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May 2016

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To May’s Tax Tips & MYOB News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

As an MYOB/ AccountEdge user did you know that our Business Companion Service includes free software and training as well as  comprehensive accountancy support?  Our modest charges start from just £70 per month.

If you want to know more or have a specific question just or ring on 01422 847500.

May 2016
· Let Properties – Repairs, Renewals and Improvements
· VAT Codings
· New student loan plans take effect
· Buy to Let Mortgages – Changes to Rules on Recovering Interest
· May Questions and Answers
· May Key Tax Dates
Let Properties – Repairs, Renewals and Improvements
When your property is fully furnished, in the past landlords have been able to claim a wear and tear allowance of 10% of the net rents.  This allowance covers the cost of replacing furniture and furnishings such as carpets and curtains. But from April 2016, landlords will only be allowed to deduct costs that they actually incur. So if you don’t spend any money correcting wear and tear, you cannot claim.

You can only claim capital allowances for furniture used inside a property which is let out commercially as furnished holiday accommodation for at least 140 days a year (other conditions also apply).

In the past (before April 2013), the taxman allowed landlords of unfurnished and partly furnished properties to claim for the cost of items provided in those properties under the “renewals basis”. Now claims for “renewals” can only apply to small items such as toasters, lamps, or rugs.

This denies a tax deduction for the cost of larger loose items such as fridges, cookers, carpets and curtains. The cost of replacing items which are fixed to the building, such as a fitted oven or hob in a fitted kitchen, are counted as “repairs”, and are deductible as described above.

However, the law still allows deductions for “any implement, utensil or tool” used for the rental business. The taxman is interpreting this to mean only small value items, but the law makes no reference to the value of things that qualify as an “implement, utensil or tool”.

If you want a tax deduction for say the cost of the washing machine you have replaced in your let property, you can choose whether to follow the taxman’s opinion or the law. If you chose to go against the taxman’s opinion and deduct the cost in your accounts, we recommend you explain what you have done in the white space on your tax return.

Talk to us about the risks and benefits of claiming for items against the taxman’s guidance.

HMRC Tool for working out Rental Income
VAT Codings
New student loan plans take effect top
It is sometimes difficult to decide what the exact VAT coding should be: Google adwords for example.  These are an import of services which the HMRC confusingly insists on calling a ‘transfer’.  Since they are an import you might think they should be coded ‘No tax’ or ‘Exempt’ – but No. The correct answer is ‘Import EU services’, IES on our standard set up.

For more details look at our updated VAT codes guide.
Repayment of student loans is a shared responsibility between the Student Loans Company (SLC) and HMRC. Employers have an obligation to deduct student loan repayments in certain circumstances and to account for such payments ‘in like manner as income tax payable under the Taxes Acts’ (Education (Student Loans) (Repayment) Regulations 2000, SI 2000/944, reg 14). Read More
Buy to Let mortgages – changes to Rules on Recovering Interest
May Questions and Answers top
Buy to Let (BtL) landlords can currently reduce their tax bill by offsetting the interest paid on their mortgages to offset the tax bill. You claim relief at your highest personal tax rate.

George Osborne is reducing this tax relief – tax will instead be applied directly to the rent received.  He will only allow a tax credit equivalent to basic rate tax (20pc) on the interest cost.

Let us consider an example assuming you pay 40pc tax.


Your buy-to-let earns £10,000 a year and the interest-only mortgage costs £6,500 a year. Tax is due on the difference or profit. So you pay 40% tax on £3,500 ie £1,400.


Tax is now due on the full rental of £10,000, less a tax credit equivalent to basic-rate tax on the interest. So you pay 40pc tax on £10,000 (ie £4,000), less the 20pc credit (20pc of £6,500 = £1,300), meaning £2,700 payable …  This is virtually double the £1,400 income tax that you used to pay.  £2,700 out of £3,500 annual cash surplus made from the BtL is equivalent to a tax rate of 77%.  It is not difficult to imagine your interest costs increasing to soak up the difference if there is a base rate rise.

You could easily make no profit at all! 

Q1. How do I work out my share of a capital gain?

I owned a quarter share in a property that was sold in 2015. It was not my main residence at any time during my period of ownership. I am trying to work out my share of the capital gain arising on the property. Do I simply divide the purchase price, sale price, and any improvement costs by four to work out how much tax I will have to pay? Answer

Q2. Are my savings covered by the personal savings allowance?

I have several savings accounts. Most of the accounts have always had tax deducted from the interest paid before I receive it. However, I understand that one of my accounts is ‘tax-free’. Interest has always been paid gross and I have never included it on my tax return. I am a basic rate taxpayer. Is the ‘tax-free’ account interest included in the personal savings allowance limit? Answer

Q3. Will I be entitled to tax-free childcare?

I have heard that HMRC are launching a new tax-free childcare scheme. I am currently employed and earn £70,000 a year. My employer does not provide any support for childcare. Will I be eligible to join the new scheme? Answer
May Key Tax Dates top
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/5/2016

31 – Deadline for copies of P60 to be issued to employees for 2015/16

Need Help? top
New Clients Welcome top
Please contact us if we can help you with these or any other tax or accounts matters.

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About Us top
Simple Accounting Limited offers a cost effective Business Companion service to business owners who use MYOB, Acclivity, Mamut, Solar Accounts, Quickbooks or Clearbooks.

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