a friendly service covering audit, tax, accounts, self assessment,
VAT & payroll please contact us.
New clients - easy three step process
Building a relationship
Get a fixed fee
We offer cloud-based accounting solutions. Using good technology saves time. With the power of cloud accounting in your hands, you can access accurate real-time data on the go, accept instant payments and even automate repetitive tasks like invoicing. Fast, easy, touch-of-a-button software can make a real difference to the way you run your business.
Helping you grow your business
Helping you keep more of your income
We understand your needs
like yours grow and be more profitable.
Welcome to Adrian Mooy & Co Ltd
We offer a personal service and welcome new clients.
We are a firm of Chartered Certified Accountants
and tax advisors in Derby helping businesses
From start-up to exit & everything in-between.
Whether you’re struggling with company formation,
annual accounts and taxation, payroll or VAT you can
count on us at every step of your business’s journey. For
If you are looking for a Derby accountant then please contact us.
If you are starting your own business, running it as a sole trader is the quickest and easiest way to do it. However, you will have unlimited liability which means you are personally responsible for business debts.
Another important aspect is that you are taxed on all the profits with little opportunity for tax planning. This is why most businesses will incorporate as profits increase.
We can support you through business registration and provide advice on all aspects of tax including:
◦ Accounts for HMRC ◦ Self assessment ◦ VAT returns ◦
◦ Payroll services ◦ Tax planning ◦
Partnerships are similar to sole trades, except that they are used when more than one person owns the business.
Each profit share is determined by the partners and best practice is to record this in a partnership agreement.
With partnerships each partner has joint and several liability for the debts of the partnership, so that if one partner cannot pay their share of any business debts, the debt will fall on the other partners.
Setting up a partnership agreement from the outset is essential.
Corporate tax planning can result in significant improvements in your bottom line. Our services will help to minimise your corporate tax exposure.
We are a member firm of the Association of Chartered Certified Accountants.
Self assessment tax returns are becoming increasingly complex and failing to submit your return on time, or correctly, can result in substantial penalties.
We use the latest tax software to ensure that tax returns are completed efficiently, accurately and on-time.
Self assessment: Taking
away the hassles of tax
We provide a comprehensive personal tax compliance service for individuals that includes:
Invoicing your contracting work through a limited company is tax efficient. We will advise you on how to structure your contract to minimise IR35 risk. We will ensure you claim all the expenses that you are entitled to and work out if you can save money by joining the VAT Flat Rate Scheme. We will complete your accounts and tax returns and provide you with clarity over your tax payments.
Included in the service • IRIS KashFlow + Snap • Annual accounts • Corporate tax return • Personal tax return • Payroll • Dividend administration • VAT returns • Contract reviews • Dealing with HMRC
VAT • is one of the most complex tax regimes imposed on business. We provide a cost effective service including assistance with registration & completing your returns.
Payroll • Administering your payroll can be time consuming. We provide a comprehensive payroll service.
Your Payroll Solution
Construction Industry Scheme • CIS returns & payments
Book-keeping • Maintenance of accounting records
Provision of management accounts
For more about these services please contact us.
Keeping the Books
If your business does not require a statutory audit then our Assurance Service will provide reassurance that your accounts stand up to close scrutiny from your bank or other finance providers.
Work is tailored to your specific requirements and the level of confidence that you are looking to achieve and will provide credibility to your accounts by the issuing of an assurance review report.
Adrian Mooy & Co is a registered auditor with the Association of Chartered Certified Accountants.
We strive to provide an auditing service that adds more value than merely the statutory compliance requirement of an audit.
We tailor the audit to meet your circumstances and needs. Using the latest techniques and software we deliver a cost-effective audit that provides real value.
Before starting out you may need help with business planning, cash flow and profit & loss forecasts.
You may also want help identifying the best structure for your business. From sole trades and partnerships to limited companies and limited liability partnerships, we have the experience to advise on the best solution for you both operationally and from a tax point of view.
We also advise on accounting software selection, profit improvement, profit extraction & tax saving.
If you wish to know more about our Business Start-up service please contact us on 01332 202660.
Accountancy and taxation of property is a specialist area. We have the expertise and experience to work effectively with private landlords and property investors. We deal with self-assessment tax, accounts preparation & tax advice for all aspects of property portfolios.
Whether you are a first time buy to let landlord or a long established developer we will discuss and understand your situation in order to advise and recommend the most appropriate medium through which to carry out your property investments. We will guide you through the accounting and tax issues and help you to plan effectively.
We take the time to explain your accounts to you so that you understand what is going on in your business.
Up to date, relevant and quickly produced management information for better control.
As part of our accounts service we prepare your annual accounts and complete yearly personal and business tax returns.
As your year-end approaches we will agree a timetable with you for completion of the accounts that minimises disruption to your business and leaves no late surprises when it comes to your tax liabilities.
We can also prepare management accounts to help you run your business and make effective business decisions. Management accounts are also very useful when approaching lending institutions when no year end accounts are available. We offer:
For a meeting to discuss your requirements please call us on 01332 202660.
We understand the issues facing owner-managed businesses.
We provide advice on personal tax & planning opportunities.
Running a small business places many demands on your time. We can help lift the load with our complete payroll service.
Designed to ease your administrative burden, our service removes what is often a time consuming task, leaving you free to concentrate on managing your business.
We can also prepare your benefits and expenses forms and advise you of any filing requirements and national insurance due. Benefits and expenses can be a complicated area and knowing what to report can be tricky.
We can file all your in-year and year end returns with HMRC and provide you with P60s to distribute to your employees at the year end.
We also offer a solution to meet your auto-enrolment obligations.
Businesses dealing with the requirements of VAT legislation will agree that this is often a complex area.
