Month: November 2019

What happens if you lose FHL Status?

To qualify as a FHL (Furnished Holiday Let) your property must be:

– in the UK or in the European Economic Area (EEA) – the EEA includes Iceland, Liechtenstein and Norway

– furnished – there must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture

The property must be commercially let (you must intend to make a profit). If you let the property out of season to cover costs but didn’t make a profit, the letting will still be treated as commercial.

Accommodation can only qualify as a FHL if it passes all 3 occupancy conditions.

The pattern of occupation condition
If the total of all lettings that exceed 31 continuous days is more than 155 days during the year, this condition isn’t met so your property won’t be a FHL for that year.

The availability condition
Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year.

The letting condition
You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year.

What if you fail these tests?

  1. You will be restricted on how you can use losses arising in the business
  2. CGT and IHT business property reliefs will be lost
  3. HMRC are more likely to challenge expenses such as motor, travel, and subsistence

Loss of FHL – Capital Allowances

Capital Allowances can not be claimed on plant, machinery, fixtures, integral features, instead you will only be able to claim replacement cost

Period of grace election
You may genuinely intend to meet the letting condition, but were unable to. If this happens, you may be able to make a period of grace election that allows the property to qualify as a FHL as long as the pattern of occupation and availability conditions were met.

To make an election, you must be able to show that you had a genuine intention to let the property in the year. For example, where you’ve marketed a property to the same or a greater level than in successful years, or where the lettings are cancelled due to unforeseen circumstances, including extreme adverse weather.

You can make an election where the property met the letting condition in the year before the first year you wish to make a period of grace election (either on its own or because of an averaging election). If your property again doesn’t meet the letting condition in the following year, you can make a second period of grace election (as long as you made an election in the previous year).

If your property doesn’t reach the threshold by the fourth year, after 2 consecutive period of grace elections, it will no longer qualify as a furnished holiday letting.

steve@bicknells.net

If TOMS applies is the VAT threshold based on Sales or Margin?

HMRC say…

You must register your business for VAT with HM Revenue and Customs (HMRC) if its VAT taxable turnover is more than £85,000.

You can of course voluntarily register below the threshold

However, there are special rules for TOMS which mean instead of Turnover the threshold is based on margin. This can make a massive difference as it takes a lot longer for your margin to hit £85,000!

Tour Operators Margin Scheme (VAT Notice 709/5)

https://www.gov.uk/guidance/tour-operators-margin-scheme-for-vat-notice-7095#sect-4

4.1 What taxable turnover is for VAT registration or de-registration purposes
If you’re considering whether you must register for VAT, or whether you may de-register, your taxable turnover is regarded as the total of:

total margin on your taxable (including zero-rated) Margin Scheme supplies

full value of:
taxable (including zero-rated) in-house supplies
taxable agency commission
any other taxable (including zero-rated) supplies you make in the UK

 

steve@bicknells.net

Useful facts about Clause 24 – Restricting Landlords Interest Relief

From April 2017 the Government introduced a new restriction on claim mortgage interest as a cost against residential property letting.

Its being phased in

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

The rules don’t apply to

  • Companies
  • Furnished Holiday Lets (which will include Serviced Accommodation if they meet the FHL criteria)
  • Property Development and Trading
  • Commercial Property in a mixed use building

The rules do apply to

  • BTL’s
  • HMO’s
  • Partnerships including LLP’s
  • Individual Landlords
  • Trustees

What loans will it apply to

  • Loans taken out to buy residential property for letting
  • Existing loans and mortgages of a residential landlord
  • Loans taken out to purchase an interest in a property letting partnership

What costs are within the scope of clause 24

  • Interest
  • Finance Costs
  • Incidental costs such as broker fees and loan related legal costs

How much difference does having a residential investment company make to a higher rate tax payer?

steve@bicknells.net

What benefits are allowed to be given tax free?

Trivial Benefits

You don’t have to pay tax on a benefit for your employee if all of the following apply:

1. it cost you £50 or less to provide
2. it isn’t cash or a cash voucher
3. it isn’t a reward for their work or performance
4. it isn’t in the terms of their contract

This is known as a ‘trivial benefit’. You don’t need to pay tax or National Insurance or let HM Revenue and Customs (HMRC) know.

You have to pay tax on any benefits that don’t meet all these criteria.

Directors of ‘close’ companies

You can’t receive trivial benefits worth more than £300 in a tax year if you’re the director of a ‘close’ company.
A close company is a limited company that’s run by 5 or fewer shareholders.

Problem areas and points to note

  1. There is no limit on how many trivial benefits you give to employees
  2. Store Gift Cards that can’t be exchanged for cash are acceptable
  3. Birthdays, anniversaries, Christmas, New Year, and basically any special occasion not work related are great for trivial benefits
  4. Avoid it be part of a continuation of the same benefit as described below

Employer D gives an employee a gift card, which costs the employer £10 to provide. The employer tops up the employee’s gift card on 7 further occasions, at a cost of £10 for each occasion. Although the benefit to the employee is topped up on separate occasions there is a single benefit of the provision of a gift card. The total cost to the employer for providing the benefit over the period of employment is £80 and therefore this benefit is not exempt as a trivial benefit. https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21865

Annual Parties and Functions

Annual parties at Christmas or alternative functions of a similar nature, such as an annual dinner dance, which are open to staff generally and which cost no more than £150 per head to provide. Where there’s more than one annual function and their total cost per head exceeds £150, only the functions that total £150 or less will not be taxed. Please note that the figure of £150 quoted is not an annual allowance and the criteria set out at Section 264 ITEPA 2003 must be satisfied to meet the exemption. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/785476/480_2019_Expenses_benefits.pdf.pdf

Gifts from Third Parties

Certain gifts received by an employee if all the following conditions are satisfied, the:

• gift consists of goods or a voucher or token only capable of being used to obtain goods

• person making the gift is not the employer or a person connected with the employer

• gift is not made either in recognition of the performance of particular services in the course of the employment or in anticipation of particular services which are to be performed

• gift has not been directly or indirectly procured by the employer or by a person connected with the employer

• gift cost the donor £250 or less

• total cost of all gifts made by the same donor to the employee, or to members of the employee’s family or household, during the Income Tax year is £250 or less

Click to access 480_2019_Expenses_benefits.pdf.pdf

 

steve@bicknells.net