Stamp Duty Land Tax: Understanding the new rates and extensions

Stamp Duty Land Tax: Understanding the new rates and extensions

The Stamp Duty Land Tax (SDLT) holiday was launched to stimulate the property market and encourage growth in first-time buyers as a response to the drastic downfall in property transactions following the first lockdown period due to the pandemic. There have however been calls to amend this holiday to see tax benefit on contract exchange, rather than the current completion model following concerns over rising house prices trapping people into not being able to buy or even complete sales. Over 13,500 people signed a petition to push for this to change but were met with a firm stance of no change from the government quoting SDLTM07950 FA03/S44(5)(b), where a contract is considered substantially performed when the purchaser takes possession of property or at least 90%. Instead, the government’s solution was that as part of the Budget 2021 announcement, the Chancellor revealed that the current duration of the SDLT holiday was to be extended until 30 June 2021. After this period the nil-rate band (NRB) will be at a decreased rate until 1 October 2021 where it will then operate at its usual threshold.

 

What is SDLT?

SDLT is the tax that must be paid when you buy property or land, provided the value of the sale exceeds a certain amount in England or Northern Ireland. Scotland and Wales have different rates but will not be included in this article. There also exists some exemptions from paying SDLT, such as being a first-time buyer of a property or in situations where the property is changing ownership without payment. Generally, SDLT will be applicable to you if you buy: a freehold property, a new or existing lease, a shared ownership property or receive property for money. Regardless of whether a mortgage is taken out or cash payment is made SDLT may still apply.

 

The SDLT Holiday

Under the SDLT ‘holiday,’ the NRB for residential properties was increased from £125,000 to £500,000 and will end on 30 June 2021 after being extended from 31 March 2021 as part of the Budget 2021 announcements. After this date, the NRB will fall to £250,000 until 1 October 2021 whereupon the usual rate will then apply.

This could be seen as a breath of fresh air for those buying property first-time or otherwise, with reported savings up to £15,000 which would then tail off to £2,500 by September. Larger investors in real estate could also find some benefit from this as relief can be claimed on Property Redress Schemes (PRS), student accommodation and retirement homes; suggesting that the extension may have a positive effect on the property market as a whole.

Non-UK residents however should bear in mind that from 1 April 2021 a surcharge of 2% is to be imposed on all residential bands. This includes companies and other overseas entities.

The usual rates

The typical rates for SDLT on residential property is as follows:

Consideration (£) Rate (%)
0 – 125,000 0
125,001 – 250,000 2
250,001 – 925,000 5
925,001 – 1,500,000 10
1,500,001 and above 12

Note that these rates will resume from 1 October 2021. An extra 3% is also added for each threshold where additional properties of cost exceeding £40,000 are purchased.

Until 30 June 2021, the following temporary rates will apply:

Consideration (£) Rate (%)
0 – 500,000 0
500,001 – 925,000 5
925,001 – 1,500,000 10
1,500,001 and above 12

 

The following rates will apply in the period 1 July 2021 to 30 September 2021:

Consideration (£) Rate (%)
0 – 250,000 0
250,001 – 925,000 5
925,001 – 1,500,000 10
1,500,001 and above 12

 

First-time Buyer Relief is disapplied until 1 July 2021 where the current SDLT extension ends. This relief only applies on thresholds within the £500,000 NRB.

SDLT is usually handled by specialist agents or advisors, so you the buyer don’t need to worry about anything but what you owe for the purchase of the property. If you are unsure if you qualify for these reliefs or are a landlord seeking advice on taxes involved, feel free to contact us at info@wimaccountants.com or call us for a free consultation.

May 2021: Updated HMRC guidance on COVID support

May 2021: Updated HMRC guidance on COVID support

Agent Update: Issue 84 provided useful insight into the latest guidance and changes HMRC have implemented over the recent months to help mitigate the financial damage caused by the pandemic to businesses. Below is a summary of the points which caught our eye and may have usefulness to agents and advisors.

CJRS

Currently, the UK Government is paying 80% of furlough employees wages for unworked hours, capped at £2,500 per month. However, by July 2021 this rate will decrease to 70% to a cap of £2,187.50. This rate will again fall to 60% in August and September 2021 to a cap of £1,875. 

Please note that with the introduction of the 70% rate, employers will have to pay the difference of at least 80% on unworked hours, capped at £2,500.

