a friendly service covering audit, tax, accounts, self assessment,
VAT & payroll please contact us.
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We offer cloud-based accounting solutions. Using good technology saves time. 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 software can make a real difference to the way you run your business.
Helping you grow your business
Helping you keep more of your income
We understand your needs
like yours grow and be more profitable.
Welcome to Adrian Mooy & Co Ltd
We offer a personal service and welcome new clients.
We are a firm of Chartered Certified Accountants
and tax advisors in Derby helping businesses
From start-up to exit & everything in-between.
Whether you’re struggling with company formation,
annual accounts and taxation, payroll or VAT you can
count on us at every step of your business’s journey. For
If you are looking for a Derby accountant then please contact us.
If you are starting your own business, running it as a sole trader is the quickest and easiest way to do it. However, you will have unlimited liability which means you are personally responsible for business debts.
Another important aspect is that you are taxed on all the profits with little opportunity for tax planning. This is why most businesses will incorporate as profits increase.
We can support you through business registration and provide advice on all aspects of tax including:
◦ Accounts for HMRC ◦ Self assessment ◦ VAT returns ◦
◦ Payroll services ◦ Tax planning ◦
Partnerships are similar to sole trades, except that they are used when more than one person owns the business.
Each profit share is determined by the partners and best practice is to record this in a partnership agreement.
With partnerships each partner has joint and several liability for the debts of the partnership, so that if one partner cannot pay their share of any business debts, the debt will fall on the other partners.
Setting up a partnership agreement from the outset is essential.
Corporate tax planning can result in significant improvements in your bottom line. Our services will help to minimise your corporate tax exposure.
We are a member firm of the Association of Chartered Certified Accountants.
Self assessment tax returns are becoming increasingly complex and failing to submit your return on time, or correctly, can result in substantial penalties.
We use the latest tax software to ensure that tax returns are completed efficiently, accurately and on-time.
Self assessment: Taking
away the hassles of tax
We provide a comprehensive personal tax compliance service for individuals that includes:
Invoicing your contracting work through a limited company is tax efficient. We will advise you on how to structure your contract to minimise IR35 risk. We will ensure you claim all the expenses that you are entitled to and work out if you can save money by joining the VAT Flat Rate Scheme. We will complete your accounts and tax returns and provide you with clarity over your tax payments.
Included in the service • IRIS KashFlow + Snap • Annual accounts • Corporate tax return • Personal tax return • Payroll • Dividend administration • VAT returns • Contract reviews • Dealing with HMRC
VAT • is one of the most complex tax regimes imposed on business. We provide a cost effective service including assistance with registration & completing your returns.
Payroll • Administering your payroll can be time consuming. We provide a comprehensive payroll service.
Your Payroll Solution
Construction Industry Scheme • CIS returns & payments
Book-keeping • Maintenance of accounting records
Provision of management accounts
For more about these services please contact us.
Keeping the Books
If your business does not require a statutory audit then our Assurance Service will provide reassurance that your accounts stand up to close scrutiny from your bank or other finance providers.
Work is tailored to your specific requirements and the level of confidence that you are looking to achieve and will provide credibility to your accounts by the issuing of an assurance review report.
Adrian Mooy & Co is a registered auditor with the Association of Chartered Certified Accountants.
We strive to provide an auditing service that adds more value than merely the statutory compliance requirement of an audit.
We tailor the audit to meet your circumstances and needs. Using the latest techniques and software we deliver a cost-effective audit that provides real value.
Before starting out you may need help with business planning, cash flow and profit & loss forecasts.
You may also want help identifying the best structure for your business. From sole trades and partnerships to limited companies and limited liability partnerships, we have the experience to advise on the best solution for you both operationally and from a tax point of view.
We also advise on accounting software selection, profit improvement, profit extraction & tax saving.
If you wish to know more about our Business Start-up service please contact us on 01332 202660.
Accountancy and taxation of property is a specialist area. We have the expertise and experience to work effectively with private landlords and property investors. We deal with self-assessment tax, accounts preparation & tax advice for all aspects of property portfolios.
Whether you are a first time buy to let landlord or a long established developer we will discuss and understand your situation in order to advise and recommend the most appropriate medium through which to carry out your property investments. We will guide you through the accounting and tax issues and help you to plan effectively.
We take the time to explain your accounts to you so that you understand what is going on in your business.
Up to date, relevant and quickly produced management information for better control.
As part of our accounts service we prepare your annual accounts and complete yearly personal and business tax returns.
As your year-end approaches we will agree a timetable with you for completion of the accounts that minimises disruption to your business and leaves no late surprises when it comes to your tax liabilities.
We can also prepare management accounts to help you run your business and make effective business decisions. Management accounts are also very useful when approaching lending institutions when no year end accounts are available. We offer:
For a meeting to discuss your requirements please call us on 01332 202660.
We understand the issues facing owner-managed businesses.
We provide advice on personal tax & planning opportunities.
Running a small business places many demands on your time. We can help lift the load with our complete payroll service.
Designed to ease your administrative burden, our service removes what is often a time consuming task, leaving you free to concentrate on managing your business.
We can also prepare your benefits and expenses forms and advise you of any filing requirements and national insurance due. Benefits and expenses can be a complicated area and knowing what to report can be tricky.
We can file all your in-year and year end returns with HMRC and provide you with P60s to distribute to your employees at the year end.
