Severn Accounting

🏡 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.

🔐 Security deposits

👉 Security deposits taken by a landlord should be held in a custodial scheme such as those offered by MyDeposits, the Tenancy Protection Scheme or the Deposit Protection Service. During the term of the tenancy, the deposit continues to belong to the tenant.

💸 Holding deposits

👉 Holding deposits are another form of deposit commonly taken by landlords, particularly in periods where the letting market is buoyant and demand for property is high.

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💳 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 allowsbad debt relief to be claimed by businesses that have already paid VAT to HMRC on sales invoices that remain unpaid.

📊 Flat rate scheme

👉 The flat rate scheme (FRS) applies a fixed percentage to quarterly gross sales to calculate the VAT payment. A claim for bad debt relief under the FRS could be beneficial.

0️⃣ Zero rated sales

👉 Bad debt relief revolves around the VAT charged to the customer. Applying the rules means that an FRS business making zero rated supplies would not be eligible for the relief and FRS VAT would always be payable. If the business uses the cash basis, this would lead to the situation that, on writing off the bad debt, the FRS VAT would become payable.

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🏠 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.

💸 Interest and finance costs

👉 Landlords with FHLs were unaffected by the restrictions in the relief for interest and finance costs that apply to unincorporated landlords letting residential property and were able to continue to deduct interest and finance costs in full in calculating the taxable profit for their FHL business.

💰 Capital gains tax reliefs

👉 One of the main advantages of the current FHL regime is the ability to access a range of capital gains tax reliefs available to traders. These include access to Business Asset Disposal Relief business asset rollover relief and gift holdover relief.

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🗝 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 landlords

👉 Where 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 automatically and there is no need to make a claim.

🧩 Example

👉 Peter lets out a property on a long-term residential let. In 2023/24 he makes a loss of £1,200. In 2024/25 he makes a profit of £4,600.

👉 The loss of £1,200 from 2023/24 is carried forward and set against the profit of his property rental business for 2024/25 of £4,600, reducing the taxable profit for that year to £3,400.

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✍ 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 new regime

👉 At the Spring 2024 Budget, the then Government announced a serious of changes to the rules for non-doms, including the abolition of the remittance basis and, subject to some transitional rules, the introduction of a new residence-based regime.

💼 Inheritance tax

👉 The current inheritance tax rules are domicile based. This will cease to be the case from 6 April 2025 when inheritance tax will also become residencebased. This change will affect the property within the charge to inheritance tax.

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🙅🏻‍♀ 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.

🛒 Commercially marketed schemes

👉 A number of commercially marketed schemes are available which take advantage of the tax exemption for workplace nurseries. Typically, they include some or all of the following features:

📌 the employee enters into a salary sacrifice scheme, giving up an amount of pay equal to the cost of a nursery place.

📌 the employer pays for a nursery place for an employee’s child (either at a nursery run by a scheme promoter or at an independent nursery)

📌 the employer pays the nursery an additional sum in addition to the cost of the place (typically about £400 a year)

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👉 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.

🔄 Claiming a refund

👉 HMRC have changed the way in which they deal with refunds where tax has been overpaid under PAYE. Previously, where a refund had not been claimed, HMRC would send a cheque out automatically 21 days after the issue of the tax calculation letter.

👉 They no longer do this and, where tax has been overpaid under PAYE, the taxpayer will only receive a refund if they actually claim it. The tax calculation letter will explain how to do this.

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🎓 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%.

📚 For these purposes, a ‘private school’ is defined as a school at which full-time education is provided for pupils of compulsory school age, or an institution at which education is provided for those over compulsory school age but under the age of 19 (such as a sixth-form college).

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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.

🕵🏻 Using an agent

👉 An agent can also make a refund claim on your behalf. Since 30 April 2024, agents claiming a refund of income tax deducted from savings and investment income on behalf of their clients must use the new standard HMRC R40 form.

💼 R40 claims for interest paid on payment protection insurance

👉 Where the R40 repayment claim relates to interest on payment protection insurance (PPI), evidence of the original PPI payment must be submitted when making the claim. The document must show the gross interest, the tax deducted and the net interest.

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👧🏻 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.

💰 Earned income

For tax purposes, the same rules apply to income earned by children as apply to adults. Children have their own personal allowance, and income sheltered by the allowance will be tax-free.

🐖 Savings income

Unless it is significant, it is unlikely that a child will need to pay tax on their savings income. The same rules apply as apply to adults, and their savings income will be tax-free where it is sheltered by the savings allowance, the personal allowance and, where available, the savings starting rate band.

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👉 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.

💸 When a return is required

👉 Where a taxpayer is wholly within PAYE, it is understandable that they may not realise that they need to file a return as the tax that they owe should be collected through the PAYE system. However, despite this, HMRC have historically required wealthy taxpayers to submit tax returns, even if they are taxed under PAYE.

