When buying a property in the UK there are many different costs involved, one of which is Stamp Duty Land Tax. The rules around this tax have changed over the last few years and can often be difficult to understand. It is important to seek professional advice before any property purchases.
Research and Development (R&D) tax credits reward businesses for innovation and fuelling growth, offering the opportunity to transform any business. How do they work and is your business eligible for them? Find out below in our in-depth R&D tax credits guide.
What are R&D Tax Credits?Research and Development tax credits are designed to encourage UK companies to invest in innovation and increase spending on R&D activities throughout the business. It’s one of the UK government’s top incentives for encouraging homegrown investment in research and innovation. The incentive allows companies to recover a percentage of a company’s R&D spend as a cash repayment or a reduction in Corporation Tax, even if the project fails. The practice allows profitable and loss-making SMEs to get back up to 33% of the amount they’ve spent on R&D projects. Large companies can claim up to 10% of their R&D spend back.
Benefits of R&D Tax CreditsR&D tax credits offer valuable financial support for every business. It also helps businesses in every sector in the UK develop world leading products and services. The major benefits include:
- Cash Injection – R&D tax relief provides essential funding for businesses that don’t need to be repaid.
- Economic Growth – public R&D delivers £7 of net economic benefit on every £1 spent and unlocks £1.40 of private R&D investment.
- Encourage Innovation – the R&D tax credits initiative encourages businesses to invest in R&D and innovation.
- World Leaders – R&D tax credits place the UK as thought leaders at the forefront of innovation around the world.
Who is Eligible for R&D Tax Credits?Any business in any industry could be eligible for R&D Tax Credits. To meet the requirements, your business must have undertaken qualifying research and development activities such as creating new products or services or changing an existing product or service. HMRC has incredibly detailed criteria which your project has to meet to be eligible for a tax reduction or cash repayment. An example that would qualify is a logistics platform calculating how to get a product to the right locations on time and pricing them correctly. If a company sets up a new WordPress site, they wouldn’t qualify for R&D tax credits. The scale and performance of your R&D project can also make a difference. If a website is designed to send quick messages and images to each other, it is unlikely to qualify. However, if the website is a hit and caters for millions of daily active users, it could qualify because of the technical challenge involved to keep that website going. Another example is if a company creates a search tool that can search a few hundred documents on a hard drive, it is unlikely to qualify. However, if the tool can provide instant results while searching thousands of documents over a shared network, it likely could.
The RDEC SchemeCompanies who don’t meet the financial criteria are eligible to claim money under the RDEC scheme. While these are less beneficial for companies, it gives you 9.7% of your project costs. This cash back is open to both profitable and loss making businesses. If you are an SME but a project you’re running is funded, it’s likely that the project and its costs will be needed to claim under the RDEC scheme. This doesn’t impact any other project you’re running, which can still claim under the helpful SME R&D tax credits scheme. It’s possible that you are likely claiming cash from both schemes, however the application process can become quite complicated. Working with a team such as CapEx Associates will ensure you keep on top of your documentation.
How to Claim R&D Tax CreditsIf you’ve got an R&D project that you think would be eligible for R&D tax credits, CapEx Associates are here to help. If you own a small business in the West Midlands or a larger company with branches across the UK, we can support you in your application to claim R&D tax credits. We use a rigorous process to deliver R&D tax credit applications that maximise every element of your project and will stand up to HMRC evaluation. We want to find out more about your business and discuss how we might be able to support you in your tax credit claims. Get in touch with our expert team today to see if you’re eligible to make a R&D tax credit claim.
Investing in property can be beneficial for your taxes. No matter the method, there are complex financial issues involved, one of those being tax. With the right knowledge, you can access the many investment property tax benefits available to buyers.
What is property investment?There are two types of property investment – direct and indirect:
- Direct property investment is where you buy all or part of the property yourself. This tends to increase in value as time goes by and you can either live in it or rent it out.
