Do you own a second home?

Be careful of the new tax rules on holiday lets or you could end up facing tough measures.

It was recently announced that the Government would reform business rates relief for owners of second homes – resulting in some holiday let owners facing additional costs of up to £1,000 a year.

The Department for Housing, Communities and Local Government wants to close a loophole in the current business rates system that prevents some second homeowners from paying council tax.

Michael Gove, Secretary of State for Housing, Communities and Local Government, confirmed that new rules next year will only allow second homeowners to register for business rates relief if they can prove they rent out their properties for at least 70 days per year.

What tax rules are changing?

As the rules stand, second homeowners pay business rates, which are cheaper than council tax, if they make their property available for letting for 140 days in the coming year.

But once the change takes place in April 2023, homeowners have to prove they are let for at least 70 days a year or be forced to pay council tax instead.

Are the new rules on holiday lets necessary?

The move comes following a surge in the number of holiday lets in England, with around 65,000 residential units currently registered.

The Department for Levelling Up, Housing and Communities (DLUHC) also says that there is currently ‘no requirement’ to produce evidence that a second home has been let out – not just left empty.

The DLUHC says the move would protect ‘genuine’ small holiday letting businesses and ensure second-home owners paid a ‘fair’ contribution towards public services.

Mr Gove’s plans come after a consultation launched in 2018 and threats last year by the Treasury to close the loophole.

According to reports, the number of holiday lets in England has been increasing year on year from 50,960 in 2019 to 65,000 now.

The COVID pandemic is said to have fuelled the trend, as London and other city dwellers sought to escape to the countryside.

If you require advice around these new tax rules on holiday lets, please contact our tax team here.

Link: Gove closes tax loophole on second homes

Two company directors have received a ban totalling 21 years after fraudulently claiming £100,000 in bounce back loans (BBL).

Following an investigation by the Insolvency Service, Aamer Aslam from Huddersfield and Razwan Ashraf from Keighley were disqualified for 11 and 10 years respectively.

The duo were co-directors of Scholars Academy Ltd, a specialist tuition centre for children in West Yorkshire.

BBL Fraud

In May 2020, Aslam applied for a BBL by providing an estimated company turnover of £200,000. Scholars received the loan of £50,000 but went into voluntary liquidation in January 2021, triggering the investigation

At the time of liquidation, the directors listed the company’s liabilities to the bank as £7,000. However, the bank later notified the liquidator that it was owed £50,000 by the company due to the BBL.

The investigation found that the duo was inflating the company’s turnover. Scholars’ bank statements show a maximum monthly income of just £640, which means their turnover was only £7,680 and did not meet the criteria to apply for a BBL.

It was found that Aslam and Ashraf used the money to make monthly payments to four family members of Ashraf. All four received £2,000 a month after the duo received the loan money.

Aslam and Ashraf told the Insolvency Service that these payments were genuine business expenses, but were unable to provide evidence to support this.

Alongside this, Ashraf was also the sole director of another educational company, Progress First Ltd. In May 2020, he applied for a BBL and fraudulently declared in his application that the annual turnover in 2019 was £200,000 when Progress’ bank statements showed that turnover was £38,973.

This resulted in Progress First Ltd receiving the full loan of £50,000 when it should have been entitled to a loan of £9,927.

Ashraf claimed that the money was used to pay for company expenses. However, regular payments were made to three individuals, and there was no evidence to show that these payments were genuine business expenditures.

Ashraf has since repaid £35,000 to the liquidator to settle claims against him for the Progress loan and a further £25,000 in settlement of claims against both directors for the Scholars loans.

COVID crackdown

This is the latest in several bans issued by the Insolvency Service against directors who have misused the COVID support schemes.

The Insolvency Service have new powers to investigate, disqualify and potentially prosecute directors who abuse the company dissolution process.

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act will also help tackle directors dissolving companies to avoid repaying Government-backed loans taken out during the Coronavirus pandemic.

Under the Act, the Insolvency Service, on behalf of the Business Secretary, will investigate and tackle ‘unfit’ directors who place their firm in administration to avoid paying subcontractors and suppliers.

If misconduct is found, directors can face sanctions, including disqualification as a company director for up to 15 years, or in the most serious of cases, prosecution.

