Adrian Mooy & Co - Accountants Derby

Adrian Mooy & Co

Welcome to our home page. We are a firm of Chartered Certified Accountants and tax advisors in Derby. We help businesses like yours grow and be more profitable.  For a friendly service covering audit, tax, accounts, self assessment, VAT & payroll please contact us.


How can we help you?

○  Quality checked firm - awarded the prestigious ACCA Quality Checked mark

We offer a traditional personal service and welcome new clients.

From start-up to exit and everything in-between - whether you’re  struggling with company formation, bookkeeping, or annual accounts and taxation, you can count on us at every step of  your business’s journey.

We specialise in cloud-based accounting solutions. With the power of cloud accounting in your hands, you can access accurate real-time data on the go, accept instant payments and even automate repetitive tasks like invoicing. Fast, easy, touch-of-a-button accounting is the future.

If you are looking for a Derby accountant then please contact us.


○  Cloud-based accounting solutions

○  Tax solutions to help you keep more of your income

Accountants Derby

○  Transparent affordable pricing

○  Free initial interview




Tax Planning for individuals

Tax Planning for Individuals

Successful individual tax planning requires careful attention across a wide range of areas and time frames.

Tax Planning for small business

Tax Planning for Small Business

Effective tax-saving strategies for small businesses operating in a tough economic climate.

Contractors and Freelancers

Contractors & Freelancers

Invoicing your contracting work through a limited company is highly tax efficient.

  • Here are some tips for saving your company corporation tax and extracting money from your company tax efficiently. Why pay more than you need to? Company owners - Saving tax

  • The approach of a company’s year end is an important time to look at tax saving. Action has to be taken by that date, otherwise the opportunities could be lost. Company tax saving


We offer a range of high quality services

Web-based accounting

Xero is a web-based accounting system designed with the needs of small business owners in mind.


It can automatically connect to your bank and download your bank statements. From there it’s simple to tell Xero what transactions relate to and once told it remembers and looks out for similar transactions. This saves time and makes keeping your accounts up to date easier.


Log in from any web browser. As your accountant we can log in and provide help and advice.

Our process for delivering tax accounting vat self assessment and payroll services


Arrow indicating direction of process flow

Our Process

Understand your needs

Firstly we listen and gain an understanding of your business and what you are aiming to achieve.

Continuous improvement

We seek your opinions on the service we provide and respond to feedback in order to upgrade and improve what we do.

Build a relationship

Success in business is based around relationships and trust. Our objective is to develop and build strong relationships with our clients, based on two way trust and respect.

Confirm your expectations

Our aim is  to help you maximise your business potential and we tailor our service to meet your requirements and agree a timetable for delivering them.

Actively communicate

Communication is important to the success of any commercial venture. It is therefore a vital part of our work with you, sharing the knowledge and ideas that help you to realise your ambitions.

Our Process

Understand your needs

Confirm your expectations

Actively communicate

Build a relationship

Continuous improvement

Straightforward and easy to deal with Adrian Mooy & Co provide an efficient, friendly and professional service - payroll, tax returns, annual accounts and VAT returns are always done on time.    Eddie Morris



First class! Super accountant! We have been with Adrian Mooy & Co since 1994. They provide a prompt, accurate & reliable service. There is always someone at the end of the phone to help and advise us. They have always delivered and we are more than happy to recommend them.    Ian Cannon

Business expenses

Being savvy with your expenses is a large part of running a successful business, regardless of its size. Claiming expenses is a simple way to keep your business tax efficient – it reduces your profit, which in turn reduces your tax payments. By claiming every allowable expense you’re making sure you don’t pay a penny more in tax than you have to.


For more information about exactly what expenses you can claim, see our helpsheets.

Accountants Derby


  • Should Landlords Incorporate? - Part 1

    Issues to bear in mind for buy-to-let landlords thinking about incorporating of their property business.

    A BTL investor should only incorporate his or her business if there is good reason to do so. Before the new rules restricting tax relief for finance costs on residential property, many landlords would not have been better off by incorporating. Since April 2016 a new, more punitive regime for taxing dividend income means that incorporation is even less beneficial.

    Example: Sole proprietor vs company - Joe owns several properties, but has no other sources of income. His net property profits are £40,000. In 2016/17, his personal tax position will be:

    2016 / 2017
    Rental Income
    Less: P Allce
    Taxed at:
    Net Income

    If he had instead put his properties into a company, the company would first have to pay corporation tax on its profits:

    Rental Income
    Less: Salary
    Taxed at:
    Net Income
    Continued in Part 2 ...
  • Should Landlords Incorporate? - Part 2

    But this is only half the story; although it is Joe's company, he has so far drawn out only £8,000 salary and the rest of the company’s profits are locked up in the company’s bank account - those funds are not yet his. He therefore pays a dividend out of the company to put the funds at his personal disposal.

    2016 / 2017
    Company Funds
    payable as dividends:
    Balance of Personal Allce
    Taxed at:
    New Dividend
    "Allowance" 0%
    Div Rate 7.5 %
    Total Income Tax on dividends:
    Dividend income after tax:
    Add: salary already taken (as above)
    Net income
    Net income without company (above):
    Lost by running portfolio through company

    The real problem is that, by 2020/21, Joe will be getting only 20% tax relief on his mortgage lnterest if he continues to hold the property personally, while the corporate alternative would not be caught. Suppose that Joe's net rental income of £40,000 is after having paid £32,000 in mortgage interest, and move forwards to 2020/21, where all of his mortgage interest will be subject to the new tax relief restriction:

    2020 / 2021
    Rental Income
    Disallow: Interest
    Less: P Allce
    Deemed taxable:
    Basic Rate 20%
    Higher Rate 40%
    Mortgage Interest adjustment
    Net income
    Continued in Part 3 ...
  • Should Landlords Incorporate? - Part 3

    Joe stands to lose £4,100 by 2020/21 if he continues to run his business personally, even though personal tax-free bands and allowances have risen significantly by then (the government has committed to increase the personal allowance to £12,500 and the higher rate threshold to £50,000).

