capital expenditure super deductions 2022

Super deductions - how to maximise your business’s tax efficiency

Most business owners understand that it is important to ‘capitalise’ certain company assets. These ‘fixed assets’ can be used to reduce your corporation tax bill. However in April 2021, the Government increased the usual 100% deduction to 130% until April 2023. Read on to find out how you could benefit from this increase.

What is a super deduction?

capital expenditure super deductions 2022Over the years, successive governments try to find ways to incentivise industry or stimulate areas of business. This is especially true during troubled times, such as the financial crisis of 2008 and more recently the problems brought on by the Covid pandemic.

Reducing broad ranging tax rates, such as reducing corporation tax, VAT, capital gains, etc, introduce problems of their own, most often political, as they can appear to favour selective groups in society, so governments look for more niche methods to achieve their aims. The ‘super deduction’ is one of them, as this applies purely to businesses that qualify for corporation tax. It’s also limited in its range, as it can only be applied to new plant and machinery that ordinarily qualify for the 18% main pool rate of writing down allowances.

How does this affect the Annual Investment Allowance?

Essentially, it compliments it. Since January 1 2019, companies have been able to annually invest up £1 million in qualifying assets, these already benefit from 100% relief. This is known as the ‘Annual Investment Allowance’. Prior to 2019, the AIA was set at £200,000.

The £1 million limit has been extended to March 31 2023.  The Introduction of an extra 30% deduction is, therefore,  a most attractive additional incentive for owners to invest in their businesses - or even start new ones.

What is the SR Allowance that was also announced?

Along with the Super Deduction, the Government also introduced the SR Allowance.

Not all purchases can qualify for the super deduction, such as those that qualify for the 6% write down allowance rate - typically long life assets such as those associated with buildings and property. To incentivise this industry, the Government has introduced a ‘special rate for first year allowance’ - the SR allowance. This affords new plant or machinery in this bracket with a 50% first year allowance.

What businesses qualify for Super Deduction?

This benefit is only available to those entities who qualify for corporation tax. In other words, it is not applicable to those in business as individuals, sole traders, or partnerships.

What purchases qualify for the Super Deduction?

There are a wide range of asset types that can take advantage of the SD beyond the most obvious forms of fixed assets, such as computers, IT systems, manufacturing equipment and the like. In short, most purchases that contribute to the operation and functioning of your business should be treated as an asset, rather than an expense, and capitalised accordingly.

However, there are other less obvious expenditures that can close be capitalised and gain SD relief. The most common of these include:

Development costs: Under FRS 102 costs associated with bringing a system into working condition, such as those attributed to the development, can be classified as tangible fixed assets. For example, developing a new website or piece of software, could be treated as such and gain the SD allowance benefit.

Borrowing costs: When developing a new product or building a new manufacturing plant or product line, a business may be required to finance the operation. The costs of borrowing may be capitalised.

Hire purchase: Assets on hire purchase or similar purchase contracts where possession rather than ownership passes to the business can also benefit from super deduction, but only at the point where the asset began use.

The most obvious test of applying the SD benefit is that the purchased plant or machinery needs to be new and not second hand. Also, you cannot decide to capitalise something bough in prior accounting periods just to take advantage of the SD.

What happens if I don’t make a profit, can I still apply the Super Deduction?

carry over super deduction allowanceYes. Not all businesses make a profit each year. Indeed, some businesses may choose to capitalise equipment porches in a  financial year specifically to reduce their tax bill to zero - typically smaller businesses. If you make a loss in a year where capital purchases were made, you may carry any unused deductions forward to use as losses.

Selling an asset that qualified for Super Deduction

It may enter the minds of some that as the government is giving away an extra 30% in the form of a tax deduction, which is true, if they quickly sold the purchase, they may benefit further. Also, there are legitimate reasons why a firm may have to sell assets that benefited from the SD. So what happens and how is this accounted for?

Naturally, the Government is going to want their ‘pound of flesh’ in this instance. You will need to carefully track any asset that benefited from the SD, so when it comes to selling the correct treatment can be applied.

The first thing to note is that if the disposal of an SD qualifying asset is before April 1 2023, its disposal value is 1.3 times the actual disposal value. This income should then be treated as taxable profits and not allocated to ‘pools’.

Read more about the government's super deduction scheme here.

Is this a good time to start a business?

This may indeed be a good time to start a new business if that business is going to need significant investment in new capital equipment. Furthermore, if your established business is an entity in the form of a sole-proprietorship or partnership and you are looking to grow, this may be a good time to incorporate.

Talk to Tax Agility about how your business can take advantage of the super deduction scheme.

Tax Agility are chartered tax accountants operating in the Richmond, Putney and Wimbledon area. We specialise in assisting small and medium sized businesses navigate the complexities of company taxation. Our goal is to ensure your business is as tax efficient as possible and to effectively exploit incentives such as the super deduction scheme.

Why not call us today on 020 8108 0090and discuss how we can help take your business to the next level of tax efficiency.


declaring your overseas income

What are the differences for tax purposes between domiciled and non-domiciled status?

A few months ago we published a case study concerning HMRC enquiring about foreign income. This can happen if you are a foreign national and are now living and working in the UK. An area we didn’t touch on was associated with how HMRC views your domiciliary status. The recent news about Rishi Sunak’s wife has highlighted this is somewhat complex and often misunderstood area of tax law. In this short post we’d like to help explain what it means to be ‘domiciled’ or ‘non-domiciled’ where tax in the UK is concerned.

What does ‘domicile’ mean?

declaring your overseas incomeIn a nutshell, ‘domicile’ refers to that country a person treats as their main or permanent home. Also, it concerns where they actually live and maintain a ‘substantial’ connection with.

If you read our article on “Living Overseas - Do I Need Top Pay Tax if I Leave The UK?”, then you’ll be familiar with the tests that HMRC apply to decide how to treat your current tax residency status. As part of the Automatic UK Test, HMRC looks at your sufficient ties to the UK and whether they point to whether or not you’ve actually left the UK or still have reasons to come back, perhaps regularly. These tests help HMRC determine if you are legitimately living overseas for tax purposes or if perhaps you’re trying to avoid paying UK taxes by staying out of the country for 183 days a year.

Domicile of origin and domicile of choice.

Where UK tax law is concerned, there are three types of domicile - domicile of origin, domicile of choice and domicile of dependence. In the UK, you acquire domicile or origin at birth through your father, although this doesn’t mean the country the person was born in, but most often does. So, if your father is from India, India is your domicile, unless you choose otherwise.

Domicile is different to residency. In UK common law, every individual has one domicile, you can’t have two or have no domicile.

Your domicile of origin cannot be lost easily. Simply by moving overseas for an extended period, becoming a tax resident here or elsewhere, does not automatically remove for domicile status.

