New Rules For Buy-To Let Landlords - August 2016!

The 2016 Finance Bill sees the introduction of important tax changes for property investors that were originally announced in the 2015 Budget.

From 6 April 2016 onwards, there are important tax changes affecting the replacement of furnishings for buy to let landlords. 6 April 2017 will see the start of mortgage interest being restricted to basic rate only.

Wear and tear allowance abolished

Until 5 April 2016 landlords who were letting residential property on a fully furnished basis were able to claim a 10% "wear and tear” allowance towards the cost of the depreciation of furnishings. This simple allowance was an alternative to claiming a deduction for the actual cost of replacing furnishings which was a concession that applied up until April 2013.

So for example, where the gross annual rent was £9,000 there would have been an allowable deduction of £900.

This change seems to be inconsistent with the government's stated desire to simplify the tax system.

The new relief for replacement of furnishings in property businesses

Up until April 2013 it used to be the case that where furnishings were replaced in a property rental business there was deduction for the cost of the replacement items in arriving at rental profits.

This was never a statutory deduction and was accepted by HM Revenue and Customs on a concessionary basis. That concession was controversially withdrawn at relatively short notice in 2013 so for a three year period, unless landlords were eligible for the "wear And tear" allowance there was no relief for furnishings.

As the result of extensive lobbying by the accounting profession, and the residential landlords association, the relief has been restored on a statutory basis from 6 April 2016 by the latest Finance Bill.

The new relief provides a deduction for the actual cost of replacing furniture, furnishings, appliances and kitchenware for the use of the tenant in the let property.

Note that there is no allowable deduction for the initial fitting out of the rental property, just the cost of replacement Items. Furthermore the allowable tax deduction applies on a like for like basis so if there is any significant Improvement then the tax relief will be restricted. So, for example, where a washing machine is replaced with a washer/dryer costing £600, tax relief would only be available for the cost of the equivalent washing machine costing say £400.

No renewals relief for other businesses

Although the renewals basis has been reintroduced for rental businesses from April 2016, it has been withdrawn for other trading business. This relief was previously referred to as the "loose tools" deduction.

Consequently there is no longer relief for the replacement or alteration tooling. In future HMRC would expect such expenditure to be dealt with through the capital allowances rules, most likely by making a short life asset claim.

No change for Furnished Holiday Lettings

The above changes to the renewals basis do not apply where the property rental business falls within the definition of a qualifying furnished holiday lettings (FHL) business.

Such businesses continue to qualify for capital allowances when plant and machinery used In the course of that business is acquired and would benefit from the100% write off under the Annual Investment Allowance rules.

There are strict conditions for the property business to qualify as FHL, the most important condition being that the property is let for at least 105 days (15 weeks) in the tax year, and comprises a series of short term lets.

Note that under the capital allowances rules, relief is not just available for replacing assets but also for the initial furnishing of the holiday property.

Interest relief restriction starts 6 April 2017

As previously announced the current deduction available for mortgage interest and other finance costs starts to be phased out from 6 April 2017.  In 2017/18 only 75% of finance costs will be deductible in arriving at rental profits, the remaining 25% will only qualify for basic rate tax relief.

In 2020/21 there will be no deduction against rental profits for finance costs, just a basic rate tax reduction. This will not only affect higher rate taxpayers but will also have the effect of pushing some landlords into higher rates of tax.

Currently where a buy to let landlord has £10,000 a year net rental profits after deducting £30,000 mortgage interest, in  2020/21 his rental profits would increase to £40,000.

If his other income is £25,000 a year, the rents would currently be taxed at basic rate 20%. Assuming his other income stays the same, his taxable income would increase to £65,000 with a significant portion being taxed at the 40% higher rate. The £30,000 mortgage interest would only qualify for a £6,000 (20%) set off against the 2020/21 tax liability.

Note again that the restrictions do not apply to any part of the amount borrowed for the commercial letting of furnished holiday accommodation. Furthermore, the restriction does not apply to loans for property development trades, or loans secured on a let dwelling house which are applied for the purposes of a trade.

If you have any questions, please feel free to contact us: 
APJ Accountancy | ☎ 020 89310165 | ☏ 07900537459 | ✉ info@apjaccountancy.com

Incorporating Your Business? 2016 Updates!

Where a sole trader, partnership or LLP has established a significant value for the goodwill of their business, it was possible, up until 3 December 2014, to transfer that goodwill to a limited company and pay just 10% capital gains tax by claiming entrepreneurs’ relief.

