4b1b1e71 2902 42d8 989f b8d3b65dc7bd 800x380 - Revoking VAT option to tax land and buildings

Revoking VAT option to tax land and buildings

There are special VAT rules that allow businesses to standard rate the supply of most non-residential and commercial land and buildings (known as the option to tax). This means that subsequent supplies by the person making the option to tax will be subject to VAT at the standard rate.

The ability to convert the treatment of VAT exempt land and buildings to taxable can have many benefits. The main benefit is that the person making the option to tax will be able to recover VAT on costs (subject to the usual rules) associated with the property including the purchase and refurbishment of the property.

However, any subsequent sale or rental of the property will attract VAT. Where the purchaser or tenant is able recover the VAT charged this is not normally an issue. However, where the purchaser / tenant is not VAT registered or not fully taxable (such as bank) the VAT can become an additional (non-recoverable) cost.

Once an option to tax has been made it can only be revoked under limited circumstances so proper consideration of the issue is important. This includes:

  • within a specified 'cooling off' period in the first 6 months,
  • an automatic revocation where no interest has been held for more than 6 years, and
  • after 20 years has elapsed.
Source: HM Revenue & Customs Tue, 08 Mar 2022 00:00:00 +0100
e30ca542 508b 448f afa9 67a2c564ff69 800x380 - Definition of VAT partial exemption

Definition of VAT partial exemption

A business that incurs expenditure on taxable and exempt business activities is partially exempt for VAT purposes. This means that the business is required to make an apportionment between the activities using a 'partial exemption method' in order to calculate how much input tax is recoverable.

HMRC’s guidance explains that as a VAT-registered business, you can recover the VAT on your purchases which relate to taxable supplies that you make or intend to make. There are some items where input tax recovery is ‘blocked’. Supplies that are made outside the UK that would be taxable if in the UK and certain exempt supplies to non-UK customers also give the right to recover VAT, but there are special rules. In principle, you cannot recover VAT that relates to any exempt supplies, although you may be able to if the VAT is below certain limits.

There are a number of partial exemption methods available. The standard method of recovering any remaining input tax is to apply the ratio of the value of taxable supplies to total supplies, subject to the exclusion of certain items which could prove distortive. The standard method is automatically overridden where it produces a result that differs substantially from one based on the actual use of inputs. It is possible to agree a special method with HMRC. The VAT incurred on exempt supplies can be recovered subject to two parallel de-minimis limits.

Source: HM Revenue & Customs Tue, 08 Mar 2022 00:00:00 +0100
c25e1948 db7d 4896 b88c a843b9138792 800x380 - Limits to loss relief claims against income or capital gains

Limits to loss relief claims against income or capital gains

There are a number of tax reliefs available for self-employed taxpayers that make a trading loss. This includes a partners' share of partnership trading losses.

There may also be restrictions if the claimant:

  • worked for less than 10 hours a week on average on commercial activities of the trade
  • is a limited partner or a member of a limited liability partnership
  • has a trade which is carried on wholly overseas
  • has claimed certain capital allowances,
  • has income from oil extraction activities or oil rights

There is also an overall cap on certain income tax reliefs. The cap is set at 25% of income or £50,000, whichever is the greater. There is a separate type of loss relief available for those operating under the cash basis. No loss relief is available if the trade is not run commercially and for profit, for example if a trade is run as a hobby.

Source: HM Revenue & Customs Tue, 08 Mar 2022 00:00:00 +0100
431047ca c7fa 4ea4 9df8 eb931b1b42c0 800x380 - Transferring assets during separation and divorce

Transferring assets during separation and divorce

When a couple separate or divorce it is unlikely that they are thinking about any tax implications. However, apart from the emotional stress, there are also tax issues that can have significant implications.

For example, when a couple are together there is no Capital Gains Tax (CGT) payable on assets gifted or sold to a spouse or civil partner. However, if a couple separate and do not live together for an entire tax year or get divorced, then CGT may be payable on assets transferred between the ex-partners.

This effectively means that the optimum time for a couple to separate would be at the start of the tax year so that they would have up to a year to plan how to transfer their assets tax efficiently. Obviously, in the real world most couples will have far more on their minds than deciding to get separated on a certain day, but these issues should be considered.

