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We offer cloud-based accounting solutions. Using good technology saves time. With the power of cloud accounting in your hands, you can access accurate real-time data on the go, accept instant payments and even automate repetitive tasks like invoicing. Fast, easy, touch-of-a-button software can make a real difference to the way you run your business.
COVID-19 Company Directors & Shareholders
COVID-19 IR35 & Off-payroll working
COVID-19 Insolvency & Directors
COVID-19 Statutory self-employment pay scheme
COVID-19 Landlords & tenants
COVID-19 Late payment interest rate
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... a digital firm using the best tech to help our clients
Welcome to Adrian Mooy & Co Ltd
like yours grow and be more profitable.
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,
Helping you grow your business
Helping you keep more of your income
We understand your needs
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
Profit extraction in 2020/21 – What is the optimal salary?
A popular tax-efficient profit extraction strategy used by personal and family companies is to take a small salary and extract further profits as dividends. Where this approach is adopted, the starting point is to determine the optimal salary. While this will depend on personal circumstances and there is no excuse for not doing the sums, there are some general guidelines.
Where the director does not have the requisite 35 qualifying years to provide access to the full single tier state pension paying a salary at least equal to the lower earnings limit for Class 1 National Insurance purposes (set at £120 per week; £520 per month and £6,240 per year) will ensure that the year is a qualifying one.
Maximum salary that can be paid free of tax and National Insurance - The first question to consider is what is the maximum salary that can be paid free of income tax and employer’s and employee’s National Insurance. For 2020/21, the key numbers are:
• the personal allowance – set at £12,500;
• the primary threshold – set at £9,500 per year; and
• the secondary threshold –set at £8,788 per year.
Assuming the personal allowance has not been used elsewhere, the maximum salary that can be paid without triggering a tax or National Insurance liability is one equal to the secondary threshold of £8,788.
However, if the director is under 21, there is no secondary Class 1 liability until earnings exceed £50,000 and in this scenario, the maximum salary that can be paid free of tax and National Insurance is one equal to the primary threshold of £9,500 per month. The same is true where the director is over 21 but the employment allowance extinguishes any secondary Class 1 liability.
Is a higher salary tax-efficient? - Salary payments and any associated employer’s Class 1 National Insurance contributions are deductible for corporation tax purposes and there will therefore be an associated 19% reduction in the corporation tax bill. Where paying a higher salary triggers a National Insurance liability, this will be worth paying if it is more than offset by the corporation tax reduction. The sums differ depending on whether the employment allowance is available.
Employment allowance unavailable - In a personal company scenario, it is unlikely that the employment allowance is available as companies where the sole employee is also a director, as would be usual in a personal company do not qualify.
Where this is the case, assuming the director is over 21, a salary in excess of £8,744 will attract a secondary Class1 National Insurance liability. However, there is no primary Class 1 liability until the salary reaches the higher primary threshold, set at £9,500 for 2020/21. At 13.8%, the rate of employer’s National Insurance is less than the corporation tax rate – the corporation tax saving on the salary and employer’s National Insurance of £163 (19% (£756 x 1.138)) is more than the employer’s National Insurance on the additional salary of £104 (13.8% of £756), meaning it is tax efficient to pay a salary of £9,500. However, the employer’s NIC will need to be paid over to HMRC, incurring admin costs.
However, beyond this level, the combined effect of employer’s and employee’s National Insurance outweighs any corporation tax saving. The optimal salary in this case is therefore £9,500 a year.
Employment allowance available - In a family company scenario, the employment allowance may be available, making it possible to pay a salary of £9,500 free of tax and National Insurance. Paying an additional £3,000 to bring the salary up to the level of the personal allowance will trigger an employee Class 1 liability of £360 (12% of £3,000). However, the additional salary of £3,000 will reduce the corporation tax bill by £570 (19% of £3,000), making the additional salary worthwhile. However, once income tax at 20% is brought into the mix, this is no longer the case, meaning the optimal salary is one equal to the personal allowance of £12,500.
Switch to dividends - Once the optimal salary has been paid, it is tax efficient to extract further profits as dividends.
In the July Economic Statement, as part of his Plan for Jobs, Chancellor Rishi Sunak announced that a new Kickstart Scheme would shortly be launched with the aim of creating hundreds of quality jobs for young people aged between 16 and 24 years old. The details of the scheme have been slow coming, but it has now been confirmed that the first placements are likely to be available from November.
The Kickstart Scheme can be used to create new 6-month job placements for young people who are currently receiving Universal Credit. The jobs must be new jobs - with the funding conditional on the firm proving these jobs are additional. The jobs must not replace existing or planned vacancies and must not cause existing employees or contractors to lose or reduce their employment.
Under the scheme, the Government will pay 100% of the relevant National Minimum Wage (NMW) for 25 hours a week. Rates for 16 to 24-year olds are currently as follows:
Age under 18 - £4.55 per hour
Age 18 to 20 - £6.45 per hour
Age 21 to 24 £8.20 per hour
The Government will also pay the associated employer National Insurance Contributions (NICs) and employer minimum automatic enrolment pension contributions.
Employers will be able to top up National Minimum Wage rates.
