Do Directors need to list directorships where they had no income? Self Assessment Returns Reply

This question comes up every year.

“I am a director of lots of companies but only get paid by one company, do I need to list them all?”

Some people make up dummy Payroll Numbers and list directorships, some people list them in the notes, some don’t list them at all, what is the right thing to do?

The answer has to be to follow the HMRC Guidance

 

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/787630/SA150_2019.pdf

As you can see its says

received income as a company director’

‘held an office, such as chairperson, secretary or treasurer and received income for that work

If you didn’t receive income you don’t need to report it as it will not affect your tax.

steve@bicknells.net

 

 

When do you pay Capital Gains Tax on Property Sales? Reply

Currently when you sell a residential investment property you pay CGT via self assessment, so if you sell now, that’s in the tax year to 5th April 2020, due for payment by 31st January 2021, but that’s changing very soon.

From 6 April 2020, when a UK resident disposes of UK land, a CGT return will need to be submitted to HMRC within 30 days of the completion of the disposal, and the full liability will be payable within that same 30 day window.

That’s a big change in time scales!

In order to file potentially complex returns within that time scale, investors will need to

  1. Keep full up to date records
  2. An estimate of the UK Taxpayer full income will be needed to assess the rate of CGT to be applied
  3. Details of the tax payers unused CGT annual exemption
  4. Details of any CGT losses unused

These rules will also apply to Trusts

The rules will apply to UK Properties first and its planned to include overseas property a year later.

steve@bicknells.net

 

What Training expenses do HMRC allow Doctors to claim? Reply

HMRC has identified a number of training courses specific to the medical profession where relief for training costs incurred will qualify for tax relief. https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32540

Professional body

Course details
Royal College of Anaesthetists Primary FRCA MCQ Exam
Primary FRCA OSCE (Objective Structured Clinical Exam
Primary FRCA SOE (Structured Oral Exam)
Final FRCA Written Exam
Final FRCA SOE (Structured Oral Exam)
Chemical Pathology FRC Path exam
Note: FRC Path means Fellowship of the Royal College of Pathologists
Diagnostic Neuropathology FRC Path exam
Emergency Medicine FRCEM Primary Examination
FRCEM Intermediate Certificate
FRCEM Final Examination
Note: FRCEM was known as Membership of the Royal College of Emergency Medicine (MRCEM) before the tax year 2016 to 2017
The Faculty of Public Health (MFPH) MFPH Part A
MFPH Part B
Forensic Histopathology FRC Path exam
Royal College of General Practitioners MRCGP Applied Knowledge Test
MRCGP Clinical Skills Assessment
Royal College of Obstetrics and Gynaecology MRCOG Part 1
MRCOG Part 2 (Part 2 examination has 2 parts)
MRCOG Part 3
Haematology FRC Path exam
Histopathology FRC Path exam
Faculty of Intensive Care Medicine FFICM MCQ
FFICM final SOE
FFICM final OSCE
Medical Microbiology FRC Path exam
Medical Virology FRC Path exam
Royal College of Ophthalmologists FRCOphth Part 1
Refraction Certificate Exam
FRCOphth Part 2 Written Exam
FRCOphth Part 2 Oral Exam
Paediatric and Perinatel Pathology FRC Path exam
Royal College of Paediatrics and Child Health Foundation of Practice (previously known as MRCPCH Written Exam Part 1A)
Theory and Science (previously known as MRCPCH Written Exam Part 1B)
Applied Knowledge in Practice (previously known as MRCPCH Written Exam Part 2)
MRCPCH Clinical Examination
Royal College of Physicians MRCP Part 1
MRCP Part 2 Written Exam
MRCP Part 2 Clinical Exam (also known as PACES)
Speciality Certificate Examinations (SCE): Dermatology
Speciality Certificate Examinations (SCE): Endocrinology and Diabetes
Speciality Certificate Examinations (SCE): Gastroenterology
Speciality Certificate Examinations (SCE): Geriatric Medicine
Speciality Certificate Examinations (SCE): Infectious Diseases
Speciality Certificate Examinations (SCE): Medical Oncology
Speciality Certificate Examinations (SCE): Nephrology
Speciality Certificate Examinations (SCE): Neurology
Speciality Certificate Examinations (SCE): Palliative Medicine
Speciality Certificate Examinations (SCE): Respiratory Medicine (Advanced Life Support Course is also mandatory)
Speciality Certificate Examinations (SCE): Rhuematology
Royal College of Psychiatrists MRCPsych Paper 1 (also referred to as Paper A)
MRCPsych Paper 2 (also referred to as Paper B)
MRCPsych Paper 3
MRCPsych CASC (Clinical Assessment of Skills and Competencies)
Royal College of Radiologists First FRCR Exam
Final FRCR Exam Part A (Six papers in total referred to as modules 1 to 6)
Final FRCR Exam Part B
Royal College of Surgeons MRCS Part A
MRCS Part B
Speciality Fellowship Exam (on the basis that successful completion of the Speciality Fellowship Exam is a contractual requirement within a speciality training contract)