- Indirect property investment is where you don’t directly own a property, but get a share of its profits. You have bought into a property fund or company and get dividends and/or capital growth when the fund makes a profit.
Tax benefits on buying and selling property (Direct investment)Selling property: Capital Gains Tax Paying Capital Gains Tax (CGT) on the money you make from a property depends on whether this property is your home – the definition of main residence is the property you have lived in for the most time in the last three years. Selling your principal home in the UK generally means you won’t have to pay CGT, because you can claim Private Residence Relief on profits, subject to conditions being met. If you have let out parts or all of your home during ownership, you may be expected to pay CGT. If you sell a property you had as a holiday let, rental property or a property you bought for someone else, you cannot claim Private Residence Relief you need to pay CGT. Buying Property: Stamp Duty Land Tax If you’re buying a property in England or Northern Ireland, you may have to pay Stamp Duty Land Tax (SDLT) . In Wales, Land Transaction Tax applies. In Scotland, it is known as Land and Building Transaction Tax. In England and Northern Ireland, SDLT applies on property bought for more than £125,000 or on non-residential property that is more than £150,000. Tax rates are applied based on how much the property is worth in total and whether you own other properties and where you live. Put simply, the more expensive a property, the more tax you will have to pay. However, there are Stamp Duty Land Tax Exemptions which you could be entitled to.
Tax benefits on rental income (Direct investment property)There are certain benefits you can claim in relation to the rental income you receive on properties. If you’re renting out a property to someone, there are ways your rental income could be considered for tax purposes:
- Residential lettings
- Furnished holiday lets
- Rent a Room relief scheme
Residential letting as a property investmentIf you rent out some or all property for someone to live in, you must pay tax on the profits you make on the rental income. These are treated as a normal part of your income, so you will pay tax at the normal rate. This can be reduced by calculating your profits correctly.
Replacement domestic item reliefWhile the wear and tear allowance ended in 2016, investors can claim a deduction for the cost of replacing domestic items, including:
- Movable furniture such as beds and wardrobes
- Furnishings such as carpets and curtains
- Household appliances
Holiday letting as an investment propertyIf you own a property which you rent out as a furnished holiday let, you could get a capital allowance for furnishing the property by meeting these conditions:
- It must be in the UK or EEA (European Economic Area)
- It can’t be let for over 31 days at a time
- It must be available for let for 210 days of the year as a furnished holiday accommodation and actually let for a minimum of 105 days.
The ‘Rent a Room’ relief schemeIf you rent rooms out in your house to lodgers, this can be treated as a residential property letting or you can claim Rent a Room relief. The room must be accessible from your house and not a separate flat, and the lodger must share common areas such as your kitchen. The Rent a Room Scheme gives you tax benefits if you meet these conditions:
- You don’t pay tax on the first £7,500 of your rental income
- You can’t deduct any expenses or wear and tear allowances
- If you make a loss, you can’t deduct it from other taxable income.
Tax benefits on indirect property investmentsInstead of buying and managing property investments yourself, you can invest in property through a joint fund or by buying shares in property schemes or companies. Some of these include special tax benefits.
Real Estate Investment Trusts (REITs)A Real Estate Investment Trust has two separate parts for tax purposes. The first is a ring-fenced letting business which is exempt from corporation tax. The second is non-ring-fenced activities like property management services, which aren’t. If the REIT is successful, you’ll receive some of the profits. It should be noted that:
- Payments from the tax-exempt element are considered as UK property income for the investor and are paid net of basic rate tax – non-tax payers can get this back and if the REIT is held in an ISA, investors get the payments gross.
- Payments from the non-exempt element are treated like dividends and are paid with a tax credit.
Property Authorised Investment Funds (PAIFs)This is the most recent form of property investment fund, similar in structure to REITs. They also contain tax benefits, which are passed onto investors. If you need support working out what tax benefits you’re entitled to in your investment portfolio, the team at CapEx Tax are here to help. We can navigate the complexities of UK tax law to find where you can benefit from tax breaks for the investment you have put into your properties. Contact us today to get started.
