How can you get a Tax Refund for Trading Losses? Reply

We are facing the worst recession in 300 hundred years, according to Bank of England

Worse than the Napoleonic wars 1812 to 1821

Worse than the Great Depression of the 1930’s

Worse than the 2 World Wars

Worse than the Financial Crash of 2008

The IMF predicts the UK economy will shrink by 6.5% in 2020, compared with the IMF’s January forecast for 1.4% GDP growth.

The Office for Budget Responsibility (OBR) said unemployment could hit 3.4 million – up from 1.3 million – leaving around one in 10 of the working population without a job, while the economy may shrink by 35% between April and June.

Businesses will make losses this year!

How can those losses into cash refunds?

Carry back the losses! Reclaim tax you have previously paid

You will probably need your accountant to help you, here are the basics

Historically most businesses have simply carried forward losses but you can carry them back

Corporation Tax

 

Instead of carrying a loss forward, you can claim for the loss to be offset against profits for the earlier 12 month period (not accounting period).

You can make a claim to carry back a trading loss when you submit your Company Tax Return for the period when you made the loss.

 

Self Employed

You may use the loss against your income of 2019 to 2020 or 2018 to 2019 or both years.

You can make this claim for losses made in the first 4 years of trade. Start with 2016 to 2017 income.

If the loss is more than your income use the remaining loss against your income in 2017 to 2018 and then 2018 to 2019.

Do not make this claim if you, your spouse or civil partner first carried on the trade before 6 April 2016.

 

 

Corporation Tax – Carry a trading loss back

Instead of carrying a loss forward, you can claim for the loss to be offset against profits for the earlier 12 month period (not accounting period).

You can only do this if your company or organisation was carrying on the same trade at some point in the accounting period or periods that fall in the earlier 12 month period.

For example, if your company or organisation has a loss of £8,000 in the accounting period 1 January 2016 to 31 December 2016 and profits of £20,000 in the earlier 12 months, you can carry back the £8,000 loss to be set off against the profits for the previous accounting year, this will reduce them from £20,000 to £12,000.

If an accounting period straddles that 12 month period, the profit for that period is apportioned and the loss can only be offset against that portion of the profit that falls within the 12 month period.

For example, your company or organisation has a loss of £8,000 in the accounting period 1 January 2016 to 31 December 2016 and it’s recently changed its accounting date, so that the accounting periods and profits of the earlier periods were:

  • £2,000 for 1 July 2015 to 31 December 2015
  • £10,000 for 1 July 2014 to 31 July 2015

You can carry back £2,000 of the loss to cover the whole of the profit in the period ended 31 December 2015.

The balance of the loss of £6,000 cannot be entirely carried back as only 6 months of the profits of £10,000 fall into the earlier 12 months of the loss making period.

Only a loss of £5,000 (6/12 x £10,000) can be used, and the balance of £1,000 is available to be carried forward to the year ended 31 December 2017.

How to claim for a trading loss to be carried back, or amend a claim

You can make a claim to carry back a trading loss when you submit your Company Tax Return for the period when you made the loss.

You can make your claim in your return or in an amendment to the return, as long as you’re within the time limit to amend it. You can also make your claim in a letter.

If you’re making a claim in your return that reduces your Corporation Tax liability for an earlier period, you must make sure you have put an ‘X’ in the appropriate box on the CT600 form.

A claim should be made within 2 years of the end of the accounting period when you made the loss. Your claim should include:

  • the name of your company or organisation
  • the period when the loss is made
  • the amount of the loss
  • how the loss is to be used

If you send your claim separately, send it to HMRC.

 

https://www.gov.uk/guidance/corporation-tax-calculating-and-claiming-a-loss

Income Tax – Using losses: types of claim

Trade losses may be used in a number of ways against:

  • income or possibly against capital gains of the same year or an earlier year
  • profit of the same trade
  • income from a company to which you transferred your trade.

Not all losses may be claimed in all of these ways and sometimes the amount of loss you claim is restricted or limited.

https://www.gov.uk/government/publications/losses-hs227-self-assessment-helpsheet/hs227-losses-2020

Loss set-off against income or income and capital gains

You may use the loss against your income of 2019 to 2020 or 2018 to 2019 or both years. The loss you claim against income will normally be the whole of the loss. If the loss is more than your income, claim the figure of income. You may be able to use the remaining loss, or part of it, against your chargeable gains.

