EJBC Chartered Accountants

My business is an agency that provides rented holiday accommodation to UK holiday-makers. My commissions are less than the VAT registration threshold, so I am not VAT registered. What contracts and invoices do I need to put in place to avoid charging VAT to either my clients (the landlords) or to the holiday-makers who rent the properties? 

You want to stay under the VAT threshold, so you need to prove to the VAT man that you are an agent working on behalf of the landlords, and are not a re-seller of holiday accommodation. You should have a written agreement with each of the landlords that clearly states that the landlord is the principal who is making a contract with the holiday-maker, and you are their agent.

All invoices you issue should show your fees as separate items to the cost of the holiday accommodation. If the holiday-maker pays you for the use of the holiday-let, the bill they pay should clearly show the amount due to the landlord, and the amount due to you as the agent. Ideally the two amounts would be shown on separate invoices.

Since April 6th, HMRC can impose penalties if you are late in paying over the payroll and CIS deductions you make in the tax year. ‘Late’ in this context means the payment reaches the Tax Office after the 19th of each month, (or 22nd when paying electronically). 

Until now HMRC did not impose penalties or interest on small employers if all the payroll deductions for the year reached him by 19th April (or 22nd) after the end of the tax year. Large employers (those with more than 250 employees) have been subject to surcharges for late payment for some years, as they have been obliged to pay over all deductions electronically. 

Those surcharges for large employers have been scrapped and all employers are now subject to the same penalties. However, small employers do not have to pay over their deductions electronically. 

The penalty will be based on the total amount of deductions paid late for the tax year and will be calculated based on the number of times payments are late in a tax year as follows … 

- Late once – no penalty - Late 2 to 4 times – 1% penalty 

- Late 5 to 7 times – 2% penalty - Late 8 to 10 times – 3% penalty 

- Late 11 or more times – 4% penalty 

The penalty applies to the total amount that is late in the tax year (ignoring the first late payment in that tax year). 

If any payment is made more than six months late a further 5% charge is added to the above penalties. Where the payment is over 12 months late another 5% penalty charge is added. 

However, these penalties cannot be imposed automatically as at present HMRC does not know how much PAYE etc you should be paying over month on month. Although, when the Taxman inspects your PAYE records and it is apparent that you been late in paying over your payroll deductions, he has every right to impose these heavy penalties for late payment. 

Last week our new chancellor announced his first budget date of the 22^nd June.  Since then there has been much speculation as to what this has in store for us.  These are just a few things I have come across:-

Personal allowance – Before Election Day it was well published that the Liberal Democrats favoured a £10,000 personal allowance, and we know that this was one of the concessions agreed under our new collation government.  The aim is to help low and middle earners so I would expect it to be capped at a certain level of income.  This is expected to come into effect from 2011.
 

Capital gains tax – I think that this is a where we will see significant changes and has been a surprise to some that changes have not been made sooner.  CGT tax currently stands at 18%, if changes are made, we could see a future tax rate of 40%. 
There is also a lot of uncertainty as to when the government will introduce CGT changes.  A change mid way through a tax year (budget date), will be the most effective for the tax man in terms of revenue, but in turn could cause them a logistical nightmare.  Some commentators believe a more realistic date will be 6^th April 2011.  For those of you who are sitting on large capital gains at this point in time, you need to look out for these changes and be prepared to act quickly to realise the gain at 18%, if the rules are introduced next year.

Corporation tax – There have been some very mixed messages on corporation tax policy.  I had read an article on accounting web suggesting that the main rate of corporation tax for large companies will be reduced to make the UK more competitive.  To pay for this concession the rate of corporation tax for smaller companies may increase, together with the abolition of the annual allowance.

http://www.accountingweb.co.uk/topic/budget-2-date-set-22-june/426119
 

Others are speculating that there will be a reduction in both the larger company and smaller company corporation rates……..watch this space!
 

Vat changes – Will the rate of vat be increased to 20%?  When the Labour government reduced the rate to 15% in December 2008, there was much discussion at the time suggesting that when the rate increased again, it would go up to 20%.  At the time it caused uproar as Vat has an impact on nearly everything we all buy.  Although it would be a quicker way of increasing tax revenue, will it be too unpopular for a new government to implement when they are still finding their feet?
 

National insurance rises – This could be good news for employers as it is being suggested that the proposed 1% increase will be stopped.  However the 1% increase for employees may well still go ahead.

We look forward to a good deal more clarity on tax policy on the 22nd June.

I recently sold my 60% share in a trading company that I’ve been a director of for over 20 years. The sale included ordinary shares that had full voting rights, and preference shares, which had no voting or conversion rights, just the right to a fixed dividend. Can I claim entrepreneurs’ relief on the gain arising on both types of shares or just in respect of the gain on the ordinary shares? 

For the last 12 months we have been warning you that the favourable tax concessions for furnished holiday lettings (FHL), would end on 6 April 2010.
 
The legislation to change these tax rules was included in the 2010 Finance Bill. However, as part of the horse-trading at the end of Parliament before the General Election, the repeal of the FHL rules was dropped from the Finance Bill before it became the 2010 Finance Act on 8 April 2010.
 
The FHL rules can be used by any individual, partnership or company who lets property located anywhere in the UK or in any EEA member state.
 
