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The Forgotten HMRC Incentive – R&D Capital Allowances

Research and development capital allowances or RDAs is an oft forgotten incentive by HMRC which allows 100% of your expenditure on R&D facilities, IT systems, plant and machinery against a corporation’s tax liability in the first year.

What this means is if your company has, in its first year:

  • Built or Refurbished any R&D Facilities.
  • Developed an Internal IT System.
  • Invested in any plant, machinery, fixtures, or fittings to support R&D.

You should apply for these R&D capital allowances which will write these expenditures off.

What qualifies for the R&D capital allowances?

Always applicable

  • Laboratory Equipment
  • Company Cars for R&D Staff
  • R&D Facilities (if standalone, else R&D must account for 75% of total cost of facility to cover the entirety)

Possibly applicable

  • Developing new IT Systems for Internal use
  • “Equipment to enable a technological advancement in a process, material, device, product, or service. The advancement must increase the overall knowledge or capability in a field of science or technology.”

A company can claim its R&D capital allowances up to a year after the filing deadline of its tax return – and R&D capital allowances can be claimed retrospectively, up to two years in arrears.

For more information about this, and to discover whether your business qualifies please visit HMRC.

Joint Named Investment Property; Before Sale

A case study was recently submitted to TaxInsider, which investigated how beneficial it may be to transfer an interest in investment property to a spouse or civil partner before the sale of the property.

The current system as it stands, affords some tax breaks to married couples and civil partners, and dependant on the circumstances, this may be leveraged to lessen the tax bill on the sale of the property. The case study delves in to the possible opportunities to save on tax.

In this case study, there are two people in question, Martin and his wife Catherine, and one property;

Martin: Additional rate taxpayer.

Catherine: No income.

Property:

  • Original purchase cost: £200,000
  • Current Sell price: £350,000
  • Outstanding Mortgage: £100,000
  • Cost of Sale: £5,000

There are 2 ways in which we can consider the sale of this property, we shall start with the first and most common scenario;

Scenario 1: Martin sole owner of property.

As established earlier Martin is an additional rate taxpayer, meaning in the current 2018/19 tax year, he is liable to pay 28% CGT, and the current exemption threshold is £11.700.

This means that when totaling the CGT from this sale, you would use the formula as follows;

 

 

 

 

 

 

In this scenario the total CGT required to be paid is $37,324.

Scenario 2: Split ownership with Catherine

Couples with marital rights can transfer assets between each other at such a value that it gives rise to neither profit nor loss, therefore it can easily be done in the case of this scenario.

Catherine not working and having no income has not used here annual exemption amount, and resides in the basic rate band for CGT, therefore when transferring 50% of the property into Catherines name, you can take advantage of double the exemption amount.

Therefore the CGT Calcuation will go as such:

 

 

 

 

 

As you can see the new payable amount is £30,598, which is a saving of £6,726.

This is just one of the ways that you can leverage the rights granted to you as a married couple or civil partners, in order to reduce the amount of tax chargable to you.

Open Banking

The Standard for open banking is changing, with it how banks share data and how it can be accessed.

What does this mean to you?

For small businesses and their accountants this could mean a great deal, some of the things to expect will be:

  • Improved security
    • You control when you want to share your data, no login data needs to be handed over.

 

  • Real Accountability
    • All third parties using Open Banking will be registered with the FCA.

 

  • Smart Integration
    • Easier access to better financial services, e.g. lending and financial management.

 

  • Control you own data
    • Your data will belong to you, and you can access a wider array of service.

“As a consequence of open banking, new and innovative financial services will be introduced, levelling the playing field for SMBs.”

Edward Berks – Director, Fintech & Xero Ecosystem.

Proposed tax changes for 2019 Finance Bill

 

Possible changes that may come into law as soon as 1st of April 2019, are currently under consultation, some of these proposals include:

MTD penalties

  • A point system is being implemented, to encourage taxpayers to submit thier MTD reports on time.
    • Points will be given for each late report.
    • Once the amount breaches a certain point, (which will vary), a financial penalty will be charged for any further failures.
    • These points will expire after a set period of time, provided no more are earned.
    • HMRC will hold control over when these points will be given, in the case of software error.
    • The taxpayer will also be able to appeal these points and penalties via the digital account.
    • Current plans indicate that the aim is to spread this ‘point’ system to other duties and taxes.

