Category: Finance & Accounting

Tax is always changing, and entrepreneur’s relief is no exception. The £10 million lifetime limit is to be reduced to £1m for disposals on or after 11 March 2020 – read the latest update here.

ER but not as we know it

The Spring Budget 2020 announced a significant restriction on future availability of entrepreneurs’ relief (ER) for individuals who dispose of all or part of their business, individuals who dispose of shares in their personal company, and trustees who dispose of business assets.

 

Broadly, the lifetime limit of £10m is to be reduced to £1m for disposals on or after 11 March 2020. The measure also provides that the lifetime limit must take into account the value of ER claimed in respect of qualifying gains in the past. The relevant legislation is included in Finance Bill 2019-21, so is currently subject to enactment.

 

Qualifying gains within the lifetime allowance are charged at the rate of 10%. Gains in excess of this limit are charged at the rate of 20% rate. For disposals between 6 April 2011 and 10 March 2020, the lifetime limit on gains qualifying for ER is £10 million. The £10 million limit is a lifetime threshold and claims may be made against it on more than one occasion. Finance Bill 2019-21 also includes provisions to rename ER as ‘business asset disposal relief’ from 2020-21 onwards.

 

Selling all or part of a business

To qualify for business asset disposals relief, both of the following must apply:

  • the individual must be a sole trader or business partner
  • the individual must have owned the business for at least two years before the date they sell it

The same conditions apply if the business is closing rather than being sold. The business assets must be disposed of within three years to qualify for relief.

 

Selling shares or securities

To qualify, both of the following must apply for at least two years before the shares are sold:

  • the individual is an employee or office holder of the company (or one in the same group)
  • the company’s main activities are in trading (rather than non-trading activities like investment) or it’s the holding company of a trading group.

 

There are other rules depending on whether or not the shares are from an Enterprise Management Incentive (EMI). Broadly, if the shares are from an EMI, the investor must have both:

  • bought the shares after 5 April 2013
  • been given the option to buy them at least one year before selling them

 

If the shares are not from an EMI, for at least two years before the shares are sold, the business must be a “personal company”. This means that the investor has at least 5% of both the shares and the voting rights in the company. The investor must also be entitled to at least 5% of either:

  • profits that are available for distribution and assets on winding up the company
  • disposal proceeds if the company is sold

 

If the number of shares held falls below 5% because the company has issued more shares, the investor may still be able to claim business asset disposals relief. The investor should elect to be treated as if they had sold and re-bought the shares immediately before the new shares were issued. This will create a gain on which ER can be claimed.

 

The investor can also elect to postpone paying tax on that gain until they come to sell the shares. This is usually done via the self-assessment tax return. If the company stops being a trading company, ER can still be claimed if the shares are sold within three years.

 

Selling assets previously lent to the business

To qualify, both of the following must apply:

  • the investor sold at least 5% of their part of a business partnership or their shares in a personal company
  • they owned the assets but let their business partnership or personal company use them for at least one year up to the date they sold the business or shares – or the date the business closed.

 

Partner Note:  TCGA 1992, ss 169H to 169V; Finance Bill 2019-21, cl. 22 and Sch 2

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Most VAT-registered business can use the flat rate scheme if it is expected that VAT taxable turnover in the next 12 months to be £150,000 or less. Read this short blog to see if your business would benefit from switching to the FRS.

FRS for VAT – Who is it for?

The VAT flat rate scheme (FRS) is used by many small businesses to help simplify their VAT reporting obligations, although some VAT experts would argue that the scheme is not simple to use.

Broadly, the FRS is a simplified VAT accounting scheme for small businesses, which allows users to calculate VAT using a flat rate percentage by reference to their particular trade sector. When using the FRS, the business ignores VAT incurred on purchases when reporting VAT payable, with the exception of capital items which cost £2,000 or more.

