Businesses will have an extra year to prepare for the digitalisation of Income Tax, HM Revenue and Customs (HMRC) has announced today.
Recognising the challenges faced by many UK businesses and their representatives as the country emerges from the pandemic, and having listened to stakeholder feedback, the government will introduce Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) a year later than planned, in the tax year beginning in April 2024.
MTD for Income Tax will now be mandated for businesses and landlords with a business income over £10,000 per annum in the tax year beginning in April 2024.
General partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025, while the date other types of partnerships will be required to join will be confirmed in the future.
£2 million (for returns from 2013 to 2014 onwards)
£1 million (for returns from 2015 to 2016 onwards)
£500,000 (for returns from 2016 to 2017 onwards)
is owned completely or partly by a:
company
partnership where any of the partners is a company
collective investment scheme – for example a unit trust or an open ended investment vehicle
Returns must be submitted on or after 1 April in any chargeable period.
Some properties are not classed as dwellings. These include:
hotels
guest houses
boarding school accommodation
hospitals
student halls of residence
military accommodation
care homes
prisons
It is possible that dwellings contained within the same building can be treated as a single dwelling, and the aggregate value applied. The details can be found in Section 117 FA 2013.
However, for a standard HMO property, where each of the dwellings is separately accessible, and none can be accessed privately via any of the other dwellings in the property, then none of the property values may need to be aggregated for the £500k threshold.
HMRC have recently confirmed their view that common areas in Houses of Multiple Occupation (HMO) are parts of a “dwelling house” and ineligible for capital allowance claims.
Claims relating to Houses in Multiple Occupancy:
We are aware that some taxpayers have submitted claims for plant and machinery allowances in respect of shared parts of houses in multiple occupation (such as hallways, stairs, landings, attics and basements within the houses). They contend that these shared areas are not part of the dwelling-house and that allowances are therefore available. We disagree with this position. If you come across such a claim, please notify the Capital Allowances single point of contact for your area.
The capital allowance legislation specifically denies tax relief for plant and machinery installed in a dwelling house. However, plant and machinery installed in the common areas such as hallways, stairs and lift shafts, in blocks of flats would qualify as the flats themselves are the dwellings, not the building as a whole.
Expenditure incurred on the provision of plant or machinery ‘for use in’ a dwelling-house is not qualifying expenditure for an ordinary property business, an overseas property business or the special leasing of plant or machinery.
This would seem inconsistent with the HMRC view on HMOs and there may be a test case on the interpretation, particularly as there is no definition of “dwelling house” in the tax legislation. There is also a lack of clarity concerning the status of University Halls of residence where there is often substantial expenditure on plant and machinery in common areas.
Furnished Holiday Lets although a holiday home is a ‘dwelling house’, providing the conditions are met to meet the Furnished Holiday Let (“FHL”) legislation, capital allowances can be claimed CA20025 – Capital Allowances Manual – HMRC internal manual – GOV.UK (www.gov.uk). FHL are deemed as ‘trading’ for tax purposes. The restriction for claiming capital allowances on dwellings (CAA2001 35) is therefore NOT applicable to FHL’s.
Post transactions checks are used in relation to capital gains, they can be used by individuals or companies.
Its a free service offered by HMRC.
HMRC state
If we agree your valuations we’ll not question your use of those valuations in your return, unless there are any important facts affecting the valuations that you’ve not told us about.
But HMRC say it could take at least 3 months to check the valuation.
You can only request a Post Transaction Valuation Check:
after disposals relevant to Capital Gains Tax
before the date you must file your Self Assessment tax return
There are situation where transactions are not ‘arms length’ in other words they are between connected parties.
For example if you have a development company and sell property to related company.
You can use the CG34 for
Shares
Goodwill
Land
Other Assets
The CG34 is not mandatory, you don’t have to get a post valuation check, but if you do, you will gain protection against HMRC questioning your valuation (assuming they agree with you CG34 submission).
You will need to submit supporting documents for example a independent valuation report to justify the value.
For Land valuations you will also need
Copy leases
Tenancy Agreements
Plans of undeveloped land
Where do you send the form?
Taxpayers dealt with by HMRC’s High Net Worth Units, or Public Department 1 should send the completed CG34 to those offices.
Those dealt with by Specialist Trust Offices should send their forms to:
Specialist PT Trusts and Estates Trusts SO842 Ferrers House Castle Meadow Nottingham NG2 1BB
Other individuals, partnerships and personal representatives should send the completed form direct to:
PAYE and Self Assessment HM Revenue and Customs BX9 1AS
Companies should send to the office dealing with the company corporation tax affairs or if they do not have one, to:
Corporation Tax Services HM Revenue and Customs BX9 1AX
These changes only affect the fuel only rates, the business mileage rates are unchanged
Tax: rates per business mile
First 10,000 miles
Above 10,000 miles
Cars and vans
45p (40p before 2011 to 2012)
25p
Motorcycles
24p
24p
Bikes
20p
20p
Its the Approved Mileage Rates that keep changing
From 1 September 2021
You can use the previous rates for up to 1 month from the date the new rates apply.
