Author Archive

Wear & Tear Allowance (WTA)

Monday, September 29th, 2014

If a property is let furnished – with sufficient furniture, furnishings and equipment for normal residential use – landlords can only claim tax relief for the furniture and equipment by way of the WTA. Prior to April 2013, landlords had the option of claiming the cost of replacement furniture instead.

 The WTA is calculated as 10% of the gross rents less any tenant’s costs (e.g. water rates and council tax) met by the landlord.

WTA does not cover repairs, which continue to be tax deductible. The question is then raised can replacement of an item be counted as a repair? In this respect, landlords that let furnished property need to distinguish between:

  1. Replacement of items that are integral to the building, and
  2. Replacement of items that are not integral to the building.

 Needless to say there are grey areas!

 Replacement of items that are integral to the building

 Fixtures integral to the building are those that are not normally removed by either tenant or owner if the property is vacated or sold. Examples include:

  • Baths
  • Washbasins
  • Toilets
  • Immersion heaters
  • Fitted kitchens and fitted white goods.

This list is not intended to be complete but gives an idea of the assets that are integral to the building and fall outside the wear and tear allowance. As these items are integral to the building, the cost of replacing these items is normally an allowable expense as a repair to the building.

 Replacement of items that are not integral to the building.

 Expenditure of this type will be covered by the WTA. Examples given on HMRC’s website in this category include:

  • movable furniture or furnishings, such as beds or suites,
  • televisions,
  • fridges and freezers,
  • carpets and floor-coverings,
  • curtains,
  • linen,
  • crockery or cutlery,
  • beds and other furniture

Unfortunately, these examples are not definitive: is a carpet glued to the floor a permanent fixture, or not part of the integral features?

What is HICBC?

Wednesday, September 3rd, 2014

The High Income Child Benefit Charge (HICBC) affects parents where one partner (or both) have income in excess of £50,000 and either:

  • you or your partner get Child Benefit or,
  • someone else gets Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep.

It doesn’t matter if the child living with you is not your own child. ‘Partner’ means someone you’re not permanently separated from who you’re married to, in a civil partnership with or living with as if you were.

The HICBC is a progressive tax that effectively neutralises all or part of the Child Benefit you receive. If you or your partner have income over £50,000 a tax charge will be levied that recovers 1% of any child benefit you or your partner receive for every £100 your income exceeds £50,000. When your income exceeds £60,000 all of the Child Benefit will have been paid back. The charge will need to be declared and paid by the person with the highest income.

Parents whose income exceeded the £50,000 limit in the tax year to 5 April 2014, and one parent continued to receive Child Benefit, will need to submit a self assessment tax return to 5 April 2014 advising HMRC. If you find yourself in this position for the first time we can help you register for self assessment and submit a return online.

For parents with one or two incomes in excess of £60,000 it is possible to cancel your Child Benefit and thus avoid the HICBC. To do this file HMRC’s online request to not receive Child Benefit or call the Child Benefit Office – 0300 200 3100.

New support for home based businesses

Monday, September 1st, 2014

It is estimated that seven out of ten small businesses are managed in the first instance from home. Home based entrepreneurs contribute £300 billion to the UK economy. It is not surprising, therefore, that the Government have woken up and realised that they should be supporting this sector.

 Recently, the Business Minister, Matthew Hancock, announced a package of additional support for home based business owners. They include:

  • The law will be changed so that landlords can be assured that agreeing to home working by tenants will not undermine their residential tenancy agreement. A new model tenancy agreement will also be made available shortly;
  • Updated planning guidance will make it clear that planning permission should not normally be needed to run a business from your home; and
  • New business rates guidance will clarify that in the majority of circumstances home based businesses will not attract business rates.

This is welcome news. It is a pity that the announcement did not include a relaxation in the complicated Capital Gains Tax rules that can affect individuals who claim for the use of a room at home to run their business.

Readers may be interested to know that there are already 2.9 million businesses being run from entrepreneurs’ homes. As mentioned above, these businesses contribute £300 billion in annual turnover to the UK economy. They also have a marked affect on employment.