👉 Presumably, this is because wealthy individuals are more likely to have savings and investment income on which tax may be due.

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👉 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.

📈 Other financing

👉 Assets purchased under a hire purchase agreement usually include an option to purchase at the end of an initial period. The expenditure is treated as being incurred as soon as the asset comes into use, even though not owned until the option is exercised.

🔋 Finance charges are a business expense with VAT payable with the initial instalment (although not fully recoverable should the asset be a car).

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👔 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.

📣 How to claim

👉 There is no need to claim if the expense is already included in the tax code. If the claim is being made for the first time and a self assessment annual return is not submitted, a P87 form should be used. If a self assessment tax return is completed,the claim is made on page E1 of the return.

👉 On acceptance, the claim will be carried forward and included in subsequent notices of coding.

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🧾 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 VAT registration number, as well as the recipient’s name and delivery address.

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👨🏻‍🎓 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.

📌 Repaying through Self Assessment

👉 Taxpayers who are self-employed or who have another source of income (other than one taxed through PAYE) and who need to complete a tax return will make repayments through the Self Assessment system. Where an individual is employed but also has income which they need to declare on a tax return, for example, from a self-employment, they will make repayments both through PAYE and through Self Assessment.

📌 Unearned income

👉 Unearned income is taken into account in calculating student loan repayments if it exceeds £2,000 in the tax year. This would include income from savings (before deducting the personal savings allowance) or rental income (after deducting the property allowance where relevant).

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🔄 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.

📌 Collection through Self Assessment

👉 Class 2 National Insurance contributions are collected through the Self Assessment system, as for income tax and Class 4 National Insurance contributions. They are payable by 31 January after the end of the tax year to which they relate. However, unlike Class 4 contributions, they are not taken into account in calculating payments on account.

📌 Repayment of 2022/23 voluntary contributions

👉 As a result of a delay by HMRC in processing payments, voluntary contributions paid on time for 2022/23 were treated as having been paid late, with HMRC reversing the voluntary Class 2 charge. As a result, the self-employed earner may have received a refund from HMRC.

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🧾 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.

📌 Eligibility

👉 The scheme is open to traders who are eligible to be registered for VAT or who are already registered and whose annual turnover excluding VAT is not more than £150,000. The business must not be associated with another business.

📌 The flat rate percentage

👉 The flat rate percentage that is used to determine the VAT payable to HMRC for a quarter depends on the business sector in which the business operates. The percentages can be found on the Gov.uk website at www.gov.uk/vat-flat-rate-scheme/how-much-you-pay.

📌 Calculating the VAT due

👉 The VAT due to HMRC for the quarter is found by applying the flat rate percentage to the VAT-inclusive turnover for the period.

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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.

Subject to available exemptions, inheritance tax is payable to the extent that the deceased’s estate exceeds their available nil rate bands. This may include the deceased’s own nil rate band and, where the main residence or funds released from the sale of it are passed to a direct descendant, the residence nil rate band.

Rather than giving away the proceeds from the sale of the home, a decision may be taken instead to invest the proceeds. Increases in interest rates in recent years provide a greater opportunity to earn investment income than in the past. Where the income generated is not needed to maintain living costs, it can be given away.

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𝐏𝐀𝐘𝐄 𝐑𝐄𝐅𝐔𝐍𝐃𝐒: 𝐓𝐚𝐤𝐞 𝐧𝐨𝐭𝐞 𝐨𝐟 𝐭𝐡𝐞 𝐍𝐄𝐖 𝐏𝐑𝐎𝐂𝐄𝐒𝐒 ⬇

𝐖𝐡𝐚𝐭 𝐚𝐫𝐞 𝐏𝐀𝐘𝐄 𝐑𝐞𝐟𝐮𝐧𝐝𝐬?
Pay-As-You-Earn (PAYE) refunds are governed by Section 87 of the Income Tax Act and are meant to ensure taxpayers do not pay tax over what they ordinarily should pay in a tax year.

𝐃𝐞𝐜𝐨𝐝𝐢𝐧𝐠 𝐭𝐡𝐞 𝐍𝐞𝐰 𝐏𝐫𝐨𝐜𝐞𝐬𝐬:
HMRC would have earlier automatically sent out cheques for PAYE overpayments if the taxpayer had not claimed the refund online within 21 days of receiving a P800 tax calculation letter. This has now been discontinued to reduce fraud and boost online services.

