Ask my Lions

RDP Newsletter May 2025

simon@rdpipswich.co.uk (Simon ) — Fri, 16 May 2025 15:02:46 GMT

Q: My business has always used P11D forms for reporting benefits-in-kind. We don't payroll benefits currently. But I've heard the rules are changing. What does this mean for my business and what do I need to do to prepare?

A: You're absolutely right, HMRC has confirmed that from April 2026, the requirement to submit P11D forms will be withdrawn. Instead, all reporting of benefits and expenses provided to employees will need to be done via payrolling in real time.

So, what does this mean for your business? In short, it marks the end of the annual P11D ritual. Rather than waiting until the end of the tax year to report benefits, employers will need to process these through payroll on a monthly basis, ensuring tax is collected as the benefits are provided.

For those already payrolling benefits, there's not much change - just a simplification ahead. However, in your case, as you're still using P11Ds, it's time to begin preparing for a shift in your internal processes. Here's what you should be thinking about now:

Review your current benefits: make a list of all benefits you currently report via P11D (e.g. company cars, private medical insurance).
Consider payrolling early: you don't have to wait until 2026. HMRC already allows voluntary payrolling, and many employers are making the switch ahead of the deadline to smooth the transition.
Check your payroll software: make sure it can handle benefit processing correctly and provide the necessary employee breakdowns.
Communicate with your employees: when you move to payrolling, employees need to understand that the tax on their benefits will now be collected in real time via PAYE, rather than showing up in a later tax code adjustment.
Speak to us: this is a key change, and professional advice from our team can ensure a compliant and hassle-free implementation.

In many ways, this change should simplify year-end reporting, but like all transitions, a bit of early planning will go a long way.

If you'd like to discuss how your business can get ahead of the curve, we're here to help.

Q: We run a business with a turnover of around £12.5 million for the last couple of years. Under the current rules, we've been classed as a medium-sized company. With the changes to the size thresholds from April 2025, will we be able to requalify as a small company again? And do the new rules apply to our 30 June 2025 accounts? We have a 30 June year-end.

A: On 6 April 2025, new company size thresholds came into effect for UK companies.

This is something that will affect many companies hovering around the various threshold limits. It's important to note that these thresholds don't' pertain to Corporation tax or tax filing or VAT rates etc.

But they relate to financial reporting requirements, director reports and disclosure and, significantly, whether your company is exempt or not from statutory auditing.

Under the reforms, the small company turnover threshold has increased from £10.2 million to £15 million, meaning some companies that previously fell into the medium category may now be able to reclassify as small.

However, the timing of when these apply is key. The new thresholds apply to accounting periods beginning on or after 6 April 2025. Since your year-end is 30 June, your 2025 accounts (covering 1 July 2024 to 30 June 2025) began before the change, so you'll still need to use the old thresholds for that year. The new thresholds will apply from your 30 June 2026 year-end onwards.

There is, however, a transitional provision within the new rules that you could potentially take advantage of. This means that when preparing your 2026 accounts, you can choose to apply the new thresholds retrospectively to both the 2026 and 2025 financial years—for the purpose of determining your company size.

So, if you take up that option, and your turnover stays at £12.5 million, you'd fall within the new small company limits. This could allow you to requalify as a small company for both 2025 and 2026, even though under the old thresholds, you were classed as medium.

That reclassification could reduce your reporting obligations, possibly remove the audit requirement, and simplify your filings.

If you'd like to understand more or discuss your case in greater detail, please get in touch with our team.

Q: I am thinking that I may incorporate my business by transferring it for shares. I am trying to understand how it works, the relief and also what I need to pay in Capital Gains Tax. Can you help?

A: Incorporation means legally setting up your business as a limited company, making it a separate legal entity from you as an individual. This means the company can own assets, enter into contracts, and be held responsible for its own debts.

The steps towards incorporation include choosing a company name, appointing at least one director, deciding on shareholders and how many shares they'll own, and preparing basic documents like the Articles of Association. And you need to register with Companies House.

Incorporating your business can allow you to claim Incorporation Relief, which lets you defer paying Capital Gains Tax when you transfer your business to a company in exchange for shares. This means you won't have to pay tax on any gain until you sell those shares in the future.

Let's imagine you go ahead and incorporate your business and you receive 1,000 £1 ordinary shares. Your company has a value of £100,000 on incorporation, and the shares had a market value of £100 each.

The net assets transferred, excluding goodwill, total £40,000.

If you didn't get Incorporation Relief, it would mean the 'chargeable gain', as it's called, would be £60,000.

Normally, the cost of shares in a future disposal/ sale would be £100,000. But with the relief available, this gets reduced by the amount of the deferred gain (£60,000), leaving a base cost of £40,000, or £40 per share.

This is a complex area of tax and we'd need to know all the key details of your business to be able to determine the impact for you and how much Capital Gains Tax you might be liable for. If you'd like to discuss your circumstances in full with our team, please do get in touch.

Brands Hatch

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 16 May 2025 14:56:24 GMT

Lydia Walmsley Wins at Brands Hatch

As one of Lydia Walmsley's sponsors , it was a thrill to watch her in action at the Brands Hatch meeting. We congratulate Lydia on winning a race on the Sunday, a terrific achievement.

Photo by Jakob Ebrey Photography

RDP Newsletter April 2025

ipswich@rdpaccountants.co.uk (Simon Lasky) — Thu, 03 Apr 2025 08:33:29 GMT

Q:I’m thinking about selling my business, which I’ve owned for five years. How will the upcoming tax changes affect me?

A: You’re right to identify there are relevant upcoming rule changes for people in your position.

These alterations mean people who sell their businesses will have to pay more tax than before. The reforms in question surround the Capital Gains Tax rate and Business Asset Disposal Relief.

The latter is effectively a special discount on tax for people who sell their businesses. Instead of paying a high tax rate, they get to pay a lower tax rate on up to £1 million of their profits.

From 6 April 2025, the CGT rate under BADR is increasing from 10% to 14% on the first £1 million of lifetime gains. This means you‘ll pay more tax when selling your business (assuming it qualifies under the rules). Part of eligibility is that you‘ve owned it for at least one year, which is clearly fine in your case.

It sounds like your business will count as a qualifying business. It has to be one that you own and run yourself and must be trading - i.e. it sells goods or services to make money. It can‘t just be for investment, like renting out property.

Some mixed-use businesses also qualify. That is to say, your business does both trading (selling goods or services) and providing rental income, like a shop with an apartment above it.

The thing you should bear in mind is that, although the rules are less favourable now than if you‘d sold, for example, a year ago, you face paying even more if you delay a year. If you delay beyond April 2026, the rate looks likely to rise even further, bringing it closer to standard CGT rates of 18% or 24% for higher earners. In fact, it has already been stated in the Budget that it will rise again in April 2026 to 18%. If you‘re considering a sale, it may be worth reviewing your plans now to take advantage of the lower rate before it increases. If you‘d like to discuss the matter further, please get in touch with our team.

Q:I’m a sole trader and currently paying 40% tax. My husband helps out with the business, but he’s a lower-rate taxpayer. We’re looking at ways we can reduce our overall tax bill. Can you give us any recommendations?

A: It’s certainly worth exploring what could be relevant here in terms of effective tax planning strategies.

Firstly, it would be beneficial to make your husband a partner. If your spouse or civil partner becomes a partner in your business, you can allocate some of the profits to them, potentially reducing the overall tax burden by using their lower tax rate. However, you must bear in mind that this should be a genuine business arrangement, and his share of profits should reflect his involvement in the business.

For anyone else reading this with similar questions, but operating a limited company rather than being a sole trader, it‘s perhaps worth mentioning that if your spouse is a lower-rate taxpayer, you could gift them shares. This could allow dividend income to be taxed at their lower rate. However, it‘s worth noting that HMRC may scrutinise this arrangement under the "settlements legislation" if the shares were given purely to divert income and avoid tax.

We should also consider that from April 2025, new rules will affect income allocation between spouses for jointly held property. While this doesn‘t directly impact business income, it highlights HMRC‘s ongoing focus on income splitting.

It‘s certainly worth delving into the details of your business and tax arrangements in greater depth with a professional before diving into making any changes. Please give our team a call if you‘d like to discuss this.

Q:I run a small business. Is there any way or means that I can pay PAYE less frequently to help with cash flow?

A: Yes, if your total monthly PAYE payments to HMRC are less than £1,500, you may be able to pay quarterly instead of monthly, which can help with cash flow.

However, this isn‘t automatic; you need to contact HMRC to arrange it. Keep in mind that even though payments are less frequent, you must still submit your payroll information on time under Real Time Information (RTI) rules. If your PAYE liability increases above £1,500 per month, HMRC may require you to switch back to monthly payments. It‘s worth calling the HMRC payments line to discuss this in full.

Lydia Walmsley

Thu, 27 Mar 2025 10:54:30 GMT

RDP Accountants join Lydia's sponsors for 2025

RDP Accountants are delighted to be one of Lydia's sponsors for the 2025 season. Lydia brought her new car over today so we could have a look (but not a drive).

RDP Accountants Questions and Answers February 2025

Wed, 05 Mar 2025 16:17:01 GMT

Q: I’ve started a new business this year selling my hand-made craft items. At this stage it’s only earning me a relatively modest income. Up until now my profits are just £600 but I do have a big order that is set to earn me £3,500 in the next two months. I’m slightly confused about what I should be declaring in a tax return.

A: Starting a new business brings many questions and complexities around tax. Although you haven't said it for certain, it sounds like you haven't had to file a Self-Assessment Tax Return before. So, to take you through the essentials, based on the information you have provided, this is what you need to know.

If you are earning less than £1,000 in a tax year from self-employment, you don't need to submit a tax return and there is no income tax to pay. However, as it sounds like this is a venture you intend to pursue longer term and to grow into a bigger business, you probably will need to eventually. The Self-Assessment deadline that is just elapsing – i.e. January 31, 2025, covered the tax year 2023-24. If you'd made more than £1,000 in profit from self-employment income between April 2023 and April 2024, you'd have needed to declare this to HMRC by the latest deadline. But as you did not, that is not relevant in your case.

It sounds like the £600 you earned came between April 2024 and January 2025. If the money you're expecting does come in before April 2025, that means all of the earnings – a total of £4,100 – would then need to be declared for the 2024/25 tax year. The deadline for filing your tax return for 2024/25 will be 31 January 2026.

A key detail that you haven't made clear is how much of the £3,500 you're expecting will be profit. If your overall profits for the 2024/25 tax year period remain below the £1,000 threshold or 'trading allowance', as it's also known, then you won't have to declare it to HMRC in January 2026 either.

Of course, it's very important to understand how to file your tax return correctly to fully comply with the rules and avoid any penalties. It's also important to completely understand your expenses and other costs that are part of filing the Self-Assessment forms. It's always wise to consult an accountancy professional, especially when you're doing it for the first time. Please contact our team if you'd like further information on how we can help.

Q: I recently tied the knot with my long term partner and we’re now in a civil partnership. A friend mentioned that there’s a possible tax relief my partner and I could take advantage of. She is the higher earner, earning £40,000 per year. I earn £11,500. What’s the position? How much relief, if any, can we benefit from?

A: Firstly, congratulations on your good news!

You are correct that you and your partner now qualify for a tax relief called Marriage Allowance. Civil partnerships are also included within this – despite the somewhat misleading title in this case.

The fact you earn £11,500 puts you below the income tax threshold of £12,570 – otherwise known as the Personal Allowance. This is the amount you're allowed to earn in a tax year before paying income tax.

Your partner's income being £40,000, with the same Personal Allowance of £12,570, means she has taxable income of £27,430. So that's the total amount you pay tax on as a couple.

When you claim Marriage Allowance you can transfer £1,260 of your unused Personal Allowance to her. Your Personal Allowance becomes £11,310 and your partner gets what's known as a 'tax credit' on £1,260.

This means you will now pay tax on £190, but she will only pay tax on £26,170 rather than £27,430. So that's a combined £26,360 of taxable income between you. The result is £1,070 less of your combined earnings is taxed.

Without Marriage Allowance, you pay nothing and she pays tax on £27,430 at 20% which amounts to £5,486 of tax owed. With Marriage Allowance, you pay a small sum of tax – just £38 but she pays 20% on £26,170 which means the tax she pays has gone down to £5,234. So, when you put the combined figures together (£38 and £5,234), that's £5,272 owed, rather than £5,486. So, ultimately you save £214 in total as a couple.

Q: Last year I earned £4,500 approximately from making interest on my savings. I’ve never come close to earning anywhere near that much previously so I’m not sure about the rules. I realise that there are potential tax implications but I’m not sure exactly what I need to do. Can you please explain?

A: There are a few things to mention here for yourself and others who want to understand about the tax implications on interest made from savings.

Firstly, there's something called the Starting Rate for savings. But it depends on your circumstances – specifically what you are earning – whether you're eligible for it or not. For those of you who are eligible, you can earn up to £5,000 in savings interest and not have to pay tax on it.

In your case, we won't be able to say for sure whether this applies or not as we don't know what you currently earn per year – or if you are still in work or retired. Essentially, the higher your income – be that your salary from a job or a pension or something else, the less you are eligible to claim on the Starting Rate.

In fact, you will not be eligible for the Starting Rate if your total income per annum is £17,570 or more. But if it is lower, then the maximum is £5,000. And for every £1 of income above your annual Personal Allowance of £12,570, your Starting Rate goes down by £1.

For example, say you earn £15,000 per year in terms of a salary. To calculate what your Starting Rate is you'd subtract the Personal Allowance, giving you £2,430. This is the figure by which you would reduce your Starting Rate. So, the left over amount - £2,570 – is the Starting Rate you qualify for. In your case, therefore, having earned £4,500 in savings interest, you are over the limit. So, you'd have £1,930 in savings interest that you need to pay tax on. However, that is only taking the Starting Rate into account.

There's also the Personal Savings Allowance. For basic rate taxpayers that is £1,000. And it can be added to the figure for the Starting Rate for savings. In the scenario outlined above, this extra allowance would reduce the amount of savings interest that you need to pay tax on to £930.

As alluded to, we'd need to know more about your personal situation to provide a full and accurate answer on your tax obligations in regard to your question, but please give our team a call and we'd be happy to help.

RDP Accountants Questions and Answers January 25

ipswich@rdpaccountants.co.uk (Simon Lasky) — Wed, 05 Mar 2025 16:16:00 GMT

Newsletter issue – January 2025

Q: I use various online marketplaces to sell my unwanted items - from clothes to old phones and various other things. I'm a bit concerned though by stories I've read in the media that rules are changing and I may have to start filing a tax return. That's not something I've ever had to worry about before. Can you help me understand if my fears are justified?

A: There has been a lot written in the papers over the last year or so about this issue and, with the angle that we see often taken in these reports, it's understandable that people like yourself could feel worried about the implications. Millions of people do what you do. It's become an everyday activity to sell second hand things online.

However, HMRC has become so concerned itself about what it feels are misleading stories in the press, that it's recently issued a long statement to try to reassure and clarify the matter.

The HMRC website stated: 'People selling unwanted items online can continue to do so with confidence and without any new tax obligations.'

The reason these concerns have arisen is due to the fact that a new process is taking effect in January. It means online platforms have to share certain sales data with HMRC.

These new measures 'generated inaccurate claims that a new tax was being introduced,' officials said, adding that 'absolutely nothing has changed for online sellers'.

However, you and others do need to be aware that if you're buying goods for re-sale or make things with the intention of selling for profit and you garner a total income from this activity of over £1,000 in one tax year (before deducting expenses), you may need to register for Self-Assessment and fill out a tax form.

HMRC stated: 'Those who sold at least 30 items or earned roughly £1,700 (equivalent to €2,000), or provided a paid-for service, on a website or app in 2024 will be contacted by the digital platform in January to say their sales data and some personal information will be sent to HMRC due to new legal obligations.'

Angela MacDonald, HMRC's Second Permanent Secretary and Deputy Chief Executive Officer, had this to say: 'We cannot be clearer - if you are not trading and just occasionally sell unwanted items online - there is no tax due. As has always been the case, some people who are trading through websites or selling services online may need to be paying tax and registering for Self-Assessment.'

So, whilst it's worth looking again at the criteria above that may mean you're in need of registering, it sounds as though, as for many people around the country, you don't need to be concerned or change your habits in this regard.

Q: I have recently started a business which offers consultancy for building and engineering. I'm running the business side for my new partner, who is the building consultant. So, I'm not the expert in the field and I'm trying to get a fuller understanding of our potential obligations with regard to the Construction Industry Scheme (CIS) and the need for registration. Can you provide any guidance?

A: For most people in the building and construction industry, the CIS is a key piece of regulation that is very important to understand and comply with. It is mandatory for constructors to register for the CIS. However, there are a number of exceptions, depending on certain roles and types of function.

The work of certain professionals may be excluded, meaning they do not have to be registered for the scheme. However, this is the case 'only if they are acting purely as consultants', according to the HMRC guidelines, which adds: 'Typically, this would include the production of designs, plans, technical assessments and reports relating to construction projects including site testing.'

Furthermore, under 'operations excluded', HMRC lists 'professional work of architects, surveyors or consultants in building, engineering, decoration (interior or exterior) or landscaping.'

Looking at these guidelines, it would appear your new venture would fall outside of the requirements of the CIS and you and your partner would not need to register. However, it is wise to be cautious because the guidelines also state the following: 'Any work that goes beyond a consultative or advisory role and becomes the supervision of labour or the co-ordination of construction work using that labour is not excluded from the scheme.'

So, if your partner feels their work is broader, at any time or to any extent, than simply consultancy, it's certainly worth seeking more detailed advice.

Please give our team a call if you'd like to explore the regulations and compliance more deeply.

And for anyone else in a similar position, it's worth noting that there are a few other examples of exceptions in the CIS where you do not have to register if you only do certain jobs. These include:

architecture and surveying
scaffolding hire (with no labour)
making materials used in construction including plant and machinery
delivering materials
carpet fitting
work on construction sites that's clearly not construction - for example, running a canteen

Q: I'm in the process of starting a new business and want to ensure I'm fully prepared for upcoming compliance changes. I'm aware requirements for reporting benefits in kind (BiKs) are changing, but how will it affect small businesses like mine? Specifically, do I need to report loans or accommodation benefits immediately?

A: There was some news around this topic at the beginning of 2024, with the Government releasing proposals to make it compulsory to do this type of reporting by using software.

The announcement at that time stated employers will be required to report and pay Income Tax and Class 1A NICs on most BiKs in real-time on the 'Full Payment Submission'.

However, don't fret; it's not immediate. The intention was to begin in April 2026, giving everyone some breathing space. But an update from the new Government means that it now looks like there should be a further cushion before compliance becomes strictly enforced. The mandatory use of payroll software will now be phased in from April 2026.

And, pertinent to your question on loans, you won't have to payroll loans and accommodation at that stage.

For those who want to on a voluntary basis, you'll be able to report employment-related loans and accommodation through payroll software from April 2026.

As to when payrolling loans becomes mandatory, HMRC had this to say in a December bulletin: 'no decision has been made as to when we will mandate the reporting of loans and accommodation through payroll software - careful consideration will be given to make sure sufficient notice of any change will be provided.'

In the meantime, if employers do not wish to payroll these, there will be a modified P11D and P11D(b) available.

There is likely to be further news in the new year, with officials promising information on plans to publish draft legislation and technical specifications.

RDP Accountants Questions and Answers November 24

Wed, 05 Mar 2025 16:14:22 GMT

Q: I earn £62,000 and have been offered a bonus that would increase my total income to £95,000. How will this affect my tax, and are there any higher tax bands I should be aware of? Am I right that bonuses are taxed more than normal income

A: No, bonuses are taxed just like your regular salary. It's not taxed at a higher rate but neither is there an exemption for them. So, if you get a bonus, it's added to your total income and taxed at the same rates.

When your income rises to £95,000, here's how it will affect your tax:

You'll pay no tax on the first £12,570 due to the personal allowance. You'll then pay 20% tax on the next £37,700 (the portion of income between £12,570 and £50,270). Any amount between £50,270 and £95,000 will be taxed at 40%.

Since your income is under £100,000, you won't lose any of your personal allowance. If your income were to exceed £100,000, you would start losing your personal allowance, thereby increasing your effective tax rate. The additional 45% tax rate applies only to income over £125,140.

Q: I'm a long-term non-domiciled resident in the UK - how will the 2025 changes impact my tax status?

A: Firstly, you're right to say there are changes coming next year that will affect you and any others who are classified as non-domiciled. The issue of 'non-doms' - referring to a person's tax status, not nationality, citizenship or resident status - has been highlighted politically for several years. Former Chancellor Jeremy Hunt surprisingly announced changes at the Budget earlier this year, in an attempt to steal Labour's thunder after they had signalled they would scrap the status. The new Government is going ahead with the plans Mr Hunt laid out, with a few changes. The existing system will be replaced by a new 4-year foreign income and gains (FIG) regime for individuals who become UK tax resident after a period of 10 tax years of non-UK residence.

The rule changes set for April 2025 will significantly alter your tax situation. Currently, you may be taxed only on UK income and any foreign income you bring into the UK (remittance basis). However, from 2025, you will only be able to use this remittance basis for the first four years of UK residence. After that, all your worldwide income will be taxed, regardless of whether it's remitted to the UK. This will likely increase your tax liability substantially, so it's important to review your financial arrangements now.

It's also worth noting that the previous Government's plan offered a 50% reduction in foreign income subject to tax for individuals who lose access to the remittance basis in the first year of the new regime. But the new Government has axed that element.

And for any UK resident individuals ineligible for the new scheme or who choose not to make a claim for a tax year will be 'subject to Capital Gains Tax (CGT) on foreign gains in the normal way', the Government has said.

Q: My company is considering paying me in cryptocurrency. What are the tax implications for me?

A: If your employer pays you in cryptocurrency, it's treated as taxable income by HMRC. This means you'll owe Income Tax and National Insurance Contributions (NICs) just as you would for regular salary payments.

However, the type of cryptocurrency is important because it can be either classified as a 'readily convertible asset' (RCA) or not.

It will be deemed RCA if the crypto can be easily exchanged for cash. In this case, it will be subject to Income Tax and National Insurance Contributions (NICs) via PAYE, just like regular salary. The value of the cryptocurrency at the time of payment will be calculated in GBP, and tax will be deducted via PAYE.

However, if the cryptocurrency is not considered an RCA, the responsibility to report and pay the appropriate tax to HMRC may fall to you rather than your employer. PAYE deductions might not apply. So, tax is still owed, it's just a question of how and when it is paid. It's a question of the method of collection (PAYE vs. self-reporting) that differs.

Later, if you decide to sell or convert the cryptocurrency, you may also be liable for Capital Gains Tax (CGT) if its value has increased. Cryptocurrency's volatility means it's important to carefully consider how these tax liabilities may fluctuate before agreeing to be paid this way.

RDP Accountants Questions and Answers December 24

ipswich@rdpaccountants.co.uk (Simon Lasky) — Wed, 05 Mar 2025 16:12:52 GMT

When your income rises to £95,000, here's how it will affect your tax:

Q: I'm a long-term non-domiciled resident in the UK - how will the 2025 changes impact my tax status?

Q: My company is considering paying me in cryptocurrency. What are the tax implications for me?

However, the type of cryptocurrency is important because it can be either classified as a 'readily convertible asset' (RCA) or not.

RDP Accountants Questions and Answers October 24

ipswich@rdpaccountants.co.uk (Simon Lasky) — Wed, 05 Mar 2025 16:11:21 GMT

When your income rises to £95,000, here's how it will affect your tax:

Q: I'm a long-term non-domiciled resident in the UK - how will the 2025 changes impact my tax status?

Q: My company is considering paying me in cryptocurrency. What are the tax implications for me?

However, the type of cryptocurrency is important because it can be either classified as a 'readily convertible asset' (RCA) or not.

RDP Accountants Questions and Answers September 24

ipswich@rdpaccountants.co.uk (Simon Lasky) — Wed, 05 Mar 2025 15:59:31 GMT

: I'm interested in investing in a startup and I’ve heard about the Seed Enterprise Investment Scheme. I'm considering investing £30,000 in a company that qualifies this tax year. What tax relief can I expect?

A: You're right in identifying that The Seed Enterprise Investment Scheme (SEIS) may be helpful in what you're looking to do, offering as it does, some tax relief. For the 2024/25 tax year, you can claim income tax relief of 50% on eligible investments up to £200,000. That means, for your £30,000 investment, you could receive £15,000 in income tax relief. Additionally, there are two reliefs related to Capital Gains Tax that may apply. Firstly, disposal relief. If this is due, and your SEIS shares are held for at least three years and the company qualifies, any capital gains from their will be exempt from CGT. Secondly, there's reinvestment relief, where a gain coming from the 2023/24 tax year on disposing an asset is reinvested in shares in a company on which you get SEIS Income Tax Relief.

Q: I'm planning to rent out a room in my home for £9,000 this year. Am I right in thinking that some of this income will be tax-free? If so, what are the rules?

A: For anyone in your position it's worth knowing about the Rent-a-Room Scheme. This allows you to earn up to £7,500 tax-free from letting furnished accommodation in your home for the 2024/25 tax year. Since you're planning to rent out a room for £9,000, the first £7,500 of this income will be tax-free. The remaining £1,500 will be subject to income tax based on your marginal tax rate.

The tax exemption for this type of income under £7,500 is automatic, so you don't need to do anything. But when it goes over £7,500, you must inform HMRC and choose whether to opt into the scheme by submitting a tax return. Or alternatively, you can choose to be taxed on the rental profit (total income minus allowable expenses) if that results in a lower tax liability.

It's also worth noting that the £7,500 tax-free allowance is halved if you share the income with your partner or someone else.

You're also eligible to opt into the scheme if you run a bed and breakfast or a guest house, but you can't use it for homes converted into separate flats.

If you'd like more information about tax issues relating to property and rental income, do get in touch.

Q: I run a small business. Due to a cashflow issue, we're struggling to pay our next VAT bill in full and we've only got 20 days until payment is due. What are our options?

A: It can be difficult for any business when something like this arises. However, there is a possibility that you can come to an agreement with HMRC to set up a phased payments plan.

Since the start of the year if a business that pays VAT proposes a plan to pay in instalments within 15 days of the payment being due, and HMRC agrees it, it would not get charged a late payment penalty. That is, of course, dependent on sticking to the conditions of the agreed plan. HMRC might cancel it if you don't. So, although you're running out of time, you could be eligible for this support, but it's vital you contact HMRC as quickly as possible.

Otherwise, you could face penalties. Late payments attract interest charges and they're applicable from day one it's overdue.

This is what HMRC says: "If HMRC agree a Time to Pay arrangement with you, it can mean lower, or no, late payment penalties. It can cover all outstanding amounts due, including penalties and interest."

Get in touch with the Payment Support Service to discuss your finances and the amount you can pay off each month of your outstanding VAT bill.

If you need any further assistance understanding VAT rules, payments and penalties, please contact our team.

RDP Accountants Questions and Answers August 24

ipswich@rdpaccountants.co.uk (Simon Lasky) — Wed, 05 Mar 2025 15:58:30 GMT

Q: What is the Patent Box regime and what are the benefits for businesses in the 2024/25 tax year?

A: The Patent Box regime allows UK companies to pay a reduced corporation tax rate on profits earned from patented inventions. In the 2024/25 tax year, the effective tax rate is 10%. According to HMRC, the regime is designed to "encourage companies to keep and commercialise intellectual property in the UK".

If your company earns £100,000 in profits from patented products, the tax liability would be £10,000 under the Patent Box, compared to £25,000 at the standard 25% rate.

To qualify, the company must own or exclusively license the patents and actively develop them. Plus, they must make a profit from them. Furthermore, the company must have undertaken qualifying development on the patents.

Incidentally, to give an idea of how widely this scheme is used, the most recent figures, published by the Government last year, showed in the tax year 2021 to 2022, an estimated 1,510 companies elected into Patent Box.

If you'd like to delve into the details of the regime and how your business can benefit, please contact our team.

Q: Dividends: I am set to earn £39,570 for my basic salary in the current tax year. On top of that, I’m due to receive for the first time some dividend payments from shares I own in a company – around £5,000. What are the tax implications for me this year?

A: The first thing to mention here is that you have a Dividend Allowance each year. Unfortunately for you and other dividend beneficiaries that has decreased for the 2024/25 tax year. It was £1,000 but it is now just £500. What it means is that you won’t have to pay tax on the first £500 of the £5,000 you’re set to earn from dividends.

For the remainder of that sum – the £4,500 of dividends – the amount of tax you pay comes down to the Income Tax Band that you fall in. Helpfully, you've mentioned your basic salary. So, we can see you're in the basic rate (20%) Income Tax Band category. For the dividends, that means you must pay a rate of 8.75% on your £4,500 sum. Hence, you will pay £393.75 in tax on your dividends.

For anyone else reading this with dividends, it's worth noting that you would need to pay 33.75% on your dividends if your income puts you in the Higher Rate Income Tax Band or 39.35% if you're in the Additional Rate category.

If you only earn up to £500 in Dividends (this tax year's allowance), and you don't already file a Self-Assessment Tax Return there's no requirement to inform HMRC or take any other action.

Those who earn between £500 or £10,000 from dividends and who don't already normally fill out a Self-Assessment Tax Return need to tell HMRC about it. You can call their helpline, and there are two options for payment of tax. Firstly, via filling out a Self-Assessment Tax Return. Or, by having HMRC adjust your tax code to automatically take it from your salary or pension. For Dividends over £10,000 you must complete a tax return.

For more help on understanding Dividends, please contact our team.

Q: My company has missed the deadline to pay our employers’ PAYE bill. We owe £23,000 but the debt is only for the last year. What can we do?

A: In cases like this, there is something called a Time to Pay arrangement, which HMRC may allow you to make use of. This gives businesses extra time to settle their bill by paying back in monthly instalments that are more affordable. The rules governing this have been made less stringent in recent times, widening the eligibility. Looking at the list of criteria, it would seem your business should qualify for this particular support – and you can set it up online. But that is predicated on checking the points below.

The Time to Pay arrangement is open for companies that pay via PAYE if they have missed the deadline to pay an employers' PAYE bill, as in your case. You must owe £50,000 or less and have debts that are 5 years old or less – both of which in your case, is correct).

However, you also must be registered for digital services and not have any other payment plans or debts with HMRC. Lastly, to qualify, you must have sent any outstanding employers' PAYE submissions and Construction Industry Scheme returns that are still due.

RDP Accountants Questions and Answers July 24

ipswich@rdpaccountants.co.uk (Simon Lasky) — Wed, 05 Mar 2025 15:57:23 GMT

Q: I'm a business owner. I've recently purchased new equipment for my business costing £74,000. Specifically, could you explain how the Annual Investment Allowance (AIA) works for the 2024/25 tax year and how I can claim it for these purchases?

A: Businesses can claim capital allowances for things that they buy and intend to keep to use for the purposes of the business. Officially described by HMRC as ‘plant and machinery’, in most cases you can deduct the full costs of these items from your profits. That is thanks to the Annual Investment Allowance (AIA) that you have correctly identified as the key tax relief here. It’s designed to encourage businesses to invest in their operations.

So, the latest rules for the 2024/25 tax year give businesses an AIA limit of £1,000,000. This means you can invest up to £1,000,000 in qualifying assets and receive 100% tax relief on this expenditure. So your £74,000 outlay is well within the limits and you can deduct that entire amount from your profits. By utilizing the AIA, your Corporation Tax will be lower.

Just be sure what you’ve bought counts as ‘plant and machinery’. HMRC says it needs to be “items that you keep to use in your business” and can include parts of a building considered ‘integral’. It can also be the costs for demolishing plant and machinery and commercial vehicles (excluding cars).

An example of what would not count is something used for entertainment such as a yacht or karaoke machine. Items you lease also do not count, unless you have a hire purchase contract.

To claim the AIA, you need to add it to your company’s tax return (CT600) for the relevant accounting period. So, we advise to keep detailed records of the expenditure and the assets purchased. If you need any further information or help regarding future capital allowances, please do get in touch with our team.

Q: I’m self-employed and have heard about the benefits of using the Simplified Expenses system for calculating some of my business expenses. Could you explain how this works for the 2024/25 tax year and what kind of expenses I can claim.

A: The Simplified Expenses scheme, run by HMRC, boils down to this: it allows self-employed individuals to calculate certain business expenses using flat rates rather than actual costs. Both sole traders and business partnerships without companies as partners can take advantage.

