Category: Income Tax

The Let Property Campaign provides landlords who have undeclared income from residential property lettings in the UK or abroad with an opportunity to regularise their affairs by disclosing any outstanding liabilities whether due to misunderstanding the tax rules or because of deliberate tax evasion. Participation in the campaign is open to all residential property landlords with undisclosed taxes. The campaign is not suitable for those letting out non-residential properties.

Landlords who do not avail of the opportunity and are targeted by HMRC can face penalties of up to 100% of the tax for UK gains and 200% for offshore liabilities together with possible criminal investigation.

Taxpayers that come forward will benefit from better terms and lower penalties for making a disclosure. Landlords that make an accurate voluntary disclosure and have taken ‘reasonable care’ are likely to face the lowest penalties. There are higher penalties where you did not take reasonable care if you deliberately misled HMRC regarding offshore liabilities. 

There are three main stages to taking part in the campaign, notifying HMRC that you wish to take part, preparing an actual disclosure and making a formal offer together with payment. The campaign is open to all individual landlords renting out residential property. That includes landlords with multiple properties and single rentals as well as specialist landlords with student or workforce rentals.

The dividend tax allowance was first introduced back in 2016 and replaced the old dividend tax credit with an annual £5,000 dividend allowance with tax payable on dividends received over this amount. The tax-free dividend allowance was reduced to £2,000 with effect from 6 April 2018 and has remained fixed at that level.

The tax rate for dividends received more than the dividend tax allowance are taxed at:

• 7.5% for basic rate tax payers
• 32.5% for higher rate tax payers, and
• 38.1% for additional rate tax payers.

Dividends that fall within your Personal Allowance do not count towards your dividend allowance and you may pay tax at more than one rate.

If you receive up to £10,000 in dividends you can ask HMRC to change your tax code and the tax due will be taken from your wages or pension or you can enter the dividends on your Self-Assessment tax return, if you already fill one in. You do not need to notify HMRC if the dividends you receive are within your dividend allowance for the tax year.

If you have received over £10,000 in dividends you will need to complete a Self-Assessment tax return. If you do not usually send a tax return, you need to register by 5 October following the tax year in which you had the relevant dividend income.

The directors of limited company run business and like to extract money from their limited company in a tax efficient manner.

There are various ways money can usually be withdrawn.

For most directors, the optimum way to minimise personal tax liabilities will be using a combination of these methods.

1. Salary, expenses and benefits
2. Dividends
3. Director’s loan

https://www.gov.uk/running-a-limited-company/taking-money-out-of-a-limited-company

Salary, expenses and benefits

Directors must ensure they are employed as an employee of their company and their salary is paid via PAYE. Most directors prefer to take a smaller salary and take a larger share of their pay in dividends. This is usually the most tax efficient method, but care needs to be taken based on individual circumstances.

Dividends

The tax-free dividend allowance is currently £2,000. The tax rate for dividends received in excess of the dividend tax allowance are taxed at: 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for additional rate taxpayers.

To pay a dividend, the company must:

• hold a directors’ meeting to ‘declare’ the dividend
• keep minutes of the meeting, even if there is only one director

Also, dividends can only be paid if there are sufficient retained profits to cover the payment.

Director’s loan

A director’s loan account is created when a director (or other close family members) ‘borrows’ money from their company. Many companies, particularly ‘close’ private companies, pay for personal expenses of directors using company funds.

Usually, when directors have overdrawn loan accounts, they do not have to pay tax, as long as the sum is repaid to the company within 9 months and one day of the account’s reference date.

However, the rules are further complicated if the loan is for more than £10,000 as interest must be charged. There are also further Income Tax costs if the loan is written off or ‘released’ (not repaid) by the company.

If you are looking to know, feel free to contact us.

Self-Assessment taxpayers are usually required to pay their Income Tax liabilities in three installments each year. The first two payments are due on 31 January during the tax year and 31 July following the tax year.

These payments on account are based on 50% each of the previous year’s net Income Tax liability. In addition, the third (or only) payment of tax will be due on 31 January following the end of the tax year. If you think that your income for the next tax year will be lower than the previous tax year, you can apply to have your payment on account reduced. This can be done using HMRC’s online service or by completing form SA303.

It is important to note that you do not need to make any payments on account where the net Income Tax liability for the previous tax year is less than £1,000 or if more than 80% of that year’s tax liability has been collected at source.

There are no restrictions on the number of claims to adjust payments on account a taxpayer or agent can make. The payments are based on 50% of your previous year’s net Income Tax liability. If your liability for 2020-21 is lower than 2019-20 you can ask HMRC to reduce your payment on account. The deadline for making a claim to reduce your payments on account for 2020-21 is 31 January 2022.

If taxable profits have increased there is no requirement to notify HMRC although the final balancing payment will be higher.

Some people who rent a room within their property are not sure about the tax treat and sometimes even drop the idea of renting a room, depriving them off of a stream of income.

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. If you are using this scheme you should ensure that rents received from lodgers during the current tax year do no exceed £7,500. The tax exemption is automatic if you earn less than £7,500 and there are no specific tax reporting requirements.

The relief applies to the letting of furnished accommodation and can be used when a bedroom is rented out to a lodger by homeowners in their home. The relief also simplifies the tax and administrative burden for those with rent-a-room income up to £7,500. The limit is reduced by half if the income from letting accommodation in the same property is shared by a joint owner of the property.

The rent-a-room limit includes any amounts received for meals, goods and services provided, such as cleaning or laundry. If gross receipts are more than the limit, taxpayers can choose between paying tax on the actual profit (gross rents minus actual expenses and capital allowances) or the gross receipts (and any balancing charges) minus the allowance – with no deduction for expenses or capital allowances.

