CHARTERED ACCOUNTANTS (ICAEW)

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What is Section 455 Tax?

What is Section 455 Tax?If you have share capital or voting rights in a company, you can be classed as a ‘participator’. And where a participator (or an associate of a participator) owes money to a close company, the company may be charged Section 455 tax, along with corporation tax (if any) on the company's profits.Confused? Let’s look a little closer at what a participator is, what a close company is, and how Section 455 Tax can impact your tax liabilities.What does it mean to be a parti...

Change of Tax Basis Period for unincorporated businesses: are you ready?

Change of Tax Basis Period for unincorporated businesses: are you ready?Are you self-employed? Or are you a partner in a trading partnership? If you are, you should be aware of the proposed changes to the tax basis period for unincorporated businesses.HM Revenue & Customs (HMRC) is proposing to change the way that unincorporated businesses are taxed, moving from a ‘current year’ basis to a ‘tax year’ basis. For affected businesses (those that don’t have a year-end between 31 March ...

Business plant and equipment: Buy or lease?

Business plant and equipment: Buy or lease?When your business needs new plant or equipment, what’s the best choice – buy or lease? The answer will depend on your specific circumstances, but there are some basic considerations that can help you weigh up the options.The advantages of buyingBuying gives you certainty and ownership, at a higher upfront price, but a lower total price. Owning an item of plant or equipment gives you unrestricted use for the lifetime of the item. You can alter it to...

What's the Employment Allowance? And is your organisation eligible?

What's the Employment Allowance? And is your organisation eligible?If you’re an employer, your payroll costs make up a big chunk of your operational expenses. Helping to reduce those labour costs is good news for your cashflow. So, now may be the ideal time to explore the Employment Allowance and find out if you can claim this useful allowance.We’ll explain the details of the allowance, who’s eligible and how you make a claim.Employment Allowance: a great way to reduce your payroll costsEm...

VAT penalties – New rules

VAT penalties – New rulesThe VAT default surcharge is being replaced with a new VAT penalty and interest regime. The new rules apply to VAT accounting periods beginning on or after 1 January 2023.Late filing penaltiesThe new penalty regime operates on a points-based system. Each VAT return received late, including nil and repayment returns, will receive one late submission penalty point. A penalty will be charged when the points reach a certain threshold. The penalty trigger depends on the fre...

Mileage allowance payments – The maximum tax-free amount

Mileage allowance payments – the maximum tax-free amountTo save work, employers can pay employees a mileage allowance if they use their own car for business journeys. The Government have recently cleared up confusion as to what can be paid tax-free, confirming the maximum tax-free amount.Mileage allowance paymentsThe approved mileage allowance payments system is a simplified system that allows employers to pay tax-free mileage allowance payments to employees who use their cars for business tra...

VAT bad debt relief

VAT bad debt reliefIf you are a VAT-registered business you must charge VAT when you make taxable supplies. You must also pay over the difference between VAT you have charged and the VAT that you have suffered to HMRC (or, where a scheme such as the flat rate scheme is used, the amount due to HMRC under the scheme rules). Assuming your customers pay their bills, it is the customer who provides the funds for the output tax which must be passed on to HMRC and from which you can recover any input t...

Five ways to save inheritance tax

Five ways to save inheritance taxInheritance tax is often described as a voluntary tax. While most of us do not know in advance when we are going to die, there are steps that you can take to reduce the amount of inheritance tax on your estate. Here are five suggestions.1.    Leave everything to your spouse or civil partnerThe inter-spouse exemption means that there is no inheritance tax to pay on anything that you leave to your spouse or civil partner. On their death, their estate...

New corporation tax regime

New corporation tax regimeChanges to the corporation tax regime come into effect from 1 April 2023 – the start of the financial year (FY) 2023. From that date there will no longer be a single rate of corporation tax; rather, the rate at which a company pays tax on its profits will depend on the level of those profits.Small profits rateCompanies whose taxable profits are below the lower limit continue to pay tax on those profits at the rate of 19%.The lower limit is set at £50,000 for a stand-...

NIC landscape for 2023/24

NIC landscape for 2023/24As far as National Insurance was concerned, the 2022/23 tax year was a tricky one featuring in-year changes to the primary threshold and in-year changes to the Class 1, 1A, 1B and 4 rates. This resulted in some strange numbers, with average rates applying for the purposes of Class 1A, Class 1B and Class 4 contributions. Average rates are also applied for Class 1 purposes to company directors who have annual earnings periods.Hopefully, 2023/24 will be more straightforward...

Claim the Employment Allowance for 2023/24

Claim the Employment Allowance for 2023/24The Employment Allowance is an allowance that eligible employers can claim to set against their secondary (employer’s) Class 1 National Insurance liability. The employment allowance is set at £5,000 for 2023/24, capped at the employer’s secondary Class 1 National Insurance for the year where this is less. It is not given automatically and must be claimed.Eligible employersThe National Insurance Employment Allowance is only available to eligible empl...

Taxation of company vans in 2023/24

Taxation of company vans in 2023/24A tax charge may arise under the benefit in kind legislation where a company van is available for an employee’s private use. If fuel is also provided for private journeys, a separate fuel benefit tax charge arises. The van and fuel benefit charges for 2023/24 have now been announced.Van benefit chargeThe van benefit charge only arises if the company van is not an electric van and private use of the van is not limited to home-to-work travel. The amount is set ...

Pension payments – What tax relief is available?

