IR35 was introduced by HMRC in April 2000, This legislation aims to identify individuals that are using a 'personal service company' (PSC) as an intermediary to avoid paying the correct tax and national insurance and get an unfair advantage according to HMRC, who view these individuals as “disguised employees” rather than self-employed.
IR35 was introduced to allow HMRC to crack down on 'disguised employees' and stop the loss of tax and national insurance to the exchequer.
In order to assist businesses to distinguish between employees and self-employed, an employment status indicator (EIS) tool has been developed which can be found on HMRC’s website.
The engager and the worker are both responsible to distinguish the workers employment status as the engager would have to ensure that they fulfil the tax and national insurance contribution liabilities.
HMRC will look at both the way the work is carried out by the worker on daily basis and the written contract between the parties to determine whether they are caught by IR35,
The main assessment criteria’s are:

• Personal Service/ Substitution
• Supervision, Direction and Control (SDC)
• Mutuality of Obligations

One strongest indicator of self-employment is the right of substitution, where a worker can either provide a substitute or engage a helper to provide a service rather than being individually hired to provide their services personally.
The degree of Supervision, Direction or Control over how the worker completes their tasks is another test to clarify ones employment status.
A Self-employed worker may be asked to perform a particular task or provide a service at a specific time and location but it’s not likely for the client to have control over how the task is performed although this doesn’t affect the rights of the client (engager) to request the work carried out to be of certain quality.
An employed person on the other hand are likely to be told where and how to perform their tasks and is subject to a high degree of control.
Finally mutuality of obligation is another area for HMRC to determine an individual’s employment status. A self-employed contractor would benefit from providing their services efficiently and moving to another assignment or task and would not be entitled to expect further work form the same engager. However an employee would be supplied with continues supply of work form the employer and would be expected to carry out the task when he is required to do so.
When work is regularly provided to a contractor HMRC may take the view that an employee status has been created by custom and habit and as a result a great emphasis is been place on the right of the contractor to walk away from a contract early, if they choose to.

​For further information please contact us on [email protected].

Section 455 tax is a measure taken to deter tax avoidance using close company loans.

​If you have a balance remaining on the director’s loan account at the year-end you may be subject to S455 tax.

The loan account balance must be shown on the company corporation tax return (CT600). If the loan is repaid within 9 months of the accounting period then the relief is due immediately and no s455 tax is actually paid.

If the loan balance is below £10,000 and is not repaid within 9 months after accounting  period then S455 tax is payable, however, if the balance of the loan is over £10,000 at any point then a benefit in kind would arise.

One way of avoiding S455 tax is for the company to declare dividends, however this is subject to distributable profit available in the company.

For further information please contact us on [email protected].

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​Investing in a buy-to-let can be a good idea but there are a few things from tax perspectives that you need to take into account before deciding to invest.
 
You need to consider that you will probably pay tax when you purchase the property, you will pay tax on the rental earnings and when you decide to sell the property.
 
Stamp Duty Land Tax (SDLT)
More commonly known as stamp duty, SDLT is tax you pay when you purchase any property.
Current rates of SDLT are;

• Properties worth up to £125,000 are exempt
• Properties worth between £125,001 and £250,000 are taxed at 1%
• Properties worth between £250,001 and £500,000 are taxed at 3%
• Properties worth between £500,001 and £1m are taxed at 4%
• Properties worth between more than £1m and £2m are taxed at 5%
• Properties worth more than £2m are taxed at 7%

 
Form April 2016 the government has decided to add an additional 3% above the current SDLT rates for purchases of second home or buy-to-let properties.
 
Income Tax on Rental Earnings
 
Profits form rental income are subject to tax in the same way as other earnings.
 
To calculate your profit you take all rental earning and take away any “allowable expenses” which we discussed in December 2015, to read about “allowable expenses” click here.
 
Capital Gains Tax (CGT)
 
When you dispose of an asset you need to pay CGT on the gains.
 
Every year you have an annual tax free allowance, for the tax year 2015/16 this allowance is £11,100 which means gains of up to this threshold are tax free.
 
Any gains over the annual tax free allowance are subject to tax at 18% for basic rate taxpayers, and 28% for those in higher tax bracket.
 
You could reduce your CGT bill by offsetting some of your expenses against it, as follows:

• Solicitor’s fees
• Estate Agents fees
• Advertising fees
• Stamp duty
• Any expenses incurred when improving the property
• Any qualifying period for Private Residential Relief (PRR) and Letting Relief

 
You don’t pay CGT on your main place of residence, so if for any period you own the property and lived in it as your only home, this period could qualify for Private Residential Relief (PRR).
 
Example of Calculating CGT

If you own a property for 10 years (120 months), live in the property as your main residence for 2 years (24 months) then use the property as second home for 4 years (48 months) and  rent the property for last 4 years (48 months) you can claim both private residence (PRR) and Letting Relief.

​Assume the profit made is £50,000. The amount of PRR you can claim is 24 months, plus 18 months for the final period of ownership, equaling 42 months which equates to 35% of the total period of ownership.
 
You can claim Letting Relief on the 30 months, this is 48 months minus the 18 months of PRR. This equates to another 25% of the total period.
 