The former owner(s) could then draw down on the loan account created with the transferee company over time as future cash was generated by the business. This tax planning strategy became less attractive when entrepreneurs relief was denied where the transferor and transferee were related parties, although the latest Finance Act has relaxed this rule where the former owner receives less than 5% of the acquiring company’s shares.

Now that the top rate of CGT has been reduced to 20% from 6 April 2016 for such transfers, rather than 28%, it may be worth reconsidering this strategy.

For example where an individual’s share of goodwill is worth £500,000 the CGT due would be £100,000 leaving £400,000 net of tax.

Note that for a transfer in June 2016 the CGT would not be due until 31January 2018.

Consider charging interest to the company on the loan account balance as that is now more tax efficient than dividends for higher rate taxpayers.

Note that although the goodwill would generally need to be written off against the company’s profits, there is no longer a tax deduction for the amortisation resulting in higher taxable profits.

Know more about Capital Gains Tax: changes to rules

Contact us if you need help while incorporating your business:

PJ | ☎ 020 89310165 | ☏ 07900537459 | ✉ info@apjaccountancy.com

VAT Flat Rate Scheme for your Small Business!

Should I Use The VAT Flat Rate Scheme For My Small Business?

The VAT Flat Rate Scheme is intended to simplify VAT accounting and reporting for small businesses, and some may even find that they pay less VAT than using normal VAT accounting.

To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC to use the scheme. You can remain in the scheme until your turnover including VAT exceeds £230,000. 

With the Flat Rate Scheme you pay a fixed rate of VAT to HMRC depending on your business category and you keep the difference between what you charge your customers and pay to HMRC. However, you can’t reclaim the VAT on your purchases, except for certain capital assets over £2,000.

HMRC have recently revised their guidance on different business categories. 

For example not all consultants should use the 14% flat rate applicable to management consultants and should instead use the 12% rate for ‘business services not listed elsewhere’. That would result in them paying over 2% less of their takings to HMRC. On £150,000 a year that would be a £3,000 VAT saving. There is a further 1% reduction in the first year that the business is VAT registered.

To sum it up, with the Flat Rate Scheme:

• you pay a fixed rate of VAT to HMRC
• you keep the difference between what you charge your customers and pay to HMRC
• you can’t reclaim the VAT on your purchases - except for certain capital assets over £2,000
• To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC.

If you want to know more or advice on whether the Flat Rate Scheme is right for you, contact us.

PJ - APJ Accountancy

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☏ 07900537459

✉ info@apjaccountancy.com

Supplying Digital Services to Customers in Other EU Countries

The VAT place of supply rules changed on 1 January 2015 where digital services are supplied to non-business customers. The place of supply changed from where the supplier was based to where the customer is located as some companies were avoiding UK VAT.

This rule change had serious implications for small businesses supplying digital services such as software downloads to non-business customers. Where those customers are in other EU countries the UK trader may be required to register for VAT in that country and charge that country’s VAT rate on the supply. This is because unlike the £83,000 UK threshold many EU countries have a zero threshold. To simplify compliance with the EU VAT rules HMRC introduced the VAT Mini One Stop Shop (MOSS).

How UK VAT MOSS works?

Once you register your business for the scheme, you must account for the VAT due on any qualifying sales by sending HM Revenue and Customs (HMRC) a VAT MOSS Return and payment each calendar quarter.

This means you only need to send a single VAT MOSS Return, each calendar quarter. You don’t have to declare the VAT due separately in each EU member state.

HMRC will send the relevant parts of your return and payment to the tax authority of the country where your customers are based.

Please contact us for further assistance if this may apply to your business. 

☎ 020 89310165 | ☏ 07900537459 | ✉ info@apjaccountancy.com 

Last minute Tax Saving and Planning!

It is always best to plan your tax starting early in the year.  Though, it's never too late than never. Here are some last minute tax savings tips. 

Don’t Lose Your Personal Allowance

For £2 that your adjusted net income exceeds £100,000, the £10,600 personal allowance is reduced by £1. Pension contributions and Gift Aid can help to reduce adjusted net income and save tax at an effective rate of 60%.

Year End Pension Planning

Take advantage of the pension carry forward rules in order to benefit from any unused allowances from the previous three tax years.  This is generally the difference between the old £50,000 annual pension allowance and your pension input that year and can be added to your relief for 2015/16.

Note that the annual pension allowance is £40,000 for 2015/16 and 2016/17, although those individuals with income over £150,000 will have their annual pension allowance reduced by £1 for every £2 over £150,000.