Engine size
Petrol – rate per mile
LPG – rate per mile
1400cc or less
12 pence
7 pence
1401cc to 2000cc
14 pence
8 pence
Over 2000cc
20 pence
12 pence
Engine size
Diesel – rate per mile
1600cc or less
10 pence
1601cc to 2000cc
12 pence
Over 2000cc
15 pence
From 1 June 2021 to 31 August 2021
Engine size
Petrol – rate per mile
LPG – rate per mile
1400cc or less
11 pence
8 pence
1401cc to 2000cc
13 pence
9 pence
Over 2000cc
19 pence
14 pence
Engine size
Diesel – rate per mile
1600cc or less
9 pence
1601cc to 2000cc
11 pence
Over 2000cc
13 pence
1 March 2021 to 31 May 2021
Engine size
Petrol – rate per mile
LPG – rate per mile
1400cc or less
10 pence
7 pence
1401cc to 2000cc
12 pence
8 pence
Over 2000cc
18 pence
12 pence
Engine size
Diesel – rate per mile
1600cc or less
9 pence
1601cc to 2000cc
11 pence
Over 2000cc
12 pence
1 December 2020 to 28 February 2021
Engine size
Petrol – rate per mile
LPG – rate per mile
1400cc or less
10 pence
7 pence
1401cc to 2000cc
11 pence
8 pence
Over 2000cc
17 pence
12 pence
Engine size
Diesel – rate per mile
1600cc or less
8 pence
1601cc to 2000cc
10 pence
Over 2000cc
12 pence
For hybrid cars you must use the petrol or diesel rate which may differ significantly from the actual fuel costs. The advisory electricity rate for fully electric cars is 4 pence per mile.
Employees should carefully consider whether it is advantageous having private fuel provided for their company car. Remember that the P11d benefit for having private fuel provided for a company car in 2021/22 is £24,600 multiplied by the CO2 emissions percentage for that vehicle.
For example, a director driving a Mercedes Benz E200 saloon company car (CO2 emissions 169g per km) would be assessed on 37% = £9,102 for 2020/21. If they are a higher rate taxpayer that would mean £3,641 tax. That is an awful lot of private fuel!
Under the Construction Industry Scheme (CIS) if you use subcontractors who don’t have Gross Status the contractor has to make a deduction of 20% or 30% and pay it to HMRC.
In the CIS340 guidance, the deduction is applied as follows
There are 2 steps that contractors must follow.
Step 1: Work out the gross amount from which a deduction will be made by excluding VAT charged by the subcontractor if the subcontractor is registered for VAT, read the examples in CIS 340 Appendix D.
The contractor will need to keep a record of the gross payment amounts so that they can enter these on their monthly returns.
Step 2: Deduct from the gross payment the amount the subcontractor actually paid for the following items used in the construction operations, including VAT paid if the subcontractor is not registered for VAT:
materials
consumable stores
fuel (except fuel for travelling)
plant hire
the cost of manufacture or prefabrication of materials
The bit that is left after following the steps above is the Labour to which tax deduction of 20% or 30% is applied.
What is the Labour if the subcontractor has its own subcontractors?
The subcontractor needs to show the amount of labour inclusive of the subcontractors they have used!
They are charging the main contractor for all labour costs even if some of their subcontractors may be gross status.
You pay Class 2 if your profits are £6,515 or more a year
Class
Rate for tax year 2021 to 2022
Class 2
£3.05 a week
So for the whole year that’s £158.60
Are you running a business?
You have to pay Class 2 National Insurance if your profits are £6,515 a year or more and what you do counts as running a business, for example if all the following apply:
being a landlord is your main job
you rent out more than one property
you’re buying new properties to rent out
If your profits are under £6,515, you can make voluntary Class 2 National Insurance payments, for example to make sure you get the full State Pension.
You do not pay National Insurance if you’re not running a business – even if you do work like arranging repairs, advertising for tenants and arranging tenancy agreements.
As soon as you reach state pension age, you stop paying Class 2 NIC if you carry on working. You only have to pay them on any earnings that were due to be paid to you before you reached state pension age.
In addition Companies who own properties don’t pay national insurance, national insurance is only paid by employees and the self employed.
Class 2 NI would also not apply if you use a letting agent to collect the rents – average fees would be 15%, even if it is a relative or your own company as then your role will only a passive investment role.
The key case on this topic is Rashid v Garcia (Status Inspector) (2002) Sp C 348
Decision released 11 December 2002.
National Insurance – Class 2 contributions – Self-employed earner – Landlord – Taxpayer had income from letting property – Claim for incapacity benefit – class 2 National Insurance contributions paid to qualify for benefit – Revenue took view that property rental activities did not entitle taxpayer to pay class 2 contributions as he was not carrying on business – Benefit refused – Whether taxpayer was self-employed earner carrying on business – Social Security Contributions and Benefits Act 1992, s. 2, 122.
The taxpayer had four properties income £10,942.
It was estimated that the taxpayer spent two to four hours per week on managing the properties and members of his family acting on his behalf spent 16 to 24 hours per week. The Special Commissioner considered this was insufficient activity to constitute a business so no Class2NI was due.
Samantha lets out a property that she inherited following the death of her great aunt. This will not constitute a business.
Bob owns ten properties which are let out to students. He works full time as a landlord and is continually seeking to increase the number of properties he owns for letting. Bob is running a business for NICs purposes.
Claire owns multiple properties that are let. She spends around half her working time carrying out duties as a landlord and is not looking to increase the number of properties she owns. If the only duties that Claire undertakes are those normally associated with being a landlord, then this would not constitute a business.
Hasan purchases properties using “buy to let” mortgages. He places all letting duties in the hands of a property letting agent who acts as landlord on his behalf. If the only duties that the property letting agent undertakes for Hasan are those normally associated with being a landlord, then this would not constitute a business.
