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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)
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).
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
MTD ITSA is at best going to be challenging for tax payers and accountants, but we love a challenge, don’t we?!
In the MTD ITSA there are
- 900,000 Landlords
- 2.5 Million Self Employed
- 400,000 Partnerships
Over 130,000 probably need to change their year end and when MTD ITSA starts a single self assessment will be become 6 returns.
HMRC announced in August in there Agent Communications
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) — Agents can sign-up customers in advance of April 2023
It has been confirmed that a bulk sign-up facility for MTD ITSA will not be possible due to several factors including each individual customer having different details to be input.
It is recognised that data will need to be input during the sign up process for each customer. It is accepted that this could be time consuming if all this had to be done at once, especially if it coincided with other peak demands such as the tax year end or VAT filing for example.
Following discussion with agents, HMRC is working to deploy a solution which will help flatten this workload. Agents will be able to sign up mandated MTD ITSA customers from 6 April 2022. This will not activate MTD obligations but will give agents the opportunity to spread the load of sign-up work across a 12-month period.
The back-end process is being worked on and further information will be issued. HMRC reaffirms, this will only come into effect from 6 April 2022 and that any sign-ups made before that date would be for the active pilot.Agent Update: issue 87 – GOV.UK (www.gov.uk)
Since HMRC know all about tax payers (because they get annual Self Assessment Returns) and they know all about agents (because we have agent service accounts with HMRC that list our clients), why is it necessary to have a signing up process.
MTD ITSA is compulsory, so why aren’t the relevant tax payers automatically registered by HMRC?
Let’s hope HMRC can find a back-end process that will save us from manually enrolling millions of tax payers.
The Budget 2021 had some great news for many businesses because it allowed 3 year carry back of losses.
Originally the bill included Furnished Holiday Lets (FHLs) but that has now been changed and FHL’s are now excluded.
The loss relief works as follows………
Legislation introduced in Finance Bill 2021 to extend the period for which trading losses can be carried back against previous profits. This extension will apply to trading losses made by companies in accounting periods ending between 1 April 2020 and 31 March 2022 and to trading losses made by unincorporated businesses in tax years 2020 to 2021 and 2021 to 2022.
Trade loss carry back will be extended from the current one year entitlement to a period of 3 years, with losses being carried back against later years first.
The amount of trading losses that can be carried back to the preceding year remains unlimited for companies. After carry back to the preceding year, a maximum of £2,000,000 of unused losses will be available for carry back against profits of the same trade to the earlier 2 years. This £2,000,000 limit applies separately to the unused losses of each 12 month period within the duration of the extension.
This means a cap of £2,000,000 on the extended carry back of losses incurred in accounting periods ending in the period 1 April 2020 to 31 March 2021 and a separate cap of £2,000,000 on the extended carry-back of losses incurred in accounting periods ending in the period 1 April 2021 to 31 March 2022.
The £2,000,000 cap will be subject to a group-level limit, requiring groups with companies that have capacity to carry back losses in excess of a de minimis of £200,000 to apportion the cap between its companies.
The amount of trading losses that can be carried back by individuals to set against profits of the preceding year remains unlimited. The current restrictions to carry back losses from a trade against general income will remain.
A separate £2,000,000 cap will apply to the extended carry back of losses made in each of the tax years 2020 to 2021 and 2021 to 2022.
This £2,000,000 limit applies separately to the unused losses of each tax year within the duration of the extension. Income Tax payers will not be subject to a partnership-level limit.
Number of cases
As of 9am on 11 March 2020, 27,476 people have been tested in the UK, of which 27,020 were confirmed negative and 456 were confirmed as positive. Six patients who tested positive for COVID-19 have died.
Government Support for Businesses
Measures to mitigate the effect of the coronavirus outbreak include:
- Statutory sick pay for “all those who are advised to self-isolate” even if they have not displayed symptoms
- Business rates for shops, cinemas, restaurants and music venues in England with a rateable value below £51,000 suspended for a year
- A £500m “hardship fund” to be given to local authorities in England to help vulnerable people in their areas
- A “temporary coronavirus business interruption loan scheme” for banks to offer loans of up to £1.2m to support small and medium-sized businesses
- The government will meet costs for businesses with fewer than 250 employees of providing statutory sick pay to those off work because of coronavirus
- Plans to make it quicker and easier to get benefits for those on zero hours contracts
- Benefit claimants who have been advised to stay at home will not have to physically attend job centres
What if your employees contract the virus?
According to a government press release issued 3 March 2020, up to one-fifth of employees may be absent from work during peak weeks of the present outbreak. Obviously, you will not want infected employees in the workplace. You will need to review your contracts of employment with affected staff to determine your liability to cover sick pay.
Statutory sick pay (SSP) amounts to £94.25 per week (2019-20) and for staff who qualify, can be paid for a maximum period of 28 weeks. If you have payroll software the management of SSP is normally included.
You may also benefit from contingency planning. How can you reorganise tasks if key staff are incapacitated? Spending a little time to plan for these possibilities may save you head-aches should staff be unable to work.
Have you considered Home Working arrangements?
Is it possible to organise a home working scheme for staff? This will not be feasible for all staff, production workers or retail staff for example, but staff that spend their days in front of a computer screen could be supplied with a laptop and work from home.
Where appropriate, there are a wealth of online meeting services that could be utilised to keep in touch with home workers.
Do you depend on the services of sub-contractors?
If yes, you may want to organise a list of alternative contractors you can call on if needed. This should help to minimise disruption if your present sub-contractors are unable to work.
How secure are your supply lines?
You may want to consider sourcing alternative suppliers if your present supply lines are adversely affected by the flu. China, as we know, supplies a growing number of components many of which find their way into British made goods.
Should you be rethinking your business plans?
It is difficult to gauge the possible spread of the Coronavirus but if epidemic conditions arise there is a real possibility that we may see a downturn in global, and therefore UK, economic activity. This, combined with any Brexit fallout, may indicate that the time is right to rethink your business plans for 2020.
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
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 Bicknell has just become a Certified Migration and Making Tax Digital Advisor under the MTD course launched by Xero.
Making Tax Digital starts in April 2019 for businesses over the VAT threshold, but many businesses owners are unaware of the impact it will have on their business and that they will need API software in order to submit returns.
From 2020 we expect to see all businesses – Landlords, Sole Traders, Partnerships, Companies, Charities – with an income over £10,000 having to report their Profit and Loss to HMRC every quarter and then prepare a 5th return for year end adjustments.
This is a massive change and many businesses are currently using incompatible software which will not create digital links, is not approved by HMRC and is not API compliant.
If you want to discuss how Making Tax Digital will affect your business, please get in touch or come to one of our MBL seminars.