Month: July 2017

Rent a Room – What if Rent exceeds £7,500?

Many people think that Rent a Room is a tax free allowance, a bit like the personal allowance, but its not quite as simple as that.

If your total rent from a room in your home is less than £7,500 then that’s fine, but if your rent is above £7,500 these rules will apply

3.2 If your gross receipts are more than the Rent-a-Room limit

If your gross receipts are more than £7,500 (or £3,750), you can choose how you want to work out your tax:

Method A

You pay tax on your actual profit – your total receipts less any expenses and capital allowances.

Method B

You pay tax on your gross receipts over the Rent-a-Room limit – that is, your gross receipts minus £7,500 (or £3,750). You can’t deduct any expenses or capital allowances if you choose this method.

HMRC will automatically use your actual profit (Method A) to work out your tax.

If you want to pay tax using Method B, you need to tell HMRC within the time limit. You will continue to pay tax on your gross receipts over the Rent-a-Room limit until you tell HMRC that you want to change back to paying tax on your actual profit (Method A).

If you pay tax using Method B, this automatically stops if your rental income drops below the £7,500 (or £3,750) limit.

https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet/hs223-rent-a-room-scheme-2017

So in most cases if you have rent above £7,500 you probably won’t want to claim Rent a Room because you will not be able to offset any expenses!

steve@bicknells.net

Oops! HMRC software not working

We have an extremely complicated tax system, so is it any wonder that even HMRC struggle to calculate your tax correctly!

The way that allowances are applied for dividends, allowances, savings and other items all impact on each other.

Many tax payers will be working on their 2016/17 returns (to 5th April 2017 due by 31st January 2018) over the coming months and find that they can’t use the HMRC software because it doesn’t work properly.

As reported by Accounting Web

Rob Ellis, CEO of BTCSoftware, can’t remember a year when there have been so many exclusions from filing SA tax returns online. For the 2016/17 tax returns 16 new examples have been added to the online filing exclusions list, which is now in version 4;  there is a version 5 of this list under construction.

You can read the full list of exclusion on this link https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/622426/2017-exc-indi.pdf

There are 62 exclusions!

Why is tax complicated! Here are the facts:

  • 6,102 pages of legislation (according to Tolleys in 2012)
  • 639 monetary values
  • 425 thresholds
  • 214 penalties

In 2016:

  • 11.26 million SA returns due
  • 10.39 million returns were received in total
  • Around 870,000 SA returns not submitted by 31st January 2016
  • 10.39 million returns received by midnight on 31 January (92% of total issued)
  • 9.24 million returns filed online (89%)
  • 1.14 million returns filed on paper (11%)
  • More than 4.45 million returns received in January 2016 (43% of total received)
  • 823,000 returns received on 30 and 31 January (18% of total returns received in January)
  • Busiest hour: 14:00 – 15:00 on 29 January – 50,358 returns received (839.3 per minute; 13.9 per second).
  • N.B. The figures are sourced from Self Assessment management information from the Computerised Environment for Self Assessment as at 01 February 2016 for the 2014-15 tax year.

Even if the HMRC software is working…

10 most common online self assessment issues

Here are 10 of the most common problems, issues and errors that come up:

  1. Not leaving enough time to register for Self Assessment – It can take 20 working days (this is usually 4 weeks) to complete the registration process, then for online returns, allow 10 working days (21 if you’re abroad) to register because HM Revenue and Customs (HMRC) posts you an activation code.
  2. Lost Login details – Your account will be locked for 2 hours if you enter the wrong user ID or password 3 times.If you’ve lost both your user ID and password:
    – individuals in Self Assessment can request new ones (allow 7 days to get them by post) or sign up with the GOV.UK Verify trial
    – contact HMRC for all other online services
  3. Leaving it too late to get help – If you need help from an accountant don’t leave it too late as they will need to carryout AML and other checks before they can file your return, they will also need your UTR
  4. Failing to complete all the parts of the return – For example leaving out PAYE information
  5. Failing to press ‘submit’ – you would be surprised how many people complete the return and then stop without submitting or leave submission and then forget to do it
  6. Missing out details of your Pension Provider
  7. Failing to check the calculation – Most people do a rough calculation of what they owe but fail to check the HMRC calculation only to find out they have made a mistake
  8. Using invalid characters such as # ‘ ” in boxes where these are not allowed
  9. Not paying the tax they owe by 31st January
  10. Failing to explain where estimates and provisional sums have been used

If you don’t already use an accountant, may be 2017 is the year to start?

steve@bicknells.net

WAT a mess!

