Accountancy Blog

Landlords tax rate changes

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A guide for individual landlords on the recent tax changes.

Whether you own one or 50 let properties, you need to be aware of the tax changes that have already started to take effect – and which will accelerate over the coming years.

Restricted interest

For periods before 6 April 2017, all the interest and finance charges relating to funding for a residential property business could be deducted in full from the rental income.

From 2017/18, the financial costs which may be deducted from residential property income by individual landlords are restricted as follows:

 

Tax year Finance costs permitted
2017/18 75%
2018/19 50%
2019/20 25%
2020/21 nil

The landlord receives a tax credit equivalent to 20% of the lower of:

  • finance costs not deducted from income
  • income from the property business before interest
  • total income exceeding allowances.

This tax credit is set against the income tax liability for the year (see below example).

Any unused tax credit is carried forward to be relieved against the tax payable on the property income in a future tax year. This restriction on finance charges will have the greatest impact on landlords who pay significant amounts of interest or other finance charges, and who may be pushed into the higher tax rates due to their increased taxable income.   More…

Making tax digital

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Making Tax Digital (MTD) will mean most businesses and taxpayers access their tax affairs online through digital tax accounts in the near future. But what impact will MTD have on your business?

What is Making Tax Digital?

“Tax really doesn’t have to be taxing”, said former chancellor George Osborne as he announced plans at Budget 2015. MTD is intended to replace the self-assessed tax return and usher in a new quarterly digital reporting regime. It’s arguably the biggest change to UK taxation since the introduction of PAYE in 1944.

The new system will ultimately change the way the majority of businesses keep their accounting records, how they report their income to HMRC and the services required from their accountants or tax agents.

It will also offer self-employed taxpayers the opportunity to pay tax through optional ‘pay as you go’ instalments, based on the data submitted with HMRC under the new digital initiative.

Businesses will eventually be required to use relevant software to keep their tax records, provide quarterly summaries of tax data and submit a finalised year-end position to HMRC. At least five tax returns (four quarterly updates and one annual declaration) will need to be filed each year. More…

Prompt payment code

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Businesses have backed the Prompt Payment Code (PPC) to support SMEs who are dealing with late payments.

The PPC sets the standards for best practice for businesses and suppliers chasing overdue payments and invoices, ensuring everyone is paid on time and offered clear guidance on procedures.

Suppliers to the government have willingly committed to pay 95% of invoices within 60 days and are working towards making 30 days the standard for making payments.

It is estimated SMEs are collectively owed more than £26 billion in overdue payments.

Philip King, chief executive of the Chartered Institute of Credit Managers, said:

“The PPC allows suppliers to raise a challenge if they feel they are not being treated fairly by a signatory, and such challenges are proving successful – not only in delivering payment, but also in further improving practices and processes.

“It’s vital businesses feel confident and have certainty they will be paid on time, as well as having a route to challenge if they need to.” More…

Significant control reporting

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Changes to the people with significant control (PSC) register have come into force.

All companies and limited liability partnerships (LLPs) are required to identify and record the people with ‘significant control’ over their company.

Previously, a company or LLP would make any changes to the PSC register as part of its annual confirmation statement submitted to Companies House.

But, as of June 2017, all PSC changes must be directly reported to Companies House and not via the confirmation statement procedure.

Instead, companies and LLPs must internally update their PSC register within 14 days.

The new 14-day filing period does not apply to companies and LLPs who filed their PSC registers before 26 June 2017.

However, those with outstanding updates to their PSC registers following the filing of their annual confirmation statements on or after 26 June 2017 will be subject to the 14-day deadline. More…

Start-up funding

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Almost half (40%) of aspiring entrepreneurs cited lack of funds as the main barrier to starting a business, according to research.

Out of 1,500 people surveyed by Yell Business, 51% thought about starting their own business but barriers such as risk of failure (25%) and not knowing where to start (23%) were preventing them from doing so.

However, the study found 40% of businesses were started on under £500, while 32% were formed on £250 or less.

Further findings:

  • 93% who started a business recorded a profit last year
  • 85% considered their business to be successful.

More…

Self-employed sick pay but no retirement funding

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Self-employed people would prefer to receive sick pay than any other statutory benefit, a study has found.

FreeAgent and The Freelancer & Contractor Services Association (FCSA) polled 900 micro-business owners and found 76% do not currently offer sick pay and other benefits such as maternity leave, holiday or redundancy pay.

Attitudes towards statutory benefits varied depending on business structure, with sole traders more likely to value sick pay compared to those working through their own limited companies.

Furthermore, 35% of self-employed people have no plans to fund their own retirement. More…