There is also £1,500 per job placement available for setup costs, uniforms, support and training.
The employer will need to show in their application how they intend to help the participants to develop their skills and experience, including:
• support to look for long-term work, including career advice and setting goals;
• support with CV and interview preparations; and
• supporting the participant with basic skills, such as attendance, timekeeping and teamwork
Once a job placement is created, it can be taken up by a second person once the first successful applicant has completed their 6-month term.
According to the Department for Work and Pensions (DWP), there will also be extra funding to support young people to build their experience and help them move into sustained employment after they have completed their Kickstart scheme funded job. Details of such funding have not yet been published.
Applications for funding must be for a minimum of 30 job placements. However, employers who are unable to offer this many job placements can partner with other organisations to reach the minimum number requirement. The representative applying on behalf of the group can claim additional funding of £300 per job placement to support with the associated administrative costs of bringing together the employers.
Smaller businesses may also be able to apply through an intermediary, such as a Local Authority or Chamber of Commerce, who will then bid for 30 or more placements as a combined bid from several businesses. This will make the process easier and less labour intensive to apply for these smaller companies who can only consider hiring one or two Kickstarters.
The scheme, which will be delivered by the DWP, will initially be open until December 2021, with the option of being extended. With the availability of a grant for a 24-year old worth around £6,500, employers may wish to review their business with a view to becoming involved.
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.
Rental expenses – when can you claim relief
Landlords incur various expenses when letting out a property. These may be directly related to the property itself, such as repairs and maintenance, or in relation to finding tenants and managing the let. To ensure that tax is not paid unnecessarily, it is important that the landlord claims relief for all allowable expenses.
General rule - The general rule is that a deduction is allowed for revenue expenses that are incurred wholly and exclusively for the purposes of the property rental business. Relief for capital expenditure depends on whether the cash basis or the accruals basis is used. Under the default cash basis, capital expenditure can be deducted unless a deduction is specifically prohibited, as is the case for land, property and cars.
Common expenses - Although the exact expenses will vary from let to let, the following is a list of common expenses which a landlord may incur and which may be deducted in computing profits as long as the wholly and exclusively rule is met:
• general maintenance and repairs to the property (but not improvements);
• water rates;
• council tax;
• gas and electricity;
• insurance (such as landlord’s insurance for buildings and landlord’s contents);
• cleaning costs;
• gardening costs;
• letting agents’ fees;
• property management fees;
• legal fees for lets of less than a year or for renewing a lease of less than 50 years’
• accountant’s fees;
• office costs, such as stationery, paper, printing and postage;
• advertising costs;
• phone calls; and
• rent where the property is sub-let.
Relief is not available if the tenant incurs the expense rather than the landlord (as may be the case with council tax and utilities, for example).
Vehicle costs - Where the landlord uses his or her own car for the purposes of the property rental business, a deduction can be claimed on a mileage basis using the simplified expenses system. The rate for cars and goods vehicles is 45p per mile for the first 10,000 business miles in the tax year and 25p per mile thereafter.
Interest and other finance costs - Relief can be claimed for interest costs where the property was funded with borrowings, but not for any capital repayments on the mortgage. Interest costs are allowable on borrowings up to the cost of the property when first let. The mortgage does not need to be secured on the let property.
For 2020/21 relief for interest and associated finance costs is given fully as a tax reduction at the basic rate. For 2019/20, 25% of the costs were deductible in computing profits, with relief for the remaining 75% being given as a tax reduction at the basic rate.
Keep records - To ensure that deductions for expenses are not overlooked, the landlord should keep a record of all expenses incurred in relation to the let, together with receipts and invoices. Failing to claim allowable deductions means that tax will be paid unnecessarily.
Waiver of dividends and remuneration
Many companies are experiencing financial difficulties brought about by the coronavirus pandemic and there will be many instances where directors and shareholders will be considering waiving their right to company dividends and/or remuneration. Whilst this can be a straightforward process, there are certain administrative obligations that will need to be attended to.
Dividends - The tax treatment of a dividend will depend on when it has been paid. The legislation specifies that a dividend will be treated as being paid on the date when it becomes due and payable. A dividend is not paid, and there is no distribution, unless and until the shareholder receives money or the distribution is otherwise unreservedly placed at the shareholder’s disposal, for instance by being credited to a loan account on which the shareholder has power to draw.
Companies’ Articles often provide that:
• final dividends may be declared by the company in general meeting; and
• interim dividends may be paid by directors from time to time.
The significance of this is that a final dividend which has been properly declared and which does not specify a date for payment creates an immediately enforceable debt. If a final dividend is declared under the terms of a resolution that states that it is payable on a future date then the debt is enforceable, and the dividend is due and payable, only on that later date. An interim dividend, on the other hand, may be varied or rescinded at any time before payment and may therefore only be regarded as due and payable when it is actually paid.
Directors or other shareholders, including employees, are able to waive their right to be paid a dividend. For this to be effective, a Deed of Waiver must be formally executed, dated and signed by shareholders and witnessed and returned to the company.
A waiver properly made before payment involves more formality than a simple request not to pay dividends or to pay them elsewhere. A waiver can be effective for all future dividends, or for any future period of time, or for specific dividends.
