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New tax procedure for Directors Loans (s 455)
Its very common in Small Businesses for the Directors Loan account to be overdrawn creating a Directors Loan.
If the loan isn’t repaid within 9 months of year end the company will pay temporary additional Corporation Tax at the rate of 25% on the balance outstanding.
Section 455 CTA 2010 liabilities must be included in a company’s CT600 tax return. The S455 tax forms part of the calculation of tax payable by the company under Paragraph 8 Schedule 18 FA 1998.
A claim to relief under Section 458 is a claim for relief against the original tax charge for the AP in which the loan was made. The time limit for the claim is four years from the end of the financial year in which the loan is repaid, released or written off. COM53120
Until now there has been no set format for writing to HMRC to reclaim the s.455 tax but now you must use form L2P to enable a close company which has paid tax on a loan to a participator to reclaim that tax once the loan has been repaid, released or written off.
steve@bicknells.net
Simplified Expenses – Working From Home
Most people working from home were claiming the £4 per week allowance based on HMRC guidance, but this has now been updated for the self employed.
You can now calculate your allowable expenses using a flat rate based on the hours you work from home each month.
This means you don’t have to work out the proportion of personal and business use for your home, eg how much of your utility bills are for business.
The flat rate doesn’t include telephone or internet expenses. You can claim the business proportion of these bills by working out the actual costs.
You can only use simplified expenses if you work for 25 hours or more a month from home.
| Hours of business use per month | Flat rate per month |
|---|---|
| 25 to 50 | £10 |
| 51 to 100 | £18 |
| 101 and more | £26 |
Example
You worked 40 hours from home for 10 months, but worked 60 hours during 2 particular months:
10 months x £10 = £100
2 months x £18 = £36
Total you can claim = £136
Use the simplified expenses checker to compare what you can claim using simplified expenses with what you can claim by working out the actual costs.
https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home
Alternatively you could claim you can claim a proportion (based on the number of rooms and hours of business use) of your household expenses
- Mortgage interest or rent
- Council tax
- Water rates
- Repairs and maintenance
- Building and contents insurance
- Electricity
- Gas, oil or other heating costs
- Cleaning
- Telephone (based on usage)
- Broadband
You can draw up a home rental agreement to reclaim these costs.
The Rental Agreement can be very basic, it just needs to show:
- The Parties – Employee, Company, Home Office Address
- The agreement is for use of the accommodation, furniture etc (‘the Home Office’)
- The hours it will be used
- The rental charge
or your could use an agreement like this one
https://www.rocketlawyer.co.uk/documents-and-forms/home-office-space-agreement.rl#
If the rental is only to cover costs (and not to make a profit) then it should not create any tax liability.
Some experts say that claiming Mortgage Interest and Council Tax can be queried but that would depend on circumstances.
There are also other isuues to consider such as VAT and Capital Gains and these are covered in the blog below.
http://stevejbicknell.com/2013/01/06/what-are-the-tax-issues-and-advantages-of-a-home-office/
steve@bicknells.net
Will you pay Class 3A NI to top up your Pension?
From 12 October 2015 to 5 April 2017 you’ll be able to make a ‘Class 3A voluntary contribution’ to top up your State Pension by up to £25 per week.
You can choose to top up your State Pension by between £1 and £25 per week. How much you’ll need to contribute depends on:
- how much extra pension you want to get each week
- how old you are when you make the contribution
Example You are 68 years old in October 2015. You decide that you want to get an extra £5 per week (£260 a year) on top of your pension.
The cost of an extra £1 per week for a 68 year old is £827, so you multiply £827 by 5.
You’ll make a lump sum payment of £4,135.
You can use this calculator to see how it works…
https://www.gov.uk/state-pension-topup
Here is a link to the legislation…
http://www.legislation.gov.uk/ukdsi/2014/9780111121689/contents
steve@bicknells.net
Growth Vouchers – last few days!
Apply before 31st March to get up to £2,000 from the Government for professional business advice
• Growth Vouchers are a grant from the Government to help businesses like yours get business advice from accredited advisers.
