How can I use my property letting losses? Reply

Boot

Landlords need to register for Self Assessment .

They will need to keep track of the rental income and claim allowable expenses

  • Mortgage or Loan Interest (but not capital)
  • Repairs and maintenance (but not improvements)
  • Decorating
  • Gardening
  • Cleaning
  • Travel costs to and from your properties for lettings or meetings
  • Advertising costs
  • Agents fees
  • Buildings and contents insurance
  • Ground Rent
  • Accountants Fees
  • Rent insurance (if you claim the income will need to be declared)
  • Legal fees relating to eviction

Rent less expenses will either produce a profit or a loss.

Making a loss

If you have residential buy to let properties that you own personally you can deduct any losses from your property letting profit and enter the figure on your Self Assessment form.

You can offset your loss against:

  • future profits by carrying it forward to a later year
  • profits from other properties (if you have them)

You can only offset losses against future profits in the same business.

Incorporation

If you incorporate your Buy to Let business, see our blog in incorporation tax relief..

Can a Residential Property Investor use Incorporation Tax Relief?

If you transfer your business in exchange for shares to another company, you can use any unused losses against your income from the new company.

Can you save tax by transferring your self employed losses to a company?

steve@bicknells.net

 

 

 

Is it time to review your property funding? Reply

Base Rates

 

Every month at PPN Rory O’Mara of http://www.closedbridgingfinance.com gives an update on Mortgage and Finance and he has agreed that I can share his information in this blog.

NEWS
• Average House Price: 9 June £297,508 August £304,116 – Zoopla
• More FTB Mortgages issued in June since 2007
• First time buyers make up 47% of the market in Q1 2016 – 154,200 Deposit is £33.960 up 14%.
• BTL arrears falling after Brexit 9,300 Q1 2016 to 6,600 in Q4

Top Buy to LetMortgages
• TMW: 2.49% 2 Year Fix 75% LTV
• B Mids: 2.84% 2 Year Fix 75% LTV
• KENT REL: 4.99% 2 Year Fix to 85% LTV
• VIRGIN: 2.54% 2 Year Fix 75% LTV
• MORT TRUST: 2.80% 31/01/18 75% LTV
• COVENTRY: 3.29% 2 Year Fix 75% LTV

Top Long Term BTL
• BMSols: 3.29% 5 Year Fix 75% LTV
• VIRGIN: 3.48% 5 Year Fix 75% LTV
• Coventry: 3.19% 5 Year Fix 65% LTV

BRIDGING & DEVELOPMENT
• Typical 70-75% LTV x Purchase Price
• Arrangement Fees 2%
• Monthly Interest from 1%

DEVELOPMENT FINANCE:
50% x GDV
100% x Build Cost in Stages
50-60% x Purchase Price

Please contact Rory to discuss the information in this blog.

steve@bicknells.net

 

Flyer

 

 

 

Is my training tax deductible? Reply

Training Practice Workshop Mentoring Learning Concept

Training courses can be expensive, in this blog we are going to focus on the self employed.

The key rules are contained in BIM42526

Specific deductions: administration: own training courses

Provided it is incurred wholly and exclusively for the purposes of the trade carried on by the individual at the time the training is undertaken, expenditure on training courses attended by the proprietor of a business (either as a sole trader, or in partnership with others) with the purpose of up-dating their skills and professional expertise is normally revenue expenditure, which is deductible from the profits of the business.

Business purpose test

In considering the question of purpose, you should not take an unduly narrow view of whether the content of any particular course only up-dates existing skills of the individual. But if it is clear that, for example, a completely new specialisation or qualification will be acquired as a result of the expenditure, it is unlikely that the expenditure will be wholly and exclusively for the purposes of the existing trade.

Capital test

Expenditure on new skills etc may also be capital if what is acquired can be viewed as an identifiable asset of sufficient substance and endurance. See Dass v Special Commissioner and others [2006] EWHC2491 (Ch)

Let’s take the example of Property Courses

There are many property courses available for investors, often the investors are self employed/sole traders/individual investors, the courses can cost thousands.