However, domicile of choice is a little harder to consider. Take for instance, a UK national. If they move abroad ‘permanently’ to settle in another country. Permanent means ‘indefinitely as it is really up to the person concerned, as is domicile of choice. It comes down to intention’s: if the new country will be their permanent residence, will they have family interests there, a business or other social interests. Do they own a property in that country? And, what about the existence of a Will and where that was created.

It’s quite a tricky area, as there are many variables and many ways to interpret somebody’s intentions. Hence, arguments with HMRC can arise and as always, you’ll need to prove your ‘innocence’ in the matter.

Domicile of dependence is for children under the age of 16 and their domicile will follow that of the person on whom they are legally dependent. However, it must be noted that if the domicile of the parent or legal guardian changes, the child will automatically acquire the same domicile and the child’s domicile of origin will be displaced.

[Read more about what happens if HMRC make enquires about you overseas income]

Important tax issues to consider

It is quite understandable why somebody would not wish to give up their domiciliary, as there may be intentions to return home, the UK being transitory, even though it may appear as somebody’s permanent home.

As tax specialists based in the London area, we are conveniently located to assist foreign nationals, non-domiciled in the London and the surrounding counties, with their unique tax issues and concerns. We've assisted many individuals navigate the complexity of foreign income taxation, whether you are domiciled in the UK or are considered non-domiciled.

Take for instance somebody from India who has been living and working in the UK for many years. Their family may still predominantly be in India. They may’ve family business interests there too, or even own property there. In short, there may still be clear intent to return one day.

This means that although a foreign national living and working in the UK maybe a ‘tax resident’ and pay taxes on the income generated through their work here, their ‘non-domicile’ status will mean that their worldwide income does not have to be reported in the UK, as that will no doubt be payable to the tax authorities in the domiciled country. This highlights two options for non-domicile tax residents - being taxed on an arising or remittance basis

Taxed on an ‘arising’ or ‘remittance’ basis

If you are ordinarily considered as UK domiciled and a tax resident, then you are charged on an arising basis. This means that you pay tax on your worldwide income and you’re allowed to use your personal tax allowances and any annual exemptions to offset that income.

However, things are little different and often highly beneficial if you are considered ‘non-domiciled’ while a tax resident in the UK. In this case, you can choose to be taxed on a remittance basis, if that treatment is more favourable than the arising basis. By choosing the remittance basis, you’ll only be taxed on UK sourced income, not worldwide income, unless you decide to ‘remit’ that income. For instance, if you’re a Singapore domiciled national living and working in the UK as a tax resident and a retirement or an assurance policy matures yielding a gain. If you leave the gain in Singapore, no tax is due. If you bring that money into the UK - remit it, then tax falls due.

It’s important to note though that if you choose the remittance basis, you’ll lose your tax allowances and exemptions.

Other factors to consider when using the remittance basis

Do I need to claim to use the remittance basis?

Not necessarily. If your ‘unremitted’ foreign income and gains for the tax year are less than £2000, the remittance basis applies automatically, so you don’t need to claim. Also, it should be noted that at this level, you won’t lose your personal allowance or capital gains annual exemption either. This also allies, even if you are considered ‘domiciled’ for UK tax purposes.

If I choose to remit my income, how will it be taxed?

If you decide to bring some of the income you have earned overseas into the UK, that income will be taxed at the standard (non-savings) tax rates - 20% for basic rate earners, 40% for higher rate payers and 45% for the top tier incomes over £150,000.

Note though that dividend income, where you’d normally see these taxed at 8.75%, 33.75% and 39.35%, will be taxed as ordinary income - which would not be the case if you’d decided to opt for the ‘arising’ basis as opposed to ‘remittance’ basis.

How does the remittance basis work if I am a long term resident?

As the saying goes - “there’s no such thing as a free lunch”. At some point, HMRC will see your long term residency in the UK as a way of reducing your tax exposure and will look to make you pay for that entitlement. So, two bands of charges apply:

Resident for 7 out of the previous 9 tax years. For the privilege of maintaining your remittance basis, you’ll need to pay £30,000 per year.

Resident for 12 out of the previous 14 tax years. For the privilege of maintaining your remittance basis, you’ll need to pay £60,000 per year.

This is HMRC’s way of encouraging people to convert to the ‘arising' basis.

When am I automatically considered domiciled in the UK?

If you have been resident in the UK for 15 out of the previous 20 years, you are deemed as domiciled for tax purposes.

Domiciliary status for tax purposes is a complicated area, seek help

We have presented in rather simple terms the most commonly encountered tax aspects of being domiciled or non-domiciled in the UK. This subject is very complicated as the range of income sources can be extensive as can your ties to the UK if you are non-domiciled. Inheritance tax is another area affected by domiciled status that we haven’t covered here. Rules covering IHT and domiciled status changed in 2017.

If you are encountering issues with taxation as applied to domicile status, it’s likely that you require specialist tax assistance. We're based in London and our offices are conveniently located in Richmond-Upon-Thames, Putney and Cavendish Square. Our tax advisers are on-hand to help you navigate these difficult waters and arrive at an outcome best suited to your personal circumstances. Call 020 8108 0090 or use connect using the form here.


claiming covid-19 related expenses for work

Working from home and claiming tax relief on expenses

As more of us are now working from home, more often, because of the recent impact has had on businesses and attitudes concerning the practice of working from home, how can employees be reimbursed for the extra expenses they incur working from home, and what exactly can they claim for?

It comes as no surprise to find that many of us have had to work from home over the past couple of years. While in most cases this was forced upon us, it has had a significant effect on the attitudes of employers towards this practice.

Many employees have found it beneficial, as indeed have some employers, and want to continue, at least for part of the working week. Working from home imposes a range of costs on both employer and employee that prior to the recent pandemic, haven’t drawn that much attention. So when employees spend a considerable part of their work time working from their own home, how much of the extra expense can they claim, and what exactly is claimable?claiming covid-19 related expenses for work

What types of working from home expenses are we talking about?

Enabling an employee to work effectively from home requires more than a little thought and planning, there are real costs and expenses to consider. These may include:

  • The cost of a laptop or other computer
  • An internet connection
  • A printer
  • Printer and general office consumables
  • A home office space and furniture
  • Heating
  • Lighting
  • Telephone / mobile phone

Most people typically discover that while working from home can be a great convenience, their household bills start to increase, especially if normally both adults are at work, working the typical 9 to 5 office shift.

Then there are other considerations that are often forgotten, issues such as insurance come to the fore, personal and for additional equipment. Also, can an employee now claim expenses for a trip to the employer’s office?

Reimbursement vs tax exemption

It is important to understand how expenses are treated for tax purposes.

Reimbursement

If, as an employee, your employer reimburses the expenses you incur as a part of your job, HMRC must be satisfied that:

  • No matter who did the job, the expense would have been incurred.
  • It was necessary to perform your job.
  • It was incurred in the performance of your duties.
  • It was incurred and paid back to you.
  • The expense was wholly and exclusively for your work.