It is also important to make a financial agreement that is agreeable to both parties. If no agreement can be reached, then going to court to make a 'financial order' will usually be required. The couple and their advisers should also give proper thought to what will happen to the family home, any family businesses as well as Inheritance Tax implications.

Source: HM Revenue & Customs Tue, 08 Mar 2022 00:00:00 +0100
265cf9bf e44f 4f17 9883 750a7ec85057 800x380 - SDLT concerns transferring a property to a company

SDLT concerns transferring a property to a company

Stamp Duty Land Tax (SDLT) is a tax that is generally payable on the purchase or transfer of land and property in England, and Northern Ireland. Wales and Scotland set their own Stamp Duty taxes. It is also payable in respect of certain lease premiums. You may also need to pay SDLT when all or part of an interest in land or property is transferred to you and you give anything of monetary value in exchange.

There are important issues to be aware of if you transfer land or property to a company. HMRC’s guidance on the subject states as follows:

When property is transferred to a company, SDLT may be payable on its market value, not the consideration given. For example, if a property has a market value of £200,000 but the company only pays a consideration of £100,000, SDLT will still be payable on £200,000.

This applies in either of the following situations, the:

  • person who transfers the property is ‘connected’ with the company – the definition of a connected person covers relatives and people who have some involvement with the company,
  • company pays for the property with shares in the company (partly or wholly) to the person making the transfer, where that person is connected to the company (but not necessarily the acquiring company).

Holding properties within a limited company can have many advantages such as lower Corporation Tax rates and tax relief on interest payments. However, it is important to be aware of issues that can arise including the payment of SDLT or regional equivalents.

If you are considering transferring property to a company, please take professional advice before completing the transaction.

Source: HM Revenue & Customs Tue, 08 Mar 2022 00:00:00 +0100
ab1b3151 6851 42c7 ae46 f7e84644d5cc 800x380 - Increase in National Insurance from April 2022

Increase in National Insurance from April 2022

We would like to remind our readers that the increases in National Insurance Contributions (NIC) of 1.25% – first announced last year – will take effect from April 2022. These increases will be ring-fenced to provide funding for the NHS, health and social care.

The increases will apply to:

  • Class 1 contributions (paid by employees) above the primary and secondary thresholds. This is the NIC that is deducted from your earnings by your employer.
  • Secondary Class 1 (paid by employers). Employer's NIC contributions are paid as part of the regular PAYE/NIC payments unless they are covered by the present £4,000 employment allowance.  
  • Class 4 (paid by self-employed). These contributions are added to your annual Self-Assessment statement.

Employers should ensure that they are prepared for the increase as these changes will increase wage costs from April 2022.

All existing NICs reliefs to support employers will continue to apply. In addition to the employment allowance, this includes the following:

  • employees under the age of 21
  • apprentices under the age of 25
  • qualifying Freeport employees
  • armed forces veterans

From April 2023, these increases will be incorporated into a new Levy. The Levy will be administered by HMRC and collected by the current channels for NICs – Pay As You Earn and Income Tax Self-Assessment.

Please note, at the time this article was written there has been significant political pressure in parliament to cancel this increase. We will advise if this challenge results in the withdrawal of the 1.25% increase.

Source: HM Revenue & Customs Tue, 08 Mar 2022 00:00:00 +0100
da596022 ffd1 4abb 9267 55400dd9833d 800x380 - Examples when settlement legislation does not apply

Examples when settlement legislation does not apply

The settlement legislation seeks to ensure that where a settlor has retained an interest in property in a settlement that the income arising is treated as the settlor’s income for tax purposes. A settlor can be said to have retained an interest if the property or income may be applied for the benefit of the settlor, a spouse or civil partner. In general, the settlements legislation can apply where an individual enters into an arrangement to divert income to someone else and in the process, tax is saved. 

However, in most everyday situations involving gifts, dividends, shares, partnerships, etc. the settlements legislation will not apply. For example, if there is no “bounty” or if the gift to a spouse or civil partner is an outright gift which is not wholly, or substantially, a right to income.

HMRC’s manuals provide the following two indicative examples of when the settlement legislation does not apply:

Outright gift to a spouse
Mrs L owns 10,000 ordinary shares in a FTSE 100 company. Those shares are worth £40,000. Mrs L gives those shares to her husband. Mr L is now entitled to all the dividends from the shares and can sell the shares if he wants and keep the proceeds. This is an outright gift of shares that are not wholly, or substantially, a right to income since they have a capital value and can be traded, so the settlements legislation does not apply.