Loss used against income in 2016 to 2017 to 2018 to 2019: early trade losses relief

You can make this claim for losses made in the first 4 years of trade. Start with 2016 to 2017 income.

If the loss is more than your income use the remaining loss against your income in 2017 to 2018 and then 2018 to 2019.

Do not make this claim if you, your spouse or civil partner first carried on the trade before 6 April 2016.

If you make any of these claims, make sure that you include losses claimed by you other than in your tax return. The section on stand-alone claims gives more on this.

If you use the loss against earlier year’s income or capital gains you must also tell us the:

  • amount of loss used for each year in the ‘Any other information’ box on the return
  • decrease in tax due for earlier years

The amount of loss relief you claim against income or capital gains may be restricted or limited for example if you:

  • worked for less than 10 hours a week on average on commercial activities of the trade
  • are a Limited Partner or a member of a Limited Liability Partnership
  • have a trade which is carried on wholly overseas
  • have claimed certain capital allowances
  • have income from oil extraction activities or oil rights

If you need more information on any of the restrictions on relief, ask us or your tax adviser.

There’s a limit on the total amount of Income Tax reliefs that you may claim for deduction from total income for a tax year. Loss relief is one of the reliefs affected. The limit is the higher of £50,000 and 25% of the adjusted total income of the year. See Helpsheet 204 if you think you may be affected by this.

 

Example

Phil has a total income of £70,000 in 2019 to 2020 and makes a trading loss in that year on one of his businesses of £60,000.

The maximum amount of relief Phil can set against his total income for 2019 to 2020 is £50,000 as this is the greater of £50,000 and 25% of his income. The remaining £10,000 loss can be carried forward.

https://www.gov.uk/government/publications/limit-on-income-tax-reliefs-hs204-self-assessment-helpsheet/hs204-limit-on-income-tax-reliefs-2020

 

Follow our Blog https://stevejbicknell.com/

Check out our website https://www.bicknells.net

Follow us on Facebook https://www.facebook.com/bicknellbusiness/

Follow me of Facebook https://www.facebook.com/stevejbicknell

Connect on Linked In https://www.linkedin.com/in/stevebicknell1/

Follow us on Twitter https://twitter.com/stevejbicknell

Follow us on Twitter https://twitter.com/Bicknelladviser

 

We use Movavi https://www.movavi.com/ to create our Videos and Story Blocks for footage (Model Released and Property Released) https://www.storyblocks.com/

 

Where can I find a list of HMRC allowable Property Expenses? Reply

Beginning and end of a rental business: commencement

Summary
Usually a rental business begins when letting first commences.
Allowable revenue expenditure incurred before the rental business begins can be relieved under the ITTOIA05/S57 or CTA09/S61 provisions for pre-trading expenditure.

Deductions: main types of expense

PIM2070
Advertising expenses
PIM2072
Bad and doubtful debts
PIM2074
Cash back on loans
PIM2076
Cost of providing services
PIM2078
Costs due to common ownership
PIM2080
Criminal payments, bribes and similar items
PIM2082
Entertaining expenses and gifts
PIM2100
Expenses for own home
PIM2105
Fees for loan finance and similar items
PIM2106
Fines
PIM2110
Insurance premiums and recoveries
PIM2120
Legal and professional costs
PIM2130
Properties not let at a commercial rent
PIM2140
Rates and council tax
PIM2200
Rent collection
PIM2205
Rent paid out
PIM2210
Salaries and wages of employees
PIM2215
Sea walls
PIM2220
Travelling expenses

Are my costs Capital or Revenue expenditure?

Beginning and end of a rental business: cessation

steve@bicknells.net

A Masterclass in Making Tax Digital Reply

Yesterday I presented a 2 hour Masterclass in Making Tax Digital at Scottish Public Sector Taxation Conference, we covered

  • What is MTD and Why is it being introduced
  • What will it cost
  • When are Digital Links needed
  • What are Digital Links
  • How is MTD going so far
  • Problem areas
  • Why has GIANT been delayed
  • What are the 2 main types of Bridging Software
  • Scenarios

160 delegates from the Scottish Government, Scottish Council, Scottish NHS and HMRC attended.