If 1 in 10 home businesses took on just 1 extra employee it would create 300,000 jobs. Unemployment fell in June 2014 to just over two million so the 300,000 reduction would represent a significant 15% fall.

On the face of it, home based businesses can take encouragement from these announcements. Let’s hope that these will be the first of a number of initiatives to encourage entrepreneurs to take the plunge.

On your bike

Monday, September 1st, 2014

The cycle to work scheme encourages employees to cycle to work and allows employers to reap the benefits of a healthier workforce.

Employers of all sizes can set up a tax exempt scheme. Basically, employers can loan a cycle and associated safety equipment to an employee without the employee suffering a taxable benefit-in-kind charge.

 In order to qualify for tax exempt status, a cycle loan scheme has to satisfy a number of criteria including:

  • Ownership of the equipment is not transferred to the employee during the loan period;
  • Employees use the equipment mainly for qualifying journeys; i.e. for journeys made between the employee’s home and workplace, or part of those journeys (for example, to the station), or for journeys between one workplace and another;
  • The offer of the use of a loaned or provided cycle (i.e. one for which ownership is not transferred to the employee) is available across the whole workforce, with no groups of employees being excluded. This does not necessarily have to be through a Cycle to Work salary sacrifice arrangement.

Employers’ expenditure on purchasing cycles and associated equipment is treated as capital expenditure and the usual tax and capital allowances are available including the Annual Investment Allowance.

In theory there are no limits to the amount that can be invested although there may be limits set by the OFT consumer credit license that regulates the loan of cycles under this scheme. The current OFT limit per loan is £1,000.

At the end of the agreed cycle loan period the employee can continue to use the cycle equipment for qualifying journeys with no tax consequences, or, the employer can sell the equipment to the employee. To avoid any tax charge the sale must be made at current market value.

Tax Diary September/October 2014

Monday, September 1st, 2014

 1 September 2014 – Due date for Corporation Tax due for the year ended 30 November 2013.

 19 September 2014 – PAYE and NIC deductions due for month ended 5 September 2014. (If you pay your tax electronically the due date is 22 September 2014.)

 19 September 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2014.

 19 September 2014 – CIS tax deducted for the month ended 5 September 2014 is payable by today.

 1 October 2014 – Due date for Corporation Tax due for the year ended 31 December 2013.

 19 October 2014 – PAYE and NIC deductions due for month ended 5 October 2014. (If you pay your tax electronically the due date is 22 October 2014.)

 19 October 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 October 2014.

 19 October 2014 – CIS tax deducted for the month ended 5 October 2014 is payable by today.

 31 October 2014 – Latest date you can file a paper version of your 2014 Self Assessment tax return.

Smash and grab

Monday, September 1st, 2014

The government is considering the response to its consultation document on proposals to introduce powers allowing HMRC to dip into a tax payer’s bank account in order to recover arrears of tax. There will be safeguards:

  • The debt recovered would have to be £1,000 or more.
  • A minimum of £5,000 has to be left in an account after the debt has been recovered.

 Needless to say this proposal has created quite a stir.

The British Banking Association wants the Chancellor to take legal advice on the matter as they believe the legislation would contravene the Human Rights Act. Others believe that HMRC has proved itself incompetent in the past to accurately calculate the amount of tax arrears owed by an individual. HMRC would, in effect, become judge and jury, assessing and collecting tax without any initial remedy or intervention available to the tax payer.

Let’s hope that the firestorm this proposal has provoked will temper any future change in the law. At present it is likely that HMRC will be given these new powers as part of the Finance Act 2015.

Treat you as honest

Monday, September 1st, 2014

Readers will be interested, and gratified to hear that HMRC will always treat you as honest. The following is an extract from HMRC’s “Your Charter” which states:

 Your rights – What you can expect from us:

  1. Respect you
  2. Help and support you to get things right
  3. Treat you as honest
  4. Treat you even-handedly
  5. Be professional and act with integrity
  6. Tackle people who deliberately break the rules and challenge those who bend the rules
  7. Protect your information and respect your privacy
  8. Accept that someone else can represent you
  9. Do all we can to keep the cost of dealing with us as low as possible

 Your obligations – What we expect from you:

  1. Be honest
  2. Respect our staff
  3. Take care to get things right.

Considering that we have one of the most complex tax systems, HMRC seems to have set itself and the nation’s tax payers a high bar to clear. Compliance with a known legal obligation is one thing, compliance with an unknown legal obligation is quite another.

