Adrian Mooy & Co - Accountants Derby

The Construction Industry Scheme (CIS) requires registration of anyone who works in that industry, be that a sole trader or a company. The registration rule includes the largest of businesses if that business is paid by another engaged in construction operations. Since 6 April 2021 non-construction businesses that regularly carry out or commission construction work on their own premises or investment properties are deemed to be contractors should that work have exceeded £3 million within the previous 12 month period. Smaller non-construction businesses are excluded from the scheme as are private households. However, where a builder working in a private property then subcontracts work to other tradesmen (e.g. bricklayers, electricians, plumbers etc), then that builder must operate the CIS even though the works are undertaken on a private home because the contract is between the two businesses.

In some instances, it may be difficult to decide whether work is 'construction' in nature but if there is any doubt, registration should be made; this would be the case even if those works/services are not actually undertaken. Where various types of works are undertaken, some of which would be outside CIS (e.g. plumbing work) and some inside CIS (e.g. painting and decorating), then all of the works undertaken or services provided under that contract will be within CIS.

How much to deduct

The contractor is required to withhold an amount which is then deducted from the tax liability of the sub contractor incurs following submission of the self assessment tax return.

There are 2 rates of deduction:

standard 20% rate - applied to payments made to those subcontractors that are registered and been 'verified' (confirmed as being registered) with HMRC and

higher 30% rate - applied to payments made to subcontractors with non verification

Gross payment status can be claimed under strict conditions including complying with tax obligations and meeting turnover limits (e.g. £30,000 for sole traders).

Interaction with PAYE

When a company contractor pays CIS and PAYE deductions for employed workers, all deductions are combined and made as one payment. If a company suffers CIS deductions then such deductions can be offset and the balance paid.

If a company has no employees, there can be no PAYE offset and no automatic method of reclaiming the CIS suffered; the company therefore needs to submit a formal claim for the refund which can be done online. The CIS deductions suffered will then be refunded directly into the company bank account or the claim can request deduction from the corporation tax or VAT liabilities. HMRC are notoriously slow in making these refunds and it is not unusual for a company to be required to pay their corporation tax and then receive a refund of the CIS suffered at a later date. HMRC system will check for any unpaid liabilities or penalties before processing the claim and these will be deducted from the repayment.

Unfortunately this offset system is not available to sole trader and partnership subcontractors who can only offset the CIS deductions against personal self assessment liabilities.

Penalties

The submission date for monthly returns is 14 days after the 5th of the month end. Penalties are levied for non submission as follows:

One facility that might not be known is that if a contractor realises a return will not be submitted on time, an application can be made for an extension. A penalty will not be raised so long as the application is made before the submission date and the reason given for the late submission falls within the usual definition of a 'reasonable excuse'.

The self-assessment tax return for 2020/21 must be filed online by midnight on 31 January 2022 if a late filing penalty is to be avoided. The exception to this is where a notice to file a return for 2020/21 was issued after 31 October 2021, in which case the filing deadline is three months from the date on which the notice to file was issued.

Any remaining tax and National Insurance for 2020/21 must also be paid by midnight on 31 January 2022. This is also the deadline for making the first payment on account of the 2021/22 liability.

Requirement to make payments on account

You will need to make payments on account for 2021/22 if your tax and Class 4 National Insurance liability for 2020/21 was at least £1,000, unless you paid at least 80% of what you owe under deduction at source, for example, under PAYE.

Calculating the payment on account

When calculating your payments on account for 2021/22, the starting point is your tax and Class 4 National Insurance liability for 2020/21. It is assumed that the liability remains roughly constant year on year. Consequently, the payments made on account will collect an amount equal to the previous year’s liability.

Each payment on account is 50% of the previous year’s tax and Class 4 National Insurance liability. Class 2 National Insurance contributions are not taken into account in working out payments on account.

Payments on account are due by 31 January in the tax year and by 31 July after the tax year; 2021/22 payments on account must be paid by 31 January 2022 and 31 July 2022.

Where the eventual liability is more than that paid on account, the balance must be paid by 31 January after the end of the tax year, together with any Class 2 National Insurance due for the year. If the liability has fallen, the excess can be offset against future liabilities (for example, payments on account for the following year) or, where this is not possible, refunded.

Option to reduce payments on account

If you think that your liability for 2021/22 will be lower than for 2020/21, you can opt to reduce your payments on account. This may be the case if, for example, you have lost a key customer or are struggling to recruit staff or secure supplies.

There are various ways in which you can tell HMRC that you want to reduce your payments on account. This can be done by signing into your online personal tax account and using the ‘reduce payments on account’ option or by completing form SA303 and sending it to HMRC. You can also tell HMRC that you want to reduce your payments on account in the ‘other information’ box on the self-assessment tax return. You will need to specify what you want to pay and the reason for the reduction.

However, beware of reducing the payments on accounts below that which you will eventually owe – while this may help your cashflow temporarily, you will be charged interest on the difference between what you should have paid and what you have paid.

In a furnished let, wear and tear of domestic items is inevitable and there will come a time when the landlord will need to provide replacements. From a tax perspective, special rules apply to provide relief for the cost of replacement domestic items. The rules only apply to residential lets, not to furnished holiday lettings.