𝐓𝐡𝐞 𝐁𝐚𝐥𝐥 𝐢𝐬 𝐧𝐨𝐰 𝐢𝐧 𝐲𝐨𝐮𝐫 𝐂𝐨𝐮𝐫𝐭:
· If you've overpaid tax, you need to claim your refund online.
· Between June and November, HMRC will send P800 letters detailing your tax calculation and any overpayment.
· You have to use the reference number from your P800 letter and your National Insurance number to submit a claim online.

𝐘𝐨𝐮 𝐡𝐚𝐯𝐞 two 𝐑𝐞𝐟𝐮𝐧𝐝 𝐎𝐩𝐭𝐢𝐨𝐧𝐬:
Online bank transfer with refund expected within five working days.
Cheques are to be requested through the online claim process and issued within 42 days.

𝐍𝐨𝐧 𝐃𝐢𝐠𝐢𝐭𝐚𝐥 𝐑𝐨𝐮𝐭𝐞𝐬 𝐜𝐨𝐧𝐭𝐢𝐧𝐮𝐞 𝐭𝐨 𝐫𝐞𝐦𝐚𝐢𝐧 𝐨𝐩𝐞𝐧 𝐰𝐡𝐞𝐫𝐞 𝐲𝐨𝐮 𝐜𝐚𝐧:
Claim your personal tax account.
Contact HMRC directly to request a cheque.

𝐖𝐡𝐚𝐭’𝐬 𝐢𝐧 𝐢𝐭 𝐟𝐨𝐫 𝐲𝐨𝐮?
· Faster refunds with online bank transfers.
· Reduced risk of fraud and theft.
· Streamlined HMRC processes and lower administrative burdens.

Have you received your P800 tax calculation letter?

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.

Rental income of less than £1,000

Where the rental income received in the tax year is less than £1,000, the income is not charged to tax (unless you elect otherwise). The income does not need to be reported to HMRC and can simply be ignored for tax purposes.

Example

Mable lives near a popular sporting venue and lets out a parking space on her drive. She earns rental income for the tax year of £720. As this is less than the property allowance, it is not charged to income tax and she does not need to report it to HMRC.

Rental income of more than £1,000

Where rental income exceeds £1,000, you can choose how you want to be taxed. You can deduct either your actual expenses or the £1,000 allowance from your rental income to arrive at your taxable profit. Claiming the allowance will be beneficial if your actual expenses are less than £1,000.

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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%).

Many business owners are unaware that if they claim input tax based on an intention to make future taxable supplies, this claim may need to be reduced or repaid if there is a change in a taxpayer’s business to exempt or partial exempt or if the item is taken out of the business for private use.

However, not all of the VAT may need to be repaid if the rental arrangement is short-term. There is scope to make a clawback adjustment based on the ten-year life of the property. For example, if the rental agreement was for two years, then only 20% of the input tax claimed on the project costs needs to be repaid (subject to de minimis limits).

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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'.

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 will include:

• an incorrect tax calculation made even though HMRC has all the information;
• experiencing unfair treatment, such as lack of respect, undue delay or misinformation from HMRC staff;
• poor service including long delays in processing tax returns or responding to queries, lost documents or lack of clarity in communication; or
• error or mistake made by HMRC that has not been corrected despite being informed.

Feel free to contact us for further information about this subject: 01905921333 or drop us an email-: at [email protected]

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.

Special rules for FHLs

Under the current regime for FHLs, landlords who meet occupancy and availability tests are treated more like a business and benefit from tax reliefs which are not available to landlords letting residential accommodation on longer-term lets. Broadly, to fall within the regime, the property must be furnished and available for letting for at least 210 days in the tax year and actually let for at least 105 days.

Proposed ‘brightline’ test

In their review of property income in 2022, the former OTS suggested the introduction of a ‘brightline’ test to determine whether the landlord was operating a property business or a trade.

HMRC’s view

In response to the ICAEW, HMRC rejected the introduction of an objective ‘brightline’ test, preferring instead the application of the usual rules to determine whether a trade exists.

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.

Advantages

As 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 tax perspective, rental profits are charged to corporation tax rather than to income tax. Depending on the level of the company’s profits, this will be at a rate of between 19% and 25%.

Disadvantages

The main disadvantage of operating a letting business through a company is that the profits need to be extracted if they are to be used outside the company. This is likely to trigger further tax bills. Consequently, it is not enough to look at the company in isolation – any tax and National Insurance payable on profits extracted from the company must also be taken into account.

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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.

Registering as a sole trader

Your registration obligations depend on whether you are already registered for Self Assessment, which may be the case, for example, if you have rental income to report to HMRC, and where you are not already registered, the level of your gross trading income.

Gross trading income of £1,000 or less

If your gross trading income (i.e. before the deduction of expenses) is £1,000 or less, you can take advantage of the trading allowance. This allows you to enjoy your profits tax-free and without any need to tell HMRC about them.

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