fpdteam, Author at Bennetts Accountancy

Transferring IHT unused nil rate band

5th October 2023 by fpdteam

The Inheritance Tax residence nil rate band (RNRB) is a transferable allowance for married couples and civil partners (per person) when their main residence is passed down to a direct descendent, such as children or grandchildren, after their death.

The allowance increased to the present maximum level of £175,000 from 6 April 2020. Any unused portion of the RNRB can be transferred to a surviving spouse or partner. The RNRB is in addition to the existing £325,000 Inheritance Tax nil-rate band.

Taken together with the current Inheritance Tax limit of £325,000, this means that married couples and civil partners can pass on property worth up to £1 million free of Inheritance Tax to their direct descendants.

The transfer does not happen automatically and must be claimed from HMRC when the second spouse or civil partner dies. This is usually done by the executor making a claim to transfer the unused RNRB from the estate of the spouse or civil partner that died first. This transfer can also happen even if the first spouse or civil partner died before the RNRB was introduced on 6 April 2017.

There is a tapering of the RNRB for estates worth more than £2 million even where the family home is left to direct descendants. The additional threshold will be reduced by £1 for every £2 that the estate is worth more than the £2 million taper threshold. This can result in the full amount of the RNRB being tapered away.

The RNRB maximum rate of £175,000 and the taper threshold are currently frozen until at least April 2028.

Source:HM Revenue & Customs| 02-10-2023

Reporting self-employed profits 2023-24

5th October 2023 by fpdteam

The basis of assessment reforms will change the way trading income is allocated to tax years. The changes will affect sole traders and partnerships that use an accounting date between 6 April and 30 March. There is no change to the rule for companies.

The reforms will change the basis period from a ‘current year basis’ to a ‘tax year basis’.

Under the current rules there can be overlapping basis periods. When this occurs, tax may be charged on profits twice and generate ‘overlap relief’. This overlap relief can be used on the cessation of a business or when an accounting date is changed. The new method of using a ‘tax year basis’ will remove the basis period rules and prevents the creation of further overlap relief.

The new rules will come into effect in the 2024-25 tax year and the current 2023-24 tax year is known as the ‘transition year’. During the transitional year, all businesses’ basis periods will be aligned to the tax year and all outstanding overlap relief can be used against profits for that tax year.

Affected businesses in 2023-24 will be assessed on the tax for profits for the:

12 month accounting period they have previously been using; and
for the rest of the 2023-24 tax year.

Any excess profit covering more than 12 months, is known as ‘transition profit’. This can be reduced by overlap relief and the remaining profit will be spread over the next 5 tax years until 2027-28.

The changes do not affect sole traders and partnerships who draw up annual accounts to a date between 31 March and 5 April. These businesses will continue to file as usual for the 2023-24 accounting year.

Source:HM Revenue & Customs| 02-10-2023

Government to support action against late payers

3rd October 2023 by fpdteam

Most smaller businesses will have spent time chasing customers for payment beyond their agreed payment terms.

These demands take entrepreneurs away from their core tasks of business building and place unnecessary pressures on cashflow.

To assist, government is stepping in with new regulatory powers. The new measures will include:

Extending the Reporting on Payment Practices and Performance Regulations 2017. Following consultation, Government will take forward legislation to extend payment performance reporting obligations. They will include new metrics for reporting, including a value metric, so businesses and commentators can see the value of invoices, including invoices paid late, and a disputed invoices metric. They will also introduce reporting on retention payments for businesses in the construction sector.
Providing greater advice to small businesses on negotiating payment terms that better suit them, and on how going digital can help them get paid quicker and manage their cash flow.
Broadening the powers of the Small Business Commissioner: Introducing broader responsibilities, enabling the Commissioner to undertake investigations and publish reports where necessary on the basis of anonymous information and intelligence. This will require primary legislation, so will be subject to the legislative timetable.

The stronger measures will benefit UK businesses by fostering a stronger payment culture and providing businesses with more predictable and reliable cash flow, allowing businesses to spend and invest with greater certainty.

It will reduce the time spent by businesses chasing payments, freeing up more time for other activities that will help them to grow. Tackling late and long payments provides an opportunity to increase investment and productivity across the economy.

This will improve payment culture in the UK to support smaller businesses, many of whom do not have the resources to accommodate long or late payments from their business customers.

Source:Other| 02-10-2023

National Living Wage potential boost

3rd October 2023 by fpdteam

The government looks likely to accept the recommendations of the Low Pay Commission with a boost to the National Living Wage rate.

