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Every month, the directors at McPhersons share some useful financial tips especially for Business in Hastings readers. This month, Ainsley Gill looks at whether your buy-to-let property could be more tax-efficient. Are you claiming back all of the allowable expenses?

Here is our guide of what is allowable and what isn’t which will help you to keep your dreaded tax bill to a minimum.

Capital Expenses

Let’s start with the expenses you can’t claim for. These fall mainly in the category of Capital Expenses. For example, the purchase price of the property, conveyancing fees and estate agent fees can’t be claimed for. You also can’t claim for improvements against rents received for permanent works such as extensions that have enhanced the value of the property at the date of sale, although these can be claimed for capital gains tax purposes.

So, what exactly can you claim for?

Fees if you are using a Letting agent

If you use an agent to let and manage the property, you will typically pay 10-15% in fees. All of this can be claimed back against  your tax. On a property with rent of £1000 per month, this is £150 per month or £1800 per annum you can claim as an expense.

Your costs to find tenants if you are not using a letting agent

Any costs associated with finding a tenant. For example, advertising, legal documents, credit checks, obtaining references, can all be claimed against tax.

Interest if you have a mortgage on the property

Every penny of interest you pay on your mortgage can be used to offset your tax bill. It is wise to keep your property mortgaged for this very reason otherwise you will miss out on this big tax break. For example, if the price of the buy-to-let property is £200,000 and you take on a repayment mortgage for this amount over 25 years, your total payments will be £1,055 repayment plus £667 interest. The £667 can be offset against your tax. For an interest only mortgage, the whole amount can be offset. Many landlords take this option with a longer term view that the housing market will rise.

Mortgage fees

Although the costs associated with buying the property weren’t allowable, any arrangement fees or mortgage broker fees are tax deductible in that year.

General upkeep, repairs and maintenance

As long as it doesn’t fall under the renovations, extensions restriction, you can claim any reasonable expense relating to the upkeep of the property or furniture within it. For example, repairing the microwave, fridge, oven, painting and decorating, cleaning carpets and the services of a gardener are all claimable. Note, you can clean the carpet and claim but if you replaced the carpet, this will come under improvements.

Assuming the property is let out furnished, you can claim a ‘wear and tear’ allowance of 10% of rent per annum. This can be claimed without HMRC requiring any proof.

Leasehold-related costs

Service charges, ground rent and similar charges paid to a freeholder are allowance expenses.

Bills paid on behalf of the tenant

As a landlord, you can opt to pay for a tenant’s council tax, water, electricity etc. – all of which can be claimed back against tax. This is also relevant when the property is empty.

Insurance

Landlords require landlord insurance which covers liability, buildings, loss of rent amongst other things. This is an allowable expense.

Other direct costs

Any phone calls, travel to your property, postage, stationery that are related to renting your property are allowable. In fact, if you use an accountant to do your tax return, their fees are also tax deductible! At McPhersons, our best advice is to keep all your receipts so we can prove all the expenses are genuine!

Need more help?

This feature aims to give some informal hints and McPhersons are offering businesses free advice so get in touch now to arrange your free meeting 01424 730000

 

Every month, the directors at McPhersons share some useful financial tips especially for Business in Hastings readers. This month, Ainsley Gill looks at Stamp Duty Reforms and who may benefit.

George Osborne recently announced sweeping changes to stamp duty. He claimed 98% of buyers, particularly first-time buyers and low and middle-income families would benefit financially. But now professionals in the property business believe the reforms would not benefit first-time buyers in the long run. The widely held view is, like all property taxes, these changes to stamp duty will very likely be quickly reflected in house prices.  This tax saving will allow first-time buyers more money to put towards their property and with all buyers in the same situation, prices would rise accordingly.100680575

The industry thinking is the stamp duty changes will add around 1% to house prices. As stamp duty is normally paid in cash and higher property prices would add to the buyer’s mortgage, that they would pay more in interest. Some allegedly take the view that the Chancellor was trying to engineer a mini house price boom just before a general election without considering peoples’ indebtedness.

How has stamp duty changed?

Under the old “slab” system, house purchasers had to pay their relevant rate on

the whole purchase price. Previously stamp duty started at 1% on sales from £125,000 to £250,000, rising to 3% on sales of up to £500,000 and 4% on homes costing up to £1m. Houses that sold for between £1m and £2m attracted 5% tax, rising to 7% for houses worth more than £2m. Under this system a family buying a house for £400,000 would have to pay 3% on the whole sum, or £12,000.

House prices are expected to rise as sellers cash in on the stamp duty savings

The new stamp duty will consist of “marginal” tax rates, as with income tax. There will be no tax on the first £125,000, then 2% on the cost between £125,000 and £250,000, and 5% up to £925,000. A rate of 10% will apply to the cost between that sum and £1.5m, and 12% on the value above £1.5m.