No relief for initial cost

A feature of the relief is that relief is given for the cost of the replacement, not for the initial cost of providing the item.

Conditions

Tax relief for the cost of replacing a domestic item is contingent on the following conditions being met:

1. The individual or company carries on a property business which includes the letting of at least one dwelling house.

2. An old domestic item provided for use in the property is replaced by a new domestic item which is provided for the exclusive use of the tenants. The old item is no longer available for their use.

3. A deduction for the new item would not be prohibited by the wholly and exclusively rule, but a deduction for the cost is denied, either under the accruals basis because the expenditure is capital not revenue or under the cash basis where the capital expenditure rules prohibit a deduction on the provision, alteration or disposal of a capital item for use in an ordinary residential property.

4. Capital allowances have not been claimed in respect of the new item.

Conditions 3 and 4 ensure that relief is not given twice for the same expenditure, and relief is only available under the replacement of domestic items rules where relief is not otherwise available.

Domestic items

A domestic item is an item for domestic use. HMRC provide the following illustrative list of items that would be classed as domestic items:

• moveable furniture such as sofas, tables and bed frames;

• furnishings such as curtains, carpets and rugs;

• household appliances such as fridges, freezers and washing machines; and

• kitchenware such as utensils, crockery and cutlery.

A distinction is drawn between domestic items, which qualify for relief, and fixtures which do not. Fixtures are things like plant that is fixed to the property such that it becomes part of it, and boilers or water-filled radiators installed as part of a space heating system.

Like-for-like replacement

Relief is given, as a deduction in computing the taxable profits of the property income business, for the cost of a like-for-like replacement, and also any costs of disposing of the old item and acquiring the new item (for example, delivery costs). The deduction claimed must be reduced by any sale proceeds received in respect of the old item.

Where the replacement is superior to the original, the deduction is limited to the cost of a replacement equivalent to the old item. For example, if a fridge is replaced by a fridge-freezer, the landlord would be allowed a deduction for the cost of an equivalent fridge if this is less than the cost of the new item.

If you already own at least one property and you buy a residential property in England or Northern Ireland, you may have to pay the stamp duty land tax (SDLT) surcharge. This can significantly add to the cost of buying a property.

Higher rates of land and building transaction tax (LBTT) apply to the purchase of second and subsequent residential properties in Scotland, while higher rates of land transaction tax (LTT) apply in Wales.

Higher rates of SDLT

Higher rates of SDLT are payable on the purchase of a residential property where the consideration is at least £40,000 if all of the following apply:

The property will not be the only residential property worth at least £40,000. Overseas properties are also taken into account in applying this test.

You have not sold or otherwise disposed of your previous main residence.

No one else has a lease with at least 21 years to run on the property.

The higher rates only apply to residential property – they do not apply to property that comprises both residential and non-residential elements, or to commercial property. In addition, the higher rate does not apply where the main residence is exchanged, for example, if someone who has a buy-to-ley property sells their main home and buys a new home.

Where the higher rates apply, SDLT is payable at an additional 3% on the residential rates.

The higher rates will typically apply where a person purchases and investment property or a second home.

Scotland

Land and builds transaction tax (LBTT) is payable on property purchases in Scotland. An additional dwelling supplement is payable on the purchase of additional dwellings in Scotland, such as buy-to-let properties and second homes. The supplement adds an additional 4% to the standard residential LBTT rates.

As with SDLT, it is not payable where the main residence is exchanged.

Wales

Land transaction tax (LTT) applies in Wales. As with SDLT, the higher rate of LTT applies where a personal purchases a residential property worth at least £40,000 and they already own at least one residential property. The exception is on the exchange of a main residence. The higher rate adds 3% to the standard residential rates.

The government receives its tax money on different dates depending upon the type of tax charged. Taxpayers taxed under PAYE usually pay their tax bills monthly; the self employed make two Payments on account plus a balancing payment, companies pay nine months and one day after the company year end and ‘Large Companies’ (broadly those with profits above £1.5m) make quarterly instalments.

If any taxpayer finds that they cannot pay by the due date then an agreement may be reached with HMRC in an attempt to provide some 'breathing space' for the taxpayer allowing cash flow to improve and HMRC more certain that payments will be made and made on time.  A 'Time to Pay' (TTP) arrangement is a method by which tax payments are spread over a more extended period of time than would otherwise be available and is used for arrears of corporation tax, VAT and PAYE.

HMRC also offers a little-known 'Budget Payment Plan' (BPP) for taxpayers who are up-to-date with their past payments and wish voluntarily to make regular weekly or monthly payments towards the next tax bill. If the total paid during the year does not fully cover the taxpayer’s bill, the difference must be paid by the usual payment deadline.

The similarity between the two plans is that provided the agreement is adhered to, no interest and penalties will be due on any tax paid after the normal due date. Payment plans can be entered into for income tax, Capital Gains Tax, or corporation tax. The difference between the 'BPP' and 'TTP’ arrangements is that the 'Budget' plan is for future tax payments whereas 'TTP' plans are for tax already due.