It can be advantageous in saving time, cutting down on keeping records and make some expense calculations more straightforward.

Flat rates can be used for business use of your home (working from home), costs for some vehicles used in your business, and living on your business premises. You record these on your Self-Assessment Tax Return.

If you work from home, you can use a flat rate based on the number of hours you work there each month:

25 to 50 hours: £10 per month.
51 to 100 hours: £18 per month.
101 or more hours: £26 per month.

So, for example, if you work 60 hours per month from home, that would mean calculating £18 per month x 12 months - totalling £216 per year that you can claim as a business expense on your tax return.

If you use your personal vehicle for business purposes, you can claim a flat rate per mile. For cars and vans, it’s 45p per mile for the first 10,000 miles, then 25p per mile. And for motorcycles, it’s 24p per mile.

Simplified Expenses can not be used for all types of expenses. Other business costs must still be calculated using actual costs. For example, these might include buying equipment or advertising. The scheme is optional, so you can use actual costs for all of the above, if you prefer.

Q: Our company has previously claimed R&D tax relief under the Research and Development Expenditure Credit (RDEC) scheme but I’m aware that there have been changes for the 2024/25 tax year. Can you please summarise what we should be aware of and how this might affect our next claim?

A: You’re correct in saying there have been some changes – arguably quite significant ones for the new tax year in the area of Research and Development (R&D) tax relief.

That’s because we now have a new system combining the Research and Development Expenditure Credit (RDEC) and the small or medium enterprise (SME) R&D relief. The merged scheme is designed to simplify and improve things, with a single set of qualifying rules for most businesses.

The scheme “establishes an above-the-line credit that allows companies to claim for their qualifying R&D costs, including contracted out R&D, and incorporates the more generous SME scheme PAYE and National insurance contributions cap,” HMRC states.

For businesses like yours using the old RDEC system, the new system is quite a bit more generous compared to the past. Before April 2023, the RDEC rate was 13%. Now, there is a single rate of 20% above the line credit for the new RDEC scheme.

The new regime for claims comes into effect for accounting periods starting after 1 April 2024. For a deeper understanding of how your business could benefit from R&D tax reliefs, do drop us a line and our team can guide you through in more detail.

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RDP Accountants Questions and Answers June 24

ipswich@rdpaccountants.co.uk (Simon Lasky) — Wed, 05 Mar 2025 15:56:17 GMT

Q: As part of my professional role, I belong to a professional body, for which I pay membership fees each year. It’s becoming somewhat expensive to keep it going but it is nonetheless an important part of my job. Somebody mentioned they had claimed tax relief for the membership fees. Is this possible?

A: Yes, it is true that you can claim tax relief on professional membership fees. To be eligible for this, the membership is important to have for you to do your job, according to the official HMRC guidance. You can also claim relief on annual subscriptions you pay to approved professional bodies or learned societies, "if being a member of that body or society is relevant to your job", the guidance states. But if you didn’t pay yourself – for example, your employer stumped up the money for the fees – then you can’t claim the relief. The other key thing to bear in mind is that your professional body must be on the approved HMRC list. To check if yours is, please visit this page .

Q: The turnover of my business has been no higher than £68,000 over a 12-month period since we started but has now risen to £91,000. It reached this point on 5 May 2024. What do I need to do about VAT registration?

A: Once your total VAT taxable turnover for the last 12 months goes above the threshold you must register for VAT with HMRC. Up until April 2024 it had remained at £85,000 for seven years, but now in the new 2024/25 tax year, it has risen to £90,000. Although you can voluntarily register for VAT if you’re below this amount, it doesn’t sound as if your business has taken that approach previously.

But now your turnover is at £91,000, you need to register with HMRC within 30 days of the end of the month that you went over the threshold. According to HMRC: "Your effective date of registration is the first day of the second month after you go over the threshold."

So, in your case, it means you will need to have registered by 30 June 2024 and your effective registration date will be 1 July 2024.

For any business which realises it’s going to go over the £90,000 mark in the next 30 days, you have to register by the end of that period. So, in that example, say your company (previously not VAT-registered) brings in a new £150,000 deal on 1 June, with payment coming to you within that same month. You would have to register by 30 June.

Lastly, just to clarify what HMRC defines as turnover. It says this is "the total value of everything you sell that is not exempt from VAT."

Q: We’re a fledgling business in the scientific sector with a turnover of under £500k at the moment and just 22 staff. We’re looking to make sure we claim the tax relief we’re entitled to under the Government’s Research and Development scheme. What do we need to know?

A: It sounds like you are in a position to claim Research and Development (R&D) tax relief but let’s look at what you need to do for your project to meet the necessary criteria. What qualifies as R&D? HMRC states that it "must be part of a specific project to make an advance in science or technology".

For anyone reading this working in social sciences, however, including economics, I’m afraid you wouldn’t qualify.

The type of relief you can get depends on the size of your company. In your case, you’d fall under the small and medium sized enterprise category. It’s clear you would qualify under the criteria, which states SMES must have less than 500 staff and a turnover of under 100 million euros or a balance sheet total under 86 million euros.

Further stipulations are that your project must be connected to either your current trade or one you plan to set up following the results of the research. The scheme also requires you to explain a number of things, including how it is advancing the field of knowledge, how it’s overcoming a "scientific or technological uncertainty" and also why it could not "be easily worked out by a professional in the field ".

The official guidance also states that "your project may research or develop a new process, product or service or improve on an existing one. "

If you’d like further help with understanding R&D tax relief, please do get in touch with our team and we would be happy to discuss the full details.

RDP Accountants Questions and Answers May 24

ipswich@rdpaccountants.co.uk (Simon Lasky) — Wed, 05 Mar 2025 15:55:01 GMT

Q: I've started a new job quite recently with a hybrid working arrangement. I work from home 3 or 4 days per week, so that is my main place of work. However, I do have a significant journey - it takes more than two hours when I do go in. In terms of expenses, do my journeys to work qualify for tax relief?

A: Thanks for your question. This is actually a subject which has risen to the surface lately after HMRC issued a clarification. The upshot is that when a hybrid worker travels to their employer's office, it does NOT qualify for tax relief.

We've seen a debate on this since hybrid became a new common working pattern after the pandemic, with some arguing the case that going to the office should count as a 'journey in the performance of the duties of employment'. Under this description, these travel expenses normally do qualify for tax relief for employees.

The new HMRC guidance stated: 'The fact that an employee's home is treated as a workplace for tax purposes is not enough, on its own, to enable the employee to obtain relief under Section 337 for the expenses of travelling to another permanent workplace. For most people, the place where they live is a matter of personal choice. So the expense of travelling from home to any other place is a consequence of that personal choice, not an objective requirement of their job.'

It adds: 'The expenses of travelling from home to another workplace do not qualify for relief under Section 337 unless the location of the employee's home is itself dictated by the requirements of the job.'

However, if you were on a remote worker contract, as many these days are, that would be different if you were asked to travel into an office.

The HMRC guidance says on this: 'Where an employee's home is itself a place of work, the cost of travel between there and other permanent workplaces may sometimes be deductible under Section 337 as travel in the performance of the duties.'

Q: We have just offered a job to someone who is ex-Army. She has just left and this is her first job outside the Armed Forces. She mentioned that there may be a relevant tax relief for us to consider, but I hadn't come across this before. Can you clarify what that would be?

A: It's true that in hiring a veteran there is a tax implication to consider - but a good one! Your new recruit will be referring to the fact that businesses who employ former UK Armed Forces personnel, who are entering their first job in civilian employment, can apply zero-rate of secondary National Insurance contributions (for that employee) for up to 12 months. To ensure the veteran qualifies for the NI relief, you must only double check these two points. They must have:

served at least one day in the regular armed forces
completed at least one day of basic training

The way you need to claim the relief is by submitting a revised Final Payment Submission (FPS) using National Insurance category letter V for qualifying veteran employees. The relief only applies to the part of the employee's earnings below the veterans upper secondary threshold.

Q: I'm going to be introducing benefits to employees of my business for the first time, including gym membership and private medical insurance. I believe I need to be arranging the reporting of these benefits to HMRC? What's the best way to go about this?

A: Firstly, you're right. As with other types of taxable income and benefit, they have an associated monetary value, and do need to be reported to HMRC. You may have heard of a P11D form? If not, what that is a means to report 'benefits in kind' - the type of benefits for staff that you're talking about.

You need to submit a P11D for all staff and directors who get benefits - whether these are the ones you've outlined or anything else.

Any items that your business pays for which the staff member gains benefit from must be included on the P11D. So, think also about phones, company cars, loans for rail season tickets, and so forth. Some expenses are not required to be included in these forms. That's things like business travel and entertainment expenses or credit cards used for company purposes.

In terms of filing a P11D they must be submitted to the tax man by July 6 after the tax year in question. They only accept digital filing these days. It's all online.

The alternative to the P11D is paying benefits via payroll. You must register with HMRC if you want to do this, but it could save time, depending on how many staff you have (and therefore how many P11D forms you need to fill out). And in actual fact, changes are afoot that mean in future (from April 2026) the P11D will be scrapped, and it will become mandatory to report employment benefits and pay Class 1A National Insurance Contributions (NIC) through payroll software.

So, you might consider whether it's best to be prepared for this compliance change now, rather than wait.

RDP Accountants Questions and Answers April 24

ipswich@rdpaccountants.co.uk (Simon Lasky) — Wed, 05 Mar 2025 15:53:56 GMT

Q: I’m a property owner, and I’m considering renting one of my houses out for people to use for vacations. What are the tax rules I need to understand?

A: It‘s a timely question, and unfortunately for you, there was a change announced in the Budget that will mean you can no longer benefit from a certain type of tax relief in the future.

At the moment, there are tax breaks for second homeowners letting to holiday makers in the shape of the Furnished Holiday Lettings (FHL) regime.

Among the advantages of the scheme is the fact that property owners can deduct the full amount of finance costs, such as mortgage interest, from FHL income. And when selling the property, business asset disposal relief may be available. That results in a 10% capital gains tax rate applying.

But the FHL scheme is to be disbanded, Jeremy Hunt has revealed. Currently, the tax breaks make it more profitable for second homeowners to let out their properties to holiday makers rather than to residential tenants to rent, raising concerns over the availability of long-term rental housing for local people.

According to HMRC, if you rent properties that qualify as FHLs, you can get the following benefits:

you can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs‘ Relief, relief for gifts of business assets, and relief for loans to traders)
you‘re entitled to plant and machinery capital allowances for items such as furniture, equipment, and fixtures

Furthermore, the profits count as earnings for pension purposes,meaning tax-advantaged pension contributions can be made.

If the change takes effect and is passed into law, the existing rules will be scrapped from April 2025. But you would have one year during which you could benefit from the current scheme. If you‘d like to understand more about the tax implications of property ownership, please get in touch.

Q: I’m a self-employed electrician. I want to undertake some training to help me run my business, but it’s quite an expense. Is there any way I can claim back the costs of training?

A: There are absolutely times when, as a sole trader or self-employed individual, you will be able to count the costs of training as an allowable business expense. It does depend on the circumstances and details. In March, HMRC published updated guidance on retraining tax deductibility to help people understand this area better.

HMRC says its latest guidance "ensures that updating existing skills, maintaining pace with technological advancements, or changes in industry practices are allowable costs when calculating taxable profits."

It‘s helpful to look at a few examples to try to understand better what is or is not allowable. In your case, let‘s say it‘s a bookkeeping course you want to do at the local college. An electrician‘s day to day work doesn‘t entail bookkeeping, of course. But as a sole trader, you need to understand accounts and how to run your business efficiently. So, a course on bookkeeping would be relevant and an allowable expense.

But if you wanted to learn a new skill to start a totally new business, that‘s where it wouldn‘t qualify. The skills training has to be relevant to your existing business.

And, when someone is learning skills in a different field, they‘re likely to not qualify. So, one example: a painter and decorator decides they want to change their business completely by going into taxi driving instead. They want to claim the costs of a taxi driving course, but as the costs will not relate to the purpose of the existing business,i.e. painting,it can‘t count as an expense.

Q: I’m about to become a father in the next few months, with our baby arriving in late June. Am I entitled to any kind of Government help as a dad taking paternity leave?

A: There are changes just about to take effect that could be beneficial to you. Already, fathers receive a statutory weekly rate of Paternity Pay worth £172.48, or 90% of their average weekly earnings (whichever is lower). However, from this month (April 6 2024), fathers and partners can take Paternity Leave in separate blocks, rather than having to take the full two weeks in one go. At the moment you‘re only entitled to one block of two weeks, but you‘ll be able to split this out in the future. You will be able to choose to take your leave and pay at any point during the first year after the birth. It also applies if you are adopting a child too. And the amount of notice you have to give your employer is also changing – just four weeks. Paternity pay will be paid out on your usual salary slip, with both income tax and National Insurance taken off.

RDP Accountants Questions and Answers March 24

ipswich@rdpaccountants.co.uk (Simon Lasky) — Wed, 05 Mar 2025 15:52:34 GMT

Q: I am thinking about buying some cryptocurrency but before I do, I wanted to understand the tax implications. What do I have to declare in terms if I do go ahead? Is it taxed in the same way as my income?

A: Cryptocurrency (Bitcoin, for example) has become a more and more popular investment in recent years. According to FCA figures, the number of consumers holding cryptocurrency has risen to 2.3 million - from 3.9% to 4.4% of adults. The median holding has risen from £260 to £300.

You would think the clue is in the name - currency. Surely, it's money and taxable in the same way? No. In fact, it's not considered currency by HMRC and is not seen as the equivalent of money. How is it treated? As a traditional asset. So, in most cases - certainly when we're talking about an individual as we are with yourself, it counts as a personal investment. You will not have it taxed as income, but you will be liable to pay Capital Gains Tax when you dispose of any crypto assets you have.

It is different, however, if you received cryptocurrency from your employer as a form of non-cash payment. Then it would be liable to Income Tax and National Insurance contributions.

It's worth noting another rare exception, which HMRC explains here: "there may be cases where the individual is running a business which is carrying on a financial trade in crypto assets, and they will therefore have taxable trading profits. This is likely to be unusual, but in such cases Income Tax rules would take priority over the Capital Gains Tax rules."

Although it might not be an immediate consideration for you, it's also worth noting that crypto assets will be considered as property for the purposes of Inheritance Tax.

Lastly, anyone thinking of investing should be in no doubt that HMRC is keeping an increasingly close eye on cryptocurrency ownership. It's been reported in the national press in recent weeks that a new wave of tax investigations has begun into crypto investors. If you want to dive into any more detail about the repercussions for CGT and other tax liabilities, do get in touch.

Q: My civil partner recently passed away and I'm now dealing with the financial implications of losing him. I'm trying to understand the Inheritance Tax situation; I didn't believe I needed to act until a friend told me I may have to submit details to HMRC even if the full value of property and possessions is below the minimum required. The reason she said this was because my partner gave away some money - quite a substantial amount to friends and family in recent years. I'm informed that the 'estate' value is £310,000. What do I need to do?

A: Thanks for your question. The first thing to say is our sincere condolences for your sad loss. The issue of IHT can be somewhat controversial at times and one that gets batted around politically. It's possible that at the Budget on 6 March we may get an announcement of changes from the Chancellor. However, you can afford to ignore that if it does crop up. It wouldn't come into effect for some time, meaning it is not relevant for you. We need to look at the existing rules.

In your case, you say the value of the estate is £310,000. This puts it just below the threshold, which sits at £325,000. That means you won't have to pay IHT. If your estate had been higher than that but your civil partner had left you everything above that figure, you also wouldn't normally pay IHT anyway. And the same would apply if it were left to a spouse.

But the one thing that you may need to do still - and this is where your friend's guidance is wise - is report the estate's value to the tax man. You mentioned your partner had given away money in the last five years. This is the key bit. You will hopefully have a record of these donations/gifts to be able to work out a total. If the amount of money he gave away was £250,000 or more in the last seven years before death, HMRC requires you to send full details of the estate, even if no tax is due. It may not be relevant in your case, but the same rule would apply if he'd had foreign assets worth £100,000 or more.

You would also need to submit a full account if any of the following criteria (as stated by HMRC documents) applies:

He was living permanently outside the UK when he died but had previously lived in the UK
He had a life insurance policy that paid out to someone other than you and also had an annuity
He had increased the value of a lump sum from a personal pension to be paid after his death, while he was terminally ill or in poor health
He had agreed that property he gave away during his lifetime would be part of their estate rather than pay a pre-owned asset charge
He gave gifts that were paid into trusts
He held assets worth over £250,000 in trust
He held more than one trust

Just for the sake of anyone else reading this who finds themselves in a different position - ie you're above the threshold - here's an example of what it might look like:

Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000).

Any other questions on the estate or IHT, please do call our office.

Q: My brother has recently suffered a severe accident during which he has suffered damage to his eye. His vision has been badly affected. It's not yet clear how much of his sight he will recover and how long term the problem is. Looking at the worst-case scenario, I'm investigating what help he may get from a tax perspective. Is there anything?

A: Firstly, we're very sorry to hear about this terrible news. There are many difficult things of course to cope with in this situation but purely from the perspective of financials that you're enquiring about, there may be a little help available. If you haven't come across it before, look up 'Blind Persons Allowance'. This is an extra amount of tax-free allowance that goes on top of the standard personal allowance that everyone has. The figure has risen in 2023/24 to £2,870 (previous year being £2,600). It's worth noting that if he does not earn enough to use all of his allowance or doesn't pay tax (now or in future) he can transfer the Blind Person's Allowance to his spouse or civil partner, if he has one. To take a step back, anyone can claim this allowance if both of the following are correct:

You're registered with the local council as either blind or severely sight impaired
You've got a certificate that says you're blind or severely sight impaired. It could be a similar document from a doctor

The rules in Scotland and Northern Ireland for eligibility are slightly different. You can claim the allowance if both of these points apply:

You cannot do work for which eyesight is essential
You have a certificate that says you're blind or severely sight impaired (or a similar document from your doctor)

The best way to make a claim is to call HMRC on 0300 200 3301.

RDP Accountants Questions and Answers February 24

ipswich@rdpaccountants.co.uk (Simon Lasky) — Tue, 13 Feb 2024 11:27:52 GMT

From RDP Newsletter

Q. I've just been told I'm being made redundant by my employer, but they have agreed to a significant settlement agreement. My employment will continue for three months and after that they've agreed to pay one month of salary (still on the payroll in that time) and then the equivalent of four months of my salary (tax free), which equates to £32,450. How much in the way of tax will I be hit with?

A: There are a few things to think about here when working out any tax liability in the circumstances of a redundancy payment. Firstly, you'll remain on payroll and work for three months, from what you've said. So, you will carry on paying tax and National Insurance in the usual way on those three months of salary payments. Nothing changes there. That's also the case for the one month of salary at the end of your termination that you mentioned. You'll also pay tax and National Insurance on any holiday pay and bonuses.

You haven't mentioned entering into a restrictive covenant (meaning you can't work for a competitor or have contact with customers for a period of time after you leave). However, if that did apply in your case, tax and NI would also apply to payments you receive for agreeing to enter a restrictive covenant. If you get any payments in lieu of working your notice period, those will also be subject to tax and NI.

Moving on to the 'severance' payment or lump sum (£32,450) that you say your employer has agreed to pay. The good news is that most of this covered by a tax-free amount of £30,000. That figure includes statutory redundancy, additional severance or enhanced redundancy (the bit which is most applicable to you) and other non-cash benefits (for example, a company car) you keep after leaving. So, in your case, only £2,450 will be applicable for taxation.

Q. A business colleague has recently recommended I look into how I set off my trade loss against my general income. This is not something I was aware of previously. I've been trading for six years. I made a loss of £20,000 in the year ending 30/9/22 (my accounts are made up to end of September each year). My total income for 2022-23 was £30k but just £10k in the previous year.

A: You will have options to look at under the Income Tax Act 2007 (ITA 2007). The alternatives, under 64 of the act, allow for the loss of £20k to be relieved. Alternatively, you could choose to set £10k against 2021-22 and £10k against 2022-23.

You could choose to set all your losses of £20k against your whole income for 2022-23. To decide on the best option, let's compare the general income in the year of the loss and preceding year.

Your £10k income for 2021-22 is already covered by the £12,570 tax-free personal allowance. But the general income you had of £30k for the next year is above that same allowance.

So, on that basis you are unlikely to benefit by carrying the £20k loss back to 21-22 - as your income fell below the personal allowance and you had no tax liability for that year. But you could benefit by using the loss against your income for 2022-23 - i.e. against the £30k. You would inevitably lose some of your personal allowance but would have any tax deducted that year either refunded or set off.

We should clarify here also that when we talk about 'general income', that means the whole income for all sources of income chargeable to income tax for the tax year. And it's also important to state there must be no partial claims - any claim must be for the full amount of the loss made.

Q. I'm a resident in England but I'm buying a house in Scotland and will be splitting my time between the two - both in terms of work (where we have a new office opening in Glasgow) and for family time. What are the tax implications, and will I become classified as a Scottish taxpayer?

A: For both Wales and Scotland, there are devolved powers regarding income tax, and this can be a tricky area. In your case, it's not clear exactly how you will divide your time and it sounds like you are not totally sure yourself yet - and things may change during the following tax year, too. However, there are a number of tests to apply here that will help you to understand if you will be counted as a Scottish taxpayer.

HMRC points out that a key test to apply is whether you have a 'close connection' to Scotland. That would mean either you have a single place of residence - and that is located in Scotland.

If, as in your case, someone has more than one place of residence, the 'main place' would be in Scotland “for at least as much of the tax year as it has been in each other part of the UK.”

If the tests above can't determine the answer, then something called 'day counting' applies. It seems that you won't yet know how many days you're going to be in Scotland compared to those in England. However, to illustrate this as clearly as we can, let's look at an example used by ICAS, a global professional membership organisation and business network for Chartered Accountants. They point out that if Mr Smith spends 120 days in Scotland, and 90 days travelling in England, 55 days in Northern Ireland and 100 days travelling in Wales, he is still a Scottish taxpayer, even though he has spent more time outside of Scotland than in it.

The important thing for you to note is that you may need to keep a close, accurate record of where you spend your time day-to-day.

The last thing to mention is that if you are classified as a Scottish taxpayer, that status applies for a whole tax year; you can't be a Scottish taxpayer for part of a tax year.

RDP Accountants Questions and Answers January 24

Tue, 13 Feb 2024 11:21:09 GMT

From RDP Accountants Newsletter

Q. The turnover of my business has been no higher than £75,000 over a 12-month period since we started but has now crept up to £92,000. It reached this point on 5 December 2023. What do I need to do about VAT registration?

A: Once your total VAT taxable turnover for the last 12 months goes above the threshold (£85,000), you must register for VAT with HMRC. Although you can voluntarily register for VAT if you're below this amount, it doesn't sound as if your business has taken that approach previously.

But now your turnover is at £92,000, you need to register with HMRC within 30 days of the end of the month that you went over the threshold. According to HMRC: "Your effective date of registration is the first day of the second month after you go over the threshold."

So, in your case, it means you will need to have registered by 31 January 2024 and your effective registration date will be 1 February 2024.

For any business which realises it's going to go over the £85,000 mark in the next 30 days, you have to register by the end of that period. So, in that example, say your company (previously not VAT-registered) brings in a new £150,000 deal on 1 January, with payment coming to you within that same month. You would have to register by 30 January.

Lastly, just to clarify what HMRC defines as turnover. It says this is "the total value of everything you sell that is not exempt from VAT."

Q. I have recently started a carpet fitting business but I'm not sure what the rules on the Construction Industry Scheme (CIS) mean for me? I'm the only employee at the moment. Do I have to register?

A: It is mandatory for constructors to register for the CIS. However, there are a number of exceptions. You will not need to register if you only do certain jobs. And, usefully for you in your case, carpet fitting is one example.

Carpet fitting would come under the category of "finishing " under the scheme. That is work which 'renders complete' or 'finishes off' any construction operations, according to the Government's website. But HMRC says of carpet fitting that it is "the only ".

Statement of Practice 12 (1981) "provides that carpet fitting (but no other floor covering) is regarded as excluded from the scheme. However, if carpet fitting is part of a mixed contract, then all the contract comes within the scheme."

Other examples of exceptions in the CIS where you do not have to register if you only do certain jobs include:

architecture and surveying
scaffolding hire (with no labour)
making materials used in construction including plant and machinery
delivering materials
work on construction sites that's clearly not construction - for example, running a canteen

Q. I'm considering starting a scheme for my employees where they can hire a bicycle as an extra staff benefit. Will this be exempt from tax on employment income?

A: Yes, this new scheme you're thinking of offering would be exempt if certain conditions are met. These are:

All staff are offered the chance to hire the bikes
Employees must use the bike primarily for what HMRC describes as 'qualifying journeys'

It's not just the hire of the bikes that counts within these rules; equipment is also allowed. As is providing a voucher for either hiring a bicycle or related equipment. Electrically assisted pedal cycles (EAPCs) are also covered by the exemption.

RDP Accountants Questions and Answers December 2023

Tue, 13 Feb 2024 11:17:26 GMT

From RDP Newsletter

Q: My wife is full-time employed and has been for all her working life. Therefore, she has had no need to think about Self-Assessment Tax Returns until recently. However, she's begun to take on a small amount of freelance work in addition to her day job in the last year. Are there different rules or options for people in her position in terms of submitting a tax return and paying the tax she owes on that freelance work?

A: There are many people in your wife's shoes who are working for an employer whilst also earning money carrying out another job as a freelancer or sole trader. Whilst anyone in this situation still needs to declare their income and do a tax return, there is another way to go about paying HMRC for those who are both self-employed and employed.

The same applies for those who are employed but have income from rental properties that needs to be declared on a Self-Assessment Tax Return. For those who have a tax liability up to £3,000, you can get it collected through your tax code. That means the amount you owe will get deducted on a monthly basis through your salary, via your employer's PAYE process, rather than having to pay one large lump sum to the tax man.

However, to get that benefit of spreading out the payments you must act quickly. To be eligible, you have to submit your online tax return by 30 December.

Q: I'm self-employed and I earn around £52,000 - £55,000 per year. My record keeping is partly traditional and paper-based. I've been reading recently about the upcoming requirements for digital record keeping. What should I be doing about this now as we move into 2024?

A: You're correct to say that there is a shift underway, driven by HMRC, to require all businesses, and self-employed people to keep digital records. It's called Making Tax Digital. This initiative has been running for some years now, but it's been gradually phased in, step by step. The Government has pushed back the date that someone such as yourself would need to comply. Self-employed individuals (and also landlords) with an income of more than £50,000 will be required from April 2026 to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software.

So, you've got some time yet. But, having said that, there are a number of benefits of moving to be fully digital sooner. By keeping digital records (including invoices, expenses, receipts and other information) you get an up-to-date picture about how your business is doing - how much is coming in and out right now, rather than doing it historically.

In fact, going digital can help unlock the full potential of your business, empowering your decisions, helping your business grow and become more efficient too. Digital financial records can become a catalyst for informed decision-making, propelling your profits and efficiency. So, it's well worth considering making the move to digital before it's compulsory.

Q: I'm preparing to start up a new small business venture in the new year. Initially, it will just be myself, so I'll be a sole trader. How should I go about paying myself?

A: The first thing to say here is that how you take pay from your new venture (and also how you're taxed on it) depends on the business structure. But, as you say, you'll be a sole trader for the foreseeable future.

There is a phrase here that's important. It's called a 'drawing'. When you are a sole trader, it means you're not separated financially from your business. At any time during the year, you can just pay yourself money that comes from the profits your business is making. That's what a 'drawing' is.

It's important to say here that you should be keeping an accurate, up-to-date record of each 'drawing' to ensure you have a precise picture of your profits and the tax you'll need to pay when it comes to completing your Self-Assessment Tax Return. It's also wise to be putting some of your earnings to one side in a separate pot (the best option is a dedicated business bank account) for the purpose of paying your tax.

There is of course also the question of how much you pay yourself. That's entirely your choice, but you do need to strike a balance between what you and your household needs and what your business needs. Plus, you need to be able to cover any money owed through your business activity, debts or obligations to any suppliers you might use.

RDP Accountants Questions and Answers November 2023

ipswich@rdpaccountants.co.uk (Simon Lasky) — Wed, 08 Nov 2023 14:39:23 GMT

From RDP Accountants Newsletter

Q. In June 2023, you said that it wasn't free of tax if the employer reimbursed an employee when recharging their electric car from home - but it is if we allow them to recharge at the workplace. We have a workplace EV charger and reimburse the employees who use their own at home. Have HMRC thought again on why the tax treatment differs?

A: Thankfully, HMRC have recognised (at last) they need to bring their guidance into line and make both charging at the workplace and at home free of tax. They have updated their Employment Income Manual (page 23900) to say this and there is a nice flowchart which confirms there is no tax due where an employer reimburses the employee for the cost of electricity to charge their company car at home. The same applies with National Insurance. Do make sure you keep records to demonstrate to HMRC you have only reimbursed for the charging of a company electric vehicle.

Q. We are a new company and looking to use the VAT Flat Rate Scheme from December 2023. Is this better than the 'normal' VAT for record keeping and VAT returns?

A: The Flat Rate Scheme is a simpler method of working out your VAT because you will be calculating a net tax amount without reference to output tax and input tax. In that regard, the Scheme is simpler for you.

But there are eligibility conditions and you need to apply to HMRC to use the Scheme and you can't operate it until after you have approval. It is not right for all businesses and we recommend speaking to you accountant, especially if you are in your first year as the flat rate percentage can be reduced by 1%.

Q. The Chancellor announced that the National Living Wage would rise to £11 per hour in 2024. Do we know all the other rates yet so we can plan?

A: Jeremy Hunt made the announcement at the Conservative Party Conference in October 2023 that the National Living Wage would increase to ' at least £11 an hour ' from April 2024. This is not the exact value and you should not take any action. The rates are advised to the Government by the Low Pay Commission which the Government comments on at the Autumn Statement (in November 2023).

We don't have the full story yet I'm afraid but will bring it to you when we know.

RDP Accountants Questions and Answers October 2023

Wed, 04 Oct 2023 13:48:30 GMT

From RDP Accountants Newsletter

Q: We have started reimbursing London’s extended Ultra Low Emission Zone charges when an employee must pay them whilst on business for us. Can we reimburse them free of tax?

A: Yes, the reimbursement can be made free of tax (and National Insurance). Think that this is a cost the employee has had to incur as a result of doing their job. So, really, it’s treated the same way as any other motoring cost you may reimburse such as the cost of parking or a toll road. You are very much advised to make sure all expenses reimbursed are receipted just in case HMRC checks in future!

Q: Our accountant has asked we complete a paper 64-8 authorising them to act as their agent for the Construction Industry Scheme. Can they include a scanned picture of my signature on the form or do I have to physically sign it?

A: If it’s on paper, you need to sign the form. HMRC call this a ‘wet’ signature as opposed to a digital one that could be used if you completed the form online. Maybe ask if they have an online service account so you can complete the 64-8 online and use your digital signature. In this digital world, it is, perhaps, surprising that there are only 3 online forms where you can use the digital signature – the 64-8, the P87 (for expenses) and the Marriage Allowance claim form.

Q: We are considering outsourcing our accounts and payroll function, even though they have worked OK in-house ever since we set the business up. We are a small employer with about 30 staff. Can you give me a few key pointers so I can prepare a business case for this?

A: There are many reasons why an employer might want to outsource some or all their services and different employers will benefit in different ways. However, there are some common advantages that can be a benefit to all businesses and here are some points you might want to expand on:

Outsourcing allows the employer to work ON their business rather than IN it
When the employer works ON their business and outsources some work IN the business, you get support in a variety of ways - business planning, advice on restructuring, training, business filings like RTI etc
An agent / accountant will have access to a range of up-to-date tools, resources, technology and software that you won't. These are all essential for compliance in a world that is increasingly complicated
Outsourcing doesn't mean you are divorcing yourselves of responsibility altogether but outsourcing mean you will get provided with a broader range of tools and expertise than you would have in-house, especially true of a smaller company
An agent / accountant will have access to the most up-to-date legislation that affects processing (and will avoid non-compliance and penalties)

RDP Accountants Questions and Answers September 2023

Wed, 04 Oct 2023 13:46:35 GMT

From RDP Accountants Newsletter

Q. I see that one of the Inheritance Tax (IHT) forms has been amended - the C4 for correcting information previously submitted. I'm getting a bit confused with the forms I have here and wonder if you could point to these C forms and give the most current reference?

