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We are often asked to explain if the professional fees you pay, associated with a property transaction, are a tax allowable deduction.

The straight-forward answer is yes, they are, but it is necessary to consider the reason for which a property is purchased to determine which taxes are reduced by such payments.

Simplistically, if you buy a property with the intention to retain it and generate an income from letting the property, then any legal or other professional charges associated with the management of the property will be an allowable deduction. Any legal or other professional charges linked to the purchase or sale of a rental property will not be a deduction for income tax purposes but will be an allowable deduction for capital gains tax purposes when the property is sold.

Alternatively, if you buy and sell properties as a building developer, then all legal and professional charges associated with the purchase, development and sale of such properties will be a deduction for income tax or corporation tax.

HMRC confirm this in their business income manual:

Where taxable trade receipts would arise in respect of the sale of a property, the legal and professional fees incurred in the acquisition, development and sale of the property (including the cost of temporary mortgages or advances) should be allowed as deductions, but should be taken into account in any valuation of the land as trading stock.

The final sentence is worth further comment. Any development work in progress at the end of a trading year needs to be accounted for as stock or work in progress, and the value attributed to such work in progress needs to include the legal or professional fees associated with its purchase or development. This does not deny tax relief; it merely postpones it until the developed property is sold.

Could readers who are still confused by these issues and in need of further clarification and advice, please call.

The awkwardly named “Gift Hold-Over Relief” (GHOR) allows you to give away business assets – including certain shares – or sell them for less than they are worth, and not pay (or pay reduced) capital gains tax (CGT).

The person receiving the gift will potentially pay CGT when and if they sell the asset at some future date. Any taxable gain will then be the ultimate sale proceeds less the original cost.

The conditions for claiming relief depend on whether you’re giving away business assets or shares.

If you’re giving away business assets you must:

• be a sole trader or business partner, or have at least 5% of voting rights in a company (known as your ‘personal company’),
• use the assets in your business or personal company.

You can usually get partial relief if you used the assets only partly for your business.

If you’re giving away shares

The shares must be in a company that’s either:

• not listed on any recognised stock exchange,
• your personal company.

The company’s main activities must be in trading, for example providing goods or services, rather than non-trading activities like investment.

Claiming GHOR will usually mean that you can avoid paying any CGT on the gift

However, if you sell an asset for less than its true market value and if the value of the gift is more than you paid for it, CGT may be due. The example illustrating this point on the gov.uk website says:

Imagine that you sell a shop worth £81,000 to your brother for £40,000.

The shop cost you £23,000.

You would need to include the £17,000 gain (£40,000 minus £23,000) when you are working out your total taxable gain.

To claim this relief, you will need to make a joint claim with the person receiving the gift. We can help you complete the formalities and also consider other CGT reliefs that may be available to you.

The Prompt Payment Code (Code) is not a fanciful device to access cash from bank machines or a way to secure automatic “prompt” payment from your customers.

The Code was actually set up by the Chartered Institute of Credit Management (CICM) on behalf of government in order to promote a culture of prompt payment. Signatories to the Code agree to pay 95% of invoices within 60 days and work towards 30 days as normal practice, plus commit to other standards of good practice such as not retrospectively changing payment terms. The Code also requires signatories to give clear guidance to suppliers on payment procedures, ensure a system for dealing with complaints and disputes is communicated to suppliers and to avoid any practices that adversely affect the supply chain.

As payment practices have knock-on impacts through the supply chain, the Code also requests that lead suppliers in a supply chain encourage adoption of the Code throughout their own supply chains.

Apparently, as at the end of April 2019, nearly 2,300 organisations had signed up to comply with the PPC.

As most of us in business will wryly observe, there are 5.4m businesses in the UK, and so to have a real impact on cashflow the Code will need to be much more widely adopted.

Out take on credit control is to set up and enforce a rigorous cash collections system based on credit terms clearly set out in your terms and conditions of sale. You can’t expect your customers to pay up on-time if you haven’t indicated by which date an invoice needs to be settled.

If you are suffering from significant delays in payment from customers, you should take a hard look at your present credit control processes. If your monthly sales are £50,000 and your average credit allowed is 90 days, you are leaving upwards of £150,000 in your customers bank accounts when it should be in yours.

We can help. Redrafting your terms and conditions of sale is a good starting point, as is the introduction of strict enforcement of credit terms. Those who shout loudest are likely to get paid first.