    We already have a rough idea of how Joe would fare with a corporate property portfolio, because companies will not be affected by the new BTL finance restrictions. On the basis that companies remain static, then Joe would still be £1,920 worse off in a company in 2020/21 than with a personal portfolio now in 2016/17, but that would nevertheless be £2,180 better than sticking with personal ownership all the way through to 2020/21.

    Companies will be more tax-efficient by 2020/21 because the main rate of corporation tax is set to fall to 17%, increasing Joe's saving to more than £3,100.

    Many career landlords are dealing with much larger numbers, and the savings will be much more substantial. The key consideration is how much the artificial tax cost of disallowing interest, etc., exceeds the compensating 20% tax relief. If we look instead at an alternative where Joe's mortgage interest is only £12,000, the results are quite different:

    2020 / 2021
    Rental Income
    Disallow: Interest
    Less: P Allce
    Deemed taxable:
    Basic Rate 20%
    Higher Rate 40%
    Mortgage Interest adjustment
    Net income

    In this scenario, the new mortgage interest regime will end up costing Joe only a very small amount annually, even when fully implemented in 2020/21. He would be much better off sticking with direct ownership, rather than incorporating his business.

    Other things to consider are the possible effects on student loans, child benefit and the forfeiture of personal allowance for those with larger portfolios.

  • Correcting VAT errors

    Making a mistake in your VAT return is easily done. Maybe you missed something out accidentally or added up some figures wrongly. However, should this happen and you discover that you have made a mistake in a return which you have already filed, don’t panic – it is easy to put things right. Providing the errors meet certain conditions, you do not need to tell HMRC about them – you can simply correct them by adjusting your next VAT return.

    Adjustment conditions

    You can adjust your current VAT return to correct errors on past returns as long as the errors:

    • are below the reporting threshold;
    • are not deliberate; and
    • relate to an accounting period that ended less than four years ago.

    Reporting threshold

    The reporting threshold, which applies to net errors, is £10,000. Net errors that are not more than £10,000 (and which satisfy the other adjustment conditions) can be corrected by adjusting the next VAT return. Errors of more than £10,000 (up to a maximum of £50,000) can also be adjusted via the next VAT return if the error is not more than 1% of the box 6 figure (total value of sales and all other outputs excluding any VAT).

    Errors that exceed the reporting threshold must be reported to HMRC. They cannot be corrected by adjusting the next return.

    Making the adjustment

    Making the adjustment is simple – you just need to:

    • add the net value to box 1 for tax due to HMRC; or
    • add the net value to box 4 for tax due to you.

    You must also keep details of the nature of the error and the date that it occurred. Your own VAT must also be corrected.


    Richard is a landscape gardener. He is VAT registered and submits returns quarterly. In December 2017, he discovers when preparing his year-end accounts that he has recorded a purchase invoice for £2,400 plus VAT twice, once in January 2017 and once in February 2017. As a result, he has over-claimed VAT of £480 in the quarter to 28 February 2017. At the time that the error is discovered, his next VAT is the quarter to 28 February 2018. As the error was not deliberate, within the last four years and within the reporting threshold, he can correct it in that return. Before adjusting for the error, the box 1 figure for the period (VAT due for the period on sales and other outputs) was £5,360. He needs to increase the box 1 figure by £480 to pay back the amount reclaimed in the earlier return in error. His adjusted box 1 figure is therefore £5,840 (£5,360 + £480).

    Reportable errors

    Not all errors can be corrected by adjusting the VAT return. Errors which are above the reporting threshold, made more than four years ago or which are deliberate need to be notified to HMRC. This can be done by notifying HMRC’s VAT error correction team (see for contact details), either on form VAT652 (see or by letter.

    Where the error arose as a result of careless or dishonest behaviour, interest or penalties may be charged.

  • Paying dividends – are they properly declared

    For many personal and family companies, the most tax-efficient way to extract profits is to pay a small salary and to take anything in excess of this as a dividend. However, in order to benefit from the more favourable tax rates and lack of National Insurance attached to dividends, the dividend must be properly declared.

    What does this mean?


    Sufficient retained profits

    The first point to note is that dividends are paid from retained profits. These are profits after tax which have not already been distributed. Dividends come out of retained profits and the retained profits must be sufficient to cover the full amount of the dividend.

    If a dividend is paid when the company lacks sufficient retained profits to pay that dividend, it is an unlawful distribution and must be repaid.


    Paid in proportion to shareholdings

    Dividends must be paid in relation to shareholdings. So, if there are one hundred shares and a dividend of £5 per share is paid, a shareholder with 20 shares must receive £100 (20 x £5), a shareholder with 40 shares must receive £200 (40 x £5), and so on. It is not possible to tailor the payment to the shareholders so they receive a different amount per share. If it is desirable to pay dividends at different rates to different shareholders, an alphabet share structure should be employed.


    Interim dividends

    The directors can declare an interim dividend. They must, however, consider the financial health of the company and ensure that the company has sufficient retained profits from which to pay the dividend. The decision to pay a dividend should be minuted.


    Final dividend

    A final dividend is recommended by the directors but must be approved by the shareholders in general meeting or by written resolution. They are normally paid at the end of the year. The resolution should be signed by the shareholders.


    Dividend vouchers

    A dividend voucher should be given to shareholders each time a dividend is paid. This is effectively a receipt. The dividend voucher should show the name and registered address of the company, the name and address of the shareholder, the description of the shares, such as ordinary shares, the number of shares owned at the time the dividend was declared, the amount of the dividend paid, and the date. The voucher should be signed.


    Getting it wrong

    The cost of getting it wrong can be high. Unless a dividend is properly declared, it is not a dividend and HMRC may seek to tax it as a salary payment instead – with the associated National Insurance and higher rates of tax. At best, it would be regarded as a loan to the director/shareholder, which would have to be repaid and may trigger a section 455 charge and a benefit in kind charge on the loan.

  • Tax-free rental income of £8,500

    By making the most of the rent-a-room relief and the £1,000 property income allowances, it is possible to receive tax-free rental income in 2018/19 of £8,500 (while utilising your personal allowance elsewhere).


    Rent-a-room relief is available where you let a room to a lodger or lodgers in your own home. The home does not have to be owned – the relief is also available where you rent a property.

    Under the scheme, rental income is tax-free up to £7,500. Where two or more people are entitled to the rental income, the rent-a-room limit is halved, so each person can receive up to £3,750 tax-free.

