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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
Cash basis accounting - effect on tax of reducing profits
There are circumstances where using the cash basis of accounting can reduce your profits and create a permanent tax saving. These include where calculating your profits using the normal basis of accounting means:
• you’re liable to the high income child benefit charge (HICBC)
• some of your income falls into a higher tax bracket; or
• your taxable income exceeds £100,000.
John is self-employed. His accounts (prepared on the normal accruals basis) for the year ended 31 March 2019 show a profit of £61,000. If the cash basis of accounting were used his profit would be £52,000. John’s spouse receives child benefit for two children for 2018/19 of £1,789. Because his profit for that year is greater than £50,000 John is liable to the HICBC. The maximum charge would apply because his income exceeded £60,000, i.e. the charge would be £1,789. However, using the cash basis of accounting would reduce John’s profits and therefore the HICBC to £358 saving him £1,431.
Annual investment allowances
From January 2019, businesses considering investing more than £200,000 in plant and machinery may benefit from a change to the capital allowances rules, which should allow them to obtain tax relief at a much earlier time.
Broadly, business profits, after any adjustments for tax purposes (for example depreciation of fixed assets), are reduced by capital allowances to arrive at taxable profit. Since capital allowances are treated as a trading expense of a particular accounting period, they can potentially increase a loss, or turn a profit into a loss for tax purposes. This in turn, will have an impact on the amount of tax payable by a business - so where a business is considering expenditure on qualifying items, it may be beneficial to undertake some upfront planning.
Annual investment allowance
The annual investment allowance (AIA) for capital allowances purposes is a 100% allowance for qualifying expenditure on machinery and plant. Put simply, this means that a business buying a piece of equipment that qualifies for the AIA can deduct 100% of the cost of that asset from the business’s profit before calculating how much tax is due on that profit.
VAT-registered businesses claim the AIA on the total cost of the asset less any VAT that can be reclaimed on that asset. Non-VAT-registered businesses can claim the AIA on the total cost of the asset.
The AIA was set at its current level of £200,000 from 1 January 2016, but it was announced in the 2018 Autumn Budget that, subject to enactment, the limit will be increased to £1,000,000 from January 2019. This measure is designed to stimulate business investment in the economy by providing an increased incentive for businesses to invest in plant or machinery. However, the increase will only be available for a limited time. Under current proposals, the AIA limit will revert to its current level from 1 January 2021. Businesses considering making significant investments in, say, the next five years, may wish to consider bringing their purchase forward, so as to benefit from the increased AIA limit and obtain immediate tax relief on their investment.
Where a business spends more than the annual AIA limit, any additional qualifying expenditure will still attract relief under the normal capital allowances regime, but this will result in relief being spread over several years, rather than in one go.
It is worth remembering that connected companies are only entitled to one AIA between them.
The legislation includes a series of transitional rules, which can be complex. It is worth seeking guidance where expenditure on qualifying AIA items is being considered and the business has a chargeable period that spans either of:
• the operative date of the increase to £1,000,000 on 1 January 2019, or
• the operative date of the reversion to £200,000 on 1 January 2021.
Running a business from home
Small businesses can choose to be taxed on the basis of the cash that passes through their books, rather than undertaking the more complex accounting calculations designed for larger businesses. This is known as the ‘cash basis’, and where a business opts to use it, it will also be possible for that business to use certain simplified arrangements for claiming expenditure in working out taxable profits for income tax purposes. Flat rate expenses can be claimed for business costs for vehicles, working from home, and living at the business premises.
Working from home - Where a business owner runs the business from home they will be able to claim flat rate expenses for business use of the property. This means that it will not be necessary to work out the proportion of personal and business use, for example, how much of their utility bills relate to business use. Instead a monthly deduction will be allowable provided certain criteria are satisfied. The current rates are as follows:
Number of hours worked per month Applicable amount
25 or more £10.00
51 or more £18.00
101 or more £26.00
HMRC's view is that ‘number of hours worked’ means hours spent wholly and exclusively on ‘core business activities’ in the home with core business activities comprising the provision of goods and/or services, the maintenance of business records and marketing and obtaining new business.
Example - John worked 60 hours from home for a period of 10 months, and worked 110 hours during two particular months. He can claim the following amount against his income for tax purposes:
10 months x £18.00 = £180.00
2 months x £26.00 = £52.00
Total amount claimed = £232.00 - Living at the business premises
Some businesses use their business premises as their home, for example, hotels and guesthouses. Where a premise is used for both business and private use, the business owner may, instead of making the standard deduction outlined above, make a deduction for the non-business use. The allowable deduction will therefore be the amount of the expenses incurred, less the non-business use amount. The non-business use amount is the sum of the applicable amounts (see below) for each month, or part of a month, falling within the period in question (usually the tax year). The applicable amounts are as follows:
Number of relevant occupants Applicable amount
3 or more £650
A relevant occupant is someone who occupies the premises as a home, or someone who stays at the premises otherwise than in the course of the trade.
