Category: Business

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 a tax return.

The 1,25% increase in NIC contributions from April 2022 will be mirrored by a similar increase in the tax charge on dividends. From April 2022, the dividend tax increases will apply as follows:

• Basic rate taxpayers will see an increase from the present 7.5% to 8.75%.
• Higher rate taxpayers will see an increase from 32.5% to 33.75%.
• Additional rate taxpayers will see an increase from 38.1% to 39.35%.

This change will apply UK-wide. It will be scored at the Budget and legislated for in the next Finance Bill.

Dividend tax is charged on taxable dividend income an individual receives that falls outside of the personal allowance (£12,570 in 2021-22) and the dividend allowance (£2,000 in 2021-22). Taxable dividend income excludes, for example, dividends on assets held in ISAs.

Affected basic rate taxpayers are expected to pay, on average, an additional £150 on their dividend income in 2022-2314 . Affected higher rate taxpayers are expected to pay, on average, an additional £403 on their dividend income in 2022-23. Additional and higher rate taxpayers are expected to contribute over 70 per cent of the revenue from this increase in 2022-23.

There are special rules for the taxation of post-cessation receipts and expenses after a trade has ceased. These provisions also apply to professions and vocations as they apply to trades.

Tax relief may be available for post-cessation expenses of a trade, although expenses still have to satisfy the wholly and exclusively test and be revenue in nature in order to qualify for relief. In order to be an allowable post-cessation expense, the trade must have ceased and the expense would have been deductible in calculating the trading profits. Post-cessation expenses must be set against post-cessation receipts arising in the same period as the expense before any other method of relief can be considered.

There are a number of different ways in which post-cessation expenses can be relieved These depend on the person incurring the expenditure and the type of expenditure incurred. An expense specifically relating to the cessation itself is not an allowable expense.

The cash basis scheme helps sole traders and other unincorporated businesses benefit from a simpler way of managing their financial affairs. Landlords can use the cash basis when recording income and expenditure i.e., recording the flow of money from and to the business.

The scheme is not open to limited companies and limited liability partnerships. The entry threshold for the cash basis scheme is £150,000 and you can stay in the scheme until your business turnover reaches £300,000.

Unlike other taxpayers that need to opt-in to use the scheme, the legislation assumes that landlords will use the cash basis as the default method of calculation. A landlord can still elect to opt out of the scheme in which case they can continue to use generally accepted accounting practice (GAAP) to calculate their taxable profits. Landlords are also required to continue using GAAP if their rental receipts are more than the £300,000 scheme threshold.

HMRC’s property income manual lists the following criteria of when the cash basis is not available to a property business. 

A: The property business is run by a company, limited liability partnership (LLP), trustees or a corporate firm (a partnership with at least one non-individual member).

B: Receipts that would be brought into account under the cash basis for the tax year exceed £150,000. This amount must be proportionally reduced if the property business is only carried out for part of the tax year.

C: If the property business is being carried on jointly with a spouse or civil partner, the same basis must be used by both individuals, unless they make a declaration under S837/ITA 2007 that they are beneficially entitled to the income in unequal shares.

D: Business premises renovation allowance has been claimed, and a balancing event in the tax year gives rise to a balancing adjustment.

E: An election is made to use GAAP because the person believes that traditional accounting is more appropriate. The election must be made within one year of the filing date for that tax year.

There is a change coming up in rules for eligibility for Employment Allowance from 6th April 2020. It is the duty of each employer to check if they meet the new eligibility criteria to claim this allowance.

The salient eligibility rules are as follows:

• An employer can only claim the Employment Allowances for the tax year 2020/2021. If the total for employers’ National Insurance contribution is below the threshold of £100,000 in the previous tax year.
• An employer cannot claim the allowance for deemed payments of employment income. They are not included in the total cost of up to £100,000 for employers’ National Insurance contribution.
• If there is more than one payroll scheme registered within the connected companies. The employer will need to add the total liabilities from all those companies to see they are still within the threshold.
• An employer will have to check they will not exceed the de minimis state aid threshold, if applicable.

In Budget 2020 it was announced that the Employment Allowance would increase from £3,000 to £4,000 from 6th April 2020 thus helping to reduce the employers’ National Insurance contribution liabilities for SMEs.

In the tax years before 2020-21 the Employment Allowance claim auto-renewed, as in the employer did not have to make separate claims every tax year. But this is changing from 6th April 2020 onwards. The method of claiming through the Employer Payment Summary remains the same, but the employer will have to make a new claim for the Employment Allowance to HMRC each tax year.

BUDGET UPDATE In England

Personal allowance and national Insurance rates

Personal Allowance:

The personal allowance will remain the same at £12,500.

Basic rate band will remain at £37,500 which means that 40% tax rate will not start hitting until a taxpayer is earning more than £50,000.

National Insurance:

The primary threshold now stands at £9,500, resulting in employed taxpayers saving £104 and self-employed taxpayers saving £78. Budget Update

Off-payroll working rules:

This a big measure which was already announced but taking effect from 6^th April 2020.

If a taxpayer is working for a medium or large organisation (as defined by the Companies Act) via an intermediary or personal service Company(PSC), the end client will be responsible for determining the taxpayer’s IR35 status and if applicable, deducting tax and national insurance before a payment is made, and paying this over to HMRC.

There was an allowable deduction of 5% for expenses this will be abolished.

The taxpayers working for small companies are exempt from these new rules and the responsibility for determining employment status still lies with them.

Debts towards HMRC:  (Please Put a suitable heading)

There is a good news for those who owe to HMRC.

The Government will invest an additional £12.5m in HMRC during the tax year 2020/21 so that they could work immediately on the implementation of ‘breathing space’ system.

From early 2021, this system will introduce a 60-day period wherein people in problem debt can engage with debt advice without facing enforcement action, incurring additional interest, or charges.

Making Tax Digital (MTD) for self employed

The good news for self employed tax payers that no announcement was made regarding the introduction of Making Tax Digital (MTD).

Capital gains tax (CGT)

From 6th April 2020, individuals must submit a return within 30 days of completing the sale of a residential property if they dispose of a reportable capital gain.. It will be necessary to submit a provisional calculation of the gain to HMRC and pay the tax within 30days.

The changes to Principle Private Residence (PPR) relief withdraw lettings relief of £40,000 unless the letting occurred while the property was being occupied by the owner.

In addition, the final period of ownership on which PPR relief is reduced from 19 months to 9 months.

Increase in Minimum Wage Rates/ STATE PENSIONS

Minimum wage increases, from April 2020, the new rates are as follows:

• National Living Wage for ages 25 and above – £8.72 per hour
• National Minimum Wage for 21 to 24 year – £8.20 per hour
• For 18-20 year – £6.45 per hour
• For under-18s – £4.55 per hour
• For apprentices – £4.15 per hour

Increase in State Pension rates

The full new state pension will go up from £168.60 a week to £175.20 per week.

For those who are still on the older basic state pension will increase from £129.20 to £134.25 per week.

Statutory Sick Pay (SSP)

Statutory sick pay will now be payable from day one for employees, rather than day four. For employers with fewer than 250 employees, the cost of statutory sick pay for two weeks per employee will refund.

Benefits for the self-employed

Since Statutory Sick Pay (SSP) is for employed individuals, the Government has announced the following benefits for the self-employed individuals:

Entitlement is dependent on the national insurance record of the individual.

• People affected by COVID-19, or self-isolating, will be able to claim Universal Credit and access advance payments without attending a jobcentre.

BUDGET UPDATE In England