You may like to check out the following points. In many cases it would seem that local authorities have overall control over who can, or cannot, claim for reduced rates.

Second homes

You may pay less Council Tax for a property you own or rent that’s not your main home.

Councils can give furnished second homes or holiday homes a discount of up to 50%. Contact your council to find out if you can get a discount – it’s up to them how much you can get.

Empty properties

You’ll usually have to pay Council Tax on an empty home, but your council can decide to give you a discount – the amount is up to them. Contact your council to ask about a discount.

Your council can charge up to 50% extra Council Tax if your home has been empty for 2 years or more (unless it’s an annexe or you’re in the armed forces).

When you don’t pay Council Tax

If you’re selling an empty property on behalf of an owner who’s died, you only start paying Council Tax 6 months after you get probate.

Some homes don’t get a Council Tax bill for as long as they stay empty. They include homes:

• of someone in prison (except for not paying a fine or Council Tax)
• of someone who’s moved into a care home or hospital
• that have been repossessed
• that can’t be lived in by law, for example if they’re derelict
• that are empty because they’ve been compulsory purchased and will be demolished

You may get a discount if your home is undergoing major repair work or structural changes, for example your walls are being rebuilt.

If your property’s been refurbished

Your council will tell you when you have to start paying Council Tax if you’ve been carrying out major home improvements on an empty property or building a new property.

You’ll get a ‘completion notice’ that tells you the date you must start paying Council Tax.

If your property’s derelict

Your property’s only considered derelict if it:

• isn’t possible to live in it, for example because it’s been damaged by weather, rot or vandalism
• would need major structural works to make it ‘wind and watertight’ again

You can apply to get a derelict property removed from the Council Tax valuation list. Follow the process for making a formal challenge to the VOA.

In a recent tax case, Jerome Anderson v HMRC, the First-Tier Tribunal denied a football agent relief for trading losses. The judges’ arguments centred on the issue of whether he was carrying on a trade, and if he was, was it on a commercial basis with a view to making profits?

There is already legislation in place that restricts any relief for trading losses if the trade is not commercial. The facts of the case were as follows:

• Mr Anderson (Mr A) worked successfully as a football agent for many years, representing a number of big name players such as Dennis Bergkamp and Thierry Henry. 
• In January 2009 Mr A paid £3 million to Bafana, a soccer academy in South Africa, through a scheme marketed by a Jersey company.
• In return for the money paid he was able to choose three players from the academy, securing an interest for himself in any future transfer fees.
• Bafana went into administration in 2011 and Mr A received no significant income.
• Mr A claimed trading losses of £3 million in his 2008/09 tax return.

HMRC disallowed the losses.

Despite Mr A’s arguments that his activities under the Bafana scheme constituted a trade, and that he was more than a passive investor, the court agreed that the losses should be disallowed. Evidence pointed to a scheme to avoid tax rather than a genuine commercial undertaking.

The good news is you can reclaim VAT added to certain expenditure that was paid out prior to your business registration for VAT. HMRC’s instructions on this issue confirm:

There is a time limit for backdating claims for VAT paid before registration. From your date of registration, the time limit is: 4 years for goods you still have, or that were used to make other goods you still have, and 6 months for services. It may also be possible to improve matters by backdating registration in some cases – although you would need to take into account potential output tax liability on sales not previously liable to VAT.

You can only reclaim VAT on purchases for the business now registered for VAT. They must relate to your ‘business purpose’. This means they must relate to VAT taxable goods or services that you supply.

You should reclaim them on your first VAT Return (add them to your Box 4 figure) and keep records including: invoices and receipts, a description and purchase dates and information about how they relate to your business now.

You can’t reclaim VAT for:

• anything that’s only for private use
• goods and services your business uses to make VAT-exempt supplies
• business entertainment costs
• anything you’ve bought from other EU countries (you may be able to reclaim VAT charged under the electronic cross-border refund system)
• goods sold to you under one of the VAT second-hand margin schemes

You will need to reduce your claim if goods or services have a mix of business and private use. There are also special rules for reclaiming VAT on single pieces of computer equipment, aircraft, ships and boats costing more than £50,000; or land and buildings costing £250,000 or more (before VAT).

Generally speaking, any business expenditure that you make up to seven years before you actually start trading, is treated for tax purposes as if it was incurred on the first day of trading.

This expenditure includes rent, rates, insurance, wages and other costs that you have had to pay.

You can also claim capital allowances for qualifying assets. Again, they are treated as being made on the first day of trading. However, assets that you have previously owned, that you introduce into your new business, will need to be valued at market value at the same date. These might include your car or personal computer.