Under HMRC's initiative 'Making Tax Digital' they are looking to take the 'Budget plan' one step further intending to bring the tax calculation closer to the point where the income or profit arises. HMRC believes that submitting quarterly reports will enable the taxpayer to 'budget' for their future tax bill more effectively as the calculation will be based on the taxpayer’s current year position using, where possible, up to-date data.

MTD reforms announced so far do not change payment dates or amounts and HMRC has said that more regular reporting under MTD need not lead to more frequent payments being forced on the taxpayer. Rather, HMRC believes that taxpayers will be able to estimate their tax liability for the year based on updated information and as such, this will prepare the taxpayer for future payments, leading to reductions in tax debt collection.

However, it is clear from various consultation papers issued by HMRC that their preference for the future will be for all taxpayers to use a variation of the 'Budget' scheme and make monthly payments on account of the calculation of the final tax liability. Their reasoning is that they are aware that the current payment timings can cause difficulties for some taxpayers coming into self assessment for the first time - particularly for the newly self-employed and new landlords. Many self employed are unaware that (depending upon the choice of year end) the first tax bill could be up to 22 months after commencement of trading and this can lead to taxpayers getting into debt which impacts on HMRC as additional cost for collection.

Currently the 'Budget' scheme allows the taxpayer to be flexible in their payments. There is no set amount to pay and many of those taxpayers who use the scheme do so in a similar guise as putting money aside in a separate bank account (although the 'downside' is no interest and once the payment is made it cannot be clawed back). HMRC believes that making monthly payments mandatory will lead to surety not only for the taxpayer but will also mean more certainty for the governments' cash flow.

Furnished holiday lettings have a number of tax advantages compared to standard residential lets, and one of the key ones is the availability of business asset rollover relief. This enables a landlord of a furnished holiday let to sell one property and invest in another without immediately crystallising any associated capital gain. This can be a big plus.

Nature of business asset rollover relief

Business asset rollover relief enables any capital gains tax arising on the disposal of an eligible asset to be deferred where another asset is acquired from the proceeds of the sale of the old asset. The capital gain is ‘rolled over’ and does not become chargeable until the new asset is sold.

Where the cost of the new asset is at least equal to the full amount received from the sale of the old asset, relief is available in full. Effect is given to the relief by reducing the base cost of the new asset by the amount of the rolled-over gain.

If the new asset costs less than the amount received from the sale of the old asset partial relief may be available.

The new asset must be acquired in the period that runs from 12 months before to three years after the date of the disposal of the old asset.

Example

Maria has a number of properties that she lets as furnished holiday lettings.

She sells a holiday cottage which she acquired for £140,000 for £270,000, realising a gain of £130,000. She reinvests the proceeds in a new holiday cottage, which costs £320,000.

She claims business asset rollover relief.

As a result, she defers paying capital gains tax on the gain of £130,000. Instead, the base cost of the new property is reduced by £130,000, from £320,000 to £190,000.

Had Maria not claimed the relief, assuming that she is a higher rate taxpayer, she would have had to pay capital gains tax of £36,400 within 30 days of completion of the sale of the cottage. Instead, she has this money available to reinvest in the new property.

If you are self-employed and you received Covid-19 support payments during the pandemic, you may need to report these on your self-assessment tax return.

If you are an employee and you were furloughed and received furlough grants under the Coronavirus Job Retention Scheme, these were liable to tax under PAYE and liable to National Insurance as for normal salary and wages payments and are included in the figure on your P60.

Grants under the Self-Employment Income Support Scheme

If you received a grant from HMRC under the Self-Employment Income Support Scheme (SEISS), you will need to report this in the dedicated Self-Employment Income Support Grant box on the self-assessment return. The exact reporting mechanism will depend on whether you complete the full self-employment pages (SA103S) or the short pages (SA103S). If you are a member of a partnership, you will need to report the grants on the relevant partnership pages.

SEISS grants are taxable in the tax year in which they are received. This rule applies regardless of the period to which you prepare your accounts. Consequently, grants received between 6 April 2020 and 5 April 2021 (Grants 1, 2 and 3) will need to go on the 2020/21 self-assessment tax return.

If you complete the short self-employment pages, your SEISS grants should be entered in box 27.1. If you complete the full self-employment pages, your SEISS grants should be entered in box 70.1.

Other taxable support payments

If you received other taxable Covid-19 support payments, these too will need to be reported on your 2020/21 self-assessment tax return. This may include Coronavirus Business Support Grants from your local authority or devolved Administration, such as those payable under the Small Business Grant Fund, the Retail, Hospitality and Leisure Grant Fund and the Local Authority Discretionary Grant Fund, or payments under the Eat Out To Help Out Scheme. Test and trace self-isolation payments are also taxable, and need to be reported too.

If you complete the short self-employment pages, taxable Covid-19 payments other than SEISS grants, are reported in box 10, while on the full self-employment pages, the relevant box is box 16.

Payments that do not need to be reported

Money received from loans, such as loans made under the Bounce Back Loan Scheme or other Coronavirus loan schemes does not need to be reported on your tax return. Likewise, you do not need to report any welfare payments received from the council, such as council tax payments or housing benefit.