We also offer a solution to meet your auto-enrolment obligations.
Businesses dealing with the requirements of VAT legislation will agree that this is often a complex area.
Our compliance services offer support for all stages of completing your VAT returns, whether you need advice on the treatment of specific transactions or have produced your records and would like verification that they are correct.
We can also advise on the pros and cons of voluntary registration, extracting maximum benefit from the rules on de-registration and the Flat rate VAT scheme.
Our consultancy service guides you through the intricacies of the legislation, pinpointing areas where you may be able to relieve or partly relieve the cost of VAT for your business, for example when purchasing new equipment or undertaking new projects such as property development.
For a meeting to discuss VAT and obtain further advice please call us on 01332 202660.
We can conduct a full tax review of your business and determine the most efficient tax structure for you.
We give personal tax advice to a wide variety of individuals, including higher rate tax payers, company directors & sole traders.
We can assist with:
For a meeting to discuss your requirements please call us on 01332 202660.
Understand your needs
Firstly we listen and gain an understanding of your business and what you are aiming to achieve.
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.
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.
Understand your needs
Confirm your expectations
Build a relationship
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
Call us on 01332 202660
Interest & penalty charges for late filing & payment
HMRC operates a severe penalty regime to encourage compliance with self-assessment requirements. Failure to submit a return on time may attract a late filing penalty.
Late returns - The exact amount of any late filing penalty depends on how late the return is:
Length of delay Penalty
1 day late A £100 automatic fixed
penalty applies even if the
taxpayer has no tax to pay or
has paid the tax owed
3 months late £10 for each following day
up to a 90 day maximum of
£900 This is in addition to
the fixed penalty above
6 months late £300 or 5% of the tax due
whichever is the higher. This
is in addition to the penalties
12 months late £300 or 5% of the tax due
whichever is the higher This
is in addition to the penalties
In serious cases, HMRC may seek a penalty of up to 100% of the tax due instead. In some cases, the penalties can be even higher than this. These are in addition to the penalties above.
Late payments - The following penalties apply to late balancing payments of income tax and late payments of capital gains tax under self-assessment.
Length of delay Penalty
30 days 5% of the unpaid tax
6 months 5% of the unpaid tax
12 months 5% of the unpaid tax
Penalties are payable within 30 days from the day on which the penalty notice is issued There is a right of appeal against both the imposition of a penalty and the amount involved. HMRC may reduce a late payment penalty in special circumstances, which does not include an inability to pay. In addition, a defence of reasonable excuse may be available.
Interest on late payments - For income tax purposes, interest is normally charged on overdue tax from the due date of payment (31 January or 31 July) to the date the tax is actually paid. Interest charges also apply to late payment of penalties and in respect of tax return amendments and discovery assessments. The rate of interest charged on unpaid tax is currently 3.25% (from 21 August 2018). Interest is payable gross and is not deductible for tax purposes.
HMRC’s VAT fixes
One of the last acts of the EU before Brexit was to make quick fixes to the VAT rules for intra-EU trade. These must be followed by UK businesses.
Simplification - The VAT quick fixes simplify the VAT rules for business-to-business transactions for EU cross-border supplies. For some years businesses importing or exporting between EU countries have sometimes been caught by conflicting VAT rules imposed by their respective tax authorities. The four quick fixes are to prevent such conflicts and became effective from January 2020.
Mandatory VAT number check for zero-rating - When you sell goods to a business in another EU country you must only apply zero-rate VAT if your customer provides you with their EU VAT number. While this has always been recommended practice, until the fix you were only required to have evidence that the customer was in business.
Proof of intra-EU supplies - When you make a supply to a business elsewhere in the EU you must now have at least two documents from sources independent from of customer which show that the goods you’ve sold have been delivered to a place within the EU.
Call off stock - Until now if your business transfers stock from the UK to a location in another EU country before supplying the goods to a customer there have been varying procedures in the different countries to ensure that VAT is accounted for correctly. The quick fix creates a uniform procedure.
Chain transactions - A new rule applies if goods pass through another business before they reach your customer in another EU country, e.g. a UK head office sells to one of its subsidiaries which in turn supplies the customer, but the goods are shipped directly to the customer. Previously there’s been doubt over which business, head office or the subsidiary, is making the supply. The fix requires that one business is identified as the supplier who is responsible for the VAT export procedures rather than them applying at each stage of the chain.
All EU countries must now follow uniform rules when exporting, including obtaining independent evidence that goods have been shipped and an obligation to check that your customer is EU VAT registered.
What will the VAT cost of Brexit be?
Brexit will impact on VAT more than any other UK tax. However, for now until 31 December 2020 or possibly later, the VAT rules remain unaffected. Nonetheless, while your rights to reclaim VAT and obligations to charge it stay the same, there might be changes in procedure. For example, a change in the method for reclaiming VAT incurred personally on business expenses while travelling in the EU.
Despite no sea change in VAT rules until the end of 2020, the EU may, and probably will, make changes to its VAT rules before then. Theoretically, the UK should follow suit and reflect the changes in UK VAT regulation or practice, e.g. the zero-rating of e-books etc. to align the VAT rate with that for printed books. However, the UK government might not follow suit and it’s extremely unlikely the EU will bother arguing the point. In any event, such changes won’t affect the VAT rules for transactions between UK and EU businesses.