The waiver must be in place before the right to receive a dividend arises. For final dividends, this is before they are formally declared and approved by the shareholders. For interim dividends, the waiver must be in place before the dividends are paid.
An act that purports to be a waiver after payment will be treated as an assignment or transfer of income, and may be liable to tax under the settlements legislation.
Remuneration - A ‘waiver of remuneration’ happens when a director or employee gives up rights to remuneration and gets nothing in return. If an employee and employer agree to a reduction in the employee’s remuneration before they are paid, for example to support company cash flow during the pandemic, then no income tax or National Insurance contributions (NICs) will be due on the amount given up. This is provided the agreement is not part of any wider arrangement to divert the amount to a particular recipient or a cause. For example, if it was waived on condition that the sum would be donated to a particular charity, this would still be liable to tax.
Waiver of remuneration should be formalised in a deed of waiver or a contract variation. The employee or director is likely to require clarification in the agreement on exactly what is to be waived (and for how long), as well as confirmation that the other terms and conditions (and any benefits) of the employment will continue unaffected. The variation instrument should also address the effect of a temporary salary waiver on those benefits which are referable to salary (for example, pension contribution).
In the current climate, if lockdown restrictions present a challenge to formally executing paperwork, confirmation in an email of the intention to waive and confirming the new position on both sides should be acceptable.
Capital gains tax implications of selling the buy-to-let
There may come a time when a landlord no longer wants to hold a buy-to let property and puts the property on the market. When selling an investment property, such as a buy-to-let, it is important to be aware of the capital gains tax implications, and also the changes that came into effect from 6 April 2020.
Any private residence relief? - If the property had been occupied as a main residence for some of the period of ownership, some private residence relief will be available. The gain will be sheltered to the extent that it relates to the period where the property was occupied as a main residence and also for the final period. From 6 April 2020 this is the last nine months of ownership (reduced from 18 months prior to that date).
Curtailment of lettings relief - Where the disposal takes place on or after 6 April 2020, lettings relief is only available where the landlord occupies the property with the tenant (for example, by letting out a number of rooms in the landlord’s main residence).
The previous, more generous rules, do not apply where disposal is on or after 6 April 2020 even if the property was let out prior to that date and would have qualified for lettings relief under the old rules – it is the date of disposal that is relevant in determining which rules apply, not the period for which the property was let.
No gain, no loss transfers - The capital gains tax rules allow assets to be transferred between spouses and civil partners at a value which gives rise to neither a gain nor a loss. This can be very useful in mitigating the capital gains tax liability, particularly where a spouse or civil partner has not used their annual exempt amount or pays tax at a lower marginal rate. The optimal ownership shares will depend on individual circumstances. It is prudent to review how the property is owned prior to sale.
Paying tax at the residential property rates - Capital gains tax is charged at a higher rate on residential property gains. The rate of tax is 18% to the extent that income and gains fall within the basic rate band, and at 28% thereafter.
Notifying residential property gains and paying tax on account - From 6 April 2020, chargeable gains on residential property must be notified to HMRC within 30 days of the date of completion. The gain can be notified online. Capital gains tax due on the gain must be paid within the same time frame. A return is only required where a gain arises; no return is needed if the property is sold at a loss.
HMRC have confirmed that due to coronavirus, they will not charge a penalty for transactions completed on or after 6 April and 1 July reported up to 31 July 2020 which are reported outside the 30-day window. However, a late filing penalty will be charged for transactions which are completed on or after 1 July 2020 if these are not reported within 30 days.
Interest is charged where tax is paid late. This applies where the completion date is on or after 6 April 2020 – there is no relaxation in respect of Coronavirus.
In working out the capital gains tax on residential property gains, the annual exempt amount can be taken into account, as can any allowable losses brought forward or realised prior to the disposal. However, losses arising after the disposal cannot be taken into account, even if these are realised in the 30-day window for filing the return and making the payment on account.
The taxpayers overall capital gains tax position for the year is finalised when filing the self-assessment return.
P45 procedures – What to do when an employee leaves
When an employee leaves, there are various procedures that need to be followed from a payroll perspective. These include telling HMRC that the employee has left and issuing the employee with a P45.
When an employee leaves, it is important to let HMRC know. This is done via the RTI system.
The employee’s leaving date should be entered on the Full Payment Submission when reporting pay and deductions for the final time. The leaving date should not be before the date on which they receive their final salary, which will normally be their last working day.
Issuing a P45
The P45 is an important document as it is the way in which pay and deduction details are transferred from one employer to the next. As PAYE is operated on a cumulative basis, this transfer of information is crucial, particularly where an employee changes jobs during the tax year.
There are four parts to the P45 – Parts 1, 1a, 2 and 3.
Historically, Part 1 of the P45 had to be sent to HMRC. However, the information contained on the P45 is now sent to HMRC electronically via RTI.
The employer must give parts 1A, 2 and 3 of the P45 to the leaving employee. The employee should retain part 1A and give parts 2 and 3 to a new employer.
However, it should be noted that when an employee retires and is paid a pension by the same employer, the employee is not regarded as having ‘left’ and should not be given a P45.