The Business Secretary can apply for a court order that requires a disqualified director of a fraudulently dissolved company to pay compensation to creditors who have lost out due to their actions.

In addition, the Insolvency Service can investigate live companies where there is evidence of wrongdoing, such as misuse of COVID support.

Are you looking for BBL advice or guidance whilst navigating the post-pandemic business economy? Give us a call on 020 7724 6060 or send an enquiry here.

Link: Bans for two directors who abused Bounce Back Loan scheme

The MTD (Making Tax Digital) pilot scheme for the next phase of the HM Revenue & Customs (HMRC) initiative has seen a drastic slump in users.

Self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for MTD for Income Tax and Self-Assessment (ITSA) from 6 April 2024.

Some businesses and agents are already keeping digital records and providing updates to HMRC as part of the live pilot project to evaluate and develop the MTD service for ITSA.

However, research reported in the Financial Times has discovered that only nine people are currently taking part in the trial.

The number peaked at around 900 users in the 2018-2019 period and has since been affected by the pandemic.

Many accountants are now concerned that the system users – which covers 4.3 million self-employed businesses, partnerships, and landlords – may not be ready for the switchover.

Currently the self-employed must file just one end-of-year tax return but MTD ITSA will involve having to submit updates quarterly every three months and an end-of-year statement, plus a “finalisation return” (now called a tax return) each year. This means six reports to HMRC in total replacing the current single annual Self-Assessment tax return.

On top of this, the self-employed and landlords will have to license accounting software from approved providers, with the Government offering discounts of up to £5,000 for small businesses to rent software.

If you need help with Making Tax Digital, please contact Faye Thompson.

Link: Just nine people trialling digital tax for self-employed

According to the Federation of Small Businesses (FSB) survey, more than 440,000 small businesses could fail because of a new late payment crisis.

The national small business organisation has called for the Government to step in and take urgent action to improve how companies are paid.

According to the FSB study, 30% of small businesses have seen the late payment of invoices increase over the last three months. Almost 8% said that the problem was so bad that it might force them to close.

While smaller companies wait to get paid, they must continue to pay their suppliers, tax bills and staff wages.

The problem with persistent overdue payments is the ripple effect it has throughout the wider economy, forcing other companies to close their doors as well.

The FSB estimates that more than 400,000 small firms have shut down during the pandemic, with late payments being a key factor in the failure of many companies. However, it predicts that up to 440,000 SMEs may be forced to close this year due to late payments.

FSB National Chair, Mike Cherry, said: “Late payment was destroying thousands of small businesses before Covid-19 hit – the pandemic has made matters worse. In the past, the Government has rightly identified greater board accountability as key to spurring change in this area, but delivery has been slow.”

The FSB wants to see every business and Government agency abide by the existing prompt payment code.

They argue that 30-day payment terms should be “the norm for those who are committed to environmental, social and governance best practice”.

However, it has gone further saying that every big UK corporation should have a dedicated director responsible for improving payments to small businesses.

We work closely with small business owners to improve their cash flow. If you’d like help with credit management, contact us here.

Link: UK’s late payment ‘crisis’ risks future of 440,000 small firms

Are you setting up a new business, or already a well-established company? Did you know that there are ways you can save money through tax reliefs and allowances.

Certain tax initiatives even allow business owners to save money that they can reinvest back into their company.

Enhanced Capital Allowance (ECA)

ECA schemes encourage businesses to invest in efficient technologies. The scheme lets your business claim 100% first-year allowances, i.e., tax relief, on investments in certain technologies and products.

If you buy an asset that qualifies for first-year allowances you can deduct the full cost from your profits before tax.

You can claim first-year allowances in addition to the Annual Investment Allowance (AIA) – they do not count towards your AIA limit.

What qualifies

• Some cars with low CO2 emissions
• Energy-saving equipment that’s on the energy technology product list e.g. certain motors
• Water-saving equipment that’s on the water-efficient technologies product list e.g. meters, efficient toilets and taps
• Plant and machinery for gas refuelling stations e.g. storage tanks, pumps
• Gas, biogas, and hydrogen refuelling equipment
• New zero-emission goods vehicles

You cannot normally claim on items your business buys to lease to other people or for use within a home you let out.