If the business incurs few expenses, and it operates in a sector with a relatively low FRS percentage, it will pay out less VAT to HMRC under the FRS than it would outside the scheme. Historically, many businesses have registered for VAT voluntarily before their turnover reached the VAT registration threshold, so they could make use of the cash advantage offered under the FRS.

Most VAT-registered business can use the FRS if it is expected that VAT taxable turnover in the next 12 months to be £150,000 or less. Certain other eligibility criteria apply.

The business must leave the scheme if:

  • it is no longer eligible;
  • on the anniversary of joining, turnover in the last 12 months was more than £230,000 (including VAT) – or if it is expected to be in the next 12 months;
  • total income in the next 30 days alone is expected to be more than £230,000 (including VAT)

 

The VAT flat rate used usually depends on the business type.

Common percentages used by service-related businesses in recent years include:

  • Accountancy and legal services 14.5%
  • Computer or IT consultancy 14.5%
  • Estate agents and property management 12%
  • Management consultancy 14%
  • Business services not listed elsewhere 12%

 

A 1% discount on the relevant flat rate is given in the first year as a VAT-registered business.

Since 1 April 2017, a flat 6.5% FRS rate has applied for businesses with limited costs (see below). Since the rate of 16.5% of gross turnover equates to 19.8% of the net, the result is that there will be almost no credit for VAT incurred on purchases.

A ‘limited cost’ business is defined as one whose VAT inclusive expenditure on goods is either:

  • less than 2% of their VAT inclusive turnover in a prescribed accounting period;
  • greater than 2% of their VAT inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000).

‘Goods’ for these purposes must be used exclusively for the purpose of the business but exclude the following items:

  • capital expenditure goods;
  • food or drink for consumption by the flat rate business or its employees;
  • vehicles, vehicle parts and fuel (except where the business is one that carries out transport services – for example, a taxi business – and uses its own or a leased vehicle to carry out those services).

 

(These exclusions are part of the test to prevent traders buying either low value everyday items or one-off purchases in order to inflate their costs beyond 2%.)

FRS and MTD

With regards to record-keeping, HMRC confirm that for compliance with Making Tax Digital (MTD) for VAT obligations businesses using the FRS do not need to keep a digital record of:

  • purchases unless they are capital expenditure goods on which input tax can be claimed;
  • the relevant goods used to determine if the business needs to apply the limited cost business rate.

 

Not all software packages are configured to accommodate the FRS, and many will only permit sales to be recorded as standard rated, reduced rated, zero rated or exempt. Users of the FRS should use one of the following methods to record sales:

  • record the supply as one standard rated supply and one zero rated supply (i.e. have two entries for each supply); or
  • record the sale at one rate and correct the VAT through an adjustment at the end of the period (as is suggested for cases where more than one supply is invoiced on a single invoice).

 

Partner Note: VATA 1994 s 26B; SI 1995/2518, Regs 55A-55V, 57A, 69A; HMRC VAT Notice 733: Flat Rate Scheme for small businesses; VAT Notice 700/22: Making Tax Digital for VAT, para 4.6

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In today’s short blog, we’ve summarised the latest information on dealing with director’s loans and the section 455 charge for 2020/21, read more below.

Dealing with directors’ loans

For accounting purposes, cash transactions between a director and a personal or family company are recorded through the director’s account. At the end of an accounting period, if the director owes the company money (i.e. the account is considered overdrawn), and the company is close (broadly, one that is controlled by five or fewer shareholders (participators)), there will be tax consequences to consider.

A tax charge will arise under the Corporation Tax Act 2009, s 455 where a director’s loan account is overdrawn at the end of the accounting period and remains overdrawn nine months and one day after the end of that accounting period. The tax charge is the liability of the company and is calculated as 32.5% of the amount of the loan. The rate of the charge is equivalent to the higher dividend rate.

Example

Kim is the sole director of her personal company K Ltd. The company’s financial year end is 31 March.