Paying an employee after the P45 has been issued
If a payment has to be made to the former employee after the P45 has been issued, the following procedure should be followed:
• deduct tax using code 0T (rather the employee’s previous code) on a ‘week 1’ or ‘month 1’ basis;
• deduct National Insurance contributions (unless the payment is a redundancy payment) and any student loan repayment as normal, but treating it as a weekly payment if it is an irregular payment, such as accrued holiday;
• report the payment and deductions in the next FPS, using the employee’s original ‘date of leaving’ and, where relevant, ‘payroll ID’, setting the payment indicator to ‘payment after leaving’;
• provide the employee with written confirmation of the payment, showing the gross amount of the payment and the deductions; and
• add the additional payment to the ‘year to date’ field where it falls in the same tax year.
The employee should not be given a new P45.
30-days reporting for CGT
Certain changes regarding payment of CGT took effect from April 2020 which align the position of UK residents with that of non-UK residents. Broadly, from 6 April 2020, a UK resident who sells a residential property in the UK will have 30 days to tell HMRC and pay any capital gains tax (CGT) owed. Failure to notify HMRC within 30 days of completing a sale may result in penalty and interest charges.
A CGT report and accompanying payment of tax may be required where the taxpayer sells or otherwise dispose of:
• a property that they have not used as their main home;
• a holiday home;
• a property which has been let out for people to live in;
• a property that has been inherited and not used as a main home.
There is no requirement to make a report make a payment of tax when:
• a legally binding contract for the sale was made before 6 April 2020;
• the individual satisfies the for Private Residence Relief (generally a main residence);
• the sale was made to a spouse or civil partner;
• the gains (including any other chargeable residential property gains in the same tax year) are within the tax free allowance known as the annual exempt amount (£12,300 in 2020/21);
• the property is sold for a loss; or
• the property is outside the UK.
Calculation - Subject to certain exceptions, where there has been a disposal of a residential property, payment on account of the CGT will be due on the filing date for the return, which is generally within 30 days of the day after the date the property sale is completed.
The payment on account required is the amount of CGT notionally chargeable at the filing date. This is the tax that would be due if, under the normal rules for calculating chargeable gains for a tax year, the tax year ended at the time the disposal is completed.
In calculating the amount, any unused allowable losses for capital gains purposes incurred by the time the disposal is completed can be used. Available reliefs and the annual exempt amount are applied in the normal way.
The amount of CGT payable on account is the amount after applying the applicable rate of tax to the net gain.
Multiple disposals - Where there is more than one residential property disposal in the same tax year, the amount of CGT notionally chargeable must be calculated after each disposal.
This is, however, done by taking into account that all of the gains (or losses) on those disposals are taken into consideration and any new losses that have arisen on disposals of other assets can also be used.
Where there has been a previous return and payment on account for the tax year and the amount notionally chargeable contained in a later return is more than the amount of tax already paid on account, the difference is payable to HMRC.
Provisional figures - Since the 30-day payment window can make it difficult for some people to provide exact figures, HMRC allow for certain estimates and assumptions to be made. The taxpayer can make a correction once the exact figures are known. If the resulting amount is higher than the amount previously paid, the difference becomes payable to HMRC and interest may be due. No penalty will however, be charged. If the amount is lower, the difference becomes repayable along with repayment interest from HMRC.
HMRC are currently developing a new online service to allow taxpayers to report and pay any CGT owed.
Stamp duty on share transactions
Stamp duty is the oldest of our surviving taxes – dating as far back as 1694 – although the scope of the tax has considerably reduced over time and is now entirely limited to paper transactions in shares.
Stamp Duty is generally payable on non-electronic share deals on transactions valued over £1,000. Stamp Duty Reserve Tax (SDRT) is charged on share purchases made electronically (e.g. an online share dealing account).
Until recently, the payment of stamp duty was evidenced as it had been for over 300 years, namely by impressing a stamp on a paper document. This made it extremely simple but cumbersome, and began to cause unacceptable delays in the modern commercial world. In response to a review by the Office for Tax Simplification (OTS), regulations made in March 2019 finally removed the necessity for an impressed stamp. With effect from 22 April 2019, the payment of duty is denoted by stamps produced by means of a die - and the definition of ‘die’ has been extended to include any machine used under the direction of HMRC for denoting duty.
Stamp duty is a tax on ‘instruments’ specified in the legislation, including:
• stock transfers;
• other documents transferring a beneficial interest in stock or marketable securities;
• Companies House returns for purchase of own shares;
• creation of bearer instruments;
• sale of a partnership interest;
• certain court orders that act as a document of transfer.
Standard rate of stamp duty
Stamp duty is referred to as an ad valorem tax – meaning it is payable in proportion to the estimated value of goods or transaction concerned.
A transfer on sale of stocks or marketable securities is subject to stamp duty at the standard rate of 0.5% and is calculated by reference to the amount or value of the consideration paid.
Where the amount of value of the consideration for the sale is £1,000 or under, no 0.5% stamp duty charge will apply if the instrument contains a ‘certificate of value’.
A certificate of value is a statement that the transaction effected by the instrument does not form part of a larger transaction or series of transactions in respect of which the amount or value, or aggregate amount or value, of the consideration exceeds that amount.