The deadline for CJRS claims for May is 14 June 2021, and can be claimed before, during or after a client’s payroll had been processed. Knowing the exact number of hours the employees work is important to avoid further processing and amendments. Clients should also ensure to pay employee tax and NIC, else they will have to repay the entirety of the CJRS grant they claimed back to HMRC.

HMRC also have a handy tool to help calculate how much you can claim from the CJRS, which can be found here.

SSP

The Statutory Sick Pay Rebate scheme is continuing to provide financial support to SMEs. Businesses (with employee numbers less than 250) who have paid SSP to employees for COVID-19 related sickness may be entitled to support. The rebate covers a maximum of 2 weeks of the appropriate SSP rate.

VAT deferral payment scheme

A new VAT deferral payment scheme is now available to all businesses that deferred VAT from 20 March 2020 to 30 June 2020, they must also have not been able to pay in full by 31 March 2021. Luckily, these payments can be made in instalments. Note that the later a business signs up to this scheme, the fewer instalments they can make:

  • Join by 19 May 2021 – 9 instalments
  • Join by 21 June 2021 – 8 instalments

Businesses must also have a VAT registration number, a Government Gateway account, submitted outstanding VAT returns in the last 4 years, be aware of what is exactly owed and correct errors on VAT returns (if any).

A 5% penalty and interest will be imposed on businesses that fail to pay or sign up by 21 June 2021, so encouraging your client to sign up is highly recommended.

WFH Tax Relief

The golden rule when claiming expenditure set by HMRC is that the expense must have been incurred “wholly, exclusively and necessarily”, and for those working from home expenses claimed are not exempt from this rule. Employees working from home can claim tax relief on additional costs, such as metered water, heating bills or business calls but the employee must prove that this expenditure satisfies the aforementioned rule. Note that costs that would remain the same had the employee worked in the office are not eligible. Relief for these claims is open until the end of the current tax year, 5 April 2022.

Tax Investigation 101: What you need to know

Tax Investigation 101: What you need to know

A recent tax investigation case that we assisted with prompted us to consider what exactly business owners know about HMRC tax investigations. Those involved in the tax industry are well familiar with how HMRC investigate, but it became apparent that a sizeable portion of our clients are understandably hung out to dry when HMRC come knocking.

An unfortunate truth is that HMRC do not need a specific reason to launch a tax investigation into your company affairs, and with the events of the pandemic impacting the daily lives of many it may be possible that you have inadvertently overstepped some crucial tax laws. The Tax Investigation process itself can be complex and daunting, but this blog will aim to serve as a useful insight into how these investigations work and why they may be carried out.

 

Typically HMRC tends to flag activity that they deem as suspicious, such as:

  • Dealing with companies who have been guilty of tax offences
  • Mistakes made on tax returns
  • Irregular trends in your annual accounts
  • Discrepancies between management and employee pay
  • Any tipoffs from a third party

These are just a few of the large number of reasons HMRC can cite to put you under investigation. They can even initiate an investigation randomly which may feel unfair, but you must know how to respond correctly and prevent collecting penalties and other consequences.

 

Investigations will always follow the same formula:

  • The taxpayer will be notified. HMRC will always provide written notice before they carry out the tax investigation into your affairs. A deadline for your response will also be specified in the notice and tends to be within 30 – 35 days of the notice.
  • Request for records and supporting documents. Records such as bank statements, payslips, company accounts, VAT returns and other relevant financial papers will be requested. The scope of the volume of documents required tends to vary based on the type of investigation launched, which we will outline later on. What is otherwise known as ‘enquiry periods’, HMRC has the power to ask for old records that are no more than 4 years old at the time of discovery. However, should you be deemed to have caused a tax offence carelessly the window is increased to 6 years, with deliberate offences giving HMRC a leeway of 20 years. Matters related to offshore transactions are limited to 12 years.
  • Investigation period. The type of investigation is a contributing factor to the duration of a tax investigation. Furthermore, the nature of the company/ business trading accounts also decides on the period in which HMRC can keep the investigation open. This can be anywhere between a few months to as long as 16 months.

