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Most property owners who let property under the Furnished Holiday Let (FHL) tax rules, submit their income and expenditure details on their tax return each year.

This article considers occupancy, and the need to review occupancy of FHL properties each year.

If your FHL business accounts year is the end of the tax year, 31 March (5 April), we suggest that you take out your calculator and booking diary before this date. If you do not meet HMRC’s criteria you may lose some or all of the valuable tax concessions for which FHL businesses qualify.

Here’s HMRC’s summary of the occupancy regulations:

The pattern of occupation condition

If the total of all lettings that exceed 31 continuous days is more than 155 days during the year, this condition isn’t met so your property won’t be a FHL for that year.

Availability conditions

Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year.

Don’t count any days when you’re staying in the property. HMRC don’t consider the property to be available for letting while you’re staying there.

The letting condition

You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year.

Don’t count any days when you let the property to friends or relatives at zero or reduced rates as this isn’t a commercial let.

Don’t count longer-term lets of more than 31 days, unless the 31 days is exceeded because something unforeseen happens.

The averaging election – if you’ve more than one property

A period of grace election – if your property reaches the occupancy threshold in some years but not in others.

If your initial run-through of the number crunching indicates that you may not meet the requirements to qualify as an FHL on one or more properties, please call so that we can help you check your calculations and see if the averaging rules apply in your favour.

1 February 2020 – Due date for Corporation Tax payable for the year ended 30 April 2019.

19 February 2020 – PAYE and NIC deductions due for month ended 5 February 2020. (If you pay your tax electronically the due date is 22 February 2020)

19 February 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2020.

19 February 2020 – CIS tax deducted for the month ended 5 February 2020 is payable by today.

1 March 2020 – Due date for Corporation Tax due for the year ended 31 May 2019.

2 March 2020 – Self assessment tax for 2019/19 paid after this date will incur a 5% surcharge.

19 March 2020 – PAYE and NIC deductions due for month ended 5 March 2020. (If you pay your tax electronically the due date is 22 March 2020)

19 March 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2020.

19 March 2020 – CIS tax deducted for the month ended 5 March 2020 is payable by today.

To assist with your calculations, see previous article, we have reproduced below the current, HMRC Advisory Fuel Rates. They are:

These rates apply from 1 December 2019.

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Advisory Electricity Rate

The Advisory Electricity Rate for fully electric cars is 4 pence per mile. Electricity is not a fuel for car fuel benefit purposes.

At first sight, company car drivers whose private fuel costs are met by their employers may seem to be onto a good thing, but there is a nasty tax hit…

Enter, the Car Fuel Benefit charge.

Let’s say the following circumstances apply:

• list price of your car when new was £30,000
• your employer pays for all your private fuel
• CO2 emissions are 147 g/km, and
• the car has a diesel engine, 2000 cc.

The 2019-20 benefit in kind charge for the use of the car (this is added to your taxable income for the year) is £9,900. This would cost a standard rate taxpayer £165 a month in Income Tax.

But then the provision of private fuel would trigger an additional Car Fuel Benefit charge of £7,953. This would cost a standard rate taxpayer an extra £133 a month.

As the title of this article suggests it is possible to reimburse your employer for private fuel provided and avoid this Car Fuel Benefit charge completely. Here’s what you would need to do:

• First of all, calculate your private mileage for the 2019-20 tax year. Estimates won’t do, you will need to create evidence, a mileage log for example.
• Multiply this private mileage by HMRC’s Advisory Fuel Rate. The present rate per mile for a 2000 cc diesel car is 11p.

Armed with this information you can now do the sums. In the above example, if the driver’s private mileage was 5,000 miles during 2019-20, the amount that needs to be repaid to the employer is £550. That’s just £46 per month.

Which means, for an effective outlay of £550, the car driver – if a basic rate tax payer – will save £1,593 in tax (£7,953 x 20%). That’s an overall cash saving of £1,043.

If you are receiving private fuel from your employer, or indeed providing private fuel for your employees, it is well worth crunching the numbers to see if there is a cash advantage to repaying any private fuel.

There are deadlines to consider and we can help you with the math and the reporting processes required.

Final planning note for employers

The Car Fuel Benefit Charge not only creates a tax charge for the employee, it also creates a National Insurance charge for the employer. And so, allowing employees to repay their private fuel costs will also reduce your NIC costs. A classic win-win outcome.

