Property and trading allowances and how to claim them

Two new £1,000 allowances have been introduced for the 2017/18 tax year, these are designed to take out anyone earning £1,000 of property income or self-employed income from the need to complete a tax return. For those earning over £1,000 of property or self-employed/trading income you have a choice as to whether you deduct the £1,000 allowance or deduct the costs incurred in relation to your income. Therefore it is not possible to claim expenses, capital allowances or relief under the Rent a Room Scheme if the allowance is claimed. Note that where a house is owned by multiple persons i.e. spouses or siblings each person gets a £1,000 allowance to put against their share of the property income.

Example: A husband and wife own a flat which they rent out for £400 per month. Their share of the property income is £2,400 each. If the expenses relating to the property are less than £2,000 a year (i.e. a 50% share would be £1,000) then the husband and wife would be better claiming the property allowance rather than claiming for the associated expenses. They would therefore only have to pay tax on £1,400 of the property income.

Where we complete your return for you we will choose the most beneficial option for you. If you complete your own tax return using the HMRC website then in the property pages you need to fill in the box which reads “Property income allowance” under the “total rents and other income from property” box.

An example of where the trading allowance could be claimed is say a tradesman who is employed but also does small jobs for his friends outside of his work, which required little materials cost. In total for the year he received £1,500 from these jobs, he would have to pay tax on only £500 of this income as the trading allowance of £1,000 would be claimed. Note that if multiple trades exist it is a total of £1,000 that can be claimed (you do not get £1,000 to set off against each trade).

Please also note that neither allowance can be used to create a loss, i.e. if you have £700 of income you cannot claim an allowance of £1,000 as this would create a loss of £300, therefore you would only be able to claim £700 of the allowance if you have included the income on your tax return.

Where we complete your return for you we will choose the most beneficial option for you. If claiming yourself through HMRC’s self assessment programme, in the self employed pages, you will need an entry in the “Trading Income Allowance” box (shown under the Turnover earned by your business box).

Clare Garrison Audit Manager Carlisle Office
Clare Garrison
Audit Manager
Carlisle Office


Revised advisory fuel rates from 1 March 2018

Company Owned Vehicles

HM Revenue and Customs have announced revised tax free advisory fuel rates from  1 March 2018 which may be paid for business journeys in a car owned by the business.   Rates for the previous quarter are shown in brackets.

Engine size Petrol Diesel LPG
1,400 cc or less 11p (11p) 7p (7p)
1,600 cc or less 9p (9p)
1,401 cc to 2,000 cc 14p (14p) 8p (9p)
1,601 cc to 2,000 cc 11p (11p)
Over 2,000 cc 22p (21p) 13p  (13p) 13p (14p)

These rates may be used in the following circumstances:-

  1. Where employers reimburse for business travel in company cars.
  2. Where employers provide fuel for company cars but employees are required to reimburse the cost of fuel for private use.

Input VAT claims on mileage paid for company cars OR employee owned vehicles

HM Revenue & Customs will accept the above figures for claiming input VAT on fuel for company cars, provided a VAT receipt is available to cover the cost of the fuel.  They will also accept use of the above rates by the employer when calculating input VAT on the fuel element for employees using their own vehicles and claiming mileage under the tax free approved mileage rates for business travel of 45p for the first 10,000 miles and 25p thereafter.

If you have not already done so, please update any spreadsheets you may use.

If you have any queries regarding the above or require any further information please do not hesitate to contact us.

What is Making Tax Digital, and how will it affect me?

What is Making Tax Digital, and How Will It Affect Me

A great many aspects of modern business have become streamlined and paperless thanks to cloud technology. And within the next few years, the government plans to add tax to that list with Making Tax Digital (MTD).

In a move that will bring about the end of paper accounting for millions across the UK, HMRC will deliver a digitally advanced, efficient, and modernised tax system to rival the best the world has to offer.

Starting from April 2019, businesses above the VAT threshold will be required to set up a digital tax account and file their returns online every quarter. But even if your business isn’t likely to exceed that threshold by that time, you should still make sure you’re prepared for the inevitable transition to digital tax returns.

In this post, we briefly explain the motivation behind MTD, how it will affect you, and when the change will take place.

Why is HMRC ͚Making Tax Digital͛?

The four core reasons behind Making Tax Digital are as follows:

1. To facilitate an efficient and effective use of information

Instead of consistently providing HMRC with the same information year after year, this approach to taxation will be smoother and smarter. HMRC will gather information from elsewhere (such as employers, banks, or other government departments) and you’ll be able to log into your account and view and update your details.

HMRC will then use this information to tailor its services according to your circumstances.

2. To provide access to real-time tax

With the introduction of MTD, you won’t need to wait until the year-end to discover how much tax you owe. HMRC will seek to collect and process information in as close-to-real-time as possible to give you an accurate and up-to-date view of your liabilities.