If HMRC isn’t satisfied, you’ll run the risk of expense payment being treated as additional income and be taxed accordingly.

Tax exemption

If your employer doesn’t reimburse you for expenses incurred during the performance of your duties, you may be able to claim these against your income. That may be the case if for example your employer doesn’t reimburse you for the additional expenses of working from home. You must be able to prove, just like reimbursed expenses, that they were purchased wholly and exclusively for your job.

If this is the case then your expenses can be claimed against your income. For instance, if you earn £30,000 and you incur £5,000 of expenses, you will only pay income tax on £25,000.

Some common questions about claiming working from home expenses

Implications exist for both employers and employees where claiming expenses related to working from home are concerned. Let’s look at some of these.

Can employers reimburse homeworkers for their household expenses tax free?

The simple answer is ‘yes’ an employer can reimburse its employees when they work from home with your full agreement, provided they are ‘reasonable’ and provided that the employee working from home is a regular occurrence.

HMRC allows different levels of payment to be paid free of tax and national insurance without supporting evidence. For weekly paid employees, this is up to £6, and monthly paid employees can expect £26 a month.

Can an employee be reimbursed tax free for working expenses greater than these figures? Again, yes. However, you must be able to prove that the payments are wholly in relation to ‘reasonable additional household expenses’ and that you have supporting evidence to this effect.

When employees are given equipment for home use, is there an income tax charge?

Income tax charges for this type of expense usually arise because the equipment concerned is also being used for personal use. As such it’s considered a benefit and tax arises as a result. So, if the equipment is supplied and owned by the company and supplied for business use, not personal use, then a tax charge will not arise. The other condition is that this ‘benefit exemption’ is offered to all employees with similar employment terms. The equipment must also be returned when the home working ends or when an employee leaves, if not a chargeable benefit will arise.

[Learn more about how benefits in kind are treated by HMRC here]

If an employee purchases their own home-working equipment, can we reimburse them tax free?

As a consequence of Covid-19, there was a government scheme in place up to April 5th 2022 that allowed employees to be reimbursed tax free for home-office equipment purchases, provided the same benefit was available to other employees in a similar role. This has not been extended beyond April 6th 2022.

Can homeworkers claim tax relief on household expenses?

Yes, because not every employer will cover the cost of an employee working from home. However, there are limits. Firstly, just like an employer reimbursing employees for home use, it has to be fully justified as an expense incurred wholly, exclusively and necessarily in the performance of their duties. Usually this is difficult to achieve as the employee should not have had a choice to work from home - i.e. it was forced upon them by the employer. If they did have a choice in the matter, then this would not be allowed.

However, because of Covid-19, an employee can now claim the same weekly £6 or monthly £26 allowance through their Government Portal for tax years 2020/21 and 2021/22. This claim is possible even if the employee was asked to work from home on a single day in either tax year. For a person on the basic tax rate of 20%, they are able to claim £6 per week which equates to £1.20 per week, or £62.40 per year. 40% taxpayers can claim double this.

Again, it is possible to claim more, but as ever, complete records demonstrating the authenticity of the claim must be kept and be justifiable.

If an employee works from home can they claim tax relief on travel expenses for trips to the office?

This is a difficult and complex area. It requires the definition of what is an employee's permanent workplace and temporary workplace. It also depends on whether the employee is permanent or part-time.

HMRC considers a permanent place of employment that location where an employee attends in performance of their duties. Regular relates to the frequency of attendance or pattern of attendance. This means that going to the office everyday is a requirement, a visit once a week, fortnightly or monthly, may apply.

On the other hand, HMRC considers a temporary workplace a location an employee attends while fulfilling a temporary role or one of limited duration. If an employee spends more than 40% of their time at one location over a 24 month period, HMRC will consider this as a permanent workplace.

So, if an employee ordinarily works from home full-time and is required to travel to the office, the employee can claim unreimbursed expenses tax free - provided the travel is not made regularly, else it may be considered that the office is the permanent place of employment.

Accordingly, if an employee shares their time between two locations, such as a home-office and their real office, HMRC will consider this as ordinary commuting between two ‘permanent’ places of work.

Can you backdate working from home allowance?

Yes, HMRC will accept backdated claims for up to 4 years.

Am I eligible for working from home tax relief?

Yes, provided you had no choice in the matter and your employer asked you to. Then you can claim £6 per week / £26 per month (monthly workers).

Note that you cannot claim this allowance if your employer reimbursed your expenses for doing so or paid you an allowance.

How do you claim payment for working from home?

You can make a claim if you have a government portal account or through your regular SA100 tax return.

Record keeping

Making expense claims is one thing, making sure you have the evidence to support them is quite another. Most employees are used to claiming ad-hoc expenses from their employer, such as when they attend an off-site client meeting, attend a trade show, stay overnight somewhere or claim subsistence expenses. When it comes to claiming expenses that relate to the use of your home, HMRC quite naturally regards these claims with little more skepticism.

It’s essential that you keep accurate documents in relation to what you are claiming. If you are claiming for heating that you might ordinarily expect not to have to pay because ordinarily you work in an office from 9 to 5, then make sure you apportion a reasonable amount of the bill. Don't, for instance, claim for heating your entire house when in reality you’re using just one room.

When you’re unsure, talk to a tax expert like TaxAgility

Personal tax addition can be a complicated area and making claims for expenses if not properly validated and justified, can lead to serious consequences with HMRC. If you have any doubts or would like a tax expert to help you in making claims for tax relief, call TaxAgility today on: 020 8108 0090 and speak to one of our personal tax experts.

 


is it time for an electric company car

Is it worth buying an electric company car?

With petrol prices at levels not seen before, even during previous oil and global crises, it comes as no surprise that the economics of owning and buying an electric car are improving. But are there any other HMRC incentives that may ease the costs of purchase that individuals and company employees can consider in their calculations? It turns out that there are.

IsWhile this article will focus on the business considerations of electric vehicles, for the time being, it should be noted that the government is also offering purchase incentives to private individuals on new electric vehicles.

Price of electric vehicles are coming down and choices are expanding

Over the past couple of years we’ve seen the growing introduction of a range of electric cars, e-cars. New models and even completely new new manufacturers have appeared alongside new electrified versions from the well known car manufacturer brands. Until now they’ve been expensive to buy compared to their petrol drinking cousins. Although they still are comparatively expensive, they are getting cheaper as the technology matures, economies of scale improve and competition increases.

The government has for the past year offered favourable tax treatment on electric vehicles purchased for business use. This is set to continue, albeit at slightly reduced levels, but with other favourable market conditions factoring in, the company car is now an interesting prospect once again.

Tax in Benefits in Kind for company electric cars

  • 2021/22: 0%
  • 2022/23: 1%
  • 2023/24: 2%

 

Considerations when buying an electric car

Should I buy a new or used electric vehicle for business use?

