Tag Archive: UK tax

1. 7 ways to reduce corporation tax in the UK

   4 January 2024 10:55 am Leave a Comment

   Corporation tax is a major financial obligation for UK businesses, and knowing how to reduce corporation tax is a savvy move for good financial management.
   In April 2023, the UK government increased corporation tax from 19% to 25% (for profits above £250,000), making it more important than ever for businesses to pay the least amount possible.
   Fortunately, there are several ways to reduce corporation tax, and in this Tax Natives blog post we’re going to discuss a handful of ways that you can save on corporation tax so you can put your money back into your business.

   • Capital allowances
   • Trading losses and future profits
   • Allowable business expenses
   • Pension contributions
   • R&D tax relief
   • WFH allowances
   • Patent Box

   Capital Allowances

   Capital allowances are a tax relief claimed on assets that have been bought for use within a company. They let companies deduct some of the cost of the asset from their taxable profits each year over the time it is used.

   There are two types of capital allowances: Annual Investment Allowances (AIA), and Writing Down Allowances (WDA).

   Annual Investment Allowances (AIA)

   AIAs allow you to deduct the full cost of most new plant and machinery from your taxable profits in the year of purchase. This means you can effectively claim a 100% tax deduction on the prices of assets including:

   • Machinery and equipment
   • Computers and software
   • Office furniture
   • Fixtures and fittings

   Writing Down Allowances (WDA)

   WDAs allow your company to deduct a portion of the cost of other types of assets from their taxable profits each year over the time it is used. The rate of WDA depends on the type of asset, which includes:

   • Cars
   • Plant and machinery
   • Computer equipment and software
   • Integral building features (e.g. air conditioning)

   Claim R&D tax relief

   This is a government-backed scheme designed to encourage businesses of all sizes to invest in research and development (R&D).

   Like capital allowances, there are two different types of R&D tax relief. Each type applies to the size of the business: SMEs and large companies.

   SMEs

   Small and medium enterprises (SMEs) can claim R&D relief on qualifying expenditure against their taxable profits, this includes:

   • Salaries
   • Materials
   • Equipment
   • Subcontracted R&D

   Large companies

   Larger companies can claim R&D expenditure credit (RDEC), a cash payment made in addition to a corporation tax refund, depending on qualifying expenditure. To claim RDEC, your R&D activities must meet the following criteria:

   • Be novel and inventive
   • Be carried out with a view to developing new or improved products, processes, or services
   • Be done at a commercial scale

   Trading losses and future profits

   This is another valuable tool in reducing corporation tax. It involves companies ‘carrying back’ trading losses to offset against taxable profits of previous accounting periods.

   This means you can effectively claim a refund of corporation tax you’ve already paid – up to a maximum of three years.

   Similarly, you can ‘carry forward’ trading losses to offset against the taxable profits of the future accounting period.

   This can be done indefinitely and allows you to defer paying corporation tax on a trading loss until a profit is made in the future.

   Both methods allow companies to effectively eliminate or reduce corporation tax liability for several years.This is especially helpful for companies that experience periods of profitability and periods of loss.

   Allowable business expenses

   Allowable business expenses – also known as tax deductible expenses – are a big part of planning for corporation tax.

   There are several allowable business expenses for companies to consider, including:

   • Cost of Goods Sold (COGS) – This represents the direct costs associated with producing goods or services, and includes the cost of raw materials, labour, and direct overheads.
   • Wages and salaries – Employee salaries are a major expense for most businesses, though they are generally fully deductible from taxable profits. This means that companies can reduce corporation tax by paying employees more.
   • Business travel – These include reasonable travel costs, accommodation, and meals – as long as they’re incurred for genuine business purposes.
   • Depreciation – This is a non-cash expense that allows companies to deduct a portion of the cost of fixed assets over their useful lives.

   Pension contributions

   Companies can also reduce their corporation tax bill by making pension contributions on behalf of their employees. This is because these are considered “allowable expenses”, meaning they can be deducted from taxable profits.

   The ways in which you can make pension contributions are: Defined contribution (DC) schemes, and defined benefit (DB) schemes.

   Defined benefit

   In a DB scheme, the company guarantees to pay the employee a certain pension at retirement, no matter the investment performance of the scheme.

   The company is responsible for funding the scheme’s liabilities, something that can be a major financial commitment.