A: Yes, the C4 was updated on 27 July 2023, used to correct information previously submitted on the IHT400 where too much or too little IHT was declared. The change on the updated form is in the repayment authority section and is now specific that any refund will be repaid to the individual, thereby rendering void any assignments or repayments.

The current 'C' forms are below:

Form C4 Corrective Account form has the reference ' HMRC 07/23 '
Form C4 (C) continuation sheet is unchanged and the reference is ' HMRC 02/20 '
Form C4 (S) is the corrective inventory and account (Scotland) where a Grant of Confirmation is required and the reference is ' HMRC 04/22 '

Q. When the Bank of England raised interest rates (which it might do again!), we assume HMRC followed suit with their interest rates on late payment of Stamp Duty. Can you please advise these rates and link us to the page where they are declared on HMRC's website?

A: Yes, HMRC are always swift to update their late payment and repayment rates, the reason being is that they are linked to the Bank of England rate (known as the bank rate or base rate). This is currently 5.25%. Search for the guidance ' Rates and allowances: HMRC interest rates for late and early payments ' which is updated when the rates change. The latest version says the following about the two interest rates:

Late payment interest rate is 7.75% (actually, 5.25% base rate + 2.5%)
Repayment interest rate is 4.25% (actually, 5.25% base rate less 1%)

You mention Stamp Duty and this is devolved to Scotland and Wales (called Land and Buildings Transaction Tax and Land Transaction Tax). Interestingly, the late payment and repayment interest rates are NOT linked to the Bank of England base rate. Look at the websites for the devolved tax collection agencies, namely Revenue Scotland and the Welsh Revenue Authority .

Q. When we have an employee on maternity leave (receiving SMP), we know when she receives a salary increase that we must go back and recalculate her average weekly earnings as if she had been on that increased salary when we calculated SMP in the first place. We have assumed this is the same when someone is on adoption leave (and receiving SAP). Can you confirm?

A: This is one of those things that ONLY affects Statutory Maternity Pay. You are correct in that a pay increase at any time in her maternity leave period means a recalculation of SMP (and paying any excess). So, for example, a salary increase in week 39 of the leave period means going all the way back to look at her average weekly earnings - in the 8-week relevant period. This is written to legislation and included in HMRC's Statutory Payments Manual .

BUT, for any other child-related statutory payment (adoption, paternity etc), you only recalculate the payment if the pay increase was effective in that 8-week relevant period. This is also included in HMRC's Statutory Payments Manual .

RDP Questions and Answers August 2023

Tue, 01 Aug 2023 15:53:41 GMT

From RDP Newsletter

Q. We have a new employee who did not present a P45 and did not complete the Starter Checklist. Which FPS starter declaration and tax code should we use?

A: HMRC’s guidance in the PAYE Manual says that the starter declaration must be C and the tax code to use is 0T on a week 1 / month 1 basis. Starter declaration C, essentially, sets the employee up on HMRC’s systems with a secondary record, simply because HMRC do not know whether this is a primary employment or a second employment. Tax code 0T W1 / M1 means that the employee is not entitled to any personal allowances.

Use HMRC’s ‘ Work out your new employee's tax code ’ tool for confirmation. Failure to return the starter checklist is an all-too-common event and the employer should do everything they possibly can to get the checklist completed prior to the employee’s first payday.

Q. A client did not tell us that they were eligible for the Employment Allowance in tax year 2023/24 (despite us asking for confirmation!). After the July payrun, they did tell us. Can we indicate to HMRC that they are eligible even though the tax year is well underway?

A: Yes! Employers can claim the Employment Allowance going back 4 tax years, though only 1 through the payroll. Simply, in the next payrun, tick the Employment Allowance claim indicator in your software for the next submission of the Employer Payment Summary (EPS) and HMRC will apply the Allowance for the whole of the current tax year. The employer, though, will only notice that you have done this when they look at the National Insurance liability in the next payrun.

Do check the eligibility criteria on Gov.UK. Not all employers are eligible (and you will need to indicate their business sector on the EPS as well).

Q. We have an employee who is taking unpaid parental leave in September for 2 weeks. This is so that he can be with the child as they settle into their new school. The employee has told us that he took unpaid parental leave at his previous employment. Do we need to take this into account?

A: Unpaid parental leave is one of those employment rights that does impact payroll, as it means we must adjust their earnings for the pay period. Therefore, this is a relevant question and you are right to query this, as not all employers know the eligibility criteria. The employee is entitled to 18 weeks for each child up to the age of 18, taken in weekly blocks capped at 4 weeks per year. Yet, the entitlement is per child , not per employment.

So, yes, you do need to consider the unpaid parental leave taken at a previous employment to ensure the employee does not exceed their statutory entitlement (the 18 weeks per child up to their 18th birthday).

RDP Questions and Answers July 23

Tue, 04 Jul 2023 15:47:38 GMT

From the RDP Accountants Newsletter

Q. I quit my job in July 2022 and became self-employed from September 2022. I started to pay class 2 NIC for my self-employed trade with effect from 1 September. Will the 2022/23 count as a qualifying year towards my state pension?

A: Probably not as you will not have paid NIC for every week of the year. But you need to check your NIC record on your personal tax account ( www.gov.uk/personal-tax-account ) once you have submitted your tax return for 2022/23. Do this as soon as possible. You will then be able to pay class 2 NIC for any missing weeks, once you know how big the gap is.

Q. I have applied to register my café business for VAT from 1 July, but the VAT number hasn't arrived. What should I show on invoices from that date?

You should charge your customers the basic price plus 20% VAT from 1 July, but you can't show the VAT amount separately on the invoice. As you are a retail business, and your individual invoices are likely to be £250 or less (including VAT) you are not required to issue full VAT invoices. You should issue simplified VAT invoices, which must include the following:
- Your business name and address
- VAT registration number (say 'VAT number applied for' until you get it)
- date of the sale
- description of the goods or services supplied;
- total amount payable including VAT;
- for each rate of VAT chargeable, the gross amount payable including VAT; and
- the VAT rate applicable.

Q. My building business is winding down as I prepare to retire. I want to close my company, which has gross payment status for the Construction Industry Scheme (CIS) and carry on any further work as an individual sole trader. Will the CIS gross payment status carry over into my sole trader business?

A: When a sole trader builder incorporates their business their CIS gross payment status (if they have that) carries over into the new company. As your company is entirely owned by you, and you are the only director, HMRC will view you as a sole trader and your company, as a continuing business for CIS purposes. So, the CIS gross payment status should carry on into your self-employed trade.

RDP Questions and Answers June 2023

Mon, 05 Jun 2023 15:13:32 GMT

From the RDP Accountants Newsletter

Q. I have just received a bonus payment of £100 from the Nationwide Building Society. Do I need to pay tax on this?

A: This bonus payment from the Nationwide is treated as normal bank interest for tax purposes, so it is taxable. However, in most cases it will be covered by your savings allowance of £1,000 (£500 for higher rate taxpayers). Taxpayers who pay income tax at 45% on savings do not benefit from a savings allowance, so they will have to pay £45 in tax on this bonus.

You will need to include this bonus in your 2023/24 tax return, if you normally complete one.

Q. My company regularly pays expenses on my behalf which I later reimburse the company for, I have a variable outstanding debt with the company during the year. I‘ve read that if the total of that debt exceeds £10,000 at any point the company has to pay NIC at 13.8% on the entire amount. Is that correct?

A: The company has to pay NIC at 13.8% on the value of the deemed interest on the outstanding debt, which is treated as a taxable benefit for you, assuming you don‘t actually pay any interest on that debt.

While the total debt is less than £10,000 for the entire tax year there is no taxable benefit. However, when debt exceeds £10,000 for any part of the tax year the nominal interest needs to be calculated at the official rate (average 2% for 2022/23). This calculation should be based on the average debt across the tax year, or by calculating the precise balance for each day.

If the debt was £9,000 on 6 April 2022 and rose to £12,000 by 5 April 2023, the average debt balance for 2022/23 would be £10,500. The deemed interest for 2022/23 would be: (2% x 10,500) = £210.00. As a 40% taxpayer you would pay tax of £84 on this benefit. The company would pay NIC at 13.8% on £210.00 = £28.98.

Q. An employee has been on maternity leave for several months and as a small company I have reclaimed the statutory maternity pay (SMP), but HMRC hasn‘t repaid this amount in full. Why could this be?

A: The PAYE system is set up to collect tax and other payroll deductions. When an employer is due a refund that sum is first off-set against the PAYE due to be paid over every month or quarter. Rather than pay back the balance of the refund to the employer, HMRC hang on to it to set it against future tax/ NIC liabilities.

If you look in your business tax account under the PAYE section and click on payments made, it should show an unallocated credit, which will be the balance of the SMP owing. You can ask HMRC to pay that sum to you, but that will involve phoning the employer helpline.

RDP Questions and Answers May 23

Thu, 04 May 2023 10:24:57 GMT

From RDP Accountants Newsletter

Q. The payroll for my business has increased during 2022/23, so the employer's NIC bill topped £100,000 for the first time. Does this mean I can't claim the Employer's Allowance for 2023/24? Is there anything I can net off against the NIC liability to bring it down below the £100,000 threshold?

A: You are correct that you will not be able to claim the Employer's Allowance of £5,000 for 2023/24 as your employer's NIC liability for the previous tax year (2022/23) has equalled or exceeded £100,000. There is no mechanism for setting off any other liability to reduce the total of the Employer's NIC for this calculation. However, you shouldn't include any employer's NIC on "deemed payments" to contractors caught by the off-payroll working rule.

Q. Can I invest £100,000 on behalf of my company in a new savings account designed for individuals, to take advantage of a higher interest rate? I plan to return the capital plus all interest directly to the company's account.

A: You can do this, but you need to be honest with the bank that the company is the ultimate owner of the funds, and you are acting as a nominee for the company for that account. Transfer the money directly from the company's account into the new savings account and do not mix it with any private savings.

The company's board of directors should document what is happening to the funds and approve the transfer. This needs to be made clear that the transfer is not a loan to yourself as an individual. Taking a loan from your company that remains outstanding for more than 9 months after the company's year-end will trigger a Section 455 tax corporation charge, and a beneficial loan charge for you personally.

Q. My father died suddenly so his sole-trader business ceased at that point. I am the executor of his Will and I appointed a solicitor to collect the debts due on his outstanding sales invoices after his death. The business was taxed on a cash basis. How should I account for the sales income and expenses received after the business ceased?

A: As your late father used the cash basis all the business expenditures paid out and sales income received before his death should be reported on his personal tax return drawn up to the date of death.

The cash received for the business after the date of death should be reported by you as executor of the estate on a tax return for the estate. The costs of collecting those sales debts are deductible against that sales income.

RDP Questions and Answers April 2023

Thu, 04 May 2023 10:22:57 GMT

From RDP Accountants Newsletter

Q. In his Spring Budget, the Chancellor said 'full expensing' would apply to plant and machinery. Does this mean I can write off the balance brought forward in my plant and machinery pool, which was previously written down at 18% on the reducing balance method?

A: The new 'full expensing' rules announced in the Spring Budget on 15 March 2023, only apply to new (not second-hand) assets purchased on and after 1 April 2023.

If the brought-forward balance in your plant and machinery pool is now no more than £1,000, you can write off that amount under the current rules, otherwise, you must carry it forward reducing it by 18% each year until it reaches £1000.

Q. I've been receiving text messages from tax.service.gov.uk advising of new PAYE codes for 2023/24. However, when I log into the HMRC website, it says that no new PAYE codes have been issued. This has been going on for weeks, is it a scam or genuine contact from HMRC?

A: These messages are genuine, but there is a fault with the HMRC system that it is sending out these text messages when no PAYE code changes have been issued.

Q. I want to top up my NIC record by paying to complete seven tax years. To pay online I need an 18-digit reference number which is only available by calling HMRC, but the HMRC telephone line is never answered. How can I make the payment?

A: It is difficult to get through to HMRC by phone, and that is why the deadline for making voluntary NIC payments has been extended to 31 July 2023, as we explained above.

You can pay the NIC due by cheque made out to "HM Revenue and Customs only". But be sure to write your name and National Insurance number on the back of the cheque, and don't fold the cheque. Also include a cover letter which details:

your name, address, and phone number
your National Insurance number
how much you are paying
the period you are paying for

Send this letter and cheque to:

HM Revenue and Customs

National Insurance Contributions and Employer Office

BX9 1AN

RDP Questions and Answers March 2023

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 03 Mar 2023 08:56:31 GMT

From RDP Accountants Newsletter

Q. My company is buying an electric car for me to use for business and private journeys. In truth there will be very few business journeys. Can the company still claim the 100% first year allowance, although the business use will be small?

A. Your company can claim the 100% first year allowance if the car is acquired brand new and not second hand. It is irrelevant that you use the car mainly for private journeys, as you will be taxed on that benefit calculated at 2% of the list price of the car each year. This taxable benefit will increase on 6 April 2025 to 3% of the list price.

Q. I will have to register my business for VAT soon, but I‘m confused as how to work out net and gross amounts, when the VAT rate is 20%. If I want to receive £2000 for a job, after VAT, what do I quote as the VAT inclusive price for the customer? If my customer will only pay £1600, how do I calculate what I will get after paying over VAT.

A. If you start with the net figure and need to work out the gross amount including VAT, multiple the net amount by 1.2. Using your figures above:

£2000 x 1.20 = £2400. The VAT is £400.

When you start with the gross figure (the maximum the customer will pay) you need to divide by 6 to find the VAT. When the customer pays £1600:

£1,600/ 6 = £266.67. The VAT is £266.67. The net sale is £1333.33 (1600 - 266.67)

Once you are registered for VAT you will be able to reclaim VAT on your purchases, so the amount of VAT you pay to HMRC will be after deducting VAT you paid on things you buy for the business.

You may also qualify for the VAT flat rate scheme which could make the VAT calculations easier, but that will depend on your business sector.

Q. My wife and I lived in our joint-owned property for 12 years and it is now let it out, but we plan to sell it in two years time. What will be the impact of capital gains tax on that sale?

A. When you sell the property you need to calculate the gain made, being the difference between the sales and purchase price after deducting selling/ purchase costs in each case, including stamp duty land tax paid on purchase. Let‘s assume the capital gain made on the property will be £180,000.

If you own the property for exactly 15 years: 180 months, you will make an average gain of £1,000 per month. The period you lived in the property as your main home (12 years: 144 months) and the last 9 months are free of CGT: 153 months: £153,000.

Your taxable gain is £27,000 (180,000 – 153,000). As you owned the property jointly (presumably 50: 50), you have £13,500 of gains each. There is no deduction for a period of letting after you have moved out.

If you were selling the property before 6 April 2023 that gain would be mostly covered by your individual annual exemptions of £12,300. But this exempt amount is cut to £6,000 in 2023/24 and cut again to £3,000 in 2024/25.

If you sell in 2024/25 you will each have to pay CGT on £10,500 (13,500 – 3000).

Additions to the RDP Accountants Team

Thu, 16 Feb 2023 11:39:48 GMT

George Tegg & William Jenner

Last year we had two candidates for 1 vacancy, both both were too good to to turn down. So asked both William and George to join us, as we are taking on a lot of new work at the moment. William joined in November and George in February taking us to a team of six

RDP Questions and Answers Feb 23

Tue, 07 Feb 2023 10:48:30 GMT

From RDP Accountants Newsletter

Q. One of my let properties required extensive repairs to cure a damp problem. The tenant was on an assured tenancy, so we reached an agreement under which I paid her to vacate the property, to allow the repairs to be carried out. The flat was relet after the repairs were completed. Is the payment to the tenant treated as capital or a revenue expense?

A. Your payment to the tenant to surrender her tenancy will be treated as a capital payment if it is reflected in the state or nature of the property at the date of disposal. However, as you relet the property (presumably on similar terms) the surrender of the tenancy is not reflected in the value of the property, so it cannot be treated as a capital cost. It is also not a revenue expense, so it ends up being a 'tax nothing', not deductible for tax at all.

Q. I am the sole employee of my company and I pay myself £100 per week. Does the company have to operate a PAYE scheme and report my wages under RTI to HMRC?

A. The company does not have to operate a PAYE scheme if none of its employees earn at least £123 per week, and none receive expenses or benefits or have another job or pension. However, the company must keep adequate payroll records so it can prove what has been paid as wages and when.

As an employee, you don't pay tax or national insurance contributions (NIC) on your wages under £242 per week, but if you are paid at least £123 per week you receive a NIC credit. This allows you to build up entitlement to the state pension and other state benefits.

Q. I work through my own company and the business is run from my home. I use my kitchen for entertaining clients as well as other rooms in the house. Can I claim back the VAT charged on fitting a new kitchen in my home on the basis that it is used partly for business purposes?

A. The company cannot claim back VAT on an invoice addressed to you personally. If the company has directly paid for the new kitchen in your home, this would amount to a benefit in kind for you, on which you will need to pay income tax and NIC. The company would need to report this benefit to HMRC as part of the annual benefits and expenses declaration, or treat the cost as part of your salary and tax it through the payroll. The cost of entertaining clients is not a deductible expense for the company, and VAT cannot be reclaimed on those costs.

RDP Questions and Answers December 2022

Tue, 07 Feb 2023 10:46:05 GMT

Q. The sales representative for my company leaves home early in the morning for a two-day business trip that includes an overnight stay. What can the company pay him as a daily allowance if he does not produce any receipts?

A: By the end of day 1 the sales rep will have been traveling on business for more than 15 hours and will also be away from the office at 8 pm. He can thus be paid a tax-free meal allowance for that day totaling £25. However, the sales rep does need to provide evidence of their expenditure on food and drink during that trip. He can also be paid a tax-free £5 allowance for incidental expenses as he is away overnight and doesn't need to produce a receipt for that.

Q. Myself and my husband are both employed by the same company, we work from home, but our employer didn't pay us the £6 per week working from home allowance. We also jointly own a let property. Can we claim the home working allowance against our salaries and also against our property rental income?

A: If you are required to work from home under your employment contracts but you aren't paid the working from home allowance, you can claim £6 per week each as a deductible expense on your tax returns. You can't claim a similar deduction from your rental income, as that deduction is only relevant to employment income.

Q. I work through my own company which pays me a salary and dividends, but I'm confused as to whether I should classify myself as employed or self-employed.

A: From a tax point of view, and legally, you are an employee of your own company, so you are employed. However, if you are applying for a loan or a mortgage the lender may treat you as "self-employed" as you are in control of your own income.

RDP Questions and Answers January 2023

Tue, 03 Jan 2023 09:28:39 GMT

Q. We hire casual labour to work alongside our permanent staff over busy periods such as Christmas. If an individual works only one shift and earns say £90, do we need to add that person to the payroll to process their pay?

A: As you run a PAYE scheme to pay your permanent staff, you do need to include any casual labour in that payroll, even if you only pay the person on one occasion.

Q. I let out a room in my home to a lodger, and I also run my self-employed business from another room in the same property. When I sell the property, will I be taxed on a portion of the gain that relates to the rooms that have been used for my business and by the lodger?

A: The gain you make from selling your own home is generally free of capital gains tax (CGT) if you have occupied the property for the entire period of ownership, with an exception for the last nine months of ownership. You are right to assume that where part of the property is used for business purposes, a proportional amount of the gain may be taxable.

However, this only applies if part of the property is used exclusively for business purposes. Where your workroom is sometimes used for another purpose, say as a space for your children to do their homework, the room will not be exclusively used for business, so the gain on that portion of the house is exempt from CGT.

Where the lodger shares some living space with you, such as the kitchen, the letting of the room to the lodger is fully covered by the exemption from CGT.

Q. While I was unemployed, I trained to be an HGV driver. I have now been employed as an HGV driver. Can I claim the cost of the training course and the HGV licence against my wages to reduce the tax due on that income?

A: The tax law specifically allows you to claim a deduction for the cost of the HGV license and any medical examination you may have had to undertake in order to be granted that licence. However, you can‘t claim a deduction for the cost of the training course.

RDP Newsletter October 22

Mon, 07 Nov 2022 17:31:39 GMT

Q. My company does not have a credit card and therefore I use my own personal credit card to pay for some expenses - particularly any purchases made online as a credit card gives an extra layer of protection. I also use the card for some personal expenses. Every month I pay the full balance owing on the statement for the previous month from the business bank account. How is this to be treated in the accounts?

A. In effect you are overdrawing your director's loan account for the personal expenses and repaying it later. HMRC will consider this as a beneficial loan taxable under the benefit-in-kind rules. However, there is a threshold of £10,000 below which the official rate of interest benefit-in-kind charge is not applied. Additionally, where a director or employee receives an advance for expenses necessarily incurred in the performance of their duties, the advance is not treated as a loan, provided that:

a) the maximum amount advanced at any one time does not exceed £1,000;

b) the advances are spent within six months and

c) the director or employee accounts to the company at regular intervals for the expenditure

Therefore, so long as the above conditions are adhered to, then there will be no problem throughout the year. At the end of the year, you should calculate the amount paid in relation to personal expenses and make good on that amount - this is usually done via a dividend or you could make reparation from personal resources.

Q. The company for which I am a director has been approached by a local charity to make a donation. The charity is a school attended by a fellow director's grandchildren. Is that allowed? What are the tax implications?

A. HMRC list three conditions that, if satisfied, will disallow tax relief under what is termed 'tainted' donations. All three conditions are required for it to be a 'tainted' donation:

Condition A - the donation to the charity and arrangements entered into by the donor are connected.

Condition B - the main purpose of entering into the arrangements is for the donor, or someone connected to the donor, to receive a financial advantage directly or indirectly from the charity.

Condition C - the donation isn't made by a qualifying charity-owned company linked with the charity to which the donation is made.

Condition B is the condition that might impact on whether the donation is tax deductible. However, if it can be shown that no financial advantage is being gained by the donation (e.g. full school fees are being paid for the school child), then there is no financial advantage being received and the donation is allowed.

Q.I am the sole director of a company and my office is based at home. For historical reasons many of my clients are based in the South of England whereas I live in the North. Therefore I spend most of the week on the road, staying in hotels, returning to my home office on Fridays to undertake administrative work. What can I claim for subsistence? Am I only allowed the daily allowance of £5/£10 per day, or can I claim the actual cost of meals that are likely to cost more than the set allowances?

A: You can claim the full hotel costs and the costs of the meals because these expenses are deemed necessary for the performance of your employment duties. To learn more see HMRC's Employment Income Manual at EIM31815 - Travel Expenses General -Accommodation and subsistence - include associated subsistence.

The text states that 'travel expenses' for this purpose include the actual travel costs 'together with any subsistence expenditure and other associated costs that are incurred in making the journey. This includes:

any necessary subsistence costs incurred in the course of the journey
the cost of meals necessarily purchased whilst an employee is at a temporary workplace
the cost of the accommodation and any necessary meals where an overnight stay is needed - this will be the case even where the employee stays away for some time'

HMRC gives examples at EIM31816 that mirror your situation (example 2).

Also see HMRC Guidance: rel="external"https://www.gov.uk/guidance/business-journeys-tax-relief-490-chapter-5

RDP Newsletter November 2022

ipswich@rdpaccountants.co.uk (Simon Lasky) — Mon, 07 Nov 2022 17:31:33 GMT

Q. I live in a semi-detached property and am in the process of purchasing my neighbor's property with the intention of converting the two houses into one. Therefore, the new property will be our main residence alongside our existing property as they will become one. In this situation, are we liable for the 3% stamp duty land tax (SDLT) surcharge?

A: The extra 3% SDLT charged on a second property will apply. After the purchase, you will ownadditional residential property, and you are not replacing your main residence therefore the higher rate is due.

Q. I am self-employed and receive a small pension. My accounts show that for the tax year 2021/22 I have a self-employment profit of £6,538 and a pension received of £9,305, giving a total income of £15,843. I have available losses brought forward from the previous year of £4,127. Do I need to utilize whole loss in this year against the profit from self-employment, or can I use only £3,273 to bring my taxable profit to nil (the rest would be covered by the personal allowance of £12,570)? Can I carry forward the remaining loss of £854 to the next year?

A: Such losses must be set off against the first year in which a profit arises and any balance in the next tax year. Therefore, the loss must be used as far as possible in 21/22 (i.e., £4,127) leaving no losses available to be carried forward, even if the result is that personal allowances are wasted.

Q. I currently let out a flat and the tenants have approached me with an offer of buying the flat on a monthly installment plan instead of getting a mortgage and paying at point of sale as would be the usual situation on a sale of a property. What are the tax implications?

A: From a capital gains tax (CGT) perspective the sale is treated as selling the whole property on the date of the exchange of contracts, even though the sale proceeds will be received over a period of time. However, you do have the option of paying the CGT in installments on application to HMRC.

September Questions and Answers

Mon, 07 Nov 2022 17:28:09 GMT

From RDP Newsletter

Q. I am a self employed dentist wanting to expand my knowledge and specialise in a particular branch of dentistry. I have discovered that there is a part time course at my local university which will enable me to continue working. The cost is £25,000 and it will take three years to get the qualification. Can I claim the cost of the course against my self employed earnings?

A: The real question to consider is whether the expenditure is capital or revenue. Expenditure incurred by the proprietor of a business on training courses for themselves is revenue expenditure if the course merely updates existing expertise or knowledge. Expenditure on a course which provides new expertise or knowledge is capital. The course appears to be for the acquisition of new skills, rather than the updating of existing ones and if this is the case then the expense is capital and disallowable.

Q. My husband and I are joint partners in a business for profit sharing purposes. The work requires me to do a lot of travelling on business and my husband accompanies me occasionally. As my husband is not involved in the business purpose of these trips (e.g. meetings) can any travel expenses be claimed?

A: To be allowable the cost must be 'wholly and exclusively' for the purpose of the trade. As your husband does not take any active role in the business you should be disallowing 50% of any travel costs, eating out, accommodation etc.

Q. We have had a rental property for some years and now that we are retired, we wish to live there and rent out our (original) main residence. How long must we live in a property before it becomes our main residence?

A: There is no set number of months or years before principal private residence can be assured to apply but what needs to be shown is that you are moving to the property and intending to stay for the long term. Possibly six months to a year would be a reasonable time. You should also register on the electoral role for the area of the country where you intend to reside and ensure that HMRC is aware of your change of address. Once the property is established as your main residence should you ever wish to sell the property you will be able to benefit from the final nine months exemption under principal private residence relief.

RDP Newsletter August 2022

Thu, 04 Aug 2022 16:43:59 GMT

Q. I have prepared my 2022 tax return for submission but on reviewing previous returns I found that I made an error when completing the 2018/19 tax return, resulting in an overpayment of tax. Can I get my money back?

A: The self-assessment rules limit the time you have to claim tax relief. As an individual or company the time limit for submitting an amended return is usually one year from the deadline for submitting the return you want to amend. So to amend the 2020/2021 return, for example, you have until 31 January 2023. It is too late for the 2018/19 return to be amended but a claim can be made for 'overpayment relief'.

Except where legislation specifies to the contrary, the general rule is that relief must be claimed within four years from the end of the tax year to which the claim relates for personal taxes, and four years from the end of the accounting period for corporation tax. Therefore so long as this claim for the year 2018/19 reaches HMRC by 5 April 2023 you can claim. The claim must be in writing.

Q. I am the director of my company and one of my employees is getting married next month. I want to pay for the cost of the honeymoon night and taxi that they will use to travel to the airport. The company has an account with a local taxi business. Are there any tax implications for the employee and can the company claim tax relief?

A: Generally, any gifts made by a business to an employee are taxable as benefits in kind unless covered by a specific exemption (or are a 'trivial benefit'). This is the case even though the reason for the gift is not business related (as in this instance). The reason being that where there is an employer-employee connection, the gift is employment-related even if the reason for the gift is a private one.

Where a benefit in kind is charged then the company will be able to claim tax relief on the cost to the business.

Q. A couple of years ago I self-built a bungalow in my back garden intending to sell on the open market but since then my son and daughter in law have split up so I am now looking to sell the property to him but at a lower than market value. The bungalow cost overall £280,000 and is now valued at £520,000. My son can only afford to pay me £375,000. What are the capital gains tax (CGT) implications?

A: When you gift an asset to anyone, or when you transfer an asset to a connected person (e.g., a son - as in this case), for CGT purposes the asset is deemed to go across at present market value. The amount actually paid is ignored. Therefore, since the property is currently worth £520,000, and it cost £280,000, there is a capital gain of £240,000. However, there may be a value to allocate for the actual land underneath the property being transferred which may be included in the calculation.

RDP newsletter July 2022

ipswich@rdpaccountants.co.uk (Simon Lasky) — Thu, 21 Jul 2022 12:19:21 GMT

Q. My business recently hit the VAT registration threshold and I duly completed the necessary forms. That was six weeks ago and HMRC have not sent the VAT number. Now a customer is refusing to pay the VAT element of their invoice. What shall I do?

A: Until you receive the number you cannot issue a valid VAT invoice but that is not to say that you cannot issue invoices. It is permissible to issue invoices that include the amount of VAT, but VAT should not be shown separately. For example, if you are raising an invoice for £1,000 plus VAT the invoice should show £1,200 and then when payment is received the £200 will be available to pay HMRC. You should also ensure that a statement is shown on the invoice confirming that the VAT number has been applied for (e.g. 'VAT number applied for - a VAT invoice will be issued once received. '). When you do receive the number, send a replacement invoice with the correct details to the customer.

However, in your case it would appear that you have issued an invoice which showed the VAT element separately. You can therefore do one of the following:

Ask the customer to pay the net amount as a payment on account and then the remainder being the VAT element at a later date when you are able to issue a valid invoice or
Cancel the invoice with a credit note issuing an invoice for the net amount only with no mention of VAT. Once the VAT number is received, issue a VAT only invoice.

You should liaise with the customer confirming what you intend to do.

Q. I am a landlord using my home as the base for my property business. When I drive to a rental property for an inspection I sometimes stop off on the way to a DIY store, for example, to collect materials for repairing of the property. Then on the way back after the inspection I may visit a supermarket for some personal shopping. Can I claim the whole trip as business against my rental income?

A: The first stage of the trip, from base to the DIY store and then on to the rental property itself, is fully allowable, but the journey back from property to base cannot be claimed, as it was not undertaken 'wholly and exclusively' for business reasons.

However, a deduction can be claimed for a journey where any personal benefit is incidental, e.g. a trip made to the rental property, but the landlord stops on the way to pick up a newspaper.

Q. My wife and I are director/shareholders on our own company. I own 65% of the ordinary share capital and my wife owns 35%. I also personally own the property from which the business is being run. I am getting to retirement age and now wish to sell the property and the business will continue but being run from rented premises. At the same time, I want to give between 5% and 10% of my shares to my adult son who will take over from me in running the business. What will be my tax position? Can I claim Business Asset Disposal relief on the sale of the property?

A: Business Asset Disposal Relief can be claimed on the disposal of the shares but also on the associated disposal of any assets used in or by the company. This can include the business premises used by the business but personally owned by a director, as in this case.

The main condition that needs to be satisfied is that for at least two years ending on the date of disposal the shareholder must be beneficially entitled to:

at least 5% of both the company's profits available for distribution to 'equity holders' and the company's assets available for distribution on a winding up and/or
at least 5% of the proceeds of sale in the event of a disposal of the whole of the company's ordinary share capital.

In your case in order to meet the 5% test, you would have to make a minimum disposal of 7.7% of your holding (65% x 7.7% = 5%). A disposal of 5% of your holding would mean disposal of only a 3.25% stake (65% x 5%) and, as such, the 5% test would not be satisfied and Business Asset Disposal Relief cannot be claimed on either the sale of the shares or of the property.

RDP Newsletter June 2022

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 10 Jun 2022 12:24:20 GMT

Q. I am a basic rate taxpayer and a registered subcontractor having tax deducted at 20% from any income. I understand that I can register for CIS gross status to receive my pay with no deductions. How do I go about this and are there any disadvantages?

A: CIS gross payment status means that the contractor does not make tax deductions from payments made to a subcontractor. It is possible to arrange for payments to be made gross rather than having tax deducted but there are conditions. Importantly, your tax and NIC tax returns and payments must be up to date and a business bank account must be used. Turnover must be at least £30,000 if you are sole trader or £30,000 for each partner if operating as a partnership (or £100,000 for the whole partnership). The limits are different for companies depending on how many directors the company has. Application for gross status can be made online and at least one month should be allowed for the application to be approved.

