Category: Tax Relief

Simplified Expenses – Working From Home

Beautiful young woman with coffee using laptop in the kitchen

Most people working from home were claiming the £4 per week allowance based on HMRC guidance, but this has now been updated for the self employed.

You can now calculate your allowable expenses using a flat rate based on the hours you work from home each month.

This means you don’t have to work out the proportion of personal and business use for your home, eg how much of your utility bills are for business.

The flat rate doesn’t include telephone or internet expenses. You can claim the business proportion of these bills by working out the actual costs.

You can only use simplified expenses if you work for 25 hours or more a month from home.

Hours of business use per month Flat rate per month
25 to 50 £10
51 to 100 £18
101 and more £26

Example

You worked 40 hours from home for 10 months, but worked 60 hours during 2 particular months:

10 months x £10 = £100
2 months x £18 = £36

Total you can claim = £136

Use the simplified expenses checker to compare what you can claim using simplified expenses with what you can claim by working out the actual costs.

https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home

Alternatively you could claim you can claim a proportion (based on the number of rooms and hours of business use) of your household expenses

  • Mortgage interest or rent
  • Council tax
  • Water rates
  • Repairs and maintenance
  • Building and contents insurance
  • Electricity
  • Gas, oil or other heating costs
  • Cleaning
  • Telephone (based on usage)
  • Broadband

You can draw up a home rental agreement to reclaim these costs.

The Rental Agreement can be very basic, it just needs to show:

  • The Parties – Employee, Company, Home Office Address
  • The agreement is for use of the accommodation, furniture etc (‘the Home Office’)
  • The hours it will be used
  • The rental charge

or your could use an agreement like this one

https://www.rocketlawyer.co.uk/documents-and-forms/home-office-space-agreement.rl#

If the rental is only to cover costs (and not to make a profit) then it should not create any tax liability.

Some experts say that claiming Mortgage Interest and Council Tax can be queried but that would depend on circumstances.

There are also other isuues to consider such as VAT and Capital Gains and these are covered in the blog below.

http://stevejbicknell.com/2013/01/06/what-are-the-tax-issues-and-advantages-of-a-home-office/

steve@bicknells.net

Is Striking Off a company the best solution?

 

Closing down stamp

Companies House guidance states…
A company may apply to the registrar to be struck off the register and dissolved. The company can do this if it is no longer needed. For example, the directors may wish to retire and there is no one to take over from them; or
it is a subsidiary whose name is no longer needed; or it was set up to exploit an idea that turned out not to be feasible. Some companies who are dormant or non trading choose to apply for strike off. If you have
decided that you no longer want to retain your company and wish to have it struck off, the registrar will not normally pursue any outstanding late filing penalties unless you restore the company to the register at a later stage.
Form DS01 is used to apply for striking off and guidance GP4
An alternative, if the business has assets is to use an Members Voluntary Liquidation (MVL).
  1. The Insolvency Practitioner will ask your Accountant to confirm that the clients tax affairs are inorder and that appropriate advice has been given
  2. Final Accounts will need to be prepared and creditors paid
  3. A Declaration of Insolvency will be signed – The declaration of insolvency demonstrates that the company will be able to settle or secure liabilities and the costs of liquidation within 12 months
  4. A meeting of Shareholders will appoint the Insolvency Practitioner
  5. Notices will be posted at Companies House and in the London Gazzette
  6. Then the MVL can be a carried out and funds distributed
  7. Arrangements can be put in place to allow the directors access to funds during the process

Here are my top 5 reasons why an MVL might be a good choice:

  1. The change in 2012 capped capital distributions on striking off at £25,000 but this cap does not apply to liquidations
  2. You want to retire and close your business and extract the net worth
  3. You created a Special Purpose Vehicle (SPV) for a specific project and the company is no longer needed
  4. Companies that are stuck off can be re-instated but that’s not the case with liquidated companies
  5. Entrepreneurs Tax Relief may be applicable meaning the capital distribution is taxed at 10%
You may also consider disincorporation.
steve@bicknells.net

 

Sole Traders lose Goodwill Tax Relief

Branding

Since 6th April 2008 and until 3rd December 2014 Sole Traders and Parternships were able to claim Entrepreneurs Tax Relief on Goodwill when becoming a Limited Company.

Until the 3rd December 2014 they would claim there Capital Gains Allowance

Period Tax-free allowance
5 April 2013 to 6 April 2014 £10,900
5 April 2014 to 6 April 2015 £11,000

Then claim ER which reduced the rate of tax to 10% on the gain.