HMRC business record checks

Friday, August 29th, 2014

According to insurers PFP, HMRC business record checks are on the increase.

 In the tax year 2013/14 HMRC checked 5,515 sets of business records compared to just 3,431 checks in 2011/12, an increase of 60%. Interestingly, of the records checked 73% were found to have no significant errors.

Since November 2012, HMRC have adopted a fresh approach to their business record check visits. On the HMRC website we are advised:

“Customers who are more likely to be at risk of having inadequate records will be contacted by letter to arrange for HMRC to call them to go through a short questionnaire.

Depending on the outcome of this call, HMRC will confirm to some customers that no further action is required. Where some issues are identified, customers will be offered targeted self-help education options. Customers who are assessed as being at risk of keeping inadequate records will be referred for a BRC visit.”

The reasoning behind the record check initiative is to find businesses that are submitting tax returns based on inadequate information. If you record keeping is poor, then your tax return is likely to be inaccurate.

If you are required to have a visit from HMRC to check out your record keeping this is what HMRC advise you can expect:

If we feel you need a face to face visit, HMRC will contact you to agree a date and time. The visit will usually take around two hours.

On the visit the HMRC officer will:

  • ask you to explain how you run your business
  • note how you keep your business records
  • check a sample of your current business records – usually your records for the last four months and arrive at a decision as to whether your business records are adequate or not

If your records are adequate the visiting officer will tell you at the visit and then confirm it in writing a few days later. This will be the end of your business records check.

If the visiting officer finds your record keeping needs improving they will discuss this with you and your agent, if they are at the meeting. The officer will then advise what you need to do to make your records adequate and what will happen next.

We are happy to provide readers who are concerned about their business records with a preliminary assessment, and if required, advice on how to change their systems.

Employment Allowance uptake

Thursday, August 28th, 2014

Data released by HM Treasury at the end of July reveals that 725,000 employers across the UK are benefitting from the Employment Allowance.

The allowance reduces the amount of employer National Insurance by up to £2,000 in a full tax year. The deduction is automatically made by most payroll software products including HMRC’s online service.

It is estimated that up to 1.25 million businesses and charities will benefit from the Employment Allowance and approximately 450,000 employers won’t have to pay any employer National Insurance contributions at all.

Viewed regionally, the take up for the allowance seems to highlight variations in economic activity across the regions. Almost 30% of the claims made are by businesses in London and the South East of England. This is underlines the difficulty that government must be experiencing in directing the monetary value of these reliefs into the regions that are in most need of support. At present thriving businesses in greater London and the south east are benefitting from a further stimulus that poorer areas of the UK do not seem to be experiencing.

50% off qualifying capital purchases

Thursday, August 21st, 2014

The Finance Act 2014 introduced a temporary increase in the Annual Investment Allowance (AIA). From 1 April 2014 (for companies) and 6 April 2014 for the self-employed, the ability to write off qualifying capital purchases against your profits for tax purposes increased to £500,000.

This generous tax allowance will reduce to £25,000 on 1 January 2016. Any business that needs to invest in new plant or equipment should time their expenditure to make the most of this increase in the AIA.

How much is this worth?

Depends on the type of business structure you have created to manage your business. If you are self-employed (a sole trader or in partnership) you will pay income tax on your profits. The AIA allows you to deduct the full cost of qualifying capital acquisitions from your profits. For example, if you purchased plant for £100,000 and made taxable profits of £300,000 as a sole trader, you could deduct the full cost of the plant from your profits. At this level of profitability you would possibly be paying income tax at 50% so your £100,000 investment would actually cost you £50,000. Self-employed traders paying income tax at 20% or 40%, or companies paying corporation tax at 20% would save tax at proportionately lower rates.

This is not an opportunity to miss. As always planning is critical in order that any tax benefit is maximised.