The 'downside' is that you will have to ensure that you put aside enough money to pay any tax and NIC when due rather than claiming any tax refund that may usually arise.

Q. I lost my job during the pandemic and intend to set up an arts and crafts shop. I will be incurring some expenses before I can open including the cost of setting up a website, buying business cards, equipment and stock, paying two months' rent in advance and insurance. I purchased a computer and printer five years ago and although it is now deemed to be 'ancient' in computer terms, it still works and I want to use it in my business as well as for home use. What expenses can I claim?

A: The tax rules state that expenses incurred before the start of the business (termed 'pre-trading expenditure') can be claimed:

if incurred within seven years of the start of the trade;
if they would have been allowed as a deduction had the expenditure been incurred after commencement;
if they are not otherwise deductible in computing profits

For assets acquired specifically for the new trade, 'pre trading expenditure' is treated as if incurred on the first day of trading. Assets acquired initially for private use that are also going to be used in the business (such as the computer and printer) are also treated as if purchased on the first day of trading. Importantly, the amount that can be claimed is not the cost but the market value on the first day of trading (unless, exceptionally, the market value on the first day of trading is greater than the cost, in which case the cost figure is used). Where assets will be used for both private and business purposes, the claim is restricted to take account of the private use.

If you are also registering for VAT, then you can reclaim the VAT on goods, stock and assets for up to 3 years before registration; VAT on services can be claimed for up to 6 months prior to registration.

Q. I incorporated a company in April 2021 but the company has not started trading for various reasons and possibly will not do so for another few months. Do I have to submit accounts and a corporation tax return?

A: The important point to remember with a company is that Companies House (CH) and HMRC have different submission dates for accounts and different definitions of 'dormant' and 'active'.

For CH accounts are required whether the business has commenced trading or not. If not, then the accounts to submit are 'dormant' accounts. CH considers a company as being 'active' if it has incurred expenditure and nothing else and therefore accounts must be submitted. The first accounts will be for the period from incorporation to the end of the month 12 months after incorporation and annually to the same date thereafter.

HMRC require formal accounts where the company:

has business activity such as a trade even if it has not made any sales;
has a bank account generating interest, even if none has been received as yet
manages investments; or
receives any other income.

When a company is formed CH notify HMRC who will issue a notice to file a Corporation tax return for the twelve-month period starting at the date of incorporation. HMRC will also expect a return to cover the remaining days of the accounting period. Even if the company is not 'active' until later, the return must be submitted unless HMRC say otherwise. However, you can contact HMRC, explain that the company is dormant and they will make a note on their file not to expect a tax return until you notify them that the company has become 'active'.

RDP Newsletter May 2022

Tue, 31 May 2022 00:00:00 GMT

Q. I am the director of my own company incorporated 15 months ago. The business has expanded such that I have taken on a bookkeeper. Whilst preparing the information required to give to my accountant at the year-end, my new bookkeeper has found a batch of sales invoices that I issued soon after registration but inadvertently did not include VAT. Can I now issue additional invoices to correct the VAT error?

A: Mistakes happen and this scenario is not uncommon such that HMRC has a set procedure for dealing with such circumstances. The invoice you give to your customers must state if it is inclusive or exclusive of VAT. Legally this means that if your invoice does not show VAT then you cannot later demand payment from the customer. Therefore, if you fail to charge or charge the wrong amount of VAT, you are liable to make up the shortfall. Any shortfall of VAT must be declared on the return for the period in which the error is discovered. If the total amount for all errors is less than £10,000, or less than £50,000, and 1% of the outputs figure (Box 6 on the VAT return), the correction is made by including an adjustment on the next VAT return. If the amount is more, notification is via completion of form VAT652.

Whether you can recover any of this underpayment from your customer will probably depend upon the goodwill of that customer and their own VAT registration status. Should your customer be VAT registered they may be willing to make the payment as they may not be worse off if payment is made. A non-VAT registered customer will have an extra bill to pay although they may be able to deduct that payment from their profit for tax purposes if they are in business.

Q. In 2020 I entered into an agreement to purchase the leasehold of a commercial property that was under construction in exchange for a premium of £500,000. The agreement stated that a 20% deposit was to be paid plus a 10% stage payment 12 months later with the balance on completion. Unfortunately, my business folded due to Covid and I defaulted on the later stage payment. This was deemed a breach of the agreement, the contract was never completed and the builder kept the deposit. Can I claim a capital tax loss in respect of the lost deposit?

A: Unfortunately not - a capital loss can only be claimed where there is a disposal, or deemed disposal, of a chargeable asset. In this case, the terms of the contract were not adhered to, so you could not take possession of the underlying asset so no loss can be claimed.

Q. I live within walkable distance of a train station with a direct route into London. I work locally and drive to work so the drive is not used in the daytime. What are the tax implications if I rent out the drive?

A: Under the Property Tax Allowance rules, if total income from letting out the drive is less than £1,000 in the tax year, the whole amount is tax-free and does not need to be reported to HMRC.

Where property income exceeds £1,000 in the tax year, you have one of two choices - either:

deduct the £1,000 allowance from the receipts and pay tax on the excess; or
work out the profit or loss in the normal way.

The option as to which is the more beneficial will depend on the level of the expenses.

If receipts exceed expenses, but expenses are less than £1,000, the best result is to claim the property allowance and pay tax to the extent that income exceeds £1,000. If expenses are more than £1,000, the best result will be obtained by working out the profit in the usual way, deducting allowable expenses from receipts.

RDP April Newsletter

Sat, 30 Apr 2022 00:00:00 GMT

Q. Our long-term landlord has offered us the opportunity to purchase the freehold in the office building we work from, which we are keen to do. However, they have opted to tax the building. I'm aware we could recover the input tax but it will still have a short term negative impact on our funds. Is there any way to avoid incurring it in the first place?

A: The most obvious way to avoid the input tax hit is to ask your landlord to revoke the option. This will be possible if it was made more than 20 years ago. This will definitely be worth doing, because you will have to pay SDLT on the VAT-inclusive purchase price, and so this will mean an additional cost for you.

If this isn't possible, another option would be to structure the purchase as a transfer of a going concern. You would need to create a new legal entity, e.g. another company to do this, and meet the conditions set out in VAT Notice 700/9 . There are specific requirements in relation to land and property, so pay particular attention to paragraph 2.3.

If you feel this approach is heavy handed, you could try to agree that under the sale contract, an amount of consideration equal to the VAT payable will be deferred until it can be recovered. Of course, this leaves you with the SDLT problem, so consider the other options first.

Q. I am a shareholder in a family-run trading company. Last year I purchased a hybrid car via the company. The relevant BIK percentage is 14%. With the recent increase in fuel prices, I am considering having the company purchase the fuel for the car and reimburse it for the private fuel without incurring a benefit in kind? Currently I don't claim anything as business journeys tend to be covered by the battery range.

A: In theory yes, but if you don't reimburse every last penny you will incur a taxable benefit of 14% x £25,300 = £3,542. You will pay tax on this, and the company will have to pay Class 1A NI. You would have to keep meticulous records to precisely determine your private mileage. This may be difficult to do in practice.

Instead, consider having the company pay you at the approved mileage rates for your business mileage. As your car isn't fully electric, you will be able to claim at the appropriate rate for petrol or diesel cars accordingly, and as you say the business mileage is generally covered by the electric range, this would be very efficient. The latest rates are available here and are updated quarterly.

Q. We have an employee currently seconded from our EU-based parent company. Initially, she was due to be with us for 18 months, of which twelve have already passed. We are paying for a flat for her on the basis that it is a temporary workplace, so not taxable on her. We are considering extending her stay for a further 18 months, as she has had a very positive impact. Are we able to continue paying the rent on the flat tax free until two years has elapsed?

A: A workplace is only "temporary" as far as the expectation is that it will be the workplace for less than two years. If you decide that you are going to extend the secondment beyond two years, the trigger date for the rent payments becoming a taxable benefit is the date that decision is made, because it can no longer be said that the expectation is that your site will be the workplace for less than two years

March Questions and Answers

ipswich@rdpaccountants.co.uk (Simon Lasky) — Thu, 24 Mar 2022 13:04:52 GMT

RDP March 2022 Newsletter

Q. After several years of successive growth, my wife and I have decided to incorporate our partnership. We have a number of assets used in the trade for which we have claimed relief using the annual investment allowance. As the trade is being effectively disposed of to the new company, do we have a problem with capital allowances?

A: You are correct to be concerned. As you and your wife will be connected to the company, the default position is that assets are deemed to transfer at market value. If the AIA has been claimed, a balancing charge can arise under the capital allowances regime. Note, this is not a CGT issue as incorporation relief should be available as long as the trade is being transferred wholesale.

In order to prevent a charge arising in this situation, you can make a claim under section 266 CAA 2001. This treats the assets as transferred at their written down value, i.e. nil where the AIA has relieved the cost in full. You need to make the claim jointly with the new company, and in writing within two years of the date of the transfer.

Q. In the wake of COVID-19 pandemic, I have been reviewing my books in an effort to more accurately review unpaid sales invoices. I have identified a relatively high number of these from the end of 2021, as may be expected in the circumstances. Am I right in thinking I have to wait six months before I can write these off for tax purposes?

A: The six-month statutory time limit actually applies to VAT, rather than income tax. There is no minimum time you need to wait before you can write off a debt for tax purposes in theory. However, HMRC does require reasonable steps to have been taken in order to recover payment before you do so. It is not sufficient to make a provision for bad debts, as it is under accounting rules. In practice, you need to identify debts that are unlikely to be paid on a case-by-case basis.

For smaller debts, HMRC is likely to accept a couple of reminders to demonstrate that you have made an effort to recover the monies owed to you. For larger debts, it's more likely that more formal action would be needed in order to secure the deduction, e.g. appointing a debt collection service, or applying to a court to assist with recovery. There are no hard and fast rules, although HMRC is likely to accept a claim for bad debt relief if you have evidence that a debtor is in administration, or subject to insolvency proceedings. HMRC's guidance in the business income manual is a helpful reference.

Q. Our business has been struggling with VAT compliance for a number of years. Admittedly, this has largely been down to us, particularly the misconduct of a former employee who was responsible for the reporting (they have been dismissed as a result) but we are keen to put things right and have employed the services of a local accountant who will be dealing with things for us going forwards. However, I have now received a letter from HMRC saying that they will be issuing a demand for security payment in respect of VAT liability. As I understand it, this will not be offset against future liabilities, and instead will be refunded after a period of good compliance. My issue is that this will not be easy to fund. Can I refuse on the grounds that the company has already appointed an agent, which will mean vastly improved compliance going forward?

A: HMRC does have the power to ask for the security in respect of certain taxes if it perceives there is a risk to the public revenue. Whatever you do, do not ignore a notice when it comes through - failure to pay it within the statutory time frame makes it a criminal offence to continue to trade. As you have clearly made a commitment to improving your compliance, it may be worth sending a copy of your engagement letter with the new accountant and asking for an internal review emphasising your commitment. Also stress that the employee responsible for the previous problems has been removed. There is no guarantee that this will remove the requirement for security, but you really have nothing to lose.

February Questions and Answers

ipswich@rdpaccountants.co.uk (Simon Lasky) — Thu, 24 Mar 2022 13:03:50 GMT

RDP Newsletter February 2022

Q. We have just purchased a second property, which we intent to occupy at weekends to escape the hectic city life. We're both in our 50s and want to start slowing down a bit! I've heard that there is planning that can save tax on second homes - I believe MPs are infamous for using it. Can you explain what this is?

A: Where you genuinely occupy more than one property as a residence for at least some of the time, you are entitled to make an election to specify which one is to be treated as the main residence for the purposes of private residence relief. It doesn't matter which property you actually live in most of the time, as long as you do occupy both as a home. This can be beneficial if the property you occupy less frequently is likely to appreciate in value more than the other. In the absence of an election, HMRC will determine which was the main residence based on available information, and may result in a larger gain being chargeable. You need to make the election within two years. HMRC's guidance is useful here.

Q. I've decided that the cash accounting scheme isn't working for my business anymore. I'm intending to revert to standard VAT accounting from the start of the next VAT period. Do I need to notify HMRC or take any special measures?

A: You don't need to inform HMRC, but you do need to take care to ensure you don't miss any sales or purchase invoices during the switch. As you will be used to accounting for payments and receipts as and when they are made, there is a risk that invoices raised before the change date may be overlooked. You need to account for VAT on invoices issued or received and make good any net unpaid VAT to HMRC. However, you may be able to opt to spread any payment over six months. See VAT Notice 731 for further details.

Q. We have been reporting our VAT returns under MTD since April 2021. As our systems are already set up and compliant with this, am I right in assuming we will already be set up for MTD for Corporation Tax as well? I don't want to incur further costs if that is possible.

A: It would be prudent to discuss this with your software provider. CT information needs to be reported using UK GAAP principles, whereas your VAT accounting may be cash-based. It might be that the software is capable of operating on two bases contemporaneously, but it would be unwise to make that assumption. It's also possible that your VAT periods won't coincide with the CT reporting quarters. The staging date won't be until 2026 at the earliest but preparing early is a good idea. Start by reviewing the recent consultation document , which details much of what is likely to be required.

January Questions and Answers

ipswich@rdpaccountants.co.uk (Simon Lasky) — Thu, 24 Mar 2022 13:02:48 GMT

RDP Newsletter January 22

Q. I am in the process of buying a property that has been empty for a number of years. Extensive renovation is needed, and I have been speaking to a contractor who says that he will be able to charge just 5% VAT for the work. I don't want to fall foul of HMRC, so is this correct?

A: The answer is "possibly". Building work, and the underlying materials, can be subject to VAT at 5% if the building is a dwelling that has been empty for at least two years. However, any professional fees - such as designers or architects - will be subject to VAT at the standard rate. In order to qualify for the 5% rate, you will need to give the contractor third-party evidence to confirm the empty period. This must be from a source HMRC considers to be "reliable", so a signed statement from the man across the road won't do. Instead, you should look to things like council tax information, electoral register entries, etc. You may also be able to acquire a letter from an empty property officer - in which case you will have an acceptable form of evidence without needing to secure any other paperwork.

Q. My fellow partners and I are looking to undertake some capital investment in order to expand our business activities. However, as we have left this until after the 31 December 2021 cut-off for the increased annual investment allowance, we are considering making a claim using the super-deduction instead. However, we are unsure whether this is the best option as we have heard that there can be issues the assets sold later on. Is that correct?

A: The super-deduction is actually a red herring as it is only available to companies. As a partnership, you wouldn't be able to claim it unless you incorporated prior to incurring the expenditure. Whilst this may make commercial sense, there is some good news that means you don't have to do this. The increased annual investment allowance of £1 million has been extended to 31 March 2023, so you haven't missed the cut-off. Of course, you may wish to go down the incorporation route to secure relief at 130%, so it is worth doing some sums before making any decisions.

Q. Subject to any travel restrictions, I will be taking a holiday with my family in February. As I have a number of consultancy clients relatively near to where we are staying, I've decided to extend the trip by three days so I can go and meet them to discuss some business-related matters. Can I deduct a proportion of the costs of the holiday from my business profits?

A: In practice the main purpose of your trip is for private rather than business reasons, so there will be no relief available for the cost of the holiday. However, any additional costs that can be easily identified and separated, e.g. travel costs from your location to visit your clients, can be deducted. Just ensure you segregate these out carefully in case you're asked to produce evidence later on

December Questions and Answers

ipswich@rdpaccountants.co.uk (Simon Lasky) — Thu, 24 Mar 2022 13:00:34 GMT

RDP Newsletter December 2021

Q. I recently made an investment of £100,000 under the Seed EIS scheme. However, as I don't have much income in the current tax year, I am going to make a carry back claim. I have also read that there is a 50% CGT exemption available. Should I sell some of my listed share portfolio to take advantage of this?

A: Unlike the main EIS, the Seed EIS exemption you are talking about can only be matched to gains made in the year that the shares are acquired or treated as acquired - i.e. the year the income tax relief will be effective. If you make a carry back claim you will only be able to match the investment to gains made in 2020/21, so selling shares to generate gains won't work. You'll need to compare the overall relief using a carry back claim against not doing so and triggering gains to utilise the exemption.

Q. Our company is selling some fixed assets that are used for the trade. As a result of downscaling, we need to purchase some new equipment. Around half of the sales proceeds will be used to fund this. Is there a way to put off the corporation tax charge on any gain?

A: Gains on fixed assets are most likely to arise on trading premises, rather than say plant and machinery. Where a gain arises, the company can look to claim rollover relief, or partial relief, where some or all of the proceeds are used to purchase replacement assets. The new assets do not need to be of the same type as the old assets, so for example you could sell a building and use the proceeds to purchase new plant and machinery. To qualify, the new assets must be purchased in the period starting one year before and ending three years following of the date of disposal of the old assets. As you are only going to be using half the proceeds, you will be looking at a partial relief claim. HMRC's Helpsheet 290 contains guidance on how to calculate this once you know the figures.

Q. We operate in the hospitality sector. I am preparing our VAT return for the quarter ended 30 November 2021 and am confused about which rate to use, as the temporary rate of 5% changed to 12.5% on 1 October. Should we have applied the new rate as it was changed part way through the quarter?

A: No, there was no pre-emptive legislation regarding this, so the usual tax point rules apply. Anything that that had a tax point on or before 30 September should have been subject to 5%. As long as you have correctly applied the 12.5% rate from 1 October onward, you will be fine. Don't forget that the rate will revert to 20% from 1 April 2022.

November Questions and Answers

ipswich@rdpaccountants.co.uk (Simon Lasky) — Thu, 24 Mar 2022 12:59:17 GMT

RDP November Newsletter

Q. My company has issued a new class of shares to my adult children. However, these have been issued unpaid - with the amount available to be called at any time, though more likely to be paid in increments over the next few years. Both children work for the company full time. Is there an issue with a potential s. 455 charge?

A: HMRC's view used to be that where shares had been issued but remained wholly or partly unpaid, s. 455 should apply to the outstanding amount. However, following the judgment in a First-tier Tribunal hearing in 2014 it changed this stance. The situation now is that s. 455 won't usually apply to these arrangements.

However, there is anti-avoidance legislation in s. 464A of CTA 2010 that can mean a charge arises in some circumstances, but this would only be the case where the shareholder uses the unpaid share capital to extract profits or assets from the company with no tax charge. It's unlikely that this will apply to the simple family company situation you describe. There is of course no harm in familiarising yourself with the guidance though.

Q. Earlier this year, one of our employees was permitted to take one of the company-owned projectors we use for seminars home for a couple of months to use for films and sports screenings. The company didn't need this as we were prohibited from organising in-person events at the time. I happened to mention this to our accountant who is adamant that there will be a tax charge, but as the employee only had the equipment for six weeks, I was under the impression that private use was minor (i.e. only six weeks out of 52, and then only for a few hours a day). Who is correct?

A: Your accountant is right, the amount of time the equipment was used for is irrelevant, it's the fact that it was available for the employee's personal benefit that is the key factor. However, the charge is likely to be relatively low due to the short duration. To work out the reportable amount, you need to make a reasonable estimate of the value of the asset at the time it was first made available to the employee. You multiply this by 20%, and then pro-rate to ensure that the charge is restricted to the six-week loan period. So, if the equipment was worth £1,000, the chargeable amount would be £1,000 x 20% x 42/365 = £23. A higher rate taxpayer would therefore pay just £9 in tax on this, which seems like a reasonable price to pay. Of course, if the value of the equipment is considerably more, the charge will increase.

The other thing to note is that there will also be a Class 1A NI charge on the company, and the £23 benefit will need to be reported on the P11D.

Q. I am in the process of selling a buy-to-let property. My conveyancer has warned me that I need to complete a "30-day CGT return". However, I'm sure I read that I can just wait and include the sale on my tax return instead. Is this correct?

A: You need to do both. A UK property return is required, though the window has now been increased to 60 days after completion following the Budget last month. You need to make a best estimate of any tax due on the disposal, taking into account any losses that have arisen prior to the completion date, as well as any private residence relief and available annual exemption. You will then report the gain on your self-assessment return, claiming a deduction for the advance payment.

October Questions and Answers

ipswich@rdpaccountants.co.uk (Simon Lasky) — Thu, 24 Mar 2022 12:57:59 GMT

RDP October Newsletter

Q. I have been on the VAT flat rate scheme for several years. I have two business activities that fall into different categories with differing FRS percentages. I have apportioned VAT between the rates, but a chance conversation with an old colleague leads me to believe this is incorrect. What do I need to do?

A: Under the FRS, you should not apportion VAT where you have multiple activities. Instead, you should use the FRS percentage that corresponds to the activity with the greater percentage of turnover. As an example, suppose an IT consultant (FRS percentage 14.5%) also offered computer repairs (FRS percentage 10.5%). If the turnover from repairs exceeded the turnover from consultancy work, they would use 10.5%. You will need to go back and correct your calculations for the last four years. This might result in an additional liability or a refund depending on the circumstances. If the net error is less than £10,000 you can include it on your next VAT return, otherwise you will need to make a standalone disclosure to HMRC using form VAT 652 .

Q. I am preparing my tax return for 2020/21 using software. I have £10,000 of employer pension contributions as part of my remuneration annually. However, after realising some gains on investments in the year I also paid approximately £32,000 into a plan in the year. The return is showing an annual allowance charge of £4,000, but this looks excessive to me as I've only exceeded the allowance by £2,000! What's going on?

A: Don't forget that the £40,000 annual allowance refers to the amount of gross contributions that can be made with tax relief. Your personal contributions will have attracted basic rate tax relief, as your provider will have received an additional £8,000 from HMRC. This means your total gross contributions, including the employer payments, were £50,000 not £42,000. The charge is therefore based on £10,000, not £2,000.

If your contributions in previous years were lower, e.g. if it were just the employer contributions that were made, you can claim to carry forward the unused amount for up to three years - there should be an option somewhere in your software to add this information in. Hopefully this will get rid of the charge for you.

Q. I am buying some land in Shropshire. I am trying to understand the SDLT position, which is complicated due to the fact that some of the fields lie across the Welsh border. Most of the land is on the English side, so do I just file a return to the English authorities?

A: No, this is known as a cross-border transaction and will require the consideration to be apportioned on a "just and reasonable" basis. A return with the apportioned amounts will then need to be made to each tax authority. HMRC may challenge an apportionment if it appears unreasonable, and so it is probably best to speak to a conveyancing solicitor with experience in cross-border transactions.

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September Questions and Answers

ipswich@rdpaccountants.co.uk (Simon Lasky) — Thu, 24 Mar 2022 12:56:47 GMT

RDP September Newsletter

Q. I am an IT consultant that has just returned from Jersey where I was undertaking some work for the government. I want to raise my invoice now, but don't know whether to add VAT or not following Brexit?

A: You don't need to add VAT here as the Channel Islands are not part of the UK for VAT purposes, and your professional services are of a qualifying type specified in VAT Notice 741A. This is unaffected by Brexit as the Islands are also outside the EU. The good news is that you can still claim input tax on any UK costs relating to the consultancy work!

Q. I am in the very fortunate position of being promoted this year, despite the effects of COVID19 on our company's trade. Now that we are starting to recover from the lockdown restrictions, I have been told I can choose a company car, subject to an overall spending threshold (including optional extras). Am I right in thinking that as long as the emissions do not exceed a certain threshold, there is no taxable benefit?

A: Firstly, congratulations on your promotion. Whilst low emission vehicles have always attracted relatively favourable tax treatment for income tax purposes, I'm afraid there is no longer any possibility of a zero benefit in kind treatment for any vehicle provided by an employer available for private use. The most tax-efficient option is to choose a wholly electric vehicle, but even this will attract a charge of at least 1% of the list price.

Q. I own the freehold interest in a building which has recently been leased to a tenant for 23 years. We have received a premium for this and will also receive an annual rent payment. Is the premium a capital sum?

A: As the lease duration is less than 50 years, part of the premium will be treated as an income receipt. Generally, the shorter the lease, the more "income-like" it is in nature in HMRC's eyes. You will need to use the formula Premium x [50-Y/50] to work out how much should be declared as income, and how much as a capital gain. Y in the formula is the number of complete years other than the first in the term of the lease, i.e. you will use 22 here.

August Questions and Answers

ipswich@rdpaccountants.co.uk (Simon Lasky) — Thu, 24 Mar 2022 12:55:28 GMT

RDP August newsletter

Q. My partner has been suffering with "long COVID" for several months, and unfortunately has had to leave her job as a result. As our son is in his second year of university, we can't really afford the drop in income, and so I am taking a second job. The hours will vary, but I am certain that the additional income will push me into the higher rate tax band for 2021/22. I have heard that the NI contributions I pay should be capped as a result, but I'm not sure how to go about securing this. Do I need to make a claim?

A: You are correct that the amount of NI you pay at the main rate, i.e. 12%, is restricted to your earnings up to the higher rate threshold. For earnings above that, the charge is 2%. The problem is that the NI system is completely separate from the tax system so this won't automatically be sorted out by your PAYE code or self-assessment tax return (if you file one).

One option would be to contact the NI office to request a deferment on your second employment which will restrict the NI charge to 2%. The problem with this is that if your earnings from your main job are below the higher rate threshold, some of the earnings from the second job should actually be subject to the 12% rate so you may need to make an additional payment after the end of the tax year. If you want to follow this route fill out the application form CA72A and send it back to the address on the form.

If you would prefer not to have a bill later down the line, you can allow the overpayment to occur initially and claim a refund after the year-end by writing to:

Personal Tax Operations

North East England

HMRC

BX9 1AN

You will need to explain the circumstances that led to the overpayment, and preferably include a calculation of the estimated refund due.

Q. I am very keen on investing in entrepreneurial companies, and over the years have made several investments that qualified for the EIS. Two years ago, I made such an investment, and three months later gifted half of the shares to my wife. Unfortunately, we have recently separated (amicably) and are managing our own straightforward divorce. She has mentioned the possibility of selling the shares I gifted to her, but the minimum holding period has not expired. Will I be subject to income tax relief clawback?

A: Once shares qualifying for EIS relief have been gifted to a spouse or civil partner, in this case your wife, she is treated as subscribing for them in the first place, rather than you. If she subsequently sells them before the termination date, it will be her who must pay any income tax relief clawback. It would obviously be better if she could wait until the termination date has passed before selling the shares, but if she needs the money this may not be an option. Depending on when you separated, it may be possible to effectively swap assets with no CGT consequences, e.g. she transfers the EIS shares back to you in exchange for other shares of a similar value. However, this will only be effective if the transfers take place in the same tax year that the permanent separation occurred. So, if the marriage broke down in a way that was likely to be permanent before 6 April 2021 this won’t be an option. It suggested that you speak with your accountant or tax adviser about this before making any transfers.

Q. I am a builder who is registered for the CIS. The vast majority of my work is as a subcontractor for a number of large companies. I am VAT registered and so have been subject to the new reverse charge rules since 1 March 2021. However, the changes combined with a downturn in work due to COVID-19 has seriously affected my finances. Could I use the Cash Accounting Scheme to help with this?

A: Unfortunately, you can’t use the scheme for services which are subject to the domestic reverse charge so signing up to the scheme wouldn’t help you there. However, if you now find that you are submitting repayment VAT returns each quarter you can ask HMRC to allow you to submit monthly returns which will obviously speed up your input tax claims and improve your position. The downside is that you will have to submit 12 VAT returns a year instead of four so you will have to weigh up the benefit against the additional administration.

July Questions and Answers

Thu, 24 Mar 2022 12:53:56 GMT

Newsletter issue - July 2021

Q. I own several restaurants which all sell English-style food. I am planning to sell two of these to separate buyers. The first intends to operate an Asian fusion restaurant, and the second (smaller) premises is going to be turned into a micropub. Both buyers are insisting that the sales will meet the conditions for a transfer of a going concern (TOGC) so that I shouldn't add VAT to the purchase costs. However, I'm slightly worried that this is not correct, as in the first case the type of food served will be different, and in the second case the new establishment will not be a restaurant, although I am told the owner will serve bar snacks. What is the correct position?

A: The good news in the first instance is that the fact that the first buyer will be serving a completely different type of food is irrelevant, it is the fact that they intend to operate as a restaurant, i.e. the same type of business, that is key. Subject to all the conditions being met, this should not be a problem and you shouldn't need to charge VAT. However, the second buyer is intending to trade as a completely different type of business and so this cannot come within the TOGC provisions. You will need to add VAT to the price charged accordingly.

Q. Following the end of the first national lockdown last year I moved to the UK to take up employment. I am intending to claim the remittance basis for as long as possible whilst I am here. However, I also intend to make investments in UK shares. If I make substantial gains on these, am I able to offset offshore losses?

A: By default, offshore capital losses cannot be used to offset UK gains where the remittance basis is used. However, it is possible to make an election to permit them to be offset. You must make the election for the first year you claim the remittance basis, and the time limit for doing so is within four years of the end of that tax year. You should be aware that making the election may not be advantageous, as one result of making it is a strict ordering of how all losses, including UK losses, are offset. This can lead to significant inefficiency. As the election is irrevocable once made, you should speak to a specialist adviser before deciding whether or not to make it.

Q. Our company has a year end of 31 July each year. We have managed to increase our profits despite COVID19 and are likely to vote a bonus to the directors for the first time in several years. The problem is we are unlikely to have the cash to make payment until November for various logistical reasons. Can we include the bonus as a deduction in the accounts to 31/7/2021?

A: Yes - if you act promptly. To be able to deduct the bonus from this year's taxable profits, you need to create an obligation to pay it before the year end. You should hold a board meeting to do this. Once the obligation is created, the amounts must be paid within nine months of the year end, so payment in November will not be a problem.

RDP Questions and Answers June 21

Wed, 23 Jun 2021 12:04:43 GMT

Q. I've been going over some old tax returns to try to track down some capital losses. However, whilst doing this I've noticed that I missed including my considerable pension contributions off the 2018/19 return. From what I can see online, I've just missed the deadline to amend it. Is there any way to claim the extra relief? It's worth around £2,000 which would be very helpful at the moment.

A: You should make a claim under the provisions for Overpayment Relief. This permits a claim to be made up to four years after the end of the tax year in question where there are no other means to recover the overpaid tax. You need to be very careful when drafting the claim, as it must contain specified information (see HMRC's guidance here ). It must also be signed by you personally an advisor can't sign it on your behalf (though they could help you draft the letter).

Q. We make a relatively high number of B2C sales to EU-based customers - usually over the summer months. We also use the flat rate scheme, and I've heard that Brexit may cause issues for us. Is that the case and if so can we leave the scheme for the summer months?

A: Yes - the problem arises because all sales to EU customers are now zero rated, so you aren't collecting input tax. However, you still have to apply the flat rate percentage to these sales. If a lot of your sales are zero rated, it will probably make sense to leave the scheme. You can do this at any time, just make sure you inform HMRC of your chosen leaving date. However, once you leave you cannot rejoin for at least 12 months, so you can't just leave for a few months then come back to it after the summer.

Q. Following the Covid-19 pandemic, I've decided to change my year end to 31 March (from 31 December) in order to utilise overlap relief that I've been carrying forward. However, I'm not sure exactly what profits to include on my return.

A: This will depend on exactly how you enact the change. If you prepare accounts for the 15 months to 31 March 2021, your return for 2020/21 will include the results for the full 15 months, less the overlap relief. If you prepare accounts for the three months to 31 March 2021, you will have two accounting periods (one 12 months and one three months) in the basis period for 2020/21 and you will include the results from both, again deducting the overlap relief. Of course, it's possible that you are referring to your current year, i.e. you will prepare accounts to 31 March 2022. In that case, the change won't take place until the 2021/22 year and you should just report your results to 31 December 2020 on the 2020/21 return in the usual way.

RDP Questions and Answers May 2021

ipswich@rdpaccountants.co.uk (Simon Lasky) — Wed, 26 May 2021 09:48:17 GMT

Q. I am newly VAT-registered (voluntarily). I believe that I will usually need to pay VAT to HMRC each quarter, rather than receiving a refund. However, I have some concerns about running up arrears in case I experience cash flow problems. Can I ask to complete monthly returns and pay monthly instead?

