Archives for 2014

property is let furnished – with sufficient furniture, furnishings and equipment for normal residential use – landlords can only claim tax relief for the furniture and equipment by way of the WTA. Prior to April 2013, landlords had the option of claiming the cost of replacement furniture instead.

The WTA is calculated as 10% of the gross rents less any tenant’s costs (e.g. water rates and council tax) met by the landlord.

WTA does not cover repairs, which continue to be tax deductible. The question is then raised can replacement of an item be counted as a repair? In this respect, landlords that let furnished property need to distinguish between:

1. Replacement of items that are integral to the building, and
2. Replacement of items that are not integral to the building.

Needless to say there are grey areas!

Replacement of items that are integral to the building

Fixtures integral to the building are those that are not normally removed by either tenant or owner if the property is vacated or sold. Examples include:

• Baths
• Washbasins
• Toilets
• Immersion heaters
• Fitted kitchens and fitted white goods.

This list is not intended to be complete but gives an idea of the assets that are integral to the building and fall outside the wear and tear allowance. As these items are integral to the building, the cost of replacing these items is normally an allowable expense as a repair to the building.

Replacement of items that are not integral to the building.

Expenditure of this type will be covered by the WTA. Examples given on HMRC’s website in this category include:

• movable furniture or furnishings, such as beds or suites,
• televisions,
• fridges and freezers,
• carpets and floor-coverings,
• curtains,
• linen,
• crockery or cutlery,
• beds and other furniture

Unfortunately, these examples are not definitive: is a carpet glued to the floor a permanent fixture, or not part of the integral features?

om 6 October 2014, HMRC was due to include smaller employers in the penalty regime for late filing of Real Time Information (RTI) payroll returns for 2014-15.

HMRC have announced that this penalty process will be delayed for a number of smaller employers.
They will now start from:

• 6 October 2014 for employers with 50 or more employees
• 6 March 2015 for employers with fewer than 50 employees

The size of the late filing penalties depends on the number of employees within the PAYE scheme.

Number of employees	Penalty per PAYE scheme
1 to 9	£100
10 to 49	£200
50 to 249	£300
250 or more	£400

HMRC will use the latest information available to determine the number of employees, and the size of the filing penalty for each period where a return is late.

It is estimated that seven out of ten small businesses are managed in the first instance from home. Home based entrepreneurs contribute £300 billion to the UK economy. It is not surprising, therefore, that the Government have woken up and realised that they should be supporting this sector.

Recently, the Business Minister, Matthew Hancock, announced a package of additional support for home based business owners. They include:

• The law will be changed so that landlords can be assured that agreeing to home working by tenants will not undermine their residential tenancy agreement. A new model tenancy agreement will also be made available shortly;
• Updated planning guidance will make it clear that planning permission should not normally be needed to run a business from your home; and
• New business rates guidance will clarify that in the majority of circumstances home based businesses will not attract business rates.

This is welcome news. It is a pity that the announcement did not include a relaxation in the complicated Capital Gains Tax rules that can affect individuals who claim for the use of a room at home to run their business.

Readers may be interested to know that there are already 2.9 million businesses being run from entrepreneurs’ homes. As mentioned above, these businesses contribute £300 billion in annual turnover to the UK economy. They also have a marked affect on employment.

If 1 in 10 home businesses took on just 1 extra employee it would create 300,000 jobs. Unemployment fell in June 2014 to just over two million so the 300,000 reduction would represent a significant 15% fall.

On the face of it, home based businesses can take encouragement from these announcements. Let’s hope that these will be the first of a number of initiatives to encourage entrepreneurs to take the plunge.

The cycle to work scheme encourages employees to cycle to work and allows employers to reap the benefits of a healthier workforce.

Employers of all sizes can set up a tax exempt scheme. Basically, employers can loan a cycle and associated safety equipment to an employee without the employee suffering a taxable benefit-in-kind charge.

