News & Updates

Private residence relief provides relief from capital gains tax arising on the disposal of a property which has been the taxpayer’s only or main residence.

In the recent tribunal decision of Hezi Yechiel TC06829, consideration was given as to whether, for the purposes of the legislation, Mr Yechiel occupied the property in question, 6 Beaufort Drive, as his only or main residence.

Mr Yechiel purchased the property in September 2007 intending it to be a family home for him and his then fiancée. The property, which was 15 minutes from his parents’ house, needed a lot of work. They married in 2008 and separated in January 2011. Mr Yechiel moved into the house in April 2011. In October 2011 the property was advertised for sale and Mr Yachiel moved in with his parents. Mr Yechiel was present each morning in the property during the period April to July 2011. His builder had previously ‘kitted up’ a bedroom and kitchen for him. The property was sold in August 2012 at a significant gain.

In determining whether the property was occupied as a main residence, the Tribunal considered the ordinary English meaning of ‘reside’ which is ‘to dwell permanently or for a considerable period of time, to have one’s usual or settled abode, to live in a particular place’.

In determining whether a property qualifies as a `residence’, the nature, quality, length and circumstance of the occupation are taken into account. Weight is also given to the taxpayer’s intention – in this case to have a ‘bolt hole’ to escape the stress of his divorce and for it to be a long-term home.

The tribunal considered what Mr Yechiel did in the house. It had a working kitchen and bedroom and (the Tribunal presumed) a bathroom. While Mr Yechiel slept there, he did not cook there or do his washing there; when he ate there, it was mainly take-way food. He brought only a bed and a side table for the property. During the period Mr Yechiel spent a significant amount of time at his parents’ house, eating there and doing his laundry there.

The Tribunal dismissed Mr Yechiel’s appeal. They found his occupation lacked sufficient quality of occupation, concluding ‘that to have a quality of residence, the occupation of the house should constitute not only sleeping, but also period of ‘living’, being cooking, eating a meal sitting down, and generally spending some periods of leisure there.

It is important that clients appreciate the quality of occupation as well as the quantity when seeking to claim private residence relief.

The tax code is fundamental to the operation of PAYE. Not only does it ensure that employees’ tax is calculated by reference to their own personal allowance, it also ensures that Scottish and Welsh payers are identified so that tax is paid at the correct rates. Codes for Scottish taxpayers have a ‘S’ prefix, whereas those for Welsh taxpayers have a ‘C’ prefix.

HMRC have begun their annual task of sending out P9 Notice of Coding email notifications advising employers of the tax code that they should use for employees for the 2019/20 tax year. Employers who have not received codes by 22 March 2019 should call HMRC’s employer helpline on 0300 200 3200.

If the employer has received a P9(T) or other tax code notification for the employee, the latest code should be used.

If no notification has been received, the code should be updated in accordance with the instructions contained in leaflet P9X.

For codes with an ‘L’ suffix, employers should add 65 to the 2018/19 code, so that 1185L become 1250L. Employers should add 71 to 2018/19 codes ending in M, and 59 to 2018/19 codes ending in N to arrive at the 2019/20 code.

Some codes can be carried forward unchanged – BR, SBR, D0, SD0, D1, SD1, SD2 and NT.

Care should be taken when updating the codes that they apply from the start of 2019/20 tax year only.

Written by the Tax Advice Network

The 2018/19 tax year started on a Friday — Friday 6 April 2018; it also ends on a Friday – Friday 5 April 2019. Where employees are paid in multiples of a week, their payday often falls on a Friday. As a result, where the last pay day in the 2018/19 tax year is Friday 5 April 2019, depending on their pay frequency, some employees may have an additional payday in 2018/19; there are 53 paydays for weekly paid employees, 27 for fortnightly paid employees and 14 for four-weekly paid employees.

The additional payday is referred to as ‘Week 53’ for weekly paid staff, ‘Week 54’ for fortnightly paid staff and as ‘Week 55’ for four-weekly paid staff. Where employers are required to make an additional payment in 2018/19, it is important that they know how to treat is correctly.

