How are HMRC attacking the use of TOMS for serviced accommodation?

The Tour Operators Margin Scheme (TOMS) was created for holiday companies.

Accommodation that is bought in and sold without material alteration, falls within TOMS. However, where there is material alteration the accommodation becomes an in-house supply and TOMS can not be used.

Further details are in Notice 709/5

7.6 How an in-house supply of accommodation is made

If you own a hotel and supply accommodation within it, you are making an in-house supply of accommodation.

If you hire, lease or rent accommodation under an agreement whereby you take responsibility for the upkeep of the property and you are required to undertake any maintenance to the fabric of the building (that is, not just cleaning and changing towels or bed linen and so on), you are making an in-house supply of accommodation.

Also, if you buy in accommodation and provide catering staff from separate sources, for example a ski chalet with a chalet-maid, you are making an in-house supply, commonly referred to as ‘catered accommodation’.

HMRC are attacking the use of TOMS for Rent to SA

  • Rent to SA is not a tour operator and the services being supplied are not designated travel services – tour operators organise travel in their own name and entrust others with the supply
  • The supply made by the landlord is not a ‘designated travel service’ – taking a lease of residential premises, whether furnished or unfurnished for a term of years is not a relevant service for TOMS
  • The landlord is not supplying hotel accommodation or short-let accommodation
  • If the SA operator furnishes the property that is a material alteration which means TOMS can’t be used
  • If the contract requires the SA operator to replace broken glass or deal with condensation or do maintenance that would go beyond routine cleaning and minor repairs
  • If the SA operator is responsible for utilities and Council Tax these constitute a material alteration to supply

What about the Landlord?

The landlord is not supplying a Furnished Holiday Let unless they meet the Occupancy Conditions set out in HS253 this will not be the case in Rent to SA as they are not doing short lets they are simply renting out residential property on a long let. They will not be able to claim capital allowances and the they will not avoid section 24 interest restrictions.

steve@bicknells.net

Spring Statement 2022

A summary of the Spring Statement 2022 is now available – click here

We have produced this newsletter to cover the main issues that are most likely to be of interest to you. You will also find useful commentaries to help you understand how the proposed changes may affect you personally. In addition, we have included a detailed calendar of the most important dates for 2022/23 that will help you with tax planning ahead of time. If you have any questions concerning the issues covered in this summary, or would like advice on the best possible course of action in a particular area, please contact us – click here

Have you remortgaged? will that restrict the recovery of interest beyond the Section 24 rules?

Many Buy To Let properties were purchased in individual names, that was norm before, then from 2017/18 we saw the introduction of clause 24 (section 24).

Essentially Section 24 removes Interest from the property expenses and gives you tax relief (finance allowance) at 20% (basic rate). So Higher rate tax payers will pay more tax.

Historically, its been common for BTL owners to regularly remortgage and with draw capital, basically cashing in on house price rises.

But what many owners seem to have overlooked is that if the mortgage exceeds the original property value (including SDLT and related costs) plus any improvement costs, then the mortgage interest is further restricted.

Increasing a mortgage

If you increase your mortgage loan on your buy-to-let property you may be able to treat interest on the additional loan as a revenue expense, as long as the additional loan is wholly and exclusively for the purposes of the letting business.

Interest on any additional borrowing above the capital value of the property when it was brought into your letting business is not tax deductible.

If the mortgage is for a residential property then the restrictions on interest from April 2017 will apply.

Examples of how to work out Income Tax when you rent out a property – GOV.UK (www.gov.uk)

steve@bicknells.net

The Tax Issues of Hire Purchase (HP), PCP and Leases for assets – Capital Allowances

When businesses purchase assets they normally use finance, it makes sense to conserve your cash and spread the purchase cost over the life of the asset, but how will you choice impact on whether you can claim Capital Allowances, Annual Investment Allowance or Enhanced Capital Allowances.

You can claim capital allowances when you buy assets that you keep to use in your business, for example:

  • equipment
  • machinery
  • business vehicles, for example cars, vans or lorries

These are known as plant and machinery.

You can deduct some or all of the value of the item from your profits before you pay tax.

So clearly buying assets without finance or with a business loan is fine as you will definitely own the asset.

