Tag: HMRC

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: ★★★★★

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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

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.

Plain English guide to VAT for businesses

Getting to grips with the basics of accounting, financial management and business strategy can be a challenge. To make things easier, we’re starting a new Plain English guide to business.

This time, we’ll be looking at Value-Added Tax, or VAT as it’s generally known.

What is Value-Added Tax (VAT)?

Value-added tax (VAT) is a consumption tax. VAT is imposed on the value added at each stage of the production and distribution of many goods and services. Registered businesses charge VAT on their sales and can reclaim VAT paid on their purchases.

The standard VAT rate in the UK is currently 20%, with different reduced rates for certain goods and services that fall outside the standard rate.

How does VAT affect your business?

You can choose to register for VAT at any point. But registration does become mandatory once you hit the relevant threshold (see below). As a VAT-registered business, you’ll add a few tasks to your to-do list but will also benefit from claiming back any VAT expenses.

Here are your main VAT responsibilities:

  • Become VAT-registered – it’s mandatory to register for VAT once your company’s taxable turnover exceeds the rolling 12-months threshold (currently £85,000 per year)
  • File your VAT return – your business must file a VAT return (normally quarterly) that shows all VAT you’ve collected from customers, and all VAT expenses you’ve incurred.
  • Pay the collected VAT to HMRC – also every quarter, you’ll pay the VAT funds you’ve collected from your customers to HM Revenue & Customs (HMRC) less any reclaimable VAT you’ve paid to your suppliers.
  • Claim back VAT expenses – If there’s a refund – where the reclaimable VAT on your outgoings exceeds the VAT on your sales – you can claim that back from HMRC. This can be a helpful boost to your cashflow).

How can our firm help you with VAT?

Becoming a VAT-registered business brings a certain amount of professional kudos to your company – and it needn’t add too much to your financial workload.

As your adviser, we’ll let you know when you’re close to hitting the registration threshold and will be there to help you get VAT-registered. We’ll also make sure your VAT processes are as simple and streamlined as possible, and that you maximise your VAT expense claims. We can also help you decide whether one of the special VAT schemes might benefit you.

If you’d like to know more about registering for and managing VAT, we’ll be happy to explain.

Charging interest on a Directors’ Loan Account

Directors Loan

When you’re the director of a business, it’s likely that there will be occasions where you borrow money directly from your company, or inject your own capital into the business.

A Directors’ Loan Account (DLA) keeps track of this money owed between the company and its directors. In many companies, the account is in credit – i.e. the company owes money to the director. This can be due to directors injecting startup capital into the company, not drawing dividends they are owed, or other expenses that have been subsidised by the director.

In these situations, it’s worth considering charging interest on the balance that’s due. But how do you do this? And what impact does charging interest have for the director and company?

Understanding interest on Directors’ Loan Accounts

Let’s take a look at some of the rules around applying interest on DLAs, and the potential benefits this can bring to your company and tax planning.

  • Any interest paid re these DLAs will be deductible when calculating your company’s taxable profits. Because of this, it’s possible to achieve tax savings of up to 25%.
  • For the individual, a basic-rate taxpayer has a Personal Savings Allowance (PSA) of £1,000 and will pay 20% on the excess. So, paying interest is more tax-effective than declaring dividends. The PSA for a higher-rate taxpayer is £500.
  • The interest rate needs to be a commercial rate. In other words, the interest rate used must not exceed the rate you’d expect to see from a third-party lender.
  • Where interest is paid to an individual, basic rate tax needs to be deducted at source from any payment made to the director.
  • This tax is reportable to HM Revenue & Customs (HMRC) on a calendar-quarterly basis, with the amount deducted offset against tax due on the individual’s personal tax return. Where the company accounts are not drawn up to a calendar-quarter end, a fifth return is required up to the balance sheet date.
  • The company can take into account any interest due, but not paid, until up to twelve months later when calculating its own profits. However, the individual will only include as income any interest that’s actually been paid. Note though that ‘paid’ can include crediting to a DLA!. This can give a timing advantage.