EU trade costs
The extent of the cost of Brexit for businesses where trade with the EU is involved will depend on how closely aligned the UK and EU rules are after the transition period ends. Unless we continue to follow the EU’s rules there’s bound to be extra admin and probably duties involved in importing and exporting goods.
Any extra costs will need to be factored in when pricing goods or services sold to the EU if and when the exit deal is done. GOV.UK has a microsite dedicated to the Brexit developments that will help you keep track of developments.
What about extra VAT costs
There will be little or no change to the VAT consequences when acquiring goods or services from businesses after we’ve left the EU. To understand this you simply need to consider the current VAT position of customers in countries outside the EU, known as “third countries”. After the transition period, unless we stick completely with EU VAT rules we will become a third country.
Currently, if you sell goods to a customer in a third country, you don’t charge VAT because it’s an export outside the EU. When the goods arrive at the other country the tax authorities there assess and charge duties and their equivalent to VAT. Your customer, subject to the rules in their country, reclaims the VAT (or equivalent). Unless there’s a special arrangement where we keep the no-VAT treatment on imports from the EU, you’ll be in a similar position as your customer outside the EU, i.e. you’ll pay VAT on goods entering the country which you’ll be able to reclaim.
Paying and reclaiming VAT.
Rather than having to pay VAT on goods you import at the time they enter the UK, the government will probably allow you to account for the VAT on your next VAT return. At that point, subject to the usual rules, you’ll be entitled to reclaim the VAT thus resulting in a cost-neutral position without any loss of cash flow.
Unless there’s a deal which retains the existing rules, VAT will be payable on imports of goods from the EU. However, you will be entitled to reclaim any VAT paid as you currently are for other purchases. The direct effect of Brexit will therefore be VAT neutral.
Claiming property expenses 1
When the UK introduced self-assessment for tax purposes in 1996, the Inland Revenue made an effort to simplify our tax system, and one of the beneficiaries of this was the property owner who lets out a rental property as an investment. However, there are still many common misunderstandings of what the tax rules are, and sometimes landlords aren’t claiming everything that they are due.
Repairs or capital?
The rule is that repair expenditure is validly claimable against your rents, but capital expenditure, which improves the property, isn’t allowable. Apart from rare and specific exceptions like replacement double glazed windows as opposed to the old single glazed ones, if the effect of the work you do on the property is to improve it, this becomes a capital expense, relievable ultimately against your capital gains tax when you sell the property, but is not available to offset against the rents now.
Other capital expenditure
Property improvement isn’t the only type of expenditure that’s disallowable as ‘capital’. For example, legal costs of buying and selling properties are often wrongly claimed against the rents; but these are actually related to the purchase and sale transactions and should, therefore, be claimed for capital gains tax purposes rather than against income tax. The same applies to costs such as stamp duty land tax and land registry fees.
Expenditure covered by deposit
Although the use that landlords can make of tenants’ deposits has been very much restricted by recently legal changes, a departing tenant who has damaged the place can expect to have sums deducted from the initial deposit he had to lodge with the letting agent before he first moved in.
Claiming property expenses 2
The ‘Osborne tax’
Otherwise known as ‘Clause 24’, or ‘Section 24’ - this recent change in the tax rules comprises a disallowance of part of the interest paid on loans taken out in respect of buy-to-let properties.
For the 2018/19 year the rate of disallowance is 50%, but the way the mechanics of the Osborne tax work is to disallow the relevant proportion (i.e. 50% for 2018/19) in the first stage of the computation, and then bring back a 20% allowance lower down in the calculation.
Wear and tear allowance
The tax return doesn’t have a box for claimable wear and tear allowance any more, but this may not stop everyone from claiming it based on prior years. Wear and tear allowance was basically a rough and ready way of claiming for the cost of furnishing a residential property, and keeping that furnishing in good nick by replacing items when necessary. It was worked out as 10% of rents received, and this was allowed regardless of how much expenditure had actually been laid out on furniture.
This relief was abolished with effect from 6 April 2016, and now there is a relief called ‘replacement relief’ to do the same basic job.
Replacement relief applies to ‘domestic items’ such as furniture, appliances like fridges and freezers, and crockery - but does not apply to fixtures like boilers and central heating systems. The way the rules work is that you can claim the cost of replacing such items, but you can’t claim the initial cost of acquiring them in the first place.
Suggestions - The timing of refurbishment work on your property can make a difference as to whether it is claimable against tax. Gradual piecemeal work is more likely to be allowable than a radical gutting and replacement of interiors.
Don’t forget to retain a long-term record of expenditure that is capital and, therefore, disallowable against rents. This record will provide you with the numbers, and the evidence, for claiming a reduction in your capital gains tax when the property is ultimately sold.
Don’t forget that replacement relief is available for furniture, appliances, etc., and can make a big hole in your taxable rental profits in the year you incur the expenditure, even though the items concerned may be set to last for several years.
Benefits of putting a property into joint names prior to sale
Where a property qualifies in full for private residence relief, it is perhaps academic, from a tax perspective at least, whether a couple own it jointly or it is the one name only. In either case, the relief shelters any gain that arises and there is no tax to pay.
However, where a gain is not fully sheltered by private residence relief, as may be the case for an investment property or a second home, there can be very different tax consequences depending on how it is owned.
