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       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

Working off payroll

Adrian Mooy - Friday, January 31, 2020

 

From 6 April 2020, a change to the off-payroll (IR35) rules is expected. Draft legislation has already been published and further HMRC guidance is expected.

 

The new rules will affect you if you work via your own personal service company (PSC), and off-payroll workers should be aware that their clients are likely to investigate the profile of the contractor workforce more closely than before, as part of a review of compliance, strategy and spend. But the changes could be felt more widely: anyone supplying personal services via an 'intermediary' could be within scope of the IR35 rules. An intermediary can be an individual, a partnership, an unincorporated association or a company.

 

Contracts caught by the rules

 

The change could impact you if you supply personal services to large and medium organisations in the private and voluntary sector. If the client is a 'small' business, the rules are unchanged. A 'small' company meets two of these criteria: its annual turnover is not more than £10.2 million: it has not more than £5.1 million on its balance sheet: it has 50 or fewer employees. If you contract with an unincorporated organisation, the new rules only apply if its annual turnover is more than £10.2 million.

 

Who decides?

 

Under the new rules, responsibility for making the decision as to whether IR35 rules apply passes to the business you contract for. The key question is whether, if your services were provided directly to that business, you would then be regarded as an employee. You may be used to this if you undertake contracts in the public sector, where similar provisions already exist. If you or your client use CEST, HMRC's online check employment status for tax tool, HMRC undertakes to stand by the results if information provided is accurate, and given in good faith. At present, however, HMRC considers CEST is unable to determine status in 15% of cases, and many commentators consider the failure rate much higher. HMRC is working to improve CEST with the forthcoming changes in mind.

 

In future, your client will have to provide you with the reasons for its status decision in a 'Status Determination Statement' (SDS). If you disagree, you can challenge the status determination with the business, and it should respond within 45 days, either withdrawing or upholding the decision, again supplying reasons.

 

Implications

 

Significant tax implications arise. If IR35 applies, the business or agency paying you will calculate a 'deemed payment' based on the fees charged by your PSC. Broadly, this means you are taxed like an employee, receiving payment after deduction of PAYE and employee National Insurance Contributions (NICs). If you operate via a PSC, the PSC will receive the net amount, which you can then receive without further payment of PAYE or NICs. The potential tax advantages of working under such a contract, especially for PSCs, are much reduced.

 

Review your position

 

This is a good time to take stock of your options. Are clients likely to query your employment status? Should you consider restructured work arrangements, or renegotiating fees? If working via a PSC, is it still the best business model? With clients checking that contracts comply with the new rules, employment status for contractors is likely to come under increasing scrutiny. Please contact us for specific advice on your options and the tax consequences.

Retiring clinicians payments

Adrian Mooy - Thursday, January 30, 2020

 

The Secretary of State has confirmed that the commitments being entered into, to make payments to clinicians affected by annual allowance pension tax, will be honoured when clinicians retire.

 

In a written statement Matt Hancock, Secretary of State for Health and Social Care stated:

 

‘I have agreed to support this proposal from NHS England and NHS Improvement for reasons of urgent operational necessity….

 

‘The scheme involves employers making binding contractual commitments to be given to every affected NHS clinician so as to ensure that this commitment is honoured. Full details of the terms of the payment arrangements are set out in letters that are being sent to each affected clinician by their employer including the terms and conditions of the offer.

 

‘Clinicians are therefore now immediately able to take on additional shifts or sessions without worrying about an annual allowance charge on their pensions.’

Guidance on Structures and Buildings Allowance

Adrian Mooy - Wednesday, January 29, 2020

 

The latest HMRC Agent Update includes guidance on the Structures and Buildings Allowance (SBA).

 

This capital allowance is designed to provide tax relief for businesses and to support investment in constructing new structures and buildings and improving existing ones.

 

The SBA relieves the construction costs for new structures and buildings used for qualifying purposes and the improvement of existing structures and buildings, including the cost of converting existing premises for use in a qualifying activity.

 

The SBA is available at a flat rate of 2% a year, for up to 50 years, on the eligible costs of building, converting or renovating non-residential structures or buildings that have been brought into qualifying use.

 

Certain costs are specifically excluded such as those costs that qualify for plant and machinery allowances, planning permission, landscaping, cost of land and integral features and fixtures.

 

For a claim to be valid the date of the earliest contract for construction of the structure or building must be on or after 29 October 2018.

 

The first use of the structure or building must be non-residential.

 

The Agent Update confirms claims for the allowance must be made on a tax return. However for tax returns up to April 2020 there is no specific box for SBA claims. HMRC advise affected taxpayers to follow the guidance contained in the notes to the returns.

Call for review of High Income Child Benefit Charge

Adrian Mooy - Wednesday, January 29, 2020
 
The Low Incomes Tax Reform Group (LITRG) is calling on the government to address issues with the High Income Child Benefit Charge (HICBC).

 

The HICBC is designed to claw back child benefit where the claimant or their partner earns in excess of £50,000. According to LITRG some households think making a child benefit claim is not worthwhile if it will be clawed back in full via the tax charge, with the added administrative burden of needing to complete a tax return. LITRG warns that this trend will have unforeseen consequences for the lower-earning partner and for the child.

