We’ve updated our accountants for landlords page
It’s common to see news relating to London property market grabbing headlines. One day you may come across an article claiming house prices have fallen but the next day another reporter may claim otherwise.
While the property market can be unpredictable, one thing is certain: you can always count on our experienced and trusted landlord accountants if you receive an income through renting out your property.
Whether you’re someone who is looking to enter the property market or is already a veteran, you may not have the time and commitment to keep up with tax changes that can affect your rental income. This is why we have updated our accountants for landlords page by giving it a sharper focus. On the page, you can find out about:
- Rental housing prospects in London
- Financial considerations as a residential landlord
- Shifting tax regulations
- Making Tax Digital for landlords
Contact Tax Agility for landlord accountants today
We’re specialist landlord accountants in London that will go above and beyond to help you manage your accounting responsibilities, deal with shifting tax regulations and more. Get in touch with one of our specialist accountants for landlords today. Give us a call on 020 8108 0090 or send us a message via our Contact Form.
The Enterprise Management Incentive scheme
The Enterprise Management Incentive scheme (EMI) is a government initiative introduced in 2000 to offer a tax-advantaged share option for both potential and existing employees. This scheme effectively allows companies to offer equity to their staff, either as a way of motivating or retaining them or as a way for cash-tight start-ups to attract high-calibre employees. While there is a number of requirements that small and medium business ventures must meet in order to be eligible for inclusion under this scheme, for those that are able to meet them, the EMI represents a fantastic mechanism for improving their company’s pull and incentivising their operation.
At Tax Agility, our tax accountants can provide an insight into the various tax advantages, qualifying conditions and benefits for both employee and employer, as well as how best to implement the scheme and the parameters by which it can be used.
How to reward your team and gain tax advantage through the Enterprise Management Incentive scheme
As an astute business strategy for start-ups looking to grow their company organically, the EMI scheme provides smaller businesses with the ability to attract talented individuals without offering the enormous cash salaries usually reserved for larger established companies. Utilising share options as a means of incentivizing employee investment in the ‘vision’ of a company, the EMI scheme enables start-ups to grow and nurture their business - motivating employees to work more effectively and efficiently with the promise of potential returns and shareholder value.
In essence, if a start-up company has a brilliant idea and requires brilliant minds in order to reach its potential and bring this idea to fruition, offering EMI share options is a useful tactic for recruiting the types of individuals necessary, in turn, creating value for the employee and employer. Simply put, if you want to ensure that the quality of work being done is of the highest standard, then investing in your workforce through EMI is an effective tactic for raising the stakes. The EMI is effectively a win-win in such circumstances - if an employee’s work is good, it’s good for them and good for their company.
Tax advantages of the EMI scheme
In normal circumstances, when an employer offers share options to an employee, the difference between the current market value of their shares and the initial amount paid towards them is taxable under normal Income Tax and National Insurance Contributions conditions, just like a salary or bonus.
Under the EMI scheme, however, the employee can exercise their options at a future date when the value of the shares has appreciated and will incur no Income Tax or National Insurance Contributions. Moreover, any subsequent disposal of shares will also be subject to a lower rate of Capital Gains Tax.
The advantages are not strictly for employees either. The company can also claim a corporation tax deduction on the exercise of the option, with reference to the market value of the shares less the amount paid for them.
Does your company qualify?
In order to meet the conditions of the EMI scheme, your company must meet the following criteria:
- Cannot exceed £30 million in gross assets.
- Must be a trading company, as opposed to an investment company.
- Cannot be a subsidiary, or be controlled by another company (although the parent company can qualify for EMI).
- Must not employ more than 250 full time (or equivalent) employees at the date that the share options are granted.
There are also ‘excluded activities’ or ‘non-qualifying trades’ that disqualify a company from offering EMI to its employees. These trades include banking, farming, property development, legal and accounting services and shipbuilding. Moreover, the trade is required to be carried out on a commercial basis with the goal of making a profit and must be done so wholly or mainly within the UK. The company does not, however, need to be resident or incorporated in the UK.
Does the employee meet the conditions?
To be eligible for EMI share options, an employee similarly has to meet certain criteria. They must:
- Be employed by the company or a qualifying subsidiary, including director positions.
