Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.

While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.

Bank Interest Rate up to 1.25%

The base rate has been increased by 0.25% to 1.25%.

The decision on the rate rise was opposed by three members of the monetary policy committee who argued for a 0.5% increase in the rate. The US Federal Reserve has taken even starker action to stem rising inflation with a 0.75% increase in rates to 1.75% announced yesterday.

The April inflation figure was 9% but presumably it will continue to increase as will the base interest rate.

UK GDP growth is expected to slow, but the labour market was expected to tighten and the unemployment rate is projected to rise to 5.5% .

The Consumer Price Index is expected to average 11% later this year.

Inflation is expected to fall back over the next couple of years. But we will just have to wait and see what actually happens.

Accountancy and Gender Equality

Four leading accountancy firms have appeared in this year’s edition of The Times’s Top 50 Employers for Women list.

Covid is generally seen as having accelerated the trend of grater opportunities for women because it has increased the flexibility of when and where to work, blurring the boundaries between home and office.

But reports suggest that women in accountancy continue to face significant equality challenges from career breaks, when women step out of the profession to raise children, or to be carers.

These breaks and additional responsibilities can set them back. There’s a long-hours culture particularly in practice and that’s tricky if you have a family.

A measure of the inequality in organisations and sectors is mandatory gender pay gap reporting but this does not report the position in smaller practices. It is also debateable how meaningful this reporting is in practice.

An alternative measure and probably more meaningful is pay-quarter data. This looks at the overall ratio of men to women, after splitting the company’s pay range into four equal chunks. You are then looking at the ratio in each quarter.

At the end of the day it must come down to equality of opportunity but that includes not just the work place but also the sharing of home responsibilities. There is probably still a long way to go. If we want to see equal representation of genders at all levels in the profession, then there has to be a whole life approach.

Trivial Benefits – A Little Something Tax Free.

Small benefits are deemed to be trivial and therefore exempt from tax and reporting obligations provided:

• the cost of providing the benefit cannot exceed £50 per employee (including VAT),
• the benefit is not cash or a cash voucher (but gift cards would qualify as long as they are not exchangeable for cash);
• the employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements);
• the benefit is not provided in recognition of particular services performed (or in anticipation of such services) or as part of their normal employment duties.

In most instances, an employee can receive multiple trivial benefits throughout the year, as long as each one does not exceed £50. However, for most small companies, the exemption is capped at a total cost of £300 in the tax year where the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family or household).

There are various other non-taxable benefits including:

• Payments for business mileage in an employee’s own car, provided they are within HMRC approved rates (45p per mile for the first 10,000 miles and 25p per mile thereafter). Any excess above these amounts will be taxable
• Employer payments into a registered pension scheme
• Medical treatment to help an employee return to work after an absence (or expected absence) of at least 28 days, up to a maximum cost of £500
• One health screening assessment and one medical check-up per year, but any follow up treatment is taxable
• Meals provided in a staff canteen and light refreshments at work
• Parking provided at or near an employee’s place of work
• Workplace nursery places for the children of employees.
• Removal and relocation expenses up to a maximum of £8,000 per move
• One mobile phone per employee, registered in the employer’s name
• Annual social functions for employees provided that, in any one tax year, the total cost does not exceed £150 per head (including VAT)
• Use of a pool car – this is a vehicle made available for use by more than one employee, with very limited private use, which is not normally kept overnight near the residence of any of the employees
• Expenses that are paid or reimbursed by employers, so long as they were incurred entirely for business purposes.
• Additional household expenses incurred whilst your employee is working from home (e.g. electricity, heating or broadband) can be paid at a flat rate of £6 per week from 6 April 2020.

IHT and the Family Home

IHT levies a 40% charge on everything we have on death above the nil rate band, which is currently £325,000.

The freeze on the nil rate band combined with increasing house prices means that more and more taxpayers will be suffering IHT on their death estates.

The family home does not generally enjoy an exemption from IHT but where the family home is a farmhouse or a farm cottage, IHT agricultural property relief (APR) could be available.