On 31 March 2020, Kim’s loan account is overdrawn by £20,000 and it remains overdrawn by this amount on 1 January 2021 (the date on which corporation tax for the period is due). The company must pay a tax charge under s 455 of £6,500 (£20,000 @ 32.5%).

Can the charge be avoided?

Even if the loan account was overdrawn at the end of the accounting period, the section 455 charge can be avoided if the loan is cleared by the corporation tax due date of nine months and one day after the end of the period. This can be done in various ways:

  • the director can pay funds into the company to clear the loan;
  • the company can declare a dividend to clear the loan balance;
  • the director’s salary can be credited to the account to clear the loan balance; or
  • the company can pay a bonus to clear the loan balance.

It should be noted however, that with the exception of the director introducing funds into the company, the other options will trigger their own tax bills.

Two further points are also worth highlighting here:

  • Clearing the loan may not always be beneficial and paying the s 455 charge may be preferable. For example, if the tax on a dividend or bonus credited to clear the loan is more than the section 455 charge.
  • Once the loan is cleared, the s 455 tax is repayable. This happens nine months and one day after the end of the tax year in which the loan is cleared.

It should also be noted that anti-avoidance rules apply to prevent the director clearing a loan shortly before the section 455 trigger date, only to re-borrow the funds shortly thereafter.

In summary, the section 455 tax is essentially a holding tax payable by the company. The rules apply all shareholders, even if they are not directors. The charge is specifically designed to be equal to the higher rate tax on a dividend to deter shareholders from taking money from a company when it isn’t owed to them.

 

Partner Note: CTA 2009, s 54; CTA 2010, ss 455 and 458

Most businesses have suffered due to the pandemic, but should you take the option to defer your payment on account to 31 January 2021? We weigh up the option in our latest blog.

Deferring self-assessment POA – Is it is good idea?

To help those suffering cashflow difficulties as a result of the Covid-19 pandemic, the Government have announced that self-assessment taxpayers can delay making their second payment on account for 2019/20. The payment would normally by due by 31 July 2020.

Under self-assessment, a taxpayer is required to make payments on account of their tax and Class 4 National Insurance liability where their bill for the previous tax year is £1,000 or more, unless at least 80% of their tax liability for the year is deducted at source, such as under PAYE. Each payment on account is 50% of the previous year’s tax and Class 4 National Insurance liability. The payments are made on 31 January in the tax year and 31 July after the end of the tax year. If any further tax is due, this must be paid by 31 January after the end of the tax year. In the event that the payments on account are more than the final liability for the year, the excess is set against the tax due for the next tax year or refunded.

The normal payment dates for payments on account for the 2019/20 tax year are 31 January 2020 and 31 July 2020, with any balance due by 31 January 2021.

Delay not cancellation

The option on offer is a deferral option not a cancellation. Where this is taken up, the payment on account must be paid by 31 January 2021. As long as payment is made by this date, no interest or penalties will be charged.

Should I pay if I can?

The deferral option is clearly advantageous to those who have taken a financial hit during the Covid-19 pandemic, particularly those operating in sectors where working is not possible during the lockdown, such as hairdressers and beauticians and those operating in the hospitality, leisure and retail sectors.

For those who have not taken a financial hit or who are otherwise able to pay, from a cashflow perspective it may be attractive to defer the payment. However, this may simply be a case of delaying the pain; not only will the delayed payment on account be due on 31 January 2021 together with any Class 2 National Insurance liability, but also the first payment on account for 2020/21. This may amount to a sizeable bill.

The decision as to whether to pay or defer is a personal one; but the option to choose is a welcome one.

Partner note: www.gov.uk/pay-self-assessment-tax-bill

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Small employers can now reclaim statutory sick pay paid to employees who were absent from work due to the Coronavirus. The online claim service went live on 26 May 2020 – our latest blog covers everything you need to know about making a claim.

Reclaim SSP for Covid-19 absences

Small employers can now reclaim statutory sick pay (SSP) paid to employees who were absent from work due to the Coronavirus. The online claim service went live on 26 May 2020.

