Archive for July, 2016

Buy-to-let landlords expenses

Thursday, July 28th, 2016

When you work out your taxable rental profit you can deduct allowable expenses from your rental income. The expenses must be wholly and exclusively for the purposes of renting out the property. This means that if an expense wasn’t incurred for the purpose of your property rental you can’t offset the cost against the rental income. The expenses must also be revenue, rather than capital expenses.

Common types of expenses you can deduct if you pay for them yourself are:

  • general maintenance and repairs to the property, but not improvements (such as replacing a laminate kitchen worktop with a granite worktop)
  • water rates, council tax, gas and electricity
  • insurance – landlords’ policies for buildings, contents and public liability
  • interest on a mortgage to buy the property
  • costs of services, including the wages of gardeners and cleaners
  • letting agent fees and management fees
  • legal fees for lets of a year or less, or for renewing a lease for less than 50 years
  • accountant’s fees
  • rents (if you’re sub-letting), ground rents and service charges
  • direct costs such as phone calls, stationery and advertising for new tenants
  • vehicle running costs (only the proportion used for your rental business)

Expenses you can’t claim a deduction for include:

  • the full amount of your mortgage payment – only the interest element of your mortgage payment can be offset against your income
  • private telephone calls – you can only claim for the cost of calls relating to your property rental business
  • clothing – for example if you bought a suit to wear to a meeting relating to your property rental business, you can’t claim for the cost as wearing the suit is partly for your rental business and partly to keep you warm – no identifiable part is for your property rental business
  • personal expenses – you can’t claim for any expense that was not incurred solely for your property rental business

Claiming part expenses

You might incur a cost where only part of it is expense for your property rental business. If a definite part of a cost is expense incurred wholly and exclusively for the property business, you can deduct that part. For example, if a property is used for private purposes for 3 months and commercially let for 9 months, then 9/12ths of the mortgage interest can be deducted from the rental income.

Do not forget to pay your tax

Wednesday, July 27th, 2016

The 31st July is rapidly approaching. If you are registered for self-assessment, make sure you pay the second instalment for 2015-16, that falls due on this date, unless no payment is due.

If you are self-employed, and if you are confident that your profits have fallen in the accounts year to 31 March 2016, compared to 2014-15, then you may be able to make an election to reduce the payment on account due in two weeks’ time. Any downward adjustment in tax payable must be based on realistic calculations as HMRC will take a dim view if your tax return for 2015-16, when filed, shows that your downward adjustment in your July payment was excessive.

We can help.

If the amount of tax due cannot be disputed, but you are unable to make the payment due to cash flow difficulties, contact HMRC now to discuss your options. Very often, HMRC will agree to a direct debit instalment plan or otherwise give you more time to pay. It is important that you contact the tax office before the end of the month; in this way you can reduce the possibility of penalties for late payment. Unfortunately, HMRC will still charge you interest on unpaid tax – the current rate charged is 3%.

There are a number of ways you can pay the tax.

HMRC should have sent you a Statement showing what you owe on the 31 July. Simply fill in the payment slip at the bottom of the form and take it to your bank with a cheque before the end of the month. Don’t forget to allow enough time for the cheque to clear before the 31st.

Alternatively, you could pay by online or telephone banking. The bill will tell you which account to pay into. It will generally be one of two offices:

  1. HMRC Cumbernauld: sort code 08 32 10, account number 12001039, or
  2. HMRC Shipley: sort code 08 32 10, account number 12001020.

HMRC will also accept payments by debit or credit card. You will need to use HMRC’s online payment portal at https://www.tax.service.gov.uk/pay-online/self-assessment.

Why record business mileage

Tuesday, July 26th, 2016

If you are self-employed, either as a sole trader or in partnership, and you use a business vehicle for private purposes, HMRC will seek to disallow any motoring costs, petrol etc., and capital allowances based on the purchase cost of the vehicle, to cover the private use proportion.

The only practical way that you can do this is to record your car mileage at the beginning and end of your trading year, to ascertain the total miles for the period, and a log of your business miles.

At a minimum, you should be able to provide evidence of total annual mileage and a detailed record of business mileage for the same period. The log should include the following information:

  • Date of the business use
  • The address you were attending and the round trip mileage
  • The reason for the trip

This could be recorded in a diary kept in your car or by using one of the multitude of Apps now available for this purpose.

