Draft legislation has been published for 21 new tax measures to be implemented for the new Finance Act 2020 (FA 2020) to come into force in the tax year 6th April 2020. Most of the new tax law is due to take effect then but the final details and confirmed dates of commencement could be changed following a consultation, closing on 5 September 2019. It is also worth remembering that all of this could in theory change with the appointment of the new Chancellor of the Exchequer, Sajid Javid, who may have some fresh ideas on the proposals. We have highlighted the most important of these planned tax changes that could affect you and your small business, below.
Off-payroll working or IR35 Rules
This is the reform of the IR35 rules for the private sector, which will largely mirror the changes introduced for public sector contracts in April 2017.
Unfortunately, despite serious concerns on the administration and implementation of the new legislation to the private sector and advised via a consultation process, there has been little change from the government on the rules, disappointingly.
If you are a contractor working via a limited company structure or you hire contractors who are set-up this way, read here on how to prepare for the changes expected to take place from April 2020 and what you need to do before then.
Owning residential property
You may not be aware that when you sell your home, you are exempt from paying capital gains tax on any gains you make on the change in value of your property. This is due to a tax relief known as main residence relief. This tax relief is valid when the property is your main residence and the property is occupied.
From April 2020, the draft changes to this valuable tax relief suggest the following changes which could affect you directly as an individual home owner if you plan not to sell but let out your home, when you move on and purchase another.
Currently, Lettings Relief is a very valuable tax benefit worth up to £40,000 per owner per property and is claimed by landlords who let out their former home instead of selling when they move up the property ladder. The proposed changes means that there will be a drastic change to this tax benefit which could see very few sellers qualifying as it recommends removal of lettings relief for periods when the owner is not also in occupation in the property.
There is also a change to the cut in the final period of ‘deemed occupation’ of a property by a seller, which means those home owners who leave their home for unplanned reasons before a sale takes place more than 9 months before the sale date, will be subject to capital gains tax. The only exception is if the owner or his/her spouse moves into a residential care-home or is disabled, the final deemed period of occupation will remain at 36 months.
Corporate capital losses
Corporation tax losses are available to limited companies as a form of tax relief by offsetting any loss you make in a given accounting period against your other gains or profits of your business in the same accounting period. You can also choose to carry the loss back to previous accounting periods, and if you do not, the losses can be carried forward to another accounting period.
Corporation tax losses are an important tax relief to limited companies who are keen to reduce their tax liabilities during their growth phase.
The suggested changes to the rules affect where capital losses are carried forward by a company and set against gains that arise on or after 1 April 2020, and only 50% of those gains will be available to set against losses.
This will only apply where the £5 million loss deductions allowance has already been used so as a growing small business owner, this is something to consider as you forecast and budget for future years.
Various sectors are excluded such as oil and gas, real estate investment trusts (REITS) and insurance.
Southside Accounting can help
If you are a small business owner looking for support to grow and stabilise your costs and increase cash flow, Southside Accounting can help, providing accounting services and sole trader services in Wimbledon.
Southside Accounting are your local cloud accountants in Wimbledon and London. We’re local, like you. And we’re a dynamic small business. Just like you.
We are fully chartered, certified accountants so we’re well qualified to be the trusted advisers you need to help make your company a success.
All our clients are on the cloud and have access and support on cloud accounting software, in both QuickBooks and Xero.
Our fixed fee structure means there are no surprises. And our smart Service Plans are tailored to meet the particular demands of your business.
Call us to book a free no-obligation meeting today.
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Written by Shaima Todd.