Example - Sandy runs a guesthouse and also lives there all year round with her husband. Her overall business expenses are £10,000. She can claim a flat rate deduction for private use as follows:
12 months x £500 per month = £6,000
Expenses claimed against income £10,000 - £6,000 = £4,000
Where a person claims a flat rate deduction, they are still able to claim a separate deduction for fixed costs such as council tax, insurance and mortgage interest.
Expenses checker - You don’t have to use simplified expenses. You can decide if it suits your business. HMRC provide a simplified expenses checker, which can be used to compare what you can claim using simplified expenses with what you can claim by working out the actual costs. The checker can be found online at https://www.gov.uk/simplified-expenses-checker.
Claims - Anyone wishing to utilise the simplified expenses regime should ensure that they keep records of business miles for vehicles, the number of hours worked at home, and details of people living at the business premises over the year. At the end of the year, work out how much can be claimed and include these amounts of your self-assessment tax return.
Take advantage of interest-free loans
Employers can offer employees a tax-free cheap or interest-free loan of up to £10,000 per year.
Subject to a few conditions, as long as the total amount outstanding on all loans from an employer to an employee does not exceed £10,000 at any time in the tax year, then the loans are ignored for the purposes of the rules on beneficial loans for both income tax and national insurance contributions purposes.
Conditions - No taxable benefit-in-kind will arise where:
• the loan has been made on commercial terms by employers who lend to the general public; or
• the total of all loans made to an employee does not exceed £10,000 at any time in the tax year.
It is important to remember that this is an all or nothing exception. If, however briefly, the loan balance rises above £10,000 at any time in the tax year, then the exception will not be available and the benefit-in-kind will be taxed in full.
Example - In March 2020, Jim (a higher-rate- 40% taxpayer) needs to renew his annual season ticket to travel to work, which costs £8,200. To pay for this out of his take-home pay he would need to earn gross pay of £14,138 (£14,138 less tax at 40% (£5,655) and Class 1 NICs at 2% (£283)).
If his employer gives him an interest-free loan of £8,200 to enable him to buy the season ticket, it only costs Jim the £8,200 he borrows and subsequently repays to his employer. Providing the total of all beneficial loans made to Jim by his employer is less than £10,000, no taxable benefit arises, so the cost of the benefit is nil.
In addition, since the loan is not salary, his employer will not have to pay secondary Class 1 NICs on the amount borrowed.
Individual loans - No taxable benefit arises in respect of loans, however large, if the loan is made by an individual and it can be shown that it was made in the normal course of his/her domestic, family or personal relationships (for example, where the owners of a business make a loan to a son or daughter). HMRC are however, likely to take a close look at cases where such a claim is made.
Tax staff dealing with the tax affairs of an employer will liaise with staff dealing with the business accounts of that employer before agreeing that this exemption applies. If the loan is shown as an asset in the accounts of the employer’s business, HMRC will be less inclined to accept that this was made in the course of a private relationship.
This exemption can only apply where the lender is an individual. It cannot, therefore, apply where a loan is made by a company, even where that company is controlled by somebody with the relevant personal relationship. However, certain loans can be chargeable under the employment-related loan rules where they are made by an individual having a material interest in a close company. In these cases, where the loan is made by the individual with the material interest, the exemption for loans made in the course of personal relationships can still be available.
Similarly, no tax charge can arise if an employee is able to demonstrate that he has derived no benefit from a loan made to a relative of his. This exemption applies to the charge in respect of a loan and also applies where a debt is released or written off.
Loans to directors - Loans to directors are prohibited under the Companies Act 2006, though loans not exceeding £10,000 are permitted and larger loans may now be made with approval of the members.
Auto-enrolment threshold changes for 2020/21
The government has set the bands and thresholds for workplace pensions. These apply for paydays on or after 6 April 2020. For employees between 22 and 74 where you pay at the rate of:
• £6,240 per year, they are entitled to join your workplace pension and contribute to it but they do not have to.
• Between £6,241 and £10,000 per year, they can choose to join your workplace pension. If they do, both you and they must contribute to it.
• More than £10,000 per year, you must auto-enrol them in your workplace pension and both you and they must contribute.
From April 2020 you will only have to contribute to an employee’s workplace pension if they join your scheme and you pay them at the rate of £6,240 or more per year.