 

Compliance with HMRC during the investigation does go a long way, as it quickens the process and also could lead to reduced penalties should you be found guilty of tax offences. As mentioned beforehand, investigations can come in the form of three distinct formats:

  • Random Tax Investigation. As the name suggests, this is an investigation performed randomly on the tax return of an individual or company. HMRC use this as a method to ‘spot-check’ businesses in high-risk sectors to discourage tax avoidance and abuse. As a Small to Medium-sized Enterprise (SME), you may be a likely target from these random checks.
  • “Aspect” Tax Investigation. HMRC can narrow their scope onto a particular ‘aspect’ of your business’ returns. These types of investigations tend to focus on non-malicious mistakes or misunderstandings, rather than deliberate tax evasion. As the investigation itself is not very broad, the process is cheaper and as a result, tends to be quicker. Though, bear in mind that this does not mean HMRC will not hesitate to open a full investigation should they have reason to believe other aspects of your business is worthy of review.
  • Full Tax Investigation. An expensive, comprehensive and potentially lengthy process where HMRC will look into all business and financial records, for the relevant years of enquiry under the suspicion of tax evasion.

 

Failure to comply and/or provide appropriate documents can lead to damaging penalties. HMRC will penalise you using the following reasons:

  • Mistakes in your financial accounts
  • Deliberate understatements and concealments
  • Failure to take reasonable care.

 

Late filing of your tax returns will incur a flat-rate penalty of £100, which increases substantially for successive months of late payment. You want to avoid this as this will affect your cash flow, especially if you have a significant turnover. HMRC can also threaten with criminal proceedings against you or your business. If you feel that an imposed penalty is unfair, you have 30 days to file an appeal to contest the charge with a reasonable excuse. This is not something to be relied upon, given the government’s history with strict guidelines on what classifies as a qualifying excuse.

 

You must take these enquiries seriously and seek the assistance of a certified tax advisor immediately. At WIM Accountants we have the expertise and accreditations to make sure your tax investigation does not damage you or your business. We will ensure that your case is represented correctly and accurately; that HMRC will receive the documents they asked for promptly to quicken the process and mitigate any possible penalties; and that you can relax knowing your tax affairs are in the hands of individuals with a combined 25 years of experience in the tax sector. Feel free to contact us if you have any questions or would like more information on how tax investigations work.

 

R&D Tax Credits 2021: What’s new?

R&D Tax Credits 2021: What’s new?

Did you know that your R&D tax credit claim could be capped?

The Budget 2021 released on 3 March 2021 brought good news for those working with data and cloud-based computing, as it now looks increasingly likely that this will be included in the new scope of tax reliefs. However, what may come as a disappointment for those qualified under the SME or R&D expenditure credit (RDEC) schemes is that there was no increase to the available R&D tax relief. Instead, what SMEs did receive was confirmation that the planned SME cap will come into effect. Businesses that particularly rely on subcontractors to assist with R&D will want to know what changes the new rules will make on their funding.

 

Who will this affect?

You should be aware of these changes if you are:

  • An SME with no or low payroll expenses
  • Planning to claim an R&D tax credit exceeding £20,000
  • Subcontracting R&D work
  • Managing international Intellectual Property (IP)
  • Recharging personnel costs between group parties

 

Why are there changes?

The tax relief is a useful support for companies operating at a loss, with a tax credit worth up to 14.5% of the R&D element of surrendered losses available to claim. Unfortunately, increasing signs of the tax credit being used for fraud and abuse has prompted HMRC to put this measure in place. Perhaps a high-profile example of such fraud is the £29.5m R&D tax relief claim put forward by Convergica (Clinical Information Systems) Ltd, which subsequently prompted a HMRC investigation which jailed three men after 2 years of investigation. This is a sophisticated matter and sadly legitimate businesses can get caught in the anti-fraud net HMRC have cast, so it is important that as an SME, you understand the new rules put in place.

 

The new SME Cap

From 1 April 2021 the SME cap on available credit was set at £20,000 plus 300% of the total PAYE and NIC liability of the company in the interests of preventing abuse. HMRC have also introduced amendments to this legislation in order to ease its introduction:

 

“Where a company has an accounting period that straddles 1 April 2021, the measure does not apply to the part of the period from 1 April, but instead, only affects the next full period starting after that date.”

 

Therefore, a current accounting period is not subject to the new SME cap.

Exemptions for your claim do exist provided that your company meets both of the following criteria:

  • Your employees are creating, preparing to create or managing Intellectual Property (IP). IP refers to intangible creations, such as copyrights, trademarks, trade secrets and patents.
  • Your company does not spend more than 15% of its qualifying R&D expenditure on subcontracting R&D to, or the provision of externally provided workers (EPW) by, connected persons.

