• Small Business Rate Relief to be extended for a further six months from 1
  October 2011.
• Public transport in London and regulated rail fares will benefit from a
  reduction in fare increases next year. From 1 January 2012 fares will increase
  by 6.2% not the expected 8.2%.
• The expected increase of 3.02p per litre in the cost of fuel due 1 January
  2012 is deferred to 1 August 2012. The further rise due in August is scrapped.
• Bank Levy to be increased.
• A new relief announced that will extend the Enterprise Investment Scheme to
  small, new business start-ups. To be called the Seed Enterprise Investment
  Scheme. 50% tax relief for individuals investing and the offer of a capital
  gains tax holiday.
• Capital gains tax annual exemption frozen for 2012-13 at £10,600.
• New 100% Capital Allowance for firms trading in six assisted areas: the
  Black Country, Humber, Liverpool, North East, Sheffield and Tees Valley.
• State Pension increases confirmed from April 2012:  the full basic pension
  will rise by £5.30 to £107.45 per week; the full couple rate where entitlement
  is based on their spouse’s or civil partner’s pension will rise by £8.50 to
  £171.85 per week.
• State Pension age to rise to age 67 in 2026.
• From the end of the current pay freeze, average public sector pay increases
  will be limited to 1% for a further two years.

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Property owned and let by married couples or civil partners (who are
living together)

1. HMRC will divide rental profits equally between spouses (civil partners),
   50:50.
2. This division of rental income may not reflect the underlying ownership. For
   example property may be owned 10% by one spouse and 90% by the other.
3. If spouses/partners want the rental income split between them in accordance
   with the beneficial ownership they must make a formal election to HMRC. Once
   made the election cannot be revoked or changed, unless the underlying beneficial
   interest changes.
4. Interestingly, the above rules do not apply to property held in a business
   partnership or to property that is let as a furnished holiday let.

Property owned jointly by persons not married or in a civil
partnership.

In this case the rental income will always be allocated between the joint
owners in proportion to the underlying beneficial ownership.

Married couples and civil partners usually have a choice therefore, to split
the rental income equally if this produces a lower joint tax liability or, split
the rental income in the same proportion as their ownership of the
property.

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Generally speaking if the funds raised from refinancing are reinvested in the
property business, for example to purchase new property or refurbish existing
property, then any loan interest payable is allowed in full.

Funds withdrawn by property business owners (individuals and
partnerships)

If funds are raised to enable the owners to withdraw money from the property
business the following considerations need to be taken into account.

1. HMRC will seek to disallow interest on any loan in excess of the original
   cost of the property, or, the valuation of the property when first taken into
   business use. For example you may own a property that has been your own home for
   a number of years that you purchased for £100,000. You decide to move abroad and
   keep the property but let it out; the current value is £200,000. It would be
   possible to raise a buy to let loan for up to £200,000 (if the banks were
   willing!)  and claim interest on the loan against your rental income.
2. A claim can only be made for the interest on the loan not the capital
   element repaid.
3. There are many pitfalls that can result in a loss of tax relief so it is
   important to obtain advice before refinancing.

Loans taken out by a property business run by a limited
company

Where a property is owned by a limited company any additional cash raised by
increasing loans secured on the company’s business property belongs to the
company. If directors wanted to withdraw the funds for personal purposes they
would need to observe the usual rules:

1. Vote a dividend
2. Take extra salary or bonuses
3. Reduce the amount of any loans they have made to the company.

What seems on the surface a simple issue, ‘Can I borrow against business
property and get full tax relief on the interest charged’, is far from a simple
issue. Please get in touch prior to taking out such a loan to clarify the tax
position, especially if you are relying on a tax deduction to make commercial
sense of the loan.

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1. The event must be open to all employees at a particular location.
2. The cost is only tax deductible for employees and their guests (which would
   include directors in the case of a company) but not sole traders and business
   partners in the case of unincorporated organisations.
3. An annual Christmas party or other annual events offered to staff generally
   is not taxable on those attending provided that the average cost per head of the
   functions does not exceed £150 p.a. The guests of staff attending are included
   in the head count when computing the cost per head attending.
4. All costs must be taken into account, including the costs of transport to
   and from the event or accommodation provided, and VAT. The total cost of the
   event is merely divided by the number attending to find the average cost. If the
   limit is exceeded then individual members of staff will be taxable on their
   average cost, plus the cost for any guests they were permitted to bring. No
   deduction will be allowed for the £150 exemption.
5. VAT input tax can be recovered on staff entertaining expenditure. If the
   guests of staff are also invited to the event the input tax has to be
   apportioned, as the VAT applicable to non-staff is not recoverable. However, if
   non-staff attendees pay a reasonable contribution to the event, all the VAT can
   be reclaimed and of course output tax should be accounted for on the amount of
   the contribution.

If these limits are breached employers can pick up the tax cost by using a
PAYE settlement agreement.

A final note on ‘Trivial’ gifts for employees.

Employers may find the following Revenue concession useful – we have copied
the note directly from the HMRC handbook:

“An employer may provide employees with a seasonal gift, such as a turkey, an
ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts
are considered to be trivial and as such are not taxable. For an employer with a
large number of employees the total cost of providing a gift to each employee
may be considerable, but where the gift to each employee is a trivial benefit,
this principle applies regardless of the total cost to the employer and the
number of employees concerned.”

One final cautionary note regarding VAT and staff gifts, VAT is chargeable by
the employer when an employee receives gifts totalling more than £50 in a year.
Turkeys however, are zero rated for VAT purposes!

Merry Christmas!

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Web: www.eden-accounting.co.uk

Eden Accounting is a limited company, registered in England
& Wales with number 04918343. A Director of the firm is a member of the
Association of Chartered Certified Accountants (ACCA). This body has its
headquarters in the UK and its rules of professional conduct can be obtained
from its web site.