Take advantage of the no gain/no loss rules for spouses and civil partners
There are some breaks in the tax system for married couples and civil partners, and one of them is the ability to transfer assets between each other at a value that gives rise to neither a gain nor a loss. This can be very useful from a tax planning perspective to secure the optimal capital gains tax position on the sale of property where full private residence relief is not available. This enables a couple to utilise available annual exempt amounts and lower tax bands.
Capital gains tax on residential property gains is charged at 18% where total income and gains do not exceed the basic rate limit (set at £37,500 for 2019/20) and 28% thereafter.
Ron and Rita have been married a number of years and in addition to their main residence, they have a holiday cottage, which is owned solely by Ron. As their lives are busy, they no longer use the cottage much and decide to sell it. They expect to realise a gain of £100,000.
Rita does not work and has no income of her own. Ron is a higher rate taxpayer. Neither has used their annual exempt amount for 2019/20 (set at £12,000).
If they leave the property in Ron’s sole name, they will realise a chargeable gain of £88,000 after deducting his annual exempt amount of £12,000. As a higher rate taxpayer, this will give rise to a capital gains tax bill of £24,640 (£88,000 @ 28%).
However, as Rita has her basic rate band and annual exempt amount available, making use of the no gain/no loss rule to put the property in joint names prior to sale can save the couple a lot of tax. Each will realise a gain of £50,000.
As far as Ron is concerned, £12,000 of his gain will be sheltered by his annual exempt amount, leaving a chargeable gain of £38,000 on which tax of £10,640 will be payable.
Rita will also have a gain of £50,000, of which the first £12,000 is covered by her annual exempt amount, leaving a chargeable gain of £38,000. As her basic rate band is available in full, the first £37,500 is taxed at 18% (£6,750), with the remaining £500 being taxed at 28% (£140). Thus, Rita’s tax liability is £6,890, and the couple’s total tax bill is £17,530.
By taking advantage of the no gain/no loss rule to put the property into joint names prior to sale, the couple will be able to make use of Rita’s annual exempt amount and basic rate band, reducing the capital gains tax payable on the sale from £24,640 to £17,530 – a saving of £7,110.
Paying dividends before the end of the tax year
Family companies should review profit extraction policy and consider whether they can and should pay further dividends before the end of the tax year. Dividends can only be paid out of retained profits and thus, unlike payments of bonuses or salary, the amount that can be extracted from the company as dividends is capped at the level of the company’s retained profits.
Retained profits are broadly profits on which corporation tax has been paid and thus they have already suffered tax in the hands of the company. For the 2019 financial year (i.e. running from 1 April 2019 to 31 March 2020), the corporation tax rate is 19%.
Once retained profits have been paid out as a dividend, they represent taxable income in the hands of the recipient. Consequently, the profits are taxed again. The combined effect of corporation tax already paid on the profits, plus the dividend tax on the dividend, may be less than the income tax and National Insurance contributions (NICs) that would be payable on profits paid out as salary, despite the fact that salary payments and employers’ NICs are deductible in computing the family company’s taxable profits. Unlike salary and bonus payments, there are no NICs to pay on dividends.
In the hands of the shareholder, dividends are treated as the top slice of income and taxed at the appropriate dividend rate of tax. The dividend tax rates are lower than the income tax rates, allowing for the fact that corporation tax has already been paid. Dividends are taxed at 7.5% to the extent that they fall within the basic rate band, at 32.5% to the extent that they fall within the higher rate band, and at 38.1% to the extent that they fall in the additional rate band.
All taxpayers, irrespective of the rate at which they pay tax are entitled to a dividend allowance (£2,000 for 2019/20). The allowance is really a nil rate band rather than a true allowance in that dividends which are covered by the allowance form part of band earnings. Dividends sheltered by the dividend allowance are taxed at a rate of 0% rather than at the relevant dividend rate. The dividend allowance is a useful tool.
Dividends come with company law rules, which must be adhered to. As well as restricting the amount of dividends that can be paid out to the level of the company’s retained profits, to comply with company law requirements dividends must be paid in proportion to shareholdings. Different dividends can be declared for different classes of share, providing the flexibility to tailor dividend payments to the circumstances of the recipient to ensure that dividends can be paid out in a tax-efficient manner.
Companies are advised to undertake a review so that they can decide whether it is desirable to extract profits from the company before the end of the tax year. If there are profits to be extracted, the company must decide how the profits should be extracted and who they should be paid to.
In order to answer these questions, it is not only necessary to establish what profits are likely to be available for extraction, but also what other income the family members have, whether their personal allowance and/or dividend allowance remains available and whether they have used up all of their basic or higher rate bands.
As a starting point, it is generally tax-efficient to pay a small salary and to extract further profits as dividends. Assuming the recipient’s personal allowance is available, the optimal salary is equal to the primary threshold for Class 1 NICs purposes (£8,632 for 2019/20) where the employment allowance is not available. If the employment allowance is available, the optimal salary is equal to the personal allowance (assuming that this is not used elsewhere), set at £12,500 for 2019/20. Above this level, it is generally more efficient to extract profits as dividends. Before paying out dividends, consider whether the optimal salary has been paid.
However, it should not be forgotten that there are other options for extracting profits, such as rent where the business is operated from a room in the family home, benefits-in-kind, pension payments etc.
Undertake a review prior to the year end to determine whether it is advisable to pay dividends before the end of the tax year.
