Jet Accountancy

The cost of an annual staff party is allowed as a deduction for tax purposes. However, the cost is only deductible if it relates to employees and their guests, which would include directors in the case of a company, but not sole traders and partners in the case of unincorporated organisations.

As a company director, you are entitled to provide an annual event for yourself, any staff you employ, and your partner, and reclaim the costs against the company, as long as the cost per head does not exceed £150 (including VAT).

The cost per head can include accommodation, transport, and food and drink – but must not exceed the £150 threshold.

You may decide to hold several events throughout the year, but the total claim for all events must not exceed this threshold.

To calculate the cost per head, HMRC states that you should ‘divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head.

Furthermore, an employer may provide employees with a seasonal gift, such as a turkey, bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable.

One cautionary regarding VAT and staff gifts is that VAT is chargeable by the employer when an employee receives gifts totalling more than £50 in a year.

Many of the recent changes in the taxation of buy to let rental businesses do not apply to property businesses that qualify as furnished holiday lettings (FHL).

In particular the restriction on deductibility of finance costs that started to apply from 2017/18 does not apply to furnished holiday lettings. It may be worth considering investing in such properties to take advantage of a number of other generous tax breaks.

Tax reliefs that apply to furnished holiday letting businesses

Furnished holiday letting businesses are treated as a trade for income tax purposes and accounts should be prepared in the same way as for any other trading business.

• Capital allowances are available on white goods, furniture and other portable items such as cookers, beds.  The cost of new equipment purchases up to £200,000, can be deducted from the net profits of the business for that period.
• Profits count as earned income for pension purposes
• CGT entrepreneurs’ relief applies on disposal of the holiday rental business
• Capital gains may be rolled over into FHL property
• CGT gift holdover relief available on the gift of the rental business.

At present, the Inheritance tax treatment of a FHL is somewhat uncertain.  HMRC maintains the view that FHL’s do not qualify as business assets eligible for 100% inheritance tax relief because they are within the exclusion for investment assets.

What is a furnished holiday letting (FHL) businesses?

There are strict rules for a property rental business to qualify as furnished holiday lettings. The most important conditions are:

• Property must be situated in the UK or European Economic Area (EEA)
• Furnished and let on a commercial basis
• Available for letting for 210 days a year
• Actually let for 105 days a year
• Not normally let for more than 31 consecutive days to the same person (i.e. short lets)
• In other words lettings in excess of 31 days are excluded from the 105 day test as are periods let to family and friends on a non-commercial basis

Averaging Election

For individual landlords the 210 day and 105 day tests apply to the tax year or the first 12 months on commencement of the rental business.

If the 105 day test is not met it is possible to make a “pooling” or averaging election where several FHL properties are rented out in the tax year. You can elect to apply the letting condition to the average rate of occupancy for all the properties you let as FHLs. There are separate elections or pools of UK and EEA properties.

For further information on Furnished Holiday Lettings, please contact us on 01366 858538 or email info@jetaccountancy.co.uk.

If you take more money out of a company than you’ve put in – and it isn’t salary or dividend – it’s called a director’s loan.

A director’s loan account cannot be used by sole traders. It is, as the name suggests, a loan account for company directors.

It is important to note that a director’s loan account is not the same as your business bank account or your personal bank account. Instead, it is a “virtual” account that only exists as a means of keeping track of the money that flows between you and your company. This is because, unlike sole traders, your limited company is separate from you.

What this means is that the money your limited company earns belongs to the company, not to you. Of course, there are ways for you to withdraw money from the company, and the director’s loan account keeps track of the interactions between you and the company.

Overdrawn account

You will owe any money you took from the company at the year end, as you will pay dividends after tax. So many people get caught out by this and end up without enough profit left over after tax to fully clear the director’s loan account with dividends. If you have an overdrawn director’s loan account you must declare this on your Corporation Tax return and pay even more tax. The current rate of tax on the director’s loan is 32.5%.

However – it’s important to note that if you are able to repay your overdrawn amount within nine months and one day of your accounting year end, then you will have no additional tax to pay. Even though you will still have to declare the loan on your Corporation Tax return, you will get tax relief on the amount. HMRC have ensured that directors cannot circumvent this measure by taking the money out again as soon as they have paid it. If you withdraw the amount you repaid within 30 days, the loan counts as unpaid.

If you overdraw your director’s loan account by more than £10,000 (HMRC can change this amount) then it can be classed as a benefit as you are getting a loan from your company without paying any interest. This means you must declare it on your personal tax return and pay income tax. You can avoid this by paying interest in your director’s loan equal to or in excess of the rate demanded by HMRC.

This is particularly important to bear in mind if you use your director’s loan account to lend to others as well, such as your spouse, relative or anyone else closely connected to you.

If you’d like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01366 858538 or email us at info@jetaccountancy.co.uk.