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Month: February 2024

Contractors and CIS

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The Construction Industry Scheme (CIS) is a set of special rules for tax and National Insurance for those working in the construction industry. Businesses in the construction industry are known as 'contractors' and 'subcontractors' and should be aware of the tax implications of the scheme.

Under the scheme, contractors are required to deduct money from a subcontractor’s payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor’s tax and National Insurance. Contractors are defined as those who pay subcontractors for construction work or who spent more than £3m on construction a year in the 12 months since they made their first payment. A contractor can be a sole trader, in a partnership or own a limited company.

New contractors must follow these rules:

  1. They must register for CIS before they take on their first subcontractor.
  2. They must check if they should employ the person instead of subcontracting the work. They may get a penalty if they should be an employee.
  3. Check with HM Revenue and Customs (HMRC) that their subcontractors are registered with CIS.
  4. When they pay subcontractors, they will usually need to make deductions from their payments and pay the money to HMRC. Deductions count as advance payments towards the subcontractor’s tax and National Insurance bill.
  5. They need to file monthly returns and keep full CIS records – they may get a penalty if they do not.
  6. They must let HMRC know about any changes to their business.
Source: HM Revenue & Customs Sun, 25 Feb 2024 00:00:00 +0100

Holiday Lets averaging election

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

In order to qualify as a furnished holiday letting, 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 for more than 155 days for longer term occupation (i.e. a continuous period 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 homeowners should be able to demonstrate the income from these lettings. 

Where there are a number of furnished holiday lettings 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.

HMRC provides the following illustrative example:

Emma lets 4 UK holiday cottages for the following number of days in a tax year:

Cottage Number of days
Cottage 1 120 days
Cottage 2 125 days
Cottage 3 112 days
Cottage 4 64 days
Total 421 days

If Emma uses averaging, all 4 cottages will meet the letting condition (421 days divided by 4 = 105). Without averaging, cottage 4 would not qualify.

You can only average across properties in a single FHL business. You cannot mix UK and EEA FHL properties.

Source: HM Revenue & Customs Sun, 25 Feb 2024 00:00:00 +0100

Advise HMRC if company is dormant

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If a company has stopped trading and has no other income, then the company is usually classed as dormant for Corporation Tax purposes. 

A company is usually dormant for Corporation Tax if it:

  • has stopped trading and has no other income, for example investments;
  • is a new limited company that hasn’t started trading;
  • is an unincorporated association or club owing less than £100 Corporation Tax; or
  • is a flat management company.

There is a special online form that can be used to advise HMRC if a company is dormant. The form can be found at www.gov.uk/tell-hmrc-your-company-is-dormant-for-corporation-tax. In order to complete the form, you will need the company’s name, 10-digit Unique Taxpayer Reference (UTR) and the date the company ceased trading. It is also possible to notify HMRC by phone or by post if the online option is not available.

HMRC can also send a notification if they think a company is dormant. This notice will state that a company or association is dormant and is not required to pay Corporation Tax or file Company Tax Returns.

Limited companies are still required to file annual accounts and a confirmation statement even if the company is dormant for Corporation Tax purposes.

A company can stay dormant indefinitely, however, there are costs associated with this option. This might apply if a company is restructuring its operations or wants to retain use of a company name, brand or trademark. 

Source: HM Revenue & Customs Sun, 25 Feb 2024 00:00:00 +0100

Companies House filing fees increase

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Companies House has announced that some of their fees will be changing from 1 May 2024. The last change in fees was April 2016. 

The fees have been calculated on a ‘cost recovery’ basis meaning that the fees are calculated based on what it costs to provide the services in question. Companies House state that they do not make a profit on their fees. 

As The Economic Crime and Corporate Transparency (ECCT) Bill has moved through Parliament, concerns had been raised on the current fee structure. Companies House say that these changes to the fees charged will ensure adequate funding going forward to recover costs incurred as well as to help fund the cost of the new powers introduced as part of the ECCT Bill. 