Repairs can be a tricky item, as HMRC may want to treat them as improvements to your business property that were incurred to bring them to a working standard prior to commencement of trade. If they succeed in their argument HMRC would not allow a deduction as a revenue expense.

Repairs undertaken before commencement of trade should be allowed if the following three points apply:

1.    The costs are regular maintenance rather than improvements.

2.    The repairs were not incurred to make premises fit for trade.

3.    The price paid for premises was not reduced to account for repairs to be made.

If you use your home for business purposes, rent out parts of your home whilst you are still in residence or if you rent out your home while you are resident elsewhere, you may need to consider the tax consequences. This article covers some of the tax issues that you may need to consider:

Use of home for business purposes

If the amount of space you use is limited to say one room, and if there is a duality of use (for example you may have a home office in the corner of a spare bedroom or your office may double as a hobbies room), then you should be able to charge your business a nominal amount to cover the “running costs” of the space occupied. Your claim will need to be restricted on a time basis to disallow the private use proportion.

Claims that fit into this category should cause you no personal tax issues as long as they are based on a realistic apportionment of actual costs and are discounted for private use.

It will also be unlikely that you will suffer any charge to Capital Gains Tax when you sell your home.

Renting a room

From 6 April 2016, you can let out a room or rooms in your house as furnished accommodation (not an office) and as long as the annual rents received do not exceed £7,500 per year (prior to 6 April 2016 the annual limit was £4,250) you will have no Income Tax to pay. If the rent is more than the limit, then only the excess is taxable. The “normal” basis (rents less allowable costs) can be claimed if this produces a better result.

If two persons are entitled to share the rental income, the above annual tax-free limits are halved.

Longer term lets when you are not in residence

If you let out your home, for example if you work abroad for a period of time, you will be subject to Income Tax on your rental profits.

When you subsequently sell your home there may also be Capital Gains Tax considerations. When you sell, a proportion of any gain that relates to the period (or periods) of letting may be taxable. 

However, provided the property was your home at some time, you can claim reliefs, including principal private residence relief for the time it was your main residence, plus the last 18 months of ownership. Also, there may be some “lettings relief” relating to periods your home was let as above.

Homeowners’ private residence relief (for CGT purposes) is worth protecting. If you are considering any financial transaction concerning your home that you are concerned may have Income Tax of CGT implications, please call. It is better to sound out professional advice before the event…   

1 October 2016 – Due date for Corporation Tax due for the year ended 31 December 2015.

19 October 2016 – PAYE and NIC deductions due for month ended 5 October 2016. (If you pay your tax electronically the due date is 22 October 2016.)

19 October 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 October 2016.

19 October 2016 – CIS tax deducted for the month ended 5 October 2016 is payable by today.

31 October 2016 – Latest date you can file a paper version of your 2016 Self Assessment tax return.

1 November 2016 – Due date for Corporation Tax due for the year ended 31 January 2016.

19 November 2016 – PAYE and NIC deductions due for month ended 5 November 2016. (If you pay your tax electronically the due date is 22 November 2016.)

19 November 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2016.

19 November 2016 – CIS tax deducted for the month ended 5 November 2016 is payable by today.

Any buy to let landlord that presently claims a tax deduction for mortgage interest is likely to be adversely affected by changes in the tax rules from April 2017.

In previous blogs we have pointed out that from April 2017, finance charges (including mortgage interest) will gradually be disallowed as a deduction when computing a buy to let landlords tax bill. From 2020-21, all finance charges will be disallowed, and in their place, landlords will be able to claim a reduction in their tax due based on 20% of the finance costs disallowed.

This is a radical shift in the tax position of buy to let landlords especially those who are highly geared – they have borrowed heavily to expand their rental property portfolio.

Higher rate taxpayers will be denied full tax relief on their mortgage interest payments (they will be restricted to a basic rate deduction), and some landlords may find themselves paying tax at higher rates even though there may be no increase in their overall profitability.

What to do?

Initially, landlords should take advice to quantify the impact of these changes on their annual tax bills leading up to 2020-21.

Next, they should consider the effectiveness of incorporating their property business. Companies are not affected by these tax changes.

Not all buy to let landlords will benefit from incorporation. For some, the conversion and ongoing costs of incorporation will be more than any savings of additional income tax payable.

The change, from sole trader or partnership to a limited company, is not a process for the faint-hearted. It is something that must be planned carefully to avoid possible stamp duty and capital gains tax on-costs. Please contact us if you would like to consider the possible benefits of incorporation for your portfolio. The clock is ticking.

Lending money to your company

If you lend money to your company, the tax effects are as follows:

·         Your company will not pay corporation tax on the money you lend it.