Most of the benefit for a business buying an electric vehicle is achieved by buying a new vehicle. New electric vehicles qualify for 100% first year allowance (FYA). That means you can deduct the full cost of the vehicle purchase price from your profits - potentially a significant tax saving.

Buying a second hand electric car can still be advantageous, but the cost won’t receive the same FYA benefit. Currently, you’ll be able to claim 18% of the purchase price.

Can my business claim for electric vehicle charging points and electricity?

This is an interesting one. A business can claim a 100% first year allowance for installing new charging points at or close to an employee's place of work. This incentive is currently available until March 31 2023.

How a business chooses to let the employee use the charging point is also interesting.

Charging an electric vehicle at the place of work - private or company owned.

Currently, there is no chargeable benefit to an employee if the company allows them to recharge their own vehicle (private use) at their place of work. This is because electricity isn’t considered a fuel. If it were, simply charging your phone or a laptop might be a chargeable benefit. This is a similar treatment to that of tax free car parking. Naturally, an employee cannot claim for recharging their personal vehicle from other locations, such as a service station.

Charging at third party charging points

Similarly, if an employer pays for the cost of charging a company owned electric vehicle at other locations, there is no chargeable benefit, again because electricity is not considered a fuel.

If an employee pays to recharge a company vehicle from a third party source such as at home or a service station charging point, they can make a claim of 4p per mile.

Can I lease an electric vehicle and claim similar benefits?

Yes, but there are a couple of points to note here. The type of contract is important. Only operational lease contracts are able to qualify for full relief on rental payments. Operating leases differ from the other type of lease - typically a personal contract purchase (PCP), in that once the operational contract ends, the vehicle concerned is simply returned to the lease company. In short, there’s no ownership.

Can I claim back VAT on an electric vehicle purchase?

The answer is yes and there’s no difference here to that of a business buying a regular vehicle. The catch though, is that it must be for 100% business use. HMRC will likely ask you to prove this too, which is notoriously hard to do. if the vehicle is used by employees for personal reasons, then only 50% can be claimed.

The other point to note is that this only applies to vehicles that are classified as low emissions - less than 50g/km CO2. Not a problem for an electric vehicle and the business can claim full relief on rental payments. Above this figure though, only 85% can be claimed.

What can I claim if I used my personal electric vehicle for business use?

Since it became unattractive to have a company car, many people use their own vehicles for business use from time to time. As such regular vehicle owners have been able to make an expense claim for mileage use. If you use your electric vehicle for business use, the rates are exactly the same. The normal tax free mileage allowance is 45p per mile  up to 10,000 miles, thereafter 25p per mile.

What about the benefits of electric vans?

Many small business owners and self employed people can benefit here by being an electric van as opposed to a ‘car’.

A van is different from a car because its sole purpose is trade or business related. Also, it qualifies for the same FYA as electric cars do. Accordingly, a van can be used from both business and private use, without the employer or employee incurring a benefit in kind.

What are ‘super-deductions’ and do they apply to electric vehicles?

Super-deductions were announced in the March 2021 budget and relate to ‘qualifying assets’. A super-deduction 130% FYA can be deducted on the full cost of such assets.

But what are qualifying assets? Where electric vehicles are concerned, they are not qualifying assets, which are normally assets acquired to carry on a trade - e.g. office equipment, machinery, computers, etc. Cars are not treated as ‘main pool’ plant and machinery and thus do not qualify for capital allowance purposes.

The good news though is that if your business plans to install charging points for company electric vehicles, these do qualify for a super-deduction of 130%. In other words, for every £10,000 spent, your business can claim back £13,000.

This benefit lasts through 31 march 2023.

What government grants and schemes are currently available ?

Buying an electric vehicle through an employer’s salary sacrifice scheme.

This represents a method by which an employer can offer an employee an electric vehicle in a cost-neutral way through salary deductions. This takes advantage of the employer’s VAT deductions and the employee’s ‘pre-taxed’ salary. This is no different from the way a company may attract top talent by offering healthcare, gym membership, childcare, etc. It is an attractive option because it reduces the employee’s overall taxable income. In some circumstances it could move an employee into a lower tax band.

However, while still an attractive scheme, the government made changes in the scheme in 2017. Since then an employee is required to pay income tax on the value of the car or the amount of salary sacrificed. Those employees on salary sacrifice schemes prior to April 2017 lost this income tax allowance in April 2021.

Fully electric cars however, renew the attractiveness of this scheme as the incentives for electric vehicle purchase and company use remain. The grants offered though only apply to vehicles with a purchase price of less than £32,000.

Here are a few examples. Note these are based on ‘no salary sacrifice scheme implemented’.

Higher value vehicle examples

Example: A regular petrol vehicle

  • Purchase price: £45,000
  • Engine size and CO2: <1400cc)- 125g/km
  • Car benefit charge : £13,050
  • Tax liability:  20% = £2610, 40% = £5220

Example: Similar value e-car

  • Purchase price: £45,000
  • Car benefit charge - £450
  • Tax liability - 20%=£90, 40% = £180
  • Government grant: Does not apply.

Typical lower cost cars

Example: Fully electric:  e.g. Vauxhall Corsa-e

  • Purchase price: £25805 inc options
  • Car benefit charge - £258
  • Tax liability - 20%=£51.6, 40% = £103.20
  • £1500 government grant

Example: Regular petrol Cosa  (<1400cc - 125g/km)

  • Purchase price: £16,445
  • Car benefit charge - £4769
  • Tax liability - 20%=£953.80, 40% = £1907.60

Other grants available

For vans

  • A grant of £3000 available for small vans up to 2500kg.
  • A grant of £6000 for vans between 2500kg and 3000kg.

Homecharge scheme

  • Employees can make use of the Electric Vehicle Homecharge scheme. This provides 75% towards the cost of and installing a single charge point, up to a maximum of £350 per household per eligible vehicle.

Road tax

  • Electric cars are exempt from road tax
  • Hybrid  vehicles are taxed between £0 and £135 per year depending on CO2 emissions.

How tax Agility can help your business navigate the electric vehicle opportunity

We’ve been assisting small businesses and the self-employed in and around Richmond and Putney for many years. We’re intimately familiar with the issues faced by businesses looking to offer benefits to their employees in a tax efficient manner and also improving the business’s own tax efficiency.

E-vehicles are or have come of age, depending on your point of view. However, there’s no denying that at present there are some significant attractors to a business (or individuals) purchasing a new electric vehicle for business use. We can help you assess the value and benefit to your business, as each business is different.

Call tax Agility today and talk to us about electric vehicle ownership and how it can benefit your business.


Do I pay UK tax if I move overseas

Living Overseas - Do I need to pay tax if I leave the UK?

