Do you know?

We are approaching the end of the calendar year, goodbye 2019, and the end of the of the current tax year, 2019-20, will draw to a close 5 April 2020.

Add to this self-assessment deadlines, Brexit changes, election results and will we – won’t we – have a budget speech any time soon, and it’s clear that the outlook for businesses, taxpayers and their advisers is changeable and hectic.

We are approaching a period of significant change in multiple areas that have an impact on our financial affairs. In our opinion, there has never been a more crucial time for serious planning. In particular:

  • All businesses should be availing themselves of the reporting benefits of keeping their accounts electronically. There are a number of online, cloud-based systems available at low cost that can take the misery out of this repetitive chore. Benefits are legion, improved: cash-flow, credit control, and real-time management information.
  • All self-assessment taxpayers should have their tax returns for last year filed and be aware of tax payments due on or before 31 January 2020.
  • Have you taken advantage of our year-end tax planning review? Many of the opportunities to reduce your annual tax bills need to be actioned before the end of the tax year, 5 April 2020.

Add to this a rethink of your capital gains tax and inheritance tax position for 2019-20. Again, action needs to be taken before the end of the tax year.

If you have significant business interests and/or personal income sources that are approaching or exceeding the higher rate tax band triggers, and you have not yet examined opportunities to reduce your liabilities, please call, the clock is ticking.

The benefits of Furnished Holiday Lets

Most buy-to-let property is let on short leases to a single tenant. The income from rents is treated as a property business, but a number of reliefs available to other trading businesses are not available to buy-to-let landlords.

However, if these same properties were let as Furnished Holiday Let (FHLs) property, more advantageous tax benefits may apply.

If you let properties that qualify as FHLs:

  • you can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders),
  • you are entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures, and
  • the profits count as earnings for pension purposes.

To benefit from these rules, you will need to work out the profit or loss from your FHLs separately from any other rental business.

Accommodation can only qualify as an FHL if it passes 3 occupancy tests

  1. If the total of all lettings that exceed 31 continuous days is more than 155 days during the year, this condition is not met so your property will not be an FHL for that year.
  2. Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year. Do not count any days when you’re staying in the property. HMRC do not consider the property to be available for letting while you are staying there.
  3. You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year. Do not count any days when you let the property to friends or relatives at zero or reduced rates as this is not a commercial let.

Do not count longer-term lets of more than 31 days, unless the 31 days is exceeded because something unforeseen happens. For example, if the holidaymaker either: falls ill or has an accident, and cannot leave on time or has to extend their holiday due to a delayed flight

These notes cover the basics and there are other rules that may help you to average occupancy stats to meet the above criteria.

There are significant CGT benefits to reorganising appropriate lets as FHLs and we would encourage landlords who would like to consider this option, to contact us for more information.

Higher National Living Wage rates

Businesses that have a significant number of workers who are paid at the National Minimum Wage or National Living Wage (NLW) rates should probably read the recent independent report that suggests rates of NLW could rise, as internationally, there is evident that realistic rises have little impact on employment levels but do have a positive impact on the take home pay of lower paid workers.

The report says:

The review, published Monday 4 November, concludes minimum wages in a range of countries have had a negligible or zero effect on jobs, but significantly increased the earnings of the lowest paid. The Chancellor has pledged a more ambitious NLW so that on current projections it is set to reach £10.50 per hour by 2024, as part of his commitment to do more to end low pay.

Chancellor of the Exchequer, Sajid Javid, said:

The evidence is clear that our approach is the right one.

We will end low pay by putting the National Living Wage on a path to increase to £10.50 over the next five years.

The previous NLW target was to reach 60% of median earnings by 2020. In line with the conclusions of the Dube Review, the Chancellor Sajid Javid has pledged to increase the NLW towards a new target of two-thirds of median earnings by 2024, provided economic conditions allow. The Chancellor additionally committed to expand the living wage to more young people by bringing down the age threshold for the NLW to cover all workers over the age of 21.

These recommended changes do not mean that the NLW will increase in line with the above comments. However, affected businesses may like to incorporate the possible increases into their medium term planning forecasts.

