Category: HMRC

Buy to let – Lease premium

Client had a leasehold residential buy to let property. He paid a hefty premium to extend its lease term by another 70 years.

The question was whether we should treat this expense as revenue or capital.

If we took it as revenue expenses, this could be immediately deducted from the rental income and save tax immediately.

If we took it as capital expense, we will need to wait till the property is sold before we can use these expenses as a deductible expense.

Common sense guides us that any expense done to enhance the value of the property is a capital expense but in tax world many times common sense and tax laws are divergent thus we need to clarify it with a credible source.

HMRC manuals were not easily revealing the answer thus an open search on google took us to a webportal which confirmed our understanding i.e. it’s a capital expense and pointed out the HMRC manual part.

Please read the link below:
 https://www.property-tax-portal.co.uk/taxquestion93.shtml

HMRC Manual reference CG71401; link
 https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg71401

 I will suggest also read CG71400: Introduction – which give a bit of background; link
 https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg71400

Wet signatures from client

Today a question cropped up – should accountant always take wet signatures from clients as their approval?

HMRC is of the opinion that it is not compulsory.

Client can give approval by electronic or non-electronic means.

Source Link: http://webarchive.nationalarchives.gov.uk/20140206222144/http://www.hmrc.gov.uk/ebu/2012-copyspec.pdf

 

Informing HMRC about change in details

When I use to live on rent, I use to have a list of people and organisation to inform whenever I moved houses like employer, bank, subscriptions etc.

One of them was HMRC.

We need to inform HMRC in number of scenarios:

Change in personal details

  • Name
  • Address

Change in Income:

Relationship or family changes

  • Like when you get married or divorced.

 

For more details and the process of how to inform HMRC see link below: https://www.gov.uk/tell-hmrc-change-of-details

 

Corporation tax : Two tax return in the first year

Often client are confused when we tell them that we will need to file two tax returns for the first year of the company’s life.

GOV website has explained it lucidly:

https://www.gov.uk/first-company-accounts-and-return

 

 

 

Withholding tax on interest payment

Under the existing rules, which apply generally to interest other than that paid by banks or building societies on deposits:

  • Where the borrower is a company who pays interest due to an individual, the borrower is required to deduct income tax at source from the interest for payment to HMRC, and pay the interest to the lender net of tax.
  • Where the borrower is a company who pays interest due to another UK company, the borrower is not required to deduct tax at source, and interest may be paid gross.
  • Where the borrower is an individual (including a sole trader) who pays interest to either an individual or a company resident in the UK, the borrower is not required to tax deduct at source and interest may be paid gross. ·
  • However where the interest is due to a lender who is resident outside the UK, the borrower is required to deduct income tax at source from the interest for payment to HMRC, and to pay the interest to the lender net of tax, regardless of the identity of the borrower.

Primary legislation:

  • Income Tax Act 2007 section 874.
  • Rate of deduction – Basic rate : presently 20%
  • DTAA: Where DTAA exemption exists. HMRC prior permission required to pay gross.
  • Main guidance: HMRC Manual: CTM35000 Contains detailed provisions for deducting tax and depositing it with HMRC
  • Form to be submitted: CT61

 

Click here for source