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Results from the latest Property Investor Survey conducted by Mortgages for Business found that 60% of respondents felt they would be directly affected by income tax relief changes, although 29% said they would not be hit.

Perhaps of more concern was the finding that one in ten landlords had not even heard about the imminent tax changes. Despite the tax changes only 9% of respondents said they planned to reduce their property portfolios in the next six months while 45% plan to invest in more properties and 46% will hold their investments as they are for the time being.

Those least affected are likely to be base rate taxpayers or landlords who manage their portfolios through limited company vehicles which are subject to corporation tax.

David Whittaker, CEO at Mortgages for Business said: ‘The percentages feel about right for the market in general and it has certainly been a tough 18 months or so for landlords.

‘We are still encouraging landlords who haven’t already taken professional advice on the matter to do so ASAP, as some may find that the new formula will tip them into the next tax bracket leaving them worse off.’

The results compare well with investor understanding of the new Prudential Regulation Authority (PRA) guidelines on buy-to-let lending, which will curb loan to value rates. Some 60% of respondents said they understood the impact of the rule changes on how much they can borrow.

However, a quarter of respondents said they only partially understood the implications of the PRA guidelines.

From 1 January 2017, buy-to-let lenders are facing tighter affordability calculations. Worryingly the survey found that 9% of respondents did not know how the revised affordability calculations would affect how much they could borrow and 6% were completely unaware of the new guidelines.

The survey also found that landlords are continuing to move toward incorporation, with 32% of respondents owning at least one property in a limited company, up 2% on May 2016. Those holding property in companies tend to own four or more properties.

When asked whether future purchases would be made personally or using a limited company, 54% opted for the just incorporated route and 16% said they would use both.

These figures reflect the Limited Company Buy to Let Index, which in Q3 2016 showed that 63% of all new buy-to-let mortgage applications for purchases were made by landlords using corporate vehicles.

Five-year fixed rate mortgages are the most popular product type with 34% of respondents expressing a preference for this category of loan.

The majority of respondents (53%) have loans of between 50% and 74% LTV (loan-to-value) against their portfolios, with a further 25% having borrowing of between 25% and 49% LTV and 9% with borrowing of up to 24% LTV.

Despite a tougher operating environment, the proportion of landlords seeking to expand their portfolios rose to 45%, up from 41% in May 2016. This suggests that most are willing to absorb the increased costs, adapt strategies and remain in the property investment market, which still provides better returns than most alternative asset classes.

The average survey respondent owns between four and 10 investment properties, with 49% of respondents falling into this category. Additionally, 20% own two or three properties, 12% between 11 and 20, 10% a single property and 9%, 21 or more.

Full results and analysis of the Property Investor Survey November 2016.

https://awaccounting.co.uk/services/property-incom

https://awaccounting.co.uk/services/vat

HMRC has published a brief setting out the policy on the deduction of VAT relating to assets used by a business prior to its VAT registration, saying this has not always been treated consistently. 

The brief clarifies when, and to what extent, VAT is deductible and what to do if the correct treatment has not been applied.

A business registering for VAT can recover tax they have incurred on goods and services before their effective date of registration (EDR) as long as they are used by the taxable person to make taxable supplies once registered.

Services must have been received less than six months before the EDR for VAT to be deductible, while goods have a four year time limit for deduction that is consistent with the general ‘capping’ provisions.

HMRC says the word ‘consumed’ has been interpreted inconsistently over time, particularly in relation to business assets. It states that VAT on services received within six months of EDR and used in the business at EDR is recoverable in full. VAT on stock is deductible to the extent that the goods are still on hand at EDR (for example apportionment may be required).

VAT on fixed assets purchased within four years of EDR is recoverable in full, providing the assets are still in use by the business at EDR.

Full recovery only applies if the business is fully-taxable. If it is partly-exempt, has non-business activities, or need to restrict VAT deduction for any other reason, the business will need to take that into account when calculating the deductible VAT.

