Holiday Lets – Good news for Capital Allowances

At last, after a long wait since March 2024, we know what the legislation will be…….

Policy paper

Abolition of the furnished holiday lettings tax regime

Published 29 July 2024

https://www.gov.uk/government/publications/furnished-holiday-lettings-tax-regime-abolition/abolition-of-the-furnished-holiday-lettings-tax-regime

Operative date

The measure will have effect:

  • on or after 6 April 2025 for Income Tax and for Capital Gains Tax
  • from 1 April 2025 for Corporation Tax and for Corporation Tax on chargeable gains

Current law

The current law on the tax rules for furnished holiday lettings is contained in:

  • Part 3 of the Income Tax (Trading and Other Income) Act 2005
  • Part 4 of the Corporation Tax Act 2009
  • Part 7 (specifically sections 241 and 241A) of the Taxation of Capital Gains Act 1992
  • the Capital Allowances Act 2001

Proposed revisions 

This change will remove the tax advantages that current furnished holiday let landlords have received over other property businesses in 4 key areas by:

  • applying the finance cost restriction rules so that loan interest will be restricted to basic rate for Income Tax
  • removing capital allowances rules for new expenditure and allowing replacement of domestic items relief
  • withdrawing access to reliefs from taxes on chargeable gains for trading business assets
  • no longer including this income within relevant UK earnings when calculating maximum pension relief

After repeal, former furnished holiday let properties will form part of the person’s UK or overseas property business and be subject to the same rules as non-furnished holiday let property businesses.

The following specific transitional rules will apply:

  • businesses with FHL properties will no longer be eligible for more beneficial capital allowances treatment but will instead be eligible for ‘replacement of domestic items relief’ in line with other property businesses — where an existing FHL business has an ongoing capital allowances pool of expenditure, they can continue to claim writing-down allowances on that pool — any new expenditure incurred on or after the operative date must be considered under the property business rules
  • under current rules a loss generated from a FHL property business can only be carried forward and utilised against future profits of that same FHL business — after the changes, former FHL properties will be part of the person’s UK or overseas property business as appropriate — that property business will then include the amalgamated profits and losses of all the properties in that business
  • persons may have losses to carry forward from their FHL business after repeal — losses generated from this FHL business will be permitted to be carried forward and be available for set off against future years’ profits of either the UK or overseas property business as appropriate
  • under current rules FHL properties are eligible for roll-over relief, business asset disposal relief, gift relief, relief for loans to traders, and exemptions for disposals by companies with substantial shareholdings — after the changes eligibility for the reliefs will cease — however, where criteria for relief includes conditions that apply in a future year these specific rules will not be disturbed where the FHL conditions are satisfied before repeal
  • in relation to business asset disposal relief, where the FHL conditions are satisfied in relation to a business that ceased prior to the commencement date, relief may continue to apply to a disposal that occurs within the normal 3-year period following cessation
  • there is also an anti-forestalling rule — this will prevent the obtaining of a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules — this rule applies from 6 March 2024

Capital Allowances – Claim them now!

Now that we know you can continue to use the capital allowances pool after 5th April 2025 its worth claiming capital allowances now if you are eligible.

We had previously assumed there would a clawback on the 5th April 2025 by creating a balancing charge because the Holiday Let activity would cease, but now we know that won’t be the case, which is great news and a big relief for FHL owners.

Do Property Flippers and Investors need to do CIS?

two man holding white paper

What is CIS?

The Construction Industry Scheme (CIS) applies to anyone who carries out construction work as a trade, in other words developers, contractors, building maintenance and repairs, decorating, property conversion, basically if you use sub-contractors to work on a building its probably within CIS. It does, however, exclude property investors and domestic householders.

Under CIS the Contractor/Developer has to use the subcontractors UTR, NI and other details to verify the subcontractor with HMRC, this determines in a deduction that need to be taken and paid to HMRC.

The Construction Industry Scheme (CIS) deduction rates are:

  • 20% for registered subcontractors
  • 30% for unregistered subcontractors
  • 0% if the subcontractor has ‘gross payment’ status – for example they do not have deductions made

The Contractor/Developer must pay these deductions to HMRC – they count as advance payments towards the subcontractor’s tax and National Insurance bill.

