Latest tax issues to watch out for!

Key tax issues that could impact you and your business

Here at Wolverhampton accountants TAG Accountants Group, as providers of tax services we believe it is important to summarise the recent changes in taxation and in doing so, highlight some of the potential “pitfalls” too!

In this latest article, we provide some guidance on the following issues:

• Hospitality VAT reduction
• Reduction in Stamp Duty Land Tax 
• Reporting capital gains on property
• Rumoured increases to Capital Gains Tax
• Reminder on changes to the furlough scheme

Reduction in VAT for the hospitality industry

The Chancellor announced a temporary cut in the rate of VAT for the hospitality sector and attractions in his Summer Statement on 8 July but in doing so left many questions unanswered. 

The reduction applies to supplies made between 15 July 2020 and 12 January 2021. Thankfully, HMRC has now set out more details of which supplies will attract the 5% temporary rate as well as the impact on invoicing, deposits, and the flat rate scheme. This temporary 5% rate applies to the following supplies, but is not an exhaustive list:

• Catering, including hot takeaway food
• Accommodation in hotels, guest houses, and similar places
• Tourist attractions such as theme parks, zoos, theatres, and cinemas

Note that in respect of catering, the 5% rate only applies to food and non-alcoholic drinks and that the 20% rate continues to apply to alcoholic drinks.

Of course, it is common practice, particularly in the summer holidays, to pay a deposit when booking a hotel or self-catering accommodation but how should the deposit be accounted for in terms of VAT? HMRC have confirmed that the hotel has the option of charging VAT according to the ‘basic tax point’ (dates of the stay) rather than the ‘actual tax point’ (invoice/payment dates). So, by way of example, where the customer had paid a non-refundable £300 deposit say in February 2020 for a £1000 holiday in Cornwall in August, using the actual tax point, the hotel would account for 20% VAT on the deposit received in February 2020 and 5% on the balance payable after 15 July 2020.  

Alternatively, the hotel could choose to use the basic tax point rule which would mean that the 5% rate would apply to the entire cost of the stay and make an adjustment for the VAT already accounted for. 

Small businesses with turnover below £150,000 may join the VAT flat rate scheme which makes their VAT accounting much simpler as they merely pay HMRC a percentage of their VAT inclusive turnover. The temporary reduction in the rate of VAT from 20% to 5% reduces the flat rate percentages for affected businesses as follows:

• Catering services including restaurants and takeaways – normal flat rate of 12.5% reduced to 4.5%
• Hotel or accommodation – normal flat rate of 10.5% reduced to 0%
• Pubs – normal flat rate of 6.5% reduced to 1%

Note that flat rates return to normal rates from 13 January 2021. For pubs, the turnover must be predominantly “wet sales” to use the flat rate.

If you are unsure on any of this, please give us a call on 01902 783172.

Cut in Stamp Duty

Although the temporary increase in the Stamp Duty Land Tax (SDLT) threshold to £500,000 was aimed at those buying a main residence, it also benefits those buying a second or subsequent property. The rate of SDLT on a second home costing up to £500,000 is now 3%, whereas previously, the rate was 3% up to £125,000, then 5% up to £250,000, and then 8% up to £825,000. This means that the SDLT on a second home costing £400,000 is now £12,000 compared to £22,000 if the purchase had completed before 8 July 2020.  

Note that there are different thresholds and rates of Land and Buildings Transaction Tax for properties located in Scotland and Wales.

Reporting of capital gains on property within 30 days

Where UK residential property is disposed of since 6 April 2020, the resulting capital gain now needs to be reported (and the capital gains tax paid) within 30 days of completion of the disposal. 

Unsurprisingly, there have been teething problems with the new online reporting system and HMRC has stated that there would be no penalties imposed for late returns, provided the returns were submitted by 31 July 2020. Taxpayers needed to obtain a Government Gateway account and apply for a Capital Gains Tax (CGT) or property reference number to report disposals, although they can authorise their accountant to report the disposals on their behalf, so let us know if we can help.

Currently, only the first disposal may be reported using the online reporting system with any subsequent disposals being reported using a paper return. We have been advised that a new system will be fully functional shortly.

Rumours of increases to CGT

There has been a lot of speculation in the Press that the Chancellor may introduce radical changes to CGT as part of the measures to help repay the substantial Government borrowings increase due to support businesses and employees affected by the coronavirus pandemic. 

It has been suggested that the current £12,300 CGT annual exemption could be reduced and that CGT rates could be aligned with the rates of income tax. It has also been suggested that the capital gains uplift on death may be abolished following recommendations by the Office of Tax Simplification and the House of Commons Treasury Select Committee.

The Treasury Committee is undertaking a new inquiry entitled “Tax after coronavirus” to consider different ways of raising taxes, including a thorough review of UK tax reliefs which has also been recommended by the Public Accounts Committee. The Chancellor has also hinted that there may be radical changes to the way that the self-employed and directors of family companies may be taxed in the future.

Whilst it is difficult to predict what changes will be made in the next budget, some clients have been in touch about making disposals of investments or their businesses in advance of any changes. Again, please contact us on 01902 783172 if you want to discuss your tax planning.

Reminder on changes to the furlough scheme

Throughout August, the Government continued to pay 80% of employees’ regular pay for hours that they were furloughed but this no longer included associated employer NIC and pension costs. This now reduces to 70% for September and then again to 60% for October, after which time we are advised the furlough support scheme will end.

Get great advice from your accountants

If you need assistance with any of the issues raised above, please book an appointment to discuss it with us by calling TAG Accountants Group in complete confidence on 01902 783172 or alternatively contact us by using our enquiry form HERE . 

With all that in mind, whether it is an initial telephone enquiry or a more detailed virtual Zoom meeting, our friendly experts very much look forward to hearing from you.