Tax relief for buildings

For years you have been able to claim tax relief for the cost of equipment installed within or on buildings, such as shop fittings, but not for the cost of the building itself. That changed from 29 October 2018.

You can now claim a Structures and Buildings Allowance (SBA), which is equal to 2% of the cost of acquiring or constructing a commercial building that is used for your business. You must incur the costs on or after 29 October 2018, and any construction contract must have been signed on or after that date.

You can claim the SBA on a range of costs including building, renovating, repairing, fitting out, site preparation and design. If you buy a newly constructed commercial building that should qualify, but in that case the SBA is calculated on the lower of the construction costs and what you paid for the whole building.

To make a claim for the SBA you need to have received an “allowance statement” for the building. The first business that uses the building creates the allowance statement and passes it on to the next user when the building is sold. An allowance statement is also needed for any new extensions or renovations completed for existing structures.

Your conveyancing solicitor should ask for the allowance statement as part of the deeds when you acquire a commercial building.

You can’t claim the SBA on the costs of any residential properties, including buildings located in the grounds of a residence such as a home office. Properties used for furnished holiday lettings or for residential letting don’t qualify for the SBA.

You should submit your SBA claim as part of your Corporation Tax return, or Income Tax return for an unincorporated business. We can help you do that, but don’t forget to tell us how much you have spent on any commercial buildings since 29 October 2018.

Re-enrolment in a workplace pension

For many employers, the aggravation of setting up auto-enrolment of staff into a workplace pension was over years ago, but it’s not a task that can be done once and forgotten.

All employees who opted out of the workplace pension must be re-enrolled in that pension after three years. You do this by writing to each staff member who should be re-enrolled within six weeks of the re-enrolment date.

You choose your own re-enrolment date, but it must fall within a six-month time frame based on the date you had to start auto-enrolment for the first time. Once you have re-enrolled all the employees to whom this rule applies, you must submit an online declaration of compliance to The Pensions Regulator within five months of the re-enrolment date. We can help you with that statement.

Those individuals who are automatically re-enrolled into the pension can immediately opt out again if they choose to do so. Individuals with very large pension pots may be advised to do this if they have taken steps to protect the level of their pensions lifetime allowance.

Preparing for Brexit

The Government is urging businesses to prepare for changes to customs, excise and VAT procedures when the UK leaves the EU. This is expected to happen at 11pm on 31 October 2019, but there could be a further delay until 31 January 2020.

If there are no arrangements in place to temporarily keep the UK within the customs union (no-deal Brexit), import and export procedures will change immediately. Goods that travel over international borders will need to clear customs twice:

when the goods leave the UK (exported goods)
when the goods enter the territory in which they are received (imported goods)
The customs declaration on export is normally done by the exporter, the customs declaration on import is normally done by the importer who receives the goods.

In order to clear UK customs, either for importing or exporting goods, a UK-based business will need an Economic Operator Registration and Identification (EORI) number issued by the UK. This is a 12-digit number starting with GB which includes the business’s VAT registration number.

If a UK business imports goods into an EU country – say it sends goods from its UK factory to its branch in Germany – it will also need an EORI number issued by the EU for the import side of that movement.

HMRC is allocating EORI numbers to VAT-registered traders which it believes have traded with EU countries and don’t already have an EORI number. You may have received a letter about your new unique EORI number.

If your business is not VAT registered it will still need an EORI number if it moves any value of goods across the UK border. There are special arrangements in place for moving goods between Northern Ireland and the Republic of Ireland, so businesses won’t require an EORI number for most types of goods which are moved across that Irish border.

In addition to clearing customs, the UK business will have to pay VAT on any goods imported from the EU into the UK. A trader can register for transitional simplified procedures (TSP), which is an additional process to the EORI number. There may also be tariffs to pay on certain goods, and health and safety certificates to acquire.

You can apply for grants for training to complete customs declarations, and for the IT changes you will need to cope with all the customs filings. However, if your tax returns have been submitted late you won’t be eligible for either type of grant.

Pay tax on gains in 30 days

When non-resident owners sell UK land or property (of any type), they must pay any Capital Gains Tax (CGT) within 30 days of the completion date of the sale, and submit an online report to HMRC by the same date.