   Defined contribution

   In a DC scheme, the company makes regular contributions to the employees’ pension pot. The value of the pot grows over time based on investment performance, and the employee’s eventual retirement benefit is based on the value of the pot at retirement.

   You can make pension contributions via salary sacrifices, where your employee puts some of their salary away for retirement. This is tax-efficient because the employee’s income tax national insurance liability is lower on the reduced salary.

   Then there are non-salary sacrifices, whereby the company makes pension contributions directly from its profits.

   WFH Allowances

   Working from home (WFH) allowances are tax credits that can be claimed by companies that allow their employees to work from home.

   These allowances can help to reduce the company’s corporation tax bill, and can be claimed on certain expenses like work furniture and equipment, and other WFH-related costs like heating, electricity, and internet.

   Patent Box

   The Patent Box is a tax incentive scheme introduced in 2013 to encourage companies to develop, protect, and commercialise intellectual property (IP). It allows companies to pay a lower rate of corporation tax on profits made from their patented inventions.

   This reduced rate of corporation tax on profits from patented inventions can be as low as 10%, more than half the standard rate of 25%.

   Reduce your corporation tax with our tax experts

   Corporation tax is a major expense for businesses, but as you can see, there are several ways to lower it. Whether it’s claiming all allowable expenses, investing in R&D, utilising the Patent Box, and taking advantage of other tax credits, you can lower your corporation tax bill and save big. Speak to a corporate tax specialist today.

   For extra advice and guidance on navigating the realm of UK tax, get in touch with Tax Natives. We’ll get you in contact with a professional, regulated tax advisor that perfectly suits your unique needs.

2. Secret Private Client Tax Adviser: UK debriefing

   10 December 2023 8:39 am Leave a Comment

   The meeting takes place in an undisclosed – but very salubrious – hotel room in Mayfair, London.

   Head Tax Native (“TN”):

   Secret Private Client Adviser in the UK your mission, should you choose to accept it, is to educate us on the practical tax considerations in the UK.

   This task requires a delicate balance of expertise and discretion. Be warned, should your real identity be revealed during this covert operation, you will be disavowed by Tax Natives and shunned by your fellow private client advisers.

   Do you accept?

   Secret Private Client Adviser in UK (Secret Adviser):

   I accept.

   TN:

   [Settling into an ornate armchair, crossing legs] We’re amidst the grandeur of Mayfair, and I’m intrigued to discuss the UK tax system’s recent developments. Could you start by explaining the overarching goal of these changes?

   Secret Adviser:

   [Leaning back thoughtfully] Certainly. The UK has been focusing on fairness and efficiency in its tax system, targeting loopholes, maximizing collections, and combatting avoidance and evasion.

   TN:

   [Nods, picking up a notepad] Let’s delve into individual taxation. How does it function in the UK?

   Secret Adviser:

   [Gesturing for emphasis] Individual taxation is administered on a self-assessment basis. Taxpayers must provide HMRC with sufficient information annually, following a unique fiscal year from April 6th to the next year’s April 5th.

   TN:

   [Jotting down notes, glances up] And what about the specifics of income and capital gains tax?

   Secret Adviser:

   [Pausing as a waiter serves tea, then continues] Income tax is progressive, with a top marginal rate of 45% for high earners. Capital gains tax has evolved from a high rate with taper relief to a more simplified structure, including a flat rate for higher earners. The maximum rate is usually 20% but this might be higher for sales of residential property (28%) and some other specific assets.

   TN:

   [Sipping tea, intrigued] Moving to savings and dividends?

   Secret Adviser:

   [Smiling slightly] There’s a starting rate for savings income, plus a £2,000 tax-free dividend allowance. Capital gains tax operates similarly, with a basic rate for lower earners and a higher rate for those above £50,270.

   TN:

   [Looking up as a gentle knock on the door indicates room service arrival] And Scotland’s unique stance?

   Secret Adviser:

   [Nodding] Scotland has its own rates, introducing a starter rate and an intermediate rate, with the top rate at 47%.

   TN:

   [As room service departs, refocusing] The remittance basis seems particularly relevant for high net worth individuals.

   Secret Adviser:

   [Leaning forward] Yes, it’s key for those moving to the UK who would be regarded as non-UK domiciled.. It taxes only UK income and gains unless foreign income is brought into the country. It’s a longstanding principle with notable changes in 2008 and later years.

   TN:

   What about recent developments in this area?

