Category: Bicknell Business Adviser

Budget 2025: Key Changes Affecting the Most People

a man in red shirt covering his face

On 26 November 2025, the Chancellor delivered a Budget that will impact almost every household and business over the coming years. While billed as a stabilising Budget, many of the measures announced will increase the tax burden for working people, savers, homeowners, landlords and business owners.

At Bicknell Business Advisers, we have reviewed the full report to highlight the changes that will affect the largest number of people — in practical, jargon-free terms. Download a 20 page report from our website www.bicknells.net

Frozen Income Tax Thresholds Until 2031

One of the most far-reaching changes is the decision to freeze income tax thresholds for an additional three years, now running until 2030/31. This means:

  • Your personal allowance stays at £12,570
  • Higher-rate and additional-rate thresholds are fixed until 2031
  • As incomes rise, more people will drift into paying higher tax bands

This “fiscal drag” will increase the tax paid by employees, pensioners and the self-employed over time.

Higher Taxes on Savings, Dividends and Property Income

From 2026–2027, several significant rate increases will affect investors, company directors and landlords.

Dividend Tax Increases (from April 2026)

  • Basic rate: 10.75%
  • Higher rate: 35.75%
    (an increase of 2 percentage points)

Savings & Property Income Tax Increases (from April 2027)

  • Basic rate: 22%
  • Higher rate: 42%
  • Additional rate: 47%

For many people, this will mean higher tax bills on rental income, interest, and dividends extracted from a company.

New High-Value Property “Mansion Tax”

From April 2028, a new council tax surcharge will apply to properties worth more than £2 million.

  • Annual charge: £2,500 to £7,500
  • Applies to the homeowner, not the occupier
  • Valuation will be set before the tax is introduced

This will particularly affect landlords, holiday let owners and those with high-value main residences.

ISA Changes: Cash Limit for Under-65s

The overall ISA limit stays at £20,000, but major changes arrive in April 2027:

  • Under-65s can only place £12,000 each year into a cash ISA
  • Over-65s retain the full £20,000 cash ISA allowance

This will be a significant shift for regular savers who rely on tax-free returns.

Minimum Wage Increases (April 2026)

Millions of UK workers will receive a pay rise:

  • National Living Wage (21+): £12.71
  • 18–20 Rate: £10.85
  • 16–17 & apprentices: £8.00

This change benefits workers but increases payroll costs for employers — something business owners should factor into 2026/27 planning.

Electric Vehicle Road Charge Introduced

From April 2027, the UK will introduce a mileage-based road charge:

  • 3p per mile for electric cars
  • 1.5p per mile for hybrids

This marks the beginning of a new era in EV taxation as the government seeks to replace lost fuel duty revenue.

Corporation Tax: No Change to Rates

Corporation tax remains unchanged into 2026/27:

  • 19% small profits rate
  • 25% main rate for profits over £250,000

However, combined with increased dividend taxes, company directors should review their remuneration strategies.

Making Tax Digital (MTD) Moves Forward

For sole traders and landlords with turnover above £50,000, MTD for Income Tax becomes mandatory from April 2026:

  • Quarterly digital submissions required
  • No penalties for late quarterly filings in year one
  • Annual submissions still required

This is a major shift for property landlords and small businesses.

Stamp Duty: No Changes for Homebuyers

There were no changes to Stamp Duty Land Tax (SDLT) in England or Northern Ireland:

  • Threshold remains £125,000
  • First-time buyer relief unchanged
  • Additional property surcharges continue to apply

This stability will be welcomed by buyers and landlords planning acquisitions.

How Bicknell Business Advisers Can Help

These Budget changes mean many individuals and businesses will face higher tax bills and greater compliance obligations. Early planning is essential.

We can support you with:

  • Personal tax planning for 2026 and beyond
  • Dividend and remuneration strategies
  • Property and landlord tax reviews
  • Business planning for wage and NIC changes
  • Preparing for Making Tax Digital
  • Inheritance tax and estate planning

If you’d like personalised advice, please get in touch.
We’re here to help you plan with confidence.

https://www.bicknells.net/meet-the-team

Could taxes go up in the Autumn Budget? How to be ready

Budget impact

At the last general election, the Labour party pledged to not raise taxes for ‘working people’,with assurances that there will be no changes to income tax, national insurance (NI) and VAT.

While this pledge may appeal to UK workers, it does limit what the Chancellor, Rachel Reeves, can do when it comes to raising taxes and reducing the UK’s current economic deficit.

With individual taxes protected, some commentators have argued that it’s UK businesses that will bear the brunt of any hikes in taxation.

But what tax changes are most likely? And could any changes impact you and your business?

Possible changes that could be announced in the Autumn Budget

Let’s take a look at some of the potential changes we could see being announced by Rachel Reeves on the 26th November.

Remember, these are speculative outcomes from the Budget and nothing has yet been confirmed by the Chancellor or the Labour party.

Here are the areas most likely to see amendments

Personal taxes

Capital Gains Tax:

Capital gains tax (CGT) is widely tipped for changes. The government may raise the rates of CGT or reduce the annual tax-free allowance, which has already been significantly cut in recent years. There’s also speculation about extending CGT to high-value homes as an easy way to raise more tax revenue when property owners sell more expensive properties.