Our compliance services offer support for all stages of completing your VAT returns, whether you need advice on the treatment of specific transactions or have produced your records and would like verification that they are correct.
We can also advise on the pros and cons of voluntary registration, extracting maximum benefit from the rules on de-registration and the Flat rate VAT scheme.
Our consultancy service guides you through the intricacies of the legislation, pinpointing areas where you may be able to relieve or partly relieve the cost of VAT for your business, for example when purchasing new equipment or undertaking new projects such as property development.
For a meeting to discuss VAT and obtain further advice please call us on 01332 202660.
We can conduct a full tax review of your business and determine the most efficient tax structure for you.
We give personal tax advice to a wide variety of individuals, including higher rate tax payers, company directors & sole traders.
We can assist with:
For a meeting to discuss your requirements please call us on 01332 202660.
Understand your needs
Firstly we listen and gain an understanding of your business and what you are aiming to achieve.
We seek your opinions on the service we provide and respond to feedback in order to upgrade and improve what we do.
Build a relationship
Success in business is based around relationships and trust. Our objective is to develop and build strong relationships with our clients, based on two way trust and respect.
Confirm your expectations
Our aim is to help you maximise your business potential and we tailor our service to meet your requirements and agree a timetable for delivering them.
Communication is important to the success of any commercial venture. It is therefore a vital part of our work with you, sharing the knowledge and ideas that help you to realise your ambitions.
Understand your needs
Confirm your expectations
Build a relationship
Straightforward and easy to deal with Adrian Mooy & Co provide an efficient, friendly and professional service - payroll, tax returns, annual accounts and VAT returns are always done on time. Eddie Morris
Call us on 01332 202660
Interest & penalty charges for late filing & payment
HMRC operates a severe penalty regime to encourage compliance with self-assessment requirements. Failure to submit a return on time may attract a late filing penalty.
Late returns - The exact amount of any late filing penalty depends on how late the return is:
Length of delay Penalty
1 day late A £100 automatic fixed
penalty applies even if the
taxpayer has no tax to pay or
has paid the tax owed
3 months late £10 for each following day
up to a 90 day maximum of
£900 This is in addition to
the fixed penalty above
6 months late £300 or 5% of the tax due
whichever is the higher. This
is in addition to the penalties
12 months late £300 or 5% of the tax due
whichever is the higher This
is in addition to the penalties
In serious cases, HMRC may seek a penalty of up to 100% of the tax due instead. In some cases, the penalties can be even higher than this. These are in addition to the penalties above.
Late payments - The following penalties apply to late balancing payments of income tax and late payments of capital gains tax under self-assessment.
Length of delay Penalty
30 days 5% of the unpaid tax
6 months 5% of the unpaid tax
12 months 5% of the unpaid tax
Penalties are payable within 30 days from the day on which the penalty notice is issued There is a right of appeal against both the imposition of a penalty and the amount involved. HMRC may reduce a late payment penalty in special circumstances, which does not include an inability to pay. In addition, a defence of reasonable excuse may be available.
Interest on late payments - For income tax purposes, interest is normally charged on overdue tax from the due date of payment (31 January or 31 July) to the date the tax is actually paid. Interest charges also apply to late payment of penalties and in respect of tax return amendments and discovery assessments. The rate of interest charged on unpaid tax is currently 3.25% (from 21 August 2018). Interest is payable gross and is not deductible for tax purposes.
Is advice about personal tax a business expense?
The First-tier Tribunal recently ruled on whether a company was entitled to reclaim VAT on fees it paid for advice about a scheme to reduce income tax bills for its directors.
Taylor Pearson (Construction) Ltd (TPC) reclaimed VAT of just under £10,000 that it had paid for advice involving complex scheme to remunerate its directors tax efficiently. HMRC argued that the scheme benefited the directors by saving them income tax and as this was a personal and not a business objective the company wasn’t entitled to reclaim the VAT on the fees. TPC’s counter argument was that the scheme had tax and NI advantages for it as well, and therefore it had a business purpose.
In case its main argument failed HMRC had a back up which was that there was no “direct and immediate link” between the VAT reclaimed with taxable supplies, i.e. supplies on which TPC would charge VAT. HMRC uses this argument if it objects to VAT being reclaimed but has no other solid legal grounds to refuse it. The “direct and immediate” argument derives from a Supreme Court judgment and so carries significant weight.
The judgment also states that VAT on purchases can be reclaimed if there is “...a direct and immediate link between those acquired goods and services and the whole of the taxable person’s economic activity because their cost forms part of that business’s overheads and thus a component part of the price of its products” . In other words, VAT paid on a genuine overhead of a business is deductible (unless specifically prohibited as is the case for business entertainment).
The First-tier Tribunal’s decision therefore turned on whether the cost of the advice it received was an overhead of TPC’s business or for the personal benefit of the directors. While there was no doubt that the latter was significant, the judge noted that the advice only related to tax and NI matters linked to remuneration from the company and not to the directors’ other income. It was therefore an overhead of the business and TPC was entitled to reclaim the VAT it had paid.
A company isn’t entitled to reclaim VAT paid on fees for advice given in respect of a director’s personal tax or other financial affairs.
The judge showed his displeasure with HMRC’s suggestion that incentivising employees by reducing their tax and NI bills on company income had no direct and immediate link with the purposes of its business. He said, “I do not consider that this argument has any merit whatsoever and do not understand why HMRC put it forward” . Especially as it had relatively recently lost a very similar case which it didn’t appeal against.
VAT paid on fees incurred by a company to minimise tax and NI liabilities on remunerating its directors or employees is a legitimate overhead of the business and can therefore be reclaimed.
