Tag: tax

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.

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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

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.

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

The top tax-effective benefits for directors and employees

Offering benefits-in-kind to your staff is a great way to make your business an attractive place to work. And these benefits add even more value if they’re also either tax-effective or tax-free.

You can offer certain concessions that make benefits provided to your employees (including directors) either low-tax or no tax. To be clear, we’re talking here about general employee benefits, not higher-value items such as company cars or share options etc.

Under certain circumstances, these general benefits-in-kind (BiK) become taxable if they’re provided as part of a flexible salary sacrifice system. But let’s look at the kinds of benefits you can offer – and the avantages they have for your employees.

The top tax-effective benefits to offer your team

If you want to offer employee benefits, but don’t want these BiK to end up attracting significant tax penalties for the employee, there are several useful benefits to consider.

For example:

  • Gifts of £50 or under – gifts not exceeding £50 can be given to employees without any tax or National Insurance charges arising. The cost is tax-deductible by the company. The gift must not be related to any work achievements, must not be money, must not be a contractual entitlement and, for directors, the total must not exceed £300 per annum.
  • Annual staff functions – annual functions, such as the yearly Christmas party or team summer barbecue, can be given to employees, provided the total cost per person during the year doesn’t exceed £150 per guest, including VAT.
  • Work mobile phones – a single mobile telephone can be provided to each employee together with the associated line rental and call charges, with no personal tax charge for any private use.
  • Free staff meals – free meals can be provided on company premises or in a staff canteen, provided that it’s on a reasonable scale.
  • Employer pension scheme contributions – as an employer, you can contribute (sometimes, have to contribute) to employee pension funds, within certain annual and lifetime limits. Topping up your employee’s contributions helps to increase the overall benefit of the mandatory work pension scheme.
  • Life insurance cover – Death in Service cover can be provided for your employees, and will normally be tax free, both the insurance premiums paid and any claims paid.
  • Health and medical check-ups – one health-screening assessment and one medical checkup per annum can be provided to each employee. This doesn’t cover full medical insurance, and also doesn’t generally cover medical treatment.
  • Welfare counselling – counselling can be provided to your employees free of tax, but this doesn’t cover medical treatment, legal, tax or financial advice. However, debt counselling is covered.
  • Business mileage – where your employee uses their own car for business travel, that business mileage can be reimbursed at a rate of £0.45/mile for the first 10,000 miles in a tax year and £0.25/mile thereafter.
  • Home-working allowance – you can pay an allowance of £6/week (£26/month) to employees who are required to work from home.
  • Private gyms – gym facilities can be provided to your employees and their family members, as long as the gym premises are not available to the general public.
  • Staff suggestions – rewards for making innovative business suggestions can be paid free of tax, as long as the amount doesn’t exceed £25. If an employee’s suggestion is implemented, a further award, linked to a proportion of the financial benefit to the company, can be made, subject to a cap of £5,000.
  • Long-service awards – you can offer a long-service award to a member of staff after a minimum of 20 years’ service. There must be at least ten years between awards that are made and the award has to be articles rather than cash. The overall cost can’t exceed £50 per year of service.

You can find out more details on the many available employee benefits-in-kind on the Expenses and benefits: A-Z page on the HMRC site.

If you provide a range of attractive tax-effective benefits to your employees, this goes a long way to creating a more satisfied, happy and productive workforce.

Many of the rules around employee benefits are complex and difficult to calculate, so it’s well worth talking to us about your benefits plans and where we can offer advice. We can walk you through the available options and show you the tax implications for your team.

steve@bicknells.net

Spreading your tax costs with Time To Pay

HM Revenue & Customs (HMRC) expects you to pay your taxes on time. But if you’re finding it difficult to pay in full, HMRC can be approached to allow a Time to Pay arrangement.

A Time to Pay arrangement will allow you to pay your debt off in pre-agreed installments, reducing the impact of a large tax bill – and helping you manage your debt and cashflow.

How does Time to Pay work?

If you need to request a Time to Pay arrangement for self-assessment tax, Employer’s PAYE and VAT, these can often be made online using a ‘self-service’ system.

Where you owe other types of tax, or where the conditions for online applications are not met, you’ll need to contact HMRC to discuss your situation.

  • The easiest (although not always the quickest) way to discuss your Time to Pay request is by telephone to 0300 200 3835.
  • HMRC agents will want to know about all taxes you owe, not just the one(s) where you want to spread payment. They will also ask for details of your income and outgoings, and any savings or assets that may be able to be used to reduce the amount owed.
  • Presuming that you agree to a payment plan with HMRC during the call, they will usually want to set up a Direct Debit straight away.