A bit more Goodwill Tax Relief Reply

What has changed

You can now get relief on purchases made on or after 1 April 2019 if the:

  • goodwill and relevant assets are purchased when you buy a business with qualifying intellectual property (IP)
  • business is liable to Corporation Tax
  • relevant assets (including goodwill) are included in the company accounts

Find a full definition of goodwill and relevant assets on GOV.UK in the Corporate Intangibles Research and Development Manual CIRD44060.

Relief you can get

Relief is a fixed rate of 6.5% a year on the lower of the cost of the relevant asset or 6 times the cost of any qualifying IP assets in the business purchased.

Relief is given yearly until the limit is reached. More information about how to work out the relief can be found on GOV.UK in the Corporate Intangibles Research and Development Manual CIRD44093.

How to claim

You must complete a Company Tax Return and include the relief. This will reduce both:

  • your company or organisation’s taxable profit
  • the amount of Corporation Tax you have to pay

https://www.gov.uk/guidance/corporation-tax-relief-on-goodwill-and-relevant-assets

steve@bicknells.net

The 2019 Loan Charge for disguised remuneration Reply

HMRC are getting tough on those who seek ways to avoid tax and the schemes are often treated as Tax Fraud.

The Finance (No. 2) Act 2017 contains some of the most significant changes to tax legislation in recent memory (the 2019 Loan Charge).

The legislation which is retrospective targets Employee Benefit Trusts, Employer Financed Retirement Benefit Schemes, Contractor Loans and many others where an employee was rewarded with a loan from the employer or a trust, but in realty the employee was never going to repay the loan and just wanted tax free money.

The 5th April 2019 Loan charge will require Income Tax and National Insurance to be paid on the balance outstanding, as most of the loans will be high value that probably means 40%/45% income tax and Employee NI at 2% and Employers NI at 13.8%, so that could be 45% + 2% +13.8% = 60.8% tax on the loan, plus possible interest and penalties

How re-describing loans is claimed to work

Scheme users are being told they can sign documents saying that the sums they’ve received from their disguised remuneration scheme under loan agreements are not loans at all. Instead, these sums of money are merely held by them in a ‘fiduciary capacity’ – for example, an individual acts in a fiduciary capacity if they hold money, or assets, for the benefit of someone else, not themselves.
It’s wrong to claim that the loan charge won’t apply because the sums received aren’t loans.

Why you shouldn’t use this scheme

Renaming something now doesn’t change what happened in the past. Attempting to describe a loan as something else doesn’t mean it’s not a loan.
The loan charge will apply to more than just loans, including any form of credit or other right to a payment regardless of what it’s called. If you adopt this approach and choose not to reflect the loan charge on your tax return you may face a significant penalty in addition to the tax charge.
Deliberately misleading, or concealing information from HM Revenue and Customs (HMRC) may result in criminal prosecution.

https://www.gov.uk/guidance/disguised-remuneration-re-describing-loans-spotlight-39

The Options

  1. Repay in full before the 5th April 2019 – but be aware that if the company distributes money to you it may be taxable
  2. Settle with HMRC

Doing nothing is not an option, its likely you lead to bigger penalties and possible legal action.

The Advice from HMRC

Any arrangements to avoid the loan charge, which seek to deceive HMRC as to what is really happening, may be fraudulent.

A number of previous cases promoted as being compliant and legal have resulted in criminal convictions for the key people involved and extensive investigation of several hundred users. HMRC will investigate all of these arrangements and is likely to take similar action if it finds any that are seeking to deceive. At the very least, anyone who takes part in an offensive arrangement is likely to face penalty sums, chargeable along with any tax and interest that will be due.

Tax avoidance doesn’t pay. Most arrangements simply don’t work and people can end up paying more than they were trying to avoid. Users may have a long-term requirement to deal with the cost, commercial and tax fallout from these transactions with no support from the promoter of the original arrangement. If users are worried about their financial position, it is better to contact HMRC rather than risk more investigation and what is likely to be a larger bill.

steve@bicknells.net

Beware of fake HMRC Texts and E Mails Reply

Clients regularly tell me they have had Messages from HMRC, some are almost believable!