Annual Investment Allowance

This measure remains temporarily increased from £200,000 to £1,000,000 for qualifying expenditure on plant and machinery incurred during the period from 1 January 2022 to 31 March 2023.

This measure is intended to deliver positive outcomes for businesses by supporting and encouraging business investment, and by simplifying the tax relief for such investments.

R&D tax credits

You may be eligible for R&D tax credits, even if your small business is running at a loss.

The HM Revenue & Customs (HMRC) definition is broad, and you don’t have to be engaged in laboratory work to benefit from this incentive.

Software developers, architects and many other professionals have all successfully claimed R&D tax relief because of this incentive.

Repairs and renovations to property

The business renovation allowance can give SMEs a tax break.

If the building your business plans to use has been empty for more than a year and was previously used in a different capacity, you may be eligible for a 100 per cent tax incentive on any renovations you might carry out.

Reduce NICs with the Employment Allowance

You can claim Employment Allowance if you’re a business or charity and your employers’ Class 1 National Insurance liabilities were less than £100,000 in the previous tax year.

Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £4,000.

You’ll pay less employers’ Class 1 National Insurance each time you run your payroll until the £4,000 has gone or the tax year ends (whichever is sooner).

You can only claim against your employers’ Class 1 National Insurance liability up to a maximum of £4,000 each tax year. You can still claim the allowance if your liability was less than £4,000 a year.

In some cases, a company can eliminate their Employer’s NIC bill as a result. Note, it is not possible to claim the allowance if your company only has one employee/director.

Looking for tax tips to help your business save money? Find out how our tax team can help here.

Are you an unincorporated company? Watch out for the income tax basis period reform.

All unincorporated businesses, including sole traders, the self-employed and trading partnerships, will be taxed on profits generated in the 12 months to 5 April (or 31 March) each year from 2024-25.

Here is what you need to know about the income tax basis period reform

• The Government has proposed changes that will move the tax basis period for all unincorporated businesses
• This will affect sole traders, partnerships and LLP’s who do not have an accounting year-end at that date
• It may cause additional tax to be payable
• Extra tax due can be spread over up to five years or by using Time to Pay arrangements
• Overlap relief that has been accrued can also be used to offset a larger tax bill
• It will affect accounting periods from 6 April 2023, as there will be a transition period during 2023-2024 when all businesses will have their basis period moved to the end of the tax year.

These changes were meant to be brought in a year earlier but were delayed by the Government in September 2021 to give those businesses affected more time to prepare.

The current system

Currently, unincorporated businesses are taxed on profits arising in the accounting period ending in a given tax year.

By law, unincorporated businesses do not have to produce accounts. They are, therefore, free to choose any accounting date they like.

This means that a business’s profit or loss for a tax year is usually the profit or loss for the year up to the accounting date – this is known as the basis period.

Specific rules determine the basis period during the early years of trading. Where the accounting end date is not 5 April or 31 March, which is the equivalent of 5 April for the first three years of trade, the rules can create overlapping basis periods, which charge tax on profits twice and generate ‘overlap relief’, given when the business ceases.

As other forms of income such as dividends and income from property are taxed based on the tax year, the different rules for trading profits can confuse some taxpayers.

What is changing?

The proposed reforms will change the basis period for all unincorporated businesses to the end of the tax year, currently 5 April.

This will create the need for interim arrangements for businesses that do not currently have year-ends falling between 31 March and 5 April each year.

These businesses will potentially face a single, higher tax bill from their profits arising in the year-end falling in the 2023-24 tax year to 5 April 2024.

According to HMRC, businesses with a different accounting period end date to the end of the tax year:

• Will need to apportion profits/losses.
• May need to use provisional figures in their tax returns if the accounts and tax computations for later accounting periods in the tax year are not prepared before the tax return filing deadline (later amending their returns once figures are finalised).
• The statutory rule that deems 31 March to be the 5 April in the first three years of a trade would be extended to apply to all years including the transition period and potentially also to property businesses.

Reliefs, allowances and tax band thresholds will remain unchanged and will not be pro-rated. This could also move some taxpayers into higher tax bands, while also reducing their ability to benefit from various annual reliefs and allowances.

In addition to the direct impact of the transitional arrangements, businesses with year ends that have not aligned with the tax year will have a much shorter time between when they generate profits and when the tax falls due, which could have cash flow implications.

