To Have, Hold & Share Rental Income Tax Efficiently

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As of 6 April 2017 the tax relief landlords receive for mortgage interest and other finance costs is restricted. The restriction is being introduced gradually so that by 2020/21 landlords will receive tax relief for finance costs at basic rate (currently 20%) instead of at the rate at which they pay tax.

This change does not just affect higher rate taxpayers.  Some people may find that, even though they are currently a basic rate taxpayer, as finance costs are no longer deducted in calculating their net rents, their income can be pushed into the higher rate bracket.

For spouses and civil partners who jointly own rental property, in the absence of an agreement to the contrary, the profits will typically be split 50/50. This can however be inefficient for tax purposes if one spouse is a basic rate taxpayer and the other is taxed at higher rate.

In such circumstances, they can register a beneficial ownership on the asset which stipulates a different ownership split, for example 80/20 and submit Form 17 to HMRC in order to tax the profits as such. This should of course be discussed with the experts in application to your personal circumstances before implementing.

If you’d like any further 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.

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.

 

Sponsor The Winning Team

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Following on from this summer’s Euro 2016 football tournament, and with the Rio Olympics just around the corner, could your business benefit from sports sponsorship?

Sponsorship is a mutually beneficial relationship between a rights owner, such as a sports club, and a fund provider – a business. To many it may seem to be the hunting ground of large multinational corporations, but small businesses may also be able to benefit, and generate publicity for their business.

It can also be a way to generate trust and goodwill in the local community. Your sponsorship may be enough to buy kits and sports equipment for a local children’s football club, or maybe fund a coaching program at a junior athletics club. For smaller businesses, sponsorship is a good way to be seen giving back, by supporting sport at the grass roots level.

But before entering into a deal, remember that it is more than just a corporate exercise. You may well imagine your company logo appearing all over an event, but instead you can view it as an opportunity to engage with your target audience, use it to tell your story, encourage customer relationships and build your brand.

There are many things which need consideration before entering such agreements if tax relief is to be allowable e.g. company logo, advertisements etc. care needs to be taken.

For more information contact our Tax Department on 01633 871122.

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

Free Research & Development Seminar

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Has your company spent money developing a new product or software? Have you made any advances in science and/or technology? If so you could be eligible for R&D uplift as high as 130% on your development expenses! Projects don’t have to succeed to claim.

Green & Co Accountants and Tax Advisors are running a seminar on the research and development tax relief system and how it may benefit your business. We are very lucky to have one of the HM Revenue & Customs most experienced R&D Tax Specialists presenting and he will provide an overview of the R&D schemes, the key aspects of making a claim and an analysis of qualifying expenditure.

Some of the many projects that have saved their companies substantial amounts of tax include:

  • Logistics company that developed a bespoke IT system
  • Signage company that produced a quicker drying ink
  • Building block manufacturer that improved a process to recycle materials
  • Bed manufacturer that developed an innovative spring system within mattresses
  • Software to help users of mobile phones choose music
  • Software managing claims for insurers
  • Learning management system for mobiles
  • System to monitor black boxes in hire vans
  • Device to prevent underground train rollback
  • System to share information between schools
  • HR system to trace joiners, movers and leavers within large organisations
  • Construction company that developed a fire retardant solution for timber treatment

“Many small business owners have never had access to information about claiming tax credits, and those that have were often not aware that their business qualified,” explained Barrie Kenyon, Partner Designate at Green & Co Accountants.  “The Seminar explains what makes a business eligible and how to go about making a claim.”

Eventbrite - Research & Development Seminar

Pension Alignment Gives Opportunity To Pay Up To £80,000 Pension Contribution In 2015-16

ID-100332620In the past pension schemes could have different PIP (pension input period) end dates which would not necessarily have been the end of the tax year. Whilst tax relief is given on contributions made in the tax year, determining whether the annual allowance, currently £40,000, has been exceeded is measured by reference to the PIP ending in the tax year. This could cause confusion where someone has different pension plans with differing PIP end dates.

From 6 April 2016 all schemes will have a PIP end date of 5 April. Transitional rules are in place for 2015/16 where all open PIP schemes were deemed to end on 8 July 2015 with the new PIP running until 5 April 2016. A scheme could therefore have 2 PIPs ending in the same tax year or possibly even three.

To ensure fairness the total annual allowance for 2015-16 will be £80,000. This is achieved by splitting the periods into 2 mini tax years.

This gives tax payers an opportunity to increase their pension contributions for the current year. Care should be taken and advice should be sought from your Financial Adviser.

For further 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.

Image courtesy of Mister GC at FreeDigitalPhotos.net

Summer Budget 2015

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Our review of the Summer Budget 2015 is now available: Green & Co – Summer Budget 2015

There were several big changes announced in this weeks Chancellor’s Budget, including changes to Corporation Tax, Inheritance Tax, Dividend Tax Credits and Landlords Tax Relief among many others.

We have compiled everything you need to know about the budget, all nicely wrapped up in one handy download.

New Pension Rules – The Downside

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New pension rules came into effect on 6 April 2015 which have brought many welcome changes. But what about the changes which are not so good? Careful consideration needs to be made with regard to how the changes may affect you.

