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brighton accountants

Landlord’s Update

There have been a number of important changes over the past few years not all of which are appreciated by busy landlords. We believe that it would be time well spent to have a review of your current knowledge of the rules and the past and proposed changes. Please contact us if you would like an appointment to discuss.

The main changes:

~ Proposed changes to Principal Private Residence Exemptions and Lettings Relief (expected March 2020)

HMRC have proposed a reduction of the PPR exemption for the final period of ownership from 18 months to 9 months and the restriction of relief for letting to circumstances where the owner of the property is in shared occupancy with the tenant.

The proposal may increase tax due by shortening the ‘exempt from tax’ period for proportioning of gains and by the removal of the ‘lettings exemption’ which can be up to £40,000.

If you are considering selling such a property in the near future, please contact us to discuss. A recent case showed that a client could save up to £14,000 in Capital Gains Tax by selling a property before the changes ‘proposed’ after March 2020.

~ Rates of Capital Gains Tax on sale of residential property

Whilst capital gains tax rates in general were reduced in 2016/17 to 10% / 20%, the tax rates for residential properties remain at 18% / 28%.

~ Notification to HMRC of sale of property (proposed from 6th April 2020)

Capital gains tax (CGT) is normally accounted for and paid as part of the annual self-assessment cycle. From April 2020, a payment on account of CGT will need to be made when a residential property is sold or otherwise disposed of (e.g. by giving it away). The payment will be credited against the person’s income tax and capital gains tax liability for the tax year. Payment will be due within 30 days of the completion of the disposal.  A special payment on account return confirming the disposal and the amount payable will also need to be sent to HMRC at the same time.

~ Changes in tax relief for mortgage interest (being phased in from 2017/18)

Landlords paying higher rate income tax are no longer able to deduct all of their mortgage interest/finance costs from their rental profits. Instead, they receive a basic rate tax reduction. The restriction is being phased in as follows:

2017/18 75% allowed against rental profits, 25% available as a basic rate tax reduction

2018/19 50% allowed against rental profits, 50% available as a basic rate tax reduction

2019/20 25% allowed against rental profits, 75% available as a basic rate tax reduction

2020/21 0% allowed against rental profits, 100% available as a basic rate tax reduction

~ Repairs and replacements deductions (introduced 6th April 2016)

HMRC removed the ‘wear and tear’ allowance at the end of 15/16.

See the links below for what you can now claim for:

Expenses you can claim for replacement of domestic items

Typical maintenance and repair costs

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brighton accountants

Payroll Update

Directors’ Payroll 2019/20

If you are a director of your own company and prepare your own wages please contact us to discuss the most efficient salary to declare from 06/04/19 to suit your own circumstances.

If we prepare your payroll, you will have recently had an email from us with details for 2019/20.

National Minimum Wage will increase as follows:

based on 35 hour week
Age hourly rate amount per week amount per year
25+ £8.21 £287.35 £14,942.20
21 – 24 £7.70 £269.50 £14,014.00
18 – 20 £6.15 £215.25 £11,193.00
16 – 18 £4.35 £152.25 £7,917.00
apprentice £3.90 £136.50 £7,098.00

Auto enrolment pension contributions from 06/04/19 will increase to:

5% for the employee

3% for the employer

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making tax digital

Personal Tax Account & your State Pension Entitlement

HMRC moved the collection of Class 2 National Insurance to the Self Assessment system (via the tax return) in 2015/16.

The yearly Class 2 contributions are as follows:

2018/19 £153.40

2019/20 £156.00

These can be paid voluntarily if your profits are below the contribution threshold (2018/19 £6,205 & 2019/20 £6,365). However, if you do not pay your tax bill by the Self Assessment deadline (31st January), you will need to ring up the National Insurance helpline (0300 200 3500) and pay the amount to them directly.

You can check your contributions to your State Pension by:

~ Setting up/logging into your Personal Tax Account via the link below

Check State Pension

Or;

~ Contacting the Future Pension Centre on 0800 731 0175

Future Pension Centre details

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brighton accountants

Making Tax Digital for VAT (MTDfV)

MTDfV starts on 1st April for VAT registered businesses with turnover over £85,000 in any 12 month period.

If this affects you, you will need to file your VAT returns via third party software and your records must be kept digitally. The first returns affected by this are:

Mar, Jun, Sep & Dec – quarter ended 30th June 2019

Apr, Jul, Oct & Jan – quarter ended 31st July 2019

May, Aug, Nov & Feb – quarter ended 31st August 2019

You will need to sign up for MTDfV via Gov.UK. The old Government Gateway will be closed.

If you currently use accounting software you will need to check that it is compatible with MTDfV and possibly upgrade to the latest version.

If you do not currently use software (i.e. you use Excel or a manual cashbook), please speak to us to discuss your best way forward. There are a number of products out there that will do the job – we recommend Xero – a cloud based package that can incorporate an automatic bank feed (so that all your bank transactions are automatically brought into the software). You can also use it to create invoices and run customer and supplier ledgers.

If you’d like to try it out, please speak to Henry or David.

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brighton accountants

Brexit Update

It is uncertain whether a trade deal can be agreed with the EU before 29th March so the government has taken steps to prepare for a ‘no-deal’ situation and as part of this HMRC have issued guidance for those businesses who trade in goods with the EU.