In summary:

National Living Wage will rise to two-thirds of average earnings.
Chancellor commits to Low Pay Commission recommendations, with latest forecasts showing a pay boost next year worth over £1,000 for 2 million low-paid workers.
Successive rises mean a full-time worker on the National Living Wage will be over £9,000 better off than they would have been in 2010.

A formal announcement will be made November 2023, presumably as part of the Autumn Statement.

Based on the Low Pay Commission’s latest forecasts, this would see the National Living Wage increase to over £11 an hour from April 2024.

People currently aged 23 and over are eligible for the National Living Wage, with over 2 million workers on low pay set to benefit from the increase. The announcement, after successive rises since its introduction in July 2015, means a full-time worker on the National Living Wage will be over £9,000 better off than they would have been in 2010.

Each year, the independent Low Pay Commission produces recommendations to the Government on National Living Wage and National Minimum Wage rates. This year it is due to make recommendations for the rates that will take effect from April 2024, based on their remit which sets a target for the National Living Wage to reach two-thirds of median earnings by 2024 for workers aged 21 and over, taking economic conditions into account.

Source:Other| 02-10-2023

VAT Capital Goods Scheme

28th September 2023 by fpdteam

The VAT Capital Goods Scheme (CGS) is a means of spreading the initial VAT recovery in respect of certain assets over either 5 or 10 years. The scheme seeks to agree a fair and reasonable attribution of VAT to taxable supplies and non-taxable supplies relating to the use of an asset over its lifetime.

The adjustment period for land and buildings is 10 years and for other CGS assets, 5 years. This adjustment period also considers any non-business use of the asset. The CGS is intended primarily for partly exempt businesses. However, businesses can change direction over the adjustment period and be subject to making CGS adjustments some years after an asset was purchased.

The CGS currently applies to:

Land and building (including extensions, alterations and refurbishments) with a cost (net of VAT) of £250k or more.
Computers, or computer equipment, with a cost (net of VAT) or £50k or more.
Ships and boats with a cost (net of VAT) of £50k or more.
Aircraft with a cost (net of VAT) of £50k or more

The scheme does not apply if:

the assets are acquired solely for resale;
you spend money on assets which are solely for resale; or
assets are acquired, or you spend money on assets, which are wholly used for non-business purposes.

Source:HM Revenue & Customs| 25-09-2023

Replacement of domestic items relief

28th September 2023 by fpdteam

The replacement of domestic items relief enables landlords to claim tax relief when they replace movable furniture, furnishings, household appliances and kitchenware in a rental property. The allowance is available for the replacement cost of domestic items such as free-standing wardrobes, curtains, carpets, televisions, fridges and crockery.

The amount of the deduction is based on:

the cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent); plus
the incidental costs of disposing of the old item or acquiring the replacement; and
less any amounts received on disposal of the old item.

There is an important distinction between deciding whether or not a new item represents a replacement or an improvement. Where the new item is an improvement on the old item the allowable deduction is limited to the cost of purchasing an equivalent of the original item.

HMRC’s internal guidance provides an example highlighting that a brand new budget washing machine costing circa £200 is not an improvement over a 5 year old washing machine that cost around £200 at the time of purchase (or slightly less considering inflation).

However, if a replacement item is for a reasonable modern equivalent, for example, a new energy efficient fridge replacing an old fridge, this is not considered an improvement and the full cost of the new item is eligible for relief.

Source:HM Revenue & Customs| 25-09-2023

Community Investment Tax Relief scheme

28th September 2023 by fpdteam

The Community Investment Tax Relief (CITR) scheme is designed to encourage investment in accredited Community Development Finance Institutions (CDFIs). The tax relief under the scheme is available to both individuals and companies.

CDFIs may take a range of forms including:

community loan funds, which make capital available to community regeneration initiatives and businesses;
micro-finance funds, which make small loans, usually at near-market rates of interest, to the smallest businesses, e.g., sole traders; and
social banks – profit-seeking financial service providers or subsidiaries, dedicated to social or environmental objectives.

The scheme encourages investment in disadvantaged communities by giving tax relief to investors who back businesses (and other not-for-profit enterprises) in disadvantaged communities by providing additional tax relief. Tax relief of up to 5% per year is available for up to 5 years starting with the year in which the investment is made. This provides for a total tax relief of up to 25% of the invested amount.

It was announced as part of the Spring Budget measures that the amount CDFIs can apply to relevant investments would increase from £250,000 to £375,000 for non-profit organisations and from £100,000 to £250,000 for profit organisations. The enabling legislation came into force on 2 June 2023.

