Tax News September
Welcome to our monthly tax newsletter designed to keep you informed of the latest tax issues. We hope you enjoy reading the newsletter; remember, we are here to help you so please contact us if you need further information on any of the topics covered.
Best Wishes,
Matt Morris
TAX RELIEF FOR REPLACING FURNITURE IN LET PROPERTIES
The government announced in the Summer Budget that from April 2016, the current 10% Wear and Tear Allowance for furnished lettings will be replaced with a relief that enables all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings in the property. This will give relief for capital expenditure to a wider range of property businesses.
The proposals are being consulted on during summer 2015 and will give greater consistency and fairness across the residential property letting sector.
The new relief will apply to all landlords of residential dwelling houses, no matter what the level of furnishing. Those operating furnished holiday lettings businesses will continue to claim capital allowances instead of the new replacement basis. If enacted, the new rules will apply from 6 April 2016 for income tax purposes and 1 April 2016 for corporation tax.
The new replacement furniture relief will only apply to the replacement of furniture, furnishings, appliances and kitchenware provided for the tenant’s use in the dwelling house. The initial cost of furnishing a property would not be included.
This will put the old concessionary basis that applied up until 5 April 2013 on a statutory footing, and is welcome news for those letting properties unfurnished and providing white goods, carpets and curtains, where relief had been withdrawn for a three year period. It is also good to see the government responding to lobbying from the accounting profession and letting sector to restore the tax relief. Please contact us if you are potentially affected by these changes.
VAT IS DUE ON CLOTHING GIVEN TO EMPLOYEES
The high street retailer French Connection has recently lost a case before the Tribunal concerning whether or not VAT is due on the supply of clothes to their employees. The retailer required employees in their shops to wear clothes from the current range and these were supplied free of charge.
The case concerned whether or not there was a taxable supply for VAT purposes. The retailer relied on VAT Notice 700 which states “You do not make a supply if you provide goods (such as overalls or tools) to employees solely for the purpose of their employment and make no charge.”
The Tribunal held that the clothes did not qualify as a uniform and as the value of the clothes gifted in one year exceeded £50 then output tax was due on the value of the clothes supplied (cost to the employer).
Note that VAT may be due on many employee benefits such as private petrol and is something that is frequently checked by HMRC if they make a visit to examine your records.
BANK AND OTHER INTEREST TO BE PAID GROSS FROM APRIL 2016
As announced in the spring 2015 Budget, a new personal savings allowance will be introduced from 6 April 2016. This will be £1,000 a year tax free for basic rate taxpayers and £500 a year for higher rate taxpayers, but nil for those with income over £150,000.
As a consequence, tax will no longer be deducted at source from bank and building society interest. HMRC have launched a consultation to review whether changes should also be made to the rules on deduction of tax from other types of savings income such as “peer to peer” loans.
Remember also that the first £5,000 of dividend income will be tax free from 6 April 2016, but it remains to be seen whether this will apply to directors of their own companies.
TERMINATION PAYMENTS UNDER REVIEW
A further consultation taking place this summer is into the simplification of the tax and national insurance treatment of termination payments.
There is a widespread but mistaken belief amongst employees and employers that the first £30,000 of any pay-off is not subject to income tax and NICs. This often leads to difficulties when employees discover that the exemption does not apply to their circumstances and that income tax and NICs are due on the full amount.
Please contact us before you make any workers redundant as it is still possible to structure termination payments in a tax-efficient way if you get the documentation correct.