The most significant change is probably the removal of pension funds from Inheritance Tax. This, together with the ease with which tax relief can be lost, means that individuals will need to seek financial advice.

So what are the pitfalls?

Certain events, including a payment from a flexi access draw-down, will trigger the “money purchase annual allowance rules”. Triggering these rules will reduce the annual allowance on which pension tax relief can be claimed from £40,000 to £10,000 and will also result in the loss of any unused relief from earlier years. Clearly, if you intend to make pension contributions in excess of £10,000 in future years, you will need to take financial advice before making any alterations to your existing pension provisions.

From the age of 55, you used to be able to take 25% of your fund tax-free but under the new rules you are able to draw the whole of the remaining fund in one lump. This will be taxed as income and could push you into the higher rate tax bracket or even worse push your income to such a level that the personal allowance is no longer due. Careful consideration needs to be given to when and how much income is withdrawn at any one time in order to minimise the amount of tax due.

If you spend all your pension savings in the early years, you could run out of money long before you anticipated. This could also be the case if the fund does not perform as well as expected. Again financial advice needs to be taken before any decisions are made.

Please contact Green & Co for further information.

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

Image courtesy of Steafpong at FreeDigitalPhotos.net

How Pension Planning Can Help Retain Child Benefit And Save Inheritance Tax

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If you or your spouse/partner has an income between £50,000 and £60,000, your child benefit is clawed back at the rate of 1% for every £100, and for those earning above this, the claw back equals the whole amount of the benefit received.

By making additional pension contributions, you could retain child benefits. For example, if your income was £60,000 and you paid a net pension contribution of £8,000 (this is grossed up to £10,000 to take into account the tax relief due), your overall income would be reduced to £50,000 for child benefit purposes resulting in no claw back.

This month, new pension rules came into effect meaning that family members may contribute to each others pension pots. Provided you have enough earnings, family pension contributions are a useful way of helping to keep your income below the £50,000 limit and have the added benefit of saving the family member inheritance tax, either by making a gift of the contribution out of normal income, or by being within the annual exempt amount of £3,000 (£6,000 if the previous year’s annual exempt amount was not used).

There is potential to make substantial tax savings! For example, if you have income of around £60,000 and four children, and you decide to make a pension contribution of £8,000 it could save you about £6,500 in income tax and child benefits.

For further information contact Green & Co.

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

Photo credit: freedigitalphotos.net

Do You Want To Maximise Your Claim For Childcare Costs?

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If you are currently paying childcare costs or will do in the near future, are you aware that the scheme for claiming tax relief is changing in the Autumn of 2015?

Currently you may be claiming relief through the childcare voucher scheme. The childcare voucher scheme enables the parent to claim £55 per week of childcare vouchers if entering the scheme before April 2011, reducing to £28 or £25 depending on whether you are a higher rate taxpayer for those joining the scheme after this date. These vouchers are tax and NI free, providing savings of £933 on £55 per week reducing to £623 for the lower amounts.

The tax credits system pays up to 70% of childcare costs but is, of course, dependent on the claimants’ income.

The new system will give tax relief at 20% on childcare costs of up to £10,000 per child.

Both parents need to be working and neither parent must be an additional rate taxpayer.

Parents who already receive child care vouchers don’t have to switch to the new system unless they want to. So the question is “do I switch or do I not switch?” There is no easy answer to this as it will vary from person to person depending on their individual circumstances. Factors such as how many children you have, coupled with the level of childcare costs involved, will feature heavily in any decision.

It is important to note:

  • Once a claimant leaves the childcare voucher system he/she cannot rejoin it.
  • In Autumn 2015 the scheme will be closed to new entrants who will only be able to participate in the new scheme

For anyone in receipt of childcare vouchers or considering the scheme, it is important to review which option is the most beneficial to you.

For more information contact Green & Co.

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

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

HMRC Takes The Driving Seat

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Having lost out at the first tier tribunal, HMRC took racing giant McLaren all the way to the upper tribunal to see a judgement in their favour, in a recent tax case.

Back in 2007 a (one can only imagine, disgruntled) former Ferrari engineer passed confidential design and performance information onto McLaren regarding Ferrari’s Formula One cars, which McLaren possessed and in some way used. Upon discovery of this misdemeanour the motor sport governing body, Federation International de L’Automobile, issued McLaren with a £32 million fine for breach of the International Sporting Code.

What business of this is HMRC’s, you ask? Well, McLaren deducted this fine as a trading expense, thus receiving tax relief and HMRC disputed this on the basis that the fine was not wholly and exclusively incurred in the performance of McLaren’s trade. The first tier tribunal found that the penalty was a business expense as it was a result of contractual obligations McLaren entered into for the purposes of its trade.

The upper tribunal, however, overturned this original judgement and declared that obtaining information by breaching regulations did not class as normal business activity and therefore the ‘wholly and exclusively’ criteria was not satisfied. Thus, the fine was not an allowable deduction.

The lesson? All might be fair in love and war – but that doesn’t make it tax deductible!

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

Image courtesy of Rawich at FreeDigitalPhotos.net