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Welcome...
To September's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Section.
We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
Please contact us for advice in your own specific circumstances. We're here to help!
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| Axe falls on tax benefits for Furnished Holiday Lets |
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The Government has published a policy paper confirming the abolition of the Furnished Holiday Lettings (FHL) tax regime.
It will mean that property investors will no longer get the existing tax benefits of FHLs from next April.
The previous Conservative government had unveiled plans to scrap it in the Spring Budget to help free up property stock and fund the National Insurance cuts.
Published on 29 July, the documents set out confirmation of the move that was introduced in the Spring Budget in March under Rishi Sunak's premiership. The new Labour government has rubber stamped the move after it failed to get through parliament in time ahead of the general election.
What does it mean?
There are four principal elements of the policy, according to HMRC's statement, which read:
"This change will remove the tax advantages that current furnished holiday let landlords have received over other property businesses in 4 key areas by:
- applying the finance cost restriction rules so that loan interest will be restricted to basic rate for Income Tax
- removing capital allowances rules for new expenditure and allowing replacement of domestic items relief
- withdrawing access to reliefs from taxes on chargeable gains for trading business assets
- no longer including this income within relevant UK earnings when calculating maximum pension relief"
"The measure promotes fairness and aligns the tax rules for furnished holiday lettings with those for other property businesses."
Among those affected will be individuals, corporates, and trusts who operate or sell FHL accommodation.
The key dates are as follows, with the new rules taking effect:
- on or after 6 April 2025 for Income Tax and for Capital Gains Tax
- from 1 April 2025 for Corporation Tax and for Corporation Tax on chargeable gains
A new anti-forestalling rule has already applied from 6 March 2024. The aim is to "prevent the obtaining of a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules," HMRC stated.
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| Are we going back to the future for CGT? |
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In 1989, Conservative Chancellor Nigel Lawson decided to change the rules around Capital Gains Tax so that it was applied at whatever the taxpayer's marginal rate was.
It remained that way all the way through to 2008. Since that point it has been tinkered with various times – by both Labour and Conservative Chancellors - going down and then up again.
It seems that we may soon be returning to the policy of 1989 - or some variation of it - when Rachel Reeves announces her Spring Budget on 30 October. At least that's what some commentators and analysts are expecting.
Ms Reeves has been quoted in the last 12 months saying there were no plans to raise CGT, but there was virtually no mention of it in the official Labour manifesto, suggesting it could be one option to plug the so-called £22bn blackhole that Ms Reeves claimed the new Government had uncovered. There are not a huge number of options, given that she has ruled out Income Tax, NI and VAT rises.
If the rules for CGT are changed, it's unlikely that it will kick in until April 2025 but it could still change sooner than that. Some analysts have suggested that other measures to bring in tax could include reducing Business Asset Disposal Relief.
If you need any assistance understanding the current CGT rules or adapting to any changes when they are announced later this year, please contact our team.
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| Digital platform rules: new guidance ahead of first report deadline |
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In four months' time, the first reports are due for compliance with the new Digital Platform Reporting rules.
The regime, introduced on 1 January this year, requires UK digital platforms to collect and report income information for sellers using their platforms.
The first reports must be submitted before the end of January 2025.
It's all connected to the fact that the UK has signed up to the Organisation for Economic Development (OECD) Model Reporting Rules for Digital Platforms.
In recent weeks, HMRC published guidance for the rules around online marketplaces.
It has clarified that, for example, if you only sell on a platform, the rules are not applicable to you. That's also the case for sole traders managing a platform or if you sell your goods or services directly through your own website or app.
According to HMRC: "If you manage or work within a digital platform in the UK, you may need to: collect and check information about sellers on the platform; report details about sellers to HMRC. If you need to report to HMRC, you'll need to use the digital platform reporting service."
In terms of explaining what counts as a 'digital platform', below is the verbatim definition from HMRC:
"Your app or website is a platform if both these apply:
- it connects sellers to customers to supply goods or services
- you know or can easily find out the amount paid to sellers for goods or services."
Among the examples of services that HMRC lists includes taxi and private hire; food delivery and finding freelance work.
