Contact us

Map

 01332 202660

email

background

OUR

PROCESS

GET IN TOUCH
WITH US

GET TO KNOW

US

BLOG

SHARE

SHARE

CONNECT

CONNECT

POST

POST

DISCUSS

DISCUSS

       Services

61 Friar Gate  Derby  DE1 1DJ

 

Registered to carry out audit work Association of Chartered Certified Accountants.

www.auditregister.org.uk under number 8011438

Member of the Association of Chartered Certified Accountants
Phone

01332 202660

Blog

HMRC will get a higher priority when firms go bust

Adrian Mooy - Wednesday, June 26, 2019
 
From April next year, HM Revenue & Customs (HMRC) will rank third, just after secured creditors such as banks and insolvency practitioners in order to recover additional outstanding tax from failing businesses.

 

Currently, HMRC is ranked alongside unsecured creditors, such as suppliers, trade creditors, contractors and customers, who on average rarely recover more than four per cent of debts owed.

 

However, the change will mean that they are now likely to recover a higher percentage of tax, which will contribute around £185 million extra a year to the public coffers, according to the Government.

 

The taxman’s new ‘third place’ position in respect of employment taxes and national insurance contributions means that its claims will jump ahead of floating charges from secured creditors, such as debt provided by financial institutions.

 

The VAT paid by customers on goods will also jump up the queue, although claims relating to other charges, such as corporation tax, still rank alongside other unsecured creditors.

 

This latest decision is a reverse of the previous crown preference arrangements that were removed in 2003. These were abolished after a record number of smaller corporate entities began winding up in the late 1990s following concerns that HMRC was inadvertently pushing them into liquidation through its tax recovery activities.

 

Revenue tests new trigger to increase the accuracy of PAYE codes

Adrian Mooy - Tuesday, June 25, 2019

 

HM Revenue & Customs (HMRC) is trialling a new trigger, which is intended to improve the accuracy of employees’ PAYE tax codes.

 

According to HMRC, as many as half a million tax codes being used by employers across the UK could be incorrect, leading to employees either overpaying or underpaying tax.

 

To address the problem, HMRC is making changes to dynamic coding, which began its rollout in July 2017.

 

Dynamic coding is designed to make use of the additional information HMRC is now receiving from employees and employers to recalculate pay estimates during the course of the tax year.

 

Now HMRC is adding mismatches between its records and those of employers to the list of events that can trigger a recalculation.

 

As part of the initiative, HMRC is also placing a renewed emphasis on ensuring that employers complete new starter checklists properly and will be visiting the 100 worst offending employers when it comes to failing to complete the new starter process.

New code launched to help protect victims of sophisticated banking fraud

Adrian Mooy - Monday, June 24, 2019
 
A new code has been launched by 17 UK banks to protect customers who fall victim to a sophisticated form of fraud known as Authorised Push Payment (APP) scams.

 

APP scams involve tricking people into making payments to fraudsters, who are masquerading as legitimate payees.

 

Victims of these scams who notify the banks signed up to the new code will now be informed within 15 working days whether they will be reimbursed for their losses.
 
Where a person is not satisfied with their bank’s response, they can refer their complaint to the Financial Ombudsman Service.

 

Chris Hemsley, Co-Managing Director at the Payment Schemes Regulator (PSR), said: “APP scams can have a devastating impact on the people who fall victim to them.
 
The code is a major step-up in protections and it reflects our strong belief that if somebody has done everything they can reasonably do to protect themselves, they should be reimbursed. I welcome the commitment that these banks have made to their customers.

 

“There has been a significant amount of work by consumer groups and the industry to develop and deliver this code and we are really pleased that these new protections are now available.”

 

MTD for VAT – relaxation on posting supplier statements

Adrian Mooy - Saturday, June 22, 2019

 

HM Revenue & Customs (HMRC) has updated its VAT notice regarding Making Tax Digital (MTD) for VAT to relax several of the digital recordkeeping requirements.

 

One of the changes, secured with the help of the Chartered Institute of Taxation (CIoT), relates to purchase invoices from suppliers.

 

It has become apparent in sectors that receive a high number of purchase invoices from the same company, that they are having to file multiple almost identical records, which is becoming very onerous.

 

MTD for VAT requires each individual supply or invoice to be entered as a new digital record.