This list is not exhaustive and may not cover all of the courses that might qualify for tax relief. If a course is not on the list, it may still be eligible for tax relief depending on if the amounts incurred meet the strict conditions stipulated in S336 ITEPA 2003. The contract of employment must be a training contract, and it must meet the requirements outlined in EIM32535.

steve@bicknells.net

What impact does earning over £100k have on my tax code and pension allowance? Reply

Many people don’t realise the impact of earning over £100,000.

Here are a couple things you need to know

Personal Allowance – Tax Code

Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £125,000 or above.

You’ll also need to do a Self Assessment tax return.

Pension Allowance Reduction

To work out if you have a reduced (tapered) annual allowance for a tax year, you’ll need to work out your:
# net income in that tax year
# pension savings in that tax year
# threshold income in that tax year
# adjusted income in that tax year

If your adjusted income is over £150,000 your annual allowance in the same tax year will be reduced.

It will not be reduced if your threshold income for that year is £110,000 or less, no matter what your adjusted income is.

For every £2 your adjusted income goes over £150,000, your annual allowance for that year reduces by £1. The minimum reduced annual allowance you can have is £10,000.

Whichever type of pension scheme you’re in (for example, a career average scheme), you’ll need to know your pension savings so you can work out both your:

# threshold income
# adjusted income

If the pension savings made in the tax year are more than your available annual allowance, you should include the excess amount on your Self Assessment return. Your available annual allowance is your reduced annual allowance plus any unused allowance from the previous 3 tax years.

This amount is added to your taxable income and you will pay Income Tax on it, at the tax rate that applies to you.

The adjusted income includes your pension contributions and for final salary or career schemes pension contributions are the increase in scheme value

steve@bicknells.net

Where can I find a list of HMRC allowable Property Expenses? Reply

Beginning and end of a rental business: commencement

Summary
Usually a rental business begins when letting first commences.
Allowable revenue expenditure incurred before the rental business begins can be relieved under the ITTOIA05/S57 or CTA09/S61 provisions for pre-trading expenditure.

Deductions: main types of expense

PIM2070
Advertising expenses
PIM2072
Bad and doubtful debts
PIM2074
Cash back on loans
PIM2076
Cost of providing services
PIM2078
Costs due to common ownership
PIM2080
Criminal payments, bribes and similar items
PIM2082
Entertaining expenses and gifts
PIM2100
Expenses for own home
PIM2105
Fees for loan finance and similar items
PIM2106
Fines
PIM2110
Insurance premiums and recoveries
PIM2120
Legal and professional costs
PIM2130
Properties not let at a commercial rent
PIM2140
Rates and council tax
PIM2200
Rent collection
PIM2205
Rent paid out
PIM2210
Salaries and wages of employees
PIM2215
Sea walls
PIM2220
Travelling expenses

Are my costs Capital or Revenue expenditure?

Beginning and end of a rental business: cessation

steve@bicknells.net

What are Unused Residential Finance Costs? Box 45 and 45a Reply

It’s the dreaded Clause 24 Interest Rate Restriction being phase in as noted below

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

Investors with residential property will probably have noticed boxes 45 and 45a

45 Unused residential finance costs brought forward

45a Unused residential finance costs carried forward

This is how HMRC explain these figures

Example 4: carrying forward unused finance costs

https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies#example-4-carrying-forward-unused-finance-costs

In the tax year 2020 to 2021 Brian’s annual salary before tax is £36,000 and his rental income is £20,000. The property was empty for 2 months while he found a new tenant and during that time he carried out some repairs on the property.
Brian’s mortgage interest was £15,000 and he had other allowable expenses of £7,000 due to the repairs he carried out.