This 30-day payment deadline is being rolled out to all UK owners of residential property for sales made on or after 6 April 2020.

From that date, if you make a gain on selling a home, any CGT due will have to be paid in full within 30 days. You will need to estimate whether or not you will be a higher-rate taxpayer for the tax year, in which case the CGT is due at 28%, otherwise at least some of the CGT is charged at 18%. However, those tax rates could be changed before April 2020.

This is a massive acceleration on the current payment date for CGT, which is currently 31 January after the end of the tax year in which the property was sold.

Say you sell your buy-to-let property on 1 October 2019, the CGT will be payable by 31 January 2021. If you wait until 1 May 2020 to sell the same property, the CGT will be payable by 31 May 2020.

We will need to know about your property sales as soon as they are agreed, so we can help you calculate the tax due and submit the property disposal return to HMRC within 30 days of the completion date.

You will also have to report the capital gain on your self-assessment tax return after the end of the tax year, and at that stage you may be due a refund of CGT if you have made any other disposals generating capital losses in the year.

Overseas landlords

Living overseas and managing a let property in the UK is never easy, but HMRC has just made the task a little more difficult by sending disturbing letters to overseas landlords and to their tenants.

The letters are targeted at landlords who hold the property through a corporate structure or a trust. HMRC has been reminding the landlord that it may need to pay the Annual Tax on Enveloped Dwellings (ATED) for periods when the property was not commercially let. We can help you check if the ATED is due for your property, or if a relief should be claimed.

Non-resident companies currently pay Income Tax on profits from letting UK property instead of Corporation Tax. This will change from 6 April 2020. HMRC is telling landlords that the company must register for Corporation Tax in the UK from April 2020. We can help you with that.

Some tenants of overseas landlords have also received letters from HMRC. These letters imply that the tenant should deduct tax from their rent and send that tax to HMRC.

This is alarmist, as the obligation to deduct tax lies with the letting agent, if there is one. Where the landlord is already registered with HMRC through the non-resident landlord scheme to receive rent gross, there is no obligation to deduct tax from the rent at all.

The best approach is to reply briefly to HMRC giving contact details of the landlord or their letting agent. It is not the tenant’s responsibility to tell HMRC about their landlord’s ownership structure.

Uncertain times

We are living in a state of unprecedented uncertainty. We don’t know if the UK will leave the EU on 31 October 2019 or not, although at the time of writing the current Prime Minister insists that this is the immoveable Brexit date. There may also be a general election before the year is out.

As a business it is sensible to prepare for all likely outcomes, so gearing up for Brexit can no longer be put off. This newsletter contains some advice about what you need to do if you are an importer or exporter, or if you sell electronic services across international borders.

HMRC has diverted staff to help with the Brexit preparations, and this is having a knock-on effect for other tax projects. The introduction of the VAT reverse charge system for businesses in the construction industry, which was due to come into effect on 1 October 2019, has been postponed for a year to October 2020.

If your business has already made changes to prepare for the construction industry reverse charge, such as altering your VAT period from quarterly to monthly, you can easily alter your VAT periods back to quarterly through your business tax account, or we can do that for you. If you have requested to leave the VAT flat rate scheme on 30 September, that decision can also be changed. HMRC will be sympathetic to businesses who need to make changes because of the short notice given for postponement of the reverse charge.

The Making Tax Digital (MTD) regulations came into play for most VAT registered businesses for the VAT period that began on 1 April, 1 May or 1 June 2019. However, some complex businesses have a start date for MTD for VAT as the period beginning on 1 October, 1 November or 1 December 2019. This may be another reason why the reverse charge for the construction industry has been deferred for a year.

To err is human…

But forgiveness is not the HMRC way. Taxpayers are expected to get their tax returns right first time, and to diligently preserve all records relevant to their tax affairs for at least six years. However, HMRC has been shown to make systematic mistakes in tax computations, to provide incomplete information to taxpayers, and to have a lower standard of record retention than the courts would normally expect.

Examples of all these HMRC short comings are included in this newsletter. If you feel you have been treated unfairly by the tax system, you can usually appeal against the penalty or HMRC’s decision. Appeals have to be submitted within 30 calendar days of the date HMRC made the decision or issued the penalty notice. However, the tax tribunals are sometimes sympathetic to taxpayers who submit a late appeal, so don’t give up even if you have apparently run out of time.