 

However, a relaxation to the rules has been agreed, which will enable businesses to capture their digital records information from supplier statements, rather than from each individual invoice, as long as “all supplies on the statement are to be included on the same return and the total VAT charged at each rate is shown”. This change will only apply to purchases and not sales.

 

HMRC has also agreed to review the requirement for petty cash. Currently, the strict requirement is to record each individual supply, or at least each individual invoice/receipt, within a company’s digital records.

 

Instead, the updated VAT notice says that petty cash transactions can now be added up and summary totals entered as an alternative digital record.

 

The notice states: “This applies to individual purchases with a VAT-inclusive value below £50 and the total value of petty cash transactions recorded in this way cannot exceed a VAT-inclusive value of £500 per entry.”

 

The third and final relaxation of the rules relates to charity fundraising events run by volunteers. Under the new guidance the total values of supplies made can be entered as a single transaction, and similarly for supplies received.

 

HMRC has told the CIoT that it will not currently be seeking to apply record-keeping penalties where a business is clearly trying to comply with the requirements of MTD. This is in line with their previous promise of providing a ‘soft landing’ period in the first year of the new digital tax regime.

Furnished holiday lettings – is it worth qualifying?

Adrian Mooy - Friday, June 21, 2019
 
When it comes to taxing rental income, not all properties are equal. Different rules apply to properties which meet the definition of ‘furnished holiday lettings’ (FHLs). While the rules now are not as generous as they once were, they still offer a number of tax advantages over other types of let.
 
Advantages

 

Properties that count as FHLs benefit from:

 

 • capital gains tax reliefs for traders (business asset rollover relief, entrepreneurs’ relief, relief for business assets and relief for loans for traders); and
 • plant and machinery capital allowances on items such as furniture, fixtures and fittings.

 

In addition, the profits count as earnings for pension purposes.
 
What counts as FHLs?

 

For a property to count as a FHL it must meet several tests. It must be in the UK or the European Economic Area (EEA), it must be furnished and it must be let commercially (i.e. with the intention of making a profit).
The property must also pass three occupancy conditions. The tests are applied on a tax year basis for an ongoing let, the first 12 months for a new let and the last 12 months when the let ceases.
 
The pattern of occupancy condition

 

The total of all lettings that exceed 31 continuous days in the year cannot exceed 155 days. If continuous lets of more than 31 days total more than 155 days in the tax year, the property is not a FHL.
 
The availability condition

 

The property must be let as furnished holiday accommodation for at least 210 days in the tax year. Periods where the taxpayer stays in the property are ignored as during these times the property is not available for letting.
 
The letting condition

 

The property must be commercially let as furnished holiday accommodation for at least 105 days in the year. Periods where the property is let to family or friends at reduced rate or free of charge are ignored as they do not count as commercial lets. Lets of longer than 31 days are also ignored, unless the let only exceeds 31 days as a result of unforeseen circumstances, such as the holidaymaker being unable to leave on time as a result of a delayed flight or becoming too ill to travel.
 
Second bite at the cherry

 

If seeking to secure FHL status, but the property does not meet the letting condition, all is not lost. Where the landlord has more than one property let as a FHL and the average rate of occupancy across the properties achieves the required 105 let days in the year, the condition can be met by making an averaging election.

 

A property may also be able to qualify if there was a genuine intention to meet the letting condition but this did not happen and the other occupancy conditions are met by making a period of grace election.

 

Further details on making averaging and period of grace elections can be found in HMRC helpsheet HS253 (see www.gov.uk/government/publications/furnished-holiday-lettings-hs253-self-assessment-helpsheet).
 
Is it worth it?

 

While FHLs do enjoy favourable tax treatment, these are only available if the associated conditions are met. While FHLs, particularly in prime tourist locations, may be able to command high rental values in high season, the properties may lay empty for several weeks in the off season. By contrast, a longer term let will offer an element of security that multiple short lets may not provide. The decision as to whether striving to meet the conditions is worth it, is, as always, a personal one.

 

 

Stamp duty land tax on non-residential properties

Adrian Mooy - Thursday, June 20, 2019

 

 
Stamp duty land tax (SDLT) is payable in England and Northern Ireland on the purchase of property over a certain price. It applies equally to residential and non-residential properties, although the rates are different. Stamp duty land tax is devolved with land and buildings transaction tax (LBTT) applying in Scotland and land transaction tax (LTT) applying in Wales.
 