The property must also comply with all of the following conditions:
 
- It is let out as furnished holiday accommodation for at least 70 days a year;
- It is available for commercial letting for at least 140 days per year; and
- It is not let for a continuous period of more than 31 days to the same tenant in seven months of the year, and those seven months include the periods in which it is actually let as holiday accommodation. Those seven months do not have to be a continuous period.
 
‘Holiday accommodation’ means letting to the general public for periods which do not normally exceed a month, but this can include letting to business people for short periods as well as to tourists.
 
If the property qualifies under the FHL rules the letting business is treated as a trade for most income tax and capital gains tax reliefs. This means the following tax advantages apply:
 
- Losses from the FHL business can be set against other income of the same year.
- The FHL income qualifies as earnings for pension contributions.
- Any capital gain made on the disposal of a FHL property can be:
    - reduced by entrepreneurs’ relief; or
    - deferred by purchasing another FHL property or a different business asset; or
    - deferred if the FHL property is given away or sold at below market value.
 

The FHL property may also be exempt from inheritance tax if the owner takes an active part in the FHL business.

At this time of year, the majority of tax returns we are asked to do are for repayment cases.  The questions we always get asked is ‘how long will it take for me to receive the tax refund?’

Over the last couple of years tax refunds have been paid very quickly, but over the last couple of months, on numerous occasions there have been quite lengthy delays. 

HMRC advise that they aim to make repayments within 4 weeks of receiving the claim, as they need time to carry out security checks to ensure there is a claim to be made.  They do however advise that at busy times such as the beginning of the tax year and in January this process can take longer.

Recommendations

Be prepared to wait for at least the 4 week period.  In our experience constantly phoning HMRC chasing the refund does not work and can be very time consuming.

If you are currently looking for a PAYE refund for the tax year ending 5 April 2010, when you apply for the repayment (or make the claim on a R40 form), also send through a copy of your P60 and prominently mark the letter as a ‘Repayment claim’.

We would be very interested in hearing of your experiences with claiming refunds, so please let us know.
 

A host of new employment related regulations came into force on 6 April 2010. This is a brief summary of those regulations that are likely to affect you or your business.
  

Fit notes - these replace sick notes issued by GPs and will state what the worker can do, rather than what he or she is prevented from doing. 

Pension date - the date from which the individual can draw the state retirement pension will not necessarily fall exactly on a woman’s 60th birthday. For example, a women who reaches age 60 between 6 April 2010 and 5 May 2010 will have a state pension date of 6 May 2010. This date also affects the payment of the employee’s NI contributions. 

NI contribution years - individuals who reach state retirement age only have to accumulate 30 full years of NI contributions or credits to gain a full state pension. 

A single year of NI contributions - will count towards the state pension. Until now a person had to accrue at least one quarter of their working life (about 11 years for a man, 10 for a woman) to be entitled to any state retirement pension. Each year of NI contributions will be worth roughly £3.20 of weekly pension at current rates. It will be essential to accurately record the NI number for every employee, so that each individual can collect their pension entitlement when they retire. 

Home responsibility protection credits (HRP) will be given on a weekly basis. This will allow the HRP credit to be combined with actual NI contributions to make up a full year of NI credits. HRP credits are given where a person stays at home to look after a child and claims child benefit. 

The taxable benefit charged for the use of company cars and fuel for those vehicles is increasing from 6 April 2010. Say you drive a petrol-powered car with CO2 emissions of 160g/km. In the tax year to 5 April 2010 you are taxed at 20% of the vehicle’s list price. From 6 April 2010 the taxable benefit for driving the same car will be 21% of its list price. 

The tax position for those who have free fuel with their vehicles is even worse. Until 5 April 2010, the value of the fuel-benefit for all company cars is based on a fixed value of £16,900 multiplied by the percentage used to calculate the car benefit. So there is the combined effect of the increased percentage and the increased multiplier. From 6 April 2010 this value increases to £18,000. This means the taxable benefit of having free fuel for a petrol car with emissions of 160g/km will increase from £3,380 to £3,780. 

Company van drivers are also hit by the rise in the fuel benefit. Currently where free fuel is provided in a company van, and the van is used for some non-business journeys, the driver is taxed on £500 per year for the use of that fuel. From 6 April 2010 the van driver will be taxed on £550 per year for use of the fuel. 

You can reduce these high tax charges by switching to a low emissions car. Where the CO2 emissions are 120g/km or less the car benefit for petrol cars is just 10% of the list price, and half that amount where CO2 emissions are 75g/km or less. We could only find one car with emissions in that bottom category: Toyota plug-in Prius, which has an official CO2 emissions rating of only 67g/km. 

If your vehicle has zero emissions such as an electric car or van, there is no tax charge at all from 6 April 2010. What’s more, when your business buys a new electric vehicle it can write-off the full cost for tax purposes in the year of acquisition. 

Your workplace in Manchester will qualify as a temporary workplace as the contract is expected to last for less than 24 months. Thus all reasonable travelling and accommodation expenses connected with that assignment can be reimbursed to you by your company. You should provide receipts for all the expenses, unless the amount is covered by a dispensation agreement your company has with the Tax Office, such as for mileage claims.