    Where the rental income from letting rooms to lodgers in your house exceeds £7,500 you have a choice. You can either deduct £7,500 from the total rental income and pay tax on the balance or you can work out the actual profit in the usual way. If you make a loss, it is better not to claim rent-a-room relief as you will lose the benefit of the loss.

    Property allowance

    From 6 April 2017, a new property allowance is available for all types of rental income. Where the rental income is less than £1,000, it does not need to be declared to HMRC. Where it is more than £1,000, as with rent-a-room you have the choice of paying tax on the extra above £1,000 or working out the rental profit in the same way.

    No double relief

    It is not possible to claim both rent-a-room relief and the property allowance if you let a room to a lodger in your own home, so you must choose. As the rent-a-room threshold is higher, this is the one to pick.

    Other sources of rental income

    But, if you have another source of rental income as well, for example, a property you let out or if you rent out your drive, you can claim the property allowance in addition to rent-a-room relief.

    Case study

    Paula works as an administrative assistant and earns £20,000 in 2017/18. To make some extra money, she lets out a spare room in her house to a lodger and receives rental income of £8,000 in 2017/18. As she lives near a popular sporting venue, she also lets out her drive when there are major sporting events on. In 2017/18, she receives income of £1,250 from that source.

    She claims rent-a-room relief in relation to the income from her lodger, receiving £7,500 tax-free and paying tax on the remaining £500. She also claims the property allowance to set against the rental income from letting out her driveway, receiving £1,000 tax-free and paying tax on the balance of £250. Her personal allowance is set against her salary.

    By using both allowances, she is able to enjoy a tax-free rental income of £8,500 tax-free.


  • Cash basis for landlords

    Since 6 April 2017, the cash basis has been the default basis for qualifying landlords running an unincorporated property business.

    Cash basis v accruals basis - The cash basis is easier for a non-accountant to understand, as it simply takes account of money in and money out. Income is recognised when it is received, and expenditure is taken into account when it is paid.

    By contrast, Generally Accepted Accounting Practice (GAAP) requires accounts to be prepared under the accruals basis. This matches income and expenditure to the accounting period to which it relates, recognising income when invoiced and expenditure when billed, and necessitating the need to take account of debtors, creditors, prepayments, and accruals.

    Qualifying for the cash basis - The cash basis is only eligible to landlords operating an unincorporated property business who are able to answer `no’ to all the following questions:

    • Is property business carried on by a company, a limited liability partnership, a corporate firm, the trustees of a trust or an individual’s personal representatives?
    • Are the receipts for the year (worked out using the cash basis) more than £150,000?
    • Is the property jointly-owned with a spouse or civil partner who is entitled to a share of the profits and who calculated their rental profits using the cash basis?
    • Has a Business Renovation Allowance been given when calculating the profits and a balancing event in the year given rise to a balancing adjustment?
    • Has the landlord elected to use the accruals basis?

    If the landlord is able to answer `yes’ to any of the above, the accounts must continue to be prepared under the accruals basis.

    Default basis –- election needed - Unlike traders, landlords do not need to elect to use the cash basis. If the answer to all five of the above questions is `no’, the cash basis applies by default. By contrast, an unincorporated landlord who is within the cash basis must elect if they wish to prepare accounts under the accruals basis.

    Multiple businesses - The cash basis tests are applied separately to each unincorporated property business. There is no requirement that the same basis must be used for all businesses.

    Moving to the cash basis - When entering the cash basis, opening debtors are not counted as income when the money is received, and opening creditors are not treated as expenditure when paid. Likewise, if the landlord moves back to the accruals basis, some adjustments are needed to prevent double counting as a result of the timing differences between the bases.

    Capital expenditure - The rules for deducting capital expenditure under the cash basis have also been simplified, and in most cases, the landlord can simply deduct the amount of capital expenditure from income when working out profits. Certain assets do not qualify for this treatment – the list includes land, cars, non-depreciating assets, and capital expenditure on education and training.

    The usual rules for the replacement of domestic appliances apply equally under the cash basis.

    Mileage allowances - Landlords using a car or other vehicle in their property business can claim a fixed deduction based on mileage, as long as capital allowances have not been claimed for the vehicle or, for a vehicle other than a car, the cost has been deducted under the new capital expenditure rules. The usual rate of 45p per mile for cars and vans for the first 10,000 business miles and 25p per mile thereafter, and 24p per mile for motorcycles, is applicable.

    Interest - The normal rules governing deduction of interest apply equally under the cash basis.

  • Buy-to-let landlords – relief for interest

    With rising property costs and low interest rates, many people took out a mortgage to invest in a buy-to-let property. As long as property prices continued to rise and the tenants paid their rent, investors could make money from the rising market while the rent from the tenant paid off the mortgage – all the investor needed was the deposit and to convince the bank to lend them the money.

    Fast forward a few years and the buy-to-let star is not burning quite so bright. Second and subsequent properties now attract a 3% stamp duty supplement – making them more expensive to buy – and relief for mortgage interest and other costs is being seriously reduced.

    Interest relief – the new rules

    Prior to 6 April 2016, the rules were simple. In calculating the profits of his or her property business, the landlord simply deducted the associated mortgage interest and finance costs.

    New rules apply from 6 April 2017, with changes being phased in gradually over a four-year period so as to move from a system under which relief is given fully by deduction to one where relief is given as a basic rate tax reduction. This changes both the rate and mechanism of relief. The changes do not apply to property companies – only unincorporated businesses.

    What does this mean

    Relief by deduction simply means deducting the amount of the interest, as for other expenses, in working out the profit or loss of the property business.

    Where relief is given as a basic rate tax reduction, instead of deducting the interest in calculating profit, 20% of the interest is deducted from the tax calculated by reference to the profit (as determined without taking out interest for which relief is given as a tax reduction).


    For 2017/18, a landlord can deduct in full 75% of his or her finance cost. The remainder is given as a basic rate tax reduction.


    Freddie has a number of buy to let properties. In 2017/18, his rental income is £21,000, he pays mortgage interest of £5,000 and has other expenses of £3,000. He is a higher rate taxpayer.

