Bigger tax bills for the self employed in 2022/23

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The ending of an overlap period for profits for the self-employed could result in bigger tax bills.

A change in the basis periods for the assessment of self-employed profits to coincide with the tax year has been proposed by HMRC. The new rules would apply from 2023/24 onwards.

This is only a consultation right now, but the release of draft legislation suggests change is likely.

Businesses and individuals may wish to speak with their advisors and establish the likely impact on their cash flows of the proposed change. There will be a balancing act between the cash flow implications of paying all your tax in one go, put against the risk of higher profits and tax rates in the future.

The change will mean that profits or losses will be apportioned to tax years where the period of account does not coincide with the tax year. The change is intended to coincide with the start of Making Tax Digital for income tax.

The change will mean that the transitional rules being proposed for the previous 2022/23 tax year could result in larger tax bills for some sole traders and partners, particularly those with an existing 30 April year end.

The profits of year ended 30 April 2021 would be taxed in 2021/22 under the current rules with 2023/24 tax profits arising between 6 April 2023 and 5 April 2024 under the new rules. But what about 2022/23?

HMRC’s proposal means that all self-employed businesses will be taxed on profits earned in a tax year, rather than on the profits of the accounting year ending in that tax year.

The overlap profits are carried forward and set against future profits in certain circumstances, such as leaving the business, the business ceasing or a change in the accounting year.

The profits taxed in 2022/23 would be those for year ended 30 April 2022 plus the period 1 May 2022 to 5 April 2023 – in total 23 months profits!

However, to soften the blow there would be a deduction for 11 months “overlap relief” which typically arose when profits were taxed twice at the start of the business – but those will often be much lower than the extra 11 months being taxed in 2022/23!

The transitional provisions will allow the taxpayer to elect to spread the excess profits over the next 5 tax years to smooth out an excessive tax bill.

The change will mean that any profit or loss for the business is the profit or loss arising in the tax year, regardless of the accounting date. Where a business has a year end other than 31 March – accepted by HMRC as being 5 April for these purposes – profits are to be apportioned between tax years.

It will prevent overlap profits from accumulating in the future and will result in the offset of any unused overlap profits for those in business, when the change is made.

Sole traders, partners in partnerships, members of LLPs and other unincorporated entities with trading income, such as trading trusts and estates and likely to be affected.

VAT – option to tax on land and buildings – notify HMRC within 30 days

Supplies of land and buildings, such leasing or renting out a property, are normally exempt from VAT.

This means that no VAT is payable, but the person making the supply cannot normally recover any of the VAT incurred on property expenses.

However, it is possible to waive the exemption, or in other words inform HMRC that you want to “opt to tax” the land. For the purposes of VAT, the term ‘land’ includes any buildings or structures permanently affixed to it.

Once you have opted to tax, all the supplies you make of your interest in the land or buildings will normally be VAT standard-rated, but by charging VAT on supplies it will normally enable you to recover any VAT expenses you incur in making those supplies.

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Handling of Green Homes Grant voucher scheme slammed by watchdog

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The government’s handling of the Green Homes Grant voucher scheme has been slammed by spending watchdog the National Audit Office (NAO).

In a report published today, it says the scheme was delivered to an over-ambitious timetable and was not executed to an acceptable standard, significantly limiting its impact on job creation and carbon reduction.

Both landlords and home-owners were able to access the scheme, which offered vouchers of up to £5,000 that could be then spent with approved tradespeople and builders to upgrade their homes via energy efficient improvements.

It was a key plank of the government’s dual policies of achieve Net Zero for England and Wales by 2030, and stimulating the economy during the darkest days of the Covid pandemic.

The NAO says the scheme, which opened to applications in September last year but closed at the end of March, did not meet many of its aims.

It cites government figures revealing that it created 5,600 jobs against an expected 82,500 and that only £319 million of its £1.5 billion budget was spent, of which £50.5 million was spent on administration.

As LandlordZONE reported in December, many property owners and installers had a poor experience using the scheme.

This included delays issuing vouchers to landlords and paying installers, ‘causing frustration’, and that the manual application process was complicated and time-consuming.

The NAO says its teething and ongoing problems were down to the short timescale HM Treasury gave the department of business to design and launch the scheme, and that the views of approved installers were only sought after the scheme was launched, particularly on the cost and process of installer accreditation.

The watchdog also says too much focus was put on more technical green improvements to properties which required an army of specialists to be trained, rather than simpler upgrades such as windows, doors and insulation.

