CHARTERED ACCOUNTANTS (ICAEW)

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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 ...

Are professional fees tax deductible?

As ever, the answer to this question depends on what type of professional fees have been incurred.Professional fees are income and corporation tax deductible if incurred 'wholly and exclusively' for the purpose of the trade, profession or business. However they must not be capital in nature or losses not connected with/ arising out of the trade. The situation is not always clear-cut and the circumstances surrounding the payment and the precise nature of the professional services provided must be...

The company makes a loss – can a dividend be paid?

Anyone who invests in a company is taking a chance, hoping that the directors, as representatives of the company, will use the money to increase the company’s profit. In return for taking this chance, a shareholder receives ‘payback’ usually as a share in the distribution of profits in the form of a dividend, however. payment is not automatic.For a dividend to be paid, a company needs to have sufficient 'distributable profits' to cover the dividend at the payment date. ‘Profits’ in thi...

Be aware of VAT bad debt relief

Despite the improving economy, bad debts are still a fact of life for many businesses. HMRC is aware that not all invoices are paid on time and allows bad debt relief to be claimed by businesses that have already paid VAT to HMRC on sales invoices that remain unpaid.How bad debt relief is allowed depends on the accounting scheme being used. The cash accounting scheme is the most straightforward way to avoid a bad debt problem because output tax on invoices issued is only declared on a return whe...

Utilising losses from a property rental business

Where a landlord makes a loss on their property rental business, the options for using that loss are limited. The rules depend on whether the business is carried on by an unincorporated landlord or by a company.Unincorporated landlordsWhere a landlord has an unincorporated property business, the general rule is that if a loss is made in that property rental business, it is carried forward and set against the first available profits of the same property rental business. The relief is given automa...

Treating tenants’ deposits correctly for tax purposes

It is usual for a landlord to require a deposit from a tenant as security against damage to the property. This cannot be more than five weeks’ rent where the annual rent is less than £50,000 or more than six weeks’ rent where the annual rent is more than £50,000. The landlord can also ask for a holding deposit to reserve the property. This cannot be more than one week’s rent.The way in which deposits are treated for tax purposes depends on the type of deposit and the basis on which the l...

New residence-based regime for foreign income and gains

The remittance basis of tax is an optional tax treatment that allows individuals who are resident but not domiciled in the UK to pay tax on foreign source income and gains only if they are remitted to the UK in exchange for paying a fee. The fee is set at £30,000 where the person has been resident for at least seven of the previous nine tax years and at £60,000 where the person has been resident in at least 12 of the previous 14 tax years. Where unremitted income and gains are less than £2,00...

Workplace nursery partnership schemes

No tax charge arises in respect of the provision of a nursery place for an employee’s child at a workplace nursery provided that the associated conditions are met. Unlike the exemptions for childcare vouchers and employer-supported childcare to the extent that these remain available, the tax exemption for workplace nursery places applies without limit.For the exemption to apply, the employer must either make available the premises in which the care is provided or meet the partnership requireme...

Claiming refunds of overpaid PAYE

If it works correctly, the tax that is collected under PAYE will exactly match the tax that is due for the year. However, in practice, this balance may be disturbed, for example, because benefits included in a tax code change or a wrong tax code is used, and an employed taxpayer may pay too much or too little tax as a result. Where this is the case, HMRC will send out a letter. This may be a tax calculation letter (P800) or a Simple Assessment letter. The letter will explain how to pay any taxed...

VAT on school fees

As outlined before the election, the new Government are to go ahead with their proposal to impose VAT on school fees. Legislation was published in draft on 29 July, together with a technical note.From 1 January 2025, education services and vocational training supplied by a private school will be liable to VAT at the standard rate of VAT. Where fees are paid on or after 29 July 2024 in respect of a term starting on or after 1 January 2025, these too will attract VAT at the standard rate of 20%. B...

Using form R40 to claim a tax refund

If you are entitled to a refund of tax deducted from savings and investment income, you can claim the refund using form R40 if you do not complete a Self Assessment return. If you do complete a Self Assessment tax return, you do not need to make a separate claim as any tax due to you will be taken into account in computing the amount due or repayable under Self Assessment. A claim can be made on form R40 for the current tax year and the previous four tax years.If you are making the claim for you...

Tax implications of different methods of business finance

For many businesses, initial set-up costs are low with just an internet connection, smartphone and a laptop. Invariably, funding for expansion or to purchase specific items will come from the owner's resources or those of family or friends.If an individual makes a gift either to a business owner or to the business itself, it is generally not considered as taxable income for the business. However, there are inheritance tax (IHT) implications for the individual, as gifts made by an individual can ...

Claiming tax relief on work clothes

Many employees are required to wear a uniform or particular type of clothing whilst at work. Even where there is no set uniform, many have clothes that they wear only to work and regard as ‘work clothes’ they would not otherwise wear. Tax relief is available, but only for the cost of cleaning, repairing or replacing where the employee pays the cost themselves and does not receive reimbursement from the employer.The cost of the initial purchase of ordinary clothing cannot be claimed because a...

When is a VAT invoice not a VAT invoice?

Although suppliers such as mobile phone providers are VAT registered, a careful look at the invoices issued to customers shows the words 'this is not a VAT invoice' – why is that?A valid VAT invoice is a crucial document for reclaiming VAT on purchases. It can be full, simplified or modified, depending on the value of supply and the information it includes. A full VAT invoice is issued for costs exceeding £250 and includes the date and time of supply, the supplier’s name and address, and VA...

Class 2 NIC refunds made in error – Action to take

Class 2 National Insurance contributions are flat rate contributions which for 2023/24 and earlier tax years are payable by the self-employed where their profits exceed the relevant trigger threshold.For 2023/24 and 2022/23, the liability to pay Class 2 contributions arose where profits exceeded the lower profits threshold (set at £12,570 for 2023/24). For those years, self-employed earners whose profits were between the small profits threshold (set at £6,725 for 2023/24) and the lower profits...

Making student loan repayments through Self Assessment

There are three ways in which former students with student or post-graduate loans can make loan repayments:· from deduction from their wages or salary through the PAYE system;· to HMRC through the Self Assessment system; or· direct to the Student Loans Company (SLC).Students will normally start making repayments from the start of the tax year after that in which they finish or leave their course.Where an individual is employed, their employer deducts the repayments from their wages or salary ...

VAT flat rate scheme – Is it for you?

The VAT flat rate scheme is a simple VAT scheme for smaller VAT-registered businesses. Rather than pay the difference between the VAT charged to customers and that incurred on business purchases over to HMRC, traders using the flat rate scheme instead pay a fixed percentage of their VAT-inclusive turnover to HMRC. The percentage depends on the sector in which the business operates and contains an allowance for VAT incurred on purchases, as under the scheme traders cannot deduct this from what th...

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...