Selling your home – taxes to pay

Posted on 1st June 2023 by Solutions Accountancy

In general, there is no Capital Gains Tax (CGT) on a property which has been used as a main family residence. An investment property which has never been used will not qualify. This relief from CGT is commonly known as private residence relief.

Taxpayers are usually entitled to full relief from CGT where all the following conditions are met:

The family home has been the taxpayers only or main residence throughout the period of ownership.
The taxpayer has not let part of the house out – this does not include having a lodger.
No part of the family home has been used exclusively for business purposes (using a room as a temporary or occasional office does not count as exclusive business use).
The garden or grounds including the buildings on them are not greater than 5,000 square metres (just over an acre) in total.
The property was not purchased to purely make a financial gain.

If a property has been occupied at any time as an individual’s private residence, the last 9 months of ownership are disregarded for CGT purposes – even if the individual was not living in the property when it was sold. The time period can be extended to 36 months under certain limited circumstances. There are also special rules for homeowners that work or live away from home.

Married couples and civil partners can only count one property as their main home at any one time.

If the conditions outlined above are not met, then CGT may be due on some or all of the gain.

Selling all or part of your company

Posted on 1st June 2023 by Solutions Accountancy

If you are selling your company, there are important actions you must take to properly finalise your affairs. Please note that this is not an exhaustive list, and it is important to check what else may be required.

We have summarised below some of the main steps you need to take if closing your business:

Your responsibilities when selling a limited company will depend on whether you’re selling your entire shareholding, or the company is selling part of its business.
Keep staff informed about redundancy terms or relocation packages and be mindful not to breach your employees’ rights.
If you are selling your entire shareholding, you should appoint new directors before you resign as a director yourself.
Consider your liability to Capital Gains Tax and whether you can benefit from reliefs including Business Asset Disposal Relief, previously known as Entrepreneurs’ Relief.
If there are charges against your company, for example a mortgage on your house to secure a business loan, you must let the provider know within 21 days of the sale.
You may want to transfer your VAT registration to the new owner.

Can a charity claim Gift Aid?

Posted on 1st June 2023 by Solutions Accountancy

Charities can claim Gift Aid on donations made by eligible taxpayers. This can boost donations by an extra 25% if the donor makes a Gift Aid Declaration (GAD).

To claim Gift Aid, charities need to obtain a Gift Aid declaration from the donor. It should state that the donor:

has paid the same amount or more in Income Tax or Capital Gains Tax in that tax year; and
agrees to Gift Aid being claimed.

Charities must keep a record of Gift Aid declarations for 6 years after the most recent donations they claimed.

The Gift Aid Small Donations Scheme can be used on small donations of £30 or less and no GAD is required. The Gift Aid Small Donations Scheme (GASDS) scheme allows qualifying charities and Community Amateur Sports Clubs (CASCs) to claim a top-up equivalent to Gift Aid on small donations of money made without a Gift Aid declaration. A small donation is defined as a donation of £30 or less made in cash or using contactless technology, such as a contactless credit or debit card. Donations made by other methods of payments such as cheque or bank transfer do not count.

The maximum annual amount of small donations that can be claimed through the GASDS is the lower of £8,000 or 10 times the amount the charity receives in Gift Aid donations – known as the matching rule. The £8,000 limit allows charities and CASCs to claim Gift Aid style top-up payments of up to £2,000 a year.

Involuntary “give-aways”

Posted on 30th May 2023 by Solutions Accountancy

If you sell services, rather than supply goods, this usually involves you providing advice for a fee.

If your advice is sought after, the amount you can charge for your service(s) may be considerable. Which is why you should be wary of giving away your advice FOC.

Why would you do this? Why would you part with your hard-won expertise without charging a fee?

Perhaps you would be prepared to offer free advice if you are tempting a business prospect to join your customer list. And you may have clients who may be suffering a temporary downturn in activity, and you might be willing to offer pro-bono advice in limited amounts to help them through hard times.

The time to bite your tongue, and apply caution, is if a client reveals that they have a specific problem, and you can immediately see a fix. The urge to “blurt” out your solution will be irresistible but resist you must.

The skills you have acquired to provide the services you offer demand a return on this investment and giving away your solutions – whilst delighting your client – will defeat the object of you being in business.