These businesses will need to

~ Register for an EORI number, see link below

Get a UK EORI number to trade within the EU

This is required to enable imports and exports of goods to and from the EU after 29/03/19.

~ Decide if they want to hire an agent to make import/export declarations for them or if they want to do these themselves via suitable software.

~ Contact their transport company to find out if they need to provide additional information on safety and security declarations.

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Budget 2018

Below are the most pertinent posts announced by the Chancellor in his Budget speech yesterday:-

Off-Payroll Working Rules in the Private Sector (“IR35”)

As expected, the chancellor has gone forward with the extension of the off-payroll working rules (IR35) to the private sector with effect from April 2020.

The IR35 rules are as follows:

  • Businesses will be responsible for assessing an individual’s employment status.
  • The reform will not apply to the smallest 1.5 million businesses, and the large and medium businesses to which it will apply will be given longer to adjust, with the changes being introduced in April 2020.
  • From 6 April 2020, medium and large businesses will need to decide whether the IR35 rules apply to an engagement with individuals who work through their own company.
  • Where it is determined that the rules do apply, the business, agency or third party that pays the individual’s company will need to deduct income tax and employee NICs and pay employer NICs.
  • HMRC will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35 for the first time following the reform, and businesses’ decisions about whether their workers fall within the IR35 rules will not automatically trigger an enquiry into earlier years.
  • HMRC continues to work with stakeholders to identify improvements to checking employment status for tax and issuing wider guidance to ensure the reform meets the needs of the private sector. Enhancements will be tested with stakeholders, operational and legal experts before implementation.
  • A further consultation on the detailed operation of the reform will be published in the coming months, and will inform the draft Finance Bill legislation that is expected to be published in summer 2019.

CGT letting relief and final period exemption 

When someone sells their main residence, and it has been rented out at some time, there have been two reliefs available to reduce the capital gains tax payable – Lettings Relief (worth up to £ 40,000 of the gain being exempt from tax) and Private Residence Relief [PRR] (proportion of the time you lived there plus the last 18 months being exempt from tax).

From April 2020 the government will reform Lettings Relief so that it only applies in circumstances where the owner of the property is in shared occupancy with the tenant. The final period exemption [PRR] will also be reduced from 18 months to 9 months.

Entrepreneurs’ Relief

This relief is available when someone sells or disposes of all or part of their ‘trading’ business, resulting in a capital gains tax rate of 10% (rather than a mixture of the 10% and the higher 20% tax rate)

Up until now, one of the criteria to qualify for this 10% rate has been that one must have owned the asset for at least one year.

Legislation will be introduced in Finance Bill 2018/19 for disposals made on or after 6 April 2019, to increase this minimum period throughout which certain conditions must be met to be eligible for Entrepreneurs Relief from one year to two years.

Dividend allowance

The tax-free dividend allowance is unchanged at £2,000.

 

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making tax digital

Making Tax Digital (MTD)

HMRC are making the move to get all businesses to file their accounts via third party software on a quarterly basis.

The first businesses affected by this are VAT registered businesses with turnover over the VAT registration threshold. They will need to file quarterly VAT returns via third party software from April 2019. The business books and records must be kept digitally.

The old government gateway will be closed to businesses that fall within the above so you may need to change how you file your VAT returns. If you use accounting software you will need to check that it is compatible with MTD and possibly upgrade to the latest version.

If you do not currently use software (i.e. you use Excel or a manual cashbook), please speak to us to discuss your best way forward. There are a number of products out there that will do the job – we recommend Xero – a cloud based package that can incorporate an automatic bank feed (so that all your bank transactions are automatically brought into the software). You can also use it to create invoices and run customer and supplier ledgers. If you’d like to try it out, please speak to Henry or David.

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Rent-a-room relief

With effect from 6 April 2016, the rent-a-room relief (the gross income you receive when renting out a room in your own house which is free of tax) rises from £4250 to £7500.

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brighton accountants

New dividend tax

It’s not uncommon for directors/shareholders of small companies to pay themselves from their companies via a mixture of salary and dividends.

Up until now, if your total personal taxable income for the current tax year comprises of only monies taken from your company, then you could take £671 per month as salary, plus up to £30900 as net dividends, and pay no personal tax.

However, from 6 April 2016, this all changes.

From 2016/17, if you take the above amounts, the salary remains tax-free, but the dividends will be taxed differently.

Using the £30900 dividend as an example, the new rules state that of the £30900 dividends, the first £5000 will be tax-free, but the remainder, less any unused personal allowance,  will be taxed at 7.5%, meaning additional personal tax of about £1700.

For those who take dividends so that they go into higher rate tax, there will be the 7.5% tax charge up to basic rate limit, plus a further 32.5% on the excess that is in the higher rate tax threshold (rises to 38.1% for additional rate tax payers).

Not all is bad news – the company tax rate will be reduced from 20%, to 19% with effect from 1 April 2017, and to 18% from 1 April 2020.

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brighton accountants

Buy to Let Landlords

Landlords paying higher rate income tax will no longer be able to deduct all of their mortgage interest/finance costs from their rental profits. Instead, they will effectively receive a basic rate reduction. This restriction will be phased in over four years starting from April 2017.

In addition to the above, the 10% ‘wear and tear allowance’ will be reformed and replaced with a new relief that allows residential landlords to deduct the actual costs of replacing furnishings.

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