An instrument representing a share sale for consideration of £1,000 or less which does not contain a certificate of value is subject to stamp duty at 0.5%.
Stock transfer forms
Stamp duty is unique among UK taxes in that the legislation does not specify a person who is liable to pay the duty. In practice, it is usually the person who needs the instrument to prove title (e.g. to register ownership of shares) or the person’s agent (such as a solicitor or stockbroker) who presents it for stamping and pays the duty.
A stock transfer form can be obtained from a broker, a lawyer or an accountant who deals in shares, or it can be downloaded from the internet. In normal circumstances the form would be posted to HMRC for review, but temporary measures have been introduced due to the coronavirus pandemic which mean that forms should currently be sent in electronic format.
The deadline for paying Stamp Duty and getting stock transfer documents to the Stamp Office is no later than 30 days after they have been dated and signed. Interest and penalty charges may be imposed for late stamping and/or payment.
Different rules apply to documents relating to UK land.
If there is an overpayment of stamp duty on a transaction a refund may be claimed. Refunds must be claimed within two years of the date of the stamped document. If the document is undated, a refund can be claimed within two years of first execution.
Reclaim SSP for Covid-19 absences
Small employers can now reclaim statutory sick pay (SSP) paid to employees who were absent from work due to the Coronavirus. The online claim service went live on 26 May 2020.
Employers can use the scheme to claim back SSP paid to an employee who is eligible for SSP due to Coronavirus if:
• they have a PAYE payroll scheme that was in operation on 28 February 2020; and
• they had fewer than 250 employees at that date.
SSP can only be reclaimed where the employee’s absence relates to Covid-19; where the absence is for another reason, the employer must meet the cost of any SSP paid. An absence counts as a Covid-19 absence if the employee is unable to work because:
• they have Coronavirus;
• they are unable to work because they are self-isolating because they live with someone who has Coronavirus symptoms; or
• they are shielding and have a letter from the NHS or GP telling them to stay at home for at least 12 weeks.
Claims can be made for periods of sickness on or after 13 March 2020 where the employee has Coronavirus symptoms or is self-isolating because a member of their household has symptoms and for absences on or after 16 April 2020 where the employee was shielding.
The employer can claim back the SSP paid in respect of qualifying Covid-19 absences up to a maximum of two weeks’ SSP per employee. Where the employer pays more than the weekly rate of SSP, rebates must be claimed at the SSP rate -- £95.85 per week from 6 April 2020 and £94.25 per week previously.
Evidence and records
Employers do not need to get a Fit note where an employee is off work due to Coronavirus. However, you can ask for an isolation note from NHS111 where the employee is self-isolating or a letter from the NHS or the employee’s GP where the employee is shielding.
Records should be kept of the dates of absence, the SSP paid to each employee, their National Insurance number, the reason for their absence and, where provided, evidence in support of their absence. Records should be kept for three years from the date that the rebate is received.
Making the claim
Claims can be made online on the Gov.uk website. To make a claim, the employer will need:
• their employer PAYE scheme reference;
• contact name and phone number;
• bank details (where a BACS payment can be accepted);
• total amount of SSP paid to employees in the claim period in respect of Covid-19 absences;
• number of employees in respect of whom the claim relates; and
• the start and end date of the claim period.
Claims can be made for multiple periods and multiple employees at the same time. The end date of the claim is the end of the most recent pay period for which a claim is being made.
Preparing for 2021 changes: Customs grants available
In June 2020, the Government announced that it was making funding available to customs intermediaries and businesses to help increase their capacity to make customs declarations. Broadly, businesses need to prepare ahead of new procedures coming into play in 2021 following the end of the UK’s EU withdrawal transition period.
As well as injecting a substantial amount of cash to support businesses with recruitment, training and supplying IT equipment to handle customs declarations, the Government is also changing rules which will remove the financial liability from intermediaries operating on behalf of their clients, and will also allow parcel operators to continue declaring multiple consignments in a single customs declaration.
In August, to help accelerate further growth of the customs intermediary sector and help meet the increased demand it will see from traders at the end of the transition period, the Government confirmed that the next phase of the customs grant scheme is now open for application.
Who can apply? - To qualify for a grant a business must:
• have been established in the UK for at least 12 months before the submission of the application and when the grant is paid; and
• not have previously failed to meet its tax obligations.
In addition, the businesses must meet one of the following descriptions:
• complete or intend to complete customs declarations on behalf of clients;
• be an importer or exporter and complete or intend to complete declarations internally for their own good
• be an organisation which recruits, trains and places apprentices in businesses to undertake customs declarations.
The grant can cover salary costs for new or redeployed staff, up to a limit of £12,000 per person and £3,000 for recruitment costs for new employees. This will help them to recruit new staff and train them up ahead of July 2021, when all traders moving goods will have to make declarations.
In relation to training, the grant can provide businesses with up to 100% of the actual costs of externally-provided training for employees, up to a limit of £1,500 for each employee on the course. It will also cover the cost of internal training, up to a limit of £250 for each employee on the course.
The grant for IT covers expenses for increasing capacity or productivity for customs declarations, customs software, set-up costs, and related hardware.