“The initial plan for a two-year scheme would have allowed more time for jobs to be created, but this was rejected by HM Treasury,” the NAO says.

^“The Department should engage properly with the supplier market for future decarbonisation schemes and base its planning on a realistic assessment of how long it will take the market to mobilise.”

Rushed

NAO chief Gareth Davies (pictured) says: “The aim to achieve immediate economic stimulus through the Green Homes Grant voucher scheme meant that it was rushed.

“As a result, its benefits for carbon reduction were significantly reduced and ultimately, it did not create the number of jobs government had hoped for.”

Timothy Douglas, Propertymark Policy and Campaigns Manager at trade organisation Propertymark, says: “The Green Homes Grant Voucher Scheme was the first we have seen after years of no funding and it’s extremely disappointing that the Scheme was poorly executed.

“Financial support for the sector is fundamental if energy efficiency targets are to be achieved and the National Audit Offices’ recent report examining the UK Government’s Green Homes Grant Voucher Scheme has reiterated our concerns with the schemes implementation.

“The time frame for its application was unrealistic and therefore failed to provide landlords and homeowners with enough incentives and access to sustained funding.”

Read the NAO’s summary of its report.

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What do landlords do if their tenants are forced to evacuate their home?

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A huge blaze at a plastics factory last week caused explosions and a massive plume of black smoke, visible for miles around, leading to the evacuation of nearby homes.

Anyone living within 500 metres of the industrial estate in Leamington Spa, which is surrounded by residential areas, was urged to keep windows and doors closed and homes within 100 metres were evacuated.

Local media reported cases of people vomiting from the fumes and a large amount of charred plastic debris from the fire falling over a sizeable area. Dramatic footage on social media highlights the scale of the incident.

Emergency workers are still unable to enter the site at Leeson Polyurethanes to search for a missing man. Warwickshire Police have said that “a specialist search operation will commence as soon as it is safe to do so.” They added that it would be “a very thorough and complex operation which may take a number of days to complete.”

The cause of this incident is not yet confirmed and is currently under investigation, but the Chief Fire Officer from the Warwickshire Fire and Rescue Service has suggested that vats of chemicals caught in the fire were likely responsible for the explosions.

The incident highlights the extent to which factors beyond our control can have major ramifications, affecting not only our homes but also our tenants’ ability to live in them – Leamington’s massive fire has already forced eight people to move out of their homes so far.

Steve Barnes, Associate Director at LandlordZONE insurance partner, Hamilton Fraser Total Landlord Insurance, says: “As a landlord, no matter how much care you take over preventative measures to reduce the risks of anything going wrong in your property which could affect your tenants’ ability to live there, it’s just not possible to eliminate risk entirely.

“That’s why it’s so important to make sure you have comprehensive landlord insurance cover in place. Both our Essential and Premier policies cover loss of rent or alternative accommodation should a tenant be required to evacuate a property.”

How often do explosions force tenants to evacuate?

Explosions affecting residential properties are rare, but when they do occur it is generally due to gas leaks.

As we approach Gas Safety Week later this month (13 – 19 September), it’s important to make sure you’re compliant with gas safety regulations. Penalties for landlords who fail to comply are severe, and if a tenant dies while staying in your property due to negligence, you could be prosecuted for manslaughter and sentenced to time in prison.

Steve Barnes adds: “The best ways to prevent yourself from facing the justifiably harsh penalties for non-compliance with gas safety, are to make sure you schedule a gas safety check at least once a year and to keep a record of your Gas Safety Certificates and checks.

“If you use an agent to manage your property, make sure that your contract states who is responsible for what and that your agent provides you and your tenants with new Gas Safety Certificates on at least an annual basis. If you have any questions about how gas safety might affect your insurance policy, feel free to contact our team on 0800 63 43 880. Our policy will cover most eventualities but does not include incidences of faulty workmanship or any pre-existing defects or damage or wear and tear.”

For more information on landlords’ responsibilities for gas safety, including what to do if your tenants prevent you from carrying out a gas safety check, read Hamilton Fraser Total Landlord Insurance’s newly updated Ultimate guide to gas safety and landlord gas safety certificates.

As a valued LandlordZONE reader you’re entitled to 20% off Hamilton Fraser Total Landlord Insurance’s policies, call the team today on 0800 63 43 880 quoting code LZ2021 or get a quote online in under 4 minutes. 

Pic credit: Twitter via @justynjj

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