HMRC says it will accept corrections for overpayment of VAT in the following circumstances. These are if the business has reduced the VAT it deducted on fixed assets, to account for pre-EDR use; circumstances where HMRC has raised an assessment of tax to account for pre-EDR use of fixed assets; and cases where HMRC has reduced a repayment claim to account for pre-EDR use of fixed assets.

HMRC says it will consider claims for repayment of penalties and interest charged as a result of assessments.

The time limits for error corrections are four years from the due date of the relevant VAT return where VAT deduction has been restricted in error by the business, or HMRC has incorrectly reduced a repayment, and four years from the date the assessment was paid where HMRC have raised an assessment that incorrectly restricts VAT deduction.

Corrections of errors, other than assessments, should be dealt with as per the guidance in section 6 of VAT notice 700/45. Claims relating to VAT paid on assessments raised in error should be made on an error correction notice (form VAT652).

HMRC is to amend guidance in the VAT input tax manual and Section 10 of VAT notice 700 to ensure the policy position is clear

Bromley Accountants

As part of Making Tax Digital, HMRC has set out the priorities for its plans to make near real time adjustments to taxpayers’ tax codes so they pay the right amount of tax within the current tax year

HMRC plans to introduce these changes in time for the 2017-18 tax year. The PAYE system is not changing as such, but a number of changes will be introduced to ensure that real time reporting of PAYE codes is available. This requires a change in current HMRC practice to include:

• HMRC says it will use the information it holds, and supplied by employers and pension providers through real time information (RTI), in a ‘more proactive way’ to ensure more customers end the tax year having paid the right amount of tax
• The new approach to coding will aim to keep the customer’s tax completely up to date in-year so that more taxpayers pay the right amount of tax and do not end the year with an underpayment or overpayment.

The first phase of HMRC using real time data will enable HMRC to change a customer’s tax code to adjust, correct or collect any estimated in-year underpayment that arises as a result of a change to the their tax code. This means more customers will end the tax year balanced.

PAYE customers using their personal tax account will be able to claim an in-year repayment and arrange for it to be paid into their bank account.

However, HMRC does not plan to notify employers of code changes any more frequently than on a monthly basis.

The only change for employers and pension providers will be the volume of coding notices is likely to increase because HMRC will have to change codes more often. It is hoped that the new system will mean that more taxpayers will pay the right amount of tax each year, without having to face year end bills or in some instances, refunds.

Cherie Blair of Omnia Strategy LLP, represented claimants and landlords Steve Bolton, chairman of Platinum Property Partners, and Chris Cooper, on behalf of the ‘Axe the Tenant Tax’ group.

The group, which is a crowd-funded coalition of individuals and organisations who represent more than 150,000 landlords, believes that the changes in Section 24 of the Finance (No.2) Act 2015, otherwise known as ‘tenant tax’ will stop buy-to-let finance costs (largely mortgage interest) being a claimable business expense.

Landlords will have to pay extra tax of 20% or more of their mortgage interest payments and the tax they pay might be greater than their profit, leaving them with a rental loss and a cash shortfall. This will only affect individuals who own rental properties in their own names, meaning companies owning buy-to-let property will be excluded.

Cherie Blair said: ‘The Court’s decision that our clients’ legal challenge should not proceed is very disappointing. Steve and Chris, and many others, have dedicated a lot of time and energy into putting forward the best case possible. We know the case has been supported and followed with interest by a large number of individual landlords.  Many of these landlords now face challenging times ahead.

‘From the outset, the legal process was just one aspect of our clients’ fight against this unfair measure. Together with their impressive and growing coalition, they will continue to engage with the Government, and the legal team wishes them every success.’

Omnia strategy LLP argued that the tenant tax is unlawful due to the restriction on the landlords’ ability to deduct finance costs as a business expense which can result in an unlawful grant of state aid to corporate landlords.

Mr Bolton and Mr Cooper said: ‘We are outraged by the Court’s decision today. It has completely missed the opportunity to protect tenants, landlords and the housing market from the disastrous consequences of Section 24.