If you are looking to know about this or reliefs, feel free to contact us.

The 31 January 2021 tax returns filing deadline is not just the final date for submission of your Self-Assessment tax returns but also an important date for payment of tax due to HMRC.

This includes the payment of any balance of Self-Assessment liability for the 2019-20 plus the first payment on account due for the current 2020-21 tax year.

31 January 2021 is also the payment date for any CGT due on residential property sales made before the rules changed on 6 April 2020.

Please have a look at our personal tax services page.

If you missed the filing deadline then you will usually be charged a £100 fixed penalty if your return is up to 3 months late, regardless of whether you owed tax or not.

If you do not file and pay before 1 May 2021 then you will face further penalties unless you have made an arrangement with HMRC.

Self Assessment is a system HM Revenue and Customs (HMRC) uses to collect Income Tax. Tax is usually deducted automatically from wages, pensions and savings. People and businesses with other income must report it in a tax return.

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HMRC has published a news release to remind taxpayers that there is now less than 100 days to file their 2019-20, Self-Assessment tax return. Last year over 11 million taxpayers were required to complete a tax return, but over 958,000 taxpayers missed the deadline. If you are filing online for the first time you should ensure you register to use HMRC’s Self-Assessment online service as soon as possible.

The deadline for submitting your 2019-20 Self-Assessment tax returns online is 31 January 2021. You should also be aware that payment of any tax due should also be made by this date. This includes the payment of any balance of Self-Assessment liability for 2019-20 plus the first payment on account due for the current 2020-21 tax year.

Have a look at our Personal Tax Services.

The following types of individuals should file a Self Assessment return if they:

• have earned more than £2,500 from renting out property
• have received, or their partner has received, Child Benefit and either of them had an annual income of more than £50,000
• have received more than £2,500 in other untaxed income, for example from tips or commission
• are a self-employed sole trader whose annual turnover is over £1,000
• are an employee claiming expenses in excess of £2,500
• have an annual income of over £100,000
• have earned income from abroad that they need to pay tax on.

The second payment on account for 2019-20 was due on 31 July 2020 but there was an option to defer this as part of the government support measures during the coronavirus outbreak. There are also other options to defer payments due on 31 January 2021 for up to 12 months. This includes a self-serve Time to Pay facility online for debts up to £30,000 or by making an arrangement with HMRC. Taxpayers will be required to pay interest on the tax owed on any outstanding balance from 1 February 2021.

HMRC is encouraging taxpayers to complete their tax return as early as possible as the filing date looms. In fact, last year over 3,000 taxpayers submitted their tax returns on Christmas Day with a further 9,254 taxpayers completing their tax returns on Boxing Day.

HMRC’s Interim Director General of Customer Services, Karl Khan, said:

‘The vast majority of Self-Assessment customers complete their tax return by the 31 January deadline, but you don’t need to wait until January; you can send it back now and get it out of the way.

HMRC is determined to help customers during this difficult time. We know many customers will have been adversely affected by the coronavirus pandemic or will need help to spread the cost of their tax bill. That’s why we’ve made it quick and simple to set up a payment plan to spread the costs and help people get back on their feet. It’s easy to do online and there’s no need to call us to set it up.’

Less than 100 days

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Anti Avoidance for Capital Gains Tax

Capital gains tax is levied on gains made by an individual but there are situations where instead of Capital Gains Tax (CGT), Income Tax may be charged.

For this to happened ALL of the following conditions must all met:

1. The main object, or one of the main objects, of the transactions or arrangements must be the avoidance or reduction of liability to Income Tax.
2. The individual must be carrying on an occupation wholly or partly in the UK.
3. Transactions or arrangements must have been effected putting some other person in a position to exploit the earnings capacity of that individual.
4. A ‘capital amount’ must have been obtained by the individual or for some other person, as part of, or in connection with, or in consequence of the transactions or arrangements.

Please see our Capital gains tax page to know more.

The charge to Income Tax will take place in the tax year or years in which the capital amount becomes receivable or the sale or realization occurs.

There are anti-avoidance provisions that are aimed at arrangements where an individual gives up the prospect of future income but, either he or some other person, receives instead a ‘capital amount’. https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14325

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Tax Relief On Charitable Donations

The UK tax system is designed to give basic rate taxpayers automatic relief for charitable gifts made under the Gift Aid Scheme. The system then enables the recipient charity to reclaim the basic rate tax already paid by the donor.

https://www.gov.uk/income-tax-reliefs/charity-donations-tax-relief

Charities and community amateur sports clubs (CASCs) can register with HM Revenue and Customs (HMRC) to be part of the Gift Aid scheme. When they’re registered, they can claim back the tax you’ve already paid on your donation.

If you pay Income Tax at the basic rate no additional relief is due on your charitable donations. However, if you are a higher rate or additional rate taxpayer then you can claim tax relief on the difference between the basic rate and your highest rate of tax. This relief is given by increasing your basic rate and higher rate band by the grossed-up amount of your gifts. Click here to know more about our Tax services

If you are a higher rate or additional rate taxpayer, you have the option to carry back your charitable donations to the previous tax year. A request to carry back the donation must be made before or at the same time as your previous year’s self-assessment return is completed.

This means that if you made a gift to charity in the current 2020-21 tax year that ends on 5 April 2021, you can accelerate repayment of any tax associated with your charitable giving. This can be a useful strategy to maximise tax relief if you will not pay higher rate tax in the current tax year but did in the previous tax year.

You can only claim if your donations qualify for gift aid. This means that your donations from both tax years together must not be more than 4 times what you paid in tax in the previous year. If you do not complete a tax return you can submit a claim using HMRC’s P810 form.

If you are looking to know more about this relief; feel free to book a no obligation contact us.