HMRC to stop sending paper tax returns
HMRC have announced that from April 2020, as part of paper-saving measures, they will no longer automatically send out blank paper Self Assessment returns.
Instead, taxpayers who have filed paper returns in the past will simply receive a short notice to file telling them that HMRC will in future communicate with them digitally. If they wish to continue filing a paper return they may do so but will need to either phone HMRC to request one or download and print a blank return. Anyone already identified by HMRC as unable to file a return online may still receive a paper return for the 2020/21 tax year in April 2020.
The HMRC paper-saving initiative also means that no blank P45 and P60 forms will be sent out to employers from April 2020. These forms will instead have to be obtained via payroll software.
Structures and buildings capital allowances
A new tax relief for capital expenditure on construction works applies to qualifying expenditure incurred on or after 29 October 2018. Broadly, the structures and buildings allowance (SBA) provides tax relief on the structural elements of a building, where previously there was no relief available. SBA expenditure does not, however, qualify for the capital allowances annual investment allowance (AIA).
The main features of the SBA are summarised as follows:
• The allowance is given at a 2% flat rate over a 50-year period, pro-rated for short tax periods.
• Relief is available for new commercial structures and buildings only, but this can include costs for new conversions or renovations. It may be claimed where all the contracts for the physical construction works were entered into after 28 October 2018.
• Relief is not available for land costs or rights over land.
• The structure can be located in the UK or overseas, business must be in the charge to UK tax.
• Tax relief is limited to the costs of constructing the structure or building, including costs of demolition or land alterations necessary for construction, & direct costs.
• Relief cannot be claimed for costs incurred in applying for and obtaining planning permission.
• The claimant must have an interest in the land on which the structure or building is constructed.
• Relief is not available for dwelling-houses, nor any part of a building used as a dwelling where the remainder of the building is commercial.
• Business expenditure on integral features and fittings of a structure or building that are allowable as expenditure on plant and machinery, continue to qualify for writing-down allowances for plant and machinery including the AIA, up to its annual limit (£1,000,000 until 31 December 2020).
• Where a structure or building is renovated or converted so that it becomes a qualifying asset, the expenditure qualifies for a separate 2% relief over the next 50 years.
The structure must be used for a qualifying activity, taxable in the UK. Qualifying activities are:
• any trades, professions and vocations
• a UK or overseas property business (except for residential and furnished holiday lettings)
• managing the investments of a company
• mining, quarrying, fishing and other land-based trades such as running railways and toll roads
The sale of the asset does not result in a balancing adjustment (the purchaser takes over the remainder of the allowances written down over the remainder of the 50-year period).
Claiming SBAs - Only possible to make a claim from when a structure first comes into use.
The claimant will need an allowance statement for the structure. Where the claimant is the first person to use the structure, a written allowance statement must be created before making the claim & must include information to identify the structure, such as address and description, the date of the earliest written contract for construction, the total qualifying costs, the date the structure was first used for a non-residential activity.
Where a used structure is being purchased, the claimant can only claim SBA if they obtain a copy of the allowance statement from a previous owner.
For any extensions or renovations that were completed after the structure was first used, the claimant can record separate construction costs on the allowance statement or create a new allowance statement.
Record-keeping - A key message is that record keeping and cost segregation will be of paramount importance. In order to claim the allowance, evidence of qualifying expenditure must be produced in the form of an allowance statement, submitted to HMRC. Records can include things like formal contracts, emails or board meeting notes.
Understanding and minimising VAT surcharges
If you’re late submitting your VAT return or paying what you owe, HMRC can fine you. However, financial penalties won’t always apply and if they do they can be mitigated. What steps can you take to minimise them?
VAT penalties and surcharges - While the same principles for penalising errors and omissions from documents etc. apply to the main taxes, VAT has its own system for late returns and payments. Except for some businesses in their first year after registration, HMRC issues a default surcharge notice if either a return or payment is late. The good news is that as long as you aren’t late again within the next twelve months you won’t be fined.
Unlike other taxes, a fine can’t be avoided by agreeing instalment payments with HMRC.
Surcharge window - The surcharge notice indicates the start of a default window. This runs for twelve months from the date the late return/payment was due (but this period can be extended by HMRC) and means you’ll incur a surcharge penalty (fine) if you’re late again within that period. If you’re late one more time the fine is equal to 2% of the amount payable according to the VAT return. This increases to 5%, 10% and then 15% respectively for subsequent late returns or payments.
If you can’t pay the tax, it is still important to submit the return on time to HMRC. This will avoid a different penalty which can apply if you submit a VAT return more than 30 days late.
Minimising or avoiding a fine - The surcharge penalty is a percentage on the unpaid VAT due and doesn’t vary whether you’re one or 60 days late. However, there is a good reason for paying as much of the VAT due as possible on time.
