Month: July 2021

Inheritance Tax Business Relief

Posted on by Rana Zubair

There are a number of reliefs available that can reduce liability to IHT if you inherit the estate of someone who has died. One of these reliefs is known as Business Relief and is a valuable tax relief for taxpayers with business interests, offering either 50% or 100% relief from IHT on the value of the business assets if certain conditions are met.

  • 100% Business Relief can be claimed on a business or interest in a business or on shares held in an unlisted company.
  • 50% Business Relief can be claimed on:
    – shares controlling more than 50% of the voting rights in a listed company
    – land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled
    – land, buildings or machinery used in the business and held in a trust that it has the right to benefit from

Relief is only available if the deceased owned the business or asset for at least 2 years before they died. There are a number of restrictions to the relief, for example if the company in question mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments. In some cases, partial Business Relief may be available.

Claiming the relief can be a complicated process. We can of course help review the facts and advise.

Source: HM Revenue & Customs Mon, 19 Jul 2021 00:00:00 +0100

Rent-a-room: letting as office accommodation

Posted on by Rana Zubair

The rent-a-room scheme is a set of special rules designed to help homeowners who rent-a-room in their home. The current tax-free threshold of £7,500 per year has been in place since 6 April 2016. Homeowners using this scheme should ensure that rents received from lodgers during the tax year do not exceed £7,500.

The tax exemption is automatic if you earn less than £7,500 from qualifying rentals. The relief applies only to the letting of furnished accommodation and applies when a bedroom is rented out to a lodger.

HMRC issues specific guidance for individuals who seek to use rent-a-room relief where rooms in private homes are let as office accommodation. HMRC is clear that such claims do not qualify for rent-a-room relief and should be refused.

This does not apply to genuine lodgers such as students who are provided with study facilities in their lodgings. In such cases, HMRC would not want to deny relief. For example, where a lodger is provided with a desk which he or she uses for work or study.

Source: HM Revenue & Customs Mon, 19 Jul 2021 00:00:00 +0100

National Minimum Wage reminder for summer staff

Posted on by Rana Zubair

We would like to remind any students and seasonal staff that work part time, for example in a summer job, to ensure they are being paid the National Minimum Wage (NMW). All workers are legally entitled to be paid the NMW. This includes temporary seasonal staff, who often work short-term contracts in bars, hotels, shops and warehouses over the summer. 

HMRC helped some 155,000 people recover more than £16 million in pay which was due to them. HMRC is reminding workers to check their hourly rate of pay, and to also check any deductions or unpaid working time. The most common causes of minimum wage underpayment are deductions and unpaid working time such as travelling time between work locations and training time.

The current National Minimum Wage (NMW) and National Living Wage (NLW) rates came into effect on 1 April 2021. The NLW is the minimum hourly rate that must be paid to those aged 23 or over. The hourly rate of the NMW (for 21-22 year olds) is £8.36. The rates for 18-20 year olds is £6.56 and the rate for workers above the school leaving age but under 18 is £4.62. 

Employees that are not being paid correctly can make an official complaint through GOV.UK or contact the ACAS Pay and Work Rights Helpline on 0300 123 1100.

Source: HM Revenue & Customs Mon, 19 Jul 2021 00:00:00 +0100

Income excluded from a property business

Posted on by Rana Zubair

HMRC publishes a list of income streams that are excluded from a UK property business. The list includes fishing concerns, hotels and guest houses, tied premises, caravan sites, lodgers and tenants in your own home, extra services to tenants and letting surplus trade accommodation. In most cases the income from these activities will be taxed as income of a trade and not as property income.

In addition, there are certain receipts that can arise out of the use of land, and which are specifically excluded by statute from a rental business. These include yearly interest, income from the occupation of woodlands managed on a commercial basis, income from mines and quarries and income from farming and market gardening.

There is also a £1,000 property income allowance that applies to income from property (including foreign property). If a taxpayer’s annual gross property income is £1,000 or less, the amount is exempt from tax and does not need to be reported on their tax return.

Source: HM Revenue & Customs Mon, 19 Jul 2021 00:00:00 +0100

Card security update

Posted on by Rana Zubair

VISA have issued information regarding changes to card processing security from September 2021. The idea is to reduce online fraud.

The changes will apply across Europe. A key part of the new security arrangements is the requirement for Strong Customer Authentication (SCA). This means you may be asked to provide additional information when making some purchases.

In their update VISA said:

Banks are introducing these new security measures for Visa cardholders who shop online or make contactless payments. This will help them ensure only you can use your Visa and give you even more confidence and protection when paying with Visa.

  • Online: You may have to enter a passcode, which would be sent to your mobile phone or landline or authenticate your payment in another way, depending on how your Visa Card issuing bank has implemented the new security measures.
  • In-store: For contactless purchases, you may be asked to enter your PIN more often.