Tax year 2020 to 2021
Salary before tax = £36,000
Property income calculation:
Rental income = £20,000
Allowable non-finance costs = – £7,000

Property profits = £13,000
Total income = £49,000

Income Tax calculation:
£11,000 x 0% = £0
£32,000 x 20% = £6,400
£6,000 x 40% = £2,400

Finance cost tax reduction calculated
on property profits (£13,000 x 20%) -£2,600

Final Income Tax = £6,200

Brian’s tax reduction is calculated as 20% of the lower of:
finance costs = £15,000
property profits = £13,000
adjusted total income (exceeding personal allowance) = £38,000
The lowest figure is property profits, so £13,000 x 20% = £2,600 tax reduction.
The £2,000 finance costs (£15,000 – £13,000) that haven’t been used to calculate his basic rate tax reduction are carried forward to calculate his basic rate tax reduction in the following year.
In the tax year 2021 to 2022, Brian’s salary is £36,000 and his rental income is £24,000. His mortgage interest is still £15,000 and he has other allowable expenses of £2,000.

Tax year 2021 to 2022
Salary before tax = £36,000
Property income calculation:
Rental income = £24,000
Allowable non-finance costs = – £2,000

Property profits = £22,000
Total income = £58,000

Income Tax calculation:
£11,000 x 0% = £0
£32,000 x 20% = £6,400
£15,000 x 40% = £6,000

Finance cost tax reduction calculated
on finance costs (£17,000 x 20%) -£3,400

Final Income Tax = £9,000

Brian’s tax reduction is calculated as 20% of the lower of:
finance costs (£15,000 of the current year and £2,000 brought forward) = £17,000
property profits = £22,000
adjusted total income (exceeding personal allowance) = £47,000
The lowest amount this year is finance costs, so £17,000 x 20% = £3,400 tax reduction.

 

steve@bicknells.net

My Bank gives Rewards – how are they taxed? Reply

It seems crazy to me that banks give rewards and charges at the same time, wouldn’t lower charges be better?

The rules for Interest are covered by https://www.gov.uk/apply-tax-free-interest-on-savings

These rules include the Personal Savings Allowance and means (provided you aren’t an additional rate tax payer) you could get up to £1000 tax free (£500 for higher rate tax payers).

The problem with rewards is that it depends on what they are as to how they are treated

  1. If the reward is interest (calculated as a rate on the balance) then it should be paid gross, it will be savings income and eligible for the Personal Savings Allowance (PSA)
  2. If its a reward for depositing a certain amount each month or other activity then its not savings income and the bank should have deducted 20% before paying it under the annual payment rules. You will need to report this on your Self Assessment or R40 to reclaim the tax, this income is not with the PSA rules.
  3. If there is reward not related to the balance and there are also charges and fees on the account, it won’t meet the criteria for an annual payment and the bank won’t deduct 20% at source. You will need to declare it as ‘Miscellaneous  Income’ on your self assessment return

steve@bicknells.net

 

Are you taxed if you generate surplus power? Reply

There are special rules for the domestic generation of surplus power – BIM40520

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim40520

Specific receipts: domestic microgeneration: Income Tax exemption for domestic microgeneration

S782A Income Tax (Trading and Other Income) Act 2005

With effect from tax year 2007-08 there is an exemption from Income Tax for an individual’s income from the sale of electricity generated by a microgeneration system where:
1. the system is installed at or near domestic premises occupied by the individual, and
2. the individual intends that the amount of electricity generated by the microgeneration system will not significantly exceed the amount of electricity consumed in those premises.

For the purpose of this exemption ‘domestic premises’ means premises used wholly or mainly as a separate private dwelling.

A ‘microgeneration system’ is defined in S4 Climate Change and Sustainable Energy Act 2006.

This exemption is aimed at domestic microgeneration which is primarily intended to match the generator’s own home consumption needs. The term ‘significantly exceed’ in (b) above is not defined in Section 782A and should be considered by reference to the particular circumstances. However, in general, a householder who does not intend to generate an amount of electricity more than 20% in excess of their own domestic needs is unlikely to be regarded as intending to significantly exceed the amount of electricity consumed in their own premises.

No income tax will therefore arise on feed-in tariffs received by an individual from domestic microgeneration where the above conditions are met.

The exemption may apply where an individual installs a microgeneration system at a property which is not the individual’s main residence provided that the other domestic property is used by the individual, wholly or mainly, as a separate private dwelling and the other conditions are met.

steve@bicknells.net