When it comes to let properties, furnished holiday lettings (FHL) are a special case and benefit from a number of concessions not available to standard lets. The concessions are only available if the property meets the tax tests to qualify it as a furnished holiday letting – the fact that it may be let out for holiday use in itself is not sufficient.

One of the benefits of being classed as a furnished holiday let for tax purposes is that plant and machinery capital allowances can be claimed. This is something which is not available to a landlord of a residential long-term let.

What is a FHL?

To be classed as a FHL for tax purposes, the property must be let furnished on a commercial basis and:

it must be available for letting for at least 210 days in the tax year;

it must actually be let for 105 days in the tax year;

it is not let for lets of 31 days or more for more than 155 days in the tax year.

Where the tests are not met in a particular tax year, it may be possible for the let to qualify by making an averaging election (possible if the landlord has more than one holiday let) or a period of grace election (possible where the tests have been met previously).

Availability of capital allowances

A FHL business is a qualifying activity for plant and machinery capital allowances. This means that capital allowances can be claimed for items of plant and machinery, such as furniture, equipment and fixtures.

Where the business is run as an unincorporated property business, the landlord can claim either the annual investment allowance (AIA) or writing down allowances. The AIA provides relief for 100% of the qualifying expenditure in calculating taxable profits for the tax year in which the expenditure was incurred. Claims for the AIA can be made up to the AIA limit, which is set at £1 million a year until 31 March 2023. Where the AIA is not available (for example, because the limit has been used up), or the landlord does not want to claim it, writing down allowances can be claimed instead.

Claims for capital allowances can be tailored. This is useful to prevent personal allowances from being wasted.

If the business is run as a company, there is also the option to claim the super-deduction for expenditure that would otherwise qualify for main rate capital allowances of 18% where the expenditure was incurred in the period from 1April 2021 to 31 March 2023. The super-deduction allows 130% of the expenditure to be deducted in computing profits, and is very worthwhile.

Companies can also benefit from a 50% first year allowance for expenditure incurred in the same period which would otherwise qualify for writing down allowances at the special rate of 6%. This may be useful if the AIA is not available.

Dividends have their own tax rules and their own rates of tax. The rules and the rates apply in the same way regardless of whether the dividends are paid from your personal or family company as part of a profit extraction strategy, or whether they represent investment income on shares. As part of the Government’s health and social care plan, the rates at which dividends are taxed are to increase by 1.25% from 6 April 2022.

Dividends have already suffered corporation tax

Dividends can only be paid out of retained profits. This means that if you want to pay a dividend from your personal or family company, you can only do so if you have sufficient retained profits from which to pay. 'Retained profits' are post-tax profits which have not yet been paid out. Consequently, they have already suffered corporation tax. The rate of corporation tax is currently 19%, but is due to increase from 1 April 2023 where the company’s profits are more than £50,000.

Dividends covered by the dividend allowance are tax-free

All taxpayers, regardless of the rate at which they pay tax, are entitled to a dividend allowance. This is available in addition to the personal allowance, and, unlike the personal allowance, is not abated once income reaches £100,000.

Although termed a dividend ‘allowance’, it is not an allowance as such; rather it is a nil rate band. Dividends that are covered by the dividend allowance are taxed at zero rate. However, they count as part of band earnings. The dividend allowance is set at £2,000 for 2021/22.

Dividends are treated as the top slice of income

Dividends are taxable to the extent that they are not sheltered by the dividend allowance or, if not fully used elsewhere, the personal allowance. In determining the appropriate rate of tax, dividends are treated as the top slice of income.

Dividend tax rates are lower than income tax rates

Dividends have their own tax rates. These are lower than the usual rates of income tax. However, as noted above, dividends are paid from profits which have already suffered corporation tax.

Dividends are taxed at the dividend ordinary rate to the extent that they fall within the basic rate band. This is set at 7.5% for 2021/22. It is to increase to 8.75% from 6 April 2022.

Dividends are taxed at the dividend upper rate to the extent that they fall in the higher rate band. This is set at 32.5% for 2021/22. It is to increase to 33.75% from 6 April 2022.

Dividends are taxed at the dividend additional rate to the extent that they fall in the additional rate band. This is set at 38.1% for 2021/22. It will increase to 39.35% from 6 April 2022.

The hospitality and leisure industry were particularly hard hit by the effects of the Covid-19 pandemic and associated lockdowns. To help the industry recover they benefitted from a reduced rate of VAT of 5% from 15 July 2020 until 30 September 2021.

As a temporary measure, a new reduced rate of VAT of 12.5% applies from 1 October 2021 until 31 March 2022.

The rate will revert to the standard rate of 20% from 1 April 2022.

Supplies benefitting from the reduced rate

The following supplies, which benefitted from the reduced rate of 5% until 30 September 2021, will also benefit from the new reduced rate of 12.5% from 1 October 2021 to 31 March 2022.

Food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes and pubs.

Hot takeaway food and hot takeaway non-alcoholic beverages.

Sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities.

Admission to cultural attractions that do not already benefit from the cultural VAT exemption, such as theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and other similar cultural events and facilities.

Where an admission to an attraction is within the existing cultural VAT exemption, this takes precedence over the reduced rate.