Every business has the responsibility to make sure they are paying the right amount of tax to HMRC. However, each year, many business owners pay unnecessary tax because they fail to claim tax relief on legitimate deductible expenses. These circumstances are particularly common amongst small businesses, as they choose to manage their financial duties without seeking the help of a professional tax consultant . IIf you’re aiming to grow your company’s financial performance, here’s our small business tax deductions checklist; something every savvy owner should take advantage of.
What expenses are tax deductible?According to HM Revenue & Customs, an item becomes a deductible business expense when incurred wholly, exclusively and necessarily for business purposes. Any items purchased for personal use are not eligible for small business tax deductions, but those acquired for a mix of purposes may be partially deductible. When an expense is claimed for tax return purposes, the item’s invoices/receipts must be retained for a set period of 6 years. Failure to do so may result in a fine of up to £3000 from HMRC. 1. Home office expenses If you’re a small business owner working from home, you may claim the costs of a home office from your turnover. Home office deductions are £4/week and there is no need to provide receipts, itemised bills or other documentation. 2. Accommodation Accommodation becomes a legitimate deductible expense when incurred solely and necessarily for business purposes. For example, if you’re going on a business trip, you may claim tax relief on the costs of a hotel room. The same applies to parking – fees incurred during business trips are deemed allowable expenses. 3. Transportation Car mileage Car mileage is a deductible expense when used for business. The cost is fixed at the standard mileage rate of £0.45/mile for the first 10,000 miles and £0.25 for each additional mile. For motorcycles, the cost is fixed at £0.24 per mile. This amount covers fuel, as well as wear and tear to your vehicle. Bicycle mileage You can claim bicycle business mileage at £0.20/mile, including mileage between work and home and/or work and client meetings. However, the cost of your bicycle and its maintenance are not eligible for small business tax deductions because it is deemed as personal property. Vehicle hire If you hire a vehicle for business use, you may deduct the costs from your tax bill. If you will also be using the vehicle during personal time, then you will only pay tax on the time ratio spent on the personal use of the vehicle. Flights You can claim back the tax on your flight ticket costs, provided that the trip was exclusively for business purposes. 4. Broadband, computer hardware and mobile phones Internet, mobile phones, hardware and computer consumables can all be added on your small business tax deductions checklist, so long as they are all used wholly and exclusively for business purposes. 5. R&D costs If your company is investing in the research and development of new products, services and technologies, you can claim back an average of 25% of the R&D cost of a project. Current R&D tax credit rates mean SMEs can claim up to 33p for every £1 on qualifying R&D activities with the average cashback to companies being around £50,000. Find out if you are eligible for R&D Tax Credits here. 6. Plant & Machinery costs Small business owners can deduct the cost of ‘plant and machinery’ equipment, including computing, manufacturing and office equipment before calculating the company’s Corporation Tax bill, provided that purchases are made in the company name, with relevant records to prove this. Businesses can claim three types of Plant & Machinery capital allowances . Find out more here . 7. Training courses, magazine subscriptions and business books You may claim back the tax on these items when they are relevant to your business’ trading activities. For example, a professional marketing journal is tax deductible for a marketing agency, however, a magazine like Top Gear isn’t. 8. Pension contributions You can get tax relief for contributions to your retirement plan which you either make personally, as a sole trader or partner, or which your company makes on your behalf. This will extend to pension contributions for any family members working in your business. 9. Accountant fees Your accountant’s fee fits the description of wholly, exclusively and necessarily incurred for business purposes. These expenses can therefore be deducted from revenue. The only exception is when these professional fees arise from a HMRC ‘enquiry’ and the enquiry is proven to have arisen from negligence or fraud. 10. Staff parties & events The cost of staff parties, including Christmas parties and other annual events are usually allowed as deductible expenses. However, the annual cost per attendee head has to be a maximum of £150.
