CHARTERED ACCOUNTANTS (ICAEW)

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Planned changes to agricultural property relief

Protests by farmers following the October 2024 Budget have catapulted agricultural property relief (APR) into the spotlight. But what is the relief, who can benefit and how is it changing?Nature of APRAPR and its companion relief, business property relief (BPR), are inheritance tax reliefs which reduce or eliminate the inheritance tax payable when qualifying assets are passed on, either during the transferor’s lifetime or on their death. There are two rates of relief – 100% and 50%.APR is av...

Gift the holiday let by 5 April 2025 to benefit from hold-over relief

The favourable tax regime for furnished holiday lettings is to come to an end on 5 April 2025. This will mean that landlords of furnished holiday lettings will lose access to a range of valuable capital gains tax reliefs, including gift hold-over relief.Nature of the reliefGift hold-over relief is a capital gains tax relief that may be available on gifts of business assets. Where the relief is claimed, the capital gains tax that would otherwise be payable on the gift is deferred until the recipi...

When a dwelling is uninhabitable

Stamp duty land tax (SDLT) is charged at the residential rates on residential property and at the non-residential rates on non-residential or mixed property. For the residential rates to apply, the building must be ‘used or suitable for use as a dwelling or in the process of being constructed or adapted for such use’. Where the property is derelict and cannot be used as a dwelling, SDLT is charged at the non-residential rates. If the property in question is a second or subsequent residential...

The tax implications of buying a commercial property at auction

Purchasing a commercial property at auction is a common occurrence. Although usually the sale or lease of a commercial property is exempt from VAT, sometimes the commercial property listed for auction is being sold in circumstances where the question of whether a charge to VAT arises. HMRC deems 'commercial property' as a non-residential building such as a shop, office, warehouse, restaurant, farm, etc. and includes some student accommodation, hotels and care homes. If a business is selling a co...

When would taking benefits in kind be more tax efficient than salary and dividends?

For many years the most tax-efficient method of withdrawing monies from a company by a sole director/owner has been to take salary up to the employer's secondary employer's NIC limit, with the balance taken as dividends. However, since July 2022, this standard calculation has changed such that withdrawing profits in the form of benefits in kind (BIK) may now be a consideration.By setting the employee primary NIC threshold and the personal allowance at the same amount of £12,570 and retaining th...

Tax implications where an employer provides a van to an employee

Benefits in kind (BIK) are goods and services provided to an employee (or a member of their family or household) for free or at significantly reduced cost. The type of benefit and the way it is provided can affect the tax and NICs to be paid and the reporting requirements.Private use of a company vehicle creates a taxable BIK, with the amount of  benefit depending on the type of vehicle and fuel. The tax charge on an employee's private use of a van is generally lower than that of a car (zer...

What to do if you cannot pay your tax bill

As the cost of living crisis continues to bite, you may find that come 31 January 2025 you are struggling to pay your Self Assessment tax bill. If this is the case, it is important that you do not bury your head in the sand – the bill will not go away and, with the addition of interest and penalties, will become bigger. However, there are options available which may allow you to pay what you owe over a longer period.Coding outIf you filed your 2023/24 tax return online by 30 December 2024 or f...

Using the VAT flat rate scheme

The VAT flat rate scheme is a simplified flat rate scheme which can be used by smaller businesses to save work. Under the scheme, businesses pay a set percentage of their VAT inclusive turnover to HMRC rather than the difference between the VAT that they charge and the VAT they suffer on the goods and services that they buy. The percentage that they need to pay depends on the sector in which they operate, and also on whether they are a limited cost business. The main advantage of the scheme is t...

Is it worth paying voluntary Class 3 NICs?

The payment of National Insurance contributions is linked to entitlement to the state pension. If sufficient National Insurance contributions of the right type are paid for a tax year, that year counts as a qualifying year for state pension and benefit purposes. A person may also secure a qualifying year if they are awarded National Insurance credits for that year. This may be because they have low earnings or are in receipt of certain benefits, such as child benefit or carer’s allowance.Peopl...

Using ISAs to benefit from tax-free savings income

A combination of higher interest rates and stealth taxation may mean that you are now paying tax on savings income for the first time. If this is the case, it may be worth taking out an Individual Savings Account (ISA) to enjoy more of your investment income tax-free. ISAs are available from a number of financial institutions, including banks and building societies, credit unions, friendly societies, stockbrokers, peer-to-peer lending services and crowdfunding companies.There are different types...

What expenses can you deduct if you are self-employed?

If you are self-employed, you will pay tax on your taxable profit. In working out your taxable profit, you can deduct certain expenses that you have incurred in running your business. The basic rule is that expenses can be deducted if they are incurred wholly and exclusively for the purposes of the trade.This rule precludes a deduction for private expenditure. Where possible, it is advisable to use separate bank accounts for business and personal expenditure to keep them separate and reduce the ...

Impact of increase in SDLT supplement

Despite the shortage in rental accommodation, investment in residential property is out of favour. In her Autumn Budget, the Chancellor increased the cost of buying a second or subsequent residential property by raising the stamp duty land tax (SDLT) supplement by two percentage points, from 3% to 5%, with effect from 31 October 2024.SDLT is payable on the chargeable consideration on land and property in England and Northern Ireland. Land and Buildings Transaction Tax is payable on land and prop...

Time to sell the investment property?

