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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Not putting a property in joint names prior to selling is an easily avoided mistake – read our blog to see if this would benefit you.

Potential benefits of putting a property into joint names prior to sale

Where a property qualifies in full for private residence relief, it is perhaps academic, from a tax perspective at least, whether a couple own it jointly or it is the one name only. In either case, the relief shelters any gain that arises and there is no tax to pay.

However, where a gain is not fully sheltered by private residence relief, as may be the case for an investment property or a second home, there can be very different tax consequences depending on how it is owned.

Take advantage of the no gain/no loss rules for spouses and civil partners

There are some breaks in the tax system for married couples and civil partners, and one of them is the ability to transfer assets between each other at a value that gives rise to neither a gain nor a loss. This can be very useful from a tax planning perspective to secure the optimal capital gains tax position on the sale of property where full private residence relief is not available. This enables a couple to utilise available annual exempt amounts and lower tax bands.

Capital gains tax on residential property gains is charged at 18% where total income and gains do not exceed the basic rate limit (set at £37,500 for 2019/20) and 28% thereafter.

Case study

Ron and Rita have been married a number of years and in addition to their main residence, they have a holiday cottage, which is owned solely by Ron. As their lives are busy, they no longer use the cottage much and decide to sell it. They expect to realise a gain of £100,000.

Rita does not work and has no income of her own. Ron is a higher rate taxpayer. Neither has used their annual exempt amount for 2019/20 (set at £12,000).

If they leave the property in Ron’s sole name, they will realise a chargeable gain of £88,000 after deducting his annual exempt amount of £12,000. As a higher rate taxpayer, this will give rise to a capital gains tax bill of £24,640 (£88,000 @ 28%).

However, as Rita has her basic rate band and annual exempt amount available, making use of the no gain/no loss rule to put the property in joint names prior to sale can save the couple a lot of tax. Each will realise a gain of £50,000.

As far as Ron is concerned, £12,000 of his gain will be sheltered by his annual exempt amount, leaving a chargeable gain of £38,000 on which tax of £10,640 will be payable.

Rita will also have a gain of £50,000, of which the first £12,000 is covered by her annual exempt amount, leaving a chargeable gain of £38,000. As her basic rate band is available in full, the first £37,500 is taxed at 18% (£6,750), with the remaining £500 being taxed at 28% (£140). Thus, Rita’s tax liability is £6,890, and the couple’s total tax bill is £17,530.

By taking advantage of the no gain/no loss rule to put the property into joint names prior to sale, the couple will be able to make use of Rita’s annual exempt amount and basic rate band, reducing the capital gains tax payable on the sale from £24,640 to £17,530 – a saving of £7,110.

Partner note: TCGA 1992, s. 58.

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What to do if you need to change your tax return

You made it and filed your self-assessment return for 2018/19 by the 31 January 2020. However, having felt pleased with yourself, you realise to your horror that you have made a mistake and need to correct your return.

Can you do this and if so, how and by when?

Yes, you can

If you have made a mistake on your return, for example entered a number incorrectly or forgotten to include something, all is not lost. As long as you are within the time limit, the error can be corrected by filing an amended return.

How?

If you are in time to file an amended return, the process that you need to follow will depend on whether you filed your return online or on paper.

Online returns

If you filed your return online, you simply amend your return online. To do this:

  1. Sign in to your personal tax account using your User ID and password.
  2. Once in your account, select ‘Self-Assessment Account’. If this does not appear as an option, simply skip this step.
  3. Select ‘More Self-Assessment details’.
  4. Choose ‘At a glance’ from the left-hand menu.
  5. Choose ‘Tax Return options’.
  6. Choose the tax year for the year you want to amend.
  7. Go into the tax return, make the changes you want to make, and file the return again.

Remember to check that it has been submitted and that you have received a submission receipt.

Check the revised tax calculation too in case you need to pay more tax as a result of the changes, but remember to take account of what you have already paid.

Paper return

If you opted to file your return on paper by 31 October 2019, to make a change you will need to download a new tax return. This can be done from the Gov.uk website. Fill in the pages that you wish to change and write ‘Amendment’ on each page. Make sure you include your name and unique taxpayer reference (UTR) on each page too. Send the corrected pages to the address to which you sent your original return.