Next time you are tempted in this way simply suggest that you may have a solution to their problem, but you will need time to check out a few details and promise to get back to them the following day. This will give you time to firm up your ideas and represent your pitch as an outline of what you can achieve, how this will benefit your client – and importantly – how much it will cost for you to deliver the solution.

Claim a tax refund for work expenses

Posted on 25th May 2023 by Solutions Accountancy

HMRC has issued a press release to remind employees that may be able to claim a claim tax relief for bills they pay that are related to their employment. The most recent figures show that more than 800,000 taxpayers claimed tax refunds for work expenses during the 2021-22 tax year with an average claim of £125. A claim can be made online by using HMRC’s online portal at GOV.UK.

A claim for valid purchases can be made against receipts or as a 'flat rate deduction'. The flat rate deductions are set amounts that HMRC has agreed are typically spent each year by employees in different occupations. These deductions range from £60 to £1,022. If an occupation isn’t listed, employees can still claim a standard annual amount of £60 in tax relief if they pay their own expenses.

This means that qualifying basic rate taxpayers can claim back £12 (20% x £60) and higher rate taxpayers £24 (40% x £60) per year. Claims can usually be backdated for up to 4 years.

Employees may also be able to claim tax relief for other expenses such as using their own vehicles, professional fees, union memberships, subscriptions and for buying work-related equipment. As a general rule, there is no tax relief for ordinary commuting to and from an employee’s regular place of work.

HMRC’s Director General for Customer Strategy and Tax Design, said:

'Every penny counts, and we want to make sure employed workers are getting what they deserve – their hard-earned cash straight back into their pockets. To make a claim just search ‘employee tax relief’ on GOV.UK. It is the quickest way of getting a tax refund on your work-related expenses and ensures you get 100% of the money back.'

There is no tax relief available if an employee is fully reimbursed by their employer.

New patents service

Posted on 25th May 2023 by Solutions Accountancy

The Intellectual Property Office (IPO) is the official UK government body responsible for intellectual property (IP) rights including patents, designs, trade marks and copyright.

The process of applying for a patent is set to change significantly over the next 12 months. The IPO has published a transformation document which sets out what patent customers can expect over the next 12 months, and details of upcoming changes to IPO’s services as part of the One IPO Transformation Programme.

The changes will start in September 2023 when the first new ‘One IPO’ service will launch a new patents search service. In addition, a new patents pilot will also start. This is expected to be followed in spring 2024 with the launch of the new One IPO patents service for all patents customers. This will include a new digital patents applications service, a new customer accounts service and the first APIs will be made available – allowing providers of IP software to link their products directly to IPO’s new systems.

Further changes are expected in the second half of 2025 including the launch of trade marks and designs services. Also expected is the introduction of a digital hearings and tribunals service.

The Minister for AI and Intellectual Property, said:

‘By delivering fast, flexible, high-quality services for the future, the ‘One IPO Transformation Programme’ will help the UK Intellectual Property Office deliver its ambition to be the best IP office in the world. I am excited to mark one year to go until the IPO’s new fully digital service for patents is launched.’

Gift aid tax benefits

Posted on 25th May 2023 by Solutions Accountancy

The gift aid scheme, which was originally introduced in 1990, allows charities to reclaim from HMRC the basic rate of Income Tax deducted from qualifying donations by UK taxpayers. This means that when a basic rate taxpayer claims gift aid on a £10 donation, the charity can reclaim from HMRC the £2.50 of tax paid on that donation.

If you are a higher rate or additional rate taxpayer, you are eligible to claim additional tax relief on the difference between the basic rate and your highest rate of tax.

For example:

If you donated £5,000 to charity, the total value of the donation to the charity is £6,250. You can claim back additional tax of:

£1,250 if you pay tax at the higher rate of 40% (£6,250 × 20%),
£1,562.50 if you pay tax at the additional rate of 45% (£6,250 × 25%).

Taxpayers have the option to carry back charitable donations to the previous tax year. A request to carry back the donation must be made before or at the same time as the previous year’s Self-Assessment return is completed.

