Tax Relief When Home is The Office

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When a business is operated through premises that are owned or let by the business, claiming for rent, rates and utilities, etc., is all relatively straightforward. However, when the business is run from the home of the proprietor or director (if a limited company), then the expense claim requires a little more thought.

If you wish to claim an apportionment of the household bills, as opposed to the flat rate allowance set by HMRC, then a number of factors should be considered for the calculation.

The area of the home used for business purposes (this can be expressed in terms of floor space or number of rooms) and the time in which that area is used for work should be established in order to apportion the bills.

If a room is used exclusively for the business, then it will not qualify for private residence relief so capital gains tax could be due when the house is sold. Therefore the room should also be used for domestic purposes to ensure the capital gains exemption.

Directors cannot claim any proportion of rent, mortgage interest, or council tax.  However, they can charge the company rent for using their home and claim allowable, apportioned expenditure against the rental income. The rental income would have to be declared on the director’s self-assessment tax return.

Certain occupations have specific allowances and thresholds which have been agreed with HMRC, for example child minders, and these should be observed where applicable. For help and advise on this, please contact our tax team on 01633 871122.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

 

New Tax Year – New Rules!

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So, the 6th of April brings in the new tax year with new rules, but what are the changes?

  • Personal Allowance – increases to £11,000.
  • Personal Savings Allowance – if you are in the 20% band for income tax, you will pay no tax on the first £1,000 of interest you get from savings. If you are a 40% taxpayer, you are allowed to earn £500 of interest tax-free ,rather than £1,000.
  • ISA limits
    • ISA – £15,240
    • Junior Isa limit- £4,080
    • Child trust fund limit- £4,080
  • National living wage – 25 and overs are now entitled to a minimum pay of £7.20 per hour.
  • Dividend Allowance – The first £5,000 you receive in dividends is tax free. Above £5,000, basic-rate taxpayers will pay 7.5% tax, higher-rate taxpayers 32.5%, and additional rate taxpayers 38.1%.
  • Employment Allowance – The new amount of £3,000 can be reclaimed against employers NI.
  • Tax on Loans to Directors -The 25% tax charge on loans to directors, etc. increases to 32.5%.
  • Capital Gains Tax – The higher rate of capital gains tax is reducing from 28% to 20% and the basic rate from 18% to 10%. However, the new rates will not apply to residential property that does not qualify for private residence relief.
  • Vat Registration – The thresholds increase to £83,000 for registration and £81,000 for deregistration.
  • Landlords and Second-home Owners – Will have to pay an extra 3% in stamp duty for second properties bought after 1 April 2016. This is on top of the normal rates (0% on the first £125,000; 2% for £125,001 to 250,000; 5% for £250,001 to £925,000; 10% for £925,001 to £1.5m, and 12% above £1.5m).

If you have any questions regarding the changes, please do not hesitate to contact us.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

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Ed Gooderham’s thoughts on the Budget

Ed Gooderham, partner at Green & Co, tweeted along live with George Osborne’s Budget announcements. Catch up with his thoughts here…

If you have any questions on any of the above or about the Budget in general, please don’t hesitate to contact us on 01633 871122

Changes To Principal Private Residence Elections

www.greenandco.comCapital gains tax exemption can only be claimed on one of your private residences. Currently, if you own more than one property and occupy both as private residences (e.g. a holiday home which you use at weekends and another property which is occupied during the week), you can make an election, within two years of purchasing the second property, to nominate one of the properties as your principal private residence to which the capital gains tax exemption applies. Where no election is made, HMRC determines which property will be exempt based on the facts. This election used to provide tax planning opportunities in order to minimise any future capital gains tax.

However, this election is being removed with effect from 6 April 2015. At present we do not know what will happen with regard to elections already in force at this date as this is still to be announced. For all properties after this date where at least there is no election the case will be decided on the facts.

So what facts will HMRC consider when deciding which property will be exempt from capital gains tax? There have been a handful of cases which have gone through the courts which provide us with some insight to this.

If you are in this position, you should have in mind which property you would like HMRC to treat as exempt and then consider the following points:

  • Where do you have your post sent to?
  • How much gas and electricity is used on each property?
  • Which address is on your bank accounts etc?
  • Which address do you register to vote?
  • Which address is your car registered at?

While none of the above will determine the exempt residence in its own right, each one will help to form the overall picture.

For more information please contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

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Prevention is better than cure!

