The answers provided to the questions below cannot be relied upon without checking with your accountant and/or tax advisor first. The information is correct for the specific question asked, but may change over time as a result of legislation and may not apply in your particular case. We cannot take any responsibility for action taken as a result of relying on these Q&A scenarios.
PERSONAL AND BUSINESS TAX
What is Stamp Duty Land Tax (SDLT)?
SDLT is paid on the purchase of UK based property.
When purchasing a UK property, paying a lease premium or transferring land there is a Stamp Duty Land Tax (‘SDLT’) as follows:
0 – £125,000 0
The next £125,001 – £250,000 2%
The next £250,001 -£925,000 5%
The next £950,001 – £1,500,000 10%
However, if it is a second (or more) property there is an additional 3% SDLT surcharge.
I don’t think I will be able to pay my self-assessment tax in January 2022. What should I do?
If you cannot pay your Self-Assessment tax bill next January 2022 then you might be able to set up a Time to Pay Arrangement (‘TTP’) arrangement which lets you pay your Self-Assessment tax bill in instalments.
You must call the Self-Assessment helpline (details below) and explain your predicament; HMRC are willing to help with payment arrangements, but may ask for evidence of your income and expenses and reasons why you cannot pay; Covid related reasons are viewed favourably.
Only agree to monthly amounts that are affordable and do not be pressurised into making unrealistic payments that you cannot maintain.
We can help you, if you need to present information to HMRC.
Self Assessment Payment Helpline
Telephone: 0300 200 3822
HMRC Coronovirus Helpline
Telephone: 0800 015 9599
When is the rate of Corporation Tax changing and does it mean for my business?
The current rate of Corporation Tax is a flat rate of 19% but as from 1 April 2023, that is changing.
There will be 2 rates of CT:
- For profits below £50,000 it remains at 19%
- For profits above £250,000 it will be a flat rate of 25%
For profits between these two amounts, there will be marginal taper relief, which is a throwback to yesteryear.
Are dividends tax free? If not, how much do I pay?
The answer is ‘it depends!’.
If you have no other income and your dividend income is below £12,500 it is wiped out by your personal allowance and hence no tax is payable.
The next £2,000 of dividends received are tax free, but thereafter the tax rate on dividends increases as you move from being a basic 20% rate taxpayer to a higher 40% or 45% rate taxpayer.
The dividend rate is increasing after tax year 2020/21 by 1.25% as set out below:
Tax Year Basic rate 20% High rate 40% Highest rate 45%
2021/22 7.50% 32.50% 38.10%
2022/23 8.75% 33.75% 39.35%
Value Added Tax ('VAT')
What is the rate of VAT?
The Standard rate of VAT is 20% and applies to most goods and services.
Some items are exempt from VAT, such as stamps, financial services and property transactions, but this is not the same as having a zero rate of VAT, which includes items such as most food and children’s clothes.
This is a notoriously complicated tax and great care should be taken to ensure the correct rate is applied.
What changes to VAT on Imports are happening from 1 January 2021?
From 1 January 2021, VAT on goods imported into the UK will no longer need to be paid at the port under a deferred tax system. Instead, as long as your business is registered for VAT in the UK and you have an EORI number beginning with GB, you will be able to account for the VAT on your VAT return by declaring it as an Output in Box 1 and recovering it by including it in Box 4, Input VAT.
This self-certification is a simplification of a currently cumbersome and bureaucratic process of paying VAT deferment and reclaiming it back.
The net effect is the same, as currently VAT paid under deferment is reclaimed on the next VAT Return, so the net VAT position is nil, but it has a huge, detrimental effect on cashflow, as well as on bank borrowing.
There will still be payment of duty by deferment, but this is usually very small in comparison to the VAT.
There is no requirement to opt into these rules and no request to HMRC that needs to be made, but you must inform your shipping/courier companies that you are now operating under the ‘Postponed Import VAT Accounting’.
What are the rules for VAT on food?
- Food and drink is usually zero rated except for catering, hot food, hot takeaway, soft drinks, savoury snacks, which are all standard rated
- Restaurants must always charge VAT on anything eaten on the premises or communal areas designated for customers
- Restaurants must charge VAT on all hot takeaway and home deliveries
- Restaurants do not charge VAT on cold takeaway, unless eaten in a customer designated area
From 15 July 20 – 30 Sep 21 the standard 20% VAT rate was reduced from 20% to 5% and then it will rise to 12.5% until 31 March 2022, before returning to 20%.