Reduced payment window for residential property gains
Currently, capital gains on the sale of residential property in the UK are reported on the self-assessment tax return and the total capital gains tax liability for the tax year is payable by 31 January after the end of the tax year. Thus, the capital gains tax on residential property gains arising in the 2019/20 tax year must be reported to HMRC on the 2019/20 self-assessment return by 31 January 2021 and the associated capital gains tax paid by the same date.
However, from 6 April 2020 this will change. From that date, gains arising on disposals of residential property by UK residents must be notified to HMRC with 30 days of the completion date, and a payment on account of the eventual tax liability made by the same date.
What disposals are affected? - The new rules will apply from 6 April 2020 to disposals by UK residents of UK residential property which give rise to a residential property gain. The rules applied to disposals by non-residents from April 2019.
A new return - Rather than notifying HMRC of the gain on the self-assessment return, there will be a new return for advising HMRC where a gain arises on the disposal of a residential property. If there is no taxable gain, for example if the property is disposed of to a spouse or civil partner on a no gain/no loss basis, there is no requirement to make a return.
The return must be submitted to HMRC within 30 days from the date of completion.
Payment on account of tax due - The taxpayer must also make a payment on account of the capital gains tax liability within 30 days of the completion date. This is considerably earlier than now, where the lag is at least nine plus months and may be as much as almost 22 months.
Amount to pay - The amount to pay is effectively the best estimate of the capital gains tax at the time of the disposal, taking into account disposals to date in the tax year.
Example 1 - Paul sells a second home, completing on 31 May 2020 realising a gain of £50,000. He has made no other disposals in 2020/21 at the time that the property is sold.
He can take into account his annual exempt amount (for purposes of illustration this is assumed to be £12,000 for 2020/21) when working out his liability. Paul is a higher rate taxpayer.
The payment on account is therefore £10,640 ((£50,000 - £12,000) @ 28%).
Where a capital loss has been realised before the residential property gain, this can be taken into account when calculating the payment on account.
The return must be filed and the payment on account made by 30 June 2020.
Example 2 - Rebecca sells her city flat, which is a second property, on 1 August 2020, realising a gain of £100,000. In May 2020, she sold some shares, realising a loss of £10,000. Rebecca is a higher rate taxpayer.
The loss can be set against the residential property gains of £100,000, leaving a net gain of £90,000. As her annual exemption is available, the chargeable gain is £78,000 and the payment on account is £21,840.
No account is taken of a loss realised after the residential gain. - Final capital gains tax liability for the year
The final capital gains tax liability for the year is computed via the self-assessment return taking into account all gains and losses for the year. The payment on account is deducted from the final bill and the balance payable by 31 January after the end of the tax year.
If the payment on account is more than the final liability, for example if losses were realised later in the tax year, a refund can be claimed once the self-assessment return has been submitted.
Missed the tax return filing deadline?
If you missed the 31 January deadline for self-assessment HMRC will fine you £100 and more if you continue to delay. It will cancel the penalty if you have a reasonable excuse.
Must you file a tax return?
It’s a common misunderstanding that if you owe tax you’re required to submit a tax return. The correct position is that you only need to file a self-assessment return if you’re asked to do so by HMRC. It does this by issuing a “notice to file”. However, to prevent you and any individual from dodging tax simply by not declaring income, you’re required to notify HMRC within a time limit if you believe you owe tax but haven’t received a notice to file - it’s then up to HMRC to issue one. If it doesn’t do so you won’t be penalised for not submitting a tax return by the normal deadline.
Notice to file received
Once issued, there is no appeal procedure against a notice to file even if you have no income, gains or other tax liability to declare.
If you receive a notice to file but don’t submit a return within the time limit the initial penalty is £100. However, even if you don’t owe any tax this can rise to £1,600.
Appealing a penalty
You can appeal against a penalty but HMRC will only cancel it if you have a reasonable excuse such as you or a close member of your family being seriously ill and this was a significant factor in you missing the deadline.
HMRC has the power to withdraw a notice to file. If it does so any penalties for late filing will be withdrawn. This option is only open to HMRC if you haven’t yet submitted the tax return in question and is entirely at HMRC’s discretion.
HMRC will usually agree to withdraw a notice to file a tax return if for a year you don’t meet its criteria for being within self-assessment. There are circumstances in which HMRC insists on self-assessment. For example, if you have income from self-employment or you or your partner receive child benefit and one of you has annual income exceeding £50,000.
If you don’t meet criteria for self-assessment for a year and haven’t yet submitted the corresponding tax return you can ask HMRC to withdraw the requirement to submit one. It has the discretion to refuse your request but if it agrees it will also cancel the late filing penalties. Use HMRC’s online tool to check if self-assessment applies.
Steps to reduce CGT when selling your company
Since April 2016 the two main rates of capital gains tax (CGT) have been 10%, if your taxable income plus gains for the year fall within the basic rate band, and 20% if your income and gains are greater.
Where you sell your business, and meet the necessary conditions, a special 10% entrepreneurs’ relief (ER) rate applies regardless of how much your income and gains are. Before CGT starts to apply, every individual adult or child is entitled an exempt amount; for 2019/20 this is £12,000.