Armed with this information, any disallowance of running costs and capital allowances will be fairly based and not some arbitrary figure dictated by HMRC. Estimates will not cut muster with the tax office, you will need to back up numbers with evidence.

If you are employed, have the use of a company car, and your employer pays all of your petrol, including that used privately, then you will be subject to the car fuel benefit charge. The only way to avoid this tax charge is to repay your employer for petrol used privately. To do this you will need to keep a log of all private journeys. At the end of each tax year, or periodically during the tax year, you should multiply the private use miles by the approved car fuel rate – this can be accessed from the HMRC website at https://www.gov.uk/government/publications/advisory-fuel-rates. Just multiply the private use miles by the appropriate rate per mile and pay this amount to your employer.   

 If you want your motoring costs fairly apportioned for private use, you will need to keep a mileage log.

Interest rates to fall

Tuesday, July 19th, 2016

In the immediate fall-out after the Brexit vote it was rumoured that interest rates would fall when the Bank of England Monetary Policy Committee (MPC) met on the 13th July. Following the meeting, Mark Carney announced that interest rates would be held at 0.5%.

However, the minutes of the July 13th MPC meeting make it clear that at their next meeting on the 6th August, interest rate reductions or other easing of monetary policy may be on the cards. The minutes say:

“The MPC is committed to taking whatever action is needed to support growth and to return inflation to the target over an appropriate horizon. To that end, most members of the Committee expect monetary policy to be loosened in August. The Committee discussed various easing options and combinations thereof. The exact extent of any additional stimulus measures will be based on the committee’s updated forecast, and their composition will take account of any interactions with the financial system.”

In other words, the expected fall in rates to say 0.25%, may well happen next month.

If rates do fall this is great news for borrowers, who can expect fixed rate mortgages to be offered at more favourable rates.

It will be bad news for savers. In fact, as the indications of a rate fall are fairly strong, it may pay to take advice and consider your options. National Savings and the High Street banks are already adjusting rates in a downward direction in anticipation of rate falls next month. Perhaps time to take a look at fixed-rate savings bonds?

15% corporation tax

Wednesday, July 13th, 2016

George Osborne has floated the idea that the UK could reduce corporation tax to 15% or lower in an attempt to make the UK the place to do business. By making this surprise announcement at the beginning of the month, he will no doubt have in mind the many larger institutions that are reconsidering a move from London to other EU financial centres following Brexit.

 There are concerns that this could, if implemented, produce a race to the bottom, as other countries try to out-compete the UK rates.

 The present 20% corporation tax rate is already scheduled to reduce in the coming years. The present timetable of reductions is:

  • From 1 April 2017 reducing to 19%
  • From 1 April 2020 reducing to 17%

Of greater concern, certainly for smaller businesses, is maintaining profitability in the coming years as the UK adjusts to a new alignment with the EU and the rest of the world. Uncertainty is likely to be a constant companion at our board meetings until the post Brexit changes are completed.

 Businesses would be best advised to observe basic good housekeeping:

  • Tighten credit control,
  • Maintain liquidity,
  • Reconsider investment decisions that are unlikely to have an immediate, positive impact on profitability,
  • Rewrite budgets and make sure monthly financials are reviewed.

Anchoring larger, mostly financial institutions to UK residency in the hope of minimising any down-side losses to the UK economy, whilst laudable, does not necessarily help small business owners – if they are unable to make profits a reduction in tax rates at some future date is largely irrelevant.

 It will be interesting to see if George Osborne, or his successor, come up with Band-Aid policies for smaller business development in the coming months.

Business as usual

Tuesday, July 12th, 2016

The hiatus continues. Both major political parties are locked into leadership issues and until these are resolved it is difficult to see in which direction the UK will take. Apparently, the present government, with its new leadership team, will continue until the next scheduled general election, 7 May 2020.

George Osborne’s last budget, March 2016, is still working its way through parliament and we can expect this process to complete once the report stage is finished and the bill receives Royal Assent. No doubt the new incumbents will consider a further finance bill later this year to smooth the way for Brexit?

 Meanwhile, we are faced with two dilemmas:

  • When will we formally separate from Europe and what continuing trade agreements will we secure with the EU?
  • What trade agreements will we secure with the rest of the world?

 It is encouraging to see that the present government are not entirely inactive in this regard. The Business Secretary, Sajid Javid, has kicked off preliminary trade talks with India this month, and there are further, tentative talks organised with the USA, China, Japan and South Korea.

