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 £1,048 a month on average, and
  • pay NIC if they earn more than £190 a week from 6 April 2022 to 5 July 2022 and more than £242 from 6 July 2022 to 5 April 2023.

 

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 £12,570, and
  • National Insurance if they work for a UK employer.

If students work for a foreign employer, they do not need to pay National Insurance in the UK, but may have to pay contributions in the country they are working in.

Holiday lets – occupancy and benefits

There are a number of tax incentives if you own and let a furnished holiday lets property (FHL). They include:

 

  • Claiming Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Business Asset Disposal Relief, relief for gifts of business assets and relief for loans to traders),
  • Entitlement to claim capital allowance deductions for items such as furniture, equipment and fixtures, and
  • 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 will 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.

Sunak steps up

Long-awaited government support to help consumers meet the unprecedented increases in energy costs was announced by the Chancellor this week.

 

His measures have been widely appreciated, but will he need to return with more largesse to meet even more prices increases in oil, gas and electricity prices in the autumn?

What has he offered consumers?

A brief summary of the measures announced are:

  • A doubling of the previously announced Energy Bills Support Scheme to £400. Energy suppliers will deliver this support over a six-month period starting October 2022. Recognising consumer concerns, this support will no longer be recovered (treated as a loan) but will be provided as a non-repayable grant.
  • A £650 one-off cost of living payment for those on means tested benefits. This will be paid by the DWP in two instalments, the first in July 2022 the second in the autumn.
  • A one-off £300 additional payment to pensioners paid on top of their Winter Fuel Payment.
  • A one-off £150 Disability Cost of Living Payment.
  • Additional £500m of funding to the Household Support Fund. This funding will be made available to Local Authorities to target support to those in need to meet rising food, energy and water bills.

 

How will this be paid for?

The overall cost of the above support initiatives is estimated to be £15bn. £5bn of this will be raised by a short-term Energy Profits Levy of 25% on the oil and gas industry. The electricity generation sector will also be asked to contribute but their position will not be disclosed until later this year.

 

No mention was made by the Chancellor of how the other £10bn will be funded.

 

Tax-free

The notes released by government make it clear that the grants offered in this package will not be taxed. Additionally, the means-tested cost of living payment of £650 will not count towards the benefit cap and will not have any impact on existing benefit awards.

 

Too little, too late?

For many working families already stretched by rising prices, there is little in the Chancellor’s announcements that will ease their current cash flow problems as the majority of the assistance announced will commence in the autumn.

It remains uncertain if the Chancellor will need to return to Parliament in short measure to extend his assistance to this wider community.

Heat Pump Scheme

Many households are considering their options to reduce their energy costs in light of the recent price hikes in the cost of electricity and gas.

 

Aside from breaking into long sealed chimney breasts and burning the furniture, realistic options have been extended in recent weeks by the introduction of a government grant of £5,000 to replace fossil fuel boilers with efficient, low-carbon heat pumps.

Grants available in England and Wales

Homeowners across England and Wales can now benefit from the grants to fit clean heating systems when they come to replace their oil and gas boilers. This includes clean heating systems installed from 1 April this year.

Heat pumps are now much cheaper and more competitively priced against gas and oil boilers than ever before and thanks to these grants, it will be significantly cheaper for consumers to install a heat pump whilst improving the energy efficiency of their homes, reducing their energy bills and cutting emissions in the long-term.

Spin-off for British manufacturers

The scheme will also help kick-start the British heat pump manufacturing industry, helping government and industry to achieve the aim of bringing down the cost of the technology to ensure they are no more expensive to buy and run for consumers than fossil fuel boilers by 2030 when more households will be looking to make the switch.

With the market for electric heat pumps set to rapidly expand in Europe over the coming years, there is also a huge export opportunity for British firms in research and development, production, supply chain and installation over the next decade, creating well-paid jobs across the country.

How the scheme works

Scheme funding will be available through a simple application procedure that installers carry out on behalf of property owners, with the up-front funding taken off their quote.

The grants are in addition to the 5-year long 0% rate of VAT on the installation of heat pumps and biomass boilers, announced as part of a package of measures to help ease the cost of living.

The scheme has a committed budget of £450 million over 3 years from 2022-2025, with an annual budget allocation of £150 million and property owners will be able to get:

  • £5,000 off the cost and installation of an air source heat pump
  • £5,000 off the cost and installation of a biomass boiler
  • £6,000 off the cost and installation of a ground source heat pump

As well as not having to use expensive fossil fuels, heat pumps are also more efficient to run, able to deliver more than three units of heat for every unit of energy input, while traditional gas and oil boilers deliver less that one unit of heat per unit of energy.

Commercial risk

Setting up and running your own business is a risky undertaking. What happens if sales reduce or disappear, and you are left with unpaid costs or loans and no cashflow?