There is no statutory right to make monthly, rather than quarterly, returns. The legislation simply permits HMRC to allow a business to do so. The problem is that HMRC generally won't allow you to use monthly filing where you have VAT to pay - it's for businesses that usually receive repayments. You have a couple of options in order to avoid building up arrears. You can simply make a monthly payment of the estimated net VAT position to your account and sort the difference out when you complete the VAT return. Alternatively, you could consider using the annual accounting scheme. You would only be required to file one return, but you would make nine payments on account during the year. Information about the scheme is available here .

Q. I am looking to raise some funds by selling some personal possessions, some of which have appreciated in value quite considerably. I've heard there is a special exemption that might mean I don't need to pay CGT on any gains. Is that correct?

One of the unfortunate consequences of the coronavirus pandemic is that many individuals are selling personal possessions to help raise funds, either for themselves or for family members. There are actually two exemptions that may be of use to you.

The first is the wasting assets exemption. This applies to assets that have an expected useful life of 50 years or less (based on the nature of the asset and its intended use when it was acquired), and completely exempts the asset from CGT. Machinery is always treated as having an expected useful life of less than 50 years, so things like cars or clocks always qualify. Things are less clear cut when it comes to things like fine wine collections, and you should seek advice from a specialist. Note that the exemption doesn't apply to assets used in a business if you claimed, or could have claimed, capital allowances in respect of them.

If the asset you sell has an expected useful life of more than 50 years, there is a limited chattels exemption. The exemption is calculated as follows:

if you receive £6,000 or less from the sale, it is wholly exempt from CGT
if you receive more than £6,000, the amount chargeable to CGT will be the lower of the actual gain, or 5/3rds of the difference between £6,000 and the amount received for the sale.

As a result, the chattels exemption will only be of use where the proceeds received are less than £15,000.

Q. I have recently granted a lease to a tenant in respect of a building out of my freehold interest. They have paid a large premium for this and will not be required to pay rent. However, an associate of mine has said that this might be charged as income. I thought it was a capital receipt?

It will depend on how long the lease you have granted is to run for. If it is for more than 50 years, you are treated as having made a part-disposal of your interest, and the premium will all be treated as a capital receipt for this. However, if the lease is for less than 50 years, some of it will be treated as property income. The shorter the lease, the higher the proportion of it taxed as income will be. Speak to your accountant about the correct way to report the gain, or refer to Helpsheet 292 .

RDP Questions and Answers April 2021

ipswich@rdpaccountants.co.uk (Simon Lasky) — Wed, 26 May 2021 09:47:14 GMT

Q. Our company uses the cash accounting scheme. We've lost a lot of trade as a result of Brexit and Covid-19 and we're looking to sublet part of our warehouse. We have opted to tax this. We want to raise a single invoice at the end of each financial year (31 March) for the year ahead. However, we're happy for the tenant to pay the rent (and VAT) in monthly instalments. Is this permitted under the cash accounting scheme?

A: Under the scheme, where an invoice is raised in advance of a supply the transaction is excluded from the scheme. This means you would need to account for VAT based on the sales invoice date, not the date your tenant pays you, which is obviously a cash flow drawback.

If you don't want to issue monthly invoices, you could issue a "request for payment" at the start of the year instead of a VAT invoice. This wouldn't create a tax point. You may also wish to issue an advance sales invoice showing twelve monthly tax points coinciding with the requested payment dates.

Q. I am 60 but still working. I have therefore avoided touching my various pension pots (which I still contribute regularly to) until recently. Last year, my son's business was struggling with the effect of lockdown so I withdrew £9,500 - intending to stay within the "small pot" rules. However, my accountant is now saying I can only contribute £4,000 each year to my pension. This could seriously affect my aim of retiring in two years as I have been paying in £25,000 each year. Is he correct?

A: There is a chance he is correct. You will however need to check exactly how you have accessed your savings with the scheme provider. Where a pension has been accessed "flexibly", a special cap on the annual allowance does indeed apply to restrict tax relieved future contributions to just £4,000. But this doesn't apply if you took the amount as a pension commencement lump sum (i.e. as part of your 25% tax free entitlement). It also won't apply if your withdrawal qualified under the small pot rules. The problem with these rules is that the pot in question must have been withdrawn in full. So, if you simply withdrew the money from a larger pot this won't be the case. Talk to your pension scheme provider before you make any further contributions. It might also be worth asking your accountant to join the call.

Q. My company bought a retail premises 18 months ago and I am VAT registered. I now want to let the flat upstairs to a residential tenant. Do I need to charge her VAT?

A: No, as letting residential accommodation is an exempt supply. However, your business will be partially exempt going forward and so you will need to apportion your input VAT between the taxable and exempt parts accordingly, only claiming the amounts that relate to your taxable business. This will generally be easy, but there will be a need to apportion VAT in cases where costs relate to both parts, e.g. repairs to the roof etc. You should familiarise yourself with the rules set out in VAT Notice 706 to ensure you are confident with your VAT reporting obligations.

RDP Questions and Answers March 2021

ipswich@rdpaccountants.co.uk (Simon Lasky) — Wed, 26 May 2021 09:46:15 GMT

Q. I am looking at buying a rundown pub/restaurant ready for this summer, assuming it will be allowed to open. I need to spend approximately £100,000 on building works. Can I register for VAT straightaway or do I need to wait until I open?

A: Yes, you can register for VAT as long as you are intending to make taxable sales at some point in the future. As the building has already been used in a trade, check whether there is an option to tax it in force. If so, see if the seller would be prepared to revoke it if possible. This should save you some SDLT, and you won't need to pay the VAT up front, meaning there is a cash flow advantage too.

Q. Two years ago, I sold my business to a company for £200,000 cash up front. There was also an earn-out deal that would see me receive a percentage of sales above a certain hurdle. This was valued (and taxed) at £100,000 at the time. Due to the coronavirus, I have actually only received £30,000. Can I offset the £70,000 shortfall against my income? I have no other capital gains and am very unlikely to have any going forward.

A: A shortfall on an earn-out right is a capital loss and, unlike certain other capital losses, cannot be offset against general income. However, you can elect to carry the loss back to the year the original disposal took place in to reduce your capital gain. You need to make this election in writing and include a calculation showing how you have worked out the loss.

Q. I have been subject to a drawn-out enquiry by a HMRC officer for nearly two years. I have acted in good faith and provided everything that I have been asked to send in, but the officer keeps asking for more and more paperwork. I'm confident that no errors have been made and have written to her to ask for a closure notice, but this has been refused. Is there a way I can force the issue?

A: You can apply to the Tribunal to ask it to direct HMRC to close the enquiry using form T245, which you can obtain here . It may be worth contacting the officer to inform them of your intentions. It might just give them the nudge needed to close it down of their own accord.

RDP Questions and Answers February 2021

ipswich@rdpaccountants.co.uk (Simon Lasky) — Wed, 26 May 2021 09:45:12 GMT

Q. My director's loan account is overdrawn as we approach our year end. Usually, a dividend is credited to cover the shortfall, but my accountant says that there are not enough reserves to do that this time. We've looked at writing off the loan to avoid a s.455 charge as a cheaper option than an additional salary payment. Are there any problems with this?

Writing off a director's loan means that you will be taxed on the amount written off as if it were a dividend. On the face of it, this is cheaper than a salary payment. However, HMRC will usually argue that the write off is really a payment "derived from an employment", meaning National Insurance also needs to be paid. The only way around this is to convince HMRC that the write-off arose due to your position as a shareholder. Expect a strong rebuff.

A better option would be to wait to see if you might be able to pay a dividend before the repayment deadline of nine months after the year end, as this will avoid the problem and the s.455 charge.

Q. I usually make regular pension contributions of approximately £10,000 per year net of relief. However, in 2017/18 I made a large one-off contribution following a capital gain. I've just realised that I omitted this from my tax return and, as a result, overpaid tax by nearly £8,000. Is there anyway I can amend the return?

The deadline for amending your 2017/18 has passed, but all is not lost. You should be able to reclaim the tax using overpayment relief as long as you do this by 5 April 2022. You need to make a claim in writing, and include the information required - set out in SACM12150.

Q. I made an investment into a promising fledgling company several years ago. Due to Covid-19, the company has struggled over the last 12 months, and has just entered administration. What is the best way to secure relief as soon as possible?

As the shares are likely to be worthless, you can explore the possibility of making a negligible value claim. If the conditions are met, this crystallises the loss on the shares now, rather than needing to wait until the shares are formally cancelled. The advantage of this is that it should secure a loss that can be offset against your general income (assuming the company is an unquoted trading company meeting the requirements), and you can carry this back to the previous tax year. For example, if you make the claim in March 2021, you will be able to amend your 2019/20 return to include the loss claim. You can read more about negligible value claims and income losses on Helpsheet 286 .

RDP Questions and Answers January 2021

ipswich@rdpaccountants.co.uk (Simon Lasky) — Wed, 26 May 2021 09:43:49 GMT

Q. I want to pay for my employees to be screened regularly for COVID-19. Is this a taxable benefit or is it exempt?

When the initial guidance for employers was published back in July 2020, HMRC stated that an employer paying for an employee to be tested would constitute a taxable benefit in kind. This received a lot of criticism and resulted in a U-turn. It has now been announced that from 8 December 2020 to 5 April 2021, employer-funded tests for COVID-19 (but not the test for antibodies, i.e. to check whether the individual has previously had it) will be exempt. HMRC will also not seek to recover tax or national insurance where employers have paid for tests prior to 8 December.

What is not currently clear is whether the payments will need to be reported on form P11D - particularly those made in the period to 7 December 2020. It will be worth checking the published guidance when making the filings later in the year.

Q. I took advantage of the VAT deferral scheme back in June 2020. The payment date is 31 March 2021, but we had to close again on Christmas Eve - meaning we're going to struggle with cash flow. Is it possible to defer the payment?

There has been no further deferral for VAT announced - though things may change between now and the end of March. However, the government did confirm that businesses who used the initial deferral scheme could opt into a payment scheme that would allow them to spread the repayment over up to eleven instalments. You can read more about this here .

Q. I am looking to buy a substantial new property later this year. I have found one that is ideal on the Welsh Borders, but I've checked the Land Registry and it turns out that the land included is partly in England and partly in Wales. What does this mean for SDLT purposes?

This is what is known as a single cross-border property transaction. Wales and England have different systems of taxing land transactions, though they are similar in their mechanisms. Stamp Duty Land Tax (SDLT) applies in England, and Land Transaction Tax (LTT) in Wales. There are different rates and thresholds.

You will need to apportion the consideration between the English and Welsh parts using a "just and reasonable" method. You will then need to check the apportioned amounts against the SDLT and LTT thresholds. If either or both exceed the respective thresholds you will need to make a return in that jurisdiction. Your solicitor should be able to assist you with this, but you can also contact the Valuation Office Agency for advice on how to apportion the consideration

RDP Questions and Answers December 20

Wed, 26 May 2021 09:40:03 GMT

Q. I am currently in the process of purchasing a property which includes a separate granny annex. Since there is only one title number for the whole property, can I apply for stamp duty land tax multiple dwelling relief (MDR)?

A: Since 1 April 2018 SDLT applies to land transactions in England and Northern Ireland only. Property transactions in Scotland are subject to Land and Buildings Transaction Tax. Land Transaction Tax (LTT) applies to land transactions in Wales.

Broadly, if the granny annex is an independent dwelling, then it will count for MDR. If it cannot exist independently of the main house, then MDR will not be available.

The HMRC Stamp Duty Land Tax Manual states ( SDLTM29955 ):

'For the purposes of the relief a "dwelling" means a building or part of a building which is suitable for use as a single dwelling or is in the process of being constructed or adapted for such use.'

Special rules apply to certain types of dwellings, including halls of residence and 'off plan' transactions. See the HMRC Stamp Duty Land Tax Manual for further information.

Q. Ten years ago my husband inherited a share of his father's property when he died as a joint owner with his partner. My father-in-law's Will specified that his surviving partner could continue living in the property for as long as she wanted. Both my husband and my deceased father-in-law's partner are on the deeds for the property. The partner has recently died and the property is empty. Will my husband have to pay capital gains tax on his share when it is sold, even though he could not live there because the partner was in residence?

A: It is assumed that your husband is now in possession of the whole property, even though originally the partner owned half of it. If so, she must have transferred her half to him. When your husband sells the property, for capital gains tax purposes he will effectively be making two sales, namely the half which he inherited on his father's death and the half he has recently acquired from the deceased partner. He will be liable to capital gains tax on the half he has owned for the last ten years, even though the partner was still living there. He will also be liable to capital gains tax on the recently acquired half. However, the base cost for the second half will be the market value of that half at the date the partner transferred it to him. The higher base cost should help reduce the chargeable gain on that part.

Q. I have a new employee who has only been with me for two weeks. Yesterday the employee called in sick. Do I have to pay statutory sick pay (SSP)?

A: There are conditions that an employee must meet to be eligible for the payment of SSP, which are broadly as follows;

the individual must be classed as an employee and have done some work for their employer;
the employee must have average weekly earnings (AWE) of at least £120 per week (NIC Lower Earnings Limit for 2020/21 tax year);
The employee must have been sick from work for at least four days in a row including non-working days. This period is known as a Period of Incapacity for Work. (PIW)

An employee's AWE is generally calculated by reference to the eight weeks of earnings prior to the employee being sick from work. In this case, the employee has not worked for you for eight weeks so these rules do not apply. The Regulations state that AWE will be calculated using the earnings the employee is entitled to under their contract for:

a week's work;
a calendar month of work multiplied by 12 and then divided into 52; or
an annual salary divided into 52.

If the employee has received less than eight week's pay prior to their PIW starting, then the relevant period is calculated by using all the earnings paid before the PIW and the period those earnings relate to. So if an employee has received two weeks of earnings, then those earnings are added up and divided by two. This gives the AWE figure to determine whether the employee has earned enough to qualify for a SSP payment.

SSP is payable from day four of a sickness absence if the above conditions have been met and a PIW has been formed. The SSP rate is currently £95.85 per week for the tax year 2020/21.

Note that if the employee is away from work due to a Covid-19 related absence, both the eligibility conditions still need to be met and the PIW still needs to be formed, but the requirement for three waiting days has been suspended for these types of absences and SSP would be payable from day one of the absence.

Covid-19: SEISS and business grants update (from RDP newsletter)

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 30 Oct 2020 15:25:19 GMT

Millions of self-employed individuals have been eligible to receive direct cash grants through the government's Self-Employment Income Support Scheme (SEISS), to help them during the coronavirus outbreak.

There are four opportunities to receive a grant under the SEISS, although the deadlines for the first two parts have now passed.

For parts three and four, the government says it will provide two taxable grants to support those experiencing reduced demand due to Covid-19 but are continuing to trade, or temporarily cannot trade. Payments will be available to anyone who was previously eligible for the SEISS grant one and grant two, and meets the eligibility criteria.

Grants will be paid in two lump sum instalments each covering three months. The part 3 grant will cover a three-month period from the start of November 2020 until the end of January 2021. The government will pay a taxable grant which is calculated based on 40% of three months' average trading profits, paid out in a single instalment and capped at £3,750.

The part 4 grant will cover a three-month period from the start of February until the end of April 2021. The government will review the level of the second grant and set this in due course.

Business grants

The Chancellor has also announced approved additional funding to support cash grants of up to £2,100 per month primarily for businesses in the hospitality, accommodation and leisure sector who may be adversely impacted by the restrictions in high-alert level areas. These grants will be available retrospectively for areas that have already been subject to restrictions, and come on top of higher levels of additional business support for Local Authorities moving into Tier 3 which, if scaled up across the country, would be worth more than £1 billion.

These grants could benefit around 150,000 businesses in England, including hotels, restaurants, B&Bs and many more who aren't legally required to close but have been adversely affected by local restrictions nonetheless.

Covid-19: Job Support Scheme from RDP Newsletter

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 30 Oct 2020 15:23:38 GMT

The Chancellor originally announced details of the new Job Support Scheme (JSS) in his Winter Economy Plan , but the details have since been updated in a statement on 22 October 2020.

The JSS is the main employment support scheme from 1 November 2020, following the cessation of the Coronavirus Job Retention Scheme (CJRS). The scheme will run for six months, until April 2021.

There is no need for the employee to have been previously furloughed before 1 November 2020 , or for the employer to have claimed under the CJRS.

The primary purpose of the scheme is to support workers in viable jobs in businesses who are facing lower demand over the winter months due to Covid-19. It is hoped that by helping employers top up wages during the most difficult months, more employees will be able to stay in work.

When originally announced, the JSS saw employers paying a third of their employees' wages for hours not worked, and required employers to be working 33% of their normal hours. However, on 22 October, the Chancellor announced that the employer contribution to those unworked hours is reduced to just 5%. The minimum hours requirement has also been reduced to 20%, so those working just one day a week will be eligible. That means that if someone was being paid £587 for their unworked hours, the government would be contributing £543 and their employer only £44.

There are two main qualifying conditions to be met before a claim can be made:

Eligible employees

Employees must have been on the employer's payroll (and a Real Time Information (RTI) return must have been submitted which included payment made to that employee) on or before 23 September 2020.

Employees must also be working at least 20% of their normal working hours. The government will review this condition after three months.

There is no requirement for the employee to work a fixed pattern and unworked hours may change from week to week. However, each short-time working arrangement must cover at least seven days.

Employers should ensure all working agreements are made and agreed with employees in writing and that adequate evidence is retained. HMRC have confirmed that they will be incorporating checks into the claims process and employers may need to provide evidence of short time working arrangements.

Employees cannot be made redundant or put under notice of redundancy during the period for which the employer claims a grant.

Financial assessment test

All UK employers can use the scheme as long as they have a UK bank account and UK PAYE scheme.

Large businesses will also need to satisfy a 'financial assessment test', under which they will have to demonstrate that their turnover is lower than it was as a result of Covid-19.

For small and medium sized businesses (SMEs) there are no additional conditions.

Grants

The government will provide up to 61.67% of wages for hours not worked, up to £1541.75 per month. The cap is set above median earnings for employees in August 2020 at a reference salary of £3,125 per month.

The government will reimburse grant payments to employers in arrears.

Grants do not cover Class 1 employer national insurance contributions (NICs) or pension contributions. These contributions will remain payable by the employer.

RDP Questions and Answers Nov 20

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 30 Oct 2020 15:22:10 GMT

Q. I am self-employed and my business has been struggling this year due to the coronavirus. I opted to defer my 31 July 2020 tax payment but I'm worried that I will not have the cash to pay the whole amount by the end of January 2021. What can I do?

A: The government is allowing self-employed people to defer self-assessment payments due, to help them manage their cash flow during the pandemic.

The government allowed taxpayers to defer their second 2019-20 self-assessment payment on account due on 31 July 2020 until 31 January 2021. The deferment was automatic which means that no late payment penalties or interest will be charged for the deferral period.

On 24 September 2020, the government announced that self-assessment payments due on 31 January 2021 (including payments on account deferred from 31 July 2020) can be paid by instalments over the 12 months to January 2022.

Taxpayers can apply for a payment plan by contacting HMRC's time to pay self-assessment helpline (0300 200 3822), or taxpayers with up to £30,000 of self-assessment liabilities can use HMRC's self-service time to pay facility. Interest is payable on time to pay instalments, but if the plan is set up prior to the payments becoming due there should be no late payment penalties.

Q. I am employed and pay tax on my salary at the basic rate through PAYE. I have no other income and do not complete an annual self-assessment return. My wife works part-time and earns £10,000 per annum and does not pay any tax. Can her personal allowances be transferred to me?

A: It is possible for a spouse or civil partner who is not liable to income tax or not liable above the basic rate for a tax year to transfer part of their personal allowance to their spouse or civil partner, provided that the recipient of the transfer is not liable to income tax above the basic rate. The transferor's personal allowance will be reduced by the same amount.

For 2020/21 the amount that can be transferred is £1,250. The person receiving the allowance will be entitled to a reduced income tax liability of up to £250 for 2020/21. Note that married couples or civil partnerships entitled to claim the married couple's allowance (for people born before 1935) are not, however, entitled to make a transfer.

Eligible couples can backdate their claim for the allowance for up to four years. This means that couples will have until 5 April 2021 to backdate a claim to the 2016/17 tax year.

Q. Why it is important to differentiate between items that are zero-rated for VAT and those that are exempt?

A: Although both zero-rated and exempt supplies result in no VAT being applied to the supply, the consequence is very different between them and it is important to get it right.

However, a business making solely exempt supplies is not making taxable supplies, so cannot register for VAT. Consequently, all VAT incurred upon expenditure becomes an additional irrecoverable cost.

Where a supply could be either zero-rated or exempt, zero-rating takes priority.

RDP Questions and Answers October 20

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 30 Oct 2020 15:20:50 GMT

Q. My mother gave my daughter £5,000 on 1 May 2016. She had not made any other gifts in previous years. Unfortunately my mother passed away on 1 September 2020. How much of the gift she gave to her granddaughter is chargeable to inheritance tax?

A: Since your mother did not make any other gifts, the gift she made to your daughter will be covered by inheritance tax annual exemptions - £3,000 for 2016/17 plus her unused exemption brought forward from 2015/16 (£3,000 available).

Q. I am a self-employed builder. I carried out a job for a customer and invoiced him for £750. The customer did not pay the invoice and I have since discovered that he has been declared bankrupt. I included the £750 in my turnover figures. Can I claim tax relief for the unpaid bill?

A: A deduction can generally be made for a bad or doubtful debt in the year in which the debt becomes bad or doubtful. The HMRC Business Income Manual (at BIM42701 ) states:

'A deduction is not allowed for a debt owed to a trader except :

a bad debt;
a doubtful debt to the extent estimated to be bad. In the case of the bankruptcy or insolvency of the debtor this means the debt except to the extent that any amount may reasonably be expected to be received on the debt;
a debt or part of a debt released by the creditor wholly and exclusively for the purposes of the trade as part of a statutory insolvency arrangement.'

You should be able to write off the debt and claim a deduction of £750 in your accounts.

Q. I have recently become unemployed due to the coronavirus pandemic so I am going to rent a room out in my home to get some extra income. What are the tax implications if this is my only source of income?

A: HMRC's rent-a-room scheme is an optional exemption scheme, which allows individuals to receive up to £7,500 of tax-free gross income (income before expenses) from renting out spare rooms in their only or main home. The exemption is halved where the income is shared with a partner or someone else. Broadly, as long as income is below the annual threshold, it does not need to be reported to HMRC. If income exceeds the threshold, it needs to be reported to HMRC via the self-assessment system.

To work out whether it is preferable to join the scheme, the following methods of calculation should be compared:

Method A : paying tax on the profit from letting worked out in the normal way for a rental business (ie rents received less expenses).
Method B : paying tax on the gross amount of receipts (including receipts for any related services they provide) less the £7,500 exemption limit.

If you make an election (within the time limit) for Method B to apply, the first £7,500 will be tax-free, and the remainder will be covered by your income tax personal allowance, so will be tax-free. The remainder is calculated as your gross rental receipts over and above the £7,500 figure, without any deduction for expenses.

HMRC's Helpsheet HS223 contains further information.

RDP Questions and Answers September 20

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 30 Oct 2020 15:19:38 GMT

Q. I have recently been able to reopen my small hotel and I am selling face value gift vouchers which can be redeemed against room reservations and/or in the dining room and bar. I have previously charged VAT at the standard rate for all supplies. How does the temporary VAT rate affect my business?

A. A new temporary reduced rate of 5% applies, from 15 July 2020, to sleeping accommodation in hotels and similar establishments, on-premises catering services, hot takeaway food and drink and admissions to certain attractions. This rate can be applied until 12 January 2021.

You can charge VAT at the reduced rate on room reservations and on-site dining until 12 January 2021, but the supply of alcoholic drinks remains at the standard 20% rate.

The changes affect the accounting treatment for VAT when issuing face value vouchers. There are two main types, as follows:

Single purpose face value vouchers (SPFVV). Where at the time of issue, the goods or services have a single VAT liability and the place of supply is known.
Multi purpose face value vouchers (MPFVV). These are vouchers which do not fall within the definition of a SPFVV.

For vouchers issued and/or redeemable whilst the temporary reduced-rate is in place, the treatment will change from that of a SPFVV to a MPFVV.

A voucher issued up to 12 January 2021 will be a MPFVV, because the liability of the underlying goods or services is not known and spans across two different VAT rates. You will need to account for any VAT on redemption for this particular type of voucher, instead of when it is issued.

Gift vouchers issued after 12 January 2021 will return to being SPFVV's, as all supplies will be subject to a single rate of VAT at the standard rate and VAT should be accounted for on issue not redemption.

HMRC Brief 10/2020 provides further details on the temporary rate change.

Further guidance on vouchers can be found in VAT Notice 700/7, at section 9 .

Q. My mother is a widow in her nineties but still lives in the same house that she and my late father bought in the early 1960s. I also lived there from birth until I married and moved out in 1990. Will I be able to claim inheritance tax (IHT) relief for the time that I lived there?

A. Unfortunately, the period that you lived in the house will not count because you did not own the house at that time. However, it may not be all bad news for IHT purposes. If your father left everything to your mother when he died, she may well have inherited his 'nil rate band'. In addition there are 'residence nil rate band' rules increasing the IHT nil rate band when the asset passing on death to the descendants of the deceased is the house that the deceased lived in. Further details can be found on the Gov.uk website Check if you can get an additional Inheritance Tax threshold .

RDP Questions and Answers August 2020

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 30 Oct 2020 15:18:23 GMT

Q. I am a sole trader trading as a graphic designer. I am voluntarily registered for VAT and I have several commercial clients who are also registered for VAT. Due to the coronavirus outbreak my graphic design business is very quiet, so to supplement my income I want to buy and sell bicycles to private individuals. Can I run the bicycle business as a different non VAT-registered business whilst keeping the graphic design business registered for VAT?

A. HMRC's VAT Registration manual at VATREG02200 states that 'In all cases it is the person (natural or legal) rather than the business which is registered, so a trader must take into account all their business activities'. Therefore, in your situation it may be beneficial to deregister the graphic design business for VAT purposes. You can always re-register as and when this side of your business picks up again.

Q. My father died in 2019 and my brother and I inherited a small commercial business unit. Probate is nearly complete now. If we sell the property in the future, will capital gains tax be payable on the disposal proceeds?

A. The acquisition value for future capital gains tax computation purposes will be the market value at the date of death. This is known as the 'probate value'. Capital gains tax will be calculated under the normal rules on any increase in value from that date until the date of disposal.

Q. How long do I need to keep VAT records for?

A. VAT-registered businesses must:

keep records of sales and purchases;
keep a separate summary of VAT; and
issue correct VAT invoices

In the UK, VAT records must be kept for at least six years (or ten years if the trader uses the HMRC VAT mini-one-stop-shop (VAT MOSS) service). VAT records may be kept on paper, electronically or as part of a software program (e.g. book-keeping software) - but whichever method is used, the records must be accurate, complete and readable. HMRC can visit businesses to inspect record-keeping and impose penalties if the records are not in order.

RDP Questions and Answers July 20

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 30 Oct 2020 15:17:19 GMT

Q. I have been contacted by coronavirus (COVID-19) Test and Trace. Am I eligible for statutory sick pay (SSP) from my employer?

A. Under the test and trace system that launched on 28 May, a person who has been notified that they have had contact with a person with coronavirus is requested to self-isolate for 14 days. The rules relating to SSP have been amended to include employees who are self-isolating in these circumstances.

If you have been working from home and are not furloughed, you may be able to continue working and should receive full pay, as normal. If this does not apply and your employer does not have a company sick pay scheme, then under new laws from 28 May 2020, you may be entitled to receive SSP for every day you are in isolation - from the first day - as long as you meet the eligibility conditions. This is the case whether or not you go on to develop symptoms.

If you were already on furlough when you were contacted by the test and trace service, you should discuss with your employer whether it is best for you to be kept on furlough or moved over to SSP - although there seems to be some flexibility, you cannot receive both at the same time. One consideration is that employers are required to pay SSP themselves, although may qualify for a rebate for up to two weeks of SSP. If employers keep a 'sick' furloughed employee on furlough, they remain eligible to claim at least a proportion for these costs through the furlough scheme.

Q. I have owned and rented out a residential property for the last ten years, which I am now considering selling. I will use the proceeds to purchase another rental property. Will I have to pay capital gains tax on the proceeds from the sale even if all the money is reinvested in another property that is also let?

A. Yes, you will be liable to capital gains tax on the gain arising on the sale, even though you will be reinvesting the money in another property that is also let. Rollover relief is available for residential investment property only in relation to qualifying furnished holiday lettings, and for compulsory purchases. If your property is in the UK you will need to report and pay any capital gains tax within 30 days of completing the sale.

Q. My business is struggling financially due to the impact of the coronavirus (COVID-19) and I am considering applying for a grant being made available by the government via local authorities. Would this income be subject to VAT?

A. Whilst HMRC have not confirmed the VAT implications in any of their announcements, the basic principles of supply and consideration can be expected to apply. VAT is a tax on supplies for consideration, so where a grant is made, and nothing is expected to be done in return it will not be subject to VAT.

Grant funding can be a complex area in some circumstances as it is common for funding bodies to use the term 'grant' when, in reality, it is payment for a contractual obligation. However, the business support funding being made available to mitigate the impact of Covid-19 does not fall into this category and will be outside the scope of VAT.

Details of various Government support measures available for business can be found online at https://www.gov.uk/government/publications/coronavirus-covid-19-business-support-grant-funding-guidance-for-businesses .

RDP Questions and Answers June 2020

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 30 Oct 2020 15:16:02 GMT

Q. I am the director of a limited company and due to the impact of the coronavirus, I will need to waive my entitlement to company dividends for the time-being. Are any formal waiver procedures necessary?

A. A ‘waiver of remuneration’ happens when a director or employee gives up rights to remuneration and gets nothing in return.

If an employee and employer agree to a reduction in the employee's remuneration before they are paid, for example to support company cashflow during the pandemic, then no income tax or National Insurance contributions (NICs) will be due on the amount given up. This is provided the agreement is not part of any wider arrangement to divert the amount to a particular recipient or a cause. For example, if it was waived on condition that the sum would be donated to a particular charity, this would still be liable to tax.

Directors or other shareholders, including employees, are able to waive their right to be paid a dividend. For this to be effective, a Deed of Waiver must be formally executed, dated and signed by shareholders and witnessed and returned to the company.

The waiver must be in place before the right to receive a dividend arises. For final dividends, this is before they are formally declared and approved by the shareholders. For interim dividends, the waiver must be in place before the dividends are paid.

Q. I have recently registered for VAT. Although my turnover is only just above the VAT registration threshold, I anticipate that it will now increase year-on-year. How does the flat rate scheme for VAT work and will it help me with business administration?

A. The VAT flat rate scheme (FRS) is used by many small businesses to help simplify their VAT reporting obligations, although some would argue that the scheme is not simple to use.

Broadly, the FRS is a simplified VAT accounting scheme for small businesses, which allows users to calculate VAT using a flat rate percentage by reference to their particular trade sector. When using the FRS, the business ignores VAT incurred on purchases when reporting VAT payable, with the exception of capital items which cost £2,000 or more.

In summary, with the flat rate scheme:

you pay a fixed rate of VAT to HMRC; and
you keep the difference between what you charge your customers and pay to HMRC; but
you can't reclaim the VAT on your purchases - except for certain capital assets over £2,000.

The percentages applicable to this scheme depend on the nature of the services provided. Full details of the scheme are included in the HMRC VAT Notice 733: Flat rate scheme for small businesses .

In your first year of VAT registration you get a 1% reduction in flat rate, which means that you can take 1% off the flat rate you apply to your turnover, until the day before your first anniversary of becoming VAT registered.

The scheme works well for some but not others. On the positive side, the scheme may save you some admin because you don't have to work out every item of input and output tax, but if your customers are VAT registered, you do have to calculate the VAT and issue VAT invoices in the normal way. Financially, the flat rates averages may work out cheaper for you than normal accounting or you may find this scheme more expensive.

Q. I have a part time job and I earn about £9,000 a year. As my earnings are less than the tax-free personal allowance, can I transfer the unused amount to my husband?

A. A spouse or civil partner who is not liable to income tax or not liable above the basic rate for a tax year may transfer part of their personal allowance to their spouse or civil partner, provided that the recipient of the transfer is not liable to income tax above the basic rate.

The transferor's personal allowance will be reduced by the same amount. For 2020/21 the amount that can be transferred is £1,250 (remaining unchanged from 2019/20). The spouse or civil partner receiving the transferred allowance will be entitled to a reduced income tax liability of up to £250 for 2020/21.

