444e01f7 612c 4c86 8623 706a922bc509 800x380 - Property not let at commercial rates

Property not let at commercial rates

There are special rules that apply when a property is let at less than a commercial rate or is not let on commercial terms. These rules also apply if a property is occupied rent free or at less than a commercial rate, for example, a property is occupied by a family member at a reduced or nil rent.

In these circumstances, HMRC can take the view that unless the landlord charges a full market rent for a property and imposes normal market lease conditions, it is unlikely that the expenses of the property are incurred ‘wholly and exclusively’ for business purposes.  Problems may also arise when considering the deduction of expenses during periods when the property is lived in by ‘house sitters’ who do not make any payment whilst staying at the property.

HMRC generally accepts that if a property is let at below the market rate (as opposed to providing it rent-free), the landlord can deduct the expenses of that property up to the rent they receive from letting the property. This means that the affected property produces neither a profit nor a loss. Any excess expenses cannot be carried forward to be used in a later year.

If the landlord is actively seeking a tenant and a relative house sits while it is empty, relief will not be restricted as long as the property remains genuinely available for letting. Relief for capital expenditure on uncommercial lettings may also be restricted.

Source: HM Revenue & Customs Wed, 26 Aug 2020 05:00:00 +0100
229511e1 7e07 405c 814d f8efe42a8e30 800x380 - Implementation of the loan charge

Implementation of the loan charge

HMRC has published further guidance on the implementation of the loan charge and has made clear there will be no special settlement terms.

This follows an independent review earlier this year into whether the loan charge was an appropriate way of dealing with loans schemes (also known as disguised remuneration tax avoidance schemes) that have been used by some employers and individuals in order to try and avoid paying Income Tax and National Insurance Contributions (NICs).

The government agreed a series of changes to the loan charge following the review. The amendments went before Parliament in July 2020 and became law following Royal Assent. One of the main changes following the review was confirmation that the loan charge would not apply to users of disguised remuneration avoidance schemes between 6 April 1999 and 5 April 2016 who settled the tax due with HMRC on or after 16 March 2016 and before 11 March 2020.

Most people who have used disguised remuneration schemes will fall into one of 5 main groups, depending on their circumstances.

This will determine what they need to do next, although taxpayers with more complex affairs may fall into several different categories. These groups are:

  1. Taxpayers who have settled with HMRC and are not due a refund
  2. Taxpayers still settling with HMRC
  3. Taxpayers who have not settled and will pay the loan charge
  4. Taxpayers who have settled and are due a refund or waiver following the independent review
  5. Taxpayers who no longer have to pay some, or all, of the loan charge but have not settled all of their use of DR schemes

Taxpayers that have outstanding disguised remuneration loans that are subject to the loan charge need to file their 2018-19 Self Assessment tax return by 30 September 2020, including a report of any loan balances subject to the loan charge, and put in place any arrangements they need to pay the charge due on that date. Taxpayers can now elect to spread the loan balance over 3 tax years.

Source: HM Revenue & Customs Wed, 19 Aug 2020 05:00:00 +0100
5dec6f25 cfb6 48a6 8dfc dd9776847286 800x380 - New measures to tackle promotion of tax avoidance

New measures to tackle promotion of tax avoidance

HMRC has published a series of a consultations together with details of proposed legislative changes to existing anti-avoidance regimes to strengthen HMRC’s ability to further clamp down on the market for tax avoidance.

The proposals include:

  • ensuring HMRC can effectively issue stop notices to promoters, under the Promoters of Tax Avoidance Scheme (POTAS) rules, to make it harder to promote schemes that do not work
  • preventing promoters from abusing corporate entity structures to avoid their obligations under the POTAS rules
  • ensuring HMRC can obtain information about the enabling of abusive schemes (for the purposes of the Enablers Penalty Regime) as soon as they are identified and ensuring enabler penalties are felt without delay when a scheme has been defeated at tribunal
  • ensuring that HMRC can act quickly and decisively where promoters fail to provide information on their avoidance schemes under the Disclosure of Tax Avoidance Schemes (DOTAS).
  • making further technical amendments to the POTAS regime so that it continues to operate effectively and to ensure that the General Anti Abuse Rule (GAAR) can be used to counteract partnerships as intended.

The consultation is open for comment until 15 September 2020. The new measures are expected to be included in the Finance Bill 2020-21.

Source: HM Revenue & Customs Tue, 28 Jul 2020 05:00:00 +0100
12a4467c 26dc 4c19 8b3f 40bf856f2ada 800x380 - HMRC to gain new civil information powers

HMRC to gain new civil information powers

A new measure that will provide HMRC with additional civil information powers is expected to take effect when the Finance Bill 2020-21 receives Royal Assent. The new measure known as a Financial Institution Notice (FIN) will be used to require financial institutions to provide information to HMRC, when requested, about a specific taxpayer and without the need for approval from the independent tribunal that considers tax matters.