Partner note: FA 2021, s. 93; the Value Added Tax (Reduced Rate) (Hospitality and Leisure) Order 2020 (SI 2020/728).

If you are responsible for bringing up a child who is under the age of 16, or under the age of 20 where they remain in approved education or training (such as A levels but not education at an advanced level, such as university), you can claim child benefit. Only one person can receive child benefit in respect of a particular child.

For 2021/22, child benefit is payable at the rate of £21.15 for the eldest or only child, and at the rate of £14 per week for any additional children. It is paid every four weeks.

HICBC

The High Income Child Benefit Charge (HICBC) applies to claw back child benefit paid where the recipient, or their partner if they have one, has ‘adjusted net income’ of £50,000 or more. This is income before personal allowances and deductions for items such as Gift Aid.

The HICBC works by clawing back 1% of the child benefit paid for every £100 by which adjusted net income exceeds £50,000. Where adjusted net income exceeds £60,000, the HICBC is equal to 100% of the child benefit paid in the tax year.

Who pays the tax?

Where both the claimant and the claimant’s partner have adjusted net income in excess of £50,000, the HICBC is payable by the person who has the highest adjusted net income. If only one of them has adjusted net income in excess of £50,000, then that person is responsible for paying the tax. This means that the person on whom liability for the HICBC falls is not necessarily the same person who has received the child benefit.

For the purposes of the charge, a person is a partner of the claimant if they are married to the claimant or in a civil partnership with the claimant and not permanently separated, or someone who lives with the claimant as if they were married or in a civil partnership. The charge will apply regardless of whether the claimant’s partner is biologically related to the child in respect of whom the child benefit is paid, or is responsible for that child.

Elect not to receive child benefit

To eliminate the need to repay child benefit received in the form of the HICBC, where the charge is equal to 100% of the child benefit, it may be easier to elect for this not to be paid. Where child benefit is already being paid, the claimant can opt out of payments by completing the online form or contacting HMRC by post or by phone.

Register to benefit from National Insurance credits

Where HICBC applies but the claimant would not otherwise pay sufficient National Insurance contributions for the year to be a qualifying year for state benefit purposes (for example, where the claimant does not work or has low earnings and the HICBC is payable by the claimant’s partner), it is important for the claimant to register for child benefit in order to receive National Insurance credits to preserve their state pension entitlement. These are available where a person is registered for child benefit in respect of a child under 12.

At the time of registering, the claimant can elect for the child benefit not to be paid, where this is preferable to receiving it and paying the same amount in the form of the HICBC.

As part of the Government’s push to encourage drivers to ‘go electric’, the Transport Secretary, Grant Shapps, announced an extension to a £50 million Government fund to install electric charge points. The fund aims to help small business to gain access to the workplace charging scheme and provide grants to meet up to 75% of the cost of installing electric charging points at domestic premises.

While tax advantages are available where employees opt for an electric company car, does a tax charge arise if an employer provides a charging point to enable employees to charge their own cars at work?

Workplace electric vehicle charging

A tax exemption applies to remove the charge that might potentially arise where an individual charges the battery of a vehicle that is used by the employee.

Private vehicles

The exemption means that an employee is able to charge their own car, or one that they are driving or a passenger in, using a workplace charging free of any associated benefit in kind tax charge. There is no requirement that the electricity provided is used for business journeys; the exemption applies regardless of whether the charge powers business or private journeys.

The exemption covers:

• the cost of the electricity;
• the cost to the employer of providing the charging facilities; and
• any connected services.

However, the exemption only applies if the following conditions are met:

• the charging facility is provided at or near the employee’s place of work;
• charging must be available to all the employees generally or those at the particular workplace should they wish to use the facilities; and
• the vehicle which is charged is one in which the employee is the driver or a passenger.

Company vehicles

Likewise, no tax charge arises if an employee uses a workplace charger to charge an electric company car. There would, in any event, be no tax charge in respect of electricity provided for business journeys. However, as electricity is not treated as a ‘fuel’ for company car purposes, the use of a workplace charging facility does not trigger the fuel benefit charge if the charge provided powers private journeys.

Offsite charging

The tax exemption does not apply to the reimbursement or payment of an employee’s personal expenditure in respect of charging a battery in a private vehicle away from the employer’s premises, for example, at a motorway service station. Where the vehicle is used for business journeys, mileage allowances may be paid tax-free up to the approved amount.

However, no tax charge arises in respect of the provision of electricity for a company car for private mileage as electricity is not treated as a fuel for the purposes of the fuel benefit charge.

Capital allowances

A first-year capital allowance of 100% of the expenditure is available for expenditure on electric charge-point equipment. The allowance is available for expenditure incurred before 1 April 2023 for corporation tax purposes and before 6 April 2023 for income tax purposes.

You must register your business for VAT if your VAT taxable turnover exceeds the registration threshold. This is currently £85,000.

You must register if:

at the end of any month, the value of your VAT taxable supplies in the previous 12 months or less is more than £85,000; or

at any time if you expect the value of your taxable supplies in the next 30 day period alone to exceed £85,000.

Different thresholds apply to businesses based in Northern Ireland for buying from and selling to EU countries.

