A guide to Income from Property

Jan23

Rent a room relief – income tax

Where a home owner lets part of his main residence to a lodger, rental income is only chargeable to income tax to the extent that it exceeds £4,250. There is no limit to the number of rooms, but only £4,250 in total is exempt. This figure has remained unchanged since 1997-98. HMRC state that income from property that is within the total exemption is to be disregarded for tax return purposes.

Buy to Let

Letting property, a ‘business of letting’ for income tax purposes, is not a trade, but is treated as one for many tax purposes. Expenses available include:

advertising for tenants
rent collection costs
bad debts
agents’ charges for management
accountancy fees for accounts preparation
repairs to property
If the property is let furnished, 10% wear and tear allowance (i.e. 10% of net rental income, excluding rates, water rates and council tax if paid by the landlord) will be deductible for income tax.

Capital expenditure is not allowable.

Interest paid

Interest paid on loans used to buy the land or property used in the rental business, for improvements or alterations, repairs etc. will be deductible, together with incidental costs of arranging loan finance.

Using the home loan

People often use the equity in their own home to fund buy to let properties. It does not matter what the borrowing is secured upon, provided the interest is incurred wholly and exclusively for the purposes of the business of letting.

Joint accounts

It may be the case that the buy to let property is in one person’s name but the main residence is in joint names. HMRC usually normally allow relief for the home funded interest provided the letting business bears the cost of the interest. It is advisable to ensure that money passes from the business account to the joint account to fund the interest.

Losses

Losses can only be set off against other income from UK property (if they are losses from UK property) or overseas property if they arise from overseas property. The two exceptions are losses arising from capital allowances which can be offset against other income or furnished lettings losses (see below).

Furnished Holiday Lettings (FHLs)

Tax reliefs

Furnished holiday lettings in the UK (and latterly the EEA) have traditionally received certain favourable tax treatments normally afforded to trades.

However, 6 April 2011 and 6 April 2012 saw some important changes to the regime.

From 6 April 2011, it was no longer possible to set off losses arising on a furnished holiday letting against general income (or capital gains). After 2010/11, you are only be able to carry FHL losses forward against future profits from furnished holiday lettings.

The following tax reliefs, remain in force beyond 6 April 2011:

Various capital gains tax reliefs, such as roll-over relief for reinvestment in business assets, hold-over relief for gifts, entrepreneur’s relief and relief for loans to traders.
Availability of capital allowances.
Income qualifies as relevant earnings for pension purposes.

Qualification as an FHL:

From 6 April 2012, the eligibility criteria for qualification as a furnished holiday letting has changed:

For a property to be qualified as an FHL, it must meet the conditions set out in s325, ITTOIA 2005, broadly:

The property must be available for letting to the general public not less than 210 days in the tax year; and
The property must be actually let to members of the public for at least 105 days in the tax year.

Prior to 6 April 2012, the eligibility criteria is as follows:

The property must be available for letting to the general public not less than 140 days in the tax year; and
The property must be actually let to members of the public for at least 70 days in the tax year.

Transitional Relief:

There is an element of transitional relief available on the shift to the new rules from April 2012. Where a business fails to meet the stricter ‘actually let’ let requirement for a period of one or two years, it will be possible to elect for FHL treatment to continue for 2011/12 and subsequent tax years.

VAT

Holiday accommodation is standard rated for VAT. If the owner has a significant portfolio of properties, his total turnover may exceed the VAT registration threshold. Where a property is situated in another EEA country, local VAT must be charged if that country’s threshold is exceeded; Spain, for example, has no exempt threshold.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon and London.

VAT on Not Invoiced

Jan21

Q. My business recently bought an e-book reader from an online retailer. It will be used for business purposes but the retailer is refusing to provide me with a VAT invoice, saying their products are not provided for business purposes, so VAT invoices are not provided to VAT registered customers. How can I get the VAT invoice I need to claim back the VAT charged to my business?

