Property and Trading Allowances
If, like many people, you found yourself with some unexpected free time this past year (owing to reduced hours, furlough, or simply because your social life has taken a hit) you may have finally decided to take the plunge and start your own business. That being said, the additional time spent schooling your children may have impacted your ability to devote as much time as you’d have liked.
Where you have gross income from self-employment of less than £1,000 in the tax year this income is covered by the Trading Allowance and there is no requirement to register for self-assessment and declare this income to HMRC. Similarly, if you have received income below this threshold from property (perhaps from letting a garage or small parcel of land), your income would be covered by the Property Allowance.
It should be noted that, in both circumstances, the allowance is instead of expenses not as well as and in the case of property, the allowance is not available if you are claiming relief in respect of mortgage interest.
If your trading or property income is in excess of £1,000 you will be required to notify HMRC before 5 October 2021 (for the 2020/21 tax year) and report and pay any tax and national insurance contributions before 31 January 2022.
If you would like to discuss your requirements in respect of self-assessment, please do not hesitate to contact us.
When you sell your home, principal primary residence relief exempts the proportion of the gain which relates to the period of time you have occupied it as your main residence compared to the total length of ownership. Furthermore, there are certain periods of ‘deemed occupancy’ which can further reduce any chargeable gain. It is largely known that any exclusive business use of areas of the property will not qualify for the relief, but a lesser known sticking point is that the relief is only available where the total area covered by the property and grounds is less than 5,000m2. Larger areas can qualify provided they are appropriate for the size and character of the property and required for the reasonable enjoyment of it.
From 6 April 2020 capital gains tax on property is payable within 30 days of the date of completion (note the tax point for capital gains tax purposes remains the date of exchange) therefore it is important that advice is sought sooner rather than later if you are unsure of your tax position.
Overseas Tax Compliance
HMRC has launched a consultation on ways to improve awareness of tax liability among UK taxpayers with offshore income. Since 2010 the government has collected in excess of £3bn in respect of offshore non-compliance, but it is suspected a third of offshore income remains untaxed.
This is even after the Requirement to Correct deadline passed on 30 September 2019 which encouraged individuals to notify HMRC to avoid higher penalties.
The general opinion of UK residents with offshore income is that tax is only due where the income source is based. This is not strictly the case and the tax treatment will vary depending on the nature of the income (i.e. interest, rent, dividends) and whether the UK has a tax treaty with that country. In all cases, relief will be available for tax paid overseas.
In the past month we have seen a significant rise in the number of people receiving letters from HMRC regarding potential undeclared offshore income. The penalties for non-compliance start at 100% – we would therefore encourage anyone who is unsure of their offshore tax position to seek professional advice.
From 6 April 2021, the off-payroll working rules will come into effect in the private sector. The effect of the upcoming changes means that the responsibility for determining employment status falls on the end client if it is a medium or large entity. The end client must inform the fee payer (intermediary company) and the worker of its size. If it is medium or large, then it must deduct and pay tax and NICs via PAYE if the worker is deemed to an employee. If the end client is small the responsibility remains with the intermediary.
In the past few years there have been several high profiles cases regarding employment status and the wider impact beyond taxation. Employment status is typically determined in relation to a number of indicators and does not simply rest on the clauses within the contract, the reality of the engagement must be reviewed and if HMRC were to open an enquiry you should be able to support assertions with evidence.
If you are in any doubt, we would suggest that professional advice is sought.
Promoters of Tax Avoidance Schemes
The government is looking to strengthen HMRC powers to clamp down on promoters of tax avoidance. Historically the focus from HMRC has been to approach the taxpayer to recoup lost revenue with no apparent recourse against the individuals (or firms) marketing these schemes.
The proposals include:
- Freezing the promoter’s assets to ensure fines are payable;
- Closing down companies and disqualifying their directors;
- Public publication of the names of Promoters.
This is in addition to the existing penalties for promoters of tax avoidance schemes which were introduced in FA2014 and amended in FA 2017 and FA 2020.
If you think you may have been approached by a scheme promoter and would like to discuss its merits we would be happy to provide impartial advice.