Backdated claims are possible and could be worth in excess of £800.

RDP Questions and Answers May 20

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 30 Oct 2020 15:14:53 GMT

Q. I am thinking of buying a new house that I will use as my main residence. I won't sell my current home until I move into the new property. Will I have to pay the additional 3% stamp duty land tax (SDLT) change when I buy the new property?

A. The short answer is yes.

However, in the situation where the purchase of a new residence precedes sale of the old, tax initially paid on the purchase of the new residence will be refundable if the old residence is disposed of within the three-year window.

The original land transaction return may be amended within the later of:

three months beginning with the effective date of the subsequent sale of the old residence; and
twelve months beginning with the filing date for the original return.

Q. I started trading on 1 September 2019 and am now thinking about completing my 2019/20 tax return. I have not incurred any capital expenditure and my turnover is less than the current VAT threshold. Should I use 31 March (or 5 April) as my accounting year-end?

A. If you make your business accounts up to 31 March, HMRC will treat this as being made up to 5 April. One advantage of a 31 March/ 5 April year-end is that no 'overlap' profits will be created. Broadly, overlap profits are bought about by being taxed twice in the first two years of trading. You would get relief for this overlap, but potentially this won't be until a much later stage (for example if you change your accounting date, or if you cease to trade). Quite often, profits in a new business are smaller at the start and gradually increase. An advantage of a 30 April year-end is that tax is paid later. So, for a 30 April 2020 year-end, tax will become due for payment on 31 January 2022, and the tax on profits earned between 1 May 2020 and 30 April 2021 will be payable by 31 January 2023. If the business had a 31 March 2021 year-end, the tax on profits earned between 1 April 2020 and 31 March 2021 would not become payable until 31 January 2022. Of course, if you chose a later year-end, you should make sure that you keep enough money aside to pay your tax bill when it becomes due.

Q. How do I register as a self-employed subcontractor in the construction industry?

A. You need to register with HMRC for both self-assessment as self-employed, and under the construction industry scheme (CIS). This does mean that there are two separate registrations, but these can both can be done at the same time.

The contractor for whom you are working will ask you for your unique tax reference (UTR) and you need to provide this before you are first paid, in order to determine which tax deduction rate to use.

The UTR is issued when you are first set up under self-assessment to complete a tax return. If you have not previously been required to prepare a tax return, you will be given a UTR when you register as self-employed.

For further guidance on registration and other obligations for subcontractors, see the Gov.uk website at https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor .

RDP Questions and Answers April 20

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 30 Oct 2020 15:13:48 GMT

Newsletter issue - April 2020.

Q. My business imports goods from the EU. What is the current position regarding postponed accounting for VAT?

A. There is now a transition period until the end of 2020 during which the UK and EU negotiate additional arrangements. The current rules on trade, travel, and business for the UK and EU will continue to apply during the transition period. In broad terms, new rules will take effect on 1 January 2021.

HMRC have confirmed that from 1 January 2021, postponed accounting for VAT will apply to all imports of goods, including from the EU. This will allow businesses to account for VAT on imports through their periodic VAT return as opposed to having to pay that VAT at the UK border.

Q. My business produces digital publications. I am aware of the decision in the recent case of News Corp UK and Ireland Ltd (UT/2018/0065), following which HMRC maintained that the zero rate of VAT only applies to the sale of printed matter (that is, supplies of goods). However, I understand that this policy has now changed. Is this true?

A. Yes. The government will apply a zero rate of VAT to e-publications, which will make it clear that e-books, e-newspapers, e-magazines and academic e-journals are entitled to the same VAT treatment as their physical counterparts. This will take effect from 1 December 2020.

Q. I have recently sold a buy-to-let property in the UK, which generated a capital gain. Can I off-set this gain against a rental property development in France?

A. Unfortunately not! There is no rollover/holdover relief, or deferral of capital gains tax, caused by the sale of a UK residential property, by investing in another property, regardless of whether the new property is in the UK or overseas. The only exceptions to this rule are: (a) the sale relates to a compulsory purchase order; or (b) in the case of a qualifying furnished holiday letting.

RDP Questions and Answers March 2020

Mon, 02 Mar 2020 16:18:01 GMT

Q. If I sell a buy-to-let property in July 2020, when will I have to pay the capital gains tax (CGT) arising on the sale?

A. Finance Act 2019 made certain changes regarding payment of CGT, which take effect from April 2020 and broadly align the position of UK residents and non-UK residents.

Subject to certain exceptions, where there has been a disposal of a residential property, payment on account of the CGT will be due on the filing date for the return, which is generally within 30 days of the day after the date the property sale is completed.

The payment on account required is the amount of CGT notionally chargeable at the filing date. This is the tax that would be due if, under the normal rules for calculating chargeable gains for a tax year, the tax year ended at the time the disposal is completed.

In calculating the amount, any unused allowable losses for capital gains purposes incurred by the time the disposal is completed can be used. Available reliefs and the annual exempt amount are applied in the normal way.

The amount of CGT payable on account is the amount after applying the applicable rate of tax to the net gain.

Since the 30-day payment window can make it difficult for some people to provide exact figures, HMRC allow for certain estimates and assumptions to be made. The taxpayer can make a correction once the exact figures are known. If the resulting amount is higher than the amount previously paid, the difference becomes payable to HMRC and interest may be due. If the amount is lower, the difference becomes repayable along with repayment interest from HMRC.

Q. I am thinking of transferring ownership of a rental property to my daughter to help reduce the value of my estate for inheritance tax (IHT) planning purpose. There will be no cash consideration given. What value is used for the gift and what are the CGT implications?

A. For CGT purposes, you are deemed to transfer to your daughter at current market value. So the difference between the market value and the price you originally paid for it will be your capital gain. You will be liable to pay CGT on the gain, even though you have not received any cash for it.

Note that different rules apply for stamp duty land tax (SDLT) - if you gift the property to your daughter for no consideration, there is no SDLT for her to pay.

Q. I work part time and don't earn enough to pay tax, but my husband earns £35,000 a year from his full time job. I have been told that I can transfer some of my personal allowances to my husband so he can save some income tax. Is this true?

A. Claiming the marriage allowance can save married couples or civil partners up to £250 in 2019/20, but it is estimated that more than 2 million couples are missing out.

The allowance was introduced from 6 April 2015, and enables married couples or civil partners to transfer £1,250 of personal allowance (2019/20 rate) from one spouse or partner to the other, provided that the recipient does not pay tax at a rate higher than basic rate.

To process a claim, HMRC will need the national insurance numbers for each spouse/civil partner. In addition, if the claim is made online or by phone, HMRC will have to check the identity of the person making the claim and will ask for information from the claimant such as the last four digits from bank accounts that any state benefits (such as pension or child benefit) are paid into or from bank accounts that pay interest. Alternatively HMRC may ask for information from employment such as information contained on a P60 (the form given to all employees at the end of a tax year).

A claim may be backdated, which means a couple claiming before 5 April 2020 could receive up to £1,150.

Further information can be found at https://www.gov.uk/government/news/spoil-your-loved-one-with-hmrcs-valentines-day-cash-boost .

RDP Questions and Answers Feb 2020

Tue, 04 Feb 2020 11:24:01 GMT

Q. What items can be excluded from 'taxable turnover' for VAT registration purposes?

A. When the 'taxable turnover' of a business reaches the VAT registration threshold, currently £85,000 per annum, it must register for VAT. Income that is not counted as 'taxable turnover' is excluded from the £85,000 turnover figure.

There are several items that can be ignored when calculating 'taxable turnover' for VAT registration purposes. Any income that is 'exempt' from VAT is ignored. This commonly includes insurance, postage stamps or services; and health services provided by doctors or dentists.

Some goods and services are outside the VAT tax system so VAT is neither charged nor reclaimed on them. Such items include: goods or services you buy and use outside of the EU;
statutory fees - like the London congestion charge;
goods you sell as part of a hobby - like stamps from a collection;
donations to a charity - if given without receiving anything in return.

Supplies of services to business customers in another EU member state or any customer outside the EU are treated as outside the scope of UK VAT and do not count towards turnover for VAT registration purposes (for example: supplying consultancy services to a business customer in Spain).

Other non-business income that may be excluded includes disbursements incurred on behalf of a client, grants, or any income from employment.

Finally, it is worth noting that you can ignore any 'one-off' sales of capital assets. This means that if, for example, you sell a van and the income received puts the business turnover over the registration limit, the sales proceeds can be ignored.

Q. I bought a vehicle under a hire purchase (HP) agreement for use in my business. I did not make the final payment under the agreement, so did not take ownership of the vehicle. What happens regarding the capital allowance annual investment allowances which were claimed at the start of the contract?

Vehicles bought under HP agreements usually become the property of the hirer once the final payment is made at the end of the lease period. For capital allowances purposes, relief for the whole cost of the vehicle is generally allowable from the date of delivery, providing the asset was still in business use at the end of the chargeable period.

However, where the final payment is made, and subsequently the vehicle is not acquired by the hirer, then it is treated as having been disposed of by. Where, as in this case, the asset has been brought into use, the disposal value is the total of any capital sums received/receivable (if any) plus the amounts yet to be incurred under the contract - in this case this would be the amount of the final instalment.

HMRC's Capital Allowances Manual, paragraph CA23330 , explains this in further detail and provides a worked example.

Q. I have recently sold my main residence and bought a smaller property. Unfortunately I sold the house for £30,000 less than I originally paid for it. Can I offset this loss against income from my business and reduce my income tax liability for this year?

There are strict rules governing the set off of losses against other income and the tax law does not permit you to do this. Losses on the sale of a principal private residence are generally not allowable losses for tax purposes.

If the property had been an investment asset, the loss on the sale may be treated as a 'capital loss', which could be offset against other capital gains you make, but it cannot be offset against other income. For further information on this, see the HMRC Capital Gains Manual at paragraph CG65080 .

RDP Questions and Answers January 2020

Fri, 03 Jan 2020 15:49:58 GMT

Q. I am the sole director and shareholder of a limited company, which has been trading for many years. Last year, I took an extended holiday and travelled around the world with my wife. We were away for twelve months in total. Whilst I was away the company continued to collect outstanding payments, but it did not receive any other income. Now that I am back, I have taken on another director/shareholder (50%) and company trading has resumed. Should I have informed HMRC that I was going away and how should the losses in the period of temporary non-trading be treated?

A. According to the HMRC Business Income Manual (para BIM80500 onwards), your 'intention' to continue to trade at a later date will be an important factor in deciding whether there was a cessation. The Manual states that if:

'...the new activity is similar in scale and nature to the old, it is relevant to look at all the circumstances in which the break occurred, including the length of the break and the intentions of the business proprietors' ( BIM80580 ).

A mere decision to wind down or dispose of the business does not of itself amount to a permanent discontinuance if trading activity in fact continues after the decision (J & R O'Kane & Co v CIR [1922] 12TC303).'

If HMRC rule that the old trade did not cease, and therefore a new trade has not commenced, then any losses can simply be carried forward and set off against future profits from the same trade. Also, if it is decided that there was no cessation of trade, there is no requirement to notify HMRC.

Q. My employer has agreed to give me an interest-free loan to purchase my annual rail fare ticket. The season ticket is £5,000. Will I have to pay tax on the loan?

You should note that tax is charged on the amount written off of any loans, whether or not the recipient of the loan is still employed.

Q. Can the annual capital gains tax (CGT) exemption be utilised against a capital gain that qualifies for entrepreneurs' relief?

A. The short answer is yes it can.

If you're entitled to entrepreneurs' relief, qualifying gains up to the lifetime limit applying at the time you make your disposal (£10 million for disposals on or after 6 April 2011), will be charged to CGT at the rate of 10%.

If your qualifying net gains exceed the lifetime limit applicable to the time you make that disposal, no further relief is due and the excess over that amount is wholly chargeable at the normal rate of CGT at the time your gains accrue. The annual exempt amount is allocated in the most beneficial way, so is set first against gains having the highest rate of CGT. If you make a subsequent business disposal in a later year which qualifies for entrepreneurs' relief, the total relief (for all years) is still limited to your lifetime limit. Any gains exceeding that limit are wholly chargeable at the normal rate of CGT.

See the HMRC factsheet HS275 for further details.

RDP Questions and Answers December 2019

Mon, 02 Dec 2019 17:32:28 GMT

Q. Do all assets qualify for the capital allowances Annual Investment Allowance?

A. Unfortunately not all expenditure on plant and machinery will qualify for annual investment allowances (AIA). The most common examples of assets that are not eligible are cars and assets that have been used for some other purpose before being brought into the business, for example a personally owned computer. These assets should still qualify for capital allowances, but allowances will be given gradually over several years, rather than the full cost being allowed against income all at once, which is what the AIA gives.

The AIA was set at its current level of £200,000 from 1 January 2016, but it was increased to £1,000,000 for a temporary period of two years from 1 January 2019. It is therefore currently expected that the allowances will revert to £200,000 from 1 January 2021.

Q. Due to cash flow difficulties I have not yet paid my self-assessment payment on account, which was due on 31 July 2019. I realise that I will have to pay interest on the amount outstanding, but will I also have to pay penalties?

A. HMRC charge interest on any tax paid late. The current rate in force is 3.25%.

With regards to penalties, you will only be charged if your balancing payment (due 31 January 2020) is late. The penalties for late payment under self-assessment are as follows:

30 days late: 5% of the unpaid tax
6 months late: additional 5% of the unpaid tax
12 months late: additional 5% of the unpaid tax.

HMRC may reduce a late payment penalty in 'special circumstances', which does not include inability to pay. In addition, a defence of 'reasonable excuse' may be available.

In relation to payments on account, the maximum penalty for fraudulent or negligent claims by taxpayers to reduce payments on account is the difference between the correct amount payable on account and the amount of any payment on account made.

Q. My wife doesn't work. Can she transfer her unused personal tax allowance to me?

A. It is possible for a spouse or civil partner who is not liable to income tax, or not liable above the basic rate for a tax year, to transfer part of their personal allowance to their spouse or civil partner, provided that the recipient of the transfer is not liable to income tax above the basic rate.

The transferor's personal allowance will be reduced by the same amount. For 2019/20 the amount that can be transferred is £1,250. The spouse or civil partner receiving the transferred allowance will be entitled to a reduced income tax liability of up to £250 for 2019/20.

If you make the claim before 6 April 2020 for the tax year 2019/20, the claim continues until either you withdraw it or the recipient spouse or civil partner does not obtain a tax advantage. On the other hand, if you make the claim after the end of the relevant tax year, it will only have effect for the tax year to which the claim relates. So, if you make a claim after 5 April 2020 for 2019/20, you would need to make another claim for 2020/21 if appropriate.

The claim can be made up to four years from the end of the relevant tax year. In other words, a claim for marriage allowance for the tax year 2019/20 must be made by 5 April 2024.

RDP Questions and Answers November 2019

Wed, 30 Oct 2019 14:47:35 GMT

Q1. I have recently started running my own business providing training services. HMRC have advised me that VAT is not charged on the type of services I am providing. Does this mean that my services are zero-rated for VAT or actually exempt? Do I need to register for VAT?

A. Although both zero-rated and exempt supplies result in no VAT being applied to the supply, the consequence is very different between them and it is important to get it right.

Zero-rating is a rate of VAT, albeit at zero per cent. The goods and/or services to which it applies are taxable supplies. This in turn renders any supplier of zero-rated goods and/or services liable to register for VAT, where appropriate (see the GOV.uk website at https://www.gov.uk/vat-registration for further information on registration). The advantage of VAT registration is that VAT can be reclaimed on costs. However, a business making solely exempt supplies is not making taxable supplies, so cannot register for VAT. Consequently, all VAT incurred upon expenditure becomes an additional irrecoverable cost. Where a supply could be either zero-rated or exempt, zero-rating will take priority.

Q2. I am a company owner and employer. One of my key employees has recently become ill and requires medical treatment. If the company pays for the treatment directly on her behalf, will the employee have to pay tax on it?

A. Expenditure by employers on medical treatment for employees is generally chargeable to income tax either as a payment of earnings or as a taxable benefit. However, an exemption from income tax applies where an employer funds recommended medical treatment where the recommendation itself meets certain specific requirements. This means that expenses incurred by an employer to cover medical treatment which is recommended to an employee for the purposes of assisting the employee to return to work after a period of absence due to injury or ill health should not be treated as a chargeable benefit on the employee. The exemption applies to expenditure up to a cap of £500 per tax year per employee.

Further information on this subject can be found in HMRC's Employment Income Manual at paragraph EIM21774 .

Q3. I have recently purchased three properties which I intend to rent out. I envisage that I will need to spend a considerable amount of time each year undertaking various necessary repairs. Can I pay myself say, an hourly rate, for the time I spend on the properties and claim a corresponding deduction against my rental income?

A. Any amounts taken from the property rental business will simply be viewed as a withdrawal of profits from the business and taxed accordingly. The HMRC Property Income Manual at paragraph PIM2210 states:

'A landlord can't deduct anything for the time they spend themselves working in their own rental business. They can deduct any wages or salaries they pay to their spouse, civil partner or other relations for working in the rental business provided the amounts paid represent a proper commercial reward for the work done. The spouse, civil partner or relative will be taxable on their earnings if their income is large enough.'

RDP Questions and Answers October 2019

Tue, 01 Oct 2019 12:11:42 GMT

Q. Our house has always been owned jointly by myself, my mother and my sister. My sister and I now want to buy our own homes and want to make mum the sole owner of our current home. If we put the house in her sole name will she have to pay capital gains tax (CGT) on it?

A. Transferring the house into your mother's sole name will not trigger a liability to CGT, but it may have CGT implication for you and your sister. However, since you live in the property, it is quite likely that you would qualify for principal private residence (PPR) relief and no CGT charge would arise.

Q. I have recently started a new job and have been provided with a company car. I pay for fuel for private use but I can claim mileage for business journeys. Will I have to pay tax on fuel payments?

A. In addition to the company car benefit charge, employees have to pay tax on any fuel their employer provides that is used for private mileage. For 2019-20 this is calculated by multiplying the car's CO2 percentage by £24,100. So, if the percentage is 30, the tax charge for petrol is £7,230. For a basic rate taxpayer, the after-tax cash equivalent is £1,446 and for a higher rate taxpayer £2,892. The charge is the same regardless of whether you use 2 litres or 2,000 litres of fuel.

However, this tax charge can be avoided if you pay all the private fuel costs back to your employer. You need to keep accurate records (mileage logs and fuel receipts) to support such a claim to HMRC.

Your employer can give you a tax-free fuel allowance if you pay for fuel used for business travel in your company car. HMRC publish new advisory fuel rates four times a year. The most recent rates, apply from 1 September 2019.

HMRC accept that, where an employer reimburses an employee for the cost of fuel for business mileage in a company car at the above rates, no taxable benefit arises.

Q. I have just started my first job working for a building contractor. My boss says I need to register for tax as a Construction Industry subcontractor. How do I do this?

A. You need to register with HMRC for both self-assessment as self-employed, and under the construction industry scheme (CIS). Effectively these are separate registrations, but they can both be done at the same time.

The contractor for whom you are working will ask you for your unique tax reference (UTR) and you need to provide this before you are first paid, in order to determine which tax deduction rate to use.

Under CIS, a contractor must deduct 20% from your payments and pass it to HMRC. These deductions count as advance payments towards your tax and National Insurance bill. If you do not register for the scheme, contractors must deduct 30% from your payments instead.

For further guidance on registration and other obligations for subcontractors, see the Gov.uk website at https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor .

RDP Questions and Answers September 2019

Tue, 03 Sep 2019 13:29:42 GMT

Q. I am a qualified chiropractor and I have been running my own business for many years. I would now like to specialise in a particular area and have enrolled on a university course to obtain the relevant qualification. The cost is around £18,000 per annum and the course is three years in duration, during which time I intend to continue working part-time. Is the cost of the course deductible for tax purposes?

A. Expenditure incurred by the owner of a business on training courses for themselves is revenue expenditure if the course merely updates existing expertise or knowledge. Expenditure on a course which provides new expertise or knowledge is capital. HMRC accept that 'the line between the two may often be difficult to draw' and they may require further information from you to make a decision. HMRC's Business Income Manual provides further guidance at paragraph BIM35660.

Q. What is the statutory time limit for keeping VAT records?

A. Generally, you must keep all your business records for VAT purposes for at least six years (or ten years the trader uses the HMRC VAT mini-one-stop-shop (VAT MOSS)). Records that you use for other tax purposes may need to be kept for longer periods. VAT records may be kept on paper, electronically or as part of a software program (eg book-keeping software) - but whichever method is used, the records must be accurate, complete and readable. HMRC can visit businesses to inspect record-keeping and impose penalties if the records are not in order. If the six-year rule causes serious storage problems or undue expense, or you need advice on records for other types of tax, then you should consult HMRC's VAT general enquiries helpline. HMRC may be able to allow you to keep some records for a shorter period.

Q. I own a buy-to-let property, which has a mortgage of £50,000 owing on it. I bought the property for £100,000 and it is currently worth around £150,000. What will be the capital gains tax implications if I pay off the mortgage and then sell the property?

A. The gross capital gain will be the difference between the sale price the purchase price, ie £50,000 (£150,000 - £100,000). A mortgage is not relevant to a capital gains computation unless, in rare circumstances, where a purchaser takes over responsibility for a mortgage (see HMRC's Capital Gains Tax manual at paragraph cg12706 for further information).

RDP Questions and Answers August 2019

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 09 Aug 2019 13:21:52 GMT

Q. A few years ago I bought an antique chair for £3,500. I have recently been offered £8,000 for it. Will I have to pay capital gains tax if I accept the offer?

A. A useful capital gains tax exemption exists for tangible moveable property (a chattel) which is not a wasting asset (broadly, an asset with a predictable life not exceeding 50 years).

A gain on disposal of a chattel is exempt if the disposal consideration is £6,000 or less. Where disposal proceeds exceed the exemption limit, the gain is limited using the following formula:

5/3 x (disposal consideration - £6,000)

In relation to your chair, the capital gain would be:

Disposal consideration - £8,000
Less: allowable cost - (£3,500)
Gain before chattel exemption - £4,500
Less: chattels exemption:
amount by which gain exceeds 5/3 × (£8,000 - £6,000):
£4,500 - £3,333 = £1,167
Chargeable gain - £3,333

Q. I am a VAT-registered trader and use the flat rate scheme for working out my VAT payments. I receive a small amount of rental income each month which I include in turnover to calculate the VAT due to HMRC. The rental income is managed by a letting agent. Should I include the gross or net rent in my VAT?

A. HMRC's Notice 733, section 6.2 sets out what must be included for the purposes of calculating flat rate turnover, which includes the value of exempt income, such as any rent or lottery commission.

In addition, section 9.4, which deals with cash-based turnover, confirms that if a net payment is received, the full value before any deductions is included in the scheme turnover.

Q. I am the director of a family-owned company. My wife and my two children are employed by the company. If the company provides a mobile phone to each of us, what will the tax implication be?

A. No tax charge arises where an employer provides an employee with a mobile phone, irrespective of the level of private use. The exemption applies to one phone per employee.

A taxable benefit will however, arise if the employer meets the employee's private bill for a mobile phone or if top-up vouchers are provided which can be used on any phone.

If the company takes out a contract for four mobile phones and the bills are paid directly to the phone provider by the company, the bills will be deductible in computing profits. Each family member will receive the use of a phone tax-free, which means they do not need to fund one from their post-tax income.

RDP Questions and Answers July 2019

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 09 Aug 2019 13:20:44 GMT

Q. If my husband and I give our house to my children but continue to live in it, will inheritance tax be chargeable on the property when we die?

A. The inheritance tax residence nil rate band (RNRB), which is currently being phased, is designed to help people in your position to pass on the family home to children or grand- children, tax-free after their death.

Broadly, where someone dies on or after 6 April 2017 and their estate is above the basic inheritance tax threshold (currently £325,000), the estate may be entitled to an additional threshold before any inheritance tax becomes due. The extra amount for 2019/20 is up to £150,000 and this will increase to £175,000 in 2020/21.

The additional threshold can be added to the basic inheritance tax threshold of £325,000 if the person and their estate meet the qualifying conditions. This means that from 2020/21, it should be possible for a married couple or civil partners, to pass on a family home worth up to £1 million to their direct descendants.

The amount of the additional threshold due for an estate will be the lower of:

the value of the home, or share that direct descendants inherit
the maximum additional threshold available for the estate when the person died
HMRC's guidance Inheritance tax: additional threshold (RNRB) provides further information. Always seek professional advice before entering into any arrangement where the main purpose, or one of the main purposes, is to obtain a tax advantage.

Q. My child's school is asking parents to make a one-off donation to help with much-needed school funds. If I complete a gift aid form for my donation, will I be able to claim tax back on the payment?

A. If the school is a registered charity, either registered with the Charity Commission or with HMRC, you can make gift aid payments to them - both regular and one-off payments.

Under gift aid your donation is treated as being made net of basic rate tax (at 20%) and the charity claims the tax back from the government. So, if you make a donation of £100 under the Gift Aid scheme and you're a basic rate taxpayer, the charity is able to claim back tax of £25 from the government, which means the charity receives £125, but it costs you only £100. A higher rate taxpayer can claim 20% (the difference between the higher rate of tax at 40% cent and the basic rate of tax at 20%) as a tax deduction on the total value to the charity of the donation. So, on a gift of £100, a higher rate taxpayer can reclaim £25 (20% of the gross donation of £125). The claim is usually made via the individual's self-assessment tax return.

Q. I borrowed some money from my company to lend to my brother. He is paying it back in monthly instalments over three years. I am the sole director and shareholder of the company and I am not charging my bother interest on the loan. Are there any tax implications I need to consider?

A. The tax implications for the company are that the loan is deemed to have been made to an associate of a participator in the company, and as such, it will be caught by what are commonly referred to as the 'section 455 rules'. Broadly, these rules mean that the company will have to pay tax at 32.5% on the amount of the loan outstanding nine months after the accounting year end of the company. When the loan has subsequently been repaid to the company, HMRC will refund the tax paid.

There is an exception to this, namely where a loan does not exceed £15,000, but only when the shareholder does not own more than 5% of the shares.

If an employee of a relative of an employee receives an interest-free loan from an employer, this will be a benefit-in-kind for the employee. Interest at the 'official rate' (currently 2.5%) is calculated, and this deemed interest is subject to tax. However, there are exceptions to this tax charge where:

the loan is a 'qualifying loan';
a qualifying or non-qualifying loan is less than £10,000; and
the employee can show that they received no benefit from the loan to the relative.

RDP Questions and Answers June 2019

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 09 Aug 2019 13:19:27 GMT

Q. If I take my staff away overnight for an off-site daytime business meeting and evening social function, will the costs be tax deductible for corporation tax purposes?

A. The costs will be allowable for the company, but a benefit-in-kind will arise on the social aspect of the trip. It may be possible to obtain HMRC approval that the benefit falls within the exemption for annual parties and similar functions costing no more than £150 per attendee (if the £150 is exceeded, the whole amount is taxable as a benefit).

You may wish to consider structuring the event to take advantage of a wide-ranging and generous tax exemption for work-related training. The term 'work-related training' covers any training course or other activity designed to impart, instil, improve or reinforce any knowledge or skills or personal qualities which is, or is likely to be useful to the employee in performing the duties of any 'relevant employments' or which will qualify or better qualify the employee to undertake any relevant employment or such charitable or voluntary activities which could be undertaken in connection with the 'relevant employment' (ITEPA 2003, s 251(1)).

It may be possible to sandwich the evening 'social' event between actual training, with the evening event designed to be motivational (or achieve some other betterment purpose), but great care is needed here to ensure the costs qualify.

Q. I am in the process of purchasing a new house that I will use as my main residence. I will sell my current main residence as soon as I buy the new house. I also own several other rental properties but I have never lived in any of them. Will I have to pay the higher rate stamp duty land tax (SDLT) charge on my new house?

A. The basic rule is that the higher SDLT rates apply when you buy a residential property (or a part of one) for £40,000 or more, if:

it will not be the only residential property worth £40,000 or more that you own (or part own) anywhere in the world;
you have not sold or given away your previous main home;
no one else has a lease on it which has more than 21 years left to run.

You may have to pay the higher rates even if you intend to live in the property you're buying (and regardless of whether or not you already own a residential property).

If you sell or give away your previous main home within 3 years of buying your new home you can apply for a refund of the higher SDLT rate part of your Stamp Duty bill.

From 29 October 2018 onwards, a refund must be claimed within 12 months of either the:

sale of the previous main residence
filing date of the SDLT return relating to the new residence, whichever comes later.

Q. I have been running my own business since 1 September 2018 and now wish to complete my 2018/19 tax return. I have not incurred any capital expenditure and my turnover is less than the current VAT registration limit. Should I use 31 March (or 5 April) as my accounting year-end?

A. If you make your business accounts up to 31 March, HMRC will treat this as being made up to 5 April.

One advantage of a 31 March/ 5 April year-end is that no 'overlap' profits will be created. Broadly, overlap profits are bought about by being taxed twice in the first two years of trading. You would get relief for this overlap, but potentially this won't be until a much later stage (for example if you change your accounting date, or if you cease to trade).

One advantage of a 30 April year-end is that tax is paid later. So, for a 30 April 2019 year-end, tax will become due for payment on 31 January 2021, and the tax on profits earned between 1 May 2019 and 30 April 2020 will be payable by 31 January 2022. If the business had a 31 March 2020 year-end, the tax on profits earned between 1 April 2019 and 31 March 2020 would become payable on 31 January 2021. Remember though, if you chose a later year-end, make sure that you keep enough money aside to pay your tax bill when is becomes due.

RDP Questions and Answers May 2019

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 09 Aug 2019 13:18:22 GMT

Q. I have realised that I made a mistake on my most recent VAT return. What do I need to do to put things right?

A. You can make adjustments to correct errors on past returns if the error:

was below the reporting threshold (broadly, less than £10,000, or up to 1% of your box 6 figure (up to a maximum of £50,000);
was not deliberate; and
relates to an accounting period that ended less than 4 years ago.

When you submit your next return, add the net value to box 1 for tax due to HMRC, or to box 4 for tax due to you.

Alternatively, you can notify HMRC of the error by submitting form VAT652 to the VAT Error Correction Team. Further information can be found here .

Make sure you keep good accurate records relating to the adjustment.

Q. I intend to start my own business later this year but have yet to decide whether to trade through a limited company straight away. I will need to make a substantial initial investment in the business, so it is likely that I will make a loss in the first, and maybe even second, year of trading. Is loss relief the same for sole traders and limited companies?

A. There are various advantages and disadvantages of incorporating a business, and taking everything into account, you may come to the conclusion that it would be best to carry on your business as a sole trader in the early years. This situation may be particularly relevant if you envisage making losses in the early years of trading, because you can carry back losses made in the first four years against personal income of the three preceding years, often resulting in a substantial refund of tax becoming due. Loss relief for limited companies will generally be more restrictive in the early years of trading. However, don't miss out on the opportunity of forming a limited company later on when the benefits of company status may be more valuable.

Q. I would like to give my daughter a gift of £5,000 cash. What are the inheritance tax implications of this gift?

A. The inheritance tax (IHT) annual exemption enables a person to give away up to £3,000 per annum free of IHT. In addition, any unused exemptions from the previous year, may be carried forward, although any unused exemptions earlier than a year will be lost. This means that if no gifts have been made in the previous tax year, a person could make an IHT-free gift in the current tax year of £6,000. If the amount exceeded the annual exemption available, it could still remain exempt from IHT if the person making the gift survives seven years.

In addition to the annual exemption, small gifts of up to £250 per year may be made free from IHT. The gift must be an outright gift to any one person each tax year.

Gifts on marriage can also be free of IHT provided that the gift does not exceed set limits. The limits depend on the relationship to the married couple/ civil partners and are as follows:

Parents - £5,000
Grandparents, great-grandparents - £2,500
Bride to groom/ groom to bride/ bride to bride/ groom to groom - £2,500
Anyone else - £1,000

These exemptions may be combined in certain circumstances to reduce a potentially exempt transfer (PET).

RDP Questions and Answers April 2019

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 09 Aug 2019 13:05:14 GMT

Newsletter issue - April 2019.

Q. I have some permanent employees and I also pay temporary workers as and when I need extra help. I understand that changes have recently been made to the rules concerning payslips. Could you please provide some clarification?

