11th May, 2022, Kayleigh Wilson
In this article, Kayleigh Wilson FCCA CTA, tax specialist at Stephenson Smart accountants, explains how to make sure your property qualifies as Furnished Holiday Lettings.
The uncertainty of the last two years has impacted hugely on the holiday market. It is not only airlines that have been affected, but holidays closer to home. If you own a property that you rent as a furnished holiday let you need to be aware of the impact that a reduction in rental occupation may have on your tax affairs.
There are special tax rules for rental income from properties that qualify as Furnished Holiday Lettings (FHLs).
If you let properties that qualify as Furnished Holiday Lettings you can claim Capital Gains Tax reliefs and you are also entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures.
There is also a benefit to those wishing to use the earnings to increase the threshold to pay into a pension, as profits on Furnished Holiday Lettings count as earnings for pension purposes.
To qualify as a furnished holiday let your property must be commercially let as a business. You must make the property available for commercial let for 210 days in the year, and actually let the property as furnished holiday accommodation to the public for at least 105 days in the year.
Days when you let the property to friends or relatives at zero or reduced rates is not a commercial let.
There will be some furnished holiday let owners who will have struggled to meet these criteria this last couple of years. However, you may still be able to qualify for tax reliefs. If you have more than one property you may qualify for the averaging election or if your property reaches the occupancy threshold in some years but not in others, you may qualify for a period of grace election.
There are many tax, and other financial benefits, to owning and letting furnished holiday properties as a commercial business. I am a tax expert at Stephenson Smart and specialise in income tax and capital gains tax for individuals. I’m fully qualified to give tailored advice to help you navigate tax relating to your business and personal finances. Please get in touch if I can help.
Profile: Kayleigh Wilson, Tax Specialist
Image: Cranmer Country Cottages
24th March, 2022, Kayleigh Wilson
Against a backdrop of rising inflation, Chancellor Rishi Sunak presented his first Spring Statement on Wednesday 23 March 2022.
The Chancellor announced a cut in fuel duty for petrol and diesel as he sought to ease the impact of rising prices for households and businesses.
He will lift the starting thresholds for National Insurance contributions (NICs) and also pledged a cut to income tax in 2024. However, the Health and Social Care Levy will still be implemented in April 2022.
For businesses, there is an increase to the Employment Allowance, as well as relief from business rates on a range of green technologies and help with training and the adoption of digital technology.
Increase in the National Insurance threshold and Lower Profit Limit
There had been speculation that the Chancellor would try and make some kind of tax cut to answer his critics that he was not doing enough to ease the cost of living rises. His solution was to announce an increase in the annual National Insurance Primary Threshold and the Lower Profits Limit in his 2022 Spring Statement, to take effect from July 2022.
Primary Class 1 contributions are paid by employees. To align the starting thresholds for income tax and National Insurance contributions (NICs) the threshold will increase from 6 July 2022 from £9,880 to £12,570.
The Lower Profits Limit is the point where the profits of the self-employed become subject to Class 4 NICs. From 6 April 2022 the Lower Profits Limit is increased to £11,908 and from 6 April 2023 the limit is increased further to £12,570.
In addition, there will be no Class 2 NICs on profits between £6,725 and £11,908. £3.15 per week is payable where profits are over £11,908.
Temporary increase in National Insurance rates
The temporary increase in National Insurance rates (the Health and Social Care Levy) will still come into effect from April 2022.
There will be a temporary increase in the rates of NICs payable for employees, employers and the self-employed as a transitional provision in readiness for the introduction of the Health and Social Care Levy from April 2023.
With the increase to the thresholds announced in the Spring Statement, from 6 July 2022 employees earning between £242 (£190 from 6 April to 5 July 2022) and £967 per week will pay NICs at 13.25%. Earnings over £967 will attract a 3.25% charge. Employers will pay 15.05% on their employees’ earnings over £175 per week.
Although employees’ NICs only become payable once earnings exceed £242 per week, any earnings between £123 and £242 per week protect an entitlement to basic state retirement benefits without incurring a liability to NICs.
