CHARTERED ACCOUNTANTS (ICAEW)

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Wealthy taxpayers within PAYE – When is a tax return required?

Earlier this year, HMRC wrote to wealthy taxpayers who had not submitted tax returns for 2020/21 and/or 2021/22. A letter was sent where the taxpayer had submitted a return for 2020/21 and 2022/23 but not for 2021/22 or where a return had been submitted for 2019/20 and 2022/23 but not for 2020/21 or 2021/22. Taxpayers who received a letter from HMRC had previously been sent a notice to complete a Self Assessment tax return.The letter asked taxpayers with outstanding returns for the missing year(...

When is a child’s income taxable on their parent?

Children may have their own income. This may be in the form of savings income on accounts that they hold or, for older children, income from a paper round or a Saturday job. Like adults, children have their own set of allowances, including a personal allowance and savings and dividend allowances. However, anti-avoidance provisions apply to prevent parents effectively using their children’s tax-free allowances to reduce the tax that they pay.Earned incomeFor tax purposes, the same rules apply t...

Beware of the lifetime limit when claiming BADR on the sale of the FHL

Landlords with furnished holiday lettings (FHLs) are living in uncertain times. At the time of the 2024 Spring Budget, it was announced that the favourable tax regime for FHLs would be abolished from 6 April 2025. However, the legislation has yet to be enacted and it remains unclear if it will see the light of day.Landlords of FHLs enjoy several benefits which are unavailable to landlords letting residential properties on long-term lets, and these include a number of capital gains tax advantages...

Claiming a deduction for the expenses of a property business

Expenses will be incurred in running a property business. To ensure that tax is not paid unnecessarily, it is important that all allowable expenses are deducted in calculating the profits for that business. However, to avoid unwanted attention from HMRC, it is important to understand which expenses can be deducted, and which cannot.An expense is revenue in nature. Different rules apply to capital expenditure and these vary depending on whether accounts are prepared using the cash basis or the ac...

A repair or an improvement and why it matters

As a landlord, periodically you will need to undertake work on your property. This may simply involve fixing a leaky tap or redecorating, or the work may be more substantial, such as replacing a roof or a kitchen. From a tax perspective, all work on a property is not equal and it is important to determine whether the work undertaken constitutes a repair or an improvement to the property. This will affect if, and how, tax relief is given for the expenditure.Cash basis or accruals basis?Landlords ...

Tax implications of letting out your drive

If you have room on your drive, you may be able to earn additional income by letting out one or more parking spaces. This can be done through the various apps that exist for this purpose. You can make your drive available on an ad hoc basis, for example to provide parking near an event or for day trippers to the seaside, or regularly, for example, to commuters if you live near a station.The tax implications will depend on the rental income that you generate.Rental income of less than £1,000Wher...

Letting through a company

The interest restriction for landlords letting residential property on long lets, the proposed abolition of the favourable furnished holiday letting rules and lower rates of corporation tax led many landlords to question whether it would be preferable to let property through a company instead. Like most things, there are pros and cons.AdvantagesAs for any company, a property company has its own legal identity separate from those who own and run it. It also benefits from limited liability.From a ...

‘Brightline’ test for FHLs ruled out

Landlords with furnished holiday lettings (FHLs) face an uncertain future. At the time of the Spring 2024 Budget, it was announced that the tax regime for FHLs would be abolished from 6 April 2025. However, no further details were announced before the general election was called, leaving landlords uncertain as to whether the proposals would actually be enacted and, if so, what they would look like.In a letter to HMRC, the ICAEW called on the Government to consider the introduction of a ‘bright...

Encouraging private investment into small and medium-sized companies – government-endorsed tax incentives

For small companies, obtaining tax-efficient funding involves leveraging various schemes and incentives that minimise tax liabilities while maximising capital inflow. These schemes are designed to attract investment by offering tax reliefs to investors, making it more appealing for them to invest in small and growing businesses.There are several government-endorsed tax incentives that have been implemented to encourage private investment into business. These incentives offer income tax reduction...

VAT – payback and clawback rules – what happens if there is a change of plan?

VAT applies to taxable supplies made by a VAT-registered person whether an individual or a company. VAT-exempt supplies in the UK are goods and services that are not subject to VAT at any rate, including the standard rate (20%), reduced rate (5%) or zero rate (0%). Businesses making only VAT-exempt supplies do not charge VAT on their sales and cannot usually reclaim VAT on their purchases.Many business owners are unaware that if they claim input tax based on an intention to make future taxable s...

Is it worth filing a formal complaint with HMRC?

HMRC has not been getting good press lately. Time spent waiting for a tax refund, an answer to a letter or for over an hour on the telephone trying to speak to someone with no success has not gone down well with HMRC's 'customers'. You can complain, but to whom do you complain, and will you get a satisfactory answer or even compensation?Deciding whether to make a formal complaint to HMRC depends on the specific situation, the nature of the grievance and what you hope to achieve. Valid reasons wi...

Tax relief on charitable donations

If you make donations to charity, you can benefit from tax relief on those donations. This can be achieved in various ways.Gift AidIf you are a UK taxpayer, you can claim Gift Aid on donations that you make to charity. Where this is the case, the amount donated is treated as made net of basic rate tax and the charity reclaims basic rate tax on the donation. This means that every £1 that you donate is worth £1.25 to the charity.To donate through Gift Aid, you must make a Gift Aid declaration. T...