But from the 3rd December they will now pay Capital Gains at the normal rates of CGT which are 18% or 28% (for Higher Rate Income Tax Payers).

They also lose the Corporation Tax Relief see Section 849C CTA2009

Also see this blog..

The tax benefits of goodwill on incorporation?

steve@bicknells.net

 

10 ways save tax on your Self Assessment Tax Return

money.gif

It’s Self Assessment season, most people who are required to do self assessment will submit their returns in December and January.

You must always send a tax return if you’re:

  • a self-employed sole trader
  • a partner in a business partnership
  • a company director (unless it’s for a non-profit organisation, eg a charity, and you don’t get any pay or benefits, like travel expenses or a company car)
  1. Don’t miss the deadline of 31st January or you will get penalties and interest
  2. If you are new to Self Assessment makesure you get your HMRC log in details early and know your NI and UTR numbers otherwise you won’t be able to file online which could lead to penalties
  3. Claim all your expenses for example a self employed worker will claim for travel , protective clothing (PPE), home office expenses
  4. Don’t forget Pension Contributions if the tax hasn’t been claimed by your pension provider or you are a higher rate tax payer
  5. Don’t forget Donations to Charity if you are a higher rate tax payer
  6. Have you included out of pocket expenses for example parking
  7. If you are employee could you claim a tax allowance for clothing?
  8. Does your company pay mileage below the HMRC rates, you could claim a tax allowance on the difference
  9. Check you have all your motoring expenses included
  10. Makesure you have claimed all your costs on Buy to Let

steve@bicknells.net

TOGC issues on Business Acquisitions

Businessman hand touching M & A - merger & acquisition concept

Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate. A transfer of a business as a going concern for VAT purposes (TOGC) however is the sale of a business including assets which must be treated as a matter of law, as ‘neither a supply of goods nor a supply of services’ by virtue of meeting certain conditions. Where the sale meets the conditions then the supply is outside the scope of VAT and therefore VAT is not chargeable.

It is important to be aware that the TOGC rules are mandatory and not optional. So it is important to establish from the outset whether the sale is or is not a TOGC.

The main conditions are:

  • the assets must be sold as part of the transfer of a ‘business’ as a ‘going concern’
  • the assets are to be used by the purchaser with the intention of carrying on the same kind of ‘business’ as the seller (but not necessarily identical)
  • where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer
  • in respect of land which would be standard rated if it were supplied, the purchaser must notify HMRC that he has opted to tax the land by the relevant date, and must notify the seller that their option has not been disapplied by the same date
  • where only part of the ‘business’ is sold it must be capable of operating separately
  • there must not be a series of immediately consecutive transfers of ‘business’

The TOGC rules are compulsory. You cannot choose to ‘opt out’. So, it is very important that you establish from the outset whether the business is being sold as a TOGC. Incorrect treatment could result in corrective action by HMRC which may attract a penalty and or interest.

Problem areas:

  1. Gap in trading – for TOGC to apply there must be no significant gap in trading between the sale and purchase
  2. VAT registration – If the vendor is VAT registered, there can only be a VAT-free TOGC if the purchaser is registered at or before the transfer
  3. Buying part of a business – the part being bought must be capable of separate operation
  4. A series of sales – it may not be possible for one of the parties to carry on the trade
  5. Staged Sales – As long as the overall result is that of business transfer these should qualify for TOGC

steve@bicknells.net

Why Doctors should use Salary Sacrifice for CPE

Young Doctor with display board

Doctors often agree to pay for their own continuing training personally because of a shortage of NHS funds but when they do pay for courses its unlikely they will be able to claim tax relief.

EIM32530 states that it is well established that employees are not entitled to an expenses deduction under Section 336 ITEPA 2003 for the expenses continuing professional education (CPE). The Commissioners and the Courts have traditionally held that the duties of trainee doctors, for the purpose of the expenses rule, are limited to the clinical work that they do for the NHS Trust by whom they are employed. Their training activities are not undertaken “in the performance of” those duties for the purpose of Section 336 . That is so even though the training activities may be compulsory, and failure to complete them may lead to the employee losing his or her professional qualifications, and/or their job.

The Commissioners and the Courts upheld that view in a number of cases, as follows:

Parikh v Sleeman (63TC75) – a hospital doctor was refused relief for the expenses of attending training courses during periods of study leave.

