September 2018 Newsletter7th September 2018
Protect your home
A government think-tank, the Office for Tax Simplification (OTS), was briefed to consider a non-tax issue, a restricted form of limited liability for sole traders.
At present, a sole trader’s personal assets (including their home) are vulnerable to a claim by business creditors if the sole trader business becomes insolvent.
The principle behind this Sole Enterprise with Protected Assets (SEPA) scheme is that it will allow an individual to continue to trade as a sole trader whilst offering protection for their primary residence against claims arising from the business. The primary residence will not be protected from personal claims nor will any other asset be protected.
In essence, SEPA offers a limited, limited liability vehicle for sole traders.
In conclusion the OTS report says:
The case for SEPA’s introduction is not by any means cast iron. But our work indicates that SEPA has the potential to be a useful simplification for those that would otherwise consider incorporation. Furthermore, it could provide a boost to enterprise.
Accordingly, we recommend that it should be developed into a formal proposal. While doing so, one would have to address some of the issues that we have raised in this report as well as fully assessing any impact on the creditor and debt collection markets.
What is side-ways loss relief?
If a business owner makes a loss as a self-employed person, they can set off the losses against any other earnings of the same year. In effect, the business losses are moved side-ways against other earnings.
However, in order for loss relief to be allowed, the loss making business must be able to demonstrate that it was managed on a commercial basis and with a view to making profits.
Many cases have come to the courts when HMRC has not been satisfied that a business venture does demonstrate commerciality, and accordingly, losses have not been allowed as a set off against other earnings.
In a recent case, Beacon v HMRC, Beacon purchased a property in Tuscany. In the first two years of active trading the taxpayer made losses amounting to £218,967 and £139,936. These losses were claimed in Beacon’s tax return against their other earnings in the relevant years.
HMRC disputed the loss relief claims on the basis that the letting business was not run on a commercial basis and the matter was taken to the First Tier Tribunal.
The court disagreed with HMRC. They pointed to a number of factors that suggested a commercial basis, including:
- The property refurbishment had been financed by bank loans and these were backed up by detailed business plans and projections.
- The fact that the business was blown off-course was due in part to the financial crisis of 2008.
The court were also critical of HMRC’s evidence on several other fronts that suggested a lack of commerciality.
The loss relief claims were therefore allowed as claimed.
The gradual restriction of tax relief for buy-to-let mortgage interest has received much publicity since the process commenced 5 April 2017.
From that date, tax relief is converted from a straight forward deduction against business profits into a basic rate tax deduction.
If you continue to be a basic rate taxpayer as these changes roll-out, you will see no increase in your income tax liabilities. You may see an increase if you are, or become, a higher rate or additional rate income tax payer.
The changes have and will occur as follows:
- 2017-18, relief for 75% of interest costs was given by deduction from rents, the remaining 25% given as a basic rate tax deduction.
- 2018-19, relief will be given on 50% by deduction from rents and 50% as a basic rate tax deduction.
- 2019-20, relief will be given on 25% by deduction from rents and 75% as a basic rate tax deduction.
- 2020-21, and from then on, relief will be given on 100% of interest payments as a basic rate tax deduction.
Buy-to-let landlords need to quantify how these changes will impact their income tax liabilities in the coming years and we can help.
A final planning note, it is possible to borrow money by extending the mortgage on your own home. This makes sense from a cost saving point of view as the arrangement costs of the re-mortgage will likely be less as will the rate of interest charged. However, be sure to take the following into account:
- You will be allowed tax relief on interest on loans up to the value of the property when it was first let, and
- The mortgage will likely be secured against your home and the funds to repay the mortgage (or part of it) will come from letting income. This means that if the rental income dries up, and you are unable to sell the rental property to clear the additional loan, you may be faced with selling your home.
Planning is a must-do for prospective, and existing, buy-to-let landlords. Please call if you would like to consider your options. There are no short-cuts. Creating a well rounded business plan that considers the tax changes highlighted above are a prerequisite to achieving success in your property business.
Grants available for food producers and suppliers
Up to £20 million is being made available to increase productivity and sustainability in crop and ruminant agriculture systems through the Industrial Strategy Challenge Fund.
Innovate UK are looking for projects that improve productivity and sustainability in crop and ruminant agriculture.
There is £20 million to be shared across 2 types of project:
- productivity solutions, which develop a single intervention within a supply chain or production system,
- supply chain solutions, which develop multiple interventions across at least 3 parts of the supply chain, for example: beef producers, beef processors and supermarket retailers; plant breeders, arable producers and food manufacturers.
Projects should focus on one of two themes, to:
- drive productivity and improve environmental outcomes in crop and ruminant production systems,
- develop new, highly efficient, high-value production systems that maximise productivity and improve environmental performance.
This could include:
- combining digital technologies and engineering solutions with biological, environment or social science to improve productivity,
- developing technologies and systems that connect farms and supply chains,
- transferring an innovative technology from another sector into agriculture.
More details on the GOV.uk website at https://www.gov.uk/government/news/efficient-and-sustainable-agriculture-apply-for-funding
Tax Diary August/September 2018
1 September 2018 – Due date for Corporation Tax due for the year ended 30 November 2017.
19 September 2018 – PAYE and NIC deductions due for month ended 5 September 2018. (If you pay your tax electronically the due date is 22 September 2018)
19 September 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2018.
19 September 2018 – CIS tax deducted for the month ended 5 September 2018 is payable by today.
1 October 2018 – Due date for Corporation Tax due for the year ended 31 December 2017.
19 October 2018 – PAYE and NIC deductions due for month ended 5 October 2018. (If you pay your tax electronically the due date is 22 October 2018.)
19 October 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 October 2018.
19 October 2018 – CIS tax deducted for the month ended 5 October 2018 is payable by today.
31 October 2018 – Latest date you can file a paper version of your 2018 self-assessment tax return.