When deciding what to give as Christmas gifts, the possibility of triggering an unintended inheritance tax liability is not one that immediately springs to mind. However, there are traps that may catch the unwary.

Income or capital

When making a gift, it is important to ascertain whether the gift is being made out of income or from capital. There is an inheritance tax exemption for normal expenditure from income. To qualify, the gift must be made regularly and only from surplus income. It is important that after making the gift you have sufficient income left to maintain your usual lifestyle. To avoid unwanted questions, it is a good idea to set up a regular pattern of giving and keep records to show that the gifts were made from income.

A gift that is made from capital – for example, from the proceeds from the sale of a property or a gift of a valuable antique – will reduce the value of the estate. Unless the gift falls within the ambit of another exemption, the gift will be a potentially exempt transfer (PET) and will be taken into account in working out the inheritance tax due on the estate if you die within seven years of making the gift.

Gifts to spouses and civil partners

The inter-spouse exemption protects gifts between spouses and civil partners. Consequently, gifts of any value can be given to a spouse or civil partner without worrying about the inheritance tax implications.

Annual allowance

Everyone has an annual allowance for inheritance tax purposes of £3,000. The annual allowance enables you to give away £3,000 every year in assets or cash, in addition to gifts covered by other exemptions, without it being added to the value of your estate. You can also carry forward the annual exemption to the following year if it is not used, so if you did not use it in the last tax year, you can make gifts of up to £6,000 this year without having to worry about inheritance tax. However, any unused allowance can only be carried forward to the following tax year, after which it is lost.

Small gifts

The small gifts exemption enables you to make gifts of up to £250 a year to as many people as you like without having to keep a tally for inheritance tax purposes. However, the same person cannot benefit from a small gift of £250 in addition to the annual gifts allowance.

Wedding gifts

If a family wedding is on the horizon, you can take advantage of the wedding gifts exemption to make further gifts. To qualify, the gifts must be made before the wedding not afterwards. The exempt amounts are set at £5,000 for gifts to a child, £2,500 for gifts to a grandchild or great-grandchild and at £1,000 for a gift to another relative.

The introduction of a VAT domestic reverse charge for building and construction has been delayed by 12 months and will now be implemented on 1 October 2020.

The delay is due to the concerns raised by industry representatives and recognises that some businesses in the construction sector need more time to implement the new reverse charge. As this is close to the date the UK is due to exit the EU and to help these businesses by giving them additional time to prepare, the introduction of the reverse charge will be delayed.

To help businesses get ready in the next 12 months, HMRC say they will continue to work closely with the construction sector to raise awareness and provide additional guidance and support to ensure all businesses will be ready for the new implementation date.

If your self assessment tax bill for a year is for £1,000 or more and you paid 80% or less of your total income tax liability at source, e.g. through PAYE, you’re required to make payments on account (POAs) to HMRC towards your next tax bill. However, due to a problem with HMRC’s computer you might be off the hook for the POAs for 2018/19.

If your SA tax bill for 2017/18 meant you should have been liable to POAs for 2018/19 (normally due on 31 January 2019 and 31 July 2019) but HMRC hasn’t demanded or included them in your SA account, you won’t have to pay anything until 31 January 2020. Because the error was HMRC’s they won’t charge you interest for paying the tax later than the usual due dates.

From 1 April 2019 the National Minimum Wage rates increased.  Employees aged 25 or over are legally entitled to £8.21 per hour.  Employees aged 21 to 24 – £7.70 per hour, employees aged 18-20 – £6.15 per hour, under 18 – £4.35 per hour and for apprentices £3.90 per hour.

The most common reasons that a tax return may be required are:

• income from self employment as a sole trader
• income from a partnership business
• money from renting out a property
• income from savings, investments and dividends
• foreign income
• selling assets such as shares or second property
• if your income (or your partner’s) was over £50,000, you may need to send a return and pay the High Income Child Benefit Charge

At Jet Accountancy we can complete your tax return, calculate your tax liability and file the return online.  Contact us for more information.

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.

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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.

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What is it?  The Marriage Allowance lets you transfer £1,150 of your Personal Allowance to your husband, wife or civil partner if they earn more than you,

This reduces their tax by up to £230 in the tax year.

To benefit as a couple, you (as the lower earner) must have an income of £11,500 or less.

You can backdate your claim to include any tax year since 5 April 2015 that you were eligible for Marriage Allowance.

Who can get it? This is the most important factor as only people with these specific circumstances will be able to apply:

• You’re married or in a civil partnership.
• One of you needs to be a non-taxpayer, which usually just means earning less than the £11,500 personal allowance.
• The other needs to be a basic 20% rate taxpayer (higher or additional-rate taxpayers aren’t eligible for this allowance). This means you’d normally need to earn less than £45,000.
• You both must have been born on or after 6 April 1935.  If not, you may be eligible for Married Couple’s Allowance.
• New. A rule that came into effect from Wednesday 29 November 2017 allows you to claim even if your partner has died since April 2015 and all the other criteria above apply.

It won’t affect your application for Marriage Allowance if you or your partner are currently receiving a pension or living abroad.

In most cases, the allowance will be given by adjusting the recipient partner’s personal tax code. The partner who transferred their personal allowance will also receive a new tax code, if employed. If the recipient partner is in self-assessment, it will reduce their self-assessment bill.

Already applied in the last tax year? You’ll automatically get the marriage tax allowance this year and only need to inform HM Revenue & Customs (HMRC) if your circumstances have changed making you no longer eligible.

For further information on this or if you wish us to apply on your behalf, please do not hesitate to contact us on 01366 858538 or email info@jetaccountancy,co.uk.

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Every employer has automatic enrolment duties. They need to assess their staff, put them into a workplace pension scheme if they meet certain criteria, write to them to tell them what they have done, and complete and submit a declaration of compliance with The Pensions Regulator (TPR).

To date, more than 8 million people have been automatically enrolled in a workplace pension by more than 600,000 employers. And with hundreds of thousands more employers due to reach their duties start date by February 2018, the number of people automatically enrolled will continue to rise.

However, an employer’s workplace pension duties do not stop with declaring compliance. And with TPR conducting stop checks on employers across the country to make sure they are complying with their duties, it is important you are aware what needs to be done on a regular and ongoing basis to ensure you comply with the law.

What are your ongoing duties?

You will need to pay regular contributions into your chosen pension, monitor the age and earnings of your staff and enrol eligible staff, process any requests to join or leave the scheme, keep and maintain accurate records. You will also need to re-enrol eligible staff into an automatic enrolment pension scheme every three years.

We can take the whole burden of auto enrolment off your shoulders.  We offer a fixed fee Auto Enrolment Service as an add-on to our fixed fee Payroll Services.  We can take care of the setting up and the ongoing administrative burden, ensuring that your business complies with the new regulations.  Contact us on 01366 858538 for more information.