During the periods when the 2% and 5% surcharges apply HMRC waives the fine if the amount that would be payable is less than £400. This means that by making a part payment on time, so that the tax outstanding will be either less than £20,000 for the 2% period or £8,000 for the 5% period you’ll escape the fine.
Example 1. Acom is within a default surcharge period and its VAT return for the quarter ended 30 September 2020 shows £30,000 payable. It pays £10,001 on time, meaning that only the balance of £19,999 is liable to a 2% surcharge, i.e. £399.98. As this amount is less than £400, the surcharge is waived.
Example 2 . In its next VAT quarter Acom’s return shows £25,000. A late return or payment will trigger a 5% surcharge. If Acom pays £17,001 on time the surcharge would be £399.95 ((£25,000 - £17,001) x 5%). As this is also less than £400 HMRC will again waive it.
Third time unlucky - This escape won’t work for the next late payment. Even where earlier surcharges are waived they are still on record and a subsequent late return or payment will result in a surcharge of 10% or 15% of the VAT due even if it’s less than £400. The waiver means that the first surcharge penalty you might have to pay is at the 10% rate, which can be a bit of a shock. However, you can still reduce the amount of the fine by paying as much of the VAT as you can afford by the due date.
The first time you’re late you’ll be on a warning of a fine for twelve months. Further failures in that period result in a fine of 2% and 5% of the VAT due. If you submit your return on time and pay enough VAT so that the fine is less than £400, HMRC will waive it. Submitting your VAT return on time prevents different penalties from applying.
Property rental toolkit - 1
Mistakes in completing self-assessment returns can prove costly. There is the risk that more tax will be paid than is necessary. If tax is understated and HMRC judges that reasonable care has not been taken, there is also the possibility of penalties. However, in seeking to avoid common errors there is help at hand in the form of HMRC’s toolkits.
Toolkits are designed to help agents ensure that client returns are complete and correct. Each toolkit focuses on a particular area and draws attention to common errors which have come to HMRC’s attention. The toolkits each contain:
The toolkits are updated each year to reflect changes in the relevant Finance Act. Although the toolkits are designed with agents in mind, their use is not limited to agents. They are a useful resource for anyone completing a tax return.
Property rental toolkit - A person who owns a property or land and who receives income from that asset will generally be carrying on a property rental business, the profits of which are taxed. Where that person is an individual, the profits and losses from the property rental business need to be returned on the property pages of the self-assessment return. The property rental toolkit provides an awareness of common errors, allowing action to be taken to avoid them.
Record keeping - The first risk area highlighted in the toolkit is that of record keeping. Without complete and accurate records, it is impossible to accurately compute profit; the calculation of profits relies on knowing the income from the property and also the allowable expenses. Failure to keep proper records may mean that:
Property income receipts - All income (with the exception of capital receipts) should be taken into account in computing the profits of the property rental business. Receipts that are not rent but nevertheless represent income of the property rental business are commonly overlooked. It should also be remembered that property income can include payments in kind as well as cash receipts. This situation may arise if the landlord and tenant agree (say) that the tenant will decorate the property in lieu of one month’s rent. Income from casual or one-off letting (e.g. letting a field out for parking during a village show) will also constitute income from a property rental business. However, if this is the only income it may well fall within the property income allowance of £1,000, with the result that it does not need to be reported to HMRC.
Some types of lettings need to be considered separately. This includes profits and losses from overseas properties (which form a separate overseas property rental business) and also that from furnished holiday lettings. Properties which are let out rent-free or at below market rent should also be considered separately to ensure expenses are restricted appropriately. To avoid mistakes when computing the income from the property rental business, the following questions should be considered:
1. Have all gross rents and other receipts from land and property been included as property income as appropriate?
2. Have any deposits received been included as income as appropriate?
3. If a jointly-owned property is let, has the profit or loss been divided up correctly?
4. If there are overseas rental properties, have the profits or losses been treated correctly as income of an overseas property business?
5. If there is commercial letting of furnished holiday accommodation in the UK or the EEA, have all the qualifying conditions been met?
6. If surplus business premises have been let and the rent receivable treated as income of the business, have the associated conditions been met?
Property rental toolkit - 2
Deductions and expenses - Deductions and expenses pose a significant risk area. There is the risk that the landlord will not claim a deduction for all allowable expenses, with the result that more tax will be paid than is necessary. On the other side of the coin is the risk that the landlord will claim a deduction for items which are not allowable, understating profits and running the risk of a penalty. Expenses are only deductible if they are incurred wholly and exclusively for the purposes of the business. Subject to the deductions for capital expenses permitted under the cash basis capital expenditure rules, they must be revenue rather than capital in nature. Distinguishing between capital and revenue expenditure is not always straightforward, and risks may arise.