Making the most of pension tax allowances
Pension savings can be tax efficient as contributions to registered pension schemes, attracting tax relief up to certain limits.
Limit on tax relief
Tax relief is available on private pension contributions to the greater of 100% of earnings and £3,600. This is subject to the annual allowance cap.
Tax relief may be given automatically where your employer deducts the contributions from your gross pay (a ‘net pay scheme’). Alternatively, if you pay into a personal pension yourself or your employer pays contributions into the scheme after deducting tax, the pension scheme will claim basic rate relief (‘relief at source’). Thus if you pay £2,880 into a pension scheme, your scheme provider will claim basic rate relief of £720, meaning your gross contribution is £3,600. If you are a higher or additional rate taxpayer, the difference between the basic rate tax and your marginal rate can be reclaimed from HMRC via your self-assessment return.
The pension annual allowance caps tax-relieved pension savings – contributions can be made to a registered pension scheme in excess of the available annual allowance, but they will not attract tax relief. The annual allowance is set at £40,000 for 2019/20; although this may be reduced if you have high earnings. The annual allowance taper applies where both your threshold income is more than £110,000 (broadly income excluding pension contributions) and your adjusted net income (broadly income including pension contributions) is more than £150,000. Where the taper applies, the annual allowance is reduced by £1 for every £2 by which adjusted net income exceeds £150,000 until the annual allowance reaches £10,000. This is the minimum amount of the annual allowance. Only the minimum allowance is available where adjusted net income is £210,000 or more and threshold income is more than £110,000.
The annual allowance can be carried forward for up to three tax years if it is not used, after which it is lost. The current year’s allowance must be used first, then brought forward allowances from an earlier year before a later year.
Harry has income of £100,000 in 2019/20. He has received an inheritance and wishes to make pension contributions of £60,000. In the previous three years he has used £10,000 of his annual allowance, leaving £30,000 to be carried forward for up to three years.
To make a contribution of £60,000 for 2019/20, Harry will use his annual allowance of £40,000 for 2019/20 and £20,000 of the £30,000 carried forward from 2016/17. The £10,000 remaining of the 2016/17 allowance will be lost as cannot be carried forward beyond 2019/20. The unused allowances of £30,000 for 2017/18 and 2018/19 can be carried forward to 2020/21.
Reduced money purchase annual allowance
A lower annual allowance of £4,000 (money purchase annual allowance (MPAA)) applies to those who have flexibly accessed pension contributions on reaching age 55. This is to prevent recycling of contributions to secure additional tax relief.
The lifetime allowance places a ceiling on your pension pot. For 2019/20 it is set at £1,055,000. A tax charge will apply if you exceed the lifetime allowance.
Claiming property expenses 1
When the UK introduced self-assessment for tax purposes in 1996, the Inland Revenue made an effort to simplify our tax system, and one of the beneficiaries of this was the property owner who lets out a rental property as an investment. However, there are still many common misunderstandings of what the tax rules are, and sometimes landlords aren’t claiming everything that they are due.
Repairs or capital?
The rule is that repair expenditure is validly claimable against your rents, but capital expenditure, which improves the property, isn’t allowable. Apart from rare and specific exceptions like replacement double glazed windows as opposed to the old single glazed ones, if the effect of the work you do on the property is to improve it, this becomes a capital expense, relievable ultimately against your capital gains tax when you sell the property, but is not available to offset against the rents now.
Other capital expenditure
Property improvement isn’t the only type of expenditure that’s disallowable as ‘capital’. For example, legal costs of buying and selling properties are often wrongly claimed against the rents; but these are actually related to the purchase and sale transactions and should, therefore, be claimed for capital gains tax purposes rather than against income tax. The same applies to costs such as stamp duty land tax and land registry fees.
Expenditure covered by deposit
Although the use that landlords can make of tenants’ deposits has been very much restricted by recently legal changes, a departing tenant who has damaged the place can expect to have sums deducted from the initial deposit he had to lodge with the letting agent before he first moved in.
Claiming property expenses 2
The ‘Osborne tax’
Otherwise known as ‘Clause 24’, or ‘Section 24’ - this recent change in the tax rules comprises a disallowance of part of the interest paid on loans taken out in respect of buy-to-let properties.
For the 2018/19 year the rate of disallowance is 50%, but the way the mechanics of the Osborne tax work is to disallow the relevant proportion (i.e. 50% for 2018/19) in the first stage of the computation, and then bring back a 20% allowance lower down in the calculation.
Wear and tear allowance
The tax return doesn’t have a box for claimable wear and tear allowance any more, but this may not stop everyone from claiming it based on prior years. Wear and tear allowance was basically a rough and ready way of claiming for the cost of furnishing a residential property, and keeping that furnishing in good nick by replacing items when necessary. It was worked out as 10% of rents received, and this was allowed regardless of how much expenditure had actually been laid out on furniture.
This relief was abolished with effect from 6 April 2016, and now there is a relief called ‘replacement relief’ to do the same basic job.
Replacement relief applies to ‘domestic items’ such as furniture, appliances like fridges and freezers, and crockery - but does not apply to fixtures like boilers and central heating systems. The way the rules work is that you can claim the cost of replacing such items, but you can’t claim the initial cost of acquiring them in the first place.
Suggestions - The timing of refurbishment work on your property can make a difference as to whether it is claimable against tax. Gradual piecemeal work is more likely to be allowable than a radical gutting and replacement of interiors.
Don’t forget to retain a long-term record of expenditure that is capital and, therefore, disallowable against rents. This record will provide you with the numbers, and the evidence, for claiming a reduction in your capital gains tax when the property is ultimately sold.
Don’t forget that replacement relief is available for furniture, appliances, etc., and can make a big hole in your taxable rental profits in the year you incur the expenditure, even though the items concerned may be set to last for several years.