The Widening Access Training scheme (WAT) was developed for NHS workers to save tax and national insurance.

In fact in many cases the training was free of all tax and NI, the problem has been in its operation.

We have clients in 2 different NHS trusts, they initially got refunds, then had to repay the refunds, and then got refunds direct from HMRC.

Unite have information on their website..

NHS Payroll departments have been contacting staff who may be eligible to receive a refund of Tax and National Insurance (NI) contributions, paid in error, whilst they were in full-time education.

Her Majesty’s Revenue and Customs (HMRC) have stated that employed staff also in full-time education are exempt from Tax and NI up to an annual allowance on earnings of £15,480, whilst in training, provided they meet the following conditions: 

The claimant must have been:

  • An existing NHS employee when starting a training scheme (this could have been at another NHS organisation). 
  • Looking to widen their knowledge. 
  • In full-time attendance at an educational establishment for at least one academic year, and must have attended the course for at least 20 weeks in that academic year. If the course is longer, the employee must attend for at least 20 weeks on average in an academic year over the period of the course.  

Claims for refunds of tax and NI can be made for the period September 1999 to March 2013.  

HMRC normally only accept refund claims for the previous 6 tax years. However, this restriction has been extended back to September 1999, to coincide with the start of a specific training scheme; the Widening Access Training Scheme. 

This the advice from HMRC to NHS Payrolls

Responsibility for refunds

Training courses attended before 6 April 2013

HM Revenue and Customs (HMRC) will deal with the refund if your employee attended a qualifying WAT course starting before 6 April 2013.

You should submit claims to HMRC on behalf of your NHS employees, providing full details of all eligible workers.

Trusts/authorities should notify HMRC by submitting a schedule by email to the mailbox. nhswat.mailbox@hmrc.gsi.gov.uk

Workers have been advised to contact you to confirm if you’ve already sent a claim to HMRC on their behalf. You may need to ask them for further information or evidence to support their application for a refund.

Training courses attended after 6 April 2013

If workers attended a qualifying WAT course starting on or after the 6 April 2013 the refund should be dealt with by you through your payroll system.

Training course only

If an employee attended a qualifying WAT course and is entitled to a refund, you should complete a Full Payment Submission (FPS):

  1. Enter the full amount of training income paid to the employee in the field ‘Value of payments not subject to Income Tax or NICs in pay period’.
  2. Enter the tax code for the year.
  3. Don’t complete any of the NICs fields.

Training course and paid work

If the employee did a combination of training and paid work and is entitled to a refund for the training income, you should complete an FPS:

  1. Separate the training income from the earned income.
  2. Subject any additional earnings to Income Tax and NICs in the normal way.
  3. Enter the amount of training income received in the field ‘Value of payments not subject to tax or NICs in pay period’.
  4. Enter the tax code number for the year.

If you’ve already sent your final FPS for the years starting 6 April 2014 onwards, you should complete an Earlier Year Update.

The main HMRC links are

Its easy to see why there is confusion!

Hopefully, all those on the WAT schemes will get the correct refunds

steve@bicknells.net

The Second Finance Bill 2017 changes the timetable for Making Tax Digital – what are we doing now?

The previous timetable for Making Tax Digital was

  • April 2018 – quarterly reporting for income tax purposes for unincorporated businesses with a turnover over £85,000
  • April 2019 – quarterly reporting for both incorporated and unincorporated businesses for income tax and VAT
  • April 2020 – quarterly reporting for corporation tax purposes

The new timetable will be

  • Only VAT registered businesses will need to keep digital records and only for VAT purposes.
  • They will only need to do so from April 2019.
  • Businesses will not be asked to keep digital records or update HMRC quarterly for other taxes until at least April 2020 (the original dates had implementation from April 2019).

If you are VAT registered then you will need to move to digital record keeping (i.e. use software to record all your VAT invoices and receipts).

This is massive change in timetable and one that many small businesses and landlords will welcome.

Whilst this now gives smaller businesses longer to prepare, MTDfB is still coming in 2020 and expected to require unincorporated businesses to report the information noted below, so its still worth starting preparations and using cloud based accounting systems.