What help is available?

Recognising the impact that this may have on taxpayers, HM Revenue & Customs (HMRC) is considering an election to allow businesses with higher profits, due to the change, to spread those additional profits equally over five years.

HMRC will also offer regular Time to Pay arrangements for those that need to spread the costs further.

Businesses will also be able to use all overlap relief accrued when they began trading during the transition year (2023-24). This would mean that businesses in this position will only have tax to pay on 12 months’ profits.

In the future, once these new rules are in place, new businesses will not generate overlap relief and there will be no special rules required for starting or ceasing trading or for a change in the accounting period end date.

For the many unincorporated businesses that already have year-ends aligning with the tax year (which includes those falling between 31 March and 5 April), nothing will change.

However, for those with year-ends that are not synchronised with the tax year, there are several considerations and careful tax planning may be necessary.

How we can help

These changes, when implemented, are likely to have a significant impact on unincorporated businesses, leading to substantial tax bills and costs without careful planning.

Worried you may be affected by the income tax basis period reforms? Find out how we can assist you.

Link: Basis period reform

Under new rules set by the Government, the system of penalties for VAT and Income Tax Self-Assessment (ITSA) are changing.

The new system of fines is aimed at tackling non-compliance by taxpayers who repeatedly fail to meet their obligations to provide returns and other information requested by HMRC. Those who make occasional and infrequent mistakes will be less likely to be penalised.

It will see the current system of automatic financial penalties removed and a new points-based system implemented, which will require taxpayers to incur a certain number of points for missed obligations before a financial penalty is issued.

The changes will initially apply to VAT customers for accounting periods beginning on or after 1 April 2022, before being introduced later to ITSA customers with business or property income over £10,000 per year, who are mandated for Making Tax Digital (MTD) for ITSA, from the tax year beginning 6 April 2024, and for all other ITSA customers from the tax year beginning 6 April 2025.

What will be considered a late submission?

The new rules are part of the ongoing implementation of MTD, which requires taxpayers to submit tax information digitally each quarter using compliant software.

Late submission under the new rules will be a failure to provide either a quarterly MTD update or an annual return on time.

However, it will not apply to other occasional submissions to HMRC, which will continue to be covered by the current penalty regime for the relevant submission.

How do the new late submission penalties work?

Every time you miss a submission deadline you will receive a point, which HMRC will notify you of on each occasion.

After you receive a certain number of points an initial financial penalty of £200 will be charged. The threshold that must be reached for a penalty to be issued is determined by how often a taxpayer is required to make their submission.

However, not only will a penalty be charged for that failure but every subsequent failure to make a submission on time. This means that those who continually fail to meet their obligations could face big fines.

The penalty thresholds are as follows:

The points are only applied to each type of submission you need to make, as you will only have points totals for each obligation.

That means if you miss two deadlines for separate submissions in the same month, you will be penalised separately for each submission type.

It is only where you regularly miss consecutive deadlines for a single type of submission that you will begin to accrue points that lead to a fine.

In general, if a taxpayer makes two or more failures relating to the same submission obligation in the same month, they will only incur a single point for that month.

This is to prevent a taxpayer reaching the points threshold too rapidly to be able to improve their compliance. However, there are exceptions to this rule, which can be found here.

Are late submission penalty points retained over time?

The points that are issued only have a lifetime of two years, after which they expire to prevent historic failures combining with occasional recent failures resulting in a fine. This period begins the month after the month in which the failure occurred.

Points will not expire when a taxpayer is at the penalty threshold. This ensures they must achieve a period of compliance to reset their points.

After a taxpayer has reached the penalty threshold, all the points accrued within that points total will be reset to zero when the taxpayer has met both of the following conditions:

• A period of compliance; and
• The taxpayer has provided all submissions due within the preceding 24 months (It does not matter whether these submissions were initially late).

Both requirements must be met before points can be reset. The periods of compliance are:

If a taxpayer is at the penalty threshold and has achieved the period of compliance, but has not submitted outstanding submissions, they will remain at the penalty threshold and continue to be charged penalties for any further failures to make submissions on time.