Non-residential property
 
As the name suggests, non-residential property is property other than that which is used as a residence. This includes commercial property, such as shops and office, agricultural land and forests. The non-residential rates of SDLT also apply where six or more residential properties are brought in a single transaction.
 
Mixed use properties
 
The non-residential rates of SDLT also apply to mixed use properties. These are properties which have both residential and non-residential elements. An example of a mixed use property would be a shop with a flat above it.
 
Rates
 
SDLT is charged at the appropriate rate on each ‘slice’ of the consideration. No SDLT is payable where the consideration is less than £150,000, or on the first £150,000 of the consideration where it exceeds this amount.
 
The rates of SDLT applying to non-residential properties are shown in the table below. They also apply to the lease premium where the property is leasehold rather than freehold.
 
Consideration                                               SDLT rate
 
Up to £150,000                                                  Zero
The next £100,000
(i.e. the ‘slice’ from £150,001 to £250,000)       2%
Excess over £250,000                                       5%
 
Example

 

ABC Ltd buys a commercial property for £320,000. SDLT of £5,500 is payable, calculated as follows.
 
On first £150,000 @ 0%             £0
On next £100,000 @ 2%            £2,000
On remaining £70,000 @ 5%     £3,500
Total SDLT payable                    £5,500
 
New leasehold sales and transfers
 
The purchase of a new non-residential or mixed use leasehold property triggers a SDLT liability on the purchase price (the lease premium) and also on the annual rent payable under the lease (the net present value). The two elements are calculated separately and added together.
 
The lease premium element is calculated using the rates above, while the rent element is payable at the rates in the table below. No SDLT is payable on the rent if the net present value is less than £150,000.

 

Net present value of the rent       SDLT rates
 
£0 to £150,000                                 Zero
£150,001 to £5,000,000                   1%
Excess over £5,000,000                   2%
 
Existing leases

 

SDLT is only payable on the lease price where an existing lease is assigned.
 
SDLT calculator

 

HMRC have published a handy calculator on the Gov.uk website which can be used to work out the SDLT payable on a commercial transaction. It can be found at www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro.

 

Scotland and Wales

 

The rates of LBTT payable on the purchase of non-residential properties in Scotland can be found at www.revenue.scot/land-buildings-transaction-tax/guidance/calculating-tax-rates-and-bands and the rates of LTT payable on the purchase of non-residential properties in Wales can be found at https://gov.wales/land-transaction-tax-rates-and-bands.

 

Annual tax on enveloped dwellings

Adrian Mooy - Tuesday, June 18, 2019

 

The annual tax on enveloped dwellings (ATED) is a tax that applies, in the main, to companies owning residential property which is valued at more than £500,000.

 

The tax only applies on properties that are classed as ‘dwellings’. This is a property where all or part of it is used as a residence, for example a house or a flat. The ‘dwelling’ also includes the property's gardens or grounds. However, properties such as hotels, guest houses, boarding school accommodation and student halls of residence fall outside the definition of a ‘dwelling’, and thus outside the scope of the tax.

 

Valuing the property

 

The tax only applies to dwellings with a value of at least £500,000. The amount of the charge depends on the value of the dwelling. Therefore, it is necessary to know the value of any residential property owned wholly or partly by a company (or a partnership with at least one corporate partner). The key date is the valuation date. From 1 April 2018 the valuation date is 1 April 2017. If the property was acquired after 1 April 2017, the value is the date of acquisition.

 

The valuation is an open market valuation. How much is the charge? The charge is an annual charge payable for the period from 1 April to the following 31 March. The chargeable amount for 1 April 2019 to 31 March 2020 is shown in the following table.

 

Property value                                           Annual charge

 

More than £500,000 up to £1 million                    £3,650

 

More than £1 million up to £2 million                    £7,400

 

More than £2 million up to £5 million                  £24,800

 

More than £5 million up to £10 million                £57,900

 

More than £10 million up to £20 million            £116,100

 

More than £20 million                                       £232,350

 

Payment and returns

 

An ATED return must be filed by 30 April each year. The return should be filed using HMRC’s ATED online service. An agent can be appointed to file the return on the company’s behalf. The tax must also be paid by 30 April.

 

Partner note: FA 2013, Pt. 3 (ss. 94—174, Sch. 33 – 35).

