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Month: September 2023

VAT Capital Goods Scheme

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The VAT Capital Goods Scheme (CGS) is a means of spreading the initial VAT recovery in respect of certain assets over either 5 or 10 years. The scheme seeks to agree a fair and reasonable attribution of VAT to taxable supplies and non-taxable supplies relating to the use of an asset over its lifetime.

The adjustment period for land and buildings is 10 years and for other CGS assets, 5 years. This adjustment period also considers any non-business use of the asset. The CGS is intended primarily for partly exempt businesses. However, businesses can change direction over the adjustment period and be subject to making CGS adjustments some years after an asset was purchased.

The CGS currently applies to:

  • Land and building (including extensions, alterations and refurbishments) with a cost (net of VAT) of £250k or more.
  • Computers, or computer equipment, with a cost (net of VAT) or £50k or more.
  • Ships and boats with a cost (net of VAT) of £50k or more.
  • Aircraft with a cost (net of VAT) of £50k or more

The scheme does not apply if:

  • the assets are acquired solely for resale;
  • you spend money on assets which are solely for resale; or
  • assets are acquired, or you spend money on assets, which are wholly used for non-business purposes.
Source: HM Revenue & Customs Tue, 26 Sep 2023 00:00:00 +0100

Replacement of domestic items relief

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The replacement of domestic items relief enables landlords to claim tax relief when they replace movable furniture, furnishings, household appliances and kitchenware in a rental property. The allowance is available for the replacement cost of domestic items such as free-standing wardrobes, curtains, carpets, televisions, fridges and crockery.

The amount of the deduction is based on:

  • the cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent); plus
  • the incidental costs of disposing of the old item or acquiring the replacement; and
  • less any amounts received on disposal of the old item.

There is an important distinction between deciding whether or not a new item represents a replacement or an improvement. Where the new item is an improvement on the old item the allowable deduction is limited to the cost of purchasing an equivalent of the original item.

HMRC’s internal guidance provides an example highlighting that a brand new budget washing machine costing circa £200 is not an improvement over a 5 year old washing machine that cost around £200 at the time of purchase (or slightly less considering inflation).

However, if a replacement item is for a reasonable modern equivalent, for example, a new energy efficient fridge replacing an old fridge, this is not considered an improvement and the full cost of the new item is eligible for relief.

Source: HM Revenue & Customs Tue, 26 Sep 2023 00:00:00 +0100

Community Investment Tax Relief scheme

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The Community Investment Tax Relief (CITR) scheme is designed to encourage investment in accredited Community Development Finance Institutions (CDFIs). The tax relief under the scheme is available to both individuals and companies.

CDFIs may take a range of forms including:

  • community loan funds, which make capital available to community regeneration initiatives and businesses;
  • micro-finance funds, which make small loans, usually at near-market rates of interest, to the smallest businesses, e.g., sole traders; and
  • social banks – profit-seeking financial service providers or subsidiaries, dedicated to social or environmental objectives.

The scheme encourages investment in disadvantaged communities by giving tax relief to investors who back businesses (and other not-for-profit enterprises) in disadvantaged communities by providing additional tax relief. Tax relief of up to 5% per year is available for up to 5 years starting with the year in which the investment is made. This provides for a total tax relief of up to 25% of the invested amount.

It was announced as part of the Spring Budget measures that the amount CDFIs can apply to relevant investments would increase from £250,000 to £375,000 for non-profit organisations and from £100,000 to £250,000 for profit organisations. The enabling legislation came into force on 2 June 2023.

In addition, the amount accredited CDFIs can raise through CITR increased from £10 million to £25 million for retail CDFIs and from £20 million to £100 million for wholesale CDFIs.

Source: HM Revenue & Customs Tue, 26 Sep 2023 00:00:00 +0100

Accommodation that qualifies as Holiday Lets

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The furnished holiday lettings (FHL) rules allow holiday letting of properties that meet certain conditions to be treated as a trade for specific tax purposes.

In order to qualify as an FHL, the following criteria need to be met:

  • The property must be let on a commercial basis with a view to the realisation of profits. Second homes or properties that are only let occasionally or to family and friends do not qualify.
  • The property must be located in the UK, or in a country within the EEA.
  • The property must be furnished. This means that there must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture.

In addition, the property must pass the following three occupancy conditions.

  1. Pattern of occupation condition. The property must not be used, in total, for more than 155 days a year of longer term occupation (i.e., continuous periods of more than 31 days).
  2. The availability condition. The property must be available for commercial letting at commercial rates for at least 210 days per year.
  3. The letting condition. The property must be let for at least 105 days per year and property owners should be able to demonstrate the income from these lettings. 

Where there are a number of FHL properties in a business, it is possible to average the days of lettings for the purposes of qualifying for the 105 days threshold. This is called an averaging election.

There is also a special period of grace election which allows homeowners to treat a year as a qualifying year for the purposes of the FHL rules where they genuinely intended to meet the occupancy threshold but were unable to do so subject to a number of qualifying conditions.