Business GrantsIf you’re looking to grow your business, the Regional Growth Fund Scheme was created to support small companies or businesses looking for more finance options. With funding of up to £1 million available, you can help your business develop beyond the start-up stage, and start making an impact on a local and regional level. There are also numerous government business grants available to small businesses, startups and new ventures. However, securing the funding can be tricky and challenging due to the specific criteria that each business grant will require.
Need Help?CapEx Tax are experts in plugging businesses into available pots of money. Whether that’s through tax deductions, business grants, capital allowances or stamp duty land tax refunds , our team of chartered advisors, accountants and surveyors are always ready to source the funding/ relief you are entitled to. Get your claim started today!
Buying a new home entails a range of financial considerations, including legal fees, agent costs and, more often than not, Stamp Duty Land Tax . We take a look at the current Stamp Duty Land Tax rates on residential properties, as well as those taking effect in 2021.
What is Stamp Duty Land Tax?All buyers must pay Stamp Duty Land Tax (SDLT) when purchasing a property or land exceeding a specific price threshold in England or Northern Ireland. SDLT is applicable on freehold properties, new or existing leaseholds, purchases made through shared ownership schemes and property transfers carried out in exchange for a sum of money. The amount payable typically depends on when you bought the property and how much it cost you.
SDLT Residential RatesAs of July 8th 2020 and until March 31st 2021, the Government has implemented new rates for stamp duty on residential properties as follows: Property/ Lease Premium/ Transfer Value – Stamp Duty Land Tax rate
- Up to £500,0000 – 0
- The next £425,000 (from £500,001 to £925,000) – 5%
- The next £575,000 (from £925,001 to £1.5 million) -10%
- The remaining amount (anything above £1.5M) -12%
- Up to £125,0000 – 0
- The next £125,000 (from £125,001 to £250,000) – 2%
- The next £675,000 (from £250,001 to £925,000) – 5%
- The next £575,000 (from £925,001 to £1.5M) – 10%
- The remaining amount (anything above £1.5M) – 12%
Stamp Duty Land Tax Relief for First Time BuyersBuyers who purchase their first home before April 2021 or July 8th 2020 may claim a Stamp Duty Land Tax relief. This means they won’t need to pay SDLT on residential properties costing less than £300,000 and only a 5% SDLT charge on any amount ranging from £300,001 to £500,000. If the property is priced higher than £500,000, then you pay the same standard rates as those who have already bought a home before. If you’ve bought your first residential property through a shared ownership scheme on or after November 22nd 2017, you can claim SDLT relief if you intend to occupy the property as your main residence and the market value of the property is £500,000 or less.
SDLT on New Leaseholds and Property TransfersFor those buying a new residential leasehold property before April 2021 and July 8th 2020, the Stamp Duty Tax is payable on the lease premium using the same rates above. This is not applicable to existing or assigned leases where you need to pay the same SDLT rates as for freehold properties.
Stamp Duty Land Tax on Additional PropertiesThere are higher rates of stamp duty land tax for those who own more than one residential property. This means you’ll have to pay an extra 3% on top of the standard SDLT rates if buying a new home indicates you’ll own more than one. However, if you sell your previous main residence to replace it with a new residential property, then you won’t need to pay the 3% SDLT surcharge. Sometimes, buyers will take longer to sell their previous residence in which case they still need to pay the higher rates. Nonetheless, if they sell the property within 36 months, they become eligible for an SDLT refund. In exceptional circumstances, buyers may still reclaim the Stamp Duty Land Tax surcharge even if they take longer than 36 months to sell their old property. The latest exception that will allow you to still reclaim SDLT surcharge revolves around the impact of COVID-19 which may have prevented the sale.
Stamp Duty ExemptionsIn other cases, buyers may become eligible for SDLT exemptions. This is applicable to those buying freehold properties costing less than £40,000, inherited properties, new or existing leases of less than 7 years and more. Find out more about Stamp Duty Land Tax Exemptions here .