What is Cash Accounting? Do I qualify?
The VAT Cash Accounting Scheme is a method of reporting and paying VAT only on a receipts and payments bases and not on date of invoice. It is designed to help smaller businesses whose customers may be slow in paying and where the business cannot afford to pay the VAT until payment is received.
To qualify the business must:
a) Be registered for VAT
b) Taxable turnover of less than £1.35 million.
The business does not need to inform HMRC when joining or leaving the scheme, but can only do so at the start of a VAT qtr and not during it.
Eg. Assume next VAT Return is for the qtr 03/22
Invoice raised on 31.03.22 for £100,000 + VAT £20,000 = £120,000 total but NOT PAID until 31.05.22
Under Regular VAT accounting , VAT payable on 03/22 Return is £20,000
Under Cash Accounting , VAT payable is zero. It will fall into the next qtr 06/22, being the qtr. in which payment was received.
What is inheritance tax?
This is a tax on the Estate of a deceased person.
It is a flat rate tax of 40% which applies on the total value of the Estate after the tax free IHT band of £325,000 is exhausted.
There are numerous exceptions and complications to this general rule, but that is the starting point.
There is no IHT applicable on assets transferred between spouses/civil partners.
Are all assets subject to Inheritance Tax (‘IHT’)?
No. Business assets, including unlisted shares held in a trading business, enjoy a 100% exemption from IHT if held for at least two years before death. This is known as Business Property Relief (‘BPR’)
Can I give away assets whilst alive so my Estate can escape IHT on those assets?
Yes , but no, but yes, but no!!
There is no IHT on lifetime gifts, but gifts of assets such as (shares, property, etc) in which there may be a gain, may be subject to Capital Gains Tax.
Gifts of cash are free of any Capital Gains Tax.
However, any gift made within 7 years of death will be brought back into the Estate and subject to IHT. The amount of IHT is 40% if death is within the first three years after the gift, but reduces by 4% each year thereafter.
So, take care when making gifts.
If I no longer live in the UK am I exempt from IHT?
The answer is, ‘ it depends’.
If there are assets situated in the UK, these will ALWAYS be subject to IHT, no matter where you live or where you are domiciled.
However, for non-domiciles all assets situated outside the UK are generally exempt.
There is a category known as ‘deemed domicile’, which effectively treats you as UK domiciled for IHT.
If you fall into the non domicile category, it may be worth considering whether you should dispose of our transfer your UK assets to avoid IHT.
What is ‘deemed domicile’ and why does it matter ?
A ‘deemed domicile’ in the UK is acquired when a non UK domiciled person has been resident in the UK in 15 of the 20 preceding years. The effect of being ‘deemed domiciled’ in the UK is that the scope of IHT is extended to all their worldwide assets.
Once in this category, to break the ‘deemed domicile’ for IHT requires a period of non UK residence for typically 6 entire tax years.
What qualifies for Business Relief ?
You can get 100% Business Relief on:
- a business or interest in a business
- shares in an unlisted company
You can get 50% Business Relief on:
- shares controlling more than 50% of the voting rights in a listed company
- land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled
- land, buildings or machinery used in the business and held in a trust that it has the right to benefit from
You can only get relief if the deceased owned the business or asset for at least 2 years before they died.
If someone gives away business property or assets, the recipient must keep them as a going concern until the death of the donor if they want to keep the relief.
- replace the property or assets – like machinery – with something of equal value if it’s for use in the business
- only get relief if the donor owned the business or asset for at least 2 years before the date it was given
What doesn’t qualify for Business Relief
You can’t claim Business Relief if the company:
- mainly deals with securities, stocks or shares, land or buildings, or in making or holding investments
- is a not-for-profit organisation
- is being sold, unless the sale is to a company that will carry on the business and the estate will be paid mainly in shares of that company
- is being wound up, unless this is part of a process to allow the business of the company to carry on
You can’t claim Business Relief on an asset if it:
- also qualifies for Agricultural Relief
- wasn’t used mainly for business in the 2 years before it was either passed on as a gift or as part of the will
- isn’t needed for future use in the business
If part of a non-qualifying asset is used in the business, that part might qualify for Business Relief.
I bought a property in my name some years ago to provide me with additional income both now and in my retirement. I understand the HMRC have changed several things that affect the tax I pay on this rental income, but I am not sure what they are. Can you help?