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.
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.
Paying dividends before the end of the tax year
Family companies should review profit extraction policy and consider whether they can and should pay further dividends before the end of the tax year. Dividends can only be paid out of retained profits and thus, unlike payments of bonuses or salary, the amount that can be extracted from the company as dividends is capped at the level of the company’s retained profits.
Retained profits are broadly profits on which corporation tax has been paid and thus they have already suffered tax in the hands of the company. For the 2019 financial year (i.e. running from 1 April 2019 to 31 March 2020), the corporation tax rate is 19%.
Once retained profits have been paid out as a dividend, they represent taxable income in the hands of the recipient. Consequently, the profits are taxed again. The combined effect of corporation tax already paid on the profits, plus the dividend tax on the dividend, may be less than the income tax and National Insurance contributions (NICs) that would be payable on profits paid out as salary, despite the fact that salary payments and employers’ NICs are deductible in computing the family company’s taxable profits. Unlike salary and bonus payments, there are no NICs to pay on dividends.
In the hands of the shareholder, dividends are treated as the top slice of income and taxed at the appropriate dividend rate of tax. The dividend tax rates are lower than the income tax rates, allowing for the fact that corporation tax has already been paid. Dividends are taxed at 7.5% to the extent that they fall within the basic rate band, at 32.5% to the extent that they fall within the higher rate band, and at 38.1% to the extent that they fall in the additional rate band.
All taxpayers, irrespective of the rate at which they pay tax are entitled to a dividend allowance (£2,000 for 2019/20). The allowance is really a nil rate band rather than a true allowance in that dividends which are covered by the allowance form part of band earnings. Dividends sheltered by the dividend allowance are taxed at a rate of 0% rather than at the relevant dividend rate. The dividend allowance is a useful tool.
Dividends come with company law rules, which must be adhered to. As well as restricting the amount of dividends that can be paid out to the level of the company’s retained profits, to comply with company law requirements dividends must be paid in proportion to shareholdings. Different dividends can be declared for different classes of share, providing the flexibility to tailor dividend payments to the circumstances of the recipient to ensure that dividends can be paid out in a tax-efficient manner.
Companies are advised to undertake a review so that they can decide whether it is desirable to extract profits from the company before the end of the tax year. If there are profits to be extracted, the company must decide how the profits should be extracted and who they should be paid to.
In order to answer these questions, it is not only necessary to establish what profits are likely to be available for extraction, but also what other income the family members have, whether their personal allowance and/or dividend allowance remains available and whether they have used up all of their basic or higher rate bands.
As a starting point, it is generally tax-efficient to pay a small salary and to extract further profits as dividends. Assuming the recipient’s personal allowance is available, the optimal salary is equal to the primary threshold for Class 1 NICs purposes (£8,632 for 2019/20) where the employment allowance is not available. If the employment allowance is available, the optimal salary is equal to the personal allowance (assuming that this is not used elsewhere), set at £12,500 for 2019/20. Above this level, it is generally more efficient to extract profits as dividends. Before paying out dividends, consider whether the optimal salary has been paid.
However, it should not be forgotten that there are other options for extracting profits, such as rent where the business is operated from a room in the family home, benefits-in-kind, pension payments etc.
Undertake a review prior to the year end to determine whether it is advisable to pay dividends before the end of the tax year.
Reduced payment window for residential property gains
Currently, capital gains on the sale of residential property in the UK are reported on the self-assessment tax return and the total capital gains tax liability for the tax year is payable by 31 January after the end of the tax year. Thus, the capital gains tax on residential property gains arising in the 2019/20 tax year must be reported to HMRC on the 2019/20 self-assessment return by 31 January 2021 and the associated capital gains tax paid by the same date.
However, from 6 April 2020 this will change. From that date, gains arising on disposals of residential property by UK residents must be notified to HMRC with 30 days of the completion date, and a payment on account of the eventual tax liability made by the same date.
What disposals are affected? - The new rules will apply from 6 April 2020 to disposals by UK residents of UK residential property which give rise to a residential property gain. The rules applied to disposals by non-residents from April 2019.
A new return - Rather than notifying HMRC of the gain on the self-assessment return, there will be a new return for advising HMRC where a gain arises on the disposal of a residential property. If there is no taxable gain, for example if the property is disposed of to a spouse or civil partner on a no gain/no loss basis, there is no requirement to make a return.
The return must be submitted to HMRC within 30 days from the date of completion.
Payment on account of tax due - The taxpayer must also make a payment on account of the capital gains tax liability within 30 days of the completion date. This is considerably earlier than now, where the lag is at least nine plus months and may be as much as almost 22 months.
Amount to pay - The amount to pay is effectively the best estimate of the capital gains tax at the time of the disposal, taking into account disposals to date in the tax year.
Example 1 - Paul sells a second home, completing on 31 May 2020 realising a gain of £50,000. He has made no other disposals in 2020/21 at the time that the property is sold.
He can take into account his annual exempt amount (for purposes of illustration this is assumed to be £12,000 for 2020/21) when working out his liability. Paul is a higher rate taxpayer.
The payment on account is therefore £10,640 ((£50,000 - £12,000) @ 28%).
Where a capital loss has been realised before the residential property gain, this can be taken into account when calculating the payment on account.
The return must be filed and the payment on account made by 30 June 2020.
Example 2 - Rebecca sells her city flat, which is a second property, on 1 August 2020, realising a gain of £100,000. In May 2020, she sold some shares, realising a loss of £10,000. Rebecca is a higher rate taxpayer.
The loss can be set against the residential property gains of £100,000, leaving a net gain of £90,000. As her annual exemption is available, the chargeable gain is £78,000 and the payment on account is £21,840.
