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February 2025 Newsletter

Our news this month covers a variety of good-to-know tax topics. If you're a landlord you can refresh your knowledge on allowable expenses against rental income in our first article - including important differences such as repairs but not improvements. The Trading Allowance is currently under the spotlight and could affect casual traders who sell things online, even if it's just as a hobby, when more than £1000 is earned. We have covered the parameters around deferring Capital Gains Tax under the Business Asset Rollover Relief rules. It's worth checking out our article on claiming VAT on purchases made before VAT registration - specifically if they relate to services supplied post registration and up to 4 years before. And our final article centres on the changes to self-employment profit reporting - this is important information to digest for anyone who is self-employed. Our financial deadlines take us up to mid-March so be sure to check to see if you have any imminent payments or returns due.

What expenses can be claimed against rental income?

Are you a landlord? Maximise your rental income by knowing which expenses you can claim to reduce your tax bill. From maintenance costs to Replacement of Domestic Item Relief, understanding allowable deductions is key to smart property management.

If you are a landlord, it is important to be aware of the expenses that can and cannot be claimed from rental income. As a general rule, allowable expenses must be wholly and exclusively for the purpose of renting out the property. In some cases, a proportion of expenses can be claimed if part of the expense relates to the property business.

Common types of deductible revenue expenditure include:

  • General maintenance and repairs to the property (but not improvements)
  • Water rates, council tax, gas, and electricity
  • Insurance costs
  • Letting agent and management fees
  • Qualifying legal and accountancy fees
  • Direct costs such as phone calls, stationery, and advertising for new tenants
  • Vehicle running costs (only the proportion used for the rental business), including mileage rate deductions for business-related motoring costs

Additionally, the Replacement of Domestic Item Relief allows landlords to claim tax relief when replacing furniture, furnishings, appliances, and kitchenware in a rented property, provided certain conditions are met.

Landlords should also keep a record of any capital expenditure incurred on investment properties. These expenses cannot be claimed as revenue expenditure against rental income but can usually be offset against Capital Gains Tax when selling a property.

Selling online and paying tax

Selling online? Whether it's a hobby or a business, you may need to pay tax if your earnings exceed £1,000. From services to content creation, it's vital to understand self-assessment rules and new reporting obligations for online platforms starting in 2024.

If you are selling anything through an online marketplace, it is important to know that you might be liable to pay tax, whether it is your main source of income or just something a part-time hobby. This applies to a range of activities, so it is worth understanding when you need to register for self-assessment and pay tax.

You may need to report your earnings and pay tax if you are doing any of the following:

  • Buying goods to resell, or making things to sell (even if it's just a hobby that you sell items from);
  • Offering services online, such as dog walking, gardening, repairs, tutoring, food delivery, babysitting, or hiring out equipment;
  • Creating online content, whether that's videos, podcasts, or even social media influencing; or
  • Earning income by renting out property or land, like letting a holiday home, running a bed and breakfast, or renting out a parking space on your driveway.

There is a Trading Allowance you can claim that allows you to earn up to £1,000 a year from self-employment without having to pay tax or register as self-employed. But if you go over that £1,000 threshold, you will need to register with HMRC as self-employed and submit a self-assessment tax return.

If you are just selling personal items, such as second-hand clothes or unwanted electrical goods, you typically do not need to worry about registering for tax. This is not considered a business activity, so it does not count as trading in the eyes of HMRC.

For those using online platforms to sell goods or services, there are new reporting obligations. Any relevant information about your sales may be reported to HMRC by the platform you use. There is a new requirement for online platforms to report pertinent information collected about online sellers between 1 January 2024 to 31 December 2024 to HMRC by 31 January 2025. This will only happen if you have sold 30 or more items or earned £1,700 (or €2,000) in the calendar year. The platform will also provide you with a copy of the information they send to HMRC, which can be helpful when you need to submit your own tax return.

Rolling over capital gains

Business Asset Rollover Relief allows you to defer Capital Gains Tax (CGT) when reinvesting proceeds from selling business assets. By rolling gains into the cost of new assets, tax is postponed until the new asset is sold. Learn how this relief can optimise your business investments.

Rolling over capital gains is a useful way to defer CGT when you sell or dispose of business assets.

Essentially, if you use the proceeds from selling an old asset to buy a new one, the gain is "rolled over " into the cost of the new asset. This means you do not have to pay CGT on the gain immediately; instead, the tax is deferred until you sell the new asset. This relief is known as Business Asset Rollover Relief. The amount of the gain is effectively rolled over into the cost of the new asset and any CGT liability is deferred until the new asset is sold.

