CHARTERED ACCOUNTANTS (ICAEW)

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Tax planning for trading losses

A sole trader or partnership business may make a loss for several reasons – not necessarily because it is not doing well. A business can be operationally successful but still report losses due to various strategic, financial or external factors.There are several options available to gain tax relief for a loss. The default position is the ability to carry forward the loss and offset it against taxable income in future years, thereby reducing the tax liabilities for those years. The problem with...

Tax implications of building an office for home working

Following the pandemic, flexible working hours are on the increase. This shift has provided employees with the legal right to request flexible working from the first day of their employment. However, there is no statutory right for employees to work from home as yet. Homeworking is already the norm for many self-employed. Where existing space is not suitable at home for a room to be set aside as an office, many may look to build an extension, convert a loft or build a garden room. Should th...

Should you dispose of old documents?

Over the past few years, tax enquiries aimed at identifying and correcting errors or deliberate under-reporting in tax returns have increased. HMRC generates substantial revenue from all compliance activities and although the exact proportion relating to tax enquiries is not always separately reported, latest figures show that for 2023-24 the amount secured from all tax compliance activities was in the region of £41.8 billion. Read this article to find out more.Receiving an enquiry letterThe fi...

Restarting child benefit claims

Many parents who fell within the ambit of the High Income Child Benefit Charge (HICBC) opted not to receive child benefit, rather than to receive it and pay it back in full in the form of the charge. However, changes to the HICBC which came into effect from April this year mean that some parents who previously lost all their child benefit to the charge will now be able to retain some or all of it. Where this is the case, they will need to restart their child benefit payments so that they do not ...

What can HMRC do if you do not pay your tax bill?

HMRC have a range of powers at their disposal to collect unpaid tax. If you are struggling to pay a tax bill, or know that you will not have the funds available to meet an upcoming bill, it is better to take action than to ignore the problem and hope it will go away – it won’t. Interest will be charged on tax paid late, and late payment penalties may also apply.Set up a Time to Pay arrangementRather than paying your tax bill in one hit, you may be able to set up a Time to Pay arrangement and...

Do I need to worry about IR35?

If you provide your services personally to an end client through your own limited company or other intermediary, you may fall within the scope of either the off-payroll working rules or the anti-avoidance rules known as ‘IR35’. Both aim to redress the tax and National Insurance balance where the worker would be an employee if they provided their services directly to the end client; however, the responsibility for applying the rules differs. Under the off-payroll working rules, it is the enga...

Realistic scam letters – how to check if a letter purporting to be from HMRC is genuine

Scammers are becoming increasingly adept at fooling people and a favoured tactic is a letter, a text or an email purporting to be from HMRC, often promising a tax refund in exchange for personal and financial data.During the summer, many taxpayers received a very convincing scam letter which appeared to be from HMRC, seemingly from the Individuals and Small Business Compliance scheme. The letter asked the recipient to provide business bank statements, the most recent set of accounts, VAT returns...

Making a voluntary disclosure if you have not told HMRC about tax that you owe

There are various reasons why a person may not have told HMRC about the tax that they owe, ranging from a simple oversight to the deliberate evasion of tax. Regardless of the reason, if you have failed to declare income and gains on which tax is due, it is always better to take action to correct the situation than to wait to be ‘found out’ by HMRC.There are various different ways in which a disclosure can be made, and the option that is right for you will depend on your particular circumstan...

UK tax treatment of rent from overseas properties

A person who is resident and domiciled in the UK is liable to UK tax on their worldwide income. Consequently, if they have overseas property that they rent out, any rental profits are taxable in the UK.Separate overseas property businessAs far as property rental businesses are concerned, UK properties and overseas properties are treated as being part of different property businesses – the overseas properties will form an overseas property business and the UK properties will form a UK property ...