Total Gains                                          £50,000
Less PRR                                                £17,500
Less Letting Relief                               £12,500
Less 2015/16 Allowance                     £11,100          
Total Gain Subject to CGT Charge    £8,900
 
The £8,900 is subject to capital gains tax charge at either 18% or 28% depending on the total income of the tax payer in that year.
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For further information please contact us on [email protected].

VAT registration and how to register was discussed in a previous blog which you can read here.
 
When you register for VAT you will either be on “Standard Accounting” or “Cash Accounting”.
 
“Standard Accounting” or sometimes referred to as “Invoice Accounting” is when you have to pay VAT when you raise an invoice. The advantage here is that you also can reclaim input VAT at soon as you receive an invoice form your suppliers even if you haven’t yet paid that supplier.
 
“Cash Accounting” is when you pay VAT to HMRC on output vat and claim back on input vat at the point in which an invoice is paid.
This could provide your business with a cash low advantage.
 
Example
 
John is a bookkeeper. He issues an invoice on the 30th March for £100 + VAT which means £120 sales invoice.
 
Assuming John’s quarterly VAT deadlines are 31st March, 30th June, 30th September and 31st December.
 
The client pays John on the 1st April so the invoice falls into the quarter ending 31st March but the payment fall into the quarter ending 30th June.
 
He would have to pay £20 to HMRC by the 30 April or the 7th May if he file’s and pays online.
But if he was on cash accounting he would only have to pay the £20 by 31st July or the 7th August if he was filing online.
 
This would give him the advantage of keeping the cash for four months before having to pay HMRC.
 
Also if say the client doesn’t pay John at all then if john was on “Cash Accounting” he wouldn’t have paid HMRC and no harm was done, however if he was on “Invoice Accounting” then he would have to wait 6 months before he can write off the bad debt even if say the client has gone out of business due to bankruptcy and John knows the client won't pay. 
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For further information please contact us on [email protected].

All businesses in the UK are required to register for VAT when their turnover reaches certain limits set by the government. For the tax year 2015/16 this threshold is set at £82,000.

The current rate of VAT charged on most services and goods is set at 20%, although certain supplies are “zero rated” or “exempt”.
In the case of “zero rated” supplies you don’t charge output VAT but you can reclaim your input VAT suffered on both services and goods received, however if the supply is “exempt” then you don’t charge or claim back any VAT.

​It may be advantageous to register for VAT if you sell mainly to VAT registered businesses even if you haven’t reached the VAT registration threshold.

To register for VAT you, or your accountant, would have to complete and sign a VAT 1 form and send to HMRC. The process usually takes between 6 – 8 weeks to complete.

All businesses must register for VAT once they reach the threshold in a year.

When you are fully registered for VAT you need to show your VAT registration number on all your invoices, you should always ask for a VAT invoice from your suppliers to claim back the VAT suffered on services or goods purchased.

Good record keeping is a must to complete your VAT return correctly. This is done once every quarter for as long as you are VAT registered.

There is one more thing that needs to be considered before registering for VAT and that’s what VAT scheme would suit your business most. We will be discussing different VAT schemes in next blogs. Click here to read.

​For further information please contact us on [email protected].

Expenses fall into two categories, Capital Expenses and Revenue Expenses which are directly related to the lettings business.

One way of distinguishing between the two types of expense is to ask how long does the benefit of the expense last?

If the expense is, for example, the cost of adding a bedroom to the property then this would be considered a capital improvement. Any tangible improvement to the asset is considered a capital improvement and therefore not an allowable expense for the purpose of Income Tax. However, decorating a property is considered a revenue expense as every property would need to be redecorated at some point. These expenses can be claimed for the purposes of Income Tax.
 
Here is a list of allowable Expenses:

• Advertising expenses for tenants
• Agents’ fees for property management, including finding and vetting tenants
• Gardening, cleaning and waste disposal
•  Council Tax and Ground Rent
•  Insurance for Building, Contents and Loss of Rent
• Accountancy fees, though this would be the charges to prepare the rental account and not the cost of calculating and filling a tax return
• Cost of collecting rent/enforcing debts and bad debt where the rent due from the tenant is taxable, however it is not being paid or not recovered
• Cost of services provided to tenants, such as where the landlord pays for gas, electricity, water council tax, internet or annual service charges on a flat
• Mortgage interest and charges for buying, extending or improving a property but not the capital repayment, if any
• Motor and travelling costs of running the property business, such as travelling from one’s home to the let properties, to meet agents, or tenants
• Printing, postage and stationery costs related to running the property business
• Renewals basis and maintenance, the cost of replacing or repairing integral fixtures and fittings to the building such as sinks, baths, boilers or kitchen units can be claimed, whether or not a Wear and Tear Allowance has been claimed. The initial cost or any improvement element on a replacement item is not deductible. There should not be a significant improvement to these fixtures but rather a replacement of the fixture
• Wear and Tear Allowance, 10% of the gross rent received in respect of fully furnished properties, where Capital Allowance is not claimed (for changes to Wear and Tear Allowance please click here)

For further information please contact us on [email protected].