Inheritance Tax (IHT):

Reforms to IHT are being considered. This could include lowering the current tax-free threshold of £325,000, which has been frozen since 2009, or tightening rules around gifting to prevent large estates from avoiding tax.

Income Tax Thresholds:

While the government has pledged not to raise the rate of income tax, a common ‘stealth tax’ is to freeze tax thresholds. It’s possible the current freeze on income tax thresholds could be extended. This would pull more people into higher tax brackets as wages rise, generating more tax revenue for HMRC.

Pensions:

Changes to pensions are possible, with a focus on areas like the tax-free lump sum that can be taken from a pension, or restricting the tax efficiency of salary sacrifice schemes.

Business taxes

VAT changes:

It’s possible that widening the scope of VAT could raise significant tax revenue. There’s also speculation that the Chancellor may reduce the VAT registration threshold, currently set at £90,000 p.a. This would require many more businesses to register for VAT and charge the tax on goods and services.

Business rates:

Although not part of the Autumn Budget, changes to business rates could have a major impact for some businesses. Businesses are already facing new business rate burdens, but some commentators are warning of an ‘unavoidable double hit’ that could push UK business rates bills up by £2.5bn.

Business Asset Disposal Relief (BADR):

For business owners who plan to sell their company, changes to CGT on these sales have already been announced. The rate for BADR rose from 10% to 14% in April 2025, and there’s a further increase to 18% planned for April 2026. Changes to the rate, or the period of availability of BADR are additional possibilities.

Property Taxes: A Likely Target Area

Stamp Duty Land Tax (SDLT) Reform

The Chancellor is considering replacing SDLT with a national property tax or sale-based levy on homes worth over £500,000.
This could reduce costs for first-time buyers but increase tax for luxury properties.

Council Tax Reform

Council tax may finally be revalued after more than 30 years, with proposals to:

Link bills to current market values

Shift liability to property owners rather than occupants

Give local councils rate-setting powers

CGT on High-Value Homes

Homes worth over £1.5 million may lose full CGT exemption — a move aimed at capturing untaxed gains from the wealthiest property owners.

Landlords and Rental Income

The government could extend National Insurance Contributions to rental income and revisit mortgage interest and loss relief rules, increasing costs for private landlords.

We’ll be summarising the key points of the Autumn Budget once the Chancellor delivers her speech.

HMRC Update: New Evidence Rules for £312 Working From Home Allowance (Effective 14 October 2024)

Directors and business owners who claim the £312 flat rate per year (£6 per week) for working from home should be aware of a key policy change from HMRC, effective 14 October 2024. Going forward, claims for this relief must be supported by a formal obligation to work from home, such as a clause in a service agreement, contract, or board resolution.

This change represents a shift from previous practice, where many directors and employees could claim the relief on a discretionary or informal basis. HMRC is now tightening its stance — and the lack of documented obligation will invalidate claims.

🔍 What’s Changed?

From 14 October 2024, HMRC will only accept P87 claims for homeworking expenses if there is written evidence that the employee or director is contractually required to work from home.

The key requirements include:

  • A written agreement (e.g., employment contract, service agreement, or board resolution).
  • A regular and frequent homeworking pattern, typically as a guide at least two days per week, though not necessarily on the same days. The days are not specified in Evidence required to claim PAYE (P87) employment expenses – GOV.UK
  • Voluntary or informal homeworking arrangements no longer qualify.

✅ What Does This Mean for Directors?

If you’re a limited company director working from home, you should:

  1. Update your service agreement or contract to include a homeworking clause.
  2. Pass a board resolution confirming the homeworking requirement.
  3. Ensure the arrangement is regular and necessary for business purposes.
  4. Retain all documentation as part of your company’s formal records.

✍️ Sample Wording for Compliance

To help you stay compliant, below is a model clause that can be included in a service agreement or board resolution:

📄 Homeworking Requirement – Example Clause

“The Company requires the Director to work from their home address at [insert address] for a minimum of [insert number] days per week. This arrangement is a condition of employment and is necessary for the proper performance of the Director’s duties. The Director’s home is deemed an official workplace for the purposes of fulfilling their role and responsibilities. The Company will review this arrangement annually, but it will remain in place unless varied in writing by mutual agreement. The Director must ensure that their homeworking environment is suitable for conducting business and agrees to be available and contactable during normal business hours on homeworking days.”

🗂️ Supporting Board Resolution – Example

“At a meeting of the Board of Directors held on [insert date], it was resolved that [Name of Director] is contractually required to work from home at least [insert number] days per week as part of their duties for the Company, with effect from [insert date]. This resolution is to be retained with the Company’s records as evidence of the homeworking requirement.”

💡 Claims Above £312?

If actual costs exceed the £6 per week flat rate, higher claims may be allowable, but these will require:

  • Strong supporting documentation, and
  • In some cases, pre-approval from HMRC.

🛠️ Next Steps

If you currently claim the flat rate and do not have documented homeworking requirements in place:

  • Review your existing contracts.
  • Draft a resolution or contract amendment now.
  • Contact Bicknell Business Advisers for assistance in formalising the arrangement.

Tax Benefits of Incorporating Your Property Portfolio

Many UK landlords are exploring the idea of holding their buy-to-let properties in a limited company structure. This trend has accelerated in recent years as tax reforms have made traditional personal ownership less profitable for higher-rate taxpayers. By incorporating a property portfolio, investors can potentially reduce their tax bills, take advantage of business tax treatment, and plan more effectively for the future. Below, we outline the key tax advantages of operating through a limited company – from lower tax rates on rental profits to full mortgage interest relief, inheritance tax planning, and deferring personal taxes. We also highlight some important drawbacks (like added costs and Stamp Duty) that need to be weighed in any decision.

