Capital Gains Tax for UK property sales from 6 April 2020

Principal Private Residence Relief Changes

From 6 April 2020 tax relief will only be provided for the final 9 months of ownership therefore halving the relief (for the year to 5 April 2020 the final period relief was 18 months).

Filing returns and payment deadline

From 6 April 2020, if you’re a UK resident and sell a residential property in the UK you’ll have 30 days to tell HMRC and pay any Capital Gains Tax owed.

If you don’t tell HMRC about any Capital Gains Tax within 30 days of completion, you may be sent a penalty as well as having to pay interest on what you owe – so it’s really important that everyone involved in the sale of a residential property fully understands these changes, which affect both UK and non-UK residents.

You won’t have to make a report and make a payment within 30 days when:

  • a legally binding contract for the sale was made before 6 April 2020
  • you meet the criteria for full Private Residence Relief
  • the sale or disposal was made to a spouse or civil partner
  • the gains (including any other chargeable residential property gains in the same tax year) are within your tax free allowance (called the Annual Exempt Amount)
  • you sold the property for a loss
  • the property is outside the UK

If you need to file a report with details of capital gains from 6 April 2020, the following information is needed;

  • property address and postcode
  • date you got the property
  • date you exchanged contracts when you were selling or disposing of the property
  • date you stopped being the property’s owner (completion date)
  • value of the property when you got it
  • value of the property when you sold or disposed of it
  • costs of buying, selling or making improvements to the property
  • details of any tax reliefs, allowances or exemptions you’re entitled to claim
  • property type, if you’re a non-resident

 

 

 

 

The latest guidance on COVID-19 for small businesses

Latest Government Guidance

Attached is the latest government guidance which includes the information we have on;

https://www.gov.uk/government/publications/support-for-those-affected-by-covid-19/support-for-those-affected-by-covid-19

https://www.gov.uk/government/topical-events/coronavirus-covid-19-uk-government-response

 

QuickBooks Online Deal

We have a certain number of QuickBooks online Plus subscriptions on offer at £10 + VAT per month. If you go to QuickBooks directly, the price is £30 per month!

The benefits of using online software such as QuickBooks is;

  • Bank Feeds – you can set business accounts up to feed bank transactions into the software.
  • You can create projects and categories within the software to track profits and losses by jobs or projects.
  • You can raise sales invoices and send statements from QuickBooks.
  • You can review outstanding and overdue invoices in QuickBooks.

With Making Tax Digital set to be rolled out to all business from 2020 at the earliest, this is a good opportunity to get set up on software so that you are prepared. Currently the rules only apply to businesses that are VAT registered and have turnover over the VAT threshold (currently £85,000 per year) but HMRC plan to bring more businesses in to Making Tax Digital from 2020, although it may be later.

https://woodandassociatesllp.com/category/making-tax-digital/

https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital

You can do a free trial of QuickBooks if you did want to have a look to test it out here – https://signup.quickbooks.intuit.com/?locale=en-gb&offerType=trial&bc=OBI-LL1&offerId=20011450.

 

Budget Update – Year to 5 April 2020

From 6 April 2019, the thresholds will change to the amounts set out below (this does not include rates in Scotland).

                                                         2020              2019

Personal allowance                             £12,500           £11,850

National Insurance (PT)                     £8,632              £8,424

Higher rate threshold 40% tax         £50,000           £46,350

Marriage allowance                             £1,250              £1,185

 

Limited company shareholders:

Dividend allowance                              £2,000               £2,000

The dividend allowance is particularly important to owner managed businesses. The allowance of £2,000 for the year to 5 April 2020 is set at a rate of 0%, meaning any dividend income in the year up to £2,000, will be taxed at 0%.

Corporation tax is set to remain at 19% (the same as for the year to 31 March 2019).

 

Self-employed:

There were discussions around raising the rate of National Insurance on Self-employed profits. Class 4 National Insurance is set to remain the same for the year to 5 April 2020.

Class 4 National Insurance                        9%                   9%

Rates for taxable profits

over £8,632 up to                                         £50,000          £46,350

Class 2 National Insurance                      £156.00         £153.40

 

Capital Gains Tax (for individuals):

Annual exemption                                     £12,000       £11,700

 

VAT Threshold

The taxable turnover threshold which determines whether a business or person must be registered for VAT, will remain at £85,000.

The taxable turnover threshold which determines whether a business or person may apply for deregistration will remain at £83,000.

Making Tax Digital for VAT – Sign up Process

To submit VAT returns under Making Tax Digital (MTD), there are steps to follow to make sure that you are signed up for MTD.

If you are unsure whether MTD applies to you, there is more information here.

Where We Prepare & Submit VAT Returns For clients:

Where we currently prepare VAT returns for you and submit them to HMRC, we have set up the necessary online account to submit VAT returns under MTD. We will need to register you/your business for MTD online, which we will do after 7 May, which is the final deadline for March VAT returns under the old regime.

