commentary in recent months reminding tax payers who claim tax credits to file their renewals application before the 31 July deadline. But apparently, many applications have been made incorrectly, and as a result, claimants are not collecting the full amount to which they are entitled.

According to a recent announcement by HMRC, many parents do not realise that they need to deduct any statutory parental pay from their salary when renewing tax credits.

In more detail, HMRC advise:

Thousands of parents could be at risk of missing out on hundreds of pounds from their tax credits by accidently reporting their income incorrectly.

HMRC is urging parents to check their income to avoid potentially missing out on an average of £495 a year. Many tax credits claimants who receive statutory maternity pay do not realise that some of this pay should be deducted from their gross pay when their tax credits awards are calculated.

As well as maternity pay, parents can deduct any payments they have received for statutory paternity, shared parental or adoption pay up to a value of £100 a week.

HMRC estimates that parents who did not deduct their statutory maternity pay from their income could have been entitled to on average an extra £495 across the year. Around 35,000 people could potentially be missing out. A full list of what can be deducted is available on GOV.UK.

This is a welcome contribution by HMRC. Hopefully, the advent of digitised accounting by the tax office will mean that, in the future, these sorts of errors will be adjusted automatically. One can only hope…

 

What is in a name?

Thursday, July 26th, 2018

One of the first things a budding entrepreneur considers is what to call their business.

If you intend to incorporate your business as a limited company, the registration process will filter out unacceptable names and names that are too similar to a company already registered at Companies House. However, this registration process can create situations where an existing company thinks that the name you have registered is too close to their own and may challenge you to change your company name.

If you set up as a sole trader there is no official registry of business names, but you must still be wary of using certain expressions.

In certain circumstances you can write to a particular organisation or government department to get clearance to use a restricted name or phrase in a name.

For example, you should avoid, or seek to permission to use, the use of the words: association, bank, British, charity, England, government, Her Majesty, institute, King, mutual, NHS, patent, police, Post Office, Queen, registrar or regulator, society, Trade Union, trust, tribunal, and University.

This list is by no means complete. There is a fairly comprehensive list of names and expressions to avoid on the GOV.UK website at https://www.gov.uk/government/publications/incorporation-and-names/annex-a-sensitive-words-and-expressions-or-words-that-could-imply-a-connection-with-government.

If you need advice we can help. We have advised numerous businesses on how best to set up and run a new business. Please call to arrange an initial consultation.