The dictionary definition of insolvency is less than illuminating, it is:

The state of being insolvent…

Listed synonyms provide more detail:

bankruptcy · liquidation · failure · collapse · ruin · financial ruin · ruination · pennilessness · penury · impecuniousness · beggary · administration · receivership · folding · pauperdom

What these explanations do not provide is a definition of the state of insolvency. A simple definition could be the insolvency occurs when we are unable to meet our obligation to settle debts by the required due date.

In a business sense, a firm can be said to be insolvent its assets are less than its liabilities, but even this definition does not quite hit the spot.

Imagine that you use all your available cash reserves to purchase stock. To place this in a current context, you might consider this as a strategy to avoid supply line issues in the event of a no-deal Brexit.

You have no issue with doing this as you are owed a significant sum by your major customer that will restore your cash flow before bills and salaries are due at the end of the month.

But what happens if your customer is suffering cash flow issues and is unable to pay?

On paper, your business will be solvent. As long as your delayed payment from your customer does not become more serious, in time your cash flow will be restored, but how will you pay your bills at the end of the month?

Without private funds that you can introduce to see you through this impasse or the support of your bank, how will your staff and other creditors respond if you have to go cap in hand and explain there will be a delay in paying them?

Cash, liquidity, really is king, and lack of cash can actually place your business in the same position as an insolvent firm.

If you are concerned that you may be skating close to a cash flow crisis or a deeper insolvency, please call so that we can help you figure out your available options. For certain, pretending that all will work out well in the end may not be the best strategy to apply.

Although many of the tax office processes are automated, dealt with by computerised systems, the rest is managed by human beings each subject to the same range of foibles as the rest of us. And we all know how reliable computerised systems have proven to be.

If you are certain, or have misgivings, about the accuracy of HMRC’s assertions regarding your tax affairs, these need to be challenged.

Initially, use the relevant HMRC helpline to discuss your particular concern. If this proves to be ineffective, you will need to ask HMRC to deal with your grievance under their official complaints handling system.

The chronology of the complaints process is:

1. You will need to inform HMRC, online or by submitting your complaint by post.
2. HMRC will consider your request and respond.
3. If you still feel that you case was handled incorrectly you can request a second review by HMRC.
4. If you are dissatisfied with this second review you will need to present your case to the Adjudicator’s Office.
5. If you disagree with the Adjudicator’s Office, you will need to refer the matter to your Member of Parliament who will approach the Parliamentary and Health Service Ombudsman on your behalf.

Interestingly, if you are successful and resolve the issue in your favour, HMRC are obliged to cover your costs in exposing HMRC’s mistakes or challenging their delays in dealing with matters.

Costs you can claim include postage, phone charges and professional fees; which brings us to the final part of our post on this subject.

If you are convinced that you are correct, and HMRC have made a mistake, you could seek professional help in resolving the issue and it may be possible to recover any professional support charges from HMRC. If you would like to consider this option, we can help. Call us initially to discuss your grievance and we can take it from there.

There is a sting in the tail for companies that provide their directors or employees with taxable benefits as part of their remuneration package.

Obviously, the directors or employees that receive the benefits will pay additional income tax if the benefits provided are chargeable to tax: for example, the use of a company car.

The cost of the benefits is generally a deduction for the employer, and this would reduce the employer’s corporation tax bill, but it also triggers an additional, employers’ Class 1A National Insurance liability.

The amount payable is 13.8% of total taxable benefits provided.

Although this extra National Insurance payment is itself a deductible item for corporation tax purposes, this is still a net loss of cashflow for the company and needs to be considered when planning remuneration packages for directors and employees.

As we have posted previously on this site, one way that a company can trim this additional NIC charge is to negotiate a repayment of a taxable benefit from affected employees.

Why consider this?

Why would an employee consider repaying all or part of the cash equivalent of their benefit in kind? Doesn’t this diminish the value of their perks?

Certainly, this is not a strategy that you would use for all benefits provided, but there are some where there are real win-win outcomes for the employer and the employee.

A prime example is fuel provided to employees or directors for the private use of their company car. You would need to crunch the numbers, but it may well pay the employee to pay back the cash cost of private petrol provided – thus avoiding the car fuel benefit charge and reducing their income tax payments by more than the refund of fuel costs – and at a stroke, reducing the employer’s Class 1A NIC charges.

