Author: Steve Bicknell

Progressive Property Approved Accountant, Business Expert and Trainer/Speaker with Redcliffe Training, MBL Seminars and UK Training ►MD ► Bicknell Business Advisers ✸ family business providing accountancy, tax, and consultancy services to SME's and Start Ups - Xero, Sage One, QuickBooks, Freeagent, Kashflow, Hammock, Dext - Receipt Bank ✸ www.bicknells.net www.stevejbicknell.com

Commercial Property Capital Allowances Sideways Relief

IT rental business losses can be set against general income only to the extent that they are attributable to:

  • certain capital allowances,
  • certain agricultural expenses (see PIM4224).

Until the 2010-11 tax year, relief against general income could be claimed to the extent the loss was due to furnished holiday lettings. This is not available for tax years 2011-12 onwards, see PIM4130. Losses of a furnished holiday lettings business may now only be carried forward to use against future profits of that same furnished holiday lettings business.

Where a customer claims loss relief against general income, they must take the full amount of the loss available up to the amount of their general income. They can’t opt to take a smaller amount, either they claim for the full loss or they claim for none (ITA07/S121).

PIM4220 – Property Income Manual – HMRC internal manual – GOV.UK (www.gov.uk)

The largest capital allowances are likely to be from Annual Investment Allowance claims.

Any taxpayer seeking to obtain in excess of £50,000 of otherwise unlimited income tax reliefs in any one year will find their deductions ‘capped’ (ITA 2007, s 24A). The ‘cap’ is the greater of:

  • 25% of their total income; or
  • £50,000.

steve@bicknells.net

How to offset Construction Industry Scheme deductions – CIS Offsetting (CIS340 4.13)

If you have suffered deductions from your income its generally reclaimed

  1. The Self Employed enter the CIS suffered on their self assessment return, its then part of their tax calculation
  2. Companies reclaim via their Payroll – Companies can also offset

Construction Industry Scheme: a guide for contractors and subcontractors (CIS 340) – GOV.UK (www.gov.uk) – Section 4.13

Companies that have deductions taken from their income as subcontractors should set-off these deductions against the amounts payable monthly or quarterly for PAYE, National Insurance contributions and Student Loan repayments due from their employees and CIS deductions from their subcontractors. This should be done monthly (or quarterly, as appropriate) and the calculation should be shown on the company’s EPS.

Companies should simply reduce the amount of PAYE, National Insurance contributions, Student Loan repayments and any scheme deductions they pay over to our accounts office by the amount of CIS deductions made from their income.

CIS132 – Construction Industry Scheme (publishing.service.gov.uk)

The CIS132 is used to keep a record of the offsets, you could create a spreadsheet to keep these records.

Steve@bicknells.net

How do you get an HMRC Business Government Gateway, add taxes and add an Agent?

This is a 3 stage process

1. Register for a Gateway

HMRC services: sign in or register

Enter your email address – GOV.UK (access.service.gov.uk)

You will then be asked questions and get a Government Gateway ID

You will be asked choose the type of account from these 3 options

  • Register as an Individual
  • Register as an Organisation
  • Register as an Agent

You need to register as an Organisation

2. Add PAYE/CIS, Corporation Tax, VAT

Watch this HMRC Video to see how its done

CIS is part of PAYE

You will need your Tax Reference Numbers

Company UTR

PAYE Office and Employer Numbers

VAT Number

3. Add your Accountant

Login to your business gateway

Click Manage Account – its in the horizontal menu bar at the top of the screen

Choose Accountants from the list in the middle of the screen

Click the services you wish to add us to

Corporation Tax

PAYE/CIS

VAT

Click Authorise an Agent

steve@bicknells.net

Is it Betting or Trading? CFD – contracts for differences and spread betting

Clients are always looking for new ways to make money and recently we have had a couple of clients ask how CFD’s and Spread Betting are treated for Tax Purposes.

The general rule is that its considered to be gambling unless the badges of trade are present.

BIM22016 – Meaning of trade: exceptions and alternatives: betting and gambling – what is a bet?

The first, and obvious, question is simply what is a bet? A definition of a bet or ‘wager’ was given by Hawkins J in Carlill v Carbolic Smoke Ball Company [1892] 2QB484 and has been followed in later cases:

‘It is not easy to define with precision what amounts to a wagering contract, nor the narrow line of demarcation which separates a wagering from an ordinary contract; but, according to my view, a wagering contract is one by which two persons, professing to hold opposite views touching the issue of a future uncertain event, mutually agree that, dependent on the determination of that event, one shall win from the other, and that other shall pay or hand over to him, a sum of money or other stake; neither of the contracting parties having any other interest in that contract than the sum or stake he will so win or lose, there being no other real consideration for the making of such contract by either of the parties. It is essential to a wagering contract that each party may under it either win or lose, whether he will win or lose being dependent on the issue of the event, and, therefore, remaining uncertain until that issue is known.’