Making use of the self-serve Time to Pay system

If you don’t have any existing payment plans or debts with HMRC, the ‘self-serve’ system may be more straightforward, provided that the applicable tax returns have already been filed. The conditions and amounts vary depending on the particular tax.

For example:

  • Self-Assessment: You must apply no more than 60 days after the payment deadline and owe no more than £30,000.
  • Employer’s PAYE: You must be within 35 days of the deadline, owe no more than £15,000 and have no outstanding penalties. The maximum period over which the amount due can be spread is six months.
  • VAT: For VAT, you need to apply within 28 days of the due date and owe no more than £20,000. You can’t apply for a Time to Pay arrangement through the self-serve scheme if you use either the cash accounting or annual accounting schemes.

The self-serve option for Time to Pay does make the process easier, but remember that HMRC isn’t obliged to offer you the option of settling your taxes owed via installments.

If you fail to pay your taxes, HMRC can take recovery action in the County Court, and apply for the taxpayer to be put into liquidation or made bankrupt where appropriate.

Talk to us about making Time to Pay work for you

One of the best ways to avoid getting into difficulties with your tax liabilities is to work more closely with your accountant. As your tax adviser, we’ll produce regular forecasts so that any financial stresses can be foreseen well in advance.

Where unexpected circumstances do arise, putting a suitable payment plan in place with HMRC is the most sensible way to manage this situation. Ignoring your tax problems won’t make them go away and burying your head in the sand can lead to serious penalties and legal action.

Get in touch to talk about Time to Pay.

Steve@bicknells.net

How does Principle Private Residence Relief Work? (CGT)

signages for real property selling

As a UK accountant, one of the most common tax reliefs that clients ask about is Principle Private Residence Relief (PPR). This relief can be a significant tax saver for those selling their homes, but it is essential to understand the rules and regulations surrounding it.

What is PPR?

Firstly, PPR allows you to sell your main residence without incurring capital gains tax (CGT). However, if you have let out part of your home, it can affect your entitlement to PPR.

Tax when you sell your home: If you let out your home – GOV.UK (www.gov.uk)

If you rent out your home, then you will not be able to claim PPR for the period it is let. However, relief may still be available for the period you lived in the property and for the final 9 months of ownership.

a house for rent placard
Photo by Ivan Samkov on Pexels.com

How is PPR calculated if you let the property?

To calculate the PPR tax reduction for the let period, you will need to apportion the gain between the period it was your main residence and the period it was rented out. The amount of tax relief will be calculated based on the proportion of time the property was your main residence.

For example, if you lived in the property for five years, and then rented it out for two years, there would be seven years of ownership. The tax relief would apply for five years, but the remaining two years would be subject to CGT with an adjustment for the 9 month period.

How do you calculate the Gain?

Calculating the capital gain can be a complex process and may be affected by several factors such as the purchase and sale price, any home improvements made during ownership, and the length of ownership. It is recommended to seek specialist advice from a tax professional to ensure all factors are considered in the calculation.

person holding orange and white iphone case
Photo by cottonbro studio on Pexels.com

How is the Gain taxed and reported?

The rates of CGT vary depending on the individual’s income tax rate. Currently, basic rate taxpayers will pay CGT at a rate of 18%, and higher rate taxpayers will pay at a rate of 28% on gains above the tax-free allowance of £12,300 (2022/23), £6,000 (2023/24), £3,000 (2024/25).

This blog explains how CGT is reported to HMRC How and when do you report capital gains tax on residential property disposals? – Steve J Bicknell Tel 01202 025252

How can you use Form 17?

Its worth seeking advice before the sale of any property as there could be ways to reduce the CGT for example couples can use Form 17 to change the ownership Declare beneficial interests in joint property and income – GOV.UK (www.gov.uk) and make best use of their tax allowances.

Working away and conculsion

If you work away from home, you can still claim PPR if the property remains your primary residence. However, if you buy another property to live in, this may affect your eligibility for PPR.

In conclusion, PPR can be a valuable tax relief for those selling their main residence. However, if you have let out your property, this may affect your entitlement to PPR. It is essential to understand the rules and regulations surrounding PPR and seek specialist advice when necessary.