   Secret Adviser:

   There have been significant changes. For instance, non-domiciled individuals in the UK for over 15 years can’t claim the remittance basis from April 2017. Essentially, there’s a long stop date beyond which there are no tax benefits of being non-UK domiciled. They’ll become taxed on worldwide income and gains.

   TN:

   [Nods, writing down] And residency rules?

   Secret Adviser:

   Since 2013, residency is determined by a statutory test, considering physical presence and ties to the UK. There’s a clear day-count method now.

   TN:

   [Glances at watch, then back at the expert] The line between tax avoidance and evasion?

   Secret Adviser:

   [Firmly] It’s become a highly charged moral issue in the UK and one which has seen a lot of legislative activity as the government feels that it has support in cracking down in this area. The GAAR, introduced in 2013, aims to counteract artificial arrangements and tax abuse.

   However, there are a number of other important measures introduced or enhanced such as the Disclosure of Tax Avoidance Schemes (“DOTAS”) and Promoters of Tax Avoidance Schemes (“POTAS”) measures.

   TN:

   [Leans back] Taxation of residential property has also seen changes?

   Secret Adviser

   [Nodding] Indeed. SDLT rates have increased, especially for high-value properties and second homes. The top rate for individuals is now 15%. There are also special charges for non-residents with the temerity to acquire UK property!

   TN:

   [Slightly surprised] What about a wealth tax in the UK?

   Secret Adviser:

   The ATED and SDLT changes are essentially a wealth tax, marking a significant policy shift. It’s targeted at high-value properties and their ownership structures. However, a formally badged ‘wealth tax’ does not seem high on the government’s agenda.

   TN:

   And cross-border structuring?

   Secret Adviser:

   The UK has been proactive in recovering offshore tax liabilities. Agreements with Switzerland and others, alongside disclosure facilities, reflect this.

   TN:

   [Standing, extending a hand] Thank you for this enlightening conversation in such a fitting setting.

   Secret Adviser:

   [Shaking hands] My pleasure.

    

   Tapping out

   If you have any queries about this top secret interview on private client tax in UK, or UK tax matters in general, then please get in touch

3. How to invest in UK property

   10 November 2023 8:17 am Leave a Comment

   Investing in UK property is an alluring prospect. Generating passive income through rental properties or property appreciation has long captivated those lucky enough to do so.

   However, there are many complexities in the UK property market that can deter potential investors from exploring it further.

   In this blog post, we’re going to demystify this world of UK property investment and offer you some ways to navigate the intricacies of how to invest in UK property – from property acquisition, financing, management, and the tax implications that come along with it all.

   • Where in the UK should I invest in property?
   • What kinds of UK properties should I invest in?
   • When should I invest in UK property?
   • How to finance your property investment
   • Tax implications of property investment in the UK

   Where in the UK should I invest in property?

   Location has always been a major factor when it comes to investing in UK property.

   A well-chosen location can greatly impact your return on investment, and a less-informed decision about where to invest can bear much less financial fruit.

   But how do you choose a “good” location to invest in property?

   Well, there are some things to consider, including:

   • Population – A growing and affluent population is a great sign of strong rental demand and good property market dynamics. This includes anything from young professionals to students, and families.
   • Employment opportunities – A thriving economy and wide variety of employment opportunities attracts potential tenants and drives up rental demand. Areas with this kind of job growth and diverse industry are more likely to experience more stable rental markets, too.
   • Infrastructure – Excellent transport links, access to amenities, and a safe, well-maintained environment are all factors that appeal to potential tenants, increasing demand further.
   • Demographics – The age and socioeconomic makeup of the local population can influence rental demand. Places with a mix of ages and income levels tend to be more stable and less prone to fluctuations in rental price.

   Generally speaking, major UK cities (e.g. Manchester, Edinburgh, Birmingham, etc.) tick many of these boxes, enjoy many of the points listed above, being the major social hubs that they are.

   However, investing in property in a major UK city can be expensive for many first-time investors, making it all but inaccessible.

   Fortunately, there are many places in the UK outside of the major cities that make for good investment opportunities.

   These include ex-industrial towns, towns with a student presence, and areas with decent transport and road connections.

   What kinds of UK property should I invest in?

   Another important factor to consider when wondering how to invest in UK property is the type of property.

   Fortunately, there is a wide variety of property types for you to invest in, all with their own ROI, risk profile, and management responsibilities.