The Insolvency Service has issued a warning that fraudsters have been contacting investors in insolvent schemes claiming to be from the Official Receiver’s office or to have been appointed by the Official Receiver to help recover funds for a fee.

These approaches are always fraudulent.

Official Receivers or any agent legitimately instructed to act on their behalf will never ask you to pay a fee to get some or all of your investment back.

The Official Receiver can only make a return to you as a creditor in failed schemes if it is possible to identify and sell any remaining assets owned by the liquidated company you bought your investment from. All too often businesses of this nature have few if any, assets left to repay creditors and it can take several years to undertake complex asset recovery work and complete a liquidation.

Paying a fee will not make you a priority creditor, meaning you get paid faster or increase the chance of you getting any money back.

If you are asked to pay a fee to get your money back someone is attempting to scam you.

The Official Receiver does not charge investors a fee to get money back and does not employ anyone else to do this on their behalf.

You should report all fraudulent contact from individuals, stating they can get your lost investments back for a fee, to the Official Receivers. You can also report these approaches to Action Fraud.

If a company makes loans to its employees (including directors) there may be tax consequences. The same may also apply to loans extended to their family members.

For example, the employer will have an obligation to report a beneficial loan to HMRC (and pay Class 1A NIC) and the deemed benefit would be a taxable benefit in kind for the relevant employee.

A beneficial loan is one that is interest free or the rate charged is below the “official rate” and the benefit is the difference between these interest rate charges.

Fortunately, not all loans create a tax problem, certain loans are exempt from this reporting obligation. These could include loans employers provided:

• in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee),
• with a combined outstanding balance due from an employee of less than £10,000 throughout the whole tax year,
• to an employee for a fixed and never changing period, and at a fixed and constant rate that was equal to or higher than HMRC’s official interest rate when the loan was taken out – the current rate is 2.5%,
• under identical terms and conditions as those provided to the public (this mostly applies to commercial lenders),
• that are ‘qualifying loans’, meaning all the interest charged to the loan account qualifies for tax relief.

Loans written off will also create a National Insurance Class 1 charge for the employee. They must be reported on a P11D and the employer has an obligation to deduct and pay Class 1 NIC, from the employee’s salary, on the amount written off for tax purposes.

And finally, loans by a company to its directors or shareholders may create additional corporation tax charges.

If you are contemplating loans to employees (or director/shareholders) or have current loans outstanding can we suggest that we undertake a review to ensure any tax consequences are minimised.

The 31 January has past and we are out of the EU. But what difference does this make and what is the transition period?

The word “transition” is defined as:

A change from one to another or the process by which this happens…

Essentially, until 31 December 2020 – when the transition period ends – the UK will continue to pay into the EU and be subject to its various rules and regulations. The pre-Brexit rules on trade, travel and businesses between the EU and the UK will continue to apply until the end of the year.

During this transition period our government has determined it will negotiate the detailed arrangement that will apply from 1 January 2021.

If these negotiations fail, we may still face the prospect of a “no-deal” scenario next year.

Most political commentators have made the point that a detailed agreement on all issues will be difficult to achieve in 2020; there is an awful lot of ground to cover, and as our Prime Minister has underlined his determination to avoid any extension of the transition period beyond the end of the year, UK businesses face uncertainty yet again: no-deal or a yet to be determined trade agreement.

Our advice to clients is to spend some time during 2020 undertaking a risk assessment based on this uncertainty. It would seem to be sensible to create a plan to cover both extremes.

This makes planning difficult if you buy or sell goods and services to or from EU countries. Unfortunately, even those companies that have no direct trade with the EU will likely find that their suppliers and customers – who do trade in Europe – will be affected and may create disruptions in their supply lines.

Tackling this conundrum – what will be the effects on our businesses from 1 January 2021 – is like playing darts when the board is nailed to the side of a moving bus. As we get closer to the end of the year outcomes will be easier to predict. In the meantime, sensible planning would seem to be appropriate.

Call if you would like our help to set up a formal review of your business prospects once the present transition period has run its course.

There are certain assets that may be carried on your balance sheet at values higher than their market value or past their sell by date. If so, and if these amounts are written-off against your profits, you will pay less tax.

Three possibilities are sketched out below:

Stock

Businesses that accumulate stocks of goods do so in the expectation that the stock items will either be sold on at a profit or processed in some way and then sold at a profit. But, of course, this oversimplifies the conversion process.

However cautious or effective you are at manging your stock levels it is likely that from time to time you may be left with obsolete stock that will never be sold. The cost of these goods, rather than being charged to purchases in your profit statement, will boost the value of stock on your balance sheet.