• The voucher match-funds your investment in professional advice for your business so you could get a grant of up to £2,000 towards the cost of the advice.
You can use the voucher to get advice on:
• Finance – and how to manage your cash flow better
• Recruiting staff – how to develop their skills
• Improving management and leadership skills
• Marketing – attracting and keeping customers
• Technology – and how your business can make the most of it.
https://www.gov.uk/apply-growth-vouchers
https://marketplace.enterprisenation.com/
steve@bicknells.net
The VAT advantages of a development company
Property Development is a trade, where as Property Investment isn’t – renting out a residential property is a VAT exempt supply.
If you are planning significant building work, setting up a Development Company or using a building contractor might save VAT.
Assuming you employ a builder…
The VAT Rules are in VAT Notice 708 Buildings & Construction
Your builder may be able to charge you VAT at the reduced rate of 5 per cent if you are converting premises into:
- a ‘single household dwelling’
- a different number of ‘single household dwellings’
- a ‘multiple occupancy dwelling’, such as bed-sits, or
- premises intended for use solely for a ‘relevant residential purpose’
As your builder will be VAT registered, they reclaim the VAT they are charged and then charge you VAT at 5%.
If your business is property rental and you do the work yourself, you can’t take advantage of the 5% rate.
If your Development Company is VAT registered you can reclaim all the VAT.
Get your existing business or your property development company to convert the property and then sell it to another company that you own (may be an SPV) will be a VAT Zero Rated transaction. The other company then carries on the rental business.
steve@bicknells.net
Is Striking Off a company the best solution?
- The Insolvency Practitioner will ask your Accountant to confirm that the clients tax affairs are inorder and that appropriate advice has been given
- Final Accounts will need to be prepared and creditors paid
- A Declaration of Insolvency will be signed – The declaration of insolvency demonstrates that the company will be able to settle or secure liabilities and the costs of liquidation within 12 months
- A meeting of Shareholders will appoint the Insolvency Practitioner
- Notices will be posted at Companies House and in the London Gazzette
- Then the MVL can be a carried out and funds distributed
- Arrangements can be put in place to allow the directors access to funds during the process
Here are my top 5 reasons why an MVL might be a good choice:
- The change in 2012 capped capital distributions on striking off at £25,000 but this cap does not apply to liquidations
- You want to retire and close your business and extract the net worth
- You created a Special Purpose Vehicle (SPV) for a specific project and the company is no longer needed
- Companies that are stuck off can be re-instated but that’s not the case with liquidated companies
- Entrepreneurs Tax Relief may be applicable meaning the capital distribution is taxed at 10%
Auto Enrolment – Free Webinars
With the introduction of automatic enrolment, thousands of employers need to automatically enrol their eligible employees into a workplace pension scheme. Many small and micro employers will look to their bookkeeper, accountant or payroll advisor for help and advice. BrightPay is hosting a series of free Auto Enrolment Webinars specifically designed for bookkeepers, accountants and payroll advisors to make it easier to help payroll clients with their new obligations.
These webinars will include a number of guest speakers from the accounting and payroll industry. The topics covered will highlight various methods to streamline your auto enrolment processes and save you time handling these employer duties for payroll clients. Below is a list of each webinar with the guest speakers and topics that will be discussed. These are completely free webinars. Book your place today.
Webinars Dates
18th March
● Paul Byrne: Payroll Bureaus Guide to Profit from Auto Enrolment
●…
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Is Commonhold better than Leasehold for Flats?
Most residential flats are owned on Long Leasholds but this creates tax issues – Stamp Duty, Capital Gains, Income Tax/Corporation Tax.
Take a look at HMRC Helpsheet 292 and CG70700 to get an idea of Capital Gains Tax issues!