    Tax on his rental income is calculated as follows:

    Rental income                     £21,000

    Less:  interest (75% of £5,000)   (£3,750)

              other expenses          (£3,000)

    Taxable profit                    £14,250

    Tax @ 40%                          £5,700

    Less: basic rate tax reduction

    (20% (£5,000 x 25%))                (£250)

    Tax payable                        £5,450

    This compares to a tax bill of £5,200, which would have been payable had relief for the interest been given in full by deduction.

    Looking ahead

    The pendulum swings gradually from relief by deduction to relief as a basic rate tax reduction. In 2018/19, relief for half of the interest and finance costs is by deduction and relief for the other half is as a basic rate tax deduction. In 2019/20, only 25% of the interest and finance costs are deductible, relief for the remaining 75% being given as a basic rate tax reduction. From 2020/21 onwards, relief is only available as a basic rate tax reduction.

  • Use of home as office

    Use of home as office is a catch-all phrase to describe the costs that a self-employed businessperson has in running at least part of their business operations from home. It need not be an office as people may use a spare bedroom to hold stock for assembly and postage, or similar.

    Many will have used the figures that HMRC has long published for employees’ ’homeworking expenses’ - initially £2 a week, then £3 a week, changing to £4 a week from 2012/13.

    From 2013/14 onwards HMRC has adopted the following rates:

    Hours of business use per month 25-50 flat rate per month £10

    Hours of business use per month 51-100 flat rate per month £18

    Hours of business use per month 101+ flat rate per month £26

    So in HMRC’s eyes, I am entitled to a deduction of £120 a year for the use of home office space (or similar), but basically only so long as I spend at least 25 hours a month working from home. Working more than 25 hours a week - broadly full time - from home gets me the princely sum of £312 per year.

    Working from home may be cheap, but it’s not that cheap.

    The following guidance assumes that the claimant is not using the cash basis of assessment for tax purposes, as the rules work differently.

    'Wholly and exclusively’ - Business expenses are allowed if incurred 'wholly and exclusively for the purposes of the trade'. This is a cardinal rule; however, there is a further point:

    'Where an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade’ (ITTOIA 2005, s 34).

    Applying these principles, I do not have to use a room in my house exclusively for my self-employment, just so long as when I am using it for business purposes, that is all it is being used for.

    The costs you are allowed to claim - It is worth bearing in mind that HMRC does have guidance on how to make a more comprehensive claim for using one’s home in the business, in its Business Income manual however you may find it strange that almost all of the examples result in a claim of around £200 a year or less!

    HMRC’s guidance nevertheless includes the following potentially allowable costs:

    • mortgage interest (or rent paid to a landlord)
    • council tax
    • insurance
    • repairs
    • cleaning
    • heat, light, and power
    • water
    • telephone and broadband (unless already/separately claimed as a business expense)

    If you incur appreciable costs on the above then just £120 a year as a standard use of home deduction, or even £312 a year, is likely to make you feel more than a little aggrieved.

  • Mileage rates for landlords

    In preparation for the introduction of digital recording and reporting, landlords with unincorporated property businesses have been able to benefit from a number of simplifications, including cash basis accounting. A further simplification was announced at the time of the Autumn 2017 Budget, which will allow landlords to use mileage rates to calculate a deduction for motoring expenses.

    Who can benefit?

    The option to use mileage rate is only open to individuals and partnerships comprised only of individuals running property businesses who use cars, goods vehicles, or motorcycles for business purposes. Corporate landlords and partnerships with corporate partnerships cannot claim deductions based on mileage rate.

    The use of mileage rates is an alternative to claiming capital allowances and a deduction for actual costs.

    The opportunity for landlords to use mileage rates is not new – until 2013, landlords were able to use mileage rates by concession. However, since that date, unincorporated property businesses have only been able to deduct actual motoring expenses and claim capital allowances for the cost of the vehicle.

    The rates

    The mileage rates for landlords will be the same as those for traders claiming a fixed rate deduction. 45p for the first 10,000 business miles, 25p thereafter.


    In most cases, the option of using mileage rates will not be available in respect of a vehicle for which capital allowances have been claimed – it may therefore be a case of waiting until a new vehicle is acquired before switching over to using mileage rates rather than deducting actual costs.

    However, transitional arrangements will apply where a qualifying landlord claimed capital allowances for a vehicle in the period 2013/14 to 2016/17 and wishes to start using mileage allowances from 2017/18 for the same vehicle. The transitional arrangements will enable mileage rates to be used, but will prevent further claims for capital allowances.


    James is a landlord with an unincorporated property business. He uses a car for 11,670 business miles in 2017/18. Capital allowances have not been claimed in respect of the vehicle and he decides to use mileage rates rather than actual expenses to claim a deduction when working out his taxable profit.

    The permitted deduction is £4,917.50 ((10,000 miles @ 45p) + (1,670 miles @ 25p)).

    If capital allowances plus a deduction for actual expenses give a greater deduction, the landlord will need to assess whether the time saving from using mileage rates is worthwhile.


  • Taxation of Savings – what can you have tax-free?

    There is no one answer to the amount of savings income and, for 2017/18, the answer can range from £0 to £18,650, depending on personal circumstance.

    When looking at tax-free savings, there are a number of elements to take into account:

    • the personal allowance;
    • the marriage allowance;
    • the savings allowance; and
    • the starting rate for savings.

    Savings income, such as bank and building society interest, is now paid gross without tax deducted.

    Personal allowance - If a person has no other income (or only dividend income in addition to savings income), or their other income is less than £11,500, some or all of the personal allowance (set at £11,500 for 2017/18) will be available to shelter savings income.

    Marriage allowance - Where the marriage allowance is claimed, this increases the potential tax-free income by £1,150 in 2017/18.

    Savings allowance - In addition to the personal allowance, individuals who pay tax at the basic or higher rate are also entitled to a savings allowance. The amount of the allowance depends on the individual’s marginal rate of tax and is set at £1,000 a year for basic rate taxpayers and at £500 a year for higher rate taxpayers. There is no savings allowance for additional rate taxpayers.