The details below are an extract from gov.uk for Quarterly Reporting

Non-property businesses

Income:

  • turnover, takings, fees, sales or money earned
  • any other business income

Expenses:

  • cost of goods bought for resale or goods used
  • construction industry – payments to subcontractors
  • wages, salaries and other staff costs
  • car, van and travel expenses
  • rent, rates, power and insurance costs
  • repairs and renewals of property and equipment
  • phone, fax, stationary and other office costs
  • advertising and business entertaining costs
  • interest on bank and other charges
  • bank, credit card and other financial charges
  • irrecoverable debts written off
  • accountancy, legal and other professional fees
  • depreciation and loss/profit on sale of assets
  • other business expenses
  • goods and services for your own use
  • income, receipts and other profits included in business income or expenses but not taxable as business profits
  • disallowable element for each category

Property businesses

Income – furnished holiday lettings:

  • rental income and any income for services provided to tenants

Expenses – furnished holiday lettings:

  • tax taken off income
  • rent paid, repairs, insurance and cost of services provided
  • loan interest and other financial costs
  • legal, management and other professional fees
  • other allowable property expenses
  • private use adjustment
  • premiums for the grant of a lease
  • reverse premiums and inducements
  • property repairs and maintenance
  • costs of services provided, including wages

Income – property:

  • rental income and other income from property

Expenses – property:

  • tax taken off any income from total rents
  • premiums for the grant of a lease
  • reverse premiums and inducements
  • rent, rates, insurance, ground rents etc.
  • property repairs and maintenance
  • loan interest for residential properties and other related financial costs
  • other loan interest and financial costs
  • legal, management and other professional fees
  • costs of services provided, including wages
  • other allowable property expenses
  • private use adjustment

To find out all the latest information why not come to one of my seminars

steve@bicknells.net

How do you get Zero VAT using the 10 Year Rule?

This rule is in VAT Notice 708 and is useful for Residential Property Developers.

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

Sections 6.3.2 and 6.3.3

You cannot normally zero-rate work to a property that has previously been lived in. The exception to this is where, in the 10 years immediately before you start your work, it has not been lived in and following the work it is ‘designed as a dwelling’ or intended for use solely for a ‘relevant residential purpose’.

If the property starts being ‘used as dwelling’ or for a ‘relevant residential purpose’ whilst your work is being carried out, then any work that takes place after that point is not zero-rated.

How do I know if the building has been unoccupied for 10 years?

You may be required to show that that the building has not been lived in during the 10 years immediately before you start your work. Proof of such can be obtained from Electoral Roll and Council Tax records, utilities companies, Empty Property Officers in local authorities, or any other source that can be considered reliable.

If you hold a letter from an Empty Property Officer certifying that the property has not been lived in for ten years, you do not need any other evidence. If an Empty Property Officer is unsure about when a property was last lived in he should write with his best estimate. We may then call for other supporting evidence.

steve@bicknells.net

Are you letting property – watch out for your Schedule 23 notice!

Schedule 23 Notices are being sent out by HMRC to all Lettings Agents.

If you’ve received a notice under schedule 23 of the Finance Act 2011, you are legally obliged to make a return to HM Revenue and Customs (HMRC) of the information specified in the notice by the date given in the notice.

To comply with the notice agents must provide a spreadsheet including

Landlord’s name

This must include the full name of the recipient of the landord.

Address

When showing addresses use the 5 fields provided, showing each part of the address in a separate field (see below regarding postcodes). For example:

Address 1 Address 2 Address 3 Address 4 Address 5
Hillcrest Cottage Mountain View Watchgate Kendal Cumbria
2 Speyside Avenue Hillington Basingstoke Hants

Start in the ‘Address 1’ field and leave any unused fields blank. Don’t use commas in any part of the address.

Postcode

Enter the postcode only in the dedicated column provided.

Gross amount paid

Show the amount of the total gross rent received from the tenant for the landlord for the period shown in this notice.

Don’t include commas or minus amounts.

Please show amount in pounds and pence without any currency symbol, for example 2105.32.

Currency codes

Enter a code for each amount to identify the appropriate currency. These currency codes are recognised internationally, commonly used currency codes are:

  • UK sterling – GBP
  • euro – EUR
  • United States dollar – USD
  • Canadian dollar – CAD
  • Australian dollar – AUD

Full list of currency codes

If the currency code column in your return is blank HMRC will assume that the amounts are in UK sterling.