Rent-a-room relief

  • A new condition is being added to the relief that requires the taxpayer must be present in the property for ‘all or part’ for the time the which the room is let.

Benefits in kind

  • Employees who charge their Electric or Hybrid car within or nearby their work environment will no longer be subject to a benefit in kind.
    • This will not apply if the employer reimburses the employee for the cost of charging elsewhere.
  • From the 6th of April 2017 use of assets will no longer apply to emergency vehicles.
    • the employees will not be taxed on the benefit of fuel used in the vehicle when ‘on call’.

Capital gains

  • Entrepreneurs’ relief
    • Additional equity funds are raised by the company on or after 6 April 2019, to allow the company founders to continue to qualify for the relief even if their shareholding has fallen below 5%.

 

Self Assessment 2016/17

As the deadline gets nearer to the 31st January 2018, many of us have still not completed our tax returns.  If your tax return is not filed on time your liable for a £100 fine, and if later than 3 months the penalty increases.

For more information  on Self assessment , don’t hesitate to contact us at info@cloudbookkeeper.co.uk

 

 

Cloud Bookkeeper Case Study – IAB

We were recently approached by the IAB to do a case study on Cloud Bookkeeper, we were very pleased that the IAB had recognised Cloud Bookkeeper as an outstanding example for IAB students to read about the story of how the business came about and its roadmap to establishment.

 

2017 Budget – Phillip Hammond – Update VAT 22/11/2017

Some of the high;rights from todays Budget.

  1. Vat Threshold to remain at £85,000 the lowest in europe
  2. Extra 2.8 Billion NHS
  3. Personal Allowance £11,850 from 2018
  4. Business rates revaluations every 3 years not 5 years
  5. Online marketplaces having to comply with VAT rules
  6. 100% tax premium on council tax for empty properties.

 

HMRC to disallow input tax on purchase invoices over 6 months

HMRC to disallow input tax on purchase invoices over 6 months if no proof can be provided.

Current VAT regulations state that if a payment to a supplier is overdue by more than 6 months then any input tax claimed on an earlier VAT return must be repaid to HMRC.  In a recent case with Capital SMA, HMRC disallowed some input tax claimed by the company on its April 2015 return under the six- month rule. The taxpayer’s appeal was based on the argument that it had paid for the invoices by cash, highlighting cash withdrawals in the company’s bank statements to support its argument.

However, the tribunal agreed with HMRC that payment had not been made and dismissed the appeal. The company provided no evidence from suppliers confirming payment had been made, such as a payment receipt or correspondence. The amounts for cash withdrawals did not reconcile with any particular invoices.

Lessons to take away from this case include;

  • using electronic payment methods to ensure there is some evidence of payment for VAT purposes.
  • ask suppliers to confirm cash payments using a stamp ensuring all relevant information is on the invoice.
  • Where an invoice is in dispute, then no input tax adjustment is needed if the supplier has agreed to extend the payment deadline while the problem is being resolved.

From 1 August eBay to charge 20% VAT on all fees for Business Sellers:

Following a recent legal restructuring eBay business sellers are now liable to pay 20% standard rate VAT on fees to eBay UK rather than eBay Europe S.à r.l, their Luxembourg arm.  Those business sellers that are already VAT registered won’t have to worry as they will be able to reclaim this additional cost by using a tax credit.  However, it’s those business sellers that aren’t voluntarily VAT registered and fall short of the taxable turnover threshold (currently £85k) that will suffer as a result of this news.  Private and individual eBay sellers already incur 20% VAT on fees so this news won’t impact them.

MTD – VAT

MTD will be launching in 2019 for Vat registered businesses, although the VAT returns will be the same as they are now, they will however be required in a digital format.  The way in which VAT returns are filed are also changing and these returns must now be done using MTD compatible software, the option to file through HMRCs online portal will no longer be possible.

Are you ready for MTD ? (Making Tax Digital)