The Business Secretary Sajid Javid said:

“Following the referendum result, my absolute priority is making sure the UK has the tools it needs to continue to compete on the global stage.

That is why I am in India today to launch these initial trade discussions. There is a strong bilateral trade relationship between our 2 countries and I am determined that we build on this.

Over the coming months, I will be conducting similar meetings with other key trade partners, outlining the government’s vision for what the UK’s future trade relationship might look like.”

As part of the discussions, the Business Secretary is expected to make clear that he would like the UK and India to have a trade agreement in place as soon as possible after the UK leaves the EU.

So we are not without leadership. Meanwhile, now would be a good time to consider, and reconsider, investment options for small businesses across the UK while we wait for the wider trade negotiations to complete.

Holiday entitlement

Wednesday, July 6th, 2016

Now is the time of year when many of us turn our thoughts to holidays and it is important to get holiday entitlement and holiday pay right.

The GOV.UK calculator has recently been updated and can be found by using the following link.

The acas website also includes useful guidance on calculating holiday and holiday pay entitlements.

If you would like help with payroll matters please contact us.

Internet link: GOV.UK calculator

Contractors Monthly Returns

Wednesday, July 6th, 2016

From April 2016 changes have been made to the Construction Industry Scheme (CIS). Part of the reforms were that contractors must file their monthly returns online.

HMRC have introduced a number of improvements to the CIS online service with a view to making it easier and more efficient to use. These changes include the facility to amend returns online. They have also introduced a new online message/alert service. HMRC will issue messages and alerts including:

  • Monthly Return Inactivity Confirmation
  • Period of inactivity about to end
  • Submission of a ‘nil’ monthly return during a period of inactivity
  • Submission of a monthly return containing payment information during a period of inactivity
  • Inactivity request for an inappropriate period
  • Return amendment where the number of subcontractors have changed
  • Cost of materials enquiry
  • Have you filed your Monthly Return yet?
  • Subcontractor tax treatment incorrect
  • Submission where HMRC are unable to match subcontractor information to their records.

These messages will be sent to the contractors HMRC CIS Online account. HMRC are asking contractors to check if they are receiving these messages via their commercial software package, otherwise contractors may need to access them via the HMRC online service.

Modified online subcontractor verification service

HMRC have also now modified the Subcontractor verification service which includes improved search and matching functions, and updated screens which will now display tax treatment details against each subcontractor. HMRC are encouraging contractors to use this service as the telephone verification service is expected to be removed from April 2017.

If you would like help with CIS issues or returns please contact us.

Internet link: Employer Bulletin

UK set to leave the EU

Wednesday, July 6th, 2016

With the referendum votes counted and the United Kingdom vote to exit the European Union there will be many issues to consider.

The CBI commented on the result of the referendum.

Carolyn Fairbairn, CBI Director-General, said:

‘The British people’s vote to leave the EU is a momentous turning point in our history. The country has spoken and it’s for us all to listen.

Many businesses will be concerned and need time to assess the implications. But they are used to dealing with challenge and change and we should be confident they will adapt.

The urgent priority now is to reassure the markets. We need strong and calm leadership from the Government, working with the Bank of England, to shore up confidence and stability in the economy.

The choices we make over the coming months will affect generations to come. This is not a time for rushed decisions.

The CBI will be consulting its members and business is committed to working with Government to shape the best possible conditions for future prosperity.’

Internet link: CBI news

Have you accessed your Personal Tax Account?

Wednesday, July 6th, 2016

HMRC are advising employers that their employees may benefit from accessing their Personal Tax Account. These accounts allow taxpayers to view information about their tax affairs and advise HMRC online about changes that may affect the tax they pay. The services available through the Personal Tax Account include:

  • checking income tax estimates and tax codes
  • advising HMRC about changes affecting company cars
  • using the online forms available to claim tax deductible work expenses or a tax refund
  • checking the expected level of their state pension
  • renewing tax credits
  • advising HMRC of a change of address.

In a recent development the system for registering for this service has been revised and it is now possible to register using your National Insurance Number and P60 information. To register visit https://www.gov.uk/personal-tax-account

Employers may wish to promote the service to their employees as this should result in fewer enquiries being made by them to their payroll or HR departments

Internet link: Employer Bulletin