Newsletter September 2017
Our newsletter this month includes: a list of commonly overlooked situations regarding the disclosure of rental income, the dual aspects of claiming VAT bad debt relief, claiming for professional subscriptions and obtaining evidence of earnings for mortgage purposes.
Common misconceptions about tax and letting property
HMRC has published a list of popular misconceptions that taxpayers have about letting property. We have listed below a summary of situations where you will need to declare rental earnings to HMRC:
- If you inherit property and let it out.
- If you buy a property as an investment and let it out.
- Divorcing partners, who decide to let out their jointly owned property, will need to declare their share of any rental profits on their individual tax returns.
- You may move to a new house due to employment considerations and let out the house you are moving from.
- You may move into a care home and let out your present home to help pay for the fees.
- You may buy a property for your son or daughter to use while at university, and they may sub-let to friends on an informal basis and charge a nominal rent, which you use to defray costs. Any surplus monies received from this sort of arrangement will still need to be declared.
- Moving to tied accommodation can create problems if you keep your existing home and let it out. If the rents you receive cover your mortgage repayments (capital and interest) you may consider that you have not made a profit, but the capital part of your mortgage repayments are not an allowable deduction for income tax purposes.
Also, watch out for the effects of the changes to the rules for repairs and finance costs (interest) that we have covered in recent issues.
If you are concerned that you may be required to declare your rental income, and you have not yet done so, we can help. There is a tried and tested process to bring matters up-to-date. Please call for more information.
VAT bad debt relief
If you use standard VAT accounting - pay VAT on sales when invoiced and claim back VAT on purchases when invoiced - you may have availed yourself of the six months claim for bad debt relief on unpaid invoices. This would have allowed you to claw back VAT paid to HMRC on invoices that are more than six months old and still unpaid.
This is a welcome relief, as it returns to your bank account VAT you have paid to HMRC, but never received from your customer.
Unfortunately, this is not the whole story.
As indicated above, you will also need to take a careful look, prior to completing your periodic VAT return, to see if there are old invoices in dispute on your purchase ledger - invoices that you receive from suppliers. If they are more than six months old you will have to pay any VAT input tax you have previously claimed back to HMRC.
Accordingly, vetting your sales and purchases in this way should be part of the process you undertake before submitting a VAT return.
An alternative approach to VAT accounting may be available to you. If your turnover, before VAT, is £1.35 million or less, you could change to the VAT cash accounting scheme. Using this scheme, you will only pay output VAT, or claim back input tax, when payment is received from a customer or paid to a supplier. This generally works best if your business is consistently owed more from its customers than it owes to suppliers.
Claiming back professional subscriptions
If your employment requires that you obtain and maintain membership of a professional organisation, you can make a claim to set the cost against your taxable earnings for income tax purposes. As you would expect there are a few hoops you will need to jump through to claim this relief. They are:
- You must have the professional membership to do your job or if membership helps you with your work.
- You can only claim back subscriptions to organisations approved by HMRC.
- You cannot claim back fees for life membership subscriptions.
- You cannot claim subscriptions you have not paid yourself, for example, your employer has paid them for you.
To see the full list of professional organisations and other learned societies that are approved by the tax office visit this page on the GOV.UK website:
Evidence of earning for mortgage purposes
If you are a client, and registered to submit a Self Assessment tax return, we can provide you with a statement that you can use as evidence of earnings for mortgage purposes.
If you are not a client, there are many ways you can obtain this data direct from employers and other sources. For example, you could use the following as evidence of earnings:
- A P60 from your employer, you should receive this on or before the 1 May following the end of each tax year.
- HMRC no longer issue paper statements of income, the form SA302, but you can obtain printed self-serve copies from your HMRC online account or the commercial software used to submit the tax return.
HMRC has agreed with UK Finance (formerly the Council of Mortgage Lenders) and their members to make the necessary changes so that they will accept self-served copies of the tax calculation from the HMRC?s online account or the commercial software used to file the self-assessment return. Most of the major mortgage lenders have accepted this new format for evidencing income.
Tax Diary September/October 2017
1 September 2017 - Due date for Corporation Tax due for the year ended 30 November 2016.
19 September 2017 - PAYE and NIC deductions due for month ended 5 September 2017. (If you pay your tax electronically the due date is 22 September 2017)
19 September 2017 - Filing deadline for the CIS300 monthly return for the month ended 5 September 2017.
19 September 2017 - CIS tax deducted for the month ended 5 September 2017 is payable by today.
1 October 2017 - Due date for Corporation Tax due for the year ended 31 December 2016.
19 October 2017 - PAYE and NIC deductions due for month ended 5 October 2017. (If you pay your tax electronically the due date is 22 October 2017.)
19 October 2017 - Filing deadline for the CIS300 monthly return for the month ended 5 October 2017.
19 October 2017 - CIS tax deducted for the month ended 5 October 2017 is payable by today.
31 October 2017 - Latest date you can file a paper version of your 2017 Self Assessment tax return.