‘Sadly it will be tenants who are hit hardest; they are set to see unprecedented rent increases over the coming months and years, which will be a very clear and direct consequence of this ludicrous legislation.

‘Now that the legal route has run its course, we will be focussing 100% of our attention and resources on taking our case more forcefully, more powerfully and more directly, right to the heart of government. Our goal is simple: to abolish this tax or to remove the retrospective nature of it. ‘

Axe the Tenant Tax has launched its third crowd-funding campaign to raise money for media, PR and lobbying campaign in an attempt to push pressure on MPs and government

The latest figures from HMRC show that 16% of taxpayers have signed up for the new accounts since they were launched last December.

Although it is understood that personal tax accounts will not be compulsory, they are a major plank of HMRC’s five-year plan to create ‘a tax authority fit for the 21st century’. Part of this overhaul will see the introduction of Making Tax Digital for business, which will require mandatory quarterly reporting for all businesses, a plan which has been criticised for being rushed and unnecessary.  

By late 2018, buy-to-let landlords, the self-employed and most businesses will have to start providing quarterly reporting to HMRC, although details about the level of financial information required has not been finalised.

Reporting corporation tax obligations will not come online until 2020. 

From an individual taxpayer perspective, in the longer term HMRC expects that personal tax accounts will replace the requirement for annual self assessment returns, currently completed by over 10m taxpayers for the 2014/15 tax year.

Personal tax accounts were launched in December 2015 and give taxpayers an online record of their tax information and a number of integrated services, including:

• estimates of income tax and details of tax code;
• file a self assessment tax return;
• check company car status and update details;
• claim a tax refund directly into a bank account and receiving it within three to five working days instead of waiting for a cheque or payable order;
• check and manage tax credits to reflect changing circumstances throughout the year;
• check state pension;
• check or update marriage allowance; and
• check or update benefits you get from work, such as company car details and medical insurance.

To set up an HMRC personal tax account, taxpayers will need a Government Gateway account and a National Insurance number, or via the gov.uk Verify system.

The research focused on micro employers that had received a PAYE late filing penalty from HMRC and those who had made an amendment after the tax year.

HMRC’s latest 46-page research report makes suggestions at what causes error in reporting PAYE in real time for the smallest busineses as well as how the tax authority can improve its services to avoid these errors being made.

The report states: ‘Lack of understanding of how PAYE should be managed, particularly what should be done and by when, creates errors in RTI reporting, resulting in receiving penalties.

There are mixed levels of understanding about how things should be done and little knowledge of where to get information when non-routine issues, such as maternity leave, arise.

The HMRC support materials are described as ‘difficult to navigate and understand’, so people choose to learn as they go which is where errors arise.

But the report also blames micros and agents, stating: ‘Micro employers’ and agents’ misunderstanding of RTI reporting is exacerbated by their own behaviours (lack of checks and low prioritisation), which also contribute to error in RTI submissions.

The research shows that HMRC has to focus on better and clearer support rather than providing more of it. This includes having more available resources, such as a guide that takes micro employers through the entire process, highlighting key requirements and providing a summary of important dates.

Penalties should also be clearer and more consistent with explanations about why the penalty has been received and how to prevent it from occurring again.

HMRC has published the latest advisory fuel rates (AFR) for company car users, effective from 1 September 2016 reflecting the upward trend in forecourt fuel prices

These rates apply from 1 September 2016 and have been increased on the previous quarter rates. The previous rates can be used for up to one month from the date the new rates apply.

The rates only apply in the following circumstances:

• reimburse employees for business travel in their company cars; or
• require employees to repay the cost of fuel used for private travel.

These rates cannot be used in any other circumstances. If the rates are used, it is not necessary to apply for a dispensation to cover the payments made.

When employees are reimbursed for business travel in their company cars, HMRC will accept there is no taxable profit and no Class 1A national Insurance to pay.

Advisory fuel rates from 1 September 2016

Petrol/LPG

Diesel

Hybrid cars are treated as either petrol or diesel cars for this purpose.

HMRC review rates quarterly on 1 March, 1 June, 1 September and 1 December.