Give from income to save inheritance tax

Adrian Mooy - Monday, June 17, 2019

 

Within a family scenario, there are many situations in which one family member may make a gift to other family members. However, the way in which gifts are funded and made can make a significant difference to the way in which they are treated for inheritance tax purposes.

 

Not all gifts are equal

 

There is no inheritance tax to pay on gifts between spouses and civil partners. A person can make as many lifetime gifts to their spouse or civil partner as they wish (as long as they live in the UK permanently). There is no cap on the value of the gifts either.

 

Other gifts may escape inheritance tax if they are covered by an exemption. This may be the annual exemption (set at £3,000 per tax year), or a specific exemption such as that for gifts on the occasion of a marriage or civil partnership or the exemption for ‘gifts out of income’.

 

Gifts that are not covered by an exemption will counts towards the estate for inheritance tax purposes and, if the donor fails to survive for at least seven years from the date on which the gift was made, may suffer an inheritance tax bill if the nil rate band (currently £325,000) has been used up.

 

Gifts from income

 

The exemption for ‘normal expenditure out of income’ is a useful exemption. The exemption applies where the gift:

 

 • formed part of the taxpayer’s normal expenditure;

 

 • was made out of income; and

 

 • left the transferor with enough income for them to maintain their normal standard of living.

 

All of the conditions must be met for the exemption to apply. Where it does, there is no requirement for the donor to survive seven years to take the gift out the IHT net.

 

What counts as ‘normal’ expenditure?

 

For the purposes of the exemption, HMRC interpret ‘normal’ as being normal for the transferor, rather than normal for the ‘average person’.

 

To meet this condition it is sensible to establish a regular pattern of giving –for example, by setting up a standing order to give a regular monthly sum to the recipient. It is also possible that a single gift may qualify for the exemption if the intention is for it to be the first of a series of gifts, and this can be demonstrated. Likewise, regular gifts may not qualify if they are not made from income.

 

In deciding whether a gift constitutes normal expenditure from income, HMRC will consider a number of factors, including:

 

 • the frequency of the gift;

 

 • the amount;

 

 • the identity of the recipient; and

 

 • the reason for the gift.

 

The amount of the gift is an important factor – to meet the test the gifts must be similar in amount, although they do not have to be identical. Where the gift is made by reference to a source of income that is variable, such as dividends from shares, the amount of the gift may vary without jeopardising the exemption.

 

Gifts will normally be in the form of money to the recipient, or a payment on the recipient’s behalf, such as school fees or a mortgage. The reason for making a gift may indicate whether it is made habitually – for example, a grandparent may makes a gift to a grandchild at the start of each university term to help with living costs. It is also important that having made the gift, the donor has sufficient income left to maintain his or her lifestyle.

 

When making gifts from income, check that they may meet the conditions to ensure that the exemption is available.

Travel expenses and the 24-month rule

Adrian Mooy - Saturday, June 15, 2019

 

As a general rule, employees are denied a tax deduction for the cost of travel between home and work. Likewise, subject to a few limited exceptions, if the employer meets the cost of home to work travel, the employee is taxed on it.

 

One of the main exceptions to this rule is where an employee attends a ‘temporary workplace’. This is a workplace that the employee goes to in order to perform a task of limited duration or one that he attends for a temporary purposes, even if the attendance is on a regular basis.

 

Example 1

 

Polly is based in the Milton Keynes office. She is seconded to the Bedford office for 12 months to cover an employee’s maternity leave. At the end of the secondment, she will return to the Bedford office.

 

The Bedford office is a temporary workplace.

 

Consequently, Polly is allowed a deduction for travel from her home to the Bedford office.

 

Example 2

 

James is a health and safety officer. He is based in the Liverpool head office. Each week he visits factories in Manchester and Bury to carry out safety checks. The factories are temporary workplaces as each visit is self-contained.

 

Consequently, James is allowed a deduction for travel expenses incurred in visiting the factories, even if he travels there from home.

 

24-month rule

 

A workplace does not count as a temporary workplace if the employee attends it in a period of continuous work which lasts, or is expected to last more than 24 months. A ‘period of continuous work’ is one where the duties are performed at the location in question to a ‘significant extent’. HMRC regard duties being performed to a 'significant extent' at a particular location if an employee spends 40% or more of their working time there.

 

The upshot of this rule is that where the employee has spent, or is likely to spend, 40% of their working time at the location in question over a period of more than 24 months, that location will be a permanent location rather than a temporary location. Consequently, home to work travel is ‘ordinary commuting’ (travel between home and a permanent workplace), which is not deductible.