A. Prior to April 2019, employers were only obliged to give payslips to employees. From April 2019, all workers are entitled to receive an itemised payslip.

If the worker is not always paid the same amount, you need to include the hours they have worked. This will enable the worker to check they have been paid the right amount and that they have been paid at least the new National Minimum Wage (NMW) rates, effective from 1 April 2019.

If you do not currently record the number of hours your staff work, you need to start doing so with immediate effect.

In particular, these changes are designed to help gig economy workers and staff who regularly work overtime.

Q. I have been running my own business for several years and my turnover has recently exceeded the VAT registration threshold. I have registered with HMRC and am waiting for my VAT number and certificate. Can I claim back VAT on purchases made by the business before the registration date?

A. There is a time limit for backdating claims for VAT incurred before the effective date of registration. From the date of registration, the time limit is:

4 years for goods you still have, or that were used to make other goods you still have;
6 months for services.

You can only reclaim VAT on purchases for the business now registered for VAT and they must relate to your 'business purpose'. This means they must relate to VAT taxable goods or services that you supply.

You should reclaim them on your first VAT return and keep records including:

invoices and receipts;
a description and purchase dates;
information about how they relate to your business now.

Q. I inherited my late father's house in March 2018, which I subsequently sold in December the same year. I have never lived in the house. The total value of my father's estate is less than £175,000. Will I have to pay tax on the proceeds of the sale?

A. For tax purposes you will inherit the house at the market value at the date your father died - the probate value. If there has been no increase in value between the date of death and the date of sale, there will be no capital gains tax to pay on the disposal of the house.

Since the total value of your father's estate is less than £175,000, then assuming that he did not make any gifts in the seven years before his death, there will be no inheritance tax payable on the estate.

RDP Questions and Answers February 2019

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 09 Aug 2019 13:04:05 GMT

Q. I recently sold my main residence and down-sized to a smaller property. Unfortunately, because of current economic conditions, the sale price of the house was £30,000 less than I originally paid for it many years ago. Can I offset this loss against income from my business and reduce my income tax liability for this year?

A. Unfortunately the tax law does not permit you to off-set losses in this way. I am assuming that your business does not trade in properties. Losses on the sale of a principal private residence are generally not allowable losses for tax purposes. If the property was an investment asset, the loss on the sale may be treated as a 'capital loss', which could be offset against other capital gains you make, but it cannot be offset against other income. For further information on this, see the HMRC Capital Gains Manual at paragraph CG65080.

Q. I have been trading for several years. Although I am not currently registered for VAT, I think my income is getting close to the VAT registration threshold. Are there any items I can ignore for working out my 'taxable turnover' for VAT registration purposes?

A. When the 'taxable turnover' of a business reaches the VAT registration threshold, currently £85,000 per annum, it must register for VAT. As you state, any income you receive that is not counted as 'taxable turnover' is excluded from the £85,000 turnover figure.

There are several items that can be ignored when calculating 'taxable turnover' for VAT registration purposes. This commonly includes insurance, postage stamps or services; and health services provided by doctors or dentists.

Some goods and services are outside the VAT tax system so VAT is neither charged nor reclaimed on them. Such items include: goods or services you buy and use outside of the EU;
statutory fees - like the London congestion charge;
goods you sell as part of a hobby - like stamps from a collection;
donations to a charity - if given without receiving anything in return.

Other non-business income that may be excluded includes disbursements incurred on behalf of a client, grants, or any income from employment.

It is also worth noting that 'one-off' sales of capital assets can be ignored. So, for example, if you sell a van and the income received puts the business turnover over the registration limit, the sales proceeds can be ignored.

Q. My employer has offered to give me an interest-free loan to purchase an annual rail fare ticket costing £3,500. Will I have to pay tax on the loan?

A. Strictly, the taxable benefit on cheap or interest-free loans is the difference between any interest paid and the interest payable at the 'official rate' (currently 2.50%). However, there is no charge where the total of all beneficial loans made to an employee do not exceed £10,000 at any time in the tax year. If this is the only loan you have from your employer, you will not need to pay tax on the benefit. However, it is worth noting that tax is charged on the amount written off of any loans, whether or not the recipient of the loan is still employed.

RDP Questions and Answers January 2019

Fri, 09 Aug 2019 13:02:31 GMT

Q. What should I do about an error I accidently made on my latest VAT return?

A. You can adjust your current VAT account to correct errors on past returns if the error:

was below the reporting threshold (in broad terms this is less than £10,000, or up to 1% of your box 6 figure (up to a maximum of £50,000);
was not deliberate; and
relates to an accounting period that ended less than 4 years ago.

When you submit your next return, add the net value to box 1 for tax due to HMRC, or to box 4 for tax due to you. Make sure you keep good accurate records relating to the adjustment.

Any errors that do not meet these conditions must be notified to HMRC directly.

Q. My husband and I own a rental property in joint names. We would like to transfer ownership of the property to our twelve year old son. Can minors own property in the UK?

A. In this country, a minor (someone under the age of 18 in England) cannot legally own a property. This means that an adult must be the legal owner, and own it on bare trust for the minor, who will be the beneficial owner. You can therefore transfer to your son, but he will not become the legal owner until he is 18.

Another issue to be aware of is that when a parent transfers an asset to a minor child, and the asset produces income of more than £100 per year, the parent is liable to income tax on that income until the minor reaches the age of 18.

Q. My estate, which includes my home, is currently worth around £600,000. I am single, have never been married and have no children. I intend leaving my estate to my siblings. Will they qualify as 'direct descendants' and, in turn, will my estate qualify for the extra £175,000 family home inheritance tax (IHT) allowance?

A. The existing IHT nil-rate band is set to remain at £325,000 until the end of 2020/21.

An additional nil-rate IHT band may be available when a residence is passed on death to a direct descendant. The set additional amounts are as follows:

£100,000 in 2017/18
£125,000 in 2018/19
£150,000 in 2019/20
£175,000 in 2020/21

There is a tapered withdrawal (of £1 for every £2) of the additional nil-rate band for estates with a net value of more than £2 million.

Unfortunately the additional relief will only be available where the family home is passed by lineal descent. This will include a spouse or civil partner of a lineal descendant, including the widow, widower or surviving civil partner of a lineal descendant who has died, provided that the surviving spouse or civil partner has not remarried or formed a new civil partnership. A lineal descendant includes a step-child, adopted child, foster child, child in the care of a kinship carer or child under guardianship, and that child's first lineal descendants.

RDP Questions and Answers December 2018

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 30 Nov 2018 12:47:03 GMT

Q. I am aware that there is to be a temporary increase in the limit for claiming Annual Investment Allowances. Are all assets eligible for the allowance?

A. Unfortunately not all expenditure on plant and machinery will qualify for annual investment allowances (AIA). The most common examples of assets that are not eligible are cars and assets that have been used for some other purpose before being brought into the business, for example a personally owned computer. These assets should still qualify for capital allowances, but allowances will be given gradually over several years, rather than the full cost being allowed against income all at once, which is what the AIA gives.

The AIA was set at its current level of £200,000 from 1 January 2016, but it was announced in the 2018 Autumn Budget that, subject to enactment, the limit will be increased to £1,000,000 from January 2019.

Q. Due to cash flow difficulties I have not yet paid my self-assessment payment on account, which was due on 31 July 2018. I realise that I will have to pay interest on the amount outstanding, but will I also have to pay a penalty?

A. As you correctly say, HMRC will charge interest on the overdue amount. The charges will accrue from the due date of payment (31 July 2018) to the date the payment is made. The interest rate for late paid tax was increased on 21 August 2018 from 3.00% to 3.25%.

With regards to penalties, you will only be charged if your balancing payment (due 31 January 2019) is late. The penalties for late payment under self-assessment are as follows:

- 30 days late: 5% of the unpaid tax
- 6 months late: additional 5% of the unpaid tax
- 12 months late: additional 5% of the unpaid tax.

HMRC may reduce a late payment penalty in 'special circumstances', which does not include inability to pay. In addition, a defence of 'reasonable excuse' may be available.

In relation to payments on account, the maximum penalty for fraudulent or negligent claims by taxpayers to reduce payments on account is the difference between the correct amount payable on account and the amount of any payment on account made.

Q. Following the 2018 Autumn Budget announcement, will my company's capital losses be restricted?

A. Under current proposals, from 1 April 2020, a company's use of carried-forward capital losses will be restricted to 50% of capital gains.

However, to ensure that the restriction only impacts on companies making substantial gains, the Government proposes to extend the allowance of £5 million (provided for the corporate income loss restriction) to capital losses as well. This is designed to ensure that over 99% of companies remain financially unaffected by both restrictions.

A consultation paper was published on 29 October 2018 and it is expected that draft legislation will be published in summer 2019. An anti-forestalling measure, details of which can be found in chapter 4 of the consultation document, took effect from 29 October 2018.

Making Tax Digital

ipswich@rdpaccountants.co.uk (Simon Lasky) — Fri, 09 Nov 2018 10:32:17 GMT

All Change

The government initiative Making Tax Digital (MTD) will start to affect VAT registered businesses from April 2019. VAT registered businesses will be required to maintain digital records and submit their VAT returns from within accounting software, rather than typing figures on to the HMRC website.

We have partnered with two leading cloud accounting software providers (Xero and Quickbooks on Line) to ensure that we have a solution for our clients to be ready for MTD.

Although this is a change required by the government there are some up sides for both business owners and their accountants in using this new technology. One of the main one is the option to have bank transactions feed directly into the accounting software.

Can I get a discount?

simon@rdpipswich.co.uk (Simon ) — Thu, 30 Mar 2017 15:56:47 GMT

How to reduce our fees

It's good for you to keep good accounting records. For directors this is a legal requirement. You need to know who owes you money, how much you owe your suppliers and when you need to pay them. Plus the more you do (for example if you reconcile your bank statements to your cash book) the less we have to do at the year end. We give you a discount if your accounting records are very good or better. Each year we can give you a one page report on your accounting systems . We will highlight how your accounting records can be improved, so you get a lower fee next year.

How much will you pay?

simon@rdpipswich.co.uk (Simon ) — Thu, 30 Mar 2017 15:40:36 GMT

Our Fixed Price Quotes Mean No Surprise Bills

Traditionally professional services are charged on a time basis. The trouble is, you don't know how much you will pay until the end! When you go out for a meal, you choose from the menu, it doesn't depend on how long it takes to prepare the food! We know that clients hate surprise biils so we use a fixed price approach. That way you know exactly where you stand. We provide a price that is specific to you, depending on the size of the business and the quality of your accounting records. You can pay monthly to spread the cost evenly over the year too.

How are you doing?

simon@rdpipswich.co.uk (Simon ) — Thu, 30 Mar 2017 15:18:38 GMT

We can (confidentially) benchmark your business against your competitors

Accountants have been good at telling business owners how they have done...compared to last year. What is even more useful is to see how you are doing compared to others in the same industry. We can provide you with that information, in 19 key areas. Please contact us for more information.

Changes to the VAT Flat Rate Scheme

simon@rdpipswich.co.uk (Simon ) — Thu, 30 Mar 2017 15:01:45 GMT

New rate of 16.5% for some businesses

The changes, which will take effect from 1 April 2017, are designed to 'reduce the incentive for firms and agencies to move employees to self-employment to exploit VAT simplification aimed at small businesses'.

The FRS is a simplified VAT accounting scheme for small businesses, which currently allows users to calculate VAT using a flat rate percentage by reference to their particular trade sector. From 1 April 2017 a new 16.5% FRS rate will be introduced for businesses with limited costs. Interestingly, HMRC's policy paper on this change comments that 'many labour only businesses' may be affected. Although not yet clarified, this may mean the adjustments will not apply to service-related businesses such as journalists, architects or engineers.

Anyone currently using the FRS for VAT, or thinking of joining the scheme, will need to decide whether they are a 'limited cost' business. For some businesses - for example, those who purchase no goods, or who make significant purchases of goods - this will be obvious. Other businesses will need to complete a simple test, using information they already hold, to work out whether they should use the new 16.5% rate.

A 'limited cost' business is defined in the draft legislation as one whose VAT inclusive expenditure on goods is either:

less than 2% of their VAT inclusive turnover in a prescribed accounting period;
greater than 2% of their VAT inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000).

Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:

capital expenditure goods;
food or drink for consumption by the flat rate business or its employees;
vehicles, vehicle parts and fuel (except where the business is one that carries out transport services - for example a taxi business - and uses its own or a leased vehicle to carry out those services).

These exclusions are part of the test to prevent traders buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%.

To support businesses implement this change, HMRC have said that they will be launching an online tool that will enable both current and prospective users of the FRS to determine whether they must use the new rate.

Autumn Financial Statement 2016

simon@rdpipswich.co.uk (Simon ) — Fri, 25 Nov 2016 10:31:36 GMT

Welcome to a summary of the Autumn Financial Statement 2016 prepared by RDP Accountants

In this analysis we have mainly concentrated on the tax measures that will directly affect individuals, employers and small businesses.

Please contact us for advice in your own specific circumstances.

We're here to help!

The Autumn Statement 2016

· Summary

· Individuals

· Businesses

· VAT

· Indirect taxes

· Tax administration

Summary

Chancellor Philip Hammond has delivered his Autumn Statement 2016, which is the first major review of government finances since the EU Referendum, and Mr Hammond's first major statement since taking responsibility for the work of the Treasury in July 2016. As previously speculated, this will be Mr Hammond's only Autumn Statement as it was confirmed that the government is to move to a single major fiscal event each year. This means that following the Spring 2017 Budget and Finance Bill, Budgets will be delivered in the Autumn, with the first one scheduled to take place in Autumn 2017. However, the Office for Budget Responsibility (OBR) is required by law to produce two forecasts a year - one of these will remain at the time of the Budget, the other will fall in the Spring and the government will therefore respond to it with a new 'Spring Statement'. The effect of this new approach is that Finance Bills will be introduced following the annual Budget in Autumn, with the desired aim of reaching Royal Assent in the following Spring, before the start of the new tax year. This change in timetable is designed to help Parliament to scrutinise tax changes before the start of the tax year where most will take effect.

In addition to the Budget timetable changes, it has also been confirmed that, from next year, HMRC will publish customer service performance data more regularly and in greater detail. This will include the monthly publication of digital, telephony and postal performance data, as well as new customer complaints data.

Regarding tax, highlights from this Autumn Statement include:
- confirmation of the government's commitment to raising the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of the Parliament. From that point the personal allowance will rise in line with the Consumer Prices Index (CPI);
- affirmed commitment to the 'business tax road map', which sets out plans for major business taxes to 2020 and beyond, including cutting the rate of corporation tax to 17% by 2020, the lowest in the G20, and reducing the burden of business rates by £6.7 billion over the next 5 years;
- fuel duty will be frozen from April 2017 for the seventh successive year. This will save the average driver around £130 a year, compared to pre-2010 fuel duty escalator plans;
- certain changes will be implemented to promote fairness in the tax system, including: - to tackle tax avoidance, the government will strengthen sanctions and deterrents and will take further action on disguised remuneration tax avoidance schemes;
- to ensure multinational companies pay their fair share, following consultation, the government will go ahead with reforms to restrict the amount of profit that can be offset by historical losses or high interest charges;
- Insurance Premium Tax will rise from 10% to 12% in June 2017; and
- to promote fairness and broaden the tax base, the government will phase out the tax advantages of salary sacrifice arrangements.

This newsletter provides a summary of the key tax points from the 2016 Autumn Statement based on the documents released on 23 November 2016. The overview of legislation in draft, providing further information on all tax changes and updates on all tax consultations, will be published on 5 December 2016. Draft Finance Bill clauses, explanatory notes, tax information and impact notes, and responses to consultations will also be published on this date. We will keep you informed of any significant developments.

Individuals

Personal allowance and basic rate limit for 2017-18

The personal allowance for 2017-18 will be increased to £11,500 (£11,000 in 2016-17), and the basic rate limit will be increased to £33,500 (£32,000 in 2016-17). The additional rate threshold will remain at £150,000 in 2017-18. It was announced that the allowance will rise to £12,500 by the end of Parliament.

The marriage allowance will rise from £1,100 in 2016-17 to £1,150 in 2017-18.

Blind person's allowance will rise from £2,290 in 2016-17 to £2,320 in 2017-18.

Starting rate for savings

The band of savings income that is subject to the 0% starting rate will remain at its current level of £5,000 for 2017-18.

Dates for 'making good' on benefits-in-kind

As announced at Budget 2016 and following a period of consultation, Finance Bill 2017 will include provisions to ensure an employee who wants to 'make good', on a non-payrolled benefit in kind will have to make the payment to their employer by 6 July in the following tax year. 'Making good' is where the employee makes a payment in return for the benefit-in-kind they receive. This reduces its taxable value. This will have effect from April 2017.

Assets made available without transfer of ownership

Existing legislation is to be clarified to ensure that employees will only be taxed on business assets for the period that the asset is made available for their private use. This will take effect from 6 April 2017.

Termination payments

As announced at Budget 2016, from April 2018 termination payments over £30,000, which are subject to income tax, will also be subject to employer NICs. Following a technical consultation, tax will only be applied to the equivalent of an employee's basic pay if their notice is not worked, making it simpler to apply the new rules. The government will monitor this change and address any further manipulation. The first £30,000 of a termination payment will remain exempt from income tax and National Insurance.

Company car tax bands and rates for 2020-21

To provide stronger incentives for the purchase of ultra-low emissions vehicles (ULEVs), new, lower bands will be introduced for the lowest emitting cars. The appropriate percentage for cars emitting greater than 90g CO2/km will rise by 1 percentage point.

Cars, vans and fuel benefit charges

The company car fuel benefit charge multiplier will be £22,600 for 2017-18 (rising from £22,200 in 2016-17).

The van fuel benefit charge will rise from £598 to £610 for 2017-18.

The van benefit charge will rise from £3,170 to £3,230 for 2017-18.

Life insurance policies

Finance Bill 2017 will contain provisions regarding the disproportionate tax charges that arise in certain circumstances from life insurance policy part-surrenders and part-assignments. This will allow applications to be made to HMRC to have the charge recalculated on a 'just and reasonable' basis. The changes will take effect from 6 April 2017 and are designed to lead to fairer outcomes for policyholders.

NS&I Investment Bond

From Spring 2017, National Savings and Investments (NS&I), the government-backed investment organisation, will offer a new three-year Investment Bond with an indicative rate of 2.2%. The bond will offer the flexibility for investors to save between £100 and £3,000 and will be available to those aged 16 or over.

Personal Portfolio Bonds

As announced at Budget 2016 and following a period of consultation, the government will legislate in Finance Bill 2017 to take a power to amend by regulations the list of assets that life insurance policyholders can invest in without triggering tax anti-avoidance rules. The changes will take effect on Royal Assent of Finance Bill 2017.

ISA, Junior ISA and Child Trust Fund investment limits

The annual subscription limit for Junior ISAs and Child Trust Funds are to rise in line with the Consumer Prices Index (CPI) to £4,128 from 6 April 2017.

As previously announced, the ISA subscription limit will also rise from 6 April 2017, from £15,240 to £20,000.

National Living Wage and National Minimum Wage increases

From April 2017, the National Living Wage (NLW) for those aged 25 and over will increase from £7.20 per hour to £7.50 per hour. The National Minimum Wage (NMW) will also increase from April 2017 as follows:

- for 21 to 24 year olds - from £6.95 per hour to £7.05;
- for 18 to 20 year olds - from £5.55 per hour to £5.60;
- for 16 to 17 year olds - from £4.00 per hour to £4.05;
- for apprentices - from £3.40 per hour to £3.50.

The government announced that £4.3 million is to be spent on helping small businesses to understand the rules, and cracking down on employers who are breaking the law by not paying the minimum wage.

Consultation on reducing money purchase annual allowance

The pension flexibilities introduced in April 2015 gave savers the ability to access their pension savings flexibly, as best suits their needs. Once a person has accessed pension savings flexibly, if they wish to make any further contributions to a defined contribution pension, tax-relieved contributions are restricted to a special money purchase annual allowance (MPAA).

As announced in the Autumn Statement, a consultation has been launched relating to government proposals to reduce the MPAA to £4,000, with effect from April 2017. The consultation will run until 15 February 2017.

Foreign pensions

The tax treatment of foreign pensions is to be more closely aligned with the UK's domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones. The government will also close specialist pension schemes for those employed abroad ('section 615' schemes) to new saving, extend from five to ten years the taxing rights over recently emigrated non-UK residents' foreign lump sum payments from funds that have had UK tax relief, align the tax treatment of funds transferred between registered pension schemes, and update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes.

Cracking down on tax avoiders and those who help them

A new penalty is to be introduced for those helping someone else to use a tax avoidance scheme. Significant penalties may be imposed where HMRC successfully defeat avoidance schemes. The new penalty will ensure that those who help tax avoiders participate in avoidance schemes also face the consequences. In addition, tax avoiders will not be able to claim as a defence against penalties that relying on non-independent tax advice is taking reasonable care.

The taxation of different forms of remuneration

Employers can choose to remunerate their employees in a range of different ways in addition to a cash salary. The tax system currently treats these different forms of remuneration inconsistently and sometimes more generously. The government will therefore consider how the system could be made fairer between workers carrying out the same work under different arrangements and will look specifically at how the taxation of benefits in kind and expenses could be made fairer and more coherent. Proposed changes in this area are as follows:

- Salary sacrifice - following consultation, the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars. This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021;
- Valuation of benefits in kind - the government is currently reviewing how benefits in kind are valued for tax purposes - a consultation on employer-provided living accommodation, and a call for evidence on the valuation of all other benefits in kind, will be published at Budget 2017;
- Employee business expenses - at Budget 2017, the government will publish a call for evidence on the use of the income tax relief for employees' business expenses, including those that are not reimbursed by their employer.

Legal support

From April 2017, all employees called to give evidence in court will no longer need to pay tax on legal support from their employer. This will help support all employees and ensure fairness in the tax system, as currently only those requiring legal support because of allegations against them can use the tax relief.

Non-domiciled individuals

As previously announced, from April 2017, non-domiciled individuals will be deemed UK-domiciled for tax purposes if they have been UK resident for 15 of the past 20 years, or if they were born in the UK with a UK domicile of origin. Non-domiciled individuals who have a non-UK resident trust set up before they become deemed-domiciled in the UK will not be taxed on income and gains arising outside the UK and retained in the trust.

From April 2017, inheritance tax will be charged on UK residential property when it is held indirectly by a non-domiciled individual through an offshore structure, such as a company or a trust. This closes a loophole that has been used by non-domiciled individuals to avoid paying inheritance tax on their UK residential property.

The government will change the rules for the Business Investment Relief (BIR) scheme from April 2017 to make it easier for non-domiciled individuals who are taxed on the remittance basis to bring offshore money into the UK for the purpose of investing in UK businesses. The government will continue to consider further improvements to the rules for the scheme to attract more capital investment in British businesses by non-domiciled individuals.

Inheritance tax reliefs

From Royal Assent of Finance Bill 2017, inheritance tax relief for donations to political parties will be extended to parties with representatives in the devolved legislatures, as well as parties that have acquired representatives through by-elections. This measure is designed to ensure consistent and fair treatment for all national political parties with elected representatives.

Social Investment Tax Relief (SITR)

From 6 April 2017, the amount of investment social enterprises aged up to 7 years old can raise through SITR will increase to £1.5 million. Other changes will be made to ensure that the scheme is well targeted. Certain activities, including asset leasing and on-lending, will be excluded. Investment in nursing homes and residential care homes will be excluded initially, however the government intends to introduce an accreditation system to allow such investment to qualify for SITR in the future. The limit on full-time equivalent employees will be reduced to 250. The government will undertake a review of SITR within two years of its enlargement.

Offshore funds

UK taxpayers invested in offshore reporting funds pay tax on their share of a fund's reportable income, and capital gains tax (CGT) on any gain on disposal of their shares or units. The government will legislate to ensure that performance fees incurred by such funds, and which are calculated by reference to any increase in the fund's value, are not deductible against reportable income from April 2017 and instead reduce any tax payable on disposal of gains. This equalises the tax treatment between onshore and offshore funds.

Reduction in Universal Credit taper

Under the Universal Credit system, as a person's income increases, their benefit payments are gradually reduced. The taper rate calculates the reduction in benefits as a person's salary increases. Currently, for every £1 earned after tax above an income threshold, a person receiving Universal Credit has their benefit award reduced by 65p and keeps 35p. From April 2017, the taper will be lowered to 63p in the pound, so the claimant will keep 37p for every £1 earned over the income threshold.

National Insurance Contributions

As recommended by the Office of Tax Simplification (OTS), the Class 1 secondary (employer) NIC threshold and the primary (employee) threshold will be aligned from April 2017, meaning that both employees and employers will start paying NICs on weekly earnings above £157.

As announced at Budget 2016, Class 2 NICs will be abolished from April 2018, simplifying National Insurance for the self-employed. The Autumn Statement confirmed that, following the abolition of Class 2 NICs, self-employed contributory benefit entitlement will be accessed through Class 3 and Class 4 NICs. All self-employed women will continue to be able to access the standard rate of Maternity Allowance. Self-employed people with profits below the Small Profits Limit will be able to access Contributory Employment and Support Allowance through Class 3 NICs. There will be provision to support self-employed individuals with low profits during the transition.

For 2017-18, Class 2 NICs will be payable at the weekly rate of £2.85 (rising from £2.80) above the small profits threshold of £6,025 per year (rising from £5,965 in 2016-17).

Class 3 voluntary contributions will rise from £14.10 to £14.25 per week for 2017-18.

For 2017-18, the lower profits limit for Class 4 NICs will be £8,164 and the upper profits limit will be £45,000. Contributions remain at 9% between the two thresholds and at 2% above the upper profits limit.

Businesses

Simplifying PSAs

As announced at Budget 2016 and following a period of consultation, Finance Bill 2017 will include provisions to simplify the process for applying for and agreeing the Pay as You Earn Settlement Agreement (PSA) process. Broadly, a PSA allows an employer to make one annual payment to cover all the tax and National Insurance due on small or irregular taxable expenses or benefits for employees. Further details will be published in due course. The changes will have effect in relation to agreements for the 2018-2019 tax year and subsequent tax years.

Capital allowances: first-year allowance for electric charge-points

From 23 November 2016, businesses will be able to claim a 100% first-year allowance (FYA) in relation to qualifying expenditure incurred on the acquisition of new and unused electric charge-points. The allowance will be available until 31 March 2019 for corporation tax purposes and 5 April 2019 for income tax purposes.

The measure complements the 100% FYA for cars with low carbon dioxide (CO2) emissions, and the 100% FYA for cars powered by natural gas, biogas and hydrogen.

Employee shareholder status

The income tax reliefs and capital gains tax exemption will no longer be available with effect from 1 December 2016 on any shares acquired in consideration of an employee shareholder agreement entered into on or after that date. Any individual who has received independent advice regarding entering into an employee shareholder agreement before the 23 November 2016 will have the opportunity to do so before 1 December (but not later) and still receive the income and CGT tax advantages that were known to be available at the time the individual received the advice. The effective date is to be the 2 December where independent legal advice is received on 23 November prior to 1.30pm. Corporation tax reliefs for the employer company are not affected by this change.

New tax allowance for property and trading income

As announced at Budget 2016, the government will create two new income tax allowances of £1,000 each, for trading and property income. Individuals with trading income or property income below the level of the allowance will no longer need to declare or pay tax on that income. The trading income allowance will now also apply to certain miscellaneous income from providing assets or services.

Expanding the museums and galleries tax relief

The new museums and galleries tax relief is to be expanded to include permanent exhibitions. The new relief, which starts in April 2017, was originally only intended to be available for temporary and touring exhibitions. The rates of relief will be set at 20% for non-touring exhibitions and 25% for touring exhibitions. The relief will be capped at £500,000 of qualifying expenditure per exhibition. The relief will expire in April 2022 if not renewed. In 2020, the government will review the tax relief and set out plans beyond 2022.

Tax deductibility of corporate interest expense

Following recent consultation, the government will introduce rules that limit the tax deductions that large groups can claim for their UK interest expenses from April 2017. These rules will limit deductions where a group has net interest expenses of more than £2 million, net interest expenses exceed 30% of UK taxable earnings and the group's net interest to earnings ratio in the UK exceeds that of the worldwide group. The provisions proposed to protect investment in public benefit infrastructure are also to be widened. Banking and insurance groups will be subject to the rules in the same way as groups in other industry sectors.

Reform of loss relief

Following consultation, the government will legislate for reforms announced at Budget 2016 that will restrict the amount of profit that can be offset by carried-forward losses to 50% from April 2017, while allowing greater flexibility over the types of profit that can be relieved by losses incurred after that date. The restriction will be subject to a £5 million allowance for each standalone company or group.

In implementing the reforms the government will take steps to address unintended consequences and simplify the administration of the new rules. The amount of profit that banks can offset with losses incurred prior to April 2015 will continue to be restricted to 25% in recognition of the exceptional nature and scale of losses in the sector.

Bringing non-resident companies' UK income into the corporation tax regime

The government is considering bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime. At Budget 2017, the government will consult on the case and options for implementing this change. The government wants to deliver equal tax treatment to ensure that all companies are subject to the rules which apply generally for the purposes of corporation tax, including the limitation of corporate interest expense deductibility and loss relief rules.

Substantial Shareholding Exemption (SSE) reform

Following consultation, the government will make changes to simplify the rules, remove the investing requirement within the SSE and provide a more comprehensive exemption for companies owned by qualifying institutional investors. The changes will take effect from April 2017.

Authorised investment funds: dividend distributions to corporate investors

The rules on the taxation of dividend distributions to corporate investors are to be modernised in a way which allows exempt investors, such as pension funds, to obtain credit for tax paid by authorised investment funds. Proposals and draft legislation will be published in early 2017.

Northern Ireland corporation tax

The government will amend the Northern Ireland corporation tax regime in Finance Bill 2017 to give all small and medium sized enterprises (SMEs) trading in Northern Ireland the potential to benefit. Other amendments will minimise the risk of abuse and ensure the regime is prepared for commencement if the Northern Ireland Executive demonstrates its finances are on a sustainable footing.

Corporation tax deduction for contributions to grassroots sport

As announced at Autumn Statement 2015 and following consultation, in Finance Bill 2017 the government will expand the circumstances in which companies can get corporation tax deductions for contributions to grassroots sports from 1 April 2017.

Patent Box rules

The government will legislate in Finance Bill 2017 to add specific provisions to the Patent Box rules, covering the case where Research and Development (R&D) is undertaken collaboratively by two or more companies under a 'cost sharing arrangement'. The provisions ensure that such companies are neither penalised nor able to gain an advantage under these rules by organising their R&D in this way. This will have effect for accounting periods commencing on or after 1 April 2017.

Authorised contractual schemes: reducing tax complexity for investors in co-ownership authorised contractual schemes

As announced at Budget 2016 and following a period of consultation, Finance Bill 2017 will include legislation (to be supported by secondary legislation) to clarify the rules on capital allowances, chargeable gains and investments by co-ownership authorised contractual schemes (CoACS) in offshore funds, as well as information requirements on the operators of CoACS.

Off-payroll working rules

Following consultation, the government will reform the off-payroll working rules in the public sector from April 2017 by moving responsibility for operating them, and paying the correct tax, to the body paying the worker's company. This reform aims to tackle high levels of non-compliance with the current rules and means that those working in a similar way to employees in the public sector will pay the same taxes as employees. In response to feedback during the consultation, the 5% tax-free allowance will be removed for those working in the public sector, reflecting the fact that workers no longer bear the administrative burden of deciding whether the rules apply.

Bank levy reform

As announced at Summer Budget 2015, the bank levy charge will be restricted to UK balance sheet liabilities from 1 January 2021. Following consultation, the government confirms that there will be an exemption for certain UK liabilities relating to the funding of non-UK companies and an exemption for UK liabilities relating to the funding of non-UK branches. Details will be set out in the government's response to the consultation, with the intention of legislating in Finance Bill 2017-18. The government will continue to consider the balance between revenue and competitiveness with regard to bank taxation, taking into account the implications of the UK leaving the EU.

Hybrids and other mismatches

The government will legislate in Finance Bill 2017 to make minor changes to ensure that the hybrid and other mismatches legislation works as intended. The changes will have effect from 1 January 2017.

Annual Tax on Enveloped Dwellings

The annual charges for the Annual Tax on Enveloped Dwellings (ATED) will rise in line with inflation for the 2017-2018 chargeable period.