Commercial software

If you used commercial software to file the return, contact your software provider to find out how to file an amended return. If your software does not allow for this, contact HMRC.

When

You have until 31 January 2021 to make changes to your 2018/19 tax return.

If you have missed the deadline, you will need to write to HMRC instead. This may be the case if you find a mistake in your 2017/18 return after 31 January 2020. In the letter, you will need to say which tax year you are amending, why you think you have paid too much or too little tax and by how much. You have four years from the end of the tax year to claim a refund if you have overpaid.

Changes to the tax bill

If amending the return changes the amount that you owe, you should pay any excess straight away. Interest will be charged on tax paid late. If your 2018/19 liability changes, your payments on account for 2019/20 may change too.

If as a result of the changes made to the return you have paid too much tax, you can request a repayment from your personal tax account.

Partner note: See www.gov.uk/self-assessment-tax-returns/correction.

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Accountant in Hounslow

Accountant in Hounslow

The growth of accountancy as a division has exponentially increased over time. This is predominantly because the reason that they need to have proper bookkeeping arrangements cannot be emphasized enough. Therefore, there is a need for organizations, regardless of their size to ensure they have proper accountancy divisions for all record-keeping purposes. Analyzing the growth of accountants on a geographic basis, it can be seen that the growth trajectory has been quite promising in and around London. Hounslow for one has seen an increase in outsourced accountants over time. The reason for increasing traction for an accountant in Hounslow can associate with numerous reasons, mainly vesting on grounds of increase facilitation for customers. The reasons can broadly summarize as follows.

Accountant in Hounslow

Business Tax: 

For any business, regardless of the size of the operation, taxation can be one of the most confusing and intimidating and intriguing factors. Outsourcing accountants in Hounslow can release the business from the hassle of taxation policies, and ensuring that their compliance is as per the required standards. Therefore, it saves the business from considerable hassle, as mostly outsource accountants in Hounslow are experts in this domain. As far as Hounslow is concerned, Accountants in Hounslow are fully equipped to deal with matters about business tax, so that the need for hiring external tax lawyers becomes redundant.

Payroll: 

Payroll management is one of the most crucial factors within the accounting stream. It can be quite difficult to manage because of the bulk work involved. And attention to detail that requires as part and parcel of the calculations. However, having properly qualified accountants in Hounslow can help businesses to manage this division for them, at a much competitive cost.

Affordability: 

Given how modern-day businesses are structured, organizations are aiming to be leaner, and more flexible. Therefore, they are adamant about stacking up overheads that might take a toll on their financial positioning. From an accountancy perspective, it might be costly for them. To hire an accountant or a team of accountants in Hounslow on a monthly retainer package. However, outsourcing this to specialized accountants can significantly reduce costs for business. In particular, Accountants in Hounslow are nominally valuable, to ensure that companies, regardless of their size can afford them without taking a strain on their pockets.

Flaxibilty Accountant in Hounslow

Flexibility: 

Mostly accountants in Hounslow are quite flexible with their clientele. They work with businesses across all industries, regardless of their size, or financial volume. Therefore, this enables corporations to avail of these services, and benefit from these services. This flexibility also helps companies to save money, time as well as resources.

Conclusion

Therefore, if hiring a professional accountant in Hounslow, either on-site or off-site. It can prove to be helpful for business owners (and other stakeholders) to enable them to make good decisions. Additionally, with the overall virtues associated with hiring specialized people for the job. It can also be concluded that it proves to be cost-effective in the longer run.

Accounting In Hounslow

What To Look For When Hiring An Accountant In Hounslow?

Recruiting employees can be one of the most integral functions of any organization. Recruitment is a costly function, and organizations need to consider a number of functions to ensure that they are able to take the right decision in this regard. Even for ancillary departments in a business, like accountancy. It can be seen that recruitment should be considered as an extremely important component. As far as Hounslow is concerned, it has recently seen a surge in new companies being formed. With a subsequent increase in business for ancillary companies. Similar has been the case for accounting companies in the region. However, deciding on the right accounting partner is often a difficult choice to make.

Here are some tips and tricks, which business owners should take into consideration when finalizing their partner for a subsequent year. 