This means that if you made a gift to charity in the current 2023-24 tax year that ends on 5 April 2024, you can accelerate repayment of any tax associated with your charitable giving. This can be a useful strategy to maximise tax relief if you are not paying higher rate tax in the current tax year but did in the previous tax year. This should be done as part of the Self-Assessment tax return for 2022-23 which must be submitted by 31 January 2024.

You can only claim if your donations qualify for gift aid. This means that your donations from both tax years together must not be more than 4 times what you paid in tax in the previous year.

Residence affects Income Tax in UK

Posted on 25th May 2023 by Solutions Accountancy

There is an interesting anomaly that can affect taxpayers with homes in Scotland and other parts of the UK. Where this is the case, the question arises as to whether or not the taxpayer is liable to pay Income Tax in Scotland or elsewhere.

As a general rule, the Scottish rate of Income Tax (SRIT) is payable on the non-savings and non-dividend income of those defined as Scottish taxpayers. The definition of a Scottish taxpayer is generally focused on the question of whether the taxpayer has a 'close connection' with Scotland or elsewhere in the UK. The liability to SRIT is not based on nationalist identity, location of work or the source of a person’s income e.g., receiving a salary from a Scottish business.

Where a taxpayer has a home in Scotland and also elsewhere in the UK, they need to ascertain which is their main home based on published guidance and the facts on the ground.

HMRC’s guidance on the issue states the following:

Your main home is usually where you live and spend most of your time.
It does not matter whether you own it, rent it or live in it for free.
Your main home may be the home where you spend less time if that’s where:
- most of your possessions are;
- your family lives if you’re married or in a civil partnership;
- you are registered for matters like your bank account, GP or car insurance; and
- you are a member of clubs or societies.

It is also possible to change which home counts as your main home if there has been a material change in the underlying facts. Scottish taxpayer status applies for a whole tax year. It is not possible to be a Scottish taxpayer for part of a tax year.

Clearance to secure exempt distribution status

Posted on 25th May 2023 by Solutions Accountancy

Most payments a company makes to its shareholders, in respect of their shares, will be qualifying distributions and may be subject to Income Tax.

If certain conditions are met, the payment can be treated as an exempt distribution. An exempt distribution is a payment that is not treated as a distribution. It is treated as consideration for the disposal of shares and is subject to CGT.

When a company makes a purchase of its own shares, any excess paid over the amount of capital originally subscribed for the shares is usually treated as a distribution. However, there are special provisions that enable an unquoted trading company or an unquoted holding company of a trading group to undertake a purchase of its own shares without making a distribution.

In order to do this, a clearance application may be made. Under this procedure a company wishing to make a purchase of its own shares can obtain advance confirmation from HMRC that the distribution arising will be an exempt distribution.

If the application is approved, the payment is treated as consideration for the disposal of the shares in the hands of the seller and subject to CGT. Where entrepreneurs' relief is available, CGT of 10% is payable in place of the standard rate. There are a number of qualifying conditions that must be met in order to qualify for the relief. Where the necessary conditions are met a company purchase of own shares can be a tax efficient way of exiting a business.

Transfer of Business as a Going Concern

Posted on 25th May 2023 by Solutions Accountancy

The transfer of a business as a going concern (TOGC) rules concern the VAT liability on the sale of a business. Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate.

Where the sale of a business includes assets and meets certain conditions the sale will be categorised as a TOGC. A TOGC is defined as 'neither a supply of goods nor a supply of services' and is therefore outside the scope of VAT. Under the TOGC rules no VAT would be chargeable on a qualifying sale.

All the following conditions are necessary for the TOGC rules to apply:

The assets must be sold as part of a 'business' as a 'going concern'. In essence, the business must be operating as such and not just an 'inert aggregation of assets'.
The purchaser intends to use the assets to continue the same kind of business as the seller.
Where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer.
Where only part of a business is sold it must be capable of separate operation.
There must not be a series of immediately consecutive transfers.
There are further conditions in relation to transactions involving land.

The TOGC rules can be complex, and both the vendor and purchaser of a business must ensure that the rules are properly followed. The TOGC rules are also mandatory which means that it is imperative to establish from the outset whether a sale is or is not a TOGC. For example, if VAT is charged in error, the buyer has no legal right to recover it from HMRC and would have to seek to recover this 'VAT' from the seller.