On the face of it, this seems like a simple question and is indeed one many people ask. For some it’s because they are genuinely emigrating to another country, for others, they plan on being away for extended periods of time, perhaps because they are ‘snow birds’, choosing to winter in warmer climes. And then, there are others that look to understand how they can reduce their tax burden because they move around, such as ‘digital nomads’. The reality is though, it’s not that simple.

Do I pay UK tax if I move overseasA common question from UK tax payers spending time overseas in different countries, sometimes for relatively short periods is: “Do I still need to pay tax and if so, to whom?” The answer is “most likely and to somebody”. It all depends on where you are, where you’re considered a tax resident and how much time you have spent there. A common mistake is in interpreting what is known as the 183 day rule. We’ll explore that and other points to consider in this article.

Necessity is the mother of invention

Over the past few years, much about everyday life has changed, especially where work and travel is concerned. Some people have been forced out of necessity to make changes, others driven more by lifestyle changes. Taxation is on the rise in the UK and likely so in many parts of Europe. It’s only natural then, for people prepared to move overseas to think about where they will get the best value for money, where their assets may be taxed less and the impact of tax on their retirement plans. Resourceful savers will seek out the best overseas locations with attractive taxation regimes and likely move.

As people retire, some consider the option of retiring abroad. While in the past, as part of the EU, retiring to the warmer climates of Spain and Portugal was high on the list for British people, Brexit and other restrictions have made for an uncertain future resulting in more than a few people returning to the UK, potentially complicating their tax affairs. Still though, consider plans further afield, such as South East Asia or even Central America. A number of countries offer attractive expat or retirement opportunities for those who can afford the residency and immigration fees.

The key question though remains - what will be my UK tax liability and how do i figure this out?

Enter the Digital Nomad

Even before recent pandemic issues, a new breed of worker emerged - the digital nomad. Digital nomads vary greatly in demographic; some are young adventurous travellers seeking to combine work and the joy or travelling, or even just to be based in a different country for an extended period. Others maybe more mature in years, seeking to leverage overseas property or even rent for an extended period to afford a new work location, or perhaps to avoid the inclement weather in the UK.

A number of countries offer attractive digital nomad packages - often for up to 12 months. For these adventurous individuals, it’s natural to ask the question about tax or indeed if they are able to reduce their tax burden by making such changes to their location and lifestyle, and the specific benefits their own circumstances my lead to in regard to UK tax.

So how do you figure out what tax you owe to whom?

Let’s start by considering when you cease to become a UK Tax Resident.

Many people have heard of the “183 day rule”. Simply applied, this means that if you spend 183 days or more in the UK you become a tax resident and need to pay taxes here. If this is the case for you, then the trail stops here. But what does it mean if you spend less than 183 days in the UK - are you automatically treated as a non-tax resident? This is where mistakes are made and people get caught out. Being out of the UK for more than183 days does not automatically mean you are non-tax resident. To work this out we need to refer to the Statutory Residence Test, from which the 183 day rule emerges.

Introducing the Statutory Residence Test - SRT

Ultimately, whether you are tax resident or not will come down to how you fare when you take the “Statutory Residence Test” or SRT.

There are four main parts to the SRT:

  1. How much time you have spent in the UK in a tax year.
  2. Automatic Overseas Test.
  3. Automatic UK Tests.
  4. Sufficient Ties Test.

Part one: How much time you’ve spent in the UK during the tax year 

As we said earlier; if you spend 183 days or more in the UK then you’re a UK tax resident and the test stops here. However, the problem people experience is more evident if the 183 day rule is stated another way: If you’re in the UK for less than 183 days, then you’re not a tax resident. It comes down to how you count, why you’re actually in the UK and what you are up to.

On the face of it, the 183 day rule seems easy to comprehend. In practice though, how HMRC calculates the number of days is not so simple. Let’s start with what HMRC consider as a day? Generally, HMRC considers you as having spent a day in the UK if you were in the UK from Midnight onwards. But, as you’ve probably guessed, other factors apply. In fact, three other considerations need to be made:

  1. The ‘deeming rule.
  2. Transiting the UK - transit days.
  3. Exceptional circumstances.

The deeming rule

As one might reasonably expect, not everyone may spend a full day in the UK if they are not permanently based here. They may be here for meetings or to visit a relative. Perhaps not too surprisingly, HMRC needs to be sure that people are not trying to avoid tax by being based outside of the UK and coming in on a regular basis for part of a day - always a possibility if somebody is based in a close neighbouring EU country or other tax haven.

The deeming rule assesses the following conditions:

  1. Whether you have been a resident in the UK for 1 or more years in the past 3 tax years.
  2. Whether during the tax year under consideration, you had more than 3 ties to the UK. These include: A family tie, an accommodation tie, a work tie or a 90 day tie. See Ties Test.
  3. Whether you were present in the UK on more than 30 days without being present at the end of the day (qualifying day) in the tax year of interest.

More on the deeming rule can be found here.

What’s the impact of the deeming rule?

It basically means that if you meet all the deeming rule’s conditions, after the first 30 qualifying days, all subsequent days within the tax year are treated as days spent in the UK. HMRC gives examples as to how this applies, but in summary, it means that although it may appear that under the SRT you are a non-resident for tax purposes, because of your ties here and previous tax status in the UK, even though you spend less than 183 days here, you may still be treated as a tax resident.

This is quite a complicated consideration and so it is best that you consult with a Tax Agility expert on this issue.

Note: You should still check your tax liabilities with the country you have spent time with though, as their rules may be different and you may still owe tax there. Also check out whether they have a dual taxation agreement with the UK, as this means that any tax you have to pay overseas may be eligible for a tax credit in the UK, lessening your tax liability here.

Transit days

A transit day is a day where you travel to and from other countries via the UK. These are usually not considered full days under the SRT. However, care must be taken here as it may appear tempting to use a transit day as an opportunity to conduct business in the UK or see friends and family. HMRC is quite clear that any activity that is ‘to a substantial extent unrelated to your passage through the UK’, means the day concerned can be counted as a qualifying day. Simply meeting your boss for breakfast or going out on the evening of your arrival with friends, could turn a non-qualifying day into a qualifying day and count towards your allowance. If in doubt, talk to us.

Exceptional circumstances

Sometimes people are forced to return to this country, perhaps because of a death in the family or a sick parent. HMRC are not blind to this and you may be granted special conditions in regard to the total number of days you can spend in the UK.

This may be affected by the number of days you have already spent in the UK, how much work you have engaged in, the location and the type of work involved. Be sure to get clarification on this first though.

Part 2: The Automatic Overseas Test

There are three parts to this test.

First Test: You will be considered as non-resident if you spent fewer than 16 days in the UK during the tax year and were resident in the UK for one or more of the 3 tax years before the current tax year.

Second test: If you were not resident in the UK in any of the three prior tax years and spend less than 46 days in the UK in the tax year of interest, you will be considered as non-resident.