A. If the customer (you) asks for a VAT invoice the supplier must provide one, but in practice you can’t force the retailer to comply with the VAT law. As long as you have documentary evidence that VAT was charged – the amount and rate – and evidence that you have tried to obtain a VAT invoice, you can reclaim the VAT charged in your VAT return.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Rental Property

Jan14

Q. I own a number of rental properties but this year I’ve been sued over unpaid service charges. The dispute has been resolved, but I’ve been left with legal costs. Can I deduct those legal costs from the property rental income for the year?

A. In general any legal fees associated with acquiring or improving the property or defending the title to the property or extending a lease on a property cannot be deducted from the rental income, as they are capital expenditure. Other legal fees associated with annual bills or service charges should be allowable. You should keep all the paper work associated with the dispute just in case the Taxman asks about the legal fees in future.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

A guide to The Cash Accounting Scheme

Jan2

UNDERSTANDING THE CASH ACCOUNTING SCHEME
As an overview, the Cash Accounting Scheme allows you to account for output tax on a payment received basis rather than when the tax invoice is issued. To mirror this treatment, input tax can only be claimed once payment has been made for supplies. This is one amongst a number of schemes offered by HM Revenue & Customs (HMRC) aimed at easing the administrative burdens small businesses face.

The scheme provides a number of advantages, such as:

a cash flow advantage, especially if you offer extended credit to your clients/customers.

automatic bad debt relief.

However, this scheme may not benefit businesses that are paid promptly at the point of sale, regularly reclaim VAT or make continuous supplies of services.

Please note that this scheme can be used together with ‘Annual accounting scheme’. This scheme cannot be used together with the ‘Flat rate scheme’. It must be noted that the ‘Flat Rate Scheme’ does have its own cash based method of accounting. In addition, the scheme can be used by partially exempt businesses.

Eligibility for the scheme

A business is eligible for the scheme providing the following conditions are met, most of which are self explanatory:

you expect the value of your taxable supplies in the next year not to exceed £1,350,000;
you have no VAT returns outstanding;
you have not been convicted of a VAT offence in the last year;
you have not accepted an offer to compound proceedings in connection with a VAT offence in the last year;
you have not been assessed to a penalty for VAT evasion involving dishonest conduct in the last year;
you do not owe HMRC any money or if you do, you have made arrangement with HMRC to clear the total amount of your outstanding VAT payments;
HMRC have not written to you withdrawing use of the scheme during the last year;
HMRC have not written to you and denied you access to the scheme; and
you comply with the conditions set out in VAT Notice 731.

The taxable supplies figure is the total of your standard, reduced and zero rated supplies excluding VAT. For this purpose, exempt supplies or sale of capital assets can be ignored. If you exceed the threshold for the scheme, provided that the estimates were made on reasonable grounds, HMRC will not levy a penalty.

The scheme can be used until your taxable supplies including the disposal of stock and capital assets does not exceed £1,600,000. Once this figure has been exceeded, excluding ‘one-off’ increases in sales, you will have to leave the scheme at the end of your current tax period.

APPLYING FOR THE SCHEME

HMRC do not require notification of entering into the scheme provided your business is eligible. If your business is already VAT registered, the scheme can be entered from the start of the next VAT period. Care must be taken not to account for VAT twice on both purchases and sales.

Similar to entering the scheme, HMRC do not need to be notified when exiting the scheme, a business can leave the scheme at the end of a VAT period.

USING THE SCHEME

The cash accounting scheme once applied must be used for the whole of your business apart from:

goods bought and sold under lease purchase, hire purchase, conditional sale or credit sale agreements

goods imported or acquired from another European Community Member State
certain goods where the purchasers must account for output tax, due to ‘reverse charging’
supplies where you issue a VAT invoice and payment of that invoice is not due for 6 months from the date of issue
supplies of goods or services where you issue a VAT invoice in advance of making a supply or providing the goods

Output tax

There are different tax points when accounting for output tax, dependent upon the payment method.

Cash (coins and notes) it is the date that you receive the money.

Bank transfers like, giro, standing orders or direct debits, the date is when your account has been credited with the payment.
Credit/debit cards it is the date the sales voucher is issued
Cheques are the date you receive the cheque or the date on the cheque, whichever is later.