Lower Corporation Tax on Rental Profits

One of the main reasons landlords incorporate is to pay Corporation Tax on rental profits instead of Income Tax. Rental income received by an individual is added to their other income and taxed at their marginal income tax rate (which for higher earners is 40% or even 45%). In contrast, profits in a company are subject to Corporation Tax – currently 19% for small profits, up to 25% for larger profits (as of April 2023). Even at the new 25% rate, this can be significantly lower than personal tax rates for many landlords. For example, a higher-rate taxpayer with £20,000 of annual rental profit would face around £8,000 of Income Tax, whereas a company paying the small profits rate might owe just ~£3,800 in Corporation Tax – leaving much more after-tax profit to reinvest. Put simply, paying 19–25% Corporation Tax instead of 40–45% Income Tax can dramatically lessen a landlord’s tax bill. This is especially beneficial if you’re already in a high tax bracket or if the rental profits push you into one.

It’s important to note that the tax advantage exists at the company level. If you want to draw the profits out for personal use, you’ll then pay personal tax (for example, dividend tax) on those withdrawals. We’ll discuss this more under “retained profits,” but the key idea is that keeping profits inside the company is taxed more lightly up front than taking them personally. In summary, operating via a company converts rental income into corporate profits, taxable at generally lower rates than personal income – a fundamental tax saving for many property investors.

Full Mortgage Interest Deductibility

Another major driver for incorporation is the mortgage interest relief treatment. In recent years, individual landlords have lost the ability to fully deduct mortgage interest from their rental income. Under Section 24 rules (phased in from 2017), individual buy-to-let owners can only claim a basic-rate tax credit (20%) on their finance interest, rather than deducting it as an expense. This means higher-rate taxpayers effectively pay tax on part of their mortgage interest, significantly increasing their tax bills on geared properties. For example, an individual landlord paying £10,000 in mortgage interest annually only gets a £2,000 tax credit now, even if they are in the 40% tax band (whereas prior to Section 24 they would have deducted the £10k and saved £4,000 in tax). This change has turned many geared portfolios barely profitable or even loss-making on a post-tax basis for higher-rate landlords.

Limited companies are not subject to Section 24. When you hold property in a company, the mortgage interest is treated as a business expense – it can be deducted in full against rental income before calculating taxable profit. The company’s tax bill is thus based on net profit after interest, just like any other business. All the interest costs provide tax relief at the Corporation Tax rate. In practice, this restores the old tax treatment: the full mortgage interest offset can result in substantial tax savings for highly leveraged investors. For instance, if your rental property earns £15,000 in rent and has £10,000 in mortgage interest, an individual higher-rate landlord would still be taxed on the full £15,000 (with only a £2k credit), whereas a company landlord is taxed only on the £5,000 net profit – a far smaller taxable base.

This difference is a key reason 69% of landlords plan to buy new rental properties via limited companies. By using a company, landlords can maintain interest as a deductible expense and avoid the punitive effective tax rates that Section 24 created for personally owned properties. In short, incorporation can preserve interest relief and keep your financing costs fully tax-deductible – critical for those with mortgages on their rentals.

Inheritance Tax Planning via Company Structures

Using a company can also open up inheritance tax (IHT) planning opportunities for landlords who want to pass their property wealth to the next generation. If you own properties personally, it can be complicated and costly (in terms of IHT and Capital Gains Tax) to transfer bits of property to your children or other heirs during your lifetime. However, with a company, you have much more flexibility in transferring ownership gradually by way of shares. You can bring family members in as shareholders or directors, and gift or sell shares in the company over time, rather than having to slice up the property titles themselves. Small transfers of shares can potentially be done within annual gift allowances or via trust planning, helping to reduce the taxable value of your estate bit by bit.

More sophisticated planning is also possible. Many advisers use Family Investment Companies with special share classes (sometimes called “freezer shares”) to control how future growth in the company is allocated between generations. For example, parents can retain a class of shares that hold the current value of the portfolio, and issue a new class of shares to their children that will accrue all future growth in value. This effectively “freezes” the parents’ estate at today’s value for IHT purposes, while any appreciation in the property portfolio from this point forward happens in the children’s shares. As a result, if the properties continue to grow in value, that growth can bypass the parents’ estate (and thus avoid inheritance tax) and belong to the next generation. Crucially, when set up correctly, this does not trigger immediate tax – the new shares have only nominal value initially, so parents aren’t making a taxable transfer of substantial value at the time of structuring.

It should be noted that standard buy-to-let companies are usually considered investment companies for tax purposes, which currently do not qualify for Business Property Relief (BPR) – a relief that can make certain business assets IHT-free after two years. (BPR is generally available for trading businesses, not passive investment portfolios.) However, with careful planning, some landlords restructure activities to become more active property businesses (e.g. development or holiday lets) or use the share structuring techniques mentioned above to mitigate IHT. In any case, holding properties in a company gives greater flexibility to plan for inheritance, allowing strategies like gifting shares, issuing growth shares, or using trusts. This can substantially reduce the inheritance tax eventually due on the portfolio, compared to simply holding properties until death and leaving them in a will with a 40% IHT exposure. Given that property values often far exceed the IHT nil-rate bands, this kind of planning can save heirs a significant tax bill in the long run.

