Tax Strategies for 2019/20 Year End Reply

With the end of the tax year fast approaching, now is a good time to review your business and personal finances to ensure that they are as tax-efficient as possible.

We can help make sure that you don’t miss out on any money-saving opportunities.

Please take some time to read through our 2019/20 Year End Strategies Guide, which contains practical guidance and ideas to implement before 5 April 2020.

With our useful tips and expert assistance, we can help you and your business to minimise the tax burden and increase profitability.

steve@bicknells.net

What happens if you lose FHL Status? Reply

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

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

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

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

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

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

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

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

What if you fail these tests?

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

Loss of FHL – Capital Allowances

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

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

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

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

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

steve@bicknells.net

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

HMRC say…

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

You can of course voluntarily register below the threshold

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

Tour Operators Margin Scheme (VAT Notice 709/5)

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

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

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

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

 

steve@bicknells.net

Useful facts about Clause 24 – Restricting Landlords Interest Relief Reply

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

Its being phased in

2018/19 50% of the interest can be claimed in full and 50% will get relief at 20%
2019/20 25% of the interest can be claimed in full and 75% will get relief at 20%
2020/21 100% will get only 20% relief

The rules don’t apply to

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

The rules do apply to

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

What loans will it apply to

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

What costs are within the scope of clause 24

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

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

steve@bicknells.net

What benefits are allowed to be given tax free? Reply

Trivial Benefits

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

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

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

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

Directors of ‘close’ companies

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

Problem areas and points to note

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

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

Annual Parties and Functions

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

Gifts from Third Parties

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

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

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

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

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

• gift cost the donor £250 or less

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

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/785476/480_2019_Expenses_benefits.pdf.pdf

 

steve@bicknells.net

 

Making Tax Digital Seminars – Mission Complete 1

My mission is complete, statistics as follows for 2018 and 2019

MBL Seminars for Accountants in Practice

  • 19 seminars delivered
  • Duration of seminar – 6 hours
  • 279 attendees
  • Locations – London, Manchester, Southampton, Leeds, Cambridge, Bristol, Edinburgh, Glasgow, Haverford West (Wales)
  • Price of Seminar £216 to £480 (this to MBL not to me, I am paid a presenter fee and expenses)
  • 99% rated the seminars as Satisfied or Very Satisfied
  • 71% rated the Speaker as Very Satisfied

UK Training for Businesses

  • 29 seminars delivered
  • Duration of seminar – 4 hours
  • 552 attendees (from some of Britain’s biggest corporates)
  • Locations – London, Manchester, Birmingham, Edinburgh, Southampton, Leeds, Glasgow, Sheffield, Newcastle, Bristol, Reading
  • Price of Seminar £269 (this to UK Training not to me, I am paid a presenter fee and expenses)
  • 98% rated the seminars as Good or Excellent
  • 55% rated the Speaker as Excellent

Scottish Government

  • 160 attendees
  • Edinburgh University
  • 2 hour presentation as main speaker

I have also done some other presentations and consultancy bringing the overall attendees to over 1,000

Its been great fun and I hope the attendees have been able to put my content to practical use.

I am also now helping Sage, the UK’s largest technology company, I have joined their Accountants Advisory Board.

Whilst first stage of MTD is now complete, there is more to come in 2021 with Income Tax and Corporation Tax, so I will be back and if Brexit happens then I am sure training and seminars will be needed to understand the changes.

Thank you to all those who attended and to MBL and UK Training for booking me.

Here are some pictures from my travels

How do you value a business and what is your business worth? Reply

Ultimately businesses will be valued through a process of negotiation between the buyer and the seller. There isn’t a single right answer, valuation isn’t an exact science.

The main reasons to value a business are:

  • Incorporation of a Sole Trader or Partnership
  • Divorce
  • Probate
  • Internal reward systems
  • Sale of the business or part sale

In order to value a business the valuer will need gather information such as

  • Financial Accounts
  • Management Accounts
  • Budgets
  • Forecasts
  • Details of liabilities
  • Asset Valuations
  • Market analysis
  • Client Contracts
  • Staff information and records

Not all this information will be available but essentially the more information that is available the more detailed and accurate the valuation will be.

The Valuer will also look at Strengths, Weaknesses, Opportunities, and Threats (SWOT).

The financials will need to be adjusted for exceptional and one off costs and any revaluation of assets and liabilities.

The Adjusted net assets then have a Goodwill or Bad Will adjustment applied to create the ‘Value of the Enterprise’

Lord MacNaghten in the case of Commissioners of Inland Revenue v Muller & Co Margarine (1901) AC215 defined goodwill as follows – he said:
“What is goodwill? It is a thing very easy to describe, very difficult to define. It is the benefit and advantage of the good name, reputation and connection of the business. It is the attractive force which brings in custom. It is the one thing which distinguishes an old established business from a new business at its first start. Goodwill is composed as a variety of elements. It differs in its composition in different trades and in different businesses in the same trade. One element pay preponderate here, and other there.”

