Half-term help with childcare costs

Posted on 27th October 2022 by Solutions Accountancy

HMRC is reminding parents that they may be eligible for Tax-Free Childcare (TFC) to help pay for October half-term holiday clubs and wraparound care during the school terms.

The TFC scheme can help parents of children aged up to 11 years old (17 for those with certain disabilities). The TFC scheme helps support working families with their childcare costs. There are many registered childcare providers including childminders, breakfast and after school clubs and approved play schemes signed up across the UK. Parents can pay into their account regularly and save up their TFC allowance to use during school holidays. 

The TFC scheme provides for a government top-up on parental contributions. For every £8 contributed by parents an additional £2 top up payment will be funded by Government up to a maximum total of £10,000 per child per year. This will give parents an annual savings of up to £2,000 per child (and up to £4,000 for disabled children until the age of 17) in childcare costs. 

The TFC scheme is open to all qualifying parents including the self-employed and those on a minimum wage. The scheme is also available to parents on paid sick leave as well as those on paid and unpaid statutory maternity, paternity and adoption leave. In order to be eligible to use the scheme parents will have to be in work at least 16 hours per week and earn at least the National Minimum Wage or Living Wage. If either parent earns more than £100,000, both parents are unable to use the scheme.

HMRC’s Director General for Customer Services, said:

‘Tax-Free Childcare can make a big difference to families, helping with the bills for things like wraparound care for school children, nurseries, childminders and holiday clubs. It’s easy to register – search ‘Tax-Free Childcare’ on GOV.UK.’

New VAT Registration process for agents

Posted on 27th October 2022 by Solutions Accountancy

A new VAT registration process known as the VAT Registration Service or VRS was made available to agents from 1 August 2022. The VRS had been in testing mode for the previous 18 months and was used by over 37,000 businesses to successfully register for VAT.

One of the key changes with using the VRS is that every new VAT registered business is automatically signed up to Making Tax Digital (MTD) as part of registration, removing the need for that extra step.

To access the VRS service, agents should use the link available at How to register your client for a tax service as an agent. Agents must ensure they use their agent services account credentials in order to login. 

The person completing the application will be asked for their name, phone number and email address. HMRC has clarified that the details are requested solely for the purposes of any follow up questions on the VAT application.

HMRC has also sent an update newsletter to stakeholders on the new VRS. The update answers some FAQ’s including:

What information do I need from my clients to register their business using the VRS?

To complete a VAT registration, you’ll need your client’s:

  • name
  • date of birth
  • National Insurance number
  • ID, such as their passport or driving licence
  • details of turnover and nature of business
  • bank account details (or a reason if no bank account details are provided)
  • Unique Tax Reference (UTR) number

If you’re registering a limited company client, they must have a have a Company Registration Number and a Corporation Tax Unique Taxpayer Reference (UTR) to complete the VAT registration process. Individuals and Partnerships do not need to have a Self-Assessment UTR to register for VAT, but if they do have one, they must supply it.

We recommend you have this information to hand when starting an application. If you are waiting for information from your client, you can save and edit the application for 7 days by clicking ‘Save and Exit’. This will soon be increased to 28 days.

Private Residence Relief garden and grounds

Posted on 27th October 2022 by Solutions Accountancy

In general, there is no Capital Gains Tax (CGT) on a property which has been used as a main family residence. This relief from CGT is commonly known as private residence relief.

However, there are grey areas which might result in CGT being due on the sale of a private residence. One of these areas to consider is when disposing of garden or grounds belonging to the property.

The entitlement to private residence relief is usually available if the garden or grounds, including the site of the house is no greater than 5,000 square metres (a little over an acre). Larger gardens and grounds may qualify but only if they are appropriate to the size and character of the property and are required for the reasonable enjoyment of it.

Taxpayers are still entitled to relief if they dispose of land that they occupy as their garden or grounds, up to the permitted area, at the time of disposal. The garden or grounds includes the buildings standing on that land. HMRC’s guidance is clear that a building that is not part of a dwelling house can still qualify for relief if it’s within the permitted area of garden or grounds.

No relief is allowed for land let or used for a business or for land that has been fenced or divided off from your garden for development.