Clarification of tax treatment for partnerships

Following consultation, the government will legislate to clarify and improve certain aspects of partnership taxation to ensure profit allocations to partners are fairly calculated for tax purposes. Draft legislation will be published shortly for technical consultation.

Tax-advantaged venture capital schemes

The rules for the tax-advantaged venture capital schemes (Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs)) are being amended to:

- clarify the EIS and SEIS rules for share conversion rights, for shares issued on or after 5 December 2016;
- provide additional flexibility for follow-on investments made by VCTs in companies with certain group structures to align with EIS provisions, for investments made on or after 6 April 2017; and
- introduce a power to enable VCT regulations to be made in relation to certain shares for share exchanges to provide greater certainty to VCTs.

In addition, a consultation will be carried out into options to streamline and prioritise the advance assurance service.

The government will not be introducing flexibility for replacement capital within the tax-advantaged venture capital schemes at this time, and will review this over the longer term.

Gift Aid digital

As announced at Budget 2016, intermediaries are to be given a greater role in administering Gift Aid, with the aim of simplifying the Gift Aid process for donors making digital donations.

VAT

Tackling aggressive abuse of the VAT Flat Rate Scheme

A new 16.5% VAT flat rate for businesses with limited costs will take effect from 1 April 2017.

The VAT Flat Rate Scheme (FRS) is a simplified accounting scheme for small businesses. Currently businesses determine which flat rate percentage to use by reference to their trade sector. From 1 April 2017, FRS businesses must also determine whether they meet the definition of a limited cost trader, which will be included in new legislation.

Businesses using the scheme, or thinking of joining the scheme, will need to decide whether they are a limited cost trader. For some businesses - for example, those who purchase no goods, or who make significant purchases of goods - this will be obvious. Other businesses will need to complete a simple test, using information they already hold, to work out whether they should use the new 16.5% rate.

Businesses using the FRS will be expected to ensure that, for each accounting period, they use the appropriate flat rate percentage.

A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either:

- less than 2% of their VAT inclusive turnover in a prescribed accounting period;
- greater than 2% of their VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000).

Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:

- capital expenditure;
- food or drink for consumption by the flat rate business or its employees;
- vehicles, vehicle parts and fuel (except where the business is one that carries out transport services - for example a taxi business - and uses its own or a leased vehicle to carry out those services).

These exclusions are part of the test to prevent traders buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%.

Updating the VAT Avoidance Disclosure Regime

As announced at Budget 2016 and following consultation, legislation will be introduced in Finance Bill 2017 to strengthen the regime for disclosure of avoidance of indirect tax. Provision will be made to make scheme promoters primarily responsible for disclosing schemes to HMRC and the scope of the regime will be extended to include all indirect taxes. This will have effect from 1 September 2017.

Penalty for participating in VAT fraud

As announced at Budget 2016, Finance Bill 2017 will introduce a new and more effective penalty for participating in VAT fraud. It will be applied to businesses and company officers when they knew or should have known that their transactions were connected with VAT fraud. The penalty will improve the application of penalties to those facilitating orchestrated VAT fraud. The new penalty will be a fixed rate penalty of 30% for participants in VAT fraud. This will be implemented following Royal Assent of the Finance Bill 2017.

Power to examine and take account of goods at any place

The government will introduce legislation in Finance Bill 2017 to extend the current customs and excise powers of inspection. This will amend the Customs and Excise Management Act 1979 and enable officers to examine goods away from approved premises such as airports and ports, to search goods liable for forfeiture and open or unpack any container. This will take effect from Royal Assent of the Finance Bill 2017.

Retail Export Scheme

The government is to consult on VAT grouping and provide funding with a view to digitising fully the Retail Export Scheme to reduce the administrative burden to travellers.

Tackling exploitation of the VAT relief on adapted cars for wheelchair users

The government is to clarify the application of the VAT zero-rating for adapted motor vehicles to stop the abuse of this legislation, while continuing to provide help for disabled wheelchair users.

Indirect taxes

Landfill tax

As announced at Budget 2016, the definition of a taxable disposal for landfill tax purposes is to be amended in order to bring greater clarity and certainty. This will come into effect after Royal Assent of Finance Bill 2017, on a day to be appointed by Treasury Order

.

Insurance Premium Tax increase

Insurance Premium Tax (IPT) will increase from 10% to 12% from 1 June 2017. IPT is a tax on insurers and it is up to them whether and how to pass on costs to customers.

Air Passenger Duty (APD): regional review

A summary of responses is to be published shortly relating to a recent consultation on how the government can support regional airports in England from the potential effects of APD devolution. Given the strong interaction with EU law, the government does not intend to take specific measures now, but intends to review this area again after the UK has exited from the EU.

Freeplays in Remote Gaming Duty

Following the consultation announced at Budget 2016, the government will legislate in Finance Bill 2017 to bring the tax treatment of freeplays for remote gaming more in line with the treatment for free bets under General Betting Duty. The changes will take effect for accounting periods beginning on or after 1 August 2017.

Tobacco Illicit Trade Protocol: licensing of tobacco machinery and the supply chain

Following consultation the government will legislate in Finance Bill 2017 to introduce a licensing scheme for tobacco machinery to allow officials to quickly determine whether machines are being held legally. Applications for licences will be accepted from January 2018 and the scheme will come into force on 1 April 2018.

Implementation of the Fulfilment House Due Diligence Scheme

As announced at Budget 2016 and following a consultation on the scope and design of the scheme, the government will legislate in Finance Bill 2017 to introduce a new Fulfilment House Due Diligence Scheme in 2018. This will ensure that fulfilment houses play their part in tackling VAT abuse by some overseas businesses selling goods via online marketplaces. The scheme will open for registration in April 2018.

Soft Drinks Industry Levy

Draft legislation for the Soft Drinks Industry Levy will be published on 5 December 2016.

Tax administration

Tax evasion and compliance

Emerging insolvency risk

HMRC intend to develop their ability to identify emerging insolvency risk, using external analytical expertise. HMRC will use this information to tailor their debt collection activity, improve customer service and provide support to struggling businesses.

Offshore tax evasion

A new legal requirement is to be introduced to correct a past failure to pay UK tax on offshore interests within a defined period of time, with new sanctions for those who fail to do so.

Requirement to register offshore structures

The government intends to consult on a new legal requirement for intermediaries arranging complex structures for clients holding money offshore to notify HMRC of the structures and the related client lists.

Hidden economy and money service businesses

The government will legislate to extend HMRC's data-gathering powers to money service businesses in order to identify those operating in the hidden economy.

Tackling the hidden economy

Following consultation, the government will consider the case for making access to licences or services for businesses conditional on them being registered for tax. It will also develop proposals to strengthen sanctions for those who repeatedly and deliberately participate in the hidden economy. Further details will be announced in Budget 2017.

Tax administration

Making Tax Digital

In January 2017, the government will publish its response to the Making Tax Digital consultations and provisions to implement the previously announced changes.

Tax Enquiries: Closure Rules

The government will legislate to provide HMRC and customers earlier certainty on individual matters in large, high risk and complex tax enquiries.

Tax Avoidance

Disguised remuneration schemes

Budget 2016 announced changes to tackle use of disguised remuneration schemes by employers and employees. The government will now extend the scope of these changes to tackle the use of disguised remuneration avoidance schemes by the self-employed. Further, the government will take steps to make it less attractive for employers to use disguised remuneration avoidance schemes, by denying tax relief for an employer's contributions to disguised remuneration schemes unless tax and National Insurance are paid within a specified period.

HMRC counter avoidance

The government is investing further in HMRC to increase its activity on countering avoidance and taking cases forward for litigation, which is expected to bring forward over £450 million in scored revenue by 2021-22.

Lucky in business?

simon@rdpipswich.co.uk (Simon ) — Tue, 08 Nov 2016 09:14:34 GMT

It is said that Napoleon was once asked whether he preferred courageous generals or brilliant generals. Neither, he replied; he preferred lucky generals.

When I talk to our biggest client in Ipswich about his success over the last 10 years, he often tells me he was just lucky. I am not so sure.

For sure there are great opportunities that fall into our lap quite unexpectedly in life but I also am a great believer that we reap what we sow. Or as the golfers say "The more I practice ....the luckier I get".

I was once at a talk given by Dan and Peter Snow at Tilbury Fort about their book Battlefield Britain. I asked them how much of the outcome of a war was determined by superior leadership and the extent to which Napoleon was right about luck. Dan Snow said that part of great leadership is seeing opportunities and exploiting them. To the general this action might seem obvious, whilst the outsider looks on and concludes the general was lucky!

Flat Rate VAT Scheme

simon@rdpipswich.co.uk (Simon ) — Tue, 08 Nov 2016 09:13:44 GMT

HMRC have devised a scheme to make it cheaper and quicker for smaller businesses to calculate their VAT liability.

It's called the flat rate scheme. Normally a VAT registered business deducts their input tax ( VAT paid to their suppliers) from their output tax ( VAT charged to their customers) each quarter and pays over the difference to HMRC.

Under the flat rate scheme, HMRC provide a flat rate scheme percentage, depending on the trade sector you are in. Your sales for the quarter (including the VAT you have charged) are multiplied by the HMRC flat rate percentage and resultant amount is paid over to HMRC. Input tax cannnot deducted, unless there is capital expenditure of more than £2,000 (gross) in a quarter.

The flat rate scheme can be very beneficial to some businesses, although it does depend on how much input tax you normally incur and whether any of your sales are zero rated.

Flat Rate VAT Helpsheet with worked example

I have found that where the amount of input tax is small, typically with someone who is selling their time, rather than a product, the VAT rate scheme can save clients money. This is because the amount that they are charging their customers ( 20% of the net) is more than what they are paying over to HMRC ( a percentage of the gross).

HMRC have designed the scheme so that businesses can "do it themselves". So you are less likely to need an accountant to complete your VAT returns, if you use the flat rate scheme.

The flat rate scheme is only available to smaller businesses. To join your net turnover must be less than £150,000. You must leave the scheme if your gross turnover exceeds £230,000 in a year.

Use our flat rate scheme calculator to see if it would save you money.

Choosing an Accountant

simon@rdpipswich.co.uk (Simon ) — Tue, 08 Nov 2016 09:13:13 GMT

I have been thinking about some of the differentiators of my accounting practice and why businesses might choose RDP Accountants , when they have so many good accountants to choose from. My thoughts were partly inspired by a talk from Robert Craven about "How to drive your Business Forward".

Here are some other factors to consider from the RDP Accountants website:

Fixed Fees. Quoted in advance of the work and related to the value of work to be completed so that you know where you stand. That is unless you prefer to be charged on an hourly basis. Get a fixed fee quote .
Unlimited Free Phone Support. You can call as much as you need in connection with the services we have agreed to provide you.
Unlimited Free Meetings. Whenever you wish to meet up, any meetings at our offices in connection with the work we have undertaken to perform on your behalf are always provided FREE of charge. You have the right to these whenever you feel the need. Just call us to schedule the meeting.
FREE Initial Tax Review. To identify all the tax planning opportunities you are not presently taking advantage of.
FREE Tax Tips. Relevant to business owners delivered to you by E-mail through our regular E-Tax Tips & News to help you pay less tax. Register here to receive Tax Tips & News.
Someone to Sort All Your Paperwork. We understand doing the paperwork can be stressful for many business owners who really just want to get on with running and building their business. So if you wish, we can take all the book-keeping, payroll and other paperwork off of you as well as the normal annual accounts and tax work.
A Flexible Accountant Who Speaks Plain English. There's no technical speak from us. We speak to you openly and honestly and promise not to blind you with jargon. We want you to feel comfortable to pick up the phone to us whenever you need, for whatever you want and know you'll get good sound understandable advice. We will work with you in the way that suits you - in person, on the phone or online.

VAT registration

simon@rdpipswich.co.uk (Simon ) — Tue, 08 Nov 2016 09:12:46 GMT

There is a myth in certain quarters that every legitimate business is required to be VAT registered.

This is not the case. Your business (as a sole-trader, partnership or company) does not have to become VAT registered until the total sales for 12 consecutive months exceeds £83,000 . However, this total does apply to all the businesses you run as a sole trader. You can't artificially divide your businesses to avoid registering for VAT.

Once your business is VAT registered you must charge VAT at the appropriate rate (normally 20%) on your sales. You also have to submit regular VAT returns, either quarterly or monthly, which means you need to keep your records of sales and purchases up to date. If this all sounds a bit too much to cope with there are a number of schemes you can sign up to which are designed to make VAT reporting much easier for small businesses.

One of those schemes is the flat rate scheme for small businesses. When you use this scheme you don't have to worry about your purchases. You just have to total-up your sales each quarter and pay over a flat percentage as VAT to the Taxman. The percentage used will depend on your trade sector. If your business makes very few purchases you can benefit significantly from being within the flat rate scheme.

Some people prefer to keep their total sales below the compulsory VAT registration threshold, so they don't have to charge VAT and submit VAT returns. They do this by turning down work that would take them over the VAT threshold. This is not illegal, but the Taxman is very suspicious of businesses who manage their sales in this way.

If you use this strategy to avoid VAT registration, you need to be able to prove all your sales are correctly recorded and declared.

Selling your Business

simon@rdpipswich.co.uk (Simon ) — Tue, 08 Nov 2016 09:12:15 GMT

On the recommendation of my friend Nick Strong I attended a seminar yesterday in London organised by BCMS Corporate about “Selling Your Business for the Maximum Value”. I hasten to add ,this is not because I am planning to sell my business but to find out what BCMS had to say on behalf on my clients!

BCMS stated that on average they are able to obtain a final value of 2.5 times the lowest offer received.

There were 2 key things which really stood out to me.

1 What could the buyer do with your business?

I think it was Steve Jobs who said that, when it comes to a new gadget, a baby boomer will typically as “ What is it ?” whereas their child would be more likely to ask “ What can I do with it ?”. This came to mind when the speakers talked about the value of a business. They argued that traditional valuation models place too much emphasis on past performance. The value of a business depends on what the buyer will be able to do with it. For this reason, premium valuations are more likely to be obtained when selling to someone entering the market from overseas or a business providing complimentary goods/services as opposed a competitor. Just as features are more important than benefits, the future is more important than the past.

This made me think of the stock market. The price of a quoted share is determined by sentiment about the future prospects of the company more than the past performance.

2 Establishing choice of buyers

It was emphasised many times yesterday that at all stages the seller must ensure they have a choice of potential buyers. For BCMS this means approaching an average of 240 potential buyers at the beginning right through to keeping in dialogue with those unsuccessful at the final stage . To burn your bridges to early is very dangerous and gives the buyer the upper hand.

I must say I was very impressed with BCMS, the presenters and the approach that they advocated. I would recommend anyone thinking of selling their business to attend a BCMS seminar .

Flat Rate VAT Scheme: Bad debt relief

simon@rdpipswich.co.uk (Simon ) — Tue, 08 Nov 2016 09:11:25 GMT

I have made a very surprising discovery about the flat rate scheme.

A VAT registered business has the choice between

Accounting for VAT on the basis of sales invoices raised in a quarter, minus purchase invoices received from their suppliers in that quarter OR
The cash basis which is customer receipts minus supplier payments.For most businesses the cash basis is better, you only pay over the output tax to HMRC after your customer has paid you.

The Flat Rate Scheme is available to smaller businesses. Under the flat rate scheme you would normally ignore the VAT you have been charged by your suppliers and pay HMRC a fixed percentage of your GROSS turnover ( i.e. including the VAT you have charged your customer). The applicable percentage is determined by the sector in which the business operates.

The flat rate scheme can be really good for people who effectively sell their time, where the amount of VAT that they could claim back is quite small.

What I now discovered is, even when you are using the cash basis under the flat rate scheme, you can still get relief for bad debts. This is the case even though, under the cash basis, you won't have paid any VAT to HMRC, because your customer has not paid you. Here is a the link to the HMRC notice with a worked example. It's paragraph 14.2

HMRC Notice 733

http://www.rdpaccountants.co.uk/services/vat_returns.php

Why use a qualified accountant?

simon@rdpipswich.co.uk (Simon ) — Tue, 08 Nov 2016 09:10:40 GMT

I met with some colleagues from another office of RDP Accountants yesterday. We were discussing the issue of people being able to set up in business as accountants, without being qualified.

We got thinking about some good reasons why it’s good to use a qualified firm and accountant even if you pay a little extra:

If you need a mortgage then a qualified accountant can sign off a mortgage certificate;
A qualified firm is monitored by its professional body to ensure their work meets the very high standards expected;
A qualified firm must have professional indemnity insurance so you have protection in the event that you need to make a claim;

A qualified accountant has to complete a certain amount of continuous professional development each year, so you know you’re getting up-to-date advice;

A qualified accountant would have completed professional examinations;

A qualified accountant has to acquire many years worth of practical experience before they can call themselves qualified;

If you sell your business the potential buyer may place greater confidence in the accounts prepared by a qualified firm;

If you ever change accountants a qualified firm must provide the appropriate handover to the new accountant;

A qualified accountant has to ensure that another suitably qualified firm can take over if there is a disaster;

A qualified firm should be better placed to make your business more profitable.

If you have a complaint with a qualified firm then, if necessary, you can escalate your complaint to their professional body, but there’s nowhere to go with an unqualified firm.

Research and development

simon@rdpipswich.co.uk (Simon ) — Tue, 08 Nov 2016 09:09:52 GMT

I just helped a client with a claim for enhanced research and development expenditure.

This is one area where the government are trying to help businesses who want to innovate and the tax relief available is quite generous. My client will save £2,000 in corporation tax by making this claim, which based on the time spent on research and development activities by him and one of his members of staff.

For a small company relief is now available at a rate of 225%, in other words, if you spend £1,000 on qualifying research and development then it is treated as if you spent £2,250.

Link to HMRC website for more information

Quality Accountants

simon@rdpipswich.co.uk (Simon ) — Tue, 08 Nov 2016 09:09:19 GMT

My accountancy practice RDP Accountants (Ipswich) is regulated by the Association of Charted Certified Accountants ( ACCA).

It took me 6 years of studying to complete to gain the ACCA qualification.

Because my firm is also regulated by ACCA , every few years they come and do an inspection to make sure that our work meets the standards you would expect from a qualified accountant. After the last visit in 2006 my firm was awarded a quality seal.

Well it has come around again and I will have another visit from ACCA tomorrow. From a client's point of view it has to be a good thing that qualified regulated accountants are subject to inspection to make sure their standards, processes and procedures are up to scratch.

Capital Gains Tax

simon@rdpipswich.co.uk (Simon ) — Tue, 08 Nov 2016 09:08:43 GMT

Clients of RDP Accountants Ipswich are often surprised that capital gains tax is not as much as they feared.

Capital Gains Tax (CGT) applies when chargeable assets are disposed of and is applicable to individuals and trustees but not to limited companies, although Limited Companies do pay Corporation Tax on the gains that they make.

Chargeable assets includes all forms of property unless it is specifically exempt. The main assets it tends apply to are land and buildings, shares and business assets including goodwill. CGT can be very complex and the rules are far more detailed that can be explained in this brief summary.

How a Capital Gain occurs

A capital gain occurs when the value of an asset at the date it is disposed of is higher than when it was acquired. An asset can be disposed of either by sale or by gift. If you give away an asset away in an uncommercial transaction, the market value will replace any actual consideration paid.

For assets acquired before 31 March 1982 the cost usually taken to be the value on that day, although actual cost can be used in some circumstances.

The following also reduce the amount of the chargeable gain...

Incidental costs of acquisition;
Expenditure to enhance the value of the asset;
Incidental costs of disposal; and
Tax reliefs and allowances (see below).

Rate of Tax

CGT is charged at the rate of 28% where the total taxable gains and income are above the income tax basic rate band. Below that limit, the rate is 18%. For trustees and personal representatives of deceased persons the rate is 28%.

Tax Reliefs

There are several different tax reliefs which can reduce the chargeable gain, including...

Rollover/holdover relief on replacement of business assets - allowing you to defer the CGT on a gain of a business asset where this is matched with a replacement of a new business asset in the period commencing one year before and ending three years after the disposal.
Business incorporation relief - available when you transfer your business into a Limited Company in exchange for shares.
Holdover gift relief - on some gifts of business assets, or gifts made into trusts mean the tax does not become payable until the person, or trustee who receives the gift disposes of it.
Entrepreneurs' relief - for disposals after 5th April 2008. This allows disposal of a material part or all of your business to have the CGT rate reduced to 10%. There is a lifetime limit which from 6 April 2011 is £10million.

Capital Losses

Any capital losses made on a chargeable transaction are netted off against any capital gains made in of the same tax year. They are applied before the annual exemption. Unused capital losses are carried forward against future capital gains, they can not normally be carried back. To make use of a capital losses it must be reported to HMRC within five years and ten months of the end of the tax year in which it arose.

Entrepreneurs' Relief

The new entrepreneurs' relief can apply when you sell part or all of your business, or shares in your own company after 5th April 2008. Entrepreneurs' relief allows the capital gain to be taxed at an effective CGT rate of just 10% (instead of 18% or 28%).

There are some other tight restrictions to entrepreneur relief. It applies to gains made after 6 April 2008. From 6 April 2011 the relief applies to the first £10million of qualifying lifetime gains. Gains in excess of this limit or which do not qualify for other reasons will be taxed at 18% or 28%.

Annual Exemption

An annual exemption of £10,900 for 2013/14 is available to individuals so total gains made in the tax year up to this amount are exempt. Any unused annual exemption is lost and cannot be carried forward or transferred to another person.

CGT Exemptions

These are the main exemptions from CGT...

Normally the sale of your only or main residence is exempt, although it can become partly chargeable in some circumstances such as if it is let out or used for business purposes;
Transfers of assets between husband and wife or civil partners. Such transfers are treated as being made at no gain/no loss;
Most chattels whose value decreases over time (called wasting assets);
Non wasting and business chattels where the disposal proceeds do not exceed £6000;
Private motor cars;
Gifts to charity and certain amateur sports clubs;
SAYE contracts, savings certificates and premium bonds;
Betting winnings and prizes including the lottery;
Compensation for damages for personal or professional injury;
Some compensation payouts for mis-sold pensions;
Life assurance policies in the hands of the original owner or beneficiaries;
Company reorganisations and takeovers where there is a share for share exchange.

Payment of CGT

CGT is paid through the self-assessment system and gains and losses must be declared on your self-assessment return. The gains after all reliefs and exemptions are added to your taxable income and then taxed at your top marginal rate. The tax is payable by 31 January following the tax year in which the gain arose.

TAX TIPS: AUGUST QUESTIONS AND ANSWERS

simon@rdpipswich.co.uk (Simon ) — Tue, 25 Oct 2016 09:33:44 GMT

TAX TIPS BENEFIT IN KINDVAT

Newsletter issue – August 2016.

Q. I have five employees who I recently took out for dinner to celebrate the success of the company. The total cost of the meal was £225. Do I have to report this as a benefit-in-kind to HMRC?

A: Finance Bill 2016 legislates for a new tax exemption relating to trivial benefits, which broadly means that if the cost of providing the benefit does not exceed £50 per employee, you will not have to account for it to HMRC, and the employees will not have to pay tax and NICs on it.

The cost of the benefit is defined in the legislation as:

the cost of providing the benefit; or
if the benefit is provided to more than one person and the nature of the benefit or the scale of its provision means it is impracticable to calculate the cost of providing it to each person to whom it is provided, the average cost per person of providing the benefit.

So, although different employees will have chosen different food and drinks, HMRC will accept that the cost per head can be taken as £45 (£225/5). The benefit of the meal will therefore be covered by the exemption as the cost per employee did not exceed the £50 trivial benefit limit. You will not have to report it to HMRC.

Q. Is there any update on Finance Bill 2016 Progress?

A: There has been much speculation on when the Finance Bill 2016 will receive Royal Assent. According to the latest information, all stages of the Bill have been provisionally scheduled to take place in the House of Lords on Tuesday 13 September. It is expected that Royal Assent will be achieved shortly after that time.

Q. How long do I need to keep VAT records for?

A: VAT-registered businesses must:

keep records of sales and purchases;
keep a separate summary of VAT; and
issue correct VAT invoices

In the UK, VAT records must be kept for at least six years (or ten years the trader uses the HMRC VAT mini-one-stop-shop (VAT MOSS) service. VAT records may be kept on paper, electronically or as part of a software program (e.g. book-keeping software) – but whichever method is used, the records must be accurate, complete and readable. HMRC can visit businesses to inspect record-keeping and impose penalties if the records are not in order

RDP QUESTIONS AND ANSWERS JULY 2016

simon@rdpipswich.co.uk (Simon ) — Tue, 25 Oct 2016 09:32:39 GMT

ACCOUNTANT IPSWICH ACCOUNTANT TAX TIPS

From our July newsletter

Q1. My mother died last year and left my brother and me a commercial business unit. Probate is nearly complete now. If we sell the property in the future, what are the capital gains tax implications on the sale?

A: I presume that you and your brother are inheriting equal shares in the property. Your acquisition value, for future capital gains tax computation purposes, is the market value at the date of death – known as the ‘probate value’. Capital gains tax will be calculated under the normal rules on any increase in value from that date.

Q2. I have recently registered for VAT. I am not very good when it comes to administration and I have heard that the flat rate scheme might help me. How does the scheme work?

A: Broadly, the flat rate scheme for VAT is designed to help small businesses with a turnover of no more than £150,000 a year, excluding VAT, by taking some of the work out of recording VAT sales and purchases.

With the flat rate scheme:

You pay a fixed rate of VAT to HMRC; and
You keep the difference between what you charge your customers and pay to HMRC; but
You can’t reclaim the VAT on your purchases – except for certain capital assets over £2,000.

The percentages applicable to this scheme currently vary between 4% and 14.5%, depending on the nature of the services provided. Full details of the scheme are included in the HMRC VAT Notice 733: Flat rate scheme for small businesses , which you can download from the HMRC web site.

The scheme works well for some but not others. On the positive side, the scheme may save you some admin because you don’t have to work out every item of input and output tax, but if your customers are VAT registered, you do have to calculate the VAT and issue VAT invoices in the normal way. Financially, the flat rates averages may work out cheaper for you than normal accounting or you may find this scheme more expensive.

Q3. I have a part time job and I earn about £8,000 a year. As my earnings are less than the tax-free personal allowance, can I transfer the unused amount to my husband?

A: Since April 2015, a spouse or civil partner who is not liable to income tax or not liable above the basic rate for a tax year may transfer part of their personal allowance to their spouse or civil partner, provided that the recipient of the transfer is not liable to income tax above the basic rate. The transferor’s personal allowance will be reduced by the same amount. For 2016/17 the amount that can be transferred is £1,100 (£1,060 for 2015/16). The spouse or civil partner receiving the transferred allowance will be entitled to a reduced income tax liability of up to £220 for 2016/17 (£212 for 2015/16). Note, however, that married couples or civil partnerships entitled to claim the married couple’s allowance are not entitled to make a transfer.

For further information on this, see the gov.uk website at www.gov.uk/marriage-allowance .

RDP QUESTIONS AND ANSWERS JUNE 2016

simon@rdpipswich.co.uk (Simon ) — Tue, 25 Oct 2016 09:25:47 GMT

ACCOUNTANT IPSWICH ACCOUNTANT TAX TIPS

Here are our latest questions and answers

Q I am thinking of purchasing a new house that I will use as my main residence, but I will still own other properties. Will I be liable to the new 3% stamp duty land tax (SDLT) change?

A: HMRC guidance on the new higher rates of SDLT for purchase of additional residential properties explains that if a previous main residence is replaced within three years, then you will not be liable to the additional 3% SDLT charge, even though you own other residential properties.

Q I commenced trading as a service provider on 1 September 2015 and now wish to complete my 2015/16 tax return. I have not incurred any capital expenditure and my turnover is less than the current VAT threshold. Should I use 30 March (or 5 April) as my accounting year-end?

A: If you make your business accounts up to 31 March, HMRC will treat this as being made up to 5 April. One advantage of a 31 March/ 5 April year-end is that no ‘overlap’ profits will be created. Broadly, overlap profits are brought about by being taxed twice in the first two years of trading. You would get relief for this overlap, but potentially this won’t be until a much later stage (for example if you change your accounting date, or if you cease to trade). Quite often, profits in a new business are smaller at the start and gradually increase. An advantage of a 30 April year-end is that tax is paid later. So, for a 30 April 2016 year-end, tax will become due for payment on 31 January 2018, and the tax on profits earned between 1 May 2016 and 30 April 2017 will be payable by 31 January 2019. If the business had a 31 March 2017 year-end, the tax on profits earned between 1 April 2016 and 31 March 2017 would not become payable until 31 January 2018. Of course, if you chose a later year-end, you should make sure that you keep enough money aside to pay your tax bill when it becomes due.

Q How do I register as a self-employed subcontractor in the construction industry?

A: You need to register with HMRC for both self-assessment as self-employed, and under the construction industry scheme (CIS). This does mean that there are two separate registrations, but these can both can be done at the same time.

In most cases you can register as self-employed by calling the HMRC Newly Self-employed Helpline on 0300 200 3504. If you are already registered as self-employed, but need to register under the CIS scheme, you should contact the CIS Helpline on 0300 200 3210.
The contractor for whom you are working will ask you for your unique tax reference (UTR) and you need to provide this before you are first paid, in order to determine which tax deduction rate to use.
The UTR is issued when you are first set up under self-assessment to complete a tax return. If you have not previously been required to prepare a tax return, you will be given a UTR when you register as self-employed.

For further guidance on registration and other obligations for subcontractors,

Gov.uk website at https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor .

RDP QUESTIONS AND ANSWERS MAY 2016

simon@rdpipswich.co.uk (Simon ) — Tue, 25 Oct 2016 09:25:47 GMT

IPSWICH ACCOUNTANT TAX TIPS

Q1. How do I work out my share of a capital gain?

I owned a quarter share in a property that was sold in 2015. It was not my main residence at any time during my period of ownership. I am trying to work out my share of the capital gain arising on the property. Do I simply divide the purchase price, sale price, and any improvement costs by four to work out how much tax I will have to pay?

A: Assuming that all the improvement costs and the sale proceeds relating to this property were 25% your responsibility, then yes, you just show the figures relating to your share of the gain on your tax return. However, it may be worth providing HMRC with clarification in the ‘additional information’ section of the return.

Q2. Are my savings covered by the personal savings allowance?

I have several savings accounts. Most of the accounts have always had tax deducted from the interest paid before I receive it. However, I understand that one of my accounts is ‘tax-free’. Interest has always been paid gross and I have never included it on my tax return. I am a basic rate taxpayer. Is the ‘tax-free’ account interest included in the personal savings allowance limit?

A: From 6 April 2016, banks and building societies will pay interest on all savings accounts gross. In parallel with this change, the new personal savings allowance (PSA), also introduced from 6 April 2016, means every basic-rate taxpayer can earn £1,000 interest without paying tax on it (higher rate taxpayers have a PSA of £500), currently equivalent to the interest on almost £75,000 in some easy-access savings account.

Interest that is already tax-free isn’t included – so this includes ISA interest and Premium Bond ‘winnings’. Interest from these will still be paid tax-free, but it just won’t count toward your PSA limit. So, if you get £500 in ISA interest, and you’re a basic-rate taxpayer, you’ll still have £1,000 of PSA to cover other interest.

Q3. Will I be entitled to tax-free childcare?

I have heard that HMRC are launching a new tax-free childcare scheme. I am currently employed and earn £70,000 a year. My employer does not provide any support for childcare. Will I be eligible to join the new scheme?

A: HMRC have confirmed that a new tax-free childcare scheme will be launched from early 2017. To qualify, parents will have to be in work, and each earning around £115 a week and not more than £100,000 each per year.

Tax-Free Childcare does not rely on employers offering the scheme, unlike the current scheme (’employer-supported childcare’). Any working family will be able to use the new scheme, provided they meet the eligibility requirements.

Once launched, you will be able to open an online account, which you can pay into to cover the cost of childcare with a registered provider. This will be done through the government website, GOV.UK.

For every 80p you or someone else pays in, the government will top up an extra 20p. This is the equivalent to the current basic rate of income tax – hence the ‘tax-free childcare’ name given to the new scheme. The government will top up the account with 20% of childcare costs up to a total of £10,000 – the equivalent of up to £2,000 support per child per year (or £4,000 for disabled children). The scheme will be available for children up to the age of 12.