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The home office may be a room in the home repurposed as an office for part of the time, or it can be a separate building or “pod” in the garden used perhaps entirely by the business. The extent of business use of the area will affect the costs that can be claimed as business expenses.

A home office that is used for most of the time for the business could be let to that business by the home owners, even if it is a room inside the main house. Where there is other non-business use of the area, the rental agreement should reflect the non-exclusive use. Exclusive business use could have implications for the main residence CGT exemption when the entire property is sold.

The rental charge will create a rental income for the home owners that would need to be reported on their personal tax returns. Rent-a-room relief cannot be set against this income as the business is not occupying the area for residential purposes. Also, the £1,000 property income allowance will not apply if the home owners are connected to the business as owners or directors.

As an alternative to rent, the home owner could charge the business a fair proportion of the home running costs: power, insurance and water charges. The apportionment calculations can get quite complex so it may be easier for the business to pay the home owners a flat rate allowance.

Employees and directors can be paid the tax-free home working allowance of £26 per month. Unincorporated businesses can use the simplified expenses if they use the home for business for at least 25 hours per month.

Written by the Tax Advice Network

In a time long ago, before the COVID-19 virus stalked the earth, business people would travel to meet their customers, and marvel at the bountiful swag to be gathered at trade shows. In doing so they would incur business expenses that included VAT charged by other countries.

That overseas VAT can’t be claimed through a UK VAT return, but it can be reclaimed through the HMRC online VAT service. Claims for overseas VAT incurred in 2020 need to be submitted to HMRC by 11pm on 31 March 2021. Until this date, previous refund claims can be viewed and amended as well.

Any overseas VAT incurred after 31 December 2020 can’t be included in a claim through the HMRC online VAT service, as the UK system will no longer be linked to the EU-wide VAT reclaim service.

UK businesses will have to reclaim VAT paid in EU countries in 2021 and later years, by submitting claims directly to the tax authority of the country where the VAT was incurred. These claims normally need to be submitted on paper and usually in the country’s own language. Each EU country has different refund claims deadline.

You will have to work out whether the time spent dealing with the paperwork, and in many cases battling with forms written in another language, is worthwhile to claim the small amounts of overseas VAT.

Written by the Tax Advice Network

Christmas is coming and many businesses will be shutting down production for an extended period. However, where that shutdown is not due to the effects of the coronavirus, the employer should not use the furlough scheme to cover the cost of paying the workers during that business closure.

The HMRC guidance has been updated to say: “You can only place employees on furlough if coronavirus is affecting your operations. You should not place employees on furlough just because they are going to be on paid leave or you usually do less business over the festive period”

We should also warn you that HMRC will be publishing the names of businesses who use the CJRS in December 2020 and/or January 2021, including how much they claim within a banded range. The employees will also be able to check through their personal tax account in February 2021, to see whether their employer has claimed CJRS grants for their wages for periods in December and January.

Where the furlough period begins before shutdown and continues after, then the furlough grants can be claimed for the holiday period. The leave taken by the employees will be treated as using up some of their statutory and contractual leave, although they will also be on furlough.

The CJRS grant can be claimed for amount of the holiday pay which falls with the CJRS limits (80% of reference pay capped at £2,500 per month). However, the employer must follow the working time regulations that require holiday pay to be paid at the employee’s normal rate of pay, as set out in their employment contract.

Remember the CJRS grants for November onwards must be claimed within 14 days of the end of the month they relate to, so by 14 December for November claims.

When reporting any early paid December salaries under RTI the ‘payment date’ in field 43 must be left as the normal contractual payment date, or over written if your software changes it to actual payment date. Say employees are normally paid on the last Friday of the month (25 December) but the employer will pay them on 18 December, the payment date must remain as 25 December.

Written by the Tax Advice Network

UK resident taxpayers now need to report and pay CGT due on the disposal of residential property within 30 days of the completion date. This has prompted a director of HMRC to say that 2019/20 will be the last year that taxpayers have to pay CGT on the sale of properties with their SA tax returns. This is not correct.