Unless a deposit is taken as a security, a deposit will trigger a tax point and hence output tax needs to be accounted for. There are special rules for agents, factoring, selling debts, Imports and Exports (outside the EU), Acquisitions and Dispatches (within the EU), part payments, payments in kind and foreign currency payments.

Input tax

The tax point for accounting for input tax is:

Cash (coins and notes) it is the date that you pay the money.

Bank transfers like, giro, standing orders or direct debits, the date is when your account has been debited with the payment.
Credit/debit cards it is the date the sales voucher is issued
Cheques are the date you send the cheque or the date on the cheque, whichever is later.

Care must be taken for a partially exempt business, VAT Notice 706 provides further details on partial exemption.

Part Payments

Example 1

Net amount £1,000

VAT at 20% £200

Gross total £1,200

Payment received of £900, therefore the following fractions is used to work out the VAT to be allocated:

£900 / £1,200 x 100% = 75% the percentage is applied to the total VAT due of £200 x 75% = £150

Therefore £150 needs to be accounted for as VAT with the balance remaining of £50 accounted for when payment is received. If payment is received again in part, then a similar exercise needs to be performed to allocate the VAT due.

Example 2

Invoice A Invoice B

Date 1/6/11 Date 2/6/11

Net amount £1,000 Net amount £2,000

VAT at 20% £200 VAT at 20% £400

Gross total £1,200 Gross total £2,400

Payment received of £2,000, £1,200 should be allocated to the Invoice A first, leaving a balance of £800. As in the example1 above the following fraction is used to work out the VAT to be allocated:

£800 / £2,400 x 100% = 33% the percentage is applied to the total VAT due of £400 x 33% = £132

Therefore £132 (from Invoice B) together with £200 (from Invoice A) needs to be accounted for as VAT. The balance remaining of £268 (from Invoice B) is to be accounted for when payment is received. If payment is received again in part, then a similar exercise needs to be performed to allocate the VAT due.

Record keeping and administration

In regard to record keeping, the same rules apply as to all VAT registered businesses, details of which can be found in VAT Notice 700/21. However, there are additional record keeping requirements, for cash payments received in coins or notes, the customers copy of the invoice must be endorsed with the amount and date of payment. Similarly, if your business has paid suppliers in coins or notes your copy of an invoice must be endorsed in the same way.

FURTHER CONSIDERATION

Further details can be found on the HMRC website, as a source of reference please refer to the VAT Notice 731, produced by HM Revenue & Customs (HMRC).

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000348&propertyType=document

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

As an employee can I claim expenses if I work from home?

Nov14

The tax rules for employed for claiming working from home expenses are different. Though you can claim for gas, electricity and water expenses, it would not be in the same way as a self employed person. Your bills, insurance and mortgage repayments are seen to be fixed anyway as they are your usual household bills regardless of whether you work from home or not. You can therefore only claim for the extra energy that you have used and not a percentage of the overall costs. You cannot claim relief for the cost of your telephone line rental or internet access as you would have them for personal use anyway. You can however, ask for a deduction for the cost of the calls made on behalf of the business. A reasonable and acceptable amount to ask for would be about £3 per week plus the cost of business calls on top. If you did want to claim more than this then you will be asked to prove that your household bills have increased (by the figure you have asked for) due your work. You can potentially claim these expenses dating back several years depending on what you have stated on previous (if any) Self Assessment Tax Returns.

The HMRC tends to like these expenses to be paid by the employer as opposed to them, as it is a mutual agreement between yourself and your employer that you work from home. If however your employer refuses to pay then there are other certain criteria that must be met, and if any of these requirements are not met then no relief at all will be given.

First and foremost that you must show that you have no alternative choice but to work from home. As stated in the HMRC Tax Bulletin Number 79,

“there is an objective requirement that those duties should be carried out at the employee’s home and nowhere else.”