Employers can use the scheme to claim back SSP paid to an employee who is eligible for SSP due to Coronavirus if:

  • they have a PAYE payroll scheme that was in operation on 28 February 2020; and
  • they had fewer than 250 employees at that date.

Qualifying absences

SSP can only be reclaimed where the employee’s absence relates to Covid-19; where the absence is for another reason, the employer must meet the cost of any SSP paid. An absence counts as a Covid-19 absence if the employee is unable to work because:

  • they have Coronavirus;
  • they are unable to work because they are self-isolating because they live with someone who has Coronavirus symptoms; or
  • they are shielding and have a letter from the NHS or GP telling them to stay at home for at least 12 weeks.

Claims can be made for periods of sickness on or after 13 March 2020 where the employee has Coronavirus symptoms or is self-isolating because a member of their household has symptoms and for absences on or after 16 April 2020 where the employee was shielding.

Maximum claim

The employer can claim back the SSP paid in respect of qualifying Covid-19 absences up to a maximum of two weeks’ SSP per employee. Where the employer pays more than the weekly rate of SSP, rebates must be claimed at the SSP rate — £95.85 per week from 6 April 2020 and £94.25 per week previously.

Evidence and records

Employers do not need to get a Fit note where an employee is off work due to Coronavirus. However, you can ask for an isolation note from NHS111 where the employee is self-isolating or a letter from the NHS or the employee’s GP where the employee is shielding.

Records should be kept of the dates of absence, the SSP paid to each employee, their National Insurance number, the reason for their absence and, where provided, evidence in support of their absence. Records should be kept for three years from the date that the rebate is received.

Making the claim

Claims can be made online on the Gov.uk website. To make a claim, the employer will need:

  • their employer PAYE scheme reference;
  • contact name and phone number;
  • bank details (where a BACS payment can be accepted);
  • total amount of SSP paid to employees in the claim period in respect of Covid-19 absences;
  • number of employees in respect of whom the claim relates; and
  • the start and end date of the claim period.

Claims can be made for multiple periods and multiple employees at the same time. The end date of the claim is the end of the most recent pay period for which a claim is being made.

Partner note: The Statutory Sick Pay (Coronavirus) (Funding of Employers’ Liabilities) Regulations 2020 (SI 2020/512); see also www.gov.uk/government/collections/financial-support-for-businesses-during-coronavirus-covid-19#paying-sick-pay.

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While some parts of life are on hold, unfortunately there are still tax deadlines! Employers have until 6 July 2020 to tell HMRC about taxable benefits and expenses provided to employees in 2019/20 – find out more in our blog.

Reporting expenses and benefits for 2019/20

Employers who provided taxable expenses and benefits to employees in 2019/20 need to tell HMRC about them by 6 July 2020, if they have not opted to tax them via the payroll.

Non-payrolled taxable expenses and benefits are reported to HMRC on form P11D. Employers must also file a P11D(b) by the same date. This is the employer’s declaration that all required P11Ds have been submitted, and also the statutory Class 1A return.

Taxable value

The taxable value of the benefit is normally the cash equivalent value. However, where the benefit has been provided under an optional remuneration arrangement, such as a salary sacrifice scheme, and is one to which the alternative valuation rules apply, the taxable amount is the relevant amount. Broadly, this is the salary foregone where this is higher than the cash equivalent value calculated under normal rules.

Exempt benefits

Benefits and expenses that are exempt from tax do not need to be included on the P11D. However, remember to check that all associated conditions have been met.

The exemption for paid and reimbursed expenses means that no tax liability arises where the employer meets or reimburses expenditure which would have qualified for tax relief if met by the employee. Paid and reimbursed expenses falling within the scope of the exemption do not need to be reported on the P11D.

PAYE Settlement Agreements

An employer can use a PAYE Settlement Agreement (PSA) to meet the tax liability on certain benefits and expenses on the employee’s behalf. Items included in a PSA do not need to be returned on the P11D. A PSA is a continuing agreement and remains in place until revoked. Review PSAs before 6 July 2020 to ensure they remain valid and to add any new items that you wish to include.