No account is taken of a loss realised after the residential gain. - Final capital gains tax liability for the year
The final capital gains tax liability for the year is computed via the self-assessment return taking into account all gains and losses for the year. The payment on account is deducted from the final bill and the balance payable by 31 January after the end of the tax year.
If the payment on account is more than the final liability, for example if losses were realised later in the tax year, a refund can be claimed once the self-assessment return has been submitted.
Missed the tax return filing deadline?
If you missed the 31 January deadline for self-assessment HMRC will fine you £100 and more if you continue to delay. It will cancel the penalty if you have a reasonable excuse.
Must you file a tax return?
It’s a common misunderstanding that if you owe tax you’re required to submit a tax return. The correct position is that you only need to file a self-assessment return if you’re asked to do so by HMRC. It does this by issuing a “notice to file”. However, to prevent you and any individual from dodging tax simply by not declaring income, you’re required to notify HMRC within a time limit if you believe you owe tax but haven’t received a notice to file - it’s then up to HMRC to issue one. If it doesn’t do so you won’t be penalised for not submitting a tax return by the normal deadline.
Notice to file received
Once issued, there is no appeal procedure against a notice to file even if you have no income, gains or other tax liability to declare.
If you receive a notice to file but don’t submit a return within the time limit the initial penalty is £100. However, even if you don’t owe any tax this can rise to £1,600.
Appealing a penalty
You can appeal against a penalty but HMRC will only cancel it if you have a reasonable excuse such as you or a close member of your family being seriously ill and this was a significant factor in you missing the deadline.
HMRC has the power to withdraw a notice to file. If it does so any penalties for late filing will be withdrawn. This option is only open to HMRC if you haven’t yet submitted the tax return in question and is entirely at HMRC’s discretion.
HMRC will usually agree to withdraw a notice to file a tax return if for a year you don’t meet its criteria for being within self-assessment. There are circumstances in which HMRC insists on self-assessment. For example, if you have income from self-employment or you or your partner receive child benefit and one of you has annual income exceeding £50,000.
If you don’t meet criteria for self-assessment for a year and haven’t yet submitted the corresponding tax return you can ask HMRC to withdraw the requirement to submit one. It has the discretion to refuse your request but if it agrees it will also cancel the late filing penalties. Use HMRC’s online tool to check if self-assessment applies.
Steps to reduce CGT when selling your company
Since April 2016 the two main rates of capital gains tax (CGT) have been 10%, if your taxable income plus gains for the year fall within the basic rate band, and 20% if your income and gains are greater.
Where you sell your business, and meet the necessary conditions, a special 10% entrepreneurs’ relief (ER) rate applies regardless of how much your income and gains are. Before CGT starts to apply, every individual adult or child is entitled an exempt amount; for 2019/20 this is £12,000.
No gain, no loss
Special rules apply to transfers of assets between spouses. If one spouse gives assets to the other it’s treated as if they sold them to their spouse at the price equal to their cost, this is called a “no-gain, no-loss” transaction. If later the spouse who received the assets sells them for more than they cost the first spouse, they’ll make a capital gain, but they can use their annual exemption to lower or eliminate any CGT.
If you’re married or have a civil partner, you can use the no-gain, no-loss rule to save tax even where the rate of CGT you would pay is the lowest possible, i.e. where the ER rate applies.
Increasing the tax saving
The no-gain, no-loss rule doesn’t apply to gifts of assets to anyone other than your spouse or civil partner. Gifts of your company shares to children are treated as sales at their full value.
There is a legitimate way around this. You can claim CGT holdover relief. The effect of this is similar to giving shares to your wife. The gain is deferred (held over) until the children sell their shares. A holdover claim must be made jointly and usually anti-avoidance rules make it ineffective if the children are minors.
Before signing the sale contract, transfer shares to your spouse. This shifts part of the gain to them, against which they can use their annual exemption. You can achieve a similar result by transferring shares to family members, but this requires you to make a claim for “holdover relief”.
Remuneration strategy following policy announcements
The government announced in November 2019 that the scheduled reduction in corporation tax (CT) from 19% to just 17% from 2020/21 was not going to happen. It could have been worse for companies, given that many political parties wanted to reverse the recent trend of falling CT rates.
Many small companies are set up to cover single projects - typically in construction or IT - and the shareholder/directors may want to minimise their exposure to high marginal rates of income tax/ NICs on salaries and/or dividends. Such companies might then be wound up on the successful completion of the project and the shareholder/ directors might well then stand to benefit from ER on any accumulated profits that have not so far been paid out as salary or dividends. In the right circumstances, ER can offer significant savings, although there are numerous criteria and now special anti-avoidance rules, aimed at preventing ‘phoenixing’ companies and re- starting in the same sector. However, a genuine commercial basis for winding up the company should prevent the anti-avoidance legislation from being triggered.
1. There is little point in trying to defer corporate profits to later than 1 April 2020 to get them taxed at lower rates.
2. Shareholder/directors will probably want in coming tax years to increase their gross salaries to just below the rising threshold at which NICs become payable, to optimise their overall efficiencies.
3. The increase in employers allowance will make taking on a spouse, civil partner or close family member for a higher salary more efficient, where they might otherwise waste tax-free personal allowance and lower tax bands.
4. Where profits have accumulated in the business and the directors/shareholders hope to benefit from ER, there may well be some cases where triggering a disposal in the current 2019/20 tax year could usefully 'bank' ER before it is potentially restricted or even abolished.
Proper tax advice and planning is essential.