Prevention is better than cure! – A saying that can often apply to reducing your tax bill.

Taking a proactive approach to your accounts can often be the simplest way to save you tax in a number of ways, for example:

Annual Investment Allowance (AIA)

The AIA allows you to claim 100% of the cost of assets, such as plant and machinery, in the first year of purchase, which in the past would have been split over a number of years. The AIA does have limitations on how much can be spent each year, therefore purchasing an asset just before or just after your accounting year-end could provide a completely different outcome on your taxable profits.

Capital Gains Tax (CGT)

Everyone has an annual allowance for capital gains before they are liable to CGT, and if you are planning to sell items such as shares, etc., that may incur a capital gain, the timing of your disposals could greatly effect the outcome of your CGT position.

Becoming a Limited Company

Though many people still view becoming a Limited Company as something associated with larger businesses, often the incorporation of a much smaller business can still prove to be beneficial for tax purposes, and with less extra administrative cost than you may expect.

Inheritance Tax

Unfortunately, Inheritance Tax planning can be a difficult subject to think about. More often than not, the majority of a person’s wealth is tied up in the property they own rather than money in the bank, and, as such, is unlikely to be spent during the retirement period. The writing of your Will, therefore, should not be the only thing to consider when deciding how your legacy should be allocated.

Submitting monthly VAT returns

If your business provides a product or service that is zero rated or exempt from VAT, whilst your expenditure does incur VAT, you may wish to improve the cash flow of your business by recovering your VAT on a monthly basis rather than once a quarter.

There are many reasons why we, as accountants, and you, as clients, should aim to be proactive when dealing with your financial affairs, and the aforementioned are just some of the more widely relevant reasons.

At Green and Co we regularly provide our clients with advice on these matters and more.

Being proactive is something that we strive to achieve so that our clients can make the right decisions from a position that is most tax efficient for their individual situation.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Property Sales Campaign by the Inland Revenue

HMRC regularly give the tax payer the opportunity to declare tax that would otherwise have gone undeclared.

The latest campaign that they are advertising relates to sales of property either at home or abroad which is not your main residence and any Capital Gains Tax that may be due on the sale of that property. To take advantage of this campaign and get the best possible terms available regarding any unpaid tax, you must notify HMRC by the 9th August 2013 and the matter must be settled (and any outstanding tax paid) by the 6th September 2013.

The property may be a holiday home or rental property or it may be your primary residence in those instances where you don’t qualify for Primary Residence Relief such as:

1. you may own a property with grounds or gardens  of more than 5,000 square metres or:

2. you use any part of your home for business purposes;

3. you purchased the property to make a profit from a quick sale

4. you let out all or part of your home.

You don’t necessarily need to have purchased the home – for instance it may have been a gift or inheritance – you may still be liable to pay tax on any gain.

You will not be eligible for this campaign if you buy and sell property as a business – in this case you are liable for Income Tax rather than Capital Gains Tax.

If you don’t take advantage of this campaign and the Inland Revenue come to you for tax that they think is due it is likely to cost you more money as penalties and interest may apply.

HMRC Property Sales Campaign

If you have sold a residential property in the UK or abroad, that’s not your main home, you may interested to know that HMRC have now officially launched the ‘Property Sales Campaign’. The campaign is targeted at those individuals who have not declared sales of residential properties on which capital gains tax should have been payable.

It is due to run until 6 September 2013 and eligible individuals are encouraged to ‘make a notification’ by 9 August 2013 and then provide HMRC with a complete disclosure of their tax irregularities by 6 September 2013. Any tax, penalties and interest will also be due by this date.

This campaign is for individuals only and cannot be used if you buy and sell property as a business (these sales are subject to income tax rather than capital gains tax) or those who need to disclose a gain made by a trust, company or partnership.

The benefit to individuals of making disclosures within this given time frame, is a lower rate of penalties of 10% or 20% being applied to the tax payable. Late payment interest is also charged. When utilising this campaign the individual can also take the opportunity to make a declaration of any other sources of income or gains that have not been taxed.

Individuals will be required to sign a certificate of full disclosure to confirm that all of their tax affairs have been brought up to date and HMRC expects a full and complete disclosure. If the disclosure is later found to be false then HMRC can take action.

Once the 6 September 2013 deadline has passed HMRC has stated that it will be using the information it holds to target those who should have made a disclosure under this campaign and failed to do so.