 

The experience of recent COVID lockdown challenges – aside from the risk to personal health – has resulted in business closures at an unprecedented rate.

 

So how can businesses manage these risks?

Business structure

Sole traders and partnerships (aside from LLPs – see note below) have no limitation of liability. If creditors (including banks) cannot recover unpaid debts from net business assets, then they can pursue claims against the personal assets of the sole trader or individual partners. This can include a family home.

 

One way to avoid this risk is to set-up or convert the business structure. There are two ways to do this.

 

Limited Liability Partnerships (LLPs)

It is possible to retain a self-employed status by converting a sole-trader or ordinary business partnership into an LLP structure. This would protect active partners from any claim against their personal assets in the event that the business became insolvent.

 

Limited company (Ltd)

The other option is to fully incorporate a self-employed business by transferring the business to a Ltd structure.

 

Unless directors offer creditors, a personal guarantee or can be proved to be acting fraudulently, the company’s creditors would only have access to business not personal assets.

 

Insurance

Self-employed and incorporated business can also insure against certain risks. They are risks associated with theft, damage to assets or claims against the business for losses experienced by third-parties.

Care should be taken if a self-employed person or partnership (not an LLP) relies on insurance to cover these risks.

Underwriters of insurance companies have a history of challenging claims based on the exclusions set out in policy small print.

 

Planning is your best option

Please contact us if you feel exposed to commercial risks and want to consider your options.

Landlords switch to holiday lets

Cornwall, and we expect many holiday locations, are seeing an increase in landlords switching from domestic letting to holiday lets. Aside from the increased rents they can obtain, should they be successful in making this transition, there are tax as well as commercial advantages.

 

It all comes down to occupancy.

What are the tax advantages?

There are a number of tax incentives if you own and let a furnished holiday lets property (FHL). They include:

 

  • Claiming Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Business Asset Disposal Relief, relief for gifts of business assets and relief for loans to traders),
  • Entitlement to claim capital allowance deductions for items such as furniture, equipment and fixtures, and
  • Profits earned from holiday lets count as earnings for pension purposes.

 

HMRC consider FHL activity as a business. However, to qualify as an FHL landlords need to meet certain occupancy and other rules.

 

What are these rules?

There are a number of tax incentives if you own and let a furnished holiday lets property (FHL). They include:

 

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 will need to keep separate records for each FHL business because the losses from one FHL business cannot be used against profits of the other.

As well as these restrictions, FHL property will need to meet strict occupancy rules.

 

Occupancy

To secure the FHL tax benefits landlords will need to let FHL properties 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.

 

Days when the property is let to friends or relatives of the landlord at zero or reduced rates do not count towards these occupancy rules as this would not be considered a commercial let.

 

Longer-term lets of more than 31 days are likewise excluded 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, there are two options (known as elections) that can help you reach the occupancy threshold if certain criteria apply.

 

Increased admin

FHL landlords will need to maintain fairly detailed booking records to provide evidence that they are meeting the various occupancy rules. There will also be additional housekeeping costs and chores to deal with the increased throughput of tenants.

 

However, aside from the tax advantages and these chores, the potential FHL rental income should be higher than from longer term domestic lettings.

 

Need more advice or information

If you need more advice or details on how to switch to FHL status, pick up the phone, we would be delighted to help.

Flexible planning

If we lived in a world where the factors that affected trade and other commercial activity were unchanging, then plans drawn up for extended periods, say a year, would be a reliable benchmark to measure actual results against in the same period.

Unfortunately, change is a common occurrence these days. Plans drawn up will become unreliable if, as recent experience with the impact of COVID has proved, significant changes in the background economy occur.

 

UK businesses are spinning multiple plates at present. Inflation – rising to 10% or more – Brexit issues, supply chain problems, a world shortage of computer chips, the rising cost of utilities – gas, oil and electricity – and there is always the threat from a possible, new COVID variant.

 

Flexing your budgets

Without a doubt, preparing a business plan shortly before the beginning of a new trading year makes sense. But as the factors or assumptions that underpin the plan are seen to be changing, then it makes sense to flex your budget to take these changes into account.

The primary advantage of this approach is to see how the impact of inflation, supply chain issues and other factors affect profitability cash flow and solvency for the reminder of the period under review.

 

Advantages of being informed

Your flexible business budget will enable you to make decisions based on your best estimation of the road ahead.

Resist the temptation to make do, to assume that your rising costs and inflation damaged sales can be somehow, magically overcome. That all will be OK on the day…

Whilst it may not be possible to discover what you need to do by uncovering your business crystal-ball, by spending time each month to reflect on the major changes affecting your business and following through these changes to your business plans, will inevitably place you on solid ground and best prepared for challenges ahead.

 

We can help

We can help you create and flex your annual budgets, produce reports that compare these budgets to actual results, and help you decide on the most effective changes to minimise any downside effects on your profits, cash flow and solvency.