3. To provide taxpayers with a central financial account

Currently, you don’t have a central account where you can see a snapshot of your liabilities and entitlements. MTD will change that. By 2020, you’ll be able to log into your account and view a comprehensive picture of your personal tax situation – similar to online banking.

4. To interact digitally with customers

If you’ve ever been left on hold when calling HMRC, you’ll know just how frustrating it can be when trying to have a question answered or a problem solved. MTD will transform how you communicate with HMRC by giving you access to digital information, advice, and support via web chats and secure messaging. You’ll be able to ask and answer questions on your terms, rather than give up a morning or afternoon listening to the jazzy hold music as you’re passed between departments.

How will Making Tax Digital impact me?

Making Tax Digital will impact businesses and individuals alike. And, as outlined in this post by Xero, the good far outweighs the bad where MTD is concerned.

In short, you will be required to send a summary of your income and expenditure once a quarter via your digital tax account.

However, if your business is turning over less than £10,000 annually, you will be exempt from MTD.

And to begin with, only businesses with a turnover above the VAT threshold will be required to use the Making Tax Digital for Business system, starting in April 2019. If this applies to you, and you’re unsure if your current accounting system complies with MTD, we cover that query in this post.

When does Making Tax Digital happen?

Making Tax Digital is already happening, with a number of small pilot tests underway.

The following milestones are fast approaching:

  • Early 2018 – Live pilot of Making Tax Digital for VAT begins.
  • April 2019 – Businesses with a turnover above the VAT threshold will be mandated to keep digital records and submit quarterly returns for VAT purposes via their accounting software.
  • April 2020 – HMRC will look to expand the scope of Making Tax Digital, assuming the system is working as expected.

Don͛t Get Left Behind – Go Digital Now

Saint & Co has been around long enough to have experienced many of the major shifts in UK tax administration, and Making Tax Digital promises to be an exciting and welcome change to our relationship with tax.

We’ve kept our finger firmly on the pulse of this developing situation, and we can help you prepare to make the switch to keeping digital tax records.

Simply fill out our contact form, or call us on 01228 534371 to get started.

Did you get a big tax bill and now want some back?

Many of you will have just paid your 2016/17 tax bill before the 31 January 2018 deadline, and some of you will also have paid 50% of next year’s tax on account. Here are a couple of tax planning ideas that can help you obtain a tax refund.

Invest in EIS or Seed EIS qualifying companies

Before 6 April 2018, individuals may invest in companies that qualify under the Enterprise Investment Scheme (EIS) and treat that investment as having been made in 2016/17. The tax relief is 30% of the amount invested.  So a £20,000 investment can reduce the 2016/17 tax liability by £6,000. Investing in a Seed EIS qualifying company is even better as there is a 50% tax relief.  Such companies tend to be riskier than EIS qualifying companies. You should therefore obtain specialist advice from an IFA if you are considering such investments.

Investing in an EIS qualifying company can also enable you to defer capital gains tax. In order to do so you must reinvest the amount of the gain within the 3 years following the date of the disposal giving rise to the gain. (The investment could also be within 12 months prior to the disposal).

Increase your Pension Savings before 6 April 2018 to reduce payments on account

Unfortunately investing more in your pension now will not reduce your 2016/17 tax liability, however if you invest before 6 April 2018 that payment can be taken into consideration in computing your 2017/18 liability and hence you might be able to claim to reduce your payments on account, if you make them.  The maximum pension contribution is generally £40,000 each tax year, although this depends on your earnings. It is also possible to add to this any unused relief brought forward from the previous three tax years.

New Year resolutions to save tax

new year resolutions to save tax

At this time of year we think about New Year’s resolutions. It is also a good time to start planning your tax affairs before the end of the tax year on 5th April.

An obvious tax planning point would be to maximise your ISA allowances for the 2017/18 tax year (currently £20,000 each).

You might also want to consider increasing your pension savings before 5 April 2018 as the unused annual pension allowance is lost after three years.

For those looking to do some inheritance tax planning it would be a good time to review (or make) your Will in the light of the recent change in the inheritance tax nil rate band.

Finance cost restrictions for residential landlords

Net profits from residential property (after deducting allowable expenses) are liable to income tax at your marginal rate:

  • For basic rate taxpayers 20%
  • For higher rate taxpayers 40%
  • For additional rate taxpayers 45%

The amount of tax relief for any finance costs is being restricted to the basic rate of tax. Meaning if you are a higher or additional rate tax payer with interest costs being incurred on let property your tax liability may be higher. This is being phased in gradually over 4 years from April 2017.

Finance costs will no longer be allowed as a deduction when computing taxable residential property profits. Instead once all your income has been assessed the finance costs will act as a tax reducer at 20%. Previously you would have got tax relief at your marginal rate.

