CHARTERED ACCOUNTANTS (ICAEW)

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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...

Setting up as a sole trader

When starting a business, there are a number of ways in which this can be done. Options include operating as a sole trader, forming a partnership or setting up a limited company. Of these, operating as a sole trader is the simplest.Taxes you must payIf you run an unincorporated business as a sole trader, you are self-employed for tax purposes. If you make a profit, you will need to pay income tax on that profit if your total taxable income for the year is more than your tax-free allowances. Unli...

Overdrawn director’s loan account – must your company pay tax on the balance?

In personal and family companies, the lines between the company’s finances and the director’s finances may become blurred. A director may withdraw money from the company for personal use or may lend money to the company. The company may pay some of the director’s personal bills, and the director may personally meet some company expenses. The director’s loan account is simply an account for recording the transactions between the director and the company in much the same way as a bank acco...

Move back into a former home prior to sale to maximise PRR

Where a property has at some time been a main residence, certain periods of absence are treated as periods of residence for the purposes of private residence relief (PRR). With some planning, it is possible to take advantage of this to minimise a taxable gain arising on the disposal of a property.Three-year absence for any reasonOne of the permitted absences is a period of absence of up to three years for any reason. This will count as a period of residence provided that the owner lived in the p...

Different ways of owning property and why it might matter

Under English property law, there are two ways in which property can be owned jointly – as joint tenants and as tenants in common. The way in which the property is held can have tax consequences. It also determines what happens if one of the joint owners dies.Joint tenantsWhere a property is owned as joint tenants, the owners together own all of the property equally – together they own the whole rather than each owning a specified share.Where the property is let, the tax implications depend ...

Selling your house and garden separately – why the order matters

There are circumstances in which it may be desirable to sell some or all of a garden or the land attached to a residence separately from the residence itself. Where this is on the cards, it is essential to plan ahead to prevent an unwanted tax liability arising accidentally. Here, it is vital that the separate sales are conducted in the correct order to preserve private residence relief.Nature of private residence reliefPrivate residence relief prevents a capital gains tax liability from arising...

MTD latest update

Nearly ten years ago in March 2015 the then-Chancellor George Osborne announced a government initiative setting out a vision for the 'end of the tax return' and a 'transformed tax system' under the title of 'Making Tax Digital' (MTD). The MTD start date for small businesses was first planned as being April 2018, then the focus switched to MTD for VAT which commenced on time for most VAT registered businesses, for VAT periods starting on or after 1 April 2019.Since then, there have been various d...

Is there such a thing as having too much cash?

While having more money in your bank account than is needed may seem ideal, for director shareholders of a company with surplus cash, it could be storing up future problems. The poor or non-existent interest rates for company bank accounts and the impact on shareholders' ability to benefit from various tax reliefs, including Inheritance Tax Business Relief (formerly known as Business Property Relief), are potential consequences that should be considered and prepared for.Initially a cash surplus ...

VAT – the partial exemption 'trap'

If a VAT registered business has taxable income only (including zero-rated sales), it is entitled to full input tax recovery on its expenses, subject to the usual rules. Businesses with exempt income only cannot claim input tax and will not be registered for VAT, in most cases. The 'trap' problem comes when a business makes both taxable and exempt supplies, and incurs VAT on costs relating to both – then some kind of input tax apportionment is needed.A typical example of a partial exemption bu...

Tax planning for trading losses

A sole trader or partnership business may make a loss for several reasons – not necessarily because it is not doing well. A business can be operationally successful but still report losses due to various strategic, financial or external factors.There are several options available to gain tax relief for a loss. The default position is the ability to carry forward the loss and offset it against taxable income in future years, thereby reducing the tax liabilities for those years. The problem with...

Tax implications of building an office for home working

Following the pandemic, flexible working hours are on the increase. This shift has provided employees with the legal right to request flexible working from the first day of their employment. However, there is no statutory right for employees to work from home as yet. Homeworking is already the norm for many self-employed. Where existing space is not suitable at home for a room to be set aside as an office, many may look to build an extension, convert a loft or build a garden room. Should th...

Should you dispose of old documents?

Over the past few years, tax enquiries aimed at identifying and correcting errors or deliberate under-reporting in tax returns have increased. HMRC generates substantial revenue from all compliance activities and although the exact proportion relating to tax enquiries is not always separately reported, latest figures show that for 2023-24 the amount secured from all tax compliance activities was in the region of £41.8 billion. Read this article to find out more.Receiving an enquiry letterThe fi...