There is a state aid restriction, which applies a cap on total grants received in the last three years at 200,000 euros (which is the maximum amount of state aid available).
Funding - The business will receive the funding for the cost of recruitment then 50% of the eligible salary costs once the grant offer is issued. The remaining 50% of salary costs will be paid when details of the new employee’s contract have been submitted along with a copy of their first pay slip.
Evidence of expenditure on IT improvements or training will need to be submitted within two months of receiving a grant offer letter. The grant will then be paid directly to the business within 30 days.
Tax treatment - For tax purposes, the treatment of the grant will need to be matched to the expense and offset accordingly.
If the business has spent more on capital expenditure (like IT equipment) than is covered by the grant, capital allowances can be claimed on the amount not covered by the grant.
Early action - Eligible businesses should consider applying for a grant as soon as possible. Funding will be allocated on a first-come-first-serviced. Applications must be made by 3 June 2021, although the scheme, which is being administered by PricewaterhouseCoopers (PwC) on behalf of HMRC, will close earlier if all funding is allocated before that date.
How to calculate statutory redundancy pay
While some help is available to employers through the Coronavirus Job Retention scheme to help them keep staff on during the COVID-19 pandemic, in some cases, it may not be possible to avoid making staff redundant.
Where staff are made redundant and have at least two years’ continuous service, they may be entitled to statutory redundancy pay.
To be eligible for statutory redundancy pay, an individual must:
• be an employee with a contract of employment;
• have at least two years’ continuous service;
• have been dismissed, laid off or put on short-time working.
Employees who take early retirement are not eligible for statutory redundancy pay.
How much does an employee get?
The amount of statutory redundancy pay to which an employee is entitled depends on the length of their service and their age.
An employee is entitled to:
• 1.5 weeks’ pay for each full year of employment after their 41st birthday;
• one weeks’ pay for each full year of employment after their 22nd birthday; and
• half a weeks’ pay for each full year of employment up to their 22nd birthday.
Service is counted backwards from the date of dismissal.
Cap on redundancy pay - Statutory redundancy pay payable to an employee is capped at 20 years’ service. Weekly pay is capped at £538 per week (rate from 6 April 2020). This means that the maximum amount of statutory redundancy pay is £16,140 (20 x 1.5 x £538).
Working out a week’s pay - Where an employee is paid an annual salary, a week’s pay will simply be the annual salary divided by 52. If an employee’s pay varies, the average weekly pay over a 12-week period is used.
Is statutory redundancy pay taxable? - Statutory redundancy pay is not taxable as earnings. It is treated as a termination payment and counts towards the £30,000 tax-free threshold.
Example - An employee is made redundant on 1 May 2020. They celebrated their 45th birthday on 1 February 2020. The employee started work in 1 January 2006 (aged 30).
The employee has an annual salary of £36,400.
The employee has 4 complete years of service from their 41ist birthday (1 February 2016 to 30 January 2020).
The employee has a further ten years complete years’ service after their 22nd birthday and before their 41st birthday.
The employee has an annual salary of £36,400. This is equivalent to weekly pay of £700 per week. As this is more than the maximum weekly pay for statutory redundancy pay purposes, the calculation is based on £538 per week.
The employee is entitled to statutory redundancy pay of £8,608 ((1.5 x 4 x £538) + (10 x £528).
Contractual redundancy pay - If the employer operates a contractual redundancy pay scheme, the employer can pay contractual redundancy pay instead, as long as the employee receives at least what they would be entitled to as statutory redundancy pay.
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.
Late or unpaid rent – calculation of taxable profits
As with other sectors, landlords may be adversely affected by the Covid-19 pandemic. Tenants suffering cashflow difficulties may be unable to pay their rent in full or on time. The impact that unpaid or late paid rent has on the calculation of taxable profits depends on whether the landlord prepares accounts on the cash basis or under the accruals basis.
Cash basis - The cash basis is the default basis of preparation for most landlords whose cash receipts for the tax year are £150,000 or less. Under the cash basis income is recognised when the money is received not when it is earned, and expenses are accounted for when the money is paid not when the expenses is incurred. Receipts are income of the period in which the money is received, and expenses are outgoings of the period in which they are paid. Consequently, there are no debtors or creditors.
This provides automatic relief where rent is not paid or is paid late, protecting the landlord from having to pay tax on money he or she has yet to receive.
Example 1 - Harry is a landlord and lets a flat for £800 a month, payable on 25th of each month. Due to the Covid-19 pandemic, his tenant does not pay the rent that was due on 25 March 2020. The tenant eventually pays £200 of the overdue rent in June 2020 and the remaining £600 in September 2020.
Harry prepares the accounts for his rental property business on the cash basis, accounting for rental income only when the rent has been received. The rent due for March 2020 (falling in the 2019/20 tax year) is not received until June and September 2020 – which fall in the 2020/21 tax year. As a result, the rent for March is taken into account in computing Harry’s taxable profits for 2020/21 rather than 2019/20.