    Savings starting rate - Savers with little in the way of other taxable income can also benefit from a 0% savings starting rate on savings of up to £5,000, in addition to savings sheltered by the personal and savings allowance. However, the savings starting rate is quite complicated in that the starting rate limit is reduced by taxable non-savings income. So, if a person has taxable non-savings income of £2,000, the savings starting rate of 0% is available on savings income of £3,000, as the £5,000 limit is reduced by the taxable non-savings income of £2,000 to £3,000. Likewise, if a person has taxable non-savings income of more than £5,000, the savings starting rate limit is reduced to nil.

    Case study 1: maximum tax-free savings - Elsie is retired and her only income is savings income, which in 2017/18 is £20,000. Her husband has income of £8,000 and Elsie benefits from the marriage allowance of £1,150. The first £11,500 of her savings income is covered by her personal allowance of £11,500 and the next £1,150 by the marriage allowance, leaving £7,350, of which £1,000 is covered by the personal savings allowance for basic rate taxpayers. This leaves savings income of £6,350. As she has no taxable non-savings income, she is entitled to the savings starting rate of 0% on savings equal to the saving starting rate limit of £5,000. Consequently, she is able to enjoy £18,650 (£11,500 + £1,150 + £1,000 + £5,000) of her savings tax-free and is taxed at the basic rate of 20% on her remaining savings of £1,350 – giving her a tax bill of £270.

    Case study 2: reduced starting rate limit - In 2017/18, Arthur has a pension of £14,000 and savings income of £6,000. His personal allowance is set against his pension, leaving him with taxable non-savings income of £2,500. He is entitled to the saving personal allowance of £1,000, which is set against £1,000 of his savings income. As he has taxable non-savings income of less than £5,000, the savings starting rate is reduced by his taxable non-savings income of £2,500 to £2,500. £2,500 of his savings income is eligible for the 0% savings starting rate. He, therefore, receives savings income of £3,500 tax-free. The remaining £2,500 of his savings income is taxed at 20%, as is the excess of his pension over his personal allowance of £2,500. His tax bill for £2017/18 is, therefore, £1,000 (£5,000 @ 20%).

    Case study 3: higher rate taxpayer - Wendy has a salary of £50,000 and savings income of £5,000 in 2017/18. Her personal allowance is set against her salary. She is entitled to the personal savings allowance of £500 available to higher rate taxpayers, but she is not eligible for the savings starting rate as her taxable non-savings income (£38,500, being £50,000 - £11,500) is more than £5,000. She receives tax-free savings income of £500.

    As the case studies show, the amount of savings income a person may receive can vary considerably depending on what other income they have and the rate at which they pay tax.

  • Making the most of the trivial benefits exemption

    A new tax exemption was introduced with effect from 6 April 2016 which enables employees to enjoy ‘trivial’ benefits tax-free. As is usually the case, availability of the exemption depends on certain conditions being met.

    The conditions - for the exemption to apply, all of the following conditions must be satisfied.

    • The cost of providing the benefit is not more than £50.
    • The benefit is not cash or a cash voucher.
    • The employee is not entitled to a benefit as part of any contractual obligation (including a salary sacrifice arrangement).
    • The benefit is not provided in recognition of particular services performed by the employee as part of their job.

    Where the benefit is provided to a group of employees and it is impracticable to work out the exact cost per person, the £50 ceiling is taken as met if the average cost is not more than £50.

    Close companies – annual cap

    A limit is placed on the value of tax-free trivial benefits that can be enjoyed each year by the director or other office holder of a close company. Where the employer is a close company, an annual cap – known as the annual exempt amount – applies. This is set at £300 for each tax year. The cap applies to benefits provided to a director or office holder. Where a benefit is provided to a member of their family or household, this is treated as being provided to the director or office holder and counts towards their annual exempt amount.

    It should be noted that the other conditions set out above apply equally to close companies; and thus, only benefits costing not more than £50 per head which are not cash or cash vouchers can be exempt, as long as they fall within the annual exempt amount.

    Where a company is not close, there is no limit on the total value of trivial benefits that can be provided each year, as long as each individual benefit costs no more than £50 and the other qualifying conditions are met.

    Using the exemption

    The exemption can be used to provide employees with regular or one-off treats. For example, birthday and Christmas gifts (up to the £50 limit) can be provided tax-free.

    Example 1

    Julie’s employer (which is not a close company) believes in treating staff well to keep them on side. Staff are provided with a fruit basket each Friday. The basket costs £25. Staff receive 50 fruit baskets each year. The total cost is £1,250. As the terms of the exemption are met, the benefit is tax-free.

    As the company is not close, the annual cap of £300 does not apply.

    Example 2

    Jenny is the director of her personal company, which is close. She is aware of the trivial benefit exemption and uses it to buy herself an item of clothing costing just under £50 every other month. Each item is within the £50 limit and the total annual amount is within the £300 annual exempt amount applying to close company directors. She can enjoy the benefits tax-free, while her company enjoys a corporation tax deduction for their cost.

    Use the exemption

    While the exemption only covers low-cost items, it can be used to provide employees with regular treats. The costs of providing the benefits is tax-deductible for the employer.

  • Working out your dividend tax bill

    Dividends are a special case when it comes to tax and have their own rates and rules. The taxation of dividends was radically reformed from 6 April 2016 and the rules outlined below apply to a dividend paid on or after that date.


    Dividend income

    The first step to working out tax on dividend income is to determine the amount of that income. From 6 April 2016, this is simply the dividends actually received in the tax year. There is no longer any need to gross up as dividends no longer come with an associated tax credit.


    Dividend allowance

    The first £5,000 of dividend income is tax-free. All individuals, regardless of whether they are a non-taxpayer, a basic rate taxpayer, a higher rate taxpayer, or an additional rate taxpayer, are entitled to a dividend allowance of £5,000.

    Although referred to as an allowance, the dividend allowance works as a nil rate band in that dividends falling within the allowance are taxed at a notional zero rate (so received tax-free). However, it counts as earnings and will use up part of the basic or higher rate band, as applicable.

    The Government plans to reduce this allowance to £2,000 from 6 April 2018.


    Rate of tax

    Once the dividend allowance has been used up, the rate at which dividends are taxed depends on the tax band in which they fall. If the individual has some or all of his or her personal allowance available, this can be set against dividend income before any tax is payable. Where the taxpayer has other sources of income, dividends are treated as the top slice. It is important to remember this to ensure that dividends are taxed at the correct rate.