- Spend a minimum of 25 hours a week, or at least 75% of his or her working time on the business if it is fewer than 25 hours.
- Control no more than 30% of the ordinary share capital of the business, either directly or indirectly.
Qualifying options
The share options offered under EMI have to abide by the following rules:
- They must be fully paid up, non-redeemable ordinary shares.
- The market value of the option must not exceed £250,000 per employee at the date of grant. Options above this limit will not be approved under EMI.
- The options are exercisable within ten years or the tax advantages will expire.
- Terms of the option must be made by a written agreement, under schedule 5 ITEPA 2003, and include details of the date of the grant, the number of shares involved, the option price, the time and method of exercise, any restrictions and any performance conditions.
Events that may disqualify the relief
- Ceasing to meet the independence test.
- Ceasing to carry on a qualified trading activity.
- A non-qualifying conversion of the share capital into another instrument, or certain alterations to the share capital of the company.
- Certain variations to the terms of the options (that would increase share value or no longer meet ITEPA 2003 requirements).
- If an event occurs that may disqualify the relief, the options will need to be exercised within 40 days so as to retain any tax benefits. (If this does not occur, tax will be charged on the uplift between the date of exercise and the disqualifying event).
Process of implementing an Enterprise Management Incentive scheme
Before embarking on the course of applying for the EMI scheme, small and medium business ventures should be aware of the above-mentioned requirements. This should enable you to gauge whether or not the initiative is suitable for your business type and structure.
Once you have decided that EMI is right for you, registration needs to be done through HMRC. You can obtain advance clearance for offering EMI options from HMRC once confirmed that your company qualifies. The process requires registration of your scheme, then a notification to HMRC that you are planning on granting EMI options, and then finally, the grant of the EMI option.
The process itself can be quite complex and complicated, so it’s often advisable that you liaise with your accountant in order to discuss your eligibility and the steps for registering with and notifying HMRC. If you’d like to learn more about the process or are interested in beginning registration, please feel free to contact Tax Agility on 020 8108 0090 and speak with one of our specialist small business accountants.
This blog is a general summary and is not exhaustive. It should not replace professional advice tailored to your specific circumstances.
Making Tax Digital for landlords: What you need to know as a landlord
If you are a landlord, you will understand that you have certain responsibilities for which you are accountable under the law. These include fire, health and safety regulations; certifications for energy performance, gas and electrical equipment, as well as specific duties with respect to your tenant(s). Further to this, as a landlord, you are obligated to manage your finances and accounts for the purpose of tax reporting.
Her Majesty’s Revenue and Customs’ Making Tax Digital initiative is now in effect for VAT registered businesses earning above the threshold (£85,000) and will soon become ubiquitous for all businesses in England and Wales – currently set down for April 2020. What this means, is that all businesses will be required to submit mandatory quarterly tax returns (as well as the standard annual return) to HMRC as of this date, through the use of a Government recognised and sanctioned cloud accounting software, including landlords.
Migrating your finances may seem like a daunting task, and there will be a number of changes felt by businesses with established bookkeeping and tax lodgement systems already in place, but before we get into the specifics, Tax Agility, London’s local accountants for small business, will take a brief look at the various taxes applicable to landlords.
What taxes are landlords liable for?
When property owners let out their property, they become liable for several taxes and contributions:
- Income Tax – If an individual lets property in the UK, they are subject to income tax. The first £1,000 of income from property rental is tax-free and known as a ‘property allowance’. For individuals letting out a property that they personally own, rental income has to be reported if it is 1) £2,500 to £9,999 after allowable expenses or 2) £10,000 or more before allowable expenses.
- National Insurance – This is required to be paid by landlords who are deemed to be ‘running a business’. A landlord is deemed to be 'running a property business' if 1) being a landlord is their main job, 2) they rent out more than one property and 3) they’re purchasing new properties for the purpose of renting them out. If a landlord meets these requirements and is categorised as running a business under such parameters, they are liable for Class 2 National Insurance, as long as their annual profits exceed £5,965.
- Stamp Duty Land Tax (SDLT) – This is a lump-sum tax that is payable when buying land or property that amounts to more than a certain value. The current SDLT threshold is £125,000 for residential properties and £150,000 for non-residential land and properties, with rates increasing depending on the value of the property.