Prices shown below are some of the main changes from 1 May 2024: 

Transaction New fee Current fee
Incorporation Digital £50 £12
Incorporation (same day) Software £78 £30
Incorporation Software £50 £10
Incorporation Paper £71 £40
Confirmation statement Digital £34 £13
Confirmation statement Paper £62 £40
Change of name Paper £30 £10
Change of name (same day) Digital £83 £30
Change of name Digital £20 £8
Registration of a charge Paper £24 £23
Registration of a charge Digital £15 £15
Voluntary strike off Paper £44 £10
Voluntary strike off Digital £33 £8
Registration of an overseas entity Digital £234 £100

The full list of changes can be found here:
https://changestoukcompanylaw.campaign.gov.uk/changes-to-companies-house-fees/

Source: Companies House Sun, 25 Feb 2024 00:00:00 +0100

Appeals against tax penalties

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It is not unusual for taxpayers to find themselves in a position where they disagree with a tax decision issued by HMRC. There are a number of different options open to taxpayers seeking to use the review and appeals process.

Note, that there is a separate procedure to be followed by taxpayers that make a complaint about HMRC for issues such as unreasonable delays, mistakes and poor treatment by HMRC’s staff.

It may be possible to make an appeal against a tax decision. You can appeal to HMRC against a penalty, for example for:

  • an inaccurate return
  • sending in your tax return late
  • paying tax late
  • failing to keep adequate records

There is normally a 30-day deadline for making a claim, so time is of the essence. HMRC will then conduct a review, by using HMRC officers that were not involved in the original decision. A response to an appeal is usually made within 45 days but can take longer for complex issues.

If the taxpayers do not agree with HMRC’s review, there are further options available which include making an appeal to the tax tribunal or using the Alternative Dispute Resolution (ADR) process. The ADR uses independent HMRC facilitators to help resolve disputes between HMRC and the taxpayer.

Source: HM Revenue & Customs Sun, 25 Feb 2024 00:00:00 +0100

Update on the tax status of Double Cab Pick Ups

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HMRC have reversed a previous decision (originally published 12 February 2024) on the tax status of Double Cab Pick Ups (DCPUs), following an earlier 2020 Court of Appeal judgment. The earlier decision, now reversed, had announced that effective from 1 July 2024, DCPUs with a payload of one tonne or more would be treated as cars rather than goods vehicles for both capital allowances and benefit-in-kind purposes.

The February announcement caused a significant backlash from farmers and the motoring industry on the potential impacts of the change in tax-treatment. In their surprising U-turn, just over one week after the initial announcement, the government has now retracted its decision to class DCPUs as cars. This move will ensure that businesses and individuals can continue to benefit from the historic tax treatment of DCPUs.

The Financial Secretary to the Treasury, said:

“We will change the law at the next available Finance Bill in order to avoid tax outcomes that could inadvertently harm farmers, van drivers and the UK’s economy.”

DCPUs with a payload of less than one tonne will continue to be classed as cars as has historically been the case.

Source: HM Treasury Sun, 25 Feb 2024 00:00:00 +0100

A new champion for small businesses appointed

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An experienced entrepreneur has taken up a key role to promote the needs of small businesses to government and ensure suppliers seize the benefits of the Procurement Act.

Shirley Cooper OBE, former chair and president of the Chartered Institute of Procurement and Supply, met Parliamentary Secretary Alex Burghart for the first time as Crown Representative for small businesses earlier this month. 

They discussed priorities for the next 12 months, with a focus on the implementation of the Procurement Act in October, which will see further benefits for start-ups and small businesses wishing to work with the government. These include simpler processes, greater transparency and access to opportunities, as well as strengthened payment terms which will maximise value for money and innovation in the government market.

Ms Cooper will lead on the overall relationship between the government and small businesses, making sure the government gets best value from small and medium-sized enterprises (SMEs), and that they in turn have the best possible opportunity to work with the government.

Shirley Cooper OBE said:

"I am delighted to take up this role and build on the work of my predecessor, Martin Traynor.

I look forward to working with colleagues across Government to make sure small businesses can seize the fantastic opportunities available to them in the public procurement process.” 

She will build on the work of Martin Traynor OBE, who is retiring after a five-year tenure in the post which culminated in the reforms of the Procurement Act 2023. 

Ms Cooper will also support the commitment to, and delivery of, increasing central government spend on SMEs. This spend has risen every year since 2016/17 and stood at a record £21.0 billion worth of work in 2021/2022. The Government spends around £300 billion every year on procurement.

