Rent a Room – What if Rent exceeds £7,500? Reply

Many people think that Rent a Room is a tax free allowance, a bit like the personal allowance, but its not quite as simple as that.

If your total rent from a room in your home is less than £7,500 then that’s fine, but if your rent is above £7,500 these rules will apply

3.2 If your gross receipts are more than the Rent-a-Room limit

If your gross receipts are more than £7,500 (or £3,750), you can choose how you want to work out your tax:

Method A

You pay tax on your actual profit – your total receipts less any expenses and capital allowances.

Method B

You pay tax on your gross receipts over the Rent-a-Room limit – that is, your gross receipts minus £7,500 (or £3,750). You can’t deduct any expenses or capital allowances if you choose this method.

HMRC will automatically use your actual profit (Method A) to work out your tax.

If you want to pay tax using Method B, you need to tell HMRC within the time limit. You will continue to pay tax on your gross receipts over the Rent-a-Room limit until you tell HMRC that you want to change back to paying tax on your actual profit (Method A).

If you pay tax using Method B, this automatically stops if your rental income drops below the £7,500 (or £3,750) limit.

https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet/hs223-rent-a-room-scheme-2017

So in most cases if you have rent above £7,500 you probably won’t want to claim Rent a Room because you will not be able to offset any expenses!

steve@bicknells.net

WAT a mess! Reply

The Widening Access Training scheme (WAT) was developed for NHS workers to save tax and national insurance.

In fact in many cases the training was free of all tax and NI, the problem has been in its operation.

We have clients in 2 different NHS trusts, they initially got refunds, then had to repay the refunds, and then got refunds direct from HMRC.

Unite have information on their website..

NHS Payroll departments have been contacting staff who may be eligible to receive a refund of Tax and National Insurance (NI) contributions, paid in error, whilst they were in full-time education.

Her Majesty’s Revenue and Customs (HMRC) have stated that employed staff also in full-time education are exempt from Tax and NI up to an annual allowance on earnings of £15,480, whilst in training, provided they meet the following conditions: 

The claimant must have been:

  • An existing NHS employee when starting a training scheme (this could have been at another NHS organisation). 
  • Looking to widen their knowledge. 
  • In full-time attendance at an educational establishment for at least one academic year, and must have attended the course for at least 20 weeks in that academic year. If the course is longer, the employee must attend for at least 20 weeks on average in an academic year over the period of the course.  

Claims for refunds of tax and NI can be made for the period September 1999 to March 2013.  

HMRC normally only accept refund claims for the previous 6 tax years. However, this restriction has been extended back to September 1999, to coincide with the start of a specific training scheme; the Widening Access Training Scheme

This the advice from HMRC to NHS Payrolls

Responsibility for refunds

Training courses attended before 6 April 2013

HM Revenue and Customs (HMRC) will deal with the refund if your employee attended a qualifying WAT course starting before 6 April 2013.

You should submit claims to HMRC on behalf of your NHS employees, providing full details of all eligible workers.

Trusts/authorities should notify HMRC by submitting a schedule by email to the mailbox. nhswat.mailbox@hmrc.gsi.gov.uk

Workers have been advised to contact you to confirm if you’ve already sent a claim to HMRC on their behalf. You may need to ask them for further information or evidence to support their application for a refund.

Training courses attended after 6 April 2013

If workers attended a qualifying WAT course starting on or after the 6 April 2013 the refund should be dealt with by you through your payroll system.

Training course only

If an employee attended a qualifying WAT course and is entitled to a refund, you should complete a Full Payment Submission (FPS):

  1. Enter the full amount of training income paid to the employee in the field ‘Value of payments not subject to Income Tax or NICs in pay period’.
  2. Enter the tax code for the year.
  3. Don’t complete any of the NICs fields.

Training course and paid work

If the employee did a combination of training and paid work and is entitled to a refund for the training income, you should complete an FPS:

  1. Separate the training income from the earned income.
  2. Subject any additional earnings to Income Tax and NICs in the normal way.
  3. Enter the amount of training income received in the field ‘Value of payments not subject to tax or NICs in pay period’.
  4. Enter the tax code number for the year.

If you’ve already sent your final FPS for the years starting 6 April 2014 onwards, you should complete an Earlier Year Update.

The main HMRC links are

Its easy to see why there is confusion!