Risks also arise where the expense has a dual purpose and is partly private in nature and partly business in nature. A deduction for the business proportion is permitted where this can be separately identified and meets the wholly and exclusively test. Changes to the treatment of finance costs are being phased in with the method of relief switching from relief by deduction to relief as a basic rate tax reduction. Care should be taken to ensure that the split is correct for the tax year in question. Guidance on the rules can be found in HMRC’s Property Income manual at PIM2054.
The following questions should be considered in relation to deductions and expenses:
1. Have all items of expenditure on the improvement of an asset been treated correctly?
2. Have any legal and other professional fees incurred in acquiring an asset been allocated appropriately?
3. Has all expenditure on essential repairs to a newly-acquired property been treated correctly?
4. If expenditure is incurred prior to the commencement of the property rental business has been claimed, have all of the conditions been met?
5. Have capital repayments been excluded from loan interest and finance charges?
6. Has the finance costs restriction been applied to mortgage interest and other finance costs incurred?
7. Have any dual purpose expenses been apportioned in respect of any property used only partly for rental business?
8. If a vehicle has been used by a landlord for non-business travel, including home to work, has only the business travel been claimed?
9. Are all expenses claimed by the landlord for business trips wholly and exclusively for the purpose of the property rental business?
10. Where wages and salary costs are being claimed, have employment taxes been applied appropriately?
11. If there have been wages or salaries paid to relatives or connected parties, are the amounts commensurate with their duties?
12. If a property has been let rent-free or at less than the normal market rate, has any expenditure been restricted accordingly?
Relief and allowances - Overlooking reliefs and allowances can prove costly for the landlord. Reliefs that may be in point include:
rent-a-room relief where a furnished room is let in the landlord’s home;
the property allowance of £1,000, which can be deducted in place of actual expenses;
replacement of domestic items relief;
capital allowances on certain items owned by the landlord, such as tools, ladders, and motor vehicles, which are used in the property business; and
mileage allowances in place of the actual costs of using a vehicle.
Care should be taken when claiming reliefs that all the associated conditions are met.
Losses - Rental losses from a property rental business can only be carried forward and set against future profits of the same property rental business. Likewise, losses arising on furnished holiday lettings can be carried forward and set against profits of the same business. Losses from one rental business cannot be utilised by another property business operated by the landlord at the same time in a different capacity. Care should be taken that losses are computed and utilised correctly. Overseas landlords Landlords living abroad should be aware of the rules under the non-resident landlord scheme.
Determining whether goodwill exists in a business
A business generally comprises various assets, one of which is often goodwill. However, a new business will not normally have goodwill; the goodwill of a business is broadly the advantage of the reputation and connection with customers that the business possesses. A new business will not usually have a ‘name’ or reputation as such. Goodwill is not necessarily reflected in the accounts of a business, even if goodwill exists. The business may have built up its goodwill from scratch over time. HM Revenue and Customs (HMRC) confirms: ‘The fact that goodwill may not be reflected in the balance sheet of a business does not mean that it does not exist’. However, in some cases HMRC may contend that there is little or no goodwill in the business.
For example, if the goodwill is attributable to the personal skills of the proprietor (e.g. a chef or mobile hairdresser), HMRC’s view is that such ‘personal’ goodwill is not transferable on a sale of the business. Thus if a business with personal goodwill is sold to a company upon incorporation of the business (with the proceeds being left outstanding as a loan owed to the proprietor, which is repaid by the company as funds allow), there is a danger that the value of the goodwill transferred will be lower than anticipated because of the personal goodwill element, which HMRC considers cannot be transferred to the company.
There may be circumstances where HMRC argues there is no goodwill in the business whatsoever. This might happen if an asset such as land or buildings generates one or more income streams; HMRC could contend that the income streams do not represent goodwill. For example, in The Leeds Cricket Company Football Sr Athletic Company Limited v Revenue and Customs  UKFTT 559 (TC), the appellant (‘the company’) contracted with Yorkshire County Cricket Club for the sale and purchase of freehold property at Headingley cricket stadium. Prior to the sale, the company carried on a cricket business comprising hospitality (i.e. finding clients and organising/attending meetings), advertising (i.e. selling advertising packages for boards at the ground), and catering (i.e. 19 full-time staff were employed to provide meals and refreshments to stadium visitors on cricket days).