Source: HM Revenue & Customs Tue, 26 Sep 2023 00:00:00 +0100

Do you need to register for Self-Assessment?

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Taxpayers that need to complete a Self-Assessment return for the first time are required to notify HMRC. This is a final reminder that the latest date that HMRC should be notified, by new Self-Assessment taxpayers, for the 2022-23 tax year, is 5 October 2023. The deadline for filing the 2022-23 Self-Assessment tax return online and paying any tax due is 31 January 2024.

There are a number of reasons why you might need to complete a Self-Assessment return for the first time. This includes if you are self-employed, have an annual income over £100,000 and / or have income from savings, investment or property.

The £100,000 income threshold for Self-Assessment changed for taxpayers who are only taxed through PAYE. It increased from £100,000 to £150,000 with effect from 6 April 2023. However, the Self-Assessment threshold for 2022-23 returns remains at £100,000.  

HMRC has an online tool www.gov.uk/check-if-you-need-tax-return/ that can help you check if you are required to submit a Self-Assessment return.

The following list summarises some of the reasons when taxpayers are usually required to submit a Self-Assessment return:

  • The newly self-employed (earning more than £1,000);
  • Multiple sources of income;
  • Taxpayers that have received any untaxed income, for example earning money for creating online content;
  • Income over £100,000;
  • earn income from property that they own and rent out;
  • are a new partner in a business partnership;
  • Taxpayers whose income (or that of their partner’s) was over £50,000 and one of you claimed Child Benefit;
  • Receiving interest on savings or investment income of £10,000 or more before tax;
  • Taxpayers who made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax; and
  • Taxpayers who are self-employed and earn less than £1,000 but wish to pay Class 2 NICs voluntarily to protect their entitlement to State Pension and certain benefits.
Source: HM Revenue & Customs Tue, 26 Sep 2023 00:00:00 +0100

Unclaimed Child Trust Fund Accounts

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HMRC has published their latest statistics on Child Trust Funds (CTFs) that reveal that whilst around 500,000 accounts have now matured, there remains some 430,000 funds that have matured but remain unclaimed.

If you turned 18 on or after 1 September 2020 there may be cash waiting for you in a dormant CTF. The average market value of an unclaimed CTF can be £2,000. The actual amount of money depends on a number of factors.

Children born after 31 August 2002 and before 3 January 2011 were entitled to a CTF account provided they met the necessary conditions. These funds were invested in long term saving accounts for newly born children. 

Around 7 million CTF accounts were set up since the scheme was launched in 2002, roughly 6 million by parents or guardians and a further 1 million set up by HMRC where parents or guardians did not open an account.

Around 55,000 accounts mature each month and HMRC has created a simple online tool to help young people find out where their account is held. If you’re unsure if you have an account or where it may be, it’s easy to track down your provider online.

The actual CTF accounts are not held by HMRC, but by a wide range of CTF providers who are financial services firms. Families can continue to pay into a CTF, until the maturity date. There is an annual limit of £9,000, and there is no tax to pay on the CTF savings interest or profit.

HMRC’s Second Permanent Secretary and Deputy Chief Executive, said:

'Many 18-21 year olds are starting out in first jobs or apprenticeships, starting university or moving into their first home and their Child Trust Fund is a pot of money with their name on. I would encourage young people to use the online tool to track it down or, for parents of teenagers, to speak to them to ensure they’re aware of their Child Trust Fund. It could make a real difference to their future plans.'

Source: HM Revenue & Customs Tue, 26 Sep 2023 00:00:00 +0100

Help for businesses launching new AI

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Organisations across the country will be able to demonstrate that their new artificial intelligence and digital innovations meet regulatory requirements so they can quickly bring them to market.

In their press release published 19 September 2023, the Department for Science, Innovation and Technology said:

A new pilot scheme set to launch next year will see a number of regulators develop a multi-agency advice service providing tailored support to businesses so they can meet requirements across various sectors while safely innovating – including through innovative technologies such as AI.

Backed by over £2 million in UK government funding, the streamlined service is intended to make it easier for businesses to get the help they need, by bringing together the different regulators involved in the oversight of cross-cutting AI and digital technologies.

In turn, businesses will be able to take their new innovations to market responsibly and more quickly, helping to grow the UK’s economy.

With digital technologies such as artificial intelligence needing increasingly to demonstrate compliance with a range of regulatory regimes, there is a growing need for joined-up advice across the regulatory landscape. This pilot scheme will meet business demands for coordinated support and help innovators navigate regulations, so they can spend more time developing cutting edge new products.

The service will be run by members of the Digital Regulation Cooperation Forum (DRCF), made up of the Information Commissioner’s Office, Ofcom, the Competition and Markets Authority and the Financial Conduct Authority, and known as DRCF AI and Digital Hub.

The DRCF came together as a voluntary collaboration in 2019, launching formally in 2020, and works to explore emerging regulatory issues which cut across the remits of the four regulators with the goal of making it easier for industry to comply with multiple regulatory regimes.

