Our newsletter this month has a holiday theme and includes: tax and holiday lets, holiday entitlements, tax-free benefits and employing students during the summer period.
Do you own a holiday let property?
There are a number of tax incentives that you can take advantage of if you own and let a Furnished Holiday Lets property (FHL). They include:
you can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders),
you are entitled to claim capital allowance deductions for items such as furniture, equipment and fixtures, and
any profits earned from holiday lets count as earnings for pension purposes.
You will need to account for your holiday lets properties separately from any other rental properties and you will need to comply with the various FHL rules. They include:
The property must be in the UK or in the European Economic Area (EEA) - the EEA includes Iceland, Liechtenstein and Norway;
The property must be furnished. This means that there must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture provided.
The property must be commercially let (you must intend to make a profit). If you let the property out of season to cover costs, but did not make a profit, the letting will still be treated as commercial.
All your FHLs in the UK are taxed as a single UK FHL business and all FHLs in other EEA states are taxed as a single EEA FHL business. You’ll need to keep separate records for each FHL business because the losses from one FHL business cannot be used against profits of the other.
There are also strict rules on occupancy. To secure the FHL tax benefits you will need to let your FHL for a certain, minimum number of days each year. The occupancy rules, set on a tax year basis, are:
Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year.
You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year.
Do not count any days when you let the property to friends or relatives at zero or reduced rates as this is not a commercial let.
Do not count longer-term lets of more than 31 days, unless the 31 days is exceeded because something unforeseen happens. For example, if the holidaymaker either: falls ill or has an accident and cannot leave on time or has to extend their holiday due to a delayed flight.
If you do not let your property for at least 105 days, you have two options (known as elections) that can help you reach the occupancy threshold.
As you can see, there are a few hoops to climb through to achieve FHL status, but the tax rewards for doing so are significant.
As we are approaching the annual holiday season it would seem to be a suitable time to set out employees’ rights to receive holiday pay.
Almost all workers are legally entitled to 5.6 weeks’ paid holiday per year (known as statutory leave entitlement or annual leave). An employer can include bank holidays as part of statutory annual leave.
Most workers who work a 5-day week must receive at least 28 days paid annual leave per year. This is the equivalent of 5.6 weeks of holiday.
Part-time workers are entitled to less paid holiday than full-time workers. They are entitled to at least 5.6 weeks of paid holiday but this amounts to fewer than 28 days because they work fewer hours per week.
Statutory paid holiday entitlement is limited to 28 days, and so staff working 6 days a week are still only entitled to 28 days’ paid holiday. Bank holidays or public holidays do not have to be given as paid leave. An employer can choose to include bank holidays as part of a worker’s statutory annual leave. An employer can also choose to offer more leave than the legal minimum. They don’t have to apply all the rules that apply to statutory leave to the extra leave. For example, a worker might need to be employed for a certain amount of time before they become entitled to the additional entitlement.
Paid annual leave is a legal right that an employer must provide. If a worker thinks their right to leave and pay are not being met there are a number of ways to resolve the dispute.
Tax free perk before annual leave
It is possible to make small tax-free payments to employees, including directors, and this might be an appropriate time to make a small tax-free bonus in advance of the annual holidays.
Employers and employees don’t have to pay tax on such a benefit if all of the following apply:
it cost you £50 or less to provide,
it isn’t cash or a cash voucher,
it isn’t a reward for their work or performance,
it isn’t in the terms of their contract.
HMRC describes these payments as a ‘trivial benefit’.
You can’t receive trivial benefits worth more than £300 in a tax year if you are the director of a ‘close’ company. A close company is a limited company that’s run by 5 or fewer shareholders.
The only exception to the above is if the trivial benefits are made available as part of a formal salary sacrifice arrangement.
Employing students in the summer break
If you employ students to manage your staff needs over the summer break period, you will need to add them to your payroll and apply PAYE and NIC rules.
Students should be advised that they will pay tax and NIC if:
they earn more than £1,042 a month on average, and
pay NIC if they earn more than £166 a week.
Students can also apply for a possible tax refund if they work for part of a tax year.
Students who normally live and study in the UK but work abroad during the holidays will need to pay:
UK tax on anything they earn above their Personal Allowance, currently £12,500, and
National Insurance if they work for a UK employer.
If you work for a foreign employer you don’t need to pay National Insurance in the UK, but you might have to pay contributions in the country you’re working in.
Tax Diary June/July 2019
1 June 2019 - Due date for Corporation Tax due for the year ended 31 August 2018.
19 June 2019 - PAYE and NIC deductions due for month ended 5 June 2019. (If you pay your tax electronically the due date is 22 June 2019)
19 June 2019 - Filing deadline for the CIS300 monthly return for the month ended 5 June 2019.
19 June 2019 - CIS tax deducted for the month ended 5 June 2019 is payable by today.
1 July 2019 - Due date for Corporation Tax due for the year ended 30 September 2018.
6 July 2019 - Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.
19 July 2019 - Pay Class 1A NICs (by the 22 July 2019 if paid electronically).
19 July 2019 - PAYE and NIC deductions due for month ended 5 July 2019. (If you pay your tax electronically the due date is 22 July 2019)
19 July 2019 - Filing deadline for the CIS300 monthly return for the month ended 5 July 2019.
19 July 2019 - CIS tax deducted for the month ended 5 July 2019 is payable by today.