Square Circular – Issue 48
[p-lead]You probably know that SAD stands for Seasonal Affective Disorder, sometimes known as “winter depression”. Combined with the dark and cold nights, reading about tax might exacerbate any depression.[/p-lead]
Hopefully, this Square Circular will, on the contrary, alleviate any depression. Whilst tax news is not usually good news we do mention one or two opportunities which you could exploit to cheer yourself up.
If you want more details about any of the matters we’ve mentioned in this issue, or indeed, about any of the matters we haven’t mentioned please do contact us on 0161 832 4841.
The Chancellor’s annual Budget Statement is scheduled for 18 March. Given that the dissolution of Parliament is scheduled for a couple of weeks later and a General Election for 7 weeks later, the event is likely to be more of a political event than a fiscal event.
Do you know what MOSS is? It’s the Mini One Stop Shop, and, no it’s not your local convenience store. It’s to do with VAT and it was News on 1 January 2015.
Rule changes on 1 January affected businesses supplying digital services to non-business consumers in the EU. In simple terms MOSS is designed to reduce the admin burden for businesses making such supplies by doing everything through a UK VAT registration rather than charging VAT in each country in which supplies are made.
Read our full post about whether you need to comply with VAT MOSS.
STILL, MORE NEWS
HMRC has updated its document “Phishing and bogus emails. H M Revenue & Customs examples”. It’s worth an online search.
If you get communications from HMRC and we’re your agents, just leave it to us to deal with. And if you prefer to be unrepresented and you deal with your own tax affairs, just be very, very careful when you get “stuff” purporting to come from HMRC.
Our quarterly “whizzo wheeze” about rented properties is not confined to property transactions. It’s based on simple rules that tell us that interest on a loan to allow drawings from a business is allowable as long as the proprietor’s capital account does not become overdrawn. Let’s see how it works for properties.
Suppose, Mr Archer, an accountant, owns a luxury apartment in Ordsall, Salford, which he bought 10 years ago for £70k with a mortgage of £50k. It’s now worth £200k. Yes, hard to believe, but this is just an example. He decides on a career change and becomes an olive farmer in Provence (with a name like Archer you thought we were going to make him a pig farmer in Ambridge, didn’t you?) However he prefers the wide open vistas of his “dirty old town” to the landscape of Provence and decides to keep his apartment and rent it out, just so that he can come back to Salford one day.
Effectively, his rental business begins with a property worth £200k and a mortgage of £50k, with the £150k difference being his capital account. So he re-mortgages the Salford flat to a buy to let mortgage taking on £140k further borrowing with which he buys an olive grove in Provence and a six bedroom luxury villa including a heated swimming pool (Remember, this is just an example).
So, his property rental balance sheet shows a property worth £200k, a mortgage of £190k and a capital account still in credit albeit by only £10k. Although Mr Archer has withdrawn capital from his property rental business, interest on the mortgage is allowable in full because it’s funding the opening balance sheet and the capital account is never overdrawn.
Don’t believe it? About the principle, that is; of course you believe the bit about Salford and Provençal scenery and property prices. Well, the principle is for real and is based on an example in HMRC’s own manual. It can apply to any business, not just property rental and if you want any further information about business re-financing please feel free to speak to any of our partners.
Looking for property accountants in Manchester? We advise on the best way to get a return from your property.
MORE ABOUT PROPERTY
We know every Issue of the Square Circular is unforgettable, but do you remember the Spring 2014 Issue? In particular do you remember us talking about the possibility that CGT Principal Private Residence (PPR) elections may be on the way out. That was the one about the guy in Manchester who also had a home in Llanfairwellwewontgointothatagain. The proposal in a consultation paper was made to thwart non-residents with a property in the UK from making such elections.
The consultation concluded in late November 2014 and the good news is that PPR elections won’t be completely withdrawn. There will be new rules affecting not just non-residents but also UK residents who own properties located in other countries. If you’re going to be in that position after April 2015 you may want to review which properties you can shelter from CGT. You can do that by calling 0161 832 4841 and asking for John or Simon, or visit our property accoutants page.