Pension payments – What tax relief is available?To encourage pension savings, tax relief is available on contributions made to registered pension schemes. However, there are limits on the contributions that can qualify for relief, and punishing tax charges can apply if these limits are exceeded.Limit 1 – 100% of relevant earningsTax relief on private pension contributions is capped at 100% of your relevant earnings or, if lower, £3,600. Relevant earnings include earnings from an employment ...

Repaying directors’ loans – Does the order matter?

Repaying directors’ loans – Does the order matter?Directors’ loans can be tricky from a tax perspective. Specific tax charges apply where loans to director shareholders of close companies (broadly those under the control of five or fewer shareholders) are not repaid by the corporation tax due date. This is nine months and one day from the end of the accounting period.Where this is the case, the company is taxed on the outstanding loan balance at that date. The tax rate is the same as the d...

Reduction in the dividend allowance

Reduction in the dividend allowanceThe dividend allowance is available in addition to the personal allowance. It allows all taxpayers regardless of the rate at which they pay tax to receive dividends up to the level of the dividend allowance free of any personal tax. This is in addition to any dividends sheltered by the personal allowance which are also received free of tax.The dividend allowance has been a useful planning tool for family companies; where family members are shareholders, paying ...

Can you benefit from tax-free childcare?

Can you benefit from tax-free childcare?In a climate of rising interest rates and rising inflation, every penny is likely to count. For working parents, help with their childcare costs is welcome. The tax-free childcare system can provide up to £2,000 a year tax-free.Tax-free childcareThe Government’s tax-free childcare scheme allows working parents to open an online childcare account to pay for their childcare costs and receive a tax-free top-up from the Government on the amount that they de...

Dividend planning

Dividend PlanningThe Chancellor’s recent mini-Budget and subsequent U - turns threw a number of spanners into the works as far as profit extraction strategies are concerned. Initial revisions to profit extraction strategies in the light of the mini-Budget announcements now need to be revised.RatesFor 2022/23, the dividend allowance is £2,000. Where dividends are not sheltered by the dividend allowance or any unused personal allowance, they are taxed at the dividend ordinary rate of 8.75% wher...

What should be on a VAT invoice?

Whether you’re selling or buying, it’s important to make sure that any VAT invoices you issue or receive comply with the strict VAT regulations.Failing to do so can cause problems both for you and for your customers.If you reclaim VAT using a defective invoice, HM Revenue & Customs (HMRC) can disallow the claim. HMRC can also charge penalties and interest on any amounts you’ve incorrectly claimed. Equally, your business has an obligation to your customers to send out invoices that meet...

Do you need to pay the Annual Tax on Enveloped Dwellings by 30 April 2023?

Do you need to pay the Annual Tax on Enveloped Dwellings by 30 April 2023?The Annual Tax on Enveloped Dwellings (ATED) is an annual tax payable on residential property valued at more than £500,000 which is held by a company, a partnership or a collective investment scheme (such as a unit trust).There are various reliefs and exemptions available. This may mean that there is nothing to pay.RevaluationProperties must be revalued every five years for the purposes of the ATED. The 2023/24 chargeable...

Doing up a property – Are you trading?

Doing up a property – Are you trading?Taking on a renovation project can be hugely appealing, particularly if the property is subsequently sold at a profit. However, from a tax perspective, it may not always be clear-cut how any ‘profit’ should be taxed – is it a capital gain liable to capital gains tax or a trading profit liable to income tax?Investment v tradingIf a gain is made on the disposal of a residential investment property, that gain is liable to capital gains tax. After allowi...

Relief for replacement domestic items

Relief for replacement domestic itemsIf you let a furnished property, it is very likely that you will need to replace domestic items from time to time. A specific relief provides tax relief for the cost of replacing certain domestic items. The relief does not extend to the initial purchase of the items.The relief is available to both unincorporated landlords and corporate landlords. However, it does not apply where the property is a furnished holiday letting or where rent-a-room receipts have be...

When does a property rental business start?

When does a property rental business start?A property rental business will have a start date and an end date, and it is important to know what those dates are.When setting up a property rental business, there will be some preparatory work, and costs will be incurred in  setting up the business. The start date will draw a line in the sand between activities that are preparatory to the letting and activities that are part of the property rental business.Where a person has more than one proper...

Giving away the buy-to-let to save inheritance tax

Giving away the buy-to-let to save inheritance taxWhere a person has a property portfolio, they may consider giving away one or more of their investment properties during their lifetime to reduce the inheritance tax payable on their estate. However, inheritance tax cannot be considered in isolation, as there may also be capital gains tax consequences which need to be taken into account.We take a look at some of the issues.Inheritance taxInheritance tax is payable on the estate to the extent that...

Can you afford to sell an investment property?

Can you afford to sell an investment property?Property is generally a good investment, and where an investment property or second home has been held for many years, it may be worth considerably more than you paid for it. It may be tempting to sell the property to release the equity, perhaps to fund retirement or to help your children get on the property ladder. However, the capital gains tax system is not kind to those who sell assets which they have held for a long time as it provides no relief...

The dangers of letting friends use the holiday let

The dangers of letting friends use the holiday letFurnished holiday lettings have tax benefits that are not available to landlords of residential lets. However, to qualify as a holiday let, certain conditions must be met.The three testsThere are three tests to pass for the let to be treated as a furnished holiday let for tax purposes. These are:·         the pattern of occupation condition;·         the availabilit...