The contractors then does a monthly return for HMRC, makes payment of the tax collected and issues a deduction statement to the subcontractor.

Flipping and Developing

Flipping is where a property is purchased and work carried out to resell for a profit, this is a development activity and within CIS.

Property developers are included within the meaning of mainstream contractors because their business activity is the creation of new buildings, or the renovation or conversion of existing buildings, or other civil engineering works. The same is true of a speculative builder.

CISR12080 – The Scheme: contractors: property developers and property investment businesses – HMRC internal manual – GOV.UK (www.gov.uk)

This not covered by …

Contractors may be construction companies and building firms, but may also be government departments, local authorities and many other businesses that are normally known in the industry as ‘clients’.

Some businesses or other concerns are counted as contractors if they have spent more than £3 million on construction within the previous 12 month period. The rules require a business to monitor construction spend regularly.

Private householders are not counted as contractors so are not covered by the scheme.

Construction Industry Scheme: a guide for contractors and subcontractors (CIS 340) – GOV.UK (www.gov.uk)

This no lower limit for CIS, if you are a developer/contractor you have to do CIS.

When do Investors need to do CIS?

As noted above there is the £3m rule but also where the work is substantial it could be within CIS. See example below..

The property investment business acquires a large, dilapidated building to add to its portfolio, and decides to convert the building into a series of flats which it will then individually let out. As a result, substantial development is required to the property to change the building to its new use. In respect of this type of development we would regard the property investment business as having taken on the mantle of a mainstream contractor as its business activity is now that of construction operations.

Where, at a future date, the investment business reverts to property investment activities only, then their status as a deemed contractor should be applicable once again. If their expenditure is likely to remain below £3 million on a rolling 12-month period, then deregistration from CIS may be considered appropriate.

CISR12080 – The Scheme: contractors: property developers and property investment businesses – HMRC internal manual – GOV.UK (www.gov.uk)

Gross Status

Clearly subcontractors aren’t enthusiastic about CIS as impacts their cashflow, they get the money back as its offset against their tax liability, but even so, its not ideal.

However, its relatively easy to get Gross Status, to qualify..

You must show HM Revenue and Customs (HMRC) that your business passes some tests. You’ll need to show that:

  • you’ve paid your tax and National Insurance on time in the past
  • your business does construction work (or provides labour for it) in the UK
  • your business is run through a bank account

HMRC will look at your turnover for the last 12 months. Ignoring VAT and the cost of materials, your turnover must be at least:

  • £30,000 if you’re a sole trader
  • £30,000 for each partner in a partnership, or at least £100,000 for the whole partnership
  • £30,000 for each director of a company, or at least £100,000 for the whole company

If your company’s controlled by 5 people or fewer, you must have an annual turnover of £30,000 for each of them.

What you must do as a Construction Industry Scheme (CIS) subcontractor: How to get gross payment status – GOV.UK (www.gov.uk)

Contact Us for more help

steve@bicknells.net

Holiday Lets – Claim FHL CGT Reliefs now or lose them forever

It was announced in the March 2024 budget that the special treatment of Holiday Lets (FHL) would be abolished from the 6th April 2025. That’s in 10 months time!!

In 2017 there were around 8,000 FHLs by 2022 there were 111,000 in the UK, the growth has been incredible, which is why the Government have changed the rules to cash in and also to release properties for the long term let market.

Key Problems

Capital Allowances

One of the major benefits of holiday lets/serviced accommodation has been and is Capital Allowances. These have been claimed by both individuals and companies.

Many FHL owners have claimed between 20% and 40% of the property value saving considerable tax, its been the top advantage of holiday lets for most owners and its key reason behind personal ownership which allowed the profits offset by Capital Allowances to be extracted tax free.

Now the regime is ending (5th April 2025) the market value of the assets (Integral Features and Plant & Equipment) may need to be assessed and a balancing charge may be payable. This could effectively refund HMRC with the tax that had been reclaimed.

Interest Restriction

This won’t apply to companies.

Companies will have a clear tax advantage for FHL ownership in the future.

Individual FHL owners will be taxed in the same way as BTL owners, this means Interest will no longer be an allowable cost and instead they will get the finance allowance. This is fine if you are 20% tax payer but will mean additional tax for 40% tax payers.