Need Help?If you think you may be owed an SDLT repayment, CapEX Associates can help support your Stamp Duty Land Tax reclaim. Contact our expert tax advisors and get your refund as soon as possible!
Buying a new house is a joyous moment, whether you’re buying your first home or a new rental property. It is also a big financial decision, which will be staying with you for a while, so you want to have all the knowledge and necessary information beforehand. When buying a new house in the UK, there will be certain tax deductions you will need to be aware of. If you have bought a house in the past you might also be eligible to claim back certain tax you might have overpaid. CapEx Associates specialises in tax-related services, and we have put this guide to help you stay informed on the latest property-related tax deductions.
What Tax You Might be Expected to PayDepending on whether you’re buying or selling a home, tax rules will differ. They will sometimes be slightly different if you live in Scotland, England, Wales or Northern Ireland. You can expect to pay::
- Stamp Duty Land Tax when you buy a home in England
- Land Transaction Tax when you buy a home in Wales
- Capital Gains Tax when you sell a home
Stamp Duty Land Tax When Buying a New HouseWhen you’re buying a new property in England or Northern Ireland you might have to pay a tax known as Stamp Duty Land Tax . For Scotland, this is Land and Buildings Transaction Tax and in Wales it’ Land Transaction Tax. In England and Northern Ireland SDLT is applied when you’re purchasing a property over £125,000 or a non-residential property of over £150,000. Depending on how much the property is worth, whether it’s your first property and its location there are different rates of tax to be applied. In general, the more expensive the property is, the higher rate of tax will apply. An additional 3% surcharge will apply if you’re buying an additional second home or a buy-to-let property.
July 2020 SDLT HolidayIn July 2020 Chancellor Rishi Sunak announced that the Government was scrapping SDLT on house purchases up to £500,000 until 31st March 2021 in a bit to breathe some much-needed fresh air in the real estate market, suffering from the COVID-19 pandemic. The new changes to SDLT were welcome by property investors and estate agents alike, as well as those looking to invest in property over £500,000. As stamp duty land tax is tiered, the removal of it for properties under £500,000 also meant a decrease for more expensive properties.
Capital Gains Tax When Selling a PropertyTIf you’re on the other side of the property purchase deal, you might need to consider the Capital Gains Tax. Whether or not you’ll be liable to pay CGT on the money you make from a property sale depends on whether the property was classified as your home – or the main property you have occupied for the last 3 years. Selling your main residence in the UK will relieve you of paying CGT, because you can claim Private Residence Relief on any profit, subject to meeting certain conditions. However, if you have let out some or all of your main residence during the ownership period, you might need to pay Capital Gains Tax. If you’re selling any other property, such as a holiday home or a rental property, you won’t be able to claim Private Residence Relief and you might need to pay CGT. As a basic-rate taxpayer in the UK, if you sell property in the UK, you’ll have to pay an 18% tax on any profit. If you’re a higher, or additional-rate taxpayer you’ll be paying 28% above an annual CGT tax-free allowance of £12,000 for the 2019/2020 tax year. Couples can also combine their allowances, meaning that they can gain £24,000 before having to pay CGT.
Pay the Right Tax on Your New HouseIf you think you’ve overpaid SDLT on residential properties or investment properties, CapEx Associates can support your claim. Get in touch with our tax advisors today to get your claim started today.
In his recent House of Commons summer address, Chancellor Rishi Sunak announced that the Government was scrapping Stamp Duty Land Tax (SDLT) on house purchases up to the value of £500,000 until 31st March 2021. The move has delighted the property sector because it will support the recovery of the housing market as home buyers will save thousands of pounds in tax. These changes take immediate effect in England and Northern Ireland, however Wales and Scotland have announced their own measures, which we’ll also go into detail about. Here, we scrutinise how the new rules will work, highlight all benefits for you and offer advice if you’re considering buying a new property.