Letting address

Please enter the full address of the property or land managed on behalf your client.

Postcode

Please enter full postcode of the let property/land separately from the address.

Tax year

This the tax year of the return. Please use ‘yyyy/yyyy’ format for example 2015/2016.

Your company/organisation’s name

This is your organisation’s name.

Source reference

If available, please insert a reference number from your accounting system to identify the record (in case we need to contact you).

 

To use the HMRC template

  1. Open the spreadsheet template.
  2. Save the spreadsheet to your computer using the filename shown in your notice.
  3. Use the saved spreadsheet to compile your return.

If you are Landlord who hasn’t declared all you properties now would be a good time to do it before HMRC come after you!

steve@bicknells.net

SteveJBicknell Blog gets 450,000 hits with over 9,000 followers

Yes, its true, our blog has been read over 450,000 times, keep reading and help us to reach the half a million mark.

We now have over 9,000 followers and we have made 804 post.

Google has become our best friend and is the source of around 94% of our visitors.

That’s pretty impressive for a blog about accounting and tax!

What’s more, we don’t pay to boost posts or use any other ways to gain advantage, we just post content that our followers and readers value.

Our blog was started to help business owners resolve common issues, its purpose is to help people and to explain how tax works and where the problem areas are. Its designed to give complete answers, rather than ‘here’s a problem, now contact us for the answer’ . We want readers to be able to resolve basic and common problems themselves for free and if their problems are more complex or they need extra help then to contact us or their own accountant.

We don’t ask subscribers and followers to pay and we don’t sell advertising.

So why do we bother?

  1. We really do want to help people, why should tax and accounting be a black art, lets help everyone to understand it
  2. By helping you, we also increase our own knowledge and understanding – so we all learn together
  3. The 804 posts are a huge resource for anyone seeking the solution to a problem
  4. Our blogs are a great reference source as we generally have links to the specific HMRC rules and helpsheets, we often quote our blogs when our clients ask about an issue they face
  5. We enjoy writing them

What lessons have we learned from blogging?

  • Always have a picture
  • Choose a good title for the URL
  • Post regularly

Did you know…

  • There are more than 1.5 billion blogs
  • The majority of blog readers are aged 18 to 36
  • Most people read more than 5 blogs per day
  • Most bloggers share their blogs on social media

steve@bicknells.net

 

How should you account for a Property Management Company?

Property Management companies, for instance – Letting Agents, manage properties that they don’t own.

Their services are VATable if they voluntarily register or hit the VAT threshold.

Their income should be the fees that they charge to their clients and they can offset the expenses that relate to their business for example:

Office costs

Accountancy

Insurance

Motor Expenses

But as the properties aren’t owned by them they need to keep their client accounts on the balance sheet in control accounts.

Typically

Rent from Tenants

Maintenance Costs

Management Fees

Then the net amount is passed to the landlord with a statement

It is also possible that the Property Management Company may keep their client accounts entirely separate to their own with separate bank accounts and ledgers, this approach is the best option

Sage One makes this easy to account for properties because you can use Projects, Cost Codes and Departments to analyse the costs.

There are also lots of specialist software package for property management companies

steve@bicknells.net

Are you making the most of your tax free allowances?

Each year we a get tax free allowances:

NI Free £8,164

Tax Free Salary £11,500

Capital Gains Tax Allowance £11,300

Rent a Room £7,500

Dividend Allowance £5,000

Personal Savings Allowance £1,000

Then there are  many other tax saving opportunities like tax free childcare https://stevejbicknell.com/2016/08/19/childcare-3-part-report-for-childcare-providers-and-parents/

Plus tax free benefits https://stevejbicknell.com/2016/09/21/are-you-making-the-most-of-tax-free-benefits/

Have you tried to use these allowances?

What if you set out each year to take advantage of these tax free opportunities?

You would need your own business to be able to restrict your earnings to £8,164 or £11,500 as National Minimum Wage would mean you will get pay levels above these £7.50 x 37.5 hours x 52 weeks = £14,625, however, directors can pay themselves below NMW.

To use the Capital Gains Allowance you are going to need to have assets to sell and make a gain

Rent a Room is achievable especially if you take in students

Dividend Allowance is great if you have your own company

Everyone should be able to use the PSA

Why not sit down and work out how you could maximise the use of the tax free allowances that are available

steve@bicknells.net