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  • Accountancy and Tax update
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Plus lots of other great advice for Charities.

steve@bicknells.net

How and when do you report capital gains tax on residential property disposals?

real estate agent holding a signage

As a property owner in the UK, it is important to understand the capital gains tax (CGT) rules and regulations. CGT is a tax on the profit made when you sell or dispose of an asset, such as a property. In this blog, we will cover the 60-day reporting rule, how to calculate capital gains, how to report capital gains, how to get a reference, and how to appoint an agent.

The 60-day reporting rule

From 27 October 2021 (before that it was 30 days from 6 April 2020) the reporting deadline was re-set at 60 days and requires UK residents to report and pay CGT on the sale of a residential property within 60 days of completion. Failure to report within this timeframe can result in penalties and interest charges. Non-UK residents are also required to report and pay CGT within 60 days of completion, unlike UK residents they need to report under the CGT rules even if they made a loss or had no tax to pay.

Companies are not required to report under the 60 day rules.

The rules apply to:

  • Individuals
  • Trusts
  • Personal Representatives
  • Partnerships
  • LLPs
  • Joint Property Owners
  • Non UK Residents

Calculating capital gains

To calculate your capital gains, you need to subtract the cost of the property from the sale price. The cost of the property includes the purchase price, any fees or expenses incurred during the purchase, and any improvements made to the property. You can also deduct certain expenses, such as estate agent fees and legal fees, from the sale price. Once you have calculated your capital gains, you need to work out how much tax you owe. The amount of tax you pay depends on your income and the amount of capital gains you have made. The current CGT rates for residential property are 18% for basic rate taxpayers and 28% for higher rate taxpayers.

There is an annual exempt amount for individuals

  • 2022/23 £12,300
  • 2023/24 £6,000
  • 2024/25 £3,000

For Trusts the amounts above are halved

If the UK Resident lived in the property they could qualify for Private Residence Relief HS283 Private Residence Relief (2023) – GOV.UK (www.gov.uk)

If there is no gain then UK Residents don’t need to report under the 60 day rules. Non UK Residents need to report even if its a loss.

Reporting capital gains

UK Residents need to use Report and pay your Capital Gains Tax: If you sold a property in the UK on or after 6 April 2020 – GOV.UK (www.gov.uk)

Even if they want an Agent to report for them they at least need to start the process and get an X reference to pass to their Agent/Accountant. The Agent can use the X reference in the Agent Gateway to generate a link for the client to accept to appoint them as Agent.

You only need one X reference/Property Account even if you have multiple property disposals.

The gain also need to be reported on the their Self Assessment Return showing the tax already paid.

Non UK Residents need to use HMRC: Structured Email (tax.service.gov.uk)

Problem Areas

Personal Representatives – Trusts can’t create accounts – the executors register and tick to report for someone else

Estimates – if the estimates are unreasonably low, HMRC will put in their own figures and charge interest

Overpayments – need to go back and change the figures

steve@bicknells.net

What is a Non Dom?

city view at london

Non-Dom status is a term used to describe individuals who are not domiciled in the United Kingdom for tax purposes. This means that they are not considered to be permanent residents of the UK and are therefore not subject to UK tax on their foreign income and gains, unless they choose to be.

The UK residency status test is used to determine an individual’s residency status for tax purposes. The test takes into account a number of factors, including the number of days spent in the UK, the individual’s ties to the UK, and their intentions for the future. If an individual spends more than 183 days in the UK in a tax year, or has significant ties to the UK, they will be considered a UK resident for tax purposes.

You might find this blog helpful Where should you pay tax? (Statutory Residence Test) – Steve J Bicknell Tel 01202 025252

If an individual is a Non-Dom and chooses to be taxed on the remittance basis, they will only be taxed on their UK income and gains, as well as any foreign income and gains that they bring into the UK. This means that they can avoid paying tax on their foreign income and gains that are kept outside of the UK.

However, there is a 7-year charge for Non-Doms who have been resident in the UK for 7 out of the previous 9 tax years. This charge is designed to discourage individuals from using Non-Dom status as a way to avoid paying UK tax on their foreign income and gains. The charge is currently set at £30,000 per year, but may be higher for individuals who have been resident in the UK for longer periods of time.

In conclusion, Non-Dom status can be a useful tool for individuals who have significant foreign income and gains, but it is important to understand the UK residency status test and the potential tax implications of choosing to be taxed on the remittance basis. The 7-year charge for Non-Doms is also an important consideration for those who are considering using Non-Dom status as a way to avoid paying UK tax. It is always advisable to seek professional advice before making any decisions regarding tax planning.

steve@bicknells.net