February 2025 | DSK Partners LLP

Gifts exempt from Inheritance Tax

Posted on February 20, 2025 by

Navigating the intricacies of Inheritance Tax (IHT) can be daunting, but understanding the available gift exemptions and strategic planning can significantly reduce potential liabilities. By effectively utilising annual allowances, small gift exemptions, and planning for special occasions, you can ensure more of your wealth is passed on to your loved ones tax-free.

There is an annual Inheritance Tax exemption of £3,000 for gifts, which can be carried forward to the following tax year if not fully utilised. This allows for a maximum gift of £6,000 within a qualifying two-year period. Additionally, you can give as many gifts of up to £250 per person as you wish throughout the tax year, provided you have not already used another exemption for the same individual. There are also special allowances for gifts made on the occasion of a wedding or civil ceremony. These gifts are excluded from the Inheritance Tax calculations in the event of the donor’s death within seven years of making the gift.

Wealthier individuals may also have the ability to make tax-exempt gifts and payments that are funded from their income. With proper planning, this can be an effective strategy, allowing grandparents, for example, to contribute towards their grandchildren’s school fees without incurring tax liabilities.

However, careful planning and consideration are essential to ensure that these payments are deemed to be part of the transferor’s normal expenditure and are made from income rather than from capital. It is also important to ensure that the transferor retains enough income to maintain their usual standard of living after making the gift, as the arrangement must not cause any financial hardship to the giver.

Source: HM Revenue & Customs Tue, 18 Feb 2025 00:00:00 +0100

Claiming tax relief for job expenses

Posted on February 20, 2025 by

Employees working from home may be eligible to claim a tax deduction for certain job-related expenses. If your employer does not cover these costs or allowances, you have the option to claim tax relief directly from HMRC.

You may qualify for tax relief if you are required to work from home. This could apply if your job necessitates living far from the office or if your employer does not have an office. However, tax relief is generally not available if you opt to work from home, even if your employment contract permits it or if your office is occasionally full.

You can claim tax relief for £6 per week (or £26 per month if paid monthly) to cover additional costs associated with working from home, without the need to maintain specific records. The amount of tax relief you receive depends on your highest tax rate. For example, if you pay the basic rate of 20% tax, you will receive £1.20 per week in tax relief (20% of £6). Alternatively, you can claim the actual amount of additional costs incurred, but you must provide evidence to HMRC. HMRC accepts backdated claims for up to four tax years.

You may also be entitled to claim tax relief for using your personal vehicle, whether it is a car, van, motorcycle, or bike. Generally, tax relief is not available for regular commuting to and from your usual workplace. However, the rules are different for temporary workplaces, where such expenses are usually allowable, or if you use your vehicle for other business-related travel. Additionally, you may be able to claim tax relief on equipment purchased for work, such as a laptop, chair, or mobile phone.

Should your employer not cover these expenses or allowances, you can claim tax relief directly from HMRC.

Source: HM Revenue & Customs Tue, 18 Feb 2025 00:00:00 +0100

E-invoicing consultation

Posted on February 20, 2025 by

HMRC together with the Department for Business and Trade (DBT) have launched a new consultation on e-invoicing to encourage its broader adoption among UK businesses and government departments. The consultation will run for 12-weeks and aims to cut paperwork for businesses and help improve productivity.

This is the first time that UK businesses have been invited to have their say on the government’s electronic invoicing (e-invoicing) proposals.

E-invoicing is the digital exchange of invoice information directly between buyers and suppliers. It could help businesses get their tax right first time, reduce invoicing and data errors, improve the accuracy of VAT returns, help close the tax gap and save time and money. It usually results in faster business to business payments, leading to improved cash flow and less paperwork.

HMRC provided the following example of where e-invoicing has improved cash flow. A UK NHS trust where e-invoices are ready for processing within 24 hours, compared to 10 days under paper invoicing. Their e-invoices are typically paid almost twice as quickly than paper invoices, with supplier queries reduced by an average of 15%.

Topics that the government is interested in exploring as part of the consultation include:

different models of e-invoicing;
whether to take a mandated or voluntary approach to e-invoicing, and what scope of mandate might be most appropriate in the UK and for businesses; and
whether e-invoicing should be complemented by real time digital reporting.

With potential benefits like faster payments and fewer errors, e-invoicing could help UK businesses save time and money. If you are interested in sharing your thoughts, the consultation is open until 7 May 2025.

Source: Department for Business and Trade Tue, 18 Feb 2025 00:00:00 +0100

Business mileage with your own vehicle

Posted on February 20, 2025 by

Understanding the nuances of tax relief for using your personal vehicle for work can lead to significant savings. By familiarising yourself with HMRC's approved mileage rates you can ensure you are adequately reimbursed and compliant with current regulations.

If you are an employee you may qualify for tax relief if you use your own vehicle, whether it's a car, van, motorcycle, or bike. As a general rule, tax relief is not available for ordinary commuting to and from your regular workplace. However, different rules apply to temporary workplaces, where the expense is typically allowed, as well as for business-related mileage when using your own vehicle.

