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SME Tax News
The capital allowances Annual Investment Allowance (AIA) will be set at a permanent £200,000 from 1 January 2016.
The AIA is currently £500,000, it had been previously scheduled to decrease to £25,000.
Complicated calculations
The policy paper confirms that the much criticised current method of calculating and restricting the allowance where accounting periods straddle one or more change dates will continue. As the allowance will no longer be subject to fluctuations, the need for convoluted calculations (and inevitable errors) should gradually become a thing of the past.
Many unincorporated businesses have found that they have been unable to obtain tax loss relief when incurring high levels of capital expenditure due to the cap on unrestricted reliefs. This contiues to be an issue for these type of businesses.
The policy paper, including an example of an accounting period straddling the date can be found here.
Summer Budget 2015 Property taxes
At a glance
From 6 April 2016:
- Rent-a-room relief to be raised to £7,500
- The 10% wear and tear allowance may be reformed (subject to consultation)
From 6 April 2017:
- Higher rate relief on mortgage interest will be restricted for buy-to-let landlords.
- Basic rate taxpaying landlords are not immune from the new measures: mortgage interest will no longer be an allowable deduction from property income and a new adjustment is then required in order to claim basic rate tax relief.
Subscribers, see also our Practical Tax Giude to Property profits and losses for worked examples.
Rent a room relief
The applies to private landlords, the owners of guest houses, B&Bs and similar establishments, provided that they use the property as their main or only home.
Key points:
- From April 2016, the exemption will increase to £7,500 per household (years to 2015/16 £4,250 per household).
- As previously, there will be no requirement to declare income if it is below this threshold.
Wear and tear allowance
Subject to a new consultation, from April 2016, the ‘wear and tear allowance’, which allows landlords to deduct 10% of adjusted gross rent as a type of furnishings depreciation will also be replaced by a new system that only allows them to get tax relief when they replace furnishings. See Consultation: replacing the wear & tear allowance.
Restricting mortgage interest relief
The Chancellor proposes to restrict tax relief for mortgage interest on buy-to-let property.
Current rules:
- Mortgage interest may be deducted from rents income to arrive at profit or loss for tax purposes.
- Income tax relief is given at a taxpayer's marginal rate of tax. E,g, it is worth 45p for every £1 for an additional rate taxpayer.
Proposed changes:
- Mortgage interest relief is restricted to the basic rate, and given as a tax reduction, not an allowable expense. This measure is to be phased in between 2017 and 2020.
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Individuals will be able to claim a basic rate tax reduction from their Income Tax liability on the portion of finance costs not deducted in calculating their rental profit. This tax relief will be calculated as 20% of the lower of the:
- finance costs not deducted from income in the tax year (25% for 2017 to 2018, 50% for 2018 to 2019, 75% for 2019 to 2020 and 100% thereafter)
- profits of the property business in the tax year
- total income (excluding savings income and dividend income) that exceeds the personal allowance and blind person’s allowance in the tax year
Any excess finance costs may be carried forward to following years if the tax reduction has been limited to 20% of the profits of the property business in the tax year.
Staggered introduction: the change will be introduced gradually from April 2017.
See Practical Tax guide: Property profits and losses for worked examples of the changes to tax relief on interest.
Under the provisions of the Small Business Enterprise and Employment Act 2015 UK companies are prohibited from issuing bearer shares from 26 May 2015. Companies which already had bearer shares were required to give notice to bearer shareholders that they must surrender them and have their holdings converted into registered shares by 26 June 2015, and the company had to spell out the consequences of not doing so.
HMRC has decided the extend the online reporting deadline for share schemes and other employment related securities returns by a working week following a spate of techical problems.
Employees must reimburse their employers for any PAYE due on any notional payments made in the 2014/15 tax year within 90 days of the tax year end (section 22 ITEPA 2003). The deadline is 4 July.
Do you have any taxable events in terms of Employment Related Securites to report? This is a last chance reminder: it takes up to 7 days to register and the spreadsheet for events in 2014/15 must be filed by 6 July 2015.
In Lobler v HMRC [2015] UKUT 0152 a taxpayer ticked the wrong box when withdrawing funds from a life policy with the result was that he was imposed with a 700% tax liability, effectively paying tax on his own capital. The Upper Tribunal allowed his mistake to be rectified.
CJS Eastern v HMRC [2015] UKFTT 579 concerned late filing penalties in the Contruction Industry Scheme. The FTT explored its powers to reduce both fixed and month 13 penalties.
A community amateur sports club (CASC) is not a person under tax law, so it cannot be charged a tax penalty under section 98A TMA 1970.