- Capital Gains Tax – Landlords will be liable for Capital Gains Tax (CGT) if they sell a property that has increased in value. The tax is only payable on the profit you have made, not the total amount received. Types of properties that are incorporated under CGT include buy-to-let properties, business premises, land and inherited property.
- Value Added Tax (VAT) – Lease or sale of residential and commercial properties is usually VAT exempt, but a commercial property owner may ‘opt to tax’ the property for the purpose of recovering VAT charged to the property.
Making tax digital (MTD) for landlords
Instituted in 2018, HMRC has integrated their Making Tax Digital scheme sequentially with respect to the degree of difficulty some businesses might encounter when migrating their finances to online cloud accounting platforms. In essence, Making Tax Digital is an initiative designed to make tax administration more effective, efficient and easier for taxpayers through a fully digital tax system. Instead of filing an annual self-assessment tax return, taxpayers and businesses are required to keep records digitally and send quarterly updates of their finances to HMRC. They will also need to send in a final report at the end of the tax year, together with a claim for any reliefs or allowances.
According to the government’s timetable, as it stands, all businesses including landlords will have to switch to meet the requirements of MTD by April 2020. This means that everyone from large conglomerates and corporations to small businesses and startups will be lodging their financial and fiscal data to HMRC through digital accounting software. In a nut-shell, MTD requirements stipulate that by April 2020, landlords will have to:
- Maintain their records digitally using MTD-compatible software
- Report summary information to HMRC every quarter via a digital tax account
- Make an end of year tax return declaration
Making the transition to the cloud is not as complicated as you might think, and many of the software platforms available are incredibly intuitive and straightforward. Digital tax accounts are accessed via a secure online portal where a property business or individual landlord can see all of their tax details. All of the records will be ‘cloud-based’, meaning that they reside online, and are accessed through commercially available third-party accounting software and mobile apps. Many of these softwares provide easy to understand insights into the financial health and positioning of businesses, however, using them can often be a burden for landlords and property ownership businesses that don’t have the time to also manage their own accounting functions. This is where Tax Agility can help. As Gold Partners of Xero, one of HMRC’s recognised MTD accounting software, we have a proven track record of managing finances and accounts on the cloud and are also able to assist you with the move to digital.
Making tax digital FAQs for landlords
Does it matter if I am a residential or commercial landlord?
It might. If you’re an incorporated property lessor or landlord with an income over £85,000 that has opted in for VAT, you will need to be MTD-compliant from 1 April 2019. If you are a residential landlord, then you won’t have to become MTD-complaint until April 2020, when MTD for income tax comes into effect for all businesses.
What if I rent out multiple properties? Will I have to report for each property or just the business as a whole?
Where multiple properties are held within a business or by an individual landlord, income and expenditure only has to be recorded and submitted for the property business as a whole and does not have to be allocated individually. However, it is good practice in such circumstances to keep a record of the income and expenditure of each property so as to keep comprehensive records and avoid a possible audit by HMRC.
What if I have joint ownership of the property?
There is a difference between properties owned by a partnership or simply owned jointly, such as by a married couple. The principles of the proposed system for partners and partnerships are as follows:
- The partnership, rather than each partner, will be responsible for the requirements of Making Tax Digital.
- A nominated partner will fulfil these obligations.
- There will be an option for the nominated partner to push quarterly summary information of their share of the profit to each partner’s digital tax account. With this option, each partner would have an estimate of their profit to date in the tax year.
- When the end of year declaration is made, the nominated partner will be obliged to push each partner’s share of profits to their digital tax accounts.
How Tax Agility can help landlords transit to MTD
If you’ve maintained a paper-and-binders kind of approach to record keeping, you may want to approach an accountant for small businesses for assistance. A local London accountant like Tax Agility can help clients to subscribe to a compatible online ‘cloud’ tax accounting software package, such as Xero. Apart from helping with the MTD transition, Tax Agility also specialises in advising landlords to:
- identify special tax reliefs available to property owners
- purchase property with tax-efficiency in mind
- track tax changes that will impact on your cash flow, tax position or accounting practices
- prepare and submit landlord accounts and personal tax returns in a timely and accurate manner
- remember any interim and final payments through the year
- invest rental income
Tax Agility has worked with Xero since 2011 as a gold partner and certified Xero adviser. This means that our clients get exclusive access to a whole host of benefits, including 25% discounts on Xero subscriptions. As experts in Xero, Tax Agility can help make your transition to Making Tax Digital as smooth as possible. Take advantage of the free 30-day trial and contact us today on 020 8108 0090.