To avoid losing pension relief brought forward from 2012/13 which lapses 5 April 2016, consider making an additional pension payment before 5 April 2016.  If your pension input was £24,000 in 2012/13 then there is £26,000 unused relief available to add to your 2015/16 allowance. You would need to make gross pension contributions of at least £66,000 (£40,000 plus £26,000) to avoid losing this generous relief.

Will Pension Tax Relief Change Again On Budget Day?

There has been a lot of speculation that the Chancellor may announce further major changes to tax relief on pension contributions in his March Budget, based on consultations with the pensions industry.

Under the current rules an individual’s contributions can save them tax at their highest marginal rate and also help them avoid losing their personal allowance (see above). So a £8,000 pension contribution by a higher rate taxpayer results in £2,000 (20%) being added to their fund by HMRC = £10,000 gross. The £10,000 gross contribution would then save a further £2,000 in tax, so the net cost would be just £6,000 if they are a higher rate tax payer.

It is understood that the Government is considering introducing a flat rate of pension tax relief of between 25% and 33%, which would be good news for basic rate taxpayers, but higher rate taxpayers would lose out. If say a 30% rate of relief was to be introduced, a £7,000 contribution would be topped up to £10,000 with no further relief. It has also been suggested that it may not be possible in future to agree with your employer to sacrifice part of your salary in exchange for an additional tax free employer pension contribution. The starting date of these possible changes is uncertain but they may be effective from Budget Day!

Make Charitable Payments Under Gift Aid To Save More Tax

Higher rate taxpayers should make any charitable payments under Gift Aid so that they obtain additional tax relief. The charity will also be able to reclaim the basic rate tax from HMRC making it even better.

Year End Capital Gains Tax Planning

Have you used your 2015/16 £11,100 annual exemption?  Consider selling shares where the gain is less than £11,100 before 6 April 2016. Also, if you have any worthless shares, consider a negligible value claim to establish a capital loss. You may even be able to set off that capital loss against your income under certain circumstances.

Used Your 2015/16 ISA Allowance? 

Your maximum annual investment in ISAs for 2015/16 is £15,240.  Your investment needs to be made before 6 April 2016.  In addition, have you thought about investing for your children or grandchildren by setting up a Junior ISA? In the 2015/16 tax year, you can invest £4,080 into a Junior ISA for any child under 18.

Other Tax Efficient Investments

If you are looking for investment opportunities, have you considered the Enterprise Investment Scheme (EIS)? These investments in certain qualifying companies allow you to set off 30% of the amount invested against your tax bill as well as capital gains tax (CGT) deferral.  An even more generous tax break is available for investment in a qualifying Seed EIS company where income tax relief at 50 per cent is available and in addition it is possible to obtain relief against your 2015/16 capital gains. Both EIS and Seed EIS also provide a CGT exemption when the shares themselves are sold after 3 years.  Note however that qualifying EIS companies tend to be risky investments so professional advice should be taken.

A 30% income tax break is also available by investing in a Venture Capital Trust.

Inheritance Tax Planning Before 6 April 2016

Have you made use of your annual Inheritance Tax (IHT) exemptions? The annual exemption is £3,000 per donor (plus last year’s £3,000 exemption if you did not use it). Also consider making regular gifts out of your income to minimise the growth of your estate that will be liable to IHT. Gifts out of your surplus income are not subject to IHT if properly structured.
Buy New Machinery Before 6 April?
Those running a business and making up accounts to 5 April should consider buying plant and machinery to take advantage of the Annual Investment Allowance (AIA) of £200,000.  The AIA provides a 100% tax write off for equipment used in your business. This tax relief extends to fixtures and fittings within business premises such as electrical, water and heating systems. There is also 100% tax relief if you buy a new car that emits no more than 95g CO2 per kilometer and an increasing number of cars now fall below that limit.

Note that 5 April is not relevant if your business makes up accounts to a date other than 5 April. If your business year end is say 30 June, then you would need to acquire the equipment before that date to get the 100% tax relief.

Consider Paying Dividends Before 6 April 2016

Something that we have mentioned in previous newsletters for those running their own companies is to consider paying dividends before 6 April 2016 when the new system of dividend taxation starts.  Although the first £5,000 of dividends will be taxed at 0% from 2016/17, once that has been used up there will be a 7.5% across the board increase in the rate of tax on dividends. Please contact us to arrange a meeting to discuss this further.

But Delay Replacing Furniture In Buy To Lets Until After 6 April 2016?

Tax relief for the replacement of furniture, including white goods, is being reinstated where the expenditure is incurred on or after 6 April 2016.  This is good news for those landlords renting out properties unfurnished but providing white goods where the tax relief had been withdrawn in 2013.