Retaining Profits and Deferring Personal Tax

A less immediate but powerful benefit of a company structure is the ability to retain profits within the company, deferring any personal tax liability. If you own properties personally, any profit (after expenses) is yours – which also means it gets taxed as part of your personal income each year. But within a company, you have a choice: you can pay out profits to yourself (as salary or dividends) or you can simply leave the profits in the company to reinvest or pay down debt. The profits that are retained in the company only suffer Corporation Tax in that year. No further tax is due until you decide to extract the money for personal use. This creates a valuable tax-deferral advantage.

For example, suppose your property company makes £50,000 in profit this year. The company will pay, say, 19% Corporation Tax (if within the small profits limit), leaving about £40,500 after tax. If you don’t need that money personally right away, you can reinvest the £40k into buying another property or improving existing ones. No personal tax is triggered because you haven’t taken a dividend or salary from those profits. In contrast, if you owned the portfolio personally and earned £50,000 net profit, you’d pay income tax on it in the same tax year – possibly £20,000 (40%) if you’re a higher-rate taxpayer – leaving you only £30k to reinvest. Over time, this ability to reinvest a larger portion of your earnings (since only the lower corporate tax is taken out) can accelerate the growth of your portfolio.

Another way to view this is that a company lets you time your personal tax events for when it’s most efficient. You might choose to take dividends in years when your other income is low, or spread dividends over time to stay in lower tax bands. Or you might retain profits until retirement, using them to fund a future income when you stop other work. There is also the possibility of extracting some profit as a modest salary (which can be set to use your personal allowance tax-free) and some as dividends, achieving a tax-efficient mix. The key point is flexibility – a company gives you much more control over when and how you take income, allowing you to defer or minimize personal taxes in a way an individual landlord cannot.

Of course, whenever you do draw the profits out, you’ll pay personal tax at that point (dividend taxes, which are currently 8.5% basic rate, 33.75% upper rate, etc., after a small allowance). This means incorporation isn’t about avoiding personal tax altogether, but about delaying it and potentially reducing it. For many investors, the strategy is to use retained earnings for growth and only take out what they need when they need it – thereby maximising the funds kept in the low-tax company environment. This can be especially useful if your goal is to build a larger portfolio for the long term, or if you already have other income and don’t require the rental profits immediately.

Potential Drawbacks of Incorporating

Incorporating a property portfolio isn’t a one-way ticket to tax savings; it comes with its own costs and complications. It’s crucial to weigh these drawbacks against the benefits discussed above. Here are some key considerations to keep in mind before you rush to set up a property company:

  • Upfront Transfer Costs (Stamp Duty and CGT): If you are moving existing properties from personal ownership into a new company, it isn’t as simple as “re-registering” them – you typically have to “sell” the properties to your company at market value. This can trigger Stamp Duty Land Tax (SDLT) on the transfer, as well as potential Capital Gains Tax (CGT) on any increase in value of the properties. The company will pay SDLT just like any buyer (including the 5% additional rate), and you, as the seller, could face CGT on the gain (18% or 28% for residential property, depending on your tax band). There are some reliefs available – for instance, Incorporation Relief under certain conditions – but many landlords find that incorporating an existing portfolio can come with a hefty upfront tax bill. It’s essential to calculate these costs to see if the long-term tax savings justify the immediate hit.
  • Ongoing Compliance and Administration: Running a limited company means more paperwork and expense. You’ll need to file annual accounts and confirmation statements at Companies House, submit Corporation Tax returns to HMRC, keep proper company books, and likely pay an accountant to ensure all this is done correctly. If you pay yourself a salary or take dividends, there are additional reporting requirements (PAYE payroll filings, dividend documentation, etc.). In short, the administrative burden is higher than just declaring rental income on a personal Self-Assessment. These compliance costs will eat into the financial benefits of incorporation. Landlords should factor in accountancy fees and the value of their time. For a single property or small portfolio, the savings may not outweigh these extra costs – incorporation tends to make more sense as the portfolio (and the tax saving) grows larger.
  • Double Tax when Extracting Profits: As discussed, while profits inside the company are taxed at a lower rate, when you take money out for personal use you’ll face personal tax. Typically this is via dividends (since most buy-to-let company owners don’t put themselves on a large salary). Dividend tax rates are lower than income tax rates, but they still apply. For example, after the first £500 of dividends (2024–25 allowance), a basic-rate taxpayer pays 8.5% and a higher-rate taxpayer 33.75%. This second layer of tax can reduce the overall advantage, especially if you withdraw most of the profits each year. In a scenario where a landlord wants to live off the rental income fully, the combined Corporation Tax + Dividend Tax might not be much better than simply paying Income Tax personally. The benefit is greatest when you reinvest or hold profits in the company. If you need all the cash out, the benefit shrinks (though you could still gain some advantage up to the basic-rate band, etc.). It’s important to plan distributions carefully. In other words, the “tax deferral” only helps if you actually defer taking the income; otherwise, you end up with two layers of tax. (On the plus side, if you plan to eventually sell the company or its properties, having paid down debt with retained profits, you might take profits via a capital route or at a time when tax rates are different. It adds strategic options, but requires foresight.)
  • Mortgage Availability and Costs: Many landlords don’t realize that getting a mortgage through a company can be a bit more involved. Fewer lenders cater to limited company buy-to-lets (often these are considered Special Purpose Vehicles (SPVs)), and interest rates can be slightly higher to account for perceived additional risk. Lenders will almost always require personal guarantees from the directors/shareholders for small property companies, effectively tying your personal liability to the debt anyway. You might also find arrangement fees higher or loan-to-value ratios slightly lower. This isn’t a tax issue per se, but it does affect the overall profitability of the investment. It’s worth checking with mortgage brokers what rates/terms your company could get versus personal mortgages. With interest rates currently higher than they’ve been in recent years, even a small rate difference can outweigh some tax savings. Always factor in financing costs under a company structure.
  • Loss of Personal Allowances/Reliefs: Holding property in a company means you personally no longer get certain perks. For instance, individuals each have a Capital Gains Tax annual exemption (£3,000 for 2024–25) that can be used against property sales – companies do not get this; every pound of gain is taxed. Likewise, if you have any personal rental losses carried forward, those can’t be used by the company. A company also doesn’t benefit from your personal tax-free allowance (though you could use that via a salary). These trade-offs are usually minor compared to the big-ticket items above, but they are part of the picture. If you anticipate selling properties, remember a company’s sale profits are taxed at Corporation Tax rates (which could be higher than the 18% basic-rate CGT for individuals, for example).