The issue was whether the sale involved: (a) a disposal of a business with attached goodwill; or (b) only a disposal of land with attached income streams. The First-tier Tribunal found that distinguishing between certain goodwill types (i.e. inherent (or ‘site’) goodwill and adherent (or ‘free’) goodwill) was an ‘artificial exercise’. The tribunal concluded that the cricket business (with attached goodwill) was transferred together with the property. The transfer was not merely a transfer of land with attached income streams. The appellant’s appeal was allowed.
For a helpful summary of points to consider when seeking to establish whether goodwill exists, see Balloon Promotions and Others v Wilson (Inspector of Taxes) and another  SpC 524, at paras 159-169. Even if goodwill contains a personal (non-transferable) element, there may also be elements of non-personal goodwill.
New advisory fuel rates
HMRC has updated its advisory fuel rates (AFRs) for fuel costs for company cars from 1 March 2020. However, you can use the old rates (shown in brackets in the table below) until 31 March 2020. Employers and employees can compensate each other at the appropriate AFR for the cost of fuel paid for by the other party to avoid a car fuel benefit charge from arising. You can work out and use your own fuel consumption rates if you prefer.
HMRC’s advisory fuel rates changed slightly for some vehicles on 1 March 2020. If you don’t find that the rates are suitable, you can work out your own.
An informal company wind-up
Capital or income
Usually, when a company distributes its profits to its shareholders they are liable to income tax on the payments they receive. However, a special rule means that distributions made in the course of winding up a company are taxed as capital instead. This provides tax-saving opportunities.
Example. Owen and Jane are equal shareholders of Acom Ltd. Both are higher rate taxpayers. They decide to close the business and appoint a liquidator to wind up the company. All distributions of profit left in Acom from this point are capital meaning that Owen and Jane can deduct any unused part of their capital gains tax (CGT) annual exemption (£12,000 for 2019/20) and pay tax on the balance at a maximum of 20%. Assuming Acom has £98,000 to distribute in total, Owen and Jane would each be liable to CGT on £49,000. If their CGT exemptions are available in full they would each have to pay tax of up to £7,400 (£49,000 - £12,000) x 20%) but it would be less if they were entitled to entrepreneurs’ relief (ER).
By comparison, if Acom distributed its profits before starting the winding up process, Owen and Jane would each be liable to income tax of at least £15,925 (£49,000 x 32.5%). By comparison the CGT bill is less than half that, but there’s still room for further tax saving.
Winding up costs
Usually, the tax advantage of capital distributions is only available when you appoint a liquidator to wind up your company. The trouble is a liquidator’s fees can be high and, depending on the value of your company, might significantly eat into or even outweigh the tax saving achieved.
Rather than paying a liquidator to wind up your company you could do it yourself informally by notifying Companies House of your intention. However, CGT treatment will only apply if the amounts available to distribute are no more than £25,000 - any more than that and the whole of any distribution is taxed as income.
Reduce the distributable amount
If your company’s net value is more than £25,000 you’ll need to reduce it before you can use the informal winding up tax break. That will require you to make distributions from your company on which you’ll have to pay income tax. Despite this you can still save on tax and costs. You’ll need to crunch the numbers to see if it’s worthwhile.
Example. Shaun is a higher rate taxpayer and the only shareholder of Bcom Ltd. It has distributable reserves of £35,000. Shaun could formally liquidate Bcom so that what he receives, after paying the liquidator’s fees of, say, £3,000, is liable to CGT. This would leave him with £28,000 after tax. If instead he paid a dividend of £10,000 and then applied to Companies House to dissolve the company, he would net £29,150. Not a massive tax saving but Shaun also avoids the time and red tape that goes with a formal liquidation.
Reduce the value of your company to £25,000 by making distributions to shareholders and informally winding up the company. This will save the cost of a liquidator’s fees. Plus, each shareholder can use their annual capital gains tax exemption to reduce the amount on which they pay tax on their share of the final £25,000 distributed from the company.
New reporting procedure for cars
New tax rates for zero and low emission company cars mean that from 6 April 2020 employers must provide more information to HMRC.
Lower tax bills.
There is a significant reduction in tax bills for drivers of electric and hybrid company cars which will apply for 2020/21. The changes will also benefit employers by reducing the amount of car benefit on which you have to pay Class 1A NI. As a result, HMRC is making changes to its reporting procedures for employers.
New Forms P46 car.
If after 5 April 2020 an employee’s company car is changed or they have use of one for the first time, and it’s a zero or low emissions car, you’ll need to notify HMRC in the new box that will be added to the P46 car. If it’s a hybrid with CO2 emissions of between 1g/km and 50g/km you must enter the vehicle’s zero emission mileage, i.e. the maximum distance it can be driven in electric mode without recharging. If you payroll your company car benefits, there will be a new field on the PAYE full payment submission in which to enter the mileage details.
