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Simplified expenses motor vehicles

There are simplified arrangements in place for the self-employed (and some partnerships) to claim a fixed rate deduction for certain expenses where there is a mix of business and private use. The simplified expenses regime is not available to limited companies or business partnerships involving a limited company.

The fixed rate deduction can be used instead of working out the actual costs of buying and running your vehicle, e.g. insurance, repairs, servicing, fuel. The use of the simplified flat rates is entirely optional. However, once a decision is made to use the simplification for a specific vehicle, this must continue to be used for a vehicle as long as that vehicle is used for business purposes.

Under simplified expenses, the following flat rates per mile available.

  • Cars and goods vehicles first 10,000 miles 45p
  • Cars and goods vehicles after 10,000 miles 25p
  • Motorcycles 24p

The number of people in the vehicle does not affect the rates above. The rates are only available for journeys, or any identifiable part or proportion of a journey, that are wholly and exclusively for business purposes. For example, travel from home to work is not a qualifying journey.

The self-employed can continue to claim for other costs not covered by the flat rate for mileage such as parking, tolls, and congestion fees as well as other separate travel expenses such as train journeys.

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Simplified expenses use of home

If a taxpayer is self-employed and running a business from home, there are simplified expense rules available for claiming a fixed rate deduction for certain expenses where there is a mix of business and private use. The simplified expenses rules are not available to limited companies or business partnerships involving a limited company.

The use of the flat rate expenses for core business activities carried out from the home eliminates the need to calculate the proportion of personal and business use for certain bills in the home; usually, this applies to various utility bills. Instead, a monthly deduction is allowable. The use of the simplified expenses regime is optional, and businesses can claim the trade proportion of actual costs.

The current monthly rates are based on the business use of the home as follows:

  • 25 or more hours worked per month can claim £10.00
  • 51 or more hours worked per month can claim £18.00
  • 101 or more hours worked per month can claim £26.00

There is no issue if the number of hours worked varies from month to month as different amounts can be claimed for each month. The minimum number of hours worked in any month must be 25 or more. The flat rate doesn’t include telephone or internet expenses and the business proportion of these bills can be claimed by working out the actual costs. In addition, use of the flat rate deduction for household running costs does not prohibit a separate proportional deduction for fixed costs such as council tax, insurance and mortgage interest.

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How dividends are taxed

The dividend tax allowance was introduced in April 2016. It replaced the old dividend tax credit with an annual £5,000 dividend allowance with tax payable on dividends received over this amount. The tax-free dividend allowance was reduced to £2,000 with effect from 6 April 2018.

The tax rate for dividends received in excess of the dividend tax allowance are taxed at:

  • 7.5% for basic rate taxpayers,
  • 32.5% for higher rate taxpayers, and
  • 38.1% for additional rate taxpayers.

It should be noted that dividends falling within your Personal Allowance, do not count towards your dividend allowance and you may pay tax at more than one rate.

If you receive up to £10,000 in dividends, you can ask HMRC to change your tax code and the tax due will be taken from your wages or pension or you can enter the dividends on your Self-Assessment tax return. You do not need to notify HMRC if the dividends you receive are within your dividend allowance for the tax year.

If you have received over £10,000 in dividends, you will need to complete a Self-Assessment tax return. If you do not usually send a tax return, you need to register by 5 October following the tax year you had the income.

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Blind Person’s Allowance

The Blind Person’s Allowance is an extra amount of tax-free allowance made available to those who are eligible. The allowance for the current 2019-20 tax year is £2,450. If both spouses / civil partners are eligible, they will both get an allowance. An eligible claimant can transfer their allowance to their spouse or civil partner if they do not pay tax or cannot use all of the allowance.

The eligibility rules vary.

In England and Wales, you can claim Blind Person’s Allowance if both of the following apply:

  • you’re registered with your local council as blind or severely sight impaired,
  • you have a certificate that says you’re blind or severely sight impaired (or a similar document from your doctor).

In Scotland and Northern Ireland, you can claim Blind Person’s Allowance if both of the following apply:

  • you cannot do work for which eyesight is essential,
  • you have a certificate that says you’re blind or severely sight impaired (or a similar document from your doctor).

The Royal National Institute of Blind People (RNIB), recently challenged a tax decision by HMRC that refused to transfer the allowance because one person in each couple was living in a care home. HMRC had said that their guidance only allows Blind Person's Allowance to be transferred where a couple is 'living together'.

The RNIB successfully challenged this decision on the grounds that 'living together' for Income Tax purposes includes couples where one of them is living in a care home. HMRC has also agreed that a 575 form to transfer the Blind Person’s Tax Allowance between spouses and civil partners will no longer be required.

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When can you increase your rental income?

The ability to increase the rent on private rentals is driven by the tenancy agreement. This is an agreement between the landlord and the tenant. The agreement can be written down or oral.

The tenancy can either be:

  • fixed-term (running for a set period of time)
  • periodic (running on a week-by-week or month-by-month basis)

The type of tenancy agreement dictates when you can consider increasing your rents. For a fixed-term tenancy, you can only increase the rent if your tenancy agreement permits this, otherwise, you can only raise the rent when the fixed term ends. For a periodic tenancy, you can usually increase the rent once a year.

You should note, that any rent increase should be seen to be fair and realistic in line with reasonable rents on the open market. If your tenants think the rent increase is unfair, they can ask the First Tier Property Tribunal to adjudicate and decide the right amount.