6 July 2019 deadline for 2018-19

The deadline for employees to make refunds of these types of cost to employers is before 6 April 2019 for the tax year 2018-19.

If you are unsure if this would work for your company, please call, we can help you calculate if there would be an overall benefit from adopting this idea.

Readers who have been tempted to cycle to work but are challenged by fitness issues or really can’t afford the bike they would like, might be interested in the recent announcement that has extended the existing Cycle to work scheme to include the use of so-called e-bikes.

These are bikes with electric motors that assist with taking on those challenging gradients.

Here’s what the Department for Transport have said:

A refreshed Cycle to Work scheme could help many more commuters turn to greener journeys using e-bikes.

• push to increase use of e-bikes to help tackle congestion, speed up commutes and cut travel costs coincides with the launch of Bike Week
• refreshed government guidance will make it easier for employers to provide cycles and equipment including e-bikes worth over £1,000
• employers encouraged to get their workforces cycling through loan and pooled cycle schemes, as part of government plans to encourage more active travel

Commuters will have more opportunities to boost their health, benefit the environment and speed up their journey to work, thanks to updated Cycle to Work guidance.

Cycling Minister Michael Ellis has announced a refreshed scheme today (9 June 2019), which could help many more commuters turn to greener journeys using e-bikes, 70,000 of which were sold in the UK last year.

E-bikes have an integrated motor that helps a cyclist pedal, allowing them to reach speeds of up to 15.5 mph in the UK. They are seen as a game changer for their potential to make it easier for older or less fit people to make cycling a part of their commute.

The refreshed guidance will make it easier for employers to provide bicycles and equipment including e-bikes worth over £1,000, by making it clear that FCA authorised third party providers are able to run the scheme on their behalf.

If you are interested, we suggest that you seek out a local bike dealer who can organise the formalities for you.

Most of us know that income tax is charged at three main rates: 20%, 40% and 45%.

Unfortunately, there are certain levels of income that trigger a loss of benefits or allowances as well as a charge to income tax. Because of this, the percentage rate of tax charged can be higher than the underlying rate of income tax. For example:

Similar, marginal rates apply if:

• your income moves above the threshold where working tax or child tax credits cease to be available,
• a higher paid parent’s income tops £50,000 for the first time, at which point child benefits would be under threat, or
• those with incomes in excess of £150,000, paying income tax at 45%, will find the tax relief they can claim for pension contributions will be reduced.

To avoid or lessen the impact of these marginal rate charges you will need to discuss the possibility of reducing your income below the trigger points. There are various strategies that can be employed to achieve this, including the sacrifice of salary for non-tax benefits such as increased employer pension contributions or longer holidays.

Time to rethink your remuneration strategy?

If you are concerned that you may be drifting towards these higher marginal rates of income tax, now is the perfect time to reconsider the way you structure your remuneration package. Please call if you would like our help to do this.

1 June 2019 – Due date for Corporation Tax due for the year ended 31 August 2018.

19 June 2019 – PAYE and NIC deductions due for month ended 5 June 2019. (If you pay your tax electronically the due date is 22 June 2019)

19 June 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2019.

19 June 2019 – CIS tax deducted for the month ended 5 June 2019 is payable by today.

1 July 2019 – Due date for Corporation Tax due for the year ended 30 September 2018.

6 July 2019 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

19 July 2019 – Pay Class 1A NICs (by the 22 July 2019 if paid electronically).

19 July 2019 – PAYE and NIC deductions due for month ended 5 July 2019. (If you pay your tax electronically the due date is 22 July 2019)

19 July 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2019.

19 July 2019 – CIS tax deducted for the month ended 5 July 2019 is payable by today.

If you employ students to manage your staff needs over the summer break period, you will need to add them to your payroll and apply PAYE and NIC rules.

Students should be advised that they will pay tax and NIC if:

• they earn more than £1,042 a month on average, and
• pay NIC if they earn more than £166 a week.

Students can also apply for a possible tax refund if they work for part of a tax year.

Students who normally live and study in the UK but work abroad during the holidays will need to pay:

• UK tax on anything they earn above their Personal Allowance, currently £12,500, and
• National Insurance if they work for a UK employer.

If you work for a foreign employer you don’t need to pay National Insurance in the UK, but you might have to pay contributions in the country you’re working in.