Opt to Tax
Can you reclaim vat on a property transaction?
The default position is that the activity of renting out property is an exempt supply hence no vat is charged, however, this means that you cannot claim vat on the expenses incurred.
Residential Properties
As far as these are concerned, the lettings are always exempt from vat and you will never see vat being charged on any rent. This means that, any vat paid on expenses incurred will also not be claimable. This needs to be taken into account when purchasing buy to let properties or properties that need extensive repairs to bring them to use.
Commercial Properties
With these properties, you have the option to disapply the exemption or ‘opt to tax’ in other words. Once this is applied, any rent charged to the tenant will become vatable. As you would be making taxable supplies, you would be able to reclaim vat on the relevant expenses incurred.
Mixed Use Properties
It is quite common these days where properties would have both the residential and commercial element to it i.e. there will be an office at the bottom with apartments at the top. If this is the case and you have not opted to tax, then you will not be able to reclaim or charge vat. However, if you opt to tax, then the vat incurred on the expenses for the whole property would need to be apportioned and only the commercial element would be reclaimable.
Why ‘Opt to tax’?
Opting to tax on a commercial property has both advantages and disadvantages depending on your situation. It can be very beneficial to be able to reclaim the vat incurred on the expenses as this would reduce the costs incurred by the business. If the tenant is vat registered, then they would be able to reclaim vat incurred on the rents paid. However, if the tenant is not registered for vat then the vat element would be a cost to them and make your property more expensive.
Apart from this, there is also an added administrative burden of preparing and filing vat returns to HMRC.
Buying and Selling
When a property is opted to tax, the seller has to charge vat on the sale. The buyer can reclaim the vat element if they are registered for vat and will use the property in their business. It might cause a cashflow problem for the buyer as they would need to raise finance to pay the vat. Also, when the vat amount is added to the sale price, the stamp duty payable on the property would be payable on the vat inclusive price hence making the property more expensive to buy.
When purchasing a commercial property which has been opted to tax and has a sitting tenant, the buyer has the option to avoid paying vat. This is done via the Transfer of Going Concern (ToGC) VAT provision. As the property has a tenant, the purchase would be treated as a purchase of a ‘rental business’ which is outside the scope of vat. Provided the buyer registers for vat and opts to tax prior to purchase, a joint election can be made to treat the transaction as a ToGC and no vat needs to be charged.
If you require more information and help with any property transactions, please do not hesitate to contact us on 0121 445 8055 or email us at [email protected]
A guide to Trusts and Tax
What is a Trust?
A trust is a legally binding arrangement where the trustees control money or assets which they must use for the benefit of the beneficiaries.
Settlors, Trustees and Beneficiaries:
Settlor: The person(s) putting the assets into the trust
Trustee: The person(s) responsible for managing the trust
Beneficiaries: The person(s) who benefits from the trust
Uses of Trusts:
Trusts can be set up for the following reasons:
- To protect and control the family assets
- To pass on assets whilst you are still alive
- To pass on assets once the settlor passes away
- When someone is too young to look after their affairs
- When someone is incapacitated to look after their affairs
- Under the rules of Inheritance tax when one dies without a will (England and Wales)
Types of Trusts:
- Bare Trust – The simplest type of trust where all assets are given to a beneficiary as long as they are 18 years or over (in England and Wales). The assets are held in the name of a trustee(s) however, the beneficiary has the right to all of the capital and income of the trust at any time if they’re 18 or over (in England and Wales).
- Interest-In-Possession Trust – These entitle the beneficiary to all income derived from the trust less any expenses. The beneficiary has to pay income tax on the money they receive.
- Discretionary Trusts – The trustees have absolute control over the assets and income generated from the trust and can decide how and when to give them to the beneficiaries. These are most often used by people who want to transfer assets to their grandchildren, making the grandchildren’s parents trustees.
- Vulnerable person Trusts – These can be any of the three trusts above but the beneficiary is a vulnerable person i.e someone who is under 18 years old and his/her parents have died or a person who is mentally or physically disabled.
Trusts and Taxes
As with all type of incomes, the income derived from a trust is subject to Income tax, Capital gains tax and Inheritance tax.
Income Tax:
The rates of taxes differ according to the type of trust that has been set up but can typically vary between 7.5% to 45% of income.
Capital Gains Tax:
This is a tax on the profit when an asset that’s increased in value is taken out of or put into a trust. The tax is payable if the profit is above the annual exemption amount.
Inheritance Tax:
Inheritance Tax may have to be paid on a person’s estate (their money and possessions) when they die. Inheritance tax is due at 40% on anything above the threshold. This can even apply if a settlor transfers assets into a trust.
Contact:
If you require help with setting up a trust or for more information, please do not hesitate to contact us on 0121 455 8055 or [email protected]
A guide to off Payroll Working (IR35) Rules
This article is aimed at providing a basic understanding of the off payroll working rules. It is a general article and each individual circumstance may be different. If you require further information, you can contact us here.