Talk to us about maximising the tax benefits of your DLA

Any interest you receive is not subject to National Insurance Contributions (NICs) and is particularly tax effective when shielded by the Personal Savings Allowance (PSA).

The reporting requirements for interest on DLAs are no walk in the park.

How do you pay interest to a director or individual lender? CT61 – Steve J Bicknell Tel 01202 025252

Are you missing out on Qualifying Interest Relief? – Steve J Bicknell Tel 01202 025252

Understanding the Tax Consequences of s455 Directors Loan: A Guide for UK Business Owners – Steve J Bicknell Tel 01202 025252

Because of this, it’s a good idea to talk to us first, so we can make sure you have a workable system in place prior to making any payments. We can also give an opinion of the acceptability of the proposed rate of interest to pay, and how it measures up against current market rates.

Get in touch to talk about interest on your DLA.

steve@bicknells.net

How the Sonder Europe Ltd v HMRC Case Impacts on the Rent to Serviced Accommodation Business Model – VAT

In July 2023, a significant tax case, Sonder Europe Ltd v HMRC, shed light on the VAT implications for the “Rent to Serviced Accommodation” business model in the UK. This blog post aims to provide clear instructions and guidance on how this case impacts businesses in this sector.

Whether you are already involved in this industry or considering entering it, understanding the implications of this case is crucial.

Background

The provision of holiday accommodation in the UK is subject to a 20% Value Added Tax (VAT) rate. However, the Tour Operators’ Margin Scheme (TOMS) can be used to reduce the VAT payable, as it allows businesses to pay VAT only on the margin.

The margin is calculated as the difference between the selling price and direct costs, including rent and cleaning expenses. Under TOMS, VAT is due at 1/6th of the margin for accommodations within the UK.

The Case

In the Sonder Europe Ltd v HMRC case, the First-tier Tribunal examined whether the Rent to Serviced Accommodation business model should be considered eligible for TOMS.

Points considered and answered in the case

  1. What is material alteration – Furniture? Repairs? Decorating?
  2. Is R2SA eligible to be a Tour Operator

As is typical in this sector the agreements with landlords are often 6 months to 3 years.

Sonder Europe Ltd, a company providing short-term accommodation, argued that they should be eligible for TOMS and therefore be subject to reduced VAT payments.

The Tribunal Decision

Sonder Europe Ltd v HMRC [2023] UKFTT 610 (TC) (5 July 2023)

The First-tier Tribunal ruled in favour of Sonder Europe Ltd., stating that their accommodation services fall under the TOMS scheme. The Tribunal concluded that the company’s business model met the criteria for TOMS, allowing them to pay VAT based on the margin rather than the full 20% VAT rate.

Note – First Tier Tribunal decisions don’t set a precedent, the case was based on EU Laws applicable at the time and HMRC may Appeal or bring further cases, but this is a land mark decision and it should also be noted that the Tribunal Judge and President, Greg Sinfield, is someone with a long history in the realms of VAT Liability questions and the interpretation of the legislation.

Where TOMS applies it must be applied and that means that many operators may now have grounds to apply TOMS VAT going back 4 years and stand behind the Sonder case.

Implications for R2SA VAT

The Sonder Europe Ltd v HMRC case has significant implications for businesses operating in the Rent to Serviced Accommodation sector. Following the Tribunal’s decision, such businesses can potentially benefit from substantial VAT savings by utilising TOMS. This is because Rent to Landlords is a major cost and without TOMS allowing its deduction would lead to high VAT costs which would be based on Sales.