Hire Purchase

The normal assumption is that a vehicle bought under a HP agreement will become the property of the hirer once the final payment is made at the end of the lease period.

Section 67 Capital Allowances Act 2001 (CAA 2001) allows the capitalisation of the entire expenditure on the vehicle from delivery, providing the asset was in business use at the end of the chargeable period.

However, if a payment is not made and the vehicle is not acquired then it is treated as having been disposed of by s67(4).

Q&A: hire purchase contract and capital allowances | Accountancy Daily

PCP – Contract Purchase

Under any other finance arrangement it will depend on whether the vehicle is owned or not, usually the documentation will confirm the position but a PCP is considered to be an HP arrangement with a balloon payment. If the end payment is not paid and the option to purchase not taken then that is a disposal and thus a clawback of the allowances claimed.

Contract Hire and Leases

Contract Hire will not pass ownership to hirer so they are not eligible for Capital Allowances.

But the hire costs will normally be tax deductible and generally 50% of car hire VAT can be reclaimed.

steve@bicknells.net

Is that Invoice correct or invalid for VAT?

Its a common issue, how often do directors buy things in their own name or perhaps use their personal amazon prime account for convienence.

The invoice is then addressed to them not to the company!

VIT13400 – VAT Input Tax basics: when input tax can be claimed by the business on supplies to employees

You must take care in applying the supply rule when the third party is an employee. Here are some examples of supplies made to the employer, provided the employer meets the full cost, even when it may look as if the employee has received the supply:

  • road fuel and other motoring expenses;
  • subsistence costs such as meals and accommodation necessarily paid for whilst away from the normal workplace;
  • removal expenses arising from company relocations or transfer of staff;
  • sundry items such as small tools or materials purchased on site.

This list is not exhaustive.

You should decide whether the supply is legitimately paid for by the employer for the purpose of the business. If it clearly is then input tax should be recovered. This is in keeping with the intention of the legislation.

Simplified VAT Invoices for items worth less than £250 – these invoices don’t show the customers details

Simplified invoices only need to include the following information: 

  • The name, address and VAT registration number of the supplier
  • A unique invoice number
  • The tax point, also known as the ‘time of supply’ – (This is the date that the transaction actually takes place and is used for VAT purposes. The tax point may be different from the invoice date.) 
  • A description of the products or services that are sold
  • The VAT rate of each invoiced item – (If an item is VAT exempt or zero-rated, then the invoice must show that there’s no VAT charged on that item.)
  • The total amount, including VAT

Unlike an ordinary invoice, it’s not necessary to include your customer’s name and address, or the date the invoice was issued. Other information about prices and VAT, such as the total amount of VAT, the price of each item without VAT and the pre-tax total, can be omitted. 

What if the above don’t apply and you can’t get the supplier to correct the invoice? Will HMRC reject you VAT reclaim?

First you need to keep notes of your attempts to get a valid invoice.

Then to persuade HMRC that the VAT reclaim is valid you will need to prove

  1. There has been an actual supply of goods or services to your business
  2. Your business received the goods and services and that they don’t belong to another person or business
  3. You have some documentary evidence to support the claim such as contracts, purchase orders, correspondence, you may also be able to link the purchase to a sale

VIT31200 – How to treat input tax: alternative evidence for claiming input tax

Questions to determine whether there is a right to deduct in the absence of a valid VAT invoice

  • Do you have alternative documentary evidence other than an invoice (for example a supplier statement)?
  • Do you have evidence of receipt of a taxable supply on which VAT has been charged?
  • Do you have evidence of payment?
  • Do you have evidence of how the goods/services have been consumed within your business or evidence about their onward supply?
  • How did you know the supplier existed?
  • How was your relationship with the supplier established? For example:
  • How was contact made?
  • Do you know where the supplier operates from (have you been there?)
  • How do you contact them?
  • How do you know they can supply the goods or services?
  • If goods, how do you know they are not stolen?
  • How do you return faulty supplies?

Where:

  • the supply is of goods not specified as subject to widespread fraud and abuse; and
  • the taxpayer can provide satisfactory alternative evidence of the supply (questions 1-4); and
  • there are no grounds to suspect abuse or fraudulent intent on the part of the claimant

HMRC staff should normally exercise their discretion to allow the taxpayer to deduct the input tax.

steve@bicknells.net

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