Stamp Duty Changes in England and Northern IrelandThe new rules on stamp duty tax mean that the threshold has been lifted in England and Northern Ireland on any property worth up to £500,000. Previously, stamp duty tax applied from £125,000 or £300,000 if you were a first-time buyer. This means that people buying a new home or main residence, between now and March 2021 can make huge savings. The change also benefits those looking to buy properties that cost more than £500,000. Because stamp duty is tiered, they won’t pay anything on the first £500,000 and will pay regular rates on anything above that threshold. The UK government estimates that 9 out of 10 people buying a home won’t have to pay any stamp duty at all.
New Stamp Duty Rates until 31st March 2021The new rates on stamp duty land tax are:
- £0-500,000 = 0%
- £500,001-£925,000 = 5%
- £925,001-£1.5m = 10%
- £1.5m+ = 12%
How much money will you save?Under these temporary measures, the more expensive home you’re buying, the more money you are going to save. The government expects the average stamp duty bill to fall by £4,500, while the savings on properties priced at £500,000 will be £15,000. Here are some examples of the savings buyers will make on higher rates: If you buy the property for £600,000 there is 0% tax on the first £500,000 and 5% on the next £100,000. The total SDLT bill is £5,000 (previously it would have been £20,000). Property price: £750,000; 0% tax on the first £500,000; 5% on the next £250,000; Total bill equals £12,500 (previous bill = £27,500). Property price: £1m; 0% tax on the first £500,000; 5% on the next £425,000; 10% on the last £75,000; A total bill of £28,750 (previous bill = £43,750).
Stamp Duty Cut & Buy-to-letHomeowners looking to buy an investment property or a second home will still pay the 3% stamp duty surcharge, but this will be added to the latest temporary rates. This means you can still make huge savings on additional property purchases. The current rates are:
- £0-500,000 = 3%
- £500,001-925,000 = 8%
- £925,001-1.5m = 13%
- £1.5m+ = 15%
Duty Changes in ScotlandThe Scottish Government has changed its Land and Building Transaction Tax (LBTT) rates that come into force from the 15th July. The previous threshold of £145,000 has been replaced with the new level of £250,000 until 31st March 2021. The Scottish government has said that this will mean that buying a property of £250,000 will see a saving of £2,100 in LBTT – also 80% of properties in Scotland will be exempt from LBTT completely. Any person buying investment properties will also benefit from the new rules, but will have to pay the ‘additional dwelling supplement’ of 4%.
Stamp Duty Changes in WalesThe Welsh Government has announced it will change its Land Transaction Tax (LTT) from 27th July until 31st March 2021. LTT will only apply on purchases over £250,000, rather than the current level of £180,000. This will mean a saving of £2,450 on property purchases to the value of £250,000 – the change also means 80% of transactions will be exempt from stamp duty. The reduction will not be applied to purchases of investment properties, buy-to-let and second homes. The government have also stated that these changes will ensure £30 million will go towards funding energy-efficient social housing across Wales.
Pay the right SDLTWith the new SDLT rates in place, it’s important that you pay the right rate on property purchases. As experts in Stamp Duty Land Tax Refunds a, exemptions and tax reliefs, CapEx can support you to ensure you pay the right rate based on the value of the property you have purchased. If you think you’ve overpaid SDLT on residential properties or investment properties, we can support your claim. Get in touch with our tax advisors today to get your claim started today.
Stamp duty land tax is not charged when buying a first home. However, if you’re buying another home that isn’t your permanent residence, you will be liable to pay extra SDLT. The 3% surcharge is added when purchasing an additional dwelling but exemptions apply if the property being purchased is your main residence. The confusion arises from understanding whether the 3% SDLT surcharge can be avoided on the basis that you are ‘replacing an only or main residence’. The rules surrounding this legislation can be tricky to understand and the various conditions you will need to meet vary depending on your personal circumstances.