In summary, incorporation has pros and cons. The tax benefits – lower tax on profits, full interest deductibility, potential IHT advantages, and flexibility of profit withdrawal – need to be balanced against the costs and practicalities – immediate taxes on transferring in, ongoing administrative costs, double taxation on extraction, and financing considerations. For some landlords (especially higher-rate taxpayers with multiple properties they plan to hold long-term), the scales tilt in favor of incorporation. For others (small-scale or basic-rate landlords, or those planning to sell in the short term), staying as an individual may be simpler and more cost-effective.

Conclusion

Choosing whether to hold your property investments through a limited company is a significant decision that should be evaluated case by case. This structured approach can offer substantial tax savings and planning flexibility for the right investor profile – particularly those looking to grow portfolios and pass on wealth efficiently. We’ve seen that lower corporate tax rates, unrestricted mortgage interest relief, and the ability to reinvest profits can make a compelling case for incorporation. Real-world scenarios bear this out: it’s no coincidence that the number of buy-to-let companies has surged fourfold since mortgage interest relief was curtailed for individuals. However, incorporation is not a one-size-fits-all solution. The compliance responsibilities, upfront costs (SDLT/CGT), and the need for careful profit extraction planning mean that professional advice is essential.

Often forming a company for new acquisitions (while leaving existing properties as they are) can be the best option.

Ultimately, operating via a limited company is a powerful tool in the landlord’s tax planning arsenal, but like any tool, it must be used in the right circumstances. By understanding the tax benefits – and the pitfalls – outlined above, property investors can make an informed choice about whether incorporation is the best route for their portfolio. As always, consult us first before making any decisions we can tailor the advice to your specific situation and help navigate the process if you decide to proceed. With the proper planning, incorporating your property business can be a savvy move that pays dividends (quite literally) in the years ahead.

Do Property Flippers and Investors need to do CIS?

two man holding white paper

What is CIS?

The Construction Industry Scheme (CIS) applies to anyone who carries out construction work as a trade, in other words developers, contractors, building maintenance and repairs, decorating, property conversion, basically if you use sub-contractors to work on a building its probably within CIS. It does, however, exclude property investors and domestic householders.

Under CIS the Contractor/Developer has to use the subcontractors UTR, NI and other details to verify the subcontractor with HMRC, this determines in a deduction that need to be taken and paid to HMRC.

The Construction Industry Scheme (CIS) deduction rates are:

  • 20% for registered subcontractors
  • 30% for unregistered subcontractors
  • 0% if the subcontractor has ‘gross payment’ status – for example they do not have deductions made

The Contractor/Developer must pay these deductions to HMRC – they count as advance payments towards the subcontractor’s tax and National Insurance bill.

The contractors then does a monthly return for HMRC, makes payment of the tax collected and issues a deduction statement to the subcontractor.

Flipping and Developing

Flipping is where a property is purchased and work carried out to resell for a profit, this is a development activity and within CIS.

Property developers are included within the meaning of mainstream contractors because their business activity is the creation of new buildings, or the renovation or conversion of existing buildings, or other civil engineering works. The same is true of a speculative builder.

CISR12080 – The Scheme: contractors: property developers and property investment businesses – HMRC internal manual – GOV.UK (www.gov.uk)

This not covered by …

Contractors may be construction companies and building firms, but may also be government departments, local authorities and many other businesses that are normally known in the industry as ‘clients’.

Some businesses or other concerns are counted as contractors if they have spent more than £3 million on construction within the previous 12 month period. The rules require a business to monitor construction spend regularly.

Private householders are not counted as contractors so are not covered by the scheme.

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

This no lower limit for CIS, if you are a developer/contractor you have to do CIS.

When do Investors need to do CIS?

As noted above there is the £3m rule but also where the work is substantial it could be within CIS. See example below..

