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VAT reclaims on lease cars

If you leases a car, you can usually only claim 50% of the VAT.  Although you may be able to reclaim all of the VAT if the car is used only * for business and is not available for private use, see some examples below.

  • will be used exclusively for the purposes of the business and is not available for any private use; or
  • is intended to be used primarily as a taxi, driving-instruction car or self-drive, that is daily rental, car.

* Exclusively for business use

To qualify as being available exclusively for business use, a car must be used only for business journeys and not ‘made available’ for the private use of anyone, including employees.

The phrase ‘made available’ has been given a very broad meaning by HMRC, and so a car is available for private use if there is nothing preventing its private use by anyone, including employees, which means that if HMRC were to look into these transactions then if 100% of the VAT has been reclaimed and they feel that your client does not meet the criteria the VAT will need to be repaid.

Employment Allowance update

The Employment Allowance was launched in April 2014 for all eligible businesses and charities. The allowance is offset against the employer’s Class 1 secondary National Insurance Contributions (NICs) and can be claimed through the regular payroll processes.

The Employment Allowance will rise to £3,000 (from £2,000) in April of this year. This means that businesses will be able to employ 4 people earning the new National Living Wage without having to pay any employer’s Class 1 secondary NICs. The move will also remove some 90,000 employers from paying NICs.

HMRC has also recently published a policy paper confirming that from 6 April 2016 eligibility to claim the Employment Allowance will be removed from limited companies with a single director, and no other employees. This measure could affect up to 150,000 limited companies and has been put in place to ensure that companies with a single director and no employees do not benefit from an allowance designed to help small businesses take on additional staff.

Buy to Let: Ltd Company v Personal Investment

One of the most frequent questions asked by landlords is whether to buy investment property in their own name or through a ltd company.

It’s a great question and there is no simple answer.

It will depend on a number of factors surrounding the particular circumstance of the buyer such as how long the properties will be owned for, when to extract the cash, how much income the investor wants to extract and what other income sources they may have.

Lots of our Progressive delegates have found these Property Investment Tax Tips useful.

Before we go into any details about should it be a Property Investment company or individual lets set the scene. The majority of investors buy property in their personal names because there are less hurdles to jump over.

The vast majority of buy to let lenders will only lend to people who buy properties in their own name and therefore for those starting out this will be the determining factor that will make the decision easy.

Buy to Let mortgages are designed for people who are earlier in their investing journey and can be simpler to obtain. Commercial Lenders/mortgages are more flexible in this regard, usually being available for property investment through ltd company, LLPs, Personal names or even trusts.

You see when you buy property through ltd company, this is seen to have a separate legal status to individuals.

So when you search on Land Registry, the company’s name will appear as the owner rather that the individual’s.

This can be useful if you want to keep your details private and might be useful in protecting your personal credit status against utility providers who register late payments for bills you haven’t received and other civil claims.

But owning in a Ltd company/LLP will mean you have to publish publicly available financial accounts on your portfolio, which whilst not detailed when small will become quite clear as the size of your company/portfolio grows and the reporting requirements increase.

Personal Guarantee…
Mortgage lenders will often ask for a personal guarantee (some probably wont such as Lloyds) if you own the property investment through ltd company meaning that whilst you protect yourself personally from other creditors you are personally liable for all debts to the mortgage lender anyway so this does not change by having a Ltd company.

If you want the benefits of limited liability but want to use the personal tax regime try using LLPs, this is what i do as I feel it gives the best of everything.

You only need one shareholder to purchase through a ltd company so you can hold the only share and still be the sole owner. And if you’re a shareholder you are of course entitled to the share of the profit and this will be paid out in dividends.

You don’t need to own a vast property portfolio to benefit from a corporate structure, one property is enough.

When you have the property investment through ltd company you pay corporation tax which is likely to be around 20% of the profit generated (but not drawn out) of the business.

Should you leave all of the profits within the company this the only tax you will be liable to pay on profits. For those who don’t want to draw any (or much) of the funds personally to create a personal income this can be very useful and offers a definite advantage over owning property personally.

Re-Investing…
If you are like me and like to reinvest profits to create bigger profits the compounding effect of only paying 20% tax over time is huge. With some paying 40% tax on their rental income profits you could potentially generate a yearly tax saving of 20% which would snowball into big numbers if consistently reinvested over many years.

