CHARTERED ACCOUNTANTS (ICAEW)

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Investing in woodlands – Tax implications of an unusual type of investment

Drive along a country road and you may come across signs advertising 'Woodlands for sale'. Such signs invite investment in commercial woodlands which can come with valuable tax breaks.Tax on profitsProfits from selling the timber, whether felled or standing, are exempt from income and corporation tax but only if the woodland is managed on a 'commercial basis' with a view to making profits. The downside of non-taxable profits is that there is no tax relief for losses or costs incurred in managing...

MTD – A time to incorporate?

After years of deferral, the long-anticipated Making Tax Digital (MTD) for Income Tax start date has finally been confirmed. This is a significant development that will impact millions of business owners and landlords, necessitating a change in the way their earnings are reported to HMRC. In the Autumn Budget 2024 the government confirmed that by the end of this parliament all self-employed individuals and landlords with incomes over £20,000 will come within the MTD regime. In comparison, no ti...

Business entertainment – usually not allowable – but when can you claim

HMRC’s rules state that expenditure on business entertainment or gifts cannot be claimed as a deduction against profits (and therefore also non-VAT deductible), even if a genuine expense of the trade or business. However, that is not entirely true – there are a few exceptions.What is 'entertaining'?The rules are designed to prevent tax relief from being used as a means to subsidise personal or social costs, but interestingly there is no legal definition of what constitutes 'entertaining'. Th...

Relief for FHL losses post April 2025

From 6 April 2025 onwards, furnished holiday lettings are treated for tax purposes in the same way as other residential lets, and residential lets and furnished holiday lets owned by the same person (or same persons) form part of the same property rental business.Prior to 6 April 2025, furnished holiday lettings had their own regime. Under these rules, losses from furnished holiday lettings could only be carried forward and set against future profits from furnished holiday lets – they could no...

ATED returns for 2025/26

The annual tax on enveloped dwellings (ATED) is a tax that is payable mostly by non-natural persons (mostly companies) owning UK residential property valued at more than £500,000. Unless one of the exemptions applies, the company will need to file an ATED return and pay the associated tax.The returnWhere a property within the charge is held on 1 April 2025, the ATED return for the period from 1 April 2025 to 31 March 2026 must be filed by 30 April 2025. The return will normally be filed online ...

Looking ahead to MTD for landlords

The way that many landlords will report details of their income and expenses to HMRC is changing from April 2026 onwards. This is when Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) comes into effect. Landlords who fall within the scope of MTD for ITSA will need to keep digital records, use MTD-compatible software and send quarterly updates to HMRC. This will impose new compliance obligations on them and change the way in which they interact with HMRC.Start date 1: 6 April 2026...

Reporting 2024/25 taxable expenses and benefits

If as an employer you provided employees with taxable expenses and benefits in the 2024/25 tax year, you will need to ensure that you meet your reporting obligations in respect of those benefits. This will include providing information to HMRC and to your employees. The exact nature of your reporting obligations will depend on whether or not you payrolled those benefits.Payrolled benefitsWhere benefits are taxed through the payroll (payrolling), much of the reporting to HMRC is done on an ongoin...

Taxation of company cars in 2025/26 and beyond

Employees with a company car available for their private use pay tax on the benefit. The amount that is charged to tax is a percentage of the list price of the car and any optional accessories, as adjusted to reflect any capital contributions made by the employee up to £5,000. The percentage, which is known as the ‘appropriate percentage’, depends on the level of the car’s CO2 emissions. A supplement applies to diesel cars that fail to meet emissions standards. The charge is adjusted to r...

Official rate of interest

The official rate of interest is a rate set by HMRC which is used to calculate the benefit in kind tax charge on cheap employment-related loans, and also the amount charged to tax in respect of the provision of employer-provided living accommodation where the cost of that accommodation is more than £75,000.Employment-related loansThe amount charged to tax in respect of the benefit of a taxable cheap employment-related loan is found by comparing the amount of interest paid by the employee (if an...

Pension savings in 2025/26

Putting money into a registered pension scheme can be tax efficient. Individuals can make contributions in their own right, or even for someone else, and employers can make contributions on their employees’ behalf (and indeed must do so under auto-enrolment). Tax relief is available on contributions up to certain limits.Auto-enrolmentUnder auto-enrolment, employers must enrol eligible employees into a registered pension scheme and make contributions on their behalf. An eligible employee is one...

National Insurance changes from April 2025

Last October Chancellor Rachel Reeves announced some far-reaching National Insurance changes which will affect employers from April 2025. She also confirmed the rates applying to employees and to the self-employed.EmployersThe 2025/26 tax year starts on 6 April 2025. From that date, the secondary threshold (which is the point at which employers start paying secondary contributions on employees’ earnings unless one of the higher secondary thresholds applies) falls to £96 per week (£417 per mo...

End your FHL business by 5 April to benefit from existing reliefs

The favourable tax regime that applies to landlords letting furnished holiday accommodation comes to an end on 5 April 2025. For 2025/26 and later tax years, furnished holiday lets will be treated in the same way as other residential lettings. While this will absolve the landlord from the need to hit letting and availability targets (other than the less onerous ones needed for business rates purposes), the ability to benefit from valuable capital gains tax reliefs will also be lost. However, the...

What counts as agricultural property for APR?