IHT gifts with reservation of title

Posted on 27th October 2022 by Solutions Accountancy

The majority of gifts made during a person's life are not subject to tax at the time of the gift. These lifetime transfers are known as 'potentially exempt transfers' or 'PETs'. These gifts or transfers achieve their potential of becoming exempt from Inheritance Tax if the taxpayer survives for more than seven years after making the gift. There is a tapered relief available if the donor dies between three and seven years after the gift is made.

The effective rates of tax on the excess over the nil rate band for PETs is:

  • 0 to 3 years before death 40%
  • 3 to 4 years before death 32%
  • 4 to 5 years before death 24%
  • 5 to 6 years before death 16%
  • 6 to 7 years before death 8%

However, the rules are different if the person making the gift retains some 'enjoyment' of the gift made. This is usually the case where the donor does not want to give up control over the assets concerned and the gift is made with reservation of title. These gifts fall under the heading of 'Gifts With Reservation of Benefits rules' or 'GWROBs'.

A common example is a person giving their house away to their children but continuing to live in it rent-free. Under these circumstances, the taxman would contend that the basic position of the donor remained unchanged and that this is a GWROB. In this is the case, HMRC will not accept that a true gift has been made and the 'gift' would remain subject to Inheritance Tax even if the taxpayer dies more than 7 years after the transfer.

A GWROB can usually be avoided in this type of situation if the donor pays full market rent for the use of the asset gifted.

Donations through Gift Aid

Posted on 20th October 2022 by Solutions Accountancy

The Gift Aid scheme is available to all UK taxpayers. The charity or Community Amateur Sports Clubs (CASC) concerned can take a taxpayer’s donation and, provided all the qualifying conditions are met, can reclaim the basic rate tax allowing for an extra 25p of tax relief on every pound donated to charity.

Higher rate and additional rate taxpayers are eligible to claim tax relief on the difference between the basic rate and their highest rate of tax. This can be actioned through their Self-Assessment tax return or by asking HMRC to amend their tax code.

For example:

If a taxpayer donates £500 to charity, the total value of the donation to the charity is £625. The taxpayer can claim additional tax back of:

  • £125 if they pay tax at 40% (£625 × 20%),
  • £156.25 if they pay tax at 45% (£625 × 20%) plus (£625 × 5%).

Taxpayers should be aware that one of the conditions of gaining tax relief is that you must have paid enough tax (or any tax) in the relevant tax year. The rules state that your donations will qualify for tax relief as long as you have not claimed more than 4 times what you have paid in tax in that tax year. If you have claimed more tax relief than you are entitled to you will need to notify the charity and pay back any excess tax relief to HMRC.

Second cost of living payment

Posted on 20th October 2022 by Solutions Accountancy

Back in May 2022, the then Chancellor Rishi Sunak announced a package of support measures targeted mainly to the most vulnerable members of society. One of the main measures was the Cost of Living support package to help over 8 million households in receipt of mean tested benefits. 

These households were set to receive a payment of £650 before the end of the year with the DWP making the payment in 2 lump sums. The first payment of £326 was made in July and it has been confirmed that the second payment of £324 will be made in November.

The money will be paid between 8 November and the 23 November. The second payment will automatically be paid into the bank accounts of those eligible in England, Scotland, Wales and Northern Ireland who receive a qualifying benefit, meaning they will not need to do anything to receive the money.

Some individuals who are not on a qualifying DWP benefit may still be eligible for the £324 payment as HMRC are also making payments to those who receive tax credits and no other eligible benefits.

The Work and Pensions Secretary, Chloe Smith said:

‘Millions of families will soon see a £324 cash boost as part of our extensive £1,200 support package, helping to raise incomes and manage the rising cost of living.’

An additional one-off payment of £300 will also go to the over 8 million pensioner households across the UK who receive the Winter Fuel Payment. This amount will be paid in addition to any other one-off support a pensioner household is entitled to.

The Winter Fuel Payment is not taxable and does not affect eligibility for other benefits. The government will make these payments directly to households across the UK. This money will be paid out as top-up to pensioner households annual Winter Fuel Payment in November / December.

Deadlines 2021-22 Self-Assessment tax return

Posted on 20th October 2022 by Solutions Accountancy

The 2021-22 tax return deadline for taxpayers who continue to submit paper Self-Assessment returns is 31 October 2022. Late submission of a Self-Assessment return will become liable to a £100 late filing penalty. The penalty usually applies even if there is no liability or if any tax due is paid in full by 31 January 2023.