You Prepare & Submit Your Own VAT Returns:

You will need to register to file VAT returns under MTD online. To do this, you will need to go to the link below and fill out the relevant information.

https://www.tax.service.gov.uk/vat-through-software/sign-up/have-software

HMRC will send you a confirmation email within 72 hours of signing up.

Do not submit a VAT Return until you receive the confirmation email. You must send your VAT Return using MTD compatible software.

You can still view your next VAT Return deadline in your Business Tax Account as you normally would.

You can contact HMRC at the VAT helpline on 0300 200 3700 if you have any questions on registering for MTD.

 

Builders – VAT: reverse charge for building and construction services

Changes to the way that builders charge VAT for their services are being introduced from 1 October 2019. The guidance issued by HMRC does not give detailed examples and we expect further details and examples to be released in Spring 2019.

The change in rules from 1 October 2019 will affect VAT registered builders providing certain construction or building services to another VAT registered business for onward sale/supply. There are some exceptions where the new rules won’t apply, typically it will apply to work that falls within the construction industry scheme.

The Reverse Charge Mechanism 

Under the current rules where both businesses are VAT registered and where the building work is normally standard rated for VAT, a subcontractor charges VAT on the supply of building work to contractors, the contractor would pay the VAT to the subcontractor and the subcontractor would pay this VAT to HMRC.

Under the new rules that apply from 1 October 2019, this will now be treated under the Reverse Charge rules. The invoice to the contractor will need to state that the service is subject to the domestic reverse charge. 

The contractor will need to treat any VAT under the reverse charge rules as both input and output VAT. The result for the contractor is a nil net tax position, as they are including the VAT as both input and output VAT.

For the subcontractor, this may lead to VAT returns being submitted where repayments of VAT are due to them from HMRC, as no VAT will be charged under the reverse charge rules. This could potentially lead to delays for some businesses in receiving VAT refunds from HMRC.

The contractor needs to know whether they are dealing with the final customer, as the reverse charge only applies between businesses. VAT should be charged to the end customer.

 

 

 

 

 

Making Tax Digital – Where is the Communication?

With Making Tax Digital for VAT coming for many VAT registered businesses from April 2019, many people are asking the question, what is it and why haven’t I been told about it?!

For many businesses that are VAT registered and over the VAT threshold, they will go in to Making Tax Digital from April 2019. There are some exceptions set out by HMRC to this deadline, which will be delayed until October 2019 and includes;

  • Trusts
  • Unincorporated charities
  • VAT divisions & VAT groups
  • Some public sector entities
  • Public corporations
  • Traders based overseas
  • VAT traders who use annual accounting

For many other businesses that are both VAT registered and over the VAT threshold, they will go in from April 2019. Which begs the questions, why don’t many people know about it? We have been writing to clients to let them know about the changes since April and posting updates online here;

https://wp.me/p7ElJK-lg

https://wp.me/p7ElJK-lh

Whilst HMRC have been Tweeting about Making Tax Digital, there seems to have been little time spent on informing those businesses that are affected by the changes. We expect that HMRC will be writing to businesses affected by the changes at some point soon! The ICAEW found in research carried out in July 2018 that just over half (51%) of all UK VAT registered businesses had heard of MTD for VAT which means that around 49% had not heard about Making Tax Digital for VAT, which is very worrying.

When Paul Lewis from Money Box tweeted about the Making Tax Digital changes the responses included comments such as “I thought this had been delayed” and “I think the changes will be scrapped.”

Whilst we do not agree with the changes being compulsory for all businesses, as we feel that some businesses will not benefit as much from using software, whether we like it or not, businesses have to work to the deadlines set out by HMRC. If you go in to Making Tax Digital from April 2019, there will be no option to file a VAT return online to HMRC, it will need to be done through compatible software. The issue is navigating through the software available if you have never used any.

Of the software available, we have been recommending software to clients that suits their needs. For some businesses that may be Xero, Sage, or QuickBooks, and for others it may be bridging software that takes figures from spreadsheets and imports the figures in to the bridging software (although this is not as straight forward as it sounds, as template software is used which must be filled out in a set way).

There are some benefits for many businesses in using software. It can help to keep the record keeping more up to date, to enable you to review figures in the year such as;

  • Profit and Loss – this can help to plan and budget and to set some money aside for tax liabilities.
  • Management Accounts – to enable you to review figures for specific projects, jobs, periods, or services in the year to see how much profit is being made and a breakdown of the cost involved.

There are some other benefits with using software which will vary from business to business. Our best advice to any businesses that will go in to Making Tax Digital from April 2019 is to look at all available software. Try the free trials on software to see how the software works. Start preparing now for the change, so that you are prepared and ready for it when it comes in.

For any businesses that do not know what the next step to take is, we can discuss any software options with you. Whilst we are against the changes, we feel that is important to make the most of any benefit that the software offers to you and we can help to explain these benefits to you.

Please feel free to get in touch with us if you have any questions on Making Tax Digital.