·         If your company pays you interest on the loan, it will need to deduct income tax at 20% from the interest it pays you, and remit the tax deducted on a quarterly basis to HMRC. You will need to declare the interest received on your tax return. Your company can deduct the gross interest paid as a business expense.

Borrowing money from your company

If you borrow money from your company, the tax consequences are more complex. The following notes copied from HMRC’s website cover the basics, but if you are considering this course of action you should seek professional advice before withdrawing funds.

If the loan was more than £10,000

If you’re a shareholder and director and you owe your company more than £10,000 at any time in the year, your company must:

• treat the loan as a ‘benefit in kind’
• deduct Class 1 National Insurance

You must report the loan on your personal Self-Assessment tax return. You may have to pay tax on the loan at the official rate of interest.

If you paid interest below the official rate

If you’re a shareholder and director, your company must:

• record interest you pay below the official rate as company income
• treat the discounted interest as a ‘benefit in kind’

You must report the interest on your personal Self-Assessment tax return. You may have to pay tax on the difference between the official rate and the rate you paid.

Corporation Tax

If your overdrawn loan account has not been repaid nine months and one day after the end of your accounting period, your company will have an additional corporation tax bill to pay.

When the loan is subsequently cleared, your company can reclaim the additional Corporation Tax it has paid. You can’t reclaim any interest paid on the Corporation Tax.

It is not difficult to gauge the focus of our tax collectors. Since the Brexit vote, 23 June 2016, and the change in government leadership, HMRC have published a number of consultation documents, all issued during August 2016. Prior to the Brexit vote, there were a smattering of consultations, but none issued after 23 May 2016.

The focus of the August postings are telling:

·         5 deal with tightening sanctions against tax avoidance and evasion.

·         7 deal with “Making tax digital”

The balance deal with a number of miscellaneous items.

It would seem that the new cabinet, and Philip Hammond in particular, may be considering new powers to tackle the so-called “black economy” and businesses that take advantage of offshore tax shelters to avoid UK taxes.

However HMRC promotes the “Making tax digital” agenda, primarily by arguing that simplifying tax management for taxpayers will ease compliance etc., if small and medium sized businesses are required to file information on a more regular basis, this will provide HMRC with a raft of new data that they will no doubt use to identify tax avoiders.

The recent publicity regarding the use of tax havens by large corporations to shift profits into low tax jurisdictions highlights efforts by the international community to tackle this problem. In particular, the efforts of the OECD to establish country-by-country reporting standards.

Encouraging the estimated 10% of economic activity in the UK that is presently under-declared, and therefore under-taxed, into the light of compliance is another matter. And one that will no doubt be of concern to the Treasury under Philip Hammond’s leadership.

All of those interested in the impact of tax on UK business will be waiting to see how these consultations by HMRC convert into new legislation. Perhaps the autumn statement, due to be released 23 November, will clarify the thrust of tax assessment and collection post Brexit…

Legal responsibilities

We are often asked to clarify the responsibilities that directors take on when they agree to become directors of limited companies. A summary of directors’ duties published on the GOV.UK website are reproduced below.

As a director of a limited company, you must:

• try to make the company a success, using your skills, experience and judgment
• follow the company’s rules, shown in its articles of association
• make decisions for the benefit of the company, not yourself
• tell other shareholders if you might personally benefit from a transaction the company makes
• keep company records and report changes to Companies House and HM Revenue and Customs (HMRC)
• make sure the company’s accounts are a ‘true and fair view’ of the business’ finances
• file your accounts with Companies House and your Company Tax Return with HMRC
• pay Corporation Tax
• register yourself for Self-Assessment and send a personal Self-Assessment tax return every year – unless it’s a non-profit organisation (e.g. a charity) and you didn’t get any pay or benefits, like a company car

You can hire other people to manage some of these things day-to-day (e.g. an accountant) but you’re still legally responsible for your company’s records, accounts and performance.

Another issue that is frequently asked is what information about the company should be displayed on business signs and stationery. From the same source these are:

Signs

You must display a sign showing your company name at your registered company address and wherever your business operates. If you’re running your business from home, you don’t need to display a sign there. For example, if you are running 3 shops and an office that’s not at your home, you must display a sign at each of them.

The sign must be easy to read and to see at any time, not just when you’re open.

Stationery and promotional material

You must include your company’s name on all company documents, publicity and letters.

On business letters, order forms and websites, you must show:

• the company’s registered number
• its registered office address
• where the company is registered (England and Wales, Scotland or Northern Ireland)
• the fact that it’s a limited company (usually by spelling out the company’s full name including ‘Limited’ or ‘Ltd’)

If you want to include directors’ names, you must list all of them.

If you want to show your company’s share capital (how much the shares were worth when you issued them), you must say how much is ‘paid up’ (owned by shareholders).