To July’s Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Section.
We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
Please contact us for advice on your own specific circumstances. We’re here to help!
Working from home
Over recent years, it has become increasingly popular for employers to allow their employees to work from home, and in doing so, pay an amount to cover any additional household costs incurred. What are the tax implications of such expenses for the employee?
Broadly, no tax liability will arise where an employer makes a payment to an employee for reasonable additional household expenses, which the employee incurs in carrying out duties of the employment at home under ‘homeworking arrangements’. – read more>>
VAT: zero-rating of adapted motor vehicles
Finance Act 2017 introduced legislation designed to end perceived abuse of the VAT relief on substantially and permanently adapted motor vehicles for disabled wheelchair users.
The amended rules, which took effect from 1 April 2017, now specify a limit on the number of vehicles within a specified period of time that an individual can purchase under this relief. – read more>>
Rent a room scheme
Although Budget 2017 announced that the Government intends to review the rent-a-room scheme, it currently remains a tax-efficient way of letting out a spare room. Broadly, HMRC’s rent-a-room scheme is an optional exemption scheme, which allows individuals to receive up to £7,500 of tax-free gross income (income before expenses) from renting out spare rooms in their only or main home. The exemption is halved where the income is shared with a partner or someone else. Broadly, as long as income is below the annual threshold, it does not need to be reported to HMRC. If income exceeds the threshold, it needs to be reported to HMRC via the self-assessment system. – read more >>
New state pension and contracted-out NICs
Most people will be aware that the state retirement pension system has changed for people who reach state pension age on or after 6 April 2016 – that is men born after 5 April 1951 and women born after 5 April 1953. The full new state pension is currently £159.55 per week, but the amount that employees who have previously paid National Insurance contributions (NIC) at the contracted-out rate may be affected under the new system. The introduction of the new state pension from 6 April 2016 brought an end to the contracting-out rules.
In very broad terms, to qualify for the minimum amount of state pension an individual needs 10 years of NIC contributions. 35 years or contributions or credits will be needed to qualify for the full amount. – read more >>
New survey discovers which major financial issues are keeping SME’s awake at night
If you run as SME, what causes you sleepless nights? What financial issues give you stress and what keeps you tossing and turning? Well, a new survey by Solutions Loans claims to have discovered what financial issues the UK’s SME’s find most stressful. – read more >>
SMEs hardest hit by the delays to business rates compensation claims Federation of Small Businesses
The FSB and SMEs have spoken out strongly against the continued delays to business rates compensation promised to those hardest hit by the tax rises introduced earlier this year. The change to business rates followed the delayed revaluation of commercial property last year. – read more>>
July Question and Answer
Q. Can I give my house to my children and continue to live in it and avoid inheritance tax?
A. It may be possible if you pay a full market rent for your home, but if you do this, then your children will have to pay income tax on the rent they receive. Capital gains tax may also be payable at some time in the future if they sell the house. The new inheritance tax residence nil rate band (RNRB), which is being phased in from April 2017 over a 4-year period, is designed to help people in your position to pass on the family home to children or grand- children, tax-free after their death. HMRC’s guidance Inheritance tax: additional threshold (RNRB) provides further information. Always seek professional advice before entering into any arrangement where the main purpose, or one of the main purposes, is to obtain a tax advantage.
Q. I am thinking of selling a property that I have owned and rented out for the last ten years, and once it is sold, I will reinvest the proceeds in another property. Will I have to pay capital gains tax on the proceeds from the sale even if all the money is reinvested in another property that is also let?
A. Yes, you will be liable to capital gains tax on the gain arising on the sale, even though you will be reinvesting the money in another property that is also let. Rollover relief is available for residential investment property only in relation to qualifying furnished holiday lettings, and for compulsory purchases.
Q. I lent my brother some money, which I borrowed from my company, for him to use in his business. He is paying it back in monthly instalments over three years. What are the tax implications of this loan?
A. I presume that you are a director and a substantial shareholder of the limited company. I also presume that the company lent the money on an interest-free basis.
The tax implications for the company are that the loan is deemed to have been made to an associate of a participator in the company, and as such, it will be caught by what are commonly referred to as the ‘section 455 rules’. Broadly, these rules mean that the company will have to pay tax at 32.5% on the amount of the loan outstanding nine months after the accounting year end of the company. When the loan has subsequently been repaid to the company, HMRC will refund the tax paid.
There is an exception to this, namely where a loan does not exceed £15,000, but only when the shareholder does not own more than 5% of the shares.
If a relative of an employee receives an interest-free loan from an employer, this will be a benefit-in-kind for the employee. Interest at the ‘official rate’ (currently 3%) is calculated, and this deemed interest is subject to tax. However, there are exceptions to this tax charge where:
– the loan is a ‘qualifying loan’;
– a qualifying or non-qualifying loan is less than £10,000; and
– the employee can show that they received no benefit from the loan to the relative.
As your brother used the loan for business purposes, it should be a qualifying loan because ‘the interest would be deductible in computing the borrower’s profit from a trade’ (HMRC Employment Income Manual, paragraph EIM26136). With regard to the ‘no benefit received from a loan to a relative’, HMRC are generally reluctant to apply this when the employee is a director who controls the company.
July Key Tax Dates
5 – Deadline for PAYE settlement agreement for 2016/17
6 – Deadline for 2016/17 forms P11D and P11D(b) to be submitted and copies of P11D to be issued to relevant employees
Deadline for employers to report share incentives for 2016/17 – form 42
14 – Return and Payment of CT61 tax due for quarter to 30 June 2017
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/7/2017 or quarter 1 of 2017/18 for small employers
Class 1A NIC due in respect of the tax year 2016/17
31 – Second self assessment payment on account due for 2016/17
Second 5% penalty surcharge on any 2015/16 outstanding tax due on 31 January 2017 still unpaid
Deadline for Tax Credits to finalise claims for 2016/17 and renew claims for 2017/18
Half yearly Class 2 NIC payment due
Penalty of 5% of tax due or £300, whichever is greater for 2015/16 personal still not filed