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| UK and Ecuador announce tax treaty |
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The Government has published details of a new tax treaty with Ecuador. The UK and Ecuador signed their first comprehensive double tax treaty on 6 August. Once ratified, it will affect taxation on income and gains between the two countries. It will mainly cover UK income tax, corporation tax and capital gains tax and is primarily based on the OECD Model Tax Convention (MTC), bar a few deviations.
The treaty document, published by HMRC states: “The Convention shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes that have been made in their taxation laws.”
If you require advice on anything to do with international taxes, please contact our team.
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| September Questions and Answers |
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Q: I'm interested in investing in a startup and I’ve heard about the Seed Enterprise Investment Scheme. I'm considering investing £30,000 in a company that qualifies this tax year. What tax relief can I expect?
A: You're right in identifying that The Seed Enterprise Investment Scheme (SEIS) may be helpful in what you're looking to do, offering as it does, some tax relief. For the 2024/25 tax year, you can claim income tax relief of 50% on eligible investments up to £200,000. That means, for your £30,000 investment, you could receive £15,000 in income tax relief. Additionally, there are two reliefs related to Capital Gains Tax that may apply. Firstly, disposal relief. If this is due, and your SEIS shares are held for at least three years and the company qualifies, any capital gains from their will be exempt from CGT. Secondly, there's reinvestment relief, where a gain coming from the 2023/24 tax year on disposing an asset is reinvested in shares in a company on which you get SEIS Income Tax Relief.
Q: I'm planning to rent out a room in my home for £9,000 this year. Am I right in thinking that some of this income will be tax-free? If so, what are the rules?
A: For anyone in your position it's worth knowing about the Rent-a-Room Scheme. This allows you to earn up to £7,500 tax-free from letting furnished accommodation in your home for the 2024/25 tax year. Since you're planning to rent out a room for £9,000, the first £7,500 of this income will be tax-free. The remaining £1,500 will be subject to income tax based on your marginal tax rate.
The tax exemption for this type of income under £7,500 is automatic, so you don't need to do anything. But when it goes over £7,500, you must inform HMRC and choose whether to opt into the scheme by submitting a tax return. Or alternatively, you can choose to be taxed on the rental profit (total income minus allowable expenses) if that results in a lower tax liability.
It's also worth noting that the £7,500 tax-free allowance is halved if you share the income with your partner or someone else.
You're also eligible to opt into the scheme if you run a bed and breakfast or a guest house, but you can't use it for homes converted into separate flats.
If you'd like more information about tax issues relating to property and rental income, do get in touch.
Q: I run a small business. Due to a cashflow issue, we're struggling to pay our next VAT bill in full and we've only got 20 days until payment is due. What are our options?
A:It can be difficult for any business when something like this arises. However, there is a possibility that you can come to an agreement with HMRC to set up a phased payments plan.
Since the start of the year if a business that pays VAT proposes a plan to pay in instalments within 15 days of the payment being due, and HMRC agrees it, it would not get charged a late payment penalty. That is, of course, dependent on sticking to the conditions of the agreed plan. HMRC might cancel it if you don't. So, although you're running out of time, you could be eligible for this support, but it's vital you contact HMRC as quickly as possible.
Otherwise, you could face penalties. Late payments attract interest charges and they're applicable from day one it's overdue.
This is what HMRC says: "If HMRC agree a Time to Pay arrangement with you, it can mean lower, or no, late payment penalties. It can cover all outstanding amounts due, including penalties and interest."
Get in touch with the Payment Support Service to discuss your finances and the amount you can pay off each month of your outstanding VAT bill.
If you need any further assistance understanding VAT rules, payments and penalties, please contact our team.
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1st
- New advisory fuel rates for company cars take effect
6th
- Final deadline for businesses for filing P11Ds for employees
19th
- For employers operating PAYE, this is the deadline to send an Employer Payment Summary (EPS) to claim any reduction on what you’ll owe HMRC
22nd
- Deadline for employers operating PAYE to pay HMRC. This is also the quarterly deadline for businesses that pay per quarter. For those paying by post, the deadline is 30 September.
30th
- Corporation Tax Returns are due for companies with year-end of 30 September
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