Third test: If you worked overseas full-time over the tax year concerned and:

  • spent less than 91 days in the UK in that tax year.
  • spent less than 31 days where you worked for more than 3 hours a day in the UK.
  • there was no significant break in your overseas work.

A significant break is considered where at least 31 days go by where you’ve worked for more than 3 hours overseas, or would have worked for more than three hours but didn’t because of annual leave, sick leave or parenting leave.

Part 3: The Automatic UK Test

There are three parts to this test.

First automatic UK test: If you’ve spent 183 days or more in the UK, you are a tax resident.

Second automatic UK test: If, for the tax year, you’ve had a home in the UK for all or part of that year and if all the following apply, you’ll be a tax resident:

  • one period of 91 consecutive days where you had a home in the UK.
  • at least 30 of these 91 days fall in the tax year when you have a home in the UK and you’ve been present in that home for at least 30 days at any time during the year.
  • at that time you had no overseas home, or if you had an overseas home, you were present in it for fewer than 30 days in the tax year.
  • if you have more than one home, each home should be considered separately for the test and meet the test for one of them.

Third automatic test: You’ll be a tax resident if all the following apply:

  • you work full-time in the UK for any period of 365 days, which falls in the tax year.
  • more than 75% of the total number of days in the 365 day period when you do more than 3 hours work are days when you do more than 3 hours work in the UK.
  • at least one day which has to be both in the 365 day period and the tax year is a day on which you do more than 3 hours work in the UK.

Sufficiency ties test

If you are still in doubt and do not appear to meet the automatic overseas test or the automatic Uk test, then you’ll have to look at your ties to the UK. This will help determine if your time in the UK along with the ties you have here, will make you a tax resident or not. The ties to consider are:

  • a family tie.
  • an accommodation tie.
  • a work tie.
  • a 90 day tie.

Also, if in the prior three years you were a UK resident, you’ll need to consider if you have a country tie too. Essentially, the more ties you have to the UK, the less time you can spend here without becoming a tax resident.You can find out more about this here.

Are you considered domiciled in the UK or non-domiciled?

Domicile is another question that often crops up. This typically applies to foreign nationals living and working in the UK. The answer can have a significant impact on your tax liabilities in the UK.

The exact nature of your domicile can change, but ordinarily it is the country of birth for your farther or mother. While you may be considered a UK resident for tax purposes, your domicile status can impact tax on overseas income and inheritance.  The exact impact on your tax affairs needs to be very carefully considered and planned out with a qualified tax advisor. If you have questions concerning tax and your domicile status, talk to our tax advisors.

In conclusion

Tax residency status has a habit of being misunderstood simply because of the belief in the 183 day rule. For sure, if you’ve been in the UK for longer than 183 days then unless you’re looking to qualify under non-domiciliary conditions, you’re almost certainly a tax resident. However, for most people concerned about their tax residency status, it’s more likely they are counting days under 183 and fall foul of the other conditions that HMRC will test your status against. These could potentially limit your time to 16 days in some cases, particularly if you’re based overseas and coming to the UK fairly often or still have many ties to the UK.

Our advice is, don’t assume. Talk to a qualified tax advisor before you travel and discuss your plans for the tax year.


R&D Tax Relief Scheme Changes 2021

Changes to the SME R&D tax relief

Changes announced late last year concerning the R&D tax relief scheme come into force on April 1 this year, are you ready?

R&D Tax Relief Scheme Changes 2021Aiming to put UK at the forefront of R&D and help companies compete on the world stage, the government has introduced various R&D tax reliefs, including R&D for small or medium-sized enterprise (SME), universities and charities, as well as R&D Expenditure Credit for large companies.

From 1 April 2021, the new SME R&D tax credit scheme will take effect, with the introduction of a cap on the amount of credits that could be claimed.

An overview of the SME R&D tax relief scheme

When the SME R&D tax credit schemed was first introduced in 2000, it had a cap on the amount of credits that a company could claim. In 2012, the cap was removed, thereby allowing eligible companies to deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, making it a total of 230% deduction. Even when a company was making losses, it could still claim a tax credit worth up to 14.5% of the surrendarable losses.

The system was subject to abuse and fraud – HMRC announced that they had detected and prevented fraudulent claims amounting to over £300m in recent times. Many deceptions included people setting up a UK-based entity just to claim tax credit despite no R&D work was actually performed in the UK.

Consequently, from 1 April 2021, the government will introduce a cap, limiting the payable R&D tax credit to three times the total PAYE and NIC liability of the company for the year, plus £20,000. This also means that the first £20,000 of repayable tax credit claim will be exempt from the cap, thereby protecting smaller SMEs with few employees.

For a genuine SME that employs people to carry out R&D work in the UK, the new changes will have little or no impact. However, for a company that doesn’t have any real UK-based activities, or one that doesn’t employ people but relies on subcontractors, the new rule will discourage them from making an R&D tax credit claim.

Exemption

The new changes will not apply to companies that:

  • Have employees creating, preparing to create, or managing Intellectual Property (IP), and;
  • Do not spend more than 15% of its qualifying R&D expenditure on subcontracting R&D to, or the provision of externally provided workers (EPWs) by, connected persons.

R&D and IP creation

Ideally, R&D work would lead to IP creation, and if this is the case, your company could also take advantage of the Patent Box – a scheme that allows companies to apply a lower rate of Corporate Tax to profits earned from its patented inventions.

‘Related party PAYE’

In calculating PAYE and NIC liabilities, claimants may include related third parties, i.e. those companies performing R&D activities on the claimants behalf, as long as the work is directly attributable to the development activity.

Talk to Tax Agility

The first step is to seek professional guidance on this issue if you aren’t sure how it is going to impact your business.


Business people Celebrate Merry Christmas And Happy New Year

Tax rules for staff parties and annual events

Business people Celebrate Merry Christmas And Happy New Year

Beware of the £150 per head exemption before organising your office party.

The idea to get your team members away from work and their daily routines for a social function is sound and meaningful. Rightly so, HMRC recognises the importance of such social event and allows tax exemption to small business owners who look to reward their employees with a staff party or a social event.

Important tax rules on staff parties and annual events

HMRC is stringent when it comes to the extra perks you provide to your staff and the perks are subject to PAYE tax and National Insurance.

But once a year, HMRC allows you to spend £150 per employee which is an exemption, meaning you can claim them as a business expense. To qualify, the event must:

  • Occur annually. It can be a Christmas party or a summer event.
  • Cost less than £150 per employee. This cost includes VAT and other related expenses such as the event itself and transport.
  • Available to all employees.
  • Available to their partners, meaning their partners are also subject to the £150 per head limit.
  • Applicable to shareholders who are also directors or employees.

What happens if my event costs average more than £150 per person?