   Houses

   Houses have long been a popular investment option, with potential for income and capital gains, though they do come with their own unique considerations:

   • High rental yield – Houses typically offer higher rental yields than other property types, generating a substantial stream of passive income.
   • Property market fluctuations – House prices tend to be volatile, increasing the risk of depreciation and a reduction in potential returns.
   • Maintenance costs – Houses require ongoing maintenance and repairs, adding to the overall cost of ownership.

   Apartments

   Like houses, apartments offer similarly unique investment opportunities for those looking to invest in UK property.

   • Diversified income stream – Apartments offer a more stable ROI compared to single-family homes as multiple flats in a single building can be bought.
   • Less volatile – Apartments offer consistent cash flow and a reliable prospect
   • Management responsibilities – Apartment investors typically have less hands-on involvement than those with houses, though they still deal with common area maintenance, tenant interactions, and dispute resolutions.

   When should I invest in UK property?

   Investing in UK property, like many financial endeavours, is heavily influenced by the broader market conditions. These should be considered thoroughly before investing, and include:

   • Economic growth – Times of strong economic performance – with low unemployment rates and rising disposable income – fuels demand for housing, and drives up property prices, making it a great time to invest.
   • Interest rates – Low interest rates make mortgages more affordable, increasing buyer demand. Times during this upward trend can be good for investors as they enjoy better property values and rental yields.
   • Government policy – Tax breaks and incentives for buyers and developers can impact market conditions, so be sure to stay informed on policies that could influence value and rental demand.

   Market conditions can be fickle, so the savvy investor should develop a keen eye for noticing subtle shifts and potential trends.

   Property market reports, for example, provide insights into market trends and economic forecasts. Similarly, comparative market analysis (CMAs) allow you to compare property prices in a target area, revealing trends in property values and potential areas of under/overvaluation.

   Understanding market conditions isn’t just about deciphering data, it’s about developing a holistic understanding of the factors that drive property values and rental demand.

   By staying afloat of these factors, you can make an informed decision that aligns with your investment goals and risk tolerance.

   How to finance your UK property investment

   Financing is the cornerstone of successful property investment in the UK. Securing the necessary funding lets you buy, but also will determine your overall returns.

   Mortgages

   These remain the most common and popular option for financing property in the UK. They offer the advantage of secured financing, meaning the property itself serves as collateral.

   This often translates to competitive interest rates and flexible repayment terms.

   Renovation loans

   These can be a valuable tool for enhancing the value and rental potential of a property investment, attracting higher rental rates and more desirable tenants after improving a property’s condition and amenities.

   Private equity

   This is an alternative financing option for property investors seeking more substantial funding, and it involves raising capital from experienced investors or investment firms.

   Whilst you may have less control over the property itself, you do share responsibility with people who have extensive experience in the property market.#

   Tax implications of investing in UK property

   Like any investment, property investment in the UK comes with its own set of tax implications. You should understand these to the best of your ability in order to optimise your returns and ensure you’re staying compliant with the law.

   Capital gains tax (CGT)

   When you sell a property for a higher price than you paid for it, you may be liable to pay CGT. The amount payable is determined by the difference between the sale and the purchase price – the gain.

   The current CGT for residential properties is 28% for higher-rate taxpayers and 18% for basic-rate taxpayers.

   Income tax

   Rental income from your property investment is subject to income tax. The amount of tax you pay depends on your tax band, of which there are five in the UK currently.

   • Basic rate: 20%
   • Higher rate: 40%
   • Additional rate: 45%

   Council tax

   This is the local tax levied on property owners based on property value, and determined by the valuation band of your property.

   Tax planning strategies 

   As a property investor in the UK, there are several ways to minimise your tax burden, including:

   • Property partnerships – Forming a property partnership with other investors can spread the tax liability and potentially reduce your individual tax bill.
   • Mortgage interest relief – If you finance your property investment with a mortgage, you can claim relief on your mortgage interest payments which in turn reduces your taxable income.

   Demystifying property investment for UK investors

   Property investment can be compelling for anyone looking to secure a financial future. By carefully considering the factors outlined in this guide, you can navigate the complexities of the UK property market and make informed decisions that align with your overall goals.

   For any further advice or guidance on navigating the realm of UK tax, get in touch with Tax Natives, and we’ll get you in contact with a professional, regulated tax advisor that perfectly suits your unique needs.