What does it mean?
This is a term given to a set of anti avoidance rules which targets disguised remuneration. Its purpose is to ensure that contractors working for a company pay tax and national insurance like employees. The contractors, however, would not have the same rights as employees under employment law.
HMRC have provided an online tool where companies can check the status. This can be found here.
Until 2017, it was the worker who was responsible to determine the status, however, after April 2017, it is the responsibility of the hiring company (Public Authority) to determine the status.
How do you establish employment status?
| Criteria | Employed | Not Employed |
| Contract | There is a contract of employment in place | No contract of employment in place |
| Place of work | The employer decides the place of work | The contractor decides the place of work |
| Substitution | No substitution allowed i.e worker has to do the work themselves | The contractor can send a substitute to do the work |
| Salary | Worker paid a fixed daily/weekly/monthly salary | Contractor provides an invoice for the work done |
| Tools and equipment | Provided by the employer | Provided by contractor |
| Losses suffered | Worker does not bear any loss | Contractor bears the losses |
| Liability to correct | Worker does not have to correct the work in their own time and expense | Contractor has to correct work in their own time and expense |
Changes from 6th April 2021
From 6th April 2021, the rules regarding the off payroll working will change.
All public sector authorities and Medium and Large private sector companies will be responsible for determining the status and whether the IR35 rules apply or not.
For small private sector companies, the onus will be on the contractor’s intermediary to determine the status and if the rules apply. It is important to note that each contract needs to be reviewed individually where there is more than one contract with the same worker.
If the off payroll rules apply, the worker’s pay will be subject to income tax and national insurance contributions. The worker will have to be included within the company’s payroll and PAYE/NIC will be deducted (net of materials and vat) from the invoiced amount and the net pay transferred to the worker’s company. A P45 or P60 would need to be issued accordingly.
See a worked example provided by HMRC here.
If you require more information and help with the off payroll working rules, please do not hesitate to contact us on 0121 445 8055 or email us at [email protected]
A simple guide to Budget 2021
This is a basic guide, prepared by ACCA’s Technical Advisory team, for members and their colleagues or clients. It’s an introduction only and should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be obtained, where necessary.
The message from the Chancellor was that this is a Budget with three aims:
- protecting the jobs and livelihoods of the British people
- strengthening the public finances
- supporting an investment-led recovery
You can read the individual measures and details of some of the numerous consultations below.
Rates and allowances
|
2021/22 |
2020/2021 | |
| £ |
£ |
|
| Income tax rates (non-dividend income) | ||
| 0% lower rate tax – savings rate only | Up to 5,000 | Up to 5,000 |
| 20% basic rate tax | 12,571 to 50,270 | 12,501 to 50,000 |
| 40% higher rate tax | 50,271 to 150,000 | 50,001 to 150,000 |
| 45% additional rate tax | Above 150,000 | Above 150,000 |
| Scottish income tax rates (non-dividend income) | ||
| 19% starting rate tax | 12,571 to 14,667 | 12,501 to 14,585 |
| 20% basic rate tax | 14,668 to 25,296 | 14,586 to 25,158 |
| 21% intermediate rate tax | 25,297 to 43,662 | 25,159 to 43,430 |
| 41% higher rate tax | 43,663 to 150,000 | 43,431 to 150,000 |
| 46% top rate | Above 150,000 | Above 150,000 |
| Personal allowance | ||
| Personal allowance |
12,570 |
12,500 |
Capital gains tax annual exempt amount (after personal allowance)
These are frozen at £12,300 for individuals and £6,150 for trusts.
Dividend allowance
The tax-free dividend allowance is unchanged at £2,000.
Corporation tax
The corporation tax rate will remain at 19% but from April 2023 the applicable corporation tax rates will be 19% and 25%. Businesses with profits of £50,000 or below will still only have to pay 19% under the small profits rate.
Grants – restart
‘Restart Grants’ are available in England of up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses
Grants – export
The SME Brexit Support Fund grant provides up to £2,000 to help with training or professional advice.
Enhanced capital allowances: super deduction
This introduces increased reliefs for expenditure on plant and machinery. For qualifying expenditures incurred from 1 April 2021 up to and including 31 March 2023, companies can claim in the period of investment:
- a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main-rate writing-down allowances
- a first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances
Annual investment allowance (AIA)
Companies will be able to claim £1m as AIA for expenditure incurred from 1 January 2019 to 31 December 2021. The announcement was made in November and before the ‘super deduction’.
Apprenticeship funding
Apprenticeship incentive payments for employers will increase to £3,000 per new hire until September 2021.
Making tax digital (MTD)
There were no announcements on MTD except that the government will publish an evaluation on the introduction of MTD for VAT, expected on 23 March.