No gain, no loss
Special rules apply to transfers of assets between spouses. If one spouse gives assets to the other it’s treated as if they sold them to their spouse at the price equal to their cost, this is called a “no-gain, no-loss” transaction. If later the spouse who received the assets sells them for more than they cost the first spouse, they’ll make a capital gain, but they can use their annual exemption to lower or eliminate any CGT.
If you’re married or have a civil partner, you can use the no-gain, no-loss rule to save tax even where the rate of CGT you would pay is the lowest possible, i.e. where the ER rate applies.
Increasing the tax saving
The no-gain, no-loss rule doesn’t apply to gifts of assets to anyone other than your spouse or civil partner. Gifts of your company shares to children are treated as sales at their full value.
There is a legitimate way around this. You can claim CGT holdover relief. The effect of this is similar to giving shares to your wife. The gain is deferred (held over) until the children sell their shares. A holdover claim must be made jointly and usually anti-avoidance rules make it ineffective if the children are minors.
Before signing the sale contract, transfer shares to your spouse. This shifts part of the gain to them, against which they can use their annual exemption. You can achieve a similar result by transferring shares to family members, but this requires you to make a claim for “holdover relief”.
Remuneration strategy following policy announcements
The government announced in November 2019 that the scheduled reduction in corporation tax (CT) from 19% to just 17% from 2020/21 was not going to happen. It could have been worse for companies, given that many political parties wanted to reverse the recent trend of falling CT rates.
Many small companies are set up to cover single projects - typically in construction or IT - and the shareholder/directors may want to minimise their exposure to high marginal rates of income tax/ NICs on salaries and/or dividends. Such companies might then be wound up on the successful completion of the project and the shareholder/ directors might well then stand to benefit from ER on any accumulated profits that have not so far been paid out as salary or dividends. In the right circumstances, ER can offer significant savings, although there are numerous criteria and now special anti-avoidance rules, aimed at preventing ‘phoenixing’ companies and re- starting in the same sector. However, a genuine commercial basis for winding up the company should prevent the anti-avoidance legislation from being triggered.
1. There is little point in trying to defer corporate profits to later than 1 April 2020 to get them taxed at lower rates.
2. Shareholder/directors will probably want in coming tax years to increase their gross salaries to just below the rising threshold at which NICs become payable, to optimise their overall efficiencies.
3. The increase in employers allowance will make taking on a spouse, civil partner or close family member for a higher salary more efficient, where they might otherwise waste tax-free personal allowance and lower tax bands.
4. Where profits have accumulated in the business and the directors/shareholders hope to benefit from ER, there may well be some cases where triggering a disposal in the current 2019/20 tax year could usefully 'bank' ER before it is potentially restricted or even abolished.
Proper tax advice and planning is essential.
Return of the two-tier NI threshold
The government has announced the rates and thresholds for NI contributions for 2020/21. There will be two NI earnings thresholds (ETs). While in 2017 the government committed to aligning the ETs for employers and employees to simplify employment taxes, from 6 April 2020 they will diverge again, this time by a significant amount. Employers will start to pay for NI on workers’ salaries which exceed the rate of £8,788 per year, while the workers won’t start to pay until their salaries exceed the rate of £9,500 per year. Be aware of the different ETs when working out the most tax-efficient salary to take from your business.
From 6 April 2020 employers will be liable to NI on salaries they pay if they exceed the rate of £8,788 per year while the trigger point for directors is £9,500. Make sure you take account of the different thresholds when working out the most tax/NI efficient salary to take.
NLW – Is your business ready for 1 April 2020? - Part 1
From 1 April 2020, nearly three million workers are set to benefit from increases to the National Living Wage (NLW) and minimum wage rates for younger workers, according to estimates from the independent Low Pay Commission.
From 1 April 2020, the NLW will rise from £8.21 per hour to £8.72 per hour.
The new rates should mean a pay rise of some £930 over the course of the year for a full-time worker on the NLW. Younger workers who receive the National Minimum Wage (NMW) will also see their pay boosted with increases of between 4.6% and 6.5%, dependant on their age, with 21-24 year olds seeing a 6.5% increase from £7.70 to £8.20 an hour.
Employers need to make sure they are ready for the new rates.
The compulsory NLW is the national rate set for people aged 25 and over. The NLW is enforced by HMRC alongside the national minimum wage which they have enforced since its introduction in 1999.
Generally, all those who are covered by the NMW, and are 25 years old and over, will be covered by the NLW. These include:
• most workers and agency workers
• casual labourers
• agricultural workers
• apprentices who are aged 25 and over
The NMW is the minimum pay per hour that most workers are entitled to receive by law. The rate to which they are entitled depends on a worker's age and whether they are an apprentice.
The rates from 1 April 2020, the NMW will rise across all age groups, including increases:
• from £8.21 to £8.72 for over 25 year olds
• from £7.70 to £8.20 for 21-24 year olds
• from £6.15 to £6.45 for 18-20 year olds
• from £4.35 to £4.55 for under 18s
• from £3.90 to £4.15 for apprentices
Payments that must be included when calculating the NMW are:
• income tax and NICs
• wage advances or loans and repayments
• repayment of overpaid wages
• items that the worker has paid for, but which are not needed for the job or paid for voluntarily, such as meals
• accommodation provided by an employer above the offset rate (£7.55 a day or £52.85 a week)
• penalty charges for a worker’s misconduct
NLW – Is your business ready for 1 April 2020? - Part 2
Some payments must not be included when the NMW is calculated.