Payrolled benefits

Employers can opt to tax benefits through the payroll (‘payrolling’) instead of reporting them to HMRC on the P11D. This option is available for all benefits excluding low-interest and interest-free loans and living accommodation. However, the employer must register before the start of the tax year to payroll.

Payrolled benefits do not need to be included on the P11D; however if other benefits are also provided, these must be included.

Remember to include payrolled benefits in the calculation of the Class 1A liability on the P11D(b).

Online or paper forms

Expenses and benefits returns can be filed online using HMRC’s Expenses and Benefits Online Service, PAYE for Employers or commercial software.

However, there is no requirement to file online and paper returns can be filed if this is preferred.

The deadline is 6 July 2020. Employees should be given a copy of their P11D by the same date.

A nil return is required where HMRC have sent a P11D(b) or a P11D(b) reminder letter. It can be made online at www.gov.uk/government/publications/paye-no-return-of-class-1a-national-insurance-contributions.

Pay Class 1A National Insurance

Class 1A National Insurance contributions for 2019/20 should be paid by 22 July 2020 if payment is made electronically. If payment is made by cheque, as 19 July falls on a Sunday, the cheque should reach HMRC by Friday 17 July.

Partner note: Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682), reg. 85.

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Are you a buy-to-let landlord who’s decided to take a mortgage payment holiday? We explain the impact on this on tax relief for interest payments in today’s blog.

Mortgage payment holidays and interest relief for landlords

In March, the Government announced that homeowners struggling to pay their mortgages due to Coronavirus would be able to take a three-month mortgage payment holiday. They confirmed that this option would also be available to buy-to-let landlords, who may suffer cashflow difficulties if, as a result of the virus, their tenants were unable to meet their rent in full when it is due. In May, the Government announced that those struggling to pay their mortgages because of the impact of Coronavirus would be able to extent their mortgage payment holiday by up to three months.

Where a landlord opts to take a mortgage payment holiday, what impact does this have on tax relief for interest payments?

Interest continues to accrue

The first point to note is that interest continues to accrue during the period of the mortgage holiday, although the landlord will not be required to make any payments during this time. This is important and will impact on the timing of the associated interest relief, which will depend on whether accounts are prepared on a cash basis or on the accruals basis.

At the end of the holiday, the missed payments and interest may be recovered by extending the term of the mortgage or by making higher payments once payments restart.

Relief as a basic rate tax reduction

From 2020/21 onwards, tax relief for finance costs (such as mortgage interest) on residential properties is given only as a tax reduction at the basic rate. This means that 20% of the allowable finance costs are deducted from the tax that is due.

Impact of a mortgage holiday – Cash basis

Most landlords whose rental receipts are £150,000 a year or less will prepare the accounts for their property rental business under the cash basis. As expenditure under the cash basis is recognised when paid, if the landlord does not make a payment, there will be no relief for that expense until the payment is made.

Where the landlord takes a mortgage, no interest will be paid during the period of that holiday. As a result, a landlord may pay less in interest in 2020/21 than in 2019/20. The interest rate reduction is calculated by reference to the interest paid in the year.

Example

Kevin has a buy-to-let property on which he has buy-to-let mortgage, the interest on is £500 per month. As a result of the Covid-19 pandemic, his tenant struggles to pay his rent on time. Kevin takes a three-month mortgage payment holiday. To mortgage term is extended as a result.

In 2020/21, Kevin only makes nine mortgage payments instead of the usual 12, paying interest of £4,500 rather than £6,000. The tax reduction for 2020/21 is £900 (£4,500 @ 20%) rather than £1,200 (£6,000 @ 20%).