Over the next four years you will be able to use some of the finance costs to deduct from your property profits, while some will be only used as a basic rate tax deduction. This is up until April 2020 when the basic rate tax deduction will be fully phased in.


Tax year

Percentage of finance costs deductible from rental income Percentage of basic rate tax reduction
2017 to 2018 75% 25%
2018 to 2019 50% 50%
2019 to 2020 25% 75%
2020 to 2021 0% 100%

If your total income, including residential property profits with no deduction for finance costs, is still within the basic rate you will not be affected by these changes. Please note there are some restrictions when finance costs exceed rental profits. However if your total income exceeds the basic rate and is in higher or additional rates your tax liability will be affected in the future.

Example – Higher rate tax payer

Jake owns a mortgaged property that he lets out. He has a mortgage on the property and he claims interest on this as an expense against his rental income each year. Jake also has a job where he earns £49,000 a year. The interest on his mortgage is approximately £3,000 per year. Below is a table showing increase in his tax liability between now and 2020/21:

Tax Year Increase in Tax liability
2016/17 £0
2017/18 £150
2018/19 £300
2019/20 £450
2020/21 £600

Please contact us regarding the above if you would like any advice or if you want your personal circumstances evaluated to see how the changes affect you.

Must own 5% of ordinary shares for capital gains tax entrepreneurs relief

In order for a shareholder to qualify for capital gains tax (CGT) entrepreneurs relief on the disposal of their shares, they must be an officer or employee of the company (or group) and hold 5% or more of the company’s ordinary share capital and voting rights for 12 months prior to the disposal. The company must also be a trading company or the holding company of a trading group throughout the same 12 month period.

In a recent tax case, the judge agreed with HM Revenue and Customs that in determining whether or not the shareholders held the required 5% of the ordinary share capital, all of the company’s shares should be considered except those with a fixed rate of dividend (preference shares). A lower court had previously decided that shares with no entitlement to dividends and voting rights could be disregarded.

Lorry Driver Overnight Allowance – Changes from 6 April 2017

lorry drivers overnight allowance

HMRC have recently announced that from 6 April 2017, in order to pay the overnight allowance free of tax and national insurance, operators are required to apply for an Approval Notice from HMRC.  If operators wish to pay amounts in excess of these rates they will need to apply for a Bespoke Agreement.

When applying, the operator must be able to show the presence of a checking system, which they will use on a random basis to ensure that expenses claimed are actually being incurred.

The Approval Notice and Bespoke Allowance Agreement may be applied for online here. Note that both applications may be made on the same Bespoke Allowance Agreement application form.

The approval will last for up to five years.

Checking systems

Employers must have a system in place for checking that payments to employees are only made on occasions where the employee would be entitled to a deduction from earnings in respect of that payment and had incurred and paid an amount in respect of expenses on that occasion.

HMRC will accept evidence in the form of a sampling exercise based on the expenses incurred:

  • By a random sample
  • Of 10 per cent of all eligible employees
  • Over a one-month period.

These checks should cross-reference driver work schedules and time sheets to demonstrate that drivers were away from base in the performance of their duties on the days that payments were made. A further check on driver receipts should be carried out to ensure that costs were incurred.

Further details of the checking model are available from HMRC document EIM30275 which is available here.

The documentary evidence needed to support the checking system may include the following.

  •   Receipts – e.g. for hotels or parking
  •   Drivers’ log sheets or tachograph records/data
  •   Drivers’ expense claims.

Operators may need to make further enquiries to be satisfied that a tax-free payment is justified.

Operators will need to retain evidence to show that they have undertaken checks in accordance with the checking system that they proposed when making their application fora bespoke agreement. This evidence may also be required when the employer is subject to an HMRC employer compliance review.

Meal Allowances

If meal allowances are also paid then it is advisable to obtain HMRC approval at the same time as the overnight allowance on the Bespoke Allowance Agreement application form.


Saint & Co’s tax expert’s views ahead of next week’s Budget

Pauline Jackson, Saint & Co’s tax partner said Inheritance changes being phased in over the next four years were an issue for her clients.

She also mentioned the ‘Making Tax Digital’ scheme, which will result in any business with a turnover of more than £10,000 needing to file quarterly returns online.  “It is the complexity that I do not like”, she said.  “It is meant to be easier”.

She also called for the Government to help landlords.

To find out how next week’s Budget will affect you, our detailed analysis of the changes and their impact on you, your family and business will be available to download after the Chancellor announces his Budget.


Proactive planning for your business’s year-end

Closeup of a personal agenda setting an important date written with pen. The words Deadline written on a white notebook to remind you an important appointment.

When you set up a business, you choose the accounting period that will work best for your business. But whatever accounting period you are working to, it is absolutely vital that you have clear planning in place to ensure that your financial loose ends are all tied up and your documentation is ready for the end of your own financial year.

In short, you need to proactively plan for your year-end, and you need to start doing this as early as possible!

Read more →

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