Taxpayers are still required to report and pay CGT in respect of disposals (not just sales) of all types of property and other assets as part of their SA return. The gains arising from residential property must be reported twice for the same tax year:

• On the taxpayer’s UK property account alongside an “on account” payment of CGT
• On the SA return, with a payment of any further CGT due, or reclaim any overpaid CGT.

For disposals made on and after 6 April 2020 non-resident individuals and trustees must report the gains or losses from all types of UK property on their UK Property Account, within 30 days of the date of completion of the deal. This applies to UK property held directly or indirectly.

The taxpayer’s UK property account can now be amended for details of earlier disposals. Where the disposal by a non-resident was made before 6 April 2020 using the previous structured email form, that calculation can also now be resubmitted showing the final figures.

Disposals of property are not necessarily sales. Many families pass down property to the next generation as gifts, but these disposals must also be reported as the property is treated as being transferred at market value between connected parties. CGT will arise on any resulting gain.

Hold-over relief, which effectively postpones the gain until the asset is disposed of by the recipient, is only available on business assets, agricultural land, or where the gift is subject to IHT. If such a hold-over relief claim is made HMRC will now accept digital signatures on that claim form.

Written by the Tax Advice Network

Office parties will have to be online this year because of the coronavirus restrictions that apply across most of the country. But employers can still say “thank you” to their employees with a physical gift.

HMRC has confirmed that the cost of online staff parties will be an “annual event” for employers qualifying for the tax-free limit of £150 per person. Remember this is an absolute cap not an allowance, and if the cap is breached the whole amount is taxable and subject to NIC.

The £150 per head limit applies to all those attending the event, not just employees. It should cover the cost (including VAT) of food, drink and any entertainment provided. The employer could send a food hamper to every employee to enjoy while attending the online party, and provide a form of entertainment such as a live comedian, music or a quiz, all delivered online of-course.

In addition to, or instead of the online staff party, the employer can give a physical gift worth no more than £50 to any or all of the employees. These trivial benefits must not be provided in return for the employee’s normal service, and must not be a contractual entitlement. Also, the gift must not be cash or a cash voucher.

For employees who are not the company’s directors or their family members, there is no limit to the number of trivial benefits the employer can give during the year. A gift-card that is topped up at intervals with £50 each time would fail this test as the total value given in the year would be counted as one gift.

Directors have an annual cap of £300 for trivial benefits, which also applies to members of their family or household.

Written by the Tax Advice Network

When claiming the first two SEISS grants the self-employed individual had to confirm that their trade had been “adversely affected” by the coronavirus. This condition has been replaced with a more precise “impact on demand” test, but it’s not quite that simple.

To qualify for any SEISS grant the self-employed person must have traded in both 2018/19 and 2019/20, and submitted their 2018/19 SA tax return by 23 April 2020. In addition, the trading profits must make up at least half of their annual income, but if those profits exceed £50,000 for 2018/19 or on average for the three years to 2018/19, no SEISS grant is payable.

Where the taxpayer is eligible the third SEISS grant will be paid at 80% of their average profits for 2016/17 to 2018/19, for three months, but the individual must confirm that they are:

• currently trading and are “impacted by reduced demand”; or
• have been trading but are temporarily closed due to coronavirus.

The trader must also confirm they are:

• intending to continue to trade; and
• reasonably believe that the impact on their business will cause a significant reduction in their trading profits due to reduced business activity, capacity or demand, or inability to trade due to coronavirus during the period 1 November to 29 January 2021.

The previous “adversely affected” test was met if the business turnover had remained constant or increased but business costs had increased due to coronavirus, leading to a reduction in profits.

The reduced demand test means the level of sales for the current accounting period (taxed in 2020/21) must have reduced, or the capacity for sales must have reduced due to fewer customers, fewer contracts, or disruptions in the supply chain.

Where the accounting period aligns to the tax year, this is fairly straight-forward, but a 30 April 2021 year end will be taxed in 2021/22, as reported on the SA return submitted by 31 January 2023. We may need to help you forecast your turnover for the full tax year to 5 April 2021.

The SEISS grant must be claimed by the individual, we can’t claim it on behalf of our clients, so you need to understand the terms and conditions of receiving that government money.

Written by the Tax Advice Network