Residential Letting – What is the Finance Cost Allowance and how are Unused Finance Costs used up? – Steve J Bicknell Tel 01202 025252

CGT Reliefs

If you sell or transfer your FHL now you can still benefit from generous Capital Gains Tax Allowances (SDLT LBTT LTT may be payable)

Business Asset Disposal Relief (BADR)

This was previously known as Entrepreneurs Relief, basically, subject to rules, if you dispose of your FHL business, the gain is taxed at 10%.

Its anticipated that the date of disposal will be critical. In other words, an individual who ceased their FHL business will only qualify for BADR if they dispose of their FHL by the earlier of three years from the date of cessation or 5th April 2025.

We don’t expect the end of the regime on the 5th April 2025 to count as cessation for BADR, meaning you can then dispose of the property then claim BADR in the following three years.

So there is clear incentive to sell now before the change takes place.

HS275 Business Asset Disposal Relief (2024) – GOV.UK (www.gov.uk)

Rollover Relief

This allows the FHL owner to rollover over their gain into a new business property.

It is clear that this relief will not be available after 5th April 2025, however, if a sale took place before the deadline could the gain be rolled over into a new qualifying business property for example a shop?

Let’s hope so, otherwise there will be no option but to pay the CGT rolled over.

HS290 Business Asset Roll-over Relief (2024) – GOV.UK (www.gov.uk)

Holdover Relief

Where the intention is to keep an FHL property within the family, there are a number of tax planning opportunities. FHL properties that meet the qualifying criteria are able to benefit from s. 165 business asset holdover relief, and they may also qualify for business property relief, so enabling a gift into trust without a lifetime inheritance tax charge. In the latter case, holdover relief under TCGA 1992, s. 260 would apply as it takes priority over s. 165.

Holdover relief for FHL’s will end on 5th April 2025

Gift Hold-Over Relief – GOV.UK (www.gov.uk)

Incorporation Relief

Its likely that an FHL business will qualify for incorporation tax relief, this should continue after the 5th April 2025. The important factor is the level of activity as outlined in the Ramsey Case.

HS276 Incorporation Relief (2024) Roll-over relief on transfer of a business – GOV.UK (www.gov.uk)

Anti Forestalling

The Government announced at Spring Budget 2024 that the Furnished holiday lettings tax regime (FHL) will be abolished from April 2025. The Finance (No. 2) Bill 2024 will include an anti-forestalling rule to prevent access to capital gains tax reliefs through the use of unconditional contracts, to apply from 6 March 2024. This is yet to be enacted and may be subject to change.

The date of disposal is the date of an unconditional contract which in England and Wales is normally the date of exchange.

So CGT reliefs would be based on that date not the completion date.

What this means is that any contract has to complete by the 5th April 2025

The abolition of FHL Tax Breaks is supported by both Labour and Conservatives, in fact Labour wanted to make the change back in 2010, so its unlikely who ever wins the election will stop the changes taking place.

Contact Us

Now is time to consider your option, we can help, please get in touch, book a meeting or drop me an e mail steve@bicknells.net

What are CVR’s and how do you prepare a CVR?

Why do you need to do CVRs?

Cost Value Reconciliations (CVR’s) are used across the construction sector and are the industry norm.

In managing construction projects, Cost Value Reconciliations (CVRs) play a crucial role in establishing profitability, monitoring performance, and identifying potential issues. To prepare a comprehensive CVR, it’s essential to recognise value accurately and consistently throughout the project lifecycle, and include a scenario management section (Best/Worst/Most likely). Accurate value recognition and consistent reporting can influence the amount of profit and loss reported. Calculating construction costs involves input and output methods, and it’s important to consider under measure and over measure, as well as advanced payments and retention. Regular cost meetings can help monitor project progress and address potential issues early on.

Accounting Rules

Both FRS105 and FRS102 have sections covering Construction, below are the rules from FRS102

23.17 When the outcome of a construction contract can be estimated reliably, an entity shall recognise contract revenue and contract costs associated with the construction contract as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting period (often referred to as the percentage of completion method). Reliable estimation of the outcome requires reliable estimates of the stage of completion, future costs and collectability of billings.

