Severn Accounting

👧🏻 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.

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

👉 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.

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

👉 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).

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

👔 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.

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

🧾 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.

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

👨🏻‍🎓 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).

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

🔄 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.

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

🧾 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.

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

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.

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

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.

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

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).

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

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.

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

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.

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

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.

Employed earners earn a qualifying year for each year that their earnings exceed the lower earnings limit for the year, which for 2024/25 is £6,396.

Check your state pension record

Before paying voluntary National Insurance contributions, it is important to check your state pension record. You can do this by visiting the Gov.uk website at www.gov.uk/check-state-pension. You can also check your state pension record using the HMRC app.

Paying voluntary contributions

To qualify for a full state pension, you need 35 qualifying years when you reach state pension age, whereas if you have at least ten qualifying years, you will receive a reduced state pension.

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

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 allowance

The 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).

Taxation of dividends

Where dividends are not sheltered by the dividend allowance or any personal allowance not used elsewhere, they are taxed at 8.75% where they fall in the basic rate band, at 33.75% where they fall in the higher rate band and at 39.35% where they fall in the additional rate band.

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

If you make donations to charity, you can benefit from tax relief on those donations. This can be achieved in various ways.

Gift Aid

If 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.

Payroll giving

If you are an employee and your employer operates a payroll giving scheme, you can make charitable donations through the payroll. Your employer will deduct your donations from your gross pay before tax.

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

If you employ temporary summer staff, you must check your legal pensions duties towards them. Find out more on our website. https://ow.ly/C0ju50SlS3f

update.

The event in Hereford earlier today went very well. We learned so much about charity accounting and charity law 📕

A big thank you to guest speaker Sarah Smith FCCA, and those who took time out of their weekend to attend the AAT Hereford and Worcester Branch meeting 👏 A special thanks to our brilliant bunch of community volunteers too! 🙏

We welcomed a very special guest too- AAT past President Christina Earls BA IRRV FCPFA FMAAT 👑

Have a great weekend everyone and keep your eyes peeled for our next event in September on Payroll/HR 👀

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%.

💡 The ‘main’ residence

It will usually be clear which property is a person’s main residence. For example, if a person has one house in which they live plus two investment properties that they rent out, the house in which they live will be their main residence.

💡 Exchanging the main home

The SDLT supplement does not apply where the taxpayer exchanges his or her main home. The position is straightforward if the sale of the former home completes before or at the same time as the purchase of the new home. In this situation SDLT is charged at the normal residential rates.

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

📈 With interest rates falling, business growth should follow. While this is waiting to happen, companies continue to close.

🤦🏻‍♂ Loss relief

👉 Consideration is needed as to how to deal with losses efficiently. The main reliefs likely to be relevant include offsetting cessation losses:

📌 against the company's other profits for the same period

📌 by carrying them back against total profits of the previous period

📌 by carrying back losses arising in the final 12 months before cessation against total profits within the previous three years on a 'last in first out' basis.

🏷 Sale of assets

👉 Although the cessation of trade will give rise to a deemed disposal of any plant and machinery for capital allowances purposes, the sale of a company's chargeable assets could also produce a capital gain which may give rise to a significant tax liability, especially if it is a property being sold.

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

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' dividend

👉 A 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 profit to substantiate the payment, this effectively means that the company is insolvent and considered to be breaking (company) law.

💰 Preferences

👉 Where a dividend payment has been made out of retained profits, there may be instances where a shareholder would prefer not to receive payment of all or part of the dividend or where it would be tax advantageous for that particular shareholder not to do so.

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

👨‍💼 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 of the company, but wholly as a goodwill gesture. Providing that a payment or benefit is not a distribution or part of a capital transaction, the first £30,000 of any 'goodwill gesture' is exempt from income tax and NIC with only the balance being chargeable.

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

🙋‍♂ 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.

🏡 A DIY housebuilder can benefit from the scheme if they have planning permission to:

🔵 construct a new dwelling to be used as a family home for residential or holiday purposes by the DIY builder or his or her relatives;

🔵 buy a new building as a shell from a developer and fit it out to completion for use by the DIY builder or their relatives as a family home for residential or holiday purposes.

📝 Evidence of planning permission

👉🏻 To claim a VAT refund, it is necessary to provide evidence that the works are lawful. To this end, the claimant must send a copy of full planning permission, outline planning permission and approval of reserved matters or permitted development rights, such as a local development or neighbourhood development order.

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

🚩 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.

📌 Nominating the main residence

👉 Where a taxpayer or a married couple/civil partners have more than one residence, they can choose which residence is their main residence for capital gains tax purposes. This is done by making a nomination.

📌 A change in the combination of residences

👉 A notice nominating a residence must be given within two years of the date on which the combination of residences changes. For example, this may be when a second or subsequent property is acquired or a property is sold, leaving the taxpayer(s) with at least two properties after the sale.

📌 On marriage or a civil partnership

👉 As married couples and civil partners can only have one main residence between them, where a couple marry or enter into a civil partnership and each had their own main residence prior to the marriage, if they retain those residences, they will need to jointly nominate which is to be the main residence from the date of the marriage/civil partnership.

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

📍 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.

✔ Self-employed taxpayers

👉 If 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 involved in calculating your taxable profit for 2023/24.

✔ Employed taxpayers

👉 If you are employed you may need to file a tax return if you have other sources of income, such as rental income or investment income. If you owe less than £3,000, you can elect for the tax to be collected through your PAYE code if you file your return by 30 December 2024.

✔ Earlier repayments

👉 If you have overpaid tax for 2023/24, the sooner you file your tax return, the sooner you are able to receive a repayment. The money is arguably better in your bank account that in HMRC’s.

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

Up to certain limits, it is possible to enjoy some savings income tax-free. The extent to which this is possible depends on the rate at which you pay tax; not all routes are open to all.

🤵 Personal allowance

If you do not fully use your personal allowance elsewhere, any balance not otherwise used can be set against your savings income, allowing it to be received tax-free.

🔐 Savings allowance

Basic and higher rate taxpayers are entitled to a savings allowance. This is in addition to their personal allowance.

💰 Savings starting rate

Savings income which falls within the savings starting rate band is taxed at the savings starting rate of 0%. Depending on the individual’s personal circumstances, they may be able to enjoy up to a further £5,000 of savings income tax-free.

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

For 2024/25 and later tax years, unless they elect otherwise, unincorporated businesses must prepare their accounts and calculate their taxable profit using the cash basis.

💸 Cash basis v accruals basis

The cash basis works on a cash in and cash out approach. Income is only taken into account when received, and expenses when paid. Consequently, there is no need to account for debtors and creditors or prepayments and accruals.

💳 Removal of cash basis restrictions

For 2023/24 and earlier tax years, traders were only able to elect to use the cash basis if their turnover (as computed under the cash basis) was £150,000 a year or less.

📢 Accruals basis election

For 2023/24 and earlier tax years, traders who did not elect to use the cash basis simply prepared their accounts using the accruals basis by default.

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