The property investment business acquires a large, dilapidated building to add to its portfolio, and decides to convert the building into a series of flats which it will then individually let out. As a result, substantial development is required to the property to change the building to its new use. In respect of this type of development we would regard the property investment business as having taken on the mantle of a mainstream contractor as its business activity is now that of construction operations.

Where, at a future date, the investment business reverts to property investment activities only, then their status as a deemed contractor should be applicable once again. If their expenditure is likely to remain below £3 million on a rolling 12-month period, then deregistration from CIS may be considered appropriate.

CISR12080 – The Scheme: contractors: property developers and property investment businesses – HMRC internal manual – GOV.UK (www.gov.uk)

Gross Status

Clearly subcontractors aren’t enthusiastic about CIS as impacts their cashflow, they get the money back as its offset against their tax liability, but even so, its not ideal.

However, its relatively easy to get Gross Status, to qualify..

You must show HM Revenue and Customs (HMRC) that your business passes some tests. You’ll need to show that:

  • you’ve paid your tax and National Insurance on time in the past
  • your business does construction work (or provides labour for it) in the UK
  • your business is run through a bank account

HMRC will look at your turnover for the last 12 months. Ignoring VAT and the cost of materials, your turnover must be at least:

  • £30,000 if you’re a sole trader
  • £30,000 for each partner in a partnership, or at least £100,000 for the whole partnership
  • £30,000 for each director of a company, or at least £100,000 for the whole company

If your company’s controlled by 5 people or fewer, you must have an annual turnover of £30,000 for each of them.

What you must do as a Construction Industry Scheme (CIS) subcontractor: How to get gross payment status – GOV.UK (www.gov.uk)

Contact Us for more help

steve@bicknells.net

What are CVR’s and how do you prepare a CVR?

Why do you need to do CVRs?

Cost Value Reconciliations (CVR’s) are used across the construction sector and are the industry norm.

In managing construction projects, Cost Value Reconciliations (CVRs) play a crucial role in establishing profitability, monitoring performance, and identifying potential issues. To prepare a comprehensive CVR, it’s essential to recognise value accurately and consistently throughout the project lifecycle, and include a scenario management section (Best/Worst/Most likely). Accurate value recognition and consistent reporting can influence the amount of profit and loss reported. Calculating construction costs involves input and output methods, and it’s important to consider under measure and over measure, as well as advanced payments and retention. Regular cost meetings can help monitor project progress and address potential issues early on.

Accounting Rules

Both FRS105 and FRS102 have sections covering Construction, below are the rules from FRS102

23.17 When the outcome of a construction contract can be estimated reliably, an entity shall recognise contract revenue and contract costs associated with the construction contract as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting period (often referred to as the percentage of completion method). Reliable estimation of the outcome requires reliable estimates of the stage of completion, future costs and collectability of billings.

23.22 An entity shall determine the stage of completion of a transaction or contract using the method that measures most reliably the work performed. Possible methods include: (a) the proportion that costs incurred for work performed to date bear to the estimated total costs. Costs incurred for work performed to date do not include costs relating to future activity, such as for materials or prepayments; (b) surveys of work performed; and (c) completion of a physical proportion of the contract work or the completion of a proportion of the service contract. Progress payments and advances received from customers often do not reflect the work performed.

Click to access FRS_102_The_Financial_Reporting_Standard_applicable_in_the_UK_and_Republic_of_Ireland_ns2SqGY.pdf

Horror Stories

Carillion

Not producing CVR’s correctly can cause even the largest construction companies to fail

CIOB (Chartered Institute of Building) Global Review May 2018

“Accounting tricks”: How Carillion duped the market – Global Construction Review

Carillion used a variety of techniques to hide its ailing health and its “aggressive accounting” was only exposed when it revealed an £845m financial black hole in July 2017, MPs have concluded.

The UK’s second biggest construction firm before its January 2018 collapse consistently overestimated the profitability of its projects, counted as revenue uncertain cash that clients had not signed off, and hid its mounting debt to suppliers so as to appear more financially sound than it really was.

Carillion had a turnover of £5.2bn, Balfour Beaty held the top spot at £8.2bn

Mark Smith Groundworks

Its not just big companies, small Subcontractors need to do CVR’s too

Mark Smith v HMRC [2012] TC02321

https://financeandtax.decisions.tribunals.gov.uk//Aspx/view.aspx?id=6797

Mark Smith was trading as a builder who provided ground works for construction companies. He had an in house surveyor who produced his applications for payment, the clients surveyor certified the valuation within 3 weeks and the accountant recognised the value when certified. The contracts were fixed price and lasted up to 12 months, The business started as a Sole Trader and was subsequently incorporated.

HMRC opened an enquiry in 2001/2002.

The central issue before the tribunal related to Mark Smiths computation of profits.

(1)2000/01: additional profits of £43,189 giving rise to tax of £17,275.60

(2)2001/02: additional profits of £65,205 giving rise to tax of £24,972.02

(3)2002/03: additional profits of £73,889 giving rise to tax of £27,737.86

(4)2003/04:additional profits of £70,023 giving rise to tax of £27,503.41

(5)2004/05: additional profits of £70,000 giving rise to tax of 27,704.18

(6)2005/06: additional profits of £65,240 giving rise to tax of £26,735.44

(7)2006/07: additional profits of £45,541 giving rise to tax of £18,671.81

There was also a penalty determination in respect of 2004/05 in an amount of £8,311

What are the elements of a CVR?

