CHARTERED ACCOUNTANTS (ICAEW)

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Splitting a company – Tax efficiently

Most private companies start as sole owner-managers; roll on a few years and some will have grown such that family members may also work for the business, responsible for different departments or types of businesses, or grown such that there is more than one business under the company name. Family members may wish to take that department forward, separate from the others. Whatever the reason, a demerger may be under consideration, the aim being to undertake the procedure as tax efficiently as po...

Work clothes – Can they be claimed against tax?

Whether a claim for the cost of work clothes is tax deductible is covered by the general rule for deduction of any expenses incurred by an employee. Statute states that any expense incurred is allowed if the employee is obliged to incur the expense and that amount is incurred 'wholly, exclusively and necessarily in the performance of the duties of the employment'. For the self-employed, the condition is less severe, requiring the expense to be incurred 'wholly and exclusively' for the purposes o...

Incidental overnight expenses – A little known tax break

Expenses incurred by an employee on behalf of a company can only be reimbursed under the 'wholly, exclusively and necessarily' rules for work undertaken 'in the performance of the duties of or employment'. It is not enough for the expense to be relevant to the job, or to be incurred in connection with the duties of the job. The point of this rule is to prohibit the cost of expenditure that has a private purpose and is therefore taxable as 'emoluments'. Where this situation may pose a problem is ...

HMRC's use of artificial intelligence –How AI is assessing the risk of tax evasion by businesses

HMRC's use of artificial intelligence –How AI is assessing the risk of tax evasion by businessesWe are increasingly hearing more and more about artificial intelligence (AI) and how its use can change our way of working both now and in the future. AI is constantly evolving, but it generally involves machines using statistics to find patterns in large amounts of data, perform repetitive data tasks without the need for human input and most importantly 'learn' from experience. HMRC intends to enha...

Working for an umbrella company –Be aware of the risks

Working for an umbrella company –Be aware of the risksRecruitment agencies often use umbrella companies to pay temporary workers. HMRC confirms that there is no statutory definition of an umbrella company and currently describes it as 'a company that employs temporary workers who work for different end clients',where 'the umbrella will enter into a contract with a recruitment agency that will source work from end clients'.(Tackling non-compliance in the umbrella company market – Consultation...

Pre-trading expenses –Be aware of the rules

Pre-trading expenses –Be aware of the rulesPeople set up in business for a variety of reasons. For some it is a dream that becomes a reality some years later. In working towards that dream, they may purchase items before the business starts to trade, to enable the business to trade, rather than for the purposes of the trade, e.g. a professional camera purchased to enable professional photographs to be taken in a portfolio of work before any trading has commenced. Other costs may include rent o...

NMW from April 2024 – Make sure you comply

NMW from April 2024 – Make sure you complyEmployers must pay their workers at least the statutory minimum wage for their age. Depending on the age of the worker, they may be entitled to the higher National Living Wage (NLW) or the National Minimum Wage (NMW) for their age band.It is important to note that the right to be paid at least the statutory minimum applies to ‘workers’, the definition of which is wider than employees.The NLW and NMW are increased from April each year. In addition, ...

Register to payroll benefits in kind

Register to payroll benefits in kindEmployers can opt to deal with taxable benefits in kind through the payroll (known as ‘payrolling’) rather than reporting them to HMRC after the end of the tax year on the employee’s P11D. However, this is only possible if the employer is registered to payroll the benefits. This must be done before the start of the tax year for which the benefits are to be payrolled. It is not necessary to register the benefits every year – once registered for payrolli...

Relevant motoring expenditure and NIC – Are you due a refund?

Relevant motoring expenditure and NIC – Are you due a refund?For tax purposes, where an employee uses their own car for work, mileage allowances can be paid tax-free up to the approved amount, which is simply the business mileage for the year multiplied by the approved rate (which for cars and vans is set at 45p per mile for the first 10,000 business miles in the tax year and at 25p per mile for any subsequent business miles).Similar but not identical rules apply for National Insurance, and am...

Making pension contributions before 6 April 2024

Making pension contributions before 6 April 2024As the end of the tax year approaches, it is prudent to review your pension contributions for the year and consider whether it is worth making further contributions before 6 April 2024. Remember, any annual allowances brought forward from 2020/21will be lost if not used by this date.The amount of tax-relieved contributions that can be made in any tax year to a registered pension scheme is limited by both your earnings and your available annual allo...

Extracting further profits in 2023/24

Extracting further profits in 2023/24As the end of the tax year approaches, it is prudent for those operating their business as a personal or family company to review the profits extracted so far in the tax year and to consider whether it is beneficial to take further profits before the end of the tax year.There are various ways in which profits can be extracted, and not all routes are equal from a tax perspective. When extracting profits, it makes sense to do so as tax efficiently as possible, ...

Repairs and improvements – What is the difference and why does it matter?

Repairs and improvements – What is the difference and why does it matter?Work may be undertaken on a property to repair it or to improve it, and it will not always be clear where the dividing line falls. The distinction is important for tax purposes as, depending on how the accounts are prepared, relief may be given in a different way for capital expenditure and for revenue expenditure.Where the cash basis is used (as will generally be the case where rental receipts are £150,000 or less), bot...

Avoid the temptation to make speculative SDLT claims

Avoid the temptation to make speculative SDLT claimsNot all property is equal when it comes to stamp duty land tax (SDLT). Higher rates apply to residential properties than to non-residential properties, with a 3% supplement applying to second and subsequent residential properties costing more than £40,000. Where a property comprises mixed residential and non-residential use, the lower non-residential rates apply.The difference in rates has paved the way for speculative refund claims where the ...