When owned personally, any property income would be taxed in its entirety every tax year giving no ability to defer.

Personal Use…
But the story changes if you want to draw these profits out as an income for personal use. If all the profits were drawn out in the form of dividends on a yearly basis you would end up paying around the same level of tax as if you owned the properties personally because whilst Limited Companies will pay Corporation Tax at 20%, and basic rate (20%) income tax payers wont pay tax on the dividends they receive, higher rate (40%) income tax payers then pay tax on dividends meaning there is little difference between owning personally or doing the property investment through ltd company if you draw all the profits in dividends.

“Compound interest really is the 7th wonder of the world, and I love it!”
For those who only want to draw a portion (rather than all) of their profits out of their Ltd company the snowball effect of the tax saved and reinvested could be huge in years to come.

Disposing the Asset…
When you come to sell a property rather than paying 18% (basic rate tax payer) or 28% (higher rate taxpayer) capital gains tax for properties held in your own name the ltd company would pay 20% corporation tax and you would then be subject to the same tax on dividends outlined above for higher rate taxpayers.

This coupled with the fact that you get no personal capital gains tax allowance (The first £11,100 each so £22,200 if you own it with your wife/husband/someone else of gains where you pay no capital gains tax) often means Capital gains is tax lower for properties owned in your own name rather than the tax regime afforded to Ltd Companies.

So if you are likely to sell a property every few years you are better to own it personally to reduce your capital gains tax bill.

Should this become too frequent however (say more than 1 a year) HMRC will claim you are property trading and charge you income tax anyway. An important consideration when deciding whether to have a Property Investment company or individual.

Remortgaging your buy to let investment
Another major benefit of owing properties personally and not doing the property investment through ltd company is as follows: Remortgage money is tax free.

Should you remortgage a property in your own name the cash would come to you and could be used for any purpose, no tax would be due until you sold the propert(ies).

Lets say you purchased 10 houses for £100k each or £1m. In 30 years they are worth £4M in total, you remortgage them over the years and take out £3M in remortgage cash – as this is borrowed money there is no tax due and these funds can be spent on whatever you want.

When you die it is only the remaining equity which is taxed (£1M in this example as long as the other funds have been gifted to others such as children or spent) meaning you have avoided paying tax on the £3M you released over the years, an amazing strategy – obviously this is an extreme example and you might want to only follow it on some properties as you will have a big tax bill should you have to sell your properties in your lifetime!

Should you own these properties in a Ltd company you would have to extract the remortgage money through Salary (if your company didn’t have enough profits to support dividends at this level, as is likely) which would mean huge income tax and national insurance, so it wouldn’t work. So a definite score to owning personally.

Capital Allowances…
Rob and I also like to claim capital allowances which are allowances on plant and machinery items on purchases of commercial buildings. Typically you get about 20% of the purchase price of such properties offset against your personal income (from any source) up to £50k.

So if you purchased a property for £300k you might be able to claim £60k in allowances, for someone that earns £100k a year as a salary you could use sideways loss relief up to £50k this would reduce their personal income by around £50k meaning that they pay their income tax on £50k rather than £100k which would usually be paid at 40%.

Should put the property investment through ltd company you will only be offsetting 20% corporation tax (and couldn’t offset it against tax on dividends) which is a definite disadvantage,

What’s the way to go?
So to conclude, which is better, a Property Investment company or individual? I think you can see that it depends who you are and what you want to do.

You may like us have a mixture of owning properties personally, within Ltd companies and LLPs and your decision will affect the amount of Property investment Tax you may massively so its worth spending time on this. What I do know is that It is rarely worth transferring properties out of your name into Ltd companies/LLP or visa versa as you will be liable for stamp duty and capital gains tax based on the gain you have enjoyed at the time of the transfer.

If you want to change your strategy just do it for future purchases

Small Business Saturday 05/12/2015

This year for Small Business Saturday we will be offering all small businesses the opportunity to get our Cloud Bookkeeper service for a reduced rate for 6months. The offer will last 24hours so be quick to snap up the offer by emailing us at info@cloudbookkeeper.co.uk

 

 

http://www.cloudbookkeeper.co.uk/2969/

Tax Simplification for Individuals

New method of assessment

A new, simpler process for paying tax will take effect from 2016-17. The new system will be used for self-assessment taxpayers who have simple tax affairs where HMRC already hold all the data needed to calculate the tax liability, and where existing payment processes are not available. Taxpayers will be sent a calculation which will be a legally enforceable demand for payment, although taxpayers will be able to challenge and appeal the calculations.

