Savvy Accounting

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We are specialist Accountants for small business and start-ups. As your business grow we are there to help you every step of the way. We will manage your bookkeeping, accounting, tax, VAT, payroll. For our high growth clients we also provide board advisory. We even provide free accounting software for our clients. Get in touch today for a free consultation: hello@savvyaccounting.co.uk https://lnkd.in/emFjT3V5

Is your extra income taxable? HMRC is getting cannier at detecting and penalising people who make extra income but don’t declare it. With that in mind if you start a small side venture to make some extra cash, is it always necessary to declare it to HMRC? Is your extra income taxable? A bit on the side Naturally, HMRC is interested in anyone who makes a little extra through freelance work or online selling. With up to 20% of us engaged in extra money-making endeavours, it’s important to understand how HMRC views these and if you’ll have tax and NI to pay. Income from selling unwanted personal possessions isn’t taxable as trading income but can be liable to capital gains tax (CGT) if sold for more than you paid for it. What counts as trading income? Deciding if a trade exists is notoriously tricky, especially in relation to ad hoc income. Although HMRC provides some guidance and a simplistic checker you should use it with caution. If in doubt consult a tax advisor. Remember, just because your business does not make a profit doesn’t mean you aren’t trading. If you are trading and make a loss it can be used to reduce your tax bill on your other income. Exemption for low value businesses If your trading income doesn’t exceed £1,000 in the tax year, the trading allowance exempts it from tax. This means that you don’t need to report anything to HMRC. If your income exceeds £1,000, you can elect to deduct the trading allowance in place of your actual expenses. There’s a similar £1,000 allowance for rents received from property. The trading allowance doesn’t apply to either a partner’s share of partnership income or to trading income derived from a close company, i.e. one that’s controlled by p to five people, which you own or control. Capital gain? If your activity isn’t taxable as income, you still need to consider whether you need to report any profits as a capital gain. However, the first £6,000 of gains in 2023/24 will be exempt, plus the chattels exemption will cover individual items which are sold for less than £6,000.

Wedding venue left jilted at tribunal The First-tier Tribunal has rejected an appeal concerning business property relief (BPR) on a barn used as a wedding venue. What can you take away from the decision? Wedding venue left jilted at tribunal Helen Butler (B) was the member of a limited liability partnership (LLP) that had multiple activities, including farming, commercial letting, and hosting wedding events in a barn on the farm. When B died, her personal representatives claimed BPR on the value of her partnership share on the basis that the LLP was wholly or mainly trading. HMRC said the business was mainly one of holding investments and denied the claim. At the hearing, B’s representatives argued that the business was a trade due to the level of service provided, such as that a team of four people would show potential customers around the venue, the venue was cleaned before and after events, tables, chairs, music systems and lights could be provided and event packs including checklists were provided. Unfortunately, the Tribunal found that the LLP’s business was mainly that of holding investments. The judge likened the venue to a village hall rather than a full-service conference centre, where the services did not go beyond those provided in a property held for investment purposes. The key takeaways here are that it should not be assumed that a business activity will meet the “wholly or mainly” threshold required, particularly where it involves the letting of land and property. Most importantly, had the farming business been owned separately to the letting and wedding venue activities, BPR would have likely been available on this element. A crucial planning point is therefore to maintain a separation of business and investment activities to preserve this valuable relief.

HMRC issues reminder of saving scheme Help to Save (HTS) has been around for five years. In a recent press release, HMRC has revealed the level of bonus payments paid out to participants and encouraged others to look at using the scheme. So how does it work? HMRC issues reminder of saving scheme In the press release, HMRC confirmed that £146 million in bonus payments have been received by savers since the HTS scheme launched in 2018. Over 450,000 people have a HTS account. The scheme is available to those on lower incomes, and pays an attractive 50% bonus, subject to a maximum of £1,200 over four years. You could be eligible to open a HTS account if you are receiving:  Working Tax Credit Child Tax Credit and are entitled to Working Tax Credit Universal Credit and they (with their partner, if it is a joint claim) had take-home pay of £722.45 or more in their last monthly assessment period. Once the account is open, you can deposit between £1 and £50 each month, with the government topping up the deposits in the second and fourth years. It is possible to accumulate £2,400 in qualifying savings to attain the maximum bonus of £1,200. HMRC has also produced a helpful video with further information on HTS.