APR requires a working farm held for the requisite period, and for the farmer to live in the house, making all the decisions about the farm in the farmhouse and treating the home as the hub of the farm. The home would also need to be character appropriate.

For farm cottages to satisfy the conditions of APR, they need to be inhabited by farm workers or their widows/widowers to satisfy the conditions of APR. Finally, even if the dwellings comply with the conditions, APR will only cover the agricultural value, that is on the assumption that the home is never used as anything else but for the purposes of agriculture in perpetuity.

The gift with reservation of benefit rules prevent you gifting your home but continuing to use it as before. If benefit is retained the house continues to form part of your estate.

If the home is to be gifted (usually to the children) and the taxpayer wishes to ensure that it is outside their estate, they will need to retain no benefit from it.

This can be achieved in two ways:

(1) by actually receiving no benefit – moving out but some social visits are permitted.

(2) by paying for the benefit, which offsets the benefit received, that is by paying a market rent for the use of the home. The rent really must be paid and it really must be the going rate.

There is, however, one way of gifting a part of the family home where the donor can still retain a benefit. The donor can gift an undivided share of the property, which the donee and the donor thereafter share, without the donor suffering a gift with reservation of benefit, so all the costs must be similarly shared.

The donee does not have use the home as their only house and it simply needs to be one of their residences. They must however actually use it as a residence.

Another way to avoid IHT on the family home is the residence nil rate band, where the home is left to the deceased’s children, grandchildren and further issue, and their spouses). It is worth up to £175,000 per taxpayer and is transferable between spouses just like the lifetime allowance.

Further, if the deceased had downsized or sold their former property, a downsizing addition can also be calculated, as long as amounts up to that value are left closely inherited.

VAT on Energy-Saving Materials

The new changes came into effect from 1 April 2022 so that the supply and installation of energy-saving materials are now zero rated, albeit temporarily for the next five years, until 31 March 2027.  

These rules do not apply to Northern Ireland.

The following items are now zero rated:

• Controls for central heating
• draught stripping
• insulation
• solar panels
• ground and air source heat pumps
• micro combined heat/power units 
• wood-fuelled boilers
• wind and water turbines.

Supply of materials only will remain standard rated. A consumer who decides to buy the materials themselves and pay for the installation will need to crunch the numbers to see if the DIY approach is VAT efficient.

Installation of energy-saving materials with ancillary supplies can all be zero rated. . Ancillary supplies are those that are required to perform the installation or better means of enjoying the principal supply, such as enlarging the loft hatch/access in order to lay loft insulation, or installing pipework and radiators.

Installing a gas boiler central heating system is not an energy-saving material, nor is building a house extension and insulating it (the dominant supply is of an extension, not of an energy-saving material).

Business Asset Disposal Relief and Holiday Lets

BADR can apply where any UK property business which consists of the commercial letting of furnished holiday accommodation and it is treated as a trade. In addition all such lettings made by a particular person or partnership, or body of persons is treated as a single trade.

Therefore, no matter how many furnished holiday lettings there are they are all treated as one trade for capital gains tax (CGT) purposes.

The test of whether a property is a FHL are defined i.e. 210 days available and 105 actually let.

BADR can be used for single property qualifying furnished holiday letting provided it was such for a two-year period to that 5 April (the date the ‘trade’ ceased) and the sale takes place within three years of that date.

Where several furnished holiday lettings are held the issue is more complicated.

If one or a few properties are being sold but some are retained and continue, as they are all one trade, there has been no cessation of the deemed trade. Therefore, the furnished holiday lettings being sold must be disposed of as ‘part of a businesses” to qualify and have qualified for two years to the date of the disposal.

This means they must be qualifying furnished holiday lettings at the date of disposal. The income tax tests are carried out on each property to see whether it qualifies, and the CGT legislation does not override this.

If they are not FHLs at the date of disposal, then BADR does not apply. This is different from the sale of a single property or the sale of the whole FHL portfolio.

Questions?

If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at alan.long@thelongpartnership.co.uk.