Employing someone at home

Believe it or not, HMRC will consider you are the employer of a nanny, housekeeper, gardener or anyone else who works in your home if both the following criteria apply:

  • you hire them, and
  • they are not self-employed or paid through an agency.

If these criteria do apply this means you have certain responsibilities, like meeting the employee’s rights and deducting the right tax.

There are special rules for au pairs, who are not usually considered workers or employees.

You are classed as an employer if you pay a carer or personal assistant directly, even if you get money from your local council (‘direct payments’) or the NHS to pay for them.

Anyone you employ must:

  • have an employment contract
  • be given payslips
  • not work more than the maximum hours allowed per week
  • be paid at least the National Minimum Wage

If they meet the eligibility requirements, they are also entitled to things like:

  • Statutory Maternity Pay
  • Statutory Sick Pay
  • paid holiday
  • redundancy pay
  • a workplace pension

In effect, you would be treated as an employer and would need to comply with the usual obligations to register and apply the PAYE regulations.

If you are concerned that you may be affected we can help you set up and maintain the necessary payroll records.

Negligible value claims

Occasionally, the tax system in the UK throws up an issue that does not make sense. For example, how can you create a tax loss for capital gains tax (CGT) purposes without disposing of the asset?

After all, CGT applies when an asset subject to CGT is sold or otherwise disposed. If you sell an asset for more than you acquire it you make a gain for CGT purposes and if you dispose of an asset for less that you paid for it then you make a loss for CGT purposes.

So far, so good…

 

What if you own shares in a quoted company that are currently worth much less than you paid for them? You may consider that there is a possibility – perhaps a remote possibility – that the share price will recover in which case you may want to keep the shares.

But what if the present value of the shares means you are sitting on a significant CGT tax loss, a tax loss that you may be able to utilise against other chargeable gains?

Which brings us back to the opening comment of this post, how can you create a tax loss for capital gains tax (CGT) purposes without disposing of the asset?

The answer in to make what is called a Negligible Value Claim. This what HMRC offer in guidance on this topic:

If you own an asset which has become of negligible value in your ownership then you may choose to make a negligible value claim so that you’re treated as having disposed of an asset even though you remain the owner.

The claim is made when we receive it, even if you choose to use a tax return to make the claim. The conditions for making a claim are that:

  • you must still own the asset when you make the claim,
  • the asset must have become of negligible value while you owned it.

So, if the asset was of negligible value when you acquired it then it could not become of negligible value when you owned it. An asset is of negligible value if it is worth next to nothing.

If you make a competent negligible value claim then you’ll be treated as though you had disposed of the asset and immediately reacquired it at the time the claim is made for an amount equal to the value which you specified in the claim. That time will be after the year to which the tax return relates.

When you make the claim, you may choose to specify an earlier time when you will be treated as though you had disposed of and immediately reacquired the asset. If you want to specify an earlier time then you have to meet all of the necessary conditions to make the claim at the time the claim is made that are explained above.

If, by chance, you have a shareholding in your portfolio that is of no real value and you could utilise any CGT loss to good advantage, please get in touch and we will help you submit a formal claim to HMRC.

Taxing aspects of electric cars for your business

This article does not cover the risks of owning an electric car, depreciation rates etc. Instead it discusses the tax implications if you buy an electric car for business purposes.

As electric cars have zero carbon emissions for tax purposes it should be possible to claim what is called a “first year allowance” when the car is purchased from new. Effectively, this means that you can write-off up to 100% of the cost of the car against your business profits in the year that you buy the vehicle.

This allowance is only available for new vehicle purchases. If you buy a used electric car for business, you can only claim a “main rate” writing down allowance of 18%.

Additionally, self-employed traders will need to reduce their claim for either of these allowances if there is any private use of the vehicle.

When the car is sold, if you have claimed the 100% first year allowance then all of the proceeds of sale will be taxable as a balancing charge. The balancing charge will be reduced if there is any private use.