Hopefully, all those on the WAT schemes will get the correct refunds

steve@bicknells.net

The Second Finance Bill 2017 changes the timetable for Making Tax Digital – what are we doing now? Reply

The previous timetable for Making Tax Digital was

  • April 2018 – quarterly reporting for income tax purposes for unincorporated businesses with a turnover over £85,000
  • April 2019 – quarterly reporting for both incorporated and unincorporated businesses for income tax and VAT
  • April 2020 – quarterly reporting for corporation tax purposes

The new timetable will be

  • Only VAT registered businesses will need to keep digital records and only for VAT purposes.
  • They will only need to do so from April 2019.
  • Businesses will not be asked to keep digital records or update HMRC quarterly for other taxes until at least April 2020 (the original dates had implementation from April 2019).

If you are VAT registered then you will need to move to digital record keeping (i.e. use software to record all your VAT invoices and receipts).

This is massive change in timetable and one that many small businesses and landlords will welcome.

Whilst this now gives smaller businesses longer to prepare, MTDfB is still coming in 2020 and expected to require unincorporated businesses to report the information noted below, so its still worth starting preparations and using cloud based accounting systems.

The details below are an extract from gov.uk for Quarterly Reporting

Non-property businesses

Income:

  • turnover, takings, fees, sales or money earned
  • any other business income

Expenses:

  • cost of goods bought for resale or goods used
  • construction industry – payments to subcontractors
  • wages, salaries and other staff costs
  • car, van and travel expenses
  • rent, rates, power and insurance costs
  • repairs and renewals of property and equipment
  • phone, fax, stationary and other office costs
  • advertising and business entertaining costs
  • interest on bank and other charges
  • bank, credit card and other financial charges
  • irrecoverable debts written off
  • accountancy, legal and other professional fees
  • depreciation and loss/profit on sale of assets
  • other business expenses
  • goods and services for your own use
  • income, receipts and other profits included in business income or expenses but not taxable as business profits
  • disallowable element for each category

Property businesses

Income – furnished holiday lettings:

  • rental income and any income for services provided to tenants

Expenses – furnished holiday lettings:

  • tax taken off income
  • rent paid, repairs, insurance and cost of services provided
  • loan interest and other financial costs
  • legal, management and other professional fees
  • other allowable property expenses
  • private use adjustment
  • premiums for the grant of a lease
  • reverse premiums and inducements
  • property repairs and maintenance
  • costs of services provided, including wages

Income – property:

  • rental income and other income from property

Expenses – property:

  • tax taken off any income from total rents
  • premiums for the grant of a lease
  • reverse premiums and inducements
  • rent, rates, insurance, ground rents etc.
  • property repairs and maintenance
  • loan interest for residential properties and other related financial costs
  • other loan interest and financial costs
  • legal, management and other professional fees
  • costs of services provided, including wages
  • other allowable property expenses
  • private use adjustment

To find out all the latest information why not come to one of my seminars

steve@bicknells.net

How do you get Zero VAT using the 10 Year Rule? Reply

This rule is in VAT Notice 708 and is useful for Residential Property Developers.

https://www.gov.uk/government/publications/vat-notice-708-buildings-and-construction/vat-notice-708-buildings-and-construction#zero-rating-the-sale-of-or-long-lease-in-non-residential-buildings-converted-to-residential-use

Sections 6.3.2 and 6.3.3

You cannot normally zero-rate work to a property that has previously been lived in. The exception to this is where, in the 10 years immediately before you start your work, it has not been lived in and following the work it is ‘designed as a dwelling’ or intended for use solely for a ‘relevant residential purpose’.

If the property starts being ‘used as dwelling’ or for a ‘relevant residential purpose’ whilst your work is being carried out, then any work that takes place after that point is not zero-rated.

How do I know if the building has been unoccupied for 10 years?

You may be required to show that that the building has not been lived in during the 10 years immediately before you start your work. Proof of such can be obtained from Electoral Roll and Council Tax records, utilities companies, Empty Property Officers in local authorities, or any other source that can be considered reliable.

If you hold a letter from an Empty Property Officer certifying that the property has not been lived in for ten years, you do not need any other evidence. If an Empty Property Officer is unsure about when a property was last lived in he should write with his best estimate. We may then call for other supporting evidence.

steve@bicknells.net

Are you letting property – watch out for your Schedule 23 notice! Reply

Schedule 23 Notices are being sent out by HMRC to all Lettings Agents.

If you’ve received a notice under schedule 23 of the Finance Act 2011, you are legally obliged to make a return to HM Revenue and Customs (HMRC) of the information specified in the notice by the date given in the notice.

To comply with the notice agents must provide a spreadsheet including

Landlord’s name

This must include the full name of the recipient of the landord.