We would recommend that anyone still submitting paper tax returns consider the benefits of submitting the returns electronically and benefit from an additional three months (until 31 January 2023) in which to submit a return.

Taxpayers with certain underpayments in the 2021-22 tax year can elect to have this amount collected via their tax code (in 2023-24), provided they are in employment or in receipt of a UK-based pension. The coding applies to certain debts and the amount of debt that can be coded out ranges from £3,000 to £17,000 based on a graduated scale. The maximum coding out allowance only applies to taxpayers with earnings exceeding £90,000.

Daily penalties of £10 per day will also take effect if the tax return is still outstanding three months after the filing date up to a maximum of £900. If the return still remains outstanding, further higher penalties will be charged from six months and twelve months late.

Taxpayers that received a letter informing them that they have to submit a paper return after 30 July 2022 have an extended deadline which runs for three months from the date they received the letter to submit a paper return.

VAT Flat Rate scheme

Posted on 20th October 2022 by Solutions Accountancy

Using the VAT Flat Rate scheme, businesses pay VAT as a fixed percentage of their VAT inclusive turnover. The actual percentage used depends on the type of business. The scheme has been designed to simplify the way a business accounts for VAT and in so doing reduce the administration costs of complying with the VAT legislation.

Using the Flat Rate scheme, you pay VAT as a fixed percentage of your VAT inclusive turnover. The actual percentage you use depends on your type of business. The amount of VAT you pay on your business expenses becomes irrelevant to your VAT returns. This is very different to the normal VAT accounting procedure where the VAT you pay to HMRC is the difference between the VAT you charge your customers and the VAT you pay on your purchases.

The scheme is open to businesses that expect their annual taxable turnover in the next 12 months to be no more than £150,000, excluding VAT. The annual taxable turnover limit is the total of everything that a business sells during the year. It includes standard, reduced rate or zero rate sales and other supplies. It excludes the actual VAT charged, VAT exempt sales and sales of any capital assets.

A limited cost trader test was introduced in April 2017. Businesses that meet the definition of a 'limited cost trader' are required to use a fixed rate of 16.5% for the scheme. Businesses defined as limited cost traders may find it more beneficial to leave the scheme and account for VAT using traditional VAT accounting.

Once you join the scheme you can continue using the scheme provided your total business income does not exceed £230,000 in a 12 month period. There are some special rules if the increased turnover is temporary. There is also a first year discount for businesses in their first year of VAT registration of 1%.

Utilising CGT losses prior to death of taxpayer

Posted on 20th October 2022 by Solutions Accountancy

Usually, if you sell an asset for less than you paid for it you would make a capital loss. As a general rule if the asset would have been liable to CGT had a gain taken place then the loss should be an allowable deduction. 

If an individual realises an allowable loss in the part of the tax year before his or her death, those losses must be set first against any chargeable gains accruing in that period. This applies even if it reduces the net chargeable gains below the annual exempt amount for that year.

If there is an excess of allowable losses after this set off, those losses may be carried back and set off against gains accruing in the three tax years before the tax year of death. 

Any losses that are not set against gains accruing before death are lost. They cannot be used by the personal representatives or the legatees.

The legislation does not provide any specific procedures or time limits for dealing with claims to carry back losses of the year of death. The normal procedures and time limits relating to claims will therefore apply.

Unlawful estate agency businesses

Posted on 20th October 2022 by Solutions Accountancy

The Money Laundering Regulations (MLR) are designed to protect the UK financial system and put in place certain controls to prevent businesses being used for money laundering by criminals and terrorists.

HMRC has named 68 estate agents that have been fined a total of £519,645 for not complying with rules designed to stop criminals laundering money from illegal activity.

Tax evasion is a criminal offence that can lead to money laundering, for example, the sale price of a property may be set below the Stamp Duty threshold by manipulating the price of furniture and fittings. Tax may also be evaded by hiding behind complex legal structures. 

HMRC’s guidance says that money laundering can take many forms, but in the property sector it often involves:

  • buying a property asset using the proceeds of crime and selling it on, giving the criminal an apparently legitimate source of funds
  • criminals may also hide behind complex company structures and multiple accounts to disguise the real purpose of a transaction and hide its beneficial ownership
  • a more direct method may involve paying an estate agent or auctioneer a big deposit and reclaiming it later
  • the money for a purchase may be the result of mortgage fraud.