Since April 2016, the amount of tax-free income you can earn from letting a room in your home has increased to £7,500 per annum, or £3,750 if two persons own a property jointly.

You can use the scheme if:

• you let a furnished room to a lodger
• your letting activity amounts to a trade, for example, if you run a guest house or bed and breakfast business, or provide services, such as meals and cleaning

You can’t use the Rent-a-Room Scheme if:

• not part of your main home when you let it
• not furnished
• used as an office or for any business – you can use the scheme if your lodger works in your home in the evening or at weekends or is a student who is provided with study facilities
• in your UK home and is let while you live abroad

If your gross receipts from letting aren’t more than the Rent-a-Room limit of £7,500 (or £3,750 if jointly owned), you don’t pay tax on your profit. If they’re more than the limit, you may still be able to benefit under the Rent-a-Room Scheme.

Gross receipts include:

• rental income (before expenses)
• any amounts you receive for meals, goods and services, such as cleaning or laundry
• any balancing charges

If your gross receipts are less than £7,500 (or £3,750), you are automatically exempt from tax on that income.

If you’ve made a loss, however, it may be better for you to pay tax in the normal way – that is, on your receipts less expenses.

If your gross receipts are more than £7,500 (or £3,750), you can choose how you want to work out your tax. It can be the actual profit made (rents less expenses) or the gross rents received less the £7,500 (£3,750) allowance; whichever produces the better result.

You would be hard pushed to find a tax payer who was happy to pay tax. Whatever the economic benefits of taxation, we would all prefer that someone other than ourselves paid the bill.

Companies are obliged to disclose their corporation tax liabilities in the year in which they are charged. Profits are stated net of tax due and any retained profits are available for the shareholders to draw as dividends.

Sole traders and partnerships do not have to disclose current year’s taxation in current year’s accounts. Therefore, conversations about profitability and income tax can be separated.

Hopefully, readers who are self-employed will have settled any income tax due 31 January 2018. If not, HMRC’s debt collectors will no doubt be calling in their dues. There is also the second payment on account for 2017-18 which is due 31 July 2018.

If you have difficulty paying your tax? What is the best strategy?

Without a doubt, it is not burying your head in the sand. HMRC are quite clear in their advice:

Contact HMRC as soon as possible. You will have to pay interest if you pay tax late and you may avoid penalties by contacting HMRC.

If you can’t pay before the deadline, call the Business Payment Support Service. Anyone can use this service, not just businesses.

Business Payment Support Service
Telephone: 0300 200 3835
Monday to Friday, 8am to 8pm
Saturday and Sunday, 8am to 4pm
 

Nominated partners in business partnerships can negotiate time to pay with HMRC on behalf of the partnership or individual partners.

So, if you’ve missed your payment date, or if you’ve received a payment demand, like a tax bill or a letter threatening you with legal action, call the HMRC office that sent you the letter.

Call the Business Payment Support Service if you haven’t received a bill or letter about payment yet.

You will need to convince the person you speak with at HMRC that you have genuine reasons for late payment, so it pays to get your ducks in a row before you call.

The government is looking at ways to incentivised users of vans to go green. According to the statistics, less than one in every two hundred vans (0.4%) bought in 2016/17 was an ultra-low emission model.

To tackle this issue, the government is seeking views on reforms to vehicle excise duty, currently charged at a flat rate of £250 for all vans, to make it more affordable to buy greener models.

In a related matter, the reduced duty rate for red diesel – believed to be holding back the use of cleaner fuels by non-road vehicles and machinery in towns and cities (for example cranes or generators used on construction sites) – is also under the reform microscope.

Red diesel, which accounts for 15% of all diesel consumption in the UK, currently benefits from a reduced rate of 11.14p per litre compared to the standard charge of 57.95p.

A government spokesman is quoted as saying:

“We want to help ‘white van man’ go green. We appreciate that buying a new van is a major investment for small businessmen and women and want to help make environmentally friendly choices more affordable.”