Now buying a £400,000 home they would pay 2% on the portion between £125,000 and £250,000 and 5% on the remaining £150,000. This reduces their total tax bill to £10,000.

Stamp duty bills will rise for purchases worth more than £937,500. This is likely to affect buyers in London and the South East most, where prices are much higher.

First-time buyers

Many typical aspiring home owners have been hit hard by the combination of stamp duty and rising house prices. People in London know this all too well, many have tried to buy in earlier years but were unable to make their budget stretch to cover the stamp duty.

Such examples are common place. Many first time buyers find their dream property at the top end of their budget, but are all too often unaware of stamp duty and find themselves unable to afford this additional cost, leaving them no option but to pull out and lose their dream home.

Many people who are looking at properties in more affordable areas of London are grateful for the reduction in stamp duty, but fear that if house prices rise further they will be priced out of the market.

But it’s not all bad news for first-time buyers. Those already in the process of buying will save money. Typically someone buying a £175,000 house will see their stamp duty cut from £1,750 to £1,000

Need more help?

This feature aims to give some informal hints and McPhersons are offering small businesses free advice so get in touch now to arrange your free meeting 01424 730000.

The Directors at mcphersons chartered accountants are pleased to keep Business in Hastings members up to date with regular, useful financial information. In this edition, Ainsley Gill, Director at mcphersons, talks about corporation tax planning.

Tax is a significant cost to profitable businesses. It is therefore worthwhile considering how to minimise the ‘hit’ of tax in all its forms with some Corporation Tax planning.

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Corporation Tax and how to plan for it.

Every transaction has an impact on your tax bill so should be considered routinely. At mcphersons, we recommend that businesses undertake a review prior to year end in order to identify any tax-saving opportunities. A set of reliable management accounts will greatly assist with this process.

Depending on the specifics of your business, this review will investigate some or all of the following:

DEFERRING INCOME OR PROFITS

If you delay a profitable transaction from the last month of one accounts period to the first month of the next, the corporation tax will be payable one year later. This is often useful when you are crossing the threshold between small and large company tax rates. It is also relevant if the tax rates in the following year are due to fall.

You may wish to consider selling your goods on consignment. In short, this means you can place your product into a retailer at no financial risk to them – they only pay for what they sell, and no tax is payable by you until they sell the goods (and pay you).

For seasonal businesses, e.g. tourism, changing your year end may be appropriate. E.g. for a hotel that makes most of its profit in the summer months, it may be worth changing the year end from April to July. This would split the most profitable months between two accounting years.

BRINGING FORWARD EXPENSES

  • The more expenses you have, the less profit you have to pay tax on. Therefore, if you bring forward some expenses into the current tax year, that will help. For example, you could:
  • Make provisions against slow moving stock or bad debts;
  • Make additional pension fund payments;
  • Start a new business that will make a loss in its first year;
  • Increase ‘discretionary’ expenditure (advertising, building maintenance, donations to charities);
  • Make bonus payments early. 

INVESTIGATE CAPITAL ALLOWANCES

If you are planning to purchase fixed assets that will generate an allowance, it may be beneficial to do this in the current tax year. Alternatively, if you have a property to sell that will generate a loss, this will also reduce your tax liability.

The area of Capital Allowances is complex and you should seek advice before taking this route.

NEED MORE HELP WITH CORPORATION TAX PLANNING?

This feature aims to give some informal hints and Mcphersons are offering small businesses free advice so get in touch now to arrange your meeting. 

01424 730000 | info@mcperhsons.co.uk | www.mcphersons.co.uk

 

Office equipment is a huge expense for businesses of all size. The good news is there are now more suppliers and providers than ever before, which means more opportunities to save.

Michael Horrocks, Business Journalist for Photocopier Experts, offers tips to help your business get the best deal on your photocopier.

How much does the copier cost?

<a href="//en.wikipedia.org/wiki/User:Midnightblueowl" class="extiw" title="w:User:Midnightblueowl">Midnightblueowl</a> at <a href="//en.wikipedia.org/wiki/" class="extiw" title="w:">English Wikipedia</a> [<a href="http://creativecommons.org/licenses/by-sa/3.0">CC-BY-SA-3.0</a> or <a href="http://www.gnu.org/copyleft/fdl.html">GFDL</a>], <a href="http://commons.wikimedia.org/wiki/File%3AIOA_photocopiers.jpg">via Wikimedia Commons</a>

Which Photocopier?

This is obviously the first thing you’ll want to find out. The costs of office equipment always vary dramatically, and photocopiers are no exception.

Two models that look relatively similar on paper can  be hundreds of pounds apart in price on different websites, so you’ll  want to do as much price comparison as possible.

How much are the consumables?