For the self-employed, where their profits exceed £11,908 per annum, they will pay 10.25% on the profits up to £50,270 and 3.25% on profits over that upper profits limit.
Income tax reduction
The Chancellor announced the reduction in the basic rate of income tax for non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland to 19% from April 2024.
The change will be implemented in a future Finance Bill.
A welcome measure announced in the Spring Statement to help all motorists – individuals, small businesses and hauliers – fuel duty for petrol and diesel is cut by 5 pence per litre across the whole of the UK. This measure took effect from 6pm on 23 March 2022 and is in place for 12 months.
Increased Employment Allowance
Employers are able to claim the Employment Allowance which reduces their employer Class 1 NICs each year.
In the Spring Statement, the Chancellor announced an increase from April 2022 of £1,000 for eligible employers to reduce their employer NICs by up to £5,000 per year.
The allowance can be claimed against only one PAYE scheme, even if the business runs multiple schemes. Connected businesses, such as companies under the control of the same person or persons, are only entitled to one Employment Allowance between them.
VAT on energy saving materials
The Chancellor announced a UK wide, time-limited zero rate of VAT from April 2022 for the installation of energy saving materials. This will apply to installations such as rooftop solar panels.
This is in addition to the extension of the VAT relief to include additional technologies and the removal of complex eligibility conditions.
Green reliefs for business rates
The government is introducing targeted business rates exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat networks with their own rates bill. It was announced in the Spring Statement, that these measures will now take effect from April 2022, a year earlier than previously planned.
Spring Statement Summary
These are the main highlights of the Spring Statement announcements by the Chancellor. An above average amount of changes to allowances and tax bands for a Spring Statement, some of which come into play very soon and will have an immediate effect on calculations.
At Stephenson Smart we are specialists in helping people navigate their business and personal finances. You should contact us for advice before taking any action as a result of the contents of this response.
Related pages: Budget 2021
23rd February, 2022, Kayleigh Wilson
In the Autumn Budget 2021 the chancellor announced tax changes due to come into play in April 2022. The two main changes are The National Insurance threshold and rate change along with the increase to dividend tax rates. There is also a change to capital gains tax reporting on the sale of a property.
Kayleigh Wilson ACCA CTA, tax expert at Stephenson Smart, examines these changes and what they might mean for your finances.
National Insurance threshold and rate tax changes
National Insurance rates are set to rise by 1.25 percentage points from 6 April 2022, as part of the government’s plan to introduce a health and social care levy where working people contribute to fund the NHS and the social care crisis.
In 2022-23 this will be taken along with the rest of your National Insurance payment, but the plan is to officially split out the levy from April 2023.
April 2023 will also be the point where the levy is paid by those who are above state pension age, but still in work.
The National Insurance lower earnings limits will increase by 2.5%. Upper earnings thresholds, however, is being frozen at £50,270.
Dividend tax changes – rates to increase
Similarly to the National Insurance rate rises, those who earn money from dividends will also see a 1.25 percentage point rise from April.
You may have to pay dividend tax if you’re an investor that earns money from owning company shares; you’re only charged tax on the amount you earn above the dividend allowance, which is £2,000 in 2022-23, unchanged from 2021-22.
Those with investments held in an ISA wrapper – such as a Stocks and Shares ISA – are tax free and so won’t be charged dividend tax.
Capital gains tax reporting extended
The time period within which taxpayers must report the gain and pay the tax owed after the sale of a property has increased from 30 days to 60 days.
This means anyone who makes a capital gain after selling a second home or buy-to-let property will need to submit a residential property return to HMRC and make a payment on account for the estimated tax owed within 60 days of the gain being made. This is only for properties sold on or after 27 October 2021. If you sold property between 6 April 2020 to 26 October 2021, you would have had to report and pay the CGT within 30 days.
It’s important to make sure you’re aware of the latest tax changes so you can plan ahead and avoid any fines for getting it wrong.