Farmers have been hitting the headlines of late following the October 2024 Budget announcement that the rate of agricultural property relief and business property relief will be cut from April 2026 so that the 100% rate will only apply to the first £1 million of combined business and agricultural property from that date. In excess of this, the relief will be given at a rate of 50% – equivalent to an inheritance tax (IHT) charge of 20%. Farmers will continue to benefit from the nil rate band a...

Relief for interest on mixed residential and commercial properties

The way in which unincorporated landlords obtain relief for interest depends on the nature of the property that they let. Where the property is a commercial property, the interest and finance costs can be deducted in full in calculating the taxable profits. However, for residential properties (with the exception of furnished holiday lets for 2024/25 and earlier tax years), relief for interest is now given in the form of a tax reduction, rather than as a deduction in calculating taxable profits. ...

Spreading the cost of selling your company – Cash or loan notes (earn-outs) – What are the tax implications?

There comes a time in every business owner's life when retirement looms and thoughts turn to succession planning. Planning should ideally start two years before the date of disposal to preserve Business Asset Disposal Relief (BADR), if applicable, and optimise the timing of tax payments.The most tax-efficient structure depends on the seller's goals:· If the aim is to minimise risk and tax liability up front, a full cash sale (with BADR) is probably the best option.· If deferment of capital gai...

How important is it to keep receipts? Different methods of doing so

Buy an item in a shop and you will increasingly be asked whether you want a receipt. Although a receipt provides useful evidence of purchase, it is not mandatory to produce one (unless both the seller and buyer are VAT-registered) and consumer rights are not limited without one.However, if you are in business, HMRC views this differently; failing to keep proper records may lead to penalties if HMRC investigates and finds missing or inaccurate records. These penalties can range from financial fin...

Where do you work? Defining temporary workplaces and tax implications

Most employees can identify their permanent place of work because it is where they regularly go to work. However, post-Covid, many workers work primarily from home, splitting their time between home and office. With more employees having the legal right to request flexible working arrangements, tax issues may arise concerning the reimbursement of travel expenses.Particular areas of concern include:· expenses relating to temporary workplace arrangements;· ascertaining whether travel can be clai...

Claiming tax relief for expenses online

Employees who incur expenses in undertaking their job may be able to claim tax relief for those expenses where they are not reimbursed by their employer. The expenses will qualify for relief if they are incurred wholly, exclusively and necessarily in the performance of the duties of their employment or meet the deductibility conditions for particular types of expenses, such as travel expenses or professional fees and subscriptions.Last year, HMRC introduced new evidence requirements for claims f...

Timing your payments around the year end

For unincorporated businesses, from 6 April 2024 onwards the cash basis is the default basis of accounts preparation. Unlike the accruals basis under which income and expenditure must be matched to the accounting period to which it relates, where the cash basis is used, income is only taken into account when received and expenditure when paid. This presents some tax planning opportunities around the end of the tax year as regards the timing of income and expenditure.1. Consider delaying invoicin...

Time running short to use your 2024/25 personal allowance

Most individuals are entitled to receive a personal allowance. This is the amount that they are able to earn before they pay tax. For 2024/25, the personal allowance is set at £12,570. The allowance is for the tax year only – if you do not use it in the tax year, you lose the benefit of it; you cannot carry any unused amount forward to the next tax year.As the end of the tax year approaches, if you have yet to use your 2024/25 personal allowance, you may want to consider whether there is scop...

Have you used your capital gains tax annual exempt amount?

Individuals have a separate tax-free allowance for capital gains tax purposes – the capital gains tax annual exempt amount. Although it has been reduced considerably in recent years and is only £3,000 for 2024/25, making use of the allowance can still generate tax savings of up to £720.The annual exempt amount applies to reduce the amount of net gains for the year on which capital gains tax is chargeable. The exempt amount is deducted from chargeable gains for the year after allowable losses...

Should we pay a dividend before the end of the tax year?

If you are the owner of a personal or family company, it is prudent to review your dividend strategy before the 2024/25 tax year comes to an end as assessing whether paying a dividend before 6 April 2025 would be beneficial.Sufficient retained profitsThe first point to note is that dividends are payable from retained profits and the payment of a dividend can only be entertained where the company has sufficient retained profits from which to pay a dividend. These are post-tax profits on which cor...

Can one company lend to another? Tax implications

Although the economy is said to be stagnating with little growth on the horizon, many smaller companies are doing well and have healthy bank balances. However, with the interest rate return on cash in a bank account being relatively low, some companies are looking to invest spare cash elsewhere if investing in their own company is not desired or possible. Companies that are connected can lend to each other usually without anytax implications so long as conditions under the loan relationship rule...

Tax implications of paying mileage payments of more than the approved amount

Employees often use their own cars for business journeys and are paid a mileage allowance by their employer to cover the cost of fuel and associated costs, such as insurance and wear and tear. The amount that the employer is able to pay tax-free is governed by the approved mileage allowance payments (AMAPs) scheme. The scheme does not apply to employees with company cars.The schemeUnder the AMAP scheme, an employer can make tax-free mileage payments to an employee using their own vehicle for bus...

VAT flat rate scheme – is it worth it?

The VAT flat rate scheme is a simplified scheme for smaller VAT-registered businesses. While using the scheme will save work, this may come at a cost if the amount of VAT paid to HMRC under the scheme is more than would be payable if traditional VAT accounting is used. This will depend on the actual VAT charged and incurred, the flat rate percentage for the trader’s business sector and whether the trader is a limited cost trader.Eligible tradersA trader can use the flat rate scheme if they are...