23.22 An entity shall determine the stage of completion of a transaction or contract using the method that measures most reliably the work performed. Possible methods include: (a) the proportion that costs incurred for work performed to date bear to the estimated total costs. Costs incurred for work performed to date do not include costs relating to future activity, such as for materials or prepayments; (b) surveys of work performed; and (c) completion of a physical proportion of the contract work or the completion of a proportion of the service contract. Progress payments and advances received from customers often do not reflect the work performed.

Click to access FRS_102_The_Financial_Reporting_Standard_applicable_in_the_UK_and_Republic_of_Ireland_ns2SqGY.pdf

Horror Stories

Carillion

Not producing CVR’s correctly can cause even the largest construction companies to fail

CIOB (Chartered Institute of Building) Global Review May 2018

“Accounting tricks”: How Carillion duped the market – Global Construction Review

Carillion used a variety of techniques to hide its ailing health and its “aggressive accounting” was only exposed when it revealed an £845m financial black hole in July 2017, MPs have concluded.

The UK’s second biggest construction firm before its January 2018 collapse consistently overestimated the profitability of its projects, counted as revenue uncertain cash that clients had not signed off, and hid its mounting debt to suppliers so as to appear more financially sound than it really was.

Carillion had a turnover of £5.2bn, Balfour Beaty held the top spot at £8.2bn

Mark Smith Groundworks

Its not just big companies, small Subcontractors need to do CVR’s too

Mark Smith v HMRC [2012] TC02321

https://financeandtax.decisions.tribunals.gov.uk//Aspx/view.aspx?id=6797

Mark Smith was trading as a builder who provided ground works for construction companies. He had an in house surveyor who produced his applications for payment, the clients surveyor certified the valuation within 3 weeks and the accountant recognised the value when certified. The contracts were fixed price and lasted up to 12 months, The business started as a Sole Trader and was subsequently incorporated.

HMRC opened an enquiry in 2001/2002.

The central issue before the tribunal related to Mark Smiths computation of profits.

(1)2000/01: additional profits of £43,189 giving rise to tax of £17,275.60

(2)2001/02: additional profits of £65,205 giving rise to tax of £24,972.02

(3)2002/03: additional profits of £73,889 giving rise to tax of £27,737.86

(4)2003/04:additional profits of £70,023 giving rise to tax of £27,503.41

(5)2004/05: additional profits of £70,000 giving rise to tax of 27,704.18

(6)2005/06: additional profits of £65,240 giving rise to tax of £26,735.44

(7)2006/07: additional profits of £45,541 giving rise to tax of £18,671.81

There was also a penalty determination in respect of 2004/05 in an amount of £8,311

What are the elements of a CVR?

Cost = Expenses incurred in a construction project

Value = Value of work undertaken (Revenue that can be recognised)

Profit – Value – Cost

Monthly Reporting Cycles

Reporting date is the month end cut off date

The CVR has 3 main sections

  • Final Position
  • To Date Position
  • Period Position

Overarching principles

  • Prepared on the basis of when Value is earned and cost incurred, not based on cash received/paid
  • Prudence Concept
    • Value – not overstated
    • Costs – not understated
  • The Final Position
    • Needs to be based on the same scope of work, same program and duration
  • Consider
    • Measure (for example brick laying)
    • Variations
    • Claims such as delays
    • Ignore
      • Retentions unless the client is likely to retain it
      • Bonuses until achieved and agreed
      • Gain Share on Cost Reimbursable contracts
      • Liquidated Damages unless the client is likely to apply them

“A subcontractor liability is the cumulative assessment of the subcontract cost that is due to them under the terms of their subcontract up to the month end cut off date”

Input Method – To Date Position

Cost to Date/Total Final Cost = Completion %

20000/100000 = 20%

Total Final Value x Completion % = Value to Date

Output Method – To Date Position

This based on the internal valuation

With this method its important to correct for any under to over measure based on timing

Problem areas are milestone payments and front loaded prelims as well as advance payments and retentions

Profit Recognition

Value to Date – Cost to Date = Profit to Date

Some Construction Companies don’t recognise any profit under more than 20% of the contract has been completed because they take the view that the outcome of the project isn’t certain

In addition any future losses are recognised immediately rather than carrying them forward and distorting profitability.

Terminology

Preliminaries – The easiest way to define preliminaries in construction is as a group of items necessary for a construction company or contractor to complete a project but that won’t become a part of the finished work—site overhead, scaffolding, powering the site, etc.