If you do not use all the proceeds from the sale to buy a new asset, you can still make a partial rollover claim. Additionally, you can apply for provisional rollover relief if you plan to buy new assets but have not yet done so.

Rollover relief also applies if you use the sale proceeds to improve assets you already own.

The total amount of relief depends on how much you reinvest in new assets. There are a few conditions to keep in mind.

  • the new asset must be purchased within 3 years of selling the old one (or up to a year before), though HMRC can sometimes extend this period;
  • both the old and new assets must be used for your business, and your business needs to be trading when you sell the old asset and buy the new one; and
  • claims for relief must be made within 4 years of the end of the tax year when the new asset was bought (or the old one was sold, if that happened later).

Claiming VAT on pre-registration purchases

Businesses can reclaim VAT on pre-registration expenses if they relate to taxable supplies made after VAT registration. The rules differ for goods and services, with time limits of 4 years for goods and 6 months for services. Proper understanding ensures you don't miss out.

VAT can only be reclaimed if the pre-registration costs relate to taxable goods or services that will be supplied by the business after it becomes VAT registered.

Different rules apply depending on whether the costs are for goods or services:

Goods: VAT can be reclaimed for goods still held by the business or for goods used to produce other goods still in possession of the business.

  • Time limit for reclaiming: 4 years from the date of registration.

Services: VAT can be reclaimed for services related to the business.

  • Time limit for reclaiming: 6 months from the date of registration.

Pre-registration VAT should be reclaimed on the business's first VAT return. In certain cases, it may be possible to backdate the VAT registration. This should be considered if there is additional Input Tax that can be recovered.

There are specific provisions for partially exempt businesses, businesses with non-business income, and the purchase of capital items under the Capital Goods Scheme (CGS). These rules may affect the recoverability of VAT and should be reviewed in detail based on the circumstances of the business.

Self-employed must report profits on tax year basis

Big changes are here for the self-employed! From 2024-25, profits must align with the tax year, replacing the old "current year basis. " Overlap relief is ending, and transition profits will be spread over five years. Here's how the new system affects your tax bill.

The reform to the self-employed tax basis period has introduced significant changes in how trading income is allocated to tax years. Previously, the tax basis period operated on a "current year basis, " but the reform has now shifted to a "tax year basis. " As a result, all sole traders and partnership businesses are required to report their profits based on the tax year, commencing with the self-assessment return that was due by 31 January 2025. This return covered the tax year 2023-24.

Under the previous system, overlapping basis periods could occur, which resulted in certain profits being taxed twice. To counter this, businesses could claim 'overlap relief,' typically at the time of business cessation. The introduction of the "tax year basis " eliminates the possibility of overlapping basis periods, thereby preventing the generation of further overlap relief.

It is important to note that businesses which already prepare annual accounts to a date between 31 March and 5 April are not affected by these changes. These businesses continue to file their tax returns as they did under the old system, without any alteration.

The full implementation of the new rules takes effect in the current 2024-25 tax year, which ends on 5 April 2025. The 2023-24 tax year is considered a "transition year. " During this transitional period, the basis periods for all businesses will be aligned with the tax year, and any outstanding overlap relief can be utilised against profits for that period.

In cases where profits exceed the period covered by the overlap relief-specifically profits that span more than 12 months-these are referred to as "transition profit. " This transition profit will, by default, be spread across five tax years, from 2023-24 to 2027-28, to help ensure a smooth adjustment to the new rules.

Tax Diary February/March 2025

1 February 2025 - Due date for Corporation Tax payable for the year ended 30 April 2024.

19 February 2025 - PAYE and NIC deductions due for month ended 5 February 2025. (If you pay your tax electronically the due date is 22 February 2025)

19 February 2025 - Filing deadline for the CIS300 monthly return for the month ended 5 February 2025.

19 February 2025 - CIS tax deducted for the month ended 5 February 2025 is payable by today.

1 March 2025 - Due date for Corporation Tax due for the year ended 31 May 2024.

2 March 2025 - Self-Assessment tax for 2023-24 paid after this date will incur a 5% surcharge unless liabilities are cleared by 1 April 2025, or an agreement has been reached with HMRC under their time to pay facility by the same date.

19 March 2025 - PAYE and NIC deductions due for month ended 5 March 2025 (If you pay your tax electronically the due date is 22 March 2025).

19 March 2025 - Filing deadline for the CIS300 monthly return for the month ended 5 March 2025.

19 March 2025 - CIS tax deducted for the month ended 5 March 2025 is payable by today.




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