 

LITRG is calling for the Government to reconsider the £50,000 threshold at which the HICBC starts to apply, if it is retained in its current form.

 

Victoria Todd, Head of LITRG Team, said:

 

'Despite its name, the high income child benefit charge can have consequences for the lower earner in a couple even though the liability to the tax charge falls to the higher earner. This is because where the tax charge applies a household may decide, quite understandably, not to claim child benefit at all. But this means that the lower earning individual may miss out on National Insurance credits, due for the first 12 years, which help to build entitlement towards a state pension.

 

'The Government's solution is to allow couples to claim child benefit regardless and, if they wish to avoid the charge, they can choose not to receive payments – but this is not widely known and to many, claiming and receiving a benefit are the same thing.

 

'This is a problem which is affecting an increasing number of families because the £50,000 threshold has remained static since the charge was introduced in 2013. At that time, the HICBC was intended to affect only the top 10 percent of earners, but each year the proportion of those affected increases as wages rise.
 
LITRG recommends that the next Government considers uprating the £50,000 threshold, just like some other tax thresholds and allowances, to minimise the adverse consequences for those families it affects and ensure the policy works in the way originally intended.'

 

Please contact us for help and advice on HICBC.

 

Review of the Disguised Remuneration Loan Charge

Adrian Mooy - Tuesday, January 28, 2020
 
The government has announced it will make a number of changes to the loan charge rules, in response to Sir Amyas Morse's independent review of the loan charge policy and its implementation.

 

The government has announced the following key changes to the loan charge:

 

 - the loan charge will apply only to outstanding loans made on, or after, 9 December 2010

 

 - the loan charge will not apply to outstanding loans made in any tax years before 6 April 2016 where the avoidance scheme use was fully disclosed to HMRC and HMRC did not take action

 

 - affected taxpayers can elect to spread the amount of their outstanding loan balance evenly across three tax years: 2018/19, 2019/20 and 2020/21.
 
Please contact us for advice with this issue.

 

Minimum wage rates announced

Adrian Mooy - Monday, January 27, 2020
 
The government has announced a 6.2% increase in the National Living Wage (NLW), which applies to workers aged 25 and over.
 
From 1 April 2020 the NLW will rise from the current rate of £8.21 to £8.72 an hour, in the largest raise since it was introduced two decades ago.

 

The government has confirmed that the new rate will start on 1 April 2020 and will result in an increase of £930 annually for 2.8 million full-time workers earning the NLW.

 

Workers aged under 25 earning the National Minimum Wage (NMW) will also see increases of between 4.6% and 6.5%, depending on their age.
Bryan Sanderson, Chair of the Low Pay Commission (LPC), said:

 

'The NLW has been an ambitious long-term intervention in the labour market. The rate has increased faster than inflation, faster than average earnings and faster than most international comparators.

 

'This has raised pay for millions without costing jobs, although employers have had to make a variety of other adjustments to deal with the increases.'

 

Self assessment deadline approaching

Adrian Mooy - Monday, January 27, 2020
 
The deadline for submitting your 2018/19 self assessment return is 31 January 2020.
 
The deadline applies to taxpayers who need to complete a tax return and make direct payments to HMRC in respect of their income tax, Classes 2 and 4 National Insurance Contributions (NIC), capital gains tax and High Income Child Benefit Charge liabilities.

 

There is a penalty of £100 if a taxpayer’s return is not submitted on time, even if there is no tax due or the return shows that they are due a tax refund.

 

The balance of any outstanding income tax, Classes 2 and 4 NIC, capital gains tax and High Income Child Benefit Charge for the year ended 5th April 2019 is also due for payment by 31 January 2020. Where the payment is made late interest will be charged.

 

The first payment on account for 2019/20 in respect of income tax and any Class 4 NIC or High Income Child Benefit Charge is also due for payment by 31st January 2020.

 

HMRC revealed that more than 3000 taxpayers filed their return on Christmas Day. If you would like help with your return or agreeing your tax liability, please contact us.

 

Landlords warned over potential tax rise

Adrian Mooy - Friday, January 24, 2020
 
Landlords are being warned by the Association of Taxation Technicians (ATT) that if they have previously lived in a property that they let, then potential changes to the Finance Bill this year could increase their capital gains tax (CGT) bill significantly.

 

The ATT is urging for changes to avoid this ‘cliff-edge’, as changes to the Finance Bill could lead to an increase in landlord’s CGT bills of up to £11,200.

 

Letting relief is currently available to those who have lived in a property at one time during their period of ownership, but that have since moved out and let the property. This relief can cover up to a maximum of £40,000 in gains arising during this period but is only available until 5 April 2020.

 

If the proposed changes are implemented on 6 April 2020, then letting relief will only be available in situations where the landlord and tenant are living in the property at the same time.

 

The draft legislation states that the requirement for ‘shared occupation’ will apply to future lettings as well as any let periods prior to April 2020.