What is the Definition of “Main Residence”?A “main residence” is considered to be the property where an individual resides for the largest amount of time each year. If they only live at one property, then this will count as their main residence. However, if the buyer occupies more than one, then the situation becomes more complicated. Personal circumstances have to be considered as it is not always as clear cut as the property in which someone spends most of their time. The official Government guidance on “main residence” for SDLT purposes outlines a set of questions to consider
- If the buyer is married or in a civil partnership, where does the family spend the majority of its family time?
- If the individual has children, where do they go to school?
- Which is the residence that the individual is registered to vote on?
- Where is the individual’s working location, as well as how is the residence furnished?
- Which address is used for official correspondence and where is the individual registered for GP and dentist services?
- If the buyer owns a car, at which address is the vehicle registered and insured?
- Which is the main address for council tax purposes?
Replacement of Only or Main Residence RulesAn individual can avoid the 3% surcharge on additional dwellings on the basis that they are ‘replacing an only or main residence’ with the new property they are purchasing. This basically means that the rates on replacing main residence stamp duty can be mitigated, should you meet the following criteria. If you meet the rules, you could potentially save yourself thousands of pounds on tax. It is important that: 1. The buyer previously owned a home and it was their main residence (they lived there). 2. The previous home has been disposed of at the time of purchase of the new one. 3. The new property is bought with the intent to be the buyer’s main residence (they will be living there).
Purchasing Main Residence Before Selling the Old OneIf the buyer still owns their previous main residence at the time of purchase of the new property intended for the main residence, the buyer will have two properties at the time of the purchase and will, therefore, be liable for the SDLT surcharge. However, If the buyer then sells the previous main residence within 3 years, the stamp duty land tax surcharge can be reclaimed.
Married Couples Purchasing PropertyFor the purposes of the stamp duty land tax surcharge, couples who are married or in a civil partnership are treated as one person. This means that anything that is owned by one of the partners is considered to be jointly owned. Therefore, purchase or sale on one of their names is still relevant and could have an effect on whether the SDLT surcharge is due when purchasing a new dwelling. In different circumstances, this will mean that sometimes married couples will have to pay the 3% surcharge when unmarried couples would not. If you are considering an investment in additional property, or you have bought a property which will serve as your only or main residence and think SDLT has been overcharged, CapEx Associates can help with navigating the different legislation and claiming back overpaid tax. Contact us for more information on how we can help.
Due to the current Coronavirus pandemic, many UK employees are expected to work from home not just during the lockdown, but perhaps for the foreseeable future. One of the benefits of working from home has always been the ability to claim certain costs as a business expense. With so many people now working remotely, there has been a rising interest around the rules of claiming back tax and the VAT implications. There are rules to tax allowances when working from home. You’ll need to be able to prove that you regularly work from your home office space (which, during the COVID-19 pandemic is standard). If you purchase equipment that’s necessary and essentials for the business to function, you will be able to claim tax relief on that. Businesses can also claim reasonable tax relief towards the cost of furnishing home offices.
Claim Tax Relief for Setting Up a Home OfficeCompanies can purchase essentials they need to continue operating as staff work from home and claim back the VAT. The expenses will need to be “reasonable” (claim for what the company needs, not what the company wants) and the purchased items need to be purely for business purposes. Examples of reasonable purchases for employees working from home are laptops, keyboards and monitors as well as stationery, desks, chairs or bookshelves.
Claiming for “Business Use Only”This is the main rule for bills and costs a business might incur through their remote-working employees. When a company is paying for employees’ costs they can only claim VAT if these costs are not private. For example, if your employees request to have broadband covered, they will only need to use it during working hours. Some claims will be for mixed-use (business and private) and it is acceptable to claim part of the cost back for the proportion that is being used for business purposes. In these circumstances, it is extremely important that when an employee is incurring costs, they keep the bills and receipts to prove what was bought and whether VAT was paid or not.