VAT taxable turnover

The VAT taxable turnover is the total value of sales that are not exempt from VAT. Thus, you should include sales that would attract VAT at the standard rate, the reduced rate or which are zero rated, but not sales that are exempt from VAT.

Exception from registration

If you exceed the VAT registration threshold but believe that your VAT taxable turnover will not exceed the deregistration threshold, currently £83,000, in the next 12 months, you can apply to HMRC for an exception from registration. This can be done on form VAT1. This may be case if you have a one-off sale that is particularly large,

Voluntary registration

Registration is compulsory if your VAT taxable turnover exceeds the registration threshold (unless an exception applies). However, if your VAT taxable turnover is below this level, you may choose to register for VAT voluntarily. This can be advantageous, particularly if you supply goods that are zero rated (such as food) as it will enable you to reclaim any VAT that you pay on purchases.

How to register

Most businesses are able to register online on the Gov.uk website. In certain cases, registration must be done by post, for example, if you apply to join the agricultural flat rate scheme.

You will receive a VAT registration number once you have been registered for VAT. You should receive a VAT registration certificate within 30 days.

Implications of being VAT-registered

Once you have registered for VAT, you will need to charge VAT at the appropriate rate on any sales that you make. You will also be able to reclaim any input tax that you suffer on purchases.

You may choose to join one of the schemes to simplify the process and reduce the associated VAT return, for example, the flat rate scheme for small business.

You must also file VAT returns each quarter and pay any VAT owing over to HMRC and comply with Making Tax Digital for VAT. You can appoint an agent, such as an accountant, to file your VAT returns on your behalf.

The normal minimum pension age (NMPA) is the age at which most pension savers can access their pensions without incurring an unauthorised pension charge (unless they take their pension earlier due to ill-health). Registered pension scheme cannot normally pay any benefits to members until they reach the NMPA (except in the case of ill-health).

Registered pension schemes are also not permitted to have a normal retirement age lower than 55. This applies equally to occupations from which people normally retire before the age of 55, for example, professional sports people.

It should be noted that the NMPA is a minimum age – while this sets the minimum age at which pension benefits can be taken, the scheme rules will determine the age they can be taken from (which may be higher than the NMPA), and also the benefits that can be taken.

The NMPA

The NMPA was last increased, from 50 to 55, from 6 April 2010.

Plans to increase the NMPA were announced in 2014 following a consultation. A further consultation, which ran from 11 February 2021 to 22 April 2021, confirmed the Government’s intention to increase the NMPA to 57 with effect from April 2028.

Protected pension age

The new NMPA will not apply to firefighters, the police or to members of the armed forces.

Some other pension schemes will have a protected pension age (PPA), which will allow members to continue to take protection benefits before the age of 57. Members of an HMRC-registered pension scheme whose scheme rules on 11 February 2021 conferred an unqualified right for them to receive pension benefits earlier than age 57 will be eligible for a PPA. Where a member has a PPA, this will also apply to benefits that accrue after 5 April 2028.

Draft legislation

Legislation has been published in draft for inclusion in the Finance Bill to provide for the increase in the NMPA to 57 from 6 April 2028, and also to provide for a PPA where the associated conditions are met. An explanatory note has also been published.

Individuals affected

The change will affect those born on or after 6 April 1973, who will reach age 55 on or after 6 April 2028. They will now need to wait until age 57 to access pension benefits without suffering an unauthorised payments charge (unless they have a PPA). This will need to be taken into account in retirement planning.

Although married couples and civil partners are assessed individually for capital gains tax purposes and each has their own annual exempt amount, a special r allows them to transfer assets between them at a value that gives rise to neither a loss nor a gain. This can be very useful from a tax planning perspective. The special rule applies only where the spouses or civil partners are living together or, where they separate, until the end of the tax year of separation.

Operation of the rule

For the purposes of the rule, any actual consideration that may pass between the spouses or civil partners is ignored. Instead, the amount of the consideration is deemed to be the amount that gives rise to neither a gain nor a loss. This will be the:

• original cost of the asset; plus
• any subsequent allowable costs.

Example

Sue and Simon have been married for 27 years. Sue purchased a painting ten years ago for £10,000. She spends £500 having the painting re-framed.

She sells it to Simon for £3000.

However, as the no gain/no loss rule applies, the actual consideration is ignored, and Sue is deemed to have sold the painting to Simon for £10,500. Rather than making a loss of £7,500 had the actual consideration been used, she breaks even. The deemed proceeds are £10,500, and the original cost plus subsequent allowable expenditure is also £10,500.

Sue is, however, unable to utilise the actual loss. Likewise, had the actual consideration been in excess of the allowable cost, she would not have been taxed on the gain.

Simon takes on Sue’s base cost, standing in her shoes for any subsequent disposal.

Making use of the rule

The rule can be useful to change ownership of an asset prior to sale to make best use of available annual exempt amounts by transferring an asset, or a share of an asset, to a spouse or civil partner.

Example

Sue and Simon decide to sell the painting in October 2021, having secured a buyer who is willing to pay £20,000 for it. In May 2021, Sue sold an antique vase, realising a gain of £13,000. David has not made any disposals in 2021/22, and has no plans to do so.