There is a very fine line with this rule and if the employee has even the slightest choice, they will not be given any form of relief. For example it is acceptable if your employer’s premises are too far away for you to be reasonably expected to travel there on a daily basis providing that you did not have a choice in this, i.e. by moving further afield, excepting a job too far away or turning down an offer to relocate you.

The work you carry out from home must be “all or part of the central duties of employment”.

You require certain hardware/software or other facilities that are not available at your employer’s premises.

So to summarise, tax deductable expenses for working from home can be claimed providing that they are realistic, that you meet certain strict criteria and that your employer does not already pay you for these additional costs you incur due to your job. Please ask a trained accountant if you require additional information or clarification as to what you can claim.

Written by Becky Drummer-Jones

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Am I better off as a sole trader or a limited company?

Nov13

Simply enter your annual profits and calculator below will inform whether or not you will save more money by staying as a sole trader or registering a limited company.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

HMRC Visits

Nov7

HMRC can at any time request to visit your business premises to inspect your “VAT, customs and excise duties records”. And if you claim expenses for working from home then they may well request to visit you there. However, you do have the option to arrange the appointment at alternative venue and it is normally recommended that this takes place at your accountants office. If they are adamant that your home or business premises is the place they want to visit you at then they must have a specific reason for this and there are certain rules they must abide by:

They can only “inspect” the areas of your home that are used for business.
You can request they leave at any time but they will want to know your reasons for wanting this and also to arrange another visit. If you refuse this then it could lead to further questions and possible penalties ranging from £60 per day up to £3000.
They have the right to “inspect” your premises, not “search”. Meaning that they can not specifically hunt for things to go against you. They can only look at the records they have requested, to check that all is in order.
They have the right to look at business records but not to question/interview employees to find out more information.
They can request information on the personal financial position of the proprietor/director of the business to check that their position is in line with the taxes being paid, but once again they cannot go “fishing” for extra information.
As a general rule, they cannot remove documents from the premises without your agreement, they can only make copies or take extracts. But there are some documents that they do have the right to remove such as “legally privileged papers, tax advisors papers and appeal material”. If they do remove anything from your property then you must make sure you get a full and detailed receipt of exactly what has been taken.

Though the HMRC can make unannounced visits, they usually provide you with either a phone call or letter seven days prior to their visit. In that notification they will state exactly when and where they will be visiting you, the name of the visiting officers and what documents they are coming to look at.

Once at your premises, they cannot demand to see extra documents that were not stated in the original notification. They would have to arrange another appointment for these. However if they find anything useful or unusual relating to another area in the documents they already have permission to view, then they can pass this information for further investigation.

The things they will usually be looking to review are things like your receipts, expenses of the business, sales and purchase records as well as possibly your PAYE and VAT files. They may also check equipment, raw materials and products produced. This is to make sure that all of these areas are relative to each other and that you are not claiming fraudulently. These inspections can take anywhere from a few hours to several days depending on the size of your business.

It is always a good idea to cooperate with the HMRC when they want to visit as though you can negotiate when and where the meeting will take place, you can never actually stop them from coming at all. And it is best to be prepared for them, than to have them make an unannounced visit which they would inevitably do if they are constantly turned away. You do have the right to refuse them entry but this could result in deeper investigations and if you have nothing to hide, then you have little to worry about.

Written by Becky Drummer-Jones

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Can I Claim Expenses If I Work From Home?

Oct31

You can only claim for “allowable expenses”. The HMRC describes these as the expenses you have incurred for the,

“travelling you had to do whilst doing your job”

or the

“expenses you had to pay whilst doing your job and which related ONLY to doing your job”

There are also a few other factors that determine how much you can claim. Whether you are self employed or employed is one. How often you work from home is the second. And the third is whether or not you have a choice in working from home.

Self Employed

If you are self employed and work solely from home then you can claim back part of the costs for household bills such as water rates, gas and electricity as you are effectively using more energy in order to carry out your work. You could potentially even claim for a relief against your council tax, rent, home insurance and mortgage payments as these are also things that need to be paid in order for you to not only live in your home, but also work there. However, it is not beneficial for you to have a room dedicated solely to work, such as a home office that is private or out of bounds to the rest of the family. This is because it could cause problems further down the line regarding Capital Gains as your Only/Main Residence is now being used for work too. This usually reduces any gain to zero. It could also impact on your home insurance. It is therefore much better to simply have certain times that it is a “work zone” and other times for more recreational or family use.