If your annual event exceeds the £150 tax exemption per person, you cannot claim the first £150. Instead, you must report the whole amount to HMRC and pay National Insurance on the full cost of the event accordingly. In this instance, it is best to get help from your accountant as you will also need to complete form P11D for each employee.

Can I host more than one annual event?

Yes. Employers can host multiple annual events but must ensure that the combined cost of the events is no more than £150 per employee for the year. However, to make it easier, most business owners choose to use their tax exemption budget during a single occasion.

Let Tax Agility manage your taxes

Tax is probably not the favourite subject among many small business owners. In the UK, tax is a complicated subject and how much tax your business has to pay depends on its structure, the VAT option it chooses, and how much money it makes. We understand that not all small business owners can keep abreast of the latest tax changes, which is why our accountants for small business owners are here to assist.

When it comes to taxes, you can count on us to provide services pertaining to:

  • Corporate tax
  • VAT
  • Employers’ PAYE
  • National Insurance
  • Business rates
  • Income tax (for directors and shareholders)

Whatever you need, we are committed to making your business a success - contact us today on 020 8108 0090 or get in touch with us via our contact page to arrange a free, no obligation meeting.

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This post is intended to provide information of general interest about current business issues. It should not replace professional advice tailored to your specific circumstances.


Happy family - man, woman, two kids

Tax planning for families

Family

Family tax planning is a smart way to utilise all of the exemptions and allowances legally afforded to you.

In the UK, every individual has a personal tax-free allowance and is taxed independently. This applies to working parents, retired grandparents and also children. Because of this tax structure, it is possible to use legitimate means to reduce the joint size of your family’s tax bill.

Strategic (but non-aggressive) family tax planning can benefit contractors, small business owners, and even working adults. If you plan to undertake some form of family tax planning, however small it may be, we advise you to speak with a qualified and independent accountant first, whether it is our team at Tax Agility or an equally experienced professional. To give you an idea about family tax planning, we aim to discuss family tax planning in detail and highlight essential areas in this article.

What is family tax planning?

Family tax planning is a tax strategy, which maximises the usage of the many tax exemptions and tax allowances that exist within the legal framework for members of a family household. Often this happens through the careful shifting of income from the hands of the primary wage earner to their spouse or children.

The rationale that dictates this strategy is that anyone who does not earn as much as the primary earner of a household will be taxed at a lower tax band. Therefore, the maximum amount of taxable income that can be legally transferred to another family member should be utilised to minimise taxes and maximise household income.

Every person in a household is entitled to an annual personal allowance (or PA) on any income. A personal allowance is a threshold above which income tax is levied on an individual’s income. The personal allowance for tax year 2019/20 is £12,500 for individuals earning less than £100,000 a year. Once the £12,500 threshold is hit during the tax year, that person has to start paying taxes on any income they earn that is above that amount.

For example, if you earn £10,000 in the 2019/20 tax year, you do not have to pay any tax for that year. But if you earn £200,000 in the same year, you will lose your personal allowance and pay a higher tax rate on the vast majority of your income.

Examples of family tax planning strategies

Finding ways to spread income across various members of a household is the key to minimising the amount of tax which your family will pay in a year, and maximising how much income is tax-free or paid to a lower tax band. This can be done in a variety of ways – however, these strategies must be approached with proper regard for rules and regulations.

Make your family members shareholders

A highly popular approach among company directors when it comes to lowering tax bills is to make your spouse or a family member a shareholder in your company. This arrangement allows them to receive dividend payments instead of salary; and because dividend is taxed on a lower rate than salary, the overall tax bill is reduced accordingly.

Putting your family members on payroll

If your business has a legitimate need, like you need a weekend driver to take care of deliveries and your son is free, you can employ him and pay him commercially viable wages. The payment to your son is a tax-deductible expense in your company accounts. Follow the link to the article “Does HMRC object to putting family members on the payroll” if you would like to know more.

Marriage allowance

One legitimate strategy is to make use of marriage allowance, which allows an individual who earns less than £12,500 a year to transfer £1,250 of their personal allowance to their spouse or partner. By doing just that, you can immediately reduce your tax bill up to £250. To qualify:

  • You must be married or in a civil partnership
  • The lesser earner receives an income which is below the personal allowance threshold, i.e. £12,500
  • The spouse or partner earns between £12,501 and £50,000 and pays income tax at the basic rate

Junior ISA

In theory, you can give as much as you like to your children if they are below 18 years old. But if they put the money in the bank and earn interest, then they can only earn up to £100 in interest. To get around this, you can consider making use of a Junior ISA.

A Junior ISA does not have the £100 interest limit, and the account holder does not pay tax on interest on the cash they save (for cash Junior ISA), or the account holder does not pay tax on any capital growth or dividends they receive (for stocks and shares Junior ISA).

At present, you can contribute £4,368 a year to a Junior ISA account. The amount you can contribute is usually increased every year, meaning by the time your child reaches 18, they are likely to have a substantial amount of savings in their Junior ISA account for which they do not have to pay tax on interest earned.

Inheritance tax

When it comes to inheritance tax, how much can you give to your children tax-free is one of the questions we are asked regularly. The answer lies in how well you plan.

You can give your children £3,000 worth of gifts a year tax-free as long as the gift takes place seven years before your death. This is known as annual exemption. If the years between gift and death is less than seven years, a tiered-tax system applies. Visit this HMRC page if you would like more information.

When you pass, the first £325,000 of what you own is not taxed. But anything above this amount is subject to 40% inheritance tax. The threshold is increased to £475,000 if you give away your home to your children or grandchildren.

Often you will see an oversimplified example using a house that you own to illustrate inheritance tax. In reality, your estate is likely to include more than a house. If you are a small business owner, any ownership of a business, or share you own in a business, is considered your estate and is subject to inheritance tax. But – here is the bit that requires some planning – your family members can benefit from Business Relief (either 50% or 100%) on some assets (property, building, machinery and unlisted shares) in your estate which you pass on to them either when you are alive or as part of your will. If you would like to know more about inheritance tax and business relief, get in touch with us today by calling 020 8108 0090.

Capital Gains Tax

As the name suggests, Capital Gains Tax applies when you sell something that has increased in value. There are many ways to lower your capital gains tax legitimately, including making use of annual exemptions, making gains through an ISA, pension and investment bonds, transferring the asset to your spouse, switching asset class, reducing your taxable income, and investing in small companies to name but a few. As there is no one-size-fits-all approach, it is best that you talk to one of our experienced chartered accountants first.

Planning for the future

Family tax planning is an excellent method of ensuring that you, your partner and your children will benefit from the many allowances and exemptions that are available in both the short-term and the long-term – including contingency plans that will protect your family in the event that something happens to you.

However, in order to fully utilise the breadth of opportunities available as part of a family tax planning strategy, such strategies should not be approached without the advice of a professional who has experience in tax planning for families. At Tax Agility, our team of experienced chartered accountants can work with you to navigate the complicated world of tax planning, help you to explore the available options, and ensure that you have the best strategy in place for your family.