As Sue has already used up her annual exempt amount for 2021/22 of £12,300, if she were to sell the painting, the gain of £9,500 would be liable to capital gains tax in full. If Sue is a higher rate taxpayer, she would pay capital gains tax of £1,900 on the gain on the painting (£9,500 @ 20%).

However, as Simon still has his annual exempt amount available, if they can make use of the no gain/no loss rule to transfer the painting to Simon prior to sale. If Simon subsequently sells the paining to the third party, the gain of £9,500 would be covered by Simon’s annual exempt amount and the whole gain would be tax-free.

Companies Limited by Guarantee (CLG) are private companies that do not have shares or shareholders but instead have members called 'guarantors'. The members agree to contribute a certain amount (usually a nominal £1 - £10) to the company’s assets if the company is wound up and as such the main reason for a CLG is to protect the people running the company from personal liability for the company's debts. Limited liability is allowed provided the members have not acted negligently or fraudulently and not allowed the company to continue trading whilst insolvent. As with a company limited by shares, a CLG is a legal identity separate from the members and this allows the company to own property in its own name and even run a business.

Companies best suited to being CLG's are non-profit making associations such as charities, professional, trade and research associations, social or sporting clubs supported by private subscriptions and other groups of people with mutual interests. Many flat management companies are CLG as are community interest companies and academy trusts. Sometimes funding bodies, such as local authorities, insist on an organisation being registered as a CLG.

Profits of CLG companies are generally reinvested back into the company or used for some other purpose as specified in the Articles of Association. Payments to board members can be made but only as remuneration (unless repayment of expenses only) and not dividend. CLG's have no shares so cannot distribute profit to shareholders or sell the shares. Technically CLGs can distribute profits to members (unless the Articles of Association say otherwise) but all charities and most other CLGs have a "not for private gain" clause so any profits cannot be distributed as otherwise the company's charitable status becomes invalid.

Commercial trading CLGs will likely use the term 'profit' in their accounts to describe any excess of income over expenses, voluntary membership organisations usually use the term 'surplus'. The moment a trading activity (that is not mutual) is undertaken then that is a taxable activity. Unfortunately, this means that any grants and donations that cannot be specifically identified as relating to a non-trading activity are regarded as being used to off-set the trade expenditure and so become taxable.

A CLG has the same legal requirements as a private company limited by shares, as being registered at Companies House, submitting accounts and an annual return each year to both Companies House and HMRC within the usual deadlines. Also similarly to a share company, a CLG company can borrow money and issue debentures which can aid the task of securing external funding. Charitable organisations may also obtain capital through grants from the government or local authorities, by procuring charitable donations from the public, or charging a membership fee.

Community Interest Companies ('CIC's)

People who want to run a business or other activity for community benefit rather than for private advantage can register either as a company limited by shares or by guarantee but most CICs are CLG. The CIC limited by shares is useful where the company is being backed financially by one or more outside bodies or individuals who can invest in it by taking shares. There is, however, a statutory dividend cap, restricting the payment of profits out of the company.

Under the asset lock provisions for CLG, the assets and profits must be permanently retained within the company and used solely for community benefit, or transferred to a charity or another CIC.

If the company is a charity, registered with the Charity Commission, HMRC will usually require a corporation tax return but there will be no corporation tax to pay. As well as filing accounts a CIC must complete and submit a community interest company report. This report is placed on the public register, available to download.

For tax purposes, furnished holiday lettings are something of a special case and benefit from a number of advantages not available to standard residential lets. One of these advantages is in relation to the treatment of interest and finance costs.

Residential landlord – Restriction of relief

Residential landlords can now only obtain relief for interest and finance costs, such as mortgage interest, as a basic rate tax reduction, regardless of the rate at which the residential landlord pays tax. The interest and finance costs are not deducted when working out the taxable profit, and the tax is initially worked out on the profit without taking account of the interest and finance costs. The resulting tax liability is then reduced by 20% of the interest and finance costs, capped at the lower of 20% of the taxable profit or the amount that reduces the tax liability to nil. Any unrelieved interest and finance costs can be carried forward for relief as an income tax deduction in calculating the tax liability of the same property business in a later tax year, with the costs being relieved at the first available opportunity.

This approach has a number of downsides – relief is only given at 20% even if the landlord is a higher or additional rate taxpayer and relief may not be given in full in the tax year in which the costs are incurred.

Furnished holidays lettings – Deduction in full

The changes to interest rate relief do not apply to furnished holiday lettings, and where a let qualifies as furnished holiday let, interest and finance costs can be deducted in full when working out the taxable profit. The deduction is not capped, and can give rise to a loss which may be carried forward and set against future profits from the same furnished holiday business. Also, as relief is by deduction, relief is given at the landlord’s marginal rate of tax not at 20% where the landlord is a higher or additional rate taxpayer.

Example

Toby is a residential landlord. For 2021/22 his taxable profit before taking account of interest costs on the associated mortgage is £30,000. Mortgage interest paid in the year is £8,000.

Toby has other income from his photography business and pays tax at the higher rate of 40%.

Before applying the basic rate tax reduction, the tax on the property income is £12,000 (£30,000 @ 40%). The basic rate tax reduction in respect of the mortgage interest reduces this by £1,600 (£8,000 @ 20%) to £10,400.