Cost = Expenses incurred in a construction project

Value = Value of work undertaken (Revenue that can be recognised)

Profit – Value – Cost

Monthly Reporting Cycles

Reporting date is the month end cut off date

The CVR has 3 main sections

  • Final Position
  • To Date Position
  • Period Position

Overarching principles

  • Prepared on the basis of when Value is earned and cost incurred, not based on cash received/paid
  • Prudence Concept
    • Value – not overstated
    • Costs – not understated
  • The Final Position
    • Needs to be based on the same scope of work, same program and duration
  • Consider
    • Measure (for example brick laying)
    • Variations
    • Claims such as delays
    • Ignore
      • Retentions unless the client is likely to retain it
      • Bonuses until achieved and agreed
      • Gain Share on Cost Reimbursable contracts
      • Liquidated Damages unless the client is likely to apply them

“A subcontractor liability is the cumulative assessment of the subcontract cost that is due to them under the terms of their subcontract up to the month end cut off date”

Input Method – To Date Position

Cost to Date/Total Final Cost = Completion %

20000/100000 = 20%

Total Final Value x Completion % = Value to Date

Output Method – To Date Position

This based on the internal valuation

With this method its important to correct for any under to over measure based on timing

Problem areas are milestone payments and front loaded prelims as well as advance payments and retentions

Profit Recognition

Value to Date – Cost to Date = Profit to Date

Some Construction Companies don’t recognise any profit under more than 20% of the contract has been completed because they take the view that the outcome of the project isn’t certain

In addition any future losses are recognised immediately rather than carrying them forward and distorting profitability.

Terminology

Preliminaries – The easiest way to define preliminaries in construction is as a group of items necessary for a construction company or contractor to complete a project but that won’t become a part of the finished work—site overhead, scaffolding, powering the site, etc.

Enabling Works – these costs cover activities from site preparation, creation of access routes, and the installation of facilities like security fencing, ramps, and placing of signs.

Provisional Sums – A provisional sum is an allowance included in a construction contract to cover the estimated cost of certain work. The work covered by a provisional sum is usually specified in the contract documents. Provisional sums are usually used for work that is difficult to estimate, such as earthworks or specialist services.

How do you prepare a CVR?

Accounting Records

Its likely you will start with your accounting records, you will probably have a Job Costing System that will show you

  • Applications for Payments/Authenticated Receipts/Self Billing/Certified Work
  • Subcontract payments and invoices
  • Wages
  • Materials
  • Overheads
  • Budgets/Estimates

Adjustments

The accounts will cut of at the end of a month but will need adjusting

  • Cost Accruals
  • Internal v’s External Valuations

Basically you need to consider all the points in the previous section – What are the elements of a CVR

The end result needs to meet the requirements of the accounting standards…

Reliable estimation of the outcome requires reliable estimates of the stage of completion, future costs and collectability of billings.

steve@bicknells.net

Case Study – Tax Saving £32,085

Undisclosed Property Income

Mrs H contacted us in April 2023, HMRC had contracted her about undeclared property income dating back to 2010-11. Mrs H had already been in discussion with HMRC and supplied information and HMRC had made an assessment in March 2023, the assessment added up to £54,798. HMRC request agreement and payment by 11th April 2023.

The clients daughter was already a client and felt the assessment seemed to too high and suggested Mrs H seek advice from a property tax expert and recommended us.

Mrs H had spoken to other accountants and felt little could be done.

We asked HMRC for more time to which they agreed.

woman in white shirt showing frustration
Photo by Andrea Piacquadio on Pexels.com

Detailed Analysis

We reconstructed the records for the period 2021-22 to 2010-11. This was highly detailed work looking at

  • Bank Statements
  • Letting records
  • Expenses
  • Credit Card Statements
  • Other records

This was basically a forensic exercise, we shared the information with HMRC and questions went backwards and forwards over many months.

HMRC Agreed Figures March 2024

Its take a year, but on the 11th March 2024 HMRC issued a new assessment requesting payment of £22,713 which Mrs H has accepted. Saving £32,085 on the original assessment.

This is a great example of how compiling accurate and detailed records can save you considerable amounts of tax.

It also demonstrates the need to work with an accountant who is an expert in Property Tax.

Feefo Client Review

 I’m so grateful and honoured to have been recommended the outstanding service of Bicknell. Long may it continue.

Star Rating: ★★★★★

Contact Us

If you need help book a virtual meeting and we can have chat

steve@bicknells.net

Self Assessment 2023 – file by the 17th January or risk penalties

close up photo of shocked woman

According to the BBC

Fujitsu Services workers in the West Midlands are set to strike later this month in a dispute over pay, which a trade union has said is likely could cause disruption for people filing self-assessment tax returns.

About 300 members of the PCS union based in Stratford-upon-Avon and Telford are set to take part in the walk-out on 17 January.

Those joining the strike are mainly those working on behalf of HM Revenue and Customs.

The issue reported by Computer Weekly…

All of the participating employees are members of the Public and Commercial Services (PCS) Union, and are set to strike after rejecting a 3-4% pay rise from Fujitsu after learning that employees working for the company in Japan are being offered salary increases of up to 29%.

If you don’t file your self assessment return by 31st January you will get penalties.

You’ll pay a late filing penalty of £100 if your tax return is up to 3 months late. There are extra penalties after that and interest is charged on amounts due to HMRC.