 

Michael Steed, Co-Chair of the ATT’s Technical Steering Group, said: “Someone who was entitled to the maximum letting relief under the old rules but sells on 6 April 2020, could be up to £11,200 worse off than if they had sold a day earlier on 5 April 2020.

 

“At the same time, they will also be subject to new rules – which have already been legislated – requiring them to pay that tax much earlier than they would have previously.”

 

 

Properties not let at a commercial rent

Adrian Mooy - Thursday, January 23, 2020
 
There may be a number of reasons why a property is occupied rent-free or let out at rent that is less than the commercial rate. This may often occur where the property is occupied by a family member in order to provide that person with a cheap home. For example, a parent may purchase a house in the town where their student son attends university and let it to the student, and maybe even his housemates, at a low rent to help them out. While the parents’ motives are doubtless philanthropic, their generosity may cost them dearly when it comes to obtaining relief for the associated expenses.

 

Wholly and exclusively rule

 

Expenses can only be deducted in computing taxable rental profits if they are incurred wholly and exclusively for the purposes of the property rental business. Unfortunately, HMRC take the view that unless the property is let at full market rent and the lease imposes normal conditions, it is unlikely that the expenses are incurred wholly and exclusively for business purposes. So, where the property is occupied rent-free, there is no tax-relief for expenses.
If the property is let at a rent that is below the market rent, a deduction is permitted, but this is capped at the level of the rent received from the let. This means that where a property is let at below market rent, it is not possible for a rental loss to arise, or for expenses in excess of the rent to be offset against the rent received from other properties in the same property rental business.

 

Periods between lets

 

Where there are brief periods where the property is occupied rent-free or let out cheaply, it may be possible to obtain full relief for expenses. For example, if the landlord is actively seeking a tenant and a relative house sits while it is empty, relief will not be restricted as long as the property remains genuinely available for letting. In their guidance HMRC state, that ‘ordinary house sitting by a relative for, say, a month in a period of three years or more will not normally lead to loss of relief’. However, if a relative takes a month’s holiday in a country cottage, relief for expenses incurred in that period will be lost.

 

Commercial and uncommercial lets

 

Where a property is let commercially some of the time and uncommercially at other times, expenses should be apportioned on a just and reasonable basis between the commercial and non-commercial lets. Any excess of expenses over rents in the period when commercially let can be deducted in the computing the profit for the rental business as a whole. However, an excess of expenses over rent when the property is let uncommercially are not eligible for relief.
 
Timing must also be considered – expenses relating to uncommercial lets cannot be deducted simply because they are incurred when the property is let commercially.

 

Allowable finance costs

Adrian Mooy - Wednesday, January 22, 2020
 
Although the way in which landlords obtain relief for finance costs on residential properties is changing, there is no change to the type finance costs that are eligible for relief.

 

What qualifies for relief

 

The basic rule is that relief is available for expenses that are incurred wholly or exclusively for the purposes of the property rental business, and this rule applies equally to finance costs. Relief is available for eligible finance costs where they meet this test.

 

The definition of finance costs includes mortgage interest and interest on loans to buy furnishing and suchlike. Relief is also available for the incidental costs of obtaining finance, as long as the interest on the loan is allowable. Incidental costs of loan finance include items such as arrangement fees, and fees incurred when taking out or repaying loans or mortgages.

 

Limit on eligible borrowings

 

A landlord can obtain relief for the costs of borrowings on a loan or mortgage up to the value of the property when it was first let. Buy-to-let mortgages are often more expensive than residential mortgages with interest charged at a higher rate. The loan does not have to be secured on the let property. Where a landlord wishes to buy a rental property and has sufficient equity in their own home, it may make commercial sense to release capital from the home by borrowing against it and using the money to purchase the rental property. Interest on the loan is eligible for relief, despite the fact the loan is not secured on the rental property.

 

No relief for capital repayments

 

Capital repayments, such as the capital element of a repayment mortgage or loan repayments, are not eligible for relief. Where the borrowings are in the form of a repayment mortgage, it will be necessary to split the payment between the interest and capital when working out the relief. The lender should provide this information on the statement.

 

Example

 

Mervyn wishes to invest in a buy to let property. As he only has a small mortgage on his home, he remortgages to release £150,000 of equity.

 

Following the remortgage, he has a mortgage of £200,000 on his own home. Using the released equity, he buys a property to let for £150,000. He spends some time renovating the property in his spare time before letting it out. When the property is first let, it has a value of £160,000.

 

During the 2019/20 tax year, Mervyn pays mortgage interest of £10,000 and makes capital repayments of £10,800. The property is let throughout.

 

Mervyn can claim relief for 80% of the interest costs – this is attributable to the borrowings of £160,000 (80% of the loan of £200,000), being the value of the let property when first let. The interest eligible for relief is therefore £8,000 (80% of £10,000). For 2019/20, 25% (£2,000) is relieved by deduction with the balance giving rise to a deduction from the tax due of £1,200 (75% x £8,000 x 20%).
 
No relief is available for the capital repayments.

 


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