In order to qualify for tax exempt status, a cycle loan scheme has to satisfy a number of criteria including:

• Ownership of the equipment is not transferred to the employee during the loan period;
• Employees use the equipment mainly for qualifying journeys; i.e. for journeys made between the employee’s home and workplace, or part of those journeys (for example, to the station), or for journeys between one workplace and another;
• The offer of the use of a loaned or provided cycle (i.e. one for which ownership is not transferred to the employee) is available across the whole workforce, with no groups of employees being excluded. This does not necessarily have to be through a Cycle to Work salary sacrifice arrangement.

Employers’ expenditure on purchasing cycles and associated equipment is treated as capital expenditure and the usual tax and capital allowances are available including the Annual Investment Allowance.

In theory there are no limits to the amount that can be invested although there may be limits set by the OFT consumer credit license that regulates the loan of cycles under this scheme. The current OFT limit per loan is £1,000.

At the end of the agreed cycle loan period the employee can continue to use the cycle equipment for qualifying journeys with no tax consequences, or, the employer can sell the equipment to the employee. To avoid any tax charge the sale must be made at current market value.

The Government is considering the response to its consultation document on proposals to introduce powers allowing HMRC to dip into a tax payer’s bank account in order to recover arrears of tax. There will be safeguards:

• The debt recovered would have to be £1,000 or more.
• A minimum of £5,000 has to be left in an account after the debt has been recovered.

Needless to say this proposal has created quite a stir.

The British Banking Association wants the Chancellor to take legal advice on the matter as they believe the legislation would contravene the Human Rights Act. Others believe that HMRC has proved itself incompetent in the past to accurately calculate the amount of tax arrears owed by an individual. HMRC would, in effect, become judge and jury, assessing and collecting tax without any initial remedy or intervention available to the tax payer.

Let’s hope that the firestorm this proposal has provoked will temper any future change in the law. At present it is likely that HMRC will be given these new powers as part of the Finance Act 2015.

Management accounts, produced on a regular basis, will give you and your professional advisor the information you need to manage your business and keep your planned profit growth on-track. They also provide the basic data that you will need to minimise your tax payments and keep your business on track to produce sustainable profits. Additionally, management accounts can be used to:

Keep your bank informed

If your business is constantly pushing towards the top end of its overdraft or loan facilities, your bank manager will be much more sympathetic to your requests for more support if you can provide regular up-to-date accounts.

Plan the purchase of new plant, equipment or vehicles

The tax allowances you can claim for capital purchases can vary significantly. In particular the date on which you buy and the specification of the vehicle or equipment will need to be taken into account. Well worth taking professional tax advice before you make any significant investment in this area.

Plan how you pay yourself

The options you have available to minimise tax and National Insurance on any income you draw from your business depends on the type of business structure you have opted to work with. Self-employed traders will pay tax on their profits regardless of the amount of cash they withdraw for personal needs; directors and shareholders of Limited Companies will pay tax on the amount of salary or dividends they take. Dividends, however, do not attract a National Insurance charge. Each business offers its own opportunities to minimise state deductions and maximise take home pay. You should certainly take advice prior to your year end to make sure you choose the right strategy; waiting until after the year end may close down beneficial options.

There are a number of VAT schemes that benefit registered businesses. For example:

Cash accounting

If you are eligible and the scheme is suitable for your business, then using the cash accounting scheme enables you to pay VAT when your invoice is paid and not when you issue the invoice to your customers. You are also restricted when claiming back input VAT on purchases and expenses to the date you pay the bill, not the date you receive the invoice from your supplier.

You can use cash accounting if your estimated VAT taxable turnover during the next tax year is not more than £1.35 million and you can continue to use cash accounting until your VAT taxable turnover exceeds £1.6 million.