Enabling Works – these costs cover activities from site preparation, creation of access routes, and the installation of facilities like security fencing, ramps, and placing of signs.

Provisional Sums – A provisional sum is an allowance included in a construction contract to cover the estimated cost of certain work. The work covered by a provisional sum is usually specified in the contract documents. Provisional sums are usually used for work that is difficult to estimate, such as earthworks or specialist services.

How do you prepare a CVR?

Accounting Records

Its likely you will start with your accounting records, you will probably have a Job Costing System that will show you

  • Applications for Payments/Authenticated Receipts/Self Billing/Certified Work
  • Subcontract payments and invoices
  • Wages
  • Materials
  • Overheads
  • Budgets/Estimates

Adjustments

The accounts will cut of at the end of a month but will need adjusting

  • Cost Accruals
  • Internal v’s External Valuations

Basically you need to consider all the points in the previous section – What are the elements of a CVR

The end result needs to meet the requirements of the accounting standards…

Reliable estimation of the outcome requires reliable estimates of the stage of completion, future costs and collectability of billings.

steve@bicknells.net

Case Study – Tax Saving £32,085

Undisclosed Property Income

Mrs H contacted us in April 2023, HMRC had contracted her about undeclared property income dating back to 2010-11. Mrs H had already been in discussion with HMRC and supplied information and HMRC had made an assessment in March 2023, the assessment added up to £54,798. HMRC request agreement and payment by 11th April 2023.

The clients daughter was already a client and felt the assessment seemed to too high and suggested Mrs H seek advice from a property tax expert and recommended us.

Mrs H had spoken to other accountants and felt little could be done.

We asked HMRC for more time to which they agreed.

woman in white shirt showing frustration
Photo by Andrea Piacquadio on Pexels.com

Detailed Analysis

We reconstructed the records for the period 2021-22 to 2010-11. This was highly detailed work looking at

  • Bank Statements
  • Letting records
  • Expenses
  • Credit Card Statements
  • Other records

This was basically a forensic exercise, we shared the information with HMRC and questions went backwards and forwards over many months.

HMRC Agreed Figures March 2024

Its take a year, but on the 11th March 2024 HMRC issued a new assessment requesting payment of £22,713 which Mrs H has accepted. Saving £32,085 on the original assessment.

This is a great example of how compiling accurate and detailed records can save you considerable amounts of tax.

It also demonstrates the need to work with an accountant who is an expert in Property Tax.

Feefo Client Review

 I’m so grateful and honoured to have been recommended the outstanding service of Bicknell. Long may it continue.

Star Rating: ★★★★★

Contact Us

If you need help book a virtual meeting and we can have chat

steve@bicknells.net

Holiday Let – anti-forestalling rule

The March 2024 Budget was bad news for Furnished Holiday Lets (FHL)/Serviced Accommodation.

Abolition of the Furnished Holiday Lettings (FHL) tax regime

As announced at Spring Budget 2024, the government will abolish the Furnished Holiday Lettings tax regime, eliminating the tax advantage for landlords who let out short-term furnished holiday properties over those who let out residential properties to longer-term tenants. This will take effect from April 2025.

Draft legislation will be published in due course and include an anti-forestalling rule. This will prevent the obtaining of a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules. This rule will apply from 6 March 2024.

https://www.gov.uk/government/publications/spring-budget-2024-overview-of-tax-legislation-and-rates-ootlar/spring-budget-2024-overview-of-tax-legislation-and-rates-ootlar

The advantages likely to be affected are:

• Interest incurred on borrowings is fully deductible against taxable profits
• Beneficial capital allowances rules allowing tax relief for fixtures
• Various capital gains tax reliefs, including potential for business asset disposal relief (10% rate on sale), rollover relief and gifts hold-over relief
• Profits from FHLs can be treated as relevant earnings for pension purposes
• Income from a FHL held jointly by a married couple or civil partners is not caught by the default 50:50 split for income tax purposes

The anti-forestalling Rule

We are still awaiting the detail, but its likely that FHL’s owned by companies will not be affected by the changes. That means that company ownership would be the best option.

The anti-forestalling rule seems to prevent conditional contracts but it may still be possible to simply sell your FHL to your own company at an arms length market value, this would incur stamp duty but if the rules don’t come in to force until 2025 you might get Incorporation Tax Relief or Business Asset Disposal Relief which would save Capital Gains Tax.