What courses are claimable:

  • Improving your skills – for example you have a basic understanding of finances but want improve your knowledge of tax

What courses are not claimable:

  • Beginners Day/Novice Courses – any course for beginners or novices would suggest you have no previous knowledge so they won’t be allowed
  • New Skills – you want to learn something new for example you currently let property and want to learn how to do property development

If the course is disallowed the travel costs will also be disallowed

What about companies?

The rules for companies are much easier to comply with and written with a much wider scope..

Income Tax (Earnings and Pensions) Act 2003

Section 250 Exemption of work-related training provision

(1)No liability to income tax arises by virtue of—

(a)the provision for an employee of work-related training or any benefit incidental to such training, or

(b)the payment or reimbursement to or in respect of an employee of—

(i)the cost of work-related training or of any benefit incidental to such training, or

(ii)any costs of a kind specified in subsection (2) in respect of such training.

(2)The costs are—

(a)costs which are incidental to the employee undertaking the training,

(b)expenses incurred in connection with an examination or other assessment of what the employee has gained from the training, and

(c)the cost of obtaining any qualification, registration or award to which the employee becomes or may become entitled as a result of the training or such an examination or other assessment.

Section 251 Meaning of “work-related training”

(1)In this Chapter “work-related training”, in relation to an employee, means a training course or other activity designed to impart, instil, improve or reinforce any knowledge, skills or personal qualities which—

(a)are likely to prove useful to the employee when performing the duties of the employment or a related employment, or

(b)will qualify or better qualify the employee—

(i)to perform those duties, or

(ii)to participate in any charitable or voluntary activities that are available to be performed in association with the employment or a related employment.

(2)For this purpose “related employment”, in relation to an employee, means another employment with the same employer, or with a person connected with the employer, which the employee—

(a)is to hold,

(b)has a serious opportunity of holding, or

(c)can realistically expect to have a serious opportunity of holding in due course.

steve@bicknells.net

A Guide to Trusts and Tax Efficient Life Insurance Reply

Business Accountant

relevantlife_icon

When it comes to planning your family’s financial future, it makes good sense to take all steps possible to protect their standard of living. Arranging your life insurance in the right way, to give your loved ones the maximum possible benefit  is an important consideration. One option when taking out life insurance is putting the policy into a trust. And yet according to insurer Aegon, only 6% of life-insurance policies in the UK are set up in this way. 
This is surprising as it can be advantageous and is very simple to do. Many Contractors are now opting for a tax efficient Relevant Life Plan as all policies are written into trust from the outset (in order to meet HMRC qualification for tax exemption) and in doing so place the cost of life insurance on company expenses without alteration to their P11D status (they also benefit from 20% corporation tax relief on the…

View original post 797 more words

Childcare – 3 Part Report for Childcare Providers and Parents Reply

We have prepared a report made up of 3 blogs written by Steve Bicknell and Whitney Highum

https://debitoor.com/blog/part-1-childminders-how-make-most-your-claims

https://debitoor.com/blog/part-2-childminders-what-know-about-new-scheme

https://debitoor.com/blog/part-3-parents-and-new-tax-free-childcare-scheme

The blogs cover childcare vouchers, salary sacrifice, the new 2017 scheme, and tax allowable expenses for childcare professionals. Click here to download

Childcare Blogs

Does your business qualify for Business Rates Relief? Reply

A donut store, bakery, fish and chips store and a pet shop

You can get small business rate relief if:

  • you only use one property
  • your property’s rateable value is less than £12,000

What you get

You’ll get 100% relief (doubled from the usual rate of 50%) until 31 March 2017 for properties with a rateable value of £6,000 or less. This means you won’t pay business rates on properties with a rateable value of £6,000 or less.

The rate of relief will gradually decrease from 100% to 0% for properties with a rateable value between £6,001 and £12,000.

You have more than one property

You can get small business rate relief if the rateable value of each of your other properties is less than £2,600.

The rateable values of the properties are added together and the relief applied to the main property.

You’ll keep getting any existing relief for one year when you get a second property.

You’re a small business but don’t qualify for relief

If your property has a rateable value below £18,000 (£25,500 in Greater London) you’re considered a small business.

Even if you don’t qualify for small business rate relief, your business rates will be calculated using the small business multiplier instead of the standard one. This is the case even if you have multiple occupied properties.