Financing an investment property

Financing an investment propertyA would-be property investor will need to be able to fund the purchase of their investment property. They may choose to do this personally or via a company. If they do not have the funds available, they will need to borrow them. The tax relief that may be available depends on the route taken.Personal borrowingsThe investor may choose to take out a mortgage on the investment property or, alternatively, remortgage their home where this secures a lower interest rate....

Using a period of grace election for furnished holiday lettings

Using a period of grace election for furnished holiday lettingsThe cost of living crisis has impacted on people’s ability to take holidays and short breaks. If you are a landlord letting a furnished holiday let (FHL), you may find that the downturn in bookings means that you are unable to pass the occupancy tests for your let to qualify as an FHL for tax purposes.For a let property to count as an FHL, the property must be in the UK or the EEA and must contain sufficient furniture for normal oc...

Making Tax Digital for landlords

Making Tax Digital for landlordsMaking Tax Digital for Income Tax Self Assessment (MTD for ITSA) is introduced from 6 April 2026 From the outset, it will apply to unincorporated traders and landlords with annual business and/or property income of £50,000 or more. It will be extended to unincorporated traders and landlords with business and/or property income of £30,000 or more from April 2027. The Government have yet to make a decision as to when or if it will be extended to those whose annual...

Making use of the property allowance

Making use of the property allowanceIt is possible to enjoy tax-free income from property, even if you have already used up your personal allowance. This is because the property allowance allows you to receive annual gross property income of up to £1,000 without needing to tell HMRC about it. You can also benefit from the allowance if your annual property income is more than £1,000 to reduce the tax that you pay on your property income.Full reliefFull relief is available where your annual gros...

What to do if you receive one of HMRC's 'nudge’ letters

What to do if you receive one of HMRC's 'nudge’ lettersHMRC believes that not everyone is paying the correct amount of tax, estimating what it terms as 'the tax gap' as being '4.8% of total theoretical tax liabilities, or £35.8 billion in absolute terms, in the 2021 to 2022 tax year'. HMRC appreciates that not all this money is purposely withheld (as in fraud or tax evasion) but rather through mistakes or misunderstandings of the tax law.As such, HMRC has been on a mission to rectify this sit...

Tax implications of buying a customer list

Tax implications of buying a customer listMany businesses begin by buying a customer list from another similar business, sending out marketing adverts rather than waiting to build their own client base via recommendation. A business can also expand by buying a customer list. However, a customer list is usually more than just a list of customer names and contact details. It is essentially the relationship with a customer being bought or transferred, encompassing customer preferences and contact h...

Marriage allowance – A possible tax break for married couples or civil partnerships

Marriage allowance – A possible tax break for married couples or civil partnershipsDespite 4.2 million couples being eligible for the tax break, only 1.8 million are claiming the marriage allowance (MA) – a benefit worth £252 a year. The main reason for not claiming is probably because those eligible are either unaware of the allowance or, if they are aware of it, think they are not eligible.For example, many commentators and HMRC's website state that to claim one partner must have income l...

Capital gains tax year-end planning

Capital gains tax year-end planningNoone wants to pay more tax than they need to and, where possible, disposals should be timed to ensure that the best result is achieved from a tax perspective. Where a disposal is made around the end of the tax year, accelerating or delaying the disposal date can impact on the tax that is paid. This is particularly true this year, as the capital gains tax annual exempt amount falls from £6,000 for 2023/24 to £3,000 for 2024/25.Don’t waste the exempt amountE...

Have you used your 2023/24 dividend allowance?

Have you used your 2023/24 dividend allowance?As we move into the final months of the 2023/24 tax year, it is time to give some thought to whether you have used your 2023/24 dividend allowance yet, and whether it is worth extracting further profits as dividends before the end of the tax year. Once a salary has been taken equal to the personal allowance of £12,570, it is tax efficient to extract further profits as dividends.Nature of the dividend allowanceThe dividend allowance is available to a...

Cash basis extended

Cash basis extendedIf you are running an unincorporated business, either as a sole trader or as a partnership comprising only partners who are individuals, you can use the accruals basis to prepare your accounts or, if you are eligible, the cash basis. For 2023/24 and previous years, the cash basis is only available to traders whose turnover, computed in accordance with the cash basis rules, is £150,000 or less. However, following a consultation, the availability of the cash basis is to be exte...

National Insurance cut for employees and directors

National Insurance cut for employees and directorsIn his November 2023 Autumn Statement, the Chancellor announced a reduction in the main primary rate of Class 1 National Insurance from 12% to 10%. Rather than waiting until the start of the 2024/25 tax year to bring in the change, it applies from 6 January 2024.The change will benefit employers and directors, but will cause something of a headache for employers who will need to implement the change in-year.Primary Class 1 contributionsPrimary co...

NIC payable by the self-employed from April 2024

NIC payable by the self-employed from April 2024The self-employed have historically paid two classes of National Insurance – Class 2 and Class 4. However, this is set to change from April 2024 with the abolition of Class 2 National Insurance contributions.What are Class 2 contributions?The payment of Class 2 contributions has enabled a self-employed person to build up entitlement to the state pension and contributory benefits.Class 2 contributions are flat-rate weekly contributions payable whe...