Action: Sell the obsolete items in a sale or scrap them. In both cases write off any loss against your profits – and save tax – and free up valuable storage space for more productive activity.

Trade debtors

Ask your bookkeeper to provide you with a detailed list of customers that are never likely to pay-up and consider writing off the amounts owed as bad debts. Again, amounts written-off specific debts will reduce your tax.

There may also be an opportunity to reclaim any VAT you may have paid to HMRC on the debts written-off unless you are using one of the VAT special schemes that incorporates calculations made on a cash basis.

Equipment

It is worth reviewing your fixed assets register to consider old plant or other equipment that may no longer take a productive part in your business. As with our suggestions regarding stock above, selling or scrapping these assets may produce a tax loss; although the tax consequences are more difficult to judge.

For example, if the original cost of the redundant item was fully written-off for tax purposes when the assets was first purchased – 100% allowances have been available for some time now – then any funds realised would actually increase your tax bill. Only when the tax written-down value of the asset is higher than the scrap value will a reduction in tax be achieved.

If you are in the run-down to your business trading year end we recommend that you take a hard look at these and other issues in order to undertake a thorough review of your business trading and financial position. Please call our office if you would like our help to do this.

At the end of this week, 31 January, the UK is leaving the EU. In actuality, we are entering the “transition” period during which we will need to negotiate our ongoing terms of trade with the EU. This transition period is due to end 31 December 2020.

In the meantime, back at the coal-face, what do we need to change in order to import, export or travel to the EU from 1 February?

Most of the government missives are based on the outcome of a No-Deal Brexit. This outcome is still a real possibility unless our negotiating team reach a formal trade deal with the EU block before the end of the transition period, 31 December 2020.

Accordingly, we have summarised below the published instructions from the gov.uk website. They are:

For exporters to the EU

1. Make sure you have an EORI number that starts with GB.
2. Check that your importer has an EU EORI number.
3. Decide who will make the export declarations.
4. Decide if you want to export your goods using transit.
5. Check the rate of duty and tax for your goods.
6. Check what you need to do for the type of goods you export.
7. Find out how VAT changes will affect you.
8. Decide who will transport your goods outside the UK.

For importers from the EU

1. Make sure you have an EORI number that starts with GB.
2. Decide who will make the import declarations.
3. Apply to use the transitional simplified procedures.
4. Set up a duty deferment account if you import regularly.
5. Check the rate of tax and duty you will need to pay.
6. Check what you need to do for the type of goods you import.

For firms transporting goods out of the EU by road

1. Apply for operators licences and permits
2. Make sure drivers are eligible to drive abroad.
3. Check rules for the goods you are transporting.
4. Make sure your driver has the right export documents.
5. Find out what vehicle documents your driver needs to carry.
6. Check local road rules.

Full details of all these issues can be found on the gov.uk website at https://www.gov.uk/transition

Paying VAT should never reduce your business profits as you are acting as an unpaid tax collector for HMRC: the VAT added to your sales (less any VAT paid on your purchases) is simply collected from your customers (less amounts paid to suppliers) and the difference paid to HMRC.

But if my customers are registered for VAT can’t they claim this VAT back?

And therefore, isn’t this whole process a waste of time?

A good point, but eventually, supplies will be made to someone who is not VAT registered and at that point any VAT paid is a tax charge.

The expression “ Value Added” is just that; if you add value to a bought-in item or service, by subjecting it to a manufacturing or other process that adds value to this cost before it is sold, then the increase in the value you have added is subject to VAT. At some point in the supply chain, these goods or services will be sold to someone who cannot reclaim the VAT charged to them and HMRC will retain the VAT charged and paid to them by the last supplier in the chain.

But what if I must pay VAT before my customers have paid me?

This is an undesirable outcome, and for smaller businesses there is a remedy. You can register for the Cash Accounting Scheme (CAS). If you qualify for the CAS, instead of paying HMRC the VAT added to your sales (less VAT invoiced by suppliers), you instead pay HMRC the net VAT collected during each reporting period.

In this way, the CAS will protect your cash flow. Under current rules, the CAS is only available to businesses whose annual turnover is below £1.35m.

The CAS will not usually benefit traders who operate on a cash basis – retailers for example – or traders who are efficient at collecting amounts invoiced from customers. If you want to see if the CAS may be available and beneficial for your company, please call so that we can organise a review for you.