If you have any questions, please contact us at:
☎ 020 89310165 | ☏ 07900537459 | ✉ info@apjaccountancy.com 

Workplace pensions – Automatic enrolment!

‘The law on workplace pensions has changed. Under the Pensions Act 2008, every employer in the UK has a duty to put certain staff into a pension scheme and contribute towards it. This is called 'Automatic Enrolment'.

You may be a hairdresser, an architect or employ a personal care assistant, but if you employ at least one person you are an employer and you have certain legal duties.

The chart below shows that nearly half a million small businesses will need to arrange their pension scheme this year!

The Pension Regulator has issued 6,746 compliance, unpaid contributions notices and fines to date and 3,732 in the period October to December 2015!  Don’t be one of them - fines start at £400 and can be £50 daily for non- compliance!

So small business owners need to:

• establish a qualifying work place pension scheme,
• ensure the scheme has an appropriate default fund,
• issue statutory communications to all employees and
• enrol all eligible jobholders into the scheme.

Do you have the time to do all this and run your business?

Ask yourself “How do I choose the right pension scheme, is my payroll Auto Enrolment compliant, how are you going to tell your pension scheme what to collect and where to allocate contributions?”  If you’ve not done anything about preparing for Automatic Enrolment, talk to us; we can help you with our fully compliant payroll, workforce assessment and pension selection processes and help you avoid the wrath of the Regulator and get on with what matters most - Making your business a success!”

Will pension tax relief change again on budget day?

There has been a lot of speculation that the Chancellor may announce further major changes to tax relief on pension contributions in his March Budget, based on consultations with the pensions industry.  Under the current rules an individual’s contributions can save them tax at their highest marginal rate and also help them avoid losing their personal allowance (see above). So a £8,000 pension contribution by a higher rate taxpayer results in £2,000 (20%) being added to their fund by HMRC = £10,000 gross. The £10,000 gross contribution would then save a further £2,000 in tax, so the net cost would be just £6,000 if they are a higher rate tax payer.

It is understood that the Government is considering introducing a flat rate of pension tax relief of between 25% and 33%, which would be good news for basic rate taxpayers, but higher rate taxpayers would lose out. If say a 30% rate of relief was to be introduced, a £7,000 contribution would be topped up to £10,000 with no further relief.  It has also been suggested that it may not be possible in future to agree with your employer to sacrifice part of your salary in exchange for an additional tax free employer pension contribution. The starting date of these possible changes is uncertain but they may be effective from Budget Day!

Contact us for all your Tax & Accounting needs!
☎ 020 89310165 | ☏ 07900537459 | ✉ info@apjaccountancy.com 

Collection Of Unpaid Tax Through Your Tax Code!

Remember that HM Revenue and Customs can collect tax debts by adjusting your Pay As You Earn (PAYE) tax code. HMRC refers to this as ‘coding out’. The effect of this is to recover the tax debt from your pay or pension, by increasing the amount deducted during the tax year. This applies if you have a debt with HMRC and:

• are an employee paying tax through (PAYE) and/or
• receive a taxable UK-based private pension.

This facility is available if your annual earnings are £30,000 or more. To do this, HMRC apply a sliding scale to your main PAYE income. The maximum amount that can be coded out is £17,000 where your earnings exceed £90,000 a year. These changes will only apply to underpaid Self-Assessment and Class 2 National Insurance debts and Tax Credit overpayments. Changes will then be reflected in your 2016/17 tax code.

Coding out the unpaid 2014/15 tax is only possible if you submitted your paper tax return by 31 October 2015 or file your tax return online by 30 December 2015. If you would like your outstanding tax collected through PAYE please ensure that we receive your tax information in good time to meet the 30 December deadline!


Contact us for all your Tax & Accounting needs!
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Tax Relief Under The Enterprise Investment Scheme (EIS)

The Enterprise Investment Scheme allows unconnected investors to obtain a 30% set off against their income tax liability up to £1,000,000 investment each tax year. So a £10,000 investment reduces the investor’s income tax liability by £3,000.  In addition, provided those shares are held for at least 3 years, the gain on disposal of those shares is tax free.

However, as illustrated in a recent tax case, the capital gains exemption is only available where the investor has made a claim for income tax relief. In Ames v HMRC (2015) the taxpayer, Mr Ames, invested £50,000 in a new company but unfortunately had very little income that year so did not claim EIS income tax relief. When he sold the shares several years later for £333,000, he found that the exemption did not apply and the gain was taxable!

Note that Seed EIS for small start-up companies provides 50% income tax relief and the same CGT exemption when the shares are sold.