    Dividends are taxed at the dividend rates of tax, rather than the standard income tax rates. For 2017/18, dividend tax rates are as follows:

    • dividend ordinary rate: 7.5%
    • dividend higher rate: 32.5%
    • dividend additional rate: 38.1%

    The dividend ordinary rate applies to dividend income falling within the basic rate band, which for 2017/18 is the first £33,500 of taxable income. This applies to Scottish taxpayers too, rather than the Scottish basic rate band.

    The dividend higher rate applies where taxable dividend income sits in the band between £45,001 and £150,000 and the dividend higher rate applies where dividend income falls in the additional rate band (taxable income above £150,000).


    Case study

    In 2017/18, Fiona receives dividend income of £55,000. She also receives a salary of £8,000 from her family company. The tax payable on her dividends is worked out as follows:

    • The first £5,000 is covered by the dividend allowance on which no tax is payable.
    • The personal allowance for 2017/18 is £11,500 of which £8,000 has been used against her salary, leaving £3,500 available. This shelters the next £3,500 of dividend income, which is received tax-free.
    • The basic rate band is £33,500, of which £5,000 has been used up by the dividend allowance, leaving £28,500 available. The next £28,500 of dividend income is taxed at the dividend ordinary rate of 7.5% -- a tax bill of £2,137.50.
    • The remaining dividend of £18,000 is taxed at the dividend higher rate of 32.5% -- a tax bill of £5,850.

    Thus, Fiona must pay tax of £7,987.50 on her dividend of £55,000 ((£5,000 @ 0%) + (£3,500 @ 0%) + (£28,500 @ 7.5%) + (£18,000 @ 32.5%)).


  • Private Residence Relief for Landlords - Part 1

    With landlords facing capital gains tax (CGT) rates of 18% and/or 28% on the disposal of residential properties, this article considers the availability of private residence relief on disposals by landlords.

    Private residence relief is available to shelter the gain on disposal of a person’s only or main residence. Ownership of a property alone is not sufficient to qualify for the relief; there must also have been occupation of the property as a residence.

    If a let property does qualify for relief, this could add up to a valuable sum, as the following amounts potentially qualify:

    • periods of actual occupation;
    • the final 18 months of ownership (extended to 36 months in certain circumstances);
    • various periods of absence where the absence was followed by reoccupation (the requirement
    • for reoccupation may be relaxed in certain circumstances);
    • up to three years for any reason (TCGA 1992, s 223(3)(a));
    • any length of period of overseas employment (TCGA 1992, s 223(3)(b));
    • up to four years where the taxpayer could not occupy the property because of the location of their place of work or their spouse’s place of work, or because of conditions placed upon them by their employer or upon their spouse by the spouse’s employer (TCGA 1992, s 223(3)(c), (d)); and
    • letting relief equal to the lower of (TCGA 1992, s 223(4));
    • the amount of the gain attributable to letting;
    • the amount of private residence relief; and
    • £40,000.

    Ensuring the property is the taxpayer’s residence - to qualify for relief, the property must be the person’s only or main residence, which carries with it an expectation of occupation with permanence.

  • Private Residence Relief for Landlords - Part 2

    Example - Let property: How much relief?

    Fred bought a house on 1 July 2002 for £12S,000. He occupied the property until 30 September 2005, when he decided to go travelling. He returned to the property on 1 l\/lay 2006 and occupied it until 31 March 2009, when he bought another house jointly with his girlfriend, which they occupied together. He decided to let out his house, and it was let until he disposed of it for £294,697 on 30 June 2016.

    The periods qualifying for relief are as follows:

    1 July 2002 - 30
    Occupied as
    September 2005
    main residence
    Period of absence
    of less than three
    1 October 2005 -
    years and
    30 April 2006
    reoccupied as main
    residence (TCGA
    1992, s 223(3)(a))
    1 May 2006 - 31
    Occupied as
    March 2009
    main residence
    1 January 2015 -
    Final 18 months
    30 June 2016
    of ownership
    1 April
    2009 - 31
    Letting relief of
    Although let until
    30 June
    December 2014
    up to £40,000
    period from
    January 2015 to 30
    June 2016 is
    relieved by the final
    period exemption.

    The property was owned for 14 years in total, with eight years and three months attracting private residence relief. The total gain was £169,697 and £100,000 of the gain (8.25/14 years x £169,697) qualifies for private residence relief.

    The gain attributable to letting is for a period of five years and nine months and is £69,697 (5.75/14 years x £169,697). As this exceeds the maximum amount of relief of £40,000, the amount of relief for the letting period is restricted to £40,000.

    This leaves Fred with a chargeable gain of £29,697.

  • Private Residence Relief for Landlords - Part 3

    Which property is the only or main residence? Where a person has more than one residence (which is different to owning more than one residential property), determining which property is the main residence can either be decided on the facts, or an election can be made to nominate which is the main residence (TCGA 1992, s 222(5)).

    Where an election is made, the property that is nominated does not have to factually be the 'main' residence, but it does have to be a dwelling house in use as the person’s residence (i.e. occupied on a permanent basis) for the election to be valid.

    Time limits apply for making an election. An election can be made within two years of whenever there is a new combination of residences. This happens when a person starts occupying a dwelling as a residence, or ceases occupying a property as their residence (which may be different to when the property is acquired or disposed of).

    An election can be varied at any time, and backdated for up to two years from the date that it was given. HMRC guidance states:

    ‘A variation will often be made when a disposal of a residence is in prospect or the disposal has already been made and the individual making the disposal wishes to secure the final period exemption.

    For example, where an individual with two residences validly nominates house A, they may vary that nomination to house B at any time. The variation can then be varied back to house A within a short space of time. This will enable the individual to obtain the benefit of the final period exemption on house B with a loss of only a small proportion of relief of on house A.’

    Ownership by husband and wife - for the purposes of private residence relief, a husband and wife may only have one residence. However, when it comes to letting relief, in the case of joint ownership by husband and wife each may have relief of up to £40,000.