Furnished holiday letting - the in-between years Different rules for capital allowances apply to furnished holiday lets compared with other residential letting. How can you make the most of them? Property rental businesses Generally, it doesn’t matter what type of property you let, you’re entitled to a tax deduction for the costs of running your rental business. The exception to this rule is the cost of capital items such as equipment. These qualify for capital allowances (CAs). But if the property is residential you can’t claim CAs for equipment etc. used by the tenant unless the property qualifies as a furnished holiday let (FHL). CAs or no CAs? CAs are tax deductions allowed instead of depreciation shown as an expense in your rental business accounts. If you have an FHL you can claim them for equipment such as cookers, beds, TVs or other furnishings. The trouble is your property might qualify as an FHL one year but not the next. If your property ceases to qualify as an FHL, you must work out the CAs for the last year that it did as if you had stopped letting it altogether. You must put a value on all the items which you’ve claimed or could claim CAs on and deduct that from the value for tax purposes, i.e. the cost of the item less the CAs you’ve claimed. The difference, if positive, is an extra tax allowance, and if negative is taxable as income. Non-FHL periods In our example 2022/23 is a non-FHL qualifying year. Jack isn’t entitled to claim any tax deduction for the items that previously qualified for CAs. What’s more, if he purchases new items he can’t claim capital allowances for these either. However, he will be entitled to claim CAs for both old and new capital items when the property again qualifies as an FHL. The trouble is that all the items will have depreciated meaning that he won’t receive as much tax relief. A special concession might allow Jack to treat the property as an FHL for 2022/23 despite it not meeting the qualifying conditions. This would prevent Jack from losing out on CAs. Jack must send a formal election to HMRC if he wants to take advantage of the concession.

Joined up bookkeeping saves tax on directors’ loans. Several years ago you made a loan to your company. Since then you’ve drawn on company cash to pay private expenses. On balance, you’re in the black but HMRC says your cash drawing is separate from the loan and is taxable. Can it be right? Loans to shareholders HMRC has a long-standing aversion to director shareholders, especially in small and medium-sized firms, using company funds for private purposes even where it’s within company law. HMRC charges a special temporary tax, known as the s.455 charge, payable by the company, to dissuade director shareholders from using company money. Tax charge and refund The s.455 charge applies where a director shareholder owes money to their company at the end of its financial period and which is still owed nine months later. The tax is equal to 33.75% of that amount and is refundable nine months after the end of the financial period in which the debt is repaid. Loans not aggregated An unfairness of the s.455 charge is that the legislation, according to HMRC, doesn’t aggregate all transactions between a director shareholder and their company. This means they might be owed money by their company on the one hand, borrow from it with the other and the s.455 charge applies to the latter without taking account of the former. Loans aggregated In our example, HMRC’s view is that each loan arrangement is separate because they are recorded separately in Acom’s records. Case law supports HMRC’s view to a degree but this does not stop the s.455 charge from being unfair. In practice, there’s no chance of persuading HMRC to consider the loans in aggregation. However, there’s a solution.HMRC accepts that loan balances can be aggregated if company records show that borrowing and lending are managed as a single balance. To prevent avoidable s.455 charges make sure your bookkeeper aggregates all debit and credit transactions between you and your company.

Tribunal issues warning to deter doubtful SDLT claims The First-tier Tribunal (FTT) recently rejected an appeal from a company that a building was “non-residential” due to it being in a state of disrepair. However, it also issued a warning to deter future cases. What’s the full story? Henderson Acquisitions Ltd purchased a property after the occupant died, paying the residential rates of stamp duty land tax (SDLT). Shortly after this, Mr Henderson (a director of the company) visited the property and found that the kitchen ceiling had partially collapsed due to a leak. The damage affected less than half of the property, with the other half being safe to use whilst the damage was repaired. The central heating system needed to be replaced and there were multiple issues with the electrics that presented a fire hazard. Due to the issues with this property, a firm called Stamp Duty Savers advised Mr Henderson that the property was not suitable for use as a dwelling, lower rates of SDLT should have been paid and a claim was lodged for repayment. HMRC disagreed and the matter was referred to the FTT. The appeal was dismissed because the FTT found that only part of the building had fallen into a state of disrepair; the company did not purchase a non-residential property and turn it into a dwelling. The FTT also included the following warning to deter further cases on this point “We consider it important that there be a further published decision on this issue in order to protect taxpayers such as the appellant from being persuaded to make unmeritorious claims for repayment of SDLT contrary to the purpose and intention of the statutory provisions.”

Cash in old certificates of tax deposit before it’s too late. The Certificate of Tax Deposit Scheme will come to an end on 23 November 2023, yet £89 million remains unclaimed. What should you do if you have such a certificate? The Certificate of Tax Deposit Scheme allowed taxpayers to deposit money with HMRC and use it later to pay certain tax liabilities. The Scheme closed in 2017, but HMRC will continue to honour existing certificates until 23 November 2023. If you deposited part of the £89 million still held in the Scheme, ensure you contact the Certificate of Tax Deposit team before 23 November to tell them how you want to use your certificate. After 23 November 2023 HMRC will try to repay the balance of any certificate which remains unpaid and unclaimed. If it's unable to reach you the balance will be forfeited. It's therefore very important to contact HMRC prior to the closing date. HMRC wrote to certificate holders with outstanding balances, so if you believe you are one but have not received a letter your contact details may be out of date and you risk losing your money.