Construction VAT Reverse Charge UK – Guide & Rules
If you are a UK VAT registered company suppling building and construction services you should be aware that you must apply VAT reverse charge to your supplies from 1 March 2021. WHAT WOULD IT MEAN? This means that if you are a sub-contractor the customer will no longer be paying you VAT. As a result you will notice that the gross value of the payments coming in your business as sales will be reduced. This means that if you are supplying construction services to a VAT registered customer you will no longer be accounting for VAT in other words, the supply which is covered by a reverse charge no VAT will be due on the sales . TO WHOM THE CHANGES APPLY? To see if the changes apply to you. You should ask yourself the following questions If the answer to the above is yes then the changes will apply to you and you will be charging a reverse VAT charge. In addition you shouldn’t be an employment business and you should not have a written confirmation from your customer that they are the end user. WHAT STEPS DO I NEED TO TAKE? To establish if the reverse charge applies to you ask your customer for their VAT number, CIS and the end user status. Make sure that you are not a employment business because if you are supplying construction workers your business will be treated differently for VAT purposes and reverse VAT will not be charged. If the conditions are met and you come to a conclusion that the domestic VAT reverse charge will apply to your supplies you should consider changing your invoices because now you will not be charging your customers VAT. As you, the supplier will be claiming net repayments from HMRC, HMRC recommends that you to move to monthly returns as this will help with the cash flows. VAT RETURN In your VAT return, include the value of the sales when you receive the payment from the customer which will no include the VAT. VAT on Sales When the sales are made, under the domestic reverse charge rules, the supplier must not enter any output tax on sales. Only net value of the sales will be added to the box. VAT on purchases Under the VAT reverse charge rules , you must enter the VAT charges as an output tax on your VAT return. Input tax can be reclaimed on the reverse charge purchases. Its always best to seek a professional advice on this matter. We at Taxaccolega have an expert team of accountants dealing with customers under CIS scheme. We have specialist VAT accountants just call us at 020 8127 0728 and we will be happy to help you. Source: https://www.gov.uk/guidance/how-to-use-the-vat-reverse-charge-if-you-supply-building-and-construction-services
Corporation tax increase by 6% – Will it affect your property business?
In the budget it was announced that there will be an increase in the corporation tax by 6 % from 2023. According to the HMRC website this will affect the 30% of the trading companies which are doing well and making a profit of more than £50 000. ‘70% of the actively trading companies will continue to pay tax at 19% making a profit of less than £50 000.’ If you are running a property business for example renting property through a limited company things that you need to consider the following: STAMP DUTY TAX RELIEF The stamp duty tax holiday has been extended so the buy to let landlords might be looking into buy more property to widen their portfolios. There has been an increase in the buy to let landlords in 2019, but after the budget they might be looking if its still worth it to run through a limited company or as a sole trader. CAPITAL GAINS TAX There was a prediction that there will be a capital gains tax increase in the budget announced. However, it is a relief that there is no increase in the capital gains tax relief which along with the extension of the stamp duty relief will encourage the property owners to buy and continue to stay in the business. DIVIDENDS If you are a company director you will be paying yourself dividend and you will be paying income tax on it. The dividend allowance for 2021/ 2022 is £ 2000. IF you are a basic tax rate payer you will be paying your dividends at the rate of 7.5%, 32.5% at the higher rate. PROFITS You are considered to be in a property business if you are renting more than one property. If you are renting property and the total taxable rental income after deducting all the expenses are £50 000 or you are expecting to make the rental income up to £ 50000 in 2023 you should be aware that you will have to pay corporation tax at the rate of 25%. A taper relief will be introduced so you wont have to pay a tax at the main rate of 25 % till your profits reach £ 250 000. PERSONAL ALLOWANCE In the budget, Sunak announced that the personal allowance will increase to £12 570 for the basic rate payer and for the additional tax rate payer it will increase to £50 270 from April 2021. The increase in the personal allowance will reduce the income tax and dividend that is payable to the HMRC. FINANCE COST If you are running a property business through a company you will be able to deduct the finance cost as an expense which you will no longer be allowed if you are self- employed. This way if you run the property business through a limited company you can reduce the taxable income and therefore reduce costs to the company. If you are looking to invest in property and need advice on how to structure your business, please do not hesitate to contact us for an expert advice. We are property accountants and we can provide accounting services at affordable rates.