New Bill protects consumers access to cash

The new Financial Services and Markets Bill, announced during the recent Queen’s Speech at the state opening of parliament, will support consumers by protecting access to cash. It will ensure the continued availability of withdrawal and deposit facilities across the UK, and that the country’s cash infrastructure is sustainable for the long term.

The Bill will also enable the Payment Systems Regulator to require banks to reimburse authorised push payment (APP) scam losses, totalling hundreds of millions of pounds each year. This will ensure victims are not left paying for fraud through no fault of their own.

This protection from fraudsters is welcomed and for those readers who have not encountered APPs, they are payments taken from your bank account when fraudsters deceive individuals to send a payment under false pretences to a bank account controlled by the fraudster.

The wider elements of the Bill will cover:

  • Revoking retained EU law on financial services and replacing it with an approach to regulation that is designed for the UK. This includes the Solvency II legislation governing the regulation of insurers, which the government has committed to reform.

 

  • Updating the objectives of the financial services regulators to ensure a greater focus on growth and international competitiveness.

 

  • Reforming the rules that regulate the UK’s capital markets, the engine of the UK economy, to promote investment.

 

  • Ensuring that people across the UK continue to be able to access their own cash with ease.

 

  • Introducing additional protections for those investing or using financial products, and to make it safer and support the victims of scams.

More details will be available when the Bill is formally introduced.

Saving for a rainy day

The more draconian government interventions introduced to control the COVID outbreak have challenged all of us, businesses and individuals, to consider the notion that we can no longer rely on our jobs or businesses to effortlessly produce the income we need.

Many businesses in the hospitality and entertainment sectors had their ability to trade quashed. Lockdown meant closedown, no income. Government did step up and provide furlough grants, to support staff retention, and various other financial funding to keep businesses afloat.

What did we learn?

That COVID had two impacts, on our health and finances, and that we needed to consider the consequences of future events, even those presently unknown.

One way that we can act is to save for these rainy days. We have experience that this disruption can extend to years rather than months. In which case, what thickness of fat do we need to build on our business bones to survive these, however unlikely, restrictions?

The part planning plays

Planning can take several forms but let us consider a basic business plan. These forecasts of profitability and solvency are fixed for the year ahead and are intended to provide a benchmark to judge future results; fine while the world at large is at peace and no external conditions develop to disrupt your plans.

Which is why, post COVID experiences, as soon as external factors change, we should revisit plans and flex them to accommodate these changing factors. This process will reveal where and when your financial challenges are likely to occur – particularly dips in cash flow, profitability and working capital – and give you time to figure out strategies to minimise any damage.

Following this process, it will then be evident how much we need in our rainy-day account to meet any shortfall.

Make hay while you can

It is beyond the context of this post to dwell on these challenges, but while you are able to resume normal business, this does open up the opportunity to transfer a calculated sum into your savings account each month and gradually build reserves.

Now may be a good time to start this process.

Elastic or inelastic?

Would demand for the products or services you sell vary with price increases or decreases? This conundrum is considered by the term elasticity in economic circles – how demand changes when prices change.

If demand for your products is elastic, any change in price will have a corresponding impact in demand. For example, if you increase prices and consumers/buyers are able to delay buying – in the hope that prices will reduce or that a lower priced substitute can be found – then demand for your products will fall.

Alternatively, if demand for your products is inelastic, any change in price will have less effect on demand. For example, if you increase prices and consumers/buyers are unable to delay buying or find a lower priced substitute – then demand for your products will be maintained.

Inflation

In times when prices are been driven upwards, due to supply disruption, elasticity plays an important role in how your business profits will be affected. This is the situation we are presently facing in 2022.

If you sell items or services that have readily available substitutes or that consumers are happy to delay buying decisions, then increasing your prices to compensate for the increased costs you are having to bear will result in a loss of sales that may exaggerate profit reduction.

But if you sell products with few substitutes and buyers are not prepared to delay purchasing your services then it is more likely that buyers will be prepared to pay your price increases.

Elasticity and inflation

Which means that businesses selling products or services that are inelastic – price increases will not unduly affect demand – have a distinct advantage over businesses that sell products or services where demand is elastic.

Planning to include elasticity

If you presently market goods that are inelastic you may have inadvertently made life much easier for the maintenance of profitability as you should be able to increase prices without significant reductions in sales volumes.

Businesses whose products are elastic, price increases will reduce sales, may need to expand their range to include products with a less reactive change in volume when prices are increased.

Ironically, the sale of inelastic products fuels inflation, price increases. But businesses have a right to adapt in efforts to maintain solvency and profitability. The real culprit of the present rise in inflation is supply-side – a global shortage of computer chips for example – and not businesses seeking to exploit these challenges for their own benefit.