 

It is important to appreciate that both parts of the test must be met for the workplace to be a permanent workplace – more than 40% of time spent there and over a period of more than 24 months.

 

Example 3

 

George is employed full-time at a care home in Southampton, a role which he has held for four years. He is sent to full-timework at a new care home in Bournemouth for three years, after which time he will return to the Southampton care home.

 

Although the move to the Bournemouth posting is not permanent, the posting lasts more than 24 months and, as such, the Bournemouth home does not qualify as a temporary workplace.

 

Consequently, George is not allowed a deduction for the cost of travelling from home to the Bournemouth care home.

 

Change of circumstances

 

Circumstances can and do change. If at the outset a posting is expected to last 24 months, the workplace will be treated as a temporary workplace. If later the posting is extended so that it will last more than 24 months, the workplace ceases to be a temporary workplace from the date that it becomes apparent the posting will exceed 24 months.

 

Fixed term appointments rule

 

An employee undertaking a fixed-term appointment is not entitled to relief for home to work travel, even where it lasts less than 24 months, if the employee attends the workplace for all, or almost all of the period which they are likely to hold the appointment.

 

Example

 

Imogen takes on a 12-month contract at an office in Marlow. Although the appointment is less than 24 months, the Marlow office is not a temporary workplace as Imogen works there for duration of the contract.

 

Tax exemption

 

If the employer pays or reimburses travel expenses which would be deductible if met by the employee, the payment or reimbursement is exempt from tax.

 

ITEPA 2003, ss. 289A, 338, 339;


Beware disposals to family members – the ‘market value’ rule

Adrian Mooy - Friday, June 14, 2019

 

At first sight, the calculation of a capital gain or loss on the disposal of an asset is relatively straightforward – simply the difference between the amount received for the sale of that asset and the cost of acquiring (and, where relevant) enhancing it, allowing for the incidental costs of acquisition and disposal. However, as with all rules there are exceptions, and particular care needs to be taken when disposing of an asset to other family members.

 

Spouses and civil partners

 

The actual consideration, if any, is ignored for transfers of assets between spouses and civil partners. Instead, the consideration is deemed to be that which gives rise to neither a gain nor a loss. The effect of this rule, which is very useful for tax planning purposes, is that the transferee simply assumes the transferors base cost – and the transferor has no capital gain to worry about.

 

Other connected persons

 

While the no gain/no loss rules for transfers between spouses and civil partners is useful from a tax perspective, the same cannot be said to be true for market value rule that applies to transfers between connected persons. Where two persons are connected, the actual consideration, if any, is ignored and instead the market value of the asset at the time of the transfer is used to work out any capital gain or loss. The market value of an asset is the value that asset might reasonably be expected to fetch on sale in the open market.

 

Who are connected persons?

 

A person is connected with an individual if that person is:

 

 • the person’s spouse or civil partner;

 • a relative of the individual;

 • the spouse of civil partner of a relative of the individual;

 • the relative of the individual’s spouse or civil partner;

 • the spouse or civil partner of a relative of the individual’s spouse or civil partner.

 

For these purposes, a relative is a brother, sister or ancestor or lineal descendant. Fortunately, the term 'relative' in this context does not embrace all family relationships and excludes, for example, nephews, nieces, aunts, uncles and cousins (and thus the actual consideration is used in calculating any capital gain).

 

As noted above, the deemed market value rule does not apply to transfers between spouses and civil partners (to which the no gain/no loss rules applies), but it catches those to children, grandchildren, parents, grandparents, siblings – and also to their spouses and civil partners.

 

Example 1

 

Barbara has had a flat for many years which she has let out, while living in the family home. Her granddaughter Sophie has recently graduated and started work and is struggling to get on the property ladder. To help Sophie, Barbara sells the flat to her for £150,000. At the time of the sale it is worth £200,000.

 

As Barbara and Sophie are connected persons, the market value of £200,000 is used to work out Barbara’s capital gain rather than the actual consideration of £150,000. If she is unaware of this, the gain will be higher than expected (by £14,000 if Barbara basic rate band has been utilised), and Barbara may find that she is short of funds to pay the tax.

 

This problem may be exacerbated where the asset is gifted – the gain will be calculated by reference to market value, but there will be no actual consideration from which to pay the tax.


News