If you use a paper P46 car rather than the online version, make sure that you download and use the new-style form. Destroy any old-style forms. The new forms will be available to download from 6 April 2020.
If you’re leasing a hybrid vehicle, the leasing firm is required to provide you with the mileage information. If you own the vehicle, the zero emission mileage figure can be found on its “certificate of conformity”. If this isn’t available you can obtain the figure from the manufacturer.
Existing company car users.
You aren’t required to notify HMRC about employees who currently use electric or hybrid cars and continue with the same vehicle after 5 April 2020. However, it would be helpful if you notified the employees that their tax bills might reduce and that they should contact HMRC as soon as possible to check if their code number needs to be amended.
There will be a new P46 car (online and paper versions) from 6 April 2020. Destroy any old paper versions. For hybrid cars you must provide details of the vehicle’s electric only range as shown on the certificate of conformity.
When can selling your home trigger a tax bill?
From April 2020 if you sell your home changes to capital gains tax private residence relief (PRR) mean that you’re at greater risk of being hit with HMRC penalties. Why, and what are the must-know PRR rules?
Post-5 April 2020 gains - If on or after 6 April 2020 you make a gain from selling your home which isn’t covered by private residence relief (PRR), you’ll have just 30 days to notify HMRC, work out and pay any tax due. Whereas you currently have up to 20 months to mull over the finer points of PRR, from April you’ll have only 30 days from completion.
The date a capital gain occurs is when contracts are exchanged and not when the sale is completed. For example, if contracts are exchanged on 31 March 2020 and completion is on 29 May 2020, any gain is before 6 April 2020 and so the new 30-day rule doesn’t apply.
Private residence relief limitations - In the simplest of circumstances, i.e. where you bought and lived in only one home before selling it, PRR will reduce the taxable amount of any gain to zero. But if at any time while you owned the property you lived elsewhere, worked from home or owned a second home, you will need to consider if PRR should be limited. If so, part of the gain may be liable to capital gains tax (CGT) and the new 30-day reporting rule will apply.
PRR and periods of absence - The good news is that periods where you haven’t occupied your home can be ignored. That is, PRR will apply regardless. From 6 April 2020 absences falling into this category are:
Business use - If at any time you’ve used all or part of your home for business (not for your work as an employee) a proportion of the gain won’t qualify for PRR. This is worked out according to the area or value of the part used for business and the amount of time it was used for. Where you used part of your home exclusively for your job as an employee, PRR is reduced proportionately according to the time and area/value used for work. If you used no more than one room in your home for your job as an employee by concession HMRC will accept no apportionment of PRR is required.
If you make a capital gain from the sale of your home, you may be required to report details and pay tax within 30 days of completion. PRR might not apply in full and so taxable gains might arise if you’ve lived away from your home or used any part of it for work. However, special rules may mean you can ignore periods of absence.
Using CEST employment status determinations
Under the off-payroll working rules as extended from 6 April 2020, medium and large public sector organisations that engage workers who provide their services through an intermediary, such as a personal service company, must determine the status of the worker as if the services were provided directly rather than through an intermediary. If the worker is within the off-payroll working rules, the end client (or fee payer where different) must deduct tax and National Insurance from payments made to the worker’s intermediary, and also pay employer’s National Insurance.
Where the end client is a small private sector organisation, it is the worker’s intermediary that must undertake the status determination in order to ascertain whether IR35 applies.
HMRC’s CEST tool - HMRC’s Check Employment Status for Tax (CEST) tool can be used to find out whether a worker is employed or self-employed or whether the off-payroll working rules apply. The CEST tool was updated and enhanced at the end of 2019 in preparation for the extension of the off-payroll working rules.
The tool asks a series of questions about the contractual relationship between the worker and the engager. The following information is required:
• details of the contract
• the responsibilities of the worker
• who decides what work needs doing and when and where
• how the worker is paid
• whether the engagement includes any corporate benefits or reimbursement of expenses
In order to reach a decision on the worker’s status, the user works through the questions selecting the answer most appropriate to their circumstances from those available. The answers given are used to provide a result.
The tool can be used anonymously – there is no requirement to provide personal details.
It is not possible to save information entered into CEST so that the user can return to it later – it must be completed in one session.
Possible outcomes - The CEST tool will provide a result determined from the answers provided. These can be reviewed before obtaining the result.
The possible outcomes are:
• off-payroll working rules (IR35) do not apply
• off-payroll working rules (IR35) apply
• unable to make a determination (for whether the off-payroll working rules apply)
• self-employed for tax purposes for this work
• employed for tax purposes for this work
• unable to make a determination (for employed or self-employed for tax purposes).