BIM56900 – Financial traders – instruments and shares: contracts for differences and spread betting

Companies

Contracts for differences (CFDs) are defined in CFM50380, and this definition includes financial spread bets. CFDs fall within the definition of derivative contracts for Corporation Tax purposes, so for companies the derivative contracts regime applies in most cases.

Individuals and others not within the charge to Corporation Tax

For individuals and others not within the charge to Corporation Tax the position is different. In such cases you will need to examine the contract to see if it is a gambling or wagering one. There is guidance on this at BIM22016. The profits or losses from gambling or wagering contracts are outside the scope of Income Tax (see BIM22015). However, this will not apply if the spread bet is used for a commercial purpose such as a hedge where the guidance at BIM56880 should be followed.

steve@bicknells.net

What if you borrow more than £10,000 from your company?

Directors sometimes borrow money from their company, when this happens there are several tax issues:

CT600A S455 CTM61505 – loans not repaid with 9 months of year end are taxed at 32.5%

Broadly, where a close company (either directly or through an intermediary):

  • makes any loan to,
  • advances any money to, or
  • confers a benefit on,

an individual who is a participator (or an associate of a participator) in the close company, then the close company is due to pay tax under CTA10/S455. The exception to this (in the case of a loan or advance) is if the loan or advance was made in the ordinary course of the close company’s business and that business includes the lending of money (see CTM61520). S455 applies only if the company is a close company at the time the loan or advance is made.

Although the company is charged to tax under CTA10/S455 “as if it were an amount of CT…”, this does not mean a loan or advance is, by itself, a distribution of the company or income in the hands of the recipient.

As regards:

  • the tests for determining whether a company is a close company, see CTM60100 onwards,
  • the meaning of loan or advance, see CTM61535,
  • the definitions of participator and associate of a participator, see CTM60107 onwards,
  • the exclusion of certain loans to directors or employees, see CTM61540,
  • the meaning of ‘confers a benefit’, see CTM61580,
  • reciprocal arrangements, see CTM61550 to CTM61555,
  • extension of CTA10/S455 to loans by controlled companies, see CTM61700 to CTM61750

New tax procedure for Directors Loans (s 455) – Steve J Bicknell Tel 01202 025252

Benefit in Kind – If the loan was more than £10,000

If you’re a shareholder and director and you owe your company more than £10,000 (£5,000 in 2013 to 2014) at any time in the year, your company must:

You must report the loan on a personal Self Assessment tax return. You may have to pay tax on the loan at the official rate of interest (or pay interest to the company on the loan)

The Current Official Rate of Interest is 2.5% Beneficial loan arrangements – HMRC official rates – GOV.UK (www.gov.uk)

Loans over £10,000 need Shareholder Approval

A private company may make a loan to one of its directors, or give a guarantee or provide security in connection with a loan made by a third party to such a director. However, the transaction must first be approved by an ordinary resolution of the shareholders.

Exception for loans under £10,000 in aggregate

If the aggregate value of the loan and other related loans to a director does not exceed £10,000, there is no need to obtain shareholders’ approval (note that the £10,000 is an aggregate value, meaning that if a multiple of small loans to a director combine to a value over £10,000, it would require shareholder approval.)

Notes in the Accounts

Related party transactions are noted in the accounts, this even applies to Micro Entity Accounts.

steve@bicknells.net

Making Tax Digital ITSA Postponed !

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.

Businesses get more time to prepare for digital tax changes – GOV.UK (www.gov.uk)

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.

steve@bicknells.net

Are HMO’s within the scope of ATED?

ATED is an annual tax payable mainly by companies that own UK residential property valued at more than £500,000.

You’ll need to complete an ATED return if your property:

  • is a dwelling
  • is in the UK
  • was valued at more than:
    • £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.

A building will fall within the ATED regime if it meets the definition of a single dwelling that has a value of over £500,000. If the tenants rooms constitute just a bedroom, and potentially an en-suite, it is unlikely each room will be a separate dwelling. Instead, all the rooms and shares facilities will make up one dwelling, over the £500,000 threshold. It would be different if each room was its own dwelling, that had its own facilities, with no need for shares areas anywhere in the property.

“112(1)  A building or part of a building counts as a dwelling at any time when–

(a)it is used or suitable for use as a single dwelling, or

(b)it is in the process of being constructed or adapted for such use.”

steve@bicknells.net

HMO’s denied Capital Allowances

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.

CA11520 – Capital Allowances Manual – HMRC internal manual – GOV.UK (www.gov.uk)

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.

CA23060 – Capital Allowances Manual – HMRC internal manual – GOV.UK (www.gov.uk)

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.

steve@bicknells.net

HMRC Post-transaction valuation checks (CG34) and why you need one

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

Here is a link to the form

CG34 Post-transaction valuation checks for capital gains (publishing.service.gov.uk)

Why are they needed?

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

steve@bicknells.net