 

How will this affect my business?

As a business with an R&D venture you may want to receive tax credit funding in order to improve your cash flow, as you may receive trading profits and funding is typically reinvested for future projects that also meet the criteria for an R&D tax claim. The idea is that your one innovation paves the way for more future innovations, yet the cap instead risks disrupting cash flow by introducing uncertainty and obstacles for your business.

Fresh businesses looking to explore R&D further will need the tax credit as a way to secure essential cash injection to help them power through the use of external resources and tax losses when they start out. R&D is high cost and high risk, but the cap has the potential to delay this cash injection.

 

How does a subcontractor affect my claim?

As an SME involved in R&D activities, you can claim 65% of the costs paid to a subcontractor for qualifying activities. Similarly, companies under the RDEC scheme can claim the same amount provided that the subcontractor is an individual, a partnership of individuals or a qualifying body. The finer details on what qualifies as subcontracted work is quite broad, as your subcontractor does not need to be UK resident, nor does the work they carry out need to be done in the UK. Furthermore, there is no issue if the work your subcontractor carries it is not inherently R&D if viewed at in a vacuum so long as it contributes to your own R&D work.

 

But what if my subcontractor and I are connected parties?

If you are connected to the subcontractor, for example having a mutual shareholder, your claim for R&D tax credit is different. The amount you can claim can actually be more or less than the 65% available for non-connected parties, but the actual amount itself tends to be reliant on the actual costs involved with the claim and R&D project. The claim will also be for the lesser of the R&D payment and expenditure made to the subcontractor.

 

I think I am affected, what do I do now?

HMRC are strict and resolute in their application of rules and regulations, so if you are affected by the cap you need to take appropriate steps to make sure you aren’t unfairly caught out.

You should review any previous claims and see if the new cap would apply in those circumstances. If you have: subcontracted work domestically or internationally; have staff on low or no salaries; or if your business is new, you will likely qualify under the new cap. We’ve seen how strict HMRC can be and issued enquiries and penalties can be hard to recover from, so you need to have effective planning to mitigate the potential impact of the cap, which is what we can help you with.

HMRC are holding an open consultation which will run until 2 June 2021, with stakeholders being a primary target for thoughts.

WIM Accountants have a thorough understanding and great experience in dealing with R&D tax credit schemes. We offer top class advice and an R&D tax relief service, so you can relax knowing that we will make sure your claim is properly done and will get you the maximum claim you can get. If you have are still unsure about how this change affects you, or want to know more, get in touch at info@wimaccountants.com.

New Guidance for CGT on House Sales

New Guidance for CGT on House Sales

Selling property is not as simple as it used to be. With tighter rules being enforced by HMRC over the last few decades sellers need to be aware of these changes and how they are affected, particularly when concerning the disposal of UK residential property.

A UK residential property refers to land which included occupation or dwelling at any given time such as a freehold property. Most of the time residential property gains can be found in the disposal of an investment property, for example a house you rent out. To the relief of a number of homeowners, not all property disposals are chargeable for CGT. Typically this tends to be properties which have been the main residence of the owner during ownership or properties which were bought with the intention of development and resale. In the case of the latter, this transaction is seen as one which is trading in nature as profits are subject to Income Tax. Otherwise CGT rules apply. It should be noted that all your capital gains in a year are added together, however there exists an annual exemption of £12,300.00 of which capital gains below this amount are not taxed.

On 6 April 2020 the deadlines for filing and paying CGT off the disposal of a UK property changed. This affected both UK residents and non-UK residents who own residential property in the UK. Under new rules, residents must take no longer than 30 calendar days to inform and pay HMRC for the disposal of property. Disposals of other CGT chargeable assets are unchanged and must follow the standard Self-Assessment deadlines. Furthermore, disposals represented by charities, pension scheme investments and lease granted for commercial purposes.

For UK Residents, disposal of property making gain which is liable to CGT must be informed of to HMRC as well as the payment of owed CGT. This must be done within 30 days of property disposal using the new online service, which can be found here:
UK residents with property abroad do not need to worry about this notice period, as rules on this matter are unchanged.

WIM Accountants are here to help businesses with their accounting and taxation needs.

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