Credentials:

It is extremely important to ensure that business owners are able to account for the credentials of the accounting firm (or individual). They are contracting with. It is important because of the reason that it helps the company to have reasonable assurance that the people taking responsibility for the particular job are experts in their fields. They can ensure that there are no issues pertaining to compliance or other miscellaneous matters. Furthermore, this can also add credibility to their investors or their creditors. Because they would know that the organization is getting their books prepared from a well-reputed company. 

Reviews:

Reviews and recommendations are one of the most reliable and safe methods that can be used for hiring purposes. In the case where the company is looking to hire external companies. It is often a good idea to look for other clientele the company has. This can greatly help the company to make sure they make the right choice and ensure a cordial working relationship. 

Accounting in Hounslow

Industry Experience:

Industry Experience tends to be a very crucial determinant when making a selection for an accountant. This is because different industries have accounting and bookkeeping of a different nature. Therefore, it is always an advantage to hiring an accountant who can have relevant experience. So that there are lesser chances of any errors. 

Flexibility:

Businesses these days are opting for flexibility across all their business operations. Hiring an individual, and carry out a number of functions for the company is often a good idea in this regard.  Alternatively, hiring external accountants who can provide flexibility with payments, and other related services (like invoicing), can also help the company save costs, and avail a larger pool of services.

The factors mentioned above are some of the most important factors which should be considered by companies hiring accountants in Hounslow, and all across the world. These factors can greatly help companies make an informed decision about the contract they are signing so that they are able to extrapolate a greater service protocol, which can be reflected in their well-kept books, and accounting systems. 

Renting out a property at a rate below the commercial level might sound like a great idea – but it might cost you dearly if you try to seek tax relief for your expenses!

Properties not let at a commercial rent

There may be a number of reasons why a property is occupied rent-free or let out at rent that is less than the commercial rate. This may often occur where the property is occupied by a family member in order to provide that person with a cheap home. For example, a parent may purchase a house in the town where their student son attends university and let it to the student, and maybe even his housemates, at a low rent to help them out. While the parents’ motives are doubtless philanthropic, their generosity may cost them dearly when it comes to obtaining relief for the associated expenses.

Wholly and exclusively rule

Expenses can only be deducted in computing taxable rental profits if they are incurred wholly and exclusively for the purposes of the property rental business. Unfortunately, HMRC take the view that unless the property is let at full market rent and the lease imposes normal conditions, it is unlikely that the expenses are incurred wholly and exclusively for business purposes. So, where the property is occupied rent-free, there is no tax-relief for expenses.

If the property is let at a rent that is below the market rent, a deduction is permitted, but this is capped at the level of the rent received from the let. This means that where a property is let at below market rent, it is not possible for a rental loss to arise, or for expenses in excess of the rent to be offset against the rent received from other properties in the same property rental business.
Periods between lets

Where there are brief periods where the property is occupied rent-free or let out cheaply, it may be possible to obtain full relief for expenses. For example, if the landlord is actively seeking a tenant and a relative house sits while it is empty, relief will not be restricted as long as the property remains genuinely available for letting. In their guidance HMRC state, that ‘ordinary house sitting by a relative for, say, a month in a period of three years or more will not normally lead to loss of relief’. However, if a relative takes a month’s holiday in a country cottage, relief for expenses incurred in that period will be lost.

Commercial and uncommercial lets

Where a property is let commercially some of the time and uncommercially at other times, expenses should be apportioned on a just and reasonable basis between the commercial and non-commercial lets. Any excess of expenses over rents in the period when commercially let can be deducted in the computing the profit for the rental business as a whole. However, an excess of expenses over rent when the property is let uncommercially are not eligible for relief.
Timing must also be considered – expenses relating to uncommercial lets cannot be deducted simply because they are incurred when the property is let commercially.

Partner note: HMRC Property Income Manual PIM 2130.

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This blog explains what qualifies for relief for finance costs, the limit on eligible borrowings, and how capital repayments work with a quick example.

Allowable finance costs

Although the way in which landlords obtain relief for finance costs on residential properties is changing, there is no change to the type finance costs that are eligible for relief.

What qualifies for relief

The basic rule is that relief is available for expenses that are incurred wholly or exclusively for the purposes of the property rental business, and this rule applies equally to finance costs. Relief is available for eligible finance costs where they meet this test.

