CHARTERED ACCOUNTANTS (ICAEW)

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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...

Restarting child benefit claims

Many parents who fell within the ambit of the High Income Child Benefit Charge (HICBC) opted not to receive child benefit, rather than to receive it and pay it back in full in the form of the charge. However, changes to the HICBC which came into effect from April this year mean that some parents who previously lost all their child benefit to the charge will now be able to retain some or all of it. Where this is the case, they will need to restart their child benefit payments so that they do not ...

What can HMRC do if you do not pay your tax bill?

HMRC have a range of powers at their disposal to collect unpaid tax. If you are struggling to pay a tax bill, or know that you will not have the funds available to meet an upcoming bill, it is better to take action than to ignore the problem and hope it will go away – it won’t. Interest will be charged on tax paid late, and late payment penalties may also apply.Set up a Time to Pay arrangementRather than paying your tax bill in one hit, you may be able to set up a Time to Pay arrangement and...

Do I need to worry about IR35?

If you provide your services personally to an end client through your own limited company or other intermediary, you may fall within the scope of either the off-payroll working rules or the anti-avoidance rules known as ‘IR35’. Both aim to redress the tax and National Insurance balance where the worker would be an employee if they provided their services directly to the end client; however, the responsibility for applying the rules differs. Under the off-payroll working rules, it is the enga...

Realistic scam letters – how to check if a letter purporting to be from HMRC is genuine

Scammers are becoming increasingly adept at fooling people and a favoured tactic is a letter, a text or an email purporting to be from HMRC, often promising a tax refund in exchange for personal and financial data.During the summer, many taxpayers received a very convincing scam letter which appeared to be from HMRC, seemingly from the Individuals and Small Business Compliance scheme. The letter asked the recipient to provide business bank statements, the most recent set of accounts, VAT returns...

Making a voluntary disclosure if you have not told HMRC about tax that you owe

There are various reasons why a person may not have told HMRC about the tax that they owe, ranging from a simple oversight to the deliberate evasion of tax. Regardless of the reason, if you have failed to declare income and gains on which tax is due, it is always better to take action to correct the situation than to wait to be ‘found out’ by HMRC.There are various different ways in which a disclosure can be made, and the option that is right for you will depend on your particular circumstan...

UK tax treatment of rent from overseas properties

A person who is resident and domiciled in the UK is liable to UK tax on their worldwide income. Consequently, if they have overseas property that they rent out, any rental profits are taxable in the UK.Separate overseas property businessAs far as property rental businesses are concerned, UK properties and overseas properties are treated as being part of different property businesses – the overseas properties will form an overseas property business and the UK properties will form a UK property ...

Start of a property rental business

A property rental business will have a start date, and it is important to know when this is. A landlord will normally undertake some preparatory work before letting their first property, and it is important to know when the preparatory work ends and the property business begins.In their Property Income Manual, HMRC make the point that ‘where the rental business is letting property, the business can’t begin until the first property is let.’ Once the first property has been let, the property...

Using a property company for furnished holiday lets

The current tax regime for furnished holiday lettings has a number of advantages, including the ability to deduct interest and finance costs in full when calculating the taxable profit. This enables the landlord to secure tax relief for interest and finance costs at their marginal rate of tax, something that is advantageous where the landlord pays tax at the higher or additional rates and has a mortgage on properties which are let as furnished holiday lets.However, the favourable tax regime for ...

End of the FHL regime and transitional rules

Landlords with furnished holiday lettings (FHLs) currently enjoy favourable tax advantages compared to those letting residential property on longer term lets. However, these advantages are to come to an end, and from 6 April 2025 FHLs will be treated as for other residential lets. However, transitional rules will allow landlords to access some of the capital gains tax reliefs for a limited period.Interest and finance costsLandlords with FHLs were unaffected by the restrictions in the relief for ...