Currently it takes HMRC on average 12 months to respond to requests for third party financial information from other tax authorities when an information notice is needed, whereas the target under international standards is six months. The introduction of the new FIN will remove the current requirement for HMRC to obtain approval from the tax tribunal before obtaining information from financial institutions and therefore bring the UK into line with international standards on tax transparency and on the quality and speed of exchange of tax information.

The FIN will be balanced by a number of taxpayer safeguards, including:

  • the information sought will have to be reasonably required for the purpose of checking a known taxpayer’s tax position. For international requests, the information in the FIN will need to be relevant to the administration or collection of tax and the jurisdiction requesting the information would need to have exhausted all reasonable domestic ways to get the information;
  • documents subject to legal professional privilege cannot be requested;
  • HMRC will be required to tell the taxpayer why the information is needed, unless a tax tribunal rules this condition should not apply;
  • an authorised officer of HMRC (someone with the relevant experience and training) will need to approve the decision to issue a FIN;
  • if a Financial Institution does not comply with a FIN, and as a result HMRC charges penalties, the Financial Institution will be able to appeal against the penalties

In addition, HMRC is required to report to Parliament annually on the use of the FIN.

Source: HM Revenue & Customs Tue, 28 Jul 2020 05:00:00 +0100
fc5e8cdf 841c 42cd 88ee b74d5f6a66ed 800x380 - Making Tax Digital next steps

Making Tax Digital next steps

HM Treasury has confirmed the extension of Making Tax Digital (MTD) to cover businesses with a turnover below the VAT threshold and for certain individuals who file Income Tax Self-Assessment tax returns. This announcement provides much-needed clarity of the way forward for this scheme.

MTD started in April 2019 (for VAT purposes only) when businesses with a turnover above the VAT threshold of £85,000 became mandated to keep their records digitally and provide their VAT return information to HMRC using MTD compatible software. Since the launch more than 1.4 million businesses have joined the programme.

The first part of the further roll-out of MTD will start April 2022, when MTD will be extended to all VAT registered businesses with turnover below the VAT threshold of £85,000. This will be followed one year later (April 2023) when MTD will be extended to taxpayers who file Income Tax Self-Assessment tax returns for business or property income over £10,000 annually.

HMRC has said that the long lead-in time will allow businesses, landlords and agents time to plan. It also gives software providers enough notice to bring a range of new products to market, including free software for businesses with the simplest tax affairs.

Financial secretary to the Treasury Jesse Norman said:

'We are setting out our next steps on Making Tax Digital today, as we bring the UK’s tax system into the 21st century. Making Tax Digital will make it easier for businesses to keep on top of their tax affairs. But it also has huge potential to improve the productivity of our economy, and its resilience in times of crisis.'

The government has also confirmed that it remains committed to extending MTD to other taxes. The government will also consult later this year on the detail of extending MTD to incorporated businesses with Corporate Tax obligations.

Source: HM Treasury Wed, 22 Jul 2020 05:00:00 +0100
2017 07 13 776914 800x380 - Furnished holiday lettings

Furnished holiday lettings

The furnished holiday let (FHL) rules allow holiday lettings of properties that meet certain conditions to be treated as a trade for some specific tax purposes. Individuals, partnerships, trustees and companies who let furnished holiday accommodation situated within the UK or elsewhere in the EEA can benefit from having a FHL. HMRC’s guidance on the scheme has recently been updated.

Landlords of furnished holiday lettings are not affected by the new rules, introduced this tax year, that are gradually restricting tax relief on mortgage costs for residential properties to the basic rate of tax. This increases the tax benefits of the FHL scheme, however careful consideration must be given to help decide whether a furnished holiday let is a good investment.

In order to qualify as a furnished holiday lettings, the following criteria need to be met:

  • The property must be let on a commercial basis with a view to the realisation of profits. Second homes or properties that are only let occasionally or to family and friends do not qualify.
  • The property must be located in the UK, or in a country within the EEA.
  • The property must be available for commercial letting at commercial rates for at least 30 weeks (210 days) per year.
  • The property must be let for at least 15 weeks (105 days) per year and home owners should be able to demonstrate the income from these lettings.
  • The property must not be used for more than 155 days for longer term occupation (i.e. a continuous period of more than 31 days).

Planning note: Where there are a number of furnished holiday letting properties in a business, it is possible to average the days of lettings for the purposes of qualifying for the 15 weeks threshold. There is a special period of grace election which allows homeowners to treat a year as a qualifying year for the purposes of the furnished holiday let rules where they genuinely intended to meet the occupancy threshold but were unable to do so subject to a number of qualifying conditions.

Where the qualifying conditions are not met during the relevant period, the furnished holiday lettings rules do not apply for that tax year or accounting period. In that situation, the normal property income rules will apply for that tax year or accounting period.

Property owners considering the use of this scheme will need to monitor their lettings in a tax year to make sure they still qualify for the FHL tax advantages. If you presently have a FHL business, and would like help with these planning issues, please call.