If you are working mainly from home then the method to work out roughly what you should attempt to claim follows this simple formula:

Total bills (water, electric, gas etc) ÷ number of rooms in the house = Amount A

Amount A x number of rooms used for work = Amount B

Amount B should be relative and in keeping with the type of business you run. As if you try to claim a little extra than normal, this will often be noticed by HMRC and in turn cause them to investigate. This is also the same situation if the second method of estimation is used. This option would be used if you work rarely or inconsistently from home. Common sense says that if you are only doing small amounts of paper work from home then far less energy will be used as opposed to if you were running the business solely from home. However this does not stop people slightly exaggerating their claims. There are no set limits or levels for particular trades but the main objective is to stay consistent and in line with your normal household bills and type of work.

The other way that you should be able to claim working from home is through fixed HMRC allowance. In the main the taxman will not ask questions if you claim these allowances. You will get a flat rate deduction of £3.00 per week (from 2008-09) for each week that you’ve got to work at home, this doesn’t include the cost of business telephone calls

Written by Becky Drummer-Jones

If you would like any further information, please do not hesitate to contact Southside Accountants Colliers Wood.

Are Clothing Expenses Tax Deductible?

Jun9

The general rule of thumb is that you cannot claim for the cost of clothing that is “ordinary clothing worn by a trader during the course of their trade”. For example you cannot claim for business suits or smart office attire. Although these items are the general standard most companies require, they have an “intrinsic duality of purpose”. This means clothing can be used for work and non-work purposes.

Tax relief is available for certain types of clothing. These include:

Uniforms.
Items of clothing with the company logo.
Safety wears such as boots, gloves, overalls and helmets that you cannot do your job without.
This is also extended to tools you have to buy/repair yourself in order to continue working.

The reason for this is that there is no real opportunity for you to wear these clothes in a casual setting, outside of work. This is then considered the sole use of the items involved and therefore a business expense. The tax relief also covers the cost of cleaning, repairing and replacing the items concerned.

The amount of tax relief you will receive depends on the nature of your work. You can either claim tax relief on the full amount that you have spent over the year (you would therefore need to collect all receipts that relate to purchases or up keep/cleaning of your work clothes). Another option is to claim a flat rate relief. You will receive a “flat rate deduction” that is decided by HMRC which varies from trade to trade. For example a carpenter may receive up to £140 per tax year due to the fact their clothes/uniform will have more wear and tear than say a security guard who could potentially claim up to £60 in tax deductions per year in order to purely cover the laundry/repair costs.

The process of claiming tax relief depends on whether you are self -employed or you are an employee. It is fairly straight forward.

Employees – Employees on PAYE can request a P87 form (for claims under £1000) from HMRC. Tax relief is given will be given through adjusting your tax code (not a direct refund) to allow for the expense. You cannot claim tax relief on your clothing where your employer reimburses you for this expense..

Self Employed – As a self- employed person you can claim tax relief on when filling out your self assessment tax return. But the best way would always be to use a good accountant as they have a much better insight as to what and how much can be claimed.

Written by Becky Drummer-Jones

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Feedback on Southside Accountants Car Branding

Feb24

We are like any other business. We are looking for cost effective ways to increase our exposure to potential clients. One area we think will generate good return on investment is on car branding. Most accountants are traditionalist through their training as a result they have not exploited this lucrative area.

We are different. We would like to brand our cars with tasteful designs that is in keeping with the profession but at the same time are not boring and stuffy. Here is where you come in.

We would be grateful for your views (feedback) on the car branding design links below. Please indicate which one you like. The one with the highest number of votes will be our chosen design.

Thank you in advance for your time.

Here are the links:

beetle_rosette This file has 6 pages

lines This file has 2 pages

A big thank you to Bison Bison (one of our clients) for the designs.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.