This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.
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Payroll, pension and dynamic tax code changes April 2019
April 2019 is the start of another new payroll year with the following changes taking effect.
Payslip for all: All workers (anyone who has a contract to do work or services and receive money or a benefit in kind as a reward) are entitled to receive a payslip. The only exceptions are members of the armed forces and merchant seamen/ seawomen.
Payslip changes: Employers must provide the number of hours worked on each employee payslip beginning 6 April 2019. This is to make sure that employers pay accurately and employees understand the exact hours they are being paid for in each pay period.
Student loan changes: Thresholds for repayment of student loans are changing in 2019. Before April 2019, the repayment threshold was £18,330, meaning anyone with a salary over the threshold must repay 9% of earnings. From April 2019, the threshold is increased to £18,935 for Plan 1 and £25,725 for Plan 2.
Increased statutory family and sick pay rates: The weekly amount for statutory family pay rates is increased to £148.68 or 90% of the employee’s average weekly earnings (whoever is lower) from April 2019. This rate will apply to maternity pay, adoption pay, paternity pay, shared parental pay and maternity allowance. The weekly rate for statutory sick pay is increased to £94.25 from April 2019.
Minimum wage and Living wage increase: Every April the minimum wage and living wage increase and the new rates from April 2019 are as follows:
| Age 25 & over | £8.21 per hour |
| Age 21 to 24 | £7.70 per hour |
| Age 18 to 20 | £6.15 per hour |
| Under 18 | £4.35 per hour |
| Apprentice | £3.90 per hour |
Apprentices can be paid the apprentice rate if they are aged under 19 or if they are 19 and over and in the first year of their apprenticeship. An apprentice who is over 19 and has completed their first year of apprenticeship is entitled to the minimum wage rate for their age.
Pension auto-enrolment: From April 2019, the total pension contribution must be a minimum of 8% - out of which 3% must be contributed by the employer and 5% to be deducted from the employee’s salary.
Dynamic Tax Codes: HMRC dynamic tax codes continue to create challenges for employers. Using estimated pay to determine tax codes causes issues when bonuses are paid early or mid-year, increasing the estimated amount of tax owed by the employee. HMRC has implemented dynamic codes which allow for in-year adjustments, so corrections are made in the same year.
Dealing with payroll can be time-consuming and the related changes every year make it more challenging. At Tax Agility, we provide a full spectrum of payroll services to companies large and small. Call us on 020 8108 0090 or get in touch with us via our contact us page.
How Xero can help contractors in the UK
In the United Kingdom, many businesses are gravitating towards more flexible employment structures as a way to not only cut costs but also enjoy greater autonomy and larger returns and profits. One of the structures that facilitate these benefits is independent contracting; whereby business owners offer their contracted services to companies in place of a traditional employee. For accounting purposes, the government considers you a contractor if you own all or part of your business, work for multiple companies on short, temporary assignments, supply your own materials and equipment and take your directions from a client.
While the prospect of having to constantly find new short-term contracts may sound like an insecure life for an independent contractor, many contractors cite freedom and independence in their choice of employment and personal development as the deciding factor. It allows them to maintain a work/life balance that traditional employment does not provide. If your service is in high demand, you can easily earn more income than you would if employed as a traditional employee, and even taking into account loss of benefits such as holiday pay and sick pay, many contractors still come out ahead financially.
Accounting for contractors
Independent contractors, unlike company employees, do not have access to the benefits of a company department to assist with bookkeeping and financial accounting. As a contractor, you are now required to manage your own payroll, taxes, expenses and any invoicing of clients for services provided. Further to this, you may also face differing accounting needs depending on the nature of the work that you do, including but not limited to the various taxes applicable to the structure of your business, and the statutes and limitations that are applicable to your contracting company.