Can an employee request the company to cover energy bills?Working from home will mean that your employees’ utility bills are likely to increase – they’ll be using more electricity to power their laptops, cook lunch or have the lights on. The new government guidelines state that employers can pay £6 per week to cover these increased utility costs. This is tax-free, doesn’t need any documentation and does not need to be reported by the company. Employees having a separate working area can claim the costs of heating and lighting for this. However, employees (and companies) cannot claim tax allowances for rent.
HMRC Flat Rate for Limited CompaniesLimited companies can use two ways of working out home office expenses – using HMRC’s flat-rate amount or by creating a rental agreement. The easiest way to calculate your business’ home office expenses is to use HMRC’s published allowance for the additional costs of running your business from home. As mentioned above, the business can claim £6 per week, which adds up to a total allowance of £312 for the whole tax year. This can be included as an allowable expense alongside anything else that is being claimed.
Renting a Home Office to the Limited CompanyBusiness owners wishing to claim a higher amount than the £6 per week will need to set up a rental agreement between themselves (as the homeowner) and the limited company. Without a formal agreement, HMRC can classify the rent received from the limited company as additional salary, which would be subject to Tax and National Insurance. Drawing up a rental agreement is beneficial because your limited company can deduct rental payments from your company’s pre-tax profit, meaning that Corporation Tax will not be payable on these expenses. HMRC’s rules over tax allowances and reliefs are complex and also different for limited companies and sole traders. The tax experts at CapEx Associates can help your business navigate the application process and claim tax relief.
The recent Coronavirus pandemic has seen businesses experience unprecedented financial struggles as they try to balance new government legislation, changes to the work environment and a wide-spread decline in cash flow. While the hospitality, retail and leisure industries have undoubtedly taken the hardest hit, many small businesses, such as legal and accountancy firms, have also been struck by the quickly-changing consumer and client attitudes. The need for emergency financial help and government grants to support small and medium businesses through the COVID-19 crisis has been at the forefront of discussions in the last fortnight. The government has responded to the rising insecurity by promising upcoming grants and financial help for small businesses struggling to survive during the Coronavirus lockdown. As experts in finance and tax, CapEx Associates have put together this quick review of the latest financial support available to businesses in the UK.
What is the confirmed financial help for small businesses during the Coronavirus?The government has approved a list of temporary, targeted measures to support public services and businesses through the challenging COVID-19 times. These include: 1. Coronavirus Job Retention Scheme This scheme will allow employers to furlough employees, and the government will pay 80% of their monthly contracted salary. The payments can be backdated to March 1st, to protect the workforce and small businesses from having to make their employees redundant, due to financial instability. Once furloughed and put on the scheme, the employees should not be actively working and supporting the business. Applications for the scheme are expected to open in April. 2. 12-month business rates holiday All retail, hospitality, leisure and nursery businesses in England will be eligible for this holiday and will be exempt from business rates for the whole year. 3. Small Business Grant This grant will be available for small businesses based in England. The business will need to be in receipt of either small business rate relief (SBRR) and/or rural rate relief (RRR), including tapered relief. Businesses that occupy a property in the local rating list will also be eligible. Businesses fitting the above-mentioned criteria, with a property that has a rateable value of up to £15,000 will receive a grant of £10,000. Funds will be distributed by your local city council, so if you believe your business is eligible for the Coronavirus Small Business Grand, please visit your local council’s website for more information on how to claim. 4. Grants for Retail, Hospitality and Leisure The second business grant scheme introduced by the government will be split into two sub-schemes, depending on the rateable value of the business.
- £10,000 will be available to claim for retail, hospitality or leisure businesses with a rateable value of £15,000 or less. These grants will be available depending on the number of premises a business occupies – one grant per premise, so if your business has multiple venues/shops you might be able to claim for more.
- £25,000 will be given to retail, hospitality and leisure businesses with a rateable value of greater than £15,000 but less than £51,000. Again, it will be one grant per premises.