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.
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.
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.
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:
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.
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
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
Failing to complete all the parts of the return – For example leaving out PAYE information
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
Missing out details of your Pension Provider
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
Using invalid characters such as # ‘ ” in boxes where these are not allowed
Not paying the tax they owe by 31st January
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?
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.
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):
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’.
Enter the tax code for the year.
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:
Separate the training income from the earned income.
Subject any additional earnings to Income Tax and NICs in the normal way.
Enter the amount of training income received in the field ‘Value of payments not subject to tax or NICs in pay period’.
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.
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
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.
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:
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?
We really do want to help people, why should tax and accounting be a black art, lets help everyone to understand it
By helping you, we also increase our own knowledge and understanding – so we all learn together
The 804 posts are a huge resource for anyone seeking the solution to a problem
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
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
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