As a contractor, particularly if your business has been incorporated as a limited company, there are additional taxes that you need to be aware of, and that are applicable to your business as a financial operation. These include corporation tax, employer’s and employee’s National Insurance contributions, VAT and income tax, all of which are relevant and applicable in addition to your own personal tax return. Also, there are certain tax laws such as IR35 legislation that affect contractors, and understanding these laws (and knowing how to negotiate them and the situations in which they might apply) is of paramount importance, as they may categorise a contractor as a de-facto employee which in turn will increase the amount of tax that needs to be paid under that specific contract.
There are also various expenses that you incur during the course of your contracting work, such as products, services, professional subscriptions, utilities, travel expenses, entertainment and business start-up costs. It is important for contractors to stay on top of their accounting and bookkeeping so that they’re able to accurately and efficiently gauge the financial stability, positioning and health of their business. If you’re a contractor or considering incorporating your small business as a contracting limited company, Tax Agility, London’s local accountants for business can assist you with the finer details of setting up, or better understanding the requirements to make the switch to a more profitable and flexible business structure.
Making tax digital and cloud accounting
Historically, many contractors have relied on accountants for their financial record keeping, and many have used Tax Agility when they’ve needed help managing their fiscal and financial responsibilities. As of 2019 however, HMRC has implemented a statute that will revolutionise the way that businesses lodge their accounts and pay their taxes each year. Under the Government’s ‘Making Tax Digital’ legislation, businesses will be required to transfer their finances, accounts and bookkeeping to an online, cloud accounting software platform, lodging quarterly returns as well as an annual one. In effect, this initiative represents an attempt to make tax administration more effective, efficient and easier for taxpayers, utilising a fully digital tax system. This means that contractors no longer have to keep track of their finances with physical ledgers and receipts, streamlining the accounting process and making it simple for them to communicate with their accountant and better understand their finances. Taxpayers will be able to do so by subscribing to a compatible online ‘cloud’ tax accounting software package such as Xero.
While it’s true that this move to digital accounting allows contractors to do their own taxes, budgeting, invoices and VAT management, many still prefer to use an accountant so that they can focus on running their business to the best of their ability, as well as receiving specialist tax advice and receiving a ‘human touch’ that the computer cannot offer. Some accountants for contractors, such as Tax Agility also collaborate with cloud accounting companies like Xero, to manage their clients’ tax accounts through the platform. Under HMRC’s digital initiative, contractors are now required to report accounting information every quarter, in a similar way as a quarterly VAT return. Tax Agility, a gold partner of Xero, have been working with cloud accounting software platforms for years, so if your business is yet to make the switch for ‘Making Tax Digital’, we can assist you to migrate your finances and accounts and provide bespoke, expert advice as to how you can maximise the profitability of your operation.
Cloud technology tools with Xero
Apart from its HMRC recognised cloud accounting software, Xero also offers many other cloud services for independent contractors, such as:
- A simple project management and time-tracker software designed to help you track your work by time and project,
- An intuitive ‘to-do list’ tool designed to manage your time for you
- Word processing, spreadsheet and presentation software
- A suite of marketing apps designed to create and maintain your website, manage your social media presence, and help publicise your contractor business
Built for small business owners, Xero was created with a clear vision - to be a simple, user-friendly interface that requires little expertise or prior knowledge. The dashboard overview provides a clear view of your business’s most important financial information, and also offers ‘in-the-cloud’ security and maintenance-free financial record keeping designed specifically for small contractors.
Being cloud-based, Xero also facilitates instantaneous invoicing, meaning you can send one through to the client as soon as you finish a job, meaning you get paid more promptly and don’t have to wait to serve them with a physical invoice.
Get a better deal with Tax Agility
At Tax Agility we have worked with Xero since 2011. We are gold partners and certified Xero advisers, meaning that we have access to a whole host of benefits that other firms do not, including 25% discounts on Xero subscriptions made through us. In addition, we are experts in Xero, and we can help make your transition to the future of online business accounting smooth and problem-free. Take advantage of their free 30-day trial to quell any doubts you may have.
If you’d like to learn more about the ways in which Tax Agility can help your business transition to the cloud in preparation for the Government’s ‘Making Tax Digital’ legislation, please contact us today on 020 8108 0090 or get in touch with us via our contact page and we’ll call or email you back (your preference).
If you found this helpful, you might also like:
- Xero accounting: Update your business
- Xero: How Xero can help with Making Tax Digital
- Business expenses you can claim as an IT contractor
- Moving from permanent employee to full-time contractor
This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.