The trial is expected to last around a year, and will assess industry take up, service feasibility and how innovators are interacting with it. Innovators and businesses requiring advice will be invited to apply in due course with the DRCF expected to run a competition for innovators to outline where they need support from regulators to ensure innovative new technologies comply with cross-cutting regulatory regimes. Successful applications will be selected against criteria agreed jointly by regulators and the department.

Source: Other Tue, 26 Sep 2023 00:00:00 +0100

Charity Trustees Quiz

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The Charity Commission has launched the next phase of its trustee campaign which aims to increase charity trustees’ knowledge and drive a positive change in charities’ governance.

The campaign encourages trustees to check what they know about their duties and aims to increase their awareness of the Commission’s 5-minute guides.

As part of the latest phase of the campaign, the regulator has released a new Trustee Quiz to enable trustees to test their knowledge of their duties and responsibilities.

The quiz is designed to engage trustees with a variety of questions based on everyday scenarios that they may encounter at their charity. It has been designed to help identify knowledge gaps and is an ideal refresher for trustees at all levels of experience. Research shows that the majority of trustees feel confident in their ability to manage their charities, however there may be areas of knowledge they can improve. The quiz is intended to encourage trustees to think again about what they know, to inspire upskilling.

The quiz takes around three minutes to complete and gives busy trustees an interactive means to quickly check what they know and help them uncover potential knowledge gaps they may not have been aware of. It prompts participants to test their knowledge on a range of topics, such as conflicts of interest and safeguarding. Feedback is provided for each question, and users are pointed to further guidance from the regulator to strengthen their knowledge.

Each participant also receives a score out of 10, allowing them to benchmark their knowledge.

The quiz can be accessed at https://beingacharitytrustee.campaign.gov.uk/take-the-trustee-quiz/

Source: Other Tue, 26 Sep 2023 00:00:00 +0100

Change to Company Accounts filing

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The Economic Crime and Corporate Transparency Bill has completed its initial journey through the House of Commons and the House of Lords and is now at the stage known as, consideration of amendments. This is where the second House’s amendments are considered, and the Bill may go back and forth until both Houses agree on the Bill. The Bill is expected to receive full Royal Assent over the coming months. The new Act will be aimed at reducing the abuse of corporate structures and at the same time tackling economic crime.

As part of the measures that will be introduced, Companies House will be streamlining the accounts filing options available to small and micro companies. At present, small businesses are able to file what are known as filleted accounts with Companies House. This means that these small or micro companies can choose not to submit a profit & loss account and/or director’s report to Companies House. In this way, this information will not be made public. Filleted accounts can be submitted whether or not a company has prepared full or abridged accounts.

Companies House has now acted on various concerns that this minimal level of disclosure has the potential to appeal to fraudsters wishing to present a false image of the company.

Companies House will therefore introduce a new framework under which all small companies, including micro-entities, will be required to file their profit and loss accounts. The option for abridged accounts will also be removed. 

A small company is defined as a business with two of the following:

  • a turnover of £10.2 million or less
  • £5.1 million or less on its balance sheet
  • 50 employees or less

A micro-entity is defined as a business with two of the following:

  • a turnover under £632,000
  • £316,000 or less on its balance sheet
  • 10 employees or fewer.

No date has yet been announced for the implementation of these changes. However, it is important that those who currently submit filleted or abridged accounts familiarise themselves with the upcoming changes and how best to prepare for them. This represents a significant change for these businesses.

Source: Companies House Tue, 19 Sep 2023 00:00:00 +0100

Activities subject to the scope of VAT

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There are a number of conditions that must be satisfied for an activity to be within the scope of UK VAT.

An activity will fall within the scope of VAT when all the following conditions are met:

  • it is done for consideration;
  • it is a supply of goods or services;
  • the supply is made in the UK;
  • it is made by a taxable person; or
  • it is made in the course or furtherance of any business carried on or to be carried on by that person.

One of the conditions that needs to be carefully considered when deciding whether an activity is within the scope of VAT is the concept that the supply must be made in the course or furtherance of business. 

This idea of 'business' is one of the less well-known conditions. However, the concept of business is an important condition that determines whether a business must charge VAT on their sales, known as output VAT, and on its ability to recover VAT, known as input tax.

In most cases it will be clear whether an activity is ‘business’ related and should fall within the scope of VAT. However, in cases where the result is less clear cut, there is a test based on an historic court case where the court identified six factors or indicators to determine whether an activity was ‘business’ related. The test should be applied to individual activities separately. 

HMRC’s internal manuals provide the following example:

Imagine a person registered as a self-employed plumber who now and again renovates old cars. They do not automatically have to charge tax when selling those cars. This is because it would be hard to see the activity of car renovation being included within their business as a plumber.

On the other hand, if the car activity can be seen to have the attributes of a business in its own right, then the plumber would have to charge tax on the sales.

Source: HM Revenue & Customs Tue, 19 Sep 2023 00:00:00 +0100

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