  • SDLT and transfers of ownership on marriage and divorce

    There are various situations in which land or property may be transferred between couples. This may happen near the start of a relationship when they set up home together or marry or enter into a civil partnership. It may also happen at the end of a relationship if the couple separate or divorce. The extent to which any SDLT is payable will depend on the circumstances and also whether any consideration changes hands.

    SDLT is payable by reference to the consideration received. This may be in cash but can also include discharging a debt (so, for example, if a spouse takes on a share of the mortgage, this will count as consideration).

    Example 1: Consideration below the SDLT threshold

    Harry owns a house, which is valued at £200,000. Harry transfers a 50% share in the property to Sophie. She gives him cash of £100,000 in return.

    The total consideration is £100,000. This is less than the SDLT threshold of £125,000. Consequently, no SDLT is payable on the transfer.

    Example 2: SDLT payable but no cash changes hand

    Following their marriage, Karen moves into her husband Ian’s house. The house is worth £600,000 and Ian has an outstanding mortgage of £400,000. Karen takes on a 50% share of the mortgage. She is not a first-time buyer and she does not own any other property.

    Although no cash changes hands, the consideration for the transfer of ownership is equal to the share of the mortgage assumed by Karen. This is equal to £200,000 (50% of £400,000). As this is above the SDLT threshold of £125,000), SDLT is payable.

    The SDLT payable is £1,500 ((£125,000 @ 0%) + (£75,000 @ 2%)).

    Example 3: Gift

    Edward moves into Elsie’s house following their marriage and she gives a 50% share of the property to her new husband. The house is worth £400,000 and Elsie owns it outright.

    No cash changes hands and as it is a gift there is no consideration. Consequently, no SDLT is payable, even though the value of the transferred share is more than the SDLT threshold.

    Example 3: Separation, divorce or dissolution

    Chris and Alison separate and he moves out of the family home. Alison buys him out, paying him £250,000.

    Where a transfer of ownership takes place on separation (where the circumstances are such that the separation is likely to prove permanent), or on divorce or the dissolution of a civil partnership, no SDLT is payable. Consequently, Alison does not have to pay SDLT on her acquisition of Chris’ share of their marital home, even though the consideration is more than the SDLT threshold.

    Consider the circumstances and the consideration

    Whether the transfer of ownership triggers an SDLT bill will depend on the circumstances and the amount of consideration, if any.

  • No Minimum Period of Occupation Needed for Main Residence

    Main residence relief (private residence relief) protects homeowners from any gains arising on their only or main home. However, there are conditions to be met for the relief to be available. One of the major ones is that the property is at some time during the period of ownership occupied as the owner’s only or main home. Where this is the case, the period of occupation as a main home is sheltered from capital gains tax, as is the final 18 months of ownership, regardless of whether the property is occupied as a main home for that final period.

    Living in a property for a period of time is worthwhile to secure main residence relief, not least because doing so has the added benefit of sheltering any gain that arises in the last 18 months of ownership.

    But, how long does the property have to be occupied as a main residence to trigger the protective effects of the relief?

    Quality not quantity

    A recent decision by the First-tier tax tribunal confirmed that there is no minimum period of residence that is needed to secure main residence relief – what matters is that there has been a period of residence as the only or main home.

    The case in question concerned a taxpayer who ran a property development company and who purchased a property in which he intended to live in as a main home. The property was initially purchased through the company, but the taxpayer intended to obtain a mortgage to buy it from the company. He lived in the property for a period of two and a half months whilst trying to sort out his finances. As a result of the financial crash, he was only able to secure a buy-to-let mortgage, the terms of which precluded him living in the property. The property was let to a friend, but the taxpayer moved in briefly following the friend’s death and undertook some decorating with a view to moving back in with his family. Due to health problems, this did not happen and the property was sold, realising a gain.

    The Tribunal found that the taxpayer had lived in the property as a main home, albeit for a short period. It was the quality of occupation, not the quantity, that was important. Consequently, main residence relief was available.

    Second homes

    Where a person owns a second home, living in it as a main residence, even if only for a short period, can be beneficial. This will protect not only the gain relating to the period of occupation from capital gains tax but also the last 18 months.

    Partner note: TCGA 1992, s. 222; Stephen Bailey v HMRC TC06085.

  • Profit extraction: method 1 - taking a salary

    Profit extraction: method 1 - taking a salary

    There are various ways of taking money out of a company and each method has its own tax and National Insurance consequences, both for the company and the recipient. In this article, we will look at extracting money in the form of a salary.


    Taking a small salary can be beneficial from a tax and National Insurance perspective - for both company and the recipient.

    To the extent that the salary does not exceed the primary and secondary National Insurance threshold (set at £157 per week, £680 per month, and £8,164 per year for 2017/18), neither the company nor the recipient has to pay any National Insurance.

    From the recipient’s perspective, to the extent that the salary is covered by their personal allowance (£11,500 for 2017/18), it is tax-free. Thereafter, it is taxed at the basic, higher or additional rates, as appropriate depending on the amount of the salary.

    From the company’s perspective, both the salary and any employer’s National Insurance payable if the salary level is above the secondary threshold, are deductible in computing the profits for corporation tax purpose, generating a corporation tax saving of 19% (financial year 2017 rate).

    Another benefit of paying a salary is that, unlike a dividend, it is not payable out of retained profits, and thus a salary can still be paid if the company is making a loss.

    Optimal salary

    The optimal salary level will depend on circumstance. As a rule of thumb, where the personal allowance is not otherwise utilised, it is beneficial to pay a salary equal to the primary and secondary threshold for National Insurance purposes. For 2017/18, this equates to a salary of £680 per month. The salary will be free of tax and National Insurance in the hands of the recipient, the company will have no National Insurance to pay and the salary will be deductible for corporation tax purposes.

    Paying a salary that is between the lower earnings limit for National Insurance purposes (£113 per week, £490 per month and £5,876 a year) and the primary threshold allows the recipient to earn a qualifying year for state pension and benefit purposes without actually having to pay any National Insurance. This is hugely beneficial if the recipient has no other means of earning a qualifying year and does not have the 35 years needed for the full single-tier state pension.

