Clause 24 of the Finance Bill sets out restrictions for individuals on claiming mortgage interest as a cost against their property investment income, for individuals it will work as follows
2017/18 75% of the interest can be claimed in full and 25% will get relief at 20%
2018/19 50% of the interest can be claimed in full and 50% will get relief at 20%
2019/20 25% of the interest can be claimed in full and 75% will get relief at 20%
2020/21 100% will get only 20% relief
These rules will not apply to Companies, Companies will continue to claim full relief.
The rules also don’t apply to Furnished Holiday Lets.
Essentially Section 24 removes Interest from the property expenses and gives you tax relief at 20% (basic rate). So Higher rate tax payers will pay more tax.
The Mortgage Works have a spreadsheet calculator that demonstrates this and also incorporates other profits and income.
Until the financial crisis in 2008 it felt like very little was being done to stop tax avoidance or unethical behaviour by businesses, but the climate has now changed.
Just because something isn’t illegal it doesn’t mean its ethical or moral and customers are now holding businesses to account.
UK waste management agency Business Waste polled 2,000 shoppers about their high street habits and found that 90% said they take a business’s ethical record and accreditation into account when it comes to things like paying taxes and environmental issues.[startup donut]
For example, 95% look for hygiene certificates and 75% want to see indications that companies they use are taking care of the planet. In addition, 45% say they would only consider using businesses that pay their tax in the UK.
Since 2012 we have seen companies like Google, Amazon and Star Bucks held to account over tax by the public accounts committee.
Back in 2014 Fair Tax was launched to try to help promote businesses who pay taxes rather than trying to avoid paying
The Fair Tax Mark Criteria assess the quality of a business’ publicly available information on key tax and transparency issues. In this context, publicly available information primarily means a full set of accounts available to all via Companies House or the company website. However, it can also include the company website and/or any other freely available printed material.
For every business type, the criteria are divided into two main categories that assess a business on:
Tax rate, disclosure and avoidance
Its time that all businesses became ethical businesses!
Contractors and Business Owners have been using Loans as disguised remuneration for decades.
Basically, a loan isn’t income so schemes have been created to lend money through various means. HMRC view these as tax avoidance.
How contractor loans work
In a contractor loans scheme you’re paid in the form of a loan from a trust or company, sometimes referred to as a remuneration trust.
You don’t get your payment (or ‘loan’) directly from the company you’re providing work for because it’s diverted through a chain of companies, trusts or partnerships.
The companies that promote these schemes will tell you this will save you tax.
Why these schemes could cost you more
Scheme promoters will tell you that the payment is non-taxable because it’s a loan, and doesn’t count as income.
In reality, you don’t pay the loan back, so it’s no different to normal income and is taxable.
So if you’re using one of these schemes and being paid this way you’re highly likely to be avoiding tax. You could end up paying additional taxes, penalties and interest as well as a fee to the promoter.
What if its not called a loan?
Contractor Weekly reported this week that Contractors are now being advised to say that they holding funds in ‘fiduciary capacity’ on behalf of the company.
According to their article calling a loan by a different name doesn’t impress HMRC, it looks like a loan so it is a loan!
It is recommended that you tell HMRC about these schemes by e mailing firstname.lastname@example.org
If you are using one of these schemes HMRC will be looking for you!
In order to get a mortgage, brokers and lenders ask employees for payslips and P60’s and for business owners they ask for SA302’s and Tax Overviews (often lenders also want an accountants certificate to certify the clients trading results).
The SA302 shows:
- Pay from all employments
- Profits from self employments
- Property Profits
- Tax and National Insurance due
You can get copies of SA302’s from HMRC https://www.gov.uk/sa302-tax-calculation
The Tax Overview shows:
You can only get Tax Overviews from your online HMRC account.
Lenders and Brokers are often insisting on HMRC SA302’s (which can take several day or even a couple of weeks to obtain).
On the 25th August HMRC wrote…
Agents have told us that not all their client’s lenders will accept the self-serve copy printed from their HMRC online account or the commercial software used to file the SA return, or their commercial software does not print.
We have been working with the Council of Mortgage Lenders to understand their requirements and the changes necessary to accept self-served copies of the tax calculation from the HMRC online account or the commercial software used to file the SA return. We have also liaised with commercial software companies to ensure their software offers a print facility.
A list of lenders who will accept self-serve copies can be found in the HMRC’s guidance, Mortgage providers and lenders who accept a SA302 tax calculation and a tax year overview.
It is always worth checking with the lender or mortgage provider what they require as evidence of income. And should another third party require a copy of the tax calculation, you may wish to ask if they accept a self-serve copy.