Thank you for your question. This is something which affects many taxpayers and there is a lot of ignorance surrounding these important changes.
From 1 April 2016, HMRC withdrew the right to deduct 10% from the rental income on furnished lettings that previously allowed for general wear and tear. The immediately increased the profits subject to tax.
Furthermore, HMRC withdrew the ability to deduct loan interest from the rent, to calculate taxable profit. Instead, they tax the rent at the top rate but only allow tax relief on the interest at 20%, which significantly increases the tax liability for 40% taxpayers where interest was a large part of the cost.
Somebody told me that when I sell a property, I have to pay tax straightaway. Is that right?
If you are selling your own home, then as long as it is within 9 months of moving out, then there is no tax to pay, as any gain is exempt, After 9 months, any future gains may be subject to Capital Gains Tax.
If you are selling an investment property, then the gain arising between the time you bought it and the selling price less direct expenses, is subject to capital gains tax at up to 28%.
Since 27 October 2021, sales of UK residential property by a UK resident individual, must be reported and paid to HMRC within 60 days of the sale, whereas prior to 6 April 2020 it this must be paid within 30 days of the sale, whereas prior to that date it was the 31 January following the year of the sale, so a very significant difference.
The important thing to be aware of, is not just the tax, but having the information from when you purchased the house and any major improvements, so as to be able to calculate the gain.
Can I gift my property to my children, as I don’t need the income and maybe it will help reduce any Inheritance Tax when I’m gone? I presume there is no tax on making the gift?
Thank you for this question, which seems simple, but is anything but.
The simple answer is ‘yes,’ you can gift anything as there is no Inheritance Tax on lifetime gifts, BUT if you die within 7 years of making the gift, it will be included in your Estate for Inheritance Tax.
But the second part of your question is not so obvious. Making a gift of property will trigger Capital Gains Tax, even though no money changes hands. The gain is the difference between the purchase price (or value at 5 April 1982 if later) and the sales price and the Capital Gains Tax @28% of this figure is payable 30 days later.
If the donor dies within 3 years of making a gift of a property, then it the worst of all worlds; both the Capital Gains Tax @ 28% at the time of the gift and the Inheritance Tax on the property at value at date of death at 40%.
I am the director of a UK limited company and we are growing very quickly. Last year our company’s Turnover was £7 million with total assets of £6 million and over 100 employees. I am not sure if I need an audit, as my turnover is below the £10 million audit limit.
The short answer is you do need an audit. The reason is there are 3 statutory limits, and an audit is required if any 2 of them are breached. You company’s turnover is below the £10.2M limit but breaks both the other limits of £5.2M assets and 50 employees.
My company does not need an audit, but I am worried that something is not right. Is the audit a ‘sort of’ guarantee?
The audit process is what you think; it is not a guarantee of anything, but rather our objective as auditors is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. The word ‘material’ is defined as anything that could reasonably be expected to influence a reader of the accounts to form a different conclusion. It is true that as part of the audit, we highlight in the audit report whether: The accounting records are accurate The financial statements agree to those records All required disclosures have been made We received all the information and explanations we requested and if we are not satisfied, we qualify our audit and explain the problems we encountered.
I have offered my top manager a company car, but he is nervous about being taxed on it. Is there a cost for him and is there a cost to me, his employer?
MAYBE and MAYBE This seems a strange answer, but it’s true. It depends on what car you provide The car is a benefit to the employee, provided by the employer and this benefit is calculated by a fixed percentage of the list price of the car when new and not the cost paid by the company. From 6.4.20 for one yea only, the % for electric cars is Zero! Hence the benefit is zero and the tax for both employee and employer is zero. For tax year 2021/22 this increases to 1% and for 2022/23 to 2%, so it is extremely tax efficient to receive an electric company car. Hybrids, petrol and diesel cars have higher and higher %s, which can be checked online, applied to the list price and hence the benefit is higher.
How much can I earn tax free?
This depends on the type of income and gain.
The basic rules are as follows:
|Income Tax||£12,500 tax free allowance on any income|
|Savings allowance||£5,000 tax free if majority of income is from savings|
|£1,000 tax free if minority of income from savings|
|Dividend allowance||£2,000 tax free|
|Capital Gains Tax||£12,000 tax free|
|Rent a room||£7,500 tax free|
In a possible scenario, a tax payer could have:
|Rent a room in their home||£7,500|
|And pay no tax|