Setting up as a sole trader

The way in which you operate your business determines the taxes that you pay and also your reporting obligations.If you work for yourself and run your business on your own as an individual other than through a limited company, you are a sole trader. By contrast, if you operate your business through a personal company, even if you are the sole employee and director, the company has its own legal identity.As a sole trader, you will pay income tax and Class 4 National Insurance contributions on you...

Will paying voluntary NICs boost your pension?

To qualify for a full state pension, you need 35 qualifying years. You can earn these through paying National Insurance contributions or being awarded National Insurance credits. If you will not have sufficient qualifying years for a full state pension when you reach state pension age, you can ‘buy’ additional qualifying years through the payment of voluntary contributions.Employed earners earn a qualifying year for each year that their earnings exceed the lower earnings limit for the year, ...

Investing the proceeds from the sale of the family home and the IHT gifts from income exemption

For many people, there will come a time when it becomes sensible or necessary to sell the family home, either to downsize or because of a move to live with a relative or into care. This may result in funds being released, which may be considerable. Thoughts may turn to whether now is the time to pass wealth down to subsequent generations. However, this must be balanced against the needs of retaining sufficient funds to meet one’s own lifestyle and also to meet any current and future care costs...

Do you now need to pay tax on your dividend income?

The fall in the dividend allowance in recent years may mean that you now need to pay tax on your dividend income for the first time.The dividend allowanceThe dividend allowance was introduced from 6 April 2016. It is available to all taxpayers regardless of the rate at which they pay tax and in addition to any other allowances that they may receive (such as the personal allowance or the personal savings allowance). Dividends sheltered by the allowance are taxed at a zero rate. However, they use ...

The SDLT supplement and changing your main residence

In most cases, a higher rate of stamp duty land tax (SDLT) applies to the purchase of second and subsequent residential properties in England and Northern Ireland where the consideration is at least £40,000. The supplement increases the residential rates by 3%.However, even where a person owns two or more properties, they can replace their ‘main residence’ without having to pay the supplement.The ‘main’ residenceIt will usually be clear which property is a person’s main residence. For...

VAT and DIY housebuilders

A person who buys a new home from a property developer does not have to pay VAT on it as the sale is zero-rated. However, a person who builds their own home does not benefit from the zero rating. The VAT DIY housebuilders scheme aims to level the playing field by allowing people who build their own houses to claim back VAT on building materials purchased in the course of the build.A DIY housebuilder can benefit from the scheme if they have planning permission to:·     &...

Which home is the main residence?

Private residence relief is a valuable capital gains tax relief which means that a person does not have to pay capital gains tax on any gain arising on a property while it was their only or main residence. Where a property has at some point been the taxpayer’s only or main home, the last nine months of ownership are also exempt from capital gains tax (increased to 36 months where the taxpayer leaves their home to go into care). Certain other periods of absence may also qualify for the relief.I...

Do you have to take a dividend? Reasons why not to

Many directors believe they have an absolute right to monies deposited in a company's bank accounts. However, payment cannot just be withdrawn as there are set procedures to follow to be legally compliant.'Illegal' dividendA dividend is a distribution of post-tax profits and it can only be paid if the company has sufficient retained profits from which to make payment. Therefore, before declaring a dividend, it is necessary to check this. If a dividend is paid without a sufficient amount of profi...

Tax implications of company failure

With interest rates falling, business growth should follow. While this is waiting to happen, companies continue to close. The latest statistics published by the Insolvency Service state that 'After seasonal adjustment, the number of registered company insolvencies in England and Wales in April 2024 was 2,177, 18% higher than in March 2024 (1,838) and 18% higher than the same month in the previous year (1,838 in April 2023)'.As with anything to do with business, there are tax implications when a ...

Retiring an employee tax efficiently

Just because an employee receives a lump sum on leaving does not necessarily mean the payment is exempt from tax under the £30,000 exemption for termination payments rules.The exemption generally only applies if the payment is compensation for the termination of employment or a change in the duties of a person's employment. It does not apply for any other reason including for or in anticipation of retirement. Therefore, to be exempt, the payment must not be made under any obligation on the part...

Advantages of filing your 2023/24 tax return early

The deadline for filing your 2023/24 Self Assessment tax return online is 31 January 2025. An earlier deadline of 30 December 2024 applies if you owe £3,000 or less and wish to pay the tax that you owe through an adjustment to your PAYE code. While these dates are some way off, there can be advantages of filing your 2023/24 tax return early.Self-employed taxpayersIf you are self-employed and you prepare your accounts other than to 31 March, 5 April or a date in between, there will be more work ...

IHT transferable nil rate bands

The nil rate band is the amount that a person may leave free of inheritance tax. Each person has their own nil rate band, which for 2024/25 is set at £325,000. A person’s estate may also benefit from a further nil rate band – the residence nil rate band (RNRB) – where they leave a residence to a direct descendant or descendants.The nil rate band is available regardless of the amount of a person’s estate. However, the RNRB is reduced where the value of the estate exceeds £2 million, bei...

Five common capital gains tax errors

HMRC have revealed that every year lots of simple errors are made in tax returns in relation to capital gains tax which result in the taxpayer suffering additional tax, interest and penalties. Here are some common mistakes, and how to avoid them.1.     Using the correct annual exempt amountWhen calculating how much capital gains tax you need to pay, it is important to make sure that you use the annual exempt amount for the correct tax year. This is the capital gains tax equiv...