STEP ON THE GAS
Does your company still pay for all the fuel for your car and put a car fuel benefit on your P11D at the end of the year? We hope not.
A 40% taxpayer driving a car with the highest emission rates would have a tax bill of over £3,000. Even a more moderate gas guzzler with CO2 emissions of say 150g/km would have a bill of close on £2,000. And that’s just petrol; diesel would cost more. The average price of unleaded petrol in January 2015 was 108.3p per litre. Just work out how many litres you could buy with your tax bill. Enough to get you from Manchester to……………………….well it depends where you want to go.
All right, we accept that some people put the cost of private fuel through their company because they don’t want the inconvenience of keeping separate records and charging mileage. It may well be worth the inconvenience.
For more details of our personal and corporate tax services, take a look at our tax advice page.
We all make mistakes, don’t we? You know, the silly investment. A friend invites us to subscribe a mere £10,000 for shares in his new company which is really going to take off but which, in fact, never actually gets off the runway. With friends like that who needs…………….
It’s not the kind of mistake you boast about. Especially, not to your accountant who, to borrow a phrase, thought you were an astute entrepreneur. You may not even mention it. You may just say it was “drawings” or “a debit to my loan account”. Be corrected. It is worth a mention. You may be missing out on Share Loss Relief.
Having losses is never a happy situation. You’d much rather not have losses in the first place. But if you are in that sad position, one of our sympathetic tax partners might offer you some comfort and solace. Having said that, there are various qualifying conditions that have to be met for Share Loss Relief so you’d need tax expertise as well as sympathy. If you need either or both, you’re welcome to contact John or Simon, our tax partners, and tell them about your losses.
Here’s an interesting little point to do with Inheritance Tax (Ih.T).
If you own shares in an unquoted trading company you’re in the frame for Business Property Relief (BPR, we techies like to call it) for Ih.T purposes. Never mind for the moment what BPR does; let’s just say it can be a very valuable relief making shares with a huge commercial value have an Ih.T value of nil. Shares listed on a recognised stock exchange don’t qualify for BPR.
Shares listed on say the London Stock Exchange obviously aren’t in the frame for BPR but what about shares quoted on the Alternative Investment Market (AIM shares, let’s stay technical). AIM started in the mid 1990’s and AIM shares have always been regarded as qualifying for BPR as not being listed on a recognised stock exchange.
So far, so good. But we live in a world of increasing globalisation where foreign companies are quoted in the UK and UK AIM companies might seek a secondary listing on a recognised stock exchange outside the UK. If you don’t pay attention to the reams of rain forest reading material you get from your AIM investment company you might find that news of some foreign adventure has passed you by and your estate, without BPR, is worth a lot more for Ih.T purposes than you thought.
Worth keeping an eye on things. Come to think of it, when was the last time you had your Ih.T position reviewed?
ONLY FOR LAWYERS
Have you seen recent news articles in the press about how HMRC are targeting professionals such as doctors and lawyers to raise cash rather than wealthy business entrepreneurs?
Ages ago, we told you about the “tax amnesty” for health workers. It’ll be somewhere in an earlier Square Circular. It allowed healthworkers etc to bring their tax affairs up to date without having to pay too hefty a penalty for being dilatory, to put it nicely. In fact there’s been two, the Medics Tax Health Plan and the Health and Wellbeing Campaign, both of which are now closed.
The latest campaign is the Solicitors Tax Campaign. It gives those working in the legal profession the opportunity to voluntarily disclose to HMRC income which they hadn’t previously declared. The campaign was launched in December 2014 and requires a confessing solicitor to fill in a notification form by 9 March 2015.
Lawyers who have disclosures to make need to move quickly. Any one of our tax team can help.
A memorable church notice:
“The Rector will preach his farewell message after which the choir will sing “Break Forth into Joy”.