The tax rules are constantly changing, and this normally means there is more tax to pay. There are big changes for Capital Gains Tax coming in for homeowners who sell from 6 April 2020, as we explain below. You may wish to sell before that date to take advantage of existing tax reliefs.

Company car drivers, on the other hand, will be delighted if they drive an electric or hybrid vehicle, as the taxable benefit for very low emissions vehicles is reducing significantly from 6 April 2020. In that case it may be better to wait until April 2020 to take up the offer of a new company car.

The next Budget is likely to be presented by a different Chancellor of the Exchequer, as the new Prime Minister will choose their own right-hand man, or woman, for that post. The new individual in charge of the nation’s coffers is likely to have some radical ideas about tax rates and reliefs. Hold on tight, it’s going to be a bumpy ride!

 

Making Tax Digital (MTD)

The Government’s aspiration for the UK tax system is that all taxpayers should submit their accounts information to HMRC directly from accounting software. The first step towards this new digital world will be taken by VAT registered businesses.
From 1 April 2019, VAT registered businesses which have an annual turnover of £85,000 or more will HAVE to submit their VAT returns via accounting software, not as now, by inputting figures on to a form on the HMRC webpage.
The figures submitted by the software will be the same totals as are currently reported on quarterly VAT returns, but the business will have the option to submit more detailed supplementary information. We will be able to submit your VAT figures on your behalf as now, but the law will require you to keep your accounting information in a digital form.
The best way to prepare for this digital revolution is to get into the habit of recording your income and expenses using accounting software as soon as possible.
I’m sure you have lots of questions so please feel free to contact us.

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Enjoy your Entrepreneurs’ Relief

When you sell some or all of the shares in your company, you should expect to pay Capital Gains Tax (CGT) on any profits you make. This tax is normally charged at 20% for higherrate taxpayers, but Entrepreneurs’ Relief can reduce the CGT payable to 10%.

To qualify for Entrepreneurs’ Relief you need to be a director or employee of the company and own at least 5% of the ordinary share capital and the related voting rights. New additional conditions require the investor to have a right to either:

1.at least 5% of the dividends and assets on a winding-up, or
2.at least 5% of the total proceeds should 100% of the company be sold.
These conditions must be met for at least two full years ending with the date your shares are sold, or one year where the sale occurred before 6 April 2019.

When new shares are issued to new investors, this can dilute your own shareholding to below the crucial 5% threshold. Where your company issues new shares after 5 April 2019, you can make an election to protect your Entrepreneurs’ Relief.

Don’t forget to tell us if your company is issuing more shares or converting debt into shares, as there is a time limit for making the relevant elections

How to split a business

A business must register for VAT when its turnover for the last 12 months exceeds £85,000. It must also look forward and judge if its turnover in the next 30 days alone will exceed £85,000. This threshold has been frozen since 1 April 2017, and it will remain at that level until at least 1 April 2022. This means that more businesses will be drawn into the VAT net simply by increasing their prices by inflation every year.

If you don’t want to register for VAT, you either have to keep your total sales low by working fewer hours, or consider splitting your business into two entities which each have a turnover of less than £85,000. Business splitting is legal but HMRC will pursue cases where they believe the split is artificial.

You can only effectively split the business if you have separate products or services which you could deliver from different legal entities. It helps if the separate products are bought by different groups of customers. For example, cleaning commercial buildings for business customers and cleaning domestic premises for non-business customers.

Step 1: Set up two legal entities to deliver your two strands of business, such as a company for the commercial cleaning, and a partnership or sole tradership for the domestic cleaning. You can effectively control both entities.

Step 2: Split the back-office support for the two businesses to ensure HMRC sees that two businesses exist in practice. You will need to set up separate bank accounts and insurance for each entity. Also purchase supplies through distinct orders in the name of each business, and make sure the correct business bank account is used to pay for the goods acquired. Bank the sales income in the correct bank account for each business.

Step 3: Split the cost of commonly used assets. If both businesses operate from the same address, set up a formal lease so that one business sublets part of the area to the other entity. Where some employees work for both businesses, the costs should be charged from the main employer to the other business.

We can help you split your business, but the costs will require continuous monitoring