Address

When showing addresses use the 5 fields provided, showing each part of the address in a separate field (see below regarding postcodes). For example:

Address 1 Address 2 Address 3 Address 4 Address 5
Hillcrest Cottage Mountain View Watchgate Kendal Cumbria
2 Speyside Avenue Hillington Basingstoke Hants

Start in the ‘Address 1’ field and leave any unused fields blank. Don’t use commas in any part of the address.

Postcode

Enter the postcode only in the dedicated column provided.

Gross amount paid

Show the amount of the total gross rent received from the tenant for the landlord for the period shown in this notice.

Don’t include commas or minus amounts.

Please show amount in pounds and pence without any currency symbol, for example 2105.32.

Currency codes

Enter a code for each amount to identify the appropriate currency. These currency codes are recognised internationally, commonly used currency codes are:

  • UK sterling – GBP
  • euro – EUR
  • United States dollar – USD
  • Canadian dollar – CAD
  • Australian dollar – AUD

Full list of currency codes

If the currency code column in your return is blank HMRC will assume that the amounts are in UK sterling.

Letting address

Please enter the full address of the property or land managed on behalf your client.

Postcode

Please enter full postcode of the let property/land separately from the address.

Tax year

This the tax year of the return. Please use ‘yyyy/yyyy’ format for example 2015/2016.

Your company/organisation’s name

This is your organisation’s name.

Source reference

If available, please insert a reference number from your accounting system to identify the record (in case we need to contact you).

SteveJBicknell Blog gets 450,000 hits with over 9,000 followers Reply

Yes, its true, our blog has been read over 450,000 times, keep reading and help us to reach the half a million mark.

We now have over 9,000 followers and we have made 804 post.

Google has become our best friend and is the source of around 94% of our visitors.

That’s pretty impressive for a blog about accounting and tax!

What’s more, we don’t pay to boost posts or use any other ways to gain advantage, we just post content that our followers and readers value.

Our blog was started to help business owners resolve common issues, its purpose is to help people and to explain how tax works and where the problem areas are. Its designed to give complete answers, rather than ‘here’s a problem, now contact us for the answer’ . We want readers to be able to resolve basic and common problems themselves for free and if their problems are more complex or they need extra help then to contact us or their own accountant.

We don’t ask subscribers and followers to pay and we don’t sell advertising.

So why do we bother?

  1. We really do want to help people, why should tax and accounting be a black art, lets help everyone to understand it
  2. By helping you, we also increase our own knowledge and understanding – so we all learn together
  3. The 804 posts are a huge resource for anyone seeking the solution to a problem
  4. Our blogs are a great reference source as we generally have links to the specific HMRC rules and helpsheets, we often quote our blogs when our clients ask about an issue they face
  5. We enjoy writing them

What lessons have we learned from blogging?

  • Always have a picture
  • Choose a good title for the URL
  • Post regularly

Did you know…

  • There are more than 1.5 billion blogs
  • The majority of blog readers are aged 18 to 36
  • Most people read more than 5 blogs per day
  • Most bloggers share their blogs on social media

steve@bicknells.net

 

How should you account for a Property Management Company? 2

Property Management companies, for instance – Letting Agents, manage properties that they don’t own.

Their services are VATable if they voluntarily register or hit the VAT threshold.

Their income should be the fees that they charge to their clients and they can offset the expenses that relate to their business for example:

Office costs

Accountancy

Insurance

Motor Expenses

But as the properties aren’t owned by them they need to keep their client accounts on the balance sheet in control accounts.

Typically

Rent from Tenants

Maintenance Costs

Management Fees

Then the net amount is passed to the landlord with a statement

It is also possible that the Property Management Company may keep their client accounts entirely separate to their own with separate bank accounts and ledgers, this approach is the best option

Sage One makes this easy to account for properties because you can use Projects, Cost Codes and Departments to analyse the costs.

There are also lots of specialist software package for property management companies

steve@bicknells.net

Are you making the most of your tax free allowances? 1

Each year we a get tax free allowances:

NI Free £8,164

Tax Free Salary £11,500

Capital Gains Tax Allowance £11,300

Rent a Room £7,500

Dividend Allowance £5,000

Personal Savings Allowance £1,000

Then there are  many other tax saving opportunities like tax free childcare https://stevejbicknell.com/2016/08/19/childcare-3-part-report-for-childcare-providers-and-parents/

Plus tax free benefits https://stevejbicknell.com/2016/09/21/are-you-making-the-most-of-tax-free-benefits/

Have you tried to use these allowances?

What if you set out each year to take advantage of these tax free opportunities?

You would need your own business to be able to restrict your earnings to £8,164 or £11,500 as National Minimum Wage would mean you will get pay levels above these £7.50 x 37.5 hours x 52 weeks = £14,625, however, directors can pay themselves below NMW.