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Child Benefit charge if income exceeds £50,000

The High Income Child Benefit charge (HICBC) applies to a parent whose income exceeds £50,000 in a tax year and who is in receipt of Child Benefit. If both parents have an income that exceeds £50,000, the charge will apply to the highest income earner. The charge claws back the financial benefit of receiving Child Benefit either by reducing or removing the benefit entirely.

If you or your partner have exceeded the £50,000 threshold during the last tax year (2018-19) then you must take action. If you or your partner continue to receive Child Benefit (and earn over the relevant limits) you must pay any additional tax owed (the HICBC), for 2018-19, on or before 31 January 2020. If you have exceeded the limit for the first time and do not currently submit a tax return you will be required to do so.

The HICBC is levied at the rate of 1% of the full Child Benefit award for each £100 of income between £50,000 and £60,000. If your income exceeds £60,000, the amount of the charge will equal the amount of Child Benefit received.

HMRC’s guidance on Child Benefit stresses that if the HICBC applies to you or your partner, it is still worthwhile to claim Child Benefit for your child. This can help to protect your State Pension and will make sure your child receives a National Insurance number. However, you can still choose to keep receiving Child Benefit and pay the tax charge through self-assessment or elect to stop receiving Child Benefit and not pay the charge.

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How do you calculate adjusted net income?

To calculate adjusted net income, you will need to look at a taxpayer’s total taxable income, before personal allowances, and then deduct any trading losses, gift aid donations, gross pension contributions and pension contributions where the pension provider has already provided tax relief at the basic rate.

Calculating the adjusted net income amount is necessary if any of the following apply:

  • A taxpayer is liable to an income-related reduction to the personal allowance – when their adjusted net income is over £100,000 (regardless of their date of birth);
  • A taxpayer is liable to the High Income Child Benefit charge – when their adjusted net income is above £50,000.

It is worth noting when reviewing a client's taxable income that if certain thresholds are exceeded the personal allowance may be withdrawn completely. For example, if a client decides to draw-down a significant lump sum from their pension pot, the payer may deduct 40% Income Tax, but this may not cover all the taxes due. If the amount tips their annual income over the required limit (£125,000 for 2019-20), perhaps for the first time, and their personal allowance is lost, additional taxes may fall due the following January.

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Payments on account system glitch

The due date for making your second payment on account for 2018-19 was the 31 July 2019. The amount that was due for payment is usually the same as that for your first payment on account made on or before 31 January 2019. If you are late making a payment on account, you will likely be required to pay interest and penalties.

Issues with HMRC’s handling of payments on account have been reported by a number of taxpayers. This is an ongoing problem that also affected the first payment on account, due in January 2019. If the first payment on account was missing, the second payment on account may also be affected. This is because HMRC did not correctly process all the payments on account information for 2018-19.

The glitch could have resulted in you not receiving the usual statement of account from HMRC telling you how much tax you needed to pay by 31 July 2019. HMRC has said that if you are affected 'any liability for 2018-19 will be payable in full in January 2020. Any payment intended for the 2018-19 POA will be allocated against any 2018-19 balancing payment due on 31 January 2020'.

This could result in those affected having to pay a far larger amount than expected as a final payment for 2018-19 in January 2020. If you are affected by this glitch, please contact us and we can help you understand your available options as making a 'voluntary' payment could result in further issues. 

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How to claim a personal tax refund

HMRC’s annual reconciliation of PAYE for the tax year 2018-19 is well under way. HMRC use salary and pension information to calculate if you have paid the correct amount of tax. The calculation is usually generated automatically by HMRC’s computer systems on what is known as a P800 form. If you are due a tax refund for 2018-19, you should receive a P800 by the end of September, and if you owe additional tax you will usually receive the form by the end of October following the tax year in question.

If you are due a refund, the P800 form will usually tell you that you can claim a refund online. Once you complete the claim online, the refund will be paid within 5 working days and will be in your UK account once your bank has processed the payment. If you do not claim the refund online within 45 days, HMRC will send you payment by cheque. 

If your P800 tells you that you will be repaid by cheque, then you do not need to take any further action and you should receive a cheque within 14 days of the date on the P800 Tax Calculation.

If you have not received a P800 form but think that you have overpaid tax, then you can contact HMRC to inform them. If HMRC agree that you are due a tax refund they will send you a P800 form.

You may be able to claim a refund if you:

  • are employed and had too much tax taken from your pay;
  • have stopped work;
  • sent a tax return and paid too much tax;
  • have paid too much tax on pension payments;
  • bought a life annuity.

We would be happy to assist you in making a tax refund claim.

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Students working summer jobs

We would like to remind any students that work part time, for example in a summer job, that they are entitled to claim back any tax overpaid. Students (and other temporary workers) are not required to pay any Income Tax if their earnings are below the tax-free personal allowance, currently £12,500.

However, employers are required to calculate the amount of tax you need to pay on the basis that you would be working for the rest of the tax year. This means that an overpayment of Income Tax can often happen where a student or temporary worker earns more than their monthly allowance of £1,042 (£12,500 / 12) but over the course of the tax year earn less than their annual allowance. A student only working over the summer and earning more than £1,042 a month, is unlikely to have exceeded the current £12,500 tax free personal allowance.

Students that expect to earn less than £12,500 in the current tax year (i.e. to 5 April 2020) can complete the P50 form entitled 'Claim for repayment of tax' when they have stopped working. A refund of overpaid tax can be requested using an online version of the P50 form. The P50 form can only be used if you are not going to work for at least the next 4 weeks and are not claiming certain state benefits.

Any students that are continuing to work for the rest of the tax year in part-time jobs, should consider waiting until the end of the year to make a claim.