Tax E-News – May 2024
Welcome to our latest monthly tax newswire. We hope you enjoy reading this newsletter and find it useful. Contact us if you wish to discuss any issues further.
WANT TO BE PART OF BETA TESTING OF MTD FOR INCOME TAX?
Although making tax digital income tax self assessment (MTD ITSA) is not mandatory until 6 April 2026 at the earliest, it is possible for certain individuals to join the HMRC pilot testing. HMRC have relaunched beta testing of MTD ITSA on 22 April 2024.
Just five software products so far have been listed by HMRC as compatible with MTD, with a further 21 listed as being in development. Those products that are currently compatible are:-
- 123 Sheets
- Intuit QuickBooks Online
- Sage Accounting
- SE_Reports
- Self assessment direct
All products have to meet HMRC’s minimum functionality standards. If your current accounting software is not listed, it may be that it will soon receive HMRC approval.
To join the pilot, you need to be up to date with your tax returns and have relatively straightforward tax affairs. For example, you can’t be a member of a partnership or be subject to the High Income Child Benefit Charge. Those with jointly owned rental properties or furnished holiday lettings are also currently excluded from the pilot.
Please discuss with us whether you would be interested in joining the pilot testing and we can help you get ready for the new regime […]
HMRC PUBLISH UPDATED GUIDANCE ON WORK TRAVEL
Travelling from home to an employee’s normal workplace does not qualify for tax relief. This is referred to as “ordinary commuting and, furthermore, if the costs of the journey are reimbursed by the employer, those costs are taxable. There are exceptions to this rule, in particular where the employer pays for the employee to travel home in a taxi safely late at night […]
LATE NIGHT TAXIS PAID BY EMPLOYERS
Payments by the employer for taxis to take employees home late or at night are exempt from tax if:
- the failure of car sharing arrangements conditions are satisfied (see below); or
- all 4 late night working conditions are satisfied; and
- the number of such journeys for which a taxi has been provided for that employee in the tax year is no more than 60.
There are 4 late working conditions, all of which must be satisfied […]
OFFICIAL RATE OF INTEREST FOR 2024/25 REMAINS AT 2.25%
HMRC have confirmed that the official rate of interest for employee and directors’ beneficial loans remains at 2.25% for 2024/25, despite a Bank of England base interest rate of 5.25%.
This means that where the employer lends an employee more than £10,000, the taxable benefit would be the difference between 2.25% and the amount paid on the outstanding loan.
INVESTING AN UNQUOTED TRADING COMPANY
If you are considering lending money to, or subscribing for shares in, an unquoted trading company then, like many investments, there is always a risk that you may lose your money.
However, there is potentially tax relief for the lender if the loan meets certain conditions, in particular the money lent is used by the borrower wholly for the purposes of its trade, and the trade does not consist of or include the lending of money […]
CAPITAL LOSS ON SHARES IN AN UNQUOTED TRADING COMPANY
Where an individual subscribes for a new issue of shares in an unquoted trading company, there is an even more generous form of loss relief where those shares are disposed of at a loss, including the situation where the shares have become worthless. In that situation, it is possible to make a negligible value claim which creates a deemed disposal and reacquisition of the shares at that low value, thereby creating a capital loss. A further claim can then be made to set that capital loss against the subscriber’s income in the year of the loss and/or the previous year […]
CONVERTING LOANS INTO SHARES
As mentioned above, where a loss is made on a loan to an unquoted trading company, relief for that loss may claimed against capital gains, whereas the loss on subscriber shares can be set against income, saving tax at higher rates. It is possible for the lender to be issued with shares in the company in satisfaction of the loan, which potentially would allow the investor to claim relief for any subsequent loss against their income. Note that where the company is already insolvent at the time that the shares are issued, no capital loss will arise and HMRC are likely to challenge the loss claim, as they have done successfully in two recent tax cases.
TAX RELIEF UNDER THE ENTERPRISE INVESTMENT SCHEME
Where the company qualifies under the Enterprise Investment Scheme (EIS) or Seed EIS, the subscribers potentially qualify for even more generous tax reliefs. Where the investor is not connected with the company, they are entitled to tax relief based on 30% of the amount invested (EIS) or 50% in the case of Seed EIS. This relief is deducted from the investor’s income tax liability for the year, or the previous year in the case of EIS investment. The shares need to be held for at least 3 years to retain the income tax relief and the shares would also be exempt from CGT when disposed of […]