There will be time limits after which a point cannot be levied. The time limits for levying a point depend on the taxpayer’s submission frequency and start from the day on which the failure occurred, as follows:

The time limit for HMRC to assess a financial penalty will be two years after the failure which gave rise to the penalty.

Can I appeal the issuing of a penalty point?

You can challenge a point or penalty issued by HMRC through its internal review process or via an appeal to the First Tier Tax Tribunal.

To appeal the issuing of points or a penalty you will need to be able to prove you had a reasonable excuse for missing a filing deadline, this could include bereavement or illness.

The appeal process will be the same as the appeal process against an assessment of tax for the relevant tax on which the penalty is based.

Here to help

Although this guidance covers the basics of these upcoming changes there are additional rules that may affect how penalty points are issued against you or your business.

If you are concerned about these changes or would like advice on remaining compliant with MTD for VAT and ITSA, please speak to our team today.

Link: Penalties for late submission

At the start of 2021, there were estimated to be 5.6 million UK private sector businesses.

Small and medium-sized enterprises (SMEs) are the lifeblood of the country, accounting for 99.9 per cent of all businesses across the UK.

According to a survey commissioned by Sage, SME’s acknowledge that their operations would struggle to function efficiently without the assistance of accountants, particularly as COVID-19 has swept across the country.

Strategic guidance vital to SMEs

The survey has confirmed the importance of accountants to SMEs, rating the profession as the go-to business service as firms struggle with problems over the pandemic, Brexit and other areas like moving across to Making Tax Digital (MTD).

This is where the expertise of accountancy firms in the latest cloud accounting technology eases the burden on their clients.

The survey shows 91 per cent of SME owners rate accountants as an important part of their business operation, while 49 per cent are happy to approach them for strategic business guidance.

When asked what services they would go to when first starting a business, more than a third (34 per cent) said accountants would be the first port of call.

The survey also found:

• Over a quarter (28 per cent) said Covid-19 had driven them to seek out the help of an accountant
• A fifth (18 per cent) named Brexit as the driving factor. In fact, during the pandemic, over half increased their reliance on accountants
• Sage also found that two-fifths (39 per cent) of SMEs name Making Tax Digital as the number one reason they sought accountancy services.

Named by small and mid-sized businesses as ‘critical’, the new study discovered a huge 91 per cent of SMEs use the services of an accountant, with half (49 per cent) using their services at least weekly.

Paul Struthers, MD, UK and Ireland, Sage, said: “Accountants play a critical role in accelerating this success and our research shows they are vital to the UK’s economic recovery.

“Our research shows accountants have an open door to become a de-facto strategic partner for their clients – this is an opportunity they must embrace.”

If you’re looking for an accountant to help your business operations thrive efficiently and effectively, please contact us to arrange a free consultation with our team.

Link: SMEs name accountants as ‘number one’ service, report finds

The 2023-24 tax year may seem a long way off, but companies must be prepared for Corporation Tax changes to the system.

The main rate of Corporation Tax (CT) will rise to 25 per cent for the financial year commencing on 1 April 2023, but it is slightly more complicated than the headline figure and the rate will vary depending on company profits.

How will companies be affected?

For companies recording profits of £50,000 or less, the ‘lower profits limit’, the current CT rate of 19 per cent will still apply, but those firms with profits between £50,000 and £250,000, the so-called ‘upper profits limit’, will pay the main CT rate of 25 per cent.

However, they will receive what is known as marginal relief to cut their tax bill which increases the rate incrementally, as profits rise, until the upper limit of 25 per cent is reached for firms with profits of £250,000 or more.

The lower and upper-profit limits are reduced proportionately where the accounting period is less than 12 months. They are also reduced where a company has one or more associated firms.

Broadly, a company is associated with another company at a particular time if, at that time or at any other time within the preceding 12 months:

• One company has control of the other
• Both companies are under the control of the same person or group of persons.

Effectively, the full amount of CT at the rate of 25 per cent is calculated before marginal relief is deducted. The marginal relief calculations are based on offsetting ‘augmented profits’ against the total taxable profits.

According to HMRC, ‘augmented profits’ are the company’s total taxable profits plus exempt distributions from non-group companies.

These include dividends, distribution of assets or amounts treated as a distribution on the transfer of assets or liabilities or the repayment of share capital.