Accruals basis - Rental profit must be determined under the accruals basis in accordance with UK GAAP where the landlord is not eligible for the cash basis (for example, because rental receipts for the tax year are more than £150,000) or because the landlord elects for the cash basis not to apply. Under the accruals basis, rental income is taken into account in the period to which it relates, rather than when the rent is paid. Likewise, expenses are deducted when the expense is incurred not when the bill is paid, if different. There is no automatic relief if rent is not paid on time as under the cash basis.
Example 2 - Louisa has a number of rental properties and as her rental receipts exceed £150,000 a year, she prepares the accounts of her rental business under the accruals basis. One of her tenants fails to pay the rent of £2,000 for March 2020 which was due on 1 March 2020. The tenant eventually pays the late rent in September 2020.
As accounts are prepared under the accruals basis, the rent due for March 2020 is taken into account in working out the taxable profit for 2019/20, regardless of the fact that it was paid in 2020/21 rather than in 2019/20.
There is, however, relief available where the rent remains unpaid and is not recovered, as opposed to being paid late – a deduction is permitted for a debt which is genuinely bad or doubtful.
Claiming the NI employment allowance for 2020/21
The National Insurance employment allowance is available to eligible employers and can be set against the employer’s secondary Class 1 National Insurance liability. In the 2020 Budget, the Chancellor announced that the allowance would be increased to £4,000 for 2020/21. However, from 6 April 2020, it is only available to employers whose Class 1 National Insurance liability in the previous tax year was less than £100,000. Existing exclusions continue to apply, including that for companies where the sole employee is also a director -- meaning that personal companies rarely qualify.
If an employer has more than one PAYE scheme, the employment allowance can only be claimed in respect of one of the PAYE schemes.
Maximum amount of the allowance
For 2020/21, the National Insurance employment allowance is the lower of:
• the employer’s secondary Class 1 National Insurance liability for the year; and
Thus, where the secondary Class 1 National Insurance liability for the year is more than £4,000, the employment allowance is £4,000. It is set against the employer’s Class 1 National Insurance liability until it is used up. It cannot be set against Class 1A (payable on benefits in kind) or Class 1B (payable on items within a PAYE settlement agreement) liabilities – only secondary Class 1.
Remember to claim
The National Insurance employment allowance is not given automatically and must be claimed. A claim can be made through the employer’s payroll software; the claim is made in the Employment Payment summary by putting a ‘Yes’ in the Employment Allowance indicator field. It only needs to be claimed once for the tax year – once claimed it is available until the allowance has been used up. Any unused balance is carried forward to the next tax month.
The claim can be made at any time in the tax year, but it is advantageous to make the claim as soon as possible. If a claim is made too late to enable it to be fully offset against the employer’s secondary Class 1 National Insurance liability, the employer can either ask HMRC for a refund, providing that they do not owe anything to HMRC. Alternatively, the unused amount can be set against other tax bills which the employer has to pay – including VAT and corporation tax.
Employers eligible for the employment allowance should not only remember to claim it for 2020/21 – they should also check that they utilised the allowance in full in 2019/20.
Mortgage payment holidays and interest relief for landlords
In March, the Government announced that homeowners struggling to pay their mortgages due to Coronavirus would be able to take a three-month mortgage payment holiday. They confirmed that this option would also be available to buy-to-let landlords, who may suffer cashflow difficulties if, as a result of the virus, their tenants were unable to meet their rent in full when it is due. In May, the Government announced that those struggling to pay their mortgages because of the impact of Coronavirus would be able to extent their mortgage payment holiday by up to three months.
Where a landlord opts to take a mortgage payment holiday, what impact does this have on tax relief for interest payments?
Interest continues to accrue
The first point to note is that interest continues to accrue during the period of the mortgage holiday, although the landlord will not be required to make any payments during this time. This is important and will impact on the timing of the associated interest relief, which will depend on whether accounts are prepared on a cash basis or on the accruals basis.
At the end of the holiday, the missed payments and interest may be recovered by extending the term of the mortgage or by making higher payments once payments restart.
Relief as a basic rate tax reduction - From 2020/21 onwards, tax relief for finance costs (such as mortgage interest) on residential properties is given only as a tax reduction at the basic rate. This means that 20% of the allowable finance costs are deducted from the tax that is due.
Impact of a mortgage holiday – Cash basis - Most landlords whose rental receipts are £150,000 a year or less will prepare the accounts for their property rental business under the cash basis. As expenditure under the cash basis is recognised when paid, if the landlord does not make a payment, there will be no relief for that expense until the payment is made.
Where the landlord takes a mortgage, no interest will be paid during the period of that holiday. As a result, a landlord may pay less in interest in 2020/21 than in 2019/20. The interest rate reduction is calculated by reference to the interest paid in the year.
Example - Kevin has a buy-to-let property on which he has buy-to-let mortgage, the interest on is £500 per month. As a result of the Covid-19 pandemic, his tenant struggles to pay his rent on time. Kevin takes a three-month mortgage payment holiday. To mortgage term is extended as a result.
In 2020/21, Kevin only makes nine mortgage payments instead of the usual 12, paying interest of £4,500 rather than £6,000. The tax reduction for 2020/21 is £900 (£4,500 @ 20%) rather than £1,200 (£6,000 @ 20%).