As the rules are likely to be out soon its best to wait before taking action.

Time to Plan

Now is the time to consider

  • The impact of the changes on your tax
  • Whether to sell
  • Whether to sell to your own Company
  • Whether to change the use to Assured Short Term Tenancies

Working out your plan now could save you considerable tax in 2025.

steve@bicknells.net

Holiday Let Tax Grabbing UK Budget

The of end FHL tax breaks

The Furnished Holiday Lettings (FHL) tax regime will be abolished from April 2025. Draft legislation is to be published and will include anti-forestalling measures that will apply from 6 March 2024. The effect of abolishing the rules will be that short-term furnished holiday lets and longer-term residential lets are treated the same for tax purposes and individuals will no longer need to report the two income streams separately.

The advantages likely to be affected are:

• Interest incurred on borrowings is fully deductible against taxable profits
• Beneficial capital allowances rules allowing tax relief for fixtures
• Various capital gains tax reliefs, including potential for business asset disposal relief (10% rate on sale), rollover relief and gifts hold-over relief
• Profits from FHLs can be treated as relevant earnings for pension purposes
• Income from a FHL held jointly by a married couple or civil partners is not caught by the default 50:50 split for income tax purposes

Brightline Test

The OTS report outlines a suggested ‘brightline’ test to provide a clear test for when property letting activities subject to income tax would qualify as a trade. It proposes possible factors to be considered within the test are:

  • minimum number of properties let
  • letting is on a short term basis
  • no personal use of the let
  • level of personal time devoted to the property letting and services provided

Good news on CGT

Residential higher rates will be reduced on chargeable gains on residential properties, with the exception of any element that qualifies for Private Residence Relief. These rates are changed from 18% and 28% in 2023/24 to 18% and 24% in 2024/25

But its still bad news for Holiday lets as they will lose Business Asset Disposal Relief meaning CGT at 10%

Changes to SDLT

A number of changes are made to the Stamp Duty Land Tax (SDLT) regime. These include the following:

• The abolition of Multiple Dwellings Relief

• Changes to First-Time Buyer Relief to extend it to individuals buying a new residential lease via a nominee or bare trust for transactions

Click here to download our free budget report

steve@bicknells.net

Self Assessment 2023 – file by the 17th January or risk penalties

close up photo of shocked woman

According to the BBC

Fujitsu Services workers in the West Midlands are set to strike later this month in a dispute over pay, which a trade union has said is likely could cause disruption for people filing self-assessment tax returns.

About 300 members of the PCS union based in Stratford-upon-Avon and Telford are set to take part in the walk-out on 17 January.

Those joining the strike are mainly those working on behalf of HM Revenue and Customs.

The issue reported by Computer Weekly…

All of the participating employees are members of the Public and Commercial Services (PCS) Union, and are set to strike after rejecting a 3-4% pay rise from Fujitsu after learning that employees working for the company in Japan are being offered salary increases of up to 29%.

If you don’t file your self assessment return by 31st January you will get penalties.

You’ll pay a late filing penalty of £100 if your tax return is up to 3 months late. There are extra penalties after that and interest is charged on amounts due to HMRC.

But late filing also increases your chance of being investigated by HMRC, the logic is that leaving things till the last minute suggests you are disorganised and more likely to make mistakes.

Don’t miss the deadline, make sure your return is filed before the 17th January 2023.

steve@bicknells.net

Soon Churches with an income of £5000 will have to register as Charities – are you ready?

church in east halton

The Church of England states the following

Registration with the Charity Commission – Parish ResourcesParish Resources

Registration with the Charity Commission

By the end of March 2031, all PCCs in England and Wales with an annual income over £5,000 must be registered with the Charity Commission.  Between now and then, any parish that has an exceptional income of over £100,000 must register – they can no longer seek a written determination not to have to do this.   

Do I have to register?

Is the church’s income over £100,000?

If the answer is ‘yes’, even if this is a one off (eg because of a legacy), you need to register with the Charity Commission.

Is the church’s income over £5000 but under £100,000?

Assuming your income remains at this level, you don’t need to register yet, but you will have to by the end of March 2031.

Is the church’s income under £5000?