If you’re lucky enough to own shares which have increased in value you might be liable to capital gains tax (CGT) if you sell or transfer them. Working out the taxable gain isn’t always as easy as comparing how much the shares cost you with the amount you receive from selling them. When you buy or acquire shares of the same type in the same company at different times, their cost for CGT purposes is averaged. This is known as pooling.
Pooling can work for or against you. Shares on which you think you’ve made a loss or a small gain could show a large gain for tax purposes, or vice versa.
Example - part 1. In 2004 Ali bought 10,000 10p shares in Acom Plc for £12,000. He inherited a further 5,000 shares from his father in 2007 when they were worth £2.20 each and bought 1,500 more in 2018 for £6,500. In January 2020 Ali sold the 1,500 shares for £10,000. Ali assumes he’s made a capital gain of £3,500 (£10,000 less £6,500). But because all his shares in Acom are pooled and their costs averaged, the taxable gain is actually £7,818.
Using your annual exemption
If Ali made no other capital gains in 2019/20 he would not have to pay tax on his gain from selling his Acom shares because it would be less than the annual CGT exemption, which is £12,000 for the year. But if he had already made gains from selling other assets his miscalculation could result in an unexpected tax bill. Note. If Ali had made capital losses in 2019/20 these reduce the amount of taxable gains before applying the exemption.
Example - part 2. Prior to selling the Acom shares, Ali had made a capital gain of £8,000 from selling a property. He had assumed the gain on his Acom shares of £3,500 would push his total gains to £11,500, i.e. within the CGT exemption with a little to spare. But actually his taxable gains are £15,818 (£8,000 + £7,818) meaning that he’ll have to pay tax on £3,318 (£15,818 - £12,000 exemption).
Selling assets to utilise your annual CGT exemption is good tax planning. It prevents large gains building up in shares and so can significantly reduce tax in the long run.
If you’re married it’s relatively easy to double the annual CGT exemption by transferring assets to your spouse to sell. HMRC accepts this type of tax-saving arrangement.
Example. Instead of them selling all 1,500 Acom shares, Ali gave half to his wife to sell. The effect of the special rules which apply to transfers of assets from one spouse to the other means that when they sell they each make a gain of £3,909 (£7,818/2). Adding this gain to Ali’s others for 2019/20 means that his total gains are £11,909 - just within his annual CGT exemption of £12,000. Assuming his wife hasn’t made other gains exceeding £8,091 in 2019/20, those which she makes from selling the shares in Acom will be covered by her annual CGT exemption.
When you work out the capital gains or losses on shares remember that the cost of all shares you’ve bought at different times is averaged. Gains and losses you make in the same year are aggregated before applying the annual exemption. You can transfer shares to your spouse to make use of their annual exemption.
NLW – Is your business ready for 1 April 2020? - Part 1
From 1 April 2020, nearly three million workers are set to benefit from increases to the National Living Wage (NLW) and minimum wage rates for younger workers, according to estimates from the independent Low Pay Commission.
From 1 April 2020, the NLW will rise from £8.21 per hour to £8.72 per hour.
The new rates should mean a pay rise of some £930 over the course of the year for a full-time worker on the NLW. Younger workers who receive the National Minimum Wage (NMW) will also see their pay boosted with increases of between 4.6% and 6.5%, dependant on their age, with 21-24 year olds seeing a 6.5% increase from £7.70 to £8.20 an hour.
Employers need to make sure they are ready for the new rates.
The compulsory NLW is the national rate set for people aged 25 and over. The NLW is enforced by HMRC alongside the national minimum wage which they have enforced since its introduction in 1999.
Generally, all those who are covered by the NMW, and are 25 years old and over, will be covered by the NLW. These include:
• most workers and agency workers
• casual labourers
• agricultural workers
• apprentices who are aged 25 and over
The NMW is the minimum pay per hour that most workers are entitled to receive by law. The rate to which they are entitled depends on a worker's age and whether they are an apprentice.
The rates from 1 April 2020, the NMW will rise across all age groups, including increases:
• from £8.21 to £8.72 for over 25 year olds
• from £7.70 to £8.20 for 21-24 year olds
• from £6.15 to £6.45 for 18-20 year olds
• from £4.35 to £4.55 for under 18s
• from £3.90 to £4.15 for apprentices
Payments that must be included when calculating the NMW are:
• income tax and NICs
• wage advances or loans and repayments
• repayment of overpaid wages
• items that the worker has paid for, but which are not needed for the job or paid for voluntarily, such as meals
• accommodation provided by an employer above the offset rate (£7.55 a day or £52.85 a week)
• penalty charges for a worker’s misconduct
NLW – Is your business ready for 1 April 2020? - Part 2
Some payments must not be included when the NMW is calculated.
• payments that should not be included for the employer’s own use or benefit, for example if the employer has paid for travel to work
• items that the worker has bought for the job and has not been refunded for, such as tools, uniform, safety equipment
• tips, service charges and cover charges
• extra pay for working unsocial hours on a shift
There are a number of people who are not entitled to the NMW, including:
• self-employed people
• volunteers or voluntary workers
• company directors
• family members, or people who live in the family home of the employer who undertake household tasks
All other workers including pieceworkers, home workers, agency workers, commission workers, part-time workers and casual workers must receive at least the NMW.
Businesses should make regular checks to ensure compliance with NLW/NMW obligations including:
• checking that they know who is eligible in their organisation
• taking the appropriate payroll action where relevant
• letting employees know about any new pay rate
• checking that staff under 25 are earning at least the right rate of NMW
The penalty for non-payment of the NLW can be up to 200% of the amount owed, unless the arrears are paid within 14 days. The maximum fine for non-payment is £20,000 per worker.
The government is currently committed to raising the NLW to £10.50 per hour by 2024 on current forecasts.
