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Tax relief on repairs for let property

Posted by: edwinsmith on November 8th, 2013

Carrying on from our August article on tax relief on wear and tear of furniture for let property, this article sets out guidelines for tax relief on the replacement or repair to integral parts of the let building.

Normally tax relief can be given against rental income for the repair of an asset, i.e, the restoration of that asset by replacing subsidiary parts of the whole asset. If there is significant improvement to the asset beyond is original condition, then the expenditure will be classified as capital expenditure and relief will not be available against rental income. Consideration needs to be given also to the ‘entirety’ of the subject being repaired,  for example, if the roof of a let property is damaged, the replacement of the damaged area is a repair and the expenditure allowable against the rental income.

Examples of repairs that are normally deductible in computing rental profits are:

  1. Exterior and interior painting and decorating
  2. Stone cleaning
  3. Damp and rot treatment
  4. Mending broken windows, doors, furniture and machines such as cookers and lifts
  5. Re-pointing
  6. Replacing roof slates, flashing and gutters
  7. Replacing windows even if single glazed windows are replaced with double-glazed windows

Generally if the replacement of a part of the ‘entirety’ is like-for-like or the nearest modern equivalent, the expenditure is allowable against the rental income. For example, if a fitted kitchen is refurbished by removing the existing units, sink, worktop etc, and replacing with a similar standard kitchen, this expenditure will be a repair. If however, additional cabinets are fitted increasing storage space or additional equipment is installed, then expenditure on those items is capital and cannot be relieved against the rental income. If the whole kitchen is substantially upgraded and standard units replaced with expensive customized items using high quality materials, then all the expenditure will be classified as capital with no relief against rental income. Other examples of repair expenditure which do not give significant improvement to the property are the cost of replacing wooden beams with steel girders and replacing lead pipes with copper or plastic pipes. If however the steel girders were designed to take heavier loads or the pipes to take heavier pressure, the expenditure is likely to be capital.

Care needs to be taken when repairs are incurred after a property is acquired as to determine whether the expenditure is a repair allowable against revenue or is capital expenditure. If a property was acquired not in a fit state to let until the repairs had been carried out, then the repair expenditure will be capital. If there is expenditure which adds to or improves the land or property such as converting a disused barn to a dwelling to be let, this will be capital expenditure.

Separate tax relief may be available for capital expenditure on a property or on certain plant and machinery within certain buildings such as a lift but this will be the subject of another article.

Please contact us if you require further advice concerning the tax implications of let properties.

Filed under: Individuals, Self Assessment, Tax

HMRC Campaigns: Let property

Posted by: edwinsmith on October 31st, 2013

HMRC are currently running the Let Property campaign aimed at property landlords who have not disclosed rental income and will be open for at least 18 months. This campaign is separate to a previous campaign called the Property sales campaign which closed in August 2013.

HMRC do hold information and intelligence systems on properties that can help them identify individuals who have not declared their rental income.

Therefore it is important for landlords/individuals to use this campaign to come forward and declare all their rental income and obtain best terms for penalties. HMRC will be able to issue higher penalties or even pursue a criminal prosecution for those that HMRC find from their own enquiries to have not disclosed rental income.

Please contact us for further advice.

Filed under: HMRC campaigns, Individuals, Self Assessment

HMRC Campaign – health and well being professionals

Posted by: edwinsmith on October 23rd, 2013

On 7 October 2013 HMRC introduced another campaign targeting health and well being professionals and offers them a time limited opportunity to bring their tax affairs up to date on the best terms available.

This covers health and well being professionals working with physical therapy -  physiotherapists, occupation therapists, chiropractors, osteopaths, chiropodists, podiatrists etc and those working with alternative and other therapies - dieticians, acupuncturists, speech, language and art therapists etc.

The campaign is not aimed at doctors and dentists (who have been targeted in previous campaigns) nor at nurses and social workers.

As with other similar campaigns that have been run before a specific time period is being offered to health professionals to notify HMRC by 31 December 2013 that they would like to take part in campaign and bring their tax affairs up to date. If taking part in campaign then to obtain best possible terms tax would need to be disclosed and paid by 6 April 2014.

Initially you would need to notify HMRC (by 31 December 2013):

  1. online by completing a notification form on the HMRC website
  2. by phone on Telephone: 0845 600 4507

HMRC will then send you Disclosure Reference Number and Payment Reference Number.

You will then need to make the formal disclosure to HMRC (by 6 April 2014):

  1. completing and submitting a disclosure form on the HMRC website
  2. printing and posting the completed form

Full details on the process of providing information to HMRC and obtaining best terms (reduced penalties, extended payment arrangements) can be found on  Health and Wellbeing Tax Plan: Your guide to making a disclosure - GOV.UK  which will also include the address to use if posting the disclosure form.

Health professionals need to be aware that after 31 December 2013 HMRC will be taking a lot closer look at the tax affairs of these professionals and by volunteering for the campaign then there is the opportunity to reduce possible penalties that would otherwise be charged by HMRC if they initiated any enquiries.