• payments that should not be included for the employer’s own use or benefit, for example if the employer has paid for travel to work
• items that the worker has bought for the job and has not been refunded for, such as tools, uniform, safety equipment
• tips, service charges and cover charges
• extra pay for working unsocial hours on a shift
There are a number of people who are not entitled to the NMW, including:
• self-employed people
• volunteers or voluntary workers
• company directors
• family members, or people who live in the family home of the employer who undertake household tasks
All other workers including pieceworkers, home workers, agency workers, commission workers, part-time workers and casual workers must receive at least the NMW.
Businesses should make regular checks to ensure compliance with NLW/NMW obligations including:
• checking that they know who is eligible in their organisation
• taking the appropriate payroll action where relevant
• letting employees know about any new pay rate
• checking that staff under 25 are earning at least the right rate of NMW
The penalty for non-payment of the NLW can be up to 200% of the amount owed, unless the arrears are paid within 14 days. The maximum fine for non-payment is £20,000 per worker.
The government is currently committed to raising the NLW to £10.50 per hour by 2024 on current forecasts.
Employers need to take action over the coming weeks to ensure that they are ready for the increase in rates on 1 April 2020 and beyond.
When Goodwill helps
The valuation of assets can be important for tax purposes. For example, a valuation may determine the amount of inheritance tax (IHT) payable on a lifetime transfer (e.g. the transfer of an investment property to a discretionary trust) or on an individual’s death estate. In addition, an asset valuation may be needed to determine the capital gains tax (CGT) liability on certain disposals (e.g. a gift of investment company shares from parents to adult children). However, asset valuations can also be a crucial factor in determining the availability of tax relief in some cases. Two notable examples are highlighted below.
1. Entrepreneurs’ relief
The basic definition of ‘trading company’ for CGT entrepreneurs’ relief (ER) purposes is ‘a company carrying on trading activities whose activities do not include to a substantial extent activity other than trading activities’.
There is no statutory definition of ‘substantial’ for ER purposes, but it is generally accepted to mean ‘more than 20%’. There are several factors, some or all of which might be considered in determining whether non-trading activities are ‘substantial’ (i.e. income from non-trading activities, the company’s asset base, expenses incurred, time spent by officers and employees of the company in undertaking its activities, and the balance of indicators). On the ‘company’s asset base’ test, HMRC states: ‘If the value of a company’s non-trading assets is substantial in comparison with its total assets then again, on this measure, this could point towards it not being a trading company.’ However, HMRC acknowledges that it may be appropriate to take account of business goodwill not shown on the balance sheet.
2. Business property relief
A business owner may be eligible for IHT business property relief (BPR) if certain conditions are met. However, the relief does not apply (subject to limited exceptions) to a business (or an interest in it) or company shares and securities where the business carried on consists wholly or mainly of dealing in securities, stocks or shares, land or buildings or making or holding investments.
This ‘wholly or mainly’ test broadly means that if (say) a ‘hybrid’ company, i.e. comprising a trading business and an investment business (e.g. a company operating a manufacturing business and a residential lettings business) is 49% trading and 51% investment, an individual’s shares would not be eligible for any BPR at all, even in relation to the company’s trading activities. HMRC’s guidance on valuing a business for BPR purposes states that the company’s balance sheet will be the main source of information about the value of business assets (and liabilities) at the date of death/transfer. HMRC includes goodwill within the list of assets to be taken into account, even where no goodwill is shown on the balance sheet.
The valuation of goodwill is a specialist area. HMRC will normally refer the matter to its Shares and Assets Valuation division. Taxpayers and advisers are strongly advised to seek assistance from a valuation expert.
HMRC changes its time to pay arrangements
If you can’t meet your tax bills you can sometimes negotiate with HMRC for more time to pay.
You can get a time to pay (TTP) arrangement with HMRC for any tax. If you’re in business, you can apply not just for a self-assessment bill, but payroll taxes, VAT and corporation tax. However, unlike commercial creditors HMRC won’t ever reduce the amount of debt but it will tailor a TTP arrangement to your financial circumstances.
You may not get a TTP arrangement if HMRC doubts you’ll keep up with the payment schedule. HMRC will want from you about your finances.
Payment periods are as short as possible, usually twelve months or less. But for individuals there’s no longer a maximum. Contact HMRC as soon as you think you won’t be able to pay a tax bill. If it’s before the payment deadline, ring the Payment Support Service. If the payment date has passed, ring the self-assessment payment helpline if it’s a personal tax bill.
By agreeing a TTP arrangement before the tax bill is due you’ll avoid late payment penalties that HMRC would otherwise charge.
HMRC have a new system for applying online. The service can only be used for self-assessment tax bills, where you owe £10,000 or less, have no other tax debts and no other TTP arrangements.
HMRC puts non-payers into one of two categories - “can’t pay” or “won’t pay”. It will put you in the “won’t pay” category if it thinks you have the financial means to pay but are playing for time. If so, it won’t agree a TTP arrangement and will fast track enforcement proceedings.
HMRC expects you to explore other means of raising cash to pay your tax bill before agreeing to a TTP arrangement. This might mean selling investments or borrowing elsewhere.
If you’re in business, this can be a difficult equation. You might have funds on hand but need them to meet costs like wages in order to keep trading. HMRC should take this into account and classify you as “can’t pay”.