You may be asked to take an additional security step to confirm you are you when making a payment using your banks’ chosen authentication method. Your bank will have informed you by now on how to do this. If they have not, please contact your bank.

Hopefully, this will give us even more confidence and protection when paying with a credit card, as all card issuers will need to mirror Visa’s changes to maintain a level, secure playing field.

Source: Other Mon, 19 Jul 2021 00:00:00 +0100

IHT – settled and excluded property

Posted on by Rana Zubair

A trust is an obligation that binds a trustee, an individual or a company, to deal with the assets such as land, money and shares which form part of the trust. The person who places assets into a trust is known as a settlor and the trust is for the benefit of one or more 'beneficiaries'. The act of transferring an asset – such as money, land or buildings – into a trust is often known as ‘making a settlement’ or ‘settling property’. For Inheritance Tax (IHT) purposes, each asset has its own separate identity. 

Some assets are classed as ‘excluded property’ and IHT is not due. However, the value of the assets may be included when calculating the rate of tax on certain exit charges and 10-year anniversary charges.

Types of excluded property can include:

  • property situated outside the UK – that is owned by trustees and settled by someone who was permanently living outside the UK at the time of making the settlement
  • government securities – known as FOTRA (free of tax to residents abroad)

This can be a complex area and specialist advice is usually required to ensure that a trust operates as effectively as intended.

Source: HM Revenue & Customs Mon, 12 Jul 2021 00:00:00 +0100

Associated company rules

Posted on by Rana Zubair

As announced in the Budget earlier this year there will be two rates of Corporation Tax from 1 April 2023. When the new rules take effect, taxable profits up £50,000 will continue to be taxed at 19% under the new Small Business Profits Rate. Taxable profits more than £250,000 will be taxed at 25%. 

The introduction of the two new rates will once again make the issue of associated companies important to consider. Under the new rates, profits between £50,000 and £250,000 will be subject to a marginal tapering relief. This would be reduced for the number of associated companies and for short accounting periods.

A company is an ‘associated company’ of another company if one of the two has control of the other, or both are under the control of the same person or persons. 

The £250,000 limit will be divided by the total number of associated companies. For example, if two companies are deemed to be associated, both companies would pay the main CT rate of 25%, from 1 April 2023 at half the usual threshold, namely at £125,000 rather than £250,000. 

HMRC’s manuals make it clear that a company may be an associated company no matter where it is resident for tax purposes.

Source: HM Revenue & Customs Mon, 12 Jul 2021 00:00:00 +0100

OTS – making better use of third party data

Posted on by Rana Zubair

The Office of Tax Simplification (OTS) was established in July 2010, to provide advice to the Chancellor on simplifying the UK tax system. The OTS has recently published a new report titled ‘Making better use of third-party data: a vision for the future’. The report sets out proposals for making better use of data held by third parties, such as reporting interest on savings and investments from banks directly to HMRC. 

Commenting on the report, the OTS Tax Director said:

‘The report considers the kinds of tax data individuals could find it helpful for third parties to automatically transfer to HMRC, and how this might best be embedded into the next stage of its work on the Single Customer Account.’

The report encourages the government to explore further and take forward this agenda, and to:

  • ensure that data reported to HMRC by third parties is visible to taxpayers and their agents through the forthcoming Single Customer Account, and used to update tax codes and support the completion of individuals’ tax returns
  • set out a clear roadmap of the stages through which changes would be consulted on and made
  • consider the most effective choice of unique identifier to enable third party data to be readily and accurately matched with HMRC’s taxpayer records
  • consult widely on the balance of responsibilities as between data providers, software providers, agents, taxpayers and HMRC
  • ensure that HMRC have the necessary funding.
Source: Other Mon, 12 Jul 2021 00:00:00 +0100

VAT – what you can and cannot reclaim

Posted on by Rana Zubair

For most fully taxable businesses, VAT can be reclaimed on goods and services used in the business. This means that businesses must consider where there is personal or private use of goods or services bought for the business and can usually only reclaim the business proportion of the VAT.

For example, VAT is recoverable on all the costs of mobile phones provided to employees where no personal use is allowed. Where businesses allow private calls to be made at no charge the VAT recovery must be apportioned on a fair and reasonable basis. Where employees pay for the private use of their phones the business is allowed to reclaim the input tax in full provided an output tax charge is accounted for in respect of private use.

You cannot reclaim VAT for:

  • anything that is only for private use;
  • goods and services your business uses to make VAT-exempt supplies;
  • business entertainment costs;
  • goods sold to you under one of the VAT second-hand margin schemes;
  • business assets that are transferred to you as a going concern.

There are different rules for a business that incurs expenditure on taxable and exempt business activities. These businesses are partially exempt for VAT purposes and are required to make an apportionment between their activities using a 'partial exemption method' to calculate how much input tax is recoverable.

Source: HM Revenue & Customs Mon, 12 Jul 2021 00:00:00 +0100
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