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Save your Valentine tax this year

Love is in the air, roses, wine and chocolates are everywhere and yet some of us are still thinking about tax. Although we would never give dating advice (trust me you really wouldn’t benefit), when it comes to tax, we really know our stuff. The Marriage Allowance is a little tax saving gift definitely worth having, a simple election could help you save around £238 in 2018/19, and while this may not seem like a lot, have you seen the price of roses, so every little helps.

I know we have made light of it here but please don’t read the above and think we are not serious, the days of huge tax savings are gone, so making as much of the little savings as you can is the best way to try and reduce you tax bill. If you or your partner aren’t making full use of your Personal Allowance, £11,850 in 2018/19, then this is something we would strongly recommend. The link below will take you to a HM Revenue and Customs website where you can make the election:

https://www.gov.uk/apply-marriage-allowance

If you are not sure about the election or would like to talk it over with someone please do call us, the team are here to help. 

Income Tax on Rental Properties

If you receive rental income from land or property, you will most likely have to pay tax on the profits made. Your profit is the amount left once you have added together your rental income from all sources in the tax year and deducted any allowable expenses or allowances. Tax relief on mortgage interest has changed significantly in recent years, the relief is moving from a deduction from profit to a general tax relief. The overall result should be the same for basic rate taxpayers, however, higher and additional rate taxpayers will see their tax increase. 

Rental income is the rent you receive from individuals, businesses, local authorities, national agency etc. It can also include lease premiums and the income element of leases granted, and this must be considered when granting a lease to anyone.

When preparing your return, income and expenditure from similar types of property are combined, the typical types are, residential, commercial, UK holiday let and overseas property. When calculating the tax, different tax laws may have to be followed.

A £1,000 allowance exists which means that if your rental income totals less than £1,000 per tax year you are now exempt from completing a Tax Return.  If you’re total rental income from UK property is less than £10,000 and your rental profit is less than £2,500 then you do not have to complete a tax return, however, you must notify HMRC of the profit figure every year so that the tax due can be calculated and collected through your PAYE code. Anything over this means you have to complete a tax return for as long as you own the property. 

The same tax rates apply; 0%, 20%, 40% or 45% dependent upon which band you fall into. Whether you have two business and a rental property, just one rental property or are thinking of buying your first property to rent the important element is to ensure you are compliant with HMRC, this is so that you avoid any unnecessarily penalties.

Having an accountant support you with your rental affairs is beneficial as they can advise on elements like carrying losses forward and if you come to sell the property, Capital Gains Tax. Watch out for our blog on Capital Gains Tax coming soon.

What about my tax?

By far, the most common question we get asked by new self-employed individuals is how much should I put aside for my tax bill. Unfortunately, this isn’t the easiest question to answer as every taxpayer is different and any answer must be very general. To try to give an answer is full of perils as we don’t want a client to put too much or worse, too little a side and get a very nasty shock in January. Years of experience tells us that between 15% - 20% of turnover should cover the Tax, National Insurance and a possible payment on account. However, it’s unusual for a first-year business to make an outright profit, initial set up costs can be high.

So, what is the best advice. The best advice anyone can give you is to get your accounts in early. The quicker we can prepare your accounts the sooner you find out what is due by the following 31^st January but putting aside 15% - 20% isn’t the worst idea either.

 What happens if I can’t pay?

The best thing to do is let HM Revenue and Customs know as soon as you realise you’re going to struggle to pay your tax. HMRC understand that sometimes businesses have up and down periods and will normally try to create a payment plan that’s works for both sides. You can contact HMRC’s payment support team on 0300 200 3835. 

If you have any concerns about your tax bill or paying HMRC please do contact us on 0344 984 4445.