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One small paragraph on page ninety-nine of the Summer Budget document could have major consequences for a lot of people.
“Tackling the hidden economy – The government will extend HMRC’s powers to acquire data from online intermediaries and electronic payment providers to find those operating in the hidden economy. We will legislate at Finance Bill 2016 to achieve this, following a consultation on the detail.”
That consultation has started and runs to 14th October. Whilst the consultation document does not name any companies specifically, it refers to compelling business intermediaries such as advertising boards or platforms, App stores and booking and reservation services to provide data.
Clearly, HMRC have firms like eBay, Amazon, Apple and Airbnb in their sights in what could potentially be one of the largest tax crackdowns on record.
On the back of the eventual legislation, HMRC is promising to launch a new digital disclosure channel to enable online businesses to submit details of untaxed revenue.
The proposals are not aimed at individuals selling personal possessions online but at businesses that fail to pay tax. However, in this context, a business could be an individual trading on eBay or renting a room out through Airbnb.
There was some potentially good news on the latter with the Rent-a-Room relief set to increase from £4,250 to £7,500 from April 2016. This relief is the amount of tax-free income available to individuals who rent a room in their main residence.
It is important to bear in mind that if additional amounts are charged for meals, cleaning or laundry these must be added to the rent payment to work out the overall income. In addition, no expenses can be deducted.
However, there may be a cloud on the horizon here if we look at the situation in Ireland where the Office of the Revenue Commissioners already have the right to compel Airbnb to provide the information that HMRC are currently seeking.
The Revenue Commissioners are now arguing that Rent-a-Room relief should not apply to such rentals on this basis that the visitors are using the rooms “as guest accommodation rather than for residential purposes”. As such, their assertions is that the host is involved in a trade akin to that of the owner of a Bed and Breakfast and, therefore, the income does not qualify for the relief.
This is a contentious view disputed by many leading tax specialists and, therefore, it will need to be tested in the courts before being levied. Moreover, there is no indication that HMRC intend to follow a similar course in the UK.
However, in the age of austerity, if the Office of the Revenue Commissioners in Ireland are successful in this, it would come as no surprise if HMRC decided to follow suit.
If you are concerned that you may have untaxed revenue or over your tax affairs in general, please contact us at email@example.com for an initial free and confidential consultation.
If you would like to participate in the consultation, HMRC will accept comments by email at firstname.lastname@example.org. The full consultation document is available at https://cooperfaure.co.uk/wp-content/uploads/2015/08/Tackling_the_hidden_economy-Extension_of_data-gathering_powers.pdf
The Summer Budget included a significant change that will impact the Buy-to-Let property market.
As it stands, individual landlords receive tax relief on their mortgage interest payments at their marginal tax rate. For wealthier landlords, this means a tax relief of 40% or 45%.
The government has deemed this to be an unfair advantage over the ordinary homeowner. As a result, from April 2017 a four year programme will reduce this tax relief until it is ultimately fixed at the basic rate of tax.
In essence, once this change is fully implemented, the amount of mortgage interest tax relief available to a landlord in the Higher Income tax band will be halved.
At the same time, the rate of Corporation Tax is set to fall to 19% in 2017, and then to 18% in 2020.
The impact of these changes appear to make it much more attractive to purchase a property portfolio, even of one property, through a corporate structure.
Not only will the level of tax be less than that owning a Buy-to-Let property personally, but also there is a far wider pool of allowable business expenses that reduces the amount that is subject to tax.
However, landlords, especially in London and the South East of England, need to be aware of the Annual Tax on Enveloped Dwellings (ATED). Enveloped in this context means owned by a company, a partnership with a corporate member or another collective investment vehicle.
The tax came into force in 2012 and was originally aimed at companies that owned a high-end UK residential property or properties valued at over £2m.
However, from 1st April 2015 this property value threshold reduced to £1m and from 1st April 2016 a further band will come into effect for properties valued between £500,000 and £1 million. These properties will be subject to an initial Annual Charge of £3,500 that set to rise by the rate of inflation.
Moreover, there is no guarantee that ATED will not be extended to lower value property in the future.
Whilst there are reliefs available that could reduce or eliminate the ATED completely, these can only be claimed as part of the submission of an ATED return. This is both compulsory and separate from all the other HMRC filings. You would even need to submit a different authority form to appoint a tax advisor or accountant as Agent from the 64-8 used for PAYE, VAT and Corporation Tax.
Another important consideration is that if the property within ATED it is likely that the profit on disposal will be subject to Capital Gains Tax rather than Corporation Tax.
If a property consists of a number of self-contained flats each flat will usually be valued as separate dwellings. On the other hand, if there is internal access between the two or more flats either within the same building or in adjoining buildings these would be treated as one dwelling for ATED purposes.
All properties within ATED must be revalued on 1st April 2017 to set the value to cover the five years of ATED returns starting on 1st April 2018. This valuation is a self-assessment by the company on an open-market, voluntary sale basis and is reported on the return.
Needless to say, if HMRC challenges a valuation and it is found to be incorrect, there are severe penalties.
At CooperFaure, we are currently working with a number of clients with both individual and corporate property portfolios and would be pleased to review your circumstances. Please email us at email@example.com for an initial, free consultation.