Employers typically reimburse employees based on a set rate per mile, depending on the mode of transportation. HMRC publishes approved mileage rates for vehicles used on business trips. When employers use these approved rates, the payments made are not considered to be taxable benefits.

If your employer reimburses you at a rate lower than the approved mileage rates, you can claim tax relief for the shortfall using mileage allowance relief. For cars, the approved mileage allowance payment is 45p per mile for the first 10,000 business miles, and 25p per mile for every additional business mile. The approved rates for other modes of transport are 20p per mile for bicycles and 24p per mile for motorcycles.

Additionally, you may receive an extra payment of 5p per passenger per business mile from your employer if you transport colleagues in your vehicle for work-related journeys.

Source: HM Revenue & Customs Tue, 18 Feb 2025 00:00:00 +0100

Is your extra income taxable?

Posted on February 20, 2025 by

HMRC has launched a new "Help for Hustlers" campaign to help people who are earning extra income, figure out if they need to pay tax on the additional earnings. The campaign runs until the end of March and focuses on five key areas where tax might apply:

I’m buying or making things to sell.
I’ve got a side gig.
I work for myself with multiple jobs.
I’m a content creator or influencer.
I rent out my property.

The good news is there are two £1,000 tax allowances — one for property income and one for trading income. If you have both types of income, you can claim £1,000 for each.

Trading Allowance: If you make up to £1,000 from self-employment, casual services (like babysitting or gardening), or renting out personal equipment (such as power tools), this income is tax-free and does not need to be declared.
Property Allowance: If you earn £1,000 or less from property-related activities (like renting out a driveway), you do not need to report it to HMRC or include it in your tax return.

These allowances cover all relevant income before expenses. If your income is under £1,000, it’s tax-free. If you earn more than £1,000, you can choose to either deduct the £1,000 allowance from your income or list your actual expenses when calculating your taxable profit.

However, if your side hustle income goes over £1,000 in a tax year, you may need to complete a self-assessment tax return. Keep in mind this only applies if you are actively trading or selling services. If you are just clearing out some old stuff and selling it, there is usually no need to worry about tax.

Source: HM Revenue & Customs Tue, 18 Feb 2025 00:00:00 +0100

Exploring National Insurance Credits

Posted on February 17, 2025 by

Even if you have never been employed, you might have been eligible for NI credits without realising it. For example, if you have been a carer for a sick or disabled person for more than 20 hours a week, you could have claimed Carer's Credit. Similarly, if you have been receiving certain benefits, such as Jobseeker's Allowance or Employment and Support Allowance, you might have automatically received NI credits.

It's a good idea to review your personal history to see if there are any periods where you might have been eligible for NI credits. If you identify such periods, you can contact the HM Revenue and Customs (HMRC) to see if your NI record can be updated accordingly.

Paying Voluntary Contributions

If you are below the State Pension age and have gaps in your NI record, you can choose to pay voluntary contributions to boost your State Pension entitlement. This can be particularly beneficial if you have some qualifying years but not enough to reach the 10-year minimum.

Before deciding to pay voluntary contributions, it's important to:

Check Your National Insurance Record: This will show you any gaps in your contributions and how they affect your State Pension forecast.
Evaluate the Cost: Voluntary contributions come at a cost, so you'll need to assess whether the potential increase in your State Pension is worth the expense.
Consider Your Health and Life Expectancy: If you're in poor health, it might not be financially beneficial to make voluntary contributions.

You can find more information on paying voluntary NI contributions on the GOV.UK website.

Source: Other Mon, 17 Feb 2025 00:00:00 +0100

Should you incorporate your business?

Posted on February 17, 2025 by

Deciding whether to incorporate your business in the UK involves evaluating several key factors:

Limited Liability Protection

Incorporating as a limited company creates a separate legal entity, safeguarding your personal assets from business debts and liabilities. This means your personal finances remain protected if the business faces financial difficulties.

Tax Implications

Operating as a limited company can offer tax advantages. Companies pay Corporation Tax on all trading profits at a maximum rate of 25%; for smaller companies, this rate can be as low as 19%. Additionally, dividends distributed to shareholders are not subject to National Insurance, potentially providing a more tax-efficient method of remuneration.

Administrative Responsibilities

Incorporation brings increased administrative duties, including:

Regulatory Compliance: Registering with Companies House, filing annual accounts, and submitting confirmation statements are mandatory.
Record Keeping: Maintaining detailed financial records is essential to meet legal obligations.
Costs: Expenses include registration fees and potential professional services for compliance.

Professional Image and Credibility

A limited company structure can enhance your business's credibility, potentially attracting more clients and investors. This formal structure often instils greater confidence among stakeholders.

Business Growth and Investment

Incorporation facilitates business expansion by allowing:

Equity Sharing: Issuing shares to raise capital from investors.
Succession Planning: Simplifying ownership transfer, ensuring business continuity.

Conclusion

Incorporating your business offers benefits like limited liability and potential tax efficiencies but comes with added administrative responsibilities. It's crucial to assess your specific circumstances, financial goals, and the current economic environment. Please call if you need help considering your options.