At Stephenson Smart we are experts in tax planning, please get in touch if we can help you to manage these changes.
14th October, 2021, Marina Watters
Making Tax Digital delay: HMRC has announced that there will be a delay to the start of Making Tax Digital for Income Tax Self-Assessment.
In this article, Marina Watters ACCA analyses some of the information arising from that announcement, highlighting the key points that businesses and individuals need to know.
What are the implications of the Making Tax Digital delay?
The mandatory introduction of Making Tax Digital for Income Tax for sole trader businesses and landlords with gross business income over £10,000 per annum will now begin in the tax year beginning in April 2024. General partnerships will not be required to join Making Tax Digital for Income Tax until the tax year beginning in April 2025, while the date other types of partnerships will be required to join will be confirmed in the future.
The Treasury have said that this extension has been granted in recognition of the impact of the pandemic on individuals and businesses.
The announcement means that the new system of penalties for the late filing and late payment of tax, legislated for in Finance Act 2021, will also be delayed.
What other tax changes are afoot?
There is speculation that the wording that has been used, ‘in the tax year beginning in April 2024 etc.’, may be because HMRC are considering moving the start of the tax year to 1 April – following the recent publication of an OTS Report ‘The UK tax year end date: exploring the potential for change’.
The report examines in detail the costs, benefits, and practicalities of moving to a 31 March end of tax year (in overview terms also looks at a 31 December alternative). There are strong arguments for the move to reduce the administrative burden of Making Tax Digital for Income Tax, particularly for those who are both property landlords and self- employed.
The announcement also confirms that reform of the basis period rules, originally timetabled for 2022/23, will also be delayed. It now appears that changes will not come into effect for any businesses before April 2024, with a transition year not coming into effect earlier than tax year 2023/24.
All businesses which were in existence immediately before April 2023 (‘existing businesses’) will join Maxing Tax Digital for Income Tax from 6 April 2024. This is a big change from previous drafts of the regulations, where the start date for a business was linked to their accounting period.
Another big change from previous proposals is that all businesses will have to provide quarterly updates for the same periods, by the same deadline, regardless of their accounting period.
Whilst we now have extra time to prepare for Making Tax Digital, it’s important that we don’t lose momentum – April 2024 will still come round sooner than you might think!
Related pages: Making Tax Digital
23rd September, 2021, Chris Goad
On the 6 April 2020, the government made numerous changes to tax payable around property. The main one being a new requirement to report and pay capital gains tax on disposals of UK residential property 30 days after the completion date.
In this article Chris Goad, partner at Stephenson Smart’s Wisbech office, explains the changes and how they may affect you:
Capital Gains Tax
Any UK resident that disposes of residential property, that gives rise to a capital gains tax liability, must now file a capital gains tax return and pay an estimate of the capital gains tax due within 30 days of completion. If the gain is covered by principal private residence relief no return is due, but this does mean the calculation to confirm this will need to be done within 30 days of the sale of the property. Failure to file a return, if due, could result in a penalty being issued.
Final period exemption
Historically, final period exemption meant that you were not usually liable to capital gains tax for the last 18 months of ownership, provided you lived in the property as your main residence at some point during your period of ownership. This gave protection for someone moving to a new main residence when having difficulty selling their original home. However, the final period has now been cut to nine months. Therefore, if you buy a new property before selling the old, it will be important to sell within nine months to avoid a possible capital gains tax bill.
Letting relief used to give up to £40,000 relief (£80,000 for a couple who jointly own the property) for someone letting part, or all, of a property which is their main residence, or was their former main residence at some point during their period of ownership. But, under the new rules, letting relief will only be available where you jointly share occupation with a tenant. Only the period during which both the owner and tenant occupied the residence will qualify for letting relief. Lettings that occurred prior to 6 April 2020, that would have qualified for letting relief under the old rules, will become taxable under the new rules only.
If we can help you navigate these tax matters, or any others, please get in touch.
Profile: Chris Goad
Related Pages: Capital Gains Tax
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