Annual accounting

Annual accounting allows you to send in just one return a year. This offers some relief from the chore of submitting quarterly returns. Using the Annual Accounting Scheme, you make either nine interim payments at monthly intervals, or three quarterly interim payments, throughout the year. You only need to complete one return at the end of each year. At that point you must pay any outstanding amount or, if you have overpaid, you will receive a refund.

You can use the Annual Accounting Scheme if your estimated VAT taxable turnover for the coming year is not more than £1.35 million. Your VAT taxable turnover includes any standard, reduced and zero-rated sales and other VAT taxable supplies, but excludes the VAT itself, VAT-exempt supplies and capital asset sales.

Once you are using annual accounting you can continue to do so as long as your estimated VAT taxable turnover remains below £1.6 million.

You can also combine these two schemes. In this way you can have the cash flow benefits of using cash accounting and some relief from the administrative chores by submitting one return a year.

Before making a decision you will need to take advice as not all businesses will benefit.

Consider the following facts:

• The filing deadline for a Stamp Duty Land Tax return was a Sunday.
• A member of the advisor’s staff forgot to file the return by the end of the Friday – two days before the deadline.
• Realising their mistake, the staff member took the file home with the intention of filing over the weekend.
• Due to problems with internet access it was impossible to file the return before the deadline expired.

The return was subsequently filed the next working day, a Monday – one day late.

HMRC charged a late filing penalty and the tax payer appealed.

The court decided that the penalty had been charged in accordance with legislation and the tax payer had no grounds to appeal. The fact that internet access was not available did not affect the issue. The First-tier Tribunal noted that “leaving matters to the last minute was a recipe for disaster” and that it did not have jurisdiction to decide on the fairness of a penalty.

Many employers pay their employees a monthly car allowance to compensate them for the business use of their private vehicles. In most cases this car allowance is treated as remuneration and is subject to PAYE and National Insurance deductions.

Additionally, employers may also pay a nominal amount per mile as a contribution to fuel costs.

Employers are entitled to pay their employees a tax free mileage allowance for the business use of their private vehicles. The rates are:

• 45p per mile for the first 10,000 miles in any tax year, and
• 25p per mile for any additional use.

In a recently decided case, an employer that paid less than the 45p (25p) tax free rates, was enabled to deduct the difference between the actual rate paid and tax free rates available, from the monthly car allowance, before working out any employer’s or employee’s National Insurance Contributions due on the monthly car allowance.

If the amount being paid for business use of fuel is nominal, this can make quite a difference to National Insurance Contributions that are due.

Employers reading this article, whose circumstances match the following criteria, may be able to claim refunds for overpayment of past NIC deducted from car allowance payments. The outcome of such claims will depend on how closely their circumstances mirror the decided case mentioned above, and HMRC’s interpretation of the ruling:

The criteria are:

• You pay or have paid employees a regular car allowance.
• You have also paid nominal mileage rates to cover business related fuel costs, below the current tax free rates of 45p (25p) per mile.

Please note that in the decided case discussed in this article, the allowance was only paid to employees travelling more than 2,500 business miles each year though the mileage rate they received was correspondingly reduced to 12p per mile from 40p. It was thus aimed at compensating those incurring additional costs for using their cars substantially for business purposes.

In a recently decided tax case a self-employed air conditioning engineer, David Keyl, was denied a claim for AIA. He had purchased a van in July 2008 and on 31 March 2009 (the end of his trading year) he transferred his sole trader business to a limited company.

Unfortunately, the legislation setting up the AIA includes a provision that relief will be denied in the year in which a trade discontinues.

In the case of David Keyl his sole trader business ceased to trade 31 March 2009 and therefore no claim could be made for AIA in the tax year 2008-09. The fact that Mr Keyl had continued to provide maintenance under existing contracts made no difference to this judgement.

The lesson to be learned here is that a decision to incorporate a business should not be taken lightly. If Mr Keyl and his advisors had reviewed the larger transactions he had entered into during 2008-09, they may well have delayed incorporation to the following year.