Start of a property rental business

A property rental business will have a start date, and it is important to know when this is. A landlord will normally undertake some preparatory work before letting their first property, and it is important to know when the preparatory work ends and the property business begins.In their Property Income Manual, HMRC make the point that ‘where the rental business is letting property, the business can’t begin until the first property is let.’ Once the first property has been let, the property...

Using a property company for furnished holiday lets

The current tax regime for furnished holiday lettings has a number of advantages, including the ability to deduct interest and finance costs in full when calculating the taxable profit. This enables the landlord to secure tax relief for interest and finance costs at their marginal rate of tax, something that is advantageous where the landlord pays tax at the higher or additional rates and has a mortgage on properties which are let as furnished holiday lets.However, the favourable tax regime for ...

End of the FHL regime and transitional rules

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. However, transitional rules will allow landlords to access some of the capital gains tax reliefs for a limited period.Interest and finance costsLandlords with FHLs were unaffected by the restrictions in the relief for ...

Are professional fees tax deductible?

As ever, the answer to this question depends on what type of professional fees have been incurred.Professional fees are income and corporation tax deductible if incurred 'wholly and exclusively' for the purpose of the trade, profession or business. However they must not be capital in nature or losses not connected with/ arising out of the trade. The situation is not always clear-cut and the circumstances surrounding the payment and the precise nature of the professional services provided must be...

The company makes a loss – can a dividend be paid?

Anyone who invests in a company is taking a chance, hoping that the directors, as representatives of the company, will use the money to increase the company’s profit. In return for taking this chance, a shareholder receives ‘payback’ usually as a share in the distribution of profits in the form of a dividend, however. payment is not automatic.For a dividend to be paid, a company needs to have sufficient 'distributable profits' to cover the dividend at the payment date. ‘Profits’ in thi...

Be aware of VAT bad debt relief

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 allows bad debt relief to be claimed by businesses that have already paid VAT to HMRC on sales invoices that remain unpaid.How bad debt relief is allowed depends on the accounting scheme being used. The cash accounting scheme is the most straightforward way to avoid a bad debt problem because output tax on invoices issued is only declared on a return whe...

Utilising losses from a property rental business

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 landlordsWhere 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 automa...

Treating tenants’ deposits correctly for tax purposes

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. The landlord can also ask for a holding deposit to reserve the property. This cannot be more than one week’s rent.The way in which deposits are treated for tax purposes depends on the type of deposit and the basis on which the l...

New residence-based regime for foreign income and gains

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 fee is set at £30,000 where the person has been resident for at least seven of the previous nine tax years and at £60,000 where the person has been resident in at least 12 of the previous 14 tax years. Where unremitted income and gains are less than £2,00...

Workplace nursery partnership schemes

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. Unlike the exemptions for childcare vouchers and employer-supported childcare to the extent that these remain available, the tax exemption for workplace nursery places applies without limit.For the exemption to apply, the employer must either make available the premises in which the care is provided or meet the partnership requireme...

Claiming refunds of overpaid PAYE

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. Where this is the case, HMRC will send out a letter. This may be a tax calculation letter (P800) or a Simple Assessment letter. The letter will explain how to pay any taxed...

VAT on school fees

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%. B...

Using form R40 to claim a tax refund

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. If you do complete a Self Assessment tax return, you do not need to make a separate claim as any tax due to you will be taken into account in computing the amount due or repayable under Self Assessment. A claim can be made on form R40 for the current tax year and the previous four tax years.If you are making the claim for you...

Tax implications of different methods of business finance

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.If an individual makes a gift either to a business owner or to the business itself, it is generally not considered as taxable income for the business. However, there are inheritance tax (IHT) implications for the individual, as gifts made by an individual can ...

Claiming tax relief on work clothes

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. Tax relief is available, but only for the cost of cleaning, repairing or replacing where the employee pays the cost themselves and does not receive reimbursement from the employer.The cost of the initial purchase of ordinary clothing cannot be claimed because a...

When is a VAT invoice not a VAT invoice?

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 VA...