Snowdon v Charnock (SpC282) – a specialist registrar was refused relief for the expenses of undergoing mandatory personal psychotherapy.

Consultant Psychiatrist v CIR (SpC557) – an NHS consultant was refused relief for the expenses of CPE necessary to maintain her professional qualification.

Decadt v CRC (TL3792) – a specialist registrar was refused relief for the expenses of taking professional examinations, even though it was a condition of his employment that he should do so.

In the recent case of Revenue & Customs Commissioners v Dr Piu Banerjee ([2010] EWCA Civ. 843), the Court of Appeal accepted that a deduction for training costs incurred by an employee should be allowed if the employee was employed on a training contract where training was an intrinsic contractual duty of the employment (see also EIM32535 & EIM32546) and where any personal benefit, unlike most CPE courses, would be incidental and not therefore give rise to a dual purpose of the expenditure.

Salary Sacrifice solves this problem.

Salary sacrifice works particularly well for training because except in the most extreme cases, employees cannot claim a tax deduction for training costs that they pay personally but if the employer pays for training that is work-related:

  • the employer gets the tax deduction
  • the employee is not taxed on the cost and
  • there is no National Insurance to pay.

EIM01210 confirms this.

steve@bicknells.net

Can you claim a tax allowance for clothing?

You need to follow the code

 

Employees may be able to get tax relief if they – and not their employer – spend money on any tools or specialist clothing they need to be able to do your job. Employees can go back several years to get the relief – the time you’ve got depends on whether you’ve previously sent in a Self Assessment tax return.

As a general rule an employee can’t get tax relief for the cost of clothing they wear to work – but there are some exceptions. For example, if you work in a sector like the building trade or the metal working industry you’ll have to wear protective clothing like:

  • overalls
  • gloves
  • boots
  • helmets

If you must pay for the cost of repairing, cleaning or replacing this type of specialist clothing yourself and your employer doesn’t reimburse you, then you are entitled to tax relief. However, you cannot claim for the initial cost of buying this clothing.

EIM32712 sets out some flat rate expenses that can be claimed and EIM32485 allows £60 per year for laundry.

If you are an employee who wants to claim the laundry allowance you should send HMRC a letter as follows:

Re: Uniform Tax Rebate

I have been employed at……… since….. My job title is ……. and I wear a company uniform.

I am obliged to launder the uniform, which is supplied to me by the company. I therefor wish to claim any payment to cover the laundry costs.

The uniform provided is not suitable to be worn outside of the work environment due to having the company logo on it.

I would like to receive the rebate in the form of a cheque….

Self Employed workers have tried to claim for clothes but whilst HMRC have allowed claims for ‘Uniforms’ and ‘Costumes’ they have rejected claims for everyday clothes.

BIM37910 explains to HMRC Inspectors…

You should disallow expenditure on ordinary clothing worn by a trader during the course of their trade. This remains so even where particular standards of dress are required by, for example, the rules of a professional body.

The case of Mallalieu v Drummond [1983] 57 TC 330 (which is discussed in detail below) established that no deduction is available from trading profits for the costs of clothing which forms part of an ‘everyday’ wardrobe. This remains so even where the taxpayer can show that they only wear such clothing in the course of their profession. It is irrelevant that the person chooses not to wear the clothing in question on non-business occasions, the only question is whether the clothing might suitably be worn as part of a hypothetical person’s ‘everyday’ wardrobe.

Most professionals have to keep up appearances but their clothing costs are not allowable (even where they amount to a quasi uniform as in Mallalieu v Drummond).

The cost of clothing that is not part of an ‘everyday’ wardrobe (for example a nurse’s uniform or evening dress (‘tails’) worn by a professional waiter) faces no such bar to deduction.

You should therefore allow a deduction for protective clothing and uniforms.

This was recently tested by Sian Williams who claimed, unsuccessfully…

In her 2004/05 tax return, a newsreader claimed certain deductions from employment income with the BBC for “travel and subsistence costs”, and “other expenses and capital allowances”.

Of these, the following were in dispute:

  • Professional hairdo and colouring £975
  • Professional clothing for studio    £3,231
  • Laundry of professional clothes   £325

She also claimed that as a taxpayer she had the right to be treated fairly, HMRC should offer up details of the amounts which had been agreed as allowable expenses for other news readers and entertainers.

See articles by Ross Martin and the Guardian

 

steve@bicknells.net

How do you give away property in stages?