Step-by-Step Guidance

To successfully apply the implications of the Sonder Europe Ltd v HMRC case to your Rent to Serviced Accommodation business model, follow these steps:

  1. Understand your business model:
    Familiarise yourself with the specific details of your Rent to Serviced Accommodation business model. Ensure it aligns with the characteristics that allowed Sonder Europe Ltd to be eligible for TOMS.
  2. Analyse direct costs:
    Determine the direct costs associated with your accommodation services, including rent, cleaning, maintenance, and other relevant expenses. These costs are crucial for calculating the VAT margin.
  3. Calculate the VAT margin:
    Subtract the total direct costs from your selling price to calculate the VAT margin. This margin will form the basis for VAT payments under TOMS.
  4. Apply the TOMS VAT rate:
    Multiply the VAT margin by 1/6th (0.1667) to determine the VAT due on your accommodation services. This result represents the reduced VAT payment you are eligible for under TOMS.
  5. Maintain accurate records:
    Keep detailed records of your sales (tax point will be departure date), direct costs, and VAT payments. Transparent and accurate documentation is crucial for compliance and potential future audits.

Conclusion

The Sonder Europe Ltd v HMRC case has provided a positive outcome for the Rent to Serviced Accommodation business model in relation to VAT payments. Utilising TOMS based on the Tribunal’s decision can lead to significant VAT savings. By understanding the implications of this case and following the step-by-step guidance provided, you can successfully adapt your business model to benefit from reduced VAT payments.

Read our other blogs on TOMS

Is TOMS an option for Serviced Accommodation VAT? – Steve J Bicknell Tel 01202 025252

How are HMRC attacking the use of TOMS for serviced accommodation? – Steve J Bicknell Tel 01202 025252

If TOMS applies is the VAT threshold based on Sales or Margin? – Steve J Bicknell Tel 01202 025252

steve@bicknells.net

Could you be personally liable for your company taxes?

One of the key reasons you trade through a limited company is to reduce your liability as a director. And one key benefit of getting incorporated as a company is that you – as a company director – are not generally liable for any amounts owed by the company.

But, did you know that, under some circumstances, HM Revenue & Customs (HMRC) can transfer the liability for some unpaid taxes to you as an individual?.

What’s a Joint and Several Liability Notice?

Under certain circumstances, HMRC can issue a Joint and Several Liability Notice (JSLN) to any director, shadow director or manager. This JSLN effectively transfers liability for taxes owed by the company to you personally. That means your personal assets could be at risk, and (in a worst-case scenario) these company debts could end up bankrupting you!

The JSLN legislation covers liabilities in respect of periods ending on or after 22 July 2020, regardless of when those periods started.

Notices can be given to you in respect of:

  • A company that’s insolvent or likely to become insolvent, and has entered into tax avoidance arrangements where Disclosure of Tax Avoidance Schemes (DOTAS) and General Anti-Abuse Rule (GAAR) rules are likely to apply.
  • A company that’s insolvent or likely to become insolvent, and has engaged in tax evasion activities, such as failing to register for taxes.
  • Cases where two previous businesses have been insolvent with unpaid taxes, with a successor company carrying on similar activities.
  • A case where the company has been issued with a penalty for facilitating tax avoidance or evasion, or proceedings has been commenced in respect of such penalties under DOTAS or GAAR.
  • a tax charge has been applied in respect of Covid support payments to which the company was not entitled.

These notices can be issued where the company has undertaken any tax avoidance measures, receives excess Covid support payments, or where there have been repeated insolvency or non-payment cases involving the same individuals.

Once a notice has been issued, you would be jointly and severally liable with the company in respect of all tax liabilities at the date of the notice. You would also be liable for any further tax liabilities arising in the next five years, or until the notice is withdrawn.

How would being served a JSLN affect you?

Suddenly becoming personally liable for your company’s tax liabilities is never going to be good news. The impact of a JSLN can be significant.

Once a notice has been issued to you, your personal assets are at risk. HMRC will do its best to reclaim any unpaid taxes owed by the company and – theoretically speaking – HMRC can claim against you without pursuing the company first.