If you have the use of an electric company car, it will still attract a car benefit charge for the driver and a National Insurance charge for the employer, albeit at the lowest rates.

The ability to be able to write-off the cost of a car in the year of purchase is appealing as this boosts the initial cash-flow benefits of going-electric.

And, of course, there are environmental considerations…

Gifts and Inheritance Tax

When you make a gift to third parties you are potentially transferring part of your estate and a life-time charge to IHT may be applied.

However, in most cases you will not need to open your cheque book as there are a number of exemptions that may cover your intended gifts.

The current gift exemptions are reproduced below.

You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’.

You can carry any unused annual exemption forward to the next year – but only for one year.

Each tax year, you can also give away:

  • wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
  • normal gifts out of your income, for example Christmas or birthday presents – you must be able to maintain your standard of living after making the gift
  • payments to help with another person’s living costs, such as an elderly relative or a child under 18
  • gifts to charities and political parties

 

You can use more than one of these exemptions on the same person – for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.

You can give as many gifts of up to £250 per person as you want during the tax year as long as you have not used another exemption on the same person.

Even if your gift is not excluded by these exemptions any tax payable can be deferred under the “potentially exempt transfer” or PETs. Essentially, as long as the person making the gift lives seven years after making the gift, no IHT is payable. A sliding scale applies if the donor dies during this seven year period.

Working after State Pension age

It is fine to keep working past your State Retirement Age unless your employment is subject to retirement at a compulsory retirement age. If your employer does this, they must give a good reason, for example: the job requires certain physical abilities (e.g. in the construction industry) or the job has an age limit set by law (e.g. the fire service).

To be clear, a forced retirement age of 65 no longer exists.

You can also ask your employer if you can work more flexibly or work part-time. They have the right to reject your request.

You can claim your State pension while you are working, as long as you’ve reached the State Pension age. You can also work if you are claiming a personal or workplace pension. However, check with your pension provider or employer if you have a workplace pension as reducing your working hours could affect how much pension you will receive. You should also check to see what happens to your workplace pension if you continue working beyond the age when you can take it.

If you delay (defer) taking your State Pension, you will get larger weekly payments when you do start taking your pension.

A bonus

You don’t pay National Insurance if you work past State Pension age.

Selling shares?

As a general rule, if you sell shares for more than you paid for them, any profit you make will be chargeable to Capital Gains Tax (CGT).

Shares and investments you may need to pay tax on include:

  • shares that are not in an ISA or PEP
  • units in a unit trust
  • certain bonds (not including Premium Bonds and Qualifying Corporate Bonds).

CGT will not usually be payable if you give shares as a gift to your husband, wife, civil partner or a charity.

You also do not pay Capital Gains Tax when you dispose of:

  • shares you’ve put into an ISA or PEP
  • shares in employer Share Incentive Plans (SIPs)
  • UK government gilts (including Premium Bonds)
  • Qualifying Corporate Bonds
  • employee shareholder shares – depending on when you got them

The amount of CGT payable will depend on your other earnings in the tax year. You may also be able to claim other reliefs if you are selling shares in a business that you control.

Finally, we are all entitled to make tax-free capital gains each tax year. For 2019-20, the CGT annual exemption is £12,000.

Tax Diary November/December 2019

1 November 2019 – Due date for Corporation Tax due for the year ended 31 January 2019.

19 November 2019 – PAYE and NIC deductions due for the month ended 5 November 2019. (If you pay your tax electronically the due date is 22 November 2019.)

19 November 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2019.

19 November 2019 – CIS tax deducted for the month ended 5 November 2019 is payable by today.

1 December 2019 – Due date for Corporation Tax due for the year ended 28 February 2019.

19 December 2019 – PAYE and NIC deductions due for the month ended 5 December 2019. (If you pay your tax electronically the due date is 22 December 2019)

19 December 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2019.

19 December 2019 – CIS tax deducted for the month ended 5 December 2019 is payable by today.

30 December 2019 – Deadline for filing 2018-19 self-assessment tax returns online to include a claim for under payments to be collected via tax code in 2020-21.