    If the company is eligible for the employment allowance (set at £3,000 for 2017/18), and the recipient’s personal allowance is available in full, it can be beneficial paying a salary equal to the personal allowance, provided that there is sufficient employment allowance available to shelter an employer’s National Insurance liability that would otherwise arise. At a salary equal to the personal allowance, the employee would pay employee Class 1 contributions on the salary in excess of the primary threshold (£3,336 for 2017/18 (being £11,500 - £8,164)) – a National Insurance liability of £400.32 (£3,336 @ 12%). However, the additional salary (as for all salary payments) is deductible in computing the company’s profits for corporation tax purposes, so will generate a corporation tax saving of £633.84 (£3,336 @ 19%). The corporation tax saving outweighs the employee National Insurance cost by £233.52 – making it worthwhile to pay a salary equal to the personal allowance rather than the primary and secondary threshold. The same result is obtained if the employee/director is under 21 (or an apprentice under 25), regardless of whether the employment allowance is available, as no employer National Insurance is payable until the earnings exceed £866 per week (£3,750 per month, £45,000 per year).

    Once the personal allowance has been used up, other profit extraction methods are generally more tax efficient, as the tax on the salary combined with the National Insurance cost (even if the employment allowance is available) will outweigh the corporation tax saving.

  • Useful Links


  • Private Use Of Employer Business Assets - Part 1

    There are many rules about employers
    Restricting/apportioning the charge
    providing business assets for private use, where
    There is an outright exception to the general
    the employer does not transfer ownership of the
    charge, where:
    asset itself to the employee but permits it to be
    used personally.
    private use is forbidden, and
    There is a more general 'catch-all' rule which
    no private use actually takes place (which
    HMRC will apply for other assets, to be found at
    can, of course, be difficult to prove).
    ITEPA 2003, s 205 et seq. That part of the BIK
    regime was updated in Finance Act 2017 and
    The new rules also provide for restrictions to the
    this article will look at the changes and their
    charge for:
    periods when the asset is unavailable for
    New legislation
    private use - e.g. when it starts to be
    The principle is that the employee should
    available for private use only part-way
    suffer an income tax charge when the employer
    through a tax year, or private use/
    allows him or her to use a business asset for
    availability is ceased in a tax year;
    private purposes (but the asset is not transferred
    to the employee - a transfer is another BIK
    any day the asset is unavailable for private
    charge). This applies whether that private use is
    use because it is not in a condition fit for
    by the employee himself or his family or
    use, is undergoing repair or maintenance,
    or cannot legally be used, or is being used
    by someone else for more than 12 hours
    The charge - on which the employee pays
    that day; and
    income tax - is based on the higher of:
    any day in which the asset is used only for
    the annual cost to the employer of
    the purposes of the employment.
    providing the asset, including any rental/
    hire charge; and
    Where the asset is being shared out amongst
    several employees simultaneously. then the BIK
    20% of the market value of the asset
    will be apportioned amongst them on a just and
    when first provided as a benefit (to any
    reasonable basis.
    Why the changes?
    The rules are slightly different with land,
    The legislation now sets out how to adjust the
    generally, (and remember that living
    charge for periods of unavailability or where more
    accommodation, like cars, has its own special
    than one employee can benefit at the same time,
    regime). So, what has changed?
    and it harmonises the National Insurance
    contributions and tax treatment. This replaces the
    The old definition was where an asset was 'put at
    previously 'ad hoc' guidance and approach that
    an employee's disposal'. Now, it is simply where
    HMRC adopted for periods up to 5 April 2017,
    the asset is 'made available' for private use by an
    and the formality and consistency should be
    employee. Given how broadly HMRC interprets
    broadly welcome - particularly in terms of
    this phrase when deciding whether or not a car
    recognising various criteria when the asset may
    benefit applies, this may not simply be replacing
    be unavailable.
    an old phrase with a modern equivalent.
  • Private Use Of Employer Business Assets - Part 2

    A couple of potential pitfalls.
    Pitfall 2 - BIK on transferring the asset to the
    Pitfall 1 - Availability
    While the new legislation does not cover
    The new draft guidance has worked examples
    transferring the asset to an employee when the
    including a company helicopter and a company
    business has finished with it, the corresponding
    BIK calculation on transfer of such an asset is
    potentially affected by the private use BIK
    Assets like this are never really available all
    charges along the way. Where the asset has
    year round. For aircraft, there are very
    been made available for private use and is
    important restrictions on flight times and hours
    at some later point transferred to an
    of use or 'utilisation' in a given period. A
    employee, then the BIK charge (subject to any
    business jet may be capable of only (say) a
    payment by the employee) is the higher of:
    few hundred hours of actual flying each year.
    Likewise, boat engines may be rated for
    market value at the time of transfer, and
    only one or two thousand hours' use before a
    major refit.
    market value when first made available
    (to any employee) for private use, less
    Example: Calculating the benefit
    any BIKs charged for private use along
    Fred owns his own company, which has just
    the way.
    bought a jet for £20 million. The jet is flown
    exclusively for business purposes for 20 days
    So, if a valuable asset has been used privately/
    in the year - totalling 200 hours of actual
    available for private use only sparingly in its
    flying. The jet is rated for 400 hours'
    working life and the BIKs thereby charged on
    utilisation a year, so half has already been used
    employees have been quite small, transferring
    for business purposes. If Fred could use
    the asset outright to an employee a few years
    the jet privately at any non-business time in the
    down the line could prove very expensive for
    tax year, then it would seem fair that he would
    that employee.
    be charged on half of the deemed annual cost
    (20% of market value, in this case) of the jet:
    BIK = £20M x 20% x ½ = £2 million.
    Employers should consider the availability of
    assets to employees - particularly those that are
    Surprisingly, HMRC prefers the alternative
    portable/removable from the office, such as
    day-counting approach:
    laptops, tablets, etc. - to see how to prove that
    365 - 20 days' exclusive business use = 340
    they are not 'made available' for private use.
    potentially available for private use
    BIK = £20M x 20% x 340/365 = £3.7 million.
    It is worth considering that there is an exclusion
    for 'insignificant' private use afforded for office
    HMRC adopts a similar approach to the
    equipment, etc., used away from the employer's
    calculation for a helicopter. No doubt the
    argument is that, regardless of the overall
    annual limit on flying time, the aircraft
    theoretically could be used at any particular
    time for 340 days in the year.


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