Fortunately ESC/D39 can be applied to Lease Extentions
In practice, the surrender of an existing lease and the grant of a new lease should not be treated as a disposal for Capital Gains Tax purposes if the taxpayer so wishes and all of the following conditions are satisfied:
- the transaction, whether made between connected or unconnected parties, is made on terms equivalent to those that would have been made between unconnected parties bargaining at arms length;
- the transaction is not part of or connected with a larger scheme or series of transactions;
- a capital sum is not received by the tenant;
- the extent of the property under the new lease is the same as that under the old lease;
- the terms of the new lease (other than its duration and the amount of rent payable) do not differ from those of the old lease. Trivial differences should be ignored.
The terms of a particular lease may provide for its extension if the tenant so requests. If such a request is made, the extension of the lease does not have any immediate Capital Gains Tax consequences.
In 2002, Commonhold was introduced in the Commonhold and Leasehold Reform Act 2002 (CLRA 2002). Commonhold can be applied to both Commercial and Residential buildings.
The advantage of commonhold is that it gets rid of the concept of the declining asset – sellers and purchasers of commonhold properties will no longer have to worry about how many years are left on the lease.
Under the commonhold system, all flat owners will automatically be members of a company – the Commonhold Association – that owns the freehold and thus the block.
This means that it should be easier to run the building for the benefit of the flat owners.
However, blocks of flats will still need to be managed.
And as a form of community ownership, commonhold brings with it various tensions.
To alleviate any possible problems, members will have to sign up to a “Commonhold Community Statement”.
This statement will set out all the rules and regulations you normally find in a lease, for example rules about subletting, pets, noise and use of gardens.
Which is better?
steve@bicknells.net
How do you account for Construction Retentions?
It’s a very common question, the client pays you and keeps a retention of 5% reducing to 2.5% on completion to be released after the end of the defects period.
You do the same with your sub-contractors.
The retentions need to be held in balance sheet accounts as they can’t be invoiced to client and aren’t due to the sub-contractors. But they should be included within sales and sub-contract costs.
HMRC’s guidance is in BIM51520
In the construction industry it is a common feature of construction contracts for the customer to retain part of the contract fee over a maintenance period pending the satisfactory completion of any remedial work required by the contractor. Typically this may be for a 12-month period between a Certificate of Completion being given and the issue of a Maintenance Certificate.
In their accounts, builders will generally deal with retentions in one of the following ways:
- include retentions within turnover, provide for the estimated cost of remedial work, and make provision for any debt impairment (see BIM42700 onwards), or
- defer recognition of retentions until their receipt becomes virtually certain.
Each of the above accords with generally accepted accounting practice and should be followed for tax purposes unless an unrealistically conservative view has been taken.
In recent years, construction industry customers have become increasingly reluctant to pay retention monies, irrespective of whether there are defects to be made good. It is now common for such monies never to get paid. Consequently, it will often be the case that, whichever of the above approaches is adopted, there will be little or no difference in the figure of net profit.
A challenge will only be appropriate in worthwhile cases. For example, where retentions are only recognised on receipt but, in practice, a large proportion is in fact consistently paid over to the builder and there is a significant tax effect (compared with the alternative provisions method).
There is guidance on VAT in VATTOS5170
……the tax point for retentions is delayed until either a VAT invoice is issued or payment of the retention is received, whichever is the earlier. It must be stressed that this only applies to the retained element of the contract price. The rest of the supply is subject to the normal tax point rules.
steve@bicknells.net
Sole Traders lose Goodwill Tax Relief
Since 6th April 2008 and until 3rd December 2014 Sole Traders and Parternships were able to claim Entrepreneurs Tax Relief on Goodwill when becoming a Limited Company.
Until the 3rd December 2014 they would claim there Capital Gains Allowance
| Period | Tax-free allowance |
|---|---|
| 5 April 2013 to 6 April 2014 | £10,900 |
| 5 April 2014 to 6 April 2015 | £11,000 |
Then claim ER which reduced the rate of tax to 10% on the gain.
But from the 3rd December they will now pay Capital Gains at the normal rates of CGT which are 18% or 28% (for Higher Rate Income Tax Payers).
This doesn’t change the potential ability of the company to offset goodwill against their Corporation Tax Return.
There are still other benefits related to goodwill as explained in this blog
The tax benefits of goodwill on incorporation?
steve@bicknells.net
Business Accountant 