Category: HMRC

Current law

Carried-forward losses can only be used by the company that incurred the loss, and not used in other companies in a group. Additionally, certain losses can only be set against certain types of income, for example trading losses can only be used against trading profits.

 

New Law

Losses arising after 1^st April 2017 can be set off against own and group company profits. Type of income restriction is also removed.

There is a new loss restriction i.e. only 50% of the carried forward losses can be relived. Don’t worry there is an annual threshold of £5 million for each standalone company or group, ensuring 99% of companies are unaffected by the restriction.

 

Additional notes:

1. Capital losses not effected by these new rules.
2. Losses expire when trade closes.
3. A company can only surrender losses under group relief after its has used its own carried forward losses against its current year’s profit to the full extent.
4. Similarly, company claiming losses under group relief has to first exhaust its own carried forwarded losses before claiming any under group relief.
5. Group Allowance allocation statement is also required.

 

Source:

1. Basic guidance in simple English – see HMRC note.
2. HMRC has recorded a webinar on this topic – click here. Then Ctrl + F > “reform”.

In 2017/18, if a landlord incurs loan costs on a let dwelling, the allowable deduction is only 75% of the cost. The remaining 25% gets tax relief at 20% in the income tax calculation.

• This restriction does not apply to furnished holiday accommodation.
• This also does not apply in case landlord is a company.
• This applies only in case of residential property.

Example

Jack has employment income of £26,000 and rental income of £20,000. Costs are loan interest of £2,000 and other allowable expenses of £3,000.

		£
Employment		26,000
Property	£(20,000-(75% x 2,000) – 3,000	15,500
Personal allowance		(11,500)
Taxable Income		30,000
Income Tax	£30,000 x 20%	6,000
Less tax reducer	£(2,000 x 25%x 20%)	(100)
Income tax liability		5,900

Apologies, I lifted this straight out of ICAEW Vital magazine. I could not resist seeing such a simple and beautiful example.

Conclusion:

Basically, this change effects only tax payers whose total income goes over higher rate threshold (i.e. £46,351 for the tax year 2017-18) without deducting finance cost.

Example 1 : John has salary income of £30k and rental income of £15k and finance cost of £10k. John’s total income without deducting finance cost is £45k , this is below £46,351 thus no effect for John.

Example 2  : Jane has salary income of £30k and rental income of £25k and finance cost of £10k. John’s total income without deducting finance cost is £55k , this is above £46,351 thus this will effect Jane.

To learn how it will effect, see HMRC guidance.

Bonus fact:

1. HMRC guidance mentions 82% of landlord will not be effected as their total income, without a deduction for finance costs, does not exceed the higher rate threshold.
2. In tax year 2016-17, out of UK adult population of 53.2 million , c 30.2 million were tax payers (57% of adult population). Around 4.4 million (8%) were paying tax at 40% and 333k (0.6%) tax payers are in 45% tax bracket. Click here for Source.
3. As per BBC article date June 2017. There are 15k individuals with incomes over £1m and 4k over £2m.

My colleague Neel was working on a client and asked me this interesting question.

What should be NMW for an employee who is 20 years and x months old.

NMW is given in terms of whole years like

25 years and over                            £7.83

21 to 24                                                £7.38

18 to 20                                                £5.90

As always HMRC has been kind enough to make a manual about NMW and share it with us.

See link NMWM03050.

Its states that the worker should be paid £5.90 till he reaches his 21^st birthday.

I recently read a nice book  : Tax answers at a Glance written by authors from HM Williams Chartered Accountants.

Given below is few of things which I learnt:

1. Gordon Brown started the trend of announcing tax rates for future years.
2. When you buy petrol,  most of the monies goes to the Government c60-80% depending on the petrol prices. The petrol pump owner gets c1% , even the credit card company gets more to process the transaction. I thought the Sheikhs were making all these monies. See RAC website.
3. Expenses allowed – Stationery :
   Allowed – reference books which are necessary for your job. Cost of stationery used strictly for your job.

Not allowed – Costs of books you feel you need to do your job properly, but which    are not necessary for it i.e. Subscription to journals to keep up with general news.

4. Working time directive cover domestic servants as well.

 

 

Link to publishers website

CIS Scheme is well covered by HMRC guide CIS 340.

Section 2.5 of the above mentioned guide makes it clear that expenditure incurred for own business is not covered by CIS scheme.

Thus, restaurants carrying out their own construction are not covered by CIS.

I also confirmed this by calling HMRC CIS general enquiries telephone line 0300 200 3210.