Impact of mortgage payment holiday – Accruals basis - Under the accruals basis relief is given for the period in which the expense arises rather than when payment is made. As interest continues to accrue throughout a mortgage holiday, the landlord will be able to claim the full tax reduction on the interest accruing in the 2020/21 tax year, even if the interest was not paid in full in the year because the landlord took advantage of a mortgage payment holiday. If, in the above example, Kevin prepared his accounts for 2020/21 on the accruals basis, he would be able to claim a tax reduction of £1,200 rather than £900.
Tax implications of uncommercial lets
There are various circumstances in which a landlord may let a property at rate which is below the current market rate or, indeed, allow the property to be used rent-free. For example, during the Covid-19 pandemic, landlords may have agreed a reduced rent with tenants who are struggling financially and are unable to meet the normal rental payments in a bid to help them out and on the basis that some rent is better than none. Where a landlord has properties that would otherwise be empty, these may have been occupied by family and friends either at a low rent or rent-free.
When reaching the decision to allow the property to be occupied rent-free or at a rate below the market rate, the impact on the deductibility of expenses was probably overlooked.
Restriction on relief
While the landlords motives might have been philanthropic, unfortunately this approach is not shared by HMRC when it comes to allowing a deduction for expenses incurred in a period when the property when not let at a commercial rent.
For expenses to be deductible in computing the profits of the property rental business, those expenses must have been incurred wholly and exclusively for the purposes of the property rental business. HMRC take the view that if the landlord does not charge the full market rent or impose normal market lease conditions, it is unlikely that this test is met. A strict interpretation would mean that expenses could not be deducted.
Deductions capped at level of rental income
Where a property is let for a rent which is less than the market rent that the landlord could obtain, HMRC permit expenses to be deducted up to the level of the rental income received. It is therefore not possible to create a loss in relation to an uncommercial let. Where the expenses exceed the rental income, no relief is given for the excess expenses – they cannot be carried forward to the following year, even if the property is let at a commercial rate in that year. No deduction is permitted for expenses relating to a period when the property is occupied either by the landlord or by family or friends rent-free.
Where the period for which the property is let at an uncommercial rate is temporary, if possible, delay significant expenditure to a future period when the property is let commercially so that full relief for the expenditure can be obtained.
In the situation where a friend or relative house sits while a property is empty, expenses incurred in that period can be deducted if the property genuinely remains available for commercial letting and the landlord is actively seeking a tenant. HMRC guidelines suggest relief will not be lost if a relative house sits for one month over a three-year period.
However, no deduction is available for expenses incurred while a property is occupied rent-free by a friend or relative who is essentially using the property to take a holiday. Where a holiday home is let commercially for some of the time and used rent-free by the landlord or by his or her friends or relatives some of the time, the expenses should be apportioned between the commercial and uncommercial use. Expenses related to the commercial use can be deducted in excess of the rent for commercial lets; however, expenses apportioned to uncommercial use can only be deducted up to the level of the rent received, if any.
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.
What can be done with property rental losses?
During the COVID-19 pandemic, landlords may find that tenants are unable to pay their rent, and, when a let comes to an end, that they are unable to re-let the property, or have to accept lower rent. As a result, they may make a loss on their property rental business.
Calculating the loss
Any loss arising from the property rental business is calculated in the same way as profits. Where the cash basis is used, as will generally be the case being the default basis of preparation for most smaller landlords, the loss for the period will be the cash received by the property rental business less the cash paid out.
Automatic set off against properties in the same property rental business
As profits and losses are calculated for the property rental business as a whole, if there is more than one property in the rental business, a loss on one property is automatically set against any profit from other rental properties in the same business.
A landlord has three properties that he lets out. In 2019/20 he makes a loss of £3,000 on property A, a profit of £2,000 on property B and profits of £1,500 on property C.
The loss on property A is set against the profits on property B and C when calculating the overall result for the property business as a whole. Overall, the property business has a profits of £500 (-£3,000 + £2,000 + £1,500).
Utilising a loss
The general rule is that a loss on a property rental business can be carried forward and set against profits from the property rental business in the following year. If there is a loss in the next year or profits are not sufficient to fully utilise the loss, any unused part of the loss can be carried forward to the next year and so on until it can be used. There is no limit on the number of years for which the loss can be carried forward.
The same property business
Losses can only be set against the future profits of the same property business. If the landlord has more than one property business, for example a UK property business and an overseas property business, the losses from one cannot be set against the profits of another. Losses from a furnished holiday letting business can only be carried forward and set against profits of that business.
A landlord has a property rental business. In 2017/18 he makes a loss of £5,000, in 2018/19 he makes a profit of £4,000 and in 2019/20 he makes a profit of £3,000.
The loss of £5,000 is carried forward and £4,000 of it is set against the profits of 2018/19, reducing the profits for that year to nil. The balance of the loss of £1,000 which cannot be used is carried forward and set against of 2019/20, reducing the taxable profit for that year to £2,000.
Losses lost if property rental business ceases
If the property rental business ceases before the losses have been used up, the losses are lost. This remains the case if the landlord starts a new property business after a gap as the new business will be a different property rental business.
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Adrian Mooy & Co is the trading name of Adrian Mooy & Co Ltd. Registered in England No. 05770414.
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