Under the PAYE system, an employee’s allowance is spread evenly throughout the year by allowing the employee a certain amount of ‘free pay’ each time that they are paid. For week 53, 54 and 55 payments, the employee benefits from an additional amount of free pay; achieved by using a non-cumulative basis for that payment only. The free pay is determined as if the payment were, respectively, a week 1, week 2 or week payment. The exception to this rule is if the cumulative pay for the year to date is less than the employee’s personal allowance, in which case, tax should be computed on a cumulative basis.

The payroll software should identify week 53 payments, but check whether it is necessary to set an indicator to recognise the additional week. The correct week number (53, 54 or 55) should be entered on the FPS.

Written by the Tax Advice Network

In some industries and organisations, it is customary for a member of staff to live in, or very close to, his workplace. For example, agricultural workers may live on the farm, tutors may live in college rooms. The accommodation is said to be provided “for the better performance of the duties”.

In such situations there is an exemption from the normal benefit-in-kind charge which would apply where the employee is provided with free accommodation. However, in the Employee Bulletin (issue 75) HMRC warned in that three conditions must be present for the accommodation to be tax free:

1. Accommodation is provided for better performance of the employee’s duties;
2. The employment is one of the kinds in which it is customary for employers to provide living accommodation to a particular class of employee;
3. The employee must be a representative occupier.

The customary test should be applied cross the industry or trade sector as a whole, not just for the specific employer alone. HMRC have said that if less than half of employees in that type of employment are provided with living accommodation, then provision of accommodation is not “customary”.

HMRC are clearly tightening up on when accommodation can be treated as tax free, particularly in the higher and further education sector. If you believe you have ruling from HMRC on this point, it should be reviewed without delay.

Note that where the accommodation is necessary for the proper performance of the employee’s duties, such as where a boarding school house master lives in the same building as the school pupils, the customary test does not apply. The accommodation is free of tax as the employee is required to live there.

Written by the Tax Advice Network

HMRC has sent out 40,000 letters to individuals warning that they may have to pay the loan charge on 5 April 2019, if they have not settled the amount of tax, penalties and interest they owe in respect of the loan scheme (disguised remuneration) they used in the past.

If you have received such a letter, you need to engage with HMRC to reach a settlement before 5 April 2019. Be rest assured worried that if you do settle with HMRC you won’t have to pay all the outstanding tax in one go. HMRC will automatically offer an instalment arrangement if the taxpayer’s current annual income is less than £50,000.

The period over which instalments can be paid varies according to the taxpayer’s annual income:

• Less than £30,000 – up to seven years
• Between £30,000 and £50,000 – up to five years
• Over £50,000 – period must be negotiated.

HMRC make it clear that there are no defined maximum periods over which the debt can be spread. However, they will expect the taxpayer to pay in the fastest possible time taking into account all other debts and essential outgoings.

In all cases HMRC will charge forward interest of 4.25% on the outstanding amount, so it is important to carefully check the calculation of what is actually owed. Any income tax already paid on the benefit-in-kind of having a low-interest or zero-interest loan should be deducted from the tax due on the basis the loan was actually salary.

Please contact our office if you would like us to negotiate a settlement with HMRC on your behalf.

Written by the Tax Advice Network

It is apparent that several software companies are spreading false information to encourage accountants and their clients to buy new MTD-compliant software. These are some of those MTD myths:

• Spreadsheets will only be accepted for one year. False: HMRC has confirmed that keeping VAT details on a spreadsheet is a valid digital record, and this won’t change.
• The entire VAT accounting system must be held on one software package. False: if there are digital links between different pieces of software or spreadsheets the VAT accounting system can be made up of several software products.
• The VAT software must be cloud-based. False: no aspect of MTD is dependant upon the software being held in the cloud.
• You must upgrade to the latest (expensive) version of software to be able to submit VAT returns under MTD. This is half true as if you want to continue to use only that software product for the accounting function and to submit the VAT return, then an upgrade will be necessary. However, most accounting packages allow you to download the data into a spreadsheet format (CVS) and which can be read by bridging software in order to submit the VAT return.

Don’t rush into buying new MTD software. There are around 100 MTD-compliant products already on the market and another 200 in development, so some of those will inevitably fail or be withdrawn in the future. HMRC is planning to produce a filterable list of the software products it has approved, so you can see which are desk-top based etc. The ICAEW Tax Faculty has attempted list the qualities of most of the MTD products on the HMRC list.

Written by the Tax Advice Network