Employers need to take action over the coming weeks to ensure that they are ready for the increase in rates on 1 April 2020 and beyond.
When Goodwill helps
The valuation of assets can be important for tax purposes. For example, a valuation may determine the amount of inheritance tax (IHT) payable on a lifetime transfer (e.g. the transfer of an investment property to a discretionary trust) or on an individual’s death estate. In addition, an asset valuation may be needed to determine the capital gains tax (CGT) liability on certain disposals (e.g. a gift of investment company shares from parents to adult children). However, asset valuations can also be a crucial factor in determining the availability of tax relief in some cases. Two notable examples are highlighted below.
1. Entrepreneurs’ relief
The basic definition of ‘trading company’ for CGT entrepreneurs’ relief (ER) purposes is ‘a company carrying on trading activities whose activities do not include to a substantial extent activity other than trading activities’.
There is no statutory definition of ‘substantial’ for ER purposes, but it is generally accepted to mean ‘more than 20%’. There are several factors, some or all of which might be considered in determining whether non-trading activities are ‘substantial’ (i.e. income from non-trading activities, the company’s asset base, expenses incurred, time spent by officers and employees of the company in undertaking its activities, and the balance of indicators). On the ‘company’s asset base’ test, HMRC states: ‘If the value of a company’s non-trading assets is substantial in comparison with its total assets then again, on this measure, this could point towards it not being a trading company.’ However, HMRC acknowledges that it may be appropriate to take account of business goodwill not shown on the balance sheet.
2. Business property relief
A business owner may be eligible for IHT business property relief (BPR) if certain conditions are met. However, the relief does not apply (subject to limited exceptions) to a business (or an interest in it) or company shares and securities where the business carried on consists wholly or mainly of dealing in securities, stocks or shares, land or buildings or making or holding investments.
This ‘wholly or mainly’ test broadly means that if (say) a ‘hybrid’ company, i.e. comprising a trading business and an investment business (e.g. a company operating a manufacturing business and a residential lettings business) is 49% trading and 51% investment, an individual’s shares would not be eligible for any BPR at all, even in relation to the company’s trading activities. HMRC’s guidance on valuing a business for BPR purposes states that the company’s balance sheet will be the main source of information about the value of business assets (and liabilities) at the date of death/transfer. HMRC includes goodwill within the list of assets to be taken into account, even where no goodwill is shown on the balance sheet.
The valuation of goodwill is a specialist area. HMRC will normally refer the matter to its Shares and Assets Valuation division. Taxpayers and advisers are strongly advised to seek assistance from a valuation expert.
Is a working holiday tax deductible?
Business, private and mixed expenses
The general rule for expenses; to be tax deductible they must be incurred “wholly and exclusively” for the business. This condition is modified for directors and employees who incur travel expenses; to be tax deductible they must be incurred in the performance of their job. However, this rule is not as straightforward as it might seem.
Example. A director often travels from home to visit a customer on the way to the firm’s offices. One interpretation of the rules suggests that none of the cost of the journey to the office from home is tax deductible because travel between your home and your normal place of work (a commute) counts as a private journey. Alternatively, the travel is two journeys, one from home to the customer and one from the customer to work. The second part meets the condition while the first doesn’t because any journey beginning or ending at home is commuting.
Because both interpretations have flaws HMRC usually accepts that a journey incorporating a business element which starts from or ends at your home meets the condition for a tax deduction.
Example. You travel 200 miles to visit several customers. You stay overnight in a hotel. In the evening you go to the cinema. While the cost of travel from your hotel to the cinema is clearly private, HMRC says this won’t jeopardise the tax deductibility of the main journey from your home or office to visit customers. HMRC’s guidance confirms this.
A business trip with pleasure
In the example above the purpose of the journey is clearly business which happens to offer an opportunity to undertake private activities. What’s more, it’s easy to identify and separate the business from the private element of the trip. This means the cost of travel from home or work to the hotel and the customer is tax deducible, while the cost of travelling to and from the cinema is not. A similar approach can be used to differentiate between deductible and non-deductible expenses if the main purpose of your journey is private but you undertake some business while away.
Example. You’ve booked your family’s summer holiday in southern Spain. You intended to leave them to their own devices for a couple of days while you fly to Barcelona to visit some work colleagues to discuss business. The cost of your and your family’s travel and accommodation in southern Spain is obviously not related to travelling in the performance of your job even though it is one leg of your trip to visit work colleagues. None of it is tax deductible. Conversely, the cost of your flight to and accommodation in Barcelona is business, and therefore tax deductible, even if you visit a bar or two in the evening with your colleagues.
If you’re combining business with pleasure keep detailed records that identify the tax deductible and non-deductible cost elements.
The main purpose of a trip determines if tax relief is allowed. If it’s private, no relief is allowed even if there’s a business element. However, separate costs you incur wholly for business while on holiday, say paying for travel to visit a customer, qualify for relief.
Reporting a pension annual allowance charge
If your pension savings for a year exceed your annual allowance (AA), either you or your pension provider must pay the tax. The first step is filling in the “Pension savings tax charge”’ part on your tax return. For help, look at form SA101 and use HMRC’s HS345 pension savings help sheet (see the links below).
Use Box 10 on the Pensions Savings Charges page if you have a charge, even if the scheme pays some or all of it. If they contribute, put the amount they pay in Box 11. You will need your scheme’s Pension Scheme Tax Reference to fill in Box 12.
If you forget to report the AA charge on your tax return you have twelve months from the filing deadline to amend it. For example, if you forget something off your 2018/19 return, which had to be filed by 31 January 2020, you have until 31 January 2021 to notify HMRC.