Digital tax accounts

At the Spring Budget 2015 the government announced proposals for the introduction of personalised digital tax accounts to replace the current annual tax returns system. The government has now announced that companies, unincorporated businesses, self-employed people and landlords will all be required to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account. HMRC will ensure the availability of free apps and software that link securely to HMRC systems and provide support to those who need help using digital technology and will include features which will prevent errors and promote compliance. The measure will not apply to employees, or pensioners, with a secondary income source from self-employment or property and whose gross income from this secondary source is under £10,000 per year.

The measure will be implemented for income tax and NICs from April 2018, VAT from April 2019 and corporation tax from April 2020. The roll out will be staggered and there will be testing before the reporting becomes mandatory.

Self-assessment time limit clarification

The government is to publish draft legislation clarifying the time allowed for making a self-assessment, making it clear that the time limit is four years from the end of the relevant tax year. (This will be legislated in Finance Bill 2016).

Stamp Taxes Update

SDLT on acquisition of additional properties

From 1 April 2016, higher rates of stamp duty land tax (SDLT) will be charged on purchases of additional residential properties (above £40,000), such as buy to let properties and second homes. The higher rates will be 3 percentage points above the current SDLT rates.

The higher rates will not apply to purchases of caravans, mobile homes or houseboats, or to corporates or funds making significant investments in residential property given the role of this investment in supporting the government’s housing agenda.

The government will consult on whether an exemption for corporates and funds owning more than 15 residential properties is appropriate.

SDLT payment

A consultation is to be undertaken on possible changes to the SDLT filing and payment process, including a reduction in the filing and payment window from 30 days to 14 days. It is expected that any changes would take effect from 2017-18.

ATED and 15% higher rate SDLT

From 1 April 2016 the reliefs available from Annual Tax on Enveloped Dwellings (ATED) and from the 15% higher rate of SDLT will be extended to equity release schemes (home reversion plans), property development activities and properties occupied by employees.

SDLT and Authorised property funds

A seeding relief will be introduced for Property Authorised Investment Funds (PAIFs) and Co-ownership Authorised Contractual Schemes (CoACSs) and changes made to the SDLT treatment of CoACSs investing in property so that SDLT does not arise on the transactions in units.

There will be a defined seeding period of 18 months, a 3 year clawback mechanism, and a portfolio test of 100 residential properties and £100 million value or 10 non-residential properties and £100 million value.

These changes will take effect from the date of Royal Assent to Finance Bill 2016.

Deep in the Money Options

Shares transferred to a clearance service or depositary receipt issuer as a result of the exercise of an option will be charged at the 1.5% higher rate of stamp duty based on either their market value or the option strike price, whichever is higher.

HMRC will prevent avoidance using ‘Deep in the Money Options’, which are options with a strike price significantly below (for call options) or above (for put options) market value. Share transfers made other than to a clearance service or depositary receipt system as a result of exercising an option will be unaffected.

This change will apply to options entered into on or after 25 November 2015 and exercised on or after Budget 2016.

HMRC to close 137 Local offices

In a controversial move, HMRC is to close 137 local offices and replace them with 13 larger regional centres in a bid to save £100m by 2025.

Lin Homer, HMRC’s chief executive, explained: “HMRC has too many expensive, isolated and outdated offices. This makes it difficult for us to collaborate, modernise our ways of working, and make the changes we need to transform our service to customers and clamp down further on the minority who try to cheat the system. The new regional centres will bring our staff together in more modern and cost-effective buildings in areas with lower rents.”

But the move has been criticised in some quarters, with the Public and Commercial Services Union (PCS) saying that 11,000 full-time equivalent staff posts had been cut from HMRC since 2010 and any further cuts would be “absolutely devastating”.

PCS general secretary Mark Serwotka said: “Closing this many offices would pose a significant threat to the operation of HMRC, its service to the public and the working lives of staff, and the need for parliamentary scrutiny of the plans is undeniable and urgent.