Please contact us for further advice

Filed under: HMRC campaigns, Self Assessment, Tax

Time limits for claiming capital gains losses

Posted by: edwinsmith on October 3rd, 2013

If you have made a capital loss on the sale of a chargeable asset you need to tell HMRC in writing about the loss within four years from the end of the tax year in which the loss occurred for it to become an allowable loss to be deducted from your gains, unless the loss was made in 1995-96 or an earlier year. If you made a loss in 1995-96 or an earlier tax year but have not used it, you do not need to tell HMRC about the loss until you want to use it.

If you completed a Self Assessment tax return for the year in which you made the loss, this should have been reported on the capital gains pages of your return. If you did not complete a Self Assessment tax return for the year in which you made the loss, use the table below to determine the deadline for a claim.

Tax year Tax year ended on You must claim by
2009-10 5 April 2010 5 April 2014
2010-11 5 April 2011 5 April 2015
2011-12 5 April 2012 5 April 2016
2012-13 5 April 2013 5 April 2017

For those not in self assessment, claim the loss by writing to HMRC either to the postal address on the most recent correspondence from them or to:

HM Revenue & Customs
Capital Gains Tax
PO Box 1970
Liverpool
L75 1WX

You must keep any records showing how you worked out your loss and include your calculations with your tax return or correspondence.

If you require any help, please contact us.

Filed under: Self Assessment, Tax

Simpler income tax – cash basis 2013-14

Posted by: edwinsmith on September 6th, 2013

HMRC have introduced a cash basis for small self-employed businesses (sole traders and partnerships) to record their income and expenses for their self assessment tax return which can first be used from April 2013 for the 2013-14 tax year instead of using the traditional accruals basis.

The cash basis is a method whereby you record money when it actually comes in and goes out of your business whether it is by cash, card payment, cheque etc,. The accruals basis is whereby transactions are recorded when an invoice is issued to a customer and received from a supplier.

To use the cash basis your total business income must be below £79,000, the current VAT registration threshold. Once you are using the cash basis you can continue in the scheme if your business income grows up to an income of £158,000. Over that higher limit the accruals basis will need to be used for the next tax year’s tax return. Existing businesses switching from the accruals basis to the cash basis may need to make some adjustments when they switch - similarly when you leave the scheme.

The cash basis may not suit all businesses. Limited companies and limited liability partnerships cannot use the scheme. There are also some specific types of business that cannot use the scheme such as certain farming businesses, dealers in securities, mineral extraction businesses.

You can use the simplified expenses scheme in conjunction with the cash basis for vehicle expenses, working from home or living on your business premises. See our earlier articles simplified expenses and business use of home  .   

More information is available here.

If you require further help please contact us

Filed under: Self Assessment, Tax

The Business Tax Dashboard

Posted by: edwinsmith on August 20th, 2013

The business tax dashboard is a service provided by HMRC within your government gateway / online  account. If you wish to use the service you will need to register for it from within your online account when you log in to either your corporation tax or self assessment service.

Once registered, it can be accessed straight away. From within the dashboard you can see on a single page, the tax position for the business related taxes you are registered for.

For each tax, you will be able to see the overall position and more detailed information such as payments made, interest on late payments, penalties incurred and direct debit plans.

You can use the dashboard to view information as follows:

  1. Corporation Tax - information for accounting periods from 1 October 1993 onwards
  2. Self Assessment - information for the tax year 1996-97 onwards
  3. PAYE for employers - information for the tax year 2010-11 onwards
  4. VAT - information for the current date and previous 15 months

Contact details can also be changed from the dashboard.

The system is updated overnight from Monday to Friday but the drawback is that the dashboard will only reflect returns and payments that have reached HMRC systems. HMRC have updated their guidance and have confirmed that for real time submissions, updates will be twice a month, after the 6th and 19th for the tax month just ended.

You can sign into your online account here.

Filed under: Employers, PAYE, Self Assessment, Tax

Simplified expenses – flat rate deductions

Posted by: edwinsmith on August 15th, 2013

From 2013/14, HMRC have introduced some flat rate expenses that can be taken advantage of by sole traders and business partnerships. These are for:-

  1. Business use of vehicles;
  2. Business use of home (covered in our article last month); and
  3. Private use of business premises.

 
The flat rate deduction can be used as an alternative to recording actual expenditure and apportioning the business element.

Business use of vehicles

The flat rate deduction is calculated using a flat rate per mile according to the following table:

Vehicle type 2013/2014 flat rate per mile
Cars and goods vehicles first 10,000 miles 45p
Cars and goods vehicles after 10,000 miles 25p
Motorcycles 24p

 
The above rates were previously available to small businesses below the VAT threshold but this has been extended to all sole trader and partnerships from 6th April 2013. If you use the flat rates you cannot claim capital allowances or running costs of the vehicle.