The definition of finance costs includes mortgage interest and interest on loans to buy furnishing and suchlike. Relief is also available for the incidental costs of obtaining finance, as long as the interest on the loan is allowable. Incidental costs of loan finance include items such as arrangement fees, and fees incurred when taking out or repaying loans or mortgages.

Limit on eligible borrowings

A landlord can obtain relief for the costs of borrowings on a loan or mortgage up to the value of the property when it was first let. Buy-to-let mortgages are often more expensive than residential mortgages with interest charged at a higher rate. The loan does not have to be secured on the let property. Where a landlord wishes to buy a rental property and has sufficient equity in their own home, it may make commercial sense to release capital from the home by borrowing against it and using the money to purchase the rental property. Interest on the loan is eligible for relief, despite the fact the loan is not secured on the rental property.

No relief for capital repayments

Capital repayments, such as the capital element of a repayment mortgage or loan repayments, are not eligible for relief. Where the borrowings are in the form of a repayment mortgage, it will be necessary to split the payment between the interest and capital when working out the relief. The lender should provide this information on the statement.

Example

Mervyn wishes to invest in a buy to let property. As he only has a small mortgage on his home, he remortgages to release £150,000 of equity.
Following the remortgage, he has a mortgage of £200,000 on his own home. Using the released equity, he buys a property to let for £150,000. He spends some time renovating the property in his spare time before letting it out. When the property is first let, it has a value of £160,000.

During the 2019/20 tax year, Mervyn pays mortgage interest of 10,000and makes capital repayments of £10,800. The property is let throughout.
Mervyn can claim relief for 80% of the interest costs – this is attributable to the borrowings of £160,000 (80% of the loan of £200,000), being the value of the let property when first let. The interest eligible for relief is therefore £8,000 (80% of £10,000). For 2019/20, 25% (£2,000) is relieved by deduction with the balance giving rise to a deduction from the tax due of £1,200 (75% x £8,000 x 20%).

No relief is available for the capital repayments.

Partner note: ITTOIA 2005, ss. 272A, 272B, 274A, 274B

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Joint tenants v tenants in common – Which you choose will depend on whether you’d like flexibility in allocating property income, and how you want your property to be passed on.

Joint tenants v tenants in common – Does it matter?

There are two different ways of owning property jointly – as joint tenants or as tenants in common. The way in which the property is owned determines exactly who owns what and also what happens when one of the joint owners dies and how any income is taxed.

Joint tenants

Where two or more owners own a property as joint tenants, they jointly own the whole property rather than owning individual shares. Each owner has equal rights to the whole property. When one of the joint owners dies, the remaining joint owners own the whole property. The deceased is not able to pass his or her share on to someone else.

Example

Helen and Harry are married and own their family home as joint tenants. The couple have three children. If, for example, Harry dies first, his share of the property automatically passes to Helen. Harry cannot leave his share of the property to his children.

Where a property that is owned as joint tenants is rented out, the income is treated as arising in equal shares as all owners have an equal stake in the property. For spouses and civil partners this is the default position; however, there is no possibility of making a Form 17 election (see below) as the property owned as joint tenants can only be owned equally.

Tenants in common

Tenants in common own individual shares in the property and have more flexibility than joint tenants as to what they do with their stake in the property. On death, their stake does not automatically go to the other joint owners; rather it will follow the provisions of the will (or, if there is no will, the intestacy provisions).

It will be beneficial to own property as tenants in common if you want to leave your share of the property to someone other than the other joint owner.

Example

Jack and Jane are married. Each have children from previous relationships. They own a holiday cottage as tenants in common. In their wills, they have each made provision for their share to pass to their own children.

Where the property is let out, owing the property as tenants in common provides more flexibility as to how the income is allocated for tax purposes. Where the joint owners are spouses or civil partners, the income is treated as arising equally. However, where the actual beneficial ownership is unequal, they can elect (on Form 17) for the income to be taxed in accordance to their ownership shares where this is beneficial. If the tenants in common are not married or in a civil partnership, the income is taxed by reference to their actual stake in the property.

Changing ownership status

It is relatively easy to change the type of ownership, for example, if the property is owned as joint tenants it may be desirable to own it as tenants in common to enable each owner to leave their share to someone else. A property can also be changed from sole ownership to joint ownership – ether as tenants in common or joint tenants.

Partner note: Law of Property Act 1925, ss. 34, 36;. ITA 2007 ss. 836. 837.