The plan comes as HMRC faces criticism of its call centres, with its record of answering calls being described as “staggeringly bad” at the Commons Treasury committee earlier this month. Only half of calls were answered successfully between April and June, although performance has improved since.

Cloud Bookkeeper HQ Surrey

Screen Shot 2015-11-06 at 15.32.27Cloud Bookkeeper is pleased to announce the opening of our HQ in surrey. As the Uk’s market leader for cloud bookkeeping its a pleasure to say that we are also the UK’s very first Cloud Bookkeeping company on the high street.

Amazon to Xero a2x

Agreat new plug in has been developed by A2X to feed transactions from Amazon through to Xero.

When Amazon creates a new settlement file A2X automatically fetches it, crunches the data and generates a summary of the income and expenses charged or received from Amazon.

You can configure A2X to summarize sales by SKU, Product Type, or to group all Sales together. You can also optionally group sales by country.

 

Tax-efficient savings for children

There are a number of ways to save or invest for children – some accounts are tax-efficient but rigid, others are often flexible but liable to tax. Interest earned from CTFs and Junior ISAs is paid tax-free, but the money is effectively locked in until the child is 18, at which time it belongs to the child. Standard savings accounts usually offer lower interest rates and the interest is likely to be taxable, but there will be flexibility on withdrawals and transfers, enabling the parent to keep a tight rein on the money.

Junior ISAs operate in much the same way as ordinary ‘adult’ ISAs. The maximum investment limit for 2015/16 is £4,080, so there is a real opportunity for parents and grandparents to make tax-free savings investments on behalf of their children/grandchildren. Until April 2015 it was only possible for children who did hold child trust funds (CTFs) to invest in Junior ISAs, which meant that many young savers were trapped in accounts yielding poor interest rates.

From April 2015 all children (under-18s) who are UK resident should be able to hold a Junior ISA and transfers from CTF accounts to Junior ISAs will be allowed. This change is important as it allows parents to look for a better return on their investment, pay lower charges and have more choice of products. Whether a CTF should be transferred to a Junior ISA greatly depends on whether the child currently pays tax, and whether they will save enough to pay tax on their savings when they’re 18. If it is likely that the child will save more than £15,240 (the annual ISA limit from 6 April 2015) in their first 18 years, then it is probably worth considering a Junior ISA, as these convert to full cash ISAs when the child turns 18.

Just like adults, children are also entitled to an annual personal allowance (£10,600 for 2015/16). Although Junior ISAs (and CTFs) are tax-free, unless the child stands to earn interest of more than £10,600 from other types of investment accounts, he or she should not pay tax on the interest earned in any case. Therefore, for those with modest savings, one of the most important considerations when choosing a savings plan should be the interest rate on offer and potential return on the investment.

Paying inheritance tax

Various rules exist for determining the time for payment of inheritance tax (IHT). In certain circumstances it will be possible to pay in installments, and it is even possible to settle a liability by transferring ownership of assets to the Crown (for example, a valuable painting may be donated to a national museum in lieu of an inheritance tax bill).

Unless it can be paid in installments, IHT is generally due for payment as follows:

  • Chargeable lifetime transfers: Tax is due six months after the end of the month of the transfer. But if the transfer is made between 6 April and 1 October in any year, the tax is due at the end of April the following year.
  • Estates: The personal representatives must pay the tax at the time that the IHT account is sent to HMRC, and this depends on the length of time it takes to sort out the estate.
  • PETs: Tax due on a potentially exempt transfer (PET) that becomes chargeable because of the transferor’s death within seven years needs to be paid six months after the end of the month in which the death occurs.

IHT is often due to be paid before the cash and assets left in a will are released to the beneficiaries. This means that the beneficiaries have to find the money to pay the tax elsewhere. The most obvious way to solve this problem is to take out a loan to pay the tax owed. The loan can then be paid off after cash from the estate is received or, in the case of assets, the assets are sold to raise the funds needed.

It may be worth considering a life insurance policy that will pay out on death and so cover any IHT arising on an estate. Remember, though, that HMRC may consider a life insurance policy to form part of an estate, so the plan should be set up under a trust. A fringe benefit of this is that all proceeds of the policy are paid free of tax.