But late filing also increases your chance of being investigated by HMRC, the logic is that leaving things till the last minute suggests you are disorganised and more likely to make mistakes.

Don’t miss the deadline, make sure your return is filed before the 17th January 2023.

steve@bicknells.net

Soon Churches with an income of £5000 will have to register as Charities – are you ready?

church in east halton

The Church of England states the following

Registration with the Charity Commission – Parish ResourcesParish Resources

Registration with the Charity Commission

By the end of March 2031, all PCCs in England and Wales with an annual income over £5,000 must be registered with the Charity Commission.  Between now and then, any parish that has an exceptional income of over £100,000 must register – they can no longer seek a written determination not to have to do this.   

Do I have to register?

Is the church’s income over £100,000?

If the answer is ‘yes’, even if this is a one off (eg because of a legacy), you need to register with the Charity Commission.

Is the church’s income over £5000 but under £100,000?

Assuming your income remains at this level, you don’t need to register yet, but you will have to by the end of March 2031.

Is the church’s income under £5000?

Assuming this income remains unchanged, as guidance currently stands you will not have to register.

What issues will Churches face?

1. Registration with the Charity Commission
The first critical task will be registration with the Charity Commission. This requires you to clearly demonstrate your church’s public benefit and comply with specific legal obligations, which can be daunting.

2. Understanding and Implementing Accounting Standards
Transitioning to a charity means adopting strict accounting standards as stated in the Statement of Recommended Practice (SORP). Grasping the nuances of these regulations requires a significant investment in training and adjustments to your financial practices.

3. Independent Examination or Audit
As part of the accountability process, your charity’s financials need an independent examination or formal audit, depending on your income. Finding and appointing a qualified individual who could offer such services isn’t easy, we work with several churches so understand the requirements, we are independent examiners.

4. Governance Matters
Establishing a governing body that can effectively manage the charity while adhering to the principles of the Church of England is a test of balance and diligence.

5. Selecting and Training Trustees
Your trustees will carry considerable responsibility, hence the selection process is critical. Training them to meet the Charity Commission’s requirements is equally important to ensure they understand their legal obligations.

6. Compliance with Charity Law
Understanding and complying with charity law is a significant challenge, as there are distinct legal statutes that govern charitable entities, which often require specialist legal advice.

7. Creating a Reserves Policy
Developing a reserves policy is not merely a financial imperative but also a strategic one. This involves careful deliberation to ensure your church’s financial sustainability while being able to support ongoing and future projects.

8. Risk Management
Risk management is critical. Identifying, assessing, and mitigating risks related to financial, operational, and reputational aspects are areas to develop policies for.

9. Reporting and Transparency
Maintaining a high level of transparency through timely and accurate reports is essential for your credibility as a charity. Using modern software like Xero will be a must.

10. Data Protection and Privacy
Complying with data protection laws is another area where strict adherence was mandatory. As a charity, your handling of personal data has to meet the standards of GDPR and similar regulations.

If your Church needs help to prepare for Charity Registration or you need an Independent Examiner, please get in touch.

steve@bicknells.net

Can directors and employees receive gifts from the company tax free?

Giving gifts to your employees can be a great way to increase engagement and raise the overall morale of your team. But how much can you give before there are tax implications? And how do the rules differ if you’re giving gifts to your directors?

The good news is that you can give gifts that don’t exceed £50 in value to your employees without any tax or National Insurance (NI) charges arising – as long as you follow HMRC’s rules. The cost of this is also tax-deductible by the company.

Making use of the Trivial Benefits scheme

As part of HM Revenue & Customs’ (HMRC’s) Trivial Benefits scheme, you can give gifts to your employees to mark birthdays, weddings or just ‘because’, all without attracting any tax charges. Owners can also benefit from the same Trivial Benefits scheme.

  • Trivial benefits can be provided to employees without any adverse tax or NI implications, and with no need to report them on a P11D form – the HMRC form used to report any ‘benefits in kind’ that you’ve provided to an employee.
  • To qualify, gifts can’t be a reward for services, can’t be cash or a cash voucher, can’t be contractual, and the cost mustn’t exceed £50 per gift.
  • For directors of close companies, the total can’t exceed £300 in any year. Although not limited for other employees, if it was a regular gift then it’s likely to be treated as a reward for services – which would then have tax implications.
  • If over the course of a year, a director awarded themselves 6 x £50 gift cards (maxing out the £300 cap) as a higher-rate taxpayer they could save around £126 in tax and NI compared with a £300 salary. The company would also save about £41 in NI.
  • Gift cards are fine as long as they aren’t pre-loaded debit cards that can be used to withdraw cash – remember you can’t give cash as a gift.

Let’s look at an example of these rules in practice:

If an employee is given a bottle of wine for hitting a sales target, that would be taxable. If they were given the wine because it’s their birthday, as long as it was below £50 it would be within the exemption. It could also be given just because you’re in a good mood and feeling generous – it just can’t be anything related to company or individual performance.

Talk to us about meeting the rules around employee gifts

It’s important that you stick to HMRC’s rules around employee gifts and don’t end up unintentionally creating a negative tax impact for people on your team, or for the business.

As your adviser, we’ll help you draw up clear, well-explained internal guidance to make sure any gifts don’t unintentionally fall outside of the rules.