In line with government guidelines, large swathes of UK workers are currently working from home.  Whilst there are a range of expenses you may be able to claim depending on your specific circumstances, this blog is aimed at those of you who own a limited company and are running the business from home. Rather than claiming the flat rate of £6 per week (£26 per month) under the simplified expenses rules, it may be more beneficial to instead rent out the personal work space in your home to your limited company. Under this arrangement, where the rent charged is equal to costs (see below), then no taxable rental profits will arise. Furthermore, provided that the rent is charged at no more than the market rate then the rental payments ma...

The case of Reneaux and Another v HMRC (2019) provides guidance on the level of business activity required to be treated as “trading” for Entrepreneurs’ Relief (“ER”) purposes. In this case, the First-Tier Tribunal (“FTT”) held that the occasional use of business premises and the letting of those premises were not sufficient to amount to a trade. Entrepreneurs' Relief  ER is a valuable relief which can reduce the rate of Capital Gains Tax (“CGT”) on the sale of business assets to 10%. In brief, in order for sole traders or partners of partnerships to qualify for relief they must have sold whole or part of their business, or disposed of an asset used in a business at the time the business ceases to be carried on ....

When businesses/companies employ capital assets (e.g. machinery, motor vehicles) for use in their business, such costs are not deductible from trading profits because the expenditure will have an enduring benefit for the trade. Instead, relief is available through capital allowances which essentially allows relief for the fall in value of capital assets, providing a deduction when arriving at taxable profit. Furthermore, the annual investment allowance (AIA) is available to businesses to encourage greater levels of investment. The AIA reduces the costs of capital by providing 100% capital allowances for the first £1,000,000 (between 1 January 2019 and 31 December 2020) of plant an machinery (excluding cars) acquired by the business for...

Capital Allowances are a form of tax relief that can be claimed by traders when they incur expenditure on “plant and machinery”. They can be deducted from the tax adjusted profit for the accounting period, thereby reducing the taxable trading profit. However, the definition of what constitutes “plant and machinery” is a contentious issue and one that is discussed in a significant amount of case law. The case law, along with the Capital Allowances Act 2001 and HMRC practice, suggests that an asset qualifies as “plant” if it has an expected life of two years or more and has a clear function in enabling the activities of the business to take place. Buildings and a number of other structures are specifically excluded from t...

Changes introduced by the Finance Act 2019 (FA-2019) address inconsistencies between the tax treatment of tangible fixed assets (e.g. cars, vans, machinery, buildings) and intangible fixed assets (e.g. goodwill, intellectual property). The new provisions bring the intangible fixed assets rules more in line with those applying to tangible fixed assets. Degrouping Charge A degrouping charge may apply where a company (Co A) acquires assets from another group company (Co B) on a no gain/no loss basis, and Co A leaves the group within 6 years of acquiring the asset. The effect of a degrouping change is that Co A is deemed to have disposed of and reacquired the asset at market value immediately after the asset was acquired, thereby crea...

It was announced in the Budget 2018 that the government was introducing a new Structures and Buildings Allowance ("SBA") for costs incurred in relation to the construction, conversion, and/or renovation of non-residential structures and buildings. Effective from 29 October 2018, the SBA is available on the construction, conversion, and/or renovation costs relating to non-residential structures located in the UK or overseas. Please note that the SBA is only available for projects where the contract was entered into on or after 29 October 2018. The SBA is given at an annual rate of 2% on a straight-line basis for a fixed 50-year period from the date the structure comes into use.  Interestingly, there will not be a system of balancing ...

Here are some of the highlights from the Chancellor of the Exchequer's 2018 Budget (published on 29 October 2018): Personal Tax The Personal Allowance will be raised to £12,500 and the Higher Rate Threshold (i.e. the amount that an individual can earn before paying higher rate tax) to £50,000 in April 2019 – a year earlier than planned. These levels will remain the same in 2020/21, and then increase by CPI going forward. The final exemption period for Principal Private Residence Relief (PPR) which provides Capital Gains Tax relief on the sale of your home will be reduced from 18 to 9 months. Under the current PPR rules, where you have let a property which at one point was your home Lettings Relief may be available to reduc...

The Confederation of British Industry ("CBI") has submitted its recommendations to the Treasury on how to tackle the UK's skills shortage and encourage productivity and investment in business. After highlighting that the UK has the lowest level of business investment as a proportion of GDP in the G7, the CBI asked the Chancellor to use to Budget to assure businesses that the Government is committed to taking action to boosting UK competitiveness. A selection of the CBI's key demands have been provided below. 1. Capital Allowances The CBI has recommended that the Annual Investment Allowance ("AIA") for capital allowances is increased to £500,000 for two years to boost innovation and UK competitiveness. It is thought that this i...

The Office of Tax Simplification (the "OTS") has concluded its review on whether depreciation should replace capital allowances ("CAs") for tax purposes, and has found that whilst deductions for depreciation would simplify the system and more accurately reflect the underlying cost of assets, this would not outweigh the disruption such a change would cause. Background Under the current rules, a business recognises the reduced value of an asset in its accounts by including deductions for depreciation. Furthermore, deductions are made to account for the purchase of new capital assets. However, when calculating its taxable profits, the business is required to add back expenditure incurred on the acquisition of assets and any depreciat...

The sale of assets/property by a company is a deceptively complex area, and there are a number of issues and reliefs that must be considered to ensure that the corporation tax payable on the capital gain is correct. Sale of Asset – General Deductions In determining the capital gain on the disposal of an asset (most commonly property), a deduction can be made in respect of the following: Base cost/Acquisition cost; Incidental costs of acquisition and disposal, e.g. professional fees, advertising costs, and valuations; Costs incurred that increase the capital value of an asset (known as “Enhancement Expenditure”), e.g. costs of building an extension Capital Allowances On the purchase of property/assets by a compan...