It will explore creating a graduated first year rate for vans, as is already in place for cars. Most van purchases would pay less tax in the first year as a result of the change.

These proposed changes are part of wider proposals to improve air quality in our towns and cities.

For example, red diesel contributes to air pollution by producing nitrogen dioxide, a toxic gas that inflames the lining of the lungs. It is particularly harmful for the most vulnerable in our society, such as children with asthma living in urban areas where it is used by non-road vehicles and machinery.

The reduced rate of duty for red diesel costs around £2.4 billion a year in revenue compared to if duty was charged at the main rate. Red diesel for agricultural use, fishing vessels, home-heating and other static generators, will be out of scope.

HMRC is launching a new consultation to make sure that people who effectively work as employees pay the right amount of tax.

As announced at the Autumn Budget, the consultation will look at how to increase compliance with the existing ‘off-payroll’ working rules. These rules mean that contractors such as IT and management consultants who work through their own company, but are in practice employed by a third party, pay the right tax as employees.

Evidence suggests that the tax will be lost of up to £1.2bn a year by 2023 as a result of people getting the rules wrong, and incorrectly paying tax as if they were self-employed. The consultation will look at how to make these rules work better. The genuinely self-employed will not be affected.

Last April, the government reformed off-payroll working in the public sector, successfully increasing compliance. The change has meant £410 million in additional revenue. This new consultation includes the option of extending those reforms to the private sector, although no decisions have been made. It draws upon the lessons from the public sector change, by consulting on how the rules can be improved for the private sector and includes alternative options for addressing non-compliance.

Existing off-payroll working rules (IR35) were introduced in 2000 and are intended to stop individuals avoiding employment taxes by working through their own company. IR35 affects contractors including IT consultants, management consultants, and project managers.

HMRC estimates that in 90% of cases within the private sector, the IR35 rules are not applied correctly and we should probably expect that this consultation will result in tightening of the IR35 regulations.

Genuinely self-employed persons will not be affected.

Readers may remember that in April 2017, the government reformed the off-payroll working rules for engagements in the public sector. Public authorities are now responsible for determining whether the rules apply and deducting and paying the appropriate taxes.

Apparently, external research on initial implementation shows that the reform has had relatively little impact on projects or vacancy filling in the public sector.

The consultation will close on 10th August 2018 and we will add further commentary on this topic as and if changes are subsequently made.

There is something uniquely satisfying about a tax refund. Of course, you must first overpay tax before it can be refunded, but there is a universal joy in receiving a cheque or direct payment to your bank account from HMRC.

Occasionally, HMRC will volunteer the information, they may even send you a formal assessment and advise you that a refund can be claimed. A more likely prompt will come from your accountant as we have an eye for these things…

A selection of situations that may lead to an overpayment are published on HMRC’s website, and we have to say, the list is not complete. They include the following.

You may have overpaid tax if you:

• are employed and had too much tax taken from your pay, perhaps due to inaccurate coding of your tax allowances, benefits or expense claims;
• have stopped work;
• have submitted a tax return that discloses that too much tax has been paid;
• have paid too much tax on pension payments you have received;
• or if you have bought a life annuity.

You may also be able to reclaim tax if you have:

• used your own money for your job, for example, if you have paid for car fuel costs, work clothing or other expense that you have incurred specifically for your work;
• paid tax on savings interest if you’re on a low income
• if you live in one country and have income in another – how you do this depends on whether you’re a UK resident with foreign income or a non-resident with UK income.

You may also have been entitled to claim an allowance, say the Marriage Allowance, and were slow to make the claim – in our experience HMRC will advise you that such allowances exist, but not that you could make a claim.

More of HMRC’s systems are being computerised, and surprise, surprise, accidents do happen. Without the watchful human touch, it is down to taxpayers or their advisors to spot the faux pars.

If you have that itch, that maybe you have paid too much tax, we would be delighted to cast an eye over your numbers and fire off a few pointed questions to narrow down the possibility that maybe you too have paid too much tax.