The formula for Goodwill is

GW = Σ NCIt-rANAVt/(1+i)t

sometimes simplified to: GW = (NCI -rANAV)/i

GW = Goodwill

ANAV = operating adjusted net asset value

NCI = operating net current income

r = cost of equity

i = discount rate (weighted average cost of capital)

t = number of periods

In reality goodwill is much harder to establish in small businesses

Using Multiples is also a common approach to valuations, the multiple could be against

  • Sales
  • EBIT
  • EBITDA
  • Earnings per share (P/E ratio)

The multiple is assessed based on similar businesses which have been sold.

Another frequently used approach is Discounted Cash Flow (DCF)

The discount rate is usually the weighted average cost of capital (WACC)

WACC = ((ke x E)/E+D) + ((kd x D)/E+D)

WACC = weighted average cost of capital

ke = cost of equity capital

kd = cost of debt

E = Proportion of long-term funding from equity

D = Propertion of long-term funding from liablities

There are several ways in which DCF can be used to establish the business value.

Steve Bicknell holds the ACCA Certificate in Business Valuations and has carried small business valuations.

steve@bicknells.net

 

A Masterclass in Making Tax Digital Reply

Yesterday I presented a 2 hour Masterclass in Making Tax Digital at Scottish Public Sector Taxation Conference, we covered

  • What is MTD and Why is it being introduced
  • What will it cost
  • When are Digital Links needed
  • What are Digital Links
  • How is MTD going so far
  • Problem areas
  • Why has GIANT been delayed
  • What are the 2 main types of Bridging Software
  • Scenarios

160 delegates from the Scottish Government, Scottish Council, Scottish NHS and HMRC attended.

Property and Capital Gains Tax Relief – 2020 changes Reply

The Government love making changes to property tax, often in order to increase tax.

Legislation will be introduced in Finance Bill 2019-20 amending sections 222 to 224 TCGA. These changes will:

reduce the final period exemption from 18 months to 9 months (there are no changes to the 36 months that are available to disabled persons or those in a care home)

reform lettings relief so that it only applies in circumstances where the owner of the property is in shared-occupancy with a tenant

make some revisions to job related accommodation relief by extending it to serving members of the armed forces, who are required to live away from home and, instead of being provided with job-related accommodation, receive payments from the MOD under its Future Accommodation Model and uses those funds to pay for accommodation

legislate 2 ESC – D21 Late claims in dual residence cases and D49 Short delay in owner occupiers taking up residence

clarify the rules concerning the transfer of residential properties between spouses or civil partners – those rules will make clear that where an individual transfers all or part of an interest in a residential property that they own to their spouse or civil partner, the receiving spouse or civil partner will inherit the transferring spouse’s or civil partner’s previous history of use of that property, resulting in a fairer outcome

steve@bicknells.net

What is a C79 and how do you account for Import VAT? Reply

The Economic Operator Registration and Identification (EORI) scheme was implemented in the EU UK 1 July 2009. You will require an EORI number if you import from or export to countries outside of the EU.

Goods are declared to customs using form C88 Single Administrative Document (SAD) that in most cases is presented in an electronic format. Import VAT is dealt with in the same way as a Customs Duty. You can pay it outright at importation, or under the duty deferment arrangements explained in Notice 101: deferring duty, VAT and other charges which also covers Simplified Import VAT Accounting (SIVA). This is a scheme that reduces the level of financial security required to guarantee the payment of import VAT through the duty deferment system.

Subject to the normal rules, you can claim as input tax any import VAT you pay on goods, provided those goods are imported for the purpose of your business. Your claim must normally be made on the VAT Return for the accounting period during which the importation took place.

C79
The normal evidence of payment of import VAT is the import VAT certificate (form C79), which is issued monthly.

You need to hold official evidence of VAT paid on imported goods before you can recover the VAT as input tax.

The C79 certificate is issued in connection with most import procedures, and also post importation corrections and removals from a customs warehouse.

The certificate is made up of twin sided A4 sheets with a blue print background.

Flexible Accounting System (FAS) paid VAT transactions will be shown under your EORI number.

Neither the agent’s VAT number nor the agent’s reference number appears on the certificate for immediate payment and FAS paid transactions. If this causes you particular difficulties you may wish to consider arranging duty deferment facilities.

The accounting date will be shown against each item on the certificate, and transactions will appear on the certificate for the month covering that accounting date – for example, transactions bearing an accounting date of October will normally appear on the October C79 certificates. For transactions paid by duty deferment the accounting date is normally the date of clearance of the goods. For immediate payment and FAS items the accounting date may, in some instances, be later than the date of the declaration. So some goods cleared in late October may have a November accounting date, and will therefore appear on the November certificate.

Transactions that are the subject of an accounting query will appear on the first certificate issued after the query has been dealt with.
A single total of VAT for the period will appear at the end of the final page.

Certificates cover accounting transactions made in each calendar month should be received around the 24th of each month following imports logged the previous month.

Here are the instructions on how to enter C79 import VAT

The cost including the freight will have been paid to the freight company such as FEDEX

Sage One

https://help.sageone.com/en_uk/accounting/import-vat-and-duty.html

Xero

https://central.xero.com/s/article/Using-non-standard-tax-rates-UK

steve@bicknells.net