The multiplier shows the percentage (pence in the pound) of the rateable value that you pay in business rates. You can see a list of current multipliers on the Valuation Office Agency (VOA) website.

https://www.gov.uk/apply-for-business-rate-relief/small-business-rate-relief

steve@bicknells.net

When is Mortgage Interest a tax allowable expense? Reply

what

There are ways that you can claim tax relief for your mortgage interest.

Qualifying Loan Interest Relief

Often when you start a business you will need to borrow money personally to lend to your new company or buy shares.

You might borrow by increasing your mortgage.

You may be entitled to claim tax relief for interest paid on a loan or alternative finance arrangement used to buy:

  • shares in, or to fund, a ‘close’ company (contact your HM Revenue & Customs (HMRC) office if you are not sure if the company is ‘close’)
  • an interest in, or to fund, a partnership
  • plant or machinery for your work (but make sure you do not claim this interest twice, you will do if you have already deducted it as a business expense)

If you receive a low-interest or interest free loan from your employer for one of the above purposes you may be able to claim relief for any benefit taxable on you.

This is called ‘Qualifying loan interest relief’, HMRC have a helpsheet which gives further details HS340

Property Investors/Buy to Let

At the moment property investors can also offset mortgage relief against their profits but the rules are changing.

2017/18 75% of the interest can be claimed in full and 25% will get relief at 20%

2018/19 50% of the interest can be claimed in full and 50% will get relief at 20%

2019/20 25% of the interest can be claimed in full and 75% will get relief at 20%

2020/21 100% will get only 20% relief

For a 20% tax payer that’s fine but for higher rate taxpayer its a disaster that will lead to them paying a lot more tax

These rules will not apply to Companies, Companies will continue to claim full relief.

How much can you borrow?

In summary if you re-mortgage above the original market value and you own the property personally and take out the cash you will not be able to claim relief from interest on the part above the original market value

If however you borrow to invest in another property that is ok.

steve@bicknells.net

What are the VAT implications of converting commercial buildings to residential? Reply

foreman builder and construction worker with blueprint in indoor apartment

There are several issues to watch out for:

Transfer Of a Going Concern (TOGC)

Before you buy a commercial property you will need to find out if the current owner has opted to tax.

Supplies of land and buildings, such as freehold sales, leasing or renting, are normally exempt from VAT. This means that no VAT is payable, but the person making the supply cannot normally recover any of the VAT incurred on their own expenses.

However, you can opt to tax land. For the purposes of VAT, the term ‘land’ includes any buildings or structures permanently affixed to it. You don’t need to own the land in order to opt to tax. Once you have opted to tax all the supplies you make of your interest in the land or buildings will normally be standard rated, and you will normally be able to recover any VAT you incur in making those supplies. VAT Notice 742A

If an Option to Tax is in place the seller will charge VAT when they sell the property.

If the purchaser is not registered for VAT they get a very large VAT bill to pay, however, if they register for VAT or are registered for VAT before the sale takes place then its possible to use the TOGC rules to avoid having to pay VAT on the purchase.

The main conditions are:

  • the assets must be sold as part of the transfer of a ‘business’ as a ‘going concern’
  • the assets are to be used by the purchaser with the intention of carrying on the same kind of ‘business’ as the seller (but not necessarily identical) – for example commercial property rental
  • where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer
  • in respect of land which would be standard rated if it were supplied, the purchaser must notify HMRC that he has opted to tax the land by the relevant date, and must notify the seller that their option has not been disapplied by the same date

The TOGC rules are compulsory. You cannot choose to ‘opt out’. So, it is very important that you establish from the outset whether the business property is being sold as a TOGC. Incorrect treatment could result in corrective action by HMRC which may attract a penalty and or interest.