Impact of mortgage payment holiday – Accruals basis

Under the accruals basis relief is given for the period in which the expense arises rather than when payment is made. As interest continues to accrue throughout a mortgage holiday, the landlord will be able to claim the full tax reduction on the interest accruing in the 2020/21 tax year, even if the interest was not paid in full in the year because the landlord took advantage of a mortgage payment holiday. If, in the above example, Kevin prepared his accounts for 2020/21 on the accruals basis, he would be able to claim a tax reduction of £1,200 rather than £900.

Partner note: ITTOIA 2005, ss. 272A

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If you have a holiday let but are worried you won’t meet the occupancy test this year, all is not lost. There are two routes by which it may be possible to reach the required occupancy threshold – an averaging election or a period of grace election.

Furnished holiday lettings – What can you do if you fail to meet the occupancy tests due to the Covid-19 pandemic?

Lets that qualify as furnished holiday lettings (FHL) enjoy special tax rules compared to other types of let, allowing landlords to benefit from certain capital gains tax reliefs for traders and to claim plant and machinery capital allowances for items such as furniture, fixtures and equipment. Profits from an FHL business also count as earnings for pension purposes.

To qualify as an FHL the property must be in the UK or (for the time being at least) in the EEA. It must also be let furnished and meet various occupancy conditions.

Occupancy conditions

To qualify as an FHL, all three occupancy conditions must be met. Where the let is continuing, the tests are applied on a tax-year basis; for a new let, the must be met for the first 12 months of letting.

Test 1 – Pattern of occupancy condition

This test is met if the total of all lettings that exceed 31 days is not more than 155 days in the year.

Test 2 – The availability condition

The property must be available for letting as furnished holiday accommodation for at least 210 days in the tax year (excluding any days in which the landlord stays in the property).

Test 3 – The letting condition

The property must be let commercially as furnished holiday accommodation to the public for at least 105 days in the year. Lets of more than 31 days are not counted unless the let exceeds 31 days as a result of unforeseen circumstances. Lets to family or friends on a non-commercial basis are also ignored.

Impact of Coronavirus

The hospitality and leisure sectors have been hard hit by the Covid-19 pandemic and the lockdown means that many landlords with holiday lets will fail to meet the letting condition in 2020/21. However, all is not lost and there are two routes by which it may be possible to reach the required occupancy threshold – an averaging election or a period of grace election.

Averaging election

An averaging election can be used where a landlord has more than one holiday let and one or more of the properties does not meet the letting condition. Instead of applying this test on a property by property basis, it can be applied by reference to the average rate of occupancy across all properties let as FHLs. Thus, the test is treated as met if on average the holiday lets are let for 105 days in the tax year.

While, at the time of writing, it was unclear when all the restrictions may be lifted, an averaging election may help landlords with mixed portfolios including some winter holidays lets as well as those that are popular in the summer.

Period of grace election

A period of grace election can be used where the landlord genuinely intended to meet the letting condition but was unable to. The Coronavirus pandemic is a prime example of where this may be the case.

To make a period of grace election, the pattern of occupation and availability conditions must be met. Also, the letting condition must have been met in the year before the first year in which the landlord wishes to make a period of grace election. If the letting condition is not met again in the following year, a second period of grace election can be made. However, if the test is not met in year 4 after two period of grace elections, the property will no longer qualify as a furnished holiday letting.

The election provides a potential lifeline to landlords of holiday lets unable to meet the letting condition in 2020/21 as a result of the Covid-19 pandemic. It can be made either on the self-assessment tax return or separately (either with or without an averaging election). A period of grace election for 2020/21 must be made by 31 January 2023.

Partner note: Self-assessment Helpsheet HS253.

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For landlords, the impact that unpaid or late paid rent has on the calculation of taxable profits depends on whether you prepare accounts on the cash basis or under the accruals basis. We go through some case studies in today’s blog

Late or unpaid rent – Impact on the calculation of a landlord’s taxable profits

As with other sectors, landlords may be adversely affected by the Covid-19 pandemic. Tenants suffering cashflow difficulties may be unable to pay their rent in full or on time. The impact that unpaid or late paid rent has on the calculation of taxable profits depends on whether the landlord prepares accounts on the cash basis or under the accruals basis.