 

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If you’ve received a tax calculation or simple assessment from HMRC, don’t assume that it’s correct – HMRC can and do make mistakes.

Check your tax calculation

Each year HMRC undertake a PAYE reconciliation for employed individuals who are not required to submit a tax return to check that the correct amount of tax has been paid. Where it has not, HMRC will send out either a P800 tax calculation or a PA302 simple assessment.

P800 tax calculation

A P800 tax calculation may be issued if an employee has paid too much tax, or if they have paid too little and the tax underpayment can be collected automatically through an adjustment to their PAYE tax code. There are various reasons why a person who pays tax under PAYE may have paid the wrong amount of tax. This may be because:

  • they finished one job and started a new one and were paid for both jobs in the same tax month;
  • they started receiving a pension at work; or
  • they received Employment and Support Allowance or Jobseeker’s Allowance (which are taxable).

P800 calculations for 2018/19 are being sent out by HMRC from June to November 2019. 

If the P800 shows that tax has been overpaid, it will say whether a refund can be claimed online. If so, this can be done through the personal tax account. Where a claim is made online, the money should be sent to the claimant’s bank account within 5 working days. In the event a claim is not made within 45 days of the date on the P800, HMRC will send out a cheque. If an online claim is not possible, HMRC will also send out a cheque.

PA302 simple assessment

Instead of a P800 tax calculation, an individual may instead receive a PA302 simple assessment. This is effectively a bill for tax that has been underpaid. HMRC may issue a simple assessment if:

  • the tax that is owed cannot be taken automatically from the individual’s income;
  • the individual owes HMRC tax of more than £3,000; or
  • they have to pay tax on the State Pension.

A simple assessment bill can be paid online.

Check your calculation

If you receive a tax calculation or simple assessment from HMRC, do not simply assume that it is correct – HMRC can and do make mistakes. It is prudent to check that their figures are correct. When checking the calculation, check HMRC’s figures against your records, such as your P60, your bank statements and letters from the DWP. Check that employment income and any pension income is correct, and that relief has been given for expenses and allowances. HMRC have produced a tax checker tool (available on the Gov.uk website at www.gov.uk/check-income-tax) which can be used to check the amount of tax that should have been paid.

If you think that your tax calculation is incorrect, you will need to contact HMRC. This can be done by phone by calling 0800 200 3300. If you do not agree with your simple assessment, you have 60 days to query this with HMRC by phone or in writing. The simple assessment letter explains how to do this.

Partner note: www.gov.uk/tax-overpayments-and-underpayments

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Inspired by Grand Designs? You are entitled for a VAT refund if you build your own home.

VAT refunds for DIY builders

If you build your own house or convert an existing property into a home, you may be eligible to apply for a VAT refund on building materials and services. You do not need to be VAT registered to claim a refund.

What qualifies?

Refunds can be claimed in respect of building materials that are incorporated into the building and which cannot be removed without tools or without damaging the building. Refunds are available for materials used to build both new homes and for certain conversions.

A new home will qualify if it is separate and self-contained and you build it for you and your family to live in. The property must not be used for business purposes, although you are permitted to use one room as a home office.

Conversions will qualify if the property was previously used for non-residential purposes and is converted for residential use. Conversions of residential building will only qualify if they have not been lived in for at least 10 years.

Where you use a builder, the builder’s services will normally be zero-rated where they work on a new home. However, you can claim a refund for VAT charged by a builder working on a conversion.

What does not qualify?

Refunds are not available in respect of:

  • materials or services on which no VAT is payable because they are zero-rated or exempt;
  • professional fees, such as architects’ fees or surveyors’ fees;
  • costs of hiring machinery or equipment;
  • building materials which are not permanently attached to or part of the building;
  • fitted furniture, some gas and electrical appliances, carpets and garden ornaments.

A refund is also denied if the building is not capable of being sold separately, for example, as a result of planning restrictions.

How to claim

The claim is made on form 431NB where it relates to a new build and on form 431 where it relates to a conversion. The forms are available on the Gov.uk website. The claim must be made within three months of the date on which the building work was completed.

You must include all the relevant supporting documentation with your claim, such as valid VAT invoices to support the amount claimed. The refund will normally be issued within 30 days of making the claim.

Partner note: www.gov.uk/vat-building-new-home/eligibility.

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