Tom has a furnished holiday let on which profit before deduction of interest costs is also £30,000. He too pays mortgage interest of £8,000 and, like Toby, has other income and is a higher rate taxpayer.

However, unlike Toby, he can deduct the full amount of the mortgage interest, reducing the taxable profit to £22,000, on which tax of £8,800 (£22,000 @ 40%) is payable.

Despite identical profit and interest, Tom pays £1,600 less in tax than Toby as he is able to obtain relief for his interest costs at his marginal rate of 40%.

Under the PAYE 'Real Time Information' scheme employers report to HMRC electronically before making any salary or wage payments. To ensure that the right amount of tax is deducted the employer uses the Code issued by HMRC. However, every PAYE Code Number is an estimate, since HMRC cannot guarantee the allowances or deductions included in the calculation of a PAYE Code number are accurate. As a result many taxpayers find that the amount of tax deducted by the end of the tax year is wrong.

Under the system named 'Dynamic coding', Codes are issued as soon as HMRC receives notification from employers, pension companies or the taxpayer themselves (via entries on their personal tax accounts). HMRC looks to amend the code within the tax year so that there is no delay in issuing a tax refund or, if the amendment results in an underpayment of tax, the taxpayer is not faced with an unexpected bill at the year end. To achieve this HMRC use the information they receive, estimate the amount that would have been owed at the tax year end and include this amount as a restriction in the current year’s tax code (termed 'in-year adjustments'). The assumption is made that an employee will continue to receive the same level of pay for the rest of the tax year as they have to date and so unless a 'trigger' is subsequently made the code will remain until another 'trigger' is applied. The limit to the amount of tax that can be collected through the PAYE code is less than 50% of income and the tax liability cannot be doubled.

Only specific 'trigger' events generate changes to tax codes. Such events are notifications of change in an employee's circumstances, e.g. a new employment, a new benefit-in-kind, increase in salary, etc. The receipt of data from employers will not be a 'trigger' point, unless the employer’s monthly Full Payment Submission includes a start date for a new employment.

The receipt of a pension can cause problems under such a system. For example, if a taxpayer is employed and starts to receive an occupational pension during the year, the pension company will supply the information to HMRC and as such there will be a 'trigger' event.  Unless being the primary source of income, an occupational pension will always be treated as the secondary source such that personal allowances will be allocated against the primary income (ie the salary in this instance). The taxpayer may want the allowances to go against the pension first and the only way to change this is by the employee contacting HMRC.

As codings can only be amended following a 'trigger event, one of the areas where problems can arise is when an employee leaves. This is because employers are only permitted to send HMRC leaver information before employees are paid which means that HMRC are unable to make the 'new' job the primary employment (and therefore restore a cumulative personal allowance) until the ‘leaving’ notice (a Full Payment Submission) is submitted by the previous employer.

Bonuses can also cause problems as estimated pay may be considerably higher than actual pay. HMRC's estimated pay calculation assumes that pay accrues evenly throughout the year, and where a bonus has been paid, average weekly or monthly pay will be higher than normal for that month.

HMRC have increasingly been issuing codings to include an estimated amount of dividends or rental income based on the previous year's tax return information resulting in a reduction in monthly pay. Tax on such income is not due until 31 January after the tax year end and therefore HMRC is, in effect, collecting tax in advance.

If you believe your tax code is wrong you should contact HMRC who will issue your employer with a revised tax code as required.

All business must start at some point, and a furnished holiday lettings (FHLs) business is no exception. Unlike other rental properties, furnished holiday lettings enjoy special tax rules. As a result, they are able to benefit from capital gains tax reliefs for traders and claim capital allowances for furniture, fixtures and fittings. The profits from a furnished holiday lettings business also count as earnings for pension purposes.

However, to access these reliefs, the let must meet several tests for it to be considered a FHL.

The tests

The property must be let furnished and must be in the UK or the EEA. It must also pass all three of the following occupancy conditions:

Condition 1 – The pattern of occupation condition

Continuous lets of more than 31 days must not exceed 155 days in total in the year.

Condition 2 – The availability condition

The property must be available for letting as furnished holiday accommodation for at least 210 days in the tax year. Days when the landlord stays in the property are not counted.

Condition 3 – The letting condition

The property must actually be let as furnished holiday accommodation for at least 105 days in the tax year. Longer-term lets of 31 days are excluded, as are periods when the property is let to family or friends for free or at a reduced rate.

Period for which the tests are applied

For a continuing holiday let, these tests are applied on a tax year basis to determine whether the property qualifies as a furnished holiday letting for the tax year.

However, different rules apply for the first year and the tests are applied over the 12-month period from the date that the holiday letting began. This means that some periods will be taken into account twice in working out whether the property qualifies.

Example

Rueben buys a cottage in Devon, which he plans to let as a furnished holiday let. The sale is completed in August 2021. He spends a couple of months refurbishing the property and it is let as a holiday let for the first time on 14 October 2021. Letting commences in the 2021/22 tax year.

For year one, the tests are applied for the first 12 months, from 14 October 2021 to 13 October 2022.

Thereafter, the tests are applied on a tax year basis.