The connected persons rule means that existing employees, paid directors and their associates are not entitled to these reliefs. Shareholders with more than 30% of the company’s shares, together with their associates, are also excluded.

Note that these exclusions do not apply where the investor is merely seeking to defer capital gains tax via their EIS investment.

The rules for EIS and Seed EIS are very complex so please get in touch with us to discuss the tax implications if you are considering making such an investment.

Feel free to contact us for further advice.
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Downsize (or Upsize) to Save Inheritance Tax?

From 6 April 2017 an additional Inheritance Tax (IHT) Residence Nil Rate Band (RNRB) starts being phased in to enable individuals to pass on their family home to direct descendants. The additional nil rate band starts at £100,000 and rises to £175,000 for deaths after 6 April 2010. When fully phased in the additional nil band will enable a married couple to pass on a family home valued up to £1 million free of IHT, although the additional relief is restricted if they have assets worth more than £2 million.  The proposed new legislation, if enacted, will provide relief even if the individual downsizes to a smaller property where the downsizing takes place after 8 July 2015. Like the £325,000 IHT nil rate band, the unused residence nil band can be transferred to the surviving spouse and used on the second death.


Example:

A widow sells a home worth £400,000 in August 2020 for cash and moves to a home worth £210,000. At the time of the sale the available RNRB is £350,000 as, had she died at that time, her executors would be able to make a claim to transfer all the unused RNRB from her late husband. The new downsizing relief will entitle her to an additional £140,000 (£350,000 - £210,000) nil rate band. This would be added to her nil rate band (up to £650,000 (2 x £325,000) and can be set against any of her assets including cash and investments.

If the replacement property was worth £225,000 on her death then the additional nil band would be reduced to £125,000 if the allowance remains at £350,000.  The new inheritance rules are complicated so please get in touch if the changes impact on your family’s tax position. It may even be worth considering upsizing before you downsize to maximise this new relief!

HMRC Credit Card Sales Campaign

HMRC's latest disclosure campaign is aimed at traders who accept payments by debit and credit cards but who haven’t declared all transactions. The Credit Card Sales campaign provides an opportunity for individuals and companies accepting debit and credit cards (but have not reflected all transactions in their tax return) to bring their affairs up to date in a simple, straightforward way and take advantage of the best possible terms.



You can use this if:

• you accept card payments for goods or service
• you haven’t declared all your UK tax liabilities

Traders wishing to use the scheme must first notify HMRC. They will then have 4 months from the date they receive HMRC's acknowledgement of notification to make a disclosure and pay any tax due. If, however, you do not come forward and HMRC finds later that you are behind with your tax, it may be harder to convince them that it was not a deliberate act. The law allows HMRC to go back up to 20 years and in serious cases HMRC may carry out a criminal investigation.

HMRC is targeting tax evasion through Debit and Credit Card Sales and will use information it holds on its digital intelligence systems to identify taxpayers who might not have declared all their income. Where additional taxes are due, HMRC will usually charge higher penalties than those available under the Credit Card Sales campaign.

For more information and source https://www.gov.uk/creditcardsales

Please contact us if you have more questions or need expert Tax assistance!

APJ Accountancy - A team of Chartered Certified Accountant regulated and monitored by The Association of Chartered Certified Accountants (ACCA).
Tel: 020 89310165  
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New Tax Relief For Investment In Social Enterprise!

HMRC's Social Investment Tax Relief scheme (SITR) introduced this year helps individuals support social enterprises, giving these enterprises access to new sources of finance.

SITR helps social enterprises raise finance by offering tax relief to individual investors.

The new relief provides the investor with a deduction from their tax liability, equal to 30% of the amount invested. A £10,000 loan to a qualifying social enterprise would therefore allow an individual to reduce his income tax liability by £3,000.

The relief is available for qualifying investments made on or after 6 April 2014. A social enterprise is a commercial business that helps people or communities. It may be a charity or community interest company.

The social enterprise can make sure they (and the proposed investments) qualify by sending an advance assurance application to HMRC.

Resources about SITR from HMRC:

Guidance for social enterprises
Eligibility and the conditions social enterprises must meet so investors can claim SITR

Guidance for investors
Conditions investors must meet before claiming SITR

Get approval if you're a social enterprise
What social enterprises need to do to get approval from HMRC

How to claim tax relief if you're an investor
What investors need to do and when to claim SITR

Form: SITR Compliance Statement
Social enterprises must use this form to request authority to issue Compliance Certificates to investors

Policy on Social Investment Tax Relief (Opens new window)
How SITR will help grow the social investment market

Post your questions on SITR or other Tax Relief options and we'll help you.