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Welcome...
To December's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Section.
We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
Please contact us for advice in your own specific circumstances. We're here to help!
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VAT repayment evidence
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HMRC are always a little suspicious of businesses that claim a VAT repayment in their first VAT return, or a large refund in a later return. In such cases it will write to you asking for supporting evidence, such as copies of invoices, to be provided within 30 days.
You can now provide the requested information online, through a new portal HMRC has set up, especially for this purpose.
You need to quote the reference given in HMRC's letter which will be in the format: CFSS-1234567, and supply other details about your business, including the five highest-value purchase invoices relevant to the period.
HMRC should reply within seven working days, and this should speed up the repayment to you.
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As a landlord letting a residential property you are required by the Housing Act 2004 to protect deposits provided by tenants on assured shorthold tenancies, by using a deposit scheme.
The not-for-profit companies that run these schemes will provide details of their customers to HMRC or to any other Government department that requests the information.
HMRC has recently received a large sample of data from deposit schemes and has compared the information to the amounts of rent reported on landlords' tax returns for 2020/21. As a deposit usually represents four to five weeks of rent, HMRC can work out how much rent should have been declared by the landlord over the tax year.
HMRC is currently writing to landlords who have submitted deposits into tenancy deposit schemes, and who may have under-declared their rental income or capital gains. The letter urges the taxpayer to check and correct their 2020/21 tax return, and their 2021/22 tax return if it has already been submitted.
HMRC points out that the letter does not open a tax inquiry or 'compliance check', but it does ask the taxpayer to correct their 2020/21 tax return within 30 days.
If you receive one of these letters but you believe you have nothing to correct, you don't have to do anything. But you may want to contact the HMRC group behind this letter by email at: [email protected] or phone: 03000 575 687.
Alternatively, if you haven't fully declared your rental income for several years, you should consider making a full disclosure using HMRC's Let Property Campaign. Our tax investigation experts can help you with this.
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When a residential property is held through a company (or another non-natural person eg a trust) this potentially creates a liability to the Annual Tax on Enveloped Dwellings (ATED). This annual charge applies if the property is worth over £500,000.
There are several exemptions and reliefs for ATED, but those reliefs must be claimed each year for each property that falls within the ATED regime.
The property must be valued on acquisition to determine whether it is worth over £500,000. But it must also be revalued every five years after the acquisition, with the valuation undertaken on 1 April in 2012, 2017, 2022, 2027, etc.
The new valuation takes effect for the ATED reporting year starting on the following 1 April. Thus, the ATED return and payment for 2023/24 are based on the open market value of the property as assessed on 1 April 2022.
HMRC is writing to taxpayers who are currently paying ATED, to remind them to revalue their properties on 1 April 2022 using an open-market value.
This could result in the property moving up a valuation band for 2023/24, say from the £500,000 to £1m band, into the £1m to £2m band. Moving up a band will at least double the amount of ATED due.
Another trap for corporate landlords occurs is when the property becomes subject to ATED for the first time because the property value has exceeded £500,000. An ATED return or an ATED relief return must be submitted by 30 April within the year, so by 30 April 2023 for the year 1 April 2023 to 31 March 2024.
Failure to submit an ATED return on time will result in automatic late filing penalties. Also, failure to pay the right amount of ATED charge on time will generate a late payment penalty and an interest charge.
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Letters about corporate losses
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When a company makes a loss after 1 April 2017, those losses can be set off in a far more flexible fashion than earlier losses, for example, trading losses may be used against property income. This means that the losses brought forward from earlier periods (before April 2017) need to be kept separate, so they don't get mixed up with later losses.
Also, where losses arise within a group there are restrictions on whether certain non-trading losses can be surrendered to other companies in the group, which would include excess management expenses and UK property business losses.
It appears that not all corporation tax software was correctly updated to reflect these changes from 2017. A problem can arise when old brought-forward losses are declared in boxes numbered: 850 & 815, 830 & 835, and 850 & 855 on the corporation tax return (form CT600).
The corporation tax software is producing the correct figure of taxable profits or losses, but this may not agree with the CT600 if those boxes have been used.
HMRC has written to companies that have used the affected CT software. The letter explains that HMRC will ignore the incorrect entries in boxes mentioned on the CT600, and just refer to the tax computation. If you are happy for HMRC to do this, you don't have to do anything, but you are advised to show us the letter.
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December questions and answers
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Q. The sales representative for my company leaves home early in the morning for a two-day business trip that includes an overnight stay. What can the company pay him as a daily allowance if he does not produce any receipts?
A: By the end of day 1 the sales rep will have been traveling on business for more than 15 hours and will also be away from the office at 8 pm. He can thus be paid a tax-free meal allowance for that day totaling £25. However, the sales rep does need to provide evidence of their expenditure on food and drink during that trip. He can also be paid a tax-free £5 allowance for incidental expenses as he is away overnight and doesn't need to produce a receipt for that.
Q. Myself and my husband are both employed by the same company, we work from home, but our employer didn't pay us the £6 per week working from home allowance. We also jointly own a let property. Can we claim the home working allowance against our salaries and also against our property rental income?
A: If you are required to work from home under your employment contracts but you aren't paid the working from home allowance, you can claim £6 per week each as a deductible expense on your tax returns. You can't claim a similar deduction from your rental income, as that deduction is only relevant to employment income.
Q. I work through my own company which pays me a salary and dividends, but I'm confused as to whether I should classify myself as employed or self-employed.
A: From a tax point of view, and legally, you are an employee of your own company, so you are employed. However, if you are applying for a loan or a mortgage the lender may treat you as "self-employed" as you are in control of your own income.
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December key tax dates
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7 - If you don't have a direct debit set up to pay your VAT liabilities, the payment for the quarter or month ending 31 October 2022 must reach HMRC by this date. VAT must be paid electronically.
12 - Where you have a direct debit set up to pay your VAT liabilities HMRC will take the amount of VAT due for the quarter or month to 31 October 2022 from your bank account on this day.
19 - The RTI returns for your payroll for the month to 5 December 2022 must be filed by this date.
Where you pay your PAYE, Class 1 NIC, and CIS deductions by cheque, this cheque must reach HMRC's Accounts Office by this date for payments relating to the tax month ending on 5 December 2022.
22 - Electronic payments of PAYE, Class 1 NIC, and CIS deductions for the tax month ended 5th December should clear into HMRC's bank account.
23 - If you have set up a direct debit to pay your PAYE, HMRC will take the amount due for the tax month to 5 December 2022 from your bank account on this day, if you filed the RTI return on time.
30 - Last day to submit an electronic self-assessment return for the tax year 2021/22 if you wish HMRC to collect the tax due through your future PAYE code if the amount you owe is less than £3000.
31 - The corporation tax return for an accounting period ending 31 December 2021 must reach HMRC by this day.
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Please contact us if we can help you with these or any other tax or accounts matters.
In addition, if there's anyone else who you think would benefit from the newsletter, please forward the email to them or ask them to contact us to be added to the newsletter list.
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All new client consultations are provided free of charge and without obligation.
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Morgan Hemp Accountants are one of this area's leading accountants, serving businesses and professional practices across the UK.
Whether you are a large limited company or just starting out we can help you manage all your financial matters from book keeping and wages to annual accounts and raising finance. Visit our website https://www.morganhemp.co.uk for more information.
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Disclaimer
The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.
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103-104 Walter Road, Swansea, SA1 5QF
Morgan Hemp is a trading name of Morgan Hemp Ltd
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