To use the Capital Gains Allowance you are going to need to have assets to sell and make a gain

Rent a Room is achievable especially if you take in students

Dividend Allowance is great if you have your own company

Everyone should be able to use the PSA

Why not sit down and work out how you could maximise the use of the tax free allowances that are available

steve@bicknells.net

 

 

 

 

 

Do Directors really have to do self assessment returns? read What happened to a Property Company Director Reply

The official guidance for Directors is…

As a director of a limited company, you must:

You don’t need to register for Self Assessment or send a tax return if your company is a non-profit organisation (for example, a charity) and you didn’t get any pay or benefits, like a company car.

https://www.gov.uk/running-a-limited-company

https://www.gov.uk/self-assessment-tax-returns/who-must-send-a-tax-return

So, basically, if you are a director you must register!

Many accountants think that this one size fits all approach is a little over the top and returns for salaried directors are unnecessary in some cases but the rules are absolutely clear, Directors must register!

So the latest case involving a property company came as a surprise to many accountants

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j9898/TC05929.pdf

Mohammed Salem Kadhem (case TC05929) became a director of a property company on 21 May 2014. He received no pay or dividends from that company and didn’t register for self-assessment.

It was reported in full at http://www.accountingweb.co.uk/tax/hmrc-policy/tribunal-company-directors-dont-have-to-submit-tax-returns?utm_medium=email&utm_campaign=AWUKPOW210617&utm_content=AWUKPOW210617+CID_b1f3f98189c6021fa5eaf5a489ca5e3d&utm_source=internal_cm&utm_term=Company%20directors%20dont%20have%20to%20submit%20tax%20returns

Basically HMRC made mistakes in their approach to the case basically arguing that a notice to file had been sent but were unable to prove the notice was sent and Mohammed Salem Kadhem won.

The tribunal accepted that he had a reasonable excuse for filing a late return and all the penalties were quashed.

This doesn’t change the fact that all directors must register and a file self assessment returns. Don’t risk it, its better to file returns!

steve@bicknells.net

The Second Income Campaign re-visited! what is your side hustle? Reply

Second Jobs or as the Americans call them Side Hustles are very popular, here is a website focused on them

http://www.sidehustlenation.com/ideas/

Almost a third of British workers run some kind of creative business outside their main job contributing an estimated £15bn to the UK economy, according to research from Moo.com. One in ten part-time creative entrepreneurs plans to leave their job to focus on their business full-time within the next year. However, 60% said it was their passion for the business, and not making money, that motivated them. The most popular part-time creative ventures are in food and cooking, gardening, photography and knitting. (According to Law Donut)

So why are micro businesses taking off:

  1. You can start off working at home
  2. Your start up costs are low
  3. You can do it part time when it suits you
  4. With wages frozen and costs rising it can provide a useful additional income
  5. Its easy to be price competitive with low overheads
  6. The Internet makes it easy to sell your goods and services
  7. Your social capital can be used to generate sales ie use your contacts and connections
  8. There could be tax advantages – employees generally pay more tax than sole traders
  9. Some clients prefer the personal touch
  10. It could be start of something big

HMRC orginally launched their campaign in April 2014 and have updated it on 12th June 2017.

The Second Incomes Campaign is an opportunity open to individuals in employment who have an additional untaxed source of income.

Examples could include:

  • fees from consultancy or other services such as public speaking or providing training
  • payment for organising parties and events or providing entertainment
  • income from activities such as taxi driving, hairdressing, providing fitness training or landscape gardening
  • profits from spare time activities such as making and selling craft items
  • profits from buying and selling goods, for example regular market stalls, boot sales etc

 

The criteria used to assess if an activity is a hobby or a business are:

  • The size and commerciality of the activity.
  • The frequency of the activity and transactions
  • The application of business principles.
  • Whether there is a genuine profit motive.
  • The amount of time devoted to the activities.
  • The existence of arm’s-length customers (as opposed to just selling your wares to family and friends).

To take part in the Second Incomes Campaign you should:

  • tell HMRC that you want to take part in the Second Incomes Campaign (Notify)
  • tell HMRC about all income, gains, tax and duties you’ve not previously told them about (Disclose)
  • make a formal offer
  • pay what you owe
  • help HMRC as much as you can if they ask you for more information

To benefit from the reduced penalties offered HMRC will take account of the level to which you have helped them and the accuracy of the information you provided.

https://www.gov.uk/government/publications/second-incomes-campaign-your-guide-to-making-a-disclosure/second-incomes-campaign-your-guide-to-making-a-disclosure

steve@bicknells.net