Month: December 2016

Are property transfers between spouses taxed?

Mosaïque de logements

When you think about property and property investments the first tax that comes to mind is Capital Gains Tax (CGT).

You don’t pay Capital Gains Tax on assets you give or sell to your husband, wife or civil partner, unless:

The tax year is from 6 April to 5 April the following year.

https://www.gov.uk/capital-gains-tax/gifts

However, if your property has a mortgage transfering it could create a Stamp Duty Charge (SDLT).

You might pay SDLT when you transfer a share in a property to a husband, wife or partner when you do one of the following:

  • marry
  • enter into a civil partnership
  • move in together

You pay SDLT if the consideration given in exchange for the share transfer is more than the current SDLT threshold for the property type.

Example 1 – you don’t pay SDLT

A house has a value of £180,000. The owner of the property has equity of £90,000 and an outstanding mortgage of £90,000. The owner transfers a half share of the property to their partner.

Their partner:

  • pays cash for half of the equity – £45,000
  • takes responsibility for 50% of the outstanding mortgage – £45,000

So the consideration for SDLT is £90,000, made up of the:

  • cash payment
  • 50% share of the outstanding mortgage

£90,000 is below the current SDLT threshold so there’s no tax to pay. You must still tell HM Revenue and Customs (HMRC) about the transaction on an SDLT return.

Example 2 – you pay SDLT even though no money changes hands

The owner of a property valued at £500,000 with an outstanding mortgage of £400,000 transfers half the property to their partner when they marry. Their partner takes on 50% of the mortgage (£200,000).

HMRC charge SDLT on the amount paid for a property or the amount of ‘consideration’ given.

By taking liability for the mortgage, the owner’s partner has given ‘consideration’ of £200,000 for their share of the property which is £1,500 SDLT (0% of £125,000 + 2% of £75,000).

They must pay SDLT on that amount and tell HMRC about the transfer by filling in an SDLT return.

The equity isn’t included in the calculation as you only pay SDLT on the consideration given.

If the transfer is a gift

If the transfer is a gift and there’s no consideration, SDLT doesn’t normally apply.

https://www.gov.uk/guidance/sdlt-transferring-ownership-of-land-or-property

steve@bicknells.net

Do you want to work for yourself?

group of successes people

4.75 million people are now self employed, thats 15% of all people in work in the UK.

Why become self-employed – Citizens Advice

There is encouragement from the government for people to become self-employed and at first it seems attractive, especially if you have recently become unemployed or redundant. Although one of the main attractions of becoming self-employed is no longer having to work for somebody else there are several disadvantages you should consider. These include not being certain of having a regular income, having to arrange your own sick pay and pension and probably having to work long hours.

What should you do before you start your business?

  1. Create a Business Plan – research shows it will increase your profitby 20%
  2. Create a cashflow forecast – work out how muc money you will need to run your business and where you will get the funding from
  3. Choose the right structure – its important to consider carefully whether to be a Sole Trader, Partnership or Limited Company
  4. Talk to an Accountant – Accountants will help you register and set up your business and avoid the risk of penalties
  5. Market Research – is there a market for your product or service, how big is the market and why will customers buy from you

Your responsibilities

You’re responsible for:

hmrc-expenses

 

steve@bicknells.net

 

At what point does a commercial property become residential?

immobilier

This blog relates to sale/purchase transactions, its common for developers to get planning consent before purchasing.

Just getting planning consent doesn’t trigger a change, its the use at the effective date of the transaction that overrides any past or intended future uses for the property.

The Rules are in

http://www.legislation.gov.uk/ukpga/2003/14/section/116

Meaning of “residential property”

(1)In this Part “residential property” means—

(a)a building that is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for such use

http://www.legislation.gov.uk/ukpga/1994/23/schedule/8/part/II/chapter/5/paragraph/2

a building designed as a dwelling or number of dwellings or intended for use solely for a relevant residential purpose

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm20076

In most cases, there will be no difficulty in establishing whether or not a property is residential property.

Use at the effective date of the transaction overrides any past or intended future uses for this purpose.

steve@bicknells.net

Grass Roots Sports Tax Break

sportler macht eine pause beim training auf dem sportplatz

Finance Bill 2017 introduces a new corporation tax deduction for contributions to grassroots sports.

From 1 April 2017  Companies will be able to make deductions for all contributions to grassroots sports through recognised sport governing bodies, and deductions of up to £2,500 in total annually for direct contributions to grassroots sports. Sport governing bodies will be able to make deductions for all their contributions to grassroots sports.

Qualifying expenditure will be drawn quite widely and will, for example, include payments to coaches and officials. However, no payments to participators will be eligible, other than to cover the cost of travelling to competitions.