How the Personal Allowance Increase Affects You – UK Tax
Increase in the Personal Allowance- How does it affect you? In the budget last week, the chancellor, Rishi Sunak announced that there will be an increase in the personal allowance from the tax year starting April 2021 and will remain the same till 2026. This means that the allowance after rising in April 2021 will remain frozen for the next 6 years. Personal allowance is the allowance up to which you do not have to pay any income tax. For the tax year 2020-2021 the personal allowance was £12, 500.Every individual would pay income tax if they earned more than £12, 500. For individuals earning more between £12501- £ 50 000, tax was paid at 20% this was the basic tax rate bracket. The changes are summarised in the table below: Tax year: 2020-2021 Tax year: 2021-2022 till 2025-2026 Increase or decrease in the allowance Personal allowance £12,500 £12,570 £70 increase Basic Tax Rate Threshold-20% £12,501-£50,000 £12,571-£50,270 £70 increase Higher tax Rate Threshold-40% £50,271-£150,000 £50,001- £150,000 £270 increase Additional Tax Rate Threshold-45% £150,000 and above £150,000 and above No change The changes mean that the individuals can earn an extra of £70 than they were earning now without having to pay tax. The Basic Tax rate payer will pay income tax at 20% on £37,699 after the personal allowance of £12, 570. The Basic Tax rate payer can earn an extra of £14 per year while the higher rate tax payer will be able to earn an extra of £68 a year as calculated by Low Income Tax Reform Group. The personal allowance is expected to remain at the same threshold till year 2026. This means that although the wages will increase with time either due to inflation or otherwise the threshold will remain the same, it will not increase even in the line of inflation. This will result in individuals paying more tax over the years as the basic tax rate payer will be pushed in the higher rate tax bracket. Look at this example below: Mr A earned £70, 000 in the year 2020-2021. How much income tax will he be paying? Total income £70,000 Personal Allowance (12,500) Taxable income £57,500 tax at 20% 10,000 tax at 40% 7,500 total tax paid £17,500 Mr A has an increased income in the tax year 2024-2025 of £ 80, 000 Income £80,000 PA (12,570) taxable income £67,430 tax at 20% (50, 270*20%) £10 054 tax at 40%(17,160*40%) £6,864 total tax payable £16,918 Mr A will be better off as a result of the increase in the personal allowance and the thresholds even though his income is increased. Look at another example of Mr B who earns £60, 000 and is a basic tax rate payer. When calculated he will be paying £9500 of tax in the year 2020-2021. However, if Mr B`s income increases to £70, 000 over 2 years and the thresholds remain the same he will be pushed in the higher rate tax bracket, the total tax that he will pay will be (10, 054+2864)= £12, 918. Although he is pushed in the higher rate tax bracket and paying less tax due to increase in the thresholds, he could have saved some tax had the threshold increased in line with the threshold by staying in the same tax bracket. Keep a check on your tax codes to make sure which tax bracket you are in and at what rates you will be paying taxes. To know more about the personal allowances and how to save money on taxes by making use of the allowances you can talk to our expert tax team in Croydon. Call Taxaccolega at 020 8127 0728 and we will be happy to help you.
Airbnb income- what tax exemptions can I get?
Airbnb income is taxed in the same way as the any other income is taxed, however, there are some exemptions available. This depends on if you are renting the room in the property that is your main home or it is buy to let property. Rent a Room Relief You will get rent a room relief if you qualify for the rent a room scheme. To qualify for rent a room scheme you should meet the following requirements: You will qualify for the relief even if you are running it as a bed and breakfast guest house as long as it is in your main home and furnished. WHAT RELIEF DO YOU GET? If you qualify for rent a room relief you will get an exemption on first £7500 of your income. This relief is applied on the rental income that you will get before deducting any expenses. The rental income is the figure that you get by adding all the receipts from your Airbnb customers. (The figure that you get after deducting all the expenses is your rental profit) If the total of all the rental income is less than £7500 per year you will get an automatic exemption and you wont even have to declare it in your annual tax return. If you are sharing this income with your spouse the allowance is halves and each of you will get £3, 750. If the total rental income from Airbnb hosting income is more than £7500 you will have to declare it to HMRC in the annual tax return. If your income relates to tax year 2020-2021 you will have to pay tax on or before 31 Jan the following year. HOW DOES IT WORK? If your income is more than £7500,you have 2 options available to you Option 1: you can deduct all the expenses that are directly related in renting the property and you pay tax on the rental profit that you get depending on which tax band your income falls into. Please note that in the budget the personal allowance and the tax bands are set to increase from the tax year starting April 2021. For tax bands see here. Option 2:If your Airbnb income is more than £7500 and you want to claim rent a room relief on it you can deduct £ 7500 from the recipients that you get, however in that case you cannot deduct any expenses (such as heat, light, electricity). You can use either depending on how much expenses you can deduct. If your expenses are less than £7500 you will be better off if you claim rent a room relief. The relief is not available to the buy to let property, the income tax will be calculated in the normal way as any other self employed business. If you are looking for a property accountant in Croydon, Surrey who can help you with taxes contact Taxaccolega at 020 8127 0728 if you are renting property, or selling and buying property in London we can help you with that.