Mosaïque de logements

As long as the home you give away is your main home, Capital Gains Tax won’t be payable.

However, if you give away a second home, Capital Gains Tax may be payable if the property has increased in value between when you first owned it and when you gave it away.

If you sell your second home and give the money to your children, the gift won’t be included in your estate for Inheritance Tax purposes, provided you live for 7 years after you make the gift.

Each year individuals have a capital gains tax allowance, called an exemption

 

Annual Exempt Amounts
Customer group 2012-13 2013-14 2014-15
Individuals, personal representatives and trustees for disabled people £10,600 £10,900 £11,000

 

It is possible to to gift property in stages.

Your solicitor will draw up the required documents to conveyance a percentage of the property and register the transactions with the Land Registry.

In order to calculate the capital gain you will need to know the acquisition cost and any reliefs such as PPR.

Giving away your property in stages could save you from having to pay capital gains tax.

The person you give the property to may not have to pay SDLT…

If the property is received as a gift there’s no SDLT to pay, so long as there’s no outstanding mortgage on it.

steve@bicknells.net

5 Creative Tax Reliefs

People in Cinema

The Creative Industries have done rather well in the last couple of years as far as tax reliefs go and more are just about to come on stream.

Creative industry tax reliefs (CITR) are a group of 5 Corporation Tax reliefs that allow qualifying companies to claim a larger deduction, or in some circumstances claim a payable tax credit when calculating their taxable profits.

These reliefs work by increasing the amount of allowable expenditure. Where your company makes a loss, you may be able to ‘surrender’ the loss and convert some or all of it into a payable tax credit.

Film Tax Relief (FTR) was introduced in April 2007 and 2 additional reliefs were introduced in April 2013. These are Animation Tax Relief (ATR) and High-end Television Tax Relief (HTR). A fourth relief for Video Games Development was introduced from 1 April 2014. A fifth relief for Theatre Tax Relief is to be introduced in Autumn 2014. HMRC

Let’s take a look at the 5 tax reliefs:

Film Tax Relief (FTR)

Your company will be entitled to claim FTR on a film as long as:

  • the film passes the culture test – it is considered a ‘British film’
  • the film is intended for theatrical release
  • at least 25% of the total production costs relate to activities in the UK

Animation Tax Relief (ATR)

Your company will be entitled to claim ATR on an animation programme if:

  • the programme passes the cultural test – a similar test to that for FTR but within the European Economic Area
  • the programme is intended for broadcast
  • at least 51% of the total core expenditure is on animation
  • at least 25% of the total production costs relate to activities in the UK

High-end Television Tax Relief (HTR)

Your company will be entitled to claim HTR on a programme if:

  • the programme passes the cultural test – a similar test to that for FTR but within the European Economic Area
  • the programme is intended for broadcast
  • the programme is a drama, comedy or documentary
  • at least 25% of the total production costs relate to activities in the UK
  • the average qualifying production costs per hour of production length is not less than £1million per hour
  • the slot length in relation to the programme must be greater than 30 minutes

Video Games Development

Your company will be entitled to claim VGTR as long as:

  • the video game is British
  • the video game is intended for supply
  • at least 25% of core expenditure is incurred on goods or services that are provided from within in the European Economic Area (EEA)

Theatre Tax Relief

Details to follow in the Autumn of 2014

 

steve@bicknells.net

What’s in your land? it could be worth a 150% tax deduction

Pollution

Land Remediation Relief is a relief from corporation tax only. It provides a deduction of 100%, plus an additional deduction of 50%, for qualifying expenditure incurred by companies in cleaning up land acquired from a third party in a contaminated state.

The tax releif is available on both commercial and residential developments.

Qualifying Land Remediation Expenditure can be claimed for tackling pollution, natural issues, such as radon, arsenic or Japanese Knotweed or remediating long term derelict land.

Asbestos is a common issue and qualifies for Land Remediation Relief….

Legislation in The Control of Asbestos Regulations 2006 and The Control of Asbestos Regulations (Northern Ireland) 2007 governs the way that asbestos is removed.

As a result additional costs may be incurred in containing the asbestos and dust during removal.

For example, a licensed contractor must be employed to remove high risk material, such as pipe insulation or asbestos insulating panels.

The additional costs incurred in order to comply with the regulations are part of the cost of removing the asbestos and so may qualify for Land Remediation Relief.

CIRD63200

So you don’t have to be Indiana Jones to discover value in your land…

 

steve@bicknells.net