You will need to keep a record of your business mileage but will not be required to keep details of your actual running expenditure. You do not need to use the flat rate for all your vehicles but if you start to use it for a vehicle you must continue with the flat rate for that vehicle until it is no longer used in the business.

It would be advisable to review your estimate of the actual business allowances and costs of the vehicle and compare this with the allowance that would be given on the flat rate scheme to see which would give you the most allowance against your income.

Private use of business premises

Some businesses may use their business premises as their home, for example if they are running a guest house, B&B, or small care home. Instead of working out the split of the business and private use of the premises, for costs such as utilities, food, non-alcoholic drinks, household goods etc., you can use a flat rate deduction per month from the total costs for private use depending on the number of people using the business premises as a private home.

The monthly deductions from the total costs are as shown below:

Number of people      2013/14 flat rate per month
1 £350
2 £500
3+ £650

 
The flat rate does not cover mortgage interest, rent, council tax or rates so the business proportion of these expenses will still need to be calculated.

Please contact us if you have any queries or require any further advice.

Filed under: Self Assessment, Tax

Tax relief on wear and tear of furniture – let property

Posted by: edwinsmith on August 2nd, 2013

Dwelling houses that are let are excluded from claiming capital allowances on the cost of furniture and furnishings but there are some tax reliefs available to cover the cost of wear and tear of furniture, chattels (including white goods) etc if it is a furnished let property.

If letting a furnished property there are two alternative ways to claim tax relief for the cost of furniture: an annual wear and tear allowance; and the renewals basis – the replacement cost of an item. You need to decide which basis to use when calculating the expenses for the first period of let. Once chosen you cannot switch between the two methods. If you are a landlord with more than one furnished let property then the basis used on first letting will determine the treatment on your other properties. An outline of the alternative tax reliefs is detailed below.

Wear and tear allowance

The wear and tear allowance that may be claimed when calculating rental profits is 10% of rents received less any rates (or rent) paid. If rents received in tax year £10,000 and no rates paid then an allowance of £1,000 can be claimed. If rates paid of £1,000 then £900 may be claimed (£10,000 - £1,000 X10%).

You cannot claim repairs or replacement costs of furnishings. Therefore no deduction can be claimed on items replaced such as living room suite, beds, carpets, curtains, linen, crockery, cutlery, washing machine, cookers etc. This is not a definitive list and some judgement needs to be used on whether the item replaced could be classified under furniture, furnishings and chattels.

However the costs of replacement or repairs to integral parts of the building such as windows, kitchen and bathroom fittings can be claimed as a tax deductible expense. Care needs to be taken on whether the repair constitutes an improvement in which case it would be deemed a capital expense and therefore not deductible against rental profits but this area will be outlined in further detail in a later online article.

In order to claim the wear and tear allowance it is important that the conditions to be classified as a furnished property are met. The dwelling must have sufficient furniture, furnishings, and equipment for normal residential use and although no specific list of items are given for this purpose it should include bed, chairs, table, fridge and cooker.

Renewals basis

An alternative to wear and tear allowance is to claim the actual cost of renewing furniture, furnishings and chattels. The amount allowed is the actual cost of the replacement excluding any additions or improvements and after deducting the scrap value or sale price of the items replaced. The cost of the original items is not expenditure on renewals and is not allowable.

This relief, compared to wear and tear allowance, is more difficult to manage in terms of records to be kept and the relief is delayed until items are replaced. Tax relief tends to be obtained earlier using the wear and tear allowance but would be dependent on individual circumstances.

Please contact us if you require further advice concerning tax implications of let properties.

Filed under: Self Assessment, Tax

The ‘My tax return catch up’ campaign

Posted by: edwinsmith on July 31st, 2013

HMRC has recently released details of its latest campaign which has been termed the ‘My tax return catch up plan’. Being similar to last year’s tax return initiative, it encourages late self assessment filers to get up to date.

If you are behind with your affairs and wish to take advantage of this latest campaign, you will need to:

  1. Tell HMRC that you want to join;
    1. Complete and submit all your outstanding returns; and
    2. Pay what you or if you are lucky, claim the repayment you are owed.

I am behind but why should I take part?

If you are behind with your tax returns then you will be incurring penalties. If you take part in the campaign then you will increase your chances of obtaining a reduced penalty. By getting up to date you also avoid receiving an estimate of the tax you owe together with the associated telephone calls and court visits.

If you owe a significant amount in tax you may be able to spread the payments on agreement with HMRC.

HMRC has created a dedicated helpline on 0845 601 8818 which is open Monday to Friday 9am to 5pm.

How to take part

If you wish to take part, you will need to tell HMRC by completing a notification form. More details on the HMRC website.

Once you have made the notification, you will need to complete and submit your returns by15 October 2013.

Details of other campaigns can be found on our website. If you need any assistance with your tax affairs then please do contact us for a free initial consultation.

Filed under: HMRC campaigns, Self Assessment, Tax
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