Problem areas:

  1. Gap in trading – for TOGC to apply there must be no significant gap in trading between the sale and purchase
  2. VAT registration – If the vendor is VAT registered, there can only be a VAT-free TOGC if the purchaser is registered at or before the transfer

TOGC Intended for Residential Use

Schedule 10 para 6 VATA 1994 Notice 742A para 3.4

Your option to tax will not apply if you supply a building or part of a building that is not designed or adapted as a dwelling (or number of dwellings) or for a relevant residential purpose but you receive a certificate (VAT1614D) from the recipient of your supply (by the time described in paragraph 3.4.3 and paragraph 3.4.4) certifying that it is intended for use as a dwelling or number of dwellings or solely for a relevant residential purpose. This can apply where the building, or relevant part, is either intended for such use:

  • without conversion work being undertaken
  • after conversion

Conversion of Commercial to Residential for Sale – Zero Rating

VAT notice 708 (Schedule 8 Group 5 item 1 VATA 1994)

5.5.1 What ‘person converting’ means

You are a ‘person converting’ a building if, in relation to that building, you are acting as, or have, at any point in the past, acted as:

  • a developer – you physically converted, or commissioned another person to physically convert, a building (in whole or in part) that you own or have an interest in
  • a contractor or subcontractor – you provided construction services to the developer or another contractor for the conversion of the building, sub-contracting work as necessary

5.5.6 TOGC of converted developments of dwellings, relevant residential buildings

A person acquiring a residential development that has been subject to a qualifying conversion as part of a TOGC inherits ‘person converting’ status and is capable of making a zero rated first major interest grant in that building or part of it as long as:

a) a zero rated grant has not already been made of the converted building or relevant part by a previous owner (not including the grant that gives rise to the TOGC)

b) the person acquiring the building as a TOGC would suffer an unfair VAT disadvantage if its first major interest grants were treated as exempt (for example, a developer restructures its business. This entails the transfer (as a TOGC) of its entire property portfolio of newly constructed or converted qualifying buildings to an associated company, which will make first major interest grants. If these were treated as exempt, the transferee might become liable to repay input tax recovered by the original owner on development costs under the Capital Goods Scheme or partial exemption “claw back” provisions and would incur input tax restrictions on selling fees that would not be suffered by businesses in similar circumstances – we would consider this to be an unfair disadvantage)

c) that person would not obtain an unfair VAT advantage by being in a position to make zero rated supplies (for example, by recovering input tax on a refurbishment of an existing building)

A recent case suggests the rules even apply to Houses of Multiple Occupancy (HMO’s) and that HMO’s can also be Zero Rated

https://www.gov.uk/government/publications/vat-notice-708-buildings-and-construction/vat-notice-708-buildings-and-construction#zero-rating-the-sale-of-or-long-lease-in-non-residential-buildings-converted-to-residential-use

The case is Capital Focus Limited v HMRC TC05193 Appeal number TC/2015/04891.

Capital Focus purchased Tintern House in Banbury, Oxfordshire in August 1994, it was a commercial building and they intended to create one large residential building so they started work and reclaimed the VAT, however, they changed their mind and decided to create an HMO instead.

HMRC allowed the £45,000 input tax claim on the basis that it would be supply of a non-residential building converted to residential use and therefore zero-rated under Item 1(b), Group 5 of schedule 8 to the Value Added Tax Act 1994 (“VATA”)
On 22 April 2015 HMRC wrote to the Company stating that, because it had been converted for multiple occupancy, the sale of Tintern House
was not a zero-rated but an exempt supply and any input tax incurred that was directly attributable to it was not recoverable.
HMRC lost the case, here is the result..
VAT Zero HMO

Reduced Rate VAT for Conversion from Commercial to Residential

The rules are in VAT Notice 708

Using the reduced rate of 5% is useful for Residential property (exempt from VAT) but is also useful for commercial buildings where there is no option to tax in place.

Conversions into single household dwellings

A qualifying conversion includes the conversion of:

  • a property that has never been lived in, such as an office block or a barn
  • a multiple occupancy building such as a bedsit block
  • living accommodation which is not self-contained, such as a pub containing staff accommodation that is not self-contained
  • any dwelling which had previously been adapted in its entirety to another use, such as to offices or a dental practice

It does not include:

  • the creation of living accommodation that is not a ‘single household dwelling’, such as most ‘granny’ annexes or additional bedrooms at a care home, and
  • the renovation or alteration of living accommodation that had been used for other purposes without the premises being adapted, such as a flat above a shop that has been used for storage. If the living accommodation has not been lived in for two years or more, the reduced rate explained in section 8 may apply

Conversions into multiple occupancy dwellings

A qualifying conversion includes the conversion into a multiple occupancy dwelling of:

  • a single household dwelling
  • a building used for a relevant residential purpose, such as a care home, and
  • a property that has never been lived in

It does not include, for example, the creation of additional bedrooms at a dwelling consisting of bed-sits.