SDLT and first-time buyers
Stamp duty land tax (SDLT) is payable on the purchase of land or property in England or Northern Ireland where the consideration is more than the relevant threshold. SDLT is a devolved tax and does not apply to property transactions in Scotland and Wales to which land and buildings transaction tax (LBTT) and land transaction tax (LTT) apply respectively. While these are similar to SDLT, the rules are not identical. This article focusses on SDLT as it applies to land and property transactions in England and Northern Ireland.
Nature of SDLT - SDLT is payable on residential and non-residential land and property, with different rates applying to residential and non-residential transactions. SDLT is payable when a person:
buys a freehold property;
buys a new or existing leasehold;
buys a property through a shared ownership scheme; or
is transferred land and property in exchange for a payment (such as taking on a mortgage).
Residential Property - SDLT is payable on purchases of land and property in excess of the residential SDLT threshold. This is set at £125,000. Different rates apply to different ‘slices’ of the consideration above the SDLT threshold. The residential rates at the time of writing are as follows:
Up to £125,000 0%
Next £125,000 (slice from £125,000 to £250,000) 2%
Next £675,000 (slice from £250,001 to £925,000) 5%
Next £575,000 (slice from £925,000 to £1.5 million) 10%
Remainder (slice above £1.5 million) 12%
HMRC have produced a calculator that can be used to work out the SDLT payable on the purchase of residential property. The rules and rates are different for first-time buyers and on second and subsequent properties.
Leasehold property - The residential rates above apply to the purchase price of the lease (the lease premium) on the purchase of new residential leasehold property. Further, if the net present value of the rent is more than £125,000, SDLT is payable on the portion over £125,000 at a rate of 1% unless the purchase is of an existing (assigned) lease.
Second and subsequent properties - Higher SDLT rates apply to the purchase of second and subsequent residential properties. Such properties attract a supplement of 3% on top of the purchase price where the price of the second property is more than £40,000. The rates on second homes costing more than £40,000 are as follows:
Up to £125,000 3%
Next £125,000 (slice from £125,000 to £250,000) 5%
Next £675,000 (slice from £250,001 to £925,000) 8%
Next £575,000 (slice from £925,000 to £1.5 million) 13%
Remainder (slice above £1.5 million) 13%
First-time buyers - To help first-time buyers buy their first home, SDLT reliefs are available for first-time buyers. First-time buyers do not pay any SDLT if they buy a property that cost no more than £300,000; where the purchase price is between £300,000 and £500,000, first-time buyer relief reduces the amount of SDLT payable - no SDLT is payable on the first £300,000 and SDLT on the portion between £300,000 and £500,000 is payable at a rate of 5%. First-time buyers who buy a property costing more than £500,000 pay the normal residential SDLT rates - there is no first-time buyer relief if consideration exceeds £500,000. A first-time buyer is an individual or individuals who have never owned an interest in a residential property in the UK or elsewhere in the world and who intend to occupy the property as their main home. It is not available to someone buying a property to let out. First-time buyer relief must be claimed in the SDLT return. The relief is worth up to £5,000.
Tax and NI on salaries 2020/21
The table below shows the position for director shareholders taking a low salary from their company to minimise tax and NI liabilities for 2020/21
Allowances Director’s annual salary
£12,500 £9,500 £8,788
Personal allowance £12,500
NI primary threshold £9,500
NI secondary threshold £8,788
Employment allowance £3,000
Director's tax payable - - -
Director's NI payable £360 - -
Employers’ NI payable £512 £98 -
Director's net pay £12,140 £9,500 £8,788
Net cost of salary to company £12,500 £9,500 £8,788
before tax relief if the employment allowance applies
Net cost of salary to company £13,012 £9,598 £8,788
before tax relief if the employment allowance does not apply
Businesses distracted by April 2020 IR35 changes
Changes to off-payroll working scheduled for April 2020 are causing businesses to overlook their normal obligations to check employment status.
Before IR35 existed HMRC frequently challenged the employment status of individuals who provided their services on a self-employed basis to businesses. Eventually, HMRC asked the government for a solution. IR35 gave it the power to extend its employment-status enquiries to individuals who worked for their customers indirectly, i.e. through an intermediary. The ongoing concerns regarding IR35, especially the April 2020 changes, is confusing businesses about their other employment status obligations.
New rules aren’t relevant
From 6 April 2020 businesses that aren’t small are responsible for checking the employment status of individuals who work for them through an intermediary. Until then it’s up to the worker to do it. All businesses, including those categorised as small, remain responsible for checking the employment status of individuals who work directly for them and are liable for any PAYE tax and NI lost if they get it wrong.
Which workers do you need to check?
You need to look at the overall picture of your firm’s relationship with the individual doing the work.
HMRC inspectors primarily look for whether you, the customer, control when and how the work is done and by whom.
It might be clear to you that a worker is freelance, but look at the position as an outsider might - is there the appearance of control over the work and the worker? If so, prove the self-employed status by entering all the facts into HMRC’s check employment status for tax (CEST) tool and keep a record of the result so you can deflect any HMRC enquiry before a tax inspector becomes entrenched in their view.
If you use the services of an individual working freelance, say a bookkeeper, you’re responsible for checking their employment status even if yours is a small business. Consider if someone outside your business could at first sight view the working arrangement as an employment. If so, use HMRC’s online status tool.
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