Assuming this income remains unchanged, as guidance currently stands you will not have to register.

What issues will Churches face?

1. Registration with the Charity Commission
The first critical task will be registration with the Charity Commission. This requires you to clearly demonstrate your church’s public benefit and comply with specific legal obligations, which can be daunting.

2. Understanding and Implementing Accounting Standards
Transitioning to a charity means adopting strict accounting standards as stated in the Statement of Recommended Practice (SORP). Grasping the nuances of these regulations requires a significant investment in training and adjustments to your financial practices.

3. Independent Examination or Audit
As part of the accountability process, your charity’s financials need an independent examination or formal audit, depending on your income. Finding and appointing a qualified individual who could offer such services isn’t easy, we work with several churches so understand the requirements, we are independent examiners.

4. Governance Matters
Establishing a governing body that can effectively manage the charity while adhering to the principles of the Church of England is a test of balance and diligence.

5. Selecting and Training Trustees
Your trustees will carry considerable responsibility, hence the selection process is critical. Training them to meet the Charity Commission’s requirements is equally important to ensure they understand their legal obligations.

6. Compliance with Charity Law
Understanding and complying with charity law is a significant challenge, as there are distinct legal statutes that govern charitable entities, which often require specialist legal advice.

7. Creating a Reserves Policy
Developing a reserves policy is not merely a financial imperative but also a strategic one. This involves careful deliberation to ensure your church’s financial sustainability while being able to support ongoing and future projects.

8. Risk Management
Risk management is critical. Identifying, assessing, and mitigating risks related to financial, operational, and reputational aspects are areas to develop policies for.

9. Reporting and Transparency
Maintaining a high level of transparency through timely and accurate reports is essential for your credibility as a charity. Using modern software like Xero will be a must.

10. Data Protection and Privacy
Complying with data protection laws is another area where strict adherence was mandatory. As a charity, your handling of personal data has to meet the standards of GDPR and similar regulations.

If your Church needs help to prepare for Charity Registration or you need an Independent Examiner, please get in touch.

steve@bicknells.net

Can directors and employees receive gifts from the company tax free?

Giving gifts to your employees can be a great way to increase engagement and raise the overall morale of your team. But how much can you give before there are tax implications? And how do the rules differ if you’re giving gifts to your directors?

The good news is that you can give gifts that don’t exceed £50 in value to your employees without any tax or National Insurance (NI) charges arising – as long as you follow HMRC’s rules. The cost of this is also tax-deductible by the company.

Making use of the Trivial Benefits scheme

As part of HM Revenue & Customs’ (HMRC’s) Trivial Benefits scheme, you can give gifts to your employees to mark birthdays, weddings or just ‘because’, all without attracting any tax charges. Owners can also benefit from the same Trivial Benefits scheme.

  • Trivial benefits can be provided to employees without any adverse tax or NI implications, and with no need to report them on a P11D form – the HMRC form used to report any ‘benefits in kind’ that you’ve provided to an employee.
  • To qualify, gifts can’t be a reward for services, can’t be cash or a cash voucher, can’t be contractual, and the cost mustn’t exceed £50 per gift.
  • For directors of close companies, the total can’t exceed £300 in any year. Although not limited for other employees, if it was a regular gift then it’s likely to be treated as a reward for services – which would then have tax implications.
  • If over the course of a year, a director awarded themselves 6 x £50 gift cards (maxing out the £300 cap) as a higher-rate taxpayer they could save around £126 in tax and NI compared with a £300 salary. The company would also save about £41 in NI.
  • Gift cards are fine as long as they aren’t pre-loaded debit cards that can be used to withdraw cash – remember you can’t give cash as a gift.

Let’s look at an example of these rules in practice:

If an employee is given a bottle of wine for hitting a sales target, that would be taxable. If they were given the wine because it’s their birthday, as long as it was below £50 it would be within the exemption. It could also be given just because you’re in a good mood and feeling generous – it just can’t be anything related to company or individual performance.

Talk to us about meeting the rules around employee gifts

It’s important that you stick to HMRC’s rules around employee gifts and don’t end up unintentionally creating a negative tax impact for people on your team, or for the business.

As your adviser, we’ll help you draw up clear, well-explained internal guidance to make sure any gifts don’t unintentionally fall outside of the rules.