Talk to us about any risks you may face around JSNLs

If a JSLN is issued, you should contact us immediately. You only have a window of 30 days to ask for a review of the decision to issue the JSLN, or to appeal against it.

We’ll be happy to talk through your situation and help you communicate with HMRC.

steve@bicknells.net

Understanding the Tax Consequences of s455 Directors Loan: A Guide for UK Business Owners


If you’re a director or shareholder of a UK company, it’s important to understand the tax consequences of s455 Directors Loan. Failure to comply with HMRC regulations can lead to penalties and additional tax liabilities. In this blog post, we will explore the tax implications of s455 Directors Loan, the rate of tax payable, when and how the tax is paid, reclaiming the tax, benefits in kind, board resolutions, bed and breakfasting loans, anti-avoidance rules, relief time period, and including relevant notes in micro accounts.

  1. Understanding s455 Directors Loan:
    S455 Directors Loan refers to money borrowed by a company director or shareholder from their company. If the loan is not repaid within 9 months following the end of the accounting period, it can incur tax implications for both the company and the director.
  2. Rate of Tax Payable:
    The rate of tax payable on s455 Directors Loan is currently set at 33.75% of the outstanding loan amount. This tax is paid by the company, not the individual director or shareholder.CTM61505 – Close companies: loans to participators and arrangements conferring benefit on participator: general – HMRC internal manual – GOV.UK (www.gov.uk)
  3. When is Tax Payable?
    The tax on s455 Directors Loan is typically due at the same time the company’s corporation tax is due – nine months and one day after the end of the accounting period in which the loan was made.
  4. How is Tax Paid?
    Tax payable on s455 Directors Loan is paid by including it as part of the company’s corporation tax liability, which is reported and paid through the Corporation Tax Return (CT600).
  5. Reclaiming the Tax:
    The tax paid on s455 Directors Loan can be reclaimed by the company after the loan has been repaid. LC Forms (hmrc.gov.uk)
  6. Benefit in Kind on Directors Loan:
    If the loan exceeds £10,000, the company may need to report it as a “benefit in kind” for the director. This means that the individual may be subject to personal income tax on the value of the loan unless the Director/Shareholder pays interest on the loan at least at the approved HMRC rate.
  7. Board Resolution for Loans over £10,000:
    To avoid the potential income tax implications of benefit in kind, a board resolution should be implemented authorising the director’s loan. This should be done before the loan is taken or within nine months of the company’s year end. A loan agreement is also recommended.
  8. Bed and Breakfasting Loans:
    To prevent circumventing the 9-month rule, bed and breakfasting occurs when the director repays the loan just before the end of the 9-month period and immediately takes out a new loan. Anti-avoidance rules are in place to discourage this practice. The key rules are the ’30 day rule’ and ‘intentions and arrangements rule’.
  9. Anti-Avoidance Rules:
    HMRC has anti-avoidance rules in place to prevent the abuse of s455 Directors Loan transactions. It is essential to ensure that all loans between directors/shareholders and their companies are conducted fairly and genuinely.
  10. Relief Time Period – 9 Months:
    The relief time period refers to the nine months following the end of a company’s accounting period. If the loan is repaid within this period, the tax paid on s455 Directors Loan can be reclaimed.
  11. Including Notes in Micro Accounts:
    Micro entities are required to prepare and submit detailed notes as part of their financial statements. It is important to include relevant notes regarding any outstanding s455 Directors Loan, as this will provide transparency during the tax assessment process.

Conclusion:
Understanding the tax consequences of s455 Directors Loan is crucial for UK business owners. By addressing the tax liabilities promptly, ensuring compliance with regulations, and seeking professional advice, companies can navigate this complex area of taxation efficiently. Stay informed, keep accurate records, and stay on top of your financial obligations to avoid any unnecessary penalties or additional tax liabilities.

steve@bicknells.net