VAT
|
2021/22 |
2020/21 | |
| £ |
£ |
|
| VAT | ||
| Standard rate |
20% |
20% |
| Registration threshold |
85,000 |
85,000 |
| Deregistration threshold |
83,000 |
83,000 |
The VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2022.
The reduced rate of VAT of 5% to the hospitality, holiday accommodation and attractions sector is extended until 30 September 2021. After this date, the VAT rate will be 12.5% to the end of 31 March 2022, before returning to the standard rate of VAT of 20% from 1 April 2022.
VAT deferral
Businesses with outstanding VAT from last year may join the VAT deferral new payment scheme to spread their payments. The online service is open until 21 June 2021.
Coronavirus Job Retention Scheme (CJRS)
An extended version of the CJRS provides further support for employees until the end of September 2021.
Self-Employment Income Support Scheme (SEISS)
A fourth grant will open from late April and will be available until 31 May 2021, and will include those self-employed in the tax year 2019/20, with the SEISS being available for a 5th grant until September 2021 based on turnover.
Losses
Trading losses will have more flexibility to carry them back over three years. This applies only for losses incurred by companies for accounting periods ending between 1 April 2020 and 31 March 2022, and for individual for trade losses of tax years 2020/21 and 2021/22.
Entrepreneurs’ relief
The lifetime limit on gains eligible for entrepreneurs’ relief is £1m for qualifying disposals.
Employment allowance reform
The allowance is £4,000 but continues to be limited to employers with an employer NIC bill below £100,000 in the previous tax year.
Statutory sick pay (SSP)
Small and medium-sized employers across the UK will continue to be able to reclaim up to two weeks of eligible SSP costs per employee. As with other pandemic-related business support schemes, the government will set out steps for closing this scheme in due course.
Apprenticeships
SMEs should register on the apprenticeship employer hub before the end of the month to benefit from apprenticeship levy funding. You can find out more about ACCA Apprenticeship Programmes.
R&D
From 1 April 2021, SMEs applying for R&D tax credits will be eligible to a maximum of £20,000 in repayments per year plus three times the company’s total PAYE and NIC liability.
Inheritance tax (IHT)
The nil-rate band remains at £325,000. The residence nil-rate band for deaths in the following tax years are:
- £100,000 in 2017/18
- £125,000 in 2018/19
- £150,000 in 2019/20
- £175,000 in 2020/21
- £175,000 in 2021/22
Time to pay
Taxpayers can set up a payment plan online via GOV.UK.
Pensions
The pension lifetime allowance will remain at its current level of £1,073,100 until April 2026.
Rates
100% relief for businesses in retail, hospitality and leisure in England continues until June 2021. From July 2021 to March 2022, these business will pay a reduced rate of 33%. Businesses in England closed due to national lockdowns from 5 January 2021 onwards, or between 5 November and 2 December 2020, may be eligible for grants.
Interest relief for landlords
Landlords will be able to obtain relief as follows:
| Finance cost allowed in full | Finance cost allowed at basic rate | |
| Year to 5 April 2020 |
25% |
75% |
| Year to 5 April 2021 | 0% |
100% |
Stamp duty land tax (SDLT)
Non-UK residents are to pay 2% surcharge SDLT on residential property purchases from April 2021. The SDLT nil-rate band of £500,000 for residential property purchases in England and Northern Ireland will be extended to June 2021, reducing to £250,000 from July to September and reverting to £125,000 from October 2021.
Annual tax on enveloped dwellings (ATED)
The ATED charges increase automatically each year in line with inflation (based on the previous September’s Consumer Prices Index).
|
2021/22 |
2020/21 |
||
|
£ |
£ |
||
| Annual tax on enveloped dwellings (ATED) | |||
| More than £0.5m but not more than £1m |
3,700 |
3,700 |
|
| More than £1m but not more than £2m |
7,500 |
7,500 |
|
| More than £2m but not more than £5m |
25,300 |
25,200 |
|
| More than £5m but not more than £10m |
59,100 |
59,850 |
|
| More than £10m but not more than £20m |
118,600 |
118,050 |
|
| More than £20m |
237,400 |
236,250 |
|
March 2021
ACCA LEGAL NOTICE
This is a basic guide prepared by ACCA UK‘s Technical Advisory Service for members and their clients. It should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be obtained, where necessary.
A guide to Inheritance Tax
What is Inheritance tax?
Inheritance tax is a tax on the estate of a person who has passed away. How much is payable is dependent on the value of the estate (money, possessions and property).
Inheritance Tax Rate
The standard rate of tax is 40% and is chargeable on the amount above the nil rate band of £325,000. If you are married or in a civil relationship, any unused nil rate band amount can be transferred to your partner upon your death. Since April 2017, a new allowance known as the residence nil rate band has been introduced and like the nil rate band, any unused allowance can be passed on between partners. For the 2020/21 tax year, this amount is £175,000.