For the SA101
For the HS345
Reporting low emission vehicles – Changes from April 2020
From 6 April 2020, new appropriate percentage bands – and new lower charges for low emissions cars – will apply for company car tax purposes.
From the same date, the way in which carbon dioxide emissions are measured is also changing. This means that in order to find the correct appropriate percentage for working out the taxable benefit of a company car, you will need to know whether the car was registered on or after 6 April 2020 or before that date, as well as the level of the car’s CO2 emissions. As a transitional measure, with the exception of zero emission cars, the appropriate percentage for cars registered on or after 6 April 2020 is 2 percentage points lower than cars registered prior to that date for 2020/21 and one percentage point lower for 2021/22. The figures are aligned from 2022/23. For zero emission cars, the charge is 0% for 2020/21, 1% for 2021/22 and 2% from 2022/23, regardless of the date on which the car is registered. The maximum charge is capped at 37%. The diesel supplement applies as now.
More information will be needed to work out the appropriate percentage where the car’s CO2 emissions (however measured) fall in the 1—50g/km band. From 6 April 2020, this band is sub-divided into five further bands, each with their own appropriate percentage. The band into which the car falls depends on its electric range (also known as its zero emission mileage). This is the maximum distance that the car can be driven in electric mode without having to recharge the battery. The relevant bands are as follows:
• more than 150 miles
• 70 to 129 miles
• 40 to 69 miles
• 30 to 39 miles
• less than 30 miles
The greater the car’s zero emission mileage, the lower the appropriate percentage.
Splitting the 1—50g/km band introduces additional reporting requirements. The precise nature of those changes depends on whether car and fuel benefits are payrolled.
Where car and fuel benefits are payrolled, information on cars provided to employees is submitted to HMRC on the Full Payment Submission (FPS), rather than on form P46(Car). From 6 April 2020, where an employee has a car with carbon dioxide emissions that fall within the 1—50g/km band, the car’s zero emission mileage must be reported to HMRC in the new field that will be available from that date.
If car and fuel benefits are not payrolled, form P46(Car) provides the mechanism for letting HMRC know when an employee has been given a car for the first time or given an additional car. The form can be submitted in various ways – on paper, using the online service or PAYE online.
From 6 April 2020, the form will have an additional field for zero emission mileage which must be completed when providing an employee with a car with CO2 emissions in the 1—50g/km band. The deadlines for submitting the form are unchanged and are as shown in the table below.
Period in which change took place Deadline for reporting it to HMRC
6 January to 5 April 5 April (where electronic form used)
3 May (where printed form used)
6 April to 5 July 2 August
6 July to 5 October 2 November
6 October to 5 January 2 February
Will HMRC write off your tax bill?
Tax bills not worth the effort
For many years HMRC adopted a policy of not assessing tax if the amount involved was small. 40 years ago the limit was £30 and eventually became £70. However, that was in the days when the Inland Revenue, as it was then, had to go through the rigmarole of manually writing or typing an assessment, posting it to the taxpayer and notifying the collector of taxes to issue demands. The so-called assessing tolerance disappeared with the introduction of self-assessment in 1996. However, HMRC has found it necessary to renew this old policy, but not in all situations.
If you submit self-assessment tax returns you’ll have to settle the tax bill that results, however small the amount. HMRC routinely make adjustments to eliminate very small debts, typically no more than £2. The legislation gives HMRC management powers to do this. It can, but very rarely does, use the same rules to write off larger sums, but it’s not open to negotiating a debt down.
HMRC will seemingly write off a debt if it loses track of someone who owes it money. This is usually no more than a temporary reduction. So if you change address when HMRC eventually tracks you down it will reinstate the tax charge and add interest to the bill.
Currently HMRC issues informal tax calculations known as P800s. The idea behind these is that rather than force individuals with simple tax affairs to complete self-assessment returns HMRC uses the information it has to decide if you you’ve over - or underpaid tax. It then asks you to pay or refunds you. The debt is not enforceable and so if you refuse to pay HMRC is likely to send you a self-assessment form to fill in or, if you have income that’s taxed through PAYE, adjust your tax code to increase the amount you pay on your salary etc.
P800s are often inaccurate and you should check them, especially if they include estimated figures (savings or investment income is usually estimated). HMRC must adjust the P800 if you provide it with the correct figures.
HMRC simple assessments
A few years ago legislation was introduced to allow HMRC to issue simple assessments in certain circumstances where a P800 is not suitable. Tax payable on a simple assessment is enforceable, but they too often include estimates and should be checked. Unlike P800s you must formally notify HMRC within 60 days if you disagree with the figures.
HMRC’s practice of not issuing assessments or P800s for small amounts is back. It should not assess you if you owe less than £50. If you receive such an assessment/ P800 call HMRC on the number shown on the document and ask for the debt to be cancelled. It will usually agree to this.
If you’ve completed a self-assessment return you must pay the demand, assuming the amount requested ties up with your calculations, no matter how small it is. However, if the demand is in respect of a Form P800 or simple assessment and is for less than £50, HMRC ought not to have sent it. It will usually cancel the charge if you ask.
Whether it is answering questions, making an appointment, or pointing you in the right direction, we look forward to hearing from you.
We just need a few details and we'll be in touch shortly.
Adrian Mooy & Co Ltd - 61 Friar Gate Derby DE1 1DJ -
Adrian Mooy & Co is the trading name of Adrian Mooy & Co Ltd. Registered in England No. 05770414.
Registered to carry out audit work in the UK by The Association of Chartered Certified Accountants.
Details of audit registration can be viewed at www.auditregister.org.uk under number 8011438.
Registered office: 61 Friar Gate, Derby, Derbyshire, DE1 1DJ
© Copyright 2020 Adrian Mooy & Co Ltd. All rights reserved.