In order for us to implement the most effective strategy for your family, we need to understand your financial position first. For this reason, we offer our first consultation free of charge to allow us to learn about your family’s financial circumstances and create an effective accounting solution.

Simply get in touch on 020 8108 0090 or contact us via our Online Form today, so that we can create a strategic family tax planning guide to suit your needs.

This article was first published in 2014 and has been updated on 14/08/19.

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This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.


Universal Credit

Introduced in 2013, Universal Credit aims to reform the benefits system by replacing existing income-related benefits, namely:

  • Housing Benefit
  • Income Support
  • Child Tax Credits
  • Working Tax Credits
  • Income-based Jobseeker’s Allowance (JSA)
  • Income-related employment and support allowance (ESA)

Under this scheme, recipients who are out of work or on a low income will receive a single monthly payment to assist with living costs.

The objective of Universal Credit is to simplify the welfare system, help get people back into work, reduce in-work poverty and help detect fraud and error. However, it isn’t without controversy. The Government has made a vague promise that existing tax credit recipients will not lose out through Universal Credit, and the Secretary of State for Work and Pensions announced that the Department of Work and Pensions (DWP) had succeeded in helping 3.4 million people find employment since 2010.

But other institutions are less optimistic. The Institute of Chartered Accountants in England and Wales (ICAEW) said that ‘by and large, the new system will be less generous to claimants than tax credits’.

What’s the difference between Universal Credit and the existing Tax Credit system?

There are some key differences between the systems:

  • Claimants will now receive a single monthly payment
  • More people will be able to manage their claim online
  • It will be available to those who are in work but have a low income

The amount of the single monthly payment will depend on an individual’s circumstances. It is made up of a single monthly allowance, supplemented by additional elements for childcare, limited capability for work, housing and carers.

The single monthly payment is supposedly designed to reflect the salary system of the vast majority of employed people receiving wages monthly. According to the government, Universal Credit will thus encourage claimants to take more responsibility for their finances and also prepare people for the transition into work.

What do you need to do if you currently receive Tax Credits?

The short answer is nothing. HMRC has made it clear that the Tax Credit Office will contact those affected by the changes. At present, there are more than one million people on universal credit and the government’s plan is to roll it out for almost seven million people by 2023. To find out if you’re eligible to receive Universal Credit, see this step-by-step guide on the gov.uk site.

Will Universal Credit affect child maintenance payments?

Universal Credit will not replace Child Benefit, which recipients will still receive in addition to Universal Credit. This will also not affect the amount of Universal Credit that claimants are entitled to. In addition, Universal Credit will not affect Bereavement Allowance, Carers Allowance, Disability Living Allowance, Maternity Allowance, among others.

Is Universal Credit taxable?

Universal Credit is a tax-free state benefit, which means the monthly payments are not considered taxable income. While other benefits may be taxable, the government supports Universal Credit recipients through this state-benefits system.

For more information, the DWP has produced an FAQ document which is useful. Alternatively, you can contact our tax accountants to if you have any questions.

Published on 09 Jan 2013 and updated on 06 Feb 2019, this blog is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.


Personal tax allowance: exceptions

Personal tax allowance: Exceptions

Personal tax allowance: exceptionsThough the personal tax allowance can give you savings on your income up to £11,850, there are many other ways of saving more money due to the numerous special circumstances and exceptions laid out by HMRC. Allow the tax experts at Tax Agility to guide you through the most important ones.

Tax on savings interest

Most people can earn some interest from their savings without paying tax. The starting rate for tax savings is £5,000 but is subject to certain conditions. The amount that you don’t have to pay tax on depends on your primary income and personal tax allowance:

  • If your primary income is £16,850 or more - You’re not eligible for the starting rate for savings.
  • If your primary income is less than £16,850 - Your starting rate for savings is a maximum of £5,000. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1.

Remember that this applies to with a personal tax allowance of £11,850. If your personal tax allowance is higher, then the bands are calculated by adding £5,000 to your own personal tax allowance and using that value instead. Additionally, you are entitled to an extra £1000 of tax-free income if you are a basic rate taxpayer, called personal savings allowance. This is cut to £500 if you’re a higher rate taxpayer, with additional rate taxpayers getting no allowance.

Tax on dividends

You may get a dividend payment if you own shares in a company. You only have to pay tax if your dividends go above your dividend allowance in the tax year. The dividend allowance was calculated differently before 06 April 2016, but it has since been changed to a fixed amount each year. Depending on which tax band you are in you can have different rates of tax:

  • Basic rate – 7.5%
  • Higher rate – 32.5%
  • Additional rate – 38.1%

As of 2018/19, there is an allowance of up to £2,000 for dividend income with anything above that taxed according to the above rates. The dividend income must be added to any other taxable income when calculating what you need to pay.

Tax on property and trading income

There are two aspects to tax on property and trading income, both with restrictions, but both allowing £1,000 of tax-free income if you pass. The first aspect concerns income from trading, obtained explicitly from any of the following sources:

  • Self-employment
  • Casual services such as babysitting or gardening
  • Hiring personal equipment such as power tools

If you receive income from these sources, then £1,000 of it is tax-free. Furthermore, if your total gross annual income from trading is less than £1,000, then you don’t need to inform HMRC.

The second aspect concerns income from rented properties. Up to £1,000 of income from these properties is tax-free. However, if the property is jointly owned, then both owners get £1,000 of tax-free income on their individual shares, rather than the income of the house as a whole.

Tax relief

Tax relief occurs when you are repaid tax (or charged less tax overall) for money spent on specific things. It applies primarily to pension contributions, charity donations and maintenance payments, although, you may also use it if you are self-employed or use your own money for travel and necessary equipment for your job. You can also claim tax relief if you have income from working on a ship outside of the UK. Full details about the requirements are on the government income tax relief information page.

Marriage allowance

Marriage Allowance lets you transfer £1,190 of your Personal Allowance to your husband, wife or civil partner if they earn more than you. There are several restrictions on this, and you can only benefit from it if:

  • You are married or in a civil partnership
  • You do not pay income tax (or your income is lower than your personal allowance)
  • Your partner pays income tax at the basic rate, which usually means their income is between £11,851 and £46,350

Overall this can reduce their tax by up to £238 in the tax year. Note that you should call the HMRC if you either receive other income such as dividends or savings or if you are a Scottish taxpayer.

Making sense of tax allowances with Tax Agility

Many of the tax allowances overlap or are conditional on each other, making it a challenge to understand. At Tax Agility, our tax allowance specialists can translate the financial jargon and assist you in applying for tax allowances to get maximum savings.

To find out if you’re missing out on beneficial tax allowances that can help you to save even more money, give our chartered accountants a call on 020 8108 0090. Alternatively, you can use our Online Form.

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