She will be an advocate for small businesses, promoting their agenda both in government and externally. 

Source: Other Wed, 28 Feb 2024 00:00:00 +0100

Crack down on ‘fire and rehire’ practices

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The Government has announced action to tackle the use of controversial 'fire and rehire' practices. In a press release issued 19 February 2024 they said:

“Action against unscrupulous employers to tackle the use of controversial ‘fire and rehire’ practices will be rolled out by the Government today [19 February].

Dismissal and re-engagement, also known as ‘fire and rehire’, refers to when an employer fires an employee and offers them a new contract on new, often less favourable terms.

The Government has been clear that it firmly opposes this practice being used as a negotiating tactic. Today, a new statutory Code of Practice has been published making clear how employers must behave in this area. 

This new Code of Practice shows the Government is going a step further to protect workers across the country. This will help to preserve security and opportunity for those in work, as part of our plan to grow the economy.

In future the courts, and employment tribunals, will take the Code into account when considering relevant cases. This will include on unfair dismissal claims where the employer should have followed the Code.

Employment tribunals will have the power to apply an uplift of up to 25 percent of an employee’s compensation if an employer unreasonably fails to comply with the Code.

The new Code clarifies how employers should behave when seeking to change employees’ terms and conditions, aiming to ensure employees are properly consulted and treated fairly.

Employers will now also need to explore alternatives to dismissal and re-engagement and have meaningful discussions with employees or trade unions to reach an agreed outcome.

The Code makes it clear to employers that they must not use threats of dismissal to pressurise employees into accepting new terms. They should also not raise the prospect of dismissal unreasonably early or threaten dismissal where it is not envisaged.”

Source: Other Wed, 28 Feb 2024 00:00:00 +0100

Entitlement to Business asset disposal relief

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Business Asset Disposal Relief (BADR) applies to the sale of a business, shares in a trading company or an individual’s interest in a trading partnership. Where this relief is available sellers can benefit from a 10% tax charge on exit from their business if BADR is available. When the relief is available Capital Gains Tax (CGT) of 10% is payable in place of the standard rate. 

There are a number of qualifying conditions that must be met in order to qualify for the relief. This includes that both of the following must apply for at least two years up to the date you sell your shares:

  • you are an employee or office holder of the company (or one in the same group); and
  • the company’s main activities are in trading (rather than non-trading activities) – or it is the holding company of a trading group.

There are also other rules depending on whether or not the shares are part of an Enterprise Management Incentive (EMI) scheme.

BADR used to be known as Entrepreneurs’ Relief before 6 April 2020. The name change did not affect the operation of the relief.

You can currently claim a total of £1 million in BADR over your lifetime. The £1m lifetime limit means you can qualify for the relief more than once. The lifetime limit may be higher if you sold assets before 11 March 2020.

Source: HM Revenue & Customs Mon, 19 Feb 2024 00:00:00 +0100

Types of limited companies

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A limited company is a company ‘limited by shares’ or ‘limited by guarantee’.

Limited by shares

This is the most common limited company structure. A limited by shares company is a separate legal entity owned by its shareholders and managed by its directors. In smaller limited companies, shareholders and directors are the same persons. Directors are employed by their company; they are not self-employed. Limited companies are required to pay Corporation Tax on their profits, not Income Tax. 

Limited by shares companies are usually businesses that make a profit. This means the company:

  • is legally separate from the people who run it;
  • has separate finances from its shareholders personal ones;
  • has shares and shareholders; and
  • can keep any profits it makes after paying tax.

Limited by guarantee

In essence, a company limited by guarantee is a limited company with no shareholders. Instead, the persons who set up the company – its members – guarantee to pay a fixed amount into the company if required on the winding up of the company. Usually, these guarantees are for small amounts.

This type of company is typically used by not for profit organisations and charities rather than trading companies.

This means a limited by guarantee company:

  • is legally separate from the people who run it;
  • has separate finances from your personal ones;
  • has guarantors and a ‘guaranteed amount’; and
  • invests profits it makes back into the company. Profits are not distributed to the guarantors.
Source: Companies House Mon, 19 Feb 2024 00:00:00 +0100

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