Cash basis

The cash basis is the default basis of preparation for most landlords whose cash receipts for the tax year are £150,000 or less. Under the cash basis income is recognised when the money is received not when it is earned, and expenses are accounted for when the money is paid not when the expenses is incurred. Receipts are income of the period in which the money is received, and expenses are outgoings of the period in which they are paid. Consequently, there are no debtors or creditors.

This provides automatic relief where rent is not paid or is paid late, protecting the landlord from having to pay tax on money he or she has yet to receive.

Example 1

Harry is a landlord and lets a flat for £800 a month, payable on 25th of each month. Due to the Covid-19 pandemic, his tenant does not pay the rent that was due on 25 March 2020. The tenant eventually pays £200 of the overdue rent in June 2020 and the remaining £600 in September 2020.

Harry prepares the accounts for his rental property business on the cash basis, accounting for rental income only when the rent has been received. The rent due for March 2020 (falling in the 2019/20 tax year) is not received until June and September 2020 – which fall in the 2020/21 tax year. As a result, the rent for March is taken into account in computing Harry’s taxable profits for 2020/21 rather than 2019/20.

Accruals basis

Rental profit must be determined under the accruals basis in accordance with UK GAAP where the landlord is not eligible for the cash basis (for example, because rental receipts for the tax year are more than £150,000) or because the landlord elects for the cash basis not to apply. Under the accruals basis, rental income is taken into account in the period to which it relates, rather than when the rent is paid. Likewise, expenses are deducted when the expense is incurred not when the bill is paid, if different. There is no automatic relief if rent is not paid on time as under the cash basis.

Example 2

Louisa has a number of rental properties and as her rental receipts exceed £150,000 a year, she prepares the accounts of her rental business under the accruals basis. One of her tenants fails to pay the rent of £2,000 for March 2020 which was due on 1 March 2020. The tenant eventually pays the late rent in September 2020.

As accounts are prepared under the accruals basis, the rent due for March 2020 is taken into account in working out the taxable profit for 2019/20, regardless of the fact that it was paid in 2020/21 rather than in 2019/20.

There is, however, relief available where the rent remains unpaid and is not recovered, as opposed to being paid late – a deduction is permitted for a debt which is genuinely bad or doubtful.

Partner note: ITTOIA 2005, ss. 271A to 271D.

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Reporting employment income earned abroad on a self assessment tax return

Pro-taxman in Hounslow strongly advises that you initially need to determine your residency status for the tax year in question. This is decided using the ‘Statutory Residence test’. Assuming you were working abroad for 4 months, you would therefore have been resident in the UK for more than 183 days and as a result considered to be a UK resident for tax purposes. You would consequently need to pay tax in the UK on all worldwide income within the tax year.

To declare your foreign employment income, you will need to complete the ‘Employment’ pages of the Self-Assessment Tax Return (SATR), which is SA102. You’ll need to fill in a separate ‘Employment’ page for each job, directorship or office held within that tax year. One of PRO-TAXMAN’s experienced team can help with this.

If your foreign employment income was taxed abroad, you DO NOT include the tax paid on the SA102. You need to complete the ‘Foreign’ pages of the SATR (SA106). On page F6, there is a section titled: Foreign tax paid on employment, self-employment and other income. As well, as this section, you need to include details in the ‘Any other information’ box (on page TR 7) of where on your tax return this income is included (in this case, the ‘employment’ pages). This will then create a Foreign Tax Credit, which can be used to reduce any UK tax payable on the same employment income.

If no foreign tax was suffered, you do not need to complete the ‘Foreign’ pages.

If you were non-resident, then you do not need to include any foreign employment income on your UK SATR.

Finally, if you qualified for split-year treatment, you only need to include the foreign income earned in the UK part of the year.

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