Conversions into premises intended for use for a relevant residential purpose

A qualifying conversion includes the conversion of:

  • a single household dwelling
  • a multiple occupancy dwelling, and
  • a property that has never been lived in

into premises that will be used solely for a relevant residential purpose.

It does not include:

  • the remodelling of an existing ‘relevant residential purpose’ building, such as a care home, and
  • any conversion where a new qualifying residential ‘home’ or ‘institution’ is not created in its entirety, such as the conversion of outbuildings into additional bedrooms for an existing care home

What services can I reduced-rate?

Other than installing goods that are not building materials, you can reduced-rate any works of repair, maintenance (such as redecoration), or improvement (such as the construction of an extension or the installation of double glazing) carried out to the fabric of the building.

You can also reduced-rate works within the immediate site of the premises being converted that are in connection with the:

  • means of providing water, power, heat or access
  • means of providing drainage or security, or
  • provision of means of waste disposal

All other services are standard-rated. For example, you must standard-rate:

  • the installation of goods that are not building materials, such as carpets and fitted bedroom furniture
  • the erection and dismantling of scaffolding
  • the hire of goods
  • landscaping
  • the provision of professional services, such as those provided by architects, surveyors, consultants and supervisors

 

steve@bicknells.net

What are the consequences of unlawful dividends? Reply

Businessman in police lineup backdrop, illustration, vector

What are the requirements for a legal dividend?

Companies Act 2006 Section 830 – Distributions to be made only out of profits available for the purpose

(1)A company may only make a distribution out of profits available for the purpose.

(2)A company’s profits available for distribution are its accumulated, realised profits, so far as not previously utilised by distribution or capitalisation, less its accumulated, realised losses, so far as not previously written off in a reduction or reorganisation of capital duly made.

(3)Subsection (2) has effect subject to sections 832 and 835 (investment companies etc: distributions out of accumulated revenue profits).

A distribution must be justified by

  1. The Company’s last published accounts
  2. Interim Accounts
  3. Initial Accounts

In small businesses having the right paperwork is vital should HMRC raise any questions, you will need:

  • Board Minutes
  • Dividend Vouchers

What are illegal dividends?

Companies Act 2006 Section 847 – Consequences of unlawful distribution

(1)This section applies where a distribution, or part of one, made by a company to one of its members is made in contravention of this Part.

(2)If at the time of the distribution the member knows or has reasonable grounds for believing that it is so made, he is liable—

(a)to repay it (or that part of it, as the case may be) to the company, or

(b)in the case of a distribution made otherwise than in cash, to pay the company a sum equal to the value of the distribution (or part) at that time.

(3)This is without prejudice to any obligation imposed apart from this section on a member of a company to repay a distribution unlawfully made to him.

Mistakes can happen..

Mistakes can happen even to large companies like NEXT PLC

Whilst the Company always had sufficient reserves to pay the Relevant Distributions at the time that they were made, the Act required this to be demonstrated by reference to interim accounts filed at Companies House prior to payment. Regrettably, those interim accounts were not filed with Companies House until after the Relevant Distributions had been paid and after the lapse had been identified.  No fines or other penalties have been incurred by the Company.

Section 386 Duty to keep accounting records

(1)Every company must keep adequate accounting records.

(2)Adequate accounting records means records that are sufficient—

(a)to show and explain the company’s transactions,

(b)to disclose with reasonable accuracy, at any time, the financial position of the company at that time, and

(c)to enable the directors to ensure that any accounts required to be prepared comply with the requirements of this Act (and, where applicable, of Article 4 of the IAS Regulation).

(3)Accounting records must, in particular, contain—

(a)entries from day to day of all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place, and

(b)a record of the assets and liabilities of the company.

(4)If the company’s business involves dealing in goods, the accounting records must contain—

(a)statements of stock held by the company at the end of each financial year of the company,

(b)all statements of stocktakings from which any statement of stock as is mentioned in paragraph (a) has been or is to be prepared, and

(c)except in the case of goods sold by way of ordinary retail trade, statements of all goods sold and purchased, showing the goods and the buyers and sellers in sufficient detail to enable all these to be identified.

 

steve@bicknells.net