In addition, the amount accredited CDFIs can raise through CITR increased from £10 million to £25 million for retail CDFIs and from £20 million to £100 million for wholesale CDFIs.

Source:HM Revenue & Customs| 25-09-2023

Accommodation that qualifies as Holiday Lets

28th September 2023 by fpdteam

The furnished holiday lettings (FHL) rules allow holiday letting of properties that meet certain conditions to be treated as a trade for specific tax purposes.

In order to qualify as an FHL, 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 furnished. This means that there must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture.

In addition, the property must pass the following three occupancy conditions.

Pattern of occupation condition. The property must not be used, in total, for more than 155 days a year of longer term occupation (i.e., continuous periods of more than 31 days).
The availability condition. The property must be available for commercial letting at commercial rates for at least 210 days per year.
The letting condition. The property must be let for at least 105 days per year and property owners should be able to demonstrate the income from these lettings.

Where there are a number of FHL properties in a business, it is possible to average the days of lettings for the purposes of qualifying for the 105 days threshold. This is called an averaging election.

There is also a special period of grace election which allows homeowners to treat a year as a qualifying year for the purposes of the FHL rules where they genuinely intended to meet the occupancy threshold but were unable to do so subject to a number of qualifying conditions.

Source:HM Revenue & Customs| 25-09-2023

Unclaimed Child Trust Fund Accounts

28th September 2023 by fpdteam

HMRC has published their latest statistics on Child Trust Funds (CTFs) that reveal that whilst around 500,000 accounts have now matured, there remains some 430,000 funds that have matured but remain unclaimed.

If you turned 18 on or after 1 September 2020 there may be cash waiting for you in a dormant CTF. The average market value of an unclaimed CTF can be £2,000. The actual amount of money depends on a number of factors.

Children born after 31 August 2002 and before 3 January 2011 were entitled to a CTF account provided they met the necessary conditions. These funds were invested in long term saving accounts for newly born children.

Around 7 million CTF accounts were set up since the scheme was launched in 2002, roughly 6 million by parents or guardians and a further 1 million set up by HMRC where parents or guardians did not open an account.

Around 55,000 accounts mature each month and HMRC has created a simple online tool to help young people find out where their account is held. If you’re unsure if you have an account or where it may be, it’s easy to track down your provider online.

The actual CTF accounts are not held by HMRC, but by a wide range of CTF providers who are financial services firms. Families can continue to pay into a CTF, until the maturity date. There is an annual limit of £9,000, and there is no tax to pay on the CTF savings interest or profit.

HMRC’s Second Permanent Secretary and Deputy Chief Executive, said:

'Many 18-21 year olds are starting out in first jobs or apprenticeships, starting university or moving into their first home and their Child Trust Fund is a pot of money with their name on. I would encourage young people to use the online tool to track it down or, for parents of teenagers, to speak to them to ensure they’re aware of their Child Trust Fund. It could make a real difference to their future plans.'

Source:HM Revenue & Customs| 25-09-2023

Do you need to register for Self-Assessment?

28th September 2023 by fpdteam

Taxpayers that need to complete a Self-Assessment return for the first time are required to notify HMRC. This is a final reminder that the latest date that HMRC should be notified, by new Self-Assessment taxpayers, for the 2022-23 tax year, is 5 October 2023. The deadline for filing the 2022-23 Self-Assessment tax return online and paying any tax due is 31 January 2024.

There are a number of reasons why you might need to complete a Self-Assessment return for the first time. This includes if you are self-employed, have an annual income over £100,000 and / or have income from savings, investment or property.

The £100,000 income threshold for Self-Assessment changed for taxpayers who are only taxed through PAYE. It increased from £100,000 to £150,000 with effect from 6 April 2023. However, the Self-Assessment threshold for 2022-23 returns remains at £100,000. 

HMRC has an online tool www.gov.uk/check-if-you-need-tax-return/ that can help you check if you are required to submit a Self-Assessment return.

The following list summarises some of the reasons when taxpayers are usually required to submit a Self-Assessment return:

The newly self-employed (earning more than £1,000);
Multiple sources of income;
Taxpayers that have received any untaxed income, for example earning money for creating online content;
Income over £100,000;
earn income from property that they own and rent out;
are a new partner in a business partnership;
Taxpayers whose income (or that of their partner’s) was over £50,000 and one of you claimed Child Benefit;
Receiving interest on savings or investment income of £10,000 or more before tax;
Taxpayers who made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax; and
Taxpayers who are self-employed and earn less than £1,000 but wish to pay Class 2 NICs voluntarily to protect their entitlement to State Pension and certain benefits.

Source:HM Revenue & Customs| 25-09-2023