One of the few pleasant surprises in the Autumn 2024 Budget was that the Chancellor did not increase the rate of capital gains tax on residential property gains, opting instead to bring the standard rates in line with the residential rates. The top rate applying to residential property gains once income and gains exceed the basic rate band remains at 24%, having been reduced from 28% to 24% from 6 April 2024. The rates are due to remain at 18% where income and gains are within the basic rate ban...

Maximise BADR on sale of the furnished holiday let

The favourable tax rules that apply to furnished holiday lettings (FHL) come to an end on 5 April 2025. For many landlords, this may be the time that they decide to bring their FHL business to an end and to sell up.One of the main benefits of the existing FHL regime is the ability to access Business Asset Disposal Relief (BADR) on the disposal of business assets following the cessation of the business. Currently, the capital gains tax rate where BADR applies is 10%, compared to a rate of 24% for...

Pre-trading loan trap – sole trader v company tax relief

Many start-up businesses take out loans to get going, e.g. to purchase stock needed to sell, or to make the first rent payment or rent deposit. Whether that business is set up as unincorporated or as a company will impact on when interest paid before trading is allowable for tax purposes.Unincorporated businessThe most straightforward situation is where the business is set up as a sole trader or partnership. In this situation, any interest incurred pre-trading but paid personally will be treated...

The impact of working from home on travel and subsistence claims

Post pandemic, homeworking has become the norm, especially the increase in 'hybrid' working, i.e. spending part of the week at home and part in the office.On the face of it, claims for tax relief on travel and subsistence costs for such employees should be straightforward, as in no claim, because if the employee were not working from home, they would bear the cost of ordinary commuting to the office or workplace.However, that does not consider s337-339 ITEPA 2003which confirms that a deduction f...

Alternative Dispute Resolution – is it worth using?

HMRC's Alternative Dispute Resolution (ADR) process was introduced over a decade ago, the intention being to provide an 'alternative' cost-effective method for dealing with disputes between taxpayers and HMRC. ADR is a free service, although taxpayers can involve a professionally accredited mediator from outside HMRC at their own cost.The ADR processThe process allows for the involvement of a trained ‘facilitator’, who works with both parties to resolve the dispute. The idea is that in a sta...

Mandatory payrolling – what will it look like?

Under payrolling, employers deal with taxable benefits provided to employees through the payroll, treating the taxable amount of the benefit like additional salary and deducting the associated tax from the employee’s cash pay. Where a benefit is payrolled, the employer does not need to report it to HMRC via the P11D process after the end of the year. However, the benefit must still be taken into account in calculating the employer’s Class 1A National Insurance liability on their P11D(b).Curr...

Extension of MTD

Under Making Tax Digital for Income Tax Self Assessment (MTD for ITSA), sole traders and unincorporated landlords within its scope will be required to keep digital records of their trading and/or property income and provide quarterly updates to HMRC using MTD-compatible software. Its introduction is being phased in.Phase 1 – April 2026 start dateFrom 6 April 2026, MTD for ITSA will apply to sole traders and unincorporated landlords whose combined taxable business and property income exceeds £...

Dispose of your business sooner rather than later to benefit from the best BADR rates

Business Asset Disposal Relief (BADR) is a valuable relief which reduces the rate of capital gains tax payable on gains made on the disposal of all or part of a business or the sale of shares in a personal trading company. The relief was previously known as Entrepreneurs’ Relief.A sole trader selling all or part of their business must have owned the business for at least two years prior to the date of sale. The same test must be met where the business is being closed and the assets are being s...

Tax-efficient Christmas parties and gifts

Employers looking to spread some seasonal cheer can do so in a tax-efficient manner by taking advantage of the exemptions for annual parties and functions and trivial benefits.Christmas partiesThe tax exemption for annual parties and functions will only apply to a Christmas party if the following conditions are met.1. The event is an annual event – one-off events do not qualify.2. The event is open to all employees or to all those at a particular location.3. The cost per head (inclusive of VAT...

NIC for employers to rise

One of the key announcements in the Autumn 2024 Budget was the rise in employer’s National Insurance contributions from 6 April 2025. From that date, the rate of secondary Class 1 National Insurance contributions is increased by 1.2 percentage points, from 13.8% to 15%. In a further blow, the secondary threshold – the point above which employer contributions become payable – will fall from £9,100 to £5,000.On the plus side, the Employment Allowance is to rise from the same date, from its...

VAT invoice and accounting controls

VAT-registered businesses who use invoice accounting generally account for VAT when invoices are issued and received. HMRC have recently published new Guidelines for Compliance which set out their recommended approach to the compliance process to ensure that VAT is accurately declared by the business. The guidelines can be used to help establish an appropriate tax control framework which identifies and assesses tax risk and has effective controls in place to reduce those risks. The guidelines co...

Home responsibilities protection – do you have missing years?

Entitlement to the full state pension depends on having sufficient qualifying years. Where a person reaches state pension age on or after 6 April 2016, they need 35 qualifying years for a full state pension. If they have less than 35 qualifying years but at least 10, they will receive a reduced state pension.A qualifying year is secured either through the payment of Class 1, Class 2, Class 3 or Class 4 National Insurance contributions or the award of National Insurance credits. National Insuranc...

File your tax return by 30 December to pay what you owe through PAYE

If you pay tax through PAYE, as will be the case if you are an employee or a pensioner, you may need to complete a Self Assessment tax return if you have other sources of income, such as income from property or investments or from self-employment. If at least 80% of the tax that you owe is collected through PAYE, you will not have to make payments on account, even if the tax that you owe under Self Assessment is more than £1,000.The normal deadline for paying tax under Self Assessment is 31 Jan...