You need to think about more than the cost of the copier though. It’s just like buying a printer for your home. Sure you can pick up ‘bargains’ in supermarkets and discount stores but you’ll pay the price when the ink runs out and it costs twice as much as the printer to replace. Office copier manufactures can catch you out in the same way.

If you’re buying a colour copier for your business the consumables are going to be more expensive. These include colour toner, fuser oil and developer. Even the paper is more expensive than the sheets used in a monochrome copier, as it needs to be heavier and brighter.

The most important cost to look out for is the toner. If your machine is going to be producing a high number of copies make sure you choose a model where the cost of replacing the toner is relatively low.

Can the copier perform multiple functions?

You need to decide whether you want a machine that does more than just copy. Many office models can also scan and print. These machines are often more expensive, but it’s a false economy to go for a cheap option if you end up buying more equipment at a later date.

If your business sends a lot of mail you might want to choose a copier that can fold and staple sheets of paper. Machines like the Xerox WorkCentre 4250 can print double sided, assemble, staple and fold paper as required.

A copier with features like these will be more expensive, but if it saves you time and reduce staff costs it will be worth the investment.

What’s the warranty like?

Many people are sceptical about warranties, and it’s certainly true that there is more value in some than others. When you’re offered a warranty you need to check how long it lasts and exactly what it covers. It sounds obvious but you’ll be surprised at how many people are caught out.

Most photocopiers come with a manufacturer’s warranty as standard, and you should only extend this if you think the value is there.

You should also find out whether you can get the necessary technical support in your local area. Most brands cover the whole of the United Kingdom so it shouldn’t be too difficult to get someone to come out and help you in Hastings, but it’s definitely something you should double check before you purchase.

Should you lease instead?

It’s worth questioning whether buying a photocopier for your business is the right decision at all. If you’re not sure how much use it will get going forward and you want a trial run leasing is a good option for you.

It’s also good for businesses looking to avoid large outlays of capital. Upfront sums are particularly daunting for many start-ups and small businesses. If you can’t justify an initial outlay of between £350 and £1000 you should consider leasing instead.

Midnightblueowl at English Wikipedia [CC-BY-SA-3.0 or GFDL], via Wikimedia Commons

The Directors at McPhersons Chartered Accountants are pleased to keep Business in Hastings members up to date with regular, useful financial information. In the first of a new series of exclusive columns, Ainsley Gill focuses on Payroll and how smaller businesses are impacted by recent HMRC changes.

WHAT IS RTI?

McPhersons, Chartered Accountants East Sussex

Ainsley Gill from McPhersons Chartered Accountants tells us about the HMRC RTI changes for PAYE which come in to effect next year.

On 6th April 2013, HMRC changed the way nearly all UK businesses report Pay as you Earn (PAYE).

Real Time Information, or RTI, is a new system that HMRC has introduced to improve the operation of PAYE. RTI does not change the way you calculate PAYE, it simply means you need to make more regular submissions. Each time you pay your employees you will need to submit PAYE information to HMRC, rather than just once a year at the end of the Payroll Year.

HOW HAVE THE RULES BEEN RELAXED FOR SMALLER BUSINESSES?

Businesses with fewer than 50 employees can benefit from a temporary relaxation of the Real Time Information (RTI) reporting arrangements. Until April 2014, employers with fewer than 50 employees who pay their staff weekly or more regularly and find it difficult to report at the time of payment may now send information by the date of their regular payroll, but no later than the end of the tax month (which is the 5th of the month).

HMRC has confirmed that for 2012/13, penalties will not be applied for inaccuracies found within the in-year Full Payment Submission (FPS). However, they may be charged after the end of the tax year based on the final FPS for the year. Penalties may also apply for inaccuracies found within the in-year returns for the 2013/14 tax year, using existing criteria. From 6 April 2014 there will be new late filing and late payment penalties.

WHAT ARE THE TEETHING PROBLEMS WITH RTI?

New Employees incorrect Tax Codes

RTI Money

RTI is coming soon. Make sure your business is ready for it.

For new employees, if the employee shows up on a later RTI submission, HMRC will treat them as a new worker and issue a tax code which may be incorrect as it won’t take into account their past employment record. If this happens, you should continue to use the previous code and call HMRC on 0845 300 0267 to correct the records.

What if an employee doesn’t have a National Insurance Number (NINO)?

You are allowed to submit a Full Payment Summary for employees without a known NI number. What is not allowed is to make up a number.

If an employee does not know their NI number they can submit a form CA5403 to HMRC.

 

What if there is nothing to report?

If there is nothing to report, you need to submit a nil Employer Payment Summary (EPS). This will avoid you being sent estimated demands.

DISCLAIMER

This feature aims to give some informal hints and tips for small businesses. McPhersons Chartered Accountants will not be held responsible for any inaccuracies. For detailed advice, please contact McPhersons to arrange a consultation. on 01424 730000.

For additional information please visit the official RTI HMRC page here.