Source: Other Mon, 17 Feb 2025 00:00:00 +0100

Cut in interest rates

Posted on February 13, 2025 by

The Bank of England’s Monetary Policy Committee (MPC) met on 5 February and in a 7-2 vote decided to reduce interest rates by 25 basis points to 4.5%. The two remaining members voted to reduce the rate further to 4.25%. This was the third interest rate cut since August 2024.

This means that the late payment interest rate applied to the main taxes and duties that HMRC charges interest will be reduced to from 7.25% to 7%.

These changes will come into effect on:

17 February 2025 for quarterly instalment payments
25 February 2025 for non-quarterly instalments payments

The repayment interest rates applied to the main taxes and duties that HMRC pays interest on will also decrease by 0.25% to 3.50% from 25 February 2025. The repayment rate is set at the Bank Rate minus 1%, with a 0.5% lower limit.

Source: HM Treasury Tue, 11 Feb 2025 00:00:00 +0100

Tax when transferring assets during divorce proceedings

Posted on February 13, 2025 by

Separation and divorce can create tax implications, particularly Capital Gains Tax (CGT) on asset transfers. New rules from April 2023 extend the ‘no gain/no loss’ period, helping spouses manage tax efficiently. Private Residence Relief may also apply.

When a couple separate or divorce, their focus is typically directed towards the emotional and practical aspects of the process. However, it is essential to recognise that alongside the emotional challenges, there are significant tax considerations that can arise from the transfer of assets. These tax implications, if not properly managed, can lead to unintended financial consequences for one or both parties involved.

One of the key tax issues that arises during separation or divorce pertains to the application of Capital Gains Tax (CGT) on the transfer of assets between spouses or civil partners. Notably, the CGT rules that govern disposals of assets during separation and divorce underwent significant amendments for transactions occurring on or after 6 April 2023. Under the revised regulations, the period within which separating spouses and civil partners can transfer assets on a 'no gain/no loss' basis was extended to up to three years from the date they cease living together. An unlimited period for making such transfers is allowed if the assets in question are covered by a formal divorce agreement, ensuring that no immediate CGT liabilities arise.

In addition to the revised CGT provisions, there are specific rules that apply to individuals who continue to hold a financial interest in the family home following separation. These rules are particularly relevant when the home is eventually sold. In such instances, individuals may be eligible to claim Private Residence Relief (PRR), which can exempt them from paying CGT on the sale of the property, provided it meets certain qualifying criteria.

In the midst of divorce proceedings, it is also crucial for both parties to consider reaching a financial settlement that is as mutually agreeable as possible. In situations where the couple is unable to reach an amicable financial agreement, the court may intervene to issue a 'financial order.' This legal order will outline the distribution of assets, financial support, and any other relevant arrangements.

Source: HM Revenue & Customs Tue, 11 Feb 2025 00:00:00 +0100

Health services exempt from VAT

Posted on February 13, 2025 by

Health professionals providing medical services may be exempt from VAT if their work falls within their registered profession and primarily protects, maintains, or restores health. HMRC outlines specific exempt services, including diagnosis and treatment.

The VAT liability of goods and services provided by registered health, medical, and paramedical professionals, can be a complex area of tax law. HMRC’s guidance provides clarification on the definition of medical services and outlines the specific health services performed by registered professionals that are exempt from VAT.

If a health professional, as defined by HMRC, provides services, those services are generally exempt from VAT, provided that both of the following conditions are satisfied:

The services fall within the profession in which you are registered to practice.
The primary purpose of the services is the protection, maintenance, or restoration of the health of the individual concerned.

For VAT purposes, the definition of medical services (including medical care and treatment) is limited to those that meet the second condition outlined above. This includes services such as the diagnosis of illnesses, the provision of analyses of scans or samples, and assisting a health professional, hospital, or similar institution in making a diagnosis.

HMRC provides examples of services that are considered to meet the primary purpose of protecting, maintaining, or restoring a person’s health. These include:

Health services provided under General Medical Services (GMS), Personal Medical Services, Alternative Provider Medical Services, General Dental Services, and Personal Dental Services contracts
Sight testing and prescribing by opticians (limited to England, Wales, and Northern Ireland)
Primary and secondary eye examinations (limited to Scotland)
Enhanced eye health services
Laser eye surgery
Hearing tests
Treatment provided by osteopaths and chiropractors
Nursing care provided in a patient’s own home
Pharmaceutical advice
Services involving the diagnosis of an illness or the provision of analyses of samples that are a key part of a diagnosis

Additionally, certain insurance or education-related services may also be exempt from VAT, regardless of their primary purpose, as they could qualify under other independent exemptions.

Source: HM Revenue & Customs Tue, 11 Feb 2025 00:00:00 +0100

Month: February 2025

Gifts exempt from Inheritance Tax

Claiming tax relief for job expenses

E-invoicing consultation

Business mileage with your own vehicle

Is your extra income taxable?

Exploring National Insurance Credits

Should you incorporate your business?

Cut in interest rates

Tax when transferring assets during divorce proceedings

Health services exempt from VAT

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