HMRC will never notify you of a tax rebate by email or text. HMRC also won’t ask you to disclose personal or payment information by email or text.

If you have the slightest doubt that a HMRC email or text is fake, my advice is:

do not open attachments, they could contain a virus
do not click on links, they could take you to a fake HMRC site
do not disclose personal/confidential information
forward suspicious HMRC text messages to 60599 (charged at your network rate)
forward suspicious emails to the HMRC phishing team at, phishing@hmrc.gsi.gov.uk
check our security guidance: Dealing with HMRC Phishing and scams.

If you think you have disclosed personal information in response to a scam HMRC email or text, act immediately. Contact the HMRC security team at, security.custcon@hmrc.gsi.gov.uk, provide brief details of what you disclosed (e.g. name, address, HMRC User ID, password). Do not give your personal details in the email.

Protect yourself by reporting your suspicions to us and promoting our cyber security messages.

You can also report incidents to Action Fraud.

steve@bicknells.net

 

How do you de-register for CIS? Reply

Under the Construction Industry Scheme (CIS), contractors deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).

The deductions count as advance payments towards the subcontractor’s tax and National Insurance.

Contractors must register for the scheme. Subcontractors don’t have to register, but deductions are taken from their payments at a higher rate if they’re not registered.

HMRC make it easy to join CIS but its hard to find the instructions on how to leave or cancel CIS.

For those who have struggled to find the instructions here they are

https://www.gov.uk/what-you-must-do-as-a-cis-contractor/tell-hmrc-about-changes

If you stop trading or using subcontractors

You must:

tell HMRC

stop filing monthly CIS reports

Do this even if you’ve stopped using subcontractors temporarily, for example because you’re using your own employees to carry out work.

In general I find a letter works best as you can send it recorded delivery and prove it was sent, you write to this address

National Insurance Contributions and Employers Office
HM Revenue and Customs
BX9 1BX

steve@bicknells.net

The Digital Records Trap – Will HMRC catch you out? Reply

Historically many companies have written up board minutes and in some cases declared dividends retrospectively at the end of year, but times are changing!

In the age of cloud accounting and making tax digital HMRC will know exactly when entries are posted and when documents are signed.

Unreliable records were a major factor in Dr Maqbool Baloch v HMRC, Dr Baloch a locum doctor was forced to pay £0.5 million in tax and penalties!

Dr Baloch tried to argue that he was employed via his Limited Company – KSM Medics Ltd – but the paperwork didn’t tie up – there were board minutes for meetings which HMRC could prove didn’t take place. As a result he was treated as Self Employed because he ticked a box that said he was self employed for his agency work even though Dr Baloch argued this was not a contract.

From April 2019 Making Tax Digital will apply to VAT, this will give HMRC access to real time information direct from your accounting records and time stamped.

In order to avoid problems preparing or extracting monthly accounts will mean dividends can be declared in the correct time periods.

steve@bicknells.net

 

How much extra tax do Property Investors pay? 2

Recent tax changes such as Clause 24 Interest Restrictions, 3% extra SDLT and 8% extra Capital Gains Tax have hit landlords hard and these NLA videos explain the full impact

http://nla-video-graphic.s3-website-eu-west-1.amazonaws.com/

The NLA predict that the changes will mean that 20% of Landlords will sell their portfolios.

Since September lenders to Portfolio Landlords have been required to look at the whole portfolio before lending and this has lead to 70% of landlords with four or more properties saying that they have found it hard to obtain finance.

Overall Residential transactions have seen a slight decline in activity

Since 2015 more and more landlords have been using Limited Companies to purchase property investments even though mortgage interest rates are a around 1% higher there are many advantages:

  • Clause 24 Interest Rate Restrictions don’t apply to companies
  • Lenders can take a specific change and a debenture over a company and this is why separate companies for each investment can be an advantage
  • If you sell the company shares rather than the property the buyer will pay 0.5% SDLT on the shares, the capital gains tax on shares is 8% lower than on residential property and the potentially the company purchaser can takeover the existing debt without needing to refinance
  • Corporation Tax is 19% where as Landlords pay Income Tax rates, which means companies can help you to build a portfolio quicker as you retain more profit

steve@bicknells.net