The legislation will contain similar protections to the charity and CASC legislation to ensure that payments are made for the intended purposes and to prevent payments being made for personal benefit. gov.uk

Currently, the following provisions provide a relief for CT on payments to sports clubs or in connection with sporting events:

Under section 189 of the Corporation Tax Act 2010, sporting bodies registered as charities can receive payments that can be deducted against the donating company’s CT liability.

Under section 202 of the Corporation Tax Act 2010, payments made to Community Amateur Sports Clubs (CASC) can be deducted for CT in the same way as payments to a charitable body.

Otherwise, section 54 (1) (a) of the Corporation Tax Act 2009 is likely to prevent payments being deductible for CT because they do not meet the test of being ‘wholly and exclusively for the purposes of the trade’.

Good news for UK Sport!

steve@bicknells.net

Common Sense VAT for Digital Services

EU

Since 1st January 2015 VAT has been charged in the country where the customer has ‘use and enjoyment’ of the services.

So lets say you are an American (normally zero rated) on holiday in France, even though you pay with an American credit card and buy from a UK supplier because you are reading your ebook in France, French VAT will apply. Sounds like a nightmare, doesn’t it.

To help with this HMRC introduced the VAT MOSS (Mini One Stop Shop).

But now, at last, it looks like common sense will prevail for small businesses.

The European Commission is proposing a threshold of €10,000 in online sales per annum before MOSS rules would apply. Businesses trading under that threshold will be able to apply domestic VAT rules. In support of this proposal, the Commission revealed that just 0.1% of all MOSS revenue has come from returns with a declared turnover of under €10,000.

In addition to the €10k threshold, SMEs which make less than €100,000 in cross-border sales will no longer be required to provide two pieces of data to prove the place of supply of their customers. This requirement had resulted in businesses spending thousands of pounds to reprogram their e-commerce operations in order to collect trivial amounts of European VAT. The EC now says that one piece of evidence will suffice for traders of e-services. Accountingweb

Hooray for common sense!

steve@bicknells.net

Should I worry about a tax investigation?

Tax Investigations can happen to anyone, around 7% are estimated to be random.

Even if your accounts and tax affairs are in totally up to date and correct investigations will take up your accountants time and incur fees.

What can you do to reduce your chances of being selected:

1. File your tax returns on time and pay what you owe – If you file late or at the last minute HMRC will think you are disorganised and as such there are more likely to be errors in the return

2. Declare all your income – HMRC get details of bank interest and other sources of income, sometimes they test them and match them to returns

3. Use an accountant – Unrepresented taxpayers are more likely to be looked at, mainly because many of them don’t know what they are doing

4. Trends – if your business doesn’t match the profile of similar business in the same sector or your results suddenly fluctuate it could raise concerns at HMRC, for example, if you suddenly request a VAT refund

According to the FSB

The average duration of a full investigation is circa 16 months whereas an aspect investigation can last between 3 – 6 months, but can take longer.

We are currently putting in place a solution for our clients with Taxwise  better to be safe than sorry, letters will be sent to our clients before Christmas

taxwise

steve@bicknells.net

Will your Flat Rate VAT bill be going up in April?

omg man

The Flat Rate VAT scheme is very popular with small businesses.

The Flat Rate Scheme is designed to simplify your records of sales and purchases. It allows you to apply a fixed flat-rate percentage to your gross turnover to arrive at the VAT due.

Fixed-rate percentages vary depending on the type of business. [HMRC VAT Notice 733]

The scheme is for businesses with a turnover no more than £150,000 a year, excluding VAT.

The problem is that HMRC feel the scheme has been abused and used as a way to pay less VAT especially by businesses with virtually no costs.

A Low or Limited Cost Trader would spend less than 2% on gross turnover, or less than £1000 on the purchase of goods.

From April 2017 they will get a special 16.5% flat rate.

Here are some of the businesses likely to be affected

  • Accountancy and legal services 14.5%
  • Journalism or entertaining 12.5%
  • Computer or IT consultancy 14.5%
  • Business services not listed elsewhere 12%
  • Estate agents and property management 12%
  • Management consultancy 14%

There are lots of other VAT schemes to choose from

Standard VAT Scheme – on this scheme the VAT is based on tax points from invoices

VAT Cash Accounting Scheme – if your turnover is below £1.35m you can account for VAT on a Cash basis, this is particularly helpful if your customers pay you on slower terms than you pay your suppliers

Annual Accounting Scheme for VAT – if your turnover is below £1.35m you could join the Annual Scheme and complete one return for the year but you make either 9 interim payments or 3 quarterly interim payments

Retail VAT Schemes – These are specific schemes aimed at mainly at shops and help to overcome the issues of mixed vat rate goods

VAT Margin Scheme – The margin scheme relates to second hand goods and accounts for VAT on the margin, for example on the sale of cars

They will all produce different answers!

Now might be a good time to make comparisons.

steve@bicknells.net