Now that we have made all the changes required to allow agents to self-serve online, we will no longer be issuing paper copies of the tax calculations directly to agents from the 5 September 2017.
So basically, clients will have to call HMRC if they need an SA302 with the HMRC logo and the lender won’t accept a self serve or agents copy.
Why are lenders and brokers being so picky! surely if an accountant provides the information that will be sufficient?
There are a lot of companies that can’t file using the HMRC online service…
You won’t be able to use the HMRC free service if any of the following apply:
- your accounts require an audit or have been audited
- your company turnover is above £632,000 per year
- your charity turnover is above £6.5 million per year
- your company must pay its Corporation Tax in instalments
- your company is part of a group
- your company is not registered in the UK
- your company is in liquidation or receivership
- your company is an insurance company – not including independent insurance brokers
- your company is an investment company
- your company is a credit union
- your company is a commercial property management company
- the Corporation Tax accounting period for the return is covered by more than one set of statutory accounts
- you need to claim a repayment of a loan to a participator (for example, a director’s loan), more than 9 months after the end of the accounting period
If you can’t use HMRC’s free online service, you can use commercial software to submit your online return.
As we are moving towards Making Tax Digital, how is this going to enable businesses to file online?
Clearly they could buy third party software, such as BTC https://www.btcsoftware.co.uk/
I use BTC and this its brilliant, there are of course many other products available.
But as Tax is complicated, despite a constant effort to simplify it (which so far hasn’t really worked), surely HMRC are encouraging companies to turn to tax agents for help?
I thought the strategy was to reduce taxpayer reliance on Tax Agents?
The government may have postponed Making Tax Digital but the Seminars continue.
The first one is this Friday (1st September) in Bristol, its an epic production.
6 Hours of CPD
110 PowerPoint Slides
229 pages of handouts
The seminar has 7 sections
- HMRC MTD route map
- The Requirements of MTD
- Client transition planning and client communications
- How will MTD change the way clients work with accountants
- Case Studies
- Sanctions & Penalties
With contributions from Xero, Sage, MyFirmsApp, Free Agent, BTC, Practice Track and Clear Books
This is probably one of the most comprehensive seminars ever given on Making Tax Digital
Click here to find out about the seminars in Cambridge, Manchester and London.
I look forward to seeing you there
HMRC have 4 fictional case studies, they are on the are on the Overview of Making Tax Digital page of the HMRC website and this was last updated on 13th July 2017
- Geeta – the teacher who also does some tuition
- Richard – the landscape gardener who has just become VAT registered
- Helen – retired
- Dave and his Wife – who are directors of a small plumbing company
Geeta uses a App on her smartphone for record keeping
Richard was using an agent but then moves to a digital tax account
Helen uses a Personal Tax Account
Dave uses an App to provide information to his accountant
So Apps are very popular!
HMRC seem to assume that most people want to do their own record keeping and that small businesses like Geeta and Richard will no longer use accountants or book keepers.
We have an extremely complicated tax system, so how realistic is that, even HMRC struggle to calculate your tax correctly!
The way that allowances are applied for dividends, allowances, savings and other items all impact on each other.
Many tax payers will be working on their 2016/17 returns (to 5th April 2017 due by 31st January 2018) over the coming months and find that they can’t use the HMRC software because it doesn’t work properly.
As reported by Accounting Web
Rob Ellis, CEO of BTCSoftware, can’t remember a year when there have been so many exclusions from filing SA tax returns online. For the 2016/17 tax returns 16 new examples have been added to the online filing exclusions list, which is now in version 4; there is a version 5 of this list under construction.
You can read the full list of exclusion on this link https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/622426/2017-exc-indi.pdf
There were 62 exclusions! HMRC have fixed some but aren’t intending to fix them all
Companies often borrow from their directors, especially property companies as 100% loan to value loans may not be available from lenders.
If the company pays interest on the loan it will have to register with HMRC and prepare CT61 returns
The CT61 requires the company to deduct 20% tax on the interest.
The Director may be entitled to the interest tax free
Personal Savings Allowance
You may also get up to £1,000 of interest tax-free depending on which Income Tax band you’re in. This is your Personal Savings Allowance.
|Income Tax band
||Tax-free savings income
Savings covered by your allowance
Your allowance applies to interest from:
- bank and building society accounts
- savings and credit union accounts
- unit trusts, investment trusts and open-ended investment companies
- peer-to-peer lending
So the Personal Savings Allowance should cover Directors Loans as explained in accountingweb
If you are lending to your company you should make sure that its at a market rate and you may want to consider your security for the loan.
You could opt for a charge at Companies House but at the very least you should have a loan agreement.