The tool will provide a reason as to why CEST reached the determination it reached.
Reliance on decision - HMRC have confirmed that they ‘will stand by the result produced by the service provided that the information is accurate, and is used in accordance with [their] guidance’.
A copy of the output should be retained.
However, HMRC warn that they will not stand by results achieved using contrived arrangements.
Use by end clients - Medium and large private sector organisations and public sector bodies that use workers providing their services through an intermediary can use CEST to fulfil their obligation to make a determination under the off-payroll working rules.
They should print off the determination and give a copy of it with the reasons for it to the worker and other parties in the chain. They should also keep a copy.
Use by workers - Workers supplying their services to small end clients can use the CEST tool to check whether they need to apply the IR35 rules. Where they receive a determination under the off-payroll working rules, they can use CEST to check that they agree with it, and to challenge it if they do not.
Preparing for year-end PAYE
HMRC has issued its last-minute advice for employers about submitting their final PAYE reports for 2019/20 and preparing for 2020/21.
End of year.
As usual, this time of year is a busy one for employers. There are several routine but important actions you need to take plus one or two new ones for 2020/21.
When you run your last payroll for 2019/20 you must use the final submission indicator in the full payment submission (FPS) to notify HMRC or it will assume there’s more to come and bombard you with reminders. If your software won’t accept the final report indicator on an FPS, submit an employer payment summary (EPS) with the indicator ticked instead. If you simply forgot to use the indicator, send an EPS with the indicator ticked to show that you didn’t pay anyone in the final pay period and use the final submission indicator. The deadline for your final FPS or EPS for 2019/20 is 19 April. If you find a mistake in your 2019/20 figures, there are different ways to correct it depending on the software you use.
Updating codes for 2020/21.
HMRC has just completed the issue of P9 notice of coding email and paper notifications of new tax codes which you must apply for your employees. The codes have been calculated using 2019/20 rates and thresholds because those for 2020/21 will not be definite until any changes announced in the Budget are made. If this is the case, you’ll receive a P6b notice with detail of the new codes which you should implement on the next payroll run.
Changes to the employment allowance mean that entitlement will not be automatically carried forward to 2020/21 and you must include a claim through your payroll software. Don’t forget to download and install the updated payroll app from your software provider or HMRC’s “Basic PAYE Tools”. Finally, check that your employees’ pay is at least equal to the new national minimum/living wage rates which apply from 6 April.
Make sure the “final submission” indicator is used for your last payroll run for 2019/20 by 19 April, you claim the employment allowance for 2020/21 and your employees’ pay is at least equal to the new national minimum wage rates.
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.
Winding up your personal service company
Come April, many workers who have been providing their services through an intermediary, such as a personal service company, may find that their company is no longer needed. This may be because they fall within the off-payroll working rules, with the result that because tax and National Insurance is deducted from payments made to the intermediary, the tax advantages associated with operating through a personal service company are lost. Alternatively, it may be because their end client does not want the hassle of operating the off-payroll working rules and has decided only to use ‘on-payroll’ workers, putting workers previously using personal service companies on the payroll.
Where the personal service company is not needed, the question arises as how best to wind it up and extract any remaining cash.
Striking off can be an attractive option where the personal service company can pay its debts and has less than £25,000 left in the company to extract.
The advantage of this route is that sums paid out in anticipation of the striking off are treated as capital rather than as a dividend, with the result that the capital gains tax annual exempt amount, if available, can be used to reduce the taxable amount. Where entrepreneurs’ relief is available, any taxable gain is taxed at only 10%. To qualify for this treatment, the company must be struck off within two years of making the last distribution.
If the amount left to extract is less than £25,000, but it would be preferable for it to be taxed as a dividend, for example, because the dividend allowance and/or the personal allowance are available or the distribution would be taxed at the lower dividend rate of 7.5%, striking off can still be used. However, to prevent the capital treatment applying, it would be necessary to breach one of the conditions so that the dividend treatment applies instead. This can be achieved by waiting more than two years from the date of the last distribution before striking off.
Members’ voluntary liquidation (MVL)
Where the funds left to extract are more than £25,000 and it would be beneficial for them to be taxed as capital – for example, to benefit from entrepreneurs’ relief or to utilise an unused annual exempt amount, the members’ voluntary liquidation (MVL) procedure can be used.
An MVL is a formal procedure; the director(s) must provide a sworn affidavit that creditors will be paid in full and a liquidator must be appointed.
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Adrian Mooy & Co Ltd - 61 Friar Gate Derby DE1 1DJ -
Adrian Mooy & Co is the trading name of Adrian Mooy & Co Ltd. Registered in England No. 05770414.
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