Subscribed shares
Mr M is the sole director and owns all the 100 ordinary shares in M Limited, a small manufacturing company. The company employs 10 people and owns a small factory, a high street shop, tools fixtures and fittings, and three delivery vehicles. Mr M draws a salary of £30,000 each year and receives dividends of £20,000. Mr M then gifts 50 shares to his wife who plays no part in the business. Mr and Mrs M then each receive dividends of £10,000.

HMRC would not seek to apply the settlements legislation to the dividends received by Mrs M. This is because the outright gift of the shares cannot be regarded as wholly or substantially a right to income. The shares have capital rights, and the company has substantial assets so on the winding up or sale of the business the shares would have more than an insubstantial value.

Source: HM Revenue & Customs Tue, 01 Mar 2022 00:00:00 +0100
8ff1fcc8 c967 4217 b56a 913d0b8e238c 800x380 - What is plant and machinery?

What is plant and machinery?

Capital allowances are the deductions which allow businesses to secure tax relief for certain capital expenditure. HM Treasury has published a factsheet on the super-deduction offering companies a 130% first-year tax relief from 1 April 2021 until 31 March 2023. The factsheet also covers the enhanced first year allowance of 50% on qualifying special rate assets has also been introduced for expenditure within the same period. This includes most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances. Both these reliefs are only available to companies.

The factsheet includes a helpful definition of plant and machinery that confirms:

Most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances.

There is no exhaustive list of plant and machinery assets. The kinds of assets which may qualify for either the super-deduction or the 50% FYA include, but are not limited to:

  • Solar panels
  • Computer equipment and servers
  • Tractors, lorries, vans
  • Ladders, drills, cranes
  • Office chairs and desks
  • Electric vehicle charge points
  • Refrigeration units
  • Compressors
  • Foundry equipment.
Source: HM Treasury Tue, 01 Mar 2022 00:00:00 +0100
61e185ca cdc0 48c1 957b 4d555727c283 800x380 - Range of supplies affected by VAT reverse charge

Range of supplies affected by VAT reverse charge

The VAT domestic reverse charge accounting mechanism was put in place to help prevent criminal attacks on the UK VAT system by means of sophisticated fraud.

The domestic reverse charge procedure applies to the supply and purchase of the certain specified goods and services.

The specified goods that the reverse charge applies to are:

  • mobile phones 
  • computer chips 
  • wholesale gas 
  • wholesale electricity 

The specified services are:

  • emission allowances 
  • wholesale telecommunications 
  • renewable energy certificates 
  • construction services 

Under the domestic reverse charge rules, it is the responsibility of the customer, rather than the supplier, to account to HMRC for VAT on supplies of the specified goods or services. It should be noted that there are exceptions within each category, and it is important to check carefully if the domestic reverse charge is required on a transaction or not. 

The domestic reverse charge should not be confused with reverse charge for cross-border services which applies to certain services from abroad. 

Source: HM Revenue & Customs Tue, 01 Mar 2022 00:00:00 +0100
eb738741 78dc 4ff3 8457 6568c5980e2e 800x380 - End of SSP Rebate Scheme

End of SSP Rebate Scheme

The Coronavirus Statutory Sick Pay Rebate Scheme has allowed small and medium-sized businesses and employers reclaim Statutory Sick Pay (SSP) paid for sickness absence due to COVID-19. The online service initially closed for new claims after 30 September 2021.

However, following the Omicron wave, the online claims service was brought back in mid-January with firms becoming eligible to make backdated claims under the scheme from 21 December 2021.

The scheme covers up to 2 weeks’ SSP per eligible employee who has been off work because of COVID-19. Employers are eligible for the scheme if their business is UK based, small or medium-sized and employs fewer than 250 employees. Under the scheme, the Government will cover the cost of SSP for Covid-related absences.

In line with the government’s measures to move to a new phase of 'living with COVID', the scheme will close for coronavirus related absences after 17 March 2022. Employers will have up to and including 24 March 2022 to submit any final claims and / or amend claims they’ve already submitted.

Employers should maintain records of staff absences and payments of SSP for 3 years after the date they receive the payment for a claim. Note, employees do not need to provide a GP fit note in order for an employer to make a claim.

Source: HM Revenue & Customs Tue, 01 Mar 2022 00:00:00 +0100