The calculations are quite complex. Please get in touch with us if you need help assessing how much Corporation Tax you will have to pay HMRC.

Link: Corporation Tax Charge

Whether it is down to the spread of the Coronavirus or just a general trend to a more cashless society, card payments have boomed in the last couple of years.

While restrictions were in place, hardly anyone accepted cash and it is a trend that looks like it will continue with more and more payments being made through card readers.

According to figures from UK Finance, a trade association for the UK banking and financial services sector, in 2020 over half of all payments in the UK were made using cards.

While overall card payments in 2020 declined during the lockdown, their share of payments increased with over half (52 per cent) of all payments being made by cards in 2020.

This was due to many retailers encouraging card and contactless use, along with many people opting to shop online while physical stores were shut.

So, businesses must be properly prepared with the right equipment to process these transactions.

Security is vital both for customers and businesses and there is a whole range of different debit and credit card machines to choose from. There are three types, a desktop or countertop reader, a portable card reader and a mobile device.

What are the benefits of each device?

Countertop machines are fixed points in your store or restaurant and offer good connectivity.

The portable device is linked to Wi-Fi and is ideal for places like restaurants or pubs, where staff can take payments at the table.

Mobile card readers are battery-powered devices that use a GPRS signal but can link to Wi-Fi to take payments while on the move at places like outdoor markets or hospitality events.

If businesses are choosing card payment facilities, there are several platforms on the market to consider, including:

• TakePayments
• Tyl (by Natwest)
• Paymentsense
• Shopify WisePad Reader 3
• SumUp Air
• Zettle Reader 2
• Square Reader
• MyPOS Go
• Dojo Go
• Barclaycard Anywhere

What do they cost?

The costs include the device and the cost of payment processing fees. Mobile readers cost between £15 and £30, while desktop or countertop card machines cost between £150 and £200.

You can either buy the device outright or rent the device for a monthly cost. This changes from provider to provider.

What fees will the business have to pay?

Transaction fees are taken by your card payment provider as a percentage of every payment made through your card machine. They are typically between 1.5 per cent and 2 per cent of the value of the transaction.

So, if the customer buys an item costing £50 and your transaction fee is 1.75 per cent, you will be charged around 87p by your provider.

Card payment providers will also advertise a ‘card not present’ (CNP) transaction when neither the cardholder nor their card are present for the transaction – for instance, an online or phone payment, or a recurring payment.

CNP fees are usually around 2.5 per cent. They are higher for the simple reason that there is a greater risk of fraud during these kinds of payments.

Taxpayers who are unable to pay their Self-Assessment (SA) bill can use the option of paying by instalments with a Time to Pay arrangement with HM Revenue & Customs (HMRC).

If you cannot pay a Self-Assessment tax bill you can make your own Time to Pay arrangement using your Government Gateway account, if you:

• Have filed your latest tax return
• Owe less than £30,000
• Are within 60 days of the payment deadline
• Plan to pay your debt off within the next 12 months or less.

The limit for a self-serve time to pay arrangement, which was increased during the pandemic, remains at £30,000 tax due.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “We understand some customers might be worried about paying their SA bill this year, and we want to support them.”

What you will need to make a Time to Pay arrangement

The relevant reference number for the tax you cannot pay, such as your unique tax reference number

• Your VAT registration number if you are a business
• Your bank account details
• Details of any previous payments you have missed

HMRC will ask you:

• How much you can repay each month
• If you can pay in full
• If there are other taxes you need to pay
• How much money you earn
• What you usually spend (including bills and entertainment) each month
• What savings or investments you have.

If you have savings or assets, HMRC will expect you to use these to reduce your debt as much as possible.

If you have received independent debt advice, for example from Citizens Advice, you may have a ‘Standard Financial Statement’. HMRC will accept this as evidence of what you earn and spend each month.

The amount you will be asked to pay each month is based on the money you have left after you pay any rent, food or utility bills and fixed outgoings, like subscriptions.

You will usually be asked to pay around half of what you have leftover each month towards the tax you owe.

If you owe more than £30,000 or need longer to pay, you should phone the self-assessment payment helpline on 0300 200 3822 to make an arrangement. If you have any questions, speak with our tax team.

Link: If you cannot pay your tax bill on time